Pub. 8 2020 Issue 1

ISSUE 1. 2020 11 HOW TO USE THE EXTRA TIME FOR CECL By Jeff Goldstein, SVP, Regional Manager T he Financial Accounting Standards Board has officially put off the effective date for CECL until Jan. 1, 2023, for all but the largest financial institutions, and the ABA is pushing to have the standard set aside. But that’s not a reason for your financial institution to sit on its hands. The delay gives you more time to get your data in order, a process that can provide you with other benefits, including taking your strategic planning to a higher level. Many financial institutions haven’t yet captured the data they’ll need for CECL compliance, and those that have may find that the data is corrupt or lodged in multiple systems that can’t be integrated. Start now to capture the correct data and ensure good data quality. That process typically involves cleaning up the data you already have, to establish a clear starting point. Consider hiring a data- base administrator or a data business analyst for this process. Identify gaps in existing credit data or areas with inconsistently captured data. Make sure that you’re collecting the right CECL data, and design data capture protocol that ensures you’ll have the historical credit data you need when you need it for CECL compliance. Then, look at loan demand over time with other institutional data. Correlate that data by collateral or type — mortgages, auto loans, credit cards and so forth. Once you have done that, you may need to divide it into smaller segments, such as geography, FICO score, cost center or loan officer. These categories should be chosen based on what makes sense for your institution. When you are reviewing your data, start asking yourself if the data gives you information that might help you fine-tune your strategies. Analyzing your data can help you spot trends and see how your portfolios behave in different situations. The information can point to market direction, suggest how economic changes will affect your loans and indicate when you need to change strategies to protect against rising or sinking rates. Sorted, analyzed data can help you forecast and reduce losses around interest rates, liquidity, market and regulatory capital, and credit. It can inform decisions around pricing and product offerings. Used wisely, the data you’ll need for CECL compli- ance can also lead to lower overall risk and stronger, better-man- aged returns for everyone involved. So, it makes sense to use the extra time given by FASB wisely. If you need more information on CECL and using the time wisely, please contact Jeff Goldstein. n Jeff Goldstein SVP, regional manager Phone: (415) 517-1012 jgoldstein@pcbb.com pcbb.com Dedicated to serving the needs of community banks, PCBB’s compre- hensive and robust set of solutions includes cash management, inter- national services, lending solutions and risk management advisory services such as CECL FITTM.