We reverse/write-off accrued but uncollected interest receivable at the time a loan is placed in nonaccrual. Current year accrued interest is reversed from interest income and prior year accrued but uncollected is charged to bad debts expense.

I see mention in the Call Report and the FRB Commercial Bank Examination Manual of prior year accrued but uncolletedd interest being charged to the loan loss allowance (assuming the bank has made provisions that include an analysis of collectibility of accrued interest). We do not include accrued interest receivable in our ALLL analysis.

Are we handling this properly?

My instruction would be current year reverses from interest income, but last year reverses from other income, or charges to other expenses, - for segregation purposes.

Income/expense accounts are to reflect current year activities. Obviously, you have to use an account, so use something that's obviously different - Other Income. The use of bad debt expense or current income accounts will also affect any ratios and returns you calculate. So I would use an "other" account.

The paragraph regarding the ALLL is correct - if you had made reserves for it, then you would use them.