Letter to Credit Unions 2013-3 Supervisory Guidance on Troubled Debt Restructurings

by Twenty Twenty

by. Dan Price

On April 2, the NCUA released Letter 13-3 “Supervisory Guidance on Troubled Debt Restructurings”. The letter discusses the May 2012 updated requirements of TDR reporting and internal controls, which the blog has covered previously.

Included in the 20+ page letter are examiner responsibilities as they relate to TDRs. Below are some excerpts you may be interested in when preparing for your exam.

According to the letter, …examiners will check to see if the credit union has outstanding workout loans or is planning to begin this activity. If not, a written loan workout policy is not required

As it relates to testing of individual transactions, the letter points to risk focused examination processes, and presents the examiner with several questions to ask themselves when determining the scope of the review, including:

  • Is the level of earnings sufficient to withstand proportionate incremental differences in ALLL valuations without causing a reader of financial statements to reach incorrect conclusions about the health of the credit union
  • How great would incorrect accounting/valuation need to be to result in a lower net worth category?
  • How great would incorrect accounting/valuation need to be to cause positive earnings to become negative

There are a few other questions, but according to the letter if initial analytical testing reveals limited exposure, then examiners will limit the review to a high-level review of policy, controls and reporting.

continue reading »