Tag: prepaid card

Photo by MirageC/Getty Images

As community banks grow, their vendor partnerships usually also do, which can lead to challenges with organization, data security and more. To address these issues, some community banks have turned to artificial intelligence.

By Elizabeth Judd

---

The dazzling possibilities of artificial intelligence (AI) have captured the public imagination. Think Scarlett Johansson’s voice as an AI-assisted virtual assistant and romantic interest in Her, or Janet on The Good Place.

In finance, too, AI has been held up as the answer to any number of challenges that community bankers face. And yet, some industry experts have observed that AI is not yet being used to its full advantage in vendor management—one of the thornier problems that community banks are wrestling with today.

If a community bank has just a handful of vendors, managing those vendors is fairly straightforward. Keeping track of vendor relationships through emails, spreadsheets and client relationship management (CRM) software is adequate for a small vendor ecosystem.

But because each vendor has its own set of contacts, contracts, processes and approaches to data security, the challenges of overseeing third parties mushroom as the number of vendors grows.

“Today’s banks may have many vendors, and each vendor has to submit a large number of documents to comply with [bank requirements],” says Robert Johnston, founder and CEO of Adlumin, a Washington, D.C.-based cybersecurity technology firm.

The true power of AI makes itself known when “extracting conclusions from large data sets,” he says. “Data science can make an impact in every industry segment, including vendor management.”

Improving communications

Natural language processing (NLP), an offshoot of AI and machine learning, can be an effective tool for vendor management, says Johnston. That’s because NLP can analyze text based on knowledge of how human beings speak and write.

“If you’re analyzing a contract for risk, you could train an NLP algorithm to recognize groups of words that represent what you’re looking for in a contract, like indemnification terms that are negative or that do not meet the company’s requirements,” Johnston explains. In such a scenario, NLP would allow a community bank to speed traditional processes dramatically.

“So much more data is in the cloud today. We’re using vendors that are ‘living’ in Amazon servers …
Our data is not just in our walls anymore.”
—Greg Ohlendorf, First Community Bank and Trust

Reviewing contracts is not the only AI play for streamlining vendor interactions.

“To automate communication with vendors, think about a chatbot,” suggests Johnston. “A chatbot helps you solve your problems without ever having to introduce a service person.”

Chatbots have the added attraction of being an AI-enabled product that many bankers already know, says Emmett Higdon, director, digital banking, for Javelin Strategy & Research. “Chatbots,” he explains, “are one of the first places where smaller banks will dip a toe into artificial intelligence.”

Safeguarding data

Community banks wrestling with vendor management soon find themselves fretting about data security. “So much more data is in the cloud today,” says Greg Ohlendorf, president and CEO of First Community Bank and Trust in Beecher, Ill. “We’re using vendors that are ‘living’ in Amazon servers … Our data is not just in our walls anymore.”

For Ohlendorf, using AI for data security is critical but not something that he’d tackle on his own.

“We’re not building AI solutions in our $200 million-asset community bank,” says Ohlendorf. He uses fintech providers to deploy AI to foil hackers and to guard against ransomware attacks for its vendors and the bank itself.

“Third parties can pose a significant security threat to an organization,” explains Adlumin’s Johnston. For instance, third parties that have been given access to a bank’s systems or its core can increase exposure to breaches. AI, which excels at analyzing reams of data and pinpointing suspicious activities, can be instrumental in safeguarding data and strengthening cybersecurity.

AI and innovation

Using AI to manage vendors has broader implications than simply solving a series of back-office or security headaches.

Many community bankers are keen to devise ways to distinguish themselves within a crowded field by being bold and experimental. If AI smooths the path to taking on more vendor partnerships, then it becomes a strategic imperative of its own.

“Smaller banks are not hesitant to try new stuff,” says Higdon, noting that AI is among the solutions he’s observed community banks experimenting with. “When we look for innovators,” he says, “often we hear that it’s not coming from the big-name banks. It’s the smaller banks that want to innovate and will try new things.”

---

---

Elizabeth Judd is a writer in Maryland.

Photo by Nate Smallwood

First National Bank and Black Tech Nation Ventures teamed up to support minority-owned startups in the Pittsburgh community and beyond.

By Elizabeth Judd

---

Driven by her goal to cultivate a supportive community for diverse tech startups, Kelauni Jasmyn founded the fiscally sponsored nonprofit Black Tech Nation in Pittsburgh in 2018. And in 2021, she became one of three founding general partners of Black Tech Nation Ventures (BTN.vc), a venture capital fund for tech startups led by Black and diverse leaders. The venture capital fund itself is one of a very small percentage of majority Black-owned venture capital funds operating in the U.S. today.

“Our goal is to help Black and diverse tech startups to build their companies to be unicorns,” Jasmyn says, defining “diverse” as companies owned by Black women or Latine, LGBTQ+ and Indigenous people.

In May 2022, $42 billion-asset First National Bank (FNB), based in Pittsburgh, announced that it would make an equity investment in BTN.vc as part of its 2020 pledge to devote $250 million to addressing “economic and social inequality in low- and moderate-income communities,” says Vincent J. Delie Jr., chairman, president and CEO of F.N.B. Corporation and its banking subsidiary, First National Bank.

For FNB, investing in this unique venture capital opportunity aligns with the community bank’s commitment to strengthening the communities it serves.

“We look forward to having a front row seat,” says Delie, “as [BTN.vc] foster[s] a thriving network of diverse innovators and entrepreneurs who will influence the tech landscape for years to come.”

Filling a need for diverse startups

In recent years, Jasmyn had been approached by several high-net-worth individuals and fund managers interested in investing in Black- and diverse-led startups.

She contacted experienced venture capitalist Sean Sebastian, founding partner of Birchmere Ventures, also based in Pittsburgh. Sebastian signed on as general partner, along with David Motley, cofounder of the African American Directors Forum.

BTN.vc is already over halfway to its $50 million fundraising goal. Jasmyn anticipates that the fund will hit the full close by the end of this year or early 2023.

Out of the 25 to 30 companies that BTN.vc will invest in over the next three to four years, the fund has already put money to work in five startups: one owned by a Black man, three by Black women and one by a Latine woman.

Jasmyn is eager to support entrepreneurs within the Pittsburgh area but emphasizes that the fund is scouring the whole country for the right investments.

Part of her mission, she says, is to create “longevity and generational wealth for underrepresented communities.” In this sense, she says, she and her partners are tackling the vexing problem of the racial wealth gap, because successful tech founders will have money to invest in their communities—or in other startups by people with similarly diverse backgrounds and ethnicities.

Five years ago, Jasmyn worked as a substitute teacher at a Chicago high school that she herself attended. She is keenly aware of the privilege she now wields.

“If we can continue to build more VCs and companies that look like me, it’s going to be a huge impact, not only financially but societally as well,” she says.

“My passion,” Jasmyn continues, “is to use what I have to give back to my community and create wealth and opportunity for myself and for them, too.”

Making intentional investments

Jasmyn praised FNB for “supporting this type of work and for making investments in the communities in which [the bank does] business.”

“First National Bank is instrumental in Pittsburgh,” she says. With the fund, Jasmyn aims to build partnerships within Pittsburgh’s tech ecosystem to attract and support Black tech professionals.

Delie shares a similar goal. He says FNB has “deliberately placed regional headquarters, offices and operational centers in or near underserved areas and urban centers to promote job creation and economic success.”

What’s more, Delie sees the community bank’s commitment to BTN.vc as part of a larger pattern. He notes that the bank’s new headquarters tower is located in the Hill District of Pittsburgh. This makes FNB one of the only public companies to locate its headquarters in a marginalized community.

When determining the size of investment FNB would make in
BTN.vc, the bank worked closely with the fund’s three general partners. The contribution, says Delie, “achieves an optimal balance between meaningful impact for the fund, anticipated returns and adherence to our responsible risk profile.”

In many ways, Delie’s goals for FNB and Jasmyn’s for BTN.vc fit together beautifully.

“We want to support Black and diverse startups,” concludes Jasmyn, “because we realize when all tides rise, everyone rises.”

---

Elizabeth Judd is a writer in Maryland.

From blending differing values to choosing a new chairman, there are many challenges that can arise after a merger or acquisition. We spoke with legal and financial experts about what questions community bank leaders should ask themselves pre-merger, what issues they may face and how they can build an even stronger financial institution.

By Bridget McCrea

---

Combining two banks into one is a complex undertaking. Between the due diligence, financial negotiations, technology integrations and the unification of two established operations—be it via acquisition or merger—the process can be risky and challenging. There may be substantial rewards at the other end, but that doesn’t necessarily make the journey any easier.

As both sides of the table work out the details, post-merger board succession planning should be a key topic of discussion. It’s an aspect of the deal that shouldn’t be left until the last minute, although it often is. “What’s going to happen to your board once your banks merge can’t be an afterthought,” says Anton J. Moch, a bank M&A and governance attorney at Winthrop & Weinstine, P.A., in Minneapolis.

“These conversations should take place at the very beginning of any transaction, with a focus on how to put the boards together, who will stay or leave and who will be the new chairman of the board,” he continues. “You can’t wait until you’re signing a purchase agreement—or worse, until you’re closing on a deal—to figure out how you’re going to work with two disparate boards.”

This is important, because banks with strong boards are generally well positioned in their marketplaces, understand their customer bases and make good decisions. Those with weak boards tend to struggle with decision-making due to disagreements either among board members or with executive officers.

“Community banks are heavily influenced by their boards of directors,” says Greyson Tuck, president of Gerrish Smith Tuck Consultants and Attorneys in Memphis, Tenn. “The board makes decisions, maintains control and produces business for the bank. These are all important responsibilities for a bank as it goes through the merger or acquisition process.”

Preserving the value of the transaction

When one community bank acquires or merges with another bank, there are many steps to take and considerations to discuss. Some of the most important questions to ask are: Who are our key players? What are their relationships to the bank? How can we best preserve the value of those relationships?

“Ultimately, that’s where the value lies in the acquisition process,” says Tuck. “It’s about the extent to which you can preserve the relationships. This, in turn, preserves the value of the transaction.”

Post-merger board succession doesn’t always mean picking a handful of current directors and creating a single combined board either. For example, Tuck recently worked on a deal where the holding companies for two different rural community banks were interested in merging the two entities into one. The talks took place between the two holding companies and initially focused on the future direction of the combined bank, including the succession plans for the current officers and directors. Discussions centered around culture and fit as the banks worked to keep as many active board members onboard as possible.

Then, the banks decided to set up two boards: one focused on technology, operations and day-to-day contact with the community, and the other centered on business planning and strategy. While there was some overlap across the two boards, the bank worked to identify individuals who would be best suited to each specific group. Tuck says this “brought a new focus for those two organizations as they put the boards together.

“Ultimately, it ended up working out pretty well for them thanks to those very early discussions that took place before deal pricing and future plans were even discussed,” he says, advising a similar, proactive approach to board succession planning for any community bank that’s merging with another institution.

“Right from the start, there was a clear focus on the expertise and skills of the existing directors at each organization. Then, a lot of thought went into which individuals would be the best fit for each board.”

What to do when family is involved

On the surface, an M&A deal involving a family-owned community bank looks just like any other deal. Those similarities usually end when the layers are peeled back on the family-owned entity, whose corporate culture isn’t always reflected in the books, so to speak. For this and other reasons, post-merger board succession planning for this type of bank requires a special touch. Success will depend on whether the new guard can respect the synergies between the banks’ cultures, the founding family (or families) and the communities that they serve.

Another complication is the fact that family members likely serve on the bank’s board or as the majority board. “With most family-owned banks, 60% to 70% of the board members are family members and 20% to 30% are outside directors,” Tuck explains.

If those family members don’t want to give up control to a board that’s diluted by non-family members, the challenges may mount. One way to resolve the issue is by creating a holding company board that has a different composition than that of the bank board.

For example, at the holding company level there may be six directors, four of whom are family members and two of whom are outside directors. Then, at the bank level, there will be 10 directors, six of whom are family members and four of whom are outside directors. Tuck says this is a very common post-merger board succession scenario for family-owned banks.

“That gives a family comfort, because ultimately the bank board members are elected and come into their position as directors by the consent of the holding company,” Tuck points out. “Particularly for a family-owned bank, this strikes the balance of giving the family the control they want while allowing an appropriate number of outside directors to be involved.”

Working through differing priorities

Once a community bank has reached the point where it’s decided that a merger with another institution is what’s best for the organization, it should turn its attention to the post-merger board plans. “If you fail to do this, it’s basically like dropping the ball on all of the work that goes into the merger planning and strategizing process,” Moch cautions. “Your board will set the entire direction for the merged organization.”

[A chairman] can help guide and direct the discussions to ensure that, even if there is disagreement, once a direction is picked, everyone gets on board with it. A strong chairman can make a big difference in driving that forward momentum for the board itself.
—Anton J. Moch, Winthrop & Weinstine, P.A.

With the stage set for post-merger succession planning, banks may have to work through differing priorities among new and existing board members. To effectively address these and other conflicts, Moch tells banks to lean on the organization’s mission, goals and position in the community that it serves. They should ask questions like:

• What do we want this bank to be?
• How can we accomplish this?
• What are our strengths and weaknesses?
• How can our board help us leverage these strengths and overcome the challenges?

“Have a clear direction even if there’s competing interest. That way, you have something to go back to,” Moch says. If the board itself can’t reach a consensus, he advises bringing in an outside mediator to work through the issues and help set baseline business strategies. Invite board members to voice their opinions throughout the process, he adds, but ultimately also know that a majority of the board needs to approve decisions. Having a strong chairman in place can help banks achieve that consensus.

“He or she can help guide and direct the discussions to ensure that, even if there is disagreement, once a direction is picked, everyone gets on board with it,” says Moch. “A strong chairman can make a big difference in driving that forward momentum for the board itself.”

Honoring experience and planning for the future

Depending on how long a community bank has been in business, there may be board members who have been in place for decades. They each bring their own strengths and experience to the board, and their longtime knowledge of the banking industry makes them valuable assets for the organization.

As the banking environment, technology and customer preferences all continue to change, boards can also benefit from some fresh faces who may bring different perspectives, experience and ideas to the table.

A merger is a prime time to bring new and established members into a combined board that honors experience and helps the new entity plan for future success. One way to do this is by adding people with diverse experience and career paths to the new board, says Joshua M. Juergensen, principal, financial institutions at CliftonLarsonAllen LLP in Minneapolis. Start identifying these potential board member candidates—internal and external—as early as possible in the M&A process, he advises.

Next, consider sending these individuals to ICBA LEAD FWD Summits, ICBA LIVE and other industry leadership events for further education and training and to take advantage of networking opportunities. “There’s a lot of value in sending up-and-coming generations to various ICBA events,” says Juergensen, who feels that the industry as a whole needs to do a better job of helping these individuals set career paths and work toward leadership roles in community banking.

“We need to help them see the value of being in the banking industry, because without that, we’re not going to be able to retain the next generation of banking leaders who are currently in school,” Juergensen says. “They need to see the value of being in the industry and serving as leaders, directors, board members and chairmen of the board.”

Communication is key as you work through the M&A process and try to understand the buyer’s and seller’s position and then try to synthesize those to get the best possible result.
—Greyson Tuck, Gerrish Smith Tuck Consultants and Attorneys

Striking the right balance

To banks that are working through the post-merger board succession process or planning an M&A transaction soon, Tuck says the most successful deals usually involve some level of give and take. Sellers want to feel good about the process itself and their banks’ futures, and buyers want to know that they’ve acquired a valuable asset that will succeed over time. The board plays a crucial role in making that happen and should be a top-of-mind consideration as a bank works its way through the process.

“Communication is key as you work through the M&A process and try to understand the buyer’s and seller’s position and then try to synthesize those to get the best possible result,” Tuck says. “That doesn’t mean everyone will get everything that they want, but it does mean that you have to strike the right balance between the competing interests.”

---

---

---

Bridget McCrea is a writer in Florida.

ITMs and VTMs are popular retail banking innovations among community banks.

What’s on the horizon for retail banking? We spoke with two community banks that have ramped up their services to meet—and exceed—the changing expectations of customers.

By William Atkinson

---

According to a new report from PwC titled “Retail Banking 2025 and Beyond” (see sidebar), the retail banking industry is undergoing tremendous change—but, of course, community bankers already know that.

“A few years ago, it was a fairly straightforward business, but today, technology and innovation, increasing competition, regulatory complexity, embedded finance, consolidation and evolving customer expectations are placing immense pressure on traditional business models,” the report said.

This intricate and evolving web of trends influences who consumers trust and how they prefer to conduct their financial lives. It also forces banks to address the fundamental question of what a financial institution is—and what value it provides.

So how are retail banks meeting this challenge?

Community banks are constantly looking to the future and identifying what customers want. One such bank is $1.7 billion-asset One Community Bank (OCB) in Oregon, Wis. It has introduced a plethora of new retail banking initiatives in the past couple of years, including online account opening for anyone in the state of Wisconsin. The community bank offers a variety of deposit offerings through its online account platform, which can easily be accessed from its website.

“We do thousands of video banker transactions every year. Clients appreciate the longer hours and the convenience of not needing to leave their cars but still being able to get service with a personal touch.”
—Jeff Versluys, One Community Bank

“Importantly, as we have created and launched new promotional products with preferred rates, we have made those products available in the online platform,” says Jeff Versluys, executive vice president and chief retail officer for OCB. The initiative is working. “The number of accounts that have been opened via this new channel has significantly exceeded our expectations.”

In addition, several of OCB’s locations in Dane County boast interactive teller machines (ITMs). Most are outside in the drive-thrus, but its new Middleton bank, which is situated in a walking community, has an ITM in the entry vestibule that’s accessible after hours.

“These can be used as ATMs but also offer video banker service,” Versluys says. “We do thousands of video banker transactions every year. Clients appreciate the longer hours and the convenience of not needing to leave their cars but still being able to get service with a personal touch.”

More VTMs to benefit customers

Gorham Savings Bank in Gorham, Maine, has also found that upgrading its teller machines has enhanced customers’ banking experience. By expanding its video teller machine (VTM) fleet, it efficiently provides extended banking hours to customers. “Every branch location now has a VTM, and we have added a terminal at a coffee shop in a community where we don’t have a branch, to add convenience for our customers,” says Dan Hancock, chief deposit officer.

The $1.5 billion-asset community bank piloted its VTM initiative several years ago, and it has expanded significantly over the past year.

“The primary objective was to extend banking hours for our customers,” Hancock says. “Our VTMs are open from 7:30 a.m. until 6 p.m. Monday through Friday, and the addition of the offsite terminal has helped to fill in a gap in our service area, giving our customers added convenience.”

By hiring a digital engagement specialist to help customers make the best use of mobile and digital services, Gorham Savings has increased the use of these products.

Overall, customer reaction to the community bank’s many initiatives has been positive. “We have seen an increase in mobile and digital usage, like other banks,” Hancock says, “but these initiatives have helped expand that engagement from balance inquiries and funds transfers to more complex needs like money management and managing debit card security.

“In addition,” he continues, “our offsite VTM has become one of our busiest terminals, so customers have appreciated being able to conduct their banking with a video teller instead of driving to a branch, and because they are speaking to a live person, the experience is more personal than using an ATM.”

Reaching customers

Of course, successful retail banking requires more than just technology. Earlier this year, OCB introduced its Colleague Banking Initiative (CBI). “We don’t take it for granted that a colleague will choose to do their banking with OCB,” Versluys says. “Many do bank with us, of course. However, to increase the number of colleagues who are also clients, we decided to educate and incentivize. As a result, we have been able to increase the percentage of ‘colleague/clients’ by 20%.”

“During COVID, we [built] a resource team that could connect customers with community resources to help them with a wide range of needs. We are now in the process of building out this knowledge and skill set in our branch teams.”
—Dan Hancock, Gorham Savings Bank

To achieve this, the community bank employed multiple strategies. First, it offered incentives to both new colleague/clients and those colleagues who were already customers before the initiative. The incentives included one PTO day for the current year and every year that the colleague remains a client, as well as drawings for $100 gift cards. Second, OCB created a dedicated CBI support team to help colleagues with banking questions, open new accounts and protect the privacy of their information. Third, it conducted multiple town hall live video sessions to help spread the word on CBI and answer questions.

As always, financial education plays a key role in deepening customer relationships. It’s an important focus for Gorham Savings Bank, which provides its customers with access to tools and resources to help them improve their financial wellness.

This began with its launch of Personal Finance, a software program that helps customers budget, track spending and manage savings goals. “We then expanded that by hiring a financial wellness coach to provide more personalized advice and guidance,” Hancock says. “During COVID, we expanded that approach by building a resource team that could connect customers with community resources to help them with a wide range of needs. We are now in the process of building out this knowledge and skill set in our branch teams.”

Expanding availability

Recently, Gorham Savings Bank began offering Smart Start, a Bank On-certified checking account to provide everyone in its community with access to safe and affordable banking.

“Part of our mission as a bank is to promote financial wellness, and we felt a responsibility to help our customers through challenging times,” says Hancock. “Since then, inflation has had a big impact, and being able to provide tools and advice to help customers adjust their budgets has been helpful.”

---

---

---

William Atkinson is a writer in Illinois.

“The habits of our customers change, and we’re constantly walking beside them, transforming our services to meet their needs.”

Digital transformation. Those words have been bandied about with increasing fervor, fueled by a heightened sense of urgency. Yet, while the digital movement has increased pace, it’s more of an evolution than a revolution.

When I think about this concept of “going digital” in our industry, I’m struck by the fact that it involves continual change over time. The habits of our customers change, and we’re constantly walking beside them, transforming our services to meet their needs. It’s never been about being on the bleeding edge or doing what everyone else is doing, but about better addressing the interests of our distinct communities.

And in today’s shifting landscape, it’s more important than ever to make sure we’re evaluating our offerings with blinders off. How honestly are we assessing our products and services? How are we ensuring our channels and tools are meeting customer needs? If we’re still updating our technology plans once every three years like we’ve always done, is that enough?

While these questions are challenging, there is information surrounding us that can help shed light on the right responses. For example, consider your transaction volume: How are payments clearing today versus three to five years ago and why? Or listen at account opening: What questions are being raised relative to your products? Also consider your customer service center, teller insights and other channels: What inquiries are coming through? What are customers asking for at the frontline?

These findings will give you greater insights into where technology is meeting needs and where you may need to shift to meet new digital expectations. When and how you do this depends on your audience. Customers are transforming at different paces, so analyzing the steps you can take to have the greatest impact will enable you to be strategic in product planning and create efficiencies for your bank in the process.

So, as you read this issue, I encourage you to think of the articles as resources in your digital evolution. In addition, ICBA Bancard has produced a digital transformation white paper and workbook to guide community banks more specifically in their evaluation process of digital payments and strategies. These tools are available to ICBA members and can be downloaded on our website.

No matter what approach you take, now’s the time to make sure you’re considering what’s next for your customers’ digital journey. Shifting your tech plans and processes to keep pace with the changing environment will guarantee that you can support customers in new ways, maintaining the same level of service they seek and expect.

---

Rebeca Romero Rainey
President and CEO, ICBA
Connect with Rebeca @romerorainey

John V. Anderson bought F&M Bank in the early 1970s. It’s a third-generation family business today.

John V. Anderson celebrates 75 years in community banking this year. The chairman emeritus of F&M Bank offers us a glimpse of his life, his career and the lessons he’s learned along the way.

By Molly Bennett

---

How do you capture a life in 1,000 words? The answer: with difficulty. And when that life takes in the Great Depression, World War II and 75 years in community banking, the challenge becomes more acute. But here goes nothing.

John V. Anderson, who is 95, is chairman emeritus of F&M Bank in Crescent, Okla. Since buying it 50 years ago, he has watched it grow from a single-branch community bank to one with nine locations across the state and $650 million in assets. His three sons and one daughter are all involved in the 100% family-owned business, as are three of his grandchildren.

“And I’ve got great-grandchildren now that are beginning to drive cars, so that’s the next wave that wants a job,” he laughs.

“In these 75 years, I’ve made a lot of friends. I just did the best I could at whatever job I had.”
—John V. Anderson, F&M Bank

Anderson’s family ties have always been strong. He was born into a farming family in Choctaw, Okla., in 1927. His father’s family, members of the Citizens Potawatomi Nation, farmed corn and cotton, and his mother came from a produce farming family.

When Anderson was three, his father lost his job at the local utility company. “We had to skimp and save,” he says. “We picked cotton, and we chopped cotton and corn. We didn’t have a car, so we had to walk out to the fields. That made such an impression on me. So, every job I’ve had, I would do the best job I could.”

In 1945, right after high school, he enlisted in the Navy, finishing boot camp right as the U.S. dropped the bombs on Hiroshima and Nagasaki. He was stationed on an aircraft carrier and took part in Operation Magic Carpet, which saw U.S. troops collecting armed forces personnel from various Pacific islands and dropping them off at San Diego or Pearl Harbor. “We were a part of a really joyful time, because everybody was coming home,” Anderson says.

The banking adventure begins

After he was discharged, he worked at a utility company before taking a job at Liberty National Bank in Oklahoma City in 1947. There, he worked his way up from messenger to teller to the correspondence department. The latter is where he met his wife, Jo Laverne, who is 93.

“She worked about 10 feet from me … and I thought she was a pretty good-looking girl. I’d shoot a rubber band back there once in a while just to get her attention,” he laughs. The couple celebrated their 73rd wedding anniversary in September.

---

---

But back to 1972. That year, Anderson was senior vice president of operations at Liberty when one of his industry connections, J.R. Gibson, who owned F&M Bank in Crescent, Okla., told Anderson he was looking to sell due to health problems.

“He said, ‘If you are interested, you’d be my first choice,’” Anderson says. “I said, ‘J.R., let me tell you that I don’t have any money, I have no net worth and I have no secondary source of income. But I’ll see what I can do.’”

Anderson went to some colleagues at Liberty National Bank, and they agreed to consider loaning him the $548,000 he needed—about $4 million today. “And I thought, if you make me a loan, you’re probably the worst loan officers I’ve ever run into,” he laughs. “But anyhow, they made that loan.”

Anderson says that when one of the presidents at Liberty heard about the loan, he said, “Let me tell you something. You’re gonna be one of the last guys that can buy a bank with just sweat equity.”

And so began the Anderson family’s ownership of F&M Bank. It was a baptism of fire: The late 1970s and early 1980s brought a recession, high inflation and higher interest rates; Anderson was paying 18% interest on the loan he used to buy the bank. But F&M survived through hard work and the connections Anderson had made.

---

---

Since then, the community bank’s growth has been steady. It acquired a handful of distressed banks over the years and opened branches to expand its footprint. Anderson has been an active member of the Oklahoma Bankers Association and ICBA, and he also sat on the board of First National Bank & Trust Co., a Potawatomi tribal bank in Shawnee, Okla. His son, John Tom Anderson, is a current director.

“We have excellent relations with the tribe, and [F&M Bank] does some loans with the Bureau of Indian Affairs,” Anderson says.

Today, he and his family have their eyes on the future. “Right now, we’re in the process of drawing up rules for employing family members,” he says. “We want them to have a good education, and we want them to work someplace else for three or four years to see what it’s like to work for somebody that’s very objective. We want them to observe the same standards that everybody observes when they come to work for us.”

In 2019, Anderson was inducted into the Oklahoma Bankers Hall of Fame. “I thought that was something,” he says. “I’ve done that through mentors and friendships, and in these 75 years I’ve made a lot of friends. I just did the best I could at whatever job I had.”

---

---

Molly Bennett is executive editor of Independent Banker.

After 40 years in its Cape Giradeau branch, Wood & Huston Bank moved to a new building and allowed firefighters to train in its former building.

Before Wood & Huston Bank’s former headquarters was demolished, the community bank lent the space to a local fire department for critical, hands-on training.

By William Atkinson

---

If you are in the process of pulling up roots from an existing building and moving to a new facility, and if you plan to demolish the older building, there may be a way to provide a valuable service to your community—one that is so valuable that it may actually save lives in the future.

Such a scenario happened in August 2022 in Cape Girardeau, Mo., where $1 billion-asset Wood & Huston Bank closed an existing branch and moved to a new one right next door.

“The decision to close our old facility and build new was made in the spring of 2021,” says Kate Yarbro, vice president and branch manager of the Cape Girardeau branch. “The Huston family generously chose to build us a new facility after 40 years of life in our previous building.”

The building had been renovated and extended many times since it was built in 1980. While it was a hard decision to tear down a piece of history, Yarbro says the community bank’s staff is excited about it and looks forward to the next 40 years in its new building.

Shortly after the move, Yarbro was approached by Matt Mittrucker, battalion chief of training and safety for the Cape Girardeau Fire Department. He asked if it would be possible to do some training in the building while they were waiting for demolition to begin.

“After discussing it with some colleagues,” says Yarbro, “we decided it would be a great opportunity for the department’s training and could also have a positive impact on our community.”

“We often look for buildings in town that may be demolished but that are still in safe conditions that we can train with,” says Mittrucker. “Those opportunities rarely present themselves.”

Wood & Huston, he notes, “graciously allowed us full access to the old building, before demolition, without burning it due to the close proximity to other structures.”

Bringing in the battalion

The fire department has three shifts of 21 firefighters each who staff four engines and one ladder. Each shift was able to send crews at least twice for training before the building was demolished.

“Each crew trained several hours each day while rotating in and out, so that we could still provide emergency services promptly,” says Mittrucker. The multiday training incorporated many different skills that crews would need in an emergency.

“We had a positive reaction from every customer we saw, and I feel the community as a whole was excited to see our city’s fire department get to train.”
—Kate Yarbro, Wood & Huston Bank

“We accomplished search training for victims in large structures used for commercial purposes that have drastically different layouts than a normal residential structure,” Mittrucker adds. “We advanced charged hoselines into the structure and were actually able to spray water in order to practice water stream control.”

However, one of the best trainings was practicing roof ventilation on a real roof.

“Due to the nature of the action, we often can’t do this in training, because it destroys the roof by cutting smoke and relief holes into a structure using chainsaws and rotary saws,” he says. “This action greatly improves victim survivability and improved working conditions for the interior firefighters.”

“It was fun for us to see them training for a few days,” Yarbro says. “We had some people concerned at first that the bank was on fire, but we quickly spread the word that the fire department was just doing some training. We had a positive reaction from every customer we saw, and I feel the community as a whole was excited to see our city’s fire department get to train.”

The facility was demolished the first week of September, after training had been completed. At that time, Wood & Huston Bank arranged to have the lot graded and concrete poured.

A better customer experience

The new, open-concept facility includes additional parking, two ITMs and other features designed to give customers a more customized banking experience. According to Yarbro, the new branch is “a breath of fresh air and a modern take on banking. We are looking forward to creating our home here, and excited for the future.”

“Any opportunity to partner with a local business such as Wood & Huston is a win for both,” says Mittrucker. “It shows the bank’s devotion to its community and shows our community businesses that we are ready to respond to any emergency that may arise.

“Wood & Huston’s allowance for us to train made an impact on all the citizens of Cape Girardeau for the foreseeable future, due to the fact that our firefighters will be familiar in a similar situation when emergencies occur,” he adds. “It was truly a priceless opportunity.”

---

William Atkinson is a writer in Illinois.

Illustration by Idey/Adobe

AI can help solve customer pain points—but does it mean community banks will lose the personal touch they pride themselves on? As community bankers themselves tell us, the answer is no.

By Susan Springer

---

From gaming and online advertisements to autonomous vehicles and smart homes, artificial intelligence (AI) is used in a wide variety of ways. When it comes to banking, adoption is still in the early stages. However, when it’s thoughtfully applied to customer service, community banks can solve customer pain points and reap significant benefits—without losing the personal touch they’re known for.

How can AI accomplish this? First, with AI’s ability to mimic human intelligence, community banks can quickly process huge amounts of data to ease customer friction. Then, by monitoring AI as it works, banks can see where their customers’ experience can improve. That’s because AI iteratively improves itself based on the information it collects, with computer systems processing data and learning patterns through advanced algorithms.

“There’s incredible value in banks’ data, and they aren’t optimizing it either because of a lack of technology or it’s locked in the core. With AI, we can turn it into actionable insights.”
—Carson Lappetito, Sunwest Bank

Here are common issues customers experience that AI could improve.

“My accounts are scattered at different banks.”

“Many orphaned accounts sit inside community banks,” says Carson Lappetito, president of $2.5 billion-asset Sunwest Bank in Sandy, Utah.

Customers don’t want a fragmented banking relationship. “They often say, ‘You’re my core bank and I want my accounts together, I just didn’t know you had an SBA loan department,’” says Lappetito.

He believes community banks can easily improve their ability to cross-sell by using robust data analytics and AI to place the right products in front of the right customers. Partnering with vendor Neocova to identify cross-selling opportunities within Sunwest’s customer data was a game changer, he says. “We can see customers who are paying loans at other institutions, estimate loan balances and generate a shortlist by relationship manager,” says Lappetito.

Only a few months of targeted cross-selling has made a meaningful impact, increasing loan production and uncovering more deposit opportunities for customers. “It provided incredible fruits for us both in additional revenue opportunities and customer satisfaction.” While traditional cross-sell campaigns produced overload in the sales team, AI eased the process for all involved.

In addition, AI enabled Sunwest to pursue its specialty of solar lending. “Because the value in AI learning is a function of repetition, the more models and use cases, the more knowledge,” Lappetito says. Thanks to data sets beyond his own bank, the AI platform identified customers with large electric bills who would benefit from Sunwest’s solar expertise.

“There’s incredible value in banks’ data, and they aren’t optimizing it either because of a lack of technology or it’s locked in the core,” he says. “With AI, we can turn it into actionable insights.”

“It takes too long to get answers to simple questions.”

The pandemic meant fewer face-to-face opportunities for community banks. “They got creative quickly; the adoption of virtual assistants and chatbots spiked during COVID,” says Nicole Harper, director, corporate strategy at Jack Henry.

Chatbots, a software application that can conduct an online chat conversation via text, and digital virtual assistants (VAs) can give customers fast answers on their bank’s mobile app to routine questions such as, “What’s my balance?”

“Look at the top 20 reasons why they call, and you will identify the sweet spot of the high-volume, low-complexity things that create an opportunity to serve through AI,” says Harper.

She says community banks can tailor automation to their own customer service strategies. For example, a bank may feel comfortable allowing a VA to solve a login problem, while situations like a lost card are solved by an empathetic human. “Issues that create emotion are where you want to stand up and be the hero, since customers may have less appetite for automation,” Harper says.

“We want to balance providing the fast answers and solutions that customers are looking for without losing that personal touch.”
—Rory Bidinger, Stearns Bank

Some AI platforms can even detect emotion such as a raised voice, so that if an interaction moves beyond a simply query to frustration, the customer can be sent to an agent.

While chatbots or VAs are usually thought of as customer facing, there is also an agent assist model. “That can ensure your agent gets to the single right answer quickly,” Harper says.

“Did I get the loan or not?”

“We want to balance providing the fast answers and solutions that customers are looking for without losing that personal touch,” says Rory Bidinger, chief marketing officer of Stearns Bank N.A. in St. Cloud, Minn., adding that business customers may have high expectations of speed set by online lenders who can put them in touch with loans in a matter of minutes.

Stearns is still researching the expansion of AI operational functions, Bidinger says. Because the $2.3 billion-asset community bank prioritizes a personal connection with its customers and “commits that we will answer on the first ring,” it is considering how to provide convenience through AI while maintaining the human touch.

Stearns is exploring the use of AI for smaller business loans in its equipment finance division. As a national bank that serves customers in multiple states, Stearns makes loans and finance equipment for various industries, including medical, agriculture, construction and transportation. While AI can speed up answers to customers’ questions by automating credit reports, the community bank wants to understand and make loan decisions based on the whole customer—not just their credit score. A hybrid approach would enable customers to obtain funding faster while bankers maintained the customer relationship.

“We are trying to identify these types of opportunities where we can partner with other technology companies to provide services that our customers are looking for, instead of reinventing the wheel,” Bidinger says.

“It’s hard to reach a real human to help me.”

It’s no secret that the banking industry is one of many affected by the current staffing crisis, which has encouraged many banks to look for technology solutions. Some saw AI as the silver bullet.

“Customer experience has become a critical competitive advantage, requiring banks to completely change their approach to servicing customers,” says N. Venu Gopal, chairman of the board of Quinte Financial Technologies, Inc. “Today … people expect specialized services everywhere, all the time.”

AI can streamline processes significantly, freeing bankers’ time to interact with customers. For example, Gopal says there is a growing focus on automated lending. AI can be applied to capture credit information, perform some underwriting functions and present all relevant information, including analyst recommendations, on a single dashboard to lending staff to facilitate the decision-making process. With AI substantially improving operational efficiency in the back office, banks can reduce operational cost, errors and time required to process customer requests.

“We are seeing greater success in implementing AI to help with the automation of processes, which results in superior service and reduced turnaround time,” Gopal says. “We also see community banks striving to maintain that personal touch by empowering their staff through the use of AI.”

However, AI is not a set-it-and-forget-it solution, he says. “The systems do require constant supervision and review of outcomes to ensure that needs of the customer are consistently being met.”

“Paperwork takes way too long.”

“While AI could be applied to any layer in the tech stack, from back office, to customer facing, start with the back office including document processing, compliance verification and fraud detection,” says Sarah Hovde, head of investor relations at BankTech Ventures.

Hovde says banks need to clean up the back office first, so that customers don’t experience slowdowns due to bottlenecks in processing. If banks are driving more sales volume, they need the infrastructure to support that increased activity, or they’ll drown staff. AI can quickly manage repetitive, monotonous tasks. For example, tech can expedite showing a full view of a customer from a variety of platforms instead of a person working half a day to aggregate that same data.

“Leverage the technology to free up human capital by spending less time sorting through data,” says Hovde. “Then, move into the front office to improve customer service by offering more personalized products.”

---

Susan Springer is a writer in Oregon.

“FedNow can be another positive differentiator for our nation’s community banks, but we must be ready for this real-time service and its 24/7/365 requirements.”

We’ve been working toward a faster payments future for a decade now, and we’re finally seeing the fruits of our labor: the launch of FedNow. Our efforts to encourage the Fed to offer an instant payments solution have led to this result; it was our voices that expedited FedNow’s time to market, with the Fed updating the original timeline due to our focused advocacy efforts. By mid-2023, we will be able to begin offering this solution to our customers.

With FedNow entering the market, community banks can add in a missing payments link—instant payments—and help level the playing field with the nation’s largest financial institutions. FedNow will be a great equalizer for the industry, bringing real-time payment clearing and settlement to community banks across the country.

So, with FedNow’s launch on the horizon, what can community banks do to prepare? I, for one, have been speaking with our core provider, expressing our interest in FedNow and getting into the details of when it will be available to us and at what price.

While many providers are still ironing out their plans, we must actively seek information. It’s important to reach out and emphasize that FedNow is a priority. Think of it like you would an advocacy visit on Capitol Hill: Go in with your ask, and make it clear what you want from them and by when. Every executive reading this column should take five minutes to send an email to their core provider to inquire about FedNow availability, timing and pricing.

While you’re waiting to firm up those details, take steps to ensure your teams are up to speed on what FedNow will mean for your customers. From signing up for the FedNow webinar series offered by ICBA Bancard to subscribing to FedNow notification emails, resources exist that will help you deepen your knowledge of the solution and its potential.

In addition, having conversations with your Fed rep to understand how you should prepare will provide a firsthand perspective on the more nuanced elements of FedNow implementation.

Regardless of the steps you take, the time to act has arrived. FedNow can be another positive differentiator for our nation’s community banks, but we must be ready for this real-time service and its 24/7/365 requirements. We need to be able to upgrade our infrastructure and processes in a positive, strategic way to make the most of the opportunity. For community banks, it’s time to unlock FedNow’s potential and take advantage of all that this solution will offer.

---

Brad Bolton, Chairman, ICBA
Brad Bolton is president and CEO of Community Spirit Bank in Red Bay, Ala.
Connect with Brad @BradMBolton

Illustration by Alex/Adobe

A convergence of economic and marketplace factors presents community banks with new opportunities for innovation and growth as they look to the new year.

By Charles Potts, ICBA

---

The fintech landscape is shifting. Investments in new companies have slowed, valuations that some early-stage companies commanded last year are ratcheting back, and financial technology providers are tightening their proverbial belts. While challenging for some, this convergence of economic and marketplace factors presents community banks with new opportunities for innovation and growth as they look to the new year.

With community banks finalizing 2023 budgets, now is an excellent time to reevaluate current business partnerships and consider whether partnering with additional or different fintech providers would better meet the bank’s and customers’ needs.

For community banks that have yet to start evaluating digital solutions and providers, now is the time to act. Current market shifts have created a buyer’s market, putting community banks in a favorable position to renegotiate contractual terms and become more selective in their provider choices.

As community banks leverage these marketplace advantages, they should consider partnering with providers that bundle their services and solutions to meet customers’ demands. For the past few years, fintechs have worked to address specific challenges or niches, creating a siloed approach that resulted in multiple solution providers and platforms, creating unnecessary friction for community banks and their customers.

In response, community banks, like $779 million-asset Lead Bank in Kansas City, Mo., have begun investing in fintech providers that can arm them with the capabilities to bundle their services and streamline processes. We see this same trend playing out in larger financial institutions as well. Earlier this year, Bank of America announced its new super app, which facilitates bundling multiple solutions under one umbrella.

In this time of economic uncertainty, community banks also have an opportunity to remind their customers of their presence, value and stability. Through partnerships with robust solution providers and a keen focus on attending to customers’ desires, community banks can not only enhance customer loyalty but bring new customers into the fold.

Digital banking solutions remain a primary focus for ICBA, reflected in initiatives such as our renowned ThinkTECH Accelerator program, which we are bringing in-house in 2023. We’re excited to take the next step on this journey to build more comprehensive programming aimed at further addressing the emerging needs of community banks and the customers they serve.

Imagine the possibilities and embrace the opportunities before you. Seize the moment to explore innovation.

---

Charles Potts (charles.potts@icba.org) is ICBA executive vice president and chief innovation officer

The two-day summit included presentations on the metaverse, instant payments and more.

At this year’s ICBA LEAD FWD Summit, up-and-coming community bankers gathered from around the country to strengthen their leadership, technical banking and advocacy skills. The leadership conference hosted 26 speakers that helped attendees prepare for the future of banking.

---

---

---

---

---

---

---

---

Photo by Dragana Gordic/Adobe

Improving the small business loan experience is a great way to build new relationships and deepen existing ones. We spoke with industry specialists about the priorities for community banks as they build a digital loan process for small businesses.

By William Atkinson

---

Digital lending capabilities are quickly becoming table stakes, particularly when it comes to small business lending. It’s critical for community banks to have online loan applications, process automation staff skilled in digitization and more.

However, banks should first consider their customers’ needs and the infrastructure and features needed in a lending platform before adopting a new digital strategy.

Benefits of digital lending

“Today’s customer, whether consumer or small business, has become very comfortable and accustomed to anytime, anywhere self-service,” says Charles Potts, ICBA’s executive vice president and chief innovation officer. “The necessities of a digital-first approach were greatly magnified during the pandemic, with many banks having to close branches and rapidly adopt new digital technology to address the needs of the PPP [Paycheck Protection Plan] loan. Providing a digital lending experience and, at the same time, maintaining a unique relationship banking model is now a critical ‘must have’ for most community banks.”

According to Kevin Wilzbach, director of technology product management for Wolters Kluwer Compliance Solutions, providing digital lending opportunities helps community banks stay true to their mission by providing the best customer experience.

“Consumers have a growing expectation to interact with financial institutions via online and/or mobile services,” he says. “Digital lending is one specific area where community banks can improve customer satisfaction by reducing paper-intensive processes. Additionally, it allows community banks to retain existing small business customers while improving efficiencies.”

“There are numerous reasons to support a digital lending solution,” says Michael Haedrich, a senior product manager at Finastra. Doing so can help community banks:

• Optimize the loan cycle
• Offer the ability to speed up the entire process
• Make it easier to capture applicant information
• Make quicker decisions
• Ensure a more consistent lending process
• Provide convenience by offering its use across multiple devices
• Take advantage of analytics

According to Haedrich, it’s critical for community banks to offer digital signature as an option. “Not everyone wants to sign electronically, but it needs to be offered,” he says. “As our customer base changes, convenience becomes more critical, and electronic signature is synonymous with convenience.”

Offering a combination of digital, hybrid and paper closing options is also critical, according to Wilzbach. “This allows the lender to meet every client’s needs,” he says. “We believe having a flexible digital closing workflow will deliver the best borrower experience, while creating operational efficiencies for each participant throughout the lending ecosystem.”

“When you go digital, you open new opportunities that you may have found unprofitable in the past because of manual intervention.”
—Michael Haedrich, Finastra

According to Potts, the most important aspect to any digital lending solution for a community bank is making sure there is always a way for the customer to engage with the banker. “At all stages of the lending process, the customer must know there is a banker available to them whenever they wish,” he says. “While creating a frictionless, efficient and seamless experience is critical to the overall efficiency of a digital lending, there should never be any technology disintermediating the uniquely important relationship a community bank has with its customer.”

Rolling out digital lending

What strategies can community banks introduce to make their digital lending program as seamless and easy for small business customers as possible? “When you go digital, you open new opportunities that you may have found unprofitable in the past because of manual intervention,” says Haedrich. He says it can enable opportunities such as microloans in the range of $100 to $1,500, bundled products offered at point of sale and preapproved credit card offers when a customer applies for a loan.

“Banks can apply internal data to make preapproved offers that customers can accept online with a few clicks,” he says. “This is taking advantage of the analytics you now have access to because of your digital lending.”

It is also important to select a provider that offers digital solutions throughout the lending process, according to Wilzbach. “This will create a more seamless borrower experience and provide significant operational efficiencies to the lender,” he says. “Selecting a trusted provider with deep expertise in the digital lending space, and one that can provide solutions for all asset classes, is a huge benefit in helping simplify a lender’s digital transformation.

He adds that community banks should focus on solution providers that can handle all variations associated with a digital lending closing. “Lenders may be hybrid-oriented today or may need to support wet-sign options as necessary,” he says. “It’s important to look for solutions that support you across the digital lending landscape as your needs change.”

---

---

William Atkinson is a writer in Illinois.

Upside-down yield curve offers some possibilities.

By Jim Reber, ICBA Securities

---

Some rumors are true: There is an historical relationship between the phenomenon known as an inverted yield curve and a subsequent recession. This isn’t any idle talk among Fed watchers and other pundits this time around, nor is it peripheral to the management of financial institutions, including community banks.

Being the Master of the Obvious, I’ll point out the treasury yield curve has been inverted since July, often by as much as 40 basis points (0.40%). This presents dilemmas, and opportunities, for bond portfolio managers. And for those keeping score, every curve inversion in the past four decades has been followed by a recession within a year.

It occurs to me that the conversations my associates at Stifel and I have had recently with our customers have followed a pattern, driven by the interest rate cycle. Rates fall and the curve steepens, and bankers need reminding how to lock in yield and harvest gains. Rates rise and the curve flattens, and bankers want to know how to manage their unrealized losses. And then, the curve inverts, and it seems that everything we learned about risk/reward has gone haywire. So we will devote the rest of this column to discussing why curves invert and where value may appear in the various investment sectors that matter to community banks.

The what and why of inversions

When the Fed determines it’s time to begin raising rates, the most visible tool at its disposal is to increase the effective fed funds rate. Whenever the overnight rate increases, so do other shorter-term yields, which most analysts take to mean two years and less. Longer-term buyers, which include, but aren’t limited to, depositories, have wholly different investment objectives and risk tolerances. Long investment yields, the proxy for which are 10-year bonds, are more affected by inflation expectations.

Every Fed fund hike should, in theory at least, give longer buyers some added comfort that inflation will be well behaved. In a year like 2022, which has seen three full percentage points in rate hikes on the short end, we’re almost certain to see the curve flatten, and possibly invert. As investor sentiment by a number of measures now expects inflation to remain off its peak from earlier this year, the final component for a curve inversion has entered the mix.

Here’s the dilemma: If an inverted yield curve is a reliable predictor of an impending recession, and interest rates both short and long are going to fall soon, where should investors place their bets today? In theory, it should be on the long end, which leaves money on the table—today.

MBS, too

As we dig into the less-is-more narrative of upside-down curves, we can now add mortgage-backed securities (MBS) to the list, which is highly unusual. It is a rare condition indeed when shorter MBS out-yield longer ones, and this has to do with prepayment expectations. As home mortgage rates have doubled this year, anyone with an existing loan is going to sit tight and pay only the minimum amount of principal each month.

That means the lower rate pools will be longer in duration, and also lesser in yield, than more current ones. To put a pencil to it, a FNMA 15-year pool with a 4% stated rate will yield about 4% at the moment, whereas a 15-year 3% pool will produce about a 3.5% return. When we add that the 4% MBS is expected to be nearly a year shorter in average life, one can see why the “up in coupon” trade makes full economic sense in 2022.

Muni curve still steep

I need to mention that a sector that is quite important to community banks is not now, nor has it ever recently been, inverted. Tax-free munis appeal to many buyers, including individuals. In fact, most of that sector is owned by retail investors, whose needs (and marginal tax brackets) are different than your bank’s. Retail demand sets the yield curve for all muni buyers, and mom and pop tend to load up on short bonds, which keeps short yields under wraps.

As of October 2022, the investment-grade muni curve was positively sloped by about 70 basis points (0.70%) for C corps, and even more for S corps. This is proof that the municipal sector has a mind of its own. It is the least affected, for better or worse, by Fed activity.

Equal amounts of short- and long-term investments … will work out fine, if either a) the curve inverts further; b) the curve begins to steepen; or c) the curve remains flat.

Here’s a thought

So what do we make of all of this inversion business? The yield curve is on a 40-year winning streak of predicting slowdowns. It’s also clear that short yields have gotten to levels that can make some money for community banks, whose deposit costs have remained quite low. So how about this as a suggestion: a barbell structure.

Equal amounts of short- and long-term investments (you get to define those limits) will work out fine, if either a) the curve inverts further; b) the curve begins to steepen; or c) the curve remains flat. And I’d say there’s a good chance of one of those results occurring. So my advice (no surprise here!) is to invest at different parts of the curve, in a variety of products. And you can leave the tumult of the yield curve’s shape to the pundits.

---

Jim Reber, CPA, CFA (jreber@icbasecurities.com), is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks