TDR Policy
Pasadena Federal Credit Union
Troubled Debt Restructuring
Effective Date: 4/1/2011
Revision Date: 8/25/2011
Overview
The Board of Directors of Pasadena Federal Credit Union recognizing the severity of
the current economic environment empowered the management team to work with
our members and to make concessions to help members remain current with their
loan payments. At times these loans may be modified to terms that the member would
otherwise not be eligible. Keeping our focus of People Helping People, while
protecting the assets of the Credit Union, we may make loans that would be
considered Trouble Debt Restructuring by Generally Accepted Accounting Principles.
This policy addresses the classification and treatment of these special loans.
Description of Troubled Debt Restructuring Loans (TDR’s)
Troubled Debt Restructuring results when a lender grants concessions, which would
not ordinarily be granted to the member in light of the member’s financial difficulties.
Troubled Debt Restructuring (TDR’s) loans are when members are having economic
or legal reasons related to the member’s financial difficulties. A TDR may have
included, but was not necessarily limited to, one or a combination of the following:




Lender grants concessions that would not ordinarily be granted.
Concessions often involve a reduced interest rate, payment, or principal
amount.
Routine changes in debt terms and loan deferrals are not considered troubled
debt restructuring unless they are granted due to the adverse financial
condition of the member.
Concessions Include:
Reduction of the contractual (stated) interest rate
Extension of the maturity date
Suspension of contractual payments
Reduction of the face amount of debt, i.e., forgiveness of a portion of principal
Reduction (forgiveness) of accrued interest
Reduction (forgiveness) of fees
Refinances/Consolidations
When a borrower refinances or restructures a loan(s), and the terms are at least as
favorable to the lender as the terms for comparable loans to other members with
similar collection risks, the refinanced loan should be accounted for as a new loan.
431
TDR Policy
Accounting, Reporting and Tracking TDR’s requirements
• All TDR’s are tracked monthly by Hardship/TDR spreadsheet which
includes the following information:
 Member Number
 Member Name
 Loan Number
 Open Date
 Original Amount
 Term
 Review Date (each hardship loan is reviewed every 6 months for members
current financial status)
 Next Review Date
 Comments
 Reworks (member is no longer having financial hardship and converts loan
back to present loan policy guidelines)
• All TDR’s shall be individually evaluated for impairment according to PFCU’s
Allowance for Loan Loss Policy.
• The number of months delinquent for a TDR shall be calculated according to the
original contractual terms. If the number of delinquent months calculated is one or
greater, the loan will be reported on the Quarterly Call Report (5300) as delinquent.
Once the member has made six consecutive on-time payments according to the
restructured terms, the loan will no longer be reported as a delinquent TDR. An ontime payment is defined as (1) a single payment which equals the current month’s
contractual payment under the restructured terms and that is received by PFCU prior
to the next payment due date, or (2) several partial payments, the total of which
equals the current month’s contractual payment under the restructured terms, that are
all received prior to the next payment due date.
• For Mortgage loans, when PFCU obtains physical possession of the underlying
collateral from the borrower, regardless of whether foreclosure or repossession
proceedings have formally instituted, the loan is in substance a foreclosure or
repossession. A TDR that is in substance a foreclosure or repossession shall be
treated as if the assets have been received in satisfaction of the loan and shall be recategorized on the balance sheet as REO, at the lesser of the fair value of the
underlying collateral or the recorded amount of the loan. The fair value of the
collateral is the appraised value, less estimated selling/marketing costs.
432
TDR Policy
• The accrual of interest on a TDR shall be discontinued at the time the loan is 90
days delinquent. Loans will be placed on nonaccrual status or charged off at an earlier
date if management believes, after considering economic conditions, business
conditions, and collection efforts, that collection of the principal and interest is
considered doubtful. All interest accrued but not collected for loans that are placed on
nonaccrual status or charged-off shall be reversed against interest income, and
interest on these loans shall be accounted for on a cash-basis, until qualifying for
return to accrual status.
• Legal fees and other direct costs incurred by PFCU in the course of a troubled debt
restructuring shall be expensed as incurred.
• Management will be responsible for the monitoring, reporting, loan review, and audit
of these TDR’s.
• The Board of Directors will be provided a quarterly report of all current TDR’s for
review.
433