US Bank 2015 Annual Report Download - page 94

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
are no longer in doubt; or when 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, 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
internal programs. Under these programs, the Company
provides concessions to qualifying borrowers experiencing
financial difficulties. The concessions may include adjustments
to interest rates, conversion of adjustable rates to fixed rates,
extension of maturity dates or deferrals of payments,
capitalization of accrued interest and/or outstanding
advances, or in limited situations, partial forgiveness of loan
principal. In most instances, participation in residential
mortgage loan restructuring programs requires the customer
to complete a short-term trial period. A permanent loan
modification is contingent on the customer successfully
completing the trial period arrangement and the loan
documents are not modified until that time. The Company
reports loans in a trial period arrangement as TDRs and
continues to report them as TDRs after the trial period.
Credit card and other retail loan TDRs are generally part of
distinct restructuring programs providing customers
experiencing financial difficulty with modifications whereby
balances may be amortized up to 60 months, and generally
include waiver of fees and reduced interest rates.
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