Bank on Wipfli - Blog and Podcast


Garbage In, Garbage Out

Mar 13, 2018
By: Daniel Zigler
Financial Institutions

I think we can all agree that technology in general is a great thing. I have witnessed firsthand how many processes in financial institutions have evolved and become more efficient since I started working in the industry 20+ years ago. When I was first taught how to “spread” or summarize financial statements for commercial loan customers, I used a very simplistic spreadsheet. I had to make my own determination of how to input various balance sheet and income statement items, how they should flow to the cash flows statement, and which ones were important for my cash flow analysis. 

Today, most financial institutions utilize a software package that makes this process much easier. Users can simply plug in the information, and the program will spit out all sorts of ratios and calculations. However, that ease of use also comes with a hidden side. The user can have little knowledge about where the output figures come from and what they mean.

Financial institutions often treat the spreading of financial statements as an entry-level job duty. However, when I was a credit manager in a bank, I always emphasized that it is actually a very important job duty (much more than it is given credit for). At most financial institutions, the decision makers approve or deny loan requests based on financial information that is spread for them and do not review the source documents themselves. Therefore, the accuracy and integrity of the financial information presented to them are extremely important. 

Since cash flow is typically the primary repayment source for loans, a debt service coverage calculation is usually completed as part of the underwriting process. However, the devil is in the details. How is the quality of the financial information provided by the borrower? Are the financial statements cash or accrual based? How is cash flow being measured? Are the payment requirements simply being estimated, or did somebody spend the time to detail each creditor and the actual payments that are required?

One important aspect of Wipfli’s loan review service is that we first conduct a risk-based assessment for each client. Based on the assessment, we take a sample and complete our own cash flow analysis from the actual source documents instead of simply relying on the spreads or summarized information. Any significant discrepancies will be discussed so the cause can be determined. This can give management peace of mind knowing that the financial information they are basing their decisions on is accurate and makes sense. While technology is amazing, its utility is often only as good as the human input.


Daniel Zigler, CRC
Senior Specialist, Loan Review
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