Allowance for Credit Losses

9 Months Ended

Feb. 28, 2022


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 legal entity and member class, changes in the allowance for credit losses for our loan portfolio for the three and nine months ended February 28, 2022 and 2021.

Table 5.1: Changes in Allowance for Credit Losses


	Three Months Ended February 28, 2022
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Balance as of November 30, 2021	$	16,032	$	65,467	$	1,424	$	82,923	$	1,594	$	1,618	$	86,135


Provision (benefit) for credit losses	353		(12,989)		(111)		(12,747)		135		(137)		(12,749)

Balance as of February 28, 2022	$	16,385	$	52,478	$	1,313	$	70,176	$	1,729	$	1,481	$	73,386


	Three Months Ended February 28, 2021
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Balance as of November 30, 2020	$	13,215	$	39,781	$	1,413	$	54,409	$	1,341	$	3,239	$	58,989


Provision for credit losses	2,022		27,381		32		29,435		316		3,272		33,023


Balance as of February 28, 2021	$	15,237	$	67,162	$	1,445	$	83,844	$	1,657	$	6,511	$	92,012


	Nine Months Ended February 28, 2022
(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	2,959		(12,168)		(78)		(9,287)		355		(3,214)		(12,146)

Balance as of February 28, 2022	$	16,385	$	52,478	$	1,313	$	70,176	$	1,729	$	1,481	$	73,386


	Nine Months Ended February 28, 2021
(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 for credit losses	3,649		27,101		11		30,761		866		3,360		34,987


Balance as of February 28, 2021	$	15,237	$	67,162	$	1,445	$	83,844	$	1,657	$	6,511	$	92,012

The following tables present, by legal entity and member class, the components of our allowance for credit losses as of February 28, 2022 and May 31, 2021.

Table 5.2: Allowance for Credit Losses Components


	February 28, 2022
(Dollars in thousands)	CFC Distribution		CFC Power Supply		CFC Statewide & Associate		CFC Total		NCSC		RTFC		Total
Allowance components:
Collective allowance	$	16,385	$	12,219	$	1,313	$	29,917	$	1,729	$	1,226	$	32,872
Asset-specific allowance	—		40,259		—		40,259		—		255		40,514
Total allowance for credit losses	$	16,385	$	52,478	$	1,313	$	70,176	$	1,729	$	1,481	$	73,386

Loans outstanding:(1)
Collectively evaluated loans	$	23,220,659	$	4,784,819	$	102,652	$	28,108,130	$	730,147	$	453,523	$	29,291,800
Individually evaluated loans	5,092		207,254		—		212,346		—		4,217		216,563
Total loans outstanding	$	23,225,751	$	4,992,073	$	102,652	$	28,320,476	$	730,147	$	457,740	$	29,508,363


Allowance ratios:
Collective allowance coverage ratio(2)	0.07%	0.26%	1.28%	0.11%	0.24%	0.27%	0.11%
Asset-specific allowance coverage ratio(3)	—	19.42	—	18.96	—	6.05	18.71
Total allowance coverage ratio(4)	0.07	1.05	1.28	0.25	0.24	0.32	0.25


	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

____________________________

(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 both February 28, 2022 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 and allowance coverage ratio decreased to $74 million and 0.25%, respectively, as of February 28, 2022, from $86 million and 0.30%, respectively, as of May 31, 2021. The $12 million decrease in the allowance for credit losses reflected a decrease in the collective and the asset-specific allowance of $9 million and $3 million, respectively. The collective allowance decrease of $9 million was attributable to an improvement in Rayburn’s credit risk profile following the successful completion by Rayburn of a securitization transaction in February 2022 to cover extraordinary costs and expenses incurred during the February 2021 polar vortex and a significant reduction in loans outstanding to Rayburn due to payments received from Rayburn during the three months ended February 28, 2022. The asset-specific allowance decrease of $3 million stemmed from the elimination of an asset-specific allowance attributable to nonperforming loans totaling $9 million that were paid in full during the second quarter of fiscal year 2022.

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 February 28, 2022 and May 31, 2021.