SBA to Host Webinar for Small Business Lenders May 27, 2016
The Small Business Administration will host a webinar on Wednesday, June 1 at 2:00 p.m. EDT to provide an overview of LINC (for Leveraging Information and Networks to access Capital), an online matchmaking tool introducing small businesses with participating SBA lenders in their local communities. The webinar will discuss how SBA lenders are using LINC, and how SBA-approved lending institutions can join.
Since its launch in February 2015, more than 30,000 small businesses have been connected with at least one SBA lender through LINC. Click here to read more.
FDIC Report Outlines Mobile Strategies for Banking the Underserved May 26, 2016
As part of its broader effort to identify ways mobile banking can help meet the needs of the unbanked and underbanked, the FDIC yesterday released a report identifying possible strategies for financial providers. The FDIC report is based on focus groups conducted with unbanked or underbanked people, as well as interviews with industry executives and consumer advocacy groups.
The six strategies identified by the focus groups include improving customer access to timely account information, expediting access to money, making banking more affordable through better account management, addressing real and perceived security shortfalls, increasing awareness of mobile tools and encouraging long-term financial management. Consumers report that mobile banking is already improving the banking experience by enhancing individual control over financial behaviors, the FDIC said.
Mobile is an especially promising channel for reaching the underbanked, the FDIC said, noting that underbanked households are four percentage points more likely to have a smartphone than fully banked households. More than 90 percent of underbanked millennials -- those aged between 18 and 34 -- have smartphone access.
Bankers are invited to provide feedback on how they are currently employing these strategies, how best to shape a demonstration project and how interested they are in participating in a demonstration. Comments are due by June 15 and may be emailed to MFSDemonstration@fdic.gov. Click here to read the report.
CECL: What's Good? What's Not? May 18, 2016
After a six-year effort, the Financial Accounting Standards Board (FASB) approved a new credit loss accounting standard. The Current Expected Credit Loss (CECL) impairment proposal is expected to be issued by the end of June 2016, with an effective date of 2020 for SEC registrants, 2021 for non-SEC public business entities (PBEs), and year-end 2021 for non-PBEs. This is effectively a one year delay in the effective date from what had been previously announced, though FASB is also providing an early adoption for SEC filers.
Much has been written of the challenges of CECL (see AmBA’s Discussion Paper CECL Challenges: The Life of Loan Loss Concept, which discusses various complexities of the CECL model). But is there anything good? Well, actually yes.
The biggest positive changes bankers may see are:
- CEOs will no longer say “we see challenges ahead in the economy but GAAP does not allow us to record more losses”. In CECL, such losses ARE recorded when management sees those challenges. That privilege, of course, comes as a two-edged sword. Forecasts of the future are normally terrible and supporting the quantitative impact of those forecasts is far more complex than what is practiced today. However, bankers will be able to reflect what they believe they will lose.
- Purchase accounting is greatly improved. Loans that are purchased with credit deterioration are currently booked at fair value upon purchase and accounted for using complicated cash flow models. Interest margins and allowance coverage ratios, thus, get distorted and neither management nor investors understand the current process. Under CECL, the vast majority of loans will be recorded at par (even those that currently do not qualify as “impaired”), with the CECL-based allowance set up. Interest income is then accrued based what is recoverable (similar to, but simpler than, the accretable yield today). As a result, net interest margins and coverage ratios will be much more consistent.
- Credit losses related to debt securities (the CECL allowance on Held To Maturity securities and Other Than Temporary Impairment (OTTI) on Available for Sale Securities) are reversible. Current OTTI processes effectively require a direct charge-off of amortized cost, resulting in distorted interest income and no chance at recognizing recovery of credit quality. Since CECL requires only an allowance, any recovery of credit quality can immediately be recognized into earnings.
Of course, all this comes at a cost. Banks will need to do significantly more granular analysis – if the auditors do not require it, bank investors will. Just try explaining why delinquencies increased while the CECL loss provision went down without the more granular analysis of loan products and how assumptions of the future affected them! Of course, all the more granular analysis will require data that have, for most banks, never been collected before. The inherently inaccurate forecast of the future will also likely require capital buffers far greater than are in place today. Extra costs from the core loan processing system provider, more time needed to analyze the data, new time needed to forecast the future and to quantify those impacts--all these point to big challenges for bankers going forward.
Upon FASB’s issuance of CECL in June 2016, AmBA will be holding webinars to assist bankers in understanding CECL and evaluating how CECL can be implemented in a bank your size. Please contact Melvetta Dockery if you are interested in these topics.
Final Overtime Rule Released Today May 18, 2016
The Department of Labor today released its final rule increasing the salary level for eligibility for exemption from overtime under the Fair Labor Standards Act (FLSA) effective December 1, 2016. ABA is reviewing the final rule and will provide a Staff Analysis soon.
Based on DOL's Fact Sheet, highlights of the final rule include:
The new salary level for the executive, administrative and professional exemptions is $47,476 annually or $913 per week.
- The new salary level for highly compensated employees is $134,000.
- Indexing – The salary level would be adjusted every three years (rather than annually) based on the 40th percentile of full-time salaried workers in the lowest wage Census region (currently the South).
- Bonuses – Up to 10 percent of standard salary level can come from non-discretionary bonuses, incentive payments and commission, paid at least quarterly.
- No changes to the duties tests.
In the final rule, DOL is emphasizing that newly nonexempt employees may continue to be paid on a salary basis. However, that is an attempt to understate the disruption the rule will cause. Whether a nonexempt employee is paid on a salary or hourly basis, the employees are required to maintain accurate and specific time records. Banks will have to monitor their weekly hours worked to 40 or less, or overtime obligations will be triggered. So the ability to pay nonexempt employees on a salaried basis, does nothing to remove the burdens from employees and employers.
AmBA urges bankers to carefully review the final rule. Contrary to DOL assertions that the final rule would decrease FLSA litigation, in fact the plaintiffs bar is already salivating at the prospect of class action litigation against employers for failure to comply with the rule. Click here for a discussion of possible actions by the plaintiffs' bar by Richard Alfred, Brett Bartlett, and Noah Finkel of the law firm of Seyfarth Shaw.
AmBA will hold a briefing on June 16 on the final rule, how to comply, and how to communicate the changes to your employees.
New Slate of ABA Officers Installed May 13, 2016
A new slate of officers was installed at the ABA Annual Convention on Thursday, May 12, including Chairman Sean Williams, President & CEO of First National Bank of Wynne, Wynne; Chairman-Elect Dave Dickson, President & CEO of Union Bank & Trust Co., Monticello; Vice Chairman Cathy Owen, Chairman of Eagle Bank, Little Rock; and Treasurer Judy Lawton, President & COO of Heartland Bank, Little Rock.
Also providing leadership for the coming year will be the ABA Board of Directors: Phil Baldwin, Citizens Bank, Batesville; Troy Duke, Bank of Rison, Rison; Scot Hancock, Centennial Bank, Fayetteville; Jon Harrell, Generations Bank, Rogers; Darwin Hendrix, Bank of Delight, Prescott; J. Michael Jones, Merchants & Farmers Bank, Dumas; Craig Mobley, First Financial Bank of El Dorado, El Dorado; Wilson Moore, Bank of America, Little Rock; Jerry Morgan, Focus Bank, Jonesboro; Randy Scott, Farmers Bank & Trust Co., Blytheville; Jim Taylor, First Security Bancorp, Little Rock; David Dowd, Cross County Bank, Wynne; Jim Cargill, Arvest Bank, Little Rock; Don Gibson, Legacy Bank, Springdale; Chris Gosnell, Farmers Bank & Trust, Magnolia; Gene Crawford, First National Bank, Crossett; and Pat Anderson, Simmons Bank, Pine Bluff.
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