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#1798739 - 03/27/13 03:16 PM Moving a loan back to accrual
Cornfed Turtle Offline
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Joined: Mar 2006
Posts: 1,323
"...Somewhere in Middle Americ...
Yes....another borrower recovers!! We have a business whose repayment capacity and general financial condition have greatly improved. We never charged off any principal as we felt we were well-secured enough to recover the full principal balance. We did reverse some interest from income during the period when we moved to na and we charged the prior year's accrual against the ALLL. We have posted all payments since then to principal reduction.

You see where I'm going with this, don't you? Performance on the loan has been demonstrated and lending is ready to move the loan to accrual and upgrade the risk rating. When we collect the interest in arrears, do we take a recovery to the ALLL prior to taking interest income? I'm not finding what I need in the exam manuals, but if someone could point me in an accounting direction, I'd be ever so grateful.

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Lending Compliance
#1799887 - 03/30/13 01:11 PM Re: Moving a loan back to accrual Cornfed Turtle
rlcarey Online
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rlcarey
Joined: Jul 2001
Posts: 83,227
Galveston, TX
we charged the prior year's accrual against the ALLL. We have posted all payments since then to principal reduction.

You have some accounting issues to sort through. Your non-accrual accounting should be happening on a shadow system and you should not be impacting the actual loan record of the customer. Any customer payments are always applied according to the loan contract. Your shadow accounting system should take care of keeping the non-accrual accounting for income purposes. Why would you backdate a non-accrual and charge last year's accrued interest to the ALLL in the first place? You need to get together with your external CPA firm and get this straightened out.
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