--- title: "Troubled Debt Restructuring: definition, formula, and thresholds" description: "A Troubled Debt Restructuring (TDR) is a loan where the bank grants a concession (rate cut, term extension, principal forgiveness) to a borrower in financial difficulty. Under ASU 2022-02, entities that have adopted CECL no longer apply TDR accounting. Because every bank had adopted CECL by 2023, banks now report and disclose loan modifications to borrowers experiencing financial difficulty instead." canonical_url: https://www.bankregreports.com/glossary/troubled-debt-restructuring/ source: BankRegReports category: "Asset Quality" units: "%" schedule: "Schedule RC-C / RC-N" --- # Troubled Debt Restructuring > A Troubled Debt Restructuring (TDR) is a loan where the bank grants a concession (rate cut, term extension, principal forgiveness) to a borrower in financial difficulty. Under ASU 2022-02, entities that have adopted CECL no longer apply TDR accounting. Because every bank had adopted CECL by 2023, banks now report and disclose loan modifications to borrowers experiencing financial difficulty instead. ## Formula ``` TDR Ratio = Modified Loans (to borrowers in difficulty) / Total Loans ``` Pre-CECL: a loan was a TDR if both the borrower was in financial difficulty and the bank granted a concession it would not otherwise consider. Post-CECL (ASU 2022-02): TDR accounting is eliminated for all CECL adopters, and banks instead report modifications to borrowers experiencing financial difficulty, including on Schedule RC-C, Part I, Memorandum item 1 and in the Schedule RC-N memoranda. ## Why it matters TDR (or its post-CECL successor, modified loans) flags credit accommodation that masks true delinquency. A loan that would be 90 days past due if not for a payment plan still represents impaired credit. Rapid TDR growth is a well-documented leading indicator of charge-off acceleration. ## How to read it Most banks carry modified-loan balances below 1% of total loans. Sustained modification activity above 2-3% in a single sector (CRE office, ag, small business) signals concentrated stress. The 2020 pandemic deferral wave demonstrated how a temporary regulatory carve-out can hide modification activity until the carve-out expires. ## Thresholds | Range | Reading | What it means | |---|---|---| | < 0.5% | Normal | Routine workout activity. | | 0.5–1.5% | Watch | Above-baseline; examine sector composition. | | 1.5–3% | Elevated | Concentrated sector stress. | | > 3% | Severe | Material credit deterioration. | ## Worked example A bank with $40M of modified loans (under the post-2022 disclosure framework) against $4.0B of total loans would report a modified-loan ratio of 1.0%. If that figure rose to 2.5% over 4 quarters concentrated in office CRE, analysts would expect a sharp rise in charge-offs over the following year. ## Questions ### Was the TDR designation eliminated? Yes. ASU 2022-02 eliminated TDR accounting for every entity that has adopted CECL. Because all banks had to adopt CECL for fiscal years beginning after December 15, 2022, no bank still follows the TDR framework; the replacement is reporting and disclosure of loan modifications to borrowers experiencing financial difficulty. ### Are pandemic deferrals counted as TDRs? Generally no. Section 4013 of the CARES Act gave banks an explicit safe harbor to modify pandemic-affected loans without TDR classification, and the interagency guidance extended similar relief through year-end 2021. ### How does TDR relate to nonaccrual? A TDR remains accruing if the bank reasonably expects to collect under the modified terms. If collection becomes doubtful, the loan also moves to nonaccrual. Many loans are both modified and nonaccrual. ## Sources - ASU 2022-02: FASB elimination of TDR designation for CECL adopters - [FFIEC Call Report Schedule RC-C, RC-N (loan modification disclosures)](https://www.ffiec.gov/sites/default/files/data/reporting-forms/FFIEC031_FFIEC041_202606_i.pdf) (PDF) ## Related metrics - [Nonaccrual Loans](https://www.bankregreports.com/glossary/nonaccrual-loans/): Nonaccrual loans are loans on which the bank has stopped recognizing interest income because full repayment is in doubt, generally once a loan is 90 or more days past due (unless it is well secured and in the process of collection) or sooner if full collection is doubtful. They are the core of nonperforming assets. - [Past-Due Loans](https://www.bankregreports.com/glossary/past-due-loans/): Past-due loans are loans behind on their contractual payments, reported in 30-89 day and 90+ day buckets. The early (30-89 day) bucket is a leading indicator of credit problems before loans slip into nonaccrual. - [Allowance for Credit Losses](https://www.bankregreports.com/glossary/allowance-credit-losses/): The allowance for credit losses (ACL), called the allowance for loan and lease losses (ALLL) before the CECL standard, is the reserve a bank holds against losses it expects on its loans. It is deducted from gross loans on the balance sheet, and under CECL it covers expected losses over each loan's whole life. - [Net Charge-Offs](https://www.bankregreports.com/glossary/net-charge-offs/): Net charge-offs (NCOs) are the loans a bank has written off as uncollectible, less amounts recovered on previously charged-off loans. They are the realized credit losses that actually deplete the allowance. ## About this document This is the markdown twin of the page named in `canonical_url` above. Source filings are public record; the cleaning, normalization, cross-source linkage, and derived metrics are BankRegReports' own. Attribute with a link to the canonical URL. Markdown twins are published for editorial content only. Institution data pages do not have them. For data at scale use the API, which is documented at https://www.bankregreports.com/api/ and specified at https://www.bankregreports.com/openapi.json. It returns typed JSON with explicit units and periods, and one call replaces hundreds of page fetches. ## Sitemap - [Glossary](https://www.bankregreports.com/glossary/): every metric, with formula and thresholds - [Blog](https://www.bankregreports.com/blog/): analysis and explainers - [API documentation](https://www.bankregreports.com/api/): the programmatic way to get this data - [XML sitemap](https://www.bankregreports.com/sitemap.xml): the complete crawlable index