Useful tips

What does nonaccrual mean?

What does nonaccrual mean?

A nonaccrual loan is a lender’s term for an unsecured loan whose payment is 90 days or more overdue. The loan is no longer generating its stated interest rate because no payment has been made by the borrower. It is, therefore, a nonperforming loan. The interest on a nonaccrual loan is thus recorded as earned income.

What are charge-offs and recoveries?

Charge-offs are the value of loans and leases removed from the books and charged against loss reserves. Charge-off rates are annualized, net of recoveries. Delinquent loans and leases are those past due thirty days or more and still accruing interest as well as those in nonaccrual status.

When should a loan go on nonaccrual?

The general rule is that an asset should be placed on nonaccrual when principal or interest is 90 days or more past due or payment in full of principal or interest is not expected, unless the asset is well secured and in the process of collection.

Is a nonaccrual loan impaired?

Nonaccrual loans in the commercial and commercial real estate portfolios are, by definition, deemed to be impaired.

What does nonaccrual of interest mean in the CFR?

10 Nonaccrual of interest also includes the amortization of deferred net loan fees or costs, or the accretion of discount. Nonaccrual of interest on loans past due 90 days or more is a longstanding agency policy and credit union practice.

What happens when a loan is placed in nonaccrual status?

7 Placing a loan in nonaccrual status does not change the loan agreement or the obligations between the borrower and the credit union. Only the parties can effect a restructuring of the original loan terms or otherwise settle the debt.

When to use the specific charge off method?

A company incurs a bad debt when it can’t collect the money that it is owed. Bad debts that cannot be claimed on the business’s tax return using the nonaccrual experience method may be claimed using the specific charge-off method, which is more common.

When to use the allowance for loan and charge offs?

For analytical purposes, an institution should attribute portions of the ALLL to loans that it evaluates and determines to be impaired under FAS 114 and to groups of loans that it evaluates collectively under FAS 5. However, the ALLL is available to cover all charge-offs that arise from the loan portfolio.