Volume 13, No. 6 November/December 2010

Transcription

1 Volume 13, No. 6 November/December 2010 Inside: Economic Forecast: Stormy Weather New Incentive Compensation Guidance from Regulators Community Banking Will Always Have a Niche Community Involvement Banconomics Bank Valuation and the Capital Markets CBW Announces Retirement

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3 Inside 4 Economic Forecast: Stormy Weather 8 New Incentive Compensation Guidance from Regulators 10 Community Banking Will Always Have a Niche 12 Community Involvement 13 Banconomics 18 Bank Valuation and the Capital Markets 26 CBW Announces Retirement Published by Community Bankers of Wisconsin through Client Communications Editor and Publisher: Doris Green Contributor: Mary Lou Santovec Art Director: Lisa Imhoff, Grey Horse Studio Editorial or subscriptions: Doris Green at green@merr.com or fax (608) Advertising: Penny Heberlein, CBW vice president, membership services, at (608) or contact Doris Green COMMUNITY BANKERS OF WISCONSIN BOARD OF DIRECTORS CHAIRMAN: Steve Bell, Community State Bank, Union Grove CHAIRMAN ELECT: James Tubbs, State Bank of Cross Plains VICE CHAIRMAN: Paul Hoffmann, Monona State Bank PAST CHAIRMAN: Russ Kuehn, The First National Bank of Berlin SECRETARY/TREASURER: Mary Jo Ceniti, Farmers Savings Bank, Mineral Point ICBA DIRECTOR: Rick Busch, Royal Bank, Gays Mills ICBA DIRECTOR: Butch Pomeroy, International Bank of Amherst Jon Mentink, First Bank of Baldwin Tom Armstrong, The First National Bank of Park Falls Steve Zeman, Union State Bank, West Salem John Slatky, Bank of Luxemburg Stan Leedle, Choice Bank, Oshkosh Jerry O Connor, The National Bank of Waupun Gregory Kolton, Foundations Bank, Pewaukee John Dorshorst, Gratiot State Bank Sigurd Bringe, Bank of Deerfield Fred Siemers, River Cities Bank, Wisconsin Rapids Randolph Malueg, Heritage Bank, Spencer CBW STAFF President and CEO: Daryll Lund Executive Vice President: Rick McGuigan Senior Vice President (CBW Financial Services): Kevin Christians Senior Vice President (CBW Financial Services): Phil Hoover Vice President (Membership Services): Penny Heberlein Program Administrator: Sandra Gruber Account Manager and Legislative Assistant: Shannon Schlueter Account Manager: Jami Erickson 455 County Road M, Ste. 101 Madison, WI Ph: (608) Fax: (608) info@communitybankers.org Wisconsin Community Banking News is provided at no cost to CBW members. The current and past issues are available on the CBW Web site: www. communitybankers.org. CBW Moves Forward Following 2010 Elections Steven Bell, CBW Chairman, and President and CEO, Community State Bank, Union Grove In the last magazine I offered two goals for our association this year: That all members understand that CBW is your organization it s not about me, the board, or Daryll [Lund]. It s about you. That we become more politically active we have to understand our issues and get these issues out to the legislators in Wisconsin and out nationally through ICBA. To those of you who were active during the fall elections, thank you for stepping forward to advocate for community banking at all levels. The better informed that candidates and media representatives are about community banking issues, the greater the benefit to the economic health and quality of life in our communities. Recently, CBW announced a new task force to review the 38-year-old Wisconsin Consumer Act (WCA), which provides a framework for the state s consumer protection laws. It regulates consumer credit transactions and debt collection for example, loans, credit cards, credit sales, second mortgages, and leases. It mandates detailed disclosures in credit contracts and advertisements; limits certain interest and non-interest charges assessed in credit transactions; provides a three-day right to cancel certain contracts; requires judicial process in specific repossessions; and prohibits certain collection practices. The WCA has not kept pace with the changes in consumer credit, such as electronic and Internet banking. With the newly created federal Consumer Financial Protection Bureau (CFPB), it is important that state consumer credit regulations such as the WCA do not provide for redundant overlay of disclosures and regulations. Review and possible changes to the WCA will be a top priority of CBW in the upcoming legislative session. The CBW task force includes community bankers, CBW legal counsel Godfrey & Kahn and possibly other interested groups. Community bankers interested in serving on the task force should contact Daryll Lund at or daryll@ communitybankers.org. We also welcome your thoughts on other concerns to address in On our cover... The Bank of Lake Mills, which dates to 1893, opened a full-service branch office in Watertown earlier this year. It is located at 400 Bernard St., in front of a new Pick N Save store and near the intersection with Church Street (Hwy. 26). The facility was designed by TWP Architecture, Elm Grove, and features a community room, office, and retail space. The interior was designed to celebrate historic Watertown, with wood beams and columns, as well as a custom mural of images depicting the historic city. November/December 2010 Wisconsin Community Banking News 3

4 Economic Forecast: Stormy Weather Mary Lou Santovec Are you classical or Keynesian? Your preferred theory drives your economic philosophy and your perceptions of the economy. Classical economists think the economy is inherently stable and that government policies produce business cycles and inflation. It s government mistakes that cause booms and busts. Keynesians take the opposite approach believing that in an inherently unstable economy, confidence drives spending and markets. Active government policies can stabilize the economy. Booms and busts are caused by bad decision-making. A wise government will offset any mistakes. Dr. Robert Genetski is a dyed-in-thewool classical economist. He s also the president of his own economic forecasting consulting firm, a former senior vice president and chief economist for Harris Bank, an author, a faculty member at the University of Chicago, and a selfprofessed optimist. Genetski brought his economic expertise (and sense of humor) to the Community Bankers of Wisconsin s annual Conference and Expo in September prior to the Federal Reserve decision to purchase $600 billion in bonds. Five Conclusions With the world in recovery from the worst recession since the Great Depression, there s limited confidence in what lies ahead. Genetski, who defined an economist as someone who loves to play with numbers but doesn t have the personality to be an accountant, offered some hope. He began by drawing five conclusions. The recovery that s existed in the past year will stall out over the next six to nine months. Interest rates will stay close to historic lows for the same time period. With huge increases in government spending and debt, we ll be borrowing huge portions from savings. Policy changes related to tax increases and the cost for the new health care legislation will put significant pressure on the banking industry and its customers. The good news: all the barriers to significant economic recovery are put in place by our representatives and can be removed. While all policymakers want to do the right thing, the Great Recession has revealed a wide gap between the two schools of economic thought. Pointing to what he sees as a flaw in Keynesian reasoning, Genetski noted that although individuals can spend more than they earn, nations can t. Borrowing involves using other people s income. If your salary is $100,000, you produced $100,000 worth of goods and services to earn it. We all collectively earned $14 trillion last year, so that s the amount of money the government has to spend. Classical economists believe that government doesn t spend money as efficiently as people in the private sector do. And because the government doesn t produce goods and services but borrows or takes away money that could be used to produce them, government spending can t stimulate the economy. Classical economists advocate low taxes and limited government, protection of property rights, and a stable currency. Low tax rates are found in the Old Testament, Genetski quipped. Even God doesn t ask for more than 10 percent of our income. Whenever classical principles have been adopted, improved economic conditions have followed close behind. At the end of World War I under President Woodrow Wilson, high interest rates created much misery. When Warren Harding was elected in the early 1920s, he cut government spending by almost 50 percent. That money went to people who created goods and services and led to the most rapid period of growth ever seen from $2 trillion to a collective $4 trillion. The 1930s brought rapid increases in government spending and the result, said Genetski, was the Great Depression. For a modern-day example, look east. China has had the most spectacular performance during the past three decades. Genetski expects the Chinese to pass the United States economy within five years. To achieve this staggering growth, Chinese leaders are following the tenets of classical economists. During the presidencies of Reagan through Bush, cuts in the tax rates, a positive classical principle, slowed government spending. But increases in government stimulus put the brakes on whatever growth was occurring. During the 1980s and 90s, the number of jobs created and the number of hours worked both rose. But both have been in decline during the past decade. Genetski believes it s the Federal Reserve that leads people to increase or decrease their spending levels. It s the only group other than counterfeiters to create money out of thin air, he quipped. What would happen in your community if a counterfeiter passed off money as if it was real? Spending would appear to have gone up. Classical economists believe that scenario accurately reflects some of the Federal Reserve s actions. When the Federal Reserve writes a check to purchase government securities from an investment bank, the bank then sends the securities to the Fed and deposits the check. The Fed gets cash reserves to spend. But during that transaction, no goods or services were created. After the Fed increases its bank reserves, it should cause a boom in spending. But some individuals, fearful of the future, won t put the extra money in the bank; they ll want to hold it. Some banks will decide to not keep their money on deposit at the Federal Reserve. Both practices halt the expansion of credit. When the Fed saw inflation climb in 2005, it reduced the amount of reserves in the system by 3 percent. The result was a drop in growth from 5 percent to a negative 3 percent. We have never had a peacetime recession without the Federal Reserve slowing down bank reserves, Genetski said. Beginning in fall 2008, the Fed increased the amount of reserves in the system and agreed to pay interest on continued on page 6 4 Wisconsin Community Banking News November/December 2010

5 Elections Have Consequences And Create Opportunities Thank you for the support you have given to the Community Bankers of Wisconsin during this past year. Because of your support CBW will be finishing 2010 in a strong financial condition and is well positioned to carry out our mission of exclusively serving the Wisconsin community banking industry in the coming years. Looking ahead to 2011, CBW will be celebrating its 30 th anniversary as an association. As it was in 1981 and is still true today, CBW remains committed to being a strong advocate for the community banking industry before lawmakers, regulators, and the public. Now more than ever the CBW founding principles provide important guidance for your association to follow. These aims include: Encourage continuation of the dual system of state and national banking, which recognizes the autonomy of states in banking matters. Preserve competition in banking and oppose the concentration of control of banking resources. Extend the usefulness and influence of our banking system and strengthen our economy through closer cooperation among the independent bankers of Wisconsin. Promote new, more versatile, and service conscious ideas; better business methods, and higher ethical standards; and improve education in banking. Assist in the advancement of independent banking and the protection of the public. We all agree this past year has truly been historic for our industry with passage of sweeping financial reform legislation. In addition, the 2010 elections will bring about many new faces both in Madison and Washington D.C. Wisconsin led the nation in changes due to the recent elections as the only state where Republicans gained the governor s office, a U.S. Senate seat, two U.S. House seats, and both houses of the state legislature. While elections have consequences, elections also create opportunities. Community bankers must now work together to make sure policymakers follow through on the important distinctions made in the financial reform legislation between Main Street community banks and Wall Street firms. Over the next few years, as the rulemaking takes place, CBW, working in partnership with ICBA, will be there every step of the way, visiting members of Congress and regulators, attending hearing and rulemaking sessions, and taking every appropriate opportunity to influence how the regulations will be written and enforced. We will also continue to work with Congress to explore changing some aspects of the new law that may hinder community banking. On the state level, CBW recently announced the formation of a task force to review the Wisconsin Consumer Act (WCA). The WCA was enacted in 1972 to regulate consumer credit transactions and collection of consumer debt. Community banks, as well as other financial services providers, are directly impacted by the WCA which provides a framework for Wisconsin consumer protection laws. The WCA is now almost 40 years old Daryll Lund, CAE, CBW President and CEO and has not kept pace with the changes in consumer credit such as electronic and Internet banking. Review of and possible changes to the WCA will be a top priority of CBW in the upcoming legislative session. With the newly created federal Consumer Financial Protection Bureau (CFPB), it is important that state consumer credit regulations such as the WCA do not provide for redundant overlay of disclosures and regulations. Thank you again for your support of CBW this past year. We look forward to our continued partnership in the coming year, filled with new opportunities for the Wisconsin community banking industry and your association. Customers Enjoy Expanded Surcharge-Free Network AND Easy Ways to Locate Participating ATMs CBW s ATM Access network has partnered with the In Balance Alliance offered by the Independent Community Bankers of Minnesota, to expand surcharge-free access. Cardholders traveling across the Wisconsin- Minnesota border can now freely withdraw money at 900 ATMs. Cardholders driving anywhere in the two states can find the closest surchargefree ATMs by connecting to the Internet via their Blackberry or other mobile device. Cardholders can also visit the CBW website ( org) to search for participating ATMs by city or participating community bank. To learn more, call CBW at November/December 2010 Wisconsin Community Banking News 5

6 Young & Associates, Inc. Liquidity Planning Strategic Planning Regulatory Assistance Stock Valuations Capital Markets Expansion & De Novo Bank Charters Internal Audit Information Technology Recruitment & Human Resources Lending & Loan Review Compliance Policy Development younginc.com Bankers Working For Bankers money banks kept on deposit. But during the past year, there s been no increase in reserves at the Fed and no new money entering the system. But there have been some green shoots, unsustainable ones, but shoots nonetheless of recovery. The burden of the new legislation will dramatically increase the cost of compliance: $2.7 trillion to comply with the health care legislation alone. This is not for helping people with health care, Genetski said. This is just the cost for complying with the legislation and hiring consultants. The financial reform legislation is expected to cost $1.5 trillion and be 30 times more involved and costly than Sarbanes Oxley. Strategies for Bankers What strategies can bankers employ to succeed in such a challenging environment? Because monetary policy is an extremely powerful tool, Genetski recommends bankers closely monitor their reserves. Data produced by the Federal Reserve Bank of St. Louis can offer good guidance. Bankers must guard against potential future price increases. Now is the time to acquire technology associated with the shortest payback period. Understand that there s no such thing as a fiscal stimulus. Increases in government spending tend to weaken the economy and don t increase spending by businesses or individuals. We ve been down this road before during the late 19-teens, the 1930s, and the 1970s. During those years, politicians said more regulation was needed and the economy got worse. Whenever classical economic principles have been shunned, the stock market has had months of declines. Longer-term forecasts for the stock market show the fundamentals to be significantly undervalued. Companies are building up their cash reserves because they don t know what the new programs will eventually cost them. Genetski doesn t see much in the way of spending in the next six to nine months, nor does he believe that a double-dip recession is around the corner. He expects very little, if any, growth. Financial institutions will continue to be under pressure until the Fed loosens its monetary policy. There will be delayed potential for higher inflation. Tax increases will hit various segments of the population in Income taxes for all taxpayers will be up. Capital gains will increase from 15 to 20 percent as will taxes on dividends. But Genetski, ever the optimist, noted, Research out of Europe has uncovered more bad news for pessimists compared to optimists. Optimists live longer, are happier, and play better golf. Daryll Lund Earns CAE Recertification The Certified Association Executive (CAE) Commission of the American Society of Association Executives recently renewed the CAE credential of CBW president and CEO Daryll Lund. CAE applicants undertake significant studies and an exam, and the certification must be renewed every three years through additional studies and leadership activities. Less than five percent of all association professional have achieved certification. 6 Wisconsin Community Banking News November/December 2010

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8 New Incentive Compensation Guidance from Regulators: What It Means for Community Banks Recognizing how out-of-control incentive compensation practices at some large financial institutions impacted our current financial crisis, the Federal Reserve, OCC, FDIC, and OTS have issued final guidance o n i n centive compensation (the Guidance ), to steer banks into crafting more appropriately risk-balanced compensation programs. (See, F.R. Docket No. M. Scott LeBlanc OP-1374, June 21, 2010). Unlike the European Union, which created rigid, specific limits on bonuses, the Guidance is a flexible set of guidelines to help banks identify the risks inherent in certain compensation arrangements. While the Guidance s main focus is on the largest banks, it also creates new regulatory expectations for everyone. Community banks and their boards should address these new expectations regarding incentive compensation practices during the exam process. To determine how this new Guidance will affect your bank, first identify how much your bank uses incentive compensation. Here, incentive compensation is defined as any portion of an employee s salary or potential compensation tied to achieving certain metrics such as a level of sales, revenue, or income. While this captures a wide range of compensation systems, the Guidance is primarily concerned with arrangements that could encourage risky behavior. If your bank s only use of incentive compensation is through a lowerrisk program, such as a firm-wide profit sharing or bonus plan based on your bank s overall profitability, the Guidance will have few, if any, additional requirements for your bank. The Guidance does not cover other forms of compensation or benefits, such as salaries or 401(k) plans. If your bank uses an incentive compensation system for some or all 8 Wisconsin Community Banking News November/December 2010 COUNSELOR S CORNER employees, the Guidance requires banks to identify whether those employees expose your institution to material amounts of risk. These employees could include not only senior executives and others responsible for overseeing company-wide policies and activities, but also non-executive employees who expose the firm to large amounts of risk, and any groups of employees receiving similar incentives who, in the aggregate, expose the organization to material risks. These may include loan officers who, as a group, originate loans that account for a material amount of your institution s credit risk. Next, identify the range of risks created by the incentivized employees. Such risks may include credit, market, liquidity, operational, legal, compliance, and reputational risks. When available, the Guidance suggests that banks use quantitative measures of risk and risk outcomes to develop their incentive compensation arrangements. When reliable data is not available, banks should be able to show that they made informed judgments in estimating risks. If your staff includes risk-management personnel, the Guidance says those employees should assess and evaluate the risks of your incentive compensation. For every incentive-compensated employee that exposes your organization to material risks, the regulators will be looking to see that the incentives appropriately balance risk with financial results. For example, if two employees generate the same short-term revenue, but the activities of one employee creates larger risks, the higher-risk employee should be paid less under a balanced incentive compensation arrangement. The Guidance encourages banks to review any existing or proposed golden parachute arrangements, where an employee is guaranteed a payout upon leaving the institution regardless of performance. Tying incentive compensation to firm-wide (rather than individual) performance, using deferred payments and clawbacks, and extending performance periods are some of the methods suggested by the Guidance for those banks looking to balance their incentive compensation practices. The Guidance says that all banks should create and maintain sufficient documentation to facilitate a review of the effectiveness of the bank s processes for establishing, modifying, and monitoring incentive compensation arrangements. These reviews should be incorporated into your bank s normal compliance monitoring procedures. A monitoring process, appropriate for the size and complexity of your bank, could be set up to track payments made, risks taken, and actual risk outcomes so that compensation levels may be appropriately adjusted. The Guidance sets forth new responsibilities for boards of directors. The board should be directly responsible for approving any incentive compensation arrangement for senior executives, as well as any adjustments in those arrangements. The board should make sure such arrangements are balanced and keep the bank s safety in mind. Management should provide the board with appropriate data and analysis to allow it to make informed decisions about incentive compensation. If your board does not have a level of expertise appropriate for your bank s use of incentive compensation, the Guidance suggests that outside counsel or consultants facilitate the board s review processes. While the new Guidance is targeted toward large, complex financial institutions, the regulatory agencies will also pay closer attention to incentive compensation during their safety and soundness examinations of community banks. By taking the steps above, banks can increase their safety and stability while decreasing the possibility of a regulatory enforcement action. M. Scott LeBlanc is a third-year law student at Duke Law School in Durham, N.C., and executive editor for the Duke Journal of Constitutional Law & Public Policy and staff editor of the Duke Environmental Law and Policy Forum.

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10 Community Banking Will Always Have a Niche James Ghiglieri Jr., SHAZAM Vice President of Corporate Communications As I travel around the country and hear the sad stories about good financial institutions and good bankers caught up in the collapse of the real estate market and the changing financial landscape, it leads one to question the future of community banking. The big financial institutions will always survive because they are systemically important to our economy, and the government will always be there as their safety net. Unfortunately, community financial institutions do not enjoy the same level of reassurance. Community bankers must adapt to the changing economy and are preparing for literally hundreds of new regulations that always fall disproportionately hard on community financial institutions. I have heard speculation that the number of financial institution charters will fall from around 8,000 to 3,000 in the next couple of years. Many so-called Let s face it, these days we could all use a little help, right? experts suggest that hundreds of financial institutions will fail and thousands more will tire of fighting the fight and sell their institutions, which will lead to massive industry consolidation. I, however, have a much different and more optimistic view of the future of community banking. I started my banking career in 1976 during another difficult time in the history of banking. During that time, banking was protected by an old regulation, Regulation Q. This regulation set limits on the rates that could be paid on deposits, and various state laws limited the rates that could be charged for loans. Every financial institution had, by regulation, a built-in net interest margin that allowed banks to prosper. The only thing they had to worry about was credit quality. Then our economy experienced double-digit inflation and Regulation Q was repealed. Institutions could set their own interest rates. The early 1980s saw the prime rate increase to a high of 18.5 percent. Certificates of deposits were The major payments systems are evolving and, in some cases, converging. Keeping up with the changing payments landscape may require assistance from a payments authority. WACHA-The Premier Payments Resource is a leading authority on all things payments related. With the recent changes to payments legislation, technology and rules and requirements, you could probably use a little help sorting through it all. WACHA has the expertise, experience and the resources you need to help you meet these payments challenges. Manning our Payments Service Desk is our staff of Accredited ACH Professionals who are available to answer all your payments-related questions. WACHA s staff of experienced professionals also provides payments training and on-site compliance services such as audits and risk assessments. For more information on how WACHA can help you, please visit us on our website at paying over 15 percent, and mortgage rates were 21 percent. All of this was done to break the back of inflation, and it was successful. Despite the success, over 1,500 institutions failed during that time, mostly savings and loan institutions, financial institutions in Texas, and institutions in the Midwest farm states. These were horrible, devastating times for the industry, and widely held speculation said that we were moving toward the Canadian model where we would only have a handful of huge, national banks. Of course, a review of the results of that period showed a very different outcome. While there was a reduction of bank charters from 16,000 to 12,000, community bankers showed their creativity, tenacity, and entrepreneurial spirit, and by 1990 were thriving again. Community banks became our nation s small business lenders, where they were providing credit to over 40 percent of the start-up companies in the country while holding only 15 percent of the domestic deposits. They were the people who sat across the desk from the business owners who had an idea but no money. They understood character lending and fueled the creation of the greatest economy the world has ever seen. I am giving you this background to articulate my strong feeling that there will always be an important niche for community banks in our economy. I have such faith in the creativity, passion, and spirit of community bankers. It will not be easy for bankers to overcome the challenges ahead. Real estate values and suffocating regulatory burdens will test the mettle of the bankers over the next couple of years, but I am as confident as I have ever been in the future of community banking. 10 Wisconsin Community Banking News November/December 2010

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12 Attention Lenders: Feeling trapped? You need earning assets but are paralyzed between regulatory constraints and budget volume expectations. You are not alone. We ve been there too, side by side with the banks we serve, working through challenges of the past few years. Many stable banks are again looking to add loan volume. Collectively we can assist each other. We re here to reduce the barriers and help you connect to a strong network of Midwest banks also looking for additional interest margin. Your freedom is just a phone call away. Scott Krieger Jeff Niesen Eau Claire, WI Madison, WI x x State Bank of Cross Plains Aids Charitable Programs CROSS PLAINS The State Bank of Cross Plains raised $3,620 for Common Threads Family Resource Center at an October brat sale and November bake sale. In addition, the bank collected 103 new teddy bears for HospiceCare, Inc. s Dori Bear Program. Common Threads Family Resource Center enhances the development of children with emotional, behavioral, and cognitive challenges and supports their families. Common Threads provides innovative services to assist families in maintaining a balance between meeting their many challenges and flourishing as a family ( HospiceCare, Inc. s Dori Bear Program provides new teddy bears to patients and their loved ones. Patients appreciate the bears, and family members find comfort in the bears during their experience with HospiceCare and then cherish their Dori Bear for years ( Bank Helps Revitalize Downtown OCONOMOWOC Between the two-year-long road construction project that shut down traffic through downtown and the U.S. economy plunging into the Great Recession, many downtown Oconomowoc businesses struggled to survive while others shut their doors for good. To help attract more businesses to the downtown area, the City of Oconomowoc and First Bank COMMUNITY INVOLVEMENT Jen Simons, owner of Ambiance Salon, outside her new storefront Financial Centre (FBFC) established a Downtown Oconomowoc Business Loan Pool and FBFC committed $300,000 to the loan pool. Eligible expenses for the loans include acquisition of property, building improvements, equipment purchases, and environmental or safety compliance. Three businesses have so far taken advantage of the Loan Pool funds in addition to an SBA loan from FBFC. When her lease expired, Jen Simon, owner of Ambiance Salon, received funding through the Loan Pool program and partnered with FBFC to obtain an SBA loan to purchase a building on Wisconsin Avenue. Ambiance Salon will open in its new location in early Debbie and Marcos Contreras-Lopez, owners of Fiesta Cancun, are increasing and remodeling their restaurant. Finally, Lori Boldig is opening The Gallery, a new framing business. 12 Wisconsin Community Banking News November/December 2010

13 CBW Banconomics Update: Selected FDIC Bank Figures as of September 30, 2010 Institution, City M&I Marshall & Ilsley Bank, Milwaukee Total Assets ($000) Net Chargeoffs /Loans Non- Current Loans/ Loans Equity Capital/ Assets $50,022, Associated Bank, NA, Green Bay $22,244, Johnson Bank, Racine $5,215, AnchorBank, FSB, Madison $3,808, Bank Mutual, Milwaukee $3,432, FPC Financial, FSB, Madison $2,309, North Shore Bank FSB, Brookfield $1,911, WaterStone Bank, SSB, Wauwatosa $1,888, Guaranty Bank (MHC), Milwaukee $1,319, National Exchange Bank & Trust, Fond du Lac $1,264, Tri City National Bank, Oak Creek $1,076, Baylake Bank, Sturgeon Bay $1,052, River Valley Bank, Wausau* $1,010, First Business Bank, Madison $951, Park Bank, Madison $824, First National Bank & Trust Co., Beloit $823, Bank First National, Manitowoc $803, Baraboo National Bank $791, Park Bank, Milwaukee* $784, State Bank of Cross Plains $778, Waukesha State Bank $752, First Banking Center, Burlington $750, First National Bank, Waupaca* $738, Town Bank, Hartland $733, First Bank Financial Centre, Oconomowoc $656, Bremer Bank, NA, Menomonie $652, Investors Community Bank, Manitowoc $652, Westbury Bank, West Bend $636, Citizens Bank of Mukwonago $626, Nicolet National Bank, Green Bay $625, Community Bank & Trust, Sheboygan $614, Peoples State Bank, Wausau $599, Blackhawk State Bank, Beloit $598, Citizens Community Federal, Eau Claire $594, Time Federal Savings Bank, Medford $578, Great Midwest Bank, SSB, Brookfield $568, Thrivent Financial Bank, Appleton $559, Charter Bank Eau Claire* $544, Horicon Bank* $525, Institution, City National Bank of Commerce, Superior $524, Mid-Wisconsin Bank, Medford $499, PyraMax Bank, FSB, Greenfield $489, Equitable Bank, SSB, Wauwatosa $475, RidgeStone Bank, Brookfield $464, Wisconsin Community Bank, Madison $461, Dairy State Bank, Rice Lake $458, Bankers Bank, Madison $446, West Pointe Bank, Oshkosh $431, ISB Community Bank, Ixonia $394, Bank of Wisconsin Dells $391, Southport Bank, Kenosha* $381, Peoples State Bank, Prairie du Chien* $380, River Bank, Stoddard* $375, The Port Washington State Bank $366, Denmark State Bank $365, McFarland State Bank* $360, DMB Community Bank, De Forest $347, Fox Valley Savings Bank, Fond du Lac $344, Northwestern Bank, Chippewa Falls $339, Monona State Bank $335, Business Bank, Appleton $333, WoodTrust Bank, NA, Wis. Rapids* $321, Bank of Sun Prairie $312, State Bank Financial, La Crosse* $311, Peoples Bank of Wisconsin, Hayward* $311, First State Bank, New London $307, Security National Bank, Durand* $306, Commerce State Bank, West Bend $305, Abby Bank, Abbotsford $294, PremierBank, Fort Atkinson $291, First National Bank of River Falls* $291, Farmers & Merchants Union Bank, Columbus $283, First National Bank-Fox Valley, Neenah $276, Stephenson National Bank & Trust, Marinette* $275, Bank of Prairie Du Sac $273, Marshfield Savings Bank $264, Coulee Bank, La Crosse* $263, * Subchapter S Corporation Total Assets ($000) Net Chargeoffs /Loans Non- Current Loans/ Loans Equity Capital/ Assets November/December 2010 Wisconsin Community Banking News 13

14 CBW Banconomics Update: Selected FDIC Bank Figures as of September 30, 2010 Institution, City Mound City Bank, Platteville $261, Community State Bank, Union Grove* Total Assets ($000) Net Chargeoffs /Loans Non- Current Loans/ Loans Equity Capital/ Assets $260, Community Bank CBD, Delavan $254, InvestorsBank, Pewaukee* $251, Clare Bank, NA, Platteville* $249, The First National Bank of Berlin $248, Securant Bank & Trust, Menomonee Falls $248, Evergreen State Bank, Stoughton $246, Community First Bank, Boscobel* $244, East Wis. Savings Bank, SA, Kaukauna $244, Bank of Mauston* $243, Peoples Community Bank, Mazomanie $241, Capitol Bank, Madison $237, American Nat'l. Bank-Fox Cities, Appleton* $237, American Bank, Fond du Lac $232, Walworth State Bank* $229, Bank of Luxemburg $228, Chippewa Valley Bank, Winter* $225, Royal Bank, Elroy $222, First Citizens State Bank of Whitewater $221, Banks of Wisconsin, Kenosha* $220, Middleton Community Bank $220, Farmers Savings Bank, Mineral Point* $220, Northern State Bank, Ashland* $219, Jackson County Bank, Black River Falls* $218, BLC Community Bank, Little Chute* $217, Hartford Savings Bank $217, Foundations Bank, Pewaukee $212, United Bank, Osseo $207, Farmers & Merchants Bank, Tomah $207, Oak Bank, Fitchburg $207, Nekoosa Port Edwards State Bank, Nekoosa* $205, Legacy Bank, Milwaukee $205, Premier Community Bank, Marion $200, Bank of Alma $195, The First National Bank of Bangor $193, The Bank of New Glarus $192, Net Chargeoffs /Loans Non- Current Loans/ Loans Equity Capital/ Assets Total Assets Institution, City ($000) Eagle Valley Bank, NA, St. Croix Falls $190, River Cities Bank, Wisconsin Rapids $189, Oregon Community Bank & Trust $185, Union Bank & Trust Co., Evansville $185, Private Bank, NA, Milwaukee $184, The Farmers State Bank of Waupaca $182, Bank of Lake Mills* $182, Woodford State Bank $182, Peoples Bank, Elkhorn $181, Hometown Bank, Fond du Lac $179, Sterling Bank, Barron* $176, First Bank of Baldwin* $176, Timberwood Bank, Tomah $176, Farmers & Merchants Bank, Berlin $171, First Bus. Bank-Milw., Brookfield $170, Marathon Savings Bank, Wausau $168, Choice Bank, Oshkosh $161, Oostburg State Bank $160, Livingston State Bank $158, Intercity State Bank, Schofield $157, The First National Bank of Hartford $157, Peshtigo National Bank* $157, Paper City, SA, Wisconsin Rapids $155, Home Savings Bank, Madison $154, Farmers & Merchants Bank & Trust Co., Marinette $152, State Bank of Chilton* $152, First National Bank of Eagle River* $150, First National Community Bank, New Richmond* $149, Citizens State Bank, Hudson* $148, Waumandee State Bank $148, Citizens First Bank, Viroqua* $147, Citizens State Bank of Loyal $146, State Bank of Newburg $146, Laona State Bank $144, Layton State Bank, Milwaukee $142, Alliance Bank, Mondovi* $142, Sunset Bank & Savings, Waukesha $139, Shell Lake State Bank* $133, Farmers & Merchants State Bank, Waterloo $132, Markesan State Bank $127, First Federal Bank of Wis., Waukesha $127, * Subchapter S Corporation 14 Wisconsin Community Banking News November/December 2010

15 CBW Banconomics Update: Selected FDIC Bank Figures as of September 30, 2010 Institution, City Community Bank of Northern Wis., Rice Lake* $126, American Bank & Trust Wis., Cuba City* $125, The First National Bank of Platteville $123, Cornerstone Community Bank, Grafton $123, Community Bank of Central Wis., Colby $123, The National Bank of Waupun $123, Bay View Federal S&L, Milwaukee $122, Bank North, Crivitz $120, Advantage Community Bank, Dorchester $120, Wolf River Community Bank, Hortonville $118, Bay Bank, Green Bay $118, The Bank of Brodhead $117, Integrity First Bank, Wausau $114, Grand Marsh State Bank $112, Badger Bank, Fort Atkinson $109, State Bank of Arcadia* $109, Marathon State Bank $107, Peoples State Bank of Bloomer $107, The American National Bank of Beaver Dam $106, Richland County Bank, Richland Center $105, Pioneer Bank, Auburndale $104, Spring Bank, Brookfield $102, Community Bank of Cameron* $102, Fox River State Bank, Burlington $102, Stratford State Bank $102, Mid America Bank, Janesville $100, Citizens State Bank, Cadott $98, Bank of Kaukauna* $96, First National Bank of Park Falls* $96, Security State Bank, Iron River $95, North Milwaukee State Bank $94, Fidelity National Bank, Medford $94, Portage County Bank, Almond* $92, Cambridge State Bank $92, Bank of Deerfield* $92, Banner Banks, Birnamwood* $92, Citizens Bank of Clayton* $90, * Subchapter S Corporation Total Assets ($000) Net Chargeoffs /Loans Non- Current Loans/ Loans Equity Capital/ Assets Institution, City Total Assets ($000) Net Chargeoffs /Loans Non- Current Loans/ Loans Equity Capital/ Assets Union National Bank & Trust Co., Sparta $89, Farmers State Bank Hillsboro $89, TSB Bank, Lomira $88, Commercial Bank, Whitewater $88, Calumet County Bank, Brillion $86, Badger State Bank, Cassville* $86, Heritage Bank, Spencer $86, First National Bank at Darlington $85, Cumberland Federal Bank, FSB $84, First Bank, Tomah $84, Bank of Poynette $84, Union State Bank, Kewaunee $83, Bank of Galesville* $83, River Falls State Bank* $82, KeySavings Bank, Wisconsin Rapids $80, Dairyland State Bank, Bruce* $79, Cleveland State Bank $79, Bank of Wausau $78, Farmers State Bank, Markesan $78, First Community Bank, Milton* $77, Hiawatha National Bank, Hager City* $75, First American Bank, NA, Hudson* $74, Tomahawk Community Bank S.S.B. $74, Settlers Bank, De Forest $73, Bank of Oakfield $73, Bank of Monticello $72, Black River Country Bank, Black River Falls* $71, State Bank of Florence $71, Mitchell Bank, Milwaukee $70, Unity Bank, Augusta* $70, Security Bank, New Auburn $68, Union Bank of Blair* $67, Bancroft State Bank* $66, Bank of Milton $66, Greenwood's State Bank, Lake Mills $66, Community First Bank, Rosholt* $65, The First National Bank of Niagara $64, Superior Savings Bank $64, Community Business Bank, Sauk City $63, Greenleaf Wayside Bank* $62, Lincoln Community Bank, Merrill $62, Pigeon Falls State Bank $62, November/December 2010 Wisconsin Community Banking News 15

16 CBW Banconomics Update: Selected FDIC Bank Figures as of September 30, 2010 Institution, City Headwaters State Bank, Land O'Lakes* Total Assets ($000) Net Chargeoffs /Loans Non- Current Loans/ Loans Equity Capital/ Assets $61, Bank of Turtle Lake* $59, Independence State Bank* $58, Pineries Bank, Stevens Point* $58, Bank of Cashton $57, Farmers & Merchants Bank of Kendall* $57, Pioneer Bank of Wisconsin, Ladysmith $56, Rural American Bank-Luck* $55, Union State Bank of West Salem $54, Mayville Savings Bank $53, Farmers Exchange Bank, Neshkoro $53, Hustisford State Bank $52, First National Bank & Trust, Barron* $48, La Farge State Bank $48, Northwestern Mutual Wealth Mngmnt Co., Milwaukee $48, Bonduel State Bank $47, Ladysmith Federal Savings and Loan Association $47, State Bank of Reeseville $47, Benton State Bank* $46, Town & Country Bank, Watertown $46, Collins State Bank $45, Waldo State Bank $45, International Bank of Amherst* $44, State Bank of Drummond $43, Park Bank, Holmen $41, Institution, City John O. Melby & Co. Bank, Whitehall* $40, Gratiot State Bank $39, Merrill Federal Savings and Loan Association $38, The Necedah Bank $38, Farmers & Merchants Bank, of Orfordville $37, Palmyra State Bank $37, WPS Community Bank, FSB, Madison $32, Superior Bank* $32, Community Financial Bank, Prentice $32, State Bank of Cazenovia $31, Bank of Ontario* $31, Woodhouse & Bartley Bank, Bloomington* $28, Farmers & Merchants Bank, Rudolph $27, Highland State Bank* $26, Community State Bank, Norwalk* $25, Columbia S&L, Milwaukee $22, State Bank, Gresham* $21, First National Bank in Tigerton* $20, Milton Savings Bank $16, M&I Bank of Mayville $3, Milton Savings Bank $17,159 -$ M&I Bank of Mayville $3,033 $ * Subchapter S Corporation Total Assets ($000) Net Chargeoffs /Loans Non- Current Loans/ Loans Equity Capital/ Assets Simplifying Business...Integrating Technology EDGE (3343) 161 Business Park Circle, Stoughton, WI Wisconsin Community Banking News November/December 2010

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18 Bank Valuation and the Capital Markets Mary Lou Santovec Capital position has become a theme in many recent banking articles, but capital is not just about loan loss reserves in the current recession. To take advantage of future opportunities, you must improve your capital position, Eric Radzak reminded attendees at the Community Bankers of Wisconsin s Management Conference and Expo held in Green Bay in September. Radzak is vice president, investment banking for Howe Barnes Hoefer & Arnett, a full-service brokerage firm headquartered in Chicago. Its equity capital markets department specializes in sales, trading, research, and investment banking services for community banks and thrifts. The golden years for bank valuations were between 2000 and 2004, Radzak observed. Beginning in 2005, rising interest rates, concerns over credit quality, the start of the slide in the housing markets, and the yield curve s inversion all served to figuratively push the industry off a cliff. Bank stocks used to trade at two times book. The median Midwest community bank now trades at 65 percent of book value (tangible assets minus liabilities) while across the rest of the country, the median community bank trades at 80 percent of book value. If you re trading at 80 percent of book value, you have more pain to go through, Radzak told the Wisconsin community bankers. And, with value at 65 percent, the pain seems agonizing. Wisconsin s banks trade at a discount when compared to other Midwestern states. Despite having higher capital ratios and a better overall economy, investors are leery about buying Wisconsin community bank stocks. Radzak blames the discounting partly on the fear of contagion. People wonder what s happening in Wisconsin when they look at M&I, he said. But Wisconsin banks are still making money and are profitable despite getting beaten up a little. With non-performing assets trading at 35 percent of book value, strong capital levels and solid asset quality have replaced growth as the driver for investors. Other factors include the level of core deposits, an experienced management team, a strong geographic footprint, attractive valuation, consistent profitability, and a distinct vision and business model. In seeking more capital, is your bank filling a hole or filling its war chest? Radzak asked. Banks issue a stock offering for two reasons: defense and offense. If a bank is playing defense, they need to protect against future asset quality issues. They may anticipate a change in future regulatory capital requirements or they may be doing it for regulatory relief. Those on the offense want to capture market share from distressed competitors. They can buy a competing institution at a considerable discount and branch into new markets, Radzak said. They may be preparing for growth in a recovering economy or want to use the capital for an acquisition. Wisconsin banks are still making When investors review the details money and are profitable. of a defensive offering, they consider how big the hole is to fill, whether the current management will stay or go, and the bank s core deposit franchise. They also will want a third-party loan review and to appraise the pre-tax, pre-provision earnings power. Investors reviewing an offensive offering will look at regulatory standing, management depth, the state of the markets, and the bank s vision/business plan. For banks wanting to raise $5 to $10 million in equity capital, it s likely they will have to expand outside of their markets (or their board or community). Stock dilution can be a concern. The more capital a bank raises below tangible book value, the more their stock is diluted. Debt capital is as difficult to raise as equity capital. Many investors were burned by trust-preferred pools and are now skeptics. Going forward with Dodd Frank, trust preferreds won t exist in the same form anymore. If you ve been able to raise a good amount of capital, what should you do with it? There are strong uses and weak uses. Repaying TARP, getting involved in FDIC-assisted transactions, and refinancing high-cost debt or de novo expansions into adjacent markets are good ways to use new capital. Rebuilding your capital base, because the regulators say so and survivability are weak reasons. In the year ahead, Radzak expects ratios to increase to 8 and 12. The exam cycle will get more difficult, calls for rebuilding the FDIC insurance fund will get louder, and mergers will increase. Expect more bank consolidations beyond In short, hang on to your seats. It s going to be a bumpy ride. 18 Wisconsin Community Banking News November/December 2010

19 SM SPECTRUM INVESTMENT ADVISORS Formerly known as Christiansen Investments, Spectrum Investment Advisors, Inc. specializes in monitoring and communicating investments to plan sponsors, participants, and individual investors. Retirement Plan Sponsor Services: 401(k) Fund Monitoring Scorecard Investment policy statements Plan provider selection Retirement Plan Participant Services: Spectrum Investor Model Portfolios Group presentations One-on-one educational meetings Individual Wealth Management: Spectrum Investor Model Portfolios Single statement asset consolidation Open architecture - fee based asset managment Colors Simplify Investing November/December 2010 Wisconsin Community Banking News 19

20 HOW WELL DID YOU SURVIVE? Did your BOLI take on water or did you pick up steam? The market turmoil of last year took its toll on many BOLI carriers leading to ratings downgrades and increased expenses. Now more than ever, banks need to learn more about what type of BOLI they own. As financial members of the Northwestern Mutual Financial Network, David Fritz and John Anderson have access to Northwestern Mutual s unique, high quality BOLI products. Plus, nobody provides better service and answers to your BOLI questions than EBN s team of professionals. EBN specializes in the design and administration of Bank Owned Life Insurance programs. Find out why over 150 regional banks have chosen EBN to provide a long-term BOLI solution. 626 E. Wisconsin Avenue Suite 1000 Milwaukee, WI EBN ebn- design.com Northwes tern Mut ual prod ucts are exclusiv ely offered through Financial Representatives of North western Mutual Life Ins urance Company, Milw aukee, e, WI. Executive Benefitefit fits Networ k is indep epen dent ly owned and operat rated and is not a subs idia diary of Northwe westernern Mutual. CBW s Telephone/Webcast training sessions bring the latest regulatory information right to the desks of your bank employees. Tuesday, Dec. 14: IRA Year-End Critical Issues Wednesday, Dec. 15: The Dodd- Frank Act: Strategic Issues for Directors and Senior Management Thursday, Dec. 16: Simplified NACHA Operating Rules: Effective January 1, 2011 Tuesday, Jan. 4: Terminating or Modifying HELOCs: Special Regulation Z Requirements Thursday, Jan. 6: IRA and HSA Annual Review and Update: 2010 Tax Year Tuesday, Jan. 11: Business Continuity Planning Including IT Issues Thursday, Jan. 13: ACH for Frontline Staff Wednesday, Jan. 19: Performing Your Social Media Risk Assessment Thursday, Jan. 20: Director Series: Directors and Enterprise Risk Management Friday, Jan. 21: FinCEN New Chapter X BSA Rules Simplification: Effective March 1, 2011 Tuesday, Jan. 25: Mandatory Compliance Training Series: Red Flags for Identity Theft Thursday, Jan.27: Deposit Operations Legal Update: A Look Back at 2010; A Look Ahead to Community Bankers for Compliance (CBC) Program For the ninth straight year Community Bankers of Wisconsin is sponsoring the Community Bankers for Compliance Program (CBC) in conjunction with Young & Associates, a nationally recognized compliance consulting firm that specializes in community banking. The CBC program is CBW s most highly rated educational program. The CBC program offers indepth training in banking compliance regulations. It consists of quarterly full-day seminars based on the most recent industry and regulatory developments, access to the Young & Associates toll-free compliance hotline, and a CBC members-only Web site that provides timely information and tools. The quarterly compliance seminars include a regulatory update and a comprehensive discussion of one or more compliance regulations. Attendees receive a 200-plus page compliance manual each quarter. The manual is a reference to the changing regulations and a training manual for other employees. The 2011 seminars will take place in Wausau on Jan. 25, April 19, July 26, and Oct. 18. They will also be held in Madison on Jan. 26, April 20, July 27, and Oct. 19. During the next two years there will be a record number of changes to the compliance regulations. It is extremely important for community bank compliance officers to understand and respond to these changing regulations. One of the program s major advantages is the peer networking that occurs during each quarterly seminar. If you have any questions about the CBC program, please contact Sandy Gruber at , sandy@communitybankers.org, or Rick McGuigan at , rick@communitybankers.org. Series on Jan. 20 and the FinCEN session on Jan. 21 begin at 10:00 a.m. For questions on any of these conferences or about the Webcast itself, please call Sandy Gruber at (608) or sandy@communitybankers.org. Visit CBW s Web site, select the desired workshop, and follow the link to register online. 20 Wisconsin Community Banking News November/December 2010

21 Member Owned. Member Focused. Competitively priced funding Mortgage purchase programs Support for community investment activities (312) November/December 2010 Wisconsin Community Banking News 21

22 TechMecca: Wetherington Leads Community Bankers Panel AUSTIN, Texas Sponsored by the Independent Bankers Association of Texas, TechMecca is set for Monday, January 24, through Tuesday, January 25, 2011 at the Hilton Austin Hotel. Sessions will focus on the conference theme, Secure Your Future in the current economy. Lee Wetherington will lead a distinguished panel of community bankers through a candid discussion covering new ideas around bank technology, marketing in the new economy, and innovative ways to generate noninterest income while improving customer service. Pricing has been changed to benefit multiple registrations from each bank $595 for the first attendee and two additional registrants. In other words, three for the price of one. To learn more or register online, visit: techmecca. CHANGING SCENE Expansion Plans Not all appears to be doom and gloom for the state s community banks. Several are opening branches outside of their original footprint. Horicon Bank will purchase all of the deposits from the two Westbury Bank locations in Beaver Dam and occupy the grocery store branch inside of the Beaver Dam Piggly Wiggly. The purchase, expected to be completed by the end of the year, will join the bank s other 15 branches in five counties. Janesville s Mid-America Bank plans to open a new loan production office at 7071 S. 13th St. in Oak Creek. The Oak Creek office will join two loan production offices located in Brookfield and Madison. The bank also has two branches, one in Janesville and the other in Williams Bay. In December, the community of Sauk City will welcome a new full-service branch of Middleton Community Bank. The bank will move into a remodeled space at 603 Phillips Blvd., the former location of Line-X of Madison, a truck bed liner franchise. The new branch will be called Sauk Prairie Community Bank and will become the fourth office for the bank. Other branches are located in Middleton, Belleville, and Brooklyn. The de novo Settlers Bank in De Forest has begun construction on a 10,000-square-foot headquarters building located at 4021 Meridian Drive. Madison architect Potter Lawson designed the new building, which will have five times the amount of space as the bank s current location at 128 Commerce St. The project is expected to be completed in spring Oconomowoc s First Bank Financial Centre has opened a new, full-service branch in Menomonee Falls at the corner of Lilly Road and Silver Spring Drive, bridging its current locations in Waukesha and Washington counties. Foundations Divests Itself of Subsidiary PEWAUKEE Generations Bancorp has sold its American Foundations Mortgage Banc s retail offices and operations to Inlanta Mortgage, a Waukeshabased mortgage banker. American Foundations Mortgage Banc is a wholly owned subsidiary of Generations Bancorp Inc., the parent company of Foundations Bank. Bank Honored by Small Business Group WEST BEND The Council of Small Business Executives (COSBE) named Commerce State Bank as one of its Future 50 winners. The Future 50 represents the fastest growing companies in southeastern Wisconsin. Focusing on small- and medium-size businesses with 22 Wisconsin Community Banking News November/December 2010

23 loan needs of $500,000 to $5 million, as well as homeowners and homebuyers, the bank s projected 2010 revenue is $17 million. The de novo, which opened in 2005, has increased its lending for business credit lines and commercial real estate by a combined total of 56 percent between 2007 and 2009 leading to increases in the bank s revenue of 49 percent during those two years. Commerce State Bank s offering of 10-year notes surpassed its initial plan. The de novo sold $3.1 million of 10-year notes, which earn 8 percent interest. Money from the notes, due on March 31, 2020, will be used to fund debt restructuring, support growth, and maintain the bank s solid capital base. PyraMax Named Top Workplace GREENFIELD The Business Journal named PyraMax Bank third in the 2010 Top Milwaukee Workplaces. The bank, formed from the merger of Mitchell Savings and South Milwaukee Savings banks in 2000, differentiated itself from other area banks by lending to customers close to home. Retaining workers who were goaloriented and satisfied in their positions was also a priority. In addition to a good benefits package, the bank believes in a solid work/life balance for its employees. This balance is achieved through flex time, liberal paid time off, paid sick leave, and vacation. Employees with time off remaining for the year can get it back in the form of cash or roll it over for the next year. The bank also holds an annual award ceremony honoring its outstanding workers, encourages volunteer activities, and supports internal promotions. Mentoring Grows Leaders MADISON Mentoring is a big factor in developing the next level of leaders for First Business Financial Services. In an interview in the Capital Region Business Journal, Corey Chambas, president and CEO of the financial services company, explained how he carries on the priority of succession planning from founder Jerry Smith. [Jerry] was directly involved in setting the direction for growth, recruiting senior leaders, and more importantly mentoring us to succeed in our role and careers, Chambas said. He didn t delegate to human resources, but led every aspect of succession planning, recruitment, and development. Succession planning for the top position began when Smith announced his retirement. But it has since expanded to include other executives in the bank and holding company and even for specific roles and specialists within the organization. We encourage all employees, regardless of their role, to develop their skills and expertise. Much of the development takes place on the job. Recently, the bank has begun a process called skip-level meetings, where people are mentored by their boss boss. Lombardi as a Banker? The new, 95-minute play Lombardi now playing on Broadway reveals a surprising tidbit about Packers coach Vince Lombardi. It seems that Lombardi had an offer to become a loan officer before he took the head coaching job in Green Bay. We ve got your back so you can look forward. OFFICES IN MILWAUKEE, MADISON, WAUKESHA, GREEN BAY, APPLETON AND WASHINGTON DC November/December 2010 Wisconsin Community Banking News 23

24 Instead, the legendary coach followed his wife s advice to move to Green Bay and the rest is history. Wisconsin Community Bank Reports Earnings MADISON Wisconsin Community Bank reported net income of $2.2 million for the quarter ended September 30, compared to net income of $1.2 million for the same period last year. Our bank continues to produce strong earnings in the current fragile economic environment, said Thomas J. Wilkinson, chairman and CEO. For the first nine months of 2010, Wisconsin Community Bank s earnings were $5.8 million compared to $3.7 million for the first nine months of 2009, an increase of 58 percent. Return on average common equity was percent and return on average assets was 1.85 percent for the quarter, compared to 9.86 percent and 1.09 percent, respectively, for the same quarter in As of September 30, the bank had total assets of $462 million compared to assets of $434 million as of September 30, Also as of September 30, loans totaled $326 million compared to $290 million one year ago. Total deposits were $364 million compared to $338 million the previous year. Banks Encouraged to Participate in Treasury Program Do you have bank customers who still receive their Social Security payments via a paper check? Gain recognition from the U.S. Department of the Treasury s Go Direct campaign by participating in its third installment of the Go Direct Community Ambassadors Program. Registration is now open and there is no cost to participate. The program, which runs from October 2010 through March 2011, recognizes community- and medium-sized financial institution partners that go the extra mile to promote direct deposit to senior citizens, people with disabilities, veterans, and others who still receive federal benefits by paper check. All financial institutions with fewer than 100 branches are invited to register online by visiting the Partners section of The Go Direct Community Ambassadors Program is simple to implement and provides a flexible way to demonstrate a commitment to your community s financial health. To be recognized as a Go Direct Community Ambassador, your financial institution must implement at least two Go Direct campaign activities between October 2010 and March Financial institutions that successfully participate in the Community Ambassadors Program will receive a letter of recognition and certificate from the Treasury Department s Go Direct campaign. Participation helps your customers simplify their lives, protect their identity, and gain more control over their money. Participants in the Community Ambassadors Program will have access to a variety of free Go Direct materials for promoting the benefits of direct deposit. The Go Direct campaign has already helped more than 4 million Americans make the switch from paper checks to direct deposit for their federal benefit payments. For more information about the Community Ambassadors Program or the Go Direct campaign, call , or visit ICBA and LenderLive Launch ICBA Mortgage Solutions WASHINGTON, D.C. The Independent Community Bankers of America (ICBA) and LenderLive Network, Inc. recently announced the launch of ICBA Mortgage Solutions, an innovative, multi-functional suite of mortgage services designed to help ICBA member community banks continue to originate, process, close, fund, and sell residential loans. Main Street community banks are relationship lenders that continue to serve the needs of their local customers nationwide by providing common-sense mortgage loans that they can afford and afford to keep, said Ron Haynie, president and CEO of ICBA Mortgage Corporation, the mortgage services subsidiary of ICBA. ICBA Mortgage Solutions is a testament to our dedication to offering value-added services to our member community banks as it will provide them with greater access to high-quality mortgage products, easyto-use technology, and the necessary tools to manage risk. ICBA Mortgage Solutions delivers a technologically advanced platform supported by well-trained mortgagelending professionals to help community bankers originate and process residential loans efficiently and sell them to multiple community bank friendly preferred mortgage investors. This innovative, multi-functional suite of mortgage lenders and services will help community banks: Access advanced technology to reduce overhead and increase efficiency. Mitigate secondary market exposure and risk. Manage operational risks and remain compliant. Grow market share and increase fee income. Supported by dedicated and seasoned mortgage lending professionals and a highly scalable platform, community banks are able to deliver loans through a retail, wholesale, and correspondent (with and without delegated underwriting) channel. ICBA Mortgage Solutions program offers options and opportunities for community banks to gain more control of the process and execute loans through a system that is both intuitive and user friendly. The new platform provides greater transparency and information management, to help mitigate secondary market exposure and risk while supporting a community bank s ability to compete in today s lending marketplace. This single point of delivery program is supported by one technology platform, one team, and one process specifically designed to meet the needs of community banks. To bring this platform to the community bank market, ICBA Mortgage has partnered with LenderLive Network Inc., an experienced provider of mortgage technology and loan-fulfillment services. Based in Denver, Lender- Live is the engine for ICBA Mortgage Solutions. 24 Wisconsin Community Banking News November/December 2010

25 Credit Administration Issues Mary Lou Santovec Imagine a three-legged stool with asset quality as the seat that anchors the legs of capital, earnings, and liquidity. Asset quality will drive your ability to earn and the ability of your assets to drive cash flow, said John Behringer, director, financial institutions for RSM McGladrey, at the CBW Management Conference and Expo in September. Savers trust their hard-earned money to banks assuming them to be experts in managing financial risk. Borrowers come to banks for credit because as a financial intermediary, you assume the credit risk. Failure to properly manage risk exposes savers to losses and disrupts a borrower s line of credit. Credit has two sides: marketing (business development and loan origination) and administration (loan management). Business development should never supersede credit administration. When extending credit, banks should have formal, sound, and well-defined criteria. Have you established appropriate credit limits for individual lenders? Do loan renewals go back through a loan committee? Establishing an infrastructure for monitoring loans is critical. Do you know what your risks are on your loan and lease losses? Are your appraisals current? Have you updated your valuation model? Someone independent of the loan origination process should conduct all reviews. Determining if a loan is impaired can be tricky. When the terms and conditions change so that the credit is unlikely to be collected under the terms of the original agreement, the loan is impaired. In practice, determining an impaired loan requires judgment based on fact and circumstance. The guidance is intentionally vague. Before the current economic cycle, once the loan was 90 days past due, it was considered impaired. Now loans can be evaluated after 30 days. Chronically slow payers, loans risk-rated at substandard or lower, borrowers with significant overdraft positions, and loans serviced from interest reserves not performing in line with projections should all be evaluated. Interest-only loans have to show they will eventually be paid to avoid being labeled impaired. If they can t amortize, Behringer said, it s likely to be impaired. When a lender changes the terms of the original loan to improve collections or mitigate losses, examiners consider that a troubled debt restructuring (TDR). A TDR is considered an impaired loan. A loan modification may or may not constitute a TDR. You may want to modify a loan to retain a good customer who can get credit at a lower rate elsewhere. Behringer urged bankers to get documentation in the borrower s file; otherwise the examiners will consider it a TDR and behave accordingly. November/December 2010 Wisconsin Community Banking News 25

26 PEOPLE CBW Announces Retirement MADISON When Penny Heberlein retires on December 31, as vice president of member services at the Community Bankers of Wisconsin (CBW), she will have touched the lives of countless community bankers and associate members. She began her career with the Independent Bankers of Wisconsin, the original CBW name, on Sept. 6, 1985, and her role expanded as CBW added more member services and activities. During the past 25 years, Heberlein served more than 20 elected association chairmen and three executive directors/presidents; she coordinated 23 state conferences. Two former chairmen, Dave Ballweg and Tom Sheehan, went on to serve as chairman of the Independent Community Bankers of America (ICBA), and for many years Heberlein organized the Wisconsin receptions at the ICBA annual conventions. Heberlein s role at CBW covered a wide spectrum of activities, encompassing Community Banking Month in March, Member Appreciation Days in the summer, and the CBW Management Conference and Expo in September, for which she prepared the brochure cover and organized the golf outing, the sponsors, and exhibitors. She played an integral role in expanding CBW corporate and associate memberships and sponsorships. Heberlein also directed advertising sales for Wisconsin Community Banking News and worked with the editorial team to ensure accurate, timely content. In addition, she served on the team that worked with the CBW Products and Services Committee to create a for-profit subsidiary providing added member benefits to community bankers. At the 2010 CBW Management Conference and Expo banquet in Green Bay, CBW President and CEO Daryll Lund presented Heberlein an award in appreciation of her long service. He noted: All of you know Penny for her role in organizing numerous successful conferences and Member Appreciation Days, as well as coordinating numerous other association activities. Penny considers all of you friends, and it is appropriate tonight that with her pending retirement at yearend, that we take this opportunity to say thank you to Penny for a job well done in service to CBW and the Wisconsin community banking industry. I ve met a lot of people and made a lot of friends, Heberlein said. The wonderful memories will remain. She and husband Bill reside in Madison and spend more time with their three children, six grandchildren, and other family members. New Faces at Bank First National MANITOWOC Bank First National welcomes Joan Woldt and Meghann Kasper. Woldt joins the bank as regional president for the Oshkosh and Fox Valley area and Kasper is the bank s new vice president. Both were previously employed at Associated Bank. Schilling Earns Promotion SHEBOYGAN Grant Schilling was promoted from senior vice president commercial banking to office president at the Glendale office of Community Bank & Trust. Schilling has more than 13 years of experience in the financial services industry. Staff Changes at North Shore Bank BROOKFIELD North Shore Bank promoted Bob Hoepfner to vice president and commercial banking manager. Hoepfner previous served as regional vice president in the Fox Valley area. Molly Schissler has joined the bank as vice president of human resources. Her human resources experience includes stints at a technology and manufacturing firm and with another bank. Legacy Welcomes Barnett MILWAUKEE Legacy Bank welcomes Errol Barnett as senior vice president and chief lending officer. New SVP at Wisconsin Community Bank MADISON Mike Weber has joined Wisconsin Community Bank as senior vice president of business banking. Weber brings 13 years of banking experience to his new position. Falbo Joins Southport as President KENOSHA Michael Falbo has joined Southport Bank as its president. Falbo most recently was CEO of TierOne Bank in Lincoln, Neb., which regulators closed in May. His banking experience also includes stints with Associated Bank and State Financial Bank. First Bank Financial Centre Welcomes Martin OCONOMOWOC First Bank Financial Centre welcomes Jon Martin, assistant vice president and branch sales manager to its Hartford branch. With nearly 30 years of banking experience, Jon Martin Martin has worked in many facets of the business including mortgage lending, merchant services, and as market president. Left, Daryll Lund, CBW, presents a 40- year Lifetime Service Award to Fritz Ruf, Commerce State Bank, West Bend. On the right is Joe Fazio, CEO of Commerce State Bank. White Joins WHEDA Board GREENFIELD Gary White, who serves as the community development coordinator at PyraMax Bank, was appointed vice chairman of the WHEDA Lender Advisory Board. White will help advise 26 Wisconsin Community Banking News November/December 2010

27 WHEDA in home mortgage product and program development and implementation. Two Bankers Honored as CFO of the Year Robert Makowski Jr., executive vice president and CFO with Milwaukee s Park Bank and Nate Zastrow, senior vice president, CFO, and treasurer with Oconomowoc s First Bank Financial Centre were honored as the Milwaukee Business Journal s 2010 CFO of the Year. Both Makowski and Zastrow were honored in the category of Small Private Companies with Less than $50 Million in Revenue. Zastrow was named to his current position in 2006; Makowski was named executive vice president in March. Financial Services Hires Financial Advisor VERONA SB Financial Services, located at the State Bank of Cross Plains, has hired Bob Kleinschmidt, a registered representative of LPL Financial, as a financial advisor for their Verona, Oregon, and Madison locations. Kleinschmidt, who Compliance The ideal candidate for this Compliance position will have a minimum of five years of bank compliance experience. This position will be responsible for the bank s overall compliance program along with ongoing support and training. Please send a letter of interest along with resume and salary history to Bank of Sun Prairie 228 E. Main Street, Sun Prairie or to ann.wood@ bankofsunprairie.com. Commercial Lender Greenwood State Bank in Lake Mills, Wisconsin is seeking a customer-oriented individual with excellent verbal and written communication skills to join our team of lending professionals. This individual will be responsible for aggressively soliciting and servicing prospective customers and producing a variety of commercial loans, as well as generating and managing a portfolio of business and corresponding relationships, while seeking new accounts through calling efforts, marketing, and referrals. The successful candidate will have strong customer service and sales orientation, credit training or equivalent experience, bachelor s degree (MBA a plus), and 5+ years of solid loan production experience with emphasis on commercial lending and production sales. Relationship management skills for key commercial, small business, and personal relationships. Highly developed analytical and underwriting expertise, credit quality focus Strong community leadership experience preference to living in the community of Lake Mills. Sales cnergy, with sustained record Please resend resume and salary requirements to: Greenwoods State Bank Attn: Becky Anhalt 117 N Main Street Lake Mills, WI brings over 30 years of experience in retirement and estate planning, will offer access to bonds, mutual funds, annuities, life, disability, and long-term care insurance to individuals and businesses. Kleinschmidt s office is located at 108 N. Main Street, Verona in the State Bank of Cross Plains bank building. He is also available at the Oregon and Madison State Bank of Cross Plains locations. LPL Financial is a leading financial services firm with a network of more than 5,500 representatives in over 3,300 branch offices across the United States. Unlike many of the major investment companies, LPL Financial does not develop its own investment products, so its representatives are free to recommend the products they think are best for their clients. ADVERTISER INDEX Pulse Spectrum Investment ATM Access Network Advisors Young & Associates, Inc EBN: Executive Benefits Network Shazam Federal Home Loan Bank- Travelers Insurance Chicago WACHA WHEDA RSM McGladrey Godfrey & Kahn, S.C Bankers Bank Secure Banking Solutions.. 25 Edge One Capvest Venture Fund Wipfli LLP CBW Financial Services Integrated Security Solutions.18 DIRECTORY OF COMMUNITY BANKING SERVICE PROVIDERS Community bankers, you have a choice. You can spend your valuable time finding one prime candidate to fill your mid- to upper-level position, or you can call me. I will present you with the right person for the job in less time with less hassle. Del Garcia Office location: 155 E. Capitol Dr., Ste. 5 Hartland, WI Phone: (262) Fax: (262) del9730@aol.com Superior Safe & Security LLC Electronic & Physical Security Products Access Control Modular Vaults Alarm Monitoring Night Depositories Alarms Point to Point Systems Audio Systems Safes Close Circuit T.V. Safe Deposit Boxes Drive Up Systems Security Systems Fire Safes Teller Counters Media Safes Vault Doors Metal Undercounter Cabinets Walk Up Windows Sales, Installation & Service November/December 2010 Wisconsin Community Banking News 27

28 AN INVESTMENT RESOURCE TO REMEMBER Your local business customer seeks equity capital for expansion. What to tell them? Partner with the Capvest Venture Fund (CVF) to: Provide equity capital to businesses with annual revenues of $5 million or more in manufacturing, distribution, business services, healthcare, and information technology supporting these industries. Help your business customers grow, create jobs, and build the local economy. Review your business accounts today. Help them reach their goals of expansion, market development, and acquisition. CapVest Venture Fund: Focused on Wisconsin businesses Contact Daryll Lund or Rick McGuigan at (608) Or Daryll at or Rick at Financial Institution Products & Services Offered by Your Association Financial Institution Bond Directors and Officers Liability Property, Casualty, and Workers Compensation Forced Placed Property Mortgage Protection $9.00 Life of loan flood determinations Kevin Christians Phil Hoover CBW Financial Services offers a wide variety of products and services for the benefit of you, our members. For additional information on any of our financial institution programs call CBW at (608)