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Troubled Debt Restructure
As you work with borrowers to rehabilitate problem loans and credits, you may end up modifying some loans and granting certain borrower concessions. If so, you should be aware that such modifications and concessions may constitute troubled debt restructuring and, thus, be subject to additional regulatory reporting, accounting and tracking requirements.
Reducing a loan's interest rate below a market rate, giving a borrower more favorable terms than market, granting loan forbearance, and extending a loan's maturity would all generally constitute a TDR.
These loans must be segregated on financial statements and cannot be put back on a performing status until it's demonstrated that payments can be made at market terms for 6-12 months. They must also be tested for impairment and written down to their current market value if found to be impaired.
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Concerned About Regulatory Demands Cutting into your Profitability?
We offer services to keep your bank efficient and compliant at a great value:
- Internal Audit
- Financial Statements Audit
- IT Exams
- Loan Review
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To our valued clients and friends,
Many banks are still dealing with the ongoing fallout of the financial crisis; specifically, rising levels of delinquencies, substandard loans and problem credits in their commercial loan portfolios. Our lead article in this issue offers suggestions for spotting problem loans quickly, as well as what to do next.
Part of the process of dealing with problem loans is testing them for impairment. If it is determined that a collateral-dependent loan is impaired, the loan must be accounted for and written down to the fair value of the collateral less the estimated costs to dispose of the collateral.
Last July, the FASB issued new disclosure guidance that will significantly expand existing financial statement reporting requirements. Public companies must begin making disclosures in accordance with the new requirements early this year and private companies in early 2012.
We hope that you find this issue of Financial Lending Notes to be helpful and beneficial to your company. If you would like more information on any of the topics mentioned here, we would be glad to discuss them with you in more detail.
Sincerely,
Tom Beisner, CPA, Partner
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| How to Spot Problem Loans and Know What to Do | |
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.
Before you can decide how to deal with them, however, you must first determine which loans in your portfolio are, or will soon become, problematic. The earlier you can identify problem (and potential problem) loans, the greater your chances of some kind of positive outcome and recovery. Read more...
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| Impairment Testing and Fair Value Measurement |
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. If it is determined that a collateral-dependent loan is impaired, the loan must be accounted for and written down to the fair value of the collateral less the estimated costs to dispose of the collateral. Read more...
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| Final FASB Disclosure Guidance Issued |
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. As a result, public companies must begin making disclosures in accordance with the new requirements early this year, and private companies in early 2012. Read more...
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| About Us | |
The Whitlock Company is a full-service accounting firm offering a range of audit, tax, technology, risk management and consulting services to the community banking industry.
The experiences our professionals have gained from these relationships allow us to offer you best practice ideas on business issues specific to community banks.
We appreciate your referrals. If you know of a company, organization or individual who may benefit from our services, please let us know.
www.whitlockco.com / 417.881.0145
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