Go Local forthe Holidays
Pg. 5
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Invest In the Future of Iowa’s Community Banks
CBI Education Foundation Pg. 4
Opposing NCUA’sBusiness Lending ProposalPg. 8
Credit Unions Move to Skirt Congress
High-Performing AdvisorPg. 12
What It Takes to Score a
2016 CBI EventsPg. 7
Get Involved In Your Association
5 Tips for FightingToday’s Cyber Risks
Pg. 6
Slow BurnExcess Cash a Drag on Profits
Pg. 18
2 COMMUNITY BANKER UPDATE | NOVEMBER 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.
hard work.dedication.strategy.
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NOVEMBER 2015 WEBINAR LINE-UP
Nov. 3 DirectorSeries:InterestRateRiskPolicies,Considerations& Consequences:WhatDirectorsShouldKnow
Nov. 4 RegulationERequirementsforDebitCardErrorResolution:Processing, Disclosure&Investigation
Nov. 5 MortgageLoanOrigination&Servicing:Issues,FAQs&LessonsLearned
Nov. 10 Powers-of-Attorney&LivingTrustDocuments:GuidelinesforDeposit Accounts&Loans
Nov. 12 TheNewFloodRules,IncludingtheMandatoryEscrowRuleEff.Jan.1,2016
Nov. 17 BSAComplianceSeries:Identifying,Reporting&MonitoringSuspicious Activity
Nov. 18 NewSecurityOfficerTraining:Responsibilities,BestPractices& Skill-BuildingTools
Nov. 19 NewAccountsSeries:OpeningAccountsforMinors:Ownership,Access& Transactions
Nov. 24 AccountingDevelopmentsUpdate:RecentIssues&What’sontheHorizon
COMMUNITY BANKER UPDATE | NOVEMBER 2015 3
Community Bankers of Iowa1603 22nd St, Suite 102
West Des Moines, Iowa 50266Phone: [email protected]
2015EVENTS CALENDAR
Live Seminar: How M&A Can Maximize Growth for Community Banks..............................Nov. 19(see pg 17 for details)
LOT Quarterly Meeting............................Nov. 19
In This IssueNovember2015WebinarLineup......................................2
CBIEducationFoundation.................................................4
GoLocalfortheHolidaySeason.......................................5
5TipsforFightingToday’sCyberRisks............................6
2016CBIEventSchedule..................................................7
OpposingNCUA’sMovetoSkirtCongress........................8
CommunityBankersforComplianceProgram.................9
FromtheTop.....................................................................10
FinePoints........................................................................11
WhatItTakestoScoreaHigh-PerformingAdvisor.........12
RuralMainstreetSurvey............................................14-15
PeterCownietoSpeakatLOTQuarterlyMeeting..........16
LiveSeminar:HowM&ACanMaximizeGrowth.............17
SlowBurn:ExcessCashADragOnProfits.....................18
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Who should attend? ISO, Auditor, IT Manager, Compliance Officer, Security Officer, Operations Officer
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4 COMMUNITY BANKER UPDATE | NOVEMBER 2015
In2014CBIannouncedthelaunchoftheCommunityBankersofIowaEducationFoundation.ThepurposeoftheFoundationistohelpimprovethefinancialliteracyofIowa’sstudents,tosupporthighereducationforIowacollegestudentsandencourageseniorlevelstudentstoconsidercommunitybankingasacareer,tosupportcommunitybankers’professionaleducation,andtorecognizetheaccomplishmentsofcommunitybankers,bothtotheindustryandtheircommunities.
ItistheFoundation’splantobuildaself-sustainingsourceofsupportforfinancialeducationbysolicitingbothcontributionsforimmediateprojectfunding,andalsolargerdonationstoprovideforadditionalfundingthroughinvestmentearnings.TheFoundationisanIRS-approved501(c)(3)organization,governedbytheCommunityBankersofIowaCouncilofPresidents.Contributionsmadebybothpersonalandcorporatedonorsaretaxdeductibletothefullestextentofthelaw.
Major programs funded by the CBI Education Foundation include:• MoneySmartWeekElementaryPosterContest• CommunityBankersInternScholarshipProgram(Newin2015)• CommunityBankersofIowaLeadersofTomorrowScholarship
Program• CommunityBankersofIowaRobertD.DixonFoundersAward
Program• CommunityBankersofIowaLeadersofTomorrowUpand
ComingBankerAward• Ongoingeducationalopportunitiesforbankersandprospective
bankersacrossIowa.
Contributions of any size are accepted and encouraged.Variouslevelsofrecognitionhavebeenestablishedtospotlightthosewhoshowenhancedsupport.AlsoincooperationwiththeCommunityFoundationofGreaterDesMoines,donorswillingtomakeanendowmentcontributioncanrealizea25%Iowastatetaxcreditinadditiontodeductibility.Contactusfordetailsonthisexcitingprogram.
YourdonationsgorighttowheretheycandoimmeasurablegoodinmakingIowa’scommunitiesandtheirbanksanongoing,criticalpartofeverydaylife.NeverbeforehastherebeensuchafocusedefforttosupporteducationrelatedtocommunitybankingacrossIowa.
Ifyouwouldlikemoreinformationortomakeatax-deductibledonation,findtheBrochureandDonationFormonourwebsiteatcbiaonline.org/cbi-education-foundation.html,[email protected].
The following banks, individuals and organizations have contributed to the CBI Education Foundation and have earned recognition for their support:
Contributor Level Donors ($1 - $999):Rolfe State Bank - Rolfe
Citizens State Bank - SheldonState Bank of Toledo - Toledo
Raccoon Valley Bank Charitable Foundation - Perry
Copper Level Donors ($1,000 - $2,499):First State Bank - BelmondAckley State Bank - Ackley
Security Savings Bank - GowrieFarmers Trust and Savings Bank - Buffalo Center
Bell State Bank & Trust - FargoFirst Heritage Bank - Shenandoah
Premier Bank - Rock ValleyIowa Trust and Savings Bank - Emmetsburg
County Bank - SigourneyHardin County State Bank - Eldora
Estate of Mrs. Robert D. DixonFederation Bank - Washington
Glenwood State Bank - GlenwoodCommercial Savings Bank - Carroll
Silver Level Donors ($5,000 - $10,000):FCNB Charitable Foundation - Mason City
cbiaonline.org/cbi-education-foundation.html
Would you like to make a tax-deductible donation to help ensure the future of community banking in Iowa? Visit our website at the address below to get more information, or to download the Brochure and Donation Form.
CBI Education FoundationConsider Making an Investment in Iowa’s Future
Contributions of any size areaccepted and encouraged!
COMMUNITY BANKER UPDATE | NOVEMBER 2015 5
Get Your Customers to “Go Local” for the Holiday Season
8 Ways to Make Your Debit/Credit CardsYour Customers’ First Choice for Holiday Purchases
Duringthe2014winterholidays,consumersspentover$600billion,accountingfornearly20%ofmostmerchants’retailsalesfortheyear.AccordingtotheNationalRetailFederation1,eachpersonspentanaverageof$730onfood,gifts,decorations,andmore.Formostofthosepurchases,theyusedeitheradebitorcreditcard.
Everyholidayseason,communitybanksask,“What’sitgoingtotaketogetconsumerstouseourcreditordebitcardforallofthosepurchases?”Hereareeightideastomakeyourcardrisetothetopofpeople’swalletsthisyear.
1. Enter users into a drawing.Thiscanbedonebypurchaseamount,orbynumberoftransactions.Eachpurchasemadeonadebitorcreditcardentersthecardholderintoadrawingwheretheycouldbereimbursedtheamountofthatpurchase.Alternatively,theycouldwina$500giftcard(fromyourcommunitybank,ofcourse).Anotheroptionistoautomaticallyentercustomersintoadrawingwhentheirtotalcardpurchasesexceed$500or20transactionsinaone-monthtimeperiod.Thesearerelativelyeasythresholdstomonitorandadminister,andshouldn’trequiremuchextraworkforyourbank.
2. Create “Swipes for Charity” days.Ondesignateddays,makeasmalldonationforeverycredit/debitcardtransactiontoalocalcharity.Themoreyourclientsswipe,themoreyougivetoalocalcause.Atriplewin–foryou,thecharityandforcardholders.
3. Offer cardholders local discounts.Useamobile-alertplatformtoreachusersattherighttimeandplaceastheyareshoppingandsearchingontheirmobiledeviceforholidaygifts,pumpkincheesecake,orfancyNewYear’sdresses.Offerthemmerchant-fundeddiscountsatlocalbusinesseswhentheypaywithyourbank’scard.
4. Active cardholders get free/discounted tickets or passes to local events.Bypresentingyourbank’scredit/debitcardatlocalevents,performancesandconcerts,yourcardholderscangetfreeordiscountedentry.
5. Reward shoppers with gift cards.Rewardeveryonewhospendsbeyondasetdollaramountornumberoftransactionswiththeirchoiceofgiftcardfromavarietyoflocalmerchants.
6. Set up “secret sales” for shoppers.Helplocalmerchantspromotetheirofferingstoyouruserswith“secretsales”andclient-onlybuyingincentives.Ofcourse,shoppersmustuseyourcredit/debitcardtogetthedeal.Youcanpromotethesespecialsalesonyourwebsiteandthroughemailmarketingmessages.
7. “Shop to win on Black Friday!”Thosewhouseyourcredit/debitcardonaspecialdesignatedday—BlackFridayorCyberMonday,forinstance—canbeautomaticallyenteredintoadrawing.Youcanrunthispromotionmultipletimesonmultipledays,orrunitforaextendedperiod(likeoneweek,oraweekend).
8. Offer up your CEO for a fun stunt.Challengecardholderstouseyourcredit/debitcardforadesignatednumberordollarvolumeofpurchasestoseeyourCEO(orothercelebrity/localfigurehead)makesnowangelsinredlongjohns,takea“polarbearplunge”inthelake,orperformotheroutrageousstunts.
ResearchersatGoogleThinkfoundthat48%ofshoppersdomostoftheirshoppingonorbeforeCyberMonday2.Ifyourbankwantstomakesureyourcredit/debitcardisthefirstchoicethisholidayseason,youneedtoputincentivesinplace.Hopefullythesetipsprovideaspringboardtoideasforpromotionsyourbankcanoffertoyourcustomersthisholidayseason.
Get more tips on Going Local for the Holiday Season!Visit the Go Local pages on our website for marketing ideas
and social media tips. Find your Holiday Go Local resources at:
www.cbiaonline.org/go-local-marketing-ideas.html
Reprinted from: The Financial Brand
1. Data from NRF’s 2013 Monthly Consumer Survey.2. Ipsos MediaCT, Google Post Holiday Shopping Intentions Study, January 2015.
6 COMMUNITY BANKER UPDATE | NOVEMBER 2015
Cyberattacksaren’tlimitedtojustdatabreachesthesedays—therearealitanyofprevalentcyberrisksthreateningyourfinancial
institution.Sure,databreachesaregettingthemostattention,butyourinstitutionfacesmorethanjustonecategoryofcyberrisk.Whetherit’ssystemoutages,adistributeddenialofservice(DDoS)attackoranyothercyberincident,youneedtobepreparedtofight.
Toensureyourfinancialinstitutionhasastrongstrategyforcybersecuritypreparedness,theFederalFinancialInstitutionsExaminationCouncil(FFIEC)recommendsyoutakeacomprehensiveapproachtomaintainthesecurityandresilienceofyourtechnologyinfrastructure.Andthatincludesestablishingofarobustcybersecurityframework.
5 Key Elements for a Strong Cybersecurity Framework Tofightbackagainstcyberthreats,theFFIECrecommendsyourfinancialinstitution’scybersecurityframeworkfocusonfivekeyareas:
1. Cyber Risk Management and OversightTostrengthenmanagementandoversightofyourfinancialinstitution’scybersecuritystrategy,followthesefoursteps:a. Testyourpoliciesandprocedureswithregularinformation
securityreviewsandITauditsb. SupportyourriskmanagementprogrambyusingtheFFIEC
CybersecurityAssessmentToolc. Providetrainingandresourcestoemployeesthatareeasyto
understand;andensureITandinformationsecuritystaffkeepupwiththeirtraining,too
d. Educateandengageseniormanagementandtheboardtodevelopastrongcultureofsecurity
2. Threat Intelligence and CollaborationToensureyouhavethemostupdatedinformationaboutindustrythreats,subscribetoemaillistsandcollaborationservicesfromreputableresourceslike:• SANSInstitute• NationalInstituteofStandardsandTechnology(NIST)• BrianKrebs(KrebsonSecurity)• BruceSchneier(SchneieronSecurity)• Cisco• FinancialServicesInformationSharingandAnalysisCenter
(FS-ISAC)**Though not officially endorsed by the federal regulatory agencies forming the FFIEC, FS-ISAC membership is highly encouraged by these agencies, and financial institutions that are not FS-ISAC members could be more likely to receive heavy scrutiny during IT exams. Put this at top of your to-do list.
3. Cybersecurity ControlsImplementcybersecuritycontrolstohelpyourfinancialinstitutionprevent,detectandmitigatecybersecurityevents.Therearethreecategoriesofcybersecuritycontrols:
a. Physical Security Controls:Thesecontrolstraditionallytightenperimeterbuildingsecurityandlimitaccesstoserverroomsandnetworkoperationscenters.
b. Logical Security Controls:Thisisyourfirstlineofdefenseif
ahackerbreachesyourphysicalcontrols.Logicalcontrolstypicallyincludeidentification,authentication,authorizationandaccountabilitytools.
c. Other Controls:Thiscategoryincludespoliciesandprocedures,trainingandeducation,andemployeereactionandresponse.
4.External Dependency ManagementManageanyexternalsolutionsthatyourinstitutionusesbyundergoingthesethreeevaluations:
a. Business Impact Analysis (BIA):Determinethelikelyimpacttoyourorganizationifavendor,productorserviceceasedtoexistorfunctionproperly
b. Cybersecurity Risk Assessment:Identifytherisksforaparticularvendororserviceandhowlikelyeachriskistoaffectthatrelationshipsoyoucanprepareaccordingly
c. Vendor Management:ReadtheFFIEC’snewAppendixJfromtheBusinessContinuityHandbooktohelpdetermineifadequatecontrolsareinplaceamongexternaldependencies
5. Incident Management and ResilienceUpdateyourincidentresponseandbusinesscontinuityplans(BCP)toincludethewords“cyberincident”and/or“cyberrisks.”Whilethesetopicsmayalreadybecovered,theverbiagereducesquestionsandhelpssatisfyregulators.Besureyourplansactuallycontaintheinformationneededtohelpyoueffectivelyrespondtocyberattacks.
Get a Little Help from Your FriendsDoescybersecurityfeeloverwhelming?You’renotalone.Trustedthird-partyproviderscanhelpyoueffectivelyaddressandmanagerisksoyoucanbuildastrongcybersecurityprogram.Getalittlehelpfromyourfriends—knowyourrisks,protectyourdataandfeelconfidentinyourregulator-recommendedapproachtocybersecuritypreparedness.
Steve Sanders, CSI’s vice president of Internal Audit, oversees the evaluation and mitigation of risks associated with IT, financial and operational systems. For more information about CBI Endorsed Member Computer Services, Inc., visit csiweb.com.
Written By: Steve SandersVP - Internal Audit
CSI Regulatory Compliance
5 Tips for Fighting Today’s Cyber Risks
COMMUNITY BANKER UPDATE | NOVEMBER 2015 7
2016 CBI Event ScheduleNetwork with Colleagues, Learn from the Experts, and Support Your Association
CommunityBankersofIowawasformedandcontinuestofocusonlyontheissuesconfrontingindependentcommunitybanks.Tothatend,CBIholdsandsponsorsanumberofinformativeandentertainingeventsthroughouttheyear,intendedtoeducateourmembers,providenetworkingopportunities,raisefundsforeducationalandadvocacyeffortsandsupporttheprofessionaldevelopmentofIowa’scommunitybankers.
BelowisascheduleoftentativedatesformajorCBIeventsbeingheldduring2016.Thisisnotanexhaustivelistofallliveevents,anddatesaresubjecttochange.
FindamorecomprehensivelistofallCBIevents,includingdeadlinesandwebinarofferings,inour2016AnnualPlanner&ResourceGuide,availableDecember2015.
April 12-14• SHAZAM Conference
April 14• Iowa Division of Banking Day with
the Superintendent-Des Moines
April 23-30• Money Smart Week
Poster Contest held from Feb-Apr
April 25-27• ICBA Washington Policy Summit
Washington DC
July 13-15• CBI 45th Annual Convention
Okoboji, Iowa
August 11• CBI 4th State Fair Conference
Prairie Meadows Conference Center Altoona
February 18• Leaders of Tomorrow Quarterly Meeting
Location TBD
March 6-10• ICBA National Convention
New Orleans, LA
March 24-25• 13th Annual Leaders of Tomorrow
Leadership Development Conference Hilton Garden Inn, West Des Moines
April• Community Banking Month
April 5-6• CBI Spring Community Bank Summits
Apr. 5 - Waterloo; Apr. 6 - Riverside
April 12-13• Community Bankers for Compliance
Spring Session
August 18• Leaders of Tomorrow Quarterly
Meeting-Location TBD
September 12• 9th Annual Golf Tournament &
Business Symposium Hyperion Field Club, Johnston, Iowa
September 20-21• Community Bankers for Compliance
Fall Session
October 11-13• Fall Community Bank Summits
Locations TBD
November 17• Leaders of Tomorrow Quarterly
Meeting-Location TBD
8 COMMUNITY BANKER UPDATE | NOVEMBER 2015
ICBAandcommunitybankersacrossthenationrecentlylaunchedavolleyofoppositiontothetax-exemptcreditunionindustry’slatestattempttowidenitslendingauthority.WhileCapitolHillhasrepeatedlyrejectedcreditunioneffortstoexpandintocommerciallending,theNationalCreditUnionAdministrationisattemptinganotherendrunaroundthelegislativebranchonbehalfoftheindustryitregulates.
TheNCUAproposalwouldexpandloopholestothecreditunioncaponbusiness-lendingauthority.Incommentletterstotheagency,ICBAandcommunitybankerslaidoutalitanyofproblemswiththeproposal,includinghowitwouldcircumventCongress,jeopardizethesafetyandsoundnessofcreditunionsandplaceunduerisksonU.S.taxpayers.
Indecent proposalTheNCUA’sproposedrulewouldreplacestrictrequirementsandlimitationsoncommerciallendingbyfederallyinsuredcreditunionswithabstractprinciplesthatwouldprovideamuchmoreopenlendingframework.Whilefederallawcapsmemberbusinesslendingat12.25percentofacreditunion’stotalassets,the
regulator’sproposalwouldapplyadditionalflexibilitytothecapandwouldevenentertaintheideaofmovingbeyondthestatutorycapaltogether.
Amongitsprovisions,theproposedrulewouldeliminatearequirementthatborrowerspersonallyguaranteeloans,removeexplicitloan-to-valuelimitsandallowloanstoasingleborrowertototalupto25percentofthelender’snetworth.Italsowouldliftlimitsonconstructionanddevelopmentloansandclarifythatnonmemberloanparticipationswillnotcountagainstthecap.
Creditunionswouldberequiredtoestablisharisk-managementplatformwitharatingsystemandacommercialloanpolicythataddressestheparticularsofhowcommercialloanswouldbeoriginated.However,creditunionswithtotalassetsoflessthan$250millionandtotalcommercialloansthatdonotexceed15percentofnetworthwouldnotberequiredtoadoptacommercialloanpolicy.
Combating mission creepICBAandcommunitybankerswroteinformalcommentlettersthatexpandinglendingcreditunionauthoritywhilerelaxingregulatoryoversightwoulddefycongressionalintentandcontinuethetax-subsidizedindustry’songoingmissioncreepintocommercialbanking.Whilethe12.25percentstatutorycapshouldbeinflexible,theproposedrulewouldexpandonexistingloopholes,whichcouldallowlargecreditunionstoengageinmillionsorevenbillionsofdollarsofbusinessloansoutsidethecap.
ICBAcalledontheNCUAtodemonstrateaneedfortheserelaxedstandardsandtoretainitspersonalguaranteerequirementforborrowersaswellascollateralandsecurityrequirementsformemberbusinessloans.Givenitslackofconfidenceincreditunionbusinesslending,ICBAwrote,theNCUAshouldanswerwhyitproposesweakeningcriticalprudentialsafeguards.
Bottomline:TheNCUA’scontinuedeffortstolowerbusinesslendinglimitsfloutCongressanddisregardtherisksthatcomewithoriginatingcommercialloans.Meanwhile,communitybanksthatengageincommerciallendingoperateunderalendingframeworkthathasstoodthetestoftimeandissubjecttoconstantregulatorandexaminerscrutiny.Ifthecreditunionindustrywantstoexpandfurtherintocommerciallending,itshouldfirstbuildtheframeworkneededtoperformhigh-qualityunderwritingandmanagement—whilealsoforgoingitsbroadtaxandregulatoryexemptions.
James Kendrick ([email protected]) is ICBA vice president of accounting and capital policy.
Written By: James KendrickVice President - Accounting and Capital PolicyICBA
Opposing NCUA’s Move to Skirt Congress On Credit Union Business Lending
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COMMUNITY BANKER UPDATE | NOVEMBER 2015 9
Today’scommunitybankcomplianceofficerischargedwithstayingcurrentwithallthecompliancerulesandregulationsandmakingsuretheyarebeingusedeffectivelywithinthebank.For13years,theCommunityBankersofIowahaspartneredwithCommunityBankersforCompliance(CBC),aprogramthatoffersthetoolsandinformationneededtoimplementcompliancethroughoutyourbank.Thecomplexityregulatorychangesmakesitcriticalthatyourcomplianceofficerisreadytodealwiththesechangesastheyoccur.
TheCBCprogramisthemostsuccessfulandlongestrunningcompliancetrainingprograminthecountryandprovidesup-to-dateinformationoncomplianceissuesanddevelopmentsinbankregulations,aswellasproventechniquesformaintainingyourin-bankcomplianceprogram.Havingreceivedapprovalfromregulatoryagencies,theprogramhasbeeninstrumentalinhelpingover2,000communitybankersacrossthenationdevelopanincreasedunderstandingandabilitytodealwithregulatoryissues.
AnnualmembershiptotheCBCProgramincludesfiveinter-relatedcomplianceservices:
1. Live Regulatory Seminars.Twoliveseminarsareprovidedthroughouttheyear.Adetailedmanualisprovidedtoeachparticipant.
2. Webcasts - Regulatory Update.Fourregulatoryupdatesessionsarepresentedinwebcastformatonseparatedays.
Eachwebcastdiscussescurrentnewsandregulatorychangesthatmayhaveanimpactoncommunitybanks.Eachwebcastwillbe1.5hours,includingquestionsandanswers.Adetailedmanual,writteninfullnarrative,willbeprovided.
3. Monthly Newsletter.TheComplianceUpdatenewsletterissenttoprogrammemberseachmonth.Itprovidesanupdateofcomplianceissuesthatimpactcommunitybanks.
4. Compliance Hotline.MembersoftheprogrammayvisitYoung&Associates’websiteorcalltheirtoll-freenumberforcomplianceofficerquestionsthatariseonadailybasis.Thisserviceensuresthatyourbankisjustaphonecallawayfromtheinformationyouneedinordertoansweryourcompliancequestions.
5. CBC Members-Only Web Page.ThisdedicatedwebpageisreservedforbanksthatareregisteredmembersoftheCommunityBankersforComplianceProgram.Inityouwillfindspecialandtimelyinformationandtoolsthatcanbeusedtoenhancetheregulatorycompliancefunctionatyourbank.
FormoreinfoortoregisterfortheCommunityBankersforComplianceprogram,visitourwebsiteatcbiaonline.orgorcontactPrettyPatelat515.453.1495orppatel@cbiaonline.org.
Be Prepared for Upcoming Compliance Changes:Enroll in the Community Bankers for Compliance Program
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10 COMMUNITY BANKER UPDATE | NOVEMBER 2015
Tech Is KingWritten By: Jack Hartings, Chairman of ICBA
Ourcustomerslovetechnology.Atleast,that’swhatI’vefoundtobetrueatThePeoplesBankCo.inColdwater,Ohio.Likemanyofyou,I’mamazedatwheretechnologyhastakenourbusiness,andIlookforwardtoseeingwhereitcontinuestotakeus.Withoutadoubt,technologyhastheabilitytocatapultourbusinesstothenextlevelanddeepenourcustomerrelationships.
Communitybankshaveahugeadvantageinthetechnologyspace.Wearethetotalpackage.Wearerelationshiplendersthatdoeverythinginourpowertobestserveourcustomersandourcommunities.Ourcustomerslovethefactthatwelookoutfortheirbestinterestsandtheinterestsofourcommunity.It’sthisrelationshipbankingexperienceandtrustthatcommunitybankcustomershavecometoexpectandappreciate
So,whenyoutakethisstrongfoundationoftrust,serviceandrelationships,andadditinwithpowerful,efficientand24-houraday/sevendaysaweektechnology—somethingthatpeoplelove—youhaveawinningequationandsomethingthatcustomerswillundoubtedlytreasureandrespondtoforyearstocome.
Allofthistalkoftechnologytakesmebackto2013whenThePeoplesBanklauncheditsmobilebankingservice.Asacommunitybanker,mytopconcernwashowourcustomerswouldrespondtoit.Wouldtheyhavequestions?Wouldtheyuseit?Wouldmymoreseniorcustomersneedassistancewithunderstandingandusingit?
Withthesequestionscirclinginmymind,Ikeptaskingourstafftoseeifanyonehadcalledinwithquestionsaboutournewmobilebankingservice.
Onedaypassed,no;threedayspassed,no;twoweekspassed,no.Iwasthinking,“Well,ifwearen’tgettingquestions,maybecustomersaren’tinterestedorjustaren’ttakingadvantageofit.”So,wecheckedthenumbersanditturnedoutthatthereweremorethan250customersusingtheproductinthefirstmonth,andtodaywehavemorethan1,400mobilebankingusers.
Wow—notonlywereourcustomersinterestedintheproductandusingit,buttheydidn’thaveanyquestions.Theylovetechnologyandknewhowtoleverageit!
Itellyouthisstorybecause,atfirst,Iwasabitskeptical.Iclingtothetraditionalvaluesofcommunitybankingbutalsorealizethatthefutureiscomingandtechnologyispartofthatfuture.Communitybankcustomershavebecomeaccustomedtothebestpossibleproductsandcustomerservice,andit’suptoustokeepthattraditiongoingwhileleveragingthebenefitsthattechnologyhastooffer.Ourcustomersexpecttheseservicesfromus.
Nowisthetimetoembracewhattechnologicalinnovationhastoofferanduseitasatoolforcontinuingtomakethecommunitybankexperiencethebestitcanbe.Whetherit’satthebranch,onlineorviaasmartphoneapp,thecommunitybankexperienceshouldnotbelimitedtobranchhours.Technologyisanotherwaytoreachyourcustomers.It’sthatsimple.
Jack Hastings is Chairman of ICBA, and President and CEO of The People’s Bank in Coldwater, Ohio.
TOPFrom the
“...the future is coming and technology is part of that future.”
COMMUNITY BANKER UPDATE | NOVEMBER 2015 11
Mobile,mobile,everywhere,butbarelytimetothink.
Welcometomobilemania.Financialinnovationisbooming.It’sfreewheelingandchaotic.Italsocontinuestotransformtheoperationalandcompetitivecontoursofourindustry.
MobiletechnologycombinedwithInternetconnectivityresultsinalotofdata.Thinkaboutit.Withemail,searchenginesandmobilegeolocation,companieshavedataonwhoyouare,whereyouare,whatsitesyouvisit,whatyouhaveboughtandwhatyouareplanningtobuy.Andmanyofthosecompanieswanttooffervariousbank-likeservices.
Communitybankingintoday’srapidlydigitizingworldisrifewithpowerfulrewards,butalsowithchallengesanduncertaintiestoo.Fortunately,communitybanksarepatientlyandprudentlyadoptingpowerfulmobileandinformationtechnologyinwondrousways.Yourinstitutionshaveallthetechnologythatanyconsumerorbusinesscouldneedorthatanyotherreputablefinancialcompanyisproviding.Butweallneedtotellthatstorymore.
Certainly,communitybankshavevaluable,reliabletechnologypartners,andweincreasinglyhaveformidabletechnologycompetitorstoo.So-calledFinTechfirmsarecreatingnewdigitalplatformsforconsumersandbusinessestoeasilyaccessnewprovidersofloans,payments,investmentsandfinancialdata(andevendigitalcurrencies).Thesenon-FDIC-insuredcompanies,includingmarketplacelenders,areenticingconsumerstobypassFDIC-insuredmainstreambanksfornew-fangled,sometimesriskyorharmfulproducts.Manyoftheseleveragedataanalyticsinhighlysophisticatedways.Wecannottakethemlightly.
Withinthisdisruptiveenvironmentoffinancialtechnologyinnovation,whatshouldICBAandcommunitybanksdotocontinuedeliveringthebest,mostconvenientandsafesttechnologyforourcustomers?ICBAseesthreekeypriorities.
1. Promotebank-centricpayments.Asanindustryandasacountry,wehavetocontinueadvocatingthebenefitsofabank-centricpaymentssystem.Banksareproven,secureintermediariesformovingmoney.Thevalueofourtestedcontrols,security
protocolsandprotections,includingfederaldepositinsurance,mustbeunderstoodandsupportedbyconsumersandpolicymakersalike.Wecannotallowrandomdisruptionordisintermediationfrominfanttechnologyfirmstoundermineourlongstandingbankingandpaymentssystems.
2. Upholduniformstandardsforeveryone.Consumersneedanddeservethesamesafetyandreliabilityfromallfinancialservicesproviders.Consistentcomplianceofconsumerprotectionsmustbeenforcedforbankandnonbankproviders.FederalandstateregulatoryframeworksforthelicensingandregulationofFinTechproductsandservicesshouldbethesameasthoseforthebankingindustry.
3. Continueinnovating.Asanindustrywecan’tstopinnovating—withourtrustedpartnersandwithinourowninstitutions.Whilemaximizingournimbleness,wehavetocapitalizeonourproven,longstandingbusinessmodelwhilealsoadoptingthebesttoolsthedigitalworldprovides.Thisincludesmodernizingourexistingbankingandpaymentsinfrastructure.Inshort,wehavetobehigh-techandhigh-touch.
Ofcourse,pursuingtheseprioritieswillrequirenavigatingthecomplexitiesoftoday’sgallopingfinancialinnovation.Butwhat’scertainisthatdigitalbankingandongoingtechnologyinnovationareheretostay,whichiswonderfulanddauntingatthesametime.Butwe’reuptothechallenge.Wemayhavetoleanintotoday’sdigitalworldtogether,buttheopportunitiesfordoingsowillremainasrewardingforusandourcustomersaseverbefore.
Wild, Wild TechWrittenBy:CamdenFine,PresidentandCEOofICBA
FINEPOINTS
“Community banks are patientlyand prudently adopting powerful
mobile and information technologyin wondrous ways.”
Following Mr. FineMorethan1,000peoplearefollowingCamdenFine’stweets@Cam_Fine—areyou?Visitwww.twitter.com/cam_fine.
12 COMMUNITY BANKER UPDATE | NOVEMBER 2015
Weallknowthenameofthegameinfinancialadvisorrecruiting:bignamebroker-dealersandevenbiggerchecksoftentakethecakeinscoringquality
financialadvisors.Asacommunitybanker,itcanfeellikeyou’refacedwithmorethanjustanuphillbattle.Wegetit.Notonlydoyouneedanexperienced,talented,high-performingadvisor,butyoualsoneedonethatisaglove-likefitwithyourculture,customers,andcommunity.Thesolution?Partnerwithabroker-dealerthatspecializesinrecruitinghigh-calibercommunitybankfinancialconsultantsforyouron-siteinvestmentprogram.
Asacommunitybanker,youstillwantthecreamofthecropevenifyou’renotoneofthecolossalbanksoftheworld.Andfrankly,youdeserveit.Youneedafinancialadvisorthathastheability,theattitudeandtheculturalfit.Inthesamebreath,thehigh-performingadvisoryoujustdescribedisn’tjustgoingtomovetheirpracticewithnoreturnontheirrelocation…andwedon’tnecessarilymeancash.
What’s Your Advisor Value Proposition? Intoday’sfinancialservicesenvironment,financialadvisorrecruitingiscontinuouslyevolving.Whiletherearemanymoreoptionsandopportunitiestochoosefromthaninyearspast,theevolvingregulatorylandscapedoesn’tnecessarilymakeiteasyforanadvisortoconverttheirpracticetoadifferentbroker-dealer.Asacommunitybanker,youneedapartnerthatprovidesyourprospectivefinancialadvisorwithasoundvaluepropositionthatspeakstohis/herneedsinadditiontothevaluepropositionthebankitselfandtheopportunityoffers.
Partneringwithabroker-dealerthatcreatesatailor-madeenvironmentfortopcommunitybankfinancialinstitutionsandtheiradvisorstothriveiniskey.Whenyouworkwithafullservicebroker-dealercreatedbyfinancialconsultants,forfinancialconsultants,thefirmwillunderstandwhatmakestheforemostperformingadvisorstick,howtohelpthemexcelevenmore,andhowtokeepthemhappy.Attheendoftheday,yoursuccessstemsfromyouradvisor’ssuccess.
Whiletop-producingadvisorsareallprofitable,theyallhavedifferentapproachestotheirbusiness.That’swhatmakesanopenproductplatformavitalsolutiontothesuccessofabank’sinvestmentprogram.
Oneofthebiggestadvantagesyoucangiveyouradvisor–andoneofthebiggestreturnsonyourinvestment–ispartneringwithabroker-dealerthatprovidesanopenproductplatform.Thisfreedomallowsyouradvisoraccesstomoreproductsandservices,soheorshecandowhat’sbestfortheirclient’sneeds,notthebroker-dealer’s.Notpushingbroker-dealerproprietaryproductsmeansyourindustry-leadingadvisorhasthefreedomtochoosefromawidearrayofindependentproductchoiceswithoutthepressureofpromotingapreferredvendororbroker-dealermotive.Theycancontinuetobethesuccessfuladvisortheyhavebeenthroughtheirmosteffectiveandpreferredbusinessapproach.
Your Support TeamThebestbroker-dealerswillhaveadedicatedteaminplacetoensureyouradvisorexpectationsarenotonlymetbutexceeded.Workingwithabroker-dealertosupportyourrecruitingneedswillhelpensureyou’renotonlyproactivelygrowingyournon-depositincomethroughyourprogram,butthatyourprogramissomething
you’reproudof.Havingtherightadvisorwillbringenormousvaluetoyourprogram,bankandrelationships–theincreasednon-depositincomeistheicingonthecake!
Theforemostbroker-dealerrecruitingteamswillconcludeahighlyproactivesearchthatincludesarangeofbestpracticestosourcecandidatesbasedontheindividualinstitution’sprofileandneeds.Theserecruitingteamswillcometoyouwitharefinedlistofhigh-calibercandidateswhomtheyknowinsideandout.They’llunderstandhoweachcandidatedoesbusinessandhavearealunderstandingofwhotheindividualisandtheirpresenceinthecommunity.Thesebroker-dealerswillactivelycompletetheupmostduediligencepriortoreachingyouandyourteaminordertomaketheprocessseamlessandthecandidatelisthigh-quality.
Understanding Your Candidates Processeslikeperformingpredictiveindexanalysesonthemost-fittingcandidatesiscrucialtounderstandingwhatmotivatesthemandhowtheybuildtheirbusiness.Ensureyourbroker-dealerusesthesetypesoftoolstohelpyoufullyunderstandyourfuturefinancialadvisorandmakecertainheorsheistherightfitforyourbank,communityandcustomers.
Questionsyouwanttoknowlike,“Howdidtheirclientsbecometheirclients,”“Whoaretheirclients,andwilltheyfitinwithourbankclientele,”and“Isheorshecapableofbuildingtheirownclienteleratherthansimplycapitalizingonourcustomers?”shouldallbeansweredbyyourbroker-dealerrecruitingteampriortoyoueverspeakingwiththecandidate.
The Right Partner Haveyouconsideredpartneringwithabroker-dealerspecializinginhelpingcommunitybanksincreasetheirnon-depositincomeviaaninvestmentprogramfullyequippedwithanindustry-leadingfinancialadvisorthatwillaffordyoutheperformanceyouneedcoupledwiththesamecultureandvaluesasthecommunitiesyouserve?
Ifyourbroker-dealerandtheirrecruitingteamistrulythepartneritshouldbe,youwillfeelnotonlyconfidentbutproudinyourcandidatedecisionandtheoutlookofyourprogram.Collaboratewiththebroker-dealerthatprovidesyouthesupportandexpertiseyouneed,andtherestsimplyfallsintoplace.
Since 1992, Investment Professionals, Inc. has specialized in the increase of ROA/ROE and on-site delivery of investment programs for community financial institutions across the U.S. For more information about CBI Endorsed Member Investment Professionals visit www.invpro.com.
What it Takes to Score a High-Performing AdvisorIn Your Community Bank
ICBA_7168 2015 Ad Campaign.indd 1 12/2/14 2:41 PM
14 COMMUNITY BANKER UPDATE | NOVEMBER 2015
October Survey Results at a Glance:• Forasecondstraightmonth,theRuralMainstreetIndexfall
belowgrowthneutral.• Bankersreportthatalmostone-thirdofcornsalesbelow
breakeven.• Cashrentsplummetbyapproximately15percentfromlast
yearatthistime.• Farmequipmentsalesdeclinetorecordlow.• Approximately27.9percentofbankers.
OMAHA,Neb.–TheCreightonUniversityRuralMainstreetIndexforOctoberfellfromSeptember’sweakreading,accordingtothemonthlysurveyofbankCEOsinruralareasofa10-stateregiondependentonagricultureand/orenergy.
Overall:TheRuralMainstreetIndex(RMI),whichrangesbetween0and100,sankto44.4fromSeptember’s49.0andwellbelowAugust’sgrowthneutral50.0.Infact,notoneofthe10statessurveyedhadandRMIabove50.0.
“Thisisthethirdstraightmonththattheoverallindexhasdeclined,reflectingweaknessstemmingfromloweragricultureandenergycommoditypricesandfromdownturnsinmanufacturingexports,”saidErnieGoss,JackA.MacAllisterChairinRegionalEconomicsatCreightonUniversity’sHeiderCollegeofBusiness.
Regionalmanufacturersareexperiencingweakerconditions.Forexample,JamesShafer,CEOofTheFirstNationalBankinTremont,Illinois,reported,“Caterpillar’sannouncedlayoffsof5,000employeesishavinganegativeimpactontheentirecentralIllinois.”
Farming and Ranching:ThefarmlandandranchlandpriceindexforOctoberfellto31.0from35.5inSeptember.“Thisisthe23rdstraightmonththeindexhasmovedbelowgrowthneutral.But,asinpreviousmonths,thereisagreatdealofvariationacrosstheregioninthedirectionandmagnitudeoffarmlandprices,”saidGoss.
Thismonthbankersreportedonthelevelofcashrentsforfarmland.Onaverage,yearlycashrentsacrosstheregionwere$229peracre.“Thisiswellbelowrentsrecordedsixmonthsagoandthisisthefirsttimethatwemeasuredanyrealdownturnincashrents,”saidGoss.
AccordingtoDavidSteffensmeier,presidentoftheFirstNationalBankinBeemer,Nebraska,“Sincecornandsoybeanpricesaredownaminimumof25percent,overallcashrentneedstoadjustdownaswell.Itwillbeinterestingtowatchifthatispossiblethis
fallandwinter.”
TheOctoberfarmequipment-salesindexslumpedtoarecordlow10.8fromSeptember’sanemic14.2.“The2014and2015downturnsinfarmincomecontinuetoreducesalesandproductionofagricultureequipmentdealersandproducersacrosstheregion.BankersremainpessimisticabouttheshortandintermediateprospectsforagricultureequipmentdealersandproducersonRuralMainstreet,”saidGoss.
Banking:TheOctoberloan-volumeindexdippedto71.6fromlastmonth’s72.0.Thechecking-depositindexdeclinedto51.2fromSeptember’s54.2,whiletheindexforcertificatesofdepositandothersavingsinstrumentsdippedto40.9from41.7inSeptember.
Hiring:Despiteweakercroppricesandpullbacksfrombusinesseswithclosetiestoagricultureandenergy,RuralMainstreetbusinessescontinuetoaddworkerstotheirpayrollsbutataslightlylowerpace.Thehiringindexfelltoastillsolid52.4from54.3inSeptember.
Confidence:Theconfidenceindex,whichreflectsexpectationsfortheeconomysixmonthsout,slidto42.1from43.8inSeptember.“Declinesformanufacturingtiedtoagriculturalcommodityandenergypricespushedbankers’economicoutlooklowerforthemonth,”saidGoss.
Home and Retail Sales:TheOctoberhome-salesindeximprovedto58.1from56.4inSeptember.TheOctoberretail-salesindexdecreasedto44.4from49.0lastmonth.“HomesalesonRuralMainstreethavebeenveryhealthyoverthelastseveralmonths.Ontheotherhand,Creighton’smonthlysurveyhasyettomeasureanyupturninretailsalesresultingfromthedownturninfuelprices.Infact,retailsalescontinuetofall,”saidGoss.
Eachmonth,communitybankpresidentsandCEOsinnonurbanagriculturallyandenergy-dependentportionsofa10-stateareaaresurveyedregardingcurrenteconomicconditionsintheircommunitiesandtheirprojectedeconomicoutlookssixmonthsdowntheroad.BankersfromColorado,Illinois,Iowa,Kansas,Minnesota,Missouri,Nebraska,NorthDakota,SouthDakotaandWyomingareincluded.ThesurveyissupportedbyagrantfromSecurityStateBankinAnsley,Neb.
Thissurveyrepresentsanearlysnapshotoftheeconomyofruralagriculturallyandenergy-dependentportionsofthenation.TheRuralMainstreetIndex(RMI)isauniqueindexcovering10regionalstates,focusingonapproximately200ruralcommunitieswithanaveragepopulationof1,300.Itgivesthemostcurrentreal-time
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 Falls Below Growth Neutral for October: Cash Rents on Farmland Tumble
Ernie Goss
COMMUNITY BANKER UPDATE | NOVEMBER 2015 15
analysisoftheruraleconomy.GossandBillMcQuillan,formerchairmanoftheIndependentCommunityBanksofAmerica,createdthemonthlyeconomicsurveyin2005.
Colorado:Thestate’sRuralMainstreetIndex(RMI)dippedto43.8from48.8inSeptember.Thefarmlandandranchlandpriceindexplummetedto24.0fromSeptember’s47.4.Colorado’shiringindexforOctoberdeclinedto50.5fromSeptemberverystrong60.1.
Illinois:TheOctoberRMIforIllinoisdeclinedto44.5from49.0inSeptember.Thefarmland-priceindexdroppedto26.8fromSeptember’s28.8.Thestate’snew-hiringindexsankto51.6fromlastmonth’s53.3.
Iowa:TheOctoberRMIforIowasankto46.9fromSeptember’s54.2.Iowa’sfarmland-priceindexforOctoberslippedto42.5fromSeptember’s44.0.Iowa’snew-hiringindexforOctoberdecreasedto57.9from60.0inSeptember.
Kansas:TheKansasRMIforOctoberslidto42.5fromSeptember’s48.6.Thestate’sfarmland-priceindexforOctoberslippedto21.8fromSeptember’s27.0.Thenew-hiringindexforthestatedeclinedto49.7from51.9inSeptember.
Minnesota:TheOctoberRMIforMinnesotaslumpedto44.0fromSeptember’s49.2.Minnesota’sfarmland-priceindexincreasedto34.2from33.0inSeptember.Thenew-hiringindexforthestate
declinedto52.9fromlastmonth’s54.6.
Missouri:TheOctoberRMIforMissouridippedto45.5from47.4inSeptember.Thefarmland-priceindexfellto18.8fromSeptember’s30.9.Missouri’snew-hiringindexexpandedtoaweak48.4fromSeptember’s44.0.
Nebraska:TheNebraskaRMIforOctoberslumpedto45.2from47.3inSeptember.Thestate’sfarmland-priceindexincreasedto21.8fromSeptember’s18.7.Nebraska’snew-hiringindexadvancedtoaweak49.7from48.6inSeptember.
North Dakota:TheNorthDakotaRMIforOctoberdecreasedto34.8from40.8inSeptember.Thefarmland-priceindexadvancedto37.0from17.8inSeptember.NorthDakota’snew-hiringindexdeclinedto37.7fromSeptember’s44.2.
South Dakota:TheOctoberRMIforSouthDakotafellto47.9fromSeptember’s54.4.Thefarmland-priceindexsankto50.0from53.3inSeptember.SouthDakota’snew-hiringindexdeclinedto60.9fromSeptember’sverystrong62.4.
Wyoming:TheOctoberRMIforWyomingslumpedto46.3fromSeptember’s50.4.TheOctoberfarmlandandranchland-priceindexslippedto29.7from30.8inSeptember.Wyoming’snew-hiringindexslippedto52.8fromSeptember’s53.4.
Table 1 summarizes survey findingsNext month’s survey results will be released on the third Thursday of the month, November 15.
Table 1: Rural Mainstreet Economy One Year Ago and Last Two Months: (index > 50 indicates expansion)
October2014
September2015
October2015
Area economic index 43.4 49.0 44.4
Loan volume 71.7 72.0 71.6Checking deposits 49.1 54.2 51.2
Certificates of deposit and savings instruments 40.4 41.7 40.9Farmland prices 20.2 35.5 31.0Farm equipment sales 15.1 14.2 10.8Home sales 49.0 56.4 58.1Hiring 55.7 54.3 52.4Retail business 44.4 49.0 44.4Confidence index (area economy six months out) 34.6 43.8 42.1
Table 2: The Rural Mainstreet Economy, October 2015Percentage of bankers reporting
Below $100 $100 to $199 $200 to $299 $300 to $399 Over $399
Whatisyourestimateoftheaverageperacrecashrentfornon-irrigatedcropland(notpasture)inyourarea?
9.5% 19.0% 54.8% 16.7% 0%
This is below breakeven This is approximately breakeven This is above
breakeven Unknown
Thecurrentspotpriceforcornis$4.00to$4.15perbushel: 30.0% 53.5% 11.6% 4.9%
Follow Ernie Goss on Twitter: www.twitter.com/erniegossFor historical data and forecasts, visit: www2.creighton.edu/business/economicoutlook
16 COMMUNITY BANKER UPDATE | NOVEMBER 2015
Rep. Peter Cownie to Speak atthe Next LOT Quarterly Meeting
TheCommunityBankersofIowa’sLeadersofTomorrow(LOT)programisholdingtheirQuarterlyMeetingonNovember19attheHiltonGardenInninJohnston.Markyourcalendarstodayandplanonsendingtheup-and-comingleadersinyourbanktothis
educational,networkingevent.
GuestspeakersincludeIowaRepresentativePeterCowniewhowillupdateLOTmembersondevelopmentsonIowa’sCapitolHill,andKrisAusborn,PresidentatIowaTrust&SavingsBankinEmmetsburgwhowilldiscussfraudtheyexperiencedatthebank.
Visitcbiaonline.org/lot-quarterly-meetings.htmlformoredetailsandtoregister.IfyouareinterestedinbecomingaLOTmemberandformoreinformation,contactusat515.453.1495orvisitourwebsiteatcbiaonline.org.
“CBI’s LOT has been very beneficial to me, not only as a banker, but also as an individual. The group has shown me the ins and outs of the banking industry, but also has allowed me to grow as a leader in my bank, community and family. I can honestly tell you this has been oneof the most beneficial groups for me.”
LOT Member Matt MuellerThe State Bank, Spirit Lake
Leaders of Tomorrow
MaxiMize YourPotentialwithCBi’s
leadersoftoMorrow
Visit cbiaonline.org or call 515.453.1495 for information on becoming a member of CBI’s LOT program.
COMMUNITY BANKER UPDATE | NOVEMBER 2015 17
JoinPlanteMoran,Howard&HowardAttorneys,ThePrivateBankandCBIAffiliateMemberInvictusConsultingGroupforaFREEhalf-dayseminarforbankmanagementanddirectors.“How M&A Can Maximize Growth for Community Banks: Essential Strategies and Techniques”willbeheldfrom8:30amto1:30pmonThursday,November19atGlenOaksCountryClubinWestDesMoines.ThisprogramisdesignedforCEOs,CFOs,Directorsandotherc-levelofficers.
Guestspeakersattheconferenceinclude:• Adam Mustafa,Co-FounderofInvictusConsultingGroup,
presenting“Changing Analytics in the Post-Recession M&A Environment”
• Jude Sullivan and Mark Ryerson,PartnersatHoward&HowardAttorneys,speakingon“M&A Legal issues for Buyers and Sellers”
• Kevin Kehoe,ManagingDirectorwithThePrivateBankinChicago,discussing“Holding Company Financing & Credit Parameters”
• Steve Shick, PartnerwithPlanteMoranandKyle Manny,PlanteMoranSeniorManager,plusJude SullivanfromHoward&Howard.TheywillmoderatetheDueDiligenceExpertPanel.
Asbanksnavigatethisunprecedentedeconomicandregulatoryenvironment,CEOsanddirectorsareincreasinglyfacingthe
questionofhowtogrowtheirbankorganically,orwhetheramergeroracquisitioniswarranted.ThiscomplimentaryeducationalconferenceanswerskeyquestionsthatbankersmayhaveaboutM&Aandwhyadealmaymakesenseforbanks,eventhosethathaveneverconsideredM&Abefore.
Visit“M&ASeminar”undertheEventstabonourwebsiteformoreinformationandtoregister.Havemorequestions?Contactpcasaleggio@invictusgrp.com.
LIVE Seminar:How M&A Can Maximize Growth for Community Banks
18 COMMUNITY BANKER UPDATE | NOVEMBER 2015
Stopmeifyou’veheardthisbefore:Communitybankscollectivelyareexposedtorisingrates.TheregulatorshavewarnedusonmultipleoccasionsthattheEconomicValueofEquity(EVE)exposurehasgrown.Riskmodelsportendthatcommunitybanksarereachingforyieldandarethrowingcautionandgoodsensetothewind.
However,itseemswe’venotletthefactsgetinthewayofagoodstory.Year-over-year,the500-pluscommunitybanksthatuseViningSparksfortheirbondaccountingservicehaveseenadramaticdropinaveragedurations,eveninrising-ratescenarios.Andwecan’tattributethedroptoageneraldeclineininterestrates,becausewehavebasicallyruninplaceforayear.I’mnotjustpickingonthelowlyinvestmentportfolio.Asoftheendof2014,communitybankshavemuchlessexposuretorisingratesthanintherecentpast,iftheirownestimatesarecorrect.AgaindrawingontheViningSparkscustomerbase,theaverageEarningsatRisk(EAR)ina+200basispointscenarioisactuallypositive,at+2.14percent,andithasincreasedineachofthelastfivequarters.Anotherimportantriskmeasure,EVE,projectsanimprovementinvalueinthesame+200basispointshockfor72percentofthesebanks,whichisupfromjust30percentayearago.
Hurts to wait…Let’sstickwiththenumbersabitlonger.Ifinfactyourcommunitybankisfairlybalancedfromaninterestrateriskstandpoint,itisprettyhardtobenefitfromastrategyofwaitingonhigherratesbeforeinvesting.ItwouldtakeveryaggressiveactionbytheFed,andalmostaknee-jerkresponsebythebondmarket,forthewait-and-seeapproachtopayoff.
Awaytoquantifythisgambitistosimplycompareinterestearningsonbothoptions.ViningSparks,likemostfull-servicebrokers,canproduceaschedulethatshowsaggregateearningsandbreak-evenyieldsbetweentwooptions,withyou,thebanker,beingincharge.Youcanchoosethebondinwhichyourcommunitybankinvests,andyourprojectionofthefuturepathofFedFunds.
Usingarecentlyissuedbond,Icomparedthecashflowsfromtheseinstruments:
FedFundsyieldsdeterminedbythefuturescontractsinMay2015;andFreddieMacbondof1.30percentbondmaturingJune29,2018,callableonetimeonDec.29,2015.
Theresultsarecompelling.TheFreddieMacbond,per$1millioninvested,earnedmorethan$7,000inadditionalincomeforthethreeyears.Adelayed-startstrategy,stayinginFedFundsforone
yearandthenbuyingatwo-yearbond,wouldhavetobeabletoyield1.79percentinayearjusttobreakeven.Rightnow,theyyieldabout1percentlessthanthat.
…While options are availableStilldon’tlikethisoption?Onewaytoemploydollarstoday,andnotimpactyourcommunitybank’sEARorEVEnegatively,istopurchasetruefloating-ratesecurities.ThetwosecuritiesmostpopularwithcommunitybanksareCollateralizedMortgageObligationfloatersandSmallBusinessAdministration7(a)pools.
CMOsfloateachquarter,usually,andareindexedtomoney-marketyields.Theyhavenoperiodic(i.e.,quarterlyorannual)caps,buttheydohavelifecaps.TheSBAsarebasedonPrimeandhavenocapswhatsoever.BothsecuritieswillenjoyhigheryieldsassoonastheFedstartstoraisethetargetrateofFedFunds.
Today,CMOfloatersyieldabout40basispoints(0.40percent),dependingontheirstructure.Theyarepricedverynear100.00.SBAsyieldanywherefrom75to125basispoints.ThemainriskofSBAsispremiumrisk;thesepoolscanhavepricesthatarewellover110centsonthedollar.EitherofthemshouldoutperformFedFundswhileprovidingmonthlycashflowaswellascollateralforpledging.
Know your risksWhiletheimprovementsinEARandEVEmentionedabovearegoodnews,itmustbenotedthattheywerederivedfromuser(banker)opinions.Iwouldencourageallmembersofyourcommunitybank’sasset-liabilitycommitteetoplaceunderscrutinytheassumptionsforcostoffundsandavailabilityofliquidityinthelong-anticipatedrisingrateenvironment.
Mysummationismultifaceted.Giventhatcommunitybanksappeartohavepreppedtheirbalancesheetsforahigher-rateenvironment,plusthefactthatloandemandislessthanrobustandtheFedreallyisn’texpectingovernightratestobeappreciablyhighersoon,cashmayremainexpensivetohold.
Manyhundredsofcommunitybankshaveadoptedthestrategyofsimpleredeploymentofexcessfundsintoshort-termoptions.Themathfrombothasset-liabilityriskandinterest-incomestandpointsarrivesatthesameconclusion:Youmaybedoingyourcommunitybankmultiplefavorsbydousingtheslowburnfromexcesscash.
Jim Reber ([email protected]) is President and CEO of ICBA Securities, ICBA’s institutional fixed-income broker/dealer for community banks. For more information on CBI Endorsed Member ICBA Securities/Vining Sparks, visit icbasecurities.com.
Written By: Jim ReberPresident & CEOICBA Securities/Vining Sparks
Slow BurnExcess cash continuesto be a drag on profits
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