# Presentation: 400542

## Introduction

- Anna Alvarez Boyd
*Deputy Comptroller for Community Affairs*

## Julie Cripe
President and COO
Omnibank, N.A. 
Creating Loan Opportunities

*President and COO*
- Omnibank, N.A.
- Creating Loan Opportunities

## Increase Loans To Deposits
Enhance Income
Control Liquidity
Increase Lending Limit 
Mitigate Risks
Credit
Interest Rate
Encourage Economic Development Activities

- Increase Loans To Deposits
- Enhance Income
- Control Liquidity
- Increase Lending Limit
- Mitigate Risks
- Credit
- Interest Rate
- Encourage Economic Development Activities

##    Train Loan Officers To Look For Opportunities Including: 
Volunteer Services
Housing
New Businesses
Expansion Of Businesses
Investment Properties
Non-profit Organizations

-    Train Loan Officers To Look For Opportunities Including:
- Volunteer Services
- Housing
- New Businesses
- Expansion Of Businesses
- Investment Properties
- Non-profit Organizations

## Educate Loan Officers & Community
- Programs Available
USDA B&I
USDA Community Facilities Loan
SBA 7(a)
SBA 504
Various State And Local Programs

- Educate Loan Officers & Community
- - Programs Available
- USDA B&I
- USDA Community Facilities Loan
- SBA 7(a)
- SBA 504
- Various State And Local Programs

## 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

- 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

## 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

- 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

## 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

- 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

## Excess Liquidity
Hold Loans In Portfolio
Ability To Make Larger Loans And Hold In Portfolio

Need Funding Source
Sell Loans In Secondary Market
Guaranteed Portion
Unguaranteed Portion

- Excess Liquidity
- Hold Loans In Portfolio
- Ability To Make Larger Loans And Hold In Portfolio
- Need Funding Source
- Sell Loans In Secondary Market
- Guaranteed Portion
- Unguaranteed Portion

## 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

- 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

## 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

- 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

## 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

- 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

## Credit Risk
New Businesses Carry More Credit Risk, But Important For Economic Development
More Difficult To Grow And Start Businesses In Rural Areas
Skilled Labor
Potential Customer Pools

- Credit Risk
- New Businesses Carry More Credit Risk, But Important For Economic Development
- More Difficult To Grow And Start Businesses In Rural Areas
- Skilled Labor
- Potential Customer Pools

## 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

- 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

## Interest RATE RISK
Generally Floating Rates Quarterly
Higher Spread Over Prime
R/E Generally Carries A Point
Generate Fees
Can Sell At Any Time

- Interest RATE RISK
- Generally Floating Rates Quarterly
- Higher Spread Over Prime
- R/E Generally Carries A Point
- Generate Fees
- Can Sell At Any Time

## 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

- 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

## 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

- 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

## 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

- 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

## 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

- 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

## USDA 
SBA 
State or Local Economic Development Councils
Field Offices Of USDA and SBA Provide Bank Training On Site
NAGGL – Examples And Training

- USDA
- SBA
- State or Local Economic Development Councils
- Field Offices Of USDA and SBA Provide Bank Training On Site
- NAGGL – Examples And Training

## 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

- 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

## 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

- 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

## 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

- 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

## Rural Economic Development

- William S. Glover
- Assistant Deputy Comptroller

## 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

## 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

## Use of Government ProgramsTo 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)

## Improve earnings performance through increased interest income and lower loan losses
Guaranteed portions can be sold
Improve liquidity position

- Improve earnings performance through increased interest income and lower loan losses
- Guaranteed portions can be sold
- Improve liquidity position

## 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.

## 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

## 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

## Where to Find Information

*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

## Rural Economic Development

- Karen Tucker
- National Bank Examiner/
- Senior Compliance Specialist

## CRA 

- Rural Economic Development Needs:
- Job training
- Child Care
- Access to credit
- Affordable housing
- Financial literacy
- Technical support

## 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

## CRA

- Large Bank
- Lending – required to review:
- Home mortgage
- Small Business
- Small Farm
- Community Development
- Consumer is optional

## 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

## 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

## 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.

## 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.

## 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

## 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.

## 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

## 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

## 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.

## 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

## 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

## 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

## CRA

- Selling portions of loans
- Report the origination amount
- Doesn’t affect designation as a CD loan

## CRA

- Participations Purchased
- Use the lead loan amount to determine the original amount of a participation purchased

## 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

## Questions