Financial institutions across the U.S. are grappling with the many changes that will be required as they implement the CECL standard. In fact, some are so overwhelmed that they succumb to “CECL paralysis,” or a lack of action, Abrigo analysts have noted. In order to get moving, it can be helpful for financial institutions to understand how others have approached CECL implementation and what key decisions they have tackled early on in the CECL process.
Susan Weber, senior vice president of credit risk administration at Camden National Bank, recently shared her institution’s key CECL decision points and the approaches they took for making those decisions. Weber was a panelist on a webinar discussion hosted by Abrigo and MST about the current expected credit loss (CECL) standard. The panel consisted of three consultants, two auditors and one banker who all shared their various perspectives on common CECL questions that were collected from the audience of more than 480 financial institution employees. Camden National Bank, a recent Celent Model Bank winner for its initiative to automate its ALLL and CECL processes, serves customers at 60 banking centers and currently has $4.1 billion in assets.
Camden National Bank executives had to make several key decisions upfront, including deciding whether to tackle CECL manually or to use a system to do it, and deciding whether they should build a system in-house or use a third-party vendor. “Those are some basic, key components and it really came down to a cost-benefit for us,” said Weber during the webinar. “What’s it going to take if we did it ourselves? What’s it going to take if we worked with a vendor or outsourced it? And what does that mean for our implementation and the quality of our work? Those were all discussions that we had to have internally.”
Key CECL decisions about data
Weber explained how data was another key CECL decision for Camden National Bank. Her institution first analyzed whether it had a sufficient amount of data to work with and if that data reflected what bankers knew about their portfolio. They contemplated whether they needed to acquire more data in some manner and considered the use of peer data. Part of this consideration included the availability of data that was relevant to the institution’s unique portfolio.
The topic of data was also important to the bank’s methodology selection. As recommended during the webinar, an institution should analyze its data and see if the amount is statistically significant for the use of a certain methodology. That was an important consideration that guided Camden National’s internal discussions, Weber said.
Weber also stressed the key CECL decision to establish seamless collaboration among all functional departments that would be involved in the implementation process.
“I think given the enterprise nature of the standard, very early on, we tackled the discussion of who in the organization needs to be involved, what their role is and what their tasks are as we prepare for implementation,” said Weber. Camden National Bank also started a cross-functional team early in the process. “It’s being led by our office of project management, but I’m one of the business owners, and help lead the team. It was important to us as a [quickly] growing institution, but still very community-bank focused, that we all played a role and all knew what our role in that process was.”
Weber also discussed involving auditors and regulators, and how that impacts her institution’s decisions, specifically on the topic of feedback. In many cases, Camden National Bank has found that auditors and regulators are still working through processes themselves, and it is important to be mindful of that evolution throughout implementation. This does not pertain only to external stakeholders, but also their own management and board.
“CECL is a big, hairy topic, and it gets more and more complex the more involved with it you get. Don’t wait too long to bring others on that journey with you,” said Weber.
To receive more answers to common CECL questions and hear the perspectives of the other panelists, access the on-demand webinar, “CECL webinar panel: Answers to your top questions.”