There was a good report in CreditUnion.com recently by Janet Lee providing analysis about troubled debt restructures, or TDRs. Credit unions take pride in being supportive or flexible in times of financial distress affecting their clients. Credit union clients are called ‘members’ in the trade, whose client base is limited to persons with certain defined demographics or employment.
TDRs are problematic for lenders in that they must calculate potential losses on loans identified as problem accounts and set aside significant loss reserves for them as they are being renegotiated with less stringent repayment terms. In addition, most TDRs have to be carried on non-accrual status and once categorized as a TDR, it will remain so until it’s full repaid or charged off.
Ms. Lee’s article reflected that while the dollar amount credit unions held in TDRs increased 32.5% between March 2011 to March 2014, these figures seemed to have peaked in 2013 and are improving. The approximate 241,000 TDRs held by credit unions in March 2014 was a 78.3% increase over 2011, that total decreased from March 2013. The year-over-year growth in the number of TDRs has also decreased, from 40.3% in March 2013 to 9.2% in March 2014.
The good news is that the increase in the percentage of TDRs in accrual status — or the decrease in the percentage of TDRs in nonaccrual status —suggests that more TDR loans are performing as planned.
Credit unions modified 22,494 TDRs during the first three months of 2014; that’s down 2.3% from the first three months of 2013. Credit unions approved $543.0 million in TDRs during the first quarter of 2014, which is a 22.5% decrease from first quarter 2013. The decrease in the number and amount of TDR approvals year-to-date is largely the result of improved member financial situations amid a recovering economy.
Bottom line, using TDRs are a metric, it’s more evidence of an improving economy and better times ahead for the financial services sector. Click through to the link below for good graphics that illustrate more details about TDRs in the article.