Q2 2025 CECL Trends: What the Latest KPMG Survey Reveals

As most banks and credit unions work to calculate and finalize their Q2 2025 CECL reserves, KPMG released their Q2 CECL Pulse Check survey (https://shorturl.at/FJaBi) and I wanted to share some takeaways. They surveyed 23 banks and 4 finance firms and the results were not surprising.

A few things that stood out:

- Forecasting remains a big challenge as 88% cited economic outlooks (especially government-driven ones) as the toughest part of ACL estimation.

- Economic uncertainty drives allowances: 56% expect higher ACLs this quarter, with 38% anticipating increases over 3 bps, up from 19% last quarter.

- Qualitative adjustment factors still play a big role as about 1 in 3 institutions say more than 20% of their reserve is based on qualitative factors. This is consistent with what I have seen working with institutions to validate their CECL model over the past few years, especially with minimal recent losses.

- Scenario weighting is still very prominent (e.g., assigning 10% to best-case, 80% to base, and 10% to worst-case). Most respondents are modeling multiple economic scenarios and applying probability weightings which is a more nuanced way of reflecting uncertainty that still falls under the qualitative umbrella.

- Unemployment tops the list of ACL drivers (49%), overtaking economic uncertainty at 37%.

For community banks and credit unions, here are a few takeaways:

- You don’t need to over-engineer your CECL model. But you do need to show a thoughtful, repeatable process, especially when it comes to layering in qualitative adjustments. And make sure you support and document your process.

- Given all the uncertainty in the economy, consider modeling multiple economic scenarios and probability weight them. We can't predict exactly where the economy is headed, so build flexibility into your CECL process. Using multiple economic scenarios with assigned probability weights helps capture uncertainty realistically, strengthening your forecast's credibility and showing examiners that you've thoughtfully considered different economic outcomes.

- The need for Q-factors is pretty common now. This is ok, as long as you try to quantify as much of the process as possible and make sure it is well supported and documented.

- Keep it explainable. Keep it supportable. That’s what examiners (and auditors) want to see.

Happy to share thoughts if you're refreshing your CECL process ahead of Q3 or preparing for a model validation before year-end.