The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
(IS S N 0026-296X) DECEMBER, 1982 The Financial Magazine of the Mississippi Valley & Southwest \ss«e :,Æ Com m e t« p N a t i v eC P° 9 e 4 S ....... : https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Check-Clearing Business «, 0 o 0 o C-' 0 O O ° o 0 " 0 <? G 0 q 0 & t2 A q ° ° * * O c O *6 O o ‘ 0 o o O c? 0 ^ O o 0 o O -D to 0 c> 0 O p n 0 *3 o 0 j o * o o o L IB E R T Y THE BANK OF MID-AMERICA Liberty National Bank and Trust Company/P. O. Box 25848/Oklahoma City, Oklahoma 73125/Member FDIC https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0 O 0 ' <c- n c. w• O * o * e- o G * o O «*. / n ' ■ p o An inside line to quality correspondent services. It’s a First NBC tradition. While banking has changed over the years, our com mitment to service has remained as strong as ever. That is why you find the correspondent bankers at First National Bank of Commerce constantly at work throughout the Gulf South, bringing you the best of their experience by telephone and personal contact. Call us and discover how correspondent banking is more than just a business at First NBC. It’s a commitment. First NBC New Orleans banking tradition 210 B aronne Street, P. 0 . Box 60279, New Orleans, Louisiana 70160 Phone 1-800-462-9511 in Louisiana or 1-800-535-9601 from Mississippi, Alabama, Arkansas, Oklahoma, and East Texas. Outside these areas, call 504-561-1371. Member FDIC MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 3 MID-CONTINENT BANKER Convention Calendar The Financial Magazine of the Mississippi Valley & Southwest Volume 78 , No. 12 D ecem ber, 1982 FEATURES 26 CHANGING TIMES: H ow th ey affect c o rre sp o n d e n t relationships 27 DOWNSTREAM-CORRESPONDENT SURVEY W ill F e d g et ch eck -clearin g bu sin ess? 32 UNSECURED BUSINESS LOANS A cu tb ack by banks p re d ic te d 36 MAKING 'UNBANKABLE' LOANS 'BANKABLE' A sset-based le n d e rs tell how 48 THE LEASING ALTERNATIVE W h y it’s b eco m in g a ttra ctiv e to ban k ers 68 HOSTILE BANK TAKEOVERS W h y are th e y on th e increase? DEPARTMENTS 6 THE BANKING SCENE 8 EFTS 12 PERSONNEL 16 BANK INVESTMENTS 20 REGULATORY NEWS 18 BANKING WORLD 22 SELLING/MARKETING 18 CORPORATE NEWS 24 COMMUNITY INVOLVEMENT STATE NEWS 72 ALABAMA 74 INDIANA 75 LOUISIANA 76 NEW MEXICO 72 ARKANSAS 74 KANSAS 75 MISSISSIPPI 76 OKLAHOMA 73 ILLINOIS 75 KENTUCKY 75 MISSOURI 77 TENNESSEE 77 TEXAS E D IT O R S R a lp h B. C o x .......... P u b lis h e r R o s e m a ry M c K e lv e y L a w r e n c e W . C o lb e r t Jim F a b ia n A s s is ta n t to th e P u b lis h e r P a m e la W a ls c h . .. E d ito r ____ S e n io r E d ito r A s s is ta n t E d ito r MID-CONTINENT BANKER Editorial/Advertising Offices St. Louis, M o., 4 0 8 O liv e , 63 1 0 2 . T e l. 314/421 5 4 45; R alph B. C o x, P u b lis h e r; M a rge B ottia u x, A d v e rtis in g P ro d u ctio n M g r. M ID -C O N TIN E N T BANKER is pu b lish e d m on th ly by Com m erce P u b lish in g C o ., 4 0 8 O live S t., St. Louis, M o. 63 102. P r in te d b y T h e O v id B e ll P r e s s , I n c . , F u lt o n , M o . C o n tro lle d c ir c u la t io n p o s ta g e p a id a t S t . L o u is , M o ., a n d a t a d d it io n a l m a ilin g o f f ic e s . S u b s c r ip t io n r a t e s : T h r e e y e a r s $ 2 7 ; tw o y e a r s $ 2 0 -, o n e y e a r $ 1 2 . S in g le c o p ie s , $ 2 . 5 0 e a c h . F o re ig n s u b s c r ip t io n s , 5 0 % a d d it io n a l. 4 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis C o m m e r c e P u b lic a t io n s : A m e r ic a n A g e n t & B r o k e r , C lu b M a n a g e m e n t , D e c o r , L if e In s u r a n c e S e l li n g , M id - C o n t in e n t B a n k e r , M id - W e s t e r n B a n k e r an d T h e B a n k B o ard L e tte r. O f f ic e r s : Donald H. C la rk , c h a ir m a n e m e r it u s ; W e s le y H. C la rk , p r e s id e n t a n d c h ie f e x e c u t iv e o f f ic e r ; Jam es T. P oo r, e x e c u t iv e v ic e p r e s id e n t a n d s e c r e t a r y ; R alph B. C o x, f i r s t v ic e p r e s id e n t a n d t r e a s u r e r ; B ernard A . B eg g an , D avid A . B aetz, L aw ren ce W . C o lb e rt a n d W illia m M . H um berg, v ic e p r e s id e n t s . Jan. 23-26: ABA National Trust Conference, Atlanta, Atlanta Hilton. Feb. 6-9: ABA Telecommunications/Financial Net works Workshop, Kissimmee, Fla., Hyatt Orlando. Feb. 8-11: ABA National Insurance/Protection Confer ence, Orlando, Fla., Sheraton-Twin Towers. Feb. 13-16: ABA Conference for Branch Administra tors, Denver, Fairmont Hotel. Feb. 20-24: Bank Administration Institute Bank Au ditors Conference, San Francisco, St. Francis Hotel. Feb. 22-25: ABA Bank Investments Conference, Dal las, Hyatt Regency. Feb. 27-March 2: Bank Administration Institute Con ference on Bank Security, New Orleans, Fairmont Hotel. Feb. 27-March 2: Bank Marketing Association Com munity-Bank CEO Seminar, Scottsdale, Ariz., Mar riott’s Mountain Shadows. Feb. 27-March 2: Bank Marketing Association EFTS Marketing Conference, Houston, Four Seasons Hotel. March 2-5: ABA Corporate/Commercial Marketing Conference, Washington, D. C., Capital Hilton. March 6-9: ABA Community Banks Executive Confer ence, New Orleans, Fairmont Hotel. March 7-8: Consumer Bankers Association Govern ment Relations Forum, Washington, D. C., Loew’s L’Enfant Plaza. March 13-15: ABA National Credit/Correspondent Banking Conference, New Orleans, Fairmont Hotel. March 13-16: ABA Trust Operations/Automation Workshop, New York City, New York Hilton. March 13-16: Bank Marketing Association Consumer Business-Development Training Workshop, Nash ville, Radisson Hotel. March 17-20: AIB Leaders Workshop, Little Rock, Excelsior. March 20-23: ABA Western Regional Bank Card Con ference, Dallas, Fairmont Hotel. March 23-25: Dealer Bank Association Annual Meet ing, San Francisco, Fairmont Hotel. March 23-27: Independent Bankers Association of America Annual Convention, San Diego, Town & Country Hotel. March 27-30: Bank Marketing Association Advertising Conference, Chicago, Hyatt Regency Chicago. April 5-7: ABA International Banking Symposium, Chi cago, Hyatt Regency Chicago. April 5-8: Bank Adm inistration Institute CheckProcessing Conference, Chicago, Marriott Hotel. April 7-10: AIB Leaders Workshop, Nashville, Hyatt Regency Nashville. April 10-13: ABA National Installment Credit Confer ence, Atlanta, Hyatt Regency Atlanta. April 14-17: Louisiana Bankers Association Annual Convention, New Orleans, New Orleans Hilton. April 17-22: Bank Marketing Association Management School of Bank Marketing, Athens, Ga., University of Georgia. April 17-22: Robert Morris Associates Loan Manage ment Seminar, Columbus, O., Ohio State University; April 17-27: ABA National Commercial Lending School, Norman Okla., University of Oklahoma. April 24-27: Bank Marketing Association Research/ Planning Conference, Arlington, Va., Hyatt Regen cy Crystal City. April 24-27: Independent Bankers Association of Amer ican Seminar/Workshop on One-Bank Holding Com pany, Phoenix, Camelback Inn. April 24-30: ABA National School of Bank Card Man agement, Pomona, Calif., Kellogg West California State Poly University. April 27-29: Dealer Bank Association Compliance Seminar, St. Louis, Marriott’s Pavilion Hotel. May 1-4: ABA National Conference on Real Estate Finance, San Francisco, Hyatt Regency. May 1-4: Bank Marketing Association Public Relations Conference, Boston, Copley Plaza. May 2-3: Consumer Bankers Association Annual Leas ing Conference, Dallas, Lincoln Hotel. May 2-5: Premium Incentive Show, New York City, Coliseum. May 3-6: Bank Administration Institute Accounting/ Finance Conference, Dallas, Amfac Hotel. May 4-7: Alabama Bankers Association Annual Con vention, Huntsville. MID-CONTINENT BANKER for December, 1982 Does your correspondent bank minimize float in check clearing? A Mercantile Banker makes it smooth-sailing. If check clearing were a one-bank operation, it would be easy. But it isn’t. It takes a solid, broad-based organization. Mercantile has that organization — one set up to handle the two most im portant elements in the check clear ing process. A v a ila b ility. First, th e re ’s our geog ra p h ical co nve nience. W e operate four regional computer centers to speed processing: Kansas City, Macon, Springfield and St. Louis. Over 200 direct send points to collect checks drawn on distant locations in a hurry. We continually keep tabs on airline schedules for daily deliveries to major banks around the country as well as to “ remote disbursement” banks. Float. Just as important, Mercantile experts can provide fast, accurate cash letter analysis. And they’ll recommend ways to cut float to rock bottom. Another tool is the automated balance reporting system we make available to our customers. Technology plays a big role, too. Our high-speed computers work 24 hours, processing 500,000 items every day. That’s why, on the average, your checks will clear in less than 0.9 days. All in all, 1600 Mercantile employees are ready to help make your check clearing job smooth-sailing. And that’s just one of the many cor respondent services we provide. To find out more about us, call a Mercantile Banker today. W e’re with you. C o rre s p o n d e n t B anking D ivision M ercantile Trust C o m p a n y N .A. St. Louis, M O (314) 425-2404 MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis M = R c n r m i= BRIK 5 The Banking Scene By Dr. LEWIS E. DAVIDS Illinois Bankers Professor of Bank Management Southern Illinois University, Carbondale Do Directors' Fees Reflect Their Abilities? W H O SETS th e fees o f b an k directors, or for th at m atter, directors of any corporation? T he salary of a bank’s p resid en t is decided by th e board; salaries of the bank’s official staff freq u en tly are sug gested by th e p re sid e n t and confirm ed by the board, and salaries of clerical staff people probably are d eterm in ed by the personnel d ep artm en t, subject to ratification by top operating m an ag em en t in com p lian ce w ith board guidelines. Only directors d eterm in e th e ir own fees. Some students of corporate govern ance would like to see shareholders of in stitu tio n s have a voice in settin g directors’ fees. M ost others consider the idea to be unw orkable. M ore than once w hen I served as a panel m em b er on a program for bank ers, I h eard regulators say th at they consider some d irecto rs’ fees to be ex cessive, and, thus, a problem needing attention. W hen I had an opportunity for rebuttal, I poin ted out that, for the m o st p a r t, w h e n c o m p a rin g b a n k directors’ fees to fees paid to directors of similarly sized m anufacturing firms, the fees of the form er typically have b een substantially low er than those of the latter. This is tru e even w hen one consid ers that th e size of th e typical bank board is som ew hat larger than that of boards of m anufacturing firms. Also, n o n b a n k b o ard s h av e m o re in sid e d irecto rs th an do m ost banks, and these insiders generally don’t receive fees. I th en pointed out th at the stan dards by w hich bank directors are eval uated by regulators are m uch higher th an those of industrial-co rp o ratio n directors and, for that reason, it’s logi cal for bank directors to receive higher fees. I d o n ’t think I convinced th e ex am iners. T he re c e n tly re le a se d functional cost analysis for 1981, com piled by the 12 F ed eral Reserve district banks, p ro vides some interesting inform ation in this area. The extracted data are shown in Exhibit 1. The exhibit shows that d irectors’ fees are higher at sm aller in stitutions as a percentage of operating expenses than at large banks. This is to EXHIBIT 1 DIRECTOR FEES — 1981 Directors' fees as a percentage of operating expenses as shown by the Federal Reserve Functional Cost Analysis of 643 responding banks and high-earning banks. High-earning banks are the upper-quartile averages of the participating member banks. Dollar volume of available funds in millions High-Earning Banks All Participating Banks Percentage of Operating Expenses % % Up to $25 1.97] $25 to $50 1.97JI $50 to $75 $75 to $100 $100 to $200 1.351I 1.27 1.03 J1 1.00 $200 to $500 .60] ! .5 5 J .45 1.64 Over $500 6 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis be expected because sm aller in stitu tions are m andated as to a m inim um as well as a maximum board size. Thus, by invoking at least the m inim um , the sm a lle r ban k s are p ro p o rtio n a te ly staffed w ith a higher n u m b er of direc tors than larger banks. But the really in teresting part of the exhibit shows that, w ithout exception, fees of directors of high-perform ance banks are significantly higher than fees of directors at average-perform ance banks. T he in terp retatio n I make is that higher-perform ing banks have b een able to attract directors of superior ability to th e ir boards. T hese in d i viduals, in turn, not only provide su perior policy for the bank, but, in th eir w atchdog function, are able to make sure th eir banks are perform ing in a superior m anner. A leading m anagem ent-consulting firm recently issued a study on direc tors’ fees. It showed that such fees had gone up m ore than the consum er price index, com pared w ith th e previous study in 1980. O ne explanation was th at new directors are being selected m ore for th eir superior ability than for o th e r considerations. It w ent on to state that rejections of offered direc torships had increased and higher fees w ere offered to offset this develop m ent. This is not to im ply that a bank th a t has d ire c to rs’ fees low er than those shown in the exhibit autom ati cally has a low -perform ing board. As w ith any large sam ple — in this case, 643 banks — th ere are bound to be exceptions. I ’m rem in d ed of an incident that took place a few years ago at one of the A ssem b lies for B ank D ire c to rs in w hich one of the leading bankers of a southw estern state — a w ealthy man — said he w ould rath er not receive any fees for his board service. H e con ten d ed that w hen he received a fee he felt a great com pulsion to perform , and w hen he didn t receive a fee his con i’C ontinued on page 78) MID-CONTINENT BANKER for December, 1982 Surefire wire Money management. It’s a m atter of transferring the right amount to the right account at the right time. It’s one 8888888888888888888888888888888883388888838888888888888883888888 at Commerce Bank. The money management specialists at Commerce deal in a large volume of transfers S is ifi!! averaging about one billion dollars a day. We have handled as id to p S If many as one thousand transfers in a single day. !■■■■■■■■■■■■■■■■■■■■■ «■■■■■s■■■■MU 88S88! 88888888 >■■■■■■■?■■■■■■■■■■■] In a business where mil iiiU . lions of dollars change hands each hour, you can’t afford a S Ì!""” " " " " bank that makes mistakes. In some cases we’ll follow a wire transfer up with a phone call to make sure that funds have been deposited to the proper account. And, if there is a problem, it is resolved quickly, usually within the same business day. Fast, accurate service from friendly professionals. We think it’s the surefire way to keep our € î Commerce Bank o f K ansas City — c correspondents happy. (816) 234-2000 • 10th & Walnut • Kansas City, MO 64141 88ÌÉÌSSSSSSSS3SSSSS8B88S ! ¡8888888 8 8 W 8 8 a B 8 8 8 ^ ^ ^ ^ 888888888888888888888888 888888888888888888888888 888SSS8888SS8S8SS8SSSS88 888888888888888888888888 888888888888888888888888 ■■■■■■■■■■■■■■■■■■■a ■■■■■ uh MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ■■■■■il 7 EFT S (Electronic Funds Transfer Systems) Same-Day Settlement Facility for Banks N A T IO N W ID E paym ent system that allows banks to settle th eir accounts w ith one an o th er electro n i cally at the close of each business day now is in operation. C alled C ashW ire, it provides do m estic banks a “sam e-day”-settlem en t facility that form erly had b een avail able only through th e F e d ’s F edw ire n etw o rk . W ith s e ttle m e n t, says a C ashW ire spokesp erso n , banks can make funds available to th e ir custom ers m o re ra p id ly and w ith g re a te r accuracy and certainty than ever b e fore. The C ashW ire system is ow ned and operated by a banking-industry coop erative called B an k w ire, w hich has ru n e le c tr o n ic -f u n d s - tr a n s f e r n e t works since th e early 1950s, b u t never w ith the settlem en t feature. C a sh W ire b e g a n liv e o p e ra tio n S eptem ber 17 in a lim ited first-phase effort involving 12 banks th roughout th e U. S. It now is handling $50 m il lion a day in paym ents traffic, and that volum e is expected to grow to m any billions of dollars a day w ithin th e next few years. The 12 m em b er banks taking part in the phase one start-up program are: Citibank and M anufacturers H anover T ru s t, N ew Y ork C ity ; S u b u rb a n Bank, B ethesda, M d.; H arris Bank, C ontinental Bank and F irst National, Chicago; M ellon Bank, P ittsb u rg h ; Marshall & Ilsley Bank, M ilwaukee; Bank of A m erica and Security Pacific National in California; National Bank of D etroit and Interfirst Bank, Dallas. Suburban Bank, th e only m em b er of B ankw ire not also a m em b er of the Fed, sent th e first C ashW ire m essage to M anufacturers H anover S ep tem b er 17. C ashW ire uses the existing BankW ire II com m unications netw ork that has been in operation serving dom estic banks since 1978. To it have been added a “fau lt-to le ra n t” c o m p u te r and so phisticated software and control func tions that make C ashW ire “technically unm atched am ong paym ent system s in the w orld,” according to B ernhard W. Rom berg, p resid en t of B an k w ire. The system has b een in develo p m ent five years, at a cost of about $5 million to the banking industry. It cu r A 8 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • E x p a n d e d in te rn a l-a u to m a tio n rently interconnects 40 bank com pu ters and 200 bank term inals th ro u g h fa c ilitie s . C a sh W ire -p a y m en t m es sages are highly stru ctu red , enabling out th e U. S. T he sam e-day se ttle m e n t featu re banks to autom ate transm ission, re ceipt, tracking and processing of m es gives C ashW ire vital paym ent-system sages w ith m ore accuracy and preci parity w ith F edW ire, says the CashW ire spokesperson, because it assures sion than ever before, using a variety of com puters and term inals available for banks of both an availability of funds as well as the ability to use them im interconnect to th e system . The BankW ire organization will assist users in m ediately on receipt of a C ashW ire d e v e lo p in g cu sto m in te rfa c e s and message. In a d d itio n , C a sh W ire p ro v id e s techniques to encourage th e ir b roader intern al autom ation, says T heodore operating advantages it says are not found in o th er dom estic or in tern atio n Tomaszewicz, B a n k w ire ’s senior vice al-p ay m en ts m echanism s. T hey in p re sid e n t/sy ste m s and co m m u n ica tions. clude: • Sirnplified reconcilem ent, m ade • Im proved accuracy/security. Test possible by a daily-transaction journal keys, seq u en ce n u m b ers and o th er th at lets banks detail every m essage by codes m ake C ashW ire m ore secure th a n o th e r p a y m e n t s y s te m s , its tim e and o th er control codes. • Intra-day balance and status re sp o k esp erso n m ain tain s. A dvanced authentication and encryption are in porting that im proves significantly the ability of banks and th eir custom ers to developm ent now to add m ore secur track every type of m essage and its ity. • A lternative delivery p a th s . Cashstatus w ithin the netw ork. M ore than 20 types of m essages are offered on W ire is the only paym ent system that connects to o th e r data netw orks to CashW ire. • Intra-day credit m anagem ent, a assu re tran sm issio n if line outages feature th at allows each bank to estab occur. Both dial-up te le p h o n e and lish and m onitor autom atically op erat TW X/Telex interconnections are p ro ing lines, or credit, that it makes avail vided. These are especially useful to able to o th er banks w ithin th e paym ent sm aller banks because they can use sy ste m — a tim e ly n e w c r e d it- one low-cost netw ork to do several m anagem ent tool said to be available types of data com m unications. C a sh W ire p a y m e n t-m a n a g e m e n t only on CashW ire. features, says Mr. Tomaszewicz, are in addition to existing B an k w ire II ad m inistrative and correspondent-bank ATM Directory Published funds-transfer capabilities, which re The Bank Administration Insti main intact and available to all Banktute has published “The 1982 ATM W ire users. D ire c to ry ,” a catalogue of new A major m otivation in developing equipment and after-market product C ashW ire is the desire by the banking and service suppliers. com m unity to have a paym ent-system The 108-page publication lists a lte rn a tiv e to F ed W ire, w hich has more than 250 firms in 380 separate grown to enorm ous size because it has service/product entries. Included in been the only system serving banks the directory is information about nationw ide. F edW ire has m ore than alarm systems, arm ored-ear ser 1,100 on-line users w ithin the U. S., vices, system controllers and proces sors, enclosures and buildings, com pared to about 200 for B ankw ire. maintenance and repair services, “C ashW ire is the fulfillm ent of a vi paper suppliers, plastic cards and sion and the beginning of a new era in em bossing/encoding equipm ent, b a n k in g -in d u s try c o o p e ra tio n and security systems for access and iden autonom y,” says R obert L. Bergm an, tification, software, line-encryption executive vice p resident, M ercantile devices and terminals and related T rust, St. Louis, and chairm an of the equipment. 180-m em ber B an k w ire organization. Cost of the publication is $5. “C ashW ire is a real paym ent sysMID-CONTINENT BANKER for December, 1982 Liberty’s Money System Interchange. B ecause your ATM custom ers are leaving town. We’ve got good news for those of you who think electronic funds transfer on a national scale is only an idea. At Liberty, it’s an idea we’ve made a reality. ^ yM oneu bank in the state to announce it’s affiliation with Plus System, Inc., MSI will open the door to access over 3,000 ATMs across the nation in 1983. ^/System jk VrtlerchangeA MORE LO C ATIO N S A H EA D Because now there is the Money System Inter change, a regional network designed to greatly expand your present ATM service and make you more competi tive. Even if you aren’t presently offer ing ATM’s to your pres ent customers, you can tie into MSI without investing in costly equipment and programs As a participating member of MSI, your customers can use machines located in most major cities, many smaller towns and most college campuses in Kentucky and Southern Indiana. That’s only the beginning. As the first As an added boost, we will provide you with the promo tional materials to tell the MSI story to your customers. If your goal is to become an in tegral part of your customers’ finan cial lifestyle, Liberty would like to tell you more about the Money System In terchange and Plus System, ImV . Contact Liberty National Bank, Bank Card Division, P.O. Box 32500, Louis ville, Kentucky 40232. In Kentucky, call 1-800-292-5577. Out side Kentucky, call 1-800-626-5897. M oney System Interchange Money System interchange. ^ MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Liberty National Bank Member F.D.I.C. 9 tern ,” com m ents Saym our R. Rosen, vice p resid en t of Citibank, “not ju st an instructional facility that advises one correspondent bank to transfer funds to a n o th e r’s account. It finally has given bankers a real choice of nation w ide paym ent system s.” C ashW ire is im portant, says Joseph F. Zabas, senior vice p resid en t, M anu facturers H anover, “because it brings to banking a nationally available facil ity through w hich banks can offer m ore person alized , m ore custom ized and m ore responsive custom er services.” The original R ankW ire, w hich had b een a com puterized correspondentbank funds-transfer system , was ex panded in 1978 w ith the addition of B an k w ire II ’s advanced netw orking capabilities and now handles about $15 billion a day in ad m in istrativ e and funds-advice m essages. C ashW ire was added to the netw ork early last sum m er after lengthy negotiations w ith the F ed, th e crucial settlem en t capability. A fter extensive testin g , th e system w ent live in S eptem ber. B an k w ire is a cooperative ow ned by about 180 leading banks in th e nation. M em bers com e from each of th e 12 F ed districts and include m ost m oneyc en ter and m any small- and m edium size banks. A 2 2 -m e m b e r b o ard is elected to staggered tw o-year term s. D irectors are elected from each F ed district, and voting is based on m es sage traffic w ithin each district. H eadquarters for B an k w ire are in New York City. The p erm an en t orga nization has approxim ately 40 full-tim e em ployees responsible for both m an agem ent and future d evelopm ent of B ankw ire II and C ashW ire netw orks. New EFT Package Made for Banks By Mellon Bank PITTSBU RG H — M ellon Bank has an n o u n c e d a m u ltifa c e te d n atio n al electronic-funds-transfer package d e signed to provide financial institutions a com prehensive, state-of-the-art E F T system. The first p roduct in the package is C ashStream , a new , shared-ATM n e t w ork, w h ich in itia lly w ill p ro v id e financial in stitutions access to m ore than 100 ATMs th roughout w estern Pennsylvania. A C ashStream logo will be affixed to all m achines in the new system , and all su b scrib in g in stitu tions’ custom ers can conduct banking transactions at a C ashStream m achine 24 hours a day. Second, M ellon Bank will offer its c o r r e s p o n d e n t in s titu tio n s m em 10 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis b ership in C irrus, a nationw ide ATM netw ork, which will provide custom ers access to m ore than 3,500 ATMs in 37 states, beginning in 1983. T hird, the bank now will offer a new systems product, w hich will allow any bank in th e U. S. to be a switch o p er ator for its own local ATM netw ork, w ith o r w ith o u t s h a rin g th o s e m achines w ith C ashStream or M ellon Bank. The fourth facet of the package is an en h a n c e d A T M -support service. It will provide any bank in the U. S. soft w are and systems support necessary to operate its own ATM system. Lastly, M ellon Bank now will p ro vide a com plete tu rn k ey service to financial institutions that w ant to join an ATM netw ork, w h eth er it is region al or national in scope. Shared-ATM Network Focuses On Meeting Customer Demands O M P E T IT IV E a d v a n ta g e s of tional convenience as the prim ary con offering Bankm atic autom ated sum er concern in selecting a bank. teller m achines (ATMs) to consum ers W ide d istribution of th e Bankm atic was discussed at a recen t sem inar on network, he continued, offers consum “The Shared Network: M eeting C us ers proportional advantages relating to to m e r D em ands A ffordably.” C om c o n v e n ie n c e . B anks h av e d e m o n m ercial National, Kansas City, Kan., strated th eir confidence in the ATM as was th e host. a com petitive retail product, he said, Bankmatic, operated by C om m er adding that in 1973, only one in every cial National, is one of th e largest and 40 households was using an ATM. As of fastest-growing shared-ATM netw orks January, 1982, that ratio had changed to in Kansas. Bankmatic card holders, re one in every th ree households using gardless of bank affiliation, have com ATMs. H e attributes this grow th to the p le te access to all B ankm atic ATM fact bankers have m ade the product locations. C ard holders may make d e w idely available in th e m arketplace. posits, w ithdraw als, loan paym ents, About 70% of people using financial obtain account balances, transfer funds institutions now have ATMs available or receive cash advances. for th eir use, he pointed out. Bankm atic’s grow th since its b egin C onsum ers are finding the product ning in January, 1976, was traced at convenient, as reflected in th eir heavy th e sem in ar by D avid R ankin, th e usage, said Mr. Longm ire. H e cited a b a n k ’s d a ta p ro cessin g se n io r vice re c e n t surv ey in w hich co n su m ers president. It started w ith one location w ere asked w hat would make the ATM — an o n -line ATM at C om m ercial m ore appealing. M ore than half the N ational’s facility at 82nd and Parallel respondents indicated an ATM n e t Parkway — has grown to its p resen t 16 work would offer added convenience. locations, and Mr. Rankin forecasts, Mr. Longm ire talked about a netth e netw ork will offer 40 locations with w ork-w ide m ark etin g p rogram th at approxim ately 25 ATMs in Johnson will be u ndertaken at th e beginning of and W yandotte counties. th e year so that banks participating in R o b e rt C h e n o w e th , C o m m ercial th e Bankmatic netw ork will have a say N ational’s senior vice p resid en t/ad - as to how Bankm atic is p resen ted to m inistration, said the netw ork also will consum ers. The overall objective in becom e involved in a regional sw itch m arketing the netw ork, he said, will ing netw ork developed by C red it Sys be to make the Bankm atic card the tem s, Inc. (CSI), h e ad q u artered in St. preferred card in th e m arketplace. • • Louis. This netw ork will be operating by January, 1983, and will link Bank m atic into additional ATM system s FISI Reaches Agreement ow ned and o perated by o th er major To Be Marketing Arm Kansas City banks. Mr. C henow eth said banks participating in th e Bank For Teller ATM Network m atic netw ork will be buffered from many costs related to switch transac Linancial Institution Services, Inc. tions. (FISI), N ashville, and Publix Super M a rk e tin g th e n e tw o rk was ad M arkets, Inc., have reached an agree d re s s e d by R o b e rt L o n g m ire , th e m ent u n d er w hich FISI becom es Pubbank’s m arketing director, who said lix’s prim ary m arketing arm for finan th e s h a re d -A T M c o n c e p t o ffe re d cial institutions seeking access to the p a r tic ip a tin g b an k s a c o m p e titiv e Publix T eller ATM Network. advantage over proprietary program s. By the end of the year, Publix will (C ontinued on page 62) H e cited research th at identifies loca- C MID-CONTINENT BANKER for December, 1982 ARE YOU WORKING FOR THE OTHER GUY S e llin g y ou r co m p e tito rs 9 tra v e le rs c h e q u e s ? U sin g you r c o m p e tito rs 9 “g o ld 99 ch a rg e ca rd ? More and more com panies are becoming your competitors. It used to make a lot more sense to do business with American Express, Citicorp, Barclays... and others .. .than it does today. MEMPHIS BANK & TRUST HAS THE ANSWER M emphis Bank & Trust can assist your bank in joining the M asterCard Travelers C heques Program, specifically designed by and for bankers like yourself to support your own customer base. Each cheque can carry your bank name, and each carries the MasterCard symbol, with more instant clout and service points worldwide than any of the competitors. No more “you’re over the limit” at airline counters and hotels when your people travel. Memphis Bank & Trust can secure the Gold MasterCard for each of your traveling officers. • $5,000 Minimum Credit Limit • Higher Travel Floor Limits • Separate billing for each officer • Lower Annual Fee • Worldwide Clout Member FDIC MEMPHIS B A N K ^ TRUST Let’s work on the competition together. Give us a call, toll-free, at 1-800/238-7477. In Tennessee, 1-800/582-6277. MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11 The New Direction in Employee Benefits By RONALD L. VARLEY T H E N E W direction in em ployee benefits can be d escribed in two w ords — e m p lo y e e c o n trib u tio n s . Pension planning has b een thought of as a th ree-legged stool consisting of social security benefits, private p e n sion-plan benefits and personal sav ings. U nfortunately, how ever, p erso n al savings in this country have failed to m aterialize to any significant extent. The original idea was sound, b u t cu r rently one leg of th e stool is dangerous ly weak. T here have b een two im portant re cent legislative developm ents th at are likely to change this situation dram ati cally: 1. Extension of th e IRA program u n d er th e Econom ic Recovery Tax Act enacted in A ugust, 1981, w hich now p e rm its d e d u c tib le v o lu n ta ry e m p lo y ee c o n trib u tio n s to e m p lo y e rsp o n so red p en sio n plans (often r e fe rre d to as “in s id e ” IRA a rra n g e m ents, m eaning inside th e em ployerretirem e n t plan). 2. Proposed regula tions published in N ovem ber, 1981, on 401(k) plans. Both th ese dev elop m en ts will be particularly helpful to em ployers who w an t to im p ro v e th e ir r e tir e m e n t p ro g ra m s , b u t fin d th e ir b e n e fits budgets already strained. It is, in fact, possible to have both these types of d e d u c tib le e m p lo y e e -c o n trib u tio n arrangem en ts u n d e r the sam e qual ified em p lo y er-retirem en t plan. Similarities o fIR A s/4 0 1 (k). The two types of plans share som e com m on characteristics. T hey both provide tax relief on em ployee contributions to re tirem en t plans. (The IRA contribution is a pretax contribution for incom e-tax purposes only; th e 401(k) contribution is m ade in th e form of salary reduction and is, therefore, a pretax c ontribution for purposes of payroll as well as in come taxes.) In both cases, d istrib u tions are not p e rm itte d before age 59 Vz w ithout some restrictions or penalties. In addition, th e re are sim ilarities in th e plans’ vesting req u irem en ts. IRAs m ust be 100% vested. E m ployee con tributions u n d e r a 401(k) plan m ust also be 100% vested . B eyond this, how ever, th e sim ilarity b etw een these two types of arrangem ents ends. 12 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Ronald L. Varley is a principal in the St. Louis hu m an re sources consulting practice, Peat, Mar wick, Mitchell & Co., and has charge of em plo yee-benefits consulting activities in areas served by the firm's offices in St. Louis; Decatur, III.; Louisville; Nash ville and Memphis. A chartered life underwriter (CLU), Mr. Var ley is involved in the design, implementa tion, administration and communication of pension, profit-sharing, group insurance and execu tive deferred-com pensation plans for a variety of organizations in both the private and public sectors. W h a t A re the D ifferences? T he max im um deductible contribution an em ployee can make to an IRA is the lesser of $2,000 or 100% of his com pensation. U n d er a 401(k) plan, em ployer and em ployee co n trib u tio n s are tax d e ductible as long as they do not exceed 15% of th e covered com pensation of all plan participants. A nother difference is that “inside” IRAs are set up on an individual basis — some or all or none of th e em ployees in th e plan may elect to take advantage of th e “inside” IRAs; i.e., em ployees control th e IRAs. On th e o th er hand, 401(k) plans are controlled entirely by th e em ployer, and they m ust operate u n d er all rules affecting qualified em p lo y e r - r e tir e m e n t p la n s in c lu d in g coverage req u irem en ts, w hich m eans a nondiscrim inatory cross section of em ployees m ust participate. Em ployees m ust pay social security tax; th e e m p lo y e r m u st pay social security tax, and th e em ployer m ust p ay u n e m p lo y m e n t-c o m p e n s a tio n payroll taxes on all contributions going into an IRA plan. But th ese taxes are not payable on contributions that go into a 401(k) plan. This unique advan tage of 401(k) plans can result in sizable savings in these payroll taxes. Thus, th e 401(k) plan is a re tirem en t plan that helps pay for itself through tax savings m ore than any o ther retirem en t-p lan arrangem ent. Taxation o f D istrib u tio n s. The plans differ also in the m anner in w hich dis tributions are taxed u n d er the Internal R evenue Code. U n d er IRA plans, the em ployee does not get th e special 10year forw ard-averaging break on cal culation of the tax on a lum p-sum dis tribution. U nder 401(k) plans, this spe cial tax calculation is available. This is another key reason em ployers will be in terested in 401(k) plans. E xhibit I illustrates the significance of this dif ference. In this illustration, the tax is 66% less u n d er th e 401(k) plan. Tim ing o f C ontributions. IRA con tributions m ust be m ade by the em ployee’s tax-return due date. H ow ev er, u n d er a 401(k) plan, em ployee con trib u tio n s m ust be m ade w ithin 30 days after the end of th e plan year. This is seen as a troublesom e feature of the proposed regulations. Both em ployer and em ployee contributions u n d er a 401(k) arrangem ent are d eem ed to be em ployer contributions. And all con tributions to 401(k) plans are d e p e n d e n t on the em ployer’s profits (401(k) m oney-purchase plans are not p e rm it ted). It may be difficult for em ployers to know w hat th eir profits are going to b e w ithin 30 days after th e end of the fiscal year and, thus, difficult for all contributions to be m ade to the plan w ithin that 30-day period. It is possi ble, how ever, that this req u irem en t may be changed in the final regula tions. W h a t A re the D rawbacks? C onsist e n t w ith the Internal R evenue Service philosophy that anything w orthw hile should not be easy to come by, th ere a re tro u b le so m e a sp ects to 401(k) plans. To begin w ith, the regulations still are o nly p ro p o se d . B ut ev en though they are not yet in final form, this should not be a d e te rre n t to em ployers. The IRS has announced it will ap p ro v e 401(k) plans based on the proposed regulations and, if they are changed significantly in final form, the IRS will “grandfather” those plans that rely on the proposed regulations. W ithdraw al R estrictions. T here are o th er drawbacks that req u ire m ore se- MID-CONTINENT BANKER for Decem ber, 1982 99 years of continuous service... With 99 years of corre spondent banking experience, the Whitney can guarantee your cus tomers the excellent service they expect. Our many capabilities in clude: wire transfer, transit-check collections, credit information, computer service, coins and currency, bonds and international banking. When you’re thinking about business in New Orleans and Lou isiana, think about the Whitney. Nobody knows New Orleans like the Whitney, the bank with 99 years of continuous service. Use this WATS number for Correspondent Banking Department: 1-800-535-9151 In Louisiana use 1-800-562-9016 A G reat Bank For A G reat C ity MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 13 EXHIBIT II Nondiscrimination Test EXHIBIT I Taxation of Distributions IRA versus 901(k) High 1/3 Max R a t e IRA Low 2/3 Rate 901(k) $2,000 annual employee contribution accumulated at 8% for 25 years $157,900 $157,900 Tax on lump sum distribution $ 78,950 (1) $ 27,120 (2) (1) Based on ordinary income tax and a 50% tax bracket. (2) Based on 19 89 tax rates and 10-year forward averaging. 1% 2 3 if 5 6 7 8 9 10 Exhibit in B en efit/C ost Comparisons Thrift versus 401(k) Conventional Thrift Plan Thrift Plan with 401(k) Annual contributions: employee $2,000; employer - $1,000 accumulated at 8% for 25 years $236,860 Net after tax employee cost (assume average 50% tax bracket) 50,000 25,000 202,250* 188,250* After tax value of distribution Employee's benefit/cost ratio $236,860 405% 753% •Based on 1984 tax rates and 10-year forward averaging. rio u s c o n sid e ra tio n . F o r in sta n c e , th e re are in-service w ithdraw al re strictions u n d e r 401(k) plans th at are not req u ired u n d e r conventional e m p lo y e r-q u a lifie d p lan s. T h e 401(k) plans req u ire that participants d em o n strate an “im m ediate and heavy finan cial need th at cannot be reasonably m et from o th er sources” to qualify for w ithdraw als. U n d er o th er em ployerqualified plans, em ployees have re l atively easy access to th e ir co n trib u tions and th e vested portion of th e em ployer-contribution accounts. O n the o th er hand, som e em ployers may welcom e restrictions u n d e r 401(k) plans. Such restrictions will cut down on w ithdraw als some em ployers see as a need ed m easure to encourage thrift am ong em ployees. In fact, if th e th ird leg of th e th re e -le g g e d stool is to m aterialize, forced savings is im p era tive. An alternative em ployers can offer em ployees in place of a w ithdraw al provision is a loan provision. T here is nothing in the proposed regulations th at prohibits em ployees from obtain ing loans from 401(k) plans. N o n d iscrim in a tio n T est. A n o th e r troublesom e feature of 401(k) plans is a special n o n d is c rim in a tio n re q u ire 14 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis m ent w hich m ust be satisfied. This re q u irem en t says th e em ployee group m ust be divided into two parts: 1. The h ig h e s t-p a id o n e -th ird o f th e e m ployees. 2. The low est paid tw o-thirds of the em ployees. T hen, actual rate of deferral of bo th em p lo y er and em ployee contributions is com puted for each em p lo y ee in each of th e two groups, and these rates are averaged. E m ployer contributions can be used only to th e extent they are vested. This average percentage rate for the highest paid one-third m ust satisfy one of two rules. The first rule requires th at the average percentage rate not be m ore than 2Vz tim es th e average p e r centage rate of th e lowest paid twothirds of th e em ployees as long as the spread is not m ore than th ree p e rc e n tage points. T he o th er rule says the average p ercentage rate for th e highest paid o n e-third can be up to IV 2 tim es th e average percentage rate for the lo w e st p a id o n e - th ir d . E x h ib it II shows how these rules apply and which rule to use for optim um results (see area inside rules). T h ese ru les sound m ore com pli cated than they really are, b u t n ev er theless th ey rep re se n t some adm inis trativ e problem s. F or exam ple, the 2.5/3% Rule 2.5%: '5.0 •6.0 : 7.0 •8.0 •9.0 10.0 11.0 12.0 13.0 1.5 Rule 1.5% 3.0 if. 5 6.0 7.5 9.0 10.5 12.0 13:5 15.Ó higher-paid group will n eed to wait until the end of th e year after th e low er-paid group has m ade all its con trib u tio n s to d e te rm in e th e ir m ax im um contribution limit. This could be difficult to adm inister, particularly for a large em ployer. A nother possibility w ould be for all e m p lo y ees to c o n trib u te w h a te v e r am ount they wish and th en d eterm in e at the end of th e year w h eth er the safe-harbor rule th e 1RS has estab lished has b een satisfied. If excess con tributions w ere p u t into the plan by the higher-paid em ployees, the plan could provide that those excess con tributions be allocated autom atically to e ith e r “in sid e ” IRA accounts or to v o lu n tary n o n d e d u c tib le em p lo y ee contribution accounts u n d e r the plan. It is expected by m any that final reg ulations will p erm it this kind of auto matic re-characterization of these ex cess contributions. E ffect on O th er Plans. C o n trib u tions em ployees make to a 401(k) plan in the form of a salary reduction will affect o ther benefit plans w here b e n efits are related to pay. U n d er life in surance and long-term disability insur a n c e , for e x a m p le , c o m p e n s a tio n should be redefined to include gross com pensation before th e salary red u c tion. Social security benefits also may be affected. To th e extent that em ployees reduce th eir contributions to social security, th ere will be a red u c tion in th eir social security benefits. H ow ever, if they invest the difference in an IRA, for exam ple, benefits d e rived from those IRA accounts p ro b ably will m ore than offset th e loss in social security benefits. Finally, redefining or reducing com pensation will have an effect on p e n sion plans w here benefits are based on c o m p e n s a tio n . T h e 1RS is s u e d a g e n e ra l-in fo rm a tio n le tte r Ju ly 6, 1982, stating that com pensation d e ferred u n d er a 401(k) salary-reduction agreem ent cannot be used in defining com pensation for a separate defined (C ontinued on page 62) MID-CONTINENT BANKER for December, 1982 When you’re interested in bank stock. Take stock in us. Purchasing bank stock is tricky business. So, when you’re seriously interested, you want to deal with someone who’s seriously professional. Like First National Bank of Kansas City We have the expertise, the ex perience to cut through the com plex regulatory tape and get the job done. And we have the com mon sense to structure the loan to fit your personal situation. If you’re considering a bank stock investment, take stock in a bank that can help you get it. Call and ask for any of our correspondent officers. FIRST NATIONAL CharterBank K A N S A S C IT Y 10TH AND BALTIMORE □ BOX 38 □ KANSAS CITY MO 64183 □ (816) 221-2800 □ MEMBER FDIC MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 15 Bank Investments Automated CD Exchange Praised N A U T O M A T E D n a tio n a l ex. change for negotiable federally insured jum bo C D s th at began op era tions in S ep tem b er is m eeting w ith considerable praise on th e p art of p ar ticipating organizations. The exchange — called CD x — e n ables insured d epository institutions to list the am ount of C D s th ey desire to sell in a ce n tra l co m p u te r by te le phone. The exchange in tegrates new listings w ith c u rre n t ones and makes them available in packages of $1 m il lion or m ore to m oney-m arket funds, trusts, corporations and o th er inves tors. Since only one C D in each package is issued by any single depository in stitution, full F D IC or F S L IC in su r ance applies. T he N ew York office of B oston’s State S treet Bank is th e issuing agent for all CDx transactions. Purchasers pay no fees for th e service. Issuers of C D s pay a fee for each c o m p leted transaction of $47 plus one basis point p er m aturity m onth. CD x doesn’t guarantee th at issuers will sell th e ir CD s. The in terest rate and m aturity are set by th e issuer. Sell ers can offer C D s at rates they wish to pay for 14, 30, 60, 90, 180 or 360 days and can change listings at any tim e. W hen purchases are m ade, th e CD x com puter can autom atically exclude from consid eratio n th e C D s of any issuer or group of issuers w hose exclu sion has b een re q u ested by th e buyer. The com puter also excludes C D s of issuers whose C D s are cu rren tly in the b u y e r’s portfolio in o rd e r to assure com plete federal insurance coverage. O ne of th e first financial institutions to sign w ith CD x is C itizens D eposit Bank, V anceburg, Ky. Jim G ibson, vice president, says his bank is both a purchaser and issuer of C D s. “W e re one of th e few banks doing it on both sides,” he says. “All of our transactions w ith CD x have b een handled profes sionally and we have found it to be a beneficial source for both investing and obtaining fu n d s.” A 16 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mr. Gibson says CD x gives a bank additional avenues for obtaining and investing funds at b e tte r rates than norm ally are available. “W e did calculations on w h eth er C D x could be p ro fitab le,” he says. “W e d eterm in ed that it could be prof itable, and, so far, we re very pleased w ith the p ro g ram .” cial institutions can use; a service that really hasn’t been explored very m uch in the past. I t’s a good concept; m ore institutions will becom e involved to some degree in the future. ” Rio G rande Valley Bank received a m ailer about CD x and the chairm an and executive vice presid en t flew to W ashington, D. C ., to talk to the CDx " C D x is a service that financial institutions can use; a service that really hasn't been explored very much in the past. It's a good concept; more institutions will become involved to some degree in the future." C itizens D eposit uses CD x daily. “W e have bids in daily and we plan to continue using th e service. As CDx adds m ore issuers and purchasers, it sh o u ld d e v elo p in to a tre m e n d o u s n a tio n w id e p ro g ram , M r. G ibson says. C itizens D eposit — w ith $65 million in assets — had a volum e of $2.2 m il lion w ith CD x as of late O ctober. “T he service still is in its infant stages,” Mr. Gibson says. “O nce it gets larger, it will be very beneficial to all p articip an ts.” Bio G rande Valley Bank, A lbuquer que, w ith $90 million in assets, has posted a volum e of about $2.8 million w ith C D x, acco rd in g to C a th y A. M cCorkle, vice president. “At first, we had trouble finding p u r chasers for our C D s through C D x,” she says. “It was due to the rate situa tion. You have to bid a little higher than w hat you’re used to bidding in o rd er to have a transaction occur. “W h at’s difficult is attem p tin g to m atch liabilities w ith short-term assets — to get both sides to com e in at the sam e tim e w hen you’re funding loans w ith these deposits. W e try to make th e m atch so we can have a built-in spread, which is som etim es difficult,” Ms. M cCorkle says. “I think CDx is a service that finan people. The bank signed up w ith CDx about a w eek after the service started. “CDx is a sim plified way to sell jum bo C D s,” says John Borland, m arket research director, Dixie Federal Sav ings, N ew O rleans, an issuer of CD s w ith CDx. Dixie F ederal has assets of $340 million. H e says the thrift has sold as much on the exchange as it could. Volume has been held back by a lack of p u r chasers, b u t the situation is expected to im prove over tim e. Mr. Borland says C D x has p ro jected transaction grow th to $25 million p er day by the end of this year. “CDx will be a great boon to us; it simplifies our operation greatly,” Mr. B orland says. H e likes C D x’s “p u r chasers’ guidelines’ which state what the C D rate should be on a given day. By using th e guidelines, “w e d o n ’t have to play games w ith the ra te .” H e adds that the local rate som etim es is higher than the guideline rate. Dixie Federal has used CD x since its inception. Mr. Borland considers CD x to be a service that benefits every participant. R eliable Life In su ran ce C o., St. Louis, has purchased several million dollars w orth of C D s through CD x since the exchange opened in Septem (C ontinued on page 63) MID-CONTINENT BANKER for December, 1982 ten it comes to custom er preference other travelers cheques don’t stack up. In fact, they don’t even tome close. In a recent national irvey, a majority of travelers users said they want merican Express® the next lim e they buy travelers cheques. W hich isn’t surprising h en you consider that only https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis American Express offers five spe cial services to help protect your customers’ vacation if their trav elers cheques are lost or stolen. We can help cancel lost credit cards, issue a temporary ID, and cash a personal check for up to $200. We even have a 24'Hour Service Offices and you’ll see wh most travelers cheque users feel American Express is the best bran So don’t settle for less. A majority of travelers cheque users want American Express. And if you don’t have them, they may stc asking around. Travel Service Hotline if your customer needs help changing travel plans. And an Emergency Message Service if they want to send a message home. Combine all that with our 60,000 refund locations and nearly 1000 worldwide Travel American Express Travelers Cheques h . O » . & VO * A recent study shows that 64% of travelers cheque users want to buy American Express the next time they buy travelers cheques. © American Express Company 1982 BANKING WORLD • Northern Trust Corp. of Chicago’s trust subsidiary, Security T rust, and its E dg e Act su b sid ia ry , N o rth e rn Trust In teram erican Bank, have been m erged into a new federally ch artered bank — N orthern T ru st Bank of F lo r ida, N. A. T he latter bank offers a full range of dom estic, com m ercial and in ternational banking services, as well as tr u s t/a s s e t m a n a g e m e n t s e rv ic e s . Security T rust was established in 1938 and acqu ired by N o rth ern T ru st in 1971. Barry G. H astings, its p resid en t since 1981, now is p resid en t/C E O of th e new bank. Joaquin P. V iadero, who was president, N orth ern T ru st In teram erican Bank since 1974, is vice chairm an of the new bank, w ith re sponsibility for international/dom estic banking operations. • Donald L, Hunt, p resid en t/C E O , First National, Marissa, 111., has been elected to a second term on th e board of the St. Louis Fed. • Burton P. Allen Jr., p resid en t, First N ational, M ilaca, M in n ., has b een ap p o in te d 1982-83 chairm an of th e American In stitu te of Banking (AIB). H e succeeds Thom as R. Sm ith, p resi d en t, F id elity B ren to n Bank, M ar shalltown, la., a form er ABA tre a su r er. Mr. Allen h eaded the M innesota Bankers Association in 1973-74. • The National C onference on C om petition in Banking has been renam ed the National C onference on Financial S ervices (N C FS). T h e c h an g e was m ade, says Thom as H igginbotham , th e grou p ’s policy co m m ittee chair man, because m ore and m ore in stitu tions are joining com m ercial banks in offering bank-ty p e services, and an organization should re p re se n t all these financial-service providers. Mr. H ig g in b o th a m , se n io r vice p re s id e n t, M ellon Bank, P ittsb u rg h , adds that the N CFS will work to elim inate nonm arket b arriers to free com petition am ong fin a n c ia l-se rv ic e p ro v id e rs. M anagem en t of th e g ro u p rem ains w ith G o le m b e A s s o c ia te s , I n c ., W ashington, D. C ., w here th e N CFS is h e a d q u a r te re d . R ic h a rd M. M. M cConnell of G olem be is N C FS ex ecutive secretary. • Robert V. Ahrens has b een nam ed director/special projects by C om ptrol ler of the C urrency C. T. Conover. Mr. Ahrens, w ith the O C C since 1964, 18 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis form erly was d eputy regional adm inis tra to r/e x a m in a tio n s in th e C hicago office. R ichard P. P atterson , sen io r vice president, In te rF irst Bank, Dallas, has been elected president, D ealer Bank Corporate News Roundup • Thunderbird Automation Group, Inc. This firm recently was created by T h u n d erb ird Financial C orp., Shaw nee, O kla., after the latter firm bought th e co m p u ter-consulting practice of R ubottom , Skaistis & Associates, Inc., a Tulsa-based consulting firm. Bruce E. Skaistis has b een nam ed presid en t of T h u n d erbird A utom ation, also lo cated in Tulsa. H e form erly was a senior vice president/group m anager, Bank of Oklahoma, Tulsa, w here his responsibilities included system s, data processing, retail banking and m arket ing. H e also was w ith the m anagem ent consulting division of A rthur A ndersen & Co., six years. Jam es C. H arris is executive vice presid en t of T h u n d e r bird A utom ation. H e also was with Bank of Oklahoma, w here he was vice p resident/group data processing m an ager, and w ith the m anagem ent con sulting division of A rthur A ndersen & Co. A ssociation. N ew vice p re s id e n t is Robert D. M cKnew, senior vice p resi dent, C ontinental Bank, Chicago; and secretary/treasurer is John W. Rowe, senior vice president, C en terre Bank, St. Louis. gram re a c h in g p ro s p e c tiv e clie n ts th ro u g h o u t th e D allas region. M r. Salih fo rm e rly o w n ed a c o m p u te r products sales com pany in Dallas. • Mosler Safe Co. This H am ilton, O .based firm has announced plans for construction of a m ultim illion-dollar, 90,000-square-foot N ational E d u ca tion and Display C enter. The struc tu re that will house th e c e n te r will be located adjacent to M osler’s National W arehouse and D istribution C en ter on an 80-acre tract in the Southw est ern Ohio Industrial Park in H am ilton. Com pletion is set for next sum m er. A large area of the new building will be devoted to displays of electronic and p h y sical-secu rity an d rem o te-tran saction products m anufactured and sold by M osler. M osler’s state-of-the-art s e c u rity -c o m m u n ic a tio n s sy ste m , C O M SEC , will be displayed. In addi tion, the building and its contents will be p ro tected by a C O M SE C that will m onitor all fire and security devices. Also, the C O M SE C system contains energy-m anagem ent devices that will regulate the heating/air-conditioning systems. In addition, the building will house several sales, installation and service-support groups, including the m ark etin g co m m u n icatio n s d e p a rt m ent. The facility will be used to con d u ct extensive train in g of M osler’s te c h n ic a l se rv ic e re p re s e n ta tiv e s . Classroom s and laboratories will be equipped w ith advanced dem onstra tion and test equipm ent. Laboratories and classroom s also have b e e n d e sig n e d to a c c o m m o d a te c u s to m e r training. • BarclaysAmerican/Business Credit, Inc. This firm, h ead q u artered in East H artford, C onn., has relocated its D al las region office to m ore spacious q u ar ters than before. This region includes Texas, O klahoma, Louisiana, Arkansas and New Mexico. In that office, Abe T. S alih h as b e e n n a m e d te le p h o n e m a rk e tin g re p re s e n ta tiv e . H e will conduct a telep h o n e-m ark etin g proMID-CONTINENT BANKER for December, 1982 Today’s fast-moving marketplace offers more investment opportunities than ever before. But deciding which are the best for your bank can be a complicated business. If you’d like to uncomplicate your portfolio management, consider the services of Central Bank’s Investment Division. We’ll help you cap italize on opportunities as they happen, in a single area like mar ket timing, or through complete asset/liability management. OF THE SOUTH Backed by a $2.4 billion corpo- ration, our experienced money managers provide broad coverage of all major markets, including municipal bonds, treasuries, govern ment agencies & all money market instruments. And in the Southeast, Central is the bank with proven ability in structuring new municipal bond issues from start to finish. So pick our pros. We’ll help plan your best investment strategies in a fast-moving marketplace. And help you make fast, profitable decisions. CENTRAL BANK/T* In Alabama: 1-800-292-8534 ext. 3330 Alabama’s Largest Bank In the Southeast: 1-800-633-6573 ext. 3330 INVESTMENT SERVICES. ANOTHER GOOD REASON TO RANK AT CENTRAL. Member FDIC https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ^Copyright, 1982, Central Bancshares of the South, Inc. Regulatory News Comptroller to Reorganize Regional Structure PLAN to reorganize th e regional tive staff. stru c tu re of th e Office of th e D istrict offices will perform adm in C o m p tro lle r o f th e C u rre n c y was istrative functions sim ilar to those car announced recently. rie d o u t p reviously in th e regional The C om ptroller’s 12 regions will be offices. Each district will be headed by m erged into six districts w ith h ead two senior executives, a d ep u ty com p q u a rte rs offices in N ew York C ity, tro lle r and a d istrict ad m inistrator. Atlanta, Chicago, Dallas, Kansas City D istrict offices also will include a dis and San Francisco. trict counsel and directors for adm inis T he change will be im p lem en ted tration, bank supervision and analysis. over an 18-m onth p eriod th at begins The reorganization calls for estab on January 1, 1983. lishm ent of 23 field offices in major T h e fin a n c ia l m a rk e tp la c e has financial centers. D irectors of these changed considerably since th e C om p offices w ill have su b sta n tia l banktroller’s regional stru ctu re was estab supervisory responsibilities and will lished in 1962, said C. T. C onover, supervise exam iners w ithin th eir geo who serves as C om ptroller. “This re o r graphic areas. Mr. C onover said the ganization allows us to m anage our re field offices will enhance th e C om p sources m ore effectively in light of tro lle r’s su p erv iso ry capabilities by changes in financial m arkets, technolo directing m ore resources to bank su gy, econom ic conditions and govern pervision and exam inations. m ent s role in th e financial sector. ” Field offices will be located in the Benefits expected to be p roduced by following cities: Atlanta, Boston, C hi the reorganization include th e follow cago, C incinnati, C leveland, Dallas, ing: D enver, H ouston, Kansas City, Los • M ore e x a m in e r av ailab ility for Angeles, M em phis, M iami, M idland, bank-supervisory work. Tex., M inneapolis, New York, Okla • B etter use of technology. h o m a C ity , O m ah a, P h ila d e lp h ia , • M ore district in p u t into policy d e Richm ond, Salt Lake City, San F ra n velopm ent. cisco, Seattle and Springfield, 111. • Increased delegation of duties. T h e C o m p tro ller also an n o unced • M ore efficient use of adm inistra- th e following appointm ents to senior A • PROPOSED DISTRICT OFFICE LOCATIONS 20 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis positions in the district offices: • N ortheastern D istrict (New York City) — Thomas W. Taylor, deputy com ptroller; Ralph W. G ridley, dis trict adm inistrator. • Southeastern D istrict (Atlanta) — R obert J. H errm ann, deputy com p troller; John F. D owney, district adm i nistrator. • C e n tra l D is tr ic t (C hicago) — M ichael A. M ancusi, d eputy com p tro lle r; L arry T. G erzem a, d istric t adm inistrator. • M idw estern D istrict (Kansas City) — D ean S. M arriott, d eputy com p troller; P eter C. Kraft, district adm in istrator. • W estern D istrict (San Francisco) — Billy C. W ood, deputy com ptroller; Rufus O. Burns, district adm inistrator. • Southw estern D istrict (Dallas) — Clifton A. Poole Jr., d ep u ty com p tro ller; d istric t a d m in istrato r to be announced. • • Regulation O Amendments Issued by Fed Reserve T he F e d has an n o u n ced a m e n d m ents to its Regulation O — w hich deals w ith loans by m em ber banks to executive officers, directors and p rin cipal shareholders — to conform to provisions of th e re c e n tly e n a c te d G arn-St G erm ain D epository In stitu tions Act of 1982. T he am en d ed regulation, in con formity with the new statute: • Removes the dollar lim it on the am ount a m em b er bank can lend to its executive officers for the education of th eir children and for hom e purchase, construction or im provem ent. • Reaffirms on a tem porary basis, the following: The lim it of $10,000 that may be outstanding at any one tim e for loans by a m em ber bank to executive officers for other purposes, and T h e r e q u ir e m e n t fo r a d v a n c e approval by a m ajority of the board of th e b a n k for lo a n s a m o u n tin g to $25,000 or m ore in th e aggregate m ade to the bank’s executive officers, direc tors or principal shareholders and th eir related interests. MID-CONTINENT BANKER for December, 1982 The extent of a bank’s commitment to the future is measured by the quality of if s achievements in the past. For the past 174 years, Chase has been firmly committed to developing the correspondent banking system that has contributed so greatly to Americas astonishing growth. Of course, merely being around for almost two hundred years is no achievement. Chase would rather be judged on how profitably we’ve used our time. The innovations began as early as 1808, when we created a system of mutual exchange of credit so that the notes of struggling “country” banks could be safely honored. Thus, the American correspondent banking system was born. In 1933, the bleakest year of the nations financial history, Chase provided life-giving infusions of funds to our correspondents across the country. That’s commitment. Today, the Chase correspondent network of more than 6 ,5 0 0 banks is one of the largest in the world. And our commitment to these partners is stronger than ever, reflected in an unsurpassed array of state-of-the-art, value-adding products. Products that can make bankers more skillful portfolio managers. More effective cash managers. More informed decision makers. Products designed to make Chase correspondents more competitive and more profitable. As for the future, our vision will be as farsighted as it has been for 174 years. And for innovation and commitment, our history will repeat itself. CHASE MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 21 Selling /Marketing 'Buy America' Reduced Loan Rate Promotion Is Popular in Kentucky ORE THAN 30 financial in stitu tions in K entucky participated Marketing Tip of Month* in a “buy A m erica” program recently that was designed to “get th e econom y Giveaways often are confined to rolling again.” items that are used up, thrown out or tucked in a pocket or purse to be The concept was initiated by labor forgotten until cleaning day. How groups in the state and was picked up about something a bank can offer by Charles E. Cowan Jr., chairm an/ that will provide a useful service, executive vice p resid en t, M onticello generate goodwill and get free pub Banking Co. licity for the bank to boot? Seven out-of-state financial in stitu As part of its “Customer Apprecia tions also participated after th e ir m an tion Day” promotion, an Ohio bank a g e m e n ts saw w h a t th e K en tu ck y in a mid-size city offered holders of banks w ere doing to stim u la te th e its ATM cards free bus rides on the bank. economy. In lieu of payment, all the card A ccord in g to M r. C ow an, M o n holder had to do was show the ATM ticello Banking Co. earm arked $1 m il card to the bus driver, who used a lion in loan funds at a 12% in te re st rate paper ticket to keep tabs on the num for a on e-m o n th period. T he funds ber of passengers taking advantage of could be used by custom ers in the the offer. bank’s trad e area for hom es, autos, Granted, the bus company had to farm eq u ip m en t and o th er purchases, keep track of the number of free rid as long as th e products w ere A m erican ers and bill the bank; but in return, the public transportation system that made. In th e case of new hom es, the day had nearly 3,000 additional pas rate was guaranteed for 12 m onths; all sengers, who potentially could be o ther loan categories carried the 12% come regular riders. rate for th e length of th e loan. The bank promoted the event by The bank published full-page ads in creating a full-page, two-color ad the local new spaper to announce th e stressing that public transportation prom otion and a good deal of th e funds could play an important role in cut w ere com m itted p rior to th e first day ting fuel consumption. One result the low rate was available, Mr. Cowan was that the bank got generous free says. press coverage of the event. M ore autos w ere financed during The program cost the bank less than $3,000 for bus fares, plus the th e period th e low-cost funds w ere cost of the newspaper ads, but it pro available than during th e en tire p re vided a memorable “freebie” for vious year, according to Mr. Cowan. many of its customers. Even a houseboat was financed during * For more information, contact the prom otion! N ine hom e ow ners also Sandra Carcione, division o f com took out loans. munications, Bank Marketing Asso Mr. Cowan says the $1 million was ciation, Chicago. spoken for in ju st seven days. “It really w orked!” he exclaim ed. The bank was featured on national TV d u rin g th e prom otion and m ore than 30 bankers them for autos. called for details. The bank d id n ’t advertise the p ro F irst City Bank, H opkinsville, also m otion, b u t news stories appeared in participated. H ow ever, it took a while th e local new spaper. Loan term s ex for w ord to get out about th e offer, te n d e d up to four years except for according to D onald R. M abry, senior hom es. Mr. M abry says no one asked vice presid en t of th e $90-million in for a hom e loan u n d er th e red uced stitution. term s. Loan term s m andated a m ini The bank loaned $900,000 of the m um of $2,000 and a m axim um of $1 m illio n p r o v id e d a n d th e la st $100,000. Applications could be m ade $100,000 w ould have b een spoken for at the bank or at any dealer that had if the prom otion had lasted ju st one financing arrangem ents w ith th e bank. additional day, Mr. M abry says. M ore National Bank, C ynthiana, also p ar than 100 loans w ere arranged, 97 of tic ip a te d in th e re d u c e d -ra te -lo a n M 22 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis prom otion, b u t it offered auto loans only. Clyde Cockrell, executive vice president/cashier, reports that 25 auto loans w ere m ade, all for 36 months. At th e tim e the 12% loans w ere m ade, the bank’s regular rate was 16%. • • Small-Business Consulting Offered by KC Bank A new service for com m ercial cus tom ers now is available at Kansas City Bank. It’s called sm all-business con sulting and is being offered to all com mercial custom ers of the bank. The new d ep artm en t is headed by D ouglas G leason, w ho will analyze small and m edium -sized businesses’ overall financial conditions and p ro vide them w ith specific business plans or profiles. T he service is designed to give ow ners and m anagers a clearer picture of the cu rren t financial stand ing of th e ir businesses and provide bases for forecasting and decision m ak ing. Part of the new service is organiza tion of financial statem ents. The bank b e lie v e s th is also w ill h e lp local businesses by expediting com m ercial loans by reducing loan-approval tim e th ro u g h re p ro c e s s in g in fo rm a tio n necessary for loan approval. Mr. Gleason m ost recently was a self-em ployed Kansas City financial/ b u sin ess co n su ltan t. A g rad u ate of W ashburn U niversity Law School, he has held several posts, including that of p resid en t/treasu rer/d irecto r, N ew s paper E lectronics Corp. Seniors' Seminars Sponsored By Citizens Fidelity Bank C itizen s F id elity , L ouisville, re cently sponsored two financial sem i nars d esig n ed especially for senior citizens. The first sem inar was en titled “F i nancial Services for Senior C itizens” and topics discussed included banking services for senior citizens, direct d e posit and wills. T he second sem inar bore the title “How to Make M oney and K eep I t.” This session included inform ation on trusts and investm ents. T he sem inars w ere given in con junction w ith Senior House. MID-CONTINENT BANKER for Decem ber, 1982 Bank Gains New Customers With 'Exchange It' Ads Mid-Continent Banker EXPANDS T 0 1 7 STATE AREA Year-old Exchange N ational, Tulsa, is making an effort to establish nam e recognition through a direct-m ail and advertising prom otion th at focuses on consum er prospects. H eadlines and illustrations carrying th e th em e “Exchange I t” are being used in a series of seven display ads for new spaper, two 30-second radio spots, outdoor painted bulletins and T-shirts in addition to th e original direct-m ail piece. T he direct-m ail cam paign resu lted in m ore than 200 responses w ithin 15 days. R equests for inform ation con tinue at a rate of 20 p er day. C la re n c e H o u d e , n ew ly e le c te d bank p resid en t, says th e focus on the bank nam e has left the im pression that a great m any m ore ads have ap peared than is actually th e case. The bank’s prim ary m arket is young and m obile couples who are in terested in basic banking services. If your bank seem s too far out of the way, Effective With January 1983 Issue (Resulting from merger with MID-WESTERN BANKER) • 17-STATE EDITION (9,500 circulation), bringing LOWER cost-per-thousand advertising rates to the NATIONAL advertiser. Reaches ALL of the states listed below. •6-STATE NORTHERN EDITION (4,000 circulation) in Northern III., Northern Ind., Mich., Minn., Ohio &Wise. • 13-STATE SOUTHERN EDITION (5,500 circulation) in Ala., Ark., Southern III., Southern Ind., Kan., Ky., La., Miss., Mo., N. Mex., Okla., Tenn., &Texas. 17-STATE EDITION 1 Page 2/3 Page 1/2 Page 1/3 Page 1/4 Page 1/6 Page 1-3 tim es $765 652 538 424 348 279 4-5 tim es $722 615 527 400 329 264 12 tim es $592 504 416 328 269 216 6 tim es $650 554 457 360 296 237 A A A standard re d ..................................$210 extra; spread O th e r standard c o lo rs ......................... $230 extra; spread M atched c o lo r ........................................ $255 extra; spread 4 -co lo r p ro c e s s ...................................... $695 extra; spread B le e d ..........................................................$50 $315 $345 $380 $1045 N O RTH ERN EDITION 1 Page $491 $454 $409 $374 SO U T H ER N EDITION 1 Page $602 $577 $520 $471 (A L L fractional spaces also available in these T W O editions.) C A L L O R W R IT E for m edia kit w ith full details on rates for all T H R E E editions, show ing rates for fractional spaces as w ell as page rates show n above. A ls o full details on circulation and editorial coverage. Ijp Exchange National Bank Broken Arrow Exp ressw ay at Garnett 663-5741 Member F D I C One of series of seven newspaper ads for Exchange Nat'l, Tulsa, that emphasizes convenience of bank as w ell as bank's name. MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BANKER ADVERTISING PRODUCTION MANAGER-MRS. MARGE BOTTIAUX 408 Olive Street, St. Louis, MO. 63102 314/421-5445 23 Community Involvement Bank Starts Program To Provide Services For Handicapped T he physically handicapped, deaf, b lin d or p artially sig h ted and th e m entally handicapped now can tran s act banking business easier than before if they are custom ers of C incinnati s C entral Trust. T h e b a n k h as in itia te d a 12c o m p o n e n t pro g ram , w hich ranges from special training classes in sign language for bank em ployees to closed captions in all new TV advertising, in c re a se d aw aren ess pro g ram s ab o u t drive-up ATM m achines and installa tion of a special telecom m unications device for the deaf (TDD). F o r th e blind/partially sighted, C en tral T rust offers enlarged checks w ith em bossed lines and raised num bers alongside floor num bers on elevators. F o r th e m entally handicapped, bank m anagers act as resource and contact persons as req u ested by professionals who work w ith the m entally retarded. T ra in in g -d e p a rtm e n t staff m em b ers have atten d ed a session at a sheltered Bank Creates Its O w n Park To Serve Its Com m unity O BANKERS w hose institutions vited to brow n bag th e ir lunches in the have th e ir own parks have m ore park, w ith th e bank furnishing soft and en tertain m en t. fun? Yes, and th e ir institutions can drinks re C row d sizes varied according to the ceive an awful lot of free publicity! Ask A. J. Collins, chairm an, H u tc h type of e n te rtain m en t and th e w eath in so n (K an .) N a tio n a l. T h e b a n k er, b u t at least 200 people appeared tu rn ed a vacant lot adjacent to th e bank each W ednesday from May through into a park. Polaris Park (nam ed after August and on occasion the attendance the bank’s star logo) was created two passed th e 1,000 mark. E n te r ta in m e n t e v e n ts in c lu d e d years ago and was professionally lan d scaped and furnished. The park was quilting and spinning dem onstrations, expanded this year — a gazebo and fashion shows, square dancing, m usi cal program s and a magic show. The o th er am enities w ere added. This past sum m er, th e bank spon largest crowds w ere attracted by bigsored weekly picnics in th e park, orga nam e professional entertainers. The picnics have resulted in con nized and coordinated by Skip Patton, tinuous publicity for the bank from the the bank’s m arketing officer. Each W ednesday, th e public was in m edia, including new spapers, radio and TV. • • D w orkshop for the m entally retarded/ em otionally d isturbed to learn ways to recognize m ental and em otional h an d icaps. In a d d itio n , c u s to m e r-c o n ta c tpersonnel training program s now in clu d e train in g tow ard aw areness of handicaps and sensitivity in dealing w ith handicapped custom ers. The bank reports local reaction to th e program has been extrem ely posi tive. F or instance, the R everend John Bok, director, St. Rita’s School of D eaf in C in c in n a ti, says, “T he program C entral T rust has p u t to g eth er shows real progress on the p art of th e bank in recognizing the needs of the deaf and hearing im paired. ” The C entral T rust effort was initi ated by an em p lo y ee.T h e bank re searched services that could be p ro vided and set up a task force of C entral T rust personnel to respond to needs of th e local h a n d ic a p p e d com m unity. S e v e ra l ta sk -fo rc e m e m b e rs w e re e ith er physically handicapped th e m selves or had close contact w ith h an d icapped persons. The bank received direction from local sources, such as the M ental R e tardation Association, C incinnati Asso c ia tio n for th e B lin d , C lo v ern o o k School for th e Blind and St. R ita’s School for the Deaf. W ith th eir input and that of the task force, C entral T rust developed its program . According to E dw ard G. H arness Jr., group vice p resid en t, th e new program is designed to: 1. Im prove com m unications betw een bank re p re sentatives and handicapped custom ers. 2. Give these custom ers an oppor tunity for g reater in d ependen ce and c o n v e n ie n c e a sso ciated w ith th e ir financial activities. Bank Sponsors Showcase For Civic Organizations A showcase of th e varied endeavors of greater Kansas City civic and chari table agencies was held recently in the parking lot of Kansas A m erican Bank, O verland Park. Title of th e one-day showcase was “Kansas Am erican Bank Civic O rga nization Day — G et Involved in Your C om m unity.” Each participating group staffed a booth that offered handicrafts, art ob je c ts and e d u catio n al m aterials for sale. Ronald McDonald performs during picnic-lunch session at Polaris Park, owned and H ourly door-prize draw ings w ere operated by Hutchinson (Kan.) Nat'l. Bank provided entertainment weekly throughout held and live jazz m usic was provided. summer months. 24 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BANKER for Decem ber, 1982 The check who came in from the cold W hen people ask how good our check processing is, w e tell them the story of the check w ho cam e in from the cold: T h e check arrived at 6 a.m. Continental B an k couriers m et his flight. H e h a d n ’t expected that. He w as still half-frozen from his ride in the plane’s cargo hold. He thought h e’d have tim e to relax, w arm up. B u t no. T hey w hisked him by heli copter to the processing center. Funny, he h a d n ’t expected to be cleared till late morning. No one had time for small talk. T h e pace they w orked at w as dizzying. In the space of an hour, he and over one hu ndred thousand other checks had been captured, microfilmed, endorsed, sorted and sent on their way. A nd the kicker? T h e whole thing happened so fast he never had tim e to th aw out. It w as as buttoned-up an organization as h e’d ever come across. A nd h e ’d come across plenty. H e’d come in cold and skepti cal. He left m ighty im pressed. If your cash letter’s tu rn around time is less th an impressive, call E. Gerald Gale at (312) 828-6781. G et the heartw arm ing facts about how good our turnaround is. How good yours could be. CONTINENTAL BANK 125th AN N IVERSARY C o n t i n e n t a l I llin o is N a tio n a l B a n k a n d T r u s t C o m p a n y of C h ic a g o , 231 S o u th L a S a lle S tr e e t, C h ic a g o , I llin o is 60693 A tla n ta • C h ic a g o • C le v e la n d • D a lla s • D e n v e r • D e tr o it H o u s to n • L o s A n g e le s • M in n e a p o lis • N e w Y ork S a n F r a n c i s c o • S e a ttle • W h ite P la in s . MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25 Correspondent-Banker Survey I Changing Times: How They Affect Correspondent Policies, Relationships T H E R E ’S little dou b t that develop m ents in th e banking ind u stry in recent years have affected policies and relationships b etw een upstream and dow nstream co rresp o nd en t banks. F or instance: • The Penn Square failure in O kla hom a City has caused som e banks to make ab ru p t policy changes, including dem anding m ore d ocum entation for participations. • C o m p e titio n fro m th e F e d in check processing has te n d e d to cause div id ed loyalties am ong c o rre sp o n dents. • D em ands for new technology to enable banks to keep abreast of the tim es have strained som e banks’ capac ities to provide th e kinds of services correspondents want. But are things as negative as they seem on th e theoretical plane? In an attem p t to find out, M i d - C o n t i n e n t B an ker surveyed a select n u m b er of c o rr e s p o n d e n t b a n k s — b o th u p stream and dow nstream — to get a read in g on th e c o rre sp o n d e n t-b an k situation. This article deals w ith resp o n ses from u p s tre a m b a n k s. T h e y w e re asked a series of 10 questions covering the areas of credits, m ergers and ac c o n tin u in g w ith p re v io u s re q u ir e m ents for sufficient financial inform a qu isitio n s, sm all-business financing tion and docum entation. O ur respon trends, loan policy, operations and the dents are req u ired to have a m inim um F e d ’s influence. F o llo w in g a re so m e o f th e r e of 10% in each transaction.” From a bank in Arkansas: “O ne area sponses: 1. In view of the problem s experi that should be given m ore inspection is enced in upstream loans by correspon the financial condition of th e upstream bank, along w ith the quality of m an dents who purchased loans from Penn agem ent, capital adequacy, loan-loss Square Bank, has your bank m ade any changes in its credit qualifications for history, e tc .” 2. W h at do you c o n s id e r to be overlines? Is it asking for m ore docu alternative funding sources for the fu m entation? From a bank in Cincinnati. “No, we tu re that m ight replace some overline always have b een very selective in com m itm ents by correspondents? C incinnati: “Problem s in this area buying participations.” From a bank in San Francisco. “Not will lead to m ore opportunities for the really — we always have m ade our own good correspondent bank and u n d e r in d e p e n d e n t decisions and have re line the necessity for close relation sh ip s.” qu ired all p e rtin e n t docum entation. C incinnati: “No good sources other From a bank in M em phis: “W e have than other regional banks in the area initiated no new p ro ced u res.” F ro m a b ank in St. Louis: “W e vs. upstream m oney-center banks. Atlanta: “W e have not participated analyze participations to th e same d e in a substantial nu m b er of overlines, gree as we do a direct-loan request. Copies of the note, loan agreem ent, b u t expect to find ourselves in that filings and o ther p e rtin e n t inform ation position in the future. W e have used large m oney-center and foreign banks are re q u ire d .’ From another bank in C incinnati: to d a te .” “No, we always have b een tough!” (C ontinued on page 28) From a bank in Atlanta: “No. W e are Dangers of Correspondent-Banking Success Detailed “C orrespondent-banking success too often gets m ea sured in term s of th e expansion of th e custom er base and product usage,” said Douglas E. E b e rt, executive vice president, M anufacturers H anover T rust, N ew York City. “U nfortunately,” he added, “this m arket share m ind-set can lead us dow n dangerous (and self-destructive paths) if not tem p ered by a sound concern for a p ro p er level of re tu rn .” Speaking at th e F irst In ternational C onference on C or respondent Banking, Mr. E b e rt p o in ted out th at “as cor respondent banking has assum ed increased attractiveness, especially in contrast to increasingly risky asset-intensive businesses, it has becom e subject to a dash for m arket share by both established players and new e n tra n ts .” Mr. E b ert counseled that “instead, sound com petition should revolve around quality of service and overall value for m o n ey .” Moving on to discuss th e effects of technology on co rre spondent banking, Mr. E b e rt cautioned that “we are deal26 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ing with a sharp tw o-edged sword h ere, because for the first tim e, banks throughout th e w orld now can m anage the balances they keep w ith th eir correspondents in a precise and tim ely m a n n e r.” “And th is,” he added, “raises the question: Can a sound international correspondent n e t work be m aintained if we all press the reduction in balances to th e limits of w hat is technically feasible? N oting that the global environm ent for international banks is increasingly difficult, Mr. E b e rt said, “Exposure of bank capital in facilities to o th er banks m ust have a justification. W e w ant our own foreign business done effi ciently at a reasonable p ric e ,” he continued, “and we w ant a healthy profit on th e w ork we take in from abroad. So it really becom es a question of m utual self-interest to pay for value given. By doing this, Mr. E b e rt concluded, “we help assure the continued availability of th e services we require at an acceptable level of dependability and quali ty-” MID-CONTINENT BANKER for December, 1982 Correspondent-Banker Survey II Fed W ill Get Check-Clearing Business If Price Is Right, Bankers Say SURVEY of tren d s and policies in co rresp o n d en t banking from the view point of dow nstream corresp o n dents reveals th e following: • The F ed will get th e lion’s share of check-clearing business if its pricing is right. • Fees will replace balances, for the most part, as com pensation for c o rre spondent services. • D ow nstream co rrespondents are not feeling a tig h ten in g of cred it qual ifications for overlines because of the Penn Square situation in O klahom a City. • M ost banks are satisfied w ith the scope of services th ey receive from th eir correspondents. A series of 10 questions was posed to a selected n u m b er of dow nstream cor r e s p o n d e n ts b y M i d - C o n t i n e n t B an ke r last m onth. R esponses w ere received from banks in a dozen MidC o ntinen t states. Following is a breakdow n of th e re sults: 1. In view of th e problem s experi enced in upstream loans by corresp o n dents that purchased loans from P enn Square Bank, has your u pstream cor respond en t m ade changes in its cred it qualifications for overlines? Is it asking for m ore d ocum entation, etc. ? Are you in agreem en t w ith th ese changes? The m ajority of resp o n d en ts reports no changes in this area. A b anker in Louisiana no ted th at “m ost upstream banks carefully check out loan p a r ticipations they b u y .” A banker in Kansas says: “O ur bank, w hen selling participations to our cor respon d en t banks in th e city . . . has them well do cu m en ted and supp o rted and, therefore, we have not had any ch an g e (in policy) sin ce th e P e n n Square failure.” Only one bank reports it is being asked for m ore d ocum entation, and th e resp o n d en t adds th at th e bank’s m anagem ent is not in ag reem en t with th e upstream co rresp o n d en t’s change of policy. A bank in Texas rep o rts it has taken the initiative in asking for m ore docu m entation from borrow ers. “I am in agreem en t w ith tig h te r reins on partic ipation p u rch ases,” th e b anker states. A b an k er from do w n state Illinois A added this com m ent to th e question: “W e have never had m uch luck w ith large city correspondents on overlines. T hey generally feel th at we do not know how to evaluate credits despite th eir third-w orld-country loans, Penn Square loans and th e ir b o n d-house loans.” "W e have never had much luck with large city correspondents on overlines. They generally feel that we do not know how to evaluate credits despite their third-world-country loans, Penn Square loans and their bond-house loans/ 7 2. Is your upstream correspondent providing your bank w ith data-proc essing packages that provide inform a tion as well as process work? W hat im p ro v e m e n ts in data-p ro cessin g se r vices w ould you like to see from your co rrespondent bank? The m ajority of responding banks re p o rt th ey e ith e r d o n ’t n eed dataprocessing services from th eir co rre spondent (because they have th eir own capability or use a different source for th e service) or th e ir c o rresp o n d en t doesn’t offer th e service. In th e area of im provem ents of such service from correspondents, a C hica go bank said it w anted to see a price reduction for th e service. An O klaho m a bank asked for m ore b u d g et capa bility for asset/liability m anagem ent services. 3. How are bankruptcies and w ork o u ts affe c tin g y o u r c o rre s p o n d e n t loans? Almost every responding bank said th e re was no problem in this area; some because they have no o u tstand ing loans w ith correspondents. An Alabama bank says bankruptcies and workouts are “our w orst problem all across the board. ” A Louisiana bank rep o rted th e “recession and b an k ru p t cies are causing th e m ost p roblem loans e v e r.” An O klahom a bank says b a n k ru p tc ie s and w o rk o u ts are in creasing in n u m b er and volum e. “W e a re in c re a s in g v a lu a tio n re s e rv e s accordingly to cover potential losses.” 4. In w hat ways is your upstream MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis correspondent assisting your bank in m ergers and acquisitions? Does it re quire m ore data? Is it advising a goslow” attitude? This question was not p ertin e n t to most respondents, b u t one bank says it has received no w ord from its co rre spondents on this topic so the bank has gone to o ther banks to get inform ation. A bank in T ennessee reports that it determ ines its own course in this area after m eeting w ith investm ent bank ers. No bank reports its correspondent advising a “go-slow” attitude. 5. W hat changes has your upstream c o rresp o n d en t m ade in its overline policy? Again, m ost banks rep o rt no change in this area, although a few banks said upstream correspondents are tig h ten ing collection efforts, are m ore strict, are making m ore careful credit evalua tions and increasing collateral re q u ire m ents. A banker in Texas says its cor respondents “sell us sub-prim e loans often.” 6. W hat are your views on the topic of fee incom e vs. account balances? W hich m ethod do you see being p re dom inant 10 years from now? The general consensus is that fees will p redom inate, b u t that balances will not disappear as a m eans of com pensating for correspondent services. O ne reason fee incom e will predom i nate is that th ere is m ore resistance on th e p a rt of do w n stream c o rresp o n dents to m aintaining balances, a bank er in Oklahom a says. A banker in Kan sas says fee incom e facilitates account ing. A Kentucky banker w rites: “I see in terest-m arg in red u ctio n s. F ee in come, from p resen t and new services, MUST cover 100% of non-interest ex p e n se .” 7. Is it your bank’s policy to keep its c o rre s p o n d e n t b alan ces at a m ini27 m um ? Has this policy caused friction spondents? To w hat extent do you see you like your correspondent to offer? betw een your bank and its co rrespon this ratio changing in the near future? “H elp w ith longer-term real-estatedents? Most respondents favor doing busi loan m arketing to m aintain liquidity A lm ost all re sp o n d in g banks say ness w ith th e ir co rresp o n d en t bank and com pete w ith m ortgage le n d e rs,” they are keeping balances at a m ini over th e Fed, b u t th ere appears to be a says a bank in Oklahoma. “In tern atio n mum, and the m ajority of these banks tre n d tow ard giving th e F ed m ore al services,” says a bank in Illinois. say there has been no friction in con business in th e future. “ M ore help w ith trading in credits; nection with such policy. But about An Oklahom a banker reports that all m ore expertise in investm ent credits; one-third of th e banks th at keep then- his bank’s business goes to the corre and m ore concern for independentbalances low re p o rt th e re has been spondent now, b ut the future will see bank econom ic problem s, ” says an Ala friction. Some banks have not yet re th e business going to “w herever it is bam a bank. A K entucky bank would duced th eir balances to a m inim um , cheap er in net dollars (including cost of like inform ation on m ergers and ac b ut intend to do so in th e future. balances).” A nother O klahom a banker quisitions. An Illinois bank would like A bank in Chicago says th e re is no says the co rrespondent gets 90% of the some advice on “how to handle the friction because th e upstream co rre business now, b ut the F ed probably new m oney-m arket fund and o th e r spondent bank wants to be co m p eti will get all that business in the “near offerings, in clu d in g inform ation on tive and the dow nstream bank keeps future. ” p ricin g .” required balances on deposit w ith the A n o rth ern Illinois banker says his R espondents w ere encouraged to co rresp o n d en t. A b an k er in Kansas bank curren tly gives 75% of its check share th eir thoughts on th e correspon writes: “W e always have followed the clearing business to the F ed and that dent-banking system. policy of having ad eq u ate balances in th e ratio w on’t change in the future. A A Kansas banker says, “Basically, we our correspondent bank accounts so Texas bank currently gives 40% of its have had little, if any, difficulty with th a t o u r c o rre s p o n d e n t b an k s can business to th e F ed and sees a g reater our correspondents. I think they have make a reasonable profit on our busi p ercentage going to the F ed in the done a reasonably good job for u s.” ness. W e have n ev er trie d to have future. A banker in Texas: “C o rrespondent them handle our work for n o th in g .” An Illinois bank currently sends 5% b a n k in g w ill b eco m e to u g h e r and 8. W hat new or recen t services from of its check-clearing to the F ed and m ore com petitive. W e’ll be com peting your correspondent have been most says that, in the future, the institution w ith the F ed for correspondent b usi beneficial to your bank’s operation? giving “the best price break and the ness and th ere will be m ore em phasis A bank in Alabama reports th at it b est service” will get its business. A on fee incom e.” a p p re c ia te s u p s tre a m in g h ig h -c o st T ennessee bank says percentage fig An Indiana banker reports that his CDs; a Kentucky b anker likes sem i ures constantly change. “W e consider bank is starting a small correspondent nars that are tim ely and that reflect availability and p ric e .” O ne bank in d ep artm en t of its own and it is “very changes in banking; an o th er b anker Kansas is sending 75% of its check pleased with the re su lts.” makes good use of th e asset/liability clearing business to the F ed, while A banker in T ennessee says: “W e m odel supplied by his correspondent. an o th er Kansas bank gives 100% of its find th a t u p s tre a m c o rre s p o n d e n t 9. W hat p ercentage of your check business to its correspondent bank. banks are helping us less and less.” — clearing is done by th e F ed? By corre10. W hat additional services would Jim F ab ian , senior editor. Fed G o v e rn o r Says C a p ita l A d eq u acy Is 'Bottom Line of Bank Soundness' H ENRY C. W A L L IC H , m em b er of th e F e d ’s Board of G overnors, spoke recently at th e annual m eeting of th e Boston Fed. H e discussed such subjects as international lending, legislation, in terest sensitivity and p urchased funds. T hen, he closed w ith com m ents on capital adequacy, w hich he describes as “th e bottom line of bank sound n ess.” H ere is w hat Mr. W allich said about capital adequacy: “. . . Personally, I always have th o u g h t th e re is a b e tte r way of protecting bank creditors than to req u ire each bank to have a large capital. That b e tte r way w ould be m ore com prehensive insurance. But that is not the direction in which events have gone. T herefore, I believe the presen t regulatory push in th e direction of g reater capital adequacy, especially for th e largest banks, is necessary. T he clim ate in one respect is favorable: D im inishing inflation is slowing grow th of bank assets and liabilities and in that sense m akes it easier to achieve adequate capital. The preceding thinning out of bank-capital ratios was the result not only of expansionist bank policies, b u t also of an inflation for which they w ere not responsible. T h ere are o p p ortunities for capital im provem ent now, even though th e re also are difficulties. “Banks can im prove th e ir capital ratios through a variety of channels. They can sell securities; they can slow dow n th e grow th of th eir assets; they can try to w iden profit m argins, and they can lim it dividends. Some of these are m ore feasible at this tim e than others, and some are m ore in keeping than others w ith th e im provem ent in econom ic conditions in which banks have a stak e.” 28 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Correspondent Survey I (C ontinued fr o m page 26) Arkansas: “O ne way to replace over lin e s is to p u rs u e p o te n tia l loans (direct) outside of your trade area in grow th areas w here, for exam ple, you h a v e oil, gas o r e n e r g y - r e la te d g row th.” 3. B ankruptcies and w orkouts — how are th ese affecting your co rre spondent loans? Cincinnati: “No effect.” San Francisco: “Some, b u t not an excessive, effect.” M em phis: “W e are being m ore re strictive and conservative. W e req u ire greater m argins, etc. ” St. Louis: “ O u r acco u n t officers w ork th e ir own problem loans and, due to the increased dem and on th eir tim e caused by these problem s, th ere is less o p p ortunity to cultivate new business. ” Cincinnati: ‘W e give closer scrutiny MID-CONTINENT BANKER for Decem ber, 1982 Not bank-to-bank. Person-to-person. That's the National Boulevard Bank approach to correspondent banking. Each of our correspondent customers enjoys the personal service of an individual account officer especially involved with his customers' particular goals and needs In today's challenging business clim ate. And, our very special kind of personal service is a vailab le across a broad range of functions in four basic areas - Credit and Financing Services, Assets-Liability Management Services, Operational and Clearing Services and Management and Marketing Services. If you'd like that kind of personal service in those kinds of areas, the person to call at National Boulevard Bank is H. Peter DeRosier at (312) 836-6868. Make it person to person. National Boulevard B ank of Chicago Boulevard Bank 400-410 N. MICHIGAN AVE., CH IC A G O , IL 60611 ONE ILLINOIS CENTER (111 E. W acker), C H IC A G O , IL 60601 AID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (312) 836-6500 • MEMBER FDIC to our loans.” Atlanta: “W e have not seen a signifi cant u ptu rn in eith er area; how ever, we would anticipate the need to watch this area, particularly loans secured by agricultural real esta te and tim berlan d .” 4. Are you actively aiding your cor respondents in the area of m ergers/ acquisitions or are you requiring m ore data or advising a “go-slow” attitude? Cincinnati: “W e provide full service to our co rresp o n d en ts.” San Francisco: “W e are cautious in this area. ” M em phis: “W e are actively aiding our correspondents in this a re a .” C incinnati: “W e are aiding, b u t we req u ire significant data before advising on a go or no-go d ecision.” Atlanta: “W e are serving correspon dents with advisory services, cash-flow m odels and term financing. In our state, this subject is being discussed m ore freq u en tly .” Arkansas: “W e are advising a ‘goslow’ a ttitu d e .” 5. W hat thoughts do you have on the to p ic o f s m a ll- b u s in e s s - f in a n c in g trends for your correspondents? M em phis: “W e advise our c o rre spondents to be careful of v enturecapital loans.” Cincinnati: “W e advise close scru tiny in this area. ” Atlanta: W e are encouraging usage o f o u r a sse t-b a se d le n d in g g ro u p . Small-Business-Association-type loans are not being encouraged from co rre sp o n d en ts.” 6. Have you m ade m ajor changes that are affecting your overlines and have you inform ed your co rresp o n dents? If not, will changes com e soon? Cincinnati: “No changes have been m ade and are n o t e x p e c te d to be m ad e.” C in c in n a ti: W e a re c h a n g in g participation agreem ents to allow the purchaser m ore right to ‘take o ver’ the lead positio n if th e c re d it d e te rio ra tes.” A tla n ta : N o. W e d o n ’t e x p e c t changes in this area. In our long his tory of c o rre s p o n d e n t banking, we have experienced alm ost no losses on overlines. ” Arkansas: “No im m ediate changes are anticipated. W e d o n ’t have p ro b lems w ith our overlines. 7. W hat service areas are being d e veloped that can help your co rrespon d en ts w ith d ata p ro cessin g , m icro com puters, sw eep accounts, discount brokerage, etc., th at will develop busi ness locally for your correspondents and thus provide a m uch n e e d e d ser vice? Cincinnati: W e cu rren tly provide 30 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis all the m entioned services.” for regional banks. C redit-related ser San Francisco: “W e are in the early vices are most im portant at this tim e .” stages of providing these services.” Atlanta: “D espite interstate bank M em phis: W e cu rren tly have com ing, which probably will be regional in bined our data sales area into the cor scope initially, we see a slow decline in re sp o n d en t division. W e are selling the need for correspondent services.” our own asset/liability m odel, discount Arkansas: W e see correspondent brokerage service, e tc .” banking perform ed by large regional Cincinnati: “W e currently sell data (lead) banks and the nu m b er of banks processing, sw eep account and dis th at are heavily involved in correspon count brokerage services to our co rre d en t banking reduced drastically b e sp o n d en ts.” cause of m erger, acquisition and in te r Atlanta: “W e in ten d to dow nstream state banking.” retail services; i.e., discount bro k er 9. W hat effect is deregulation hav age, sw eep s, m o rtg a g e b ro k e rin g . ing on c o rre s p o n d e n t b an k in g , its H ow ever, data processing is a service products and its service com petition? we don’t offer, b u t may offer it in two Cincinnati: ‘D eregulation will make y ears.” relationships m ore im p o rtan t.” 8. W hat im plications for correspon San Francisco: “D eregulation will d e n t banking do you see in the future force banks to join forces with others to in talks” about interstate banking? becom e bigger p layers.” C incinnati: W e see a decreasing M em phis: “D eregulation will result n u m b er of accounts w ith an increasing in m ore developing of and researching in d iv id u al o p p o rtu n ity ; i.e ., few er, new products, making bank m anage b u t larger, relationships.” m ent m ore difficult and challenging M em phis: W e see an open m arket and requiring correspondent bankers for m ergers and acquisitions. T h ere to becom e m ore know ledgeable.” fore, an abun dant opportunity exists to C in c in n a ti: “ D e re g u la tio n is re fund H C loans and capital loans for sponsible for such things as F ed check m ergers and acquisitions.” clearing im plications.” Cincinnati: “W e see stability for cor Atlanta: “Sm aller and m edium -sized resp o n d en t banking b u t slow growth banks will have substantial needs for information to enable them to cope w ith d e re g u la tio n . M any of th e se banks will not survive.” Training Program Offered Arkansas: D eregulation is causing correspondents to keep less and less A micro-computer-based training program for bank customer service m oney in n o n -in te re s t-b e a rin g d e representatives was introduced by m a n d a c c o u n ts. T h e s e b a n k s a re the Bank Administration Institute at w orking th e ir m oney h a rd e r than its first micro-computer conference, ever and have becom e m ore aware of held last month in Dallas. The pro availability of funds. ” gram is said to be the first of its kind. 10. Is the F ed com peting fairly with Designed for financial institu its pricing policy? Do you foresee any tions, the program, entitled “First rules changes that w ould be advan Contact,” consists of more than 50 tag eo u s to th e F e d and d isa d v a n half-hour lessons for independent study. tageous to the correspondent field? The program covers bank termi C incinnati: “O f course the F ed is not nology, check negotiability, en co m p etin g fairly! W e believe th ere dorsements and clearing, personal will be a period of confusion followed and commercial accounts, safe de by one w here correspondent bankers posit boxes, billing, IRA and Keogh will once again capture the profitable accounts, CDs, credit cards, over part of the business.” drafts, collections and other newSan Francisco: “The F ed has stacked account functions. th e advantages in its favor already!” It also offers an historical perspec M em phis: “The Fed is not com pet tive of banking in a course titled Fundamentals in Banking” and spe ing fairly. Noon p resen tm en t is an ex cial lessons in cross-selling bank ser am p le of ch an g es th a t a re ad v a n vices and transaction management. tag eo u s to th e F e d an d d isa d v a n A detailed trainer’s guide that ex tageous to the correspondent field. ” plains how to use the program in C incinnati: The noon-presentm ent conjunction with existing bank train rule would h u rt sev erely.” ing programs also is provided. A tlan ta: “ W e sh o u ld v ig o ro u sly The program is designed to run on oppose the F e d ’s unfair advantages as the Apple II Plus system, but the co m p etitor-regulator in check clear training package will be adapted to ings. W e expect oversight hearings to be compatible with other micro computers in the near future. force the F ed to follow provisions of Cost is $2,000. th e M onetary C ontrol Act of 1980. ” — Jim Fabian, senior editor. MID-CONTINENT BANKER for December, 1982 RepublicBank Dallas isn't limited by geographic bound aries. Today our activities ex tend to every part of the coun try. And the leading activity that touches banks all over the country is our Financial Institutions Division. We have the services and the experience to meet every kind of correspon dent banking need. Our Financial Institutions Division has a full range of ser vices from cash management to bank financing and loan par ticipations. Last year, we bought and sold loans with over a thousand banks and handled over two million cash letter items daily. In our cor respondent relationship, we're more interested in the relation ship than in transactions alone. And we can tailor our services to meet your individual institu tional needs. Along with a full range of services, we match your needs with a group of top correspon dent professionals. They nave in-depth, up-to-the-minute in formation on money markets, economic trends, and current or proposed legislation that may affect the financial institutions Dallas ject from a stmctural to a legal standpoint, as well as how to create a solid non-credit pack age of services. At RepublicBank Dallas, you'll find the people and the services you expect from a correspondent institution, and you'll discover there is no limit to what we can do. * RepublicBank Dallas We know no limits. M em ber FDIC MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 31 Banks to C u t B ack O n U n secu red Business Loans ANY m ajor financial institutions By Norris S. Griffin are likely to adopt a far m ore c a u tio u s a p p ro a c h th a n b e fo rebe toim posed by unsecured lenders in potential or existing borrow ers over today’s nervous business clim ate. Nor the foreseeable future. H aving been do I see this shift from unsecured to bu rn ed badly from O klahom a to Po secured lending as a tem porary p h e land, U. S. banks will te n d to be a lot nom enon. I believe firmly that our in choosier and undou b ted ly will tighten dustry will assum e and retain an ev er th eir cred it standards, given th e eco growing n u m b er of bigger and b e tte r nomic clim iate in w hich w e are o p erat accounts from our unsecured-lending ing. This should create a vacuum our friends. industry is adm irably eq u ip p ed to fill. C onsequences for our industry are This is not to suggest, of course, that obvious. O ur loan portfolios will be banks will tu rn off th e m oney taps to upgraded, and our loans to such b o r foreign countries or lend only to solid, row ers are likely to be larger, thus dom estic blue-chip corporations. To m ore economical. W e will see indi adopt such a course w ould be an exer vidual asset-based loans in excess of cise in fiscal irre s p o n s ib ility . T h e $50 million. On the factoring side, we ban k in g c o m m u n ity sim p ly can n o t already are doing business w ith com afford to p recipitate an international panies w hose sales volum es exceed financial crisis by slashing lending, $100 million. And even larger, topw hich u n d o u b te d ly w ould b e p e r rated corporations that never before ceived as a lack of confidence in the considered factoring th eir receivables w o rld ’s fin an cial sy stem . F u r th e r will tu rn to us in increasing num bers. m ore, if foreign countries w ere unable F o r good reason. B attered by rashes of to borrow funds from th e U. S., trade credit losses, m any corporate giants w ould dry up, w ith adverse conse n eed help — and now. In fact, some quences for th e free world. a lre a d y are co m b atin g th e ir c re d it Now let s see w here our indu stry fits problem s by taking advantage of our into this m uddled business env iro n in d u stry ’s vast credit and financing ex m ent. F or one thing, our industry has pertise. long thrived in all kinds of business In addition, grow ing n u m b ers of climates. Flexibility and adaptability m id d le-m arket com panies, w hich in to ever-changing conditions are the th e past also failed to use our brand of keys to our success. The c u rre n t scene financing and services, will move to should prove to be no exception. w ard the asset-based financial-services O ur industry is well positioned to industry — for similar reasons. These take advantage of th e m ore restrictive n ew -found clients soon will realize credit standards our un secu red le n d how asset-based lending, w ith its exing counterparts are likely to im pose on th eir borrow ers. As I see it, our This article is based com m ercial-banking friends will com b on the keynote th eir portfolios w ith m uch m ore re g a d d re ss N orris S. ularity than in th e past. C onsequently, Griffin gave at the m any borrow ers will gravitate to our 38th a n n u a l con secured-lending discipline. And in my ven tio n of the N ational Com m er judgm en t, th e bulk of th ese credits— cial Finance Confer w hen p la c e d on a se c u re d -le n d in g ence in New York basis— will be em inently w orkable and City in October. Mr. profitable for le n d e r and b o rro w e r G riffin served the alike. NCFC as chairm an I am not speaking h ere of inferior for two terms, 1980S I and 1981-82. He credits. I refer to quality com panies, com panies of considerable size and re is senior vice president/factoring group, sources that simply will not m eet the Associates Commercial Corp., Charlotte, N. C. m ore stringent credit criteria likely to M 32 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis trem e flexibility, enables borrow ers to capitalize on new and p erh ap s u n dream ed of business opportunities, in both good and bad tim es. In my ju d g m en t, th a t’s w hat stamps our industry as superior lenders. W e always have been in the forefront in devising new and unusual types of financing, w hich sub seq u en tly have been copied — b u t not as well, I b e lieve — by o ther lenders. The indus try ’s m any innovative leveraged buy out deals attest to this creativity. C onsider, too, som ething even as m undane as floating rates, which have been a way of life in our industry from its inception. The rest of the lending w orld now has com e to ad o p t our stance and tends, for the most part, to s h u n fix e d -ra te le n d in g lik e th e plague. I believe the concept of float ing rates will prevail for years to come in virtually every type of loan transac tion. The thrift in d u stry provides a glaring exam ple of how locked-in rates can cripple an industry. But like our com panions in the u n se cured -len d in g field, th e asset-based fin an c ia l-se rv ic e s in d u s try has n ot b e e n u n a ffe c te d by th e tu r b u le n t tim es in w hich we are operating. C on tin u in g high rates co ntinue to play havoc w ith our clients, especially those businesses that cannot pass th eir in creased costs on to th eir own custom ers. T hat’s why it is so crucial for all of us — the governm ent, industry and labor — to work in concert to defuse perm anently the notion that high infla tion — and its kissing cousin, high in terest rates — are part and parcel of th e Am erican economy. G overnm ent can help trem endously by displaying fiscal responsibility and lead ersh ip , b u t a working coalition betw een indus try and labor to hold a lid on prices and wages is equally crucial. In th e n ear fu tu re and th e years ahead, our industry will continue to prosper on its own, and not ju st from th e assum ption of solid accounts from our unsecured-lending b reth ren . W e will grow in several areas, prim arily because of our innovative financing techniques. O p p o r tu n itie s w ill c o n tin u e to MID-CONTINENT BANKER for Decem ber, 1982 How a banker keeps borrowers going w hen he can’t say Your m o st solid so u rce of loan b u sin ess is from a h e alth y , g ro w in g custom er. Yet th e re a re tim es w hen a tu rn d o w n is necessary. These a re th e tim es B arclay sA m erican /B u sin ess C redit can help, p e rh a p s as n o one else can. By a n aly z in g y o u r b o rro w e r’s acc o u n ts receivable, m a ch in ery a n d eq u ip m en t, in v e n to ry , re a l estate, in sta llm e n t receivables o r p ro jected c a sh flo w —we c an often d is cover a sse ts (tan g ib le o r in ta n g ib le ) th a t m ay have been overlooked. W hen a c u sto m e r re q u ire s fu n d in g for ex p an sio n , tu rn a ro u n d , a c q u isitio n o r re fin a n c in g , we can lend a h a n d , e ith e r solely o r in p a rtic ip a tio n w ith you. F o r a creative re so u rce y o u can alw ay s d ra w on, give u s a call. B usiness Credit A n a ffilia te of BARCLAYS B ank Service is the difference betw een our m oney and other money.sm O ffices lo ca ted n a tio n w id e . C o rp o ra te H e a d q u a rte rs : 111 F o u n d e rs P la za , E a s t H a rtfo rd , CT 06 1 0 8 , (203) 528-4831 MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 33 abound in leveraged financing as spin offs accelerate. Co m panies today generally want to stick to what they know and do best. So companies that in past years purchased businesses to diversify into new and unrelated fields will, in many cases, be selling units back to the original owners. And who knows better how to put these deals together, as our many successful case histories attest? In fact, probably 40% to 50% of our industry’s outstandings today are the result of acquisition and buyout financing. Last year, I said to look for growth from adopting a “hands-on” approach to previously “hands-off’ industries. I referred specifically to the service in dustries and to such “sunrise” indus tries as high technology, solar energy, computer companies and the like. I see no reason to retract that assess ment, particularly given our industry’s historical determination to tap new sources of business. Shrewd managements within the asset-based-financing field also will be looking outward to foreign shores. In fact, within the past year, the N C F C has formed an international trade ser vices committee to explore foreign business opportunities. As growing numbers of less-developed countries come to know the amenities of living we take for granted, a need for Amer ican products and services will pro liferate. And the astute lender will — or should — be positioned to capitalize on financing exports to these new mar kets or even financing embryonic in dustries abroad. Pie-in-the-sky? I think not. Bear in mind our welldeserved reputation for creative lend ing. W hile looking outward to more exo tic or unusual financing, we cannot, of course, neglect the heart and soul of our business — accounts receivable and inventory lending. But our indus try cannot hang out the “business-asusual” sign. W ith everything in a state of flux, failure to recognize that point can prove costly or even disastrous. What do I mean? I mean simply that these are trying times and we have to exert extraordinary care in policing our loans with the utmost diligence. And in putting new loans on the books, it behooves our industry to make fair and proper appraisals of collateral behind the loan. Rose-colored glasses should be worn only on the beach. Superior managers recognize fully that their job is to protect the company’s assets and to ensure an adequate return on assets. One cannot be successful in the quest for profits and return on assets if the criterion is to add loan volume indis criminately. 34 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis New NCFC Officers NEW YORK CITY — Melvin E. Rubenstein was elected chairman and Stephen C. Diamond president of the National Commercial Finance Conference (NCFC) at its annual convention here late in October. The N CFC is the association for the asset-based financial-services indus try. Messrs. Rubenstein and Di amond will take office January 1. RUBENSTEIN DIAMOND Mr. Rubenstein, executive vice president, Rosenthal & Rosenthal, New York City, will succeed Norris S. Griffin, senior vice president, Associates Commercial Corp., Char lotte, N. C. Mr. Rubenstein has been N CFC president the past two years. Mr. Diamond is president, Chase Commercial Corp., Englewood Cliffs, N. J., and senior vice presi dent, Chase Manhattan Corp., its parent company. He was N C FC first vice president this year. Talking about profits brings us into still another area that demands our attention. I refer to the factoring arm of our industry. It’s no secret that, over all, the current year probably has been the worst in the history of the factoring business. Perhaps lulled by years of ever-increasing volumes of purchased receivables and excellent profits, fac tors received a rude jolt this year. With clients failing at an unprecedented rate, due primarily to chaotic condi tions within the textile marketplace and overall depressed business condi tions, the factoring industry itself is suffering a severe profit drain this year. In large measure, it’s our own fault. As I cautioned last year in my keynote address, segments of our in dustry w ere extending substantial loans that were not being paid down on a regular and agreed-on basis. In effect, they were extending capital loans and that’s simply not our busi ness. Now the industry is paying a hef ty price, as many of these companies are floundering in Chapter X I. This “no-pay-back” loan situation currently is being addressed forcefully, though belatedly, by many of us. However, there remains within the industry another situation that has been un addressed for years — net return on investment. The factoring industry m u s t improve its return. And I stress must. Consider our credit-checking and collection fees. As factoring veterans know, the fee range for purchased re ceivables is well below what it was 10 or 12 years ago. Do you know of any other product or service that can be purchased today below 1970 prices? I don’t, with the possible exception of the electronics field. In the meantime, our own costs have skyrocketed. Think of the salaries paid today. The rent. The electricity. Scores of other overhead items that continue to soar. The current reces sion, which triggered a big drop-off in receivables volume, has forced us to face a cold, hard economic fact — fac toring fees for much of the industry are insufficient to generate an adequate return on our investment. We simply must get a better handle on the rela tionship between costs and revenues. If we don’t, look for additional wither ing within our industry. Skeptics might hold that any in crease from yesteryear fees is unwar ranted, pointing to our bigger-ticket items, burgeoning use of the computer in credit analysis and collection and th e o verall sw itch from laborin te n sive , manual operations. A ll these things are a reality. But if you’ll pardon the expression, “So what?” Other industries have upgraded facili ties, know-how and efficiency and show no signs of holding 1970 prices. And most importantly, our industry has markedly expanded and improved client services. Justice dictates that clients pick up a fair share of the tab. If factors are to survive as a viable, healthy force in meeting the expand ing credit, collection and financing needs of its many clients, net return sim ply must be upgraded to more realistic levels. • • Carl A. Modecki has been appointed executive vice president, Consumer Bankers Association. He comes from the Massachusetts Bar Association, where he was executive director. Prior to that position, he was with the Amer ican Automobile Association. He re places Richard K. Slater, who left the C B A recently to join a bank in Mary land. MID-CONTINENT BANKER for December, 1982 AFTER 37 YEARS OF BANKING, IJUST TOLD MY BEST CUSTOMER TO GET HIS MONEY SOMEPLACE ELSE. Someplace else is Armco Industrial Credit Corporation. When your valued custom ers need higher lending limits or more specialized credit ar rangem ents than your bank can offer, that’s when we can help. We offer bankers a happy alternative to refusing good custom ers ex tended financing. It’s called AICC Participation Lending. Secured participation lending program s are developed by AICC to bridge the gaps in nor mal financial services your bank offers com mercial clients. With AICC as a partner, you can offer: extended lend ing limits, flexible financ ing to keep pace with fast custom er sales growth, financing of MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis custom er acquisitions, secured equipm ent lending, even receiva bles and inventory financing. And, best of all, you keep a good custom er happy and com ing back for future banking needs. For more information, call or write: Armco Industrial Credit Corpora tion, Dept. FC-432, 2800 Rockcreek, Suite 604, North Kansas City, Missouri 64117. 816/421-5745. AR M C O V ARMCO INDUSTRIAL CREDIT CORPORATION S u b sid iary of A rm co F in an cial Corporation 35 Making 'Unbankable' Loans 'Bankable' How Asset-Based Lenders Can Help Banks Help Their Business Customers in 1983 Banks and Finance Firms Can Encourage Business To Streamline O perations By David Hooker L T H O U G H the economy may . show signs of recovery, many businesses continue to be hard hit the recession. Even an economic up turn might not help them recover financial health. In fact, many econo mists agree that it could take up to two years for a recovering economy to fully benefit a great number of these firms. Balance sheets may not be healthy enough to warrant additional unse cured credit, but working capital is necessary if these businesses are to streamline operations and survive. It is critical, particularly now, that lenders respond appropriately to the needs of such b u sin esses, w hich often are essentially sound, yet hampered by re cent losses. Banks and asset-based lenders can work together to help them. Obviously, banks must scrutinize existing lending arrangements and new loan requests cautiously. In creasingly, banks are calling on assetbased lenders such as BarclaysAmerican/Business Credit to participate in loans where specialized expertise is re quired. Bankers are aware that participa tions with asset-based lenders have several benefits. They enable banks to maintain customer relationships and A David H o o k er is v .p ./b u sin ess-d e velopment m gr., BarclaysAmerican Busi ness Credit, Dallas. 36 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis reduce exposure while generating in come without incurring additional administrative costs. Borrowers ben efit from availability of additional cred it. They also benefit when bank and secured-lender rates are “blended,” resulting in lower interest costs. Key ingredients of a partnership be tween banker and asset-based lender are the ability to respond quickly and flexibility to design a loan package to meet the borrower’s needs. by Asset-based lenders have the ex perience to evaluate collateral proper ly , even w hen valu es co nstantly change. Whether the loan is secured by current assets, such as accounts re ceivable and inventory, or fixed assets, such as machinery and equipment, the secured lender has the ability to ad minister the loan and monitor collater al through regular on-site inspections, receivables verification, inventory monitoring, auditing and periodic equipment appraisals. This is vital to keep lender exposure within reason able limits. Asset-based lenders are sensitive to time pressures on businesses and are aware that loan decisions must be made quickly. At Barclays American/ Business Credit, for instance, the en(C o n tin n e d on page 43) HOOKER PREBLE O pportunities, Pitfalls Face 1982 Participations O f Banks, Finance Firms By Allen A. Preble H E R E will be more opportunities in 1983 than ever before for banks and commercial finance companies to join in participations in the commer cial-loan field. However, there will be plenty of pitfalls scattered around those opportunities. What all this means is the increasing number of companies in the commer cial-loan field will have to exercise strong disciplinary behavior to avoid problems and still maintain acceptable growth rates. The high interest-rate environment of the past three years, coupled with the severe slump in most markets and the recent trend toward disinflation, has caused severe de terioration of assets in many cases. That ultimately will mean there will be fewer credits that will meet the strin gent qualifications most asset-based lenders insist on. In recent years, many banks have been retaining deteriorating credits far too long, and as a result, there has been a trend in the asset-basedlending field to approve fewer and few er bank referrals. We used to approve at least seven out of every 10 participa tion deals that banks would present to us, but now we are approving only three out of 10 credits offered to us. (C o n tin u e d on page 44) T Allen A . Preble is v .p ./regional m gr., Busi ness Loans Div., Associates Commercial Corp., Chicago. MID-CONTINENT BANKER for Decem ber, 1982 ACQUISITION FINANCING: Ifs more than just writing a check. F in a n c n g a r a c q u isitio n m a n a g e m e n t' c u t is far from re X ta k e s a d e o ic a t I te a m of asse t-b a s 'e n d in g sp e c ia lis ts d e a l w ilh this o ften cor form of tra n s a c tio n on a ! to -d a y b a sis. It ta k e s A s s o c id i C o m m e rc ia l C o rp o ra tio n ’s A c q u is itio n F in a n c in g T e a m . B a c k e d b y o v e r $6 billion in re s o u rc e s , T h e A s s o c ia te s h a s d e v is e d , d e v e lo p e d and p a rticip a te d in n u m e ro u s m m m g t: a c q u isitio n s, m e rg e rs and m a n a g e m e n t b u y -o u ts all a c ro s s tne cou n try. A n d w e w ill w o rk in c o o p e ra tio n w ith b a n ks, in s u ra n c e c o m p a n ie s and o th e r le n d in g in stitu tion s. A s a le a d in g s o u rc e o f m o n e y fo r b u s in e s s fo r o v e r s ix ty y e a rs , T h e A s s o c ia te s is in a u n iq u e po sitio n to p ro vid e fu n d s th ro u g h a v a rie ty of a s s e t-b a s e d le n d in g p ro g ra m s . T o learn m ore of the role T h e A s s o c ia te s can p la y in yo u r c u sto m e rs’ future plan s, contact the regional office near yo u . A n officer will be h a p p y to d sc u ss a sse t-b a se d lending with yo u . Or, send for our b ooklet d iscu ssin g a s se t-b a se d acquisition financing. Associates Commercial Corporation Business Loans 20 N. Clark Street Chicago, IL 60602 (312) 781-5827 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis G et to kn ow T h e A s s o c ia te s ...P e o p le W orth K n o w in g ! Business Loans Offices in Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Los Angeles, Miami, Nashville, New York, Philadelphia, St. Louis and Tampa. Associates Commercial Corporation is a subsidiary of Associates Corporation of North America, a Gulf + Western Company. Asset-Based Lenders Eager to Assist Banks To Reduce Loan Risks By William Davis O M M E R C IA L banks are enter ing the asset-based-lending are na with confidence in the market and the ability of their staffs to manage col lateral they are relying on for repay ment of the funds advanced. But can loan service departments really provide the monitoring and cur rent information necessary, allowing the lender to control the loan rather than react to a situation after the fact? In the current economic environment, com m ercial lenders and asset and liability managers know every effort should be made to reduce the bank’s risk in a lending transaction. L e t’s look at what control options are available to the bank. In-house person nel can periodically audit accounts re ceivable as well as inventory. The dan ger may be a lack of time and staff, which leads to infrequent visits by bank personnel and reliance on un verified reports provided by the bor rower. In any event, the support staff necessary to manage secured lines of credit in an active bank is expensive and constant. Use of an outside collateral manage ment firm offers several advantages, such as periodic examination and con tinuous monitoring services pioneered C by Collateral Control Corp. In effect, you order the information you need at intervals you want. This can take the form of pre-loan examinations or reg ularly scheduled collateral reports, as often as daily, supported by physical examinations every four to six weeks that are tailored to the lender’s needs. Our firm recently responded to a request by a bank to get an assessment of the volume and value of inventory for a major secured credit. The bank had asked an accounting firm for assist ance. However, the cost involved was several thousand dollars, and the work would have taken three to four weeks. But the lender needed the information within a week to support the request by his customer for additional funds. W e agreed to reconcile the physical inventory to the company’s perpetual records and check historical cost by a review of selected invoices at three different locations for about one-third the cost and within the one-week time frame needed by the lender. As a re sult, the lender was able to substanti ate available collateral, adjust the bor rowing base and provide the needed funds to the client. (C o n tin u e d on page 45) William Davis is v.p./regional m gr., Col lateral Control C orp., Dallas. DAVIS — Personnel — C O M M ER C IAL F IN A N C E IL E A S IN G P e rm -H ill A s s o c ia te s is a national search and p la ce m e n t firm s p e c ia liz in g in asse tbased le n d in g and leasin g p ro fe s s io n a ls . A ll in q u irie s are handled on a h ig h ly c o n fid e n tia l basis. A ll fees are paid by c lie n t c o m panies. Interested parties should contact: PHA M PENN HILL ASSOCIATES 38 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Kurt Kohler Vice President - Credit Search 1215 Black Horse Pike Turnersville, N.J. 08012 Telephone: (609) 228-6750 Banks Should Participate W ith Com m ercial Lenders To A vo id D enying Credit By Melvin F. Brown I N F L A T IO N and high interest rates have challenged the nation’s smallbusiness community and, for many companies that were traditional bank credits, produced decreased liquidity and increased financial leverage. In creasingly, when faced with such a situation, banks are utilizing resources of a dependable commercial finance company rather than refusing credit to a potentially valuable customer. Secured-lending participations with a commercial finance company can solve several problems that could have led to complete loss of potentially valu able customers. This occurs when: 1. Customers’ needs exceed the bank’s legal lending lim it. 2. C u sto m ers’ financial requests are more than the bank is willing to lend on an unsecured basis. 3. Collateral for the loan in volves monitoring and control the bank is not staffed to provide. Secured-lending partnerships with commercial finance companies also can increase a bank’s opportunities for growth by expanding the range of cus tomers it can serve. When a secured loan is structured and administered by a commercial fi nance company, not only can the bank participate at a reduced risk in financ ing companies that offer long-range potential, but the bank also has the benefit of minimal operating expense on its investment. As the customer’s financial condition improves, the par ticipating bank has placed itself in an excellent postion for taking over all the customer’s financing needs. With few exceptions, there really are no particular industries for which asset-based or secured lending is not suitable. Certain elements are com mon in most secured-lending port folios: 1. Com panies generally are small to middle market, with sales ranging from $2 million to $50 million. 2. Loans range from $250,000 to $20 million, with an average size of approx imately $1 million to $5 million. 3. Companies are experiencing an ex panding sales base with good cash-flow potential and usually are leveraged 4:1 or higher. U n d erlyin g elem ents, however, that must be present in each of the Melvin F . Brown is pres., ITT Diversified Credit C orp., St. Louis. MID-CONTINENT BANKER for December, 1982 R emodeling F or R esults Before https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Successful remodeling takes more than just a face lift.’ It is usually more demanding than new construction. Fitting a new design to an existing structure demands highly specialized skills in architectural design and space and function planning. It requires the ability to anticipate problems unique to your building. Plus, a special sensitivity to your needs as well as those of your customers. In the last two years Bank Building Corporation completed successful remodel projects for over 140 financial clients. Projects completed on time, within budget and without business interruption. Call Tom Spalding: 800-325-9573. Architectural experience counts more than it costs. Bank Building Corporation 1130 Hampton St. Louis, MO 63139 800-392-9168 (In Missouri) Meeting the needs of the community you serve... by design. 1 9 » Bank Building si/® Corporation The Bankers Trust Company philosophy: Excellence is achieved only through consistency and innovation. And drive. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis There are times when the odds against reaching certain levels of excel lence seem staggeringly high. Times when the ability to draw on certain special qualities and strengths is para m ount. Times when people working together with a common purpose can mean the difference between success and failure. But these are the demands of excellence. Demands which require skill, ingenuity, professionalism. A nd'm ost of all, people w ith unique motivation. Drive. These are the makings of a real-life philosophy. A philosophy w hich, w hen practiced properly, yields handsome rewards. Common purpose and teamwork: how they work for you. The Wilmington Medical Center urgently needed to begin replacement of its aging, outmoded medical facili ties with a $160-million modem research and teaching hospital complex. W hat they required was financing—at a time of historically high long-term inter est rates. W hat they found at Bankers Trust were people who knew if a hospital was to be put up, they had to find a way to keep interest rates down. Working with the major banks of Delaware, we invited 18 correspondent banks nationwide to participate in a unique loan arrangement. As a co manager of the underwriting syndicate, https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis we priced and sold five-year notes. These were backed by Bankers Trust and could be followed at the borrower’s option by a multi-year loan. This approach allowed the borrower the flexibility to take advantage of favor able medium-term rates, with the secu rity of continued long-term bank financing, if needed. A relationship manager, experi enced in dealing with financial institutions, mobilized Bankers Trust’s domestic participations unit, our real estate experts, our municipal secu rities dealers and our corporate trust specialists to provide a financing solution which reduced Wilmington Medical Center’s financing costs by several hundred basis points. It is this kind of performance into which our philosophy translates. Performance which makes Bankers Tmst stand out in our industry. And the kind of performance which helps make our clients first in theirs. BankersTrust Company Worldwide A n international banking network in over 35 countries. 280 Park Avenue, New York, N.Y. 1001”} Member FDIC © Bankers Trust Company. ForAòur Bank, Nothing Less W ill Do. Arrow Business Services offers you Kittinger, including the Georgian Series pictured here. And Baker, Gunlocke, Steelcase, K noll...the who’s who of office furnishings. All the prestige names display their best in our Memphis showroom, complete with accessories, carpet, window and wallcovering. Arrow’s staff of ten experienced bank designers can make your bank a stunning and workable showcase from the executive offices to the customer, operations and data processing areas. Give us a call for a professional, costeffective proposal to meet your bank’s building and furnishings needs. We offer the best, and we know you expeci nothing less. HRROI44 1 BUSINESS SERVICES, IN C. an affiliate of Memphis Bank & Trust 3050 Millbranch, Memphis, Tennessee 38116 901/345-9861 42 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis MID-CONTINENT BANKER for Decem ber, 1982 portfolios of candidates for a commer cial-lending partnership are sound management and adequate controls, which enable lending to proceed with minimal management direction. If after their initial analysis, the bank and com m ercial finance company agree the account has potential, an au dit is performed. This is to provide data necessary for thoroughly analyz ing underlying collateral (in quality and quantity) and the bo rro w er’s potential for success. After the audit, if final approval of credit is granted by both the bank and the commercial fi nance company, the necessary financ ing and security agreements are ex ecuted between the borrower and the commercial finance company. In the current economic environ ment, many bankers are finding partic ipations with commercial finance com panies increasingly attractive and use ful. This is reflected in IT T Com mer cial Finance’s own portfolio. Approx imately 20% of the portfolio is in par ticipation with banks. This trend is ex pected to increase in the future. • • M ajor Participation Areas Projected fo r N ew Year For Banks, Finance Firms E d ito r s N ote: A n sw e rs to th e f o l lo w in g q u e s t i o n s o n a s s e t- b a s e d l e n d in g s u b j e c t s a s k e d b y M i d C o n t i n e n t B a n k e r e d ito rs w e re s u p p lie d b y L e o n a rd I . M o rris, execu tive vice p r e s id e n t, J âm es T a lc o tt F inancial Services, N e w Y o rk C ity . Q . W h a t m a jo r areas o f p a rtic ip a tio n w ith co m m ercia l b a n k s do co m m ercia l fin a n c e f i n n s h a ve th is y e a r a n d p ro je c t f o r 1983? A. “Major areas of participation be tween asset-based lenders and banks are, of course, loan participation, financing supplemental to balancesheet ratios or financing simply as an alternate source where banks have reached their policy limits. “ In these volatile times, a smart banker probably has several ongoing asset-based-lender relationships. This provides him and his client greater flexibility. In the long run, it also pro vides the opportunity to grow current customers, even if they temporarily are outside conventional balancesheet ratios. “The banker who is hesitant to call in an asset-based lender to finance a cus tomer’s growth could find that custom er turning to a larger or more aggres sive bank or financial institution, with MORRIS the resultant loss of a relationship that may have taken years to build. “In many areas, commercial banks do not have asset-based-lending de partments. We think it would be wise for them to develop relationships with asset-based lenders in 1983 to help control standard collateral loans se cured by accounts receivable, plant and equipment. It also might be advis able to use factoring as the insurance factor against credit losses. “To the degree a small or medium sized com m ercial bank can t offer these services, their customer base is at risk. Many of these banks could ben efit from a joint-venture type of rela tionship with an asset-based lender.’’ Q . H o w a re a s s e t-b a s e d le n d e r s w o rk in g w ith b a n k s in th e areas o f m erg ers a n d a cq u isitio n s? A. “Even though interest rates have dropped dramatically in recent weeks, we continue to caution against the pitfalls of leveraged acquisitions. By call ing in asset-based lenders to partici pate in loans for mergers and acquisi tions, banks are able to charge a lowerthan-contract rate of interest and also be assured that funds employed are administered properly.’’ Q . H o w ca n a s s e t-b a s e d le n d e rs w o r k w ith co m m ercia l b a n k s in th e area o f p ro b le m loans? A. “We feel commercial banks can be protected from substantial losses by calling on secured lenders for help. Experience still is the best teacher, and commercial finance firms general ly have extensive experience working with problem loans. “This is particularly true in this diffi cult economic climate, where collater al values can change quickly and re ceivables can convert to offsets and adjustments of so many types it bog gles the imagination. “Ways in which asset-based lenders can help banks in these problem areas include participation in loans, manag ing loans and helping banks establish broad guidelines under which to oper ate. And in the event of bankruptcy, commercial finance firms will step in and protect the bank’s position by liq uidating the loan.’’ MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Q . In a liq u id a tio n situ a tio n , h o w can e v e ry th in g be w o r k e d o u t to th e s a tis fa c tio n o f a sse t-b a s e d le n d e r s , b a n k s a n d th e f i r m b ein g liq u id a te d ? A. “These times demand a return to basics, since even the most credit worthy companies can become insol vent overnight. Therefore, it is im perative that all lending institutions be vitally concerned w ith c h a r a c te r , ca p a city and c r e d it. And I would place the utmost emphasis on c h a ra c te r. “In addition, lenders need to modify inventory advances from their former euphoric levels. It would seem fool hardy today to advance substantial dol lar amounts against inventory unless there are strong controls, such as field warehousing. “On the matter of real estate loans, we feel it is essential to obtain up-todate appraisals from competent, inde pendent appraisers. In fact, I would advise receiving “puts” from apprais ers as further protection in question able real estate financing.” • • Encourage Business (C o n tin u e d fr o m page 36) tire loan-approval process, from initial contact to funding, can take less than three weeks. This does not mean that decisions are made without proper analysis. The type of business, collateral quality, management capability and borrowing needs are examined. A report is pre pared that reviews financial condition and history, analyzes inventory and fixed assets, review s and verifies accounts receivable and examines accounts payable and tax status. This report also looks at the prospect’s busi ness plan, projected cash flow (includ ing debt service) and profitability. In addition, fixed-asset appraisals are made and information is obtained on industry trends and the prospect’s products. Another key ingredient of a success ful asset-based turnaround loan is flex ibility. An example: Recently, our Dallas Region Office structured a loan to meet the needs of an Arkansas company engaged pri marily in road and bridge construc tion. Founded almost 50 years ago as a partnership, the company had been co n siste n tly profitable and had evolved into a corporation with two wholly owned subsidiaries operating five rock quarries and eight asphalt plants. Because of the lagging econ- 43 omy and the depressed construction business, however, sales had been de clining over the past several years. The company showed a loss during the most recent year and projected a loss for the coming year. In need of working capital to turn the company around, management turned to BarclaysAmerican/Business Credit when its existing lender was unwilling to expand its credit line. Based on collateral strength, particu la rly m ach in ery and eq u ip m en t, proved management capabilities and definitive plans for turning the com pany around, we were able to struc ture a $5.5-million credit line. This en abled the company to refinance certain machinery and equipment, pay off un secured credit obligations and increase working capital. Machinery and equipment secured the major portion of the loan. More than 650 pieces of construction equip ment provided almost $5 million at a full 100%-of-value advance rate. The remainder of the $5.5-million line was secured by inventory of excavated sand, rock and gravel at a 25% advance rate, accounts receivable at a 75% ad vance rate and by a second mortgage on farm property owned by the com pany. The entire line of credit was struc tured as a five-year term loan with no principal payments required during three months of the year when busi ness traditionally is slow. The loan sub stantially strengthened the borrower’s balance sheet because much of the debt service on the loan was moved from a current liability (as listed under the previous lender) to long-term debt. This enabled the firm to main tain good standing with its bonding company. Several months after the secured loan was funded, the borrower’s local bank entered the arrangement in a 50% participation. In this case, our flexibility in struc turing the loan to meet the seasonal and balance-sheet needs of the bor rower, as well as our ability to respond quickly and fund the loan promptly, were of great benefit to the borrower. The company now has the time re quired and working capital necessary to weather these difficult times. Every indication is that the borrower is suc cessfully effecting a turnaround. Assisting businesses such as this to rebuild financial strength is an impor tant role for today’s lenders. And par ticipations between banks and assetbased lenders will be increasingly use ful as the economic climate improves. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Opportunities, Pitfalls (C o n tin u e d f r o m page 36) less problem loans. We want to help companies with futures to realize their goals. We want to help companies re gain their financial independence. It is important for bank officers to realize that the sooner they call in an asset-based lender when trouble de velops, the better the chances the company will survive. Too often, bank officers wait too long to call in a com mercial finance company, only to find that nothing can be done. Assets have deteriorated in value; cash flow and profits have been reduced or even dis appeared, and the company is in deep trouble. However, in a trend that seems to be growing, we re seeing many of the type of loans banks have made in the past on an unsecured basis being offered to commercial finance com panies on a participation basis — due mostly to the uncertainty of the econ omy. That trend should continue since asset-based lenders have the capacity When we are called in early enough, to monitor and control loans, allowing us to spot financial deterioration much we can help a company improve effi faster than a bank, which normally ciency and, in most cases, stop de can’t look beyond the balance sheet terioration of its assets. We spot the problems much more quickly because and profit-and-loss statement. we work with the companies on a daily Recognizing the unique capabilities of asset-based lenders, banks are be basis, monitoring their collateral and coming more willing to share these their entire operations. W hen a bank credits, and they are willing to share a officer feels he can no longer service larger portion of the credits as the dou the client and feel comfortable with ble-digit inflation of the past few years the loan, he should call in an assethas created a need for bigger loans and based lender to look at the credit. The proper time to call us in is at the first higher leverage. As various firms face the harsh eco sign of losses or break-even figures. Waiting an extra quarter or for yearnomic realities in today’s marketplace, they may find they are not meeting end results often can turn a workable their projections; inventories may be situation into a hopeless problem. If a out of line; accounts receivable may bank officer waits until the 11th hour, have grown or they may be experienc there may be no way left to help the ing a first-time loss. W hatever the customer and the bank may be forced cause, working capital and borrowing to take losses. I must stress to all bank officers that power usually are stretched to the limit. All these things are an obvious the key to helping a company in finan cause of concern for bank officers who cial trouble is to call us the moment must make lending decisions based they first feel there is a problem. A primarily on balance sheets — cash commercial finance company will be able to investigate the problem thor flow, ratios and P & L statements. However, asset-based commercial oughly and determine whether it will lenders, like the Associates, do not be able to help. base loans solely on these factors. As In those few instances when a partic collateral lenders, many times we are ipation does end in liquidation, the key able to approve a credit that would be to success for all parties is cooperation. classified as a problem loan by a bank By definition, somebody if not every er. A surprising number of companies body will lose when a liquidation is the having financial difficulties still have a o nly altern ative. H o w ever, the positive net worth — still have enough amount of the loss can be significantly muscle — to be able to survive if they reduced if everyone — the bank, client obtain the assistance of an asset-based and asset-based lender — cooperates. lender that will work with them and I f everyone does cooperate, and if offer advice and guidance. Asset-based everyone keeps the interests of all par lenders often act as interim lenders — ties in mind, chances are more dollars doctors of sorts — that come in and will be recovered. nurse a company back to health and In reviewing bank portfolios, I have then are taken out when the company found many companies being financed is fully bankable. by banks that probably should be fi However, we are not miracle work nanced by asset-based lenders. On the ers. No smart comm ercial finance other hand, commercial finance com company goes around buying problem panies seldom have loans on their loans from banks. We only buy loans books that are fully bankable. It’s im for companies that are not terminal, portant that we work together, be sick companies that need help to re cause working in tandem, banks and cover. We can’t get involved in hope commercial finance companies norMID-CONTINENT BANKER for December, 1982 mally provide a much better loan pack age than either can provide by itself. Next year will bring untold opportu nities for banks and commercial fi nance companies to work together. The acquisition and merger market is expected to rem ain strong, and businesses will need plenty of working capital for expansion as the economy recovers from the recession. Banks and commercial finance companies will share the prosperity if they work together. • • Asset-based Lenders or makes an error resulting in a loss, the bank absorbs that loss. If a collater al management company doesn’t per form, you have an avenue of recovery on all certification and warehouse accounts. Fo r example, our firm is underwritten for up to $50 million per occurrence with a minimal up-front deductible, which provides the com fort needed when you rely on an out side service company. W hy use a collateral management company? • Accurate, objective information. • Cost effectiveness — turn the cost on or off at will. • Periodic or continuous examina tions. • O bjectivity — an independent third party. • Control of collateral through certi fication and field warehousing. • Financial responsibility. The time has come for secured, or asset-based, lending. Opportunities are open to all who are willing to com mit the resources and efforts to handle this type of lending. Portfolio quality, intelligent pricing, information and collateral management will govern the success or failure of an asset-based lender. • • (C o n tin u e d f r o m page 38) Where required, the collateral man agement company actually can control collateral guaranteeing the validity of accounts receivable and existence of the inventory through certification. In those instances where title documents are required, such as domestic storage for eligible bankers’ acceptances, a field warehouse can be established. An important element of the lend er’s servicing cost is the expense of managing the loan. If you are auditing borrowers on a regular basis, that ex pense includes the auditor and support staff, which is constant. With the col lateral management firm, the bank turns the cost on or off at will, allowing the lender the luxury of knowing in advance the cost of servicing the loan and managing the collateral. By using an independent third party with no financial interest in the loan, you are assured of objective, accurate reports. Further, the field examiners are ex perienced professionals. Their job is collateral control and management in formation. If the bank auditor does not perform Bank Observes Textile Week Farmers & Merchants Bank, Centre, Ala., observed National Textile Week recently by inviting textile plants in the area to provide displays in the bank's lobby. A number of firms responded, according to Mary George Jordan Waite, F&M ch./pres. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Mellon secured lending: your bank’s quick response participation source We’ll help you keep valued customers and attract new ones by expanding your lending capabilities. W hen a custom er or prospect loan req u est exceeds th e credit lim its you w ish to esta b lish , call on M ellon’s secured len d in g services to bridge th e gap w ith a p ractical p a rticip ation loan. You w ill lim it your risk , plus provide th e w orking capital n eces sary to sa tisfy your cu stom er’s fin a n cia l needs. We m ake it practical for your custom ers and pros pects by con stru ctin g a fle x ib le fin a n cin g program u tiliz in g th eir receivab les, inventory, equipm ent, and real property as secu rity to in crease th eir borrowing p o w er... at com p etitive rates. We m ake it practical for you by g iv in g you a fast response w henever such a situ a tio n a rises. Our in volvem en t en ab les you to expand your len d in g ca p ab ilities, w hich w ill help you keep your custom ers sa tisfied . And help you add new ones, as w ell. M ellon F in a n cia l S ervices Corporation. N ationw ide. B acked by th e fin a n cia l resources of th e n a tio n ’s 15th la rg est b an k in g organization. C ontact Charles P ryce or Tom Casey. Toll-free: 800-323-7338 (Illinois 312-986-2950). 1415 West 22nd S treet, O ak Brook, Illin o is 60521. Imagine getting only bare walls when, for the same price, you could have had a beautifully built, elegantly furnished bank. “ It ju s t abo u t happened to u s,” says H e n ry K in b e rge r, p re s id e n t of S e c u rity 1st N ational Bank, in A le x a n d ria , Louisiana. “ W e listened to not one, but a nu m b er of proposals fo r an im p o rta n t b u ild in g p ro je ct fo r o u r bank. O n e fr<?m an a rch ite ct, a n o th e r from a lead ing p la n -d e s ig n -b u ild firm . Both w ould have offered us fa r less than th e solu tion w e g o t from H B E .” “A lot more value for the dollar.” “ Instead of re m o d e lin g o u r old bu ild in g , H B E show ed us how we could build a b ra n d -n e w b u ild in g th a t w ould be m uch m ore fu n ctio n a l, fo r a b o u t th e sam e cost, on th e sam e site, w ith o u t any in te rru p tio n of business. A n d th e H B E p rice included a s p e c ta c u la rly be a u tifu l, fin ish ed in te rio r, not ju s t bare w alls.” “Other bankers couldn’t believe how much we got for the price.” “ W hen m any of o u r banker frie n d s visite d us, th e y w e re am azed. O n e of them said, ‘I cam e here e x p e ctin g to be d isa p p o in te d . I can’t believe m y eyes.’ ” “ W h a t th e y saw w e re th in g s like flo o r-to -c e ilin g solid -o a k doors, m a rb le floors, re a lly nice fu rn itu re and th e like. A ll included at th e sq u a re -fo o t p rice th e y th o u g h t w ould have been bare w alls only.” “They didn’t try to boss us around.” “ W e enjoyed an excelle nt w o rk in g re la tio n s h ip th ro u g h o u t th e project. H B E listened to o u r th o u g h ts and responded to w h a t w e w anted to do. T h e re w as never any a tte m p t to im pose form u la s or rig id sets of ideas on us. A n d we liked th a t.” “Everything about it works better for us.” “ W e have such nice to u ch es as an e x ce p tio n a lly fine h eatin g and a ir https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis co n d itio n in g system w ith a lot of zone co n trols and real en e rg y savings. B e tte r d e p a rtm e n ta l and w o rk flow a rra n g e m e n ts. A n d an em p loyee s’ p atio on o u r d riv e -in roof. A ll th e site w o rk was includ e d, too. So was d e m o litio n of o u r old bu ild in g . Even va u lt and s e c u rity eq u ip m e n t. Plus new sidew alks, founta ins, and so on. A n d th ro u g h o u t, H B E stayed w ith us, d ire c tin g all phases and w e e d in g out a n yth in g th a t proved in e fficien t.” Practically no work change orders. S e c u rity 1st w as so sa tisfied th a t w o rk change o rd e rs am ounted to only a tin y fra ctio n of th e in d u s try average. B e tte r p la nning, clo se r personal a tte n tio n , and a m ore ca reful, m ore con cern e d , m ore th o ro u g h ly p ro fessional a p p roa ch th ro u g h o u t m ade th e d ifference. A d iffere n ce w e feel you can see in e v e ry H B E p roject, w h e th e r bank, sa vings and loan o r c re d it union. S to rie s like th is a re not ju s t o n c e -in -a -w h ile h a p p e n in g s at H B E . W e m ake th e m happen all th e tim e. It’s o u r sp ecia lty, o u r p o in t of d iffere nce, o u r p rid e . W e’d like to s ta rt m aking th in g s happen fo r you. Find ou t m ore. W rite me, S a lly Eaton, o r call H B E Bank Fa cilities, 717 O ffice P arkw ay, St. Louis M isso u ri 63141, 3 1 4 -5 6 7 -9 0 0 0 . S * H B E B an k £ £ Facilities You can’t afford not to look at HBE. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ‘We achieved everything we wanted and a lot more by working with HBE.’ H e n ry K in b e rg e r p re s id e n t of S e c u rity 1st N ational Bank, is show n here in th e lob by of th e ir be a u tifu l new fa c ility olanned, d esign ed , and bu ilt Pressures on Traditional Banking Make Leasing Attractive Alternative for more than just the first year of ac quisition and, therefore, business written in 1982 will affect tax returns of the bank in 1983 and 1984. This means the bank’s tax committee needs to re view the impact of tax-equipment leas By William F. Stites ing as it applies to the bank tax return over the full term of the lease instead of its impact only in the year of acquisi tion. If the total tax burden is removed T H E C O M P L E X nature of leasing because of tax leasing in one year, has caused many small banks to volume of leasing in the second year avoid it in the past, but with the new must go down to accommodate the tax laws, narrowing margins and in second-year effect of the first year’s creased competitive pressure on tradi leases. E q u ip m e n t S e lectio n . Banks tradi tional banking, many are beginning to look at lease financing. I would like to tionally have approached lending offer some suggestions on subjects that according to cash flow or credit stan need to be considered by a bank enter dards. Many banks have taken a pos ture on equipment leasing that if they ing leasing for the first time. Tax L e a s in g . The capacity or volume do not price a value to the equipment a bank can maintain in tax-equipment at lease termination, the risk is mini leases is restricted to the bank’s ability mal and can be addressed from a credit to use tax incentives such as invest standpoint. Banks tend to forget they ment-tax credit and accelerated depre are owners of the equipment and, ciation. This restriction is a direct re therefore: 1. If they have leased their sult of the bank’s profit or lack thereof. equipment from a vendor-generated In times of narrowing margins com transaction, and the vendor and/or bined with the broad variety of other manufacturer goes out of business, the tax-incentive programs w ithin the bank may have to make good on manu bank, it becomes necessary to estab facturers’ warranties, vendor guaran lish a tax committee, even if it is only ties or equipment performance. 2. the chairman and a CPA , to sort out in Product liability may exist if the manu advance the proposed tax budget for facturer elects to require a call-back to repair a defective part and notifies the the next few years. Too often, overly aggressive loan owner (the bank), and, because of a officers can promise to support good lack of internal controls, this informa customers with large equipment-lease tion is not forwarded to the lessee. 3. needs only to discover they have out The restricted tax appetite of the bank stripped the bank’s ability to use the means the most profitable selection of tax incentives. Also, it is important to business would not be tied to high point out that what often looks like a credit standards exclusively, but also good tax year in the first or second tied to marketability of leased assets at quarters can slip into a poor year in the termination. An example: Would you third and fourth quarters, causing a prefer to own — five years from now — carry-forward of those tax incentives, a D-10 Cat crawler or a built-in tele resulting in a reduced yield for the phone system? 4. Equipm ent use has a bank. A bank must remember tax- major bearing on the life cycle and equipment leasing offers tax incentives value of that piece of equipment, and, without investigation regarding in William F . Stites is s .v .p ./merchant bank tended use, the term of lease or the ing administration, First National, Louis residual value could be in error. 5. ville . (C o n tin u e d on page 52) N ew Tax Legislation Makes Lease Financing Attractive to Bankers 48 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Com m ercial Custom ers Rate Equipm ent Leasing High as Bank Service By George A. Thorson H I L E arrival of the Tax Equity and Fiscal Responsibility Act ( T E F R A ) virtu a lly has eli m inated many “windfall” transactions that ma jor banks, corporations and finance and leasing companies found in great demand following creation of safeharbor leasing in 1981, most banks still find equipment leasing a service de sired by commercial customers as a financing alternative. P r e - S a fe H a r b o r . C o m m e rcial banks have been adding “direct-lease financing’ to their service portfolios at a rapid pace since the mid 1970s. They discovered that not only were higher yields possible, but that leasing could be beneficial to all types of customers using all types of equipment and for a variety of reasons beyond the tax ben efits. Typically, this was “true leas ing,” where the lease was a full payout non-cancellable transaction, the cus tomer having the option to purchase the equipment for “fair-market value” at the end of the lease term. The bank would depreciate the equipment for tax purposes while the customer ex pensed his rental payments. Invest ment tax credit was negotiable; the bank could keep it or pass it to its cus tomer. E R T A a n d T E F R A . The Economic Recovery Tax Act of 1981 (ER T A ) opened the door for pure tax-benefit transfers through “safe-harbor” leas ing. No longer was there a need to have an u n d e rlyin g , incom e-pro ducing, finance transaction to transfer W George A. Thorson is sales m gr., Dallas Region, Collateral Financial Services, Inc., Houston. MID-CONTINENT BANKER for December, 1982 IF YOU'RE GOING TO LEASE BANKING EQUIPI GET IN TOUCH WITH SOMEONE WHO KNOWS THE BUSINESS. We offer true operating leases which incorporate off balance sheet funding and allow you to expense 100% of the rental payment. Often, Citizens Fidelity can offer rentals at a cost lower than the cost of leasing directly from a vendor. Let us show you how. Write, or call, any of our seven offices: W e k n o w b a n kin g . W e k n o w leasing. Citizens Fidelity Leasing Corporation leases everything from trucks to airplanes to hos pital beds, but there's one area in which we're particularly knowledgeable. That's the bank equipment business— from computers to check processors and all that's in between. W e've been aro u n d . 419 West Jefferson Street Louisville, KY 40202 502-581-2686 Call Toll Free within Kentucky, 1-800-292-4593, or, Toll Free for states contiguous to Kentucky, 1-800-626-6505. 400 East Vine Street Lexington, KY 40507 606-252-7535 Suite 286, 2020 Brice Road Reynoldsburg, OH 43068 614-864-5338 3266 N. Highway 67, Suite B, Florissant, MO 63033 314-831-2211 Citizens Fidelity Leasing is an integral part of Citizens Fidelity Corporation, a diver sified financial service company with well over $2 billion in assets. Its principal subsidiary— Citizens Fidelity Bank & Trust Com pany of Louisville, Kentucky— has been a leader in commercial and retail banking for over a century and is one of the coun try's most respected financial institutions. K n o w the a d v a n ta g e s o f leasing. • Leasing can provide a significant hedge against inflation. • Leasing can protect you from obsolescence. • Leasing can provide 100% financing which may include delivery and installation costs. Mail to: A. J. Desposito, President Citizens Fidelity Leasing Corporation 419 West Jefferson Street Louisville, KY 40202 K n o w the leasing c o m p a n y w ith the advantage. • Citizens Fidelity offers leases at fixed or floating rates at terms substantially less than prime rate borrowing. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis In all the financial forest, there's only one Service Tree. Cumberland Bend Center, Suite 219 Nashville, TN 37228 615-256-4396 Suite 790, CNA Tower 255 South Orange Avenue Orlando, FL 32802 305-841-3585 Arnold Palmer Center 3707 Latrobe Drive, Suite 450 Charlotte, NC 28211 704-365-4056 Please send me information on Leasing Bank Equipment. NAME 1= BUSINESS STREET STATE PHONE tax benefits. But for most banks, leas ing still was offered prim arily for financing. The advantage the safeharbor alternative provided was the ability to offer a written purchase op tion, eliminating uncertainty as to the custom er’s cost should he want to purchase at the end of the lease term. In addition, E R T A increased the value of the tax benefits, helping banks offer lower effective rates, while improving yield over an equivalent term loan. The Tax Equity and Fiscal Responsi bility Act of 1982 put a damper on in creased tax-benefit values should the safe-harbor option be taken. Deprecia tion (cost-recovery) periods are length ened; investment tax credit is spread over five years, and limits have been placed on both lessor and lessee. Safeharbor leasing will end entirely after 1983. Beginning in 1984, a new cate gory, “finance leasing,” is created, in part to provide for limited written purchase options. E ffe c t o f C h a n g es. The result is a return to conventional equipm ent leasing under pre-safe-harbor rules. Leasing remains an important financ ing alternative to many borrowers with tax, economic or accounting objec tives. A bank still can increase its yield without increasing the customer’s pay ment. While a written purchase option could be given by electing “ safeharbor or later on “finance-lease” treatment, increasing cost to the cus tomer to offset T E F R A restrictions will be likely. More importantly, a bank can use leasing for tax shelter while expanding and developing its commer cial base. K n o w ledge Is E s s e n tia l. Many banks were dismayed by both major tax-law changes because of high costs of re training, new documentation and in creased legal and accounting fees. Bank customers are quick to ask ques tions, to review their alternatives. A new requirement, such as the interest and dividend withholding that T E F R A brought about, can tie up a bank’s en tire administration staff. A participation lessor, such as Col lateral Financial Services, Inc., acts as a bank s back office by providing com plete lease administration and train ing, marketing and advertising assist ance with a low profile. When laws change, the “back office” is able to adapt documentation, managementinformation reports, internal rate-ofreturn programs and provide retrain ing so the bank s loan officers are knowledgeable enough to review leas ing alternatives with their customers. Fo r example, within three weeks of (C o n tin u e d on page 52) 50 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Lease Financing Seen As Innovative Strategy For Com m ercial Banks By George S. Contarsy S U B U R B A N and rural banks often borrower or the lessee. The lessor is making important representations and warranties to us when he pledges the lease and the leased equipment as col lateral for the loan. Notwithstanding the high credit rat ing of the lessee, the bank might suffer a loss if the lessor is careless or less than honest. We ask questions. How long have they been in business and what is their background? We careful ly check bank and trade references. We review the lessor’s financial state ments. With a qualified attorney, ex perienced in leasing transactions, we review all of the borrower’s lease docu ments. We pay particular attention to provisions for termination, casualty loss, default and attorney’s fees. We have a concise, detailed checklist that is used at each closing, and we have developed forms to assist our custom ers in completing our document re quirements properly. face a tough, competitive en vironment when attempting to gener ate quality commercial loans. To meet this challenge, each bank must de velop innovative lending strategies. Lease financing is a strategy that has worked well for Bank of Lincolnwood, a $120-m illion suburban Chicago bank. For over five years, Bank of Lincolnwood has been providing nonrecourse loans to lessors of a wide variety of equipment. This form of lending has assisted Bank of Lin co ln w o o d in reaching and exceeding its profit goals. Just as you can buy a participation in For the last two years, the bank has an o rd in ary co m m ercial loan at placed in the top 25 banks in Illinois another bank, you can buy a participa when ranked on a return-on-assets tion in lease loans from Bank of L in colnwood and other lenders doing this sp ecialized lending. Participation documents are almost identical to those used to sell a participation in an ordinary bank loan. The originating bank collects the monthly rental and prorates payments among participants based on their respective shares. The originating bank does all the credit, legal and documentation work, provid ing participants with a complete copy of their file. A participant’s task is to THORSON CONTARSY compare the yield from the participa tion with what he would have earned in an alternative commercial loan with basis. In this article, I will outline the basic concepts used in this type of a credit of equal quality. When making this comparison, he should consider lending and how your bank could par cost of originating and servicing the ticipate with Bank of Lincolnwood and alternative loan. other institutions acting as a primary debt source for the leasing industry. Bank of Lincolnwood expects to As a preface to my discussion of par have lessees that are rated by Moody’s ticipation in lease financing, I feel it and Standard & Poors at investmentwould be worthwhile first to review grade levels or that are major public the basic aspects of this type of lend institutions, such as large regional hos ing. Sound lease financing begins with pitals. These lessees will have a history the same basic tests we use in any loan of certified financial statements and request, f irst, we get to know our bor will have demonstrated positive cash row er. E v e n though this type of flows and a continuing ability to ser vice their obligations. financing normally is done on a nonre course basis, the character and capa Rates available on these loans vary bility of our borrower continue to pro with credit quality and maturities. vide us with the cornerstone of each Bank of Lincolnwood can offer partici transaction. The term “nonrecourse” pants a range of ratings and yields. is applied only to the risk of the lessee Each participation is an individual not paying the lease payments due to lease. Each participation is at a fixed the lessee’s financial failure. All other rate for the term of the loan. The most risks are borne either by the lessor, our common term for these transactions is 60 months, so the average maturity is George S. Contarsi/ is v.p., Bank o f Lin about 2 V2 years, not an unreasonable colnwood, III. time for a fixed-rate transaction. Yields MID-CONTINENT BANKER for December, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ISN’T IT TIME THE HOMETOWN BANK KEPT ITS CREDITS AT I ntroducing Jerry Garrett and Garrett Financial Services, Inc. Jerry spent 19 years as officer of a small, aggressive hometown bank. For years he recognized the loss ol revenue that occurs all over the state of Tennessee when hometown banks are forced to send local credits to Atlanta instead of keeping them at home. That is why Jerry developed Garrett Financial Services, Inc. They specialize in providing total leasing services lor local, hometown banks. Garrett will do the invoicing, accounting, sales tax, collections and settling of the residual. You the banker will make the credit decision on the local credit you are familiar with. Our computer generates the invoice so that the remittance is returned to your bank. This safety feature allows your bank to control the funds from beginning to end. More than ordinary loan benefits, your bank will receive the tax advantage, the depreciation, the investment tax credit and the income shelter. Beyond keeping your credits at home, Garrett Financial Services, Inc. can actually help you generate credits within your community. And there isn’t a banker alive who doesn’t need that help. Call today and let an experienced banker and his staff show you the way to a new area of profitability through Garrett Financial Services. GARRETT FIN A N C IA L SERVICES, IN C . 210 North Main Street Goodlettsville, Tennessee 37072 (615) 859-1138 in lease-financing transactions move together with other market rates with similar maturities. Bank of Lincolnwood and other originating banks will charge a nominal fee for handling. Often, there is lead time of up to 90 days between the time the originating bank must commit to financing and the takedown of the loan. These lead times cause a rate lag in loans of this type. Participations are sold to reduce concentrations, blend rates and cover overlines. For example, Bank of Lincolnwood has only a $l-million legal lending limit, while many requests are for financings that require more than that amount. • • Commercial Customers (C o n tin u e d fr o m page 50) passage of T E F R A , we were able to reprogram our lease-analysis system to provide lease analyses to our network of participating banks under all new options available. Most banks are un able to respond this quickly. Other benefits of the leasing part n ersh ip can in clu d e flex ib ility to change each lease in accordance with the bank’s tax appetite or to vary participation in accordance with li quidity or lending limits. Banks are continuing to retrieve their market share of the $ 150-billion leasing market by offering leasing to customers at rates that enhance the true benefits of leasing. W hile laws have changed the tax-benefit-transfer applications for leasing, it remains a valuable, profitable service most banks should offer to their customers as a viable financing alternative. • • Tax Legislation (C o n tin u e d fr o m page 48) Ownership of the equipment requires additional staff to maintain insurance risks and guarantee proper payment of property tax and use tax. P ricing. Many banks find the com plex nature of equipment lease pricing unnecessary and, therefore, make esti mates of the range of benefits and pro vide pricing accordingly. Too often, pricing does not take into account the impact of delivery date, equipment values, method of payment or tax tim ing, causing the pricing mechanism to be 300 basis points off intended yield, both positive and negative. Also, re bate of investment tax credit, proper 52 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis evaluation of residual values and tax tim ing cause early term ination or payoffs to be figured improperly with out a computer-software program spe cifically designed for tax-equipment leasing. Improper dating of lease documents or improper invoicing for title transfer can easily cause the bank to lose tax incentives that were priced into the transaction, thereby reducing yield with no restitution from the customer. Computer-software programs are available, and even though the cost of these systems would appear to be pro hibitive in the early stages, they gener ally are considered a must for proper pricing. D o c u m e n ta tio n . Too many small banks have adopted the lease docu mentation of their local leasing com panies or documentation picked up from outside counsel. W hile docu mentation may appear to be sufficient, rarely does it address difficulties aris ing from: 1. Return of equipment. Without proper language identifying whose responsibility it is to crate the equipment or dismantle the equip ment, residual values can be in jeop ardy. Fair-market value may indicate the value is sufficient to cover the re sidual. However, the high cost of pre paring the equipment for moving or retrieving it from the bottom of a mine can cause a charge-off due to unreal ized residuals. 2. Recent changes in tax laws have, for the first time, indicated lawmakers’ preference to make tax laws retroactive, therefore requiring tax-indemnification clauses in lease documents to be more tightly worded to protect against loss of tax incentives. 3. Equipm ent-lease documentation invariably handles more than one piece of equipment just as collateral on a loan, but banks forget that because the equipment is to be used in the performance of a business, there is a high probability that certain of the pieces either will be terminated early or suffer a casualty loss. Unlike a loan, this will require addendums to the lease and a complete restructuring of the transaction, as opposed to a minor reduction in principal. Equipm ent leases should be designed separately for each piece of equipment with a separate payment schedule and in voice. 4. Documentation should con tain statements to the bank from third parties who may have made outlandish claims as to equipment performance or longevity. 5. To protect the bank’s in terest, documentation requires proper insurance because of the ownership position the bank holds and allows for the bank to acquire insurance if default occurs. 6. Also, documentation needs to cover use and location of equipment to maintain proper records for proper ty-tax and use-tax payments. Tax leasing can be profitable and an excellent new product for banks today, provided it is entered into cautiously and slowly. I highly recommend that any bank thinking of going into leasing, without the benefit of prior know ledge, contact the American Associa tion of Eq u ipm en t Lessors or the American Bankers Association for in formation on seminars, books and con sultant support. By doing this, banks will make sure their exposure is satis factory. • • Tax-Exem pt Leases: A Cost-Effective W a y To Finance Equipm ent By Steve Jacobson U N I C I P A L le a se-p u rch ase agreem ents (sometimes re ferred to as tax-exempt leases) have, until recently, been ignored by publicsector entities as a financing alterna tive. But with financial pressures and demands straining the limits of the more traditional funding arrange ments, both state and local govern ment units are discovering that the municipal lease purchase can be an attractive, efficient and cost-effective way to finance their growing equip ment needs. T h e m u n icip a l lease-p u rch ase agreement basically is an installmentsale or conditional-sales contract. The contracting co m m u n ity g en erally gains immediate use and title to the equipment, with the "lessor” filing appropriate liens against the equip ment. Installments are paid over the term of the transaction, which usually is seven years or less. Then, at expira tion of the term, the community ac quires clear title — either with no additional co nsid eratio n or for a nominal amount. State and local governments have used the municipal lease purchase to finance equipment ranging from fire fighting apparatus, law-enforcement vehicles and road and highway equip ment to computers and communica tion systems. As I have indicated, a municipal lease is synonymous with a tax-exempt lease — as the interest component of M Steve Jacobson is m g r./ municipalfinancing services division, Walter E . Heller i t C o . , Chicago. MID-CONTINENT BANKER for Decem ber, 1982 each payment is exempt from federal income taxation under Section 103 of the Internal Revenue Code of 1954. Essentially, this provision excludes from federal taxation interest received from any state, territory or possession or any of their political subdivisions. In some locales, interest payments are exempt from state and local income tax as well. This tax-exempt characteristic makes the municipal lease more attrac tive to the lessee than either conven tional bank borrowings at commercial interest rates (which are considerably higher than the interest rate inherent in a tax-exempt transaction) or the more common approach to municipal financing, bond offerings. W hile the interest attributable to a municipal-bond issue is tax exempt, there are disadvantages. Bonds often are paid over 10- or 20-year periods. When used to finance equipment, this generally means payments will con tinue long beyond the useful life of the equipment financed. Using a 15-year bond issue to finance a computer — which today can become obsolete in less than five years — quite clearly is interest wasteful. The term of a mu nicipal lease, on the other hand, generally is more closely related to the useful life of the equipment. In addi tion, a municipal lease is considerably simpler and less time consuming to conclude than a bond issue. There is no need to seek a referendum or incur expensive underwriting, legal, rating and printing costs. Another important advantage of leasing is that it does not affect a com munity’s debt ceiling or credit rating. A lease obligation is not considered debt in most states because the lease agreem ent contains a “ no n appropriations” or “fiscal-funding” provision. This clause provides that the comm unity’s obligation to con tinue making payments under a lease is subject to the annual or periodic appropriation of funds by the lessee. In other words, if the government entity leasing the eq u ip m en t does not appropriate for payments that pertain to the lease, the lessee may return the equipment to the lessor and cancel the transaction without any additional obligation. (Risk of non-appropriation is reduced by a careful choice of equip ment as discussed below.) A properly structured municipal lease provides the lessor, usually a bank, insurance or finance company, with an excellent return (generally 150-175 basis points above a compara ble municipal bond rate) and at the same time mitigates the major nega tive consideration, namely risk of non appropriation. Risk of non-appropriation is reduced by several factors. First, since a munic ipal lease has a relatively short matur ity — generating a steady stream of periodic payments that include prin cipal as well as interest — the lessor’s investment generally is returned well before the end of the lease term. Careful selection of equipment also is an important consideration. Most lessors insist the equipment being fi nanced serve an essential purpose and function of the community, thereby fu rth er d im in ish in g risk of non appropriation. Obviously a fire truck or refuse-removal vehicle is essential NEW ! Budgeting, Forecasting and Planning Just Off The Press • For Management A Bank Director's Manual • For Directors By Dr. Lewis E. Davids 248 pgs. $2750 Every bank must know WHERE it is going and HOW to get there! While management should “map the course,” directors should play a role in establishing and im plementing goals. This manual supplies directors with tools they need in order to steer bank policy in the best direc tion. Chapters discuss establishment-of-mission statements and goals, trace various stages of a planning process. Also outlines many external and internal factors that must be considered. Details . . . A budgeting and plan ning manual to aid in giving direction to Y O U R bank. HOW to perform financial plan ning, HOW to plan for new ser vices. Explains board’s role in eco nomic forecasting. Discusses basic approaches to gather and best ways to utilize data in formal planning. Forms and worksheets are in cluded covering a vast array of planning aspects. Techniques uti lized by successful banks are in cluded; sources of information are listed, along with a bibliography of references. Save! Send check with order. THE BANK BOARD LETTER 408 Olive St., St. Louis, MO 63102 1 Copy @ $27.50 5 or more @ $24.00 e a :____________ Budgeting, Forecasting and Planning N am e.................................................................................. Title Bank ............................................................................................ Street............................................................................................ City, State, Zip ........................................................................... MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis to a community, and it is safe to assume that funds w ill be appropriated throughout the lease term. A pool table for a public recreation center, however, would not qualify. In w eighing risk of non-appro priation, many lessors also consider collateral value of the equipm ent throughout the lease term. So long as the value of the equipment exceeds the unpaid balance of the contract throughout the term, risk of non appropriation is obviated. Most lease-purchase agreements also contain a “ non -su bstitu tio n ” (C o n tin u e d on page 58) 53 D ID C Issues Money-Market Account Rules; Banks Can Offer Accounts December 14 Deregulated-Rate Accounts Require $2,500 Opening Deposit A N K E R S will get their principal Christmas gift early this year — December 14 to be exact. Congress played Santa by giving bankers the gift for which they had been clamoring for some time — a money-market account that enables them to compete with mutual funds. The new account, which is dereg ulated as far as interest rates go, was mandated by Congress as part of the Garn-St Germain Act, known officially as the Depository Institutions Amend ments of 1982. The bill established a no-interestrate ceiling, no-interest-rate differen tial, insured, deregulated account with transaction capability that is competi tive with money-market mutual funds. The new account was to be established within 60 days after the signing of the bill by President Reagan. The D ID C created the new account at a special meeting in Washington, D. C ., on November 15 and voted to reconvene on December 6 to discuss acceleration of the entire deregulation schedule. In creating the new account, the D ID C addressed the following topics: • D e n o m in a tio n o f th e n ew a c c o u n t. The legislation states no minimum de nomination, but congressional debate discussed a minimum no higher than $5,000. The A RA recommended no figure, but requested the D ID C to permit “the greatest possible flexibil ity for depository institutions to estab lish competitive balances necessary for their individual market conditions.” B The D ID C set a minimum o f $2,500 for the account. • M a t u r i t y . Statutory language d o esn ’t c le a rly re q u ire that the account have no minimum maturity. The statute prohibits the imposition of transaction-account reserves if no more than six transactions — three checks and three pre-authorized or automatic transfers — occur monthly. The ABA said there should be no mini mum maturity if the account is to be directly equivalent to the money- 54 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis market funds, which generally have no minimum maturity requirements. The ABA suggested that, even though the new account permits limited transac tion capability, depository institutions should be required to retain the right to require seven days’ notice of with drawal “to clarify the fact that the new account is not a demand deposit. The ABA strongly opposed placing any maximum maturity or limitation on the period for which a rate can be guaranteed on the account. Highlights of D ID C Regs The D ID C has authorized a new money-market deposit account with a $2,500 minimum balance that is free of interest-rate ceiling. The new account, mandated by the Garn-St Germain Depository Institutions Amendments of 1982, becomes effective on December 14. The account contains these fea tures and restrictions: • No minimum maturity, but banks must reserve the right to re quire at least seven days’ notice prior to withdrawal. • No restriction on account availa bility. • If the average balance over a month falls below $2,500, the NOWaccount maximum rate applies for the entire month. • Up to six third-party transfers per month are permitted, no more than three of which can be effectu ated by draft. No restrictions were made on the size and frequency of withdrawals by mail, phone, mes senger or in person. • No minimum denomination of drafts or transfers unless required by the bank. • A specific rate can’t be guaran teed for longer than a month. • Loans to meet the minimum balance are not permitted. • There are no restrictions on additional deposits or sweeps from other accounts. T he D ID C placed no m inim um maturity on the account, although in stitutions must reserve the right to re quire at least seven days’ notice prior to withdrawal. • M in im u m f o r d r a fts d ra w n on th e a c c o u n t. The ABA stated there should be no minimum on drafts drawn on the new account and, thus, it should be treated for cash-withdrawal purposes identically to savings accounts. The ABA urged that no limits be placed on in-person, over-the-counter, messen ger or mail withdrawals, or withdraw als through ATM s. The D ID C placed a maximum of six third-party transfers per month on the account, no more than three of which can be effectuated by draft. But there are no restrictions on the size and freq u en cy o f w ithdraw als by mail, telephone (to another account of the depositor or by check to the de positor), m essenger or in person. It placed no minimum denomination of drafts or transfers, although m ini mums can be required by the institu tion. • L o a n s to m e e t m in im u m d e n o m in a tio n s . The ABA supported per mitting this practice. The D ID C prohibits loans to m eet the minimum balance. • A d d itio n a l d e p o s its . The A BA supported permitting additional de posits “from whatever source, particu larly by sweeps from other accounts. W e would oppose any limitation on the size or frequency of new deposits,’ the A BA said. There are no restrictions on addi tional deposits or sweeps from other accounts. • O v e r d r a ft c r e d it. The A BA opposed any restrictions on overdraft credit with the new account. The D ID C ruled that the rate of interest and other charges imposed on an o v erd ra ft c red it a rran gem en t offered in connection with the new account must be no less than those imposed on overdrafts for customers who do not possess the new account. MID-CONTINENT BANKER for Decem ber, 1982 M oney-M arket-Account Profits M ay Be Non-Existent, Say Teleconference Panelists Advise Packaging Product for High-Balance Customers O R E T H A N 4,000 bankers attending a money-marketaccount “how-to” teleconference put on by the Bank Administration Insti tute last month learned the following: • It will be extremely difficult for a bank to break even on the accounts with a $2,500 minimum balance. • It will be extemely difficult for banks to enforce the limit of six thirdparty withdrawals per month without alienating customers. • The money-market mutual funds aren’t going to give up their $230 bil lion in deposits w itho u t a fight. They’re preparing new sales pitches now. • Any bank that hesitates offering money-market accounts will have to play “catch-up” for a long time. • Pricing the account will be critical — it should not be considered a loss leader. The teleconference was aired in 27 cities across the nation and featured a panel of four individuals: Moderator Robert P. Chamness, a Washington, D. C ., attorney; Jonathan Lee Fiechter of the Office of the Comptroller of the Currency; and Robert M. Martindale and Michael R. Chy, president and vice p resid en t, re sp e ctiv e ly , Hughes, M artindale & Associates, bank consultants headquartered in the Chicago area. The program was presented in an informal format that retained the in terest of bankers in the audience dur ing a five-hour period. The panel fielded questions phoned in from the various satellite locations several times during the presentation. Panelists based their presentations on guidelines for the accounts formu lated at a meeting of the Depository Institutions Deregulation Committee ( D I D C ) held in W ashington on November 15. Details of rules gov erning the account were not available, M since supervisory agencies had not closing his money-market account the issued definitive regulations for the day after he opens it if he finds a com account at the time the teleconference petitor with a better deal. • Aim your biggest guns at high netwas held. (The rules were finalized the worth target markets. Market seg following day. See article on page 54.) Implications of the account were mentation is essential. Go after the high-balance customer and attract his spelled out by Mr. Martindale: • Don’t sell just an “account” — sell attention through TV , direct mail, a complete package that could include seminars and officer-call programs. Be discount brokerage services, ATM ac careful to factor all marketing costs into cess, line of credit, investment coun the price of the account. • Don’t sell price, sell value. Stress seling, etc. the fact that return o f money is more • The accounts will increase banks’ costs due to the higher rates that will im portant than return o n money. There’s more to this account than the be paid to depositors. • The accounts require monitoring/ rate: Sell convenience and counseling, and take advantage of the fact that most control on withdrawals on a monthly people are comfortable dealing with a basis, since only six withdrawals are permitted per month (three by check bank. • Employees can t sell what they and three by A TM or pre-author don’t understand. For every minute ization). • Monitoring/control w ill be re used to develop the technical aspect of the account, spend a similar amount of qu ired on the m inim um am ount time in training the staff to sell the ($2,500) at all times (if the account is account. Explain, train and retrain em not maintained at $2,500, the rate falls ployees and reward those who sell to 5 lA% ). effectively. • There is no interest differential • Think of customers as clients; ele between banks and S&Ls. vate their status. Be aware that almost • It’s a prestige account; therefore, 45% of people investing in moneyit’s not for everybody. • M oney-m arket funds are ex market funds have said they would switch to a bank if a comparable prod pected to offer improved products to uct was offered. keep their share of the depositors • Low er outgo means higher in funds. come. Reduce costs as much as possi Mr. Martindale also presented 10 ble. Pay interest only on collected bal p rin cip le s for m arketing m oneyances. Do not compound more often market accounts: than monthly. Realize you will have • Don’t follow the follower; it’s not increased operating expenses with this rewarding. Every financial institution account. faces a different situation in marketing • Competition never decreases, it the accounts. Each bank should do always increases. Expect additional what’s correct for itself. Competitors competition every year from firms are likely to price their offering incor rectly; if banks follow their lead, they 11 such as Sears and Kroger. One way to combat competition is to stress the be like the blind following the blind. availability of funds in your money• Sell more than just an account. market account. “ Plain vanilla” is O K , but it won’t keep • The short term drives out the long a customer. There s nothing in the reg term. Asset/liability considerations are ulations to prevent a customer from MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 55 important. Ask yourself: “Where are we going to invest these funds?” Look deeply into the future of banking and try to understand the larger patterns. • Flexibility leads to profitability. Be sure you’re doing the things that result in profitability for the bank. Position your bank as a flexible orga nization so opportunités to improve the bottom line can be acted on with out delay. Mr. Martindale added that internal preparation for the accounts includes creation of sales literature, holding employee meetings and thoroughly training new-accounts personnel. Role playing is one of the most effective ways of sales training, he said. Custom er notification should in clude letters to account holders an nouncing the new account, lobby notices and messages on statements. External advertising should include newspaper announcement ads, directmail announcements to targeted audi ences and media advertising. Person alized direct-mail efforts should be fol lowed up with phone calls to pros pects. Prospects for m oney-market ac counts include upscale-income retail custom ers, curren t N O W -account customers, money-market-fund cus tomers, investors/trust-department customers, businesses and corpora tions, large C D customers, municipalities/school districts and regular sav ings customers of thrifts. The point was made that many bank ers are confused about this account be cause of a lack of the usual closed-end regulations — many factors are openended. Panelists advised that the accounts don’t require opening and maintenance balances of $2,500; that amount is merely a floor. The mainte nance balance can be an average balance; if the balance falls below $2,500, the bank can pay a maximum rate of 5V4% — but the rate can be lower. Tiered rates are permissible. Bankers were cautioned about offer ing overdraft p riv ile g e s w ith the account because the overdraft rate must be the same rate charged for overdrafts associated w ith other accounts at the bank. The reason the account has a lim ited -transaction feature is to get around reserve requirements. It was a compromise, Mr. Fiechter said. The account carries no reserve require ment for personal customers and a low rate for commercial customers. All sorts of problems are seen in monitoring the three-check withdraw al rule. Mr. Fiechter said the D ID C expects bankers to use common sense in monitoring this feature. However, action must be taken when a customer abuses the check-withdrawal p riv ilege. Suggested p o licies in clu d e w arning custom ers p erso n ally by phone or letter, imposing a high penal ty for writing too many checks, or clos ing the account. Banks also can option not to offer the check-writing provision if their competitive situation permits. It was stressed that banks will not be required to dishonor checks that ex ceed the monthly three-check limit. Premium rules do not apply, since A ccounts Receive M ixed Reviews H E N E W money-market account is expected to set off competition that will test the marketing, pricing and asset/liability management skills of financial institutions. Banks are going to have to look very hard at their pricing structures and reassess them, said Edward Furash, a banking consultant. Banks must remember that the new instrument was intended to give them an added weapon against moneymarket funds, not against one another, Mr. Furash said. He singled out the recen t success of the seven-day $20,000 minimum C D as proof that the right instrum ent can give banks a method to stop their deposits from being drained by mutual funds. One banker who is not excited about the new in stru m en t term ed the account as “nothing more than a sav- T 56 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ings account with check-writing priv ileges that could hurt banks’ bottom lines. The banker said the pricing of the new account, which regulators left up to the institutions, probably will be the most important factor in how a bank deals with the new instrument. Many customers will be tempted to open a new account with funds from passbook deposits. At many banks, a majority of passbook accounts have more than $2,500 in them, which is enough to enable the account holder to open a money-market account, the banker said. O ne banker who likes the new account had this to say about it: They (the D ID C ) have given us what we ve been asking for, more or less, to compete w ith the money funds.” • • there is no ceiling on money-market accounts. Mr. Martindale suggested that a bank give a customer a $10 bill as a reward if he opens his money-market account with a check from a moneymarket mutual fund! Mr. Chy advised bankers to set goals for positioning the account that are “gut commitments.” Bankers should ask themselves what they want the account to do for the bank; what mar ket share the bank hopes to attain; how high-balance customers can be re tained. He said banks should position the account as a bank service, not as a money-market fund. D on’t make a money-market-fund clone out of the account. The term “money market” is familiar to customers, he said, so it would be wise to use it when designat ing the account. By all means, don’t use the words “cash-management account,” since that title belongs to M errill Lynch, said Mr. Martindale. T h e q u estio n -an d-answ er ex changes brought out the following facts: • Banks can notify customers of in terest-rate changes by posting notices, publishing advertisements, etc., but they do not have to notify customers at all — unless state law specifies that they do. • The D ID C won’t publish a sample deposit-agreement for banks. W ord ing can be picked up from existing agreem ents for other types of accounts. • Separate interest rates are advised for commercial and non-commercial money-market accounts. Rates for co m m ercial accounts should be pegged so the bank can recoup the reserve-requirement cost. • Sweeps out of m oney-m arket accounts fall under the six-withdrawal rule; however, transfers out of moneymarket accounts are permissible, pro vided they are made in person. U n limited sweeps into a money-market account are permissible. • An index to determine the in terest rate paid on money-market accounts is chosen by the bank. Any appropriate index is O K ; it can even be tied to the prime. The most popular indexes are the 91-day T-bill rate and the seven-day average yield of moneymarket funds. • Many banks plan to operate “hot lines” so customers can phone in for the current money-market-account rate. • Don’t use the word “guaranteed” when discussing rate. Rates do not have to be changed at any certain time, MID-CONTINENT BANKER for December, 1982 'A Frost correspondent banker gives you the personal response your bank deserves!’ L e o n a r d M a g ru d e r, S e n io r V ic e P r e s id e n t , C o r r e s p o n d e n t B a n k in g D iv is io n “A correspondent banking rela tionship doesn’t mean a thing unless your upstream correspondent is in touch with the banking industry as a whole and, at the same time, knows the marketplace in which your bank does business. “You can count on Frost corre spondent bankers to know your marketplace. After all, w e’ve been in the banking business for more than a century, and that’s a lot of years of experience you can call on. Equally important, Frost correspondent bankers constantly monitor the mar ket to keep you apprised of economic developments and trends. We know the unique combination of problems your bank faces daily and on a long term basis. And we work out solutions to banking problems, often before they happen, so our ability supple ments your own.” Experience, Commitment services and loan participation. Frost Bank can provide your bank “ Frost correspondent bankers with exactly that kind of dependable, are committed to working with your bank on a personal as well as a pro creative, full-scale backing that makes a real difference in your fessional level. And that’s more im ability to succeed.” portant than ever before, in today’s rapidly changing marketplace where responsiveness is vital to any corre The Bottom Line Look at the bottom line. Today’s spondent banking relationship. business environment calls for up “When you run into a problem, you need a solution. Now. Your corre stream correspondents with in-depth knowledge of the banking industry spondent banker’s response should and your marketplace. be rapid and it should be based on If that’s what you’ve been miss substantial professional experience ing in your correspondent banking and expertise. relationship, you haven’t talked with “Your bank deserves a corre a Frost correspondent banker like spondent banker with the ability to Leonard Magruder. Call him today at respond with answers when you (512) 220-4181 and discover the per need them. With the ability to back sonal response your correspondent you with a complete range of ser banking relationship deserves. vices. From clearing functions and asset liability services to account management tools, automated Frost Bank The personal response your bank deserves. Frost National Bank, PO. Box 1600,100 West Houston St. San Antonio, Texas 78296 Member FDIC MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 57 but they can’t be guaranteed more than 30 days. • Withdrawal options include the following: in person, similar to with drawing from passbook accounts; by ATM , as long as it’s not a third-party payment; by messenger, so the boss’s secretary can make the withdrawal; by telephone, for transfers but not thirdparty payments. • An overdraft fee can be charged on the seventh third-party withdrawal in a month as long as this policy is announced in the deposit agreement. • The deposit agreement should contain all the basic rules, including how the rate is determined, any penal ties and conditions, the seven-day res ervation factor (which doesn’t have to be observed), the number of transac tions perm itted m onthly and an nouncement of the right to change the rate within 30 days. • D ID C guidelines don’t preempt state law; yet it was not the intent of Congress to make any rules of the money-market account illegal for state banks. About 200 bankers attended the teleconference staged in St. Louis. Bankers contacted by this editor indi cated that their plans for moneymarket accounts were close to the final stage; yet they appreciated the in formation provided by the BA I panel. provide for all rental payments. If a lessor is aware of the problem areas of a municipal lease purchase — and acts prudently — risks involved can be effectively minimized, and the lessor will have placed his funds in an attractive investment. At the same time, he will have assisted the com- Illinois Bankers Vote 3 to 1 to Merge At Special Convention in Springfield E M B E R S of the Illinois Bank ers Association “bit the bullet” at a special convention in Springfield last month to decide the future of the association. They voted three-to-one to merge the IB A with its break-away counterpart, the Association for Mod ern Banking in Illinois (AMBI). The action put an end to the nation’s first state banking association split, bandaging a wound that had been festering for the past 10 years. None of the bankers speaking in favor of passage of the merger resolu tion in the crowded, standing-roomonly ballroom indicated that he was completely pleased with the merger terms. — Jim Fabian, senior editor. Robert L. Walton, president, Farm ers & M erchants State, B ushnell, termed a favorable vote for the merger proposition the lesser of two evils” in a statement favoring the merger. He added that the merger terms favor A M BI in some areas, but that no “bet (C o n tin u e d fr o m page 53) ter deal” is available. “A M B I has given (the IBA) all it will give — it’s a take-itclause, which basically prohibits a or-leave-it issue” as far as A M B I is con community from acquiring any “like” cerned. He termed a defeat of the or similar” equipment until the o rig issue a “death warrant” for the IBA. in a l lease te rm has expired in the event Mr. Walton is one of the founders of that the community should fail to the Independent Community Bankers appropriate funds for the lease. This of Illinois (IC B I), which officially con clause — coupled with the stipulation demned the merger. that only essential equipment be fi IB A President Donald R. Lovett, nanced through a m unicipal-lease chairman/president, Dixon National, arrangement — provides excellent urged members to vote for the merger. assurance to the lessor that the com He warned that the “freight train” of munity indeed will adhere to terms of unification was rolling and it was too the agreement and not fail to appropri late to stop it. He pointed out that the ate funds. It should be pointed out, IBA was able to change two provisions however, that enforceability of the of the merger terms, the most impor non-substitution” clause has not yet tant of which is that the largest banks in been definitely ruled on by the courts. the state will not have permanent seats A final point, for the lessor to consid on the new IB A board, although five of er, is that historically there have been the 30 directors will be selected by the few instances of non-appropriation. state’s 10 largest banks. Evidence overwhelmingly indicates He assured bankers that the IB A fac that once a community enters into a tion will have control of the new board. lease purchase, it does indeed consid “We have the numbers,” he said. It er it the community’s responsibility to will take 20 votes to change the new Tax-Exempt Leases 58 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis m unity by providing an attractive funding source for m uch-needed equipment. The municipal-leasing alternative would seem to be an idea whose time definitely is now — for the clear advan tages it holds for financial institutions and for the communities they serve. M IB A board bylaws and Mr. Lovett ex pects the former IB A people to control as many as 25 board seats. O f the 625 delegates voting on the merger issue, 463 voted in favor and 160 against. The two-thirds require ment for passage mandated that 417 affirmative votes be cast. The merger vote was taken shortly after a preliminary vote that dissolved the IB A as a trade association and to create a replacement not-for-profit corporation. T h e m easure passed handily, 473-152. At a press conference following the convention, Mr. Lovett said it’s impor tant for Illinois bankers to be united so they can fight their common enemies, rather than each other. “There’ll be no more looking over each other’s shoul ders to see what the other association is doing,” he added. Mr. Lovett termed the charge that the merger amounted to a “takeover of the IB A by A M B I” as merely a state ment by the anti-merger factor. The staffs of both organizations will be merged, said William Hocter, IB A executive vice president, but not ev ery staff member will remain. Per formance ability will be the determin ing factor. An announcement of the selection of either Mr. Hocter or James Watt as IB A executive vice president is ex pected m om entarily. M r. W att is A M B I s president. The selection com mittee consists of Mr. Lovett, Charles C . Wilson (AM BI chairman), C. C. Hope Jr. (former ABA president and vice chairman, First Union National, Charlotte, N. C .) and an industrial psychologist. Mr. Wilson is chairman/ C E O , First National of Quad Cities, Rock Island. Merger of the two associations is ex pected to be completed about January 1. Mr. Lovett will be IB A president in 1983 and Mr. Wilson will succeed him in 1984. Jim Fabian, senior editor. MID-CONTINENT BANKER for Decem ber, 1982 Expeditious. Third National Hank's Data Processing Service can help you stream line your operations. It’s becoming increasingly difficult for a bank to oper ate profitably without electronic data processing and other autom ated procedures. But the necessary hardware is expensive, and a computer operation of your own may be more than you wish to undertake at this time. T he answer? Data processing and other autom ated services from Third National Bank in Nashville. Third National Bank offers a full range of computerized data processing services, including a Commercial Loan Package designed especially for commu nity banks. This https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis package comprises a complete accounting program for commercial loans, with daily updates on each ac count, past-due notices, m aturity notices, and more. T ake the first step toward a more streamlined, and more profitable, operation today. Call Sonny Johnson, head of the Correspondent Bank Depart ment, or the representative who serves your are; Ish Smith or Ronny Lankford, East Ten nessee; Clarence Suiter, Middle Ten nessee and Alabama; Roy Lawrenc West Tennessee. Our Tennesse W ATS is (800) 342-8360. In neighboring states, dial (800) 251-8516. THIRD NATIONAL BANK^ In Nashville Member F.D .I.C. Retirement-Planning Seminars Establish Conduit To Employee/Corporate Accounts for Bank planning is a hot topic at N ational B o ulevard Bank, Chicago. The bank started offer ing a new service to corporations last July called Forward Financial Plan ning. The program was put together by William W. Thomson, financial ser vices officer, who has had 18 years’ experience in retirem ent-planning programs. Purpose of the program is to develop banking relationships with employees of corporations and the corporations themselves. The program advises em ployees age 50 or over about retire ment planning and encourages these people to begin investing their money so they will have “nest eggs” after they retire. As corporation managers listen in on retirem ent-sem inar sessions, they often see the value of their firm establishing relationships with the bank in the areas of pension and profitsharing plans. “Corporations are finding that the present economic situation makes it appropriate for the bank’s representa tives to come in and give their em ployees information about financial planning,” says Mr. Thomson. He adds that it’s difficult for a bank to “get inside” a corporation that isn’t already a customer, but that the retirement planning seminars provide an excel lent vehicle for the bank’s people to gain entrance to a firm. The fact that the firm invites the bankers in to conduct retirem ent planning sessions lends credibility to the bank, Mr. Thomson says, which makes em ployees more w illing to attend the sessions. As they acquire information about the importance of adequate planning for retirem ent, they look to the bank as the place to go to work out the details of savings pro grams. That’s the bottom line of the concept. The typical program consists of eight hours of sessions, divided into four two-hour meetings held on a weekly basis. The first session deals with an overall introduction to retirem ent planning and contrasts the bank’s con cept of “forward financial planning” with traditional thoughts about retire ment. Session number two deals with per- R e t ir e m e n t 60 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis sonal money management, including budgeting, supplementing income, considering social security and life in surance and life-cycle financial consid erations. The third session covers financial planning and deals with estate plan ning, maximizing financial security of dependents and minimizing taxes. T h e final session advises p re retirees how to prepare for the changes brought on by retirement. Mr. Thomson says the sessions are geared to employees age 50 or over, but that when corporate managers learn about the content of the sessions, they often ask the bankers to conduct sim ila r sessions for younger em ployees. These sessions deal with William W. Thomson heads N ational Boulevard's "For ward Financial Planning" pre-retire ment program. The Chicago bank began offering the service last July. financial planning and budgeting to a greater extent than do those for older people. “The one thing I attempt to com municate to all employees is this,” Mr. Thomson says: “Never before have so many people had so much opportunity to do so many things. Never in our history have so many older Americans been in a position to be creative in their forward financial planning and life planning. But never have there been so many obstacles or opportuni ties to procrastinate when it comes to retirement planning.” Many of these people are worried about the future, he says. Often they’re intimidated by the traditional concepts of retirement planning. “This is where we come in. We work with them in a way that’s conducive to establishing warm relationships. They come to trust us and rely on us to give them the information they need so they can determine what shape their finances are in so remedial action can be taken, if necessary, so they can stop worrying about the future.” T h e bankers are low-key about National Boulevard s sponsorship of the se rv ice . “ W e don’t raise the National Boulevard flag at all during the program ,” Mr. Thomson says. “Generally, that’s done by the cor poration people when they introduce me and my associates as retirementservices officers from National Boule vard Bank. Many times corporation managers will permit me to suggest to employees that they can come by my office to talk to anyone there to obtain more details. Obviously, there’s no way we can present the entire story during the sessions. Employees facing retirem ent appreciate the fact that they can come in to the bank to discuss details in private. And they come from relatively great distances.” One of the main thrusts of the pro gram is to convince pre-retirees that National Boulevard has their interests at heart. “The people never would come down to the bank if this rapport was not established at the seminar ses sions,” Mr. Thomson says. Sessions usually are held during working hours. This helps to show em ployees that their employers feel for them and understand their situations, Mr. Thomson says. “Employers are trying to gain from the sessions and we suggest that they participate with us in the program so they have an opportun ity to communicate to workers in formation about the retirement ben efits the company offers. Such a policy serves to establish a connection be tween the corporate-benefit depart ment and employees. Mr. Thomson says he finds that many pre-retirees are not interested in reading reams of information found in trad itio n al re tire m e n t-p lan n in g brochures. So he recommends that they visit their local libraries and read current information about retirement planning in such publications as U. S. N e w s a n d W o r ld R e p o r t, the W a ll S tr e e t J o u rn a l and B a r r o n ’s. National Boulevard targets the ser vice to firms that have payrolls that include from 15% to 20% of employees over age 55. Mr. Thomson says there MID-CONTINENT BANKER for Decem ber, 1982 In both of Missouri's two Federal Reserve districts, United Missouri offers you 24-hour Transit Service. Your checks are processed continually, 24 hours a day. There's no delay. So, you can put your funds to use faster. Our transit service is just one way we're working for you every day. On both sides of the state, United Missouri Banks offer prompt, knowledgeable service on loan participations, expert assistance with regulatory problems, diversified placement of your excess funds in the federal funds market, and the services of an Investment Division with a proven track record. That's our day-in, day-out dedication to service. For a good look at all our services, contact your Account Officer. Or E.L. Burch in Kansas City or Hank Phelan in St. Louis. lb UNITED MISSOURI BANKS M em bers FD IC United we grow.Together. Kansas C ity 10th and Grand P.O. Box 226 Kansas City, Missouri 64141 816/556-7900 MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis St. Louis 312 North 8th Street P.O. Box 1126 St. Louis, Missouri 63188 314/621-1000 are numerous firms in that category in the Chicago area. However, he is w ill ing to deal with any firm that shows an interest in providing its employees with retirement-planning information. Mr. Thomson says National Boule vard is the only bank in the Chicago area that is heavily involved in retire ment planning. His experience in- Employee Benefits (C o n tin u e d fr o m page 14) benefit-pension plan. So there could be reductions in pension-plan benefits in some cases. 401(k)s in T h r ift P lans. It’s likely that within the next few years, there will be few thrift plans that do not con tain 401(k) arrangements. There are persuasive reasons this is going to happen. “Inside” IR A plans cannot receive mandatory employee contributions; 401(k) provisions can, thus making them natural candidates for inclusion in thrift-savings plans. Exh ibit I I I illustrates benefits that would be derived from a conventional thrift plan compared with those de rived under a plan with 401(k) provi sions. The benefit/cost ratio under the 401(k) plan in this illustration is about 86% higher than the benefit/cost ratio under the conventional thrift plan. The 401(k)-plan approach is further en hanced in that the employer will real ize potentially substantial savings on his payroll taxes. Those savings, in many cases, will be more than enough to cover whatever additional adminis trative costs there may be in connec tion with the operation of a 401(k) plan. Although the benefit/cost ratio for the thrift plan in Exhibit I I I is higher with the 401(k) feature than without, after-tax value of the distribution is less under the plan with the 401(k) feature. This occurs because employee con tributions are made with pretax dollars to the 401(k) plan and with after-tax dollars under the plan without the 401(k) feature. Total benefit from the 401(k) plan is, therefore, taxable; whereas, only the amount in excess of employee contributions is taxed in the conventional thrift plan. Employees participating in a 401(k) plan should, therefore, be encouraged to put their tax savings to work for retirement pur poses by putting these amounts into IRAs, for example. C o n c l u s i o n . “ In s id e ” IR A s and 401(k) plans are new and refreshing 62 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis eludes service w ith Zen ith Radio Corp. and Unity Savings in the Chica go area. He put National Boulevard’s program together utilizing the experi ence he gained through the years. “Our hope is that we ll be able to assist corporations with their labor re lations,’ he says. “A happy employee is more productive — a better em ployee. The problem is that although most organizations do a marvelous job of building retirement programs for their em ployees, some employees don’t understand what all the benefits mean. We serve as a conduit between the corporation and the employees re garding the meaning of these ben efits.” • • developm ents in the em ployeebenefits area. The 401(k) concept in particular is a meaningful new benefitplan arrangement. As a result of the av a ila b ility of these re tire m e n t planning techniques, retirement plans w ith tax-ded uctible em ployeecontribution features will likely be come a trend for the future and pro vide the incentive to create the muchneeded third leg of the three-legged stool. This will have several beneficial side effects, including taking pressure off the social security system, permit ting more flexible benefits planning and enabling employers to give more benefits for less cost. • • or a chartered public accountant and must attend an annual workshop and complete a specific number of hours of continuing education related to inves tigations, business reorganizations and liquidations. The organization accepts associate members, including attor neys, trustees and receivers. They may take part in all association activi ties and have all the rights of regular members with the exception of the voting right. FISI Agreement (C o n tin u e d fr o m page 10) Accounting G ro u p Form ed To Aid in Disposition O f Bankruptcy Cases M IN N E A P O L IS — A new associa tion — the National Association of Accountants in Insolvencies (NAAI) — has been formed here. Its objective is to improve disposition of bankruptcy cases for all concerned through im proved te ch n ical and an alytical accounting procedures. “ Because of revisions in national bankruptcy laws and the acceleration in number of business insolvencies,” says Homer A. Bonhiver of Minneapo lis, a certified public accountant and one of the N A A I’s founders and its first president, “functions and skills of the accountant have become significantly more important in support of the legal and judiciary professions in cases of insolvencies. The purpose of the NAAI is to develop and share skills and in formation with which accountants can better serve all parties involved in in solvent situations.” Mr. Bonhiver identified another NAAI primary objective: to identify accountants trained and interested in serving in the specialized field of insol vencies and make background in formation and other materials about them readily available to the judiciary system, legal profession and other key parties involved in insolvencies. A regular member of the N AAI must be a CPA , a licensed public accountant have installed A TM s in about 250 stores throughout Florida, thus re portedly making the Publix T e lle r program one of the largest sharedATM networks in the state. A ny financial institution (banks, credit unions and S&Ls) can partici pate. Customers of financial institu tions will be able to make cash with drawals, deposits and balance in quiries 24 hours a day at most loca tions, with transaction fees varying from 50 to 600, depending on transac tion type and volume. Howard Jenk ins, vice president/research at Publix, Howard Jenkins (I.), v.p./research, Publix Super Markets, Inc., and Bill Mardis, mgr./ EFT division, Financial Institution Services, Inc. (FISI), Nashville, sign agreement whereby FISI is to market Publix Teller, statewide (Florida) shared-ATM network. MID-CONTINENT BANKER for December, 1982 already has obtained either verbal or contractual commitments from 25 in stitutions in Florida to take part in the Publix Teller ATM Network. In October, F IS I began a campaign to actively market access to the net work. Inquiries will be addressed to F IS I for follow-up. F I S I will be re sponsible for preliminary sales pre sentations and will coordinate detailed discussions between serious prospects and Publix. “With the assistance ol F IS I to mar ket our ATM network,” says Mr. Jen kins, “we will be able to concentrate our efforts toward bringing our pro gram up on schedule.” Besides marketing access to the Publix Teller Network, F IS I will be offering other complete ATM-support services to financial institutions, in cluding consum er-m arketing cam paigns, ATM-card services and cardenhancement products. F IS I also will be marketing a service called “Re m ote-A uthorization P ro cessin g (RAP), which provides an alternative to accessing the Publix Teller Net work. “This concept,” says Bill Mardis, m anager/EFT division at F IS I, “will pro vid e an attractive econom ic approach for participation by smaller institutions that do not have the tech nical or financial resources to tie directly into the Publix data center.” Automated CD Exchange (C o n tin u ed fr o m page 16) ber. Lisa Luehrman, assistant treasurer and chief financial officer, says she likes the service because it’s con venient; so much better than soliciting banks individually for jumbo C D s. “The C D s are as secure as a Treasury issue,” she says. She also likes the fact that C D x rates generally are one-half point higher than rates given by local banks. In addition, she says, transfers and pay ments of maturity have been handled smoothly. C D x was designed by Harvey Bas kin & Co., a financial-services firm based in Washington, D. C. • • third chapter is the Florida Chapter, which encompasses only that state. The Southeastern Chapter has been dissolved, culminating plans adopted by the chapter’s board in 1979 to accomplish this mission. Officers of the Mid-South Chapter are (its area covers Louisiana, Missis sippi, Arkansas and the Eighth Fed er al Reserve D istrict of Tennessee): president, Alfred Rath, vice president, Hancock Bank, Gulfport, M iss.; vice president, John Bateman, senior vice president, Louisiana National, Baton Rouge; secretary, Deborah N. Pitman, senior vice president, Union Planters National, M emphis, and treasurer, W illiam C . Scholl, vice president, First National, Little Rock. Officers of the Southern Chapter (covering Alabama, Georgia and Sixth Federal Reserve District of Tennes see): president, Thomas E . Boland, ex ecutive vice president, First National, Atlanta; vice president, Ernest Beazley, vice president, Third National, Nashville; secretary, Harry D. H en son, senior vice p re sid e n t, F ir s t National, Mobile, Ala., and treasurer, W illiam Burt, executive vice presi dent, Citizens & Southern National, Atlanta. A National Exchange For Federally Insured Certificates of Deposit It is now possible for banks to instantly market jumbo CDs nationwide, with immedi ate executions and same-day settlement. Money Market Funds, Corporations, Trusts and other investors of large sums have indi cated their intention to invest billions of dollars in $100,000 Federally insured Certificates of Deposit through CDx. CDx is the only low-cost, fully automated system capable of bringing together banks and investors of large sums for instant trades. Through CDx, depository institutions from coast to coast can list any quantity of Federally insured $100,000 Certificates of Deposit in the CDx central computer, using only a standard pushbutton telephone. Certificates are auto matically assembled by rates and maturities and on a first-in/first-out basis, made available in units of $1,000,000 or more. Using the latest computer technology, CDx offers immediate executions and same-day settlement, and also enables customers to continuously adjust quantities of CDs and in terest rates to meet current market demands. Issuers can list any number of $100,000 CDs they select for maturities of 1 4,30,60,90,180 and 360 days. State Street Bank & Trust is the issuing agent for CDx, responsible for clearing all CDx trans actions. CDx maintains direct electronic com munication with State Street, which assures that proceeds are immediately credited through the Federal Reserve System. CDx provides ready access to instant funding to meet liquidity needs, short-term commitments, or reserve requirements. When you consider the necessity for depos itory institutions to react quickly in today’s volatile marketplace, CDx is certainly an answer. For further information, call 800/368-5700 or request our detailed brochure by returning the coupon, below. A DIVISION OF HARVEY BASKIN & COMPANY • 1000 POTOMAC S T R E E T N W WASHINGTON D C 20007 • 202/342-1900 Name C hapter Status Is G ive n T o Three RM A G ro ups The Southeastern Chapter of Robert Morris Associates has been reorga nized into three separate chapters, two of which — Mid-South and Southern — are in the Mid-Continent area. The Institution Federally Insured Certificates of Deposit City_____ Business Phone MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A National Exchange For Address State Zip A DIVISION OF HARVEY BASKIN & COMPANY 1000 Potomac Street, N.W., Washington, D C 20007 202/342-1900 63 New Method of Maintaining Reserves To Go Into Effect Early in 1984 C H A N G E in the way depository institutions maintain reserves w ill become effective Feb ru ary 1984. The change, approved recently by the Fed, will be from lagged to contemporaneous reserve requ ire ments (CRR). W hen the change takes place, medium-sized and larger depository institutions will begin posting reserves on transaction accounts with a one-day rather than the current two-week accounting delay. (Transactio n accounts include checking, N O W , autom atic-transfer and share-draft A The change, to take effect February 2, 1984, will be from lagged to contemporaneous reserve requirements (CRR). Medium-sized and larger de pository institutions will begin posting reserves on transaction accounts with a one-day rather than the current two-week accounting delay. accounts.) Reserve requirements on non-transaction liabilities will be met on a lagged basis. Under the present lagged-reserve system, depository in stitutions must post their required re serves in any given week based on their deposit levels two weeks earlier. The Fed acted after considering comments received on proposals pub lished in November, 1981, and after extensive staff study during the past several years. The Fed decided in principle last June 28 to adopt C R R on transaction deposits, but left open for later decision questions of an effective date and whether reserve periods for different sets of institutions should be placed on a staggered basis, with half the institutions settling every other week. The Fed has decided against staggering settlement periods. C R R is expected to improve imple mentation of monetary policy to a de gree by strengthening linkage be tween reserves held by depository in stitutions and the money supply. The 64 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Fed noted that sizable slippages will remain between reserves and money, 2, because short-run flows are inherently volatile. The effective date was placed so far ahead to give both Reserve banks and depository institutions that will main tain reserves on the new basis time to make adjustments required in their administrative and data-processing procedures. As adopted by the Fed, principal features of C R R are, for the most part, those proposed in November, 1981. These features are: 1. Contemporaneous reserve re quirements will apply only to institu tions reporting their deposits on week ly bases. (Certain institutions with $15 million or less in total deposits report deposits and calculate required re serves quarterly, and certain others, with reservable liabilities under $2 million, became exempt from reserve requirements on enactment of the D e pository Institutions Amendments of 1982, or H R 6267.) 2. Reserves will be maintained over two-week periods that will continue to end on Wednesday. 3. All institutions subject to C R R will settle their reserve accounts on the same day. 4. Required reserves will be co m p u te d on the basis of average deposits over a two-week computation period ending on Monday. Reserves required to be posted against transaction accounts will be maintained in the twoweek period ending Wednesday, two days after the end of the computation period. The two-day interval provides time for calculation of required re serves. 5. Required reserves for other liabil ities against which reserves must be held — such as certain kinds of time deposits — also will be computed on the basis of average deposits over a two-week period ending Monday, but reserves required will be posted in the two-week maintenance period begin ning 17 days later, on Thursday. 6. Vault cash eligible to be counted as reserves will be equal to vault-cash holdings during the com putation period ending 17 days before the maintenance period begins. 7. To assist depository institutions in implementing C R R , the Fed adopted transition periods for the carryover of reserve-balance deficiencies or sur pluses. During the first six months fol lowing C R R ’s start, reserve surpluses or deficiencies that may be carried over into the next reserve period will equal the greater of 3% of the dailyaverage level of required reserves (in cluding required clearing balances) or $25,000. During the next six months, the permissible carryover will equal the greater of 21/2 % of daily-average required reserves or $25,000. Thereaf- The effective d a te w as placed so far ahead to give both Reserve banks and de pository institutions that will maintain reserves on the new basis time to make adjustments required in their administrative and data-processing proce dures. ter, the carryover will be the greater of 2% of daily-average required reserves or $25,000. These changes in reserve require ments will be made as amendments to the h ed s Regulation D — reserve re quirements of depository institutions. T h e F e d approved two other amendments to Regulation D: • Dates on which nonmember de pository institutions phasing in to re serve requirements of the Monetary Control Act over an eight-year period will be moved back one week. The objective is to avoid falling in the mid dle of a reserve-maintenance period under the C R R schedule. • Depository institutions with less than $15 million in deposits and that aie not subject to C R R will continue to have a one-week maintenance period, with settlement day on Wednesday' Their computation week each quarter will be shifted back two days from Wednesday to Monday to align with the computation period of institutions subject to C R R . • • MID-CONTINENT BANKER for December, 1982 Standing: Joe Stout, Senior Vice President; Carolyn Ryniker, Secretary; Wayne Becker, Assistant Vice President. Seated: Tom Potter, Senior Vice President; Iris Ebert, Secretary TH E FOURTH’S CO R R ESPO N D EN T BANKING FAMILY... Pam Rubin, John Dykes, Tom Page: Important new resources for Kansas banks. Competition is heating up as new challenges appear from all areas — savings and loans, money market funds, money center banks. Even retailers. To cope, more and more Kansas banks are looking to The Fourth for the experience and expertise to help them m eet the demand for new technology and specialized services. And because The Fourth realizes that effective delivery of these services is as important as the services themselves, the addition of Tom, Pam and John is more than just an announcement of new employees. Each offers a thorough knowledge of the capabilities of The Fourth and an understanding of the specialized requirements of community banks. YOCIR FUTURE If you need the services of The Fourth, you IS AT THE FOURTH won’t have long to wait. Because The Fourth has the commitment to call on you, at your place of business — with personal service and the strength to help you meet today’s competition. IT THE FOURTH NATIONAL BANK & TRUST CO. CORRESPONDENT BANKING / 316 261-4441 / P.O. BOX 1090 / WICHITA, KS 67201 M EM BER MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis F D IC Buy Municipals Before End of Year, Centerre Advises Correspondents OW is the best tim e to buy m u nicipal bonds, because, b eg in ning January 1, all new issues m ust be in reg istered form. This advice was given to 900 bankers a tten d in g th e 36th annual conference of bank co rre s p o n d e n ts sp o n s o re d by C e n te r r e Bank, St. Louis, last m onth. Speaking was A lbert W. Lauth, vice p residen t in charge of th e portfolio d i vision of C e n te rre ’s investm en t bank ing departm ent. Left: Richard F. Ford, Centerre pres., w el H e advised his b an k ’s co rresp o n comed bankers to correspondent confer dents that th e re will be a prem ium on ence. Right: Clarence Barksdale, Centerre ch./CEO, hosted conference luncheon. all pre-1983 bonds next year because they don t have to be registered. H e added that prices are right at this tim e L. W e id e n b a u m , professo r of eco — w h ich m e a n s th e y ’re b a rg a in s, nom ics, W ashington U niversity, St. offering from 400 to 500 basis-point Louis, making his com eback app ear yields over T reasury bills. ance at the conference after spending Mr. L auth said m unis pu rch ased th e last two years in W ashington as this year will have a 100 basis-point chairm an of the Council of Econom ic advantage over bonds p u rch ased in Advisers. H e m issed only one co rre 1983. The registration provision of the spondent conference since he left for tax act was term ed “taxation via the th e c a p ita l s h o rtly a fte r th e f9 8 0 back door” on th e p art of th e federal gathering. governm ent. H e p re d ic ted that the prim e will Mr. L auth also com m ented briefly drop to 10% in a few m onths, provided on th e n ew D ID C m o n e y -m a rk e t th e F ed continues its policy of tightaccounts that banks are authorized to m oney supply. “I t’s clear that the re issue b eg in n in g D e c e m b e r 14. H e cen t reductions in in terest rates surely term ed the account a “new source of are a big plus for future business pros interest-sensitive liability th at banks p e c ts ,” he said. “T hose rates have didn t have before. ’’ H e advised bank com e down in earnest. ” H e praised the ers to m onitor th e account carefully so F ed for reducing inflation. rate-sensitivity d o esn ’t “get away from C e n te rre P resident Richard F. Ford you.” r e m in d e d his a u d ie n c e th a t, afte r Also com m enting on the effects of years of calling for change, it now is th e n ew a c c o u n t w as D o n a ld W . upon us. “W e m ust prove that we can M oriarty Jr., first vice p resid en t, St. handle it in an industry that is u n d e r Louis Fed. H e used slides to illustrate going changes,” he said. the effect high p riced m oney-m arket Just a few m onths ago, th ere was deposits have had, and will have, on gloom and depair following th e Penn spread. H e cautioned bankers th at the Square and D rysdale problem s. But F ed will be w atching spread figures at m em ber banks to m ake sure th e banks aren ’t m inim izing spread to the point that they are operating at a loss. H e said banks can com pete b e tte r if they work to d ereg u late usury stat utes, im prove th e ir asset/liability m an agem ent skills, increase fee incom e, control operating costs and utilize new technology, especially co m p u teriza tion. O th er things they can do: R educe brick-and-m ortar facilities, people and Among investments panelists at Centerre paperw ork, Mr. M oriarty said. conference were from I.: Kenneth A. BrettPerhaps th e m ost popular speaker horst, Albert W. Lauth, both v.p.s., and on the day-long program was M urray John W. Rowe, s.v.p. N 66 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis alm ost overnight th e pendulum has swung the o th er way, as evidenced by th e decrease in in terest rates and the stock-m arket boom. This has caused m ore talk about recession than d e pression. H e cautioned that the nation still is on the brink and no one can expect the dust to settle soon because trau matic events still are to come. The banking industry, he said, is in the m idst of a shakeout, “b u t this tim e w e’re in m ore control of our d estin y .” H e te rm e d th e a d v e n t of m oneym arket accounts a “giant leap” that will be a “tru e test of our asset/liability m anagem ent skills.” Mr. Ford cautioned bankers not to use m oney-m arket accounts to com pete w ith o th er banks b u t to com pete w ith nonbank financial institu tions. W e should use our resources to bol ster the banking industry rath er than to augm ent the portfolios of our non bank com petitors.” O ne of banking’s p ro b lem s in th e p ast has b e e n its tendency not to act as a unified block w hen com peting with nonbanks. “W e m ust draw our forces to g e th e r,” he said. “T he forces th a t w eak en th e banking industry are not our com peti tors, b ut our lack of insight. ” H e called for support for state and federal banking association efforts to establish a sense of unity in th e indus try. “If we can fight collectively, we can succeed. . . . W e can be an aw e som e com petitor if we are unified.” John W. Rowe, senior vice p resi d e n t, in v e stm e n t banking, said in terest rates will rem ain volatile in the near future because of the im pact of ch an g in g inflation rates, th e F e d ’s policy change on m onetary grow th, th e fact that the U. S. now is in a world m oney m arket rath er than a dom estic o n e, v ario u s a tte m p ts to im p ro v e asset/liability m anagem ent, changing investor attitudes, the fact that moneym arket funds have transform ed savers into investors and uncertainty in the m oney m arkets. H e said d ereg u latio n isn ’t a bad thing, b ut it makes things m ore diffi cult because so m any instrum ents are flooding the m arket. And, he added, predictions are rife that deregulation will be speeded up; perhaps com plete deregulation will take place w ithin the next year. H e said all bankers m ust do b e tte r as funds m anagers. F u n d m anaging is an art, not a science, b u t it w ould be m uch sim pler if it w ere a science. “W e can’t borrow short and lend long con sistently and rem ain in bu sin ess,” he said. “W hat’s n eed ed is some ‘K en tucky w indage’ ” so th at gap ranges can be w idened. H e p red icted that funds MID-CONTINENT BANKER for December, 1982 Railroad Station's Baggage Room Turned Into Branch of Bank N L IK E m any u n u sed railroad room now is divided b etw een corpo stations sca tte re d aro u n d th e rate offices of a firm and a period res In th e form er express mail country, the historic U nion Station taurant. in M ontgom ery, A la., still has a reason to room, th ere is the C radle of the C on exist, and a bank plays a big part in that federacy Railroad M useum . SouthTrust Bank even has m ade use purpose. The station’s form er baggage Murray L. W eidenbaum (I.) professor of room now houses a full-service branch of the adjacent train shed, which, by economics, W ashington University, St. Louis, chats with Lewis E. Davids, MCB col of SouthT rust Bank (formerly South the way, is 600 feet long (equal to two umnist and Illinois professor of bank m an ern Bank). The bank bought the bag football fields) and spans th ree sets of agement, Southern Illinois University, Cargage-room portion of th e station in track s an d p la tfo rm s b e tw e e n th e bondale. tracks. T he bank operates a drive-up M arch, 1981. W h at once was th e m ain w aiting teller window in th e shed area, which is only one of four rem aining in N orth m anagem ent will becom e m ore con America. servative in th e future. The station, com pleted in 1898, was Increasing deposit resources is one o w n ed by th e L& N (L o u isv ille & solution to th e h ig h er cost of in terest Nashville) Railroad. The station b u ild due to deregulation, he said. “W e can ing, w hich cost a b o u t $117,790 to go broke in grand style by offering erect, has Rom anesque architecture, higher rates. Bankers m ust strike a overlooks the Alabama River and is lo balance b etw een th e desires of deposi cated in an historic district th at’s being tors for high in te re st and a bank s real revived. M any old w arehouses th ere ability to pay such interest. have b een renovated for law and o ther H e added th at th e in v estm en t d e professional offices, hotels and retail p artm en t can b e a key to increasing b u sin esses. M aterials u sed in con deposits. It’s a good policy to make struction of the station w ere brought inv estm en t in stru m en ts available to from all parts of this country, and some d ep o sito rs. Banks sh o u ld b e w a re w ere im ported from various parts of h o u s e s of funds and can be such by the world. The brick exterior sits on e sta b lish in g re la tio n sh ip s w ith u p massive granite foundation stones and stream securities dealers. is accented by terra-cotta trim m ings. A ttending bankers w ere polled as to T he b u ild in g ’s brick exterior was th eir econom ic and financial forecasts painted in 1966, but, during th e latest for 1983. renovation, the paint was carefully re They rated P resid en t R eagan’s rec m oved to reveal th e original brick fin ord to date in term s of decisiveness/ ish. The baggage room was com pletely strong le a d e rsh ip as “excellent ; in rem odeled, w ith th e bare brick walls term s of reducing g overnm ent sp en d left exposed and its elaborate archways ing as “fair”; in term s of h andling th e accented. • • econom y as “excellent/good. N early 80% of th e bankers said b u si ness conditions will be b e tte r by the end of th e second q u a rte r of 1983; that Discount Brokerage Service th e prim e will be in th e 10% to 13% Offered by Mercantile/Texas range by th e next conference and the Dow Jones will be in th e 950-1,350 A d isc o u n t b ro k e ra g e serv ice is range next N ovem ber. H ousing starts being initiated for custom ers of M er will be up next year and th e price of cantile/Texas, Dallas, this m onth. gold will be in th e $400-$550 range. T h e se rv ic e is c a lle d M P A C T Here are three different photos of Union M ore than 80% favor reducing the Station and its baggage room in Montgom BROKERS and is said to be the first grow th rate of social security benefits, ery, Ala. SouthTrust Bank (formerly South m ajor discount brokerage service by a w hile nearly 60% do not favor a cut in ern Bank) now operates full-service branch bank in the Southwest. The HC also in baggage section (building in right fore benefits from c u rre n t levels. will initiate its MPACT m anagem ent Bank earnings in general will be up ground in each photo). account this m onth. slightly next year, they co ncluded.— TOP: Union Station complex looked like M PACT BROKERS will be offered Jim F ab ian , senior ed ito r. this in its early days. to the 25 banks in the HC and to the 250 financial institutions that are m em SECOND FROM TOP: Coats of white paint had been added to both buildings by 1968, bers of the MPACT Autom atic Teller when this picture w as taken. N etw ork in Texas and su rro u n d in g states of Oklahoma, Louisiana, Arkan BOTTOM: In latest renovation, paint w as sas and New Mexico. removed to reveal original brick finish. U MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 67 H o stile B ank T a k eo vers By Gerald T. Dunne Professor of Law St. Louis University O S T IL E b a n k ta k e o v e rs, u n heard of th re e years ago, now have com e to the fore w ith th e sequence that b oth news stories about, or advertisem ents em bodying, appeals to bank stockholders over heads of m anagem ent virtually have becom e a staple of the W all Street Journal. W hy has this h ap pened? T here are th ree reasons. Significant surely may be the fact that the first wave of b ank holding-com pany expansion has spent itself so that th e only bargains left are those banks w h ere m anagem ent dis H service to stockholders has left the in stitutions sitting ducks for a skillfully o rchestrated takeover effort. Second may be the tim e in w hich we live, w ith some pro m in en t econom ists suggesting that concentration or even cartelization may be the hallm ark of a m ature and stabilized capitalism. Finally, and most im portant of all, perhaps, has been the behavior of gov e rn m e n t agencies charged w ith ad m inistering statutes governing bank acquisitions. Principally, these are the Bank H olding C om pany (BHC) Act and C hange in Bank C ontrol (CIC) Act. Both laws req u ire special p erm is sion before acquisition of 25% of a b a n k ’s stock. T h e re th e d ifference ends. T h e B H C A ct ca m e firs t an d seem ingly set the pattern. U nder it, th e F ed (the adm inistering agency) m oved like molasses in January with som ething like a year usually in terv en ing b etw een initial application and fi nal, dispositive perm ission. M ore im p o rta n tly , p a rtie s le g itim a te ly in te re ste d in the proposed acquisition had im portant rights in term s of noti fication, intervention and standing to be heard, as well as judicial review. conC ontrariw ise, the C IC Act seem s alm ost the direct opposite, w ith the resu lt that, because of u n p re c e d e n ted ly speedy adm inistration, a req u est for approval of an acquisition may be in, granted and out before a legitim ately in terested party finds out what is going on. F or openers, th ere is no general rule w hereby agencies announce re ceipt of a C IC (change-in-control) ap plication in the way the F ed does in the case of th e BHC Act. M oreover, th ere GERALD T. DUN N E is a graduate of Georgetown University, Washington, D. C ., St. Louis University Law School and Stonier Gradu ate School of Banking, Rutgers University, New Brunswick, N. J. He joined the St. Louis Fed from the general practice of law and successively became counsel, general counsel and vice president. In 1973, Professor Dunne took retirement from the Fed to become professor of law at St. Louis University, where he had taught part-time for many years. Later that year, in addition to his professorial duties, he was made editor-in-chief of the Banking Law Journal. He is on the economic advisory council of Mark Twain Bancshares, Inc., St. Louis. Professor Dunne has written three books: "Monetary Decisions of the Supreme Court," "Justice Joseph Story" and "Hugo Black and the Judicial Revolution." He also has contributed to the Harvard Law Review, Yale Law Journal and Harvard Business Review. He has been on faculties of Stonier and Central States (now Prochnow) School of Banking, Madi son, W is., and was visiting professor of law at the University of Missouri, 1970-71. Professor Dunne has been selected for inclusion in "Who's Who in America" and "The American Catholic Who's W ho." 68 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis seem s to be no generally available m eth o d to extract such inform ation u n d e r th e F reed o m of Inform ation Act. Beyond that, contexts of the two ap plicatio n p ro c e e d in g s are radically different. U n d er the B IIC Act, the F ed takes account of com m unity needs an d c o n v e n ie n c e , b a n k in g factors (financial/managerial resources, future prospects, etc.) and com petitive fac tors that severely confine its discretion w h e n m o n o p lo id fa c to rs in tr u d e . O p p o n e n ts of th e acq u isitio n have standing, as lawyers call it, to state th eir position on the consistency of the application and the statutory form ula and, m ore than this, to appeal any d e cision th a t a g g rie v e s th e m to th e courts. The C IC Act seem s alm ost the m ir ror-im age opposite. W hile m any BHC Act provisions apply, th e C IC Act stresses disclosure of th e following item s at least 60 days before acquisi tion as a condition of the banking agen cy’s approval: 1. Identity, personal history, busi ness background and ex p erience of each person by or on whose behalf the acquisition is to be m ade, including m aterial business activities and affilia tions for the past five years, along w ith disclosure of legal and adm inistrative proceedings involving such persons. 2. Financial statem ents of assets and liabilities of such persons (plus state m ents of sources and uses of funds) for the past five years and, in addition, like statem ents not m ore than 90 days b e fore pre-filing. 3. Term s and conditions of the p ro posed acquisition. 4. Plans and proposals for liquida tion, m erger or sale of assets of the target bank and for m ajor changes in its structure or m anagem ent. 5. Identity and com pensation of any person retained to solicit sales or m ake recom m endations to stockholders. 6. Copies of te n d e r offers. In addition to veto via the “com peti tive” com ponents of the BHC Act, the federal banking supervisor may dis approve any proposed acquisition on change-in-control grounds w hen: 1. The financial condition of any ac q u irin g p erso n m ay jeo p a rd iz e th e financial stability of the bank or the interests of its depositors. 2. C om petence, experience or in tegrity of an acquiring person or p ro posed m anagem ent indicate the ac quisition would not be in the interest of bank depositors or the public. F ailu re to subm it th e application triggers the $10,000-per-diem penalty for an unapproved acquisition effort and, of course, if no application is sub- MID-CONTINENT BANKER for December, 1982 H . B oykin, D allas F e d p re s id e n t; Banking Products Managers m itted, no approval can be retu rn ed . K. A. Randall, im m ediate past p resi M oreover, in th e latter case, th e agen Merge Their Association d en t of th e C onference Board, form er cy may reso rt to a court to halt th e With BAI Research Arm F D IC chairm an and p re se n tly vice acq u isitio n itself. H o w ev er, cou rts chairm an, N ortheast B ancorp., Stam T he B anking P ro d u cts M anagers have split as to w h e th e r m anagem ent ford, C onn.; John J. K endrick Jr., D al of a ta rg e t b ank m ay re so rt to th e A ssociation (BPMA), a W est C oast las attorney; and R. Richard Ruboto rg an izatio n , has m e rg e d w ith th e c o u rts to blo ck th e n o n c o m p ly in g tom , political science professor em er C e n te r for Cash M anagem ent Studies effort of a raider. T he la tte r circum itus, Southern M ethodist University. stances raises th e $64 question: W hat at the Bank A dm inistration Institute. Topics on the program will include The BPMA was form ed in 1981 to is a bank d irector to do w hen he or she th e deregulation m ovem ent, th e state learns that a hostile takeover is afoot, address the needs of banking profes of banking, the future of com m unity sionals in th e p ro d u ct-m an ag em en t probably proceeding surreptitiously? banks in a deregulated environm ent, Case law is clear enough as to w hat discipline. Its m em bers, rep resen tin g th e outlook for banking legislation and should not be done, and th at is to fire m ajor banks, now are operating as a challenges facing bank directors. standing subcom m ittee u n d er th e c en up the bank p re sid e n t to w rite a le tte r Site of th e assem bly is th e Boca te r’s auspices. to all sto ck h o ld ers d e n o u n c in g th e Raton H otel and Club. The C e n ter for Cash M anagem ent raider, th e takeover effort and placing Studies, founded in 1979, provides re a conjectural dollar value on th e bank s stock that is, of course, well above th e search, education and reference facili Arkansas Banks Win Big ties relating to the delivery of cashraid er’s asking price. On Usury-Ceiling Issue m anagem ent products and services by To be sure, raiders and acquisition LITTLE ROCK — Arkansas voters efforts are to be taken seriously, b u t to com m ercial banks to th eir corporate m ade it clear that they favored increas custom ers. date the law seem s clear th at directors ing the usury-rate ceiling in th eir state T h e fo rm e r h e a d of th e BPM A, are not req u ired to keep a for sale C hristopher S. W inter, vice p resid en t/ at last m onth’s election. They voted by sign in the bank s w indow and, indeed, may com m it them selves to a policy treasury m anagem ent services, Bank a near-60% -40% m argin to increase th at the bank is not for sale and that of America, San Francisco, will be a the rate from 10% to 17% for consum er m em b er of th e product-m anagem ent loans. The vote also ensu red that the w hile friendly takeover bids will be considered, hostile ones will be re subcom m itee as well as th e cen ter s rate for agricultural and com m ercial cash-m anagem ent com m ittee, an ad loans be pegged at five points over the sisted. visory group of senior cash-m anage F ed discount rate. The new rates b e Still a th ird datum , also clear enough come effective D ecem b er 3. m ent bankers. to date, is that a d irector has no liability Voters in 62 of th e state’s 75 counties In addressing the education and in to a disgruntled stockholder for the form ation needs of product-m anage favored the increase, says Ken Parker am ount of th e inevitable fallback in th e targ et’s stock th at occurs after a suc m en t professionals, the subcom m ittee of the Arkansas Bankers Association. cessful resistance effort to a hostile te n will explore subjects ranging from the M r. P a rk e r c re d ite d th e efforts of organizational role of p ro d u ct m an m e m b e rs o f th e A rk an sas F a rm d er offer. Bureau for p u ttin g th e vote over the T he first line of defense against such agers to n ew -p ro d u ct developm ent, m arket-research techniques and p ro d top. Two years ago, a similar m easure efforts w ould be to run the b est bank lost w hen only 45% of th e voters w ere uct-pricing strategies. p o ssib le w ith a view to e n h an cin g in favor of increasing th e usury ceiling. s to c k h o ld e rs ’ in te re sts . H o p efu lly , At that tim e, the Farm Bureau did not this policy w ould, itself, secu re an support the issue. appreciation calculated to repel b lan Assemblies for Bank Directors An extensive advertising program d ish m e n ts to stockholders. B eyond Changes January Meeting Site was conducted during th e campaign this, th e re are a variety of options a The site for the January 13-16 ses and both candidates for governor and board m ay w ant to consider. T hese may range from p ro cu rem en t of a te n sion of th e Assemblies for Bank D irec the entire congressional delegation in d er-o ffer-d efen se-ex p en se in surance tors has b een changed from Mexico Arkansas supported th e increase, Mr. Parker says. policy and retaining — in advance — C ity to Boca Raton, Fla. T he assem bly will focus on critical tender-offer-defense legal specialists Guatemalan Indian Exhibit who may devise a “sh elf defense plan. issues facing the banking industry and its fu tu re in a deregulated environ Featured in Bank Lobby O th e r defensive ploys th a t d efense counsel doubtless may w eigh are th e m ent. A four-w eek exhibit of folk life of Am ong th e speakers appearing at possibility of fusing security-act viola G uatem alan Indians was staged re tions w ith banking-law provisions, ex th e assem bly will be H. Joe Selby, cently in the lobby of S outhern N ation senior d ep u ty com ptroller of o p era ploiting potential an titru st tran sg res al, H o u sto n . T h e e x h ib it in c lu d e d sions and bringing libel actions for im tions in th e office of th e C om ptroller of m ore than 100 hand-w oven native tex provident statem ents m ade in th e heat th e C urrency; John G. H eim ann, for tiles along w ith a collection of folkloric m er C om ptroller and now chairm an/ of the takeover effort. and religious items. To be sure, from the famous Texas executive com m ittee, W arburg, Pari It was sponsored in cooperation w ith bas & Becker, In c ., New York City law G ulf Sulphur case to th e day of hostile th e Texas C ultural Alliance and con takeovers, a bank d irector s job has in firm; past ABA P resident Lee E. G u n trib u to rs of A ntiqua G uatem ala and derson, p resident, Bank of Osceola, creased in com plexity and difficulty. was a joint effort betw een the people of T he bottom line rem ains abundantly W is.; G erald M. Lowrie, the ABA s Texas and Guatem ala. clear, and now, as th en , th e form ula for executive director for governm ent re T he exhibit was endorsed by schol success and safety rem ains th e same — lations; and C. C. H ope J r ., vice chair ars of C en tral A m erican cu ltu re in b eh av in g w ith reasonable d iligence m an, F irst U nion National, C harlotte, Texas and the M inistry of Education in and punctilious honesty and consult N . C ., and a past presid en t of the ABA. G uatem ala. Also scheduled to speak are R obert ing counsel w hen in doubt. • • MID-CONTINENT BANKER for Decent sr, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 69 Bright Economic Future in Store For U. Sv Says Arthur Laffer N th e m idst of all th e econom ic gloom now p erm eatin g the nation, one eco n o m ist— Dr. A rthur B. Laffer Econ om ist A rth u r B. — has p ainted a brig h t fu tu re for the Laffer is p ictured U. S. H e spoke to about 250 bankers, sp eak in g at sem in ar bu sin essm en and professionals at a sponsored by First sem inar sponsored O ctober 28 by F irst Nat'l, Salina, Kan. National, Salina, Kan. The p re se n ta tion by Dr. Laffer was th e first in a series of P. R. O. F. I.T. (professional re sponses on finances, investm ents and trusts) to be sponsored by th e bank. The series is designed to b enefit the fessor estim ated, causes a deficit of $25 com m unity by providing tim ely and billion to $30 billion because of re p e r tin e n t fin a n c ia l in fo rm a tio n to duced tax revenues and larger govern those participating. m en t expenses for benefits to the u n D r. Laffer, professor of business em ployed. In contrast, he pointed out, econom ics, U n iv ersity o f S o u th e rn d u rin g th e T rum an A dm inistration, California and C harles B. T hornton, th e re w ere strong grow th and lower professor of business econom ics, said inflation after W orld W ar II, and the th e Reagan A dm inistration’s and m any K ennedy years produced the 1960s’ states em phasis on stren g th en in g p ri econom ic expansion. In all cases, he vate incentives through tax-rate re d u c m aintained, inflation was low, and the tions, if continued, will lead to an eco federal b u d get was nearly balanced or nomic expansion starting in 1983 and in surplus. accelerating in 1984. This expansion, In answ er to why the econom y still is he continued, will m ake th e “go-go touching th e bottom of the recession, 1960s’’ look tam e. D r. Laffer said supply-side economics Dr. Laffer believes th e key is in th e hasn’t had tim e to work. O nly a slight retu rn to private incentives for p ro tax cut actually has taken place. Thus, duction, saving and investm ent. Such production and spending are being d e grow thist policies will resu lt in an layed by m any businesses and consum expanding econom y in w hich people ers until th e 10% tax cuts scheduled for on all incom e levels will b enefit g re a t 1983 and 1984 becom e realities, p ro ly. H e contrasted this philosophy w ith viding th e n eed ed incentives and af the “red istrib u tio n ist” ideas th at have ter-tax income. held sway since th e late 1960s. By H e believes falling inflation and in trying to tax m ore from som e to give te re st rates are healthy developm ents, benefits to others, he co ntended, poli b u t they also cause people to delay cies of th e last decade have produced credit-financed spending decisions u n shrinking grow th, high inflation and til they can get even low er in terest in te re st rates and rising u n em p lo y rates they expect in the near future. In m ent. A lthough C ongress k e p t th e short, said Dr. Laffer, w hen in terest A dm inistration from g ettin g th e tax rates level off and tax cuts are in place, cuts it w anted im m ediately, D r. Laffer th e econom y will boom. sees evidence in state and local gov As for inflation concerns, he pins his ern m en t actions around th e country optim ism on a new facit in m onetary that the political tide has tu rn e d to policy. H is classical eco n o m ic ap w ard low er taxes and, as a result, m ore proach calls for the F ed to stabilize the grow th in th e economy. value of m oney by using its policies to In response to concerns about the peg th e price of one or m ore com m od large federal-budget deficit m any fear ities. Slow er inflation has re su lte d as a consequence of tax cutting, Dr. from th e F e d ’s policy of slow grow th of Laffer argued th at b u d get deficits are a th e m o n ey su p p ly , b u t D r. Laffer result of a sick econom y and m isguided thinks this “q uantity” approach can be policies, not the cause. C iting as exam d a n g e r o u s ly m is le a d in g in th e s e ples the period ju st after W orld W ar I tu rb u le n t tim es. Instead, as detailed in and th e 1930s D e p re ssio n , he o b his O ctober 28th W all Street Journal served that high tax rates thw arted in article, he sees the F ed beginning to centives and dep ressed the economy. follow a policy guideline of keeping the E very 1% in unem ploym ent, th e pro- “spot com m odity index” w ithin a spe I cific range. This is similar to fixing the price of gold, and Dr. Laffer contends this will result in stable prices and, w ith it, m ore stable in terest rates. • • Youngsters Break Ground; Find Money to Keep At Bank-Facility Site W hen Am erican Bank, Tulsa, m ade plans to break ground for its new driveup facility, the bank decided to have children do the digging instead of the usual bank officers and civic leaders. To give the youngsters an incentive to w ield the shovels, the bank “p lan ted ” envelopes containing $20, $10 and $5 and told the children that w hatever they dug up they could keep. The children, ages seven to 12, w ere from the Salvation Army M abee Boys’ Club (however, girls, too, w ere w el come). M iniature Am erican flags indi cated w here the envelopes could be found. “W e chose to use th e flags as land m ark s,” says John L. O ’B rien, th e bank’s chairm an/C E O , “in th e hope that no one w ould go away em ptyhanded. N evertheless, any youngster who didn t find an envelope did re ceive a five-dollar bill. Initially,” Mr. O ’Brien points out, we had thought of having our em p lo y ees p a rtic ip a te in th e g ro u n d breaking, b u t we w anted to make it m ore of a com m unity event. Including th e M abee Boys C lub in the celebra tion not only accom plished this, but, at the same tim e, allowed us to serve needy youngsters.” Unusual ground-breaking w as held for new drive-up facility of American Bank, Tulsa, with children, instead of usual bank officers and civic leaders, wielding shovels. Youngsters were motivated by fact that envelopes containing $20, $10 and $5 bills were buried at site where they were to dig. Whatever they found, they kept. HP K y . - s a J ’' 70 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 Help Stamp Out Director Liability Risk With These Board-Related Manuals CO RPO RATE ETHICS . . . What Every Director Should Know. $23.00 Society is demanding more disclosure from all businesses, including banking. Thus, bankers literally are forced to re-exam ine policies on types of information that can be disclosed publicly. The board's disclosure policy can be a major factor in the public's judgment of a bank. The fact that a bank is willing to discuss . . . or make public . . . any of its actions will encourage high stan dards of conduct by the bank staff. This manual (over 200 pages) will help directors probe "grey” areas of business conduct so that directors can establish written codes for their own bank. The Effective Board Audit W h a t E v e r y D ir e c t o r Conflicts of Interest S h o u ld K n o w A b o u t For Director! and Officer! of Financial It CORPORATE ETHICS ^ RISK MANAGEMENT BANK BOARD $19 □f LOAN POLICY in $ 17.50 _ QUAN TITY PRICES 2 - 5 copies — $21.00 ea. 6 - 10 copies — $19.50 ea. BOARD PO LICY ON RISK MANAGE MENT. $17.50 This 160-page manual provides the vital information a board needs to formulate a system to recog nize insurable and uninsurable risks and evaluate and provide for them. In cluded are an insurance guideline and checklists to identify and protect direc tors against various risks. Bonus fea ture: A model board policy of risk management adaptable to the unique situations at any bank. Every member of your bank's board should have a copy! THE BANK BOARD AND LOAN POLICY. $12.00 (Fourth Edition) Recently off the press! This revised and expanded manual enables directors to be a step ahead of bank regulators by providing current loan and credit poli cies of numerous well-managed banks. These policies, adaptable to any bank situation, can aid your bank in estab lishing broad guidelines for lending officers. Bonus feature: Loan policy of one of the nation's major banks, loaded with ideas for your bank! Remember: A written loan policy can protect direc tors from lawsuits arising from failure to establish sound lending policies! Order enough copies for all your direc tors! Q UAN TITY PRICES 2 - 5 copies — $15.50 ea. 6 - 10 copies — $14.50 ea. THE E F F E C T IV E BOARD AUDIT. $19.00 This 184-page manual provides comprehensive information about the directors' audit function. It outlines board participation, selection of an audit committee and the magnitude of the audit. It provides guidelines for an audit committee, deals with social re sponsibility and gives insights on en gaging an outside auditor. It includes checklists for social responsibilities audits, audit engagement letters and bank audits. No director can afford to be without a copy! QUAN TITY PRICES 2 - 5 copies — $17.00 ea. 6 - 10 copies — $16.00 ea. QUAN TITY PRICES 2 - 5 copies — $10.00 ea. 6 - 10 copies — $9.50 ea. CO N FLICTS OF IN TER EST. $12.00 (Third Edition) Conflicts of Interests presents everything directors and o ffi cers should know about the problem of "conflicts." It gives examiners'views of directors' business relationships with the bank, examines ethical pitfalls in volving conflicts and details positive actions for reducing the potential for conflicts. Also included is the Comp troller's ruling on statements of busi ness interests and sample conflict-ofinterest policies in use by other banks which can be adapted by your board. Q UAN TITY PRICES 2 - 5 copies — $10.00 ea. 6 - 10 copies — $9.50 ea. THE BANK BOARD LET T E R 408 Olive St., St. Louis, MO 63102 ............copies, Board Policy on Risk Management ............copies, The Effective Board Audit ............copies. Bank Board & Loan Policy ............copies, Conflict of Interest ............copies, Corporate Ethics Total Enclosed $ $ $ $ $ $ N a m e .................................................................................................................... Title Bank.................................................................................................................................. Street .............................................................................................................................. C ity, State, Z ip .......................................................................................................... (Please send check with order. In Missouri, add 4.6% tax. t » « MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis $12 71 News A b o u t B a n ks a n d B a n k e rs A labam a Senior Citizens Feted Farmers & Merchants, Centre, recently held its annual '60-Up' party for senior citizens. Bingo, refreshments, entertainment and door prizes highlighted the afternoon event, which w as attended by 135 '60 up pers.' Brock Receives Award Harry B. Brock Jr., chairman/ CEO, Central Bancshares of the South, Birmingham, recently re ceived the 1982 Birmingham Lions’ Club community pride award. Mr. Brock was selected because of financial innovations and changes he has been instrumental in bringing to the state and for generosity shown to the community through gifts of time and contributions to various char ities and his church. Central Bank ol the South, B irm ing ham , has appointed five businessm en to its M obile board: D onald G. Bigler, Gary L. Bornfleth, Jim M attei, James Roger Payne and Ray J. Sumlin. They are p residents, respectively, of Tele- d y n e C o n tin e n ta l M otors, A ircraft Products Division; D atsun of Mobile; Bay T itle In su ran ce C o.; Jam es R. Payne, Inc., road-building firm; and Ray Sumlin C onstruction Co. First Alabama Bank, M ontgom ery, has p ro m o te d O. Tony P ittm an to a s s is ta n t c a s h ie r/b ra n c h m a n a g e r, D avid A. T urney to assistant branch officer and Clifton Norris Jr. to assis tan t cashier. Arkansas Shareholders Approve Merger Of Two Little Rock Banks In separate m eetings held recently, sh a re h o ld e rs of C o m m ercial Bankstock, Inc., and F irst N ational Banesh ares, In c ., b o th in L ittle Rock, approved the m erger of the two bank HCs and the related m erger of their national-banking subsidiaries — C om m ercial National and F irst National, L ittle Rock. Target date for com pletion of the equal-partner m erger has b een set for D ecem ber 31, subject to approval of regulators. P roposed nam e for th e resu ltin g bank HC is F irst C om m ercial Corp. The m erged bank will be known as F irst Com m ercial Bank, N. A. The new bank will have about $60 million in capital accounts, including sharehold ers equity and o th er capital resources. Independent Bankers Assn. Organized in Arkansas Call Wilbur Hufham, President of First Alabama Bank of Montgomery. For your correspondent needs, 2 0 5/8 32 -8 2 18 . Personal Banking From Professionals. R isi/ Alabama Bank of Montgomery^ V ita m e 72 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A group of com m unity bankers from all sections of Arkansas m et in Little Rock last m onth to form the In d e p e n d en t C om m unity Bankers Association of Arkansas. Serving as presid en t of the associa tion is Al H arkins, executive vice p re s ident, F irst National of Poinsett C oun ty, Trum ann. “W e are not form ing this group for th e purpose of opposing all changes in bank structure, b u t I think we all real ize that the tim e has com e for the in d e p en d en t bankers of this state to have MID-CONTINENT BANKER for Decem ber, 1982 an articu la te voice as th e A rkansas B ankers A sso ciatio n an d th e s ta te legislature begin discussions of bank structure. W e do not in ten d to be a negative organization, b u t we will not sit idly by and let th e in terests of in d e p en d e n t banking, w hich have so ably served this state over th e years, be com prom ised away in th e nam e of in ev itab ility and p ro g re s s ,” said M r. Harkins. Also serving th e association as offic ers are Larry K ircher, vice p resid en t/ cashier, Citizens State, Bald Knob — vice presid en t; Jam es S treet, execu tive vice p resid en t, Bank of Cave City — secretary; and M. E. M cCoy Jr., p resid en t/tru st officer, G rant C ounty Bank, Sheridan — treasu rer. The organization will have tem p o rary offices at F irst N ational of P oinsett C ounty, b u t a p erm an en t office is ex p ected to be op en ed in L ittle Rock w hen an executive d irecto r is hired. H C. U n d er th e agreem ent, w hich b e cam e effective N ovem ber 1, System at ics will service th e H C ’s th re e banks: Colonial Bank and All A m erican Bank, both of Chicago, and N orthw est C om m erce Bank, R osem ont. T he banks will operate totally on-line, tran sm it tin g by pho n e lines to System atics data ce n te r in L ittle Rock. They also will have a centralized proof operation using an NCR VIPS system and will be se rv ic e d o u t of S ystem atics L ittle Rock financial center. N orthern Trust, Chicago, has p ro m oted G regg D. B ehrens, G erald P. H arbison and N orm an J. W ohlken to vice presidents and appointed Charles B. H intz a vice president. N orthern T rust C orp., paren t of the bank, has c o m p leted p u rch ase of F irst Bank, N aperville, w hich has nam ed S tephen E . G ie re p r e s id e n t/d ir e c to r . M r. G iere is a form er vice p resid en t at N o rth w est C o m m erce Bank, R ose m o n t. T h e b an k w ill b e re n a m e d N o rth ern T rust Bank/N aperville fob National Bank o f C om m erce, Pine Bluff, has nam ed Jam es F. Stobaugh p re sid e n t and C arl F. C o o p er vice chairm an of th e board and chairm an of th e execu tiv e co m m ittee. M r. Sto baugh previously was executive vice p residen t and M r. C ooper had b een presid en t since 1980. T hey jo in ed the bank in 1968 and 1963, respectively. Illinois First Colonial Bankshares C orp., C h i cago, and S ystem atics, In c ., L ittle Rock, have signed a five-year contract u n d er w hich System atics will provide rem ote data-processing services to the C. Paul Johnson (seated, I.), pres./CEO, First Colonial Bankshares Corp., Chicago, signs contract with Systematics, Inc., Little Rock, which w ill provide remote dataprocessing to First Colonial's banks for five years. G erald D. H ailey, s.v.p./remoteservices division, Systematics, is seated at right. Standing are Glen F. Marino (I.), v.p./ fin a n ce, C olo nial Bank, Chicag o , and Raymond J. Oblinger, Systematics market ing mgr. MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Springfield Marine Bank ...bigger than most big-city banks. There are about 400 banks in the Chicago area. Only 8 of them are bigger than Springfield Marine Bank.* And that makes Marine Bank big enough to handle just about any correspondent bank need. In addition to size, Marine has financial sophistication that wears a smile. You don’t have to go to Chicago or St. Louis for cash letter services, or overline support on agricultural and commercial loans. You’ll find it all at Marine. Marine also has stability. We re the oldest bank in Illinois. We’ve been here through the good times and the bad. We’ll be here for a long time to come. Put size, sophistication and stability to work for your bank. Call Bart Solon (217) 525-9719, Don McNeely (217) 525-9717 or Doug Brown (217) 525-9716. ‘ According to an announcem ent by the American Banker, Springfield Marine Bank was the 9th largest in deposits in Illinois on Decem ber 31, 1981. S P R IN G F IE LD Marine Bank E a s t O ld S t a t e C a p i t o l P l a z a S p r in g f ie ld , Illin o is 6 2 7 0 1 (2 1 7 ) 5 2 5 - 9 6 0 0 M e m b e r F D I C 73 lowing regulatory approval. Bank Changes ID First National, B elleville, has p ro m oted Mel W eek to executive vice p resid en t and Byron Baker, Jan G edda and Tom L ittek en to assistant vice presidents. First Bancshares Corp. o f Illinois, Alton, will purchase A irport National, Bethalto. F irst Bancshares is p aren t of F irst National, Alton. The acquisition is expected to be consum m ated early next year. National Boulevard Bank, Chicago, has elected Bichard T. M errill, p re si d e n t/C E O , C o m m e rc e C le a rn in g H ouse, to its board. The bank also has p rom oted Jam es C annon to assistant vice p residen t/sm all-b u sin ess group m anager, Larry Schm idt to assistant vice p resident, M ichael Jam ieson and Carol S hiplett to assistant cashiers and Bruce H eniken to assistant tru st offic er. THE CITIZENS NATIONAL BANK O F DECATUR Indiana St. Joseph Valley Bank, E lkhart, and F irst National, G oshen, have m erged and now are known as M idw est C om m erce Banking Co. ILLINOIS’ LARGEST BANK DATA PROCESSOR Thomas M. Payne has been elected senior vice president/corporate bank ing at M idw est C om m erce Banking Co., E lkhart/G oshen. H e joined one of th e ban k ’s predecessors, St. Joseph Valley Bank, in 1973 and m ost recently was vice president/com m ercial loans. • SERVING OVER 75 BANKS FROM DECATUR AND QUINCY CENTERS. A C O M P L E T E O F F E R IN G O F A P P L IC A T IO N S — B O T H B A T C H A N D O N - L IN E . • SERVING OVER 145 BANKS WITH CORRESPONDENT AND/OR DATA SERVICES. Kansas The Kansas Bankers Association has appointed Becky S. Tongish personnel coordinator and Kathie A. File educa tion coordinator. Ms. Tongish form er ly was w ith M erchants National, T ope ka. She has been w ith th e KBA for two years, serving as adm inistrative assis tant to the executive vice president, H arold Stones. Ms. File joined the KBA in 1980 and has been adm inistra tive assistant to the director of educa tion and acting education/personnel coordinator. • SERVICE THAT IS CLOSE — FAST — AND PROFESSIONAL — BUT NOT ‘BIG CITY’! CA LL U S FO R PRO M PT A T T E N T IO N : 2 1 7/424 -221 1 R O N A L D L . S C H E E T Z — D A T A S E R V IC E 2 1 7/424 -206 1 D A L E P . A R N O L D — C O R R E S P O N D E N T 2 1 7 /4 2 4 -2 0 3 7 J A C K D O LA N — C O R R E S P O N D E N T THE CITIZENS NATIONAL BANK OF DECATUR LA N D M A R K M ALL D E C A T U R , IL L IN O IS 6 2 5 2 5 UJt'hzIwiztô'IwJÜp https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Security State, G reat Bend, will raze th e bank-ow ned office building at 1615 M ain S tre e t. T h e b u ild in g is im m e d ia te ly so u th of th e m ain b ank building. Plans call for construction of additional drive-up lanes and o th er services in th e area occupied by the office building. First National, Law rence, has p ro m oted D avid B unker and P ete Adrian to assistant vice presidents. Mr. Bunk e r also is com m ercial loan officer and Mr. Adrian also is real estate loan offic er. M em ber F D IC ______ 74 National Boulevard Bank, Chica go, is changing its name and logo to keep up with changing times. It’s also redesigning its quarters. The bank will be referred to as Boulevard Bank” and a new corpo rate theme has been developed: Earning you business every day.” The theme is being carried in news paper and radio ads. The bank’s two towers will be re designed, beginning with the South Tower, which will be headquarters for all personal banking and teller operations. The North Tower will house executive banking and for ward financial planning services. The project is expected to be com pleted by spring. Daniel H. Corman has been nam ed MID-CONTINENT BANKER for Decem ber, 1982 coordinating agricultural-overline re lationships, including livestock financing/agricultural-operational expenses. In addition, Mr. Richm ond is a liaison b e tw e e n Kansas bankers and C om m e rc ia l N a tio n a l’s c o r r e s p o n d e n t banking d ep artm ent. A Kansas banker 11 years, Mr. Richm ond m ost recently was vice p resident/agricultural le n d ing in a rural bank in the state. Before th a t, h e was in th e c o rre sp o n d e n t banking d ep artm en t of another major Kansas bank. Investment Center Opened Com m ercial N ational, Kansas City, has opened its new investment center, which is designed to provide a variety of services to consumers, including correspondent bankers, trust customers, commercial lending customers and individual investors. “Consumers now will have access to all investm ent officers in one physical location as opposed to hav ing to visit a number of officers in different locations in the bank, ” said Bernard Ruysser, president. Among the services offered at the investment center are bonds, CDs, m oney-m arket instrum ents, eq uities, fed funds, repos and trust in vestments. K entucky presid en t of F irst National, D erby. H e joined th e bank in 1979 as vice president/cashier and has b een senior vice president/cashier since 1980. Assaria State has op en ed a new facility that is six tim es as large as th e form er office. D e c o r f e a tu r e s in c lu d e a cashier’s cage taken from th e bank s original building, op en ed in 1902, lead crystal transom s and a wall hanging fe a tu rin g b rass w h e a t d esig n s. An open house was held to exhibit th e new building to th e b ank’s friends and cus tom ers. Citizens Union National, Lexington, has changed its nam e to U nited A m er ican Bank of Kentucky N.A. The bank h as jo in e d th e U n ite d A m e ric a n G roup, w hich is com posed of five in d e p e n d e n t b a n k s in L e x in g to n an d Som erset, Ky., and Knoxville, M em phis and C hattanooga, T enn. C om bin ed assets of th e banks are m ore than $1.3 billion. American Bank, Lexington, is upgrad ing the area surrounding its office in th e Beauz-Arts Building. A building to th e rear of th e Beauz-Arts structure was dem olished to make room for the bank’s drive-in and a walk-up window. The bank also will regrade its parking lot. Louisiana RICHMOND Paul L. Richmond has joined C om m ercial National, Kansas City, as vice p resid en t/a g rib u sin e ss len d in g divi sion. H e works closely w ith C o m m er cial N ational’s corresp o n d en t banks in Great American Corp., Baton Rouge, has announced the retirem en t of Max Pace as president/chairm an, Am erican Bank, and nam ed L. Q uincy M cP her son vice chairm an of G reat Am erican and p resid en t of Am erican Bank. Ben W. Rawlins was nam ed presid en t of th e H C and chairm an of th e bank. M e s s rs . R aw lin s a n d M c P h e rs o n form erly w ere w ith U nion Planters C o rp ., M em phis, p a re n t of U nion P lanters National. Mr. Pace will re m ain on the board of th e H C and serve as a consultant to the bank. First Guaranty Bank, H am m ond, has ele c te d M ary Ann Cefalu chairm an and J. S. M ashburn vice chairm an. Richard R. Blouin, cashier, was nam ed board secretary. F rederick F. C arp en te r Jr. has rejoined the bank as vice president; E rn est R. M cCorm ick has b een nam ed assistant vice p resident/ au d ito r; E lain e L. G rice has b e e n prom oted to investm ent officer, and Brad A. M artin has joined th e bank as credit d ep artm en t m anager. Directors of F irst C om m erce Corp. and New O rleans Bancshares, parent firms of F irst National Bank of C om m erce and Bank of New O rleans, have approved a definitive ag reem en t to m erge the two banks. Shareholders of the two firms will m eet in January to consider the m erger and final regula tory approval is expected as early as M arch, 1983. M ississippi Brookhaven Bank has nam ed Gloria B ritt branch m anager and M ary M. Sm ith, assistant cashier, as training director. Bank of Falkner has b een acquired by Falkner Capital C orp., a new HC. M issouri Centerre Bank, St. Louis, has nam ed Paul L. G ibbons, Joel B. M iller and Jam es J. Thole assistant vice p resi dents. Mr. G ibbons form erly was an investm ent banking officer. Mr. M iller h a d b e e n w ith U n io n C o m m e rc e Bank, Cleveland, w here he was vice p re sid e n t and m anag er/d ep o sit ser vices group. Mr. Thole joined C en terre as assistant vice p resident/internal cash m anager after leaving EAC C o r p ., w h e re h e w as c o n tr o lle r / treasurer. Thomas A. W allingford has jo in ed Kansas C ity’s C om m erce Bank as vice N makes banking more profitable fo r you! CNB COMMERCIAL NATIONAL BANK Minnesota Ave. • Kansas City, Kansas 66101 »Member F.D.I.C. MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 75 p resid e n t and head of th e personal tru s t d e p a rtm e n t. H e has b e e n in banking IV 2 years and form erly was vice p resid en t/tru st officer at a Kansas C ity -a re a b a n k . C o m m e rc e B ancshares, h ead q u artered in Kansas City, has elected G ene F. H ahn vice p resi dent in charge of loan adm inistration and Jam es L. Sw arts assistant vice p re s id e n t w ith re s p o n s ib ilitie s for affiliate b an k a d m in is tra tio n . M r. H ahn had b een vice p re sid e n t and m a n a g e r /r e a l e s ta te d e p a r tm e n t, C om m erce Bank, Kansas City. Mr. Swarts had b een an attorney for the holding com pany’s legal d ep artm en t. U nited M issouri, Kansas C ity, has prom oted Bradley A. Bergm an to vice presid en t/p erso n al financial services division; Janet K. Kelley to vice presid e n t/c o m p tro lle rs d e p a r tm e n t and David Swan to vice p re sid e n t/tru st d e partm ent. The bank also has a new director, R obert E. G regory Jr., p resi dent, Lee Co., Inc. The bank’s H C, U n ited M issouri B an csh ares, In c ., Kansas City, and F irst National, St. Charles, have m utually agreed to end efforts tow ard U nited M issouri Bancshares’ acquisition of th e St. C harles Bank. C harterC orp., Kansas City, has re ceived th e Kansas City F e d ’s approval to acquire City Bank and A m erican National, both in St. Louis. The two banks are being acquired through an exchange of shares, w ith C h arterC o rp seeking 100% of each bank’s voting shares. M erca n tile T ru st, St. L o u is, has nam ed these assistant vice presidents — R o b ert J. A llscheid, G. A. W il liams, Adrian I. Dick and Patricia A. Fischer. Mr. Allscheid joined th e bank in 1969, Mr. W illiams in 1973 and Mr. Dick and Ms. F ischer e arlier this year. In o th e r a c tio n , M e rc a n tile T ru s t nam ed Assistant Vice P resid en t Sue T. McSwain head of th e new ly organized econom ic developm ent/sm all business group. This unit will focus on financial needs of businesses w ith annual sales up to $5 million. Safe-Deposit Purchase ST. LOUIS — Centerre Trust has acquired the Safe Place, a safedeposit-box center located in Frontenac, a St. Louis suburb. The com pany has been renamed Centerre Safe Deposit Co. and is a wholly owned subsidiary of Centerre Trust. The facility is a maximum-security safe-deposit-box center open seven days a week, and it offers a wide assortment of private safe deposit boxes, including the largest in the St. Louis area, according to a trust company spokesperson. The boxes range in size from 5x10x24 inches to 30x60x32 inches. Pinkerton guards are on the prem ises during the center’s hours of op eration, and sophisticated monitor ing systems are in constant use. A dual-identification system ensures that security areas are entered only by the company’s clients. The vault is humidity/temperature controlled, and heat and vibration sensor alarms are wired directly to the Frontenac Police Department. As an extra safe guard, a radar alarm alerts security personnel w henever the parking area is entered. J. Douglas Hauser has joined Joplin’s F irst National as a tru st officer. H e w en t th e re from C harterB ank, C ar thage, w here he was vice p resident/ tru st officer. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Michael R. Stanford has joined F irst National, Santa Fe, as vice p resid en t/ com m ercial lending for the bank and its H C, New Mexico B anquest Corp. H e fo rm erly was in co rre sp o n d e n t banking at Colorado National, D en ver. Oklahom a Edward F. K eller, ch airm an/C E O , F o u rth National Bank, Tulsa, also has b e e n n am ed to th o se posts in th e bank’s H C, F o u rth Financial C orp., Tulsa. C urrently president, Oklahom a B a n k e rs A sso c ia tio n , M r. K e lle r joined F ourth National last sum m er from M ercantile Bank, Tulsa, w here he was chairm an/C EO . In o th er HC action, Susan B. Brown was nam ed s e c r e ta r y /tr e a s u r e r . At th e b an k , R obert J. Roesler was nam ed senior vice p re s id e n t/s e n io r tru s t officer; R ichard J. M iller senior vice presid en t/co m m ercial len d in g and m ana g er/en erg y d e p a rtm e n t; R osem ary O rth vice president/investm ents, and Rebecca A. Dooley assistant cashier/ in v estm en t operations. Mr. R oesler jo in e d th e b an k in 1978 an d Ms. Dooley in 1979. Mr. M iller form erly was w ith G eorge Rodman, Inc., an in d e p en d en t oil/gas p roducer in O klaho ma City. Ms. O rth has nine years of banking experience. Died: Alex V etter, 79, on N ovem ber 8. H e joined C entral Bank, Jefferson City, in 1918 as a mail clerk and rose to chairm an before retiring in 1973. Mr. V etter rem ained an advisory director until his death. New Mexico F irst C ity F in a n c ia l C orp . has announced that its com m on stock has been listed for trading on th e NAS D A Q sy s te m u n d e r th e sy m b o l, F C F N . The NASDAQ system is the com puter-assisted quotation system of th e National Association of Securities John Thiebauth has been elected ex D e a le rs. In o th e r a ctio n , th e H C ecu tiv e vice p re s id e n t, C o m m erce prom oted J. Alan H unton to executive M anchester Bank, St. Louis. H e re vice presid ent/secretary and John T. mains president, C om m erce Bank, St. P o rte r to executive vice p re sid e n t/ general counsel. Mr. H unton has been Louis. with F irst City Financial and its affili Murray H. Davis, who was p resid en t/ ate banks since 1976, w hen he joined c h ie f o p e ra tin g officer, M e rc a n tile First National of Lea C ounty, H obbs, Bank, Kansas City, has m oved up to as assistant vice p resid en t. H e has vice ch airm an . M ichael D. W olfe, been w ith the H C since it was estab fo rm erly ex ecu tiv e vice p re s id e n t/ lished. Mr. P o rter jo in ed th e H C ’s senior lending officer, succeeds Mr. staff last May, com ing from a position D avis as p re s id e n t/c h ie f o p e ra tin g as a p a rtn e r in a law firm in Hobbs. officer. F irst City Financial has affiliate banks 76 in H obbs, Carlsbad, Roswell, Ruidoso and A lbuquerque. L iberty National C orp., O klahom a City, has announced a plan w hereby its shareholders will be able to reinvest th e ir q u arterly cash dividends at a price 5% below c u rren t m arket value. F u rth erm o re, any shareholder may in vest — at th e sam e 5% discounted price — additional am ounts m onthly up to $10,000 each quarter. The plan will be initiated w ith the next q u a rte r ly dividend of 250 a share, which is expected to be declared D ecem b er 21 and paid January 19 to stockholders of reco rd January 5. Also at th e H C, G regg D ery has b een e lected vice president. In addition, he has been nam ed vice president/corporate plan ning at the H C ’s subsidiary, Liberty National Bank, w hich he joined last MID-CONTINENT BANKER for December, 1982 A ugust. H e fo rm erly was w ith th e C o m p tr o lle r o f th e C u r r e n c y in W a sh in g to n , D. C. T h e b an k also elected Richard B. F orsh ee vice presid e n t/le g a l d e p a rtm e n t; C la u d ia C. M cM illin a ssista n t vice p r e s id e n t/ com m ercial banking and W illiam H. N elson assistant vice presid en t/co rresp o n d en t banking. Mr. F o rsh ee re tu rn e d to L iberty after a tw o-year ab sence, durin g w hich he w orked for P h illip s P e tro le u m Co. a n d P e n n S quare Bank, O klahom a C ity. Ms. M cM illin w ent to th e bank last A ugust from B oatm en’s Bank of C oncord Vil lage, St. Louis, w here she was assis ta n t vice presid en t/co m m ercial loan officer. M r. N elson has b e e n w ith L iberty since 1979. James L. Edwards has b een nam ed vice presid en t and m anager/stockholders accounting, F irst O klahom a Ban corp., O klahom a City. H e jo in ed F irst O klahom a in 1980 from th e H e rtz Corp. Edw in J. (Jody) Lippm ann Jr. has b een elected vice p resid en t, U nited O klahom a Bank, O klahom a City. H e form erly was self em ployed as an in d e p e n d e n t p etroleum land man. Before that, Mr. L ippm ann was assistant vice p resid en t and loan officer/oil lending division, F irst N ational, O klahom a City. Skip Free has b een p rom oted from vice president/cashier to senior vice p re s id e n t/c a s h ie r, F irst-O k la h o m a Bank, Sulphur. She joined th e bank in 1960. Rick Litterell has joined B artlesville’s F irst National as assistant vice president/real estate and com m ercial le n d ing. H e has had several years’ experi ence in real estate lending and o th er financially related activities. T ennessee Susan Norton has b een p rom oted to assista n t vice p re s id e n t, US Bank, Nashville. F or th e past th re e years, she has m anaged th e bank’s govern m ent-gu aran teed loan program , sp e cializing in sm all-business loans. Joins NBC, Memphis Thomas M. Garrott h a s been n am ed p res., N at'l C om merce Bancorp, and Nat'l Bank of Com m erce, M em p his, effective January 1. He w a s fo rm erly chief financial offic er, Malone & Hyde, Inc., Memphis. HCs' Merger Approved Senior executives of Third Nat'l Corp. and its lead bank, Third Nat'l, both in Nash ville, are shown with the approval total following a special meeting at which stock holders approved a merger with Ancorp Bancshares, Inc., Chattanooga. Ancorp shareholders approved the proposal in a simultaneous meeting at that HC's head quarters. Pictured (I. to r.) are: John E. Southwood, pres, of the HC and v. ch. of the bank; J. G. DeLacey, v. ch. of both the HC and bank; Charles J. Kane, ch./CEO of both; Charles W. Cook Jr., bank pres., and Clifford J. Harrison, bank v. ch. Texas Glenn Strittmatter has b een elected vice p resid en t at F irst National, F ort W orth. H e joined th e bank last July and is assigned to the energy banking group. F rost N a tion al, San A n to n io , has prom oted the following: to vice president/program m ing, D aniel Gonzales; to vice p re s id e n t/d a ta co m m u n ica tions, F red Gonzales; to vice presid en ts/au to m ated cu sto m er services, Rodney D. H aglund and D avid Sablatura, and to assistant vice president/ auditing, Pat Patrick. New officers are M ike Noble, assistant vice p resident/ tru st em ployee benefits, and H arvey J . P en d leto n , assistant vice p resid en t, corporate security. First National, Amarillo, is form ing a bank H C, which will be called F irst Amarillo Bancorp., Inc. R iv er Oaks B ank, H o u s to n , has elected K enneth W. Ostrowski vice p resid en t/tru st officer and Bruce A. Fox tru st officer. Treasury Honors Banker Southwest Bancshares, H ouston, has filed a shelf registration u n d er Rule 415 w ith th e SEC covering $100 m il lion of d eb t securities that may be sold to u n d e rw riters for public offering. Proceeds will be used for corporate purposes. M erca n tile N a tio n a l, D a lla s, has e le c te d S tew art E lliot and R ichard H udak vice presidents and M ary A. T erry adm inistrative officer. Elaine K. Butler, vice p resid en t, Bank of th e S outhw est, has b een elected chairm an of the H ouston Area G roup of th e N ational Association of Bank W om en. F irst vice chairm an is Ila K. O dom , assistant vice p resid en t, Pinem ont Bank; second vice chairm an is R osem ary L o D ato , vice p re sid e n t, C apital Bank; secretary is B eatrice Rios, assistant vice president/cashier, Standard Bank; and treasu rer is B ever ly Sue D uncan, senior vice p resid en t/ cashier, Bank of H arris County. Gerald Andrews has b een elected vice president/com m ercial lending at First C ity Bank, H um ble. Wells Fargo Credit Corp. has opened an office in Dallas, headed by Regional Vice P resid ent G erry Taylor. The firm is a subsidiary of W ells Fargo & Co., San Francisco. MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis First City N ational, H o u sto n , has elected John A. Fields, B illD . M organ and J. Pat Parsons senior vice p resi dents. E lected vice presidents w ere Jerry Graves, Lisa A. H ead, Richard T. H e n d e e , R a lp h D . K irk la n d , R obert E. Long, K athryn F. M artin, Kamala Raghavan and G regory R. Talmadge. Paul Mason (c.), ch., First United Bancorp., Fort Worth, w as honored recently by the Treasury Dept, for his role as 1982 savings bond campaign ch. in Tarrant County. Par ticipation in the Payroll Savings Plan grew by more than 6,000 under Mr. Mason's leadership. At I. is W illiam T. Smith, First United dir., who has been named 1983 ch. At r. is T. J. Morrow, district dir., U. S. Sav ings Bonds in Texas, representing the Treasury Dept. Planters Bank, Salina, Kan., Dedicates Heritage Mural Planters Bank, Salina, K an., has d e dicated a 30-foot m ural that m em orial izes Salina history and decorates the bank’s lobby. The bank w anted to com m ission a painting of historic value as a gesture of thanks to th e com m unity, so it com m is s io n e d E r n s t U lm e r, a w a rd w inning Kansas artist, to execute the work. The work took four m onths and it portrays the visit of Buffalo Bill C ody’s wild W est show to Salina in 1900, the old city hall building w hich no longer exists, an electric trolly car, a steam locomotive, fields of ripening w heat, i >( >.\wN :i k x )i,m in A M ) I p j ) A S S O C IATKS " S u c c e s s f u l B a n k i n g is Q u a l i t y P e r s o n n e l " The following POSITIONS AVAILABLE are selected from over 20 positions I presently have open. They are in Missouri, Arkansas, Kansas, or Oklahoma. BOND DEPARTMENT, SALES & SERVIC ING, Metro Area, Reputable, well estab lished bond department wth excellent long term record. SALARY — Open BOND DEPARTMENT, SALES & ADMIN ISTRATION, Metro Area, Reputable, well established bond department with excellent long term record. SALARY — Open TRUST, VICE PRESIDENT, Requires back ground in EMPLOYEE BENEFIT Marketing and Institutional money man agement. SALARY — To $60,000 COMMERCIAL LOAN OFFICERS, Titles of Vice President, Senior Vice President, requires 4 years minimum Commercial lending and at least one Commercial or Graduate Banking school or MBA. SALARY — Open Contact me for a telephone interview or send resume and letter to DON SCHOOLER, 901 A. W. Jackson, Ozark, Missouri 65721. Phone: 417-485-6020. My reputation is based on confidentiality with every candidate and my personal background includes 18 years in banking as president of rural and metropoli tan banks. M ost do not. A few boards of directors evaluate and m easure the perform ance of the p resident and de-select the p re s ident. Most do n o t.” I t’s my intuitive feeling that boards o f h ig h -e a rn in g , h ig h -p erfo rm an ce banks do estab lish com pany objec tives, strategies and broad policies, that they do ask discerning questions and they do evaluate and m easure the perform ance of the C EO . And th a t’s probably w hy th eir banks are high-perform ing institutions! • • Mr. and Mrs. Richard King (he's a bank director) stand with artist Ernst Ulmer (r.) before Mr. Ulmer's mural depicting herit age of Salina, Kan. Mural is in lobby of Planters Bank and w as commissioned as part of bank's recent remodeling project. Mr. King also is pres., United Missouri Bank, Kansas City. an early grain elevator, a farm er ru n ning an old horse-draw n w heat binder, an Indian hunting buffalo and o ther elem ents reflecting Salina’s heritage. T he m ural was dedicated by a group of com m unity leaders. D irecto rs' Fees (C ontinued fr o m page 6) science d id n ’t b o th er him if he gave only perfu nctory atten tio n to board affairs. T here is some logic in that kind of reasoning. T here is a good bit of tru th in the s ta te m e n t th a t m any d ire c to rs are overpaid for w hat they actually do, b ut underp aid for w hat they are supposed to do! H arvard Professor Myles L. Mace has this to say in his landm ark book, D irectors, M yth and Reality: “A few boards of directors establish com pany objectives, strategies and broad poli cies. M ost do not. A few boards of d ire c to rs ask d iscern in g q u estio n s. Index to Advertisers A m e r ic a n E x p r e s s C o . ( T r a v e le r s C h e q u e s ) ............. A r m c o In d u s t r ia l C r e d it C o r p ........................................................ A rro w B u s in e s s S e r v i c e s .................................................................. A s s o c ia t e s C o m m e r c ia l C o r p ......................................................... 17 35 42 37 B a n k B o a rd L e t t e r ...................................................................... 5 3 , 7 1 B a n k B u ild in g C o r p ...................................................................................’ 3 9 B a n k e r s T r u s t C o ................................................................................ 4 0 - 4 1 B a r c la y s A m e r lc a n / B u s ln e s s C r e d it .................................. 3 3 B a s k in & C o ., H a rv e y ......................................................................... 5 3 B o a t m e n 's N a t io n a l B a n k , S t . L o u is .............................. 7 9 ............................................................... 80 C e n t r a l B a n k o f th e S o u t h , B ir m in g h a m .................... C h a s e M a n h a t t a n B a n k ...................................................................... C it iz e n s F id e lit y B a n k & T r u s t C o ., L o u is v ille .. C it iz e n s N a t io n a l B a n k , D e c a t u r , I I I .................................... C o m m e r c e B a n k , K a n s a s C it y .................................................. C o m m e r c ia l N a t io n a l B a n k , K a n s a s C it y , K a n . C o n t in e n t a l B a n k ...................................................................................... C e n te r r e B a n k , S t . L o u is 19 21 49 F ir s t A la b a m a B a n k , M o n tg o m e ry ....................................... F ir s t N a t io n a l C h a r t e r B a n k , K a n s a s C it y .................... F ir s t N a t io n a l B a n k o f C o m m e r c e , N e w O r le a n s F o u r th N a t io n a l B a n k a n d T r u s t C o ., W ic h it a . . . F ro s t N a t io n a l B a n k , S a n A n to n io ....................................... 72 15 3 65 57 G a r r e t t F in a n c ia l S e r v ic e s , I n c ................................................... 51 74 7 75 25 H B E B a n k F a c i l it ie s C o rp ............................................... 4 6 - 4 7 H a g a n & A s s o c ia t e s , T o m ............................................................ 7 8 L ib e r t y N a t io n a l B a n k & T r u s t C o ., L o u i s v i l l e ....................................................................................................... L ib e r t y N a t io n a l B a n k & T r u s t C o ., O k la h o m a C it y ...................................................................................... 9 2 M P A S y s t e m s ................................................................................................ M e llo n F in a n c ia l S e r v ic e s ............................................................ M e m p h is B a n k & T r u s t C o ............................................................... M e r c a n t ile B a n c o r p ., S t . L o u is ............................................... M id - C o n t in e n t B a n k e r ......................................................................... 78 45 11 5 N a t io n a l B o u le v a r d B a n k , C h ic a g o 29 ..................................... 23 P e n n H ill A s s o c ia t e s , I n c .................................................................. 38 R e p u b llc B a n k , D a lla s ......................................................................... 31 S p r in g fie ld M a rin e B a n k ................................................................... 73 T h ir d N a t io n a l B a n k , N a s h v ille ............................................... U n it e d M is s o u r i B a n k , K a n s a s C it y 59 ................................. 61 ........................... 13 W h itn e y N a t io n a l B a n k , N e w O r le a n s BANK OFFICERS C a s h i e r — $ 4 0 M M b a n k ........................................... C o n t r o lle r — $ 3 5 M M b a n k ..................................... In s u r a n c e / A g L o a n — $ 2 5 M M b a n k _____ S e c o n d O f f ic e r — $ 3 0 M M b a n k ....................... C o m m e r c ia l L o a n — $ 7 0 M M b a n k ............. S e n io r L e n d e r — $ 5 0 M M b a n k ....................... A g r i- L o a n — $ 2 5 M M b a n k ..................................... C o m m e r c ia l L o a n — $ 1 5 0 M M b a n k _____ S r . A g r i- L o a n — $ 3 0 M M b a n k ........................... Just a phone call jjjgj away. A d d it io n a l p o s it io n s a v a ila b le In m ld w e s t e r n s t a t e s fo r e x p e r ie n c e d b a n k e r s . R e s u m é a n d s a la r y r e q u ir e m e n t s r e q u e s t e d . ill No waiting No worry Available now throughout the Mid-Continent area. Other temporary facilities in various sizes. 78 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis $26K $25K $25K $30K $36K $38K $23K $38K $27K TO M H A G A N & A S S O C IA T E S of K A N S A S C IT Y MPA SYSTEMS^ 4120 Rio Bravo El Paso. Texas 79902 (915) 542-1345 or (915) 542-1461 P.O. Box 12346/2024 Swift North Kansas City, MO 64116 816/ 474-6874 SERVING THE BANKING INDUSTRY SINCE 1970 MID-CONTINENT BANKER for Decem ber, 1982 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Happy Holidays M ay th e w arm th a n d c h e e r o f th e H oliday Season b e yours fo r e v e r . THE BOATMEN'S NATIONAL BANK OF ST. LOUIS m i m b iir m ic : How can you take full advantage of ange? Our customers know. New regulations. New legislation. New technology. New competition. Old traditions in banking are broken every day. In this challeng ing environment, it’s more important than ever that your corre spondent bank has innovative, costeffective approaches to improve check clearing and expedite overline requests. But that simply isn’t enough anymore. We are prepared to offer you advice on managing all aspects of your business—planning, asset and liability management, per sonnel, investments, trust services— and more. We are in this position because we have a staff of experts to serve our own needs; let us share our expertise with you. Get to know us like our customers know us. Feel free to con sult with a Centerre Correspondent Officer anytime. On any basis. » 1 ,7 0 Î CENTERRE BANK Our customers know. 9th &Walnut Streets Kansas City, Mo. 64106 Member FDIC https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis One Centerre Plaza St. Louis, Mo. 63101
@FedFRASER