INDEPENDENT REPORT JULY/AUGUST Building on the past, banking on the future. A PUBLICATION OF INDEPENDENT COMMUNITY BANKERS OF COLORADO THE MYTH, LURE AND REALITY OF AI BACK-OFFICE AUTOMATION Adapt Today for Tomorrow’s Successes THE POWER OF COACHING How Employee Development Benefits the Bank
2 23 GOLDEN JUBILEE Convention GOVERNOR MICHELLE BOWMAN REBECA ROMERO RAINEY CHRISTIAN OTTESON JOSH DAVIES KEYNOTE SPEAKERS SEPT. 20-22, 2023 The Hythe, 715 West Lionshead Circle, Vail www.icbcolo.org #ICBCGolden
♥ 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 2023 Golden Jubilee Convention 06 Support the ICBC’s Associate Members! 08 ICBC Capital Summit By Michael Van Norstrand, Executive Director, Independent Community Bankers of Colorado 10 Flourish By Rebeca Romero Rainey, President and CEO, Independent Community Bankers of America 12 2023 Conference Calendar 13 From the Top By Derek Williams, ICBA Chairman, President and CEO of Century Bank & Trust 14 Adopting a Holistic FRAML Approach To Fight Financial Crime By Ankur Shah, Strategic Product Manager, CSI, ICBC Associate Member 17 Back-Office Automation Adapt Today for Tomorrow’s Successes By Jason Schwabline, Chief Strategy Officer, Alogent, ICBC Associate Member 19 Welcome Alamosa State Bank ICBC’s Newest Member 20 Is It Time to Hedge Interest Rate Risk With a Forward Rate Lock? By Matt Helsing, SVP & Northwest Regional Manager, PCBB, ICBC Associate Member 22 In Memoriam Leslie “Les” Mergelman 23 ICBC Preferred Providers 24 The Power of Coaching How Employee Development Benefits the Bank By Connie West, Gallup Certified Strengths Coach, Regional Vice President, The James Paul Group, ICBC Associate Member 25 The Myth, Lure and Reality of AI By Charles E. Potts, Executive Vice President and Chief Innovation Officer, ICBA 26 General Counsel Strategies for Community Banks By Cheryl Winokur Munk , ICBA 29 Value Added High Baseline Yields Accompany Surprisingly Wide Spreads By Jim Reber, President and CEO, ICBA Securities, ICBC Preferred Provider 30 Consumer Bankers Association’s Lindsey Johnson on the Causes and Aftermath of Recent Bank Failures By Rob Blackwell, Chief Content Officer, IntraFi, ICBC Associate Member 33 ICBC’s 24-ATM Surcharge-Free Network! 34 SBA 504 Loan Refinance Program An Empowering Tool for Small Businesses Amid Rising Interest Rates and Economic Uncertainty By Chris Meyers, Chief Executive Officer, B:Side Capital, ICBC Associate Member 24 17 30 CONNECT Like us on Facebook ICBColo Connect with us ICBColor Follow us on Twitter 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 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 *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
Deploy real-time insights and analytics to drive branchnetwork optimization. Problem: Growth in the balance sheet is crucial to our bank’s success. As a result, we’re always evaluating expansion into new markets, but wantto avoid over-extension and wasted marketing expenses. If we increase loans, we also need to balance our deposit portfolio to remain profitable.How do we find markets where such stable growth is possible? Solution: S&P Global’s Branch Network Optimization solutions U.S. Bank Branch Data help you identify your best opportunities for revenue growth.Understand the demographics surrounding your current or prospective branch network through our radial or drive-time analysis tools with the ability to upload current customer data into our Maps application.Leverage Claritas FClout financial product demand data across 100+ different products and channel preferences to improve marketing effectiveness and meet branch growth goals. spglobal.com/ICBC-Branch-Data
ICBC CAPITAL SUMMIT Again, this past May, a contingent of ICBC bankers traveled to Washington, D.C. to participate in the Independent Community Bankers of America’s Capital Summit. The purpose of the summit is for state community bank associations and their members to meet with their U.S. Congressional delegation and regulatory agencies, and to discuss and advocate for current issues that are particularly relevant and important to community banking. Our group met with each of our 10 elected federal officials and/or key members of their staff that handle banking matters for them. We delivered materials to reinforce the lawmakers’ familiarity with ICBC, its members, its mission and the topical matters that impact us and our communities. This year, those included: • Differentiating community banks and urging restraint from taking any legislative or special assessment recourse against By Michael Van Norstrand Executive Director Independent Community Bankers of Colorado THESE FACE-TO-FACE MEETINGS, WHERE ACTUAL BANKER CONSTITUENTS SHARE PERSONAL STORIES AND EXPERIENCES, ARE ALWAYS POWERFUL AND EFFECTIVE. community banks in the wake of the recent regional bank closures. • Support for S. 1159/H.R. 1006 to real the CFPB’s Section 1071 Rule • Support for Congressional Oversight of Digital Assets and Opposition to a central bank digital currency • Support for ACRE Act (H.R. 3139) and a Farm Bill that strengthens rural communities • Support for Congressional Hearings to review the current state of credit union and Farm Credit System regulations • Support in closing the ILC loophole to keep the separation of commerce and banking • Support for the Safe Bank Act (S. 1323) • Oppose the Credit Card Competition Act 8 | INDEPENDENT REPORT
It's about partnerships. coloradoenterprisefund.org CEF helps with the small business loan. Bank maintains the banking and merchant relationship. Refer to CEF any small business loans that fall outside bank guidelines. There were also regulatory panel breakout sessions where attendees posed questions to representatives from the FDIC, OCC and Federal Reserve, as well as general sessions with Secretary of the U.S. Treasury Janet Yellen, Consumer Financial Protection Bureau Director Rohit Chopra, and former Chair of the FDIC and former President and Chief Executive of the Federal Reserve Bank of Kansas City Sheila Bair. There was a positive and encouraging reception to our community bank messaging and position requests. These face-to-face meetings, where actual banker constituents share personal stories and experiences, are always powerful and effective. And certainly, these meetings are key to establishing and maintaining channels for future communication with lawmakers on community banking issues. n INDEPENDENT REPORT | 9
FLOURISH By Rebeca Romero Rainey President and CEO, Independent Community Bankers of America We celebrated Independence Day, and I couldn’t help but reflect on the vital role community banks serve throughout this country. We represent Main Street America, creating a firm financial foundation for our nation’s consumers, small businesses, municipalities, local governments and more. It’s a position community banks take seriously, and one we are honored to hold on behalf of the communities we serve. When we think about the current economic environment, without a doubt, we can say that we’ve weathered this storm before. That’s what makes us unique: we are there for our customers regardless of the economic situation. Megabanks and credit unions nationwide are cutting back on balance sheet areas to tighten their bottom lines, while community banks stand ready to support local businesses and neighbors who are feeling the heightened effects of the ebbs and flows of the economy. Just look at how community banks responded to the global pandemic: by introducing tools and solutions to support small businesses in the Paycheck Protection Program (PPP). Or consider the consistent, forward-looking care community banks apply to their unique community base. From seasonal businesses and service-based and manufacturing organizations to a wide array of other models, community banks tailor their offerings to the needs of individual customers. That’s because community banks don’t just look to today’s returns; they commit for the long haul as a true partner, helping customers withstand market turbulence and come out successfully on the other side. It’s precisely in an environment like the one we have today that community banks flourish because they double down on relationship banking. That connection-based approach to finance becomes even more important in difficult economic times, because, above all, a community bank’s goal is to make a difference in the financial lives of those they serve. So, as you read this month’s issue, notice that our top lenders share one key attribute: a commitment to the customer relationship. They are helping their customers prepare for a wide variety of economic scenarios in ways that are best suited to that business or person. It’s about helping their customers make the right decisions for their financial lives and supporting them as they go. I’m proud to say that for nearly 250 years, community banks have served at the center of our nation’s finances. That’s because, to put a spin on the well-known John F. Kennedy Jr. quote, community banks ask not what their community can do for them, but what they can do for their community. And that’s a business model that will stand the test of time. COMMUNITY BANKS … COMMIT FOR THE LONG HAUL AS A TRUE PARTNER, HELPING CUSTOMERS WITHSTAND MARKET TURBULENCE AND COME OUT SUCCESSFULLY ON THE OTHER SIDE. 10 | INDEPENDENT REPORT
IS YOUR COMMUNITY BANK INNOVATIVE? Meet Charles. Charles keeps ICBA members informed about emerging solutions that help solve specific community bank challenges. He listens to bankers concerns and plans programs that help get to the core of what our members need most. Even when he’s biking through the streets of Atlanta, he’s thinking about how we can help community bankers level up their fintech game. As an ICBA member, you’ve got Charles in your corner. Learn more at icba.org/innovation
BSA/ AML Mile High Summit Tuesday, July 18 Denver Compliance Conference TuesdayWednesday, August 8-9 Denver CLO and Lender Conference Thursday-Friday, August 10-11 Denver Golden Jubliee 50th Annual Convention Wednesday-Friday, September 20-22 The Hythe, Vail Bank Director Summit Friday-Saturday, September 22-23 The Hythe, Vail Bank on Women Summit Thursday-Friday, October 5-6 TBD Operations and Payments Conference Thursday-Friday, November 2-3 Denver CONFERENCE CALENDAR Human Resources Summit Thursday, July 20 Denver
FROM THE TOP By Derek Williams ICBA Chairman, President and CEO of Century Bank & Trust Community bankers are so much more than financial providers; we are leaders who strive to use our strength to do what’s right for our customers and communities. To them, we are advisors, partners and friends, and sometimes that means our actions need to be as much about what we don’t do as what we do. Take lending. While we certainly always consider the underwriting principles that have been proven over the years, we are committed to providing our customers with the best chance of success. In some cases, that means helping them consider alternatives, sharing financial education and offering more options. For instance, I’ve had to turn down customers for loans they thought they wanted, only to have them come back later and thank me for saying no. They realized that they would have struggled with that burden, and they appreciated that I had their best interests at heart. It isn’t always a perfect science, but I do my best to give my customers the help they need when they need it. I’m not alone in this. As community bankers, we share these common values. We don’t want to see a business or a customer fail, not only because of our relationship with them but also because we want the best for our communities. I’m sure we can all share stories about those borrowers we’ve supported who came to us seeking refinancing for an online loan that wasn’t right for them at all. Yet, that’s why we do what we do: shore up the best chance for success for those we serve and help them realize their dreams, not get buried under the weight of them. We do this because, for community banks, lending is so much more than a profit center. By helping our customers grow and thrive, we help our communities do the same. These are the same communities in which we live, work, worship, play and raise our families. By supporting the people and businesses we know and understand, we are supporting our employees and our shareholders, and making our communities better places to live. As you read this month’s issue, I hope you’ll think about the times you’ve made a difference in your customers’ lives, both when you’ve made loans and when you’ve encouraged other approaches. It speaks to the heart of what we do as bankers: We provide the counsel that helps our customers continue to thrive. And that’s the hallmark of a true leader. BY SUPPORTING THE PEOPLE AND BUSINESSES WE KNOW AND UNDERSTAND, WE ARE SUPPORTING OUR EMPLOYEES AND OUR SHAREHOLDERS, AND MAKING OUR COMMUNITIES BETTER PLACES TO LIVE. CONNECT WITH DEREK ON TWITTER @DEREKBWILLIAMS QUOTE OF THE MONTH “A good leader is a person who takes a little more than his share of the blame and a little less than his share of the credit.” — Arnold Glasow, humorist and businessman INDEPENDENT REPORT | 13
ADOPTING A HOLISTIC FRAML APPROACH TO FIGHT FINANCIAL CRIME By Ankur Shah Strategic Product Manager, CSI, ICBC Associate Member 14 | INDEPENDENT REPORT
As digital payments and online transactions increase, the risk of bad actors fraudulently using these channels is growing as well. The United Nations estimates that 3% to 5% of the global GDP — around $5 trillion — is laundered each year across the world. Fraudsters steal billions of dollars annually from organizations and individuals in the U.S. alone. But losing money is not the only risk that financial crime poses to organizations. If a bank falls victim to illicit activity, it risks reputational damage. That danger is compounded by regulatory risk. In an everevolving digital space, protecting against cyber criminals is a must. That’s why many financial institutions are merging their monitoring efforts into a comprehensive fraud and anti-money laundering approach, known collectively as FRAML. FRAML: BRINGING TOGETHER FRAUD AND ANTI‑MONEY LAUNDERING Fraud and money laundering are distinct financial crimes, but there is a reason the two are often connected. Financial fraud results in ill-gotten gains for a bad actor, and money laundering provides a way to place illegally obtained money into the global financial system without arousing suspicion. Understanding each crime individually is critical to comprehending the intersection where fraud and anti-money laundering meet. FRAML brings together the fraud and AML operations of an institution, helping to automate data sharing and better identify the lifecycle of customer risk that is created through both components. Using FRAML technologies allows your institution to analyze a vast amount of data transactions and consumer behaviors, providing a holistic risk profile. By creating these high-level, holistic risk profiles, your institution can better predict and prevent both fraud and money laundering components where they intersect. The combination of these functions often leads to stronger risk management and increased operational efficiencies. FIGHTING FINANCIAL FRAUD Financial fraud is a broad term, describing any activity that deprives another person of money or other assets through deception or crime. It is one of the most common financial crimes in the world, with nearly $6 billion in consumer financial fraud losses reported to the U.S. Federal Trade Commission in 2020 alone. Fraud can be conducted in dozens of ways, from check fraud to phishing to identity theft, but all types of fraud involve access to a victim’s assets by a bad actor through unauthorized or illicit means. Criminals in the financial fraud space are taking advantage of new technologies to commit crimes more quickly and make them more difficult to prosecute. P2P fraud incidents are rising as fraudsters target payment apps such as Venmo and Cashapp, with another $440 million in consumer losses reported in 2021, according to a Senate report. UNDERSTANDING MONEY LAUNDERING Money laundering is the conversion of profit from illicit activity into money that appears to be the product of normal business. Financial criminals use various methods to conceal the origin of their funds from businesses and law enforcement, but most launderers follow three common steps: • PLACEMENT is the insertion of illicit funds into the legitimate financial system. This can be accomplished several ways, including blending the illicit income into income from a legitimate source or falsifying documents indicating a business transaction that never took place. • LAYERING is separating the proceeds of criminal activity from its source — often through a series of complex transactions through multiple people, corporations and trusts. Illicit cash may be converted to money orders, bonds, wire transfers or even tangible goods like jewelry or art to further disguise the trail. • INTEGRATION is the return of the now legitimate-appearing money to the criminal as profit. Now that the proceeds of criminal activity are integrated into the legitimate financial system, the money can be used normally for any number of transactions. At this point, laundering becomes significantly harder to detect and prosecute, as the money appears to be stemming from standard sources of business. Due to its complexity, money laundering presents an incredible challenge for entities involved in the U.S. financial system. Every onboarded customer could potentially be involved in money laundering. Likewise, every new USING FRAML TECHNOLOGIES ALLOWS YOUR INSTITUTION TO ANALYZE A VAST AMOUNT OF DATA TRANSACTIONS AND CONSUMER BEHAVIORS, PROVIDING A HOLISTIC RISK PROFILE. INDEPENDENT REPORT | 15
Since 1903, Lewis Roca has been working with financial institutions. We help community banks, regional banks, national banks and their holding companies navigate an increasingly complex business and regulatory terrain. DEDICATED TO SERVICE Lewis Roca Rothgerber Christie LLP This material has been prepared for general advertising purposes only. Karen L. Witt Partner kwitt@lewisroca.com 303.628.9586 Scan the QR code to read our white paper on incorporating the use of both AI and machine learning in your bank’s approach to FRAML. https://www.csiweb.com/ what-to-know/contenthub/whitepapers/fraudhits-keep-coming/ transaction processed could represent the flow of laundered money. Picking out which customers and transactions fall into these categories is like finding the proverbial needle in a haystack. That’s why it’s critical to have an effective AML solution to detect suspicious activity, stop the flow of laundered money and avoid costly regulatory fines — especially as BSA/AML scrutiny grows. MOVING FORWARD WITH FRAML The fight against fraud and money laundering is never ending, and banks of all sizes can be overwhelmed by the sheer volume of criminal attempts and the complex regulations surrounding them. Failure to live up to this expectation to protect your customers’ data can lead to regulatory fines and reputational damage that causes further financial harm beyond the costs associated with fraud itself. But criminals are not the only ones evolving. New technologies are replacing outdated methods of monitoring, giving organizations an edge in stopping financial crime before it can cause financial, reputational or legal liability. And implementing a cohesive FRAML strategy is the most efficient and effective way to tackle fraud and AML compliance. 16 | INDEPENDENT REPORT
BACK-OFFICE AUTOMATION ADAPT TODAY FOR TOMORROW’S SUCCESSES By Jason Schwabline Chief Strategy Officer, Alogent, ICBC Associate Member The back-office is an integral part of any financial institution that takes care of essential business functions. But it’s often the least visible, most overlooked area when innovation projects are proposed. In today’s fast-paced, competitive environment, institutions cannot afford to fall behind. Those who have introduced automation in their back-office are realizing the long-term benefits of streamlined operations, reduced costs and improved user experiences. In this article, we’ll explore the advantages of back-office modernization and how it can save time and resources. ELIMINATING MANUAL PROCESSING & OVERHEAD Legacy image processing systems vary by institution but often require specialized IT teams for upkeep. Banks using such solutions must also consider the potential manual tasks that may be associated with these processes, like processing checks by hand and investigating discrepancies — all of which can amount to millions of dollars of additional expenses, along with hours of additional time spent. FACILITATING AUTOMATION & ACCESS TO BI By refreshing back-office operations with automation, productivity and scalability can be enhanced, better allocating resources to account holder services. This also allows executive management and line of business leaders to make decisions quicker by having access to comprehensive INDEPENDENT REPORT | 17
business intelligence (BI) from across all channels. Staying competitive also means bolstering the foundations of operations through modern technology. TESTING, DEPLOYING, & ENABLING FEATURE UPDATES FASTER Modern platforms leverage newer types of architecture, including those built on dockers and containers. This modular-based approach is an ideal investment for banks, allowing the application to run regardless of its environment and the institution to focus on a specific area or individual module. In addition to a phased deployment, testing and maintenance are also fractional, eliminating the need for the entire application to be taken offline. Because of this approach, these platforms often utilize less space than other virtual machines, reducing costs exponentially. REDUCING YOUR SOFTWARE FOOTPRINT In addition to modular architectures, thin client, cloud-native platforms typically involve less IT oversight from the institution but still maximize compliance and data protection. Information is stored in a hosted environment rather than on the bank’s local servers, lowering infrastructure costs but delivering limitless scalability. Simultaneously, solutions are kept up-to-date with new features and upgrades, ensuring a competitive advantage and maximizing account holder satisfaction. Operational efficiency and remaining agile is key to ensuring that institutions deliver consistent account holder services, while also achieving business goals — including the ability to respond quickly to market changes with greater precision. Isn’t it time to consider a modernized payments infrastructure to automate repetitive tasks and be more cost-effective? As a cloud-native think client platform, Unify scales exponentially and allows for a better management of IT resources. With the market’s only patent-pending, single API, image acquisition and processing platform, your institution gains access to a single offering that addresses all deposit channels — in the branch, the back office, and remote. Eliminate the need to manage disparate solutions across various payment channels, exchange files and batches between applications — reducing overhead maintenance costs and reducing your software footprint by more than 90%. Scan the QR code to learn more about Unify. https://info.alogent.com/ unify-ebook-video-icbc 18 | INDEPENDENT REPORT
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In the current interest rate environment, hedging is proving to be a particularly useful tool to secure the interests of both banks and borrowers: the forward rate lock (FRL) hedge. PCBB’s SVP of Hedging Solutions, Femi Audifferen, explains why now might be a good time for community banks to get started with this lending solution for new and existing loans. WHAT IS A FORWARD RATE LOCK HEDGE? A forward rate lock is an agreement between a borrower and a financial institution to set a fixed rate for future financing. While the FRL eliminates the risk of the borrower’s rate changing before financing begins, the hedge component (a forward rate swap) also ensures the institution’s loan pricing spread is preserved. FRLs are most often used to fix rates on permanent financing following construction and to fix future rates on existing resettable loans. These strategies are particularly useful when the yield curve is inverted or when rates have risen — both of these conditions currently exist. The forward swap rate for an FRL is calculated the same way a standard swap rate would be — averaging the projected rates of a specific pricing index (usually SOFR or the fed funds rate) over a specified term. The fundamental difference is that an FRL rate is calculated based on projected rates from a future date, which could be up to several years in the future. By Matt Helsing SVP & Northwest Regional Manager, PCBB, ICBC Associate Member IS IT TIME TO HEDGE INTEREST RATE RISK WITH A FORWARD RATE LOCK? 20 | INDEPENDENT REPORT
WHY NOW? The Federal Reserve has expressed a commitment to continue its tight monetary policy until inflation is brought down to its 2% target and has stated that rates will likely be higher for longer. Bond market activity currently suggests the situation will play out differently. The alternative view is that economic weakness from tight monetary policy will force the Fed to deviate from its current policy path sooner rather than later, meaning the Fed will cut rates by the end of this year or early in 2024. According to Audifferen, while the Federal Reserve continues to emphasize rates will be higher for longer, the currently divergent market expectations bring about an opportunity for borrowers seeking the security of a fixed-rate loan. Since the bond market is projecting rates to fall, forward starting swaps are currently at a discount to standard spot rates. “In a normal upwardsloping yield curve environment, rates are higher the longer the term of the loan and the further out the start date of the loan,” Audifferen explains. This current disconnect between market and Fed projections is reflected in an inverted yield curve, where variable-rate loans (based on short-term indices) pay more than longer-term fixed-rate loans. The market is ripe for borrowers to take advantage of this irregular trend. Of course, the inverted yield curve opportunity isn’t the only upside of entering an FRL agreement. Here are three primary benefits to both FRL borrowers and the issuing financial institution: 1. Eliminating future rate uncertainty for borrowers and banks: Banks typically mitigate their interest rate risk from longer-term loans by adjusting the fixed rate every five years, but with rates higher by 450bp in the last 16 months, these resets are creating significant credit risk for banks and market risk for their borrowers. Using an FRL, the borrower sets their rate today, but it’s not effective until the loan’s repricing date. This solution gives the borrower time to prepare (cut costs, increase rents, etc.) for the higher debt service. Regulators will like the fact that banks have a strategy in place to manage their reset risk. 2. Protecting institutions and borrowers from credit stress due to higher reset rates: Although most institutions conduct stress testing on their loan portfolios, the magnitude of rate hikes we have witnessed over the last year is such that some loans may be approaching debt service covenant limits or at least create credit stress for both the institution and the borrower. “By fixing the rate with a forward rate lock before rates go up further, the institution is able to reduce credit stress for its customer and itself. Regardless of what happens to rates in the next 12-24 months, the borrower is guaranteed a fixed rate they can budget around,” says Audifferen. Keeping credit stress in check is critical for the lender to maintain a healthy portfolio, so offering an FRL to your borrowers can help you reach your goal on this front. 3. Protecting your institution from Net Interest Margin (NIM) compression: In recent years, when interest rates were low, the cost of funding wasn’t a significant issue for banks. As rates have risen rapidly and more than expected, financial institutions have needed to increase the rate on their deposits to avoid losing customers to more competitive offers. As such, the substantially higher cost of funds has compressed NIM. Without hedging, institutions have to wait for the reset period (e.g. five-year reset on a 10-year term loan) to reprice their loans, while paying higher rates on their deposits in the meantime. This is where the FRL comes in to help reduce that risk. “With forward rate locks, financial institutions can essentially convert from conventional five-year repricing loans, at their next reset, to one that resets every month,” explains Audifferen. “So as rates go up, deposit costs increase, but they are matched by rising interest income on the loan, with the borrower still benefiting from the fixed rate.” Banks also generate additional fee income from the swap with the refinancing. Your bank may be hesitant to offer hedging solutions primarily due to complexities related to derivatives, but there are options to outsource the hedging function when working with a correspondent bank. PCBB’s Borrower’s Loan Protection® uniquely eliminates the need for you to handle the derivatives associated with an FRL. “So, from the institution’s perspective, they handle the loan, while PCBB handles every other aspect associated with the swap,” Audifferen explains. “We carry the swap on our books and handle all of the operational, collateral, and regulatory requirements. Essentially, the financial institution is able to provide its customer with the fixed-rate term they want, while carrying a floating rate on their books, without engaging directly with a derivative.” With its many benefits, from helping ease credit stress to protection against NIM compression, an FRL is a unique solution that’s a great option for your borrowers as well. Thanks to their ability to protect the borrower against future rate uncertainty without exposing the bank to interest rate risk, an FRL agreement can be a win-win for everyone. To continue this discussion, or for more information, please contact Matt Helsing. PCBB 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. INDEPENDENT REPORT | 21
Leslie “Les” Owen Mergelman, 77, passed away at his home in Elm Creek, Nebraska, on Friday, May 12, 2023. He was formerly of Cedaredge, Colorado. Les was born Feb. 8, 1946, to Warren and Margaret Mergelman in Gunnison, CO. Following college at Colorado State University (CSU), Les married the love of his life, Dorothy Jean, on March 25, 1972. Two children came from this marriage. Les and Dorothy started their life together in Canon City and Buena Vista, CO, where he held positions in CSU Extension and the local sale barn. A college friend recruited Les into banking in 1974, and Les’ banking career took him and Dorothy to Fleming, Steamboat Springs and Gunnison before landing them in Dorothy’s hometown of Cedaredge, CO. They remained there for 37 years before relocating to Nebraska. Les’ passions were to advance banking, agriculture and youth programs. He worked for many years in the independent banking venue, where he retired from Olathe State Bank. Les had a huge desire to continually better himself and those who were around him. He worked on many local, county and state committees for banking and finance and was a Past President of the Independent Bankers of Colorado. Les grew up on a family ranch in the Gunnison River Valley and remained active in agriculture to his final day. Some of Les’ fondest memories were from his high school years working on a ranch in Powderhorn, CO, where he put up hay and rode lots of miles on horseback. He continually worked to advocate for agriculture by serving on boards such as the Delta County Planning Commission, Farmhouse Fraternity and the Colorado Agricultural Leaders Forum. Though Les worked in banking and agriculture, the one passion from which he never tired was local youth development. Les was very active in 4-H and FFA as a member in his own youth, having traveled to Iran as a 4-H IFYE exchange delegate in 1968. Les volunteered for several years on the Delta County Fair Board and was a Past Chairman of the Colorado State Fair Commission. In the summer months, Les could be found behind the microphone announcing youth livestock shows and Little Britches Rodeos. He was a lifetime member of the National FFA Alumni Association and donated generously of his time to local FFA chapters in the area. Although Les retired from banking, his devotion to the betterment of business, people and his town did not wane. Instead, Les sunk his energy into Club 20, an organization aimed at furthering political agendas to better the 20 western counties of Colorado. He was an active member for 45 years, having served as President of this organization for two of those. He and Dorothy were honored for their service just prior to their relocation. Many grew to know Les as the master of the grill. He often sought opportunities to share his love of cooking with others, many recalling every Labor Day Sunday at the Mergelman house … a place where the lamb skewers turned, the bean pot was hot and Les was stoking the fire. If anyone left hungry, it was their own fault! Les was preceded in death by his parents, Warren and Margret Mergelman. He leaves behind his wife of 51 years, Dorothy Jean. His son, Crandal, and wife, Jimmie, reside with their two kids, Ryann and Cutler, in Rangely, CO. Les’ daughter, Kari, and husband, Matt, live in Elm Creek, NE, with their two children, Jameson and Scarlett. Les also leaves behind his brothers and sister and their families: Rudl and Darlene Mergelman, Stan and Cara Faulds, and Craig and Lindsay Mergelman. The family requests donations to Cedaredge, Rangely or Elm Creek FFA programs. Originally published by Taylor Funeral Service & Crematory — Delta on May 16, 2023. IN MEMORIAM LESLIE “LES” MERGELMAN 22 | 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 | 23
The POWER of COACHING How Employee Development Benefits the Bank By Connie West Gallup Certified Strengths Coach, Regional Vice President, The James Paul Group, ICBC Associate Member Coaching has become an incredibly important and valuable tool for banks to develop their employees’ potential and enhance their performance. According to Gallup’s extensive research, employees who receive regular coaching are 3.5 times more likely to be engaged in their work than those who don’t. This is because coaching not only helps employees identify their strengths and weaknesses but also empowers them to set meaningful goals and receive constructive feedback, ultimately leading to significant improvements in their skills and abilities. The approach to coaching can vary depending on the bank’s unique needs and organizational structure. It is crucial to incorporate leadership and clientfacing team members into the coaching process. This can be achieved through various methods, such as one-on-one coaching sessions for all individuals, team coaching sessions or even strategic coaching for key members who can then take a train-the-trainer approach to disseminate the coaching knowledge and techniques to every member of the bank staff. It’s important to note that coaching doesn’t always have to be formal but should always be consistent and accessible to all employees. Moreover, coaching has a profound impact on job satisfaction and employee retention rates within the banking industry. A notable study conducted by the International Coach Federation revealed that a staggering 65% of employees who received coaching reported experiencing increased job satisfaction, while an impressive 80% expressed a higher likelihood of staying with their current employer. In addition to fostering employee growth and satisfaction, coaching programs also yield significant benefits for banks themselves. According to the Corporate Executive Board, companies that invest in coaching initiatives witness a median return on investment of seven times their initial investment. This remarkable return can be attributed to the fact that coaching equips employees with the necessary skills, knowledge and confidence to deliver exceptional customer service, and ultimately enhances overall business performance. In conclusion, coaching emerges as an immensely powerful and impactful tool that can bring tremendous benefits to both employees and banks within the ever-evolving banking industry. By investing in comprehensive coaching programs, banks can effectively enhance employee engagement, job satisfaction, retention rates and overall business outcomes. In this competitive landscape, coaching remains an indispensable element for banks to remain relevant and agile for long-term success. To discuss how coaching can improve your bank’s results and your customer’s experience, contact Connie West at The James Paul Group at cwest@jamespaulgroup.com or toll-free at 877-584-6468 to explore how empowering your people with the right skills, attitude and level of engagement can help your bank retain its best talent and customers! THE JAMES PAUL GROUP Enhancing the performance of your most valuable asset: your people! 24 | INDEPENDENT REPORT
THE MYTH, LURE AND REALITY OF AI By Charles E. Potts Executive Vice President and Chief Innovation Officer, ICBA When it comes to artificial intelligence (AI), as the great Wizard of Oz once said, “Pay no attention to the man behind the curtain.” There’s been a lot of hype about AI and its offshoots like ChatGPT, and while it’s an exciting technology, it’s not new. The first patents on AI algorithms came out more than 30 years ago, and they have been baked into many of the solutions community banks are already using for back-office operations, risk and fraud monitoring and much more. For instance, Paycheck Protection Program (PPP) solutions were fueled by versions of AI. Credit reporting details are unearthed by AI technology. Fraud anomaly flagging runs algorithms, the basis of AI, to detect out-of-character transactions. So, what’s with today’s heightened attention on this technology? The answer is simple: AI has become more advanced, but in a cost-effective manner, making it available to the masses. Businesses and consumers alike have newfound access, and that breeds broader awareness and interest. Fortunately, this level of attention brings with it new potential. Consider current ThinkTECH Accelerator participant Micronotes, Inc., a cloud-based marketing automation solution that addresses loan, deposit and retention opportunities using data. The solution connects banking and credit information to the customer, helping ensure the right product is getting provisioned in the right way. It’s an internal use of AI that culls banks’ data to identify target solutions for their customers. And that’s just one use of this technology. AI’S FUTURE FOCUS What AI really does is create a path for community banks to be more futurefocused. Banks are asking how they can do more with less, and now is the time to focus on innovation to answer that question. In today’s landscape, banks need to identify what they can be doing to prepare for the next economic cycle, when market conditions swing back, and they can return to a more proactive lending stance. By keeping a keen eye toward the future, banks can explore the technological investments they can make now so that when it’s time to turn up the volume, they can do so without adding headcount. Today, they can be focusing on backoffice and operational efficiencies that replace redundant tasks and set up new potential for the future. And AI has a firm hand in that evolution; it serves as the intersection of technology and future needs and capabilities. So, as you read this month’s issue, do it with an eye toward if and how AI can offer a foundation for your next steps, keeping in mind that it is not a silver bullet to be feared or exalted. AI is simply a technology to be leveraged in support of strategy because, after all, it is just a version of the man behind the curtain. INDEPENDENT REPORT | 25
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