Community Banker Update - January 2016

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2 COMMUNITY BANKER UPDATE | JANUARY 2016

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Jan. 5 NewUnauthorizedACHRules:ImpactonReturnRates&FeeThresholds

Jan. 7 RecordRetention&DestructionRules:Electronic&Paper

Jan. 12 AvoidingComplianceViolationsinAdvertising

Jan. 13 DebtCollectionSeries:TheEssentialsofCollectionLaw

Jan. 14 CyberSeries:MaximizingCyberSecuritySoundness&MinimizingIncidents

Jan. 20 IRA&HSAUpdate&Review2016

Jan. 21 AdjustableRateMortgage(ARM)RuleChangesEffectiveApril1,2016

Jan. 26 DemystifyingRulesforTRIDTolerances

Jan. 27 CompletingtheCTRLine-by-Line

Jan. 28 DirectorSeries:ManagingReportstotheBoard:Requirements,Timing, DeliveryOptions,Risks&Concerns

JANUARY 2016 WEBINAR LINE-UP

COMMUNITY BANKER UPDATE | JANUARY 2016 3

In This IssueJanuary2016WebinarLineup.....................2

2016CBIPolicyIssues..............................4-6

CBISpeakersBureau....................................7

EffectiveLoanPolicy-Pt. 3.................... 8-10

CBIEducationFoundation..........................11

RuralMainstreetSurvey.......................12-14

SignupforCommunity Banker Update’sDigitalVersion.............................................15

CBIMemberNews................................. 16-17

CallProtection.............................................18

New Year’s Resolutionsfor Community Bankers

It’sthattimeofyearwhenweallfeelcompelledtoadjustourattitudesandbeginanew;believingthatbyrefocusingourresolveandeffortsitwillresultinsignificantlyimprovedoutcomes.Itisinthatlight,thatIproposethe

followingNewYear’sresolutionsforcommunitybankersacrossthestate.Perhapsoneormoremayproveuseful.

IRESOLVEtospendsometimemakingsurethatcompliancehasnotconsumedALLtheoxygeninmybank.Importantareaslikemarketing,customerservice,productmanagement,employeemotivationandrewards,expensecontrolandoperationalimprovementallcananddopaydividendsifmanagedwell.

IRESOLVEtoremindmycommunityofallthebenefitsforthemofhavingacommunitybankservingthembypubliclydemonstratingourcommitmentduringCommunityBankingMonthinApril.Officerscleaningwindshieldsinthedriveup,publiccelebrationsandmeals,visiblecommunitysupporteventsandprogramscanallbeeffectivewithalittleeffortandalsobefunforthebankandcommunity.

IRESOLVEtosupportthroughmembership,PACsupportandactiveadvocacy,CBIandICBAwhoworktirelesslytodefendthecommunitybankmodelonastateandnationalhaveexemptedcommunitybanksfromamyriadofburdensomeregulationslikeFeddividendcuts,redundantprivacynotices,expandedexaminationcycles,restorescutsincropinsuranceprogramsandmanymore.

IRESOLVEtoconsidertheproductsandservicesprovidedbyCBIasalternativestowhatmybankmaybeusing,toincreaseeffectivenessand/orreducecostsformybankevenifachangemayberequiredtodosoknowingthattherearenotonlybenefitsformybank,butalsoformyassociationsabilitytoadvocateonmybehalf.

IRESOLVEtoeducatemystaffonfunctionalareasandprovideappropriatedevelopmentalandnetworkingexperiencestoassureacapabletalentpoolforthefutureofmybank.

IRESOLVEtoimprovemybanksnetworkbyattendingtheCBIAnnualManagementConferenceandConventionJuly13-15inOkobojitorefreshmyspiritandenthusiasmbynetworkingwithcommunitybankersfromacrossthestate,learningfromnationalqualityspeakersanddedicatedbusinesspartnersandbysendingstaffmemberstoavailableCBInetworkingopportunitieslikeLOT,CommunityBankSummitsandtheStateFairConference.

IRESOLVEtoremainoptimisticandenthusiasticthroughout2016andworkhardtomakesurethatmybankisfulfillingitsmissiontosupportandenhanceourcommunities,customersandshareholders.

HappyNewYear!

Community Bankers of Iowa1603 22nd St, Suite 102

West Des Moines, Iowa 50266Phone: [email protected]

Atris Technology

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Mattan Pratt Consulting

Welcome NewCBI Members!The Community Bankers of Iowa

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W A S H I N G T O N P O L I C Y S U M M I T April 24-27, 2016

Hyatt Regency Washington on Capitol Hill, Washington, DC

SAVE DATETHE

your voice matters!

The86thIowaGeneralAssemblywillofficiallybeginonJanuary11,2016.AswenearthestartofanewlegislativesessionitisfittingtoreviewwhatexactlytheCommunityBankersofIowastandsandadvocatesforonTheHill,bothinIowaandWashingtonD.C.

CBIisfocusedonexclusivelyrepresentingIowa’scommunitybanksandbankers.BelowarethecurrentpolicyresolutionsCBIsupportsandadvocatesforonbehalfofIowa’sindependent,communitybanksandbankers.

State Issues1.CBIcontinuestosupportbeneficialandfaircompetitionamonginsureddepositoryinstitutionsthroughactiveenforcementofIowa’slawsrelatingtomulti-bankholdingcompanydepositconcentrationandCBIwillremainactiveinanyongoingdialoguetoensurethatexistinglimitationsremainandenforceabilitycontinues.

2.CBIsupportsparityforIowa-basedfinancialinstitutionswithout-of-stateentities.

3.CBIsupportstherightofindividualstatestoregulatefinancialinstitutionswithintheirborders,regardlessofchartersourceandselection.Asaresult,CBIopposesblanketpreemptionofstatelawsdesignedtoprotectthewelfareofIowa’scitizensbyanyfederalagencyorregulatorandsupportslegislationorregulationsthatdefertostate-establishedminimumstandardsoverfederally-establishedminimumstandardsforIowafinancialinstitutions.

4.CBIsupportslegislationdesignedtoprovideparitytoIowabanksincaseswherefederallycharteredbankshaveprivilegesorpermissibleactivitiesnotallowedtostatecharteredbankstobetter

enableIowacharteredbankstoremaincompetitiveandtherebybetterabletoserveIowaconsumers.

5.CBIsupportsstatepoliciesthatstrengthen,diversify,andpromoteaddingvaluetoIowa’sagriculturalproductionincludingalternativefuelandenergyproduction.

6.ShouldweatherconditionsinIowanegativelyimpacttheagriculturalindustry,CBIsupportsemergencyreliefeffortsatboththeStateandFederallevelthatwillhelpprovidetheindustrywiththeliquiditythatmaypotentiallybeneededforfarmstosurvive,includingprogramsthatmaybeofferedthroughfinancialinstitutionsdesignedforsuchpurpose.

7.CBIsupportspoliciesthatwillresultinbroadinfrastructureinvestmentandlong-termfundingofIowa’sroads,bridges,andrailwayssothatIowa’sproductscancontinuetoreachmarketsandIowa’sgeneraleconomicgrowthinbothruralandurbanareascanbeoptimized.

8.CBIsupportsconformingtheprovisionsoftheIowaBankingCodetotheIowaBusinessCode.

9.CBIsupportslegislationandlocaleffortstoenhancechancesforIowacommunitiestobenefitfromtheruraldevelopmentincentivesprovidedunderTitleVIoftheFarmSecurityandRuralInvestmentActof2002.

10.CBIsupportsamendingtheIowaCodetoclarifythatagriculturalsupplydealerliensonlymayachievepriorityoverpriorperfectedliensonlywiththewrittenconsentofthepriorsecuredcreditor.

What We Stand For:2016 CBI Policy Issues


11.CBIsupportstheparityoftaxationbetweencreditunionsandcommunitybanks.

12.CBIisopposedtoanystateeffortstoexpandcreditunions’fieldofmembershiporpermissibleactivitiesbeyondthoseconsistentwiththetraditionalmissionofcreditunions.

13.CBIisopposedtoadditionalregulatoryorstatutoryburdensorrestrictionsonagencybrokeragebybanksorbankersofinsurance,realestateandsecurities.

14.CBIcontinuestosupportlegislationthatwouldallowtitleinsurancetobesoldprivatelyinIowa.

15.CBIsupportsastatetaxcreditforfeespaidtotheSBAforloanoriginationwithinIowa.

16.CBIsupportsallowingIowa-charteredfinancialinstitutionswithtrustpowers(orthatamendtheircharterstoprovidefortrustpowers)totransfertrustactivitiestoaseparatelyestablishedaffiliateownedbytheirparentholdingcompanyorthefinancialinstitutionitself.

17.CBIencouragestheGovernor,theLegislatureandIowaDepartmentofEconomicAdvancementtodevelopprogramstospecificallyaddresssmallercommunitiesandsmallbusinessdevelopmentalongwithlargertargetindustryprograms.

18.CBIsupportstheabilityofallcardholdersoffinancialinstitutionsinIowatohaveuniversalaccesstoallATMslocatedinIowaashasbeenourlawandpracticesince1972.

19.CBIsupportspursuinglegislationorregulationtoprovidethatanystatutorysuperiorityliengrantedtotheIowaAttorneyGeneral,bywayofReceivershippursuantto249A.44,alsoincludeappropriatedueprocessprotections,adequatenoticetoallimpactedparties,andaprocedureforequitableallocationbyaReceiverofanysuchlienamongallofthepartiesinvolvedintheproceedings.

20.CBIsupportslegislationthatwouldallowtheIowaDepartmentofBankingtoexamineand,whenappropriate,engageinenforcementactionsagainstthirdpartyvendorstobanksthatcouldcreatecyber-riskstothebankoritscustomers.

21.CBIsupportseffortsatthestateleveltoenhanceprosecutorialpowersandenforcementactionsagainstandjurisdictionoverthoseengagedincyber-theftsorhacking.

22.CBIsupportsconsistentstateregulationofvirtualcurrencyactivities,suchasthePolicyandFrameworkdevelopedbytheConferenceofStateBankSupervisors.

23.CBIsupportslegislationtomakeretailersandmerchantsliablefordatabreachandfraudlossesincurredbybanksduetotheactionorinactionoftheretailers/merchants.

24.CBIsupportslegislationgivingtheSuperintendentofBankingauthoritytoissueparityorderstoensurefairandequitabletreatmentofstate-charteredbanksascomparedtootherfinancialinstitutions.

25.CBIencouragestheIowaDivisionofBankingtostreamlineandamendChapter524toreduceunnecessaryregulationsandreviseprovisionswhichareinconsistentwithmoderncorporateauthority.

Federal Issues1.CBIsupportsfederallegislationtofurtherexpandfavorablecommunitybanktaxtreatmentsotheycancompetewithotherfinancialinstitutions(e.g.,creditunions)servingsimilarmarkets.

2.CBIopposesanyfederallegislationthatwouldexpandcreditunions’fieldofmembershiporpermissibleactivitiesbeyondthoseconsistentwiththetraditionalmissionofcreditunions.

3.CBIopposestheburdensomeprovisionsoftheBaselIIIcapitalrulesrelatingtovariousreportingrequirements,whilegenerallysupportingapplicationofportionsofBaselIIIasitrelatestocapitallevelsthatareuniformlyimposedonallbanks.

4.CBIsupportslegislationthatwouldrequire“TooBigtoFail”bankstoholdtangiblecapitalcommensuratewiththeirriskactivitiesandprofile.

5.CBIsupportstheICBA“PlanforProsperity”asasetofprovisionstohelppreservethecommunitybankingmodelandwayoflife.

6.CBIsupportsatrue,bifurcatedregulatorysystemthatdoesnotimposesomeoftheburdensonbankswithassetsover$10billionthatwereaimedataddressingtheirpastpracticesontocommunitybanks.Communitybanksshouldnotbeburdenedwithrulesandstandardsdesignedforthelargerbanksthatmakeitmoredifficultforsmallerbankstoremainprofitable,stayinbusinessandservetheircommunities.

7.CBIcontinuestosupportincreasingthenumberofeligibleshareholdersinordertoqualifyforS-Corporationstatusfrom100toamoreappropriatenumber.

8.CBIsupportsprudenttaxprovisionssuchasCongressionaleffortstoextendcertaintaxcuts.

9.CBIsupportspermanenteliminationoffederalestatetaxesasameansofpreservingfamilyfarmsandbusinesses.

10.CBIopposesneworincreasedfeesortaxesoncommunitybanksincludingincreasesinexaminationfeesandtaxesonbankproductsoranychangesthatwouldincreasetheirtaxliability.

11.CBIsupportscontinuedfederaleffortstoprovidefinancialeducationtoconsumersandstudentsineffortstopromoteinformedconsumerfinancialdecisionsandeffortstoassistcommunitybanksinhelpingconsumersunderstandfinancialproductsanddecisions.

12.CBIopposestheaffiliationofcommercialbanksorbankholdingcompanieswithcommercialfirms,includingusinglimitedpurposechartersoutsidecurrentregulatoryframeworksinordertocreatecompeting,parallelbankingstructures.

13.CBIsupportsincludingtheFarmCreditSystemintheproposedreviewofGSEsFannieMaeandFreddieMac.

14.CBIsupportsregulatoryandtaxreliefthatisbroadbasedinordertogivecommunitybanksbetteropportunitiestofulfilltheirresponsibilitiestotheircommunitiesandcompetefairlywithtax-advantagedentitiesincludingcreditunionsandtheFarmCreditSystem.

15.CBIopposesanyCFPB-imposedregulatoryburdensoncommunitybanksorbeingsubjected,directlyorindirectly,toCFPB’sregulationandenforcementpowersandspecificallyopposesany“missioncreep”onthepartofCFPB.

16.Recognizingtheimportanceofthefarmsector’sprofitability,wesupporteffortstoenhancecropinsuranceproductofferingstoprovideaneffectivefinancialsafetynet.

17.CBIopposesunfaircompetitionfromfederalGSE’sbytheimplementationofstatutorylanguageprovidingthattheobligations

(2016 CBI Policy Issues continued on next page)


(2016 CBI Policy Issues continued from previous page)

ofsuchentitiesarenotbackedbythefullfaithandcreditoftheUnitedStates.

18.CBIsupportstheincreaseinFDICinsurancelimitsbutbelievessuchlimitsshouldbeindexedtokeeppacewithinflation.

19.CBIopposeslegislationthatwouldmakefinancialinstitutionsliableforrepaymentofanyauthorizeddistributionsofgovernmentbenefitsfromdeceasedaccountholder’saccountsuntilsuchtimeasfinancialinstitutionshavereceivedactualnoticeoftheaccountholder’sdeathfromtheaccountholder’sestate.

20.CBIsupportsfairprivacylegislationthatcontainsuniformstandardsforallinsuredinstitutionsandwouldresistanyeffortstorequireadditionaloraddedopt-inorrestrictionsoninformationsharingwithaffiliates.

21.CBIsupportspaymentsystemregulationthatpreservestheabilityofcommunitybankstocompetefairlyinthetraditionalpaymentsystemmechanismsaswellasATM,debit,creditcard,POS,mobile,andotherevolvingelectronicpaymentsystemsandthatrecognizescommunitybanksarenotinapositiontobearresponsibilityforoversightofserviceprovidersbeyondconductingreasonableduediligenceinconnectionwithevaluatingpotentialvendors

22.CBIopposesthesaleofbankcustomerdatatounrelatedthirdpartiesongroundsofbankcustomerconfidentiality,whilesupportingtheabilityofbankstoshareinformationwithcontractedthirdpartiesinthedeliveryofadditionalcustomerservices.

23.CBIsupportsadoptionofregulationstoaddress“TooBigtoFail”institutionsforanumberofreasons,includingtherisksuch

institutionsposetotheFDIC’sinsurancefundandthepotentialassessmentscommunitybankscouldfacetocoverresolutioncostsforsuchinstitutions.

24.CBIsupportstheIndependentCommunityBankersofAmerica’sPriorityResolutions.

25.CBIopposesusingFDICdepositinsurancefundsforanynon-financialinstitutionbailoutsandextendingFDICinsurancecoveragetoanynon-financialinstitutions.

26.CBIencourageslegislationthatwouldprohibitretailersfromdiscriminatingagainstcommunitybanksoranyproductsorservicesofferedbycommunitybanksorsteeringcustomersawayfromthem.

27.CBIsupportsplayingfield-levelinglegislationtoallowinsuredinstitutionstocompetewithnon-insuredinstitutions.

28.CBIsupportsmakingtheNOLfive-yearcarrybackpermanentforallcommunitybanks.

29.CBIsupportstheabilityofcommunitybanks,throughthoughtful,fair,legislationandregulation,toofferavarietyofoverdraftservicesandwillcontinuekeepingtheirconsumersfully-informedperapplicablerequirementsoftheiroverdraftcoverage’sandthecostandbenefitsofsuchcoverage’s.

30.CBIsupportsaddressingregulatoryburdensthroughsharedconsortiumopportunities,suchascomplianceandcoreprocessing,throughjointlyownedservicecorporationsorsubsidiarieswithsharedmanagementfortheiroperationsandoversightofvendorsandcomplianceefforts.

31.CBIsupportsexemptionforcommunitybanksfromanyadditionalOTCderivativesregulation(includingclearingandcapitalrequirements)wheresuchderivativesareusedasatoolforhedgingrisk.

32.CBIsupportsenforcementofaharddepositconcentrationcapthatisnotvulnerabletomanipulation.

33.CBIsupportslegislationandregulationthatestablishesrealisticvaluationmetricsforpurposesofcreditanalysis.

34.CBIsupportsallowingcommunitybanks,throughlegislativeinitiatives,toamortizecommercialrealestateandcommercialrealestateloanlossesovera10-yearperiod.

35.CBIsupportsrepealofportionsofDodd-Frankasappliedtocommunitybanksthatshouldonlybeappliedtolargebanks,whilealsosupportingthecontinuedimplementationoftheActanditsregulatorymandatessolongasregulatorsandlegislatorsarecognizantandsensitivetotheuniquenatureofcommunitybanksandtheburdenandcompetitiveinequitythatresultsfromaddedregulatoryburdens.

CBI’sAdvocacyCenterhasinformationonthelatestcommunitybankingissues,andyoucansendcustomizedletterstoyourlegislators.Visitcbiaonline.org/cbiicba-advocacy-center.html.IfyouhaveanyquestionsaboutCBI’spolicyresolutions,pleasecontactusat515.453.1495.

Partner with us.Our correspondent bankers will get you clear answers and fast decisions. As your partner, we will help you enhance your customer relationships. As your bank grows, we’ll help you meet your needs.

Together,let’s make it happen.

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Commercial and ag participation loans | Bank stock & ownership loans | Bank building financing | Business & personal loans for bankers

Mary V o s s


Needaspeakerforyournexteventorseminar?CBIhasdonetheresearchforyou!TheCBISpeakersBureauGuide,acomprehensivelistofover100expertsoncommunitybankingindustryissues,hasbeencompiledtoassistyouinfindingthatperfectpresenter.Thisvaluableresourcecontainscontactinformationforeachspeaker,presentationtopics,andmore.

The CBI Speakers Bureau Guide is available EXCLUSIVELY to CBI members! Foryourconvenience,theCBISpeakersBureauGuideiscompletelydigitalandfreeofcharge.

Submityourrequestatcbiaonline.org/cbi-speakers-bureau.html.TheGuidewillbeemailedtoyou,inExcelspreadsheetformat(sorry,wecannotprovidetheGuideinanyotherformat).

Getyourcopyofthe2016CBISpeakersBureauGuidetoday!Formoreinformationvisitcbiaonline.org/cbi-speakers-bureau.htmlorcontactJackieHaleyat515.453.1495orjhaley@cbiaonline.org.

Announcing the New CBI Speakers BureauYour Resource to Find Industry Presenters for Your Seminars and Events

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Thisarticletouchesonpost-originationriskmanagementactivitiesandtoolsthatexaminerswillnormallyfindinaneffectivebankloanpolicy:ariskratingsystem;amonitoringframework;managementinformationsystems(MIS)andreporting;internalcontrols,includingaudit,loanreview,andcreditadministration;andaproblemloanworkoutfunction.Althoughmaintaininganappropriateallowanceforloanandleaselosses(ALLL)isalsoakeycomponentofpost-originationriskmanagement,muchguidanceandnumerousarticleshavebeenwrittenonthetopic;therefore,itwillnotbecoveredinthisarticle.1

Asmentionedinthepriorarticlesinthisseries,processesandproceduresthatgovernlendingactivitiesdonotnecessarilyneedtobeincorporatedwithinonesingleloanpolicy;however,abankshouldmaintainacentralrepositorythathousesallrelevantpoliciestopromoteconsistentapplicationbyitsemployees.

Risk Rating SystemAkeyelementofasoundmonitoringframeworkisawell-definedandadequatelydocumentedriskratingsystem.Theimportanceofriskratingswasdiscussedinparttwoofthisseries,notingthatthebankshouldhaveaprocesstoassignaccurateandtimelyriskratingsandtoupdateratingswhenappropriate.Whilethegranularityofriskratingsystemscanvarysignificantlybasedonportfoliosize,composition,andproductcomplexity,managementshouldensurethatriskratingsareaccurateandreliable.Ineffectiveriskratingssystemswillresultinweakportfoliooversight,aninaccurateALLL,andultimately,increasedcreditlosses.

Aneffectiveriskratingsystemshould:•Providethefoundationforcreditriskmeasurement,monitoring,andreporting

•Supportmanagementandboarddecision-making•Besufficientlyflexibletoallowforusewithvarioustypesofcreditexposure

•Provideappropriategranularityofriskratings(includingregulatoryclassificationgrades)thataccuratelyreflecttheriskofdefaultandcreditlosses

•Offermultiplepassgradeoptionsasappropriateforthecomplexityandriskoftheportfoliothatadequatelydifferentiatepassriskratings

•Preciselydefineratingscriteriausingbothobjective(quantitative)andsubjective(qualitative)factors

•Considerboththeborrower’sexpectedperformanceandthetransactionstructure

•Beindependentlyvalidated2

Theloanpolicy,ataminimum,shouldoutlinethesesamefactors.

Monitoring FrameworkTopromoteappropriateriskidentification,measurement,andmonitoring,theloanpolicyshouldclearlyidentifyandestablishproceduresrelatedtotheongoingmanagementoftheloanportfolioandidentifytheappropriatestaffinglevelandskillsetsrequiredforsuchtasks.

Monitoringandreportingontheperformanceandcollateralofloansshouldstartimmediatelyfollowingthedispersalofloanproceeds.Therefore,theindividual,group(s),orcommittee(s)responsibleforongoingmonitoring,controls,andincentivesshouldbewellestablishedtoensureappropriateoversight.Whileabankmaychoosedifferentmanagementapproachesforcreditmonitoring,manybankshavethebusinesslineserveasthefirstlineofdefenseforongoingmonitoringinordertoleveragetheirlendingexpertisetoidentifypotentialissuesandtomaintainastrong,ongoingrelationshipwiththeborrower.Thisapproach,however,isnotarequirement.

Themonitoringframeworkshouldalsoincludeanassessmentofcompliancewiththebank’sunderwritingcriteria.Thisincludestestingloancovenants,bothpositiveandnegative,toevaluatewhethertheborroweriscomplyingwithloancovenantsorisintechnicaldefault,orwhethertherepaymentofprincipalisexpectedorjeopardized.

Management Information Systems and ReportingSoundMISandreportingwillenhancetheefficiencyandeffectivenessoflendingdecisions,ongoingportfoliomonitoring,andoverallcreditmanagement.Theloanpolicyshouldclearlyidentifytheprimarymonitoringreportsnecessarytosupportcreditmanagementandtoestablishthefrequencyforproducingthereports.Reportsshouldbetargetedtotheuserandbasedonthelevelofoversightandgranularityrequiredformanagement,committees,andtheboard.Forexample,managementreportsmaybemoregranular,whileboardreportsmayprovideahigh-levelyetcomprehensiveoverviewoflendingactivityandrisks.

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

EFFECTIVE LOAN POLICY - Pt. 3*Development and Maintenance of an

Reprinted with permission of Community Banking Connections®

Copyright 2015 Federal Reserve System.

Parts 1 & 2 of this article were originally published in theMay 2015 and June 2015 issues of Community Banker Update.

Find them at cbiaonline.org/community-banker-update-archive.html


Allreportingshouldberelevantandadequatelyconveythelevelofdetailrequiredbytheenduser.Reportsshouldbeexpressedinbothdollarandpercentagechangesalongwithvolumeand/ortransactiondetails.Thislevelofdetailwillprovideabalancedreportsothatasinglelarge-dollartransactiondoesnotunnecessarilyskewreportsthathaveasignificantvolumeoflow-dollartransactions.

Thefollowinginformationshouldbereadilyavailableandroutinelyreviewedbymanagement:3•Totalloansandcommitments•Pipelinereports(toidentifyemergingconcentrationsorrisks)•Loansinexcessofexistingcreditlimits•Newextensionsofcredit,creditrenewals,andrestructuredcredits

•Delinquentand/ornonaccrualloans•Creditsadverselygradedorrequiringspecialattention•Creditstoinsidersandtheirrelatedinterests•Creditsnotincompliancewithinternallendingpolicies,laws,orregulations

Fortheboardofdirectorstobefullyeffective,bankmanagementshouldprovidetheboardwithsufficientinformationthatwillenabledirectorstounderstandthekeyrisksintheloanportfolioandassesstheadequacyofriskmanagementpracticesandinternalcontrols.Theboardofdirectorsshouldreceiveboardmeetingmaterialsfarenoughinadvanceofameetingtopromoteactivemeetingparticipation.4

Internal ControlsInternalcontrols,suchasinternalaudit,loanreview,andcreditadministration,arecriticalfunctionsthatplayanimportantroleinmaintainingeffectivemonitoringofthelendingprocess.Theloanpolicyshouldestablishasystemforloanreviewtoconfirmthatcreditpolicies,underwritingprocedures,andinternalratingassignmentsarebeingthoroughlyreviewedbyexperiencedandindependentpersonnel.Asystemforongoingloanreviewsshouldprovidemanagementwithsufficientinformationtoassessadherencetointernalpoliciesandtheabilityofapproverstoaccuratelyriskratecreditexposures.5

Audit Function.Tobeabletoassesswhetherthelendingfunction’sdesignandcontrolsareeffectiveandworkingappropriately,theboardofdirectorsoritsauditcommitteeshouldrequireregularcomprehensiveauditsofthefunction.Theauditplanshouldberisk-focusedandincorporatecoverageofkeylendingareas,includingareasinwhichconcentrationsexist.Auditsalsoshouldincludeadequatetestingofcomplianceofthelendingfunctionwiththebank’spoliciesandprocedures.Additionally,theauditfunctionshouldreviewcompliancewithloandocumentationstandardsandfederalandstatebankinglawsandregulations,aswellastheaccuracyofpast-dueandcharge-offreports.Auditsshouldbeconductedwithappropriatefrequency,andadequateresourcesshouldbeassignedtoperformthereview.Thescopeoftheauditshouldbesuitableforthedesiredcoverage.Theauditfunctioneithercanbehousedinternallyoroutsourced,basedonthesizeandcomplexityofthebank’slendingactivityandoperations.Theboardofdirectorsisultimatelyresponsiblefordeterminingwhethertheauditfunctionisperformedinhouse.

Loan Review Function.Theresponsibilityforunderwritingandstructuringaloanaccordingtopolicyandforconfirmingthata

loanisperformingtoexpectationsrestsprimarilywiththelineofbusinessorthepartyapprovingthecredit.Thelineofbusinessisalsoresponsibleforappropriatelyriskratingthecreditandpromptlyidentifyinganyemergingissuesordeteriorationinthecredit.Anindependentloanreviewfunctionmaybeusedtoprovideadditionaloversightoftheportfolio.Similartotheauditfunction,thisfunctioncanbehousedinternallyoroutsourcedtoaqualifiedandindependentcandidateorfirm;however,aswithalldelegatedfunctions,ultimateresponsibilityforsoundriskmanagementremainswiththebank.6

Loanreviewplaysacriticalfunctionbyprovidinganindependentassessmenttoseniormanagementandtheboardaboutthebank’soveralllevelofcreditrisk,effectivenessofcreditriskmanagement,andidentificationofpotentialrisksthatcouldnegativelyimpacttheportfolio.AnoverviewoftheloanreviewfunctionanditsresponsibilitiesisoutlinedinAttachment1ofSRletter06-17,“InteragencyPolicyStatementontheAllowanceforLoanandLeaseLosses(ALLL).”7Theattachmentdiscussestheelementsforestablishinganeffectiveloanreviewsystem.

Thedutiesandresponsibilitiesoftheloanreviewfunctionshouldbeformallydocumentedwithinthelargerpolicyframework.Theloanreviewpolicyshouldestablishtherequiredlevelofportfoliocoverageandtimeframe(s)withinwhichthereviewsshouldbeconducted.Loanreviewsshouldberisk-focused,andtheportfoliosandindividualloansthatposethegreatestrisktotheorganizationshouldbereviewedonamorefrequentbasis.Theloanreviewscopeshouldbeclearlydefinedyetflexibleenoughtoidentifyanynewemergingrisks.

Credit Administration — Loan Policy Compliance.Ongoingcompliancereviews,alongwithaclearlyarticulatedloanpolicy,imposedisciplineandsoundloanadministration.Pressuresrelatedtoproductivityandcompetitionmayresultinlendersbeinginappropriatelymotivatedtorelaxcreditunderwritingstandardsortoapprovealoanthatisnotfullycompliantwithallaspectsoftheloanpolicy.Whileexceptionstoapolicymaybeappropriate,abankshouldhaveanMISthatproperlyidentifies,justifies,andapprovesallexceptions.

Abank’sloanpolicyshouldestablishclearprocessesforrequesting,approving,anddocumentingpolicyexceptions.Thepolicyshouldalsorequireaggregatereportingofallexceptionstotheboardoraboardcommitteeandshouldincludeauditand/orloanreviewmechanismstoidentifyunreportedexceptions.

Problem Loan WorkoutThemainobjectiveinproblemloanworkoutistoenhanceorpreservethebank’soverallpositionwithrespecttocashflowandcollateral;therefore,earlydetectionofproblemsisthekeytosuccess.Theloanpolicyshouldappropriatelyaddressthemainaspectsofproblemloanworkout,includingpracticesandproceduressurroundingnonaccrualstatus,troubleddebtrestructuring,andforeclosure.Thepolicyshouldalsocoverthegeneraladministrationandreportingprocesseswithintheloanworkoutfunction.

Theworkoutofproblemcreditscanbedonewithinthelineofbusinessor,ifappropriate,mayneedtoberemovedfromthelineofbusinesstoaseparateunitthatfocusessolelyonproblemloanresolution.Therearemultiplebenefitstoretainingtheworkout

(Loan Policy, Pt 3 continued on next page)

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


(Loan Policy, Pt 3 continued from previous page)

functionwithinthelineofbusiness,includingfamiliaritywiththeborrowerandtheglobalborrowingrelationship;however,movingatroubledborroweroutofthebusinessline’soversightmayallowlenderstofocusonnewbusinessdevelopmentandtoworkwithperformingborrowers.Adedicatedworkoutstaffcanalsofocusondeveloping,implementing,andmonitoringtheworkoutstrategy.

Thedecisiontoimplementastandaloneworkoutfunctionmaydependoncriteriasuchasstaffingavailabilityandexpertise,thenumberanddollaramountofproblemcredits,andtheoveralllikelihoodofreducinglossesthroughtheimplementationofaseparateworkoutfunction.

ConclusionOneofthemostsignificantrisksfacingcommunitybankingorganizationstodayiscreditrisk,andmaintainingacurrentandcomprehensiveloanpolicyisoneofthemosteffectivewaystomitigatethatrisk.

Formostcommunitybanks,thecreditriskprofileisdirectlycorrelatedtothequalityoftheloanpolicy.Thepolicyandproceduresshouldbelivingdocumentsthatreflectcurrentandemergingcreditpractices.Managementandtheboardshouldcontinuallymonitorandevaluatetheloanpolicytodeterminethatthebank’slendingactivitiesareconductedinasafeandsoundmannerandarealignedwithitsstrategicobjectives,currentmarketpractices,andeconomicconditions.

Whiletheboardisultimatelyresponsibleforthedevelopmentandannualapprovalofsoundpolicies,manyotherpartieswithinthebankareresponsibleforexecutingtheboard-approvedstrategy.Aneffectivepolicyprovidestheroadmapforallbankstafftoaligntheireffortswiththebank’sstrategicdirection.

Notes*Thisisthethirdandfinalarticleinathree-partseries.Thefirstarticle,“DevelopmentandMaintenanceofanEffectiveLoanPolicy:Part1,”appearedintheThird/FourthQuarter2014issueofCommunity Banking Connections,availableatwww.cbcfrs.org/articles/2014/q3-q4/development-and-maintenance-of-an-effective-loan-policy.Thisarticlecoveredseveraltopicsrelatedtowhatshouldbecontainedinacommunitybankloanpolicy,includingdefiningpermissibleactivitiesandestablishingresponsibilityforconductingabank’slendingactivitiesinasafeandsoundmanner.Thesecondarticle,“DevelopmentandMaintenanceofanEffectiveLoanPolicy:Part2,”waspublishedintheFirstQuarter2015issueofCommunity Banking Connections,availableatwww.cbcfrs.org/articles/2015/q1/development-and-maintenance-of-an-effective-loan-policy.Thisarticleexploredhowlendingactivitiescanbeadministeredandcontrolledthroughappropriateandsoundunderwritingcriteriaandpractices.Inaddition,thisarticleaddresseddocumentationrequirementsandtheongoingmaintenanceofcreditfiles.

1ForadditionalALLLresources,see“AllowanceforLoanandLeaseLosses,”FedLinks,January2013,availableatwww.cbcfrs.org/assets/fedlinks/2013/january2013.pdf,andStephenWheatley,“ReversingtheTrend:AnExaminer’sThoughtsAboutNegativeProvisionsandtheALLL,”Community Banking Connections,FirstQuarter2013,availableatwww.cbcfrs.org/articles/2013/Q1/Reversing-the-Trend.SeealsoBoardofGovernorsoftheFederalReserveSystem,Commercial Bank Examination Manual(CBEM),section2070.1,“AllowanceforLoanandLeaseLosses,”availableatwww.federalreserve.gov/boarddocs/supmanual/cbem/cbem.pdf,andSRletter06-17,“InteragencyPolicyStatementontheAllowanceforLoanandLeaseLosses—Attachment1,LoanReviewSystems,”availableatwww.federalreserve.gov/boarddocs/srletters/2006/SR0617a1.pdf.

2BoardofGovernorsoftheFederalReserveSystem,CBEM,section2040.1,“LoanPortfolioManagement,Credit-GradingSystems.”

3BoardofGovernorsoftheFederalReserveSystem,CBEM,section2040.1,“LoanPortfolioManagement,ManagementInformationSystems.”

4SeeFederalReserveBankofKansasCity,DivisionofSupervisionandRiskManagement,BasicsforBankDirectors,“KnowWheretheBankStands,”availableatwww.bankdirectorsdesktop.org.

5BoardofGovernorsoftheFederalReserveSystem,CBEM,section2040.1,“LoanPortfolioManagement,InternalControls.”

6BoardofGovernorsoftheFederalReserveSystem,CBEM,section2040.1,“LoanPortfolioManagement,CharacteristicsofLoanReviewProgram.”

7SeeSRletter06-17,“InteragencyPolicyStatementontheAllowanceforLoanandLeaseLosses—Attachment1,LoanReviewSystems,”availableatwww.federalreserve.gov/boarddocs/srletters/2006/SR0617a1.pdf.

“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 one of the most beneficial groups for me.”

LOT Member Matt MuellerThe State Bank, Spirit Lake

Visit cbiaonline.org or call 515.453.1495 for informationon becoming a member of CBI’s LOT program.

Leaders of Tomorrow

MaxiMizeYour Potential

with CBi’sleaders of toMorrow


ThepurposeoftheCommunityBankersofIowaEducationFoundationistohelpimprovethefinancialliteracyofIowa’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(Newin

2015)• CommunityBankersofIowaLeadersofTomorrowScholarship

Program• CommunityBankersofIowaRobertD.DixonFoundersAward

Program• CommunityBankersofIowaLeadersofTomorrowUpand

ComingBankerAward• Ongoingeducationalopportunitiesforbankersand

prospectivebankersacrossIowa.

Contributions of any size are accepted and encouraged.Variouslevelsofrecognitionhavebeenestablishedtospotlightthosewhoshowenhancedsupport.AlsoincooperationwiththeCommunityFoundationofGreaterDesMoines,donorswillingtomakeanendowmentcontributioncanrealizea25%Iowastatetaxcreditinadditiontodeductibility.Contactusfordetailsonthisexcitingprogram.

Ifyouwouldlikemoreinformationortomakeatax-deductibledonation,findtheBrochureandDonationFormonourwebsiteatcbiaonline.org/cbi-education-foundation.html,[email protected].

CBI Education FoundationConsider Making an Investment in Iowa’s Future

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.

Contributions of any size areaccepted and encouraged!


December Survey Results at a Glance:• Forafourthstraightmonth,theRuralMainstreetIndexfell

belowgrowthneutral.• Farmequipmentsalesdeclinedtorecordlowlevel.• BankersexpectholidayRuralMainstreetretailsalestoexpand

bylessthanonepercentfromlastyear.• Farmlandpricesdeclinedagain.BankCEOsexpectanother5.9

percentdeclineinfarmlandoverthenextyear.

OMAHA,Neb.–TheCreightonUniversityRuralMainstreetIndexforDecemberfellfromNovember’sweakreading,accordingtothemonthlysurveyofbankCEOsinruralareasofa10-stateregiondependentonagricultureand/orenergy.

Overall:TheRuralMainstreetIndex(RMI),whichrangesbetween0and100,sankto41.5fromNovember’s43.7.

“Thisisthefourthstraightmonththeoverallindexhasdeclined,reflectingweaknessstemmingfromloweragricultureandenergycommoditypricesandfromdownturnsinmanufacturing.Addingtotheeconomicmalaisewasthefreefallinbeefpricesoverthepastmonth,”saidErnieGoss,JackA.MacAllisterChairinRegionalEconomicsatCreightonUniversity’sHeiderCollegeofBusiness.

AccordingtoJimEckert,presidentofAnchorStateBankinAnchor,Illinois,“Decreasesincommoditypricesanduncertaintyfor2016haveresultedinlowerlandpricesandreductionsinmachinerypurchases.However,cashrentsarestayingaboutthesame.”

Farming and Ranching:ThefarmlandandranchlandpriceindexforDecembersankto28.8fromNovember’sweak34.8.“Thisisthe25thstraightmonththeindexhasmovedbelowgrowthneutral.But,asinpreviousmonths,thereisagreatdealofvariationacrosstheregioninthedirectionandmagnitudeoffarmlandpriceswithpricesgrowinginsomeportionsoftheregion,”saidGoss.

Thismonthbankerswereaskedtopredictthechangeinfarmlandpricesintheirareaoverthenextyear.OnaveragebankCEOsexpectfarmlandpricestodropbyanother5.9percentoverthenextyear.Asfarmincomehasdeclinedsohastheshareoffarmlandcashsales.Overthepastyear,thepercentageofcashsalesoffarmlandhasdeclinedbythreepercent.“Iexpectthepercentofcashsalesoffarmlandtodeclineevenmoreinthemonthsahead,”saidGoss.

TheDecemberfarmequipment-salesindexplummetedtoarecordlow8.8from14.2fromNovember.“ThestrengtheningU.S.dollarandglobaleconomicweaknesshavepushedfarmcommodity

pricesdownbyeightpercentoverthepast12months.Theseweakerpriceshavediscouragedfarmersfrombuyingadditionalagricultureequipmentandhavenegativelyaffectedtheagricultureequipmentdealersandmanufacturersintheregion,”saidGoss.

JeffreyGerhart,chairmanofBankofNewmanGrove,NewmanGrove,Nebraska,“Agbankersandtheirfarmcustomersshouldbestresstestingtheir2016cropprojections.Taketheirestimatedprojectionofcropincomeandthenloweritby10,20,30percentormore.”FurthermoreGerhartsaidbankersandtheircustomersneedto“beprepared”fortightermarginsgoingforward.

Banking:TheDecemberloan-volumeindexroseto61.0fromlastmonth’s59.6.Thechecking-depositindexdeclinedto64.7fromNovember’s70.7,whiletheindexforcertificatesofdepositandothersavingsinstrumentsclimbedto46.4from38.9inNovember.

Hiring:Despiteweakercroppricesandpullbacksfrombusinesseswithclosetiestoagricultureandenergy,RuralMainstreetbusinessescontinuetoaddworkerstotheirpayrollsandatafasterpace.Thehiringindexjumpedto54.9from52.1inNovember.“RuralMainstreetbusinessescontinuetohireadditionalworkersasnon-farmandnon-energyrelatedbusinessescontinuetoexpand,”saidGoss.

Confidence:Theconfidenceindex,whichreflectsexpectationsfortheeconomysixmonthsout,increasedto39.8from38.9inNovember,indicatingapessimisticoutlookamongbankers.“Therecentfreefallinbeeffuturespricescombinedwithalreadyanemicagriculturecroppricespushedbankers’economicoutlookintothisweakzone,”saidGoss.

Home and Retail Sales:TheDecemberhome-salesindexslippedto55.0from56.5inNovember.TheDecemberretail-salesindexclimbedto51.2from43.7lastmonth.“HomesalesonRuralMainstreethavebeenveryhealthyoverthelastseveralmonths.Ontheotherhand,Creighton’smonthlysurveyhasyettomeasureanysignificantupturninretailsalesresultingfromthedownturninfuelprices,”saidGoss.

BankCEOsexpectlacklusterholidaysalesgrowthfromthe2014season.Onaverage,aonepercentincreaseinretailsalesforRuralMainstreetbusinessesisexpected.

Thestrongdollar,especiallyagainsttheCanadiandollar,isdepressingretailsalesamongborderstates.Forexample,JohnMarchell,presidentoftheFirstStateBankGrandForks,NorthDakota,said,“ThedecreaseinthenumberofCanadianretail

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 Fourth Straight Month:Record Low Agriculture Equipment Sales

Ernie Goss


customersisnoticeable.”Eachmonth,communitybankpresidentsandCEOsinnonurbanagriculturallyandenergy-dependentportionsofa10-stateareaaresurveyedregardingcurrenteconomicconditionsintheircommunitiesandtheirprojectedeconomicoutlookssixmonthsdowntheroad.BankersfromColorado,Illinois,Iowa,Kansas,Minnesota,Missouri,Nebraska,NorthDakota,SouthDakotaandWyomingareincluded.ThesurveyissupportedbyagrantfromSecurityStateBankinAnsley,Neb.

Thissurveyrepresentsanearlysnapshotoftheeconomyofruralagriculturallyandenergy-dependentportionsofthenation.TheRuralMainstreetIndex(RMI)isauniqueindexcovering10regionalstates,focusingonapproximately200ruralcommunitieswithanaveragepopulationof1,300.Itgivesthemostcurrentreal-timeanalysisoftheruraleconomy.GossandBillMcQuillan,formerchairmanoftheIndependentCommunityBanksofAmerica,createdthemonthlyeconomicsurveyin2005.

Colorado:Thestate’sRuralMainstreetIndex(RMI)increasedto46.3from43.4inNovember.Thefarmlandandranchlandprice

indeximprovedslightlytoafrail20.9fromNovember’s19.7.Colorado’shiringindexforDecemberroseto51.1fromNovember’s47.2.

Illinois:TheDecemberRMIforIllinoisdeclinedto39.8from43.2inNovember.Thefarmland-priceindexfellto24.8fromNovember’s28.6.Thestate’snew-hiringindexexpandedto52.6fromlastmonth’s50.8.

Iowa:TheDecemberRMIforIowasankto40.8fromNovember’s44.3.Iowa’sfarmland-priceindexforDecemberincreasedto32.1fromNovember’s28.6.Iowa’snew-hiringindexforDecemberadvancedto55.2from50.9inNovember.

Kansas:TheKansasRMIforDecembersankto39.2fromNovember’s43.9.Thestate’sfarmland-priceindexforDecemberfellto24.7fromNovember’s28.8.Thenew-hiringindexforKansasclimbedto52.2from50.9inNovember.

Minnesota:TheDecemberRMIforMinnesotaslumpedto37.0

(Rural Mainstreet continued on next page)

Tables 1 & 2 summarize survey findingsNext month’s survey results will be released on the third Thursday of the month, Jan. 21.

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

Dec. 2014 Nov. 2015 Dec. 2015Area economic index 50.0 43.7 41.5

Loan volume 76.7 59.6 61.0Checking deposits 62.1 70.7 64.7

Certificates of deposit and savings instruments 44.0 51.1 46.4Farmland prices 38.6 34.8 28.8Farm equipment sales 23.7 14.2 8.8Home sales 51.7 56.5 55.0Hiring 55.2 52.1 54.9Retail business 55.3 43.7 51.2Confidence index (area economy six months out) 42.5 38.9 39.8

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

Less than 5% 5% to 9% 10% to 19% 20% to 32% Greater than 32%

Whatpercentoffarmlandpurchasesinyourareadoyouestimatearecashsales(notfinanced)? 12.1% 12.4% 39.0% 17.1% 19.4%

Decrease more than 12%

Decrease6% to 12%

Decrease1% to 5% No Change More than 1%

Overthenextyear,whatchangeinfarmlandpricesdoyouexpectinyourarea? 15% 35% 32.5% 12.5% 5.0%

Down4% to 10%

Down1% to 3% No change Up 1% to 4% Up more than

5%Forretailersinyourarea,whatisyourexpectedincrease/decreaseinsalesfromthe2015holidaybuyingseason?Holidaysalescomparedtolastyearwillbe:

7.5% 20.0% 22.5% 37.5% 12.5%

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


(Rural Mainstreet continued from previous page)

fromNovember’s43.3.Minnesota’sfarmland-priceindexslumpedto17.8from28.5inNovember.Thenew-hiringindexforthestateslippedto50.0fromlastmonth’s50.8.“Recordyieldsinourarea.Cashflowsbetterthanprojectedwiththewarmestwinterwehaveeverhad,”saidPeteHaddeland,CEOoftheFirstnationalBankinMahnomen.

Missouri:TheDecemberRMIforMissouridippedto38.6from39.4inNovember.Thefarmland-priceindexplummetedto22.6fromNovember’s30.9.Missouri’snew-hiringindexexpandedslightlyto51.8fromNovember’s51.7.

Nebraska:TheNebraskaRMIforDecemberslumpedto36.3from40.1inNovember.Thestate’sfarmland-priceindexfellto12.3fromNovember’s20.8.Nebraska’snew-hiringindexincreasedto48.0from47.7inNovember.

North Dakota:TheNorthDakotaRMIforDecemberdecreasedtoaregionallowof29.8fromNovember’s31.3,alsoaregionallow.Thefarmland-priceindexsankto20.0from37.0inNovember.NorthDakota’snew-hiringindexdeclinedto30.0fromNovember’s31.0.

South Dakota:TheDecemberRMIforSouthDakotafellto44.3from46.9inNovember.Thefarmland-priceindexsankto45.3from49.2inNovember.SouthDakota’snew-hiringindexexpandedtoahealthy60.0fromNovember’s59.0.

Wyoming:TheDecemberRMIforWyomingincreasedto43.6fromNovember’s42.3.TheDecemberfarmlandandranchland-priceindexclimbedto32.0from30.2inNovember.Wyoming’snew-hiringindexroseto55.2fromNovember’s51.4.© Copyright Employers Mutual Casualty Company 2014. All rights reserved.

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S A V E T H E D A T ECommunity Bankers of Iowa’s

45th ManagementConference &AnnualConvention

Navigatingthe Future

July 13-15, 2016Okoboji, IA

GetasneakpreviewofCommunity Banker Update!ChangeyoursubscriptionpreferencetoelectronicmagazineformatandseethelatesteditionBEFOREtheprintedition!

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SavemoneyANDsupportyourassociation!Providingbestofbreedservices,productsandinsurancetomemberbankshasbeenthemissionofCommunityBankersServicesandInsurance(CBSI)since1984.CBSIprovidesexclusiveCBI-memberpricingonarangeofproductsandservicesandthebenefitsofjointpurchasingpower,whileatthesametimebenefitingtheassociation.

CBSIhasdonetheresearchforyou!Endorsedserviceprovidersundergoarigorousduediligenceprocessandareultimatelychosenbyapanelofcommunitybankers.Criticalduediligenceisalwaysperformedwhenlaunchingnewservices.Thereviewprocessforeachprogramisintendedtoensurethatnoserviceprogramisundertakenunlessitwillprovetobebeneficialforthemembership.

CBSIanditspartnerscontinuetoworktogethertoenhancememberproductsandservices.TheCBSIBoardofDirectorsmeetsquarterlytoreviewendorsedvendorsandconsidernewpartnerships,oftensuggestedbymembers.Yourbankandyourassociationwillbenefitwhenyouhaveachoiceofthebestproviders.

So...isYOURbankreapingthebenefitsofCommunityBankersofIowaServicesandInsuranceproductsandservices?

NEW HIRE: Bankers’ Bank Welcomes New President/CEO

During2015,Bankers’BankconductedextensiveresearchandinterviewstofindanewPresident/CEO.WearepleasedtoannouncethatBradleeF.StamperwillbecomethePresident/CEOofBankers’BankandBankers’BancorporationasofDecember7,2015.

BradisagraduateofMariettaCollege,Marietta,Ohio.Hebringswithhimover33yearsofexperienceinbanking,bothatcommunityandregionalbanklevelsandinsuchareasascommercial,retail,consumerandmortgagelending,finance,marketing,riskmanagement,salesandstrategicplanning.

OnDecember7,EdieTholo,whoservedasPresidentandCEOintheinterim,willresumetheroleofExecutiveVicePresident.

Bankers’Bancorporation,Inc.istheparentcompanyofBankers’Bank,abank-ownedcorrespondentbasedinMadison,Wis.,since1981.Bankers’Bankservescommunity-mindedfinancialinstitutionsofallsizesacrosstheMidwestthroughsupportofficesintheSpringfield,Ill.,DesMoines,andIndianapolisareas.Wedonotservethegeneralpublic;therefore,wenevercompetewithourclientsforbusiness.MoreinformationonCBIAssociateMemberBankers’BankisavailableatBankersBankUSA.com.

NewsfromCBIServices&InsuranceMembers

Brad Stamper, Bankers’ Bank’s new CEO.

CBI Member Benefits: Did You Know About Community Bankers Services & Insurance (CBSI)?

NEW HIRE: Voss Hired at Bell State Bank & Trust

MaryVosshasacceptedapositionasvicepresident/correspondentbankingbusinessdevelopmentofficeratBellSateBank&TrustwithheadquartersinFargo,N.D.ShewillresideandworkinIowawhereshewillbebuildingrelationshipswithcommunitybanks.HerbankingnetworkwillalsoextendintotheNebraskaandIllinoismarkets.Shebrings23years’bankingexperiencetoBellStateBank&Trust.

MaryisagraduateofBellevueUniversityinBellevue,Neb.andGraduateSchoolofBankinginMadison,Wis.ShehasservedonnumerousEconomicDevelopmentCommittees,ChamberofCommerceBoards,CommunityBankingCommitteesandiscurrentlyamemberofthePleasantHillCaresCommittee.ShehastwochildrenandresidesinPleasantHill,IowawithherhusbandTerry.

Foundedin1966,BellSateBank&TrustisthelargestindependentlyownedbankinNorthDakota,SouthDakotaandMinnesotawith20bankinglocationsandmorethan$3.5billioninassets.FormoreinformationonCBIAssociateMemberBellStateBank&Trust,visitwww.bellbanks.com.

Mary Voss, Bell State Bank & Trust’s new VP/Correspondent Banking Business Development Officer.

See full lists of CBSI providers at cbiaonline.org/services--insurance.html

Join the growing list of Endorsed Partnersof Community Bankers of Iowa!

For more details on the endorsement process, please contact Jackie Haley, Membership

Services Director at 515.453.1495or [email protected].

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

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

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

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Scholarship Encourages Students to Understand Student Loan Debt

AsrisingcollegecostsandtheaccompanyingstudentloandebtcontinuestobeaconcernforIowa

families,moreeffortsareunderwaytoeducatecollege-boundhighschoolstudentsonhowtoreducetheirdebt.Manyyoungadults,however,finditdifficulttobelievethattheywillbeunabletorepaystudentloandebtoncetheyleavecollege.

ThissituationaffectsthestudentsandfamiliesinyourcommunityandacrossIowa.Onestudentloancompanyprovidestwouniqueandinteractiveonlinetoolsforfree—andofferscollegescholarshipstostudentswhousethem—aspartoftheIowaFinancialKnow-HowChallenge:SeniorScholarship.ThescholarshipisopentoanyIowahighschoolseniorwhoplanstoattendcollegeinfall2016.

IowaStudentLoanisproviding30collegescholarshipsof$2,000eachtoIowahighschoolseniorswhocompleteStudentLoanGamePlanandROCIRealityCheckaspartoftheIowaFinancialKnow-HowChallenge:SeniorScholarship.Asacommunitybanker,youmayrequestfreematerialstopromotethisscholarshipandthefinancialliteracytoolsitencompassestoyourcustomers.

About the ScholarshipTheIowaFinancialKnow-HowChallenge:SeniorScholarshipisdesignedtobringawarenessofpotentialstudentloandebtandtheproblemsofover-borrowingforcollegetohighschoolstudents.Toqualify,interestedhighschoolseniorsregisteronlineatwww.IowaStudentLoan.org/SeniorScholarshipandthenreceiveinstructionsforcompletingthreeonlineelements:

1. StudentLoanGamePlanprovidesinformationontherecommendedmaximumborrowinglevelbasedonexpectedstartingsalariesforspecificcollegemajors.Featuresincludevideostellingrealborrowers’storiesaboutproblemsresultingfromtoomuchcollegedebt,interactivescenariosforreducingborrowingandincreasingearnings,andasamplepost-collegemonthlybudgetthatincludesestimatedstudentloan

payments.Thetoolwasrecentlycompletelyredesigned.2. ROCIRealityCheckexploresjobsheldandsalariesearnedby

actualgraduatesofspecificcollegemajorsandinformationonhowtoprepareforacareertomaximizeearningstogetthehighestreturnoncollegeinvestment,orROCI.

3. AmultiplechoiceassessmentrelatedtoStudentLoanGamePlanandROCIRealityCheck.

Thestudentswiththetop30scoresontheassessmentwilleachbeawardeda$2,000scholarshipforcollegeexpensesinfall2016.Ifatiebreakerisnecessary,tiedstudentswillbeaskedtowriteandbejudgedonashortessay.

Eachrecipient’shighschoolwillalsoreceiveacorrespondingawardof$500.

Inaddition,totheimportantcollegeandstudentloaninformationconveyedinthetwoonlinetools,eachregisteredstudentreceivesaseriesofemailedtipsoncollegeplanningandfinancialliteracy.

Studentsmustregisterandcompleteallthreeonlinestepsby4p.m.(Centraltime)March4,2016.

Free Promotional Materials AvailableTohelpyoupromotethisscholarshipandthefinancialliteracytoolsthatcomewithitpromotionalinformationisavailableforfreeatwww.IowaStudentLoan.org/Promote.Onlinematerialsincludesamplepostssuitableforwebsitesandsocialmedia,anewsletterorblogarticleandprintableposters.

IowaStudentLoanwillalsoprovidewebsitebannerads,printedpostersandfliersuponrequestandatnocharge.(Quantitiesforfreeprintedmaterialsmaybelimited.)

FormoreinformationabouttheIowaFinancialKnow-HowChallenge:SeniorScholarshiportorequestmaterials,[email protected](800)508-1660tollfree.FormoreinformationonCBIAffiliateMemberIowaStudentLoanvisitwww.iowastudentloan.org.


Itcanbedifficulttodiscernwhatsecuritiesareofvaluethesedays.Eventhoughweseemontheprecipiceofratehikes,short-termyields(inparticular)remainmiredincyclicallows.Thetwo-yearTreasuryyield,forexample,hasn’tbeenover1percentinoverfiveyears.Thefive-yearnotehasn’tseen2percentforoverfouryears.Wherecananinvestorgoforvalue?

EyeoftheBeholderIntimeslikethese,it’snecessarytotalkaboutrelativevalue.Maybebeforeourcareersareoverwe’llbeabletobuybondsat7percentyields,withmaturitiesandcreditqualitiesthatareacceptable,butalotofunusualcircumstanceswillhavetooccurinconcertbeforethathappens.

Onevariablethatiscertaintochangeifratesriseisthecostofcarryforcommunitybanks.Atlastlook,the300+institutionsthatuseViningSparksRiskManagerforitsinterest-rateriskmanagementreportanall-incostoffundsof39basispoints.Whatthismeansisthatsomerelativelypaltryyieldsonassetscanactuallycreatesomerespectablenetmargins.

Anotherwaytoquantifyvalueistostudythespreadhistoryoncertainpopularcommunitybankinvestments.Onesectorthatislargeandliquidisfederalagencybonds.ThesearedebtinstrumentsissuedbyyourfavoriteGovernment-SponsoredEnterprise(GSE),e.g.,FannieMae,FreddieMacandtheFederalHomeLoanBank.Theycompriseabout15percentofatypicalinvestmentportfolio,andtheyarewidelyseenasfungible,whichmakesspreadanalysisverystraightforward.

WhySoNarrow?Today,acommunitybankcanpurchaseafive-yearagencybondthatisnon-callableataspreadofabout12basispoints(0.12percent)overacomparableTreasury.Ifyou,asaninformedinvestor,arewillingtobuyacallablebond,whichcanberefundedtoyouasearlyas90daysfromnowiftheagency/issuersochooses,youcaneekoutanother10basispointsontopofthat.

Thatadditional0.10percenttotakeoncallriskformostofthelifeofthebondisminiscule.Justayearago,theincrementalyieldwasmorethantwicethat.Therehavebeentimesinthelastfiveyearsinwhichincrementalspreadswereover40basispoints.Wecanthereforestatethatcallableshaveoutperformedbulletslately.

Thequestionis,why?Theanswerislogical,andtwofold.Supply/demandhashelpedtomakespreadscollapse.Therearefewertruecallableagencies,astheGSEshavecollectivelybeenshrinkingtheirbalancesheetspursuanttocongressionalmandate.Atthesametime,investorshavebeenmorewillingtotakeoncallriskattheadventofarate-hikecycle,theorizingthat

ifnothinggetscalled,theyatleasthavemoreyieldthanabullet,regardlessofhowpuny.

SpreadsasRatesRiseIhastentoremindcommunitybankinvestmentmanagerswhattypicallyhappenstoyieldsasratesrise:Spreadstighten.Yes,tighten.Thereasonisrelatedtothefundamentalsoflending.Ifgeneralinterestratesarerising,itisinresponsetoanexpanding,andprobablyinflationary,economy.

Astheeconomyimproves,thechancesofborrowersmeetingtheirobligationstolendersalsoimprove.Asthecreditquality,infactorpresumed,increases,alenderwillacceptasmallerrelativereturn.Thisplaysoutintheyieldsandspreadsinyourcommunitybank’sowninvestmentsandloanportfolioeveryday.

However,asIwritefromatroughintheratecycle,andalsoanadirinthehistoryofspreads,somethingisgoingtogive.Iwouldsuggestthatspreadswillremainverytight,giventherestrictiononsuppliesforthenearfuture.Whatthismeansfromarelativevaluepropositionisthatbulletagenciesareinexpensive,andshouldbecarefullyconsideredwhenbuyingthissector.If,andwhen,wideningoccurs,bulletscanbeverygoodswapcandidatesforlayeringinadditionalcallabledebt.

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.

Track RecordVining Sparks, ICBA Securities’ exclusive broker,

publishes an Agency Market Update each Monday which displays relative value tables. To access this research

report, visit cbiaonline.org and click this banner:

Call Protection,at Rock-Bottom PricesSpreads for CallablesReach Cyclical Lows

Written By: Jim ReberPresident & CEOICBA Securities/Vining Sparks

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Documents

Community Banker Update - January 2016