The economy, plus investments, compliance and community bank consolidation, were all packed into a morning session lasting less than four hours July 21 at the annual convention of the Community Bankers Association of Kansas in Branson, Mo.
The leadoff speaker, Esther George, president and CEO of the Federal Reserve Bank of Kansas City, told the CBA members that despite all the recent gloomy headlines, the U.S. economy continues to grow, albeit slowly. She noted that there was a “soft spot” toward the end of last year, and a similar pattern is evolving this year.
Healthy auto sales and durable goods purchases are good signs of support for longer-term economic growth, George advised. Unemployment, currently stuck at 8.2 percent after some healthy growth earlier this year, is a continuing concern as businesses face a good deal of uncertainty. “They are making their operations more efficient before they hire,” she said, adding that jobs improvement will have to wait until some of the current uncertainty fades away. The Kansas City Fed president also sees “very positive” signs for housing, with prices stabilized and rising and construction getting underway.
On a somewhat gloomier note, Jim Reber, president and CEO of ICBA Securities, cited Bloomberg monthly economic forecasts indicating slower GDP growth in the rest of 2012 and through 2013. The predicted 2012 average of the surveyed economists has fallen to 2.1 percent in the latest survey from 2.3 percent 60 days earlier, and the average for 2013 from 2.5 percent to 2.2 percent. Their average forecast for 2014 looks better, holding steady at 2.9 percent.
If the Kansas bankers expected Reber to have good news on the fed funds rate, they were doomed to disappointment. In January, the futures market pegged fed funds in July 2014 at 0.545 percent. In July of this year, that had dropped to 0.24 percent for July 2014. Not until June of 2015 will the rate hit 0.485 percent, in the opinion of investors. “People can change their minds, but this is what they think now,” Reber said.
Among investments paying “better than nothing,” such as fed funds, Reber likes bank-qualified municipal bonds for community banks. Credit quality is holding and spreads are still historically wide, he pointed out. He cautioned, however, that supply remains limited. Less municipal debt has been issued so far in 2012 than in any year since 1996.
Some hot buttons to be aware of from the Consumer Financial Protection Bureau were listed for the bankers by attorney Elizabeth Fast of the law firm Spencer Fane Britt & Browne LLP. Among these is the disparate impact issue, wherein the agency has announced it will use all available legal avenues to pursue lenders whose practices discriminate against consumers, even if the bureau finds there is no intent by the lender to discriminate.
ATM and debit card overdrafts are another area for concern, Fast advised. Under UDAAP — unfair, deceptive or abusive acts and practices — if a consumer opts-in but the bank has no intent to pay these types of overdrafts, disclosures may be considered misleading because there is no benefit to consumers who opted-in.
Another item examiners will be looking at is cutoff times, Fast reported. Regulation Z requires payments to be posted on the day of receipt for open-end loans and closed-end loans secured by a principal dwelling. The regulation permits a bank to establish a “reasonable” cutoff time, but lobby notice is not sufficient and customers must be notified individually.
As for loan payments due on weekends, under UDAAP examiners have said it was a violation to not credit a vehicle loan payment that was received on Saturday or received in a lockbox over the weekend if the branch is open on Saturday, according to Fast. “Make sure your loan documents specify time for payment — i.e., Monday through Friday from 8:00 a.m. to 5:00 p.m.,” she advised.
Another attorney on the CBA program, Bob Monroe of Stinson Morrison Hecker LLC, lamented the decline in the number of community banks but had some advice for those who might be either buyers or sellers. More traditional deals will emerge, he noted, because of fewer available failed-bank transactions.
Hurdles to successful deals can include bank stock loans, TARP stock, trust-preferred securities, deferred tax assets, branch real estate and regulatory issues. Monroe suggested effective strategic planning for successful consolidations should include the following: solicit input from board and key officers; evaluate S.W.O.T. (strengths, weaknesses, opportunities and threats); evaluate the condition and performance of the bank; evaluate market opportunities/limitations; reach consensus through board planning; and develop a written strategic plan.
Bill Poquette is editor-in-chief of BankNews.
Copyright (c) August 2012 by BankNews Media