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Delinquency, at least as I understand it, means that the repayment date has passed but no payment has been made. Impairment means management has determined that the loan, in whole or in part, is not collectible. The impairment amount will be the amount management expects to not collect. Thus, a loan can be not delinquent (because the time for repayment is in the future), yet impaired (because management has determined the loan is uncollectible). Sincerely, Mrs. Polizeros.
P.s.: Here's an interesting link to a story about the impending meltdown in commercial real estate in Sacramento: http://www.sacbee.com/topstories/story/2180413.html
The FDIC call report also shows their "Other real estate owned - multifamily (RCON5511)" to be $494,356,000 (Q1 2009). The next highest was BofA at $97,902,000.
Corus' "Texas Ratio" was beyond unhead-of, it was just flat astronomical!!! In the thousands!!! There are only a hand-ful of banks with such a ratio over 80. These guys were livin' on borrowed time.
any other banks come to mind that are going bust?
chicago area malls amaze me - packed like its 1999!! hard to find a parking spot. have people bought the so-called recovery ??
You also need to look at a bank's "impared" loans. Depending on the banks's definition of this term (apparently there is no uniform definition for "impaired"), the bank can hide shaky loans without (1) declaring them as non performing and (2) establishing a loan loss reserve to cover expected losses.
Great article. But I'd caution anyone from depending on wlmlab's data when looking for a safe bank.
If you've been following the recent bank closures, you'll see that there's nothing too concerning from the info from wlmlab's site, for many of these banks which got shut down.
A bank which is about to be closed should show up as red, not green.
A case in point is Platinum Community Bank of Rolling Meadows, which was closed on September 6, 2009. If you look at wlmlab's data, everything is green (exceptional) except for a tiny portion of their portfolio. This would lead one to think that they are a safe bank, right up to the day that they closed.
What I've found to be a better indicator is the Troubled Asset Ratio found on banktracker.investigativereportingworkshop.org.
Based upon past Bank closures, all banks that have been closed over the past couple of months have had a TAR of 50 or more (the national median is about 11).
It's also interesting to see how quickly this ratio balloons over the course of a year.
For me, this has been a better guide than any of the other websites out there. But I'd recommend looking at the Call Reports directly over any information from any general site.
The non-accrual loans ARE DELIQUENT. Very deliquent. Considering they add up to $2.3 billion and they have only $259 million set aside for losses, they are just a little light on their loss reserves.
Here is a defintion of non-accrual loans:
Asset, usually a loan, that is not earning the contractual rate of interest in the loan agreement, due to financial difficulties of the borrower. Nonaccrual assets are loans in which interest accruals have been suspended because full collection of principal is in doubt, or interest payments have not been made for a sustained period of time. A reserve for possible loan losses is set aside for these loans, and any payments received from the borrower are applied first to principal, and then to loan interest due. According to the guidelines of banking regulators, a loan with principal and interest unpaid for at least 90 days is considered a nonaccrual loan, unless the lender has adequate collateral. Consumer loans and residential mortgage loans are generally exempted from these guidelines. For bank bookkeeping purposes, a nonaccrual loan is recorded as a Cash Basis Loan, that is, a loan in which interest is credited as earned income only when payments are collected from the borrower.
Possibly, delinquencies are minimal because the portfolio consists primarily of construction loans, for which the bank pays interest to itself out of the borrower's interest reserve, adding that amount to principal. As long as the interest reserve has not been used up, the bank can "receive" the monthly interest payments and the loan will not be delinquent. However, this does *not* mean the principal (including the capitalized interest) will be repaid. Borrowers are generally subject to loan covenants, such as minimum net worth, loan-to-value, liquidity, etcetera -- once these are blown, the bank may determine that the loan principal is uncollectible in whole or in part. At that point, interest is no longer accrued -- and the bank shows the total principal amount (including interest to date) as "non-accruing". Hope this helps. Sincerely, Mrs. Polizeros.
mrs p -
that was a beautiful explanation....thanks
for posting it...
If you're not charging interest how can the loan be in arrears?
just wanted to do the math captcha
when it rains
wow, very helpful website! Have been looking for a way to keep up on the relative health of banks in my area. Nice work indeed!
Great insights - analysis much appreciated!
Takes planning to get this much fail.
Nice detective work. Well done!
Thanks man learned a lot.
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