fasb's cecl model: how it will impact your alll
TRANSCRIPT
Presented by:
Mike Lubansky, Sageworks, Inc.
Tom Danielson, CliftonLarsonAllen
Todd Sprang, CliftonLarsonAllen
Moderated by:
Ed Bayer, Sageworks, Inc.
Financial information company that provides credit and risk management solutions to financial institutions
Data and applications used by thousands of financial institutions and accounting firms across North America
Awards ◦ Named to Inc. 500 list of fastest growing privately
held companies in the U.S.
◦ Named to Deloitte’s Technology Fast 500
Top 10 accounting firm
Serve over 1,200 financial institutions in the country
200 professionals, including 25 partners, who focus exclusively on financial institutions
Concentrate on community banks, thrifts and credit unions
Opinions expressed today represent personal views of Todd and Tom. Our personal opinions are still rapidly evolving as we continue to evaluate the exposure draft. CliftonLarsonAllen is in the process of writing a formal comment letter for the Exposure Draft which will then express the official views of our firm.
Mike Lubansky ◦ Mike Lubansky is a director of consulting services at
Sageworks and serves as the in-house ALLL expert. He has led the implementation of an automated ALLL solution for more than 70 financial institutions ranging in size from $37 million to $20 billion in assets.
Tom Danielson ◦ Tom is a partner with 30 years experience providing audit, tax,
loan review and consulting services to community banks.
Todd Sprang ◦ Todd, also a partner, has 20 years of auditing and consulting
experience in the financial institutions industry. He serves as a
member of the AICPA Depository Institutions Expert Panel.
Currently using ‘Incurred Loss Model’
Backward looking
Must pass “probable” threshold
Credit deterioration not recognized in a timely manner
Five different methods for measuring impairment
Forward-looking requirements
“Probable” threshold removed
Longer loss horizon
Time value of money plays a role
Collateral definitions
We don’t yet know how it will impact allowance levels
Some are speculating that it may increase 10 to 50 percent
Be skeptical of such statements ◦ Still working on the math
◦ Depends on the type of lending that you do
◦ Our first impression that it will most impact long-term non-revolving loans (HELOC’s and RLOC)
ALLL should be more volatile—especially upwardly
Climb more quickly during economic downturn
In theory, it will also drop more quickly as the economy improves
Concerns over regulatory scrutiny may dampen management’s willingness to lower ALLL
Even more judgment is required
Greater regulatory scrutiny
More challenging math
Lack of data, especially for small to mid-size banks
Attempting to predict the future
Need to know where we are in the economic cycle
Implies we can identify when a downturn/recovery starts
Implies we can predict the severity of a downturn
Discourages longer-term lending that customers may desire
Comment period ends April 30
Talk to auditors, accounting firms, examiners, etc.
Submit formal feedback: What you like, don’t like, etc.
There are good parts to the Exposure Draft
We are not trying to imply that no changes are needed
Draft a comment letter to FASB
Exposure Draft contains questions from FASB to address
Don’t need to comment on everything in the Exposure Draft ◦ (ex – implementation timeframe)
Form letters aren’t effective
Read comment letters from others
Industry analysts suggest late 2015 – early 2017
Typically standards are applied first to public companies. Privately-held companies often get an extra year to comply
LinkedIn Group – ALLL Forum for Bankers
Future Webinars ◦ Sageworks Surety – Thursday, 2/28, 2:00pm EST
Sageworks Risk Management Consultants ◦ [email protected]
◦ (919) 851-7474
CliftonLarsonAllen ◦ [email protected]
◦ (630) 954-8175
◦ (612) 376-4795