If I have a 1982 tax return on a borrower and no updated information should I put his 1982 revenues as his annual revenues or should I put no financials available. The "Guide to Getting it Right" seems to suggest that I use the 1982 revenues.

Thanks

What did the Loan Officer use to make his/her decision?

Well, this gets into the argument of the intent of the reg. He uses the 1984 income as the credit decision, because he has nothing else to go on. However, what if the 1984 revenues now exceeded a million. The intent of the reg is to reduce the importance of lending to those massive businesses and getting credit at the same weight as you would a small business just starting out.

A 1982 Tax return is useless. IT's 23 YEARS OLD folks.
You have an automatic ding from examiners by not having current financial information to support the loan.

Unless you have a loan collateralized by something like cash on deposit and current financial data is not important to have, I would insist on current statements to support the loans being originated, or no more loans.

You customer has filed 23 tax returns since the last one they gave you. It may be worth considering asking for a more current one.

Report income CRA Revenue code as a 3 (Unknown)

The other thing to be careful of is what income figure are you taking off the tax return. Make sure you use GROSS Annual Revenue AND NOT THE NET INCOME FIGURE.

Yes Don I agree, it is worthless. However, according to the "Guide" this should be what is reported. But if you have something that says it is not what should be reported please let me know. The loan is a serious loan. It is a small line of credit that is re-reviewed on an annual basis.

Can you please describe to me why the examiners would give us a "ding". This loan is so small that it is not impairing capital.

In a Safety and Soundness Exam loans have to meet minimum standards. One of those is a borrower has to have current financial information in file to support their ability to repay. Regardless of the amount of the loan If no data is available to support repayment OR the borrower has not demonstrated their ability to repay by zeroing out the balance from time to time Examiners can conclude the the repayment of the loan is doubtful. If classified doubtful the bank could be required to write off 50% of the outstanding and suspend the line until current information is obtained. You are not doing your customer a favor by not collecting current financial data, if that happens.

At the least the lack of financial documentation will get a Sub Standard rating, and a regulatory requirement to obtain current financials.

This one loan may not impair capital at all, but if you have 100 like this the combined total might, and that's what examiners look for.

The reason you would not report the 1982 revenue is that it does not reflect current revenues of the borrower. Without current information you have no idea what company revenues are. Reporting information that is 23 years old is not the intention of revenue reporting.

Just because the loan officer used it does mean 23 year old information is reported. IMO there is an assumption that current revenue information will be reported for current loan originations. The publication you are referring to is a "Guide" only and does not begin to include all the details.

Thanks Don, I was not looking at it from a S&S perspective.

I agree with Don that a "3" would be in order. I was fishing for other financial information like a more current P & E or something. If all you have is the 23 year old tax return I think the "3" is all you can really go with.

That and a slap on the hand for the LO. Safety and Soundness requires current financial information, even for the small lines. Shoot, even the customer shooting you out a handwritten P&E would be better than the 23 year old tax return.

I agree. Since the loan is renewed annually I would say the LO is not relying on the borrower's financial information when making the loan.