§ 621.6 - Categorizing high-risk loans and other property owned.

§ 621.6 Performance categories Categorizing high-risk loans and other property owned.

Cross Reference

Link to an amendment published at 85 FR 52253, Aug. 25, 2020.

Each institution shall must employ the following practices with respect to practices of this section when categorizing high-risk loans and loan-related assets. No A loan shall must not be put into more than one performance category. At

(a) Nonaccrual loans. A loan shall be considered nonaccrual if it meets any of the following conditions:

(1) Collection of any amount of outstanding principal and all past and future interest accruals, considered

(a

minimum, loans meeting the criteria for both nonaccrual and another performance category shall be classified as nonaccrual.

) Nonaccrual loans. A loan is categorized as nonaccrual if there is a known risk to the continued collection of principal or interest. Once a loan is categorized as nonaccrual, it must remain in that category until reinstated to accrual status pursuant to § 621.9. Loans placed into nonaccrual status when current are also subject to the notice and review provisions of part 617 of this chapter. A loan must be categorized as nonaccrual if one or more of the following conditions exist:

(1) The loan may or may not be past due, but the institution has determined collection of the outstanding principal and interest, plus future interest accruals, over the full term of the asset, loan is not expected ;

(2) Any portion of the loan has been charged off, except in cases where the prior chargeoff was taken as part of a formal restructuring of the loan; or

(3

because of a documented deterioration in the financial condition of the borrower;

(2) The loan is 90 days or more past due and is not

both adequately secured and in process of collection.

(i) A loan is considered adequately secured only if:

(A) It is secured by real or personal property having a net realizable value sufficient to discharge the debt in full; or

(B) It is guaranteed by a financially responsible party in an amount sufficient to discharge the debt in full.

(ii) A loan is considered in process of collection only if collection efforts are proceeding in due course and, based on a probable and specific event, are expected to result in the prompt repayment of the debt or its restoration to current status. There must be documented evidence that collection in full of amounts due and unpaid is expected to occur within a reasonable time period, not to exceed 180 days from the date that payment was due. The commencement of collection efforts through legal action, including bankruptcy or foreclosure, or through collection efforts not involving legal action, including ongoing workouts and reamortizations, do not, in and of themselves, provide sufficient cause to keep a loan out of nonaccrual status. If full collection of the debt or its restoration to current status is dependent upon completion of any action by the borrower, the institution must obtain the borrower's written agreement to complete all such actions by the specific dates set forth in agreement

otherwise eligible for categorization under paragraph (c) of this section; or

(3) Legal action, including foreclosure or other forms of collateral conveyance, has been initiated to collect the outstanding principal and interest.

(b) Formally restructured loans (TDR). A loan is considered categorized as a formally restructured if it meets the “troubled debt restructuring” definition set forth in loan (Troubled Debt Restructure(TDR)) if the restructuring is determined to be a TDR under generally accepted accounting principles and the guidance issued by the Financial Accounting Standards Board Accounting Standards Codification Subtopic 310 - 40, Receivables - Troubled Debt Restructurings by Creditors.

(c) Loans 90 days past due still accruing interest.

(1) Loans

A loan is categorized as 90 days past due still accruing interest

means loans that are

when it is 90 days or more contractually past due,

and that are both

adequately secured, and in the process of collection

, as described in this section. (2) A loan shall be considered contractually past due when any principal repayment or interest payment required by the loan instrument is not received on or before the due date. A loan shall remain contractually past due until it is formally restructured or until the entire amount past due, including principal, accrued interest, and penalty interest incurred as the result of past due status, is collected or otherwise discharged in full

. If the loan is not adequately secured, it cannot be categorized under this category unless there is evidence to suggest repayment within a reasonable time period of either the past due amount or the remaining principal and interest owed.

(d) Other property owned means any . Any real or personal property, other than an interest-earning asset, that has been acquired as a result of full or partial liquidation of a loan, through foreclosure, deed in lieu of foreclosure, or other legal means.

[58 85 FR 4878652253, SeptAug. 20, 1993, as amended at 78 FR 21037, Apr. 9, 201325, 2020]