COVID-19 Pandemic and the impact on ALLL April 21, 2020 2 - - PowerPoint PPT Presentation

COVID-19 Pandemic and the impact on ALLL April 21, 2020

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Objectives

Discussion of regulatory actions around COVID-19 Loan modifications and reporting issues COVID-19 impact on Allowance for Loan and Lease Loss methodologies Eric Diehl Associate Director B&V Capital Advisors Dan St. Clair Audit Director Briggs & Veselka Lincoln McKinnon Audit Principal Briggs & Veselka

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Helping Clients Navigate

Paycheck Protection Program (PPP) EIDL, FFCRA, Other Programs First Wave: Application

• Eligibility
• Calculating payroll costs
• Application process
• Non-profits

Second Wave: Forgiveness

• Use of proceeds
• Calculating payroll costs
• Forgiveness adjustments

Economic Injury Disaster Loan

• EIDL grant

Families First Coronavirus Response Act (FFCRA)

• Family and medical leave
• Sick leave for employees
• Tax credits

Main Street Lending Program Funds depleted – more coming?

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Loan Forgiveness

The true-up period is coming, and forgiveness is not necessarily guaranteed Forgiveness expected to be granted upon filing an application with the SBA Maximum loan amount received by borrower and provided by PPP Qualified expenses Eligible for forgiveness Non-qualified expenses Excess funds borrowed and not used Converted to 2 year amortizing 1% loan Returned to SBA

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Maximizing Forgiveness

Keeping deliberate, clean records supports maximized loan forgiveness

• Daily payroll data
• Daily employee data

Payroll Costs

• Payroll costs (75%)
• Rent, utilities, certain

interest costs (25%)

Expense Management

Maximum forgiveness supported by clean, detailed records proving the proceeds were used appropriately

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What’s Next?

Preparing for forgiveness PPP Funding Round 2 still on hold Additional guidance is needed on

• Forgiveness application and

process

• Forgiveness adjustment related

to reduction in FTE

• Forgiveness adjustment related

to reduction in employee salaries

• Tax implications

Main Street Lending Program

Briggs & Veselka COVID-19 Resources Page

• B&V Webinar Materials:

Forgiveness, Tax Updates, PPP for Self Employed

• B&V Webinar: COVID-19

Business Continuity Resources & Update

• B&V Nonprofit Webinar Series
• Important links and other

resources

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COVID-19 Impact on ALLL Interagency Statement on Loan Modifications and Reporting – Working with Customers Affected by the Coronavirus – (OCC Bulletin 2020-21) “the agencies encourage financial institutions to work prudently with borrowers who are or may be unable to meet contractual payment obligations…”

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COVID-19 Impact on ALLL Working with Customers Affected by the Coronavirus –

Proactive actions are in the best interest of institutions, their borrowers and the economy.

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COVID-19 Impact on ALLL

Proactive actions: Loan modifications

• Deferral of payments
• Waiving modification fees
• Assistance with government

backed plans

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COVID-19 Impact on ALLL

COVID-19 proactive actions: Short term modifications includes the example period of six months, and notes payment deferrals and extensions of repayment terms, along with other delays that are considered “insignificant”

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COVID-19 Impact on ALLL

Loan modifications on existing current loans would not be considered TDRs - Either individually

• r as part of a modification program

for creditworthy borrowers.

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COVID-19 Impact on ALLL Working with Customers Affected by the Coronavirus – The agencies will also not criticize institutions that work with borrowers as part of a risk mitigation strategy intended to improve an existing non-pass loan.

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COVID-19 Impact on ALLL

Programs mandated by state or federal government related to COVID-19 would not be in the scope

• f ASC 310-40 on TDRs.

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COVID-19 Impact on ALLL

COVID-19 deferrals would not trigger past due reporting or nonaccrual status, if the loan was not so designated before the deferral. COVID-19 deferrals considered contractual, therefore no contractual payments would be past due.

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COVID-19 Impact on ALLL

COVID-19 Next Steps: Know your portfolio –what customers and industries are most likely to be impacted by COVID-19?

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COVID-19 Impact on ALLL

COVID-19 Next Steps: Are there any general modification programs you should consider for groups of loans, such as residential real estate loans or hospitality loans, where a group program may make the most sense?

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COVID-19 Impact on ALLL

Allowance for Loan Losses impact You will need good documentation of modifications made for COVID-19. Remember that this does not automatically come with credit downgrades, but could get there.

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COVID-19 Impact on ALLL

COVID-19 ALLL impact: Find a way to classify COVID-19 modifications to properly tract them. This should include monitoring of short-term concessions and a return to pre-COVID terms if needed.

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COVID-19 Impact on ALLL

COVID-19 ALLL impact: Don’t be reluctant to utilize Pass- Watch or Special Mention categories to better track high risk loans. Don’t delay on further downgrades when they are needed.

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COVID-19 Impact on ALLL

COVID-19 ALLL impact: Don’t wait to look at the qualitative factors in your allowance

• methodology. COVID-19 has

increased risks across the board and we should not be waiting for quantitative factors to catch-up.

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COVID-19 Impact on ALLL

COVID-19 ALLL impact: The ALLL methodology is a living document, and qualitative factors can go down if the quantitative factors become known and go up.

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COVID-19 Impact on ALLL

COVID-19 ALLL impact: Be proactive with the ALLL, just like you are with the loan relationships. Good management now can help limit future negative impact.

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COVID-19 Impact on ALLL

COVID-19 ALLL impact: QUESTIONS?