THE OFFICIAL PUBLICATION OF THE MONTANA INDEPENDENT BANKERS ASSOCIATION SPRING 2024 JOIN MONTANA’S COMMUNITY BANKERS AT THE MIB CONVENTION AND TRADE SHOW JULY 17-19, 2024 MISSOULA, MONTANA
www.BancardATM.com • 800-342-2731 • Columbia Falls, MT • sales@bancardatm.com • ATM and ITM Sales An ATM solution for every situation is the NCR SelfServ 80 Series ATM Family, featuring a range of new premium through the wall and interior lobby multi-function, drive-up ATMs for dispense deposit and cash recycling. • Maintenance and Software Services 1st Line Maintenance | 2nd Line Maintenance Software Maintenance and Support End of Life | Regulatory and Compliance • Managed Services ATM as a service: Deployment, Operations, ATM Software Management, and Transaction Processing, Cash Management and Back-office functions, Regulatory or Compliance Changes and End-to-End Service, all managed by Bancard ATM. Bundle Services: ATM Management (Vision), Cash Management (OptiSuite) Bundle Software: ATM Applications, ATM Marketing Bundle Hardware: ATM Hardware Preferred Offers BANCARD ATM We bundle innovative solutions into subscriptions that run enterprises end to end. Welcome to Bancard ATM NCR Certified Channel Partner
24 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 14 12 President’s Message 5 Get Involved By Tim Schreiber, President, MIB 5 MIB Upcoming Events Executive Director’s Message 6 Big Fun Under the Big Sky By James E. Brown, Esq., Executive Director, MIB Flourish 8 Why the Community Bank Story Matters in Advocacy By Rebeca Romero Rainey, President and CEO, ICBA From The Top 9 Driving Community Banking’s Agenda with Advocacy By Lucas White, Chairman, ICBA 10 Dialing It Back Simple Bonds Find Favor with Portfolio Managers in 2024 By Jim Reber, President and CEO, ICBA Securities Featured Associate Member 12 Big Sky Finance By Brandon Berger, Big Sky Finance 14 MIB Reports From the 2024 ICBA National Convention 16 Compliance Q&A Spring 2024 By William J. Showalter, CRCM, Senior Consultant, Young & Associates Inc. 20 Funding Strategies: Using Community Investment Advances to “Double-Dip the Chip” By John Biestman, FHLB Des Moines 22 Securing the Future The Critical Role of Cybersecurity in Business Lending By Noah Potti, Co-Founder, Adversis — A Cyber Risk Management Company 24 Montana Independent Bankers 2024 Convention and Trade Show 28 2024 MIB Membership Directory 29 MIB Associate Member Resource Guide 30 MIB Associate Member Banks 31 Bank Training Webinars Contents SPRING 2024 4 Community Banker
W GET INVOLVED Writing my last message as the soon-to-be outgoing president of the Montana Independent Bankers Association, I find myself trying to come up with a simple phrase that could wrap up the experience I’ve had in the last two years in this position. The most fitting phrase that comes to mind is simply this: Get involved. The last two years have brought several important bank events that affect all of us, from the historic pace at which the Federal Reserve raised rates to the highly publicized bank failures in 2023. While the timing of these events is never good, it did play right into the message that we as an association worked to convey to the public: There is a vast difference between independent community banks and large mega banks that TRY to promote themselves as local community banks. In addition to the legislative advocacy that our association provides, promoting the community bank message was a large portion of our focus as an association in the last couple of years. The idea came about because there were some bankers who saw the need to differentiate themselves from the rest of the pack and chose to act. Our work is not over; it has, in fact, only just begun. There is much to do as we ensure our message of differentiation and small community empowerment. Let’s keep the momentum that we have created and continue to educate our public. As I prepare to step down and pass the baton, I leave you with this final battle cry: Get involved! MIB UPCOMING EVENTS MIB UPCOMING EVENTS 2024 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 PRESIDENT’S MESSAGE - Community Banker 5
M EXECUTIVE DIRECTOR’S MESSAGE Montana is now well into the spring months. Having grown up in Montana, this is one of the best times of the year to be a resident of the Treasure State. Spring sees the leaves returning to the trees, the grasses are greener than they will be for the remainder of the year, the bears are out of hibernation and the roads into Glacier National Park are about to be plowed open. Spring 2024 sees the association preparing for the annual MIB Convention and Tradeshow. The MIB convention will be held July 17-19 in Missoula. We are excited to return to the Garden City this year, not the least of which is the location of Norman Maclean’s iconic book “A River Runs Through It.” And to quote Mr. Maclean, “I did not know that stories of life are often more like rivers than books.” You will find within the pages of this edition of the magazine all the information you need to attend the 2024 convention — information ranging from how to register, how to sign up for fun activities and how to book a hotel room. The association has once again arranged for a great lineup of informative speakers and timely topics and issues. The convention will kick off with the always fun opening night reception on July 17. The next day will feature speaker Commissioner of Banking Melanie Hall before finishing with rafting, golf activities and the evening vendor reception and dinner. The final day of the convention, July 19, affords the opportunity to hear from several great presenters, including Steve Beck and Joni Hopkins with the Federal Reserve, before concluding with a delicious lunch. We look forward to seeing you in July for big fun under the Big Sky. To register for the convention and/or to find out more information, please visit the MIB webpage located at mibonline.org/convention. Questions related to sponsorships and activities can be directed to Terri James at (406) 449-7444 or assistant@thunderdomelaw.com. Spring 2024 also finds the community banking industry in the midst of a challenging time for the industry. It seems as if every time we open the newspaper, there are troubling stories related to the fallout from the banking spring 2023 banking crises, namely the high-profile failures of Silicon Valley Bank, Signature Bank and First Republic Bank. Mid-sized regional banks still appear to be struggling some 12 months later. Early in February, Moody’s downgraded New York Community Bancorp’s (NYCB) rating to junk status. This came after NYCB detailed major losses tied to commercial real estate loans that went south. Across the country, including here in Montana, CRE is an area that is struggling. This is due to the manner in which the pandemic changed working and living behaviors. BIG FUN UNDER THE BIG SKY BY JAMES E. BROWN, ESQ., EXECUTIVE DIRECTOR, MIB 6 Community Banker
We here at the association are watching to determine if there is more trouble ahead for banks with exposure to commercial real estate. This is a nationwide situation to keep a close eye on in the coming months. Another troubling situation is the increasing trend of taxexempt credit unions purchasing banks. This trend started in the late 2010s and has really started to accelerate since the pandemic. For example, in early September 2023, ICBA announced its concern after five announced acquisitions of banks by credit unions. This concern was only highlighted by the fact that nearly 20% of the bank deals announced in 2023 were credit union bank purchases. As a result of that troubling situation, ICBA urged Congress to investigate the credit union tax exemption and its harmful impact on local communities. Rebeca Romero stated, “The surge in credit unions leveraging their taxpayer subsidies to acquire local community banks has devastating implications for local communities that go well beyond their expansion of the federal tax exemption for more than $2 trillion in credit union assets.” The credit union purchase trend comes on the heels of the ongoing bank consolidation trend that can be attributed to the high number of federal regulations enacted in the wake of the financial crises of 2007-2008. Those regulations, which were designed under Dodd-Frank to reign in the too-large-to-fail institutions, have arguably had a distorting impact on the ability of community banks to fairly compete against national banks. Based on my discussions with MIB’s members, this ongoing consolidation in the industry is of no surprise as it was a predicted result of the increased regulatory burden placed upon banks of all sizes as a result of the wrongdoing of a few mega financial institutions. Obviously, there are other factors at play beyond increased regulatory burden, which such factors would help explain the consolidation trend. For example, a study performed by the Conference of State Bank Supervisors (CSBS) noted that many owners of privately held banks were getting older and determined that this would be a good time for them to exit the industry. In addition, rural populations are shrinking, and some small banks are expanding to become bigger banks. This consolidation trend poses several immediate questions. First, the question needs to be asked on whether consolidation in the industry, namely consolidation of Montana community banks, is a bad thing. The second question that needs to be asked is what can be done to curb the trend of a small number of financial institutions holding a majority of U.S. banking assets. As to the first question, that is best answered by your institution, your customers and your owners/ shareholders. As to the second question, it has certainly been MIB’s and ICBA’s position that the best way to stop the trend of too-big-too-fail growth was for Congress to start undoing the regulatory morass created by DoddFrank and to allow community banks (and market forces) more regulatory flexibility. As you know, we here at the MIB have been working hand-in-hand with our national organization, the ICBA, to pass through Congress a series of regulatory bills that will recognize the difference between a Wall Street bank and a hometown bank, such as your bank. The general idea is to create a regulatory system that regulates a bank of $10 billion or less in a different manner than a bank of $100 billion or more. Such regulatory system would recognize the reality that small banks have a more difficult time complying with today’s highly complex regulatory environment than the Chase Manhattans of the world. Further, MIB joins ICBA in expressing our mutual concern about the distorting impact of allowing credit unions to operate under the tax subsidy being used to underwrite financial services consolidation. As ICBA has stated, Congress should respond by holding hearings, requesting a Government Accountability Office (GAO) study on the credit union industry, and considering an “exit fee” on these acquisitions to capture the value of the tax revenue lost once the acquired bank’s business activity becomes tax-exempt. MIB members will be discussing these legislative proposals with Montana’s congressional delegation during ICBA’s Washington Policy Summit held April 28 through May 1, 2024. Issue and policy advocacy is one of the association’s most valued member benefits. And, as such, we encourage you to join us in Washington as we bring the “community banking voice” to Montana’s elected officials. Have a great spring, and we look forward to seeing you in Missoula as we share in what Mr. Maclean called the “stories of life.” Community Banker 7
AAs we wrap up Community Banking Month, I am thrilled to honor the ways community banks step up to champion the needs of their communities. Whether it’s through personal interactions or modern-day conveniences, community banks hit that sweet spot where relationships meet today’s technology to provide unparalleled support to the customers and communities they serve. No other financial entity comes close to offering that hightech, high-touch relationship that’s integral to who we are as community bankers. It’s not just about the deposits deployed in the form of loans, the contribution of thousands and thousands of dollars to the community or the countless hours spent supporting local families and businesses — it’s a combination of them all. These traits make it such an amazing industry to advocate for, because we are simply asking for what’s right so community banks can continue to work for the common good. And therein lies the difference that policymakers need to understand. When we share our personal stories with legislators on Capitol Hill or with rulemakers, we make it real for them. The community bank story takes what may be an academic theory, rulemaking concept or well-intentioned law-inthe-making and ensures it’s relatable on an individual level. It plainly demonstrates where emerging regulations may have merits or pitfalls and how they really will affect businesses and consumers in their communities. Community bank stories also demonstrate why legislators and regulators can’t paint with a broad brush across the financial services landscape. Our ability to differentiate ourselves and explain our relationship-based approach shows who we are as businesses and how we prioritize customer needs. This storytelling pulls concepts out of the theoretical into reality. When you can demonstrate how these topics affect the lifeblood of the community, it’s transformational. For instance, our ability to convey how community banks differ from Silicon Valley Bank and other failed large banks enabled us to effectively advocate to keep most community banks out of the FDIC special assessment. We made it real for regulators, ultimately ensuring that the rule was being written to differentiate community banks from the rest of the industry — because we inherently are different. So, it’s with a spirit of community bank pride that I invite you to share your story during Capital Summit (icba.org/capital-summit), taking place in Washington, D.C., from April 28 to May 1. Seize this opportunity to ensure legislators recognize the community bank difference. And in the meantime, take this month to celebrate all that you do. In the eyes of all who know your story, it’s well-earned. WHY THE COMMUNITY BANK STORY MATTERS IN ADVOCACY WHERE I’LL BE THIS MONTH I’ll be heading to Memphis for meetings with ICBA Securities and state partners, and then I’ll be attending the ICBA Capital Summit at the end of the month. I hope you will join us! FLOURISH BY REBECA ROMERO RAINEY PRESIDENT AND CEO, ICBA 8 Community Banker
II am an avid motorcyclist. In fact, I have completed two Iron Butt rides, riding at least 1,000 miles in 24 hours. Doing something like that takes passion, resilience, tenacity and strength of will, but it’s also a lot of fun. And as I assume the role of ICBA chairman, it strikes me that these same qualities apply to what we do as community bankers. Banking is the most heavily regulated industry in the country. We live by thousands of pages of rules that make it harder to do business and serve our customers, and those rules are a constant moving target, always under regulatory scrutiny. So, on top of our day jobs, we also need to teach rulemakers what we do, why we do it and how it spurs positive change. Every community banker needs to go to Capitol Hill at least once. In addition to being a banker, I served as a public defender for eight years after law school. I learned that when you explain the law, you have to make it simple and clear. It’s similar to how we translate community banking for legislators: We need to share our customer stories and convey our support for our communities because knowledge makes a difference. Just consider how ICBA successfully advocated for the FDIC to exempt most community banks from the special assessment to replenish the Deposit Insurance Fund after last year’s big bank failures. This one effort saved my bank just under $300,000. That is $300,000 of additional capital I can use to make loans in my community. I know we’re all busier than ever, but advocacy matters. We all have responsibilities at the bank, to our communities and with our families, but this needs to be a priority. I have three young sons at home, but my wife and I are making it work because we know just how important it is to speak directly with those making the rules. So, I encourage every one of you to take part in advocacy efforts. Don’t put it off until you have more time, until you’re older or whatever you’re telling yourself. Do it today. Write to your legislators. Call them and tell them what counts for your community. Attend the ICBA Capital Summit with your peers. You’ll be surprised at how much of an influence you’ll have — with a lot of fun in the process. As for me, I will be riding right alongside you, looking at the road ahead, the twists and turns it brings and, with them, the opportunities to make an impact. Lucas White is president of The Fountain Trust Company in Covington, IN. DRIVING COMMUNITY BANKING’S AGENDA WITH ADVOCACY MY TOP 3 I love scenic and technical motorcycle drives, including these three favorites: 1. Dalton Highway from Fairbanks, Alaska, to the Arctic Circle. 2. Tail of the Dragon in the Great Smoky Mountains. 3. Million Dollar Highway in Colorado. FROM THE TOP BY LUCAS WHITE CHAIRMAN, ICBA Community Banker 9
K DIALING IT BACK SIMPLE BONDS FIND FAVOR WITH PORTFOLIO MANAGERS IN 2024 BY JIM REBER, PRESIDENT AND CEO, ICBA SECURITIES KISS in this column does not refer to the pancakemakeup-wearing, androgynous rock ‘n’ roll band from the 1970s. I’m pleased to report it’s the acronym for “Keep It Simple, Stupid.” I mean no disrespect to the readers; in fact, it’s a compliment to community bank bond buyers, who once again have demonstrated their inclination to relative-value propositions and their ability to react quickly to changing market forces. ICBA Securities’ exclusive broker, Stifel, provides several complementary services to its stock-in-trade of debt securities for community banks. Not least is bond accounting, which more than 400 ICBA members use to document their portfolio holdings. In aggregate, these banks own more than $76 billion in bonds, so it’s a large enough sample size to reasonably suggest they represent the industry as a whole. And you might be pleasantly surprised to learn that the highest-performing banks in this group are not achieving their results through any complex, convoluted, risk-addled means. In 2024, simplicity has rewards. WHAT WAS … For more than two decades, one of the most predictable features of high-performing bond portfolios was the sector weighting for municipal securities. When we divided the bond accounting banks into four quartiles, sorted by yield, we would consistently see that the more munis a bank owned, the higher the yields relative to the rest of the population. There was also a correlation between yield and duration. Of course, the top quartile would have the longest average lives. But that didn’t necessarily translate into greater price risk. Tax-free securities have about 80% of the price volatility of taxables due to the way in which tax-free interest rates affect market prices (which is another column for another month). The point to be made is that a higher allocation to munis translated into better relative performance. As recently as December 2021, 52% of the top quartile’s holdings were in tax-frees. Such is most assuredly not the case today. 10 Community Banker
… IS NO LONGER By December 2023, the top quartile had an allocation to munis of 26%, or just half what it had only 24 months earlier. Some of those dollars migrated into various types of amortizing securities, but the bulk of the reinvesting went into — wait for it — treasury bonds. The numbers are quite astonishing. In the fourth quarter, fully 60% of new purchases were treasuries. They weren’t necessarily long maturities, either, as the treasury holdings, on average, had a duration of well under two years. And remember that we’re talking about the top quartile. A skeptic would suppose that the erstwhile long-duration, heavy tax-free portfolios — and their built-in yield advantage — have given up some ground to the more conservative lower quartiles. One would be even more confident of that supposition knowing that the effective duration of the top quartile has shrunk in the past two years from 4.5 years to 3.9. One would be wrong. The yield gap between quartiles one and four was 124 basis points (1.24%) in December 2021; now, the difference is 173 basis points or 1.73%. WHAT JUST HAPPENED The reasons for the “dump munis, buy treasuries” trade can be summarized in these three factors: 1. The shape of the curve: The inverted curve, which has persisted since July 2022, has made longer-yielding bonds less attractive than shorter ones. The longest securities in a typical community bank portfolio are munis, which is a good news/bad news proposition for inverted curves. They have lost less value than others since 2022, but the current market yields for them are below those of lower-duration bonds. 2. The supply/demand dynamics of the municipal market: Munis really haven’t held much value for corporations since 2018, when the marginal tax rates for C Corps dropped to 21%. The retail demand for munis has continued apace, as individual tax rates didn’t drop as much. And finally, as we’ve discussed in this space before, the entire municipal bond universe has not grown for well over 10 years. This has pushed yields on even 10-plus-year munis below those of similar maturity treasuries. 3. The “higher for longer” narrative: Some portfolio managers are buying into the “higher for longer” narrative for short-term interest rates. The first quarter of the year saw expectations for actual cuts to fed funds pushed into the second half of 2024, and the number and size of the cuts declined, too. This has kept the inverted curve intact and has made even money-market treasuries the choice of engaged portfolio managers. The result is that the highest-yielding and more riskaverse bank portfolios these days have a heavy dose of short treasuries. The top quartile at the start of 2024 had a full 14% allocation, which is a high-water mark for the past quarter century. As our friends from KISS might say, community bankers can buy short treasuries all night, and enjoy the results every day. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. EDUCATION ON TAP Bond Accounting at Your Service ICBA Securities’ exclusive broker, Stifel, offers an industry-leading bond accounting package that’s scalable to your community bank’s portfolio at very competitive prices. For more information or to see a demo, contact your Stifel sales rep. 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 11
S FEATURED ASSOCIATE MEMBER BIG SKY FINANCE BY BRANDON BERGER BIG SKY FINANCE SBA 504 in 2024! This has a nice ring to it. At Big Sky Finance, we believe there are great opportunities to make 2024 the year of the 504 for our small business borrowers. 2023 was a tumultuous year for interest rates and commercial real estate financing in general. The SBA 504 Loan program is a financing tool we want every lender to know about, one that provides benefits to small businesses, commercial lenders and the Montana communities we live in. WHO WE ARE First off, let us share a little about who Big Sky Finance is and what our role is with the SBA 504 Loan program. Big Sky Finance is a Certified Development Company (CDC) authorized by the SBA to provide SBA 504 loans across the state of Montana. The SBA requires all 504 loans to be administered by a Certified Development Company. We are a local, Montana-based company headquartered in Billings. 2024 marks our 20th year providing 504 loans to Montana small businesses, working together with our lending partners across the state. We have a talented team with years of experience in commercial and SBA lending, committed to the growth and success of the Montana economy in which we all live! WHAT CAN THE SBA 504 LOAN BE USED FOR, AND HOW IS IT STRUCTURED? The SBA 504 Loan program is for owner-occupied, fixed asset financing: acquisition of land with new construction, purchase of an existing building, purchase with renovations, equipment purchases or refinance of existing commercial debt. Big Sky Finance partners with the borrower’s commercial lender, with the typical financing structure as follows: bank financing 50% of total project costs in a 1st lien position, SBA 504 loan through Big Sky Finance financing 40% of the total project costs in a 2nd lien position and the borrower coming in with as little as 10%. This structure may change under certain circumstances, with borrower’s equity increasing to 15% or 20% if financing a new business, special purpose property or combination of both. The SBA 504 Loan program is not only for new project financing. Debt refinance is another tool available with the SBA 504 loan program. Options include the straight refinance of existing eligible debt, or debt refinance with expansion for those looking to expand their current operation. With SBA rates below market, now may be the time for lenders to review their portfolios for opportunities to refinance existing, eligible debt. RATES Let’s talk about rates. The interest rates on SBA 504 loans are fixed for the term of the loan. The effective rates on SBA 504 loans are based on the 10-year Treasury yield for 20- and 25-year notes and the 5-year yield for 10year notes. Due to the fact SBA effective rates are based on these longer-term yields, SBA 504 loan rates have historically remained lower than most commercial loan rates; this was very evident in 2023, particularly as the Fed raised short-term rates. Locking in a fixed rate for up to 40% of a borrower’s long-term financing provides the certainty of a constant repayment stream through the life of the loan. SBA offers loan terms of 10, 20 or 25 years. Equipment-only notes typically utilize the 10-year note, while any of the three terms can be used for real estate. 12 Community Banker
BENEFITS What does all this mean to lenders and borrowers? Partnering with Big Sky Finance on an SBA 504 loan for your borrower has many benefits: Borrower Benefits • Minimal equity requirement — as little as 10% down. • Competitive, fixed rate for the term of the note. • No additional collateral required other than project collateral. Lender Benefits • 1st lien position at typically 50% LTV. • Limits bank’s exposure. • Utilize own documents and set own rates and terms. • No SBA paperwork — all handled by CDC. • CRA credit. Community Benefits • Projects add to the tax base. • New job creation. • Big Sky Finance loan revenues reinvested into the Montana economy for other economic development. Let us work together to make 2024 the year of the 504, helping Montana small businesses grow. Utilize the SBA 504 Loan program as part of your lending toolkit. Providing your borrower with a fixed rate for up to 40% of their project financing shows you are looking out for their best interest long term! Let our 504 experts at Big Sky Finance be your resource to work out the project eligibility and structure. It is our job to make the SBA 504 process as easy as possible for both you and your borrower. Big Sky Finance is a Montana CDC, partnering with our Montana Independent Bankers, providing the best financing options available! Check us out at www.bigskyfinance.org or contact Brandon Berger at (406) 869-8403 or berger@bigskyeda.org. Bankers’ Bank of the West We champion Community Banking bbwest.com | 800-873-4722 Where Community Banks Bank Meet Your Montana correspondent advocates Loans Participations Merchant Services International Services ATM/debit CD’s Money Market Community Banker 13
SSeveral thousand delegates from all over the nation gathered at the Orlando World Center Marriott in Orlando, Florida, during the second week of March to celebrate community banking at the 2024 ICBA National Convention. Approximately 20 Montana bankers and spouses traded a rather mild Montana winter for a warm tropical sun in order to take part in the fantastic training and events put on by ICBA. Industry experts presented workshops on topics ranging from technology and generational issues to data breaches, regulatory compliance and hot banking trends. General sessions featured inspirational speeches by Lt. Col. Dan Rooney, CEO of Jade Media Ms. Jade Simmons, and ICBA President and CEO Rebeca Romero Rainey. MIB hosted our annual reception for Montana attendees on the evening of Friday, March 15. It was a great time to get outside and enjoy a fine Florida evening of drinks, appetizers and warm conversation with Montana friends. We were glad to have a number of ICBA officers and staff and MIB associate members join us as they never fail to add to the community banking camaraderie. Sponsorship for our reception by United Bankers’ Bank and Valley Bank of Kalispell contributed to making our reception a success. Many of our Montana delegates said the Orlando World Center Marriott was the most enjoyable and family-friendly venue they had experienced at an ICBA convention. Next year’s national convention will be held in Nashville, which will be another fantastic location. We hope to see you there! MIB REPORTS FROM THE 2024 ICBA NATIONAL CONVENTION 14 Community Banker
Lock in fixed 9% returns for your bank today Beat Treasury yields by 435 bps with our low-risk credits Through the first nine weeks of 2024, community banks have already purchased $500 million of BHG’s low-risk credits. Our fixed 9% rates are twice as high as 5-yr. Treasury yields, and our loans feature the highest credit quality in our history. Don’t wait for the Fed to lower rates. Expand your bank’s margins and interest income starting today. Scan to learn more at BHGLoanHub.com Earn 9%+ Keith Gruebele 954.263.6399 kgruebele@bhg-inc.com Contact your representative: OR Community Banker 15
COMPLIANCE Q&A SPRING 2024 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. RESPA. Q: We are acquiring a bank at the end of May. This is my first time going through a merger. Are we, as the surviving institution, required to submit a short-year escrow account statement to the borrower within 60 days of the effective date of transfer under Regulation X (RESPA), 1024.17(i)(4)(ii), or do we only have to do this if something is changing, such as changing a disbursement date? Our loan department does not plan on changing anything and just transferring the accounts over. They would like to keep these loans on their current escrow analysis cycle. For example, if at the old bank the annual analysis was in March, then we plan to also do the annual analysis in March each year. A: RESPA requires that only the transferor (old servicer) must issue a short-year statement. The new servicer is not required to issue another short-year statement unless the new servicer is making changes (monthly payments, accounting methods, disbursement dates, etc.). ECOA. Q: We are refinancing a loan secured by some land. A single man had given a deed of trust (mortgage) on the land and every year renewed the line of credit using the land as security. He has married in the past year. His spouse is not on the loan. We are wondering whether the spouse should sign in some capacity upon renewal of this line of credit. A: It is possible that the spouse would need to sign some document to perfect the bank’s security interest. However, this is an issue that can vary by different state laws and, so, should be referred to the bank’s legal counsel for a determination. BSA. Q: Two sisters were joint owners of a checking account. The account was closed, and a cashier’s check was issued to the two sisters for the balance remaining in the account. The sisters decided to cash the check and split the proceeds. Both signed the back of the check, and both were present during the checkcashing process. How do we complete the Currency Transaction Report (CTR)? The instructions in CTR FAQ #24 seem to be relevant. This FAQ deals with a withdrawal from a joint account where you have knowledge that the withdrawal — or in our case, a check cashing — is being done on behalf of both individuals. If this applies to our case, which payee do we designate as the “person conducting transaction on own behalf — Item 2a” and as the “person on whose behalf transaction was conducted — Item 2c,” when both were present? A: A CTR filing deals only with the cash portion of any 16 Community Banker
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. BY WILLIAM J. SHOWALTER, CRCM SENIOR CONSULTANT, YOUNG & ASSOCIATES INC. transaction(s), so in this case, the bank would be reporting on the check being cashed by the two individuals to whom the check was made payable. Since both were present, each would have a Part I Person Involved in Transaction section completed on them, and both would be identified as “2a-Person conducting transaction on own behalf.” TILA. Q: We are reviewing a loan for which the prepaid finance charge is understated by $150 on the Closing Disclosure. However, the bank did not calculate the annual percentage rate (APR) correctly. The loan is an adjustable-rate mortgage (ARM) loan, fixed for the first 36 months, and then the rate changes every year for years four through 10, with a balloon payment in year 10. The APR was calculated based on the initial rate for the first year and then increased by the contractual rate caps each subsequent year rather than stopping at the fully indexed rate. Because of this, the APR and the finance charge (FC) are overstated. Does the bank have to reimburse the $150 or does that get negated by the overstated FC due to the way the APR was calculated? A: In calculating the APR for an ARM, the lender does not take any possible future rate changes into account — unless the loan has an initial rate that is arbitrarily set rather than according to the formula for future rate changes (a discounted or premium initial rate). In such a case, the APR is based on the initial arbitrary rate for the time it is in effect and the fully-indexed formula rate for the remaining term, taking into account any rate change caps — e.g., if the initial discount is 2.5% and there is a 2% annual change cap, then the APR would be a composite of the initial rate for the first year, initial rate plus two for the second year and initial rate plus 2.5 for the remaining years (up to year 10 in this case, when the balloon payment will come due). On the other hand, if the initial rate is computed by the formula for later rate changes (no initial discount/ premium), then the lender just uses the initial rate for the entire term of the loan with no presumed rate increases (just like for a fixedrate loan). Community Banker 17
As for any reimbursement, the correct amount financed and projected payment schedule must be input into the online APR verification tool, along with the disclosed values for the APR and FC, and periodic (monthly) payments that may have been made since closing. The program will indicate if any reimbursement is due. (The APR and APR-related FC overstatements may very well cancel out the understatement of the prepaid FC.) TISA. Q: The bank is doing a joint marketing effort with the local minor league team. Children under 18 can come into the bank and open a savings account, mention the team’s kids club, and they will receive a 2024 season pass to the team’s home games (provided by the team), as well as a kids club t-shirt and lanyard (provided by the bank). The t-shirt and lanyard combined have a value under $10. How do we determine the amount to use in determining if this is a “bonus” under Regulation DD (Truth in Savings)? Do we also include the season pass that is provided by the minor league team? Or is the “bonus” based only on what the bank itself is providing, which is under $10? A: Regulation DD requires that the bank aggregate the values of all items it provides to customers to open or maintain a particular account, which, in this case, would include the season pass for the team. Flood insurance. Q: We have a question about the need for running a flood hazard determination after a commercial loan has closed. Our commercial credit staff runs a flood check on commercial deals at the time of application based on whether or not the county’s valuation states that it has a building and/or improvement value. If the particular property does not have a building/ improvement value listed, a flood hazard determination is not run. We now have a situation where a loan that was recently closed was secured by three parcels. One parcel reflected a building/improvement value, and two parcels reflected no such value. Our operations department is completing their due diligence and is requesting that flood checks be run on the two other parcels that we initially had not run them on. I have no problem running these flood checks, that is simple. However, these new flood determinations will be dated after the closing date of the loan. Is a flood determination needed or warranted after a loan is closed if we can show from the county that the two questioned parcels have no building and/or improvement value? A: Flood hazard determinations are required only for properties that have insurable buildings/improvements on them since flood insurance does not cover the land itself. TILA. Q: We have an individual who wants a home equity line of credit (HELOC) secured by the home he is living in. The home is owned by a limited liability corporation (LLC) of which our borrower owns 100%. Should he or the owner (LLC) be signing a notice to cancel? A: If the home is owned 100% by the LLC, then no one will be signing any notice of the right to cancel since there will be no rescission right. The right to rescind applies only when a natural person owns the subject dwelling (other than when a trust established for tax or estate planning purposes or a land trust is involved). Advertising. Q: If we have yard signs printed up that will say “Financing Provided by ABC Bank” with our telephone number, do we have to include “Member FDIC” and the “Equal Housing Lender” logotype? These signs would be placed on properties where houses are being built with bank-loaned funds. A: No and yes. No, “Member FDIC” is not required since this is advertising related only to lending. Yes, the “Equal Housing Lender” logotype (the phrase and the “doghouse” logo) must be included since the signs are promoting the bank’s home lending. SBA 504 Loans Montana’s SBA 504 Lender providing businesses across Montana with long-term, fixed rate financing for commercial real estate and/or equipment with as little as 10% down. Our experienced staff is here to guide you, contact us today! WWW.BIGSKYFINANCE.ORG Powered by Big Sky Economic Development Cucina Florabella Missoula, MT Meadowlark Brewing Billings, MT Brandon Berger / brandon@bigskyeda.org / 406-869-8403 18 Community Banker
• 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 THANKING OUR SPONSOR, BELL BANK Visit us at bell.bank With a team dedicated to correspondent banking, Bell Bank provides flexible underwriting, competitive lending terms and prices, fast decision-making and consistent communication. Having partnered with hundreds of community banks, we’ll help you enhance your customer relationships through our experience-based expertise in participation loans, bank stock, ownership loans and equipment financing. STRONG? Is Your Marketing Plan (801) 676-9722 | (855) 747-4003 sales@thenewslinkgroup.com Advertise in this magazine and strengthen your business. CONTACT US TODAY. QR Code: website /#ad-space Community Banker 19
I FUNDING STRATEGIES: USING COMMUNITY INVESTMENT ADVANCES TO “DOUBLE-DIP THE CHIP” BY JOHN BIESTMAN, FHLB DES MOINES In a famous 1993 “Seinfeld” episode, the character George Costanza faces an awkward moment in which a fellow party guest accuses him of “double-dipping” a chip. While the act of double-dipping in this instance is a flagrant transgression, there are situations in which double-dipping can represent a strong benefit to both communities and balance sheets! Enter the FHLB Des Moines Community Investment Advance (CIA) program that offers members a reduced rate on eligible advances whose terms can range from one to 30 years. Application of CIA drawn by members can take many forms: downtown revitalization, employment stability, rural broadband expansion, brownfield development, infrastructure, targeted affordable housing projects and more. Many members of FHLB Des Moines are already active in supporting these types of efforts through their day-to-day community lending and investing activities. GUEST ARTICLE ELIGIBLE LOANS AND INVESTMENTS CIAs may be classified as either Commercial Lending Advances or Residential Lending Advances. CIAs may be taken to support direct loans, purchased loan participations and the purchase of mortgage revenue bonds or mortgagebacked securities, provided all of the loans purchased or financed by such bonds or securities can be shown to meet the eligibility requirements of the CIA product. Here’s a synopsis of the types of loans that typically qualify for the two advances: Commercial Lending Advances • A loan to a small business or farm will qualify, per standards established by the Small Business Administration. • Direct or participation loans that fund i) commercial, mixed-use or agricultural loans from targeted areas or ii) those that fund small businesses. • Municipal bonds that fund public facilities and infrastructure projects. • Commercial, mixed-use and agricultural loans originated by a member. Loans may be new originations or refinancings of existing loans. Eligible loans include those that: i) fund the acquisition or expansion of a business, ii) real estate loans for purchase, construction or renovations, iii) equipment and vehicle loans, iv) livestock loans and v) loans for working capital and inventory. Common qualifiers for the Commercial Lending CIA Program are the small business standard in urban areas and target income parameters for rural areas. Residential Lending Advances • Newly-originated or refinanced loans that fund single or multi-family units or manufactured housing projects. 20 Community Banker
• One-to-four-unit mortgages that are sold in the secondary market are permitted, including FNMA DUS bonds that fund projects in targeted census areas. • Owned home loans or rental projects that target low-to-medium households (up to 115% area median income), measured either by target lending area or target income level. • Financing for Native American Housing Assistance, Alaska Native or Native Hawaiian Homeland projects (commercial and residential). CIA PRODUCT LOGISTICS The qualification process is easy. At the time a CIA is requested, the member provides summary information to the FHLB Des Moines Community Investment Department about the loans or investments that have or will be funded. Loans must have been originated and funded within the three months prior to the date of the CIA, or a member may take an advance on loans to be originated and funded within the 12 months after date of the advance. The latter alternative is useful to accommodate new construction projects, loans or lines of credit for working capital. Only the funded amount of a loan is eligible for CIAs. For added flexibility and duration-certainty, should the funded loan or investment be terminated or prepaid before the CIA matures, that CIA is not required to be terminated. There are a few other features to be aware of: • The maximum outstanding CIA balance per member was recently doubled and increased to $20 million. • Minimum maturity of a CIA is one year. • Minimum amount per advance is $25,000 and $100,000 for the Commercial and Residential Lending Programs, respectively. • CIA funding from FHLB Des Moines is available on an ongoing basis. • Identified loans used to qualify for CIAs are not collateral for the advance. Rather, a member’s existing collateral pool is pledged separately while an outstanding CIA would offset that collateral. REDUCED RATES AND BALANCE SHEET MANAGEMENT OPPORTUNITIES In addition to accessing funds for the benefits of affordable housing and community investment, CIAs are offered at rates that are consistently offered below posted regular-term advance levels. Our website provides daily rate indications for CIAs. Plus, the positive impact of the cash dividend benefit derived from the FHLB Des Moines activity stock, yields an extremely competitive and duration-certain source of funding. DOUBLE-DIPPING THE CHIP In addition to obtaining funds for providing affordable housing and community capital at a highly competitive rate, the fungible prepayment features of the CIA may be readily applied as a tool to assist a member’s balance sheet and interest risk mitigation strategy. As an example, if a member has sustained decreasing deposit durations and wishes to increase asset sensitivity, deploying low-cost term advances is an effective means of achieving this goal. In many cases, FHLB Des Moines members are already originating residential, commercial, agriculture or small business loans in their regular course of operations. From a funding perspective, the path of least resistance, at least for the first $20 million, should always warrant the CIA. It’s profitable to the communities that you serve to “doubledip the chip.” Please contact Eric Jensen at (206) 434-0581 or ejensen@fhlbdm.com and he can answer any questions and assist you with completing the application. 38697 Partner with us for: • Loan participation purchases and sales* • Bank stock financing • Bank executive and employee financing *We do not reparticipate loans. Craig McCandless Call me at 406.850.3790 Based in Billings, Mont. Serving Montana, Wyoming and Idaho Our Mission Is to Help You Succeed Community Banker 21
SECURING THE FUTURE THE CRITICAL ROLE OF CYBERSECURITY IN BUSINESS LENDING BY NOAH POTTI, CO-FOUNDER, ADVERSIS — A CYBER RISK MANAGEMENT COMPANY GUEST ARTICLE a growing threat that can significantly impact an SMB’s financial stability: cyber threats and the security measures (or lack thereof) that the business has in place. The cyber threat landscape continues to change, with SMBs increasingly becoming targets. According to a report by Verizon, nearly half of cyberattacks target small businesses — virtually any business with a bank account. Yet, many SMBs lack robust cybersecurity measures. A recent report by the cyber insurance firm Hiscox highlights that businesses with novice or immature security practices have breach costs 2.5x higher than those with mature practices. Such incidents can have a dire impact on an SMB’s operations and finances. A cyberattack can lead to substantial direct costs such as ransom payments, data recovery expenses and downtime. Indirect costs include reputational damage and loss of customer trust, which can have long-term financial implications. Other industry data shows real-world costs to businesses ranging from $8,000 on the low end to nearly $300,000 on average per data breach and into the multi-millions for organizations under regulatory compliance regimes. A cyber incident can disrupt business operations, leading to loss of revenue and potential legal liabilities. For example, Adversis recently worked with a midsized company recovering from the compromise of an administrative Microsoft 365 account, losing access to all data stored in its Sharepoint repositories and sending thousands of malicious emails to its business partners. On top of the response costs, the company spent many hours and several sleepless nights concerned about the impact on future contracts. This directly affects an SMB’s ability to service debt. If a substantial portion of their revenue is diverted to addressing cyber incident repercussions, their capacity to make regular loan payments may be compromised. Recognizing this risk, it’s prudent for banks to integrate cybersecurity assessments into their loan evaluation process. This doesn’t mean becoming cybersecurity experts but rather ensuring there is a basic cybersecurity strategy or information security program in place. IIn late 2020, a small New Jersey medical practice experienced a data breach that exposed health info and social security numbers of 1,600 patients. The breach was caused by a server misconfiguration during a software update by the practice owner. The error allowed public access to sensitive patient information on a file transfer site without a password. This exposed data was automatically made searchable by Google and accessible online. The New Jersey Attorney General assessed a $200,000 fine for the misconfiguration and data loss. The firm’s primary clients canceled their contracts. The company closed its doors shortly after. Traditional assessment criteria have long been the bedrock of decisionmaking for banks and financial institutions when considering small- and medium-sized business (SMB) lending. These criteria typically revolve around credit history, financial stability, cash flow and market conditions. However, a new factor is emerging as a crucial element in evaluating loan risks for SMBs: cybersecurity. Currently, when a bank assesses an SMB for a potential loan, the focus predominantly lies on the business’s financial health. This includes scrutinizing balance sheets, profit and loss statements, and the business owner’s personal credit history. The aim is to gauge the business’s ability to repay the loan. However, this traditional approach often overlooks 22 Community Banker
www.thenewslinkgroup.orgRkJQdWJsaXNoZXIy MTg3NDExNQ==