Anna Alvarez Boyd

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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 BI
• USDA Community Facilities Loan
• SBA 7(a)
• SBA 504
• Various State And Local Programs

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Livengood Feeds Lockhart, 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 BI 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
  BI

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Specific Examples

• In 2001, Sold 1 BI 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 Portion
• Unguaranteed 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 Banks Lending Limit With Other Loans
• Utilized BI 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 Areas
• Skilled Labor
• Potential 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. lt20,000
• Three Banks, None Would Consider
• Omnibank Used USDA BI 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 BI For Capital Improvements/acquisit
  ion
• 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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FAQS

• Isnt 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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FAQs 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 (BI)
• 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 communitys 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 OCCs 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
  Administrations 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 doesnt 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 doesnt 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
• Doesnt 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