ALEXANDRIA, Va.—The National Credit Union Administration has released the latest update to its Simplified Current Expected Credit Loss (CECL) Tool, providing smaller credit unions with updated data to help estimate loan-loss reserves and comply with accounting requirements.
The updated tool, released earlier this month as part of the agency’s quarterly refresh cycle, includes revised life-of-loan, or Weighted Average Remaining Maturity (WARM), factors and updated historical loss-rate information used in calculating allowances for credit losses on loans and leases. The tool is designed primarily for small and non-complex credit unions as an option for estimating expected credit losses under the CECL accounting standard.
According to the NCUA, the Simplified CECL Tool is intended mainly for credit unions with less than $100 million in assets, although larger institutions may use it if deemed appropriate by management and auditors. The agency said the tool uses the WARM methodology, which combines historical net charge-off experience with estimated remaining loan life to calculate an allowance for credit losses.
Object of Update
The quarterly update is intended to help credit unions close their books and prepare regulatory filings while incorporating the most recent available industry data. The NCUA updates the tool each quarter to reflect current loan-performance trends and changes in loan portfolio characteristics.
The Simplified CECL Tool was introduced in 2022 to help smaller credit unions comply with the Financial Accounting Standards Board’s CECL accounting standard without having to develop complex forecasting models or purchase specialized software. The tool calculates expected credit losses across loan categories that mirror those used in the NCUA Call Report and allows institutions to make qualitative adjustments based on local conditions and management expectations.
NCUA officials have said the tool is intended to provide a scalable and cost-effective option for credit unions that may lack the resources to build more sophisticated CECL models. The agency also provides supporting materials, including a user guide, frequently asked questions and a model development document, to assist credit unions and auditors in implementing the methodology.
About the Requirement
As the CU Daily has reported, the CECL accounting standard requires financial institutions to estimate expected lifetime losses on loans and leases and recognize those losses earlier than under previous accounting rules. Credit unions may use a variety of methodologies to comply with the standard, but the NCUA has identified the WARM approach used in its Simplified CECL Tool as a practical option for smaller and less complex institutions.
The updated tool is available on the NCUA’s website and will continue to be refreshed on a quarterly basis.
