How Bankers can Ascertain Risk and Determine Future Credit Risk on Impaired Loans
To start with, we need to understand when a loan is regarded as Impaired. According to Accounting Standards Codification 310-10-35-2 through 30 (formerly, Financial Accounting Standard Board “FASB” 114), a loan is Impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due (Principal and Interest) according to the original contractual terms of the loan agreement. It is implicit in these conditions that it must be probable that one or more future events will occur confirming the fact of the loss.
‘Impaired’ loans require special attention, especially from bankers with a portfolio of such loans in the current economic environment. Two distinct requirements must be employed to manage Impaired loans. In this conference, expert speaker Jeffery W. Johnson will explain these requirements. They are:
1. Proper “Accounting” for Impaired Loans in the Allowance for Loans and Lease Losses under FAS 114; Proper loan grading; Determining if they should be placed on a non-accrual status and if they should be considered a Trouble Debt Restructure.
2. Employing proven commercial loan collection strategies and techniques to increase the probability of being repaid from sources other than the liquidation of collateral.
As per the first requirement, the “Policy Statement on Prudent Commercial Real Estate Loan Workouts” was issued by the Federal Regulators in 2009. This guidance will be addressed in addition to:
Determining the Amount of Impairment Utilizing the Three Impairment Amount Methodologies under FAS 114
Making Supportable Adjustments to the Allowance for Loans and Lease Losses in Managing Impaired Loans
Understanding Accounting Practices Required to Manage a Troubled Debt Restructure
To accomplish the second requirement for employing proven commercial loan collection strategies and techniques the following topics will be covered:
Recognizing the Early Signs of Loans that may Become Impaired
Assessing the Collateral Position of all Creditors and Their Impact on your Borrower
Utilizing Financial Covenants in a Loan Agreement Effectively
Avoiding Pitfalls that Might Impede Enforcement of Rights
In crux, the purpose of this audio conference is to:
Introduce you to Credit Risk Rating System
Ascertain risk and determine future credit risk
Understand required systems to manage the problem of Impaired loans
Define Impaired loans according to ASC 310-10-35-2 through 30 (FAS 114)
Calculate the Impaired amount
Choose the appropriate calculation method
Define Trouble Debt Restructuring - Accounting Standard Update 2011 02
Identify financial difficulties
Understand the loan process from beginning to end
The terminology along with the knowledge of the current laws that help aide the reviewing process is considered appropriate for this session. Also, examples of topics that will be examined during this audio conference include the following:
Commercial Lending Process in the New Generation
Ensuring all phases of Problem Loan Management from documentation, loan grading, loan review to administration
Risk Management Elements – What are they and how do we manage them?
Structuring loan workout arraignment from start to finish
Understanding of the up-to-date regulatory laws regarding the loan process
Learning the importance of the Conversion Method and why it matters in today’s market place
Determining and defining the Present Value Method – the most important function in the lending process
In this session, the participant will be able to:
Make Investments in Businesses
Understand the importance of business plans
Determine the Markets for Products and Services
Get financial information and learn how to analyze it
Learn the importance of projections and cash budgets for start-up businesses
Understand the term: Management: A Key Reason for a Business’ success or failure
Test Financial Assumptions: Asking The Right Questions
Who Should Attend
Commercial Loan Officers of Banks, Credit Unions, Community Banks etc
Jeffery W. Johnson started his career with SunTrust Bank in Atlanta as a Management Trainee and progressed to Vice President and Senior Lender of SouthTrust Bank and Senior Vice President and Commercial Banking Division Manager for Citizens Trust Bank of Atlanta.
Disclaimer: The content herein does not represent any association between CFPB and Eli Financial LLC. CFPB neither endorses any product of Eli Financial LLC nor warrants accuracy of the content hereto.