2023 ISSUE 5 A Look Around MIBA’s Annual Convention
INVESTMENT PRODUCTS Municipal Bonds Mortgage-Backed Securities Govt. & Agency Bonds Corporate Bonds Brokered CDs Money Market Instruments Structured Products Equities Mutual Funds ETFs FINANCIAL SERVICES Public Finance Investment Portfolio Accounting Portfolio Analytics Interest Rate Risk Reporting Asset/Liability Management Reporting Municipal Credit Reviews Balance Sheet Policy Development and Review Comprehensive SOLUTIONS 888-726-2880 FBBS believes the success of your team is the future of our firm. MEMBER FINRA & SIPC. INVESTMENTS ARE NOT FDIC INSURED, NOT BANK GUARANTEED & MAY LOSE VALUE. Ever since I met Chris Bryan, I have been impressed with how professional & knowledgeable he is in his work for MIB. Chris knows what MIB can do for Banks and he knows what he can do for your Bank. He brings energy and enthusiasm to everything he is associated with. Chris has the “IT” factor and he makes everyone around him better. He is who you would want on your team and he makes the MIB team better. Chris Bryan with customer Brock Nuckolls of Rock Port, Missouri WHY ? Brock Nuckolls, President/CEO Citizens Bank and Trust of Rock Port Lending Services Operational Services Audit Services* MEMBER FDIC Audit Services are offered thru MIB Banc Services, LLC, a subsidiary of our holding company. 800-347-4MIB mibanc.com *
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INSIDE THIS ISSUE 16 22 26 32 Published for the Missouri Independent Bankers Association P.O. Box 1765 Jefferson City, MO 65102 573.636.2751 | miba.net Editor: Matthew S. Ruge Executive Director ©2023 The Missouri Independent Bankers Association | The newsLINK Group, LLC. All rights reserved. The Show-Me Banker Magazine is published six times a year by The newsLINK Group, LLC for The Missouri Independent Bankers Association 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 Missouri Independent Bankers Association, its board of directors, or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The Show-Me Banker Magazine is a collective work, and as such, some articles are submitted by authors who are independent of The Missouri Independent Bankers Association. While The Missouri Independent Bankers Association 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. 6. President’s Message Another Successful Convention 8. Flourish 9. From the Top 10. A View From the Capitol CFPB Loses in Court Again 12. MIBA Lobbying Report 12. MIBA Upcoming Events 13. Surviving Versus Thriving in Today’s Market 14. Legal Eagle Spotlight AI in Lending Decisioning and Unintended Discrimination 16. A Background On 2023-2024 MIBA President Mark Laune 20. MIBA 46th Annual Convention Golf Tournament 21. Thank You to Our 2023 Convention Sponsors 22. A Look Around MIBA’s Annual Convention MADE IN THE USA 24. Monetary Policy for the WIN The Fed Was Battling Inflation 50 Years Ago, Too 26. Economic Uncertainty, Rising Interest Rates Challenge Banks 28. Can Enhanced Due Diligence Help Your Bank Avoid Cybersecurity Risk? 31. 2023 MIBA PAC Honor Roll 32. Unleashing the Power of AI in Banking Empowering Bankers and Enhancing Customer Experience 34. News From You 35. New Associate Members 35. Welcome to Our Newest Bank Member 36. 2023 MIBA Financial Directories Are Available! 38. Upcoming Webinar Schedule On the cover: 2023-2024 MIBA Chairman David Alderton and MIBA Past Chairman Paul Hill 4 | The Show-Me Banker Magazine
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PRESIDENT’S MESSAGE Mark Laune MIBA President Peoples Savings Bank Hermann, MO “Community bankers working together is what will keep community banking strong well into the future.” Another MIBA Annual Convention is in the books and what a great way to start my tenure as the newly elected MIBA President than to reflect on this annual tradition. First, I would like to give a big thank you to Tyler Bender for the past year as our President for the MIBA. Most of you know how enthusiastic Tyler is when advocating about community banking, but many of you don’t realize all the time and effort he puts into promoting the important role of community banks. Not only is he a great asset for the MIBA, but he is also on the ICBA Federal Delegate Board, which helps shape and advocate national policy and programs for community banks. I would also like to give a big thank you to Matthew Ruge, Michelle Lawson, Jessica Rogers and Rebecca Young with the MIBA. Their hard work and commitment to the convention are hands down what makes it such a success. What a great staff we have at the MIBA! Thank you to all the vendors, sponsors and all of the bankers who attended the convention. Visiting with our peers during the convention week is a great learning experience for all of us. Community bankers working together is what will keep community banking strong well into the future. I know I always come away from the convention with a thought or an idea for our bank that I heard from another community banker. The convention was, again, full of learning opportunities, with great speakers focusing on technology, regulations, strategy and the ever-important banking update from the regulators. The keynote speakers were fantastic, with Derek Williams, who is the current ICBA Chairman, and Dudley Carter, who is a Marketing Strategist with Stifel headlining each day. We also had the opportunity to enjoy our time at the convention with the golf tournament at The Cove Golf Course as well as the live entertainment and the everpopular LobsterFest. Networking was also very popular with the MIBA each evening, and the opening reception and rooftop rendezvous was a great way to catch up with your fellow Missouri bankers. The focus on technology, fintech and instant payments was at the forefront of the convention. As community banks, we work hard to have products and services that are comparable to the larger banks. We focus on being the bank of choice in our communities, and the speakers and vendors are here to make our lives easier. Innovation to make a better customer experience is a must in today’s world. Customer expectations have changed and will continue to change; most consumers value ease of service over product features, and with today’s innovation, we strive for Missouri community banks to be the bank of choice! ■ Another Successful Convention 6 | The Show-Me Banker Magazine
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FLOURISH “We advocate for community bankers to continue to have an environment where they can help their customers, and we respond creatively to ensure our customers still have access to solutions that meet their needs.” Rebeca Romero Rainey ICBA President and CEO @romerorainey Navigating the regulatory landscape is like getting on a roller coaster. There are ups and downs, and you’re never sure what’s around the next turn or when you’re going to get thrown for a loop. Right now, that wild ride comes courtesy of Silicon Valley Bank and other bank failures, and we’re looking at potential rule writing as a result. When a financial crisis or series of events triggers legislative and regulatory investigation, the de facto response is to deepen regulation. In fact, this reaction is the reason I got involved in ICBA in the first place: I saw the need for advocacy at the state and national levels. We were facing a new set of mortgage rules that didn’t help the customer or make things better. They didn’t allow me to support my community, and I realized that those writing the rules didn’t understand how they affect our dayto-day abilities to serve our customers. That’s why what we do at ICBA is so important. We focus on educating what the intended or unintended response of an action may be. We advocate for community bankers to continue to have an environment where they can help their customers, and we respond creatively to ensure our customers still have access to solutions that meet their needs. Fortunately, community bankers excel at supporting our customers despite regulatory hurdles. In fact, I was inspired by a conversation I heard on the “A Bank Culture that Works” episode of the Independent Banker podcast (icba.org/podcast). Ann Buckmiller, Director of Compliance at Reliabank Dakota in South Dakota, talked about her job in compliance as a way to help meet customer needs and, at the same time, to ensure that the bank does what it needs to do to follow the rules. Her comments struck me because I realized our job is to do precisely what Ann said: take control of the situation by knowing what the rules are, recognizing where they fall short of meeting customer needs and innovating to solve for any challenges. It’s about taking what’s required of us and making it work for our customers and communities. There’s no question that regulation makes for a bumpy ride, but it’s an uphill climb we’ve experienced countless times. The more we can keep our focus on our customers and their needs and differentiate our relationship-based business model (see our National Campaign Toolkit at icba.org/national-campaign for resources), the smoother the journey will be. So, let’s jump in the driver’s seat and advocate for community banking. We’re going to need to buckle up, but by keeping our customers as our chief priority, we may just be able to enjoy the ride. ■ 8 | The Show-Me Banker Magazine
I’ve never been prouder to be a community banker than I have this year. As ICBA Chairman, I have had the opportunity to tour the country, meeting community bankers from all over. I have consistently heard stories of how we support those who need us: our communities. Everything I have believed about community banking is proving true this year. In fact, it has struck me that people work at community banks because they are good people, not the other way around. People who get into community banking have compassion and care in their DNA. There’s a commitment to the community that’s based on one fact: Service is not something we strive for; it’s simply a part of who we are. It’s also what makes it unnecessary to strap us with heavy-handed regulation. Compliance, at its core, is about treating people fairly, and we do that naturally. Our spirit of service gives us a huge head start on meeting the compliance and regulatory standards set for us. We are fair because that’s who we are. We are equitable because that’s who we are. We do the right thing by the right people because that’s who we are. That’s why we advocate for tiered regulation. We constantly remind regulators that our model is different and intrinsically lends itself to being fair by virtue of the way we run our banks and care for our communities. At the risk of oversimplifying it, service means everything to community banks. Just look at this month’s ICBA Community Bank Service Award winners and the ways they are going above and beyond. It’s not about just cutting a large check; it’s about investing time in helping our communities thrive. We’ve got people serving on community boards, providing great advice, helping run civic events and so much more. Community banks have smart, talented people, and we all should be proud of the time they commit to our communities. The same stands true at the national level. I encourage you to get involved in ICBA and to help advocate on behalf of our community of community banks across this great nation. Check out ICBA’s Be Heard Grassroots Action Center (icba.org/advocacy) for the latest on issues that need your support and how to get involved. What we do matters, and we need to protect our way of doing business. We are here to serve, and collectively, we need to work to ensure that we have an environment that allows us to do just that. ■ FROM THE TOP Derek Williams ICBA Chairman President and CEO of Century Bank & Trust Quote of the Month “Nobody cares how much you know until they know how much you care.” — President Theodore Roosevelt “There’s a commitment to the community that’s based on one fact: Service is not something we strive for; it’s simply a part of who we are.” The Show-Me Banker Magazine | 9
Congressman Blaine Luetkemeyer Missouri’s 3rd Congressional District A VIEW FROM THE CAPITOL The court losses for the CFPB are stacking up. The latest came on September 8, when a federal judge in Texas issued a final judgment against the CFPB for unlawfully expanding its authority when updating the UDAAP manual. In the manual, the Bureau attempted to redefine “unfair,” allowing itself to use the term liberally and take punitive action against supposed perpetrators. According to the court, the unelected bureaucrats of the CFPB cannot grow their powers beyond what Congress has determined necessary. The increased power Director Rohit Chopra attempted to gain violated the agency’s statutory authority under the Dodd-Frank Act. The court reiterated that the Bureau’s funding violates the Appropriations Clause of the Constitution. Therefore, rules promulgated using the unconstitutional funding may not go into effect. It is important to note that the court also determined the CFPB’s agenda would have significant economic implications for the financial services industry, potentially costing American companies millions of dollars per year. While this administration, particularly the bureau, has no problem running up costs on American businesses, they have a statutory duty to perform a costbenefit analysis on proposed rules and make them public. The CFPB continues to latch on to arbitrary standards that allow the bureau to inflict penalties on a case-by-case basis and potentially target companies and individuals the director has a personal vendetta against. This issue arose last March in a Financial Services Committee meeting over the topic of the CFPB’s so-called “junk fees.” The bureau rolled out an aggressive plan to tackle these fees without consideration for existing laws or even consensus between regulators and industries. As a few of our expert witnesses pointed out, the term “junk fees” does not exist in the financial lexicon and is not legally enforceable. Creating a murky definition and a flashy soundbite does not make for good policy. Director Chopra has chosen to regulate by press release, unfounded white papers and the threat of enforcement action instead of through rulemaking governed by the Administrative Procedures Act (APA), which allows for public notice-and-comment on proposed rules and gives regulative entities the opportunity to provide feedback. His refusal to adhere to the APA is one of the reasons he keeps losing in court. You may remember the Bureau’s attempt to reinterpret the Equal Credit Opportunity Act, which relates to housing applicants, to apply to individuals before they apply for a mortgage. This, again, was an attempt to apply an unmeasurable standard to a term so their ability to go after businesses would be nearly unlimited. A District Court in Chicago struck down that overreach in February of this year. And of course, last year, a federal appeals court ruled the CFPB’s funding structure itself is unconstitutional. The Supreme Court is scheduled to hear that case in October, with the decision likely coming in the spring. As I’ve said before, I’m looking forward to enacting major reforms at the bureau if the court rules its funding must come from Congress. Despite numerous losses, you can bet the Bureau and Chopra will keep going. Even if half of their actions get stopped, the other half will go into place. Chopra has made his disdain for our financial system very clear. When his actions affect your business, pay close attention, ask questions and push back. And of course, don’t hesitate to contact me. There is a good chance they’re overstepping their legal boundaries. ■ CFPB Loses in Court Again 10 | The Show-Me Banker Magazine
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MIBA LOBBYING Report Andy Arnold Arnold & Associates With Veto Session in the books, the first regular session of the Missouri General Assembly is officially over. The Missouri House overrode 14 of Governor Parson’s vetoes, but the Senate did not take any of them up, so the Governor’s vetoes stand. Also, during Veto Session, the House Republicans picked current Majority Floor Leader Jon Patterson of Lees Summit as their Speaker Elect. IF tradition holds, Patterson will be elected Speaker of the House in January 2025. Patterson’s ascension to Speaker sets up a race for the House Majority Floor Leader position. Announced candidates for that position are Jamie Burger of Benton, MO, and Alex Riley of Springfield, MO. The House Majority Floor Leader position is elected by the majority members (Republicans), while the Speaker of the House is elected by the entire House. ■ OCTOBER Retail Leadership - Parts III & IV Essentials of Commercial Credit Analysis - Parts III & IV WWW.MIBA.NET/EVENTS 10-11 OCTOBER 12-13 NOVEMBER 15-16 Women In Banking MIBA Office - Jefferson City MIBA Office - Jefferson City MIBA Office - Jefferson City NOVEMBER Annual Security Conference Midwest Virtual AG Summit 2 OCTOBER 4-6 NOVEMBER 29 4th Quarter Community Bankers for Compliance MIBA Office - Jefferson City Double Tree by Hilton - Chesterfield Virtual Only WEB 12 | The Show-Me Banker Magazine
SURVIVING VERSUS THRIVING IN TODAY’S MARKET By Data Center, Inc. Community bankers have long been community changers. Through their service to small businesses and local economies, their impact on the lives of their customers and neighbors is undoubtedly far-reaching. Nevertheless, the community of community bankers and changers is, in and of itself, changing rapidly — enough for some to declare it under attack. Why is that? Today’s digital age has posed, to some extent, challenges for all financial institutions. Not least of which, however, are community banks. Many in the community banking industry watch as digital evolution takes wind and ask themselves, “How am I to keep up?” They face the challenge of providing a competitive rate of return. They wonder how to maintain efficient operations with limited resources. Often, they turn to what they perceive as the only clear solution: merging. They do this because one look at today’s technology tells them they are being left behind, and in some cases, they are. The question is not whether technology renders community banks vulnerable in today’s market, but rather, what are we to do about it? Driven by the passionate belief that community banking is worth fighting for, we look beyond the bounds of the traditional core ecosystem to find our answer: opportunities to innovate and diversify income streams. Consider these examples: • BaaS • Fintech partnerships • Digital banking/expanded market reach • Robust product offerings In capitalizing on these opportunities, the importance of choosing the right technology partner is stronger than ever. For community bankers who want their foot in the door of new markets, a trusted partnership yielding new technologies, product offerings, and more is invaluable. Accordingly, the answers to the following questions must inform community bankers’ decisions: 1. Which partner can provide the most consistently innovative and agile technology? 2. Which partnership will equip my bank with the most robust set of product offerings and capabilities? 3. Which partner recognizes the true value of community banking and intends to uphold and build on my bank’s identity and legacy? 4. Which partner can be trusted to expertly guide this journey and deliver the information my bank needs to excel in the digital age? As community bankers make the careful choice of whom to partner with in charting their future course, settling for a provider who falls short in their answer to one or more of these questions is simply not enough. Too often, for example, a provider will attempt to sell community bankers the assurance of technology that is not yet live. They market the anticipation of forwardthinking innovation without the active, proven products to back it. Remaining mindful of such deception is important. When a partnership signifies an investment in the continued success of a community bank, there is no room for false promises. In exceeding expectations through everevolving, cutting-edge technology, a community bank’s partner should of course augment the products and services offered both locally and digitally. Trusted guidance and a customized, consultative approach should help determine exactly how that is executed. Doing so successfully, however, demands a commitment to customer-centricity. Larger institutions may have the technological advantage, but a community bank’s dedication to strong customer relationships will always be its greatest differentiator. As such, a technology partner who recognizes, values, and upholds this standard of people-first banking is essential — that is how community banking endures and prospers. Sarah Fankhauser, President and CEO of DCI (the privately-owned developer of core processing, digital banking, and Fintech processing solutions), shares her insight on the matter, saying, “DCI’s community banking partners might come to us for our technology, but our commitment to customer service is why they stay. In addition to innovative offerings, finding a technology provider who cares enough to be your partner through it all is what makes a successful collaboration. It’s the difference between surviving versus thriving in today’s market.” The task of adapting and advancing in a financial landscape where technology dominates is certainly a challenge for community banks. More than that, however, it is an opportunity. By embracing innovation and building partnerships with trusted technology providers, community banks can expand their reach, diversify their income streams, and thrive in the digital age. With regard to the challenges ahead, there is no doubt that leveraged technology and a continued commitment to customer service will lead this vital force for our economy far. Rest assured: the future of community banking is bright. ■ To learn more, please visit www.datacenterinc.com. The Show-Me Banker Magazine | 13
With the advancements in artificial intelligence (AI) technology, businesses around the world are considering how they can use AI to improve efficiency and advance business goals. Financial institutions are no exception. While AI can bring many efficiencies and advancements to the way business is conducted, in the highly regulated financial services industry, there are many considerations that need to be addressed by financial institutions seeking to use AI. In the context of lending, there are many credit decisioning technology platforms advertised to improve, automate and eliminate bias in credit decisioning. However, the issue of bias is not so straightforward, and regulatory agencies are not backing away from this issue. The Consumer Financial Protection Bureau (CFPB) stated, “Tech marked as ‘artificial intelligence’ and as taking bias out of decision-making has the potential to produce outcomes that result in unlawful discrimination.”1 On April 25, the CFPB and other federal agencies released a joint statement regarding the use of advanced technologies, including AI.2 CFPB Director Rohit Chopra stated, “Today’s joint statement makes it clear that the CFPB will work with its partner enforcement agencies to root out discrimination caused by any tool or system that enables unlawful decision-making.” The Equal Credit Opportunity Act (ECOA) of 1974, which is implemented by Regulation B, applies to all lenders. The statute prohibits financial institutions and other firms engaged in the extension of credit from discriminating against a borrower on the basis of sex, marital status, race, color, religion, national origin or age (provided the applicant has the capacity to contract) because all or part of the applicant’s income derives from any public assistance program, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. So how could AI, which is designed to create efficiencies and fairness and improve the lending process, run afoul of the ECOA? To answer this question, we must consider the data being used to make lending decisions. These technology platforms rely on voluminous datasets to power their algorithmic decision-making. We have all heard the adage “bad data in, bad data out.” In other words, incorrect data input creates bad results. Algorithmic bias describes errors in a technology system that create unintentional unfair outcomes. As applied to lending, algorithmic bias could result in one group of applicants receiving some advantage or disadvantage when compared to other applicants, even where there is no relevant difference between the two groups. This bias is created because of erroneous assumptions in the machinelearning process. When the algorithmic bias results in different treatment or impacts disfavoring applicants based on characteristics prohibited by the ECOA, the result is algorithmic discrimination, which, even if generated by a technology platform, still violates the ECOA. LEGAL EAGLE SPOTLIGHT AI in Lending Decisioning and Unintended Discrimination By Shelli J. Clarkston, Spencer Fane, LLP “As a financial institution utilizing these technologies, it will be crucial for your institution to conduct appropriate due diligence on the technology service provider …” 14 | The Show-Me Banker Magazine
If your financial institution wants to take advantage of the latest innovations in AI, what steps need to be taken to ensure there are no ECOA violations? The federal government has provided instruction to designers, developers and deployers of these technologies to protect against algorithmic discrimination: “Designers, developers, and deployers of automated systems should take proactive and continuous measures to protect individuals and communities from algorithmic discrimination and to use and design systems in an equitable way. This protection should include proactive equity assessments as part of the system design, use of representative data and protection against proxies for demographic features, ensuring accessibility for people with disabilities in design and development, pre-deployment and ongoing disparity testing and mitigation, and clear organizational oversight. Independent evaluation and plain language reporting in the form of an algorithmic impact assessment, including disparity testing results and mitigation information, should be performed and made public whenever possible to confirm these protections.”3 As a financial institution utilizing these technologies, it will be crucial for your institution to conduct appropriate due diligence on the technology service provider, which should include a review of the third party’s algorithmic impact assessments and should include disparity testing results and mitigation information. The federal regulatory agencies made it clear in their June 9 Interagency Guidance Shelli J. Clarkston is an Of Counsel attorney in the Kansas City, Missouri office of Spencer Fane, LLP. She can be reached at (816) 292-8893 and sclarkston@spencerfane.com. on Third-Party Relationships: Risk Management publication that, especially when using new technologies, financial institutions have heightened responsibilities, given the increased risk of such technologies and third-party relationships, to ensure the technologies being provided comply with applicable laws and regulations. Failure to complete a thorough due diligence review will very likely result in serious negative consequences, especially if it is discovered that the technology results in algorithmic discrimination. ■ 1. Consumer Financial Protection Bureau, CFPB and Federal Partners Confirm Automated Systems and Advanced Technology Not an Excuse for Lawbreaking Behavior, April 25, 2023. 2. See Joint Statement on Enforcement Efforts Against Discrimination and Bias in Automated Systems. 3. The White House, Algorithmic Discrimination Protections, Blueprint for an AI Bill of Rights, August 22, 2023. The Show-Me Banker Magazine | 15
A BACKGROUND ON 2023-2024 MIBA President MARK LAUNE Mark Laune, President and CEO of People Saving Bank, recently started a year-long term as the 2023‑2024 MIBA President. In his own words, he has “big shoes” to fill as he follows in the footsteps of those who have held this position before him. He is ready to jump in and fight the good fight to ensure that the future of community banking is secure. There are a number of challenges that the community banking industry is facing right now. Mark feels the biggest challenge is the credit union tax exemption. “Credit unions continue to buy up local community banks and expand their taxpayer-subsidized area. This has a detrimental effect on our local communities.” Mark continued, “When they stop paying taxes, who will pay the taxes? It’s a loss in revenue, and it will negatively impact the communities they are located in.” Another issue that he is concerned with is Section 1071 of the Dodd-Frank Act, which requires financial institutions to collect, maintain and submit certain data for small businesses on an annual basis. “The rule coverage is too broad and will have an impact on most community banks. The rule needs to be adjusted to exclude the smaller community banks or exclude community banks in general. It places too much burden on them,” he said. When asked what bankers can do to deal with these challenges, Mark stated, “We, as bankers, need to get involved — to talk to our Congress, our Representatives, our Senators. We have to fight the battles together, and the more bankers that get involved, the better the chances of getting pushback on some of these proposals.” Specifically, from a credit union side, he said, “They have a lot of lobbyists on their side of the table, so we’ve got to push back from our side of the table as well.” 16 | The Show-Me Banker Magazine
As MIBA President, Mark plans to stay involved at both local and national levels and to follow initiatives closely. Over the past few years, he has visited Washington, D.C., with the association and will continue to do so. The visits to the nation’s capital provide an opportunity to address issues and work together with representatives to find solutions. He hopes that MIBA members will follow suit and actively engage with and support important banking causes, locally with MIBA and nationally with the ICBA. “The more voices that are heard, the more likely our objectives can be met,” said Mark. In addition to keeping Congress informed, he hopes that members will reach out to their peers and talk about what’s going on and encourage them to get involved. Donating to the PAC is equally important. According to Mark, one of the biggest benefits of MIBA membership is “working with other community bankers throughout Missouri — the friendships that are made are great.” He continued, “But also the knowledge that these individuals bring and discuss, with all of their experience, is outstanding. Learning from lifelong bankers is a better lesson than can be taught in any school for that matter.” Mark feels very fortunate to know so many lifelong bankers who are happy to help the younger generation of bankers come up in a very positive and encouraging way and help keep the community banking segment alive and well. When Mark was a college student at Missouri State University (MSU), he started working part-time as a drive-up teller at Citizens Bank. Upon graduating in 1991 with a BS in accounting, and because of the influence of three community bankers he’d been working with, Mark decided to continue his career in banking, specifically community banking. He was fortunate that there was an opening in the accounting department at People Savings Bank; he took the job and he’s been there ever since. Throughout his time at Peoples Savings Bank, Mark has worn many hats. Towards the end of his first year with the accounting department, a loan officer quit. Mark volunteered to take over her portfolio and found a new, rewarding position. And then, about seven years later, the issue of Y2K came about. Mark and the chief lending officer led the committee to address it. In doing so, he learned the information technology side of banking. Through hard work and a willingness to take on new challenges, Mark has had a remarkable career. He encourages others to do the same, especially younger, up-and-coming bankers. “There is so much opportunity in banking if you’re willing to work hard and learn more,” he stated. Having worked at the same bank his entire career is something that Mark is proud of. One of his favorite work experiences was the day he was promoted to President and CEO, followed closely by the growth he’s overseen at the bank. When he started, the bank had assets of $37 million, and today that balance is around $600 million. When asked what his favorite part of his job is, Mark said it is the friendships he’s developed with employees and the chance to help customers. “Whether it’s helping them buy their dream home or the car they’ve always wanted, sending their children to college or buying a small business or farmland, the satisfaction of helping them and being part of that transaction is worth every second of the hard work you’ve put in to make that experience better for the customer,” Mark said with a smile. He attributes his work ethic to his parents, who taught him to work hard, be dedicated to the job and always give 110%. When asked, Mark said that his parents were his first mentors. They both worked full time, his father as a construction worker and parttime farmer, and his mother as a secretary for a public school. The example they set for him has had a strong influence on Mark’s successful career. Tom Walkenbach, retired Chief Lending Officer at Peoples Savings Bank, has been a mentor to Mark. They have worked together for over 26 years. “Tom taught me how to work with customers and treat them fairly He taught me the best advice you can give a customer sometimes is to just say no. He was The Show-Me Banker Magazine | 17
very instrumental in helping me learn about community banking. I’m a better person and banker because of his influence,” said Mark. When Mark mentors others, he gives the following advice. 1. Get to know your peers both in the bank and in the community. Listen, talk and learn from them. They’re an asset in your banking career and in life as well. 2. Work hard. The world is ever-changing, and a lot can happen in the future. But a good, hard work ethic will go a long way no matter what. If you work hard, people will always notice. 3. Enjoy your job and have fun with it. If you don’t enjoy your job, you may want to look into something else because life is too short not to enjoy what you do every day. Mark is a huge supporter of charitable organizations both at work and in his personal life. Last year, the employees of Peoples Savings Bank gave over 1,400 hours of volunteer work and donated thousands of dollars to various charities. Mark has served on the boards of the United Way and Knights of Columbus. He also likes to give back locally; he has coached Little League and by supporting church and school fundraisers. In closing, Mark encourages bankers to get involved and stay involved in promoting the industry and making community banking better. He said, “We are the backbone for success on Main Street. We’re here for our customers each and every day. Surround yourself with good people; they make you better as a person and in your career as well.” ■ Mark is a lifelong resident of New Haven, MO. He and his wife, Renee, have been married for 31 years and have two children — a daughter and a son. Mark loves the outdoors — golfing, hunting and fishing are his favorite pastimes. He also enjoys relaxing at home, watching sports and cooking meals for the family on the barbecue. 18 | The Show-Me Banker Magazine
The U.S. cannabis market is poised for substantial growth, with New Frontier Data estimating it to reach $72 billion annually by 2030. This growth is primarily driven by the legalization of adult-use cannabis programs in 23 states, including Missouri, which is projected to join the “billion-dollar cannabis market” club in 2024, with total sales expected to reach $1.3 billion by 2026. Lending is part of a holistic approach to providing banking services to the cannabis industry that helps financial institutions attract the best operators, build a strong book of deposits, and unlock higher yield earning assets. It is also an opportunity for banks to go beyond serving retailers and meet the demand for banking and lending by the broader wholesale market as well. The Shield Compliance Cannabis Lending Guide helps bankers navigate the compliance, reputational, and credit risks associated with cannabis operators and cannabis-related collateral, and unlock the financial rewards of this industry. Shield Compliance: A Leader in Cannabis Banking. Since its inception, Shield has partnered with more than 65 financial institutions and monitored 7.5 million transactions including $32.6 billion in deposit volume. For the 12-month period ending June 30, 2023, Shield’s financial institution customers have earned $31.5 million in fee income. As of June 30, 2023, these financial institutions have $920.5 million in deposit balances and $166.4 million in loans outstanding from over 5,000 cannabis-related businesses representing more than 13,000 active cannabis licenses. Let Shield Compliance help your financial institution unlock the benefits of serving the legal cannabis industry. Shield Compliance transforms how financial institutions manage risk, comply with regulations, and address the operational demands of the legal cannabis industry. Compliance management for financial institution daily operations, including case management and automated reporting. Informed account application process for underwriting and onboarding cannabis business accounts. Compliant mobile payment and payroll solutions to reduce cash transaction dependency. info@shieldbanking.com (425) 276-8235 Earn the benefits of a compliant cannabis banking program with Shield Compliance. DOWNLOAD THE CANNABIS LENDING GUIDE: ShieldBanking.com/cannabis-lending-guide GET THE GUIDE TAP INTO THIS $72 BILLION DOLLAR OPPORTUNITY GAIN EARNING ASSETS WITH CANNABIS LENDING
MIBA 46th ANNUAL CONVENTION GOLF TOURNAMENT September 11, 2023 20 | The Show-Me Banker Magazine
2023 CONVENTION SPONSORS Thank You to Our The Show-Me Banker Magazine | 21
A Look Around MIBA’S ANNUAL CONVENTION
To view all the photos from the convention, please visit www.miba.net/annual- convention.html The Show-Me Banker Magazine | 23
It may be hackneyed to say that history repeats itself, but that doesn’t mean it’s untrue. Look no further than business and interest rate cycles. We’ve all seen charts and tables lately that display the confluence of short- and long-term interest rates, the relationships between fed funds and unemployment, and correlations between mortgage costs and housing prices. As it turns out, exactly one-half century ago, many of the same forces present today in our domestic and global economies were at play. It caused the Federal Reserve to take aggressive and even unprecedented action that would have consequences in the near and intermediate term. There was also a campaign from the White House to drum up public support that, in retrospect, was almost comical. Since we’re at the 50th anniversary of these events, and there seem to be a few parallels today, let’s see what was causing community bankers some heartburn in 1973. Crude References The roots of the economic distress visiting the American people back then was an oil embargo orchestrated by a cartel of Middle East oilproducing countries known as the Organization of Arab Petroleum Exporting Countries (OAPEC). This was in retaliation for what the cartel deemed was the western democracies’ support of Israel in the Yom Kippur War in October 1973. However, the U.S. economy was already on shaky ground prior to the embargo. High levels of deficit spending (by 1970s standards) to help finance the Vietnam War had pushed inflation into the 6% range early in the decade. In response, the Federal Reserve Board, chaired by Arthur Burns, began raising fed funds aggressively. From a starting point of 5.5%, the benchmark overnight rate reached 10% by the end of the year, which was the first time we had ever seen double-digit fed funds. Meanwhile, the stock market was tanking (S&P 500 Index was down 17% in 1973 and another 30% in 1974), partly in response to the oil embargo that went into effect in October. This caused the price of crude oil to skyrocket. With that came increases in overall inflation and concerted efforts by the Fed and the Ford administration (which took office in August 1974 upon the resignation of Richard Nixon) to get prices under control. MONETARY POLICY FOR THE WIN The Fed Was Battling Inflation 50 Years Ago, Too By Jim Reber, President and CEO, ICBA Securities 24 | The Show-Me Banker Magazine
Jim Reber is President and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. He can be reached at jreber@icbasecurities.com. Contact us today to place your announcement ad Call 801-676-9722 Or scan the qr code to fill out the form. Who to congratulate , who to acknowledge , and who to thank for a job well done. Employees are motivated when they are recognized and feel valued. The Show-Me Banker magazine is a great platform to celebrate your team's accomplishments! Although the embargo only lasted for six months, the price of a barrel of crude oil quadrupled, and annual inflation rates hit over 11% by December 1974. Gross domestic product (GDP), as we’ve been reminded, is reported in “real” terms (i.e., net of inflation), so it too was caught up in this vortex. That period is now referred to by economists as the 1973-1975 Recession and was our first dose of “stagflation,” in which persistently high prices accompanied moribund economic activity. All Aboard President Ford’s advisors hatched a plan to drum up grassroots support for inflation-fighting ideas, and Congress established a conference on ways to address it at the consumer level. From that came the “Whip Inflation Now” (WIN) initiative, the much-derided campaign for reclaiming price stability. The administration even produced a collection of pins, buttons, t-shirts and earrings for those engaged citizens who were willing to take their inflation-fighting commitments to the streets. The chairman of the Council of Economic Advisors at the time was none other than Alan Greenspan, who, in his memoirs, called the campaign “unbelievably stupid.” It’s highly unlikely the aggregate activity by those festooned in WIN apparel amounted to a constriction of demand that moved the needle one iota. Still, between the Fed’s pressure on interest rates (fed funds hit 13% in mid-1974) and unemployment hitting 9% in 1975, inflation eventually retreated to a more modest but still problematic level in the mid-6%s. This helped lead Ford to defeat in the 1976 presidential campaign and set the stage for inflation to really get loosed later in the decade. Seeing is Believing What did we learn from this history lesson? I think there are three takeaways: 1. A lot of the inflation pressures in 1973 resulted from supply shortages. The commodities in play were different from 2023 (e.g., crude oil versus food/autos/housing), but the fundamentals were the same. Only when supplies met demand did prices get back in line. 2. Inflation-fighting campaigns are multi-year efforts. Core inflation averaged over 11% from 1979-1981, at a time when fed funds averaged 13%. This may be an extreme case in terms of the values but not the durations. 3. It’s easier to print a bunch of tchotchkes that proclaim to “WIN” than to actually whip inflation now. I think Jerome Powell would tell you the same thing. ■ The Show-Me Banker Magazine | 25
ECONOMIC UNCERTAINTY, RISING INTEREST RATES CHALLENGE BANKS By Carl White, Senior Vice President of Supervision, Credit and Learning Division, Federal Reserve Bank of St. Louis The U.S. banking system is sound and resilient, with strong capital and liquidity, according to the latest report on bank supervision and regulation released in May by the Federal Reserve Board of Governors.1 Nevertheless, bank supervisors are actively monitoring risks associated with credit, liquidity and interest rates. These risks have risen in 2023 because of prevailing economic conditions and uncertainty about the future path of the economy. The banking system was challenged earlier this year by the failures of three large banks (Silicon Valley Bank, Signature Bank and First Republic Bank). Even though those failures were largely triggered by concentrated funding sources and poor interest rate risk management at the institutions themselves, fear of contagion led to an anxious couple of months for depositors, investors and regulators. Of greater concern for the industry have been the effects of rising interest rates on the cost of deposits and other funding (causing costs to rise) and the fair value of investments in fixed-rate securities (causing the value to decline). Loan delinquency rates in some loan categories have begun to inch up, albeit from very low levels, leading many banks to increase the funds set aside to cover future credit losses. Higher interest rates when loans reprice means some borrowers may be challenged to make loan payments. 1. The semiannual report covers banking conditions, as well as regulatory and supervisory developments for the institutions under the Fed’s supervisory umbrella. https://www.federalreserve.gov/ publications/files/202305-supervision-andregulation-report.pdf 26 | The Show-Me Banker Magazine
This post is part of a series titled “Supervising Our Nation’s Financial Institutions.” To read more, scan the QR code to visit the Economy Blog. Funding Costs Rise One of the most noteworthy developments in banking over the past year has been an increase in funding costs. Deposits — typically the lowest-cost liabilities — fell almost $1 trillion between April 2022 and April 2023 after a pandemic-led surge pushed them to an all-time high of $18 trillion in April 2022. The most significant outflows have occurred at institutions with high levels of uninsured deposits. In turn, many banks have had to rely more on costlier wholesale funding — fed funds (overnight borrowing from other banks), brokered deposits, Federal Reserve facilities and Federal Home Loan Bank borrowings, for example — to meet loan demand. Rising interest rates have increased funding costs, regardless of type. Another potential source of liquidity — the sale of investment securities held as assets — is problematic because the increase in interest rates has lowered their value; selling these assets would turn unrealized losses into realized ones. Examiners are closely monitoring supervised banking organizations with significant underwater securities holdings and other interest rate risk exposures, conducting targeted exams as needed. Exams have been focused on deposit trends, the diversity of funding sources, the current value of investment securities and the adequacy of contingent funding plans. Commercial Real Estate Concerns Examiners are also paying close attention to banks with significant commercial real estate (CRE) portfolios. Concerns about credit quality typically rise when economic conditions are uncertain and interest rates are rising, but this cycle has the additional twist of a secular decline in demand for office space related to the rise in remote work. If this dip in demand leads to a downturn in property values, CRE mortgage holders may find it much harder to refinance maturing loans. Furthermore, as interest rates increase, capitalization rates tend to increase as investors expect a higher rate of return. Many properties may be unable to produce the desired rate of return, limiting investment in commercial real estate. Since 2006, the Federal Reserve has increased its monitoring of CRE loan performance and has established expectations for expanded risk management practices for banks that are heavily concentrated in CRE. In June 2022, the Fed expanded exam procedures for banks with significant CRE concentration risk. In addition to focusing on banks’ financial condition, capital planning and risk management, examiners are taking a close look at construction and land development activities since construction lending typically accounts for a large share of losses when CRE markets deteriorate. Other loans to businesses — called commercial and industrial loans — are also under scrutiny as examiners assess the effects of rising interest rates on their performance. Cybersecurity and CryptoRelated Risks As noted in previous supervision reports, regulators are paying close attention to cybersecurity risks. Vulnerabilities noted in exams are being addressed, and examiners are testing banks’ preparedness for ransomware attacks and other security breaches. Upheaval in crypto markets in late 2022 and early 2023 led to extreme deposit runoffs at banks that service the crypto industry: Silvergate Bank, an $11 billion bank with close ties to the industry, voluntarily liquidated in early 2023, and crypto-related business exposure was partially responsible for the failure of Signature Bank around the same time. In early August, the Federal Reserve released additional information about a new supervision program for banks that engage in “novel activities” related to crypto-assets and other fintech-related lines of business. What’s Ahead As we look ahead to the remainder of 2023, it is likely that bank funding costs will remain elevated. Recent data from the Federal Reserve’s Senior Loan Officer Opinion Survey also point to ongoing tightening in credit markets, and we’re seeing rising delinquencies on consumer loans. These data point to the need for continued vigilance by bankers and bank supervisors and highlight the importance of ensuring adequate access to contingency funding lines. Despite some positive market signals, there are still significant headwinds ahead. ■ https://www.stlouisfed.org/on-theeconomy#srote_otefreetexttags= supervising%20financial%20institutions The Show-Me Banker Magazine | 27
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