Updates made to NCUA’s Simplified CECL Tool

Last week, NCUA made updates to their recently launched CECL tool.

The Simplified CECL Tool provides a methodology for credit unions to determine the Allowance for Credit Losses (ACL) on loans and leases for their loan portfolio. On the Call Report, the ACL is reported on line 17, page 2, and is labeled: Allowance for Credit Losses on Loans and Leases (AS0048).

The Simplified CECL Tool was developed primarily for credit unions with less than $100 million in assets. The Weighted Average Remaining Maturity (WARM) methodology for calculating the ACL was chosen by the NCUA because the Financial Accounting Standards Board deemed it appropriate to estimate a credit loss allowance for less complex financial asset pools.

This tool relies on portfolio-level WARM proxy data to estimate current expected credit losses. For the WARM assumptions to remain applicable in an ever-changing environment, the Simplified CECL Tool will be updated quarterly.

Use of the Simplified CECL Tool and the underlying methodology may or may not be appropriate for any particular credit union. Each credit union’s management is responsible for determining whether this approach is appropriate given their institution’s unique facts and circumstances.

For more information on the recent updates and to check out the CECL tool, visit NCUA.