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quarter 3 | 2018

The

Independent and proud of it!

Bottom Line

US Community Bank Market Report A Look Back at the 35th Annual ICBSD Retreat

July 28th: Gene Uher Day in South Dakota

3 Reasons to Revisit Your Bank’s Privacy Policy

Rivers Edge Bank putting Community back into Banking

www.icbsd.com


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The perfect workshop for Bank Officers, Directors & Your Ag Customers!

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winningest coach in South Dakota

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RegisteR today! $200 membeR Rate $275 nOn-memBer rate

Bring your ag customers for $100 per person

to register and for more information, visit:

www.icbsd.com/ fall-conference While you’re in town, we encourage you to attend the Eide Bailly Bankers Seminar in Sioux Falls the day prior, Wednesday, November 7, 2018 at the Hilton Garden Inn. Registration opens at 12:00PM. Seminar beings at 1:00PM. After the seminar ICBSD, in partnership with Eide Bailly, will be hosting a cocktail & comedy hour at the hotel! For more information contact Jessica at 605.339.1999 A block of rooms have been reserved for your convenience under ICBSD until October 16th. Call 605.444.4700 to make your reservation.

P.O. Box 615 | Watertown, SD 57201 | 605.878.3040 | www.icbsd.com

HIltOn GArDen Inn SIOux FAllS DOwntOwn 201 e 8th Street, Sioux Falls, SD 57103


contents

INSIDE This Issue

FROM THE DESK OF

Community spirit

2 President’s Message

20 Putting Community

Funding Rural

America’s Farmers by Megan Olson, President & CEO of ICBSD

3 Rebeca’s Remarks

Writing the Next Chapter

From the Chairman

22 Josh Hogue

A Look Back on the

Chairman of ICBSD

VP of Ag Commercial Lending, Reliabank Dakota by Hannah Merritt, Marketing & Public Relations

From the Chairman

Member Services

by Preston Steele,

7

From the Top

by Timothy Zimmerman, Chairman of ICBA Legislative

8

by Dean Krogman, Lobbyist

9

Federal Delegates Report by Emily Hofer

FROM CAPITOL HILL

10 Not Done Yet

by Congresswoman Kristi Noem

11 2018 PAC Contributors 12 Rounds Report www.icbsd.com

by Senator Mike Rounds

13 The Republican Economic Agenda is Working

P.O. Box 615, Watertown, SD 57201 605.878.3040

megan@icbsd.com

24 2018 US Community

Bank Market Report Executive Summary

28 Member Benefit:

Compliance Advisor

Perspective from Pierre

19 Dillon Kjerstad

President & CEO of ICBA

by Rebeca Romero Rainey,

Annual Retreat

Quarter 3 | 2018

People you Should Know Loan Officer, First National Bank in Philip by Hannah Merritt, Marketing & Public Relations

at ICBA

6

Back into Banking by Hannah Merritt, Marketing & Public Relations

by Senator John Thune

14 Q2 Business & Economic Data Analysis Summary by Shantel Krebs, Secretary of State

In the news

27 Meet Our Members 29 United Bankers’ Bank

Promotes Mary Williams

30 It’s Time to Celebrate! 32 Retreat Recap 37 Cyber Security & Your Bank by Travelers Bank

38 Can’t Keep a Good

Bank Down by Jim Reber, President and CEO of ICBA Securities

40 Associate Member

Spotlight 3 Reasons to Revisit Your Bank’s Privacy Policy by Davenport Evans Lawyers Quarter 3 | 2018 1


President’s Message From the president

Megan Olson, President & CEO of ICBSD

Funding Rural America’s Farmers Farm Food Facts 1. The typical American farmer feeds nearly 144 people worldwide. 2. Food accounts for 12.6 percent of American households’ expenditures. 3. Less than one dime of every dollar spent on food goes to farmers for producing food; the remainder goes towards processing, packaging, advertising, transportation and other wholesale and retail activities.

“Rural America” broadly describes the fields, forests, mountains, deserts, plains and prairies that comprise nearly 97 percent of the American land area and one-fifth of its populace, according to the U.S. Census Bureau’s American Community Survey. It’s also home to the American farmers and ranchers who are so essential to our nation’s economy. Food and agricultural enterprises drive more than 20 percent of the nation’s economy, and 28 percent of American jobs are either directly or indirectly tied to these sectors, according to the Food and Marketing Institute. This activity contributes nearly $7 trillion of U.S. economic output and accounts for more than 43 million full and parttime jobs. Given the significant contributions of the agricultural community to our economy and standard of living, our community banks work every day to provide the financing needed to allow farmers and ranchers in South Dakota to sustain viable agricultural operations. In fact, community banks provide more than 80 percent of all agriculture loans. The nation’s community banks are first responders in serving this market segment. The Minneapolis Federal Reserve noted that when the agricultural economy takes a downturn, as it has in recent years, local community bankers are the first to know and to provide needed credit to businesses and households in their local communities. Given the sharp reduction in net farm income of over 50 percent since 2013, a new federal farm bill is vital to provide a strong safety net for farmers and ranchers. As a native South Dakotan who is concerned for the economic prosperity of our community and local agriculture businesses, I, along with the ICBSD, am urging Congress to carefully consider the following principles as they construct the next farm bill: • Adequately fund commodity programs and crop insurance, which are key risk-management tools that enable producers to obtain farm loans. • Enhance the U.S. Department of Agriculture’s (USDA) farm loan programs – which provided more than $7.7 billion in loans for producers in 2017 and supported 42,000 farmers and ranchers – by increasing loan limits, providing greater flexibility for loan approvals, and eliminating unnecessary regulatory burdens. • Sustain USDA rural development programs by increasing the agency’s focus on guaranteed loan programs and preserving funding for programs such as the Business and Industry Guaranteed Loan Program for small businesses. • Reform the Farm Credit System, which has experienced dramatic growth while sharply reducing service to family farmers, to ensure this government-sponsored enterprise remains focused on serving farmers and does not venture into broad non-farm lending activities.

megan@icbsd.com

2 ICBSD 2018

The Independent Community Bankers of South Dakota have served the agricultural community for over 30 years and look forward to a strong and continuing relationship with America’s farmers and ranchers. As we work toward compromises on the next farm bill, I encourage local citizens to think about these reforms, which would benefit farmers and ranchers in South Dakota and across the nation.


Rebeca’s Remarks Writing the Next Chapter at ICBA From the president

Rebeca Romero Rainey, President & CEO of ICBA

Earlier this year, Rebeca Romero Rainey took on the top leadership role of the Independent Community Bankers of America as president and CEO. She follows in the footsteps of Camden R. Fine, who had been leading ICBA since 2003 before retiring effective May 5.

“As president and CEO of ICBA, my mission is ICBA’s mission – to create and promote an environment where community banks flourish. As a third-generation community banker, I’m honored and passionate about leading community banks as we continue to build on our solid reputation and legacy of consumer trust.”

A lifelong banker, Romero Rainey is the third generation of her family to serve in community banking. Before joining ICBA, she was chairman and CEO of Centinel Bank of Taos, New Mexico. During her tenure with the bank, she served the larger banking community as president of the Independent Community Bankers of New Mexico in 2007-08. On a national scale, Romero Rainey became engaged with ICBA through committee service. She was the first chairman of ICBA’s Minority Bank Council, and she also served on ICBA’s Executive Committee and as ICBA chairman in 2016-17. She has also been active with the Federal Deposit Insurance Corp., serving on the Advisory Committee on Community Banking, and on the Kansas City Federal Reserve Community Depository Institution Advisory Council. A community advocate, Romero Rainey is the co-founder of the Bridges Project for Education. She was selected as Taos Citizen of the Year in 2009 and has been awarded the New Mexico Governor’s Award for outstanding women. Romero Rainey is a graduate of Wellesley College and of the Pacific Coast School of Banking. For Hoosier Banker readers, Romero Rainey addresses the following questions about her service to community banking as leader of ICBA: What are your responsibilities as president and CEO of the Independent Community Bankers of America? “As president and CEO of ICBA, my mission is ICBA’s mission – to create and promote an environment where community banks flourish. As a third-generation community banker, I’m honored and passionate about leading community banks as we continue to build on our solid reputation and legacy of consumer trust. “As a former ICBA chairman, I’ve had such an advantage coming into this position, knowing so many community bankers and our state association executives. Over the past weeks, I’ve had several opportunities to visit state association conventions and catch up with bankers and state association leaders, which I’ve enjoyed immensely. I’ve also had the opportunity to forge new relationships with members, which is a highlight. “In my eyes, this is a very exciting time to be a community banker, as we look towards a future of innovation, blended with the steadfast relationship business model that’s unique to our industry. It’s a time unlike any other, and we need to leverage all of the opportunity that is out there to help us advance our industry and our individual banks.

@romerorainey

“My role as ICBA president and CEO will be to lead ICBA and community banks into this exciting future, as we write the next chapter of our community banking story. And yes, you know I’m all about community bankers telling their story. It was my platform message as ICBA chairman, and it will continue to be my call to action as ICBA president and CEO. Quarter 3 | 2018 3


“There are a few key themes that will help us tell this story. First, advocacy. ICBA has and always will advocate for the unique needs of community banks – and only community banks. ICBA exclusively promotes the community bank agenda before Congress, the administration and regulators, ensuring the needs of community bankers are heard. My priorities will be to ensure a tiered and proportionate regulatory environment for community banks, along with a level playing field for those who want to be part of the banking system. “The second key theme is innovation. ICBA has invested significant resources in this space, as we will continue to promote innovation opportunities and solutions that will help community banks grow and thrive. “I’m also very passionate about our third theme – education. ICBA will continue to promote the community bank profession and is fully committed to helping community bankers and their staffs grow in all stages of their community banking careers. “With advocacy, innovation and education being key priorities, I know that ICBA will be doing everything possible to create and promote an environment for community banks to flourish.” The community banking industry recently enjoyed a major legislative victory with the passage of S. 2155. What insights can you offer about how this and other legislative progress will affect community banking? “The Economic Growth, Regulatory Relief, and Consumer Protection Act, S. 2155, is a community banker victory, and we want to thank all of the community bankers who stood up, told their story and advocated for our industry. Suffice it to say, our years of advocacy included hundreds of meetings with policymakers on Capitol Hill and at the White House, tens of thousands of community banker messages to lawmakers, congressional testimony, joint state association letters, petitions, articles, op-eds and more. 4 ICBSD 2018

“But it was all worth it. By working together and pressing tirelessly for needed change, we will be able to better serve our customers and communities. “There are beneficial regulatory relief measures in this law for community banks of all sizes. It will unravel many of the suffocating regulatory burdens our nation’s community banks face and puts community banks in a much better position to unleash their full economic potential. “Many of the provisions that were included in the law reflect ICBA’s Plan for Prosperity regulatory relief platform, which was originally launched in February 2013. ICBA’s Communities First Act preceded it. As a community banker who also served as ICBA chairman, I can tell you that regulatory relief has been job No. 1 at ICBA for a very long time, and will continue to be well into the future. “But as you know, ICBA’s quest for commonsense regulation is not over. While this new law will make a positive difference for community banks, there is plenty more work ahead of us. We will continue looking for ways to create and promote an environment where community banks flourish, and we won’t take no for an answer.”

that takes a deep dive into the legal and compliance elements associated with Fintech partnerships. “I also believe that the core processor relationship is a critical component of financial technology and the future of our industry. ICBA recently released a Core Processor Resource Guide and Best Practices for working with cores and managing the partnership. Again, I encourage all community bankers to take advantage of these ICBA resources. “In terms of advocacy, there is still more work to be done. We need to get the rules written as quickly as possible for S. 2155, so community bankers can leverage the benefits of the new law and help promote economic vitality in their communities. ICBA has already sent letters to the regulators and the Consumer Financial Protection Bureau advocating for its expeditious implementation. “We will also continue to urge Congress to end the credit union industry’s unwarranted federal tax subsidy and oppose expanded powers for the industry, as long as it remains exempt from taxation and the Community Reinvestment Act. And we’ll continue raising concerns

Where is future progress needed?

with the Office of the Comptroller of the

“As I said, I’m very focused on innovation and education. We need to continue to innovate as an industry, and ICBA is here to help shepherd and serve community banks in this space. In fact, we’ve dedicated significant resources to it. ICBA brought on Kevin Tweddle, ICBA’s chief innovation officer, a year ago. His role is to help community banks partner with financial technology solutions that work for them.

Currency’s proposed special-purpose

“We also released a Fintech Strategy Roadmap in March, written in collaboration with Hunton & Williams LLP, to help community banks navigate all of the options that are available to them. I encourage all community bankers to look at the roadmap, if they haven’t already. It’s the first community bank resource

advantaged status.

national bank charter for Fintech companies, and ensuring that the OCC does not proceed without explicit statutory authority from Congress. “A strong farm bill is also needed. We’ll continue to call on Congress to pass a farm bill that provides stability to the volatile farm sector and to prevent the Farm Credit System from abusing its tax-

“Clearly the list is long, and there is plenty more that needs to be accomplished, but with the help of our members and the ICBA staff, we will achieve more community bank victories in the coming years.”


from the president

“When you grow up in a family of community bankers, working in a community bank from an early age and seeing the positive impact that the bank has on the community, you can’t help but be influenced by it. Over the years, I’ve seen small businesses thrive and be turned over to the next generation of leadership.” How can bankers engage effectively in grassroots advocacy? “Three words – ‘tell your story.’ One of the reasons why ICBA and community bankers were able to get generational community bank regulatory relief and tax reform through Congress was by making our voices heard through our individual stories. “Each community bank is unique, and your narrative demonstrates that. ICBA makes it easy by providing community banks with resources to advocate, promote their banks, and stay in the know. Our Be Heard Grassroots Action Center makes it easy to send a letter to a member of Congress with the click of a button, and our Marketing and Communications Toolkit makes it easy for community banks to promote their brand throughout the year. “By standing up and making our voices heard through examples and storytelling, we will make great change happen for our industry. Keep up the great work, community bankers!” What are upcoming opportunities in banking? “I’ll go back to innovation and education. Opportunities abound, and it’s up to community bankers to take advantage of opportunities that are out there. We hold the keys to prosperity in our hands; we just need to turn on the ignition. “Succession planning and grooming our industry’s future leaders is a big part of this. That’s why I’m so excited to be part of ICBA’s LEAD FWD event powered by Community Banker University. It will be held Sept. 17-18 in Louisville, Kentucky. “It’s a privilege to be a community banker – that’s why I see such a great opportunity to promote this profession and get

more people excited about careers in community banking. And we’ll do that by showing the impact community bankers make in people’s lives, and how they are an integral part of the community. “That’s another reason why I think ICBA’s Go Local initiative is so important. We need to continue to show how the community bank business model affects local communities. There’s a natural fit here for the millennial generation and beyond. We just need to get out there and continue to tell that story. “If community banks aren’t already participating in Go Local or our Go Local Wednesday initiative, I encourage them to learn more at icba.org/golocal.” What do you most enjoy about your work? “Everything. Right now, I’m thrilled to be building new relationships and reconnecting with community bankers, state association executives and staff, along with community banking advocates from across the nation. I’m enjoying working with the tremendous ICBA staff and doing what we do best – fighting for the needs of the nation’s community banks.” What influences guided your career development? “When you grow up in a family of community bankers, working in a community bank from an early age and seeing the positive impact that the bank has on the community, you can’t help but be influenced by it. Over the years, I’ve seen small businesses thrive and be turned over to the next generation of leadership. All of this was instrumental in helping me grow into the community banking professional and advocate I am today.

“I also can’t say enough positive things about getting involved with your local state association to engage with other community bankers and advocate for our industry. I learned so much by getting involved with the Independent Community Bankers of New Mexico and serving as their president back in 2007. “Serving on ICBA’s Executive Committee was also instrumental in my career development, because it was a great learning experience and provided me with opportunities to travel the country and connect with my fellow community bankers. “Something that I’m really drawing on now is my past experience in engaging with the regulators. Thanks to my time on the Federal Deposit Insurance Corp. Advisory Committee on Community Banking and the Kansas City Federal Reserve Community Depository Institution Advisory Council, I was able to learn how to work with regulators to make change happen.” What was key leadership advice that you received? “Two key phrases come to mind. First, the power of listening. When I assumed the leadership role at my family bank, I learned early on that you need to listen in order to learn. The core is being able to listen to ensure you understand the problems you are trying to solve and being open to hearing the potential solutions, so you can make the best business decisions. “My other key leadership advice came from my dad, who taught me the power of making the hard right decision instead of the easy wrong decision. This advice has guided so much of what I do.” Quarter 3 | 2018 5


A Look Back on the Annual Retreat

From the Chairman

Hometown: Wolsey, SD Education: USD, BS in Management and Finance How did you get your start in banking? In January 1998, I was the 3rd generation banker in our family. My father presented me with a great opportunity to join the family banking business. I started as a teller, then operations, next was compliance/ auditor, then lending officer, on to EVP administration and now Chairman of the Board, so I had the opportunity to work through many departments of the bank. Goals for the Association: Continue to contest the creep of expanded products and services offered by Credit Unions and Farm Credit. Lessen the regulatory burden on our community banks in the state. Educate the citizens of S.D. on the importance of community banking on the financial welfare of our state. Favorite Activities: Golf, hunting, fishing, coaching my kids on various team sports, family time Community Involvement: State level Junior Achievement Board member, Chairman of Huron Airport Board Authority, North Star Mutual Advisory Board

Preston Steele, Chairman of ICBSD, American Bank & Trust, Huron

“This fall is shaping up to be an incredibly important time for our industry, and I look forward to continuing my journey as an independent community banker with you all, and alongside my fellow ICBSD board members.” Excited. Humbled. And, ready! Those are the

to be front and center as the work for

emotions I felt as Jaimey Schempp passed

regulatory relief continues. More pressure

the gavel to me as ICBSD’s new chairman

is needed in order to put S.2155 into

of the board at our annual retreat this

action. ICBA is currently working to attach

past July. This fall is shaping up to be an

meaningful regulatory relief to legislation

incredibly important time for our industry,

that is being passed in order to expedite the

and I look forward to continuing my journey

relief process for community banks. Wilcox

as an independent community banker with

also shared ICBA will continue to level the

you all, and alongside my fellow ICBSD

playing field by closing Aisle C loopholes for

board members.

credit unions, the OCC, Fintech and others.

By the time this magazine hits your mailbox,

Aside from networking and banker

school will be back in session, athletics will

education, we also utilized the annual

be underway and my family’s routine will

retreat to raise money for the ICBSD

be back to some sort of normal! Despite

Political Action Committee. It is the PAC

the chaos of summer, my family and I were

program that drives success and change on

able to enjoy a ‘working vacation’ at the

Capitol Hill, and ensures the voices of our

35th annual retreat which took place at

independent community bankers are heard!

the beautiful Sylvan Lake Lodge. Despite

Money was raised through a variety of ways:

the uncooperative weather, the event was a

our annual ICBSD PAC Golf Scramble held

great opportunity for networking, continued

at The Golf Club at Red Rock in Rapid City,

education and some much needed R&R! A

two games of “Last Banker Standing”, and

big thank you to Megan and Hannah for

of course our traditional silent auction.

organizing a great event!

@pbsteele psteele@abt.bank

6 ICBSD 2018

For those of you who were unable to attend,

ICBA Vice Chairman, Noah Wilcox, joined

I strongly encourage you to save next year’s

our banker education session on Friday

date: July 25th – 27th, 2019. My family

morning, during which he provided a ‘state

enjoyed the new ideas, different activities

of the state’ on ICBA’s priorities for the next

and fresh design concepts Megan brought

year. Not surprisingly, S.2155 continues

to the table, and I think you will too!


@TimZimPgh

From the Top

From the Chairman  Timothy K. Zimmerman, Chairman of ICBA, and CEO of Standard Bank, Monroeville, Pennsylvania

“ICBA and community bankers have spent much time at the forefront of the regulatory relief push, and we need to ensure those efforts deliver meaningful relief at the operational level. We’ll continue pushing to make these reforms as valuable as possible for community banks.” Community bankers have put years of effort into the regulatory relief provisions that were signed into law under the bipartisan Economic Growth, Regulatory Relief and Consumer Protection Act. But the battle doesn’t end there. Federal regulators are now charged with writing the rules that implement the act and detail how it will affect community bankers on the ground, so ICBA is working with the agencies to maximize its beneficial impact. For starters, ICBA called on federal regulators to issue regulations that implement the ICBA Plan for Prosperity inspired law as quickly as possible. In letters to the prudential banking regulators and the Consumer Financial Protection Bureau, ICBA cited the many regulatory relief provisions that will help community banks unleash their full economic potential.

DID You

know

Some provisions, such as those simplifying capital rules and establishing a new community bank leverage ratio, will take time to implement. But many can be enacted by simply revising existing rules. For instance, ICBA’s letters encourage the agencies to quickly issue regulations providing “qualified mortgage” and Home Mortgage Disclosure Act relief, implementing Volcker Rule and escrow exemptions, and expanding access to the 18-month exam cycle and the Small Bank Holding Company Policy Statement. In a separate message, ICBA specifically called on the agencies to quickly issue regulations for the short-form call report created by the law and long advocated by ICBA. A provision in the act directs agencies to use a short-form report in the first and third quarters for banks with total consolidated assets of less than $5 billion.

ICBA is calling on the agencies to limit short-form reporting to the balance sheet, income statement and statement of changes in shareholders’ equity without any other supporting schedules. This would allow relevant stakeholders to gain a solid understanding of reporting institutions’ financial condition and performance without the excessively complex and burdensome reporting exercise associated with the long-form report. ICBA and community bankers have spent much time at the forefront of the regulatory relief push, and we need to ensure those efforts deliver meaningful relief at the operational level. We’ll continue pushing to make these reforms as valuable as possible for community banks. We are not resting on our laurels but are committed to delivering additional relief for community banks and local communities.

ICBA submitted two petitions during the debate over the Economic Growth, Regulatory Relief and Consumer Protection Act that garnered more than 10,000 signatures each.

Quarter 3 | 2018 7


Perspective from Pierre

“...with the recent primary elections taking place, the campaign trails are heating up. ... ...I encourage you to capitalize on this time and engage with your candidates.”

by Dean Krogman, ICBSD Lobbyist

Governor Dennis Daugaard has called for a special session on Wednesday, September 12th at the State Capitol in Pierre. During the session, lawmakers will consider legislation that will expedite the implementation of the recent U.S. Supreme Court ruling in South Dakota vs. Wayfair, Inc. which allows the state to mandate remote sellers collect and remit sales tax. Legislation is currently being drafted by the South Dakota Department of Revenue and the Attorney General’s office. In other news: with the recent primary elections taking place, the campaign trails are heating up. Everywhere you turn, voters are being exposed to information from political candidates – from TV to literature in the mail, social media posts and even phone calls. I encourage you to capitalize on this time and engage with your candidates. For those of you wondering where to start, here are some tips: 1. Find out who your candidates are. For a complete list, visit the Secretary of State website: https://vip.sdsos.gov/CandidateList.aspx?eid=291. I encourage you to schedule face time with your candidate, even if just for ten minutes. 2. Candidates want your vote, make them work for it! Ask to speak to the candidate, or their representative. Introduce yourself and tell them what you do, not just want you want. If candidates understand and appreciate what you do, they’re far more likely to listen to you when you want to influence them. 3. Attend campaigns events. Attending campaign events and town halls and other stops candidates may be making in your area are other great ways to interact and get facetime.

It is a great pleasure to represent our community bankers at the State Capitol. If you have any questions or concerns feel free to contact me.

dkrogman@sdsma.org 605-695-3497

4. Know the issues. There are several ballot issues you’ve probably heard about. South Dakota Initiated Measure 25 is one example. A “yes” vote supports increasing the tax on cigarettes from about $1.53 per pack of 20 cigarettes to $2.53 per pack of 20 cigarettes and increasing the tax on wholesale tobacco products from 35 to 55 percent, with a portion of tobacco tax revenue dedicated to technical institutes. A “no” vote opposes increasing the tax on cigarettes from about $1.53 per pack of 20 cigarettes to $2.53 per pack of 20 cigarettes and increasing the tax on wholesale tobacco products from 35 to 55 percent, with a portion of tobacco tax revenue dedicated to technical institutes. You can learn more about this issue, and many more, by visiting the Secretary of State website: https://sdsos.gov/elections-voting/ As your lobbyist, we will be participating in certain legislative races on behalf of the PAC. If you have specific questions, recommendations, or would like to get involved, please contact myself or Megan. As always, it is a pleasure to work with you all and represent you in Pierre.

8 ICBSD 2018


ehofer@msb-sd.com 605-660-4790

Federal Delegates Report by Emily Hofer, ICBA National Director, Merchants State Bank, Freeman, SD

Being a third generation community banker is not my job – it is my life. I cannot imagine myself at another career. I think I knew I would be a community banker before I was 10 years old, at which time I was already filing checks, helping with statements, and doing “backroom” work. You see, I was just too young to be taken seriously at the teller line. I suspect many of the people reading this column feel the same way – you grew up in the bank. Others of you may have come to banking through a different path. However, we are now on the same team – fighting for an industry that is threatened every day. We compete against government-sponsored entities, untaxed credit unions, and banks that seem to weather reputational damage that would do no less than close our doors and possibly jail our executives. Luckily, we have ICBA and ICBSD on our side in this constant fight against competition that threatens our industry and our communities. ICBSD just wrapped up another successful Annual Retreat at the beautiful Sylvan Lake Lodge at Custer State Park.

“In October, each ICBA member bank in S.D. will be asked to elect a banker to fill the three-year Federal Delegate term. I humbly ask your support as I seek to fill a second term in that position. I believe that I am a good candidate to continue telling our story at home and in Washington to anyone who will listen.” This year marked the 35th Anniversary of the state association. I don’t have the longest attendance record streak – that goes to Kevin and Sheila Bruscher from CorTrust. However, I have been around for most of those Annual Retreats. In the early years, I was the young troublemaker hanging at the stables at Blue Bell Lodge. Fast forward 30 plus years (and boy has it been fast!), and I have served on the ICBSD board in all capacities and now fill S.D.’s Federal Delegate position with ICBA. I often bring a guest to the Retreat to make the drive across the state shorter – once a friend from college, once a family friend, and this year a large family group. Every one of those non-banker friends or family members that I have brought is amazed at the comradery and quality of friendships I have with the other bankers from across the state. “Aren’t they your competition? You are all so friendly. Is that friendliness forced?” I’ve been asked these questions numerous times. My response is always the same – these bankers are friends with common core values. Community bankers provide service beyond themselves. We work daily to help our customers, employees, and communities thrive. ICBSD and ICBA provide the platform for us all to work together to strengthen our industry. The value of membership and involvement in these associations is priceless in my opinion. The Retreat is always an excellent reminder to me to keep telling my story: a story that all of us share – Community Banking. I’m proud to be a Community Banker, and I’m sure (at least I hope) most of you share that sentiment. We need to continue telling our story to local

business leaders, state and national lawmakers, and anyone else who will listen. It cannot be stressed enough that community banks are small businesses that specialize in relationship lending within the communities that we serve. Our community banks build better communities. We are unique in the financial services industry, and our advocacy efforts need to reflect that differentiation. I’m proud to say that my Grandpa Harris Hofer was one of those first community bankers in our state that saw the need for a unified voice in S.D. for community banks. These ICBSD incorporating members were the first community bankers in S.D. to Stand Up, Step Up, and Speak Up for our industry. For the past three years, I have carried my torch for community banking on the ICBA Federal Delegate Board. It has been a rewarding, educational, and humbling experience for me to work with such dedicated leadership bankers. The tremendous victories for our industry in the last few years are in large part due to ICBA. In October, each ICBA member bank in S.D. will be asked to elect a banker to fill the three-year Federal Delegate term. I humbly ask your support as I seek to fill a second term in that position. I believe that I am a good candidate to continue telling our story at home and in Washington to anyone who will listen. In the meantime, feel free to contact me at any time regarding ICBSD or ICBA if you have questions, comments, issues, etc. I love hearing from other bankers. I can be reached at ehofer@msb-sd.com or 605-660-4790. Quarter 3 | 2018 9


FROM CAPITOL HILL

Not Done Yet

Kristi Noem

“The regulatory reversal has created a newfound hopefulness for many job creators. In fact, small businesses report in a National Federation of Independent Businesses survey that they are more optimistic today than at any point in the last three decades, setting the stage for continued growth.”

United States Representative (R-S.D.)

The U.S. economy is booming right now. After years of snail’s-pace growth, it surged ahead 4.1 percent last quarter, which economists called a “blockbuster” and “rip-roaring” number. What’s more, worker pay reached the highest level since 2008, with wages, salaries, and benefits all increasing by significant margins. This economic resurgence didn’t just happen, however. Over the last two years, we have dramatically reduced both taxes and regulations, giving families and businesses the freedom to grow that they’ve been waiting for. More specifically, since President Trump took office, we have dismantled 2,000+ regulations – one of the most significant government rollbacks in recent memory. Additionally, the administration has dramatically slowed the creation of new regulations. According to the National Association of Manufacturers, “Compared to the Obama administration, during its first 18 months in office the Trump Administration has approved 53.1 percent fewer new ‘major’ rules (i.e., those having an economic impact of $100 million or more…) and 64.4 percent fewer new ‘minor’ ones.” President Trump also signed the Economic Growth, Regulatory Relief, and Consumer Protection Act, which I helped pass through the House. Despite not causing the financial crisis, smaller institutions have been unfairly caught up in the regulatory burden. This legislation helps lift some of the Dodd-Frank Act’s unnecessary regulations from the shoulders of small banks. The regulatory reversal has created a newfound hopefulness for many job creators. In fact, small businesses report in a National Federation of Independent Businesses survey that they are more optimistic today than at any point in the last three decades, setting the stage for continued growth. Beyond the regulatory changes, President Trump signed the historic tax cuts bill I helped negotiate. As a result of the legislation, the average South Dakota family of four will see their after-tax incomes rise by $2,400. How? We made it so the first $24,000 a couple makes is now tax free. We doubled the Child Tax Credit to $2,000 per child. We eliminated the marriage penalty and built in pro-growth reforms that produced higher wages, lower utility bills, and a booming job market. Just like Ronald Reagan did, we’ve proven the true value of tax cuts and deregulation. And we’re ready to do more. Right now, as a member of the House Ways and Means Committee, I’m working on what we’re calling Tax Cuts 2.0. This legislation would lock in the tax cuts for families, help incentivize entrepreneurship, and much more. The bottom line is this: We know what works. When we reduce the size, scope, and cost of government, ‘We the People’ have room to grow. I’m proud of what’s been accomplished so far, but we’re not done yet.

10 ICBSD 2018


Contribute

Today!

The ICBSD Political Action Committee helps provide South Dakota community banks with a strong voice in state politics through contributions to candidates for state elected offices. These contributions help ensure we have a seat at the table when issues affecting your bank are being discussed in Pierre.

Thank you for supporting the ICBSD Political Action Committee! PAC 100 Contributors: John Clarke . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Mark Halher . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Jack Hopkins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Lynn Peterson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Darrell Olson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Jeff Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Roger Weber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Boyd Hopkins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Robert Hopkins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank Donald Threadgold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cortrust Bank David Ebbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Mark Tetzlaff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Jan Johnson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank David Johnson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Hugh Bartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Mark Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Claire Konold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Robert Smithback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Duane Roseth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . First National Bank, Philip

Contribute Our thanks in advance for your support of the PAC 100.

Gene Uher Call me at 605.201.1864

Based in Sioux Falls, S.D., serving South Dakota, Nebraska, Minnesota and Iowa

Why choose Bell as your bank’s lending partner? Leverage our large lending capacity, up to $20 million on correspondent loans. Our lending limits are high enough to accommodate what you need, when you need it. Commercial & ag participation loans Bank stock & ownership loans Bank building financing Business & personal loans for bankers

Your checks can be mailed to: ICBSD PAC, PO Box 615, Watertown, SD 57201 Member FDIC

17224

Your PAC 100 contribution supports legislative candidates throughout our bankers’ districts. Contact Megan Olson to learn more.

Quarter 3 | 2018 11

17224 AD Independent Community Bankers of SD 2018_V1.indd 1/11/18 1 3:14 PM


FROM CAPITOL HILL

Round’s Report

Economy is Improving, but Trade Instability Must be Addressed

Mike Rounds

United States Senator (R-S.D.)

“Like Chairman Powell, I believe we have a very good opportunity for continued GDP growth. However, I shared with him my concern that trade instability – especially for the ag industry – will stifle our ability to reach our full economic potential.”

Across the country, Americans are experiencing the benefits that

I serve on the Senate Banking Committee, which recently

come from a healthy, growing economy. In just the month of

held a hearing to receive an economic update from Federal

June, 213,000 new jobs were created and more than 600,000

Reserve Chairman Jerome Powell. He reported that Americans

people re-entered the workforce. Since the Tax Cuts and Jobs

are optimistic about the state of our economy and about

Act was signed into law, nearly 1.3 million jobs have been

finding a good-paying job. I appreciated our discussion about

created. This growth is due in large part to policies enacted by

the positive impact the Tax Cuts and Jobs Act, as well as the

the current Congress and the Trump Administration.

reduction of burdensome regulations, is having on our Gross

In addition to strong job numbers, retail sales have increased for the fifth consecutive month. Consumers feel confident in the economy once again and because they are paying less to the government in taxes, they are free to spend their hard-earned dollars how they see fit. Their spending provides a boost to businesses, who are then able to hire more workers to meet demand and pay their employees higher wages. This is a winwin-win for consumers, American businesses and employees. Congress and the White House have also been able to work together on reforms to the Dodd-Frank Act, which has saddled our financial institutions with burdensome regulations and hindered their ability to serve their customers. Earlier this year, the president signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act, which included a number of provisions that I offered. This law provides relief to smaller, community banks and credit unions that had no part

Domestic Product (GDP) growth rate this year. Like Chairman Powell, I believe we have a very good opportunity for continued GDP growth. However, I shared with him my concern that trade instability – especially for the ag industry – will stifle our ability to reach our full economic potential. Without strong trading deals, I fear we may begin to lose some of the gains we’ve made in growing our economy. It is up to the White House to finalize trade deals with our partners in Canada and Mexico, as well as the Trans-Pacific Partnership (TPP) countries, as soon as possible. Retaliatory tariffs from China on South Dakota products like corn, wheat and soybeans has cost producers millions of dollars since the tariffs were announced. With the farm economy down more than 50 percent in South Dakota over the past five years, we need stability in our commodity prices and we need strong trade deals in place – right now.

in the financial crisis but were subject to the same regulations

We’ll continue working to improve the economy for all

after the fact that were put in place to keep big banks in

Americans, and that means pushing for fair, strong trade

check. When South Dakota’s banks and credit unions don’t

deals. We are pleased to see that businesses are flourishing

have to spend so much on compliance costs, they can offer

and workers are making more money, but we can’t let trade

more services to customers and support businesses in their

instability become an obstacle on our way to record-high

communities, which helps our economy flourish.

economic growth.

12 ICBSD 2018


FROM CAPITOL HILL

The Republican Economic Agenda Is Working john Thune

United States Senator (R-S.D.)

“So far in 2018, growth is already above 3 percent, and the unemployment rate is at the lowest level in nearly two decades. According to the July jobs report, the number of Americans filing for unemployment stood at its lowest level since the year Neil Armstrong landed on the moon (that’s 1969 for those too young to remember).” In 2016, when I asked South Dakotans

perspective, some economists had written-

Before tax reform, the cards were stacked

for the opportunity to serve another term

off numbers like that, predicting a new

against larger American businesses

as their U.S. senator, I told them I wanted

normal of 1-2 percent annual

because they were competing in a

to pursue a pro-growth, pro-jobs agenda

growth – the kind of growth we saw

global market from a country with

that put them and the rest of the American

during the entirety of the Obama

the highest corporate tax rate in the

people first. At the time, the economy

administration. Republicans in Congress

industrialized world. How could anyone

had been stuck in neutral for nearly a

were unwilling to accept the status quo

have effectively competed when your own

decade, and the previous administration

because we knew America could do better.

country’s tax code put you at a significant

seemed unwilling to get it back in gear. Fortunately, though, things have changed.

So far in 2018, growth is already above 3 percent, and the unemployment

For the last 19 months, the Republican-

rate is at the lowest level in nearly two

led Congress has been working with the

decades. According to the July jobs

president and his administration to help

report, the number of Americans filing for

turn the economy around. We’ve passed

unemployment stood at its lowest level

and the president has signed bill after bill,

since the year Neil Armstrong landed

which has given businesses and taxpayers

on the moon (that’s 1969 for those too

additional tools and opportunities to

young to remember). Wages, benefits,

succeed and helped relieve the burden

and disposable income are all on the rise.

of unnecessary government red tape. As

Small business optimism is at a record

a result, the economy is now on a much

high, and consumer confidence is at a

disadvantage? Fortunately, that’s no longer the case. Interestingly, faced with all of this positive economic news, the loud criticism from my Democrat colleagues has largely gone silent. It’s worth remembering that not only did they vote in lockstep against providing this tax relief to taxpayers, but Nancy Pelosi also once said tax reform would be like “Armageddon.” If low unemployment, strong economic growth,

stronger, more successful path.

nearly 18-year high.

and more opportunities for American

Don’t take my word for it, though. The

Since the landmark Tax Cuts and Jobs Act

describe the previous administration’s

numbers speak for themselves.

was signed into law late last year, more

economic policies?

From April through June of this year, the

created, South Dakota families have been

I’m proud of what we’ve been able to

economy grew by more than 4 percent,

able to keep more of their hard-earned

accomplish and look forward to building

which exceeded many expectations. What

paychecks, and businesses – large and

off of this success to ensure we’re doing

does 4 percent growth actually mean,

small – now have a simpler tax code that

everything we can to help American

though? Well, it means the Republican

does a better job of working for them

businesses and taxpayers succeed.

economic agenda is working. For

rather than against them.

They’ve waited long enough.

workers is Armageddon, how would she

than 1.5 million American jobs have been

Quarter 3 | 2018 13


14 ICBSD 2018


Quarter 3 | 2018 15


16 ICBSD 2018


Quarter 3 | 2018 17


18 ICBSD 2018


PEOPLE

you should

KNOW by Hannah Merritt Marketing & Public Relations

“For as long as I can remember, I’ve always been intrigued by finance... My parents had a strong relationship with their ag lender. Watching my parents work with him allowed me to develop an interest beginning at a young age.” For Dillon Kjerstad, loan officer at First National Bank in Philip, agriculture is truly a way of life. Dillon was raised near small-town Quinn, S.D. (population 44, yes you read that right), where his family runs a feedlot operation. It was on that feedlot that he first realized his interest in finance. “For as long as I can remember, I’ve always been intrigued by finance,” said Dillon. “My parents had a strong relationship with their ag lender. Watching my parents work with him allowed me to develop an interest beginning at a young age.” Dillon went on to pursue his interest at South Dakota State University where he received his degree in economics/ag business. He went on to further his education by pursuing his master’s degree in business administration from the University of South Dakota. In 2016, Dillon received an At-Large Outstanding Leader Scholarship to attend the Graduate School of Banking at the University of Wisconsin-Madison. He completed this program in 2018. Dillon’s passion for lending has taken him to various parts of the country, with both a ‘mega’ bank and independent community bank. The experience has been invaluable, and Dillon returned to his roots in rural South Dakota at First National Bank in Philip where he became involved in the ICBSD.

Dillon Kjerstad One of ICBSD’s Newest Board Members

Loan Officer, First National Bank in Philip “ICBSD truly represents what First National Bank has set out to do; make community banking stronger. Some of the bigger banks don’t prioritize this.” Dillon is one of ICBSD’s newest members of the board of directors. He will serve a three-year term. Dillon looks forward to learning from his fellow board members and becoming a better community banker for First National Bank in Philip. He also looks forward to representing western South Dakotans on a state and national level. In his free time, Dillon enjoys spending time helping his wife run their community pharmacy business and helping on his family ag operation where he still plays an active hand alongside his parents and brother. Dillon and his wife Courtney have three children under the age of five, who also keep them busy! Quarter 3 | 2018 19


by Hannah Merritt Marketing & Public Relations

Putting

Community

Back into Banking “If you row someone across the river, you will get there yourself.” This mantra is the north star that guides every decision Rivers Edge Bank President & CEO, Don Nolan, makes. While he is a key player in the community banking industry, Don will be the first to tell you his institution is in the business of investing in people and communities, not just finances. Rivers Edge Bank has six locations – Hawarden (Iowa), Howard, Canova, Marion, Parker and Bridgewater, South Dakota. “Our story passes through me, but it is not about me,” says Nolan. As a child, Nolan had a modest upbringing in western Nebraska with little exposure to banking. After graduating from college at Chadron State College in western Nebraska with a degree in business, Nolan was newlywed and in search of a job. As fate would have it, an opportunity presented itself that would change his career forever. While looking at the school job board, one of his professors rushed by in a hurry to class. As he passed by, he hollered over his shoulder “Are you looking for a job? I just got off the phone with Northwestern State Bank in Hay Springs, NE. They’re looking for a loan officer and want to hire someone soon. Give them a call!” Within a week Nolan drove to Hay Springs, interviewed and was offered the job. Years later, Nolan took a promotion in the same bank organization as President of First State Bank of Hawarden, IA.

20 ICBSD 2018

His passion for the Hawarden community, its businesses, farmer operators and families fueled him along the way. Through these experiences, Don quickly realized the success of rural communities was largely dependent upon community banks. He also saw first-hand the challenge with keeping banks local. According to Nolan, there are two challenges with keeping banks local. When rural communities were founded, they were typically located near rivers, highways or railways. The community needed a bank, so a small group of investors would pool their money together to form a bank. Over time, shares of the bank were passed generationally creating a problem. “With this model, over time ten investors may turn into forty or more,” says Nolan. “People don’t always work well together, or live near one another and as a result they don’t share the same heart for the community.” The second challenge with keeping community banking local is related to the family model. “The family model has been the cornerstone of local community banking over the years. However, sometimes a problem arises when the family chooses to sell the bank. Typically, the ownership is consolidated in the family and it takes a lot of money to buy the bank. The issue is there may not be any one person or family in the community who has deep enough pockets to buy. Often times, ‘mega


banks’ are the highest bidder and local ownership is lost forever,” Nolan says. The biggest threat to family owned community banking can be succession planning or unexpected family events. These scenarios change everything, and many times the family has no other option but to sell,” explains Nolan. Ironically Nolan and the former owners of First State Bank recognized their bank was faced with the same challenge. Rather than selling out to a mega bank, the bank’s former owners sought to sell the bank locally. “They asked me to consider buying the bank. This was out of left field, something I had never considered. Financially, how would I make this happen?” says Nolan. Rather than financing the purchase on his own, which Nolan admits he had no ability to do, he and three others (who were not family members) formed a holding company called First State Associates to participate in the purchase. First State Associates purchased onethird of First State Bank in Hawarden in partnership with two other small, rural bank holding companies. Ownership was divided into equal thirds, something the FDIC and Federal Reserve had never seen before. The FDIC expressed concern about the group not getting along without a majority shareholder. “I think we outlived their concerns as there was a great atmosphere of

cooperation amongst the three holding companies. Over time, the two partner bank holding companies graciously allowed FSA to buy out their interest as we were able. They were willing to do it that way as they were very interested in helping us bring the bank back to local ownership and give younger investors a chance” explains Nolan. Since then, Nolan has leveraged local relationships and applied this same model in order to incorporate five other community bank locations into the fold. “Good things in life happen to us because of relationships. With this model you have to be willing and able to take action, and ask yourself ‘what should we do next?’ You don’t have to be family in order to make this work. This model started with a group of local folks from Hawarden, IA who pooled resources together in order to help their community,” says Nolan. While it may appear to be a bank branch model, for Nolan this model is about perpetual community ownership. In order to avoid the challenges other community banks are facing, FSA’s shareholder agreement is built for sustainability. Nolan is a firm believer that officers and directors at the bank should be invested in the bank, and their model supports this. All investments are from within the communities that the bank serves. When it comes to shares, two types are issued: voting and non-voting. Bankers are

always issued voting shares in order to enhance the best interest of the bank. In order to keep shares affordable, they are only sold in ‘bite size morsels’ to avoid consolidation of ownership. Shares cannot be passed generationally; doing so keeps shares in the hands of those who have a true interest in the bank and the community it serves. The total ownership of shares within the holding company is aimed to be balanced by location. For example, if Marion is 20% of First State Associates business, then 20% of the ownership should be from Marion. As a Subchapter S company, First State Associates pays dividends to shareholders to assist shareholders with tax liability but does not pay dividends beyond that. Rather, profits stay within the bank or holding company and flow to shareholders as equity growth. “Cash spends, equity doesn’t. The goal is to trigger equity growth investments for shareholders and enhance the financial standing of the communities,” says Nolan. “At the end of the day, this model is about investing in people and the communities they live within, not finances. In doing so, we’re able to add economic benefit to our rural communities and support those within them. I’m excited to share this model with others as it has served our shareholders, communities, and community banks very well,” says Nolan. Quarter 3 | 2018 21


PEOPLE

A typical day in the office is anything but typical for Josh Hogue, Vice President and Ag Commercial Lender at Reliabank Dakota’s Watertown branch.

you should

“My days never go as planned,” laughs Hogue, “but I enjoy the constant change!”

by Hannah Merritt Marketing & Public Relations

Hogue has been with Reliabank Dakota since 2012, although becoming a banker wasn’t always a priority for him.

KNOW

As the vice president of ag and commercial banking, you can find Josh with his sleeves rolled up on the front line working with commercial lending customers. At any given point he keeps four, five or more projects in continuous motion at the same time. With more balls in the air than most care to handle, Josh also finds himself heavily involved in the executive operations within the bank, mainly planning and execution committees – ALCO, marketing, and compliance are just a few to name. It’s the constant progression and quest for growth that keeps him clicking away!

“My dad was a banker for a small community bank. I grew up around banking, and thought I’d never become a banker myself.” It wasn’t until Josh was attending college at Dakota State University, and after taking multiple finance classes, that he realized banking was truly his calling. After graduating from college in 2005, Hogue joined First Fidelity Bank in Platte, S.D. where he started with the insurance agency and over time transitioned into agricultural lending. Since his time at Reliabank he has continued his education with a master’s degree from Northern State University and also completing the Graduate School of Banking program at the University of Wisconsin – Madison. His educational background paired with his experience delivering financial services has fueled his

Josh Hogue One of ICBSD’s Newest Board Members

VP of Ag Commercial Lending, Reliabank Dakota in Watertown interest in community banking and the realization of the importance of involvement with the ICBSD. “I have a passion for the community banking model. Funds are raised locally and invested right back into the communities we serve. Our success is measured only by the success of our local economies and customers,” said Hogue. As the newest director on the ICBSD board, Hogue plans to use his passion to continue the fight for independent community banks all across South Dakota. Josh and his wife, Emily, live in Watertown with their two daughters. When he’s not at the bank, you will likely find Josh outdoors competing in an endurance event or enjoying local bike trails.

22 ICBSD 2018


YOUR POTENTIAL IS OUR PASSION. ICBA creates and promotes an environment where community banks flourish.

The Independent Community Bankers of America is the only national organization that exclusively represents the interests of community banks. With effective advocacy, best-in-class education, and quality products and services, helping your community bank reach its full potential is our passion.

JOIN ICBA TODAY

www.icba.org

membership@icba.org

866-843-4222 Quarter 3 | 2018 23


2018 US Community Bank MARKET REPORT Executive Summary • Tax reform and interest rate increases will push returns on equity to the highest level since before the credit crisis. In our baseline scenario, which does not include the impact of an upcoming change to banks’ reserve methodology, returns on average assets and returns on average equity will climb as high as 1.15% and 9.87%, respectively, in 2018. • Asset quality should remain strong in the near term, supported by increased optimism and the windfall of profits coming from tax reform. The influx of cash should spark more competition for loans, preventing yields from rising to previously expected levels. • Competition will intensify as the Trump administration achieves some level of regulatory relief, which could eventually cause underwriting standards to slip. • Community banks will see changes in their deposit bases before asset quality sours. Deposit betas, or the percentage of changes in market rates that banks pass on to customers, at community banks have lagged those of their larger counterparts; that trend should continue in 2018. • The adoption in 2020 of a new accounting standard that changes the way banks reserve for loan losses could come right as credit quality begins to turn. • That accounting standard, dubbed the Current Expected Credit Loss model, or CECL, will result in a sizable, one-time capital hit for the banking industry.

Outlook S&P Global Market Intelligence anticipates that community bank margins and earnings will improve, buoyed by the passage of tax reform and continued increases in interest rates. We expect that to occur in our base case scenario, which excludes the impact of a new reserve methodology, known as CECL, that banks will adopt in 2020. When including the impact of CECL, we project that while community banks will record slightly higher net interest margins, they will see lower capital ratios. S&P Global Market Intelligence created a base case scenario as well as a separate outlook including the impact of CECL to offer an apples-to-apples comparison between results before and after the adoption of the accounting standard. Projections in this report reflect our base case unless otherwise noted. Assuming interest rates increase as expected, community bank earnings are projected to jump 19% in 2018. Earnings should dip modestly in 2019 as funding costs rise and impede margin expansion. S&P Global Market Intelligence sees earnings falling again in 2020 as credit quality begins deteriorating. The projections also assume that in 2020, GDP growth will slow and the unemployment rate will move modestly higher. The benefits of higher interest rates should also wane as funding costs catch up with the expansion in earning asset yields. Tax reform offers a large boost to earnings

• Most banks should have ample capital to withstand the blow, but CECL could slow balance sheet growth as some institutions raise rates on loans and others look to rebuild their capital bases.

Tax reform resulted in a sizable hit to community bank earnings in 2017 but will boost results in 2018. The federal tax overhaul lowered the corporate statutory tax rate to 21%, below the roughly 25% effective rate regularly recorded by community banks since the credit crisis. The legislation prompted banks to revalue their deferred tax assets, resulting in substantial write-downs that negatively impacted earnings. The lower tax rate in 2018 will more than make up for that onetime hit in 2017, pushing community bank earnings $1.7 billion, or 5.4%, higher than results would have been without tax reform. The lower tax rate and the benefit of being compared to a lower

24 ICBSD 2018


spglobal.com/marketintelligence

earnings base in 2017 should allow earnings to grow by 19% in 2018. U.S. banks plan to share some of the windfall created by tax reform with their employees and customers, but community banks stand to retain nearly 40% of the savings. A number of banks have announced plans to use some of the windfall to increase their hourly minimum wage to $15. Some of those institutions and others are paying one-time bonuses to certain employees and have unveiled plans to make sizable charitable donations. S&P Global Market Intelligence estimates that the total cost of such plans will amount to just 1.75% of community banks’ expenses in 2018. We believe expenses could remain elevated in the years after that as banks reinvest in their franchises. Banks have struggled for years to lever their existing capital by making loans. Unless the economy grows at a significantly faster pace, banks likely will not be able to fully deploy the additional funds generated by tax reform. The windfall from tax reform will leave banks, which already believe they have excess capital, flush with even more funds. Bankers expect the industry to use the newfound capital to go on the offensive and have warned investors not to expect all the savings from tax reform to fall to the bottom line. Some investors have incorporated heightened competition into their thinking. They have noted that when banks receive an influx of capital, they tend to use the funds to take market share. Some investors do not expect the response to tax reform to be any different. Banks can take market share through superior service, but they often do it by offering lower prices.

CECL looming on the horizon Reserves are expected to rise even more beginning in 2020, when institutions must adopt a new methodology for calculating the allowance for loan and lease losses. The new provision is called the Current Expected Credit Loss model. CECL will mark a considerable shift in how banks reserve for losses. Today, banks record losses when it becomes probable that a loan will be impaired, dispersing reserves over time. The process will change under CECL when banks significantly build their allowance for loan losses on the date of adoption. S&P Global Market Intelligence has developed a scenario to estimate CECL’s impact on community banks. In our analysis, we assumed loan portfolios at community banks had an average life of four and a half years, based on the institutions’ current loan composition. We further assumed that reserves would equal cumulative net charge-offs in the four and a half years after adoption. We assumed uniform CECL adoption by all banking subsidiaries at Jan. 1, 2020, and based the scenario on our longerterm outlook for credit quality. That outlook projects that loan portfolios will begin deteriorating more significantly in 2020, with net charge-offs eventually peaking at 0.79% of average loans in 2022. Under that scenario, if CECL reserves match charge-offs over the period beginning in 2020, the required reserve build for community banks could reach $17.7 billion, or about 1.6x the level of reserves projected under our baseline scenario. The latter scenario assumes that banks continue operating under the incurred loss model. The increase in reserves would result in a considerable capital hit to banks, reducing the industry’s tangible equity-to-tangible assets ratio by 50 basis points in 2020. We expect community banks to react to the change and raise rates on newly originated loans, particularly longerdated real estate credits that will require a larger reserve build under CECL. We have incorporated that change into our CECL scenario and assumed the community bank group’s loan yield will be a few basis points higher after adoption.

* Assumes a 21% corporate tax rate and potential changes to expenses that will come from reinvestment of tax reform windfall, beginning in 2018. Sources: S&P Global Market Intelligence, proprietary estimates ©2018. S&P Global Market Intelligence. All rights reserved.

We assumed that loan growth will be slower than it would have otherwise been as banks with thinner capital ratios hoard cash and work to rebuild their capital bases. We also assumed that Quarter 3 | 2018 25


spglobal.com/ marketintelligence

passed on to customers, of just 11% in 2017, well below the roughly 20% beta recorded by the banking industry as a whole. Community banks have historically lagged increases in rates by greater amounts than their larger counterparts, and while that trend should continue, the gap is expected to narrow. Interestbearing deposits should become larger portions of banks’ funding bases and eventually revert back to the relative size Projections current as of March 22, 2018. Data compiled between March 2 and March 16, 2018. CECL = Current Expected Credit Loss model, a new reserve methodology most banks must implement beginning in 2020. CECL scenario assumes uniform adoption of the accounting standard by all banking subsidiaries at Jan. 1, 2020; that all loan portfolios have an average life of 4.5 years based on current portfolio composition across the banking industry; and that required reserves under CECL equal projected cumulative net charge-offs in the 4.5 years after adoption. Net charge-off projection based on a longer-term outlook for credit quality, which assumes losses peak in 2022 and then decline. Sources: Federal Reserve, Fannie Mae, Freddie Mac, S&P Global Market Intelligence, proprietary estimates ©2018. S&P Global Market Intelligence. All rights reserved.

deposit costs at community banks would not increase quite as quickly given that their funding needs would not be as great. Assuming the credit cycle bottoms in 2022, CECL could leave community banks better prepared for a downturn. Since CECL requires banks to reserve for the full life of loans at the date of adoption, much of the required reserves in future years will have already been set aside in 2020. That means additional increases in the allowance for loan losses would be minimal in 2021 and 2022, resulting in lower provisions for loan losses than would have been recorded under the current reserve methodology.

on community bank balance sheets witnessed before the Fed lowered short-term rates to historical lows. S&P Global Market Intelligence expects that deposit costs will rise at a faster pace in 2018. The projections assume a beta of 33% on interest-bearing deposits in 2018 and expect that beta to increase to 44% in 2019 after the impact of higher rates takes hold and funding pressures grow. Community bank earnings should dip modestly in 2019 as funding costs rise and impede margin expansion. S&P Global Market Intelligence sees earnings falling again in 2020 as credit quality begins to deteriorate. The projections also assume that in 2020, GDP growth will slow and the unemployment rate will move modestly higher. The benefits of higher interest rates should also wane as funding costs catch up with the expansion in earning-asset yields.

Given that change, earnings would hold steady in 2022 under our CECL scenario, causing capital ratios to rebound right as credit losses are peaking. Deposit competition heating up As community banks put more liquidity to work, their funding pressures and deposit costs will grow, albeit at a slower pace than their larger counterparts. Community banks’ cost of interest-bearing deposits only rose modestly to 0.53% in 2017 from 0.46% in 2016 despite a trio of rate hikes from the Federal Reserve. Community banks recorded a deposit beta, or the percentage of changes in rates they

Figures for the fed funds rate through 2019 are based on 3-point averages including estimates provided in The Wall Street Journal’s monthly survey of more than 60 economists. Figures for 2020 and 2021 are estimates from the Congressional Budget Office. Actual reported figures used when available. Sources: S&P Global Market Intelligence, proprietary estimates ©2018. S&P Global Market Intelligence. All rights reserved.

The 2018 US Community Bank Market Report contains our full five-year outlook and historical data. It is available to S&P Global Market Intelligence subscribers, along with supplementary data exhibits and an industry projections template that allows for different growth assumptions in each year. Contact us for more information. 26 ICBSD 2018


Meet our Members DNB National Bank, located in Clear Lake, South Dakota, was originally organized on December 16, 1925 and officially opened for business on February 2, 1926. Many farm loans were made during the tough depression years of the “dirty thirties”. Old time farmers and other residents recall with gratitude the financial help received from the bank during that time.

DNB National Bank

“Your Full Service Bank, Dedicated to Community Service.”

In September of 1961 the Deuel County National Bank moved to its present location, which is just across the street north of the original location. On January 1, 1996, a branch in Gary, South Dakota was purchased. Over the past 89 years, the bank has been a leader in service to the rural and city communities of the area.

Learn more about DNB National Bank here at:

www.dnbanks.com

f Our roots are deep, and we are proud of it! As one of the oldest community banks in Brookings County, BankStar Financial serves the communities of Brookings, Elkton, Volga, and the surrounding areas. While our name may have changed through the years, our genuine approach remains the same. We are committed to enhancing the lives of the people and communities we serve. As a locally-owned community bank, we do things differently. We respond to your needs quickly and make decisions locally.

Bank Star Financial

Learn more about Bank Star Financial here:

www.ebankstar.bank

 Daily Card Production  Full-Color, Edge-to-Edge, Flat Image Cards  In-Branch Instant Issuance  Cardholder Personalized Images  Multiple Card Design Option  Card Design Gallery and Custom Images A regional provider of EFT services

Quarter 3 | 2018 27


Kelly Goulart Sr. Manager, Regulatory Compliance kgoulart@complianceadviser.org 512.275.2231 Janie Daniel Regulatory Compliance Adviser jdaniel@complianceadviser.org 512.275.2221

Q A

: Is a Consumer with The Right to Rescind a ‘Borrower’ on the Closing Disclosure?

: No. TRID 2.0 (effective October 1, 2018) clarifies §1026.38(a)(4)-4 providing that the term ‘borrower’(s) identified on the Closing Disclosure is limited to consumers to whom credit is extended. Plain English translation – those individuals provided a Closing Disclosure based solely on the fact they have a right to rescind are NOT identified as a ‘borrower’ on the Closing Disclosure.

CONSUMERS. Section 1026.38(a)(4)(i) requires disclosure of the consumer’s name and mailing address, labeled “Borrower.” For purposes of § 1026.38(a)(4)(i), the term “consumer” is limited to persons to whom the credit is offered or extended. For guidance on how to disclose multiple consumers, see comment 38(a)(4)-1.

Compliance

Tip:

TRID 2.0 also provides that for creditors that include signatures lines on the Closing Disclosure for ‘borrower’(s), signature lines may

member

benefit

LEARN MORE: IBAT.org/complianceadvisor

28 ICBSD 2018

Compliance Adviser exclusive member benefit of ICBSD.

also be included for those consumers receiving a Closing Disclosure based solely upon the fact they have the right to rescind.

For the Compliance Adviser Legal Ease archive, visit www.complianceadviser.org


Mary Williams

United Bankers’ Bank Promotes Mary Williams to SVP, Chief Operations Officer About United Bankers’ Bank Headquartered in Bloomington, MN, United Bankers’ Bank is the nation’s first bankers’ bank, and a full service provider of correspondent banking services to community banks in: Minnesota, North Dakota, South Dakota, Montana, Nebraska, Indiana, Iowa, Wyoming, Idaho, Ohio, Oregon, Washington, Michigan and Illinois.

For more information please visit www.ubb.com

“Mary’s leadership is a strong example for the UBB community. She has been, and will continue to be a true asset in every capacity that she serves.”

Bloomington, MN – United Bankers’ Bank (UBB) has promoted Mary Williams to SVP, Chief Operations Officer, effective August 6. Williams succeeds Anne Hofstede who retired after 41 years of service at UBB. In her role, Williams will lead UBB’s Operations team and will oversee the bank’s operational products and deposit services in addition to customer service. William Rosacker, President and CEO of UBB commented, “Mary is a dependable, dedicated and passionate leader. Her contributions to the Operations Department and her wealth of knowledge make her a logical choice for the position. We are proud to welcome her to the executive team.” Williams’ transition to this role is natural as she has served on UBB’s Operations team since 2007, most recently as SVP, Operations Manager, and boasts over 25 years of experience in the banking industry. In preparation for Hofstede’s retirement, the two worked closely together on staff organization and development, ensuring a seamless transition within the department. Rosacker added, “Mary’s leadership is a strong example for the UBB community. She has been, and will continue to be a true asset in every capacity that she serves.” Williams holds an Associate of Arts degree in Accounting and Business Management from the St. Cloud Business College in St. Cloud, Minnesota, and an auditing certification from Ridgewater Technical College in Hutchinson, MN. Quarter 3 | 2018 29


send your happenings to:

hannah@icbsd.com

Reliabank Dakota, Sioux Falls

IT’S TIME to

CELEBRATE Join us in congratulating our fellow community bankers on their recent accomplishments!

Reliabank celebrated the grand opening and ribbon cutting in September at their new branch location in Sioux Falls located at 85th and Minnesota.

American Bank & Trust American Bank & Trust loves small town communities and their bank recently celebrated three new locations in Carthage, Stickney and Iroquois ,South Dakota! Welcome to the AB&T family!

Stickney

Iroquois

Scotland, SD celebrated their 53rd annual Rodeo Days celebration. This year they chose to use the ICBSD superhero motto and dress up as Superheroes. Their motto was “I’m a Community Banker What’s Your Superpower? Join us Supporting our Community . . .Go Local” They had a lot of fun getting their team together, dressing up as Superheroes and walking through the parade! 30 ICBSD 2018

American Bank & Trust, Wolsey American Bank & Trust welcomed new Ag Business Banker, Matthew Teel, to their Wolsey branch team!


American Bank & Trust, Pierre The American Bank & Trust Pierre branch had a great turn out at their Trappers tailgate party. Due to the heat the party was moved indoors.

Eide Bailly, Sioux Falls SIOUX FALLS, S.D. – Blake Crow recently graduated from the Graduate School of Banking at Colorado (GSBC), a 25-month banking school which provides management and leadership training for community banking professionals. Crow was among 164 graduates of the 68th annual school session hosted on the campus of the University of Colorado in Boulder. Crow is a tax partner in Eide Bailly’s Sioux Falls, S.D. office. He specializes in serving financial institutions, which is a leading area of specialization for the Sioux Falls office and the firm. Crow is a member of Eide Bailly’s Financial Institutions Services Group. GSBC students are recognized by their organizations, and as graduates, often continue to become leaders in their respective organization. A diploma in banking is widely recognized by the banking industry at large, and is a marker of advanced education which hundreds of bank-industry professionals from around the country accomplish each year. “The Graduate School of Banking at Colorado was an excellent opportunity to

“Being able to attend a school like this with bankers, as a bank advisor, has greatly enhanced my understanding and appreciation of many of the issues that our clients are facing, and has provided me insight and tools to be able to better assist them in addressing and handling those issues.” – Blake Crow

meet bankers from across the country, learn from some of the nation’s top experts in a number of areas relevant to banking, and continue to enhance my industry knowledge,” Crow said. “Being able to attend a school like this with bankers, as a bank advisor, has greatly enhanced my understanding and appreciation of many of the issues that our clients are facing, and has provided me insight and tools to be able to better assist them in addressing and handling those issues.” GSBC focuses on the areas of general management and technology, lending, leadership and human resource management and financial management in banks. Requirements for graduation also include comprehensive examinations, intersession research projects and participation in a bankmanagement simulation course designed to provide students with experience managing a bank.

Reliabank, Hartford Reliabank Dakota had a blast at Jamboree Days in Hartford! Thanks to everyone that came out to celebrate!

First National Bank, Sioux Falls Dacotah Bank Congratulations to Bob Compton for 15 years of service at Dakota Bank’s Aberdeen branch!

First National Bank in Sioux Falls celebrated the grand opening of their new branch located on Louise Avenue in Sioux Falls!

Quarter 3 | 2018 31


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Retreat Recap The 35th Annual ICBSD Retreat was held Thursday July 26th - 28th at Sylvan Lake Lodge in Custer State Park. Although the weather didn’t cooperate as we had hoped, fun was still had by all! Some of the activities included: Glo Bingo (thank you, Dick Behl, for being our MC!), two games of “Last Banker Standing,” flight instructions from keynote speaker Elizabeth McCormick, a ride on the 1880 Train followed by a staged robbery, and a series of outstanding presentations during our banker education sessions, including an ICBA update from ICBA Vice-Chairman Noah Wilcox.

After 50 years of service in the community banking industry, Gene Uher was honored with a percolation from Governor Dennis Daugaard declaring July 28th as Gene Uher Day in the state of South Dakota.

32 ICBSD 2018


The 35th Annual Retreat wouldn’t have been possible without the support of our sponsors! Thank you for your support! First National Bank of Sioux Falls Saturday Dinner

ICBA Securities/Vining Sparks ICBSD PAC Golf Scramble

Shazam Friday Lunch

United Bankers Bank Welcome Reception & Dinner

The Federal Home Loan Bank of Des Moines Friday Dinner

United Bankers Bank Saturday Social Hour

Office Peeps Outdoor Movie & Popcorn

Bankers Bank of the West Transportation

First District Development Company Break Refreshments

Homestead Title Insurance Prizes

Eide Bailly Keynote Speaker

Spectrum Financial

SDN Communications Name Tags & Golf Prizes NuSource Financial and Homestead Title Insurance ICBSD PAC Golf Scramble Prizes Travelers Glo Bingo Bell Bank Breakfast

SBS

Quarter 3 | 2018 33


34 ICBSD 2018


Port Authority® Duffel

OGIO® Excelsior Pack

Drawstring Backpack

2019

2019

Quarter 3 | 2018 35


GREATNESS NEVER PEAKS.

Investment solutions you can rely on from people you can trust.

ICBA Securities can help you reach the pinnacle of success. From risk management to performance profiles to yield forecasting, we’ll work with your community bank to identify goals, increase your earnings and grow your franchise. Scale new heights with ICBA Securities. 36 ICBSD 2018

www.icbasecurities.com

securities@icba.org

800-422-6442


Cyber Security & Your Bank

“Being proactive is key – educating employees and putting proper risk management systems in place should be a high priority. Banks should work with an independent insurance agent to identify coverage to manage potential cyber exposures and ensure that employees are exhibiting behaviors that limit cyber risks.”

By their very nature, banks are an attractive target for cyber criminals because of the assets they hold and the personal information of customers that they keep. Due to the evolving threats and uncertainty in today’s cyber landscape, it is vital for banks to take the necessary steps to guard against vulnerabilities and exposures, and to protect themselves from malicious attacks that can cause serious harm. A single breach can result in significant losses, and the damage is often not limited to lost data. It can extend to loss of customer confidence, financial harm, legal challenges and business interruption. Much like cyber threats such as ransomware, social engineering and phishing, cyber security has also evolved. Many insurance companies, including Travelers, offer risk management services that feature pre-breach cybersecurity expertise. These services go a long way toward strengthening the systems that banks use to keep cyber criminals at bay. In the event of a cyber attack, post-breach assistance kicks in, provided a bank has secured appropriate insurance coverage. Over the past few years, banks have increased their focus on preparing for a cyber incident – in other words, recognizing that when it comes to a network compromise, “it’s not if, it’s when,” even for a well-defended network. Banks are doing a better job of updating their incident response plans, business continuity plans, and disaster recovery plans, at least every one or two years, and they are conducting periodic tabletop exercises to make sure that the right people respond when an incident does occur. Staying up-to-date on cyber insurance coverage is another important part of being prepared. The tough thing about cyber security is that defenders have to be vigilant at all times, while attackers only have to get through the defense once to create havoc. For that reason, it’s important to have well-designed change control procedures in place to ensure that changes to network configurations and controls do not inadvertently introduce security vulnerabilities. Many network compromises can be traced back to change control procedures that either did not exist or were not properly followed. Implementing – and diligently following – established change control procedures can help prevent the mistakes that may lead to a data breach. How can banks best prepare for a potential cyber incident? There are many “best practices” for cyber security, but let’s highlight one that is particularly valuable for preventing complacency. Banks – all industries, really – should rotate their cyber-security assessment and testing providers. If the same team is used for penetration testing year after year, they will likely find the same kinds of vulnerabilities year after year. Sometimes a new set of eyes can be beneficial. If a rotating group of trusted cyber-security assessment and testing providers consistently reports that a bank’s networks and systems are clean, the bank can feel more confident that nothing important has been overlooked. Being proactive is key – educating employees and putting proper risk management systems in place should be a high priority. Banks should work with an independent insurance agent to identify coverage to manage potential cyber exposures and ensure that employees are exhibiting behaviors that limit cyber risks. Finally, banks should utilize resources such as Travelers.com/cyber to help understand and navigate the growing threat of cyber risks. Quarter 3 | 2018 37


Can’t Keep A good

bank down Last decade has seen struggles, successes for the industry “About the only negative for community banks in the current zeitgeist is that their investment portfolios have declined in value. What I hasten to remind investors is this represents a myriad of opportunities. First and foremost is that the bond portfolio’s yield is about to go up.”

BY JIM REBER President and CEO of ICBA Securities

September 7, 2008 is the mortgage finance industry’s date of infamy. It’s now been a full decade since the secondary market siblings, Fannie Mae and Freddie Mac, have been in legal custody of the Federal Government. For many community banks, that date was the tipping point of a tortuous era of poor loan demand, sketchy credit quality, weak yields and paltry margins. Not to mention Dodd-Frank. Now, however, things look much better for the economy in general, and community banking in particular. There are many indicators that demonstrate how the industry’s fortunes have turned, perhaps the most visible of which is, wait for it, earnings. For all of 2017, FDIC-insured institutions reported net income of $163 billion, which was a near record. In just the first six months in 2018, these same institutions have reported $116 billion in net income.

Not been made whole, yet Several other macro-indicators of banking industry health have ebbed and flowed over the last 10 years. One of these would be housing prices. Nationally, single-family residential costs peaked in mid-2006, and much of the Great Recession can be traced to the collapse of the housing market several years later. Prices fell, on average, over 27 percent and bottomed out in 2012. Since then, housing values have recovered, and are now at all-time highs, but are still only about 11 percent ahead of where they were 12 full years ago. As housing prices have improved, so have Fannie Mae’s and Freddie Mac’s fortunes. The two government sponsored enterprises (GSEs) both continued to post losses through 2011, and taxpayers provided capital draws to keep them solvent. Both have been profitable for the last seven years, and have more than paid back the draws, but as of yet, they are still operating with next to no capital, since the Treasury continues to sweep their earnings into its own coffers. 38 ICBSD 2018


Go-to for investors Still, they remain vital to both the housing industry (over 80 percent of mortgage loans are owned or guaranteed by Fannie or Freddie), and to community bank investors (around 40 percent of their bond portfolios are issued by them). Their popularity with portfolio managers is understandable, since these securities are highly liquid, easily pledged, carry a low 20 percent risk weighting, and their credit quality is considered to be one small rung below that of the U.S. Government’s. And, their supplies are dwindling. Both of these GSEs have been told by congress to decrease their debt loads, and at this point have only about 40 percent of the outstanding borrowings compared to 2013. In aggregate, the investment sector known as “agency securities” has shrunk by about 40 percent in the last decade, as FHLB borrowings also remain well below their 2008 peak. Add to this the finite quantities of mortgage securities and municipal bonds, and we have a fixed-income market that is very stable from the standpoints of liquidity and incremental yield spreads.

Trending up About the only negative for community banks in the current zeitgeist is that their investment portfolios have declined in value. What I hasten to remind investors is this represents a myriad of opportunities. First and foremost is that the bond portfolio’s yield is about to go up. Getting there may take some time, as many banks’ liquidity stockpiles are low, but remember that’s a reason that bank earnings are at record levels. More immediately, bond swaps that remove some below-market yields and replace them with higher yielding investments can speed up that process. Your tax accountant would be pleased, as you’d effectively be deferring the payment of income taxes into future periods. Periods during which, hopefully, industry profitability will remain strong.

MBS performance history ICBA Securities’ exclusive broker Vining Sparks publishes mortgage market prepayment commentary each month, including tables on recent performance for some of the more popular MBSs. Visit viningsparks.com or contact your Vining Sparks sales rep for more details.

www.viningsparks.com

OCT 18

So, in summary, community bankers are enjoying the fruits of their efforts. These efforts include sound business practices, wise investing and steadfast advocacy. Here’s hoping for another decade of success for community banking.

Economic outlook webinar Craig Dismuke, Chief Economist for ICBA Securities’ exclusive broker Vining Sparks, will present a quarterly Economic Outlook webinar on October 18. He will review recent Fed activity, analyze the key economic indicators and discuss the landscape for interest rates. Visit viningsparks.com or contact your Vining Sparks sales rep to register.

Quarter 3 | 2018 39


Member Spotlight

3 Reasons to MEMBER RevisitSPOTLIGHT Your Bank’s Privacy Policy When it comes to the privacy of customer information, banks are accustomed to complying with the federal privacy requirements of the Gramm-Leach-Bliley Act and Regulation P. Since Regulation P’s amendment in 2009 to provide a model privacy notice, little has changed with regard to a bank’s privacy obligations under federal law. So why should my bank review its privacy policy? Other nations and various states continue to march forward. Changes in international and state law, as well as the use of customer information by your vendors, make attention to your bank’s information collection procedures and privacy policies a top priority. 1. International law has changed. In April 2016, the European Union adopted the General Data Protection Regulation to regulate the processing of the personal data of individuals in the EU. The GDPR, which went into effect in May 2018, broadly applies to any company (whether or not located in the EU) that processes the personal information of individuals in the EU in connection with offering goods or services to EU individuals or monitoring the behavior of EU individuals. Notably, banks that do not specifically target their products and services to individuals in the EU (and that do not monitor the behavior of EU individuals) may not be subject to the GDPR. A bank can take certain steps, such as revising its website terms and conditions, to mitigate the risk of being deemed to target EU individuals. However, banks that offer products or services to EU individuals are likely subject to the GDPR and should ensure 40 ICBSD ICBSD2018 2018

that their privacy policies and procedures are GDPR-compliant. 2. State laws have changed. California recently adopted the California Consumer Privacy Act of 2018, which becomes effective on January 1, 2020. The Act applies to a “business,” which is broadly defined to include any business that collects consumers’ personal information, does business in California, and meets one of the following: gross revenues over $25 million, receipt or sharing of the personal information of 50,000 or more consumers, or annual revenues derived 50% or more from selling consumers’ personal information. There is no exception for entities subject to the GLBA, nor is there any coordination of the required disclosures with those required under Regulation P. The Act includes an expanded definition of “personal information,” requires expanded disclosures about customer information collection and use, and gives the consumer the right to request details regarding the personal information a business has about that individual consumer. The consumer may also request deletion of such personal information. Banks subject to the Act should review and revise their information collection and storage processes in order to meet the expectations of the Act. Further, the bank’s privacy notice will need to be coordinated with the new privacy notice requirements under the Act. 3. V  endors’ use of consumer information may have changed. Vendors that provide marketing services in connection with bank products are eager to use the bank’s customer information for other purposes. If a bank

wishes to allow a vendor to use customer information for non-bank marketing purposes, the bank’s privacy notice must reflect its sharing with non-affiliates and must include a customer opt-out. Call to action! Every bank should periodically review its information collection, retention, storage, and sharing policies. Given the changes in international and state law and the increasing desire of vendors to use customer information, this review takes on added importance. Equally important is then updating the bank’s privacy notice to accurately reflect the bank’s collection and sharing practices.

written by Dixie Hieb and Tiffany Miller Hieb and Miller are attorneys at Davenport, Evans, Hurwitz & Smith, LLP in Sioux Falls, SD Contact Dixie at dhieb@dehs.com or Tiffany at tmiller@dehs.com

www.dehs.com


P.O. Box 615, Watertown, SD 57201 605.878.3040

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...for our fall conference as our experts turn an eye on farming, finance and global markets! Topics to include: land values, hedging, tariffs & trade, commodities & marketing and technology. Our keynote presentation will be given by John Stiegelmeier, the winningest coach in South Dakota State history!

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P.O. Box 615 | Watertown, SD 57201 | 605.878.3040 | www.icbsd.com

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Register Today! $200 member rate $275 non-member rate

Bring your ag customers for $100 per person

To register and for more information, visit:

www.icbsd.com/ fall-conference While you’re in town, we encourage you to attend the Eide Bailly Bankers Seminar in Sioux Falls the day prior, Wednesday, November 7, 2018 at the Hilton Garden Inn. Registration opens at 12:00PM. Seminar beings at 1:00PM. After the seminar ICBSD, in partnership with Eide Bailly, will be hosting a cocktail & comedy hour at the hotel! For more information contact Jessica at 605.339.1999

A block of rooms have been reserved for your convenience under ICBSD until October 16th. Call 605.444.4700 to make your reservation.

Hilton Garden Inn Sioux Falls Downtown 201 E 8th Street, Sioux Falls, SD 57103

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