It stands for allowance for loans and lease losses; an allowance (specifically, a valuation allowance) that created against an entity’s total loans held for investment and lease financing receivables. It reflects the amount that is enough to cover estimated credit losses that may arise in an existing loan portfolio. In other words, the allowance is designed to absorb net charge-offs that are likely to be realized in connection with such a portfolio.
This valuation reserve is formed and maintained by charges against an entity’s operating income. It is an estimate of uncollectible amounts that will be used to adjust the book value of loans and leases to correspond to the amount an entity expects to collect. In this sense, this allowance is also referred to as a reserve for bad debts.
