COMMUNITYBANKER T H E O F F I C I A L P U B L I C A T I O N O F T H E M O N T A N A I N D E P E N D E N T B A N K E R S A S S O C I A T I O N SUMMER 2022 CONVENTION WRAP UP INSIDE MIB OFFERS NEW BENEFIT – BANKERS HELPING BANKERS NETWORK Page 11
Contents S U M M E R 2 0 2 2 4 15 2022 MIB BOARD OF DIRECTORS Mark Anderson Farmers State Bank, Victor Tom Christnacht First Security Bank of Deer Lodge Laura Clark Opportunity Bank, Helena Bill Coffee Stockman Bank, Miles City Daniel Day Bank of Montana, Missoula Shawn Dutton First Security Bank of Roundup Clinton Gerst Bank of Bozeman, Bozeman Brice Kluth First State Bank of Shelby Kenny Martin First Montana Bank, Helena Scott Mizner American Bank, Bozeman Mike Moore Stockmens Bank, Cascade Joel Rosenberg Three Rivers Bank of Montana, Kalispell Phil Willett Pioneer Federal Savings and Loan, Dillon Tim Schreiber, President Farmers State Bank tims@farmersebank.com Adam McQuiston, Vice President First Montana Bank, Missoula amcquiston@firstmontanabank.com Loren Brown, Secretary Ascent Bank, Helena lbrown@ascentbank.com Amber Brown, Treasurer Peoples Bank of Deer Lodge abrown@pbdl.net Andrew West, Immediate Past President Eagle Bank, Polson awest@eaglebankmt.com Pete Johnson, ICBA State Director Opportunity Bank, Helena pjohnson@oppbank.com Jim Brown Executive Director Montana Independent Bankers jbrown@mibonline.org MIB STAFF 2022 MIB EXECUTIVE OFFICERS ©2022 Montana Independent Bankers | The newsLINK Group, LLC. All rights reserved. The Community Banker is published four times each year by The newsLINK Group, LLC for the Montana Independent Bankers 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 Montana Independent Bankers, 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 Banker is a collective work, and as such, some articles are submitted by authors who are independent of the Montana Independent Bankers. While the Community Banker 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. 406.449.7444 jbrown@mibonline.org mibonline.org Montana Independent Bankers 1812 11th Ave P.O. Box 4893 Helena, MT 59604-4893 The Community Banker 1 2 President’s Message 4 Executive Director’s Message 6 From the Top 7 Montana Independent Bankers 2022 Outstanding Young Banker 8 Flourish 9 Up With Coupons: Larger Interest Payments Can Build A Floor Under Your Bond Prices 11 Bankers Helping Bankers 13 Compliance Q&A: Summer 2022 15 Featured Associate Member – Upgrade, Inc. Partnering with FinTech 18 Guest Article Travelers: Elder Abuse 19 Guest Article Patch Vulnerability and Management - What You Need to Know 21 United Bankers’ Bancorporation, Inc. Welcomes New Board Member Rachelle Nelson 21 Upcoming MIB Events 22 MIB’s 55th Annual Convention and Trade Show 24 Thank You to Our 2022 MIB Convention Level Sponsors! 24 Thank You to Our 2022 MIB Convention Event Sponsors! 25 2022 MIB Membership Directory 27 MIB Associate Member Resource Guide 28 MIB Associate Member Banks 29 Upcoming Webinars 11
Tim Schreiber PRESIDENT’S MESSAGE As the newly elected President of MIB, I want to focus my first communication on introducing myself, talking a little bit about my background, and then discussing what I would like to see the newest MIB officers, directors, and members spend time focusing on in the next couple of years. First, I am a native of Missoula and have lived in Western Montana my entire life enjoying the numerous outdoor activities that living in Montana provides. I was lucky enough to marry my college sweetheart Beth shortly after graduation and she has been an amazing partner in our life’s journey together, the most fulfilling of which has been raising our two boys Ben and Garrett to be amazing young men. I am currently the Chief Credit Officer at Farmers State Bank where I began my banking career in 1998. I graduated from the University of Montana in 1997 with a bachelor’s degree in Business Administration and an emphasis in Finance. My first role was credit analyst which naturally progressed into consumer and commercial lending. During the Great Recession, I transitioned back into the credit side of the bank where I focused on conducting loan reviews and working with the Bank’s customers to survive the turmoil. Since then, I have continued working on the credit side of the Bank in several roles. I am a strong supporter of my local community and have dedicated numerous volunteer hours over the years to local nonprofit organizations. Through this work as both a community banker and volunteer, I have witnessed the vital role community banks play in the health of small businesses and their communities. I am actively involved in ICBA where I am a current member of the Bank Operations and Payments Committee as well as a member of a subcommittee focused on crypto and digital currencies, and the learning curve is extremely steep. After college, the absolute last thing I wanted to become was a banker. That mindset had to do with several things that I won’t dive into other than to say my family had limited resources and didn’t have great credit experiences. The banking classes that I took in college didn’t exactly help my mindset either, as I remember them being incredibly complicated and focusing more on corporate banking topics. I don’t remember any exposure to the inner-workings of a community bank, or that there was any difference between large corporate banks and small community banks. Luckily, through a series of fortunate events put into place by my wife Beth (I told you she was amazing!) I fell into a job at Farmers State Bank, and I haven’t regretted the decision for a second. As I continue to grow and develop as a community banker, I wonder what I can do to help shift the mindset that I had growing up. What can we do as an industry to help develop the younger generation into future community bankers? This leads me to what I would like to see not only the officers and directors of MIB focus on but the entire membership of MIB as well during my tenure as President. We must increase the general public’s knowledge of what community banking is and why it is so vital to so many towns and cities across our state and nation. Over the past few years, MIB has taken great strides toward this vision with the creation of the community banking program at Montana State University, its integrated internship program, and more recently the statewide ‘Community Bank vs. Big Bank’ digital marketing campaign to name a few. While this is a great start there is a lot more that can be done by all stakeholders. We as a board have had many discussions on what else can be done and while we have some great ideas in the works, I know there are many others out there that can provide some great ideas as well. I can be reached at 406-273-4565 or by email at tims@farmersebank. com and I welcome any ideas or discussions from you to help us in this endeavor. 2 The Community Banker mibonline.org
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James E. Brown EXECUTIVE DIRECTOR’S MESSAGE Welcome to the post-annual MIB convention edition of our magazine. Many of the attendees said the 2022 convention was the best yet. The Whitefish Lake Lodge was a great and beautiful venue for the annual conference, and attendance almost reached an all-time high. Inside, you will find photos from the convention, including photos from the whitewater rafting and golfing events. Of course, it was not all play at our state convention – it also consisted, as it always does, of quality education programs and speakers, as well as information on the operation of the Montana Independent Bankers Association. We were particularly honored to have ICBA Chair Brad Bolton join us this year. He provided a great presentation on the continued importance of community banking to local economic growth and prosperity. Brad is a wonderful voice for Montana’s – and this nation’s – community banking system, and his message that MIB members’ voices matter to your customers and communities is timeless. In addition, Banking Commissioner Melanie Hall briefed attendees on, among other topics, the Banking Division’s agenda for the 2023 Montana legislative session. And Steve Beck coached us on how we can have a great day every day. Moreover, Ben Hayden provided an active shooter seminar, while Jeff Thompson spoke to the need for community banks to be aware of the growing diversity, equity and inclusion movement. And, of course, the annual convention always marks the changeover of MIB’s officers and board members. Tim Schreiber was elected to serve as MIB’s President for the coming two-year period, taking over from Andrew West. And regarding Andrew, he may have had the most difficult presidency in the history of the MIB, given all the business and financialrelated challenges arising from the COVID-19 pandemic. Excellent leadership, Andrew! He will continue on the Board as the Association’s Immediate Past President. Within the pages of this magazine, you will find a listing of the “new” slate of MIB officers and directors. To this end, I want to take a few words to thank all those who have faithfully served the Association over the last year as a member of the Board of Directors. I also want to thank those who have stepped up to serve for the 2022-2023 period. Your efforts in making the Association better are recognized and appreciated. Even though the 2022 MIB Convention is now behind us, we will soon have another opportunity to get together again. The Association will hold its annual University of Montana football tailgate party in Missoula on Sept. 10, 2022. So, join us for good food, good times and another Griz victory. Additionally, the Association is hosting the 2022 FDIC Community Banker’s Workshop at the Springhill Suites in Bozeman on Oct. 6, starting at 8:00 a.m. The 2022 Bankers Workshop is an interactive one-day workshop providing ongoing education to bank executives and mid-level officers on economic and regulatory topics. Finally, later this year, the Association will conduct a Women in Banking Conference over two days, November 16 and 17, in Bozeman. This informative event will bring together the Montana Secretary of State Christi Jacobson, the Commissioner of Banking Melanie Hall, SBA lender relations specialist Rena Carlson, and others to network and discuss issues of importance to those working in the industry. MIB will also be traveling to Hawaii next March to attend the ICBA Convention and Expo. The scheduled dates for ICBA LIVE are March 12 through 16, 2023, and the venue is the Hilton Hawaiian Village of Honolulu. Registration is now open for ICBA Live 2023; you can register online at www.icba.org/ events/icba-live. And, of course, the Association will be hosting its annual Montana reception at that event. So, if you will be in Hawaii, please join your Montana colleagues for an evening of fine spirits and conversation. Speaking of conventions, the 2023 MIB annual state convention will be held at the Big Sky resort from July 27 through 29, 2023. I encourage you to mark those dates in your calendars now, and all of us at MIB hope to see you next year for another great state convention. As you can see, this is a busy time for the Association. But a rolling stone gathers no moss. We at the Association are ever moving forward and advancing the Montana community banking industry’s – and your – best interests in numerous ways. Terri, Marie and I look forward to seeing you in the coming weeks and months. 4 The Community Banker mibonline.org
GET THE SHIELDCANNABISBANKINGPLAYBOOK: ShieldBanking.com/cannabis-banking-playbook To ensure the processes, procedures, technology, and trained staff are in place to serve this industry, bankers need to start with a plan. Having a clear understanding of what is required to serve cannabis businesses and minimize risk to the financial institution will help bankers prepare for the upfront costs associated with cannabis banking and develop the policies and procedures needed to hit the ground running. With regulations varying from state to state, it’s a complex industry with high costs, requiring a considerable investment of time and energy. Compliant banking operations require continuous enhanced due diligence to help guard against risks such as: A Robust Illegal Market. According to New Frontier Data, the legal cannabis market in the U.S. is expected to reach $41 billion by 2025. Unfortunately, the illicit market, valued at $65 billion by some estimates, is shrinking at a slower pace. Financial institutions must ensure that funds coming through their doors are from legal channels. Bad Actors. To ensure bad actors are not attaching themselves to good businesses, enhanced due diligence conducted around underlining beneficial owners will continue to be at a heightened level for the foreseeable future. Legacy Cash. Because the cannabis market existed as a cash business long before legalization and because the industry continues to operate largely as a cash business, a strong BSA/AML programwill help ensure that funds coming into the financial institution are from legal cannabis operations. While the added burden and cost associated with serving this industry may limit the total number of participants in the short term, we expect competition from financial institutions to steadily increase as more states launch legal programs and we get closer to federal recognition. Financial institutions that invest in technology to improve efficiencies and lower costs today will be able to scale as the industry grows and have a competitive advantage when the economics of the industry change over time and new banks and credit unions enter the market. Informed by the experiences of pioneering bankers across a growing number of states with legal medical and adult-use programs, the Shield cannabis banking playbook defines a path forward for financial institutions to serve cannabis-related businesses compliantly while benefiting from the financial rewards of this market. The emerging legal cannabis industry brings significant growth potential, alongwith challenging operational demands and complex regulations. But cannabis banking does not have tomean high-risk banking. Build aWinning Cannabis BankingProgram Cannabis banking, simplified. Shield Compliance transforms how financial institutions manage risk, comply with regulations, and address the operational demands of the legal cannabis industry. Compliance management for financial institution daily operations, including case management and automated reporting. Informed account application process for underwriting and onboarding cannabis business accounts. Compliant mobile payment and payroll solutions to reduce cash transaction dependency. See how Shield Compliance is helping financial institutions earn the benefits of a compliant cannabis banking program. info@shieldbanking.com (425) 276-8235 GET IT TODAY GET THE GUIDE TO COMPLIANT CANNABIS BANKING
FROM THE TOP Brad M. Bolton is president and CEO of Community Spirit Bank in Red Bay, Ala. Connect with Brad @BradMBolton Working through any difficulty or crisis at your community bank won’t be a walk in the park, but it may lead to an experience for which you’re truly grateful. As a community banker, you’re either going through a crisis or you’re preparing for one. Back in the late ’90s and early 2000s, our bank faced a significant challenge around loan quality. It stemmed from two major factors: getting too lax in our underwriting and making too many concessions to build business. I was young in my career when this took place, but being part of that experience set the stage for how I lead today. It’s like throwing a rock into a pond when you’re dealing with credit quality issues: The ripple effects are real, leading to issues in all areas of CAMELS (capital adequacy, asset quality,management, earnings, liquidity and sensitivity). And today, CAMELS are a main area of focus for our bank. In addition, weathering this storm exposed the importance of procedures. We brought in a consultant to help us enhance our loan policies, which are still in use today. In fact, we now manage our loan decisions by asking, “What would an independent third party do if they picked up this file and tried to understand the decision?” and documenting accordingly. That mindset forces us to think through every decision critically. How we work with regulators also was firmly shaped by this experience. Building trust with examiners became so important that when I was promoted to senior lending officer in 2005, I made it my mission that they wouldn’t uncover a problem I had not already identified. When examiners came in, I told them upfront what the issues may be and how I was managing them. Over the years, that transparency has led to mutual trust and respect. Working through any difficulty or crisis at your community bank won’t be a walk in the park, but it may lead to an experience for which you’re truly grateful. In my case, we came out stronger, and when the 2008 crisis came along, we got through unscathed, because we had already buttoned up our loan operations. So, as you read this month’s lending issue, I encourage you to consider what steps you can take to be stronger and better. Could you work more closely with your examiners, keeping your relationship manager informed of changes in the portfolio, even between examinations? Could you tighten up on business expansion? Is there education or training at ICBA Community Banker University that can help? Asking these questions may be hard, but I can attest to the fact that the answers will lead you to create an even better version of your community bank. My Top 3 Tips for a strong loan portfolio: 1. Know your limitations in terms of expertise – and pass on loans that don’t fit. 2. Adhere to the “5Cs of underwriting” (credit, capacity, character, collateral, conditions). 3. Manage loan portfolio relationships proactively after the loan is funded. BradM. Bolton Chairman, ICBA 6 The Community Banker mibonline.org
MONTANA INDEPENDENT BANKERS 2022 OUTSTANDING YOUNG BANKER To recognize upcoming leaders in Montana’s banking community, MIB honors an exceptional young banker each year. This award is based on the community banking values of good citizenship, community service, and sound banking skills. This award recognizes the impact the candidate has on his or her business each day and the difference he or she makes by investing in their community. Eligible candidates are under 35 years of age and work for a MIB member bank. The winner receives free convention registration and three nights of lodging at the 2022 MIB Annual Convention, $100 in travel expenses, an honor plaque to display in his or her office, and a prominent mention in the MIB magazine and website. This year’s recipient is Connor Cassidy, Farmers State Bank. Connor grew up in the Bitterroot Valley in Stevensville, MT, and graduated from The University of Montana with a degree in Business Management. He has worked at Farmers State Bank since 2013. Connor has worked in various areas of the bank, starting as a teller, then loan officer, and working his way up to Vice President-Senior Compliance Officer. He has overseen three consumer affairs examinations as a compliance officer during his time at Farmers State Bank. The achievements that Connor is most proud of are: earning an Outstanding Community Development Rating for Farmers State Bank on the bank’s most recent Community Reinvestment Act (CRA) exam; maintaining key compliance functions during the challenges and new regulations of the COVID-19 pandemic; and obtaining his Certified Regulatory Compliance Manager (CRCM) certification in Fall 2021. Connor and his wife are active community members in Florence, particularly with coaching/volunteering with the local youth at Florence Carlton Schools. “It is an honor to work at Farmers State Bank because it is a company that has strong core values with an emphasis on giving back to the local communities which it serves.” noted Connor. RECOMMENDATION LETTER FROM TIM SCHREIBER, VP Commercial Loan Officer-Chief Credit Analyst at Farmers State Bank Connor Cassidy has been employed with Farmers State Bank since April of 2013. He has held numerous positions within the bank, starting as a part-time teller and working his way up to his current position as a Vice President-Senior Compliance Officer overseeing the Bank’s compliance department. Connor has been an important part of the Farmers State Bank team since he started. Connor is very well-respected among his co-workers and the community in which he lives and works. He is an avid long-distance runner and frequently helps with local school activities, as well as volunteering to help with local fundraisers and other events. Mr. Cassidy is a solid example of what community banking is all about. I have no doubt that he will continue to be a strong leader in both his community and at Farmers State Bank. FEATURE ARTICLE The Community Banker 7
FLOURISH Loan providers are multiplying, and we cannot underestimate the need for a frictionless loan, one that removes hoops for our customers and feels simple, efficient and effective. Connect with Rebeca @romerorainey As we kick off this year’s lending issue, I want to pause for a moment to reflect on just how much lending has changed. Remember not that long ago when a loan card was handwritten on a one-page form? You would just rip off the top sheet, fill out the terms and provide a description of the collateral. From there, the loan assistant would key it in and produce loan documents. That was it. That was the process. Fast forward to where we are today, and you almost can’t believe it ’s the same product line. The pendulum has swung from a simple solution to the point of extreme detail and complexity. While it has had some benefits, like stronger risk management for our banks, it has made the customer process much more daunting. In fact, the loan process has grown more complicated in lockstep with today’s financial landscape. But community banks have adapted to address that shift. Over the past couple of years, we have drawn on technology to complement the human touch with digital efficiency and have been using behind-thescenes automation more consciously to streamline the process. By implementing these new strategies, we have focused on what matters most: our customers. Take, for example, how the Paycheck Protection Program (PPP) affected our infrastructure. The forced urgency behind that program lit a fire under us to implement new solutions quickly and efficiently because our small business customers needed them. In fact, for many bankers, PPP compelled action around technologies they had been considering for years: everything from e-signatures to digital document processing and beyond. That experience left me questioning what we could be doing now to anticipate what will come next. As we think about our ability to leverage technology, what is the low-hanging fruit? What new solutions can we stop kicking down the road? It ’s smart business strategy to turn inward and ask the tough questions, particularly as we’re up against such a competitive landscape. Loan providers are multiplying, and we cannot underestimate the need for a frictionless loan, one that removes hoops for our customers and feels simple, efficient and effective. Today’s lending environment is markedly different from a decade ago, but we have weathered bouts of economic volatility, inflation and restrictive regulations in the past, and we have flourished despite them. So, while this next round of uncertainty will bring with it new challenges, the strength of the community bank business model remains intact. We, as community bankers, will continue to adapt to meet our customers’ needs. By Rebeca Romero Rainey President and CEO, ICBA Where I’ll be this month I’ll be attending the 2022 Idaho, Nevada, Oregon and Washington Bankers Associations’ Annual Convention in Coeur d’Alene, Idaho, and meeting with ICBA’s board of directors. 8 The Community Banker mibonline.org
GUEST ARTICLE Up with People, which readers of a certain age may remember, was an organization that had a run of popularity in the 1970s and ‘80s by promoting wholesome values and positive thinking. Its delivery channel was through song and dance performances, often in large arenas and stadiums. Up with People provided the halftime entertainment for five Super Bowls between 1971 and 1986, though in recent decades, it has been relegated to the dustbin of a bygone era. Today’s attitudes toward pop culture, it seems, have little room for this squeaky-clean message; The Simpsons had several episodes featuring a snarky knockoff, “Hooray for Everything.” More salient to the current environment, at least pertaining to community banking, is a simple-to-execute investment strategy: Up with Coupons. This tactic can be employed at any time and in any interest rate scenario. We’re talking about it today because it could well be utilized to limit the price volatility and normalize the cash flows of your bond portfolio. As we’ve seen, market values have been on a one-way trip in 2022, and putting a floor under your investments may strike some as a good idea. Moving target Looking back just a year, we see a totally different rate landscape. It was nearly impossible to buy a bond, particularly an amortizing security, which had a price as low as $100, much less at a discount. So, going “up in coupon” would seemingly have heaped an additional pile of prepayment risk onto the portfolio at a time when mortgage refinancing was setting its own world records. For example, in June 2021, a 15-year agency mortgagebacked security (MBS) with a 1.0% coupon would have cost about 100.00, so if your bank purchased that security back then, your book yield would forevermore be 1%. A similar bond with a higher coupon, say 2.5%, would have cost about $104.50. Its resultant yield would have been totally a residual of the prepayments, over which an investor has little control. Many portfolio managers opted for the lower coupon, given the need to stabilize the shrinking net interest margins. MBS shakeout Today, of course, we have a completely different set of dynamics; foremost is the lower prices for all things in the bond world. The 15-year 1.0%’s are now worth around 86 cents on the dollar, for a decline of about 14%. The 15-year 2.5%’s are down in price “only” about 10%. This demonstrates how premium (up-incoupon) pools will experience price compression in lowrate environments, like the bond market of a year ago. When a market sell-off occurs, the price declines will be less acute for the higher coupon cohorts. Another factor is that average lives and effective durations will remain shorter for the higher coupon securities. Using very recent speeds of our two model pools as examples, the 1.0% bond now has an expected average life of almost six years, while the 2.5% is around four years. This is part of the reason that the higher coupon’s price has declined less than the cut coupon pool. But to be clear, neither of these are expected to have much prepayment activity in the near future, as the collateral for both is plainly out of the money to be refinanced. Discount munis: Buyers be alert Let’s shift investment sectors, but stay on message. The tax-free municipal segment of a bank’s collection of bonds is an important determinant of overall performance. Certain rules apply to tax-frees purchased at prices below par that you may have forgotten since “discount munis” was an oxymoron for most of the last four years. The Internal Revenue Code states that a tax-free bond that came to market either at a par or premium price, which is subsequently purchased in the secondary market at a discount, is subject to capital gains tax to the extent the yield is attributable to the discount. For example, a bond with a 3.0% coupon that came to market at par, and is now priced at a discount to yield 4.0%, will be taxed at the capital gains rate on the 1.0% incremental market yield. By JimReber, ICBA Securities Larger Interest Payments Can Build A Floor Under Your Bond Prices UP WITH COUPONS: Continued on page 10 The Community Banker 9
The upshot is a muni priced to yield 4.0% may not yield 4.0%, given its coupon and original price. Your brokers can and should walk you through the ramifications of these matters, which have some subplots that space does not allow to discuss here. The easiest workaround? You guessed it: up-in-coupon bonds. Munis that have higher stated rates, which today mean fours and fives, have built-in cushions against falling prices and avoid capital gains tax liabilities. Ultimately, multiple applications of this strategy suggested here can make life better for your community bank. Limited price volatility? Probably. More predictable cash flow? Likely. Up with income? Most expectedly. Jim Reber is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. He can be reached at jreber@icbasecurities.com. New ICBA Securities Directors ICBA Securities has added these four leadership bankers to its Board of Directors: Tommy Bates, ICBA Chairman, Legends Bank, Clarksville, Tenn.; Aza Bittinger, Community Bankers Association of Ohio, Columbus, Ohio; Blake Heid, First Option Bank, Paola, Kan.; and Craig Wanichek, Summit Bank, Eugene, Ore. Continued from page 9 10 The Community Banker mibonline.org
The Montana Independent Bankers Association is pleased to announce its participation with FedFis and other state community banking associations nationwide to offer MIB’s membership access to the “Bankers Helping Bankers” peer interaction platform. Bankers Helping Bankers is a collaboration and education platform created by community bankers for community bankers. Through data tools and dynamic user groups, Bankers Helping Bankers provides community bankers with a knowledge base focused on bank technology and emerging fintech companies, as well as on hot topics such as cryptocurrencies, banking as a service and direct digital banking. “Bankers Helping Bankers is about community banks coming together to address their shared challenges, operate more efficiently, and discover new sources of income,” said Dave Mayo, Chief Executive Officer of FedFis, the platform developer. FedFis partnered with the Independent Bankers Association of Texas (IBAT) to bring the idea for Bankers Helping Bankers to life. “The future of community banking depends on their collaboration. For decades, banking associations have offered the means of collaboration for bankers, mostly using face-to-face gatherings. But those means are no longer enough because the industry is changing too quickly. Bankers Helping Bankers is the next iteration of the traditional value proposition of associations – the promise that together we can accomplish more than we ever could alone,” said IBAT President and CEO Christopher Williston. The Montana Independent Bankers Association has faithfully served Montana’s community banks for 55 years. MIB’s mission is to provide its members the multi-level support they need to function at their optimum, which includes member promotion, benefits, advocacy and training. And, in furtherance of that mission, MIB is pleased to roll out this new member benefit, which is free to participating member banks. Said MIB President Andrew West of Eagle Bank, “With the start of the Bankers Helping Bankers program and the roll-out of the MIB statewide digital marketing and community banking program campaign in May, the MIB has offered two new member benefits in 2021 and has done so without any additional cost to MIB members.” GUEST ARTICLE BANKERS HELPING BANKERS About FedFis FedFis provides financial institutions fintech data analytics and a strategy system that tracks Financial, M&A and Vendor data (including technology vendors) on every bank and credit union in the United States. FedFis is committed to “truth in banking” by helping community bankers understand which products and services will best pair with their existing technology to drive the strategic outcomes they strive for. They are, first and foremost, a family business of precisionists – fifth-generation bankers and technology experts with incredible depth and passion for the banking industry. About IBAT Formed in 1974, the Independent Bankers Association of Texas (IBAT) represents Texas community banks. The Austin-based group is the largest state community banking organization in the nation, with a membership comprised of more than 2,000 banks and branches in 700 Texas communities. Providing safe and responsible financial services to all of Texas, IBAT member bank assets range in size from $27 million to $39 billion with combined assets statewide of nearly $256 billion. IBAT member banks are committed to supporting and investing in their local communities. Questions regarding the program may be directed to MIB assistant Terri James by emailing assistant@thunderdomelaw.com or by calling the Association at 406-449-7444. Bankers Helping Bankers is about community banks coming together to address their shared challenges, operate more efficiently, and discover new sources of income The Community Banker 11
Through data tools and dynamic user groups, Bankers Helping Bankers provides community bankers with a knowledge base focused on bank technology and emerging fintech companies, as well as hot topics such as cryptocurrency, banking as a service (BaaS) and direct digital banking. The Independent Bankers Association of Texas (IBAT) partnered with Austin, Texas-based FedFis to bring the idea for Bankers Helping Bankers to life. Social + Vendor Due Diligence Smart Vendor Directory FinTech Directory Bank Digital Snapshot Education BHB is a social community at its core, that’s why its called bankers helping bankers. At the foundation, our intelligence layer powers the community engagement, acting as a social engine. We achieve this data driven engagement in these key ways: INSIDE THE PLATFORM www.bankershelpingbankers.com msmith@ibat.org Bankers Helping Bankers ABOUT
COMPLIANCE Q&A By Bill Showalter, Senior Consultant, Young & Associates, Inc. SUMMER 2022 Flood Insurance. Q: We are working on a loan for our borrowers to purchase a primary residence. I just pulled the flood determination and found that part of the property is in the flood zone. However, the residential structure is not in the flood zone, only an older storage shed. Do we need to place flood insurance on the storage shed? Or is there an exemption for detached structures in this case? A: Generally, any insurable building located in a special flood hazard area (zone A) that secures a bank’s loan must be covered by flood insurance. However, there is an exception for “Any structure that is a part of any residential property but is detached from the primary residential structure of such property and does not serve as a residence.” So, if this shed does not serve as a residence and is not used for a commercial purpose, it may be exempted from the mandatory flood insurance purchase requirement. FCRA. Q: We have a customer who is trying to refinance a loan she has with our bank. She first asked our bank to do the refi, so we pulled her credit report. Now she is shopping and asked us to share the credit report we pulled with another lender. I don’t know if we want to do that, but I need to know if that is even allowable under the regulation. A: The FCRA permits the bank to share the report with the applicant but not with the other lender. If the bank shares the information with another person, it becomes a credit reporting agency. And it likely does not want to be considered a consumer reporting agency because there are a lot of additional requirements and obligations it would have to meet. Most banks believe it is best to stay a user and a provider of information to the consumer reporting agencies. TILA. Q: We are updating the bank’s historical table in the early plan disclosure for our variable-rate home equity line of credit (HELOC). The bank’s HELOC product is set up as 10 years with interest-only payments, and the principal is due at maturity. The historical table always had the first 10 years completed with index, interest rate (APR), and payment, and the last five years showing the index and rate only. However, this year’s updated table shows only the most recent 10 years completed with the monthly payment. I didn’t see anything where the rule on this disclosure has changed. Shouldn’t the historical table have the first 10 years completed with the index, rate, and monthly payment and the last five with the index and rate only? A: Yes, the historical table must show a full 15-year history of both the index values (for a particular date each year) and annual percentage rates (APR) to show potential borrowers what would have happened in the past (as an indicator of what might happen in the future). In addition, the table should show any payments (based on an initial $10,000 advance) for whatever time period payments are to be made under the particular program – for the 10 years in this case, the first 10 years of the 15-year index/rate history. TISA. Q: I am reviewing a checking account advertisement that states “NO Monthly Service Charge.” The account being advertised requires that monthly statements are sent by e-mail and charges a $3.00 monthly service charge if they are not. I reviewed Regulation DD and it states that a monthly service charge is a fee that must be listed, and the bank lists the fee on the TISA disclosure. My question is whether the advertising claim of “no monthly service charge” is “misleading” under Regulation DD standards? Continued on page 14 The Community Banker 13
A: Yes, this probably should be considered it misleading as written because Regulation DD states that “An advertisement shall not… [r]efer to or describe an account as ‘free’ or ‘no cost’ (or contain a similar term) if any maintenance or activity fee may be imposed on the account.” “No monthly service charge” seems to be a “similar term” to “free” or “no cost.” Now, if the advertisement clearly stated, “NO Monthly Service Charge with E-Statements,” that would be a different story. The limiting factor would be clearly stated, making the advertisement compliant (and no longer misleading). BSA. Q: We are unsure about how to file Currency Transaction Reports (CTR) for the following kinds of transactions. We have a customer, Bonnie, who is an individual and, on behalf of herself, cashed a check in the amount of $12,000 and also closed (withdrawing $9.26 cash) an account titled Bonnie Realty Group, LLC. Is it correct to file a Part I on Bonnie (Person conducting on own behalf) for a withdrawal in the amount of $12,010 (total amount of cash Bonnie received) and a second Part I on the Realty Group (Person on whose behalf transaction was conducted) for a withdrawal in the amount of $10? Would this be filed differently if the Realty Company was a Sole Proprietor? A: Actually, for Bonnie and her LLC, you will need three Part I’s – one for Bonnie as the person conducting on her own behalf (with $12,000 cash out), one for Bonnie as the person conducting on behalf of another (with $10 cash out), and one for Bonnie Realty as a person on whose behalf a transaction is conducted (also with $10 cash out). If the realty company had been a sole proprietorship operating under a “fictitious name” (DBA, doing business as), then there would have been only one Part I filed with the DBA name input in field eight, “Alternate Name.” TILA. Q: I have a question on a rescission calendar tool I use. The Federal Reserve is closed on Monday following a specific federal holiday this year (Juneteenth). Can we really count that day as a “business day” for rescission purposes? A: Yes. For a federal holiday such as Juneteenth, New Year’s Day, Independence Day, Veterans Day, or Christmas, the specified date is the “holiday” regardless of when it happens to be observed by the Federal Reserve or other entities in a particular year (particularly when the holiday falls on a weekend). This situation is anticipated in the Official Staff Commentary on Regulation Z for the definition of “business day” – even though the text regarding the “specific” definition does not mention the Juneteenth holiday yet – in Comment 2 to paragraph 2(a)(6). This comment states, “When one of these holidays (July 4, for example) falls on a Saturday, Federal offices and other entities might observe the holiday on the preceding Friday (July 3). In cases where the more precise rule applies, the observed holiday (in the example, July 3) is a business day.” EFAA/EFTA. Q: And how does a federal holiday like Juneteenth that is date-specific impact deposit-related requirements, particularly those in Regulation CC (funds availability) and Regulation E (electronic fund transfers)? A: These two deposit-related rules define “business day” differently. Regulation E has a simple definition that mirrors the “general” definition of the term in Regulation Z. A “business day” is “any day on which the offices of the consumer’s financial institution are open to the public for carrying on substantially all business functions.” So, if the bank’s offices are not open for “substantially all business functions,” that day is not a Regulation E “business day.” On the other hand, Regulation CC resembles the “specific” definition in Regulation Z (almost). The underlying statute defines “business day” as “any day other than a Saturday, Sunday, or legal holiday.” Regulation CC elaborates on this by spelling out the federal legal holidays (although Juneteenth has not yet been added to the list in the regulation). Then, it adds the following sentence, “If January 1, July 4, November 11, or December 25 fall on a Sunday, the next Monday is not a business day” – reflecting the normal business day schedule of the Federal Reserve System (FRS), a key element for availability of check deposits that clear through the FRS. Presumably, Juneteenth should receive this same treatment, even though explicit reference to this new holiday has not yet been added. ECOA/HMDA. Q: We would still record and report demographic information (race, ethnicity, and sex) for investment properties, right? A: That depends. You would not collect “government monitoring information” (GMI) for Regulation B purposes since the property securing the loan will not be occupied by the applicant as their principal residence. However, if the bank is subject to the Home Mortgage Disclosure Act (HMDA), you would collect GMI if the purpose of the loan is “home purchase,” “home improvement,” or “refinancing.” Continued from page 13 Young & Associates provides banks and thrifts with support for their compliance programs, independent reviews, and in-bank training, as well as a full menu of management consulting, loan review, IT consulting, and policy systems. 14 The Community Banker mibonline.org
Partnering with FinTech With the emergence of the COVID-19 pandemic and the onset of faster digitization in banking, banks, other depositories and institutional investors have expanded their ALM strategy to include purchasing third-party consumer loans for a variety of reasons. Through a fintech partnership, banks may find a more flexible and agile path to managing the balance sheet, interest income, and technological capabilities. A partnership between a bank and a fintech company can be structured to be a successful and mutually beneficial relationship. Upgrade, Inc. has helped bring about a digital transition in the consumer lending experience. Today, Upgrade offers personal loans, personal credit lines, and auto loans to mainstream consumers. In turn, these loan products are funded by a growing number of financial institutions. Upgrade also recently launched a deposit program; loan buying partners can participate in the deposit sweep program and receive ultra-low-cost deposits in exchange for loan purchases. Partnering with Upgrade Has Benefits Upgrade can offer banks several benefits as a fintech partner: • Reputation— years of fintech experience including previous periods of tight credit • Best-in-Class digital consumer credit platform • Prime and super prime consumer assets through custom credit overlays (custom buy box) • Robust regulatory compliance processes and procedures • Multi-product approach with volume across multiple yielding assets • Track record with 150 (and counting) bank/credit union loan buying partners FEATURED ASSOCIATE MEMBER, UPGRADE, INC. • Average onboarding timeline ~30 days • Dedicated account management team • No account minimums or term commitment Upgrade’s Asset Purchase Program Upgrade facilitates consumer loans, more than $15 billion to date, which are in turn purchased by loan buying partners through a flexible asset purchase program, structured to work with a bank’s existing ALM strategy. Upgrade has chosen to partner long-term with stable funding partners such as banks and credit unions to focus on longevity versus an auction-style trading desk or securitization focus. While many loan buyers buy loans for balance sheet diversification goals, other buyers find the flexibility of Upgrade’s program meets liquidity management needs or declines in fee income. Flexibility means purchasing as needed, stopping, and restarting as needed. There are no minimums or purchase commitments with Upgrade. One of the more popular benefits to loan buyers is that Upgrade’s asset purchase program utilizes a multiproduct approach, with facilitated personal loans, personal credit lines and auto refinance loan volume available to institutional buyers. Personal Loans Upgrade’s personal loans, which are fully amortizing, fixed-rate loans, are one type of loan buyers can fund. As part of the digitization trend in banking, consumers can complete an application, check rate estimates, view a sample loan payment, and find answers online, with Continued on page 16 By Upgrade Inc. The Community Banker 15
additional resources available through email or phone. The predominant use case is refinancing high-cost credit card debt. Unsecured Line / Card Another type of loan buyers can fund are loans converted from Upgrade card balances to installment plans. As a result, the installment plan encourages balance repayment and promotes more responsible payment behavior. Upgrade Card (Visa®) is an unsecured line of credit with point-of-sale access device and offers rewards for loan repayment, either Bitcoin or cash. As a chip-enabled, contactless card for no-touch payment, and accepted by many merchants, the Upgrade Card by Upgrade, Inc. was named in the top 50 U.S. card issuers by Nilson Report in 2022. Auto Refi Loans Finally, loan buyers can also purchase Upgrade facilitated, fixed rate fully amortizing auto refinance loans. Loans are available to consumers using an online application process for cars and passenger trucks with a mileage limit, and registration and insurance requirements. Credit First Approach As part of a major strategic focus, Upgrade has invested in state-of-the-art technology across the company including digital customer acquisition, more efficient investor account opening, and enhanced credit research models. Upgrade’s Chief Credit Officer, Myles Reaz, has 20+ years of leadership experience in strategy, risk, and P&L management, including product and pricing at several major banks. Previously while at these banks, Myles successfully managed a portfolio of HELOC loans from the 2008 global financial crisis. The Credit Research Team is always working with a “continuous improvement” mindset, and recently released CCR2, a second-generation machine learning, credit card research model. The model utilizes Upgrade card loan performance using an improved machine learning technique with a scalable, decision tree library. Upgrade’s digital acquisition setup provides some detail on the average profile of the consumer taking out loans. With an average FICO over 700, average age over 40, average income over $100,000 and approximately 50% homeowners, these prime borrowers take loans primarily to consolidate debt or to pay off existing credit card obligations through Upgrade’s Direct Pay feature, which automates ACH debit payment transactions. Regarding Upgrade’s investor account opening process, Upgrade has a history of collaborating with many vendors and technology providers of choice to optimize a bank’s own process when onboarding a new loan buyer. With streamlined procedures in place, and a reputation of compliance, Upgrade has also successfully cleared many state and federal audits on behalf of our bank partners. Upgrade, Inc. Upgrade, Inc.’s management team pioneered consumer fintech in 2006 with a lasting impact on the industry and issued $8 billion in loans annually while at Lending Club. With this experienced team of fintech and banking innovators, Upgrade facilitated $7.5 billion in loans in 2021 alone. Currently, Upgrade has a $2.5 billion loan facilitation quarterly run-rate. Upgrade has 1,100 employees across three office locations, including a large operations center in Phoenix, Arizona. Recently, Upgrade, Inc. was listed among the Best Places to Work in FinTech in 2022 by American Banker. As a platform, Upgrade facilitates loans and credit lines, issued by Cross River Bank, a New Jersey State Chartered Commercial Bank, and Blue Ridge Bank, a nationally chartered commercial bank. Upgrade Card is issued by Sutton Bank, pursuant to a license from Visa U.S.A. Inc. To learn more, contact Nik Vukovich at 303-210-6954 or nvukovich@upgrade.com or visit https://www.upgrade.com/institutions. Continued from page 15 16 The Community Banker mibonline.org
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