CECL Implementation and Compliance

How to understand and apply CECL in your bank or credit union

The Current Expected Credit Loss (CECL) model has had a far-reaching impact on banks and credit unions. For many, the impact is yet to be seen as delays continue to push the required implementation date back. However, strategic, proactive financial institutions are taking the extra time to develop a game plan to implement CECL correctly in their organization. Those who work out details now will be ahead of the game when it comes to CECL compliance.

What is CECL?
CECL is an accounting standard issued by the Financial Accounting Standards Board (FASB). The CECL standard requires banks and credit unions to include predictive information in calculations surrounding bad debt.

Specifically, there are three elements critical to CECL calculations:

  1. Historical loss rate
  2. Current economic conditions/qualitative factors
  3. Reasonable forecasted economic conditions

What you need to know about CECL.

CECL Implementation
An important part of preparing for CECL implementation is weighing your options and ensuring you have the right solution in place and are ready to implement it. To start the process, your bank will want to:

  1. Form an implementation committee
  2. Review all available CECL options
  3. Select a method for CECL implementation
  4. Gather historical loan origination and loss data
  5. Perform trial runs to ensure the selected solution fits your bank or organization

How to Choose a CECL Solution
When it comes time to make your selection, you’ll want a solution that fits the unique needs of your bank or credit union. A user friendly, customizable CECL Solution with built in features can be a pivotal piece of your bank’s success.

The solution you choose should be customizable as each financial institution’s situation is unique. It should also take into account each element of the CECL calculation. Often, we have seen organizations focus on historical loss calculation only. To truly implement CECL the right way, all aspects of the CECL calculation process must be covered.

Finally, even the most forward-thinking banks will face confusion when implementing CECL. Having a proactive business advisor by your side to help make sense of the new standard will be critical.

How Eide Bailly Can Help You Implement CECL
The Eide Bailly CECL Solution is easy to implement and use while still giving you customizable tools for your unique needs. Utilizing a spreadsheet model that uses multiple methodologies, the Eide Bailly CECL Solution:

  • Is completely customizable to whatever loan pools you have created.
  • Requires minimal data points while still supporting complex loan portfolios with many risk pools.
  • Contains tools to analyze loans individually that may either be considered collateral-dependent under the new definition or is a loan that does not fit into one of the other risk pools.
  • Can calculate loan losses using one of three methods: weighted average remaining maturities (WARM), vintage analysis, or open-ended pool.
  • Has security features to prevent unwanted formula changes.

"The Eide Bailly CECL Solution is the best model for community banks due the ease of use and the high value compared to the competitive price of the model. Other models on the market are very expensive with initial fees of up to $30,000 in addition to annual $10,000 fees for support. In addition, they take too much time to set up and need to be updated monthly."

"With the Eide Bailly CECL Solution, it took me a few hours to pull the data and then about an hour per tab to input the numbers, environmental factors and the supporting explanations. Our bank also benefits by being able to segment our loan portfolio into 15+ categories with the idea that if we do have any losses we can isolate it to the smallest pool possible and not affect the rest of the portfolio rather than being stuck with call report categories that other products offer."

Tom Sankovitz, CFO | First National Bank of Waseca

Turn Your CECL Compliance Needs into a Strategic Decision-Making Opportunity
CECL can be confusing and compliance can be time consuming. Let us help you make sense of your CECL needs for your bank or credit union.