R331.  Financial Institutions, Administration.
R331-24.  Accounting for Accrued Uncollected Income by Banks and Industrial Loan Corporations.
R331-24-1.  Authority, Scope, and Purpose.
	(1)  This rule is issued pursuant to Section 7-1-301(14).
	(2)  This rule applies to all state chartered banks and industrial loan corporations.
	(3)  The purpose of this rule is to establish accounting requirements for accrued uncollected income to help ensure accurate accounting of the income of banks and industrial loan corporations.

R331-24-2.  Definitions.
	(1) "Accrual basis of accounting" means the accounting method in which expenses are recorded when incurred, whether paid or unpaid, and income is recorded when earned, whether or not received.
	(2)  "Business credit card" means a credit card extended to a person for business purposes with a sponsoring company directly or indirectly obligated for payment of any advances.
	(3)  "Commissioner" means the Commissioner of Financial Institutions.
	(4)  "Consumer loan" means credit extended for household, family, and personal expenditures, including credit cards, and loans secured by one to four-family residential properties.
	(5)(a) "Contractual commitment to advance funds" means:
	(i) an obligation on the part of the bank or industrial loan corporation to make payments to a third party contingent upon default by the bank's or industrial loan corporation's customer in the performance of an obligation under the terms of that customer's contract with the third party or upon some other stated condition, or
	(ii) an obligation to guarantee or stand as surety for the benefit of a third party.
	(b) The term includes standby letters of credit, guarantees, puts, and other similar arrangements.  A binding, written commitment to lend is a "contractual commitment to advance funds" if it and all other outstanding loans to the borrower are within the bank's or industrial loan corporation's lending limit on the date of the commitment.
	(6)  "In process of collection" means collection of the debt is proceeding in due course either through legal action, including judgment enforcement procedures, or, in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.
	(7) "Loans and extensions of credit" means any direct or indirect advance of funds in any manner whatsoever to a person.  This is made on the basis of any obligation of that person to repay the funds, or repayable from specific property pledged by or on behalf of a person.  Loans and extensions of credit includes:
	(a)  A purchase under repurchase agreement of securities, other assets, or obligations other than investment grade securities in which the purchasing bank or industrial loan corporation has a perfected security interest with regard to the seller but not as an obligation of the underlying obligor of the security;
	(b)  An advance by means of an overdraft, cash item, or otherwise;
	(c)  A contractual commitment to advance funds;
	(d)  An acquisition by discount, purchase, exchange, or otherwise of any note, draft, or other evidence of indebtedness upon which a person may be liable as maker, drawer, endorser, guarantor, or surety;
	(e)  A participation without recourse with regard to the participating bank or industrial loan corporation, but not the originating bank or industrial loan corporation; and
	(f)  Existing loans, leases, or advances which have been charged off on the books of the bank or industrial loan corporation in whole or in part and which is legally enforceable, including statutory bad debt under Section 7-3-25 or 7-8-15 respectively.
	(8) "Loans or extensions of credit" does not include:
	(a)  A receipt by a bank or an industrial loan corporation of a check deposited in or delivered to the bank or industrial loan corporation in the usual course of business, unless it results in the carrying of a cash item for the granting of an overdraft, other than an inadvertent overdraft in a limited amount that is promptly repaid;
	(b) An acquisition of a note, draft, bill of exchange, or other evidence of indebtedness through a merger or consolidation of financial institutions or a similar transaction by which an institution acquires assets and assumes liabilities of another institution, or foreclosure on collateral or similar proceeding for the protection of the bank or industrial loan corporation, provided that the indebtedness is not held for a period of more than three years from the date of the acquisition, unless permission to extend the period is granted by the commissioner on the basis that holding the indebtedness beyond three years is not detrimental to the safety and soundness of the acquiring bank or industrial loan corporation;
	(c)  An endorsement or guarantee for the protection of a bank or industrial loan corporation of any loan or other asset previously acquired by the bank or industrial loan corporation in good faith, or any indebtedness to a bank or industrial loan corporation for the purpose of protecting the bank or industrial loan corporation against loss or of giving financial assistance to it;
	(d)  Non-interest bearing deposits to the credit of the bank or industrial loan corporation;
	(e)  The giving of immediate credit to a bank or industrial loan corporation upon uncollected items received in the ordinary course of business;
	(f)  The purchase of investment grade securities subject to repurchase agreement in which the purchasing bank or industrial loan corporation has a perfected security interest, or where the securities are purchased from the state or any political subdivision thereof;
	(g)  The sale of federal funds; or
	(h)  Loans or extensions of credit which have become unenforceable by reason of discharge in bankruptcy or are no longer legally enforceable for other reasons.
	(9)  "Standby letter of credit" means any letter of credit, or similar arrangement however named or described, that represents an obligation to the beneficiary on the part of the issuer:
	(a)  To repay money borrowed by or advanced to or for the account of the account party; or
	(b)  To make payment on account of any indebtedness undertaken by the account party; or
	(c)  To make payment on account of any default by the account party in the performance of an obligation.
	(10)  "Well-secured" means a debt that is secured by:
	(a)  Collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt in full, including accrued interest; or
	(b)  The guarantee of a financially responsible party.

R331-24-3.  Accounting for Accrued Uncollected Income.
	(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.

R331-24-4.  Penalty for Violation.
	Failure of management and the board of directors to make the review and determinations required by this rule, in good faith and in accordance with generally accepted accounting principles, constitutes grounds for supervisory sanction under Sections 7-1-307 and 7-1-308.

KEY:  financial institutions
Date of Enactment or Last Substantive Amendment:  November 3, 1998
Notice of Continuation:  August 23, 2018
Authorizing, and Implemented or Interpreted Law:  7-1-301(14)