Early CECL Adopter CU Saw 4 -Fold Increase in Loan Loss Reserves

S&P Global Market Intelligence provided insights into the impact of the current expected credit loss (CECL) accounting standard on one credit union's balance sheet.

Georgia United Credit Union (Duluth, GA) adopted the CECL standard in the first quarter of 2019.

The $1.2 billion credit union reported a 324.5 percent increase in allowances for loan and lease losses between the first quarter of 2019 and the fourth quarter of 2018 to $24.7 million. Its allowances for loan and lease losses to loans ratio went from 0.59 percent as of December 2019 to 2.51 percent as of March 2019.

The credit union's CFO noted that $15 million of the reserve build was tied to troubled commercial loans.

The credit union reported a 10.7 percent decline in net worth to $142.2 million over the same time period. Its net worth ratio fell from 11.71 percent at the end of 2018 to 10.10.24 percent at the end of March 2019.

According to an industry consultant, credit unions, on average, are under-reserved by a factor of two and will need to increase their loan loss reserves under CECL.

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