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Hybarger & Associates

Serving Small to Mid-Size Community Banks for over Thirty Years

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  • What We Do
    • Asset / Liability Management >
      • Budgeting
      • Performance Analysis
      • Forecasting
      • Quality Control
      • ALM Board Reporting >
        • The Directors' Financial Digest
        • The Executive Management Series
        • The Account Level Forecasting Series
      • Alternative Planning Scenarios
    • Interest Rate Risk >
      • Reporting for Interest Rate Risk
      • Assumptions & Back-Testing
    • Portfolio Management & Accounting >
      • The InvestWise Reporting Series >
        • Portfolio Management Series
        • Financial Management Series
        • Econometric Series
      • "Total Return" Investment Strategy
    • Liquidity Risk Management
    • Capital Adequacy & Analysis
    • Dynamic Strategic Planning
    • Comprehensive Funds Management Policy
    • CECL Overview >
      • Historical Analysis
      • "Currently" Identifiable Risks
      • "Specific" Potential Risks
      • Potential "Future" Risks
      • Traditional Reserves vs CECL
    • General Consultation >
      • Holding Company Systems
      • Balance Sheet Pricing Strategies
      • Regulatory Reporting
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CECL:
Current Expected
Credit Losses

("Cliff Notes")

Traditional Reserves
vs
CECL Reserves


Primary Objective of CECL:

To have a sufficiently precise level of reserves so as not to need replacement provisions at time of loss.
Picture
  • CECL Overview
  • Comprehensive Historical Assessment & Analysis
  • Assessment of "Currently" Identifiable Risks
  • Assessment of "Specific" Potential Risks
  • Assessment of Reasonably Identifiable and Potentially Probable "Future" Risks

Compare and Contrast

Traditional Reserves
vs
CECL Reserves


Traditional


Specific Reserves

plus

General Reserves

CECL


Assessment of "Specific" Potential Risks

plus

Assessment of "Currently" Identifiable Risks

plus

Assessment of Reasonably Identifiable
and Potentially Probable "Future" Risks


Specific Reserves

Traditional


Specific Loss Estimates of Identified Weaknesses

Sometimes Anecdotal

(Typically based on Loan Classifications)

CECL


Assessment of "Specific" Potential Risks


Specific Loss Estimates of Identified Weaknesses

based upon

Actual Historical Evidence
~Historic Loss Profiles~

 (Expanded Scope of Analysis)

General Reserves

Traditional


Estimated Loan Cushion


Typically Anecdotal Only
(Often based upon industry estimates or standards)

CECL


Assessment of "Currently" Identifiable Risks

Must be based on Actual Historical Evidence

Must be Computed for each "Individual" Risk Asset.


Historical Annual Loss Experience
X
Average “Principal at Risk” for 1st Year (partial)
Plus
Historic Annual Loss Experience
X
Average “Principal at Risk”
for “Each” Successive Year
(or part of a year)

Reserves for Future Risks

Traditional


No Equivalent in Current System

(Perhaps Qualitative Factors)

CECL


Assessment of Reasonably Identifiable and
Potentially Probable “Future” Risks


Equals

Reserve for “Currently” Identifiable Risks
X
The “Future Economic Risk Coefficient”

Continue Reading:

  • CECL Overview
  • Comprehensive Historical Assessment & Analysis
  • Assessment of "Currently" Identifiable Risks
  • Assessment of "Specific" Potential Risks
  • Assessment of Reasonably Identifiable and Potentially Probable "Future" Risks

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  • Who We Are
    • Firm's Founder and History
    • Officers
  • Who We Serve
    • Who Are Our Clients
  • What We Do
    • Asset / Liability Management >
      • Budgeting
      • Performance Analysis
      • Forecasting
      • Quality Control
      • ALM Board Reporting >
        • The Directors' Financial Digest
        • The Executive Management Series
        • The Account Level Forecasting Series
      • Alternative Planning Scenarios
    • Interest Rate Risk >
      • Reporting for Interest Rate Risk
      • Assumptions & Back-Testing
    • Portfolio Management & Accounting >
      • The InvestWise Reporting Series >
        • Portfolio Management Series
        • Financial Management Series
        • Econometric Series
      • "Total Return" Investment Strategy
    • Liquidity Risk Management
    • Capital Adequacy & Analysis
    • Dynamic Strategic Planning
    • Comprehensive Funds Management Policy
    • CECL Overview >
      • Historical Analysis
      • "Currently" Identifiable Risks
      • "Specific" Potential Risks
      • Potential "Future" Risks
      • Traditional Reserves vs CECL
    • General Consultation >
      • Holding Company Systems
      • Balance Sheet Pricing Strategies
      • Regulatory Reporting
  • What Our Clients Say
  • How We Interface
    • What happens when we become a Client?
    • How are Fees Determined?