The Financial Accounting Standards Board (FASB) recently voted to finalize the effective date of its proposed regulations on measuring loan-loss reserves. The sweeping regulations will require a forward-looking “expected loss” (CECL) approach instead of the “incurred loss” approach effective today. For public businesses entities (PBE) that meet the definition of an SEC filer, the final standard will be applicable from December 15, 2018, including interim periods.

For non SEC filer PBEs & other entities, the guidance will be applicable from December 15, 2019 and December 15, 2020, including interim periods, respectively. During the discussion, FASB members also accepted a staff recommendation to amend the proposed standard on troubled debt restructurings (TDRs).

The earlier version of guidance would have mandated a cost basis adjustment made upon a TDR, but post review the credit losses upon TDR would be measured using CECL Models only. The board also approved the final effective timelines for the new standards on Classification & Measurement and Leases, aligning it with CECL for a “Big Bang” adoption, to help banks manage changes and costs better.

FASB Chairman, Russell G. Golden noted, “The upcoming standards on the recognition and measurement of financial instruments and credit losses will bring greater transparency to financial statements”. The board discussed the remaining issues in the November 23 meeting and the final guidelines on CECL are expected to be published in early 2016.

In FASB’s November 11 meeting, the board re-deliberated two “fatal flaw process” matters: troubled debt restructurings (TDRs) and available-for-sale (AFS) securities. FASB also discussed on the “big-bang” adoption date for CECL and other matters of interest: Leases and Financial Instruments: Classification and Measurement.

In the concluding session of the 2-part webinar ‘CECL Guidelines Facts Round-up’, Ardmore Banking Advisors and Fintellix Community Banking Solutions will discuss the prescribed CECL methodologies in detail to uncover the intricacies of suitable methodologies.

The webinar will cover -

• Overview of all suggested methodologies
• A deep dive into Vintage analysis
• Basics of Cohort Analysis
• Pros and Cons of Vintage and Cohort Analysis

The recent developments around CECL are part of a wave of standardization of banking supervision across the banking industry globally, especially considering enhanced financial reporting, risk measurement and management. These initiatives have been steadily expanding the regulatory burden on community banks and increasing the cost of regulatory compliance.

The Ardmore - Fintellix alliance addresses the need for a comprehensive solution that can help community banks and credit unions more easily manage their regulatory compliance needs, and enable bank management to focus on business growth and profitability.

Ardmore and Fintellix have been working behind the scenes to help Community Banks prepare for CECL including the “Cost impact of CECL study” conducted by the Ardmore Fintellix team at the Bank of Lancaster, VA. Through the study, the Ardmore Fintellix team helped the bank understand the various components of the cost and also produced a tool to help banks of various sizes compute the cost impact of CECL.

Following the study, Deb Evans, CFO of Bank of Lancaster, Kilmarnock, VA said, “The Ardmore Fintellix team really knows their CECL stuff.  Not only are they a pleasure to work with, but  I was impressed with their 'quant' abilities and the process even helped me learn more about the capabilities of my bank's core system to address the data needs of CECL”.

The Ardmore Fintellix partnership delivers a unique ‘local/global’ alliance that combines global expertise, local experience, and next generation technology solutions to lower the cost of compliance for community banks and credit unions. Through this alliance, US financial institutions have the advantage of a CECL-ready ALLL solution powered by a comprehensive credit data warehouse delivered through a pay-as-you-go Software as a Service (SaaS). Ardmore’s seasoned community bank credit professionals ensure that the ALLL solution is tailored for each bank’s specific needs and business model.