(1) General Rule:
A bank or industrial loan corporation that uses the accrual
basis of accounting to prepare its financial statements shall, at each
regularly scheduled board meeting, review all earned but uncollected income and
determine the portion of it that is uncollectible. This determination shall be
in accordance with generally accepted accounting principles. At a minimum, the
following events should stop the accrual of income:
(a) The accrual of interest income shall
cease when any loan or extension of credit is contractually 90 days delinquent.
(i) For a monthly installment account, four
payments delinquent is the equivalent of 90 days delinquent.
(ii) For a single-payment commercial account
that calls for interest-only payments prior to maturity, the 90-day period
commences with the interest-only due date.
(b) No further income may be recognized for a
precomputed loan, lease, or discounted contract when it becomes 90 days
delinquent.
(c) In restructuring a
loan or extension of credit, a bank or industrial loan corporation may only
capitalize or add to the new principal balance up to 90 days' interest, unless
the board of directors specifically approves otherwise in writing at its next
regularly scheduled meeting. If, at that meeting, the board fails to approve
the capitalization of additional interest, the loan or extension of credit is
considered to be more than 90 days delinquent, and the accrual of interest
income shall cease.
(2)
Exemptions:
Subsection (1) does not limit the accrual of interest
income:
(a) for any consumer loan that
is in the process of collection;
(b) for any business credit card balance that
is in the process of collection;
(c) for loans or other debt instruments
acquired at a discount (because there is uncertainty as to the amounts or
timing of future cash flow) from an unaffiliated third party (such as another
institution or the receiver of a failed institution), including those that the
seller had maintained in nonaccrual status, and that met the amortization
criteria specified in the AICPA Bulletin No. 6.
(d) for loans secured by a 1-to-4 family
residential property. Nevertheless, such loans should be subject to other
alternative methods of evaluation to assure the financial institution's net
income is not materially overstated.
(e) for any other loan or lease that is both
well-secured and in the process of collection;
(f) to the extent the commissioner provides
an additional exemption from Subsection (1) by express, prior, written
approval;
(3)
Notwithstanding this rule, all extensions of credit are subject to Sections
7-3-25 and 7-8-
15.
