2023 ANNUAL Convention & Expo 2023 ISSUE 6 How Your Data Is Blocking You From Using AI and 6 Ways to Fix It
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. I always enjoy when Andrew Lee visits our bank. The knowledge he has of the banking industry and of our specific bank operations is beneficial to our organization. He can recommend products and services they provide which then benefit our bank and our customers. The relationship is a win-win! WHY ? Wade “Pee Wee” Bartels, President & CEO Alliance Bank, Cape Girardeau, MO Lending Services Operational Services Audit Services* Audit Services are offered thru MIB Banc Services, LLC, a subsidiary of our holding company. 800-347-4MIB mibanc.com * Andrew Lee with customer Wade “Pee Wee” Bartels MEMBER FDIC
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INSIDE THIS ISSUE 13 16 22 24 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 Remaining Strong in Challenging Times 8. FLOURISH Cryptocurrency: A Solution Without a Problem 9. FROM THE TOP What I’m Grateful for as a Community Banker 10. A VIEW FROM THE CAPITOL Fighting the Misguided Credit Card Competition Act 11. MIBA Lobbying Report 13. INNOVATION STATION The Great Digital Strategy Reset 14. LEGAL EAGLE SPOTLIGHT Banks: Beware the Merchant Cash Advance 16. A Background On Charles “Chuck” Gnuse President and CEO of United State Bank MADE IN THE USA 20. Open APIs Benefits, Development and What to Look For in Your Community Bank’s Hosting Provider 22. Mortgage Mélange Volatile Rates Create a Cornucopia of Options 24. How Your Data Is Blocking You From Using AI and 6 Ways To Fix It 27. Security Conference October 4-6, 2023 28. The Human Firewall 31. 2023 MIBA PAC Honor Roll 32. Community Bank Impact of CFPB “Open Banking” Proposed Rule 34. News From You 36. Thank You to MIBA’s Endorsed Vendors for Their Support in 2023! 37. MIBA Upcoming Events 38. Upcoming Webinar Schedule 4 | The Show-Me Banker Magazine
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PRESIDENT’S MESSAGE Mark Laune MIBA President Peoples Savings Bank Hermann, MO “We are the backbone of many of these communities, and our customers’ success is instrumental to our success.” As we get older, they say time flies! Well, 2023 is a great example of this statement. Also, the saying, “time flies when you are having fun” can be associated with the swiftness that this past year went by. I think if you poll community bankers, most, if not all, enjoy their jobs and have fun. Reflecting on the past year, we have seen four banks fail, three due to liquidity issues and one due to fraud this past summer. When the banks failed earlier in the spring, many were skeptical about the strength of the banking sector and how this would play out throughout 2023. Just like in other trying times, our community banks dug their feet in the sand and held solid, and the community banking industry remains strong. Community banks represent 90% of insured institutions in the United States. Inflation and increasing interest rates were still a focal point in 2023. Interest rates have continued to increase and inflation has slowly subsided but not to the target amount that the Federal Reserve is looking to achieve. Community banks thrive when given challenges! We look for answers and solutions for our customers; we work with our customers and communicate with them. That is because we are part of the communities we serve. Unfortunately, the number of banks continues to decrease, however, the largest impact has been branches closed by the large regional banks. Over 3,000 bank branches were closed so far in 2023 while 1,000 were opened. This is one of the largest net decreases we have seen in branches in many years. Community banks have stepped up and increased our deposit shares with the closures of the larger bank branches. As a country, we have seen devastating events in 2023 with natural disasters and the historic wildfire in Maui. Many members from the MIBA were in Maui earlier this year and cannot believe the pictures that they have seen since the fires. Currently, the war between Israel and Hamas-led Palestinian Militant Groups continues to escalate. The United States continues to monitor and emphasize that the two regions remain separated and must come to a diplomatic resolution. As bankers, we will continue to monitor as this could have a significant impact on our economic conditions if we get involved more with this conflict. As we look ahead to 2024, we are always reminded of the work we need to do to make community banking better. Community bankers step up in challenging times, especially for our local communities. We are the backbone of many of these communities, and our customers’ success is instrumental to our success. Our customers are our friends, neighbors and families and we look forward to serving them. The holidays are quickly approaching, just like the year of 2023 has quickly passed. Remember, we represent Main Street not Wall Street, and we are the future of the success of our friends and families in the communities we call home. Have a safe and happy holiday season! ■ Remaining Strong in Challenging Times 6 | The Show-Me Banker Magazine
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FLOURISH 2. The thought that cryptocurrency will enable faster payments is equally troubling. Instant payments platforms are already available in the U.S. — you can’t get much faster than that. 3. The concept of a payments system that’s completely anonymous and frictionless is another point of contention. That anonymity easily can lead (and has led) to illicit payments, so it may not be what it’s cracked up to be. Whether it’s nonbank payment providers like PayPal, states that want to issue their own stablecoins, CBDC or a piece of legislation trying to create a regulatory framework, this is a space to keep a handle on. Know that ICBA is observing and advocating on your behalf. As a financial services industry, we can’t fall victim to shiny object syndrome; we need to keep peeling back the onion to determine what we are solving for, and from ICBA’s perspective, how that can be done in a way that works with and for community banks. With emerging technology, knowledge is power, which is why we’re offering ongoing opportunities to stay in the know on cryptocurrency’s evolution. We encourage you to remain up to speed on developments, whether through digital asset courses with Community Banker University (CBU) or our payment team’s online analysis. We will keep providing information that helps you know how cryptocurrency is living up to the hype — or, more than likely, not. On a personal note, I wanted to thank all of you for being part of this collective community bank journey; we couldn’t do it without you. Have a wonderful holiday season, and please take time to celebrate all you do for your communities. I know they are, as are we, grateful for you. ■ Rebeca Romero Rainey ICBA President and CEO @romerorainey Where I’ll Be This Month I’ll be spending time in our new Atlanta office and kicking off a round of meetings with executives from core service providers, continuing to advocate for community bank needs in this space. Cryptocurrency: A Solution Without a Problem In today’s environment, we hear a lot of hype about different technologies. That buzz leads to oversaturation, which can leave us questioning, “Am I missing something?” when we don’t feed into the frenzy. When it comes to cryptocurrency, this is certainly the case. I’m frequently asked in interviews about ICBA’s thoughts on cryptocurrency, inclusive of stablecoins and central bank digital currency (CBDC), and I typically respond by asking, “What problem are we trying to solve with it?” That will often leave the interviewer stumbling for a response because the answer is truly unclear. While we have heard a wide range of rationale, those concepts don’t seem founded in need as much as in justification. Here are three that easily spring to mind: 1. The claim that it will provide support for global payments is particularly baffling. With a currently unregulated entity, global collaboration and compliance standardization will be essential to ensure that transactions remain safe, secure and legitimate. In short, it’ll take a mountain of global collaboration to make that possibility realistic. 8 | The Show-Me Banker Magazine
As we recently celebrated Thanksgiving, it served as an annual reminder to take stock of the things for which I am most grateful: my family, my community, food on the table and a roof over my head, a fulfilling job, my team and our relationship-banking model. In fact, when I think about my blessings as a community banker, it comes down to our relationship model. In a society that has become increasingly disconnected, our model puts the human back into banking. When an issue arises, customers don’t want faceless chatbots; they want a sympathetic ear and a problem-solver to act in their best interests. And that’s precisely what we provide. While community banks have technology that rivals that of the megabanks — from fintech innovations and payment options like FedNow to enhanced security programs that better flag potential fraud — the power we hold lies in our customer relationships. We can compete toe-to-toe on technology, but we have something they don’t: human connection. At a community bank, online loan applications offer a seamless first step, but they spark a response from a local loan officer who will personalize the loan experience, ensuring that customer gets what they need, not an autogenerated plan. Think of how our anti-fraud technologies catch potential issues before they hit while also triggering outreach from our customer service team to talk with the customer about safeguarding their accounts. Reflect on small businesses that need to make just-in-time payments to support their cash flow and how we can set them up with a bill payment product to meet that need. In short, real people are available to have real conversations to find real solutions. That’s why our relationship-banking model is our ace in the hole; it’s what differentiates us from other financial services organizations and makes us who we are. Put very simply, community banks and community bankers are special. No matter how great the technology becomes, it will still be the amazing human beings in our banks that will secure our future as an industry. FROM THE TOP Derek Williams ICBA Chairman President and CEO of Century Bank & Trust Quote of the Month “The technology you use impresses no one. The experience you create with it is everything.” — Sean Gerety, User Experience Manager, The Home Depot What I’m Grateful for as a Community Banker So, as the holiday season is upon us, I hope you, too, will be thankful for our relationship-banking model and take a little extra time to demonstrate your love and support for the people who make your bank and your life better. Because in relationshipfirst banking, it’s the people we surround ourselves who make all the difference — to our banks, our customers and our communities. Wishing you and yours a very happy holiday season! ■ The Show-Me Banker Magazine | 9
Congressman Blaine Luetkemeyer Missouri’s 3rd Congressional District A VIEW FROM THE CAPITOL Amidst record-high inflation, global conflict and a heated presidential race, there is immense pressure on elected officials and regulators to take action and provide relief to Americans. In Congress, I’ve urged my colleagues to think about economic issues critically and avoid succumbing to dogma or the catchiest soundbites. As bankers are well aware, offering false promises to consumers while claiming to “hold banks accountable” is a hallmark of politicians chasing a headline without any regard for the practical consequences of their misguided policies. Perhaps the most notable recent example of this is the Credit Card Competition Act, the latest attempt to eliminate credit card interchange fees. Since the Durbin Amendment in the 2010 Dodd-Frank law capped interchange fees on debit cards, proponents have pushed to do the same on credit cards. What they fail to acknowledge is how not a single consumer benefited from the debit cap. In fact, it was just the opposite. Consumers who once enjoyed cash back or other rewards on their debit cards lost those benefits. Free checking largely disappeared, fees increased, and minimum balance requirements became more prevalent. While debating the Durbin Amendment, I was repeatedly told retailers would pass savings on to consumers, so at least the public is enjoying the savings, right? Like me, you probably knew then and you absolutely know now, those benefits were never going to make it to consumers. Study after study shows customers never saw any savings — only a loss of benefits. It begs the question: After 13 years with no evidence of benefits to the economy or everyday Americans, why are these efforts still popping up? Have they learned nothing? As far as I can tell, the only lesson learned was how capping privately negotiated fees can only pass Congress when one party holds the White House, the House of Representatives, and a supermajority in the Senate, as was the case in 2010. Supporters of free markets largely disagree with government caps on private negotiations. So, to win support on the Republican side of the aisle, those crafting the policy (lawyers and political consultants of the nation’s largest retailers) shifted from a cap to the much more palatable notion of competition. To their credit, it worked. The bill has Republican sponsors in both the House and Senate — but not nearly enough support to pass the House. Fighting the Misguided Credit Card Competition Act 10 | The Show-Me Banker Magazine
MIBA LOBBYING Report Andy Arnold Arnold & Associates It is a pleasure working with the staff of MIBA and representing MIBA with members of the legislature, their staff and the executive branch. As we begin to shift our focus to 2024, it is important to take a look back at what was accomplished in 2023. MIBA was instrumental in passing: • SB 13 — Relating the powers of the division of finance • SB 63 — The SAFE Banking of Marijuana Act • SB 101 — Provisions relating to lender-placed insurance • SB 186 — Enhanced penalties for property damage to teller machines • SB 398 — The collection of motor vehicle sales tax by a dealer In the run-up to 2024, we recognize several new and unique political challenges: • Term limits will bar six state senators and 22 state representatives from seeking re-election. • At present, five of the six-term-limited state senators are running for statewide office. • There are at least six contested republican primaries, two of which are against sitting republican senators. • The current Speaker of the House is under fire to resign for admitting that he was personally reimbursed by the state for expenses incurred by his campaign committee. These are just the political challenges that we predict will impact the 2024 session, which reminds me of the old Chinese curse, “May he live in interesting times.” ■ While some of the mechanics and messaging have changed, this bill would still lead to cutting services and benefits without achieving savings for consumers. In fact, this time around, the consequences would be even more devastating for customers. What proponents of the Credit Card Competition Act apparently do not understand is that services cost money. When you eliminate the ability to pay for a service, you eliminate the service itself. Interchange is no different. Reports about credit card rewards disappearing are true — an account would not earn or obtain points if the charge doesn’t occur on the point provider’s network — but the loss of fraud protection would be devastating to small retailers and consumers. As everyone reading this knows far too well, when a large retailer experiences a data breach, banks must reissue thousands of credit cards and reimburse hundreds of thousands, if not millions, of dollars in fraudulent charges to consumers. Thanks to interchange fees, financial institutions, not the merchant exposed to the attack, cover those costs. I can only imagine the reaction of consumers if they were to learn their coverage no longer existed, and they would have to simply accept their money has been stolen or sue the merchant and fight it out in court. It’s the reality consumers would be facing under this proposed bill. Small retailers would face a similar dilemma. While the Walmarts of the world could afford to take on some liability — make no mistake, they have no intention of doing so — the quick shop on the corner cannot. Instead of a minimal charge to use credit card services, they would be forced to buy additional insurance to protect against data breaches and fraud or face bankruptcy when things go wrong. Particularly in small communities, the added expense could spell disaster for the local economy. Some have suggested card issuers and banks should simply continue covering losses out of the goodness of their hearts. Serious people understand that is fantasy. Not only would it be a breach of a bank’s fiduciary duty to its customers and shareholders, but banking regulators would also quickly step in (rightfully so) for safety and soundness reasons. Again, services cost money and cannot exist without the ability to pay for them. I am not naïve to the reality of political posturing when it comes to banking policies. Again, financial institutions have long been an advantageous target for progressives. There are public supporters of the Credit Card Competition Act and other disingenuous bills aimed at the financial services sector who know the economic damage their bills would cause — particularly to low-income families. They’re content to let those of us who take these issues seriously protect them from themselves while they falsely claim to be the champion of the people their policies would hurt the most. But not everyone falls into that category. Plenty of legislators believe this is the right thing to do. Part of my job as a senior member of the Financial Services Committee is to help my colleagues on and off the committee understand issues with which they’re not familiar — just as I lean on my colleagues with expertise in other fields to help shape our conference’s policy agenda. Ultimately, we all answer to our constituents, and I am grateful for the consumers and community banks who have expressed the concern we share with this misguided legislation. ■ The Show-Me Banker Magazine | 11
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INNOVATION STATION THE GREAT DIGITAL STRATEGY RESET By Charles E. Potts, Executive Vice President and Chief Innovation Officer, ICBA Digital first. How many times have community banks heard that refrain over the past few years? It’s been a repetitive beat in an ongoing banking evolution, and with it comes ever-increasing pressures on the technology stack. In today’s landscape, we’re facing a need to balance budgetary requirements with rapidly advancing technological demands. It can make the next right strategic steps uncertain for your community bank. Where do you draw the line on investment versus revenue? To answer that question, start by evaluating where your community bank is now. Identify your strengths and where pitfalls may lie. In today’s environment, in particular, ask yourself: 1. Where are the gaps with my current customers? Start with good data analytics to gain a line of sight into customer behaviors. Companies like ThinkTECH alum and data analytics provider KlariVis can help establish what’s going on in your bank and with your customers to help prioritize the next steps. 2. What am I doing to evaluate my deposit strategy in this depositgathering market? Did your gap analysis reveal deposit leakage? If so, how can you address it? You can apply that knowledge to your current base as well as new targets. Solutions from companies like ThinkTECH cohort participant Micronotes can help you execute on loan, deposit and retention opportunities using data. 3. Do I have the right tools in place to protect my bank? With the emphasis on digital solutions, are you also ensuring you have adequate safeguards? Put solutions in place that support risk mitigation around digital development. ThinkTECH participants like Fraud.net can help with proactive fraud mitigation. While these questions just scratch the surface of digital considerations for community banks, they offer a framework to begin evaluating what matters most to your institution. Given all you have experienced this year, and no matter where you are on your digital journey, it’s totally appropriate to reevaluate your strategies and refine them for the next phase of digital evolution. The solutions ICBA has curated through the ThinkTECH program have been chosen with that in mind. Our goal is to serve as your trusted advisor throughout your digital transformation. So, as you look toward 2024, reach out to us to work through these and other key questions. We want to ensure you have the right partners in place to lead your march toward the future of banking. ■ Charles E. Potts is ICBA’s Executive Vice President and Chief Innovation Officer. Potts drives ICBA’s innovation initiatives and financial technology strategies. The Show-Me Banker Magazine | 13
This article contains my personal opinions and is based on years and years of doing battle with Merchant Cash Advance companies. LEGAL EAGLE SPOTLIGHT “Every source of working capital has its place, and MCAs are filling a void in the market.” The Merchant Cash Advance (MCA) industry came about as a byproduct of the fintech boom.1 Commercial financiers began to utilize technology to pre-approve certain businesses for cash advances. The cash was easily handed out, and businesses fell victim to what many describe as predatory lending.2 The Merchant Cash Advance industry was forced into a brief hiatus when the Paycheck Protection Program (PPP) money was available, but they have now reemerged. What is a Merchant Cash Advance, and why should banks be concerned? As the name implies, it is simply a cash advance from a private commercial finance company (often referred to as the MCA) to a company in desperate need of funds. Repayment is made via weekly ACH debits by the MCA. The typical MCA contract purports to be a factoring agreement providing for the sale of future receivables; however, these agreements are often accused of being disguised loans.3 It is indicative that the MCA industry is not permitted to have membership in the International Factoring Association.4 When annualized, the rate of return (what the MCA might call their factoring “fee,” but what a court might call the “interest rate”) is often extremely high and would ordinarily exceed the applicable usury ceiling.5 Frankly, I have seen MCA deals that have effective annual yields as high as almost 80%. Attempting to structure the deal as a true sale account purchase/ factoring transaction can help the MCA circumvent usury claims. Why should banks care? First, the MCA does not care if you have a negative pledge covenant or additional indebtedness prohibition in your credit agreement (even if you add a tortuous interference/negative pledge warning notice on your UCC1). The MCA will stack its lien right behind yours and give money freely to your borrower. This violates the typical credit agreement and disturbs the collateral pool. Second, MCA’s will often notify account debtors under UCC Section 9.406, which freezes payments to your borrower and interferes with your flow of funds and acts in contravention to your lockbox requirements. Third, once there is a default by the borrower, they will deplete the bank account and file suit. Lastly, an MCA’s cash injection can create a false sense of security (e.g., the borrower’s tangible net worth may be artificially inflated by the money). In other words, it might mask a problem that would otherwise present itself before your next loan advance. An MCA “loan” is expensive, and I have experienced countless instances where the company simply cannot keep up with the weekly ACH schedule.6 What should banks do? I recommend my clients have a separate “MCA Warning Notice,” which states in bold print that the borrower is not allowed to incur additional indebtedness or grant junior liens on their assets so that there can be no mistake or Banks: Beware the Merchant Cash Advance By Jason M. Medley, Spencer Fane, LLP 14 | The Show-Me Banker Magazine
Jason Medley helps banks and other financial institutions structure transactions in a manner that enables them to be efficiently closed, allowing for key stakeholders to maximize benefits and avoid unnecessary delays or costs. He can be reached at jmedley@spencerfane.com and (713) 212-2691. claiming of ignorance by your customer. Additionally, I advise my clients to add the warning notice on their UCC1, warning potential secured parties like MCA’s that any junior lien would be a tortuous interference with our credit agreement. In my due diligence training classes, I always recommend that my clients re-run lien searches about every four to six months, which helps comply with the four-month rule regarding IRS liens and UCC Section 9-507(c) (2) (requiring that you amend your UCC1 within four months if the debtor’s name or jurisdiction changes).7 When doing this, you will get to see if any MCA has stacked its lien behind you. If you learn that your borrower has taken on an MCA, you should consider immediately re-notifying account debtors and putting both your borrower and the MCA on notice. Every source of working capital has its place, and MCAs are filling a void in the market. But having a nonpermitted junior lienholder extend credit to your borrower at a high annual yield and siphoning large amounts from their bank account threatens the economic viability of your borrower and threatens your dominion over the accounts receivable. For these reasons, banks should be mindful of the potential dangers of a borrower taking on a Merchant Cash Advance. ■ 1. Jorge Sun, Cash Advances: A Logical Next Step For Merchant Processors, Forbes (Mar 18, 2021). 2. Hester, B. and von Dwingelo, G.E. (2023) New York’s Detailed Commercial Finance Disclosure Requirements Take Effect. 3. Fleetwood Servs., LLC v. Ram Cap. Funding, LLC, 2022 WL 1997207 (S.D.N.Y. June 6, 2022). 4. International Factoring Association and the American Factoring Association Announce Change in Membership Guidelines, (2014a) Factoring [Preprint]. The International Factoring Association (IFA) and the American Factoring Association (AFA). 5. Bogucki, S.J. (2022) ‘MCA Transactions: True Sale or Disguised Loan?’, American Bankruptcy Institute Journal, 41(12); In re Shoot the Moon, LLC, 2020 WL 2621173 (Bankr. D. Mont. May 21, 2020). 6. Curtin, C. (2016) The Sad & Expensive Truth About Merchant Cash Advance (MCA) Loan Rates, LinkedIn. https://www.linkedin.com/pulse/sad-expensive-truthmerchant-cash-advance-mca-loan-rates-chris-curtin/ 7. U.C.C. § 9-507 (c)(2). The Show-Me Banker Magazine | 15
A BACKGROUND ON CHARLES “CHUCK” GNUSE President and CEO of United State Bank As a third-generation banker, Chuck is proud of his family’s banking legacy. His grandfather, Lorenzo H. Gnuse, founded the Durham State Bank in 1922. He was commissioned by the State of Missouri to assist in the liquidation of banks throughout Missouri that were failing due to the nationwide depression. Six years later, the citizens of Lewistown, Missouri, approached Lorenzo to charter a new bank in Lewistown because the two banks in town had failed once again due to the depression. He, with the help of his wife, Ida Gnuse, and brother, Solomon Gnuse, then established the Lewistown State Bank in 1928. Both banks remained open during this financially challenging time, and in 1936, the two banks were merged. In 1973, another branch was opened in Ewing, Missouri and then again in 1991 in Edina, Missouri. With the addition of the Edina branch, the name of the bank was changed to United State Bank. United State Bank currently has six facilities in four Northeast Missouri counties. As a young child, Chuck was blessed to be able to visit his grandparents at the bank every couple of weeks. Running around the bank “probably made my grandfather a little concerned,” he mused. One of Chuck’s favorite memories was watching his grandfather interact with customers. And if he was lucky, he sat in his grandfather’s office when there was something going on and listened to the conversation. Chuck had similar experiences with his father, Donald Gnuse, being able to watch him at work in the bank, interacting with customers and attending board meetings. These experiences provided many learning opportunities and tutelage that many people don’t have. Although his grandfather and father were in banking, there wasn’t any pressure for Chuck to follow in their footsteps. Chuck graduated from Western Illinois University with a Bachelor of Science in Geology. After graduation, Chuck went to Iowa and worked for an aggregate company that specialized in construction materials. He recalls the internship he had there: “It was an interesting experience; the senior MIBA recently sat down with Charles “Chuck” Gnuse and got to know more about his journey to becoming a banker, his career and his life. We appreciate him for taking the time to talk with us. We hope you enjoy getting to know more about his fascinating life. 16 | The Show-Me Banker Magazine
geologist mentoring me was close to retiring, and I had only been there two weeks when he died of a massive heart attack.” The boss came to Chuck and said, “Here you go, it’s all yours.” Chuck went to work and was with the company for almost two years. He worked in the mining industry for a number of years in Wisconsin and Minnesota as well. “My father would like to have seen me go into banking, but he was happy with what I accomplished in the mining industry in a short period of time,” Chuck recalled. Working in the mining industry paid well, but the amount of time spent on the road, living in hotels and eating fast food took a toll. Once Chuck met his wife, Michele, and they had their first child, Chuck knew that things needed to change. At that point, Chuck called his father and said, “What do you think about me coming back to Lewistown and trying the banking business?” There was a big, long pause, and Chuck thought, “I guess he doesn’t want me to come back to the banking business.” Finally, his father responded, “I can’t believe that you really want to come back and give it a try.” His father welcomed him back in 1998. Chuck and his growing family moved back to the area and got involved with the family bank. The similarities between being a geologist and a banker have helped Chuck: “As a geologist, I dealt with a lot of government and state regulations just as I do now as a banker. Additionally, as a geologist, I acted as a representative for my company between landowners and the company while drawing up lease agreements — there was a large amount of customer interaction, and the customer interaction is what I enjoy as part of being a banker.” He continued, “When talking with local farmers, business owners and individuals, I try to better understand their operation or business and I try to think of ways to improve efficiency. This helps improve income for those businesses and the lifestyles of those individuals affected by those operations.” As President and CEO, Chuck oversees all bank employees and, through his interactions with them, helps facilitate growth in their capabilities and development in their careers. Giving back to the community is very important to Chuck — from individuals battling health problems and raising money for them to supporting the Relay for Life and food drive competitions between employees. He also The Show-Me Banker Magazine | 17
encourages his employees to give input on where monetary donations may best serve the community. When asked about mentors in his life, Chuck quickly replies that his father set an example he is proud to follow. “My father has been in banking his entire life. I have tried to follow in his footsteps when it comes to banking. He was very kind to his fellow employees and treated them fairly when decisions needed to be made. I listened to many of my father’s conversations with customers, both good and bad. I try to do the same with my current customers. Listening about good things and bad. In bad situations, I try to have the best outcome for the customer and work with them on solutions.” When mentoring others, Chuck offers three pieces of advice: 1. Network with professionals in your decided career path; it is important for your career and educational growth. 2. Embrace learning throughout your career. You can teach an old dog new tricks. Attend educational programs related to your job or profession. 3. Set goals for yourself, long-term and short-term. This will help you stay focused on the task at hand. United State Bank has been a member of MIBA for years. Chuck appreciates the many benefits it brings to the bank and its employees. “The opportunity to interact with other bankers, access to banking resources, and educational programs for our employees are big benefits,” Chuck stated. “Resources for our employees help them to be more effective in the tasks they are trying to complete.” He also appreciates the advocacy on legislative and regulatory issues that MIBA provides. Chuck and his wife have three children: Emily, Michael and Mark — all three of them have chosen to work at the bank in different capacities. Emily works as the Compliance Officer, Michael is in operations and is working on online and mobile banking, and Mark handles all the bank’s collateral inspections and evaluations for homes. In his free time, Chuck enjoys spending time on his 540-acre family farm — part of which was originally owned by his mother’s side of the family, and as surrounding property has come up for sale, Chuck and Michele have purchased it. He enjoys walking into his backyard and fishing on the lake or climbing IT’S OKAY TO CHEAT. GENERATING SOLUTIONS... As a matter of fact, we’ll help you! Check out our AI Handbook and get a full cheat sheet on the tools you need to level up your business with AI today. Because nobody has to know. QR CODE YOUR COMPLETE IT SERVICES PARTNER on his bike and riding to his deer stand to do a little hunting. Brewing beer has also been a favorite pastime. A number of years ago, Chuck and his friend were members of a brew club when they were approached by a business owner whose brewer was relocating and wanted someone to take over the brewing process. They took on the challenge and started brewing for a local pub. The COVID years brought change and Chuck stopped brewing. However, he wants to start again as his wife keeps giving him grief for stopping. “She loves wheat beer with a slice of orange,” Chuck said with a smile. ■ 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
OPEN APIs Benefits, Development and What to Look For in Your Community Bank’s Hosting Provider By Daren Fankhauser, SVP, Chief Development Officer & Chief Architect, Data Center, Inc. Open APIs: A Breakdown In today’s rapidly evolving fintech market, Open APIs serve as a transformative force for community banks. Offering new opportunities for expanded digital capabilities, Open APIs lead to enhanced services for consumers (like remote account opening or the management of mobile transactions) and increased profitability for financial institutions. So, what exactly is this magical piece of banking technology? API stands for Application Program Interface and serves as a connection between a thirdparty application and a bank. By making the tools and services of a bank available to a third party, (like Chime or Acorns, for example), both entities benefit from enhanced digital solutions and specialties. Open APIs work similarly but go a step further in allowing third parties to access the data of banking customers. This data can include the account holder’s name, account type, transaction details, etc. As sensitive as this data is, when handled with care, the sharing of customer information leads to the improved relevance and convenience of banking services. For customers, this can look like customized investment plans, real-time updates, budgeting assistance and more. For banks, this looks like increased customer satisfaction through competitive, flexible offerings. Built to ensure platform-agnostic operations, Open APIs function compatibly across all systems (whether MacOS, Windows or Linux) and lead to augmented digital services and capabilities. As such, understanding the specific advantages provided by Open APIs and how to ensure your hosting provider optimizes them is crucial to successful open banking. Benefits for Developers In the context of development, the benefits of Open APIs are vast and substantial. Explore said benefits below: I. Self-Documentation • Documentation is built dynamically and remains consistently up-to-date • Commonly deliverable via HTML or PDF • Handy access for Developers (via HTML-based documentation sites) to test API endpoints II. Compatibility • Data format is programming language independent, lightweight • Allows for complex data structures while remaining human-readable • Information is accessible through nearly all devices or platforms III. Accessibility • Readiness via standard web technologies • Straightforward integration process for developers IV. Security Through Strong Controls in Place • Protection via encryption technology • Keys and single-use tokens • Firewalls that increase the detectability of intrusion • Granular security controls that limit entry to required access points V. Functionality • Functionality can be pulled into other applications instead of being trapped into exclusively using the main interface • Access to different sub-areas of the application can be granted without exposing the entire application • For applications written to consume an Open API, a “sandbox” can be used to invoke the API using test data With such value-enhancing benefits riding on the successful utilization of Open APIs, it is paramount for financial institutions to know what to look for in their hosting provider. 20 | The Show-Me Banker Magazine
Identifying Your Hosting Provider of Choice: Security, Access and Support As security plays a foundational role in all financial operations, banks must feel empowered by the knowledge that their data, which lies behind these APIs, is well secured. Adherence to industry standards for security on the part of hosting providers is the best way to ensure data protection. While true security necessitates that access to sensitive information be limited, it is optimal for the API documentation to be dynamic and accessible by the financial institutions they serve. Should challenges present themselves in the utilization or access of the APIs, adequate support is also essential. As such, it is advantageous to ask questions surrounding the support protocols that the API provider offers for developers and integrators specifically. Crystal Liebl, Development Web and UI Officer at DCI, speaks to the importance of provider support, saying, “While quality APIs are self-documenting, it’s crucial to have a vendor like DCI that can assist promptly with any challenges or questions that may occur. Commitment to great support is key to ensuring a smooth and quick implementation process.” Further Considerations: Performance and the Absence of Middleware In addition to support, technology (however obvious it may seem) is another crucial piece to the success of open banking. Many providers tout their technological agility, but what does that look like? When running on and being backed up by the latest and greatest technology, consistent, quick response times are the result. System redundancy optimizes uptime and ensures business continuity. One marker of agile technology and performance is found in providers able to deliver all the pieces necessary without reliance on middleware. Providers who enable integrators to work directly with their company eliminate extra cost, vendor due diligence and additional network hoops often required when bringing middleware into a relationship. Noting DCI’s experience in this realm, Liebl shares, “We encourage direct integration as a means to reduce cost and receive information firsthand from the experts who wrote the APIs. Through outstanding developer support, there’s no chance for misinterpretation leading to costly delays or refactoring amidst implementation efforts.” Conclusion: Flexible Offerings Through Open APIs as a Leg Up for Community Banks By exploring the many benefits Open APIs bring to community banks in the fintech market, the transformative potential such technology holds becomes increasingly evident. Features like self-documentation, compatibility, accessibility, security and enhanced functionality work together to empower banks to deliver flexible, customized solutions. From there, a strategic partnership with a hosting provider that adheres to industry standards for security offers accessible documentation, provides reliable support and embraces technological breakthroughs makes all the difference. Catalyzed to drive innovation and position themselves as leaders in the dynamic and everevolving fintech landscape, no longer must community banks wait for core processing updates in programming. Expanded digital capabilities for customers and institutions alike are always within reach through Open API technology. ■ “Expanded digital capabilities for customers and institutions alike are always within reach through Open API technology.” The Show-Me Banker Magazine | 21
MORTGAGE MÉLANGE Volatile Rates Create a Cornucopia of Options By Jim Reber, President and CEO, ICBA Securities I’m going out on a limb here, but one day, mortgage rates will not only quit rising; they will actually begin to fall. When that happens, community bank bond portfolio managers will have to deal with a host of factors (most of them positive) they haven’t seen in a while, if ever. The sheer scale of the Fed’s tightening has produced a number of mortgage-backed securities (MBS) that appear to be custom-built for a flat or falling rate environment. So, let’s take a stroll around the MBS supermarket to see what’s on your favorite brokers’ shelves. 22 | The Show-Me Banker Magazine
Crowd Pleasers This column will focus on 15-year MBS and alternatives, as those are clearly the preference of depositories. You might find the above subheading a bit ironic, as there are precious few 15-year pools being created now. Between record-high housing prices and loan rates we haven’t seen since 2007, the average P&I payment has increased by 67% for new purchases in just 18 months. That’s taken a lot of 15-year borrowers out of the market. In fact, it’s been more than a year since there has been a net growth in that sector; recent production levels are down over 90% from the peak in April 2021. Despite the relative lack of supply, yield spreads on 15-year paper are historically wide, even though prepayment risk is low. But why are yields still attractive? Several probably temporary factors: lack of depository buyers, liquidation of several notable failed bank portfolios (which had very few short MBS pools), the debt ceiling showdown and the Fed’s winding down of its portfolio. A reasonable case can be made that spreads will begin to narrow, which sets up the 15-year sector to outperform others, mortgagerelated or otherwise. Main Course Some of you will say you already have enough (too much?) exposure to 15-year pools. What’s the next best option? For the past few months, mortgage strategists from Stifel have been suggesting hybrid adjustable rate mortgage (ARM) pools. These securities have a “fixed-to-float” structure, and the investor can pick the term of fixed period from three to 10 years. With the inverted yield curve, the shorter “roll date” securities have higher initial yields and lower effective durations, both of which bargain hunters seek. Many other measures of relative value favor hybrids over straight pass-throughs: lower prices, wider spreads, better total returns. About the only metric that would favor the MBS over the hybrid is liquidity, which is a conversation worth having with your brokers. Another favorite entrée is a well-structured collateralized mortgage obligation (CMO). One of the benefits of a CMO over the “collateral,” which is the MBS used to build out the various classes of an issue, is that an investor can choose tranches with specific coupons, prices, cash flows and principal payment windows that better fit the community bank’s needs. Finally, while supplies of these MBS alternatives are limited, brokers should be able to locate some offerings of both given reasonable parameters. This includes securities bearing the GNMA label, which many investors like for the full-faith-and-credit, 0% riskweighting feature. Just Desserts The final item on this month’s menu has been offered before (see Independent Banker March 2023), but now with a few additional ingredients. Rarely, if ever, have such a wide range of pass-through rates on mortgage securities been available simultaneously. This gives a portfolio manager a delectable set of options. The only selections that are not available at the moment are premium MBS; par (100.00) and discount pools are what the market is serving. The good news is that discount pools can be found at virtually any price. As of this writing, 15-year 4.0% pools are priced with a 96 handle, while 15-year 2.0%s are in the 86 range. (Disclosure: Be aware that the lower the coupon, the tighter the yield spreads.) You can also take this one step further with the CMO market. It’s possible to locate a given tranche with a significantly discounted price, even though the collateral is more “current coupon.” This could potentially create an opportunity for some improved cash flow if and when rates begin to recede, as the newer loans with 7%-plus borrowers’ rates will be the most responsive to refinance opportunities. In Epicurean terms, it “tastes great, less filling.” There, you have an enticing bill of fare. Straight pass-throughs with wide yield spreads, hybrid ARMs with great total return characteristics and well-built CMOs can create a veritable smörgåsbord for your community bank’s bond portfolio. ■ “The sheer scale of the Fed’s tightening has produced a number of mortgage-backed securities (MBS) that appear to be custom-built for a flat or falling rate environment.” Jim Reber (jreber@icbasecurities.com) is President and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. Education On Tap Mortgage Analytics Monthly Stifel Mortgage Strategy produces an MBS Prepayment report monthly that is available to all ICBA members. This report contains commentary and a comprehensive look at the overall MBS market with tables, charts and graphs. To begin receiving copies, contact your Stifel rep. The Show-Me Banker Magazine | 23
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