Nonaccrual: A nonaccrual loan is one the bank has stopped booking interest income on, because it no longer expects to collect it.
Where it comes from
Reported on Schedule RC-N. A loan generally moves to nonaccrual at 90 days past due, or sooner if full repayment of principal and interest is in doubt. Interest already accrued and not collected is reversed out of income in the quarter the loan moves.
How to read it
Nonaccrual is the bank’s own admission about a loan, which makes it a more honest signal than days past due. A loan can be current and on nonaccrual, and a well collateralized loan 90 days past due can keep accruing, so the two measures do not rank borrowers the same way.
The common mistake. Missing the earnings effect. Moving a loan to nonaccrual reverses interest that was already booked, so a single large credit going bad hits the income statement harder than its balance alone would suggest.
Go deeper
- What is a normal nonperforming loan ratio?
- BankingLens pricing and what a subscription adds: percentile rank against the bank’s own FFIEC peer group, fourteen quarters of trend, and the flags an examiner reaches for first.
See also. Nonperforming loans, Charge-off, Allowance for credit losses, Texas ratio.
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