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- Thank you for joining us for this series of presentations
on Troubled Debt Restructuring or TDR.
In this series, we covered the definition
and identification of a TDR loan.
We highlighted the two-pronged test for identifying a TDR.
First, is the borrower experiencing
financial difficulty?
And second, has the bank granted a concession?
If the answer to either of these questions is "no,"
then the modification is not a TDR.
We discussed several indicators of financial difficulty,
stressing the severity of the difficulties
that must exist.
We also discussed several common types of modifications -
emphasizing that not all modifications are concessions.
In particular, we noted that modifications
that result in only insignificant delays
in payment or shortfalls in amount do not necessarily
constitute a concession.
Next, we reviewed the accounting
and regulatory treatment of TDRs.
We discussed the fact that all TDR loans are impaired
and must be measured for impairment
according to ASC 310 until they are paid-in-full,
otherwise settled, sold, or charged-off.
We emphasized that it is highly unlikely for TDR loans
to have zero or nominal impairment
unless there has been a partial charge-off.
We also discussed the nonaccrual status of TDR loans,
and explained how TDR loans may return to accrual status.
We addressed the regulatory reporting of TDR loans
and noted that banks may discontinue reporting TDR loans
on the Call Report under certain circumstances.
Additionally, we discussed the relationship between TDR loans
and adverse classification, and clarified
that TDR loans are not always adversely classified.
Finally, we reviewed the A/B note structure
and the requirements for considering
favorable examination treatment on the "A" note.
One of the critical requirements discussed
is that the "B" note must be charged off in order
for the bank to receive any beneficial treatment.
We highlighted the benefits of this structure,
specifically discussing that the "A" note can potentially:
1) Return to accrual status
after sustained performance generally at least six months;
2) Be upgraded to a Pass designation;
and 3) Not be reported in the following years
as a TDR on the Call Report if performing and,
at the time of restructuring,
yields a market rate of interest.
In addition to the examples we reviewed
throughout this presentation,
We encourage you to reference the tabletop exercises
for more detail.
These exercises can be accessed via a link on
the Technical Assistance Video Program webpage at FDIC.gov.
These exercises apply the principles outlined
during this series of presentations
as well as the ALLL presentations.
This video is one of several that are part
of the FDIC's Community Banking Initiative.
Other videos can be found
on the FDIC's Directors' Resource Center webpage.
Although we have discussed TDRs
in a fair amount of detail during these presentations,
please refer to the accounting standards
and written regulatory guidance
for more specific information or exceptions
that may apply in particular circumstances.
The principal sources of guidance on accounting
for TDRs under Generally Accepted Accounting Principles
or GAAP
include: 1) ASC 310-40:
Receivables - Troubled Debt Restructurings by Creditors,
2) ASC 310-10: Receivables - Overall,
and 3) ASU 2011-02: A Creditor's Determination
of Whether a Restructuring is a Troubled Debt Restructuring.
The applicable regulatory guidance governing
the treatment of TDRs includes:
1) The FFIEC Instructions
for the Consolidated Reports of Condition and Income
or Call Reports,
2) The Call Report Supplemental Instructions,
3) The October 2009 Interagency Policy Statement
on Prudent Commercial Real Estate Loan Workouts,
and 4) The October 2013
Interagency Supervisory Guidance Addressing
Certain Issues Related to Troubled Debt Restructurings.
In addition to the written guidance,
FDIC Regional Accounting Specialists
are available as resources.
If you have questions about these presentations,
the tabletop exercises or the resource material,
please send them to supervision@fdic.gov.
On behalf of the FDIC,
thank you for taking the time to watch these videos;
we hope you found the information helpful.
Please be sure to check our website for other videos
on various risk management and consumer protection topics
that may be of interest.