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Banks making adjustments to CECL estimates

Banks continued to refine their estimates related to the current expected credit loss model, or CECL, even though many noted that it is difficult to determine the full-year impact.

Several banks with $50 billion-plus in assets disclosed new CECL estimates when they reported earnings during the week ended Jan. 17. Some new estimates came in higher than previously expected, while some came in slightly lower.

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Goldman Sachs Group Inc. expects an $825 million increase to its loan loss reserves from CECL implementation. This is $25 million above the company's previous estimate range of $600 million to $800 million.

Goldman CFO Stephen Scherr said the number was inflated due to the launch of the Apple Card. Several banks have said credit cards are disproportionately affected by the new accounting standard.

The new estimate is based on the company's loan portfolio as of year-end 2019, management said during its 2019 fourth-quarter earnings conference call.

PNC Financial Services Group Inc. saw a slight increase in its CECL estimate. On its 2019 fourth-quarter earnings conference call, CFO Robert Reilly said the adoption of CECL, which went into effect Jan. 1, will result in a Day 1 increase of about $650 million, or 21%, to its loan loss reserves, up from the prior disclosure of 20%.

"The increase is driven by the consumer loan portfolio, as longer-duration assets require more reserves under the CECL methodology," he said on the call.

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PNC Chairman, President and CEO William Demchak said the future impact of CECL is difficult to determine due to loan portfolio mix, economic outlook and loan growth. "We're giving it our best shot," he said. "It could be high or low, and we'll see."

Some banks' estimates came in at the lower end, or even below, previous estimates.

Regions Financial Corp. tightened its guidance to an estimated $500 million to $530 million increase to the allowance for credit losses upon implementation of CECL. Its previous estimate was between $500 million and $600 million.

Regions CFO David Turner said CECL's 2020 impact will depend on net charge-offs, loan growth, loan portfolio mix and the economic outlook.

"We will all learn a little bit from each other as we go through the year," he said during the company's 2019 fourth-quarter earnings conference call.

First Republic Bank's updated CECL disclosure came in below its previous estimate. On the company's 2019 fourth-quarter earnings conference call, CFO Michael Roffler said the company estimates a less than 5% increase to its loan loss reserves, compared to its previous range of 5% to 10%.