Sean Doherty, President of the Asset Management Group, Inc., at Country Club Bank in Kansas City, Mo., offers an update on CECL implementation and the preparation community banks need to undertake.
As the new CECL standards come into implementation, banks need to incorporate forward-looking projections as well as historical data when calculating their reserves as regulators seek a more standardized approach, Doherty said. Community banks not yet subject to the new standard should have looked at the available historical data in their core system and begun considering it in light of macro-economic trends, he said. The new standards also require the creation of risk pools into which loans will be sorted.
Whether community banks choose and in-house or vendor solution, they’ll need to look at the correlation between economic data and loan performance data. Depending on what that correlation shows, bankers will need to adjust their reserves accordingly. Some banks either haven’t collected adequate historical data or the data they have in their core system might be outdated, and they’ll need to rectify those gaps as implementation approaches next year.
Examiners will be asking preliminary questions with some leeway this year about bankers’ plans for CECL implementation, Doherty said, but must be prepared for those questions to become more stringent a year from now.
In response to customer demand and regulator support, the Asset Management Group has created its own CECL calculator that incorporates multiple models and varieties of calculations that bankers can use to more fully analyze and compare projections. The group’s goal was to create a tool that grows with its bank users, adaptable to changing situations and transparent about how it works, Doherty said.