Allowance for Credit Losses

6 Months Ended

Nov. 30, 2021


NOTE 5—ALLOWANCE FOR CREDIT LOSSES

We are required to maintain an allowance based on a current estimate of credit losses that are expected to occur over the remaining contractual term of the loans in our portfolio. Our allowance for credit losses consists of a collective allowance and an asset-specific allowance. The collective allowance is established for loans in our portfolio that share similar risk characteristics and are therefore evaluated on a collective, or pool, basis in measuring expected credit losses. The asset-specific allowance is established for loans in our portfolio that do not share similar risk characteristics with other loans in our portfolio and are therefore evaluated on an individual basis in measuring expected credit losses.

Allowance for Credit Losses—Loan Portfolio

The following tables summarize, by member class, changes in the allowance for credit losses for our loan portfolio for the three and six months ended November 30, 2021 and 2020.

Table 5.1: Changes in Allowance for Credit Losses


	Three Months Ended November 30, 2021
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Balance as of August 31, 2021	$	15,369	$	66,469	$	1,422	$	83,260	$	1,455	$	4,820	$	89,535


Provision (benefit) for credit losses	663		(1,002)		2		(337)		139		(3,202)		(3,400)

Balance as of November 30, 2021	$	16,032	$	65,467	$	1,424	$	82,923	$	1,594	$	1,618	$	86,135


	Three Months Ended November 30, 2020
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Balance as of August 31, 2020	$	12,037	$	39,282	$	1,411	$	52,730	$	829	$	3,792	$	57,351


Provision (benefit) for credit losses	1,178		499		2		1,679		512		(553)		1,638


Balance as of November 30, 2020	$	13,215	$	39,781	$	1,413	$	54,409	$	1,341	$	3,239	$	58,989


	Six Months Ended November 30, 2021
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Balance as of May 31, 2021	$	13,426	$	64,646	$	1,391	$	79,463	$	1,374	$	4,695	$	85,532


Provision (benefit) for credit losses	2,606		821		33		3,460		220		(3,077)		603

Balance as of November 30, 2021	$	16,032	$	65,467	$	1,424	$	82,923	$	1,594	$	1,618	$	86,135


	Six Months Ended November 30, 2020
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Balance as of May 31, 2020	$	8,002	$	38,027	$	1,409	$	47,438	$	806	$	4,881	$	53,125
Cumulative-effect adjustment from adoption of CECL accounting standard	3,586		2,034		25		5,645		(15)		(1,730)		3,900
Balance as of June 1, 2020	11,588		40,061		1,434		53,083		791		3,151		57,025
Provision (benefit) for credit losses	1,627		(280)		(21)		1,326		550		88		1,964


Balance as of November 30, 2020	$	13,215	$	39,781	$	1,413	$	54,409	$	1,341	$	3,239	$	58,989

The following tables present, by member class, the components of our allowance for credit losses as of November 30, 2021 and May 31, 2021.

Table 5.2: Allowance for Credit Losses Components


	November 30, 2021
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Allowance components:
Collective allowance	$	16,032	$	25,809	$	1,424	$	43,265	$	1,594	$	1,215	$	46,074
Asset-specific allowance	—		39,658		—		39,658		—		403		40,061
Total allowance for credit losses	$	16,032	$	65,467	$	1,424	$	82,923	$	1,594	$	1,618	$	86,135

Loans outstanding:(1)
Collectively evaluated loans	$	22,552,985	$	4,902,962	$	101,391	$	27,557,338	$	721,299	$	427,299	$	28,705,936
Individually evaluated loans	5,092		219,444		—		224,536		—		4,342		228,878
Total loans outstanding	$	22,558,077	$	5,122,406	$	101,391	$	27,781,874	$	721,299	$	431,641	$	28,934,814


Allowance ratios:
Collective allowance coverage ratio(2)	0.07%	0.53%	1.40%	0.16%	0.22%	0.28%	0.16%
Asset-specific allowance coverage ratio(3)	—	18.07	—	17.66	—	9.28	17.50
Total allowance coverage ratio(4)	0.07	1.28	1.40	0.30	0.22	0.37	0.30


	May 31, 2021
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Allowance components:
Collective allowance	$	13,426	$	25,104	$	1,391	$	39,921	$	1,374	$	1,147	$	42,442
Asset-specific allowance(5)	—		39,542		—		39,542		—		3,548		43,090
Total allowance for credit losses	$	13,426	$	64,646	$	1,391	$	79,463	$	1,374	$	4,695	$	85,532

Loans outstanding:(1)
Collectively evaluated loans	$	22,022,044	$	4,926,000	$	106,121	$	27,054,165	$	706,868	$	406,606	$	28,167,639
Individually evaluated loans	5,379		228,312		—		233,691		—		13,777		247,468
Total loans outstanding	$	22,027,423	$	5,154,312	$	106,121	$	27,287,856	$	706,868	$	420,383	$	28,415,107


Allowance ratios:
Collective allowance coverage ratio(2)	0.06%	0.51%	1.31%	0.15%	0.19%	0.28%	0.15%
Asset-specific allowance coverage ratio(3)	—	17.32	—	16.92	—	25.75	17.41
Total allowance coverage ratio(4)	0.06	1.25	1.31	0.29	0.19	1.12	0.30

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(1)Represents the unpaid principal amount of loans as of the end of each period. Excludes unamortized deferred loan origination costs of $12 million as of November 30, 2021 and May 31, 2021.

(2)Calculated based on the collective allowance component at period end divided by collectively evaluated loans outstanding at period end.

(3)Calculated based on the asset-specific allowance component at period end divided by individually evaluated loans outstanding at period end.

(4)Calculated based on the total allowance for credit losses at period end divided by total loans outstanding at period end.

Our allowance for credit losses of $86 million and allowance coverage ratio of 0.30% as of November 30, 2021 were unchanged from May 31, 2021, reflecting the offsetting impact of an increase in the collective allowance of $4 million and a decrease in the asset-specific allowance of $3 million. The increase in the collective allowance was driven by an increase in the default rates utilized in measuring our collective allowance for credit losses, shifts in borrower risk rating grades and an increase in loans outstanding. The decrease in the asset-specific allowance stemmed from the elimination of an asset-specific allowance of $3 million attributable to nonperforming loans totaling $9 million as a result of our receipt of full payment of all amounts due on these loans during the current quarter.

Reserve for Credit Losses—Unadvanced Loan Commitments

In addition to the allowance for credit losses for our loan portfolio, we maintain an allowance for credit losses for unadvanced loan commitments, which we refer to as our reserve for credit losses because this amount is reported as a component of other liabilities on our consolidated balance sheets. Upon adoption of CECL on June 1, 2020, we began measuring the reserve for credit losses for unadvanced loan commitments based on expected credit losses over the contractual period of our exposure to credit risk arising from our obligation to extend credit, unless that obligation is unconditionally cancellable by us. The reserve for credit losses related to our off-balance sheet exposure for unadvanced loan commitments was less than $1 million as of both November 30, 2021 and May 31, 2021.