Regions Bank 2010 Annual Report Download - page 138

LOANS HELD FOR SALE
At December 31, 2010 and 2009, 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 15 and 30-year conforming residential real estate mortgage loans as held for sale based
on intent, which is determined when Regions enters into an interest rate lock commitment on this loan type.
Regions has elected the fair value option for residential mortgage loans held for sale. 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. 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 21 for discussion of determining fair value. Gains and losses on
commercial and investor real estate loans held for sale are included in other non-interest expense. Gains and
losses on residential mortgage loans held for sale for which the fair value option has been elected are included in
mortgage income. Gains and losses on all other loans held for sale are classified as other non-interest 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 contractual interest rate and the
principal amount outstanding, except for those loans classified as non-accrual. Premiums and discounts on
purchased loans and 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, which is included in interest income on loans.
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 based on a period of delinquency, 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. Interest collections on non-accrual loans are applied as principal reductions.
Regions determines past due or delinquency status of a loan based on contractual payment terms.
Charge-offs on commercial and investor real estate 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.
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 and lease 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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