2025 VACB/WILLIAMS MULLEN — 25TH ANNUAL BANKERS’ CUP GOLF TOURNAMENT OFFICIAL PUBLICATION OF THE VIRGINIA ASSOCIATION OF COMMUNITY BANKS 2025 PUB. 14 ISSUE 2
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©2025 Virginia Association of Community Banks (VACB) | The newsLINK Group LLC. All rights reserved. The Community Banker is published four times per year by The newsLINK Group LLC for VACB and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of VACB, its board of directors or the publisher. Likewise, the appearance of advertisements within this publication does not constitute an endorsement or recommendation of any product or service advertised. The Community Banker is a collective work, and as such, some articles are submitted by authors who are independent of VACB. While a first-print policy is encouraged, in cases where this is not possible, every effort has been made to comply with any known reprint guidelines or restrictions. Content may not be reproduced or reprinted without prior written permission. For further information, please contact the publisher at (855) 747-4003. CONTENTS 4 8 VACB Board of Directors CHAIR Tara Y. Harrison Virginia National Bank Charlottesville CHAIR-ELECT Lisa E. Kilgour MainStreet Bank Fairfax VICE CHAIR Dabney T.P. Gilliam Jr. The Bank of Charlotte County Phoenix PAST CHAIRMAN Joseph R. Witt, CPA The Old Point National Bank Hampton ICBA VIRGINIA DELEGATE Blake M. Edwards Jr. Skyline National Bank Independence PRESIDENT & CEO Corey J. Connors VACB Richmond VACB Directors LeAnne R. Emert Benchmark Community Bank Kenbridge Cetric A. Gayles Citizens Bank & Trust Blackstone Aaron Green Pendleton Community Bank Harrisonburg James E. Hendricks Village Bank Midlothian Robert J. Hobbs CornerStone Bank Lexington Paul M. Mylum National Bank Blacksburg Thomas L. Rasey Jr. The Farmers Bank of Appomattox Appomattox Mark N. Reed Pioneer Bank Stanley Matthew H. Steilberg C&F Bank Toano VACB Staff Katharine C. Garner, CMP Vice President Education & Communications Kelli C. Mallinger Member Services Administrator Chair’s Message 4 Focus on Advocacy By Tara Y. Harrison, Chair, VACB, Executive Vice President, Chief Financial Officer, Virginia National Bank, Charlottesville President’s Column 6 What We Heard During VACB’s 2025 Spring Roundtables By Corey Connors, President & CEO, VACB 8 2025 VACB/Williams Mullen — 25th Annual Bankers’ Cup Golf Tournament A Picture-Perfect Day 12 Is It Time to Realign Your Legacy Consumer Liquidity Strategy? Yes — Now More Than Ever By Tim Barrett, Executive DDA Strategies, CSI 14 7 Questions Banks Should Ask a Potential Fintech Partner By BHG Financial Institutional Network 18 Deposit Strategies To Deepen Commercial Relationships By Dennis Falk, SVP and Regional Manager, PCBB 20 Vigilante Justice? Financial Markets React Quickly to Policy Changes By Jim Reber, President and CEO, ICBA Securities 22 Rethinking Revenue How Community Banks Are Adapting to a Changing Financial Landscape By Reliable Payments Save the Date 24 VACB’s 48th Annual Convention 3 The CommunityBanker
Chair’s Message FOCUS ON ADVOCACY Wow! It has been a busy spring! As I’ve mentioned in previous articles, one of my aspirations as Chair during 2025 is the relentless support of and advocacy for community banks. Last month, over 500 community bankers from across the nation convened in Washington, D.C., for the ICBA Capital Summit. As Rebeca Romero Rainey, President and CEO of ICBA, stated in the April 2025 issue of Independent Banker, “When we come together on Capitol Hill, it demonstrates to members of Congress just how serious we are about advancing community banking for the betterment of their districts and our communities.” She further stated, “Every phone call we make to our members of Congress, every trip to Capitol Hill, and every letter we send falls on open ears and has an impact.” During our visits on Capitol Hill to our Virginia representatives in the House and Senate, we ensured that they were knowledgeable about the key issues that community banks are currently facing, including: • The CFPB’s Section 1071 rule. • Major tax legislation. • Taxing credit unions with assets of more than $1 billion. • Agricultural lending. • Community bank formation, growth, and tiered regulation. • Restricting the sale of mortgage “trigger leads.” • Ensuring stablecoin frameworks don’t harm community banks. • Opposing credit card routing mandates. If the representatives were not familiar with the issues, we educated them briefly, answered questions they had regarding the issues, proactively asked if they would co-sponsor specific bills (if they were not already a co-sponsor) and committed to following up with them. A component of how we shaped our message was by explaining the impact to the local district and voters. I dare say we collectively had an impact during this session of Congress, but follow-up is essential! TARA Y. HARRISON Chair, VACB, Executive Vice President, Chief Financial Officer, Virginia National Bank, Charlottesville 4 The CommunityBanker
The 2026 Capital Summit is planned for May 4-7 at the Westin Washington, D.C. Downtown. Please put this on your calendar and plan to join us. Ongoing participation in these empowering opportunities is vital to the future of community banking. Before then, I hope to see you and your fellow bankers at the Hotel Roanoke on Oct. 5-7, 2025, at our 48th Annual Convention. Planning is underway for an exciting, robust convention with fun-filled activities, informational and encouraging speakers, and time for networking. Thank you for what you do for community banking and our communities! www.bccadvisers.com 515.282.8019 WE VALUE BANKS. Business valuation for... ▪ Gifting and stock transfers ▪ ESOP/KSOP valuation ▪ Buy/sell agreements ▪ Estate settlement ▪ Stock offerings ▪ SBA 7(a) loans 5 The CommunityBanker
President’s Column WHAT WE HEARD DURING VACB’S 2025 SPRING ROUNDTABLES COREY CONNORS President & CEO, VACB This spring, VACB hit the road to hear directly from our members. Hosting six regional Banker Roundtables across the Commonwealth, VACB staff and volunteer leaders engaged with more than 50 community bankers across different functions at member banks in open dialogue about the challenges and opportunities they encounter in their day-to-day work. While the opportunity to network and share ideas was welcomed, the purpose behind hosting these Roundtables was clear: VACB hoped to solicit ideas to continue strengthening the organization’s value proposition. Indeed, the feedback gathered will directly inform the VACB Board’s alignment planning process this August, helping to ensure that the Association’s focus reflects the stated needs of its members. FAMILIAR CHALLENGES, NEW URGENCY Many of the issues raised in these Roundtables were not new, but the sense of urgency surrounding them has grown. Workforce challenges remain top of mind for nearly every institution, particularly in rural areas. Banks cited difficulty attracting and retaining staff, with specific challenges at the entry and middle management levels. Attendees emphasized the need to invest in employee engagement, mentoring, and training to 6 The CommunityBanker
On behalf of VACB’s Board and staff, we are excited to continue enhancing the programs and services our organization offers together. not only build internal capacity but to retain promising talent in the face of rising competition from other employers. Fraud also emerged as a universal concern. From check fraud to romance scams to increasingly complex cyber threats, bankers agreed fighting fraud has become a full-time, resource-intensive reality. Several banks now include fraud losses as formal line items in their budgets. Participants expressed strong interest in VACB facilitating a statewide fraud information sharing network, similar to one operating in West Virginia, to exchange timely information and mitigation strategies. COMPETITION ON ALL FRONTS Competition from tax-exempt credit unions and under-regulated fintechs also remained a consistent theme. Bankers voiced concerns about credit unions entering commercial lending markets with little oversight or underwriting discipline, while fintech firms continue to carve out deposit and payment relationships, often without following the rules traditional banks must meet. The implementation of technology remains both a necessity and a point of caution. While bankers acknowledged the need to innovate to serve younger generations, many expressed reluctance to adopt unvetted technology solutions. Several members recognized the vital role that both VACB and ICBA can play in serving as a trusted resource to help member banks navigate the deployment of these important resources. IDEAS FOR GROWTH: FORUMS, EDUCATION AND ENGAGEMENT One of the more encouraging takeaways was the enthusiasm for expanding VACB’s successful forum model. VACB’s extraordinarily successful Compliance Forum continues to receive high praise. Members proposed extending that structure to areas such as operations, HR, fraud, technology and ag/commercial lending. It was suggested that these peer groups would not only provide opportunities for sharing best practices, but could serve as talent development pipelines and retention tools. Additionally, members suggested expanding live training opportunities for frontline staff, especially teller “boot camps” and regional in-person Essentials of Banking sessions. Gamified e-learning and better use of member-to-member networking platforms were also recommended to reach younger and more tech-savvy employees. WHAT HAPPENS NEXT The feedback gathered during these Roundtables will be utilized by the VACB Board of Directors to shape the Association’s 2025-26 alignment plan. In the coming months, we hope to transform these suggestions into value offerings that we can prototype and refine with your continued engagement and feedback. To everyone who took time away from the bank to participate, THANK YOU! Your active participation is guiding the next phase of our work. On behalf of VACB’s Board and staff, we are excited to continue enhancing the programs and services our organization offers together. 7 The CommunityBanker
VACB/WILLIAMS MULLEN — 25TH ANNUAL BANKERS’ CUP GOLF TOURNAMENT Virginia’s spectacular spring was on full display at the VACB/Williams Mullen — 25th Annual Bankers’ Cup Golf Tournament, held on May 19 at the beautiful Spring Creek Golf Club in Zion Crossroads. Under sunny skies and ideal playing conditions, VACB member bankers and associate members came together for a day filled with camaraderie, competition, and celebration. With spirits high and the promise of a fast-paced round ahead, more than 60 golfers eagerly took their positions for the shotgun start. Thanks to the generous support of our sponsors, players stayed refreshed throughout the tournament. Stifel, an endorsed provider of ICBA, and the Federal Home Loan Bank of Atlanta kept the beverage carts rolling while ICBA Education provided delicious boxed lunches. S&P Global made sure everyone was tournament-ready with golf balls for each participant. This year’s tournament was once again hosted by Williams Mullen, whose partnership we greatly appreciate. A special thank you goes out to our valued Captain’s Club sponsors — Banc Card of America, Community Bankers’ Bank, and Pendleton Community Bank — for their ongoing support of this signature event. As the Spring Creek golf pro tallied the final scores, attendees gathered for everything the 19th hole had to offer, including some great networking during the post-tournament reception. VACB’s Corey Connors capped off the event by announcing contest winners and presenting team prizes. The 25th Annual Bankers’ Cup was another fantastic success, made possible by the participation of our members and sponsors. Your continued support — on and off the green — is what makes this event so special. Thank you to all who helped make the tournament a success! A Picture-Perfect Day 2025 8 The CommunityBanker
2025 BANKERS CUP RUNNERS-UP The Bank of Charlotte County (-17) Scott Martin Derek Mason Robbie Elliott Scott Woody 2025 BANKERS CUP CHAMPIONS Virginia National Bank (-17) Jacek Wolicki Tim Starsia Parker Shama John Dane 2025 BANKERS CUP THIRD PLACE Pendleton Community Bank (-13) Sage Massie Caleb Schlabach Josh Edmunds VACB CLOSEST TO THE PIN WINNER MEN’S CONTEST Corey Connors VACB VACB LONGEST DRIVE WINNER MEN’S CONTEST Jacek Wolicki Virginia National Bank VACB LONGEST DRIVE AND CLOSEST TO THE PIN WINNER WOMEN’S CONTESTS Sage Massie Pendleton Community Bank 9 The CommunityBanker
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IS IT TIME TO REALIGN YOUR LEGACY CONSUMER LIQUIDITY STRATEGY? Yes — Now More Than Ever BY TIM BARRETT Executive DDA Strategies, CSI With rising consumer expectations, growing competition and ongoing economic uncertainty, banks can no longer rely on outdated, one-size-fits-all overdraft programs or legacy small-dollar loan offerings. Yet many institutions are still using ad hoc or legacy systems that lack transparency, adaptability and actionable insight. If your overdraft system assigns limits or manages old-school loan risk without your team understanding the logic behind those decisions — it is time to ask the tough questions. TODAY’S LANDSCAPE DEMANDS MORE Regulatory agencies like the CFPB, FDIC, OCC, state regulators and others are sharpening their focus on fairness, transparency and consistency in overdraft and liquidity practices. At the same time, customers expect financial institutions to deliver personalized and equitable service. Ask yourself: • Do we have a strategy to attract profitable consumers who seek new forms of liquidity? • Can we explain, defend and adjust our overdraft decisions in real time? • Is our approach helping customers stay banked — not driving them away? • Do we offer loan options underwritten by deposit behavior? • Do we understand who is recovering from overdraft use — and who is not? If your answer is “no,” you are not alone — but now’s the time to act. DATA IS ONLY POWERFUL WHEN IT IS ACTIONABLE Banks sit on enormous amounts of valuable data — deposit trends, transaction behaviors, fees and recovery rates. But if your system does not adapt to risk, only provides canned reports, charges for peer benchmarking or hides key logic behind “proprietary” algorithms, you are flying blind. Worse, if you are applying the same limit to all accounts, you’re missing critical indicators of risk — and opportunity. A modern Consumer Liquidity small-dollar loan and overdraft program should: • React to individual account behavior daily. • Adjust limits automatically based on real activity. • Identify high-risk accounts before losses occur. • Offset risk from either the loan or overdraft use. 12 The CommunityBanker
This is not just about efficiency; it is about control, visibility and long-term customer relationships. TRANSPARENCY IS NOT OPTIONAL ANYMORE Can you explain how a customer’s overdraft limit was set this month versus last month? Do you know when their deposit patterns changed and what you did in response? Is your front-line staff comfortable with explaining options for informed decision-making? If not, your institution may be exposed to compliance and operational risk. A modern approach: • Trains front-line staff by experienced professionals. • Audits every account relationship daily. • Manages exception items automatically. • Documents decisions clearly for examiners. More importantly, it aligns with proven best practices and gives you the confidence to stand behind your program — regardless of who is asking. CONSISTENCY BUILDS TRUST — ESPECIALLY WITH FEE REFUNDS One of the most common struggles in overdraft programs is inconsistency in fee refund decisions. Without a structured approach, decisions often vary by branch, location or staff discretion — raising red flags and exposing your bank to bias claims or unfair treatment accusations. A data-driven, rules-based approach ensures refunds are handled fairly, consistently and with clear documentation. That protects both your institution and your customers. RETURNS AND DEBIT CARD DECLINES COST MORE THAN REVENUE Every time a debit card transaction is declined or ACH/Check is returned, two things happen: 1. Your customer gets frustrated. 2. You lose income by discouraging consumption behaviors. Often, a minimal limit or Reg. E opt-out are the root causes that could be addressed with automated communication, expanded purchasing power and staff empowerment. A smart overdraft platform does more than record declines. It takes action: • Sends alerts or letters. • Flags trends by branch or region to help staff with messaging. • Triggers follow-up contact or educational outreach. Proactive tools turn service disruptions into relationship-strengthening opportunities. REPORTING SHOULD EMPOWER, NOT EXHAUST If your team needs IT support to run basic overdraft reports, your system is holding you back. Your executives, managers and frontline staff should be able to access the insights they need — on demand. That includes: • Fee consumption of deposits. • Reasons for declined transactions. • Service level and liquidity exposure tracking. • Charge-off trends by customer type, location or relationship. • Knowledge of what your peers are doing. When compliance, operations and marketing teams all have fast access to actionable data, your institution makes better, faster decisions — without relying on back-end bottlenecks. TAKE BACK CONTROL OF YOUR PROGRAM Your overdraft and consumer loan strategy should be an actively managed, strategically aligned part of your bank’s liquidity offerings — not a set-it-and-forget-it product. A modern solution helps you: • Be competitive with new fintech approaches. • Align risk with opportunity. • Provide transparent, fair services. • Stay agile in a shifting economic and regulatory environment. Ask yourself: Is your consumer liquidity approach helping build trust and resilience or keeping you anchored in the past? If it is the latter, it is time to realign. 13 The CommunityBanker
7 QUESTIONS BANKS SHOULD ASK A POTENTIAL FINTECH PARTNER BY BHG FINANCIAL INSTITUTIONAL NETWORK Collaborations between financial services technology firms (fintechs) and financial institutions are occurring more frequently than ever. Many financial companies see fintechs as an affordable, nimble solution to their technology gaps. Others partner with fintechs for assistance with compliance and regulatory governance. The fastest-growing 14 The CommunityBanker
Proper due diligence of a fintech partner considers how the relationship could alter your risk profile. fintech segment enables financial institutions to diversify their customer bases, expand revenue and even increase deposits via banking-as-a-service agreements. It is easy to recognize the contribution a fintech can make to your organization. However, it is more challenging to find the right fintech partner for your business. Ideas for how to do that is the goal of this article. We will discuss what steps you should take before entering a fintech relationship, efficient ways to conduct due diligence and ensuring the compatibility of your fintech partnership before and during the relationship. WHAT TO KNOW BEFORE COMMITTING Can the fintech you are considering produce consistent value over time? Can you demonstrate that the relationship is being appropriately managed amid increased regulatory scrutiny of third-party risk management? These are just a few of the things you will need to know before a partnership can begin. Ultimately, choosing the right fintech will come down to the quality of your institution’s due diligence. Done well, due diligence can save your business time, money and resources. It can also help focus your analysis by ensuring a potential partner can meet such criteria as: • Financially and operationally capable of providing the desired services. • Adds organizational value while maintaining proper controls. • Enhances your organization’s brand and reputation. THE DUE DILIGENCE JOURNEY The discovery process starts with internal decision-makers and how they respond to the foundational questions, which are designed to help shed light on the pros and cons of a potential partnership: 1. What benefit(s) will we achieve by partnering with the third-party fintech? 2. What are the estimated savings and/or revenues we can expect over one to five years? 3. How much will it cost to establish and maintain the partnership over one to five years? 4. What kind of risk management program does the fintech partner possess? 5. Can our infrastructure and staffing handle the activity generated by the partnership? 6. Is the fintech’s risk culture and business approach compatible with ours? 7. Does the fintech have a good business reputation based on online research and discussions with current business partners? A company can deepen the effectiveness of due diligence by tapping into or creating additional resources. For example, your company’s existing third-party risk management team should help evaluate a potential fintech partner. A cross-disciplinary team could be assigned to other essential tasks, such as identifying critical risks and creating a partnership implementation plan. 15 The CommunityBanker
Even federal banking agencies can be a due diligence resource. In 2021, “Conducting Due Diligence of Financial Technology Companies: A Guide for Community Banks” was published. Despite being targeted at smaller banks, the content generally applies to any business considering a strategic fintech partnership. The content put forward these six key topics to consider during a due diligence evaluation: 1. Business Experience & Qualifications • Company overview • List of client references • Ownership information 2. Financial Condition • Financial statements auditors’ opinions • Annual reports • Market information on competitors 3. Legal and Regulatory Compliance • Organizational documents and business licenses • Outgoing legal and regulatory issues 4. Risk Management & Controls • Policies, procedures, other documentation • Self-assessments • Key risk indicator reports 5. Information Security • Information security control assessments • Incident management and response policies • Incident reports 6. Operational Resilience • Business continuity, disaster recovery and incident response plans • Service-level agreements • Outsourcing policies Source: Conducting Due Diligence of Financial Technology Companies: A Guide for Community Banks, available at https://www.federalreserve.gov/publications/files/conducting-due-diligence-on-financial-technology-firms-202108.pdf TRUST BUT VERIFY Although a fintech partner may perform duties or provide services on an institution’s behalf, it is the institution’s responsibility to properly oversee that relationship. That is a fundamental tenet of third-party risk management. Partnering with a fintech could raise or lower your company’s existing risk profile due to changes in credit, market, liquidity, reputational, operational, regulator and compliance risks. Proper due diligence of a fintech partner considers how the relationship could alter your risk profile. Your organization should trust but verify the information provided to you. There are some critical areas to analyze and confirm: established business relationships, financial performance, compliance program performance, reputation and litigation research, risk controls and technologies used. One crucial aspect of due diligence that should not be overlooked is the need for ongoing analysis once a fintech is integrated into your organization. No matter what service the fintech provides, your institution is responsible for confirming that the fintech meets its contractual and service-level responsibilities throughout the life of the relationship. Failure to identify and address inherent and developing third-party vendor risks could reduce a company’s revenue stream, cost the organization valuable time and resources, jeopardize the safety of customers’ personally identifiable information (PII), damage the organization’s public reputation, and increase regulatory scrutiny. CONCLUDING THOUGHTS The recent failure of several high-profile fintech partnerships suggests a lack of effective due diligence at some juncture in their relationships. The guidelines and information presented here are designed to help your institution avoid the same fate. Common sense dictates that any type of new business relationship, fintech or otherwise, should be fully vetted and understood before it begins. The due diligence journey is endless, but you do not have to go it alone. Turn to those who are ready to help you along the way. 16 The CommunityBanker
CONTACT US TODAY TO PLACE YOUR ANNOUNCEMENT AD. SHOW-OFF. THERE'S NOTHING WRONG WITH BEING A Call (801) 676-9722 or scan the QR code to get started. Place QR Code Here ▷ Show o your employees. ▷ Show o your accomplishments. ▷ Show o a job well done. Employees are motivated when they are recognized and feel valued. This magazine is a great platform to celebrate your team’s accomplishments! TAKE US ANYWHERE! Scan to read the most recent publication. Stay up to date from your couch, office or even the moon! Place a 1” x 1” QR Code White on Black Here to the main website 17 The CommunityBanker
DEPOSIT STRATEGIES TO DEEPEN COMMERCIAL RELATIONSHIPS BY DENNIS FALK SVP and Regional Manager, PCBB Many community banks have struggled in recent years to grow deposits while keeping costs in check. As competition intensifies, the banks that succeed will be those that take a more strategic and segmented approach. Total deposit balances in U.S. banks dropped by 7% between Q1 2022 and Q3 2023, reflecting broader headwinds for financial institutions. However, commercial balances rose 2% between Q3 2023 and Q1 2024, according to a 2024 McKinsey report. Analysts expect continued gains through 2025, giving community By combining industry-specific insights, relationship-based product design and rate sensitivity analysis, community banks can grow their commercial deposit base in a way that is both strategic and sustainable. 18 The CommunityBanker
banks a window to refine and expand their approach. To capitalize on this trend, community banks may want to consider shifting from broad rate-based tactics to more targeted, relationship-oriented strategies. The following are some practical ways to strengthen and grow your commercial deposit base. STRENGTHEN PRIMARY BANKING RELATIONSHIPS Customers with a full-service relationship generate far greater value — up to 20% higher ROE — than lending-only clients. Make deposit relationships a core part of your business banking model by cross-promoting treasury services, cash management and account bundling. One effective tactic: tie deposits to lending. Requiring a deposit relationship as part of a lending package can be mutually beneficial. It simplifies payments for the borrower and broadens the relationship for the bank. It also gives your institution better visibility into the business’s liquidity patterns. USE EARNINGS CREDIT RATE (ECR) ACCOUNTS STRATEGICALLY ECR accounts can be a powerful tool for deepening commercial relationships and mitigating rate sensitivity. Business clients that use earnings credits to offset fees on services like treasury, ACH and wire transfers are typically less focused on rate alone, making them more stable depositors. These accounts effectively shift the conversation from “What rate can you give me?” to “How can I maximize value with your services?” That dynamic not only supports retention — it can also reduce pricing pressure across your broader deposit portfolio. To get the most from ECRs, community banks should regularly evaluate fee-based service usage, monitor credit utilization and explore ways to bundle ECR offerings with treasury or cash flow tools that increase business stickiness. SEGMENT BY INDUSTRY Not all business sectors behave the same when it comes to deposit pricing and relationship depth. Understanding these differences is key to optimizing your commercial deposit strategy. Lower-rate sectors — such as education, public administration and professional services — tend to earn below-average deposit rates. These industries often have lower loan-to-deposit ratios, which may make them more attractive for funding but less active on the lending side. Higher-rate sectors — including retail, finance and manufacturing — typically require more robust lending relationships and may command above-market deposit pricing in return. Community banks that cultivate a diverse mix of industries can avoid concentration risk, better align pricing with relationship value and ensure long-term stability. Knowing where each client segment fits on the risk-return spectrum helps tailor offerings that balance deposit stickiness with profitability. IDENTIFY LOYAL, LESS RATE‑SENSITIVE CLIENTS Some of your customers might stay with you even if the rates you pay them are a little below market average. Those clients are invested in their relationship with you, value your expertise and aren’t going to move from institution to institution to chase rates. Pinpointing those clients based on factors like tenure, transaction data or the number of products they use from you can help you focus on those customers to keep their deposits sticky. TAILOR TO RATE SENSITIVITY McKinsey’s commercial deposits analytic team looked at more than $1 trillion in commercial deposits and how they fared as interest rates rose and fell. Which clients were more sensitive to rate changes? They found that the business clients most likely to move their money to another financial institution are those that have interest rates 100 basis points to 150 basis points below market. Deposits are at risk again for customers who are getting significantly higher-than-average rates because these clients are likely comparing banks to find the best rates. CONCLUSION Commercial deposits are showing signs of recovery — but not all deposits are equal, and not all clients behave the same. By combining industry-specific insights, relationship-based product design and rate sensitivity analysis, community banks can grow their commercial deposit base in a way that is both strategic and sustainable. To continue this discussion or for more information, please contact Dennis Falk. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management services such as Settlement and Liquidity for the FedNow® Service, international services, lending solutions, and risk management advisory services. 19 The CommunityBanker
VIGILANTE JUSTICE? Financial Markets React Quickly to Policy Changes BY JIM REBER President and CEO, ICBA Securities 20 The CommunityBanker
While it will possibly take months and even the rest of the year to see the full shakeout, April 2025 was a laboratory for market efficiency. Some might contend there was an element of ruthlessness in the activity. Starting even before the Trump administration’s trade policy tariffs went into effect on April 2, the “Bond Vigilantes,” a nebulous gang of institutional debt investors, started shooting up the place. Barely a week after so-called “Liberation Day,” the U.S. bond market — particularly the longer tenors — had administered its brand of frontier justice. The 10-year note, which has an outsized effect on the economy due to its correlation to mortgage rates, rose nearly 50 basis points (0.5%). At the same time, and tellingly for the mood of consumers and the broader global economy, all the major stock indices retreated. It’s not often that debt and equity markets move in tandem; more often than not, they travel in opposite directions. COULDN’T HELP NOTICING The term “bond vigilante” was coined by legendary economist Ed Yardeni in the 1980s, when long-term yields were soaring far into double-digit territory. It connoted investors who were uber-hawkish on inflation and were ready and willing to sell their holdings and drive prices down/yields up until they were satisfied that they were being adequately compensated for their price risk. There have been several periods in the 21st century when the vigilantes were barely visible, especially following the Great Recession and during the COVID-19 pandemic. The term came back into voguish use in 2022 as prices of goods began spiking year-over-year in the 8% range, and the Federal Reserve was hiking short-term rates every chance it got. We still haven’t seen inflation back in the 2% box the Fed has set as its objective. By some measures, inflation is picking up steam, so the vigilantes have remained on notice. The very real consequences of protracted trade wars, the worst of which could include price hikes accompanied by weakening labor markets, have gotten the attention of the inflation hawks, to say the least. DURATION DIVERGENCE Another interesting development following April 2 is the steepening of the yield curve to levels not seen since 2022. To be sure, a 50-basis point slope between “2s and 10s” does not qualify as steep. However, while the Fed has very carefully chosen its comments and is making no promises about further rate cuts (or rate hikes, for that matter), investors have begun to factor in an additional cut or two in the 2025 numbers. So why the steepening? Our “friends,” the vigilantes, are protecting themselves against more inflation deterioration. They are investors, by and large, at the long end of the curve, which is only marginally influenced by the Fed’s monetary policy, as long as that does not include open market operations. The Fed has recently confirmed it will continue to wind down its balance sheet, albeit at a slower pace than in 2024. At the short end of the curve, yields didn’t run up as much in the April 2 aftermath since the Fed has reiterated its “data-dependent” posture. This steepening, in essence, was building in the increased possibility of both a slowing economy and doubt about maintaining stable prices. LAW … AND ORDER? The fiscal “discipline” by both bond and stock investors caused the administration to walk back some of the harshest rhetoric regarding tariffs. After yields rose every day between April 4 and 12, they actually retreated the remainder of the month. The two-year note’s yield fell about 26 basis points for April, while the 10-year note fell about three basis points. It’s fair to say part of the return to relative calm was the administration softening its commentary on the removal or firing of Fed Chairman Jay Powell. The major stock market indices, all of which were down by double-digit percentages mid-month, ended up basically unchanged between +1% and -3%. The takeaway? Whether you consider yourself a bond vigilante or merely an observer, it’s clear that they’re back — and watching. The gang also has shown it still has enough collective clout to move bond market yields, and influence monetary, fiscal and trade policies. Those who choose to tangle with this notorious bunch had better pack a lunch — it could be a long slog. Jim Reber (jreber@icbasecurities.com) is president and CEO of ICBA Securities, ICBA’s institutional, fixed-income broker-dealer for community banks. 21 The CommunityBanker
RETHINKING REVENUE How Community Banks Are Adapting to a Changing Financial Landscape BY RELIABLE PAYMENTS Community banks have long served as economic anchors for small towns and urban neighborhoods alike. But as interest margins tighten and traditional revenue models face increasing pressure, bank leaders are re-evaluating how to maintain profitability while staying true to their local mission. One growing area of interest? Merchant services. Not just as a line item but as a strategic component of broader financial resilience. SHIFTING EXPECTATIONS FROM BUSINESS CLIENTS Today’s small businesses are looking to their banks for more than just loans and deposit accounts. They expect integrated solutions that help them operate more efficiently, accept payments securely and gain financial visibility in real time. Banks that can provide or even facilitate those services are increasingly seen as trusted partners, not just service providers. “Business owners are navigating complex operational demands. When a bank can simplify one piece of that, like payment processing, it builds trust that goes far beyond transactions,” says Patrick Gallagher, founder & CEO of Reliable Payments. THE ROLE OF MERCHANT SERVICES For many banks, merchant services were once considered a “set-it-and-forget-it” offering. But as tools and technology have evolved, 22 The CommunityBanker
Offering modern business services like payment processing isn’t just about staying competitive; it’s about staying connected. so has the opportunity to deliver real value. Modern programs now include features like: • Cost-management options such as compliant surcharging. • Streamlined accounting through QuickBooks and other integrations. • Omni-channel flexibility to meet businesses where they are: online, in-person or on the go. • Industry-specific tools that support both B2B and government transactions. When delivered through the right partner, these services can generate consistent non-interest income for the bank without requiring additional internal resources. BEYOND REVENUE: STRENGTHENING COMMUNITY TIES Just as important as the financial upside is the reputational benefit. Merchant services, when thoughtfully deployed, allow banks to stay engaged with the businesses that fuel their local economies. A partner that shares this community-first mindset can help banks maintain their visibility and value, even as the financial services landscape continues to evolve. “Our work with community banks is about more than processing payments. It’s also about preserving their role as essential connectors in the places they serve,” says Gallagher. As community banks navigate a future marked by rapid change, the path forward will depend on adaptability and a continued focus on relationships. Offering modern business services like payment processing isn’t just about staying competitive; it’s about staying connected. With the right approach, these tools can help banks reinforce their role as trusted advisors, deepen local partnerships and support the long-term stability of the communities they serve. This article was submitted by Reliable Payments, a Richmond-based merchant services provider that partners with community banks to deliver secure, modern payment solutions for local businesses. To learn more, visit reliablepayments.com or contact info@reliablepayments.com. 23 The CommunityBanker
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