Leasing News is a web site that posts information, news, and entertainment for the commercial leasing and finance industry. The News Edition is updated Monday, Wednesday and Friday.
Monday, August 15, 2011
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Chase Industries to Close due to Embezzlement
Leasing News has been holding off on this story, which originally came to our attention from vendors who reported not being paid by Chase Industries, Inc., Grand Rapids, Michigan. The company has been in business since 1993 with a sterling reputation.
The owner asked us to hold off as he has been trying to find jobs for his employees that he has to let go, including his sales staff. He has delayed filing a police report until now, and thus the story is now made public.
Accordingly, his right hand person for 11 years did not pay back his line of credit, which he utilizes for warehousing leases, where he often pays 50% in advance before the actual acceptance and funding. The line is also secured by his house, he added
Chase’s vendors, banks, sales personnel, all employees have been effected, he told Leasing News, authorizing this statement for today's issue:
"Chase Industries has announced that it is closing. It has discovered irregularities in its accounting. It appears those irregularities will cause them to close the company. An 11 year accounting employee has been terminated. A forensic audit team is investigating."
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Chris Walker Lovefest This Saturday
For updates on Chris’ fight against pancreatic cancer, or to leave him a message, please see http://www.caringbridge.org/visit/chriswalker
If you are going to come to Cedar Rapids, Iowa for the “Chris Walker Lovefest” Saturday evening, August 20, 2011, 6:30pm, special rates have been set up at:
For those of you who cannot attend, please visit www.chriswalkerlovefest.com or Facebook page “Chris Walker Love Fest 2011” for additional information.
Questions: Contact Kathleen Bednar at 319.393.7809 or email@example.com.
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LEAF Equipment Leasing Income and Serious Problems
Leasing News wrote about an investor not being happy with LEAF Equipment Leasing Income Fund III, where he was also being asked to reinvest more of the distributable cash which they are now prohibited from doing until they pay the unpaid cumulative returns.
The Resource American, Inc. June 30, 2011 financial statement "On Page 12, the “CASH FLOWS FROM FINANCING ACTIVITIES” shows a large drop in principal payments, but as important, Resource America used $15.2 million proceeds from issuance of LEAF preferred stock that enabled them to pick up from the cash of $11.2 million at the beginning of the year.
The article also showed, "In following up a complaint from an investor in one of the funds, who listened to a LEAF salesman, he complained he should have known better, a search on debt equity from a copy of a Regulation D offering for $25 million. It cost them 11.7% up-front. And that doesn't include the management fees. "
The investor, who wrote the original question, after reading the article, told Leasing News: “LEAF was sold to me as a safe fixed income investment for my retirement. I read the prospectus after I had already given my "trusted" financial advisor my money. I was told there was nothing to be concerned about. It sucks having one fourth of my retirement savings in limbo. I have now learned the difference between a certified financial planner with a fiduciary duty to their clients and others who are just interested in the largest commission."
In the 10-Q filing, LEAF Equipment Leasing Income Fund III, L.P., LEAF notes that the fund incurred net losses of $17.7 million, $28.8 million and $26.1 million for the years ended December 31, 2008, 2009 and 2010, respectively, and a net loss of $2.2 million for the three months ended March 31, 2011.
LEAF Financial Corporation is admittedly saying they cannot pay the cumulative interest return to the investors. On top of that, the LP agreement mandates that investors will be paid their cumulative interest return “before” any monies can be re-invested into new equipment leases. Now, LEAF is asking the investors to let LEAF invest all monies into new leases and not pay any cumulative interest. WOW, what a mess for the investors. First they get their investment interest rate cut from 8.5% to 2%, now they're not going to get any interest return at all. In addition, accordingly to this LEAF III statement, LEAF incurred total net losses of -$74.8M in years 2008, 2009, 2010 and 2011 (3mos.). They say they raised $120M from investors, does that mean they loss -62% of their investor principal too?
One big factor not being disclosed to the LP investors is that LEAF created a different funding model and different sales channel. All new deals now go through LEAF Commercial into the Guggenheim funding pools. LEAF is trying to grow LEAF Commercial so why would they direct good deals to the previous LP fund platform where they don’t make any profit.
It appears the LP fund investors would be better served to let the portfolios run off, take as much cumulative interest income (if any), and get any remaining principal returned as soon as possible. They stand to lose more capital by agreeing to the amendment. It is not a question anymore about maximizing investor returns; it is a question about cutting losses as much as possible.
Edgar Online via COMTEX re: 10-Q: LEAF Equipment Leasing Income Fund III, LP
LEAF Investor asks what he should do
Career Crossroad—“Telephone Interviews”
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Lease Accounting for the Lessee
We have all heard that the International Accounting Standards Board and the Financial Accounting Standards Board have published a new exposure draft which for the most part is aimed at changing the approach for lessors. I will leave it up to the accountants to explain how the suggested changes will affect us, but right now let’s look at the previous drafts which remain unchanged for the lessee. I would like to explain how the accounting will work for the lessee. More importantly for we in the leasing business, why the lease sales staff needs a good understanding of these rules.
To begin with: let’s look at a standard $100,000 lease transaction over 60 months with a $1 purchase option (PO). I will use a lessor rate of 10% and a lessee incremental bowering rate (IBR) of 8%. The lease payments with one in advance are $2,107. Therefore the lessee must discount the $2,107 at their IBR of 8% to yield a present value of $104,614. When the $104,614 is subtracted from the total rent of (60 x $2,107) $126,420, the balance of $21,806 is considered interest and is charged under the interest method over the life of the lease just like loan interest. The $104,614 is amortized over the life of the lease at $1,744 a month.
Now let’s examine a competitor with the same 10% yield requirement---who offers a 60 month lease, one payment in advance, however offers a bargain 10% purchase option and assumes a 10% residual. This fails the tax test and is now called a “for use” lease. The payments are $1,979 and have a net present value of $98,256. Some accountants may want to include the 10% purchase option in the net present value number if the actual future value in greater than 15% and they expect to exercise the PO. The net present value with the 10% PO is $104,968. Clearly if the purchase option was a “put,” the net present value would be the same $104,968. The actual interest would be changed based on the difference between the discounted value and the total payments.
The point here is that any accountant that gets involved in your proposal may be looking at the expense for book purposes instead of the cash payments you request for payments on the lease. Any change in the structure will change the net present value and you need to know its effect. Rental payments in advance make a higher net present value such as the example above on a $1 PO with two payments in advance has a net present value of $104,445. With three payments in advance the net present value is $104,281.
Some accountants may include the closing costs and some may not but this basic structure with the $1 purchase option and a $1,000 (1%) closing costs would have a net present value of $103,567 without the input of the closing costs. With the closing cost it would go back up of course.
These different net present values do not look very different to the casual observer and if the transaction is small ticket, it may not even come into consideration, but if it does then you need to get there IBR and look for a structure that gives you the lowest net present value to win the deal.
The interest portion is not that important because the lessee’s IBR will be the same for each evaluation, therefore, the interest rate that is determined will always reflect the IBR for all competitors.
The new accounting requirements are going to put all leases on the balance sheet with this net present value concept applied to all leases so you need to evaluate your structures and understand the effect of the different components so you can react with knowledge. I am sure that because of the leases going on the balance sheet in this fashion, we are going to see some creative structures in the future.
Mr. Terry Winders, CLP, has been a teacher, consultant, expert witness for the leasing industry for thirty-five years and can be reached at email@example.com or 502-649-0448
He invites your questions and queries.
Previous #102 Columns:
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Bank Beat--"Nonfarm-Nonresidential" Loans Take Down Kansas Bank
The six branches of First National Bank of Olathe, Olathe, Kansas were closed with Enterprise Bank & Trust, Clayton, Missouri, to assume all of the deposits. The bank was founded Jun 7, 1887 and went from a high of 179 full time employees in 2007 to 111 full-time employees March, 31, 2011, with six offices in Olathe and one in Scottsdale Arizona, according to March 31, 2011 filings.
March 31, 2011 Tier 1 risk-based capital ratio: 2.77%.
First National Bank is the third failed bank acquisition by Enterprise Bank. In December 2009, Enterprise Bank & Trust acquired Valley Capital Bank of Mesa, Arizona, and in January 2011, acquired Legacy Bank of Scottsdale, Arizona. The three failed banks acquired by Enterprise Bank & Trust had total assets of $728 million. In addition, Enterprise Bank also acquired a pool of failed bank assets from the FDIC in July 2010.
According to Wikipedia, Olathe (meaning beautiful in Indian language) is the fourth largest city in the Kansas City Metropolitan Area. In the 1800's, "Olathe served as a stop on the Oregon Trail, the California Trail, and the Santa Fe Trail...After the construction of the transcontinental railroad, the trails to the west lost importance, and Olathe faded into obscurity and remained a small, sleepy prairie town.
"In the 1950s, the construction of the Interstate Highway system and, more directly, I-35, linked Olathe directly to nearby Kansas City. The result was tremendous residential growth as Olathe became a part of the Kansas City Metro Area. In the 1980s, Olathe experienced tremendous commercial growth, which also drew more residents. It is estimated that Olathe's population surpassed 100,000 in 2001..."
It is obvious from the numbers the demise of the bank is the real estate bubble hit the bank hard, particularly what are known as nonfarm nonresidential loans, as well as construction and land loans.
Here is a definition to better understand what happened to First National Bank of Olathe:
“Loans secured by other nonfarm nonresidential properties” are those nonfarm nonresidential property loans where the primary source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Include loans secured by hotels, motels, dormitories, nursing homes, assisted-living facilities, mini-storage warehouse facilities, and similar properties in this item as loans secured by other nonfarm nonresidential properties."
You can see how the charge offs and noncurrent loans closed the once successful bank:
(in millions, unless otherwise)
As of June 30, 2011, First National Bank of Olathe had approximately $538.1 million in total assets and $524.3 million in total deposits. Enterprise Bank & Trust will pay the FDIC a premium of 1.5 percent to assume all of the deposits of First National Bank of Olathe. In addition to assuming all of the deposits of the failed bank, Enterprise Bank & Trust agreed to purchase essentially all of the assets.
The FDIC and Enterprise Bank & Trust entered into a loss-share transaction on $419.6 million of First National Bank of Olathe's assets. Enterprise Bank & Trust will share in the losses on the asset pools covered under the loss-share agreement.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $116.6 million.
Tracking Bank Failures Map:
Top Stories August 8---August 12
Here are the top ten stories opened by readers:
(1) Dwight Galloway's RLC Funding Up and Running
(2) Leasing Gypsies
(3) Bank of the West IEF/Pacifica Capital join
(4) Working with a Smaller Bank Question
(5) Why Chris Walker Lovefest?
(6) Benchmark Financial Group Up-Date
(7) Apple Capital Group joins “Broker/Lessor” List
(8) Leasing 102 by Mr. Terry Winders, CLP
(9) Depping Secedes from the Government Banking Regulators
(10) Women for Wounded Warriors
Extra's, not counted for technical reasons:
President and CFO of HL Leasing Found Liable Ponzi scheme
Depping to Sell Bank, Get Back into Leasing without bank regulation
Grand Rapids, Michigan-- Adopt-a-Dog
These super sweet puppies came to us at 4 days old along with their Momma who was an Australian Cattle Dog/Beagle Mix. Their Daddy was the neighbors Boxer mix. These puppies are extremely smart at are almost totally crate trained. They love playing outside and enjoy their toys. We expect them to be a medium size and anticipate them to mature around 30 pounds making them an ideal size for a playmate for some lucky boys and girls. They have been wormed, vaccinated and spayed or neutered. Their adoption fee is $200.
Please remember this is our home, no calls before 9:00 or after 9:00 pm and no Sunday calls. We do need a completed and approved application prior to setting up any appointments. For an application and more information please email us at firstname.lastname@example.org Applications...
Grand Rapids, MI
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ICBA Launches ICBA Social Media Monitor
First and Only Social Media Tracker for Community Banks
Washington, D.C. (––The Independent Community Bankers of America (ICBA) announces the launch of its premier social media–monitoring solution, which is the first and only solution created exclusively for community banks. The ICBA Social Media Monitor, which is being offered at no cost to ICBA members, will allow community banks to stay connected and engage with their customers on a wide range of social media platforms.
“Social media is affecting the way we all do business and communicate; community banks, as relationship-driven businesses, are no different,” said Chris Lorence, ICBA executive vice president/chief marketing officer. “Community bankers are innovative and want to interact with their customers one-on-one, in ways that are convenient and comfortable for them."
As part of the social media dialogue, the ICBA Social Media Monitor allows community banks to see what their customers are saying about their bank, its brand and even the products and services it offers. The service provides direct insight as it searches millions of tweets, Facebook posts, blogs and hundreds of other social networks for mentions of their community bank’s brand. Additionally, the monitor allows ICBA members to receive a daily email alert that aggregates the number of mentions about their community bank.
“ICBA understands the importance of reputational risk and the responsibility community banks have to both protect and promote their good name—in both the real and virtual worlds,” Lorence said. “ICBA’s goal in creating this tool for our members is to help them get their feet wet in this ever-evolving communications space so they can take the first step of listening to the social media conversation to learn new ways to interact with their existing customers and attract new ones. Social media transcends all age groups and is developing into a value tool for gaining insights and trends.”
For more information about the ICBA Social Media Monitor and to register, visit www.icba.org/webmonitor/. For more information about community banks, visit www.icba.org.
The Independent Community Bankers of America, the nation’s voice for community banks, represents nearly 5,000 community banks of all sizes and charter types throughout the United States and is dedicated exclusively to representing the interests of the community banking industry and the communities and customers we serve. For more information, visit www.icba.org.
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India’s Largest Bank Net Drops 46%
Top bankers to see sharp drop in bonuse
Low Rates May Do Little to Entice Nervous Consumers
Airplane “Repo Man” Tells his story
Lobster Salad, but a Key Ingredient Was Missing
49ers will work out Daunte Culpepper
Computer hackers expose BART riders personal information
California departments fought Jerry Brown's bid to c
Playing with the Grape and Crush reports
Lance Armstrong and Friends Raise $1.7 Million with Wine and Art
NY Governor Signs Wine Industry Legislation
Free Mobile Wine Program
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This Day in American History
1588 – This event is mentioned as history may have been quite different for the founding of the United States. The Spanish Armada, a fleet of 130 huge ships, met defeat at the hands of English sailors and their smaller, more maneuverable vessels. Then a series of wicked Atlantic storms off the coast of Southern England took their toll. Only half of the 130 Spanish ships managed to limp ... at best ... home. The 60 or so English ships, plus the weather, saved England from the Spanish invaders.
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