Pub. 1 2020 Issue 3

17 ISSUE 3 | 2020 further deterioration. Assigning initial credit grades, ensuring timely grade changes, and assessing the adequacy of the allowance for loan and lease losses in light of grade changes are vital.” The FDIC is giving you the playbook for what they expect to see for documentation on struggling ag relationships. · Documentation of lien perfections, · Oversight of sales proceeds, · Independent collateral inspections, · A monitoring process for collateral values, and · An established and ongoing grading system. While relatively basic, this playbook can be difficult to implement consistently across troubled relationships. After all, some struggling borrowers may have been prime borrowers not that long ago and implementation of these risk mitigating strategies can feel like a breach of trust between the lender and the borrower. This elevates the importance of ongoing conversations between the lender and borrower concerning operating results and overall performance expectations over the long term. Be sure these discussions are happening, especially with your less seasoned lenders who may not have experience with difficult conversations. Lastly, the FIL discusses, in detail, the FDIC’s willingness to accept modifications of loans, including loan terms, with or without concessions. Especially in circumstances where modified terms allow for a borrower to maintain positive cash flow, weather adverse conditions and stabilize their operations. In fact, the FDIC goes out of their way by stating, “Further, an institution that implements prudent loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse classification.” In other words, you know your borrowers, which ones you want to work with and which ones you want to workout. Remember, a classified loan is an internal measure. It is not public information. Your risk rating system should be established, implemented and reported in such a way that those charged with governance roles can be informed of management’s assessment of risk and strategic direction. However, don’t let a classified risk rating or Troubled Debt Restructuring classification get in the way of what is best for the bank and the borrower. You know your customers best. That is the core of community banking.  FMSI www.fmsiconsulting.com 913.955.3355 FMSI is a small business founded and located in Kansas, specializing in assisting community banks succeed, a mission consistent with core CBA values. We have partnered with community banks for nearly 25-years providing core advisory services including asset/liability, investment, and liquidity management. FMSI advisors actively assess market conditions and bank balance sheets of different size, mix, and capital levels. Market conditions are constantly changing presenting opportunities and challenges for CBA member banks. Interest rates are increasing for the first time in nearly a decade and now is a perfect time to partner with a trusted, industry leader. Establishing an FMSI relationship provides confidence your bank is optimizing the balance sheet, deploying necessary strategies, maximizing profitability, and managing balance sheet risks. FMSI is a Kansas CBA Endorsed Provider Michael Holdren, content contributor for Iron Comps (www.IronComps. com), is a former bank CFO turned CPA helping banks strategically with the finance of banking, audits, loan review and accounting.