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Federal Register / Vol. 86, No. 124 / Thursday, July 1, 2021 / Rules and Regulations the adoption of CECL by recording a reduction in beginning retained earnings of $200,000. For each of the first three quarterly reporting periods in 2023, the NCUA would deem both the FICUs retained earnings and total assets to be increased by the full $200,000.
Commencing with the fourth quarterly Call Report submitted in 2023 the FICUs retained earnings and total assets would be deemed increased by $134,000

$200,000 67 percent, for purposes of calculating the FICUs net worth ratio.
The $134,000 increase would remain constant for the first three quarters in 2024. Starting with the fourth quarterly Call Report in 2024, retained earnings and total assets would be deemed increased by $66,000 $200,000 33
percent. Using the same mathematical equation, the $66,000 increase would remain constant for the first three
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quarters in 2025. Upon the FICUs submission of its fourth quarterly report in 2025, there would be zero increase in retained earnings and total assets, thus the FICUs net worth ratio will completely reflect the day-one effects of CECL.
Table 1 presents the example above in tabular format:

TABLE 1EXAMPLE OF A CECL TRANSITION PROVISION SCHEDULE
Calendar fiscal year Transitional amounts applicable during each quarter of the transition period 12 quarters total
Transitional amount
In thousands
Increase retained earnings and total assets by the CECL transitional amount

F. Statutory Limit on Amount of Net Worth Ratio Change Section 216 of the FCU Act limits any change to the net worth ratio thresholds for each of the five net worth categories to an amount that is equal to not more than the difference between the required minimum level most recently established by the Federal banking agencies and 4 percent of total assets with respect to institutions regulated by those agencies. 31 The limitation is not applicable to this final rule because, as noted above, the Board is following the lead of the other banking agencies and not modifying any specific net worth ratio threshold amount. Therefore, applying this element would be impracticable and would frustrate the purpose of the statutory provision.
While the effect of the proposed regulatory amendments will be to adjust the calculation of the net worth ratios and, in some instances, the resultant net worth classifications, the actual numeric threshold amounts will remain the same. For example, a FICU will continue to be well capitalized if its net worth ratio is 7 percent or higher and it meets any applicable risk-based net worth requirement.

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G. NCUA Oversight For purposes of determining whether a FICU is in compliance with its PCA
requirements, the NCUA will use the FICUs net worth ratio as adjusted by the CECL transition provision. Through the supervisory process, the NCUA will 31 12

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$200

Quarters 47

Quarters 811

Quarter 12

First three quarters of 2023

Four quarters at 67%
4th quarter of 2023 and first three quarters of 2024

Four quarters at 33%
4th quarter of 2024 and first three quarters of 2025

Full recognition of day-one adjustment commencing 4th quarter of 2025

$200

$134

$66

0

Quarters 13

continue to examine credit loss estimates and allowance balances regardless of whether the FICU is subject to the CECL transition provision.
In addition, the NCUA may examine whether FICUs will have adequate amounts of capital at the expiration of their CECL transition provision period.

to state laws and regulations may be required to comply with GAAP or other accounting standards under applicable State requirements. These credit unions are eligible for the phase-in.

VI. Department of the Treasury Report The Senate Committee Report to the Financial Services and General H. Small FICU Determination of Charges Government Appropriations Act, for Loan Losses 2020,32 directs the Department of the As discussed, section 202 of the FCU
Treasury, in consultation with the other Act provides an exception for FICUs banking agencies and the NCUA to with less than $10 million in total assets conduct a study on the need, if any, for to the general requirements that reports changes to regulatory capital and statements filed with the Board requirements necessitated by CECL. 33
comply with GAAP. As also noted The Department of the Treasury issued above, the Boards regulations in its report on September 15, 2020.34
While the report affirms the 702.402 require that charges for loan Department of the Treasurys support losses be made in accordance with GAAP and does not distinguish between for the goals of CECL, it also acknowledged that a definitive the asset size of FICUs. The Board, however, is aware that compliance with assessment of the impact of CECL on regulatory capital is not currently GAAP may be burdensome for smaller feasible, in light of the state of CECL
FICUs. This difficulty is likely to be exacerbated with the adoption of CECL. implementation across financial Accordingly, the final rule provides that institutions and current market dynamics. 35 Accordingly, the report FICUs with total assets of less than $10
provides that the Department of the million may make charges for loan Treasury will continue to actively losses either in accordance with GAAP
monitor CECL implementation and or with any reasonable reserve methodology incurred loss provided it 32 Division C of the Consolidated Appropriations adequately covers known and probable Act, 2020; Public Law 11693, approved December loan losses. This provision will 20, 2019.
eliminate the adverse PCA
33 Senate Report 116111, at page 11.
consequences for smaller FICUs 34 U.S. Department of the Treasury, The Current resulting from CECL, and these FICUs Expected Credit Loss Accounting Standard and Financial Institution Regulatory Capital 2020.
will not be subject to the phase-in The report is available at: https
procedure detailed above.
home.treasury.gov/system/files/216/The-CECLThe Board does note, however, that Accounting-Standard-and-Financial-Institutionpursuant to section 202 state-chartered, Regulatory-Capital-Study-9-15-20.pdf.
35 Id., at page 5.
federally insured credit unions subject
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