Discounted cash flow: Good to use for CECL?
Discounted Cash Flow (DCF) models, while not widely adopted as a means to account for the allowance for loan and lease losses (ALLL) under ASC 450-20 (current GAAP), have been accepted as best practice for adherence to other analogous accounting standard objectives.
Best Practices for Running and Validating a CECL Model
In the past, implementing a change like CECL would be a matter of mapping the right data and “turning on a switch.” This is no longer the case. The CECL timeline and transition process spans over several years and involves numerous functional departments at both banks and credit unions. This joint-webinar between Sageworks and Smarter Risk Management goes over how to build a CECL model and have it successfully validated.
FASB issues draft language on CECL extension
The Financial Accounting Standards Board released the draft of its proposed Accounting Standards Update to clarify the transition for non-public business entities (non PBEs) under the current expected credit loss model, or CECL.
CFO Corner -- “ALLL” about CECL
In this occasional feature, CFOs from financial institutions share their approaches to the ALLL and to the CECL transition, as well as advice for keeping the board informed about related matters. Here, Ronald S. Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer of The Washington Trust Company shares advice from his institution.
The biggest initial impact of CECL on financial institutions
Most financial institutions understand CECL, and more specifically applying the CECL model to their loan portfolio, represents the most significant accounting change for financial institutions in recent memory. However, there is less comfort over how the standard will specifically affect each institution.
Latest
Discounted cash flow: Good to use for CECL?
Discounted Cash Flow (DCF) models, while not widely adopted as a means to account for the allowance for loan and lease losses (ALLL) under ASC 450-20 (current GAAP), have been accepted as best practice for adherence to other analogous accounting standard objectives.
Best Practices for Running and Validating a CECL Model
In the past, implementing a change like CECL would be a matter of mapping the right data and “turning on a switch.” This is no longer the case. The CECL timeline and transition process spans over several years and involves numerous functional departments at both banks and credit unions. This joint-webinar between Sageworks and Smarter Risk Management goes over how to build a CECL model and have it successfully validated.
FASB issues draft language on CECL extension
The Financial Accounting Standards Board released the draft of its proposed Accounting Standards Update to clarify the transition for non-public business entities (non PBEs) under the current expected credit loss model, or CECL.
Credit unions vs. community banks: What are the different CECL challenges?
Community banks and credit unions face different challenges when preparing for the new current expected credit loss model (CECL). Often, credit unions are grouped together with community banks, although their experience will look different when building out their models. What loss rate methodologies are applicable to community banks but not credit unions? What challenges do credit unions face that are unique to their own loss history, portfolio structure and loan count?
CECL: Where Are We Now
Almost everyone has started, virtually no one has finished, and according to CECL experts, few, especially smaller institutions, are as far along as they should be. That’s the overview of CECL preparedness, as revealed in MST’s 2018 Lender Survey.
Again, this year, the MST survey tallied responses from a wide range of institutions. Participants represent institutions located in, or at least doing business in all 50 states, across mostly all asset sizes.
Poll
What type of data do you anticipate leveraging for your CECL calculation?
Tip Of The Day
The Discounted Cash Flow technique is not required, but it is the most defensible approach to estimate the collectibility of future cash flows due to its highly auditable framework and methodological alignment with CECL.
Alll Insiders
CFO Corner -- “ALLL” about CECL
In this occasional feature, CFOs from financial institutions share their approaches to the ALLL and to the CECL transition, as well as advice for keeping the board informed about related matters. Here, Ronald S. Ohsberg, Senior Executive Vice President, Chief Financial Officer and Treasurer of The Washington Trust Company shares advice from his institution.
The biggest initial impact of CECL on financial institutions
Most financial institutions understand CECL, and more specifically applying the CECL model to their loan portfolio, represents the most significant accounting change for financial institutions in recent memory. However, there is less comfort over how the standard will specifically affect each institution.
Validating ALLL models under CECL – What might change?
What does model validation mean for the allowance for loan and lease losses and what will it mean under CECL?
Resources
Whitepaper: CECL and DFAST, Accounting versus Simulation
Learn about a case study referencing the symmetry and critical differences between the new current expected credit loss model for estimating credit losses (CECL) and the Dodd-Frank Wall Street Reform and Consumer Protection Act’s stress-testing (DFAST) requirements.
Although there is no guidance or statutory relationship between CECL and DFAST, their similarities in data requirements and forward-looking projection suggest benefits for financial institutions by coordinating the necessary data management and governance components of their CECL and DFAST initiatives.
Webinar: CECL for Community Banks, The Practical Path
In this webinar, Sageworks Executive Risk Management Consultant Tim McPeak discussed how as the transition to CECL moves closer, many smaller financial institutions have started to grapple with how to apply the new standard to their ALLL process in a practical way. He followed up on some of the questions and methods presented during the February regulatory webinar and focused on the key elements of the standard financial institutions need to consider as they plan their path forward. Specific topics included portfolio segmentation, available loss rate methods, qualitative factors, and forecasts.
Whitepaper: CECL Action Plans for Community Banks
Community banks are heeding the advice of the FASB, which have directed banks to take advanced
steps to ensure effective implementation of this major change in estimating losses. implementation efforts. This whitepaper outlines five practical steps that banks can take to prepare for CECL:
1. Coordinate with other departments
2. Understand loan level data collection requirements
3. Identify new procedures and changes to current procedures
4. Make a decision on building vs. buying a solution
5. Communicate with auditors and regulators
Whitepaper: CECL Vendor Due Diligence
Many banks and credit unions are considering how to best accomodate the transition to expected loss calculations for the allowance for loan and lease losses, and for some, the right path forward might include a third party solution or vendor. In this CECL due diligence guide, readers can identify what criteria should be used in building a vendor short list and used to compare offerings and support.