The week of March 23, regulatory agencies, including the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), the National Credit Union Administration (NCUA) and the Consumer Financial Protection Bureau (CFPB) announced changes, recommendations and new guidance affecting financial institutions due to the COVID-19 pandemic. We cover those below, as well as the CARES Act rulings affecting financial institutions.
March 31 Call Report Due Date Extension
The FDIC announced a 30-day grace period for the March 31, 2020, Call Report filing. Financial institutions, however, are encouraged to contact their FDIC regional office if they plan on taking advantage of the grace period.
The new Community Bank Leverage Ratio Framework (CBLR) can be adopted with the March 31, 2020, Call Report. Requirements for adoption include having a Tier 1 leverage ratio greater than 9%, be less than $10 billion in assets and have limited off-balance sheet exposures. Provisions in the CARES Act, however, would expand the FDIC’s discretionary authority, temporarily reducing the CBLR requirement by one percentage point to 8.0% and providing a reasonable grace period if an institution’s CBLR falls below the prescribed level. This interim ruling expires at the earlier of December 31, 2020, or the date on which the national emergency declaration related to coronavirus is terminated.
FRB, FDIC, NCUA, OCC and CFPB Encourage Small-Dollar Lending
Institutions are encouraged to offer small businesses and consumers small-dollar loans due to the current environment. The agencies will look favorably on institutions that perform lending and retail banking activities to meet the needs of those affected by COVID-19. This lending can be in the form of open-ended lines of credit, closed-ended installment loans or appropriately structured single payment loans. All institutions are encouraged to continue safe and sound practices during these times.
Payment Accommodations and Loan Modifications
All agencies are encouraging institutions to consider workout strategies with their customers to enable borrowers to repay the principal on their loans while mitigating the need for them to re-borrow. Loan modifications will be viewed as positive actions that mitigate adverse effects for borrowers experiencing hardships as a result of COVID-19. Further, institutions will not automatically have to categorize all COVID-19-related loan modifications as TDRs. This applies to short-term modifications (six months or less) made on a good-faith basis in response to COVID-19 to borrowers who were current prior to the declaration of the national emergency (less than 30 days past due).
When making modifications or allowing borrowers to skip payments by either extending the maturity date or making payments due in a balloon payment at maturity, institutions must provide borrowers with accurate disclosures that are consistent with federal and state consumer protection laws to avoid any misunderstandings about repayment terms.
Further, any modifications and restructurings, including short-term arrangements in response to COVID-19, generally should not be reported as nonaccrual. Therefore, if a modification is due to the current economic environment, during the deferral period, interest income can still be recognized and accumulated accrued interest receivable recorded.
An important part of a restructuring including payment deferral is how principal and interest will be recognized within the core processing system. It will be important to consult with your core processors to understand the correct way to modify a loan on the system based on the terms agreed to with the borrower. Not only does this include recording the payment of principal and interest properly but also proper reporting of nonaccrual loans, past-due loans and deferred loan fees.
Delinquent Loan Reporting
Borrowers who were current prior to being affected by COVID-19 that receive payment accommodations do not necessarily need to be reported as past due. Institutions that agree to payment deferrals would not technically have overdue contractual payments; therefore, the loans would not be considered past due for reporting purposes during the period of deferral. Borrowers who were already past due upon becoming affected by COVID-19, but subsequently receive payment modifications, may have their delinquency status frozen at the date they became affected.
Selling Held-to-Maturity (HTM) Securities
If an institution determines the need to sell HTM securities for liquidity purposes during this economic crisis, the institution’s intent to hold those securities until maturity will most likely not be questioned. ASC 320-10-25 specifically mentions that extremely remote disaster scenarios do not need to be taken into consideration when determining classification.
Potential Extension of CECL Application for SEC Filers
The CARES Act states that no depository institution, bank holding company or affiliate thereof will be required to comply with the FASB’s credit loss standard until the earlier of:
- The date on which the national emergency terminates or
- December 31, 2020.
The passage of the CARES Act is the first override by the federal government over a requirement issued by the FASB.
Extension of Part 363 Filings
Part 363 of the FDIC’s Rules and Regulations requires each insured depository institution with $500 million or more in total assets to submit an annual report to the FDIC and all appropriate banking agencies. The deadline for filing the annual report is either 90 or 120 days after the institution’s fiscal year. The FDIC is allowing for additional time for institutions to submit their annual reports in light of COVID-19. The FDIC will not take supervisory action against any institution for submitting its Part 363 annual report late. If submitting late, the institution must submit a written notification and then submit its Part 363 annual report within 45 days of the previous deadline.
If you have any questions or would like additional information about the regulatory changes, recommendations or guidance outlined above, please contact your CSH representative or contact Katie Schnieber ([email protected]) or David Klopfer ([email protected]).
Further information can be found below:
Regulatory Relief: Working with Customers Affected by the Coronavirus – https://www.fdic.gov/news/news/financial/2020/fil20017.html
Frequently Asked Questions for Financial Institutions and Consumers Affected by the Coronavirus – https://www.fdic.gov/news/news/financial/2020/fil20018.html
Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus – https://www.fdic.gov/news/news/financial/2020/fil20022.html
Interagency Webinar on the Statement on Loan Modifications and Reporting for Institutions Working with Customers Affected by the Coronavirus –https://www.fdic.gov/news/news/financial/2020/fil20024.html
The FDIC Announces a 30-Day Grace Period for the Call Report for the First Quarter of 2020 – https://www.fdic.gov/news/news/financial/2020/fil20028.html
Statement on Part 363 Annual Reports in Response to the Coronavirus – https://www.fdic.gov/news/news/financial/2020/fil20030.html