register today! - Community Bankers of Iowa

JUNE 2015
OFFICIAL PUBLICATION OF THE COMMUNITY BANKERS OF IOWA
REGISTER TODAY!
Money Smart Week Poster Contest
WINNERS ANNOUNCED!
Pgs. 4-5
RECAP
Peer Connection
Forum Pg. 8
Effective
Loan Policy Pt. 2
Pgs. 10-13
FUEL IN THE TANK?
Mortgage-backed
Securities
Pg. 9
JUNE 2015 WEBINAR LINE-UP
June 2
Collection Call Techniques: Compliant Telephone Scripts & Responses
June 3
Compliance Rules Lenders Must Know
June 4
Commercial Appraisal Review Part 1: Income Approach
June 9
Mastering the SBA 7a Loan Part 1: Eligibility & Program Requirements
June 10 BSA Compliance Series: BSA Officer Reports to the Board
June 11 Countdown to the Integrated Disclosure Deadline: August 1, 2015
June 16 New Accounts Series: Properly Handling Fiduciary Accounts:
Want To Attend
A Webinar?
View a complete calendar and
register for CBI-sponsored webinars
and events at www.cbiaonline.org
or Call Us at 515.453.1495
for more information.
Authority, Ownership, Access & Liability
June 17 Using the New Fannie Mae Collateral Underwriter for Mortgages
June 18 When a Borrower Dies: Next Steps & Best Practices
June 23 From Frontline to Teller Supervisor: Developing Skills & Making a Smooth Transition
June 24 Stress Testing Your Loan Portfolio: Regulations, Risk & Impact on Value
June 25 IRA Series: Processing IRA Rollovers & Transfers
June 30 Top 10 Deficiencies in Audit Findings from Regulators & External Auditors
August 19-21
St. Charles, Missouri
Bonus session August 19
September 23-24
Omaha, Nebraska
Bonus session September 23
Bonus
Session
2
Social Media Workshop
including Local Community
Bank Case Study
COMMUNITY BANKER UPDATE | JUNE 2015
Presentations on:
•
•
•
•
•
•
•
•
•
•
DeliveringaRed-CarpetCustomerExperience
Fraud&PaymentSecurity
ERMThatCreatesValue
WhatShouldbeontheMindofCEOs
EMVCardRequirements
VendorManagement–TheBigPicture
MakingtheMostofSARs
TheEvolvingThreattoBankOperations
DebitFraudTrends
Andmanymore
Regulatory panel included
For a conference brochure, go to www.mibanc.com
and click on Upcoming Events.
Member FDIC
In This Issue
June 2015 Webinar Lineup........................2
From the EVP & CEO...................................3
Money Smart Week Poster Contest....... 4-5
44th Annual Convention......................... 6-7
Peer Connection Forum..............................8
Mortgage-Backed Securities............... 9, 21
Development and Maintenance of an
Effective Loan Policy - Pt. 2................10-13
From the Top............................................. 14
Fine Points................................................ 15
Rural Mainstreet Survey.....................16-18
Membership Development
Director Needed....................................... 18
Top 5 Things to Do to Prepare for
Same Day ACH.......................................... 19
CBI Member News................................... 20
Connection Quandary.............................. 22
EVENTS CALENDAR
PAC Auction Donations Due..... June 12
Robert D. Dixon Founders’ Award
Nominations Due....................... June 19
44th Management Conference &
Annual Convention................ July 15-17
8th Annual Golf Tournament... Aug. 11
LOT Quarterly Meeting............. Aug. 20
Certified Community Lender
Certification Renewal................ Aug. 20
Community Bankers for Compliance
Fall Session.......................Sep. 22 & 23
Community Banking Summits
Fall Sessions......................... Oct. 13-15
LOT Quarterly Meeting..............Nov. 19
Community Bankers of Iowa
1603 22nd St, Suite 102
West Des Moines, Iowa 50266
Phone: 515.453.1495
www.cbiaonline.org
Nominate a deserving Banker for
the Founders’ Award
The leadership of CBI over the last 44 years has provided
direction, support, and guidance to your association. Without them, the spirit of the original founders would not
have resulted in the active and useful organization serving
you today. Each summer, we take a moment to honor
one of those leaders with the Robert D. Dixon Founders’
Award, recognizing a community banker that has not only modeled the best in
community leadership, but also in service to the community banking industry.
It is now that time for the community bankers across the state to nominate
members to receive this prestigious award. Previous recipients have been:
2014 - Steve Lane
2013 - Dale Torpey
2012 - C.E. Walsh
2011 - Kurt Henstorf
2010 - Larry Winum
2009 - James Brown
2008 - Harold Harms
2007 - Steven Tscherter
2006 - Arnold C. Schulz
2005 - O. Jay Thomson
2004 - Ollie Hansen
2003 - Robert D. Dixon, John Spies, Richard E. Randall, John Dean
Please take a moment to think about the bankers you have known who have
demonstrated devotion, leadership and involvement with the community banking
industry and Community Bankers of Iowa, and nominate someone for recognition
this year. The nomination form can be completed online and is found on the CBI
website at www.cbiaonline.org, under “About CBI” and “Robert D. Dixon Founders’
Award”.
Nominations are due to the CBI office by June 19.
COMMUNITY BANKER UPDATE | JUNE 2015
3
2015 Money Smart Week Poster Contest
Winners Selected Among Over 2,100 Entries!
The 2015 Money Smart Week Poster Contest
winners have been chosen!
The First Place Winner of this year’s contest is Riley Long,
4th Grade, submitted by First National Bank in Creston &
Afton. Second Place Winner is Jessica Luna, 4th Grade,
submitted by Northwest Bank in Fort Dodge. Third Place
Winner is Breelle Streger, 3rd Grade, submitted by Fidelity
Bank & Trust in Dyersville. The First Place winner was
awarded a $500 CD, with Second and Third prizes each
receiving a $200 CD. An award certificate for Honorable
Mention was also awarded to Peyton Long, 4th Grade,
submitted by First National Bank in Creston & Afton.
1st Place Poster,
by Riley Long, 4th
Grade, of East Union
Elementary in Afton.
To enter the Money Smart Week Poster Contest, Iowa elementary
students in 2nd through 6th grades submitted over 2,100
poster designs to participating community banks across
2nd Place Poster, by
Iowa, who then submitted the posters they received to CBI. Jessica Luna, 4th
Posters were designed to answer the question: “Why is it
Grade, submitted by
important to know about money?” Final judging took place
Northwest Bank in
at the CBI office, and the top three all-Iowa prize winners
Fort Dodge.
were chosen. Designs were evaluated on overall message,
creativity, and workmanship.
Students were presented with awards during special ceremonies
at their local schools by teachers and school officials, and
by executives from the community banks that submitted the
prize-winning entries to CBI. While the Money Smart Week
Poster Contest is a state-wide competition, many community
banks sponsor local contests in their communities as well. Lucky winning students were awarded prizes like Kindle
e-Readers and goodie bags full of treats and gift cards.
Since 1999, Community Bankers of Iowa has hosted
the Money Smart Week Poster Contest as part of April’s
Community Banking Month festivities, and the Money Smart
Week awareness campaign hosted by the Federal Reserve
Bank of Chicago to increase financial literacy among children. This year, Money Smart Week events were held the week of
April 18-25. For more information on Money Smart Week, visit
moneysmartweek.org.
3rd Place Poster, by
Breelle Streger, 3rd
Grade, submitted
by Fidelity Bank &
Trust in Dyersville.
Honorable Mention
Poster, by Peyton
Long, 4th Grade,
submitted by First
National Bank in
Congratulations to the winners, and a BIG thank you to all of the
community banks and schools throughout Iowa that participated
Creston.
If you have any questions about the Money Smart Week Poster
Contest, please call the CBI office at 515.453.1495 or email
Krissy Lee at [email protected].
in this year’s Poster Contest and promoted financial literacy in
your communities. We’re already looking forward to next year!
Get a better look at the winning poster designs on our website at:
www.cbiaonline.org> Events> Community Banking Month> Money Smart Week Poster Contest
4
COMMUNITY BANKER UPDATE | JUNE 2015
◄
Third Place Winner Breelle Streger displays her design with Fidelity Bank
& Trust’s Market President Randy Ludwig and Dyersville Elementary 3rd
Grade teacher Mrs. Ohnken (left) and Principal Mrs. Martin (right).
Local contest winners
show their designs and
receive goodie bags loaded with prizes from F&M
Bank execs. Upper left: Kate Loecke, 3rd Grade - St.
Mary’s Elementary with Human Relations VP Deann
McDonald; Upper right: Lauren Johnson, 4th Grade
- West Delaware Elementary and Customer Service
Rep Susan Scherbring; Left: Kylie Chesnut, 5th Grade,
Maquoketa Valley Elementary.
◄
◄
◄
Second Place Winner Jessica Luna receiving her award
from Northwest Bank’s Vice President Michael Scacci
(left) and Regional President John Taets (right).
Stacy Ferry of United Bank of Iowa and Janet Buman
of Shelby County State Bank presented prizes to Harlan
Community Elementary School Poster Contest winners
(L to R): Theresa Deason, Taylor Bieker, Darbie
Argotsinger, Teya Frohlich, Amanda Burris, Ella
Plagman, Kami Stork & Cassidy Erlbacher
◄
First National Bank in Creston, ISSB
and PCSB banks award their local
Poster Contest Winners with Kindle
e-Readers. L-R: CBI Honorable
Mention Winner Peyton Long; CBI
1st Place Winner Riley Long; Nicole
Lesan, ISSB; Dawn Loudon, PCSB
Bank; Halle Evans; Sarah Young &
Sharon Higgins, First National Bank
in Creston; Emmet Long.
COMMUNITY BANKER UPDATE | JUNE 2015
5
Join Us at CBI’s 44th Management
Conference & Annual Convention
July 15-17, 2015
REGISTER BY
JUNE 15 & SAVE!
Get in early and register at reduced rates!
Get detailed info on events and more in
the 44th Annual Convention brochure!
Community Bankers of Iowa’s 44th Management Conference
and Annual Convention represents the importance of
community banks’ personal service and commitment to
their customers and the communities they serve with the
theme,“Where Everybody Knows Your Name.”
The Convention strives to unite community bankers through
education from nationally recognized speakers, access to the
latest products and services, and numerous opportunities
for networking, camaraderie, and the exchange of ideas
with community bankers statewide. Meet up with old friends
and new at the Kickoff Reception, on the lake during the
Eleventh Annual Catch and Release Fishing Tournament,
on the golf course during the Mixed Pair and Bankers’ Golf
Tournaments, and at the Gala and PAC Auction.
operative; motivational speaker Chip Eichelberger; comedic
sendoff speaker Jeff Havens; and ICBA Immediate Past
Chairman John Buhrmaster. Great breakout sessions are
scheduled as well, featuring a federal Regulators’ Panel,
Social Media Discussion Panel moderated by Chris Lorence
with ICBA, and Trends in Data Breach Response with Dan
Kramer from SHAZAM.
Join us at the family reunion during CBI’s 44th
Management Conference and Annual Convention, July
15-17, 2015 in Okoboji, Iowa. Additional information and
registration is available online at www.cbiaonline.org. If you
have any questions about the convention, please call us at
515.453.1495.
By the time Convention is over,
everyone will know YOUR name!
Guest speakers this year include Jim Olson, former CIA
Take A Look At This Guest Speaker Lineup!
General Session Featured Speakers
John
Buhrmaster
6
Dr. James
Olson
Chip
Eichelberger
Jeff
Havens
COMMUNITY BANKER UPDATE | JUNE 2015
Regulators’ Panel
James
LaPierre
Jeff
Jensen
Jim
Schipper
Trends in
Data Breach
Response
Social
Media
Panel
Dan
Kramer
Chris
Lorence
Not sure if you’ll attend
CBI’s 44th Annual Convention?
Here’s why you should!
The fun you’ll have and
the places you’ll go....
We Still need
Donations!
CBI PAC Auction
Thurs. July 16, 2015
CBI’s Live and Silent PAC Auctions are being held during
our 44th Annual Convention. We still need more items to
be auctioned!
If you’d like to donate cash or items to be put up for bids,
download donation forms on the Convention page at
cbiaonline.org and return them to the CBI office, fax to
515.453.1498, or email to [email protected]. Pictures
of donations may also be emailed to [email protected].
Please return completed forms by June 12, 2015.
Please bring all donated items to the registration desk
in the lobby of the Arrowwood Resort in Okoboji, Iowa
no later than Wednesday evening, July 15, 2015.
Gather on the greens at the 44th Annual Convention’s
Mixed-Pair and Bankers’ Golf Tournaments.
Note that the CBI PAC cannot accept corporate
contributions, anonymous contributions, or a contribution
in the name of or on behalf of another person.
Partner with us for your
participation and bank
stock loan needs.
• Participation loans (commercial,
agricultural, construction, operating
lines and term loans)
Cruise Lake Okoboji during the Eleventh Annual
Catch and Release Fishing Tournament.
• Bank stock & ownership loans
• Bank building financing
• Business & personal loans for bankers
Gary Keller
701.371.3355
[email protected]
• Multi-family permanent financing
Call one of us for quick
response, competitive rates
and flexible underwriting.
Gene Uher
605.201.1864
[email protected]
Check out the great swag up for bids in the
Silent & Live Auctions to benefit CBI’s PAC.
bellbanks.com | Member FDIC
10115
COMMUNITY BANKER UPDATE | JUNE 2015
7
CBI Hosts First-Ever Peer Connection Forum:
40+ Community Bank Staffers Gather to Discuss Trends
CBI’s new Community Banking Peer Connection Forum was
held May 28 at Prairie Meadows Conference Center in Altoona,
IA. Gathering to hear motivational and educational speakers were
over 40 community bank staff in Marketing, Human Resources,
Operations, IT, Compliance, Lending, and Director functional
groups. The Peer Connection Forum event takes the place of the
State Fair Conference, which is held only on the election year
cycle.
Coach Kevin Kush kicked off the event with a presentation
based on his new book “A Piece of the Puzzle: Eight Traits of
a Quality Teammate”. Kush, a football coach in Omaha’s Boys
Town, dicussed traits needed to be a contributing member of a
team: believing in the team concept, exhibiting selfless behavior,
respect for others, handling adversity, adapting to change,
accepting feedback, demonstrating high energy, and being
accountable.
Breakout session topics and speakers in the inaugural Peer
Connection Forum included:
• How to Survive a State Exam - Tracy Bergmann, Examiner, IA
Division of Banking
• Vendor Management - Kevin Edwards, Vantage Point
Solutions
• Branch Maintenance Optimization - Adam York, Equips
• Succession Planning - Pat Marget, Executive Benefits
Network
• Trends in Data Breach Response - Dan Kramer, SHAZAM
• Social Media in the Workplace - Bryan Martin, Merit
Resources
• Understanding Your Role as a Bank Director - Jeff Andersen,
Dickinson Law
• Truth & Fair Lending, and New Mortgage Rules - Bill Elliott,
Young & Associates
After lunch, SHAZAM’s EVP & CIO Terry Dooley broke down the
latest in EMV chip cards and how to develop effective approaches
during migration to chip technology. Dooley went on to outline
the fundamentals of tokenization, the technology behind new
payments systems like Apple Pay.
The first-ever Peer Connection Forum closed with attendees in
each functional group meeting in roundtable forums to compare
notes on current banking industry trends and practices. These
discussion group sessions are the unique feature of the Peer
Connection Forum, intended as an educational and networking
outlet for community bank staff below the CEO/President level.
The Forum is co-sponsored by CBI’s Leaders of Tomorrow Group
8
COMMUNITY BANKER UPDATE | JUNE 2015
Community bank staff from all over Iowa witness keynote speaker
Kevin Kush’s presentation at the first-ever Peer Connection Forum
(LOT). For more information on LOT and how you can become a
member, see the ad below or visit www.cbiaonline.org and check
out the “Leaders of Tomorrow” page under the Programs header.
Thank you to SHAZAM, 2015 Peer Connection Forum sponsor!
Fuel in the Tank?
MBS Aging Can Affect Your Bank’s Cash Flow
Written By: Jim Reber, President & CEO - ICBA Securities
Mortgage-backed securities
(MBSs) can seem to
community bank portfolio
managers to be needy
sorts. They can require feeding and watering
that other securities do not. They generally have
long stated maturities of up to 20 or 30 years.
Virtually all of them have purchase prices well
above par. And then there’s the uncertainty of
when you get your principal back. Still, something about them makes MBSs
attractive to community banks. They are the single biggest
line-item in a typical community bank investment portfolio. Between them and their close cousin collateralized mortgage
obligations (CMOs), they constitute about 40 percent of the total
bond portfolio of banks nationally. Why do otherwise rational
community bankers spend so much of their money, not to mention
time, on high-maintenance securities?
Cash on tap
The advantages outweigh the negatives, obviously. The securities
that community banks own are very high quality and very liquid. (MBSs in this space are either 20 percent or even 0 percent
risk-weighted.) Since the principal amortizes monthly, they act
like loans, and are viewed as loan surrogates to augment the
balance sheet. Community bankers can choose very conservative
versions, such as those with 10-year stated finals or highly
prioritized principal “windows.”
But the real reason for their popularity is that they begin paying
back their principal immediately. This cash flow is not just a great
equalizer; it makes MBSs superior in some ways to non-amortizing
securities. The monthly return of investment provides a liquidity
cushion, source of loan funding, or protection against unexpected
deposit runoff. Then, too, are the bond mechanics. The periodic payback
shortens the duration of the securities, and you will recall that
duration is a measure of price risk. The declining “current face”
of a mortgage security also leaves less on the books that can fall
in price, given rising rates. (I’m assuming you, as a community
banker, are averse to risk.)
(Fuel in the Tank continued on page 21)
COMMUNITY BANKER UPDATE | JUNE 2015
9
Development and Maintenance of an
EFFECTIVE LOAN POLICY - Pt. 2*
by James L. Adams, Supervising Examiner
Federal Reserve Bank of Philadelphia
Reprinted with permission of Community Banking Connections®
Copyright 2015 Federal Reserve System.
Smaller banks or banks offering fewer loan products may wish to
include key type-specific underwriting criteria or standards within
the general loan policy. No matter where policy underwriting
criteria are included, the analysis of any borrowing request
should address the basics of extending credit, including character
(integrity), capacity (sufficient cash flow to service the obligation),
capital (net worth), collateral (assets to secure the debt), and
conditions (borrower and the overall economy).
Watch future issues of Community Banker
Update for Part 3 of this article.
This article explores how lending activities can be administered
and controlled through appropriate and sound underwriting
criteria and practices that are governed by a sound loan policy.1
A loan policy must establish who is responsible for ensuring that
the underwriting criteria (financial capacity, collateral, pricing, and
terms) are appropriately structured, analyzed, and monitored.
This article also touches upon the incorporation of documentation
requirements and the ongoing maintenance of the credit files.
Underwriting Criteria
A loan policy must address key credit decision criteria and
underwriting factors such as the purpose of the loan, required
financial information, collateral, risk ratings (borrower and facility),
pricing, and policy exceptions. It may include metrics that make a
particular borrower, industry, or loan type acceptable; for example,
the policy may note debt-to-income or specific debt service
coverage (DSC) ratios, interest coverage ratios, loan-to-value
requirements, or appropriate amortization periods. The policy
should also address post-origination activities, such as ongoing
monitoring and credit administration, including post-origination
monitoring of loan covenants, obtaining financial information, and
assessing the borrower’s ongoing ability to service the debt and
ultimately repay the loan.
In its simplest form, the underwriting criteria and loan approval
process will drive the bank’s assessment and determination of
a borrower’s creditworthiness. When underwriting criteria are
strong, the loan portfolio should perform better and credit losses
should be minimized. It is not uncommon, especially in larger
or more complex banks, to have separate policies, guidelines,
and documentation requirements that correspond to different
loan types (such as commercial real estate, land acquisition and
development, residential tract development, asset-based loans,
and commercial and industrial).
10
COMMUNITY BANKER UPDATE | JUNE 2015
Financial Information
The decision to lend should be based on a borrower’s ability to
repay an obligation. Obtaining and reviewing loan applications
along with the appropriate borrower information, both
financial and collateral-related, are a vital part of determining
creditworthiness. For lenders to appropriately analyze borrower
information and support the loan approval, the information must
be accurate and obtained in a timely manner.
The loan policy must establish what financial information is
required from a borrower and/or any guarantors both during the
application process and while the credit remains outstanding.
The frequency (monthly, quarterly, or annually) with which the
information will be collected must be established, and the
personnel responsible for obtaining the information should be
identified.
The information required to make a sound lending decision will
be dependent upon what type of credit extension is requested
and who the borrowing entity is (for example, a corporation or
an individual). A corporate borrower will typically be required to
supply more information than an individual borrower applying for
a personal loan. Key sources of financial information for either
party include tax returns, financial statements, and/or cash
flow statements. For corporate borrowers, financial documents
should typically be prepared by an accountant. For individual
borrowers, personal financial statements should be as complete
and thorough as possible. The bank may also require additional
or more detailed information to assess the borrower’s financial
condition. Any additional or special reporting requirements should
also be articulated in the loan policy. The policy should specifically
address the frequency of obtaining and refreshing borrower credit
reports from credit reporting agencies. The loan policy should also
outline what type of financial information is required for each type
of borrower and extension of credit.
Collateral
When extending credit on a secured basis, lenders need to
ensure that appropriate collateral valuations are obtained.
When collateral is taken to enhance a credit and/or secure the
ultimate repayment source of a loan, lenders must ensure that an
appropriate lien is filed (perfected) and that the value
(Loan Policy, Pt 2 continued on next page)
(Loan Policy, Pt 2 continued from previous page)
of the collateral is sufficient to cover the outstanding balance
of the loan. Collateral valuation is required at origination and
should be repeated on an ongoing basis to ensure that the
assets maintain their value. Appropriately trained staff must be
available to perform ongoing collateral monitoring. The loan policy
should discuss the types of collateral that are acceptable and
unacceptable for each loan type. The policy should also discuss
documentation requirements for various types of collateral that
may support the lender’s ability to exercise perfected liens.
Real Estate Collateral
A common form of collateral for many loans is some form of real
estate. There are federal regulations and specific supervisory
guidance that set standards for real estate lending and the
valuation of real estate collateral.2 The most important element
of managing real estate collateral is obtaining a credible
appraisal of the underlying property. The Federal Reserve’s
appraisal regulation requires institutions to obtain an appraisal
for federally related transactions in excess of $250,000.3 An
evaluation is allowed for transactions of less than $250,000.
The regulation further establishes when appraisals are required,
gives minimum standards for acceptable appraisals, and outlines
the requirements for appraiser independence. Management
must ensure that the regulatory requirements for real estate
lending and appraisals are incorporated into their banks’ lending
policies. Regulatory agencies have also provided comprehensive
supervisory guidance with additional detail for managing real
estate collateral. The “Interagency Appraisal and Evaluation
Guidelines” were issued in December 2010 to assist institutions
in establishing safe and sound appraisal programs.4
Other Collateral Types
Other common types of collateral that often secure borrowings
include: accounts receivable, inventory, equipment, and
investment securities. In some cases, the loan policy may allow
the approval of less-common collateral such as specialty vehicles,
boats, or precious metals. Regardless of the type of collateral,
the loan policy should outline acceptable procedures for valuing
and monitoring the collateral. It should also require that the
valuations be performed by individuals with the appropriate skill
sets and credentials. As with all collateralized financing, the
underlying collateral value serves as the basis for determining
how much money should be advanced; therefore, the controls
over the preservation and maintenance of the collateral should be
outlined within the policy. Lenders should determine the collateral
value at the time the loan is originated and then perform periodic
inspections to determine the collateral condition and location,
as well as whether any curtailments (reduction or paydown of
outstanding advances) are needed to keep the loan balance in
line with collateral values.5 The policy should also require that
borrowers regularly report information about any collateral that is
securing a loan (for example, the composition of the collateral as
well as its dollar value, location, and compliance with established
advance rates). Loan documents should also ensure that banks
are able to gain access to collateral at their discretion.
The policy should clearly describe how frequently collateral
valuations will be performed. Typically, the frequency of valuations
depends on the size of the exposure, the type of collateral, the
location, and the established controls over the collateral. The
borrower’s overall financial condition can also be a key factor in
the timing of a collateral valuation. When a borrower’s financial
condition deteriorates, the borrower may not be adequately
maintaining the collateral, or a bank may find that collateral has
been sold. This can have a negative impact on the bank’s ability to
rely on the collateral for repayment.
Perfection of Collateral
When collateral other than real estate is taken to secure a loan,
a lien on the collateral is filed with the appropriate local or state
authority. Most transactions secured by personal property and
fixtures are governed by Article 9 of the Uniform Commercial
Code.6 The loan policy and procedures should clearly specify the
filing requirements, since timing differences and filing locations
vary from state to state. Failure to file a financing statement in a
timely manner and/or in the proper filing location can compromise
the security interest in the collateral.
Unless the collateral is in the possession of the secured party,
there must be a written security agreement that describes the
collateral, and the agreement must be signed by the debtor.
Institutions should regularly monitor lien filings to ensure that lien
positions are maintained or that the perfected security interest in
the collateral remains intact.
Risk Ratings
Management should establish an accurate and reliable risk
rating system to help lenders make appropriate lending decisions
and also establish sound monitoring criteria of the borrower’s
financial and managerial condition. Risk ratings should
significantly influence the ultimate lending decision and help
management determine if additional covenants and/or controls
should be implemented. Risk rating definitions and scales will
vary among banks, but the risk rating framework should be
sufficiently granular to assist lenders in determining pricing, fees,
covenants, provisioning, and specific capital allocation. Risk
ratings should also play a vital role in determining overall portfolio
administration.
Risk rating systems have evolved significantly over the past few
years, including the implementation of dual risk ratings (separate
borrower and facility ratings) and the significant increase in the
granularity of the pass rating scale. While the details surrounding
risk ratings may vary significantly among institutions, the risk
rating process and philosophy should be clearly defined and
incorporated into the loan policy.
Pricing
Elements of the loan policy may also influence pricing. Final
pricing decisions can be complicated by competition from other
lenders and the determination of appropriate premiums for
default risk. Using a simple cost-plus loan pricing model requires
that all related costs associated with extending credit are known
before establishing interest rates and fees. A typical cost-plus
model will consider the following four components:7
• The cost of the funds
• Operating costs associated with servicing the loan(s)
• Risk premium for default risk (considering the borrower risk
rating and facility risk rating)
• A reasonable profit margin on capital
• Management should be able to establish a pricing baseline
using such a model but will be required to make the
appropriate adjustments to be competitive and to receive an
appropriate return.
(Loan Policy, Pt 2 continued on next page)
Legal Disclaimer: The analyses and conclusions set forth in this publication are those of the authors and do not necessarily indicate concurrence by the Board of Governors, the Federal Reserve
Banks, or the members of their staffs. Although we strive to make the information in this publication as accurate as possible, it is made available for educational and informational purposes only.
Accordingly, for purposes of determining compliance with any legal requirement, the statements and views expressed in this publication do not constitute an interpretation of any law, rule, or
regulation by the Board or by the officials or employees of the Federal Reserve System.
COMMUNITY BANKER UPDATE | JUNE 2015
11
(Loan Policy, Pt 2 continued from previous page)
Numerous other variables beyond those previously discussed
affect pricing decisions, including loan type, payment structure,
and borrowing and deposit relationships. This article does not
discuss different pricing strategies but stresses that management
must ensure that an appropriate pricing structure is established
and implemented for each type of loan product offered.
Management should continuously evaluate and adjust rates in
response to changes in costs, competitive factors, or risks of a
particular product type.8
Policy Exceptions
Exceptions to policies and procedures should receive the
appropriate level of approval and should be documented in
writing.9 Even fundamentally sound credits may contain policy
exceptions; such credits may not always conform to all aspects of
the loan policy, but there may be mitigating circumstances that
would justify the loan’s approval. The loan policy should establish
processes and procedures for presenting nonconforming or
exception loan requests received from creditworthy borrowers.
After careful analysis, the exceptions that would give the lender
comfort to approve the request may be approved or alternative
structures may be presented.
To ensure compliance with regulatory guidance,10 the policy
needs to establish review and approval procedures for exception
loans, including loans with loan-to-value percentages in excess
of supervisory limits. Policy exceptions and any mitigating
circumstances should be well documented and presented to the
designated committee for approval. All approved exceptions should
be appropriately tracked and monitored on an individual and
collective basis.
Frequent policy exceptions may indicate a loosening of credit
underwriting criteria and/or a policy that is too restrictive. The
underlying reasons behind frequently granted exceptions should
be assessed and appropriate actions should be taken to ensure
the policy is appropriately conveying the desired risk profile.
Loan Commitments
Loan approvals should be made in accordance with established
underwriting guidelines and should be conveyed to the borrower
in a formal commitment letter. While a commitment letter is not a
promissory note, it is the document that contains the terms and
conditions under which a bank will agree to extend credit. The
commitment letter should be based on the approved terms of the
loan and should be signed by both parties. It also should include,
at a minimum:
•
•
•
•
•
•
•
•
•
•
•
Borrower(s)
Guarantor(s)
Amount of credit facility
Interest rate and methodology used to calculate the interest
rate
Term or tenor
Security or collateral
Distribution of proceeds
Borrower warranties
Financial statements
Appraisals
Inspections
Covenants
Expiration or termination of commitment
Acceptance and closing
Loan Approval and Closing
Once the commitment letter is returned with the borrower’s
signature and all the necessary negotiations have been completed,
12
COMMUNITY BANKER UPDATE | JUNE 2015
formal loan documents can be generated. Borrowers should sign a
new commitment letter if any changes that differ from the original
approval are negotiated.
The approval may also require the borrower and guarantors to
submit (at least annually) financial information during the term of
the loan. This will assist in the ongoing monitoring and review of
the borrower’s financial condition and in determining the continued
appropriateness of the credit and whether to grant renewals or
extensions.
Once signed, a loan approval or commitment letter can be routed
to either the bank’s internal loan documentation team or to an
outside attorney for the preparation of the formal loan documents.
After the loan documents are prepared and the borrower (or
the borrower’s attorney) has reviewed them, the bank and the
borrower will meet for a formal loan closing during which all
documents are signed and proceeds are advanced. Institutions
should also have policies that govern the proper procedures for the
disbursement of loan proceeds.
Maintaining Appropriate Credit Files and Documentation
The credit file is the repository for all information (financial and
collateral) pertinent to the credit extension for the entire period
that the credit extension remains outstanding.
Within the credit file, lenders should appropriately document
the entire credit relationship and provide internal and external
reviewers with all information necessary to analyze the credit
during its life. The policy should identify who is responsible for
collecting and maintaining all the required information during
the life of the loan and specify who is responsible for reviewing
the adequacy of the loan documentation. The policy should
also contain procedures for identifying, citing, and correcting
documentation exceptions and the parties responsible for carrying
out these tasks.
The credit file should adequately document and confirm every
aspect of the established underwriting criteria. For example,
credit files should include all financial statements, credit
reports, collateral inspection documents, past loan applications,
memoranda, correspondence, and appraisals. Documentation
requirements will vary according to the type of loan, borrower, and
collateral.11
Conclusion
Community banks are expected to have and maintain policies
and procedures that provide an effective framework to control
credit risk through sound underwriting criteria, appropriate credit
file management, and sound documentation. While numerous
loan policy topics and examples have been presented in this
article and the previous one, the importance of tailoring the policy
to banks’ activities cannot be overstressed. The underwriting
criteria along with the credit file maintenance and documentation
recommendations presented within this article are by no means
all-inclusive.
Notes
* This article is the second of a three-part series. The first article, which is titled
“Development and Maintenance of an Effective Loan Policy: Part 1,” appeared in
the Third/Fourth Quarter 2014 issue of Community Banking Connections and is
available at www.cbcfrs.org/articles/2014/q3-q4/development-and-maintenanceof-an-effective-loan-policy. The article discussed why it is important for a loan
policy to define what is permissible and who has responsibility for ensuring
lending activities are conducted in a safe and sound manner. The article covered
loan policy development, policy objectives, permissible and impermissible loans,
participations, portfolio mix and limits, lending department structure, and lending
authority. It also discussed how each of these policy elements can vary depending
on the activities and mission of a banking organization.
The final article in the series, which will appear in a future issue, will discuss several
(Loan Policy, Pt 2 continued on next page)
(Loan Policy, Pt 2 continued from previous page)
aspects of ongoing credit monitoring and credit file maintenance that need to be
included in the loan policy. It will also address management information systems and
reporting, loan review, loan workout, and the allowance for loan and lease losses.
1 See Board of Governors of the Federal Reserve System, Commercial Bank
Examination Manual (CBEM), section 2040.1, “Loan Portfolio Management,”
available at www.federalreserve.gov/boarddocs/supmanual/cbem/2000.pdf.
Information
Security Audit Bundle
2 The Federal Reserve Board’s real estate appraisal standards are found in
Regulation H, subpart E, 12 CFR 208.50–51 for state member banks. For bank
holding companies, the appraisal standards can be found in Regulation Y, subpart G,
12 CFR 225.61–67.
• I nformationSecurity
Audit
3 The Interagency Appraisal and Evaluation Guidelines were published on December
2, 2010, and explain real estate transactions that require appraisals and/or
evaluations. The guidance provides federally regulated institutions’ and examiners’
clarification on the agencies’ expectations for prudent appraisal and evaluation
policies, procedures, and practices.
Appraisal — As defined in the agencies’ appraisal regulations, a written statement
independently and impartially prepared by a qualified appraiser (state licensed or
certified) setting forth an opinion as to the market value of an adequately described
property as of a specific date(s), supported by the presentation and analysis of
relevant market information.
Evaluation — A valuation permitted by the agencies’ appraisal regulations for
transactions that qualify for the appraisal threshold exemption, business loan
exemption, or subsequent transaction exemption.
• Penetration Test
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bundlingthese
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services
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4 See Supervision and Regulation letter 10-16, “Interagency Appraisal and Evaluation
Guidelines,” available at www.federalreserve.gov/boarddocs/srletters/2010/sr1016.
htm.
5 See CBEM, section 2160, “Asset-Based Lending.”
• F
reeAccessto
anAutomated
Remediation
TrackingTool
6 See CBEM, section 2080, “Commercial and Industrial Loans.”
7 See Matthew D. Diette, “How Do Lenders Set Interest Rates on Loans?” Federal
Reserve Bank of Minneapolis, November 1, 2000, available at www.minneapolisfed.
org/publications_papers/pub_display.cfm?id=3030&.
Endorsed by:
8 See CBEM, section 2040, “Loan Portfolio Management.”
9 See CBEM, section 2040, “Loan Portfolio Management.”
10 See Regulation H, Appendix C to Part 208 — Interagency Guidelines for Real
Estate Lending Policies, available at www.gpo.gov/fdsys/granule/CFR-2012-title12vol2/CFR-2012-title12-vol2-part208-appC/content-detail.html.
UBB_CBI_CCad_0212_Layout 1 2/21/12 8:44 AM Page 1
11 See CBEM, section 2040.1, “Loan Portfolio Management.”
Robb Nielsen
(717) 369-0139 • [email protected]
www.protectmybank.com
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COMMUNITY BANKER UPDATE | JUNE 2015
13
Telling Our Story
Written By: Jack Hartings, Chairman of ICBA
From the
TOP
Taking advocacy to the next level—that’s what
community bankers did last month at ICBA’s
Washington Policy Summit, and they have the
results to prove it. With nearly 1,000 community
bankers and industry advocates swarming the
nation’s capital to advocate positive reform for
our industry, community bankers stepped up and
participated in more than 300 meetings with
policymakers.
Never shy about who you are and what you stand
for, community bankers achieved tangible results
at this year’s summit that are helping to drive
the meaningful change we need. Because of you,
the CLEAR Relief Act in the House (H.R. 1233)
added 22 bipartisan cosponsors in just one week
after the meetings to bring its total to 40. Not
only that, the CLEAR Relief Act in the Senate (S.
812) has tacked on eight for 29 total bipartisan
cosponsors.
“The bottom line is that everyone
on Main Street is impacted by
crippling regulatory burden.”
That’s results, community bankers! You should
be commended for your efforts. You stood up
and spoke out—many of you with real-life stories
and testimonials about how regulatory burden
is impacting your customers and community.
That’s what our representatives on the Hill and
regulators need to hear. They heard it loud and
clear during ICBA’s Washington Policy Summit,
thanks to all of the vocal community bankers
who attended. But we can’t stop here. There are
more stories that need to be told to illustrate the
negative impact that excessive regulatory burden
is having on real people and real communities—
both of which depend on their community banks
as a local source of funding.
Story time isn’t over. In the pursuit to enact
meaningful regulatory relief for community banks
this Congress, the House Financial Services
14
COMMUNITY BANKER UPDATE | JUNE 2015
Committee leadership is seeking specific
examples of how current regulatory requirements
have hindered lending and ultimately harmed
consumers. The committee is not looking for
examples of how regulations have harmed bank
profitability, but how they adversely affect your
customers.
ICBA is taking the lead to get your specific
community banker stories to Congress.
To that end, please share your specific examples
with ICBA (see inset below). The committee is
looking for examples of the loans that your bank
would traditionally make but now cannot due to
the current regulatory environment.
No detail should be spared in sharing stories of
customer impact. Areas to cover could include,
but are not limited to, consumer, residential
mortgage and small-business lending. Examples
should be as specific as possible. And know that
the staff at ICBA will redact sensitive customer
information before your comments are passed on
to the committee.
So go ahead and tell your story, your customers’
stories, and your community’s story. The bottom
line is that everyone on Main Street is impacted
by crippling regulatory burden—not just the
community bank. The sooner Congress knows
just how much its actions affect everyday
Americans, the better. And who better to illustrate
that than the people who know their customers
and community best—our nation’s community
bankers?
Jack Hastings is Chairman of ICBA, and President
and CEO of The People’s Bank in Coldwater, Ohio.
ICBA is making the case to Congress
for community bank regulatory relief.
Please share how regulations have
negatively impacted your bank’s
consumers by visiting:
www.icba.org/beheard
Praise for Small Ball
Written By: Camden Fine, President and CEO of ICBA
FINE
POINTS
Every baseball player dreams about smashing an
extra-inning walk-off home run to win the World
Series. Over and over again they can imagine that
moment—that spectacular swing under the klieg
lights before a roaring stadium crowd. What their
imaginations too easily omit, however, are the
months or even years of arduous, unglamorous
work that is necessary to put anyone or any
team in a position to clinch a season-capping
championship in the first place.
Sudden and dramatic victories, in baseball as
in life, are rare. Success in any endeavor almost
always results from a steady accumulation of
hard-won singles earned over an entire season
that, ultimately, lead to the last at-bat in a final
championship game.
This spring, after years of steady base-hit advocacy
successes by ICBA, the federal Patent Trial and
Appeal Board invalidated two dubious and abusive
check-imaging patents that, when asserted,
have seriously harassed far too many innocent
community banks for far too long. Clearly a just
and overdue victory, the PTAB declared uncalled
for the DataTreasury Corp.’s flimsy patents that
resulted in $350 million in settlement claims from
the financial services sector, including community
banks.
“Even with tremendous
administrative, legislative and
judicial victories, the endgame
against patent trolling isn’t over.”
But this victory, which goes a long way to prevent
costly and willfully baseless patent-infringement
claims in the future, was neither sudden nor
accidental. It resulted from years of ICBA advocacy,
including our coordinated work with allies.
The PTAB, in fact, was itself established three
years ago by Congress through legislation ICBA
vigorously advocated to shut down so-called patent
trolls such as DataTreasury.
Since then, just as importantly, numerous state
legislatures have also enacted much stricter legal
protections against patent trolling. Last year the
U.S. Supreme Court also issued two decisive
defeats for patent-troll claims. All of this has
created a bad business climate for patent trolls,
causing a notorious one, Automated Transactions
LLC, to abandon litigation against a number of
community banks.
Even with these tremendous administrative,
legislative and judicial victories, the endgame
against patent trolling isn’t over. To further protect
community banks, ICBA is continuing to call on
Congress to advance legislation that would:
• make permanent PTAB covered business
method review of these “business method”
patent-infringement claims;
• require those asserting these kinds of patent
infringements to provide clear and detailed
information up-front, and;
• ensure community banks receive sufficient
legal protection against claims from third-party
products, services and systems.
These measures are important because
DataTreasury’s claims have been just the tip of
an iceberg of get-rich-quick legal schemes patent
trolls have attempted. One Boston University study
estimated that corporations paid at least $29
billion in various patent-troll costs in 2011 alone.
As a lifelong, diehard St. Louis Cardinals fan,
I admire the team’s storied ability to edge out
crucial wins from sheer hustle and determination.
The team has taught me that posting the W—not
how you arrive at a winning score—is what counts.
So rest assured, ICBA won’t stop working until
we achieve whatever is necessary to protect
community banks and their customers. We’ll do
whatever it takes—home runs, base hits or even
bunts if necessary—for however long it takes.
Following Mr. Fine
More than 1,000 people are following
Camden Fine’s tweets @Cam_Fine— are
you? Visit www.twitter.com/cam_fine.
COMMUNITY BANKER UPDATE | JUNE 2015
15
Creighton
Main Street
Economic Survey
Ernie Goss
U N I V E R S I T Y
Rural Mainstreet Economy Slows:
Almost One in Five Bankers Reported Negative Impacts from Bird Flu
May Survey Results at a Glance:
• The Rural Mainstreet Index improved, but remained below
growth neutral for May signaling slight pullbacks in economic
activity.
• Farmland prices declined for the 18th straight month, but
with wide variations across the region.
• Almost one in five bankers reported negative fallout from the
avian flu outbreak.
• Agriculture equipment-sales index dropped to a record low
level.
• Bankers identified rising regulatory costs as the top economic
challenge to bank profitability for the next five years.
OMAHA, Neb. – The Creighton University Rural Mainstreet Index
for May rose slightly from April’s weak reading, according to the
monthly survey of bank CEOs in rural areas in a 10-state region
dependent on agriculture and/or energy. Overall: The Rural Mainstreet Index (RMI), which ranges between
0 and 100, climbed to 49.0 from 46.0 in April.
“The stronger U.S. dollar continues to be a drag on the Rural
Mainstreet economy. The strong U.S. dollar has made U.S. goods,
especially agriculture and energy products, less competitively
priced abroad. This has dampened farm income and the Rural
Mainstreet economy,” said Ernie Goss, Jack A. MacAllister Chair
in Regional Economics at Creighton University’s Heider College of
Business.
Farming and Ranching: The farmland and ranchland-price index
for May climbed to 39.7 from April’s 33.4. “However, this is the
18th straight month the index has moved below growth neutral.
But according to banker comments, there is great deal of variation
across the region with many areas continuing to experience strong
demand for farmland with little deterioration in farmland prices,”
said Goss.
Jeff Bonnett, president of Havana National Bank in Havana, Ill.,
said, “Although it is very true that commodity prices are too low
to support current year farm operations, the idea of plummeting
farmland values has no merit in our area. We have a recent
example of a 240 acre irrigated piece in the southern part of our
county that sold for $9,450 an acre.”
The May farm equipment-sales index fell to a record low of 12.5
from 15.6 in April. The index has been below growth neutral for
22 straight months. “With farm income expected to decline for a
16
COMMUNITY BANKER UPDATE | JUNE 2015
second straight year, farmers remain very cautious regarding the
purchase of agricultural equipment,” said Goss.
Banking: The May loan-volume index soared to 79.6 from 69.0
in April. The checking-deposit index sank to 43.8 from April’s
50.1, while the index for certificates of deposit and other savings
instruments increased to 39.7 from April’s 38.0.
This month, bank CEOs were asked to identify the greatest
economic challenge to banking operations over the next five
years. Approximately, 45.8 percent of the bank CEOs named rising
regulatory costs as the top threat to their bank’s profitability. More
than one in five, or 20.8 percent, indicated growing competition
from Farm Credit and credit unions represented the greatest
threat over the next five years.
Approximately 10.4 percent and 8.3 percent identified slow growth
and farm foreclosures, respectively, as the number one challenge
to their bank’s profitability over the next five years. The remaining
14.9 percent named other factors challenging their operating
income over the next five years.
Hiring: Despite weaker crop prices and pullbacks from businesses
with close ties to agriculture and energy, Rural Mainstreet
businesses continue to add workers to their payrolls. The May
hiring index rocketed to 61.5 from April’s much lower, but solid
54.2. “Rural Mainstreet businesses continue to hire additional
workers. While the rate of new hiring is healthier in urban areas of
each state, Rural Mainstreet communities are growing jobs at a
solid, but slower pace,” said Goss.
Confidence: The confidence index, which reflects expectations for
the economy six months out, sank to 41.5 from 47.0 in April. “The
impact of the avian flu had a clear and negative impact on the
outlook of bankers in the region,” said Goss.
“We asked bankers about the fallout from the avian flu outbreak.
Almost one in five of the bankers, or 18.7 percent, reported
negative impacts from the outbreak. However, almost one-half, or
48.9, expect negative impacts from the bird flu if it should spread
to their area,” said Goss.
Home and Retail Sales: The May home-sales index jumped to
66.0 from April’s 58.2. The May retail-sales index increased to a
weak 49.0 from 44.0 in April. “We have yet to measure any upturn
(Rural Mainstreet continued on next page)
(Rural Mainstreet continued from previous page)
America, created the monthly economic survey in 2005.
in retail sales stemming from the downturn in fuel prices,” said
Goss.
Each month, community bank presidents and CEOs in nonurban,
agriculturally and energy-dependent portions of a 10-state area
are surveyed regarding current economic conditions in their
communities and their projected economic outlooks six months
down the road. Bankers from Colorado, Illinois, Iowa, Kansas,
Minnesota, Missouri, Nebraska, North Dakota, South Dakota and
Wyoming are included. The survey is supported by a grant from
Security State Bank in Ansley, Neb.
Colorado: After rising above growth neutral for 11 straight
months, Colorado’s Rural Mainstreet Index (RMI) has declined
below the 50.0 threshold for the last four months. The RMI
improved to 47.7 from April’s 43.0. The farmland and ranchlandprice index advanced to 50.9 from April’s 35.6. Colorado’s hiring
index for May advanced to 62.4, from 50.5 in April. Dale Leighty,
CEO of First National Bank of Las Animas reported, “Recent rains
have changed our outlook for the better.”
This survey represents an early snapshot of the economy of
rural, agriculturally and energy-dependent portions of the nation.
The Rural Mainstreet Index (RMI) is a unique index covering 10
regional states, focusing on approximately 200 rural communities
with an average population of 1,300. It gives the most current
real-time analysis of the rural economy. Goss and Bill McQuillan,
former chairman of the Independent Community Bankers of
Illinois: The RMI for Illinois rose to 49.2 from 45.6 in April. The
Illinois farmland-price index increased to 42.9 from April’s 39.2.
The state’s new-hiring index expanded to 59.2 from 53.3 in April.
Iowa: The May RMI for Iowa advanced to 52.1 from April’s 45.4.
Iowa’s farmland-price index for May climbed to 52.3 from April’s
42.1. Iowa’s new-hiring index for May jumped to 62.9 from April’s
55.7.
(Rural Mainstreet continued on next page)
Tables 1 and 2 summarize survey findings
Next month’s survey results will be released on the third Thursday of the month, June 18.
Table 1: Rural Mainstreet Economy One Year Ago and Last Two Months:
(index > 50 indicates expansion)
May
2014
April
2015
May
2015
Area economic index
55.6
46.0
49.0
Loan volume
75.4
69.0
79.6
Checking deposits
54.8
50.1
43.8
Certificates of deposit and savings instruments
40.3
38.0
39.7
Farmland prices
46.7
39.4
39.4
Farm equipment sales
33.6
15.6
12.5
Home sales
63.9
58.2
66.0
Hiring
64.0
54.2
61.5
Retail business
51.7
44.0
49.0
Confidence index (area economy six months out)
51.6
47.0
41.5
Table 2: The Rural Mainstreet Economy, May 2015
Percentage of bankers reporting
Regarding the current avian or bird flu outbreak, what
has been the impact thus far to your area economy?
If the bird flu spreads to your area, or in your area,
what impact do you expect it to have on the area
economy?
For a five-year time horizon, which of the following
represents the biggest economic challenge to your
banking operations and/or profitability?
Significant
Costs
Cost but not
significant
Little or no cost
A positive from higher
livestock prices
4.1%
14.6%
79.2%
2.1%
Significant
Costs
Cost but not
significant
Little or no cost
A positive from higher
livestock prices
12.7%
36.2%
46.8%
4.3%
Rising
Regulatory costs
Increasing
competition from
Credit Unions &
Farm Credit
Slow or negative
economic growth
Farm
foreclosures
Other
45.6%
20.8%
10.4%
8.3%
14.9%
Follow Ernie Goss on Twitter: www.twitter.com/erniegoss
For historical data and forecasts, visit: www2.creighton.edu/business/economicoutlook/
COMMUNITY BANKER UPDATE | JUNE 2015
17
(Rural Mainstreet continued from previous page)
Kansas: The Kansas RMI for May dipped to 47.5 from April’s 49.2.
The state’s farmland-price index for May fell to 33.9 from April’s
57.1. The new-hiring index for Kansas declined to 55.6 from 67.7 in
April. According to Michael Johnson, CEO of the Swedish American
Bank in Courtland, “20 tornadoes in one night. Devastating but no
lives lost. (It is) amazing to see how our communities pull together to
help their neighbors when all is lost.”
Minnesota: The May RMI for Minnesota rose to 50.1 from April’s
45.2. Minnesota’s farmland-price index increased to 42.0 from 32.4
in April. The new-hiring index for the state climbed to 58.8 from
April’s 47.9.
Missouri: The May RMI for Missouri grew to 48.0 from 41.8 in April.
The farmland-price index for May rose to 36.2 from April’s 16.3.
Missouri’s new-hiring index soared to 56.5 from April’s 35.1.
Nebraska: The Nebraska RMI for May increased to 47.8 from 45.7
in April. The state’s farmland-price index slipped to 39.0 from
39.4 in April. Nebraska’s new-hiring index grew to 57.6 from April’s
53.1. Larry Rogers, executive vice-president of First Bank of Utica,
“Because of the benefits of raising seed corn, we are somewhat
insulated from the effects of falling grain prices.”
North Dakota: The North Dakota RMI for May climbed to 53.9 from
April’s 47.8. The farmland-price index jumped to 74.9 from 39.4 in
April. North Dakota’s new-hiring index increased to 72.0 from April’s
63.0.
South Dakota: The May RMI for South Dakota expanded to 50.5
from April’s 44.1. The farmland-price index for May expanded to
44.5 from April’s 32.1. South Dakota’s new-hiring index rose to 59.8
from 47.6 in April.
Wyoming: The May RMI for Wyoming advanced to a weak 48.2 from
last month’s 44.3. The May farmland and ranchland-price index
expanded to 42.3 from April’s 35.8. Wyoming’s new-hiring index
increased to 59.2 from April’s 49.2.
CBI Is Looking for a
Membership Development Director
CBI is searching for a new Membership Development Director,
who will be responsible for membership retention and growth
as well as services penetration and revenue growth. The
incumbent will directly market, promote and sell membership
benefits and endorsed services to member and non-member
community banks throughout the state of Iowa.
They will also be responsible for attending CBI-sponsored
events and conferences, reporting bank trends and needs to
the Board of Directors monthly, and coordinating committee
and peer group meetings.
The Membership Development Director will be the central
contact for CBI membership. Successful candidates must
have experience in a relationship-building sales environment,
and knowledge of the banking industry is preferred. The
position also involves extensive state-wide travel, with the
main office in West Des Moines.
To apply, contact Don Hole at [email protected],
call 515-453-1495, or see our ad in CareerBuilder.com.
18
COMMUNITY BANKER UPDATE | JUNE 2015
Top 5 Things to Do in 2015 to Prepare for Same Day ACH
Written By: Jen Kirk, AAP, Director, Industry Relations - EPCOR
On May 18, the NACHA membership
approved a new ACH Rule on Same Day
ACH. This Rule will be implemented in
three phases with phase 1 going into
effect September 2016, but there is plenty a bank can do now to
prepare for this epic change.
Here is my list of “Top 5 Things Your Bank Should Begin Doing
Now”:
1. Become familiar with the Same Day ACH Rule. This is a
phased implementation approach. Same Day ACH credit
funds availability rules are not defined until Phase 3. There
are a lot of myths and ‘hear-say’ about the Same Day ACH
Rule. Make sure you know what rule actually says. The new
Rules language can be found at www.nacha.org/rules/sameday-ach-moving-payments-faster.
2. Anticipate the staffing impact of Same Day ACH. Work with
your processors to see what they are planning to automate
and what will be manual for your bank. Since this is
completely new, you must also expect the unexpected.
3. Understand that this Rule is mandatory for RDFIs. RDFIs
will not be able to opt-out of NACHA’s Same Day ACH Rules. RDFIs must plan to accept same day credits and debits, and
must follow the ACH Rules as they pertain to funds availability,
posting and exception processing.
4. Begin discussions on whether you will allow Originators to
send same day ACH. This is intended to be a premium service
to your originators. This service is perfect for contingency on
missed payroll files, but are there other use cases for Same
Day ACH that may generate revenue for your bank? Do you
have business clients who would benefit from this service? Just as with any ACH origination services, there is no mandate
to offer Same Day ACH origination services.
5. Look for resources, tools and education from your Regional
Payment Association. Your Regional Payments Association,
through their relationship with NACHA, has been actively
tracking the Same Day ACH Rule proposal. If they are
not doing so already, they are planning to offer training,
newsletter articles, tools and resources to help you implement
Same Day ACH.
Jen Kirk is Director, Industry Relations, for EPCOR – a regional
payments trade association devoted to providing timely and
relevant payments education and support to over 2,300 financial
institutions throughout the Midwest.
COMMUNITY BANKER UPDATE | JUNE 2015
19
News from CBI
Affiliate & Associate Members
UBB Reports Strong Earnings for 2014
JMFA Wins AMA Houston Crystal Awards
United Bankers’ Bancorporation, Inc.,
(UBBI) reported strong consolidated
earnings for 2014 and announced
the election of its Board members at
its annual shareholders meeting. UBBI is the holding company for
United Bankers’ Bank (UBB). The annual meeting was held recently
at The Westin Minneapolis in Edina, MN.
JMFA, the leading consultant for banks
and credit unions nationwide, received
top honors at the 29th Annual American
Marketing Association (AMA) Houston
Crystal Awards Gala. JMFA’s New Overdraft Privilege Program
marketing endeavors were recognized as Best in the Businessto-Business Marketing Campaign and Two-Dimensional Printed
Direct Mail Campaign categories.
William C. Rosacker, President of United Bankers’ Bancorporation,
Inc., reported that UBBI had a consolidated net income of
$5,132,455 in 2014 and total assets of $788,125,954. “I’m
pleased to report that our performance in 2014 was strong and
continues to demonstrate our strength and stability for the future,”
commented Rosacker.
“We are certainly honored
to receive this recognition
from the AMA for the efforts
that went into our 2014
marketing initiatives, as well
as the results,” said John M.
Floyd, chairman and CEO.
“These earnings are reflective of the success our customer banks
are having as the main street economy continues to improve,” said
Rosacker. “We are particularly pleased with the growth in our loan
portfolio as member banks are turning to UBB for help in funding
growth to their communities. As we look towards the future, we
continue to research and develop new and innovative products and
services that will enable community banks in better serving their
customers.”
In addition to surpassing
initial marketing objectives,
the campaigns presented
Accepting the AMA Houston Crystal Award for
an important message
JMFA are: (front row, l to r): John M. Floyd,
regarding the need for
chairman/CEO; Cher Floyd, COO; Stefani
financial institutions to
Soza, marketing director. Back row, Kathy
provide full disclosure to
Morales, chief administrator; John Cohron,
account holders about how
EVP, Operations and CIO; and Brooke Stuewe,
their transactions will be
marketing & strategic sales manager.
handled. “As a long-time
advocate of transparent financial services, we are committed
to building relationships by helping our clients improve their
profitability while they provide products and services that are
beneficial to their account holders,” Floyd said.
Dick Behl, President of Farmers & Merchants State Bank of
Scotland, South Dakota, will serve a consecutive one year term as
the UBBI Board Chairman. UBB also announced the re-election of
Gregory Traxler of First National Bank Le Center, Le Center, Minn.,
as UBBI Board Vice Chairman, and Greg Raymo of First State Bank
Southwest, Worthington, Minn., as a new Board member. Retiring
from the UBBI board of directors was Wayne Finnern of Madelia,
Minn.
For more information on CBI Associate Member UBB, visit ubb.com.
The Crystal Awards winners are selected based on the
effectiveness of their marketing and communication success.
This year’s judging included more than 360 entries in 80
categories.
For more information on CBI Endorsed Member JMFA, visit their
website at www.JMFA.com or call (800) 809-2307.
Whitfield & Eddy Recognized by Chambers USA
Whitfield & Eddy, P.L.C. attorneys Tom
Burke and Mark Rice were recognized by
Chambers USA in the area of Corporate/
Mergers and Acquisition, Banking and
Finance – Iowa. Kara Sinnard was also recognized in the area of
Real Estate – Iowa. Burke, Sinnard and Rice are members of the
firm’s Business and Banking practice group and work with banks
and financial institutions.
20
COMMUNITY BANKER UPDATE | JUNE 2015
Chambers Iowa is researched by one dedicated researcher who
speaks to leading firms, clients, and government officials to
recommend leading firms and attorneys. Chambers and Partners,
based in London, England, publishes guides in 185 jurisdictions
throughout the world and have been ranking the best lawyers and
law firms since 1990.
Visit www.whitfieldlaw.com for more information about CBI Affiliate
Member Whitfield & Eddy.
(Fuel in the Tank continued from page 9)
Youth is served
Prepayment “speeds” as they relate to the ages of MBS pools have
interestingly changed dramatically in the last seven years.
Until the Great Recession, it was typical for a given MBS security to
prepay at gradually faster speeds until, say, five years had passed. By that point, or so the logic went, a borrower that was inclined to
refinance or move would have already done so, as equity built up
and the business cycle probably provided an economic opportunity
to recast the debt. The subsequent slowdown is called “burnout.”
Since 2009, something strange has happened. In recent years,
this trend has become somewhat distorted. The pools with the
newest loans have sometimes prepaid faster than seasoned pools
for borrowers with marginal rate incentive. This phenomenon is
the result of stricter underwriting. New loans have lower loanto-value ratios, lower debt-to-income ratios and more complete
income verification. As a result, the homeowners can refi almost
immediately after purchase, given a sufficient drop in mortgage
rates. This should mean that the “burnout” stage (in which speeds
permanently decline) arrives earlier and durations remain quite
elevated for longer. The corollary to this is that the cash flow on the
front end is greater, which may be what an investor desires. rate variety, or ARMs. Virtually all ARMs these days have a fixedrate period for anywhere from three to 10 years before they begin
to float. This period has been designated the weighted-average roll,
or “WAR” by bond analysts, and is a good indicator as to when the
loans in that pool may prepay. ARM borrowers have a period in mind that they intend to stay in a
house, and will fix the period to correspond to this time frame. It
is typical for a floating-rate pool to see huge prepay increases as
the WAR approaches. So, ARM investors can simply hear what the
borrowers are saying by paying attention to that variable. Fixed-rate MBSs and ARMs can still command some significant
premium prices. As of this writing, 15-year Fannie Mae 2.5 percent
pools are priced at more than four points of premium. Since we
have seen amply that fast prepayments will compromise yield
(even if they provide additional liquidity), it behooves the investor
to examine the nuances embedded. The age, cohort and WAR of a
pool are great ways to derive value in the MBS market. Jim Reber is president and CEO of ICBA Securities and can be
reached at 800-422-6442 or [email protected].
Floater fables
Another subset of the mortgage securities market is the adjustable-
COMMUNITY BANKER UPDATE | JUNE 2015
21
Connection
Quandary
After offering all the necessary
digital deliveries, what should I do now?
Written By: Chris Lorence, EVP & Chief Marketing Officer - ICBA
Just 16 years ago community banks were leaning into the idea of
Internet banking and bill payment. Many bristled at the thought of
anyone in their right mind using the Internet to transact banking
business, much less pay their bills. Ten years before that was
the argument about whether people would use an automated
teller machine. The fact is that your customers’ needs are pretty
consistent, but their means of access have definitely evolved.
With a quickly evolving culture and societal reliance on mobile
technology, community banks are quickly adapting to new
customer demands. However what may be missing in the quest
for expanding access is remembering to ask for their business: all
their business.
All too frequently opportunity slips out the backdoor when
technology is relied upon to replace an important step in a
process. As consumers and small businesses use the Internet to
seek out information, including the “best deal,” many unknowingly
complicate their lives in an attempt to save money or time.
While there are definitely price shoppers, there are just as many
convenience and value shoppers; those people who are willing to
pay a little more for better service.
What are you doing to capture all the business your customers
have to offer? What should you be doing right now?
Ask yourself these three questions:
• If you took a good, hard look at your existing customer base,
how many additional relationship opportunities exist for you?
Mortgages, credit cards, auto loans, investments, college
financing—the list goes on and on.
• Does your community bank have a marketing culture, where
your staff members instinctively ask customers for more of
their business than the single opportunity presented?
When someone comes into your community bank seeking a
mortgage loan, why not pre-approve him or her for a credit card
and an auto loan? When reviewing a credit bureau upon opening
a new account, why not ask what the rate is on the customer’s
existing mortgage or credit card, or perhaps ask how many
months are left on that RV loan so you can bring the business to
your bank?
Certainly, for consumers there is value in the convenience of
having one website to visit, one place to call, one relationship to
manage. But, yes, even in today’s fast-paced, mobile-empowered
world, people are still actually willing to pay a market rate for the
value of a great relationship.
Understanding budgets are tight and compliance requirements
are even tighter, marketing in traditional ways—like statement
stuffers and advertising campaigns—might be outside the realm
of possibilities. However, a conversation with a current customer
that ends up asking for more business is still free.
So why not start one?
Chris Lorence ([email protected]) is ICBA’s executive vice
president and chief marketing officer.
• As a segment of your customer base grows to rely on bank
transactions via the Internet and mobile technology, how are
you capturing more of their business remotely?
Are you staying current on community banking news?
Get Some CommonCENTS
CommonCENTS is a weekly e-newsletter that keeps you informed of
current organization activities and community banking news, delivered to
your email inbox every Friday.
Is everyone at your bank receiving CommonCENTS? If not, email CBI at
[email protected] with a list of names and email addresses that you
would like added to the recipient list.
If you would like to submit news and events from your bank for inclusion in
the weekly e-newsletter, please contact Krissy Lee at [email protected].
22
COMMUNITY BANKER UPDATE | JUNE 2015
See Chris at the Bankers’ Roundtable Breakfast
and the Social Media Discussion Panel breakout
session at CBI’s 44th Annual Convention,
July 15-17, 2015. Visit cbiaonline.org for details.