A nonaccrual loan is a loan for which a lender stops accrual-basis interest recognition under an applicable accounting or regulatory policy.
A nonaccrual loan is a loan for which a lender stops recognizing interest income on the normal accrual basis under an applicable accounting or regulatory policy. For U.S. bank Call Report purposes, nonaccrual can be required because collectibility has deteriorated or full payment is not expected, not only because principal or interest has been in default for 90 days.
Current FFIEC Call Report instructions should be consulted for the exact reporting period. In general, an asset is reported in nonaccrual status when one of the following applies:
The instructions define “well secured” and “in the process of collection” and include product- and fact-specific provisions. Both parts of the exception must be supported; collateral alone is not enough.
These are U.S. bank regulatory-reporting concepts. Nonbank lenders, IFRS reporters, tax rules, and other jurisdictions can use different policies.
A bank has a $2 million business loan that is 25 days past due. The borrower has ceased operations, the guarantor is insolvent, and current collateral analysis indicates that full principal and interest collection is not expected.
The loan does not need to reach 90 days past due before the expectation-of-full-payment criterion becomes relevant. The bank must apply the current Call Report instructions and its accounting policy based on the documented facts.
Now consider a different 95-day-past-due loan supported by collateral with sufficient realizable value and active collection expected to produce repayment or restoration to current status in the near future. The stated exception may be relevant only if the loan is both well secured and in the process of collection. A stale appraisal or vague collection plan does not establish those conditions.
Placing a loan on nonaccrual commonly affects several records:
The gross legal claim, recorded principal, allowance, and net carrying amount are different figures. Stopping interest accrual does not erase principal, and recording an allowance does not itself forgive the debt.
| Term | Main focus | Difference from nonaccrual |
|---|---|---|
| Past due | Timing of an unpaid scheduled amount | Can begin after one missed due date |
| Default | Contractual, legal, regulatory, or model trigger | Does not by itself prescribe interest recognition |
| Credit-impaired | Effect of credit events on expected cash flows | Accounting measurement concept |
| Non-performing | Serious delinquency or unlikeliness to pay under a stated framework | Broader prudential or portfolio classification |
| Charge-off | Amount considered uncollectible | Reduces the asset and allowance rather than merely stopping accrual |
The categories can overlap. A nonaccrual loan is often credit-impaired or non-performing, but the classification logic should be documented separately.
A loan should not return to accrual simply because the lender signs a modification or receives one payment. Under the applicable policy, relevant evidence can include:
The required performance period and treatment of restructured or purchased assets depend on the reporting framework and facts. Analysts should preserve the historical nonaccrual period even after restoration.
For an individual exposure, review payment history, risk rating, borrower cash flow, guarantors, collateral, lien position, modification terms, collection actions, accrued interest, and charge-offs.
For a portfolio, track:
A declining nonaccrual balance can reflect cures, but it can also reflect charge-offs or sales. The flow bridge matters more than the ending balance alone.
Nonaccrual accounting and regulatory reporting require the current instructions and institution-specific facts. This article provides general financial education, not accounting, audit, regulatory, legal, or investment advice.