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I N D E P E N D E N T B A N K E R
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B ICBA IndependentBanker April 2011
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contents
COVER STORY
Ready
to Lead
COLUMNS
30
Presenting
ICBA’s 2011–12
officers and
executive
committee
members
BY SAL MARRANCA
Fine Points
11
Promoting ICBA’s plan to keep
community banks in home lending
BY CAMDEN R. FINE
Washington Watch
FEATURES
Allies in Auditing
From the Top 9
Help serve our industry with ICBA
12
Remaking housing finance: the
administration’s take and ours
45
BY ALAN KELLER
Case studies on outsourcing compliance auditing
Payments Exchange
BY APRYL MOTLEY
Building Brands and
Community Ties
52
Making friends this April through
Community Banking Month
BY CARY WHALEY
Portfolio Management
59
BY JIM REBER
In Indiana, First Bank of Berne makes
community donations a formal cause.
Plus other ICBA National Community
Bank Service Award recipients
Staff training through ICBA’s
Online Education Center
BY WENDY J. MEYEROFF
BY JAMES RAPINO
Learning Curve
DEPARTMENTS
Indie Banker
72
Considering high-quality
DCPC investments
BY CAROL PATTON
A Policy of Giving Gives Back
70
Bank-issued prepaid cards:
checking account lite?
24
In Wyoming and Virginia, two banks
excel at financial literacy
Vantage Point
74
76
Growing fee income in a postregulatory-reform world
BY ALAN SMITH
BY CAROL PATTON
Lender Life
2011
66
Preparing for the busy
homebuying and selling season
ICBA NATIONAL
COMMUNITY BANK
SERVICE
AWARDS
Newslines
A POLICY GIVING
of
IN INDIANA, FIRST BANK OF BERNE GETS
FORMAL ABOUT REGULARLY DONATING
PROFITS TO COMMUNITY CAUSES
59
60 ICBA IndependentBanker April 2011
Regulation Station
78
Questions answered on FASB
accounting and CRE loan workouts
Tech Talk
20
Emerging technologies that
can affect your IT audit
Advertisers Index
79
15 Minutes With …
80
Christopher and Jef McGill in
the City of Brotherly Love
16
Withdrawing interchange pricing rules, Wall
Street Reform Act changes and more
BY APRYL MOTLEY
GIVES BACK
WITH INTEREST
BY DOUG UNDERWOOD
Plus, Tool Shop: Hard-drive
destruction, mobile mortgage quotes,
document storage and more
www.icba.org ICBA IndependentBanker 1
IB
IB
ICBA
online
V I S I T W W W. I C B A . O R G F O R I N F O R M A T I O N A N D R E S O U R C E S F O R C O M M U N I T Y B A N K E R S —
I N D U S T RY A D V O C A C Y , P R O F E S S I O N A L D E V E L O P M E N T, A N D P R O D U C T A N D S E R V I C E P R O G R A M S .
2011 POLICY
RESOLUTIONS
The 2011 ICBA Policy Resolutions,
approved by ICBA’s Policy Development
Committee and the board of directors,
are on the website. They broadly describe
the association’s major policy objectives
for 2011–12.
Go to www.icba.org and click on “Policy
Resolutions” under the Advocacy tab.
FEDERAL COMPLIANCE
CALENDAR
ICBA offers a comprehensive calendar
of important dates for community banks.
The ICBA Compliance Calendar, powered
by Wolters Kluwer Financial Services, an
ICBA Preferred Service Provider, contains
information regarding the date of enacted
legislation, final regulation effective dates,
proposed regulation
comment period due dates
and the date regulatory
guidance is issued. The
calendar documents major
compliance events but
does not recognize every
compliance change.
Go to www.icba.org/
compliancecalendar to
view the calendar.
major successes of the
association in areas ranging
from government relations
to products and services.
Visit “About ICBA” and
“Annual Reports” to read
the report online.
ICBA
2010 ANNUAL
REPORT
Empowering Main Street
throughout the past year is
a main theme of ICBA’s
2010 Annual Report.
The report details
In the complex business of
community banks, at least
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One or more of the CNA companies provide the products and/or services described. The
information is intended to present a general overview for illustrative purposes only. It is not
intended to constitute a binding contract. CNA is a registered trademark of CNA Financial
Corporation. Copyright © 2011 CNA. All rights reserved.
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CHICAGO
CINCINNATI
PORTSMOUTH
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ST. LOUIS
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ICBA
events
I C B A CO M P L I A N C E
INSTITUTE
JUNE 5–10, KANSAS CITY, MO.
Above: Community
bankers participate in a breakfast
meeting during the
2010 Washington
Policy Summit in
Washington, D.C.
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STATE
ASSOCIATION
CONVENTIONS
Louisiana Bankers
Association,
May 4–6, New Orleans
Tennessee Bankers
Association,
June 5–7, Palm Beach, Fla.
Maryland Bankers
Association,
June 5–8, White Sulphur
Springs, W.Va.
Community Bankers
Association of
Alabama,
June 5–9, Paradise
Island, Bahamas
AUDIO
CONFERENCES
Marketing, April 12
Credit Quality, April 26
IT Hot Topics, April 28
ICBA EDUCATION
SEMINARS
Auditing Institute
Week II,
May 8–13, Kansas City, Mo.
BSA/AML Institute,
May 16–18, Minneapolis
Community Bank IT Institute,
May 16–20, Kansas City, Mo.
Loan Review—
Implementing Best
Practices,
May 23–24, Minneapolis
WEBINARS
(All webinars take place at
2 p.m. EST on the date listed.)
Protect, Detect, Respond—
A Fiserv Risk Solutions
Overview, April 13
To see the latest schedule of ICBA webinars and seminars,
or to register, visit www.icba.org or call (800) 422–7285.
IB
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ICBA HEADQUARTERS/EDITORIAL OFFICE
(202) 659-8111
(800) 422-8439
www.icba.org
No. 04
ICBA EXECUTIVE
COMMITTEE
CHAIRMAN
Salvatore Marranca
CHAIRMAN-ELECT
Jeffrey L. Gerhart
MAGAZINE
STAFF
SENIOR VICE
PRESIDENT/CHIEF
MARKETING OFFICER
Chris Lorence
VICE PRESIDENT/
VICE CHAIRMAN
P U B L I CAT I O N S
William A. Loving
Timothy Cook
TREASURER
A S S O C I AT E D I R E C T O R /
Jack A. Hartings
P U B L I CAT I O N S
Ellen Ryan
S E C R E TA RY
Steven R. Gardner
C O M M U N I CAT I O N S
C O O R D I N AT O R
RESIDENT AND CEO
Ann Chen
Camden R. Fine
AT - L A R G E M E M B E R
ACCOUNTING
Noah W. Wilcox
Kim Schneider
AT - L A R G E M E M B E R
DATA C O O R D I N AT O R
Rebeca Romero Rainey
Cindy Meyer
I M M E D I AT E PA S T
SUBSCRIPTIONS
CHAIRMAN
James D. MacPhee
Diane Meyer
PA S T C H A I R M A N
MANAGING EDITOR
R. Michael Menzies Sr.
Evan Noetzel
PA S T C H A I R M A N
ART DIRECTOR
Cynthia L. Blankenship
Olivia Roszkowska
C O R P O R AT E
AD INSERTION
S E C R E TA RY
Mark Raitor
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ADVERTISING SALES
CUSTOM PUBLISHING
N AT I O N A L S A L E S
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Suite 200
Northbrook, IL 60062
(847) 205-3000
DIRECTOR
Rachael Solomon
ICBA Independent
Banker, Electronic Media
& National Convention
Sponsorships
(612) 336-9284 direct
[email protected]
PRESIDENT AND CEO
John Cimba
COVER IMAGE
Preston Mack
Periodicals postage paid at Sauk Centre, MN, and additional
mailing offices. ICBA Independent Banker (SSN-00193674) is published by Independent Community Bankers
of America, 518 Lincoln Road, Sauk Centre, MN 563781653. Member subscriptions, $40 per year. Additional
member subscriptions, $20. All other subscriptions, $75.
POSTMASTER: Address changes to ICBA Independent
Banker, P.O. Box 267, Sauk Centre, MN 56378. Copyright
2011 ICBA. All rights reserved.
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ToP
From the
BY SAL MARRANCA, CHAIRMAN
OF
ICBA
BE A PART OF IT
My to-do list as
your chairman is
about more than
facts, figures
and policies.
It’s about
communication,
inspiration and
leadership.
Is your to-do list overflowing? Mine is—both at my
community bank day job and as your new ICBA
chairman.
ICBA and its leaders are deep into working
toward the best outcome on regulations related to
the Wall Street Reform Act. We’re providing workable policy ideas to maintain equal, viable access to
the nation’s home financing system as the debate
over Fannie Mae and Freddie Mac unfolds. We’re
acting to extend SBA-loan program incentives and
increase the guarantee on SBA loans to 90 percent;
the tax-exempt eligibility for loans guaranteed by
the Federal Home Loan Banks; and the $30 million issuance allowance for popular tax-exempt
qualified-small-issue bonds.
We are fighting to correct the disconnect between
regulators in Washington and the examiners in the
field. Having to satisfy ever more burdensome regulations, even when they shouldn’t apply to our business
model, is hampering lending, impeding staff and
hurting profitability.
We are defending the Farm Bill budget against proposed cuts, recommending improvements to USDA’s
business- and industry-guaranteed loan program,
and opposing devastating cuts to crop-insurance
programs. We are urging Congress to extend the
Guaranteed Rural Housing Loan Program past
May 1, keep tax-exempt credit unions from further
impinging on our turf, guard against problems with
the coming Consumer Financial Protection Bureau
and more. And that’s just the first page of the list.
But my to-do list as your chairman is about more
than facts, figures and policies. It’s about communication, inspiration and leadership. It’s about showing
you—and legislators, regulators, media, our supporters and our detractors—that the balance of power
is shifting from Wall Street to Main Street. It’s also
about getting you to look up from your balance sheet
and employee roster and strategic plan and to get
involved in the big picture.
Did you know there were 7,000 registered lobbyists
working Capitol Hill during the financial reform process? How many do you think were looking out for you,
me and community banking? What we lack in numbers,
we have to make up in passion,
knowledge and persistence.
I am often asked, “Are you
ready to be chairman?” Yes, I am.
I can do it, but only if you have
my back—mine and those of your
fellow community bankers. Call
your legislator. Rally your staff
and board. Educate your customers. Invest in your bank and your
region as never before.
Know any non-ICBA community bankers? Tell them ICBA
is the only national association
focused solely on your bank and
its place in your community, and
its modest dues are franchisevalue insurance for your bank. I’ll
be flying around the country with
that message. Can you help me
spread the same message? Maybe
you’ve thought about attending
an educational institute or serving
on a committee or nominating an
employee for ICBA recognition.
Step up and do it. What helps you
and your community bank helps
us all by making us stronger.
I am honored, humbled and
excited to be ICBA chairman. I’m
going to work my tail off. I will
not back down in preserving and
extending the community bank
franchise—our livelihood and the
pride of our communities and our
country. And the first thing on my
to-do list is to ask you to join me.
Sal Marranca is president and CEO
of Cattaraugus County Bank in Little
Valley, N.Y.
IB
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“I’m a community banker because I’m empowered to make decisions that are right for both
the customer and the bank. Because Main Street is a two way street. We value each and every
customer, not just the bottom line.“—Will Buyck, Bank of Clarendon, Manning, South Carolina.
“We provide capital to help business owners realize their goals—and in doing so provide
employment for local people. These dollars are recycled into our communities. We support
community causes and help those government can’t.“—Tom McGraw, First National Bank of
Northern California,
South San Francisco, California. “Find me a vibrant
community and
hand in hand.“—
State Bank of
there will be a vibrant community bank there. They go
I enjoy helping
business people achieve their
Salem, Wisconsin.
dreams, create
to volunteer as a
improve the community that we live
the bank through a
is another way to
I live in. Some
jobs, and
in. As a community
banker,
I have the privilege to see the
impact I have on a daily basis.
participate in reading —Robert Hemsath, Security First Bank Fresno, California
Steve Zeman, Union
West Salem, West
“The opportunity
representative of
variety of avenues
support the town
months we
to elementary
school students, other times we walk in the March of Dimes, & we even ring the bell at Christmas
for the Salvation Army! “—Marsha Bozeman, Community Bank & Trust of Florida, Ocala, Florida.
“We build communities! We are the economic engine of our community. When disaster strikes we
do more than banking… we are on the front lines helping people rebuild their lives.“—Pat Rost,
Kaplan State Bank, Kaplan, Louisiana. THANK YOU FOR ALL YOU DO—YOU KEEP YOUR
COMMUNITY THRIVING AND OUR COUNTRY’S ECONOMY STRONG.
One Mission. Community Banks.™
IB
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1-866-THE-ICBA | www.icba.org
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IB
Points
Fine
BY CAMDEN R. FINE, PRESIDENT
AND
CEO
OF
ICBA
FINANCIAL REFORM—PART II
The worst
outcome would
be a new
secondary market
dominated
by too-big-tofail financial
institutions.
Fortunately, ICBA
has a much better
alternative.
The first heavy shoe to drop in Washington in
response to the nation’s worst financial crisis since
the Great Depression was last summer’s Wall Street
Reform Act. From the beginning of the financial
reform debate more than three years ago, policymakers from both parties put nearly everything on
the table for consideration—except the status quo.
Good ideas, bad ideas and even terrible ideas were
proposed and debated. Primarily because of lobbying by community bankers, several pro-communitybank ideas were ultimately adopted in the broader
legislation.
Now Congress is preparing to drop the second huge
shoe, one that everyone knows must come—ending
the government’s conservatorship of Fannie Mae and
Freddie Mac. In February, the Obama administration
outlined three possible policy approaches to reconfigure not just Fannie Mae and Freddie Mac but the
government’s overall secondary market role. At stake,
of course, is the stability, openness and, ultimately,
effectiveness of the secondary market, including
the ability of community banks to remain viable
mortgage-market participants.
The administration’s surprisingly open-ended
options put nearly everything on the table—except
the status quo. A smaller government role in the
secondary market is a given, but Congress will
decide just how small over the next several months.
Obviously, the worst outcome would be a new secondary market dominated by too-big-to-fail financial institutions that would essentially shoulder
community banks out of mortgage lending. (Yes,
Wall Street’s hive of lobbyists is still busily buzzing
in Washington.)
Fortunately, ICBA has a much better alternative.
Last month we recommended that Fannie Mae and
Freddie Mac transition to a cooperative organizational model, one similar to the Federal Home
Loan Bank system. For several important reasons
inherent to its governance structure—most critically a one-company, one-vote requirement—such
cooperatives would deploy private capital in a safe,
efficient and impartial way that would prevent future
government bailouts in all but
catastrophic market downturns.
By their rules and structure, the
co-ops would pursue only conservatively underwritten long-term
fixed-rate mortgages. (For more
details, see Washington Watch on
page 12.)
Our cooperative proposal
will have lots of competition in
Washington, and many policymakers won’t be familiar enough
with the model’s advantages.
We’ll have to explain not just
why our proposal is a constructive, sensible policy but why
it’s the best among several other
possible approaches.
But no doubt we can do it.
Members of Congress and
Obama administration officials
remember how community banks
continued providing responsible,
safe mortgages throughout the
subprime market madness. They
want to ensure that community
banks remain strong, full participants in the mortgage market.
We just have to win them over on
how and why our proposal would
be best.
From the first round of Wall
Street reform, we still have policymakers’ ears. Let’s keep tugging
at them.
Reach Camden R. Fine at
FDP¿QH#LFEDRUJ
IB
IB
w a s h i n g t o n
Remaking
Housing Finance
BY ALAN KELLER
AS POLICYMAKERS RECONSIDER THE GOVERNMENT’S ROLE IN THE SECONDARY MORTGAGE
MARKET, ICBA PROPOSES AN ALTERNATIVE COOPERATIVE LENDING MODEL
T
he debate over the future of
housing finance—presenting high stakes and highly complex policy issues that will not
be resolved quickly—will occupy
official Washington for the foreseeable future. The major stakeholders have only begun to map
out their positions.
The Obama administration
released its long-awaited report,
“Reforming America’s Housing
Finance Market,” to Congress on
Feb. 11. It was encouraging to see
the White House recognize that
smaller lenders and community
banks serve their communities
more effectively than larger lenders. Access to credit for these communities, along with the related
imperatives of preserving a competitive market for credit and
minimizing consolidation, are all
criteria by which the administration is evaluating proposals for
remaking the government’s role in
the secondary mortgage market.
The administration’s report considers three such proposals: nearly
complete privatization of the housing finance system, a privatized
system with a government guarantee that becomes effective only
during times of crisis and a privatized system with catastrophic
Alan Keller is ICBA
director of legislative
policy. Reach him at
DODQNHOOHU#LFEDRUJ
government reinsurance that is
buffered by private capital. Even
the third catastrophic reinsurance option would entail a more
circumscribed role for the government in the housing market,
emphasizing private capital as the
primary source of mortgage credit
and the first to bear losses.
It’s become increasingly clear
that whatever replaces Fannie Mae
and Freddie Mac will be a radical departure from the old model.
When the administration signaled
that it was not willing to defend the
pre-crisis government footprint in
housing finance, the parameters of
the debate shifted. Government’s
historical role in housing is off
the table.
A housing finance system with
a smaller government footprint,
properly designed, can preserve
the vital role of community banks.
The worst outcome, for community banks and consumers, would
be a system dominated by a few
large, too-big-to-fail banks, with
community banks forced to the
sidelines. That’s why ICBA has set
forth its own proposal.
ICBA recommends that Fannie
and Freddie be replaced by cooperatives that are owned by lenders
that purchase stock commensurate
with their loan sales. The co-ops
would be governed on a onecompany, one-vote basis, and
board seats would be apportioned
to ensure that lenders of all sizes
and classes are represented. They
would be banned from operating in the primary market so that
they cannot unfairly compete with
mortgage originators.
The ICBA co-op model would
protect the interests of community banks and protect taxpayers
from another government bailout.
Mortgage-backed securities issued
by the co-ops would be guaranteed
by a fund capitalized by co-op
members as well as third-party
guarantors. Resources would be
set aside in good times to prepare for bad times. Only conservatively underwritten loans would be
purchased.
The government would provide
catastrophic-loss protection, for
which the co-ops would pay a premium. This guarantee, fully and
explicitly priced into the guarantee
fee and loan-level price, not only
would provide credit assurances
to investors, sustaining robust
liquidity even during periods of
market stress, but—a point less
often noted—also enable the co-op
securities to be exempt from SEC
IB
IB
ICBA Report Recommendations
registration and trade in the to-beannounced (TBA) forward market.
In a TBA trade, participants
agree to exchange a given volume
of mortgage-backed securities
(MBS) at a specified date and at
an agreed-upon price. This allows
lenders to sell mortgages forward
before they are even originated.
Because it facilitates hedging of
interest rate risk, the TBA market
also allows lenders to offer borrowers an interest rate lock for as
long as 90 days. TBA trades are
based on an assumption of homogeneity among the securities that
will actually be included in the
MBS. This assumption is based on
standardized mortgage underwriting and by a government guarantee, implied or explicit.
Without the TBA market, the
30-year fixed-rate loan as we
know it and on which our housing market is based will become a
rarity. Though government would
ultimately backstop the co-ops,
private capital from members and
private reinsurers would absorb
all but catastrophic losses; government reinsurance funds and taxpayers would be well insulated.
An additional advantage: The
infrastructure of Fannie and
Freddie—including their personnel, systems and automated underwriting engines—would transfer
directly to the new co-ops, minimizing disruption in the market
and reducing the cost of the transition to the new system.
A private entity will succeed
Fannie Mae and Freddie Mac; that
much is all but settled. Still to be
settled is what form that entity will
take—an instrument of Wall Street
or an entity in which community
banks and large banks are equally
represented and communities
and customers of all varieties are
served. Given the stakes, ICBA will
fully engage in this policy debate
on behalf of community banks.
IB
Last month ICBA issued a report
recommending that Fannie Mae
and Freddie Mac be replaced by
cooperative entities similar to
the capitalization and ownership
model used by the Federal Home
Loan Banks. Mortgage originators
would purchase stock with the
cooperative entities commensurate
with their loan sales to those
entities.
Key recommendations in the report
supporting a cooperative housing
finance structure are that …
The cooperative would issue
mortgage-backed securities
guaranteed by a fund capitalized
by members of the cooperative as
well as by third parties.
Governance of the cooperatives
would ensure equal access for
community banks.
A limited scope of conservatively
underwritten products would be
eligible for sale to the cooperatives.
The government would provide
catastrophic-loss protection, for
which the co-ops would pay a
premium.
The existing infrastructure of Fannie
Mae and Freddie Mac would be
transferred to the newly established
cooperatives, minimizing any market
disruption.
Read the report posted in the
advocacy section of ICBA’s website.
IB
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with
Interest
I C B A S U RV E Y
Because of the proposal
on debit interchange routing
and price-cap rules …
Fading Free Lunches
93%
of community banks would
have to charge consumers for
services that are now free
Bye-bye free checking
72%
of community banks couldn’t
afford to offer free checking
Turning away customers
65%
of community banks would have
to stiffen qualification standards
for debit cards or close higherrisk transaction accounts
N e w s l i n e s
16
T e c h
T a l k
20
T o o l
S h o p
22
Source: ICBA member poll, February 2011
IB
IB
with
Interest
N e w s l i n e s
ON THE HILL
NEWS IN NUMBERS
ICBA Recommends Wall
Street Reform Act Changes
ICBA recommended changes to
the Wall Street Reform Act to
avoid disproportional regulatory burdens on community
banks. Testifying before a House
Financial Services subcommittee, ICBA Immediate Past
Chairman Jim MacPhee also
again asked Congress to stop the
Federal Reserve from implementing the law’s government
price-fixing provisions on debit
card interchange fees, which
would result in higher costs and
fewer services for community
bank customers.
“The new law and the Federal
Reserve proposal threaten the
ability of community banks
to compete with large issuers
and would bring about further
industry consolidation, to the
detriment of consumers and
small businesses throughout
the nation,” MacPhee said.
He outlined several ICBA
recommendations:
Give prudential bank regulators a greater role in developing Consumer Financial
Protection Bureau (CFPB)
regulations.
Continue the CFPB’s outreach
to community banks to better
understand how its rules
will affect community bank
customers.
Set the law’s “qualified residential mortgage” definition
less narrowly; as written,
it could drive thousands of
community banks and other
lenders from the residential
mortgage market.
Exempt portfolio loans held by
banks with assets of less than
$10 billion from a new requirement that first-lien mortgage
lenders establish escrow
accounts for the payment of
taxes and insurance.
Reintroduce the use of credit
ratings, but authorize regulators
to confirm the credit ratings
when additional credit analysis
is warranted.
Don’t disadvantage community
banks’ use of derivatives.
MacPhee also expressed ICBA’s
support for Wall Street Reform
provisions that provide for tiered
regulation of the banking industry,
subject too-big-to-fail financial
institutions to stricter regulatory
standards, impose new regulations
on the “shadow” banking industry
and base the deposit insurance
assessment base on assets instead
of deposits.
15%
sweet
relief
—Community bankers who
think the Obama administration’s order to federal
departments and agencies
to ease regulatory burdens
on businesses will bring
help to community banks.
Source: ICBA NewsWatch Today
poll in January.
paycheck
21% steady
—Workers who ranked job
security as their biggest
employment goal; 20 percent
said health benefits, 14
percent said work/life
balance.
Source: Adecco Staffing poll.
46%
future
entrepreneurs
—Generation Y (18- to 25year-olds) who hope to
start a business within
five years.
Source: Employers Holdings Inc.
88% never
retiring
Jim MacPhee, immediate past chairman,
talks with Rep. Shelley Capito (R-W.Va.),
chairman of the House Financial Services
Subcommittee on Financial Institutions and
Consumer Credit.
—Baby boomers expecting to
continue working after
becoming eligible for full
retirement benefits. Financial
needs will compel one-third
of those to keep working.
Source: Charles Schwab poll.
IB
IB
OVER 3,000 PROMONTORY
NETWORK MEMBERS
IB
IB
with
Interest
N e w s l i n e s
L OOS E C H A NG E
I C B A I N AC T I ON
ICBA to Fed:
Withdraw Debit
Card Rule
While supporting a lawsuit challenging the Federal
Reserve’s proposed rules on debit card interchange
fees and routing, ICBA asked the agency to withdraw
the rule in order to study the effect the proposal will
have on Main Street consumers and small businesses.
ICBA joined a coalition of financial associations
that filed a friend-of-the-court brief strongly supporting TCF National Bank’s legal challenge, stating
the proposal erroneously interprets the Wall Street
Reform Act. In a regulatory comment letter, ICBA
said the Fed’s proposed rule, if implemented, will
further industry consolidation and lead to higher fees
and fewer choices for consumers.
ICBA recommended that the Fed …
Examine the effect of the rule on consumers,
small businesses, community banks and the underbanked and on competition and innovation.
Gather data about the costs incurred by banks of all
sizes and establish standards that make it feasible
for them to collect fees that are reasonable.
Take realistic steps to shelter community banks
from the price cuts.
Limit the multinetwork requirement to two networks per card. Nothing in the statute states a fournetwork requirement. A four-network requirement
will have a particularly debilitating effect on community banks.
Withhold approval of the pricing rules until it is in
a position to promulgate adjustments for fraud.
Former ICBA chairman
Terry Jorde joined the association this month as senior
vice president, chief of staff.
ICBA applauded the
Federal Home Loan Bank
System for setting aside at
least 20 percent of net
income in restricted retained
earnings accounts established by each FHL bank
when obligations related
to the Resolution Funding
Corporation are repaid early.
ICBA Mortgage renewed
its alliance with Fannie
Mae, which allows ICBAmember community banks
to access a special package
of secondary market lending
products, pricing and educational benefits.
Q U O T ES T O NOT E
“These too-big-to-fail
banks were bailed
out, and now they’re
bigger and more
profitable than they
were before.”
—Chris Cole
IC BA l o b b y i s t, to Da i ly
R e p ort For E x e c u t i v e s
IB
“The fact that smaller community
banks are failing can be partially
traced back to government
policies that gave our too-big-tofail institutions, in my opinion, a
competitive advantage.”
—Sheil a Bair,
FDIC chairman, testifying
before Congress
IB
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were specifically asked how they manage environmental risk.
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*EDR’s 12th Annual Benchmarking Survey of Financial Institutions
IB
IB
with
Interest
T e c h
New Technologies
and Your Audit
How to prepare for your next regulatory IT examination
B Y D O U G U N D E RWO O D
G
iven the ever-changing
technological landscape in
which community banks operate,
their evaluation of IT risk and
controls must change in kind.
Such technological advancements
as social media/networking, cloud
computing and server virtualization—along with threats such as
data leakage—pose new risks to
all financial institutions, and bank
auditors and examiners will focus
on how your community bank is
mitigating these risks.
Security risks arise when
banks rush to implement new
technologies to meet evolving customer demands without
first reviewing the effect on the
bank’s related risk tolerance. For
instance, if a bank outsources
data replication to a third party,
does that require the third party
to have access to the bank’s
internal network, and is management willing to accept those new
risks? Technology also changes
so quickly that risks can evolve
before they are fully known.
As with all new technology,
auditors and examiners expect
bank management to complete a
formal risk assessment as part of
its information security program.
If your community bank’s management has not completed the
appropriate risk assessment activities for its IT efforts, examiners
could question your bank’s overall
IT governance.
Here is some guidance related
to three issues—technology outsourcing, social media activities
and server virtualization—to help
prepare for your bank’s next IT
audit.
Outsourcing. Banks are
increasingly considering service
bureaus and software as a service
options instead of internally
hosting their computer network
systems. Examples of outsourcing
(outside of core processing and
Internet banking) include data
replication, imaging, e-mail and
merchant capture.
Examiners and auditors want to
verify that management has done
due diligence and risk assessment
for any new outsourcing relationships. An outsourced relationship
vendor, especially for a critical
system, should not be approached
lightly. Any potential vendor
should go through extensive
vetting, and examiners will check
that management has reviewed
the vendor’s financial condition to
ensure that those IT projects can
continue.
Examiners will also check into
independent controls. Banks
commonly obtain a Service
Organization Control (SOC)
report (previously SAS 70) to
verify the effectiveness of controls
at an outsourced vendor. However,
just obtaining the report is not
enough. Managers should review
it carefully and complete a formal
T a l k
analysis to verify that controls
critical to the bank’s needs are
operating effectively.
Financial institutions can
request information beyond the
SOC report, such as test results for
business continuity or penetration testing results. Your community bank should validate that
its service providers implement
the same controls that the bank
itself would if the service were
internal. Controls to review may
include but are not limited to the
following:
authentication controls,
data protection and encryption
controls,
software development life
cycle and change management
controls,
patch management controls
and
network and application monitoring controls.
Social media. There are fundamental security risks common to
social media sites. Understanding
these and applying controls to
address them is imperative to
establishing a successful social
media presence. At the least,
auditors and examiners are going
to verify that management has
developed a strategy and appropriate oversight over social media
activities. Your bank should show
the following:
measurable value derived from
implementing social media,
executive management
participation,
a mission statement and goals,
recognition of what the site will
promote or advertise,
awareness of the services that
will be offered,
understanding of the business,
member, security and compliance risks,
assigned responsibilities and
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Tea
Through
By Carol Patton
Casper, Wyo., is a small
city of 51,000 people with
Wyoming’s largest hospital.
It’s where former Vice President
Richard Cheney and his wife,
Lynne, grew up. It receives about
71.5 inches of snow a year.
It’s also the home of familyowned Hilltop National Bank,
which has 165 employees at six
branches. For the past 25 years,
the community bank has helped
local residents understand banking jargon, concepts, products
and services through radio and
TV spots.
For most of those years, Gary
Trapkus, vice president of marketing, worked behind the scenes.
He wrote more than 600 threeminute scripts for the bank’s first
radio show, “Financial Straight
Talk.”
continued on page 26
IB
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BANKERS
m o n t h
ching
Channels
WHETHER REACHING KIDS THROUGH SCHOOLS OR
ADULTS OVER THE AIRWAVES, COMMUNITY BANKS GET
CREATIVE AT FINANCIAL LITERACY
PHOTO
BY
CHARLIE SHIN PHOTOGRAPHY
When Karen Denas was
interviewing for bank tellers in 2005, she asked one candidate about her experience with
handling money. “Sometimes my
mom borrows money from me,”
replied the 10-year-old student at
Elizabeth Vaughan Elementary
School in Woodbridge, Va.
To teach children about banking, Denas—senior vice president
and retail division manager at
$2.07 billion-asset Cardinal Bank,
based in nearby McLean—was
working with the school to set up
a real bank to be managed, operated and even marketed by the
school’s fourth- and fifth-graders.
Denas learned about money
from her father, an avid coin collector who saved spare change
in a jar. She often accompanied
him to the bank to cash in the
IB
IB
APRIL INDIE BANKER PROFILE
Montana
o
Casper
Wyoming
continued from page 24
From 1986 to 1999, the scripts
were recorded by N.P. Van Maren,
then the bank’s president. They
aired every weekday morning on
KTWO, a small AM radio station.
At first, the bank spent $1,000 of
its advertising budget on radio
ads each month. In exchange,
the radio station aired the interviews, which always ended with
“Presented by Hilltop.”
Trapkus’ education was mainly
in finance, not writing. Besides his
bachelor’s degree in psychology
from Illinois’ Augustana College,
he took several graduate-level
finance courses at the University
of Iowa, then in 1983 completed
a three-year graduate banking program at the University
of Washington, Seattle. Trapkus,
who writes everything from brochures to banking advice articles
for a local magazine, likens words
to verbal erector sets: The fun
and challenge, he says, is putting
them together in different ways
that create an engaging picture
for readers.
Although the radio program
was designed as a community
education tool, it also promoted the bank, positioning it
as a trusted source of information. “We’ve received positive
responses from our clients and
across the community,” adds John
Utah
Colorado
N
BANK
L O CAT I O N
ASSETS
S E RV I C E
Hilltop National Bank
Casper, Wyo.
$500 million
Teaches financial literacy
through radio and TV
spots
Jorgensen, Hilltop’s president.
“Gary’s written pieces are excellent examples of his ability to
communicate with our customers
and prospects.”
After years of
working behind
the scenes writing promotional
and educational
material for
Hilltop National
Bank, Gary
Trapkus, vice
president of
marketing, is
now also the
bank’s on-air
personality.
Economy inspires shows
During the mid-1980s, the oil
business experienced a severe
financial downturn. So did
Casper, which is nicknamed “the
oil city.” Local headlines focused
on foreclosures and business
failures.
In 1988, Hilltop set out to lift
the community’s spirits. The bank
spent hundreds of ad dollars each
month sponsoring radio spots
featuring successful local businesses, even those that weren’t
Hilltop customers. KTWO coldcalled employers, searching for
stable or growing companies to
tell their stories. It recorded three
interviews per month, each two
minutes long, and aired them
multiple times a month. So far,
more than 1,000 shows have been
aired under the Financial Straight
Talk banner.
Around the same time, the
bank also began airing 60-second
business testimonials by Hilltop
customers on TV stations, mainly
KCWY, the local NBC affiliate.
The bank pays KCWY up to
$4,000 a month to videotape and
broadcast the spots. It then uses
the audio track for radio ads and
converts testimonials into newspaper and movie theater ads.
More than 200 testimonials
have been broadcast, including
several during Super Bowl XLV,
which cost Hilltop an additional
$8,000. The testimonials not only
promote Hilltop but turn employers into local celebrities, expanding their customer base.
One such ad “showed my
brand-new office and equipment,”
says dentist Kent Doing, whose
testimonial ran for nearly two
years. “It drew a lot of people in.
It definitely increased business.”
Mixing media
Ten years passed before the bank
sponsored another radio show.
From 2000 to 2003, it spent
several hundred ad dollars a
week producing two-minute
morning-drive spots, “Mike and
Mark in the Morning,” hosted
by two Hilltop consumer lenders. They bantered about banking
IB
IB
APRIL INDIE BANKER PROFILE
lvania
MD
Pennsy
West
Virginia
McLean
contents. She says these childhood experiences taught her how
to handle and save money.
Today, fewer people go into
a bank branch—and with direct
deposit, credit and debit cards,
electronic transfers and automatic
payments come fewer opportunities to handle cash. “There’s
a huge gap in financial literacy
among students at all levels,” says
Denas. “When we open accounts
for people at age 18, they have no
idea about banking. It’s kind of
scary. It’s taught me the importance of starting that [education]
at a very young age.”
Starting small
In 2005, Lillie Jessie, then
Vaughan Elementary’s principal,
was seeking student activities to
teach financial literacy—the more
hands-on, the better. Children
learn best when they’re engaged
in authentic practices and are
excited about a project, she says.
While attending a local Chamber
of Commerce event, Denas heard
that the school her sons had
attended needed volunteers. Jessie
brought up the idea of setting up a
mock bank. Denas replied, “Why
not set up a real bank?”
“I thought it would be a little
bank down the hall with play
money,” recalls Jessie, now retired.
“She helped me expand the vision
of our bank beyond our school
doors.”
Soon a rolling cart set up in the
school’s main hallway or cafeteria
became Wildcat Bank & Trust.
Students can’t make withdrawals; cash deposits are taken to a
Cardinal Bank branch the same
day. Early on, the bank opened
for an hour two days a week;
now it’s open once a week. The
minimum to open a traditional
savings account is $10—but that’s
DE
Washingto
Virginia
P
North
C li
Under Karen
Denas, senior
vice president
and retail division manager,
Cardinal Bank
teaches area
students financial
literacy through
10 elementary
school banks,
which host
a combined
$400,000 in
account balances.
BANK
L O CAT I O N
ASSETS
S E RV I C E
Cardinal Bank
McLean, Va.
$2.07 billion
Teaches children financial literacy as they operate real banks in schools
not enforced, says Denas—and
the interest rate is 2.51 percent.
In the past, only fourth- and
fifth-graders could apply for
jobs as a bank teller, marketing
director or bank manager. This
year, the program was expanded
to third-graders. They fill out
applications, offer references and
interview with adults from the
school and Cardinal Bank. Denas
recalls one prospect who changed
clothes before her interview.
Participants learn teamwork
and economic terms such as budgeting and saving, adds Karen
Schultz, a fourth-grade teacher
who oversees Vaughn’s banking
program. “Students start learning
that by putting away money now,
they will be able to afford things
in the future,” notes Schultz, who
hopes the school bank will soon
be able to set up college savings
accounts.
This year, 24 students were
“hired” out of 50 who applied
and will be rotated throughout
the year. While working, they
wear a blue vest purchased by
the bank. Those chosen as tellers handle bank deposits. The
marketing director creates signs
throughout the school and makes
public-address announcements
about bank hours. The manager
opens accounts, handles problems and oversees daily operations with help from a Cardinal
Bank representative.
During parents night, Denas
and several co-workers set up
a table so parents could open
accounts for their children.
Because half of the school’s students speak English as a second
language and many parents don’t
at all, the community bank created fliers and applications in
Spanish. Without these, Denas
believes many families would not
have opened accounts.
This program offers a powerful, real-world experience for
all students, says Jessie—many
of whom take a field trip to a
Cardinal Bank branch, where
banking concepts are “learned
at a deeper level,” she says. The
school bank has been featured on
local TV news several times and
received an award in 2005 for best
practices in school-to-business
partnerships.
IB
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questions and offered advice and
tips for how to deal with bankers.
In 2006, Hilltop featured an
IT employee in 60-second TV
spots called “Digital Fortress
Minute.” They aired each Monday
during the evening news. Trapkus
focused each script on safety
issues such as bank fraud and
identity theft. When the employee
resigned 18 months later, Trapkus
stepped in as the bank’s on-air
personality.
For more than two decades,
the bank spent thousands of dollars each month on radio and
TV ads that also educated consumers. The payoff? The bank’s
asset size soared from $77 million
in 1986 to $500 million today.
Its Trust and Financial Services
Department jumped from less
than $10 million to $750 million.
Trapkus is sure these radio and
TV spots were the linchpin. “If
you really try to get on the customer’s side of the desk and start
with their perspective, it guides
you, and everything else falls into
place,” he says. “Our customers are fiercely loyal. We have
customers in 49 states and five
continents.”
The community bank’s success
can also be attributed to off-air
talent. As part of Hilltop’s 2009
Community Reinvestment Act
efforts, half of its 176 employees
donated more than 5,100 hours
off the air to local organizations,
many of which target low- to
moderate-income individuals and
small businesses.
Off the job, Trapkus has started
writing a book about the dozens of
animals he and his wife, Bonnie,
have rescued from the Casper
Humane Society. “My monthly
vet bill used to be the same as
my house and car payment,” he
says, hoping that the book’s proceeds will support the animals.
“I’ve always had a fascination for
words.”
IB
Cardinal Bank
Student and bank success
Today, 10 elementary and middle
schools in Cardinal’s service area
have their own bank. More than
1,400 savings accounts have been
opened, with more than $400,000
in balances.
Denas oversees the entire program, now staffed by some 20
Cardinal Bank employees, and
mentors about a dozen who
help at the schools. She says the
26-branch bank’s 260 employees
feel that the students are an extension of Cardinal’s workforce. The
community bank even includes
the school branches as part of its
footprint in annual reports.
Parents are also pleased. “We’ve
had great comments about how
important the lessons are,” she
says; some parents review their
children’s account statements
with them. Because more schools
want to participate—each branch
works with just one school due to
time constraints—the bank may
hire a separate staff to manage the
successful program.
School banks have helped
Cardinal Bank build its brand
among different generations, says
Alice Frazier, chief operating officer. Several months ago, a college
student who was a student branch
manager returned to Cardinal
Bank to open a checking account.
“We are very focused on financial literacy,” says Frazier. “It begins
early, and if we can make an impact
now, it will really help us all.”
my core
processor
Make it personal. Make DCI your core processor.
— Romolo Santarosa
EVP & CFO, First California Bank
a more rewarding experience, focused on you
featuring:
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Carol Patton is a writer in Las Vegas.
SHA RE YOU R EX PERIE N CE
How have you and your
employees worked to teach
and promote financial literacy in your area? Let us
know your story by writing
ICBA Independent Banker at
[email protected].
IB
IB
PHOTO
BY
PRESTON MACK
IB
IB
IB
IB
Chairman
ICBA’s 2011–12 Officers and
Executive Committee
Salvatore Marranca
Cattaraugus County Bank,
Little Valley, N.Y.
Bank assets: $180 million
Chairman
Salvatore Marranca
Little Valley, N.Y.
Chairman-Elect
Jeffrey L. Gerhart
Newman Grove, Neb.
Vice Chairman
William A. Loving
Franklin, W.Va.
President and CEO
Camden R. Fine
Washington, D.C.
Treasurer
Jack A. Hartings
Coldwater, Ohio
Secretary
Steven R. Gardner
Costa Mesa, Calif.
Director at Large
Noah W. Wilcox
Grand Rapids, Minn.
Director at Large
Taos, N.M.
Immediate Past Chairman
James D. MacPhee
Schoolcraft, Mich.
Past Chairman
Easton, Md.
T
hanks to ICBA’s nonstop advocacy on financial regulatory reform and related issues, “people in Washington
are asking community bankers for their opinions,” says
Sal Marranca, president, CEO and director of Cattaraugus
County Bank. As our industry’s leading ambassador,
Marranca is prepared to field lots of questions from policymakers, media and others.
Marranca says he wants more community bankers to join
him in the effort to serve and advocate for the industry. A
member of the ICBA Executive Committee and Strategic
Planning Committee, he serves on the ICBA Services Network
board of directors. Previously, he has also been chairman of
ICBA’s Congressional Affairs, Membership/Marketing, Policy
Development, Regulation Review, ICBPAC and Strategic
Planning committees and secretary of the ICBA Executive
Committee. He also recently served as an advisory board
member to the ICBA TCM Bank board of directors.
Why get so involved? “ICBA is the only organization that
has my back and protects the franchise value of my community
bank,” he says simply.
In his western New York region, Marranca is a trustee of the
New Directions Youth Foundation and a director of the County
of Cattaraugus Industrial Development Agency. He is a past
board member of the New York State Banking Department
and a director and past president of the Independent Bankers
Association of New York State.
Marranca did a tour of duty with the U.S. Army during the
Vietnam War and has completed international banking volunteer assignments in Kazakhstan, Russia and Croatia. Long
ago he has he was a senior bank examiner with the FDIC. He
also taught a class on community banking at New York’s St.
Bonaventure University.
He received a bachelor’s degree in economics from Bethany
College in West Virginia in 1968, where he was awarded the
President’s Athletic All-Conference Football Award and, in
2000, was inducted into the Bethany Athletic Hall of Fame. He
has two daughters and lives in Little Valley with his wife, Kay.
Past Chairman
Grapevine, Texas
As our industry’s leading
ambassador, Marranca is prepared
to field lots of questions from
policymakers, media and others.
IB
IB
IB
IB
Chairman-Elect
Vice Chairman
Jeffrey L. Gerhart
William A. Loving
Bank of Newman Grove,
Newman Grove, Neb.
Pendleton Community Bank,
Franklin, W.Va.
M
any community bankers come from a family tradition
of banking. Few come from a family tradition of service
to ICBA at the highest levels. A fourth-generation banker,
Jeff Gerhart draws inspiration from his parents, H.L. “Bud”
Jr. and Georgianne; Bud served a term as ICBA president in
1972. Father and son also served on the Nebraska Independent
Community Bankers board.
A fourth-generation banker,
Jeff Gerhart draws inspiration
from his parents, H.L. “Bud” Jr.
and Georgianne; Bud served a
term as ICBA president in 1972.
Chairman of the Bank of Newman Grove, Neb., Gerhart
is also chairman of ICBA’s Congressional Affairs Committee.
He has served on a variety of ICBA committees, including
Education, Federal Legislation, Payments and Technology,
Regulatory Review and Strategic Planning and as chairman of
the Policy Development Committee and co-chairman of the
silent auction at last year’s convention.
He has also been board member and chairman of the
Nebraska Independent Community Bankers. From 1999 to
2004, he was a Class A board member of the Federal Reserve
Bank of Kansas City.
Meanwhile, in our 37th state, three generations of Gerharts
serve as directors of First Newman Grove Bankshares and the
Bank of Newman Grove. The family is a big deal in a small
region: The chairman-elect also manages Gerhart Insurance
Agency in Newman Grove and is president and manager of
Marbu Inc., a family farming operation. He is a member and
past officer of the Newman Grove Community Club, treasurer
of the Newman Grove Medical Clinic, co-chairman of the
Newman Grove Community Foundation, a member of the
Vision/Newman Grove economic group and a member of the
Newman Grove Masonic Lodge 305.
Gerhart attended the University of Kansas from 1971 to
1973 and received his bachelor’s degree in business from
the University of Nebraska in 1975. He is a graduate of the
Colorado Graduate School of Banking. He has two grown children and lives in Newman Grove with his wife, Becky.
B
ill Loving handles money both as president and CEO of his
community bank and as chairman for the political action
committee for the Community Bankers of West Virginia. “We
have to contribute financially as well as personally,” he says. “It
helps us form relationships with legislators and have our voice
be heard.”
A past president of the Community Bankers of West Virginia,
Loving also serves as board member and Legislative Committee
member for the state association. He is an ICBA state director, a
member of the Policy Development Committee and chairman
of the Regulation Review Committee. He has also served on
ICBA’s Education Committee.
He has testified before Congress and the Securities and
Exchange Commission’s Advisory Committee on Smaller
Public Companies on community banking issues. He has also
represented ICBA at the Federal Reserves’ public meeting on
HMDA, the FDIC’s roundtable on deposit insurance and other
venues on regulatory priorities and issues.
Loving serves on the board of trustees and as instructor at
the West Virginia School of Banking. He is a member of the
Executive Committee-West Virginia Bankers Title, the board
of trustees of the Graduate School of Banking at Louisiana
State University (LSU) and the Pendleton County Economic
and Community Development Authority. A charter board
member of the Pendleton County Chamber of Commerce and
Pendleton County Convention and Visitors Bureau, he serves
as chairman of both organizations and was awarded the chamber’s inaugural Business Person of the Year award in 2010.
Loving studied at Concord College and Beckley College and
holds ICBA’s Certified Lender Business Banker designation.
He is a graduate of the Graduate School of Banking at LSU, the
Stonier Graduate School of Banking and the Executive Banking
Institute’s Professional Master of Banking program through the
Graduate School of Banking at LSU.
An avid boater, he lives in Franklin with his wife, Cindy.
They have two daughters.
“We have to contribute financially
as well as personally.”
— Wi l l i a m A . L o v i n g ,
Pendleton Communit y Bank
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President and CEO
Treasurer
Camden R. Fine
Jack A. Hartings
ICBA
Washington, D.C.
Peoples Bank Co., Coldwater, Ohio
L
ike a certain brand of cola, Cam Fine can call himself the
real thing: He is the only chief executive of any national
banking association with CEO banking experience. “When I
meet with policymakers, community bankers and others, these
issues are not something theoretical to me,” he says. “I have
lived them.”
Before arriving at ICBA in 2004, Fine chartered and organized Midwest Independent Bank of Jefferson City, Mo., and
served as its president and CEO for nearly 20 years. In addition,
he owned Mainstreet Bank of Ashland, Mo., a $50 million-asset
community bank.
Fine has a strong background in government as well as
banking. In 1978, he joined the Missouri state government as a
budget analyst, and in 1981, former governor and current U.S.
senator Christopher “Kit” Bond appointed him director of the
State Division of Taxation and Collection.
Under Fine’s leadership, ICBA was instrumental in winning passage of the Regulatory Relief Act of 2006 and passing deposit insurance improvement provisions in the Deficit
Reduction Act of 2006. During the recent financial crisis, ICBA
has been highly successful in Congress and with federal bank
regulatory agencies in enacting core ICBA policy positions.
These achievements include broadening the deposit insurance
assessment base for special assessments, reducing the FDIC
special assessment by nearly 75 percent and carving out community banks from new fees and examinations in proposed
consumer protection legislation.
Fine has been named by The Hill and CEO Update as one of
Washington’s most effective and influential trade-association
leaders.
Before becoming a community banker, Fine was educated at
the Virginia Military Institute and the University of MissouriColumbia. He is a distinguished graduate and past chairman
of the Stonier Graduate School of Banking. He serves on several industry related boards and committees as well as on the
president’s committee of the World Savings Bank Institute in
Brussels, Belgium.
“These issues are not something
theoretical to me.”
—Camden R. Fine,
ICBA
T
o Jack Hartings, the biggest difference serving on
ICBA’s Executive Committee makes is that he now
qualifies for frequent flyer miles. “I always wondered about
that,” he says with a laugh. “It means quicker check-in and
sometimes an upgrade to first class. Guess I’ll be using them
both more this year.”
The president and CEO of Peoples Bank Co. in Coldwater,
Ohio, Hartings has served ICBA and the community banking
industry for many years. He is an ICBA state director and is
a member of the Policy Development and Strategic Planning
committees. Previously, Hartings served as a member of the
Federal Reserve’s Small Bank Advisory Board; a board member
of the Ohio Banking Commission; and chairman, executive director and board member of the Community Bankers
Association of Ohio. He serves on the Community Bankers
Association of Ohio’s Legislative and Regulatory Committee.
(The round trip to Columbus is only 100 miles, which is no big
deal, he says.)
“Teaching challenges your
expertise and your selfconfidence.”
— Jac k A . H a rt i n g s ,
P eoples Bank C o.
Closer to home, Hartings has served as treasurer for the
Grand Lake/Mercer County Development Corp. and board
member of the Business Enterprise Center Lake Campus. He
has been treasurer and president of the Grand Lake chapter
of the National Management Association and trustee and
president of the Coldwater Chamber of Commerce. He has also
served as president of the Coldwater Kiwanis Club, trustee and
president of the Community Improvement Corp. of Mercer
County and treasurer of the Coldwater Sesquicentennial
Committee and Community Picnic Association.
Hartings has a bachelor’s degree from the Capital University
in Columbus, Ohio, and is an American Institute of Banking
instructor in principles of banking at Wright State University.
“Teaching challenges your expertise and your self-confidence,”
he says. “It shows me other perspectives and makes me more
organized and prepared.”
He lives in Coldwater, Ohio, with his wife, JoAnn.
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Secretary
Director at Large
Steven R. Gardner
Noah W. Wilcox
Pacific Premier Bank,
Costa Mesa, Calif.
Bank assets: $1.05 billion
Grand Rapids State Bank,
Grand Rapids, Minn.
H
ow has Steve Gardner helped turn around two banks and
taken on the same challenge at Pacific Premier Bank,
where he’s been president and CEO since 2000? “My best talent
is the ability to hire managers who are much smarter than me,”
he says. “I give them credit for all that we have been able to
accomplish over the past several years.” That includes acquiring
California’s Canyon National Bank in February.
For the past 26 years, Gardner has served in management
positions in credit administration, portfolio management,
lending production and operations, and risk management.
As CEO, he gets to know new managers well: “I want them to
know how I think and what I expect. I also want to learn how
they approach various situations, how they problem-solve and
how they motivate their people. I’ll share my thoughts and
approach, but I recognize that everyone is different; diversity is
what makes life and business so much fun.”
Gardner puts this analytical approach to good use for fellow
community bankers as well. He has served as a member of the
ICBA Securities board of directors and as vice chairman of the
Education Committee. He is a past president of the California
Independent Bankers and continues on its leadership committee. Why work with both state and national associations?
In California, “it’s important to connect with other bankers
and be active on state legislative matters.” With ICBA, “you
get exposed to the bigger issues. Networking opportunities are
greater, and you can influence decision-making at a national
level.”
“I’ll share my thoughts and
approach, but I recognize that
everyone is different; diversity is
what makes life and business so
much fun.”
—Steven R. Gardner,
Pa c i f i c P r e m i e r B a n k
He coaches his sons in ice hockey and has served as director of capital projects for Saint Jeanne de Lestonnac Catholic
School in Santa Ana, Calif. He holds a bachelor’s degree from
California State University, Fullerton.
He resides in Orange County with his wife, Carol, and their
five children.
“I
’ve never had a public speaking problem,” Noah Wilcox
says. When it comes to talking about banking issues, he
adds, “the subject matter is second nature.”
No surprise that Wilcox has been one of ICBA’s more vocal
members: He has been quoted in the Minneapolis Star Tribune,
St. Paul Pioneer Press, NorthWestern Financial Review, Finance
and Commerce, Minneapolis St. Paul Business Journal and
other regional publications. Starting out talking to his local
public radio station led to appearances on Minnesota Public
Radio and other media, and his op-eds have run in American
Banker—often leading to more interviews. He’s also testified
several times before Minnesota’s state legislature on bankingindustry matters.
Whether you call it “doing the
dirty work or preaching the
gospel,” Wilcox says, it’s always
important to educate the public
about community banking.
The president, CEO and vice chairman of Grand Rapids
State Bank has been an ICBA director for Minnesota since
2007. He has served on various ICBA committees including
Congressional Affairs and Tax. He is a member of the Policy
Development, Strategic Planning and ICBPAC committees. He
also serves the industry as a director for ICBA Bancard.
Back home, Wilcox is a director and vice chairman of the
Independent Community Bankers of Minnesota. He is a
member of its Legislative, Membership and Executive committees and has served on its Technology and Operations
Committee. Outside of banking, he is vice chairman of the
Grand Rapids Area Community Foundation, past chairman of
the Itasca County Family YMCA and a member of the Itasca
Economic Development Corporation Advisory Council.
Whether you call it “doing the dirty work or preaching the
gospel,” Wilcox says, it’s always important to educate the public
about community banking. His own education includes a bachelor’s degree in business administration from the University of
St. Thomas in St. Paul, Minn., and study at the Graduate School
of Banking at the University of Wisconsin-Madison.
He lives in Grand Rapids with his wife, Elizabeth, and their
two daughters.
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Director at Large
Immediate Past Chairman
James D. MacPhee
Centinel Bank,
Taos, N.M.
Kalamazoo County State Bank,
Schoolcraft, Mich.
R
ebeca Rainey sees picturesque Taos from the unusual
perspective of being a triathlete. “I certainly wasn’t athletic
growing up here,” says the third-generation banker, “so it’s a
fun, personal challenge—like running a small community bank
these days.”
In both situations, she adds, “hard work can lead you to
being strong and stable. It’s ongoing preparation and always
raising the bar to the next standard.”
The chairman and CEO of Centinel Bank is vice chairman
of the ICBA Lending Committee and chairman of the Minority
Bank Council. She is past president of the Independent Bankers
Association of New Mexico. In 2009, she was appointed to the
FDIC Advisory Committee on Community Banking, and she
was invited to meet with President Obama to discuss current
lending practices and regulatory reform.
Close to home, her community bank gives $40,000 a year in
scholarships to local high school seniors. That’s part of what
makes her job as CEO so rewarding, she says: “helping 60 staff
members make a difference in my hometown. It’s an honor to
help Taos grow and to participate in its future.”
Rainey does the same personally; besides being active in the
PTA, she is president and co-founder of the Bridges Project for
Education, which helps first-generation college students, and
president of the Northern New Mexico Birth Center. She has
also worked with the New Mexico Community Foundation,
Rocky Mountain Youth Corps, Habitat for Humanity and Taos
Feeds Taos. In 2009, she was selected as Taos Citizen of the
Year and in 2008 won a Governor’s Award for New Mexico
Outstanding Women.
Rainey is a graduate of Wellesley College and the Pacific
Coast School of Banking. Upon graduating from Wellesley, she
returned to Taos with the dream of continuing her family business of running the town’s only local community bank.
She and her husband, John, have two daughters.
“Hard work can lead you to being
strong and stable. It’s ongoing
preparation and always raising
the bar to the next standard.”
— R e b e c a R o m e r o R a i n e y,
Centinel Bank
J
im MacPhee was on duty as ICBA chairman when the
Dodd-Frank Wall Street Reform and Consumer Protection
Act was signed into law last year. Leading the country’s only
association dedicated exclusively to the interests of community
banking was an appropriate role for a man who has dedicated
his life to his industry. “It has been an amazing and rewarding
experience,” he says.
MacPhee has served on most ICBA standing committees over
the past 27 years, including as at-large director on the Executive
and Nominating committees. He represented Michigan for six
years on the ICBA board of directors and has held leadership
positions in the Community Bankers of Michigan, including its
presidency in 1997. He serves as a director—a position he has
held for more than 25 years—and as chairman of the board of
the Community Bankers Service Co.
“It has been an amazing
and rewarding experience.”
— Ja m e s D. M ac P h e e ,
K a l a m a z o o C o u n t y S tat e B a n k
MacPhee has been CEO for nearly 20 of the 39 years he has
been with Kalamazoo County State Bank in Schoolcraft, Mich.
He is also a member of the board of directors of First State
Bank in Decatur, Mich., and is now in his second term after
being re-elected to the board of the Federal Home Loan Bank
of Indianapolis.
As a civic leader, MacPhee’s long history includes serving
as chairman and charter member of the Village of Schoolcraft
Downtown Development Authority, charter member of the
Schoolcraft Community Association and the Schoolcraft
Businessmen’s Association, and chairman of the Kalamazoo
County Fair Renovation Project. He has been a director for
the Bronson Health Foundation and a member of the Bronson
Vicksburg Advisory Board.
MacPhee has an executive MBA in banking from the
University of Michigan Graduate School of Business. A U.S.
Army veteran, he lives in Portage, Mich., with his wife of 43
years, Judy. They have two daughters.
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Past Chairman
Past Chairman
Easton Bank and Trust Co.,
Easton, Md.
Bank of the West,
Grapevine, Texas
I
n the year leading up to passage of the Dodd-Frank
Wall Street Reform and Consumer Protection Act, Mike
Menzies traveled to Washington, D.C., dozens of times to testify on Capitol Hill or confer with ICBA staff and members.
It helped that he is president and CEO of Easton Bank and
Trust Co. in Easton, Md., just 90 minutes away by car from
the nation’s capital.
In addition to serving on the Executive Committee,
Menzies has served as chairman of the ICBA Bank Education,
Congressional Affairs, Membership/Marketing, Payments and
Technology, Policy Development, Strategic Planning and Tax
committees. He has also served as chairman of ICBA Mortgage.
Prior to his association with Easton Bank and Trust, Menzies
served the First Bank of Frederick, Md., first as president and
CEO and then as chairman. Early in his career, he was an executive vice president at Talbot Bank of Easton. He also held various positions with Maryland National Bank, including senior
credit officer, regional vice president, assistant vice president
for commercial banking and senior auditor.
Menzies has testified on Capitol Hill before the Senate
Finance and House Finance, Judiciary and Small Business
committees and the Senate Subcommittee on FDIC Insurance.
He has also testified before the Federal Reserve Board of
Governors.
In the year leading up to
passage of the Dodd-Frank Wall
Street Reform and Consumer
Protection Act, Mike Menzies
traveled to Washington, D.C.,
dozens of times to testify on
Capitol Hill.
His long history of involvement in his community includes
a past chairmanship of the Talbot Hospice Foundation. He
is a member of the Rotary Club of Easton and the Maryland
Institute of CPAs and the current director of the Mid Shore
Community Foundation Audit Committee.
Menzies holds an economics degree from Randolph Macon
College, he earned his CPA certificate after studies at Loyola
College in Baltimore, and he attended the University of
Virginia’s Darden School of Banking for advanced banking
studies. He is an active instrument-rated private pilot.
He has two sons and lives in Easton with his wife, Midge.
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D
uring the darkest days of the financial crisis, Cynthia
Blankenship served as ICBA’s chairman and community banking’s national ambassador. She traveled to meetings
with community bankers across the country and testified
often before the House Financial Services Committee and
the Senate Banking Committee. She attended meetings at
the White House and participated in a nationally broadcast
press conference with President Barack Obama and Treasury
Secretary Timothy Geithner. Previously, she’d been a leader of
ICBA’s Bank Education, Congressional Affairs, Membership/
Marketing, Nominating, Policy Development and Strategic
Planning committees.
In the Dallas suburbs, the charter shareholder, director and
vice chairman/chief operating officer of Bank of the West
chaired the Independent Bankers Association of Texas in
2002 and the IBAT Education Foundation, which has raised
more than $1 million for financial literacy. Blankenship was
appointed Dean for Bankers and chaired the Southwestern
School of Banking Foundation at Southern Methodist
University. In 2009, she received the Distinguished Alumni
Award from the Southwestern Graduate School of Banking–
Southern Methodist University Cox School of Business. In
2004, U.S. Banker magazine named her one of the 50 Most
Powerful Women in Banking. In 2010, she was named one of
the 2010 Great Women of Texas.
Blankenship has served her community through the
Colleyville Women’s Club, the Community Bankers Education
Foundation, the Bear Creek Community Development Project,
Dallas Summer Musicals and activities relating to Community
Banking Month at Bank of the West. She is a member of the
Grapevine Chamber of Commerce and recipient of the 1999
Arts Education Award and the 2004 Colleyville Women’s
Club Novus Award. In 2009, she chaired the Grapevine-based
GrapeFest’s annual gala, which focuses on Texas wineries and is
one of the Southwest’s largest community events.
With eight locations, Blankenship’s community bank specializes in small-business lending. She lives in Grapevine with
her husband, Gary. They have three daughters.
In 2004, U.S. Banker magazine
named her one of the 50 Most
Powerful Women in Banking. In
2010, she was named one of the
2010 Great Women of Texas.
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Allies in
By Apryl Motley
How
outsourcing
your
community
bank’s
compliance
audits could
help gain
efficiencies
and cost
savings
Auditing
B
roadly speaking, an audit is an official examination and verification of accounts and records,
especially of financial accounts. Put that way, an
audit doesn’t sound quite so bad. However, the
various audits required by the financial regulatory agencies
can prove challenging for those community banks lacking
the necessary resources and staff to complete them in-house.
For those banks, staying abreast of new regulations can
be a monumental task. Auditing a community bank’s overall
compliance policies and procedures can sometimes be more
efficiently managed with the assistance of an outside consulting firm with the appropriate special expertise.
“Regulations kept evolving, and our compliance officer
was wearing many hats,” recalls John D. Marchell, president
of First State Bank, a $136 million-asset community bank in
South Grand Forks, N.D. “We decided
it was time to have someone come
in and focus solely on compliance.” Thus began the bank’s
decade-long relationship with Phoenix-based accounting
firm Eide Bailly LLP.
Similar concerns led $405 million-asset American
Founders Bank in Lexington, Ky., to outsource its compliance audit function. “We’re a small bank, and while we
have an internal auditor, she manages audits more than she
actually does them,” explains Stephanie Renner, a senior vice
president at the bank and head of compliance and administration. “She does other things, and it’s difficult to keep the
review independent. Banks our size need an outside auditor.”
American Founders began working with Bankers Service
Corp., a regulatory and risk management consultancy also
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Choosing a Compliance Consultant
C
ompliance consultants say that a community bank’s initial decision to
work with their firms is less about them and more about what the bank
needs. Ann Rockswold, senior manager at the compliance consulting firm
Eide Bailly, encourages banks to review their exam histories and identify
specific needs as they consider whether to outsource their compliance
functions.
One way to do this is by completing a thorough risk assessment. Charles
Garrison of Fortner, Bayens, Levkulich & Garrison PC says that banks
often miss this step before outsourcing. “We can walk banks through this
process, but we insist that they do it so that we can take a more targeted
approach to working with them,” he says.
Scott Opdahl, director of financial institutions compliance at Houstonbased Weaver LLP, agrees that “a compliance risk assessment is necessary
and often helps control costs because the relationship with the bank is
more focused.” Opdahl’s colleague Sarah Johnson, a certified community
bank compliance officer, says conducting an overall compliance risk assessment saves banks resources on the back end: “Once that assessment is
performed, we can focus on the areas that pose the most risk and build
relationships with staff members who own those processes.”
After community banks have determined their compliance auditing needs,
they can begin to evaluate consulting firms to determine which ones will
provide the best service and value. In addition to evaluating a firm’s qualifications and level of expertise, compliance consultants say community
banks should give these factors special consideration when selecting an
outsourcing partner:
Request relevant references. “Depending on what services the bank
needs, ask firms to tailor their references based on bank size and the sophistication of the compliance program,” advises Matt Evans, CEO of Bank Service
Corp. in Lexington, Ky.
Ask about accessibility. Find out who the primary contact will be for your
community bank. How easy is it to get in touch with that person? What standards will the firm put in writing to ensure quick responses to urgent questions?
“You shouldn’t have to wait a week for a return phone call,” Evans says.
Select strong staff. Banks still need skilled compliance officers who can
work closely with their outsourcing partners. “The scope of our work depends
on the depth of the skills that the bank has in the compliance function internally,” Opdahl explains. “Banks may think that they can outsource the compliance officer’s duties, but that’s not possible or acceptable to regulators.”
in Lexington, three years ago
when the firm handled the bank’s
loan reviews, but for the past year,
the relationship has focused on
compliance.
Rock Springs National Bank,
a $341 million-asset institution
in Wyoming, started a similar
outsourcing relationship with
Denver accounting and advisory
firm Fortner, Bayens, Levkulich
& Garrison PC to help the community bank better manage its
overall compliance program irrespective of any changes in its staff.
“I came to the bank 15 years ago
as an internal auditor,” says Ben
Hansen, the bank’s chief financial
and trust officer. “We tried hiring
someone from an accounting firm
and teaching him what to do, but
he left the bank after three years.
We ended up back at square one,
and that doesn’t happen when you
outsource.”
From enhancing their compliance programs and becoming
more efficient to managing staff
changes, here’s a closer look at how
these three community banks have
made the most of their relationships with the firms that oversee
their compliance audits.
OUTSOURCED,
NOT DIVORCED
First State Bank, which has three
locations, hired its first full-time
compliance officer last year.
According to Marchell, the community bank did so with the
expectation that this staff member
would work closely with its outsourced compliance vendor, Eide
Bailly.
“You’re never totally outsourced.
You have to have someone on
staff at the bank,” Marchell says.
“Regulators look for day-to-day
practice. You can’t just say, ‘I’ve
hired a firm, so I don’t have to
worry about compliance anymore.’
It’s an ongoing effort between the
vendor and the bank.”
Ann Rockswold, a senior
manager at Eide Bailly, worked
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with First State Bank initially to
establish its relationship with the
firm. She agrees with Marchell
that stronger compliance programs are collaborative efforts
between banks and their vendors: “Working with a consultant
will lessen the workload internally and provide efficiencies,
but the work doesn’t go away
entirely. Management has to support staff internally and provide
the resources and time needed to
make the program successful.”
Staff members from Eide
Bailly come into First State Bank
quarterly to perform audits; the
most recent was of the bank’s
compliance with the Fair Credit
Reporting Act. But the firm’s communication on compliance issues
with Marchell and other staff at
First State Bank is ongoing. “We’re
in communication two or three
times a month, and someone talks
to our compliance officer at least
once a week,” Marchell says.
Maintaining contact with the
firm and leveraging its expertise
has been one of the primary benefits of First State Bank’s decision
to outsource its compliance audits.
“They see so much from other
banks, and they are constantly
going through exams,” Marchell
explains. “They see the hot buttons
and how changes in regulations
are being implemented, which
saves us time and helps us to stay
ahead of the curve.”
Marchell says that along with
First State Bank’s compliance officer, the bank’s senior staff and
board of directors annually review
its relationship with the firm. They
discuss what’s working well and
how the partnership can continue
to improve. The bank’s compliance
training program is one example
of how their relationship with the
firm has evolved.
“When we started, they did all of
our compliance training, but now
our internal staff person facilitates
face-to-face training in consultation with Eide Bailly,” Marchell
explains. “They help us develop an
annual outline for our training.”
This change serves to underscore the importance of First
State Bank’s internal 35-person
staff maintaining ownership of its
overall compliance program. “Eide
Bailly is a resource, but they are
not a catchall,” Marchell emphasizes. “Everyone at the bank is
responsible for compliance.”
ONE SIZE FITS SMALL
During the last three years, Bank
Service Corp. has assisted the staff
at American Founders Bank, which
has seven locations, in fulfilling its
compliance functions. The consulting firm performs an overall audit
of the bank’s internal processes and
procedures semiannually as well as
audits of its compliance with different lending regulations, including RESPA, HMDA and the Flood
Disaster Act.
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IB
IB
4
Questions
to Consider
By Fran V. Sponsler
K
eeping up with all the new and existing regulatory issues can be a challenge for community
banks, and at some point many face the decision
of whether to outsource much of this function
to an outside firm. Below are four questions your
community bank should ask while considering
this decision.
1
Does your bank have sufficient staff
to handle compliance? Compliance
officers at most community banks wear
multiple hats because their institutions
cannot commit the resources to a full-time compliance position. Outside firms can offer personnel
who do nothing but compliance for community
banks. While the focus over the last several years
has undoubtedly shifted to asset quality and other
safety and soundness concerns, the regulatory
burden of maintaining a sound compliance program
has not lessened, and the time requirements for
this position will likely increase.
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IB
“We are in a lot of different institutions seeing different
examinations,” says Matt Evans,
CEO of Bank Service Corp. “We
can identify trends and share
them with other banks, which
helps them identify priorities.
Our goal is to have positive and
proactive relationships where we
assist banks in getting the regs
right.”
American Founders Bank does
not formally have a compliance
department, says Renner, the only
one of the bank’s 90-plus employees dedicated to compliance.
Instead, the managers overseeing
each of the community bank’s
lines of business are responsible
for handling compliance in their
areas on a day-to-day basis.”
In her role as head of compliance, Renner writes policies,
identifies training needs and performs monthly loan reviews. She
acknowledges that her role may
be different from that of compliance officers at other community
banks: “We have staff members
who are knowledgeable about the
IB
2
Does your staff have the
expertise? Assigning a person to
the compliance role is not enough.
To be effective, that officer
must feel comfortable teaching employees
how new rules affect their daily responsibilities. Your bank’s compliance officer
needs to be able to research and interpret
new regulations and gauge their effect.
Additionally, he or she must be able to
address prior examination concerns and
criticisms through changes to procedures
and training at all levels.
In addition, a competent external compliance resource can act as a mentor and
sounding board for internal compliance
personnel. Part of a comprehensive external
compliance program should include training
for your bank’s compliance officer as well as
for tellers, retail bankers, loan personnel and
members of the board of directors.
regulations in their specific areas.
My job is to create systems and
processes to make sure the compliance function works efficiently
throughout the bank.”
Renner
says
American
Founders Bank’s relationship with
Bank Service Corp. provides her
with confirmation that these processes and procedures are indeed
working properly. For example,
after the bank’s most recent audit
of lending in September, the auditor came to a board meeting and
confirmed what Renner had been
telling the bank’s directors for
months. “They provide confirmation that you’re doing things right
and identifying risks appropriately,” she says.
According to Evans, Bank
Service Corp. rarely finds a problem that Renner hasn’t already
identified, but that’s not to say that
his team doesn’t come across issues.
A former FDIC examiner, Evans
says that examiners know that there
will be violations, but they are more
concerned that banks have systems
to identify and rectify problems.
IB
3
Can your bank track all of its
compliance issues? An outside
firm has the benefit of knowing
regulatory hot buttons because it
sees regulator comments in so many other
situations. An outside firm’s role is to keep
up with all current and potential regulatory
changes. It can help your bank manage
these changes and ensure that you implement all the requirements correctly.
Fran V. Sponsler
is director of
regulatory
compliance services
with Fortner,
Bayens, Levkulich
& Garrison PC,
a Denver-based
CPA firm that
specializes in the
needs of community
banks. Reach her at
sponslerf@fbl-cpa.
com.
4
In sum, could an outside
agency handle much of your
bank compliance officer’s
work to free up that valuable
resource for other key activities? Often
your community bank’s limited resources
can be better used in an area other than
compliance. How else might you deploy your
staff member?
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IB
“Regulators want an audit,
which leaves banks with two
choices: being big enough to have
an audit function or being smaller
and needing to outsource. If examiners haven’t already pointed this
out, they will,” Renner says.
Renner says American Founders
Bank’s managers knew they didn’t
have the capacity to manage this
necessary function in-house, and
they wanted to work with a local
firm. “It builds trust,” she says. “An
effective compliance audit involves
coming into the bank and seeing
how people work and interact.”
LESS COST,
MORE EXPERTISE
What does it cost us to hire someone for this job? What are we
getting out of it? Would our time
and money be better spent hiring
someone with more expertise?
These were the questions that
Hansen and other members of
the senior management team at
Rock Springs National Bank began
asking themselves when its internal auditor left the community
bank after only three years. As it
turns out, the auditor’s departure
came with cost-saving advantages
the bank’s managers didn’t foresee.
Hansen says the Rock Springs
National’s outsourcing relationship allowed the bank to gain compliance expertise at less cost. “We
have a better compliance program
than we did when we had someone on staff internally,” he says.
Charles Garrison, CEO of
Fortner, Bayens, Levkulich &
Garrison, spends a lot of time on
site at Rock Springs National, and
he says while the community bank
has very competent staff, it’s difficult to find locally the appropriate compliance expertise that the
institution needs. “They do their
own risk assessment, but completing their IT, compliance, internal
operations and trust audits internally could mean hiring four different people,” he explains. “In a town
that size, it would be difficult to
find professionals with those skills.”
With close to 60 employees
and two branches, Rock Springs
National is considered a large
community bank for Wyoming.
The bank’s compliance officer is
responsible for following up on the
firm’s audit reports to make sure
its recommendations are implemented. “Our compliance officer
keeps up with the regulations as
things unfold every day in the
compliance area, and he makes
sure our procedures address everything accordingly,” Hansen says.
“He does limited checks in some
areas, primarily those in which
the firm has identified problems
in the past.”
Both Hansen and the bank’s
compliance officer are in contact
with the consulting firm regularly:
“If we can’t answer a question ourselves, we look to the firm. They
might also help us to settle a difference of opinion.”
Hansen does acknowledge that
working with an outside firm is
not the same as having someone
on staff who has not only knowledge and expertise regarding
compliance issues but an intimate
understanding of how the bank
works on a day-to-day basis.
However, given the increasing
complexity of the regulatory environment, Hansen says having an
outsourcing relationship is the best
option for his bank. “There’s more
and more to monitor and report
on. It never gets smaller; it always
gets larger,” he says. “If you don’t
have an outsourcing relationship,
I don’t how it’s possible keep up
with everything in a way that you
can afford and not let things slip
through the cracks.”
Apryl Motley, a writer in Columbia,
Md., is a regular IB contributor.
IB
IB
IB
IB
BUILDING
BRANDS
and
COMMUNITY
TIES
The nationwide celebration of Community Banking Month in April
reinforces our industry’s special role
By Carol Patton
IB
IB
Community Banking
Month—2011
T
his month Badger Bank in
Fort Atkinson, Wis., is cosponsoring a family concert
starring Doug Gabriel, a singing guitarist from Branson, Mo.,
and donating the proceeds to the
School District of Cambridge
music program.
“This is us trying to help
our community,” explains Steve
Dehnert, CEO and president
at Badger Bank, which has 54
employees at three branches and
assets of $110 million. “We don’t
look at it as return on investment. It’s what I consider a return
on involvement. The bank is
only going to be as strong as the
community.”
All year long, community
banks build their brand by differentiating themselves from
national and multinational
banks. But in April, during
Community Banking Month,
they turn up the volume. Pizza
parties. Food drives. Contests.
While the activities differ, the
message to the community is the
same: We care.
During Community Banking
Month, members of ICBA and its
affiliated state community banking associations celebrate the
vital role that community banks
play in the economic, civic and
cultural life of their cities and
towns throughout America. Some
community banks participate by
partnering with local charities to
host special events; others promote economic development initiatives. Many community banks
traditionally mark the month
by expanding their community
service or financial education
programs.
“Community Banking Month
gives us an opportunity to honor
our communities, and through
our awards, those community
banks that go above and beyond
in improving the quality of life
of their communities,” says
Chris Lorence, ICBA senior vice
president/chief marketing officer. (For more on the ICBA community bank service awards, see
page 59.)
Badger Bank’s other activities during Community Banking
Month include promoting local
companies—encouraging people
to buy products and services from
businesses in the communities it
serves. But to avoid the misperception that the events are a marketing ploy, the community bank
won’t track whether the concert
or promotions encourage people
to open new accounts.
“Getting our employees
involved in the community, and
the community with us, forms
those relationships we work so
hard [to develop] and spend so
much money on through traditional advertising,” says Dehnert.
Community Banking Month
offers the opportunity to call
attention to the good works that
local banks, like Badger Bank, do
every month—and to educate the
public about the value of community investment and commonsense financial dealings.
Bankers’ Bank Northeast, in
Glastonbury, Conn., serves 200
community banks throughout the
Northeast. The $105 million-asset
bank presented DVDs of It’s a
Wonderful Life to its 31 employees
and 58 investors last Christmas in
hopes of generating creative ideas
for this Community Banking
Month, says Pete Sposito, the
bank’s president and CEO: “We
received many positive responses
from the mailing. People had fun
with the classic movie.
“One of the initiatives our
board decided to take on is
being a visible proponent of the
community bank concept,” adds
Sposito. His bank hired a marketing consultant to write articles
for publication this month about
the different ways community
‘I Love
My Community
Bank’ Campaign
Off to Strong Start
Since its kickoff in mid-February, a nationwide community
bank awareness campaign by
ICBA and its state community
banking association affiliates has grabbed the public’s
imagination. The grassrootsstyle social media campaign
allows consumers and small
businesses to share testimonials of their experience with
their own community bank.
The campaign’s website can
accept testimonials through
videos, photos, Twitter (@iLuvmycb) or written statements.
Echoing hundreds of thousands of community bankers,
customer Janelle Hetisimer
of Dallas, Ga., who uses
Community & Southern Bank,
wrote, “A community bank
is made up of community
people—the people who work
there are folks who live down
the street; whose kids go to
school with my kids; and whom
I see at the grocery store, at
ball games and at church. ...
“It may be sponsoring the
local ball team, volunteering
IB
IB
Community Banking
Month—2011
‘I Love My Community Bank’
It’s not too late
It’s not too late to participate in
Community Banking Month and Financial
Literacy Month! ICBA has resources to
help your bank participate in both events
this April. With ICBA’s turnkey press
and marketing materials, preparing for
Community Banking Month is easy. Also,
up-to-date financial literacy resources are
available on ICBA’s website.
To find Community Banking Month
resources, go to www.icba.org and
click on “About Community Banking.”
To find financial literacy resources, go to
www.icba.org and click on “Consumer
Education & Resources.”
whom I see at the grocery
store, at ball games and
at church. ...
“It may be sponsoring
the local ball team, volunteering in schools or even
saying no to a loan that
someone cannot afford.
But it is also working with
that person to determine
a plan to help them get
where they want to be.
Caring for the people that
bank with you, who also
live in your neighborhood
and go to your clubs and
churches—that’s community banking.”
Then there are the personal details and anecdotes that make this case.
Discussing a local student
who collapsed during a
basketball game, Brian
Mort wrote, “He’s still in
the hospital recovering,
and communities around
the state of Minnesota are
pitching in to help defray
medical costs. But United
Community Bank set up a
fund for people to donate
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During Community Banking
Month, West Valley National
Bank hosts events like wine
tastings and cocktail parties
to showcase the work of local
artists.
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IB
At Southern Bancorp, employees who regularly volunteer
are rewarded with “community
points” toward prizes.
IB
Campaign Offf to Strong Start
to and ran this bake sale
that yielded over $1,000
in less than a few hours.”
And you can practically
hear community bankers
cheer at this one, from
Chicago’s Michelle Elliott,
a customer of Midwest
Bank of Western Illinois:
“There is always a person
on the other end of the
phone who can instantly
help with any problem I
have, and better yet, they
know me! I’ve stayed with
my central Illinois hometown bank through high
school, college, while living
in Boston and now while
living in Chicago.
“All my city friends who
bank with the big guys
(Chase, Citi, etc.) are
amazed at the service my
hometown bank offers.
They’re jealous of the low
fees, people who know
and actually help me ....
I’ll never switch after hearing all the horror stories
from my friends who are
with the big banks.”
Community banks participating in the campaign
can receive customized
turnkey ads featuring their
customers’ testimonials
along with their bank’s
logo and contact information. The customized ad
materials, available for
banks to place locally, will
also have the campaign’s
standard logo and “financial foundation of the
nation” tagline.
For details on getting involved, go to
www.ilovemycommunitybank.com.
IB
IB
Community Banking
Month—2011
banks help neighborhoods. “It’s
very difficult and uncomfortable
for a single community bank to
publicize how it’s different from
Wall Street banks,” he says. “As a
bankers’ bank, we’re in a position
to blow their horn for them.”
Local variations
First National Bank of River Falls,
Wis., which employs 85 people at
four locations, plans on celebrating Community Banking Month
in style again this year. The $300
million-asset bank budgeted
about $1,500 to support a variety of activities throughout the
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month, says President and CEO
Jeff Johnson.
During the first week of April,
the bank will push its “Go Green”
theme by encouraging customers
to sign up for electronic services,
such as e-statements, rewarding
participants with a water bottle.
For every converted customer,
employees earn $1 and an entry
in the bank’s monthly drawing for
one of three $25 gift cards for a
local vendor.
The following week, lobbies
will display photos of employees
throughout the bank’s 107-year
history and serve old-fashioned
root-beer floats. Customers with
the most ancestors who banked
with First National will be recognized in local newspaper ads and
the bank’s customer newsletter
and at a public ceremony.
During the third week, free
on-site seminars will cover identity theft, cybersafety and Social
Security safety. And during April’s
last week, daily refreshments will
be offered in the lobby; on Friday
of that week, local residents will
be invited to shred sensitive
documents.
Johnson hopes 5 percent of
customers will convert to e-statements and that each branch opens
one new deposit account per day.
“It gives us the opportunity to
cross-sell our banking products,”
he says. “Each e-statement saves
us roughly $2 a month. It can pay
for the [Go Green] week several
times over.”
In Arizona—hard hit by the
recession—West Valley National
Bank in Avondale began focusing
last year on local artists who had
trouble finding venues to showcase their work, says Candace
Wiest, president and CEO at the
$40 million-asset community
bank, with 12 employees at two
branches.
Last year it sponsored three
cocktail parties, each promoting
a local artist. The third party was
IB
Stable, successful homeowners are the
building blocks to a thriving community.
Help your borrowers become successful
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intentionally scheduled during
Community Banking Month. As
many as 85 customers, shareholders and Chamber of Commerce
members typically attend each
event, which costs up to $1,200.
Starting this April, another artist
will display her paintings for sale
in the bank’s lobby and boardroom for up to three months.
“As a result of these events, we
get a lot of free local press that we
could never afford,” says Wiest.
A more direct benefit: Holding
receptions and volunteering for
charitable causes have helped the
bank secure new business.
Helping hands
For some banks, Community
Banking Month has become synonymous not just with marketing
but with charitable giving.
Southern Bancorp is a good
example. This April, the community development bank will offer
federal and state tax preparation
for local residents, says Dominik
Mjartan, senior vice president of
corporate strategy and communications in Little Rock, Ark. The
bank has $1.1 billion in assets
and more than 350 employees at
40 branches throughout Arkansas
and Mississippi.
This year, 47 IRS-certified
employees will be preparing
tax returns at 12 branches and
IB
offering split refunds, encouraging people to deposit half of their
refunds into a savings account. “A
lot of tax preparers are not aware
of the earned income tax credit
component and charge between
$100 and $200,” he says. “We
believe it’s a strong way to reinforce one of our corporate goals—
to reduce poverty by 50 percent in
the communities we serve.”
Last year, Southern Bancorp
helped 2,200 people complete
their tax returns, putting more
than $4 million in refunds into
their pockets, he says. Employees
earn community points for volunteering, which are redeemed
for merchandise at the company’s
store, and those with the most
points are eligible for a drawing
for a piece of high-end merchandise, such as a TV.
Still, Mjartan believes these
financial rewards take a back seat
to a higher one—the intrinsic
satisfaction of helping neighbors,
friends and family.
“Our
greatest
volunteer
activity of the year falls during
Community Banking Month,”
Mjartan says. “It certainly does
make this symbolic statement
that during Community Banking
Month we go so far beyond our
traditional activities.”
Carol Patton is a writer in Las Vegas.
At First National
Bank of River
Falls, employees
contribute to
Community
Banking Month
in a number of
ways, including
by raising funds
for charitable
causes.
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2011
1
NATIONAL
ICBA
COMMUNITY BANK
SERVICE
AWARDS
I
CBA founded the National Community Bank Service Awards
program to help celebrate and recognize outstanding volunteer
civic efforts of community banks nationwide. The awards are
bestowed annually on ICBA member banks that demonstrate longstanding commitment to community outreach and development.
ICBA 2011 National Community Bank Service
Award Recipients
KAREN
GARY
TRAPKUS,
Hilltop
National
B ank, Casper,
IND IE
t h e
ER
BA NK
t h
DENAS,
C ardinal
ean,
B ank, McL
Va.
S
m o n
o f
L
NATIONA
2011 ICBA SERVICE
BANK
ITY
TS
COMMUN
RECIPIEN
AWARD
c h in g
Ch an ne
ls
OR
SCHOOLS
GET
THROUGH
G KIDS
ITY BANKS
REACHIN
S, COMMUN
WHETHER
AIRWAVE
L LITERACY
OVER THE
AT FINANCIA
CREATIVE
ADULTS
STUDI
O
on page
27
LIE
SHIN
PHOTO
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Elizabeth
Woodbridge
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To teach
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$2.07 billion-asset McLean—w
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about money
Denas learnedan avid coin colfather,
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Hilltop
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Gary
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For most president of marvice
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He wrote
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radio show,
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BY
Patton
O
PHOT
Grand National Recipient
First Bank of Berne, Ind.
By Carol
www.icba.org
nker 25
ICBA IndependentBa
O
PHOT
BY
CAME
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26
24 ICBA
National Award Recipients
Reliance Bank, Faribault, Minn.
Allied First Bank, Oswego, Ill.
Southern Bancorp, Arkadelphia, Ark.
Read about the
recipients of the
Financial Literacy
Category of the ICBA
National Community
Bank Service Awards
in this issue’s Indie
Banker.
Financial Literacy Category
Hilltop National Bank, Casper, Wyo.
Cardinal Bank, McLean, Va.
Look for calls from ICBA next fall for nominations
for the 2012 awards program.
see page 24
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g
a.or
.icb
www
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2011
ICBA NATIONAL
COMMUNITY BANK
SERVICE
AWARDS
A POLICY GIVING
of
GIVES BACK
IN INDIANA, FIRST BANK OF BERNE GETS
FORMAL ABOUT REGULARLY DONATING
PROFITS TO COMMUNITY CAUSES
IB
PHOTOS
BY
ASHLEY DELLINGER
IB
W
hen immigrants from
Bern, Switzerland,
established the town
of Berne, Ind., in 1891, they
probably couldn’t imagine the
eventual effect of Berne’s community bank: First Bank of Berne
is one of the leading supporters of nonprofit programs there
and in the eight nearby areas in
which it has branches (the latest
is in Van Wert, Ohio).
“This bank has always had a
policy of contributing back to the
community,” says Kent Liechty, a
native Berne resident who began
serving as First Bank of Berne’s
CEO and president last May.
“Sometimes it was employees
giving their time; others it was
actual monetary donations.”
About 10 years ago, First
Bank created a formal community donation and giving-back
program under previous chief
executive Charles Isch. Since the
program’s launch with $20,000,
the community bank’s donations
and tangible dividends in helping
people have grown exponentially.
Last year the bank gave approximately $200,000 to about 95 local
nonprofit groups and charitable
causes. “And that’s only counting
the official contributions of $500
and up,” adds Teresa Flaugher,
First Bank’s marketing director.
First Bank’s community giving
program emphasizes family-oriented causes that in turn support many others—such as 4-H,
Junior Achievement and the
Boys and Girls Clubs of America,
Liechty says. The bank’s employees also seek less well-known
but still worthy causes to receive
donations. That’s how some of
the program’s donation money
went to a women’s shelter in Van
Wert, while other funds went
toward enhancing a playground
in Decatur, Ind.
“For a decent playground, we
had to drive our kids almost 45
minutes to Fort Wayne,” says Abby
Dyer, who chaired the fundraising efforts of her local chapter of
Mothers of Pre-Schoolers (MOPS),
an international support network
for women with young children.
“I have three kids, ages five,
four and 19 months, so that’s
quite an expedition,” she adds.
“When First Bank of Berne gave
us $1,000, we were thrilled. It
acted as our seed money and gave
us confidence to proceed.” The
10 members ultimately raised
more than $50,000, and their new
playground equipment is to be
installed this spring.
Penny Parrish, Decatur’s
branch manager, discovered
MOPS’s need through her
involvement with the Rotary
Club. Another cause she works
with is a nonprofit called Walk
for Warmth, which helps pay
winter energy costs for lowincome residents.
This kind of networking and
volunteerism is standard among
First Bank employees—and it
adds up to help many people and
families throughout the community bank’s service area. As the
Troubled Asset Relief Program
started in 2008, Parrish recalls, “we
Under President
and CEO Kent
Liechty (left),
marketing
director Teresa
Flaugher (center)
and former CEO
and current board
member Charles
Isch (right), First
Bank of Berne
donated $200,000
to about 95 local
nonprofits in
2010—including
the local Boys
& Girls Club
(pictured above
and left).
IB
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2011
ICBA NATIONAL
COMMUNITY BANK
SERVICE
AWARDS
Do You Know a
Community Bank
Like These?
Maybe it’s yours or one
you’ve been affiliated
with. Tell us the story of
a community bank or
banker who has been
as good a neighbor as
those described here.
Write to ICBA Independent
Banker at
[email protected].
We’ll consider suggestions
for future coverage.
National Award Winners
Reliance Bank
Allied First Bank
Faribault, Minn.
Oswego, Ill.
To support the 62 percent of
children at Jefferson Elementary
School in Faribault, Minn., on
the subsidized-meal program,
Reliance Bank created the
nonprofit Faribault Foundation
to buy food at a reduced cost.
That food went into backpacks
for the children to take home
over weekends and other breaks
when school lunch wasn’t available. The community bank asked
local companies for monetary
and in-kind donations. For the
summer, Reliance Bank worked
with teachers and a program for
underprivileged kids to distribute
240 bags of food a week.
The Basic Blessings Backpack
Program has expanded to two
other elementary schools to
serve a total of 85 hungry
children a week. Reliance staff
packs donated 12- by 14-inch
bags, which teachers slip into
designated children’s backpacks
at the end of each week. Each
bag includes two breakfasts, two
main meals and healthy snacks.
“Learning is compromised
when a child is hungry,” says
Gretchen Moe, Reliance Bank’s
universal banker.
Realizing that local children
needed better ways to stay
active, blow off steam and
develop both academic and
life skills, Allied First Bank
tried a three-prong approach,
largely through athletics. First,
when the community bank
built its Oswego location, it
included a basketball court,
which is open every day.
“There are always five to 20
kids playing pick-up games
when school is not in session,” says Andy Hardin, vice
president of operations and
marketing.
Allied First Bank also sponsors a competition between
two high schools’ varsity
teams of all types. The winner
of the CrossTown Challenge
gets to display the trophy for
the next school year. The community bank donates $5,000
to each school’s athletic
department. And it offers
20 scholarships of $10,000
each, covering five academic
areas, which schools award to
graduating seniors.
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Southern Bancorp
Cardinal Bank
Arkadelphia, Ark.
Casper, Wyo.
McLean, Va.
As the nation’s largest rural
development bank, Southern
Bancorp has an acute stake
in the health of the communities its 45 branches serve.
In 2005, CEO Phil Baldwin
realized that the Mississippi
Delta was mired in “widespread persistent poverty and
crumbling civic, governmental
and physical infrastructure”—
and that his community bank
could help. It pioneered a
strategic planning process for
revitalization.
Southern Bancorp builds
long-term partnerships with
local leaders, businesses and
nonprofits to establish goals
and develop ways to achieve
them. Among the community
bank’s own goals is a 20-year
commitment to decrease poverty and unemployment and
increase high school graduation by 50 percent in selected
communities. It has invested
more than $120 million, plus
$2.6 billion in loans, in local
revitalization projects. For
example, a new charter school
system has nearly doubled
one county’s number of college-bound seniors. The community bank’s work has reaped
national recognition. (See ICBA
Independent Banker’s July
2010 Indie Banker article for
more details.)
Starting in the 1980s, this community bank has promoted itself
by educating customers—first
with more than 1,000 two-tothree-minute radio spots called
“Financial Straight Talk,” then
with hundreds of radio and TV
testimonials from local business
owners, then this past decade
with TV spots. Although the radio
program was designed as a
community education tool, it also
promoted the bank, positioning
it as a trusted source of information. Morning-drive discussions,
for example, answered questions
about banking terms, while TV
spots focused on preventing
fraud and identity theft.
Hilltop National Bank’s asset
size soared from $77 million in
1986 to $500 million today, and
its trust and financial services
department jumped from less
than $10 million to $750 million. “If you really try to get on
the customer’s side of the desk
and start with their perspective,
it guides you, and everything
else falls into place,” says Gary
Trapkus, vice president of marketing, who has heard years of
positive feedback. “Our customers are fiercely loyal. We have
customers in 49 states and five
continents.”
When an elementary school
principal wanted an activity to
teach financial literacy, volunteer
Karen Denas suggested setting
up a real bank for kids to work
at. Denas, senior vice president
and retail division manager at
$2.07 billion-asset Cardinal
Bank, helped the school create a
makeshift bank in which preteens took classmates’ deposits, which were then deposited
at a Cardinal Bank branch.
Youngsters learn teamwork
and economic terms such as
budgeting and saving; student
“employees” gain work-related
experience; and young depositors earn 2.51 percent interest.
Today, 10 elementary and
middle schools in Cardinal
Bank’s service area have
their own bank. More than
1,400 savings accounts have
been opened, with more than
$400,000 in balances. The
school bank has been featured
on local TV news several times
and received an award in 2005
for best practices in school-tobusiness partnerships. Denas
mentors a dozen Cardinal Bank
employees who work with the
schools. The school banks have
helped Cardinal Bank build its
brand among different generations, says Alice Frazier, chief
operating officer, and the community bank even includes the
school branches as part of its
footprint in annual reports.
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2011
ICBA NATIONAL
COMMUNITY BANK
SERVICE
AWARDS
“This bank has always had a policy of contributing
back to the community. Sometimes it was
employees giving their time; others it was actual
monetary donations.”
— K e n t L i e c h t y,
CEO and President
First Bank of Berne, Ind.
This Year’s Judges
ICBA appreciates the following
people who generously gave their
expertise and perspective to the
process of choosing the 2011
National Community Bank Service
Award winners:
Frank D’Angelo
FIS, EXECUTIVE VICE PRESIDENT,
PAYMENT SOLUTIONS GROUP
Heather Evans Keenan
KEENAN PR, PRESIDENT
Eugene Kim
ICBA, ASSOCIATE DIRECTOR OF
MARKETING STRATEGY AND ANALYTICS
Lindsey Reilly
FIRST CITIZENS BANK OF BUTTE, MONT.,
MARKETING DIRECTOR AND COMPLIANCE OFFICER
Julie Smith
BREMMER & GORIS COMMUNICATIONS,
DIRECTOR OF OPERATIONS
got a lot of crossover from people
who were disenchanted with how
the bigger banking entities treated
them.” And with the giving program in place, First Bank’s surrounding community benefited as
much from the surge by consumers to seek out community banks
as did the bank itself.
Here’s how First Bank determines the donations it makes
through its giving program: The
central office has developed a
formula that determines both its
total profit bankwide and what
percentage of that profit can be
attributed to each branch. So if 2
percent of First Bank’s profits for
2010 were attributed to branch
X, branch X would received 2
percent of the $200,000 to distribute as community donations.
Branches have no quotas to
meet; instead, contributing to
the bank’s success helps community employees give back to their
community, which Flaugher
believes is a win-win situation.
Despite the uncertain economy
during the recession, First Bank
went from $415 million in assets
in 2009 to $426 million early
this year, something Liechty also
attributes in part to the community bank’s formal and highly
visible donation program.
While upper management
approves donations, the bank’s
115 employees help determine
which organizations receive
money as well. “I don’t live in
Van Wert, I wasn’t raised there,
so I can’t have my finger on the
pulse of the community’s needs
the way someone who’s a citizen
can,” Liechty says.
With only nine employees in
First Bank’s branch in Portland,
Ind., the giving from that facility alone has had a major effect
on the quality of life of many
individuals and families. Around
2001, for example, the nonprofit
John Jay Center for Learning was
seeking to buy an abandoned
historic department store in
Portland to convert to a permanent office and space for a wide
range of classes, including some
from the community college,
some for vocational training and
some for special needs. The bank
stepped in to help donate for
the renovation, giving $5,000 five
years in a row.
“We have more than 100 windows that needed blinds, and
the bank paid for them all. And
then when we found, despite
our fundraising, we’d still need a
mortgage, First Bank was one of
only two [lenders] in the entire
county that stepped up,” says Rob
Weaver, the school’s executive
director at the time. “If every
community had a few businesses
like First Bank of Berne, many
of their local problems would be
solved.”
Wendy J. Meyeroff is a business
writer in Baltimore.
IB
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www.fisglobal.com
FIS would like to congratulate
all of the 2010 recipients of the
National Community
Bank Service Award.
© 2011 Fidelity National Information Services, Inc. and its subsidiaries.
IB
IB
LENDER LIFE
o p e r a t i o n s
Spring
Training
How to prepare your mortgage lenders for what
promises to be a busy homebuying and selling season
By Apr yl Motley
Apryl Motley, a writer in Columbia,
Md., is a regular IB contributor.
F
orecasts for the U.S. housing
market are improving every
day. There is no better time to
reassemble your team and hone
your game plan for growing your
residential mortgage business.
According to Ron Haynie,
president and CEO of service
provider ICBA Mortgage, community banks have a real opportunity to expand and leverage
their networks if they communicate well with borrowers and
set the appropriate tone for their
mortgage transactions. “The biggest problems occur when you
don’t set expectations for borrowers,” he says. “Good communication with borrowers is
essential in the current housing
market.”
Haynie acknowledges that
everyone involved in the mortgage underwriting process—
lenders, builders, buyers, sellers
and real estate agents—wants
to close deals quickly, but he
cautions that the process must
be managed even more carefully now to make
borrowers feel comfortable and to maintain their
confidence.
Internal fundamentals
Effective internal promotion helps ensure that community banks present the best possible image to
borrowers. “Many borrowers have probably heard
horror stories around people trying to get loans,”
Haynie says. “Community banks need to stress
to them, ‘That’s not how things get done here.
We operate differently.’ ” In-house, start with these
basics:
Make sure your lenders “really understand the
approval process and what’s required to get a loan
underwritten,” Haynie says. You need to make
sure that they understand the guidelines and
requirements of borrowers as well.”
Establish clear communication from the start to
minimize the need for going back and forth with
customers. “Repeated requests for information
create a bad image of the bank by making it seem
like you don’t know what you’re doing, which
leads to borrower frustration,” he says. “Loan officers need to be well trained so that borrowers feel
confident that their loans will go through.”
Educate staff in all areas of the institution about
your mortgage products. “Spend time in your
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o p e r a t i o n s
LENDER LIFE
branches making sure managers know what the
bank is offering,” Haynie recommends. “Let them
know you are closing loans in 30 days. Tellers and
others on the front line should be cultivated to
deliver leads.”
Have different departments work together to
increase their mortgage business, Haynie adds:
For example, “your bank’s commercial clients
have employees. Be sure they are aware that you’re
making mortgage loans.”
Externally, advertise in local home guides. “It’s
usually a good investment,” Haynie says. “Show
your loan officers’ photos and contact information
so people get to know who they are.”
Leads for Loans
Here are some simple tips to help your community bank
connect with homebuyers and owners to generate mortgage
referral leads:
Don’t just provide a mortgage; be a resource.
Communicate with borrowers early and often to earn their
trust and establish expectations for the mortgage transaction process.
Educate lenders and front-line staff.
Keep your team well informed of changes or additions to
your mortgage products and services.
Cement relationships with existing customers.
Cross-sell mortgages across bank branches and other
departments.
Actively promote services.
Consider advertising in local home guides or similar publications and websites.
Seek out business partners.
Reach out to local or regional associations for real estate
industry professionals as well as title companies, attorneys
and major employers in your area.
External communication
Likely there would be fewer consumer horror stories
if the different professionals involved in the mortgage process communicated more frequently and
coordinated resources. Bankers, real estate agents
and builders all have key roles to play in the housing
market’s recovery.
According to the most recent consumer survey
conducted by the National Association of Realtors
(NAR), 21 percent of homebuyers rely on real estate
agents for information about mortgage lenders.
“Even though homebuyers get much of their
information about loans online, including prequalification, many still ask real estate agents for their
advice about lenders,” says Walter Molony, NAR
senior public affairs specialist. One of the best tools
that community banks have is face-to-face contact
with agents, he notes, so “community banks need
to talk with local Realtors about the lending options
available in their communities.” How?
“Most local Realtor boards have quarterly or
monthly meetings. Ask to attend,” Molony
suggests.
Have each loan officer develop a targeted list of
agents to call on to discuss your mortgage products and services, Haynie adds. “Bring groups of
Realtors into the bank for a breakfast presentation.
This gives you a chance to showcase the bank.”
Haynie believes community banks also need to
build relationships with local builders. Bernie M.
Markstein, vice president and senior economist for
the National Association of Home Builders, agrees.
“Builders have good projects that they can’t move forward because they can’t find financing at reasonable
rates,” he says. “Community banks should work with
local builders to provide the support they need. Now
is the time for community banks to capture these
relationships if they don’t already have them.” How?
Lend more. Markstein acknowledges that “it’s
going to take a brave bank to make some of these
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IB
loans,” but he says lenders should be willing to
take on reasonable risk: “There’s a little too much
fear out there because the regulators are watching banks so closely. Ironically, that same fear of
extending mortgages puts downward pressure on
existing home prices, creating a downward spiral
for the entire housing market.”
Work with both sides. Despite what he describes
as “significant tightening of credit,” Markstein
says community banks can fill the gap by offering
financing to both homebuyers and homebuilders. According to him, builders are willing to go
wherever they can to get credit on reasonable
terms. He hopes community banks will discuss
the options: “As far as we can tell from our most
recent member surveys, larger banks are easing up
on credit more so than smaller banks are.”
Be available. “It’s definitely important to get in
front of builders and let them know what you
offer,” he says. “Make a loan officer available to
come and sit during their open houses, give tours
of the homes. These interactions give the builder
credibility and provide you with a chance to get to
know potential borrowers.”
Consider giving builders discounted rates on
fees depending on the kind of relationship that
“There’s a little too much fear out there
because the regulators are watching
banks so closely. Ironically, that same
fear of extending mortgages puts
downward pressure on existing home
prices, creating a downward spiral for
the entire housing market.”
—Bernie M. Markstein,
N at i o n a l A s s o c i at i o n o f H o m e B u i l d e r s
develops between the parties,
Haynie suggests.
Most community banks probably feel like getting to know
their customers is their specialty.
Even so, Haynie characterizes the
current mortgage underwriting
process as one that “takes more
hand-holding than it did before,
which means communicating
with everyone throughout the
process is the easiest and best
thing you can do.”
The Community Banker’s End-to-End
Loan Origination System and More...
The Mortgage Builder system is an allinclusive residential lending solution that
manages your loan from prequalification
Mortgage Builder Software Solutions
• Web Production Portals
• Secondary Marketing
• Web Origination
• Product/Pricing Integration
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through interim servicing and delivery.
Award winning support staff!
Document Production
• Imaging & Electronic
Document Management
• E-Delivery to Investors
Interface Partnerships to:
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• Multi Channel Management for:
Mortgage Bankers, Banking
Institutions and Credit Unions
Call today for an online demonstration and learn how
we put your company at a competitive advantage.
1.800.460.5040 • www.mortgagebuilder.com
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PAY M E N T S E X C H A N G E
Checking
Account Lite?
Looking into bank-issued prepaid cards
F
By Car y Whaley
Cary Whaley ([email protected])
is ICBA vice president for payment and
technology policy.
or some reason, thinking
about the future of bankissued prepaid cards reminds me
of the pink, blue and yellow packets of artificial sweetener.
Unfortunately and unwisely,
regulators are aiming to trim fat
margins—hence increased regulation to severely curtail interchange and overdraft revenue on
debit cards. Meanwhile, issuers are
scrambling to serve up options—
prepaid being one of them—that
won’t sour consumers on checking accounts or implode bankers’ bottom lines. (First Annapolis
Group, a payments consulting
firm in Annapolis, Md., estimates
that the debit interchange pricecap provisions of the Wall Street
Reform Act could reduce banking
industry revenue by $10 billion
a year.)
The expected debit card revenue reduction comes at an
inopportune time, when banks
are already strategizing ways to
recoup the estimated $500 million
to $600 million in lost revenue
associated with recent amendments to Regulation E as well
as comply with the recent FDIC
guidance on overdraft payment
programs. Community banks,
while traditionally not as aggressive as larger banks in terms of
maximizing overdraft income, will still feel the pinch.
Will community banks look for an account substitute? Put another way, could basic account services
be conducted in a way that minimizes risk but preserves a sweet revenue stream? Could this substitute
be offered to consumers who might not qualify for a
traditional checking account?
Enter prepaid cards, which were exempted the
from Wall Street Reform Act interchange provisions
and for which traditional interchange rates could
still apply (depending on interchange pricing by the
card networks). Either way, prepaid could be a viable
alternative.
Many bank-issued general-purpose prepaid cards
are eligible to receive direct deposit of payroll or benefits. In fact, a recent interim rule by the U.S. Treasury
Financial Management Service would permit federal
agencies to send federal payments via direct deposit
to prepaid cards, providing the funds are insured and
the card provides the same consumer protections that
apply to payroll cards under Regulation E.
Plus, the risk is lower because the card is the only
way to access the funds. Cardholders do not have to
worry about bounced checks because there are no
checks. And while there is still a possibility of overdrafting a prepaid card, that risk can be mitigated by
not allowing pay at the pump, car rental or hotel use.
To Rick Gillett, CEO of Sutton Bank in Attica,
Ohio, prepaid cards are an integral part of his overall strategy. However, he does not view them as
a direct account substitute. The community bank
offers payroll card programs to business customers,
which in turn offer them to employees as an alternative to being paid via paper checks or direct deposit.
Offering payroll cards to businesses allows Sutton
Bank to leverage an already strong business customer
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relationship and eliminates the burden of trying to
attract traditionally unbanked customers.
Banks that seek to offer prepaid cards for either
general or payroll purposes must adhere to Regulation
E, particularly the amendment that went into effect
last Aug. 22. This final rule, which implements the
Credit CARD Act, restricts dormancy, inactivity and
service fees with respect to general-use prepaid cards.
Dormancy, inactivity and service fees may be assessed
for a certificate or card only if there has been at least
one year of inactivity on the certificate or card; no
more than one such fee is charged per month; and the
consumer is given clear and conspicuous disclosures
about the fees. Fees subject to the restrictions include
monthly maintenance or service fees, balance inquiry
fees, and transaction-based fees such as reload, ATM
and point-of-sale fees.
Plus, there is no guarantee that additional legislation or regulation will take away prepaid revenue.
Sen. Robert Menendez (D-N.J.) introduced a bill
that would offer more stringent regulations, the
Prepaid Card Consumer Protection Act of 2010 (S.
4041), which has yet to gain significant support in
Congress but would significantly curtail prepaid
card fee income. Additionally, several consumer
groups have petitioned the newly formed Consumer
Could basic account services be
conducted in a way that minimizes
risk but preserves a sweet revenue
stream? Could this substitute be
offered to consumers who might not
qualify for a traditional checking
account? Enter prepaid cards.
Financial Protection Bureau to
develop additional regulations for
prepaid card fees. And merchants
are looking to expand the interchange price-cap provisions to
credit and prepaid cards.
But in today’s legal environment, prepaid cards, marketed
either directly to customers as
an account substitute or directly
to the unbanked through payroll cards, still have traditional
interchange income streams and
could be a sweet way to recoup
some of the lost revenue through
recent regulations for certain
customers.
Why I use ICBA Bancard (reason #136):
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RMMSPASQRMKCPQGLAPC?QCB@P?LBJMW?JRW
?LBU?JJCRQF?PC?LBNPMgR?@GJGRW
Your customers demand convenience and
reliability when accessing their money.
Having the payment options they want and
need keeps you as their primary financial
QSPWJEFS*$#"#BODBSEBOE5$.#BOL
have the solutions you need with the fraud
protection you demand.
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t.FSDIBOU4FSWJDFT
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®
One Mission. Community Banks.
Quote: Noah Wilcox
Grand Rapids State Bank
Grand Rapids, Minnesota
IB
1-800-242-4770 | www.icbabancard.org
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o p e r a t i o n s
PORTFOLIO MANAGEMENT
High-End
Investing
Steepness of the curve,
high quality make DCPCs attractive
By Jim Reber
Jim Reber is president and CEO
of ICBA Securities. Reach him
at (800) 422-6442 or
[email protected].
S
mall Business Administration
(SBA) floating rate pools have
grown in popularity among community bank portfolio managers
since the world began changing in
2007. In the past three-plus years,
many portfolio managers have not
just dipped their toes into the SBA
waters; they’ve gone cannonball
into the deep end. And thus far
these floating rate pools have performed very well.
For one, SBA loan prices, which
took a dive in the first half of
2009 as poolers nationally were
unable to finance their inventories,
have recovered handsomely—even
though many bankers regard these
instruments as cash alternatives.
Also integral to the rise in prices
is the continued good behavior of
the borrowers behind the pools.
Stated another way, prepayments
have slowed every year since 2007,
and 2011 started out with a continuation of this trend.
So it appears that these investments, which float quarterly or
monthly based on the prime rate
and have full faith and credit
backing by Uncle Sam, have some
appeal. Something else they have
is premium risk. It’s beyond the
range of this column to discuss
prepayment implications, but
bankers know intuitively that paying 108 to 112
cents on the dollar for an amortizing instrument has
its perils. One way to control the premiums paid
on SBA pools is to purchase these floaters’ fixedrate brethren, Development Company Participation
Certificates, or DCPCs.
Why buy? DCPCs are zero percent risk-weighted
and generally amortize to 20-year maturity schedules.
They are collateralized by a collection of loans, which
can number in the hundreds for a given pool. The
loans are guaranteed by the U.S. government and are
used to finance machinery, equipment and real estate.
Since DCPCs have a fixed rate, the premiums that
result from recently issued pools are often modest.
This may be a welcome respite for SBA 7(a) buyers.
Another nicety is that most pools have prepayment
penalties for the first half of their lives, and these pass
through to the investor. This can enhance your yield
substantially, although in practice it usually simply
limits prepayment activity.
The limited ability to prepay commercial real estate
loans is another plus for DCPCs. Many investors see
these as alternatives to Planned Amortization Class
(PAC) CMOs. Or, with some portfolio managers
uncomfortable with the short-term prospects of the
municipal bond market, these pools have become their
go-to choice for the long end of the portfolio barbell.
Which, incidentally, is a structure ICBA Securities is
recommending.
What to protect against. When you invest in
SBA floaters, you accept a low yield today (around 1
percent) in return for the ability to rise in the future.
A related benefit to this short-term exposure is that
market prices tend to be very stable. The duration of
an SBA floater is only about 90 days.
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Fixed rate DCPCs are quite the opposite. Their
average lives are about seven years at the outset,
so they are clearly on the long end of the maturity
spectrum for a community bank. Further, because
prepayments are insignificant and defaults tend to
run only about 5 percent per annum, the average life
doesn’t shrink quickly. Also, DCPCs pay principal
and interest semiannually, so the cash-flow aspects
are unique. The result is that your investment stays
on the books for a long time.
This is good if long-term interest rates fall, which
the shape of the Treasury curve isn’t predicting to
happen anytime soon. So be prepared for some price
volatility, and you may want to keep some gas in the
tank to buy more of these items when rates move
higher. This opportunity presented itself in the last two
months of 2010.
Here’s your reward. Slow, predictable prepayments that fixed-rate SBA pools produce can be an
antidote to premium/prepayment risk elsewhere in
the bond portfolio. Many mortgage-backed securities
(MBS) pools issued by Fannie Mae or Freddie Mac
prepaid surprisingly slowly in the last half of 2010.
An uptick in housing prices could precipitate an avalanche of MBS cash flow, even if mortgage rates don’t
retreat to their November levels.
We haven’t mentioned yields
yet. Most new DCPCs with
modest premiums have yields
in the 3.60 percent range as of
this writing, which is nearly
60 basis points higher than six
months ago. This is partly the
effect of having an average life on
the absolute steepest part of the
curve. These yields also assume
no enhancement from prepayment penalties, which would provide an additional boost.
Experienced portfolio managers
have been pleased to discover SBA
DCPCs. They offer diversification
from other, better-known instruments from the standpoint of cash
flow and premium exposure, and
there are no higher credit quality
debt instruments on earth. You
may want to follow many other
community bankers and trade up
a segment of your bank’s portfolio
into a collection that can offer
superior value.
SBA Offerings
ICBA Securities’ clearing
broker, Vining Sparks,
is a leading pooler and
market maker for Small
Business Administration
investments. For live
offerings or research on
SBA products, contact your
ICBA Securities sales rep or
visit www.icbasecurities.
com.
Why I use ICBA Reinsurance (reason #82):
The number of ICBA members
that have made commitments to
participate in ICBA Reinsurance not
only shows their support for what
ICBA represents, but also that
we as independents are in
this together.”
Your bank can provide your customers
protection like never before, and the kind
they may need now more than ever. By
offering credit life and disability on every
loan, you can help protect your customers,
your bank and your bottom line. Turn to ICBA
Reinsurance for your loan reinsurance needs:
t$SFEJU-JGF%JTBCJMJUZ*OTVSBODF
t$BQUJWF-JGF*OTVSBODF1SPHSBN
®
Quote: William J. Lundbohm
William J Lundbohm Financial
Services, Inc., Baxter, Minnesota
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1-888-790-6625 | www.icbareinsurance.com
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LEARNING CURVE
o p e r a t i o n s
Compliance
on Your Screen
Why and how to do skills training online
By James Rapino
James Rapino ([email protected])
is president and CEO of Vubiz Inc. in
Los Angeles, the provider of online
courses for ICBA education.
D
ecreasing fee revenues and
a competitive banking
environment mean that community banks must create, support
and sustain a training culture
to survive. Skills training is a
critical component of building
a new learning culture. When
combined with specific training customized to meet a bank’s
goals, it is the most successful
strategy.
E-learning is the most costeffective and consistent way to
deliver compliance and regulatory training to employees. It also
suits many other areas of skills
training. Offering skills training
online makes it easy, effective
and convenient for employees
and gives banks cost-efficiency,
consistency and great reporting
features.
E-learning content is created
by experts in a subject and delivered as each learner is ready
for it. This self-pacing factor
increases retention; studies
show that e-learning results in
up to 40 percent higher retention than other forms of training.
The interactivity and convenience primes the employee for
maximum learning. Furthermore, banks can eliminate travel cost for trainers and employees for inperson training, and e-learning can keep pace with
the fast-changing world of finance.
In many banks, most jobs can be largely learned
through courses that teach the skills required for
that position. Such specific skills training allows
employees to research skills they need and then
select the courses online to learn those skills. This
helps target training dollars. If there are competency
gaps in certain areas or if individuals request to
learn certain skills, those courses can be made available online very quickly.
Desktop learning, ethics training, product/process training and career training are great e-learning
options. More and more banks are also finding it
convenient to put new-hire orientation online consistently. This emphasizes the importance of a learning culture from the start. Showing new employees
Studies show that e-learning
results in up to 40 percent
higher retention than other
forms of training.
the skills and coordinating courses they need to
excel at their positions builds a strong workforce.
A specific skills training course could show how
the bank manages financial risks in its activities, such as credit risk procedures. Employees can
also use skills training to become more productive and more familiar with customer procedures.
Your bank will gain in many ways from an online
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training program—probably
the most important being that a
well-trained staff will more likely
abide by company and government regulations.
While e-learning is convenient,
cost-effective and fast to deploy,
one of its more important benefits
is the control and consistency of
delivery. The online method is so
popular for compliance training
because you can reach a large,
dispersed workforce quickly and
track learners and outcomes
with full reporting capabilities to
comply with any regulation.
Ever since the financial crisis,
governments throughout the
world have tightened controls on
banks and other financial institutions. Banks can best protect
themselves and their customers
against money laundering, among
other problems, by implementing a certified online training
program. Using such training as
a risk management tool is the
smartest way to achieve organizationwide compliance.
It’s clever to integrate specific skills training with compliance courses. For example, it
makes sense to add communication or finance topics to antimoney-laundering training or
leadership courses to harassment-prevention training.
The bottom line? Increasing
the performance of your community bank’s employees is a
strong competitive weapon, and
boosting that performance with
online training is cost-efficient,
fast and effective.
Your Training
Resource
Check out ICBA’s Online
Education Center for more
details about courses,
pricing and how ICBA and
Vubiz make e-learning
easy. See www.icba.org
and search for “online
education center.”
Why I use ICBA Securities (reason #86):
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ILMUJCBEC?@JC?LBQMGQRFCQR?DD
*F?TC@PMICPQA?JJGLEMLKCB?GJW
RPWGLERMQR?PR?PCJ?RGMLQFGN UGRFKW@?LI@SRLMLCMDRFCK A?LAMKCAJMQCRMRFCQCPTGAC UCF?TCDMSLBUGRF *$#"4CASPGRGCQ`
Right now, your customers and potential
customers need a strong, stable financial
partner. Through ICBA Securities your
community bank can access a broad
range of portfolio investment solutions.
t4FDVSJUJFT&YFDVUJPO4FSWJDFT
t"TTFU-JBCJMJUZ.BOBHFNFOU
t$BQJUBM.BSLFUT
t-PBO5SBEJOH
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®
Quote: Debra Miles,
Dart Bank, Mason, MI
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1-800-422-6442 | www.icbasecurities.com
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Calculations in tackling the fee income conundrum
BY ALAN SMITH
T
echnological advances have led to dramatic improvements in commercial and consumer banking services—balance transfers, account opening, statement
viewing and bill payment. Tasks that used to take hours
now take minutes. Services have improved tenfold,
yet remarkably, most services still remain free for the
majority of banking customers.
At the same time, legislative changes and regulatory responses are
compromising the profitability of deposit customers, specifically the
free-account customers. With interest rates and loan demand at anemic
levels, demand deposit balances are not as valuable as when loan demand
and rates were higher.
Your community bank can consider taking steps
to offset the negative effect of these changes. Start by
reconsidering the concept of “free” and find ways to
improve fee income.
Review relationships and costs. Analyze
your community bank’s deposit customer base in
terms of product relationships and fee income
opportunities. Create a list of all checking account
customers and determine what other services, such
as debit card, savings and loan products, they
use. Group accounts according to combinations of
fee-generating services or activities, such as free
checking only, free checking plus online access with
bill pay, free checking plus savings, free checking
plus lending, and free checking and other product
combinations.
Define relationship grades like loan grades (pass,
watch, special mention and so on) to establish
customer value. Focus first on customers who have
only free accounts and services. For example, a free
account with an average balance of $200—assuming
a 4 percent margin—would generate $8 a year in a
soft benefit to your community bank. So for what
benefits your bank an average of $0.67 a month, a
customer may be receiving free online banking, free
bill pay, free checks, free mailed check images and
more. Relationships like this are not very profitable,
and you may want to grade them as special mention.
Generally, there are two approaches for improving
the economics of the deposit relationship: meaningful minimum balance requirements or charges for
certain services.
Regarding minimum balances, as rates decline,
demand deposit balances generate less income.
Therefore, $1,000 invested when overnight rates are
at 5 percent is worth more than when rates are at 1
percent. Where you set minimum balances will be
more a function of your bank’s account mix, but in
today’s rate environment, consider $500 to $750.
With respect to implementing charges, evaluate
services that cost money to provide, such as account
statement production and fulfillment. Your community bank may want to continue to offer free checking. However, if the free checking account is the only
relationship component and the customer wants a
mailed statement, it makes sense to charge $5 per
month. If the customer wants bill pay, add another
$2 per month. For other requests, such as a search or
check history, add $1 per item.
Robust pro forma/what-if analysis will help you
to determine the fee impact of various strategies.
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While the timing of these changes
may vary, having a formal plan
is essential.
Assess your market. Take
a systematic approach to assessing your market for additional
fee income. Anytime revenue
becomes scarce, it is crucial to
align your services and market
attack efforts with demand. Not
all markets should be approached
the same way. Debit cards, wealth
management and business cash
management demand vary
broadly by market; your community bank is more likely to
enjoy higher fee income when
its outreach program is designed
accordingly.
Demographic data, including
income levels, age, income-producing assets, cash-to-sales ratios
and other information, were once
available only to the largest banks.
Now they are also available to and
affordable for community banks
of all sizes. By knowing the types
of households and business establishments in your bank’s market,
you can determine purchasing
propensities and position your
bank’s services to engage its finite
resources accordingly.
For example, a 10-branch bank
may operate in three markets with
high debit card demand, three
markets with high wealth management/brokerage demand and
four markets with high commercial deposit demand for which
remote deposit capture will resonate. By focusing service messaging and customer acquisition
accordingly, the institution will
create much better results than
those yielded by a one-size-fits-all
approach.
Keep it simple. Weak economic conditions and an uncertain
regulatory environment necessitate that you become proactive in
IB
developing strategies to mitigate
any negative impact on fee revenue. The key is to keep it simple
and implement small changes that
preserve your community bank’s
customer relationships while
adding an income stream that will
contribute to the profitability of
the overall business.
Alan Smith is a senior bank strategist
at Bank Intelligence Solutions from
Fiserv Inc. in Atlanta. Reach him at
[email protected].
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Regulation STATION
Mind the GAAP
AN EXPERT TALKS FASB ACCOUNTING AND CRE LOAN WORKOUTS
F
ederal regulators issued
in October 2009 a policy
statement on commercial
real estate loan workouts (FIL61-2009). This month’s column
answers questions on the potential
accounting implications of CRE
loan workouts following the policy
statement, which is designed to
guide financial institutions in
prudently working with borrowers to restructure CRE loans while
avoiding adverse loan classification during subsequent safety and
soundness examinations.
The guidance addresses supervisory expectations for an institution’s risk management elements
for loan workout programs, loan
workout arrangements, classification of loans, and regulatory reporting and accounting considerations.
(See sidebar on CRE guidance.)
Q Let’s say, in practice,
a community bank
primarily uses the current
appraisal method to determine impairment dollars
involved with CRE loan workouts. Should it be using the
present value of future cash
flow more frequently?
Gary M. Deutsch: You should
use the present value analysis method when modifying the
terms of a loan (including 1-4
single-family residential properties, condos, multifamily properties and CRE loans) that is not
collateral-dependent and when the
modification meets one or more of
the following criteria:
reduction (absolute or contingent) of the stated interest rate
This Month’s Expert
Gary M. Deutsch,
TkThis Month’s
CPA, MBA (gary.
Regulatory Experts
deutsch@sheshunoff.
com), president of BRT
Publications LLC, is
a risk management
training instructor and
consultant.
for the remaining original life of
the debt;
extension of the maturity date or
dates at a stated interest rate lower
than the current market rate for
new debt with similar risk;
reduction (absolute or contingent) of the face amount or maturity amount of debt as stated in
the instrument or other agreement
and
reduction (absolute or contingent) of accrued interest.
The Financial Accounting
Standards Board (FASB) in its
Accounting Standards Codification paragraph 310-10-35-22
states that when a loan is impaired,
the creditor shall measure impairment based on the present value
of expected future cash flows
discounted at the loan’s effective
interest rate. However, as a practical expedient, the creditor may
measure impairment based on the
loan’s observable market price or
the fair value of collateral if the
loan is a collateral-dependent loan.
Also, FASB states that a creditor shall measure impairment
based on the fair value of the
collateral when the creditor
determines that foreclosure is
probable. Although many institutions use the current appraisal
method, this measurement
approach is not consistent with
generally accepted accounting
principles (GAAP) unless the
loan can only be repaid through
the sale of the collateral or foreclosure is probable.
Q Does a modification of loan terms
to extend the maturity
or amortization period of
a loan to provide a borrower with cash flow relief
count as a troubled debt
restructuring?
Deutsch: According to the
FASB’s Accounting Standards
Codification in paragraph 31040-15-9, troubled debt restructuring (TDR) accounting is required
when the extension of a maturity
date or dates is at a stated interest
rate that is lower than the current market rate for new debt with
similar risk.
For example, assume a borrower has a first mortgage loan
on a single-family home with a
stated interest rate of 5 percent.
The borrower finds himself in
financial difficulty and asks the
lender if he can skip a few payments until he can regain his
financial footing. To accommodate the borrower, the lender
enters a modification agreement
to extend the loan’s maturity date
by three months. The borrower
still has to make the payments,
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ADVERTISERS
i n d e x
but the time period over which the payments can be
made has been extended.
To determine if the lender will be required to apply
TDR accounting, it needs to compare the loan’s stated
interest rate—5 percent—with the rate it would charge
the borrower if the lender were underwriting the loan
on the date of the modification. If the new rate would
be higher than 5 percent in this example, the lender
would need to apply TDR accounting and perform an
impairment analysis and record a valuation reserve.
The concept here is that the lender is providing
a concession by changing the loan terms without
adjusting the contractual rate to market. To avoid
TDR accounting, loan underwriting would have to be
updated (such as rate and terms) to reflect the changed
risk conditions.
APRIL 2011
A D F I T E C H I N C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
AMERISAVE INSTITUTIONAL LENDING .............................. 7
B A N C I N S U R E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
BANKER’S DASHBOARD LLC ...................................... 5
C E N T E R O N E L L C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
CNA INSURANCE .................................................. 2
C O M P U T E R S E R V I C E S I N C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
C O U N T R Y P L A C E M O R T G A G E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
D A T A C E N T E R I N C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
D A T A M O T I O N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
D I E B O L D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
D O C V E L O C I T Y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Q Would forgiving only 20 or 30 days of
interest to bring a residential mortgage loan current as part of modifying the
loan to new favorable terms require TDR
accounting?
Deutsch: TDR accounting does apply to individual
consumer mortgage customers. A restructuring constitutes a troubled debt restructuring (and requires an
impairment analysis) if your community bank, for economic or legal reasons related to any borrower’s financial difficulties, grants a concession to the borrower
that your institution would not otherwise consider.
The concession of forgiveness of accrued interest is
one of four concessions that can trigger the need for
TDR accounting. The other three include a reduction
of contractual (stated) interest rate, an extension of
maturity date at contractual interest rate lower than
current rate for new debt with similar risk, and a
reduction of the face amount of debt (forgive portion
of principal).
There is no minimum amount of accrued interest
that would enable your community bank to avoid triggering the need for TDR accounting. However, 20 or
30 days of accrued interest may result in only a small
amount of impairment to recognize.
Also, your community bank can group consumer
mortgages to conduct the impairment analysis. If the
bank offers a small accrued interest concession to
multiple borrowers, the amount of impairment could
become more material overall.
Editor’s Note: The opinions that ICBA and other regulatory
experts offer may not apply to every institution and are not
meant as professional advice. Check with your bank’s own
legal or regulatory advisers before acting on any opinions or
views published here.
E L A N F I N A N C I A L S E R V I C E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C3
E N V I R O N M E N T A L D A T A R E S O U R C E S I N C . . . . . . . . . . . . . . . . . . . . . . . . . . 19
F I M A C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
F I N A N C I A L T O O L S I N C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
FIRST MERITS ..................................................... 6
F I S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C2, 65
H A R L A N D F I N A N C I A L S O L U T I O N S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35, C4
I C B A B A N C A R D & T C M B A N K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
I C B A R E I N S U R A N C E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
I C B A S E C U R I T I E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
I C B A S E R V I C E S N E T W O R K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
INSTITUTIONAL DEPOSITS CORP. .................................. 4
L A S E R F I C H E D O C U M E N T M A N A G E M E N T . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
M B M C O R P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
M G I C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
M O R T G A G E B U I L D E R S O F T W A R E I N C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
M O R T G A G E P A R T N E R S H I P F I N A N C E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
M O R T G A G E S E R V I C E S I I I L L C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
N A T I O N A L C D R A T E L I N E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
NEWGROUND RESOURCES INC. .................................... 3
O R I O N F I R S T F I N A N C I A L . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
P E N T E G R A R E T I R E M E N T S E R V I C E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 43
P R O F I T S T A R S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
P R O M O N T O R Y I N T E R F I N A N C I A L N E T W O R K L L C . . . . . . . . . . . . . . . . . . 17
R E D W I N G S O F T W A R E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
S H A Z A M I N C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
S T U D E N T L O A N F I N A N C E C O R P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
S U N T E L L . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
T R A V E L E R S C O M P A N I E S I N C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
V I S A U S A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
W N C I N S U R A N C E S E R V I C E S I N C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Y O U N G & A S S O C I AT E S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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EFT isn’t just
in our DNA.
It is our DNA.
After more than 40 years in the business,
we define EFT. And it defines us. With the
strength and stability of U.S. Bank behind
us, we offer your financial institution more
in-depth knowledge and a better, proven
approach to managing an EFT program.
And whether your program is a single
ATM or a comprehensive debit solution,
it comes with unparalleled service from the
most seasoned professionals in the business.
Put our success to work in your organization.
To set up your informational meeting,
contact us at 1.800.343.7064 or
[email protected].
Behind the scenes. Ahead of your needs.
ATM & Debit Programs
ATM Managed Services
Fraud Management
MoneyPass surcharge-free ATM Network
©2010 Elan Financial Services
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www.elanfinancialservices.com
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Can Your Core System Help
You Safely Grow in Today’s
Risky Environment?
It can if you’re using PhoenixEFE®.
PhoenixEFE is an integrated enterprise software platform
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It brings together Harland Financial Solutions’ proven,
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The result is a technology foundation that helps your
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Don’t just believe us, here’s proof:
“We have a clean loan portfolio, and our asset increase
has come from constant quality growth. Being able to
continually stay on top of our business with the help of
PhoenixEFE is a big contributor to that success.”
Marti Rodamaker, President
First Citizens National Bank
Learn more about PhoenixEFE and this bank’s success at:
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Contents | Zoomin - Pacific Premier Bank

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