CECL and Static Pool Analysis

If our industry had its own Loch Ness monster, we could call it CECL, and we’d be waiting with bated breath for official sightings. Until then we’re moving forward with credit unions and vendors who are  figuring out a strategy for responding to the FASB Current Expected Credit Loss (CECL) standard, currently scheduled to be implemented 1/1/23.

This recipe is about the work we’ve done far and the approach our CUSO will be taking.

Where We Are Today

To date credit unions seem to be settling out into one of the following camps:

  • CUs who are partnering with a vendor (such as McQueen Financial Advisors or nCino formerly Visible Equity) and working with CU*Answers to develop a custom file exchange process
  • CUs who are partnering with a consultant (such as Plante Moran) and developing internal routines, procedures, and calculations to collect data
  • CUs who are developing their own routines, procedures, and calculations internally
  • CUs who are doing nothing

Many credit unions have already partnered with a vendor and there may also be situations where credit unions have chosen to partner with other vendors where no data exchanges are required (or the data exchanges they do require are minimal and they are processing them internally without our assistance).  Therefore we have instructed clients to follow their instinct with what they feel is the best decision for their credit union.

We do not currently have any projects underway for a “standardized” database file for CECL, as to date there has been no consensus as to what that might actually be.

What the NCUA is Saying

In September 2022, the NCUA released a new tool to help credit unions comply with the Financial Accounting Standards Board’s accounting standards on CECL.   Their CECL Tool is intended for use by credit unions with under $100 million in assets, although it could be used by larger credit unions based on the discretion of the CU’s management and officers.

Visit the CECL Resources Page on the NCUA Website 

Static Pool Analysis

CU*Answers developed a Static Loan Pool analysis tool which is a web-based analysis tool where credit unions can choose to review all loans opened in a specific year (the pool) and that pool will remain open until all loans from that pool are paid off, charged off, closed, etc. Phase 1 of this feature is available today; we are continuing development on this tool and we see it as being helpful to credit unions whom are studying their loan portfolio. Some of the loan pool statistics available include:

  • Average Payments Remaining
  • Average Payment Amount
  • Average Loan Term
  • Average Weighted Average Rate
  • Total Disbursement Limit
  • Average Credit Score
  • …and so on.

For more information on the Static Pool Analysis toolkit please reference the resources linked below. We will continue to grow and enhance this Static Pool Analysis toolkit as this regulation continues to materialize.

Open the Static Pool Analysis flyer

Original Research and Evaluation

A few years ago CU*Answers evaluated early CECL solutions offered by 3rd party vendors.  We collected their requested file layouts, read their white papers, and analyzed their CECL calculation methodologies.  The variations we found between vendors confirmed that the best approach to CECL is very much in the eye of the beholder.

Our original hope was to establish one consistent file layout which was compatible with many vendors’ CECL solutions, keeping our costs low and your options open.  However, the variations in data requirements across vendors, both in terms of history as well as the fields required, was diverse enough to rule out a one-size-fits-all approach.

Loan Pooling, Historical Losses, and Additional Fields

CECL is based on the concept of grouping your loan portfolio into pools of similarly characterized loans and then analyzing your losses per pool.  Although the existing Concentration Risk tools are valuable, CU*BASE does not currently support the custom pooling of your loan portfolio, complicating the tracking of pool performance over time and the allocation your historical losses.

But what CU*BASE does have is a great deal of data about previously closed loans, going back to when you first converted to the CU*BASE platform.  We will continue to enhance our data availability including tracking DTI and LTV at the time of origination and enhancements in the written-off / charged-off loan database.

Additionally, as you explore your CECL options you may encounter the need to begin tracking additional data points on your loans for use in future CECL calculations or pooling.  This need aligns perfectly with our Unique Data Management tool, which is a credit union-managed database of user-defined fields capable of holding data at either the member or the account level.  As these needs arise in your unique approach to pooling, please consider this as a free solution which avoids the need to turn to custom programming projects.

Our Approach

CU*Answers is committed to being one of your valued CECL partners.  However, until a unified voice emerges from the marketplace we have little option but to build vendor-specific solutions as they are brought to us.

Our goal is to become an expert at:

  • Collecting data from CU*BASE tables, including gathering loan-related data and generating pool analyses per vendor requirements,
  • Warehousing data archived for CECL analyses, whether natively in CU*BASE or via a data warehouse strategy, and
  • Moving data to your chosen CECL vendors to do the calculations.

We will give evidence of this expertise via our documentation of available services for the DIY player (the finance departments of our credit unions), as well as by the number of marketplace vendors for whom we support data transfers.

Don’t wait to plan your CECL strategy!  The vendor integrations require a custom programming request and project lead times will vary.  Please contact the Asterisk Intelligence team to discuss your project.

Projects in the Works

  • Several credit unions have already signed up with McQueen Financial Advisors (www.m-f-a.com). McQueen’s CECL Solution offers a clear, understandable, regulatory-compliant, and easy-to-implement methodology tailored to each credit union. CU*Answers and McQueen have agreed on file formats and a seamless data transfer that will replicate the ease-of-use already in place for ALM reporting. McQueen offers a full range of services, policy development, internal training, data analysis and early adoption decision making. As soon as practical, McQueen will produce parallel runs in order to assess the overall CECL impact compared to current methods. McQueen’s service includes investment holdings, which are not provided by some other CECL vendors.
  • Other credit unions have committed to a joint partnership with CU*Answers and nCino (formerly Visible Equity) to fulfill their CECL requirements including the calculation of their expected credit loss. A final file layout has been agreed upon between CU*Answers and n Cino.  Many credit unions are live with monthly data transfers to nCino and services are active.  The remaining credit unions’ projects are in development.

Chefs for this recipe:  Audit Link and Asterisk Intelligence

September 22, 2022

2 Responses to “CECL and Static Pool Analysis”

  1. Greg Truex

    We are jumping back into CECL. Our sponsor is a church extension fund with loans requiring CECL as well. They are leaning towards the WARM (weighted average remaining maturity) method, as opposed to Vintage or Static Pool. Do we have any tools similar to 1680 (Static Pool) for WARM?

    I have also reached out to McQueen Financial, as we may choose to outsource this.


    • Dawn Moore

      Per our Asterisk Intelligence team: There are a handful of approved “CECL Calculation Methodologies” (think different formulas or different calculations) which auditors/examiners approve to be used for calculating allowance for loan and lease lose reserves under CECL, including Static Pool Analysis, WARM (Weighted Average Remaining Maturity), Vintage Analysis, Discounted Cashflow, PD (Probability of Default), and others.

      When it comes to native CU*BASE or Analytics Booth tools/features intended to assist with CECL, CU*Answers has so far focused on Static Pool Analysis. Based on our research and recommendations from industry experts, we determined that SPA was most fitting for the majority of our credit unions. SPA is designed for “non-complex” financial institutions (less than $1B in assets) and does not require decades of historical data, making it one of the easier approaches to take.

      While CU*BASE doesn’t have specific features designed to assist credit unions with a WARM CECL calculation, we might have other tools and resources that could be used to assist with the task. The Asterisk Intelligence team would be very happy to work with you to determine your data needs for your approach to CECL, and offer assistance and recommendations of tools to use to locate the data you need! Contact: AI@cuanswers.com.


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