Regions Bank 2008 Annual Report Download - page 110

LOANS HELD FOR SALE
At December 31, 2008, loans held for sale included commercial real estate mortgage loans, residential real
estate mortgage loans and student loans. Commercial real estate mortgage loans held for sale consist of certain
non-performing loans for which management has the intent to sell in the near term. Regions primarily classifies
new residential real estate mortgage loans as held for sale based on intent, retaining some of these loans based on
available liquidity, interest rate risk management and other business purposes. Regions elected the fair value
option for residential real estate mortgage loans held for sale originated after January 1, 2008. Student loans held
for sale include certain loans for which management has the intent to sell in the near term. Commercial real estate
mortgage loans held for sale are carried at the lower of cost or fair value, while certain residential real estate
mortgage loans held for sale for which the fair value option was not elected and student loans held for sale are
carried at the lower of aggregate cost or fair value. See Note 23 for discussion of determining fair value. Gains
and losses on commercial real estate mortgage and student loans held for sale are included in other non-interest
expense. Gains and losses on residential mortgage loans held for sale are included in mortgage income.
At December 31, 2007, loans held for sale included only residential real estate mortgage loans. Prior to
January 1, 2008, residential mortgage loans held for sale were designated as one of the hedged items in a fair
value hedging relationship under Statement of Financial Accounting Standards No. 133, “Accounting for
Derivative Instruments and Hedging Activities” (“FAS 133”). Therefore, changes in fair value attributable to
interest rate risk were recognized in income as an adjustment to the carrying amount of residential mortgage
loans held for sale.
LOANS
Loans are carried at the principal amount outstanding, net of premiums, discounts, unearned income and
deferred loan fees and costs. Interest income on loans is accrued based on the principal amount outstanding,
except for those loans classified as non-accrual. Non-refundable loan origination and commitment fees, net of
direct costs of originating or acquiring loans, are deferred and recognized over the estimated lives of the related
loans as an adjustment to the loans’ effective yield.
Regions engages in both direct and leveraged lease financing. The net investment in direct financing leases
is the sum of all minimum lease payments and estimated residual values, less unearned income. Unearned
income is recognized over the terms of the leases to produce a level yield. The net investment in leveraged leases
is the sum of all lease payments (less non-recourse debt payments), plus estimated residual values, less unearned
income. Income from leveraged leases is recognized over the term of the leases based on the unrecovered equity
investment.
Loans are placed on non-accrual status when management has determined that full payment of all
contractual principal and interest is in doubt, or the loan is past due 90 days or more as to principal and/or interest
unless the loan is well-secured and in the process of collection. When a loan is placed on non-accrual status,
uncollected interest accrued in the current year is reversed and charged to interest income. Uncollected interest
accrued from prior years on loans placed on non-accrual status in the current year is charged against the
allowance for loan losses. Charge-offs on commercial loans occur when available information confirms the loan
is not fully collectible and the loss is reasonably quantifiable. Consumer loans are subject to mandatory
charge-off at a specified delinquency date consistent with regulatory guidelines. Interest collections on
non-accrual loans for which the ultimate collectability of principal is uncertain are applied as principal
reductions. Regions determines past due or delinquency status of a loan based on contractual payment terms.
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