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New Available-for-Sale (AFS) Debt Security Impairment Method

AFS debt securities will not be subject to CECL methodology; however, targeted amendments have been made to the AFS debt security impairment method. The new accounting standard eliminates the concept of other than temporary impairment and instead focuses on determining whether the unrealized loss is a result of a credit loss or other factors and requires credit losses to be presented as an allowance rather than as a write-down. It also removes the requirement to consider the length of time the fair value of an AFS debt security has been below the amortized cost when determining whether a credit loss exists.

Credit-Related Losses

To determine the portion of a decline in fair value that is credit related, an entity should compare the present value of expected cash flows of the security with its amortized cost basis.

Held-To-Maturity(HTM) Debt Securities

Available-For-Sale Debt Securities

Transitioning HTM securities to CECL will result in a cumulative-effect adjustment (“day one impact”) to retained earnings as of the beginning of the first reporting period of adoption.

The allowance approach for recognizing credit losses will be applied prospectively.
  • The amortized cost basis (including previous write-downs) and effective interest rate of the debt security will remain unchanged.
  • Amounts previously recognized in other comprehensive income (OCI) related to cash flow improvements will continue to be accreted to interest income over the remaining life of the debt security on a level-yield basis.
Institutions will not be required to restate their financial results for prior periods.
 The allowance approach for recognizing credit losses will be applied prospectively.
  • The amortized cost basis (including previous write-downs) and effective interest rate of the debt security will remain unchanged.
  • Amounts previously recognized in OCI related to cash flow improvements will continue to be accreted to interest income over the remaining life of the debt security on a level-yield basis.
Institutions will not be required to restate their financial results for prior periods.