I watched the CECL WARM Method webinar provided by FASB and the regulatory agencies. I thought the webinar provided a very thorough review of the Weighted-Average Remaining Maturity (WARM) Method. If you haven’t had a chance to watch it yet, click here to view it now.
My three biggest takeaways on the WARM Method:
- The WARM Method is a viable solution for smaller and less complex institutions.
- Estimated loan payment and prepayment data may be difficult to obtain.
- Start now!
The WARM Method = OK
I’m not really sure why there was a question on the validity of the WARM Method in the first place. Maybe because it’s relatively simple as compared to other methods? The goal of the webinar as stated by the regulators and FASB was to confirm the acceptability of the WARM Method for CECL for smaller and less complicated institutions. Acceptability confirmed!
Loan principal payment and prepayment data is hard to get
Yes, loan payment estimates as well as prepayment assumptions can be difficult to get if relying solely on your core system reporting. Most banks and credit unions who have access to ALM models can get pretty good loan payment estimates, but not all ALM models are set up to aggregate loan payment data for CECL. Is your model flexible enough?
The nightmare scenario is one of a banker who waited to implement CECL until the last minute and ended up with an increase to their allowance due to inexperience with the chosen CECL methodology. In addition to fully understanding the outputs from your CECL method, you need to make sure you establish a process for inputs. Set up your ALM model to track your prepayment experience starting today, as you’ll want to have multiple months’ results to plug into your CECL method.
Plansmith’s Integrated CECL Solution using the WARM Method
Plansmith has partnered with BankTrends™ to provide the simplest and most cost-effective CECL solution. Pair the simplicity of the BankTrends WARM methodology with the Compass CECL Module that will calculate loan payments and prepayments, and you will have the easy button for CECL!
If you’re interested in learning more about Plansmith’s fully-integrated CECL solution, click here to schedule a discovery call.