In Call Report analysis, a charge-off is an accounting write-down of a financial asset or portion of an asset that has been identified as uncollectible. A recovery is a collection on an amount previously charged off against the related allowance for credit losses. Schedule RI-B reports charge-offs and recoveries by loan and lease category on a year-to-date basis. Analysts may calculate a net charge-off amount by subtracting recoveries from charge-offs, or calculate a net charge-off ratio using a separately disclosed average-loan denominator. The dollar amount, the ratio, and the annualization method are different measures and should not be treated as interchangeable. A net charge-off does not by itself show the cause of deterioration, the future loss rate, a borrower’s legal obligation, or the value of a potential portfolio sale.
Net Charge-Off (NCO)
A net charge-off is the amount of loan or lease charge-offs recorded during a stated period minus recoveries collected on amounts previously charged off during that period.
Operational Meaning & Core Elements
Statutory Framework & Jurisdictional Scope
This entry uses U.S. bank Call Report terminology. The FFIEC form reports charge-offs and recoveries by category and reporting period; it does not publish one universal net-charge-off ratio for all institutions. A reported net charge-off amount is not a loan-sale volume, a debt-buyer collection estimate, a default forecast, or a finding that a bank is distressed. Charged-off receivables can have different accounting, consumer-protection, contract, and collection implications across bank, nonbank, consumer, and commercial settings. This is a general definition, not accounting, legal, investment, or credit advice.
Why It Matters for Debt Buyers, Creditors & Operators
Net charge-offs help readers distinguish recognized loss accounting from delinquency, nonaccrual status, reserves, and later recoveries. Used with the reporting period, portfolio category, and denominator, the measure can provide a useful factual marker of loss recognition. For portfolio research, it is a source-anchored indicator of the flow of balances through a bank’s accounting system—not proof of asset quality, recovery prospects, pricing, or sale readiness.
Authoritative Primary Sources
Primary statutory texts, regulatory rules, and official agency guidance supporting this definition:
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