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Federal Register / Vol. 86, No. 124 / Thursday, July 1, 2021 / Rules and Regulations
these credit unions. The final rule clarifies that state-chartered FICUs with less than $10 million in assets and that are required by state law to comply with GAAP are eligible for the transition phase-in.
Comment: GAAP relief for federally insured state-chartered credit unions.
As noted above, the preamble to the proposed rule provides that statechartered FICUs subject to state laws and regulations may be required to comply with GAAP or other accounting standards under applicable state requirements.30 One commenter wrote that approximately half the states either have explicit statutory or regulatory requirements for all FISCUs to comply with GAAP, or it is unclear whether such an express requirement exists. Two commenters suggested that the NCUA
should work with the appropriate supervisory authorities to promote regulatory relief in states where the impediments are regulatory in nature.
For those states with statutory mandates regarding GAAP adherence, the commenter asked that the NCUA pursue potential legislative fixes and to notify state legislative leaders of the exemption and the advantage federal credit unions would have over similarly sized FISCUs if not provided legislative relief.
NCUA Response: The Board will continue to work with FASB and other stakeholders, including appropriate State regulators, to minimize the detrimental impacts of GAAP
compliance on FICUs. The Board also notes that, as discussed in the preceding comment response, state-chartered FICUs with less than $10 million in assets and that are required by state law to comply with GAAP are eligible for the transition phase-in.

under 702.102 or 702.202 for FICUs statutorily defined as new. To be eligible for the transition provision, the FICU must record a reduction in retained earnings due to the adoption of CECL.

V. Description of Final Rule
To calculate the transitional amount under the CECL transition provision, the NCUA will compare the differences in a FICUs retained earnings between: 1
The FICUs closing balance sheet amount for the fiscal year-end immediately prior to its adoption of CECL pre-CECL amount; and 2 the FICUs balance sheet amount as of the beginning of the fiscal year in which the FICU adopts CECL post-CECL amount.
The difference in retained earnings constitutes the transitional amount that would be phased-in to the net worth ratio calculation over the proposed transition period, which would be the three-year period twelve quarters beginning the first day of the fiscal year in which the FICU adopts CECL.
Specifically, a FICUs CECL transitional amount would be the difference between the pre-CECL and post-CECL
amounts of retained earnings.

A. New Subpart G to Part 702
The final rule adds a new subpart G
to the PCA regulations in 12 CFR part 702, captioned CECL Transition Provisions. New subpart G applies to FICUs that meet the eligibility criteria specified in the final rule.
Notwithstanding the CECL transition provisions, all other aspects of part 702
would continue to apply.

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B. Eligibility for Transition Provisions FICUs that have not adopted CECL
prior to their first fiscal year beginning after December 15, 2022 the implementation date established by FASB are eligible for the phase-in. The NCUA will use the phase-in to determine the FICUs net worth category 30 Supra
note 1, at 50965.

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C. NCUA Implementation of the Transition Provisions Eligible FICUs would not have the option of electing whether to opt-into or out of the transition provisions.
Although this differs from the other banking agencies rule, it is consistent with the goal of this rulemaking to mitigate disruptions caused by CECL
adoption. As noted, eligibility for the transition provision is limited to those FICUs for which the phase-in is truly necessarythat is, they will experience a reduction in retained earnings as a result of CECL. The Board believes that requiring these FICUs to affirmatively opt-into the transition provisions would constitute an unnecessary administrative exercise to confirm their already obvious need for the phase-in.
Automatic implementation of the phasein by the NCUA will help to ensure its uniform application and that its benefits are provided to the greatest possible number of eligible FICUs.
The final rule issued by the other banking agencies relies on banking organizations to calculate the phase-in amounts. In contrast, the NCUA will make the required phase-in calculations.
As above, the Board has determined that this will help ensure the uniform implementation of the phase-in, as well as facilitate the accurate calculation of the transition amounts.
D. Mechanics of the CECL Transition Provisions
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The NCUA will phase-in the FICUs CECL transitional amount. The NCUA
would also phase-in the CECL
transitional amount to the FICUs total assets for purposes of the net worth ratio. Both the FICUs retained earnings and total assets would be deemed increased by the CECL transitional amount. The CECL transitional amount would be phased-in over the transition period on a straight-line basis automatically as part of the Call Report.
As noted, FICUs are currently required to commence implementation of the standard for fiscal years beginning after December 15, 2022. In determining the net worth ratio of a FICU, the NCUA
will deem retained earnings and total assets as reported on the Call Report to be increased by 100 percent of the FICUs CECL transitional amount during the first three reporting quarters of the fiscal year in which the FICU adopts CECL. The FICU may use this period to build capital and to make resulting material adjustments to its CECL
transitional amount. The NCUA will base its subsequent calculations regarding the phase-in based on the CECL transitional amount reported by the FICU as of the fourth reporting quarter of the fiscal year in which the FICU adopts CECL, and further adjustments to the amount are not permitted.
Beginning with the fourth reporting quarter of the fiscal year in which the FICU adopts CECL, the NCUA will deem retained earnings and total assets to be increased by 67 percent of the FICUs CECL transitional amount. This percentage will be decreased to 33
percent beginning with the fourth quarterly Call Report of the following fiscal year the eighth reporting quarter of the FICUs CECL implementation.
Commencing with the twelfth reporting quarter of the FICUs CECL
implementation, the FICUs net worth ratio will completely reflect the day-one effects of CECL. All other items remaining equal, this computation will result in a gradual phase-in of the CECL
day-one effects.
E. Example of Transition Schedule As an example of the proposed phasein, consider a hypothetical FICU that has a calendar fiscal year. On the closing balance sheet date immediately prior to adopting CECL, the FICU has $10 million in retained earnings and $1
million of Allowance for Loan and Lease Losses ALLL i.e., credit loss.
On the opening balance sheet date of January 1, 2023, immediately after adopting CECL, the FICU determined it needs $1.2 million of allowance for credit losses. The FICU would recognize
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