CECL is coming: Are you ready?

NCUA releases simplified CECL tool for small credit unions

September 14, 2022

NCUA released a new tool Wednesday to help small credit unions comply with the current expected credit loss (CECL) standard, which goes into effect for most credit unions Jan. 1, 2023. CUNA has called on NCUA to provide guidance to credit unions on CECL implementation, starting back when NCUA first proposed its transition methodology, and addressed the need during engagement with the agency.

The Simplified CECL Tool is intended for use by credit unions with under $100 million in assets, although it could be used by larger credit unions based on the discretion of their management and auditors.

The NCUA recognizes credit unions need time to evaluate which CECL methodology is appropriate for their size and complexity. The Simplified CECL Tool will be updated for use with the quarters ending Sept. 30, 2022 and Dec. 31, 2022 to allow credit unions to test and calibrate the tool. It will be updated each quarter after that.

The tool uses the Weighted Average Remaining Maturity (WARM) methodology to estimate the allowance for credit loss. The tool requires a credit union to enter its charter number, total assets, and loan portfolio balances. The loan portfolio categories in the tool mirror the categories in NCUA’s Call Report.

For each loan portfolio category, the tool calculates the credit union’s net charge-off rate from its Call Report data and provides the industry-based WARM factor.

The tool also allows the credit union to make qualitative adjustments for current conditions and reasonable and supportable forecasts, as required by CECL.

The Simplified CECL Tool, along with FAQs, a user guide, and information on the model used, is available on the NCUA website, CECL Resource Center.