Pub. 7 2018 Issue 2

February/March 2018 23 l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s Experienced Member FDIC f n b h u t c h . b a n k | 8 0 0 . 2 9 3 . 0 6 8 3 | Our dedicated sta members are here to help you with a broad array of nancial expertise for you and your customers. Pictured (left to right) Mike Pritchett, Curtis Overton, Rod Jones, Dustin Stull, Mike Fahrbach and Shane McCall C M Y CM MY CY CMY K 17_FNB6987_ks_banker_mag_ad_experienced_01.pdf 1 11/21/17 11:23 AM for a concentration percentage is going to depend on the surrounding area and the opportunity to diversify their loan portfolio. The examiners realize that in some communities there is less opportunity to have a balanced portfolio and they would prefer to see a higher concentration of properly underwritten loans than to balance the portfolio by purchasing into a market somewhere else that they don’t know much about. While higher concentrations in ag lending is not inherently bad, it does increase the risk profile for the bank because if the industry starts to struggle you will see some asset quality deterioration. Examiners will look for appropriate monitoring and risk mitigation for the loans, strong underwriting in ag credits, and stress testing of the ag portfolio on large borrowers. The purpose of this is to give management a good idea of what would happen if commodity prices dropped or interest rates increased. They like to see a loan policy that stipulates limits to the concentration in one area or the percentage of capital that will be extended. The highest concentration they have seen in ag loans is 600%. While it isn’t ideal, that is the market the bank is in and it is where their expertise lies. Management has done a good job stress testing and they aware of their position. 5. The shortage of certified appraisers in rural areas is well documented and there has been a national effort to gain better access to timely certified appraisals. When can an in- bank appraisal be done and who can do it? What are the limits that trigger the need for a certified appraisal? (Have the thresholds changed to $400,000?) The OSBC recognizes the inherent issues with getting a timely certified appraisal, especially in rural areas. An internal evaluation can be done on real estate mortgages that secure up to $250,000. There is a proposal by the FDIC to increase that level to $400,000 and the comment period for that proposal closed in September 2017. The final rule has not been issued. There is a provision that allows for an internal evaluation for business loans up to $1,000,000. This includes extensions to entities that engage in ag operations that includes loans secured by farm land, timber land and ranch land if payment is not reliant on sale or rental of the property. Kemp noted that a hot button currently is cyber security. While it is not an income generating area, cyber security is of significance and garners attention and increased knowledge because of the financial and reputational risk it carries. He ended the interview with a parting comment, “The OSBC is here to help bankers and management teams do things right. They should see the agency as a resource to be in compliance. If the OSBC can help bankers do things right it saves work for everyone down the road.”