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Small Bank Executives Say More Resources Needed to Implement Credit Loss Standard

To prepare for the Financial Accounting Standards Board’s (“FASB”) credit loss standard, Bank of America assembled a 50-employee team. Small community banks, however, lack the resources and workforce to effectively comply with Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

This issue was highlighted recently during a panel discussion at the AICPA’s National Conference on Banks and Savings Institutions in Maryland. Greg Saville, executive vice president of Kansas-based First National Bank, argued that his entire bank is of equal size to Bank of America’s assembled team. Saville also noted that he is First National’s lone employee assigned to implement the new guidance, and that the bank will likely seek an outside vendor to help.

Other barriers that First National faces in applying the standard is it does not record credit scores. Once a customer pays off a loan, the loan data is purged. This practice will change when First National implements ASU No. 2016-13. Saville also noted that the bank’s directors have yet to understand the new guidance. Some board members have even asked when President Trump would overturn it; presidents, however, do not have the power to repeal accounting standards.

Backing Saville was David Boyle, chief financial officer for Pennsylvania-based Orrstown Bank. Boyle said smaller institutions need additional time to implement the guidance. He noted that in the past two years, seven or eight employees have worked on meeting the 2020 effective date.

The FASB has acknowledged that a bank’s size will impact its implementation process. Last month, the board issued a proposal to delay the standard’s effective date for many community banks and credit unions to 2022.

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