cecl: planning & preparing€¦ · cecl committee. data gap analysis. review/ select solution....
TRANSCRIPT
![Page 1: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/1.jpg)
CECL: Planning & Preparing
What we need to know
![Page 2: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/2.jpg)
Presenter
Tully MaragakisVP, CU Accounting ServicesCarolinas Credit Union League
2
![Page 3: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/3.jpg)
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
3
![Page 4: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/4.jpg)
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.
4
![Page 5: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/5.jpg)
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
5
![Page 6: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/6.jpg)
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
6
![Page 7: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/7.jpg)
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
7
![Page 8: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/8.jpg)
CCUL Resources: Timeline & Worksheet
8
![Page 9: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/9.jpg)
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
9
![Page 10: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/10.jpg)
We should be thinking about…
• Historical Data• Methods• Segmentation• Q Factors• Reporting
10
![Page 11: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/11.jpg)
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
11
![Page 12: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/12.jpg)
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
12
![Page 13: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/13.jpg)
Data
13
![Page 14: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/14.jpg)
Data
14
![Page 15: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/15.jpg)
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
15
![Page 16: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/16.jpg)
METHODS
16
![Page 17: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/17.jpg)
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
17
![Page 18: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/18.jpg)
Methods
• A good ALM Model will already incorporate DCF and/or migration– Does it have a historical database?– Can it incorporate less complex methods?
18
![Page 19: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/19.jpg)
Interagency Webinar
• Discussed the following 3 methods:– Remaining Maturity– Historic Loss Rate/Snapshot– Vintage
19
![Page 20: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/20.jpg)
Incurred Loss
20
![Page 21: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/21.jpg)
Remaining Maturity
21
![Page 22: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/22.jpg)
Remaining Maturity
22
![Page 23: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/23.jpg)
Remaining Maturity
23
![Page 24: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/24.jpg)
Remaining Maturity
24
![Page 25: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/25.jpg)
Historic Loss Rate/Snapshot
25
![Page 26: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/26.jpg)
Historic Loss Rate/Snapshot
26
![Page 27: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/27.jpg)
Vintage
27
![Page 28: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/28.jpg)
Not to be confused with Vintage Report
28
![Page 29: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/29.jpg)
Vintage
29
![Page 30: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/30.jpg)
Vintage
30
![Page 31: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/31.jpg)
Vintage
31
![Page 32: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/32.jpg)
Migration
32
![Page 33: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/33.jpg)
Discounted Cash Flows
33
![Page 34: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/34.jpg)
Economic Metrics
34
![Page 35: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/35.jpg)
Forecasts — Base
35
![Page 36: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/36.jpg)
Forecasts — Adverse
36
![Page 37: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/37.jpg)
Adjustments
37
![Page 38: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/38.jpg)
Adjustments
38
![Page 39: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/39.jpg)
Document
39
![Page 40: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/40.jpg)
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?
40
![Page 41: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/41.jpg)
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
41
![Page 42: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/42.jpg)
Follow-Up CECL Trainings
• June 2020• June 2021• June 2022
42
![Page 43: CECL: Planning & Preparing€¦ · CECL Committee. Data Gap Analysis. Review/ Select Solution. Preliminary Modeling. Review Model with Auditors. Final Model & Validation • Consider:](https://reader034.vdocument.in/reader034/viewer/2022050204/5f5793a325393f34611c5ed1/html5/thumbnails/43.jpg)
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]
43