The FDIC and other banking and credit agencies provided specific guidance to FDIC-supervised financial institutions that are working with borrowers affected by COVID-19. , issued on March 22, encourages lenders to “work constructively with borrowers” and offers the following guidance.

The agencies view loan modification programs as positive actions that mitigate the adverse effects of COVID-19. The agencies will not criticize institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings (TDRs). Financial institutions should mitigate credit risks through “prudent actions consistent with safe and sound practices.” Additionally, institutions will not be criticized for working with borrowers as part of a risk mitigation strategy intended to improve an existing non-pass loan.

The modification of loan terms –such as payment deferrals, fee waivers, extensions and other modifications – will not automatically result in TDRs. Short-term modifications (e.g., 6 months), based on a good faith basis in response to COVID-19 to borrowers who are less than 30 days past due on payments prior to any relief, likewise are not TDRs.

For modification programs designed to provide temporary relief for current borrowers affected by COVID-19, financial institutions may presume that borrowers who are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status. Therefore, no further TDR analysis is required for each loan modification in these instances. Modification or deferral programs mandated by the federal or a state government related to COVID-19 would not be in the scope of a TDR designation. Agency examiners will not automatically adversely risk rate credits that are affected by COVID-19, including those considered TDRs. Regardless of whether modifications result in loans that are considered TDRs or are adversely classified, agency examiners will not criticize prudent efforts to modify the terms on existing loans to affected customers.

Additional highlights of the guidance provided by the Agencies include:

  • Past Due Reporting: If the loan is not otherwise reportable as past due, financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due.
  • Nonaccrual Status and Charge-offs: During the short-term modification or deferral arrangements discussed in the interagency statement, these loans generally should not be reported as nonaccrual.
  • Discount Window Eligibility: Loans restructured in accordance with the interagency statement will continue to be eligible as collateral at the FRB’s discount window based on the usual criteria.
  • Accounting Treatment by FASB. Staff of the Financial Accounting Standards Board confirmed that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs.

For additional information, please contact Ryan Cochran, Rob Harris, Richard Hills, Kevin Tran, Hollie Cheek or your regular Waller contact at (615) 244-6380.