Bank Director | How CECL Can Make Your Bank Better
By Kiah Lau Haslett, Bank Director
July 17, 2019
CECL was just the opportunity that Glen Stiteley was looking for.
Stiteley joined County Bancorp, an agricultural-focused lender with $1.5 billion in assets, as chief financial officer in August 2017. Like many community banks, Stiteley says the Manitowoc, Wisconsin-based bank could sometimes be “tools cheap” when it came to internal operations, relying on its core vendor and struggling to leverage its own data in decision-making. That included the loan-loss allowance, which had been calculated on an Excel spreadsheet.
By contrast, Stiteley is a self-described “data guy” and is always looking for ways that the bank can improve through information and software. CECL presented him with a challenge—but also an opportunity—to improve how the bank gathers and analyzes its data.
“I try to take advantage of things like [CECL] to say, ‘How can we do things better?’” he says. “We hadn’t analyzed our data very well and hadn’t used it very well.”
County Bancorp elected to upgrade the Excel spreadsheet to a vendor solution from Sageworks (which is now part of the technology company Abrigo), and has been grabbing and scrubbing its data for a year. Stiteley says CECL implementation showed him the gaps and limitations within County Bancorp’s analytics, and has positioned the bank for improved profitability.
The current expected credit loss standard, or CECL, is a demanding undertaking for banks. Executives are rightly concerned about the time and expenses associated with various aspects of the standard, including data quality, modeling and the impact on the bank’s allowance and potential reduction in capital. But CECL implementation allows banks an unusual opportunity to make significant improvements to their data, internal controls, analytics and modeling. The standard could be an opportunity for many institutions to upgrade legacy systems and approaches. It could also help banks better understand their risk, increase profitability and, of course, proactively reserve.
CECL will require banks to reserve for lifetime loan losses at origination rather than later, when a loan shows signs of impairment. To create a lifetime loss allowance, banks will need to analyze historical loss information to see how those assets perform throughout various economic cycles, and pair that with a future economic forecast that is reasonable and supportable from an audit perspective. The bank would reserve for future losses based on both this forecast and the historical losses for loan durations that go beyond the forecasting period.
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