INDEPENDENT REPORT SEPTEMBER/OCTOBER Building on the past, banking on the future. A PUBLICATION OF INDEPENDENT COMMUNITY BANKERS OF COLORADO IS YOUR BANK READY To Accelerate Payments With the FedNow Service? Santander US CEO Talks Business Strategy, Industry Challenges The Value of Customer Profitability Modeling
Women SUMMIT THURSDAY-FRIDAY OCTOBER 5-6, 2023 Gravity Haus 605 South Park Avenue, Breckenridge Room block open. Scan the QR code to make your reservation. https://gravityhaus.com/locations/book-gravity-haus-breck/#/room INDEPENDENT COMMUNITY BANKERS OF COLORADO presents BANK ON Bank on Women Summit was created to encourage, support and inspire you to maximize your banking career. This event is tailored to educate and enlighten women of ALL professional stages in banking and to make meaningful connections that allow you to support each other. Whether you’re a current bank leader or a rising star, this Summit will inspire you to take action in your professional development and enhance your personal journey. You’ll gain knowledge from other women in leadership roles and discover how they have been able to succeed and rise.
♥ BANKERS’ BANK OF THE WEST BBWEST.COM ▪ 800-873-4722 offices in Denver and Lincoln Member FDIC ▪ Equal Housing Lender WE CHAMPION COMMUNITY BANKING Bank Stock Loans | Loan Participations | Cash Management | ATM/Debit Proud supporter of community banking and the Independent Community Bankers of Colorado since 1980
6732 West Coal Mine Avenue, #640 Littleton, CO 80123 303.832.2000 2022–2023 OFFICERS ICBC Chairman Kyle Heckman President & CEO Flatirons Bank ICBC President Randy Younger President & CEO First National Bank Hugo-Limon ICBC President-Elect Tom Ogaard President & CEO Native American Bank ICBC ICBA State Director Tom Chesney President AMG National Trust Bank ICBC STAFF Mike Van Norstrand Executive Director mvannorstrand@icbcolo.org Maelynn Lewis Administration Director Treasurer mlewis@icbcolo.org Christian Otteson Partner, Otteson Shapiro LLP Legal Counsel Mary Marchun Founding Partner The Capstone Group Lobbyist 2022–2023 DISTRICT DIRECTORS District A Dan Ebert, Vice President, Evergreen National Bank Bruce Hellbaum, President/CEO, RNB State Bank/Front Range State Bank Robert Holt, Senior Vice President, North Valley Bank Jeff Walker, Senior Vice President & CCO, Redstone Bank District B Mark Brase, President, Points West Community Bank Tim Croissant, Market President, Bank of Colorado Travis Goeglein, Senior Vice President, First FarmBank Ed Rarick, President/CFO, High Plains Bank District C Sean Lening, President, GN Bank Tony Perry, President & CEO, Park State Bank and Trust Lora Rose, CFO, The State Bank Andrew Trainor, President, Community Banking, InBank District D Wade Gebhardt, Corporate President, Mountain Valley Bank Mike Hurst, President, Del Norte Bank Joe Martinez, President & CLO, San Luis Valley Federal Bank Jay Rickstrew, Chief Retail Officer, Alpine Bank ICBC ADVISORY BOARD MEMBERS Eric Budreau Partner, Eide Bailly Jim Hall Managing Director, Bond & Specialty Insurance — Financial Institutions, Travelers Bill Mitchell President & CEO, Bankers’ Bank of the West Christian Otteson Partner, Otteson Shapiro I C B C 4 | INDEPENDENT REPORT
CONTENTS 02 Bank On Women Summit 06 Support the ICBC’s Associate Members! 08 Flourish By Rebeca Romero Rainey, President and CEO, Independent Community Bankers of America 10 From the Top By Derek Williams, ICBA Chairman, President and CEO of Century Bank & Trust 12 Santander US CEO Talks Business Strategy, Industry Challenges By Rob Blackwell, Chief Content Officer, IntraFi, ICBC Associate Member 16 Check Volumes Are Down, But Check Fraud Is Up What’s It Costing Your Bank? By Wendi Klein, Vice President, Marketing & Communications, Alogent, ICBC Associate Member 18 Is Your Bank Ready To Accelerate Payments With the FedNow Service? By Greg Aumann, Senior Product Manager for ACH, CSI, ICBC Associate Member 20 Thank You to Our Convention Sponsors 21 Convention Exhibitors 22 The Value of Customer Profitability Modeling By Matt Helsing, SVP & Northwest Regional Manager for PCBB, ICBC Associate Member 25 ICBC Preferred Providers 26 Securing Your Data Advice From an Award‑Winning Cybersecurity Team By BHG Financial 28 Barbell Structure May Be the Right Regimen By Jim Reber, President and CEO, ICBA Securities, ICBC Preferred Provider 32 ICBC’s 24-ATM Surcharge-Free Network! 33 Using IT Governance To Achieve Your Bank’s Business Goals By Mike Gilmore, Chief Compliance Officer, RESULTS Technology 18 22 28 CONNECT Like us on Facebook ICBColo Connect with us ICBColor Follow us on X ICBColo Give us a call 303.832.2000 INDEPENDENT REPORT | 5
SUPPORT THE ICBC’S ASSOCIATE MEMBERS! ACCOUNTING / COMPLIANCE Anderson & Whitney ...........................................................970-352-7990 Crowe, LLP ............................................................................303-831-5023 Eide Bailly, LLP ....................................................................303-770-5700 Fortner, Bayens Levkulich & Garrison, PC .........................303-296-6033 FORVIS, LLP ........................................................................303-861-4545 Moss Adams, LLP ..................................................................503-471-1277 Plante Moran ..................................................................... 303-740-9400 ADVERTISING / EQUIPMENT / PRINTING / SUPPLIES Spry .......................................................................................303-323-4341 CAREER ADVANCEMENT Graduate School of Banking at Colorado ...........................800-272-5138 COMPUTER PRODUCTS / CONSULTING Alogent ................................................................................719-583-8004 CivITas Bank Solutions ........................................................303-291-3700 (A Bankers’ Bank of the West Bancorp Inc. Subsidiary) Computer Services, Inc. .........................................................970-212-7104 Cook Solutions Group ........................................................503-260-8562 Federal Protection, Inc. ......................................................800-299-5400 *SBS CyberSecurity ...................................................785-594-0503 CONSULTING / MARKETING / STRATEGIC PLANNING Bank Strategies, LLC ............................................................303-291-3700 (A Bankers’ Bank of the West Bancorp Inc. Subsidiary) Bell Bank .................................................................................701-371-3355 CD Construction Consulting..................................................720-701-2122 Expert Business Development ..................................................610-771-2121 *ICI Consulting, Inc. .................................................... 316-201-8590 The James Paul Group .........................................................877-584-6468 Kasasa ...................................................................................877-342-2557 Piper Sandler & Co. ..............................................................415-978-5057 *S&P Global .............................................................434-951-6948 CORRESPONDENT BANKING SERVICE *Bankers’ Bank of the West ...........................................303-291-3700 Bell Bank .................................................................................701-371-3355 Citizens Bank Farmington....................................................505-599-0100 INTRUST Bank .....................................................................800-732-5120 PCBB .................................................................................... 888-399-1930 TIB — The Independent BankersBank ................................972-650-6000 DATA PROCESSING / EFT / ATM / CARD PROCESSING / MERCHANT SERVICES *Bankers’ Bank of the West .........................................303-291-3700 BluePoint ATM Solutions, LLC ...........................................540-335-2848 Entrust................................................................................720-279-3287 *FIS ..........................................................................513-900-4661 FPS GOLD .............................................................................801-201-2525 *IBT ...........................................................................512-606-1100 *ICBA Bancard / TCM Bank ......................................800-242-4770 Jack Henry & Associates ......................................................417-235-6652 SHAZAM ...............................................................................515-288-2828 Visa, Inc. ...............................................................................415-238-3682 INSURANCE / BENEFIT SERVICES Bank Compensation Consulting ........................................303-482-1844 First Insurance Services, Inc. ................................................719-456-2303 *ICBA Reinsurance ....................................................888-790-6615 NFP Executive Benefits Company ........................................469-252-1037 *Travelers .................................................................. 720-200-8416 Unitas Financial Services .....................................................800-461-9224 INVESTMENTS / FUNDING AND LENDING PARTNERS B:Side Capital ..................................................................... 303-657-0010 The Baker Group .................................................................405-415-7200 BancAlliance ..........................................................................301-232-5423 BHG Financial .....................................................................954-263-6399 The Citizens Bank ................................................................505-599-0145 Colorado Enterprise Fund...................................................303-860-0242 Colorado Housing and Finance Authority ..........................303-297-7329 Crescent Mortgage .............................................................970-278-9328 D.A. Davidson ....................................................................303-764-6000 FHLBank Topeka — Denver Office ......................................720-212-9873 First Bankers’ Banc Securities, Inc. (FBBS) ...........................720-709-7613 Gill Capital Partners ...........................................................303-296-6260 Holman Capital ...................................................................949-981-0237 *ICBA Mortgage .......................................................800-253-5356 *ICBA Securities .......................................................800-422-6442 IntraFi Network ....................................................................303-706-9265 Northland Securities, Inc. ....................................................303-801-3380 Olsen Palmer, LLC ...............................................................202-803.2620 Performance Trust....................................................................312-521-1224 West Gate Bank Mortgage ..................................................402-434-4116 LAW FIRMS Arnold & Porter ...................................................................303-863-1000 Godfrey Law Group, LLC ...................................................303-802-6336 Hoffman Nies Dave & Meyer, LLP ......................................303-860-7140 Lewis Roca, LLP ..................................................................303-623-9000 Markus Williams Young & Hunsicker, LLC ........................303-830-0800 Moye White, LLP .................................................................303-292-2900 Otteson Shapiro, LLP (IBC Counsel) .................................720-488-0220 Polsinelli ...............................................................................303-572-9300 Spencer Fane, LLP ..............................................................303-839-3838 Spierer Woodard Corbalis Goldberg .................................303-792-3456 Stinson, LLP ........................................................................303-376-8400 LOAN REVIEW SERVICES Eide Bailly, LLP .....................................................................303-770-5700 Fortner, Bayens Levkulich &Garrison, PC ..........................303-296-6033 ICBC LOBBYING AND PUBLIC RELATIONS The Capstone Group (ICBC Lobbyists) ............................ 303-860-0555 *ICBC Preferred Providers 6 | INDEPENDENT REPORT
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FLOURISH By Rebeca Romero Rainey President and CEO, Independent Community Bankers of America As we enter budget season, the adage “You can’t save your way to prosperity” hits home. With regulatory and financial pressures, community banks face tough decisions as they allocate resources for 2024. I was just speaking with a banker who reiterated that it’s been a while since we’ve been in this interest rate environment, and its impacts on the cost of credit and renewals send us down a path of unknowns. So, when we begin budgeting, we have to find a meaningful way to anticipate what lies ahead. But with this uncertainty comes an opportunity to look at solutions with a new perspective. The current economic environment has bank management teams laser-focused on how we grow and create new revenue, all while managing expenses. The reality is that interest expenses will be significantly higher moving into the coming year, so we need to be asking, “What are we doing on the other side of the income statement to grow revenues?” Now’s the time to think outside the box to ensure we continue to grow. Whether it’s stories of banks continuing to increase deposit balances based on trusted relationships in the community or others who are 8 | INDEPENDENT REPORT
SO MUCH OF WHAT WE’VE SEEN IN THE LAST SIX MONTHS IS BANKS DOUBLING DOWN ON WHAT THEY’RE GOOD AT DOING: HELPING THEIR CUSTOMERS AND COMMUNITIES IN WAYS THAT NOBODY ELSE CAN. introducing different types of deposit products or identifying continued loan growth despite economic challenges. So much of what we’ve seen in the last six months is banks doubling down on what they’re good at doing: helping their customers and communities in ways that nobody else can. Community banks are building on their triedand-true relationship-based business models, exploring opportunities for new sources of revenue generation, whether of payment products, specialty or niche areas of finance, or seeking other solutions that speak to individual customer bases. So much of what we do in budget season is “put your head down, plug in the numbers and proceed forward.” But pulling out of the weeds allows us to see how we can take advantage of this time and think creatively about how we’re innovating for the future of our organizations. And we’re not in it alone; we have a network of community banks on which we can rely. In fact, ICBA has just launched ICBA Community (community.icba.org), a digital platform to help community bankers network and share information. I encourage you to use it to get insights into creative ways your peers are managing this budget cycle. Because as community bankers, we have the benefit of learning from one another. Let’s leverage that connection to identify strategies to prosper, even as we’re faced with challenges. We are stronger together than we are individually, and that will serve us well as we prepare for what’s next. Anne Benigsen President SOCIAL ENGINEERING NETWORK MONITORING BY COMMUNITY BANKERS FOR COMMUNITY BANKS www.acivitas.com VULNERABILITY SCANS PENETRATION TESTING Chris Tuzeneu VP – Information Security INDEPENDENT REPORT | 9
FROM THE TOP By Derek Williams ICBA Chairman, President and CEO of Century Bank & Trust When it comes to the community bank relationship banking model, the relationship we describe is as much about our connection with our employees as it is with our customers. Without committed, happy and engaged staff, we have little chance of meeting the needs of our customers, stockholders and communities. So, as we enter another budget cycle, in a tight economic environment, we still need to place compensation and benefits near the top of our priority list. But it can’t be an exercise of placing a lump sum in a salary line and leaving it at that. Just as we structure individualized opportunities for our customers based on their needs, so too do we need to take the time to understand what our employees seek and what will keep them deeply engaged with our banks. It’s hard to define, but sometimes it’s more about the feeling than the facts. For example, some employees prioritize knowledge, and offering them more training dollars and time to take courses shows them that you are willing to invest in their growth. Some CONNECT WITH DEREK ON X @DEREKBWILLIAMS 10 | INDEPENDENT REPORT
Reliable expertise. We have extensive experience and technical expertise in the financial institutions industry. Our professionals are prepared to help you address any challenge and leverage every opportunity. Ryan Abdoo, partner ryan.abdoo@plantemoran.com Scott Petree, partner scott.petree@plantemoran.com plantemoran.com A BANK THAT DEMONSTRATES IT TRULY UNDERSTANDS AND CARES ABOUT INDIVIDUAL NEEDS WILL CREATE A MEANINGFUL RELATIONSHIP WITH THAT EMPLOYEE AND STRENGTHEN RETENTION IN THE PROCESS. QUOTE OF THE MONTH “Don’t tell people how to do things; tell them what to do and let them surprise you with their results.” — George S. Patton, General in the U.S. Army want to see advancement opportunities early on, so developing and helping them fulfill a career path speaks to their needs. Others seek support from the bank so they can tend to their families — aging parents, young children and more — and providing flexible work schedules makes all the difference. A bank that demonstrates it truly understands and cares about individual needs will create a meaningful relationship with that employee and strengthen retention in the process. Of course, there is the reality of compensation. Our employees care about making a difference and took jobs with us because they see the impact we have in the community. But if they can’t meet their financial needs, they will seek higher-paying options. That reality has to be reflected in our budget. In fact, my bank recently undertook compensation studies to determine where we needed to make marketlevel increases. It’s something we all need to do consistently to be sure we are being fair to the key people we want to keep. Yet, the deciding factor in someone’s decision to join or remain a part of our banks comes down to whether they truly feel a part of it. So, continue to extend that relationship banking approach to your employees. Connect with them and make them a part of your bank family. Provide them with the same individualized attention you give to your customers. Those actions speak volumes, and when it comes to compensation, they are worth their weight in gold. INDEPENDENT REPORT | 11
Santander US CEO Talks Business Strategy, Industry Challenges By Rob Blackwell Chief Content Officer, IntraFi, ICBC Associate Member Regional banks have come under major stress in recent months, and while the situation appears to have stabilized, they face challenges ahead. That includes grappling with rising interest rates, attracting and keeping deposits amid tough competition from money market mutual funds and a potential recession. To gain a better sense of how regionals are navigating the current environment, I recently spoke with Tim Wennes, CEO of Santander US, for an episode of Banking with Interest. We discussed deposit competition, whether federal regulators will raise capital requirements, the bank’s approach to auto lending, how to target Gen Z customers and much more. What follows is our conversation, edited for length and clarity. 12 | INDEPENDENT REPORT
The past few months have been challenging for banks between $50 billion and $250 billion in assets. Santander US is in that category. What has been your experience? We’ve navigated the challenges quite well. As a wholly owned subsidiary of a global systemically important bank, our capital and liquidity requirements are similar to those of large global U.S. banks, so we’re in a strong position. Also, our deposits have been relatively stable, as nearly two-thirds are FDIC-insured, and we have a very diversified deposit base. That’s important because deposits are going to contract under quantitative tightening. This already started happening last year. Deposits are even more competitive today than they were pre-March, which means liquidity will become increasingly important. That’s going to constrain loan growth — not just for regional banks, but for all banks. What’s the best way to compete for deposits? Relationships are important. So are services. For banks, having operating balances with companies can create stability and security. The cumulative impact of Fed moves over the last 14 months has created meaningful opportunities in cash alternatives. Also, with the digitalization of banking, online offerings have become far more prevalent, making it easy to move money and take advantage of rates. Hence why depositors can get FDICinsured CDs at 4% or more for the first time in 15 years. Do you think the turmoil in banking is over? What we are seeing is relative stability in the marketplace. While the events of March were idiosyncratic to specific institutions and their business models, we expect greater pressure on margins and higher funding costs going forward. We saw some NIM expansion last year, and that’s starting to flip. We’ll also need to keep our eye on commercial real estate and office exposure, as there are clearly challenges in that segment. Do you think federal regulators will raise capital requirements? Many experts are reviewing and opining on what may come out and the impacts. From our perspective, we would urge policymakers to be thoughtful about any policy response and look at what tools were available that could have been more helpful in preventing this. Blanket approaches of more capital or liquidity requirements will impact the industry’s ability to lend and increase the cost of capital, among other implications. We all want the industry to be safe and sound. Banking is about trust and confidence. At the same time, our job is to facilitate commerce, help companies grow and provide capital to the markets. You’re saying there’s a balance. Indeed. A bank can only grow its loan book to the extent it’s growing its deposit book. If deposits shrink (to be expected with quantitative tightening), there’s not going to be rapid loan growth. In fact, bank balance sheets may contract. That’s going to slow the economy and help the Fed tame inflation. You told American Banker in April that Santander US was becoming a “full-spectrum auto lender that goes beyond subprime lending and includes prime and super-prime borrowers.” What’s behind that shift in strategy? Historically, we did a lot of business with super prime, mainly on new cars, and we did lower-credit lending primarily on used cars. Santander Consumer, our auto business, used to be a separate, publicly traded legal entity. Last year, we took it in house and became a 100% owner. Now, we’re leveraging our bank deposits to help fund some of those loans. This allows IN THE UNITED STATES, OUR OPTIMISM, RESILIENCE, AND ADAPTABILITY ARE OUR GREATEST STRENGTHS. INDEPENDENT REPORT | 13
us to be more competitive across a broader range of FICO scores, including in used-prime and other near-prime segments. You published results from a survey in March that found roughly three-quarters of middleincome Americans believe a car is key to job opportunities and job security, and that twothirds would sacrifice other budgetary items to access and maintain a vehicle. What does this tell you? Employment status, and the unemployment rate, are key drivers of payment behavior. Over 70% of our customers for auto loans are middle-income. We want to understand how they’re thinking in this unique environment, where there’s high inflation but strong employment. Our mission and vision are focused on helping consumers and businesses prosper, and how consumers are thinking about the future is important for us as we develop products and services for them. The survey also found that 69% of respondents are worried about a recession. Are you preparing for that possible outcome? We’re preparing for more difficult economic conditions in the future, whether that means an actual recession or not. Economists have been predicting a recession in three to six months for over a year, but the economy has been resilient. We’re optimistic, but we’re also being thoughtful about where and how we’re deploying our capital while ensuring we’re comfortable from a liquidity standpoint. Sixty-three percent of Gen Z expects financial prosperity in five years, according to your survey results. What does that mean to you? It’s great to see that statistic, especially so soon after the pandemic, during which the Gen Z population was really negatively impacted. In the United States, our optimism, resilience and adaptability are our greatest strengths. Do you worry Gen Z customers will go to fintechs, Apple or Big Tech — or whichever shiny nickel of the moment — instead of banks? I think about that every day. Technology is rapidly changing customer preferences and behaviors. Gen Z consumers who grew up with technology expect banking to be similar to shopping on Amazon or an experience on Instagram, and the banking industry will need to deliver on that. How do you target the younger market? We want to try and get them early. At the same time, with financial services, people’s needs change, and their financial position gets more complex over time. We need to understand our value proposition, how we connect with that marketplace and how we add value. From a deposit standpoint or a credit card standpoint, getting in early is important. But in the auto business, when somebody needs a car, they’re going to look for a loan that may or may not come from where they typically do business. Same with a mortgage. Technology has made it possible for people to choose where to shop for the products that make the most sense for them. Has the electric-car revolution impacted your auto-lending business? We are doing lending on EVs. The question, more so than EVs, is whether ride-sharing, car-sharing or a subscription type of ownership will evolve. We do a lot of business with Uber and Lyft drivers in the ride-share environment. We also do lending for commercial and fleet. So we are being vigilant and prepared as the industry evolves. The dealer experience is really important and continues to evolve, too. Through the digitalization of that experience, we can improve outcomes for dealers and customers. We’ve partnered with a firm called AutoFi to set up a portal where a customer can apply for a loan, we can get them credit approval and the dealer can tell them which cars they’re qualified for and what their monthly payments would be. 14 | INDEPENDENT REPORT
To listen to the full conversation, scan the QR code or visit https://bankingwithinterest.libsyn.com/ santander-us-ceo-wennes-on-regionalbanks-capital-regs-and-reaching-gen-z. What are the main challenges with commercial real estate? I think it’s important to break down commercial real estate into segments and not think about it all as one bucket. There’s multi-family, industrial, retail, office and so on. Segments like multifamily and industrial are really strong. The main challenges are around office, given the rapid rise in interest rates and post-pandemic work environment. Many companies are going to need less space over time. Why did Santander Bank recently exit the mortgage business? We want to focus on businesses where we have scale and are globally connected with Santander Group, our parent company. Mortgage didn’t fit that, and heading into a cycle of rate increases, we knew the business would get more competitive. When we started thinking about investments, we couldn’t see earnings above the cost of capital and decided it was better to exit. We can still provide mortgages to our customers, but we do it through a partner instead of owning the process ourselves. That’s the Fintexpert® Way. What’s a Fintexpert? Tech you need. Agility you want. Service you deserve. LEARN MORE AT CSIWEB.COM/FINTEXPERT Visit us at the ICBC Golden Julibee Annual Convention INDEPENDENT REPORT | 15
CHECK VOLUMES ARE DOWN, BUT CHECK FRAUD IS UP What’s It Costing Your Bank? By Wendi Klein Vice President, Marketing & Communications Alogent, ICBC Associate Member Thompson Reuters reports that U.S.- based financial institutions have seen “soaring volumes of suspicious financial activity” over the past three years. Their “Suspicious Activity Reports 2023” sites market disruptions due to COVID-19, technological shifts and growing vulnerable populations as key drivers for the spike. And, of all suspicious activity reports (SARs), check fraud was ranked the second largest SAR category last year, nearly doubling its 2021 figure. With recent emphasis on cyber security and digital payments, criminals are now exploiting gaps within deposit channels, as well as the postal system — reviving an old scheme called “mail fishing” or “mail theft.” This check fraud scheme involves stealing personal, business and other types of paper checks from mail carriers. With increased attempts during the pandemic when criminals targeted government relief checks, mail fishing has continued with such momentum that financial institutions have since warned account holders to avoid mailing checks altogether, or to use secure methods of sending/receiving. No financial institution — large or small — is protected from transaction or check fraud. In fact, there are as many as 1,875 fraud attempts a month in the U.S. alone. Although activity continues to rise, advanced technology has helped to block a significant number of attempts — however, just one successful attack by a fraudster can cost a bank or credit union thousands, if not millions, of dollars in losses and recovery — not to mention its reputation and potential account holder attrition. With check volumes trending down and fraudulent attempts trending up, is the deposit channel still an area of opportunity for your institution’s future? Over the last several years, account holders have traded checks for digital payments and branch visits for remote channels. However, for those still electing to write checks, their value has increased, and they prefer to visit the branch to make a deposit. On the commercial side, businesses — both large and small — have moved away from checks for transactions like payroll, yet opt to use them for invoices. Checks, as compared to credit cards and other digital payments, remain the only mechanism where the payee’s name and address are both available and volunteered, providing better control over liquidity and serving as a written record of the transaction or remittance. 16 | INDEPENDENT REPORT
Simply said, checks aren’t going away, so it’s time to start taking action at your financial institution. Coupled with increasing attempts, the cost of fraud continues to also grow. LexisNexis reports the value of fraud is now upwards of 10% more than pre-pandemic levels. In addition to the transaction itself are its hidden costs, like labor, investigations and legal and recovery expenses — causing even greater losses for institutions. Every $1 lost to fraud can cost as much as $4.23, compared to $3.64 in 2020 — an increase of more than 16%. With costs like these, it’s no surprise that the banking industry continues to adopt new techniques, many of which rely on AI and machine learning-based capabilities to keep fraud at bay across all points of presentment — including at self-service locations and devices used outside the branch. In addition to staying ahead of new techniques by fraudsters, banks must also assess a potential increase in vulnerabilities linked to consumer behavior and new devices entering the banking ecosystem. The difficult reality for institutions is that fraud can occur at any step in the user journey and from any device or workflow, making it nearly impossible to pinpoint a one-size-fits-all solution to a growing problem. Addressing the risk is even more complicated, as banks must balance the total cost of fraud losses with security and protection solutions, all without sacrificing the user experience. In the end, a holistic, multi-faceted approach that combines best practices and cutting-edge technologies can help protect both your institution and account holders. Contact us today for a one-on-one discovery call at https://bit.ly/43XGus7. With more than 25 years in the deposits and payments industry, Alogent’s team of experts will share the latest in fraud techniques and how modern check processing solutions tackle both image processing and overhead costs — leaving your institution positioned for success with an agile, scalable approach. Scan the QR code to learn more about “The Truth Behind the Numbers: Transaction Fraud. How Much is it Costing your Financial Institution and What You Can Do”. https://bit.ly/43WJSDe Contact us today to place your announcement ad Call 801-676-9722 Or scan the qr code to fill out the form. Who to congratulate , who to acknowledge , and who to thank for a job well done. Employees are motivated when they are recognized and feel valued. The Independent Report magazine is a great platform to celebrate your team's accomplishments! INDEPENDENT REPORT | 17
IS YOUR BANK READY TO ACCELERATE PAYMENTS WITH THE FEDNOW SERVICE? By Greg Aumann Senior Product Manager for ACH, CSI ICBC Associate Member The Federal Reserve’s FedNow® Service, which launched July 20, 2023, promises to revolutionize money movement by enabling more banks to process instant payments and provide unparalleled convenience to consumers and businesses alike. Unlike traditional payment methods that can take hours or even days to complete, real-time payments process within seconds and allow payment recipients to access funds right away. This article explores the benefits of FedNow instant payments and the steps banks can take to participate. BENEFITS OF THE FEDNOW INSTANT PAYMENTS The FedNow Service is an instant payment network, designed to allow individuals and businesses to send and receive payments in real time, 24/7. FedNow introduces an alternative to existing payment systems. The resulting competition will encourage technological advancements, lower transaction costs and foster a more robust and modern payment ecosystem. The primary benefit of the FedNow Service is the ability to process payments instantly, which enables financial institutions to stay competitive in a rapidly evolving market. With the reliance on digital banking, consumers expect their transactions to be quick and seamless. By offering instant payments, banks can attract and retain customers who prioritize convenience and speed. With the FedNow Service, financial institutions can also eliminate the need for costly intermediaries and streamline their payment processes. 18 | INDEPENDENT REPORT
Gain additional insight into bankers’ thoughts on real-time payments and where they ranked on their list of priorities by scanning the QR code to read CSI’s 2023 Banking Priorities Executive Report. https://csi.foleon.com/bp-2023-doc/bp23/ By processing payments in real time, banks can minimize the need to hold onto funds for extended periods, resulting in lower operating costs and improved liquidity. In addition, to mitigate the risk of fraud and errors that are often tied to traditional payment processing methods, the FedNow Service integrates robust security measures. Real-time payment monitoring and validation systems allow for instant detection of suspicious activities, facilitating immediate action to prevent and rectify instances of fraud. PREPARING TO PARTICIPATE IN THE FEDNOW SERVICE As the FedNow Service continues to gain traction and expand its reach, financial institutions should embrace this transformational technology to stay ahead in the market. The era of instant payments has arrived, bringing numerous opportunities for institutions to enhance their services, drive innovation and deliver exceptional value to their customers. Here are a few ways banks can prepare to participate in the national instant payment network from the Federal Reserve: • Upgrade Technological Infrastructure To leverage the benefits of the FedNow Service, banks must ensure they have the necessary technological infrastructure in place. This includes upgrading existing payment systems to handle real-time processing and integrating with the FedNow network. To that end, banks should assess their current infrastructure, identify any gaps and work toward enhancing their capabilities. • Provide Customer Education Introducing FedNow Instant Payments to customers will require proactive education and communication efforts. Banks should familiarize customers with the new system’s benefits and functionality. Education and communication will build trust and encourage adoption, so it should be provided through various channels, including websites and digital banking platforms. • Explore Collaboration and Partnership Opportunities The successful implementation of the FedNow Service will require collaboration among banks, payment processors and technology providers. Banks should partner with financial technology providers specializing in real-time payments, leveraging their expertise and infrastructure. Collaborative efforts will accelerate the integration process and provide customers with seamless experiences. HOW FINANCIAL TECHNOLOGY PARTNERS CAN HELP PREPARE BANKS FOR THE FEDNOW SERVICE In the fast-paced world of financial technology, banks often rely on partnerships to enhance their capabilities and stay ahead of industry developments. Regarding the FedNow Service, banks can significantly benefit from the support and expertise of their core banking technology partners. Banks should work with their core banking partner to ensure seamless integration of their existing systems with the FedNow network. This involves developing and implementing necessary APIs to facilitate real-time payment processing. By collaborating on technical integration, financial technology partners can help institutions minimize disruptions and streamline the adoption of the FedNow instant payments. Technology partners should also collaborate with banks to enhance the user experience for their customers using FedNow Instant Payments, including developing intuitive and user-friendly interfaces and payment platforms that enable customers to send and receive real-time payments seamlessly. Technology partners should stay at the forefront of technological advancements and market trends to offer innovative solutions that help banks leverage the full potential of the FedNow Service. THE NEW ERA OF INSTANT PAYMENTS The FedNow Service’s real-time capabilities empower banks to provide their customers with faster, more efficient services while driving economic growth and innovation. By preparing their technological infrastructure, focusing on security and compliance, educating customers and fostering collaborations, banks can ensure a smooth transition to the new era of instant payments, meet the growing consumer demand and encourage competition and innovation in the payment industry. Greg Aumann is a Sr. Product Manager for ACH, Wire and FedNow. He is responsible for ensuring the applications remain competitive and compliant in today’s rapidly evolving payments landscape. Greg also holds accreditations as an AAP — Accredited ACH Professional and CTP — Certified Treasury Professional. In addition, Greg is an active participant in payment industry work groups working to help advise the industry on the future of payments. Greg is also a member of EPCOR’s Education Committee, working to help provide guidance, direction and support for EPCOR’s Payments Education offerings. INDEPENDENT REPORT | 19
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CONVENTION EXHIBITORS (as of Aug. 9, 2023) Alogent B:Side Capital The Baker Group Bank Compensation Consulting Bankers’ Bank of the West BluePoint ATM Solutions CivITas Bank Solutions Colorado Housing & Finance Authority Crescent Mortgage Company CSI Eide Bailly Entrust Federal Protection, Inc. Federal Reserve Financial Services FHLBank Topeka FPS GOLD Gill Capital Partners Graduate School of Banking at Colorado Haas & Wilkerson Insurance Hello Bello / First Southwest Bank Holman Capital ICBA / ICBA Services Network ICI Consulting IntraFi Kasasa Moss Adams LLP Plante Moran SHAZAM Spry Travelers Unitas Financial Services West Gate Bank Correspondent Mortgage Services INDEPENDENT REPORT | 21
THE VALUE OF CUSTOMER PROFITABILITY MODELING By Matt Helsing SVP & Northwest Regional Manager for PCBB, ICBC Associate Member As community banks struggle to compete with the industry’s largest banks, as well as an ever-increasing number of fintechs and nontraditional lenders, offering attractive deposit pricing is key. At the end of 2022, banks were competing for $18T in deposits, according to the Federal Reserve Bank of New York. While there have been multiple rate hikes by the Federal Reserve, with July’s rate hike bringing rates to a 22Y high, deposit rates among banks have been slower to increase, although that is changing. In Q4 2022, the average Fed funds rate had climbed to 3.7%, compared with interest-bearing deposit rates of only 1.4%. As of July 17, the FDIC shows deposit rates have increased significantly in 2023. The last few years led to a widespread decrease in both deposit balances and non-deposit borrowing. Customers have also been more cognizant of where they’re putting their money. “Higher interest rates, as well as the banking crisis in March, led to an awakening of customers’ realizations of higher-yielding alternatives for deposits that may have been parked in noninterest bearing or low-yielding transaction accounts,” noted a recent bank deposit commentary from Morningstar. BANKS SHOULD EMPLOY PROFITABILITY MODELS TO HELP IDENTIFY WHEN AND WHERE HIGHER DEPOSIT PRICING CAN REALLY PAY OFF FOR THEIR INSTITUTIONS. 22 | INDEPENDENT REPORT
The tides are slowly beginning to turn back toward profitability, however, and maintaining that momentum is key. As banks seek to hold onto existing customers and attract new ones by inching up deposit rates, it is important to do so strategically. THE STAKES Failing to offer competitive deposit rates could further erode existing deposit bases as customers seeking higher rates route their money to other institutions. On the other hand, banks engaging in deposit rate increases need to be careful with their approach. Many of the industry’s largest banks have been offering higher rates solely to new customers and even limiting the geographic region that new account holders must reside in. This “new money only” approach can increase the risk that existing customers will feel slighted and may spur them to move their business elsewhere. Another way that banks have dealt with deposit rate competition is by taking a passive approach, hoping that the number of customers who depart in search of higher rates is minimal. In some cases, banks wait to offer higher rates to customers in search of greener pastures only when those clients make noise about switching banks. While it would be troublesome enough for banks if it were only the largest depositors who are motivated enough to switch banks, smaller depositors are equally focused on deposit rates. FLIPPING THE NARRATIVE As the saying goes, information is power. Establishing optimal deposit pricing requires not only knowing what deposit rates your peers are offering but having a firm grasp on how rate increases will impact your overall customer relationship profitability. Simply increasing deposit rates to match those of competitors is a risky move that can result in a compressed net interest margin (NIM) as deposits become more expensive, and holding onto existing customers INDEPENDENT REPORT | 23
may not necessarily require blanket rate hikes across the board. To determine when and where higher deposit rates make sense, community banks should employ profitability models that spell out exactly how various rate hikes could impact the profitability of specific customer relationships — both existing and new customers — and identify what the potential individual account losses would mean for their bottom line. Full customer profitability platforms allow banks to analyze and determine the value of both their comprehensive customer portfolios and their individual customer relationships. Such analysis can pinpoint which customer accounts are most profitable, how and where profits could potentially be improved and when, and whether the cost of higher deposit rates or exception pricing outweighs the loss of a customer’s accounts. Modeling even allows banks to project the entire lifetime value of individual customer relationships. Without modeling and a customer profitability analysis tool that can provide comprehensive customer base insight, it can be extremely difficult to determine which customer relationships truly warrant exception pricing. As always, fair and reasonable deposit pricing practices need to be considered when making pricing decisions. Holding on to existing customer deposits and attracting new ones requires competitive deposit rates, but increasing overall deposit rates is not always the best approach. Banks should employ profitability models to help identify when and where higher deposit pricing can really pay off for their institutions. Making such decisions without comprehensive information could potentially prove harmful to a bank’s profitability. To continue this discussion or for more information, please contact Matt Helsing at mhelsing@pcbb.com or visit www.pcbb.com. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management, international services, lending solutions, and risk management advisory services. Recognized by American Banker as one of the “Best Banks to Work For” in 2022. 24 | INDEPENDENT REPORT
ICBC PREFERRED PROVIDERS ICBC Preferred Providers are selected by bankers just like you, so give them special consideration when considering their proposals for your bank! To learn more about ICBC’s Preferred Providers contact the ICBC at 303.832.2000. Please note: ICBC endorses the listed companies but not all products offered by the company. Contact: Scott Wintenburg | swintenburg@bbwest.com | (303) 291-3700 or (800) 601-8630 Merchant services from Bankers’ Bank of the West help you grow customer relationships with mobile payments technology, competitive unbundled pricing, efficient approvals and startups, responsive support and training. Contact: Mara Spears | mara.spears@fisglobal.com | (813) 205-9488 Turn your card program into a growth opportunity. With 40 years in payments and card processing, we can quickly relieve you of the regulation and compliance burden. In the end, working with FIS is a low risk, high return proposition because of our payments expertise and proven results. FIS drives the ICBC’s 24 location ATM surcharge-free network. Contact: Phil Layher | phil.layher@ibtapps.com | (512) 616-1188 IBT Apps® is an empowering core partner to community banks nationwide, offering end-to-end core and digital banking solutions that meet today’s customer demands. Their adaptable i2Suite banking system enables your bank to streamline operations, control costs and mitigate risks. Transform your bank with the power of one total solution. Contact: icba.org/solutions | (866) 843-4222 The ICBC supports and recommends the following products and services supplied by our national association, the ICBA: ICBA Bankcard and TCM Bank, N.A.; ICBA Compliance & Risk Management; ICBA Mortgage; ICBA Reinsurance; and ICBA Securities. Contact: Mike Hatch | mike.hatch@ici-consulting.com | (316) 201-8590 Since 1994, ICI Consulting has helped banks and credit unions to assess, cost justify, evaluate, and convert core processing, digital banking, EFT, lending, document imaging, CRM and branch solutions. Contact: Robb Nielsen | robb.nielsen@sbscyber.com | (605) 251-7375 SBS is your cybersecurity partner. Our offerings include: TRACTM – Cybersecurity risk management software; Cyber-RISKTM – Automated FFIEC cybersecurity risk assessment software; IT and Network Security Audits; Consulting Services; Full Service Vendor Management; Role-Based Certifications; Vulnerability Assessments; Penetration Testing and More! Contact: Joe Valdez | joseph.valdez@spglobal.com | (213) 549-2281 S&P Global combines exclusive analysis and in-depth data in real time for the banking, financial services and insurance industries. From bank branch data and government assistance programs to executive compensation and league tables, S&P is the final word in business intelligence on financial institutions. Contact: Brandon Tate | btate2@travelers.com | (720) 200-8465 Offering a wide range of customized insurance protection, Travelers SelectOne+® for financial institutions is designed to respond to the most recent trends in banking. INDEPENDENT REPORT | 25
SECURING YOUR DATA Advice From an Award‑Winning Cybersecurity Team By BHG Financial Technology continues to insinuate itself into almost every facet of our daily lives, whether it is personal or work-related. As a result, protecting data privacy has become increasingly more relevant to every consumer and business. In 2022, 422 million people were affected by data breaches at U.S. companies with an average of 4.8 breaches per day.1 Stolen data included bank account numbers, medical histories, Social Security numbers and more. Personal data is continuously being collected, shared or sold, so it is crucial that everyone understands how to protect it. In today’s world, it is incumbent upon companies to ensure they have the information security protocols in place to protect customer data and electronic assets from the growing global threat of hackers. This requires a keen focus on increasing the adoption of new technological innovations and following industry best practices in the evolving world of cybersecurity. Companies with an established history of successfully safeguarding electronic data often share similar characteristics, such as: • A significant investment in people and technological resources • Executive leadership that has demonstrated its mission to make information security and data privacy top priorities • Next-generation firewall and encryption technology to protect internet connections and Wi‑Fi networks • Best-in-class security software installed and updated automatically • Industry certifications and acknowledgments that appropriate security controls are in place to protect the confidentiality, integrity and availability of all data assets BHG Financial is a noteworthy financial services provider, boasting a team of seasoned cybersecurity professionals who have been recognized for their outstanding contributions to the industry. In this article, we will be sharing insights from BHG Financial's cybersecurity experts on simple yet critical tasks that businesses should not overlook. 26 | INDEPENDENT REPORT
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