community banker update - february 2015
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SBA (7a) Loan ProgramPgs. 14-15
THE BENEFITS & RISKSOF BEING A LENDER IN THE
INTERESTRATE RISK
Pgs. 8-9
Community Banks &
2015LENDINGOUTLOOK
Interviews with Industry Insiders
Pgs. 18-19
LEADERSHIP DEVELOPMENTCONFERENCEPg. 5
Leaders of Tomorrow
MILLENNIALMANIA
Tapping Into History’s Biggest Generation of ConsumersPgs. 6-7
2 COMMUNITY BANKER UPDATE | FEBRUARY 2015
Want To AttendA Webinar?
View a complete calendar andregister for CBI-sponsored webinarsand events at www.cbiaonline.org
or Call Us at 515.453.1495for more information.
1-800-347-4642 | mibanc.com
“In 1984, the founding directors took a BIG CHANCE on a 33 year old to raise capital and organize their new Bankers’ Bank. Those courageous community bankers were YEARS AHEAD OF THEIR TIME. Congratulations on serving community banks for 30 years.”
CAMDEN FINEICBA president & CEOFormer MIB president, CEO & original charter organizer
CREATING MIB TOOK COURAGE
Midwest Independent Bank
February 3 RevisitingYourRESPA&TILAPoliciestoIncludetheNew IntegratedDisclosureRequirements
February 4 UnderstandingAppraisals&AppraisalReviewConcepts forLenders
February 5 BSAComplianceSeries:NewBSAOfficerTraining
February 10 FASB/GAAPUpdate,IncludingProposedModifications toALLLCalculations
February 11 QualifyingBorrowersUsingPersonalTaxReturns Part1:Basics,ItemizedDeductions,Interest&Dividend Income,SoleProprietorships&CapitalGains
February 12 NewAccountsSeries:AccountOpeningDueDiligence
February 18 FinCENGuidanceonBankingMarijuanaBusinesses
February 19 RegulatorIssues&UpdatefortheCreditAnalyst
February 24 AdvancedACHSpecialistSeries:Setting&Monitoring EffectiveACHExposureLimits
February 25 FFIECAssessments&RecentDevelopmentsin CyberSecurityRiskManagement
February 26 Top10ComplianceMistakesinAdvertising
FEBRUARY 2015 WEBINAR LINE-UP
COMMUNITY BANKER UPDATE | FEBRUARY 2015 3ICBA_7347_WPS_H_Page Island.indd 1 12/9/14 4:27 PM
Community Bankers of Iowa1603 22nd Street, Suite 102
West Des Moines, Iowa 50266Phone: 515.453.1495
In This IssueFebruary2015WebinarLineup......... 2
NewandImproved............................ 3
SavetheDate:LeadershipDevelopmentConference................. 5
MillennialMania.............................6-7
InterestRateRisk...........................8-9
FromtheTop:DefiningMainStreet.......................10
FinePoints:SecuringPaymentsSecurity...........11
LOTQuarterlyMeeting....................12
Benefits/Risks;SBA(7a).......... 14-15
Services&InsuranceMemberNews............................16-17
2015LendingOutlook.............. 18-19
RuralMainstreetSurvey........... 20-22
NEW ANDIMPROVEDAssomeofyouhavealreadynoticed,whenyouvisitusatwww.cbiaonline.orgyou’lldiscoveracompletelyredesignedandrenovatedwebsite.Amongtheimprovementsyou’llnoticearetheenhancedgraphicsandanewlayout.
Butthechangesaremorethancosmetic.Alongwithbeingmoreattractive,youwillfindoursiteeasiertonavigateandspendlesstimelocatingthenewsandinformationyouwant.ClickthemainbannerontheHomepagetojumprighttospecialnewsandfeatures.Hitthe“AboutUs”buttononthemainnavigationribbontoreadaboutCBI’smissionandhistory,theEducationalFoundation,ourAdvocacyefforts,orhowtoContactUs.Scrolldownthehomepageandclick“SignUpNow!”atosubscribetoourpopularfreeweeklye-newsletterCommonCENTS(ifyouaren’tgettingitalready),andreadbackissuesintheCommonCENTSarchive.Hereyoucanalsofindanarchiveforthismonthlynewsletter,theCommunity Banker Update,andourotherpublications.CBI’slatestNewsandEventscanbeseenfromthehomepagetoo.
FindinformationontheLeadersofTomorrowgrouporCBI’smanyeducationalopportunitiesviathe“Programs”section.ThereareseveralwaystocheckoutCBI’sEndorsed/Associate/AffiliateServices:clickthe“Services&Insurance”buttonatthetoprightofthehomepage,orfindthemunderthe“Membership”menu.Seewhatwe’reuptonextbycheckingoutthe“Events”section,andfindouthowtoparticipateintheMoneySmartWeekPosterContestorwhat’sgoingonduringCommunityBankingMonthinApril.Ourimportantpremierevent,theManagementConferenceandAnnualConvention,hasitsveryownsectiontoo.
We’reexcitedaboutourbrandnewservice,theIowaBookOnlineBankDirectory,whereyoucandownloadtheFREEPDFsfilledwithfinancialinformationonIowabanksandbranches!Findthatinthe“MediaRoom”underthe“News”section.Andcomingsoon,manyofyouwillhaveaccesstothenewMembers-Onlysection.Logintosignupforspecializednewsletters,changeyouraddressorothercontactinformation,ortakeasurvey.Youcanevenseewhicheventsyou’veregisteredfor,orreadmessagesmeantespeciallyforyou,ourvaluedCBIMembers.Detailsandinstructionswillfollowinthecomingweeks--whenevenmoreexcitingnewenhancementswehaveplannedwilllaunch.
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CBI’sleadershipandstaffstrivestoanticipateourmembers’needsbeforeyoudo,butwe’dstillloveyourfeedback.Dropusanoteatcbia@cbiaonline.organdtellushowwecanmakethewebsite--orCBIeventsandservices--evenbetter!Inthemeantime,youcanlookforwardtovaluableonlinecontent,includinginteractivefeaturesthatyouwon’tfindanywhereelse.
So,keepvisitingwww.cbiaonline.organdwatchusgrow.
NATIONAL CONVENTION
March 1-5, 2015
Gaylord Palms Resort & Convention CenterORLANDO, FLORIDA
www.icba.org/convention2015
The Community Banking Event of the Year!
COMMUNITY BANKER UPDATE | FEBRUARY 2015 5
TheLeadersofTomorrowDevelopmentGroupwillholdtheir12thAnnualLeadershipDevelopmentConferenceonMarch 26th & 27th,attheMarriottHotelindowntownDesMoines.
Afteragrouplunchtokick-offtheConference’sactivities.attendeeswillmeetwithJim Schipper,SuperintendentofIowaDivisionofBanking.FollowingthatafternoonareatrioofBreakoutSessions,featuring:• Steve Johnson, FarmManagementSpecialistwiththe
ISUExtensionOffice,discussingAgtopics;• Kim StockandKristie AnkerfromSHAZAMandTom
KingfromQuadCityBank&Trust,toeducateongeneralbankinganddebitcardComplianceissues,and;
• Ryan Elmer withMcGladrey,speakingwithconferenceattendeesonCyberSecuritymeasures.
AnetworkingdinnerwillalsobeheldThursdaynightatRaccoonRiverBrewingCompany,togiveattendeestheopportunitytonetworkwithotherup-and-comingcommunitybankingleaders.
TheConferencecontinuesonFridayandwillfeatureaspecialvideopresentationfromICBAPresidentandCEOCamFine.Next,conferenceparticipantscanattendaPresidents’PanelincludingSuku RadiafromBankersTrustinDesMoines,Steve LanefromSecuritySavingsBankinGowrieandJosh GuttaufromTSBankinTreynor.Toclosethe12thAnnualConferenceevents,keynotespeakerAlan FeirerfromGroupDynamicLeadershipTrainingwillgivehispresentation“TeamworkandIts5Dysfunctions”.
Toregister,visitourwebsiteatwww.cbiaonline.org.Registrationfeesare$245forLOTmembers,$330fornon-members.Register by March 1 and pay only $195! (Discount for LOT members; $245 for non-members.)
Accommodationsareavailableatadiscountedrateof$149attheDesMoinesMarriott-Downtownhotel.Book by March 5, 2015 to receive the reduced rate. CallMarriott’sgeneralhotelreservationdeskat1-800-514-4681andaskfortheCommunityBankersroomblock.
CallCBIat515-453-1495ore-mailcbia@cbiaonline.orgformoreinformation.Don’tletthefutureleadersinyourbankmissagoldenopportunitytolearnfromthebestincommunitybanking!
LOT’s 12th AnnualLeadership
DevelopmentConference
March 26-27, 2015
THANK YOU2015 Leadership Development
Conference Sponsors!
Conference Dinner Sponsors:Quad City Bank & Trust
McGladreyKirk Gross Company
Citizens State Bank - SheldonThe State Bank of Spirit Lake - Spirit Lake
West Bank - West Des MoinesWashington State Bank - Washington
Security Savings Bank - Gowrie
KeynoteSpeaker
Sponsor:
Speaker Sponsor:
Roundtable BreakfastSponsor:
Coming This Spring...
6 COMMUNITY BANKER UPDATE | FEBRUARY 2015
First,let’sacknowledgewhatmanywouldagreeistrue:We’vebeeninundatedwithinformationaboutmillennials.Whattheyeat,whattheydon’t,whattheylike,whattheydon’t,howtheywork,whentheyworkbest—andwheretheyliketodoalloftheabove.
Thelargestgenerationinmankindhasbeenpoked,proddedandsurveyedinanattempttolearnhowtoengagethemontheirownterms.Millennialmarketingmania,however,maybemoreaboutbeingrelatableandawholelotlessaboutspecialtreatment.
Yourcommunitybank,likemanyothers,maybestrugglingwithseveralquestionswhenitcomestomarketingandmillennials;mostimportantly,do we need to do something differently to get their attention?
Thesimpleanswertothisfirstquestionis:Yes,markettothem.Ifyouhavebillboards,printads,flyers,statementstuffers,in-branchpromotionalmaterials,besuretoincludeimagesofpeoplewhoarebetween20and35.Bysimplydemonstratingtheyareincludedinyoureffortstosecurenewbusiness,theywillrespondpositively.Don’tforgetthatyourwebsiteandbankpersonnelshouldreflectthesamediversity.
Does your community bank need to be engaged in social media in order to attract millennials?Nope.Therearecertainlypeopleofallgenerations,includingmillennials,whodon’tcareifyourbankhasaTwitteraccountorifitmaintainsaFacebookpage.However,thereisalargersegmentofthepopulationengagedinsocialmediathatlovestoshareinformationanddetailsabouttheircustomerserviceexperiences.Whymissoutonthefreepositivepublicity?Isitworththeriskofbeingperceivedasoutoftouchanddisengaged?
Why do I need to specifically attract millennials to my community bank?Youmaybequitehappywithyourexistingcustomerbase
andfeelnoimmediateneedtoseeknewcustomers,butthatwouldbeextremelyshortsighted.Whilemuchgeneralizationhasbeenappliedtomillennials,thefactthattheyarethelargestgenerationontheplanetmakesthemimportanttodayandintotheforeseeablefuture.Theirsheervolumeofspendingandfinancialactivityismonumental.Thisgenerationwillnotonlygenerateitsownwealthbutwillpredictablybetherecipientofthelargestwealthtransferinhistory.Canyouaffordnottoengagethem?
Is advanced technology a requirement to attract millennials?Yes,andit’salsoarequirementtoattractandretainothergenerationsaswell.Peopledon’texpectcutting-edge,buttheydowanteasy,convenientwaystomanagetheirmoney.Thismeansinadditiontofriendlypeopletointeractwithwhentheyhaveaquestionorneedatransactionthatamobile-friendlyappcan’tanswerorhandle.Therealityisthatyourbankisnowexpectedtoprovidenotonlytraditionalsuperiorservicebutalsotransactionalserviceinmultiplechannelsoutsideofbrick-and-mortarstoallgenerations,notjustmillennials.
Sothenexttimeyoureadanarticleaimedatcreatingyetanotherlabelformillennials,remembertheyaresimplycustomerswhowanttofeeltheircommunitybankunderstandstheirneedsandcanrelatetothem.Whatgenerationdoesn’twantthat?
The first step in attracting the next generation is simply aiming to do so.
Written By: Chris Lorence - Executive Vice President & Chief Marketing Officer, ICBA
MORE ON MILLENNIALSDiscover the results of an in-depth national
survey of millennial consumers that ICBA recently commissioned, titled “American Millennials and
Banking,” online at www.icba.org/millennialstudy.
MILLENNIALMANIA
COMMUNITY BANKER UPDATE | FEBRUARY 2015 7
8 COMMUNITY BANKER UPDATE | FEBRUARY 2015
InitslatestSemiannualRiskPerspective,¹issuedinDecember2014,theOfficeoftheComptrolleroftheCurrency(OCC)warnedthattheprolongedlowinterestrateenvironmentcontinuestolaythefoundationforfuturevulnerability.Banksthatextendassetmaturitiestopickupyieldcouldfacesignificantearningspressureandpotentialcapitalerosiondependingontheseverityandtimingofinterestratemoves.TheOCCnotesthatthecomplexityofinterestraterisk(IRR)managementhasbeencompoundedbysustained,post-crisisbankdepositinflowsandshiftsindepositmixresultinginaconsiderableamountoffundingathistoricallylowrates.TheOCCbelievesunderstandingthefuturebehaviorofthesedepositorsisakeycomponentoftheIRRmodelingprocess,consideringtheriskofatypicalratesensitivityinthesedeposits.TheOCCurgesbankswithsignificantconcentrationsinlonger-termassetstoassesstheirvulnerabilitytoasuddenriseininterestrates.
Banksalsoneedtoassesshownon-maturitydeposits(NMD)reacttorisingratesandconsidertheuncertaintyofdepositorbehaviorintheirmodelassumptionsandresultingriskexposure.TheOCCstatesthattheretentionrateandpricingofpost-crisisdepositsremainkeybehavioralfactorsinIRRmodels.Thesurgeindepositsassociatedwiththeflighttoqualitythatbeganduringthefinancialcrisishascontinued.Thistrendissupportedbythenear-zerorateenvironmentandthefactthatlowinterestratesmakeitinexpensivefordepositorstoremainliquid.TheOCCfearsthatsegmentsofabank’scoredepositorsmayreactdifferentlywheninterestratesincreasethantheyhaveintheimmediatepost-crisisenvironment.TheOCCstatesthatitexpectsbanksto
modelalternativedepositassumptionstounderstandtherangeofpotentialoutcomesgiventheuncertaintyofthestabilityofsurgedepositsorthedepositmixwheresurgeinflowswerelessevident.
Inupcomingexaminations,regulatorswillexpectallbankstohaveaneffectiveasset-liabilityriskmanagementframeworkthatidentifiesandmonitorsthebank’sIRRpositionanditspotentialimpactonearningsandcapital.Thisframeworkshouldbeincorporatedinoverallriskmanagementeffortsandbecommensuratewiththebank’scomplexity,activities,andcondition.
SupervisoryexpectationsrelatedtoIRRmanagementarecontainedprimarilyintwodocuments–the1996JointAgencyPolicyStatementonInterestRateRiskandthe2010InteragencyAdvisoryonInterestRateRiskManagement.ThesedocumentsmakeclearthatthebackboneofaneffectiveIRRmanagementprocessisaninformedboardofdirectors,capablemanagement,andappropriateinternalresources.Theboardandseniormanagementshouldhaveasset-liabilitymanagementpoliciesthatdetailresponsibilities,risklimits,andstrategiesrelatedtothemanagementofIRR.
ExaminerswillfocusonIRRmeasurementprocessestoensurethatmanagementproperlyassessesabank’svulnerabilitytochangesininterestratesand,asappropriate,implementsmeasurementtoolstomonitorandcontrolthisrisk.Theuseofunsupportedorstaleassumptionsisoneofthemostcommon
(Interest Rate Risk continued on next page)
Reprinted from: Risk Management Association Blog
INTE
REST RATE RISK
In Community Banks
COMMUNITY BANKER UPDATE | FEBRUARY 2015 9
(Interest Rate Risk continued from previous page)
IRRissuesidentifiedbyexaminers.Examinerswillexpectbankerstobepreparedtodiscusstheresultsofthebank’sIRRmeasurementsystemandpotentialrisks,aswellaskeystrategiestomitigatethesepotentialrisks.
BanksarealsoexpectedtoregularlyreviewtheeffectivenessoftheIRRmanagementsystem,eitheraspartoftheinternalauditprocessorbymeansofanindependentreview.Regulatorsemphasizethatthereisnorequirementtouseathirdpartytocompletetheindependentreviews;knowledgeableandcapablebankemployeessufficientlyremovedfromtheprimaryIRRfunctioncanperformthiswork.Manycommunitybanksfinditmorepracticalandeconomicaltocompletethisfunctioninternally.
ManagingIRRisacentralaspectofprudentbanking,andregulatorsrecentlyhavebeenre-emphasizingtheimportanceofeffectivepolicies,stronginternalmonitoringandcontrolprocedures,andappropriateriskmitigationstrategiestoappropriatelymanageratesensitivity.EvidenceofgrowingregulatoryconcernregardingthisriskareaistheFDIC’sWinter2014editionofSupervisoryInsights,²whichcontainsfourarticlesdevotedtoIRRmanagementthatprovidevaluableinformationforcommunitybankers.AstheFDICobserves,goodplanningnowcanhelpminimizethepotentialfornegativeimpacts.
1.SemiannualRiskPerspectiveisavailableathttp://www.occ.treas.gov/publications/publications-by-type/other-publications-reports/semiannual-risk-perspective/semiannual-risk-perspective-fall-2014.pdf
2.TheWinter2014issueofSupervisoryInsightsisavailableathttps://www.fdic.gov/regulations/examinations/supervisory/insights/siwin14/SIwinter2014.pdf
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10 COMMUNITY BANKER UPDATE | FEBRUARY 2015
Defining Main StreetWritten By: John H. Buhrmaster, Chairman of ICBA
WhenyouthinkofMainStreet,youthinkofcommunitybanks,right?
Ascommunitybankers,weknowthistobetrue,butIcan’thelpbutthinkwhataworldthiswouldbeifeveryAmericanalsoknewthistobeafact.Whilethere’snoquestionthatcommunitybankersthemselvesandICBAhaveelevatedcommunitybankstosuperstarMainStreetstatusinthemindsofmany,thereisstillmorewecandotoshinealightonourconnectiontoMainStreet.Andletmetellyou,yourteamatICBAwillbethereeverystepofthewaytohelpyouspreadthepositivestoryofcommunitybanks.
Afterall,thatisICBA’soneandonlymission—tocreateanenvironmentwherecommunitybankscanflourish.Andflourishwewill.
Thetimeisripe,andit’stimeforourcommunitybanks,ourcustomers,ourcommunitiesandMainStreettoshine.Afterall,we’reallinthistogether.Wealldependononeanother.It’sallpartofthispowerfulsymbioticrelationshipthathasbeenforgedoverdecadesandinmanycommunitiesforoveracentury.CommunitybanksandMainStreethavethrivedtogetherforyears,andthatwon’tstopanytimesoon.Infact,Ithinkthissymbioticrelationshipwillonlygetstrongerovertime.
Why?Becauseweknowwhoweare,whatwestandforandwhowestandfor.
TheWallStreetfinancialcrisisforcedcommunitybankerstomoreaggressivelydefinethemselves.Weareahumblebunch,butthatdidn’tmeanthatweweregoingtostandbackandletourbanksbescoopedupandcountedwithWallStreet.Itwasthroughthisdeterminationtodifferentiateourselvesthroughoutthecrisisthatwefoundourselvesonceagain.Wemayhaveknownitbefore,butthefinancialcrisiswasacatalystforustorealizeevenmorefullythatwearen’tliketheothers;communitybanksare
somethingspecialandunique.That’ssomethingtobeproudof.
AsI’vetraveledacrossthecountryasyourICBAchairmanoverthepastyear,talkingandmeetingwithmanyofyou,Icouldn’thelpbutfeelthisincrediblesenseofvigorandexcitementforthecommunitybankindustry.Sometimesittakesacrisistofullyseewhatyouhaveinfrontofyouandwhyit’simportant.Itforcesyoutoseethingsthroughadifferentlens,andmanytimes,aclearerone.WhilenoneofuseverwanttorelivetheGreatRecession,wecanalltakeawaysomeimportantlessonsfromit—onebeingthatthecommunitybankingindustryneedstosticktogetherandalwaysdefineitselfanditsconnectiontoMainStreet.WerefusedtobepushedoverandlumpedinwiththeWallStreetcrowd,andbydoingsowemorefullydefinedwhoweareand,justasimportantly,whowearen’t.
Soasyoumoveforwardwithyourmarketingandpublicrelationsplansoverthenextyear,pleasedon’tforgetoneimportantbasic—neverforgettodefineyourcommunitybankanditsconnectiontoMainStreet.YouandyourbankstandforsomethingmorepowerfulthananyWallStreetmegabankcoulddreamof—youdirectlyhelpyourcommunitythriveoneloanatatime.
JohnH.BuhrmasterisChairmanoftheICBAandPresidentandCEOof1stNationalBankofScotia,inScotia,NewYork.
“...community banks are
something special and unique.
That’s something to be proud of.”
TOPFrom the
COMMUNITY BANKER UPDATE | FEBRUARY 2015 11
Safeguardingcustomers’financialinformationiscentraltomaintainingessentialpublictrustinthefinancialandpaymentssystems.Nobodyunderstandsthismoreintrinsicallythanthenation’scommunitybanks.Security,alongwithtrustedfinancialproductsandexpertise,isafoundationofeverycommunitybank’sfranchisevalue.Asdedicatedfinancialguardians,youstandthewatchforyourcustomerseverysingleday.
Today,communitybanksmustdefendagainstastaggeringbarrageofrelentless,highlysophisticatedcyberthreats.Ascardissuersandaccountproviders,youknowfirsthandthatthemostsuccessfulattackshaveoccurredagainstthelargestretailers.Thosedatabreacheshaveresultedinrecordcardreissuecostsandotherlossesforcommunitybanks.TheTargetandHomeDepotcarddatabreachesalonehavecostcommunitybanksatleast$130milliontoreissuecustomercreditanddebitcards,inadditiontodirectfraudlosses.
ForyearsICBAhasbeenworkingtoputconsistentlystrongsecuritystandards,regulationsandproceduresinplaceacrosstheentirepaymentssystem.In2014,inresponsetomassiveretailbreaches,ICBAreleasedasetofcoredatasecurityprinciplestohelpguidepolicymakers,thepaymentcardnetworks,thelargestbanks,merchantsandtechnologyserviceprovidersthroughthenextstepstomodernizeandstrengthen,aswellasequitablysustain,howdataisprotectedthroughoutthepaymentssystem.
Threeofthosecoreprinciplesstandoutasparticularlyimportantinlightoftoday’scybersecurityrisksandchallenges.
1.Costs of data breaches should be borne by the breached party.Anybreachedpartyshouldbearresponsibilityforthefraudandmitigation
costsitcauses—toitselfandtoothers.Aligningincentivestomaximizedatasecuritybyallpartiesthatprocessorstoreconsumerdatawillmakethepaymentssystemstrongerovertime.However,paymentcardnetworkrulesgoverningfraudandcardreissuanceandtheinterchangemodel,designedbeforetoday’swide-scaledatabreaches,amounttoreimbursementofpenniesonthedollaranddon’tbegintofairlycompensatecommunitybanksfortheirexpenses.
2.All payments system participants must uphold similarly strong data security standards.Since1999,allfinancialinstitutionshavebeensubjecttorigorousdataprotectionstandardsundertheGramm-Leach-BlileyActwhilemerchantsandotherpaymentspartieshavenot.Everysystemisonlyasstrongasitsweakestlink,andtheweakestlinkmustbesubjecttothesameorsimilarfederaldatasecuritystandards.Sensitivebankdatashouldnotbecomevulnerabletocybercriminalsbecauseotherentitiesinvolvedinthepaymentssystemdon’tmaintainthesamestrongdatasecuritystandardsasbanks.
3.Technology will never provide infallible protection.Communitybanks,otherfinancialinstitutionsand,increasingly,merchantsareadoptingsmart-chiptechnology,tokenizationandend-to-endencryptiontoconstructalayeredapproachtosecurity.However,becausecybercriminalssearchfortheweakestlinksineverysystemchain,thepaymentsmarketplacemustretaintheregulatoryflexibilitytocontinuallyinnovatetomaintainstrongsecurity.
Ultimately,dataprotectionisasharedresponsibilityofallthoseinvolvedinthepaymentssystem.There’salotofworktodobyeveryone.Guidedbytheseprinciplesandothers,ICBAwillcontinuetobethevoiceforthenation’scommunitybankstowardbuildingaflexiblebutcomprehensivepaymentssystemthatcontinuestoprotectAmericanstoday,tomorrowandforyearstocome.
Securing Payments SecurityWrittenBy:CamdenFine,PresidentandCEOofICBA
“As dedicated financial guardians,you stand the watch for yourcustomers every single day.”
Following Mr. FineMore than 1,000 people are following Camden Fine’s tweets @Cam_Fine— are you? Visit www.twitter.com/cam_fine.
FINEPOINTS
12 COMMUNITY BANKER UPDATE | FEBRUARY 2015
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The Leaders of Tomorrow’sto Spend a Day at the Capitol
LOT’s Quarterly Meeting Is Feb. 19
The Community Bankers of Iowa’s Leaders of Tomorrow (LOT) group is headed to the Capitol for their next Quarterly Meeting, being held Thursday, February 19. Send the up-and-coming leaders in your bank to this educational, networking event!
Attendees will begin the day with Governor Branstad as he signs a proclamation declaring April 2015 as Community Banking Month. They will also learn about the current political climate in Iowa and CBI’s advocacy efforts for the 2015 session during a presentation by CBI lobbyist Jeff Boeyink. To close the meeting, LOT members will sit in on an Iowa Legislature session.
For more information or to register, contact Pretty Patel at 515.453.1495 or via email at ppatel@cbiaonline.org.
The Leaders of Tomorrow is a program created by CBI to enhance the growth, leadership, and networking skills of future banking leaders. LOT establishes a network of leaders who serve and strengthen their communities and advocate for the community banking industry. If you are interested in becoming a member of the Leaders of Tomorrow, contact us at 515.453.1495, via email at cbia@cbiaonline.org, or visit our website at www.cbiaonline.org.
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14 COMMUNITY BANKER UPDATE | FEBRUARY 2015
Benefits& Risksof Being a
Lender in theSBA 7(a)
LoanProgram
Written by:Gordon DobnerDirector, Financial ServicesBKD CPAs & Advisors
Over the past several years,the number of financial institutions becoming U.S. Small Business Administration (SBA) 7(a) lenders or expandingtheir lending in this program has increased. The benefitscan be significant, but so canthe risks if a lender doesn’t understand the program requirements or have experience liquidatingSBA 7(a) loans. Accounting standards regarding the saleof the guaranteed portion ofan SBA 7(a) loan are a significant—often unseen—operational and financialpitfall. This article offers ahigh-level look at the benefits,risks and accounting considerations for lendersin the SBA 7(a) Loan Program.
COMMUNITY BANKER UPDATE | FEBRUARY 2015 15
BenefitsSBA’sguaranteedloanprogrambenefitssmallbusinessesbyhelpingfundlong-orshort-termloans.ByparticipatingwithSBA,thelendercan
loansmallbusinessesthecapitalrequiredtobeginorexpandtheiroperationsontermsconsistentwiththeircashneeds.TheguaranteeprogramfacilitatestheleveragingofSBA’sappropriatedfundswithprivate-sectorcapital,increasingthepooloffundsavailabletosmallbusinesses.SBAhopesthisgreateraccessibilitytocapitalwillpromoteahealthy,vibrantandproductiveeconomy.
ThelendercanbenefitfromparticipatinginSBA’sguaranteedloanprograminanumberofways,including:• Lending in excess of legal lending limit–TheSBA-guaranteed
portionofaloangenerallyisn’tincludedwhencalculatingthelegallendinglimit,subjecttostatebankinglaws,toindividualoraffiliatedborrowers,therebypermittinglargerloansthanwouldotherwisebeallowed.
• Assistance developing new accounts–Byofferingloansconsistentwiththeusefullivesoftheassetsbeingfinancedandtheabilityofthecustomertorepay,alendercanattractcustomersunabletofindlonger-termloansfromotherlenders.
• Creating liquidity–Thisbenefitappliestoalllenders,sincetheSBA-guaranteedportionofalong-termloanissaleableandasourceofliquidity.
• Help meeting Community Reinvestment Act provisions–ParticipatinginSBA’sguaranteedloanprogramwillimprovethelocaleconomybyfosteringgrowthofbusinessesfinancedandjobscreated.
• Increase profits–AnactivesecondarymarketoftenexistsforSBA-backedloans;takingpartinitcangeneratenoninterestincome.
Primary RisksTheprimaryrisksinvolvedinSBA7(a)lendingoccurintheclosing,servicingandliquidationstages.Whilerepairs—loweringoftheguaranteedamount—anddenialsofguaranteesusuallycomeintheliquidationstageofthecredit,thecauseisoftenfailuretoappropriatelyobtain,verifyordocumentatorbeforethefundingandclosingoftheloan.TheleadingcausesofrepairsanddenialsofSBAguaranteesare:1. Lienandcollateraldeficiencies2. Unauthorizeduseofproceeds3. Liquidationdeficiencies4. Undocumentedservicingactions5. Earlydefaults(denialifdeterminedtobereasonforbusiness
failure)6. SBAloaneligibility(denial)
Accounting Considerations when Selling Guaranteed Portion of SBA 7(a) Loan
AlthoughmostsignificantriskslieonthecreditsideofSBA7(a)lending,manyfinancialinstitutionsdon’tadequatelypreparetheirpersonnelandloanoraccountingsystemsforthecomplexityofaccountingrelatedtosellingoftheguaranteedportionofanSBA7(a)loanorpoolofloans.AccountingfortheguaranteedportionofSBAloansalesiscoveredunderAccountingStandardsCodification(ASC)860,TransfersandServicing.HerearesomeofthecommonissuesrelatedtomeetingthesalesaccountingrequirementsunderASC860,assumptionsandloansystemissueswhenrecordingthesaleandimpairmentofservicingrights:
Meeting the participating interest definition under ASC 860–Sinceonlytheguaranteedamountisbeingsold,thesalemustmeetthenormalsalerequirementsunderASC860andthedefinitionofaparticipatinginterest.Tomeetthedefinitionofaparticipatinginterest,thetransferoftheguaranteedportionoftheloanmustmeetthefollowingrequirements:• Thetransferrepresentsaprorataownershipinanentire
financialasset.• Cashflowsareproportionatewithownership.• Allparticipantshaveequalrightswithnosubordinationandno
recoursetothetransferororotherparticipants.• Nopartycanpledgeorexchangetheentirefinancialasset
withouttheagreementofallparticipatinginterestholders.
However,ifthetransferredguaranteedportionofanSBAloandoesn’tmeetthedefinitionofaparticipatinginterest,thetransferoftheguaranteedportionmustbeaccountedforasasecuredborrowing,ratherthanasale.
Loan systems & assumptions–OncealenderdeterminesthesaleoftheguaranteedportionofanSBA7(a)loanmeetsallsaleandparticipatinginterestrequirementsofASC860,itmustaccountfortheloanasfollows:1. Allocatethepreviouscarryingamountoftheentirefinancial
assetbetweentheparticipatinginterestsoldandtheparticipatinginterestthatcontinuestobeheldonthebasisoftheirrelativefairvalues.
2. Derecognizetheparticipatinginterestsold.3. Recognizethemeasurementoftheservicingassetobtained.4. Recognizeanygainorlossonthesaleintheearnings.5. Reportanyparticipatinginterestthatcontinuestobeheldat
adifferencebetweenthepreviouscarryingamountandthederecognizedamount.
FinancialinstitutionsnotsellingSBA7(a)loansmaylackthesystemsorprogramstoaccountforthesaleattherelativefairvalueusingthestepsabove.Therefore,theymightneedtoenlistathird-partysystemproviderordevelopasystemandprocesstodeterminetheaccountingentriesforthesale.Theprocessalenderchoosesshouldbebasedontheexperienceofpersonnelaswellasvolume.Inaddition,alenderwillneedtoensureithasasysteminplacetorecordongoingentriesforanyaccretionofdiscountrelatedtothefairvalueandportionofloanretainedaswellastheservicingrightassetgoingforward.AlenderplanningtosellasignificantnumberofSBA7(a)loansmayconsiderusingathird-partysoftwaretoreducetimedemandsandpotentialerrorsassociatedwithtryingtotrackandrecordtheseitemsusingspreadsheets.
AlthoughseveralassumptionsandinputsarerequiredtoaccountforanSBA7(a)loansale,themostjudgmentalandsubjectiveassumptionsrelatetofairvalueoftheservicingrightasset.WhenvaluingtheservicingrightassetforSBA7(a)loansales,thepresentvalueoffuturecashflowstypicallyisused,asthereisn’tanactivemarketfortheseservicerights.Tocalculatethisvalue,alenderusuallyneedstoincludetheservicingfee,adiscountrate,costofservicing,defaultrateandprepaymentrate.ASC860requiresservicingassetstobesubsequentlyvaluedusingthefairvalueoramortizationmethodateachreportingdate.
WhilethebenefitsofbeinganSBA7(a)lendercanbegreat,withouttheappropriateexperience,duediligenceandplanning,thisprogramcanleadtopotentialcreditissuesandoperationalheadaches.
16 COMMUNITY BANKER UPDATE | FEBRUARY 2015
CBIEndorsedMemberTheSHAZAMNetworkannouncedtheadditionofMeganHollingertothecompany’srelationshipdevelopmentteam.HiredasaSeniorAccountExecutive,Hollingerbringsnearly15yearsofbusinessdevelopment,salesandaccountmanagementexperiencetothemember-ownedEFTnetwork.
PriortojoiningSHAZAM,HollingerwasamembershipdevelopmentdirectorfortheCommunityBankersofIowa.Withinthisrole,sheadvisedfinancialinstitutionmanagementonregulations,lobbyingeffortsandeducationalopportunities(editor’s note: ...and Megan is sorely missed!).Hollingerhasalsoheldsales
managementpositionswithPaychex,ADPandDESStaffingServices,Inc.
TheSHAZAMNetwork(www.shazam.net)isoneofthelastremainingmember-ownedand-controlledelectronicfundstransfer(EFT)networksandprocessorsintheindustry.SHAZAMprovideschoiceandflexibilitytocommunityfinancialinstitutionsthroughouttheU.S.SHAZAMisasingle-sourceproviderofthefollowingservices:debitcard,core,fraud,ATM,merchant,marketing,platform,riskandautomatedclearinghouse(ACH).
W&EattorneyJonathanE.KramerhasbeencertifiedbytheAmericanBoardofCertification(ABC)asaCreditors’RightsLawSpecialist.Kramercompliedwithallapplicablerequirementsforcertificationincreditors’rightslawandmetallstandardsassetforthintheABCprogram.Tobecertified,Jonathanpassedanextensive,day-longwrittenexaminationcoveringcreditors’rightsissues,wentthroughapeerreviewprocess,anddevotedaminimumof400hourstothepracticeofcreditors’rightslawduringeachofthelastthreeyears.
Jonathanrepresentscreditorsinstate,federalorbankruptcycourtlitigation(includinghearings,trialsandappeals)relatingtodebtcollection.Hespeaksregularlyonissuesrelatingtocollectingjudgments,obtainingjudgments,debtcollectionpracticeandgoodfinancialdecision-makinginthejudgmentcollectionprocess.
LearnmoreaboutCBIAffiliateMemberWhitfield&Eddyatwww.whitfieldlaw.com.
NEW HIRES: Vantage Point Solutions
TwonewassetshavebeenaddedtotheteamatCBIAffiliateMemberVantagePointSolutions(VPS),tomanagearapidlygrowingandadvancingBankingDivision:NatalieSundvold,VPS’newBankingDivisionManager,andKevinEdward,RiskandRegulatoryComplianceManager.
Nataliewillhandletheday-to-dayoperationsoftheBankingDivision,focusingondevelopmentsalesandthedeliveryofbankproductsandservicesforthecompany.Sundvold’sexperiencewasatalocalfinancialinstitutionwhereshewasaSeniorVicePresidentandtheCorporateSecurityOfficer.
ChadGlanzer,VPSPresident,said,“WearepleasedtoannouncetheadditionofNatalietoourteam.Wefeelherexperienceswillbeanassettoourcompanyandtothisdepartment.Notonlywillshebringaconcentratedfocustoproductdevelopment,Nataliewillbeagreatresourceforthebankingdivision.”
Kevin’sexperienceasaformerAssociateGeneralCounselandCorporateSecretaryforalocalfinancialinstitution,hehasworkedintheareasofcorporategovernance,reputationandbrandingmatters,internalpolicydraftingandimplementation,litigationsupport,disputeresolutionandcontractnegotiation.
“Hebringsavaluableperspectivetotheteamwithhislegalexpertiseinadditiontoahighlevelofexperienceinregulatorycomplianceandriskmanagement.Kevinwillbeanassettofinancialinstitutionsinthiscomplexandcontinuouslychangingenvironment,”saidNatalieSundvold,BankingDivisionManageratVPS.
VantagePointSolutions,Inc.(VPS)isacustomer-focused,technology-drivenengineeringandconsultingfirmservingthetelecommunicationsandfinancialindustries.VPShasmorethan400clientsin45statesand8foreigncountries.Combiningprofessionalengineering,technicalexpertiseandextensiveregulatoryknowledge,VPSdesignstechnicallyadvancedandeconomicallyviablesolutions,customizedfortheirclients.
FormoreinformationaboutVantagePointSolutions,visittheirwebsiteatwww.vantagepnt.com.
NewsfromCBIServices&InsuranceMembers
Natalie Sundvold, Banking Division Manager, VPS.
Kevin Edward, Risk and Regulatory Compliance Manager, VPS.
Former CBI Staffer Joins SHAZAM
Megan Hollinger, SHAZAM’s new Senior Account Executive.
Whitfield & Eddy Attorney CertifiedAs Creditors’ Rights Law Specialist
Jonathan Kramer, attorney with Whitfield & Eddy PLC.
COMMUNITY BANKER UPDATE | FEBRUARY 2015 17
AsMidwestIndependentBank(MIB)celebratesitsrich30-yearhistory,thecompanyalsolookstoitsfutureandthefutureofitsrespondents.“MIBispositionedverywelltogointothenext30yearsofitslife,”CEOMikeWassonsaidofthecompany’scurrentstrength.
EstablishedinJanuary1985,MIBbeganbusinessinMissouriasMissouriIndependentBank,theninthbankers’bankintheUnitedStates.MidwestIndependentBancshares,Inc.,theparentcompanyof
thebank,beganoperationwith72shareholderbanksatitsinception.Thecompany,basedinJeffersonCity,Mo.,nowhas356shareholdersandservescommunitybanksthroughoutthestatesofMissouri,Iowa,NebraskaandIllinois.Tobetterrepresentitsregionalimpact,MIBchangeditsnamefromMissouriIndependentBanktoMidwestIndependentBankin1994.
Foritsnearly550bankingcustomers,manyofwhichhavebeencustomersfordecades,thecompanytrulylivesuptoits“OneSource.OneCall.”mantra.MIBoffersavarietyofservicesinhouse,makingitaone-stopshopforcommunitybanks.Itspecializesinlending,bankoperationsandaudit/consultingservices–allwhilepromisingnottocompetewithitsrespondents.
“Attheendoftheday,whatwedoishelpcommunitybanksprosperandgrow,”Wassonsaid.
MIBalsowelcomesanewPresidenttothehelm.CurrentPresident/CEOMikeWassonhasmovedintoamoreprominentroleasPresident/CEOwithMIB’sinvestmentfirm,FirstBankers’BancSecurities,Inc.WassonwillalsocontinueinhiscurrentroleasPresident/CEOofMidwestIndependentBancshares,Inc.LongtimeMIBemployeeMattSinnett,currentlytheSeniorExecutiveVicePresident,willtakeonthenewroleasPresidentofthebank.Sinnetthasheldmanypositionsthroughouthis23-yeartenureatMIB,givinghimtheexperienceneededtomovethecompanyforward.
“Inthepast30yearswe’vedevelopedsuchstrongrelationshipswithourcommunitybankcustomers.I’mlookingforwardtobuildingonthoserelationshipsandcontinuingtoexpandwithinourserviceregion,”explainsSinnett.“WehavehadasolidfoundationtoworkuponandIlookforwardtocontinuingtoassistcommunitybanksinourmarketplacethrive.”
DiscoverCBIAssociateMemberMIBatwww.mibanc.com.
MIB Celebrates 30th Anniversary,Names New President
New MIB PresidentMatt Sinnett.
It has now been more than 25 years since the ICBA has been in the broker/dealer business. Way back in 1988, the national trade association for community banks created ICBA Securities, and it’s not hyperbole to say that the endeavor has surpassed all expectations.
There are many components in this unique business model. ICBA Securities is the only institutional broker/dealer owned by a trade association in the country, so that’s a tangible difference. It has benefitted immeasurably by its lifelong relationship with Vining Sparks, a full-service broker/dealer and one of the 15 largest underwriters of government agency debt in the world. But another vital element in this delivery system is the endorsement that ICBA Securities receives from 35 state and regional partners.
Leap of Faith. ICBA actually acted upon a suggestion by an OCC executive to get into the bond business. The regulators in the late 1980s had seen repeated examples of dodgy brokers taking advantage of their community bank customers, and thought that a broker/dealer owned by the industry could better police itself, and ultimately deliver products and services in line with the industry’s needs.
Vining Sparks was one of 30-plus institutions invited to audition for the ICBA Securities derby. Back in 1988 it would have been considered a dark horse, at best. Vining Sparks at the time was only seven years old, and had less than $5 million in capital. In spite of the lack of size or track record, Vining Sparks was chosen to lead the new broker by virtue of founder and president Jim Vining’s reputation, expertise in the new concept of asset/liability management, and the firm’s toehold with community banks nationwide.
Values Added. By 1991, ICBA Securities had booked enough income to begin sharing with the industry. The ICBA leadership established a policy that called for 30 percent of operating income to be shared with the state association partners which endorsed the securities sub. Also, the unique relationship with Vining Sparks ensured that ICBA Securities would never operate at a loss, so there would always be profits to share. This royalty arrangement continues today.
Another nicety that attaches to the ICBA Securities brand is a board of directors made up of well-respected community bankers. To date, six ICBA chairman have also been on the Securities board.
Yet another distinction of ICBA Securities is its markup policy. This stance, first mandated by the ICBA Securities board in 1988, limits the amount of commission that Vining Sparks can charge on a given trade. This unilateral policy is more restrictive than Vining Sparks’ chief regulator, FINRA, allows.
Spreading the Love. Back to the revenue-sharing. Vining Sparks pays a fee to ICBA Securities on every transaction it completes with a community bank. That fee is the basis for ICBA Securities’ operating income, 30 percent of which is split with the various state affiliates. We keep track of our geographic footprint, so we can distribute the royalties back to the state partners in proportion to where we earned it.
Through 2014, ICBA Securities had distributed nearly $14 million to its state and regional partners from this program, including over $1 million per year from 2009 through 2012. In addition to this, ICBA Securities has paid over $9 million in dividends to its parent, the ICBA Services Network, and about $17 million in royalties to the ICBA. In total, over $40 million has been reinvested in the community banking industry.
It is fair to say that every community bank in the country has benefitted from ICBA Securities and its policy of returning its profits to the members. The close affiliation which ICBA Securities enjoys with its state and regional partners has been instrumental in our success. Your association has earned our respect, and appreciation.
Jim Reber, President and CEO - ICBA Securities800-422-6442 or jreber@icbasecurities.com
Not Just a TransactionICBA Securities Benefits from Its State Partners
18 COMMUNITY BANKER UPDATE | FEBRUARY 2015
2015 Lending OutlookWritten by: Anne Rawland Gabriel - Bank Systems & Technology
Witheconomicindicatorsrisingattheendof2014,industryinsidersexpectanupwardtrendforlendingin2015.But,forbankstocapitalizeonburgeoningdemand,itwillrequireplayingcatchupinsomekeytechnologyareas.Togetasenseofwhat’satstakeandwhat’sneededtocompete,wepolledthreebankingveterans.Here’swhattheyhadtosay.
How to Address Competition From Alternative LendersJerry Silva, Research Director, Global Retail Banking, IDC Financial Insights
Lending activity and technology infrastructure:WhileIDCFinancialInsightsabsolutelyexpectsariseinlendingactivity,particularlyintheSMBsegment,banksfacestiffcompetitionfromalternativelenders.Suchlendersarenowleveragingyearsofautomationinvestmentstoaggressivelyenterthetraditionalcommerciallendingmarket.
Forbankstocompete,theymustletgoofthemanilafolder,embracestreamlining,andspeedlendingdecisions.Thisdoesn’tmeananentirecomplexlendingprocessneedstobecompletedinsecondsorevenhours,justthatadecisioncanbereachedandcommunicatedquickly.
Customer experience:Banksshouldpursueamulti-facetedapproachinthisarea.Itstartswithmobility.Attheenterpriselevel,banksshouldprovidelendersfull-capabilitylendingtabletsandsendthemintothefield.Also,banksneedtoenablepre-populatingformswithdatatheyalreadyhave.Beyondspeedinglendingdecisions,thisreducescustomerfrustrationwithprovidingthesameinformationnumeroustimes.Andaddingtransparency
iscritical.Everyone’svisibilityexpectationsareheightenedduetothe“FedExEffect.”
Regulatory landscape:Althoughtherearenoimminentnewmajorregulations,banksneedtodesignsystemstorespondtoanytypeoffutureregulatoryguidance.Whendevelopedwiththepropervision,suchsystemscanalsobeleveragedformarketingorsegmentingpurposes,enablingbankstodrivebusinessvaluefromtheirregulatoryinvestments.
Technology investments to enable competitive lending strategies:Customerengagementtechnologiesarecriticaltoongoingtrustrebuildingpost-GFC.Customerengagementgoesdeeperthancustomerexperiencebyaddingvaluetolendingproducts.Itmeansintegratingsystemsandprocessestoenableeffectivecross-sellingafteronboardingacustomer.Essentialtechnologiesincludebigdataandanalyticsaswellasvariousformsofcloudcomputing.
Close the Customer Experience GapTerry Renoux, Group President Lending Solutions, ProfitStars, a division of Jack Henry & Associates
Lending activity and technology infrastructure:WhilebankersinallUSgeographiesareexpectinglendinggrowth,they’realsorealizingtheyneedtocompetewithalternativelenders--whichareexperiencing100percentassetgrowthrates.Forbanks,thismeanstraditionalpaper-basedprocessesjustwon’tworkanymore.
Customer experience:Thebankingindustryhasexpectedcommercialborrowerstotoleratealessercustomerexperience
(Lending Outlook continued on next page)
Industry insiders are bullish on lending growth but say banks need to make significant customer experience investments to compete with alternative lenders.
(Lending Outlook continued from previous page)
duetoloancomplexity.Forexample,ourrecentresearchsuggestsover85percentofbanksupto$10billioninassetshavenoonlineapplicationoption,noautomatedapprovalprocess,andnoautomatedpricing.
Alternativelendershaveusedthisgaptomarketandoriginatesmall-businessloansinextraordinaryvolumesoverthepastthreetofouryears.SMBborrowersarenowgravitatingtoalternativelenders,eveniftheloansaremoreexpensive,becausetheybelievecallingabankwilltaketoolong.Clearly,banksneedtoclosethiscustomerexperiencegap.
Regulatory landscape:Althoughthere’slittledramaticallynew,themostrecentOfficeoftheComptrolleroftheCurrencyguidancestatesbanksneedtolooktowardautomationandtechnologytoimproveriskmanagement.So,regulatorsclearlyexpectbankstohaverobustsystemsforcompilingandtrackingdataaccurately--it’snotoptionalanymore.
Technology investments to enable competitive lending strategies:Thisispreciselytheareabankersareaskingabout.Weadvisebankstomakeborrowingeasyandprovideacompetitivecustomerexperience.Wealsoadviseagainsttheshotgunapproach,astheinvestmentsrequiredforeachmarketsegmentcanbequitedifferent.Forprofitability,banksmustpickthesegmentstheywanttotarget.Then,theymustadoptthenichetechnologiesthatpermitattractingborrowers,safelyoriginatingloans,andproperlymanagingriskwithinthosesegments.
Improve Visibility, Embrace MobileDarren Lowe, VP Information Technology, Stearns Bank
Lending activity and technology infrastructure:Althoughwe’realreadybusy,we’reconsideringafocusshifttowardSmallBusinessAdministrationlending.We’reseeingincreasingopportunitiesforSBAloansaswellasforlendingingeneral.
Withrespecttotechnology,we’reattackingitonmultiplefrontstostreamlinesystemsandgetoffofspreadsheets.Insteadofenteringinformationonanewprospectahalf-dozentimes,we’readoptingbankingsystemsandautomatedworkflowstoreduceentrytoone.And,wheretherewerenosoftwaresystems,we’reputtingtechnologysolutionsinplace.
Customer experience:Improvingvisibilityintoourlendingprocessisveryimportanttous,particularlywithrespecttoprovidingcustomerinsightintothestatusofsupportingdocumentation.We’reworkingwithourtechnologypartnersonaportaltoaddressthisneed.
Moregenerally,banksshouldbecontinuallyassessingthelatestmobileandonlinetechnologiestomaketheloanprocessesassimpleandtransparentaspossible.Thisisespeciallyimportantwithyoungergenerationsbecomingbusinessleaders--theywon’ttoleratebanksthatdon’tkeepupinthisregard.
Regulatory landscape:Ourexaminershaveshownparticularinterestinstresstesting.Toaddressregulatorconcerns,we’removingtowardaportfolioanalysissolution.
Technology investments to enable competitive lending strategies:We’vetalkedtomanypeerswhoarestillpaper-based.Thisisincreasinglyunacceptablefromacompliancestandpointaswellasforprofitability.
Instead,we’reundergoingacompletetransformationtoflexible,customizabletechnologysolutions,withautomatedworkflowsthatintegratewellwitheachotherandwithourcoresystems.We’realsoinvestinginend-usertrainingtoensureourstaffcantakefulladvantageofthesenewsolutions.And,goingforward,weexpecttoconstantlyevaluateadvancementsinloanoriginationandcustomerengagementtechnologies.
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COMMUNITY BANKER UPDATE | FEBRUARY 2015 19
20 COMMUNITY BANKER UPDATE | FEBRUARY 2015
January Survey Results at a Glance:• TheRuralMainstreetIndexadvancedslightlyforJanuary,
indicatingtepidgrowthintheregionaleconomy.• Farmlandpricessankforthe14thstraightmonth.• Bankersexpect2015cashrentstodeclineto$214fromlast
year’s$254.• Approximately71percentofbankersreportedthatloweroil
priceshavenotaffectedethanolproductionintheirarea.• OnehalfofbankCEOSreportedthatrisingregulatorycosts
representthebiggestthreattotheirbanksin2015.
OMAHA,Neb.–TheCreightonUniversityRuralMainstreetIndexforJanuaryroseslightlyfromDecember’sweakreadingaccordingtothemonthlysurveyofbankCEOsinruralareasofa10-stateregiondependentonagricultureand/orenergy.
Overall:TheRuralMainstreetIndex(RMI),whichrangesbetween0and100,was50.9inJanuary,upfromDecember’s50.0.
“Lowerenergyandgrainpricesalongwithweakerexports,continuetorestraingrowthintheruraleconomy,”saidErnieGoss,Ph.D.,JackA.MacAllisterChairinRegionalEconomicsatCreightonUniversity’sHeiderCollegeofBusiness.
AccordingtoPeteHaddeland,CEOoftheFirstNationalBankinMahnomen,Minn.,“Lowergaspricesarehavingapositiveeffect.”
LowercornandfuelpriceshaveyettoimpactethanolproducersaccordingtobankCEOs.Morethan71percentreportednochangeinproductionforethanolfirmsintheirarea.Only14.4percentindicatedreducedethanolproductionwhile14percentindicatedethanolproductionwashigherforlocalethanolfirms.
Farming and Ranching:Thefarmlandandranchland-priceindexforJanuaryadvancedtoaweak39.4fromDecember’s38.6.“Muchweakercroppricescontinuetotakeairoutofthebubbleinagriculturallandprices.Thisisthe14thstraightmonththeindexhasmovedbelowgrowthneutral,”saidGoss.
Onaverage,bankCEOsexpect2015cashrentsforfarmlandtodeclineto$214peracre,downsignificantlyfromlastyear’s$254.
JamesBrown,CEOofHardinCountySavingsBankinEldora,Iowa,said,“Cashrentsaredown$25to$50peracreinsomecases,
butmanyareclosertowhattheywerelastyear.Ifcommoditypricesstayinthisrangetherewillbemoresignificantdecreasesnextyear.”
TheJanuaryfarm-equipmentsalesindexexpandedto29.5from23.7inDecember.Theindexhasbeenbelowgrowthneutralfor18straightmonths.“Farmershavebecomeverycautiousregardingequipmentpurchaseseventhoughtheyhavenotchangedtheirspendingonseedandchemicals,”saidGoss.
Ontheotherhand,JimAshworth,presidentofCarlinvilleNationalBankinCarlinville,Illsaid,“Asusual,followingasuccessfulgrowingseason,manygrainproducershavemadeyear-endequipmentpurchasesasataxmanagementstrategy.”
Banking: TheJanuaryloan-volumeindexdeclinedto62.1fromDecember’s76.7.Thechecking-depositindexexpandedto64.8fromDecember’s62.1,whiletheindexforcertificatesofdepositandothersavingsinstrumentsfelltoaveryweak42.6fromlastmonth’s44.0.
Thismonthbankexecutiveswereaskedtonametheirbiggesteconomicchallengefor2015.“Halfofthebankersidentifiedrisingregulatorycostsasthegreatesteconomicchallengefortheyear.Approximately,22.2percent,16.7percent,and3.7percentindicatedthatgrowingcompetition,lowloandemandandrisingloandefault,respectively,representedthebiggestriskorchallengefor2015,”saidGoss.
Hiring:Despiteweakercroppricesandpullbacksfrombusinesseswithclosetiestoagricultureandenergy,ruralMainstreetbusinessescontinuetoaddworkerstotheirpayrolls.TheJanuaryhiringindexslippedto52.8fromDecember’s55.2.“BusinessesonRuralMainstreetcontinuetoaddjobsatapositivepaceevenwiththeweakeragricultureconditionsandlowerenergyprices.Year-over-yearjobgrowthfortheregionisnowapproximately1.4percent,whichisdownfrom1.8percentrecordedlastmonth,butstillwellabovethehistoricaverage,”saidGoss.
Confidence:Theconfidenceindex,whichreflectsexpectationsfortheeconomysixmonthsout,advancedslightlyto43.6from
(Rural Mainstreet continued on next page)
Main Street Economic Survey
C r e i g h t o nU N I V E R S I T Y
Rural Mainstreet Index Remains Weak for January:Cash Farmland Rents Expected to Fall by 16 Percent in 2015
Ernie Goss
COMMUNITY BANKER UPDATE | FEBRUARY 2015 21
(Rural Mainstreet continued from previous page)
42.5inDecember.“MuchweakercroppricesanddeclinesinenergypriceshavenegativelyaffectedtheoutlookofbankCEOsinenergyandagriculturedependentportionsoftheregion,”reportedGoss.
Home and Retail Sales:TheJanuaryhome-salesindexsankto45.3fromDecember’s51.7.TheJanuaryretail-salesindexslumpedto43.6from55.3inDecember.
Eachmonth,communitybankpresidentsandCEOsinnonurban,agriculturallyandenergy-dependentportionsofa10-stateareaaresurveyedregardingcurrenteconomicconditionsintheircommunitiesandtheirprojectedeconomicoutlookssixmonthsdowntheroad.BankersfromColorado,Illinois,Iowa,Kansas,Minnesota,Missouri,Nebraska,NorthDakota,SouthDakotaandWyomingareincluded.ThesurveyissupportedbyagrantfromSecurityStateBankinAnsley,Neb.
Thissurveyrepresentsanearlysnapshotoftheeconomyofrural,agriculturallyandenergy-dependentportionsofthenation.
TheRuralMainstreetIndex(RMI)isauniqueindexcovering10regionalstates,focusingonapproximately200ruralcommunitieswithanaveragepopulationof1,300.Itgivesthemostcurrentreal-timeanalysisoftheruraleconomy.GossandBillMcQuillan,formerchairmanoftheIndependentCommunityBanksofAmerica,createdthemonthlyeconomicsurveyin2005.
Colorado:Colorado’sRuralMainstreetIndex(RMI)remainedabovethe50.0thresholdforthe11thstraightmonth,thoughtheindexdeclinedto50.9fromDecember’s52.5.Thefarmlandandranchland-priceindexroseto50.1fromDecember’s48.6.Colorado’shiringindexforJanuarydeclinedtoahealthy60.8from62.3inJanuary.ColoradoRuralMainstreetjobgrowthforthepast12monthswas1.4percent.
Illinois:TheRMIforIllinoisexpandedto50.5fromDecember’s49.4.TheIllinoisfarmland-priceindexexpandedto38.2from36.9inDecember.Thenew-hiringindexfellto51.3from52.9inDecember.IllinoisRuralMainstreetjobgrowthforthepast12monthswas1.0percent.
(Rural Mainstreet continued on next page)
Tables 1 and 2 summarize survey findingsNext month’s survey results will be released on the third Thursday of the month, Feb. 19.
Table 1: Rural Mainstreet Economy Last Two Months and One Year Ago: (index > 50 indicates expansion)
January 2014
December 2014
January2015
Area economic index 50.8 50.0 50.9Loan volume 57.8 76.7 62.1Checking deposits 68.2 62.1 64.8
Certificates of deposit and savings instruments 41.6 44.0 42.6Farmland prices 43.8 38.6 39.4Farm equipment sales 41.0 23.7 29.5Home sales 49.3 51.7 45.3Hiring 53.8 55.2 52.8Retail business 46.2 55.3 48.1Confidence index (area economy six months out) 49.2 42.5 43.6
Table 2: The Rural Mainstreet Economy, January 2015Percentage of bankers reporting
$500 - $600 $300 - $499 $200 - $299 $100 - $199 Below $100
What is your estimate of the average per acre cash rent for non-irrigated cropland (not pasture) in your area for 2015?
2.0% 12.0% 46.0% 24.0% 16%
Rising regulatory
costs
Competition from Credit unions &
Farm CreditLow loan demand
Rising loan defaults Other
What do you expect to be the biggest economic challenge for community banks for 2015? 50.0% 22.2% 16.7% 3.7% 7.4%
Increased production
No change in production
A reduction in production Production stoppage or closure
For ethanol producers in your area, what has been the reaction to lower energy and agriculture commodity prices (responses from only bankers with ethanol plants in area)?
14.0% 71.6% 14.4% 0.0%
22 COMMUNITY BANKER UPDATE | FEBRUARY 2015
(Rural Mainstreet continued from previous page)
Iowa:TheJanuaryRMIforIowaclimbedto51.6fromDecember’s48.6.Thestate’sfarmland-priceindexforJanuaryexpandedto38.7from35.1inDecember.Iowa’snew-hiringindexforJanuaryroseslightlyto51.7fromDecember’s51.5.IowaRuralMainstreetjobgrowthforthepast12monthswas2.1percent.
Kansas:TheKansasRMIforJanuaryslippedto49.6fromDecember’s50.6.Thestate’sfarmland-priceindexsankto38.9fromDecember’s40.6.Thenew-hiringindexforKansasdeclinedto51.9from55.9inDecember.KansasRuralMainstreetjobgrowthforthepast12monthswas0.1percent.
Minnesota:TheJanuaryRMIforMinnesotawasunchangedfromDecember’s51.0.Minnesota’sfarmland-priceindexgrewto42.1from41.6inDecember.Thenew-hiringindexforthestatedeclinedto54.4fromDecember’s56.7.MinnesotaRuralMainstreetjobgrowthforthepast12monthswas1.5percent.
Missouri:TheJanuaryRMIforMissourideclinedto54.1from54.3inDecember.Thefarmland-priceindexexpandedto63.7fromDecember’s63.3.Missouri’snew-hiringindexdecreasedto71.7from74.1inDecember.MissouriRuralMainstreetjobgrowthforthepast12monthswas4.6percent.Nebraska:TheNebraskaRMIforJanuaryadvancedto49.0from
48.8inDecember.Thestate’sfarmland-priceindexexpandedto34.0from32.9inDecember.Nebraska’snew-hiringindexsankto47.9fromDecember’s49.7.LarryRogers,executivevice-presidentofFirstBankofUticainUtica,Neb.,said“Itishardtounderstandhowfarmlandpricesarestayingsostrong,butaroundheretheyare.Weareintheheartofseedcornraisingterritory.”NebraskaRuralMainstreetjobgrowthforthepast12monthswas0.1percent.
North Dakota:TheNorthDakotaRMIforJanuaryroseto56.8fromDecember’s56.7.Thefarmland-priceindexclimbedto73.0from71.7inDecember.NorthDakota’snew-hiringindexdippedto79.1fromDecember’s80.8.NorthDakotaRuralMainstreetjobgrowthforthepast12monthswas7.3percent.
South Dakota:TheJanuaryRMIforSouthDakotadippedto49.4fromDecember’s49.6.Thefarmland-priceindexforJanuarydeclinedto36.2fromlastmonth’s37.6.SouthDakota’snew-hiringindexslumpedto49.7from53.5inDecember.SouthDakotaRuralMainstreetjobgrowthforthepast12monthswas-0.1percent.
Wyoming:TheJanuaryRMIforWyominggrewto50.8fromDecember’s50.5.TheJanuaryfarmlandandranchland-priceindexslippedto41.6fromDecember’s42.8.Wyoming’snew-hiringindexsankto54.0fromDecember’s57.7.WyomingRuralMainstreetjobgrowthforthepast12monthswas1.3percent.TIB
Iowa CBIA1/2 pg, colorFeb. 2015
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