Internet Banking Access - Husch Blackwell

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INSIDEThe Very Best Embezzlement Preventor

The 10 Commandments of Profitable Growth for 2012

2012 Security Measures for Combating Cyber Fraudster

INSIDEThe Very Best Embezzlement Preventor

The 10 Commandments of Profitable Growth for 2012

2012 Security Measures for Combating Cyber Fraudsters

Internet Banking AccessIf the bank fi nds cases where one joint owner can access accounts which that owner has no legal authority to access, the bank needs to correct the problem immediately.

Internet Banking AccessIf the bank fi nds cases where one joint owner can access accounts which that owner has no legal authority to access, the bank needs to correct the problem immediately.

First correspondent that never competes with the customer. First bank owned by community bankers. First for Your Success.

A Tradition of Firsts Stands Tall

That’s United Bankers’ Bank… the nation’s first!

United Bankers’ Bank | 10040 Regency Circle | Suite 310 | Omaha, NE 68114 | Chris Denney 402.651.8824www.ubb.com | Member FDIC

Bank on us.

The choice of a lawyer is an important decision and should not be based solely upon advertisements. *By appointment only

Husch Blackwell LLP | Arizona | Colorado | Illinois | Kansas* | Missouri | Nebraska | Tennessee | Washington, D.C. | England

The Nebraska banking team of Husch Blackwell has the experience to help you with all your needs, from operating and regulatory issues to capital markets and mergers and acquisitions.

In today’s demanding business climate and rapidly evolving regulatory environment, we provide immediate response while

having the bench strength of 600 attorneys in 13 locations. Our insight into the complex and competitive nature of the

Joyce Dixon David Gardels Adam KirshenbaumDavid Bracht Dale Dixon Aaron Johnson Jeff Makovicka

Our Insight. Your Advantage.

www.nebankers.org

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Extraordinary Service for Extraordinary Members.

5 NBA Education Calendar

7 Executive Coaching: Helping Your Employees Get Even Better

If your bank would like to achieve sustainable growth both within your employees and in your bottom line, consider executive coaching to help nurture employees, move projects forward, and get things done.By Karen Miller, Senior Vice President, Nebraska Bankers Association

10 Washington Update – Staying Ahead of Dodd-FrankIf you are struggling to stay ahead of the Dodd-Frank learning curve, the ABA has developed a guide to 12 critical issues that will assist you.By Frank Keating, President & CEO, American Bankers Association

12 Bank Investment Management: Embracing New RealitiesToday’s rate environment requires constant and active management of the balance sheet. Discover how to best protect the earnings and economic value of your financial institution.By Jeffrey F. Caughron, Associate Partner, The Baker Group LP

14 Don’t Let Business Failures Affect Your BankWhen a commercial customer’s business fails, bankers must be familiar with the revenue laws of Nebraska regarding outstanding tax obligations in order to limit loss exposure.By George Kilpatrick, Attorney, Policy Section, Nebraska Department of Revenue

18 Security Officer’s By-Word – Internet Banking AccessFind out why every bank should review its Internet banking system and the importance of determining how online banking transfers between accounts with multiple owners are handled.By Charles M. Towle, Senior Vice President, Kansas Bankers Surety Co.

20 Counselor’s Corner – Security Interests in IP, Part I: Tangible Problems in an Intangible WorldDiscover what your bank needs to do to properly structure and perfect a security interest in intellectual property assets, including patents, trademarks, and copyrights.By Jeff Makovicka & Chris Bikus, Husch Blackwell LLP

24 Bert Ely’s Farm Credit Watch – FCS Lobbying Arm Taps Into U.S. TreasuryNot only does the Farm Credit System pay hardly any federal or state income tax, but now the FCS is tapping taxpayers in new ways.By Bert Ely, Alexandria, Va.

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EDUCATIONCALENDARMARCH2012Washington Legislative Visit & ABA GR Summit19-21 Washington, D.C., Omni Shoreham Hotel

Tri-State Leadership & Human Resources Conference28-29 Overland Park - Doubletree Hotel

APRIL2012Spring Agri-business Conference4-5 Kearney, Holiday Inn

Supervisor Boot Camp Conference10-11 Lincoln, NBA Offi ce

School of Banking Fundamentals16-20 Topeka, KS, Capitol Plaza

MAY2012

NBA Annual Convention2-4 LaVista, Embassy Suites

Lending Compliance Fundamentals Workshops8 North Platte, Holiday Inn Express9 Kearney, Holiday Inn Express10 Omaha, Regency Lodge

For a schedule of NBA webinar offerings, visit www.nebankers.org.

If you are interested in receiving further information on these programs, please contact the NBA Education Center

at (402) 474-1555 or [email protected].

Deposit Accounts Workshops9 Kearney, Holiday Inn10 Omaha, Regency Lodge

Operations School15-17 Topeka, KS, Capitol Plaza

Essential Teller Issues Seminars21 Ogallala, Quality Inn & Conference Center22 Lexington, Holiday Inn Express Hotel & Suites23 Columbus, Holiday Inn Express Hotel & Suites24 Lincoln, Cornhusker Marriott Hotel

JUNE2012NBA Chairman’s Golf Outing7 Hastings, Lochland Country Club

HMDA Workshops26 Lexington, Holiday Inn Express Hotel & Suites27 Grand Island, Fairfi eld Inn & Suites28 Omaha, Regency Lodge

1125 South 103rd Street Omaha, NE 68124 koleyjessen.com

COMMERCIAL LOANS - TIF/BOND FINANCINGDIP FINANCING - BANKRUPTCY/CREDITORS’ RIGHTSREGULATORY COMPLIANCE - GENERAL CORPORATE

Brian Koenig & Don Swanson

Investment Strategies and Interest Rate Risk

An In-Depth ProgramFinancial institution managers will come away with sound ideas for using the bond portfolio as an effective tool in managing liquidity, cash flows, and interest rate risk. Attendees will also gain insight into the remarkable changes that the banking industry is experiencing in the current market environment. Seminar topics include:

Current Economic Conditions and Fed Policy OutlookPre-Exam Interest Rate Risk ChecklistCharacteristics of High Performance PortfoliosHow to Effectively Reduce Extension Risk in the Bond PortfolioTop Strategies to Prepare for the Next Rate CycleManaging Cash Flows and Options Risk in the Investment PortfolioHow to Analyze Your Municipal Bond CreditsManaging MBS Cashflow Volatility With the Right Loan Attributes

CPE credits will be earned for your attendance.

RegistrationFor your convenience, register online at GoBaker.com/seminars. For more information, call Skoshi Heron at 888.990.0010.

New realities facing community financial institutions in 2012 require managers to obtain growing support for

the ALCO processes. The Baker Group’s upcoming Investment Strategies and Interest Rate Risk Seminar will address specific bond portfolio strategies to improve margin and mitigate unnecessary IRR. We will discuss

security selection processes and liquidity management, present tools for assessing credit risk in municipal

bonds, and explore stress tests for the entire balance sheet using our Interest Rate Risk software.

Who Should AttendFinancial institutions’ CEOs, CFOs, investment officers, board members, and those

who are directly or indirectly responsible for financial management functions

will benefit from this seminar. There is no cost for this seminar.

S E M I N A R

T H E B A K E R G R O U P

Oklahoma City, OK | Austin, TX | Birmingham, AL | Indianapolis, IN | Salt Lake City, UT | Springfield, ILThe Baker Group | 1601 Northwest Expressway, 20th Floor | Oklahoma City, OK 73118 | 800.937.2257

www.GoBaker.com | Member: FINRA and SIPC

LocationMay 23, 2012Lincoln, NebraskaThe Cornhusker Marriott

333 South 13th StreetLincoln, NE 68508402.474.7474

AgendaBreakfastSeminarLunch

SpeakersJeff CaughronRyan HayhurstLester Murray

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EXECUTIVE COACHING:

Helping Your Employees Get

Even BetterKaren Miller, Senior Vice President, Nebraska Bankers Association

“I never cease to be amazed at the power of the coaching process to draw out the skills or talent that was previously hidden within an individual, and which invariably fi nds a

way to solve a problem previously thought unsolvable.”

— JOHN RUSSELL, MANAGING DIRECTOR, HARLEY-DAVIDSON EUROPE LTD.

WHAT KIND OF BANK HIRES AN EXECUTIVE COACH? THE kind of bank that wants to achieve sustainable growth both within its employees and in its bot-tom line. Today, more than ever before, execu-

tive coaching is being used to grow skills, grow people, and grow companies.

Perhaps your bank is acquiring or opening new branches, building new teams, or entering new communities. You may be in the midst of succession planning, challenged with the task of meeting the expectations of your shareholders and your com-munity. Or, you may be on a steady growth path and have new leaders who need to be polished and prepared for the future. Whatever your particular situation may be, we know executive coaching has proven to be an excellent way to help nurture executives, move projects forward, and get things done!

That’s why the Nebraska Bankers Association has joined forces with Paula Pace of The Executive Development Group. Through the NBA, your employees now have the opportunity to work with a certifi ed executive coach.

How do you know what type of coaching you need?

Does a team leader need to grow specifi c skills? Does he or she need help guiding the team through an important project? Does the team just need to be more effective? If so, you need leadership coaching.

Is someone on your team poised for advancement, yet lacks a few skills required to fulfi ll the position? Then you need coaching for position advancement.

233 South 13th Street, Suite 700Lincoln, NE 68508

Phone: (402) 474-1555 • Fax: (402) 474-2946

NBA Board of Directors

NBA StaffGeorge Beattie NBA President & [email protected]

Joni SundquistVice President of [email protected]

Kendell G. HolthusNBA Chairman (2011-2012)(402) 363-7414Cornerstone Bank, York

Clark D. LehrNBA Chairman-Elect (2011-2012)(402) 563-3656First Nebraska Bank, Columbus

Robert A. Balfany(402) 434-1035U.S. Bank, N.A., Lincoln

Nicholas W. Baxter(402) 602-1839First National Bank of Omaha, Omaha

Cory A. Bergt(402) 434-4122Wells Fargo Bank, N.A., Lincoln

David P. Dannehl(308) 876-2451First State Bank of Loomis, Loomis

Donovan H. Ellis(402) 396-3431Midwest Bank, N.A., Pilger

Alan L. Fosler(402) 323-1272Union Bank & Trust Co., Lincoln

Stephen J. Hatz(402) 918-1567Bank of the West, Omaha

Michael J. Homa(402) 351-4248Mutual of Omaha Bank, Omaha

Allan D. Jefferson(402) 362-4411York State Bank & Trust Co., York

Jeffrey C. Johnson(402) 562-2108Columbus Bank & Trust Co., Columbus

Philip Jossi(308) 893-2351State Bank of Riverdale, Riverdale

Timothy E. Keller(402) 375-2043F&M Bank, Wayne

John F. Kotouc(402) 399-5088American National Bank, Omaha

Vicki L. Kraai(402) 773-5541Astra Bank, Sutton

Clarence L. Landen III(402) 449-0919Security National Bank of Omaha, Omaha

Kevin Larson(402) 372-5147CharterWest National Bank, West Point

Brian Lierman(402) 475-0521Great Western Bank, Lincoln

Barry J. Lockard(402) 434-2225Cornhusker Bank, Lincoln

Ken H. Niedan(308) 368-5555Hershey State Bank, Hershey

David A. Ochsner(402) 225-3381Commercial Bank, Nelson

Ryne D. Seaman(402) 643-3636The Cattle National Bank & Trust, Seward

John P. Stinner(308) 436-2300Valley Bank & Trust Co., Gering

James H. Varney(877) 860-2266Custer Federal Savings & Loan, Broken Bow

Michael B. JacobsonNBA Past Chairman(308) 534-2861NebraskaLand National Bank, North Platte

Larry D. MarikNBA Past Chairman(402) 562-5846First National Bank of Columbus, Columbus

Executive Coaching — continued on page 8

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Is someone on your team in jeopardy of losing their posi-tion? Position retention coaching is the answer.

Perhaps you want to prepare your high-potential employ-ees for their next move within your organization, or you don’t want to lose them while positions become available. Consider coaching for high-potential employees.

Executive coaching is most often a one-to-one intraper-sonal experience, but teams and organizations also may ben-efi t from it. Executive coaching is valuable in that it provides outside, objective guidance to executives who often have no time for training or formal development. It’s fast and direct.

When you enter The Executive Development Group’s coaching program, your agreement will be directly with Paula Pace and full confi dentiality will be maintained. The NBA will not have access to the names of individuals who are participating in the coaching program.

I would encourage you to learn more about executive coaching and how it can benefi t your fi nancial institution by contacting Paula Pace at The Executive Development Group at (402) 466-2559 or [email protected].

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Executive Coaching — continued

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THIS 29-PAGE GUIDE, DEVELOPED with the input of bankers like you, provides detailed informa-tion on 12 key implementation

items for 2012. Each issue is ex-plained in terms of why it matters to community banks and what to watch

out for. Just as important, the guide examines each issue from the stand-point of how bankers can get involved and help shape the outcome.

Take the issue of capital, for exam-ple. As the guide explains, the advocacy

challenge is to sensibly dial back capital requirements while ensuring stable sources of capital.

Sounds reasonable. The challenge, however, is a big one, since every indi-cator in the regulatory and legislative spheres, as well as public sentiment, points to requiring more bank capital.

We’ve got to continue to tell, and sell, our story: That increasing capital requirements is a drag on banks’ lend-ing, which hurts communities across the country.

Capital is just one of the dozen is-sues we’ve highlighted in our guide. There are also Consumer Financial Protection Bureau rules, FDIC cover-age and the assessment base, housing fi nance and the qualifi ed mortgage and qualifi ed residential mortgage rules, the Volcker Rule, and more.

Please read the guide, share it with others in your bank, and get involved in shaping these important issues. Don’t hesitate to tap into ABA’s staff expertise (1-800-BANKERS) and our tremendous online resources, such as our up-to-the-minute ABA Dodd-Frank Tracker at http://regreformtracker.aba.com.

You also can look to us for support through peer networking, training and education, and products and services.

The challenge for our industry is not to put the Dodd-Frank Act behind us, but to stay out in front of it. Working together, we can do that.

Washington Update

We’ve got another big year ahead for Dodd-Frank Act implementation. To help bankers stay out in front of this regulatory freight train, we’ve published and mailed to community banks our latest resource, “Dodd Frank & Community Banks: Your Guide to 12 Critical Issues.”

Staying Ahead of Dodd-Frank

Frank Keating, President & CEO, American Bankers Association

visit us online!visit us online!www.nebankers.orgwww.nebankers.org

Reach Frank Keating by email at [email protected].

www.nebankers.org

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AS WE TRANSITION INTO 2012, community bankers find themselves adapting to new realities and changed condi-

tions in their industry. Bank perfor-mance is being challenged by increased regulatory burden, asset quality issues, weak loan demand, and excess liquid-ity during a period of historically un-precedented low interest rates. With respect to general economic conditions, the hope had been that the pain would be over by now and a robust recovery well under way. Indeed, the average growth rate of U.S. GDP at this point in a typical post-war economic cycle is 5 percent to 6 percent. As 2012 begins, however, we are barely seeing half that

level of output, and the reality is that we will likely continue to see slow, sluggish growth for some time to come.

The reasons for this new environ-ment are well known. The necessary and painful process of deleveraging from unsustainable debt levels is still far from over. American households, banks, and governments (state and lo-cal as well as federal) all must continue to tighten belts until debt burdens return to sustainable levels. The cost of this deleveraging is slower growth, weaker infl ation, and lower interest rates than what we’ve come to think of as “normal.” Similar problems in Europe weigh heavily on the U.S.

economy as well. This backdrop raises questions about the proper focus of community banks as they fight for optimal performance, while prudently managing risks.

Managing PerformanceThe Baker Group has always be-

lieved in macro-management of bank balance sheets through robust asset/liability management processes. The “new normal” banking environment we are facing today is punctuated by margin compression as earning asset yields decay lower while the cost of funds for many banks is already as low as it can go. The dynamics of the balance sheet are such that older loans and bonds that were purchased in prior years will continue to mature or pay down, and those dollars will now need to be reinvested into the new, lower-rate environment. To the extent that loan growth is not forthcoming, the investment portfolio becomes the critical balance sheet tool. Manag-ing the reinvestment of excess funds is critical in several ways including timeliness, relative value, security selection, and fl ows of liquidity.

Timeliness – Unless you believe that the rate environment is near a turning point, the deployment of excess cash should not be delayed. A large balance of fed funds earning near-zero is painful from a relative performance standpoint. A prudent high-grade investment earning 1.5 percent to 2 percent provides a reason-able earning interest spread whereas sitting in cash earns none.

Relative Value – Every investment decision involves a process of elimina-tion. The fi rst step in that process is relative value analysis between and among different types of bonds and bond-market sectors. This involves de-termining which sectors are particularly rich or cheap in terms of yield advantage versus others. This assessment also needs to be viewed within the strategic diversification and sector allocation objectives of the portfolio manager.

BANK INVESTMENT MANAGEMENT:

Embracing New Realities

Jeffrey F. Caughron, Associate Partner, The Baker Group LP

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Defi ne, measure, and manage the interest rate risk of the balance sheet, then structure the investment portfolio in a manner that will

protect the earnings and economic value of the institution.

Security Selection – Once the optimal bond type or sector is determined, we turn to the specifi c security selection process. This step involves close scrutiny of unique charac-teristics of individual bonds. For agencies, it’s largely about the call or step-up features. For municipals, credit analysis is paramount. For mortgage-backed securities, it’s about the loan attributes of the pool that tell us what to expect in terms of prepayment risk. In all cases, it’s about having a clear understanding of the unique risk/reward characteristics of different bonds, and how they compare to alternatives.

Cash Flows – Investment decisions also should be driv-en by an awareness of balance sheet liquidity needs and the projected cash fl ows required to meet those needs. A bond purchase decision should involve an understanding of when principal will be returned to the balance sheet and, if it’s subject to prepay or call risk, the degree of uncertainty sur-rounding that return of principal. We have always believed

that stable, predictable cash fl ow is a necessary requirement for prudent portfolio management.

This is a rate environment that requires constant and active management of the balance sheet. Excess liquidity must be prudently deployed and community bankers should use the portfolio as a means of achieving optimal perfor-mance for the bank overall. Defi ne, measure, and manage the interest rate risk of the balance sheet, then structure the investment portfolio in a manner that will protect the earnings and economic value of the institution.

Since 1979, The Baker Group LP has helped its clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. For more information, contact Jeff Caughron at The Baker Group at (800) 937-2257 or [email protected]. You also may visit The Baker Group at www.GoBaker.com.

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Don’t Let Business Failures Affect Your Bank

Understanding Nebraska Law Regarding Outstanding Tax Obligations

George Kilpatrick, Attorney, Policy Section, Nebraska Department of Revenue

Business failures are an all-too-common occurrence in the United States and in Nebraska specifically. When this happens, dreams are crushed, livelihoods placed at risk, and many people, institutions, and organizations are damaged.

ONE OF THOSE AT RISK MAY BE A fi nancial institution that has loaned funds to the business dependent on its success.

Another may be the people of Nebraska, through their government institutions.

The Nebraska Department of Rev-enue is responsible for the enforcement of the revenue laws of Nebraska and the administration and collection of more

than 30 types of taxes. Often businesses faced with fi nancial stress delay or stop paying taxes that are owed so they can pay other obligations. This outstanding tax liability may be unknown to other creditors of the business.

When business failure occurs, the law requires certain actions be taken to satisfy any outstanding tax obliga-tions. These actions may be at odds

with any plans developed by business owners and creditors to map a way out. Bankers should be familiar with the revenue laws of Nebraska in regard to tax obligations and the powers granted to the department to collect these taxes. Such knowledge will help minimize misunderstandings between the depart-ment and the banking community in situations when there is too little money to go around.

The Unique Status of Trust Fund Taxes

The Department of Revenue ad-ministers and collects more than 30 different types of taxes. Nearly all are collected from business entities. These range from the obscure, like the litter fee, to the major taxes, like sales and income taxes. Even sales and individual income taxes paid by individuals are collected primarily through businesses. As most of us know, merchants collect state and local sales taxes from purchas-ers along with the purchase price of the product purchased. Under Nebraska law, sales taxes collected “constitute a debt owed by the retailer to this state.” [Neb. Rev. Stat. § 77-2703(1)(a)]

Similarly, the individual income tax is primarily collected by withholding the tax from employees or other persons providing personal services. Under Nebraska law, any amount deducted and withheld from the earnings of em-ployees “shall constitute a trust fund in the hands of the employer or payor and shall be owned by the state.” [Neb. Rev. Stat. § 77-2757] While the wording of these two statutes is different, both are considered money taken from the individual taxpayer that is rightfully owned by the people of Nebraska and not the business. We call both sales taxes collected and withholding “trust fund taxes” to refl ect their unique status in the revenue laws of this state.

This unique status also can be found in information the department provides businesses when they first become licensed to collect Nebraska taxes. The department’s information guide on

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Once everyone is aware of all the liabilities and relative rights, the department can work with the bank and other creditors in a joint effort to limit everyone’s loss exposure as much as possible

and allow the sale to take place.

“Statutory Responsibilities for Collecting, Reporting, and Remitting Sales Taxes and Income Tax Withholding” be-gins by describing trust fund taxes and recommending that amounts collected from customers for sales tax or deducted from employees for withholding be kept in a separate bank account and never used for business operations. This guide further directs that these taxes cannot be used for any other purpose. This separate bank account only should hold trust fund taxes, even though the business also may owe income taxes, use taxes, property taxes, or any number of other taxes on its own accord.

Many businesses, of course, don’t do this. What the de-partment often fi nds is that when businesses suffer fi nancial stress, they treat trust fund taxes like any other obligation of the business, despite their unique status.

Tax LiensThe law governing establishment and enforcement of

state tax liens is governed by the Uniform State Tax Lien Registration and Enforcement Act. [Neb. Rev. Stat. §§ 77-3901 through 77-3908] If any person liable to pay any tax neglects or refuses to pay after a demand, the tax and any associated interest or penalties establish a lien in favor of Nebraska upon all property and rights owned by the taxpayer or acquired later prior to expiration of the lien. [Neb. Rev. Stat. § 77-3904] Under the procedures of the department, the Demand for Payment, which triggers this statutory lien, is issued after the assessment of the tax is fi nal, meaning any protest or appeal period has expired and the amount in the demand is no longer open to adjustment.

This lien will expire after three years unless recorded. Usually, the department does not record liens immediately. The threat of recording a lien can often provide leverage that causes the taxpayer to pay the taxes owed or reach a payment agreement. Once the lien is recorded, it does not expire for 10 years and may be renewed thereafter for subsequent 10-year periods. The priority of the lien is based upon the date recorded, except with regard to the IRS, in which case, the priority of the state tax lien is established based on the date the tax was assessed.

A state tax lien may be enforced by the department by garnishing wages, levying bank accounts, or seizing and sell-ing property of the taxpayer. [Neb. Rev. Stat. § 77-3906] It

is important to point out that these measures can be pursued regardless of whether or not the state tax lien is recorded. Often these collection actions are the best collection tool avail-able after the business has closed and tax liability remains, but not always.

Successor LiabilitySuccessor liability is a collection method available to the

department in some circumstances that may be a trap for the unwary. Neb. Rev. Stat. § 77-2707 provides that “[i]f any person liable for any sales or use tax under the provisions of the Nebraska Revenue Act of 1967 sells out his business or stock of goods or quits the business, his successor or assign shall withhold suffi cient of the purchase price to cover such amount until the former owner produces a receipt from the Tax Commissioner showing that it has been paid or a

Business Failures — continued on page 16

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certifi cate stating that no amount is due.” This statute goes on to provide that if the purchaser fails to either obtain the clearance letter from the department, or withhold the funds, the purchaser becomes liable for the entire amount up to the amount of the purchase price, valued in money. Thus, the statute imposes this liability up to the value of the entire transaction, not just the cash portion.

Under this statute, purchasers of a business or the assets of a business have a statutory obligation to make sure that any sales tax liability is paid before the seller receives anything from the sale. The penalty for failure to do so is transfer of the liability to the purchaser, up to the amount of the purchase price, valued in money, including any assumption of debt. This obligation must be addressed fi rst, before any liens are considered. While successor liability may exist in connection with any sale of a business, it often comes into play when a creditor is attempting to arrange transfer of the business and the underlying loan to another operator. Successor liability may be a deal killer in these cases.

The statute cited above applies only to sales and use taxes, but a similar statute and Nebraska case law extends this treat-

ment to income taxes and withholding. [See Neb. Rev. Stat. § 77-27,110 and Gottsch Feeding Corp. v. State, 261 Neb. 19, 621 N.W.2d 109 (2001).]

Corporate Offi cer LiabilityNeb. Rev. Stat. § 77-1783.01 provides that any corporate

offi cer or employee who had a duty to collect, account for, or remit any taxes imposed on the corporation is personally liable for any willful failure to cause the corporation to pay the tax. Willful failure to pay the tax can be established if the department shows that the corporate offi cer or employee knew taxes were due, had funds available, and paid any other creditor.

This is a powerful collection tool that is useful if a business that is a corporation is sold or liquidated and there is simply not enough money to go around. The department may be able to establish willful failure to pay taxes by one or more former owners or responsible employees. Once that assess-ment is fi nal and can no longer be appealed, the department may proceed to issue a Demand for Payment and garnish wages, levy bank accounts, or seize and sell property of the individual corporate offi cer or employee.

Protecting the Interests of NebraskansOften when businesses are struggling fi nancially, those

businesses fall behind in paying taxes when due. When that happens, the Nebraska Department of Revenue has many collection tools available to protect the interest of the people of Nebraska. Some of these tools operate separate from the recorded lien process. To avoid surprises, bankers and other creditors need to be aware of these tools and investigate pos-sible tax liabilities when working with debtors.

This is especially true if the plan revolves around selling the business to a new operator. Because the successor liability statute can stop the sale in its tracks, creditors need to fi nd out early if sales or use taxes or withholding liabilities exist and how much. To receive clearance from the department for the sale to go through, contact the Department of Revenue and include a Power of Attorney appointment (Form 33) from the selling business. This form authorizes the department to reveal confi dential taxpayer information to the bank or other creditors.

Once everyone is aware of all the liabilities and relative rights, the department can work with the bank and other creditors in a joint effort to limit everyone’s loss exposure as much as possible and allow the sale to take place.

For more information, contact George Kilpatrick, attorney, at the Nebraska Department of Revenue at (402) 471-6024 or [email protected]. You also may visit the Nebraska Department of Revenue website at www.revenue.ne.gov.

Business Failures — continued

experience direction

Omaha 402.392.1040Lincoln 402.473.7600

i di tiBKD, LLP has helped 1,200 financial services clients manage change and stay compliant by offering audit and internal audit, tax, regulatory compliance, loan review services and more. Let us help you chart a course to success. Learn more at bkd.com and get the latest industry insights at FinancialReformInsights.com.

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www.nebankers.org

18


SECURITY OFFICER’S BY-WORD

HOWEVER, MANY CUSTOMERS want to be able to use Inter-net banking to transfer funds between any accounts they

own—even if not all of the owners of the account are identical.

Most Internet banking providers allow banks the ability to link accounts to a single user ID and password so that the bank can give a customer access to the various accounts he or she owns. However, at least one major Internet banking provider requires all owners of an account to use the same user ID and password. All owners of the main account then have access to all linked

accounts, even if some of the owners of the main account are not owners of the linked accounts. This has resulted in serious problems.

A husband and wife had a joint checking account. The wife also had a savings account at the same bank that named only her as the owner. The bank’s Internet processor only allowed one user ID and password to access any account. The wife applied for Internet banking and requested that she have access to both the joint account and her personal account for the purpose of In-ternet banking. Later, the husband ap-plied for Internet banking on the joint

account and was given the same user ID and password because the Internet processor required only one user ID for any account. The couple happily used Internet banking under this arrange-ment for more than fi ve years.

One day the husband used Internet banking to transfer all the funds from his wife’s savings account to the joint checking account and withdrew the funds. He then moved in with his new girlfriend. The wife was unable to obtain the funds during their divorce proceedings, so she claimed the bank was liable to her for the stolen funds.

At another bank, a savings account was opened in the name of a young child who had received a large settle-ment after his mother was killed in a vehicle accident. His father was named custodian on the account. The father remarried and had a joint checking account with his new wife. Both were given the same user ID and password for Internet banking. At the request of the father, the son’s account was added to the Internet banking function. Because the bank’s Internet processor insisted that only one user ID and pass-word could be used to access the joint account, the new wife also was given access to both accounts even though she was a signer on only one account.

The wife transferred the funds from the custodial account to the joint account and then withdrew all funds from the joint account and moved to another country. The father, on behalf of his minor son, made claim against the bank for the stolen funds.

The Internet processor told bank management they could not allow mul-tiple user IDs to access any one account in the Internet banking function.

Bank management wanted to allow multiple owners of accounts to access the accounts using Internet banking. Bank management had three choices: 1) The bank could restrict access to In-ternet banking to only accounts where

Internet Banking Access

Charles M. Towle, Senior Vice President, Kansas Bankers Surety Co.

In an ideal situation, every bank would allow Internet banking transfers between accounts only if all owners of the accounts are identical.

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For more information, contact Kansas Bankers Surety Co. at (785) 228-0000.

all signers are identical. 2) The bank could fi nd a new Internet banking provider that can restrict access to accounts which the specifi c user has authority. 3) The bank can ignore the contract with its customer and allow other parties to have access to accounts that they have no legal authority to access.

While most bankers would never consider the third op-tion, a considerable number of banks have either willingly, or through error, done just that. One large Internet banking provider for banks still allows only one user ID and password to access an account. Some banks that use this system have al-lowed multiple accounts to be accessed by the users of the user ID and password. In some cases one of the joint owners of the main account has no legal authority to be accessing linked accounts but they are allowed to have such access anyway.

Every bank needs to review its Internet banking system and determine if the bank allows multiple joint owners of accounts to use the same user ID and password to access the account. If so, the bank needs to make certain that all ac-counts accessible by the user ID and password have identical owners. If the bank fi nds cases where one joint owner can access accounts which that owner has no legal authority to access, the bank needs to correct the problem immediately.

ATTENTIVE

Nebraska banks are attentive to the needs of the communities they serve. We are here to give you the same attention.

Loan Participations Bank Mergers and Acquisitions Succession Planning for Owners Commercial Litigation General Business Representation

Regulatory Consultation and Compliance Loan Origination and Workout Loan Default Remedies and Bankruptcy Representation Real Estate Purchase, Sale and Leasing

Lincoln Omaha Denver www.woodsaitken .com

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20


THIS IS TRUE NOT JUST FOR TECHNOL-ogy companies, but also for retailers, manufacturers, and service providers. As such,

commercial lenders are increasingly taking security over borrowers’ IP portfolios as part of a security pack-age. Even if a borrower’s IP is not in-dependently valuable, it is oftentimes an essential piece of a commercial

lender’s ability to realize upon an-other asset that may be the primary collateral for the financing. Com-mercial lenders, if not aware of the pitfalls surrounding the structuring and perfection of a security interest in IP assets, may find themselves with-out an enforceable security interest in a valuable part of the business which they are funding.

Security Interests in IP – Part I

Tangible Problems in an Intangible

WorldJeff Makovicka & Chris Bikus, Husch Blackwell LLP

COUNSELOR’S CORNER This article discusses perfecting security interests in three of the primary types of IP: patents, trade-marks, and copyrights—and to a lim-ited extent, domain names. It is the first of a three-part series on IP as collateral. The second article in the series, to be published in the May/June issue of Nebraska Banker, will provide tips and practical guidelines to proper documentation of IP as col-lateral. The third and final part in the series, to be published in the July/August issue of Nebraska Banker, will address what happens when things go wrong and foreclosure on IP is inevitable.

Even though all three types of IP are governed in part by federal law, no complete federal preemption ex-ists in this area. To the extent it is not in confl ict with federal law, Article 9 of the Uniform Commercial Code (UCC; adopted with minor variations in all states, including Nebraska) plays a role. Patents, trademarks, and copyrights all qualify as “general intangibles” under Article 9’s catchall category of collateral. UCC 9-102(a)(42) and Comment 5d.

A financing statement describ-ing the collateral as “all assets of the debtor, now owned or hereafter acquired” will suffice to perfect a security interest in any IP owned by the debtor, as long as the “general intangibles” category or some more precise description is used in the security agreement. UCC 9-504(2); UCC 9-108(c). Generally, absent other considerations (discussed below), the UCC governs the creation, perfection, priority, and enforcement of IP col-lateral. It should be noted, however, that ordinary-course licensees under a nonexclusive license take free of a security interest in IP created by a licensor. UCC 9-321(a) and (b). This super-priority rule, which could have a major impact on disputes involv-ing competing claims to IP, will be discussed in more detail in the next article in this series.

In today’s business world, the intellectual property (IP)—patents,

trademarks, and copyrights—portfolio of many companies forms an

important part of company assets.

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PatentsSection 261 of the Patent Act (35 U.S.C. § 261) governs

ownership and transfer of patents and provides a federal fi ling scheme for protecting patent rights. This section also provides that priority rights in a patent obtained by “assign-ment, grant, or conveyance” may be preserved, as against a bona fi de purchaser or mortgagee, only if the assignment was recorded in the United States Patent and Trademark Offi ce (USPTO). Courts have reasoned that a security interest in a patent is not the kind of “assignment” that requires fi ling with the USPTO under the Patent Act. Instead, UCC fi ling is necessary. In re Cybernetic Services, Inc., 252 F.3d 1039 (9th Cir. 2001) (security interest in a patent is not an “assignment” within meaning of federal patent statute; UCC fi ling is nec-essary); In re Tower Tech, Inc., 67 Fed.Appx. 521 (10th Cir. 2003) (fi ling only with USPTO was fatal for secured lender).

While fi ling under the UCC is necessary for perfection of security interests in patents, courts have held that such fi ling does not protect against future purchasers of patent rights. Courts have stated that a bona fi de purchaser with a duly recorded assignment at the USPTO would defeat a secured lender that did not fi le in the USPTO. See Rhone-Poulence Agro, S.A. v. DeKalb Genetics Corp., 284 F.3d 1323 (Fed. Cir. 2002).

Because of this, it is advisable to record a security inter-est under the UCC to perfect the security interest and also to record the security interest with the USPTO to protect against future purchasers.

TrademarksThere are three classes of trademarks: federally registered

marks, state registered marks, and common law marks. State registered marks and common law marks arise under and are generally governed by state law. For these, perfection is effected under the UCC. Federally registered marks, however, are governed by the Lanham Act, 15 U.S.C. § 1060. Similar to the Patent Act, the Lanham Act addresses assignments and, according to case law, security interests are not considered assignments. See In re Chattanooga Choo-Choo Co., 98 B.R. 792 (E.D. Tenn. 1989) (a service mark is a UCC general intangible requiring the fi ling of a fi nancing statement); In re Trimarchi v. Together Dev. Corp., 255 B.R. 606 (D. Mass. 2000) (secured lender fi led UCC fi nancing statement with the USPTO rather than with the secretary of state; because this federal fi ling was improper, the lender’s security interest was unperfected and voidable in bankruptcy).

Thus, UCC fi ling is necessary. As with patents, however, there is the problem of a subsequent purchaser and, to pro-tect against such purchaser, it is prudent also to record with the USPTO.

Tangible Problems — continued on page 22

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Tangible Problems — continued

CopyrightsCopyrights may be registered or

unregistered. Registered copyrights are governed by the Copyright Act, 17 U.S.C. § 205. Unlike the Patent Act and the Lanham Act, the Copyright Act provides a federal perfection scheme at Section 205. Section 101 defines transfer of copyright ownership as an assignment, mortgage, exclusive

license, or any other conveyance, or alienation of a copyright. The Copyright Act, therefore, specifi cally preempts the UCC. In re World Auxiliary Power Co., 303 F.3d 1120 (9th Cir. 2002) (the Copyright Act’s use of the word “mort-gage” as one defi nition of a “transfer” includes security interests under the UCC). Courts reject the proposition that federally registered copyrights are properly perfected under the UCC. In re Peregrine Entertainment, Ltd., 116

B.R. 194 (C.D. Cal. 1990); In re AEG Acquisition Corp., 127 B.R. 34 (C.D. Cal. 1991), aff’d 161 B.R. 50 (9th Cir. 1993) (federal fi ling is the exclusive method of perfection for federally registered copyrights). Accordingly, to properly perfect a security interest in a registered copyright, a fi ling must be made with the Copyright Offi ce.

Problems arise, however, in the case of unregistered copyrights, as many se-curity agreements include as collateral all of the borrower’s unregistered copy-rights. Under copyright law, copyrights exist automatically upon creation of the work whether or not registered with the Copyright Offi ce. For unregistered copyrights, no record of the copyright is with the Copyright Offi ce and, therefore, it is not possible to fi le a security interest with that offi ce.

Some courts have held that a lender’s security interest in an unregistered copyright is perfected pursuant to a fi ling under the UCC. World Auxiliary Power, 303 F.3d at 1128. Other courts have held that the perfection of an unregistered copyright is only proper with the Copyright Offi ce and, thus, a necessary prerequisite to perfecting a security interest in an unregistered copyright is to register the copyright. AEG Acquisition Corp., 127 B.R. 34 and In re Avalon Software, Inc., 209 B.R. 517 (D. Ariz. 1997).

In the case of an unregistered copy-right, a prudent commercial lender is advised to record with the UCC and simultaneously register the copyright and record with the Copyright Offi ce. In some cases, however, it may not be practicable to register the copyright, for example where the copyright per-tains to software which is likely to be revised frequently. In such cases, a lender may choose to fi le solely under the UCC and monitor (by means of cov-enants and other policing mechanisms in the loan documents1) whether the unregistered copyright becomes regis-tered and to then take appropriate ac-tion in the Copyright Offi ce to perfect.

Did you know that a child with a college savings account is seven times more likely to attend college than one without? Teach Children to Save Day is an ideal opportunity to start children in your community on the path to sound money management and a productive adulthood.

On April 24, 2012, join with bankers across the nation to help shape the future of young people in your community. Your participation will inspire them to reach for their dreams—and enhance your bank’s image.

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For more information, contact Jeff Makovicka or Chris Bikus at Husch Blackwell LLP at (402) 964-5000 or [email protected] or [email protected]. Makovicka is a member of Husch Blackwell LLP’s Banking & Finance practice where he concentrates on bank regulatory matters. Bikus is a member of Husch Blackwell LLP’s Intellectual Property practice and has signifi cant experience in trademark and copyright matters. He has worked on numerous acquisitions and divestitures of intellectual property assets and specializes in intellectual property counseling and trademarks and copyrights.

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Domain NamesDomain names are the commonly used form of Internet

address or Uniform Resource Locator. A domain name is a critical asset of many businesses and, therefore, essential col-lateral for their secured lenders. While it is debatable whether a domain name is IP or merely a contractual right sold by a registrar company to a domain owner, security agreements often include domain names as collateral. Some courts have concluded that a domain name is a form of intangible personal property (e.g., CRS Recovery, Inc. v. Laxton, 600 F.3d 1138 (9th Cir. 2010)) and other courts have found a conditional contractual right in the agreement between the registrant and the registrar for exclusive association of the domain name for the term of the registration (e.g., Dorer v. Arel, 60 F.Supp. 2d 558 (E.D.Va. 1999)).

However, at this time, the best practice is to treat do-main names as “general intangibles,” in which security interests are perfected pursuant to a filing under the UCC. UCC 9-310.

What This Means to YouIn sum, to perfect a security interest in a registered copy-

right, a lender should record the security interest with the Copyright Offi ce. A fi ling under the UCC may be adequate for perfecting a security interest in an unregistered copyright, although the best practice may be to require registration of the unregistered copyright. For all other IP assets, a lender should record its security interests with the Secretary of State of the state where the borrower resides through a UCC-1 fi nancing statement (except that in the case of a domain name, it may be advisable to also fi le in the state where the webserver is located). In connection with registered federal trademarks and patents, though, it is also advisable that a lender take the additional step of recording its security in-terests with the USPTO in order to protect against later bona fi de purchasers. Generally, as a best practice for IP collateral, it may be advisable to record under both the UCC and with the applicable federal agency.

1 A good practice is to insert protective covenants and warranties in loan documents which compel the borrower to disclose registrations of previously unregistered copyrights (this will be discussed in greater detail in Part II of this series).

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Bert Ely’s FARM CREDIT WATCH®

Shedding Light on the Farm Credit System, America’s Least Known GSE© 2012 Bert Ely

FCS Lobbying Arm Taps Into U.S.

Treasury

THE FARM CREDIT COUNCIL, THE Farm Credit System’s Washing-ton, D.C.-based lobbying arm, has received a $675,109 grant

from the USDA “to improve the ef-fectiveness of educational material for those who provide training to begin-ning farmers” with a “primary focus” on the “components of a successful fi nancial skills education.” It is not enough of an outrage that the Farm Credit System (FCS) pays hardly any federal or state income tax but now the FCS, through the Farm Credit Council (FCC), is tapping taxpayers to reclaim a portion of the pittance the FCS pays in taxes. This grant to the FCC was included in $18 million of USDA grants to organizations providing “training and assistance to beginning farmers and ranchers.”

The key question: What is the FCS up to? We know that despite its lip service to serving young, beginning, and small farmers, the FCS is primar-ily focused on fi nancing large farming and ranching operations. Given this focus, the FCS needs political friends outside traditional agri-business. Where to fi nd these friends: among interest groups who promote small-scale farming and shrinking the distance between food production

and consumption. Even though the FCS does not lend much money to small-scale farmers, by aligning with such groups the FCS is building alli-ances with potential political allies in advance of congressional reauthoriza-tion of the farm bill. Such alliances could help protect the FCS from being hurt by the farm bill and possibly even help the FCS. With this $675,000 in taxpayer funds, the FCS has the op-portunity to make many new friends.

Shouldn’t the FCS Pay a Guarantee Fee, Too?

Just before the end of the year, Congress levied a 10-basis-point guarantee fee on all new mortgages guaranteed by Fannie Mae and Fred-die Mac, with the fee going directly into the U.S. Treasury. The new fee partially pays for the two-month extension of the payroll tax cut fi rst enacted last year. Although not ad-vertised as such, the new fee, for the fi rst time, compensates taxpayers for the risk those government-sponsored enterprises (GSEs) pose to taxpayers, the same type of taxpayer risk the FCS poses. Congress should consider levying a comparable guarantee fee on debt issued by the FCS. Based on the amount of FCS debt outstanding as of Sept. 30, 2011 ($183.4 billion), this

fee would pump almost $200 million annually into the U.S. Treasury, par-tially compensating taxpayers for the risks the FCS poses to them, while also partially compensating the Treasury for the taxes FCS does not pay.

CoBank Completes Acquisition of U.S. AgBank

On Jan. 1, CoBank completed its acquisition of U.S. AgBank, another of what were fi ve FCS banks that fund FCS associations. Although offi cially called a merger, Denver-based Co-Bank clearly acquired Wichita, Kan.-based U.S. AgBank. Based on Sept. 30, 2011 data, the new CoBank had total assets of $86.7 billion, 43 percent of all FCS bank assets. The second largest bank, St. Paul, Minn.-based AgriBank, had total assets of $71.8 billion on Sept. 30. The other two FCS banks are much smaller: Columbia, S.C.-based AgFirst ($30.3 billion in assets) and Austin, Texas-based Farm Credit Bank of Texas ($13.9 billion in assets). One can reasonably wonder when the two smaller banks will merge or be gobbled up by the two bigger banks.

American AgCredit Even More Disjointed

The other FCS merger effective Jan. 1 was American AgCredit ’s acquisition of FCS of the Mountain Plains. Several 2009 issues of Farm Credit Watch (FCW) expressed con-cern about a very disjointed merger of two FCS associations: Santa Rosa, Calif.-based American AgCredit and Wichita, Kan.-based Farm Credit of the Heartland. The distance from A merican AgCredit ’s headquar-ters to the Heartland territory was about 1,300 miles. Mountain Plains, which served northern and western Colorado and the northwest corner of New Mexico, sits about halfway between the other two American Ag-Credit territories, but with big gaps in between—Utah to the west of the Mountain Plains territory and eastern Colorado and western Kansas to the east of Mountain Plains.

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Although this merger moves Ameri-can AgCredit from eighth to sixth in size among the FCS associations, with about $5.6 billion in assets as of Sept. 30, 2011, the fi ve larger as-sociations have essentially contiguous territories. For example, the largest association, Louisville, Ky.-based FCS of Mid-America, serves all of Indiana and Tennessee and almost all of Ohio and Kentucky. The second-largest as-sociation, Omaha, Neb.-based FCS of America serves all of Iowa, Nebraska, South Dakota, and Wyoming, but nothing else. Only the fourth-largest association, Farm Credit West, is somewhat disjointed, serving two different portions of California plus southern Nevada.

The obvious question at this point: How can a board of directors and management team properly run an agricultural lending business spread across such widely divergent market areas—portions of northern Califor-nia, southern California, Nevada, the mountain plains of western Colorado, and western Kansas? More spe-cifi cally, how much understanding or knowledge can an American AgCredit director farming in western Kansas have about farming conditions in Mesa County, Colorado, or about a grape-growing and winery business in Sonoma County, California? Such geographical disparity and lack of ter-ritorial contiguousness is fraught with danger, for both American AgCredit and for the entire FCS should other disjointed FCS associations emerge through mergers and acquisitions. It will be interesting to see if the Farm Credit Administration (FCA), the FCS’ regulator, permits this type of territorial fragmentation to grow within the FCS.

Report FCS Lending AbusesBankers are continuing to send

FCW reports of FCS lending abuses such as FCS loans for rural estates, weekend getaways, and hunting pre-serves. Email reports of similar lending abuses in your market to

[email protected]. Please pro-vide as much detail as possible about any loan that violates the spirit, if not the law, governing FCS lending.

Farm Credit Watch Free to ABA Members

If your bank belongs to the American Bankers Association (ABA), you can en-joy a free email subscription to FCW or you can read it monthly online at www.aba.com. To receive FCW by email or to manage your subscription, visit

ABA Email Bulletins at www.aba.com/members+only/bulletin.htm and check or uncheck the appropriate boxes. For other inquiries, please contact Barbara McCoy at the ABA at 1-800-BANKERS or [email protected].

To contact Bert Ely, email [email protected]; fax (703) 836-1403; phone (703) 836-4101; or mail PO Box 320700, Alexandria, Va. 22320.

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ATM Sales & ServiceNuSource Financial Inc. ............................................. Page 21

Banker EducationGraduate School of Banking at the University of Wisconsin - Madison .............................Page 17

Bank Technology SolutionsDCI ................................................................................. Page 9NetWorks ..................................................................... Page 25

Business ValuationAcclaro Valuation Advisors .......................................... Page 8

Certified Public AccountantsBKD LLP ...................................................................... Page 16McGladrey ................................................................... Page 19

Correspondent BanksNebraska Bankers’ Bank ............................................ Page 28State Bank & Trust ........................................................ Page 8United Bankers’ Bank ................................................... Page 2

eBusiness & Payment SolutionsComputer Services Inc. ...............................................Page 11

Government LendingUSDA Rural Development .......................................... Page 26

Insurance ProvidersBlue Cross/Blue Shield of Nebraska ......................... Page 23

Interest Rate Risk ManagementThe Baker Group ........................................................... Page 6

Investment ServicesSecurities America ...................................................... Page 27

Law Firms Baird Holm LLP ........................................................... Page 13Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger LLC ....................................................... Page 8Husch Blackwell LLP .................................................... Page 3Koley Jessen ................................................................. Page 5Walentine, O’Toole, McQuillan & Gordon. ................. Page 15Woods & Aitken LLP ................................................... Page 19

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