5 CECL Panel Discussion Takeaways from 2019 Annual Conference
By Michael Umscheid, President and CEO, ARCSys
At this year's Annual Conference, I connected with industry executives for a panel discussion on CECL issues that should be addressed throughout the implementation process. I was joined by Kim Alexander of Blue FCU, Renee Nelson of First Community CU, John Sjaastad of SAS Institute, and panel moderator Eric Mangham of Arkansas FCU. Here are the key issues we discussed.
There is a need for historical data, which encompasses the contractual term of a pool or at least one economic cycle. There's also a need for data integrity, validation, and reconciliation of all data sets to historical and current loan balances.
The CECL committee must communicate with other committees such as ALM. Forecasting factors and results from the CECL model will need to be applied to other models, and results will also need to be integrated into the overall analysis and budgeting.
The AICPA will be issuing an audit manual for external auditors to audit CECL calculations as well as models and forecasting. Current ALM model calculations may be difficult to use and audit. Auditors will be requiring entities that have insufficient internal data or using third party data to provide additional analysis of how the data presented is representative of the pool and the entities actual credit risk.
4. Credit Cards
For most credit unions, credit cards are generally handled in a system outside of the main core of the institution. Many institutions do not have detailed loan data historically. Other credit card issues include:
- Tracking charge offs and recoveries
- Limited data fields
- Calculation of prepayments
5. Purchased Loan Pools
Many credit unions have been purchasing loan pools from other institutions. Many times, the data received may not be complete for a CECL analysis and different purchased pools may have different data fields. In addition, the purchase process will change under CECL with Purchase Credit Deteriorated (PCD). Many institutions will struggle with pooling and modeling for purchased pools.
To learn more about how to prepare your institution for CECL, register for our upcoming conference.