The Bottom Line Spring 2020

2020

The

Independent and proud of it!

Bottom Line

Support the

ICBSD PAC Flourish

Unity

In Community Banking

Clarity in the Middle of Great Uncertainty Bret Afdahl, Director of the South Dakota Division of Banking

Travel Tips The Advantage Network

Should I Test Employee Security Awareness?

SBS Cyber Security

www.icbsd.com

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INSIDE This Issue ICBSD 2020

contents FROM THE DESK OF

FROM CAPITOL HILL

2 President’s Message

11 ICBSD PAC:

Celebrating Our Community Bankers

by Megan Olson, President & CEO of ICBSD

3 Rebeca’s Remarks Flourish

by Rebeca Romero Rainey, President & CEO of ICBA

4

From the Chairman

Support the ICBSD PAC

by Monte Troske, Chairman of ICBSD, President/CEO of

Contribute Today!

12 Rounds’ Report

Coming Back Stronger

by Senator Mike Rounds

13 Showing Up to Work

by Senator John Thune

Community spirit

14 CorTrust Bank

Spreading the Cheer

16 Community Banks Were Built for Times Like This

Farmers State Bank of Turton

5

From the Chairman

From the Top

by Noah Wilcox, Chairman of ICBA Legislative

7 Federal Delegate’s Report

by Emily Hofer

8 Clarity in the Middle of Great Uncertainty

www.icbsd.com

by Bret Afdahl, Director of the South Dakota Division of Banking

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

Powered by UBB

In the news

18 Webinar Schedule 19 PAC PAR-TEE

and Afterglow Social

20 In The News

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

22 Travel Tips

by The Advantage Network, an ICBSD Preferred Partner

24 Should I Test Employee

Security Awareness

by Shane Daniel, Senior Information Security Consultant, SBS CyberSecurity, LLC

megan@icbsd.com

ICBSD 2020 1

President’s Message From the president

Megan Olson, President & CEO of ICBSD

Celebrating Our Community Bankers

“Take a moment to celebrate you, your teams and all that you have accomplished and the significant impact you have had on your communities in only a few months.”

During my first three years with ICBSD one thing has been incredibly apparent, community bankers are some of the most humble and hardworking people I’ve had the privilege of working with. Your unwavering commitment to supporting customers, families and your communities is what sets you apart from other financial institutions, and has been made visible for all to realize during these tumultuous times.

While health care professionals have been fighting to keep us healthy on the medical frontline, you and your teams have been front and center on the economic frontline. You have put in 12 – 16 hour days (if not more) in order to guide small businesses through the Paycheck Protection Program, all while ensuring the safety and security of your team through social distancing and creating work from home practices. Your dedication and strong work ethic may be part of the day to day grind for you; however, once COVID-19 has run its course and our local economies come out on top, the citizens of South Dakota will be thanking you for your strong support. We see your efforts and applaud you for your work!

Knowing your humble roots, you most likely won’t be the first in line to shout it from the roof tops so we are here to do that for you! Take a moment to celebrate you, your teams and all that you have accomplished and the significant impact you have had on your communities in only a few months. You saved countless businesses from closing their doors, saved thousands of jobs and eased the financial strain of families across the state. YOU saved the day!

Because of you, South Dakota will come back stronger than ever before and because of that you should be proud!

Best Regards.

megan@icbsd.com

2 The bottom line

Rebeca’s Remarks Flourish From the president

Rebeca Romero Rainey, President & CEO of ICBA

Remember that childhood game follow-the-leader where one person directed, and the others walked in line? Well, it was not a favorite of mine, and I could never quite pinpoint why.

“Well-executed leadership is less about marching to your own beat and more about creating a well-choreographed team play.”

As I’ve moved forward in my career, I realized what bothered me: The leader in that game dictated the path, and others blindly followed suit. There was no room for creative collaboration or team dynamics. It was cut and dry: Either you were a leader and got to call the shots, or you were a follower and had to step in line.

That approach doesn’t line up at all with the reality of true leadership. A good leader listens and learns from their team, becoming stronger not by managing singularly, but by evolving concepts and direction based on group input. Leaders know that each individual’s strengths complement their own. Well-executed leadership is less about marching to your own beat and more about creating a well-choreographed team play.

That’s why I’m heartened this month as I look at our second-annual 40 Under 40 awards.

These young professionals have expertise that makes them distinct from one another, but they share a common quality: They are rising leaders. They are strengthening the nature of community banking by bettering themselves, their teams and their organizations. And, they are doing it with gusto—by focusing on coming together for a greater good, for the strength of their communities.

This contagious enthusiasm is also why I look forward to our LEAD FWD Summit each year.

As of this writing, we’re not certain if this year’s event in September will take place in-person or virtually. But we do know it will continue to assemble ambitious, results-oriented community bankers as they expand their leadership journeys. Young professionals recognize LEAD FWD as the key event at which to learn the strategies and insights that will shape the future of community banking.

As we look to the future, we’re still faced with a world of uncertainty, courtesy of COVID-19.

Yet, despite the challenges over the past few months, we have led our communities toward prosperity. By going beyond what’s required of us in navigating the Paycheck Protection Program (PPP) and disbursing Economic Impact Payments (EIPs), we have dug deep in supporting our communities. From blood drives and business donations to loan forgiveness and the renegotiation of contract terms, community banks have supported their customers in creative ways.

That’s because we advance our communities not by controlling the path, but by ensuring our customers’ voices are heard. They know they can rely on us when it’s most needed. I’d say that’s the sign of a true leader.

@romerorainey

Where I’ll Be This Month I’ll be continuing to connect with community bankers nationwide and champion their leadership via digital channels.

ICBSD 2020 3

fsbmonte@nvc.net 605-897-6532

Support the ICBSD PAC

From the Chairman Monte Troske, Chairman of ICBSD, President/CEO of Farmers State Bank of Turton

“Soon you will be receiving a letter in the mail from the ICBSD board of directors asking for your support of the PAC program.

I ask that you, and those within your institution, consider supporting the PAC so that we are equipped with the funds and resources necessary for the upcoming election year.”

I never thought I would see the day that

the retreat will have on the ICBSD Political

who have shown strong leadership and

our annual Black Hills Retreat would be

Action Committee (PAC). This event, along

understanding of community banking

canceled due to a pandemic. We are

with your generous contributions to our

concerns. In today’s political climate, it

certainly living in unprecedented times.

PAC 100 club, is what supports this cause.

What JoAnn and I look forward to most

Without the annual retreat, we are left

is imperative that we support the leaders

at the retreat is catching up with fellow

shorthanded.

bankers, disconnecting from ‘the real world” and sneaking in a round or two of golf! I am greatly disappointed this isn’t in the books for us this year. Megan and Hannah had an excellent, family friendly event planned which will be moved to July 29 – August 1, 2021 at The Deadwood

Soon you will be receiving a letter in the mail from the ICBSD board of directors

who support community banking.

If all goes as planned and life returns to “normal”, we will be hosting a one night

asking for your support of the PAC

only PAC fundraising and networking

program. I ask that you, and those within

event in Sioux Falls. Turn to page 19 for

your institution, consider supporting

more information.

the PAC so that we are equipped with the funds and resources necessary

Thank you in advance for your

for the upcoming election year. Your

consideration! Please stay safe and

As chairman, I am also disappointed due

contributions will be used to support the

healthy and contact me if you have any

to the negative financial impact canceling

campaigns of lawmakers and candidates

questions.

Lodge. Mark your calendar!

4 The bottom line

@ NWWilcox

From the Top

From the Chairman Noah Wilcox, Chairman of ICBA

“Our decisions go far beyond dollars and cents and extend to finding ways to contribute to the greater good.”

My senior year in college, I took a business law class that doled

why we do it. I can remember being eight years old and going

out a daunting assignment: Put a stake in the ground and say

on collection calls with him, and they were compassionate,

where you’re going to be at age 35 and how you’re going

trying to help people who were struggling to pay their bills.

to get there. At that time, I was pretty unsure how my career

Through his example, he taught me that community banking

would unfold, but I guess instinct kicked in, and I wrote about becoming president and CEO—and possibly chairman—of our family bank. Well, I wasn’t chairman at 35, but I was president and CEO, which speaks directly to what planning, drive and

is about taking care of people—the families in our community.

That personal connection to something bigger than myself was vital to me “coming home” to the community bank.

determination can do.

The sheer amount of passion and compassion that goes into

Yet, while that exercise may have set the wheels in motion for

community banking makes for a pretty unique business model,

my career as a community banker, having the opportunity

one I daresay we’ve all been balancing lately with COVID-19.

to work side-by-side with my grandfather is what clinched

In today’s landscape, that foundation my grandfather set

it. At a pretty young age, my grandfather instilled in me an

remains all the more important to helping our communities get

understanding not of what we do as community bankers, but

back to vibrancy. We’re still running businesses, but for all of us, our decisions go far beyond dollars and cents and extend to finding ways to contribute to the greater good.

And I see that same spirit of practical altruism reflected in the

myTOP3

young leaders emerging today. You need look no further than My top pieces of advice for rising leaders:

this month’s 40 Under 40 awards to see community bank leaders growing to become the anchors of communities that they will help to evolve and flourish in the coming years.

Generationally speaking, I feel like we’re getting back to our

1. R oll up your sleeves and help out your staff; it’s about the collective team.

2. F ind a mentor to inspire you.

3. B alance business with humanity.

roots. My grandfather, a proud part of the Greatest Generation, set the stage for me, but we are standing on the precipice of that potential once again. This generation of emerging leaders brings a new level of humanity and activism to their work, so let’s continue to inspire them to act for the greater good, just as my grandfather did for me.

ICBSD 2020 5

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NOTICE: ThE 2020 BlaCk hIlls RETREaT has BEEN CaNCElEd We will resume our event as normal in 2021 and 2022, save these dates!

ICBSD Annual Retreat From My Location

Annual Retreat 2021 The Deadwood Lodge July 29 - 31, 2021

GO

Annual Retreat 2022

www.icbsd.com

The State Game Lodge July 28 - 30, 2022

Car

6 The bottom line

Horse

Wagon

Foot

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

Federal Delegate’s Report

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

Charles Lutwidge Dodgson, better known by his pen name Lewis Carroll, was an English writer of children’s fiction, notably Alice’s Adventures in Wonderland. This book was one of my favorites as a child and is to this day. It contains a quote, “If you don’t know where you’re going, any road will get you there.” The events of 2020 are shaping up to seem as if they have jumped out of Carroll’s amazing world of word play, logic and fantasy!

2020 has been more nightmare than fairytale with a global health pandemic, drastic economic decline, low commodity prices, social and civic unrest, and murder hornets!?! The “Interim Final Rule” has become the most oxymoronic phrase of the year. We have faced daily - and at times hourly - changing banking regulations. Our human resource policies have been altered and tax-planning strategies will be realigned. As we struggle to keep our own ships afloat, Community Banks have been charged with rolling out a new SBA lending program in record time, all for the

“We are traveling these new roads together, and Community Banks have done a fantastic job so far. There will be no “Easy” button for the rest of 2020. However, with ICBA and ICBSD on your side, we will all get there!”

sake of bolstering our Main Streets and Communities that we call home.

to check it out. It could not be easier to help our collective story be heard.

Needless to say, we are not driving this tiger - we are riding it! And we are traveling down new roads for even the most seasoned bankers among us.

Thankfully, none of us has had to travel these new roads alone. The true value of your membership in ICBA and ICBSD has been highlighted brightly the last few months. Both associations have worked tirelessly to facilitate weekly calls to update members on the status of COVID and the CARES Act. ICBA is in daily contact with Congress, Treasury, SBA, and the regulatory agencies. As resources and answers to all of our questions become available, they are pushing those out to members and posting them. ICBA is also pressing for meaningful changes to the PPP program to ensure that lenders and borrowers can easily navigate the PPP forgiveness process, asking for a more straightforward application for forgiveness, more flexibility in the timeline, and a presumption of compliance for all loans under $1 million, among many other things.

In closing, I would like to salute all of you, my fellow bankers. I have seen many “Thank Yous” to essential frontline workers. These lists always (and rightly) include healthcare providers, emergency services providers, grocery store staff, and truckers, to name a few. These lists rarely include bankers. In my opinion, we (Community Bankers) should be included on that list. Congress and the SBA have leveraged our reputations to roll out PPP, and we have done it – often working all night to serve our communities. Our staffs have been asked to keep their heads down, to keep the payment system running smoothly and to ensure customers’ access to funds is not interrupted. All the while, many of them are dealing with loss of childcare, homeschooling, and keeping themselves and families healthy. We are frontline and we are essential!

My request to you as Community Bankers is to answer ICBA’s calls to action when asked to contact Congress, Treasury and our regulators. There is strength in numbers and we need to make sure our voices are echoing throughout the halls of DC. If you’ve never used ICBA’s BE HEARD grassroots site, I encourage you

We are traveling these new roads together, and Community Banks have done a fantastic job so far. There will be no “Easy” button for the rest of 2020.

However, with ICBA and ICBSD on your side, we will all get there! As always, if you have any questions, comments, or stories to share, I can be reached at ehofer@msb-sd.com or 605-660-4790.

ICBSD 2020 7

Powered by

Clarity

in the Middle of Great Uncertainty First and foremost, I want to say a big thank you to the community bankers in South Dakota for all they have done the past three months to help our state’s business community through an extremely challenging situation. My initial idea for this article was to provide a reflection on my year as Chairman of the Conference of State Bank Supervisors (CSBS) and I will spend a few minutes on that topic but as all of you know, a lot has changed since the middle of March. Looking back to pre-COVID discussion items and work streams in my office after being gone for almost three months seem like a lifetime ago and some of those workstreams seem almost trivial at this point.

We have all studied and discussed the long-term changes in the banking industry for years. I cannot say the present situation will lead to a revival in community banks or a rush to create new banks, but I can say this most recent episode has solidified the importance of community banks to their customers and broader community. I already

BY Bret Afdahl Director of the South Dakota Division of Banking

knew this, as did you, but for many it has been an epiphany of sorts. As it turns out, having a relationship with your lender, your bank, actually matters. Amazing, huh?

The importance of this relationship model is evident with the PPP loan program. The businesses who took the time over the years to develop a relationship with their local lender were much better positioned for a successful experience. Community banks did take on new customers, but when long-time customers, neighbors, community pillars need help, you help them before bringing on new customers. This is what community banking is all about; the community.

While none of us know how this story will end, I think we can all agree there are tough times ahead. There has just been too much disruption, change, and uncertainty for there not to be. Your first priority has to be to help your community through this period of immediate stress, but you must also document your decisions and the rationale for those decisions. Eventually, we’ll have to address the credit issues arising from this cycle and the more detail we have, the better understanding we will have of the context for decisions made under great stress and in a time of great uncertainty.

The other bit of advice I would share is to continue to identify the risk in your bank whether it is in your loan portfolio, your securities portfolio, or in your funding sources. The earlier you identify those risks, the more time and options you will have to make decisions and adjustments. Our challenge and obligation will be to

8 The bottom line

Bret Afdahl was appointed Director of the South Dakota Division of Banking in May of 2011 after serving as Counsel to the Division since October of 2006. Bret is currently the Immediate Past Chair of the Conference of State Bank Supervisors (CSBS), the nation’s leading advocate for the state banking system and the only national organization dedicated to advancing the state banking system. Bret was recently appointed to the newly created FDIC Advisory Committee of State Regulators as one of its inaugural members. The purpose of this committee is to further enhance the already close working relationship between the state bank chartering authorities and the FDIC as the insurer and primary federal regulator for most state-chartered banks in the US. Prior to joining the Division Bret worked on the legal staff at the Department of Revenue and Regulation on a variety of tax and compliance issues. Bret is a graduate of Northern State University with a degree in political science and business, a graduate of the University of South Dakota School of Law, and holds a certification as a Fiduciary and Investment Risk Specialist (CFIRS) from the CANNON Financial Institute. Bret and his wife Melissa live in Pierre with their three boys and enjoy the outdoors.

balance increasing levels of problems assets while also assessing risk management practices and recognizing the efforts of management at each bank. Please help us by having strong and proactive risk identification and management practices in place before your upcoming examinations.

In now what seems like a very long time ago, as CSBS Chairman, I hosted over 130 of my state counterparts and CSBS staff at the State Game Lodge in Custer last September for our Q3 Board meeting and annual strategic planning session. I can think of no better place to unplug and focus on very deliberate and strategic discussions about the future of the dual banking system, community banks, the interplay with various non-bank actors, and the state regulators charged with overseeing all of them. We worked closely with a futurist and looked 10 years into the future to understand where we will be and what it will take to get there. As part of this process, we looked back to what bank supervision was like in the early 1970’s and in each decade since. One constant along that entire time horizon has been change and more specifically, change through technology.

Through that planning process, the CSBS Board concluded our reliance on technology and the pace of change in technology is only going to accelerate. At that time, a short 9 months ago, we had no idea how true this was going to be as we headed

into 2020. Fast forward to this March and it quickly became evident how important technology would be as we scrambled to restructure how we operate, and in the process rely on more and new technology platforms to do our important work.

My time as CSBS Chairman is in the rearview mirror and while it did not end the way I had envisioned, I feel very good about the past year and where we are headed, despite the challenges.

Some of the priorities we established through our planning process will be pushed to the back burner while others will be accelerated. The big concepts CSBS will be working toward in the coming year and beyond, include: • Empower the state system to be stronger, more efficient and assertive • Embrace networked supervision and move toward real-time oversight •H elp State Regulators develop the workforce of tomorrow • Build Strong Partnerships with vendors and those we regulate As with any strong organization, CSBS has a great professional staff and a deep bench of knowledge and experience to pull from in the states and my counterpart form Georgia, Kevin Hagler, is the current CSBS Chairman. He will do a great job in the coming year. Kevin and I recently recorded a joint podcast you may find interesting: https://www.csbs.org/ SFSF2020Podcast I look forward to meeting with you soon. When, where, and how that will occur is hard to say in this new normal, but we will move past this health crisis at some point and focus on the next phase. It will take all of us working together to get our communities and state through this crisis, but I have full confidence we will be successful. We know how to work together, and we all know the stakes.

ICBSD 2020 9

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!

2020 Pac 100 Club Josh Houge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Jane Swenson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank David Johnson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Jan Johnson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Bob Smithback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Jeremy Keizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank David Ebbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Hugh Bartels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Mark Lee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Reid Johnson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reliabank Monte J. Troske . . . . . . . . . . . . . . . . . . . . Farmers State Bank of Turton Mark R. Troske . . . . . . . . . . . . . . . . . . . . Farmers State Bank of Turton Wayne W. Board . . . . . . . . . . . . . . . . . . . Farmers State Bank of Turton Terry J. Vogel . . . . . . . . . . . . . . . . . . . . . Farmers State Bank of Turton Rory Troske . . . . . . . . . . . . . . . . . . . . . . Farmers State Bank of Turton

Together, let ’s make it happen.

Todd Holzwarth Call me at 605.321.9197

Based out of Sioux Falls, S.D., serving South Dakota, North Dakota, Northwest Iowa and Southwest Minnesota

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As your partner, we share your values.

You’ll find the community banking service, integrity and trust you’re used to.

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

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ICBSD 2020 11

FROM CAPITOL HILL

Rounds’ Report Coming Back Stronger

Mike Rounds

United States Senator (R-S.D.)

“Our economy took a hit because of the coronavirus, but it will come back stronger than ever as we continue to reopen. South Dakotans want to go back to work, kids want to go back to school and all of us want to be able to live our lives freely without fear of a virus.”

For the past few months, South Dakotans have done a good job of distancing to prevent the spread of COVID-19. Compared to other states, we have a very low number of cases and some of our counties have no cases at all. More and more businesses are opening their doors, and in most cases they are following safety guidelines outlined by the Centers for Disease Control (CDC). Folks are ready to get back to work. Maintaining health and safety guidelines will allow more people to return to work faster, which will help get our economy back on track.

Prior to the COVID-19 pandemic, our economy was soaring.

Jobs were being created, unemployment was at record lows and wages were rising. When businesses were forced to shut down because of the virus, our economy took a downturn. We believe that as soon as we can begin to fully reopen, our economy will come back stronger than ever. Even a top economic advisor to President Obama, Jason Furman, agrees. He recently said that he expects we’ll see the best economic data in the history of our country in the coming months. Larry Kudlow, the head of the White House National Economic Council, agreed with Furman and said that the third quarter of the fiscal year may be the single best GDP quarter since regular data. He also predicts that we’ll be seeing 4 percent growth into 2021. These optimistic predictions are due in part to the many pro-growth economic policies that we passed with President Trump’s support over the past few years. The measures we’ve already taken have paved the way for our economy to rebound quickly and strongly, even after facing significant declines. The deregulatory actions we’ve taken will allow businesses and states to get up and running at their full capacity as quickly as possible, since there is less bureaucratic red tape for them to cut through. This is great news for all Americans.

In order to fully reopen our country and get back to normal, we need to make sure people remain healthy and safe. This includes additional testing for the coronavirus, antibody testing so we know who has already had it, and continued development of a vaccine and therapeutic treatments to minimize the symptoms of the virus. I’m on President Trump’s task force to come up with innovative ideas for how to best 12 The Bottom bottom Line line

reopen the country, and during a recent conference call, we discussed the administration’s new strategy for testing more people. They have pledged to purchase 100 million testing swabs by the end of this year, and will distribute them to states so that each state can be in charge of testing its own residents.

A state-based approach, rather than a one-size-fits-all federal approach, is a much better, more targeted way to make sure tests go to individuals and communities that really need them.

It is important to keep in mind that, not only is testing important in real time, but also to test whether individuals have recovered from COVID-19. Antibody tests can not only confirm suspected cases after the fact, they can also reveal who was infected and didn’t know it. Some estimates show that up to a quarter of people with SARS-CoV-2 infection may unwittingly spread the virus because they have mild or no symptoms. The best evidence we have right now says that individuals can’t be infected again once they’ve had COVID-19. Antibody testing is a winning strategy to being able to open up our economy again.

Meanwhile, scientists continue working on vaccines and new therapeutic treatments to combat the coronavirus. A clinical trial of a vaccine developed by U.S.-based Moderna is showing promising signs of being effective against the virus. AstraZeneca in the United Kingdom is also making strides toward a vaccine.

A number of different therapeutic treatments are being studied as well that can help mitigate symptoms of the virus. SAb Biotherapeutics, based in Sioux Falls, is developing a treatment that produces antibodies capable of neutralizing the virus. The federal government has called for the approval process of vaccines to be fast-tracked, so that as soon as one shows signs of working, it can be distributed quickly across the country.

Our economy took a hit because of the coronavirus, but it will come back stronger than ever as we continue to reopen.

South Dakotans want to go back to work, kids want to go back to school and all of us want to be able to live our lives freely without fear of a virus. I’ll continue working to make sure we can get back to normal as quickly and safely as possible.

FROM CAPITOL HILL

Showing Up to Work

john Thune

United States Senator (R-S.D.)

“This has been a difficult year. I know it feels like there have been more downs than ups.

I think it has highlighted, though, that while our individual struggles might be unique, so too is our shared optimism that tomorrow will be better than today.”

For the last few months, essential

home states to help reduce the risk of

America connected over the last few

employees across the country have

spreading the disease. Our top priority

months. And the Finance Committee, of

been showing up for work, often risking

was – and is – keeping people safe.

which I’m also a member, has convened

their health and safety when they do.

During that time, the attending physician

We’ve all heard harrowing stories of

hearings to examine unemployment

and others at the Capitol worked hard

doctors, nurses, and other health care

to develop a plan for the Senate to

insurance during the pandemic and

professionals who’ve spent weeks away

safely return to Washington as soon as

from home so they could help treat

possible, and we did on May 4.

patients and comfort families, sacrificing time away from their own.

We’ve been hard at work monitoring the $2.4 trillion comprehensive response to

conduct oversight of certain Food and Drug Administration inspection processes.

As the economy continues to reopen in South Dakota and around the country,

We’ve also heard stories and seen

the coronavirus pandemic, convening

the realities of other heroes who, up

important committee hearings to conduct

the Senate is going to continue to focus

until the pandemic, have all been

oversight and prepare legislation for

on those buckets: monitoring COVID

members of the unsung variety: delivery

future floor consideration, and walking

relief efforts, convening hearings and

and chewing gum by passing bills and

conducting oversight, and passing bills

confirming executive and judicial branch

and confirming nominees. All of them

nominees.

are important to our state’s and nation’s

drivers, sanitation workers, grocery store workers, and cable and utility technicians, just to name a few. They’re the people we often took for granted on

recovery and reopening.

trash day or after placing an Amazon

I’ve participated in several Commerce

order or when we made a trip down

Committee hearings that have examined

This has been a difficult year. I know it

the meat or dairy aisle. Honestly, I’m

how the coronavirus crisis has affected

not sure I’ll ever look at a fully stocked

transportation in the United States – a

feels like there have been more downs

grocery store the same way ever again.

critical industry for South Dakota. The

Essential workers have helped keep America running, and during a crisis, Congress is an essential industry.

committee heard directly from the airline, automotive, and railroad industries about how they’ve dealt with the pandemic and how they’re planning to

than ups. I think it has highlighted, though, that while our individual struggles might be unique, so too is our shared optimism that tomorrow will be better than today. Despite any obstacles

At the height of the pandemic, after

be part of the reopening. The Commerce

we find in our way, we still wake up

Congress passed a massive, multi-trillion

Committee has also examined the

every morning in the greatest country the

dollar coronavirus relief package, the

heightened reliance of broadband –

world has ever known. We are American

Senate practiced what it was preaching.

another critical issue in South Dakota –

together, and that’s why brighter days

We spent a few weeks working from our

particularly the dependence on keeping

are always ahead.

ICBSD 2020 13

“CorTrust Bank has been fortunate to have the opportunity to serve many new customers during these financially unstable times. One of our new customers is a local, financially responsible, self-employed plumber. For years, he conducted all personal and business financing with a credit union. When the pandemic hit, he went to the credit union to apply for the Paycheck Protection Program. Despite years of patronage and loyalty, he was rejected and told by the credit union they were not set up to process the PPP loans. That same day, he called us asking for help and within 25 minutes we were able to process his loan and secure funding before the money ran out. Needless to say, we are excited to welcome new customers with open arms and support those within our communities who need it most.”

- Lynn Peterson, CorTrust Bank

Spreading the CHEER

14 The bottom line

CorTrust Bank staff in Sioux Falls, SD, started a fundraiser called “Casual Fridays.” For $20, team members were able to wear jeans on Fridays in April – they raised over $1,200! With these funds, CorTrust purchased gift cards from CorTrust Bank business customers and donated them to Sioux Falls Fire & Rescue.

CorTrust Bank created money/receipt envelopes with an uplifting message

In honor of May Day, CorTrust Bank team members in Aberdeen, SD, washed car windows in the drive-thru and safely handed out May Day baskets with goodies.

ICBSD 2020 15

“Thanks for being with us every step of the way. Your team has been guiding lights to us.

So thankful for you all.”

– Sioux Falls, SD

Community Banks

Were Built for Times Like This What First Bank & Trusts’ internal teams did to help...

1. Different bank teams ordered food from various restaurant customers over the past couple months in support of their businesses.

2. They assisted several frustrated and confused customers of other larger institutions who were not provided guidance, and in some cases were not offered the ability to do a PPP application through their bank. FB&T was able to secure a PPP loan for them.

3. Several of their employees met customers in various public places (bank parking lots, parks, etc) to visit, and work or close deals. Keeping social distancing in mind, but still finding a way to have that face-to-face interaction during a crucial time.

“One of our Business Bankers assisted a local business customer with their PPP application late one evening trying to beat funds from running out. After sending the customer and email that their application had been approved by SBA, the customer was so thankful of the extra effort beyond normal business hours that they ordered lunch to be delivered to the banker the next day.”

– Brookings, SD 16 The bottom line

“I have never been more proud of my local bank, First Bank & Trust, and how it helped me secure one of the PPP loans. As the owner of a restaurant franchise in town for the past six years the first quarter of the year has always been about surviving. When the Covid crisis hit in mid-March this was very concerning to me because there is very little “cushion” in my business at this time. Information on the PPP loan program was sent out to me from corporate along with the name of a national lender that they recommended that I work with to secure the loan. I opted instead to work with my local lender whom I have had a great relationship for many years. Through the process, the Bank President, and her staff worked patiently with me and my bookkeeper in obtaining the needed documents to submit the loan. What really impressed me was that while this was a new learning experience for everyone involved, First Bank & Trust handled the entire process in a very professional manner. Within a week I received a call from the Bank President telling me that the loan was secured and at the bank waiting for my signature. Thanks to the staff at First Bank & Trust for giving me a peace of mind during very uncertain times.”

– Canton, SD

The Farmers and Merchants State Bank

“Small banks are what keep small towns.”

To the “big guys” I was too big a risk for a loan to buy a house. I had a great credit but being in the process of buying a locker was too big a change to take a chance.

Scotland Farmers and Merchants State Bank didn’t see me as a number. They saw me for me. They invested in my work ethic and drive. They knew I would do what it takes to not only survive but to thrive. I’ll be forever grateful for Dick Behl and his crew. In economic times like these, look for the small guys. They can see the big picture!”

– The Farmers and Merchants State Bank Customer

American Bank & Trust

“We are really tied to our community’s success. If Wessington Springs doesn’t do well, our branch doesn’t do well. Doing right by our customers is a deep-seated belief tied to our mission. That also means doing what’s right for our customers all the time, and especially in times like these.”

- Blake Willman, market president for the American Bank & Trust Wessington Springs branch

ICBSD 2020 17

u n e m r a webin R BENEFIT

E MEMBE N EXCLUSIV

A

Powered by

OF ICBSD

ebinars W g Upcomin

JuLY

August

7/1/2020 Growth & Transformation Series: Digital Marketing Strategies: What’s Working in 2020?

8/4/2020 Maximizing Recoveries on Charged-Off Loans

Eric C. Cook, WSI Internet Consulting

7/7/2020 HR Compliance: Lessons Learned from Massive HR Failures Diane Pape Reed, CU Doctor

7/8/2020 Annual Training for the Branch: BSA, Identity Theft & Regs CC, D, E & DD Deborah Crawford, Gettechnical Inc.

7/9/2020 Top 10 Consumer Loan Documentation Mistakes Dawn Kincaid, Brode Consulting Services, Inc.

7/13/2020 Completing the TRID Closing Disclosure Line-by-Line Dawn Kincaid, Brode Consulting Services, Inc.

7/15/2020 HMDA: Still a Four-Letter Word?

Michael Christians, Michael Christians Consulting, LLC

David A. Reed, Reed & Jolly, PLLC

8/5/2020 Advanced CTR Training: Beyond the “Textbook” Dawn Kincaid, Brode Consulting Services, Inc.

8/6/2020 Fundamentals of IRA Beneficiary Designations & Distributions, Including Secure Act Implications Frank J. LaLoggia, LaLoggia Consulting, Inc.

Title Modification 2/26/20 8/12/2020 Growth & Transformation Series: Leveraging LinkedIn for Lenders Eric C. Cook, WSI Internet Consulting

8/13/2020 Cyber Series: Layered Cybersecurity: Finding the Best Strategy for Your Bank Aaron Daniels, Infogressive, Inc.

8/18/2020 Effective & Compliant Pre-Employment Background Checks David A. Reed, Reed & Jolly, PLLC

7/16/2020 Regulation E Myth Busters

8/19/2020 Collections & Right of Set Off in Commercial Lending

Michele L. Barlow, PAR/WACHA

Added Hot Topic 2/27/20

Elizabeth Fast, Spencer Fane LLP

7/22/2020 Responding to Garnishment & Levy Demands Elizabeth Fast, Spencer Fane LLP

7/23/2020 Call Report Basic Lending Schedules: Coding, Classifications & Loan Loss Allowance Amanda C. Garnett, CliftonLarsonAllen LLP

7/28/2020 Beneficial Ownership Rules for Business Accounts & Loans Susan Costonis, Compliance Consulting and Training for Financial Institutions

7/29/2020 Lending to Self-Employed Borrowers Aaron Lewis, Young & Associates, Inc.

7/30/2020 Handling Consumer Complaints & Disputes Mary-Lou Heighes, Compliance Plus, Inc.

8/20/2020 Opening Business Accounts: Entities, Documentation, Authority & Regulatory Requirements Mary-Lou Heighes, Compliance Plus, Inc.

Added Hot Topic 2/27/20 8/25/2020 Advanced IRA Beneficiary Issues: Death Distribution Calculations, Trusts, Successors & Secure Act Rules Frank J. LaLoggia, LaLoggia Consulting, Inc.

Title Modification 2/26/20 8/26/2020 Cutting-Edge Consumer Payments: Beyond PayPal & Venmo Erin Fonte, Hunton Andrews Kurth LLP

8/27/2020 Liability with ACH Death Notification Entries (DNEs) & Reclamations Michele L. Barlow, PAR/WACHA

Register today at ICBSD.com on the events page!

Most webinars are scheduled from 2:00-3:30 PM Central Time unless otherwise indicated. Please check the brochure copy to confirm the time.

18 The bottom line

Par-Tee and Afterglow Social Mark your calendar!

09 • 10 •20

2505 W Benson Rd, Sioux Falls

Thursday

September 10, 2020 @ Great Shots in Sioux Falls

ITINERARY

4:00 Tee-Off 6:00 Appetizers, Silent Auction and ICBSD Annual Meeting per person, $125 Golf Option

$75

per person, Non-Golf Option

Join us for an evening of family friendly fun as we golf, raise funds for the PAC and celebrate the power of community banking! We will tee off at 4:00 for two hours of fun and relaxing golf at Great Shots in Sioux Falls. Following golf, we will be holding the ICBSD annual meeting, installing the new officers, enjoy appetizers and beverages, and holding a silent auction for the PAC program. Kids are welcome! Golf prizes will be awarded to the top man and woman in the following categories: closest to the pin, longest drive, highest score and lowest score.

Families welcome!

Register at www.icbsd.com/golf/ ICBSD 2020 19

First Premier Bank Happy 25th Anniversary to Senior Personal Bank Officer Kelly Peterson at First PREMIER Bank

IN the

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

send your happenings to:

hannah@icbsd.com

20 The bottom line

Dacotah Bank’s Jane Aman celebrated 40 years of service as Credit Operations Specialist!

Congratulations to Penny Brooks for 25 years of service at Dacotah Bank!

Roy Becker and Dick Gulmon retired after 21 years and 37 years of service respectively at Dacotah Bank.

American Bank & Trust Audrey Ewalt celebrated 10 years of service with American Bank & Trust this past May. Congratulations Audrey!

Marilee Rounds celebrated 35 years of service with American Bank & Trust this past May. Congratulations!

Make Today Brighter BankStar Financial recently launched their “Make Today Brighter” campaign.

Check out how they are empowering their customers to focus on the positives in this announcement they sent out: Join BankStar Financial in their “Make Today Brighter” campaign! We are excited about these challenges that are meant to add some fun and humor to our lives… today!

Right now, we are looking ahead to the future, to the upcoming bright moments and what’s to come afterward. At BankStar, we believe the future will always hold buckets of bright moments but that there’s also a way to BRIGHTEN today.

Make today Brighter focuses on bringing joy to our communities through a series of engaging challenges. Each bright challenge is designed to create moments of delight and brightness in your day, inviting you to focus on the significance of TODAY. Join us on the bright side, so TOGETHER, we can make today brighter. Find some fun challenges and share them! Visit us at https://ebankstar.bank/ maketodaybrighter

First Dakota●

To see the challenges! Don’t forget to share your social media posts and use the hashtag #maketodaybrighter

Twenty years is an amazing feat!

Congratulations go out to Joann Koch who celebrated two decades at First Dakota this past May.

BankWest BankWest has been voted in Best of Mitchell in the Best Mortgage Lender category again!

BankWest BankWest helped support a new scoreboard at LaBarge Park in Pierre.“We’re grateful for the opportunity to partner with the City on projects that benefit the community,” said BankWest Regional President Terry Fitzke. “The scoreboards are an investment in youth activities, community infrastructure and the local economy, which corresponds well with our mission to help customers and communities succeed.”

BankWest Best wishes to Nancy Rutschke, Teller Supervisor at BankWest in Pierre! Nancy has been with BankWest since 1997 and is now retired. Happy retirement, Nancy!

ICBSD 2020 21 ○

Travel Tips Teresa Ulven

The Advantage Network, an ICBSD Preferred Partner

We’re dreaming of vacations and traveling now more than ever. We’re especially looking forward to summer celebrations, like watching the fireworks over Mt. Rushmore this 4th of July. When the time comes to resume all of these fun things, we’re ready to help your cardholders with some great tips to ensure everyone enjoys their travel.

Post these tips for cardholders on your website, mobile banking app, or Facebook page. Print handouts, mailers, or statement inserts to keep this information top-of-mind for your cardholders year round. (Be sure to edit the information to provide your financial institution’s (FI’s) correct information to your cardholders). Remember to educate staff so they can be knowledgeable and confident about giving information to cardholders.

1.

Make your FI’s phone number, website, and email address easy to find. Encourage cardholders to carry this information separately from their cards, in addition to this lost/stolen card contact information: • Domestic 24-hour lost/stolen number.

• 24-hour international lost/stolen card number. (They need to dial the country’s exit code first.)

22 The Thebottom Bottomline Line

2.

Educate cardholders and staff about the account alerts you offer and how they can sign up. By being aware and engaged, they can help protect themselves from fraud.

3.

If your financial institution uses a fraud management tool: • Staff should check daily for any communication regarding fraud activity.

• If the product you use reaches out to cardholders, inform them of phone calls, emails, or text messages they could receive, and encourage them to contact your FI as well.

• Remind cardholders to let you know if they will be traveling outside their normal spending area, so you can update their profile and they can continue to use their checkcard uninterrupted.

4.

Encourage cardholders to provide their updated contact information, including cell phone numbers. Is all the information updated on all systems and do the details match?

5.

Daily spending limits that are too high might create a situation that

allows large or multiple fraudulent transactions. Maintain reasonable daily limits and have cardholders call in to temporarily raise limits for travel or large purchases and then lower them to normal levels.

6.

Getting Cash

ATMs in the United States If your institution participates in a surcharge-free ATM network, promote the network and provide a list or map of the ATMs that are surcharge-free.

ATMs in Foreign countries When cardholders use their ATM card or checkcard at an ATM in a foreign country, they may be subject to large surcharges as well as other fees. Be sure to let your cardholders know if you charge either of the following: • A foreign ATM service fee • A currency conversion fee Cash Back at Point-of-Sale (POS) Your cardholders may be able to get cash back when using their checkcard at PIN POS terminals at participating merchant locations. Some merchants charge a small fee. Find out if your institution participates in a network that also allows cash back at POS terminals outside of the U.S.

7.

Deposits at ATMs

Does your institution allow deposits at your ATMs or at other ATMs? Do you charge a fee for ATM deposits? Be sure to educate your cardholders on your ATM deposit policies and fees.

8.

Signature or PIN?

Both signature/credit or PIN/debit are safe options:

• Chip card technology has an additional layer of security for all transactions.

• Consumer debit card transactions are covered under the Electronic Fund Transfer Act (EFTA) aka Regulation E. • The payment card networks have Zero Liability policies in place to protect cardholders.

Some cardholders may be confused by the terminology; a debit card “credit” transaction still pulls funds directly from a cardholder’s account but processes the transaction on the network credit rails. Providing a signature no longer guarantees a “credit” authorization, since some traditionally PIN-only networks now also allow signature authorizations.

For chip transactions, a signature or PIN entry is optional for all chip-enabled merchants.

Let your cardholders know they have the right to request specific routing.

Cardholders with rewards or affinity cards (cards that earn benefits for schools, community projects, etc.) should have greater incentive to ask for “credit” routing if their benefit is based on “credit” purchases only.

9.

Some merchant terminals ask cardholders to choose “Global Debit” (payment card network) or “U.S. Debit.” Global Debit means that the transaction will run on the appropriate network as a “credit” (for most purchases) while “U.S. Debit” means it will run on a PIN debit network.

10.

Purchase surcharges or “Checkout Fees” on credit and debit card transactions in the European Union are prohibited. In the United States, the surcharge only applies to credit cards; it does not apply to debit cards or prepaid cards.

11.

Merchants are not allowed to set minimum purchase limits for debit cards. They are allowed to offer discounts for cash, checks, or other non-card means of payment.

12.

In the United States, the

PIN for a chip debit card authorizes a purchase in an environment that is mostly “online.” “Online” refers to the constant communication between the merchant terminal, the issuer, and/or the processors on both sides. In many countries and at some unattended kiosks, this communication link is not always available, so transactions are authorized using an offline PIN. The offline PIN is stored securely on the chip so cardholder verification can occur even when the terminal is not connected to a network. The online PIN associated with chip debit cards in the U.S. does not authorize transactions in an offline environment.

Keeping your cardholders informed will make their experience more enjoyable by keeping their transactions secure and their checkcards accessible.

For more information, contact Teresa Ulven at 605-335-5112 or TMUlven@fnbsf.com.

ICBSD 2020 2020 23

CyberSecurity

?

Should I Test Employee Security

Awareness

Shane Daniel, Senior Information Security Consultant, SBS CyberSecurity, LLC

Becoming a Coach If you’ve ever volunteered to coach youth sports – especially T-ball – you’ve probably learned as much as the kids about how to teach and train someone to perform an activity. First lesson of coaching: it involves repetition. When I helped coach T-ball, our first day of practice involved running to first base over and over and coaching kids to listen to the first base coach. We spent a lot of time on the fundamentals and basics of baseball. When all is said and done, the purpose of T-ball is to provide the kids with a basic knowledge of the game and awareness of what to do when the ball is hit.

The goal of Security Awareness Training should be similar to coaching T-ball. We should understand that the audience is not full of security experts, and we need to provide basic knowledge and appropriate action to take when faced with an incident, and we also need to repeatedly test the effectiveness of the training program. Unlike T-ball, however, we need to keep score; not to shame an employee but to measure our coaching.

Verifying employees have retained this information and will deploy their training

24 The bottom line

in the future is the key to a successful Security Awareness Program.

Common Testing Methodologies Quizzes Administering a quiz after a training session is a common testing approach, but quizzes are ineffective if using a one-and-done approach. Remember, coaching is repetition. Random webbased quizzes throughout the year may provide a better measurement, unless employees share answers.

Workplace Security Review Employees can become desensitized to confidential information in the work area.

A great way to test your clean desk policy and physical security policy is to observe your workplace. Take pictures of any security violations - it is the best form of evidence – and share the results of your physical checks during your next Security Awareness Training session.

that wants to create a highly successful social engineering campaign. A pair of latex gloves is always recommended for this test. One of the best (cleanest) methods to perform this test is to follow the cleaning crew around after business hours and observe what information is being disposed of as ordinary garbage (not in shred bins; that’s where you want employees to put confidential information).

Pretext Phone Calls In larger organizations, pretext phone calls may be performed by an internal resource that isn’t well-known or by an outsourced auditor or consultant. The tester can perform the test via the phone (voice/text) or Internet (email/chat) posing as a customer, vendor, or business partner who is requesting confidential information or login credentials. The tester needs to have a good cover story as to why the information is needed. Testers will often use popular spoofing tools to display local area codes, phone numbers, and alias name when impersonating a person or company.

Dumpster Diving Dumpster diving can literally be a treasure trove of information for anyone

Physical Impersonation

We have all likely performed this test once in our life without realizing it. As an example, when I go to the gym, the attendant is supposed to swipe my card to grant and track my access.

However, if I have my earbuds in and stare at my phone, I’m allowed to walk by unchallenged. I look like I belong at the gym; why inconvenience me? If a tester looks like they belong at your organization, will your staff challenge their identity?

awareness. The risk of social engineering attacks cannot ever be 100% mitigated, but you should strive to improve the results (fewer violations) each year.

Employees should be informed that such testing may occur at random.

The results of testing should be shared with employees to emphasize the

fundamentals in the test that should have raised a red flag and the actions that users should have taken.

Security awareness and testing methodologies must continue to evolve with attack methods, and the best way to provide evidence of progress is to monitor performance through observation testing.

Flash Drive Drop Attack Test Another great test is to bait users with a “lost” USB (Universal Serial Bus) flash drive. How many employees will call IT? How many will plug the device into a company workstation? This test may be performed by capable IT Staff with help from the Internet or performed by an outsourced auditor or consultant.

Phishing Attack Simulation One of the best ways to determine if your employees are aware of the threat posed by a phishing attack is to perform a controlled test (simulated attack) of employee email. Test emails should provide clues covered in training that should tip the recipient of the deception.

Directing the recipient to a website link will allow the tester to gather evidence of who opened the email and who followed the link. Such testing may be performed by skilled staff or by a third-party provider. It is recommended that testing be performed throughout the year to maintain employee awareness.

Measuring Results Share the test results with the management team by documenting your findings using generic terms such as passwords written down and stored within eyesight, confidential information stored in unlocked desk drawers after hours, etc.

Avoid using names of employees in the written reports but be prepared to offer details when asked. Keeping in mind the goal is not to demean an employee but improve the organization’s security

Custom cybersecurity solutions based on your needs.

Gain a trusted cybersecurity advisor and ensure your cybersecurity program is well-managed with CONSULTING services.

Receive personalised NETWORK SECURITY testing tailored to your size and complexity.

Go beyond a checklist with a risk-based IT AUDIT, reviewing for compliance and adequacy.

Embrace the power of employee EDUCATION when it comes to a strong security culture.

Contact Rick Olivier (605) 270-3321 | rick.olivier@sbscyber.com www.sbscyber.com ICBSD 2020 25

OCC Combination Rules and Bank Lending Limits When it comes to fast food dining, the combo meal makes life easy. When it comes to applying combination rules to a bank’s lending limits, though, it’s not quite as simple as a quick drive-thru at your local fast food joint.

Bankers are well acquainted with lending limits imposed by law (for South Dakota state banks the general lending limit is found at SDCL 51A-12-2, and lending limits for national banks are found at 12 U.S.C. § 84). Applying those lending limits may become complicated, however, if a bank makes a loan to borrower A but the law requires that the loan to borrower A be combined with loans the bank may have to borrower B. In the case of national banks the OCC has a regulation entitled “Combination Rules” which is codified at 12 C.F.R. § 32.5.

For state banks in South Dakota, our banking statutes and regulations are mostly silent on the issue of when loans to one borrower must be combined with its loans to another borrower. However, in this author’s experience the South Dakota Division of Banking has often referred to and applied the OCC’s combination rules for purposes of applying South Dakota’s lending limits to state banks.

The OCC’s combination rules identify two tests for determining whether a loan to borrower A must be combined with the same bank’s loans to borrower B: when the loan to borrower A is used for the direct benefit of borrower B (the direct benefit test) or when a common enterprise exists between borrowers A and B (the common enterprise test).

The OCC Direct Benefit Test The OCC’s direct benefit test is fairly simple to apply. If the proceeds of a loan to borrower A end up in the pockets of borrower B the direct benefit test is triggered (and the bank must combine its loans to borrowers A and B for purposes of measuring its compliance with lending limits), with one significant exception. The direct benefit test will not be triggered if the proceeds of the loan to borrower A are used in a bona fide arm’s length transaction to acquire property, goods, or services. Thus, if borrower A uses the proceeds of the loan to purchase a piece of real estate from borrower B on an arm’s length basis the bank need not combine its loans to borrower A with its loans to borrower B for lending limit purposes.

FIND BANKING SOLUTIONS WITH DAVENPORT EVANS

Contract Compliance Negotiation

davenportevans.com

26 The bottom line

info@dehs.com

Trusts

Foreclosures FinTech & Bankruptcies

Real Estate & Leasing

Privacy

Mergers & National Acquisitions Products

Financial Services Lawyers: Charles Gullickson, Bob Hayes, Keith Gauer, Dixie Hieb, Doug Hajek, Tiffany Miller, Anthony Hohn, and Terry Prendergast.

“Applying the regulators’ combination rules can become complicated when measuring a bank’s compliance with its lending limits. Attention to the details is crucial.”

The OCC’s Common Enterprise Test The OCC’s common enterprise test is not quite as straightforward as the direct benefit test. Under the OCC’s rules a common enterprise can exist in two situations: if a bank’s loans to borrower A and borrower B have the same expected source of repayment and neither borrower has another source of income from which the loan (together with its other obligations) may be fully repaid, or if borrowers A and B are related through common control and substantial economic interdependence exists between them.

The OCC’s expected-source-of-payment trigger for combining rules is implicated when a bank makes a loan to borrower A but requires borrower B to guarantee that loan. The guaranty creates a common source of repayment for the bank’s loan to borrower A and any loans it may have to borrower B. However, the guaranty from borrower B would not require the bank to combine its loans to borrowers A and B, under the OCC’s rules, if the loan to borrower A has an adequate source of repayment separate from borrower B’s guaranty.

The OCC’s Combination Rules The second situation that creates a common enterprise under the OCC’s combination rules is when borrowers A and B are related through common control and “substantial economic interdependence” exists between them.

Under the OCC’s rules substantial financial interdependence exists when 50% or more of borrower A’s gross

receipts or gross expenditures are derived from transactions with borrower B. It is essential, therefore, when a bank makes loans to related companies for the bank to closely examine the economic relationships between those companies to determine whether they have substantial financial interdependence.

Banks should also be aware that both South Dakota and the OCC have special rules applicable when a bank makes loans to partners, partnerships, or entities within a corporate group. Under South Dakota law if a bank makes a loan to borrower A and borrower A invests the proceeds of that loan in a partnership or corporation, the bank is not required to combine that loan with loans the bank may also have with that partnership or corporation unless the bank is relying on the assets of that partnership or corporation as the source of repayment for the loan to borrower A. On the other hand, under the OCC’s rules a loan to borrower A and a bank’s separate loans to a partnership are combined if borrower A invests the proceeds of that loan in the partnership. Similarly, under the OCC’s rules a loan to a partnership is deemed to be a loan to each of its partners. That rule is not applied, however, in the case of limited partnerships or other “joint ventures or associations” if the members of the entity are not generally liable for the entity’s debt. Thus, the OCC has typically not applied its combination rules when a bank makes a loan to a limited liability company and also a loan to one of its members, because the members of an LLC are not generally liable for the LLC’s debts.

Finally, the OCC has rules for loans to a corporate group. The total of all loans

made by a national bank to members of a corporate group may not exceed 50% of the bank’s capital and surplus.

However, a bank must still examine each loan it makes to members of a corporate group to see if they need to be combined for either the direct benefit test or the common enterprise test.

Applying the regulators’ combination rules can become complicated when measuring a bank’s compliance with its lending limits. Attention to the details is crucial.

written by Charles D. Gullickson

Gullickson is an attorney at Davenport, Evans, Hurwitz & Smith, LLP Contact Charles at cgullickson@dehs.com

www.dehs.com ICBSD ICBSD 2020 2020 27

Julie Puetz Vice President, Chief Credit Officer at BankStar Financial

At BankStar Financial we have identified our core purpose...

To Brighten People’s Lives!

If I am to be totally honest…until now, I have always struggled with our core purpose…I mean how can we, as bankers, really brighten people’s lives? This past month, I have not only seen it…I have lived it!!

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was enacted to provide

BankStar Financial was one of many community banks throughout the nation who stepped forward to meet this unprecedented need for funding. At the time of this writing, BankStar Financial has funded $9 million in PPP loans for 280 businesses – which has allowed these businesses to retain 1,263 jobs!! Talk about a day brightener!

I could not be more proud of our amazing BankStar team! While some banks struggled to quickly gear up and process the influx of PPP Loans, we were able to work together to provide the very best service to our customers! This required some employees to work long hours – including nights and weekends. Even with the added challenge of several employees working remotely, and the frustration of the SBA’s computer system’s inability to keep up with the high volume of activity, we were able to help businesses receive their funding within days of their application. Without a doubt, that brightened lives!

BankStar Financial has funded $9 million national economic relief and in PPP loans for assistance to small businesses 280 businesses – and its workers. which has allowed these businesses to Just one week later – on April retain 1,263 jobs!!

3, 2020, the Small Business immediate, emergency

Administration (SBA) rolled out the Paycheck Protection Program (PPP).

This program provided 100% federally guaranteed loans to employers who maintain their payroll during this emergency.

If employers maintain their payroll, the loans would be forgiven. This would help workers remain employed, as well as help affected small businesses and our economy snap-back quicker after the crisis.

28 The bottom line

Don’t just take my word for it…read what a few of our customers had to say about BankStar: “Feeling so grateful for everything you and Bankstar have done for our Ritz Hair Studio families!! Truly appreciate all the hours you all have put into navigating the muddy waters and securing our futures!

You are the ray of sunshine in our unpredictable days.”

– Jennifer Peterson

“Thanks for all you’re doing! I hope you know how valuable you are to small businesses and how much we appreciate you. I hope you hear that often.”

– Renee Bauman

“I have been absolutely overjoyed with how you, your staff, and everyone at BankStar have been there for us! While we hear stories of the PPP funds running out and other glitches with the rollout of the rescue plans, I personally have never had such a thing go so smoothly – and that’s entirely because of the brilliant efforts and customer service you and your bank have provided to us.

We literally came to tears with this latest news. We cannot thank you enough!”

– Jon Bultman

It was not lost on me that all this activity took place during Community Banking Month. I can’t think of a better representation of what community banking is all about – helping small business owners and their employees.

In other words, BRIGHTENING PEOPLE’S LIVES!!

Our Preferred Partner program... is designed to foster mutually beneficial relationships between top-notch businesses and our members.

Show your support by doing business with the following preferred partners who support our association!

preferred Partners

CyberSecurity

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

www.icbsd.com