Q:  What is the CECL requirement?

A:  In 2016, federal regulators issued a new GAAP accounting standard for the calculation of the Allowance for Loan and Lease Loss (ALLL).  This new standard utilizes the current expected credit loss (CECL) calculation method versus the current incurred loss model. Regulators have directed credit unions to comply in their Call Reports beginning on March 31, 2022.

Q:  How will the implementation of the new CECL standard affect my credit union?

A:  Generally, loss estimates will increase, be more volatile, and require subjective assumptions. Therefore, processes must be enhanced and well-documented to ensure future compliance as new CECL models and data requirements go into effect.

Q:  How will the CECL requirement change what we currently do for loan losses?

A:  Each credit union is different, and CRF Advisors will consult with each leadership team to satisfy the CECL requirements with a clear, manageable, and complete solution. Some of the key changes associated with the implementation of CECL are:

  • Move from incurred loss (historical losses) to a lifetime horizon (life of loan/asset losses)
  • Institutions will use a broader range of data to estimate expected losses
  • Accounting for purchased credit impaired loans and Off-Balance-Sheet Credit Exposures

Q:  Why have credit unions already begun to implement a CECL solution and what is the advantage of doing so?

A:  One reason credit unions have opted to begin implementing a CECL program is to ensure they have enough time to see the effects on their balance sheets and make necessary changes before the required reporting date. CECL has various calculation methodologies, and CRF Advisors will consult with your management team and board to ensure they understand and select the most effective methods to best meet credit unions’ needs. 

Q:  How does CRF Advisors differ from other CECL Data Analytics Solutions?

A:  CRF Advisors’ team uses its 30 years of experience in lending, credit, auditing, and credit modeling to develop a complete CECL solution that includes customized: training for management and board, program development, and reporting for each credit union. Also, the pricing for CRF Advisors’ complete CECL solution is typically lower than other competitive CECL solutions.