When Should You Use a Range for the ALLL?
Feb 12, 2015
A Sageworks consultant describes the benefit of using an ALLL range. Namely, he mentions that the range demonstrates the thoroughness of the calculation in that it requires the institution to go through some sort of scenario building. At the end of the day, however, he advocates for a single number as opposed to a range for institutions to rely upon as their ending ALLL figure.
In terms of showing a range around your ALLL, it is best to calculate to a specific number. However, the benefit of showing a range in your documentation is that it demonstrates you have done some sort of scenario analysis.
It’s not uncommon for us to see institutions run various scenarios, typically a high/medium/low analysis that utilizes a different set of assumptions and this shows the thoroughness of the calculations and that your business is looking at the situation in multiple ways. That being said, it is still best to calculate to a specific number, but in all likelihood that number will fall somewhere in the middle of your range. Again, it demonstrates a thorough calculation and that you have done additional scenario analysis.