NOVEMBER/DECEMBER 2022
Would you like to transform the management of your information security program from a daunting chore to a process that fuels better decisions? SBS can help! ��� empowers �nancial institutions to ma�e informed security decisions and trust the safety of their ddata based on a valuable information security program. To learn more, visit www.sbscyber.com today! Robb Nielsen robb.nielsen@sbscyber.com 605-251-7375 ould you like to transfor the anage ent of your infor ation security progra fro a daunting chore to a process that fuels better decisions? SBS can help! ��� e powers �nancial institutions to ma�e infor ed security decisions and trust the safety of their ddata based on a valuable infor ation security progra . To learn more, visit www.sbscyber.co today! Robb Nielsen robb.nielsen@sbscyber.com 605-251-7375 ould you like to transfo t of your infor ation security ting chore to a process that isi s? SBS can ��� e powers �nancial i tit ti s t a�e informed security decisions and trust the safety of their data based on a valuable information security program. To learn ore, visit w .sbscyber.com today! Robb Nielsen robb.nielsen@sbscyber.com 605-251-7375
CONTENTS 10 NOVEMBER/DECEMBER 2022 EDITORIAL: Nebraska Banker seeks to provide news and information relevant to Nebraska and other news and information of direct interest to members of the Nebraska Bankers Association. Statement of fact and opinion are made on the responsibility of the authors alone and do not represent the opinion or endorsement of the NBA. Articles may be reproduced with written permission only. ADVERTISEMENTS: The publication of advertisements does not necessarily represent endorsement of those products or services by the NBA. The editor reserves the right to refuse any advertisement. SUBSCRIPTION: Subscription to the magazine, which began bimonthly publication in May 2006, is included in membership fees to the NBA. ©2022 NBA | The NewsLINK Group, LLC. All rights reserved. Nebraska Banker is published six times each year by The newsLINK Group, LLC for the NBA 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 NBA, 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. Nebraska Banker is a collective work, and as such, some articles are submitted by authors who are independent of the NBA. While Nebraska 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. 8 PRESIDENT’S MESSAGE RETAINING TOP TALENT As noted in previous NBA Magazine columns, attracting and retaining top talent at NBA member banks is a primary focus. Richard Baier, President and CEO, Nebraska Bankers Association 10 RIDING OUT THE STORM FOCUS ON INTEREST RATE RISK MANAGEMENT In the wake of unprecedented changes in market conditions and a historic jump in interest rates, regulators can be expected to focus on interest rate risk management in coming examinations. Jeffrey F. Caughron, Chairman of the Board, The Baker Group 14 WASHINGTON UPDATE REINING IN A REGULATOR GONE ROGUE In an American Banker op-ed earlier this year, I called out the CFPB under the leadership of Rohit Chopra as a “regulator gone rogue.” Rob Nichols, President and CEO, American Bankers Association 18 COUNSELOR’S CORNER THE CENTURY’S LARGEST FARM FRAUDS AND WHAT WE CAN LEARN FROM THEM The farming community enjoys a reputation for hard work, honesty and integrity. As with any community, there are exceptions, and the category of “Farmers Engaged in Fraud” is one of those. Randy Wright, Baird Holm, LLP 23 EDUCATION CALENDAR 24 TECH TALK RISK ASSESSMENTS WORK BETTER TOGETHER When “risk assessment” is mentioned in the information technology or information security crowd, IT risk assessment is typically the first thing that comes to mind. Jon Waldman, EVP Information Security Consulting, SBS CyberSecurity; President, SBS Institute 26 CFPB TO FURNISHERS: KNOW YOUR ROLE! On Sept. 13, 2022, the Consumer Financial Protection Bureau (CFPB) filed an amicus brief regarding a district court case decided between a consumer plaintiff and a credit reporting agency defendant. Prince Girn, JD, Associate General Counsel, Compliance Alliance 4
PMA Funding is a service of PMA Financial Network, LLC and PMA Securities, LLC (member FINRA, SIPC) (collectively “PMA”). PMA Securities, LLC is a broker-dealer and municipal advisor registered with the SEC and MSRB. ©2022 PMA Financial Network, LLC. All rights reserved. Funding Solutions That Meet Changing Times PMA Funding (PMA) is a leader in providing institutional funding options. One call gains access to: • Our experienced funding team (Over 100 years of combined experience) • Our large sources of political subdivision depositors (4,000+ public entities) The result: financial institutions have been able to diversify and manage their liquidity needs with greater flexibility by utilizing tailored funding solutions. PMA is more than just a depositor; we are your partner. Contact us today! 800.783.4273 | PMAFUNDING.COM Relax. We do the work.
233 South 13th Street, Suite 700 Lincoln, NE 68508 Phone: (402) 474-1555 • Fax: (402) 474-2946 nebankers.org RICHARD BAIER NBA President and CEO richard.baier@nebankers.org KARA HEIDEMAN Director of Communications and Marketing kara.heideman@nebankers.org NBA BOARD OF DIRECTORS NBA EDITORIAL STAFF STEPHEN STULL NBA Chair (402) 792-2500 Nebraska Bank Dodge LYDELL WOODBURY NBA Chair-Elect (402) 359-2281 First Nebraska Bank Valley KATHRYN BARKER (402) 333-9100 Core Bank Omaha NICHOLAS BAXTER (402) 341-0500 First National Bank of Omaha Omaha CORY BERGT (402) 434-4321 Wells Fargo Bank, N.A. Lincoln JOHN DAUBERT (402) 323-8008 Security First Bank Lincoln DANIEL FULLNER (402) 454-1000 Madison County Bank Madison CURTIS HEAPY (308) 367-4155 Western Nebraska Bank Curtis KRISTA HEISS (308) 534-2877 NebraskaLand Bank North Platte ZACHARY HOLOCH (402) 363-7411 Cornerstone Bank York DONALD JIVIDEN (402) 759-8113 Heartland Bank Geneva ZAC KARPF (308) 632-7004 Platte Valley Bank Scottsbluff JOHN KOTOUC (402) 399-5088 American National Bank Omaha MARK LINVILLE (402) 337-0323 First State Bank Randolph KRISTEN MARSHALL-MASER (308) 384-5681 Five Points Bank Grand Island BRANDON MASON (402) 918-2332 Bank of the West Omaha JEREMY MCHUGH (402) 867-2141 Corn Growers State Bank Murdock KAYE MONIE (308) 368-5555 Hershey State Bank Hershey JAY PRESTIPINO (402) 392-2616 First Interstate Bank Omaha LUKE RICKERTSEN (308) 537-7181 Flatwater Bank Gothenburg KIRK RILEY NBA Past Chair (308) 784-2515 Waypoint Bank Cozad RYNE SEAMAN (402) 643-3636 Cattle Bank & Trust Seward TRAVIS SEARS (402) 323-1828 Union Bank & Trust Co. Lincoln JOSEPH SULLIVAN III (402) 348-6000 U.S. Bank, N.A. Omaha KELLY TRAMBLY (402) 756-8601 South Central State Bank Campbell LINCOLN BRUNING endacotttimmer.com 402-817-1000 Legal advice. Community banking experience. NEBankers.org/Health An independent licensee of the Blue Cross and Blue Shield Association. for Here you 6
Baker’s Software Solutions Service Package Includes: Asset/Liability Analysis – Interest Rate Risk Monitor (IRRM®) Your management team will find that The Baker Group’s quarterly review of the loan and deposit information outlined in the Interest Rate Risk Monitor and Asset Liability Analysis is an effective tool in managing your risk and performance. Bond Accounting – Baker Bond Accounting® (BBA) The Baker Group will provide you with accurate, easy-toread reports delivered electronically to you each month. Investment Analysis – Advanced Portfolio Monitor (APM®) The Advanced Portfolio Monitor is a key monthly report that we utilize to help you measure, monitor, and manage the overall risk and performance of your investments. Member: FINRA and SIPC www.GoBaker.com | 800.937.2257 Oklahoma City, OK | Austin, TX | Dallas, TX | Houston, TX Indianapolis, IN | Long Island, NY | Salt Lake City, UT | Springfield, IL *The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc. Six-Month Free Trial To obtain the resources you need to maximize the performance of your financial institution, contact Ryan Hayhurst with our Financial Strategies Group at 800.937.2257, or Ryan@GoBaker.com. Sample Municipal Summary 03/31/2017 Page 1 of 2 635,461 GO+REV 9,896,680 GO 4,752,978 REV GO 64.7% REV 31.1% GO+REV 4.2% Total : 100.0% Municipal Type 689,324 TX PSF 10,199,393 AA 4,180,764 A 215,638 NR TX PSF 4.5% AA 66.7% A 27.4% NR 1.4% Total : 100.0% Moody/S&P Composite Rating AL CA CO IA IL IN KY NM OH OK TX WA WI AL 1.9% CA 2.3% CO 1.4% IA 3.9% IL 10.8% IN 10.2% KY 2.4% NM 1.7% OH 8.0% OK 9.9% TX 33.2% WA 4.7% WI 9.6% Total: 100.0% State of Issue Individual Municipal Ratings are as of 3/19/2017, unless recently purchased. weighting based on Book Value of 15,285,119 Insd-AGM Insd-BAM Insd-PSFG Insd-PSFG, Pre-ReFunded Insd-State Aid Not Insured Not Insured, Pre-ReFunded Insd-AGM 12.0% Insd-BAM 3.4% Insd-PSFG 3.1% Insd-PSFG, Pre-ReFunded 1.4% Insd-State Aid 11.9% Not Insured 58.2% Not Insured, Pre-ReFunded 10.0% Total: 100.0% Insurance 4/13/2017 6:43:55AM - FSG / SAMP The Baker Group Software Solutions, Inc. - APMTM Although the information in this report has been obtained from sources believed to be reliable, its accuracy cannot be guaranteed. ADVANCED PORTFOLIO MONITORTM 18 18 Sample Cusip Par Cpn Book Price Market Price Gn/(Ls) *Acctg Eff Dur Eff Cnvx Underlying Municipal Credit Detail 03/31/2017 Yield Description Page 6 of 7 Muni Insurer Muni Type Moody S&P Call Date Maturity ASC 320 Gn/(Ls)% State Underlying Ratings GO | REV *DA% | DC *Per Cap | Covnt Issue Date Tax Status Overlapping D/A - Debt/Pop Net Asset Ending Beginning Cnty Jobless Security Fiscal Year Report Date *Proj 944431BL8 220,000 5.500 103.90 105.18 2,816 4.34 4.39 (0.98) WAYNE SD #112-B-BABS IL 26 Not Insured N/A N/A GO N/A A+ 12/01/20 12/01/26 AFS 1.23 IL 5.58 | -- 507 | -- 12/08/10 Taxable 8.29 - 754 WAYNE - 8% 2016 Report AD VAL TAXES 2015 4.34 3 Items 4.19 4.19 3.91 (0.30) (458) 103.36 103.40 5.311 1,160,000 Taxable Municipal Totals 39 Items Portfolio Totals 3.25 3.25 3.91 (0.26) 3.392 104.59 101.78 (409,651) 14,615,000 6,385K AA 6,918K A 1,981K NR AA 41.8% A 45.3% NR 13.0% Total: 100.0% Moody/S&P Composite Underlying Rating 1,471K Aa2 213K Aa3 1,533K A1 768K A3 11,299K N/A Aa2 9.6% Aa3 1.4% A1 10.0% A3 5.0% N/A 73.9% Total: 100.0% Moody's Underlying Rating 695K A+ 635K A 232K A13,723K N/A A+ 4.5% A 4.2% A- 1.5% N/A 89.8% Total: 100.0% S&P Underlying Rating 689K AAA 10,415K AA 4,181K A AAA 4.5% AA 68.1% A 27.4% Total: 100.0% Moody/S&P Composite Rating weighting based on Book Value of 15,285,118 * Denotes Tax Equivalent Yield (TEY) where applicable. Individual Municipal Ratings are as of 2/28/2017, unless recently purchased. * D/A% = Debt to Assesed Ratio; DC = Debt Coverage | Per Cap = Per Captia Debt; Covnt = Rate Covenant 4/13/2017 6:43:56AM - FSG / SAMP The Baker Group Software Solutions, Inc. - APMTM Although the information in this report has been obtained from sources believed to be reliable, its accuracy cannot be guaranteed. ADVANCED PORTFOLIO MONITORTM 26 26 Balances ($000's) Page 1 of 1 12/31/2019 Book Value % of Book TA **Rate Sensitive < 1 Year *Book Yield/ Rate *Reinv. Rate *12 Mo. Proj. Yield/Rate Avg. Life Effective Duration Effective Convexity Full Indx. Rate / Total is % of Segment Fixed Var. Non Int. Summary ALCO - Asset/Liability Mix Sample $20,414 4.16 46.55 53.45 46.55 0.97 0.04 0.01 0.00 Cash & Due 0.97 0.97 / 0.97 $172,210 35.10 100.65 (0.65) 14.56 2.81 4.60 3.55 (0.51) Investments j 2.81 2.64 / 0.00 (Includes MTM) $4,500 0.92 100.00 100.00 1.63 0.04 0.04 0.00 Funds Sold 2.13 2.13 / 2.13 $276,700 56.39 56.28 45.26 (1.53) 53.28 5.20 2.59 1.96 (0.22) Loans 5.37 5.47 / 5.76 $6,511 1.33 100.00 2.49 12.63 0.00 0.00 Other Earning 2.49 2.49 / 0.00 $10,358 2.11 100.00 Non-Earning $490,693 3.24 Total 68.38 28.37 100.00 38.01 4.17 3.27 2.36 (0.31) Assets 4.28 4.28 / 5.31 $276,064 56.26 66.70 33.30 12.02 0.53 7.66 4.48 0.54 Non-Maturing Deposits 0.53 0.53 / 0.53 $92,498 18.85 99.44 0.56 0.00 82.54 0.84 0.70 0.65 (0.04) Certificates of Deposit 0.84 0.81 / 0.70 $37,721 7.69 100.00 68.68 1.09 0.97 0.93 (0.02) Jumbo CDs 1.08 1.05 / 0.00 $28,250 5.76 95.58 4.42 46.90 2.06 1.95 1.89 0.03 Borrowed Funds 2.04 1.86 / 1.88 Other Paying $6,724 1.37 100.00 Non-Paying $441,257 22.36 Total 35.51 42.13 89.93 33.70 0.80 5.15 3.14 0.33 Liabilities 0.80 0.77 / 0.54 10.07 $49,436 (0.60) (0.46) Total Equity Capital 100.00 $490,693 Total Liab & Capital Liability Mix Asset Mix Liquidity Ratios Constant Benchmark ALCO Dependency Ratio Liquid Assets / TA Ratio is outside benchmark. P < 750.00% < 100.00% < 50.00% < 20.00% > 10.00% < 35.00% < 300.00% 42.39 68.11 559.71 48.04 6.31 10.19 7.69 Loans / Assets 56.39 Investments / Deposits Loans / Deposits Loans / Capital Net Borrowed Funds / Capital < 75.00% Available Line of Credit $90,500 56.39 Loan 35.10 Inv 4.16 Cash 2.11 Non-Earn 1.33 Other Earn 0.92 Others 56.26 NMD 18.85 CDs 10.07 Equity 7.69 J CDs 5.76 Borrow 1.37 Others Reliance on Wholesale Funding 9.14 < 30.00% The smallest 2% of all categories will be grouped into an 'Others' category. Jumbo CDs / TA Note: Values are rounded before printing, but full precision values are used in all calculations. * Yields/Rates are reported on EA & PL. Investments using Accounting yield. j (Ver 4.0 R7) Copyrighted 1994 - 2020 1/29/2020 3:39:46PM - SAMPLE / SMB1218 The Baker Group Software Solutions, Inc. - IRRMTM Although the information in this report has been obtained from sources believed to be reliable, its accuracy cannot be guaranteed. Interest Rate Risk Monitor ** Percentages based on maturing, repricing, and paydown balances. As American financial institutions—along with the rest of the world—face unprecedented times, The Baker Group is ready with tools and services to help maximize the performance of your institution. That’s why we’re offering new clients our Software Solutions* service package for a six-month free trial. Not only will you have access to our latest market research and insight from our Financial Strategies Group, you’ll be included in all of our webinars. There you’ll hear the latest Information on the economy and how it could impact your institution and its investment portfolio.
PRESIDENT’S MESSAGE Richard J. Baier, President and CEO, Nebraska Bankers Association Retaining Top Talent As noted in previous NBA Magazine columns, attracting and retaining top talent at NBA member banks is a primary focus. Our industry is not alone in confronting this challenge. Unfortunately, workforce shortages and rapid turnover are issues that cannot be addressed overnight. Recent discussions with college students, educators, interns and recent graduates provided valuable insights for consideration. Many college students are being heavily recruited for positions in several industries, all offering competitive wages and benefits. It is not uncommon for students to have multiple job offers months before graduation. Banks must ask themselves: “Why would someone want to work for my institution instead of another business down the street or across the state or country?” College students actively involved in the career selection process offered the following questions and comments. While they may not fundamentally alter your bank’s workforce recruitment process, they are important reminders about how today’s college students evaluate career opportunities. • What makes your bank’s culture special? Most organizations brag about having a positive workplace culture. How do you demonstrate yours? • Are your website and social media current? Do they reflect your bank’s culture and values? • Do your staff and customers reflect the diversity found across Nebraska? • Howwill my role impact my community and the greater good? • What are the opportunities for professional growth and development? What are possible career paths? What will it take to move up within the industry and the organization? How will I be challenged? What types of additional training will I receive? • Is your candidate recruitment process current? Are job descriptions up to date? Do you accept online applications? Do you only contact candidates via phone, or are you willing to text candidates? • Does the job application process move quickly? With multiple job offers, I may not have time to wait three or four days for a follow-up. Can you conduct initial interviews within 24 hours of receiving a qualified application? • If I call the bank, are voicemail boxes set up for receiving new voicemails? • Are your jobs and internships posted on Handshake (a hiring platform for college students) and LinkedIn? • If I interview for a position and am not selected, please let me know – don’t ghost me. I am interested in feedback and input on how to make myself a better candidate. Another workforce strategy that needs additional attention and thought relates to the structure and implementation of internships. The NBA has helped place college interns for years. 8
Since 1857, Cline Williams has devoted attention to the unique needs of the banking and nancial services industries. Since then, we have provided our clients with the resources they need in the areas that are most important to them – from lending and collections, to regulatory compliance, to mergers and acquisitions, and so much more. We’re more than a law rm. We’re a partner for your bank. LINCOLN I OMAHA I AURORA I FORT COLLINS I HOLYOKE WE’RE YOUR PARTNER IN BANKING. 2120 South 72nd Street, Suite 1200, Omaha 402.391.6777 www.crokerlaw.com Many banks say that some of the best new hires are former bank interns. However, we heard from students that not every internship is created equal. Current and former interns offered the following insights for consideration: • If the internship is located away from my college or hometown, how do I secure housing? Will the bank help me find and/or pay for housing? • Will I engage in meaningful work during my internship? How does my work contribute to the bank’s growth? • If they are not involved in the selection process, will I have a chance to meet my supervisor in advance? • Will I work in different departments of the bank? • Do you hire interns for full-time roles? • Does your community or region have a process or social network to connect interns working in the region? • Will I receive feedback throughout the internship? Will the bank conduct a formal evaluation of my performance after the internship? What did the bank learn from my work at the organization? Addressing the current workforce challenges in banking will take time, talent and money. With the guidance of the NBA Board of Directors, your NBA team is working on additional strategies designed to increase the pipeline of qualified applicants and make banking the industry of choice for more Nebraskans. More to follow! 9
RIDINGOUT THE STORM Focus on Interest Rate Risk Management “The relative calm in financial markets recently has caused a significant degree of complacency. The truth of the matter is that we are probably in the eye of the hurricane, and once the eye passes, the banking industry will once again be buffeted by winds of great force in the form of volatile interest rates.” – Dr. James V. Baker, 1984 In the wake of unprecedented changes in market conditions and a historic jump in interest rates, regulators can be expected to focus intently on interest rate risk management in coming examinations. Knowing this, it’s worth stepping back to review how we got here and consider some key points regarding policies, processes, and procedures to ensure your institution’s Asset/ Liability Management (ALM) framework is solid. Market Conditions The two years immediately following the arrival of the COVID pandemic were an extraordinary period of ultra-low interest rates and bond yields coupled with massive growth in excess liquidity and paltry loan demand. Coming into 2023, bank balance sheets around the country had seen an intense etching of this low-rate environment into their current rate structure – deposit rates, loan rates, and bond yields – everything had steadily moved lower to the point where low rates and yields were deeply embedded into the balance sheet. This was not negotiable; these cards were dealt to every bank in the country. Moreover, the effect on capital ratios of the enormous Jeffrey F. Caughron, Chairman of the Board, The Baker Group inflow of deposits and liquidity added an additional challenge. Then suddenly, as Dr. Baker warned all those years ago, the “eye of the storm” passed, and interest rate volatility returned with a vengeance. Now Asset/Liability Management is once again a critical point of focus. Regulators are well aware of the convulsive market developments since the first of the year and the industry-wide effect on bank balance sheets. Even for banks exhibiting little interest rate risk exposure, examiners can be expected to emphasize corporate governance, stress testing, back-testing, and a general demonstration that management and the board are “on it” regarding interest rate risk. The risk management protocol and processes need to be in compliance. Principals of Sound Interest Rate Risk Management The FDIC provides observations about best practices for IRR management and frames a prudent approach to interest rate risk. Key points include the following: Reporting System – Financial institutions should have timely and accurate information about the exposure of their balance sheets to changes in interest rates. This includes separate analysis and reporting of earnings at risk and capital at risk. It’s important that the system include simulations or rate shocks of different rate environments and stress tests of the behavioral assumptions used in the model (e.g., changes in A/L mix, non-maturity deposit behavior, etc.). 10
bank’s balance sheet. However, the assumptions testing practice (and others) would necessitate a fairly robust model that can input critical assumptions in the first place. Garbage in, garbage out. Make sure you’re using a top-shelf interest rate risk reporting system. Internal Control Interest Rate Risk processes must be periodically reviewed and measurement systems validated. The depth and formality of independent review will depend on the size and complexity of the bank, but even smaller banks should have an independent review of their IRR processes. For smaller institutions that lack auditing resources, this can be done “by having a qualified staff member – independent of the IRR process – perform the reviews.” With respect to model validation, an in-depth assessment of the mathematical and functional integrity of the model itself should be acquired. This is usually provided by the software vendor for institutions that outsource IRR modeling. Conclusion Interest Rate Risk and ALCO processes will require greater attention in the coming year. Bank managers and directors are advised to assess their current systems, policies, and practices. It is a good idea to revisit basic principles of interest rate risk management, perhaps with educational reviews for directors as well as ALCOmembers. This will help banks ensure the adequacy of asset/liability management reporting systems and the necessary processes for proper and prudent execution of strategy. Jeffrey F. Caughron is Chairman of the Board with The Baker Group. Caughron has worked in financial markets and the securities industry since 1985, always with an emphasis on banking, investments, and interest rate risk management. Contact: 800-937-2257, jcaughron@GoBaker.com. The depth and formality of independent review will depend on the size and complexity of the bank, but even smaller banks should have an independent review of their IRR processes. Corporate Governance – Management should provide internal controls and independent reviews to validate the robustness of forecasting models. This includes regular back-testing and model validation as needed to ensure the integrity of the output. Board Involvement – Directors should have an adequate understanding of interest rate risk generally and the appropriateness of strategies, policies, and processes used by bank management. The focus on stress testing of assumptions is important: “Robust measurement of IRR requires that management frequently assess the reasonableness of a model’s underlying assumptions.” One way to test the reasonableness of assumptions is backtesting. The point of a back-test is to learn where variance exists between actual and projected performance and adjust assumptions accordingly. Another method is assumption sensitivity testing, whereby key assumptions are changed, and the model is re-run to test the influence of critical assumptions. Regulators specify that as a best practice, “assumption sensitivity testing should be done at least annually, and results should be presented to the ALCO or a similar senior management committee, and the board.” To be sure, the degree of complexity of an interest rate risk model should be commensurate with the complexity of the 11
PROTECT YOUR EMPLOYEES FROM HIGH COST DRUGS • INSULIN • ANTICOAGULANTS • INHALERS • CARDIOVASCULAR MEDICATIONS • DIABETIC MEDICATIONS • SPECIALTY MEDICATIONS (I.E. HUMIRA, STELARA, TRUVADA AND MANY MORE) This is not an all-inclusive list. Please call a PHA Representative to check for savings options on your specific prescription. PARTNERS HEALTH ALLIANCE Partners Health Alliance & Wellness Partners will help you offer resources and tools for your employees to keep prescription costs down and pay as little as ZERO dollars for many medications distributed by a PHA Pharmacy. Call today 844.742.9675 PARTNERS HEALTH ALLIANCE Prescription Savings Program
A S S U R A N C E / T A X / A D V I S O R Y forvis.com Moving FORward requires VISion FORVIS is a forward-thinking professional services firm committed to unmatched client experiences. We anticipate our client’s needs and outcomes, preparing them for what’s next by offering innovative solutions. Created by the merger of BKD and DHG — a merger of equals — FORVIS has the enhanced capabilities of an expanded national platform and deepened industry intelligence. With greater resources and robust advisory services, FORVIS is prepared to help you better navigate the current and future dynamic organizational landscape. We are FORVIS. Forward vision drives our unmatched client experiences. Introducing FORVIS, forward vision from the merger of BKD and DHG FORVIS is a trademark of FORVIS, LLP, registration of which in the U.S. Patent and Trademark Office is pending.
Washington Update In an American Banker op-ed earlier this year, I called out the CFPB under the leadership of Rohit Chopra as a “regulator gone rogue.” I’m not alone in my criticism: in September, 12 Republican lawmakers took the bureau to task over what they called a “radical and highly-politicized agenda unbounded by statutory limits.” Unfortunately, the bureau has continued to push legal boundaries on several different fronts in recent months. First, the bureau has waged an aggressive PR campaign against so-called “junk fees” – using a term it coined to demonize the legitimate fees, including overdraft fees, that banks charge consumers for the products and services they offer. Throwing these fees in with things like concert ticket processing fees, resort fees and other surprise fees charged by retailers and hospitality businesses was a deliberate move to confuse the public about the well-disclosed fees they currently pay. (For the record, banks don’t charge resort or ticket fees, nor does the CFPB have authority to regulate those types of fees.) Another alarming step by the Chopra bureau was its decision to update the UDAAP section of its exam manual in a way that fundamentally upends the regulatory approach to fair lending supervision and enforcement, without providing industry stakeholders or the public the opportunity to provide feedback through the notice and comment process under the Administrative Procedure Act. Instead, the CFPB chose to take a back-door route to expand its authority – giving itself the ability to examine for alleged disparate treatment or impact Reining in a Regulator Gone Rogue Rob Nichols, President and CEO, American Bankers Association 14
across all areas of bank operations using the authorities granted by the Dodd-Frank Act under its authority to prevent “unfair, deceptive or abusive acts or practices.” In reality, the CFPB’s authority to enforce anti-discrimination laws is limited to credit products. It’s clear that this move is an attempt by the bureau to set itself up as a “super-regulator” of financial practices using authority Congress did not give it. To be clear: ABA fully supports the fair enforcement of the nation’s anti-discrimination laws. We simply believe these laws should be enforced by regulators within the boundaries set by Congress. This updated manual does not qualify. Given that the bureau has not seen fit to rescind the manual – despite previous calls from ABA and other trade groups – we were left with no choice but to pursue legal action. ABA’s lawsuit – filed in late September jointly with the U.S. Chamber of Commerce, the Longview Chamber of Commerce, the Texas Bankers Association, the Independent Bankers Association of Texas, the Texas Association of Business and the Consumer Bankers Association – alleges violations of the APA in three ways. First, the bureau is exceeding its statutory authority outlined in Dodd-Frank, which is clear that “unfairness” under UDAAP and discrimination are distinct concepts that should not be conflated. Second, the updated manual is “arbitrary and capricious,” in violation of the APA. Finally, it violates the APA’s procedural requirements because it constitutes a legislative rule that failed to go through notice and comment. It’s never our preference to take legal action against a regulator. And this lawsuit doesn’t mean we’ve given up on finding common ground with the bureau. In fact, on issues like the need to protect consumer data, the need to make sure nonbanks face the same regulatory requirements as banks for similar activities, or the importance of relationship banking, our goals are very much aligned. But when a regulator – any regulator – takes a step like this to dramatically expand its regulatory reach without authorization from Congress or any opportunity for the public to weigh in, ABA will respond on behalf of our members and the industry we represent. Email Rob at nichols@aba.com. 15
• No fee • No pre-payment penalty • P&I payments • Collateralized • Guarantors may be required • Competitive rates • Fixed or Floating • Minimal fee • No pre-payment penalty (after year 1) • Interest only first 5 years • Collateralized • Guarantors may be required • Competitive rates • Fixed or Floating • Origination fee: 1.5%-3% • Begins amortizing in year 6 • No collateral • No guarantors • No prepayment for first 5 years Other terms and conditions may apply. Advantages. Hybrid Stock Loans Designed to bridge the gap between a traditional stock loan and subordinated debt, our “Hybrid” bank stock loan provides an alternative lending product for community banks. Traditional Stock Loan Hybrid Stock Loan Subordinated Debt* *Offered through our investment subsidiary - First Bankers’ Banc Securities, Inc. Member FINRA & SIPC. INSTITUTIONAL USE ONLY. MEMBER FDIC mibanc.com ACH Audit BSA Audit Lending Compliance Audit Deposit Compliance Audit Directors’ Examination Interest Rate Risk Review Home Mortgage Disclosure Act (HMDA) Review Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act Audit Loan Review Internal/External Penetration Test Internal/External Vulnerability Assessment Social Engineering Assessment IT Security Audit Business Continuity Management Audit AUDIT SERVICES mibanc.com/audit Our Team is ready to help. Contact John Hay or Jake Wolfe at 888-818-7206 Jake Wolfe jwolfe@mibanc.com John Hay jhay@mibanc.com Need help with Loan Reviews?
B A NK E R S ’ B A NK • OF THE WEST • WHERE COMMUNITY BANKS BANK TRACI OLIVER TARA KOESTER KELLY MALONE WE CHAMPION COMMUNITY BANKING YOUR ADVOCATES: Nebraska’s correspondent team BBWEST.COM 411 South 13th Sreet | Lincoln, Nebraska | 402-476-0400 17
COUNSELOR’S CORNER The farming community enjoys a reputation for hard work, honesty and integrity. But as with any community, there are exceptions, and the category of “Farmers Engaged in Fraud” is one of those. Each of these stories took place in the last two decades. In most instances, the perpetrator had been a long-standing and respected member of his community. The fraud was uncovered only after it had persisted for years. In each case, the trail of victims hurt by the fraud was long. The perpetrators went to prison for their crimes. Understanding these cases can teach us how to spot or defeat fraud. Organic Grain Fraud – Missouri Farmer Passes off Ordinary Crops as “Organic” Randy Constant, a Missouri farmer, was considered the “mastermind” of this operation, but it involved at least five other farmers – including three from Nebraska – each of whom was sentenced to prison. The total damage caused by this group topped $140 million. (Per the press release, “Field of Schemes Fraud Results in Federal Prison for Leader of Largest Ever Fraud in U.S. History,” U.S. Attorney’s Office for the Northern District of Iowa [Aug. 19, 2019].) The concept was simple enough: certify and sell grain and other farm products as “organic” but raise them as you would any other crop – with chemicals, pesticides and inputs that are not permitted in organic certification. Because farm products certified as organic can bring better prices, greater profits provided the motive. And it can be difficult to determine if a particular product was grown organically, so detection of this scheme was difficult. Although Constant started with a modest “organic” operation, the scheme was so profitable that he enlarged it and recruited more farmers. Eventually, it encompassed some 3,000 acres and involved several farmers. The Century’s Largest Farm Frauds and What We Can Learn From Them Randy Wright, Baird Holm, LLP 18
One key to Constant’s success in fooling buyers about his crops was the use of an outside organization to certify that his products were organically grown, even though most were not. He found an outside company that did not employ a very robust certification process. As a result, Constant was able to obtain certification of the farm products as “organically grown” without much difficulty. He was eventually caught and prosecuted. He pled guilty to selling more than $140 million in grain he falsely represented was organic. According to evidence at sentencing, constant’s scheme also affected the organic meat market. His grain was mostly used as animal feed, primarily for chickens and cattle. That livestock was then sold as organic meat or products. Constant’s fraud caused thousands of consumers across the country to pay premium prices for what they thought were organically raised meats. A federal court sentenced him in 2019 to 10 years in prison. At least five other farmers, who knowingly participated in passing off inorganic crops as organic, were likewise convicted. Constant took his own life in 2019 before serving his sentence. In a remarkably similar scheme, a South Dakota organic grain broker succeeded in passing off grain as organic over six years, from 2012 to 2018. Kent Anderson bought conventionally grown grain and fraudulently sold it as organic at a substantial profit. According to federal court documents, he allegedly amassed about $71 million in proceeds. He pled guilty in 2020 and was sentenced to 51 months in prison. Crop Insurance Fraud – A Network of Crooked Farmers, Agents, Adjusters and Inspectors Robert Carl Stokes, a crop insurance agent in North Carolina, devised a complicated crop insurance fraud scheme that resulted in at least $100million in false crop insurance claims and payments from 2003 through 2008. Stokes’ scheme involved farmers, other insurance agents, warehouse workers, and insurance adjusters. Directly linked with Stokes was his business partner, Mark Pridgen, who served as a middleman and sold crop insurance directly to farmers (although he had no license). (Per Parker, “The Great Organic Food Fraud,” New Yorker Magazine, Nov. 8, 2021.) As one writer explained, “Stokes demolished the standard checks and balances of crop insurance by greasing palms at all levels of the system.” (Per Bennett, “Evil Grain: The Wild Tale of History’s Biggest Crop Insurance Scam” AgWeb Farm Journal, Sep. 14, 2020.) The general framework for the scam involved assisting a farmer in insuring his tobacco crop and reporting that the crop was damaged or the yield was less than expected due to an insured event, even though the crop was healthy and abundant. For every pound of tobacco reported as lost, the farmer would get a payment. Stokes would split the insurance benefit with the farmer. Then, the farmer would hide the portion of the crop that exceeded the reported yield from the inspectors and later sell it on the black market in someone else’s name, pocketing still more money. Stokes also ensured that tax authorities could not detect illicit income. He started a check-cashing business that worked around currency transaction reports so the funds could remain hidden. This scheme netted Stokes and his co-conspirators more than $100 million over five years. Stokes was finally caught when a business associate turned him in and assisted investigators by going undercover in the fraud operation. One of the prosecutors, Josh Howard, talked about the case afterward: “Crop insurance fraud never surprises me,” Howard said, “but this case was bigger than anything I’d ever handled or even heard of. There were just so many people involved at so many levels, and the warehouses were involved neck-deep.”(Bennett, “Evil Grain,” supra.) Stokes pled guilty to various counts of fraud and money laundering in 2009. He was sentenced to 30 months in prison, followed by 16 months of house arrest, and ordered to pay $16 million in restitution. After serving his sentence, he died in 2016 at age 64. Forty other participants pleaded guilty or reached plea agreements. Cattle Fraud – George Young and His Cattle Ponzi Scheme One of America’s largest cattle fraud schemes was carried out by Missouri cattleman George L. Young from Grant City, Mo., and Kathleen McConnell of Kansas City, Mo. They offered to purchase and sell cattle for their clients and to provide care and feeding, promising high profits. Although they did purchase thousands of head of cattle, early on, they began using investor funds to pay off prior investors, thus implementing a “Ponzi Scheme.” They also borrowed from several different banks, effectively pledging the same cattle several times. When the fraud was uncovered by one of the lenders in 2001, the books showed that Young and McConnell were caring for Counselor’s Corner — Continued on page 20 “If your customer runs an operation in which he has partners or investors and your customer is promising to deliver high returns, something else may be going on.” 19
344,000 head, but they had only about 17,000 head on hand. The rest were fictitious. The losses inflicted on cattle customers and banks were estimated at $160 million. Young and McConnell pleaded guilty to five criminal counts, including mail fraud and wire fraud, and were sentenced to prison in 2004. Having some 17,000 head of cattle on hand made it difficult for banks and cattle owners to detect the fraud. When a banker or cattle owner conducts an inspection and sees thousands of cattle in pens and pastures, they find it difficult to determine a shortage. No one lender or cattle customer knew of the entirety of the Young operation, nor did they know how many cattle one lender might claim as its collateral. As a result, the fraud went undetected for years. Another large cattle fraud was found in the State of Washington. There, Cody Easterday defrauded Tyson Fresh Meats out of $240 million in a scheme to overcharge it for raising cattle. Easterday admitted to charging Tyson for feeding cattle that didn’t exist. Easterday, who allegedly had a gambling addiction, used the fraud to recoup his gambling losses and feed that expensive habit. He pleaded guilty to fraud in March of 2021 and was sentenced to 11 years in prison. He agreed to pay restitution of $244 million, mostly to Tyson. Conclusion: What We Can Learn From These Cases; Trust, but Verify Lenders are taught to inspect and verify collateral, ask questions, insist on seeing financial information and hold the borrower accountable for promises and pay downs. Continuing these practices can help identify or curtail fraud. Watch for Warning Signs There’s no surefire way to identify a borrower engaged in fraud. As these cases teach us, often, the fraudster enjoys a good community reputation and simply appears to be operating profitably. But a few clues might have helped the vigilant lender. 1. Extravagant lifestyle or sudden change in spending habits If a borrower is evincing an especially grand lifestyle, it doesn’t mean he or she is committing fraud, but it might be a warning sign. Someone in the midst of a wildly profitable fraud scheme has a hard time refraining from spending the money. It might be used for frequent trips, a new vacation home, a luxury car or other high-end items. Watch for a sudden change in spending habits. 2. Unwillingness to reveal details about their operations People engaged in an ongoing fraud scheme worry about getting caught. They may seek to minimize the financial information they provide to lenders. For example, a farmer who reports that he farms thousands of acres of leased land but actually farms far less may refuse to identify all landlords from whom he leases. A cattle feeder who overstates the number of cattle on hand may put off inspections. He or she may also under-report income on tax returns. Seek details of your borrowers’ operations, and watch for unreasonable or stubborn refusals to provide details. 3. Promising investors or customers very high returns If your customer runs an operation in which he has partners or investors and your customer is promising to deliver high returns, something else may be going on. Very few ag-based businesses operating within the law can generate reliably high returns year after year. 4. Erratic behavior Deceiving the community, friends, family, bankers and colleagues about your operations takes a toll on mental health. Erratic and surprising behaviors by the person engaged in fraud may provide a clue. Alcohol or drug abuse, gambling, marital problems, and even incidents of violence may be unrelated to a fraud scheme, but they might also be signs of a bigger problem. T. Randall (Randy) Wright concentrates his practice on creditors’ rights, bankruptcy and commercial litigation. He represents lenders, other creditors, purchasers of assets out of bankruptcy, trustees and other stakeholders. He also represents select debtors in bankruptcy. He has courtroom experience in state, federal and bankruptcy courts throughout the Midwest. Counselor’s Corner — Continued from page 19 20
1. Data Backup and Recovery Backing up your data is crucial but not all backups are the same. It is critical that you have an offsite data backup solution, keeping your data protected and stored outside your network. 2. Endpoint Detection Response (EDR) Traditional antivirus software is not sufficient protection for your financial institution. Antivirus requires regular database updates of the current virus signatures to be effective. The protection afforded by AV software is only as good as the vendor’s updates. Often, threats are discovered only after the damage is done. EDR uses artificial intelligence to detect threats without having to rely on virus signatures. 3. Multi-Factor Authentication (MFA) Two of the best methods for establishing extra lines of defense for your online accounts are using strong passwords and setting up 2-factor or multi-factor authentication (also known as 2FA or MFA). Using different passwords for each of your accounts is another best practice to hinder an attacker and keep your data, accounts and network safe. Your business is exposed to a variety of risks every day. Improving your cybersecurity can feel like a daunting task, but there are a few ways you can get started quickly. If you are unsure where to start, our security experts offer six low-cost, easy solutions that you and your team can implement to boost your security right now. For more information: Scan to contact us today OR: Call: 308.381.1000 Email: hisinfo@hamiltonisbusiness.com Visit: HamiltonIsBusiness.com 6 Low-Cost Ways to Improve Your Cybersecurity ADVERTISEMENT © 2022 Nedelco, Inc. Hamilton is a registered trademark of Nedelco, Inc. dba Hamilton Telecommunications. Third party trademarks mentioned are the property of their respective owners. 4. Third Party Patching Keeping your devices, browsers and other tech up to date is one of the best, first lines of defense against cyberattacks. Security patches and updates fix any technical bugs and essentially “lock” your software and devices before bad actors can make a copy of the “key.” 5. Avoid Suspicious Emails With phishing, hackers attempt to gain access to your information or credentials through your email inbox. Phishing scams may seem like a relic of the past but have become one of the main culprits behind countless cyberattacks. Here are a few quick tips. If the email address, link or contents look suspicious: • Do not engage with the message or sender. • Do not open the email, click on links or provide information. • Contact your IT support immediately. 6. Book a Free Consultation Hamilton is here to help mitigate and eliminate cybersecurity threats to your financial institution. We offer services from training, to network penetration tests and vulnerability assessments. Contact us today to book a free consultation and learn how our cybersecurity solutions can help minimize vulnerabilities and protect your business data.
800.228.2581 MHM.INC Now more than ever people want self-service options. With our core integrated ITMs we can make this a reality both in the lobby and in the drive-up of your branch. SELF-SERVICE BANKING WALENTINE O’TOOLE, LLP When time is of the essence, experience counts. Walentine O’Toole blends confidence, experience and knowledge with the personal attention you can expect from a regional law firm. www.walentineotoole.com 402.330.6300 11240 Davenport St. • Omaha, NE 68154-0125 22
JANUARY 2023 Employment Law Compliance for Banks Workshop January 11 - Virtual How to Catch Fraud Seminar January 12 - Virtual State Government Relations Forum January 26 - Lincoln, NE FEBRUARY 2023 Operations Conference – Technology, Marketing, Retail Banking February 7-8 - Lincoln, NE Mid-Winter IRA Essentials Workshop February 13-14 - Virtual Mid-Winter Advanced IRA Workshop February 15-16 - Virtual Health Savings Account Seminar February 17 - Virtual Safe Deposit Box Seminar February 22 - Virtual Bank Executives & Directors Conference February 22-26 Cabo San Lucas, MX MARCH 2023 Supervisor Boot Camp Conference March 14-15 - Lincoln, NE Bank Robbery Safety Tips Workshop March 21 - Kearney, NE Bank Robbery Safety Tips Workshop March 22 - Omaha, NE April 2023 Spring Agri-business Conference April 4-5 - Kearney, NE Principles of Banking Seminar April 12-13 - Virtual May 2023 NBA Annual Convention May 3-5 - La Vista, NE EDUCATION CALENDAR For more information about these live and online education events and training tools, contact the NBA Education Center at (402) 474-1555 or nbaeducation@nebankers.org. You also may visit the NBA website at www.nebankers.org/education.html. Single Source is your 1 Partner, 1 Solution, 1 Source for architecture, construction, and furnishing of community banks. We are a proven leader in building design and construction across the upper Midwest. Call Jim today for a free consultation on your project! 319-232-6554 112 W. Park Lane Waterloo, IA 50701 www.Single.Source.Net 1 Integrated team serves all your needs, so you benefit from: Fast Delivery Better Quality Cost Savings Singular Responsibility Reduced Change Orders Reduced Risk 1 Source, Full Service Architecture Construction Interior Design Master Planning Site Development Spacial Planning Budgeting Project Administration Project Management Budgeting Value Added Engineering Nebraska State Bank, Broken Bow 23
Tech Talk Risk Assessments Work Better Together Jon Waldman, EVP Information Security Consulting, SBS CyberSecurity; President, SBS Institute When “risk assessment” is mentioned in the information technology or information security crowd, IT risk assessment is typically the first thing that comes to mind, probably because it has been around the longest, at least from a regulatory-guidance perspective. As important andmeasurable as the IT risk assessment can be, it is only part of the equation for assessing risk. Relying solely on a very granular, asset-based risk assessment tomake decisions for your entire organization is not practical or logical. It is recommended that different tiers of risk assessments are necessary for organizations to understand interconnected risks. The tiers range from the foundational IT risk assessment to the departmental business process risk assessment and the strategic organizational risk assessment. FIGURE 1 – MODERN I.S. RISK MANAGEMENT TIERS (SBS) 24
“Comprehensive, measurable, and repeatable risk assessments should be used to help make better decisions.” How Do These Risk Assessments Work Together? The IT risk assessment is the foundational, tactical, day-to-day operational risk assessment that takes a deep dive into controls associated with specific IT systems and assets. An organization must understand what it has, how those IT assets are being protected, and where its next information security dollar should be spent. IT risk assessment should look at numerous different types of controls, including asset-specific controls, network controls, physical controls, and organizational controls. IT risk assessment then feeds the vendor risk assessment, as our vendors not only represent risk themselves but also provide your IT systems and assets, likely hosting many of those IT systems and assets for your organization today. It’s important to rate your vendors on the health of their organizations and the IT systems and assets they provide to you. In many cases, if the vendor is hosting these IT assets on your behalf, they will have the ability and responsibility to implement risk-mitigating controls more so than you. IT risk assessment and vendor risk assessment then roll into the business impact analysis (BIA). The BIA is a businessprocess risk assessment designed to help your organization understand the importance and recovery priority for each business process. But to have a functional business process, your organization will require specific IT assets and the vendors providing you with those IT assets and services. Most business processes depend on specific IT assets, vendors, and sometimes other processes being restored before that particular business process can regain functionality. The top tier of risk assessment is the organizational risk assessment. This type of assessment evaluates the entire organization from the top down based on the products and services the organization offers to clients or uses to perform business functions. All four risk assessments must work together to build a strong information security program at your organization. Each risk assessment is going to provide distinct, unique value while each being interconnected with one another. If your risk assessments can work together to truly help you make better, more informed decisions, you’ve got something of real value. Making Better Decisions Suppose your IT risk assessment doesn’t help you to continuously improve security maturity or make decisions. In that case, you’re merely checking the risk assessment box to appease regulators and not using your risk assessment(s) to improve your organization. So how do you make better decisions based on the risk assessment? It all starts with the IT risk assessment. It must be measurable. Once you understand how much risk you have and how much risk you’re mitigating, you can start to set risk mitigation goals. Determining those acceptable levels of risk will help you determine which IT assets are meeting risk goals and what else you should be doing to mitigate risk around those IT assets, and where you should spend your next information security dollar. When tasked with creating a risk assessment, it can be seen as a daunting and pointless task. Comprehensive, measurable, and repeatable risk assessments should be used to help make better decisions. Without a detailed framework, money spent on information security is akin to throwing darts at a board. Without a goal, how do we know when we’ve reached it? For more information, contact Robb Nielsen at 605-251-7375 or robb.nielsen@sbscyber.com. SBS helps business leaders identify and understand cybersecurity risks to make more informed and proactive business decisions. Learn more at www.sbscyber.com. 25
www.thenewslinkgroup.orgRkJQdWJsaXNoZXIy ODQxMjUw