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Alert: Interagency guidance on TDRs related to COVID-19

March 24, 2020 / 2 min read

Regulatory agencies issued an interagency statement to financial institutions on TDR considerations when working with customers affected by COVID-19. Read on for details of the statement and what it means for you.

On March 22, 2020, the FDIC, Federal Reserve Board, Office of the Comptroller of Currency, the National Credit Union Administration, and state regulatory bodies published an interagency statement clarifying the identification and recognition of troubled debt restructurings (TDRs) related to COVID-19. The Financial Accounting Standards Board (FASB) followed with a press release, stating it was consulted in the development of the guidance and concurs with the approach outlined.

Summarized key aspects of the statement are as follows:

Plante Moran interpretation

The “modification program” concept is seemingly significant as this sets the date as to when an institution assesses current versus noncurrent status for individual borrowers. We believe the modification program date is the date on which a financial institution creates their policy or framework for modifications under the COVID-19 pandemic.

As a consequence of the decision to defer a borrower’s loan payments under a program as described above, there have been questions regarding the treatment of the resultant accrued interest receivable that will continue to accrue on the financial institution’s core system for loans that aren’t considered TDRs. Due to the presumption that borrowers aren’t in financial difficulty, it appears appropriate that interest income should continue to be recognized, and the financial institution will need to structure an arrangement with the borrower delineating how and when the accrued interest receivable will ultimately be collected.

In summary, we believe the spirit of the guidance is to provide financial institutions with a practical lens through which to view modifications in their loan portfolios. The guidance clarifies circumstances with which financial institutions may presume borrowers are not experiencing financial difficulties. However, for modifications of loans previously identified as watchlist or classified loans, financial institutions aren’t relieved of the requirement to consider, document, and conclude whether a borrower is in financial difficulty.

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