Fauquier Bankshares reported today that it plans to record a $5.5 million impairment charge tied to a deteriorating loan relationship.
The owner of Fauquier Bank said in a U.S. Securities and Exchange Commission (SEC) filing that based on a third-party audit, it determined that five loans to one commercial borrower totaling $8.5 million will likely result in a material impairment.
The impairment will likely range from $4.2 million to $6.4 million. The fourth-quarter charge will reflect an increase to the company's loan-loss allowance.
“As of the date of this report, based on the estimated value of collateral with respect to the loan relationship, including inventory, receivables and equipment, the range of impairment is estimated to be between $4.2 million and $6.4 million,” the company said in the SEC filing.
“No specific estimate of impairment can be made as of the date of this report based on the future cash flow receipts and expenditures of the borrower as a going concern, or in the possible sale of the borrower's business in part or whole.
The move means that the borrower may not be able to repay the loan, therefore company has to recognize the possible loss on its balance sheet. It does so by charging the amount against its loan loss reserves. The decision does not necessarily mean that the bank won't be repaid.
The fourth-quarter 2015 charge will reflect an increase to the company's loan-loss allowance.
The Fauquier Bankshares Form 8-K filing can be found at the Securities and Exchange Commission