JULY/AUGUST BUILDING ON THE PAST, BANKING ON THE FUTURE. A PUBLICATION OF THE INDEPENDENT COMMUNITY BANKERS OF COLORADO 51st Annual Convention BEYOND THE SCREEN The Value of In‑Branch Banking for Young Consumers
©2024 The Independent Community Bankers of Colorado (ICBC) | The newsLINK Group LLC. All rights reserved. The Independent Report is published six times per year. The information contained 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. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the ICBC, 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. ICBC encourages a first-print policy, and 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. 6732 W. Coal Mine Ave., #640 • Littleton, CO 80123 • (303) 832-2000 2023-2024 OFFICERS ICBC CHAIRMAN Randy Younger President & CEO First National Bank Hugo-Limon ICBC PRESIDENT Tom Ogaard President & CEO Native American Bank ICBC PRESIDENT-ELECT Mike Hurst President Del Norte Bank ICBC ICBA STATE DIRECTOR PJ Wharton President & CEO Yampa Valley Bank ICBC STAFF EXECUTIVE DIRECTOR Mike Van Norstrand mvannorstrand@icbcolo.org ADMINISTRATION DIRECTOR/ TREASURER Maelynn Lewis mlewis@icbcolo.org LEGAL COUNSEL Christian Otteson Partner Otteson Shapiro LLP LOBBYIST Mary Marchun Founding Partner The Capstone Group 2023-2024 DISTRICT DIRECTORS DISTRICT A Dan Ebert, Vice President, Evergreen National Bank Mark Sheeley, President/CEO, RNB State Bank/Front Range State Bank Robert Holt, Senior Vice President, North Valley Bank Jeff Walker, Senior Vice President & CCO, Redstone Bank DISTRICT B Mark Brase, President, Points West Community Bank Tim Croissant, Market President, Bank of Colorado Travis Goeglein, Senior Vice President, First FarmBank Ed Rarick, President/CFO, High Plains Bank DISTRICT C Sean Lening, President, GN Bank Kathryn Perry, Senior Vice President, Park State Bank & Trust Lora Rose, CFO, The State Bank Andrew Trainor, President, Community Banking, InBank DISTRICT D Wade Gebhardt, Corporate President, Mountain Valley Bank John Stelzriede, Market President — Colorado River Region, Alpine Bank Joe Martinez, President & CLO, San Luis Valley Federal Bank Jeris Romeo, Community Bank President — Avon & Eagle, ANB Bank ICBC ADVISORY BOARD MEMBERS Eric Budreau Partner Eide Bailly Jim Hall Managing Director Bond & Specialty Insurance — Financial Institutions, Travelers Bill Mitchell President & CEO Bankers’ Bank of the West Christian Otteson Partner Otteson Shapiro LLP I C B C 2 | INDEPENDENT REPORT
30 CONTENTS 04 Support the ICBC’s Associate Members! 06 FLOURISH Connected as Independent Community Banks By Rebeca Romero Rainey, President and CEO, ICBA 07 FROM THE TOP Showing Pride in Independence By Lucas White, Chairman, ICBA, President of The Fountain Trust Company 08 ICBC Preferred Providers 09 ICBC FEATURED MEMBER Out of Office: Ashley Burt By Aveya Hannan 10 51st Annual Convention 12 State Conformity To IRC Section 174 R&D Cost Capitalization Rules Can Vary By Jon Strycharz and Austin Telling, Plante Moran, ICBC Gold Associate Member 13 ASSOCIATE MEMBER SPOTLIGHT Getting to Know Ryan Abdoo of Plante Moran 14 Risks of Using AI in BSA/AML Compliance By Sharvelle Washington, Assistant Vice President, Compliance & Risk, Bankers’ Bank of the West, ICBC Preferred Provider and Member 15 Why More Community Banks Are Choosing to Outsource Their ATMs Challenges Facing FIS in Today’s Consumer Landscape By Wade Zirkle, President, BluePoint ATM Solutions, ICBC Associate Member 17 Outsource and Elevate Your Marketing Efforts By Spry, ICBC Associate Member 18 SBA Loans for Startups Debunking Myths and Laying Out Facts By Christopher Myers, CEO, B:Side Capital, ICBC Associate Member 20 The Value of Mentorship in Banking Cultivating the Next Generation of Leaders By Connie West, Gallup Certified Strengths Coach, Regional Vice President, The James Paul Group, ICBC Associate Member 22 How Positive Pay Helps Fight Check Fraud By Jason Young, Senior Director of Enterprise Banking, CSI, ICBC Associate Member 24 The Meek … Inherit a Prominent Place in Bond Portfolios By Jim Reber, President and CEO, ICBA Securities, ICBC Preferred Provider and Associate Member 26 In Memoriam 28 Unlock More Profitable Customer Relationships By Matt Helsing, SVP & Northwest Regional Manager, PCBB, ICBC Associate Member 30 Beyond the Screen The Value of In-Branch Banking for Young Consumers By Wendi Klein, VP Marketing & Communication, Alogent, ICBC Associate Member 20 24 CONNECT Like us on Facebook ICBColo Connect with us ICBColo Follow us on X ICBColo Give us a call (303) 832-2000 Follow us on Instagram ICBColo PUB. 3 2024 ISSUE 4 INDEPENDENT REPORT | 3
SUPPORT THE ICBC’S ASSOCIATE MEMBERS! ACCOUNTING | COMPLIANCE CroweLLP.....................(303)831‑5023 EideBaillyLLP . . . . . . . . . . . . . . . . . . . (303)770‑5700 Fortner Bayens PC . . . . . . . . . . . . . . . . . (303) 296‑6033 ForvisMazars . . . . . . . . . . . . . . . . . . . .(303)861‑4545 MossAdamsLLP . . . . . . . . . . . . . . . . . . .(503)471‑1277 Plante Moran** . . . . . . . . . . . . . . . . . . (303) 740‑9400 ADVERTISING | EQUIPMENT | PRINTING | SUPPLIES Kristopher James Company . . . . . . . . . . . . . (800) 274‑9212 Spry........................(303)323‑4341 CAREER ADVANCEMENT Graduate School of Banking at Colorado . . . . . . (800) 272‑5138 CONSULTING | HUMAN RESOURCES AND MANAGEMENT | MARKETING | STRATEGIC PLANNING Bank Strategies LLC . . . . . . . . . . . . . . . . . (303) 291‑3700 (A Bankers’ Bank of the West Bancorp Inc. Subsidiary) BellBank.......................(701)371‑3355 Blendification . . . . . . . . . . . . . . . . . . . . (970) 274‑1723 CD Construction Consulting . . . . . . . . . . . . . (720) 701‑2122 Expert Business Development . . . . . . . . . . . . . (610) 771‑2121 *ICI Consulting Inc. . . . . . . . . . . . . . . . . . (316) 201‑8590 The James Paul Group . . . . . . . . . . . . . . . (877) 584‑6468 MJCPartners . . . . . . . . . . . . . . . . . . . . (213)278‑0429 The NaviTrust Group . . . . . . . . . . . . . . . . (801) 438-1842 Piper Sandler & Co. . . . . . . . . . . . . . . . . . (415) 978‑5057 *S&P Global . . . . . . . . . . . . . . . . . . . . (434) 951‑6948 CORRESPONDENT BANKING SERVICE *Bankers’ Bank of the West . . . . . . . . . . . . . (303) 291‑3700 BellBank.......................(701)371‑3355 Citizens Bank Farmington . . . . . . . . . . . . . (505) 599‑0100 INTRUSTBank. . . . . . . . . . . . . . . . . . . .(800)732‑5120 PCBB....................... (888)399‑1930 TIB — The Independent BankersBank . . . . . . . . (972) 650‑6000 CYBERSECURITY | IT CONSULTING AND SERVICES | COMPUTER PRODUCTS Alogent.......................(719)583‑8004 Botdoc.......................(719)960-4475 CivITas Bank Solutions . . . . . . . . . . . . . . . . (303) 291‑3700 (A Bankers’ Bank of the West Bancorp Inc. Subsidiary) Cook Solutions Group . . . . . . . . . . . . . . . (503) 260‑8562 Federal Protection Inc. . . . . . . . . . . . . . . . (800) 299‑5400 *SBS CyberSecurity . . . . . . . . . . . . . . . . (785) 594‑0503 DATA PROCESSING | EFT | ATM | CARD PROCESSING | MERCHANT SERVICES *Bankers’ Bank of the West . . . . . . . . . . . . . (303) 291‑3700 BluePoint ATM Solutions LLC . . . . . . . . . . . . (540) 335‑2848 Computer Services Inc. . . . . . . . . . . . . . . . .(970) 212‑7104 FPSGOLD......................(801)201‑2525 *IBT . . . . . . . . . . . . . . . . . . . . . . . . .(512) 606‑1100 *ICBA Bancard / TCM Bank . . . . . . . . . . . . . (800) 242‑4770 Jack Henry & Associates . . . . . . . . . . . . . . . (417) 235‑6652 SHAZAM......................(515)288‑2828 VisaInc.......................(415)238‑3682 INSURANCE | BENEFIT SERVICES Bank Compensation Consulting . . . . . . . . . . .(303) 482‑1844 First Insurance Services Inc. . . . . . . . . . . . . . (719) 456‑2303 *ICBA Reinsurance . . . . . . . . . . . . . . . . .(888) 790‑6615 NFP Executive Benefits Company . . . . . . . . . . . (469) 252‑1037 *Travelers . . . . . . . . . . . . . . . . . . . . . (720) 200‑8416 Unitas Financial Services . . . . . . . . . . . . . . (800) 461‑9224 INVESTMENTS | FUNDING AND LENDING PARTNERS B:Side Capital . . . . . . . . . . . . . . . . . . . .(303) 657‑0010 TheBakerGroup . . . . . . . . . . . . . . . . . . (405)415‑7200 BancAlliance. . . . . . . . . . . . . . . . . . . . (301)232‑5423 *BHG Financial Institutional Network*** . . . . . . (954) 263‑6399 Citizens Bank Farmington . . . . . . . . . . . . . .(505) 599‑0145 Colorado Enterprise Fund . . . . . . . . . . . . . (303) 860‑0242 Colorado Housing and Finance Authority . . . . . . (303) 297‑7329 D.A.Davidson. . . . . . . . . . . . . . . . . . . (303)764‑6000 FHLBank Topeka — Denver Office . . . . . . . . . . (720) 212‑9873 First Bankers’ Banc Securities Inc. (FBBS) . . . . . . . (720) 709‑7613 Gill Capital Partners . . . . . . . . . . . . . . . . (303) 296‑6260 Holman Capital . . . . . . . . . . . . . . . . . . .(949) 981‑0237 *ICBA Mortgage . . . . . . . . . . . . . . . . . . (800) 253‑5356 *ICBA Securities . . . . . . . . . . . . . . . . . . (800) 422‑6442 IntraFi Network . . . . . . . . . . . . . . . . . . . (303) 706‑9265 Northland Securities Inc. . . . . . . . . . . . . . . (303) 801‑3380 Olsen Palmer LLC . . . . . . . . . . . . . . . . . (202) 803‑2620 Performance Trust Capital Partners . . . . . . . . . . (312) 521-1000 West Gate Bank Mortgage . . . . . . . . . . . . . (402) 434‑4116 LEGAL SERVICES Arnold&Porter . . . . . . . . . . . . . . . . . . (303)863‑1000 Coan, Payton & Payne LLP . . . . . . . . . . . . . (303) 861‑8888 Godfrey Law Group LLC . . . . . . . . . . . . . . (303) 802‑6336 Hoffman Nies Dave & Meyer LLP** . . . . . . . . . (303) 860‑7140 León Cosgrove Jiménez LLP . . . . . . . . . . . . . (720) 689‑7749 LewisRocaLLP** . . . . . . . . . . . . . . . . . .(303)623‑9000 Markus Williams Young & Hunsicker LLC . . . . . . (303) 830‑0800 Otteson Shapiro LLP** (ICBC Counsel) . . . . . . . (720) 488‑0220 Spencer Fane LLP . . . . . . . . . . . . . . . . . (303) 839‑3838 StinsonLLP. . . . . . . . . . . . . . . . . . . . .(303)376‑8400 LOAN REVIEW SERVICES EideBaillyLLP . . . . . . . . . . . . . . . . . . . (303)770‑5700 Fortner Bayens PC . . . . . . . . . . . . . . . . . (303) 296‑6033 ICBC LOBBYING AND PUBLIC RELATIONS The Capstone Group (ICBC Lobbyists) . . . . . . . (303) 860‑0555 *ICBC Preferred Providers **Silver Associate Member ***Gold Associate Member 4 | INDEPENDENT REPORT
bbwest.com 800-873-4722 |offices in Denver and Lincoln | Member FDIC Equal Housing Lender we champion community banking Proud Legacy Sponsor of ICBC and supporter of Colorado community banks for 40+ years! Bankers’ Bank of the West • Independent loan review • Loan and credit administration consultation • Strategic planning facilitation • Management, staffing, & succession planning • Acquisition & expansion • BSA/AML compliance • Regulatory risk consultation • Consulting • Phishing Tests • Vulnerability Management • Security Monitoring Cyber/information security, strategic planning, independent loan review, AND MORE. Consulting Services • Bank Stock Loans • Loan Participations • ATM/Debit • International Services • Cash Management • Securities Safekeeping • Merchant Services $ 8.6B assets under management $ 1.9B daily transaction value processed/settled Serving more than 60% of community banks across 7 states Where community banks bank Banking Services
FLOURISH When you enter ICBA’s headquarters, you are greeted with a large U.S. map that contains a peg for each community bank and a singular cord linking them all together. It not only demonstrates our collective impact; it also represents the strength of our financial system, built on thousands of local economies around the country and fueled by community banks. Much more than surface-level connections, community bank relationships run deep. With detailed knowledge of the communities in which they live, play and work, community bankers make informed decisions using insights beyond standard credit models. Consider a new small business that doesn’t make sense on paper but that you, as a financial steward of the community, know meets a community need or will be in demand. This type of insight can only be derived from being part of the community — not thousands of miles away in some ivory lending tower. That sense of presence, of connectedness, makes all the difference. Recently, Dave Fishwick, whose story was featured in the movie “The Bank of Dave,” spoke at our Capital Summit. His message was a reminder of how unique our model is outside of America’s borders, how paramount it is that we defend it with fervor, and how important the work we do to protect relationship banking is. It’s the foundation of everything we do! Community banks need to flourish so we can continue to fight for the little guy and stand up for what matters in our communities. We need to be there so our customers have access to the financial services they need when they need them most. The current environment threatens this paradigm. One-size-fits-all regulations don’t support our efforts. An uneven playing field puts us at a disadvantage. Mounting and constricting regulations hinder our ability to tailor our offerings. The taxpayer-subsidized acquisition of taxpaying community banks further diminishes our numbers while stripping away a vital community tie. Now, more than ever, as we think about the impact of our banks, we need to stand up and fight. We can’t take our independence for granted, and independence requires action. It’s up to us to amplify our voices far and wide and make sure the leaders of this nation pay attention. So, as you just celebrated Independence Day, I hope you now take time to revel in the role you play in our country’s financial wellness and recommit to your independence. Because it’s bankers like you who are making the country better, one community at a time. Connected as Independent Community Banks By Rebeca Romero Rainey President and CEO, ICBA 6 | INDEPENDENT REPORT
FROM THE TOP This nation was founded by rabble‑rousers looking to do things differently, and that’s exactly who we are as community bankers. We stand up to the status quo to offer products that meet the needs of our communities, which are as diverse as this great nation. Our independence empowers us by providing the freedom to do things our way. For instance, if we’re working with a seasonal business with cyclical cash flows, we can structure their loan in a way that will most benefit them. We don’t have to fit them into a particular box; we build the loan around them. Our independence also offers flexibility in how we run our banks as businesses. We can set our priorities and consider the big picture beyond returns and revenue. For example, my bank just went through a core conversion, and at the same time, our monthly profits were shrinking slightly. With the stress levels around the core conversion at their height, we made the executive decision to wait to address profits until its conclusion. We wanted our team to celebrate their hard work, not immediately pivot to a new issue. Our independence also brings with it a sincere connection to our communities. Our support goes beyond writing a big check; it sits at the heart of who we are as community bankers. Case in point: Just over a year ago, our community experienced a tragic event where a seventh grader, who had been bullied in school, committed suicide. It was heartwrenching for the entire community. So, our bank decided to help with recovery: We contracted with a speaker we’d seen at ICBA LIVE to come to the middle and high schools and discuss ways to stop bullying and be kinder to each other. After that session, a sixth grader came up to me to thank the bank for sponsoring the session. She said she had contemplated suicide before, and it helped to know that people cared. That’s why we do what we do — because we care about and can positively support our communities. With that impact in mind, we need to hold onto our independence at all costs. At the same time, we must continue to look for opportunities to level the playing field. We will persist in lobbying for tiered regulation because we should have less of a compliance burden than a $3 trillion bank. Advocacy matters, because it will help to ensure a brighter future for our communities — the future our forefathers would have wanted. Showing Pride in Independence By Lucas White Chairman, ICBA, President of The Fountain Trust Company INDEPENDENT REPORT | 7
ICBC PREFERRED PROVIDERS Contact: Scott Wintenburg | swintenburg@bbwest.com | (303) 291-3700 or (800) 601-8630 Merchant services from Bankers’ Bank of the West help you grow customer relationships with mobile payments technology, competitive unbundled pricing, efficient approvals and startups, responsive support and training. Contact: Keith Gruebele | kgruebele@bhginc.com | (954) 263-6399 Creator of the largest community bank loan network in the country. ICBC members can access the BHG Loan Hub, a secure, state-of-art loan delivery platform and the number-one source for professional loans. Contact: Phil Layher | phil.layher@ibtapps.com | (512) 616-1188 IBT Apps® is an empowering core partner to community banks nationwide, offering end-to-end core and digital banking solutions that meet today’s customer demands. Their adaptable i2Suite banking system enables your bank to streamline operations, control costs and mitigate risks. Transform your bank with the power of one total solution. Contact: icba.org/solutions | (866) 843-4222 The ICBC supports and recommends the following products and services supplied by our national association, the ICBA: ICBA Bankcard and TCM Bank, N.A.; ICBA Compliance & Risk Management; ICBA Mortgage; ICBA Reinsurance; and ICBA Securities. Contact: Mike Hatch | mike.hatch@ici-consulting.com | (316) 201-8590 Since 1994, ICI Consulting has helped banks and credit unions to assess, cost justify, evaluate, and convert core processing, digital banking, EFT, lending, document imaging, CRM and branch solutions. Contact: Robb Nielsen | robb.nielsen@sbscyber.com | (605) 251-7375 SBS is your cybersecurity partner. Our offerings include: TRACTM — Cybersecurity risk management software; CyberRISKTM — Automated FFIEC cybersecurity risk assessment software; IT and Network Security Audits; Consulting Services; Full Service Vendor Management; Role-Based Certifications; Vulnerability Assessments; Penetration Testing and More! Contact: Joe Valdez | joseph.valdez@spglobal.com | (213) 549-2281 S&P Global combines exclusive analysis and in-depth data in real time for the banking, financial services and insurance industries. From bank branch data and government assistance programs to executive compensation and league tables, S&P is the final word in business intelligence on financial institutions. Contact: Brandon Tate | btate2@travelers.com | (720) 200-8465 Offering a wide range of customized insurance protection, Travelers SelectOne+® for financial institutions is designed to respond to the most recent trends in banking. ICBC Preferred Providers are selected by bankers just like you, so give them special consideration when considering their proposals for your bank! To learn more about ICBC’s Preferred Providers contact the ICBC at (303) 832-2000. Please note: ICBC endorses the listed companies but not all products offered by the company. 8 | INDEPENDENT REPORT
OUT OF OFFICE: ASHLEY BURT By Aveya Hannan THE CEO AND PRESIDENT OF $230 MILLION-ASSET GUNNISON BANK AND TRUST COMPANY IN GUNNISON, COLORADO, LIKES TO LIVE LIFE IN THE FAST LANE AS A RACE CAR DRIVER. I started [racing] in 2008 … I drive in a sanctioning body called National Auto Sport Association (NASA). I drive in a class called Spec Z that is a Nissan‑supported Spec class where we race modified Nissan 350Zs. We strip them back to the tub and put in race suspensions … It’s quite a bit lighter than the original car. We race on road circuits, predominantly in Colorado but also all over the country and at a lot of famous tracks and places. … A race season runs from about April to the end of October. During that period I do about 32 races a year, usually eight weekends with four races a weekend. It’s a series, so I do all the races in the series and try to beat all my buddies! I’ve wanted to do this since I was a little kid, playing with Matchbox [cars]. I finally got the opportunity to get involved when I was a bit older … I knew a few people who did it, and I went to the racetrack one weekend and just started meeting people and hearing about the sanctioning body. [Racing] teaches you a lot about life. It teaches you how to deal with the highs and lows, — racing delivers plenty of those — how to stay calm under pressure, and how to work with and compete with people you might find challenging. It’s a really good metaphor for life, and it’s not just gas and throttle. This article was originally published in April 2024 by Independent Banker. Scan the QR code to view the original article. https://www.independentbanker.org/ article/2024/04/24/ out-of-office-ashley-burt ICBC Featured Member We’re excited to share an article that originally ran in Independent Banker. Ashley Burt and Gunnison Bank are longtime ICBC members, and we’re proud to share his words. INDEPENDENT REPORT | 9
Registration is now open! Don’t miss out on some great bunkhouse accommodations — be sure to make your Hythe reservation prior to Aug. 23, 2024. Registration and bunkin’ information can be found on our website at www.icbcolo.org/convention. It’s time to head ‘em up, move ‘em out — this year’s convention is sure to be the granddaddy of them all! Howdy, It’s time to saddle up and head for the mountains! No ifs, ands or bucks about it — ICBC’s 51st Annual Convention is the place you want to be on Sept. 18-20, 2024! No bull! This isn’t our first rodeo. But it may be our best! Round up your team and dust off those boots. Don’t forget your hat and bandana — we’ve got work to do. Now in its 51st year, ICBC’s annual convention is a cornerstone for community banking. Our convention is rich with professional development sessions, special events, making connections, enjoying a hoedown, wetting your whistle, exploring new vendor offerings and experiencing a strong sense of community, spirit and pride. There’s sure to be a little yee and a whole lotta haw! 10 | INDEPENDENT REPORT
2024 SPONSORS LEGACY PARTNER BAREBACK RIDER BULL RIDER BARREL RACER TEAM ROPER MUTTON BUSTER WRESTLER Citizens Bank Federal Protection Inc. Moss Adams 2024 EXHIBITORS B:Side Capital Bank Compensation Consulting Bankers’ Bank of the West BHG Financial Institutional Network BluePoint ATM Solutions CD Construction Consulting Colorado Enterprise Fund Colorado Housing and Finance Authority Cook Solutions Group Crowe LLP CSI DCI Eide Bailly Federal Protection Inc. FHLBank Topeka Forvis Mazars Gill Capital Partners Graduate School of Banking at Colorado Haas & Wilkerson Insurance Holman Capital ICBA ICI Consulting IntraFi Kristopher James Company Moss Adams Plante Moran Preferred Lending Partners SHAZAM Spry Travelers West Gate Bank Mortgage INDEPENDENT REPORT | 11
States vary in their approach to determining whether federal provisions requiring the capitalization of IRC Section 174 R&D costs apply at the state level. Pending federal legislation could also change the capitalization requirements. Here’s an update. Most businesses that have claimed tax deductions for research and experimental expenditures (Internal Revenue Code Section 174) in the past are familiar with the changes to that deduction that were enacted as part of the Tax Cuts and Jobs Act (TCJA) in 2017 and went into effect for tax years beginning on or after Jan. 1, 2022. In short, the TCJA shifted the treatment for these expenditures from current-year expensing to capitalization of the costs and subsequently amortizing the capitalized costs over five years (15 years for foreign corporations). One important consideration related to this change is the impact on state tax calculations for businesses that now have to capitalize on costs that were previously deducted from federal taxable income in the year they were incurred. The treatment will vary based on each state’s method of conformity to the IRC. Most states have conformed (implicitly or explicitly) to the federal changes to Section 174, meaning that Section 174 expenditures are capitalized and amortized in the same manner as on the federal return when determining state taxable income. However, there are some notable exceptions that can make Section 174 state conformity challenging for businesses operating in multiple jurisdictions. SECTION 174 STATE CONFORMITY States have taken several approaches to Section 174 capitalization that fall into the following three categories: 1. State law conforms to the IRC in effect after the enactment of the TCJA. In these states, no adjustment is needed to federal taxable income based on state treatment of the Section 174 capitalization. The states either conform their tax codes to the federal rules as of a date after the enactment of the TCJA, or they have a “rolling conformity” that automatically adopts federal changes as they occur. 2. State law conforms to the IRC in effect before the enactment of the TCJA. In states like California, where the state tax code adopts the federal tax law in effect as of 2015, the state still permits deduction of the research expenditures in the year incurred with no Section 174 capitalization. For states like California that conform to the IRC effective as of a date prior to the enactment of the TCJA, beginning with returns filed for 2022, businesses that claim the Section 174 deduction need to adjust their state taxable income to allow for expenses that had to be capitalized on the federal return and to disallow the subsequent amortization of the capitalized costs. 3. State law makes a specific exception to the TCJA Section 174 capitalization changes. A few states, such as Tennessee and Wisconsin, put laws on their books in the wake of the TCJA saying that they wouldn’t follow the Section 174 changes that went into effect for tax years starting in 2022. State returns for businesses in those jurisdictions would require an adjustment in the initial year to starting taxable income that backs out the Section 174 capitalization at the federal level and treats it as an annual expense against state income. Addback modifications to disallow the federal amortization of capitalized Section 174 costs for such states will also be required in the years following the year of initial deduction. SECTION 174 CAPITALIZATION COULD BE SUSPENDED Tax legislation that has already cleared some significant hurdles on Capitol Hill (the Tax Relief for American Families and Workers Act of 2024) includes provisions that may temporarily (and retroactively) restore current-year expensing for domestic R&D costs under Section 174. The bill would bring back Section 174 expensing for tax years 2022-2025, then modify the code to require capitalization of Section 174 costs in 2026 and beyond. If the legislation is signed into law with the retroactivity provision intact, the reinstatement of expensing under IRC 174 at the federal level would likely require amended returns for businesses that filed federal and conforming state returns under the TCJA capitalization rules. STATE CONFORMITY TO IRC SECTION 174 R&D COST CAPITALIZATION RULES CAN VARY By Jon Strycharz and Austin Telling Plante Moran, ICBC Gold Associate Member 12 | INDEPENDENT REPORT
In 1924, Elorion Plante opened a small accounting firm in Detroit, Michigan. The firm found great success, and in 1950, Frank Moran was named as a partner — the firm became known as Plante Moran. Plante met Moran, a philosophy student, when he became a geometry tutor for Plante’s daughter. Moran’s philosophy is still at the firm’s heart today: “We are a people firm disguised as an accounting firm.” Since then, Plante Moran has evolved into a global organization employing nearly 4,000 people. This year, Plante Moran is celebrating 100 years in business. To help them celebrate, we are spotlighting Ryan Abdoo, CPA and partner at Plante Moran. We hope you enjoy getting to know him. Tell us a little bit about you. What is one fun fact that people don’t know about you? I began working at Plante Moran right out of college 20 years ago. I was located in Chicago, and we had next to zero banking revenue at the time. Over the 16 years of working here, we built the Chicago banking team into the largest hub serving community banks within the firm. I moved to Colorado four years ago and now building the banking practice here. Unfortunately, COVID-19 slowed things down for a couple of years. In spite of that, we have built a great banking team here in Colorado and are hitting our stride from a growth perspective. A fun fact about me: I’ve run six marathons and roughly two dozen half-marathons. Tell us about what you do at Plante Moran. We serve both public and private banks with the typical CPA type of work — financial statement audits and tax compliance. However, we also have a large risk management consulting practice that includes subject matter experts in areas such as loan review, internal audit, regulatory compliance and information security. What makes Plante Moran unique? What sets us apart from other firms, especially in Colorado, is that we have roughly 800 boots on the ground in the state. We serve all industries, but banking institutions are something we are especially strong on — we are ranked first or a close second with the most CPAs in the state and are the 15th-largest firm in the nation. We are community-driven and very big on building relationships and being a universal advisor. In working with us, you’ll find we specialize in banks, are pragmatic, consultative and fun. What do you love about your job? I love going out and networking with clients and meeting new people. I am also passionate about building and mentoring my team, which ultimately leads to building our practice. It’s like leaving a legacy that will live on for years. I try to encourage and promote my team to seek a personal and professional life in which they can find their long-term rhythm. While client service is paramount, work-life balance remains at the forefront of our team. How has partnering with ICBC benefited Plante Moran? Our partnership has helped me meet many great people and have a lot of fun in the process. I’ve gone skiing with clients, taken mountain biking trips with them and even hiked a few mountains. Our conversations range anywhere from personal to industryrelated topics. ICBC has introduced me to all these folks. The discussions I can have with them and some of the insights I can share will hopefully help them moving forward and when an opportunity arises where the broader Plante Moran team can help, we are ready. GETTING TO KNOW RYAN ABDOO OF PLANTE MORAN Associate Member Spotlight Spotlight INDEPENDENT REPORT | 13
RISKS OF USING AI IN BSA/AML COMPLIANCE By Sharvelle Washington Assistant Vice President, Compliance & Risk, Bankers’ Bank of the West, ICBC Preferred Provider and Member Artificial Intelligence (AI) is transforming the banking industry, including compliance with the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) regulations. While AI offers significant advantages, such as enhanced efficiency and improved detection of suspicious activities, it also introduces unique risks. We will explore these risks and provide insights into how community banks can manage them effectively. UNDERSTANDING THE ROLE OF AI IN BSA/AML COMPLIANCE AI technologies, such as machine learning and natural language processing, enhance BSA/AML compliance by: • Automating Transaction Monitoring AI processes vast amounts of transaction data to identify patterns indicative of money laundering. • Customer Due Diligence (CDD) AI streamlines the CDD process by quickly analyzing customer data and identifying high-risk individuals. • Fraud Detection AI systems detect anomalies and flag potentially fraudulent transactions more accurately than traditional methods. KEY RISKS OF USING AI IN BSA/AML COMPLIANCE While AI offers many benefits, it also comes with significant risks: • Regulatory Uncertainty The use of AI in compliance is a relatively new area, and regulatory frameworks are still evolving. This uncertainty can create challenges for community banks in ensuring that their AI‑driven compliance programs meet current and future regulatory requirements. • Lack of Transparency AI systems, especially those using complex machine learning algorithms, often operate as “black boxes” with decision‑making processes that are not easily understood. This lack of transparency can make it difficult for compliance officers to explain and justify the AI’s decisions to regulators and stakeholders. • Data Privacy and Security AI systems require large volumes of data to function effectively. Managing and protecting this data is crucial, as any breach could lead to significant privacy violations and regulatory penalties. • Over-Reliance on Technology While AI can significantly enhance compliance efforts, over‑reliance on technology without adequate human oversight can lead to missed risks. Human judgment is essential to interpret AI findings and make informed decisions. MANAGING AI RISKS IN BSA/AML COMPLIANCE To effectively manage the risks associated with AI, community banks should implement strategies to mitigate or reduce the associated risks. • Staying Well-informed of Regulatory Changes Regularly monitor regulatory developments related to AI and BSA/AML compliance. Engage with regulators to understand their expectations and ensure that your AI systems meet compliance requirements. • Enhancing Transparency Utilize AI explainability tools to understand and articulate how AI systems make decisions. Maintain thorough documentation of AI models, including their design, data sources and decision‑making processes. • Ensuring Data Privacy and Security Encrypt data both in transit and at rest to protect it from unauthorized access. Access Controls: Implement strict access controls to ensure that only authorized personnel can access sensitive data. • Maintaining Human Oversight Implement a “human-in-the-loop” approach where human experts review and validate AI-generated alerts and decisions. Train compliance staff on how to effectively work with AI systems and interpret their outputs. CONCLUSION AI holds great promise for enhancing BSA/AML compliance but also introduces significant risks that need careful management. By understanding these risks and implementing robust risk management strategies, community banks can leverage AI to strengthen their compliance programs while safeguarding against potential pitfalls. This article is based on discussions with compliance officers and research conducted across the U.S. over the past year. 14 | INDEPENDENT REPORT
WHY MORE COMMUNITY BANKS ARE CHOOSING TO OUTSOURCE THEIR ATMS Challenges Facing FIS in Today’s Consumer Landscape By Wade Zirkle President, BluePoint ATM Solutions, ICBC Associate Member The biggest challenge that banks are facing in today’s competitive landscape is cost. The pandemic changed the world as we know it, and ATM transaction volume was not immune to these changes. Since COVID, transaction volume at ATMs has declined by about 10-20%. Some markets are different from others, but the decline is showing up everywhere. ATMs have a high fixed cost component, and when transaction volumes decline, per-unit costs increase. Add stubborn inflation to the mix, and the result is a quite significant and highly visible cost challenge. WHY ARE COMMUNITY BANKS CHOOSING TO OUTSOURCE THEIR ATM MANAGEMENT? The principal reason is to reduce costs. ATMs are not a channel that banks can just shut down. In markets where the use of cash has declined, consumers depend on conveniently located ATMs as a cash access and servicing point. From a broader perspective, most banks either have, or are in the process of, transforming their branches into more of a sales center and less of a transaction center. Consequently, migrating cash transactions to an automated channel like ATMs is critical to this migration. Given the importance of the channel but faced with significantly increased cost, the imperative is clear — keep the footprint of cash access points but reduce the cost of owning and operating it. This imperative has taken on a very different characteristic with some banks. Some banks want to turn their ATMs into profit centers, which is getting increasingly difficult to do. Saying you want your ATMs to be INDEPENDENT REPORT | 15
OUTSOURCING ATM MANAGEMENT PRESENTS A COMPELLING OPTION FOR BANKS SEEKING TO REDUCE COSTS, IMPROVE EFFICIENCY AND FOCUS ON CORE BUSINESS ACTIVITIES. profitable and achieving this are two very different things. Interchange rates have fallen over the past decade or more, so this revenue source alone is not sufficient to make the ATM channel profitable. The question remains how to generate sufficient revenue at the ATM. ATMs have historically been a servicing channel for customers — never intended, structured or run as a profit center. Outsourcing the ATM channel, either fully, including the ATM assets themselves, or partially to focus just on operating the channel on behalf of the bank, is not a cure all for everything, but it should be an effective measure by which to address the cost challenge. When banks outsource their ATM channel, servicers like BluePoint can buy equipment and services for less; we can monitor ATMs and process transactions more efficiently; and we can operate the channel (disputes management, cash replenishment, parts refurbishment, etc.) more effectively. Beyond this, our roots are in ATM channel management as a for-profit business, so we know how to add value layers to the ATM to optimize revenue potential. BluePoint’s operations span the U.S.: loading cash in ATMs, performing first-line maintenance and second-line escorting services for these ATMs. We also provide monitoring and cash forecasting services for the ATMs. Not only does this give us a strong knowledge base of the devices themselves, but importantly, it gives us first-hand knowledge of the environment — the localities in which these devices operate. This localized knowledge is a key ingredient on which we are offering a more complete set of services. In addition to operating expense savings of nominally 15-20%, there’s a CapEx bonus embedded in these numbers. When we take ownership of the assets, it falls on us to ensure that they remain compliant with all regulations as well as network operating rules and requirements. Every three to four years, like clockwork, a new software update, software sunset or compliance requirement is mandated, which translates directly into capital cost. Most banks would prefer to direct their capital into digital channels; outsourcing the ATM channel, in its entirety, allows this to happen. Many banks we have worked with have a limited understanding of the true cost of owning and operating their ATMs. It is relatively easy to quantify third-party costs such as SLM services, but much more difficult to quantify costs that are embedded into operations like SG&A or overheads. These hidden costs, such as managing multiple third parties, create organizational and operational complexities that can be shed in a well-structured outsourcing relationship. IF OUTSOURCING IS SO ATTRACTIVE, WHY HAVEN’T MORE BANKS OPTED IN? This is a big decision for a bank. Banks have spent decades building their ATM channel, and there’s typically a strong emotional attachment to it. Only over the past decade (and even more significantly since COVID) has the cost of this channel started to become clearer to bank executives. Most, if not all, banks are now looking at this, and it’s only a matter of time before they act. In the meantime, there are a lot of proof points to pass and trust to be built. BluePoint works with banks over a relatively long sales cycle to build this trust and pass these proof points, including conducting pilots to demonstrate our capabilities. KEY POINTS Challenges Faced by Banks • Cost Pressures: The biggest challenge for banks is rising costs, particularly after the decline in ATM transaction volume due to the pandemic. ATMs have a high fixed cost component, making declining usage a significant financial burden. • Shifting Branch Focus: Banks are transforming branches into sales centers, requiring a migration of cash transactions to automated channels like ATMs. Why Outsource ATM Management? • Cost Reduction: Outsourcing allows banks to leverage the economies of scale of a specialized provider, leading to significant operational expense (OpEx) savings of 15-20%. Additionally, BluePoint assumes responsibility for capital expenditures (CapEx) associated with ATM compliance and upgrades. • Focus on Core Business: Outsourcing frees up banks to focus on core digital banking initiatives by eliminating the complexities of managing and maintaining their ATM networks. • Potential for Profitability: BluePoint leverages its expertise to maximize revenue potential through value-added services at ATMs, though this benefit may not directly translate to banks. Why Haven’t More Banks Outsourced? • Emotional Attachment: Banks have a long history with their ATM networks, making the decision to outsource challenging. • Building Trust: Shifting to an outsourced model requires establishing trust with the service provider through pilot programs and cost-benefit demonstrations. Outsourcing ATM management presents a compelling option for banks seeking to reduce costs, improve efficiency and focus on core business activities. 16 | INDEPENDENT REPORT
OUTSOURCE By Spry ICBC Associate Member Businesses are constantly seeking ways to stay ahead of the curve and effectively reach their target audience. While having an in-house marketing team can be incredibly valuable, there are undeniable benefits to outsourcing certain aspects of your marketing efforts. ACCESS TO SPECIALIZED EXPERTISE Outsourcing allows you to tap into a pool of specialized expertise that may not be available within your in-house team. Whether it’s SEO, social media management, content creation or graphic design, outsourcing gives you access to professionals who excel in these specific areas. This expertise can bring fresh ideas and perspectives to your marketing strategy, helping you stay innovative and competitive in your industry. COST-EFFECTIVENESS Maintaining a full in-house marketing team can be costly, especially for small to medium-sized businesses. Outsourcing certain tasks can help you save on overhead costs associated with hiring and training additional staff, providing office space and investing in expensive tools and software. Instead, you can allocate your budget more efficiently by paying for only the services you need, when you need them. FLEXIBILITY AND SCALABILITY Outsourcing provides flexibility and scalability, allowing you to scale your marketing efforts up or down based on your current needs and budget. Whether you’re launching a new product, running a seasonal campaign or simply need extra support during busy periods, outsourcing enables you to quickly adapt without the constraints of hiring and managing additional employees. FOCUS ON CORE COMPETENCIES By outsourcing certain marketing tasks, your in-house team can focus on their core competencies and strategic initiatives that drive business growth. Instead of getting bogged down with day-to-day operational tasks, they can dedicate their time and energy to high-impact projects that align with your business objectives. This division of labor ensures that each aspect of your marketing strategy receives the attention it deserves, leading to better overall results. ACCESS TO ADVANCED TOOLS AND TECHNOLOGIES Marketing trends and technologies are constantly evolving, making it challenging for in-house teams to stay updated with the latest tools and trends. Outsourcing agencies often invest in cutting-edge tools and technologies to deliver superior results for their clients. By outsourcing, you can leverage these advanced resources without having to make significant investments yourself, ensuring that your marketing efforts remain ahead of the curve. MITIGATION OF RISK Outsourcing can help mitigate risks associated with marketing campaigns. Experienced outsourcing partners have a wealth of knowledge and experience in navigating various challenges and avoiding common pitfalls. Additionally, they can provide valuable insights and recommendations based on their past successes and failures, helping you make more informed decisions and minimize the likelihood of costly mistakes. While an in-house marketing team plays a crucial role in driving your company’s marketing efforts, outsourcing certain aspects of your marketing strategy can provide numerous benefits. From accessing specialized expertise and cutting-edge technologies to achieving cost‑effectiveness and scalability, outsourcing offers a strategic advantage that can elevate your marketing efforts. By finding the right balance between in-house capabilities and outsourcing partnerships, you can create a dynamic and efficient marketing engine that propels your business forward. Spry is a brand optimization company located in Anderson, Indiana. Spry specializes in helping you get your brand message out to your audience. To learn more about their services, visit sprybrands.com. ELEVATE YOUR MARKETING EFFORTS AND INDEPENDENT REPORT | 17
SBA LOANS FOR STARTUPS Navigating the world of finance can be particularly daunting for startups, with misconceptions abound regarding their eligibility and the practicality of securing Small Business Administration (SBA) loans. As CEO of B:Side Capital, I’ve encountered numerous entrepreneurs who are either unaware of their options or are dissuaded by myths surrounding SBA loans. This article aims to debunk these myths and lay out the facts about SBA loans for startups, providing clarity and direction for new business owners seeking financial support. MYTH 1: STARTUPS ARE NOT ELIGIBLE FOR SBA LOANS The Fact: One of the most pervasive myths is that SBA loans are reserved for established businesses only. The truth is, startups are eligible for SBA loans. The SBA recognizes the vital role startups play in the economy and offers several loan programs tailored to their needs. The key is demonstrating the potential for success through a solid business plan, a reasonable equity investment in the business, and, in some cases, providing collateral. While the eligibility criteria may be stringent, they are not prohibitive, making SBA loans a viable option for startups. MYTH 2: THE APPLICATION PROCESS IS TOO COMPLICATED AND LENGTHY The Fact: While the SBA loan application process is detailed, it’s designed to ensure that loans are granted to businesses with a viable plan and the ability to repay. Startups can navigate this process successfully with proper preparation and guidance. Resources like CDCs, such as B:Side Capital, specialize in assisting businesses through the application process, demystifying it, and providing the necessary support to ensure that your application is comprehensive and submitted correctly. Debunking Myths and Laying Out Facts By Christopher Myers CEO, B:Side Capital, ICBC Associate Member 18 | INDEPENDENT REPORT
MYTH 3: SBA LOANS REQUIRE PERFECT CREDIT The Fact: Creditworthiness is indeed a factor in the evaluation process, but the SBA and its lending partners understand that startups may not have a lengthy credit history. Instead of perfect credit, the emphasis is on demonstrating responsible financial management and the potential for business success. The SBA also considers the overall financial health of the applicant, including cash flow and collateral, when making lending decisions. MYTH 4: SBA LOANS CAN’T BE USED FOR STARTUPS’ UNIQUE NEEDS The Fact: Another common misconception is that SBA loans are too rigid in their usage. In reality, SBA loans offer flexibility in how the funds can be used, catering to a wide range of startup needs including, but not limited to, working capital, equipment purchase, inventory or even to buy real estate. This flexibility allows startups to allocate funds in a way that best supports their growth and operational strategies. MYTH 5: IT’S EASIER TO GET FINANCING ELSEWHERE The Fact: While there are various financing options available to startups, SBA loans are unique in their benefits, such as lower down payments, longer repayment terms and competitive interest rates. These terms are often more favorable than those of traditional loans or other financing methods, making SBA loans worth considering for startups. Additionally, the SBA’s guarantee to lenders can make it easier for startups to obtain financing that might not be available to them through conventional channels. LAYING OUT THE PATH FORWARD Understanding the facts about SBA loans can open up a new avenue of financing that many startups may not have considered viable. With the right preparation, a solid business plan and the assistance of experienced partners like CDCs, startups can leverage SBA loans to lay a strong financial foundation for their business. At B:Side Capital, we’re committed to supporting startups in their journey, helping them navigate the intricacies of SBA financing and realize their business objectives. Startups are the lifeblood of innovation and economic growth, and SBA loans represent a critical resource in supporting their development. By debunking these myths and focusing on the facts, we aim to empower more startups to explore SBA loans as a viable option for financing their growth and success. INDEPENDENT REPORT | 19
THE VALUE OF MENTORSHIP IN BANKING Cultivating the Next Generation of Leaders In the dynamic and highly regulated world of banking, leadership plays a pivotal role in navigating complexities and driving organizational success. Mentorship stands out as a critical tool in developing the next generation of leaders. THE VALUE OF MENTORSHIP 1. Knowledge Transfer: Mentorship facilitates the transfer of invaluable industry-specific knowledge. Experienced mentors share insights on regulatory requirements, risk management, financial analysis and customer relationship management, equipping mentees with a comprehensive understanding of banking operations. 2. Skill Development: Effective mentors help mentees hone essential skills such as strategic thinking, decision-making, problem-solving and leadership. Through regular interactions, mentors provide constructive feedback, enabling mentees to refine their abilities and build confidence. 3. Career Advancement: Mentorship opens doors to career advancement opportunities. Mentors advocate for their mentees, providing networking opportunities and exposure to senior management. This support can be instrumental in accelerating career progression and preparing mentees for leadership roles. 4. Cultural Alignment: Mentorship helps inculcate organizational values and culture in emerging leaders. By exemplifying and reinforcing the bank’s mission, vision and ethical standards, mentors ensure that the next generation of leaders upholds the institution’s core principles. By Connie West Gallup Certified Strengths Coach, Regional Vice President, The James Paul Group, ICBC Associate Member 20 | INDEPENDENT REPORT
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