Regions Bank 2009 Annual Report Download - page 134

LOANS HELD FOR SALE
At December 31, 2009 and 2008, loans held for sale included commercial loans, investor real estate loans,
residential real estate mortgage loans and student loans. Commercial and investor real estate 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, which is
determined when the loans are underwritten. Residential real estate mortgage loans not designated as held for
sale are retained 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 and investor real estate loans held for sale are carried at the lower of cost or estimated fair
value, and student loans held for sale are carried at the lower of aggregate cost or estimated fair value. See Note
22 for discussion of determining fair value. Gains and losses on commercial, investor real estate 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.
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 commercial 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 commercial loans placed on non-accrual status in the current year is charged
against the allowance for loan losses. When a consumer loan is placed on non-accrual status, all uncollected
interest accrued is reversed and charged to interest income. 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. In certain limited situations, if management concludes that all principal is ultimately
collectible, collections on non-accrual loans are applied to principal and interest. Regions determines past due or
delinquency status of a loan based on contractual payment terms.
ALLOWANCE FOR CREDIT LOSSES
Through provisions charged directly to expense, Regions has established an allowance for credit losses
(“allowance”). This allowance is comprised of two components: the allowance for loan losses, which is a contra-
asset to loans, and a reserve for unfunded credit commitments, which is recorded in other liabilities. The
allowance is reduced by actual losses and increased by recoveries, if any. Regions charges losses against the
allowance in the period the loss is confirmed.
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