Independent Banker - April 2020 - 68

need to look at the impact of key
factors of their loan loss estimates,
including unemployment, models
need to be attuned to local conditions,
Kendrick says. For example, Midwest
ag banks will care a lot more about
crop prices and crop loss estimates
than an East Coast bank that serves
urban and suburban communities.
Community bankers should be
having conversations with their core
providers about developing ways to
pull data out of the system and test
the results.
One roadblock is that many
community banks' core systems
aren't able to store a lot of data,
limiting the availability of historic
data, especially for banks with recent
merger or acquisition activity, says
Robby Holditch, director, SME and
accounting solutions at Moody's
Analytics, which is based in New York
City. Alternatives to homegrown data
include call reports and purchasing
peer data.
Since 2018, $406 million-asset
The Fountain Trust Company in
Covington, Ind., has been gathering
loan-level data on a monthly basis and
entering it in the community bank's
core provider's data management
system so it has historical data, says
president Lucas White. Later this
year, The Fountain Trust Company
plans to segment its loan portfolio and
then choose a methodology.
" There are so many unknowns
from the segmentation as to how you
use peer data, " says Curt Allison,
chief lending offi cer at The Fountain
Trust Company. " What Q factors
are applicable to our specifi c loan
portfolio? A big challenge, frankly, is
most community banks, at least in
Indiana, are experiencing historically
low loan losses, so we don't have
anything to go off of the last four to
fi ve years. "
Most smaller fi nancial institutions
are starting with historical loss
methodology, which most closely
mirrors the current incurred
loss calculations and result, says
Danny Baker, vice president of
market strategy, fi nancial and risk
management solutions at Fiserv,
which is based in Brookfi eld, Wis.
He says it's also likely that banks
may fi nd themselves using diff erent
methodologies for diff erent parts of
the portfolio.
" CECL compliance will be an
iterative process, so institutions
should remain agile in their use of
models and methodologies, " he says,
" and in their ability to gather the
associated required data. "
" THERE IS
SO MUCH
OPPORTUNITY
HERE FOR
THOSE THAT
WILL THINK OF
IT FROM AN AI
AND ANALYTICS
[PERSPECTIVE]. "
-Danny Baker, Fiserv
CECL as a strategic
opportunity
While many community bankers see
CECL as a compliance hassle, they
would be well-served to look at CECL
as a strategic opportunity, Baker says.
According to Baker, data is an
increasingly valuable commodity, and
the more data a community bank has,
the more models are available, giving
them the potential to uncover insights
that help make decisions about what
products to off er, where they should
be off ered and what price.
" There is so much opportunity
here for those that will think of it
from an AI and analytics type of
68 Q ICBA Independent Banker Q April 2020
thinking, " Baker adds.
Zimmerman suggests the most
valuable CECL resource a community
bank has is its independent certifi ed
public accountant. They are the
CECL experts who will review the
calculations and disclosures and
render an opinion on the fi nancial
statements.
" You don't necessarily have to go
out and hire consultants and spend a
lot of money, " Zimmerman says. " You
don't want to overengineer it. "
Kelly Pike is a writer in Virginia.
A CECL
TO-DO LIST
Determine what
disclosure methodology your
community bank will use
Figure out what data your
bank needs
Talk to your bank's core
data processing provider
about how to collect and
analyze data
Collect and test data
Start calculating CECL
estimates
Upgrade your bank's
allowance for loan and lease
loss calculation (ALLL)
Prepare disclosures
Independent Banker - April 2020

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