Thursday, September 11, 2008

Is Your Bank Next?

The escalating number of bank failures recently has made it even more important to know the financial institution that you are investing in. Here are some metrics used by the market to assess the health of an institution in regard to the assets on its balance sheet.

Assets past due 30-89 days - Total assets past due 30-89 days but still accruing interest.

Assets past due 90 or more days - Total assets past due 90 or more days but still accruing interest.

Assets in non accrual status - Total assets, which are no longer accruing interest.

Sometimes an asset will be past due less than 90 days but still be in the non accruing interest category if management considers that it is unlikely to collect that interest.

Other real estate owned (OREO) - This category includes direct and indirect investments in real estate, and is usually consists of the collateral that a bank has to take when a borrower can't pay on a loan.

A common ratio used that incorporates some of the above is total non current loans and leases as a percent of gross loans and leases.

The Federal Deposit Insurance Corporation (FDIC) defines total non current loans as Loans and leases 90 days or more past due plus loans in non accrual status.

Next week I will write on more measures used in bank analysis.

This article was written by the Stock Market Prognosticator. If you enjoyed this article, please vote for it by clicking the Buzz Up! button below.

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