2024 ISSUE 6 A Background OnKim Light CEO, Heritage Bank of the Ozarks Page 20
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INSIDE THIS ISSUE PO Box 1765 Jefferson City, MO 65102 (573) 636-2751 | miba.net Editor: Matthew S. Ruge Executive Director ©2024 The Missouri Independent Bankers Association | The newsLINK Group LLC. All rights reserved. The Show‑Me Banker Magazine is published six times a year by The newsLINK Group LLC for The Missouri Independent Bankers Association and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of The Missouri Independent Bankers Association, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The Show-Me Banker Magazine is a collective work, and as such, some articles are submitted by authors who are independent of The Missouri Independent Bankers Association. While The Missouri Independent Bankers Association encourages a first-print policy; in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. Published for the Missouri Independent Bankers Association 14 6 16 26 4 PRESIDENT’S MESSAGE Advocating for Community Banking 6 FLOURISH AI: The New Frontier 7 FROM THE TOP Staffing for the Digital Future 8 MEET YOUR MISSOURI BANKER Lance R. Logsdon Loan Officer Peoples Bank of Wyaconda 10 2024 Women in Community Banking Conference Nov. 13-14, 2024 11 MIBA Upcoming Events 12 LEGAL EAGLE SPOTLIGHT A Growing Fraud Scheme Your Financial Institution Should be Aware of, and How to Protect Against Losses 14 MIBA Security Conference Oct. 9-112024 16 Checking Your BSA Program Is More Important Than Ever 20 A BACKGROUND ON Kim Light CEO, Heritage Bankof the Ozarks 24 A Fresh Perspective FOMC’s 2025 Roster Has Some New Voters 25 2025 Directors & Officers Conference April 29-30, 2025 26 Embracing AI in Community Banking: Trends, Policies and Practical Uses for Small Banks 29 2024 MIBA PAC 30 Top Challenges Among Bankers Cybersecurity, Regulation and Technology 32 News From You 34 Thank You to MIBA's Endorsed Vendors for Their Support in 2024! 35 In Memory John Lovell 35 MIBA Endorsed Vendors 36 MIBA Associate Members Leadership Division at the Blues 39 Upcoming Webinar Schedule The Show-Me Banker Magazine | 3
Doug Fish MIBA President BTC Bank Bethany, MO PRESIDENT’S MESSAGE Advocating for Community Banking Community banks in Missouri faced challenges during 2024 driven by technological advancements, regulatory burdens and ever-changing customer expectations. Growth in the delivery of banking products through digital and mobile platforms requires an investment in customer-friendly apps, cybersecurity measures and AI. The ability of Missouri’s community banks to leverage changing technology to compete with larger national banks is vital to our survival. On the national level, overreaching regulation and legislation continue to challenge our community banking world. The thought that we aren’t too big to fail but we are too big to avoid overburdensome regulations created for the large national banks, in plain words, is simply not fair. Relief from this overburden hopefully is on the horizon. Dealing with increasing fraud from check washing, elder abuse and debit/credit card compromises seemingly daily is not just frustrating but also costly. We community bankers know our customers. I wish that were true for the entire banking industry — that one simple thing would be the biggest deterrent to the fraud we are experiencing. Compressed margins, liquidity, asset quality, capital, risk and economic concerns are always on our radar, and 2024 was no different for Missouri’s banking industry. The majority of Missouri banks are realizing positives in most, if not all, areas, but concerns are growing that weaknesses may exist. In 2024, Missouri saw a new De Novo bank chartered, the first in many years. However, the contraction of bank charters continues at the state level and nationally. The ability of Missouri’s community banks to leverage changing technology to compete with larger national banks is vital to our survival. 4 | The Show-Me Banker Magazine
Your business is your biggest investment. So why not give yourself the best chance to succeed? Everyone loves a good deal. But saving money on cheaper IT solutions can actually cost you more. How? Frequent downtimes. Unexpected expenses. Zero customer trust. The good news: it doesn’t have to be this way. Don’t let low-cost IT services equal lost revenue. Scan the QR code now to discover the secrets cheaper IT providers are hiding and how you can avoid falling into their trap. SEE BENEATH THE SURFACE. $ Everyone loves a good deal. But saving money on cheaper IT solutions can actually cost you more. How? Frequent downtimes. Unexpected expenses. Zero customer trust. The good news: it doesn’t have to be this way. Don’t let low-cost IT services equal lost revenue. Scan the QR code now to discover the secrets cheaper IT providers are hiding and how you can keep your company smooth sailing. The TRUTH behind IT “savings” The importance of the 2024 election is undisputable. The results will have significant impacts on our industry both positively and negatively in 2025. We now have a good idea of where the things are headed in the coming year, and we will manage accordingly. MIBA continues to be an advocate of community banking in Missouri, representing us in Jefferson City, providing education opportunities and being the voice of the independent community banks in Missouri. The Show-Me Banker Magazine | 5
Rebeca Romero Rainey President and CEO, ICBA @romerorainey FLOURISH If you’ve ever watched an episode of “Star Trek,” you’ve heard its famous introduction proclaiming we must “boldly go where no man has gone before.” With artificial intelligence (AI), this may be our new reality. Today, we’re seeing AI and related technologies — such as robotic process automation and machine learning — employed in a wide range of applications, from back-office operations to fraud detection systems and more. As new AI-powered solutions are introduced, we recognize both the opportunities and risks they bring. Just as easily as AI can help detect anomalies to flag potential fraud, so can it be used to create a customer deepfake to enable a fraudulent transaction. To safeguard our banks, we must understand how AI is being used today for the good and the bad, then evolve our risk management procedures accordingly. That very balance means that as we explore AI opportunities, we do so with an eye toward our dedication to safety and soundness. At the end of the day, AI is a tool and utility, and as with any technology, it’s incumbent on us as users to determine how it can be used and where the risks lie. But as we navigate this new AI space, we’re asking regulators to not be overly prescriptive with their guidance. We need the flexibility to explore this technology as we remain alert to potential pitfalls. As we shared in our response to the Treasury Department’s request for information on AI — available in full at icba.org/advocacy — it’s not the technology that warrants scrutiny; it’s the application. As any technology evolves, we must lean into existing guidance around fair lending and privacy, regardless of what the tool is. There’s a fine line as we think about and understand the new, unknown risks AI might create, but fortunately, we have an opportunity to weigh in and identify those concerns as they emerge. We can be more surgical in our approach to future guidance to allow for the technology to evolve. In the meantime, community bankers can stay up to speed on AI developments through resources like the articles in this issue as well as education opportunities, including our AI Demystified: Webinar Series or our AI ThinkTECH Solutions Forum. (Find out more about these resources at icba.org/education.) As we attempt to boldly go where community banking hasn’t gone before with AI, we are armed with the information we need to use it for the benefit of our banks and our customers in a strategic, safe, sound and efficient manner. AI: The New Frontier Where I’ll Be This Month I’ll be meeting with the Council of Community Bank Executives in Fort Worth, Texas, and then spending time with the Bankers Bank Council — both of which will likely include AI as a topic of conversation. I am also very excited to be making a trip to Tampa, Florida, to meet with our TCM Bank team. 6 | The Show-Me Banker Magazine
Lucas White ICBA Chairman, President of The Fountain Trust Company FROM THE TOP Staffing for the Digital Future our more successful employees believe in banking locally and keeping resources in the community. We can teach technology, but we can’t teach the passion that comes with community banking. It has to be inherent. Recruiting and retaining staff is a huge focus for us all. I know we have some of the greatest staff in the world, and I’m so appreciative of what they bring to this digital-first landscape. In that spirit of gratitude, let me also say that I’m thankful to be a member of this community, and I wish you and yours the very happiest of holidays! Digital banking is here to stay, and everything from our online banking to our mobile apps needs to speak to that customer journey. To that point, my community bank recently upgraded our mobile app to offer enhanced product features and a stronger customer experience. Before rolling it out, we had to focus on internal education. While our data center managed technical questions 10 or 20 years ago, frontline staff have become the de facto source for all answers in today’s environment. When a customer has an issue logging in or executing a transaction, they start with our frontline teams. These shifts in customer needs work their way into changes in our staffing practices. Today, we pursue more tech-savvy staff. We can’t expect someone who doesn’t have a smartphone to be able to walk a customer through their app experience. More than ever, all bank employees participate in digital operations. That translates to important action steps for the bank. For instance, we encourage our employees to use our digital banking products. Having firsthand experience with our offerings will give them a deep knowledge of these products’ inner workings. We also implemented an internal marketing campaign to get our employees excited and talking about our digital products. For instance, we created a “scavenger hunt” checklist of activities to finish in the new app, with a prize for completion. So, when employees were done, they really knew how to navigate the app — before customers came in and asked for help. We also regularly send key staff to educational training with ICBA. As the banking environment transforms into a more digital space, we want our teams to be up to speed on how the industry is evolving and what that means for the products and services we offer. In turn, we’re hiring for the future. As we staff up, we seek candidates who buy into the community bank model. We’ve found that My Top 3 It’s the season of gratitude, and I am so thankful that: 1. My family is healthy. 2. I have a career that I love. 3. I was given the opportunity to be ICBA chairman. The Show-Me Banker Magazine | 7
MEET YOUR MISSOURI BANKER Where is your main bank and branches located? What is the market like? Our main bank is located in Kahoka, Missouri. Currently our bank has three branches with the other two being located in Wyaconda and Canton, Missouri. Currently our market is competitive, with the main focus being in the agriculture industry. What is something unique about your bank? One unique thing about our bank is that it started in 1914 and has been able to provide outstanding service to our customers and community for 100 years. Inside the bank, everyone takes pride in being able to continue to serve our community and outstanding customers for years to come. How did you get started in the banking business? After a short time in professional baseball, I decided that it was time to switch gears and focus on a career that would be sustainable for the future. Being around the community, I have always been familiar with Peoples Bank of Wyaconda. After an interview with the bank president, I knew that this position would be an outstanding fit for me, and I am extremely fortunate to be able to work for such a great bank. Lance R. Logsdon Loan Officer Peoples Bank of Wyaconda 8 | The Show-Me Banker Magazine
What is the most important thing you have learned from this career so far? The most important thing I have learned so far is the importance of building relationships. Having a relationship with the customer is more than just loaning money; it is about truly caring about the person on the other side of the desk and being able to help them out. What prompted you to want to begin a career in banking? Helping the community prompted me to begin a career in banking. Seeing the community develop and knowing that you are a part of that cause drew me to community banking. What is the most interesting thing you have learned from this transition to the banking industry? The most interesting thing that I have learned in the transition to the banking industry is on the agricultural side of lending. Learning how to effectively read tax returns, financial statements and cash flows in order to get a better feel for each customer is something that is extremely interesting to me. Tell us about the bank’s community investment efforts. Peoples Bank of Wyaconda puts a major emphasis on community investment. We sponsor many events and are always getting out in the community to show our investment in the area. What is the bank’s biggest challenge in the area of internet banking/mobile banking? Currently, the biggest challenge in internet banking/ mobile banking is fraud. With the use of debit cards becoming so popular, there are so many hackers out there trying to get into people’s accounts. Trying to detect and prevent fraud for customers is a major hill to climb right now. What’s your favorite thing about your bank/ banking in general? My favorite thing about the bank is the people I work with. Both branches that I work at have outstanding teams, which creates a great atmosphere to work in. The Show-Me Banker Magazine | 9
2024 Women in Community Banking Conference Nov. 13-14, 2024 Special Thank You to Our Sponsors 10 | The Show-Me Banker Magazine
The Show-Me Banker Magazine | 11
Recently, financial institutions have been facing large losses as a result of a growing fraud scheme. It is important for institutions to understand this fraud scheme and know how to protect themselves from potential losses. The fraud scheme begins when an individual intercepts a check in the mail. Typically, these checks are payable to a business. The same or another individual then forms an entity in a state with the same name as the payee business. For example, for a check payable to ABC Inc., the individual will set up a corporation in the name of ABC Inc. and will prepare the relevant corporate documents. The individual will then go into the institution and open a new account in the name of ABC Inc. The institution will obtain the Articles of Incorporation as well as a Certificate of Good Standing, corporate resolutions and bylaws. The institution will then deposit the intercepted check into the new account. Sometime later, the actual payee eventually contacts the payor to report that it never received the check, and the payor contacts its financial institution only to be told that the check has cleared. The payor’s institution then submits a breach of transfer warranty claim to the institution of first deposit for fraudulent endorsement. However, the funds in the new account have been withdrawn. Financial institutions are left facing the issue of determining who is liable for the funds. The fraudster is ultimately liable for the stolen money but typically cannot be located or has already spent the money. As a general rule, the most negligent party should be held liable; however, the law may shift liability to another party, possibly to your institution. When it comes to forged endorsements, the Uniform Commercial Code (UCC) § 4-207 Transfer Warranties provides that all signatures (such as an endorsement) are authentic and authorized. Under UCC § 3-403, an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith pays the check or takes it for value (such as the financial institution of first deposit). However, UCC § 3-406(a) provides A Growing Fraud Scheme Your Financial Institution Should be Aware of, and How to Protect Against Losses By Shelli Clarkston, Spencer Fane LLP LEGAL EAGLE SPOTLIGHT 12 | The Show-Me Banker Magazine
BANCMAC COMMUNITY BANC MORTGAGE CORP. YOUR COMMUNITY BANK MORTGAGE PARTNER bancmac.com mortgages@bancmac.com 888.821.7729 | NMLS# 571147 BancMac provides correspondent and wholesale lending and is your Community Bank Mortgage Partner to help your financial institution originate fixed-rate secondary market loans including: PROGRAMS • Conventional Loans • USDA Rural Development Loans • Rural Living (Hobby Farm) Loans • VA Loans • Jumbo Loans • FHA Loans OUR PARTNERS RECEIVE: • Superior Service & Competitive Pricing • No Minimum Volumes • Significant, Non-Interest Fee Income • Non-Solicit Protections & More that a person whose failure to exercise ordinary care substantially contributes to the making for a forged signature on a check is precluded from asserting the forgery against a person who, in good faith, pays the check or takes it for value or collection. If the person asserting the preclusion fails to exercise ordinary care in paying or taking the check and that failure substantially contributes to the loss, the loss is allocated to the extent to which the failure of each to exercise ordinary care contributed to the loss. UCC § 3-406(b). Simply, if the financial institution of first deposit did not exercise ordinary care in taking the check for deposit, it will be precluded from asserting liability for the forgery against the payor’s financial institution. So, what does your financial institution need to do to show that it acted in good faith and exercised ordinary care when accepting the check for deposit? The following checklist details some actions your institution should take: • Follow all procedures for Customer Identification Program (CIP) and beneficial ownership, including obtaining valid government issued identification. • Closely examine the identification provided to determine if it is genuine. (Institutions typically utilize an I.D. Checking Guide that contains images of valid driver’s license formats for all 50 states.) • Compare the check issuance date with the entity formation date. A check issuance date before the entity formation date could be an indicator of fraud. • Compare the address of the payee on the check (if there is one) with the address for the entity. Different addresses could be an indicator of fraud. • Look at the address of the payee and the entity in comparison to your institution’s branch locations. An address that is not close to any branch location could be an indicator of fraud. If your institution needs assistance with handling a fraudulent endorsement dispute, or other breach of transfer warrant dispute, Spencer Fane has attorneys available to help. The Show-Me Banker Magazine | 13
MIBA Security Conference Oct. 9-11 2024 Special Thank You to Our Sponsors and Exhibitors 14 | The Show-Me Banker Magazine
Checking Your BSA Program Is More Important Than Ever By William J. Showalter, CRCM, CRP, Senior Consultant, Young & Associates Inc. 16 | The Show-Me Banker Magazine
Over the past year, we have seen at least 27 Bank Secrecy Act (BSA) enforcement actions from an array of financial institution supervisory agencies. Banks of all sizes, including community banks, continue to be hit with cease and desist (C&D) orders, formal agreements, consent orders and even civil money penalties (CMP). Five of these actions involved monetary penalties of some sort totaling nearly $4 billion — all but about $109 million coming from one case with four federal agency actions against one bank, and one $100,000 CMP imposed against an individual for BSA noncompliance. These enforcement actions remind us that even community banks and thrifts must have thorough and well-managed BSA compliance programs. The enforcement actions do not spell out specifics of what the agencies found at each institution, but they do give us important insights into what the regulators will expect during your next BSA compliance exam. Community banks should evaluate their BSA compliance programs in light of the corrective actions that these institutions are required to take. Another important issue that financial institution management should remember is that the USA PATRIOT Act made BSA compliance as important as Community Reinvestment Act (CRA) compliance in getting an application approved. The act adds BSA as a factor for consideration in merger transactions. The agency must take into consideration “the effectiveness of any insured depository institution involved in the proposed merger transaction in combating money laundering activities.” This means that banks and thrifts must have more than a written BSA program. They must be able to demonstrate that the program works. BSA Compliance Programs All insured banks and thrifts are required to develop, administer and maintain a program that assures and monitors compliance with the BSA and its implementing regulations, including recordkeeping and reporting requirements. Such a program can help protect a bank against possible criminal and civil penalties and asset forfeitures. At a minimum, a bank’s internal compliance program must be written, approved by the board of directors and noted as such in the board meeting minutes. The program must include at least the following elements: • A system of internal controls to assure ongoing compliance. • Independent testing of compliance. • Daily coordination and monitoring of compliance by a designated person. • Training for appropriate personnel. • Risk-based customer due diligence/beneficial ownership procedures. The Show-Me Banker Magazine | 17
Internal Controls Senior management is responsible for assuring an effective system of internal controls for the BSA, including suspicious activity reporting, and must demonstrate its commitment to compliance by: • Establishing a comprehensive program and set of controls, including account opening, monitoring and currency reporting procedures. • Requiring that senior management be kept informed of compliance efforts, audit reports, identified compliance deficiencies and corrective action taken — to assure ongoing compliance. • Making BSA compliance a condition of employment. • Incorporating compliance with the BSA and its implementing regulations into job descriptions and performance evaluations of bank personnel. Independent Testing of Compliance The bank’s internal or external auditors should be able to: • Attest to the overall integrity and effectiveness of management systems and controls, and BSA technical compliance. • Test transactions in all areas of the bank with emphasis on high-risk areas, products and services to ensure the bank is following prescribed regulations. • Assess employees’ knowledge of regulations and procedures. • Assess the adequacy, accuracy and completeness of training programs. • Assess the adequacy of the bank’s process for identifying suspicious activity. Internal review or audit findings should be incorporated after each assessment into a board and senior management report and reviewed promptly. Appropriate follow-up should be ensured. Regulators increasingly expect the BSA audit or testing program to also include these elements: • Confirmation of the integrity and accuracy of management information reports used in the AML compliance program. • Overall integrity and effectiveness of the program. • Evaluation of management’s efforts to resolve violations and deficiencies. • Evaluation of the effectiveness of the suspicious activity monitoring systems. • Review of the BSA risk assessment for reasonableness given the bank’s risk profile. BSA Compliance Officer A bank or thrift must designate a qualified bank employee as its BSA compliance officer, who has day-to-day responsibility for managing all aspects of the BSA compliance program and compliance with all BSA regulations. The BSA compliance officer may delegate certain BSA compliance duties to other employees but not compliance responsibility. The bank’s board of directors and senior management must ensure that the BSA compliance officer has sufficient authority and resources — time, funding, staffing — to administer effectively a comprehensive BSA compliance program. And, the BSA officer must have a direct reporting channel to the board of directors. Board of Directors The board must ensure that it exercises supervision and direction of the BSA/AML program. This involves making sure that the institution develops sound BSA/AML policies, procedures and processes that are approved by the board and implemented by management. The board also has to ensure that the bank maintains a designated BSA officer with qualifications commensurate with the bank’s situation. As noted above, the BSA officer must report directly to the board and be vested with sufficient authority, time and resources. The board must provide for adequate independent testing of BSA/AML compliance. The board should bear in mind that it has the ultimate responsibility for the institution’s BSA compliance. Training Financial institutions must ensure that appropriate bank personnel are trained in all aspects of the regulatory requirements of the BSA and the bank’s internal BSA compliance and anti-money laundering (AML) policies and procedures. An effective training program includes provisions to ensure that all bank personnel, including senior management, those who have contact with customers (whether in person or by phone), those who see customer transaction activity or those who handle cash in any way, receive appropriate training. Board members also need to receive regular BSA/AML training, though at a much higher level with less detail than institution-line employees. The training needs to be ongoing and incorporate current developments and changes to the BSA, AML laws and agency regulations. New and different money laundering schemes involving customers and financial institutions should be addressed. It also should include examples of money laundering schemes and cases tailored to the audience and the ways in which such activities can be detected or resolved. 18 | The Show-Me Banker Magazine
Another focus of the training should be on the consequences of an employee’s failure to comply with established policies and procedures (e.g., fines or termination). These programs also should provide personnel with guidance and direction in terms of bank policies and available resources. Beneficial Ownership Procedures The beneficial ownership rule contains three core requirements: 1. Identifying and verifying the identity of the beneficial owners of companies opening accounts; 2. Understanding the nature and purpose of customer relationships to develop customer risk profiles; and 3. Conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. A beneficial owner is an individual who owns more than 25% of the equity interest in a company or is the single individual who exercises control. Also subject to these requirements is the one person who has control of each legal entity customer. Beyond the Basics BSA enforcement actions continue to raise the bar for all financial institutions. BSA compliance programs must meet additional standards in order to be considered adequate to meet the ever-evolving challenges that arise over time: • Customer Due Diligence (CDD): Verifying a customer’s name, address, date of birth and identification number will satisfy the basic BSA customer identification requirements. However, these four pieces of information will not be enough to help an institution determine a customer’s typical account activity. The recent C&D orders make clear that regulators expect community bank managers to use information collected as part of the institution’s CDD process to predict the type, dollar amount and volume of transactions that a customer is likely to conduct. This expectation goes beyond the new beneficial ownership rule to extend CDD expectations to the broader customer base. Several institutions subject to the recent round of enforcement actions were directed to develop specific procedures to describe how the institution will conduct customer due diligence. As computer and software technology has improved, regulators have come to expect small and large banks to gather and review information about the normal range of a customer’s banking activities. They view the CDD processes and analysis as providing the framework that enables institutions to comply with suspicious activity reporting requirements. • Account and Transaction Monitoring: A number of institutions that received the most recent orders did not have adequate, or any, procedures for detecting and reporting suspicious activities. The enforcement actions make clear that community banks must specify in writing how the institution will analyze and use customer information to detect suspicious activities. As this area gets more complex, it becomes more difficult to try to maintain an adequate suspicious activity monitoring regimen without some form of automated monitoring. Conclusion The costs of being subject to an enforcement action go beyond extra regulatory scrutiny in subsequent examinations. Institutions under the latest round of actions must report the enforcement action in communications with their shareholders and spend significant sums of money to hire outside consultants to train employees, audit the revised BSA programs and backfile required reports. They also must submit planned actions to the regulators involved for prior approval, as well as report regularly (usually quarterly) on their progress in remediating the deficiencies that led to their particular enforcement action. An interagency BSA enforcement policy statement clarifies that formal enforcement actions will not be issued for minor BSA infractions. These enforcement actions are levied against financial institutions — including community banks — with significant breakdowns in their BSA compliance systems. The consent and other orders illustrate that all banks are expected to have very specific procedures for how they will collect customer information, predict customer account activity, utilize transaction monitoring reports, and train and manage employees with BSA-related responsibilities. Be sure that you are not an object lesson for your banking fellows. If we can help, contact us. William J. Showalter, CRCM, CRP, is a senior consultant with Young & Associates Inc. (www.younginc.com) with over 35 years of experience in compliance consulting, advising and assisting financial institutions on consumer compliance and compliance management issues. He also has developed and conducted compliance training programs for individual banks and their trade associations and has authored or co-authored numerous compliance publications and articles. Bill can be reached at (330) 678-0524 or wshowalter@younginc.com. The Show-Me Banker Magazine | 19
A BACKGROUND ONKim Light CEO, Heritage Bank of the Ozarks Just outside the Ozarks, in the quaint town of Lebanon, Missouri, you will find the Light family farm, which was established in 1917. That is where Kim Light grew up, raising cattle and hogs and learning the value of a hard day’s work. Briefly leaving Lebanon to attend college, Kim earned an undergraduate degree in agricultural finance from Missouri State University. After Kim graduated, he intended to immediately go on to graduate school. But life had other plans for him. His mother was friends with the head of operations at a local bank. They found out Kim was back in town and asked her what he was doing, saying, “We would love for him to come to work for us.” So, Kim put his graduate school plans on hold and went to work at Central Bank. “I always figured I would end up in agricultural sales. I knew absolutely nothing about banking when I went to work at the bank, and I had no aspirations of making a career out of it,” Kim said. 20 | The Show-Me Banker Magazine
“I was hired as an ag loan officer. That was in 1980 when the prime rate was at or over 20%, and many farmers were having financial hardships.” It was a tough time to be starting out as an ag banker. Kim was working out of the Conway branch and was able to build a good customer base. “It helped that I grew up in a neighboring community and knew many of the farmers,” Kim said. “They grabbed a hold of the kid who didn’t know anything about banking at all and took me under their wings.” Kim spent seven years at the Conway branch. “It was one of the biggest highlights of my banking career,” Kim recalled. In 1987, he moved to the Lebanon location, the home office of Central Bank, and continued to move up in the company, eventually becoming president and then CEO. In 2011, Kim had the opportunity to move over to Heritage Bank of the Ozarks. He was hired as the bank president and eventually held the position of CEO as well. Since 2011, the bank has grown from about $40 million in assets to $360 million in assets. “Being the only locally managed bank in Lebanon has been a huge competitive advantage for us,” Kim said. As part of the bank’s succession plan, Kim relinquished the president’s title to a young, up-and-coming officer this past spring, but he is still actively leading as the CEO. As Kim looks back over his career, there are certain experiences that stand out as a reminder that his choice to be a banker was a good one. “One of the first ag customers I ever had is still my customer today — he is 80 years old now. He, his children, and his grandchildren have all been my customers. That is three generations of customers from one family. He and I are friends and although he is my customer, he has been my ag mentor as well. He knows more about farming than I could ever dream,” Kim said. “We got together a couple of weeks ago and rode around in a side-by-side out on my farm and reminisced on the past. It was one of the coolest experiences that I have ever had.” Kim continued, “My daughter, Ashton, who works at the bank with me, was along on the ride, and she just took it all in. The wisdom he shared with us was priceless.” Kim shared another experience that happened a couple of years ago. “I was sitting in a restaurant in Lebanon when a couple walked up to the table, and frankly, I did not recognize them.
The lady said, ‘I just want to thank you for taking a chance on us. Years ago, you made us our first home loan. We should not have been able to get that loan, but you took a chance on us,'” Kim recalled. “I will never forget that. It made me tear up. It was a small gesture, but it brought me great satisfaction.” When asked about his mentors, three in particular stand out to Kim. “The first would be Dr. J.N. Smith. He was my college advisor and a tough old guy. Although he challenged me, he was a positive influence,” Kim recalled. “He stopped by to check in on me six or seven years into my banking career. We talked for a while, and then he said, ‘Light, I’m proud of you. You did OK.’ That meant a lot to me. I don’t think he ever called me by my first name. I’m not sure he knew it. LOL.” The second mentor is Bob Bailey, who is 92 years young. Bob gave Kim his first job at a small independent hardware store. Bob preached and preached the importance of taking care of the customer, and would often say, “If you take care of the customers, they’re not gonna forget you.” That advice has stuck with Kim throughout his career. Bob was a small business owner and knew what it took to compete with the Walmart’s of the world. George Curry, CEO and chairman of Central Bank, was a very strong banking mentor to Kim. “When I went to work there — he took a chance on me, coming out of college when I didn’t know anything about banking — he stuck me in a branch with a bunch of farmers that were having financial problems, and that could have been a real disaster. But George believed in me, and it all turned out really well,” Kim said. As Kim heads towards retirement, he hopes the next generation of bankers, those who follow in his footsteps, remember the following advice: “The most critical thing is to take care of the customer. There is no such thing as an unimportant customer or an unimportant problem. So, return those phone calls, make appointments and give every customer the attention that they deserve. “Develop a network of banking colleagues. People that you can call and say, ‘How would you handle this?’ I have a few very valued banking colleagues that I get together with and just brainstorm. We may compete but we are friends, and we are all facing the same issues. We try to get together and have lunch every so often and pick each other’s brains. It is hugely valuable to have these resources. “Explore every continuing education opportunity. Our bank is very supportive of employees attending seminars and webinars. We have even sent some employees to the Graduate School of Banking. With the changing banking environment, it is critically important that you stay on top of your continuing education. In short, never stop learning!” The community of Lebanon is near and dear to Kim’s heart. He is an active member of the Rotary Club of Lebanon. The club raises money to help support everything from local youth programs to nutrition programs and so much more. Under Kim’s leadership, the Heritage Bank of the Ozarks supports the Missouri Main Street Connection, helping to revitalize downtown Lebanon; the Lebanon Area Foundation/Community Cares, providing assistance for the less fortunate; and the Association of the United States Army (AUSA), which is a military support group for the families of soldiers that are stationed at Fort Leonard Wood. Kim spent 21 years on the Lebanon School Board, including two stints as the board president. Membership in MIBA is equally as important and has helped Kim and the bank employees in many ways over the years. “The educational opportunities, webinars, seminars, and conferences are hugely beneficial. The regulatory and government relations that MIBA provides for community banks, making sure our voices are heard in Washington, D.C., and Jefferson City is critical. But again, the biggest benefit is having that network of fellow bankers who you get to know and become friends with. People you can reach out to and ask questions should the need arise. Kim and his beautiful wife of 41 years, Kathy, still live on the Light family farm. Over the years, surrounding properties have been purchased, increasing the size and making it a perfect place for the entire family. His two children and their families each have houses on the farm as well: son Brett and his wife Nickie, as well as daughter Ashton and her husband Zach, who just had their first baby this past March. “We all love and appreciate the lifestyle that the farm provides for us,” reflected Kim. Looking back on his career, Kim said, “I cannot imagine doing anything differently, I have no regrets. My banking career has been so rewarding. Like the lady I mentioned who spoke to me at the restaurant, experiences like that are priceless. Even though there have been hard times and challenges over the years, I have always strived to help people and to help the community. At the end of the day, it’s all about the people you serve and the people that you work with.” 22 | The Show-Me Banker Magazine
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A Fresh Perspective FOMC’s 2025 Roster Has Some New Voters By Jim Reber, President and CEO, ICBA Securities It appears that the cost of funds has finally started to level off as the effects of the first rate cut take hold. While we in the financial services sector start thinking about monetary policy in the coming year, there’s a new wrinkle to consider. Many Fed-watchers, rate prognosticators, economists and even investors had been betting on substantially lower rates in 2025 for many months. It looked like the corner had been turned with the 50 basis-point (0.50%) cut to fed funds on Sept. 18. Almost immediately thereafter, persistently strong economic data caused members of the Federal Reserve Board to at least orally tamp down market expectations for aggressive cutting in the near future. The “wrinkle” is the makeup of the Federal Open Market Committee (FOMC) next year. The people who actually cast a vote for our central bank’s monetary policy are a subset of the entire Federal Reserve Board. The FOMC consists of 12 members from two separate groups. The seven governors — who are nominated by the U.S. president and confirmed by the Senate and include Chairman Jay Powell — vote at each of the meetings. The remaining five members are, most of the time, an annually rotating set of regional Federal Reserve district presidents elected by their constituents. New for 2025 Next year, the five regional bank presidents on the committee are: • John Williams, New York • Austan Goolsbee, Chicago • Susan Collins, Boston • Alberto Musalem, St. Louis • Jeff Schmid, Kansas City The New York Fed president is the only permanently-voting member in the group. The Fed’s open market operations, which is where rubber meets the road on interest rates, are conducted through the New York bank, hence the permanent spot on the FOMC. The other four are perhaps wild cards, at least as Fed-watchers are concerned. Susan Collins has voted for only one year since her election in 2022; the same goes for Austan Goolsbee in 2023. The other two have not yet voted, given their elections since 2022. So, these voters will have their words and actions very closely parsed for “dovish” or “hawkish” leanings relative to interest rates. But let’s not oversell the impact: The votes at the conclusion of the FOMC’s meetings are usually unanimous. I can’t think of the last time there was more than one dissenting vote. It’s also true that the other seven regional bank presidents who are not voters in a given year participate in the discussions and deliberations. Still, it’s unusual for the FOMC to have this number of voters with little or no track record. Tools in the Shed Now that we’ve had a refresher course, let’s talk about what the Fed can do regarding interest rates, which certainly have direct impact on community bank profitability. The most visible (and talked about) rate is fed funds, which is what financial institutions charge one another for overnight borrowings. The Fed controls that rate through the setting of reserve requirements; if it wants fed funds to drop, it decreases the level of reserves required in the system, thereby freeing up more money to be lent and invested. 24 | The Show-Me Banker Magazine
It also runs the discount window as part of its mission of being the “lender of last resort.” Fed members, including community banks, have access to these short-term borrowing which can help manage liquidity risk, especially during times of market disruptions. The discount rate is set by the Fed and highly correlated to fed funds. Not least among its kit is the open market operations mentioned previously. If the Fed decides it needs to impact interest rates that have longer terms than money markets, it has the capacity to invest vast sums in securities to bring down costs of borrowing. In doing so, the Fed effectively subsidizes all manner of debtors: consumers, homeowners, corporations, municipalities and even the largest borrower on earth: the federal government. Never was this more visible than the early stages of the COVID pandemic, when the Fed purchased over $4 trillion in treasuries and mortgage-backed securities — most of which it still owns — in 2020 alone. Current Forecast As we get ready to close out another year, what do the financial markets expect in 2025? This time last year, around 175 basis points in rate cuts were in the 2024 future's numbers. Perhaps because of that (i.e., grossly overestimating the decrease in fed funds), the U.S. economy’s impressive resilience, and inflation’s refusal to get back into its 2% box, we’re still singing from the “higher for longer” hymnal. Research Resource Most of the data used in this column is from the Federal Reserve’s website. It contains a wealth of information on the history and structure of the central bank, as well as archival facts on FOMC meetings and the execution of monetary policy. But that should bode well for community banks. It appears that the cost of funds has finally started to level off as the effects of the first rate cut take hold. Overall, borrower financial health appears to be holding up, so loan demand should be at least average. And maybe, if the interest rate curve ever returns to a normal slope, community bankers can get back to pricing relative risk into their balance sheets. Perhaps the first lap for several new FOMC voters will be steady as she goes. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. The Show-Me Banker Magazine | 25
Embracing AI in Community Banking: Trends, Policies and Practical Uses for Small Banks By Bailey Ronnebaum, Business Development Manager, forbinfi 26 | The Show-Me Banker Magazine
As technology evolves, AI has moved from being a futuristic concept to an essential tool that can improve efficiency, customer service and security. But with these advancements come new considerations for compliance and policy, especially as AI usage grows and regulations catch up. This article will explore current trends in AI, emerging policies and practical applications tailored to community banks. Current Trends and Staying Relevant 1. Chatbots and Virtual Assistants: Implementing AI-powered chatbots can provide 24/7 customer support, handle routine inquiries and assist with basic banking transactions, improving customer satisfaction and reducing operational costs. 2. Personalized Customer Experiences: AI can analyze customer data to offer personalized product recommendations, tailored financial advice and targeted marketing campaigns, which can help increase customer engagement and loyalty. 3. Fraud Detection and Prevention: AI and machine learning algorithms can detect unusual patterns and behaviors in transactions, helping to identify and prevent fraudulent activities more effectively. 4. Credit Scoring and Risk Management: AI can enhance credit scoring models by incorporating a wider range of data points and more sophisticated analysis, leading to more accurate assessments of creditworthiness and risk. 5. Process Automation and Back Office Management: AI can automate repetitive and time-consuming tasks such as data entry, document processing or review, scheduling meetings and compliance checks, freeing up staff to focus on higher-value activities. 6. Document and Policy Library: You could purchase a non-public AI tool to be crafted around your documents, policies and procedures. Then you would be able to search all documents using AI in that tool to find answers quickly. 7. Predictive Analytics: AI can help banks forecast customer behavior, market trends and financial performance, enabling more informed decision-making and strategic planning. 8. Regulatory Compliance: AI can assist in monitoring and ensuring compliance with regulatory requirements by automating reporting, tracking changes in regulations and conducting ongoing audits. 9. Marketing: Utilize open-source platforms like ChatGPT or Copilot to create content for emails, strategic plans and outlines for blogs and social media posts. For smaller community banks, AI is currently most effective for streamlining back-office processes, enhancing customer service with chatbots and improving marketing efforts. More advanced AI applications often require custom-built tools tailored to the bank’s needs, which can be costly and challenging to implement, especially if these tools don’t integrate seamlessly with the bank’s existing systems. Policies and Procedures Community banks are adopting various policies and procedures to effectively and ethically integrate AI into their operations. Here are some key areas to focus on — keep in mind that AI policies can still be a gray area currently, so these are some examples of what other banks may be working towards implementing: 1. Data Privacy and Security • Data Protection Policies: Establishing robust data protection policies to ensure customer data is securely stored, processed and used. • Encryption and Access Controls: Implementing encryption and strict access controls to protect sensitive information from unauthorized access. • Compliance with Regulations: Ensuring compliance with data privacy laws such as GDPR, CCPA and other relevant regulations. 2. Ethical AI Usage • Bias and Fairness: Developing procedures to monitor and mitigate biases in AI algorithms to ensure fair treatment of all customers. • Transparency: Ensuring transparency in AI decision-making processes and communicating clearly with customers about how their data is being used. • Ethical Guidelines: Establishing ethical guidelines for AI development and deployment, including the responsible use of customer data. The Show-Me Banker Magazine | 27
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