Category Archives: Community Banking

Last July, the FASB issued new disclosure guidance significantly expanding existing financial statement reporting requirements for both public and private companies in the U.S. ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, is effective for both interim and annual reporting periods ending after December 15, 2010, for public companies and after December 15, 2011, for private companies. Continue reading →

Banks today are continuing to deal with a high volume of substandard and problem loans. Part of the process of dealing with these loans is testing them for impairment. ASC 310-40 requires loans to be tested for impairment if the bank determines, based on the facts and circumstances surrounding the local market, the loan won’t be re-paid in accordance with the contracted terms and conditions. Continue reading →

Nearly three years after the onset of a financial crisis that will be remembered as one of the worst in our nation’s history, many banks are still dealing with the ongoing fallout. They continue to face rising levels of delinquencies, substandard loans and problem credits in their commercial loan portfolios. Continue reading →

If you’re a commercial lender, you can be forgiven for wondering what, if anything, the Home Mortgage Disclosure Act, better known as HMDA, has to do with commercial loans.

HMDA, which was enacted by Congress in 1975 and implemented by the Federal Reserve Board’s Regulation C, requires banks to maintain and annually disclose data about home purchases and refinance applications. This data is then used to help regulators determine whether the bank is serving the housing needs of their communities and identify possible discriminatory lending patterns. Continue reading →

We all know better than to put all our eggs in one basket. Unfortunately, many banks ignored this time-tested wisdom when it came to constructing their loan portfolios, contributing to the financial crisis and credit crunch of the past few years. Specifically, these banks allowed high concentrations of risky types of loans to build up in their portfolios without considering the potential impact on the bank should things turn south. Continue reading →

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. Continue reading →

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. Continue reading →

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. Continue reading →