Continued on page 22 As more software models hit the market, it became clear that the affordability and ease of use made this option preferable to the time and effort it would take to develop an in-house model. While software can automate much of the process, management still bears the ultimate responsibility for the estimate. Key duties of management include evaluating and setting risk characteristics of the bank’s loan pools, developing qualitative factors and forecasts, understanding the methodology used, and identifying how changes to inputs impact the estimate. Good software can make the process easier, but it can’t replace your knowledge about your bank, your customers, and your risks. Another important consideration when outsourcing is the control environment of the vendor providing the software. A service organization control (SOC) audit report can be obtained from vendors providing CECL software and reviewed for areas of concern. Items to look for include issues with vendor controls that may materially impact the CECL calculation and complementary user controls identified in the report. Complimentary user controls are those the vendor recommends the bank has in place to properly use their software. If the vendor’s SOC report identifies significant control deficiencies, it may be necessary to reconsider the reliability of the vendor’s model. Conduct Trial Runs If your bank is not yet conducting trial runs of your CECL model, now is the time to start. It is best practice to run the ALLL and CECL models concurrently for at least two quarters to assess the impact CECL will have on the allowance leading up to implementation. This will help identify weaknesses and refine sensitivities in the calculation. Many banks may need to adjust their approach based on the initial results of the calculation. Be Ready on Day One The implementation date for CECL is January 1, and the impact of implementation should be reported on the first-quarter call report. Banks will need to run the CECL calculation Jan. 1, 2023. The result of the calculation is compared to the bank’s ALLL calculation Dec. 31, 2022, with As we approach the January date, banks should be past the planning stage and well on the way to implementation. Pub. 13 2022 I Issue 2 Summer 21 West Virginia Banker
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