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.
How this term is used
Why this matters
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.
FAQ
What does Net Charge-Off mean?
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.
Is Net Charge-Off defined by a statute?
This entry uses an operating or accounting definition. It does not cite a statute, because the term is not stated here as one statutory category.
What else is Net Charge-Off called?
Other names used for this term include NCO, Net loan charge-offs, Net loan losses, Charge-offs less recoveries.
Sources
-
1
-
2