1

Anna Alvarez Boyd

Deputy Comptroller for Community Affairs

Introduction

2

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

18

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