billddrummer

Chewing on the FDIC List of 'Problem' Banks

Mr. Harrison,

I'm late to this thread, but it appears that CORS will be taken over soon, based on the financial performance during the 2nd quarter which left the bank with a negative Tier One capital of <$2.1 million>, and a 'critically undercapitalized' rating by the FDIC.

I'm frankly surprised that the bank has remained open this month.

Spotting Banks In Danger

To EBC:

Non-accrual assets for banks include loans which for whatever reason have stopped earning interest. There are myriad reasons for loans to cease being earning assets, not just delinquency (though that's a primary cause). Sometimes the borrower files bankruptcy prior to the 90+ day delinquency, and the bank must place the loan on nonaccrual until the bankruptcy is settled; sometimes a borrower disappears (remember the phantom developers during the S & L crisis?). Other things can happen as well--natural disasters, etc., which can cause a loan to cease to perform even if it wasn't past due.

Conversely, some loans will have terms that on face may look risky, but are structured for a specific reason. Classically, construction loans fall into that category. Typical construction loans have maturities longer than one year and no specific repayment schedule except possibly a permanent mortgage at the completion of construction. In this case, the loan structure appears risky, but properly managed, a bank can reduce the risk with effective underwriting techniques.

The non-accrual designation provides a consistent method of determining the relative health of a loan portfolio. Generally speaking, the lower the non-accrual asset percentage, the better managed the portfolio.