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Highlights: 

• The agencies encourage institutions to work constructively with borrowers and view prudent loan modifications as positive actions when they mitigate credit risk.
• A loan in nonaccrual status that is modified in a TDR need not be maintained for its remaining life in nonaccrual status, but can be restored to accrual status if it meets the return-to-accrual conditions in the instructions for the Consolidated Reports of Condition and Income (Call Report).
• A TDR designation means a modified loan is impaired for accounting purposes, but it does not automatically result in an adverse classification. A TDR designation also does not mean that the modified loan should remain adversely classified for its remaining life if it already was or becomes adversely classified at the time of the modification.
• An impaired loan, including a TDR, is collateral dependent if repayment is expected to be provided solely by the sale or continued operation of the underlying collateral. In contrast, when the repayment of an impaired loan collateralized by real estate depends on cash flow generated by the operation of a business or sources other than the collateral, the loan generally is not considered collateral dependent.
• For regulatory reporting purposes, an impaired collateral-dependent loan must be measured for impairment based on the fair value of the collateral (less estimated costs to sell, if appropriate) regardless of whether foreclosure is probable. For an impaired loan that is not collateral dependent, impairment must be measured using the present value of expected future cash flows.
• The guidance discusses the criteria for determining the amount of any loss classification and charge-off on impaired collateral-dependent loans, separately addressing those for which repayment is dependent on the sale of the collateral versus the operation of the collateral, and on impaired loans that are not collateral dependent.

Distribution: 
�౦��Ϸ����-Supervised Banks (Commercial and Savings) and �౦��Ϸ����-Supervised Savings Associations 

Suggested Routing: 
Chief Executive Officer 
Chief Financial Officer 
Chief Credit Officer 

Note: 
�౦��Ϸ���� Financial Institution Letters (FILs) may be accessed from the �౦��Ϸ����'s Web site at http://www.fdic.gov/news/financial-institution-letters/2013/index.html . 

To receive FILs electronically, please visit http://www.fdic.gov/about/subscriptions/fil.html . 

Paper copies may be obtained via the �౦��Ϸ����'s Public Information Center, 3501 Fairfax Drive, E 1002, Arlington, VA 22226 (877-275-3342 or 703 562 2200).