Ohio Record- Summer 2023

OHIO RECORD

DECODING THE INDUSTRY

Breaking down some of the most important banking acronyms affecting the industry today

Executive

Collingwood Green Phase III Toledo, Lucas County

Marsh Brook Place Columbus, Franklin County

Campbell Landing Springfield, Clark County

OVER THE HORIZON

Alphabet Soup

AML, ALM, BSA, CFPB, CRE, FDIC, OCC, ODP…Bankers know full well the alphabet soup that is the industry in which they work. Acronyms are just the tip of an iceberg of items in the banking industry that warrant decoding. As I sit here writing this, a banker emailed that he is looking for a TMO. My guess is they are in the market to hire a Treasury Management Officer. Yet, for the first 100 years of banking it likely stood for telegraph money order.

Getting back to alphabet soup, my research revealed pasta in the shapes of letters dates to U.S. Civil War times. Whether accidental or intentional, the origin seems to be a mystery, and it was maybe more of a novelty until Campbell’s popularized it in the 19th century. Yet, a lot of credit for the term’s popularity is given to President Franklin D. Roosevelt – ironically more frequently referred to by his initials FDR. The creation of numerous New Deal programs and agencies were more readily known by their three or four-letter acronyms. Thus, the collection of these were referred to as alphabet soup.

In addition to the acronyms and abbreviations, there is so much more to decode in our industry given all our regulations governing our activities are known by their sub-chapter numbering in 12 CFR – Code of Federal Regulations. Reg B protects applicants from discrimination in any aspect of a credit transaction. Reg Z is Truth in Lending and Reg DD is Truth in Savings.

Though AOCI -- Accumulated Other Comprehensive Income – has been around for quite some time, it is a term bankers know all too well today. ESG –Environmental, Social and Governance -- is another that has generated increased attention over the past couple of years.

Source of Local Strength

OBL has been highly visible this quarter decoding events in the financial services industry. How could a dramatic increase in interest rates over a short span of time not have a significant effect on bank balance sheets? That, along with regulatory and management failures at a couple of atypical banks, has brought harmful attention to all banks. Throw on top of that toxic activity in the stock market targeting banks, which has created even more fear.

It is a true honor to be the face of the Ohio banking industry. We are grateful to hear from you that our hard work is valued as much as ever. Over the span of two weeks in March, OBL was on more radios and TVs and in more digital and print publications than at any other time during my 20 years with your association. We had to be visible. That is a fundamental mission of a trade association. The calls for OBL to weigh in on economic issues with interplay in the banking sector continue to come our way.

Ohio bankers have shared that the failures of Silicon Valley Bank and Signature Bank were of no consequence to them and their communities. We have countless examples where Ohio’s community banks recounted proactive customer outreach to ensure concerns were relieved. Responses back from their customers were consistent and reaffirmed that they know their bank is intertwined in the local community. Their local bank has its name on the high school scoreboard, is visible with causes in the community and is in it for the long haul as its customers weave through the various stages and milestones of life. The local bank is walking alongside those customers – neighbors, friends and family members – with products to meet those needs.

How did we get to summer already?

The OBL events calendar is nearing the midway point. Ralphie and his decoding ring will be on our TVs before we know it. The year has flown by thanks to the packed calendar the OBL professional development managers have built. As covered in this edition of Ohio Record, we had a bumper crop of bankers turn out for our annual OBL Day at the Capitol statehouse advocacy event and great industry participation in OBL’s 20th annual CEO Symposium. This year’s speakers were especially solid, and the topics were both meaningful and timely. Yet, the one on ALCO seemed to have the longest tail of conversation well after the event. Of course, your ALCO has not been this active in a decade. ALCO, another acronym to throw in the soup.

With OBL’s annual convention we are excited to reconnect with our counterparts from Illinois. The OBL Next Gen Conference is shaping up to have record attendance. It is fun to see the industry’s young leaders and realize a growing segment of today’s Ohio bank presidents were once eager attendees at this event over the past dozen years.

On the Road

Bank visits over the first five months of 2023 put me ahead of my yearly goal. This could be the year I eclipse 100. With 170 member banks, it is a priority to call on as many as possible annually to gain timely banker insights and understand where OBL can be a greater resource. Days on the road and seeing the impact you have in your communities are among my most enjoyable. Resoundingly, Ohio banks are looking for more deposits and the cost of funds is getting more costly. For many, pipelines are good, if not great, and that sentiment is commonly held even beyond central Ohio. To clarify, those solid pipelines are commercial loans. Some of you are doing at least okay on residential but that continues to be constrained by the lack of inventory as

much as anything. Credit quality is not an issue, and you are keeping an eye on delinquencies with the stimulus dollars being spent, while charge offs still trending favorably. Staffing seems to have stabilized. There is concern that upcoming exams could be contentious, given the Congressional hearing blowback on regulatory failures at the collapsed banks.

Though on the outside there might seem there is much to decode in the banking industry, it is as simple as the ABCs. Those decisions are still driven by the three C’s of credit – capital, capacity and character. Thanks to OBL’s great members who look to their trade association to help educate the public on how business is done here in the Buckeye State. You have the OBL’s continued commitment to look out further over the horizon to ensure our great industry’s sustainability. M’m! M’m! Good!

Michael J. Adelman President & CEO, Ohio Bankers League

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Michael Adelman President & CEO madelman@ohiobankersleague.com

(614) 340-7616

Gauri Airi Executive Director, Ohio Bankers Benefits Trust gairi@ohiobankersleague.com

(614) 340-7598

Carol Allerding Education Manager callerding@ohiobankersleague.com

(614) 340-7618

Brenda Arnold Products & Services Manager, OBL BankServices barnold@ohiobankersleague.com

(614) 340-7620

Steve Bare Database Manager sbare@ohiobankersleague.com

(614) 340-7607

Don Boyd Vice President of State Government Relations and General Counsel dboyd@ohiobankersleague.com

(614) 340-7608

Michelle Crume Senior Vice President, OBL Executive Director, OBL BankServices mcrume@ohiobankersleague.com

(614) 340-7622

Taylor Daniel Executive Assistant tdaniel@ohiobankersleague.com

(614) 340-7602

Stephanie Elam Plan Coordinator & Customer Service Specialist selam@ohiobankersleague.com

(614) 340-7591

Rita Hinkle Administrator, OBBT rhinkle@ohiobankersleague.com

(614) 340-7609

Paige Houlihan Products and Services Coordinator, OBLBankServices phoulihan@ohiobankersleague.com

(614) 340-7613

Sarah Husk Education Specialist shusk@ohiobankersleague.com

(614) 340-7610

Audra Johnson Director of Communications ajohnson@ohiobankersleague.com

(614) 340-7621

Susan Poling Jones Professional Development Director spoling@ohiobankersleague.com

(614) 340-7611

Julie Kiplinger Education Manager jkiplinger@ohiobankersleague.com

(614) 340-7612

Evan Kleymeyer Senior Vice President of Government and External Relations ekleymeyer@ohiobankersleague.com (614) 340-7605

Kimberley Mason Higher Education Partnership Manager kmason@ohiobankersleague.com (614) 340-7601

Jennifer Osburn, CPA CFO, Chief Administrative Officer josburn@ohiobankersleague.com (614) 340-7606

Shannon Strow Government Relations Coordinator sstrow@ohiobankersleague.com (614) 340-7614

Christine Zeek Employee Benefits Manager, OBBT czeek@ohiobankersleague.com (614) 340-7617

OBL HOSTED ANOTHER SUCCESSFUL DC FLY-IN

If ever there was an important year for Ohio bankers to visit their legislators and regulators in Washington D.C., it was this one. With many issues on the forefront that affect the industry, nearly 80 Ohio bankers took to The Hill to make their voices heard. The event took place in early March and bankers visited with nearly the entire Ohio delegation. In addition, bankers met with Acting FDIC Chair Gruenberg, Senior OCC Staff and Fed Governor Bowman. While there, bankers discussed important topics such as interest rate caps, ESG, digital assets, interchange, credit unions, cannabis banking, overdrafts, fintech charters and more.

The OBL was also proud to have the OBL Bank Leadership Institute students join their peers at the DC Fly-In this year. The event proves to be an incredibly valuable learning experience to those who are new to governmental advocacy.

A group of bankers and Bank Leadership Institute students pose for a photo before their meetings with the Ohio delegation.

OBL President and CEO, Mike Adelman, has a conversation with Martin Gruenburg, chairman of the FDIC.

The team from First State Bank poses for a photo at the DC Fly-In.

Bankers meet with Representative Balderson during their time at the Capitol.

Bankers pose with Congressman Latta in his office on Capitol Hill.

Congressman Johnson was happy to hear from bankers from his district in Ohio.

OBL DAY AT THE CAPITOL DEMOCRACY IS NOT A SPECTATOR SPORT

The 2023 Ohio Bankers League Day at the Capitol event proved to be an extraordinary triumph, as bankers from all over the state converged to advocate on behalf of the banking industry in Ohio.

One of the highlights of the event was a breakfast session featuring Senate President Matt Huffman who provided an insightful update on Ohio's constitutional amendment process as well as updating on current developments regarding the process. His comprehensive briefing offered attendees a deeper understanding of the state's legislative procedures and the potential implications for the banking sector.

Throughout the day, bankers actively engaged in meetings with their respective legislators. These discussions centered around the impact of current legislation on the communities they serve. The bankers eloquently conveyed their perspectives, underscoring the critical role that the banking industry plays in Ohio's economic well-being. This is critical to the success of the OBL and the industry at large. Hearing directly from constituent bankers is the best way for legislators to understand how the decisions they make in Columbus affect the banks, businesses, and constituents in their district.

During the luncheon, attendees received updates on the key issues being addressed at the Statehouse. Moreover, they gained valuable insights into effective lobbying techniques, equipping them with the necessary tools to further advocate for their industry's interests. The Ohio Bankers League was fortunate to have Treasurer of State Robert Sprague and Auditor of State Keith Faber, two prominent statewide elected officials, as the keynote speakers. Both provided an astute update on their offices’ current priorities, programs, and how banks can successfully interact with them. With all of the statewide officeholders in Ohio term limited out in 2026, it will be an active election cycle and both Treasurer Sprague and Auditor Faber are likely to carry on in their commitment to public service potentially by running for other offices.

In an exciting development this year, the Ohio Bankers League introduced an Emerging Leaders program, catering to individuals in the industry eager to enhance their knowledge and actively participate in the advocacy process.

New this year was an Emerging Leaders Track which introduced younger bankers to the advocacy process.

Bankers participate in a group luncheon before heading to the Statehouse for their legislative meetings.

Bankers joined Senate President Matt Huffman for breakfast and a group chat.

Participants had the unique opportunity to observe the legislative process firsthand by attending Ohio House and Senate Committee hearings. These immersive experiences provided a deeper understanding of the legislative process and the complexities that shape policy decisions. Later in the day, the attendees were privileged to hear from a panel of distinguished individuals from the Office of the Ohio Governor, Ohio Department of Commerce, and Treasurer of State's office. This diverse panel discussion broadened their perspectives and shed light on the multifaceted nature of policymaking.

The program's culmination featured an engaging discussion with Representative Brett Hillyer and Representative Latyna Humphrey. This interactive session allowed attendees to pose questions and gain insights from the representatives regarding the impact of the banking industry's advocacy efforts. The exchange of ideas and perspectives proved to be immensely valuable, fostering a sense of collaboration and partnership between the bankers and legislators.

As the day drew to a close, bankers and legislators gathered together to unwind, network, and debrief. The pleasant atmosphere was enhanced by friendly games of bowling and a delightful reception.

The 2023 Ohio Bankers League Day at the Capitol event left a lasting impression on all those in attendance. The resounding success of the event was evident in the passionate advocacy, meaningful discussions, and fruitful connections forged throughout the day. The event served as a testament to the banking industry's unwavering dedication to its communities and its relentless pursuit of a prosperous future for all.

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Treasurer of State Robert Sprague addresses the crowd, speaking about his plans for a revamp of the BidOHIO program.

Auditor of State Keith Faber addressed the audience during the lunch portion of the event.

WHAT TO EXPECT FROM WASHINGTON IN A POST SVB WORLD

The most recent bank failures and the subsequent fallout will continue to dominate banking policy debates for months or years to come. As these debates turn into new legislation and regulation, it is essential the OBL and all bankers work to ensure our voice is heard. The issues and proposals currently being debated could have a lasting impact for generations to come and would drastically change the way banks serve their customers and communities.

The FDIC and Federal Reserve’s postmortem report on what happened leading up to the bank failures was a stunning admission that Regulators failed to enforce the current regulations on the books. In all three cases, Regulators did not fully appreciate the extent of the vulnerabilities at these institutions, and once they did, they failed to take sufficient steps to ensure the problems were rectified. No one is turning a blind eye to the responsibility of management; however, it is important to note Regulators had all the tools available under current law to avoid the failures. While there was a unique set of circumstances that lead to the collapse of these institutions, the political knee-jerk reaction has been to create new rules to respond to the events. The OBL has broken down the expected response from Washington.

FDIC Insurance

A significant concern in the days following SVB’s collapse was the large number of uninsured deposits and their “run” risk. This led the Regulators to take extraordinary action to insure all deposits and to do a holistic review of the current deposit insurance regime. There have been many ideas thrown around over the last two months but the one idea rising to the top is a targeted increase on deposit insurance for business accounts. Under the proposal, businesses would be able to purchase additional insurance coverage beyond the $250,000 limit, but the FDIC would not require banks to provide this coverage. While there is no detailed proposal as of the writing of this article the OBL believes the excess

insurance would be on noninterest bearing transaction accounts. The bank would have the option to offer this increased insurance on an individual customer basis. Any change to the deposit insurance will require an act of Congress and significant bipartisan support.

New Capital and Liquidity Rules

The Federal Reserve’s Vice Chair

for Supervision

Michael Barr has already stated they will unveil a plan for overhauling bank capital and liquidity rules this summer. None of the regulatory agencies have a pending proposal for us to digest, however, based on comments in the press and in Congressional hearings, OBL believes they plan to propose higher capital requirements, and an overhaul of the capital treatment of unrealized losses in the bond portfolio. A proposal like that could be done at the regulatory agency level but would require significant coordination between each to effect the changes they believe would have helped stop the collapse of SVB.

Claw-Back Reform

There is bipartisan support for some sort of claw-back reform legislation in the wake of well reported actions taken by SVB executives. The effort would bolster Bank Regulators’ authority to claw-back pay and bonuses from executives at failed institutions. There has already been five claw-back bills introduced and OBL expects to see some of them combine and gain support from the Senate Banking Committee members over the next few months.

Evan Kleymeyer Senior Vice President of Government and External Relations, Ohio Bankers League ekleymeyer@ohiobankersleague.com

WE’LL NEVER

BE THE SAME.

History shows that change is more often the rule than the exception. The same can be said for the world of banking. As The Banking Experts, we’ve worked in banking, every hour of every day, every week of every month, for more than 75 years. In fact, no other accounting and consulting firm possesses greater knowledge of community banks’ needs, challenges, and opportunities than S.R.Snodgrass. Which is why, in a world that continually changes, we’ll never be the same. If you think our unrivaled banking expertise and personalized service could benefit your bank, please allow us to introduce ourselves. We’d be delighted to meet you.

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Blue Team Testing XDR

SECTION 1071 FINAL RULE –WHAT YOU NEED TO KNOW

Whether you were counting down the minutes until its release or hoping it would be put off as long as possible, it’s finally here – the Section 1071 Final Rule. The Final Rule caps a more than 10-year wait from the enactment of the original statute which prescribed these requirements in the 2010 Dodd-Frank Act, and it was released a mere day before the CFPB’s publication deadline.

Surprisingly, perhaps, there were several changes from the Proposed Rule to the Final Rule that should provide some much-needed relief to community banks. However, the majority of the rules were finalized as proposed, so for those institutions who fall within the rules’ scope, it will still be quite the mountain to climb until compliance day.

WHAT CHANGED FROM PROPOSED TO FINAL?

Many were happy to see that the final rule contained some key changes from the proposal issued in September 2021. According to the CFPB, the changes reflect the consideration of more than 2,100 public comments on the Proposed Rule, as well as extensive public input predating the proposal.

Threshold Increase

Undoubtedly, the biggest and most welcome change from the proposal is the threshold increase. Whereas the Proposed Rule called for institutions to be covered when making as few as 25 covered loans per year, the Final Rule increases this all the way to 100 per year. To be clear, this still covers a large majority of bank small business lending, and those under the threshold should note that the CFPB made clear that “Lenders originating less than 100 loans per year will still be required to adhere to fair lending laws.” Of course, we always knew that banks are subject to fair lending laws regardless of the number of loans originated, but the question will be how the CFPB and/or other regulators may interpret this assertion in this new Section 1071 world.

Phased Implementation

Probably the second most welcome change is the phased implementation, which means that even for those institutions that are covered, some do not have to collect and report until 2026 and 2027, respectively. Specifically, the Final Rule includes compliance date “tiers” for when a covered financial institution must begin collecting and reporting data:

Note that even if your institution originated fewer than 100 covered originations in 2022 or 2023, if you originate at least 100 covered originations in 2024 and 2025, you still must collect and otherwise comply with the rule starting on January 1, 2026.

Additionally, the bank must have a method to determine how many covered credit transactions it originated in order to determine its appropriate compliance tier. If the bank happens to not have readily available information needed to make this determination, the Final Rule says that it can use “any reasonable method to estimate its covered originations” for 2022 and 2023, and provides several examples of this.

Visual Observation Requirement

A third important change from the Proposed Rule is that the bank will no longer be required (or allowed) to collect a business owners’ demographic information by way of visual observation or surname. This made many breathe a

huge sigh of relief as the idea of trying to collect ethnicity and race through these means raised a variety of concerns during the time of the Proposed Rule. So, under the Final Rule, this information will only be able to be collected directly from the applicant(s) and not through any other means.

WHAT DATA POINTS DOES THIS COVER?

It is interesting that the original 2010 Dodd-Frank statute which enacted the 1071 rule required 13 data points, which have now ballooned in the Final Rule to be reportable through 81 data fields. One notable change in the data points for the final rule is the addition of “LGBTQI+” business status. Whereas in the Proposed Rule there were two separate data points for business status – one for women-owned and one for minorityowned—the Final Rule just includes one data point for business status which encompasses all three of these:

… The Bureau notes that proposed § 1002.107(a)(19), “women-owned business status,” has been combined with proposed § 1002.107(a)(18), “minority-owned business status,” and the final § 1002.107(a)(18) 274 data point now addresses “minority-owned, women-owned, and LGBTQI+-owned business statuses.” As a result, the data points in proposed § 1002.107(20) and (21) have been renumbered as final § 1002.107(19) and (20). … p. 274: https://files.consumerfinance.gov/f/documents/ cfpb_1071-final-rule.pdf

While we can’t reasonably cover them all here, the remaining data points were similar to the Proposed Rule and may be reviewed in the CFPB’s Data Points Chart linked below.

WHAT TRANSACTIONS ARE COVERED?

Covered Credit Transactions

Very generally, a covered credit transaction is an extension of business credit under Regulation B, but with certain exclusions, some specifically for purposes of Section 1071, such as:

• Trade credit;

• HMDA-reportable transactions;

• Insurance premium financing;

• Public utilities credit;

• Securities credit;

• Certain incidental credit;

• Factoring;

• Leases;

• Consumer-designated credit used for business or agricultural purposes;

• Purchases of a credit transaction;

• Purchases of an interest in a pool of credit transactions; and

• Purchases of a partial interest in a credit transaction (such as a loan participation agreement).

Despite the length of this list of exclusions, the definition is still extremely broad and covers a wide variety of transactions, including closed-end loans, open-end lines of credit, credit cards, merchant cash advances, and various credit products used for agricultural purposes.

Covered Originations

A very important thing to note in this area is that “covered originations” for purposes of determining institutional coverage and compliance dates is narrower than the above. A common question we have been getting on the Hotline is whether extensions and renewals should be counted. For this purpose, extensions, renewals, and certain other loan amendments are not considered covered originations even if they increase the credit line or credit amount of the existing transaction.

WHAT ELSE SHOULD I BE THINKING ABOUT?

Firewall

A very unique aspect of this rule is the so-called “firewall” provision, which bears mentioning here. In general, employees and officers should be prohibited from accessing the following responses if that employee or officer is involved in making any determination about the application:

• The applicant’s minority-owned, women-owned, and LGBTQI+-owned business statuses; and

• Its principal owners’ ethnicity, race, and sex.

There are limited exceptions to this firewall requirement, including a notice allowance, and the Final Rule also prohibits the bank from disclosing this demographic information to other parties, again, with limited exceptions.

Safe Harbors

Interestingly, the Final Rule has a safe harbor for certain incorrect census tracts, NAICS codes, and application dates. It also has a safe harbor regarding incorrect determinations of small business status, covered credit transactions, and covered applications.

For example, if the bank initially determines that an applicant is a small business, but then later concludes the applicant is not a small business, the bank would not be in violation if, at the time the bank collected the demographic data, it had a “reasonable basis for believing that the application was from a small business.”

Action Plan

Now that the Final Rule has arrived, there are a variety of questions and action steps our members should be considering, such as:

• Is my bank covered under the new Final Rule? If so, what is the bank’s mandatory compliance date?

• How will this affect the bank’s Compliance Management System (CMS)? What policies, procedures, and other governance documents or materials may need to be amended?

• Is everyone well informed of the changes and their effects, including the Board, senior management, business lines, and other stakeholders?

• What type of training is planned and for whom?

• What do the bank’s business lending processes look like currently and what change management will be required to implement these changes correctly and in a timely manner?

• Has the bank established relationships with any vendors? Do the modules or other software offered need to be tailored to meet the bank’s needs?

• What will the institution be employing for data integrity purposes?

• What does a tailored project implementation plan look like for my institution?

OTHER RESOURCES

In addition to the Final Rule itself, the CFPB published a bevy of other accompanying materials.

One is a Fact Sheet, which outlines the history of the Section 1071 rulemaking and the various policy objectives driving it.

Another is a Policy Statement which indicates “… that the CFPB intends to focus its supervisory and enforcement activities…on ensuring that covered lenders do not discourage small business loan applicants from providing responsive data, including…ECOA-mandated demographic data requests…”

The CFPB also published a Filing Instructions Guide which provides an overview of the filing process, instructions for what to enter in each data field, validation requirements that must be met before the register can be filed, and additional resources to assist with inquiries.

A Data Points Chart provides a visual guide to the various data point fields and their respective regulatory references, along with a brief description and filing instructions for each.

An Executive Summary lays out an overview of the main facets of the Final Rule. Compliance Alliance will be publishing its own summary of the Final Rule very soon.

Finally, a Key Dates chart provides a visual representation of the three compliance tiers and their respective mandatory compliance collection and reporting dates.

Note that there are some additional tools on the CFPB’s resources page, and more may be added in the future.

WE’RE HERE TO HELP!

It goes without saying that this is just an extremely brief overview of all the Final Rule entails. As you approach your compliance date, or just work to determine whether your institution may be covered at all, we’re here to help! Feel free to reach out to our compliance Hotline by chat, email, or phone and one of our advisors will be happy to walk through your questions with you.

Victoria E. Stephen, JD, CRCM Senior Vice President and Deputy General Counsel Compliance Alliance

PREMIER OBL BANK LEADERSHIP INSTITUTE CONTINUES SUCCESS NEW FACILITATORS RECEIVE RAVE REVIEWS

The OBL Bank Leadership Institute continues its reputation as a premier program for the Ohio Bankers League. Under the facilitation by instructors Joe Micallef, Sales Strategist & Coach, Grow Up Sales, and Debbie Peterson, Career & Leadership Development Strategist, Getting to Clarity LLC, the four-part program is once again receiving rave reviews from its students.

The 2022-2023 class is one of the largest in the program’s history, as 26 leaders graduated from the program at the OBL Education Center in April 2023. The students not only dove into topics such as SelfLeadership, Leadership Excellence and Communication; they also actively participated in the 2023 OBL DC Fly-In in February among more than 80 industry leaders.

At graduation, Peterson noted, “To the banks that have identified the leadership potential in their teams and trusted them to us at the OBL Bank Leadership Institute, we say thank you. It was a sincere pleasure to co-lead this cohort with Joe Micallef and to see such talent come through the doors with an openness and curiosity to learn. This class played full out, spoke vulnerably, and participated for themselves, and more so, for the benefit of the entire group.”

Speaking of the instructors, student Sara McCarty, vice president, commercial lending at Portage Community Bank, shared, “Debbie and Joe, you have provided us with so many great skills to be better leaders in both our personal and professional lives, which ultimately benefits our families, the organizations we work for and the communities in which we live and work.” She continued to her classmates, “Great leaders dare to be different and are not head down. They see around corners and shape the future rather than reacting to it. That’s what we have been challenged to do; to embrace what makes us different and to shape the way forward.”

Instructor Joe Micallef added, "During the program we learned that these leaders are smart, brave, fun and caring. This program is designed to help make those attributes shine, and they certainly did with this year's participants. We are looking forward to helping more leaders do more, be more and achieve more with this program."

As of the time of publication, the 2023-2024 OBL Bank Leadership Institute has sold out. To inquire about joining the waiting list, please contact Susan Poling Jones at spoling@ohiobakersleague.com at your next opportunity.

OBL BLI CLASS OF 2022-2023

Niki Ropp Citizens Federal S&L Assoc. of Bellefontaine

Heather Daoud Civista Bank

Tyler Burkle Federal Reserve Bank of Cleveland

Matthew Hartman Federal Reserve Bank of Cleveland

Diana Setty First State Bank

Lynn Kegley Hometown Bank

Tony Bunce LCNB National Bank

Tyler Tepe LCNB National Bank

Dakota Durbin Mechanics Bank

Doug Thompson Monroe Federal Savings and Loan Association

Paige Houlihan Ohio Bankers League

Kimberley Mason Ohio Bankers League

Brian Elder Park National Bank

Melissa Stickel Park National Bank

Sara McCarty Portage Community Bank

Oly Rex The Citizens National Bank of McConnelsville

Judy Pusateri

The Farmers & Merchants State Bank

Jen Vastano The First National Bank of Pandora

Sarah Greene The Hocking Valley Bank

Natasha Arcaro The North Side Bank and Trust Company

Johnetta Woods

The North Side Bank and Trust Company

Joel Elliott The Ohio Valley Bank Company

Benjamin Pewitt The Ohio Valley Bank Company

Serena Gaytan The Union Bank Company

Sam Cornwall Valley Central Bank

Dan Bender Westfield Bank, FSB

Debbie Peterson with students Lynn Kegley and Oly Rex.

Session 2 featured team-building exercises with Trey McBane.

A BANKER’S RECIPE FOR ALPHABET SOUP

If you are a seasoned professional or new to the banking industry, the multitude of acronyms can be daunting. It’s nearly impossible to have a conversation with bank colleagues without acronyms sprinkled throughout, and if working in the realm of compliance, acronyms can feel like the entire meal. Often we may nod our heads to signal our understanding of their meaning but are anxiously awaiting an opportunity to utilize a search bar soon after a conversation.

Mastering the culinary world of the banking alphabet soup isn’t a skill that is learned overnight. It takes years to understand and confidently ‘talk the talk’ in this industry. The key is having reliable tools, being resourceful, and never feeling hesitant to ask for clarity or more information when necessary. It’s also important to remember when speaking with others, both colleagues and customers, to not assume the recipient of the acronyms understand their meaning. Be prepared to spell out the letters and explain the ‘why’ behind its use. We hope this guide is helpful on your journey.

Most all acronyms derive from the regulatory agencies charged with oversight of financial institutions. Here’s a quick list of government agencies, departments and governmental employee acronyms, just to name a few.

Government Agencies, Departments and Buzzwords

CFPB Consumer Financial Protection Bureau

DOD Department of Defense

DOJ Department of Justice

EIC Examiner In Charge

FDIC Federal Deposit Insurance Corporation

FFIEC Federal Financial Institution Examination Council

FinCEN Financial Crimes Enforcement Network

FRB Federal Reserve Bank

NCUA National Credit Union Association

NGO Nongovernmental Organizations

OCC Office of the Comptroller of the Currency

OFAC Office of Foreign Asset Control

SEC Securities & Exchange Commission

Below are a few general banking and business acronyms every banker needs in their vocabulary.

General Banking

ACH Automated Clearing House

ATM Automatic Teller Machine

CD Certificate of Deposit

CIF Customer Information File

EFT Electronic Funds Transfers

EIN Employer Identification Number

FAQ Frequently Asked Question

IOLTA Interest on Lawyer's Trust Accounts

NDIP Non-deposit Investment Products

RDC Remote Deposit Capture

SSN Social Security Number

TIN Taxpayer Identification Number

OFAC Office of Foreign Asset Control

Specific to compliance, let’s start with a fan favorite, the Bank Secrecy Act/Anti Money Laundering (BSA/AML) and all its related laws, rulings and regulations. Some are more common than others. For example, many bankers may not know that a SWIFT code, which facilitates the speed of funds, stands for Society for Worldwide Interbank Financial Telecommunication. This is a classic example of deciphering the meaning, purpose, and application of the acronym. Other BSA/AML acronyms are below.

AML/CFT

ACH Automated Clearing House

AML Anti-Money Laundering

BO Beneficial Ownership

BSA Bank Secrecy Act

CDD Customer Due Diligence

CFT Countering the Financing of Terrorism

CIF Customer Information File

CIP Customer Identification Program

CMIR Report of Int'l Transportation of Currency/ Monetary Instruments

CRB Cannabis Related Business

CTR Currency Transaction Report

DCN Document Control Number

DOEP Designation of Exempt Person Form

EDD Enhanced Due Diligence

HIDTA High Intensity Drug Trafficking Areas

HIFCA High Intensity Financial Crimes Areas

IAT International ACH Transactions

ITIN Individual Taxpayer Identification Number

MIL Monetary Instrument Log

MRB Marijuana Related Business

MSB Money Services Business

NBFI Nonbank Financial Institution

NRA Nonresident Alien

NSL National Security Letters

ODFI Originating Depository Financial Institution

PEP Politically Exposed Person

POATM Privately Owned ATM

PTA Payable Through Account

PUPID Payable Upon Proper Identification

RDFI Receiving Depository Financial Institution

SAR Suspicious Activity Report

SAR 90 SAR 90 Day Follow Up Review

SDN Specially Designated Nationals or Blocked Persons

SWIFT Society for Worldwide Interbank Financial Telecommunication

TF Terrorist Financing

TPPP Third Party Payment Processors

UIGEA Unlawful Internet Gambling Enforcement Act of 2006

Closely related to the BSA function is the vast world of ACH operations. Since everything related to ACH is about speed, explaining this function usually means the inevitable acronym or three will be inserted into every other sentence. Here are few:

Key to Acronyms - ACH

ACH Automated Clearing House

CIF Central Information File

CFT Countering the Financing of Terrorism

EFT Electronic Funds Transfers

ESign Electronic Signatures in Global and National Commerce Act

NACHA National Automated Clearinghouse Association

NOC Notifications of Changes

ODFI Originating Depository Financial Institution

RDFI Receiving Depository Financial Institution

RDFI Receiving Depository Financial Institution

TPSP Third Party Service Provider

Lending compliance also has its share of fun acronyms that lenders and lending support personnel master over time. The advent of TRID in 2015 gifted the industry a plethora of new acronyms. Associating some acronyms with helpful hints is also a skill to master. For example, TRID (Truth-in-Lending/RESPA Integrated Disclosures) spells DIRT backwards, and nearly every TRID transaction involves dirt. TRID also fashioned the CD (Closing Disclosure), not to be confused with a Certificate of Deposit. Some compliance professionals attempted to get “CloD” to be the chosen acronym for Closing Disclosure, as in a CloD of dirt. This attempt was unsuccessful, so now we navigate the confusion of having CDs on both sides of the bank’s balance sheet. Lending compliance acronyms are below.

Lending Compliance

ADA Americans with Disability Act

AfBA Affiliated Business Arrangement

APR Annual Percentage Rate

ARM Adjustable Rate Mortgage

ATDS Automatic Telephone Dialing System

ATR Ability to Repay

CD Closing Disclosure

CMT Current Maturity Treasury (Index)

CRA Community Reinvestment Act

ECOA Equal Credit Opportunity Act

EHL Equal Housing Lender

FACTA Fair and Accurate Credit Transactions Act

FCRA Fair Credit Reporting Act

GMI Government Monitoring Information

HELOC Home Equity Line of Credit

HMDA Home Mortgage Disclosure Act

HOC Home Ownership Counseling

HUD Dept. of Housing and Urban Development

LAR Loan Application Register

LE Loan Estimate

MAPR Military Annual Percentage Rate

MDIA Mortgage Disclosure Improvement Act

MLA Military Lending Act

MLO Mortgage Loan Originator

MSDS Mortgage Servicing Disclosure Statement

NMLS National Mortgage Licensing System

ODP Overdraft Protection

PMI Private Mortgage Insurance

POC Paid Outside of Closing

QM Qualified Mortgage

RESPA Real Estate Settlement Procedures Act

ROR Right of Rescission

SAFE Secure and Fair Enforcement

SCRA Servicemembers Civil Relief Act

SFHD Standard Flood Hazard Determination

TIL(A) Truth In Lending (Act)

TRID Truth In Lending/RESPA Integrated Disclosures

UDAAP Unfair, Deceptive and Abusive Acts & Practices

URLA Uniform Real Estate Loan Application

The loan department and the BSA function are not the only areas in a bank with acronyms. Here are some miscellaneous acronyms that cover those areas of the bank.

Other Compliance

ADA Americans with Disability Act

APY Annual Percentage Yield

ATM Automatic Teller Machine

CD Certificate of Deposit

CMS Compliance Management Systems

EFT Electronic Funds Transfers

MMDA Money Market Deposit Account

NDIP Non-Deposit Investment Products

NOW Negotiable Order Withdrawal

SEC Standard Entry Class Code

TIS(A) Truth in Savings (Act)

Now, when your CEO comes to you and says, “I just heard from the FDIC EICß, and they’ll be in next month to look at BSA, AML, OFAC, and TRID”, you’ll know what they’re talking about. We hope this guide is helpful on the quest for understanding all the acronyms, wherever you are on your journey!

Katie Ferrell VP, Senior Compliance Consultant UBB Compliance Services

Sandy

Panella AVP, Compliance Consultant UBB Compliance Services

Jeff

Thompson VP, Managing Consultant UBB Compliance Services

Wozniak Project Administrator UBB Compliance Services

Elizabeth

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20TH ANNUAL CEO SYMPOSIUM ATTRACTS OVER 120 ATTENDEES

The 2023 OBL CEO Symposium attracted bankers from all across the state. The event kicked off with lunch and an opening session by keynote speaker, Kent Julian. Kent emphasized the importance of E+R=O, meaning the event plus your response equals the outcome. How you view things is how you do things.

From there the event included a session on FinTech’s, where bankers got to see what is on the horizon as far as new technology, a session about thinking beyond cash compensation for retention and recruitment and an in-depth session about preparing your balance sheet for the future, which included recommendations for banks and their asset liability committee.

Day one rounded off with a reception, where bankers got to decompress and network with one another.

Day two of the event began with executive roundtable discussions broken down by asset size. From there, bankers heard about strategic planning and some best practices for planning for the future and API's and how to partner with FinTech’s. The closing keynote was Thomas Hoenig, who gave the bankers Five Trends Defining Community & Regional Bank's Future.

Overall, the event was a tremendous success and the OBL hopes that each banker left energized for the future of banking.

Over 120 attendees prepared for two days full of learning and networking.

Bankers are actively listening and engaged throughout the morning sessions.

motivates the crowd to be more effective leaders.

A group of bankers enjoyed each

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LIFE AFTER “CECL”

If you have not heard…”CECL” stands for Current Expected Credit Loss, and is a “new” accounting standard (ASC 326-20) for estimating losses due to credit risk on financial assets held at amortized cost. CECL was effective for most financial institutions as of January 1, 2023.

But now that CECL has “come and gone”, below are key considerations and potential impacts your institution should be focusing on or should already have in place going forward as it relates to your CECL model:

C – Corporate Governance

With any model, overall corporate governance and model governance is critical to ensure integrity in the process as well as the outcomes. Institutions should have a framework in place to govern this process and the overall model, including the examination of model documentation, internal control processes and polices, and Board/Management oversight. Examples of governance examiners and auditors may expect include: a Board-approved CECL policy, documented internal control framework including identification of key controls, Board oversight (including periodic review and analysis of model outcomes), management’s ongoing analysis of model output, and documented back-testing and stresstesting scenarios.

E – Expectations

As previously noted, examiners and auditors will focus on key attributes of your CECL Model, including:

1. Model and Corporate Governance,

2. Model Design and Assumptions, and

3. Model Execution

While these functions are the responsibility of management and the Board, an independent CECL model validation will provide an objective assessment of overall model design, output, and internal control processes supporting the model. As a general rule, internal audit scoping is more limited in scope, focusing on internal controls and polices rather than a comprehensive evaluation of the model.

Institutions should be familiar with the Federal Reserve’s Model Risk Management (MRM) guidelines (SR 11-7). Recent (April 2023) Interagency guidelines also strongly recommend an institution’s CECL model be validated on an on-going basis. While frequency is not prescribed in the guidance, a 12-24 month timeframe may be considered reasonable assuming no major assumptions or model changes were implemented since the last validation. For significant changes to model design or methodology, management should consider the need for an updated model validation.

C – Continuous Training

For adoption of any new major accounting or regulatory standard, on-going training for those involved is critical. While initial training on the CECL accounting standard and model has been a common industry practice leading up to adoption, regular and consistent training is essential to ensure well-functioning model utilization. As your institution’s CECL implementation progresses, your model will likely undergo periodic updates and create the need for on-going training. Just as CECL is based on a life of loan concept, why not have training over the life of the model?

L – Limitations

Institutions need to be aware of limitations within their model. The accounting standard does not prescribe a specific methodology at the institution or segment level. As such, all methods should be considered, and ultimate selection based on the nature and profile of the institution’s loan portfolio.

Possible limitations institutions should consider within their CECL model include:

1. Does the model have a Held-to Maturity (HTM) investment module to estimate lifetime losses of the portfolio?

2. Does the model require significant manual overrides and inputs?

3. Does model access, documentation, and support facilitate independent evaluation and/or validation?

4. Does the model have a built-in forecast module, or is the institution required to provide their own forward looking adjustments/projections?

In conclusion, CECL implementation calls for a robust system of Corporate governance, addressing Expectations related to accounting, audit, and regulatory guidelines, adopting a program of Continuous training, and understanding the inherent Limitations specific to your model and methodology.

Andrew Shear, CPA,

Engagement Manager Brown Edwards

LRP

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ACRONYMS SAVE LIVES TOO

Acronyms are common vernacular in the banking industry. As a customer, I can’t avoid them! They are used when discussing my mortgage, my car loans, the place I pull cash out, even that thing my parents gave each of my children when they were born. You know what I am referring to... My twins, who are 18 now, only know that a CD has monetary value. Can you believe they don’t know they play music too? Good grief, this is making me feel old.

Please let me change the subject a bit.

Does the name Denny Kellington ring a bell? Denny is the Head Athletic Trainer (HAT) for the NFL’s Buffalo Bills. Denny is also the person who immediately started CPR on 25-year-old safety, Damar Hamlin when his heart stopped in the middle of a game last season. Denny spoke at Oklahoma State University’s commencement this past month and in his remarks he said he is constantly being hailed as a hero, to which he responds, “I am not a hero, but what I was that night, was ready.” Those words might be in the running for the understatement of the year.

Denny Kellington’s day to day in Orchard Park, New York is like yours as it is acronym filled as well. He is constantly checking BMIs, treating torn ACLs and he sees the occasional broken TIB/FIB. What Denny does not do every day is provide resuscitating chest compressions (CPR) on lifeless 25-year-olds. What happened that chilly night in Cincinnati was not something that Denny expected to happen when he went to work that day, in fact 99% of athletic trainers will never encounter something like that in their entire career but Denny was ready, he knew exactly what to do and the simple actions he took saved Damar Hamlin’s life.

In late 2022 the Ohio Bankers League and citizenAID partnered on a program called the Ohio Bank Safety Initiative (or OBSI, so we are acronym friendly) to help make Ohio banks and Ohio communities safer.

The OBSI, will hopefully become a familiar acronym in your office as it is a program that empowers bank employees to help save lives of seriously injured people in the event of a crisis at work. Seconds count when someone is seriously hurt, just like they do when someone is having a cardiac event. There are simple

steps that need to be taken before EMS (Emergency Medical Services) arrives to maximize the injured persons chances of survival, whether that person is a colleague or a customer, it is someone who is in dire need of immediate help and your employees are the only ones who can play that initial role.

The OBSI was designed to make your employees Denny Kellingtons. Everyday life in the banking associate’s world is APRs, IRAs and NSFs but what if one day something happens and they are in a position to help save a life. Would your team be ready?

citizenAID partnered with two Ohio banks just before the pandemic to test this initiative. We provided short online training programs for employees and put public access trauma equipment in branches and shortly after the program rolled out, two citizenAID trained and equipped bank associates saved an elderly woman’s life while at work. She was seriously injured, they applied direct pressure to her wound, they put a tourniquet on her leg, and this was all done within two minutes of her sustaining the injury.

Now The Ohio Bankers League and citizenAID want to build off that life-saving measure with the creation of the OBSI. This safety initiative will not only make all Ohio banking institutions safer but it will make Ohio Schools safer as well. citizenAID is matching all your employee training one for one and putting the same life saving training into the school districts of your choice, in your bank’s name.

If we can make your workplace and your communities safer for less than what it would cost to put a promotional banner up announcing a new APR, would that be worthwhile for your institution?

Bob Otter Founder and CEO citizenAID

PPP FRAUD: HOW FINANCIAL INSTITUTIONS CAN MITIGATE ONGOING RISK

The COVID-19 pandemic challenged communities and businesses nationwide, and financial institutions were no exception. As part of the $2 trillion coronavirus stimulus bill, Congress authorized Paycheck Protection Program (PPP) funding. Under the PPP program, the Small Business Association (SBA) rolled out two relief rounds for certain small businesses. These funds were intended for new and smaller borrowers and borrowers in low- and moderate-income communities.

How PPP funding led to fraudulent loans

While individual stimulus checks and PPP funding helped many businesses during the crisis, a Government Accountability Office report concluded that the SBA’s organizational structure and priorities during the pandemic contributed to conditions that led to increased fraud. For example, the PPP applicants simply needed to self-certify information—the SBA did not have policies or methods to verify borrower information before funds were disbursed or forgiven. The Secret Service has estimated that $100 billion was illegally obtained from the relief programs.

COVID-19 relief fraud has been uncovered for some time, but the devastating numbers and impact are still being realized. According to The New York Times, more than 15% of PPP loans were potentially fraudulent, and financial institutions continue to discover fraudulent loans in their PPP portfolios today.

The U.S. Department of Justice continues to pursue charges against large companies that received multimillion-dollar PPP loans. It has also charged individuals accused of obtaining six-figure PPP loans to finance lavish personal expenses such as luxury vehicles, mansions, private jets, high-end jewelry, expensive vacations, and even plastic surgery.

The Biden administration has taken a hard stance to hold criminals accountable for COVID relief fraud. President Biden stated, "We must prosecute serious offenders and go after those who have the largest amount of stolen funds to recapture.”

How financial institutions can help track down PPP fraud

It’s not too late for financial institutions to review their remaining PPP portfolio for any indication of fraud. The following red flags are indicators of fraudulent PPP applications:

• Misuse of proceeds

• Unqualified borrowers

• New Employer Identification Numbers (EIN)

• Shell corporations/dormant EINs

• Recent business incorporations

• Inflation of payroll

• Large loan amounts

• False statements on applications

• Fraudulent supporting documents (e.g., payroll, tax forms)

• Employee/employer collusion

• Newly created and multiple bank accounts with abnormal transaction activity

• Consumer accounts rather than business accounts

• Rapid movement of money in and out of accounts

• Withdrawals made via cash or apps (i.e., Cash App, Zelle, Venmo)

• Abnormal transaction activity for the client

• Transfers to overseas accounts known for poor antimoney laundering controls

• Crime rings - multiple applications are submitted using phishing information

The fast rollout of the PPP program meant that financial institutions were under pressure to issue loans quickly and may have missed some of these signs. With all types of fraud on the rise, now is the time to include lenders in fraud training, including what to look out for when checking for PPP fraud.

Conducting due diligence after the fact

To detect any lingering fraud within a PPP portfolio, a financial institution should review the PPP loan documentation to ensure that the application and attestation are fully completed with no evident red flags. Be sure to:

• Ensure that current anti-money laundering (AML) procedures were followed

• Conduct negative news searches on an entity and all principals and beneficial owners

• Review public records for the existence and filing date of the entity (was it a viable business before the pandemic?)

• Complete a credit check if not done at onboarding. Is there evidence of “loan stacking”?

• Check that all related tax identification numbers (TINs) are valid and were obtained before SBA imposed deadlines

• Check that all borrowers are related to the business

In addition to these customer due diligence (CDD) procedures, financial institutions should conduct a complete relationship enhanced due diligence (EDD) review on PPP loans. This will require them to:

• Follow the use of loan proceeds from funding to the current date

• Review payroll expenditures and taxes. If funding account elsewhere, consider this a red flag and submit a 314(b) request if warranted

• Balance the borrower’s anticipated payroll costs with the number of employees

• Review for thorough financial institution records of loan decision-making and spending of proceeds

• Update policies & procedures to show enhanced due diligence for PPP loans

Financial institutions are required to follow Bank Secrecy Act (BSA) requirements and perform proper due diligence. Financial institutions should follow all Suspicious Activity Report (SAR) requirements for fraud reporting and start the 30-day SAR clock when fraud is detected. If a borrower does not comply with the PPP criteria and the loan is not forgiven, a SAR may be warranted for loans that are termed out.

In addition to filing a SAR, the federal government has asked that the following agencies be contacted immediately upon detecting PPP fraud:

• SBA at www.SBA.gov

• Local Secret Service field office at www.secretservice. gove/contact/field-offices/

• Other local federal offices (FBI, IRS, etc.)

AML/CFT units should work closely with lenders and senior management to ensure all relevant staff receive training, including PPP portfolio review and monitoring. It is equally important to perform CDD and transaction monitoring of these businesses. Regulators will expect enhanced due diligence since financial institutions know that PPP fraud has been widespread, so be proactive and weed out any PPP fraud in your institution’s portfolio before someone else does.

Terri Luttrell CAMS-Audit Abrigo

WHERE ARE YOUR BALANCE SHEET BLIND SPOTS?

Stress testing your institution’s liquidity is no longer an academic exercise! Recent bank failures of Silicon Valley Bank and Signature Bank shocked the banking sector, and the fallout continues to ripple through the industry and the economy. Liquidity and Contingency Funding Plans have taken center stage, and regulators will be ultra-focused on liquidity risk management practices. Given the unprecedented uncertainty in the banking sector, we must fortify our liquidity risk management practices and prepare our balance sheet for a challenging environment.

Liquidity Assessment

The events of the past few weeks have certainly forced executives to dust off Contingency Funding Plans and assess the importance of having a robust approach to liquidity management. Beyond strengthening your current on-balance sheet liquidity, the following are key questions to ask as you prepare for tomorrow’s risks:

• Federal Reserve’s Bank Term Funding Program – Have you set up access and identified eligible collateral? How quickly can you access this funding source?

• Have you identified additional eligible collateral (loans and investments) to pledge to the FHLB or the Fed Discount Window?

• Have you tested all lines of credit?

• Are you monitoring Reg F exposure for counterparty risk?

• Do you stress test your Tangible Equity Capital falling below zero and are you familiar with the resulting liquidity implications of this?

• Have you assessed your institution’s reliance on uninsured deposits?

• Can you offer reciprocal deposits to your large depositors?

• Could our institution withstand a significant deposit outflow?

Executive teams need to ask themselves some additional important questions. Is our Liquidity Management and Continency Funding Plan up-to-date and reflective of the current economic environment? Are we overly reliant on funding sources that may not be available under a time of stress? How do our funding sources behave during periods of stress? Knowing the ‘breaking points’ within your current liquidity positioning and working to rectify any gaps will serve your institution well for your Board and especially the regulators.

Capital Assessment

The Capital position and stress testing should not be ignored in favor of a hyper-focused approach to liquidity. Stress testing your capital position is equally important today as liquidity access and capital are very much intertwined. We have a saying at Taylor Advisors’: “Capital Erosion Leads to Liquidity Evaporation” and, historically, capital erosion stems from asset quality and loan impairment. While credit quality remains favorable today, the long and variable lags of Federal Reserve Monetary Policy can most certainly impact asset quality in the future.

Furthermore, some institutions have chosen to materially impair capital today by selling securities and realizing unrealized losses in investment portfolios (i.e. Silicon Valley Bank). Knowing the breaking points of your capital by comprehensively stress testing helps reinforce confidence in your liquidity risk management practices and your ability to implement your Contingency Funding Plan.

HUB | Taylor Advisors’ Take:

Checking boxes and going through the motions at ALCO is never sufficient!

The liquidity assessment and management processes continue to evolve for the Board, management, and regulatory perspective. The liquidity crises during the Great Recession stemmed from asset quality and capital issues. Fallout from recent liquidity failures could spread to even the most conservatively run financial institutions. Silicon Valley Bank converted interest rate risk into credit risk, eroding regulatory capital ratios.

Evaluating strategies in isolation can expose blind spots on other parts of the balance sheet. This is why a wholistic approach to balance sheet management is critical when evaluating each of your major ALCO positions: Capital, Liquidity, Interest Rate Risk, and Investments.

Have you considered reimagining your ALCO process? You can start with upgrading your tools and policies, improving your ability to interpret and communicate the results, and helping implement actionable strategies.

HUB |Taylor Advisors, an Affiliate Member of OBL, helps banking executives by providing strategies and expertise to effectively manage the balance sheet and maximize Net Interest Margin.

Todd Taylor Managing Partner HUB |Taylor Advisors

Omar Hinojosa Managing Partner HUB |Taylor Advisors

COF – FROM THE BACKGROUND TO THE FOREFRONT

Cost of funds (COF) along with bank funding structure is getting attention not seen in more than a decade. There are several factors at work that have led to much greater focus on both current and prospective COF. For bank balance sheet managers, this focus has come quickly after a long period of historically low COF with a downward trend. Beginning in the second half of 2022, this period of low COF swiftly reversed course. The graph below show the COF history, beginning in 2011, for a group of approximately 3,600 banks with total assets between $100 million and $30 billion as of 3/31/23. This group of banks will be used throughout to illustrate trends in bank balance sheets and COF.

COF – From the Background to the Forefront Cost of funds (COF) along with bank funding structure is getting attention not seen in more than a decade. There are several factors at work that have led to much greater focus on both current and prospective COF. For bank balance sheet managers, this focus has come quickly after a long period of historically low COF with a downward trend. Beginning in the second half of 2022, this period of low COF swiftly reversed course. The graph below show the COF history, beginning in 2011, for a group of approximately 3,600 banks with total assets between $100 million and $30 billion as of 3/31/23. This group of banks will be used throughout to illustrate trends in bank balance sheets and COF.

of increases in the Federal Funds Rate in over 30 years, raising the target rate 475 bps by the end of the 1st quarter of 2023. While the rate increases were dramatic, the impact on COF was not initially felt by most banks due to historic deposit growth related to the COVID 19 pandemic beginning in early 2020.

Source: FIDC, S&P Market Intelligence, and Bloomberg

Source: FIDC, S&P Market Intelligence, and Bloomberg

Source: FIDC, S&P Market Intelligence, and Bloomberg

Deposit Growth - 12/31/19 to 03/31/23

Deposit Growth - 12/31/19 to 03/31/23

Source: FIDC and S&P Market Intelligence

Source: FIDC and S&P Market Intelligence

Multiple factors have led to the rise in COF, but the most significant are higher market interest rates, lower level of liquidity, and deposits leaving the banking sector.

Multiple factors have led to the rise in COF, but the most significant are higher market interest rates, lower level of liquidity, and deposits leaving the banking sector.

Beginning in March 2022, the Federal Open Market Committee (FOMC) began the most aggressive period of increases in the Federal Funds Rate in over 30 years, raising the target rate 475 bps by the end of the 1st quarter of 2023. While the rate increases were dramatic, the impact on COF was not initially felt by most banks due to historic deposit growth related to the COVID 19 pandemic beginning in early 2020.

Beginning in March 2022, the Federal Open Market Committee (FOMC) began the most aggressive period

Mar-20May-20Jul-20Sep-20Nov-20Jan-21Mar-21May-21Jul-21Sep-21Nov-21Jan-22Mar-22May-22Jul-22Sep-22Nov-22Jan-23Mar-23

Source: FIDC and S&P Market Intelligence

Source: FIDC and S&P Market Intelligence

The growth in deposits led to excess liquidity which limited competition for deposits and held rates in check – banks were not paying up for deposits because they did not need additional funding. Beginning in the second half of 2022 this began to change. When deposits began to grow rapidly in early 2020, loan demand was weak and while banks did grow securities portfolios, deposits grew faster than loans

Source: FIDC and S&P Market Intelligence

The growth in deposits led to excess liquidity which limited competition for deposits and held rates in check – banks were not paying up for deposits because they did not need additional funding. Beginning in the second half of 2022 this began to change. When deposits began to grow rapidly in early 2020, loan demand was weak and while banks did grow securities portfolios, deposits grew faster than loans

The growth in deposits led to excess liquidity which limited competition for deposits and held rates in check – banks were not paying up for deposits because they did not need additional funding. Beginning in the second half of 2022 this began to change. When deposits began to grow rapidly in early 2020, loan demand was weak and while banks did grow securities portfolios, deposits grew faster than loans and securities leaving banks with excess deposits. By the 4th quarter of 2023, this changed and cumulative growth in investment (loans and securities) outstripped the deposit growth.

Source: Federal Reserve and Bloomberg

The combination of much higher short term rates along with stress in the banking sector have made MMMFs an attractive option for depositors. With deposit volumes falling in conjunction with growth in loans and securities, wholesale funding volumes have increased which places additional upward pressure on COF.

Total Wholesale Funds 12/31/19 to 03/31/23

Source: FIDC and S&P Market Intelligence

Source: FIDC and S&P Market Intelligence

and securities leaving banks with excess deposits. By the 4th quarter of 2023, this changed and cumulative growth in investment (loans and securities) outstripped the deposit growth.

Source: FIDC and S&P Market Intelligence

At the same time that the FOMC was raising the Fed Funds rate at a historically fast level and excess deposits were being absorbed by loans and securities, funds were also beginning to leave the banking system more broadly and moving to money market mutual funds (MMF) as seen in the graph below:

At the same time that the FOMC was raising the Fed Funds rate at a historically fast level and excess deposits were being absorbed by loans and securities, funds were also beginning to leave the banking system more broadly and moving to money market mutual funds (MMF) as seen in the graph below:

Source: Federal Reserve and Bloomberg

The combination of much higher short term rates along with stress in the banking sector have made MMMFs an attractive option for depositors. With deposit volumes falling in conjunction with growth in loans and securities, wholesale funding volumes have increased which places additional upward pressure on COF.

The result of these factors in combination has led to COF for the 3,600+ bank group increasing 83bps in the past two quarters, 109 bps from the historic low of 22bps, and led to the highest COF since 1.34 at the end of 2010

The direction of COF over the short-to-intermediate term will have a meaningful impact on net interest margin and profitability with the following factors likely determining the outlooks for COF:

The result of these factors in combination has led to COF for the 3,600+ bank group increasing 83bps in the past two quarters, 109 bps from the historic low of 22bps, and led to the highest COF since 1.34 at the end of 2010.

The direction of COF over the short-to-intermediate term will have a meaningful impact on net interest margin and profitability with the following factors likely determining the outlooks for COF:

FOMC Policy – Chair Powell and FOMC members have been steadfast in their goal to bring inflation back to 2%. While the rates market has begun pricing in reductions in the target Fed Funds Rate in the second half of 2023, the view of the FOMC seems to be that the target rate is more likely to move higher than lower over the next twelve months.

Banking Stress – The ongoing stress in the regional bank space has driven much of the migration out of bank deposits. Should the migration continue or accelerate, it will increase competition for deposits and drive COF higher.

Bank Credit Conditions – The stress in the bank space has led to tighter credit conditions and the most recent senior loan officer opinion survey pointed to decreasing loan demand. A decrease in lending

FOMC Policy

Chair Powell and FOMC members have been steadfast in their goal to bring inflation back to 2%. While the rates market has begun pricing in reductions in the target Fed Funds Rate in the second half of 2023, the view of the FOMC seems to be that the target rate is more likely to move higher than lower over the next twelve months.

Banking Stress

The ongoing stress in the regional bank space has driven much of the migration out of bank deposits. Should the migration continue or accelerate, it will increase competition for deposits and drive COF higher.

Bank Credit Conditions

The stress in the bank space has led to tighter credit conditions and the most recent senior loan officer opinion survey pointed to decreasing loan demand. A decrease in lending would alleviate liquidity pressure and competition for deposits which could slow increases or even decrease COF.

With the potential for rising COF to continue, the following are strategies for raising funds that can mitigate some of the current funding pressures and risks of higher rates:

and securities leaving banks with excess deposits. By the 4th quarter of 2023, this changed and cumulative growth in investment (loans and securities) outstripped the deposit growth. Source: FIDC and S&P Market Intelligence

At the same time that the FOMC was raising the Fed Funds rate at a historically fast level and excess deposits were being absorbed by loans and securities, funds were also beginning to leave the banking system more broadly and moving to money market mutual funds (MMF) as seen in the graph below:

Wholesale Funding

Borrowing from the FHLB or brokered CD market can have a higher cost at the margin, but the current inversion of the yield curve provides opportunities to lock in term funding at lower costs than current short-term rates. Additionally, by “paying up” for funding in the wholesale market rather than the deposit market, the risk of cannibalizing the deposit base is reduced.

Indexed Deposits

Indexing deposit accounts to market interest rates (i.e. SOFR and T-bills) allows banks to compete with the higher rates offered by MMFs which are going to move closely with changes in market interest rates. This can be an especially useful strategy for funding floating rate loans as the funding can be priced to the same index as the loan.

Derivatives

The inversion in the yield curve has made interest rate derivatives an attractive option for hedging short-term funding. Derivatives can be used to convert short-term

funding into a longer term at a lower rate or reducing the risk of short-term rates moving higher.

Banks are facing the most strenuous funding environment since prior to the 2007-2010 financial crisis. COF will continue to be a key focus for bank managers over the short-term as liquidity remains tight, competition for deposits is fierce, and short-term market rates are still significantly higher than the average COF.

Brett Lofton, CFA Senior Vice President, Senior Portfolio Manager FHN Financial Portfolio Advisors

OBL BANKING CALENDAR

2023 OBL REGULATOR ROUND TABLE

August 4 (Virtual)

UNDERSTANDING BANK PERFORMANCE

Begins July 6 – Virtual

Looking to build banking foundations for your team and organization?

The OBL is partnering with the Washington Bankers Association, as well as state associations from across the country, to provide this new UBP virtual series to build banking foundations for the next generation of bankers. The 8-part virtual program will focus on providing students with the information they need, with access to instructors and peers to help prepare them for new and expanded responsibilities within the bank.

Topics include:

• Fundamentals of Financial Statements

• Credit Metrics & Credit Quality

• Funding & Liquidity

• Capital & Bank Investments

• Risk & Return

• Capstone Overview & More

Each 2-hour program is carefully crafted to ensure students have personal interaction with expert instructors and includes homework designed to help them fully understand class materials. In addition, sessions will be recorded and available for viewing if schedule conflicts arise.

Who Should Attend? This program is designed to bring newer employees get up to speed on how the banking industry works, and also develop experienced individuals as they further their careers.

Contact Julie Kiplinger at jkiplinger@ ohiobankersleague.com with questions or Sarah Husk at shusk@ohiobankersleague.com for registration assistance.

Not to be missed! Designed to address the continued regulatory changes, the annual OBL Regulator Roundtable offers the opportunity to hear from regulators from the CFPB, OCC, Federal Reserve Bank of Cleveland and FDIC on consumer compliance topics that matter most. Attendees can ask examiners question firsthand, ahead of time and/or live during the 3-hour program. The virtual program, which typically attracts upward of 100 Ohio bankers, also provides the opportunity to share best practices with others. Scott Daugherty, President & General Counsel from Bankers Alliance, will moderate the session. Register today to gather valuable insights on these topics and more:

• Priorities, Exam Findings and Hot TopicsBrandy Fultz, CFPB

• State of Compliance - LeVell Hall, OCC

• Supervisory Hot Topics and Common Trends in Regulatory Issues - Maria Spring, Federal Reserve Bank of Cleveland

• Supervisory Insights and Common ViolationsPatrick Ryan, FDIC

What do past attendees have to say?

• The regulators know their areas very well. They are all able to express to the group what is going on in their corner of the regulation world.

• I liked the Q&A session. It's very helpful to be able to ask questions directly to the regulators and receive a response right away.

• The Q&A Session offered great perspective on issues/concerns fielded by the attendees.

• I enjoyed all of the program and especially appreciated the candid discussions on 'best practices'.

Questions? Contact Carol Allerding at callerding@ohiobankersleague.com

CONFERENCE

August 17 (Virtual)

Accurate measures of business profitability are essential in today’s changing and volatile agricultural lending environment. Want to receive tools to calculate key financial ratios, and gain other valuable resources and information across many hot ag topics? Join the OBL as we celebrate 10 years of Ag Banking in Ohio at the 2023 OBL Ag Lending Virtual Conference on Aug. 17. The agenda will provide timely information featuring top experts and will benefit ag lenders from across the state.

The conference will feature keynote speakers Brian Baldridge, Director of the Ohio Department of Agriculture, and Freddie Barnard, PHD, a nationally renowned presenter in the ag field, and Director of the Midwest Agricultural Banking School. Dr. Barnard will join the OBL line-up for the first time and present “Profitability by the Numbers: What Secrets Would Your Farm Records Reveal?” Additional program highlights include a banking panel of OBL executives, covering “Banking & Farming in Ohio: What I Know.”

“The OBL understands that it can be difficult for lenders to balance time away from the office,” said Carol Allerding, OBL education manager. “As this conference has successfully been offered both in-person and virtually over the last 9 years, we are listening to our bankers and have opted to hold the 2023 program virtually, allowing for flexibility and learning all in one.”

Registration is now open. Individual registrations are available; as are Bring the Bank registrations. Invite others to participate today!

Watch the OBL website for complete agenda details and reach out to Sarah Husk at shusk@ohiobankersleague.com for assistance.

September 17 – 22

In today’s ever-changing banking environment, it is important for bankers - especially those who have potential to rise within their institution - to have a clear understanding of the bank as a whole. That is why so many turn to the OBL's premier OBL Bank Management School.

This week-long intensive and comprehensive management program meets 100 percent of student expectations year after year. The school features the ABA Bank Simulation and is coupled with sessions on topical banking-related sessions. With instruction by lead faculty member Anthony McGill, the school provides bankers with:

• An enhanced understanding of the industry and the inter-relationships of each banking function;

• An opportunity to better serve both customers and the bank;

• An opportunity to improve leadership and effectiveness;

• Skils to improve bank productivity, profitability and competitiveness; and

• A statewide peer network.

Who Should Attend? Employees at nearly every level can benefit. The thorough, hands-on approach makes it essential for management bound employees and/or trainees; anyone interested in the holistic view of running a bank and/or the basics of bank management. Experienced managers who are new to the banking industry and experienced bank officers will also benefit from the innovative and thoughtprovoking curriculum.

At the time of publication, just 10 seats remain in the 2023 program. Contact Julie Kiplinger at jkiplinger@ohiobankersleague.com or check the website for details..

2023 OBL AG LENDING

2023 OBL BANK MANAGEMENT SCHOOL

AROUND THE INDUSTRY

Spotlight

Adelphi Bank Makes History as Ohio’s First BlackOwned Bank Columbus, Ohio

Adelphi Bank, the first blackowned bank in Ohio, made history with the official opening of its doors in early May.

Adelphi Bank’s historic opening marks a significant milestone for the state of Ohio and the banking industry. As a minority depository institution in Ohio, Adelphi Bank represents a powerful symbol of hope and progress, and its mission to promote financial empowerment and diversity will undoubtedly have a lasting impact on the community.

The ribbon-cutting ceremony on May 1, 2023, was attended by state leaders, local officials, community leaders, business leaders, and members of the public. The event marked a historic moment in the history of Ohio.

Congratulations to Adelphi President & CEO, Jordan Miller and the rest of the Adelphi team!

Cincinnati, Ohio

Cincinnati banking veteran Jay Rush has joined Northwest Bank, a full-service financial institution offering a complete line of business and personal banking solutions, as regional vice president, commercial lending, and as lead of the bank’s expansion into the Greater Cincinnati market.

“We are excited to enter the Cincinnati market and support the success of the business community and region overall through our business and commercial banking solutions,” said Mark Reitzes, senior executive vice president and head of commercial banking, “Jay’s knowledge of the market, as well as his commitment to excellence and integrity, made him the perfect fit for our first Cincinnati-based regional vice president role and will enable Northwest to enter the market as a strong and competitive partner for businesses seeking commercial lending options.”

Rush will focus on helping mid-sized corporations meet their lending and treasury management needs.

Sandusky, Ohio

Civista Bank is pleased to welcome Nick Paradiso as Vice President, Commercial Lender at its Dublin branch, 6400

Perimeter Drive. With over two decades of banking experience, Paradiso is a leader in providing financial solutions for businesses of all sizes.

He believes in putting customer needs first, striving to build relationships that are rooted in trust and understanding. In his own words, “I want to take care of my customers like I would my family and friends by putting their needs, and what’s best for them above all else. I pride myself on customer service first and foremost. I enjoy helping my customers achieve their dreams for their business.”

Zanesville, Ohio

The Community Bank recognizes the promotions of Cindy Jackson and Blair Barlcay. They have distinguished themselves as talented leaders within the company. We're pleased to recognize Cindy and Blair for their hard work and congratulate them on their recent promotions.

Cindy Jackson has been promoted to Vice President/ Crooksville Office Manager and Blair Barclay has been promoted to Downtown Zanesville Office Manager of The Community Bank.

Jay Rush

Nick Paradiso

Cindy Jackson Blair Barlcay

Ohio Bankers Benefits Trust

COMING TOGETHER TO CONTROL BENEFIT COSTS

In today’s competitive marketplace, benefits have become as important as compensation when hiring or retaining the best and brightest. But health insurance is not inexpensive.

The Ohio Bankers Benefits Trust was developed in 1952 to mitigate health benefits costs by bringing bankers together.

When we harness the collective resources of Ohio’s banks and thrifts, everyone wins.

For more information about the OBL health plan options contact: OBBTCustomerService@ohiobankersleague.com

OHIO BANKERS BENEFITS TRUST

THE TOP TEN

In this quarterly feature, the OBL highlights the ten news articles that you have visited the most at www.ohiobankersleague.com.

OHIO TREASURER OF STATE ANNOUNCES NEW ALLOCATION AS PART OF BIDOHIO PROGRAM

1

Due to increased demand for deposits, the Ohio Treasurer’s office is now allocating up to $1 billion within the state treasury for certificates of deposits with Ohio banks.

2 CONCERNS ARISE OVER OHIO’S NEW VEHICLE TITLE PROCESS IN TRANSPORTATION BUDGET

The OBL is raising concerns about a provision in the transportation budget, House Bill 23, that would change the process of handling liens on motor vehicles. The provision requires lenders to provide a written notice to owners, asking whether they prefer a paper or electronic title, and if the owner chooses a paper title, the lender must obtain and provide it at no cost.

3

WHAT WE KNOW FROM THE SVB HEARINGS

The top banking regulators testified this week before Congress, about the sudden collapse of SVB and Signature bank. The OBL breaks down what we heard and its likely impact on our members.

4 CONGRESSMAN WARREN DAVIDSON

PENS LETTER TO FHFA DEMANDING CHANGES TO LOAN LEVEL PRICING ADJUSTMENT STRUCTURE

Along with the Chair of the House Financial Services Committee Patrick

McHenry, Congressman Warren Davidson sent a letter to the Federal Home Finance Agency Director Sandra Thompson insisting to reverse recent changes made to the loan level pricing adjustment changes.

5

FDIC PROPOSES OPTIONS FOR DEPOSIT INSURANCE REFORMS

This week the FDIC issued a much anticipated report in the wake of three of the largest bank failures, detailing options to reform the deposit insurance regime.

6 SAFE BANKING ACT REINTRODUCED

The OBL endorsed SAFE Banking Act has been reintroduced in both the House and Senate with broad bipartisan support

9 THE COUNTDOWN TO JULY 1ST CONTINUES – OHIO HOUSE OF REPRESENTATIVES UNVEILS OPERATING BUDGET, HIGHLIGHTING AFFORDABLE HOUSING ISSUES, AND OBL PUSHES BACK AGAINST CREDIT UNION EXPANSION

With the July 1st deadline to enact the State’s Operating Budget looming closer and closer, affordable housing issues take center stage this week as the Ohio House of Representatives released their version of the budget, including changes made in the omnibus amendment. In response, the OBL submitted a letter to the House Finance Committee pushing back on credit union expansion granting access to government programs.

7 OHIO

BANKERS LEAGUE INVITED TO DC TO SPEAK IN FAVOR OF FHLB

OBL’s President and CEO Michael Adelman today testified before the Federal Housing Finance Agency in one of their final hearings before they wrap up their FHLB listening tour.

8 RESOLUTION INTRODUCED TO ROLL BACK CFPB DATA RULE

One week after the CFPB finalized their small business data rule, a resolution was introduced in the US House to rescind the rule.

10FINCEN BENEFICIAL OWNERSHIP REGISTRY PROPOSAL HIGHLY CRITICIZED

A bipartisan group of lawmakers called on the Financial Crimes Enforcement Network to make changes to beneficial ownership information reporting requirements set to take effect in 2024. The argument is that the agency’s rulemaking deviates from congressional intent by allowing beneficial owners to withhold identifying information. The bipartisan support includes House Financial Services Committee Chairman Patrick McHenry and Senate Banking Committee Chairman Sherrod Brown.

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So when you want the best relationship for your BOLI portfolio and a firm that is dedicated to Ohio community banks, talk to Lou Moore at Banc Consulting Partners.