Kemp offers board advice at BHCA seminar

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A board of directors must set clear direction for the bank. That was part of the message industry consultant David Kemp delivered at the Spring Seminar of the Bank Holding Company Association on Tuesday, May 7, in Bloomington, Minn. About 300 people attended the two-day meeting. Kemp was one of five main-stage presenters delivering ideas and analysis to the bank owners, board members and bank managers in attendance.

Kemp reminded the group that the CEO works for the board, “thus the board has a responsibility to the CEO to provide formal and informal feedback on performance.” He asked board members to consider how effectively they manage the CEO. Many boards implement some form of a performance management system, designed to enhance CEO performance.

The success of such systems, he said, depends on the ability to measure results. Kemp suggested using quantitative measures such as a 1-5 numbering scale, on areas such as leadership, communications, and administrative and organizational. Each area should include sub-points. The communications area, for example, might include further review in areas such as community relations and negotiating skills. Each area should include written comments.

The board should also be prepared to evaluate its own performance, he said. Board evaluations should happen every three to five years, he said. Often, the most effective evaluations are conducted by an outside facilitator. Areas that should be evaluated include: Willingness to improve banking knowledge, business planning and budgeting skills, meeting preparation, and communication. Board members should rate themselves and their peers on the board. Composite scores should be calculated and shared.

Kemp is president of Bankers Management Inc., based in Atlanta. Look for coverage of the BHCA Spring Seminar in the June 1 edition of NorthWestern Financial Review.

Bridging the gap between staff and technology

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While preparing for our architecture issue, which hit banker’s desks April 1, I interviewed a banker who said his biggest challenge in designing the bank’s branches isn’t technology as much as bringing the bank’s staff, which has tenure of 20 years or more, up to speed with technology.

In recent interviews, Bill Rosacker, president of Bloomington, Minn.-based United Bankers’ Bank, and Tom Kelly, vice president of information technology at UBB, offered some tips for bringing staff up to speed with technology.

As a way to reduce the cost and cumbersome nature of the three-inch binders given to the bank’s board members for meetings, UBB board members began accessing meeting materials via their iPads in February. The bank purchased iPads for each board member. The bank’s IT staff provided a tutorial, showing them how to use it and how to gain access to the board meeting data. And afterwards the iPads belonged to the board member’s.

UBB did the same with is sales personnel. Salesmen now use their tablets when on a sales call. Before, if a rep wanted to send a proposal to a banker, he would have to go back to the office, complete the analysis and then get back to the customer. Now they can conduct the analysis remotely using an iPad, at the customer’s office.

The bank has found the best way to bring its staff and its board up to speed with new technology is to just give it to them for personal use. “If they can’t take it wherever they go, then they just can’t fully utilize it. You have to use it to become competent with it. Training is not enough,” said Rosacker, who added that the same strategy guides UBB when it provides interest-free loans to employees for a personal computer.

Rosacker also said that young people are an asset as well. “They make great trainers for other people in the bank, since they have been around technology from early on in life,” he said.

Kelly added that involving staff early on, when testing and rolling out new technology, increases the staff’s comfort with change. “In the past, when we have just rolled out something new without staff involvement early on, that’s when we’ve had problems,” Kelly said. “When we get them in there before it comes out, they can use it in their everyday activity. This allows them to find the bugs and issues; and they can participate in solving those issues before they are required to use the new system. This builds their buy-in when we ultimately convert to the new system.”

Mortgage software worth the expense, eventually

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In 2006, Northwoods Bank of Minnesota purchased Mortgagebot, a web-based mortgage origination software, to streamline its documentation process and make applications available to customers on line. Roger Stewart, president of the Park Rapids, Minn.-based bank, took some time to share with me about mortgage software at the Independent Community Bankers of Minnesota’s TechXpo in Minneapolis on April 23.

Initially the $110 million bank obtained the software to compete with larger banks. “It’s not so much that Wells Fargo has a large physical presence in our area as much as what customers expect. Customers can easily apply for a mortgage on Wells Fargo’s website; to compete we wanted to offer the same,” Stewart said.

The bank also purchased the technology for its compliance benefits. The program structures the loan documentation process so that bank employees follow all the steps required by mortgage regulation.

Stewart estimates that it took about six years for the bank to gain efficiency from the product. “After a year, I would have said the purchase wasn’t worth it, but now I think we have seen an efficiency gain from it,” Stewart said.

It took time for the bank to see an efficiency because customers were slow to go online to make application. Now, about 40 percent of the bank’s mortgage applications come online. “But we still end up having to talk with customers for about 10 percent of the applications, because they have filled out the application incorrectly,” Stewart said.

 

A couple of questions for the CFPB

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Bankers asked the CFPB’s Steven Antonakes several questions after he spoke to them at the Iowa Department of Banking’s “Day with the Superintendent” on April 18. Antonakes is the Acting Deputy Director at the Consumer Financial Protection Bureau. He is a former Commissioner of Banks for Massachusetts.

One banker asked Antonakes for his thoughts on the potential for new legislation regulating overdraft fees.

“We are not in a great place right now,” Antonakes said. “What I mean by that is I am not thrilled that the guidance with which you have to adhere is dependent upon your charter — whether you are a Fed member, non-Fed member, national bank, or state chartered bank. To me, there should be one set of rules, clear to everyone that everyone adheres to.

“We are doing research in this area,” continued. “We don’t have pending rulemaking going on in this area so I really think we are trying to learn what exactly is transpiring. I would say to the extent there is likely concern in the regulatory area it would be centered around a couple practices, one of which is where checks or debits are being manipulated in a way to maximize overdraft fees. The other concern for consumer advocates and others is that in many instances a very small population is incurring a very large number of overdrafts and that is cause for concern as well. It is very early for us.”

Antonakes said the CFPB will be publishing white papers this spring on several topics, and he said “eventually we will be releasing information on what we found in overdrafts.”

Another banker asked, “Is your agency going to define what abusive is?”

“There is a lot of concern out there, but there are reasons for which it is not advantageous for us to define abusive as well,” Antonakes said. “I don’t think we immediately plan to define abusive. I think a static definition creates some challenges. There are some jurisdictional matters that come into effect if we outwardly go and define abusive. We have to tread carefully there.

“We are also being very mindful of the tremendous authority that exists there in terms of utilizing that claim,” he continued. “Our examiners do not have delegated authority to make abusive decisions. Not one group in the bureau has that authority. In the event we respond to something in an exam or complaint or investigation that would give rise to an abusive theory it is going to be exceptionally well vetted by everyone in the bureau. Our examinations group, general council group, rights group, and then the director would ultimately make that decision, so it’s not something we take lightly.”

Attorney lays out 10 commandments for bank directors

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Jeffrey Gerrish, the well-known banking industry attorney and consultant, was a featured speaker at the Iowa Division of Banking’s “Day with the Superintendent,” conducted in Des Moines on April 18. Gerrish talked about strategic planning issues for community banks, and he led a panel discussion involving three Iowa community bankers. Look for coverage in the May 15 edition of NorthWestern Financial Review magazine.

Gerrish’s presentation included what he called “Ten commandments for community bank directors and officers.” They are:

  1. Pay attention to everything (especially risk), including enterprise risk management, and corporate governance.
  2. Understand your real job, which is to maintain and enhance shareholder value, understand how to remain independent and manage risks.
  3. Be petrified of compliance, especially UDAAP and fair lending.
  4. Capital is still king; understand how to get it and how to allocate it. Understand new minimum standards and Basel III.
  5. Understand mergers and acquisitions; contemplate whether size matters and consider profitability versus survival.
  6. Vote no. Board members must be willing to go against the consensus if their conscience or gut tells them to.
  7. Get educated. Understand the terminology and the regulatory requirements.
  8. Ensure board and management succession. Have a plan; develop a way to get rid of unproductive directors.
  9. Learn to deal with your shareholder base. Consider Sub S incorporation, create a market for your stock, and enhance shareholder value.
  10. Plan for the future. Create an action plan.

CFPB staying out of community banks

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I have heard reports, generally third and fourth hand, that CFPB examiners have visited community banks. Jim Schipper, Superintendent of Banking for the State of Iowa, evidently had heard such rumors as well. On Thursday, he asked a high-ranking CFPB official about it.

Steven L. Antonakes, Acting Deputy Director of the Consumer Financial Protection Bureau, said the rumors are false. Speaking at the annual Day with the Superintendent in Des Moines, Antonakes said CFPB examiners have not examined any community banks.

During his opening remarks, Antonakes said:

“One of the concerns I have heard that I have always found somewhat humorous, is the concern that we are running into small banks, community banks.

“There is a ride-along authority within Dodd-Frank that gives us the authority to join the prudential regulator on an examination of a bank of $10 billion or less. I guess there is a myth that we are using this authority continuously and going into small banks.

“To which our response is ha, ha, ha. Because our jurisdiction is so significant on the large bank and non-bank side, I just can’t really foresee a circumstance in which we would have to join a prudential regulator at a small bank. It just doesn’t strike me as a concern that would rise above supervising one of the other entities that we have jurisdiction over.”

Later, Schipper asked if the CFPB as examined any community banks. Antonakes answered:

“We have not set foot in a bank with less than $10 billion in assets that is not an affiliate of a larger bank under our jurisdiction.”

Tips for mitigating impact of robbery

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Bankers should take time to invite the local sheriff or police officer to visit the bank, have a cup of coffee with them and show them around so they understand the normal occurrences at the bank.

That was advice from FBI Special Agent Brian Endrizal, who spoke at the Iowa Division of Banking’s Day with the Superintendent in Des Moines yesterday. Endrizal offered a number of tips for mitigating the impact of being robbed.

He said local law enforcement can be more effective in the event of a crime if they are familiar with the bank. Also if they are familiar with the normal activities surrounding the bank, they can do a better job surveying the bank premises and taking note of anything unusual.

Endrizal advised:

  • Have clear procedures for opening and closing the bank;
  • During openings and closings, make an effort to survey the inside and outside of the bank, looking for suspicious objects, people watching the bank, or the same vehicle driving by the bank a number of times;
  • The first person to arrive at the bank every morning should vary their routine; i.e., park in a different place, etc.,
  • Windows in the bank should be free from obstruction;
  • Cameras should be checked frequently; more cameras are better than fewer; digital is better than VHS; some cameras should be set at face height; place some cameras outside;
  • The most common disguise is a cap and sunglasses; take note should an unknown person with cap and glasses enter the bank;
  • Talk about bank robberies during staff meetings; have a plan about how they will be handled. “If you don’t have a plan, you will free,” Endrizal said.

Endrizal said staff should comply with a robber’s demands. “We don’t want heroes, we want survivors,” he said.

Look for more on bank robberies, and coverage of the Day with the Superintendent in the May 15 edition of NorthWestern Financial Review.

Did the tortoise catch the hair?

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In our May 1 issue of NorthWestern Financial Review we cover three banks among many in the Midwest that have climbed to the top of the industry in terms of profitability and other metrics.

Looking at just return on assets for banks with under $10 billion in assets, across all 50 states in the union, nearly half (785 of 1,642) of the banks with more than 1.5 percent ROA are based in NorthWestern Financial Review’s 14-state region. (If you selected the hyperlink it will take you to a list of these top banks, the institutions which are based in the Midwest are marked with a “1″.)

A bank which performed among these but did not make it into our feature story is McKenzie County Bank in Watford City, N.D. Earning 1.81 percent return on assets last year; the $113 million bank sits in the top third for ROA among banks with less than $10 billion in assets.

How has the bank done so well? “Well, we started a bank in a Bakken oilfield 30 years ago,” said Dale Patten, president of the bank.

The Bakken formation, a 200,000 square-mile stretch of land covering western North Dakota and eastern Montana and containing an estimated three to four billion barrels of oil, has provided a number of banks in the state unprecedented local economic growth in recent years.

For McKenzie County Bank, agricultural lending has been the mainstay of the bank for decades. Now, loans for farm land are dropping off. But that doesn’t mean the bank isn’t seeing requests for loans on the same land, “The land prices are so high that little of it is sold for ag,” Patten said. Most of the banks growth is due to oil industry service companies, customers also are borrowing against land for housing development or for other purposes connected with the oil industry, he said.

In 2008, the banks had $4.6 million in farmland loans. At the end of 2012, the bank had $4.3 million. On the other hand, construction and land development loans have increased to $4.4 million from $1.9 million over the same period. And, overall, real estate loans have grown to $43 million from $31 million, according to the FDIC.

The risk facing McKenzie County Bank is a decline in the local oil industry and the effect it could have on the oil service businesses and on real estate values. Fortunately, having opened amid the previous oil boom in 1982, the bank’s management has the experience to manage the risk. “When you look at the western side of the state, we have experienced staff because we have been in an energy boom before,” said Patten, who was with McKenzie County Bank since the bank opened.  “We believe we are conservative and we have seen lots of capital from outside the local area.”

And the bank doesn’t see the boom slowing soon, Patten said. Barring some climactic change for the local oil industry, oil will bring income to the area for years to come. “A well that produces 1,000 barrels a day may drop to 250 a day after two years, but it will produce 250 a day for the next 25 years to 50 years,” Patten said. Out of the 180 oil rigs in North Dakota, the average well produces about 2,000 barrels a day. At yesterdays price for a single barrel of oil at $86, you can do the math for the revenue flowing into the region.