Financial Reform: What Will it Mean for Community Banks?
- October 19, 2010
This summer, the most comprehensive overhaul of the financial services industry since the Great Depression was signed into law: the Dodd-Frank Wall Street Reform and Consumer Protection Act. Passage of the Act was just the beginning, though, as many of the implementation details must still be ironed out by regulators. But at first glance, the Act appears to be a mixed bag for community banks, with some potential benefits and some drawbacks.
New Requirements of ACH Risk Assessment for Community Banks
- August 10, 2010
NACHA Rule Adds ACH Risk Management Practices Effective June 18, 2010, all depository financial institutions (DFIs) will be required by the NACHA Operating Rules to conduct an ACH risk assessment, and to implement risk management programs based on the results of the assessment.
Commercial Lending: Are Your Borrowers Testing for Goodwill Impairment?
- July 9, 2010
When a company is sold for more than net book value, this results in an accounting concept known as goodwill. If you are relying on reviewed or audited financial statements from borrowers, you should be aware of their obligation to test for goodwill impairment. Once a year, these companies are required to screen for potential impairment, measure the amount of impairment (if any exists), and adjust the value of intangible assets (like goodwill) to reflect current economic realities. If testing reveals that the value of goodwill on the borrower’s books has been impaired (or, in other words, has declined), the company is required to write off this amount to its current fair market value. Note that the value of goodwill can only be written down, not up.
Commercial Lending: Monitoring Government Guaranteed Loans
- July 9, 2010
A primary cause of concern among many banks today is the high rate of default on government agency guaranteed small business loans like Small Business Administration (SBA), Farm Services Administration (FSA) and Farmers Home Administration (FMHA) loans. In the good ’ol days, when these loans hit 90 days past due, the bank simply filed a claim, sent the government agency the credit file and the agency took it from there. Now, the agencies expect lenders to work out the credits themselves before filing claims. And for claims filed, the agencies expect documented evidence of lender due diligence in every aspect of loan origination and monitoring before they will honor their guarantee.
Commercial Lending: Managing and Mitigating Portfolio Risk
- July 9, 2010
What a difference time makes. Three years ago, most banks were enjoying low levels of past-due accounts, criticized/classified loans and losses in their small business portfolios. Then came the recession and the financial crisis, which led to record losses and the subsequent failure of many banks.
Surviving the Recovery: How to Obtain Financing in the Post-Financial Crisis World
- May 19, 2010
It’s one of the great ironies of economic cycles: There will be some companies that scratch and claw their way through the downturn, managing to survive the worst of the recession, only to fail when the recovery starts to kick in. The primary culprit is usually a lack of access to capital.
Commercial Lending: Debt Forgiveness and Foreclosure Tax Consequences
- May 3, 2010
Do you realize that forgiveness of debt as part of a loan workout plan may be a taxable event for borrowers? If not, your borrowers could be in for a very unwelcome surprise from the IRS. For example, suppose you accept $300,000 from a borrower as satisfaction of a $500,000 debt. The IRS takes the position that the $200,000 difference is ordinary taxable income to the borrower, and you are required to send the borrower a Form 1099 stating this.
Commercial Lending: How to Spot “The Living Dead”
- April 30, 2010
Zombies have long been popular among a certain segment of moviegoers, but what does this have to do with commercial lending? The present state of the economy and the small business segment, in particular, is starting to resemble a modern-day zombieland. There are a number of businesses today that can best be described as “the living dead”: They managed to survive the recession by aggressively managing receivables and inventory and delaying replacement capital expenditures, but are destined to fail once the recovery starts kicking into gear.
Commercial Lending: Deferred Tax Assets. The Good and the Bad.
- April 28, 2010
When examining potential borrowers’ financial statements, some lenders are beginning to see something that’s unfamiliar to many of them: deferred tax assets. These are created as a result of timing differences that occur between book and taxable income for things such as depreciation and investment gains and losses. With more companies experiencing losses the past couple of years due to the recession, many are setting up deferred tax assets associated with their operating loss carryforwards in their financial statements. And there are many others that aren’t recording these deferred tax assets, but should be.