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July/August 2018 Issue: Front Page > Industry Info

Industry Info
Practical points to consider regarding CECL implementation
Policy and Procedure street signs Feedback from our membership indicates that it's unlikely that many members are in the advanced stages of CECL implementation, where a CECL-compliant model is running parallel to the current ALLL program to assess the standard's impact.

Some credit unions are still developing an understanding of CECL, while others are comparing in-house resources versus vendor capabilities. Regardless of your progress, we'd like to share a few practical points that often seem overlooked.

  • A good place to begin the conversation is with your examiners and auditors. Of course the credit union will always be responsible for financial statements and the assertions contained therein, but these third parties may provide useful information due to their intimate understanding of accounting standards along with your credit union’s capabilities and loan portfolio.

  • If you scour the internet for CECL articles you're likely to find much of the content centering on data. Obviously data is the cornerstone of CECL compliance, but something often overlooked is the stage at which data is considered during CECL preparation. Different modeling methods have different data needs, so management should begin obtain an understanding of which method(s) might be most appropriate for your portfolio segments ahead of, or concurrent with evaluating loan data accessibility.

  • Has the credit union been involved with mergers over the period covering your historical lookback? Mergers or core processor conversions during this period may throw an unexpected curveball during data collection.

  • The accounting results of implementing CECL may have a strong influence on management decisions regarding loan types and rates offered in the future.

  • In addition to your typical regulatory and best-practice vendor due diligence, several unique questions should be addressed for those seeking 3rd party CECL assistance.
    • How much staff time will be required to update data and update the estimate on an ongoing basis?
    • Does the platform provide documentation and reports that allow the credit union to appropriately explain and document the inputs and ultimate output?
    • How much flexibility and assistance is provided when incorporating forward looking assumptions?
    • Does the model adapt to your unique data over time and how easily can other assumptions and forecasts be updated? What modeling methods is the vendor capable of?
    • What processes and controls are in place to protect data?
    • What is the vendor's implementation time frame?

    As with all vendors, check references and talk to peers, auditors and examiners before signing a contract.

This is just a small subset of the many relevant considerations involved in CECL compliance. It's unreasonable to expect every institution to be fully prepared at this point, but you should have a CECL committee organized in order to address the operational, lending, information systems, accounting, and strategic issues associated with such a drastic change in U.S. GAAP.

Be sure to register for the upcoming CECL training on August 21st. To reserve a seat in VolCorp's training facility contact Justin Holt at jholt@volcorp.org or phone 615-232-7955. To register for the webinar visit https://attendee.gotowebinar.com/register/793781815760069633.

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