BNN Research Report: The Current Expected Credit Loss Standard Implementation 2019 Survey

Earlier this fall we reached out to CEOs, CFOs, CECL committee members, and others that are involved in CECL implementation at their institution about the challenges and questions they have and where they stand in the CECL implementation process.

We received responses from institutions across New England and some preliminary results are below. The survey remains open and we will continue to collect responses to include in our full report in the spring of 2020.

Approximately half of the respondents were members of the accounting/finance department and the other half were members of the credit department. Additionally, all respondents but two were non-SEC filers. Here is a summary of some of the questions in the survey and what we’ve learned so far:

What impact do you expect CECL implementation will have on your institution’s allowance for loan losses?

  • Almost all respondents expect CECL to cause some or a significant increase to the current reserve level (53%) or remain consistent with current ALLL model (33%).
  • One respondent thinks there will be a significant decrease in their reserve level as a result of CECL implementation. Initial results of their model indicated that the current level the reserve was significantly overfunded.

What is your current status for implementation of CECL? Do you feel on track with your CECL implementation?

  • 60% think they are on track with implementation or slightly ahead of schedule. These respondents have engaged a third party vendor, or are planning to use a third party vendor, as a starting point for building the CECL model. Approximately 78% of those who feel they are on track indicated they have moved beyond the “Planning & Research” at this point.
  • 67% of the respondents that think they are behind schedule are current in the “Pre-Planning” stage or “Planning & Research” stage and all but one are planning to leverage their existing internally prepared allowance model as a starting point of their CECL model.

How will the proposed delays in the effective date for CECL change your implementation timeline?

  • The Financial Accounting Standards Board has recently issued Accounting Standard Update 2019-10 which amended the effective date for CECL, granting one additional year to institutions that are non-public business entities, or public business entities that are eligible to be smaller reporting companies as defined by the Securities and Exchange Commission. 80% of the respondents think that this delay will not impact their implementation timeline and they will proceed as planned.
  • The remaining respondents indicated that certain stages of CECL implementation will be delayed, as it allows the institution more time to run parallel simulations and work on modeling, with one respondent indicating that the whole implementation timeline would be delayed a year.

What is your biggest challenge related to CECL?

  • 53% think “lack of clarity of what needs to be done” or “internal coordination” are the biggest challenges. Other challenges were related to cost of implementation, lack of resources, and questions related to CECL such as how to address the near zero loss history, selecting the right method, and determined appropriate loan prepayment speeds to be used in the model.

As we continue to move through the various stages of implementation, our survey will remain open and we’d love to hear from your institution. As stated above, we will continue to accept responses and monitor the data, and will share our full results in a special alert in the spring of 2020. We encourage you and others at your institution to participate so we can continue to learn from real-world examples and share our advice and best practices with you.


Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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