What Can Community Bankers Learn from Large Bank CECL Disclosures?

Last week (July 14 – 16, 2020) the four largest US banks began releasing their second quarter 2020 earnings reports and many analysts were focused on their updated estimates for credit losses anxious to see the effects of the Covid-19 crisis on these leading financial institutions. These second quarter 2020 earnings releases represent only the second time large bank provision expenses have been recorded using CECL, (Current Expected Credit Losses -ASU 2016-13), the new accounting standard for credit losses. This new credit loss standard was first implemented January 1st, 2020 by approximately 90 of the largest US banks meeting the FASB requirements for mandatory adoption, effectively placing nearly 80% of all US bank loans under the new CECL standard.

While many community bankers are still hoping that the effects of the new guidance will
never apply to them or that the standard will be repealed in whole, the reality is that most of
the banking industry, as measured by loan portfolio dollars (rather than by number of financial
institutions) has already adopted the standard. According to current FASB rules, community
banks and other smaller financial institutions aren’t scheduled to adopt the CECL standard until
January 1st, 2023.

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