Pub. 6 2017 Issue 3

The CommunityBanker 16 CECL Myths and Realities: What the New Accounting Standard Means for Community Banks By Adam Mustafa, Invictus President mall community banks will actu- ally benefit most from the new Financial Accounting Standards Board current expected credit loss (CECL) model, even though they may face the toughest challenges in implementing the forward- looking process, according to an Invictus Group analysis of banks with assets below $50 billion. The analysis also found that: √ CECL would increase the al- lowance for loan and lease losses (ALLL) by nearly 18 percent, but the bigger banks will feel the brunt of the pain. √ Ironically, three out of four banks under $50 billion in assets will NOT feel a significant impact from CECL. Only about 25 percent of these banks are under-reserved and vulnerable. √ Bank size matters. The larger the bank, the more CECL should hurt. These findings fly in the face of nearly everything reported about CECL. When the proposal was first debated, even regulators suggested that it would in- crease loan loss reserves by 30 to 50 per- cent, especially for community banks. Those estimates were computed when the economy and the banking industry was still in the early stages of recovery from the Great Recession. Times have changed. Invictus calculated its CECL study by using its patented capital stress testing system, but turning off the stress and adjusting the time horizon to reflect S F E A T U R E