Jan. 30, 2023 – The NCUA has released updates to its frequently asked questions on the current expected credit losses (CECL) accounting standard and its Simplified CECL Tool.
The CECL GAAP FAQs address common credit union topics, including:
- CECL implementation date for supervisory committee audits and agreed-upon procedures engagements;
- Precedents for establishing a fiscal year to be other than a calendar year;
- Day-one adjustment to undivided earnings; and
- Allowance for loan and lease losses for credit unions with assets of less than $10 million.
The Simplified CECL Tool FAQs address such topics as:
- Monthly use of the CECL Tool;
- Negative loss rates;
- Loans to be individually evaluated;
- Qualitative adjustments for current year loss trends;
- Participations and indirect loan programs; and
- Larger credit unions using the CECL Tool.
To download the latest version of the CECL Tool, please visit The Simplified CECL Tool page.” To better understand how the tool can work for your credit union, please review the Frequently Asked Questions, User Guide, and Model Development Document located on the same webpage.
For additional information on CECL, please visit the NCUA CECL Resources page
The National Association of State Credit Union Supervisors (NASCUS), in conjunction with Sheila Balzer, is pleased to offer a webinar series devoted to Current Expected Credit Losses (CECL).
Join us for two 60-minute sessions on November 30 and December 1, 2022.
CECL: Basic Session
November 30, 2022, 2:00 pm – 3:00 pm EST
Speaker: Sheila Balzer
Description: Session will cover basic requirements and considerations under CECL methodology. Discussion of key controls that should be in place regarding the estimate.
CECL: Advanced Session
December 1, 2022, 2:00 pm – 3:00 pm EST
Speaker: Sheila Balzer
Description: Session will cover unique issues and difficulties for CECL adopters as implementation is near. Discussion of how CECL will impact 2023 audits and examinations. What should I be doing after implementation?
Sheila Balzer is an assurance partner with SingerLewak in Denver, Colorado. She specializes in working with credit unions, non-profit organizations, and employee benefit plans. She is a recognized expert and frequent presenter to volunteers and employees of credit unions on financial literacy. Sheila is a Magna Cum Laude graduate of the University of Denver and holds Bachelor of Science and Masters’ degrees in Accountancy. Her professional and civic activities include serving as a member of the Board of Directors of the AICPA, past member of the Accounting and Review Services Committee (standard setting body), past Chair of the Colorado Society of Certified Public Accountants, Board Member of the Colorado Society of Certified Public Accountants, Past Chair of the Colorado Society of Certified Public Accountants Educational Foundation, AICPA Council member, and chairing the Chatfield Senior High and Columbine High School Business Advisory Committee. Sheila was selected as one of six Women to Watch in the accounting profession in Colorado in 2012.
The National Association of State Credit Union Supervisors (NASCUS), in conjunction with Sheila Balzer, is pleased to offer a webinar series devoted to Current Expected Credit Losses (CECL).
Join us for two 60-minute sessions on November 30 and December 1, 2022.
CECL: Basic Session
November 30, 2022, 2:00 pm – 3:00 pm EST
Speaker: Sheila Balzer
Description: Session will cover basic requirements and considerations under CECL methodology. Discussion of key controls that should be in place regarding the estimate.
CECL: Advanced Session
December 1, 2022, 2:00 pm – 3:00 pm EST
Speaker: Sheila Balzer
Description: Session will cover unique issues and difficulties for CECL adopters as implementation is near. Discussion of how CECL will impact 2023 audits and examinations. What should I be doing after implementation?
Sheila Balzer is an assurance partner with SingerLewak in Denver, Colorado. She specializes in working with credit unions, non-profit organizations, and employee benefit plans. She is a recognized expert and frequent presenter to volunteers and employees of credit unions on financial literacy. Sheila is a Magna Cum Laude graduate of the University of Denver and holds Bachelor of Science and Masters’ degrees in Accountancy. Her professional and civic activities include serving as a member of the Board of Directors of the AICPA, past member of the Accounting and Review Services Committee (standard setting body), past Chair of the Colorado Society of Certified Public Accountants, Board Member of the Colorado Society of Certified Public Accountants, Past Chair of the Colorado Society of Certified Public Accountants Educational Foundation, AICPA Council member, and chairing the Chatfield Senior High and Columbine High School Business Advisory Committee. Sheila was selected as one of six Women to Watch in the accounting profession in Colorado in 2012.
The National Credit Union Administration Office of Examination & Insurance is hosting a webinar on the recently announced Simplified Current Expected Credit Loss (CECL) Tool. The one-hour live webinar will take place on Wednesday, October 12, beginning at 2 p.m. Eastern.
The Simplified CECL Tool uses the Weighted Average Remaining Maturity (WARM) methodology to estimate the allowance for credit loss and is designed for the more than 3,000 credit unions with less than $100 million in assets. Larger credit unions can use the tool based on management and auditor discretion.
NCUA subject matter experts will provide an overview of the Tool, demonstrate the Tool, and answer participants’ questions.
Participants may submit questions in advance by emailing [email protected]. The email’s subject line should read, “CECL Webinar.”
Registration for this webinar is now open. Participants can log into the webinar and view it on computers or mobile devices using the registration link. They should allow pop-ups from this website. The webinar will be closed captioned and archived approximately one week following the live event.
(July 16, 2021) Summaries of two final rules – on transition to the new current expected credit loss (CECL) accounting standard, and on derivatives – have been posted on the NASCUS website. Both summaries are available to members only.
At its June meeting, the NCUA Board adopted a final rule intended to mitigate the day-one effect of the CECL accounting standard on capital levels at credit unions. The new rule takes effect Aug. 2 (although NCUA, when the final was adopted, that credit unions could begin applying it immediately); the CECL standard takes effect for most credit unions in January 2023.
Supported by NASCUS, the rule establishes a three-year phase-in period for adverse effects on credit unions’ regulatory capital triggered by the effect of the accounting standard. Federal credit unions with less than $10 million in assets and also state credit unions (if allowed by their state regulations), would be exempted from using the standard to figure loan loss reserves.
The final rule has two changes from the proposal, as advanced by NASCUS. First, the rule makes a technical change (for clarity) removing references to specific calendar dates in the transition period for the phase in. The rule now consistently refers to fiscal years. The second change clarifies that state-chartered FICUs with less than $10 million in assets and that are required by state law to comply with generally accepted accounting practices (GAAP) are eligible for the transition phase-in.
However, NASCUS also noted that the accounting standard remains of concern. “NASCUS, many state credit union regulators, and many state credit union system stakeholders remain concerned that the CECL methodology will be counter-productive when implemented for the credit union system,” NASCUS wrote.
The derivatives rule, approved unanimously by the NCUA Board at its May meeting, makes some changes from the proposal issued in December. The rule affects a limited number of federal credit unions directly (NCUA estimates about 30 FCUs are engaged with derivatives now); it generally offers more flexibility for credit union involvement in the investment vehicles, primarily to manage interest rate risk. State-chartered credit unions follow rules set by their individual regulators.
NASCUS had urged the agency, in its comment on the proposal, to eliminate redundant supervisory notice requirements, where applicable, by providing an exemption from its notice requirement for FISCUs in states where pre-approval or pre-notification is required to be given to the state regulator. NCUA declined to make that change, arguing that “the current burden to a FISCU is unchanged as the FISCU is only notifying the applicable (NCUA) Regional Director after entering into its first Derivative transaction compared to the current requirement of notifying the Regional Director at least 30 days before it begins engaging in Derivatives.”
LINKS:
NASCUS Summary: Final Rule, Part 702, Current Expected Credit Loss (CECL) Methodology (members only)
NASCUS Summary: Final Rule, Parts 701, 703, 741, and 746, Derivatives (members only)
(July 2, 2021) NCUA’s final rule permitting federally insured credit unions (FICUs) to extend financing of interest in connection with loan workouts and modifications is set to take effect July 30, according to the notice published this week in the Federal Register. Adopted last week by the NCUA Board, the final rule also sets documentation requirements to help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan, the notice states, and makes technical changes … Meanwhile, a final rule permitting FICUs to phase in over three years the day-one adverse effects on net worth of the current-expected-credit-loss (CECL) accounting methodology is set to take effect Aug. 2, according to a notice in Thursday’s Federal Register … The list of jurisdictions with strategic money laundering, and financing of terrorism and weapons of mass destruction proliferation risks has been updated by FinCEN. Haiti, Malta, the Philippines, and South Sudan were added to the list; Ghana was removed, FinCEN said … Elissa McCarter LaBorde is the World Council of Credit Unions’ (WOCCU) new president and CEO, succeeding Brian Branch who announced his retirement earlier this year. LaBorde, according to WOCCU, has more than 20 years’ experience in leading organizations that deliver financial services to underserved communities world-wide … Have a terrific (and safe) Independence Day holiday!
LINKS:
Capitalization of Interest in Connection With Loan Workouts and Modifications
(July 2, 2021) A new tool aimed at helping smaller banks calculate their allowances under the new current expected credit loss (CECL) accounting standard was announced by the Federal Reserve this week.
The Fed said the spreadsheet-based tool — dubbed the “Scaled CECL Allowance for Losses Estimator” (SCALE) — draws on publicly available regulatory and industry data to aid community banks with assets of less than $1 billion.
The CECL accounting standard took effect for most public financial institutions in 2020; smaller banks (as with most credit unions) are not required to meet the standard until 2023.
SCALE will be officially launched July 15 in conjunction with a webinar, the Fed said, when it will also answer questions about the new tool. The event is geared to community banks and will feature representatives from the Financial Accounting Standards Board (FASB, the group that established the accounting standard) and the Conference of State Bank Supervisors (CSBS).
The Fed said registration instructions are available at the link below.
(June 25, 2021) NASCUS President and CEO Lucy Ito said the state system embraces both new rules, which the association had supported. On interest capitalization, Ito said the new rule will provide greater flexibility for the credit union system to work with economically distressed members. “This rule will expand the options for loan repayments by members working to regain their economic footing as the financial impact of the coronavirus crisis begins to recede,” she said.
On the CECL standard rule, Ito thanked the board for heeding the state system’s suggestions on recognizing fiscal years and clarifying eligibility for small, state-chartered credit unions subject to GAAP.
She also took note of comments by NCUA Board Vice Chairman Kyle Hauptman about CECL and its applicability to credit unions as financial cooperatives. “Vice Chairman Hauptman keenly observed the cooperative structure of credit unions differentiates them from other financial intermediaries,” Ito said.
However, she added that “NASCUS believes CECL should apply to credit unions given their business functions as depositories and lenders. We look forward to working with NCUA on tools and resources to assist credit unions in complying with CECL in a cost-effective and time-effective manner.”
(June 25, 2021) Final rules on capitalization of interest by federally insured credit unions, and on mitigating the day-one effect of the current expected credit loss (CECL) accounting standard on capital levels at credit unions, were approved – both unanimously – by the NCUA Board at its Thursday meeting.
Both rules are supported by NASCUS.
The interest capitalization rule is slated to take effect 30 days after publication in the Federal Register; however, NCUA staff indicated that credit unions could begin using its provisions now. The CECL rule takes effect immediately.
The interest capitalization rule removes the prohibition on capitalizing interest in connection with loan workouts and modifications. Adopted as proposed (without change), the agency said the final rule establishes documentation requirements to “help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan.”
The final rule makes several technical changes to the regulations to improve their clarity and update certain references
NCUA Office of Examination and Insurance Director Myra Toeppe indicated that, although the official effective date of the rule is 30 days after publication, credit unions are encouraged to use its provisions as soon as possible without facing enhanced scrutiny from examiners.
NASCUS had urged NCUA, when filing its comment letter in February, to act expeditiously in finalizing the rule, arguing that doing so would give credit unions greater flexibility to work with economically distressed members and provides “consumer protection guardrails that protect against the unlikely chance that a credit union engages in unfair lending practices.”
Regarding state laws on interest capitalization, NCUA’s final rule notes that the agency is not inclined to provide a blanket preemption of any or all state laws that may relate to capitalization of interest. “FCUs may need to evaluate the application of relevant state laws on a case-by-case basis and may contact the NCUA for its opinion in the event a particular state law raises a preemption issue,” the agency wrote.
On the rule dealing with the impact of the CECL accounting standard (which takes effect for most credit unions in January 2023), a phase-in period of three years is established for adverse effects on credit unions’ regulatory capital. Credit unions with less than $10 million in assets would be exempted from using the standard to figure loan loss reserves.
The final rule has two changes from the proposal, as advanced by NASCUS. First, the rule makes a technical change (for clarity) removing references to specific calendar dates in the transition period for the phase in. The rule now consistently refers to fiscal years.
The second change clarifies that state-chartered FICUs with less than $10 million in assets and that are required by state law to comply with generally accepted accounting practices (GAAP) are eligible for the transition phase-in.
NASCUS, in its comments last year, supported the rule and NCUA’s efforts to mitigate the impact of the accounting standard. However, NASCUS also noted that the accounting standard remains of concern. “NASCUS, many state credit union regulators, and many state credit union system stakeholders remain concerned that the CECL methodology will be counter-productive when implemented for the credit union system,” NASCUS wrote.
LINKS:
Final Rule, Part 741, Appendix B, Capitalization of Interest.
Final Rule, Part 702, Current Expected Credit Loss Methodology
(June 18, 2021) Two final rules – on mitigating the impact of the new CECL accounting standard, and allowing credit unions to capitalize interest, which NASCUS urged be finalized “expeditiously” earlier this year – are on the agenda for the NCUA Board when it meets next week.
The proposal on capitalizing interest was issued in November by the NCUA Board and would remove a prohibition on interest capitalization. Then, the board suggested, that continuing to prohibit the authorization of additional advances to finance unpaid interest may be overly burdensome. Removing the prohibition, the board asserted, would “assist a federally insured credit union’s good-faith efforts to engage in loan workouts with borrowers facing difficulty because of the economic disruption that the COVID- 19 event has caused.”
In its comment letter filed in February, NASCUS agreed, writing that finalizing the proposal would provide credit unions’ greater flexibility to work with economically distressed members (including those affected by the coronavirus crisis). “That enhanced flexibility benefits distressed credit union borrowers by expanding the options for repayment programs as the member regains their economic footing,” NASCUS wrote.
The state system also urged the board to act expeditiously in finalizing the proposal. “We have no doubt credit unions will exercise the ability to capitalize interest to the benefit of members in need and are confident in the ability of state examiners to provide supervisory oversight of loan workouts and modifications,” NASCUS wrote.
Also on the board’s agenda for next week’s meeting: finalizing a rule mitigating the day-one effect of the current expected credit loss (CECL) accounting standard on capital levels at credit unions. The new standard takes effect for most credit unions in January 2023.
Under the proposal, a phase-in period of three years would be established for the day-one adverse effects on credit unions’ regulatory capital under the CECL accounting standard. However, smaller credit unions (those with $10 million or less in assets) would be exempted from having to use the standard to figure loan loss reserves.
NASCUS, in its comment letter filed last October, supported the proposal, but also offered some suggested changes, including that credit unions that reach $10 million in assets after Jan. 1, 2023 should be afforded the opportunity of a three-year phase in of the day-one effect. Credit unions larger than that, NASCUS wrote, should have the option of recognizing the full day-one effect of CECL immediately. NASCUS also urged NCUA to consider how CECL will be incorporated into stress-testing requirements after implementation.
The meeting is set for 10 a.m. on Thursday; audio of the session will be streamed live, via the Internet.
LINKS:
NCUA Board Agenda for the June 24, 2021 Meeting
NASCUS Comments on Transition to the Current Expected Credit Loss Methodology
(April 23, 2021) The House passed NASCUS-backed legislation this week (again) aimed at providing a safe harbor for financial institutions seeking to serve legitimate cannabis-related businesses in states where the activity is legal. The Secure and Fair Enforcement Banking Act (SAFE Banking Act) of 2021 (H.R. 1996), adopted on a 321-101 vote, is similar to legislation that made its way through the House in the last Congress, but ultimately did not come up for a vote in the Senate. Senate Majority Leader Chuck Schumer (D-N.Y.) has indicated the Senate would consider the bill as part of broader legislation addressing marijuana use … Implementation of the new current expected credit losses (CECL) accounting standard – particularly technical issues related to purchased financial assets with credit deterioration (PCDs) and troubled debt restructurings (TDRs)– will be the subject of a three-hour virtual event scheduled for May 20, the Financial Accounting Standards Board (FASB) said this week. The virtual roundtable on CECL will be webcast live from 9 a.m. to noon ET. FASB said the roundtable – which it also termed a “listening session” – is aimed at helping FASB members and staff gather additional feedback on implementation for the CECL standard … Businesses and tax-exempt organizations with less than 500 employees — including credit unions — can receive a tax credit toward Medicare taxes they pay for providing paid time off for each employee receiving an anti-COVID-19 vaccination and for any time needed to recover from the injection, the Treasury and the IRS said this week. The announcement came after comments earlier in the day by President Joe Biden (D) outlining the program in a televised address. The Treasury and tax agency said that, as an example of use of the program, if an eligible employer offers employees a paid day off to be vaccinated the employer can receive a tax credit equal to the wages paid to its workers for that day (up to certain limits).
LINKS:
FASB to Host Virtual Credit Losses Roundtable on May 20, 2021
(Jan. 29, 2021) NASCUS summaries of recent NCUA letters to credit unions – and a summary of a regulatory alert issued by the agency – are among the latest to be published by NASCUS. All three are available to members only.
The two letters summarized are on the agency’s outline of the issues affecting credit unions contained in the Consolidated Appropriations Act, 2021 adopted by Congress Dec. 27 (letter 21-CU-01, issued by the agency the week of Jan. 4), and about NCUA’s Supervisory priorities for 2021 (letter 21-CU-02, issued by the agency last week).
The first letter notes that that most of the provisions of the consolidated appropriations bill extend portions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law last March as the impact of the coronavirus crisis became apparent. Those provisions are extended to Dec. 31, 2021, the letter notes. It also touches on provisions affecting the agency’s Central Liquidity Facility (CLF), troubled debt restructurings (TDRs), compliance with the Current Expected Credit Loss (CECL) accounting standard and more.
The second letter outlines the broad scope of the agency’s regulatory priorities for 2021, primarily focusing on challenges to credit unions posed by the ongoing coronavirus pandemic and steps to enhance the agency’s offsite monitoring of credit unions’ conditions. Additionally, the letter states that examiners will not be assessing credit unions’ efforts to transition to the CECL standard “until further notice.”
The summary of the regulatory alert (21-RA-01), released by NCUA earlier this month, outlines the agency’s view of CFPB’s action late last year to issue two final rules amending the Ability-to-Repay/Qualified Mortgage Rule (ATR/QM Rule) in Regulation Z. The final rules would replace the 43% debt-to-income (DTI) ratio limit with price-based thresholds (under the bureau’s general QM final rule), and create a new category of qualified mortgage (known as the seasoned QM final rule).
LINKS:
NASCUS Summary: LTCU 21-CU-01, Summary of the Consolidated Appropriations Act 2021 (members only)
NASCUS Summary: LTCU 21-CU-02, NCUA’s Supervisory Priorities (members only)
NASCUS Summary: Regulatory Alert 21-RA-01: CFPB Amends Ability-to-Repay/QM Rule under TILA (members only)