Bankers are agitating over a new accounting standard, imploring Congress to pass legislation to delay implementation. But the CFO of a credit union that has already adopted the current expected credit loss standard called the switch easy, regulators helpful and the benefits immediate.

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%.

CFO Bob Bogart said $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 said in an interview. Under the previous accounting standard, the credit union was not allowed to build a reserve since the loans were still performing.

Industry groups are pushing for a delay in CECL's implementation date, which is set for 2020 for many banks. Politicians have been receptive and on May 21 introduced legislation to delay implementation and conduct a quantitative study. Rep. David Scott, D-Ga., said the standard would be "absolutely devastating" for small banks and credit unions.

Bogart said CECL is not difficult for small credit unions like Georgia United, which has $1.2 billion of total assets with 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 tiny institutions with less than $100 million of assets.

"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.

While Georgia United's reserves increased fourfold in a single quarter, banks will not likely need a build that big. Georgia United's reserves totaled 2.51% of loans in the first quarter, a level matched or exceeded by more than 200 banks. The industrywide median is 1.19%.

Joseph Breeden, CEO of Prescient Models, a consultancy that builds CECL models, said many credit unions will need to ramp up reserves due to CECL. Credit union regulators have historically discouraged significant reserve builds since they view the institutions as nonprofits that should not retain capital. By contrast, banking regulators encouraged reserves as part of a safety-and-soundness focus. CECL will force a harmonization in provisioning practices between credit unions and banks, he said.

"What we're seeing generically is that credit unions are, on average, under-reserved by a factor of two and community banks are over-reserved by a factor of two," Breeden said. On average, community banks will release reserves after adopting CECL, Breeden said.

Georgia United started by digging into its portfolio and testing various loan types, such as the performance of fixed-rate loans versus adjustable-rate loans. Bogart said it was clear there was little variation in historical credit losses across the credit union's various product types.

"We stopped at that point in time and said, 'It doesn't make sense to get any more granular with this calculation.' And we started to have some conversations with the [Federal Financial Institutions Examination Council], and they supported that same thought process that is, 'Let's not overthink this thing,'" Bogart said.

Bogart estimates the credit union has spent 120 hours, cumulatively, researching the topic and implementing the standard. The credit union uses CUmetrics, a third-party vendor, which took 11 years of call report data to produce loss histories that are applied across the institution's portfolio. Michael Stinson, CEO of the company behind CUmetrics, said the product costs less than $10,000 per year, including modeling software and technical accounting advice.

Bogart said regulators have made it clear that small, noncomplex institutions do not need to "re-create the wheel" and can use a similar approach to the incurred-loss model, the current industry standard that CECL is replacing.

"There are not a lot of differences, conceptually, between those two theories," Bogart said. "I do think there are a lot of consultants out there who would like people to think they're very different."

Did you enjoy this analysis? Click here to set alerts for future Data Dispatches. Click here for a template of community banking industry projections under various CECL scenarios. For additional CECL coverage: CECL reserve builds will prove inadequate, spur US bank earnings volatility Despite its intention, CECL could fail to prepare community banks for a downturn