Managing Your Allowance Through the COVID/CECL Crossroads

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At the beginning of 2020, because of the COVID-19 pandemic, credit unions, along with the rest of the world, saw threats to safety and soundness. Not only financial safety and soundness but threats to physical safety and soundness. The response at credit unions was multi-faceted. First it was ensuring the physical safety of members and staff. Then it was tending to the financial need of members, which took shape by providing extensions and/or short-term funding to consumers and securing Paycheck Protection Loans for business members. Once the members were served, it became time to consider the impacts to financial statements and loan loss reserves.

In 2020 credit unions began building up their allowance for loan loss reserve by taking additional provision for loan loss expense. As a result, allowance for loan losses at credit unions rose from approximately 0.86% of loans as of Dec. 31, 2019 to approximately 1.11% of loans as of Dec. 31, 2020.