Preparation is fully underway among Wisconsin's banks for the new CECL standards, which were issued by FASB on June 16, 2016 and fundamentally change how banks estimate losses in their allowance for loan and lease losses (ALLL). Among other considerations, banks must develop or purchase new systems and/or processes to conduct those calculations. One hotly debated question: whether or not banks can utilize a simpler solution than software, namely an Excel spreadsheet.

The answer: banks can use Excel, but that doesn't necessarily mean they should

There are several key considerations for banks when selecting a tool for CECL compliance, including the capabilities of that tool, the bank's complexity, staff expertise, and cost. Prior to any of that, however, bank management must determine which model is the right fit for their institution. "We've seen a number of different allowance calculations," said Mark A. Zeihen, assistant deputy controller with the OCC's Milwaukee/Iron Mt. Field Office. "Banks can use a variety of calculations today and going forward under CECL." While the more complex models aren't inherently bad, it is important to select the right tool for the job. "The selection of the methodology is important," said Ryan Abdoo, CPA, partner at Plante Moran. "That decision will have a long-term impact. With increased complexity comes increased data requirements and, thus, risk of error, so if you're an institution that has historically not complicated things, I would advise not complicating them." 

Tom Danielson, principal – financial institutions at CliftonLarsonAllen, LLP, recommends the "remaining life method"—which was outlined in a regulatory webinar on Feb. 27, 2018—as a good starting point for most community banks. If necessary, they can move to a more complex model in the future. "A key consideration is whether the model is right for your organization," he said. "Does it give you an ALLL computation that is correct, understandable, and easy for you to explain to shareholders, board members, auditors, and examiners?"

Along with selecting the most appropriate model, bank management must evaluate the data capabilities of their chosen solution. "CECL will require banks to maintain, manage, and store larger amounts of data," said Zeihen. "Each tool will vary greatly, so it's important for banks to consider how quickly they can retrieve and tailor reports." A key component of that evaluation is determining whether or not the bank's CECL solution integrates with its core. "Whether they integrate with your core processer is a big piece for making sure you have historic data points," explained Tom Mews, president, First National Community Bank, New Richmond, adding that a vendor who can supply industry data is also important. 

When evaluating different solutions for CECL compliance, bank management must first consider the level of complexity of the model that best fits their bank's needs. "When purchasing or building a model, we believe simple banks do not need complex models," said Danielson. "There are certain pros and cons with each option. Some of the software tools available are more complex than what many community banks need, which could lead to higher costs and some complexities within the model that are not needed by the user," added David Braden, CPA, manager – financial institutions at CliftonLarsonAllen, LLP. "However, the one concern with using an Excel-based model is you might not have enough staff who are comfortable modifying the spreadsheet accurately over time, and maintaining a proper control structure around that process." Bank management should also keep in mind that their institution's complexity may change. Software can be more flexible than a spreadsheet by supplying different methodology options, which could be an important feature for growth-oriented banks, according to Abdoo. "CECL allows for half a dozen different methodologies that range in complexity," he explained. "Due to the fact that the more complex the methodology gets, the more data the software needs, that flexibility allows you to start with a less complex methodology and then transfer to a more complex one as you grow without changing products."

Another important factor to consider is the expertise and time required by bank staff in order to effectively use the chosen tool. "Value the time your people put into managing the components and training backups," Mews advised. "Under the current CECL requirements, to train multiple people under that model is very difficult, with time constraints being the biggest component." That evaluation is likely one of the most difficult bank leadership will face when it comes to CECL implementation. "The difficult decision is the analysis of the skillset of your current employees and an honest assessment about the challenges and skills needed to build, maintain, and validate a CECL model using Excel," said Danielson. "Many banks may conclude that while it's possible, it's not cost-beneficial to do." Staff aren't the only ones responsible for understanding the model; management are required to fully comprehend how the model works. "Management has to be in charge of the internal control structure, and that escalates as the community bank grows in size," Braden explained. "The individuals at the bank need to understand how the inputs go into the structure and interpret what the outputs mean." 

Finally, bank management must weigh the costs of a potential CECL solution against its benefits. The key is to include all of the costs involved. "Don't consider just the initial cost but also the ongoing costs," said Zeihen, using employee training and implementation costs as an example. "Cost definitely plays into every decision a community bank makes," said Mews. "We could train one person internally, but because of the in-depth knowledge it takes, it would be difficult to have any backup." It's critical for bank leadership to consider the long-term costs and benefits of each potential solution rather than selecting the least expensive option in the short-term. "It doesn't make sense to pay for more than you need, but one of the poorest business decisions you can make is to buy the cheapest solution out there and find out later that it is ineffective," said Danielson. Bank management should also factor in the staff time required to utilize a software solution. "Each institution has someone responsible for loan loss allowance calculation," Abdoo pointed out. "Whether you use Excel or not, that person will still be putting in time documenting and entering data. You still will have to put in time and effort to calculations, no matter what the tool."

Ultimately, regulators are more concerned about compliance with the principles of CECL than the specific tools being used. "The bottom line is banks will continue to have flexibility in choosing a solution that meets their needs as long as the CECL principles are followed and objectives are met," said Zeihen. "The OCC isn't expecting or requiring banks to purchase from a third party vendor or purchase a new system. It's possible for banks to use the tools they already have, but some modifications will be required. We expect them to have proper controls over the input, the appropriate calculations, and controls over changes in outputs."

If a bank does decide to pursue using Excel for CECL compliance, be sure to leave plenty of time for testing and adjustments during implementation. "Community banks who want to consider using Excel will need to start very early in building their models so they can develop or hire the skills they need and change course if necessary," said Danielson. "It can be done, but don't make that decision lightly."

Helpful Resources

Plante Moran is a WBA Silver Associate Member. 
CliftonLarsonAllen, LLP is a WBA Bronze Associate Member.

By, Amber Seitz

The December 2016 edition of the WBA Compliance Journal has been published.

Read Special Focus for an article on CFPB's prepaid rule. Next, turn to Regulatory Spotlight for and update on the injunction against the DOL overtime rule. Finally, turn to Compliance Notes for the federal regulators' CECL FAQs and other timely information.

Click here to download the full issue.

By, Amber Seitz


Are you a CECL planner or procrastinator? With the initial, perceived complexity and a global pandemic intervening, many financial institutions put off CECL implementation. But with a deadline of January 1, 2023, it’s time to move the process along! Join us to learn how to prepare the initial CECL calculations, so you’ll be able to analyze the expected impact on your organization.

After This Webinar You’ll Be Able To:

  • Create a roadmap for starting CECL preparation for late adopters
  • Use the provided resources for basic CECL implementation
  • Know how financial institutions that have adopted CECL have been impacted
  • Understand regulatory expectations for implementing CECL
  • Discuss the impact of CECL adoption with your board

Webinar Details
CECL was first introduced in 2016. It is a significant change to loan loss reserve calculations and initially was seen as an overly complex rule that would potentially have a substantial impact on many financial institutions. Originally scheduled for implementation in January 2020, the deadline is now January 1, 2023 — and further delays are unlikely.

This webinar will provide a simple roadmap for implementing CECL, including a review of available resources to get started. You’ll discover how CECL has impacted early adopters. You’ll also learn the regulators’ expectations for the implementation and use of CECL, including how regulators are preparing to examine for CECL compliance.

Who Should Attend?
This informative session is designed for members of senior management that seek a high-level understanding of CECL today. It will also provide practical tips for staff responsible for managing CECL.

Take-Away Toolkit

  • List of CECL resources that have been reviewed for current, accurate, and usable content
  • Employee training log
  • Interactive quiz
  • PDF of slides and speaker’s contact info for follow-up questions
  • Attendance certificate provided to self-report CE credits

NOTE: All materials are subject to copyright. Transmission, retransmission, or republishing of any webinar to other institutions or those not employed by your agency is prohibited. Print materials may be copied for eligible participants only.

Presenter Bio

Bob Viering – RiverPointUSA LLC
Bob Viering brings over 35 years of banking experience to RiverPointUSA, where he concentrates on management and board planning activities, such as strategic, capital, and succession planning, de novo bank formation, assisting with managing regulatory agreements, loan review, and credit process assessment. He has served as a bank director and was an independent member of a bank’s audit committee.

Prior to becoming a consultant, Viering was a de novo bank organizer responsible for all regulatory filings, planning, recruiting, and also serving as CEO. He has been an advisor for other de novo bank formations. Earlier in his career, Viering held various management positions with large and regional banks, including market president and regional credit officer. In addition, he has managed deposit and loan operations groups and was a lender to local, regional, and international businesses. He has also served as a board member of state and national trade associations.

Registration Options

  • $245 – Live Webinar Access
  • $245 – OnDemand Access + Digital Download
  • $350 – Both Live & On-Demand Access + Digital Download

The identification and management of loans considered to be troubled debt restructurings has provided bankers with frustration, especially since the broad use of modifications stemming from the 2008 recession. This frustration, which continues today, has caused a number of banks either to not report TDRs, account for them incorrectly or avoid needed modifications altogether in order to avoid the topic. This presentation will take the mystery out of TDR management and provide the attendee with a greater degree of confidence as they manage credits considered to be TDR.

Topics to be covered include:

  • Properly identifying loans considered to be TDR
    • Including circumstances where a modification might not be considered a TDR
  • Managing TDR including
    • Risk Rating
    • Accrual Status
    • Impact on the ALLL — including credits considered collateral-dependent and not collateral-dependent
    • Brief commentary regarding troubled debt restructurings and the Current Expected Credit Loss (CECL) model
    • Regulatory Reporting
  • Addressing the common phrase: ‘Once a TDR, Always a TDR? — is this true?
  • Discussion regarding Section 4013 modifications and relationship to TDR reporting as prescribed in the CARES Act

Target Audience: This presentation is intended for personnel involved with the restructuring or modification of credits which could be identified as TDR including those responsible for the reporting of TDR and its impact on the Bank’s ALLL.

Aaron Lewis, Young & Associates

Registration Option
Live presentation $330

Recording available through June 11, 2022

The new CECL accounting standard is a game-changer in terms of the allowance for loan and lease loss (ALLL) methodology and calculation. Going from an incurred loss model today to an expected loss model tomorrow will most likely result in higher allowances for most financial institutions. It’s imperative that you understand how CECL will impact your financial institution and perform back-testing long before the required adoption in 2023. Are you prepared?

Explain the new current expected credit losses (CECL) accounting standard
Understand the relevant regulatory guidance and resources
Distinguish between possible methodologies and calculations
Develop an implementation strategy
Know how to record the transition adjustment

Attendance certificate provided to self-report CE credits.

This informative session is designed for individuals involved in the ALLL calculation and CECL implementation.

Useful website links to CECL resources
Employee training log
Interactive quiz

Live Webinar Access – $245
On-Demand Access + Digital Download – $245
Both Live & On-Demand Access + Digital Download – $320