Thursday, April 19, 2012

Understatement of Allowance for Loan Losses

The Texas Credit Union Department noted that it is continuing to see an understatement of loan loss reserves by some credit unions.

The Department wrote in its April newsletter:

"The Department continues to see instances where a credit union’s Allowance for Loan and Lease Losses (ALLL) is materially understated based on management’s own internal analysis of the loan loss exposure. The failure to accurately record the appropriate loan loss expense is frequently the result of budgetary or other earnings considerations. Credit unions should be aware that any intentional failure to fund the ALLL in a timely manner may be classified as an effort to falsify the accounting records."


  1. I hate to say it, but I've been suspicious of credit unions' remarkable turnaround in net earnings in 2011. It seems inconceivable that the allowance can decline so quickly if credit unions have been charging off their uncollectible loans in a consistent fashion. I wonder if some of them did a mass charge-off knowing that in twelve months the historical ratio would go back down to pre-recession levels. Also, I don't know how auditors analyze the environmental factors, which can be easily adjusted without a lot of oversight.

  2. The NCUA did it, so why not a bunch of cu's? Keith, perhaps you can share the NCUA gimmickry with reserves?



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