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Peer Ranking:
Performance Analysis:
{name} has a much lower allowance to delinquent loans ratio than its peer and may need to make an adjustment in the funding of its allowance account. The credit union should evaluate if its portfolio composition is different than its peers leading to this difference and if this level is appropriate historically.
Formula Definition
The allowance for loan losses-to-delinquent loan ratio tracks the adequacy of reserves to cover the losses in the credit union’s loan portfolio. Delinquent loans are an indicator of potential future losses. The allowance account is a reserve set aside from current earnings as a provision expense to cover these future loan losses. There are different acceptable methods to use in establishing the level of the allowance account and for estimating losses by kinds of loans in the portfolio. The ratio should be reviewed any time there is a significant change in the composition of the loan portfolio, such as the addition of an indirect lending program, sale of credit cards or growth of first mortgages. A declining trend in the ratio may indicate an under funded allowance. But this trend could also reflect a decision to lower the reserves based on a review of actual losses versus the estimates used in initially determining the reserves.
Note:The star ratings and accompanying text are based on percentile rankings within a peer group. However, the peer average displayed in the chart is calculated as the weighted average (the mean) of the peer group. Therefore, it is possible that the star ratings and text may at times not correlate what is being displayed on the graph. This would be the case when the average of the peer group varies measurably from the 50th percentile ranking (the median) within the peer group.
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