1 anna alvarez boyd deputy comptroller for community affairs introduction
TRANSCRIPT
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Anna Alvarez Boyd
Deputy Comptroller for Community Affairs
Introduction
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Julie Cripe
President and COO
Omnibank, N.A.
Creating Loan Opportunities
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Why Use Government Guaranteed Loans?
Increase Loans To Deposits Enhance Income Control Liquidity Increase Lending Limit Mitigate Risks
– Credit– Interest Rate
Encourage Economic Development Activities
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Increase Loans
Train Loan Officers To Look For Opportunities Including:
Volunteer Services Housing New Businesses Expansion Of Businesses Investment Properties Non-profit Organizations
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Increase Loans
Educate Loan Officers & Community
- Programs Available USDA B&I USDA Community Facilities Loan SBA 7(a) SBA 504 Various State And Local Programs
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Livengood FeedsLockhart, TX Pop. 10,000
We Purchased Failed Bank In 1991 Low Loan Demand Major Businesses Banking In Nearby Austin
– Other Bank Focused On Consumer Lending Livengood Had Loc Secured By R/E
– Major Bank In Austin– Created Problem Due To Seasonality– We Converted To Long-term B&I Loan
Significantly Improved Cash Flow Properly Matched Assets To Liabilities
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Enhance Income
Traditionally Command Higher Rates– P + 2.5 Floating, 1 Point– Fee For Packaging
Saleable In Secondary Market– Farmer Mac– Traditional Purchasers Of SBA Loans Now
Buying B&I
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Specific Examples
In 2001, Sold 1 B&I Loan For 7% Premium Utilized Various Sales In 2002 To Enhance Fee
Income– Fees From Sales Go Immediately Into
Income
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Control Liquidity
Excess Liquidity– Hold Loans In Portfolio– Ability To Make Larger Loans And Hold In
Portfolio
Need Funding Source– Sell Loans In Secondary Market
Guaranteed PortionUnguaranteed Portion
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Increase Lending Limit
Government Guaranteed Portion Does Not Count In Legal Lending Limit– Allows Banks To Make Larger Loans– May Increase Loans To Known Customers
Builds Stronger Community Relationships
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Livengood Feeds
1991 Our Lll Was Approximately $300,000; Their Credit Need Was $500,000
New To Community– Outsiders (From The Big City)– Larger Businesses Had Established
Relationships In Austin
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Infisy And Hilltop Inn
Both Long Term Customers Of Bank Both At Bank’s Lending Limit With Other Loans Utilized B&I On Loans For Each To Construct
Buildings– First in Rapid Expansion– Latter Expanding Out of Territory
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Mitigate Risks
Credit Risk– New Businesses Carry More Credit Risk,
But Important For Economic Development– More Difficult To Grow And Start
Businesses In Rural AreasSkilled LaborPotential Customer Pools
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Snyder Brick
Restart Of 50 Yr Family Business Utilization Of Natural Resources Chief Industry In This Town Economic Downturn Slowed Building Reduced Exposure Allowed Us To Work With
Them Found Buyer
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Mitigate Risk
Interest RATE RISK– Generally Floating Rates Quarterly– Higher Spread Over Prime– R/E Generally Carries A Point– Generate Fees– Can Sell At Any Time
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Encourage Economic Development Activities
Can Inspire Community To Bring In Businesses When Confident Of Bank Support
Different Program Loans Are Combinable To Create More Opportunities
Gives Banks Courage To Explore Working With Some Non-profits
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Globitech, Inc.
Brought New Business To Small Community That Had Lost 900 Jobs In 2001
Encouraged Support Of Local EDC And Taxing Authorities
Multiple Combination Of Programs Will Move New Jobs From 60 To 150 In Next 12 Months
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Kitchen Pride Mushrooms
Gonzales, Texas Pop. <20,000 Three Banks, None Would Consider Omnibank Used USDA B&I Loan Program For
Original Plan Followed In 3 Years With A SBA-504 Loan To
Double Plant Profitable And Expanded Again Out Of Cash
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Combining Programs
Utilize USDA B&I For Capital Improvements/acquisition
Split Out Working Capital Needs, Utilizing SBA Equipment, Use USDA or SBA,combined With Local
Government Programs
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Where Do I Start?
USDA SBA State or Local Economic Development Councils Field Offices Of USDA and SBA Provide Bank
Training On Site NAGGL – Examples And Training
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FAQ’S
Isn’t There A Lot Of Paperwork?– Information Required Is Identical To What
We Gather For Any Business Loan– Fill In The Blanks, Websites Offer
Downloadable Forms– Smaller Loans ($150,000 Or Less) Can Be
Done With SBA Low-doc Or SBA Express
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FAQ’s Continued
Does It Take 6 Months For Approval?– If All Information Is Provided, Loans Can Be
Approved Through Local Field Offices If Less Than $5,000,000 In A Few Weeks
– USDA Loans On R/E Require Their Own Environmental Assessment Which Can Take 30 Days
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Summary
Utilizing Government Guaranteed Loans Helps Banks Increase Loans And Income While Mitigating Credit And Interest Risk
Builds Community Goodwill And Helps Fulfill CRA Requirements
Enhances Government Relations Activities
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William S. Glover
Assistant Deputy Comptroller
Rural Economic Development
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Safety and Soundness Benefits
Assessment of bank management Risk mitigation tool for management Improved Credit Quality Better asset quality/CAMELS ratings Better financial performance and flexibility Benefits to your compliance program Enhancing your reputation in your community
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Use of Government Guarantee Programs
U.S. Department of Agriculture –
Farm Service Agency (FSA) U.S. Department of Agriculture –
Business and Industry Loan Program (B&I) SBA 7(a) Loan Guarantee Program SBA 504 Certified Development Company
(CDC) Loan Program
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Use of Government ProgramsTo Improve Credit Quality
Improve the quality of your residential real estate loan portfolios
Guarantees can provide a boost to your marketing effort in trying to attract new loan demand
Federal Home Loan Bank – Affordable Housing Program (AHP)
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Better Performance and Flexibility
Improve earnings performance through increased interest income and lower loan losses
Guaranteed portions can be sold Improve liquidity position
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Compliance Benefits
Community Reinvestment Act Guaranteed portion of the loan is not subject to
legal lending limit Retain larger loans and increase net interest
income Guaranteed portion does not count against loan-
to-value ratio when determining adequate collateral for a loan under appraisal regs.
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Enhance Bank Reputation
Enhance reputation of management and the bank in community and with regulators
Community view bank as having deep concern for the community’s economic health
Effort to retain younger people on farms, ranches and businesses viewed as positive
Assisting first time homebuyers provides expanded market for local real estate properties
Providing financing for local businesses can create jobs
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Effectiveness of Management
These positive things are not lost on examiners as they analyze the effectiveness of bank management
Primary function of management is to control risk These programs will mitigate short-term risk and
provide for long-term profitability Participation in these programs indicates
willingness of management to seek innovative solutions for their institutions
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Where to Find Information
Resource Contact List provided with this seminar Obtain staff training from the organizations
included on the list and other Internet web sites Contact the OCC’s District Community Affairs
Officers for their assistance
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Karen Tucker
National Bank Examiner/
Senior Compliance Specialist
Rural Economic Development
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CRA
Rural Economic Development Needs:– Job training– Child Care– Access to credit– Affordable housing– Financial literacy– Technical support
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CRA
Small Bank– Lending
What do you primarily purchase and originate?– Typical - home mortgage loans, business
loans, – or farm loans– Sometimes - consumer loans
Community development loans – optional– Always a neutral or positive impact
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CRA
Large Bank– Lending – required to review:
Home mortgage Small Business Small Farm Community Development Consumer is optional
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CRA
Small and Large Bank Lending:– Number and amount of loans– Borrower Distribution
Especially to low- or moderate-income individuals
Especially to small businesses/farms
– Geographic Distribution Especially in low- or moderate-income areas
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CRA
Special Loan Programs– Small business loans are small loans to
businesses in the amount of
$1 million or less. SBA 7(a) 504- Certified Development Company Export-Import USDA Business and Industry
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CRA
Special Loan Programs– Small farm loans are small loans to farms in
the amount of $500 thousand or less.
– A small business or small farm has gross annual revenues of $1 million or less.
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CRA
Community Development Loans– Affordable housing (including multifamily housing) for low- or
moderate-income individuals;– Community services targeted to low- or moderate-income
individuals;– Activities that promote economic development by financing
businesses or farms that meet the size eligibility standards of the Small Business Administration’s Development Company or Small Business Investment Company programs or have gross annual revenues of $1 million or less; or
– Activities that revitalize or stabilize low- or moderate-income geographies.
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CRA
Business loan or community development loan?– A business loan that is over $1 million and meets
the purpose of community development = CD 504-CDC loan if over $1 million generally meets CD
purpose
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CRA
– A business loan that is $1 million or less and meets the purpose of community development = small business loan
Banks can use the Other Loan Data option to provide data on these types of loans and examiners will consider the qualitative impact of them.
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CRA
Community Development Loans– Revitalize or stabilize a low- or moderate-
income area: Retain a significant number of jobs to low- or
moderate-income individuals Retain businesses and residents in the low- or
moderate-income area
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CRA
– Community development also includes activities that promote economic development by financing small businesses/farms. To meet this definition, activities must meet both a size test and a purpose test.
Size: finance entities that either meet the size eligibility standards of SBDC, or SBIC, or have gross annual revenues of $1 million or less.
Purpose: must promote economic development
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CRA
Promote economic development:– Supports permanent job creation, retention,
and/or improvement for: Persons who are currently LMI, or In LMI geographies, or In areas targeted for redevelopment by Federal ,
state, local or tribal governments.
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CRA
– The agencies presume that any loan to or investment in these promotes economic development:
Small Business Investment Company Small Business Development Company New Markets Venture Capital Company
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CRA
– Economic Development doesn’t have to be in low- or moderate-income area
Unsecured line of credit to a nonprofit organization that makes loans to small farms or small businesses
Affordable housing 504-CDC loans
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CRA
– Other types of community development lending or investment that doesn’t have to take place in a low- or moderate-income area:
Multi-family affordable housing Providing community services (such as child care, educational,
health, or social services) to low- or moderate-income individuals
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CRA
Selling portions of loans– Report the origination amount– Doesn’t affect designation as a CD loan
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CRA
Participations Purchased– Use the lead loan amount to determine the
original amount of a participation purchased
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CRA
Consortium Loans– Must meet the definition of CD loans– Must report the CD loan data– No double-counting– Claim only your percentage– Considered under CD lending
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Questions