Video: 5 Steps for CECL implementation planning

The FASB issued the final CECL standard on June 16. In this video, Abrigo' Neekis Hammond details 5 key steps for bank and credit union management teams to consider in planning for a smooth transition to a CECL model for their institution.

Neekis Hammond is a senior risk management consultant at Abrigo. He provides financial institutions with advisory services, leads thought leadership, develops market strategies and consults with product development on solution requirements and accuracy.

When Should You Use a Range for the ALLL?

A Abrigo consultant describes the benefit of using an ALLL range. Namely, he mentions that the range demonstrates the thoroughness of the calculation in that it requires the institution to go through some sort of scenario building. At the end of the day, however, he advocates for a single number as opposed to a range for institutions to rely upon as their ending ALLL figure.

Should Your Institution Use an Unallocated Reserve?

Institutions often run into the difficult question of whether or not to use an unallocated reserve in their allowance. This can be met with mixed opinions from auditors and regulators; however, it is allowed by guidance and often times serves a very important need. An unallocated reserve is meant to provide a reserve for any factors that fall outside of qualitative and environmental factors. Often times institutions will use an unallocated reserve for natural disasters, certain political issues that could affect their constituents or other factors that cannot be captured within the recommended qualitative factors.

Compiling the Best Data for the Reserve Calculation

This webinar discusses important data collection elements in the ALLL, loan portfolio information, collateral valuations, historical loss rates supporting documentation for qualitative and environmental factors, and ways to prepare for the data gathering expectations under FASB's CECL model.

How Can You Make Your ALLL More Comprehensive?

This video examines ways that institutions can be more detailed or more specific in their calculations. Abrigo consultant, Tim McPeak, talks of the importance of supporting the assumptions you make within your calculation and documenting all aspects of the calculation.

Data Gathering Best Practices

In this video, a Abrigo consultant focuses on the importance of loan-level data and what is needed to become more granular in your ALLL calculation. He cites a few examples of segmenting or sub-segmenting the portfolio, and how it requires granular data collection to be enacted properly.

What Are the Benefits of Scenario Building?

In this video, a Abrigo consultant likens scenario building to the process of stress testing and provides examples where scenario building is applied. He mentions that scenario building benefits institutions in many ways, inclusive of demonstrating to examiners that you have taken into account a deeper level of analysis in your ALLL calculation.

How Much Should You Segment Your ASC 450-20 (FAS 5) Pools?

Proper segmentation of an institution's portfolio will yield many benefits. For one, institutions can gain more insight into sub-segmented performance when they have a granular view of their portfolio. In addition, more sophisticated loss methodologies such as migration analysis require segmentation of the portfolio and can strengthen an institution's overall ALLL. Overall, institutions should examine the size of their portfolio and arrive at a degree of segmentation that both provides a granular view of their pools while maintaining statistical relevance in the size of their pools.

When Should You Use Peer Data in the ALLL Calculation?

A Abrigo consultant references the use of peer data in the ALLL calculation. Benchmarking tends to be the most prevalent use of peer data, but there are several other applications, such as generating loss experience for de novo institutions. However, the speaker recommends that in most cases it is beneficial to rely on your own experience and to use qualitative and environmental factors as necessary.

What Is the Importance Of “Institutionalizing” the ALLL?

Succession planning is undoubtedly a vital component of an institution's processes; however, often times institutions find that the original architect of their ALLL model is either no longer with the bank or his/her departure from the bank would pose a serious risk to operations. The more the process and the methodology can be "institutionalized" and readily transferable to other employees in the event of an exit, the more prepared the institution will be, and in all likelihood, the calculation will be more transparent to examiners and other outside parties.

What Are the Three Valuation Methods for ASC 310-10-35 (FAS 114) Loans?

This brief video covers the topic of the ASC 310-10-35 (FAS 114) portion of the ALLL calculation. A Abrigo consultant details out the requirements for impairment analyses using the Fair Market Value of Collateral, Present Value of Future Cash Flows and the Loan Pricing methodologies.

Are There Differences Among the OCC, FDIC & FED?

Abrigo consultant, Garrett Morris, discusses the different regulatory bodies in the market and perceived differences among them. In one example, he cites that the OCC review process is generally perceived as more stringent than others. However, he concludes that regardless of regulatory body, institutions should follow guidance and make certain that their process is exact, documented, transparent and concrete.