The JofA interviewed CPA financial executives in multiple industries and regions of the country for "Economic Outlook Remains Uncertain," May 09. Below are profiles of the financial executives who participated in the article.
Ralph Bender, CPA
CFO, Manship Media Group
Baton Rouge, La.
Business: 100-year-old family-owned business that includes the daily newspaper The Advocate and two ABC-affiliated television stations
- Consumer confidence, general state of the economy
- Debt covenants, cost of capital
- Customer collections/customer bankruptcies
The emotional mind-set for spending is very often tied not just to what your discretionary income is, but in addition to that, there becomes a mind-set that the market has tanked—I can’t afford to spend. And that has even further created a consumer confidence crisis.
In general credit has tightened, and I think it’s a very different relationship than it has been in the past. A great deal of the power has shifted to underwriters who aren’t necessarily the relationship managers and who are much more analytical by both their character and their job. You really need to have that relationship manager on your team because he or she can make an impact in your pricing. As the business has significantly retreated in terms of revenue, that’s put some strains on our ratios and caused some increases in the cost of credit. There can be some flexibility in terms of how documents are enforced and interpreted. You want that flexibility to work in your favor. I talk with our banker almost daily now. We are sharing much more detail about what is going on.
Anybody who hasn’t seen customer collection issues—even if they’re minor—is dealing with a cash business. We are seeing slowdowns. We’ve seen several bankruptcies. Some of the larger segments of a newspaper’s advertising dollars, particularly as you look into classifieds, they come from automotive sales, real estate and employment—all three sectors are not particularly healthy at this time, on top of which if you look at the national business, when things get bad, large retailers slash expenses and cut advertising.
Justin Horst, CPA
Vice president and CFO
Pinnacle Bancorp Inc.
Business: Over $5 billion in assets, 120 community banking locations in eight Midwestern states
- Negative consequences of government intervention
- Rising FDIC insurance premiums
A lot of our worries and concerns are around the government intervention, and what they’re doing and what they’re not doing is causing angst in our industry and in our institution. A lot of the industry problems that are happening are causing problems for us in that we’ve got to replenish the FDIC fund. The banks that fail are funded by an industry group rather than by government or otherwise. We’re seeing a lot of cost pressure. The fund is needing to tap each of the banks for more and more each month and each year. That’s really making it more competitive and making it tougher to maintain margins where we’ve had them previously.
A year ago [the FDIC premium] was 7 basis points. Now it’s 13 basis points, and the FDIC just announced a one-time 20 basis point charge that will be in addition to the 13 basis points, so we’re sitting at 33 for the year. For banks on the verge of profitability, the FDIC premiums could be the final nail in the coffin.
Ed Lette, CPA
Chairman and CEO
Business Bank of Texas
Business: Single-location commerical bank startup
with $48 million in assets
- Fair value accounting
- Negative consequences of government intervention
We have a large portfolio of Fannie Mae and Freddie Mac mortgage-backed securities that now have not only an “implied guarantee” but an actual guarantee. In September of 2008, because of mark-to-market accounting, we showed a negative $1.5 million value in that portfolio that we booked as a reduction in equity. At the end of the year it swung the other way with a $1.5 million gain. These securities are cash flowing. If they stop paying me, then they’re no good. The mark-to-market accounting doesn’t make any sense.
Some of the cramdown stuff the federal government is talking about doing makes me so upset. If you were servicing a mortgage, would you alter a contract with someone else? What about the lawsuits? The Uniform Commerical Code is going to be thrown out the door, and contract law is going to be thrown out the door. All the government has to do is say this is no longer a contract. We’re dealing with a bad situation because of bad regulation.
Sanford (Sandy) Weinstein, CPA
CFO/senior vice president–finance
Goodwill Industries of Greater New York and Northern New Jersey Inc.
Business: Not-for-profit charity, retailer with
2,500 employees (1,200 regular employees plus temporary workers),
$100 million in annual revenue, 36 retail stores
- Losses on investment portfolio
- Cuts to government-funded partner programs
- Declining donations
pretty healthy organization. We’ve been in the black 17 years in a
row, but from what we’ve seen in our endowment, as of June 30
we’ll probably be in the red for the first time in 17
us has been pretty good, as it usually is in a recession since we
are at the bottom of the retail market. Same-store sales have been
up about 7% over last year. Donations, however, have begun to
decline starting in the fourth quarter of 2008.
We do a lot of work in New York City, where the city is the biggest vendor for getting people off welfare. Budget cuts by the city could hurt us.