US Bank 2014 Annual Report Download - page 92

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 a
loan’s carrying amount while a loan is on nonaccrual and are
recognized as interest income upon payoff of the loan.
However, interest income may be recognized for interest
payments if the remaining carrying amount of the loan is
believed to be collectible. In certain circumstances, loans in
any class may be restored to accrual status, such as when a
loan has demonstrated sustained repayment performance or
no amounts are past due and prospects for future payment
arenolongerindoubt;orwhentheloanbecomeswell
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, and
those loans are classified as nonaccrual loans with interest
income 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 recognizes
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, which is generally six months or greater. 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.
The Company has implemented certain restructuring
programs that may result in TDRs. However, many of the
Company’s TDRs are also determined on a case-by-case
basis in connection with ongoing loan collection processes.
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 all of the above 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 residential mortgage loans 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. The Company also modifies
residential mortgage loans under Federal Housing
Administration, Department of Veterans Affairs, or its own
90