Ameriprise 2010 Annual Report Download - page 118

Company’s broker dealer subsidiaries enter into lending arrangements with clients through the normal course of business,
which are primarily based on customer margin levels. These balances are reported at the unpaid principal balance within
receivables. The Company monitors the market value of collateral supporting the margin loans and requests additional
collateral when necessary in order to mitigate the risk of loss. As there is minimal risk of loss related to margin loans, the
allowance for loan losses is immaterial.
Nonaccrual Loans
Generally, loans are evaluated for or placed on nonaccrual status when either the collection of interest or principal has
become 90 days past due or is otherwise considered doubtful of collection. When a loan is placed on nonaccrual status,
unpaid accrued interest is reversed. Interest payments received on loans on nonaccrual status are generally applied to
principal or in accordance with the loan agreement unless the remaining principal balance has been determined to be fully
collectible.
Revolving unsecured consumer lines, including credit card loans, are charged off at 180 days past due. Closed-end
consumer loans, other than loans secured by one to four family properties, are charged off at 120 days past due and are
generally not placed on nonaccrual status. Loans secured by one to four family properties are charged off when
management determines the assets are uncollectible and commences foreclosure proceedings on the property, at which
time the property is written down to fair value less selling costs and recorded as real estate owned in other assets.
Commercial mortgage loans are evaluated for impairment when the loan is considered for nonaccrual status or foreclosure
proceedings are initiated on the property. If it is determined that the fair value is less than the current loan balance, it is
written down to fair value less selling costs. Foreclosed property is recorded as real estate owned in other assets.
Syndicated loans are charged off when management determines that the loans are uncollectible.
Allowance for Loan Losses
Management determines the adequacy of the allowance for loan losses by portfolio based on the overall loan portfolio
composition, recent and historical loss experience, and other pertinent factors, including when applicable, internal risk
ratings, loan-to-value (‘‘LTV’’) ratios, FICO scores of the borrower, debt service coverage and occupancy rates, along with
economic and market conditions. This evaluation is inherently subjective as it requires estimates, which may be susceptible
to significant change.
The Company determines the amount of the allowance required for certain sectors based on management’s assessment of
relative risk characteristics of the loan portfolio. The allowance is recorded for homogeneous loan categories on a pool
basis, based on an analysis of product mix and risk characteristics of the portfolio, including geographic concentration,
bankruptcy experiences, and historical losses, adjusted for current trends and market conditions.
While the Company attributes portions of the allowance to specific loan pools as part of the allowance estimation process,
the entire allowance is available to absorb losses inherent in the total loan portfolio. The allowance is increased through
provisions charged to net investment income and reduced/increased by net charge-offs/recoveries.
Impaired Loans
The Company considers a loan to be impaired when, based on current information and events, it is probable the Company
will not be able to collect all amounts due (both interest and principal) according to the contractual terms of the loan
agreement. Impaired loans also include loans that have been modified in troubled debt restructurings as a concession to
borrowers experiencing financial difficulties. Management evaluates for impairment all restructured loans and loans with
higher impairment risk factors. The impairment recognized is measured as the excess of the loan’s recorded investment
over: (i) the present value of its expected principal and interest payments discounted at the loan’s effective interest rate,
(ii) the fair value of collateral or (iii) the loan’s observable market price.
Restructured Loans
A loan is classified as a restructured loan when the Company makes certain concessionary modifications to contractual
terms. Loans restructured at an interest rate equal to or greater than interest rates for new loans with comparable risk at
the time the contract is modified are excluded from restructured loans. When the interest rate, minimum payments, and/or
due dates have been modified in an attempt to make the loan more affordable to the borrower, the modification is
considered a troubled debt restructuring. Generally, performance prior to the restructuring or significant events that
coincide with the restructuring are considered in assessing whether the borrower can meet the new terms which may result
in the loan being returned to accrual status at the time of the restructure or after a performance period. If the borrower’s
ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status. There are
no material commitments to lend additional funds to borrowers whose loans have been restructured.
102