Archive for category: Resources

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From The Fields: Rising Interest Rates and Their Effect on Production Agriculture

By Lance Lansing, Wisconsin Bank & Trust

While many of us were alive when interest rates reached the record high of 20% in March of 1980, not many of us were in lending at that time. According to bankrate.com, the inflation rate at the time was 14.6% and Fed used their main tool and increased interest rates to combat inflation. As a result, the U.S. central bank manufactured a recession to bring prices back down. Although I have never claimed to be an economist (or played one on TV), it does not take a Harvard grad to see that the Fed is once again using its main tool to combat inflation. The current Fed, instead of wielding a sledgehammer on rates, is much more subtle by slowly and gradually moving rates in one direction. However, desperate times…etcetera.

The Fed has chosen to raise interest rates six times over the past year with four straight three quarter point increases pushing borrowing costs to a new high since 2008. The March 2022 hike of a quarter point was the first hike since 2018. The Fed has chosen to raise interest rates with the objective of reducing the total amount of money circulating through the economy, called the money supply. The Fed also tries to control the money supply through quantitative easing, which is the process of buying and selling Treasury Department backed assets. Both tools are used by the Fed to try to reduce inflation. Inflation can be caused by many factors. It is generally the result of too much demand and insufficient supply, leading to high prices. Many people received excess funds during the pandemic and along with supply chain disruptions, this has resulted in rising demand for items, an inability to get those items and an increase in the cost for those items.

A Fed manufactured recession will affect us all in many ways personally and professionally. High inflation and rising interest rates will likely erode a farm business’ liquidity. While our producers have been paying attention to the increase in commodity prices and resulting revenue, they have also noticed the quickly rising input costs due to increased inflation. Should commodity prices start to decline, costs may remain elevated and be slow to go down. Profit margins will be compressed, and some may even become negative. The Ag economy will see new risks with the rising interest rates and input costs. The direct impact on farmers that are borrowing money will be significant. For example, a line of credit that has risen 3.75% from 4.75% to 8.5% since March of 2022 with an average balance of $1,000,000, will require a monthly interest payment of $7,083 vs. $3958, adding an additional $37,500 per year interest expense to their cash flow. This will, of course, impact repayment capacity, liquidity, and depending on the operation, increase cost of production to a level that will compress margins and seriously impact their operation’s profitability.

Many operations chose to increase their liquidity during the pandemic through higher commodity prices and government program payments to pay down dept. However, rising input costs and possible tax liability will increase demand for short-term borrowing. With the increased demand of short-term loans comes the risk of increased variable rates. If margins compress, more operations will seek out loans to compensate for the short falls.

Another risk from higher interest rates is the impact on expansion. When a neighbor’s farm comes up for sale, the cost per acre of owning that land has jumped significantly. A loan early in 2022, with a fixed rate at 4.25% over a 20-year amortization would now hold an interest rate of 8%. Most producers would be tempted to jump at an opportunity to buy 100 acres of adjacent land for $10,000/acre. Since most operations are asset rich and cash poor, the producer in this example will opt to finance 100% of the purchase. The total cost of $1,000,000 for 100 acres, would equate to an annual cost per acre of $747 at 4.25% vs. $1,012 at 8%. This $265 cost per acre increase would impact repayment capacity and margin. The impact of record high land values and increase in interest rates may result in producers passing on expansion opportunities and focusing on deleveraging and positioning themselves for a change in the economy.

Producers and lenders will be affected by the rate increases in several ways. The profit margins for both could be adversely affected as well as the number of opportunities for new loans and growth. Navigating this time will depend on how much higher the rates will increase and for how long before a hiccup in the economy brings them back down.

Lance Lansing is vice president of commercial and ag loans with Wisconsin Bank and Trust in Monroe. Lansing also currently serves on the WBA Agricultural Bankers Section Board of Directors.

 

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January 2023 Compliance Journal

The first edition of the New Year is now available. In the January 2023 WBA Compliance Journal, WBA Legal covers FDIC’s recently revised guidelines for appeals of material supervisory determinations. WBA Legal has also pulled together state and federal regulatory thresholds and limits for 2023 and provides a recap of the recently issued regulator statement regarding crypto-asset-related risks. The publication also includes a summary of recently published agency rules and notices and other important compliance-related updates for bankers.
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Executive Letter: Creating Safe and Meaningful Spaces

Rose Oswald PoelsBy Rose Oswald Poels

As part of WBA’s Diversity, Equity, and Inclusion (DEI) plan, I have been hosting monthly Employee Resource Group (ERG) calls allowing member bankers from historically underrepresented groups to have a forum to share ideas, issues, and advice in a safe, confidential environment. The meetings are never recorded to help ensure that conversations are kept private among those attending. Attendees from past ERG meetings — which began last June — are from all size banks across the state, including some that have their own ERG program.

Each meeting, I receive feedback on the structure, content, and timing of the meetings so that they evolve to be meaningful and relevant for the attendees. I leave each meeting feeling that we’ve provided value to the participants even when the conversations may have been difficult.

WBA’s monthly ERG meetings will continue in 2023 and, with the input from the participants, they will be a little more structured so they are meaningful, and bankers know in advance the topics that will primarily be discussed. I encourage you to share this opportunity with anyone in your bank who is in a historically underrepresented group as I know they will find value in the discussion.

For our January meeting, I am very excited to announce that Judge Derek Mosley, director of the Lubar Center for Public Policy Research and Civic Education at Marquette University Law School, will be joining us as our guest speaker. Judge Mosley recently spoke for WBA during a complimentary all-member webinar on Unconscious Bias and was very well-received. He will open the ERG meeting with a presentation on black history, focusing on the Things Your History Teacher Didn’t Tell You followed by time for open Q&A with forum participants.

The January ERG meeting will be held via Zoom on Friday, January 27 from 1:00 – 2:00 p.m. and there is no charge to participate. Please share the following link with your historically underrepresented staff and encourage them to sign up for the meeting: wisbank.com/community/dei/erg-signup/.

If the timing does not work for this meeting, WBA ERGs are held monthly and information regarding future meeting dates and topics is shared through our Wisconsin Banker Daily e-publication. I am incredibly proud of all the work WBA has been doing with guidance from our Board of Directors in the DEI space, and very excited about the mission of WBA’s ERG to date. With your encouragement to your staff to take advantage of this opportunity, I look forward to its continued growth and success this year!

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New Ways to Engage in 2023

By Daniel J. Peterson

For the last 130 years, the Wisconsin Bankers Association (WBA) has provided banks across our state strength and security in times of challenge, and in turn, thousands of bankers have had the ability to prosper in their careers and equip Wisconsinites for financial success. As our industry continues to evolve, one thing has remained the same — WBA’s mission to advocate for, educate, and support bankers.

In January, I reach the halfway point of my time as chair of the WBA. As I look back upon all that we have accomplished so far this fiscal year, I anticipate many members will continue to find more opportunities to expand their capabilities through their involvement with our Association.

While the WBA staff does an excellent job working on our behalf, the WBA is a member-driven association that requires input and participation in order to best serve each of its members. Our success as an organization is not possible without you!

This fiscal year, our Association has prioritized engagement in order to foster the continued growth of Wisconsin’s banking industry. Between new, high-quality, and relevant programming and resources such as the recently formed diversity, equity, and inclusion (DEI) employee resource group (ERG), Wisconsin bankers of all experience levels have the opportunity through their membership to gain valuable knowledge and connections unlike anywhere else.

This year, I encourage bankers to find something that is of interest to them. Whether it be taking part in the hundreds of educational programs offered each year for the benefit of your professional development; joining a committee, section, or Connect group to share your perspective and meet peers; or volunteering to advocate for our industry as an Advocacy Officer — the opportunities to make the most of your membership this year are vast!

Thank you all for your continued support of our Association and helping us to successfully shape our industry for the benefit of all banks and the communities they serve. I look forward to working alongside each of you this year to continue to develop our teams, expand our connections, and make 2023 another successful year for Wisconsin’s banking industry.

Peterson is president and CEO of The Stephenson National Bank & Trust, Marinette, and the 2022–2023 WBA Chair.

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Banks Serve Communities with Invisible Credit in an Effort to Develop Financially Capable Consumers

By Hannah Flanders

Throughout the United States, millions of Americans are left out of mainstream financial services due to their credit score, or lack thereof. As financial inclusion — with particular emphasis on providing the underbanked access, expanding opportunities for all, and eliminating barriers — becomes increasingly critical in ensuring every consumer has the possibility to gain wealth, it is equally as important that banks understand the unique challenges these individuals face and how they can best be served.

What Does it Mean to be Credit Invisible?

According to information compiled by Oliver Wyman based on data by Experian and previous Consumer Financial Protection Bureau (CFPB) research, around 28 million American adults are credit invisible. Additionally, 21 million adults in the U.S. are considered unscorable. Defined as one’s lack of credit history and score, credit invisibility often results in difficulty accessing credit products. Unscorability, on the other hand, defines the limited information one has in their mainstream credit file and therefore their lack of ability to generate a conventional credit score.

The CFPB highlights that not only are a disproportional number of credit invisible customers located in low-income neighborhoods, but that around 15% of Black and Hispanic consumers are credit invisible in comparison to only around 9% of white customers.

However, as 90% of the top lenders throughout the U.S. require at least six months of recorded credit activity, according to the credit bureau Experian, credit invisible consumers often do not have access to reliable means to establish and expand their credit.

With minimum balance requirements and fees being cited within the top five reasons as to why 4.5% of households in the U.S. remain unbanked, according to the Federal Deposit Insurance Corporation’s (FDIC) 2021 FDIC National Survey of Unbanked and Under-banked Households report, it is critical that bankers find alternative solutions for those looking to expand their opportunities, meet their financial goals, own a home, or simply begin their financial journey.

Providing Accessible Credit

Lack of access to mainstream financial services or other low-cost credit products often does not stop individuals from borrowing or seeking certain forms of financial assistance. In fact, this may inadvertently cause one to engage in high-cost, potentially predatory lending cycles.

“Banks throughout America play an important role in not only providing opportunities for consumers to access traditional credit services, but also in assisting individuals to establish and maintain their credit,” says Jeff Langkamp, vice president — chief compliance officer at Bank Five Nine in Oconomowoc. “Having no credit score most likely means that individuals will have to pay a higher interest rate or use payday lenders who charge outrageously high interest rates. Additionally, establishing a credit score to purchase a house or car allows families to build generational wealth.”

To bankers, providing access to credit may mean offering secured credit cards or developing a credit invisible loan program, which involves making smaller loans to invisibles to gradually build their scores or looking beyond the standard evaluation producers to aspects such as their residency and employment stability.

At Bank Five Nine, customers have access to the Achieve Credit Builder™ program, an account certified as meeting the Bank On National Account Standards. The product, according to Langkamp, helps individuals establish or repair their credit at little to no cost.

“The average age of our customers that are taking part in the credit builder program is 26, so the product is helping younger individuals as they begin their credit journey,” highlights Langkamp.

Positioning Consumers for Success

In December 2022, Fannie Mae announced that it would be strengthening its underwriting program Desktop Underwriter® to responsibly expand eligibility and further simplify the borrowing process for individuals without credit scores.

“Traditional lending practices make it hard for borrowers with no credit score to access credit,” said Malloy Evans, executive vice president and head of single-family business, in the press release published on December 6.“[As a result,] Fannie Mae has taken steps that may help them responsibly qualify for a home loan using data that provides a more holistic view of how they manage their money.”

The enhancements released by Fannie Mae update existing eligibility criteria to permit standard loan-to-value (LTV), combined loan-to-value (CLTV), and high credit loan-to-value (HCLTV) ratios on certain properties and expand the standard maximum allowable debt-to-income ratio to 50%. Additionally, the organization has created an automated option for documenting nontraditional credit sources to simplify the process for both the lender and the borrower.

A significant component of this update also includes allowing borrower-permissioned data that consider a borrower’s transaction patterns and balance trends.

Embracing Alternative Credit Data

As many banks and businesses across the U.S. look to alternative ways to promote financial capability among all consumers, many are looking to consumer-permissioned data. Experian defines alternative credit as expanded Fair Credit Reporting Act (FCRA)-regulated data. This data often includes rental payments, small-dollar loans, and other consumer-permissioned data.

“Each individual situation is different; the most important thing is finding a plan that fits the needs and financial goals of the individual,” emphasizes Langkamp. “In addition to resources like Achieve Credit Builder™, our bank encourages our customers to take advantage of self-reporting opportunities like rental housing, and other payments that may not be reflected on a credit report.”

As establishing good credit remains a critical component of one’s ability to acquire wealth, self-reporting has quickly become an integral aspect in assisting individuals to easily establish a credit score.

In an effort to make credit accessible to all communities, Experian has developed free resources for consumers to utilize as they develop their credit score. Experian Go™ provides individuals with education and insights unique to their credit journey. Experian Boost™ allows consumers to connect their bank account or credit card to their Experian credit file. By making on-time payments, individuals can highlight their good spending habits and raise their credit score.

“By using expanded data sources and better analytics in credit decisions, banks can help more consumers gain access to credit while making more informed decisions,” says Greg Wright, executive vice president and chief product officer for Experian Consumer Information Services. “This is a win for both lenders and consumers — and it’s just the right thing to do.”

Wright adds that score models used today have historically left nearly 50 million Americans living with a limited credit history locked out of the credit ecosystem. “Leveraging expanded data sources and advanced analytics can help change this narrative,” he emphasizes.

While credit invisible and unscorable individuals remain a significant portion of our communities, there are many opportunities for banks to assist. Whether it be offering low-cost products and secured credit cards or encouraging consumers to utilize resources that educate them on their individual credit journey, bankers play a major role in promoting financial security for generations to come.

“This is an exciting time for the banking and financial services industry,” concludes Wright. “By leveraging the right tools, we are nearing a point where we can say — no matter who you are, where you live, or what part of your financial journey you’re on — that we can score you and help you access the financial services you need.”

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Supporting WBA’s Advocacy Infrastructure, a Key to Success

By Lorenzo Cruz

With the fall elections finally behind us, the Wisconsin Bankers Association (WBA) can begin pivoting in preparation for the 2023 legislative session and another round of elections occurring this spring. The passage of a state budget that includes a $6.6B budget surplus will occupy the time of most legislators, the Governor, and state agency heads. A State Supreme Court race and a special election for the 8th State Senate District will keep the candidates busy and usher in another flood of campaign spending.

Last year, outside groups shattered the previous record and spent more than $93M on the Governor and other state races, according to the Wisconsin Democracy Campaign. The skyrocketing campaign costs and the increasing need to support pro-banking candidates requires WBA to double down on the financial equation of its advocacy infrastructure. With the start of the new year, our Association is kicking off two new initiatives — the WBA Leadership Circle and the Hall of Fame — and making changes to contribution levels for the Silver Triangle Club and Gold Triangle Club.

New Opportunities to Engage

WBA’s Leadership Circle is for major investors and passionate bankers who are committed to investing and creating a healthy future for member banks and the communities they serve. To join the Leadership Circle at the platinum level, a major investor would need to contribute $3,000 or more annually to Wisbankpac (PAC) and/or Alliance for Bankers Conduit (ABW).

To achieve Hall of Fame designation, a major investor would need an aggregate lifetime investment of $25,000 or more. Leadership Circle and Hall of Fame investors benefits could include: lapel pins, certificates, pens, online recognition, Wisconsin Banker picture recognition, Capitol Day/Conference recognition, and exclusive invitation to special events.

The personal contribution level has been increased from $500 to $1,000 for the Silver Triangle award. Individual bankers can earn the award by contributing $1,000 to any combination of the PAC, ABW, or WBA’s issue advocacy fund. Silver Triangle recipients are honored annually at WBA’s Bank Executives Conference.

To receive WBA’s Gold Triangle recognition, the total contribution amounts for banks based on assets have been increased to:

Gold Triangle is the highest level of bank fundraising recognition which can be achieved by employees contributing to the PAC or conduit or through corporate contributions to WBA’s issue advocacy fund.

Looking Ahead

As we transition into 2023, it is critical that bankers join forces with the Government Relations team to replenish the depleted coffers for the PAC, conduit, and issue funds. Growing the funds allows us to support pro-banking elected officials and provides a seat at the table for those able to positively shape and influence legislation and rules impacting the industry. WBA urges Advocacy Officers to meet with bank employees to encourage them to help us meet the year-end 2023 goal of raising $300,000 in political donations.

While WBA’s advocacy infrastructure is strong, it is important to build and expand upon it. Last year, our industry faced many legislative threats, from credit unions to credit card swipe fees. These challenges will likely return in 2023 as well as a wide range of other issues like elder fraud, taxation, banking modernization, fair access, trust code, and privacy. Our Association and its members cannot afford to be bystanders while other organized and well-financed groups push legislative solutions that are harmful to banks.

While WBA is taking a proactive lead to ensure that public policies adopted are beneficial to the industry, it is critical to enlist the help of bank leaders to expand the base by designating an Advocacy Officer if they have not already done so. Moreover, WBA’s Government Relations team calls upon all bank executives, Advocacy Officers, and bankers to step up and answer the call to support WBA’s advocacy infrastructure by joining the Leadership Circle, being a Hall of Fame member, becoming a Silver Triangle member, and achieving Gold Triangle and BIGG recognition.

Now more than ever is the time to unify behind strengthening and expanding WBA’s advocacy infrastructure. The political stakes are high, but together we can function as one united voice amplifying WBA’s priorities at the State Capitol while protecting the interests of member banks doing business in Wisconsin.

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Legal Q&A: Name and Signature Inconsistency in Documentation

Banks should consider document type, purpose, relevant issues

By Scott Birrenkott

Q: What Name Should Banks Use for Customers When Completing Documents?

A: The name that should appear, and be signed, on documents depends on a few things. Primarily, the type of documents being signed, the purpose for which the customer’s name is appearing, and any relevant rules.

Typically, a customer has a single, consistent name which will appear on documents, disclosures, and other communications and match their signature. However, there are scenarios where this is not the case. A customer might use inconsistent capitalization, or go by different names, such as a “nickname,” or perhaps use their middle initial in some situations, or a “Jr.” or “Sr.” designation. There may also be situations where a customer changes their name, either because of a marriage, or other situation — such as a change in identity or gender transition — and a change from an individual’s “deadname.”

Banks should consider how various types of documentation can be affected. For example, if opening a checking account, the specimen signature is important to verifying transactions on the account. If a customer provides a specimen signature which does not match the signature they intend to use on checks, that can result in a question as to whether certain items are authorized. For this reason, the signature card should match the name the customer intends to use when authorizing transactions and should be updated if a change occurs.

When entering into a contract, best practice would be using the customer’s legal name, as provided by customer. The customer should sign in a manner by which they intend to be bound. There are no specific standards for a signature, other than that it reflects the party’s intent to be bound. For example, a customer might sign in a manner different from the way their name otherwise appears on documentation, such as whether they use a middle initial in their signature or not. Or how they capitalize their signature, or whether they are able to sign their name at all and perhaps can only make a mark or symbol such as a checkmark or “X.”

Banks must consider whether the documents properly identify its customer, and whether the signature affixed to the document reflects a valid contract. In this regard, it is ultimately a matter of policy and preference, but a best practice recommendation would be for the bank to be consistent in how the name appears throughout all the documentation, and the signature itself.

However, when it comes to Uniform Commercial Code (UCC) financing statements, there are specific rules which must be followed. This article does not delve into the specifics, but banks should consider that for filing UCC financing statements, the filing should reflect the debtor’s exact name as required by Wis. Stat. section 409.503.

For any questions regarding customer names, accuracy of UCC financing statements, or other topics, contact WBA legal. Additional compliance resources can be found at wisbank.com/resources/compliance.

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From The Fields: Change Happens

By Darla Sikora, Citizens State Bank of Loyal

Greetings fellow Ag Bankers! As another year sprints to a close, it’s only natural to reflect on the changes of the past few years. In our line of work, we don’t have to look back very far to see the monumental changes in the world of agriculture. Take farm numbers for example. Focusing on dairy agriculture, as we tend to do here in Wisconsin, according to the National Agricultural Statistics Service we had about 25,000 dairy farms in 1995, with 9,304 as of January 2017. As of September 2022, the Wisconsin Agricultural Statistics Service data indicates we now have about 6,300 dairy farms or a decrease by nearly a third in the past five years. Coupled with Wisconsin’s continued dairy productivity, our farming landscape changes in a myriad of ways.

Photo provided by Darla Sikora. A new life, a new year on the horizon.

Honing in on 2022, in addition to our customers dealing with significant increases in farm operating costs, interest rates began to rise at a rapid pace. Before March, the last Fed Funds Rate increases were in 2017 and 2018 and those were 25 basis point increases, nothing like the four 75 basis point surges (among others) in 2022. Perhaps this is why our jobs never get boring! Every year and every new season we have different circumstances to deal with because our customers have different circumstances to deal with. I recall listening to Dr. David Kohl at an ag banking seminar a number of years ago as he told us that in order to be good at our jobs, we not only need to know our jobs, but we also need to know what our customers face in their farm businesses. That relationship between us and the farms we serve is what makes Ag Banking a rather unique career. Our customers need to know that we understand their situations and challenges so that we can work with them to find the banking products and programs that best fit their farming styles, needs, goals, and objectives.

In part, to continue to be successful, in some ways, farms are changing. Those that are flexible, open to new opportunities, technologies, and practices, and in general are adaptable perhaps stand a better chance for future success. This doesn’t mean that everything on the farm, or elsewhere, should change. From the banking perspective for example, analyzing credits using the old 5 or 6 C’s of credit still makes a ton of sense. Also not wavering too far outside important and useful farm financial numbers and ratios remains sensible for both bank and farm.

The year is nearly finished and a new one is on the horizon. More hours of sunlight will be welcomed and nearly everyone I know eagerly anticipates springtime with new ideas and possibilities. As you gather with family and friends throughout the holiday season, be sure to include plenty of Wisconsin agriculture’s finest in your celebrations! From cheese to egg nog, from cranberries to beef, and hot cocoa made with whole milk, what’s not to love about Wisconsin’s agricultural products! We bid a fond farewell to 2022 and cheers to us all in the New Year!

Darla Sikora is senior vice president of agricultural banking with Citizens State Bank of Loyal. Sikora also currently serves as the Past Chair of the WBA Agricultural Bankers Section Board of Directors.

 

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December 2022 Compliance Journal

The December 2022 WBA Compliance Journal is now available. In this edition, WBA Legal summarizes recent revisions to Wisconsin’s uniform limited partnership and LLC rules, effective January 1, 2023. Also included is a reminder of the lower closed-end mortgage loan reporting threshold under HMDA, Regulation C due to a recent court decision. The publication also includes a summary of recently published agency rules and notices and other important compliance-related updates for bankers, including the Wisconsin Department of Financial Institution’s 2023 required escrow account interest rate. Also, this month — insights from Linda Blom, vice president – chief risk officer, BLC Community Bank, who is retiring this month having been in banking since 1978! Congrats, Linda!
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