eBrief: Behind the Provision for Loan Loss Numbers

Quarterly provisioning for loan losses is at the lowest level in eight quarters.


At mid-year 2010, the credit union industry posted positive earnings with an ROA of 0.62% before the stabilization assessment. ROA was up from the first quarter metric of 0.40%. Quarterly improvements can be tied to a decreasing provision for loan losses and overall improvement in the core business model. In fact, quarterly provisioning for loan losses is at the lowest level in eight quarters.

If we look at just credit unions that have more than $1 million in reportable delinquent loans as of June 30, 2010 (approximately 1,200 institutions), this group’s quarterly provision of $1.62 billion is nearly 90% of the industry’s quarterly provision at mid-year 2010 of $1.8 billion.


Of this group, 47.2% of the credit unions decreased their provision on a quarterly basis; 46.0% increased. The remainder had equal or unchanged provision amounts between the first and second quarters of 2010. Although the group was divided, on average they provisioned $1.4 million despite a decline in reportable delinquent loans. Many factors affect the amount provisioned, but the question remains: Are credit unions becoming over-reserved? This group’s delinquency ratio and net charge-off ratio fell on a quarterly basis since year-end 2009. The group’s coverage ratio (Allowance for Loan Losses/Delinquent Loans) increased for the fourth straight quarter to reach 93.2%.