Building the Foundation for Effective AI OFFICIAL PUBLICATION OF THE VIRGINIA ASSOCIATION OF COMMUNITY BANKS 2026 PUB. 15 ISSUE 2
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©2026 Virginia Association of Community Banks (VACB) | MBR Connect. All rights reserved. The Community Banker is published four times per year 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 (801) 676-9722. 6 14 CONTENTS 4 CHAIR’S MESSAGE The Future of Our Balance Sheets Tokenized Deposits vs. Stablecoins By Lisa E. Kilgour, EVP and Chief Operating Officer, MainStreet Bank 6 PRESIDENT’S COLUMN Before We Plan, We Listen By Corey Connors, President & CEO, VACB 8 Mean Reversion: Bond Yield Relationships Are Looking Familiar, Finally By Jim Reber, Managing Director-ICBA Relations, The Baker Group 10 Driving Community Prosperity with Reciprocal Deposits By Joe Hooker, Chief Sales Officer, IntraFi 12 How To Avoid Typosquatting Scams By SHAZAM Inc. 13 SAVE THE DATE VACB’s 49th Annual Convention & Trade Show 14 Home Mortgage Disclosure Act (HMDA) Requirements and Recommended Practices By Frank Antiga, CPA, CBAP, Risk Advisory Principal, S.R. Snodgrass PC 16 Building the Foundation for Effective AI Closing the Data Readiness Gap By Ajay John, VP of Data Science & AI, CSI 18 VACB Preferred Vendor Providers VACB Executive Committee CHAIR Lisa E. Kilgour MainStreet Bank Fairfax VICE CHAIR Dabney T.P. Gilliam Jr. Bank of Charlotte Co. Phenix PAST CHAIR Tara Y. Harrison Virginia National Bank Charlottesville TREASURER LeAnne R. Emert Benchmark Community Bank Kenbridge SECRETARY James E. Hendricks Jr. TowneBank Midlothian ICBA STATE DELEGATE Blake M. Edwards Jr. Skyline National Bank Independence PRESIDENT & CEO Corey J. Connors VACB Richmond VACB Board of Directors Cetric A. Gayles Citizens Bank & Trust Blackstone Aaron Green Pendleton Community Bank Harrisonburg Robert J. Hobbs CornerStone Bank Lexington Paul M. Mylum Bank of Charlotte Co. Phenix 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. Young Member Services Administrator 3 The Community Banker
Chair’s Message THE FUTURE OF OUR BALANCE SHEETS Tokenized Deposits vs. Stablecoins As we look toward our upcoming 49th Annual Convention this October, I find myself reflecting on just how quickly the ground is shifting beneath our feet. Not long ago, discussions about distributed ledger technology (DLT) and digital assets were easily dismissed by community bankers as “crypto noise” — something best left to Silicon Valley or Wall Street’s trading desks. Today, that is no longer the case. With the federal GENIUS Act officially introducing digital assets into the regulatory fold and Congress actively debating the Digital Asset Market Clarity Act, the modernization of the financial system is happening in real-time. As community leaders, our primary mission has always been to support local economies, fund small businesses, and protect our depositors. But as the federal government establishes frameworks for digital dollars, we face a critical strategic question: How will this technology impact our core funding model? Specifically, we must understand the fundamental difference between stablecoins and tokenized deposits, and why one represents a threat of disintermediation, while the other offers a powerful mechanism for deposit defense. STABLECOINS: THE DISINTERMEDIATION THREAT Under the evolving federal regulatory framework, qualifying payment stablecoins are 1-to-1 representations of the U.S. dollar backed by segregated pools of high-quality liquid assets, such as U.S. Treasury bills. While stablecoins have proven their liquidity in the open market, we must be clear-eyed about what they do to traditional banking: • Deposit Capital Flight: When a consumer or small business moves cash out of a checking account to hold stablecoins, those funds leave the banking system. They are no longer on our balance sheets, meaning they cannot be used to fund a mortgage for a local family or a line of credit for a Main Street merchant. • No Deposit Insurance: Stablecoins are bearer instruments. They do not carry FDIC insurance, nor do their non-bank issuers have access to the Federal Reserve’s payment systems or lender-of-last-resort facilities. • Squeezing Margins: Industry estimates suggest that if stablecoins continue their rapid adoption, community banks could see significant deposit migration, putting severe upward pressure on our funding costs and squeezing our net interest margins. In short, stablecoins intermediate safe assets into a medium of exchange. They are built for open, permissionless networks, and their growth risks draining the very deposits that community banks rely on to grease the wheels of our local economies. THE ADVOCACY FRONT: OUR FIGHT TO STRENGTHEN THE CLARITY ACT To protect our industry from this migration, we must remain vigilant on the legislative front. Right now, the Independent Community Bankers of America (ICBA) — joined LISA E. KILGOUR EVP and Chief Operating Officer, MainStreet Bank 4 The Community Banker
by the VACB and other state associations — is leading a critical campaign regarding the Clarity Act currently moving through the Senate. In July 2026, the ICBA, alongside the ABA and 76 state banking associations, sent an urgent joint letter to Senate leaders emphasizing the need to tighten Section 404 of the bill. As currently written, the bill contains ambiguities that could allow non-bank crypto issuers to offer interest-like “rewards” or “yields” on stablecoins. The stakes could not be higher. THE COST OF COMPOUNDING INTEREST ON STABLECOINS According to macroeconomic modeling conducted by the ICBA, if crypto exchanges and non-bank issuers are permitted to pay yield or interest on payment stablecoins, it could trigger a catastrophic $1.3 trillion drain on community bank deposits. That loss in deposit capital would directly translate to an estimated $850 billion decline in community bank lending capacity, devastating small businesses, agriculture and local housing markets nationwide. The ICBA and VACB are demanding that Congress close these loopholes to ensure that payment stablecoins function strictly as transaction tools — not as tax-advantaged, yield-bearing substitutes for insured bank deposits. TOKENIZED DEPOSITS: OUR BEST OFFENSE IS A GOOD DEFENSE While we fight to keep stablecoins strictly transaction-focused, our best defense is a proactive offense: tokenized deposits. A tokenized deposit is not a new asset class; it is simply commercial bank money with a digital upgrade. It is a digital representation of a standard deposit liability held directly at a federally insured institution. Here is why tokenized deposits are the superior path forward for community banks: • They Stay on the Balance Sheet: Because tokenized deposits are native to our institutions, the underlying funds remain on our balance sheets. This preserves the relationship-based commercial fractional reserve model that keeps community credit flowing. • FDIC Insured and Regulated: Tokenized deposits remain subject to existing banking laws, rigorous safety and soundness examinations, and — crucially — eligibility for FDIC insurance. • Programmability and Speed: By utilizing blockchain or DLT, tokenized deposits allow us to offer the 24/7, near-instant settlement and smart-contract programmability that modern commercial treasury clients are starting to demand. We can automate complex escrow services, supply chain payments and collateral management without giving up the client relationship. NAVIGATING THE REGULATORY HORIZON TOGETHER While the business case for tokenized deposits is compelling, we are not quite at the finish line. Unlike stablecoins under the GENIUS Act, there is still a lack of unified federal regulatory guidance specifically tailored to tokenized deposits. The Conference of State Bank Supervisors (CSBS) recently issued a critical call to action, urging state and federal regulators to prioritize joint, consistent guidance on tokenized deposits — covering everything from ledgering and accounting to real-time BSA/AML compliance. At the VACB, we are actively engaged on this front. Through our advocacy efforts alongside the ICBA, we are working to ensure that any future regulatory frameworks do not inadvertently favor large money-center banks or non-bank tech giants at the expense of local, community-focused institutions. We want to ensure that community banks have equal, affordable access to the next generation of payment rails. LOOKING FORWARD As community bankers, our strength has always been our ability to pair traditional, trust-based relationships with modern, competitive services. We do not need to be bleeding-edge tech innovators overnight, but we cannot afford to sit on the sidelines while the very nature of money is being rewritten. I encourage you to read, ask questions of our preferred vendors, and join us in these critical discussions. Let’s continue this conversation at our annual convention in October, where we will dive deeper into how Virginia’s community banks can stay resilient, liquid and local in a digital age. Thank you for your continued dedication to your communities, to the VACB, and to the vital advocacy work we do together. Sincerely, Lisa E. Kilgour Chair, Virginia Association of Community Banks (VACB) EVP & Chief Operating Officer, MainStreet Bank 5 The Community Banker
President’s Column BEFORE WE PLAN, WE LISTEN COREY CONNORS President & CEO, VACB Every strategic plan begins with an important question: Where do we go from here? But before any organization can answer that question, it should first ask another one: What are our members telling us? Over the past several months, VACB conducted comprehensive surveys of both member banks and our associate members. While surveys have their limitations, they remain one of the best ways to gather perspectives from the people we exist to serve. Our objective was not to validate preconceived ideas or chart a predetermined course. It was to listen. To better understand what our members value today, the challenges they anticipate tomorrow and where they believe VACB can have the greatest impact in the years ahead. I was encouraged by what we heard. 6 The CommunityBanker
First, our members affirmed the core of who we are. Education and professional development opportunities, advocacy, and community emerged as the three highest value propositions that VACB currently offers. Those findings reinforce the direction we have been moving as an association. Over the last couple of years, we have thoughtfully expanded educational programming, strengthened our presence before the Virginia General Assembly and created new forums for operations and fraud for our member banks. It is gratifying to know that our members view those efforts as important to their institutions’ success. The survey also offered a candid look at the environment facing Virginia’s community banks. Respondents identified fraud and cybersecurity, workforce recruitment and retention, technology and artificial intelligence, and increasing competitive pressures as the most significant challenges confronting their institutions. Those responses serve as an important reminder that community banking continues to evolve, and that VACB must evolve alongside it. Not by chasing every new trend, but by remaining focused on delivering unique and practical value where our members need it most. One contribution I found particularly interesting came from our associate members. Rather than asking for additional visibility or improved access to member banks, many expressed a desire to contribute more directly to the success of community banks. They want to share their expertise through educational programming, thought leadership and meaningful collaboration with our member institutions. To me, that reinforces the strength of the VACB model. When bankers and trusted industry partners work together to solve problems and share ideas, everyone benefits. Soon, the VACB Board of Directors will gather for its strategic planning retreat. The conversations will focus on the future of our association and, more importantly, the future of the community banks we serve. Thanks to the thoughtful participation of our member banks and associate members, those discussions will begin with something invaluable: a clearer understanding of the priorities, challenges and opportunities identified by our membership. Thank you to everyone who took the time to participate. Your willingness to share candid feedback has already strengthened our association, and it will help shape VACB’s direction for years to come. Your willingness to share candid feedback has already strengthened our association, and it will help shape VACB’s direction for years to come. 7 The Community Banker
MEAN REVERSION: BOND YIELD RELATIONSHIPS ARE LOOKING FAMILIAR, FINALLY BY JIM REBER Managing Director-ICBA Relations, The Baker Group I would like to make clear in the title of this column that we’re not talking about anything rude or unfriendly. In fact, you are about to learn just the opposite. It has been many a year since the U.S. bond market’s yield curve has been normally sloped. By “normal,” we mean that the differential in short and long yields (i.e., “2s to 10s”) is around 100 basis points (1%), which has been the average this century. However, a normal yield slope is like a heartbeat: it’s rare that we’re at the average. In fact, the last time the 10-year Treasury yield was 1% higher than the two-year yield was in November 2021. The painful 28-month window where the curve was upside down finally ended in September 2024, and we thought we were going to make a run at an even steeper curve this year. At the moment, we’re stuck in the plus-40 bps range. There is, in fact, a possibility that the Federal Open Market Committee (FOMC) hikes rates later in 2026, which could wipe out any slope altogether. NUMBERS HAVE IMPROVED So, we have some steepness, which fundamentally should help community banks’ net interest margins (NIMs). Using the 600+ banks that utilize The Baker Group for their interest rate risk modeling as a proxy, the industry is effectively insulated against rate shocks. The inverted yield curves of the recent past are evidence that positive slopes simply create pricing power across balance sheets. According to the FDIC, community bank NIMs improved by nearly 50 bps between March 2024 and March 2026 as the upside-down curve era receded into the merciful past. Another piece of this dynamic is that for the first time in four years, yields on Treasury securities across the maturity spectrum are higher than overnight rates. That too should create room for margin expansion. It’s intuitive that a two-year Treasury note should yield more than fed funds, but that wasn’t the case between 2023 and 2025. Portfolio managers now have an economic incentive to extend out on the curve and spread products — securities other than Treasuries — to provide a further yield boost. PLANETS AREN’T ALIGNED, YET But let’s not get ahead of ourselves. Yes, the curve has some modest slope, and yes, one can buy a two-year Treasury at a higher yield than sitting in fed funds. But we still aren’t at optimal levels for either. The 2-to-10 slope looks like it may be mired at its current levels until the bond market gets some clarity from the FOMC about its next steps. Also, under new Chairman Kevin Warsh, “clarity” may be hard to come by since he’s suggested that forward guidance may become a precious commodity. 8 The Community Banker
Add to that the fact that yield spreads on the products that community banks purchase are not at record levels either. It remains a challenge for C Corps to buy bank-suitable tax-free munis with any spread at all out to the 15-year maturities. (S Corps are another story for another column.) Mortgage-backed securities (MBS) spreads have trended lower since 2023 on most products, which is interesting in that rates have likewise trended lower in that time frame, when usually yield spreads widen. Both munis and MBS have benefited from a general lack of supply, particularly new issue mortgages. LOOKING UP What hasn’t yet been discussed is that nominal rates are still nearly at an 18-year high. And the theme of “reversion” previously mentioned is good news for bond investors. Positive slope, spread between oversights and everything else, and inflation trends that are gaining steam all contribute to the available yield levels. Two more notes about the current financial environment: 1. A friendly reminder that an upwardly shaped curve helps the math work on a bond swap, in which certain securities are simultaneously purchased and sold, and 2. Bank profitability has been solid so far in 2026. As the second half of the year ensues, a “loss-earn back” trade to convert some lower-yielding circa-2021 purchases into much higher-yielding 2026 levels can make sense for a lot of community banks. Your brokers can model all configurations of these trades to quantify the costs/benefits for the management team discussion. Much could happen between now and year-end to weaken the current backdrop, which appears to offer investors reasonable value. One example is persistent inflation. Chairman Warsh’s first meeting included ample acknowledgment that price stability is a higher priority than full employment. Any move closer to rate hikes could cause the yield curve to flatten from here. Nonetheless, the reversion to the longer-term averages in term relationships in the fixed income market have produced current opportunities not seen in years. Nothing mean about that. Jim Reber is managing director-ICBA relations for The Baker Group, ICBA Securities’ exclusively endorsed broker-dealer. 9 The Community Banker
DRIVING COMMUNITY PROSPERITY WITH RECIPROCAL DEPOSITS BY JOE HOOKER Chief Sales Officer, IntraFi Community banks, which make up at least 90% of all banks nationwide, are the backbone of American small businesses.1 An ICBA report found that roughly 60% of small business loans and over 80% of agricultural loans come from community banks.2 But community banks face steep challenges, including net interest margin compression, compliance and cybersecurity burdens, and new, often digital-only, competitors. In fact, 97% of respondents to IntraFi’s Q1 2026 survey of bank executives say they expect deposit competition to remain at current levels or increase over the next year. To stay competitive and continue providing the vital banking services their communities depend on, community banks need every advantage available to attract and retain high-value relationships. Reciprocal deposits are an essential tool that allows community banks to support local deposit and lending needs, enabling banks to offer large depositors access to millions in FDIC insurance while keeping funds local to lend in the community. RECIPROCAL DEPOSITS TYPICALLY HAVE A HIGH REINVESTMENT RATE Reciprocal deposits are deposits that a bank receives through a deposit placement network in return for placing a matching amount of deposits at other network banks. Importantly, the institution placing the deposit maintains its relationship with the depositor — granting safety-conscious customers the ability to obtain FDIC insurance on large balances through multiple network banks while maintaining a single bank relationship. At the same time, a bank that participates in a deposit placement network can attract and retain a greater amount of deposits from local customers. Historically, reciprocal deposits have been “sticky,” with high reinvestment rates and low likelihood of liquidation in any given month, even as total accounts and balances steadily increase. After the high-profile bank failures of 2023, reciprocal deposit balances at banks with between $1 billion and $100 billion in assets increased by 20% and remained elevated across 2024. A recent research paper finds that higher levels of insured deposits were associated with reduced deposit outflows during the 10 The Community Banker
To stay competitive and continue providing the vital banking services their communities depend on, community banks need every advantage available to attract and retain high-value relationships. 2023 regional banking crisis. The study also reports that banks with higher insured deposit levels paid lower interest rates on deposits, grew larger and increased their local deposit market share over time.3 In fact, the growth rate for reciprocal deposit balances across banks of all sizes was 131% from 2022 to 2023. Reciprocal balances grew an additional 15% across 2024.4 RECIPROCAL DEPOSITS COMPARE WELL TO OTHER BANK FUNDING CHOICES In addition to helping banks grow wallet share from local customers, reciprocal deposits can offer several advantages when compared to other bank funding options. • Reduced Collateralization Needs: Reciprocal deposits can reduce or eliminate collateralization requirements, freeing up pledged collateral and reducing the burdens associated with tracking collateral. • Alternative to Wholesale Funding: Unlike many forms of wholesale funding, most reciprocal deposits can qualify as non-brokered deposits under the law. • Superior to Listing Service Deposits: When compared to listing service deposits, reciprocal deposits can provide a more stable, relationship-based source of funding that is typically lower cost and less rate sensitive. THE VALUE OF BALANCE SHEET FLEXIBILITY Overall, using deposit placement networks provides meaningful flexibility for balance sheet management. Banks can keep funds on the balance sheet as reciprocal deposits or, alternatively, sell funds into their deposit network and earn fee income (while keeping the customer relationship).5 The ability to move funds on and off the balance sheet on demand can significantly reduce the need for community banks to turn away a valued depositor because of the deposit insurance limits, deepening relationships and giving banks greater control to meet their liquidity needs. Reciprocal deposits also provide a stable funding source that can be used to support lending, while providing the agility needed to respond rapidly to changing market conditions. Using a reciprocal deposit network, banks can grow relationships and deposits from a local customer base — without the added costs or tracking burdens associated with ongoing collateralization requirements and with the ability to lend these funds locally. To learn more about how your institution can use reciprocal deposits to expand its lending capacity and strengthen its local community, visit intrafi.com/grow-reciprocal-deposits. Deposit placement through ICS is subject to the terms, conditions, and disclosures in applicable agreements. IntraFi is not an FDIC-insured bank, and deposit insurance covers the failure of an insured bank. A list identifying IntraFi network banks appears at intrafi.com/network-banks. Certain conditions must be satisfied for “pass-through” FDIC deposit insurance coverage to apply. 1. “U.S. Community Banks: Holding up Well with Strong Asset Quality Despite CRE Exposures,” Morningstar, accessed January 12, 2026, https://dbrs.morningstar.com/research/440556. 2. “Revealed: The Impact of Credit Union Acquisitions,” ICBA, last modified December 1, 2025, https://www.icba.org/w/revealed-theimpact-of-credit-union-acquisitions. 3. Edward T. Kim, Shohini Kundu, and Amiyatosh Purnanandam,“The Economics of Market-Based Deposit Insurance,” published September, 2024, https://www.fdic.gov/system/files/2024-09/kimedward-paper-091124.pdf. 4. S&P Call Report Data 5. With a depositor’s consent, the bank may choose to receive fee income instead of deposits from other participating institutions. Under these circumstances, deposited funds would not be available for local lending. 11 The Community Banker
HOW TO AVOID TYPOSQUATTING SCAMS BY SHAZAM INC. Online banking, payment apps and investment tools make everyday financial tasks easier than ever. But the same convenience that helps accountholders also gives scammers new ways to take advantage of simple mistakes — like one mistyped letter in a web address. Learning how to avoid typosquatting scams can help accountholders protect their financial information online. WHAT IS TYPOSQUATTING? Typosquatting, or URL hijacking, happens when cybercriminals register website addresses that look almost identical to trusted sites. They rely on users making small typing errors or clicking too quickly. These look-alike and fake banking websites can be convincing, and once someone lands on one, they may be prompted to enter login credentials or other sensitive financial information. The good news is that a few simple habits can make a big difference in protecting accountholders and overall online banking security. HOW DO TYPOSQUATTING SCAMS WORK? Typosquatting scams succeed because they take advantage of normal human behavior. We’re busy. We move quickly. And sometimes, one extra letter, a missing character or the wrong domain ending — such as “.org” instead of “.com” — is all it takes to send someone to the wrong site. Scammers don’t always need to break into systems. Sometimes, they just need someone to be in a hurry. HOW CAN FINANCIAL INSTITUTIONS HELP ACCOUNTHOLDERS STAY SAFER ONLINE? Practicing safe online banking habits remains one of the most effective ways to reduce risk and avoid scams like typosquatting. Share these tips with accountholders to help them spot a fake website: • Bookmark trusted websites you use often. • Type web addresses carefully when entering them manually. • Use official mobile apps when available. • Avoid clicking links in unexpected emails or messages. • Be cautious with sponsored search results, which may lead to look-alike or fake banking websites. • Look for “https” and the padlock icon before entering sensitive information. • Pause and confirm the site is legitimate before signing in or sharing personal information. These steps may seem simple, but they work, especially as banking website scams become more polished and harder to detect. Fighting cybercrime doesn’t always require complex technology. Sometimes, scams can be avoided just by slowing down, checking details and making it harder for bad actors to exploit small mistakes. When accountholders build safe online habits, they can better protect their financial information and help strengthen online banking security. 12 The CommunityBanker
Save the Date 2026 49TH ANNUAL CONVENTION & TRADE SHOW THE BOAR’S HEAD INN CHARLOTTESVILLE, VA OCTOBER 4 - 6, 2026 REGISTER AT WWW.VACB.ORG
HOME MORTGAGE DISCLOSURE ACT (HMDA) REQUIREMENTS AND RECOMMENDED PRACTICES BY FRANK ANTIGA, CPA, CBAP Risk Advisory Principal, S.R. Snodgrass PC The Home Mortgage Disclosure Act (HMDA), implemented by Regulation C, was enacted by Congress in 1975. Its primary goals are to promote transparency, determine whether financial institutions (“institution”) are meeting the housing credit needs of their communities and assist in identifying potential discriminatory lending patterns. Regulation C sets out specific requirements for the collection, recording, reporting and disclosure of mortgage lending information. The reporting requirements are incredibly detailed, and examinations allow very few errors before an institution may be required to correct and resubmit past data. HMDA violations can also lead to civil money penalties and/or consent orders from examining agencies. COVERAGE AND DATA REPORTING REQUIREMENTS Coverage is based on the prior year’s origination volumes, asset size and location of the institution’s home and retail offices. If the rule is applicable to the institution, it must collect, report and disclose detailed data about home lending activity via a Loan Application Registration (LAR). The institution must electronically submit its HMDA data to the appropriate federal agency by March 1 of the calendar year following the year for which it collected the data. The regulation generally applies to consumer-purpose, closed-end loans and open-ended lines of credit that are secured by a dwelling. There are exclusions from coverage if the dwelling type is exempted. There are extremely specific rules on whether business/agricultural transactions are reportable, and there are also certain other transaction types that are specifically excluded under the regulation. At application, HMDA requires lenders to collect certain data related to general loan information, property information, applicant information and institutional identifiers. There are numerous data points to report for each transaction. PARTIAL REPORTING EXEMPTION For partial reporting eligible institutions, reporting still may be required, but the burden of reporting all data points may be reduced via a partial exemption. The exemption is based on loan volume and a satisfactory examination history under the Community Reinvestment Act. Partial exemption applies to an eligible institution’s applications for, originations of and purchases of closed-end mortgage loans, if the institution originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years. Also, a partial exemption applies to an eligible institution’s applications for, originations of and purchases of open-ended lines of credit, if the institution originated fewer than 500 open-ended lines of credit in each of the two preceding calendar years. The partial exemption for closed-end mortgage loans and the partial exemption for open-end lines of credit operate independently of one another. Thus, in a given calendar year, an eligible institution may be able to rely on one partial exemption but not the other. If a covered loan or application is covered by a partial exemption, the institution is required to collect, record and report fewer data points than those of non-eligible institutions, which lessens the burden and decreases the risk of reporting errors. 14 The Community Banker
DATA DISCLOSURE When HMDA data is submitted and released publicly each year, some information is modified to protect applicant privacy. HMDA data is primarily located on the FFIEC’s HMDA Platform which provides annual LAR data and can be accessed by scanning the QR code. The HMDA data can be used by regulators or others that may have an interest in your lending activity. Since this information becomes publicly available and the data is used as a screening tool for other regulations, such as the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act, accurate reporting is of utmost importance. https://ffiec.cfpb.gov/data-publication/modified-lar IMPLICATIONS AND RECOMMENDED PRACTICES HMDA compliance requires strong internal controls and specialized knowledge, which may or may not be available at all institutions. Lack of these can result in data inaccuracies or inconsistencies, missing data and discrepancies between the HMDA data and the underlying records. Violations can also lead to a complete review of past data and resubmission of past LARs, which can be quite time-consuming and costly. HMDA continues to be a critical regulation, and we see no end in sight. Here are some recommended practices to minimize your HMDA risks and ensure compliance: • Board and Senior Management Responsibilities: Ensure adequate oversight and the necessary internal resources to ensure compliance. Ensure all applicable employees understand the importance of accurate reporting. • Policy/Procedures: Create a HMDA policy and detailed procedures to ensure responsible employees can easily access the requirements. • Training: Provide necessary training to everyone associated with the data collection and reporting process. • Expertise and Staffing: Ensure there is a knowledgeable person(s) to oversee HMDA compliance. Ensure adequate staffing for HMDA reporting. • Internal Controls: Ensure application data collection is well documented and have a thorough review process to ensure data was entered to the LAR correctly. • Internal Audit/HMDA Data Point Scrub: Perform a review of your current processes/procedures and internal controls and arrange for a detailed review of your data points by a third party. At Snodgrass, we specialize in the HMDA regulatory and data point/control requirements. We can provide simple tips to help quickly detect potential errors. We provide both internal audits and can perform a complete scrub of your HMDA data points. If you feel you are at risk for noncompliance with HMDA requirements, please contact us if you would like to see how we can help you maintain compliance with this regulation. With more than 20 years of banking and audit experience, including leadership roles at PNC Bank and Sovereign Bank, Frank P. Antiga, CPA, CPAB, brings depth, perspective and steady guidance to financial institutions navigating complex regulatory challenges. His highly valued expertise strengthens internal controls, protects institutions and helps clients move forward with confidence. Founded in 1946, S.R. Snodgrass is a privately held, multi-faceted public accounting and consulting firm, known for innovative tax, assurance, technology and financial advisory services for financial institutions, nonprofits and businesses of all kinds. The firm has worked with more than 175 financial institutions in 16 states and employs more than 90 professionals. The firm is ranked among the country’s top 300 public accounting firms according to Inside Public Accounting’s 2025 list at insidepublicaccounting.com/ipa-top-500-firms. 15 The Community Banker
BUILDING THE FOUNDATION FOR EFFECTIVE AI Closing the Data Readiness Gap BY AJAY JOHN VP of Data Science & AI, CSI Artificial intelligence is quickly transforming financial services. For community banks, this shift brings both opportunity and challenge. It can strengthen fraud prevention, improve efficiency and deliver deeper customer insight. At the same time, it is accelerating AI-driven fraud and social engineering threats. Adopting AI isn’t just about adding new tools. To truly benefit and stay protected, banks need to address underlying data readiness gaps. UNDERSTANDING THE DATA READINESS GAP Despite having access to vast amounts of data, many institutions struggle to generate timely, reliable insights. Fragmented systems, inconsistent data quality and legacy infrastructure limit their ability to use data effectively. As a result, AI initiatives frequently stall before delivering meaningful results. This challenge is especially pronounced for community and regional financial institutions, which often operate with leaner teams and fewer data resources while facing growing competition from fintechs and larger banks investing heavily in AI. At the core is the growing volume of data. While it should enable better decisions, many organizations lack the foundation to make it usable. Without unified, well-governed data, even strong strategies fail to translate into actionable insight. Several common obstacles contribute to this gap: • Siloed Systems Across Departments: Disconnected platforms prevent a unified view of customers and transactions, limiting visibility across the organization. • Inconsistent or Poor-Quality Data: Inconsistent formats, duplicate records and incomplete fields reduce reliability and undermine confidence in analytics. • Legacy Core Infrastructure: Older systems limit integration and data sharing, making it harder to support modern applications and real-time access. • Lack of Clear Data Ownership and Governance: Lack of ownership leads to inconsistent standards, reducing trust in data and complicating compliance. These challenges collectively create the data readiness gap, and without the infrastructure needed to connect and structure this data, institutions will struggle to unlock its full value. A STRATEGIC FRAMEWORK FOR BUILDING AI-READY DATA To compete in a data-driven landscape, institutions must close the data readiness gap. This starts with understanding how data flows across the organization and identifying where visibility is limited. 1. START WITH VISIBILITY: UNDERSTAND WHERE INSIGHT BREAKS DOWN Before ramping up AI initiatives, identify where the data is being roadblocked. Mapping data flows across systems and departments helps uncover integration gaps and bottlenecks, allowing organizations to prioritize high-impact improvements. Putting this into practice starts with a few essential actions: • Integrate Siloed Systems: Disconnected systems fragment the customer view. Integrating them through APIs or modern 16 The Community Banker
platforms helps unify data into a consistent, usable view. • Modernize Data Pipelines: Outdated pipelines slow data movement, which limits responsiveness, while modern tools streamline data flow between systems to improve speed and reliability. • Align Analytics with Business Workflows: Tie insights to clear actions and owners so they drive daily processes, not just sit in dashboards. Understanding these friction points helps prioritize improvements that will deliver measurable business value while creating a clearer path toward unified, decision-ready data. 2. ESTABLISH STRONG DATA GOVERNANCE Once visibility into data flows is established, the next step is implementing strong data governance. However, many institutions are still working to mature these capabilities. According to CSI’s 2026 Banking Priorities Executive Report, only 11% of community banking leaders rate their data strategy as highly effective, highlighting the need for stronger governance and data management practices. To strengthen governance, institutions should focus on several key areas: • Establish Operational Data Governance: Effective governance means each critical data element has a business owner, a technical owner, a clear definition, a defined lineage path, a quality expectation and an access policy. • Implement Data Quality Monitoring and Controls: Regular validation catches errors early. As banks adopt AI through partners, this also requires strong vendor governance, data-sharing controls and ongoing monitoring. • Embed Compliance and Security from the Start: Strong governance ensures data meets regulatory and cybersecurity requirements. Strong governance improves data quality but also builds the trust necessary to confidently adopt AI-driven insights. 3. ESTABLISH SEMANTIC CONTEXT FOR AI Beyond governance and consolidation, institutions must also ensure that their data carries meaningful context. AI systems interpret data based on the information they are given. If data elements lack clear definitions or relationships, AI models may struggle to understand how different data points connect to real-world outcomes. Establishing semantic context helps solve this problem. Semantic context becomes critical when AI must interpret business meaning rather than just process raw data. For instance, in lending, statuses such as “past due,” “deferred” and “restructured” may appear similar across systems but reflect very different levels of risk. Without clear semantic definitions, AI may misclassify borrowers and trigger the wrong actions. By defining what these terms mean, how they relate and where they apply, institutions enable AI to generate more accurate risk insights and support more effective decision-making. With clear semantic context in place, institutions are better positioned to translate data into insights that drive more confident, consistent decisions. WHERE TO START: PRACTICAL FIRST STEPS FOR GROWING TEAMS For community banks with limited staff and tight budgets, closing the data readiness gap doesn’t require a large-scale transformation. The key is to start focused and intentional. A successful AI-readiness effort begins with a clear use case, defined ownership, measurable outcomes, and strong controls for data quality and access. Rather than trying to modernize everything at once, banks can prioritize a high-impact use case, connect only the systems that support it and standardize a small set of critical data. This targeted approach allows institutions to demonstrate value quickly while building a foundation to scale over time. UNLOCK AI’S POTENTIAL THROUGH DATA READINESS Artificial intelligence offers financial institutions significant opportunities to improve decision-making, efficiency and customer experience. However, capturing this value requires data that is unified and ready for action. For deeper insights into the technology priorities shaping the industry, scan the QR code to explore the 2026 Banking Priorities Executive Report. https://www.csiweb.com/docs/ banking-priorities-2026/ 17 The Community Banker
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