Meeting Current Needs

ICBA MEMBERSHIP PROGRAMS | Product and Service Programs

ICBA’s product and service programs work overtime to help community banks generate new revenue and deal with regulations

By Katie Kuehner-Hebert

With net interest margins as tight as can be, community banks more than ever have to find alternative products and services to boost not only interest income but also fee income. So it’s not surprising that community banks have been flocking to ICBA’s various product and service programs to better meet these challenges—as well as to better prepare for new regulatory requirements.

“The most overarching trend for community banks today is the need to increase their overall fee income and efficiency to make up for a tremendous amount of margin pressure,” says Gary Teagno, president and chief executive officer of ICBA Services Network, a group of five service corporations that operate solely to meet the product and service needs of community banks. “Couple that with weak loan demand in many parts of the country, and that means banks are more reliant on their investment portfolios, fee income and exploring other programs that can generate noninterest income.”

ICBA Services Network is comprised of ICBA Bancard & TCM Bank, a payment services program; ICBA Mortgage Services, a residential mortgage lending services program; ICBA Strategic Technology Solutions, an IT management services program; ICBA Reinsurance Co. Ltd., a credit life and disability insurance services program; and ICBA Securities, an institutional broker-dealer investment program.

“The Network also distinguishes its programs through its governance process, with a board of directors composed of community bankers who provide oversight and quality assurance of vendor programs,” Teagno points out.

In addition to the five ICBA-owned service corporations, ICBA has developed nearly three dozen Preferred Service Provider programs with community bank product and service providers. Those Preferred Service Provider programs offer member banks special pricing, service and access to world-class products and services.

“ICBA’s close working relationships with many companies that specialize in serving community banks continue to expand and evolve with the changing landscape of community banking,” says Dan Clancy, executive vice president, ICBA Services. “The result is always greater access to essential products and services for community banks at the most affordable costs.”

Lifting lending

Many community banks have been tapping ICBA’s product and service programs as a way to generate more loans as the nation’s economy continues to slowly recover from the recession. While ICBA offers several lending service programs, ICBA Mortgage Solutions has become particularly popular with community banks by helping them generate additional residential mortgage loan income as the housing market improves, says Ron Haynie, executive vice president of ICBA Mortgage Services.

The ICBA Mortgage program has contracts with multiple investors, allowing community banks to offer 30-year, fixed-rate mortgages at competitive rates. The program allows community banks that sell loans to mortgage investors on a servicing-released basis to offer competitive rates and fees without making a large investment in technology or overhead. By participating in the program, community banks act as correspondent originators, handling as little or as much as of the mortgage fulfillment as they choose.

One ICBA Preferred Service Provider program that has become more popular with community banks recently is an equipment-leasing program developed with OneWorld Business Finance LLC in Austin, Texas. The equipment-leasing program is designed to give community banks another way to diversify loan portfolios and boost fee income, Clancy says. “In many instances due to specialty finance companies, community banks have been pushed out of leasing, so we’ve got a service that helps them fund leases as another source of income,” he explains.

Founded in 2002, OneWorld Business Finance formed an equipment finance cooperative to help community banks fund transactions for assets such as medical, high-tech and manufacturing equipment. The program provides funding on a cost basis, financing equipment purchases ranging from $20,000 to several million dollars. As an ICBA Preferred Service Provider, OneWorld Business Finance offers discounted servicing rates, training and negotiated referral compensation to member community banks on equipment leases, software leases, operating leases and other types of asset-based credits.

Similarly, through another ICBA Preferred Service Provider program with the Student Loan Finance Corp.’s iHelp service, more community banks are looking to issue more student loans. The ICBA Student Loan Finance Corp. program allows community banks to make private, insured student loans themselves or refer customers directly to SLFC.

The program operates by having community banks provide the funding for student loans made through SLFC, which then services the loans on behalf of the originating community banks. SLFC can provide all origination, marketing and servicing support for ICBA members so that community banks can have a profitable, safe and secure student loan product for their customers—while generating additional fee and interest-rate income.

Another timely lending Preferred Service Provider program that ICBA has developed with Holtmeyer & Monson helps community banks offer U.S. Small Business Administration-guaranteed loans. The program helps community banks identify SBA loan opportunities, underwrite SBA loans and sell the guaranteed portion of the loans into the secondary market.

Holtmeyer & Monson, a full-service SBA-lending consulting firm in Memphis, Tenn., works with community banks not only to process and make SBA loans but also to add to community banks’ noninterest fee income revenues from the sale of their SBA guarantees in the secondary market. Consulting services provided by the company also include SBA-loan portfolio management. As an ICBA Preferred Service Provider, the company offers special discounts to member banks.

“Community banks right now are looking for fee income as another source of income as loan demand is still weak in many areas, and the ICBA program with Holtmeyer & Monson has provided timely help to community banks,” Clancy says.

Similarly, the ICBA Reinsurance program allows community banks to generate additional valuable revenue by providing credit life and disability insurance coverages with the installment loans that community banks originate. For example, participating banks can effectively increase the yield on the consumer loan up to 25 percent by selling a credit life and disability policy with it. Alternatively, banks can decrease the rate they charge on the loan, and make up the profits with a credit life and disability sale, to earn the same amount of money they would if they did not sell the policy.

In addition to allowing community banks to receive sales commissions from the reinsurance policies they sell, the ICBA Reinsurance program also returns a portion of the program’s overall underwriting profit to the banks participating in the program, says Stephen A. Ello, the ICBA service company’s president and CEO.

By assuming a portion of the risk for credit life and disability policies underwritten by either Transamerica Life Insurance Co. or Guarantee Trust Life Insurance Co., ICBA Reinsurance accesses additional income that can be returned to community banks participating in the program, in the form of tax-advantaged dividends, Ello says.

“Community banks are looking for profits everywhere they can, and so if they are not offering insurance on installment loans, they are not maximizing the potential yield on each loan and they are leaving their portfolio and customers exposed in the event of a death or disability,” Ello says.

ICBA Reinsurance is overseen by a board of community bankers and an independent actuarial firm. For that reason, it is operated exclusively for the benefit of community bankers.

Partner in payments

In the age of mobile and the Internet, customers expect control over their personal financial assets and activities, says Joe Shallow, executive vice president of business development for ICBA Bancard & TCM Bank, N.A. “Years ago, people primarily did their banking in branches or by mail,” Shallow says. “Now, the customers control when, where and how they do banking.”

The ICBA subsidiary is working on several business solutions with partners to make sure community banks’ customers and cardholders can have access to Internet and mobile banking capabilities. For example, ICBA Bancard program has signed with Visa to offer, a product that allows bank customers to select how they pay bills and do banking electronically. Customers can shop online and then choose a payment method from Visa—without having to key in numbers.

“We are presently in a pilot with Visa, and we are looking forward to that being rolled out in the very near future,” Shallow says.

Similarly MasterCard has a virtual wallet, Master Pass, available to community banks through the ICBA Bancard program that provides its cardholders the same basic payment functionality. The MasterCard program offers many of the same features, which should be available to community banks soon.

ICBA Bancard also provides marketing, reporting and consultative support to help community banks offer their own branded credit and debit cards to consumers and small businesses. Indeed, the Dodd-Frank Wall Street Reform Act changed the rules so that TCM Bank can offer a small-business credit card option for its community bank agents.

The business credit cards that TCM Bank, ICBA’s special-purpose credit card bank, issues are always branded with the name and logo of the agent bank. And while TCM Bank handles underwriting, a community bank participating in the program makes “the final determination on credit approval.”

TCM Bank also staffs a call center to provide hands-on customer service for the small-business customers of agent banks, Shallow says. All TCM Bank agent banks share revenue based on card usage and have the option to take over their accounts and become the issuer in the future.

Relieving regulatory burden

ICBA Services Network subsidiaries and ICBA’s Preferred Service Provider programs have also been helping more community banks handle a range of new regulations. Jim Reber, president and CEO of ICBA Securities, ICBA’s institutional fixed-income broker-dealer service corporation for community banks, has been particularly focused this year on helping community banks comply with new regulations and new management challenges. For example, new requirements mandated by Dodd-Frank that took effect in January increase the need for banks to monitor their municipal securities investments.

As a result, community banks no longer can rely solely on external credit agency ratings when purchasing municipal securities. The regulations require more documentation than credit agency ratings to show that the securities community banks purchase are safe and sound to buy and keep on their books.

Reber says the new restrictions have been a very prominent concern for community banks, as municipal securities on average nationally represent a quarter of a bank’s investment portfolio. “The more munis a bank owns, the higher the performance of its investment portfolio,” he says. “We are always recommending that banks buy more munis if they have the asset/liability profile and a federal income tax status that allows them to do that.”

To help community banks with the new regulations, ICBA Securities created a regulatory resource center on its website, with tools to make it simpler for banks to comply with these regulations. The service corporation also helps banks comply with new management challenges, particularly premium risk, as interest rates are at a generational low point and the prices for bonds are rising, Reber says. It also provides myriad spreadsheets and analytical tools, such as the Prepay Exposure Impact Report, to help community banks calculate their exposure to premiums and make the best bond-buying decisions.

Additionally, each year ICBA Securities hosts the “ICBA Bond Academy,” to educate community bankers about the latest developments in managing institutional investment portfolios, including new regulatory requirements. “The growing importance of the investment portfolio to a community bank’s profitability requires knowledgeable, trained portfolio managers to execute a sound strategy,” Reber offers.

But ICBA Services Network companies offer regulatory help far beyond investment portfolio rules. After the Consumer Financial Protection Bureau issued its complex set of new mortgage lending standards this year, ICBA Mortgage Services stepped up to help community banks prepare for the implementation of the complex rules in January. “It’s become very clear that if community banks are going to remain in the mortgage business they are going to have to invest in the hiring and training of experienced people and in the resources and technology for them to do their jobs properly, so mortgage loans can be done in a compliant, safe and profitable manner,” Haynie says.

Some of the most complex CFPB regulations that ICBA Mortgage has assisted community banks with include making sure up-front disclosures within a mortgage loan are done correctly—“and they are complex,” Haynie says.

“An error on those disclosures can be very costly in terms of fines to the bank, or the fact that regulators can write them up for noncompliance,” he adds. “That can also cause problems for the bank. It’s very easy to make mistakes on those documents, and there’s not a lot of tolerance for mistakes.”

To help community banks deal with the CFPB mortgage lending standards, ICBA Mortgage developed several offerings, including a loan fulfillment service that helps community banks with processing and issuing disclosures, underwriting and quality control. The fulfillment service also helps community banks originate mortgage loans in a compliant manner, so they can then sell them in the secondary market.

“It’s an additional resource for community banks to manage their compliance risk and still be in the residential mortgage business,” Haynie says.

The CFPB also recently issued new rules that require banks to establish an escrow account to pay taxes and insurance for homeowners when they take out certain types of mortgages. This way, the bureau is more comfortable that borrowers can not only afford their mortgage, but also the corresponding taxes and insurance.

But many community banks don’t have that escrow capability, Haynie points out, so the ICBA Mortgage program, through a corporate alliance with QBE First, gives community banks an option to outsource that escrow function on a loan-by-loan basis. “It’s very affordable, and QBE First will handle all the disclosures, making all the payments—the only thing a bank has to do is collect the money,” he says.

ICBA Services Network’s subsidiaries and ICBA’s Preferred Service Provider programs can help community banks meet the challenges of finding more interest and fee income opportunities, as well as provide support to keep up with ever-increasing compliance regulations, Teagno says. “Our mission is simple—to help our banks be more successful by adding new services, building fee income, gaining negotiating leverage, and in the end attracting and retaining valued customer relationships,” he says.

Katie Kuehner-Hebert is a writer in Running Springs, Calif.