Bounce Protection Overdraft
Services: Doing It the Right Way
Bounce protection (the service by which a bank
chooses to pay a transaction account customer's NSF item
and assess an overdraft fee not to be confused with a customer's
formal overdraft line of credit tied to a transaction account)
is the most profitable but most controversial product to hit the
bank marketplace for some time. This seminar will teach you the
operational realities and risk mitigation strategies that a bank
should consider when implementing courtesy overdraft protection.
A carefully chosen and well-designed overdraft protection program
will assist your bank in managing any increased credit and reputation
risk, real or perceived, that accompanies the operation of a managed
overdraft protection program.
Done carefully, automated bounce protection
programs can be good for customers and for banks. But without
understanding how your program will actually operate vis-à-vis
the regulatory guidance provided to date, and be seen and judged
in your community, not to mention by the banking agencies and
courts, courtesy overdraft protection services could become a
nightmare. In this seminar, we review legal, bank regulatory and
litigation risk associated with bounce protection vendor selection,
overdraft fees, program design, marketing, collection and administration.
Branch Purchases and
legal and business implications of purchasing and selling branches
to expand and maximize the efficiency of a financial institution's
branch network is the subject of this presentation. A typical
branch purchase is reviewed in the course of this program. Regulatory
requirements and filings, avoidance of entrance and exit fees,
branch network and economies of scale advantages for the purchaser,
capital-raising advantages for the selling institution, drafting
provisions designed to protect the purchaser or seller, purchaser
and seller securities disclosure obligations and consumer compliance
obligations affecting buyers are reviewed. The importance of depositor
communication, good public relations and maintaining staff morale
to avoid post-purchase deposit run-off is highlighted.
Grady & Associates has advised over 20 bank
and thrift clients with respect to the purchase and sale of branches,
both in privately negotiated transactions and from the RTC.
Communicating with Analysts
and the Press
The below-peer group stock prices of many institutions
may simply be a result of not being known in the marketplace.
In order to generate interest in an institution's stock, the institution
must routinely communicate with analysts, the press and its shareholders.
This program outlines the essentials of good public communication.
It is helpful not only for the newly converted savings institution,
but also for institutions that have been public companies for
a period of time, but whose disclosures have become repetitive
and stale as a result of simply "marking up" last year's
We also discuss in this program how to put the
best face on negative news, while fully and accurately disclosing
the problem. The importance of complete and timely disclosure,
resulting in no surprises to the investing public, is stressed;
guidelines for the issuance of current reports on Form 8-K are
In an era in which (i) unfavorable CRA ratings
or (ii) HMDA data showing loan origination or loan rejection disparity
between minority and non-minority applications invite negative
consequences, possible denial of regulatory applications
and unwanted focus by consumer groups and the press, this presentation
is particularly timely. The presentation explains the importance
of certain key definitions under the CRA regulations, the lending,
service and investment tests by which large institutions are evaluated,
the streamlined small bank performance standards, compliance traps
for the unwary represented by the data collection and reporting
requirements of the revised CRA regulations and the content and
availability of the expanded public file requirements.
Mr. Grady, who has spoken on this topic before
a number of financial institution trade groups, wrote a 162 page
chapter on the revised CRA regulations for Matthew Bender's six-volume
Consumer Credit treatise and has been retained by over
30 financial institutions to assist in CRA compliance management.
Grady & Associates is available to speak on
the timely and popular topic of how to establish, monitor and
evaluate compliance programs in the areas of regulatory and securities
compliance. Policies and procedures must be both effective and
acceptable to regulators and the public and efficient in implementation
and monitoring for the financial institution's management. The
current regulatory environment places increasing emphasis on written
policies and procedures, as opposed to ad hoc management determinations.
Compliance management affects institutions of all stripes: well-capitalized
and well-managed institutions as well as undercapitalized institutions
may run afoul of the regulators.
Mr. Grady has spoken at several Compliance
Conferences and Real Estate Lending Conferences of America's Community
Bankers concerning the latest developments in compliance management
and how to establish a compliance management program.
Corporate Stock Repurchase
presentation discusses the mechanics of a corporate stock repurchase program.
The presentation discusses corporate law and regulatory limitations, shareholder
and director approval, Securities and Exchange Commission ("SEC") tender
offer rules, state securities law, SEC market manipulation regulations, and the
mechanics of issuing a press release announcing a share buy back plan.
Deposit Agreement: A Tool
for Risk Mitigation & Enhanced Profitability
Generally speaking, the adequacy of a deposit
agreement is the most overlooked aspect of the banking business.
It is our experience that very few financial institutions have
undertaken a thorough analysis and review of their deposit agreement.
One of the first considerations in an institution's
review of its deposit agreement should be whether the agreement
gives adequate support for the institution's fee practices with
respect to the deposit account. This presentation discusses how
a well-crafted deposit agreement can be the means to increase
an institution's deposit account-related
fee income. In addition, Uniform Commercial Code amendments occurring
in the 1990s in most of the 50 states permit a financial institution
to take advantage of freedom of contract to shift the risk of
loss to the customer.
The presentation also discusses the benefits
of careful deposit agreement drafting with respect to forgeries
or alterations and the risk of loss between the bank and the customer.
For example, an institution can shorten the period of time for
a customer to report a forgery or alteration from 60 days to 14
days, thereby avoiding tremendous exposure to liability for losses
due to forgery and alteration.
Development of a Trading
Market for Bank Stock
Perhaps because the stock market is fickle and
cannot be controlled, the development of an active and liquid
trading market for community bank stock is a task too often neglected
by bank management until some sort of crisis develops. Rather
than formulating a plan to market bank stock solely to save the
bank or its independence, a market development plan for a bank's
stock should be adopted before the crisis occurs.
presentation discusses the principal markets in which bank stocks
trade. In order of depth and liquidity, these include the following:
The over-the-counter market ("OTC"), the "pink
sheets" (OTC), the Electronic Bulletin Board (OTC), the NASDAQ
Small Cap Market and the National Market System, the American
Stock Exchange (the "AMEX") and the New York Stock Exchange
(the "NYSE"). With approximately 10,000 banks and 2,000
thrifts in this country, there are approximately 450 listed banks,
450 listed thrifts, 900 "pink sheet" banks and 100 "pink
sheet" thrifts. A "listed" bank or thrift refers
to an entity trading on the NASDAQ Small Cap Market or National
Market System, the AMEX or the NYSE. A "pink sheets"
bank or thrift refers to an entity that trades in the OTC pink
sheets or the Electronic Bulletin Board.
The benefits of a proactive approach to market
development include the following: increased stock valuation,
collateral value inherent in an actively traded stock, the merger
and acquisition purchasing power that accrues with higher stock
price valuations and the cause-and-effect cycle of market performance
creating public interest which, in turn, can lead to increased
business and increased profits. Because market activity is built
over time, this presentation discusses the process of market development
and attempts to educate bank directors and management that market
activity is not an event -- it is a process. Because fewer than
10 percent of banks and thrifts are widely traded in an active
public market, few bankers can afford to miss this presentation
on achieving higher market values for their bank's stock.
The duties of care and loyalty are analyzed
in this presentation, with reference made to statutory and regulatory
requirements, recent case law and regulatory pronouncements. Specific
areas discussed include the delegation of duties to a committee
of the board or management, management oversight and review and
informed decision-making -- that is, what questions should the
directors pose to management or others working for the institution
before approving a project or loan and what is contained in a
complete board package. A focus on directors' duties in a proposed
acquisition of the institution makes this presentation of particular
interest. This presentation was made in February 1995 at the Annual
Convention of the Independent Bankers Association of America.
The advantages, "how to" and costs
of adopting a dividend reinvestment plan, or DRP, are the focal
points of this practical
program. In a period of rising rates, declining margins, and thus,
pressure from shareholders to maintain stock price, a DRP is a
tool to support and bolster share price. A better stock price
also helps thwart unwanted takeover attempts. Advantages to the
financial institution and the range of design options available
in structuring either a new issue or market purchase DRP to meet
the needs of the institution and its shareholder profile are discussed.
Environmental Risk Management
This presentation discusses the necessity for
a board to adopt an environmental risk management policy and other
environmentally related procedures in order to protect the institution
from the risk of loss from lending against contaminated real estate
collateral. Key provisions of a comprehensive policy and related
procedures are detailed and recent case law in the area is reviewed.
The design of executive compensation programs
involves a delicate balance for the board of directors of an institution
considering both the needs of the institution to maximize
shareholder value and the executive's concern for job security.
The latest trends in executive compensation are discussed, with
the assistance of detailed executive compensation survey material
regarding the incidence and features of (i) employment and change-of-control
severance agreements and (ii) nonqualified deferred compensation
agreements. The general duties and responsibilities of the board
of directors in establishing and adjusting compensation packages
are discussed candidly, as well as the special issues that arise
in connection with a merger or acquisition or a realignment of
management functions. Tax limitations on excessive compensation
and securities disclosure rules are highlighted.
& Associates has extensive experience in the design of compensation
arrangements, including employment contracts and severance agreements,
non-qualified SERP plans and insurance benefits, and stock option
and restricted stock plans.
Fair Lending Compliance
While the lending community has long been aware
that lending discrimination is not just a "big city"
or "big bank" issue, the Justice Department's settlements
with several small banks that discriminated against minorities
are notable because they involved far smaller banks than the previous
Justice Department actions against Decatur Federal Savings and
Loan Association in September 1992 and Shawmut Mortgage Company
in December 1993. Unlike the Decatur Federal and Shawmut settlements,
both the Blackpipe State Bank and the First National Bank of Vicksburg
settlements were based on active referrals by the appropriate
bank regulatory agency. And in horror of all horrors, Security
State Bank of Pecos, Texas signed a Justice Department stipulated
judgment solely on the basis that one loan officer, in contravention
of company policy, had violated the civil rights of Hispanic borrowers
by charging them markedly higher interest rates for consumer installment
and single-payment loans. No matter how well intentioned any lender's
practices are, every lender can learn from the experience of the
institutions charged to date with lending discrimination in reported
settlements with the Justice Department. Common themes and practice
emerge in the consent decrees imposed against each institution.
Lenders fail to appreciate that a single act
of discrimination can be a violation of the Fair Housing Act or
the Equal Credit Opportunity Act. This presentation discusses
minimum mortgage loan/insurance amounts, PMI policies, secondary
mortgage market policies, underwriting guidelines, branch locations,
hours and services and advertising policies, as such topics relate
to fair lending compliance.
The timely topic of private enforcement of
fair lending claims also is covered. Private lawsuits against
financial institutions for lending discrimination have begun to
gain momentum, and the Justice Department has signaled its intention
to assist such plaintiffs. Mr. Grady has made this presentation
before (i) the Michigan League of Savings Institutions' Annual
Convention at Mackinac Island in Summer 1994, (ii) the 1993 and
1994 Annual Convention and Business
Show of America's Community Bankers; and (iii) Fall 1995 seminars
in Cleveland, Columbus and Cincinnati before the membership of
the Ohio League of Financial Institutions.
Holding Company Formation
This presentation discusses the advantages of
the holding company form of ownership, including product diversification,
flexibility and acquisitions, financing flexibility, improved
take-over protection, improved protection of directors from liability
and stock repurchases, the disadvantages of the holding company
form of ownership and finally the steps involved in forming the
holding company. This formation aspect of the presentation discusses
all the bank regulatory application filings, federal securities
law compliance and state securities law compliance and stock market
Home Equity Lending Program:
Design, Operation and Marketing
This presentation provides an explanation from
a chronological perspective of how a home equity lending program
operates. Beginning with approval by the board of directors, the
outline explores all the stages of the lending process: From establishment
of underwriting standards by board action, advertising, the application
process, application evaluation, applicant notification, consummation,
the loan repayment stage and extinguishment of the debt. Aside
from being a primer on the basics of home equity lending, the
presentation also discusses numerous marketing initiatives used
by other home equity lenders.
Negotiated and Hostile
Thrift and bank executives are well aware of
the pressures brought to bear on smaller institutions to merge
or consolidate with their larger peers. This pressure can be expected
to intensify with the advent of interstate bank branching. This
program discusses the contents of a "ready response"
program and anti-takeover devices available to an institution
before an unwanted offer surfaces. The duties and responsibilities
of management and the board in connection
with a proposed acquisition are outlined, as well as subjects
such as disclosure obligations, including communication with shareholders,
the press and employees, and other practical considerations. Emphasis
is placed on the negotiation of an acquisition -- letters of intent,
final acquisition agreements, board of directors composition,
executive positions and compensation, branch consolidations or
closing and management philosophy or style.
RESPA and Loan Referral
This program offers creative ideas to help financial institutions
cope with intra-industry and inter-industry competition, emphasizing the benefits
that can be derived from loan referral relationships. It also offers home builders,
realtors and mortgage brokers ideas for establishing referral relationships with
end-loan lenders that will allow these real estate professionals to provide a
full range of services to their customers, increase their compensation base, cement
customer relationships and provide efficient service to customers. Built upon
a properly structured and clear agreement on the terms of the referral relationship,
these relationships can be of benefit both to financial institutions and to other
real estate professionals such as home builders, Realtors and mortgage brokers.
The program materials offer detailed guidance
and solutions concerning the business and legal issues that can
arise in these referral relationships. The Real Estate Settlement
Procedures Act is foremost among the legal issues that must be
addressed, and the program materials offer creative and valuable
insights about how to ensure that the Real Estate Settlement Procedures
Act will not be an obstacle to a rewarding and longstanding referral
Subprime Lending: Designing
a Broker or Wholesale Correspondent Program
This presentation discusses reasons for considering
entry into subprime lending, different methods of conducting a
subprime operation, legal and regulatory considerations including
fair lending, Community Reinvestment Act, licensing,
truth-in-lending, RESPA, and liability attaching from third parties.
Numerous design and operational issues are considered in the context
of generating subprime loans through a retail loan office network,
a wholesale correspondent program and an independent broker network
Using the Bank Holding
Company Profitably and Effectively
In too many cases, bank holding companies have
been formed and then set aside without taking advantage of all
the benefits of the holding company form of ownership. This presentation
discusses capital planning through a holding company, the advantages
of holding company debt, flexibility in capital formation, using
a comprehensive anti-takeover plan through the holding company
charter, considering the estate planning alternatives offered
by the holding company, product and service expansion benefits,
including the list of permissible "non banking" activities
preapproved on the Federal Reserve Board's Regulation Y laundry
list. Operational flexibility is also another frequently overlooked
aspect of holding company existence. This presentation discusses
how a bank holding company may be allowed by law to venture into
areas of business prohibited to a bank. Legal lending limits do
not apply to holding companies, and this means that the use of
the holding company in this area can greatly increase the opportunities
to serve loan customers.
Other Specifically Designed
We would be happy to work with your organization to design other
presentations to update your membership on current
regulatory or legislative developments. An appropriate seminar may be tailored
to fit the requirements and interests of a particular audience.