July 01, 2021

NAFCU issues Final Reg on NCUA’s transition to CECL

danthe NCUA’s final rule regarding the current expected credit loss (CECL) standard methodology. The association's Final Regulation Alerts are member-only resources that feature full text and easy to read summaries for final rulemakings affecting credit unions.

The CECL transition will determine a credit union’s net worth classification under PCA, the NCUA establish a three-year phase-in of the day-one adverse impacts of the CECL accounting standard on a federally-insured credit union’s net worth ratio.

In NAFCU’s Final Regulation summary, the association noted that:

  • The phase-in will only be applied to those FICUs that adopt the CECL standard for fiscal years beginning on or after December 15, 2022. Early adopters will not be eligible.
  • In general, the phase-in will operate by supplementing nominal retained earnings and total assets with a “transitional amount,” measured as the difference between pre-CECL and post-CECL retained earnings.
  • The final rule also exempts FICUs with less than $10 million in assets from complying with Generally Accepted Accounting Principles (GAAP) in determining their charges for loan losses and, instead, permits these FICUs to use any reasonable reserve methodology to cover known and probable loan losses.
  • The final rule also clarifies that state-chartered FICUs with less than $10 million in assets and that are required by state law to comply with GAAP are eligible for the transition phase-in.

The rule became effective June 24. For detailed background information of the finalized rule, including a section-by-section analysis, view the Final Regulation.