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HELPING CAN A LENDER CUSTOMERS “GET LEAN” IN ISSUE 3 2020 THROUGH PORTFOLIO RISK THE PPP MANAGEMENT? FORGIVENESS PAGE 8 PROCESS PAGE 5

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SSW_2020_01_UtahBanker.inddW_2020_01_UtahBanker.indd 1 11/22/2020/22/2020 11:49:52:49:52 PPMM CONTENTS 2 11 The Bottom Line 112th Annual Utah Bankers By Howard Headlee, President, Association Convention Utah Bankers Association 12 4 New Standards for Risk and Best Washington Update: Practice In Construction Lending Personal Finance for the Pandemic By Mike Lacey, CoFi Era: Why Bankers Should Deliver Fin Ed Lessons Today 14 By Rob Nichols, President and CEO, Best Practices for Choosing a American Bankers Association Fintech Lending Partner By Tracey Levandoski, CRCM, CrossCheck 5 Compliance LLC Helping Customers Through The PPP Forgiveness Process 16 By Michael Perez, Associate General Check Writers Are More Important Counsel, Compliance Alliance Than Ever Before 6 Contributed By Harland Clarke Compliance Corner: Changes To 18 Eligible Retained Income My Borrower Is in By John Berteau, Associate General Counsel Default: A Few Preliminary Issues To Consider 8 By Landon A. Hardcastle, Jones Waldo Can a Lender “Get Lean” In Portfolio Risk Management? 20 By Brian J. Ruhe, Golden Eagle Insurance, Inc. Bank Kudos 9 22 15th Annual Women In UBA Associate Members Banking Conference 24 10 Bankers on the Move 4th Annual Banks and 26 Partners Golf Classic Upcoming Events

UBA Board of Directors 2020 CHAIR 2ND VICE CHAIRMAN COMMUNITY BANK ADVISORY REGIONAL BANK ADVISORY ©2020 Utah Bankers Association | The newsLINK Group, Kristin B. Dittmer Matthew D. Bloye COUNCIL CHAIR COUNCIL CHAIR LLC. All rights reserved. Utah Banker is published four times Len E. Williams Mark A. Herman EVO and CFO Region Bank President each year by The newsLINK Group, LLC for Utah Bankers EnerBank USA Wells Fargo President and CEO Market President Salt Lake City Salt Lake City Altabank U.S. Bank Association and is the official publication for this association. American Fork Salt Lake City The information contained in this publication is intended VICE CHAIRMAN IMMEDIATE PAST CHAIRMAN to provide general information for review, consideration INDUSTRIAL BANK ADVISORY PRESIDENT Eric Schmutz Kay B. Hall COUNCIL CHAIR Howard M. Headlee and banker education. The contents do not constitute legal President and CEO EVP and CFO Kelly M. Barnett President Utah Bankers advice and should not be relied on as such. If you need legal State Bank of Southern Utah Zions Bank President Association advice or assistance, it is strongly recommended that you Cedar City Salt Lake City WebBank Salt Lake City Salt Lake City contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the BOARD MEMBERS N. George Daines Andrea J. Moss Mori Paulsen individual authors and do not necessarily represent the Brad R. Baldwin Chairman and CEO President & CEO Salt Lake Market President views of Utah Bankers Association, its board of directors, or President & CEO Cache Valley Bank Nelnet Bank Bank of America the publisher. Likewise, the appearance of advertisements First Utah Bank Logan South Jordan Salt Lake City Salt Lake City within this publication does not constitute an endorsement or Terry L. Grant Wade L. Newman Paul F. Thome recommendation of any product or service advertised. Utah Jan M. Bergeson Utah Market President President and COO President Banker is a collective work, and as such, some articles are Utah Market Leader KeyBank Celtic Bank Salt Lake City Sallie Mae Bank submitted by authors who are independent of Utah Bankers Ally Bank Salt Lake City Sandy Mark Packard Salt Lake City Association. While Utah Bankers Association encourages Kisty Morris President a first-print policy, in cases where this is not possible, every Robert M. Bowen Executive Director Central Bank Brittany A. Westover effort has been made to comply with any known reprint Market Executive, President and CEO Morgan Stanley Bank Provo guidelines or restrictions. Content may not be reproduced Brighton Bank Salt Lake City Executive Director Salt Lake City JPMorgan Chase or reprinted without prior written permission. For further Salt Lake City information, please contact the publisher at 855.747.4003.

1 The Bottom Line

Howard Headlee President Utah Bankers Association

t’s important to all of us that bank- If bankers ignore the results of their ers make good loans. Not just loans decisions, they will inevitably lose The inability of voters that get paid back, but those that more money, and their bank and drive growth and progress. This community will suffer. Likewise, when to differentiate between Ifuels our economy and increases the voters ignore the actual results of bad resources we have to make more loans policy, we get more bad results and compelling narratives and build our community. people suffer. Rational people learn from their mistakes and change course. As I have watched the best bankers Those who ignore results that conflict and actual results has make the best loans, I have observed with their preferred narrative care something that I think could benefit more about their fragile egos than they everyone — their ability to patiently led to dysfunction in our do about people. listen, quietly analyze and objectively differentiate between bluff and bluster government programs and real, tangible results. Pearson’s law teaches us that when performance is measured, performance Every day, bankers are presented with improves. And when performance is mea- and injected poison into loan requests that are compelling, ex- sured and reported, the rate of improve- citing, full of promise, and promoted by ment accelerates. But our political system our political process. impressive, charismatic individuals. But is regressing because rather than being often, the details just don’t add up. The accountable to actual results, politicians substance of the proposal, particularly the have attempted to eliminate any rational measurable results, just doesn’t pencil. measurement of their performance and have come to rely exclusively on those Unfortunately, this same discipline is who blindly defend their common nar- lacking in our political system. The rative for re-election. The results are not inability of voters to differentiate good for anyone. between compelling narratives and actual results has led to dysfunction in The beauty of the American system is our government programs and injected that it is never too late to reverse course. poison into our political process. We Our current regression can all stop as continue to reward failure and incen- soon as voters are willing to set aside tivize corruption because many voters their pet narratives and focus on results. seem more wed to defending their This will naturally occur when people preferred narratives than demanding are in enough pain that their appetite for success that improves lives. results exceeds their need for being right. Making matters worse, it is getting harder The more fortunate of us will forgo that for voters to obtain accurate informa- pain and proactively observe the ap- tion about what constitutes success and proach of the banker and patiently listen, failure. Our media has found it is more quietly analyze and objectively differenti- profitable to create and feed our favored ate between the bluff and bluster and the narratives than to report what is happen- desired results — and reward the results! ing in the world. Vote wisely. n

2 www.uba.org How can you improve bank exams? TRANSPARENCY. ACCOUNTABILITY. PREDICTABILITY.

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*RFI = Regulatory Feedback Initiative Washington Update

Rob Nichols President and CEO American Bankers Association

PERSONAL FINANCE FOR THE PANDEMIC ERA: WHY BANKERS SHOULD DELIVER FIN ED LESSONS TODAY

he pandemic has forced many moment, and an ideal time to convert learn, outranking the dangers of drugs and lessons on us, not the least of lessons into action. alcohol, healthy eating and exercise habits which is the importance of being and safe driving practices. And nine in 10 prepared. I don’t mean being- In a July survey of hourly workers (by agreed that a lack of financial education Twell-stocked-on-toilet-paper prepared. DailyPay and Funding Our Future), 51% contributes to some of the biggest social is- I mean having the ability and resources said that coming out of the pandemic, sues our country faces, including poverty, to survive an uncertain and even peril- they are more likely to save for the future, unemployment and wealth inequity. ous period. For businesses, that clearly as opposed to 15% who said they were requires having a well-crafted and tested less likely to do so. Meanwhile, 65% said This brings us to another lesson learned business continuity plan. For households, they don’t have any savings account, and from the pandemic: Significant dispari- the most important preparedness tool 62% said they would be able to save more ties in health, education and job oppor- may be a well-funded savings account. if there was an easier way to set aside a tunities persist. Those disparities have portion of their paycheck. exposed some populations to greater risk Those who may not have fully appreciat- — of catching COVID-19 or losing a job ed this before COVID-19 certainly These data point to a clear demand for — and they’ve left some children more understand it now. In fact, a Bank Rate information and tools to facilitate savings, vulnerable than others to the negative survey this summer found that Ameri- and banks are a reliable source for both. effects of school closures. cans’ top financial regret is not having enough emergency savings to withstand To help banks meet that demand — and Education, including financial education, the crisis, followed closely by not having prevent financial regrets in the first place can help reduce these disparities and give enough retirement savings. by teaching financial fundamentals to all Americans an equal opportunity to today’s youth and young adults — the prosper. Few are more qualified to deliver This presents an important opportunity ABA Foundation has adapted its finan- lessons in personal finance than bankers, for banks, which can — and should — cial capability programming for today’s so I strongly encourage you to register as help support both established and fledg- virtual world. Teach Children to Save les- a volunteer for a financial education pro- ling savers as they pursue their savings sons went virtual in April, and Get Smart gram today. The ABA Foundation makes goals. Nothing is more fundamental to About Credit, our fall program has also it easy — and free. Visit aba.com/FinEd to financial wellness than savings. been adjusted to include new resources learn more and sign up. This is one of the and notes for delivering effective virtual most important ways bankers can make a Given the massive economic dislocation presentations, as well as new modules long-term difference in the lives of others. caused by the pandemic, this may around saving for the unexpected. seem an odd time to exhort others to The more individuals we reach with this save. Many are suffering from a loss of We all know that strong personal finance valuable information, the better off our income and find it challenging to pay skills are essential to success in life. In communities will be. And there’s no doubt their expenses; how can they possibly fact, a majority of respondents in the it is better to learn personal finance lessons set aside money for a rainy day when latest Charles Schwab Financial Literacy in a class Zoom than in a crisis. n it’s already pouring? But there’s reason Survey said that money management was to view this as the ultimate teachable the most important skill for children to E-mail Rob Nichols at [email protected].

4 www.uba.org HELPING CUSTOMERS THROUGH THE PPP FORGIVENESS PROCESS

By Jay Kenney, SVP, Regional Manager, PCBB

ankers have been crunching the you diligently followed the agency’s numbers a lot lately, especially rules for processing, reviewing and with the Paycheck Protection monitoring borrower applications. Program. In particular, we know 5. Prepare for the SBA to potentially Bmany of you have been working with limit the amount of forgiveness for your small business customers to help some borrowers, or reject forgiveness them with loan forgiveness. So, we want- altogether, though borrowers can ap- ed to provide you with seven pointers to peal. Borrowers have the remainder help shepherd your borrowers through of the loan term to repay the portion the loan forgiveness application process. of the loan that was not forgiven — 1. Review rules governing the loan or its entirety. Borrowers must retain forgiveness process on the U.S. PPP documentation for six years Small Business Administration’s after the date the loan is forgiven or website. Borrowers need to submit repaid in full. Lenders must comply the loan forgiveness application to with applicable SBA requirements their financial institution (FI), which for records retention. includes providing calculations 6. Post links to the SBA’s rules on your and supporting documents. Their website, and include helpful FAQs, to FI must verify the mathematical best help borrowers prepare. Some FIs accuracy of calculations and check are posting videos to guide borrowers for appropriate documentation, through the process, and one of them though the institution does not need posted a webinar with six thousand to independently verify whether the borrowers participating. Set expecta- information is correct. tions with borrowers about potential 2. Train staff on how to review the limits on forgiveness too. calculations and documents within 7. Communicate frequently with your applications, how to determine for- staff regarding the reasons why a giveness eligibility and amount, and loan was denied forgiveness. Also, how to submit that to the SBA. The update your senior management & FI has 60 days to determine eligibility board on this too, so everyone is in and request payment of the forgive- the loop. ness amount from the SBA; the agency has 90 days to review and remit This process may not be easy, but you’ll payment, plus any interest accrued. engender more loyalty with your borrow- 3. Consider utilizing specialized soft- ers, as you continue to help them through ware newly developed by vendors these trying times. to process PPP loan forgiveness To continue this discussion or for more applications. Some vendors provide a white-labeled, cloud-based portal information, please contact Jay Kenney. n for borrowers to submit applications, and the entire process for FIs Jay Kenney is automated, including calculating SVP, Regional Manager, PCBB Phone: (213) 247-5096 and submitting forgiveness amounts [email protected] to the SBA. pcbb.com 4. Prepare for the SBA to potentially audit certain borrower applications. Dedicated to serving the needs of While the ultimate responsibility of community banks, PCBB’s the application’s integrity rests with the comprehensive and robust set of borrower, you will want to establish solutions includes: cash management, international services, the necessary controls and documen- lending solutions, and risk man- tation to demonstrate to the SBA that agement advisory services.

ISSUE 3. 2020 5 COMPLIANCE CORNER CHANGES TO ELIGIBLE RETAINED INCOME

By John Berteau, Associate General Counsel

n response to the potential economic effects of the coronavi- Under the capital rule, banks must maintain a buffer of regula- rus, the OCC, FRB and FDIC (“the agencies”) published tory capital above their required minimum risk-based capital an interim final rule March 20 2020, proposing to revise and leverage ratio requirements to avoid restrictions on cap- the definition of eligible retained income. On March 26 ital distributions. The agencies established the capital buffer I2020, the FRB published an interim final rule which revised requirements to encourage better capital conservation and to the definition of eligible retained income for institutions subject enhance the resilience of the banking system during stress peri- to the FRB’s total loss-absorbing (TLAC) rule. The agencies ods. Capital buffer requirements, as initially implemented, were recently published a final rule which made final both of these intended to gradually limit the ability of banks to distribute interim final rules without changes. The goal of this final rule is capital if their capital ratios fell below certain levels. to help strengthen the ability of banks and TLAC institutions to continue lending and conducting other financial intermediation Banks under the capital rule were generally subject to a fixed activities during stress periods by making distribution limita- capital conservation buffer requirement, composed sole- tions more gradual, as intended by the agencies. ly of common equity tier 1 capital, of greater than 2.5% of

6 www.uba.org generally defined eligible retained income Capital buffer requirements, as initially as net income for the four calendar quarters preceding the current calendar implemented, were intended to gradually limit the quarter, based on the globally systematic important U.S. bank holding companies’ ability of banks to distribute capital if their capital FR Y-9C, net of any distributions and associated tax effects not already reflected ratios fell below certain levels. in net income. This final rule revised the definition to be: risk-weighted assets. On March 4 2020, of a covered holding company’s buffer “(i) The eligible retained income of a the FRB introduced a stress capital buffer requirements. Having one definition of global systemically important BHC is requirement, which provides that a cov- “eligible retained income” for all orga- the greater of: ered holding company will receive a new nizations under the capital rule should stress capital buffer requirement on an simplify the regulatory capital framework (A) The global systemically important annual basis, which replaced the existing and ensures fairness across organizations BHC’s net income, calculated per the greater than 2.5% capital conservation of all sizes. instructions to the FR Y-9C, for the four buffer requirement. calendar quarters preceding the current The requirements in the total loss-ab- calendar quarter, net of any distribu- Under the capital rule, if a banking orga- sorbing capacity (TLAC) rule build on tions and associated tax effects not nization’s capital ratios fall within its and complement the capital rule. Back in already reflected in net income; and applicable minimum-plus-buffer require- 2016, the FRB issued the TLAC rule to ments, the maximum amount of capital require the largest and most important (B) The average of the global systemi- distributions it can make is a function of bank holding companies (U.S. based) cally important BHC’s net income, its eligible retained income. Prior to the and foreign banking organizations (U.S. calculated per the instructions to the issuance of the March 20 2020, interim fi- operations) to maintain a minimum FR Y-9C, for the four calendar quar- nal rule, the capital rule generally defined TLAC amount, consisting of minimum ters preceding.” eligible retained income as four quarters amounts of long-term debt and tier 1 of net income, net of distributions and capital. In addition, the TLAC rule These revised definitions of eligible re- associated tax effects not already reflect- prescribed buffer requirements above the tained income should allow institutions ed in net income. The interim final rule minimum TLAC amount, which institu- to gradually reduce distributions as they revised the definition to be: tions must maintain to avoid restrictions enter periods of stress and provide institu- on capital distributions. tions with stronger incentives to continue “(i) The eligible retained income of a to lend and carry on other business func- national bank, or Federal savings As with the capital rule, the TLAC buffer tions. This although both interim final association is the greater of: requirements were established to en- rules were effective as of the date they courage better capital conservation and were published, the new final rule will be (A) The national bank’s or Federal enhance the resilience of the banking effective Jan. 1, 2021. n savings association’s net income, system during stress periods. TLAC calculated per the instructions to the buffer requirements were implemented Call Report, for the four calendar to gradually limit the ability of institu- quarters preceding the current calen- tions to make capital distributions under John Berteau, Associate dar quarter, net of any distributions certain circumstances, thereby strength- General Counsel John S. Berteau serves as Asso- and associated tax effects not already ening the ability of these institutions to ciate General Counsel for Com- reflected in net income; and continue lending and conducting other pliance Alliance. He has nearly financial intermediation activities during fifteen years of combined experience in the financial services in- (B) The average of the national bank’s stress periods. dustry. At Hancock Whitney Bank, he worked or Federal savings association’s net in- in the field of environmental risk management come, calculated per the instructions Institutions with a TLAC level that falls and compliance (CERCLA/RCRA/Wet- to the Call Report, for the four cal- below the applicable minimum plus-buf- lands). At Alorica, the nation’s fastest-growing BPO, John worked in tandem with some endar quarters preceding the current fer requirements face limitations on cap- of the largest banks in the U.S., helping to calendar quarter.” ital distributions, in a manner designed evaluate financial risks. He holds Bache- to parallel the restrictions on capital lor’sand Master’s Degrees in History from the University of New Orleans, a Juris Doctorate The revised definition of “eligible re- distributions under the capital rule. The from Loyola University New Orleans and is a tained income” under this final rule maximum amount of capital distribu- licensed attorney in the State of Louisiana. In applies to all of an organization’s buffer tions that a TLAC covered company can addition to being one of our featured authors, make is limited as a percentage of its John has recently taken over the editor role for requirements, including the fixed greater C/A’s Access magazine. As a hotline advisor, than 2.5% capital conservation buffer and eligible retained income, as defined in John helps C/A members with a wide range of the countercyclical capital buffer. Once the TLAC rule. regulatory and compliance. the stress capital buffer requirements John S. Berteau serves as Associate General apply on October 1, 2020, the revised Prior to the issuance of the March 26 Counsel for Compliance Alliance, where he is one definition would also apply to all parts 2020, interim final rule, the TLAC rule of our hotline advisors and featured contributors.

ISSUE 3. 2020 7 CAN A LENDER “GET LEAN” IN PORTFOLIO RISK MANAGEMENT? By Brian J. Ruhe, Golden Eagle Insurance, Inc.

here has been plenty of discussion operations is anything but “lean.” Collateral creative way to eliminate the burdensome over the last many months about insurance tracking, along with the action of administrative issues and customer loyalty how the community banking world force-placing insurance, is one of these ad- problems noted above. Innovative blanket might look when we come out ministrative burdens. Whether a bank tracks portfolio protections can be tailored to fit Tof this pandemic. Speculation and opin- in-house or outsources to a paid third party, the risk management goals of any commu- ions are all over the board. The economic this work can be frustrating and tiresome. nity bank. This type of adjustment can be- fallout is of great concern, and community The main objectives are for the lender to be come a “get lean” gamechanger for a bank. lenders find themselves juggling priorities protected against uninsured loss and to meet FTE employees can be utilized in more and recalibrating for the future. On the regulatory demands. If these objectives can productive roles within loan operations — consumer-facing front, digital banking and be met without any tracking at all, and good especially with the many other changes technology are hot topics, “strategic inno- employees can be utilized in much more that are coming down the road for com- vation” is a focus, and customer relief and productive roles elsewhere — why wouldn’t munity banks. This approach will reduce mediation tactics are a balancing act. Inside a bank consider this alternative? the volume of future charge-offs within the banking operations, there are concerns the collections department, as eliminating about PPP loan forgiveness, increased de- The community banking model is the defini- force-placed insurance will provide your linquency and default impacting collections tion of relationship banking at its finest. good customers a better chance at surviving staff, and continued remote workplace From supporting the communities in which this downturn. Blanket programs are de- struggles with administrative workload bal- they serve to the valued relationships with signed in collaboration with the bank, with ance adjustments across operational teams. customers — community lending has a protections for residential mortgage lend- Whew. Community banks have plenty on vital role in keeping their local economies ing, commercial real estate and equipment their plates — with many taking a “keep dynamic and growing by lending to good lending, agricultural lending, and consum- our head above water” mentality while folks within their region. “One element that er lending. Blanket protection can provide navigating these difficult times. Many “new has kept the traditional model alive for so 24/7 coverage against uninsured loss along projects” have been put on hold. This mind- long is that community banks know their with full compliance with examiners. This set might seem fine for now, but could this customers — and likewise, their customers type of portfolio protection strategy is not approach lead to some missed opportunities know them — which I believe fosters greater necessarily a “new” offering, but one that for positive change along the way? Some customer loyalty,” said Ben Bernanke. Why sure seems to fit with the issues surround- big changes in the middle of a crisis may be would a bank want to keep a cumbersome ing the community banking industry today. worth considering. administrative process — cumbersome for Many community banks that have made both their customers and employees — in the switch to blanket programs share that The issues that community banks will face place if more efficient and robust solutions they “will never go back to tracking insur- going forward are quite complex — too exist? Change can be tough to embrace, ance.” They recognize that the elimination numerous to address in one sitting. As the but we are dealing in a unique and difficult of collateral insurance tracking allows for a COVID-19 pandemic drags out from a period that requires some thinking outside greater focus on actual loan operations im- recession into recovery, there is one very the box. Community bank customers will provements and lending growth strategies. specific aspect worth discussing: unin- also be facing some challenging times ahead Some bankers have the misconception that sured loss mitigation within portfolio risk in this recovery as they work hard to get “blanket insurance is expensive” — but that management. This is certainly an area of through the economic downturn. Does the does not have to be the case. It is import- focused concern for a community bank threat of unbelievably expensive force-placed ant to work with “blanket experts” when during these challenging times. But could a insurance help that situation? It is not certain reviewing the options. When all factors are taken into consideration, there is no doubt bank look at it more closely with a “get lean” if the prevalence of force-placed insurance approach to the review? policies will increase in the coming months, a switch to blanket portfolio protections but there is no doubt that an increase in can fit a “get lean” mindset at a commu- Many community lenders remain commit- force-placed premiums during these delicate nity bank — especially here during these ted to some old-school processes within their times will lead to an increase in loan delin- remarkably difficult times ahead. n loan operations. In some cases, inefficiencies quency and default. Banks can avoid this and frustrations can be common issues that pitfall — and give their struggling customers are connected to these burdensome admin- a better chance of survival — by eliminating Brian J. Ruhe is VP/Regional istrative strategies. Many fingerprints can force-placed insurance altogether. Business Development at Golden Eagle Insurance, Inc. — a be found within these cumbersome proce- specialty provider focusing on dures, as employees can be quite involved. Taking a 360-degree blanket approach to unique portfolio protection strat- The structure of these processes within loan protecting against uninsured loss is one egies for community lenders.

8 www.uba.org 15TH ANNUAL WOMEN IN BANKING CONFERENCE

his year’s annual Women in Banking Conference looked Federal Reserve Bank of San Francisco, who shared what she a little bit different. Just three weeks before our con- had learned throughout her career. After Becky and a lunch ference in April, we had to switch gears due to the break, attendees got the opportunity to hear from Pamela COVID-19 pandemic and postpone the conference until Perlich, Ph.D., Director of Demographic Research, University TAugust in hopes that we would still be able to meet in person. of Utah, who shared Utah’s Demographic Trajectory and where she predicts Utah will be in the next few years. However, as the days rolled on and COVID was still a threat, we decided to move the conference to a virtual setting to keep Susan Hostetter, SVP Human Resources, TAB Bank, taught us everyone safe and healthy. So, August 26, 2020, we held our all how we could “Make the Most of Our Situation.” She gave first ever virtual Women in Banking Conference. With record us valuable insight into how we can all make the best of the breaking number of those registered (over 500 registrants!), we situation we are all in right now with what is turning out to be were able to hold a very successful and enjoyable conference for the year 2020. all those who attended. We all then took a nice relaxing chair yoga break, where we We kicked off the conference by learning “How to Build Your were able to learn some simple chair yoga positions that can Personal Influence Through Personal Branding,” From Elisa help rejuvenate and relax us all as we go through our workdays. Garn, Chief Brand Architect, Me Degreed. Following Elisa, Our conference then wrapped up with an amazing presentation we were all able to gain new perspectives with the “Perspective from Katie Holland, CEO & Founder of Illuminate Togeth- Across Generations Panel.” With a women banker from each er. Katie spoke to us on how to “Scale Your Impact — How generation on the panel, from a baby boomer to Gen Z, we were Self-Leadership is the Key to Success.” able to see the key differences in how each generation might conduct business and how we can better work with those from a With so many great speakers and sessions, the 15th Annual different generation. Women in Banking Conference was a great success. With over 500 registrants, we were able to have more attend the conference Following the panel and a short break, we were taught how to than ever before. While we loved that the virtual setting allowed find a balance between our work and personal lives from Becky more people to attend, we do hope to see you all again next Potts, vice president & Regional Executive Salt Lake Branch, year, hopefully, face to face! n

ISSUE 3. 2020 9 4TH ANNUAL BANKS AND PARTNERS GOLF CLASSIC

n Sept. 10, 2020, we were finally able to hold our first giving away. The winners of the tournament, longest drive and in-person event! Following all local rules and guide- closest to the pin were announced and will receive their prizes lines, wearing masks and practicing social distancing, in the mail. we held our first face to face event. O We want to congratulate the winning team of this year’s golf What better place to practice social distancing than the golf tournament, from Altabank, Jason Price, Sam Taylor, Steve course? With registration starting early, we were able to stagger Drakulich and Dale Smith. In second place, from Brighton participants so they would not have to gather in large groups. Bank, Jeff Simmons, Steve Racker, Michael Jensen and Rob After checking in, golfers grabbed their cart mate, a boxed Bowen. And in third place, we had Don Saunders, D.A. David- breakfast and headed to their hole to tee off. Shotgun start start- son, Scott Simmons, Marlin Business Bank, Travis Betenson, ed right at 8:30 a.m. First Electronic Bank and Ephraim Olson, EnerBank USA.

Bankers and business partners got to enjoy each others compa- We also had a few contest winners! For the Longest Drive, the ny, all while playing a round of golf together. Those business winner was Travis Betenson, First Electronic Bank. Closest-to- partners who opted to not golf had the opportunity to sponsor a pin winner, Sam Taylor, Altabank and Ephraim Olson, Ener- hole. They were able to set up a tent and table and talk to each Bank USA. Congratulations to all our winners! golfer as they played the hole. With last year’s tournament having been rained out, we were all After the participants finished golfing, they turned in their excited when it turned out to be sunny and warm — the per- scorecards and were on their way. At 4:00 p.m., they had the fect day to golf. We want to thank everyone who came out to chance to log in to a zoom meeting where they could listen support the UBA in this event, and we look forward to seeing to our sponsor’s pull names for the various prizes they were everyone again next year! n

10 www.uba.org 112TH ANNUAL UTAH BANKERS ASSOCIATION CONVENTION

he 112th Annual Utah Bankers Association Convention — New Customers and Careers, Strategy- Strategic Risk and a looked a little different this year. With the COVID-19 COVID-19 World, and ED&I initiatives. Pandemic, the UBA made the difficult decision to move the annual convention from Sun Valley, Idaho, to a Derek White, Chief Digital Officer at U.S. Bank, followed the Tvirtual format so bankers and those attending could stay safe Rapid Fire Sessions with successful business models of the and healthy. Teaming up with four other states, Idaho, Nevada, future and how humans interact with technology. Oregon and Washington, and over 1,200 attendees, this year’s convention was one for the books. U.S. Senator Mike Crapo (R-ID) and Senator Jon Tester (D- MT) provided an update from Washington discussing current The event kicked off August 5th with a virtual exhibit hall actions that could affect the banking industry. The first day featuring 27 virtual booths, where bankers were able to visit wrapped up with a Fireside Chat with Eugene Ludwig, CEO, various exhibitor webpages, chat and interact with each busi- Promontory Financial Group and former U.S. Comptroller ness partner. of the Currency and Howard Headlee, President of the Utah Bankers Association, for discussion on the current state of the Jelena McWilliams, Chair of the FDIC, started the day by shar- economy and what lies ahead for the banking industry. ing her thoughts on the current state of the economy and how the industry has responded to the pandemic. McWilliams spoke Day 6, August 2nd, kicked off with each state’s state meetings. on each of the attending state’s economic standings, naming For Utah, we heard from UBA Chair Kay Hall, Zions Bank, as Utah as one of the least hard-hit states with the lowest unem- he passed the torch to new Chair Kirstin Dittmer of EnerBank. ployment rate during the pandemic crisis. Having gone into the We said goodbye to retiring board members, Frank Stepan, UBS crisis with a strong economy, Utah’s economy was able to do Bank and Doug DeFries, Bank of Utah. We are sad to see them relatively well during the difficult time. leave but thank them for their service on the board. We welcome new board members, Brad Baldwin, First Utah Bank, Andrea Following her keynote address, Chair McWilliams was joined Moss, Nelnet Bank and Mori Paulsen, Bank of America. by Laurie Stewart, current chair of the American Bankers Asso- ciation, to discuss how the pandemic has impacted the banking The event opened with a Fireside Chat with Randal Quarles, industry and what she sees as the future for the industry. Vice Chair of Supervision, Federal Reserve and Scott Anderson, President & CEO, Zions Bank. They discussed what the Fed The event featured a series of Rapid Fire Q&A Sessions de- might do in the future to help the economy and actions they signed to provide a high-level overview of current issues in the have taken relative to COVID-19. Following the Fireside Chat, industry, including Bank Capital Management, Mitigating attendees chose from a series of 12 breakout sessions on various Against the Hidden Risks of PP Loans, Leading Digital Trans- topics ranging from Cannabis Banking to Credit Concerns in a formation, Regulatory Update from a Banker’s Perspective, and COVID World. There was truly something for everyone! The Future of Community Banking. Rob Nichols, President & CEO, ABA, followed the breakout ses- Robert Spendlove, SVP/Economic and Public Policy Officer, sions with an update from the American Bankers Association, Zions Bank, provided a regional economic perspective and what including his perspective of what the outcome of the upcoming to expect as we move forward during these uncertain times. election could have on the banking industry. Following Rob Quincy Krosby, Chief Market Strategist, Prudential Financial, Nichols, we closed with a Fireside Chat with Robert Gates, former focused on the global macroeconomic landscape and the role of United States Secretary of Defense and Glen Simecek, President of central banks in stabilizing financial and economic conditions. the Washington Bankers Association, where Gates shared many Following Krosby’s remarks, we heard from Cindy Solomon, interesting facets of his long and storied career, from global politics CEO, the Courageous Leadership Institute, who shared her and U.S. foreign policy to leadership challenges and conflict reso- thoughts on creating exceptional customer and employee expe- lution. It was indeed a great way to end the two-day convention. riences for a post-COVID world. This convention was the biggest one yet, with more bankers Following lunch, attendees choose from five more Rapid Fire from Utah than any other participating states. We appreciate all Q&A Sessions with many knowledgeable professionals, includ- those who attended and support our association. While we did ing Liquidity Analytics and Development Strategies, Insights enjoy the virtual convention, we are hoping to see all of you in from the Biggest Earnings Season in Decade, PPPs Portfolios person next year in Sun Valley! n

ISSUE 3. 2020 11 NEW STANDARDS FOR RISK AND BEST PRACTICE IN CONSTRUCTION LENDING By Mike Lacey, CoFi

ewards for running a tight con- In the US. half of all losses are through FUNDING TRADES THAT ARE struction loan portfolio are huge payment fraud. Astronomical numbers that NEVER PAID and can lead to massive growth. are only increasing! Current lien laws make processing pay- Failure in construction lending ments burdensome. Frequently we see Rcan be catastrophic and has led to the Fraud is rampant here in our communi- lenders make payments to the general collapse of many financial institutions. ty. A good friend of mine recently got a contractor with the expectation that they Being prepared for a recession, while construction loan and hired a contrac- will pay the subcontractors and suppli- poised for growth can be difficult. Here is tor to build their dream home. During ers. But what if they don’t? Even if the what you need to know to run a success- construction the contractor had my lender has paid the general contractor and ful construction portfolio so your Finan- friend sign a draw request. After it was received the lien waiver, projects will still cial Institution (FI) reaps the rewards and signed the contractor added a line for be stalled if subcontractors and suppliers skips the failure. $60,000 under “contractor fee”. The FI are not paid. Putting in the extra effort paid the request and the contractor nev- to collect lien releases from all parties fur- er returned to the project. This happens ther protects lenders from project failure. RISK all too frequently. Protecting yourself FORECLOSURE from payment request fraud requires Although this is a worst case scenario, significant effort, clear systems, and the BEST PRACTICE Building a construction lending best prac- construction loan write offs are real and ability to see projects as they really are painful. I recently had an interaction with in real time. tice for your institution doesn’t have to a community bank that had to write off a be difficult and will pay huge dividends. Your clients want to be successful, and $1 million residential loan. The legal fees OVERFUNDING and lost interest cost them approximately According to a study done by KPMG, you have the power to help them with a $150,000 plus the black eye on their loan 69% of projects go over budget by more streamlined and secure system. Here are loss provision. There are signs a project than 10%. Typically stakeholders are made a few areas to think about when improv- is heading toward foreclosure. Projects aware of overruns at the end of the job, ing your best practices. fail for reasons such as, performance when it is too late to make adjustments. disputes, fraud, overfunding, mechanics This puts the project in a higher risk cate- COST REVIEW liens, and others. Recognizing and taking gory where finding the additional funds is Projects vary in scope, size, complexity, action early on each of these items signifi- difficult. We have seen FI’s end up eating and design. Frequently we see lenders cantly reduces the risk of foreclosure. costs just to get the loan off the books. use a cost per sf method to determine Management of funds at all stages of con- feasibility. If you dive in deeper, you can FRAUD struction is critical to avoid overfunding. find out more about a project by compar- According to a study done by Grant Thorn- With proper systems and controls a lender ing individual line items to other projects. ton, each year the construction industry los- can take action early in a project to avoid Further protect yourself by having a es approximately $1 trillion dollars to fraud. massive failure at the end. conversation with the contractor and the

12 www.uba.org borrower separately to see if there are gaps in expectations and via email. Tens of millions of dollars were sent to the scammer pricing. Accessing databases of construction costs will give you rather than the contractor. Payments via check have their own financial insight into understanding the project before it begins. problems. Matching checks to invoices is problematic and are frequently mismatched. This leads to heavy call volume, im- CONTRACTOR REVIEW proper lien filings, and reconciliation between all stakeholders. Not all contractors are the same. Appearance is not always what Fortunately the solution for payments is fairly simple. Detailed it seems. Most commonly we see lenders verify finances and communication accompanied with each check and validated reputation to determine contractor strength. This is good, but business addresses will solve most of the problems with checks. often doesn’t tell the whole story. Something that will be truly When wiring or sending ACH payments, getting the informa- telling is contacting subcontractors that do and don’t work tion from a reliable source, double checking with a call, written for the contractor. Generally, subs know every contractor and document, or trusted software protects you from payment fraud. can give you additional insight into their reputation. Another resource is your local general contractor associations like the REWARDS PEACE OF MIND AND GROWTH HBA and AGC. They typically have great information about With a simple yet capable system for construction lending you contractors who are or aren’t members. can rest easy that your FI is prepared for any downturn, and has the ability to scale your construction pipeline. We have LIEN WAIVERS seen that lenders who take the time to create proper systems We have yet to find a FI that manages this aspect of construc- actually take less time to process payments, and issue new tion to perfection, and frankly this puts a ton of construction loans. We have also seen that creating these systems also helps lending at risk. The next downturn will expose the lenders that their clients be better at their jobs and keeps them coming back didn’t take liens seriously. It is not easy. It also can be a point of to the FI. Best systems = decreased risk, increased efficiency, friction between you and your contractor. If you can be thor- and organic growth. n ough while also making this part of your contractors job easy, you have hit the jackpot. Mike Lacey co-founded CoFi after a 12 year career in construction. He has a Construction Management degree from BYU, has started several businesses, and most recently sold PAYMENT his residential construction company to focus solely on Recently the state of Florida was defrauded by a scammer that CoFi. He loves to spend time with his family in the great was able to send their wiring instructions to the government outdoors and play basketball in the early mornings.

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ISSUE 3. 2020 13 BEST PRACTICES FOR CHOOSING A FINTECH LENDING PARTNER By Tracey Levandoski, CRCM, CrossCheck Compliance LLC

ending competition is accelerating execute: Does the product “fit” within SECURITY AND PRIVACY as banks implement digital tools the bank’s culture and its customers’ A cybersecurity breach is one of the most and embrace partnerships with expectations? significant risks a lender faces in today’s financial technology firms (fin- • The functionality of the system: technology environment. The chief infor- Ltechs). Various industrial banks, in Utah Can the product parameters be mation officer should be comfortable that and elsewhere, have created a successful modified to meet the bank’s expec- customer information maintained by the business model working with fintechs tations and lending criteria? Is the fintech is safeguarded, and controls are in to offer a variety of lending products. system compatible with the bank’s place to prevent and detect a breach. De- Now, traditional banks are also looking current operations? termine who will be hosting the applica- at accelerating their digital strategies as • Service and support: Is the product tion and the data collected. Do they fully both businesses and consumers become adaptable as conditions change understand state privacy requirements increasingly comfortable with online over time? Does the fintech guar- and the Graham Leach Bliley Act? Is ad- lending. Partnering with a fintech can antee minimum service levels and equate cybersecurity insurance coverage provide enhanced customer experience provide for disaster recovery and in place at the fintech, and how does it and accelerate the implementation of your business continuity? interrelate with the bank’s coverage? digital strategy without the investment • Subcontractors, consultants, or oth- of time and human capital, which can be er third parties on which the fintech Beyond the protection of your customers’ costly, especially to community banks is relying. information, there is an emerging concern that may not have substantial information • Cost/pricing. about the use of customer data. Banks technology and programming budgets. • The financial stability of the fintech. have a lot of information about their customers. Is this data going to be shared With the many different technologies and In addition to these standard criteria that with the fintech for marketing purposes? third-party partners available in the fin- are part of the evaluation of any How will the data be accessed? How will it tech lending space, there are many risks third-party provider, bank management be stored? Will the bank’s privacy policies to consider and decisions to be made. If will want to consider the following ele- need to be updated to address amended there ever was a time to have a robust ments that are more specific to the fintech information-sharing practices? vendor management process in place, this lending partnership. is it. A rigorous vetting process will help REGULATORY COMPLIANCE ensure that your fintech partners will LENDING EXPERIENCE CONSIDERATIONS deliver what is promised and expected. AND EXPERTISE The culture of compliance in the fintech The functionality of the technology is an industry is shifting. Fintechs realize that What are the best practices for evaluating important consideration, and that is often to grow and form partnerships, regulatory your potential lending partners? And the first part of the evaluation process. compliance is a non-negotiable require- what are the issues that you, as the entity However, as you execute the due diligence ment. Having a compliance culture and ultimately responsible for the third-party evaluation, you will want to look carefully all the correct pieces in place is essen- relationship, need to consider? All the at the experience of the fintech’s manage- tial. Does your potential partner have federal banking regulators have issued ment team. They should have a deep under- experienced compliance personnel with guidance for managing third-party risk,1 standing of the lending process within the knowledge of banking regulations? Has an and bankers should have a good under- banking environment, the associated regula- effective compliance management system standing of those expectations before tory requirements, and how their particular (CMS) been implemented that includes selecting a fintech lending partner. At a technology impacts the entire borrower board and management oversight, policies minimum, the selection criteria should experience. In addition to getting to know and procedures, training, monitoring or include consideration of:2 the management team, you will want to audit, a consumer complaint response, and • The compatibility of the fintech’s speak with their existing clients about prod- a third-party service provider management vision and value proposition with uct adaptability, responsiveness, integration program? Just like your bank’s CMS, the that of the bank and the ability to with current systems, and security. fintech’s CMS should address all relevant

14 www.uba.org consumer financial protection regulations, including fair lend- embrace the unknown. The regulatory agencies are beginning to ing laws and Unfair, Deceptive, or Abusive Acts or Practices address this with the implementation of innovation offices. And (UDAAP). If an effective CMS is not in place, how much hands- in recent months, the OCC announced it is working to evaluate on guidance are you able and willing to provide? advanced technologies and produce specific underwriting model guidance. The FDIC issued a request for information on stan- The central feature of a fintech lending platform is the credit dard-setting and voluntary certification for models. Until these model. Bank management should determine if the model is initiatives become a reality, banks will still need to evaluate adaptable to the bank’s lending policies. Also, because the potential partnerships with the right level of due diligence. n lending decision is made almost instantaneously, bank management should determine if the methods by which the applicant is 1 identified as required by the USA PATRIOT Act comply with the FDIC FIL-44-2008: Guidance for Managing Third-Party Risk OCC Bulletin 2013-29: Third-Party Relationships: Risk Management bank’s customer identification program requirements. With the Guidance increasing use of alternative data,3 which can introduce unin- OCC Bulletin 2020-10: Third-Party Relationships: Frequently Asked tended fair lending risk, along with artificial intelligence, which Questions to Supplement OCC Bulletin 2013-29 may not allow for effective documentation as the model changes, FRB Supervisory Letter SR 13-19/CA 13-21: Guidance on Managing Outsourcing Risk strong model risk management practices are essential, including CFPB Compliance Bulletin and Policy Guidance 2016-02: Service Providers model validation and fair lending reviews. Bank management 2From FDIC FIL-13-2014: Effective Practices for Selecting a Service Provider should understand and evaluate the results of validation and oth- 3Alternative data considers financial factors about a consumer not generally reported in the traditional consumer report such as cellphone, er risk control activities before committing to the partnership. utility, and rent payments and cash flow data derived from bank account records, as well as non-financial factors such as whether the consumer Another significant compliance consideration is marketing and is a college graduate, owns a cellphone, uses social media, or the type of advertising given the regulatory requirements covering advertis- email account the consumer maintains, etc. ing not only with regard to the Truth in Lending Act but also to recent regulator focus on UDAAP if a loan’s terms and con- Tracey is a director at CrossCheck Compliance LLC and a ditions are not clearly presented in marketing collateral. If the regulatory compliance and risk management professional fintech will be engaged in marketing the product on the bank’s with over 30 years of experience in the financial services industry. Having worked as both a prudential regulator behalf, what expectations will bank management require for re- and in banking institutions, Tracey has demonstrated view and approval before advertising is published to any media? expertise in compliance and the Community Reinvestment Act (CRA). Her expertise includes extensive knowledge of lending and deposit regulations, including fintech lending operations THE REGULATORY FUTURE OF FINTECH and the bank partner model. She is also experienced in financial institu- Because the speed of technology has far outpaced the regula- tion accounting and operations. Tracey can be reached at tlevandoski@ tions, there are a lot of gray areas when it comes to deciding to crosscheckcompliance.com.

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ISSUE 3. 2020 15 CHECK WRITERS ARE MORE IMPORTANT THAN EVER BEFORE

Contributed By Harland Clarke

n this era of digital banking, it may be surprising just how many people still write checks — and why. Just as surprising is the lost opportunity financial institutions face by missing out on check order capture at account opening or leaving Iit up to third-party providers to drive check reorders. There’s money being left on the table, and the revenue potential of check programs is being downplayed.

THE VALUE OF CHECKS Recent research has revealed some eye-opening trends with check writing: • The vast majority of Americans use checking accounts, with only 6.5% of households being unbanked1 • 14.5 billion checks are still being written each year2 • “Order Checks” ranks third in the top 10 search terms on bank and credit union websites3

What does all this mean for the financial institution? It means that while checks as a payment method continue to decline, consumers are still writing checks. The average household balance by the number of checks written each month increases based on how many checks are written.4 Furthermore, customers who order checks from their financial institution hold higher total household balances.5 A customer’s affluence is also more highly correlated to check writing than to age. Regardless of age, as income increases, so does check utilization.

AVOID MISSED OPPORTUNITIES Given these findings, it’s in the best interest of financial institutions to ensure new customers order checks when they first open an account, regardless of channel. Not ordering checks at account opening is inconvenient for the customer — and it represents significant lost revenue for the financial institution.

How much lost revenue? For an average-sized institution that opens 1,000 new accounts per month, providing the remaining 70% of new customers with check orders (and assuming average per-order revenue and reorder cycles over the lifetime of those accounts), the total would be $400,000.6

HARNESS THE POTENTIAL The big question most financial institutions have is how to reach potential check writers to harness the revenue potential they

16 www.uba.org represent. Doing so requires a comprehensive program of best practices that includes five main performance components. A customer’s affluence is also more highly correlated to check writing than 1. Order capture — Without securing the first check order at account opening, future opportunities are compromised. to age. Regardless of age, as income Fee income, cross-sell, up-sell, reorders — all are potentially lost. The most important step a financial institution can increases, so does check utilization. take to improve order capture is to ensure new account rep- resentatives — and other employees — understand the importance of check capture. Employees at all levels must be aware that the vast majority of consumers still use checks. This should be included in training and materials — and underscoring the importance of check writing in defining primary financial institution relationships should be a priority. Another important step is to ensure that checks are a clearly defined part of the account opening process. The number one reason customers don’t order checks at account opening is because they were never asked.7

2. Channel optimization — Once the initial check order has been captured, branch employees should not spend another reality, check security, especially for your high-value, minute on check orders. This frees them up to do other tasks loyal check writers is very important. The proliferation of and improves the overall efficiency of the branch. Instead, mobile banking also means customers want to know what customers should be moved to self-service channels to place kind of mobile security features your financial institution reorders of checks. In addition to improving branch efficien- utilizes and what type of support they have access to in the cy, online and phone channels can introduce products and event they become a victim of check fraud. In fact, 22% of services that branch employees may not. Additionally, there consumers surveyed said they would use mobile capture is a significant increase in average order value (AOV) when more frequently if they had a better assurance that their 12 customers go online to place their own reorder.8 checks had been deposited securely. Ensuring your check program focuses on security and that your institution 3. Marketing — Checks, checkbooks and check delivery vehi- effectively communicates any security-related features to cles can all be used as marketing tools designed with your customers gives them peace of mind, delivers a better engagement in mind, branded to promote your financial customer experience and builds loyalty. institution’s colors, look and feel. Consistency in branding is key, as the average revenue increase attributed to always THE BOTTOM LINE presenting the brand consistently is 33%.9 Custom designs Check writers are critical to the profitability of a financial insti- that represent the community, local organizations and tution. They are loyal, have more investable assets, and buy charitable causes can be utilized to drive check orders and more products and services from their financial institution. It’s reinforce the financial institution’s standing in the com- essential to embrace them at every level of the organization. munity. It also gives high message visibility, frequency and Most importantly, check ordering should be included with each longevity. Every time a check is written or a new check pad account opening. It not only provides customers with a product is accessed, an impression is made. The impressions repeat they need — but it also ensures they purchase it from YOUR over the lifetime of the check order. financial institution. This opens new marketing channels to cross-sell and up-sell financial products and services over the 4. Cross-sell and Up-sell — If nearly $1 million in lifetime lifetime of the account. revenue isn’t incentive enough, consider the lost cross-sell 13 and up-sell opportunities. Remember that check writers buy With 14.5 billion checks still being written each year, it’s a an average of two more products and services from their demographic few financial institutions can afford to ignore. n financial institution than non-check writers. Best-in-class 1 Eneriz, Ashley, “What Is a Checking Account?” GoBankingRates, print technologies provide full color, customized financial June 2020 product messages targeted to specific account types. Har- 2 The 2019 Federal Reserve Payments Study land Clarke’s CheckFolio packaging, introduced a few years 3 Haskins, DJ, “The Top 20 Terms Consumers Use on Banking ago, can accommodate full-color messaging for financial in- Websites,” BAI, June 2019 4 CE Solutions check industry research stitutions to showcase the services most important to them. 5 Ibid. 6 Harland Clarke 2020 Data 5. Security — A 2019 ABA survey reported that check fraud 7 Harland Clarke Internal Client Study 8 Ibid accounted for 47%, or $1.3 billion, of industry deposit ac- 9 Dopson, Elise, “Brand Consistency — The Competitive Advantage and count fraud losses10 affecting multiple generations, includ- How to Achieve It,” Lucidpress, November 2019 ing Millennials and Baby Boomers. 10 ABA 2019 Deposit Account Fraud Survey 11 Tableau public 12 Cocheo, Steve, “Key Customer Experience Trends in Mobile Photo In addition, $432.4 million in fraud was reported to the Deposits,” The Financial Brand, February 25, 2020 FTC through the end of March 2020.11 In light of this 13 2019 Federal Reserve Payments Study

ISSUE 3. 2020 17 MY BORROWER IS IN DEFAULT: A FEW PRELIMINARY ISSUES TO CONSIDER By Landon A. Hardcastle, Jones Waldo

hen a borrower defaults on its loan, its lender is and be used against you during a potential workout. Thus, as a faced with a major decision — will it exercise its general rule, a lender should always be careful when discussing remedies under the loan documents, including fore- any default and potential forbearance or other loan modification closing on the collateral? Or will it work with the with the borrower. This need for care means all communica- Wborrower to possibly waive the default, enter into a forbearance tions should include appropriate disclaimers. agreement or otherwise modify the loan and loan documents? Before getting to this crucial decision, however, there are other However, being careful doesn’t necessarily mean one must take preliminary issues to consider. Among these issues is the follow- an adversarial or overly formal tone in responding to the ing question: how should it respond to the borrower’s commu- borrower. This qualification is especially true with verbal nications regarding the default and requests to discuss possible communications, which are generally not binding on either the loan modifications? Should it send a reservation of rights letter? borrower or the lender due to the language in the loan docu- And should any other step be taken before entering into workout ments providing that the loan documents cannot be modified discussions with the borrower? The purpose of this article is to except by a written agreement. Nevertheless, in almost all cases, advise lenders on these key preliminary issues. after a verbal communication with the borrower, it makes sense to send a simple, informal email. Use the email to memorialize COMMUNICATIONS WITH BORROWER the verbal communication and to avoid misinterpretation by the It isn’t always easy to know what to say to a borrower when it borrower. Below is a simple example: reaches out to discuss a default. There are customer relationship issues to consider. However, there’s also the concern that Thanks for today’s call to discuss [describe loan/issue]. As something you communicate to the borrower may come back you know, and as discussed, the bank can’t agree to any

18 www.uba.org Thanks for today’s call to discuss [describe loan/issue]. As you know, and as discussed, the bank can’t agree to any forbearance or other modification of the loan without credit approval and then only on the terms of a written agreement executed by the bank.

forbearance or other modification of the loan without credit PRE-NEGOTIATION AGREEMENT approval and then only on the terms of a written agreement One additional step should be taken prior to entering into any executed by the bank. workout discussions with the borrower, and that is entering into a pre-negotiation agreement (PNA). As a general rule, a PNA is Similar disclaimer language can also be used at the end of writ- needed as soon as the lender decides to enter into formal discus- ten communications, including text messages. sions with the borrower regarding a forbearance or modification of the loan and should be executed prior to the beginning of While adding such disclaimer language to communications those discussions. The purpose of a PNA is to allow workout with the borrower may seem minor, it is a good way to set the discussions to proceed openly and in good faith. ThePNA does borrower’s expectations for workout discussions. You can show this by establishing that the discussions are (a) nonbinding in you’re willing to work with the borrower in good faith and, at nature and (b) cannot be used as evidence against the lender if it the same time, have written evidence that you have not waived later exercises its rights and remedies or other litigation between any default or otherwise agreed to any specific course of action. the parties ensues.

RESERVATION OF RIGHTS LETTER The PNA is a formal agreement between all loan parties. It The terms of most loan documents clearly state that a lender should be signed not only by the borrower, but also by any cannot waive its rights, except by a written waiver executed guarantors, indemnitors or third-party pledgors/trustors of the by the lender. However, your goal should be to help avoid any loan. Below are the main provisions that a lender should include potential defense from the borrower that the lender (through its in every PNA: course of conduct with the borrower) waived a default. A lender • A list of all loan documents and any modifications with an should always send a reservation of rights letter to the borrower acknowledgment that the loan documents, as modified, are in the following scenarios: in full force and effect; • Anytime the lender has been asked to waive a default or • An acknowledgment of all existing defaults as well as a prospective default; and reservation of the lender’s rights and remedies; • Anytime the lender becomes aware of a default and does • An acknowledgment that the workout discussions are set- not intend to take immediate action related to the default. tlement discussions and are not admissible as evidence against either party in the event of a later action; A prudent lender must be smart in deciding what course to take to • An affirmative statement regarding the voluntary nature of maximize its recovery on the loan. As a result, both of the above the discussions and each party’s right to terminate negotia- scenarios are quite common, especially in times of economic tions at any time; and uncertainty, like the current COVID-19 pandemic, when a lender • A representation and warranty that counsel represents needs time to evaluate the specific default and its effect on the loan. each party. Also, for additional information purposes, while the scope of a reservation of rights letter varies depending on the specifics of a CONCLUSION These are unprecedented times. With numerous borrowers given loan, every reservation of rights letter should contain the following components: either defaulting on their loans or reaching out to lenders to dis- • Describe the existing default(s) in detail with reference to cuss potential future defaults, lenders should remember that the the circumstances that precipitated the default and the communications they have with their borrowers matter. Every provision of the loan documents that was breached. To lender should consult with its counsel to discuss the preliminary describe the existing default(s), one will also need to clearly steps it should take to deal with such defaults. The steps may define the loan and relevant loan documents in the letter; include sending a reservation of rights letter and entering into a • Clearly state that the lender is not waiving its rights under PNA. By taking such precautionary steps, lenders can feel more the loan documents and specifically reserve the right to secure in their rights and remedies and in their ability to maxi- exercise any and all remedies available to the lender with mize recoveries and limit risks. n respect to the existing default(s); and • Make clear that no forbearance or other modification of the Landon A. Hardcastle is an attorney with the law firm of Jones Waldo Holbrook & McDonough, and he concentrates his practice in real estate and loan will be binding except in a final written agreement commercial finance. Landon may be reached at [email protected] executed by the lender. or 801-534-7288.

ISSUE 3. 2020 19 BANK KUDOS

BANK OF UTAH ported a monthlong fundraising cam- ENERBANK paign with billboard advertisements, in- SUPPORTS THE WEBER ternal signage, an email campaign and social media. As of August 24, WCSAR ENERBANK’S NEIL R. SEARCH AND RESCUE had raised $15,000 toward its goal. FELLOWS WAS NAMED 2020 DRONE CAMPAIGN Donations are still being accepted at CORPORATE COUNSEL OF http://webersar.org/donate-to-wcsar1/. THE YEAR BY UTAH BUSINESS

BANK OF UTAH SUPPORTS THE HOUSING INDUSTRY AS THE MAIN SPONSOR FOR THE NORTHERN WASATCH PARADE OF HOMES

EnerBank USA’s Neil R. Fellows, senior vice president, general counsel, chief compliance officer, and corporate secretary, was recognized by Utah Business Bank of Utah kicked off a “Reaching as a 2020 Corporate Counsel of the Year. New Heights” fundraising campaign Mr. Fellows was featured along with 15 of in July to help Weber County Search Utah’s best corporate counsels in the May and Rescue (WCSAR) purchase a issue of the magazine. new $30K high-tech drone that would significantly cut rescue time in reach- Mr. Fellows is known for his ability to ing stranded and injured people in the successfully balance the interests of county’s diverse terrain. Bank of Utah multiple EnerBank stakeholders — home- and WCSAR hosted an event at Weber In July 2020, Bank of Utah was the pre- owners, strategic business partners, home State University on July 16, featuring a senting sponsor for the Northern improvement contractors, employees, ex- demonstration of the drone for invited Wasatch Parade of Homes, which kicked ecutive leadership and the parent compa- guests and the press. off the Parade of Homes season in Utah. ny of the bank. The bank’s board recently Bank of Utah provided information promoted Neil to his current position to Technology is playing an increasingly about mortgage loans to those who include the general counsel title. important role in searches. WCSAR attended the event, which included 20 hopes to purchase a DJI Matrice 300 homes in Weber and Davis counties. “As RTK drone that is designed especially for a sponsor, we were able to show our sup- KEYBANK search and rescue and public safety use. port for our customers who are builders, developers and members of the Northern KEYBANK RELEASES At the event, Bank of Utah’s Senior Wasatch Home Builders Association CORPORATE RESPONSIBILITY Vice President Roger Christensen that sponsored the event,” said Roger NUMBERS presented a $1,000 check to WCSAR to Christensen, senior vice president for KeyBank has released its 2019 Corporate launch the fundraiser. The bank sup- Bank of Utah. Responsibility report, highlighting the

20 www.uba.org company’s ongoing legacy as a responsi- KEYBANK SECURES $26 ble bank and citizen. In Utah, KeyBank MILLION OF FINANCING has invested more than $407 million FOR AFFORDABLE HOUSING under the first three years of the Nation- al Community Benefits Plan to support PROPERTY IN UTAH KeyBank Community Development low-to-moderate income communities. Lending and Investment (CDLI) secured $17 million of construction financing, In Utah, KeyBank has invested over $273 and KeyBank Real Estate Capital’s million in community developments the (KBREC’s) Commercial Mortgage past three years, including projects that Group secured a $9 million Freddie Mac Anticipated to be completed in mid-2022, will provide affordable housing, revitalize forward commitment for the Housing the sustainably built campus will be the and stabilize neighborhoods, and support Authority of Salt Lake City to develop an company’s primary technology and oper- vital community service initiatives. The affordable housing property in the city. ations center, serving Zions’ seven affili- company also made more than $742,000 ate brands in 11 western states. As one of in philanthropic investments and originat- The result of a program to redevelop aban- the state’s largest technology employers, ed $82.9 million in small business loans in doned properties, the 93-unit Capitol Zions will accommodate more than 2,000 Utah during the three years. Homes Apartments will include 62 subsi- employees at this location. dized units and 31 market-rate units. As part “Helping clients and communities thrive is of the 9% low-income housing tax credit During the groundbreaking event, Zions KeyBank’s purpose,” said Terry Grant, (LIHTC), five units will be designated for Bancorporation Chairman and CEO KeyBank Utah President. “Building stable veterans, five for domestic violence victims Harris H. Simmons presented a $100,000 neighborhoods is even more critical today and five for the homeless. The rest will serve donation to the Pastor France A. Davis due to COVID-19. We’re proud to stand low- and moderate-income individuals and Scholarship Foundation, earmarked with the businesses and families of Utah families in the general population. to support students of color pursuing to deal with the fallout of COVID-19. Our science, technology, engineering and work before this crisis has laid a solid foun- “KeyBank is honored to be part of this mathematics (“STEM”) degrees, part of dation from which KeyBank will continue project to help with Salt Lake City’s the company’s effort to support educa- to build to support our communities.” mission of creating and preserving tional achievement in the community and much-needed affordable housing,” said to attract diverse tech talent. KeyBank executives said the investments Rob Likes, National Manager, Commu- nationwide exceeded the goals for the nity Development Lending & Investment, ZIONS BANK DEBUTS ‘UTAH first three years of the plan by 48%. KeyBank Real Estate Capital. “We con- WOMEN 2020’ MURAL tinue to find affordable housing solutions KEYBANK RECOGNIZED AS that help maintain individuals’ dignity In August, Zions Bank unveiled a new A TOP COMMUNITY-MINDED and independence while strengthening five-story mural designed by the co-cre- COMPANY the communities in which they live.” ator of an iconic Beatles album. Jann KeyBank has been named a 2020 honoree Haworth’s “Utah Women 2020” mural of The Civic 50 by Points of Light, the ZIONS BANK celebrates the character and impact of world’s largest organization dedicated to Utah’s women with a cast of more than volunteer service. ZIONS BREAKS GROUND ON 250 colorful characters that span the his- TECHNOLOGY CENTER tory and geography of the Beehive State. The award recognizes KeyBank as one of the 50 most community-minded com- Zions Bank commissioned the public art panies in the United States. The Civic 50 piece for its Dinwoodey building, 37 W. provides a national standard for superior 100 South, in Salt Lake City in honor of corporate citizenship and showcases how the women’s suffrage milestones that fall companies can use their time, skills and in 2020. This year marks 100 years since resources to impact their communities. the ratification of voting rights for women The Civic 50 honorees are public and and 150 years since Utahn Seraph Young private companies with U.S. operations became the first woman in the modern and revenues of $1 billion or more. They nation to cast a ballot. are selected based on four dimensions of In the picture, Zions Bancorporation their U.S. community engagement pro- Chairman and CEO Harris H. Simmons “Zions Bank has long recognized the value gram, including investment, integration, presents a $100,000 donation to the women add to our communities. On the institutionalization and impact. Rev. France A. Davis for his scholarship day Zions Bank opened in 1873, four of the foundation. Zions Bancorporation broke 15 depositors listed on the original ledger KeyBank makes investments in ground in August for a 400,000 square- were women,” said Zions Bank President low-to-moderate income communities foot technology campus in Midvale, and CEO Scott Anderson. “Despite the through mortgages, small business Utah. Guests of honor included Utah mural’s enormous size, it represents only lending, community development and Gov. Gary Herbert, Midvale City Mayor a snapshot of the decadeslong leadership transformational philanthropy. Robert Hale and Rev. France A. Davis. and impact of Utah women.” n

ISSUE 3. 2020 21 UBA ASSOCIA

Bank Trends Dorsey & Whitney LLP Harland Clarke 175 S Main St., Ste. 500 111 S. Main Street, 21st Floor 15955 La Cantera Pkwy Salt Lake City, UT 84111-1927 Salt Lake City, UT 84111 San Antonio, TX 78256-2589 Michael Stinson Steve Waterman Mike Kelly (415) 754-8659 (801) 933-7365 (801) 288-2133 [email protected] [email protected] [email protected] Bankers’ Bank of the West Eide Bailly LLP Holland & Hart, LLP 1099 18th St., Ste. 2700 5 Triad Center, Ste. 600 222 S. Main St., Ste. 2200 Denver, CO 80202-1927 Salt Lake City, UT 84121 Salt Lake City, UT 84101-2194 Karen Maydick Gary Smith Timothy Crisp (303) 313-8107 (888) 777-2015 (801) 799-5935 [email protected] [email protected] [email protected] BKD Executech Jones Waldo 510 S. 200 W., Ste. 200 1314 W. 11400 S. 170 S. Main St., Ste. 1500 Salt Lake City, UT 84101-2320 South Jordan, UT 84095-8960 Salt Lake City, UT 84101-1644 Bud Hollenkamp Jarom Plewe George Sutton (303) 861-4554 (385) 482-5847 (801) 534-7217 [email protected] [email protected] [email protected] BMA Federal Home Loan Bank Kirton McConkie 2151 S. 3600 W. of Des Moines 50 E. South Temple, Ste. 400 Salt Lake City, UT 84119-1121 909 Locust St. Salt Lake City, UT 84111-1010 Kevin Stevenson Des Moines, IA 50309-2801 Gary Winger (801) 978-0200 ext.121 Zac Bassett (801) 328-3600 kevin.stevenson@bmabankingsys- (206) 390-0229 [email protected] tems.com [email protected] Moss Adams CoFi Finastra 601 W. Riverside Ave., Ste. 1800 395 S. Main St. #101 744 Primera Blvd. Ste. 2000 Spokane, WA 99201 American Fork, UT 84003 Lake Mary, FL 32746 Mike Thronson Mike Lacey / Cam Harris Kelley Kristi (509) 747-2600 (435) 557-0412 (512) 924-9392 [email protected] [email protected] [email protected] [email protected] Mountain West Small FinPro, Inc. Business Finance Compliance Alliance, Inc. 158 Route 206 2595 E. 3300 S. 203 W. 10th St. Gladstone, NJ 07934 Salt Lake City, UT 84109-2727 Austin, TX 78701 Scott Polakoff Danny Mangum Scott Daugherty (908) 234-9398 x102 (801) 474-3232 (888) 353-3933 [email protected] [email protected] CrossCheck Compliance FPS GOLD Office Depot 810 W. Washington Blvd. 1525 W. 820 N. 281 W. 2100 S. Chicago, IL 60607-2302 Provo, UT 84601-1342 Salt Lake City, UT 84115-1830 Liza Warner Matt DeVisser Larry Kendell (262) 649-2258 (801) 429-2126 (801) 725-4227 [email protected] [email protected] [email protected] D.A. Davidson & Co. Golden Eagle Insurance, Inc. Parsons Behle & Latimer 83rd St. N. 9145 Miller Rd.. 201 S. Main St., Ste. 1800 Great Falls, MT 59401-3104 Johnstown, OH 43031-9355 Salt Lake City, UT 84111-2218 Tom Hayes Brian Ruhe Gary Doctorman (406) 268-3084 (800) 461-9224 x 3424 (801) 536-6780 [email protected] Brian.Ruhe@goldeneagle-insurance. [email protected] com

22 www.uba.org TE MEMBERS

PCBB Scalley Reading Bates Hansen vCom 1676 N. California Blvd. Ste. 300 & Rasmussen 12657 Alcosta Blvd., Ste. 418 Walnut Creek, CA 94596-4185 15 W. South Temple, Ste. 600 San Ramon, CA 94583-4602 Jay Kenney Salt Lake City, UT 84101 Liz Carroll (415) 399-5800 Darwin Bingham (503) 292-3640 [email protected] (801) 531-7870 [email protected] [email protected] Piper Sandler Companies Zions Correspondent 1251 Avenue of the Americas, Select Bankcard Banking Group 6th Floor 170 S. Interstate Plz., Ste. 200 310 S. Main St., Ste. 1100 New York, NY 10020 Lehi, UT 84043-8602 Salt Lake City, UT 84101-2105 Avi Barak Pete Mudrow Phil Diederich (212) 466-7908 (801) 791-1938 (801) 844-7853 [email protected] [email protected] [email protected] Promontory Interfinancial Simpson & Company, CPAs Network 5353 S. 960 E., Ste. 102 1300 17th St. N, Ste. 1800 Salt Lake City, UT 84117-3569 Arlington, VA 22209-3810 Ken Simpson Bryan Harper (801) 484-5206 (703) 292-3462 [email protected] [email protected] Snell & Wilmer, LLP PwC 15 W. South Temple, Ste. 1200 201 S. Main St., Ste.. 900 Salt Lake City, UT 84101-1547 Salt Lake City, UT 84111 Brian Cunningham Ryan Dent (801) 257-1954 (435) 850-9797 [email protected] [email protected] Tanner LLC Ray Quinney & Nebeker P.C. 36 South State, Ste. 600 36 S. State St., Ste. 1400 Salt Lake City, UT 84111-1400 Salt Lake City, UT 84111-1451 Mark Erickson Kevin Glade (801) 532-7444 (801) 323-3325 [email protected] [email protected] The Baker Group Raymond James 2975 West Executive Parkway, One Embaradero Center, Ste. 650 Ste. 139 San Francisco, CA 94111 Lehi, UT 84043 Steve Egli Brian Bates (415) 616-8008 (800) 288-9411 [email protected] [email protected] Rocky Mountain CRC Utah Center for Neighborhood 64 E. Winchester St., Ste. 230 Stabilization Salt Lake City, UT 84107-5602 6880 S. 700 W., 2nd Floor David Watkins Midvale, UT 84047 (801) 503-0547 Dan Adams [email protected] (801) 316-9112 [email protected] RSM US LLP 515 S. Flower Street, 17th Floor Utah Housing Corporation Los Angeles, CA 90071 2479 South Lake Park Blvd. Dan Shumovich Salt Lake City, UT 84120 (213) 330-4668 Grant Whitaker [email protected] (801) 902-8290 [email protected]

ISSUE 3. 2020 23 BANKERS ON THE MOVE

BANK OF UTAH manager of the bank’s Brigham City Melissa Bernson has Amy Renner Hendricks branch. Carter is a Utah State Univer- moved from serving as has joined Bank of Utah sity graduate and worked as a personal branch manager at Bank to serve as a digital con- banker at Key Bank before coming to of Utah’s Brigham City tent writer, having pre- Bank of Utah. branch, to now serving viously worked as senior as branch manager for writer/editor for Weber Dave Kuhni, a 33-year Bank of Utah’s main branch at 2605 State University’s Department of Market- banking veteran who Washington Blvd. in Ogden. She has worked more than 11 years in the finan- ing & Communications, and as writer/ has worked as branch cial industry for organizations includ- project manager for WSU’s Dr. Ezekiel manager for Bank of ing Bank of Utah, Key Bank, U.S. Bank R. Dumke College of Health Professions. Utah’s Lindon Branch and Wells Fargo. n She has a B.S. in communications from since its opening in Dec. the University of Tennessee-Knoxville. 2018, will now also manage the bank’s Orem branch. Kuhni, who attended Bank of Utah’s Logan the former Utah Valley Community branch manager, Greg College, previously served as branch as- Carter, will now take on sistant manager for Far West Bank and additional responsibility branch manager for AmBank, in Provo to also serve as branch and Lindon.

24 www.uba.org Jones Waldo's Commercial and Lending Group provides the level of specialization and skill that comes only with seasoned professionals who represent both local and national clients.

www.joneswaldo.com Utah Bankers Association 175 S Main Street, Ste 1420 Salt Lake City, UT 84111

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