Anna Alvarez Boyd Deputy Comptroller for Community Affairs Introduction

1. Anna Alvarez Boyd Deputy Comptroller for Community Affairs Introduction

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

3. 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

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

5. 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

6. 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 B&I Loan • Significantly Improved Cash Flow • Properly Matched Assets To Liabilities

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. William S. Glover Assistant Deputy Comptroller Rural Economic Development

25. 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

26. 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

27. 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)

28. Better Performance and Flexibility • Improve earnings performance through increased interest income and lower loan losses • Guaranteed portions can be sold • Improve liquidity position

29. 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.

30. 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

31. 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

32. 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

33. Karen Tucker National Bank Examiner/ Senior Compliance Specialist Rural Economic Development

34. CRA Rural Economic Development Needs: • Job training • Child Care • Access to credit • Affordable housing • Financial literacy • Technical support

35. 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

36. CRA Large Bank • Lending – required to review: • Home mortgage • Small Business • Small Farm • Community Development • Consumer is optional

37. 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

38. 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

39. 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.

40. 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.

41. 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

42. 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.

43. 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

44. 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

45. 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.

46. 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

47. 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

48. 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

49. CRA Selling portions of loans • Report the origination amount • Doesn’t affect designation as a CD loan

50. CRA Participations Purchased • Use the lead loan amount to determine the original amount of a participation purchased