How to Help Your Customers Impacted by Hurricane Irma

9/14/2017 - By Bill Massey, CPA

We have started getting questions from clients in affected areas about what assistance they should be providing customers in affected areas. What should you be doing to help your customers affected by Hurricane Irma?

Initial Thoughts

The initial efforts we see being offered are the waiving/refund of certain fees for customers impacted by the Natural Disaster such as the following:

Deposit fees for overdraft, non-sufficient funds, Overdraft Protection transfers, and non-bank ATM fees
Debit card replacement fees
Fees for early withdrawal on a CDs
Credit card cash advance fees and Overdraft Protection transfers
Late payment fees on loans

HUD Guidance

Additionally, HUD has issued Disaster Relief options for FHA homeowners in affected areas: Disaster Relief Options for FHA Homeowners

Regulatory Guidance

The Federal and State Banking Agencies have also issued a Statement on Supervisory Practices Regarding Financial Institutions and Borrowers Affected by Hurricane Irma: FDIC Press Release

The supervisory guidance indicates that bankers should work constructively with borrowers in communities affected by Hurricane Irma. The agencies realize that the effects of natural disasters on local businesses and individuals are often transitory, and prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism. In supervising institutions affected by the hurricane, the agencies will consider the unusual circumstances they face. The agencies recognize that efforts to work with borrowers in communities under stress can be consistent with safe-and-sound banking practices as well as in the public interest.

This raises questions as to whether payment deferrals, forbearance agreements, or other concessions made to borrowers in affected areas will cause a loan to be considered a Troubled-Debt Restructuring (TDR) under generally accepted accounting principles, (GAAP). In order for a loan to be considered a TDR, the borrower must be experiencing financial difficulty and a concession must be granted. Generally, we believe that if a borrower was not experiencing financial difficulty prior to the disaster and the concession granted is providing the borrower temporary relief to recover from the disaster, that the loan would not be considered a TDR.

We would also like to point out that under GAAP, there is a concept that an “insignificant delay” in repayment is not considered a trigger for TDR. In determining whether a delay in repayment is insignificant we typically consider the length of the delay compared to term of the loan. We would generally consider a delay of three months or less to be insignificant, but could be longer for loans with extended maturities. It is also important to understand that while the initial concessions made to borrowers might not result in TDR status, the Bank needs to reevaluate the loans for rating downgrades as additional information comes to their attention or at the time the concession ends for possible TDR or impairment status. This guidance is not all inclusive and institutions should evaluate each loan on a facts and circumstances basis.

It would also be prudent for institutions in affected areas to evaluate the potential impact the storm may have on its Allowance for Loan Losses.

First and foremost, we hope that you and your families are safe and getting back to normal. As you begin to return to serving your customers and communities, we want you to feel free to contact any member of our Financial Institutions Consulting team so we can help with any issues you are facing.

About the Author | Bill Massey, CPA
Bill’s primary practice areas include providing accounting, audit, tax, and consulting services to financial institutions and commercial entities throughout the Southeast. His specialized financial institution experience includes loan and credit quality reviews, internal audit, internal control reviews and assessments, mergers and acquisitions, and due diligence services. Additionally, he is active in many organizations promoting the interest of financial institutions.

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