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.

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.

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.

Whitepaper: A Practical CECL Action Plan for Credit Unions

This whitepaper cuts through the complexities of CECL compliance and provides today's credit unions with actionable and attainable steps to take towards expected loss modeling. It provides a realistic or Practical CECL approach. This paper is recommended for credit union management and directors who are involved in regulatory and accounting compliance.

CECL Methodology Overview – Discounted Cash Flow

Download this whitepaper to learn the basics of discounted cash flow, one of the loss rate methodologies mentioned within the ASU 2016-13 (Topic 326/CECL) standard. This paper covers the difference between contracted and expected cash flow, inputs to DCF calculations, use cases, benefits and challenges to this methodology selection.

CECL FAQ

Start your CECL preparation armed with answers to the most common questions regarding FASB's current expected credit loss (CECL) model. Abrigo risk management consultants answered hundreds of queries about the guidance ranging from general inquiries as to whether the new administration would delay or even abolish the standard, to the ever-pressing data questions - how much and what fields are needed?

We have compiled a handy FAQ document categorizing and addressing the most common questions, available below for download.

Analyzing Portfolio Risk with the ALLL

Learn 7 ways risk management professionals can use information contained in the allowance for loan and lease losses (ALLL) to analyze portfolio risk.

CECL Standard – Abridged

The Financial Accounting Standards Board's (FASB) Accounting Standards Update (ASU) 326 provides the guidance by which the current expected credit losses methodology (CECL) for estimating allowances for credit losses will be applied. The allowance will be reported as a valuation account, or the difference between the financial assets’ amortized cost basis and the net amount expected to be collected. In this paper, we offer a summary of the new standard.

Whitepaper: Scenario Analysis Advantages

Though it may be an often overlooked device for managing the ALLL, scenario analysis enables bankers and auditors to assess the outcome of the ALLL calculation under various assumptions or “scenarios.” This whitepaper examines the benefits of being able to analyze scenarios in four distinct areas of the ALLL.

Whitepaper: Vintage Analysis Basics

Vintage analysis is a method of evaluating the credit quality of a loan portfolio by analyzing net charge-offs in a homogenous loan pool where the loans share the same origination period. This whitepaper covers how to calculate loss rates under vintage analysis, how qualitative and quantitative factors will impact loss rates, and what role vintage analysis is expected to play under CECL.

CECL Implementation Prep Guide

The FASB issued the final CECL standard on June 16, 2016. While institutions have time before the standard is effective, is important that institutions not wait to prepare. This CECL implementation prep guide covers basic tips for forming an implementation committee, crafting a project plan and introduces example illustrated timelines for implementation.
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