Accounting for Impaired Loans in FAS 114

Estimates of credit losses should reflect consideration of all significant factors that affect the collectibility of the portfolio as of the evaluation date. For loans within the scope of FAS 114 that are individually evaluated and determined to be impaired, these estimates should reflect consideration of one of the standard’s three impairment measurement methods as of the evaluation date: (1) the present value of expected future cash flows discounted at the loan’s effective interest rate, (2) the loan’s observable market price, or (3) the fair value of the collateral if the loan is collateral dependent.