PUB. 12 2023 ISSUE 1 CommunityBanker The SAVING COMMUNITY BANKS MOVING THE VACB FORWARD IN 2023
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© 2023 Virginia Association of Community Banks | The newsLINK Group, LLC. All rights reserved. The Community Banker is published four times each year by The newsLINK Group, LLC for the Virginia Association of Community Banks and is the official publication for this association. The information contained in this publication is intended to provide general information for review and consideration. 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 specific circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the Virginia Association of Community Banks, 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 the Virginia Association of Community Banks. While The Community Banker encourages a first-print policy, 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 11 20 VACB Board of Directors CHAIR Jay A. Stafford Benchmark Community Bank Kenbridge CHAIR-ELECT Tara Y. Harrison Virginia National Bank Charlottesville VICE CHAIR Joseph R. Witt, CPA The Old Point National Bank Hampton IMMEDIATE PAST CHAIRMAN Dennis A. Dysart First Bank Strasburg ICBA VIRGINIA DELEGATE Mark Hanna F&M Bank Timberville PRESIDENT & CEO Steven C. Yeakel, CAE VACB Richmond VACB STAFF Katharine C. Garner, CMP Vice President Education & Communications Kelli C. Mallinger Member Services Administrator VACB DIRECTORS CLASS OF 2023 J. Steven Grist CornerStone Bank Lexington James E. Hendricks Village Bank Midlothian Lisa E. Kilgour MainStreet Bank Fairfax Paul M. Mylum National Bank Roanoke Thomas L. Rasey, Jr. The Farmers Bank of Appomattox Appomattox CLASS OF 2024 Chris Snodgrass The Bank of Marion Marion Blake M. Edwards, Jr. Skyline National Bank Independence CLASS OF 2025 Dabney T.P. Gilliam, Jr. The Bank of Charlotte County Phoenix 4 PRESIDENT’S COLUMN Collaboration in Education: Moving in the Right Direction 5 CHAIRMAN’S MESSAGE Moving the VACB Forward in 2023 7 DISCUSSING COMMUNITY BANKS AND BANKERS HELPING BANKERS With Matthew Smith 11 SAVING COMMUNITY BANKS Cooperation and Planned Succession 14 WINDOWS 11 VS. WINDOWS 10 Should You Make the Switch? 16 REGULATORS SHOULD RETHINK CLIMATE PROPOSALS TO ELIMINATE COMMUNITY BANK IMPACT 18 SAVE THE DATE VACB 46th Annual Convention & Trade Show 20 SIX STRATEGIES TO NAVIGATE CREDIT STRESS 22 SAVE THE DATE VACB 23rd Annual Golf Tournament
President’s Column Steven C. Yeakel, CAE VACB President and CEO COLLABORATION IN EDUCATION MOVING IN THE RIGHT DIRECTION R ecently, we conducted a series of 20-minute briefings with education and training leaders in our member banks, highlighting VACB’s education offerings and our new affiliation with ICBA’s Community Banker University. The briefings were inspired by our Education Task Force, which has been hard at work over the past few months. The briefings are one of several takeaways the group has produced to make our programming better — for your bank and for VACB. As a result of conversations with task force members, two realities surfaced. First, education and training are handled in a variety of ways across our member banks, with no correlation to bank size or other variables. Second, some VACB members know little of VACB and ICBA programming, and others know of programs that they have used for years, but little about our newer programs and affiliations. Our goal is to make sure that all of our members are aware of all that we offer, and the briefings were an effective first step to that end. Our thanks to Katharine Garner, who “wrote and directed” the briefing agenda. The 20 minutes were packed with information and thought-stimulating questions and links to more information. A recorded version is available at https://tinyurl.com/VACB-Overview if you would like to view it or share it. Our thanks also to Julie Hanson, ICBA’s SVP for State Education Programs, who provided a two-minute overview of the new VACB-ICBA affiliation in each briefing and remains very accessible as we expand the reach of our new collaboration. In addition to the major new affiliation with ICBA’s Community Banker University, we have expanded the number of other community-bank-specific associations with which we engage in education. We’ve been partnering with our peers in West Virginia for several years and have recently conducted programs with community bankers associations in Georgia, Colorado, and Missouri. The benefits of these collaborations are realized in wider access to quality speakers, more revenue opportunities, and more interaction between a broader cross-section of community bankers. We are also looking to build affiliations with other entities that make training a hallmark of their value proposition. Our strategic plan emphasizes the need to drive member value. For those who appreciate the role of education in the recruitment and retention of good people in key positions at your bank, VACB and ICBA will continue to provide valuable opportunities. Use our website — www.vacb.org — to find links to ICBA and VACB programming. 4 The CommunityBanker
Chairman’s Message Jay Stafford, VACB Chairman Benchmark Community Bank MOVING THE VACB FORWARD IN 2023 hen you started your career as a community banker, did you ever believe we would be facing the issues we have today? After our world was upended three years ago by a global pandemic, little did we realize at the time just how far-reaching the effects would be on community banking and the people we serve. This year will be another interesting one for Virginia’s community bankers. The Paycheck Protection Program's deposit highs have transitioned into deposit pressure from increased competition, inflation, an uncertain economic situation, and the downward swing in liquidity hanging over us each day. Interwoven into those concerns are capital, loan quality, margin pressure, loan demand — and keeping good employees. A universal wrinkle most of our community banks — and many of the commercial customers we support — did not anticipate three years ago is the challenge of attracting and retaining employees who share our commitment to customer service. The pandemic introduced the new work-from-home culture our digital age has spawned. Combined with salary pressure, finding talent interested in a career and not just a job is a major issue wherever you are located. It is in suiting up to face these dilemmas each day that I am so appreciative of the VACB and the relationships developed with my fellow CEOs. Being able to give one of you a call when I need another set of eyes on a situation lets me — and you — know we are not in this alone. Whatever the challenge, we gather the resources to navigate them — and I find that to be of immeasurable value. Along with member CEOs as sounding boards, your VACB Board of Directors is laser-focused on the key areas of the organization’s Strategic Plan adopted in August 2022 and addressed during our October convention in Williamsburg: • Driving Member Value • Increasing and Diversifying Revenue • Developing a Long-Term Operating Plan • Planning for Management Succession Successfully addressing these four target areas will reinforce our efforts to fortify VACB’s overall goal of 5 Pub. 12 2023 Issue 1
incorporating community bank advocacy and member collaboration to underscore our standing as a valuable organizational resource for community bankers throughout Virginia. Two task forces are now at work analyzing future revenue opportunities and reviewing the Association’s educational offerings. Revenue is becoming so much more important as we face rising costs and fewer Virginia banks, so we want to ensure that our educational programs present relevant topics for your organizations. Are our education topics of value to your bankers? Please let us know. And thanks to each of you for sending in an updated list of your key bankers’ contact information. Please be sure to keep the office updated on any changes to that list. We are counting on our member banks to keep us in touch with the right people. We want to be sure that the correct person is receiving educational material relevant to their work. Long term, we are beginning to consider succession planning as Steve’s retirement is fast approaching. The Association’s long-term operating plan will center around addressing these areas, each of which is important in carrying us forward. In addition to our online programs, our VACB conferences and events provide tremendous value. Spending time away from our desks and cultivating strong relationships with fellow community bankers is an all-too-often overlooked benefit. Some upcoming events you will want to put on your calendar include: • VACB/VBA Director Symposiums — April 18–19 • ICBA Capital Summit — May 15–17 • VACB Golf Tournament — May 22 • VACB Convention in Roanoke — October 1–3 As I write this, I am personally looking forward to going to this year’s ICBA convention. I have never been to an ICBA convention, nor have I been to Hawaii. I’ve heard from several Virginia bankers planning to attend, so we will be well represented. I look forward to providing you with an update and hope to see you at a community banking event soon. My best to each of you as we navigate another successful year at our banks. I am excited about the energy and excitement from our Board members as we tackle these issues facing our industry. I look forward to hearing from you with comments or suggestions on how we can make your association better. Thanks for your investment and support. IS YOUR COMMUNITY BANK THRIVING? Meet Leah. Leah works hand-in-hand with community banks in the Mid-Atlantic to find ICBA member benefits that help them achieve their bank’s goals. Leah is most at home enjoying a crab cake in Annapolis, but thrives on the road, taking trips to Mid-Atlantic states to work with members on making the most of their membership with the only organization dedicated to community banks. As an ICBA member, Leah is helping your bank succeed. Learn more at icba.org/membership 6 The CommunityBanker
DISCUSSING COMMUNITY BANKS and BANKERS HELPING BANKERS WITH MATTHEW SMITH Matthew Smith is the Director of Innovation Initiatives at the Independent Bankers Association of Texas (IBAT). He was a community banker for 18 years and worked indirectly with IBAT for 12 years. Now, he reports directly to Christopher Willison, IBAT’s CEO. Matthew has a B.S. in Business Administration and an MBA from Wayland Baptist University. Please tell us about IBAT and the role it plays in Texas. We help small banks with compliance, advocacy, education and much more. We also go to Austin and Washington, D.C., as advocates to ensure legislation supports community banks. Finally, we identify vendors that associate members have endorsed so that when community banks reach out to us, we can provide them with a vetted list. We are involved in Bankers Helping Bankers, which supports community bankers throughout the U.S. There are currently 30 state associations signed up to help community banks. Bankers Helping Bankers is a safe place because there is no vendor involvement. Bankers can access data that shows the short list of what technologies are integrated with the core and has 7 Pub. 12 2023 Issue 1
open message boards that allow community banks a place to talk and ask questions openly. Many community banks want and need to create efficiencies. The Bankers Helping Bankers program helps these community banks to manage their transformation with fintech and offer services that generate revenue they haven’t been able to offer before. How did you get into banking? I did everything the hard way. I had a child, got married and decided I needed to figure life out. My wife and I worked and went to school fulltime while our child was still young. I became a community banking administrative assistant and worked my way up. It was hard, but it helped me become who I am today. How long have you been with IBAT? I started in early 2022. IBAT hired me because I was a community banker and understood community banking needs. Community bankers listen to me because I am one of them. What are your main job responsibilities? I help banks with the Bankers Helping Bankers program. When I asked Christopher Williston what I would do, he said I would make sure community bankers have the information they need to make educated decisions. You have a story about babies, bankers and a river. Would you please tell us that story? Two guys are sitting by a river fishing and enjoying the day. A baby suddenly comes floating down the river. They jump up, rush into the river and save the baby. When they started talking to each other, wondering why the baby was in the river, they saw another baby in the water. As more and more babies come down the river, one of the guys keeps running into the river to save the babies, but the other guy starts running up the river bank. “What are you doing?” yells the first guy. The second one yells, “I’m going to find out who is throwing babies in the river, and then I’m going to stop them.” I’m like the second guy. It’s my job to make sure no more charters go away. The number of U.S. banks is decreasing. What role has legislation played, and how did the Great Recession and COVID-19 contribute to the trend? The Consumer Financial Protection Program (CFPB) was started in 2010 and 2011 in response to the Great Recession. Sen. Elizabeth Warren never led CFPB, but she served as a senior adviser and influenced how it was set up and who was hired. Key roster assignments went to people with credentials from the financial sector. When these senior staffers at CFPB left the organization to work in the financial sector again, they helped big banking and securities firms understand how to navigate the rules they’d written. The agency became a revolving door between government and industry. Community banks didn’t cause the banking problems legislators were trying to solve, but bad legislation placed a costly burden on community banking and decreased revenue. The new rules weren’t a problem for big banks. They can absorb the cost, pay the fines and hire the staff because they have the budget. Community banks can’t. Then COVID-19 and the pandemic shutdown came along. Community banks ensured that every person in the U.S. got their paycheck through the Paycheck Protection Program (PPP). Money moved at the community bank level, not the megabank level. It was unprecedented. What we are seeing now is a grassroots trend. People saw how banks stepped up and wanted to ensure that the local community bank would not disappear. Why is it bad that there are fewer community banks? What is their role in small-town communities? Big banks don’t see the value in loaning local small businesses the money they need to grow and build. They won’t make loans for less than a specific dollar amount. But if the big banks don’t do those loans, who will? Who will continue to support local businesses and school districts? Are big banks going to put their name on a scoreboard or hand out water at a community event? We need community banks because small businesses can’t get loans anywhere else. In places without a community bank, small businesses are not doing well. The entire community withers because it loses jobs that could have kept people there. To see it, all you have to do is look at the main street in a town with a community bank, then in a Who will continue to support local businesses and school districts? Are big banks going to put their name on a scoreboard or hand out water at a community event? 8 The CommunityBanker
investment, VyStar selected Nymbus as their mobile online banker, and in October 2021, Nymbus moved into VyStar’s office. May 13, 2022, was conversion day. The site went down, and VyStar’s internet banking was dead in the water. It stayed down for 12 days, until May 25. Vystar told the customers access was back, but we collected screenshots from customers that said differently. We have one where the customer’s position in line was 93,162. VyStar members filed the first set of complaints on June 3, 2022. On June 6, a screenshot showed someone’s position in line was 2,466. On July 4, 2022, someone said VyStar hates its members and that it sent them into ruin to increase its member base. Months later, VyStar members were still experiencing technical issues. People could not access their account information, and the credit union missed payments and deposits. One member called VyStar the Deathstar, and others promised to end their membership. Vystar was supposed to acquire Heritage Bank; the management at Heritage Bank backed out of the deal and said, “We aren’t going to let you slaughter us.” This story about Nymbus and Vystar shows that consultants don’t necessarily do what is right for community banks. Nymbus is an example of bad fintech. If VyStar were a community bank instead of a credit union, we would have told its management, when the information would have done some good, that Nymbus had zero live customers using its mobile online banking system. We feel bad for the credit union and its customers, but this story underscores how important it is for there to be someone out there helping community banks identify who the good guys with good products are. town without one. The one with the community bank will be vibrant. The one without is going to be the complete opposite. What can community banks do to protect themselves? In 2022, BankDirector released a Bank M&A survey. The survey asked bankers to identify the three main reasons they might be forced to sell. The answers were: 1. Inability to provide a competitive return 2. Inability to keep up with the digital evolution 3. Inability to operate efficiently Fintechs can help solve all three things, but some Fintechs harm more than they help. Since consultants don’t necessarily do what is right for community banks, they need someone to help them identify the good guys. A big part of competitive returns, digital evolution and efficient operations involves developing a more diversified income stream. Bankers Helping Bankers can identify good partners and connect community banks with good fintechs. If a community bank wants to go down a specific path, we help them with a playbook and tell them about other banks that are doing the same thing. That way, they can find efficiencies, implement better workflows and robotic processes, offer digital bank services, and connect with Banking as a Service (BaaS) banks. One of the stories I tell on the stage is a catastrophic story about VyStar Credit Union that is still playing out. Very recently, it was the 13th largest credit union in the nation and had $12.4 billion in assets and 822,000 customers. Management wanted to convert to direct banking on the internet, so they talked to consultants about a digital-forward cloud-based solution. In April 2021, VyStar invested in a fintech named Nymbus Credit Union Service Organization (CUSO). They invested $20 million, the largest fintech investment on file. In July 2021, three months after that 9 Pub. 12 2023 Issue 1
What should state and federal legislatures be doing to protect community banks? Federal and state legislatures have made it hard for community banks to survive, so advocacy on the national and state levels matters because it ensures that new legislation will help community banks instead of hurting them. We talk to legislators about the value of community banks. We educate them about best practices, and then they make better choices in the laws they write. What are the strengths of big banks? What is the correct role for them? Banking isn’t a one-size-fits-all business. Big banks are a good space for big corporate organizations because they are set up to handle the biggest customers. Community banks excel at handling customers that are too small for the big banks. Big banks and community banks can exist together if they all focus on their strengths. Why can’t big banks provide the same services as community banks? The scale is wrong, which makes them too slow to be helpful. How do big banks and community banks complement each other? Big banks should be for big customers and leave community banks to help the rest of us. Do you have any last words? Bankers Helping Bankers can help your community bank. Community banks are good at loans and delivery, but 10 years ago, they didn’t have the resources available that are available now. The big boys already have those tools; now, we need to level the playing field and improve our use of innovative technology. If we succeed, we can ensure your charter won’t go away. Leveling the playing field means finding ways to cooperate with corporate fintechs. We need a good ecosystem so we can survive. The Bankers Helping Bankers program creates that ecosystem. It gives bankers a tool to help them get connected to the right people. We have to come together because community banks are important. For all of us to survive, we need to work as a community and support each other. I don’t want any charters to go away, including the bank down the street, because when community banks disappear, there’s a negative effect on local businesses, jobs and school districts. Too many banks are gone. Let’s make sure we keep the rest of them alive. 10 The CommunityBanker
SAVING COMMUNITY BANKS COOPERATION AND PLANNED SUCCESSION The U.S. has undergone tremendous economic changes for more than 40 years. Those changes affect the middle class, and they also affect community banks. As income inequality has grown over the last 30–40 years, legislative changes have encouraged bank consolidation, and the number of community banks has decreased. According to an article by J.C. McKissen on the Inc. website, larger national banks either purchased these banks or merged with them. The article points out that the decrease in banks has made it harder for entrepreneurs to get the money they need. These budding entrepreneurs often depend on banks to smooth the inevitable bumps of growing a business while maintaining enough liquidity to pay the bills when they come due. The same is probably true for other customers, especially those in smaller communities. In September 2011, the U.S. had 7,436 banks. In September 2021, the number was 4,914 banks. There are more statistics. According to the samco-amc.com website, 1984 was a turning point. More than 10,000 community banks failed, merged or have been acquired since then. Most of those that remain have assets under $100 million. The banks that acquire them are usually about four times larger than the banks being acquired. Why are community banks going away? In one word: legislation. According to Oscar Perry Abello, in May 2020 on the nextcity.org website, there were 13,000-14,000 U.S. banks between the 1930s and the 1980s, but most were very small. In 1988, more than 12,000 banks had assets of as much as $300 million. Only 3,000 banks could say the same in 2020, but there were five times as many banks with $20 billion or more in assets. The problems started with deregulation in the 1980s. By 1990, 46 states made it easier for banks to operate across state lines. In 1994, President Clinton signed the RiegleNeal Interstate Banking and Branching Efficiency Act. The act removed federal restrictions on banking across state lines. In 1999, the Gramm-Leach-Bliley Act repealed the Glass-Steagall act that had separated commercial banking from investment banking, and big banks began merging with investment banks. The Great Recession motivated lawmakers to create additional rules. The Dodd-Frank Wall Street Reform and Consumer Protection Act are examples. Compliance has favored large banks because community bankers don’t have the same resources as their peers at larger banks. The new rules caused any bank with less than $50 million to become unprofitable. Banks can be a powerful tool within communities. However, big banks and community banks have different 11 Pub. 12 2023 Issue 1
roles. The biggest companies can absorb adverse circumstances; smaller companies sometimes can’t. Computerized banking has made branch banking and interstate banking possible, but it has also created competition between bankers that didn’t exist before. For example, suppose you have two banks in adjacent counties owned by two friends. The two friends are probably close enough physically to have lunch occasionally, and if they have a different set of customers, there’s no conflict of interest. But now, suppose that one or both open a new branch in the other banker’s county. If they get together for lunch, they can’t talk about banking anymore because they are competitors as well as friends. Out-of-state ownership creates a similar scenario. Different regions in the U.S. have different risks. A small banker can diversify by trading risks with bankers in other geographical areas, but big banks can handle the problem by buying risk instead of trading it. It makes sense for an effective banking system to provide resources for as many people as possible. What doesn’t make sense is directing all the help to the top instead of the bottom. Even though the internet has made it easy for people to bank online, that doesn’t mean internet banking always meets customer needs. In particular, small towns with community banks thrive; small towns without them don’t. There is no substitute for a face-to-face business relationship with someone who decides to help you because they know you, not because a computer algorithm identified you as a safe bet. People at big banks understand the importance of the community bank system, but preserving it is another matter. Where community banks focus on relationships, big banks focus on transactions that use credit scores and models. Since it costs as much to write a big loan as a small one, and big loans generate more interest, big banks focus on the big loans. They also focus more on income from fees and investments than interest from loans. Another problem is that big banks can centralize their operations far away from their customers. Although a big bank can focus on relationships, that’s a hard focus to maintain from a distance. It’s easy to forget about serving people you’ve never met. Also, banking systems must grow to survive and maintain economies of scale. When an interstate bank decides to expand, they don’t buy branches that belong to big banks. Instead, they buy the local community bank even though they know it’s needed. An abstract need to support community banks is not as important to them as the immediate need to please a boss by helping an already large banking system grow even larger. In contrast, it’s much easier for a community bank to pay attention to relationships because the people who work there are often personally invested in their community. There is no substitute for a face-to-face business relationship with someone who decides to help you because they know you, not because a computer algorithm identified you as a safe bet. 12 The CommunityBanker
They might have another business or a farm to run on the side. They often know their customers personally. Many of their decisions are made to benefit the entire community. Also, they often counsel potential customers about what to do to achieve their goals. When COVID-19 came along, the entire country shut down. Community banks stepped up to the challenge of helping customers. Even though the network of community banks was smaller than it had been decades earlier, it was still large enough to help with the rollout of government money through the Paycheck Protection Program (PPP). Small lenders outperformed large lenders in round one; 60% of PPP loans came from lenders with less than $1 billion in assets. (Big lenders caught up in round two.) But that help came at a price: a negative effect on liquidity. Community banks ended up with a lot of money that wasn’t earning interest. Lower net interest margins mean reduced net earnings. In turn, the banks ended up with less money than they would have had otherwise to support their communities. The fact that banks were hurt for helping out their communities was certainly not intentional. Everyone was scrambling at the time. Nevertheless, it’s important to make sure community banks do a better job from now on as they advocate for themselves. What happens when the network of community banks across the country becomes too small to be effective? People will leave rural America for big cities because they won’t have enough reason to stay where they are. If we don’t want that to happen, it is time to start working to protect the community banks that are still here. Maybe it’s time to study what North Dakota has done relative to community banks. The Bank of North Dakota supports community lenders in a way that happens nowhere else. As a result, North Dakota led the nation by having a higher market share of deposits and PPP loans relative to population size than any other state. North Dakota has protected its community banks, and when the pandemic came along, those banks responded more effectively than other states with fewer community banks. What can community bankers do to safeguard their banks? It used to be that bankers passed their banks on to their families. When bankers struggle to stay in business, their children move into other businesses. That is why Job No. 1 has to be returning community banks to profitability. Community bankers can also help themselves by using important strategies such as succession planning. That way, when the day comes to hand off control of a bank to someone else, the bank can be transferred to a new owner with the same priorities and motives as the previous owner. Bankers can also help each other survive by joining associations and participating in programs that allow them to work more effectively. As a group, bankers can also lobby on a government level to protect their interests. For example, big banks should split off the investment side of their businesses. Federal and state governments could cap the market share size of deposits that banks can have in states. The government could focus on reducing regulatory complexity and applying the same rules to any organization that starts acting like a bank. “Shadow banks” operate like banks but don’t play by the same rules, even though their assets are substantially larger than the banking industry’s assets ($52 trillion versus $17 trillion). That’s not fair. Capping deposits would give customers in states like New York and California more choices; according to Abello, JP Morgan Chase had a 32% market share in New York. Three banks in California (Bank of America, Wells Fargo and JPMorgan Chase) had a 50% market share. No other banks had anything comparable. Finally, another change that would help community banks is making it easier for communities to start new banks. The FDIC approves new banks, but the number of new banks has been small or nonexistent every year since 2010. Legislation has harmed community banks. It’s time to change the playing field by pooling resources within the industry and advocating with lawmakers. 13 Pub. 12 2023 Issue 1
WINDOWS 11 vs. WINDOWS 10 SHOULD YOU MAKE THE SWITCH? By Mike Gilmore, Chief Compliance Officer, RESULTS Technology indows 11 is here, and while it may seem like an enticing upgrade, it is important to consider whether or not your business should make the switch. The new Windows operating system has many similarities to Windows 10, but there have also been some significant changes with this release that could impact your workflow. Here is what you need to know about Windows 11 vs. Windows 10 so that you can make a well-informed decision about whether to switch to Windows 11 or stick with the previous system. What Features Are Included in Windows 10? Released in 2015, Windows 10 is a stable and secure operating system with many features to make computing easier. It includes a virtual assistant, Cortana, that can help you with tasks like searching for files or setting reminders. It also features the Microsoft Edge web browser and integration with cloud storage services such as OneDrive and DropBox. Other major Windows 10 features include: • A Start menu with customizable live tiles • An updated taskbar • A revamped Notification Center • Picture passwords and Windows Hello facial recognition What’s New with Windows 11? Windows 11, released in 2021, is the latest version of the Microsoft operating system. In this system update, Microsoft has made a few changes that could impact how you use the system. The interface updates in Windows 11 include: • The Start menu’s Mac-like redesigned look • Widgets for faster access to applications • Better Xbox gaming technology • Teams and Android apps integration The Benefits of Windows 11 vs. Windows 10 Windows 11 includes a number of performance improvements that aim to make this software update faster and more reliable than Windows 10. It also has improved security features and better compatibility with third-party applications. Many like this update because it's a cleaner design overall and includes strong video updates. It also has better integration with mobile devices, so if your business works on multiple platforms, upgrading could be a great move. The Downsides of Upgrading to Windows 11 However, the main issue with upgrading to the newer software version is its incompatibility with older PCs. Some Windows 11 upgrades may not be supported by older hardware, complicating the upgrade process. It can cause applications to crash, slow down the system, and prevent access to certain features. Additionally, some existing applications may not work properly on the new operating system, which could create unexpected problems and require further customization or professional assistance to solve. 14 The CommunityBanker
Many users have reported more issues and bugs using Windows 11 vs. Windows 10. For example, some users have encountered problems with their printers and other hardware not being recognized on the system. Other users are upset that some of their favorite Windows 10 features have been removed in Windows 11. Removed Windows 10 Features In upgrading to Windows 11, some features from the previous version have been removed. For those who rely on these features, this could be a major setback. These removed features include: • Desktop wallpaper sync • Internet Explorer panel • Missing events in Calendar Flyout • Apps like 3D Viewer and OneNote for Windows 10 • Folders of apps and named groups Windows 11 vs. Windows 10: Which Update Is Better? As you consider Windows 11 vs. Windows 10, it's important to understand the implications of making the switch. If your company uses older PCs, you could actually experience more problems than benefits. Additionally, the removal of certain features could require you to change how you use the system and also require you to restructure your workflow. The best way to decide whether or not Windows 11 is the right fit for your business is to consult with a professional who knows the ins and outs of both versions. They can help you evaluate which update makes the most sense for your company's needs and what steps you should take if you choose to switch. Consult RESULTS Technology For Your IT Needs At RESULTS Technology, we can evaluate your current system and help you decide between Windows 11 vs. Windows 10. We have extensive experience working with both versions of the Microsoft operating system and understand the implications of making an upgrade. Our expert IT consultants strive to bridge the gap between business and technology and deliver the best results for our clients. Contact us today at (913) 347-6497 or scan the QR code to fill out the form to learn more about how we can help you make the right choice for your business. https://www.resultstechnology.com/get-in-touch/ Mike Gilmore is the Chief Compliance Officer of RESULTS Technology and a Certified Information Systems Auditor (CISA) with more than 30 years of experience in the banking industry. RESULTS Technology provides IT services to community banks across the Midwest. In his role as CCO, Mike provides compliance and risk assessments, audit and exam support and policy documentation. He can be reached at mgilmore@resultstechnology.com. The best way to decide whether or not Windows 11 is the right fit for your business is to consult with a professional who knows the ins and outs of both versions. 15 Pub. 12 2023 Issue 1
REGULATORS SHOULD RETHINK CLIMATE PROPOSALS TO ELIMINATE COMMUNITY BANK IMPACT By Rebeca Romero Rainey, President & CEO, ICBA hile several federal regulatory agencies are working to finalize proposals on climate-related financial risk management that purportedly target the nation’s largest financial institutions, the proposals would inevitably subject community banks and the communities they serve to new and expensive regulatory burdens. Rather than rush to impose new standards on community banks, the agencies must ensure their climate risk regulatory efforts mitigate the downstream costs their proposals will impose on community banks and the communities they serve. New climate risk regulations would require some community bank customers to collect and disclose greenhouse gas emissions data as a condition of banking. The proposals also would require community banks to pay myriad expenses to comply with climate risk management frameworks — including hiring subject matter experts and compliance specialists to implement these complicated frameworks. Ultimately, these proposals would cut off local communities from the community banks that best understand and best serve local environments. Community banks have decades of experience managing concentration risks and responding to extreme weather events and natural disasters in their communities — meaning new, onerous, and expensive climate risk management frameworks are counterproductive. Federal Deposit Insurance Corp. Acting Chairman Martin Gruenberg recently noted community bank risk management strategies — which are based on firsthand perspectives and experiences — include consulting weather, agricultural, and other nonfinancial data; managing exposures within flood plains; and assessing the impact of extreme weather events. But Gruenberg’s call for regulators not to have “unreasonable expectations” for small and midsize banks contrasts with the series of proposals the FDIC and other regulators are working to finalize in the months ahead. For instance, the Securities and Exchange Commission’s proposal to institute climate-related investor disclosures contains no exemption for community banks, threatening to impose unprecedented costs and potential liabilities that would drive local institutions out of the public capital markets. While separate climate risk management frameworks proposed by the FDIC and Office of the Comptroller of the Currency would target banks over $100 billion in assets, regulators have signaled the policies will ultimately trickle down to community banks. Gruenberg himself said in releasing the FDIC framework that all financial institutions are subject to climate-related financial risks, and Acting Comptroller of the Currency Michael Hsu has said
industries disfavored by certain policymakers not only plays favorites between legal industries, it threatens to harm many local economies that community banks serve. If climate risk proposals are not intended to choke off specific industries from the financial system, regulators should expressly state there is no supervisory expectation that banks de-risk legal but climate-disfavored industries. Sustainability is central to community banks’ business model with their longstanding underwriting and insurance practices addressing the impact of severe weather events and natural disasters since the early 19th century. When local environments flourish, community banks flourish. But subjecting community banks to mandatory climate risk regulation or enhanced climatedisclosure requirements is unnecessary and would only restrict their ability to meet their communities’ needs. Regulators should reconsider their climate risk proposals and their adverse effects on local communities. Rebeca Romero Rainey is President and CEO of the Independent Community Bankers of America. 828 Main St, 15th Floor Lynchburg VA 24504 www.countsauction.com Call us for your Auction & Appraisal needs. 434-525-2991 OCC examiners will conduct climate risk management examinations on community banks in the coming years. Regulators should not impose climate risk regulations on community banks for the following reasons: First, current risk management practices protect community banks from climate-related financial risks, as evidenced by the absence of community bank failures following severe weather events. As Gruenberg noted, community banks have employed a range of risk management strategies for generations and know their communities and loan portfolios better than anyone else. Rather than impose new climaterelated guidelines on community banks, regulators should continue to utilize existing and effective risk management supervision practices, which will avoid duplicating requirements and introducing new regulatory burdens. Second, the FDIC, OCC, and SEC published their proposals without any supporting studies to demonstrate climate risk is a threat to bank safety and soundness, raising questions about the validity of their assumptions. Before contemplating new policies, the agencies should first conduct studies and gather empirical data to determine the extent to which climate-related financial risks affect the safety, soundness, and stability of community banks and the financial system. The lack of empirical data points to the third key concern with these proposals — that the government’s ultimate motive is to choke off legal but disfavored businesses and industries from the financial system. While community banks typically are not the primary source of financing for large energy-producing companies, they do provide the majority of smallbusiness credit in communities in which energy production, refinement, agriculture, and transportation businesses exist. Reintroducing the “Operation Choke Point” policy of using the financial system to target Ultimately, these proposals would cut off local communities from the community banks that best understand and best serve local environments. 17 Pub. 12 2023 Issue 1
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SIX STRATEGIES TO NAVIGATE CREDIT STRESS By Dennis Falk, SVP & Regional Manager, PCBB Between the pandemic and rising inflation and interest rates, the last two years have taken community banks on a wild ride. Rising inflation and the higher interest rates designed to bring inflation back to earth have influenced cash flow and the cost of goods, which can create financial stress for borrowers. Financial stress can lead to credit stress, a problem for community banks and their customers. Multiple Challenges in Credit Risk The problem isn’t just that economic circumstances may push some borrowers towards payment tardiness or default. Community banks are seeing: • Varying credit quality by market sectors and subsectors. The pandemic, rising inflation, and/or higher interest rates have hit some business areas hard. Other sectors, like those deemed essential businesses, have remained remarkably unscathed. • Difficulty discerning the creditworthiness of different potential borrowers in those sectors and subsectors. For instance, businesses in travel and tourism found pandemic-related lockdowns in 2020 and 2021 very challenging. Some of those businesses have rebounded since then, such as cruise ship traveling, which saw share prices jump after pandemic safety protocols were removed earlier this summer. Other travel-related industries haven’t been as lucky, such as the hotel sector with lingering staff shortages that caused some hotels to close or leave a portion of rooms unsold. The challenge is determining which individual businesses are good credit risks. A firm’s business sector matters, but it isn’t necessarily the last word on whether a bank should lend to it. How can your bank assess risk in ways that encourage safe growth during a volatile economic time? Here are six strategies to help: 1. Notice the industry concentrations already in your loan portfolio. Use real-world observation and what-if analysis to determine the effects of rising interest rates on the sectors and subsectors where your bank is invested. Don’t forget the importance of factors such as region and business size. Commercial real estate companies in New York, for instance, might be experiencing different conditions than commercial real estate companies in Chicago while still having long-term tenant contracts in common. 2. Collect current financial information from borrowers more frequently — at least every six months. Annual updates are no longer sufficient. Consider all your possible information sources, which might include credit scores, payment history, debt-to-income ratio, net cash flow variables derived from customer-level income, utilities, rental payments, and other debt servicing. Some financial institutions are even moving toward using real-time data to get the clearest, most upto-date picture of a customer’s financial standing. 3. Analyze sectors and subsectors of industries to anticipate economic patterns. For instance, 20 The CommunityBanker
the pandemic affected agricultural borrowers differently. Even though both groups are in the same agriculture sector, farmers who sold to grocery stores did well, while farmers who sold to restaurants often had significant financial problems. By the same token, some businesses might find it easier than others to pass along some of their costs — a key ability to thriving when inflation trends higher. You might find that an entire sector has this ability, or you might see that within a single sector, some businesses can pass along costs, and others can’t. Advising the customers who aren’t seeing as much profit of some strategies they can leverage to increase margins will help both them and your community bank. 4. Proactively monitor your higher-risk portfolio concentrations and downgrade at-risk loans when appropriate. The earlier you see credit risk, the more you can limit nonperformance and help commercial customers restore their credit quality. 5. Stress test your portfolio. Community banks are anticipating potential deterioration in borrowers’ debt-servicing capacity, collateral values, and credit quality of their loan portfolios due to exposure to interest-rate risk and inflation risk. There will be more scrutiny from regulators around credit stress, especially those institutions exceeding regulatory guidance on commercial real estate and construction concentration. 6. Think about Current Expected Credit Losses (CECL). Consider what your loan portfolio’s credit risk profile will mean to CECL compliance, which will become mandatory for most banks next year. Taking a holistic approach toward your borrowers’ circumstances and patterns of financial behavior allows you to see potential problems, such as credit stress before they occur. Assessing these potential risks will help you make more informed decisions for the health of your portfolio and weather the current economic times. To continue this discussion or for more information, please contact Dennis Falk at pcbb.com or dfalk@pcbb.com. Dedicated to serving the needs of community banks, PCBB’s comprehensive and robust set of solutions includes cash management, international services, lending solutions, and risk management advisory services. ONE LAST THING ... Did you know that you can enjoy your association news anytime, anywhere? Scan the QR code or visit: vacb-community-banker.thenewslinkgroup.org Check it out! The new online article build-outs allow you to: • Stay up to date with the latest association news • Share your favorite articles to social channels • Email articles to friends or colleagues There is still a flipping book for those of you who prefer swiping and a downloadable PDF. 21 Pub. 12 2023 Issue 1
SAVE THE DATE! VACB — WILLIAMS MULLEN 23RD ANNUAL GOLF TOURNAMENT Monday, May 22 Spring Creek Golf Club Zion Crossroads, VA Visit VACB.org for more information.
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