Divide and Conquer

Janet Mueller tackles growing compliance burdens as a shared staffer for two Nebraska community banks

By Elizabeth Judd

Family-style meals, secrets and Kodak moments are all meant to be shared. Until quite recently, however, community bankers hadn’t quite wrapped their minds around the idea of sharing a compliance officer. The experience of a few Nebraska community banks is proving that job-sharing for this increasingly important role might be an out-of-the-box idea worth considering.

Many bankers instinctively reject the idea of sharing compliance officers, says Janet Mueller, compliance officer at First Bank & Trust Co., a $220 million-asset community bank in Cozad, Neb. “But do you know how many of us share our different policies and procedures informally? There really are no trade secrets in compliance.”

Mueller, who has worked at First Bank & Trust for nearly five years, recently began devoting some of her time to handling compliance issues at Western Nebraska Bank through a “rent-a-compliance-officer program” she devised and helped create with her colleagues, and with approval from Nebraska’s state banking regulators. Mueller is also helping a third community bank with compliance on a consulting basis.

A little over a year ago, First Bank & Trust CEO Kirk Riley assisted in establishing a subsidiary—First Compliance Services—to sell Mueller’s compliance services to other community banks. Thanks to this arrangement, Mueller’s compliance expertise has the distinction of actually contributing to First Bank & Trust’s bottom line.

“Let’s face it: Banks look at compliance as a cost center,” Mueller says. “The compliance department expenditures take from the bank’s bottom line without bringing anything back. There’s an attitude that just the lenders bring in the money.”

Mounting responsibilities

If necessity is the mother of invention, community banks are increasingly pressed to come up with innovative ways to handle the tsunami of new regulations they’re facing. “I don’t know whether the compliance burden has doubled, but it probably has,” Riley says. “Every community banker is fighting the same situation. Compliance has just become voluminous.”

Curtis Heapy, president at Western Nebraska Bank, a $60 million-asset community bank based in Curtis, agrees: “The amount that the compliance bar has been raised is phenomenal.”

Western Nebraska Bank’s CEO Mike Kelly points out that his community bank has explored many different approaches to handling its growing compliance workload—everything from a full-time staff person to a part-time, work-at-home compliance officer. When Western Nebraska Bank’s off-site compliance officer tragically died in a car accident, Kelly began investigating even more unconventional alternatives.

Kelly points out that ad-hoc compliance arrangements can take quite a toll on a community bank. “When somebody who wears more than one hat at the bank is handling compliance, compliance tends to get put off,” he says. Worse still, placing a lender in charge of compliance may cause a bank to fall short of its underwriting goals.

Wanted: compliance geek

Few community bankers dream of someday heading a compliance function. “Most people don’t like compliance, and so compliance officers are very much in demand right now,” observes Mueller.

Mueller was working as a consumer real-estate lender at Hershey State Bank, also in Nebraska, when she was sent to a weeklong compliance seminar in Topeka, Kan. “Everyone was waiting for me to say how horrible of a time I’d had. But the week was great, and I had a blast. That’s when I figured out I was a geek and I really like compliance,” she says, laughing.

Soon after, Mueller became Hershey State Bank’s assistant compliance officer.

When First Bank & Trust grew to five locations, the bank began searching for a full-time compliance officer. Mueller joined the bank in October 2008 and began developing a revamped compliance program from the ground up. “Because the bank had never had a full-time compliance officer, I got to make the program what I wanted it to be,” she recalls.

Over time, Mueller realized that she could use her increasing expertise to help other community banks. Uncertain whether sharing a compliance officer would meet with regulatory resistance, she contacted the state of Nebraska and the FDIC for advice. “The regulators said that as long as you had ample time and resources to handle both jobs, we have no issue,” she says. “Once I got their blessings, I really took off with the idea.”

From the outset, most people understand the financial arguments for sharing a compliance officer. Another advantage is that the demands of a compliance officer’s role tend to be fairly steady. “Compliance needs aren’t seasonal. It’s a seven-day-a-week, 52-week-a-year job,” Riley points out.

More importantly, working with more than one institution helps Mueller hone her compliance skills. “There’s a sharing of the wealth of knowledge I obtain that benefits both sides,” she says.

Riley agrees: “Whenever you interact with other banks, you’re always seeing new situations and new questions—which is a great training opportunity.”

Although community bankers sometimes balk at the idea of compliance sharing, the role is actually quite amenable to being divided among institutions, Riley and Mueller say. “Compliance is the ability to get the proper training and to interpret the regulations, both existing and new, that are coming out because of Dodd-Frank,” says Riley, adding that this is not an area in which banks typically exercise exceptional ingenuity. “Compliance is what it is.”

For Mueller, the biggest challenge is practical: keeping each bank’s unique practices and procedures straight. Her solution? She carries a notebook detailing how each bank handles particular situations.

When asked whether a compliance-sharing arrangement implies that compliance officers are fungible and the function can be standardized, Mueller says, “Not really.” She continues: “FDIC banks follow the same rules and regulations, but there are things that can be tweaked.”

As an example, she points out that community banks all have their own procedures for handling Regulation E disputes over debit card transactions. For instance, when a customer disputes a debit card transaction, the bank can automatically reimburse the customer and provide a final credit notification at that moment. Another bank, she says, might choose to invoke the investigative section of Regulation E and only issue a refund after the investigation has been concluded within the allowed time frames. Both banks would be complying with the rules, and yet their approaches are quite different.

Ironing out details

Arguably, the success of a job-sharing arrangement hinges on the personality of the individual hired. Mueller, who often helps her husband on their 2,400-acre cattle ranch, is comfortable completing her duties at unconventional hours. She points out that ranchers have no choice but to juggle work and personal life. “My husband and I own our own ranch,” she says. “No one tells us to get the work done. If we don’t produce, things fall apart.”

Those who gravitate toward compliance may be more likely than most to possess the discipline to make these unorthodox arrangements work. Mueller recalls that the preliminary discussions for bringing Western Nebraska Bank on board took nearly six months to complete. She wasn’t discouraged by the lengthy negotiations because understanding the arrangement is critical. “The main thing is that the CEO or board of directors has to become comfortable,” says Mueller.

Although compliance-sharing arrangements could vary, hers has worked well. Mueller is employed full time by First Bank & Trust, and First Bank & Trust sells blocks of her time to Western Nebraska Bank. The bank pays for half of its six-month block at the beginning of a contract term, and half once the contracted work is completed. Mueller is then paid a percentage of the extra income earned from the additional hours she works.

Because Mueller’s expertise is being offered through a bank subsidiary, Riley is personally concerned about the level of service delivered. One way that he protects his bank’s reputation is by making sure that Mueller’s workload never becomes unmanageable: “It’s important that she’s able to provide any clients she picks up with the type of service that we’re known for.”

Finally, an arrangement like this one rests on training other employees to support the compliance function. Mueller tells both banks: “I’m your compliance officer, but we’re going to make sure there are people who can sub underneath me.”

With community banks facing a multitude of regulatory and other challenges, Riley is convinced that finding ways to cooperate is imperative. “That’s the beauty of community banks,” concludes Riley. “We all understand that to survive in today’s environment, we as community bankers have to join hands at times and make the right decisions for ourselves and our customers.” endmark

Elizabeth Judd is a financial writer in Washington, D.C.