Independent Banker - October 2017 - 63

it within its useful life, manage the
portfolio professionally and work
with good vendors, you will be paid
back over 99 percent of the time.
" If you stray away from this type
of underwriting and chase the more
exotic deals that have more rate in
them, then you will most likely still
have a good asset, but they may not
perform quite as well. "
Generally, municipal loans and
bonds are backed by the full faith and
credit of the municipality, which also
has taxing authority to generate revenue.
" These are very low-risk loans
in general, and we are able to accept
a lower interest-rate yield as a result, "
Silverman says.
Some risk still exists. In several
high-profi le cases, cities have struggled
with large budget defi cits, weak
credit and an inability to pay outstanding
debt. When a municipality
is unable to pay back its debt, it may
fi le for Chapter 9 bankruptcy. Several
cities have fi led for bankruptcy protection
in the past decade, including
Detroit, Stockton, Calif., and Jefferson
County, Ala., among others. The
most recent case making headlines
is that of Hartford, Conn. The city
has seen its credit rating drop to junk
bond status as it continues to struggle
under a heavy debt burden and a
potential bankruptcy fi ling. However,
municipal defaults remain rare.
The bigger risks in municipal lending
generally relate to documentation
or legal risk. " You need to make
sure the community actually has
the authority to do the borrowing,
and that typically means bringing in
municipal counsel and making sure
that the municipality has followed
the procedures embedded in statute, "
Silverman explains. For example, a
city statute might have to disclose
borrowing in an annual meeting, or
$200
million
Municipal obligations KS
StateBank originates and
funds each year
the governing body of that city has
granted the necessary approvals for
that fi nancing.
In addition to underwriting and
diligence, banks use existing relationships
to help manage risk. " We know
the people that we are lending money
to, " Silverman says. " We believe that
mitigates the risk a great deal. "
Beth Mattson-Teig is a freelance
business writer in Minnesota.
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Independent Banker - October 2017

Table of Contents for the Digital Edition of Independent Banker - October 2017

Table of Contents
Independent Banker - October 2017 - Intro
Independent Banker - October 2017 - Cover1
Independent Banker - October 2017 - Cover2
Independent Banker - October 2017 - Table of Contents
Independent Banker - October 2017 - 2
Independent Banker - October 2017 - 3
Independent Banker - October 2017 - 4
Independent Banker - October 2017 - 5
Independent Banker - October 2017 - 6
Independent Banker - October 2017 - 7
Independent Banker - October 2017 - 8
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Independent Banker - October 2017 - 33
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Independent Banker - October 2017 - 35
Independent Banker - October 2017 - 36
Independent Banker - October 2017 - 37
Independent Banker - October 2017 - 38
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Independent Banker - October 2017 - 48
Independent Banker - October 2017 - 49
Independent Banker - October 2017 - 50
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Independent Banker - October 2017 - 73
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Independent Banker - October 2017 - Cover3
Independent Banker - October 2017 - Cover4
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