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 WINTER 2023 MIB RINGS IN THE NEW YEAR! Montana’s Legislative Session Kicks Off and MIB is there to Advocate for Montana’s Community Banks
WINTER 2023 24 2023 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 Jim Brown Executive Director Montana Independent Bankers jbrown@mibonline.org MIB STAFF Tim Schreiber, President Farmers State Bank tims@farmersebank.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 2023 MIB EXECUTIVE OFFICERS ©2023 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 10 4 4 President’s Message: Stronger Together in the New Year By Tim Schreiber 6 Executive Director’s Message By James E. Brown 8 From The Top By Brad M. Bolton, Chairman, ICBA 10 Flourish By Rebeca Romero Rainey, President and CEO, ICBA 12 Compliance Q&A Winter 2023 By Bill Showalter, Senior Consultant, Young & Associates, Inc. 14 2023 AG Conference 15 Bankers Day At The Capitol 16 Featured Associate: Alliant Built Differently to Serve You Better By Kendra Warman, Alliant Insurance Services 18 Brawl of the Wild Tailgate Party 19 Creating Successful Homebuyers By NeighborWorks Montana 20 Fixed Rate or Floating? Hybrid ARMs Give an Investor Both Features By Jim Reber, ICBA Securities 22 Regulators Should Rethink Climate Proposals To Eliminate Community Bank Impact By Rebeca Romero Rainey, President and CEO, ICBA 24 Restoring the Shine to Your UDAAP Lens By Kathryn “Katie” Ferrell, CRCM, CAMS, UBB 26 Navigating the Potential Impact of Recent Regulatory Guidance By Gale Simons-Poole, BHG Financial 27 2023 MIB Important Dates 30 Member News: Opportunity Bank of Montana CEO Pete Johnson Retiring After 43 Years In Banking 31 Member News: Laura Clark Becomes President & CEO Of Opportunity Bank Of Montana 32 2023 MIB Membership Directory 33 MIB Associate Member Resource Guide 34 MIB Associate Member Banks 35 Upcoming Webinars Contents The Community Banker 3
T Once we realized a hotel was not going to be a great option for him, we decided that I should reach out to a fellow MIB board member who just happens to live in the same town where my son found himself stranded, Tom Christnacht. After explaining the situation to Tom, he offered to host Ben and his friend at his house until the roads improved either that night or the next morning. It was obvious to me just how rattled Ben was with driving because he was willing to stay the night in an absolute stranger’s home, not that Tom or his generous wife, Janet, remained strangers to anyone for long. What a relief and a blessing for both Beth and me to know that they would be safe and off the treacherous roads that night. The point of telling you my story is this: had I not chosen to join MIB several years ago and make a lot of great connections with other bankers across the state, I would not have gotten to know Tom and his wife, Janet, and I would not have had a great option for my son when he found himself stranded in the snowstorm. I joked with Tom that this was an incredible MIB member benefit and he agreed. We do remarkable things together as an organization, and this is the legacy we leave behind for the next generation. The friendships and experiences we create along the way, I believe, are ours to keep forever. We are definitely stronger together! PRESIDENT’S MESSAGE We do remarkable things together as an organization, and this is the legacy we leave behind for the next generation. STRONGER TOGETHER IN THE NEWYEAR The end of each year is a time I tend to reflect on the prior year’s achievements and failures to look forward to the possibilities of a new year and to be thankful for all life’s gifts, the most important of which are friends and family. While I have many reasons to be thankful for my family and friends this past year, there is one event that made me profoundly grateful for both. My oldest son, Ben, had just been home for Thanksgiving weekend and needed to return to Butte for his classes the next day at Montana Tech. He got a later start than usual as he was waiting for a friend who was catching a ride back to school with him. It turned out that it was just enough of a delay to allow a snowstorm to hit the area as he was leaving Missoula. While he was at the front of the storm to begin with, it quickly enveloped him and every other traveler on I-90 that afternoon. By the time he reached Garrison Junction, he had witnessed multiple vehicles slide off the road and saw a multivehicle accident happen right in front of him. He safely pulled to the side of the road where he called his mother to ask if we would get a hotel room for them to safely spend the night in Deer Lodge, as they were rattled. Of course, Mama-Bear got right to work looking for hotel options, which she quickly found were limited. By Tim Schreiber 4 The Community Banker mibonline.org
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A By James E. Brown EXECUTIVE DIRECTOR’S MESSAGE As the calendar rolls over into another new year, I am reflecting on the importance of focusing on what community bankers do for a living and what the profession does for our local communities. This is because, as the author E. Stanley Jones stated, “Whatever gets your attention ... gets you.” For the last several years, Montana’s community banking was forced to focus its attention on the fiscal and social impact of the COVID-19 pandemic. Part of this focus was, of course, protecting internal banking operations and employee health, administering the federal paycheck protection program (PPP), and helping bank customers navigate the most unprecedented economic disruption event of the last 50 years. I now write with some optimism that 2023 marks the year where MIB’s members can put the pandemic crises in the rear-view mirror and doubledown their attention on the one intangible that defines ‘us’ best — that intangible being to serve our local communities and the people that live in them. MIB is proud of the way our members have historically supported local businesses, schools, charitable groups and other community-minded organizations. I know that community bankers will work hard every day in this coming year to help build vibrant communities where their customers live, work and play. As for the MIB, in the coming year, the Association will also be refocusing on its core mission, which is to serve Montana’s community banks. One of the ways the Association serves its membership is through legislative advocacy services both at the federal and state level. As I write this article, the 2023 Montana Legislature has commenced. The legislative session is slated to end in late April. Some of the big issues for the session appear to be Governor Gianforte’s proposals to provide a tax cut, to fund state building repairs and improvements, and to improve telecommunications services and opportunities. The 2023 Legislature once again sees the Republican Party controlling both the House and Senate. Republicans have an unprecedented super majority this session – holding 103 of the possible 150 seats. Thus, as has been the case since the 2005 legislative session, a Republican legislature will be driving the agenda and the policy. The MIB has a light legislative agenda going into the 2023 session. Much of the Association’s focus will be on defeating or mitigating the impact of potentially harmful bills to the industry, such as those bills that tend toward imposing additional regulatory burdens and/or authorize non-bank entities to act as if they were banking entities. MIB will also oppose any legislation that seeks to upend the lien priority process. One bill that the MIB will be following is being advanced by the Montana Division of Banking. Commissioner Melanie Hall has informed the Association that she will be sponsoring a rewrite and reform of the Montana Bank Act. As the legislative process moves forward, we here at MIB are interested in hearing directly from you as to legislation the Association should or should not support on your bank’s behalf. 6 The Community Banker
(406) 604-4540 NeighborWorks Montana and our network of partners across the state provide homebuyer education and counseling, creating successful, mortgage-ready homebuyers. Reach out today to find out how we can help your buyers be the most successful homebuyers possible! nwmt.org info@nwmt.org Member FDIC 38368 Whether your loan is large or small, get faster turnaround from our experienced correspondent team. Whatever Loan Amount You’re Looking For, We Can Help. Partner with Bell for: • Purchase and selling of participation loans • Bank stock and ownership loans • Holding company loans and lines of credit • Reg. O loans to bank employees, insiders or directors Craig McCandless Call me at 406.850.3790 Based in Billings, Mont. Serving, Montana, Wyoming and Idaho Among the provisions set forth in that bill is a provision to repeal the State Banking Board. As the legislative process moves forward, we here at MIB are interested in hearing directly from you as to legislation the Association should or should not support on your bank’s behalf. And the Association will be keeping the membership abreast of legislative developments on a weekly to a biweekly schedule. Legislative updates can be found on the MIB website under the Advocacy link. Setting public policy matters aside, in late 2022, the OCC released its semiannual risk perspective. As an informative read, the perspective provided an overview of the multitude of issues facing banks across the country, including Montana. Among the key issues identified in the report, higher interest rates are expected to slow economic growth in 2023, banks are expected to remain well capitalized with ample liquidity and sound credit quality, bank portfolios will continue to experience challenges in a rising rate environment, and residential home sales will decline. Time will tell if the OCC’s projections prove correct. In keeping with the theme of looking forward, the Association hopes the following events get your attention in 2023. In this coming year, the Association will be hosting two live education conferences, the Popular Women in Banking Conference, as well as the Ag Lending Conference. Further, the Association will be hosting its annual convention and tradeshow at beautiful Big Sky Resort in late July. The annual Montana reception will be held inMarch in Hawaii at the ICBA National Convention. Further, the Association encourages you to attend our MSU and U of M football tailgate events in the fall. And, of course, the Association will be offering its valuable Community Bankers for Compliance Program once again. We urge you to take advantage of these great member benefit programs. In closing, let me take the opportunity to wish you a prosperous 2023. MIB’s staff hope this year is the best year yet for your bank and for your employees. And, as we do every year, the Association thanks you for your membership with MIB and we look forward to seeing you in person in the coming year. The Community Banker 7
I I’ve always been a glass-half-full guy, and though 2023 is expected to be a challenging economic year, it also will bring opportunity. We simply need to remember what makes us special as community bankers, and with that as our foundation, we can embrace this season of change in four primary ways: 1. Demonstrating the community bank difference. One of our greatest assets is our reputation as relationship bankers. When things get tough, people want to be able to talk to their banker. They want to come into the bank and say, “We need your support to figure things out.” With community bankers by their sides, they have a real connection to someone who can help solve their problems, and we’re able to find creative solutions to work with them in trying times. That’s the community bank difference, and we should be proud to reiterate it throughout the year. 2. Gaining advocacy wins. Community bankers have been proven vocal advocates on numerous issues facing our industry, including pushing to advance a safe harbor for cannabis banking, closing the industrial loan company loophole, opposing an extension of Durbin Amendment restrictions to credit cards and shaping the debate over the regulation of crypto assets. I encourage you to join us and lend your voice to supporting these and other advocacy efforts, which will shape the policy landscape. 3. Embracing innovative offerings. Technology is a top focus because we have to be ready to live where our customers live: on their phones. This climbing emphasis on digital solutions is why ICBA brought all ThinkTECH programming, including the Accelerator, in-house to ensure year-round support for community banks. ThinkTECH companies help us serve our customers better, expand our footprint into a more diverse customer base and create better adoption of services through technology. 4. Uniting with other community bankers. I’m a big proponent of the power of many in advancing community bank goals and objectives. There is nothing more impactful than convening community bankers with a one-mission focus. This year, gathering for ICBA LIVE in Hawaii and bringing our collective forces to Washington in the spring to advocate for our priorities will aid in ensuring community banks continue to flourish. While no one can predict just how the year will go, I know that by staying true to who we are as community bankers, we will come out on top. And that’s why I’m looking forward to all we will collectively accomplish in 2023. Connect with Brad onTwitter @BradMBolton. FROM THE TOP By BradM. Bolton, Chairman, ICBA My Top 3 Priorities for a Successful 2023 1. Advocacy: Get every employee involved 2.Innovation: Implement new digital solutions 3.Education: Commit to community, bank-focused training for next-generation leaders One of our greatest assets is our reputation as relationship bankers. When things get tough, people want to be able to talk to their banker. 8 The Community Banker mibonline.org
• Down payment assistance • 30-year, low-interest rate mortgages • Quality in-state servicing • Ask your lender about Montana Housing loans HOUSING.MT.GOV facebook.com/montanahousing Follow Montana Housing on Facebook Member FDIC 38368 Whether your loan is large or small, get faster turnaround from our experienced correspondent team. Whatever Loan Amount You’re Looking For, We Can Help. Partner with Bell for: • Purchase and selling of participation loans • Bank stock and ownership loans • Holding company loans and lines of credit • Reg. O loans to bank employees, insiders or directors Craig McCandless Call me at 406.850.3790 Based in Billings, Mont. Serving, Montana, Wyoming and Idaho The Community Banker 9
T FLOURISH By Rebeca Romero Rainey, President and CEO, ICBA Where I’ll Be This Month I’ll be holding down the fort at ICBA headquarters, helping our government relations team as we welcome new members of Congress and gearing up for ICBA LIVE March 12–16 — register today at icba.org/live. The beginning of a new year feels like a fresh start, a new chapter in our stories. We have a blank page on which we can write our narrative over the course of the year, with new milestones filling the pages ahead. And with 2023, we have no shortage of adventures awaiting us. Consider industry evolution. I’m amazed at the pace of changes occurring in all areas of financial services, from instant payments to more digital solutions and beyond. This will be a pivotal year for embracing new opportunities and exploring how we can set ourselves up to succeed, even with looming challenges. Think about the uncertainty of the economic environment. It’s a challenge to be sure, but it’s one that community banks have previously faced with strength. Time and time again, you have demonstrated resiliency in the face of difficult financial conditions. In fact, this is when community banks shine, bringing stability to customers simply by being relationship bankers who see them and know them. Looking at it through a different lens, there’s opportunity in this economic climate; it’s a way to double down on your strengths and unique people-first approaches to banking. Yet, amid these external influences, you may be asking, “What actions can we take to ensure we’re identifying the right next step for our bank?” That’s where ICBA can provide support. Whether it’s the information that comes in NewsWatch Today or Independent Banker, convening with other community bankers to discuss strategies at ICBA LIVE or proactive engagement with lawmakers at the Capital Summit, we offer opportunities to not just react but to respond to this dynamic environment with your mission and vision at the center. We have increased our offerings to support you and to further differentiate our industry. For example, we have moved the ThinkTECH Accelerator in-house to ensure yearround innovation programming and to find new fintech partners who are bringing market solutions that respond directly to community bank needs. We’re expanding classes and programs provided by Community Banker University, and as the government relations team prepares to welcome new members of Congress to D.C., they are ready and excited to tell your story and ensure your voices are heard. So, as we enter a new chapter and start a new financial statement cycle, know that ICBA will be there to support you with tools, resources, and advocacy efforts. Together, we will write our 2023 story, one that will set up community banks for success. Rebeca Romero Rainey is President and CEO of the Independent Community Bankers of America. As we enter a new chapter and start a new financial statement cycle, know that ICBA will be there to support you with tools, resources, and advocacy efforts. 10 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
P COMPLIANCE Q&A COMPLIANCE Q&A PMI. Q: Our mortgage area is considering adding this paying for private mortgage insurance (PMI) upfront as an option for our borrowers. I am not familiar with this subject and want to make sure we are following the proper procedures. When a borrower pays for PMI upfront in a single payment, do they still need to receive annual notices or notice when the termination of the MI is met? Does the PMI company still issue a refund if the loan is paid off early or when LTV is less than 80%? A: All the PMI notice requirements still apply. In addition, by law, the PMI company cannot keep unearned premiums so they would have to issue a refund if the customer paid off early, just like with monthly-payment PMI. TILA. Q: We closed a rescindable loan on December 21, 2022, so rescission ended at midnight on Saturday, December 24. However, with the weekend and holiday, the customer didn’t actually have their funds until Tuesday, December 27 (with the holiday observance on Monday). I just wanted to make sure that since rescission uses the precise definition of a “business day” it does not matter that our office was closed on December 24 and that we can still count that as one of the three business days of the rescission period. A: For this loan, the bank is permitted to disburse after midnight December 24 — as long as it is reasonably certain that no person entitled to rescind has canceled. In practical terms, the bank likely will not disburse until Tuesday, December 27 if the bank was closed Saturday and Monday, December 26 for the observed Christmas Day 2022. For rescission “business day” purposes, Monday, December 26 would still count as a “business day” (if there is a rescission period that extends over that day) since Christmas is one of the federal holidays that is defined by its specific date – December 25 – not by when the Federal Reserve and government observe Christmas. TISA. Q: Our bank would like to offer a limitedtime certificate of deposit special. When it comes to advertising on the bank’s website, would it be acceptable to include the “triggered terms” in a link or do they need to be on the same screen with the annual percentage yield (APY)? For example, the “triggered terms” could be accessible by clicking on a link labeled “Disclosure.” A: Linking to the additional required terms is allowed, but the link must take the consumer directly to the additional information (not some chain of multiple links to get there). Also, just labeling the link as “Disclosures” might not be clear enough to at least some average consumers. It might be better to have something like, “For additional information, click here” with the link embedded in the last word. TILA. Q: The percentage of down payment applies only to “credit sale transactions” — one in which the creditor is the seller — correct? For example, would that include loans the bank extends to finance the sale of repossessed property (home, car, etc.)? If the bank is not advertising financing this type of transaction but a simple transaction for the purchase of a home from some third party, we are permitted to say 80% LTV or 20% down payment By Bill Showalter, Senior Consultant, Young & Associates, Inc. WINTER 2 0 2 3 12 The Community Banker mibonline.org
in our advertising with no additional triggered terms, correct? A: Correct. In Regulation Z, “down payment” is defined so that it applies only to “credit sale transactions.” Therefore, mention – explicitly or implicitly – of a down payment is not a “triggering term” for general loan advertising, only for advertisements of loans related to credit sale transactions. BSA. Q: In cases of check fraud where a customer’s checks were stolen from the mail and either altered or counterfeited, should the payees on these checks be listed as the subject of a suspicious activity report (SAR) or should they be included only in the narrative and CSV attachment file? Should the $5,000 threshold be used for individual items and a SAR filed on the individual payee or should all fraud items for the business customer be aggregated using the $5,000 threshold? Or should the $25,000 threshold for an unknown suspect be used for all fraud items for the business customer and the details of all items be included in the narrative and CSV file? A: The bank will need to determine, based on the information known to them, whether the payees are considered “subjects.” Based on the filing instructions, it would probably be best to treat this all as one event and aggregate the checks and amounts. The bank will need to determine if they have known or unknown subject(s) for the mandatory filing thresholds. Because this bank has payee names, it must decide if that alone meets the definition of a “known suspect/subject.” It is likely the names and/or identification (ID) used for these people are fake, though. Although the payee names and IDs could be fake, the information may be useful to the Financial Crimes Enforcement Network (FinCEN) if other SARs were filed using those names (or it could basically be useless). In a situation like this, there are two routes the bank can go. It would be acceptable to just check the box in Part I that all information is “unknown” and list the payees and the amount(s) of the checks that were payable to them, along with the dates and where they were cashed/deposited, in the narrative. Or, if the bank believes the payees have been identified, they could complete a separate Part I for each named suspect (the payee of each check), including only the dollar amount of the check(s) on which they were the listed payee. It would probably be best to report them all on one SAR to tie the activities together against the presumably one organization responsible for them. EFTA. Q: Does Regulation E require an error resolution log to be kept for tracking the dates, amounts/ liability, etc.? I am not finding where it says that in the regulation, but management thinks it is a regulatory requirement. I was thinking it was more of an internal procedure/policy. A: Keeping a log or spreadsheet is not specifically required by the regulation. However, Regulation E does require financial institutions to maintain some record of their compliance with its provisions. In addition, when auditors or examiners review an institution’s Regulation E compliance, they usually ask for the log or other record of the Regulation E error resolution process. A log — whether maintained as a written hard copy or an electronic spreadsheet — provides a handy method for maintaining this compliance record, allowing the bank to both track the status of individual error resolutions and document its overall compliance with the applicable rules. TILA/ECOA. Q: Can banks terminate open-end credit lines for inactivity? Are the rules different for home equity lines of credit (HELOC)? If such lines may be terminated for inactivity, are we required to include this information at time-ofloan origination and would we need to send an adverse action notification at the time of termination/closure? A: Most types of open-end lines (other than HELOCs) may be closed for inactivity and is not addressed by the federal consumer protection laws and regulations, so legal counsel should be consulted for any state law limitations. While not required, it would be prudent to inform customers that account inactivity could lead to the closure of their lines of credit. If such an account is closed, an adverse action notice is required if the termination does not affect all, or substantially all, of a class of the lender’s accounts. HELOCs may be closed only in certain specific circumstances listed in the Truth in Lending Act and Regulation Z since the late 1980s. Account inactivity is not one of these listed circumstances. Flood insurance. Q: How does the bank handle a real estate loan with force-place flood insurance when the note balloons? Does the customer have to get their own insurance before the bank can renew the balloon? A: No. The bank may send the customer a notice encouraging them to get their own flood insurance because it may give them better coverage, etc. In the past, the bank would not have been able to rely on force-placed coverage as adequate flood coverage to allow it to make/ renew/extend a loan. However, in May 2022, the agencies updated the Interagency Questions and Answers Regarding Flood Insurance which states that lenders now may rely on force-place flood insurance when refinancing, increasing, etc. an existing loan that has such coverage. Regulation D. Q: Does a business customer that is a DBA with an Employer Identification Number (EIN) still qualify for a NOW account? Normally, DBAs are registered under the owner’s Social Security Number (SSN). A: Whether an SSN or EIN is used for the account is not the governing issue. The key is whether the DBA is a sole proprietorship or not. If it is, it qualifies for a NOW. If it is a partnership or a corporation (Inc., LLC), it does not qualify for a NOW, but does for an interestbearing DDA, as does anyone. The Community Banker 13
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A A long-standing biannual tradition, the Montana Independent Bankers joined with the Montana Bankers Association to host the Montana Banker’s Days at the Capitol held January 10 – 11 in Helena. The event brought together bankers from all across the Treasure State to discuss federal and state policy matters impacting Montana’s community banking industry. Attendees heard from Melanie Hall, Commissioner of the Division of Banking, as to the Division’s 2023 Montana legislative session priorities. Commissioner Hall covered the Division’s bill to modernize the Montana Bank Act as well as the Division’s request for additional employees — namely in the area of cybersecurity. Further, attendees heard from Matt Regier, Speaker of the Montana House of Representatives, and Jason Ellsworth, president of the Montana Senate. Speaker Regier and President Ellsworth both touched on the legislature’s desire to lower taxes, provide sufficient funding for infrastructure projects, and pass a balanced budget. The two-day event was capped off with the joint MIB/MBA legislative dinner, widely attended by bankers and legislators alike. Montana’s Lt. Governor, Kristen Juras, provided the keynote speech which spoke to Governor Gianforte’s red tape reform initiative, a key piece to the repeal and dissolution of the Montana State Bank Board. The event closed with MIB hosting a training course for bank directors, taught by Angie Murdo of Pinion. The joint MIB/MBA banker’s day at the capitol event is held every two years in January — the same years in which the Montana Legislature meets. MIB encourages its members to attend when the event is held again in Helena in January 2025. BANKERS DAY At The Capitol The Community Banker 15
P FEATURED ASSOCIATE Alliant Insurance Services provides insurance and consulting services engineered to mitigate risk, improve performance, and promote long-term growth. With offices across the U.S., Alliant’s diverse service profile encompasses property and casualty insurance, employee benefits, underwriting, surety, and financial products and services driven by industry experts who understand the unique market dynamics our clients face. For close to 100 years, our clients and partners have had profound confidence in us to deliver in all market climates. Our solution-focused commitment to meeting the unique needs of our clients assures the delivery of the most innovative insurance products, services, and ideas in the industry. We are one of the top 10 largest insurance brokerage firms in the U.S. and a trusted advisor to clients across a broad range of industry verticals. Our mission is to show our employees and clients that more is possible because high expectations give us inspiring new opportunities to exceed them. Our culture and operations are different by design, with the goal of attracting the best people and empowering them to deliver extraordinary results to our clients and partners. Our Services Benefits Strategy: Alliant’s approach to a benefits strategy is simple: we’re here to help our clients manage the complexities and challenges of the healthcare and benefits landscapes, providing a road map that aligns their diverse workforce needs to their business and financial objectives. Ultimately, we provide a strategy to produce the results needed, manage costs, and get the best value for their investment. Health & Productivity: A strong link exists between the health of employees and an organization’s financial health, and it is a constant challenge to support healthy behaviors within a healthcare system that provides very few incentives. With a team of clinicians and health management consultants, we integrate workforce health data into benefit design and strategy, identifying a blueprint for action. We assist with the design, implementation, and continuous optimization of these results to enhance business strategies, reduce the spiraling costs of healthcare benefits, and provide opportunities to engage employees in informed care decisions and healthy lifestyle choices. Voluntary Benefits: Today’s workforce spans generations, and each generation looks at work, life, money, and financial well-being in different ways. Our customizable voluntary benefits programs are designed by our experienced and industry-leading VB specialists who continuously strive to ensure that our knowledge and insights evolve with the voluntary benefits landscape. With program partners that can integrate seamlessly BUILT DIFFERENTLY TO SERVE YOU BETTER Founded on the Belief That More is Possible, and Expectations are Meant to be Exceeded By KendraWarman, Alliant Insurance Services 16 The Community Banker mibonline.org
into existing systems, our focus is on enhancing and simplifying life for HR teams and employees. Pharmacy: One of the most widely used — and highly valued — benefits among employees is access to the prescription medications they need at prices they can afford. Pharmacy benefits are one of the hardest decisions to make. From pharma trends that impact pricing to how to integrate pharmacy benefits into medical plans, the cost is only a fraction of the decision-making process. Our pharmacy team is staffed with experienced pharmacists, consultants, and analysts who are committed to ensuring that clients and their employees avoid wasteful and unnecessary spending. Global Workforce Consulting: Our global consultants specialize in serving U.S. multinational organizations in more than 100 countries. From a global benefits strategy to new country expansion, renewal management, benefits inventory, competitive benchmarking, and employment cost analytics, we offer a single, agile team of experts to support international operations. We provide localized employee benefits expertise that is easy to understand, as well as administrative software that’s easy to learn and use. Our Alliant team manages the relationships with local brokers around the globe, provides streamlined and data-backed benefit recommendations, and relieves clients of time spent with administrative details. Absence, Disability, and Life: Historically, an aging workforce, common injuries, and pregnancy drove the need for income protection programs. With a sharp increase in behavioral health issues and economic challenges ranging from student loan debt to retirement planning, Absence, Disability & Life programs are becoming more important for employees — and more expensive for employers. A steep rise in regulation at all levels has affected paid leave, family leave, and caregiver leave, creating new challenges for employers to manage, integrate, and pay for these changes. We deliver strategic and innovative program solutions to many of the nation’s largest and most complex Fortune 500 companies. Our specialists bring decades of expertise and a partnership mindset to help successfully navigate this fast-changing environment. We review every aspect of the benefits strategy — plan design, funding structure, carrier selection, contract arrangements, and pricing levels — and recommend creative solutions to improve short and longterm cost savings. Employer Technology Consulting: Optimized technology delivers substantial value and streamlined workflows, time-saving administrative solutions, and intuitive employee tools. Our Employer Technology Consulting (ETC) team advocates for best-in-class technology solutions that blend HR automation with innovative employee engagement tools. We support solutions for benefits administration, payroll, HCM/HRIS, communications, technology consulting, employee life cycle management systems, employee navigators (online enrollment), andmore. Stop Loss: The frequency and severity of catastrophic claims continue to increase exponentially. Protecting companies from those potential high-cost claims can be an investment too. Alliant’s Stop Loss practice provides personalized, integrated solutions to self-funded clients helping minimize the risk and costs. Strategic partnerships, including pre-negotiated contract terms with preferred stop loss carriers, provide comprehensive coverage at a competitive market price, with access to data analytics and market-leading clinical resources. At Alliant, we celebrate the collective intelligence of our people. We are constantly learning and growing, enabling us to challenge the status quo on how we deliver our products, services, and experiences to our partners. We call this mindset creative agility. It means that we are not only striving to find solutions today, but we’re already looking ahead to solve tomorrow’s challenges. Find out more at alliant.com. The Community Banker 17
M BRAWL OF THE WILD TAILGATEPARTY MIB held a tailgate party at Montana State University on November 19, 2022, for the Bobcats vs. Grizzlies game. This event was co-sponsored by UBB who created a game board for a little added excitement. We had lots of wonderful food and great conversation. The 121st Brawl of the Wild ended with a score of Bobcats-55 and Griz-21. 18 The Community Banker mibonline.org
F GUEST ARTICLE CREATING SUCCESSFUL HOMEBUYERS For 25 years, NeighborWorks Montana (NWMT) has been working to ensure that the dream and opportunity of homeownership is available to all Montanans with low andmoderate incomes. At NWMT, we believe that the lasting homeownership success of our clients is based on a combination of appropriate, affordable financing and quality education and counseling. With the changingmarket and rising costs, we’re seeing hopeful homebuyers more unprepared than they have ever been to take on homeownership. We are excited to announce we have significantly increased our financial coaching and counseling programacross our entire statewide network to create a financially stable, ready-to-purchase homebuyer. With this increase in financial education and counseling, we’re also offering amatched savings account programproviding a 1:1 match for every dollar saved up to $500. Along with our increased financial coaching and counseling, NWMT is still offering the same great down payment products we always have. We offer the following products to help your clients achieve more buying power: • 20+ Community Second is an amortizing second loan that provides up to 20% of the purchase price as a down payment and serves people with incomes up to 125% of the area median income. This is a statewide program, offered through participating lenders. Borrowers can pair this loan with a conventional mortgage, eliminating the cost of mortgage insurance. • Statewide Low-Mod is an amortization subordinate mortgage to assist qualified borrowers with a down payment and closing costs associated with purchasing a single-family home. • State HOME Deferred is a 0% deferred loan that can be used for down payment or closing costs. This loan is paid when the buyer either refinances or sells their home. NWMT offers this program in many counties across the state. For more information about our products, please visit nwmt.org/lending/for-lenders. Whether your clients need to build a more solid financial base or they are ready for homeownership but need more buying power, NWMT is here to help. We are ready to work with you to see successful homebuyers in every corner of the state! Whether your clients need to build a more solid financial base or they are ready for homeownership but need more buying power, NWMT is here to help. By NeighborWorks Montana The Community Banker 19
W GUEST ARTICLE What’s your choice for the term of the decade so far (that is, other than COVID-19)? In the last three years, a number of expressions have come into fashion, some of which have been worn out, used out of context, and deemed to be a blight on our vocabulary by linguists. I’m sorry to say these may be around for a while. Here are a few: • Virtual • Social distancing • Pivot • PPP • Zoom (which I’ve noticed has become a verb as well) • Supply chain • Hybrid Let’s stick with “hybrid” for a few minutes. This has gained popularity in several circles. Hybrid cars, powered by both fuel and electricity, now account for over 5% of new vehicle sales, and all major auto manufacturers are ramping up their capacity. Hybrid education programs, which have both in-person and virtual components, are likely to be with us for some time. And, in the investment world, hybrid bonds can offer an attractive risk/reward profile for community banks. Not a ‘20s Innovation Adjustable-rate mortgages (ARMs) have been around since the 1980s, and portfolio managers have coveted these investments that “wrap” the loans into a liquid security. ARM pools backed by Fannie Mae, Freddie Mac, and Ginnie Mae (GNMA) deliver all the normal benefits of mortgage-backed securities (MBSs) and more. In addition to the monthly cash flow, ARMs also can help control interest rate risk for banks that are exposed to rising rates. 2020 versions of ARMs are, at least initially, hybrids. This means there is a fixed rate period for between three and 10 years, after which the remaining principal will adjust frequently, either semi-annually or annually. The volume of ARMs that are true floaters right out of the box is so small that the agencies have a hard time pooling them. Also, there are periods in which hybrids are not particularly attractive for community banks, due mostly to (no surprise here) the price levels. I’m pleased to announce that 2023 is a year in which hybrid ARMs are available at market prices that an investor will probably like over the next few years. Borrower Profile Still, the vast majority of new mortgage loans are fixed-rate for the full term, whether 30, 20, 15, or 10 years. Over the last decade or so, only about 6% of new loans are adjustable, and that includes hybrids. So who are these borrowers who are statistical outliers? They really line up into two groups. The first are those who are barely on the cusp of qualifying for conventional (or FHA/VA) financing from a debt-load standpoint. Hybrid ARMs will typically be offered at a lower rate than fixed, as the lender has to incentivize the borrower to accept some interest rate risk. The second group consists of homeowners who expect to be in their homes for a defined, FIXED RATEOR FLOATING? HYBRIDARMsGIVEAN INVESTORBOTHFEATURES By JimReber, ICBA Securities ICBA LIVE 2023 ICBA Securities and its exclusive broker Stifel will present several Learning Labs at ICBA LIVE in Honolulu this March. For more information and to register, visit icba.org/live. 20 The Community Banker mibonline.org
relatively short period of time of 10 years or less. These may be soon-tobe empty nesters, or possibly expect to move for employment reasons. If the borrowers do prepay before the first reset date arrives, they’ve saved some interest costs and didn’t expose themselves to higher reset rates. Current Examples Given the profiles and behaviors of the borrowers, the cash flows that hybrids produce are substantial. The loans have fully amortizing 30-year terms, so not a lot of principal is scheduled to amortize initially, but an investor can expect some early activity. Then, as the first reset date approaches, the prepayments speed up even more, sometimes dramatically. Some models predict paydowns of 25% or more annually during the fixed rate window, and even faster in the last few years before the initial reset. For many community banks, fast prepayments are exactly what they want in 2023. Clearly, this was not the case in 2020 and 2021 when banks were drowning in liquidity and interest rates were at record lows. Another piece of good news is that current market prices for these newly-issued hybrids are near par, usually between 100 and 101. This means that significant paydowns won’t have much impact on your yields. Perhaps even better: the inverted yield curve makes the hybrids with the shortest first reset date (weighted average roll, or WAR) the highest yielding, at least until the WAR. For example, a GNMA hybrid with a 36-month roll date, that starts with a full 5% coupon, is currently available at just a slight premium. This significantly out-yields some longer MBS, at least for the next three years. There’s more to the ARMs story that we have time and space for here (e.g., rate caps), but it’s fair to say hybrids are worth a portfolio manager’s look in early 2023. You may decide they’re virtual bargains, and that your security inventory should pivot and take down a supply. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. Closing SBA loans keeps doors open. Call 800.340.7304 to start www.holtandmon.com Your customers have never needed capital more than they do right now. Plus you need to offset narrowing margins by increasing noninterest fee income. SBA/USDA lending is the perfect answer. And ICBA recommends just one provider to make the process hassle-free: Holtmeyer & Monson. Give customers exactly what they need, at no net cost to your bank. Small businesses count on your expertise. You can count on ours. In addition to the monthly cash flow, ARMs also can help control interest rate risk for banks that are exposed to rising rates. The Community Banker 21
W GUEST ARTICLE By Rebeca Romero Rainey, President and CEO, ICBA While several federal regulatory agencies are working to finalize proposals on climate-related financial risk management that purportedly target the nation’s largest financial institutions, the proposals would inevitably subject community banks and the communities they serve to new and expensive regulatory burdens. Rather than rush to impose new standards on community banks, the agencies must ensure their climate risk regulatory efforts mitigate the downstream costs their proposals will impose on community banks and the communities they serve. New climate risk regulations would require some community bank customers to collect and disclose greenhouse gas emissions data as a condition of banking. The proposals also would require community banks to pay myriad expenses to comply with climate risk management frameworks – including hiring subject matter experts and compliance specialists to implement these complicated frameworks. Ultimately, these proposals would cut off local communities from the community banks that best understand and best serve local environments. Community banks have decades of experience managing concentration risks and responding to extreme weather events and natural disasters in their communities — meaning new, onerous, and expensive climate risk management frameworks are counterproductive. Federal Deposit Insurance Corp. Acting Chairman Martin Gruenberg recently noted community bank risk management strategies — which are based on firsthand perspectives and experiences — include consulting weather, agricultural, and other non‑financial data; managing exposures within flood plains; and assessing the impact of extreme weather events. But Gruenberg’s call for regulators not to have “unreasonable expectations” for small and midsize banks contrasts with the series of proposals the FDIC and other regulators are working to finalize in the months ahead. For instance, the Securities and Exchange Commission’s proposal to institute climate-related investor disclosures contains no exemption for community banks, threatening to impose unprecedented costs and potential liabilities that would drive local institutions out of the public capital markets. While separate climate risk management frameworks proposed by the FDIC and Office of the Comptroller of the Currency would target banks over $100 billion in assets, regulators have signaled the policies will ultimately trickle down to community banks. Gruenberg himself said in releasing the FDIC framework that all financial institutions are subject to climate-related financial risks, and Acting Comptroller of the Currency REGULATORS SHOULDRETHINK CLIMATEPROPOSALS TOELIMINATE COMMUNITYBANK IMPACT 22 The Community Banker mibonline.org
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