Bank of America 2015 Annual Report Download - page 144

142 Bank of America 2015
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 generally 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. The outstanding balance of real
estate-secured loans that is in excess of the estimated property
value less costs to sell is charged off no later than the end of the
month in which the loan becomes 180 days past due unless the
loan is fully insured. The estimated property value less costs to
sell is determined using the same process as described for
impaired loans in Allowance for Credit Losses in this Note.
Consumer loans secured by personal property, credit card loans
and other unsecured consumer loans are not placed on nonaccrual
status prior to charge-off and, therefore, are not reported as
nonperforming loans, except for certain secured consumer loans,
including those that have been modified in a TDR. Personal
property-secured loans are charged off to collateral value no later
than the end of the month in which the account becomes 120
days past due or, for loans in bankruptcy, 60 days past due. Credit
card and other unsecured consumer loans are charged off no later
than the end of the month in which the account becomes 180
days past due or within 60 days after receipt of notification of
death or bankruptcy.
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.
Accrued interest receivable is reversed when commercial loans
and leases are placed on nonaccrual status. Interest collections
on nonaccruing commercial 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 60 days after receipt of
notification of death or bankruptcy. These loans are not placed on
nonaccrual status prior to charge-off and, therefore, are not
reported as nonperforming loans. Other commercial loans and
leases are generally charged off when all or a portion of the
principal amount is determined to be uncollectible.
The entire balance of a consumer loan or commercial loan or
lease 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
and leases until the date the loan is placed on 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-offs on PCI loans as the fair value already considers
the estimated credit losses.
Troubled Debt Restructurings
Consumer and commercial loans and leases whose contractual
terms have been restructured in a manner that grants a concession
to a borrower experiencing financial difficulties are classified as
TDRs. Concessions could include a reduction in the interest rate
to a rate that is below market on the loan, payment extensions,
forgiveness of principal, forbearance or other actions designed to
maximize collections. Loans classified as TDRs are considered
impaired loans. Loans that are carried at fair value, LHFS and PCI
loans are not classified as TDRs.
Consumer and commercial loans and leases whose contractual
terms have been modified in a TDR and are current at the time of
restructuring may 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, except for fully-insured consumer real estate loans,
until there is sustained repayment performance for a reasonable
period, generally six months. If accruing TDRs cease to perform
in accordance with their modified contractual terms, they are
placed on nonaccrual status and reported as nonperforming TDRs.
Generally, TDRs are reported as performing or nonperforming
TDRs, depending on nonaccrual status, throughout their remaining
lives. Accruing TDRs that bear a market rate of interest are reported
as performing TDRs through the end of the calendar year in which
the loans are returned to accrual status.
Secured consumer loans that have been discharged in Chapter
7 bankruptcy and have not been reaffirmed by the borrower are
classified as TDRs at the time of discharge. Such loans are placed
on nonaccrual status and written down to the estimated collateral
value less costs to sell no later than at the time of discharge. If
these loans are contractually current, interest collections are
generally recorded in interest income on a cash basis. Consumer
real estate-secured loans for which a binding offer to restructure
has been extended are also classified as TDRs. Credit card and
other unsecured consumer loans that have been renegotiated in
a TDR are not placed on nonaccrual status. Credit card and other
unsecured consumer loans that have been renegotiated and
placed on a fixed payment plan after July 1, 2012 are generally
charged off no later than the end of the month in which the account
becomes 120 days past due.
A loan that had previously been modified in a TDR and is
subsequently refinanced under current underwriting standards at
a market rate with no concessionary terms is accounted for as a
new loan and is no longer reported as a TDR.
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 residential mortgage LHFS, under the fair value option.
Loan origination costs related to LHFS that the Corporation
accounts for under the fair value option are recognized in
noninterest expense when incurred. Loan origination costs for
LHFS carried at the lower of cost or fair value are capitalized as