The last three months have brought Chief Financial Officers at community financial institutions an influx of new considerations, work responsibilities, and challenges. As if CFOs didn’t have enough to focus on already with reporting tied to financials, asset/liability management, strategic planning, and enhancing the bottom line, the pandemic stormed in as 2020 was off to a solid start. No one would have guessed that after the longest economic expansion in U.S. history, we would experience a health crisis that has affected our lives and economy so quickly and dramatically. Along with this has come the SBA’s Paycheck Protection Program with all its nuances and requirements of financial institutions, which has brought new and different concerns to bank CFOs as they support local businesses throughout this uncertain time.
Given the many competing priorities, CECL, the long-awaited current expected credit loss Accounting Standard Update, has likely taken a back seat at many institutions. However, given that the actual effective date for CECL has not been delayed, CFOs of SEC-registered banks that had implemented CECL on Jan. 1 must remain mindful of the pandemic’s impact. Even banks that remain on the incurred-loss model and have a 2023 deadline should not lose sight of CECL. With 2020 disrupted by the PPP and other efforts to help small business customers stay afloat, a bank’s previous timeline for assessing data gaps and taking other steps to be prepared by 2023 could face serious delays without a concerted effort to get back on track.
CFOs have numerous considerations related to the impact of the pandemic on the allowance, whether it is calculated under the incurred-loss model or CECL. Here are a few related to CECL implementation, loan modifications, and qualitative or forecast components.