COMMUNITYBANKER THE OFFICIAL PUBLICATION OF THE MONTANA INDEPENDENT BANKERS ASSOCIATION WINTER 2024 RENEW YOUR MEMBERSHIP TODAY AT MIBONLINE.ORG! Cheers to the New Year!
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14 2024 MIB EXECUTIVE OFFICERS Tim Schreiber, President Farmers State Bank tims@farmersebank.com Loren Brown, Vice President Ascent Bank, Helena lbrown@ascentbank.com Amber Brown, Secretary Peoples Bank of Deer Lodge abrown@pbdl.net Clinton Gerst, Treasurer Bank of Bozeman cgerst@bankofbozeman.com Andrew West, Immediate Past President Eagle Bank, Polson awest@eaglebankmt.com Kenny Martin, ICBA State Director First Montana Bank, Helena kmartin@firstmontanabank.com 2024 MIB BOARD OF DIRECTORS 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 Brice Kluth First State Bank of Shelby 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 ASSOCIATE BOARD MEMBER Ryan Fritz Citizens Alliance Bank rfritz@citizensalliancebank.com MIB STAFF Jim Brown, Executive Director Montana Independent Bankers jbrown@mibonline.org ©2024 Montana Independent Bankers | The newsLINK Group, LLC. All rights reserved. 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. Community Banker is a collective work, and as such, some articles are submitted by authors who are independent of the Montana Independent Bankers. While 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. Montana Independent Bankers 1812 11th Ave. P.O. Box 4893 Helena, MT 59604-4893 406.449.7444 jbrown@mibonline.org mibonline.org 10 6 President’s Message 6 Promoting Our Community Banks By Tim Schreiber, President Executive Director’s Message 8 Making 2024 Another Great Year By James E. Brown, Esq., Executive Director Flourish 10 Continuing the Climb for Our Communities By Rebeca Romero Rainey, President and CEO, ICBA From The Top 11 Why Instan Payments Need To Be a 2024 Priority By Derek Williams, Chairman, ICBA 12 Spread the Wealth Some Bond Sectors Performed Better Than Others in 2023 By Jim Reber, President and CEO, ICBA Securities 14 Compliance Q&A Winter 2024 By William J. Showalter, CRCM, Senior Consultant, Young & Associates Inc. 18 The Role ofYour Insurance Partner in the Event of a Cyber Incident By Insurance Strategies, Inc. 20 HMDA & CRA Adjustments Are Here By William J. Showalter, CRCM, Senior Consultant, Young & Associates Inc. 22 MIB Upcoming Events 24 Application Red Flags How To Prevent Financing Fraud By BHG Financial 26 Six Ways to Gauge Your Core’s Performance By SHAZAM 28 2024 MIB Membership Directory 29 MIB Associate Member Resource Guide 30 MIB Associate Member Banks 30 Save the Date: 2024 Convention and Trade Show 31 Bank Training Webinars Contents WINTER 2024 4 Community Banker
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As we ring in the new year and all its possibilities, we can’t help but look back on all that has come before. Reflecting on 2023, it was one that had its share of bumps for the banking industry as a whole, with the failure of three larger financial institutions, while also providing some solid wins for those of us in the community banking world. The timing was perfect for the community banking industry to step into the spotlight and promote itself, shining a bright light on all the reasons that set community bankers apart from the big banks. The association finished the year strong doing just that in promoting its community banking members in Montana. The BankLocallyMontana.org video marketing campaign had incredible results in the fourth quarter that not only beat my expectations but performed better than any campaign our contracted marketing firm had ever run in Montana. This was largely due to the quality of the video we were able to borrow from ICBA’s national BankLocally campaign, one that our organization would not have been able to produce without their assistance and belief in our ability to run a state-level campaign. I don’t want to throw too many numbers at you, but I do want to share some of the more impressive numbers that stood out to me from this campaign. During the three-month run, our promotional video appeared on consumers’ devices across the state roughly 770,000 times. Of those, it played to completion 483,000 times. Unfortunately, there are no metrics available to indicate what percentage of these viewers actually paid attention to the video. However, drawing on my personal experience with these types of ads, while I may not actually watch most of them, the audio still plays in my background for me to listen to. If this holds true for most consumers, that equates to a significant amount of people who at least heard the message, “Don’t make a big bank make you feel small.” I’m confident enough in the quality of the video content that I believe even those who ignored the visual aspect of it in the beginning may have ended up watching it by the end. PROMOTING OUR COMMUNITY BANKS TIM SCHREIBER, PRESIDENT PRESIDENT’S MESSAGE 6 Community Banker
As excited as I was about the broader success of this promotional campaign, I was even more excited to see the effect it had on MIB’s website traffic. The BankLocallyMontana.org website, which redirects visitors to MIB’s “Find a Community Bank” webpage, lists numerous reasons to support Montana’s independently owned community banks and includes a listing of MIB’s member banks. It also has a search function that allows users to search for member banks in their areas with links to their individual websites. Prior to the launch of the marketing campaign, this specific page saw an average of only one user per day. During the campaign, this average took a massive leap to 37 unique users per day. Over the course of the threemonth campaign, roughly 3,400 new unique users visited MIB’s “Find a Community Bank” page. Not only was this a successful promotion of Montana’s community banking I’m encouraged as our local banking community enters this new year with such positive momentum. industry, but it was an incredible benefit for those MIB member banks listed on the “Find a Community Bank” page as well. While the primary goal of the campaign was to educate and promote community banking to the general consumer, our secondary goal was to drive traffic to MIB’s website and ultimately to our members’ individual websites. With the results just mentioned, I can safely say that we accomplished these goals. I’m encouraged as our local banking community enters this new year with such positive momentum. Here’s to 2024. Community Banker 7
EXECUTIVE DIRECTOR’S MESSAGE Happy New Year. 2024 brings with it new opportunities, new challenges and a new chance to tell the Montana community banking story. It is the individual stories of MIB’s community banks that bind us together as Montana’s only community banking association. As we know, it is relationship banking that differentiates MIB’s members from other financial institutions. It is the ability to interact directly with customers that separates Montana community banks from the too-big-to-fail institutions and those credit unions claiming to be community banks. Every member of MIB has a story to tell to its customers. And it is that community-oriented story that has separated us in the public’s eye from the failures of Silicon Valley Bank, Signature Bank in New York and First Republic in San Francisco. Further, the resilience of the community banking model has regained credibility with regulators and policymakers alike. This was demonstrated by the FDIC late in 2023, exempting community banks with assets under $5 billion from its special assessment. MAKING 2024 ANOTHER GREAT YEAR JAMES E. BROWN, ESQ., EXECUTIVE DIRECTOR In 2024, all of us must work together to protect and promote Montana’s community banking industry. MIB has already laid the groundwork for this effort by undertaking in late 2023 a groundbreaking digital marketing campaign on behalf of the association membership. The marketing campaign was conducted on a statewide basis and accomplished two things. First, it informed Montana consumers of the benefits of banking locally. Second, the campaign directed those who clicked on the ads to a list of MIB members. The program consisted of two spots, a 30-second spot and a 15-second spot. The spots highlighted the fact that those who bank with a Montana community bank ensure their hard-earned dollars are invested in the community in which they live. The program saw the association deliver over 650,000 impressions to those living in the Treasure State. In addition to engaging in marketing on behalf of MIB’s membership, in the coming year, the membership will continue to offer a host of continuing education opportunities. The very popular Women in Banking Conference will be held Nov. 1-2, 2024, in Bozeman. The annual Agricultural Lending Conference is set for Oct. 15 in Great Falls. And Missoula will be the location for MIB’s Annual Trade Show and Convention. The convention will run July 17-19 this coming year. In keeping with the need to tell the community banking story in 2024, MIB will offer several educational sessions designed to provide you with tips and tricks for better marketing your institution. What’s more, MIB will continue the partnership with ICBA in our shared efforts to educate the public and lawmakers on the unfair advantage ($4 billion and growing) credit unions have as a result of their tax-exempt status. Further, MIB will continue to be the go-to resource for bank training. MIB has renewed its partnership with the Community Bankers Webinar Network, a Montana-based company, and we encourage you to utilize their products and services both for your employee’s benefit and for the financial benefit of the MIB. 8 Community Banker
Also of note, at the end of 2023, CSBS released its very informative annual community banking survey. The survey reinforced what many of your members know will be business challenges in the year before us. Those challenges include the risks related to net interest margins and cost of deposits. Cybersecurity, liquidity and staff retention were other areas identified as being of high risk. As we move forward into the Chinese Year of the Dragon, higher interest rates will continue to have an impact on your bank operations and those of your bank customers. In sum, MIB specifically, and Montana community banking generally, had a very successful year this past year. But there is still more to be done in 2024, and MIB will be right there to support your bank in the months ahead. Thank you again for the honor of serving as MIB’s Executive Director — 12 years and counting. Every year I have been with the organization has been the best one yet for me. From all of us here at your community banking association, we wish you a healthy, prosperous and safe 2024. 2024 brings with it new opportunities, new challenges and a new chance to tell the Montana community banking story. 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. Community Banker 9
I recently came across a quote from the Pulitzer Prizewinning poet Theodore Roethke: “Over every mountain, there is a path, although it may not be seen from the valley.” As an avid hiker myself, it resonated because as you look up toward the climb ahead, you may not see the route, but you know it’s there — not unlike the situation we face in community banking today. As we enter 2024, we see a steep climb amid so many headwinds, including volatile interest rate and supervisory environments, emerging regulatory reforms, constant pressure on margins and more. Yet, with every step on the journey, we just get stronger. As we look back on 2023, we felt the impact of numerous challenges — failures of large, risky banks, fluctuating interest rates, increased competition and more — and we not only survived but thrived. We championed new solutions like FedNow. We successfully advocated for the vast majority of community banks to be exempted from the FDIC’s proposed special assessment. We expanded our innovation programs, creating a center for community bank innovation. These previous experiences have positioned our strength, and today, as we climb toward that next peak, we’re honing new skills. Each step is an investment in the future to further fuel the community banking model. Our national campaign goes hand in hand with this work. By telling the compelling stories of the ways in which you make a difference, we’ll continue to bolster the work you do. In advocacy, education and innovation, we are working alongside you to power your potential and help you surmount the trials you face along the journey. And while this climb may be difficult, it will lead to new opportunities. As I reflect on my career, I realize some of the greatest learning moments were in the most challenging situations. That’s how I know community banks will find a way as an industry, as a network of community bankers, to find the right next step to provide for our communities. Hikers will stand at the bottom of the peak and realize it looks a lot higher than it did when they were farther away, but they made the climb. As we take our first steps into 2024, it’s that same “bring it on” mentality that will continue to bring us strength and guide us. We’re ready to see what lies ahead, embrace the challenge and create forward momentum. Because while the path from the valley to the summit may be circuitous, community bankers will always continue the climb for the good of their customers and communities. FLOURISH CONTINUING THE CLIMB FOR OUR COMMUNITIES BY REBECA ROMERO RAINEY, PRESIDENT AND CEO, ICBA WHERE I’LL BE THIS MONTH I’ll first meet with the ICBA Nominating Committee to continue our leadership journey, and then I’ll head to Atlanta for a showcase from ICBA’s sixth ThinkTECH Accelerator program. 10 Community Banker
As we kick off the new year, our budgets have been set and our plans developed. But you know what they say about the best-laid plans: They change. Fortunately, community banks thrive on their ability to respond to market drivers, and in 2024, those demands point to instant payments. We’ve been monitoring developments with FedNow since it was announced. When it launched last July, there were only 35 participating banks, but in a few short months, more than 100 institutions were on board. And demand for the solution is rising: An October study from the Association for Financial Professionals revealed that over 75% of businesses plan to use real-time payments in the next five years. Clearly, our customers expect instant payments, and this growing demand is the reason FedNow needs to be at the forefront of our project lists. In fact, we have already shifted plans at my bank, moving FedNow up as a priority. It’s time to start dipping a toe in the water and be open to learning to get comfortable with the product so that when we’re ready to send, we have a good understanding of how it’s going to work. Even so, I had concerns about adding FedNow to an evergrowing technology list and how it may interfere with the other projects we have in the works, but two key points reassured me: 1. We don’t have to implement overnight. We can begin a formal exploration, determine the right partner to enable us and then get into full-scale implementation as timing fits. FROM THE TOP WHY INSTANT PAYMENTS NEED TO BE A 2024 PRIORITY BY DEREK WILLIAMS, CHAIRMAN, ICBA QUOTE OF THE MONTH “A leader takes people where they want to go. A great leader takes people where they don’t necessarily want to go, but ought to be.” — Rosalynn Carter, former First Lady, writer and activist 2. In speaking to colleagues who’ve already made the leap to FedNow, I’ve consistently been told that onboarding was far simpler than they thought it would be. Early adopters are saying, “Don’t be scared; it’s not that tough.” Those points support decision-making for all of us. Once community banks get comfortable with a technology, they jump in to embrace what it offers — and ICBA and ICBA Payments are our partners on that journey. From working with core providers to advocate for a seamless implementation to offering solutions that can augment and support FedNow’s offerings, both ICBA and ICBA Payments stand ready to help community banks make the jump. Because — and make no mistake about it — it’s not if, but when, you will introduce FedNow. In our high-tech, hightouch model, being able to compete on instant payments is going to be a big part of high tech. We have to get involved to stay competitive. FedNow truly is community banks’ best chance to flourish in the payments space. Community Banker 11
SPREAD THE WEALTH SOME BOND SECTORS PERFORMED BETTER THAN OTHERS IN 2023 BY JIM REBER, PRESIDENT AND CEO, ICBA SECURITIES As we have navigated the holiday season and hopefully had some time to wrap up some gifts as well as a successful 2023, let’s now spend a few minutes looking into pockets of relative value in the bond market. To get there, we should remind ourselves of the vagaries and ironies of fixed-income investing. In my 35 years of portfolio management participation, I’ve noticed some recurring themes and doctrines, which have both positives and less-than-positives: • Higher rates = lower prices. • Selling bonds at a loss, versus a gain, has positive cash flow implications. • Community banks buy more securities in lower rate periods. • Higher coupons have less price volatility than lower coupons. • Yield spreads usually widen when rates fall. Let’s stay with this last bullet point for a minute. In practice, this means the value of a “risk” asset, which we’re defining here as anything other than a treasury note, will improve less than a similar duration treasury, given a drop in rates. There are several reasons for this reaction. One is that rates fall when investors expect the economy to slow down, so presumably, credit quality will become sketchier. Another is that the lower market rates translate into greater call risk since the likelihood of a bond ending up “in the money” to be redeemed increases. GUEST ARTICLE 12 Community Banker
Acting early in the year can get the momentum started for a prosperous 2024. USUALLY, NOT ALWAYS The corollary to the preceding paragraph is that spreads narrow as rates rise. In the year just completed, in which Treasury yields fell thanks to a fourth-quarter rally, we saw an amazingly diverse set of returns for the various bond sectors that community banks like. Most of the mortgage sector, for example, saw their spreads widen. The genesis of the wider-spreads/higher treasuries dynamic was, of course, the demise of several large banks beginning in March. Silicon Valley Bank, in particular, with its $200 billion-plus of mortgagebacked securities (MBS), caused that sector to have some indigestion through the summer as the FDIC’s bridge bank gradually disposed of the assets. Still, yield spreads were wider at the end of the year, partly the result of depositories in general not purchasing many bonds of any color or flavor. The MBS sector, in this column, includes traditional fixedrate pass-throughs, collateralized mortgage obligations (CMOs) and even adjustable rate pools (ARMs). In the counter-intuitive world of bond investing, mortgage pools’ underperformance in 2023 would seem to indicate a pocket of value heading into 2024. MUNIS FOR THE BID? You may ask, “If MBS are cheap, what’s expensive?” On the other side of the past-performance spectrum are municipal securities. The muni market has other machinations going on that resulted in relatively low yields and spreads by the end of last year. Demand for munis is determined not so much by institutional investors but by the retail sector. Well over 60% of existing muni bonds are owned by individuals either directly or through municipal bond funds. Appetite for retail munis has generally grown over time as baby boomers retire, and except for temporary “headline” sell-offs such as those related defaults by Detroit or Puerto Rico some years ago, demand has been steady and growing. Recent credit-quality performance in the sector has been solid. The supply side of the municipal market is another story. According to the Federal Reserve, the entire muni market grew by only $50 billion between 2010 and 2022, or barely more than 1%. More recently, in 2023, there were a number of issues postponed into the future, presumably to chase lower interest rates. The amount of new paper issued in 2023 was over 20% less than in 2021. While some of that was due to fewer calls being exercised, the continued supply shortage has pulled down tax-equivalent yields for institutional buyers, including community banks, into “through the curve” levels. For maturities out to 10 years, investment-grade munis could yield up to 50 basis points (.50%) less than benchmark treasuries. COGITO, ERGO I SWAP? The previous two sections would seem to suggest a tidy bond swap strategy. The first step in any simultaneous purchase and sale is to find the most efficient securities to sell. Those would be the ones with the lowest return to the buyer, otherwise known as a “take-out yield.” Bonds that have lower returns than treasuries are hard to come by, but that’s exactly where shorter municipals were trading at the end of 2023. Securities to replace them? I’d start with some kind of MBS. Recently, strategists from Stifel have been suggesting “hybrid ARMs,” which have reasonable yields today and the possibility of maintaining them in the future even if rates fall. Most of them come with offering prices below par, which is another rarity. Ultimately, the theme of this column is that opportunities abound for your bond portfolio at the start of the year. Some sectors look historically expensive, while others seem to offer uncommon value. Acting early in the year can get the momentum started for a prosperous 2024. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. UPCOMING WEBINARS ICBA Securities and its exclusive broker Stifel will present 16 webinars throughout 2024. There will be several tracks, including balance sheet management, enterprise risk and economic outlooks. We will again offer CPE credits for these events. Be on the lookout for announcements starting early in the year. Community Banker 13
COMPLIANCE Q&A WINTER 2024 BY WILLIAM J. SHOWALTER, CRCM, SENIOR CONSULTANT, YOUNG & ASSOCIATES INC. 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. TILA. Q: We are scheduled to close a loan tomorrow and found out today that our property is being split into two parcels. This will require a second deed and will change both deeds from standard to nonstandard documents, increasing the government fees by 84% from what was disclosed. The customers shopped for the closing company. Can we rectify this, and how? A: Yes, you can. Since a Closing Disclosure (CD) should already have been issued, but with the original deed filing fees, a corrected CD may be issued without delaying the closing since this fee change does not make the previously disclosed annual percentage rate (APR) inaccurate, does not involve a product change and does not involve the addition of a prepayment penalty. BSA. Q: Our bank discovered that we failed to file a continuing activity SAR (a first for us, fortunately). What should we do to fix this? A: You should just file one now and keep tracking the customer’s activity for possible future filings. You cannot fix timing. Once something is passed, it is passed. This continuing activity SAR (like all such reports) should reference the previously filed SAR — Document Control Number (DCN) and date. The bank should acknowledge the untimeliness in the file somewhere and acknowledge the lateness to the board, perhaps when the SAR filing is reported. The bank also should review its SAR processes to make sure this does not happen again. ECOA. Q: We have an application for a loan to refinance a second mortgage home equity line of credit (HELOC). We are not subject to HMDA. Do we have to collect “government monitoring information” (GMI) for this application? A: Yes, assuming this involves a closed-end loan paying off the open-end HELOC. Regulation B and its Commentary do not make any fine distinctions but merely require the collection of GMI for a new loan secured by the applicant’s primary dwelling that is paying off another credit secured by that dwelling. TISA. Q: I have a quick question regarding disclosing stop-payment fees online. We do hand out our fee schedule any time we open an account for new customers or if anybody asks for a fee schedule. However, we are wondering if we need to disclose stop-payment fees at the time when a customer places the stop-payment online. A: There is no requirement in Regulation DD to disclose the stoppayment fee at the time a stop payment is placed (whether online, by phone or in person). Disclosing the fee on or with the account disclosure when the account is opened satisfies the TISA disclosure requirements. However, notifying the customer as they place a stop payment is more of a UDAAP — unfair, deceptive, or abusive acts or practices — issue, ensuring that the customer is reminded of the cost associated with the action they are taking at the time they are taking it. This is generally seen as a prudent practice and to the benefit of the customer. 14 Community Banker
TILA. Q: During my review of rate/payment change notices for adjustable-rate mortgages (ARM), I noticed on a loan originated in 2008 that a change notice was not generated. The rate is supposed to adjust every five years with a 45-day rate forecast. I recalculated the date that it should have generated a notice, and according to my calculation, the rate will not change. So, my question is if the rate does not change, are we still required to send the change notice? A: No. Notices are required only when the interest rate results in a corresponding adjustment to the payment amount. The required timing for such notices is based on when a change in payment related to a rate change becomes effective. Flood Insurance. Q: We occasionally take a mortgage on a property as an “abundance of caution.” Our procedures indicate that we must get a flood hazard determination on that property. Then, if needed, also provide a flood hazard notice and require flood insurance. I have been requested to get clarification that this is correct. Is there anything that speaks to an abundance of caution situations? I have been using the reasoning that the flood insurance regulation does not care why we put a mortgage on a property. If we do, then we must follow all the steps required. THANKING OUR SPONSOR, UNITED BANKERS’ BANK UBB.COM At United Bankers’ Bank, “First for Your Success” is more than just our tagline; it’s a promise and a guiding principle that establishes the success of each and every customer as our number one priority. UBB pioneered the bankers’ bank model and for more than 47 years we have placed the needs and success of our community bank customers first and above all else. You can count on UBB to be a dedicated ally for community banking today, tomorrow and into the future. Your success is our success, and at UBB, we are always First for Your Success. Community Banker 15
A: You are correct; the regulation does not care why the mortgage was put on the property. In fact, the Interagency Q&A on Flood Insurance in the Other Security Interests section, question 9, addresses this. The answer given about whether the regulation would apply in such a situation is that it does and that “The Act and Regulation look to the collateral securing the loan. If the lender takes a security interest in improved real estate and contents located in an SFHA [special flood hazard area], then flood insurance is required.” This is true regardless of the reason for taking the security interest. Funds Availability. Q: When putting a large deposit hold on a deposit made up of a mix of different check types (on-us, transit, etc.), are we required to separate out any on-us checks for a maximum of a two-day hold or are we allowed to put a maximum seven-day hold on the full amount regardless of check type? A: For the large deposit exception, a depository bank may extend hold schedules when deposits (other than cash or electronic payments) exceed $5,525 on any one business day. A hold may be applied to the amount in excess of $5,525. To apply the rule, the depository bank may aggregate deposits made to multiple accounts held by the same customer, even if the customer is not the sole owner of the accounts. The regulation provides that this exception applies to local and nonlocal checks, as well as to checks that otherwise would be made available on the next (or second) business day after the day of deposit. Although the first $5,525 of a day’s deposit is subject to the availability otherwise provided for checks — in other words, not affected by the hold — the amount in excess of $5,525 may be held for an additional period of time. HMDA. Q: A year ago, we made a business-purpose loan for a borrower to build a cabinet shop on the parcel of land that includes his residence. Our collateral was the entire parcel, including the residence. Because this business-purpose loan was not for the purchase, refinance or improvement of a dwelling, we did not report it under HMDA when it originated in 2022. This year, the loan was refinanced, with a new note replacing the old note. This time, because there is a dwelling on the site that is part of our collateral and the purpose of the loan is to refinance the businesspurpose dwelling-secured loan, this refinancing is now HMDA reportable. Do you agree that the loan was not HMDA reportable when originated in 2022, but it is now HMDA reportable in 2023 as a refinance? A: Yes, your understanding is correct. A business-purpose loan is not reportable unless for the purchase of a dwelling, the refinancing of a dwelling or the improvement of a dwelling. Your original loan was not for any of these purposes, but the new loan is a “refinancing” under Regulation C. RESPA. Q: Is it accurate to state that mortgage loans made on residential properties, such as the business owner’s primary or secondary home, that are for business, agricultural or commercial purposes are exempt from RESPA? Also, are loans involving rental properties of one- to four-family units exempt from RESPA? The loan would be considered for business purposes for purchasing or refinancing and for updating/repairs to the properties. I have been reading mixed information regarding the treatment of rental properties as covered by RESPA and being exempt. A: The loan’s purpose determines exemption, not the collateral. As you noted, RESPA exempts loans that are primarily for business or commercial purposes and relies on the definitions and guidance in Regulation Z for this determination. Credit extended to acquire, improve or maintain rental property (regardless of the number of housing units) that is not owner-occupied is considered to be for business purposes and not be covered under RESPA. There is a little wrinkle if the owner occupies one of the units. Then, the exemption depends on both the loan purpose and the number of units. Credit extended to acquire the rental property is deemed to be for business purposes if it contains more than two housing units. However, credit extended to improve or maintain the rental property is deemed to be for business purposes if it contains more than four housing units. A business-purpose loan is not reportable unless for the purchase of a dwelling, the refinancing of a dwelling or the improvement of a dwelling. 16 Community Banker
Enjoy your association news anytime, anywhere. Scan the QR code to visit our online publication to stay up to date on the latest association news, share articles and read past issues. mib-community-banker.thenewslinkgroup.org Is your business in the dark? ADVERTISE IN THIS MAGAZINE AND SHINE A LIGHT ON YOUR COMPANY. QR Code: website /ad-space CONTACT US TO LEARN MORE. 801.676.9722 • 855.747.4003 sales@thenewslinkgroup.com Community Banker 17
THE ROLE OF YOUR INSURANCE PARTNER IN THE EVENT OF A CYBER INCIDENT BY INSURANCE STRATEGIES, INC. We all have faced this dilemma. I have a small “ding” in my car. Should I file a claim with my insurance company or not? If I file a claim, will I see a significant premium increase at my next renewal? CYBER INSURANCE IS DIFFERENT Let us take a ransomware situation as an example. Your bank receives an email from badguy@yahoo.com. The email states that your bank’s servers have been compromised and encrypted, and unless you pay a $2 million ransom in Bitcoin within 48 hours, private and confidential customer data will be released, and the ransom will double. Under your bank’s cyber insurance policy, this is known as a first-party cyber event (as opposed to a thirdparty event, which means a third party is suing you), and you need to notify your agent and insurer immediately. ENGAGE YOUR CARRIER AND ITS EXPERTS Your insurance company is skilled in dealing with ransomware and cyber breach events and has partnered with vendors with expertise in dealing with your organization’s specific threat. GUEST ARTICLE NOTIFY YOUR CARRIER’S CYBER CLAIMS UNIT Your insurance carrier will have a dedicated cyber claims line, staffed 24/7, to respond to cyber incidents. Be sure your incident response team has access to your carrier’s cyber claims contact information. FIRST STEPS Your carrier will immediately appoint a Breach Counsel or Project Manager to oversee the cyber event. Within a brief time, your Breach Counsel will initiate a scoping call where you will review the extent of the damage against your organization and if data was compromised, where the attack originated, the status of your backups, ransom demands and other factors involved with the appropriate representatives of your organization. Typically, you would want to include your head of IT, one or more key decision-makers such as your bank President, CEO, or COO, and a customer liaison representative. NEXT STEPS After the scoping call, your Breach Counsel will consult with their industry experts. These firms are skilled and experienced in dealing with all types of threat intelligence, including the type your bank is facing. These experts will validate whether the threat is real and determine what diagnostic These experts will validate whether the threat is real and determine what diagnostic or corrective actions need to be implemented. 18 Community Banker
or corrective actions need to be implemented. The fraudsters want to use time against you and will use a variety of pressure tactics to push you to make a hurried, reactive decision. Your carrier is familiar with these tactics and will advise you accordingly. TO PAY OR NOT TO PAY Your board and senior management should discuss ahead of any ransomware incident whether the bank will pay a ransomware demand. One factor to consider is that all organizations are prohibited from paying individuals or entities on the OFAC SDN List. But what about fraudsters that are not on that list? With viable backups allowing the bank to restore its systems and recover its data, insureds are encouraged not to pay. A ransomware incident involving encrypted data will trigger the need to notify customers of a potential breach whether or not you pay a ransom to the bad actors. Plus, not all fraudsters will provide decryption keys after a ransom is paid, thus opening the door for repeated monetary demands even if you pay the initial demand. WHAT EXPENSES ARE COVERED BY CYBER INSURANCE? Not all cyber policies are the same, so your bank should review its policy carefully. Many of the following expenses may be covered (subject to the policy retention or deductible): • Attorney costs to determine obligations under breach notice laws. • Computer security expert and forensic investigator costs to determine the extent of the suspected breach. • Costs to notify impacted individuals. • Credit monitoring expenses. • Call center services. • Data recovery costs. • Ransomware payments. • Business income loss/ extra expenses. • Reputation loss. • Regulatory defense expenses. BEST PRACTICES TO PREVENT A RANSOMWARE ATTACK The following are tools to strengthen your bank’s protection against a ransomware attack: 1. Reduce Authentication Risk: Consider implementing the following to lower the risk of compromised credentials across network users: • Stronger minimum password length requirements for network users. Non- administrative users should have 14-character minimum complex passwords, and administrative-level users should have password requirements of at least 24 characters. • Multi-factor authentication (MFA). At a minimum, privileged accounts, such as network administrators, should be required to authenticate with MFA. The wider the deployment of MFA throughout your institution, the better. • Credential management tool. With the ever-increasing number of credentials that users must manage, consider a credential management tool to improve the strength of passwords and reduce your users’ reused passwords. 2. Implement with Least Permission: Restrict user permissions to the level of the duties of the job only, limiting network access to potential attackers. 3. Increase Network Visibility: Implement Security Incident Event Monitoring (SIEM) for faster analysis during a crisis. In addition, implement an Endpoint Detection and Response (EDR) or Managed Detection and Response (MDR) platform to monitor the network 24/7 for suspicious activity and to isolate endpoints with potential threats. Such tools will dramatically reduce the response time to an incident and stop an unpleasant situation from worsening. 4. Employee Education: The enduser is the most vulnerable aspect of network security, so regular training on phishing, security threats and incident response protocols is essential to protecting your bank against bad actors and limiting potential damage. 5. Additional tools: Use VPN technology for remote access, make sure your patch management is timely and utilize offline, air-gapped backups. REVIEW YOUR CYBER INSURANCE PROTECTION ANNUALLY Your bank’s cyber risk is rapidly changing and evolving, and you should be reviewing your cyber insurance protection at least annually to determine if the coverage and limits continue to meet your bank’s exposures and needs. Note: All products and services represented on this page are not insured by the FDIC or any other federal government agency, are not deposits of or guaranteed by the Bank or any Bank affiliate and may lose value. United Bankers’ Agency, the insurance division of UBB, can help you find the best cyber insurance plan for your community bank’s needs. To request pricing and additional information, visit www.ubbinsurance.com or contact Tim Henry at tim.henry@ubb.com. Community Banker 19
There are changes that arrived with the new year of 2024 to Home Mortgage Disclosure Act (HMDA) compliance for banks and thrifts in many areas. No, the Consumer Financial Protection Bureau (CFPB) is not repealing Regulation C or adding more detail to the required data we collect and report. The existing rule is still in place. The changes we will look at here are driven by the decennial (every 10 years) adjustments by the Office of Management and Budget (OMB) to geographic units used by the federal government, including the Census Bureau, for statistical purposes. The particular geographic units that impact bank and thrift HMDA compliance are Metropolitan Statistical Areas (MSAs) since they are a qualifying location factor for lenders in determining HMDA coverage. The OMB’s changes will also have possible effects on bank and thrift compliance with the Community Reinvestment Act (CRA) in the drawing of institutional CRA “assessment areas.” These latest changes were effective when issued by OMB — July 21, 2023 — so they can impact 2024 HMDA coverage. OMB ACTION The OMB completed a process of delineating Core Based Statistical Areas (CBSAs) based on 2020 Census data and the American Community Survey and Census Population Estimates Program for 2020 and 2021. A CBSA is a geographic entity associated with at least one core of 10,000 or more population, plus adjacent territory that has a high degree of social and economic integration with the core as measured by commuting ties. The standards designate and delineate two categories of CBSAs: Metropolitan Statistical Areas and Micropolitan Statistical Areas. The general concept of a metropolitan statistical area is HMDA & CRA ADJUSTMENTS ARE HERE BY WILLIAM J. SHOWALTER, CRCM, SENIOR CONSULTANT, YOUNG & ASSOCIATES INC. FEATURED ASSOCIATE MEMBER There are changes that arrived with the new year of 2024 to Home Mortgage Disclosure Act (HMDA) compliance for banks and thrifts in many areas. 20 Community Banker
that of an area containing a large population nucleus and adjacent communities that have a high degree of integration with that nucleus. The concept of a micropolitan statistical area closely parallels that of the metropolitan statistical area, but a micropolitan statistical area features a smaller nucleus. The purpose of these statistical areas is unchanged from when metropolitan areas were first delineated: The classification provides a nationally consistent set of delineations for collecting, tabulating and publishing federal statistics for geographic areas. The new delineations are found in OMB Bulletin 23-01 by scanning the QR code. https://www.whitehouse.gov/wp-content/ uploads/2023/07/OMB-Bulletin-23-01.pdf HMDA COVERAGE Regulation C covers any “financial institution,” as defined by the regulation and its underlying HMDA statute. “Financial institution” means, in part, a bank, savings association or credit union that: • On the preceding Dec. 31, had assets in excess of the asset threshold established and published annually by the CFPB for coverage by HMDA, based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers, not seasonally adjusted, for each 12-month period ending in November, rounded to the nearest million — $56 million for 2024 HMDA coverage. • On the preceding Dec. 31, had a home or branch office in a Metropolitan Statistical Area (MSA). [Micropolitan Statistical Areas have no HMDA impact.] • In the preceding calendar year, originated at least one home purchase loan (excluding temporary financing such as a construction loan) or refinancing of a home purchase loan, secured by a first lien on a one- to four-family dwelling. • Meets one or more of the following two criteria: is federally insured or regulated; or the mortgage loan referred to in the previous bullet was insured, guaranteed or supplemented by a federal agency or was intended for sale to Fannie Mae or Freddie Mac. • Meets at least one of the following criteria in each of the two preceding calendar years: originated at least 25 closed-end mortgage loans that are not excluded by §1003.3(c)(1) through (10) or (c)(13), or originated at least 200 open-end lines of credit that are not excluded by the cited section of Regulation C. There are also similar qualification criteria for for-profit mortgage lenders that are not banks, thrifts or credit unions, which we will not detail here. The qualification criterion impacted by OMB’s action is the geographic one, the second bullet above. If a financial institution that otherwise meets HMDA coverage criteria has an office in an MSA on Dec. 31, then it is covered by HMDA for the following year. For many lenders, determining HMDA coverage is a one-time exercise (other than those who are right around the asset-size threshold). MONTANA MSA CHANGES OMB made some significant MSA changes that impact banks and thrifts in Montana, and their compliance with HMDA requirements. Only one existing MSA was unchanged — Great Falls MSA. Changes were made to the other two existing MSAs, and two new MSAs were designated as follows: • Billings MSA — Golden Valley County dropped from MSA; Stillwater County added. • Missoula MSA — Mineral County added. • Bozeman MSA — New MSA comprised of Gallatin County. • Helena MSA — New MSA comprised of Broadwater, Jefferson, and Lewis and Clark counties. All the details of the new Montana geographic delineations can be found in the OMB Bulletin mentioned above. The list of MSAs and micropolitan statistical areas by state is in List 6 (with Montana on pages 163-164) of the OMB Bulletin, while five additional lists in the bulletin give other breakdowns of the geographic delineations, including the counties included in each. HMDA IMPACT In 2023, there was no impact for HMDA reporting because the new MSA delineations were not in effect on Dec. 31, 2022. However, they were in effect Dec. 31, 2023, which has the following impacts: • Banks and thrifts with offices in the two new MSAs or in Mineral or Stillwater counties, and in no other MSA counties, had to begin collecting HMDA data on Jan. 1, 2024, and have to make their first reports of that data by March 1, 2025. • Banks and thrifts whose offices in Golden Valley County have made them subject to HMDA reporting (i.e., no offices in other MSA counties) will no longer have to collect HMDA data beginning in 2024. (Note that such banks would still be obligated to report their 2023 HMDA data by March 1, 2024.) If your institution has an office in any of the counties affected by the MSA changes, be sure to review how this action affects your HMDA compliance beginning in 2024. Community Banker 21
MIB UPCOMING EVENTS 2024 January 30 Memberships Renewals Due February 9 MIB Board Meeting Great Northern Hotel Helena, MT March 14-17 ICBA Live Orlando, FL April 10 MIB Spring Board Meeting Firebrand Hotel Whitefish, MT April 28-May 1 Capital Summit Washington, D.C. July 17-19 Convention and Trade Show Hilton Garden Inn Missoula, MT SEPTEMBER 14 Griz vs. Morehead State Tailgate Missoula, MT OCTOBER 2-3 Women in Banking Conference Springhill Suites Bozeman, MT October 4 MIB Fall Board Meeting Springhill Suites Bozeman, MT October 5 Cats vs. Northern CO Tailgate Bozeman, MT October 15 Ag Conference Hilton Garden Inn Great Falls, MT CRA IMPACT MSAs affect the CRA compliance efforts of banks and thrifts, too. They come into play in drawing up an institution’s CRA assessment area (AA), as well as in the small business and small farm lending disclosure statements prepared by regulators annually for institutions reporting their data (all except for “small” retail banks and thrifts). The CRA rules require that an institution’s CRA AA generally consist of one or more MSAs or metropolitan divisions — using the MSA or metropolitan divisions boundaries that were in effect as of Jan. 1 of the calendar year in which the delineation is made — or one or more contiguous political subdivisions (e.g., counties, cities or towns). A CRA AA may not extend substantially beyond an MSA boundary or beyond a state boundary unless the assessment area is located in a multistate MSA. If a bank or thrift serves a geographic area that extends substantially beyond a state boundary, the bank must delineate separate AAs for the areas in each state. If a bank or thrift serves a geographic area that extends substantially beyond an MSA boundary, it must delineate separate AAs for the areas inside and outside the MSA. The regulators prepare annually, for each MSA and the nonmetropolitan portion of each state, an aggregate disclosure statement of small business and small farm lending by all institutions subject to reporting of that data (all except “small” retail banks and thrifts). Therefore, the redrawn MSA boundaries might have an impact on your institution’s CRA compliance. Each bank and thrift with the affected counties in its CRA AA should review its delineation to make sure that the changes do not require an adjustment to those delineations. If any adjustments are needed, they should be made by April 1 — when any updating of CRA public files must be accomplished (including the map of your CRA AA). The OMB Bulletin provides the six lists of statistical areas that are available electronically at the link stated above or from the OMB website at https://www.whitehouse.gov/omb/ information-for-agencies/bulletins/. The update, historical delineations and other information about population statistics are available on the Census Bureau’s website at https://www.census.gov/programs-surveys/ metro-micro.html. 22 Community Banker
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