THE OFFICIAL PUBLICATION OF THE MONTANA INDEPENDENT BANKERS ASSOCIATION SUMMER 2024 BROWN TAKES THE MIB HELM
21 2024 MIB EXECUTIVE OFFICERS Loren Brown, President Ascent Bank, Helena lbrown@ascentbank.com Amber Brown, Vice President Peoples Bank of Deer Lodge abrown@pbdl.net Clinton Gerst, Secretary Bank of Bozeman cgerst@bankofbozeman.com Laura Clark, Treasurer Opportunity Bank lclark@oppbank.com Tim Schreiber, Immediate Past President Farmers State Bank tims@farmersebank.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 Andrew West Eagle Bank, Polson 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 (406) 449-7444 jbrown@mibonline.org mibonline.org 10 4 President’s Message 4 Loren Brown Takes the Helm as Incoming MIB President Executive Director’s Message 6 MIB’s Best Convention Yet! By James E. Brown, Esq., Executive Director, MIB From The Top 8 Showing Pride in Independence By Lucas White, Chairman, ICBA Flourish 9 Connected as Independent Community Banks By Rebeca Romero Rainey, President and CEO, ICBA 10 The Meek … Inherit a Prominent Place in Bond Portfolios By Jim Reber, President and CEO, ICBA Securities 12 MIB 2024 Awards 12 MIB Upcoming Events Featured Associate Member 14 Insights From PCBB Unlock More Profitable Customer Relationships By Matt Helsing, SVP & Northwest Regional Manager, PCBB 16 MIB’s 2024 Call on Washington Recap 18 Learning from Redlining Enforcement Actions By William J. Showalter, CRCM, Senior Consultant, Young & Associates Inc. 21 Business Overhead Expense Insurance What It Means to a Savvy Banker By Andy Phillips, Benefit & Financial Strategies LLC 24 Enhancing Banking Convenience and Efficiency With Bancard ATM By Bancard ATM 26 MIB’s 57th Annual Convention & Trade Show 27 ThankYou to Our 2024 MIB Convention Sponsors! 28 2024 MIB Membership Directory 29 MIB Associate Member Resource Guide 30 MIB Associate Member Banks 31 Bank Training Webinars Contents SUMMER 2024
H LOREN BROWN TAKES THE HELM AS INCOMING MIB PRESIDENT PRESIDENT’S MESSAGE I am committed to finding ways to strengthen our organization through membership, finances and innovation as we continue to do the good work of building up our communities. Hi, my friends! It took me quite a while to decide what I should write about for my first President’s Message as the incoming president of the Montana Independent Bankers Association. Through my involvement with the MIB, I have become close friends with many of the great community bankers in our state. However, I realized that there are far more fabulous community bankers in our state that I have yet to meet. So, it seems that my first order of business should be introducing myself to you via this publication until I have the chance to hopefully meet you in person. I am a born and raised Montanan. I grew up in Helena, and while I love traveling and exploring the world, I always find my heart is here in the Queen City of the Rockies. I ended up attending Carroll College “accidentally” while trying to search for the perfect school to attend after high school graduation. Similarly, I ended up finding myself in my first role as a community banker shortly after graduation from Carroll, by accident. I was looking for a job where I could put my newly earned degrees to work while trying to help people make their lives better. I had never considered being a banker while growing up or even while attending college. I joined Mountain West Bank and learned just how impactful a community bank can be on the lives of its customers. Today I serve as chairman, president and CEO of Ascent Bank. It turns out a number of happy little accidents led me to an incredibly fulfilling and rewarding career and life! As for me as a person, I am your stereotypical community banker when it comes to all of the things that make us the awesome group of people that we are. I thrive on helping my staff grow, learn and develop! I love seeing my customers succeed in their personal and professional lives and helping play a role in their success. I firmly believe that I have an obligation to make my community better. I volunteer on a number of boards and give my time to local organizations. When it comes to the things that are not critical to the DNA of a community banker, I am anything but stereotypical. I am a risk 4 Community Banker
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. taker who feeds on being outdoors and going fast. My favorite hobby is skydiving and I hate golf. I met my wife Michelle just after graduating from Carroll and have shared countless adventures with her. She is a huge supporter of community banking, as well, and has helped make my goals a reality. We don’t have any two-legged children, but we have four horses, two German shepherds and three cats. While we were raising the money and putting together the investor group to buy First Security Bank of Helena (later rebranded to Ascent Bank), I was blown away by how many of our investors were willing to be part of “The Bank” because they attributed their success to a community bank. I heard story after story of a community banker taking a risk on them that allowed them to build a successful business. Those stories helped reinforce my belief in community banks and I realized that we all share common goals and values, despite the little differences between all of our banks. Soon after, I was invited to join the MIB board of directors and saw even more how similar we are. Now, as I step into the role of president of MIB, I want to make sure that our organization has everything it needs to continue to serve the community banks of Montana. The Montana Independent Bankers Association is the only trade association in Montana dedicated to community banks and everything we stand for. We, as a group of banks, are faced with countless challenges from the credit unions, mega and regional banks, fintechs, regulators and more. The MIB and its leadership stand not only beside us, but often in front of us, taking on those battles. I am committed to finding ways to strengthen our organization through membership, finances and innovation as we continue to do the good work of building up our communities. Please feel free to reach out to me electronically or in person to discuss anything I can do to help you. I really do want to get know more of our community bankers and build on those relationships! Community Banker 5
W EXECUTIVE DIRECTOR’S MESSAGE Welcome to the post MIB Convention and Tradeshow edition of our magazine. I write this article on a hot and smoky Montana day, just a few short days removed from the close of the 2024 MIB Convention and Tradeshow. In keeping with the summer theme, let me start by giving you a fun fact about summer. It is said that pagans called the Midsummer moon the “Honey Moon” in honor of the mead made from fermented honey. That mead was, in turn, served during wedding ceremonies performed during the Summer Solstice. Hence, our modern use of the term “honeymoon.” Turning back to the topic de jure, many of the 2024 convention attendees have informed us that this convention was MIB’s best convention yet. The convention saw a record in terms of vendor and associate member participation. This high participation outcome is a testament to the strength of the association and its enduring value to Montana’s community bankers and their partners. Overall, the convention was well-rated by our member attendees. Initial feedback indicates we arranged for informative and interesting speakers, lined up a great opening reception at the University of Montana’s Washington-Grizzly stadium, and allowed for quality interaction time between MIB members and vendors. Further, the convention activities proved, once again, to be a hit. It is hard to fathom that only a few short days ago, convention attendees were either whitewater rafting down the Clark Fork River or playing the 18th hole at the Canyon River Golf Club on a beautiful but warm Montana summer day. To this end, you will find within the pages of this edition of the Community Banker photos from the convention documenting all the fun that was had under the Big Sky sun. Can you spot yourself in one of the photos? But, it wasn’t all play at our state convention — the convention also consisted, as it always does, of substantive discussion of the state of community banking both in Montana and nationally. First, Melanie Hall, the Montana commissioner of banking, briefed the attendees Friday morning on timely matters related to the operation of the Banking Division. Ms. Hall indicated that the Division does not expect to sponsor any legislation during the 2025 Montana legislative session. Ms. Hall explained that her office had undertaken legislative efforts during the past several legislative sessions to clean up and modernize the substance of Montana’s Bank Act. As a result, further legislative action is not needed at this time, according to Melanie. Further, Ms. Hall engaged in a healthy discussion with convention attendees on whether there was a need for legislation in 2025 to (1) impose a tax upon Montana’s credit unions for commercial loan activities and (2) whether the Montana MIB’S BEST CONVENTION YET! BY JAMES E. BROWN, ESQ., EXECUTIVE DIRECTOR, MIB 6 Community Banker
Legislature should enact state legislation to prohibit Montana’s banks from being purchased by tax-exempt credit unions. Second, Jack Hopkins, current ICBA Vice-Chair, provided the convention’s keynote address. Mr. Hopkins gave an overview of the numerous services, both member and legislative, provided by ICBA. Mr. Hopkins noted that one of the most important roles that ICBA and, correspondingly, MIB perform on behalf of community bankers is to provide legislative and policy advocacy on their behalf. Mr. Hopkins highlighted the fact that, due to ICBA’s efforts, Montana’s community banks have been exempted from FDIC’s special assessment resulting from the Signature and Silicon Valley bank failures of early 2023. Mr. Hopkins noted that both ABA and MBA were notably silent on this topic — demonstrating the difference between the two banking associations. Third, during the annual MIB members meeting, I provided the membership in attendance with a recap of MIB’s financials for the year 2023. I also covered the annual audit performed on the association. For those members of the association who were not in attendance, the association’s audit for 2023 was, once again, clean. The auditors determined that MIB was able to provide authoritative guidance for all fiscal transactions entered into by MIB during the fiscal year and that all transactions of the organization were verified. As to the organization’s finances, the financial health of the MIB remains excellent. As of Dec. 31, 2023, the total consolidated assets for the MIB and its subsidiary, CBM, was $722,000. Compare this amount with the total amount at the end of 2022, which was $720,000 roughly. The bulk of the association’s assets are contained in various certificates of deposit owned by the association. The vast majority of the association’s expenditures are for member benefit purposes, such as for hosting the state convention, for the CBC regulatory compliance program, and for congressional and state advocacy. All member banks have been mailed the financials and audit of MIB and CBM for the year 2023. If you are a MIB member and you have not yet received your copies of the documents referenced immediately above, please give me a call and I will get those documents to you for your review. Finally, this year’s convention saw a new slate of officers sworn in to serve for the next two-year period. Loren Brown will take over for Tim Schreiber as MIB president. Amber Brown will step into the vice president’s role. Clinton Gerst will serve as the association’s secretary. Laura Clark will be MIB’s treasurer. Kenny Martin remains in his role as Montana’s ICBA representative. We thank Loren, Amber, Clinton, Laura and Kenny for their commitment to MIB and for their service to Montana’s community banking industry. For those wondering, the 2025 MIB annual state convention will likely be held, once again, at Big Sky Resort. We are looking at dates falling within the middle of July 2025. I encourage you to mark those dates in your calendars now, and I hope to see you there for another great convention. In conclusion, as was highlighted during this year’s state convention and in keeping with over 55 years of excellent member services, MIB remains the only financial association in Montana whose sole mission is to truly represent Montana’s community banks. And, with that in mind, on behalf of the MIB Board and staff, I thank all of you who attended the 2024 convention. We hope you enjoyed your time with us in Missoula. We thank you for your continued support of the “biggest little banking association in the West.” Sincerely, James Brown Executive Director 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 7
TThis nation was founded by rabble-rousers looking to do things differently, and that’s exactly who we are as community bankers. We stand up to the status quo to offer products that meet the needs of our communities, which are as diverse as this great nation. Our independence empowers us by providing the freedom to do things our way. For instance, if we’re working with a seasonal business with cyclical cash flows, we can structure their loan in a way that will most benefit them. We don’t have to fit them into a particular box; we build the loan around them. Our independence also offers flexibility in how we run our banks as businesses. We can set our priorities and consider the big picture beyond returns and revenue. For example, my bank just went through a core conversion, and at the same time, our monthly profits were shrinking slightly. With the stress levels around the core conversion at their height, we made the executive decision to wait to address profits until its conclusion. We wanted our team to celebrate their hard work, not immediately pivot to a new issue. Our independence also brings with it a sincere connection to our communities. Our support goes beyond writing a big check; it sits at the heart of who we are as community bankers. Case in point: Just over a year ago, our community experienced a tragic event where a seventh grader, who had been bullied in school, committed suicide. It was heart-wrenching for the entire community. So, our bank decided to help with recovery: We contracted with a speaker we’d seen at ICBA LIVE to come to the middle and high schools and discuss ways to stop bullying and be kinder to each other. After that session, a sixth grader came up to me to thank the bank for sponsoring the session. She said she had contemplated suicide before, and it helped to know that people cared. That’s why we do what we do — because we care about and can positively support our communities. With that impact in mind, we need to hold onto our independence at all costs. At the same time, we must continue to look for opportunities to level the playing field. We will persist in lobbying for tiered regulation because we should have less of a compliance burden than a $3 trillion bank. Advocacy matters, because it will help to ensure a brighter future for our communities — the future our forefathers would have wanted. Lucas White is president of The Fountain Trust Company in Covington, Indiana. SHOWING PRIDE IN INDEPENDENCE FROM THE TOP BY LUCAS WHITE CHAIRMAN, ICBA 8 Community Banker
WWhen you enter ICBA’s headquarters, you are greeted with a large U.S. map that contains a peg for each community bank and a singular cord linking them all together. It not only demonstrates our collective impact; it also represents the strength of our financial system, built on thousands of local economies around the country and fueled by community banks. Much more than surfacelevel connections, community bank relationships run deep. With detailed knowledge of the communities in which they live, play and work, community bankers make informed decisions using insights beyond standard credit models. Consider a new small business that doesn’t make sense on paper but that you, as a financial steward of the community, know meets a community need or will be in demand. This type of insight can only be derived from being part of the community — not thousands of miles away in some ivory lending tower. That sense of presence, of connectedness, makes all the difference. Recently, Dave Fishwick, whose story was featured in the movie “Bank of Dave,” spoke at our Capital Summit. His message was a reminder of how unique our model is outside of America’s borders, how paramount it is that we defend it with fervor, and how important the work we do to protect relationship banking is. It’s the foundation of everything we do! Community banks need to flourish so we can continue to fight for the little guy and stand up for what matters in our communities. We need to be there so our customers have access to the financial services they need when they need them most. The current environment threatens this paradigm. One-size-fits-all regulations don’t support our efforts. An uneven playing field puts us at a disadvantage. Mounting and constricting regulations hinder our ability to tailor our offerings. The taxpayersubsidized acquisition of taxpaying community banks further diminishes our numbers while stripping away a vital community tie. Now, more than ever, as we think about the impact of our banks, we need to stand up and fight. We can’t take our independence for granted, and independence requires action. It’s up to us to amplify our voices far and wide and make sure the leaders of this nation pay attention. So, as you recently celebrated Independence Day, I hope you now take time to revel in the role you play in our country’s financial wellness and recommit to your independence. Because it’s bankers like you who are making the country better, one community at a time. CONNECTED AS INDEPENDENT COMMUNITY BANKS FLOURISH BY REBECA ROMERO RAINEY PRESIDENT AND CEO, ICBA It’s up to us [community bankers] to amplify our voices far and wide and make sure the leaders of this nation pay attention. Community Banker 9
THE MEEK … INHERIT A PROMINENT PLACE IN BOND PORTFOLIOS BY JIM REBER, PRESIDENT AND CEO, ICBA SECURITIES TThere are a whole lot of anomalies in community banking in the waning stages of this restrictive Fed cycle. One of the overriding themes is the sheer duration of the process. We’re now fully one year past the last tightening, which has left the effective overnight rate at 5.375% since July 2023, and given rise to the “higher for longer” sound bite. The past six tightening cycles have averaged well under a year between the last hike and the first ease. We will be soon approaching another record: the longest-ever pause between the last hike and the first cut is 15 months, from June 2006 to September 2007. There are myriad implications on community bank operations from this year-plus hibernation. Being a representative of the broker-dealer industry, I’d like to point out the attractive yields available in most any investment sector that banks care about. Baked into this decadent batter, however, are three obstacles for portfolio managers. HILLS TO CLIMB The first is this persistently inverted yield curve, which is now more than 2 years old. This makes decision-making dicier: Extend, and forego current income for future total return benefits, or stay short and invest at today’s higher yields, and accept some reinvestment risk? The second is the still-to-be-determined outcome of the great deposit shuffle, which really began with Silicon Valley Bank’s demise in March 2023. The disintermediation of core deposits continues. Many community banks have, for the first time ever, entered the brokered deposit market. FHLBank system advances nearly tripled between March 2022 and March 2023, from $375 million to $1.04 trillion. 10 Community Banker
The third is the hefty unrealized losses as quantified in the AOCI account at virtually all depositories. As of the end of June, those losses are still in the neighborhood of 12% of face value. This number has actually gotten a bit worse since the Fed hit the pause button, as yield spreads have remained historically wide and the effect of the inverted curve has taken root. SIMPLY ELEGANT Here’s what estimable investment managers have noticed: It can pay to rid oneself of option risk. That’s a complicated way to say that the simplest bonds may have the best relative value in mid-2024. So far this year, a large percentage of bonds purchased by community banks have been treasury and non-callable (“bullet”) agencies. This may be the first year in a generation for high-performing portfolios to hold more treasuries than municipal bonds. The current appeal of treasuries and agencies is due to the nominal yields, which investors sense may be short-lived. Add to this the lock-in benefits of a bond that cannot be redeemed early, and you’ve got a winner. Many portfolio managers are building in some future ability to swap out of these highly liquid instruments for others with better market yields once the yield curve assumes its normal shape. Also, munis continue to be prohibitively expensive for C corporations. Investment grade tax-frees trade at levels that are “through the curve” (i.e., lower than treasuries) for most maturities out to 10 years. BORN TO RUN Mortgage-backed securities (MBS) continue to play a significant role for community bank balance sheets. In aggregate, MBS still comprise the majority of all positions in bond portfolios. The runup in their sector weightings took place between 2019 and 2021, and as a group their unrealized losses are well over 10%. Those positions are paying down at a torturously slow pace as new mortgage rates remain elevated. Still, their appeal in the current market stems from the ready supply of product at prices deeply discounted to par. One day, there could be an acceleration of refinance activity, and MBS with purchase prices in the mid- to low-90s will show a big bump in book yields if mortgage rates drop 200 basis points (2%). A popular example is the “Hybrid ARM.” Hybrids are issued by your favorite government sponsored enterprises (GSE), namely Fannie Mae, Freddie Mac and Ginnie Mae. They have 30-year amortization periods, and a fixed rate period between three and 10 years that you can pick. After the “roll date,” the remaining face value will float annually. And this: they’re available at well over 5% yields, and no premium risk. BEST NEWS YET We have established that the highest-yielding bond portfolios have a healthy dose of the most simplistic bonds. What else is a departure from convention is that the shorter the collection of investments, the better the performance. According to Stifel, as of June 30, the top quartile portfolios have an effective duration of only 3.5 years. The bottom quartile’s duration is a full year longer and has tax-equivalent yields that are exactly one-half of the top 25%’s: 3.87% versus 1.94%. There will be a day when investment fundamentals will normalize. Positively-sloped curves, for example, will force managers onto a different branch of the decision tree. However, for the time being, less is more, and simple delivers relative value. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. Community Banker 11
MIB 2024 AWARDS 2024 MVP BANK AWARD WINNER: VALLEY BANK OF KALISPELL “Thank you for recognizing Valley Bank of Kalispell. We are honored to accept this award. Accolades to our dedicated staff, Mark Hensley, leadership team, board of directors, and to our late father, Jack L Hensley, whose legacy we honor. We take pride in supporting our friends and neighbors in the Flathead Valley and Eureka, and in being key contributors to the success of the Montana banking community.” — Joan Hensley Brennan, Valley Bank of Kalispell 2024 OUTSTANDING ASSOCIATE MEMBER: PINION Pinion is deeply honored and grateful to receive the Outstanding Associate Member Award from the Montana Independent Bankers. This recognition not only underscores our commitment to supporting Montana’s community banks and the MIB but also motivates us to continue delivering exceptional client service. Thank you for this acknowledgment and for continuing to partner with us. MIB UPCOMING EVENTS 2024 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 12 Community Banker
BUILD YOUR BRAND, CONTACT US TODAY! (855) 747-4003 | sales@thenewslinkgroup.com Diversify with loan yields up to 9% Expand your loan portfolio profitability BHG Financial loans provide banks with rates up to 9%, premier credit quality, diversification benefits, lower expenses, and more. With average borrower incomes of $275K and 748 FICOs, these loans will look great on your books. Plus, no origination cost to your bank! Talk to us today about adding strong-performing assets to your portfolio. Keith Gruebele 954.263.6399 kgruebele@bhg-inc.com Contact your representative: OR Scan to learn more at BHGLoanHub.com Earn up to 9% Community Banker 13
FFinding the right price for a customer’s deposits or loans can be a difficult balance. Relationship pricing involves looking at your customer’s entire relationship of loans, deposits, fee income and other products to determine the customer’s overall profitability and using this information to make strategic decisions on pricing for renewals or new products. This pricing strategy can have a significant effect on both customer relationships and your bank’s overall profitability. Analyzing customer relationship profitability and using those insights for pricing decisions has become a major component of many banks’ plans to increase their profitability by attracting new customers and holding onto the most profitable of their existing ones. As community banks face rising competition from non-traditional banks, such as fintechs and neobanks, which don’t have the same overhead and are able to offer higher interest rates to customers across the board, the importance of getting pricing right is higher than ever. THE BENEFITS OF RELATIONSHIP PRICING Relationship pricing essentially gives financial institutions a tool to determine the potential profitability of customers by providing more attractive loan pricing and deposit rates to the individuals and small businesses that they believe will be most profitable to their bank over the long term. This approach can be beneficial because it ensures the financial institution is balancing its own profits with the customer’s needs. Competitive pricing also makes it easier for financial institutions to attract new customers and enhances the likelihood of being able to cross-sell additional products and services to customers and make their accounts with your bank stickier. At a time when a rising number of customers are gravitating to fintechs and online bank offerings, analyzing the profitability of the full customer relationship and customizing pricing for your FEATURED ASSOCIATE MEMBER INSIGHTS FROM PCBB UNLOCK MORE PROFITABLE CUSTOMER RELATIONSHIPS BY MATT HELSING, SVP & NORTHWEST REGIONAL MANAGER, PCBB 14 Community Banker
most important relationships is a critical component of financial institutions’ abilities to remain competitive. LOAN PRICING When structuring loans for customers, it’s important to consider how the components of a loan — such as term, interest rate, fees, prepay penalties and other similar factors — impact your institution, and how they can be adjusted to make the most profitable deal for your bank, while also pleasing your customers. A comprehensive profitability tool can help you strategize ways to offset the cost of originating and maintaining the loan with the potential profit from the loan. You’ll want to consider the risks associated with the loan as well, such as credit risk and interest rate risk. The pricing may also take into account the deposits a customer has with your bank, or the potential deposits the customer may bring to your institution, along with their loan relationship. DEPOSIT PRICING A profitability tool can allow your bank to preview different scenarios of how the potential profitability for a customer relationship can change as interest rates fluctuate. The value of deposits, even with today’s higher rates, can still bring profit to each customer relationship and the institution overall. A solid profitability system helps your team understand the value of the deposit for your customer relationship. Profitability tools can also provide a breakdown of how migration between non-interestbearing deposit accounts to interest-bearing deposit accounts, such as from a checking account to a certificate of deposit (CD) or a money market, can impact the customer’s relationship profitability. THE IMPACT OF DISCOVERING YOUR MOST (AND LEAST) PROFITABLE RELATIONSHIPS Community banks interested in utilizing full customer relationship profitability need to do so intentionally. Along with this, you might find that your most profitable customers aren’t who you might have assumed. For instance, a customer who has many deposit accounts and comes to the branch often may seem to be an active customer. However, that doesn’t mean that they’re your most profitable customer. The customer who brings in the most profit for your institution could just as well be a customer who has minimal deposits but also has a single well-priced loan that generates a lot of interest income. A robust profitability tool can uncover insights to help your team understand the importance of each customer relationship. Your team can then use this data to find opportunities to increase the profitability of each customer by offering them other products they might need and pricing those products to maintain your relationship with your most profitable customers. It is equally important to measure the success of any such efforts on a regular, ongoing basis to gain learnings for increasing profitability in the future. For community banks considering relationship pricing as a way of attracting new customers and holding onto their most profitable existing customers, a comprehensive profitability tool can be a game changer. Relationship pricing is a crucial part of determining how to price loans and deposits to maximize the profitability of your current customer base, while also helping you determine the best price to attract new customers that also works for your bank. To continue this discussion, or for more information, please contact Matt Helsing at mhelsing@pcbb.com or visit pcbb.com. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow® Service, international services, lending solutions and risk management advisory services. 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 15
MMIB members joined with hundreds of community bankers and guests from across the country from April 29-May 1, 2024, to deliver our important legislative and regulatory priorities to policymakers in Washington, D.C. Again this year, MIB’s Call on Washington was held in conjunction with the Independent Community Bankers of America’s (ICBA’s) Capital Summit. During the Call and Summit, community bankers heard an inspiring presentation from Dave Fishwick, whose story of being the first community bank to be chartered in England in nearly 150 years was the subject of the highly successful Netflix movie “Bank of Dave.” Capital attendees received briefings from the ICBA legislative and regulatory policy staff in breakout sessions covering Supervisory Issues, Regulatory Issues and Capitol Hill Priorities. A late afternoon MIB’S 2024 CALL ON WASHINGTON RECAP 16 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 session included a fireside chat with ICBA President Rebeca Romero Rainey, FDIC Chairman Martin Gruenberg and CFPB Director Rohit Chopra. The following morning, attendees heard from Congressman French Hill (R-AR), vice chairman of the House Financial Services Committee. Topping this year’s priorities which MIB members discussed during their Hill visits were: • Supporting rural America and the ACRE Act. • Stopping regulatory overreach. • Closing the Industrial Loan Company Loophole. • Restricting the sale of mortgage “Trigger Leads.” • Opposing credit card routing mandates. • Opposing the Federal Reserve’s issuing CBDC directly to consumers. • Reigning in credit unions and Farm Credit System lenders. • Supporting a safe harbor for legal cannabis banking. Save the date now for MIB’s 2025 Call on Washington and ICBA’s Capital Summit, to be held May 12-15, 2025. Community Banker 17
LEARNING FROM REDLINING ENFORCEMENT ACTIONS BY WILLIAM J. SHOWALTER, CRCM, SENIOR CONSULTANT, YOUNG & ASSOCIATES INC. GUEST ARTICLE 18 Community Banker
TThe concept of “redlining” as a form of illegal discrimination has been around for at least 30 years. Redlining is a form of illegal disparate treatment based on geography. Consumers receive unequal access to credit or receive credit on unequal terms due to the demographic characteristics of a geographic area — the neighborhood either where they live or where the security property is located. The Department of Justice (DOJ) and banking regulators have alleged that lenders involved in these enforcement actions redlined majority‑minority neighborhoods through their marketing, sales and hiring actions. The lender’s actions discouraged prospective applicants from applying for mortgage and refinance loans in a particular area’s majority‑minority neighborhoods, in violation, in some combination, of the Fair Housing Act (FHA), Equal Credit Opportunity Act (ECOA), Regulation B and the Consumer Financial Protection Act of 2010 (CFPA). These enforcement actions have been comprised of settlement agreements to resolve allegations of lending discrimination by redlining detailed in complaints filed in courts. NEW INITIATIVE The DOJ recently announced the start of its new Combatting Redlining Initiative. The new initiative represents the DOJ’s most aggressive and coordinated enforcement effort to address redlining. This initiative will be led by the Housing and Civil Enforcement Section in the DOJ Civil Rights Division and will work partnership with U.S. Attorney’s Offices. It will build on the longstanding work by the division that seeks to make mortgage credit and homeownership accessible to all Americans on the same terms, regardless of race or national origin and regardless of the neighborhood where they live. ALLEGATIONS Typically, redlining complaints have alleged that the lender involved in the action took some combination of the following actions: • Avoided locating branches or other offices in majority-minority areas within the financial institution’s market area. • Avoided serving the credit needs of borrowers in majority-minority census tracts, or borrowers seeking credit in those tracts, from obtaining mortgage (or other) loans, while acting to serve the credit needs for mortgage loans in majority-white census tracts. • Engaged in discriminatory conduct that would discourage loan applications from prospective applicants who are residents of or seeking credit in majority-minority census tracts in the geographic area. • Used a compensation policy that contains disincentives to make loans in majority‑minority areas. • Adopted and maintained internal fair-lending policies and procedures that are inadequate to ensure that the bank provides equal access to credit to majority-minority communities. • Employed few (if any) minority loan officers/ originators. • Failed to use advertising media that are directed toward or oriented to a majorityminority community. • Avoided sending loan officers to market to majority-minority neighborhoods. • Developed marketing campaigns and advertisements that discouraged and ignored minority mortgage loan applicants, particularly by use of individuals pictured in marketing materials — both models and financial institution employees — that appear to be white. • Distributed racist language and messages about certain neighborhoods — e.g., emails containing racial slurs and racist content, using racist tropes and terms, pejorative content specifically related to real estate properties’ locations and appraisals, and/or targeting people living in majority-minority neighborhoods. SETTLEMENTS The settlements of redlining cases have included some combination of the following remedial actions that involved financial institution commits to undertake: • Operate in compliance with the FHA and the ECOA and not engage in redlining or any other acts or practices that discriminate on the basis of race, color, national origin or any other “prohibited basis” in violation of the FHA or ECOA. Community Banker 19
• Invest a prescribed amount of money in the areas allegedly redlined for special mortgage loans, usually at favorable terms and often in conjunction with some loan subsidy fund and/or grants to be applied toward down payments and closing costs. • Open branches/offices in the allegedly redlined area, and maintain full-time mortgage lending personnel to serve the area. • Advertise bank services in the areas involved and target sales calls to real estate professionals serving those areas. • Continue to assess the credit needs and lending opportunities in majority-minority census tracts in the area involved on an ongoing basis. • Meet annually with community partners, government officials, real estate agents and brokers, among others, to understand the credit needs of the majority-minority communities in the target area. • Initiate/continue efforts to recruit minority individuals for employment in management and loan production positions. • Adopt/employ/maintain fair lending compliance management programs, policies, and practices. • Develop and deliver fair-lending training on the financial institution’s obligations under ECOA, Regulation B, and the FHA, as well as the settlement with the DOJ to relevant bank staff and officials. • Designate a qualified, full-time employee to direct community lending, particularly targeting the formerly redlined area. • Partner with one or more community-based or governmental organizations that provide the residents of majority-minority census tracts in the affected area with services related to credit, consumer financial education, homeownership and foreclosure prevention. • Submit regular reports to the government agencies involved in the settlement to memorialize its efforts to assess community needs and comply with the terms of the agreement. AVOIDING REDLINING PROBLEMS Generally, no financial institution would want to intentionally discriminate against members of its community, through redlining or any other means. One way to avoid such situations is to survey the list of alleged wrongdoing above and ensure that your financial institution is not falling into one or more of these practices. Additional steps a financial institution can take to avoid redlining problems include the following: • Examine your institution’s Home Mortgage Disclosure Act (HMDA), if applicable, and other lending data. • Evaluate your geographic and racial lending patterns in light of your community demographics. • Evaluate your branch locations and other delivery mechanisms, marking and advertising programs, sales call programs and employee diversity. Lenders should look at these issues and make appropriate adjustments, if needed, as well as explore other ways to increase lending to all members of their community, including minority individuals. William J. Showalter, CRCM, is a senior consultant with Young & Associates Inc. (www.younginc.com), with over 35 years’ experience in compliance consulting, advising and assisting financial institutions on consumer compliance and compliance management issues. He authors and edits compliance publications and articles for Young & Associates. Bill can be reached at wshowalter@younginc.com. Generally, no financial institution would want to intentionally discriminate against members of its community, through redlining or any other means. 20 Community Banker
D BUSINESS OVERHEAD EXPENSE INSURANCE WHAT IT MEANS TO A SAVVY BANKER BY ANDY PHILLIPS, BENEFIT & FINANCIAL STRATEGIES LLC Dr. Steve P. is a 65-year-old physical therapist. He spends his free time fishing and enjoying the great outdoors. Two years ago, he was visiting his aging parents in Idaho. After helping them get their garden in, he drove to Idaho Falls, Idaho, to help his brother install a sprinkler system in their yard. Part way through, he began to feel tired and dizzy. Even after lying down for a while, the symptoms continued. His brother rushed Steve to the hospital where they determined he’d had a stroke. Dr. Steve P. owns a physical therapy practice and has been in business for 36 years. His family relies on him for their well-being, as do several employees and their families. A stroke can be very debilitating. In a worst-case scenario, the individual may never work again. This could happen to anyone. What was the impact on their financial condition? Could cash flow support a temporary PT doctor and continue paying Scott and his wife to meet the business’s mortgage payment, plus other debt obligations? In the landscape of modern business, safeguarding against unforeseen challenges is paramount. One such critical safeguard is Business Overhead insurance. Often overlooked by businesses, owners AND bankers, this form of insurance provides financial stability and continuity for businesses when key employees or business owners are unable to work due to disability. Let’s look at some of the benefits and why it should be an essential component of lending risk management. 1. Financial Security and Stability When a key employee or business owner becomes disabled (partial or permanently), the business can face significant financial strain on cash flow which can impede their ability to meet debt servicing along with essential expenses such as salaries, rent and utilities, which we all know get paid before your loan payment! 2. Protection of Key Employees Key employees often possess skills, knowledge and relationships that are vital to the business’ success. Losing such an employee to a disability can be devastating. Business Overhead Expense insurance can cover the cost of recruiting and training a replacement which can be crucial to maintaining business continuity and sustaining customer/client relationships. For many businesses, the absence of a key employee can halt operations and ruin business reputation and customer trust. Continuity is essential for long-term success, stability and debt servicing. GUEST ARTICLE Community Banker 21
3. Safeguarding Personal Finances Your borrowers often invest their personal savings into their businesses as well as guaranty your bank debt. Credit underwriting looks at individuals and guarantor’s financial capacity including liquidity. In the event of a disability, personal finances can be impacted if the business suffers, which could impact your secondary source of repayment. 4. Enhances Creditworthiness As a banker, we are always looking to mitigate risk. Most bankers look favorably on a company/borrower that has a comprehensive risk management strategy. Having Business Overhead Expense insurance increases creditworthiness and demonstrates a bank’s proactive approach to mitigating the risk of having a non-performing asset. 5. Peace of Mind Perhaps one of the most intangible yet invaluable benefits of Business Overhead Expense insurance is peace of mind, not only for your borrower but also for you as a lender. Knowing that the business is protected in the event of a serious disability allows the owner to focus on business growth, innovation and continuity, as well as fewer sleepless nights for you as the lender. As a lender, your job is to lend money to credible borrowers who exhibit the ability to repay their loans. Too often, underwriting does not look at the risk of the owner/ guarantor becoming disabled from a nonwork-related injury or illness. Why doesn’t the bank’s checklist of questions include “Do you have business overhead expense insurance?” Don’t feel bad, 99% of the lenders I talk to have never heard of business disability insurance or how it can potentially save a good loan from turning into a risk-rated credit due to an unforeseen tragic event. It is your responsibility to make money for the bank by making good loans, but you also have a responsibility to educate your borrowers in an effort to help them be successful. Business Overhead Expense insurance just might save the business in the event the owner or key employee has a disabling injury, accident or illness. In an unpredictable world, having such insurance is not just a precaution; it is a strategic necessity for any business seeking success and resilience. Not only can your lenders have a great discussion with your borrowers about how they can protect their business but they will likely be the only lenders in your town who have this arrow in their quiver. Believe it when I say that your customer will thank you forever if, like Steve P., they should not be able to work for an extended period. By the way, Dr. Steve P. fully recovered and was back helping other people within a few months. He was one of the lucky ones, but now follows the saying, “Hoping for the best and preparing for the worst.” Contact me if you would like more information or if you would like me to come on-site and help your lenders understand the nuances of Business Overhead Expense insurance. Andy Phillips is a retired banker and longtime Montana resident living in Bigfork, Montana. He now spends his time helping banks and privately held companies with 401(k) plans, group health benefits, asset protection strategies and more! He can be reached at (480) 688-1011 or andy@benefitandfinancial.com. Representatives offer products and services using the following business names: Bene t & Financial Strategies LLC — insurance and nancial services; Ameritas Investment Company LLC (AIC), Member FINRA/SIPC — securities and investments; Ameritas Advisory Services (AAS) — investment advisory services. AIC and AAS are not affiliated with Bene t & Financial Strategies LLC. Business Overhead Expense insurance just might save the business in the event the owner or key employee has a disabling injury, accident or illness. 22 Community Banker
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