SUMMER 2024 WHAT IS THE IMPACT OF THE FTC NON‑COMPETE BAN ON BANKS AND BANK HOLDING COMPANIES? A Conversation with Tim Broyles 2024 West Virginia Young Banker of the Year West Virginia Young Banker of the Year Nominees
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CHARLESTON, WV • MARTINSBURG, WV • MORGANTOWN, WV • PARKERSBURG, WV • SOUTHPOINTE, PA • WINCHESTER, VA Banks, retailers, finance companies, and other businesses offering financial services to consumers face the ever-present threat of expensive and potentially ruinous litigation. Lawsuits, based on federal and state laws prohibiting “predatory lending,” “unfair debt collection,” and “deceptive and unfair” practices, strike at the heart of marketing, sales, privacy, and debt collection practices. At Bowles Rice, our Financial Services Litigation team has experience successfully defending clients, big and small, against lending-related lawsuits and class action litigation brought by consumers and regulators. Our lawyers have experience dealing directly with federal and state regulators on behalf of our banking and lending clients. For more information, contact our firm’s Financial Services Litigation team leader Zack Rosencrance at (304) 347-1161. Financial Services Litigation bowlesrice.com Responsible Attorney: Marc Monteleone 600 Quarrier Street • Charleston, WV 25301
CONTENTS ©2024 The West Virginia Bankers Association | The newsLINK Group LLC. All rights reserved. West Virginia Banker is published four times each year by The newsLINK Group LLC for the West Virginia 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 West Virginia 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. West Virginia Banker is a collective work, and as such, some articles are submitted by authors who are independent of the West Virginia Bankers Association. While West Virginia Banker encourages a first-print policy, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. 5 PRESIDENT’S MESSAGE Professional Development Resources for a New Generation By Mark Mangano, WVBankers President & CEO 6 A Conversation with Tim Broyles 2024 West Virginia Young Banker of the Year 10 West Virginia Young Banker of the Year Nominees 12 Unlock More Profitable Customer Relationships By Dennis Falk, SVP and Regional Manager, and Jo Ellen McKinley, SVP and National Business Development Manager, PCBB 14 A Disaster Can Happen at Any Minute. Are You Prepared? By ImageQuest 16 What Is the Impact of the FTC Non-Compete Ban On Banks and Bank Holding Companies? By Amy J. Tawney, Partner, Bowles Rice 19 How Positive Pay Helps Fight Check Fraud By Jason Young, Senior Director of Enterprise Banking, CSI 21 Cybersecurity in the Banking Industry Check Your Blind Spots By Randall Saunders, Partner, and Jonah Samples, Senior Associate, Nelson Mullins Riley & Scarborough LLP 24 Meet Your Fiduciary Obligations ... With a Little Help By John Schafer, VP, National Leader, Financial Institutions Channel, Pentegra 26 Credit for Funding on Non‑Maturity Deposits By Forvis Mazars 28 Unlocking Growth A Practical Guide To Leveraging Your Bank’s Data By Achim Griesel, President, and Dr. Sean Payant, CSO, Haberfeld 30 Congratulations WVBA! 2023 MarCom Awards Winner 4 West Virginia Banker 16 6
We live in an exciting and challenging time as bankers. A key feature of the excitement and challenge is developing next-generation bankers. Our success in finding, recruiting, training and developing bankers and bank leaders may be the greatest determinate of our future success. Optimizing our investment in talent requires that we ensure that employees are afforded the training to address complex regulatory and business challenges. Also critical is accelerating professional development for managers and future leaders. In most banks it is difficult to achieve desired education and development goals exclusively through in-house resources. Fortunately, our members have combined their resources to create and support the West Virginia Bankers Association education and professional development programs. This shared commitment provides member banks with employee development resources that are relevant, excellent, convenient and cost-effective. The association is constantly evaluating current and potential education and development offerings to ensure they match what you need now. We rely on banker-led advisory committees composed of subject matter experts to help craft curriculum for banking schools, conferences and seminars. We also closely follow industry trends and banker comments to proactively identify timely training topics. The association actively seeks, recruits and evaluates teachers, subject matter experts and thought leaders. We seek presenters who will meaningfully engage participants and impart useful and actionable information. The goals are always to provide participants with tools that will help them advance their banks and careers, as well as inspire innovative and practical thinking. Time is a precious commodity in our banks. We are committed to ensuring that the educational programs we offer are worth the time invested and are provided in the most efficient manner, consistent with the desired educational and professional development goals. We offer many quality programs that are delivered online. We also offer live-in-state programs that enhance the learning experience by bringing peers from across the state and industry to learn and share together. Our association is member-owned, and our education and professional development programs are member-driven. In serving our members, we prioritize providing education and professional development services at the lowest cost, consistent with maintaining our standards of excellence in programming, content, engagement and overall value. Because of our membership’s collective support, we can offer premier-quality programming at lower costs. The West Virginia Bankers Association is proud to partner with our members to help educate, engage and encourage our banking professionals and the next generation of bank leaders. Together, we can help ensure our industry’s continued prosperity. PRESIDENT’S MESSAGE MARK MANGANO WVBankers President & CEO Professional Development Resources for a New Generation 5 West Virginia Banker
TIM BROYLES 2024 West Virginia Young Banker of the Year The 2024 West Virginia Young Banker of the Year recipient is Tim Broyles, chief experience officer of Clear Mountain Bank. In his position, Tim is a member of the bank’s executive management team and leads the bank’s customer experience strategy across all banking channels and lines of business. Tim began his career with Clear Mountain Bank as a teller in 2003 and has served the bank in numerous roles during his tenure, including director of digital banking and retail operations, AVP of retail banking, and teller operations manager. He also participated in Clear Mountain Bank’s management trainee program early in his career. Tim is a graduate of Fairmont State University with a bachelor’s degree in business administration/finance and holds an MBA from West Virginia University. In addition, he is a 2010 graduate of the West Virginia Bankers Association (WVBA) School of Banking and participated in the WVBA Emerging Leaders Program. In 2021, Tim was named to the ICBA “40 Under 40: Emerging Community Bank Leaders” list — this award recognizes the nation’s up-and-coming community bank innovators and influencers who represent the industry’s future. Recently, WVBA had the chance to talk with Tim about his career and life. The following are excerpts from our conversation. A Conversation with 6 West Virginia Banker
In your career, what contribution have you made that is the most meaningful to you? The contribution that is most meaningful to me has been helping to develop team members throughout my career, watching people gain experience and seeing them progress into successful careers. Even if a team member I have mentored leaves the bank, it is still rewarding to know that through collaboration, feedback or some kind of support, our working together helped play a role in their success. It is even more rewarding when a team member I’ve mentored stays with the bank, and I’m able to see them progress, take on additional responsibilities and build a career with us. What motivates you to work? Curiosity. I’m a naturally curious person in general. I’m the kind of person who will be watching a TV show and think to myself, “How does that work?” Then, I’ll start googling it, and I will keep researching it until I find out why things work the way they do. My curiosity carries over into my work life as well. It’s been nice working at a community bank where I have the opportunity to say, “Why do we do things the way we do them?” or “Are there better, more meaningful ways to do things?” This might involve creating new processes or finding new ways to interact with customers. What is your favorite thing about living in West Virginia? I think the people in West Virginia are some of the most authentic and genuine people I know. I’ve been to a lot of different areas of the country, and there are pockets of very genuine people, but there is nothing like the people in West Virginia. I love the people here. The scenery here is amazing as well. I used to work in branch operations and spent a lot of time on the road driving to our different branch offices. We have an office in a little town called Rowlesburg in the southern part of Preston County. To get there, you take Route 72 right along the Cheat River. The views are amazing, especially in the spring and fall. 7 West Virginia Banker
Looking back on your career, what’s the highlight? Looking back at my career in its entirety with the bank, it’s exciting to have been a part of the bank’s growth and success. I started working here in January 2003. We had five branch offices and around $160 million in assets. Here we are, 21 years later, with 11 branch offices, and the bank is getting ready to cross over that $1 billion asset threshold. The highlight for me has been implementing new technology at the bank to better interact and communicate with our customers. Two projects in particular come to mind: One was when we implemented ITMs or interactive teller machines. The second was enacting digital prescreening for loans. It’s been a very successful program for us. We’ve seen incremental increases year over year in our consumer lending book of business, better crossselling to deposit-only customers, and have leveraged the tool in customer acquisition efforts as well. What is your favorite part of working in a bank? I’ve always loved the community banking arena. Your job is not just your job; you’re going to wear many different hats on any given day because your resources are limited compared to what a larger bank would have. That might stress a lot of people out because they want to know their exact job. But not knowing is one of the things I’ve enjoyed. Every day holds something new: diversity in workload and a wide variety of experiences that can be applied in many different areas. If you had to pick three songs to describe your work ethic, what would they be? 1. “Eye of the Tiger” by Survivor: To me, it’s about perseverance and determination. 2.“Don’t Stop Believin’” by Journey: This song reminds me of someone I used to work with who would always say, “Tim, just keep doing the right thing, and the results will come.” 3. “The Final Countdown” by Europe: A lot of what I’ve done over the years is project management. It doesn’t matter if it’s a little project or a big conversion. You get to this point where it’s go-time. And I feel like I need to turn this song up in the background — this is the final countdown! What is your favorite way to relax outside of work? We’re crazy dog people. We have an 11-year-old golden retriever and a 1-year-old goldendoodle puppy. Our favorite thing to do is to travel and vacation with the dogs. We usually go to Hilton Head Island once or twice a year. It’s very pet-friendly and a wonderful place to visit. Who is the most influential person in your life, how have they influenced you and why is he or she important? My maternal grandfather, Neil Bruynis, was a very hard worker and that left a lasting impression on me. My grandparents immigrated from the Netherlands in 1955, soon after they were married. They were sponsored by a hog farmer in Illinois and spent their first few years in the state there working on his farm. In 1958, they moved to Goshen, Ohio, right outside of Cincinnati. Through the years, my grandfather continued to work in agriculture and farming, and over time, was able to purchase three 8 West Virginia Banker
separate farms, amassing more than 600 acres into his farming enterprise, Hollandia Farms. What is some advice you would give to those thinking about going into banking? Working in a bank is not what you would expect it to be. It is very different than the old 9-5 workday that many people remember. Banking today is technologybased, fast-moving and ever-changing. You need to be prepared not only to embrace change but to be a catalyst of change. This is an exciting field to work in, and it makes a very viable career. What are you most excited about for the future? I’m excited and curious to see where the industry goes with regard to technology and customer trends. 9 West Virginia Banker
West Virginia Young Banker of the Year NOMINEES ZACKARY STATLER South Market President, United Bank Zack Statler, originally from Hurricane, West Virginia, began his career trajectory in mining before shifting gears to banking and finance upon graduating from West Virginia University in 2014. Joining United Bank in 2015 as a commercial loans operations specialist in Dunbar, Zack quickly demonstrated a knack for financial analysis and community engagement. His rapid advancement led him to the Credit Department in Morgantown as a commercial credit analyst, where he excelled in risk assessment and underwriting for commercial and industrial (C&I) and commercial real estate (CRE) transactions. Promoted to commercial portfolio manager in Charleston in 2017, Zack managed the Capital Market portfolio and expanded business development efforts, culminating in his promotion to commercial banker, AVP, in 2019. During the COVID-19 pandemic, Zack was pivotal in administering the Paycheck Protection Program (PPP), earning recognition as United Bank’s top lender the following year. In February 2022, Zack achieved the milestone of becoming market president of United Bank’s South Market in Beckley, overseeing operations and driving growth across nine offices. Zack continues to combine his financial expertise with a commitment to community service, which has been recognized notably in The State Journal’s “Generation Next: 40 Under 40” list. What is your favorite part about working in a bank? Seeing small businesses grow and thrive in our state! It always fascinates me when I get an opportunity to learn about new industries and businesses, and how they make their success. Banking allows me to see “under the hood” of many successful businesses, and it also gives me the opportunity to partner with some really dynamic business owners in West Virginia. It truly makes you excited for our future! 10 West Virginia Banker
JARED MONCMAN CFO/SVP, Pleasants County Bank Jared began his career journey in banking as a teller at First Neighborhood Bank in 2008, while concurrently earning his bachelor’s degree in business administration/accounting in 2009. His path led him to serve as an external bank auditor at Suttle & Stalnaker before joining Pleasants County Bank in 2015. Jared’s commitment to professional growth is underscored by obtaining his CPA license in 2020 and assuming roles such as treasurer for the Pleasants Area Chamber of Commerce since the same year. He has also been an active member of the WVBA Future Leaders Council, chairing from 2020 to 2022. He also recently joined the American Banker Association’s Emerging Leaders Council in 2023 as West Virginia’s representative. At Pleasants County Bank, Jared’s role spans from operational duties at the teller window to executive responsibilities as chief financial officer, IT officer, compliance officer and overseeing audit functions. His dedication to his professional responsibilities and community involvement has earned him respect and recognition throughout Pleasants County Bank and beyond, making him an invaluable asset with a promising future. What is your favorite part of working in the bank? Helping people and the community. JUSTIN SPRACHER AVP, Community Bank Manager, Summit Community Bank Justin earned his bachelor’s degree in business administration with a minor in criminal justice and embarked on his banking career 16 years ago, in 2008, with First Century Bank after graduating from Bluefield University. Starting as a teller, Justin quickly advanced to become a loan office manager, and within two years, he assumed the role of branch manager. With Summit Community Bank’s acquisition of First Century Bank in 2017, Justin continued to excel, ultimately being promoted to area vice president community branch manager in 2020 due to his exceptional leadership and growth achievements. Beyond his professional accomplishments, Justin’s impact on the banking industry and Summit Community Bank resonates deeply through his genuine care and dedication to exceptional customer service. His commitment to fostering a cohesive and high-performing team reflects Summit Community Bank’s “Service Beyond Expectations,” ensuring his branch delivers outstanding customer service and support. Justin’s selfless devotion to his team’s development and his community’s well-being sets a benchmark for leadership, making him a trusted advisor and role model within Summit Community Bank and beyond. What is your proudest achievement outside of banking? Second to being a father, my proudest achievement outside of banking is passing the final section for my CPA license. Despite my self-doubt, balancing a full-time job, family responsibilities and sacrificing personal time, achieving this milestone marked a turning point. It instilled in me the belief that I can accomplish my life goals. 11 West Virginia Banker
Unlock More Profitable Customer Relationships By Dennis Falk, SVP and Regional Manager, and Jo Ellen McKinley, SVP and National Business Development Manager, PCBB Finding the right price for a customer’s deposits or loans can be a difficult balance. Relationship pricing involves looking at your customer’s entire relationship of loans, deposits, fee income and other products to determine the customer’s overall profitability and using this information to make strategic decisions on pricing for renewals or new products. This pricing strategy can have a significant effect on both customer relationships and your bank’s overall profitability. Analyzing customer relationship profitability and using those insights for pricing decisions has become a major component of many banks’ plans to increase their profitability by attracting new customers and holding onto the most profitable of their existing ones. As community banks face rising competition from non-traditional banks, such as fintechs and neobanks — which don’t have the same overhead and can offer higher interest rates to customers across the board, the importance of getting pricing right is higher than ever. The Benefits of Relationship Pricing Relationship pricing essentially gives financial institutions a tool to determine the potential profitability of customers by providing more attractive loan pricing and deposit rates to the individuals and small businesses that they believe will be most profitable to their bank over the long term. This approach can be beneficial because it ensures the financial institution is balancing its own profits with the customer’s needs. Competitive pricing also makes it easier for financial institutions to attract new customers and enhances the likelihood of being able to cross-sell additional products and services to customers and make their accounts with your bank stickier. At a time when a rising number of customers are gravitating to fintechs and online bank offerings, analyzing the profitability of the full customer relationship and customizing pricing for your most important relationships is a critical component of financial institutions’ abilities to remain competitive. Loan Pricing When structuring loans for customers, it’s important to consider how the components of a loan — such as term, interest rate, fees, prepay penalties and other similar factors — impact your institution, and how they can be adjusted to make the most profitable deal for your bank, while also pleasing your customers. A comprehensive profitability tool can help you strategize ways to offset the cost of originating and maintaining the loan with the potential profit from the loan. You’ll want to consider the risks associated with the loan as well, such as credit risk 12 West Virginia Banker
and interest rate risk. The pricing may also take into account the deposits a customer has with your bank or the potential deposits the customer may bring to your institution, along with their loan relationship. Deposit Pricing A profitability tool can allow your bank to preview different scenarios of how the potential profitability for a customer relationship can change as interest rates fluctuate. The value of deposits, even with today’s higher rates, can still bring profit to each customer relationship and the institution overall. A solid profitability system helps your team understand the value of the deposit for your customer relationship. Profitability tools can also provide a breakdown of how migration between non-interestbearing deposit accounts to interestbearing deposit accounts, such as from a checking account to a certificate of deposit (CD) or a money market, can impact the customer’s relationship profitability. The Impact of Discovering Your Most (And Least) Profitable Relationships Community banks interested in utilizing full customer relationship profitability need to do so intentionally. Along with this, you might find that your most profitable customers aren’t who you might have assumed. For instance, a customer who has many deposit accounts and comes to the branch often may seem to be an active customer. However, that doesn’t mean that they’re your most profitable customer. The customer who brings in the most profit for your institution could just as well be a customer who has minimal deposits but also has a single well-priced loan that generates a lot of interest income. A robust profitability tool can uncover insights to help your team understand the importance of each customer relationship. Your team can then use this data to find opportunities to increase the profitability of each customer by offering them other products they might need and pricing those products to maintain your relationship with your most profitable customers. It is equally important to measure the success of any such efforts on a regular, ongoing basis to gain learnings for increasing profitability in the future. For community banks considering relationship pricing as a way of attracting new customers and holding onto their most profitable existing customers, a comprehensive profitability tool can be a game changer. Relationship pricing is a crucial part of determining how to price loans and deposits to maximize the profitability of your current customer base, while also helping you determine the best price to attract new customers that also works for your bank. To continue this discussion, or for more information, please contact Dennis Falk at dfalk@pcbb.com or Jo Ellen McKinley at jmckinley@pcbb.com, or visit the PCBB website at www.pcbb.com. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow Service, international services, lending solutions and risk management advisory services. TAKE YOUR MEETING TO NEW HEIGHTS AT AMERICA’S RESORT. Prepare to have your minds come alive in an environment that is both inspiring and captivating. From elegant ballrooms to intimate boardrooms, The Greenbrier features a variety of spaces that can accommodate meetings of any size. Experience the difference at America’s Resort and elevate your next meeting. 101 Main Street, West White Sulphur Springs, West Virginia 24986 304.536.7882 • Greenbrier.com 13 West Virginia Banker
A Disaster Can Happen at Any Minute. Are You Prepared? By ImageQuest What impact would a tornado have on your bank? How about a processor outage? Do you know how long your customers would be blocked from completing transactions? Or how much revenue your bank might lose? Knowing the answers to these questions can help your organization prepare for and respond to the unexpected. Organizations typically codify this information in a business impact analysis (BIA). A BIA means precisely what it says — it’s an investigation into what impact any negative, disruptive event could have on your workforce, customers and institution. Information in a BIA may be needed for regulators during examinations, or from underwriters providing cyber liability insurance. Both want to see that your bank is prepared for the unexpected and can respond appropriately. The Biggest Advantage of a BIA What are your most critical business functions? If hampered or halted, what processes would bring your operations to a standstill? And what will that mean (in the short and long term) for your bank or financial institution? By conducting a BIA, your team will gain a thorough understanding of various disruptions and their potential impacts on your institution. With that understanding, your team can improve how those processes are protected, especially those most critical to your bank and your customers. What To Expect From a Business Impact Analysis Perhaps you’ve been mandated to conduct a business impact analysis. Maybe an incident has spurred you to be better prepared in the future. Or, maybe you just want your bank or financial firm to be the best it can be — robust and ready to weather any storm. 14 West Virginia Banker
Conducting a business impact analysis involves the following: • Identifying Critical Business Functions: This involves recognizing all the key business processes and functions that are essential for your organization’s operations. These may include customer service, production, sales, IT infrastructure, supply chain management and more. • Assessing Potential Risks and Threats: This component includes identifying and analyzing potential risks that could disrupt your organization’s operations. These threats include things like natural disasters (earthquakes, floods, hurricanes, etc.), technological failures, cyber attacks, pandemics and supply chain disruptions. • Determining Impact Scenarios: Organizations need to assess the potential impacts of different disruptive events on their critical business functions. This includes analyzing possible financial, operational, reputational and regulatory impacts of each scenario. • Quantifying Impact: This measures potential losses and impacts associated with each identified scenario. It may include estimating financial losses, operational downtimes, loss of productivity, reputational damage, regulatory fines and more. • Setting Recovery Objectives: You’ll need to establish recovery time objectives (RTOs) and recovery point objectives (RPOs) for each critical business function. RTO defines the maximum tolerable downtime for each function, while RPO states the maximum tolerable data loss. • Identifying Dependencies and Interdependencies: Organizations should identify dependencies between different business functions and processes, as well as dependencies on external vendors, suppliers and partners. This will prove essential in developing effective recovery strategies. • Developing Mitigation and Recovery Strategies: Based on the BIA’s findings, ImageQuest can also help you develop mitigation and recovery strategies to minimize the impact of disruptions. These business continuity strategies may include implementing redundancy measures, backup systems, alternate suppliers, disaster recovery plans, etc. • Documenting the BIA Report: Finally, all findings and recommendations from the BIA will be documented in a comprehensive roll-up report. Your BIA report provides the risk intelligence needed for developing effective business continuity plans, disaster recovery plans and risk management strategies. By aligning all the components of your business impact analysis with your organization’s goals, you will better define your threat universe and operational vulnerabilities. It will also help you gain effective strategies to avoid or recover from whatever comes your way. Enhance All Areas With a Business Impact Assessment When you have a business impact analysis or assessment in place, every area of your business will be brought into the light. You’ll see potential risks that you hadn’t considered before, in areas such as: • Risk Management: The BIA process will help you assess risks associated with various business functions and the potential impact on your institution should any of them be unavailable for any reason. • Resource Allocation: Focusing on essential business functions will equip you to distribute resources more efficiently, and develop accurate budgets that produce results in areas important to your success. • Continuity Planning: A BIA will give you a foundation for developing robust business continuity and disaster recovery plans. By understanding the potential impacts, you can create plans to ensure the continuity of operations and minimize downtime during disruptions. • Decision-making: You’ll gain valuable insights that enable risk-informed decision-making, helping to minimize downtime and maximize resilience. • Compliance: For industries with regulatory requirements, the BIA helps ensure compliance by providing the foundation for building a documented governance program that is process-enabled and auditable. This probably sounds like a lot of work — and it is. We recommend you work with an experienced, qualified third party, such as ImageQuest, to develop your business impact analysis. But while extensive, you will see all your business operations in a new light. You’ll gain a deeper understanding of what processes directly and indirectly affect others. You’ll also learn how each may disrupt the various areas of your operations. Looking for more insights into how you can help your bank, wealth management firm or financial institution weather any storm? Talk to ImageQuest about your institution’s business impact analysis needs today! 15 West Virginia Banker
What Is the Impact of the FTC Non-Compete Ban On Banks and Bank Holding Companies? On April 23, 2024, the Federal Trade Commission (FTC) voted to finalize its proposed rule, making it an unfair method of competition, and therefore a violation of the Federal Trade Commission Act (FTC Act), for any person to enter into a non-compete clause with a worker, attempt to enforce an existing non‑compete clause with a non-senior executive, or represent that a worker is subject to a non-compete clause on or after Sept. 4, 2024. The rule defines a “non-compete clause” as a term or condition of employment that prohibits, penalizes or “functions to prevent” a worker from seeking or accepting work with a different employer (for example, a competitor) or operating their own business. The only exceptions are non‑competes entered into with “senior executives” prior to the effective date of the rule, non-competes entered into by the seller as part of a bona fide sale of a business, and situations where a party is already seeking to enforce a non-compete clause before the effective date of the rule. The non-compete ban only applies to entities covered by the FTC Act, and banks, savings and loan institutions, and credit unions are excluded from FTC jurisdiction. However, bank holding companies, their subsidiaries and other affiliates that are subject to FTC jurisdiction are subject to the non-compete ban. Because of this distinction, it is important to understand whether any existing non-compete agreements with employees are with the bank or its holding company and the status of the employee to determine if any existing non-compete agreements are enforceable. In addition, any future non-compete agreements with employees will need to be carefully crafted at the bank level. Is the Non-Compete Agreement With the Bank or Holding Company? The first fact that is important for determining whether a non-compete agreement is enforceable is whether the agreement is with the bank or a bank holding company. As noted previously, the FTC ban on non-compete clauses By Amy J. Tawney, Partner, Bowles Rice 16 West Virginia Banker
Is the Employee a Senior Executive? The second fact in determining whether a non-compete agreement is enforceable is whether the employee meets the definition of a “senior executive” under the FTC rule. The FTC defines “senior executives” based on an earnings test and a job duties test. An executive must meet both tests to be determined a “senior executive.” Under the earnings test, a “senior executive” must receive a total annual compensation of at least $151,164 in the preceding year. This amount is annualized if the executive was employed during only part of the preceding year. Under the job duties test, an employee must be at the level of a president, chief executive officer, or their equivalent, or any other person who has a “policymaking authority” for the business. “Policy-making authority” means final authority to make policy decisions that control significant aspects of a business entity or common enterprise and does not include authority limited to advisory or exerting influence over such policy decisions or having final authority to make policy decisions for only a subsidiary of or an affiliate of a common enterprise. The definition of a “policymaking position” includes workers with the equivalent authority because job titles and specific duties vary between companies. Timing of Non-Compete Agreement With respect to bank holding companies and their non-bank subsidiaries, the FTC rule bans non-competes with all workers, including senior executives, entered into after Sept. 4, 2024. Only non-competes entered into with senior executives prior to Sept. 4, 2024, the effective date of the rule, may remain in force. Accordingly, any new agreements between bank holding companies with workers, even senior executives, after the effective date of the rule, may not include non-compete provisions. Action Steps Less than 24 hours after the FTC issued the ban on non-competes, the U.S. Chamber of Commerce and the Business Roundtable filed a lawsuit against the FTC in federal court in the Eastern District of Texas. A lawsuit was also filed by Ryan LLC, a global tax services firm, in federal court in the Northern District of Texas. A third lawsuit was filed by ATS Tree Services LLC, in federal court in the Eastern District of Pennsylvania. It is likely that many more lawsuits will be filed, and the FTC rule will be delayed or may not become effective. Bowles Rice LLP will monitor these and any other lawsuits challenging the ban. While we wait for the outcome of the lawsuits challenging the bank, we recommend bank and bank holding companies review employment agreements with their employees to determine if any of those agreements contain non-competes that are subject to the ban and to determine if they fall within the exemption applicable to banks or the exemption applicable to existing agreements with senior officers. If any non-compete agreements are subject to the ban, the employer is prohibited from enforcing the noncompete and must provide notice to the workers (which includes former employees) by Sept. 4, 2024, that the non-compete will not be, and cannot legally be, enforced against the worker. The rule further provides the requirements regarding the form, content and delivery methods for this required notice. The banking and financial services team and the employment law team at Bowles Rice LLP are available to assist you in determining whether any existing non-compete agreements are enforceable and your obligations in connection with the FTC noncompete ban. Amy J. Tawney is a partner in the Charleston office of Bowles Rice LLP. She focuses her practice on banking law, mergers and acquisitions, securities law and regulatory matters. Contact Amy at (304) 347-1123 or atawney@bowlesrice.com. Notwithstanding the exclusion of banks from the FTC rule, the FTC expressly declined to exclude bank holding companies and their non-bank subsidiaries and affiliates from the rule. Because the non-compete ban only applies to holding companies and their non-bank affiliates, it is important to understand who the party is to the non‑compete agreement. does not apply to banks. Under the FTC Act, banks, savings and loan institutions, and credit unions are explicitly excluded from the jurisdiction of the FTC and, therefore, are not subject to the ban. Although banks are exempt from the FTC’s jurisdiction, the federal banking agencies have the authority to enforce FTC regulations, pursuant to the Federal Deposit Insurance Act. The federal banking agencies have generally opted to enforce the FTC Act’s prohibition on “unfair and deceptive acts or practices” (UDAPs) and not “unfair methods of competition.” Because the FTC’s ban on non-compete clauses explicitly defines non-compete clauses as “unfair methods of competition,” it is unlikely that the federal banking agencies will enforce the ban on banks. 17 West Virginia Banker
How Positive Pay Helps Fight Check Fraud By Jason Young, Senior Director of Enterprise Banking, CSI Check use has declined for years as consumers gravitate toward faster, more digital transactions. Yet despite the slow and steady phasing out of checks, the financial sector has seen a recent uptick in check fraud. FinCEN reported 680,000 instances of known check fraud in 2022, and those trends continued into 2023, with experts estimating a whopping $24 billion in losses. 40% of community bankers who responded to CSI’s 2024 Banking Priorities Executive Survey listed check fraud as one of the top types of fraud they encounter, only narrowly losing out to card and wire transfer fraud. Only half saw their prevention measures as very effective. Why is check fraud on the rise, and what can banks do about it? This article explores the problem and how positive pay can help stem the tide. Why is Check Fraud Increasing? Fraudsters have sought to manipulate paper checks for about as long as checks have existed, but recent years have seen a surprising increase in fraud with a modern twist. For many, the resurgent trend became most evident during the distribution of COVID-19 relief checks, as fraudsters exploited the confusion and emotion of the moment. But it didn’t stop there, as check fraud has spread to areas like social security checks, unemployment benefits, paychecks and more. Fraud in particular domains will inevitably increase when there aren’t enough safeguards to prevent it. In addition, instances of fraud tend to grow when the economy begins to dip or enter uncertain territory, like throughout a pandemic or times of intense inflation. Although check use has decreased, the average dollar amount of the typical check has increased and is often used for more considerable expenses, like paying employees or bills. So, it’s a ripe opportunity for fraudsters to make more in a shorter period. How Can Banks Prevent Check Fraud? As with all forms of fraud, the best defense against check fraud is staying alert and knowing the signs. For instance, consumers may be less inclined to mail a check if they are aware of the risks. They may be less likely to rely on checks altogether if they have the technology, training and convenience to pay another way. However, education isn’t limited to customers. Bank personnel should be better trained to spot bad checks. If they know some red flags, they will be better equipped to prevent them. Similarly, some tellers may need to say no when a pushy fraudster (under the guise of a dissatisfied customer) urges them to overlook red flags. Technology can also help in the constant effort to prevent fraud. For instance, an institution can update its remote deposit capture solution to enable real-time updates and alerts to its fraud team. Data visibility can help ensure bad checks are stopped, and good ones aren’t cashed multiple times. Implementing positive pay is another critical strategy. What is Positive Pay? Positive pay is an optional feature that banks can add to their existing core banking platform that tracks the checks issued and paid on selected commercial accounts, or the bank’s official checks account. It helps detect fraudulent checks by comparing ones to be cashed with ones already issued in the system and a predetermined set of parameters. It’s also a form of insurance against fraud, losses and other liabilities to an institution. The system compares the account number, check number 19 West Virginia Banker
and dollar amount of each check presented against a list provided by the company to protect against forged, altered or counterfeit checks. Payee names may also be included on the list of issued checks. If the payee’s name from the check image does not match the payee’s name from the issued check file, exceptions can be generated. When the information doesn’t match the check, the bank notifies the customer through an exception report, withholding payment until the company advises the bank to accept or reject the check. The bank can also flag the check, notify a representative at the company and seek permission to clear it. Positive pay adds a layer of security by requiring verification of key details, minimizing the risks of unauthorized or altered checks being paid. For instance, altered checks will typically be entered outside the account-specified parameters with different names or amounts. Exploring How Positive Pay Detects Check Fraud Positive pay evaluates checks for various discrepancies that may indicate a fraudulent check. In general, the system looks for exceptions like: • Paid Not Issued Item: The check number of the paid item does not match any issued item that was uploaded. • Duplicate Check Number: Two or more paid items have the same identification number. • Mismatched Account: The amount of the paid item does not match the amount of the issued item. This could indicate a counterfeit check wherein the amount was fraudulently altered. • Voided Item: A paid item matches an issued item marked as void and should not have been paid. Bankers everywhere should continue to keep an eye on these fraud trends for years to come. Want to know what else is on bankers’ minds this year? To read CSI’s interactive 2024 Banking Priorities Executive Report, scan the QR code below: https://www.csiweb.com/docs/banking-priorities-2024/ • Payee Name Mismatch: The payee’s name from the check image does not match the name provided in the issued check file. • Stale Checks: The check was not cashed within the days to post specified in the account options. • The Amount Exceeds the Limit: The check exceeds the dollar amount defined in the account options. • Low/High Check Number: The check number of the paid item is lower or higher than the check number range defined in the account options. Sometimes, a flagged item results from an error, like a misread check or incorrectly entered information. If a check gets flagged, the amount is correct and the check is legitimate, the institution or its customer can approve the exception. What Accounts are Eligible for Positive Pay? Positive pay can be offered to any demand deposit account, making it a versatile solution for financial institutions and their clients. While it can be implemented across a range of accounts, accounts with large balances and a high volume of transaction activity will benefit the most from the service. Institutions may find positive pay especially beneficial for corporate, commercial and multiple cash management customers, as these entities often engage in a significant volume of check-based transactions. Keeping Up with Current Trends The surge in check fraud will likely dwindle as check use continues to phase out of practice. In the meantime, a healthy mix of education and well-implemented technology makes a significant difference. Jason Young serves as CSI’s senior director of enterprise banking. 20 West Virginia Banker
Check Your Blind Spots By Randall Saunders, Partner, and Jonah Samples, Senior Associate, Nelson Mullins Riley & Scarborough LLP Even the most responsible driver can be caught unaware by an accident if they fail to check their blind spots when operating a vehicle. Technology like lane assist features can help, but may also create risk when people become too reliant on it. The same is true when it comes to cybersecurity. A company’s cybersecurity risk management plan will probably include the critical basics, like IT protocols and employee training. Still, when it comes to cybersecurity in the banking industry, oversights related to insurance and third-party risks can blindside businesses. Turn Off Autopilot for Cybersecurity in the Banking Industry Data breaches are becoming more common and costly. In 2023, there were 744 data compromises in the U.S. financial services industry, a drastic increase over the 138 breaches reported in 2020. Globally, the average cost of a single data breach in the financial sector in 2023 was nearly $6 million. Mitigating cybersecurity risks in the banking industry has become more challenging. Meanwhile, insurers have Cybersecurity in the Banking Industry 21 West Virginia Banker
grown less likely to include — and often explicitly exclude — cybersecurity coverage in their general liability policies. The fallout can be disastrous if a policy doesn’t provide the coverage needed after a cyberattack. Cybercriminals are also becoming more sophisticated and aggressive. Even if they can’t penetrate the systems a company has put in place to prevent cybersecurity incidents, they may be able to access data and systems through a third party. Due to this threat, businesses in the banking sector need to ensure that all vendors, partners, subcontractors and others who have access to internal digital resources also have proper cybersecurity management efforts in place. Proper Insurance Is Essential (and Sometimes Overlooked) in Cybersecurity Risk Management Plans In addition to changes in coverage and exclusions, increases in cybersecurity incidents, costs and demand for cybersecurity insurance have led insurers to increase premiums, lower policy limits and implement more extensive underwriting procedures for cybersecurity coverage. Insurers have also implemented ongoing requirements for policyholders related to cybersecurity management and training. If you are not meeting the requirements of your policy, coverage could be denied in the event of a cyberattack. When obtaining insurance or reviewing the terms of policies in effect, businesses in the banking sector should consider these issues: • First- and Third-Party Coverage: Policies may include coverage for first parties — the insured — and third parties — the policyholder’s clients, partners or others impacted by a breach. • Data Recovery and Retrieval: In addition to providing for data recovery, ideally, a policy should also ensure that data is retrieved and removed from unauthorized sources outside of your organization. • Geographic Restrictions: Some policies do not cover incidents that originate outside of the U.S., or they may implement other geographic restrictions. • Litigation Coverage: Cybersecurity insurance policies may or may not include a duty to defend. • Notice and Consent: A policy may require notice to the insurer within a specific timeframe after the insured becomes aware of the event. They may also include consent provisions stating the insurer must approve related expenditures in advance. • Approved Counsel and Vendors: An insurer may require policyholders to use approved vendors, including legal counsel. Insureds might have the option to request that a specific attorney or law firm be approved or to share in decision-making related to approved vendors. • Policy Exclusions: In addition to other possible exclusions, insurers may add a provision that negates coverage in the event a cyberattack is caused by employee error, hardware or software issues, or other matters the policyholder is responsible for mitigating under the policy’s terms. This is not an exhaustive list of the policy provisions and exclusions that can impact cybersecurity insurance coverage. Performing a policy review with an attorney or other professional who is knowledgeable about cybersecurity and insurance matters can help businesses in the banking industry ensure coverage meets their needs and will provide for a full recovery in the event of an attack. Mitigating Third-Party Risks to Cybersecurity in the Banking Industry Even with the most extensive cybersecurity risk management plan in place, third-party partners and service providers with access to your company’s data and systems can become a “backdoor” for cybercriminals. Therefore, mitigating cybersecurity risks in the banking industry requires ensuring data is protected and breaches are covered if a third-party vendor experiences a cyberattack. Before engaging with a new partner or vendor, request disclosure of information related to cybersecurity prevention and insurance coverage, and review it for potential weaknesses. The responsibilities of each party can be outlined in a contract or servicelevel agreement to protect both entities better. It is also recommended to keep a list of all third parties with access to business data and systems, categorizing them by the level of access to sensitive data. Access should be limited to only what is required for the third party to perform their duties, and companies can establish rules for interactions between employees and third parties. Some businesses even create a vendor management policy (VMP) that delineates best practices. Practice Defensive Driving for Cybersecurity in the Banking Industry Just as it is when navigating traffic, construction and potholes on West Virginia’s highways, complacency creates unnecessary risks related to cybersecurity in the banking industry. Insurance coverage issues and thirdparty perils can be avoided with proactive and ongoing efforts. Keep scanning the road ahead for hazards and stay alert at the wheel! Randall Saunders is a partner and Jonah Samples is a senior associate at Nelson Mullins Riley & Scarborough LLP in Huntington, West Virginia. They practice cybersecurity, technology and banking law, among other areas. Randy and Jonah will speak on preventive cybersecurity at the 130th WVBankers Annual Convention, July 28-31, 2024. 22 West Virginia Banker
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