Gems from the Generals- Day 3 of National ALLL Conference General Sessions

Notes from the General Sessions of Thursday, May 25, 2017:

Session: Beyond Compliance

Presenters: Chad Kellar, Crowe Horwath; Ben Hoffman, KPMG; Vince Milano, Postlethwaite & Netterville

• Generally recommending methodologies be put in place four to six quarters before you go live. 

• If the institution is selling, CECL might make you more attractive by giving the acquirer a better view of your portfolio. 

• CECL will mean a fundamental change in how you are valued. 

• Your auditor will be more interested in the directional consistency of your projections than exact amounts.

Session: The Expanding Role of Disclosures

Presenters: Rahul Gupta, Grant Thornton; Dorsey Baskin, MST Advisory Services

• The concept of impaired loans will no longer exist in GAAP under CECL. 

• The definition of a purchased credit deteriorated (PCD) asset is different than purchase credit impaired (PCI) loans under ASC 310-30. 

• For purchased loans, reporting must be on the basis of the loans’ years of origination, not dates of acquisition. 

• As changes in your portfolio reflect a change in the amount of your allowance, you need to explain why you need such a provision. 

• Vintage disclosure is required even if vintage is not your methodology. 

• SEC banks are required to disclose material changes in internal controls.

Session: The Divided States of America

Presenters: Tom Cunningham, MST Advisory Services; Bart Smith, Performance Trust Capital Partners; Mike Gullette, American Bankers Association

• We are in the middle of very serious economic bifurcation. 

• Economic recovery has been limited mostly to the college educated. 

• The Financial Choice Act is a horrible rule with a horrible impact on the industry. 

• It takes 212 ten billion dollar banks to equal one Chase. 

• Community banks will go away if they don’t have a long-term strategy for their existence, but there is also great opportunity in community banks.

Session: What Are We Waiting For?

Presenters: Graham Dyer, Grant Thornton; Rahul Gupta, Grant Thornton

• If your loan emergence period (LEP) is longer than your contractual loan period, your allowance might actually go down under CECL. 

• TDRs will likely come back to the FASB for further consideration because there are many unaddressed issues with TDRs. 

• There is no clear consensus on the definition of a public business entity (PBE). 

• Don’t buy prepackaged software for CECL; there is no off-the-shelf solution that will work. A solution that allows the financial institution to define it’s methodology is better. Lenders must use their institutional knowledge to create a model that works with their portfolio

The MST 2017 National ALLL Conference was dedicated to everything involved in transitioning from incurred loss to CECL modeling. Attendees left the conference with the information, ideas and insights that will allow them to lead the transition to CECL compliance for their institutions. From hard and fast rules to anecdotal commentary, the nation’s leading experts on the ALLL shared their knowledge and observations through three days of education and interaction. In this and two other blogs, we share some of the gems from each day’s general sessions.

Day 1 Session Notes

Day 2 Session Notes

Coming soon: The MST 2017 National ALLL Conference Digest, a compilation of summaries of conference general sessions and workshops.