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Current Important Topics

CECL ( Current Expected Current Loss)

What is the effective date for CECL?

The FASB pushed back the effective date of CECL from January 2021 to January 2023 for smaller reporting companies as defined by the Securities and Exchange Commission (SEC) and from January 2022 to January 2023 for nonpublic companies.

What to do?

The CECL standard is rapidly approaching for all financial institutions that have not yet implemented. The time is now to prepare for your implementation date. When it comes for preparing for you CECL implementation, there are three (3) high level tips you can use for consideration to help get you ready.

1. The Lifetime Loss Approach:

Smaller financial institutions are using annual loss experiences to calculate the historical loss rate, but the annual loss rate can no longer be used for calculating historical loss experience under CECL. The new standard requires the loss rate to be based on some form of lifetime loss approach, and the method for calculating the lifetime loss rate is fairly open.

If the financial institution plans on piggybacking off their current method of loan loss calculation based on annual loss rate, modifications to the lifetime loss approach will be required. It is important to note the one exception to this—the WARM method. Under the Weighted Average Remaining Maturity (WARM) method, an annual loss rate is applied to the projected paydown of existing loans. This method is expected to be popular with small community banks. It’s important to stay compliant with loss calculations to ensure you are prepared for implementation.

2. The Three (3) Elements to CECL:

The allowance calculation for CECL is equal to: Historical Loss rate +/- Current Economic Conditions/Qualitative Factors +/- Reasonable Forecasted Economic Conditions. Many of the discussions on CECL focus on the historical loss calculation and not the current economic/qualitative factors and the forecasted economic elements of the CECL calculation. As part of the education process, you should look for information that covers all aspects of the CECL calculation process.

3. Historical Data:

Obtaining historical loan data may be difficult, or it may be limited. In order to find this information, consider using previous monthly reports that show loan information related to that month. These can come from Board or Credit Committee Meetings. From this information, your bank will be able to calculate the historical loss rate.

Reference: What you need to know about CECL Article / 11-16-21 / By Gary Smith, CPA & Brian Finley

Emerging Issues

E-Sign Modernization Act / S. 3715

  • 03/01/22 Introduced in the Senate by John Thune

Key Provisions:

  • Electronic Signatures in Global and National Commerce (E-SIGN) Act
  • Would streamline how consumers consent to receiving electronic documents (e.g., bank statements, account information, and contracts).
  • Would help ensure that customer requests to access digital banking services are quickly honored.
  • Would remove the current requirement for consumers to reasonably demonstrate that they can access documents electronically before they can receive an electronic version.

Cyber Incident Reporting For Critical Infrastructure Act / H.R. 5440

  • 09/30/21 Introduced in the House by Yvette Clarke
  • 03/15/22 Signed by the President, Enacted as Division “Y” of the Consolidated Appropriations Act, 2022 (H.R. 2471: P.L. 117-103)

Key Provisions:

  • Would require critical infrastructure entities and federal agencies to report cyber incidents within 72 hours to the Cybersecurity and Infrastructure Security Agency and any ransomware payments with 24 hours.

DIAPER Act / S. 3660

  • 2/16/22 Introduced in the Senate by Joni Ernst.

Key Provisions:

  • Diaper Inclusion in Accounts for Parental Expense Reduction Act (DIAPER)
  • Would permit funds in Health Savings Accounts (HSAs) and Flexible Spending Arrangements (FSAs) to be used to purchase disposable infant diapers.