Tag: Small business

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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

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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.”

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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

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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.”

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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

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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.”

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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

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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.”

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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.

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