2024’s TOP CYBERSECURITY THREATS 2024 • Issue 3
INVESTMENT PRODUCTS Municipal Bonds Mortgage-Backed Securities Govt. & Agency Bonds Corporate Bonds Brokered CDs Money Market Instruments Structured Products Equities Mutual Funds ETFs FINANCIAL SERVICES Public Finance Investment Portfolio Accounting Portfolio Analytics Interest Rate Risk Reporting Asset/Liability Management Reporting Municipal Credit Reviews Balance Sheet Policy Development and Review Comprehensive SOLUTIONS 888-726-2880 FBBS believes the success of your team is the future of our firm. MEMBER FINRA & SIPC. INVESTMENTS ARE NOT FDIC INSURED, NOT BANK GUARANTEED & MAY LOSE VALUE. Lending Services Operational Services Audit Services The customer service that MIB provides to our community bank is exceptional. Tim Burns, our relationship manager, listens to our needs and helps our bank meet our goals. Their website protal we use for reports is very user-friendly and easy to navigate. We appreciate the relationship we have with MIB today! 800-347-4MIB mibanc.com MEMBER FDIC Tim Burns Jami Schmidt Jami Schmidt/CFO Henderson State Bank Henderson, NE WHY ? www.FBBSinc.com
6 ©2024 The Nebraska Independent Community Bankers are proud to present The Nebraska Independent Banker as a benefit of membership in the association. No member dues were used in the publishing of this news magazine. All publishing costs were borne by advertising sales. Purchase of any products or services from paid advertisements within this magazine are the sole responsibility of the consumer. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of Nebraska Independent Community Bankers or its publisher, The newsLINK Group, LLC. Any legal advice should be regarded as general information. It is strongly recommended that one contact an attorney for counsel regarding specific circumstances. Likewise, the appearance of advertisers does not constitute an endorsement of the products or services featured by The newsLINK Group, LLC. Nebraska Independent Community Bankers 1001 S. 70 Street, Suite 101 Lincoln, NE 68510 (402) 474-4662 nicbonline.com The Nebraska Independent Banker is a Publication of The Nebraska Independent Community Bankers Association Issue 3 • 2024 TAKE A LOOK INSIDE 10 15 NICB Executive Committee Chairman Rick Heckenlively Points West Community Bank Sidney Chairman Elect Dave Ochsner Commercial Bank Nelson Vice Chairman Jim Niemeier Citizens State Bank Friend President/CEO Dexter Schrodt Secretary Kelly Lenners First State Bank Nebraska Pickrell Treasurer Arnold Lowell CerescoBank Ceresco Immediate Past Chairman Corby Schweers Elkhorn Valley Bank Wayne 4 FROM THE TOP Banking Outside the Box for Small Businesses By Lucas White, Chairman, ICBA, President of The Fountain Trust Company 6 FLOURISH A New Tool for Your Team’s Career Development By Rebeca Romero Rainey, President and CEO, ICBA 8 We Want to Feature You in Our Next Issue of The Nebraska Independent Banker! 10 2024’s Top Cybersecurity Threats By Steve Sanders, Chief Risk Officer and Chief Information Security Officer, CSI 13 8 Ways to Drive Deposit Growth Without Raising Rates By Matt Helsing, SVP & Northwest Regional Manager, PCBB 15 Dialing It Back Simple Bonds Find Favor with Portfolio Managers in 2024 By Jim Reber, President and CEO, ICBA Securities 17 Data Analytics A Foundation of Growth for Community Banks By BHG Financial 18 NICB Endorsed Partners 18 Associate Members 2024
FROM THE TOP BANKING OUTSIDE THE BOX FOR SMALL BUSINESSES When it comes to serving small businesses, community banks just get it. We understand the day-to-day situation, and we also know local businesses shouldn’t have to try to fit into a mold made by much larger institutions. If we attempt to apply a single product to all small business clients, the shoe won’t fit. So, we customize, developing options geared to their unique needs. In short, we don’t require small businesses to fit into our solutions box; we build the box around them. For instance, at my bank, we developed a relationship with spouses who were looking for a home loan. They had been turned down by a large bank, and we were able to fulfill their needs — in multiple capacities. They also shared that it was a dream of theirs to own a nail salon, and after a few years, they were able to make the leap and turned to us for support. Their grand opening was planned for March 2020, but then the pandemic hit. We were immediately able to help by securing Paycheck Protection Program funds to keep their business afloat. By 2022, the salon had cleared over $550,000, and last year, we were able to finance their $2.9 million purchase of the strip mall in which their business operates. Another client, a local farmer who raises cattle, decided he wanted to get more for his beef and open a butcher shop. We helped him finance the hoop barn to expand his operation and supported the opening of the physical store. We took on some risk, as the butcher shop was untested with only projected figures to go on. But we were creative and able to support them. Community banks have countless stories like these, where we tailor a solution to particular requirements. Custom By Lucas White, Chairman, ICBA, President of The Fountain Trust Company 4 NEBRASKA INDEPENDENT BANKER
thinking allows us to meet disparate needs in ways that support our relationship-first model. But regulations like the Consumer Financial Protection Bureau’s 1071 rule will tie our hands, making it harder to get to yes. If we can’t collaborate with our borrowers to give them what they need, we’ll ultimately make fewer small business loans, which only hurts small businesses — the lifeblood of our economy. They need our advocacy more than ever so that policymakers don’t continue to enact one-size-fits-all restrictions that will lessen their success. So, as you celebrated your customers during Small Business Month back in May, continue to think about how you can advocate on their behalf and take time to honor how you support them because it takes out-of-the-box thinkers like community bankers to make small business dreams into realities. Lucas White is president of The Fountain Trust Company in Covington, Indiana. Top 3 As community banks, we support a wide range of small businesses. Here are my most unique customers: 1. Amish carrier pigeon company. 2. Paper shop that manufactured old-fashioned paper. 3. Helicopter crop-dusting pilot. As you celebrated your customers during Small Business Month back in May, continue to think about how you can advocate on their behalf and also take time to honor how you support them. 800.228.2581 MHM.INC Now more than ever people want self-service options. With our core integrated ITMs we can make this a reality both in the lobby and in the drive-up of your branch. SELF-SERVICE BANKING NEBRASKA INDEPENDENT BANKER 5
FLOURISH A NEW TOOL FOR YOUR TEAM’S CAREER DEVELOPMENT By Rebeca Romero Rainey, President and CEO, ICBA A s community bankers, we each wear multiple hats and have throughout the course of our careers. In fact, I’d say that no two of us have had the same journey. Our individual banks are as diverse as the communities we serve, and even when banking is “in the family,” how we ascended the ladder to our positions today differs greatly. The same applies to our teams. Community bank career paths have never fit a traditional, one-size-fits-all approach. We don’t simply promote in a hierarchical fashion. To be efficient and develop staff with both their and our banks’ best interests in mind, we have to be creative. We must ensure managers have a personalized plan in place for their staff, one that leverages day-to-day opportunities for career growth. At the same time, we want all employees to recognize they have a bright future with us. It’s precisely that unique approach to advancement that makes it difficult to articulate a clear career trajectory — and we’ve heard loud and clear that you are looking for a solution for that challenge, a way to better address professional development with your teams. So, I’m thrilled that at this year’s ICBA LIVE, we unveiled our new Professional Development Planner. This web-based, interactive tool offers a detailed overview of more than 80 community bank job functions and enables employees to research areas of interest, job descriptions, and associated levels of responsibility. In addition, the tool generates the qualifications, competencies, specialized knowledge, and on-the-job learning experience needed to qualify for a position. But it’s also geared toward managers to support their team’s professional development. For instance, using the planner, managers 6 NEBRASKA INDEPENDENT BANKER
Rebeca Romero Rainey is the president and CEO of ICBA. Connect with Rebeca on X @romerorainey. … there’s a direct correlation between having happy, well-trained, and engaged employees and bank performance. can partner with employees to set personal goals and identify a path to their next career milestone. The tool further guides managers and staff by recommending specific training resources, providing clear direction on how to acquire the competencies required for each position. As you consider succession planning and your bank’s broader future, I encourage you to take a look at the Professional Development Planner (icba.org/education/resources/professional-development-planner) and explore ways it will bolster your hiring efforts, help identify skill gaps, and aid you in refining job descriptions accordingly. As we look at this month’s best-performing community banks, we have to acknowledge there’s a direct correlation between having happy, well-trained, and engaged employees and bank performance. Investing in our teams benefits not only employee retention and recruitment but also our bottom lines. And that’s a win-win path we can all get behind. 100 South Phillips Avenue, Sioux Falls (605) 335-5112 advantage-network.com HIGH-TOUCH CUSTOMER SERVICE When you source your EFT services through The Advantage Network, you’ll be getting much more than just the best debit card services, card production, marketing support, ATM services, and fraud monitoring in the region — you’ll also have access to innovative technology and the local, high-touch customer service that we’re known for. Scan the QR code to learn more, or give us a call and let’s have a conversation! NEBRASKA INDEPENDENT BANKER 7
We Want to Feature You in Our Next Issue of The Nebraska Independent Banker! The Banker Showcase shines a light on those employees that make a difference. To be featured, please email Dexter at dexter@nicbonline.com. Member FDIC Traci Oliver Eric Hallman Tara Koester Bankers’ Bank of the West We champion Community Banking bbwest.com | 800-873-4722 www.bbwest.com YOUR NEBRASKA RELATIONSHIP MANAGERS As a bankers’ bank we strive to help with every level of service and expertise. That is why we service anything from loan participations, merchant services, ATM/debit and much more, because we aim to answer your questions with, “…yes, we can do that too!” 8 NEBRASKA INDEPENDENT BANKER
Balance sheet strategies backed by experience. You’re working diligently to best position your balance sheet, and we know what you’re up against in the current environment. As you navigate complex strategies to maintain liquidity and margin, we can help you develop solutions backed by our own experience so you can confidently move your operation forward. We can help get you there because we’ve been there. Budgeting Profit projections ALCO Capital planning Decay/beta analysis Regulatory Investment portfolio Investment mix Interest rate risk Loan pricing Asset duration Liquidity management Brokered funding LEARN MORE AT BOKFINANCIAL.COM/INSTITUTIONS BOK Financial® is a trademark of BOKF, NA. Member FDIC. Bank dealer services offered through BOK Financial Capital Markets, which operates as a separately identifiable department of BOKF, NA. BOKF, NA is the bank subsidiary of BOK Financial Corporation. Investment products are: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE We go above. So you can go beyond.
2024’s TOP CYBERSECURITY THREATS As the process of protecting systems, networks, and endpoints from attack, cybersecurity is critical to any organization. Since banks must protect customer data, keeping up with evolving cyber threats and concerns is vital. In its annual Banking Priorities survey, CSI asked bankers across the country about their views on top cybersecurity challenges. This article explores how bankers view the changing cybersecurity landscape. Exploring Bankers’ Top Cybersecurity Concerns As part of our country’s critical infrastructure, financial institutions are prime targets of cyberattacks and must navigate an evolving threat landscape. Let’s examine the breakdown of bankers’ top four cybersecurity concerns in this year’s survey: • Adapting to Changes in the Cyber Insurance Market: The results reveal that 19% of bankers view this as their top concern, which is unsurprising as cyber incidents continue to rise. In addition to cybersecurity monitoring solutions and increased personnel training, cyber liability insurance provides another layer of protection for institutions in the event of an attack. This result highlights a potential uncertainty about upcoming developments in the cyber insurance market, whether regarding price increases or coverage exceptions. Institutions should carefully review their coverage, and some are seeking assistance from IT governance services to evaluate their needs. • Being Unprepared to Respond to a Cyber Attack: 18% of bankers expressed concern with their preparedness for cyberattack responses. As incidents evolve, institutions must ensure they plan accordingly, including developing and testing robust incident response plans (IRPs) that detail the steps to take in the event of a cybersecurity incident. Having an established IRP makes it easier for institutions to act decisively and minimize negative consequences if faced with a cyberattack. By Steve Sanders, Chief Risk Officer and Chief Information Security Officer, CSI 10 NEBRASKA INDEPENDENT BANKER
Since banks must protect customer data, keeping up with evolving cyber threats and concerns is vital. • Lack of Compliance with Cybersecurity Frameworks: 17% of bankers selected lack of compliance with cybersecurity frameworks as a top concern. Implementing robust cybersecurity frameworks, such as the National Institute of Standards and Technology’s Cyber Security Framework (NIST CSF), helps institutions identify and apply solid controls in high-risk areas. Proven frameworks also enable banks to maximize compliance initiatives and cybersecurity spending. • Cyber Risks Not Being a Priority for Executive Leadership: This year, 17% of respondents indicated concern that cyber risks are not a priority for their institution’s executive leadership. Institutional leadership should recognize cybersecurity as a business issue, and a chief information security officer (CISO) plays an important role in guiding cybersecurity spending. Are Bankers Ready to Respond to Cybersecurity Threats? Preparing for the inevitable cyberattack is a never-ending responsibility. Let’s gain insight into banking executives’ perspectives on their own cybersecurity readiness: • Improving Cybersecurity Education: 92% of respondents agree — with 50% strongly agreeing — that their bank could improve cybersecurity education. If your employees receive a suspicious email, do they know the proper steps to report it? Educating employees on evolving threats and the latest social engineering schemes is one of the most effective ways to mitigate cyber risk. • Understanding Cyber Risk: Most respondents (89%) agree they understand their institution’s cyber risk. But as risk continues to evolve, are banks keeping up with the latest threats? Understanding recent cyber incidents provides key insight into how bad actors execute attacks and helps institutions stay one step ahead. As discussed above, consider implementing a cybersecurity framework to guide risk mitigation if you haven’t already. • Producing a Business Case for Cyber Spending: An overwhelming majority (92%) of respondents feel their CISO can produce a strategic business case for cyber spending. Since cybersecurity affects the entire organization, it should be viewed as a business issue. IT governance helps your institution ensure your technology investments support your unique goals while mitigating IT- and cybersecurity-related risk. IT governance experts can also supplement your CISO’s efforts in making a business case for cyber spending. While these responses are encouraging, many financial institutions stand to benefit from hosting internal discussions between their CISO and other C-suite executives to ensure everyone is on the same page and confident surrounding cybersecurity preparedness. Additionally, they should focus on resource optimization, streamlined processes and a commitment to ongoing education to fortify their institution against the ever-changing threat landscape. How Do Bankers Feel about Cybersecurity Compliance? As cybersecurity threats increase, so does regulators’ emphasis on cybersecurity compliance, which involves fulfilling necessary regulatory requirements and implementing security controls for protection. This enhanced focus requires banks NEBRASKA INDEPENDENT BANKER 11
to uphold a secure IT infrastructure and proactively address risks. Given regulators’ increased focus on this area, it’s no surprise that 87% of bankers reported being at least somewhat concerned about cybersecurity compliance. Survey results reveal that bankers are using a variety of methods and tools to stay compliant. The top tools used for cybersecurity compliance are conducting risk assessments and impact analysis studies (46%). Well-executed risk assessments are a key component of a cybersecurity plan because they help organizations identify and manage financial, operational, and other risks associated with internal and external incidents. Why Institutions Should Understand Top Cybersecurity Threats Dealing with cybersecurity threats is nothing new for financial institutions. Still, institutions should exercise constant vigilance and stay abreast of the latest threats to ensure they mount the most effective defenses. By keeping a pulse on current threats and where the cybersecurity landscape is headed, your institution will be better positioned to keep your network, data, and users secure. Steve Sanders serves as CSI’s chief risk officer and chief information security officer. In his role, Steve leads enterprise risk management and other key components of CSI’s corporate compliance program, including privacy and business continuity. He also oversees threat and vulnerability management as well as information security strategy and awareness programs. With more than 15 years of experience focused on cybersecurity, information security, and privacy, he employs his strong background in audit, information security, and IT security to help board members and senior management gain a command of cyber risk oversight. By keeping a pulse on current threats and where the cybersecurity landscape is headed, your institution will be better positioned to keep your network, data, and users secure. 12 NEBRASKA INDEPENDENT BANKER
Community banks in search of deposits might see raising rates as their best option to gain customers, but that’s an expensive proposition, particularly as the Fed contemplates lowering rates. Luckily, your bank can choose from a multitude of less-expensive strategies for attracting deposits. Consider one of these alternative strategies before defaulting to interest rate increases to entice new business: 1. Analyze Your Customer Base: Find out who your best, most loyal customers are. You can also use a comprehensive profitability tool to learn which customers are bringing in the most revenue for your institution. Target your marketing efforts specifically to these groups and identify what demographics they share. This will allow you to create more targeted advertising for these groups and lookalike customers. 2. Increase Marketing Efforts: Make it easy for potential customers to find you. Update your search engine optimization (SEO) so that your home page comes up quickly on searches for financial institutions meeting your target markets, and make sure that your website has accurate branch information so that potential customers know your operating hours and how to get ahold of you. Use online advertising and make sure your website works well on mobile devices. Invest in your community by leading fundraisers or sponsoring financial literacy courses. Consider teaming up with your top business customers to make joint donations to worthy local causes. 3. Focus on Multi-Product Relationships: Look for ways to cross-sell products to your current consumers to deepen that relationship. Loan customers could also add their own personal financial accounts; business customers could always benefit from additional cash 1 2 3 WAYS TO DRIVE DEPOSIT GROWTH WITHOUT RAISING RATES By Matt Helsing, SVP & Northwest Regional Manager, PCBB 8 and treasury management services. A way to encourage this is through limited offers or bundles to entice them to add new services or open additional accounts. 4. Provide Innovative Business Services: The more of a business’ back office that your institution powers, the more sense it makes for that business to bank with you. Offer cash management tools, risk management tools and digital payment solutions that all integrate seamlessly with other financial systems. Now is a good time to review your cash management pricing and service bundles to encourage existing and new business customers to take advantage of these services. 5. Partner With Fintechs: Where appropriate, your bank might benefit from teaming up with one or more fintechs that can provide robust data infrastructure, treasury management tools and digital platforms that let customers conveniently use those tools. Pay close attention to integration costs, risk management practices and client referrals. 6. Offer Incentives: Consider low-cost ways to help deposit clients get started banking with you. Pay sign-up and referral bonuses. Offer tiered rates that pay more as balances grow. Make mobile deposits easy. Provide limited free checks and identity theft protection. 7. Give Customers An Easy “On” Ramp: Design your online account opening process to be simple and fast, especially from mobile devices. Easy onboarding is especially important for younger Gen Z customers who take a mobile-first approach. 8. Improve Your Customer Service: Make your customer service friendly, knowledgeable about product offerings, and able to solve problems in a single conversation. By the time someone calls or visits a branch with a 4 5 6 7 8 NEBRASKA INDEPENDENT BANKER 13
problem, there’s a good chance they’ve already tried to solve it online or over the phone. Don’t pass them from hand to hand. The time and money that potential customers can save by doing business with a bank that offers smart solutions can greatly outpace what those customers might get from an extra few bp paid on deposits. Focus on these alternatives to achieve the long-term gains that higher interest rates just can’t get you. To continue this discussion, or for more information, please visit pcbb.com. PCBB is dedicated to serving the needs of community banks. PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow Service, international services, lending solutions, and risk management advisory services. Consider one of these alternative strategies before defaulting to interest rate increases to entice new business … SOCIAL ENGINEERING NETWORK MONITORING BY COMMUNITY BANKERS FORCOMMUNITY BANKS CivITas Bank Solutions was born from the needs voiced by community banks for affordable real-world technology and information security solutions. Anne Benigsen President David Philippi VP - Business Development Chris Tuzeneu VP – Information Security PENETRATION TESTING VULNERABILITY SCANS info@acivitas.com www.acivitas.com 14 NEBRASKA INDEPENDENT BANKER
By Jim Reber, President and CEO, ICBA Securities KISS in this column does not refer to the pancake-makeup-wearing, androgynous rock ‘n’ roll band from the 1970s. I’m pleased to report it’s the acronym for “Keep It Simple, Stupid.” I mean no disrespect to the readers; in fact, it’s a compliment to community bank bond buyers, who once again have demonstrated their inclination to relative-value propositions and their ability to react quickly to changing market forces. ICBA Securities’ exclusive broker, Stifel, provides several complementary services to its stock-in-trade of debt securities for community banks. Not least is bond accounting, which more than 400 ICBA members use to document their portfolio holdings. In aggregate, these banks own more than $76 billion in bonds, so it’s a large enough sample size to reasonably suggest they represent the industry as a whole. And you might be pleasantly surprised to learn that the highest-performing banks in this group are not achieving their results through any complex, convoluted, risk-addled means. In 2024, simplicity has rewards. What Was … For more than two decades, one of the most predictable features of high-performing bond portfolios was the sector weighting for municipal securities. When we divided the bond accounting banks into four quartiles, sorted by yield, we would consistently see that the more munis a bank owned, the higher the yields relative to the rest of the population. There was also a correlation between yield and duration. Of course, the top quartile would have the longest average lives. But that didn’t necessarily translate into greater price risk. Tax-free securities have about 80% of the price volatility of taxables due to the way in which tax-free interest rates affect market prices (which is another column for another month). The point to be made is that a higher allocation to munis translated into better relative performance. As recently as December 2021, 52% of the top quartile’s holdings were in tax-frees. Such is most assuredly not the case today. … Is No Longer By December 2023, the top quartile had an allocation to munis of 26%, or just half what it had only 24 months DIALING IT BACK SIMPLE BONDS FIND FAVOR WITH PORTFOLIO MANAGERS IN 2024 NEBRASKA INDEPENDENT BANKER 15
earlier. Some of those dollars migrated into various types of amortizing securities, but the bulk of the reinvesting went into — wait for it — treasury bonds. The numbers are quite astonishing. In the fourth quarter, fully 60% of new purchases were treasuries. They weren’t necessarily long maturities, either, as the treasury holdings, on average, had a duration of well under two years. And remember that we’re talking about the top quartile. A skeptic would suppose that the erstwhile long-duration, heavy tax-free portfolios — and their built-in yield advantage — have given up some ground to the more conservative lower quartiles. One would be even more confident of that supposition knowing that the effective duration of the top quartile has shrunk in the past two years from 4.5 years to 3.9. One would be wrong. The yield gap between quartiles one and four was 124 basis points (1.24%) in December 2021; now, the difference is 173 basis points or 1.73%. What Just Happened The reasons for the “dump munis, buy treasuries” trade can be summarized in these three factors: 1. The Shape of the Curve: The inverted curve, which has persisted since July 2022, has made longer-yielding bonds less attractive than shorter ones. The longest securities in a typical community bank portfolio are munis, which is a good news/ bad news proposition for inverted curves. They have lost less value than others since 2022, but the current market yields for them are below those of lower-duration bonds. 2. The Supply/Demand Dynamics of the Municipal market: Munis really haven’t held much value for corporations since 2018, when the marginal tax rates for C Corps dropped to 21%. The retail demand for munis has continued apace, as individual tax rates didn’t drop as much. And finally, as we’ve discussed in this space before, the entire municipal bond universe has not grown for well over 10 years. This has pushed yields on even 10-plus-year munis below those of similar maturity treasuries. 3. The “Higher for Longer” Narrative: Some portfolio managers are buying into the “higher for longer” narrative for short-term interest rates. The first quarter of the year saw expectations for actual cuts to fed funds pushed into the second half of 2024, and the number and size of the cuts declined, too. This has kept the inverted curve intact and has made even money-market treasuries the choice of engaged portfolio managers. The result is that the highest-yielding and more risk-averse bank portfolios these days have a heavy dose of short treasuries. The top quartile at the start of 2024 had a full 14% allocation, which is a high-water mark for the past quarter century. As our friends from KISS might say, community bankers can buy short treasuries all night, and enjoy the results every day. EDUCATION ON TAP Bond Accounting at Your Service ICBA Securities’ exclusive broker, Stifel, offers an industry-leading bond accounting package that’s scalable to your community bank’s portfolio at very competitive prices. For more information or to see a demo, contact your Stifel sales rep. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income brokerdealer for community banks. 16 NEBRASKA INDEPENDENT BANKER
By BHG Financial Embracing data analytics offers community banks a strategic opportunity to increase revenues and further support their communities. By thoroughly reviewing internal customer data, a bank may enhance customer engagement, improve underwriting, boost marketing results, and more. However, smaller banks may not have the resources to audit and interpret customer data as thoroughly as large banks. So, this article explores how local banks can still harness internal information without overtaxing their budgets and staff. Data Analysis Complements Personal Relationships There’s no substitute for the personal connections local banks have with their customers. Local roots, homegrown insights and first-name familiarity are tremendous assets. Still, some level of customer data analysis is advisable for small banks to thrive in the modern financial ecosystem. Banks whose boards and CEOs devote the necessary resources can be better positioned for success. Practical Applications of Data Analytics Data analytics can inform decision-making, drive product development, deliver a more personalized customer experience and more. Below is an overview of several practical applications. • Lending: Incorporating data analysis into loan underwriting can supplement or reveal more than FICO and credit scores. Analyzing behaviors that traditional metrics don’t (e.g., bank deposit history, property ownership, rent and utility payments) may provide clues about an applicant’s ability to manage debt. Data analysis can also supplement or replace traditional measures of credit risk. For example, individuals with short credit histories or recent immigrants often have weak credit scores or none at all. According to the CFPB, roughly one in 10 U.S. adults have no credit record at nationwide credit bureaus. In these cases, data analysis is essential to evaluate creditworthiness. • Fraud and Cybersecurity: Data analytics can help mitigate fraud and cyber intrusions. According to IBM, the average cost of a data breach in 2023 was $4.45 million. Today’s advanced analytics, such as machine learning and artificial intelligence (AI), can scrutinize real-time data and flag irregularities. Banks using these insights can identify questionable transactions and unauthorized system access. • Risk Management: Integrating market, economic, and internal customer data helps detect changes to underlying conditions and develop timely, efficient response strategies. These insights identify risk factors that may adversely affect information security, operations, compliance, and other functions. • Target Marketing and Customer Segmentation: Data analytics offer a holistic view of customers. This offers the potential for more relevant marketing messages, enhanced acquisition strategies, and improved engagement, with personalized offers that align with customers’ specific needs. • Operational Efficiency: Data analysis can lead to faster, more confident loan decisions, automated internal reporting, lower costs, and streamlined processes, letting employees provide more personal attention to customers. Technologies and Techniques Tools for data analysis come in many forms. They vary in cost and sophistication and can be conducted internally or by an external third party. Here are several examples: • Surveys: Simple customer surveys provide immediate feedback about how to better serve customers. “Surveys are an efficient and cost-effective way for banks to identify policies and practices that may need adjustment,” says Meghan Crawford-Hamlin, Institutional Division President for BHG Financial. • Open-Source Software: Open-source analytics provide universal and often free access to a product’s design, and can be a cost-effective way for smaller banks to DATA ANALYTICS A Foundation of Growth for Community Banks NEBRASKA INDEPENDENT BANKER 17
launch new products and services quickly. Several popular open-source software tools offer data analysis applications for banks. • AI: AI can synthesize large volumes of data faster than most tools. It identifies non-obvious patterns and inconsistencies, making it ideal for loan underwriting and fraud mitigation. A growing number of open-source AI platforms are available for smaller banks. • Third-Party Specialists: Partnering with a specialized third-party provider can be a cost-effective strategy for banks limited by technology and employee capacity constraints. Starting Small and Other Considerations Experts advise smaller banks to begin data analysis slowly. Take small steps and learn from them. Let one success lead to another and use those victories to fund future efforts. Along the way, weigh these considerations: • Consider hiring a data analyst or data scientist to start analyzing data. • Decide whether to keep data analytics in-house or outsource it. • Consider aggregation tools that combine data from different systems for better insights. • Map out current data sources and systems to understand gaps and opportunities. Consider roles like chief data officer to oversee data strategy and execution. Community banks have a unique opportunity to thrive by combining local expertise and personalized service with data-driven insights and automation. This combination can help level the playing field against larger competitors. NICB ENDORSED PARTNERS • Bankers Compliance Consulting — Dave Dickenson • Barret Graduate School of Banking — Memphis, Tennessee • Community Bankers Webinar Network — Financial Ed • Dell Computers • ICBA Securities — Jim Reber • ICBA Bancard • NICB-CBAK Liquidity Program • SHAZAM — presented last year at Area Meetings • Spectrum Financial — Fee Income with Credit Insurance Products/ Services, Identity Theft Program, Flood Determinations — Scott Votava • Travelers Insurance • UNICO Group — Diana Poquette • The Advantage Network • BancMac • Bankers’ Bank of the West • Bankers Compliance Consulting • Bankers Healthcare Group • Barret Graduate School of Banking • Bell Banks • BKD LLP • John E. Cederberg, CPA • Central States Health & Life Co. • CivITas Bank Solutions • Computer Services Inc. (CSI) • Cross Financial • D.A. Davidson & Co. • FIPCO — Compliance • Federal Reserve Bank of K.C. (complimentary) • FHLBank Topeka • FNB Omaha Correspondent Banking • FIPCO • First National Capital Markets • FPS Gold (Core) • ICBA Bancard & TCM Bank • ICBA Securities • ICBA • ITPAC Consulting LLC (IT audits) • Kirk Gross Company • Labenz & Assoc. LLC (CPAs) • Maple Street Inc. • Midwest Independent BankersBank • Modern Banking Systems • Money Handling Machines Inc. • NFP Executive Benefits • Perry, Guthery, Haase & Gessford PC LLO • Purple Wave Auction • QwickRate • RESULTS Technology • Scantron Technology Solutions • SHAZAM • Spectrum Financial • Taylor and Martin Appraisal Services • Travelers Companies Inc. • UMB Bank N.A. • UNICO Group • United Bankers’ Bank ASSOCIATE MEMBERS 2024 18 NEBRASKA INDEPENDENT BANKER
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