ISSUE 6 2024 Official Publication of the Community Bankers Association of Kansas HAPPY HOLIDAYS FROM CBA 6 5 AI: THE NEW FRONTIER
CONTENTS Issue 6 www.cbak.com ©2024 Community Bankers Association of Kansas | The newsLINK Group LLC. All rights reserved. In Touch is published six times each year by The newsLINK Group LLC for the Community Bankers Association of Kansas 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 Community Bankers Association of Kansas, 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 Community Bankers Association of Kansas is a collective work, and as such, some articles are submitted by authors who are independent of the Community Bankers Association of Kansas. While In Touch 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. 5 HAPPY HOLIDAYS FROM CBA 6 FLOURISH AI: THE NEW FRONTIER By Rebeca Romero Rainey, President and CEO, ICBA 8 CB PAC 10 PORTFOLIO MANAGEMENT BRIDGING THE GAP Rate Cuts Could Hit Your Margin, But There Are Steps You Can Take to Reduce the Pressure By Michael Benedict, Managing Director, Fixed Income Strategies, Stifel 12 THE 2025 COMMUNITY BANKERS FOR COMPLIANCE PROGRAM Guiding Community Banks to Achieve Effective In-House Regulatory Compliance 14 A GROWING FRAUD SCHEME YOUR FINANCIAL INSTITUTION SHOULD BE AWARE OF, AND HOW TO PROTECT AGAINST LOSSES By Shelli Clarkston, Spencer Fane LLP 16 ICBA LIVE 18 CHECKING YOUR BSA PROGRAM IS MORE IMPORTANT THAN EVER By William J. Showalter, CRCM, CRP, Senior Consultant, Young & Associates Inc. 21 INNOVATION STATION DRIVING STRATEGY WITH AI AS A TOOL By Charles Potts, Executive Vice President and Chief Innovation Officer, ICBA 22 ANNIVERSARIES 23 OFFICERS AND DIRECTORS 23 PRODUCTS AND SERVICES REFERENCE LIST 26 BANK WEBINARS 6 AI: THE NEW FRONTIER 10 BRIDGING THE GAP 18 CHECKING YOUR BSA PROGRAM IS MORE IMPORTANT THAN EVER 4 In Touch
Happy Holidays From CBA As the year draws to a close, we want to take this opportunity to sincerely thank our valued members and partners. Your support means the world to us. Wishing you joyful holidays and a new year filled with prosperity and happiness! Shawn,Nikki and Yvonna 5 In Touch
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. 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 FLOURISH AI: THE NEW FRONTIER BY REBECA ROMERO RAINEY, PRESIDENT AND CEO, ICBA 6 In Touch
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/advocacy.) 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. 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. 7 In Touch
Please consider making a contribution to CB PAC to protect the future of community banking in Kansas. When you or your bank contributes at least $100, you’ll be included as part of the Century Club. Banks with 100% of employees and/or officers and directors contributing to CB PAC receive the distinction of being a Century Club 100% Bank. The Community Bankers Political Action Committee (CB PAC) gives community bankers like you a voice in state politics by contributing to political candidates that uphold your values. CB PAC is the only state PAC that exclusively represents the interests of CBA of Kansas members. When you are a part of the Century Club, your professional interests are represented in the legislative process, ensuring that the financial services industry maintains a fair, competitive atmosphere. Your contribution to CB PAC demonstrates your commitment to the future of local banks in the state of Kansas. Yes! I want to take an active role in the future of my bank by participating in Community Bankers PAC efforts in the legislative process. Enclosed is my contribution for: ______ $100 $_______ Other _________________________________________ Contributor _________________________________________ Bank Name (________)_______________________________ Phone _________________________________________ Address _________________________________________ City State Zip Please return to: Community Bankers PAC 5897 SW 29th Street Topeka, Kansas 66614 Guidelines You Need To Know Individuals, state-chartered banks and holding companies of national banks may contribute to more than one state PAC in any year. A designated consent form allowing solicitation of bank employees for a federal PAC does not prevent your bank from contributing to CB PAC, a state PAC. Please consider making a contribution to CB PAC to protect the future of community banking in Kansas. When you or your bank contributes at least $100, you’ll be included as part of the Century Club. Banks with 100% of employees and/or officers and directors contributing to CB PAC receive the distinction of being a Century Club 100% Bank. The Community Bankers Political Action Committee (CB PAC) gives community bankers like you a voice in state politics by contributing to political candidates that uphold your values. CB PAC is the only state PAC that exclusively represents the interests of CBA of Kansas members. When you are a part of the Century Club, your professional interests are represented in the legislative process, ensuring that the financial services industry maintains a fair, competitive atmosphere. Your contribution to CB PAC demonstrates your commitment to the future of local banks in the state of Kansas. Yes! I want to take an active role in the future of my bank by participating in Community Bankers PAC efforts in the legislative process. Enclosed is my contribution for: ______ $100 $_______ Other _________________________________________ Contributor _________________________________________ Bank Name (________)_______________________________ Phone _________________________________________ Address _________________________________________ City State Zip Guidelines You Need To Know Individuals, state-chartered banks and holding companies of national banks may contribute to more than one state PAC in any year. A designated consent form allowing solicitation of bank employees for a federal PAC does not prevent your bank from contributing to CB PAC, a state PAC. For questions regarding contributions, please contact Yvonna at yvonna@cbak.com.
Well, it finally happened. After increasing short-term policy rates at the fastest pace in modern history and holding them there for more than a year, the Federal Reserve reduced the federal funds rate by 50 basis points (0.50%) in September to kick off an eagerly anticipated rate-cut cycle. According to the FDIC, community bank net interest margin (NIM) rose by seven basis points in the second quarter of 2024, but profitability pressures clearly remain. Both return on assets (ROA) of 0.95% and return on equity (ROE) of 9.60% increased only modestly versus the previous quarter. Given the liability sensitivity exhibited by the industry over the past year and a half, one might think that the directional change in short-term policy rates — and an associated re-steepening of the yield curve — might be a boon for bank profitability. However, there are a couple of reasons this may not be the case. Takeaways From Previous Cycles Though a steeper yield curve is better for bank profitability over the medium to long term, asset yields may be more responsive to reduced policy rates than liability costs in the near term. This seems somewhat counterintuitive but is primarily driven by two factors. The first is that a greater percentage of assets than liabilities are indexed. That means that once the index declines, coupons reset lower at the next reset date. What’s considered a boon when interest rates rise will work in reverse as rates decline. Second is the migration of non-maturity deposits into CDs. While most CDs feature relatively short tenures, this movement lengthens the average maturity of liabilities and will limit banks’ ability to reduce deposit rates in lockstep with policy rates. This delay is amplified for institutions in competitive markets, as your ability to lower deposit rates may BRIDGING THE GAP Rate Cuts Could Hit Your Margin, But There Are Steps You Can Take to Reduce the Pressure BY MICHAEL BENEDICT, MANAGING DIRECTOR, FIXED INCOME STRATEGIES, STIFEL PORTFOLIO MANAGEMENT 10 In Touch
Though a steeper yield curve is better for bank profitability over the medium to long term, asset yields may be more responsive to reduced policy rates than liability costs in the near term. be limited if others in your footprint are reluctant to do so. Both factors will course-correct over time, but a review of asset and liability betas from previous easing cycles suggests that it may take two years or more before the cumulative decline in funding costs meaningfully outpaces the cumulative decline in asset yields. During the transition period, strategies geared toward increasing asset yields become the best defense against continued margin pressure. Remixing the balance sheet, purchasing loans to supplement organic originations or repositioning a portion of the securities portfolio are several strategies that can be employed to drive incremental movements as a stopgap measure. What Could Be Different This Time? To paraphrase the saying, history often rhymes but never repeats. So, recognizing that previous rate-cut cycles may provide useful guidance, how might the current cycle differ? First and foremost is the economy. To date, the economy has weathered a restrictive policy stance remarkably well. There are still several pockets of concern that need to be monitored — low levels of housing turnover, credit performance in commercial real estate and the effects of higher interest rates on consumer credit, to name a few. That said, absent a material deterioration in economic performance, the pace and depth of policy adjustments may be somewhat lesser in this cycle than in the past. This is especially true when recognizing that inflation readings remain above the Federal Reserve’s longer‑run target of 2%, which may limit its ability to move to an accommodative policy stance. As a reference point, it seems important to note that the easing cycles since the turn of the century have averaged nearly 350 basis points of cuts over the 12 months following the initial move lower. At the time of writing, fed funds futures project a decline of roughly 240 basis points over the 12 months beginning in September 2024. If realized as expected, this would place the current cut cycle among the shallowest of modern monetary policy and would likely limit the amount of relief for bank profitability. Second is the impact of technology. The development of technologies allowing consumers to quickly compare deposit rates nationwide means that your competition isn’t just across the street anymore. Furthermore, those same consumers can just as easily place their funds into other short-term products, such as money market funds. Wait, Prepare and See Indeed, data from the Federal Reserve show that retail money market fund balances ended the second quarter of 2024 at $1.89 trillion, an increase of roughly 67% over the previous peak of $1.17 trillion. While difficult to quantify the precise impact on deposit pricing, the sizable increase has undoubtedly affected the banking industry. That growth will almost certainly slow or reverse as policy rates move lower, but a mass migration into the banking system seems appears unlikely outside of a crisis scenario where return of principal becomes more important than return on principal. Until then, depositors will likely remain more rate-sensitive than in the past. Each rate cycle is unique, but previous reductions in short-term interest rates have taken time to meaningfully improve profitability across the banking industry. Complicating matters further, the relatively shallow market-implied path of policy rates and increased competition due to technology developments may create additional setbacks even if the yield curve normalizes. As such, management teams hoping for the first Fed cut to provide near-term relief may not get all they want, but those who plan appropriately will be in prime position to benefit when the environment improves. Michael Benedict (benedictm@stifel.com) is a managing director of fixed income strategies at Stifel, ICBA Securities’ exclusively endorsed broker. 11 In Touch
THE 2025 COMMUNITY BANKERS FOR COMPLIANCE PROGRAM Guiding Community Banks to Achieve Effective In-House Regulatory Compliance Presented by To learn more and register today, scan the QR code. https://www.cbak.com/ about-us/compliance-tool/ In today’s constantly evolving regulatory environment, staying informed is crucial. The CBC Program keeps your bank ahead of the curve with up-to-date insights on ever-changing regulations and offers expert guidance for structuring and maintaining a robust in-bank compliance program. This program also fosters a collaborative environment where compliance professionals can connect, share experiences and exchange ideas with fellow community bankers. Not only will these programs benefit attendees of the virtual seminars, but they will also provide invaluable insights for other team members within your bank who require this critical information. We offer three levels of service: the CBC Basic Program, the CBC Enhanced Program and the CBC Extended Regulatory Update Program to ensure that your employees receive the level of training they need. CBA of Kansas members receive more than 60% off the enrollment fee! 12 In Touch
Is your community bank bond portfolio performing? Meet Jim. Jim meets with community bankers across the U.S. to discuss ICBA Securities’ investment products, services, and education through our exclusively endorsed broker, Stifel. Investing through Stifel is a direct investment back into the community banking industry. When Jim is on the road, he always takes time to enjoy local restaurants and share on social media. As an ICBA member, you’ve got Jim’s help investing. Learn more at icba.org/securities Member FINRA/SIPC
A Growing Fraud Scheme Your Financial Institution Should Be Aware Of, and How To Protect Against Losses BY SHELLI CLARKSTON, SPENCER FANE LLP Recently, financial institutions are 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 14 In Touch
FMSI www.fmsiconsulting.com 913.955.3355 FMSI is a small business founded and located in Kansas, specializing in assisting community banks to succeed, a mission consistent with core CBA values. We have partnered with community banks for nearly 25-years providing core advisory services including asset/ liability, investment, and liquidity management. FMSI advisors actively assess market conditions and bank balance sheets of different size, mix, and capital levels. Market conditions are constantly changing presenting opportunities and challenges for CBA member banks. Interest rates are increasing for the first time in nearly a decade and now is a perfect time to partner with a trusted, industry leader. Establishing an FMSI relationship provides confidence your bank is optimizing the balance sheet, deploying necessary strategies, maximizing profitability, and managing balance sheet risks. FMSI is a Kansas CBA Endorsed Provider 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 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. 15 In Touch
RHYTHM. AMPLIFIED. Together, community bankers amplify the power and successes of our industry at the largest annual gathering of community bankers—ICBA LIVE 2025. Plug into a wide range of educational offerings to boost your knowledge and bring it back to your bank. Synchronize with fellow community bankers and industry experts on the latest industry trends and innovations. Celebrate the unique rhythm of our industry through energizing and inspiring general sessions and unparalleled networking events. Register today at icba.org/live March 11–14, 2025 Gaylord Opryland Resort & Convention Center NASHVILLE
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CHECKING YOUR BSA PROGRAM IS MORE IMPORTANT THAN EVER BY WILLIAM J. SHOWALTER, CRCM, CRP, SENIOR CONSULTANT, YOUNG & ASSOCIATES INC. 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 18 In Touch
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. 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 anti-money laundering (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 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 19 In Touch
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. 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. 20 In Touch
DRIVING STRATEGY WITH AI AS A TOOL BY CHARLES POTTS, EXECUTIVE VICE PRESIDENT AND CHIEF INNOVATION OFFICER, ICBA Check out the ICBA ThinkTECH Solutions Forum: Putting AI to Work Our ThinkTECH Solutions Forum session answers the question of how to effectively use this AI at your community bank. Scan the QR code to access the recording. Artificial intelligence has become the buzzword for financial services, but it’s moved beyond just hype. Today, community bankers and their partners are experimenting with AI‑like tools in the predictive and generative space to support business objectives, including chatbots to offer 24/7 customer support, monitoring transaction data to spot suspicious activity, underwriting loans and more. Therein lies the key to AI success: aligning it with overall bank strategy. As exciting of an offering as it is, AI is a utility. For community bankers to use it effectively, we need to assess how it helps us solve a problem for our banks. Identifying Community Bank AI Solutions At ICBA Innovation, we’ve been watching AI’s evolution closely and are struck by three important observations: • There’s still a great deal of confusion in the industry — from solution providers to bankers to regulatory agencies — as to what AI actually is. As an industry, we have allowed external forces, including people with financial interest in these technologies, to form the narrative. This, in turn, creates uncertainty. • However, there’s true technological evolution in this space. Established fintech companies are offering improved solutions using AI-based tools, and new companies are entering the pipeline. • We’re witnessing AI-based tools that can help our banks, and we’re finding ways to shine a light on those solutions. Supporting AI Strategy These developments led us to host our AI Solutions Forum. We identified AI solution providers that were already doing work with community bankers and asked those bankers to share how AI addressed problems, where they are seeing successes and where these solutions fit into their strategies. The resulting AI Solutions Forum provides a firm base on which community bankers can learn and grow. It’s a chance for both C-suite and up-and-coming leaders to expose themselves to something new in a safe, trusted environment. It’s our goal not to just dive into the shiny new thing but to create a place for substantive, peer-to-peer dialogue and strategic exploration. AI may be the technology du jour, but it has real potential to solve community bank problems. So, we want to ensure you have the information you need to make informed decisions and drive your strategy forward — one new tool at a time. INNOVATION STATION https://tinyurl.com/ putAI2work 21 In Touch
Congratulations to the banks celebrating December anniversaries as chartered institutions! ANNIVERSARIES December 140 years, est. 1884 First National Bank & Trust — Phillipsburg 138 years, est. 1886 Conway Bank — Conway Springs 135 years, est. 1889 Kansas State Bank — Overbrook 115 years, est. 1909 Farmers State Bank — Phillipsburg 111 years, est. 1913 Johnson State Bank — Johnson 90 years, est. 1934 First State Bank & Trust — Tonganoxie 63 years, est. 1961 Security State Bank — Scott City Mortgage Investment Services Corporation 22316 Midland Drive • Shawnee, KS • 66226 • 913-390-1010 NMLS# 194708 • A Kansas licensed mortgage company #MC 0001182 Missouri Residential Mortgage Loan Broker License #10-1912 Oklahoma Mortgage Broker #MB001953 Colorado License #100044344 Nebraska Licensed Mortgage Company NMLS#194708 Arkansas License #124530 YEARS 24 Let’s Talk Fair Lending! Partnering with Mortgage Investment Services Corporation (MISC) means equal access to credit for housing to all within your community. Here’s why collaborating with us sets you apart: • Fair Lending Protocols, Regulatory Compliance • Tailored Solutions for Diverse Clientele • Government financing options: FHA, VA, & USDA-RD • Rebuilding your community with renovation lending • Expand your customer reach Join forces with MISC to provide every member of your community with the opportunity for homeownership. We get it right the first time! Andrew Holtgraves, Senior Vice President • Cell: 913-558-2555 Email: Andrew@MISCHomeLoans.com • NMLS: #276932 22 In Touch
Products and Services Reference List 2024‑2025 CBA OFFICERS AND DIRECTORS Joe Rottinghaus Chairman Conway Bank Tanner Johnson Chairman‑Elect Swedish‑American Bank Tom Pruitt Secretary/Treasurer Peoples Bank & Trust Company Irv Mitchell Immediate Past Chairman Wilson State Bank DIRECTORS Jeff Caudle Union State Bank Kent Culbertson First National Bank and Trust Matt Engel Farmers State Bank Cheri Fahrbach First National Bank of Hutchinson Chris Floyd Dream First Bank Brandon Lee Union State Bank Margaret Nightengale Grant County Bank Steven Suellentrop Legacy Bank Michele C. (Mickey) Lundy Past Chairman Tampa State Bank STATE ICBA DIRECTOR Blake Heid First Option Bank CBA STAFF Shawn Mitchell President and CEO shawn@cbak.com Nikki Dohrman Senior Vice President/ Executive Director nikki@cbak.com Yvonna Hansen Vice President of Member Services yvonna@cbak.com Stuart Little Little Government Relations LLC Officers and Directors The following CBA Associate Members are ready to serve you when you need them. Please keep this list handy, and the next time you’re looking for a specific service, you’ll know where to look first! Remember, this is just a sampling of what each company provides. The “*” represents an agreement for a specific endorsed product with that company. Not all products that these companies offer are endorsed by CBA. To see a detailed list and explanation of endorsements, visit CBA at www.cbak.com. Keep in mind that the services listed by each company on this page may only be a sampling of the many services they offer. By their CBA Associate Membership, these companies have shown their commitment to serving community banks. Please look to these companies first, whenever possible, to meet your banking needs. ABSTRACTING Security 1st Title Wichita, KS . . . . . . . . ........(316) 267‑8371 ACCOUNTING/TAX RETURNS Allen, Gibbs & Houlik LC Wichita, KS . . . . . . . . ........(316) 267‑7231 Varney & Associates, CPAs LLC Manhattan, KS . . . . . . ........ (785) 537‑2202 ACH *SHAZAM Johnston, IA . . . . . . . ......... (515) 288‑2828 ADVERTISING SPECIALTIES *SJC Marketing Susan: St. Joseph, MO . . . ..... (816) 396‑8575 *Works24 Brian: Edmond, OK . . . . . . . . . .(800) 460‑4653 ALARMS & SECURITY PRODUCTS Federal Protection Springfield, MO . . . . . . ...... (800) 299‑5400 Oppliger Banking Systems Inc. Lenexa, KS . . . . . . . . ........ .(800) 487‑7875 ARTIFICIAL INTELLIGENCE *Agent IQ Drew: Austin, TX . . . . . ....... (830) 708‑9370 ASSET LIABILITY MANAGEMENT *Financial Management Services Inc. (FMSI) Chuck: Overland Park, KS (913) 955‑3355 See ad pg. 15 *QwickRate Dan: Marietta, GA . . . . . ..... (800) 285‑8626 ATM EQUIPMENT (NEW/USED) Federal Protection Springfield, MO. . . . . . . ...... (800) 299‑5400 Oppliger Banking Systems Inc. Lenexa, KS . . . . . . . . ......... (800) 487‑7875 AUCTION Purple Wave Manhattan, KS . . . . . . ........ (785) 537‑7653 BACK ROOM SERVICE Modern Banking Systems Ralston, NE . . . . . . . . ......... (800) 592‑7500 BALANCE SHEET CONSULTING *Financial Management Services Inc. (FMSI) Chuck: Overland Park, KS (913) 955‑3355 See ad pg. 15 BANK OPERATIONS The Baker Group Oklahoma City, OK . . . . ...... (800) 937‑2257 *QwickRate Dan: Marietta, GA . . . . . ..... (800) 285‑8626 BANK/PEER PERFORMANCE *QwickRate Dan: Marietta, GA . . . . . ..... (800) 285‑8626 BANKRUPTCY Spencer Fane LLP Overland Park, KS . . . . . ..... (800) 526‑6529 BANK STOCK LOANS & LOAN OVERLINES Commerce Bank Kansas City, MO . . . . . . ....... (800) 821‑2182 *S&P Global Stacy: Charlottesville, VA . . .... (434) 951‑4419 BOND ACCOUNTING First Bankers Banc Securities Overland Park, KS . . . . . ...... (913) 469‑5400 *ICBA Securities Corporation Jim: Memphis, TN . . . . . ...... (800) 422‑6442 COMPLIANCE ASSISTANCE/REVIEWS *Advanced Business Solutions (ABS) Sandy: Olathe, KS . . . . . . . . . . . (913) 340‑7041 Allen, Gibbs & Houlik LC Wichita, KS . . . . . . . . ........(316) 267‑7231 *BHG Bank Group Tom: Syracuse, NY . . . . . ......(315) 372‑4510 *MPA Systems David: Fort Worth, TX . . . ..... (888) 233‑1584 Purple Wave Manhattan, KS . . . . . . ........ (785) 313‑2094 Varney & Associates, CPAs LLC Manhattan, KS . . . . . . ........ (785) 537‑2202 Young & Associates Inc. Kent, OH . . . . . . . . ......... (800) 525‑9775 23 In Touch
CONSULTING *Bank Compensation Consulting (BCC) Rich: Plano, TX | (303) 482‑1844 See ad pg. 17 *CRA Partners | SHCP Foundation Kristine . . . . . . . . . ........... (914) 656‑8643 Young & Associates Inc. Kent, OH . . . . . . . . ......... (800) 525‑9775 CORRESPONDENT SERVICES Commerce Bank Kansas City, MO . . . . . . ....... (800) 821‑2182 First National Bank of Hutchinson Hutchinson, KS . . . . . . ....... (800) 293‑0683 The Bankers Bank Oklahoma City, OK . . . . ...... (800) 522-9220 CORE SERVICES Data Center Inc. (DCI) Hutchinson, KS | (620) 694‑6800 See ad pg. 27 Modern Banking Systems Ralston, NE . . . . . . . . ......... (800) 592‑7500 *SHAZAM Bill M. Johnston: IA . . . . . ...... (515) 306‑8012 CRA/COMPLIANCE *CRA Partners | SHCP Foundation Kristine . . . . . . . . . ........... (914) 656‑8643 CREDIT AND PORTFOLIO RISK MANAGEMENT Young & Associates Inc. Kent, OH . . . . . . . . ......... (800) 525‑9775 CREDIT CARD PROGRAM *ICBA Payments Heather: Washington, D.C. . . ... (800) 242‑4770 CREDIT SUPPORT *Advanced Business Solutions (ABS) Sandy: Olathe, KS . . . . . . . . . . . (913) 340‑7041 DATA ANALYTICS KlariVis Roanoke, VA . . . . . . . ........ (540) 357‑0011 *QwickRate Dan: Marietta, GA . . . . . ..... (800) 285‑8626 DATA PROCESSING Data Center Inc. (DCI) Hutchinson, KS | (620) 694‑6800 See ad pg. 27 Modern Banking Systems Ralston, NE . . . . . . . . ......... (800) 592‑7500 DEBIT/ATM CARD SERVICES *ICBA Payments Heather: Washington, D.C. . . ... (800) 242‑4770 *SHAZAM Matt M. Johnston: IA . . . . ..... (515) 480‑5767 DIGITAL LENDING *BHG Bank Group Tom: Syracuse, NY . . . . . ......(315) 372‑4510 DIGITAL RELATIONSHIP BANKING *Agent IQ Drew: Austin, TX . . . . . ....... (830) 708‑9370 DIRECTORS AND OFFICERS INS. *Travelers Danielle: St. Louis, MO . . . ... (800) 255‑5072 *UNICO Group Inc. Diana: Lenexa, KS | (800) 755‑0048 See ad pg. 28 DIRECTORS EXAMS Allen, Gibbs & Houlik LC Wichita, KS . . . . . . . . ........(316) 267‑7231 Varney & Associates, CPAs LLC Manhattan, KS . . . . . . ........ (785) 537‑2202 DISASTER RECOVERY FACILITY PROGRAM *MPA Systems David: Fort Worth, TX . . . ..... (888) 233‑1584 DOCUMENT MANAGEMENT *Trust Exchange Leo: Austin, TX . . . . . . ........ (888) 777‑8434 EDUCATION *CRA Partners | SHCP Foundation Kristine . . . . . . . . . ........... (914) 656‑8643 EMERGENCY FACILITIES/MODULAR BANK BUILDINGS FOR LEASE *MPA Systems David: Fort Worth, TX . . . ..... (888) 233‑1584 EMPLOYEE AND EXEC. BENEFITS *Bank Compensation Consulting (BCC) Rich: Plano, TX | (303) 482‑1844 See ad pg. 17 Woner, Reeder & Girard P.A. Topeka, KS . . . . . . . . ......... (785) 235‑5330 ESCROWS Security 1st Title Wichita, KS . . . . . . . . ........(316) 267‑8371 FINANCIAL INST. BOND *Travelers Danielle: St. Louis, MO . . . ... (800) 255‑5072 *UNICO Group Inc. Diana: Lenexa, KS | (800) 755‑0048 See ad pg. 28 HUMAN RESOURCES *UNICO Group Inc. Diana: Lenexa, KS | (800) 755‑0048 See ad pg. 28 INFORMATION TECHNOLOGY Integris Olathe, KS . . . . . . . . ......... (325) 947‑5550 Kansas Bankers Technologies Salina, KS . . . . . . . . .......... (888) 752‑8435 KlariVis Roanoke, VA . . . . . . . ........ (540) 357-0011 RESULTS Technology Overland Park, KS . . . . . ...... (877) 435‑8877 Varney & Associates, CPAs LLC Manhattan, KS . . . . . . ........ (785) 537‑2202 INSURANCE — BANK *Bank Compensation Consulting (BCC) Rich: Plano, TX | (303) 482‑1844 See ad pg. 17 *Travelers Danielle: St. Louis, MO . . . ... (800) 255‑5072 *UNICO Group Inc. Diana: Lenexa, KS | (800) 755‑0048 See ad pg. 28 INTEREST RATE RISK SERVICE *Financial Management Services Inc. (FMSI) Chuck: Overland Park, KS (913) 955‑3355 See ad pg. 15 *ICBA Securities Corporation Jim: Memphis, TN . . . . . ...... (800) 422‑6442 INTERNAL AUDIT *Advanced Business Solutions (ABS) Sandy: Olathe, KS . . . . . . . . . . . (913) 340‑7041 INTERNET BANKING Data Center Inc. (DCI) Hutchinson, KS | (620) 694‑6800 See ad pg. 27 *ICBA Payments Heather: Washington, D.C. . . ... (800) 242‑4770 KlariVis Roanoke, VA . . . . . . . ........ (540) 357-0011 24 In Touch
INTERNET WORLD WIDE W.E.B. Oppliger Banking Systems Inc. Lenexa, KS . . . . . . . . ......... (800) 487‑7875 INVESTMENTS Central States Capital Markets Kansas City, MO . . . . . . ....... (800) 851‑6459 Commerce Bank Kansas City, MO . . . . . . ....... (800) 821‑2182 *Financial Management Services Inc. (FMSI) Chuck: Overland Park, KS (913) 955‑3355 See ad pg. 15 First Bankers Banc Securities Overland Park, KS . . . . . ...... (913) 469‑5400 *ICBA Securities Corporation Jim: Memphis, TN . . . . . ...... (800) 422‑6442 IT SECURITY Integris Olathe, KS . . . . . . . . ........ .(325) 947‑5550 Kansas Bankers Technologies Salina, KS . . . . . . . . .......... (888) 752‑8435 *RESULTS Technology Darla: Overland Park, KS . . .... (877) 435‑8877 LEGAL SERVICES Spencer Fane LLP Overland Park, KS . . . . . ..... (800) 526‑6529 Woner, Reeder & Girard P.A. Topeka, KS . . . . . . . . ......... (785) 235‑5333 LENDING *BHG Bank Group Tom: Syracuse, NY . . . . . ......(315) 372‑4510 LOAN COLLECTIONS AND WORKOUTS Spencer Fane LLP Overland Park, KS . . . . . ..... (800) 526‑6529 Woner, Reeder & Girard P.A. Topeka, KS . . . . . . . . ......... (785) 235‑5330 LONG RANGE PLANNING The Capital Corporation LLC Overland Park, KS . . . . . ...... (913) 498‑8188 Varney & Associates, CPAs LLC Manhattan, KS . . . . . . ........ (785) 537‑2202 MARKETING Harland Clarke Newton, KS . . . . . . . ......... (800) 322‑0818 *SHAZAM Johnston, IA . . . . . . . ......... (515) 288‑2828 *SJC Marketing Susan: St. Joseph, MO . . . ..... (816) 396‑8575 *Works24 Brian: Edmond, OK . . . . . . . . . .(800) 460‑4653 MERCHANT PROCESSING *SHAZAM Johnston, IA . . . . . . . ......... (515) 288‑2828 MERGERS/ACQUISITIONS The Capital Corporation LLC Overland Park, KS . . . . . ...... (913) 498‑8188 Olsen Palmer Kansas City, MO . . . . . . ....... (816) 379‑4029 Spencer Fane LLP Overland Park, KS . . . . . ..... (800) 526‑6529 MOBIL CUSTOMER ENGAGEMENT *Agent IQ Drew: Austin, TX . . . . . ....... (830) 708‑9370 NETWORK SECURITY Kansas Bankers Technologies Salina, KS . . . . . . . . .......... (888) 752‑8435 PAYMENTS *ICBA Payments Heather: Washington, D.C. . . ... (800) 242‑4770 PORTFOLIO MANAGEMENT Central States Capital Markets Kansas City, MO . . . . . . ....... (800) 851‑6459 *Financial Management Services Inc. (FMSI) Chuck: Overland Park, KS (913) 955‑3355 See ad pg. 15 PROMOTIONAL PRODUCTS Harland Clarke Newton, KS . . . . . . . ......... (800) 322‑0818 RETIREMENT PLANNING Central States Capital Markets Kansas City, MO . . . . . . ....... (800) 851‑6459 First Bankers Banc Securities Overland Park, KS . . . . . ...... (913) 469‑5400 SECONDARY MORTGAGE MARKET LENDING FHLBank Topeka Topeka, KS . . . . . . . . ......... (800) 933‑2988 Mortgage Investment Services Shawnee, KS | (913) 390‑1010 See ad pg. 9 SECURITY MONITORING Federal Protection Springfield, MO . . . . . . ...... (800) 299‑5400 SUPPLEMENTAL HEALTH INSURANCE *UNICO Group Inc. Diana: Lenexa, KS | (800) 755‑0048 See ad pg. 28 TECHNOLOGY SERVICES Integris Olathe, KS . . . . . . . . ......... (325) 947‑5530 Kansas Bankers Technologies Salina, KS . . . . . . . . .......... (888) 752‑8435 KlariVis Roanoke, VA . . . . . . . ........ (540) 357-0011 *RESULTS Technology Darla: Overland Park, KS . . .... (877) 435‑8877 *QwickRate Dan: Marietta, GA . . . . . ..... (800) 285‑8626 *S&P Global Stacy: Charlottesville, VA . . .... (434) 951‑4419 TELECOMMUNICATIONS CONSULTING Verge Network Solutions Inc. Oklahoma City, OK . . . . ..... (405) 782‑8400 TELECOMMUNICATIONS SERVICES Verge Network Solutions Inc. Oklahoma City, OK . . . . ..... (405) 782‑8400 TELECOMMUNICATIONS SYSTEMS Verge Network Solutions Inc. Oklahoma City, OK . . . . ..... (405) 782‑8400 THIRD PARTY COMPLIANCE MANAGEMENT *Trust Exchange Leo: Austin, TX . . . . . . ........ (888) 777‑8434 THIRD PARTY RISK MANAGEMENT & CONSULTING *Trust Exchange Leo: Austin, TX . . . . . . ........ (888) 777‑8434 TITLE INSURANCE Security 1st Title Wichita, KS . . . . . . . . ........(316) 267‑8371 WEBSITE DEVELOPMENT *S&P Global Stacy: Charlottesville, VA . . .... (434) 951‑4419 WHOLESALE LENDING FHLBank Topeka Topeka, KS . . . . . . . . ......... (800) 933‑2988 Mortgage Investment Services Shawnee, KS | (913) 390‑1010 See ad pg. 9 Last Update: Sept. 10, 2024 Visit CBA online at www.cbak.com. 25 In Touch
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