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ASC 450-20 is the primary guidance on accounting for any loss contingency, including the ALLL. Generally, institutions and creditors will analyze smaller loans with similar risk characteristics for impairment as a pool following the guidance of ASC 450-20. ASC 450-20-25-2 requires that an estimated loss from a loss contingency should be accrued by a charge to income if both of the following conditions are met:
  1. Information exists prior to the financial statement date that indicates that it is probable the asset has been impaired by that date.
  2. The amount of the loss can be reasonably estimated.

Generally, creditors following this guidance employ loss experience information to estimate the losses. Typical examples of such loss experience related data include institution or industry historical loss experiences for the asset class or pool of assets, trends in delinquency levels, trends in recovery levels, trends in loan and charge off volume, and levels of credit concentration.
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