Pub. 10 2022 Issue 4

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 FALL 2022 GETTING TO KNOW OUR NEW MIB PRESIDENT TIM SCHREIBER

Contents FALL 2022 24 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 Getting to Know Our New MIB President Tim Schreiber 8 From the Top 9 Flourish 10 Compliance Q&A: Fall 2022 12 Featured Associate: Community Bankers Webinar Network 13 Price Pullback Prospects 15 Is Your Bank Ready for a Ransomware Demand? 17 Thank a Bank 18 Why Community Banks Should Offer Equipment Leasing 20 Expanding Fair Banking Enforcement 24 Why Being Kind at Work Matters 26 A Conversation with Linda Cohen The Kindness Catalyst 28 University of Montana Tailgate Party 30 2022 MIB Membership Directory 31 MIB Associate Member Resource Guide 33 Upcoming Webinars 13 4

By Tim Schreiber PRESIDENT’S MESSAGE As I write this, I can’t help but think about where our economy is right now and what the next 18 to 24 months will bring our way. We have seen a crazy run-up in real estate values that is now correcting, inflation is stubbornly high, the Federal Reserve is raising rates at breakneck speed, liquidity in the system remains high, and things just feel like they are on the verge of tipping over. With all of that, I would expect the next 18 to 24 months to present some challenges for a lot of people in our state. We have seen a crazy run-up in real estate values that is now correcting, inflation is stubbornly high, the Federal Reserve is raising rates at breakneck speed... At the same time, I know I am heading to Florida soon for ICBA committee meetings, and I’m not sure what to expect given the recent devastation brought on by Hurricane Ian. I planned to go down a few days early to spend some time with family members. I am currently in the process of getting my private pilot certificate, and the family I’ll be visiting are pilots who own a couple of airplanes. We had plans to take some day trips to the Florida Keys to grab lunch (because why not) and then fly back so I could get some quality flying time. However, my family informed me that we needed to find some new destinations due to the damage caused by Ian. This is such an insignificant inconvenience that I struggle even mentioning it as it makes me sound petty, but it leads me to my point: while we may think the upcoming 18 to 24 months may bring some challenges for our local communities and community banks, try and imagine being a community banker in South Florida right now and the challenges that must present. I can’t even imagine. 2 The Community Banker mibonline.org

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By James E. Brown EXECUTIVE DIRECTOR’S MESSAGE Welcome to the final 2022 edition of the MIB Community Banker Magazine. Where has this year gone? The speed with which this year has passed reminds me of the following Nathaniel Hawthorne quote: “Time flies over us, but leaves its shadow behind.” In keeping with the passage of time theme, as of the annual state convention meeting held in July, MIB has a new president guiding the MIB ship. Tim Schreiber of Farmers State Bank stepped into the President’s role. Tim takes over from Andrew West of Eagle Bank, who did an outstanding job as MIB President. As such, with this change of leadership at the top, this edition of the Community Banker contains a Q&A article with Tim, designed to introduce you, the reader, to who Tim is and what he is all about in terms of championing Montana’s community banking interests. I think you will find the article quite informative, and I encourage you to take a few moments to read all about the man guiding the Association for the next two years. The best way to keep time from catching up with you is to stay busy. And staying busy has been no problem for MIB. In the fall, MIB hosted its annual University of Montana football tailgate party at Washington-Grizzly stadium. The party was well attended, with over 40 folks stopping by the MIB tent for snacks, beverages and good conversation. And, the best part, the mighty Griz defeated South Dakota by a margin of 24-7. You will also find photos of the tailgate party within this edition of Community Banker. Also, in early October, the Association hosted the annual FDIC Community Bankers Workshop. The Workshop was held in Bozeman, bringing in attendees from across the Treasure State. The workshop was interactive in style and covered a wide range of timely topics. Topics included – among others – cybersecurity, the risks and rewards of deploying excess capital and liquidity, and consumer protection considerations in the era of rapidly changing technologies. The workshop was both informative and insightful for those MIB members who attended. In November, MIB is offering another great member benefit: hosting a Women in Banking Conference in Bozeman. The conference will be held November 16-17 at the Springhill Suites in Bozeman. The Association has arranged for a great lineup of presenters, including Montana’s Secretary of State Christi Jacobson, motivational speaker Linda Cohen (see article on page 26), SBA Lead Lender Relations Specialist Rena Carlson, and Angie Murdo, among others. (As of the day I write this in early October, the conference is sold out. This is a testament to the quality of this and other programs sponsored by your community banking association.) The annual MIB Bobcat football tailgate party will be held in Bozeman on November 19 at 10:00. This party will be held before the annual Brawl of the Wild – the ever-exciting Cat-Griz matchup. This is a game and tailgate you will not want to miss. Therefore, bring yourself and your bank colleagues down for some pre-game festivities in November. Finally, the Association is pleased to announce the dates when we will be hosting our biannual state legislative advocacy meeting. MIB has scheduled Jan. 10-11, 2023, as the dates for the membership to come to Helena to meet with their legislators and banking colleagues to advocate on behalf of Montana’s community banking industry. As we get closer to that date, the Association will provide more details on the legislative dinner and associated advocacy activities. In the meantime, make sure to mark those January dates on your calendar and make your plans to meet us in Helena at the Delta Colonial Hotel. With this being the last edition of the MIB magazine for the year, I will use this article as an opportunity to remind you that MIB member renewal notices for 2023 will be hitting your mailboxes from late December 2022 to early January 2023. We here at MIB understand things are tight financially for Montana’s community banks, particularly given the burden placed on your institutions by excessive regulation. That is why we do our best here at the Association to ensure you receive the maximum value for your dues while also gaining extensive support in the areas that matter. When you receive your renewal notice, we at MIB hope our efforts over the last 10 years to tighten the Association’s belt while expanding member services and programs will be foremost in your mind. Thank you again for being part of the biggest little community banking association in the West. We are glad you are a part of the MIB team and thank you for all you do on behalf of your customers and the Montana communities you serve. See you next year, if not sooner. James Brown Executive Director 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

GETTING TO KNOW OUR NEW MIB PRESIDENT TIM SCHREIBER As a native of Missoula, I have lived in Western Montana my entire life. I grew up the oldest of four siblings (two brothers and one sister), attended high school at Sentinel, then graduated from the University of Montana with a bachelor’s degree in Business Administration with an emphasis in Finance. I was lucky enough to marry my college sweetheart Beth shortly after graduation. 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. In my free time, I enjoy numerous outdoor activities that living in Montana provides and have started working on getting my private pilot’s certificate. Regarding my banking career, the last thing I wanted to be after college 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 I took in college didn’t help my mindset, as I remember them being incredibly complicated and focused 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 smaller community banks. Prior to banking, I worked at a stock brokerage firm in Missoula and was absolutely miserable. Luckily, through a series of fortunate events put into place by my wife Beth, I connected with a banker at Farmers State Bank. He mentioned that the bank was looking for a new credit analyst and that I should apply. While I believed I didn’t want to be a banker, I knew for sure I didn’t want to be miserable the rest of my life, so I jumped at the chance to apply. I was hired on as the credit analyst and quickly learned that what I believed to be true about bankers at the time was incorrect. What I enjoy most about my work at the bank is the opportunity to help people, regardless of the different roles I’ve had during my banking career. Whether helping bank customers during my time as a lender or helping fellow staff improve their banking skills, I have always strived to make a positive impact whenever possible. I became a member of the MIB board of directors because of, in two brief words, Kenny Martin. I remember working with him on a loan participation, and he started promoting the organization and asking if I’d like to get involved. For those of you who know Kenny (there aren’t many who don’t), then you know exactly what I’m talking about. I attended one of MIB’s annual conventions and met many cool bankers from across the state, and I remember thinking this was a great group of people and regretting that I hadn’t attended in previous years. It was an entirely new aspect of banking I had missed out on and wanted in. If I had the opportunity to impact any young people interested in banking, first, I’d clarify that there is a vast difference between large, corporate banks that tend to receive a lot of negative press (sometimes deservedly so) and community banks. I’d tell them NOT to make the mistake I did and base any belief of what a “banker” is on these large institutions. Community banking is a great career full of opportunities. 6 The Community Banker mibonline.org

An important piece of advice I received – that wasn’t really advice – came from my first boss, who consistently asked me at the end of the workday, “Well, did you earn your paycheck today?” It would always make me reflect on my efforts that particular day, and if I didn’t feel I had given my best, you could bet that I would put in the extra effort the next day. Regarding the future of community banking in Montana, I foresee there will always be a need for community banks, but remaining a relevant industry will continue to be a challenge. I would like to see a community banking industry that grows and gets stronger as a whole, even while the number of players continues to shrink. With the ability of consumers to bank anywhere with any bank at any time, the definition of “community” is shifting. As an industry, we need to be smart enough to shift with it and promote the values community banking stands for. Community bankers in Montana can benefit – tangible and intangible – from being a member of MIB. The most important benefits are the connections one makes with fellow bankers across this and other states. Every banker has similar struggles, works with similar vendors, has similar regulators, and works to keep their community bank relevant. To me, having conversations about these and other items with your peers is invaluable. The Community Banker 7

FROM THE TOP Brad M. Bolton is president and CEO of Community Spirit Bank in Red Bay, Ala. Connect with Brad @BradMBolton While hard-earned, the knowledge we have cultivated over years of circumventing attacks means that we have a depth of understanding about cyber and data security that the general population doesn’t – and those are lessons we can share. When it comes to fraud, you don’t know what you don’t know, and what you don’t know can greatly influence your bottom line. But the effects of fraud are felt far beyond budgetary impact; our reputations are at risk. Customers expect their bank to keep their money safe, and though they are often the gateway for fraud, they are inclined to blame us if we can’t fix the problem. So, we are in a unique position as community bankers – between a rock and a hard place – trying to thwart attacks and keep the banking experience positive for our customers. We have to stay on top of emerging threats through continuous staff education and technology enhancements. Solutions like dual authentication and customer card controls can help sidestep some of the risks, and continuous cyber training for bank staff can help them remain vigilant against phishing emails and more. Fortunately, this work arms us with fraud prevention expertise. While hard-earned, the knowledge we have cultivated over years of circumventing attacks means that we have a depth of understanding about cyber and data security that the general population doesn’t – and those are lessons we can share. We, as community leaders, have an opportunity to provide value-added insights to our municipalities, small businesses, schools and beyond. If we share our experiences, advise employers to train their employees and offer greater information to consumers, we are taking our work one step further in helping to protect our communities. These efforts don’t have to be new initiatives. Consider holding quarterly meetings with your small business customers: How can you incorporate some cyber and data security education into those sessions? Or think about your team’s roles on various boards and committees and how they can raise this topic as an agenda item. Or explore ways to introduce these concepts in school or public presentations. This type of education is important and something we all should be doing. Because with cyber and data security, as with everything else in community banking, it all comes back to relationships. If our customers are unsure about an email or text message and decide to call us before acting on it, that’s the first step in stopping the attack and a clear sign that sharing information is paying off. That’s the power of the relationship shining through and trumping anything the dark web can throw at us. When our customers know we will help protect them against fraud, they gain peace of mind from that relationship that only we, as community banks, can provide. My Top 3 Cybersecurity tips for community banks: 1. Explore bank and Sheltered Harbor for a more secure digital fingerprint. 2. Incorporate dual authentication for transactionbased processing. 3. Ensure your cyber insurance coverage matches the breadth and complexity of your business. By BradM. Bolton, Chairman, ICBA 8 The Community Banker mibonline.org

FLOURISH While there’s no cyber or data security silver bullet, by bringing the theoretical into a true banking environment, we can begin to establish action plans that speak to real-world attacks. Connect with Rebeca @romerorainey. Cyber and data security have long been areas of emphasis for community banks, but in today’s escalating digital environment, that focus has grown. In fact, our 2022 CEO Outlook Survey ranked data security as a top concern, and as the digital sphere continues to evolve, all signs point to that level of concentration increasing. When I think about the work community banks are putting into heightening security protocols and protecting their customers, I’m struck by the fact that so much of cyber preparedness stems from navigating conceptual circumstances. Fraudsters continually evolve their techniques to find new ways to prey on consumers and small businesses, and as they do, we must remain vigilant in serving as the first line of defense. But the question remains: How do we stay on top of their tactics and safeguard against a hypothetical, moving target? While there’s no cyber or data security silver bullet, by bringing the theoretical into a true banking environment, we can begin to establish action plans that speak to realworld attacks. For example, by participating in tabletop exercises, bankers can get a first-hand account of where their preparedness plans shine and where they fall short. By taking cyber and data security from the conceptual into the concrete, we are able to find the chinks in our armor and shore up our defenses before a hacker gains entry. Because a good defense begins with a strong offense, ICBA has partnered with the Cybersecurity and Infrastructure Security Agency (CISA), a division of the U.S. Department of Homeland Security, to offer tabletop exercises tailored specifically to community banks. These exercises enable you to bring all areas of your bank into the cyber and data security fold and, in the process, create a deeper understanding about what you are preparing for, how it will impact all facets of your bank, and how you can be ready to respond to what may come your way. In addition, ICBA also has created a Cyber and Data Security Resource Center. Updated regularly with new tools and resources, this center offers insights, tips and even customer support tools for community banks. It helps you not only to prepare, but also execute your cyber plans and introduce new education, training and resources as needed. In today’s environment, cyber and data security is about constant vigilance. This can feel like a daunting task, but by working in bite-sized pieces, you keep it top of mind on a standing basis and build a culture of cyber and data preparedness. That cyber and data security-first mentality will go a long way in helping to protect you and your customers from emerging threats. By Rebeca Romero Rainey President and CEO, ICBA Where I’ll be this month I’ll be participating in our fall leadership meeting as we strategize for the coming year and consider ways to help community banks both manage risks and embrace new opportunities. The Community Banker 9

By Bill Showalter, Senior Consultant, Young & Associates, Inc. Fall 2022 RESPA. Q: We have a consumer real estate loan that we escrow for the property taxes and insurance. We did their annual escrow account analysis in August 2022. Now, we are paying their taxes and see their tax bill has increased by $1,300 from the last bill. We did not have this new tax information until the bill came. Is it allowable or advisable to do a new escrow account analysis so the system will refigure the escrow payment using the higher tax bill? A: Yes, it is allowed but not required. If the bank decides to do another analysis, it will have to issue a short-year escrow account statement to cover any time since the last escrow account statement (after the August analysis). This will also reset the escrow computation year, so annual escrow account analyses will occur in October instead of August. An alternative course of action is inaction, meaning do nothing at this time, allow a deficiency to occur, and make any necessary adjustments for the next annual escrow account analysis next August. Either course of action is permitted. The choice of response is up to the bank. Flood Insurance. Q: We are acquiring a bank, and in some instances, we cannot find proof of continuous flood coverage in their flood files. For example, the bank would sometimes discard the previous year’s flood declarations page without saving an electronic copy after receiving the current year’s copy. To be clear, we do not believe the bank actually had coverage gaps. Our concern is that during an exam, would our FDIC examiner potentially cite us for the lack of evidence? Would it be more important to ensure flood coverage records are complete post-acquisition? We have considered reaching out to the various insurance agents to try to get past coverage records, but we are unsure if we can dedicate the resources unless it is absolutely necessary. A: The bank must ensure flood insurance records are complete, especially going forward. We cannot speak to what examiners might or might not cite. You should contact your exam team to see if they believe you need to reach out to the various insurance agents for prior records. EFTA. Q: We have an existing deposit customer who has had an account with us for over a year. Now, the customer is requesting to have overdraft protection added to their account. If the customer comes in and signs a form to have the overdraft protection added to their account, do we also need to give them a new Regulation E disclosure? A: A full Reg E initial disclosure is not required unless there have been any changes that have not already been disclosed to the customer. However, the bank needs to comply with the opt-in requirements noted in the regulation: Provide a separate written notice that describes the bank’s overdraft service, give the customer a reasonable time or opportunity to opt-in to the overdraft service for ATM and one-time debit card transactions, obtain the customer’s affirmative consent (opt-in) to the bank’s payment of ATM and one-time debit card transactions, and provide the customer with written confirmation of their opt-in (including a statement of their right to revoke that consent). Insider Credit. Q: If a new member of the bank’s board of directors has an existing deposit relationship and/or existing loans with the bank, is there anything we need to look at? As they are not an executive officer, they would not be subject to the $100,000 limit on “other purpose” loans, correct? A: Existing loans not made in contemplation of the person becoming an “insider” need not conform to the requirements of Regulation O until such extensions of credit are renewed, revised, or extended. At that time, the extensions of credit would be treated as a new extension of credit and, therefore, subject to all requirements of Regulation O. However, such transition loans must be counted toward the individual and aggregate lending limits of Regulation O as soon as the borrower becomes an insider. This same treatment would apply to extensions of credit to a director or principal shareholder who later becomes an executive officer. Such extensions of credit need not conform to the provisions of Regulation O that apply only to executive officers until such extensions of credit are renewed, revised, or extended. However, the amount of any such extensions of credit count toward the quantitative limits for loans to executive officers as soon as the director or principal shareholder becomes an executive officer. Keep in mind that many lines of credit by a bank to an insider must be approved by the bank’s board of directors every 14 months. Each such approval constitutes a new “extension of credit.” Accordingly, transition lines of credit COMPLIANCE Q&A 10 The Community Banker mibonline.org

loans generally must conform to the requirements of Regulation O within 14 months of the borrower becoming an insider – by the time of the next new “extension of credit.” Also, remember that any overdrafts involving this new director’s deposit accounts must comply with Regulation O limitations from the time they become an insider. TILA. Q: We have a situation with a mortgage loan where the Loan Estimate (LE) was properly completed with the UST1 index, but the final Closing Disclosure (CD) was completed with an incorrect SOFR index. The note and mortgage both correctly indicate the UST1 index. The SOFR index tracks lower than UST1, so the disclosed finance charge and annual percentage rate (APR) are higher than those disclosed on the CD. We are unsure how to correct this since the loan has already been closed and booked. A: The TILA provides a “cure” provision if done timely. The bank would recalculate/verify the APR and FC it disclosed, but using the correct values for the amount financed and payment schedule(s) (if those in the CD were not correct/ in line with the note). If the APR verification program shows a violation, you should compute what (if any) restitution is due. If no monthly payment has yet come due, you should enter “1” in the space for number of payments made. Then, see what the program tells you is due. You will also need to issue a corrected CD since this is part of proper correction under the TRID rules. In addition, you should work with the bank’s legal counsel from the beginning on making this cure. BSA. Q: We have a situation where a customer brought in $10,000 cash on behalf of a business and $3,000 cash for a personal loan payment. The customer deposited it into a personal account on the same business day. Would we be required to file a Currency Transaction Report (CTR) on this customer? A: Yes, a CTR must be filed since you had over $10,000 in currency brought in by or on behalf of any person during any business day. EFTA/TILA. Q: The person who usually works our disputes is no longer here. Would you refresh my memory on the following: Our customer ordered tires online and authorized payment through Square but never received any tires and the phone number of the guy selling the tires is no longer valid. Does the bank incur a loss when our customer authorized this? A: It may depend on whether the customer used a debit or credit card. If a debit card was used, the bank is off the hook – no investigation under Regulation E or customer reimbursement. The EFTA and Regulation E do not have a provision about customers not getting what they ordered, purchased, etc. On the other hand, if it involves a credit card, TILA and Regulation Z have such a provision, and the bank will have to investigate and absorb at least some of the loss. TILA. Q: Our bank’s practice has been to have our lenders either obtain the signatures of persons entitled to rescind a particular loan on the rescission notice for non-cancellation or calling/e-mailing the individuals, then document the noncancellation section themselves after the rescission period has expired and before disbursement. We have talked to other banks who claim not to do this, and their practice is if they have not been contacted by “the date” the transaction is being canceled, then they disburse funds. What is the right way to manage this? We are leaning towards not gathering these signatures or doing the followup we are currently doing, but we would like some guidance. A: Regulation Z and the TILA do not require a signature or follow-up, just being “reasonably satisfied” that the consumer(s) has not canceled. Since almost no one cancels, most lenders go with “the date” business. However, I cannot fault the bank for what it has been doing – making sure the consumer(s) has not canceled before disbursing – which is the route some lenders choose to follow. Of course, you need to ensure your lenders/closers do not do what sometimes happens: getting borrowers (and non-borrowers entitled to rescind) to sign the confirmations at closing (with the correct date). This is hard to catch, as a reviewer, unless you happen to have a loan in your sample that had closed but not reached a disbursement date (rare) – or have this happen at your own closing for a rescindable loan (as happened once when my wife and I were refinancing our home). As they say, such a “confirmation” is not worth the paper it is printed on. 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. The Community Banker 11

COMMUNITY BANKERS WEBINAR NETWORK By Larry Williams, President & CEO of the Community Bankers Webinar Network I spent over 20 years as a Montana community banker, working my way through various positions from Teller to Branch Manager, Credit Analyst to Lender, and Chief Credit Officer to Chief Lending Officer. Helping small businesses succeed by getting to know my borrowers’ needs and applying sound loan structuring that made sense for their business and the bank was the most fun part of my banking career. At Community Bankers Webinar Network (CBWN), my customer base has grown in numbers to include bankers from across the entire nation. Even so, my commitment to knowing my customers has not changed. I may not be able to personally introduce myself to every community banker who attends our webinars, but I know community bankers. In fact, as our team plans each year’s training calendar, I have made it a priority to ask bankers across the United States what they need. To that end, I have created the Community Banker Advisory Committee. Each year, I send a detailed survey to committee members who have all agreed to give honest answers to questions like, “What is your bank focusing on most as you prepare for your next exam?” and, “What topics are important to you and your colleagues as we look toward the coming year?” Their feedback has a direct and positive impact on the webinars that find their way onto our annual calendar. Two Montana bankers are members of this important committee and have taken time out of their unimaginably busy schedules to give me their valuable feedback. Thank you to Chantelle Nash, Chief Risk Officer with Opportunity Bank of Montana, and incoming MIB President Tim Schreiber, Chief Credit Officer with Farmers State Bank. I have spent time with Chantelle and Tim professionally and personally, and I know they are true community bankers to their cores. They give freely of their time and talents to meet the needs of their families, communities, their banks, and you, their fellow community bankers. Their advice in planning each year’s webinar training calendar is invaluable, to say the least. Their involvement means you can count on the Community Bankers Webinar Network to deliver the most relevant and timely bank webinars, which are available anywhere. Thank you, Chantelle. Thank you, Tim. Community Bankers Webinar Network partners with Montana Independent Bankers to produce and deliver 150-200 new bank training webinars every year. Our full library contains over 250 live and on-demand webinars. Through our newly designed website and User Portal, bankers can access all their webinars in one place, making it easy to attend, track, and report their webinar training at the click of a mouse or the touch of a finger if they’re on a mobile device or tablet. Our User Portal also allows your bankers to share training with colleagues, upgrade their orders, track Subscription Tokens, and save their billing and payment information for a quick, seamless checkout experience. CBWN’s promise to provide community bankers with timely and trusted training is top of mind when planning and producing each webinar. We are educators at heart and industry experts with long-term, real-life, hands-on experience. Our practiced presenters tackle the latest regulations and critical banking issues so community banks and bankers can better serve their communities. Larry Williams is President & CEO of the Community Bankers Webinar Network, providing bankers across the United States with relevant and timely online training topics covering all key areas of community banking from the frontline to the board room. Check them out online at www.financialedinc.com or call 406-442-2585. FEATURED ASSOCIATE 12 The Community Banker mibonline.org

GUEST ARTICLE Is Your Bank Ready for a Ransomware Demand? By TimHenry, Vice President/Managing Agent, UBA Ransomware attacks were very much in the news in 2021. Every organization should prepare in advance for the steps it must take should a ransomware event occur. While attacks against municipalities, educational facilities, healthcare organizations, the retail industry, and pipelines pepper the news, ransomware attacks have targeted community banks and will continue to do so in the future. Ransomware is malware that employs encryption to hold data at ransom. Early on, ransom demands were relatively modest, and victims were inclined to pay the demands to quickly return their companies to operational. To counter the threat of ransomware demands, among other steps, organizations beefed up backups to ensure that data truly could be restored in the event of a disaster, including a ransomware attack. Ever opportunistic, fraudsters have shifted their focus to managed service providers (MSPs), which serve many clients at once, under the theory that if the fraudster can access one client, they can access many, many more. Another focus shift was to the remote workforce and their access tools with the presumed lower levels of security utilized. Double extortion tactics and increased demands. Cybercriminals have amped up the stakes and now use a two-pronged extortion tactic: 1) locking up company data and systems; and 2) threatening to leak private and confidential data publicly unless the ransom is paid. A reported third prong being used by some extortionists is to send ransom demands to customers/users/third parties who would be hurt by the leaked data of the threatened organization. Now it’s not enough to simply turn one’s back on a ransomware demand and rely on rock-solid data backups to restore the bank’s system to normal. Impact on cyber insurance. To add to the problem, average ransomware payments have increased to $312,000, and reportedly, ransomware victims paid a total of $350 million in 2020. The huge dollars involved resulted in higher cyber insurance premiums, higher deductibles, lower coverage limits, coverage restrictions, and in some cases, non-renewals. Refer to your IT professionals for ransomware prevention. The best way to counteract ransomware attacks is to prevent them. Consult with your IT professionals and MSPs to tighten up your security measures. Educate your users. Many attacks begin with a phishing email that looks legitimate but contains a malicious attachment or URL. Continuous education of your employees is necessary for our “click first, read later” environment. Department of Treasury Advisory. On Oct. 1, 2020, the Department of Treasury’s Office of Foreign Assets Control (OFAC) issued an advisory prohibiting the payment of ransom demands to individuals on the OFAC Specially Designated Nationals and Blocked Persons List (SDN List) and other specified persons and countries. (Please see the advisory at https://home.treasury.gov for a complete list of prohibited parties.) Steps to take in the event of an attack. The FBI and the Federal Financial Institutions Examination Council (FFIEC) encourage ransomware victims to immediately notify law enforcement. In addition, the FFIEC recommends notifying your appropriate bank regulator and filing a Suspicious Activity Report, if appropriate. Insurance Implications. Notice of a potential ransomware matter should be given to the bank’s insurance company(ies) immediately. Typically, a breach coach will be assigned to your case to determine the appropriate steps to take to deal with the ransomware demand and associated potential breach. Not only does the carrier work with designated vendors with specific expertise in the type of breach the bank has incurred, but costs incurred by the bank without carrier approval are not necessarily covered by the insurer. Various coverages are available to mitigate the bank’s expenses, and the bank should review its exposures and the appropriate coverages/limits to purchase with its experienced insurance advisor. United Bankers’ Agency (UBA) offers cyber insurance to protect your community bank in the event of a security breach. Our community bankspecific insurance solutions will ensure you have the right coverage in place. In addition, UBA provides a full suite of identity theft protection products for your customers, from basic consultation restoration to web watcher, idINTEGRITY Scan. For more information or to schedule a consultation, go to www.ubb.com/insurance. The Community Banker 13

GUEST ARTICLE Over the years, I’ve learned a few things about human nature as it relates to bond portfolio management. Some of these notions or biases in the minds of investors are more logical than others. For example, it seems community bankers take some pride in owning a collection of bonds whose price has risen since purchase. An unrealized gain is much preferred over an unrealized loss in the minds of a lot of seasoned portfolio managers, investment committees and boards. This is in spite of the fact that the gain is the residue of rates falling since purchase. The natural consequence is that the overall portfolio’s yields are on the way down, and I haven’t met many people hoping for lower bond returns. A great paradox is that many of these same bankers prefer to buy bonds whose prices are less than 100 cents on the dollar, rather than at premiums. In some cases, they’ll opt for discount bonds even if they have lower yields to maturity. I think they get satisfaction out of knowing they’re better off than the poor suckers who originally paid par or more for the same investment. In that community banking is a cyclical industry, and its earnings have some correlation to market interest rates, there are periods in which certain strategies are in play and others are not. An environment in which rates are high and rising, such as 2022, will produce bonds whose prices are below par. Like it or not, discounts are the story of the day, so let’s review how discount-priced bonds can be used strategically to improve portfolio performance. Agency options The simplest investment sector to analyze is government agencies. These bonds are issued by some of your favorites, such as Fannie Mae, Freddie Mac and the Federal Home Loan Bank. These do not have periodic principal repayments, so your original investment remains intact until maturity date. That is, unless it has a call feature, which is present in about 88% of outstanding issues. For these bonds, the borrower can decide to “call” or prepay the debt early, and on designated dates. By JimReber, ICBA Securities Price Pullback Prospects Availability of discount bonds causes a rethink of strategies If a given bond is purchased in the secondary market at a price below 100, and the issuer later calls the bond early, the investor’s yield to call is higher than yield to maturity. This yield improvement can be dramatic if the callable is owned at a deep discount. Of course, the investor doesn’t expect the call ever to be exercised, so it’s a pleasant surprise to see the yield jump. These discount callables are typically priced to the worst case (i.e., maturity) to yield slightly more than non-callable bonds (i.e., bullets). Mortgage maneuvers Mortgage-backed securities (MBS) remain popular as community bank investments. The majority of the dollars in all bank portfolios are in some type of MBS. And it is a deep and liquid (and growing) market, so supplies are plentiful for a given investor to shop around. The cash flows of an MBS are mostly predicated on how much prepayment (not repayment) is received each month. There is a direct link between prepayment activity and the borrowers’ rates (in MBS parlance, “Gross WACs”) of a given pool, so investors can (within limits) create a predictable risk/reward profile. And have I mentioned that MBS are currently available at discounts? Buying below-market coupons means two things in the near term. First, your monthly cash flows will be limited, and that may be fine for your bank’s needs. Secondly, the market price has room to improve, up to and beyond par, if rates begin to fall. For example, a 15-year MBS with a 2.00% coupon is currently priced around 94 cents on the dollar, and was worth around 102 at the start of 2022. Since the borrowers’ rates on these pools will be well below 3%, there is no financial incentive to prepay the loans early, so average lives will be quite long in the near future. Continued on page 15 14 The Community Banker mibonline.org

Together, let ’s make it happen. Craig McCandless Call me at 406.850.3790 Based out of Billings, Mont. serving Montana, Wyoming and Idaho Why choose Bell as your bank’s lending partner? Leverage our large lending capacity, up to $20 million on correspondent loans. Our lending limits are high enough to accommodate what you need, when you need it. We do not reparticipate any loans. ■ Commercial & ag participation loans ■ Bank stock & ownership losses ■ Bank building financing ■ Business & personal loans for bankers EQUAL HOUSING LENDER Member FDIC 28934 Offset to falling rates Maybe the biggest benefit to owning bonds at prices less than 100 is that their returns will be inversely related to general market rates. When interest rates fall, the “optionality” comes “in-the-money,” and some bonds get called away. To the extent they’re owned at discounts, their yield-to-call is enhanced. This is true for all bonds: agencies, MBS and even munis at discounts. Further, since most all community banks have interest rate risk profiles built for rising rates, investments that out-perform as rates fall can help offset the margin compression likely to occur. Perhaps best of all, discount bonds’ yields will automatically (magically?) increase as interest rates decline, without the need to sell the investments. All told, owning bonds at prices less than par can help bring stability to the cash flows while lessening exposure to falling rates. It can also feed the needs, however subliminal, to get a bargain price while improving future chances for unrealized gains. Paradoxical? I’d call it logical. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. Continued from page 14 The Community Banker 15

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GUEST ARTICLE Thank a Bank By Conor Smith, First Call Computer Solutions When the average person thinks of banking in Montana, words like checking, savings and loans come to mind. It is a commodity, transactional-based view. I feel incredibly grateful for experiencing the true nature of banking here in Montana. Seeing people and organizations navigate the macro landscape of too-big-to-fail, treasury yields, a mortgage crisis, pandemics, and droughts (to name a few) has been inspiring. Change has been a constant, and Montana’s banking “institutions” have been anything but institutional. Consumers and businesses alike need to take a moment away from the transactions and see Montana Independent Banks as integral to navigating the world in which we live and work. As I am writing, I did a Google search for “Thank a Bank.” Guess what? It is not a movement that is catching on, let alone even being brought to the surface on the internet or social media (#thankabank had extremely limited results on Google). I know you are shocked that this is not raging and trending anywhere and everywhere. The simple reality is people and businesses take the confidence, trust, services and relationships banks provide for granted. We are a bit spoiled, a bit entitled. Change is a constant, and more is on the horizon with rising interest rates, treasury yields, elections and even the federal government’s stance on cannabis. I do not know how all of that will settle, but I have confidence that the banks in Montana will navigate it not only for themselves but also for the people and organizations they serve. As an IT and cybersecurity vendor, I feel a bit of kinship with banks and bankers. We, too, are perceived transactionally in the form of service tickets, projects and audits. And certainly, there are commodities around computers, software, networks and data. But the true nature of IT is far from just transactional. Like banking, our work is highly relational to the people and organizations we serve. We must evolve our relationships with the large macro forces in technology, regulations and threats. The landscape is fluid. Like banks, we must be extremely diligent with every transaction, all while keeping the bigger picture and outcomes in mind for each client we serve. To many, what we do might seem mundane, disciplined and highly structured. And there is truth to that. Uptime, security and performance demand it. But there is also an art to what we do and to what banks and bankers do. You might not think there is art in our internal security audit methodology. But we do. You might not think there is art in our expanded 24/7 security operations center (SOC) and monitoring services. But we do. There is art in our help desk, field support, project delivery and in the way we work to understand each client over time and serve them. “Thank an IT Service Provider” or “#ThankITDepartment” is not going to trend in the real world or online any more than “Thank A Bank” is. But “Thanks” still needs to be said. Thank you, Montana banks and bankers, for the transactions, the commodities, the branches, the digital tools and more importantly, for all you do to help people navigate their lives and businesses in this great state of ours, both in good and tough times. We are proud to be part of your team and associated with the important work you do across all the sectors of Montana’s industries and livelihoods. The Community Banker 17

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