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


Learn all about the 2023 Call Report revisions before you begin preparing the next report. Join this webinar to explore the impacts of CECL, TDRs, technical clarifications, and more. Ensure you are up to date with the changes to reporting forms and instructions — and know how to avoid common errors.

After This Webinar You’ll Be Able To:

  • Assess the impact of proposed Call Report revisions for the 2023 reporting year
  • Determine how the current expected credit loss (CECL) model impacts reporting loans, securities, and other Call Report items
  • Evaluate how the reporting of troubled debt restructured (TDR) loans in the Call Report will change as banks adopt ASU 2022-02 concerning loan modifications
  • Be on top of technical clarifications made to the Call Report instructions in 2022
  • Understand commonly misreported Call Report items, including loan and regulatory capital items

Webinar Details
Given the ever-changing accounting and regulatory landscape, it is imperative that Call Report preparers and reviewers keep up with changes to the reporting forms and instructions. The agencies continue to issue proposed and finalized changes that will impact all filers of the Call Report in 2023 and beyond. This session will highlight Call Report changes effective in 2023, in particular the new and revised items impacted by the adoption of the CECL model. In addition, the changes to reporting troubled debt restructured loans will be addressed. Join us to learn the recent Call Report changes and items that are still commonly being misreported, including an institution’s regulatory capital.

Who Should Attend?
This informative session is designed for all Call Report preparers and reviewers, including CFOs, controllers, and others responsible for ensuring the accuracy of their institution’s quarterly Call Report.

Take-Away Toolkit

  • PDF booklet of relevant accounting and regulatory guidance
  • 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.

Michael Gordon, CPA – Mauldin & Jenkins, LLC
Michael Gordon
is a CPA and partner in the Atlanta office of Mauldin & Jenkins, LLC. He received his bachelor’s in European History and Economics in 2003 from Vanderbilt University and received his MBA with a concentration in Accounting in 2005 from the Georgia Institute of Technology Scheller College of Business. Since joining Mauldin & Jenkins in 2005, he has focused on financial institution audits and employee benefit plans. Gordon also has experience with HUD and governmental entity audits. He is a member of the American Institute of Certified Public Accountants and the Georgia Society of Certified Public Accountants.

Registration Options

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

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