US Bank 2011 Annual Report Download - page 79

For all loan classes, loans are considered past due based on
the number of days delinquent except for monthly amortizing
loans which are classified delinquent based upon the number of
contractually required payments not made (for example, two
missed payments is considered 30 days delinquent).
Commercial lending segment loans are placed on
nonaccrual status when the collection of principal and interest
has become 90 days past due or is otherwise considered
doubtful. When a loan is placed on nonaccrual status, unpaid
accrued interest is reversed. Commercial lending segment
loans are generally fully or partially charged down to the fair
value of the collateral securing the loan, less costs to sell,
when the loan is considered uncollectible.
Consumer lending segment loans are generally charged-off
at a specific number of days or payments past due. Residential
mortgages and other retail loans secured by 1-4 family
properties are generally charged down to fair market value,
less costs to sell, at 180 days past due, and placed on
nonaccrual status in instances where a partial charge-off occurs
unless the loan is well secured and in the process of collection.
Credit card loans continue to accrue interest until the account
is charged off. Credit cards are charged off at 180 days past
due. Other retail loans not secured by 1-4 family properties are
charged-off at 120 days past due; and revolving consumer lines
are charged off at 180 days past due. Similar to credit cards,
other retail loans are generally not placed on nonaccrual status
because of the relative short period of time to charge-off.
Certain retail customers having financial difficulties may have
the terms of their credit card and other loan agreements
modified to require only principal payments and, as such, are
reported as nonaccrual.
For all loan classes, interest payments received on
nonaccrual loans are generally recorded as a reduction to the
loan carrying amount. Interest payments recorded as
reductions to a loan’s carrying amount while a loan is on
nonaccrual are recognized as interest income only upon payoff
of the loan. In certain circumstances, loans in any class may be
restored to accrual status, such as when none of the principal
and interest is past due and prospects for future payment are
no longer in doubt; or the loan becomes well secured and is in
the process of collection. Loans where there has been a partial
charge-off may be returned to accrual status if all principal and
interest (including amounts previously charged-off) is expected
to be collected and the loan is current.
Covered loans not considered to be purchased impaired
are evaluated for delinquency, nonaccrual status and
charge-off consistent with the class of loan they would be
included in had the loss share coverage not been in place.
Generally, purchased impaired loans are considered accruing
loans. However, the timing and amount of future cash flows
for some loans is not reasonably estimable. Those loans are
classified as nonaccrual loans and interest income is not
recognized until the timing and amount of the future cash
flows can be reasonably estimated.
The Company classifies its loan portfolios using internal
credit quality ratings on a quarterly basis. These ratings
include: pass, special mention and classified, and are an
important part of the Company’s overall credit risk
management process and evaluation of the allowance for
credit losses. Loans with a pass rating represent those not
classified on the Company’s rating scale for problem credits,
as minimal credit risk has been identified. Special mention
loans are those that have a potential weakness deserving
management’s close attention. Classified loans are those
where a well-defined weakness has been identified that may
put full collection of contractual cash flows at risk. It is
possible that others, given the same information, may reach
different reasonable conclusions regarding the credit quality
rating classification of specific loans.
Troubled Debt Restructurings In certain circumstances, the
Company may modify the terms of a loan to maximize the
collection of amounts due when a borrower is experiencing
financial difficulties or is expected to experience difficulties in
the near-term. Concessionary modifications are classified as
TDRs unless the modification results in only an insignificant
delay in payments to be received. The Company accrues
interest on TDRs if the borrower complies with the revised
terms and conditions as agreed upon with the Company and
has demonstrated repayment performance at a level
commensurate with the modified terms over several payment
cycles. To the extent a previous restructuring was
insignificant, the Company considers the cumulative effect of
past restructurings related to the receivable when determining
whether a current restructuring is a TDR. Loans classified as
TDRs are considered impaired loans for reporting and
measurement purposes. Many of the Company’s TDRs are
determined on a case-by-case basis in connection with
ongoing loan collection processes. However, the Company has
also implemented certain restructuring programs that may
result in TDRs.
For the commercial lending segment, modifications
generally result in the Company working with borrowers on a
case-by-case basis. Commercial and commercial real estate
modifications generally include extensions of the maturity
date and may be accompanied by an increase or decrease to
the interest rate, which may not be deemed a market rate of
interest. In addition, the Company may work with the
borrower in identifying other changes that mitigate loss to the
Company, which may include additional collateral or
guarantees to support the loan. To a lesser extent, the
Company may waive contractual principal. The Company
classifies these concessions as TDRs to the extent the
Company determines that the borrower is experiencing
financial difficulty.
Modifications for the consumer lending segment are
generally part of programs the Company has initiated. The
Company participates in the U.S. Department of Treasury
Home Affordable Modification Program (“HAMP”). HAMP
gives qualifying homeowners an opportunity to permanently
modify their loan and achieve more affordable monthly
payments, with the U.S. Department of Treasury compensating
the Company for a portion of the reduction in monthly
amounts due from borrowers participating in this program.
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