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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 loans ratio measures the adequacy of the reserves to cover potential losses in the credit union’s loan portfolio. Delinquent loans forecast future losses; the allowance for loan losses are the reserves set aside to cover loan losses. Because the allowance is funded from current earnings the ratio is a forecaster of future earnings in that a declining ratio, from an increase in delinquent loans, suggests that the credit union will have to increase the allowance account as those loans turn into losses. A declining trend in the ratio indicates an under-funded allowance.
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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