Independent Banker - April 2020 - 66

" FOR [THE] VAST
MAJORITY [OF
COMMUNITY
BANKS, THEY]
WON'T HAVE TO
MAKE EXHAUSTIVE
CHANGES. I WOULD
ARGUE THEY HAVE
ALREADY BEEN
UTILIZING CECL
AND DIDN'T
KNOW IT. "
-James Kendrick, ICBA
fi rst vice president of accounting
and capital policy. These community
banks should be using this time to
prepare for forward loss estimation
and begin running parallel systems to
demonstrate preparedness with the
accounting change.
" For [the] vast majority [of
community banks, they] won't have to
make exhaustive changes, " he says. " I
would argue they have already been
utilizing CECL and didn't know it. "
Larger community banks can expect
more scrutiny due to their size and
more commoditized lending. Those
with more than $1 billion in assets
and standardized residential and
commercial lending off erings will need
more complex systems and should be
thinking about whether they need to
adopt a new solution and what that
should look like.
Community banks with $5 billion
or more in assets should be looking
at bringing in internal or external
expertise, including independent
accountants or advisors, Kendrick
says. " They are expected to make
changes to their systems and really
document a lot more of what controls
are in place to make the right estimate
and understand how that estimate is
changing over time, " he adds.
Most community banks already
have a good process in place that
has served them well and should
enhance that calculation for both
quantitative and qualitative forwardlooking
factors, according to Tim
Zimmerman, CEO at $991 millionasset
Standard Bank in Monroeville,
Pa., a past ICBA chairman and a CPA
who serves on FASB's Transition
Resource Group for Credit Losses.
Yet gathering data for analysis
and disclosure is one of the most
complicated elements of the process.
While all community banks will
LEARNING
FROM EARLY
ADOPTERS
One benefit of the CECL implementation
extension for community banks is having
the chance to learn from the disclosures of the
big banks that were required to implement it this
year. " We can learn a lot from watching what they
do and see what will be acceptable for footnote
disclosures under CECL and see the impact with
ALLL calculations in terms of adjustments they've
made, " says Tim Zimmerman, CEO of Standard
Bank in Monroeville, Pa.
Robby Holditch, director, SME and accounting
solutions at Moody's Analytics, has seen increases
in reserves between under 10% and 65% among
public disclosures released as of March 2020. One
$35 billion-asset bank has considered deleveraging
its jumbo mortgage portfolio after calculating
CECL estimates.
Community bankers who are working through
CECL now are reporting much smaller adjustments
to loss reserves. In preparing for CECL as
an SEC-reporting company, Standard Bank
found its ALLL calculation was " pretty good " and
" probably won't cause a significant change in
reserve amounts, " Zimmerman says.
Regulators aren't waiting until 2023 to begin
asking community banks for CECL documentation,
says James Kendrick, ICBA's first vice president
of accounting and capital policy. He says they
want to know how banks will adopt these changes
and whether they're hiring an outside vendor,
using Excel or new systems, making policy
enhancements and how they will use various tools
to calculate reserves.
" You need to get ready now and ask the right
questions, " Kendrick says, " so when examination
teams come in with questions about reserves
and CECL, you're prepared to give solid,
straightforward answers. "
66 Q ICBA Independent Banker Q April 2020
Independent Banker - April 2020

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