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Allowance for Credit Losses - (Notes)
12 Months Ended
May 31, 2021
Loans and Leases Receivable Disclosure [Abstract]  
Allowance for Credit Losses
NOTE 5—ALLOWANCE FOR CREDIT LOSSES

Upon adoption of CECL on June 1, 2020, we recorded an increase in our allowance for credit losses for our loan portfolio of $4 million. The impact on the reserve for expected credit losses for our off-balance sheet credit exposures related to unadvanced loan commitments and financial guarantees was not material. Additional information on our adoption of CECL is provided in “Note 1—Summary of Significant Accounting Policies.”

Allowance for Credit Losses—Loan Portfolio

The following tables summarize, by member class, changes in the allowance for credit losses for our loan portfolio and present the allowance components for the years ended May 31, 2021, 2020 and 2019. The changes in the allowance and the allowance components prior to our adoption of CECL on June 1, 2020 are based on the incurred loss model. The allowance components, which consist of a collective allowance and an asset-specific allowance, are based on the evaluation method used to measure our loans for credit losses. Loans that share similar risk characteristics are evaluated on a collective basis in measuring credit losses, while loans that do not share similar risk characteristics with other loans in our portfolio are evaluated on an individual basis.

Table 5.1: Changes in Allowance for Credit Losses
 Year Ended May 31, 2021
(Dollars in thousands)DistributionPower SupplyStatewide and AssociateCFC TotalNCSCRTFC 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 standard3,586 2,034 25 5,645 (15)(1,730)3,900 
Balance as of June 1, 202011,588 40,061 1,434 53,083 791 3,151 57,025 
Provision (benefit) for credit losses1,838 24,585 (43)26,380 583 1,544 28,507 
Balance as of May 31, 2021$13,426 $64,646 $1,391 $79,463 $1,374 $4,695 $85,532 
 Year Ended May 31, 2020
(Dollars in thousands)DistributionPower SupplyStatewide and AssociateCFC TotalNCSC RTFC Total
Balance as of May 31, 2019$7,483 $4,253 $1,384 $13,120 $2,007 $2,408 $17,535 
Provision (benefit) for credit losses519 33,774 25 34,318 (1,201)2,473 35,590 
Balance as of May 31, 2020$8,002 $38,027 $1,409 $47,438 $806 $4,881 $53,125 
 Year Ended May 31, 2019
(Dollars in thousands)DistributionPower SupplyStatewide and AssociateCFC TotalNCSCRTFCTotal
Balance as of May 31, 2018$7,611 $4,588 $101 $12,300 $2,082 $4,419 $18,801 
Provision (benefit) for credit losses(128)(335)1,283 820 (75)(2,011)(1,266)
Balance as of May 31, 2019$7,483 $4,253 $1,384 $13,120 $2,007 $2,408 $17,535 

The following tables present, by member class, the components of our allowance for credit losses as of May 31, 2021 and 2020.
Table 5.2: Allowance for Credit Losses Components
 May 31, 2021
(Dollars in thousands)DistributionPower SupplyStatewide and AssociateCFC TotalNCSCRTFCTotal
Allowance components:
Collective allowance$13,426 $25,104 $1,391 $39,921 $1,374 $1,147 $42,442 
Asset-specific allowance(1)
 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:(2)
Collectively evaluated loans$22,022,044 $4,926,000 $106,121 $27,054,165 $706,868 $406,606 $28,167,639 
Individually evaluated loans(1)
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(3)
0.06 %0.51 %1.31 %0.15 %0.19 %0.28 %0.15 %
Asset-specific allowance coverage ratio(4)
 17.32  16.92  25.75 17.41 
Total allowance coverage ratio(5)
0.06 1.25 1.31 0.29 0.19 1.12 0.30 

 May 31, 2020
(Dollars in thousands)DistributionPower SupplyStatewide and AssociateCFC TotalNCSCRTFCTotal
Allowance components:
Collective allowance$8,002 $4,173 $1,409 $13,584 $806 $3,902 $18,292 
Asset-specific allowance— 33,854 — 33,854 — 979 34,833 
Total allowance for credit losses$8,002 $38,027 $1,409 $47,438 $806 $4,881 $53,125 
Loans outstanding:(2)
   
Collectively evaluated loans$20,763,897 $4,563,798 $106,498 $25,434,193 $697,862 $380,243 $26,512,298 
Individually evaluated loans5,756 167,708 — 173,464 — 5,092 178,556 
Total loans outstanding$20,769,653 $4,731,506 $106,498 $25,607,657 $697,862 $385,335 $26,690,854 
Allowance coverage ratios:
Collective allowance coverage ratio(3)
0.04 %0.09 %1.32 %0.05 %0.12 %1.03 %0.07 %
Asset-specific allowance coverage ratio(4)
— 20.19 — 19.52 — 19.23 19.51 
Total allowance coverage ratio(5)
0.04 0.80 1.32 0.19 0.12 1.27 0.20 
___________________________
(1)In addition, we had less than $1 million letters of credit outstanding to Brazos, for which the reserve is included in the asset-specific allowance as of May 31, 2021.
(2)Represents the unpaid principal amount of loans as of the end of each period. Excludes unamortized deferred loan origination costs of $12 million and $11 million as of May 31, 2021 and 2020, respectively.
(3)Calculated based on the collective allowance component at period-end divided by collectively evaluated loans outstanding at period-end.
(4)Calculated based on the asset-specific allowance component at period-end divided by individually evaluated loans outstanding at period-end.
(5)Calculated based on the total allowance for credit losses at period-end divided by total loans outstanding at period-end.

The allowance for credit losses increased $32 million to $86 million as of May 31, 2021, and the allowance coverage ratio increased to 0.30%. Of the $32 million increase in the allowance, $24 million was attributable to the collective allowance and $8 million was attributable to the asset-specific allowance.

The increase in the collective allowance of $24 million was primarily driven by the risk-rating downgrade of Rayburn Country Electric Cooperative, Inc. (“Rayburn”), a CFC Texas-based power supply borrower with loans outstanding of $379 million as of May 31, 2021, from a pass rating to a criticized rating in fiscal year 2021 coupled with a decrease we made in the recovery rate assumption for power supply loans during fiscal year 2021 and the addition to the collective allowance of $4 million upon our adoption of CECL on June 1, 2020.

The increase in the asset-specific allowance of $8 million was primarily driven by the risk-rating downgrade of Brazos, a CFC Texas-based power supply borrower, in fiscal year 2021 and the classification of Brazos’ loans outstanding, which totaled $85 million as of May 31, 2021, as nonperforming due to the bankruptcy filing by Brazos as discussed above in “Note 4—Loans.”

Individually Impaired Loans Under Incurred Loss Methodology

Prior to our adoption of CECL on June 1, 2020, we assessed loan impairment on a collective basis unless we considered a loan to be impaired. We assessed loan impairment on an individual basis when, based on current information, it was probable that we would not receive all principal and interest amounts due in accordance with the contractual terms of the original loan agreement. In connection with our adoption of CECL, we no longer provide information on impaired loans. The following table provides information on loans previously classified as individually impaired under the incurred loss model for determining the allowance for credit losses.

Table 5.3: Individually Impaired Loans—Incurred Loss Model
May 31, 2020
(Dollars in thousands)Recorded InvestmentRelated AllowanceWith Specific AllowanceWith No Specific Allowance
Individually impaired loans:
CFC$173,464 $33,854 $167,708 $5,756 
RTFC5,092 979 5,092 — 
Total$178,556 $34,833 $172,800 $5,756 

The following tables present, by company, the components of our recorded investment and interest income recognized for the years ended May 31, 2020 and 2019.

Table 5.4: Average Recorded Investment and Interest Income Recognized on Individually Impaired Loans—Incurred Loss Model
 Year Ended May 31,Year Ended May 31,
2020201920202019
(Dollars in thousands)Average Recorded InvestmentInterest Income Recognized
CFC$11,834 $6,322 $568 $553 
RTFC5,361 5,861 268 293 
Total impaired loans$17,195 $12,183 $836 $846 
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 May 31, 2021 and 2020.