Technical Correction for the CECL Transition Amount

This alert informs credit unions about a technical correction with the calculation of the Current Expected Credit Loss transition amount in NCUA regulations, §702.703(b)(2). Credit unions that adopted the CECL accounting standard in 2023 should use the method described below to calculate and report on the Call Report their CECL transition amount.

The Transition to the CECL Methodology recognized the need to phase in the CECL day-one adjustment on the net worth ratio. As a result, the final rule phased in the day-one effects of adopting the CECL accounting standard over a three-year transition period.

To ensure computation alignment with the transition rule’s intent, credit unions should calculate the CECL transition amount for quarters 4 through 12 as the difference between:

The credit union's retained earnings as of the beginning of the fiscal year in which the credit union adopts CECL, adjusted for any restatement of the initial CECL adoption amount; and

The credit union's retained earnings as of the closing of the fiscal year immediately before the credit union’s adoption of CECL.

For credit unions that adopted CECL in the first quarter of 2023, any corrected CECL transition amount is reported in Schedule G, Capital Adequacy Worksheet, as described in the December 2023 Call Report Instructions. For more information on CECL, please visit the CECL Resources page.