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  • About
    • R. Scott Richardson, JD
    • Brenda R. Haag
    • Bruce F. Barge
    • Chris A. Richardson
    • Debra Hardimon
    • Fannie Mae Pantaleon
    • Jeff Prescher
    • Joe Tripalin
    • Ken Smith, CLU, ChFC
    • Patrick J. Costello
    • Philip Aderton >
      • 2019 CBAI IZALE Sponsored Golf Outing
  • Resources
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      • Executive Benefits Overview Webinar
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        • 2019 Client Conference
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IZALE Financial Group

Blog

The Butterfly Effect

3/10/2020

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The market is waking up to not just the viral contagion of coronavirus, but also to financial, economic, and geopolitical contagion.
by Scott Minerd, Guggenheim Partners
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The market is finally waking up to the prospects of not just viral contagion from coronavirus, but also to financial and geopolitical contagion. Now the contagion is spreading rapidly into the credit markets where not only energy bonds are plunging but other sectors like airlines, lodging, and retail are sure to follow suit. Then there is the knock-on effect to corporate earnings and cash flows across a broad swath of industries once the world enters a global recession which now appears to be inevitable. We
arrive at this moment with the overleveraged corporate sector about to face the prospect that new-issue bond markets may seize up, as they did last week, and that even seemingly sound companies will find credit expensive or difficult to obtain. Credit spreads have a long way to expand. BBB bonds could easily reach a spread of 400 basis points over Treasurys while high yield would follow suit with BB bonds at 750 basis points over and single B bonds at 1,100 basis points over. The risk is that it could be worse. As for stocks, technical analysis suggests that there should be support around 2,600 on the S&P 500, but in a recession scenario a level closer to 2,000 could be the ultimate outcome.

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Deposit Diaries: FDIC Cap Rates Revisited from IZALE Strategic Partner Taylor Advisors

10/8/2019

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Back in the summer of 2018, we published "Deposit Diaries: FDIC Rate Caps and Hidden Liquidity Risk" outlining the flaws of the FDIC's national rate calculation and the liquidity traps inherent in the interest rate cap restrictions.  Since then, liquidity has become a key focus for regulatory examinations, specifically as it relates to Contingency Funding Plans and stress testing. 
At well-capitalized institutions, examiners have been quick to identify funding concentrations in high-rate deposits and to question stress testing assumptions for high-rate deposit run-off and the feasibility of utilizing national market deposits (e.g. Qwickrate, National CD Rateline, etc.) in times of stress.  Recently, the FDIC published a Notice of Proposed Rulemaking outlining potential changes to the calculation of the national rate and adjustments in the determining criterion for the rate cap.  
Some key highlights from the FDIC's proposal are outlined below:  
  • New methodology for national rate based on average deposit rates weighted by domestic deposit share vs. the current method based on an average of all domestic branches
  • National rate cap would be higher of the following:
    1. National rate + 75 basis point
    2. The 95th percentile of the national rate
  • Local rate cap exception would be streamlined and allowed to be 90% of the highest rate in-market for each deposit product
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Taylor Advisors' Take:

While not perfect, we view this proposal from the FDIC as a shift to a more 'common sense' approach in managing the interest rate cap restrictions.  This proposal would provide meaningfully more latitude for deposit rates within the national rate cap by using the 95th percentile and simplifies the process by which banks calculate a local market rate cap.  While this proposal does not entirely eliminate the liquidity trap posed by interest rate caps, it does go a long way in providing regulatory relief to less than well capitalized institutions and eases liquidity stress testing assumptions for well capitalized banks.  Banks have a 60-day window to voice their opinions to the FDIC.
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For more information speak with one our IZALE Team to provide your financial institution help with its risk and rewards!
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Are You Ready for Indexed BOLI?

4/4/2019

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by Scott Richardson, CEO/President of IZALE Financial Group
Pictureclick for more on BOLI
Despite lower corporate tax rates and a narrower spread between traditional bank-eligible investments and Bank/Business-Owned Life Insurance, BOLI continues be a powerful asset for your balance sheet. The earnings are competitive for the risk and accrue without any tax provisions. The book value is stable - rising interest rates won't result in mark-to-market adjustments like with bonds. At its core it's still life insurance and we've seen firsthand how the life insurance proceeds have provided invaluable benefits to an insured officer's family as well as to the institution.
 
BOLI crediting rates have remained somewhat stable since the beginning of 2018, and programs that deliver 3% or more yield out of the gate are readily available. While those rates have remained stable, market rates have moved generally upward even if in fits and starts. As of March 25, the 10-year Treasury bond was a mere 3 bps higher yield than the 13-week Treasury bill (with an inversion with shorter duration); the result is about 75bps-100bps of spread between 10-year Treasuries and BOLI. That's down from the historical average of over 200bps. That narrow spread has many institutions re-evaluating their inforce BOLI or delaying their next purchase of it. The thought goes that until there is greater reward for the risk of going longer, stay short.  
 
Ignoring the immediate lost earnings from staying on the sidelines, trying to time entry to the markets is challenging to say the least. What if instead of measuring your BOLI returns against fixed-income assets like bonds, you could measure them against an equity-index? Before you get too far on the ledge - we're not talking about exposing cash value to an index; cash values will always have stable book value treatment. What we're talking about is a transparent way to determine the crediting rate by measuring the change in an index, most commonly the S&P 500.
 
"Indexed Universal Life" or IUL has been available on a retail basis for more than 20 years, and in 2018 IUL accounted for almost 30% of permanent life sales. While widely available on a retail basis, it wasn't until recently that IUL became available with a single-premium, 100%-beginning-cash-value design associated with BOLI.

With IUL, the carrier offers a "floor" or minimum crediting rate (along with full book-value treatment) and a "cap" or maximum crediting rate that can flow from the change in the index.  
  • If the index is negative or below the floor, your crediting rate is the floor.  
  • If the index is greater than the cap, your crediting rate is the cap.  
  • If the index is in between, your crediting rate is the index.
While your crediting rate from month-to-month will vary between the floor and the cap, when back-tested against 50 years of actual S&P performance, IUL has impressive results. The table below shows the current floor and cap for two carriers that offer IUL BOLI. One is decidedly more conservative than the other in its design, however, the expected rewards may be worth the "less conservative" design.

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The Case to Convert to Fee-based Checking from Thought Leaders at IZALE on FMStv

9/25/2018

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New choices in the marketplace, means banks and credit unions may struggle to maintain market share for their checking accounts. One solution is to update outdated free checking accounts to a fee-based model. This fee income strategy simultaneously increases revenue and delivers these value-added services to customers. Find out more from this short Thought Leader Video from the Financial Managers Society then click here where you can join one of our upcoming Fee-based Income webinars and learn more about this strategy for change from your friends at IZALE.

For more information about FMS, click here.
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Thought Leaders at IZALE on FMStv Share Their Wisdom on Executive Benefits

4/24/2018

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The Risks and Rewards of Executive Benefit Plans

Just launched today, the experts at IZALE share in less than 4 minutes why executive benefit plans are an integral part of attracting, rewarding, and retaining top talent for financial institutions today.
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​Effective June 9, 2017, all individuals who provide advice to retirement plans, including Individual Retirement Accounts (IRAs), must abide by the fiduciary standard.  What does the fiduciary standard mean?  This means that your advisor must put your interests first before their own or that of the firm, make prudent recommendations, charge reasonable compensation and make no misrepresentations to you regarding recommended investments.  The recommendations made by your advisor must be based upon your specific investment needs and objectives.  The fiduciary standard is applicable to any recommendations that your advisor makes to you, the client, for your retirement account.
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This site is published for residents of the United States only. Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every advisor listed. For additional information, please contact Scott Richardson at 855-492-5334 .