DULUTH, Ga.—Even as CUs have been given more time to comply with CECL, the CFO of a credit union that has already adopted FASB’s current expected credit loss standard (CECL) called the switch easy, regulators helpful and the benefits immediate, according to one new report.
The response comes as credit unions have more than three years to come into compliance with the new accounting standard.
Georgia United CU implemented CECL in the first quarter, and the results on the depository's balance sheet are noticeable. The credit union's total reserves increased by 325% from the previous quarter, representing a nearly $19 million reserve build that reduced the credit union's net worth by 10.7%, S&P Global Market Intelligence reported.
CFO Bob Bogart told S&P Global Market Intelligence$15 million of the reserve build was tied to a troubled portfolio of commercial loans that the credit union is looking to liquidate. While the loans are currently performing, the value of the underlying collateral has deteriorated and the credit union wants to resolve the portfolio in the current market when its capital is plentiful and growth profile strong.
"Implementing CECL allowed us to look forward at the ultimate resolution of these things, and we determined that it was better to be proactive than wait for the shoe to drop," Bogart was quoted as saying.
Delay Until 2023
Under the previous accounting standard, the credit union was not allowed to build a reserve since the loans were still performing, S&P Global Market Intelligence noted.
As CUToday.info reported here, the Financial Accounting Standards Board (FASB) has agreed to delay the effective date its new current expected credit loss (CECL) standard until 2023.
Bogart said CECL has not been too difficult for the $1.2-billion Georgia United, which has a loan portfolio mostly composed of consumer real estate and auto loans. He said regulators have been proactive in providing helpful guidance documents. Georgia United was one of just a handful of credit unions to adopt CECL early, and most are smaller institutions with less than $100 million of assets, S&P Global Market Intelligence said.
"They probably came to the same conclusion that I did: This isn't a big deal. Let's just do it and get it behind us," Bogart said, adding that his assessment was limited to small institutions and that large, complex lenders would likely find CECL adoption much more taxing.
No banks opted into the CECL transition in the first quarter call reports, S&P Global Market Intelligence said.