cecl: planning & preparing€¦ · cecl committee. data gap analysis. review/ select solution....
TRANSCRIPT
CECL: Planning & Preparing
What we need to know
Presenter
Tully MaragakisVP, CU Accounting ServicesCarolinas Credit Union League
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Purpose
• Credit unions asked what the Carolinas Credit Union League is doing with respect to CECL
• Give credit unions an informed start• Examiners will soon begin asking the
status of CECL implementation
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SpeakerThomas CaragherDirector, Product Management, Online CECLZM Financial Systems
• As Director of Product Management at ZM Financial Systems, he is responsible for the overall direction and strategy for the company’s on-line CECL solution.
• Before joining ZM Financial Systems he spent 12 years as the Sr. Product Manager for the risk products at a financial software company.
• Prior to that, Tom spent 5 years as an interest rate risk consultant as well as several years at the Chicago Board of Trade in back office operations and a credit analyst for GreenTree Financial.
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Discussion
When it comes to CECL planning, preparing and asking questions will make life easier.
In this session, we will discuss:• Timelines• Planning• Data• Most commonly discussed methods• Data to consider for those methods• Q Factors
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Effective Dates - Original• Measure impact as of:
– SEC Filers — January 1, 2020• Adopt Q1 2020
– Public Business Entity — January 1, 2021• Adopt Q1 2021
– Non-Public Business Entity — January 1, 2022• Modified effective date to Jan. 1, 2022 for non-public business
entities– Purpose: To correct the effective date for non-public
business entities to match the FASB’s original intention to have an extra year
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Effective Dates – and then things change (proposed)
• Everyone else = January 2023 (assuming calendar year company)
• SEC registrants that do not meet the definition of a smaller reporting company or emerging growth company = no change
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CCUL Resources: Timeline & Worksheet
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Preparation is critical
Establish CECL
CommitteeData Gap Analysis
Review/ Select
SolutionPreliminary Modeling
Review Model with Auditors
Final Model &
Validation
• Consider:– The amount of data needed– The amount of currently stored– Running parallel for a year prior to the first filing
• Is there a gap between what you need to do and what you can do?
• ZM Financial Systems can help bridge that gap and help meet the CECL mandate
Data capture and model development should begin immediately
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We should be thinking about…
• Historical Data• Methods• Segmentation• Q Factors• Reporting
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Build a team• Create a “CECL Committee”
– This is important for visibility and transparency– Regulators encourage building a committee
• Understand how much of each type of data are needed
• Review existing allowance for loss calculation and credit risk management practices to identify processes that can be leveraged– See if your ALM system already credit adjusts cash flows
and provides the discounted cash flow methodology– See if your ALM system incorporates third party loss
metrics for benchmarking
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Need historical data to support assumptions
• Sample data points:Original LTV Original Balance Non-Performing FlagCurrent LTV Current Balance Charge-Off AmountsOriginal FICO/Credit Rating Rate Recovery AmountsCurrent FICO/Credit Rating Rate Type Days DelinquentRegion — City/State/Zip Payment Type Expense Related toOrigination Date Payment Frequency Disposal RecoveryMaturity Date Cost Center Loss Probabilities
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Data
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Data
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Need historical data to support assumptions
• Sample data points:Original LTV Original Balance Non-Performing FlagCurrent LTV Current Balance Charge-Off AmountsOriginal FICO/Credit Rating Rate Recovery AmountsCurrent FICO/Credit Rating Rate Type Days DelinquentRegion — City/State/Zip Payment Type Expense Related toOrigination Date Payment Frequency Disposal RecoveryMaturity Date Cost Center Loss Probabilities
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METHODS
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Methods
• The most commonly discussed methods:– Remaining Maturity– Historic Loss Rate/Snapshot– Vintage– Migration– Discounted Cash Flows (DCF)
Less
Com
plex
, Dat
a In
tens
ive
& Se
nsiti
veM
ore Com
plex, C
omputational
Intensive & Sensitive
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Methods
• A good ALM Model will already incorporate DCF and/or migration– Does it have a historical database?– Can it incorporate less complex methods?
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Interagency Webinar
• Discussed the following 3 methods:– Remaining Maturity– Historic Loss Rate/Snapshot– Vintage
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Incurred Loss
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Remaining Maturity
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Remaining Maturity
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Remaining Maturity
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Remaining Maturity
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Historic Loss Rate/Snapshot
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Historic Loss Rate/Snapshot
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Vintage
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Not to be confused with Vintage Report
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Vintage
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Vintage
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Vintage
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Migration
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Discounted Cash Flows
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Economic Metrics
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Forecasts — Base
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Forecasts — Adverse
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Adjustments
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Adjustments
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Document
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What method is right for you?• Remaining Maturity• Historic Loss Rate/Snapshot• Vintage• Migration• Discounted Cash Flows (DCF)
Consider your size and complexity. • What types and how much data do you
have?• How do you want to segment?
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What options do you have?
• The more data you have, the more options you have
• With more data and options, Q Factors can be better estimated
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Follow-Up CECL Trainings
• June 2020• June 2021• June 2022
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Questions?
Thomas CaragherDirector, Product ManagementZM Financial Systems
Office: 919.246.4517Cell: [email protected]
Are you ready for CECL?Now available with ZMdesk V 4.7 or OnlineCECL
Tully MaragakisVP, CU Accounting ServicesCarolinas Credit Union League
Office: 803.732.8442Cell: 803.397.2618 [email protected]
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