Banking

Many company leaders see audit as a task related to compliance, and that’s a fair—if overly simplified—definition for external audit. Once per year, an external auditor will perform an annual examination and issue an objective report regarding the financial statements. This regulated activity has an impact on the reputation and financial health of a business. Internal audit is neither specifically tied to regulation, nor is it a single, time delineated task. It is, however, more vital to the ongoing resilience of the business. The effort is more flexible and tailored to the goals and qualities of the entity, and (if done well) is performed throughout the year to monitor company practices and risks.

Saturday (April 29) marks the 100^th day of the Trump Presidency. The benchmark has historically been used to review promises made and kept, as well as where progress has occurred and where it is yet to happen. For community banks and the small businesses and individuals they support, four markers are of particular importance—small business lending, mortgage rates, interest rate risk, and regulations. Let’s look at all four to get a sense of where the country is, and where we may be headed in the second half of 2017.

Despite (or perhaps because of) a turbulent political, economic, and regulatory climate, analyst predictions continue to point to 2017 as an active year for bank M&A transactions. On one side of the coin, it’s because large banks are striving to ‘bulk up’ in the face of regulations. On the other, it’s because small community banks are buckling to shareholder pressures and seeking to exit.

With changes to tax regulations on the horizon, bank leaders should be thinking about how they are managing financial strategies. It’s likely that you are. Close to 74% of U.S.-based CFOs believe President Trump's principal focus should be corporate tax reform. [1]  And it is. The White House says tax reform is a major piece of their policy agenda.

Internal audit (IA) is more often than not viewed as a ‘check the box’ exercise on a compliance to-do list. While it’s true that banks do have to perform set IA tasks, limiting your work to what’s required not only could leave your institution vulnerable, it could diminish the value of an otherwise highly valuable effort.

While the on-paper goal for banks working toward their implementation deadline for the new Current Expected Credit Loss (CECL) impairment standard is compliance, the long game opportunity is much greater. Every decision in the process hinges on data.

“As an agency designed to serve the American people, it is imperative to constantly look back on the SEC’s rules and engage the public on ways to improve. Today, we are asking for public comment on whether Industry Guide 3 continues to elicit the information that investors need for informed investment and voting decisions.”

- SEC Acting Chairman Michael Piwowar

On March 1, 2017, the SEC voted to publish a request for public comment on disclosures mandated by Industry Guide 3—Statistical Disclosure by Bank Holding Companies. The agency is seeking input from investors, registrants and others on ways to improve disclosures for bank holding companies, inquiring whether Guide 3 remains capable of gathering the information needed for investors to make informed funding and voting decisions. Additionally, the SEC is examining what new types of disclosures about bank holding company activities might be necessary.

From the earliest days of the election cycle, tax reform has been a consistent topic of focus. During campaigning, all of the Republican candidates recommended reductions to personal and corporate income taxes. Now-President Trump's was the most aggressive. He proposed bringing the corporate income tax rate down to 15%.

The past three years have seen healthy M&A activity. 2015 set a record for banking and securities M&A. In 2016, activity slowed slightly in the early part of the year but picked up again in the second half, and concluded strong. With the current post-election uncertainty, an unsettled regulatory landscape, and new capital requirements related to Basel III, however, analysts expect a slight pause.[1]

Vendor relationships are a reality for virtually every shape, size, and kind of business. On any given day, you might have people who come into your bank to do simple things like deliver coffee or clean your offices. You’re almost just as likely to have outside providers who are handling complicated tasks like managing your servers. Though the coffee guy might not have access to private data, every vendor relationship brings with it some degree of risk. Knowing how to quantify that risk and engage proper security protocols are vital to the resilience and reputation of your institution.

Recently, a HORNE Banking client, a community bank based in rural Mississippi, shared with us that they are moving into Fintech. This institution does business in their immediate area as well as in some metro locations. Their announcement was noteworthy for a few reasons. First, despite all the talk about this channel over the past few years, we’ve yet to see it in action within community banks. Second, the institution is using Fintech as a technology-based lending platform for its small business clients, rather than as a consumer lending offering.

The first three weeks of the Trump presidency have been full of activity. Within President Trump’s first few hours in office, he was signing executive orders, and he does not appear to be slowing down any time soon. On February 3rd, he signed an order that directs the Secretary of the Treasury to review the Dodd-Frank financial oversight law and report his recommendations.

As 2017 gets underway, and we understand more about what’s on the horizon for the new administration’s regulatory and tax reform, there’s a sense that the coming years will bring unprecedented changes for financial institutions. In this last post in our series about CECL adoption, we will revisit the timeline and steps. More than ever, it is critical that you are preparing now for ensuring a successful adoption in the midst of an ever-changing landscape.