Main Street Bank, like thousands of other privately held or smaller financial institutions across the U.S., recently found out it will have extra time to implement the current expected credit loss (CECL) accounting standard. The Massachusetts mutual bank has until 2023 to comply with CECL, considered the biggest change to bank accounting in the industry’s history, after FASB recently agreed to extend the deadline for smaller public and all privately held financial institutions.
Nevertheless, the $1 billion bank is aiming to run calculations for its allowance under both the existing incurred loss methodology and under CECL by the end of next year, and to be ready to transition completely to CECL as early as late 2021 or 2022.
“We’re pretty committed as an organization,” Robert Sousa, Lead Credit Analyst for Main Street Bank, said during a recent Abrigo webinar hosted by the American Bankers Association’s Endorsed Solutions Group. Sageworks ALLL (which Main Street Bank utilizes) and MST Loan Loss Analyzer, Abrigo’s Allowance for Loan and Lease Losses (ALLL)/CECL solutions, have been identified by the ABA as best-in-class solutions that meet the operational needs of financial institutions as they prepare for CECL compliance deadlines. “I think we’re on track for probably 2022, maybe late 2021.”
“We’re really working hard to get a project plan in place and help us test our model in 2020. That way, even with some delays we’ll still have plenty of time to be ready by 2023,” Sousa said. “If (the Financial Accounting Standards Board, or FASB) hadn’t pushed it out, I still think we’d be in a good place.”
Sousa believes one of the main advantages Main Street has had in the transition is that it had already automated its calculation of the ALLL. Automating the allowance calculation eases the transition in at least two main ways, he noted during the webinar, “A CECL Transition Story: Main Street Bank’s Roadmap to Expected Loss Accounting.”
Have the time to implement CECL
First, it is affording staff time to think about CECL. The hours that used to be spent on gathering data, manual data entry, working on complicated spreadsheets, and correcting errors in order to calculate the ALLL using the incurred loss method can be shifted to focus on CECL investigations and discussions since the ALLL was automated using Abrigo’s solution. “If we were to allocate a certain amount of time every quarter to doing our incurred loss model and we cut that to a third of what it used to be, then now we can take the other two-thirds and start looking at ‘Well, what if we were to do this in CECL, what would that look like? What methodology would we use?’” Sousa said. “We’re not taking as much time from day-to-day operations to get ready for CECL because we’re saving so much time on the incurred loss model.”