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CECL: Confusion or Relief 

A provision of the CARES Act, which was signed into law March 27, allows Larger SEC registrants that have implemented CECL as of January 1 to delay CECL reporting to either the end of this year or 60 days after the declaration of the end of the COVID-19 national emergency. The delay was proposed as a way to allow the banks to save their capital—and their focus—for the anticipated increase in loan demand during the crisis. But the delay, however well-intended, is creating more confusion than relief. When considering the practical application, the bill does not excuse the banks from doing the CECL calculation as they will eventually have to perform for all 2020 quarters (at least to the extent they need to support SAB 74 requirements). For most banks complying with the Q1 2020 start, staying with CECL and the original reporting dates is the more practical option.

Here are the key points for clarification:

Banks that delay…

  • Have the option to delay Q1 2020 filing until July 1, 2020, as per SEC Staff Accounting Bulletin Topic 11.M.
  • That continue to use the Incurred Loss method must continue providing the qualitative and quantitative disclosures about the effects of the adoption of the CECL standard.
  • Will have until the earlier of December 31, 2020, or 60 days after the declared end of the COVID-19 national emergency to begin filing in compliance with CECL.
  • Must continue to perform the allowance each quarter using the Incurred Loss model.
  • Must revert any acquisition accounting to report in accordance with ASC 310-20 & ASC 310-30.
  • Continue running their CECL model each quarter, as you will be required to calculate CECL results for each quarter at the end of the national emergency or December 31, 2020, whichever comes first.
  • Continue running their CECL model each quarter to support SAB 74 and to prepare for immediate adoption if the national emergency gets lifted.

While the delay might have initially appeared as an easing, it would result in a greater burden on bank staff and resources. That’s becoming more evident to Larger SEC filers. Our recent client survey revealed that 75% of those who initially said they’d take the delay have since decided to move forward with CECL as of Q1 2020.

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As part of an annual study that began in 2020, Valuant conducts analysis on ASC 326, commonly referred to as “CECL”. The study contains key data statistics and insights around the US Regional and Community Banking sectors and the impact CECL has on their Allowance for Credit Loss (ACL) Coverage Ratios.

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