Bank of America 2010 Annual Report Download - page 153

trends within the portfolio and any other pertinent information, result in the
estimation of the reserve for unfunded lending commitments.
The allowance for credit losses related to the loan and lease portfolio is
reported separately on the Consolidated Balance Sheet whereas the reserve
for unfunded lending commitments is reported on the Consolidated Balance
Sheet in accrued expenses and other liabilities. Provision for credit losses
related to the loan and lease portfolio and unfunded lending commitments is
reported in the Consolidated Statement of Income.
Nonperforming Loans and Leases, Charge-offs and
Delinquencies
Nonperforming loans and leases generally include loans and leases that have
been placed on nonaccrual status including nonaccruing loans whose contrac-
tual terms have been restructured in a manner that grants a concession to a
borrower experiencing financial difficulties. Loans accounted for under the fair
value option, PCI loans and LHFS are not reported as nonperforming loans and
leases.
In accordance with the Corporation’s policies, non-bankrupt credit card
loans and unsecured consumer loans are charged off no later than the end
of the month in which the account becomes 180 days past due. The outstanding
balance of real estate-secured loans that is in excess of the estimated property
value, less estimated costs to sell, is charged off no later than the end of the
month in which the account becomes 180 days past due unless repayment of
the loan is insured by the Federal Housing Administration (FHA). The estimated
property value, less estimated costs to sell, is determined using the same
process as described for impaired loans in the Allowance for Credit Losses
section beginning on page 150. Personal property-secured loans are charged
off no later than the end of the month in which the account becomes 120 days
past due. Unsecured accounts in bankruptcy, including credit cards, are charged
off 60 days after bankruptcy notification. For secured products, accounts in
bankruptcy are written down to the collateral value, less cost to sell, by the end
of the month in which the account becomes 60 days past due. Consumer credit
card loans, consumer loans secured by personal property and unsecured
consumer loans are not placed on nonaccrual status prior to charge-off and
therefore are not reported as nonperforming loans. Real estate-secured loans
are generally placed on nonaccrual status and classified as nonperforming at
90 days past due. However, consumer loans secured by real estate where
repayments are insured by the FHA are not placed on nonaccrual status, and
therefore, are not reported as nonperforming loans. Accrued interest receivable
is reversed when a consumer loan is placed on nonaccrual status. Interest
collections on nonaccruing consumer loans for which the ultimate collectability
of principal is uncertain are applied as principal reductions; otherwise, such
collections are credited to interest income when received. These loans may be
restored to accrual status when all principal and interest is current and full
repayment of the remaining contractual principal and interest is expected, or
when the loan otherwise becomes well-secured and is in the process of
collection. Consumer loans whose contractual terms have been modified in
a TDR and are current at the time of restructuring remain on accrual status if
there is demonstrated performance prior to the restructuring and payment in full
under the restructured terms is expected. Otherwise, the loans are placed on
nonaccrual status and reported as nonperforming until there is sustained
repayment performance for a reasonable period, generally six months. Con-
sumer TDRs that are on accrual status are reported as performing TDRs
through the end of the calendar year in which the restructuring occurred or
the year in which the loans are returned to accrual status. In addition, if accruing
consumer TDRs bear less than a market rate of interest at the time of mod-
ification, they are reported as performing TDRs throughout the remaining lives
of the loans.
Commercial loans and leases, excluding business card loans, that are
past due 90 days or more as to principal or interest, or where reasonable
doubt exists as to timely collection, including loans that are individually
identified as being impaired, are generally placed on nonaccrual status
and classified as nonperforming unless well-secured and in the process of
collection. Commercial loans and leases whose contractual terms have been
modified in a TDR are placed on nonaccrual status and reported as non-
performing until the loans have performed for an adequate period of time
under the restructured agreement, generally six months. Accruing commercial
TDRs are reported as performing TDRs through the end of the calendar year in
which the loans are returned to accrual status. In addition, if accruing com-
mercial TDRs bear less than a market rate of interest at the time of modi-
fication, they are reported as performing TDRs throughout the remaining lives
of the loans. Accrued interest receivable is reversed when a commercial loan
is placed on nonaccrual status. Interest collections on nonaccruing commer-
cial loans and leases for which the ultimate collectability of principal is
uncertain are applied as principal reductions; otherwise, such collections
are credited to income when received. Commercial loans and leases may be
restored to accrual status when all principal and interest is current and full
repayment of the remaining contractual principal and interest is expected, or
when the loan otherwise becomes well-secured and is in the process of
collection. Business card loans are charged off no later than the end of the
month in which the account becomes 180 days past due or where 60 days
have elapsed since receipt of notification of bankruptcy filing, whichever
comes first. These loans are not placed on nonaccrual status prior to
charge-off and therefore are not reported as nonperforming loans. Other
commercial loans are generally charged off when all or a portion of the
principal amount is determined to be uncollectible.
The entire balance of a consumer and commercial loan is contractually
delinquent if the minimum payment is not received by the specified due date
on the customer’s billing statement. Interest and fees continue to accrue on
past due loans until the date the loan goes into nonaccrual status, if
applicable.
PCI loans are recorded at fair value at the acquisition date. Although the
PCI loans may be contractually delinquent, the Corporation does not classify
these loans as nonperforming as the loans were written down to fair value at
the acquisition date and the accretable yield is recognized in interest income
over the remaining life of the loan. In addition, reported net charge-offs
exclude write-downs on PCI loan pools as the fair value already considers the
estimated credit losses.
Loans Held-for-sale
Loans that are intended to be sold in the foreseeable future, including
residential mortgages, loan syndications, and to a lesser degree, commercial
real estate, consumer finance and other loans, are reported as LHFS and are
carried at the lower of aggregate cost or fair value. The Corporation accounts
for certain LHFS, including first mortgage LHFS, under the fair value option.
Mortgage loan origination costs related to LHFS which the Corporation ac-
counts for under the fair value option are recognized in noninterest expense
when incurred. Mortgage loan origination costs for LHFS carried at the lower of
cost or fair value are capitalized as part of the carrying amount of the loans
and recognized as a reduction of mortgage banking income upon the sale of
such loans. LHFS that are on nonaccrual status and are reported as non-
performing, as defined in the policy above, are reported separately from
nonperforming loans and leases.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are recognized using the
straight-line method over the estimated useful lives of the assets. Estimated
lives range up to 40 years for buildings, up to 12 years for furniture and
Bank of America 2010 151