2019 Journal of Community Bank Case Studies

2019 COMMUNITY BANK CASE STUDY COMPETITION

Exhibit 10: EGRRCPA Provisions and Impact on FirstBank

$ Impact expected by year end 2019

Provision

Benefit Bank

Balance Sheet

Net Income

Simplified Capital Rule

Yes

$830 million*

$27 million*

Small Bank Holding Company Threshold

No

N/A

N/A

Highly Volatile CRE

No

Limited

Limited

Qualified Mortgage

No

Limited

Limited

Escrow Requirements

No

Limited

Limited

HMDA

No

Limited

Limited

Waiting Period on Credit Offers

No

Limited

Limited

Exam Cycle

No

N/A

N/A

Volcker Rule

Yes

$10 million

$1 million

Short Form Call Report

No

N/A

N/A

Appraisals

Yes

$85 million

$1.3 million

Reciprocal Deposits

Yes

Limited

$700 thousand

* An increase in balance sheet impact by $480 million (57.8%) and net income by $16 million (59.2%) would occur if the proposed 8% CBLR is adopted.

Additionally, changes to the reciprocal deposit classification will prove beneficial amid FirstBank’s increasing use of these deposits. Although FirstBank has investigated possible benefits from all regulatory provision, its various markets could benefit from other aspects of EGRRCPA after additional input and clarification from bank regulators. Exhibit 10 shows the relevant provisions that FirstBank is considering. A. Simplified Capital Rule In an interview with Colin Barrett, President and CEO of Tennessee Banker’s Association (TBA), he stated a continued need exists for relief in capital requirement reporting. Capital requirement reporting is another burden that affects FirstBank’s impact on its communities

by deferring a large number of resources to compliance with these requirements (see Exhibit 10). The simplified capital rules provide the best opportunity for regulatory relief within FirstBank. Laurie Durham, Regulatory Liaison of FirstBank, stated that FirstBank’s community bank leverage ratio (CBLR) was 10.7% as of September 30, 2018, and is expected to be above the 9% benchmark as of June 30, 2019, using proforma financials (Durham). These ratios would qualify FirstBank for the BASEL III exemption and limit the regulatory compliance burden within FirstBank. This exemption would allow FirstBank to hold up to 25%, previously limited to 10% under BASEL III, of its Mortgage Servicing Rights (MSR) as Tier 1 Capital without deduction from its regulatory capital (Gordon).

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