Impacts of the Initial Adoption of CECL

This blog was drafted by my colleague Tessa Brockie, a manager in our Financial Services Group.

At the start of 2023, the vast majority of financial institutions adopted CECL. The impact of adoption varied for institutions based on asset size as well as the makeup of the loan portfolio. Although there are conclusions you can reach by evaluating the data, it cannot be understated that these two factors have a significant impact on the ultimate allowance level an institution recorded. The following data was generated using call report data from banks and credit unions that have adopted CECL as of March 31, 2023. 

This first set of graphs below show the percentage increase in the allowance based on the asset size of the financial institution, broken down between banks and credit unions.  

Banks

Credit Unions

Based on the graphs above, credit unions saw a greater overall increase in their allowance compared to banks.  This increase can be partially attributed to the allowance levels prior to adoption. As noted in the following tables, the average allowance to loan level for banks prior to CECL adoption was over 1%, whereas the average credit union allowance to loans was approximately 0.7%.

Banks

Credit Unions

In regard to portfolio makeup, the chart below shows the trends of banks over $1 billion in assets and the corresponding allowance by loan portfolio. For example, below it is noted that consumer loans tend to have a greater ACL balance to loan balance ratio when compared to other loan types as these loans may have weaker collateral support and more lenient underwriting criteria. This can also be seen in the trends in credit card allowance levels show below.   

Loan Category ACL Trends

Credit Card ACL Trends

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