Summary reports are often used by boards to track credit quality at their banks. The information included in these reports and how to use the information is described in more detail below.
Loan Volume Report
Past-Due Loan Report
Nonaccrual Loan Report
Charge-offs and Recoveries Report
Loan Volume Report – This report shows the volume of new loans the bank has added during a specific time period, as well as the volume of loans that were removed from the bank’s portfolio by pay-off or charge-off. This report is useful in showing how successful the bank has been in generating and maintaining its desired loan volume. In addition, the loan volume report is helpful in gauging the liquidity in the bank’s loan portfolio, how quickly loans may be sold to raise needed funds and understanding how changes in loan volume affect its interest income.
Past-Due Loan Report – The past-due loan report is a quick indicator of the quality of the loan portfolio. As the credit quality of the loan portfolio deteriorates, delinquent or past-due loans rise. Typically, a summary past-due loan report divides the bank’s past-due loans by type of loan – consumer, commercial, agricultural, real estate – and length of delinquency. For example, the report might show delinquencies that are 30 days or less past due, those that are 30 to 89 days past due and those that are 90 days or more past due and still accruing interest (the interest income that is earned, but has not been received).
By reviewing the total dollar amount of past-due loans in each category and changes among these categories, you can use the summary past-due report to track problem loan migration and forecast asset quality. When the total of each past-due category is compared with the bank’s total loans, you can gain perspective on the severity of the delinquent loans.
Nonaccrual Loan Report – This summary report often shows month-to-month changes in the dollar amount of loans placed on nonaccrual status and the percentage change in these loans. Once a loan is placed on nonaccrual status, collection from the original source of repayment is unlikely. Depending on the collateral support to repay a loan, the loan may result in a loss to the bank. Moreover, because the loan no longer accrues interest, the earnings of the bank suffer. The bank may also incur increased operating costs to collect the loan (for example, attorney’s fees). Therefore, the nonaccrual report provides information on loan problems that can place a serious drain on bank earnings.
Charge-offs and Recoveries Report – This report shows the dollar amount and type of loans the bank charged off and recovered during the last month and year to date. It may also list charge-offs and recoveries by loan officers. When you compare the dollar amount of charge-offs and recoveries during a period, you can gain insights into the bank’s philosophy regarding recognition of loan problem assets. For example, a bank that reports more recoveries than charge-offs over time may have a conservative charge-off policy. Consequently, it takes action early and, by doing so, recovers more on its loans. In comparison, banks with more charge-offs than recoveries often wait until it is too late to recognize their problems and, as a result, recover less. Accordingly, for these banks, the true condition of their loan portfolios may be quite different from what is reported.