CECL Methodologies: Pros and Cons for Your Loan Pools

Given that the CECL model is non-prescriptive, banks and credit unions have flexibility in choosing the right CECL methodologies for their institution’s unique data situation. This flexibility often leads bankers to one simple question: Where do I begin? In this complimentary infographic, learn about the 7 methodologies available to use and when they are or are not recommended.

Integrated Risk Management | Leveraging Existing Practices to Drive Community Financial Institution Growth

This whitepaper will take a closer look at some of the existing risk management practices employed by financial institutions today and the areas of overlap and interaction between them. Additionally, it will consider ways to synthesize results across these practices and the case for automation to accelerate that process.

Generic Cash Flows: A Building Block of Asset/Liability Forecast

Any discussion on Asset/Liability Management (ALM) should begin with a discussion on the underlying foundation required to accurately model forecasts. One of the most important building blocks for that foundation
is cash flows. It’s crucial to understand the importance of cash flows, the different types, their characteristics, and how they perform or act in a forecast. Cash flows are the foundation of ALM modeling and understanding them helps to understand the results when attempting to model interest rate risk through reporting.

The 7-Step Guide to an Effective, Dynamic ALCO

The asset/liability management process at a financial institution should not be limited to one that “checks the box” of meeting regulatory requirements. Rather, institutions and Asset/Liability Management Committees (ALCOs) with a dynamic ALCO process are able to inform decisions related to strategy as well as risk management.

Deposit Pricing: Mitigating Interest Expense in Today’s Rising Rate Environment

Financial institutions grappling with rising rates for retail deposits and increased competition for funding can benefit from understanding and practicing deposit pricing strategies. Deposit pricing that incorporates segmentation, in particular, can mitigate cost changes, help raise funding, or do both.

Stress Testing: Why It Shouldn’t (and Won’t) Go Away

Recent discussions suggest easing of legislative requirements related to stress testing, but prudent stress testing is an important risk management tool for financial institutions. Stress testing, as part of overall best practices for mitigating financial institution risk, can provide the board and management with key decision-making information on capital allocation and other decisions driving the achievement of long-term goals.

Remaining Life – A Viable CECL Methodology for Some Financial Institutions

One of the challenges is that many community financial institutions are looking for simpler, more practical methodologies for implementing CECL than those being used by larger, more complex banks and credit unions. This whitepaper explores one methodology, the remaining life method, that represents a streamlined option for some financial institutions to implement the new standard for accounting for credit losses.

CECL: Where Are We Now? 2019 Survey Results

For the third year in a row, Abrigo (formerly MST, Sageworks, and Bankers Toolbox) surveyed 125 individuals at a wide range of financial institutions to gauge CECL preparedness. The 2019 survey shows that as the Q1 2020 compliance date looms for SEC registrants, institutions of all types are making progress – but not enough, according to CECL experts.

CECL Modifications of Typical ALLL Disclosures

With CECL comes change in the accounting for the allowance for loan and lease losses (ALLL) from an incurred loss model to an allowance for credit losses (ACL) using the current expected credit loss model. Because financial institutions will account for the loss allowance in a different way, and the Financial Accounting Standards Board (FASB) modified the disclosure requirements, the typical ALLL disclosures in the financial report will need to be modified to cover CECL. This illustrates how disclosures will change and gives sample wording and tables.

CECL and the CFO: Think implications, not just implementation

We’ve been hearing it from all sides: CECL will have an institution-wide impact – greater, it is proposed, than any accounting change in banking history. Considering the breadth and depth of the impact, the transition to, implementation of, and ongoing execution of CECL demand oversight from the institution’s top executives, and in particular, the CFO.

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.

Practical CECL Case Study Hidden Complexities to Simple Approaches for Community Institutions

The CECL standard grants institutions broad latitude in the data and information used in measurement; the standard is non-prescriptive in methodologies to be used (though does go so far as to enumerate several sensible options). A great deal of content from the supervisory and accounting communities, as well as other practitioners, focuses on simple analyses that are mentioned in the standard – loss-rate and vintage approaches are commonly discussed.

In this case-study focused paper, we first examine problems with a specific institution’s loss-rate approaches and then construct a defensible projection of lifetime credit loss without meaningful first-party losses or historical loan-level detail.

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