Ameriprise 2012 Annual Report Download - page 124

Other Loans
Other loans consist of policy and certificate loans and brokerage margin loans. When originated, policy and certificate loan
balances do not exceed the cash surrender value of the underlying products. As there is minimal risk of loss related to
policy and certificate loans, the Company does not record an allowance for loan losses. The 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. Margin loans 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 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, restructured 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 placed on
nonaccrual status when management determines it will not collect all contractual principal and interest on the loan.
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 may 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. Factors used by the Company to determine whether all amounts due on commercial
mortgage loans will be collected, include but are not limited to, the financial condition of the borrower, performance of the
underlying properties, collateral and/or guarantees on the loan, and the borrower’s estimated future ability to pay based on
property type and geographic location. The evaluation of impairment on consumer loans is primarily driven by delinquency
status of individual loans. 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 for borrowers experiencing financial difficulties. When the interest rate, minimum payments, and/or due dates have
been modified in an attempt to make the loan more affordable to a borrower experiencing financial difficulties, the
modification is considered a troubled debt restructuring. Generally, performance prior to the restructuring or significant
107