register today! - cbiaonline.org · 2018-10-08 · st. charles, missouri omaha, nebraska sociala...

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FUEL IN THE TANK?Mortgage-backed

SecuritiesPg. 9

WINNERS ANNOUNCED!Pgs. 4-5

Money Smart Week Poster Contest

REGISTER TODAY!

Peer ConnectionForum Pg. 8

RECAP

EffectiveLoan Policy Pt. 2

Pgs. 10-13

2 COMMUNITY BANKER UPDATE | JUNE 2015

Want To AttendA Webinar?

View a complete calendar andregister for CBI-sponsored webinarsand events at www.cbiaonline.org

or Call Us at 515.453.1495for more information.

Social Media Workshopincluding Local Community Bank Case Study

August 19-21

September 23-24

St. Charles, Missouri

Omaha, Nebraska

Bonus session August 19

Bonus session September 23

Presentations on:

For a conference brochure, go to www.mibanc.com and click on Upcoming Events.

Bonus Session Member FDIC

• DeliveringaRed-CarpetCustomerExperience• Fraud&PaymentSecurity• ERMThatCreatesValue• WhatShouldbeontheMindofCEOs• EMVCardRequirements• VendorManagement–TheBigPicture• MakingtheMostofSARs• TheEvolvingThreattoBankOperations• DebitFraudTrends• Andmanymore

Regulatory panel included

JUNE 2015 WEBINAR LINE-UP

June 2 CollectionCallTechniques:CompliantTelephoneScripts&Responses

June 3 ComplianceRulesLendersMustKnow

June 4 CommercialAppraisalReviewPart1:IncomeApproach

June 9 MasteringtheSBA7aLoanPart1:Eligibility&ProgramRequirements

June 10 BSAComplianceSeries:BSAOfficerReportstotheBoard

June 11 CountdowntotheIntegratedDisclosureDeadline:August1,2015

June 16 NewAccountsSeries:ProperlyHandlingFiduciaryAccounts: Authority,Ownership,Access&Liability

June 17 UsingtheNewFannieMaeCollateralUnderwriterforMortgages

June 18 WhenaBorrowerDies:NextSteps&BestPractices

June 23 FromFrontlinetoTellerSupervisor:DevelopingSkills&MakingaSmoothTransition

June 24 StressTestingYourLoanPortfolio:Regulations,Risk&ImpactonValue

June 25 IRASeries:ProcessingIRARollovers&Transfers

June 30 Top10DeficienciesinAuditFindingsfromRegulators&ExternalAuditors

COMMUNITY BANKER UPDATE | JUNE 2015 3

In This Issue

June2015WebinarLineup.......................2

FromtheEVP&CEO..................................3

MoneySmartWeekPosterContest...... 4-5

44thAnnualConvention........................ 6-7

PeerConnectionForum.............................8

Mortgage-BackedSecurities..............9, 21

DevelopmentandMaintenanceofanEffectiveLoanPolicy-Pt. 2...............10-13

FromtheTop............................................ 14

FinePoints............................................... 15

RuralMainstreetSurvey....................16-18

MembershipDevelopmentDirectorNeeded...................................... 18

Top5ThingstoDotoPrepareforSameDayACH......................................... 19

CBIMemberNews................................... 20

ConnectionQuandary............................. 22

Nominate a deserving Banker for the Founders’ Award

TheleadershipofCBIoverthelast44yearshasprovideddirection,support,andguidancetoyourassociation.Withoutthem,thespiritoftheoriginalfounderswouldnothaveresultedintheactiveandusefulorganizationservingyoutoday.Eachsummer,wetakeamomenttohonoroneofthoseleaderswiththeRobert D. Dixon Founders’

Award,recognizingacommunitybankerthathasnotonlymodeledthebestincommunityleadership,butalsoinservicetothecommunitybankingindustry.

Itisnowthattimeforthecommunitybankersacrossthestatetonominatememberstoreceivethisprestigiousaward.Previousrecipientshavebeen:

2014-SteveLane2013-DaleTorpey2012-C.E.Walsh

2011-KurtHenstorf2010-LarryWinum2009-JamesBrown2008-HaroldHarms

2007-StevenTscherter2006-ArnoldC.Schulz2005-O.JayThomson

2004-OllieHansen2003-RobertD.Dixon,JohnSpies,RichardE.Randall,JohnDean

Pleasetakeamomenttothinkaboutthebankersyouhaveknownwhohavedemonstrateddevotion,leadershipandinvolvementwiththecommunitybankingindustryandCommunityBankersofIowa,andnominatesomeoneforrecognitionthisyear.ThenominationformcanbecompletedonlineandisfoundontheCBIwebsiteatwww.cbiaonline.org,under“AboutCBI”and“RobertD.DixonFounders’Award”.

Nominations are due to the CBI office by June 19.

EVENTS CALENDARPAC AuctionDonations Due.... June 12

Robert D. Dixon Founders’ AwardNominations Due...................... June 19

44th Management Conference &Annual Convention............... July 15-17

8th Annual Golf Tournament...Aug. 11

LOT Quarterly Meeting............ Aug. 20

Certified Community LenderCertification Renewal............... Aug. 20

Community Bankers for ComplianceFall Session......................Sep. 22 & 23

Community Banking SummitsFall Sessions........................Oct. 13-15

LOT Quarterly Meeting.............Nov. 19

Community Bankers of Iowa1603 22nd St, Suite 102West Des Moines, Iowa 50266Phone: 515.453.1495www.cbiaonline.org


The 2015 Money Smart Week Poster Contest winners have been chosen!

TheFirstPlaceWinnerofthisyear’scontestisRiley Long,4thGrade,submittedbyFirstNationalBankinCreston&Afton.SecondPlaceWinnerisJessica Luna,4thGrade,submittedbyNorthwestBankinFortDodge.ThirdPlaceWinnerisBreelle Streger,3rdGrade,submittedbyFidelityBank&TrustinDyersville.TheFirstPlacewinnerwasawardeda$500CD,withSecondandThirdprizeseachreceivinga$200CD.AnawardcertificateforHonorableMentionwasalsoawardedtoPeyton Long,4thGrade,submittedbyFirstNationalBankinCreston&Afton.

ToentertheMoneySmartWeekPosterContest,Iowaelementarystudentsin2ndthrough6thgradessubmittedover2,100posterdesignstoparticipatingcommunitybanksacrossIowa,whothensubmittedtheposterstheyreceivedtoCBI.Postersweredesignedtoanswerthequestion:“Whyisitimportanttoknowaboutmoney?”FinaljudgingtookplaceattheCBIoffice,andthetopthreeall-Iowaprizewinnerswerechosen.Designswereevaluatedonoverallmessage,creativity,andworkmanship.

Studentswerepresentedwithawardsduringspecialceremoniesattheirlocalschoolsbyteachersandschoolofficials,andbyexecutivesfromthecommunitybanksthatsubmittedtheprize-winningentriestoCBI.WhiletheMoneySmartWeekPosterContestisastate-widecompetition,manycommunitybankssponsorlocalcontestsintheircommunitiesaswell.LuckywinningstudentswereawardedprizeslikeKindlee-Readersandgoodiebagsfulloftreatsandgiftcards.

Since1999,CommunityBankersofIowahashostedtheMoneySmartWeekPosterContestaspartofApril’sCommunityBankingMonthfestivities,andtheMoneySmartWeekawarenesscampaignhostedbytheFederalReserveBankofChicagotoincreasefinancialliteracyamongchildren.Thisyear,MoneySmartWeekeventswereheldtheweekofApril18-25.FormoreinformationonMoneySmartWeek,visitmoneysmartweek.org.

IfyouhaveanyquestionsabouttheMoneySmartWeekPosterContest,pleasecalltheCBIofficeat515.453.1495oremailKrissyLeeatklee@cbiaonline.org.

Congratulationstothewinners,andaBIGthankyoutoallofthecommunitybanksandschoolsthroughoutIowathatparticipatedinthisyear’sPosterContestandpromotedfinancialliteracyinyourcommunities.We’realreadylookingforwardtonextyear!

1st Place Poster, by Riley Long, 4th Grade, of East Union Elementary in Afton.

2nd Place Poster, by Jessica Luna, 4th

Grade, submitted by Northwest Bank in

Fort Dodge.

3rd Place Poster, by Breelle Streger, 3rd Grade, submitted by Fidelity Bank & Trust in Dyersville.

Get a better look at the winning poster designs on our website at:www.cbiaonline.org> Events> Community Banking Month> Money Smart Week Poster Contest

Honorable Mention Poster, by Peyton Long, 4th Grade,

submitted by First National Bank in

Creston.

2015 Money Smart Week Poster ContestWinners Selected Among Over 2,100 Entries!


First National Bank in Creston, ISSB and PCSB banks award their local

Poster Contest Winners with Kindle e-Readers. L-R: CBI Honorable

Mention Winner Peyton Long; CBI 1st Place Winner Riley Long; Nicole Lesan, ISSB; Dawn Loudon, PCSB Bank; Halle Evans; Sarah Young &

Sharon Higgins, First National Bank in Creston; Emmet Long.

Third Place Winner Breelle Streger displays her design with Fidelity Bank & Trust’s Market President Randy Ludwig and Dyersville Elementary 3rd

Grade teacher Mrs. Ohnken (left) and Principal Mrs. Martin (right).

Second Place Winner Jessica Luna receiving her award from Northwest Bank’s Vice President Michael Scacci (left) and Regional President John Taets (right).

Stacy Ferry of United Bank of Iowa and Janet Buman of Shelby County State Bank presented prizes to Harlan Community Elementary School Poster Contest winners

(L to R): Theresa Deason, Taylor Bieker, Darbie Argotsinger, Teya Frohlich, Amanda Burris, Ella

Plagman, Kami Stork & Cassidy Erlbacher

◄

Local contest winners show their designs and

receive goodie bags loaded with prizes from F&M Bank execs. Upper left: Kate Loecke, 3rd Grade - St. Mary’s Elementary with Human Relations VP Deann McDonald; Upper right: Lauren Johnson, 4th Grade - West Delaware Elementary and Customer Service Rep Susan Scherbring; Left: Kylie Chesnut, 5th Grade, Maquoketa Valley Elementary.

◄◄

◄◄


Join Us at CBI’s 44th Management Conference & Annual Convention

REGISTER BY JUNE 15 & SAVE!

CommunityBankersofIowa’s44thManagementConferenceandAnnualConventionrepresentstheimportanceofcommunitybanks’personalserviceandcommitmenttotheircustomersandthecommunitiestheyservewiththetheme,“Where Everybody Knows Your Name.”

TheConventionstrivestounitecommunitybankersthrougheducationfromnationallyrecognizedspeakers,accesstothelatestproductsandservices,andnumerousopportunitiesfornetworking,camaraderie,andtheexchangeofideaswithcommunitybankersstatewide.MeetupwitholdfriendsandnewattheKickoff Reception,onthelakeduringtheEleventh Annual Catch and Release Fishing Tournament,onthegolfcourseduringtheMixed Pair and Bankers’ Golf Tournaments,andattheGala and PAC Auction.

GuestspeakersthisyearincludeJim Olson,formerCIA

operative;motivationalspeakerChip Eichelberger;comedicsendoffspeakerJeff Havens;andICBAImmediatePastChairmanJohn Buhrmaster.Greatbreakoutsessionsarescheduledaswell,featuringafederalRegulators’ Panel,SocialMediaDiscussionPanelmoderatedbyChris LorencewithICBA,andTrendsinDataBreachResponsewithDan KramerfromSHAZAM.

Join us at the family reunion during CBI’s 44th Management Conference and Annual Convention, July 15-17, 2015 in Okoboji, Iowa.Additionalinformationandregistrationisavailableonlineatwww.cbiaonline.org.Ifyouhaveanyquestionsabouttheconvention,pleasecallusat515.453.1495.

By the time Convention is over,everyone will know YOUR name!

July 15-17, 2015

Get detailed info on events and more in the 44th Annual Convention brochure!

John Buhrmaster

ChipEichelberger

Dr. JamesOlson

JeffHavens

DanKramer

JamesLaPierre

ChrisLorence

JeffJensen

JimSchipper

General Session Featured Speakers Regulators’ Panel

Take A Look At This Guest Speaker Lineup! Trends in Data Breach

Response

SocialMediaPanel

Get in early and register at reduced rates!


bellbanks.com | Member FDIC

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Call one of us for quick response, competitive rates and fl exible underwriting.

• Participation loans (commercial, agricultural, construction, operating lines and term loans)

• Bank stock & ownership loans

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• Business & personal loans for bankers

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Partner with us for your participation and bank stock loan needs.

Gary [email protected]

Gene [email protected]

CBI PAC AuctionThurs. July 16, 2015

We Still need Donations!

CBI’s Live and Silent PAC Auctions are being held during our 44th Annual Convention. We still need more items to be auctioned!

If you’d like to donate cash or items to be put up for bids, download donation forms on the Convention page at cbiaonline.org and return them to the CBI office, fax to 515.453.1498, or email to [email protected]. Pictures of donations may also be emailed to [email protected] return completed forms by June 12, 2015.

Please bring all donated items to the registration deskin the lobby of the Arrowwood Resort in Okoboji, Iowano later than Wednesday evening, July 15, 2015.

Note that the CBI PAC cannot accept corporate contributions, anonymous contributions, or a contribution in the name of or on behalf of another person.

Cruise Lake Okoboji during the Eleventh AnnualCatch and Release Fishing Tournament.

Check out the great swag up for bids in theSilent & Live Auctions to benefit CBI’s PAC.

Gather on the greens at the 44th Annual Convention’sMixed-Pair and Bankers’ Golf Tournaments.

Not sure if you’ll attendCBI’s 44th Annual Convention?

Here’s why you should!

The fun you’ll have andthe places you’ll go....


CBI Hosts First-Ever Peer Connection Forum:40+ Community Bank Staffers Gather to Discuss TrendsCBI’snewCommunity Banking Peer Connection ForumwasheldMay28atPrairieMeadowsConferenceCenterinAltoona,IA.Gatheringtohearmotivationalandeducationalspeakerswereover40communitybankstaffinMarketing,HumanResources,Operations,IT,Compliance,Lending,andDirectorfunctionalgroups.ThePeerConnectionForumeventtakestheplaceoftheStateFairConference,whichisheldonlyontheelectionyearcycle.

Coach Kevin Kushkickedofftheeventwithapresentationbasedonhisnewbook“APieceofthePuzzle:EightTraitsofaQualityTeammate”.Kush,afootballcoachinOmaha’sBoysTown,dicussedtraitsneededtobeacontributingmemberofateam:believingintheteamconcept,exhibitingselflessbehavior,respectforothers,handlingadversity,adaptingtochange,acceptingfeedback,demonstratinghighenergy,andbeingaccountable.

BreakoutsessiontopicsandspeakersintheinauguralPeerConnectionForumincluded:• HowtoSurviveaStateExam-TracyBergmann,Examiner,IA

DivisionofBanking• VendorManagement-KevinEdwards,VantagePoint

Solutions• BranchMaintenanceOptimization-AdamYork,Equips• SuccessionPlanning-PatMarget,ExecutiveBenefits

Network• TrendsinDataBreachResponse-DanKramer,SHAZAM• SocialMediaintheWorkplace-BryanMartin,Merit

Resources• UnderstandingYourRoleasaBankDirector-JeffAndersen,

DickinsonLaw• Truth&FairLending,andNewMortgageRules-BillElliott,

Young&Associates

Afterlunch,SHAZAM’sEVP&CIOTerry DooleybrokedownthelatestinEMVchipcardsandhowtodevelopeffectiveapproachesduringmigrationtochiptechnology.Dooleywentontooutlinethefundamentalsoftokenization,thetechnologybehindnewpaymentssystemslikeApplePay.

Thefirst-everPeerConnectionForumclosedwithattendeesineachfunctionalgroupmeetinginroundtableforumstocomparenotesoncurrentbankingindustrytrendsandpractices.ThesediscussiongroupsessionsaretheuniquefeatureofthePeerConnectionForum,intendedasaneducationalandnetworkingoutletforcommunitybankstaffbelowtheCEO/Presidentlevel.

TheForumisco-sponsoredbyCBI’sLeadersofTomorrowGroup

(LOT).FormoreinformationonLOTandhowyoucanbecomeamember,seetheadbeloworvisitwww.cbiaonline.organdcheckoutthe“LeadersofTomorrow”pageundertheProgramsheader.

ThankyoutoSHAZAM,2015PeerConnectionForumsponsor!

Community bank staff from all over Iowa witness keynote speakerKevin Kush’s presentation at the first-ever Peer Connection Forum


Mortgage-backedsecurities(MBSs)canseemtocommunitybankportfoliomanagerstobeneedy

sorts.Theycanrequirefeedingandwateringthatothersecuritiesdonot.Theygenerallyhavelongstatedmaturitiesofupto20or30years.Virtuallyallofthemhavepurchasepriceswellabovepar.Andthenthere’stheuncertaintyofwhenyougetyourprincipalback.

Still,somethingaboutthemmakesMBSsattractivetocommunitybanks.Theyarethesinglebiggestline-iteminatypicalcommunitybankinvestmentportfolio.Betweenthemandtheirclosecousincollateralizedmortgageobligations(CMOs),theyconstituteabout40percentofthetotalbondportfolioofbanksnationally.Whydootherwiserationalcommunitybankersspendsomuchoftheirmoney,nottomentiontime,onhigh-maintenancesecurities?

Cash on tapTheadvantagesoutweighthenegatives,obviously.Thesecurities

thatcommunitybanksownareveryhighqualityandveryliquid.(MBSsinthisspaceareeither20percentoreven0percentrisk-weighted.)Sincetheprincipalamortizesmonthly,theyactlikeloans,andareviewedasloansurrogatestoaugmentthebalancesheet.Communitybankerscanchooseveryconservativeversions,suchasthosewith10-yearstatedfinalsorhighlyprioritizedprincipal“windows.”

Buttherealreasonfortheirpopularityisthattheybeginpayingbacktheirprincipalimmediately.Thiscashflowisnotjustagreatequalizer;itmakesMBSssuperiorinsomewaystonon-amortizingsecurities.Themonthlyreturnofinvestmentprovidesaliquiditycushion,sourceofloanfunding,orprotectionagainstunexpecteddepositrunoff.

Then,too,arethebondmechanics.Theperiodicpaybackshortensthedurationofthesecurities,andyouwillrecallthatdurationisameasureofpricerisk.Thedeclining“currentface”ofamortgagesecurityalsoleaveslessonthebooksthatcanfallinprice,givenrisingrates.(I’massumingyou,asacommunitybanker,areaversetorisk.)

(Fuel in the Tank continued on page 21)

Fuel in the Tank?MBS Aging Can Affect Your Bank’s Cash FlowWritten By: Jim Reber, President & CEO - ICBA Securities

IowaTIB Ad1/2 pg.April 2015


Thisarticleexploreshowlendingactivitiescanbeadministeredandcontrolledthroughappropriateandsoundunderwritingcriteriaandpracticesthataregovernedbyasoundloanpolicy.1Aloanpolicymustestablishwhoisresponsibleforensuringthattheunderwritingcriteria(financialcapacity,collateral,pricing,andterms)areappropriatelystructured,analyzed,andmonitored.Thisarticlealsotouchesupontheincorporationofdocumentationrequirementsandtheongoingmaintenanceofthecreditfiles.

Underwriting CriteriaAloanpolicymustaddresskeycreditdecisioncriteriaandunderwritingfactorssuchasthepurposeoftheloan,requiredfinancialinformation,collateral,riskratings(borrowerandfacility),pricing,andpolicyexceptions.Itmayincludemetricsthatmakeaparticularborrower,industry,orloantypeacceptable;forexample,thepolicymaynotedebt-to-incomeorspecificdebtservicecoverage(DSC)ratios,interestcoverageratios,loan-to-valuerequirements,orappropriateamortizationperiods.Thepolicyshouldalsoaddresspost-originationactivities,suchasongoingmonitoringandcreditadministration,includingpost-originationmonitoringofloancovenants,obtainingfinancialinformation,andassessingtheborrower’songoingabilitytoservicethedebtandultimatelyrepaytheloan.

Initssimplestform,theunderwritingcriteriaandloanapprovalprocesswilldrivethebank’sassessmentanddeterminationofaborrower’screditworthiness.Whenunderwritingcriteriaarestrong,theloanportfolioshouldperformbetterandcreditlossesshouldbeminimized.Itisnotuncommon,especiallyinlargerormorecomplexbanks,tohaveseparatepolicies,guidelines,anddocumentationrequirementsthatcorrespondtodifferentloantypes(suchascommercialrealestate,landacquisitionanddevelopment,residentialtractdevelopment,asset-basedloans,andcommercialandindustrial).

Smallerbanksorbanksofferingfewerloanproductsmaywishtoincludekeytype-specificunderwritingcriteriaorstandardswithinthegeneralloanpolicy.Nomatterwherepolicyunderwritingcriteriaareincluded,theanalysisofanyborrowingrequestshouldaddressthebasicsofextendingcredit,includingcharacter(integrity),capacity(sufficientcashflowtoservicetheobligation),capital(networth),collateral(assetstosecurethedebt),andconditions(borrowerandtheoveralleconomy).

Financial InformationThedecisiontolendshouldbebasedonaborrower’sabilitytorepayanobligation.Obtainingandreviewingloanapplicationsalongwiththeappropriateborrowerinformation,bothfinancialandcollateral-related,areavitalpartofdeterminingcreditworthiness.Forlenderstoappropriatelyanalyzeborrowerinformationandsupporttheloanapproval,theinformationmustbeaccurateandobtainedinatimelymanner.

Theloanpolicymustestablishwhatfinancialinformationisrequiredfromaborrowerand/oranyguarantorsbothduringtheapplicationprocessandwhilethecreditremainsoutstanding.Thefrequency(monthly,quarterly,orannually)withwhichtheinformationwillbecollectedmustbeestablished,andthepersonnelresponsibleforobtainingtheinformationshouldbeidentified.

Theinformationrequiredtomakeasoundlendingdecisionwillbedependentuponwhattypeofcreditextensionisrequestedandwhotheborrowingentityis(forexample,acorporationoranindividual).Acorporateborrowerwilltypicallyberequiredtosupplymoreinformationthananindividualborrowerapplyingforapersonalloan.Keysourcesoffinancialinformationforeitherpartyincludetaxreturns,financialstatements,and/orcashflowstatements.Forcorporateborrowers,financialdocumentsshouldtypicallybepreparedbyanaccountant.Forindividualborrowers,personalfinancialstatementsshouldbeascompleteandthoroughaspossible.Thebankmayalsorequireadditionalormoredetailedinformationtoassesstheborrower’sfinancialcondition.Anyadditionalorspecialreportingrequirementsshouldalsobearticulatedintheloanpolicy.Thepolicyshouldspecificallyaddressthefrequencyofobtainingandrefreshingborrowercreditreportsfromcreditreportingagencies.Theloanpolicyshouldalsooutlinewhattypeoffinancialinformationisrequiredforeachtypeofborrowerandextensionofcredit.

CollateralWhenextendingcreditonasecuredbasis,lendersneedtoensurethatappropriatecollateralvaluationsareobtained.Whencollateralistakentoenhanceacreditand/orsecuretheultimaterepaymentsourceofaloan,lendersmustensurethatanappropriatelienisfiled(perfected)andthatthevalue

(Loan Policy, Pt 2 continued on next page)

by James L. Adams, Supervising ExaminerFederal Reserve Bank of Philadelphia

EFFECTIVE LOAN POLICY - Pt. 2*Development and Maintenance of an

Reprinted with permission of Community Banking Connections®

Copyright 2015 Federal Reserve System.

Watch future issues of Community BankerUpdate for Part 3 of this article.


(Loan Policy, Pt 2 continued from previous page)

ofthecollateralissufficienttocovertheoutstandingbalanceoftheloan.Collateralvaluationisrequiredatoriginationandshouldberepeatedonanongoingbasistoensurethattheassetsmaintaintheirvalue.Appropriatelytrainedstaffmustbeavailabletoperformongoingcollateralmonitoring.Theloanpolicyshoulddiscussthetypesofcollateralthatareacceptableandunacceptableforeachloantype.Thepolicyshouldalsodiscussdocumentationrequirementsforvarioustypesofcollateralthatmaysupportthelender’sabilitytoexerciseperfectedliens.

Real Estate CollateralAcommonformofcollateralformanyloansissomeformofrealestate.Therearefederalregulationsandspecificsupervisoryguidancethatsetstandardsforrealestatelendingandthevaluationofrealestatecollateral.2Themostimportantelementofmanagingrealestatecollateralisobtainingacredibleappraisaloftheunderlyingproperty.TheFederalReserve’sappraisalregulationrequiresinstitutionstoobtainanappraisalforfederallyrelatedtransactionsinexcessof$250,000.3Anevaluationisallowedfortransactionsoflessthan$250,000.Theregulationfurtherestablisheswhenappraisalsarerequired,givesminimumstandardsforacceptableappraisals,andoutlinestherequirementsforappraiserindependence.Managementmustensurethattheregulatoryrequirementsforrealestatelendingandappraisalsareincorporatedintotheirbanks’lendingpolicies.Regulatoryagencieshavealsoprovidedcomprehensivesupervisoryguidancewithadditionaldetailformanagingrealestatecollateral.The“InteragencyAppraisalandEvaluationGuidelines”wereissuedinDecember2010toassistinstitutionsinestablishingsafeandsoundappraisalprograms.4

Other Collateral TypesOthercommontypesofcollateralthatoftensecureborrowingsinclude:accountsreceivable,inventory,equipment,andinvestmentsecurities.Insomecases,theloanpolicymayallowtheapprovalofless-commoncollateralsuchasspecialtyvehicles,boats,orpreciousmetals.Regardlessofthetypeofcollateral,theloanpolicyshouldoutlineacceptableproceduresforvaluingandmonitoringthecollateral.Itshouldalsorequirethatthevaluationsbeperformedbyindividualswiththeappropriateskillsetsandcredentials.Aswithallcollateralizedfinancing,theunderlyingcollateralvalueservesasthebasisfordetermininghowmuchmoneyshouldbeadvanced;therefore,thecontrolsoverthepreservationandmaintenanceofthecollateralshouldbeoutlinedwithinthepolicy.Lendersshoulddeterminethecollateralvalueatthetimetheloanisoriginatedandthenperformperiodicinspectionstodeterminethecollateralconditionandlocation,aswellaswhetheranycurtailments(reductionorpaydownofoutstandingadvances)areneededtokeeptheloanbalanceinlinewithcollateralvalues.5Thepolicyshouldalsorequirethatborrowersregularlyreportinformationaboutanycollateralthatissecuringaloan(forexample,thecompositionofthecollateralaswellasitsdollarvalue,location,andcompliancewithestablishedadvancerates).Loandocumentsshouldalsoensurethatbanksareabletogainaccesstocollateralattheirdiscretion.

Thepolicyshouldclearlydescribehowfrequentlycollateralvaluationswillbeperformed.Typically,thefrequencyofvaluationsdependsonthesizeoftheexposure,thetypeofcollateral,thelocation,andtheestablishedcontrolsoverthecollateral.Theborrower’soverallfinancialconditioncanalsobeakeyfactorinthetimingofacollateralvaluation.Whenaborrower’sfinancialconditiondeteriorates,theborrowermaynotbeadequately

maintainingthecollateral,orabankmayfindthatcollateralhasbeensold.Thiscanhaveanegativeimpactonthebank’sabilitytorelyonthecollateralforrepayment.

Perfection of CollateralWhencollateralotherthanrealestateistakentosecurealoan,alienonthecollateralisfiledwiththeappropriatelocalorstateauthority.MosttransactionssecuredbypersonalpropertyandfixturesaregovernedbyArticle9oftheUniformCommercialCode.6Theloanpolicyandproceduresshouldclearlyspecifythefilingrequirements,sincetimingdifferencesandfilinglocationsvaryfromstatetostate.Failuretofileafinancingstatementinatimelymannerand/orintheproperfilinglocationcancompromisethesecurityinterestinthecollateral.

Unlessthecollateralisinthepossessionofthesecuredparty,theremustbeawrittensecurityagreementthatdescribesthecollateral,andtheagreementmustbesignedbythedebtor.Institutionsshouldregularlymonitorlienfilingstoensurethatlienpositionsaremaintainedorthattheperfectedsecurityinterestinthecollateralremainsintact.

Risk RatingsManagementshouldestablishanaccurateandreliableriskratingsystemtohelplendersmakeappropriatelendingdecisionsandalsoestablishsoundmonitoringcriteriaoftheborrower’sfinancialandmanagerialcondition.Riskratingsshouldsignificantlyinfluencetheultimatelendingdecisionandhelpmanagementdetermineifadditionalcovenantsand/orcontrolsshouldbeimplemented.Riskratingdefinitionsandscaleswillvaryamongbanks,buttheriskratingframeworkshouldbesufficientlygranulartoassistlendersindeterminingpricing,fees,covenants,provisioning,andspecificcapitalallocation.Riskratingsshouldalsoplayavitalroleindeterminingoverallportfolioadministration.

Riskratingsystemshaveevolvedsignificantlyoverthepastfewyears,includingtheimplementationofdualriskratings(separateborrowerandfacilityratings)andthesignificantincreaseinthegranularityofthepassratingscale.Whilethedetailssurroundingriskratingsmayvarysignificantlyamonginstitutions,theriskratingprocessandphilosophyshouldbeclearlydefinedandincorporatedintotheloanpolicy.

PricingElementsoftheloanpolicymayalsoinfluencepricing.Finalpricingdecisionscanbecomplicatedbycompetitionfromotherlendersandthedeterminationofappropriatepremiumsfordefaultrisk.Usingasimplecost-plusloanpricingmodelrequiresthatallrelatedcostsassociatedwithextendingcreditareknownbeforeestablishinginterestratesandfees.Atypicalcost-plusmodelwillconsiderthefollowingfourcomponents:7

• Thecostofthefunds• Operatingcostsassociatedwithservicingtheloan(s)• Riskpremiumfordefaultrisk(consideringtheborrowerrisk

ratingandfacilityriskrating)• Areasonableprofitmarginoncapital• Managementshouldbeabletoestablishapricingbaseline

usingsuchamodelbutwillberequiredtomaketheappropriateadjustmentstobecompetitiveandtoreceiveanappropriatereturn.


LegalDisclaimer:TheanalysesandconclusionssetforthinthispublicationarethoseoftheauthorsanddonotnecessarilyindicateconcurrencebytheBoardofGovernors,theFederalReserveBanks,orthemembersoftheirstaffs.Althoughwestrivetomaketheinformationinthispublicationasaccurateaspossible,itismadeavailableforeducationalandinformationalpurposesonly.Accordingly,forpurposesofdeterminingcompliancewithanylegalrequirement,thestatementsandviewsexpressedinthispublicationdonotconstituteaninterpretationofanylaw,rule,orregulationbytheBoardorbytheofficialsoremployeesoftheFederalReserveSystem.


(Loan Policy, Pt 2 continued from previous page)

Numerousothervariablesbeyondthosepreviouslydiscussedaffectpricingdecisions,includingloantype,paymentstructure,andborrowinganddepositrelationships.Thisarticledoesnotdiscussdifferentpricingstrategiesbutstressesthatmanagementmustensurethatanappropriatepricingstructureisestablishedandimplementedforeachtypeofloanproductoffered.Managementshouldcontinuouslyevaluateandadjustratesinresponsetochangesincosts,competitivefactors,orrisksofaparticularproducttype.8

Policy ExceptionsExceptionstopoliciesandproceduresshouldreceivetheappropriatelevelofapprovalandshouldbedocumentedinwriting.9Evenfundamentallysoundcreditsmaycontainpolicyexceptions;suchcreditsmaynotalwaysconformtoallaspectsoftheloanpolicy,buttheremaybemitigatingcircumstancesthatwouldjustifytheloan’sapproval.Theloanpolicyshouldestablishprocessesandproceduresforpresentingnonconformingorexceptionloanrequestsreceivedfromcreditworthyborrowers.Aftercarefulanalysis,theexceptionsthatwouldgivethelendercomforttoapprovetherequestmaybeapprovedoralternativestructuresmaybepresented.

Toensurecompliancewithregulatoryguidance,10thepolicyneedstoestablishreviewandapprovalproceduresforexceptionloans,includingloanswithloan-to-valuepercentagesinexcessofsupervisorylimits.Policyexceptionsandanymitigatingcircumstancesshouldbewelldocumentedandpresentedtothedesignatedcommitteeforapproval.Allapprovedexceptionsshouldbeappropriatelytrackedandmonitoredonanindividualandcollectivebasis.

Frequentpolicyexceptionsmayindicatealooseningofcreditunderwritingcriteriaand/orapolicythatistoorestrictive.Theunderlyingreasonsbehindfrequentlygrantedexceptionsshouldbeassessedandappropriateactionsshouldbetakentoensurethepolicyisappropriatelyconveyingthedesiredriskprofile.

Loan CommitmentsLoanapprovalsshouldbemadeinaccordancewithestablishedunderwritingguidelinesandshouldbeconveyedtotheborrowerinaformalcommitmentletter.Whileacommitmentletterisnotapromissorynote,itisthedocumentthatcontainsthetermsandconditionsunderwhichabankwillagreetoextendcredit.Thecommitmentlettershouldbebasedontheapprovedtermsoftheloanandshouldbesignedbybothparties.Italsoshouldinclude,ataminimum:

• Borrower(s)• Guarantor(s)• Amountofcreditfacility• Interestrateandmethodologyusedtocalculatetheinterest

rate• Termortenor• Securityorcollateral• Distributionofproceeds• Borrowerwarranties Financialstatements Appraisals Inspections• Covenants• Expirationorterminationofcommitment• Acceptanceandclosing

Loan Approval and ClosingOncethecommitmentletterisreturnedwiththeborrower’ssignatureandallthenecessarynegotiationshavebeencompleted,

formalloandocumentscanbegenerated.Borrowersshouldsignanewcommitmentletterifanychangesthatdifferfromtheoriginalapprovalarenegotiated.

Theapprovalmayalsorequiretheborrowerandguarantorstosubmit(atleastannually)financialinformationduringthetermoftheloan.Thiswillassistintheongoingmonitoringandreviewoftheborrower’sfinancialconditionandindeterminingthecontinuedappropriatenessofthecreditandwhethertograntrenewalsorextensions.

Oncesigned,aloanapprovalorcommitmentlettercanberoutedtoeitherthebank’sinternalloandocumentationteamortoanoutsideattorneyforthepreparationoftheformalloandocuments.Aftertheloandocumentsarepreparedandtheborrower(ortheborrower’sattorney)hasreviewedthem,thebankandtheborrowerwillmeetforaformalloanclosingduringwhichalldocumentsaresignedandproceedsareadvanced.Institutionsshouldalsohavepoliciesthatgoverntheproperproceduresforthedisbursementofloanproceeds.

Maintaining Appropriate Credit Files and DocumentationThecreditfileistherepositoryforallinformation(financialandcollateral)pertinenttothecreditextensionfortheentireperiodthatthecreditextensionremainsoutstanding.

Withinthecreditfile,lendersshouldappropriatelydocumenttheentirecreditrelationshipandprovideinternalandexternalreviewerswithallinformationnecessarytoanalyzethecreditduringitslife.Thepolicyshouldidentifywhoisresponsibleforcollectingandmaintainingalltherequiredinformationduringthelifeoftheloanandspecifywhoisresponsibleforreviewingtheadequacyoftheloandocumentation.Thepolicyshouldalsocontainproceduresforidentifying,citing,andcorrectingdocumentationexceptionsandthepartiesresponsibleforcarryingoutthesetasks.

Thecreditfileshouldadequatelydocumentandconfirmeveryaspectoftheestablishedunderwritingcriteria.Forexample,creditfilesshouldincludeallfinancialstatements,creditreports,collateralinspectiondocuments,pastloanapplications,memoranda,correspondence,andappraisals.Documentationrequirementswillvaryaccordingtothetypeofloan,borrower,andcollateral.11

ConclusionCommunitybanksareexpectedtohaveandmaintainpoliciesandproceduresthatprovideaneffectiveframeworktocontrolcreditriskthroughsoundunderwritingcriteria,appropriatecreditfilemanagement,andsounddocumentation.Whilenumerousloanpolicytopicsandexampleshavebeenpresentedinthisarticleandthepreviousone,theimportanceoftailoringthepolicytobanks’activitiescannotbeoverstressed.Theunderwritingcriteriaalongwiththecreditfilemaintenanceanddocumentationrecommendationspresentedwithinthisarticlearebynomeansall-inclusive.

Notes*Thisarticleisthesecondofathree-partseries.Thefirstarticle,whichistitled“DevelopmentandMaintenanceofanEffectiveLoanPolicy:Part1,”appearedintheThird/FourthQuarter2014issueofCommunityBankingConnectionsandisavailableatwww.cbcfrs.org/articles/2014/q3-q4/development-and-maintenance-of-an-effective-loan-policy.Thearticlediscussedwhyitisimportantforaloanpolicytodefinewhatispermissibleandwhohasresponsibilityforensuringlendingactivitiesareconductedinasafeandsoundmanner.Thearticlecoveredloanpolicydevelopment,policyobjectives,permissibleandimpermissibleloans,participations,portfoliomixandlimits,lendingdepartmentstructure,andlendingauthority.Italsodiscussedhoweachofthesepolicyelementscanvarydependingontheactivitiesandmissionofabankingorganization.

Thefinalarticleintheseries,whichwillappearinafutureissue,willdiscussseveral



(Loan Policy, Pt 2 continued from previous page) aspectsofongoingcreditmonitoringandcreditfilemaintenancethatneedtobeincludedintheloanpolicy.Itwillalsoaddressmanagementinformationsystemsandreporting,loanreview,loanworkout,andtheallowanceforloanandleaselosses.

1SeeBoardofGovernorsoftheFederalReserveSystem,CommercialBankExaminationManual(CBEM),section2040.1,“LoanPortfolioManagement,”availableatwww.federalreserve.gov/boarddocs/supmanual/cbem/2000.pdf.

2TheFederalReserveBoard’srealestateappraisalstandardsarefoundinRegulationH,subpartE,12CFR208.50–51forstatememberbanks.Forbankholdingcompanies,theappraisalstandardscanbefoundinRegulationY,subpartG,12CFR225.61–67.

3TheInteragencyAppraisalandEvaluationGuidelineswerepublishedonDecember2,2010,andexplainrealestatetransactionsthatrequireappraisalsand/orevaluations.Theguidanceprovidesfederallyregulatedinstitutions’andexaminers’clarificationontheagencies’expectationsforprudentappraisalandevaluationpolicies,procedures,andpractices.Appraisal—Asdefinedintheagencies’appraisalregulations,awrittenstatementindependentlyandimpartiallypreparedbyaqualifiedappraiser(statelicensedorcertified)settingforthanopinionastothemarketvalueofanadequatelydescribedpropertyasofaspecificdate(s),supportedbythepresentationandanalysisofrelevantmarketinformation.Evaluation—Avaluationpermittedbytheagencies’appraisalregulationsfortransactionsthatqualifyfortheappraisalthresholdexemption,businessloanexemption,orsubsequenttransactionexemption.

4SeeSupervisionandRegulationletter10-16,“InteragencyAppraisalandEvaluationGuidelines,”availableatwww.federalreserve.gov/boarddocs/srletters/2010/sr1016.htm.

5SeeCBEM,section2160,“Asset-BasedLending.”

6SeeCBEM,section2080,“CommercialandIndustrialLoans.”

7SeeMatthewD.Diette,“HowDoLendersSetInterestRatesonLoans?”FederalReserveBankofMinneapolis,November1,2000,availableatwww.minneapolisfed.org/publications_papers/pub_display.cfm?id=3030&.

8SeeCBEM,section2040,“LoanPortfolioManagement.”

9SeeCBEM,section2040,“LoanPortfolioManagement.”

10SeeRegulationH,AppendixCtoPart208—InteragencyGuidelinesforRealEstateLendingPolicies,availableatwww.gpo.gov/fdsys/granule/CFR-2012-title12-vol2/CFR-2012-title12-vol2-part208-appC/content-detail.html.

11SeeCBEM,section2040.1,“LoanPortfolioManagement.”

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Telling Our StoryWritten By: Jack Hartings, Chairman of ICBA

Takingadvocacytothenextlevel—that’swhatcommunitybankersdidlastmonthatICBA’sWashingtonPolicySummit,andtheyhavetheresultstoproveit.Withnearly1,000communitybankersandindustryadvocatesswarmingthenation’scapitaltoadvocatepositivereformforourindustry,communitybankerssteppedupandparticipatedinmorethan300meetingswithpolicymakers.

Nevershyaboutwhoyouareandwhatyoustandfor,communitybankersachievedtangibleresultsatthisyear’ssummitthatarehelpingtodrivethemeaningfulchangeweneed.Becauseofyou,theCLEARReliefActintheHouse(H.R.1233)added22bipartisancosponsorsinjustoneweekafterthemeetingstobringitstotalto40.Notonlythat,theCLEARReliefActintheSenate(S.812)hastackedoneightfor29totalbipartisancosponsors.

That’sresults,communitybankers!Youshouldbecommendedforyourefforts.Youstoodupandspokeout—manyofyouwithreal-lifestoriesandtestimonialsabouthowregulatoryburdenisimpactingyourcustomersandcommunity.That’swhatourrepresentativesontheHillandregulatorsneedtohear.TheyhearditloudandclearduringICBA’sWashingtonPolicySummit,thankstoallofthevocalcommunitybankerswhoattended.Butwecan’tstophere.Therearemorestoriesthatneedtobetoldtoillustratethenegativeimpactthatexcessiveregulatoryburdenishavingonrealpeopleandrealcommunities—bothofwhichdependontheircommunitybanksasalocalsourceoffunding.

Storytimeisn’tover.InthepursuittoenactmeaningfulregulatoryreliefforcommunitybanksthisCongress,theHouseFinancialServices

Committeeleadershipisseekingspecificexamplesofhowcurrentregulatoryrequirementshavehinderedlendingandultimatelyharmedconsumers.Thecommitteeisnotlookingforexamplesofhowregulationshaveharmedbankprofitability,buthowtheyadverselyaffectyourcustomers.

ICBAistakingtheleadtogetyourspecificcommunitybankerstoriestoCongress.Tothatend,pleaseshareyourspecificexampleswithICBA(seeinsetbelow).Thecommitteeislookingforexamplesoftheloansthatyourbankwouldtraditionallymakebutnowcannotduetothecurrentregulatoryenvironment.

Nodetailshouldbesparedinsharingstoriesofcustomerimpact.Areastocovercouldinclude,butarenotlimitedto,consumer,residentialmortgageandsmall-businesslending.Examplesshouldbeasspecificaspossible.AndknowthatthestaffatICBAwillredactsensitivecustomerinformationbeforeyourcommentsarepassedontothecommittee.

Sogoaheadandtellyourstory,yourcustomers’stories,andyourcommunity’sstory.ThebottomlineisthateveryoneonMainStreetisimpactedbycripplingregulatoryburden—notjustthecommunitybank.ThesoonerCongressknowsjusthowmuchitsactionsaffecteverydayAmericans,thebetter.Andwhobettertoillustratethatthanthepeoplewhoknowtheircustomersandcommunitybest—ournation’scommunitybankers?

JackHastingsisChairmanofICBA,andPresidentandCEOofThePeople’sBankinColdwater,Ohio.

“The bottom line is that everyoneon Main Street is impacted by crippling regulatory burden.”

TOPFrom the

ICBA is making the case to Congress for community bank regulatory relief.

Please share how regulations have negatively impacted your bank’s

consumers by visiting:www.icba.org/beheard


Everybaseballplayerdreamsaboutsmashinganextra-inningwalk-offhomeruntowintheWorldSeries.Overandoveragaintheycanimaginethatmoment—thatspectacularswingundertheklieglightsbeforearoaringstadiumcrowd.Whattheirimaginationstooeasilyomit,however,arethemonthsorevenyearsofarduous,unglamorousworkthatisnecessarytoputanyoneoranyteaminapositiontoclinchaseason-cappingchampionshipinthefirstplace.

Suddenanddramaticvictories,inbaseballasinlife,arerare.Successinanyendeavoralmostalwaysresultsfromasteadyaccumulationofhard-wonsinglesearnedoveranentireseasonthat,ultimately,leadtothelastat-batinafinalchampionshipgame.Thisspring,afteryearsofsteadybase-hitadvocacysuccessesbyICBA,thefederalPatentTrialandAppealBoardinvalidatedtwodubiousandabusivecheck-imagingpatentsthat,whenasserted,haveseriouslyharassedfartoomanyinnocentcommunitybanksforfartoolong.Clearlyajustandoverduevictory,thePTABdeclareduncalledfortheDataTreasuryCorp.’sflimsypatentsthatresultedin$350millioninsettlementclaimsfromthefinancialservicessector,includingcommunitybanks.

Butthisvictory,whichgoesalongwaytopreventcostlyandwillfullybaselesspatent-infringementclaimsinthefuture,wasneithersuddennoraccidental.ItresultedfromyearsofICBAadvocacy,includingourcoordinatedworkwithallies.ThePTAB,infact,wasitselfestablishedthreeyearsagobyCongressthroughlegislationICBAvigorouslyadvocatedtoshutdownso-calledpatenttrollssuchasDataTreasury.

Sincethen,justasimportantly,numerousstatelegislatureshavealsoenactedmuchstricterlegalprotectionsagainstpatenttrolling.LastyeartheU.S.SupremeCourtalsoissuedtwodecisivedefeatsforpatent-trollclaims.Allofthishascreatedabadbusinessclimateforpatenttrolls,causinganotoriousone,AutomatedTransactionsLLC,toabandonlitigationagainstanumberofcommunitybanks.

Evenwiththesetremendousadministrative,legislativeandjudicialvictories,theendgameagainstpatenttrollingisn’tover.Tofurtherprotectcommunitybanks,ICBAiscontinuingtocallonCongresstoadvancelegislationthatwould:• makepermanentPTABcoveredbusiness

methodreviewofthese“businessmethod”patent-infringementclaims;

• requirethoseassertingthesekindsofpatentinfringementstoprovideclearanddetailedinformationup-front,and;

• ensurecommunitybanksreceivesufficientlegalprotectionagainstclaimsfromthird-partyproducts,servicesandsystems.

ThesemeasuresareimportantbecauseDataTreasury’sclaimshavebeenjustthetipofanicebergofget-rich-quicklegalschemespatenttrollshaveattempted.OneBostonUniversitystudyestimatedthatcorporationspaidatleast$29billioninvariouspatent-trollcostsin2011alone.

Asalifelong,diehardSt.LouisCardinalsfan,Iadmiretheteam’sstoriedabilitytoedgeoutcrucialwinsfromsheerhustleanddetermination.TheteamhastaughtmethatpostingtheW—nothowyouarriveatawinningscore—iswhatcounts.Sorestassured,ICBAwon’tstopworkinguntilweachievewhateverisnecessarytoprotectcommunitybanksandtheircustomers.We’lldowhateverittakes—homeruns,basehitsorevenbuntsifnecessary—forhoweverlongittakes.

Praise for Small BallWrittenBy:CamdenFine,PresidentandCEOofICBA

“Even with tremendous administrative, legislative and judicial victories, the endgame

against patent trolling isn’t over.”

Following Mr. FineMore than 1,000 people are following Camden Fine’s tweets @Cam_Fine— are you? Visit www.twitter.com/cam_fine.

FINEPOINTS


May Survey Results at a Glance:• TheRuralMainstreetIndeximproved,butremainedbelow

growthneutralforMaysignalingslightpullbacksineconomicactivity.

• Farmlandpricesdeclinedforthe18thstraightmonth,butwithwidevariationsacrosstheregion.

• Almostoneinfivebankersreportednegativefalloutfromtheavianfluoutbreak.

• Agricultureequipment-salesindexdroppedtoarecordlowlevel.

• Bankersidentifiedrisingregulatorycostsasthetopeconomicchallengetobankprofitabilityforthenextfiveyears.

OMAHA,Neb.–TheCreightonUniversityRuralMainstreetIndexforMayroseslightlyfromApril’sweakreading,accordingtothemonthlysurveyofbankCEOsinruralareasina10-stateregiondependentonagricultureand/orenergy.

Overall:TheRuralMainstreetIndex(RMI),whichrangesbetween0and100,climbedto49.0from46.0inApril.

“ThestrongerU.S.dollarcontinuestobeadragontheRuralMainstreeteconomy.ThestrongU.S.dollarhasmadeU.S.goods,especiallyagricultureandenergyproducts,lesscompetitivelypricedabroad.ThishasdampenedfarmincomeandtheRuralMainstreeteconomy,”saidErnieGoss,JackA.MacAllisterChairinRegionalEconomicsatCreightonUniversity’sHeiderCollegeofBusiness.

Farming and Ranching:Thefarmlandandranchland-priceindexforMayclimbedto39.7fromApril’s33.4.“However,thisisthe18thstraightmonththeindexhasmovedbelowgrowthneutral.Butaccordingtobankercomments,thereisgreatdealofvariationacrosstheregionwithmanyareascontinuingtoexperiencestrongdemandforfarmlandwithlittledeteriorationinfarmlandprices,”saidGoss.

JeffBonnett,presidentofHavanaNationalBankinHavana,Ill.,said,“Althoughitisverytruethatcommoditypricesaretoolowtosupportcurrentyearfarmoperations,theideaofplummetingfarmlandvalueshasnomeritinourarea.Wehavearecentexampleofa240acreirrigatedpieceinthesouthernpartofourcountythatsoldfor$9,450anacre.”

TheMayfarmequipment-salesindexfelltoarecordlowof12.5from15.6inApril.Theindexhasbeenbelowgrowthneutralfor22straightmonths.“Withfarmincomeexpectedtodeclinefora

secondstraightyear,farmersremainverycautiousregardingthepurchaseofagriculturalequipment,”saidGoss.

Banking:TheMayloan-volumeindexsoaredto79.6from69.0inApril.Thechecking-depositindexsankto43.8fromApril’s50.1,whiletheindexforcertificatesofdepositandothersavingsinstrumentsincreasedto39.7fromApril’s38.0.

Thismonth,bankCEOswereaskedtoidentifythegreatesteconomicchallengetobankingoperationsoverthenextfiveyears.Approximately,45.8percentofthebankCEOsnamedrisingregulatorycostsasthetopthreattotheirbank’sprofitability.Morethanoneinfive,or20.8percent,indicatedgrowingcompetitionfromFarmCreditandcreditunionsrepresentedthegreatestthreatoverthenextfiveyears.

Approximately10.4percentand8.3percentidentifiedslowgrowthandfarmforeclosures,respectively,asthenumberonechallengetotheirbank’sprofitabilityoverthenextfiveyears.Theremaining14.9percentnamedotherfactorschallengingtheiroperatingincomeoverthenextfiveyears.

Hiring:Despiteweakercroppricesandpullbacksfrombusinesseswithclosetiestoagricultureandenergy,RuralMainstreetbusinessescontinuetoaddworkerstotheirpayrolls.TheMayhiringindexrocketedto61.5fromApril’smuchlower,butsolid54.2.“RuralMainstreetbusinessescontinuetohireadditionalworkers.Whiletherateofnewhiringishealthierinurbanareasofeachstate,RuralMainstreetcommunitiesaregrowingjobsatasolid,butslowerpace,”saidGoss.

Confidence:Theconfidenceindex,whichreflectsexpectationsfortheeconomysixmonthsout,sankto41.5from47.0inApril.“Theimpactoftheavianfluhadaclearandnegativeimpactontheoutlookofbankersintheregion,”saidGoss.

“Weaskedbankersaboutthefalloutfromtheavianfluoutbreak.Almostoneinfiveofthebankers,or18.7percent,reportednegativeimpactsfromtheoutbreak.However,almostone-half,or48.9,expectnegativeimpactsfromthebirdfluifitshouldspreadtotheirarea,”saidGoss.

Home and Retail Sales:TheMayhome-salesindexjumpedto66.0fromApril’s58.2.TheMayretail-salesindexincreasedtoaweak49.0from44.0inApril.“Wehaveyettomeasureanyupturn

(Rural Mainstreet continued on next page)

Main Street Economic Survey

C r e i g h t o nU N I V E R S I T Y

Rural Mainstreet Economy Slows:Almost One in Five Bankers Reported Negative Impacts from Bird Flu

Ernie Goss


(Rural Mainstreet continued from previous page)

inretailsalesstemmingfromthedownturninfuelprices,”saidGoss.Eachmonth,communitybankpresidentsandCEOsinnonurban,agriculturallyandenergy-dependentportionsofa10-stateareaaresurveyedregardingcurrenteconomicconditionsintheircommunitiesandtheirprojectedeconomicoutlookssixmonthsdowntheroad.BankersfromColorado,Illinois,Iowa,Kansas,Minnesota,Missouri,Nebraska,NorthDakota,SouthDakotaandWyomingareincluded.ThesurveyissupportedbyagrantfromSecurityStateBankinAnsley,Neb.

Thissurveyrepresentsanearlysnapshotoftheeconomyofrural,agriculturallyandenergy-dependentportionsofthenation.TheRuralMainstreetIndex(RMI)isauniqueindexcovering10regionalstates,focusingonapproximately200ruralcommunitieswithanaveragepopulationof1,300.Itgivesthemostcurrentreal-timeanalysisoftheruraleconomy.GossandBillMcQuillan,formerchairmanoftheIndependentCommunityBankersof

America,createdthemonthlyeconomicsurveyin2005.

Colorado:Afterrisingabovegrowthneutralfor11straightmonths,Colorado’sRuralMainstreetIndex(RMI)hasdeclinedbelowthe50.0thresholdforthelastfourmonths.TheRMIimprovedto47.7fromApril’s43.0.Thefarmlandandranchland-priceindexadvancedto50.9fromApril’s35.6.Colorado’shiringindexforMayadvancedto62.4,from50.5inApril.DaleLeighty,CEOofFirstNationalBankofLasAnimasreported,“Recentrainshavechangedouroutlookforthebetter.”

Illinois:TheRMIforIllinoisroseto49.2from45.6inApril.TheIllinoisfarmland-priceindexincreasedto42.9fromApril’s39.2.Thestate’snew-hiringindexexpandedto59.2from53.3inApril.

Iowa:TheMayRMIforIowaadvancedto52.1fromApril’s45.4.Iowa’sfarmland-priceindexforMayclimbedto52.3fromApril’s42.1.Iowa’snew-hiringindexforMayjumpedto62.9fromApril’s55.7.

(Rural Mainstreet continued on next page)

Tables 1 and 2 summarize survey findingsNext month’s survey results will be released on the third Thursday of the month, June 18.

Table 1: Rural Mainstreet Economy One Year Ago and Last Two Months: (index > 50 indicates expansion)

May2014

April2015

May2015

Area economic index 55.6 46.0 49.0

Loan volume 75.4 69.0 79.6Checking deposits 54.8 50.1 43.8

Certificates of deposit and savings instruments 40.3 38.0 39.7Farmland prices 46.7 39.4 39.4Farm equipment sales 33.6 15.6 12.5Home sales 63.9 58.2 66.0Hiring 64.0 54.2 61.5Retail business 51.7 44.0 49.0Confidence index (area economy six months out) 51.6 47.0 41.5

Table 2: The Rural Mainstreet Economy, May 2015Percentage of bankers reporting

SignificantCosts

Cost but not significant Little or no cost A positive from higher

livestock pricesRegardingthecurrentavianorbirdfluoutbreak,whathasbeentheimpactthusfartoyourareaeconomy? 4.1% 14.6% 79.2% 2.1%

SignificantCosts

Cost but not significant Little or no cost A positive from higher

livestock pricesIfthebirdfluspreadstoyourarea,orinyourarea,whatimpactdoyouexpectittohaveontheareaeconomy?

12.7% 36.2% 46.8% 4.3%

Rising Regulatory costs

Increasing competition from Credit Unions &

Farm Credit

Slow or negative economic growth

Farm foreclosures Other

Forafive-yeartimehorizon,whichofthefollowingrepresentsthebiggesteconomicchallengetoyourbankingoperationsand/orprofitability?

45.6% 20.8% 10.4% 8.3% 14.9%

Follow Ernie Goss on Twitter: www.twitter.com/erniegossFor historical data and forecasts, visit: www2.creighton.edu/business/economicoutlook/


(Rural Mainstreet continued from previous page)

Kansas:TheKansasRMIforMaydippedto47.5fromApril’s49.2.Thestate’sfarmland-priceindexforMayfellto33.9fromApril’s57.1.Thenew-hiringindexforKansasdeclinedto55.6from67.7inApril.AccordingtoMichaelJohnson,CEOoftheSwedishAmericanBankinCourtland,“20tornadoesinonenight.Devastatingbutnoliveslost.(Itis)amazingtoseehowourcommunitiespulltogethertohelptheirneighborswhenallislost.”

Minnesota:TheMayRMIforMinnesotaroseto50.1fromApril’s45.2.Minnesota’sfarmland-priceindexincreasedto42.0from32.4inApril.Thenew-hiringindexforthestateclimbedto58.8fromApril’s47.9.

Missouri:TheMayRMIforMissourigrewto48.0from41.8inApril.Thefarmland-priceindexforMayroseto36.2fromApril’s16.3.Missouri’snew-hiringindexsoaredto56.5fromApril’s35.1.

Nebraska:TheNebraskaRMIforMayincreasedto47.8from45.7inApril.Thestate’sfarmland-priceindexslippedto39.0from39.4inApril.Nebraska’snew-hiringindexgrewto57.6fromApril’s53.1.LarryRogers,executivevice-presidentofFirstBankofUtica,“Becauseofthebenefitsofraisingseedcorn,wearesomewhatinsulatedfromtheeffectsoffallinggrainprices.”

North Dakota:TheNorthDakotaRMIforMayclimbedto53.9fromApril’s47.8.Thefarmland-priceindexjumpedto74.9from39.4inApril.NorthDakota’snew-hiringindexincreasedto72.0fromApril’s63.0.

South Dakota:TheMayRMIforSouthDakotaexpandedto50.5fromApril’s44.1.Thefarmland-priceindexforMayexpandedto44.5fromApril’s32.1.SouthDakota’snew-hiringindexroseto59.8from47.6inApril.

Wyoming:TheMayRMIforWyomingadvancedtoaweak48.2fromlastmonth’s44.3.TheMayfarmlandandranchland-priceindexexpandedto42.3fromApril’s35.8.Wyoming’snew-hiringindexincreasedto59.2fromApril’s49.2.

CBI is searching for a new Membership Development Director, who will be responsible for membership retention and growth as well as services penetration and revenue growth. The incumbent will directly market, promote and sell membership benefits and endorsed services to member and non-member community banks throughout the state of Iowa.

They will also be responsible for attending CBI-sponsored events and conferences, reporting bank trends and needs to the Board of Directors monthly, and coordinating committee and peer group meetings.

The Membership Development Director will be the central contact for CBI membership. Successful candidates must have experience in a relationship-building sales environment, and knowledge of the banking industry is preferred. The position also involves extensive state-wide travel, with the main office in West Des Moines.

To apply, contact Don Hole at [email protected],call 515-453-1495, or see our ad in CareerBuilder.com.

CBI Is Looking for aMembership Development Director


OnMay18,theNACHAmembershipapprovedanewACHRuleonSameDayACH.ThisRulewillbeimplementedinthreephaseswithphase1goinginto

effectSeptember2016,butthereisplentyabankcandonowtoprepareforthisepicchange.

Hereismylistof“Top5ThingsYourBankShouldBeginDoingNow”:1. BecomefamiliarwiththeSameDayACHRule.Thisisa

phasedimplementationapproach.SameDayACHcreditfundsavailabilityrulesarenotdefineduntilPhase3.Therearealotofmythsand‘hear-say’abouttheSameDayACHRule.Makesureyouknowwhatruleactuallysays.ThenewRuleslanguagecanbefoundatwww.nacha.org/rules/same-day-ach-moving-payments-faster.

2. AnticipatethestaffingimpactofSameDayACH.Workwithyourprocessorstoseewhattheyareplanningtoautomateandwhatwillbemanualforyourbank.Sincethisiscompletelynew,youmustalsoexpecttheunexpected.

3. UnderstandthatthisRuleismandatoryforRDFIs.RDFIswillnotbeabletoopt-outofNACHA’sSameDayACHRules.RDFIsmustplantoacceptsamedaycreditsanddebits,and

mustfollowtheACHRulesastheypertaintofundsavailability,postingandexceptionprocessing.

4. BegindiscussionsonwhetheryouwillallowOriginatorstosendsamedayACH.Thisisintendedtobeapremiumservicetoyouroriginators.Thisserviceisperfectforcontingencyonmissedpayrollfiles,butarethereotherusecasesforSameDayACHthatmaygeneraterevenueforyourbank?Doyouhavebusinessclientswhowouldbenefitfromthisservice?JustaswithanyACHoriginationservices,thereisnomandatetoofferSameDayACHoriginationservices.

5. Lookforresources,toolsandeducationfromyourRegionalPaymentAssociation.YourRegionalPaymentsAssociation,throughtheirrelationshipwithNACHA,hasbeenactivelytrackingtheSameDayACHRuleproposal.Iftheyarenotdoingsoalready,theyareplanningtooffertraining,newsletterarticles,toolsandresourcestohelpyouimplementSameDayACH.

Jen Kirk is Director, Industry Relations, for EPCOR – a regional payments trade association devoted to providing timely and relevant payments education and support to over 2,300 financial institutions throughout the Midwest.

Written By: Jen Kirk, AAP, Director, Industry Relations - EPCOR

Top 5 Things to Do in 2015 to Prepare for Same Day ACH


JMFA,theleadingconsultantforbanksandcreditunionsnationwide,receivedtophonorsatthe29thAnnualAmericanMarketingAssociation(AMA)Houston

CrystalAwardsGala.JMFA’sNewOverdraftPrivilegeProgrammarketingendeavorswererecognizedasBestintheBusiness-to-BusinessMarketingCampaignandTwo-DimensionalPrintedDirectMailCampaigncategories.

“WearecertainlyhonoredtoreceivethisrecognitionfromtheAMAfortheeffortsthatwentintoour2014marketinginitiatives,aswellastheresults,”saidJohnM.Floyd,chairmanandCEO.

Inadditiontosurpassinginitialmarketingobjectives,thecampaignspresentedanimportantmessageregardingtheneedforfinancialinstitutionstoprovidefulldisclosuretoaccountholdersabouthowtheirtransactionswillbehandled.“Asalong-timeadvocateoftransparentfinancialservices,wearecommittedtobuildingrelationshipsbyhelpingourclientsimprovetheirprofitabilitywhiletheyprovideproductsandservicesthatarebeneficialtotheiraccountholders,”Floydsaid.

TheCrystalAwardswinnersareselectedbasedontheeffectivenessoftheirmarketingandcommunicationsuccess.Thisyear’sjudgingincludedmorethan360entriesin80categories.

FormoreinformationonCBIEndorsedMemberJMFA,visittheirwebsiteatwww.JMFA.comorcall(800)809-2307.

UBB Reports Strong Earnings for 2014

UnitedBankers’Bancorporation,Inc.,(UBBI)reportedstrongconsolidatedearningsfor2014andannouncedtheelectionofitsBoardmembersat

itsannualshareholdersmeeting.UBBIistheholdingcompanyforUnitedBankers’Bank(UBB).TheannualmeetingwasheldrecentlyatTheWestinMinneapolisinEdina,MN.

WilliamC.Rosacker,PresidentofUnitedBankers’Bancorporation,Inc.,reportedthatUBBIhadaconsolidatednetincomeof$5,132,455in2014andtotalassetsof$788,125,954.“I’mpleasedtoreportthatourperformancein2014wasstrongandcontinuestodemonstrateourstrengthandstabilityforthefuture,”commentedRosacker.

“Theseearningsarereflectiveofthesuccessourcustomerbanksarehavingasthemainstreeteconomycontinuestoimprove,”saidRosacker.“WeareparticularlypleasedwiththegrowthinourloanportfolioasmemberbanksareturningtoUBBforhelpinfundinggrowthtotheircommunities.Aswelooktowardsthefuture,wecontinuetoresearchanddevelopnewandinnovativeproductsandservicesthatwillenablecommunitybanksinbetterservingtheircustomers.”

DickBehl,PresidentofFarmers&MerchantsStateBankofScotland,SouthDakota,willserveaconsecutiveoneyeartermastheUBBIBoardChairman.UBBalsoannouncedthere-electionofGregoryTraxlerofFirstNationalBankLeCenter,LeCenter,Minn.,asUBBIBoardViceChairman,andGregRaymoofFirstStateBankSouthwest,Worthington,Minn.,asanewBoardmember.RetiringfromtheUBBIboardofdirectorswasWayneFinnernofMadelia,Minn.

FormoreinformationonCBIAssociateMemberUBB,visitubb.com.

NewsfromCBIAffiliate&AssociateMembers

JMFA Wins AMA Houston Crystal Awards

Whitfield&Eddy,P.L.C.attorneysTomBurkeandMarkRicewererecognizedbyChambersUSAintheareaofCorporate/MergersandAcquisition,Bankingand

Finance–Iowa.KaraSinnardwasalsorecognizedintheareaofRealEstate–Iowa.Burke,SinnardandRicearemembersofthefirm’sBusinessandBankingpracticegroupandworkwithbanksandfinancialinstitutions.

ChambersIowaisresearchedbyonededicatedresearcherwhospeakstoleadingfirms,clients,andgovernmentofficialstorecommendleadingfirmsandattorneys.ChambersandPartners,basedinLondon,England,publishesguidesin185jurisdictionsthroughouttheworldandhavebeenrankingthebestlawyersandlawfirmssince1990.

Visitwww.whitfieldlaw.comformoreinformationaboutCBIAffiliateMemberWhitfield&Eddy.

Whitfield & Eddy Recognized by Chambers USA

Accepting the AMA Houston Crystal Award for JMFA are: (front row, l to r): John M. Floyd,

chairman/CEO; Cher Floyd, COO; Stefani Soza, marketing director. Back row, Kathy Morales, chief administrator; John Cohron,

EVP, Operations and CIO; and Brooke Stuewe, marketing & strategic sales manager.


(Fuel in the Tank continued from page 9)

Youth is servedPrepayment“speeds”astheyrelatetotheagesofMBSpoolshaveinterestinglychangeddramaticallyinthelastsevenyears.UntiltheGreatRecession,itwastypicalforagivenMBSsecuritytoprepayatgraduallyfasterspeedsuntil,say,fiveyearshadpassed.Bythatpoint,orsothelogicwent,aborrowerthatwasinclinedtorefinanceormovewouldhavealreadydoneso,asequitybuiltupandthebusinesscycleprobablyprovidedaneconomicopportunitytorecastthedebt.Thesubsequentslowdowniscalled“burnout.”

Since2009,somethingstrangehashappened.Inrecentyears,thistrendhasbecomesomewhatdistorted.Thepoolswiththenewestloanshavesometimesprepaidfasterthanseasonedpoolsforborrowerswithmarginalrateincentive.Thisphenomenonistheresultofstricterunderwriting.Newloanshavelowerloan-to-valueratios,lowerdebt-to-incomeratiosandmorecompleteincomeverification.Asaresult,thehomeownerscanrefialmostimmediatelyafterpurchase,givenasufficientdropinmortgagerates.Thisshouldmeanthatthe“burnout”stage(inwhichspeedspermanentlydecline)arrivesearlieranddurationsremainquiteelevatedforlonger.Thecorollarytothisisthatthecashflowonthefrontendisgreater,whichmaybewhataninvestordesires.

Floater fablesAnothersubsetofthemortgagesecuritiesmarketistheadjustable-

ratevariety,orARMs.VirtuallyallARMsthesedayshaveafixed-rateperiodforanywherefromthreeto10yearsbeforetheybegintofloat.Thisperiodhasbeendesignatedtheweighted-averageroll,or“WAR”bybondanalysts,andisagoodindicatorastowhentheloansinthatpoolmayprepay.

ARMborrowershaveaperiodinmindthattheyintendtostayinahouse,andwillfixtheperiodtocorrespondtothistimeframe.Itistypicalforafloating-ratepooltoseehugeprepayincreasesastheWARapproaches.So,ARMinvestorscansimplyhearwhattheborrowersaresayingbypayingattentiontothatvariable.

Fixed-rateMBSsandARMscanstillcommandsomesignificantpremiumprices.Asofthiswriting,15-yearFannieMae2.5percentpoolsarepricedatmorethanfourpointsofpremium.Sincewehaveseenamplythatfastprepaymentswillcompromiseyield(eveniftheyprovideadditionalliquidity),itbehoovestheinvestortoexaminethenuancesembedded.Theage,cohortandWARofapoolaregreatwaystoderivevalueintheMBSmarket.

Jim Reber is president and CEO of ICBA Securities and can be reached at 800-422-6442 or [email protected].

Just16yearsagocommunitybankswereleaningintotheideaofInternetbankingandbillpayment.ManybristledatthethoughtofanyoneintheirrightmindusingtheInternettotransactbankingbusiness,muchlesspaytheirbills.Tenyearsbeforethatwastheargumentaboutwhetherpeoplewoulduseanautomatedtellermachine.Thefactisthatyourcustomers’needsareprettyconsistent,buttheirmeansofaccesshavedefinitelyevolved.

Withaquicklyevolvingcultureandsocietalrelianceonmobiletechnology,communitybanksarequicklyadaptingtonewcustomerdemands.Howeverwhatmaybemissinginthequestforexpandingaccessisrememberingtoaskfortheirbusiness:alltheirbusiness.

Alltoofrequentlyopportunityslipsoutthebackdoorwhentechnologyisreliedupontoreplaceanimportantstepinaprocess.AsconsumersandsmallbusinessesusetheInternettoseekoutinformation,includingthe“bestdeal,”manyunknowinglycomplicatetheirlivesinanattempttosavemoneyortime.Whiletherearedefinitelypriceshoppers,therearejustasmanyconvenienceandvalueshoppers;thosepeoplewhoarewillingtopayalittlemoreforbetterservice.

Whatareyoudoingtocaptureallthebusinessyourcustomershavetooffer?Whatshouldyoubedoingrightnow?

Askyourselfthesethreequestions:

• Ifyoutookagood,hardlookatyourexistingcustomerbase,howmanyadditionalrelationshipopportunitiesexistforyou?Mortgages,creditcards,autoloans,investments,collegefinancing—thelistgoesonandon.

• AsasegmentofyourcustomerbasegrowstorelyonbanktransactionsviatheInternetandmobiletechnology,howareyoucapturingmoreoftheirbusinessremotely?

• Doesyourcommunitybankhaveamarketingculture,whereyourstaffmembersinstinctivelyaskcustomersformoreoftheirbusinessthanthesingleopportunitypresented?

Whensomeonecomesintoyourcommunitybankseekingamortgageloan,whynotpre-approvehimorherforacreditcardandanautoloan?Whenreviewingacreditbureauuponopeninganewaccount,whynotaskwhattherateisonthecustomer’sexistingmortgageorcreditcard,orperhapsaskhowmanymonthsareleftonthatRVloansoyoucanbringthebusinesstoyourbank?

Certainly,forconsumersthereisvalueintheconvenienceofhavingonewebsitetovisit,oneplacetocall,onerelationshiptomanage.But,yes,evenintoday’sfast-paced,mobile-empoweredworld,peoplearestillactuallywillingtopayamarketrateforthevalueofagreatrelationship.

Understandingbudgetsaretightandcompliancerequirementsareeventighter,marketingintraditionalways—likestatementstuffersandadvertisingcampaigns—mightbeoutsidetherealmofpossibilities.However,aconversationwithacurrentcustomerthatendsupaskingformorebusinessisstillfree.

Sowhynotstartone?

Chris Lorence ([email protected]) is ICBA’s executive vice president and chief marketing officer.

ConnectionQuandaryAfter offering all the necessarydigital deliveries, what should I do now?

CommonCENTS is a weekly e-newsletter that keeps you informed of current organization activities and community banking news, delivered to your email inbox every Friday.

Is everyone at your bank receiving CommonCENTS? If not, email CBI at [email protected] with a list of names and email addresses that you would like added to the recipient list.

If you would like to submit news and events from your bank for inclusion in the weekly e-newsletter, please contact Krissy Lee at [email protected].

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Written By: Chris Lorence, EVP & Chief Marketing Officer - ICBA

See Chris at the Bankers’ Roundtable Breakfast and the Social Media Discussion Panel breakout

session at CBI’s 44th Annual Convention,July 15-17, 2015. Visit cbiaonline.org for details.

register today! - cbiaonline.org · 2018-10-08 · st. charles, missouri omaha, nebraska sociala...

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