2019 Journal of Community Bank Case Studies

Utah Valley University

THIRD PLACE:

These expected changes, while significant, are not financially quantifiable. Messina spoke on this saying, “We pay fees to both the FDIC and the State on many things, but not on whether we have an exam. The extension of time between exams will provide no measurable cost relief for the bank. There will be a productivity increase for those employees working on the exam but it would not be quantifiable” (Messina). While these changes may not directly impact the financial statements, the extensive hours of extra attention the bank’s processes and internal controls will receive should not be overlooked. Simplified Capital Rules New EGRRCPA provisions regarding simplified capital rules state that if a bank with less than $10 billion in assets holds a bank leverage ratio equal to or greater than the Community Bank Leverage Ratio (CBLR), then the bank will be exempt from all other leverage and risk-based capital requirements (Perkins 14). Regulators are currently in the process of setting the CBLR between 8%-10%. Senators Mike Crapo and Jerry Moran are currently fighting against regulators, who prefer 9%, to set the CBLR at 8%. Darryle Rude, Chief Examiner at the Utah Department of Financial Institutions, also supports the 8% movement, citing it will help community banks in Utah (Rude). “If they do not simplify the ratio there will be no regulatory relief to any community bankers, and the intention of Congress was to provide regulatory relief. At least by putting it at 8% that would provide community bankers regulatory relief. If it stays where it’s at with the prompt

Regardless of the final ratio, the simplified capital provisions will not apply to People’s Intermountain Bank on two fronts.

corrective action rules being more restrictive when you accept with the CBLR, there will be very few banks that take advantage of that regulation” (Rude). Regardless of the final ratio, the simplified capital provisions will not apply to People’s Intermountain Bank on two fronts. Firstly, the bank is very well capitalized. The bank’s chief financial officer, Mark Olsen, stated, “Given the makeup of our portfolio, we have decided to hold additional capital above and beyond what the regulators require from us. We generally hold our capital above 11%” (Olsen). It currently sits at 12.12%. While an 8% ratio would provide relief for many community banks, a CBLR below 11% would not affect People’s Intermountain Bank. The bank holds a high ratio as well as high loan-loss reserves to offset risk in its portfolio, to keep itself well equipped for the next downturn, and to be prepared for future bank acquisitions (Williams).

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