Bank SEC Comments

Need to Know:  A Financial Institution’s 2011 Checklist – Part 3

In the third and final segment of our three-part series, “Need to Know:  A Financial Institution’s 2011 Checklist”, Bonadio Principal, Jamie Keiser, CPA, discusses SEC comments to banks, and what banks need to prepare to do as the calendar year comes to a close:

SEC Staff Comments to Bank Registrants
The following topics have been the focus of SEC Staff comments to bank registrants.

Loan Modifications and TDRs.

• Quantify by loan type
• Discuss policy for returning modified loans to accrual status
• Quantify types of concessions made
• Discuss success of different types of concessions
• Provide a comprehensive discussion of your restructured loans and related modification programs
• Discuss how you determine whether or not a loan modification should be classified as a TDR

Asset Quality Issues.

• Commercial real estate loans – discuss any that have been extended at or near maturity that are not considered impaired due to the existence of guarantees
• Clearly bridge the gap between the significant change in credit experience and changes in the overall credit environment with the increase in the allowance for loan losses
• Provide a robust discussion of the causal factors that you attribute to the increase in nonperforming loans
• Provide an expanded analysis of the specific and general components of your allowance for loan losses detailing how you determined that changes in each component were directionally consistent with changes in the underlying credit quality of the applicable loan portfolio

Recourse Liabilities and Repurchase Reserves on Mortgage Loan Sales.

• Disclose the methodology used to estimate the reserves related to the recourse exposure related to the sale of residential mortgage loans and loss sharing agreements on commercial loans serviced for others
• Discuss the level and type of recourse claims you have received, any trends identified and your “success rate” in avoiding paying claims
• Discuss your methods for settling recourse claims
• Provide a roll forward of your reserves for the periods presented
Repurchase Agreements.
• For repurchase agreements accounted for as collateralized borrowings, quantify the average quarterly balance for each of the past three years; also, quantify the period end balance for each of those quarters and the maximum balance at any month-end; explain the causes and business reasons for significant variances among these amounts

Investments in Federal Home Loan Bank Stock.

• Present your investment in Federal Home Loan Bank Stock separately from other securities on the balance sheet

Non-filers are not required to disclose this information; however, robust disclosure of these particularly sensitive areas in these challenging economic times by financial institutions would be a prudent practice.

I will continue throughout the next year to keep you abreast of current developments impacting financial institutions.  With increased monitoring and reporting requirements as well as increased complexities in accounting for financial institutions, we can be your trusted advisor to help you navigate through the myriad of changes.  Please contact me directly 315.214.7562 or jkeiser@bonadio.com with any questions or concerns or if I can be of any assistance to you and your institution.