Financial Institutions

Wednesday, 03 May 2017

Credit risk trends

Written by Rehmann team

The FDIC’s recent Credit Risk Trends and Supervisory Expectation Highlights identifies trends in credit risk and emphasizes that following principles of sound risk-management is as important as ever to avoid future loan underwriting and administration problems that adversely affect the bottom line. Loans comprise the majority of most instititions’ assets, and not only drive revenue, profitability and capital formation, but also help stimulate economic activity. When the economy is strong and loan customers see sunny skies ahead, too often financial institutions have set aside stringent risk management and underwriting practices at their peril – and suffered the consequences down the road.  We are in a period when the economy is getting stronger, and it is reflected in loan portfolio balances...

Tuesday, 28 March 2017

CECL and your bank’s investment portfolio

Written by Heather Funsch, CPA, Rehmann and David G. Barnes, Herber Fuger Wendin

“Times and conditions change so rapidly that we must keep our aim constantly focused on the future.” – Walt Disney As most bankers have likely heard, the current expected credit loss model (CECL) is a new Financial Accounting Standards Board (FASB) accounting rule. It is effective in 2020 for public business entities that meet the definition of an SEC filer, the first quarter of 2021 for other public business entities, and calendar year-end 2021 for all other entities. The standard changes how banks account for credit losses on their loans/leases and on debt securities in their investment portfolios...

Tuesday, 31 January 2017

Economic reports help with forecasting

Written by Rehmann Team

Forecasting models produce results that are only as good as the underlying data. This makes it vitally important for financial institution management to have a comprehensive understanding of current and projected economic conditions that can influence their business … and their bottom line. While there are many financial firms, large institutions, investment houses and economists who regularly publish their research results and opinions, below is a list of some resources executives may want to consider when populating data in their forecasting models: Federal Deposit Insurance Corporation (FDIC) State Profiles FDIC State Profiles have been reformatted as a quarterly data sheet summation of banking and economic conditions in each state U.S...

Tuesday, 31 January 2017

Banks earn high CRA ratings

Written by The Rehmann Team

The Community Reinvestment Act (CRA) requires supervisory agencies to assess banks’ performance in helping meet the credit needs of its community. The evaluations look at several dimensions to assign an overall CRA rating using a four-tiered rating system, including the bank’s capacity, constraints and business strategies, as well as demographic and economic data about the community where the bank operates and the bank’s competitors and peers. More than 16,000 banks with $100 million to $1 billion in assets were rated in 2016:   Large banks — those with total assets of $250 million or more or that are affiliates of holding companies with assets of $1 billion or more — are evaluated in three areas: Lending Home mortgages, small businesses, small farms, community development, and, in some cases, consumer loans are analyzed for total number and dollar amount of loans, geographic and demographic distribution of loans, characteristics of borrowers, how many and what dollar amount of loans benefit low- and moderate-income individuals and neighborhoods, and the bank’s use of flexible lending practices to meet community needs. Investment Examiners look at the bank’s assessment area, as well as the broader statewide or regional area to evaluate how much the bank has invested, the complexity of the investments, how well the investments respond to community needs and whether the investments are different than those provided by other investors...

Under current generally accepted accounting principles (GAAP), financial institutions generally amortize the premium on callable debt securities as an adjustment of yield over the contractual life of the instrument — that is, until maturity date. If that callable debt security is called prior to maturity, the entity would record a loss in earnings equal to the unamortized premium.The Financial Accounting Standards Board (FASB) has proposed shortening the amortization period for all callable debt securities (including municipal securities) purchased at a premium from the maturity date to the earliest call date because: Concerns that current GAAP excludes callable debt securities from consideration of early repayment of principal even if the bank is certain that the call will be exercised. Callable debt securities are generally quoted, priced and traded assuming a model that incorporates consideration of calls (also referred to as “yield-to-worst” pricing)...

At the same time that banks have increased their reliance on information technology (IT) vendors and other third parties to protect and secure bank systems and customer information, cyber attacks have increased in frequency and severity. Examiners urge bank management to regularly assess their cybersecurity risks, preparedness for mitigating those risks and ability to respond should an attack occur. In June 2015, the Federal Financial Institutions Examination Council (FFEIC) released the Cybersecurity Assessment Tool (CAT), a repeatable and measurable process to evaluate and rate a financial institution's inherent risk profile and cybersecurity maturity. Use of the CAT is voluntary, but recommended since the FFIEC IT Examination Handbook, the National Institute of Standards and Technology (NIST) Cybersecurity Framework and industry-accepted cybersecurity practices were used in the development of the CAT...

Tuesday, 01 November 2016

Preparing for CECL implementation: Facts to know and tips to follow for a smooth transition

Written by Heather Funsch, CPA, and Heidi Cieslik, CPA

On June 16, 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, also known as the current expected credit loss (CECL) model. While financial institutions have several years to prepare for the implementation of this significant standard, there are steps and information to consider today to ensure a seamless and successful adoption. Changes required under CECL CECL has a significant impact on how financial institutions calculate credit impairment. The standard replaces the current “incurred loss” approach with an “expected loss” model...

Regulatory agencies listened to bankers’ feedback when developing a proposal to address concerns about the regulatory reporting burden of the current Call Report (FFIEC 041). A careful balance must be struck in redesigning the form. On one end of the scale: balancing financial institutions’ requests for a less burdensome reporting process. On the other: the need to collect enough data to monitor financial institutions' condition (including performance, safety and soundness)...

Monday, 03 October 2016

How will Bitcoin affect the financial institution industry?

Written by Rehmann Team

As online merchants increasingly accept Bitcoins as a form of payment, it’s making lawmakers and financial institution regulators nervous. Bitcoin advocates concede that while they will not replace the dollar, the euro or gold, virtual currencies will certainly be disruptive. Anthony Gallippi, co-founder and CEO of BitPay — a Bitcoin payment processing company — said, "Banks charge many fees to consumers. With Bitcoin, users can handle many of their daily payment needs themselves and avoid bank fees, so banks relying on fee revenue could be impacted the most...

Monday, 03 October 2016

Fair lending violations continue

Written by Rehmann Team

The Consumer Financial Protection Bureau’s (CFPB) Fair Lending Report, issued in May 2016, reported that in 2015 its fair lending oversight and enforcement efforts resulted in $108 million in restitution paid to consumers whose lending transactions were impacted by discriminatory practices. The CFPB report noted these among the most common violations: • 12 CFR 1002.4(a): Discrimination on a prohibited basis in a credit transaction. This rule states that “a creditor shall not make any oral or written statement, in advertising or otherwise, to applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application...

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