For the "loan performance" spreadsheet of "quarterly loan portfolio performance indicators" that accompanies the FDIC Quarterly Banking Profile, how are the charge-off rates defined?
Loan performance measures
The FDIC loan performance subset contains 12 concepts, of which five describe charge-offs:
- Charge-offs (COF)
- Recoveries (REC)
- Net charge-offs (NCO)
- Average loans outstanding (ALO)
- Net charge-off rate (COR)
COF, REC, NCO and ALO are measured as currency levels (millions of U.S. dollars). COR is measured in percent and may be negative.
The net charge-off (a level) is computed as: NCO = (COF - RED)
The net charge-off rate is the ratio of net charge-offs to average loans outstanding. It is annualized (factor of four) and a literal percentage (factor of 100), computed as: COR = (100 * 4 * NCO / ALO)
For example:
XBQABNCOREQ.IUSA = (XBQABCOFREQ.IUSA - XBQABRECREQ.IUSA)
XBQABCORREQ.IUSA = (100 * 4 * XBQABNCOREQ.IUSA / XBQABALOREQ.IUSA)
Peer groups
The FDIC datasets are divided into "peer groups" of banks with similar properties (charter type, asset size, etc.). The loan performance subset was originally reported using the "standard peer groups" of "commercial banks" and "savings institutions," but that split was terminated in 2009.
- "All FDIC-insured institutions" (all banks, AB) - since 1984Q1
- Insured commercial banks only (CB) - 1984Q1 to 2009Q3
- Insured savings institutions only (SI) - 1991Q1 to 2009Q3
Loan types
As of 2017, most FDIC subsets (including loan performance) are divided into a taxonomy of some 30 loan categories and subcategories, such as "real estate," "real estate - secured by farmland," and "commercial and industrial loans." The set of types is subject to change, so some have less history.
Detail
In Data Buffet, all percentages (the series description shows "%") are literal, expressed as a share of 100. That is, series values of "0.15" and "17" mean "0.15%" and "17%," respectively. Conversely, the Microsoft Excel "percent" cell format interpret a percentage as a share of 1.00.
From the FDIC Credit Card Activities Manual (http://www.fdic.gov/regulations/examinations/credit_card/glossary.html):
Charge-off - The removal of an account from a creditor's books as an asset. This usually results from delinquency, death, bankruptcy, or similar circumstances. While it indicates that the creditor does not expect the debt to be repaid, it does not mean that the debt no longer exists (that is, the cardholder still owes the debt) or that there will not be further attempts to collect it.
Recovery - Monies collected on an account after it has been charged-off. Recovery usually results from action taken by the collection department and may include legal action or agency referrals.
Valuation allowance - In general, an account established against a specific asset category or to recognize a specific liability, with the intent of absorbing some element of estimated loss. Such allowances are created by charges to expense in the Report of Income, and those established against asset accounts are netted from the accounts to which they related for presentation in the Report of Condition.
From the instructions for the FFIEC 031 and 041 regulatory filings (the so-called "Call Reports"), Schedule RI-B "Charge-offs and recoveries on loans and leases and changes in allowance for loan and lease losses" (http://www.fdic.gov/regulations/resources/call/crinst/303ri-b.pdf):
In column A report loans and leases charged off against the allowance for loan and lease losses during the current calendar year-to-date. Also include in column A write-downs to fair value on loans (and leases) transferred to the held-for-sale account during the calendar year-to-date that occurred when (1) the reporting bank decided to sell loans that were not originated or otherwise acquired with the intent to sell and (2) the fair value of those loans had declined for any reason other than a change in the general market level of interest or foreign exchange rates. In column B report amounts recovered through the allowance for loan and lease losses during the calendar year-to-date on loans and leases previously charged off.
Regarding the relationship between the similar terms charge-off, write-off and write-down:
Write-off - "Suppose ... you made a sale on credit to a customer, but .. the client's business declared bankruptcy and became completely unable to pay off the credit account ... this uncollectible debt would then be written-off by your company and recorded as an expense ..." (Cite: Investopedia) Hence, a charge-off is a kind of write-off.
Write-down - "Reducing the book value of an asset because it is overvalued compared to the market value ... when the carrying value of the asset can no longer be justified as fair value and the likelihood of receiving the cost (book value) is questionable at best." (Cite: Investopedia)