2019 Journal of Community Bank Case Studies

2019 COMMUNITY BANK CASE STUDY COMPETITION

The portfolio is managed according to internal processes independent of outside guidance or scrutiny from regulators. Changes in S.2155 provide commercial real estate projects additional avenues to shed their HVCRE status. Appraisal values can now be included in the 15% minimum contributed capital threshold, a project already producing income does not have to be classified as HVCRE, and a HVCRE loan can be reclassified once it begins generating sufficient cash flow (Interagency Statement 3). These changes did not affect People’s Intermountain Bank’s lending guidelines or procedure because the bank has always required an initial contribution of capital on average of 30-40% which is greater than 15% (Jones). Bank management relies more heavily on their internal ratios and guidance than that provided by regulatory agencies. Jones described, “We fine slice our portfolio. We break our commercial real estate portfolio in many categories and we monitor the percent of capital in each one of those categories. Some examples of these are owner occupied real estate, non-owner-occupied investment real estate, how much is construction and land acquisition versus completed projects, hotel/ motel, care centers, storage units, retail space, assisted living center, office space, and others” (Jones). People’s Intermountain Bank has an advanced way of monitoring all of its real estate and internally classifying risk. This has kept the bank at the head of the pack while still holding a conservative strategy. These internal systems are not just for show but lead to action.

People’s Intermountain Bank has an advanced way of monitoring all of its real estate

and internally classifying risk.

Secondly, People’s Intermountain Bank chooses to examine and internally report a wide range of different leverage and risk-based ratios. While regulation does not specifically require the in- depth ratio analysis that People’s Intermountain Bank maintains, the bank’s management sees these ratios as imperative if they are to keep the bank well-managed and competitive in today’s economic environment. High Volatility Commercial Real Estate People’s Intermountain Bank is highly sophisticated in the way it configures, tracks, and monitors its loan portfolio. Since the merger and acquisition in 2017, the bank has between 125%-150% HVCRE ratio as a percent of capital and stays under 300% for CRE as a total percent of capital (FFIEC). While many banks are running away from commercial real estate lending, People’s Intermountain Bank is embracing it as its niche and is confident that its management expertise and conservative capital strategy provides it with both great advantages and great returns (Williams, Olson).

80