PUB. 13 2024 ISSUE 3 OFFICIAL PUBLICATION OF THE VIRGINIA ASSOCIATION OF COMMUNITY BANKS CULTIVATING BUSINESS ACUMEN AS A BANKING SUPERPOWER
WE APPRECIATE OUR CONVENTION SPONSORS! as of 8/23/2024 DIAMOND PLAT INUM GOLD SI LVER BRONZE 2 The CommunityBanker
©2024 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 8 12 VACB Board of Directors CHAIR Joseph R. Witt, CPA The Old Point National Bank Hampton CHAIR-ELECT Tara Y. Harrison Virginia National Bank Charlottesville VICE CHAIR Lisa E. Kilgour MainStreet Bank Fairfax ICBA VIRGINIA DELEGATE Blake M. Edwards Jr. Skyline National Bank Independence PRESIDENT & CEO Steven C. Yeakel, CAE VACB Richmond VACB DIRECTORS CLASS OF 2024 Chris R. Snodgrass The Bank of Marion Marion CLASS OF 2025 Dabney T.P. Gilliam Jr. The Bank of Charlotte County Phoenix CLASS OF 2026 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 Roanoke Thomas L. Rasey Jr. The Farmers Bank of Appomattox Appomattox Matthew H. Steilberg C&F Bank Toano VACB STAFF Katharine C. Garner, CMP Vice President Education & Communications Kelli C. Mallinger Member Services Administrator 2 We Appreciate Our Convention Sponsors! Chairman’s Message 4 Embracing the Future By Joe Witt, CPA, Chair, VACB President’s Column 6 A Grateful Goodbye By Steven C. Yeakel, CAE President and CEO, VACB 8 Cultivating Business Acumen as a Banking Superpower By Jack Kasel, Sales Development Expert, Anthony Cole Training Group Flourish 10 Remaining Nimble Against a Litany of Regulation By Rebeca Romero Rainey President and CEO, Independent Community Bankers of America 12 Succession at the Top Lessons Learned From CEO Transitions By Alan J. Kaplan, Founder & CEO, Kaplan & Associates Inc. 14 Choosing the Right Digital Signage Platform To Satisfy the Needs of Key Stakeholders By Kevin Poirot, Chief Strategy Officer, PWCampbell 17 3 Steps to Evaluate Credit Trends and Risk Management By Erica Crain, Managing Principal of Value & Risk Services, CLA Don't Miss It! 19 VACB 47th Annual Convention & Trade Show Innovation Station 21 Making the Case for Responsible Innovation By Charles E. Potts, Executive Vice President, Chief Innovation Officer, ICBA 22 6 Strategies To Boost Deposits By Dennis Falk, SVP & Regional Manager, PCBB 3 The CommunityBanker
Chairman’s Message EMBRACING THE FUTURE Joe Witt, CPA Chair, VACB Fellow Community Bankers, As this year progresses, I have an increased enthusiasm for the future of community banking in our wonderful Commonwealth and for the Virginia Association of Community Banks. While the last 18 months have been a very challenging time for community banking, we now see a light at the end of the tunnel. This is good news for our communities, our customers, our employees and our shareholders. And what we all recognize is that community banking is needed now more than ever in our history. Years ago, I hosted an afternoon with about 50 Chinese students, their professors and interpreters from Shanghai University through an exchange program with Christopher Newport University. They were fascinated by, and very critical of, our decentralized banking system. They could not understand why all flow of capital was not controlled by a central government. What I told them, and I truly believe today, is that the United States would not be the greatest economy in the world without a decentralized, community banking system. We are the only country in the world that boasts a vast community banking system that provides local capital to entrepreneurs and small businesses. These are the businesses that employ almost half the workers in the United States. These are our customers, and I am proud to serve them. I am excited about the future of the VACB with its undiluted and unapologetic advocacy for community banking. About a year ago, Steve Yeakel announced that he would be retiring as CEO of the VACB at the end of 2024. Steve has done a fantastic job leading our association. His skill with advocacy at the state and federal levels has been outstanding. Steve, we will miss you, and your legacy will live on. Thank you for your commitment to community banking, for your leadership of our association and for your friendship. In 2024, your board of directors, and especially the search committee selected by the board, have been extremely busy searching for the VACB’s next CEO. After hundreds of hours of 4 The CommunityBanker
Is your community bank secure? Meet Dina. Dina provides clients with the guidance they need to steer clear of card fraud all year long. Working together with ICBA Payments partners, she ensures client banks are receiving the level of care and support they deserve. Even when she’s waiting to pick up her kid from practice, she’s scribbling notes on how we can better protect banks from fraud. By working with ICBA Payments, your bank has Dina’s ongoing support. Learn more at icbapayments.com work and with the help of Vetted Solutions, our professional search firm, I am pleased to announce we have hired a new CEO, Mr. Corey Connors. Corey comes to us with many years of association leadership, a proven track record of state and federal advocacy, a business acumen for revenue generation and membership growth, and a stellar reputation. While our search was national, best of all, he is a Virginian residing in Richmond. He knows the Commonwealth, and he understands our business climate and culture. I am excited for him to join us on our journey of community banking. I look forward to introducing Corey at the VACB Annual Convention at Kingsmill Resort in Williamsburg in October. Congratulations, Corey! If you have not yet decided to attend the Annual Convention, please check the VACB website. You will find the list of outstanding speakers, including ICBA President and CEO Rebeca Romero Rainey. Monday night will be a 1920s-themed celebration where we can congratulate Steve on his retirement and welcome Corey to the VACB. I hope to see everyone there. Sincerely, Joe Witt Chair 5 The CommunityBanker
President’s Column A GRATEFUL GOODBYE Steven C. Yeakel, CAE President and CEO, VACB I’m penning my last words for the VACB Community Banker. That is just unbelievable in so many ways. As I search for the right words, I am simply overwhelmed with gratitude. I’m going to run long. Sorry! The singular impact that so many of you have made on this organization and my life cannot be overstated. We would not have accomplished a single thing without the active engagement of hundreds of you from every corner of community banking in Virginia and beyond. I’ve done my level best to be an effective catalyst, bringing people together to make progress. The job of the not-for-profit association executive is to bring people with knowledge together with people who need knowledge. Fueled by the strong interpersonal relationships that you have created with me, we’ve done good work together, especially over the last three years, as we took a hard look at our desires for the future. I have so enjoyed being your advocate. It’s been my honor to represent our member banks, ranging from asset sizes of $57 million to $17 billion, and everywhere in between — in Washington, D.C., in Richmond and in dozens of other venues. Community banking is now certainly a brand. It’s one you have earned and wear very well. It deserves vigilant protection and enhancement. Although VACB faces challenges similar to those facing the community banking industry at large, we can look on several seeds of hope and promise to grow in the years ahead, including an ever-increasing base of active advocates, an expanded and enthusiastic team of board members, and a solid foundation of member banks who have been supportive and engaged since our founding in 1977. And just now, we have the added energy of new leadership as Corey Connors steps into the chief staff executive role. Our search committee did a masterful job, investing in a nine-month process, reviewing scores of quality applications and ultimately selecting the candidate who best fit their desires for the future direction of the organization. I am enthusiastically supportive of Corey and look forward to working with him for a short while. Having emphasized how very important each and every banker member and vendor partner 6 The CommunityBanker
is to the future of the organization, let me now dare to call out two components of our successful mission for special recognition. First, please reflect on the great and continuing debt of gratitude we owe to the bankers who have led our organization. I’m grateful for every banker who has ever served on our board, but especially grateful for the 12 great bankers who served as chairs while I’ve been president and CEO. Each contributed uniquely to the future of the organization, and none ever evaded the long hours, the tough decisions and the difficult situations that faced them during their year. Second, I can’t imagine how we could continue this vitally important yet extremely challenging work without the personal, organizational and financial support and engagement of the ICBA. They are an organization that breathes life. From an outstanding leader, Rebeca Romero Rainey, to every member of the staff and every leadership banker from every state, they are people of great energy, great ability and great heart. Each one of you would benefit immeasurably from engaging in every possible way with the people and the programs of the ICBA. And so, VACB marches on. Each of you adds your share of energy, ability and heart to build on what you’ve done, and you continue to be the strong voice for community banks in the Commonwealth. May God bless the VACB and each one of us. 7 The CommunityBanker
By demonstrating a deeper understanding of business acumen, a banker can position themselves as a trusted advisor who comprehends their world. CULTIVATING BUSINESS ACUMEN AS A BANKING SUPERPOWER By Jack Kasel, Sales Development Expert Anthony Cole Training Group Business or sales acumen is the ability to connect with prospects and clients on a deeper level by understanding their unique problems, anticipating their needs and leveraging knowledge of their business and industry to recommend the best possible solution — regardless of whether or not it results in a closed deal. The ability to understand a prospect or client’s industry and their market allows a banker to understand the big picture. In order to have business acumen, lenders must understand the forces and factors that impact their 8 The CommunityBanker
industry and its impact on their clients and potential customers. This knowledge also helps them to differentiate their approach in the sales process. Bankers with highly developed business acumen are not focused on the sale at hand but on the broader goal of being a partner and advisor for the long term. For those in a producer’s role, whether it’s sales or business development, cultivating business acumen is essential. It allows relationship managers the ability to uncover and articulate the challenges faced by the customer or client before they do. This skill involves understanding their problems, the impact of those problems or opportunities, and seeing the world from their perspective. Business acumen is the key to perceiving the hindrances and challenges impeding their business growth. It’s about comprehending their aspirations to strive and thrive. Every CEO or division manager is striving to overcome challenges, bring in new talent and expand into new markets. Simultaneously, they are thriving by increasing revenue and optimizing costs to enhance the bottom line. By demonstrating a deeper understanding of business acumen, a banker can position themselves as a trusted advisor who comprehends their world. One exercise to test business acumen is to see how long it takes for a lender engaged in a conversation with a prospect or customer to introduce their products, services or bank. Are they able to extend the conversation for two minutes, 20 minutes or even two hours by focusing on the prospect’s needs and challenges before pushing their own solutions? DEVELOPING BUSINESS ACUMEN In addition to using every industry tool at hand, a well-thought-out pre-call plan can guide a relationship manager to organize and articulate the relevant points during the conversation. Instead of entering a sales interaction with the sole aim of making a sale, a banker must shift their perspective to building a relationship. They should ask themselves, “How can I establish a meaningful connection with this person?” Developing and exercising their sales superpower — business acumen — is crucial for success in this endeavor. We partner with Objective Management Group (OMG), the pioneer and industry leader in sales evaluations. According to OMG, these are some of the qualifying competencies that contribute to helping bankers, and all salespeople, develop business acumen: • Able to stay in the moment. • Self-limiting beliefs won’t be an obstacle. • Know why the prospect would buy. • Ask about everything. • Not vulnerable to competition. • Meet with decision maker. • Uncover the actual budget. • Will discuss finances. • Know the decision-making process. • Can influence the decision-making process. • Handle high-ticket pricing. • Need to be liked doesn’t get in the way. Relationship managers who are successful at developing their business acumen superpower have a frame of reference for continual learning. This includes their desire to fully understand their client’s goals and objectives. In fact, according to Amazon CEO Andy Jassy, the second a person thinks they know it all — or even just enough — is the second their career generally starts to stall out. Those who continue to grow into greater and greater success, on the other hand, remain hungry for learning. “The biggest difference between the people I started with in the early stage of my career and what they’re doing now has to do with how great they were at learning,” states Jassy. To learn more, visit anthonycoletraining.com/banking-sales-training. 9 The CommunityBanker
Flourish REMAINING NIMBLE AGAINST A LITANY OF REGULATION By Rebeca Romero Rainey, President and CEO Independent Community Bankers of America Flexibility: It’s one of the characteristics that sets our community banks apart, enabling us to meet the needs of distinct communities in unique ways. However, the converse of flexibility is rigidity, and unfortunately, regulation fits that definition and hampers the ability of community banks to meet the individual needs of our communities. The more than 7,000 pages of new regulations that have been thrust upon us over the past year enforce a one-size-fits-all approach to banking. Not only do community banks need to ingest and decipher new guidance and then apply it to their business operations; they also must consider halting certain actions or offerings for fear of running afoul of a new regulatory model or requirement. In the end, it is the consumer and small‑business owner who lose out because of it. That’s why ICBA continues to fight for tiered regulation. It’s not about trying to buck guidance but rather seeking to ensure appropriate regulation that provides suitable safeguards while retaining flexibility. Proportionate regulation will allow community banks to continue their strong record of safety, soundness and adherence to compliance standards while enabling the nimbleness necessary to serve their communities. Fortunately, opportunities exist for us to demonstrate the importance of tiered regulation. Consider the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) review process. This effort offers a way for bankers to identify where the regulatory burden is disproportionate to the cost of its management, and it opens the opportunity to say, “Here are areas that are impacting our ability to serve our customers.” Whether derived from a regulation’s implementation costs or adverse effects on customers, we must continue to serve up examples so policymakers understand the downstream implications of regulations. So, keep sharing your stories with us as we keep you informed about the EGRPRA process through NewsWatch Today and our social media channels. As you read this issue, I also encourage you to think not just about the cost of compliance in your bank, but how one-size-fits-all constraints negatively affect your ability to serve your communities. Share that feedback with ICBA and your regulators because your voice matters. We continue to see examples of new rules that include exemptions for community banks to allow for greater flexibility, precisely because we have effectively demonstrated the negative impacts of excessive regulatory burden. As we look to the future, we intend to build upon that solid foundation and seek out tiered regulation, one nimble step at a time. 10 The CommunityBanker
Banking changes. Our commitment to you never does. Throughout our long history, we’ve stayed focused on keeping community banks on the cutting edge. We do this with industry-leading specialists, expertise and offerings – all backed with local banking knowledge. Learn more at travelers.com/business-insurance/financial-institutions travelers.com Travelers Casualty and Surety Company of America and its property casualty affiliates. One Tower Square, Hartford, CT 06183 This material does not amend, or otherwise affect, the provisions or coverages of any insurance policy or bond issued by Travelers. It is not a representation that coverage does or does not exist for any particular claim or loss under any such policy or bond. Coverage depends on the facts and circumstances involved in the claim or loss, all applicable policy or bond provisions, and any applicable law. Availability of coverages referenced in this document may depend on underwriting qualifications and state regulations. © 2024 The Travelers Indemnity Company. All rights reserved. Travelers and the Travelers Umbrella logo are registered trademarks of The Travelers Indemnity Company in the U.S. and other countries. CP-9620 Rev. 3-24 1890 Travelers begins to offer Financial Institutions coverage 1964 Travelers becomes one of the first domestic markets to write Directors & Officers Liability insurance 1999 Travelers brings its Identity Fraud Expense Reimbursement coverage to market 2011 Travelers CyberRisk coverage is introduced to the market 2024 Travelers and the ICBA Insurance Program’s Policyholder Safety Group Dividend plan has been paid for 22 consecutive years Dividend payouts have been over $80 million since the program began in 1983.
SUCCES AT TH There is no more vital decision for a bank and its board of directors than who leads the organization. Yet leadership succession remains a growing challenge, as banks too often lack sufficient executive depth or proper succession planning. Having conducted over 100 CEO succession search and assessment assignments, we have clearly seen that superior talent really does make a difference, especially for banks intending to remain long‑term survivors. From these accumulated client experiences, we have identified Six Key Lessons Learned from CEO Transitions. LESSON #1: SUCCESSION REALLY DOES MATTER! It is imperative that boards exercise their fiduciary and governance responsibilities and grapple with the challenges of leadership succession. The continuity of leadership promotes continuity of strategy, and both regulators and governance activists are more focused than ever on succession. There is also a growing body of information which affirms that a lack of planned orderly succession can have a significant impact on the value or survival of the company. LESSON #2: THE ELEPHANT IN THE ROOM CANNOT BE IGNORED Where is the elephant in your boardroom? Who is the stumbling block to planning for the bank’s future leadership? Is it the CEO who refuses to accept that he/she will not live forever, or are there directors who do not want to raise this issue with their friend, the CEO? The board has a responsibility to tackle succession no matter how awkward it may be, so start these conversations early and have them often. LESSON #3: THE SUCCESSION PROCESS IS AS IMPORTANT AS THE OUTCOME A robust, thoughtful and thorough succession process adds huge credibility to the board and the bank, regardless of whether your successor comes from within or outside of the bank. Take the time up front to ensure the alignment of your organization’s strategic plan with the ideal profile of your next CEO — which will likely look different than the predecessor’s. LESSON #4: YOU REALLY CAN DO IT! DEVELOP YOUR OWN METHODOLOGY AND TIMELINE Each succession situation and timeline are different, so there is no definitive template to follow. That being said, begin your efforts no less than 30-36 months before you anticipate a potential transition of leadership. It is also very helpful to formally anoint a Succession Committee of the Board (note: this is different from a search committee) to take ownership of this process and manage the many critical elements along the path. This makes the succession effort more manageable and provides for accountability. Lessons Learned From CEO Transitions By Alan J. Kaplan, Founder & CEO, Kaplan & Associates Inc. 12 The CommunityBanker
SSION HE TOP LESSON #5: IT IS CRITICAL TO HANDLE POTENTIAL INTERNAL CONTENDERS WELL Handling internal contenders well has a significant impact on how they feel about the company and their ability to still see their future in the organization. Position the entire exercise as a developmental opportunity and provide constructive feedback and specific recommendations for folks who are not selected for advancement. LESSON #6: AVOIDING THE CHALLENGES OF SUCCESSION MAY HAVE A HUGE DOWNSIDE Research from FTI revealed that 43% of CEO transitions are unplanned, with 27% due to either forced resignations or unexpected issues that arise; the rest are voluntary unplanned resignations. Unforeseen leadership changes not only impact the valuation of the business, but banks without good succession management are also proven more likely to sell. Institutions that have survived and thrived over a lengthy time horizon have benefited from the successful execution of strategy, which flows from a continuity of leadership and thoughtful planning. Bank boards of directors and incumbent CEOs must recognize this imperative and regularly focus on succession and talent at the top of their agendas. Alan J. Kaplan is the founder & CEO of Kaplan & Associates Inc., a retained executive search and talent advisory firm based in Philadelphia. You can reach him at alan@kaplanpartners.com or (610) 642-5644. 13 The CommunityBanker
In today’s digitally driven world, financial institutions (FIs) are constantly seeking innovative ways to enhance communication, engage clients, streamline operations and align delivery channels. One technology that is constantly evolving to become a powerful tool for achieving these goals is digital signage. Moving beyond TV displays on walls, digital signage platforms now present a dynamic and flexible solution for engaging clients, offering educational resources, supporting sales efforts and enhancing communication. Furthermore, digital signage can bridge the gap between online and physical spaces by providing the ability to feature real-time social media feeds, website content and interactive elements that connect consumers to the institution’s online platforms while they are in a physical branch. This seamless integration of online and offline experiences creates a unified brand presence and enhances consumer engagement across multiple touchpoints. Although digital signage is often viewed as an expense with minimal or uncertain return on investment, approaching it from a strategic perspective aligned with retail branch objectives transforms it By Kevin Poirot, Chief Strategy Officer, PWCampbell 14 The CommunityBanker
When selecting a digital signage platform, the number of options can be overwhelming. Compounded by the fact that some financial executives feel they’re lacking in best practices for digital signage, including content strategy, creation and management, it becomes imperative to choose a platform that is simple to use and aligns with the needs and concerns of key stakeholders. While some organizations opt for a DIY approach with basic wall-mounted screens, prioritizing the requirements and preferences of marketing, IT and especially your consumers will allow you the necessary buy-in and support needed for a successful implementation. MARKETING Marketing professionals are tasked with creating compelling and impactful content that resonates with target audiences and drives results. Given the average FI’s marketing team consists of just two people, this task can be particularly challenging. Digital signage platforms offer marketers an efficient, flexible and interactive medium to display messaging in a visually appealing way, particularly when compared to traditional static options. With the ability to schedule and update content in real time, marketers can deliver targeted promotions, advertisements and brand messaging to captivate and engage viewers. Research indicates that 86% of consumers are inclined to recommend what they have viewed to their friends and family, thereby enhancing the overall reach and success of marketing efforts. Digital signage also plays a vital role in boosting brand consistency and visibility. By showcasing uniform branding elements such as logos, colors and messaging across various digital signage screens and video walls, FIs can strengthen brand identity and deliver a cohesive brand experience to their consumers. This visual uniformity helps in building brand recognition and establishing a strong brand presence in the minds of consumers. INFORMATION TECHNOLOGY IT is required to be involved in every digital signage project. IT is often called in to help once a platform is selected; however, IT should be involved during the evaluation stage. IT teams need to know they are working with a SOC2-compliant organization and a third-party pen-tested application. They need to know they are dealing with a platform that is simple to use, stable — it always works the way it should — and absolutely secure. IT will look for built-in security features such as multi-factor authentication (MFA), role-based access control (RBAC), and more to safeguard sensitive information and streamline content deployment processes. Additionally, digital signage platforms must provide valuable data analytics and reporting capabilities, enabling IT professionals to track performance metrics, monitor display health and optimize content delivery for maximum impact. CONSUMERS For consumers, digital signage provides a personalized and immersive experience that enhances their interactions within the branch. By delivering relevant and timely information, such as product promotions, educational content, event schedules and wayfinding directions, digital signage platforms empower consumers to make informed decisions and navigate physical spaces more into a key component of branch optimization. The overall retail banking strategy should dictate the content types, duration and variety of content to be displayed. Interactive kiosks and touchscreens, in particular, have the potential to draw in consumers and assist them in navigating the initial stages of engaging with and responding to product offerings. 15 The CommunityBanker
efficiently. Interactive features, such as touchscreens and QR code integration, allow consumers to engage with content in a hands-on manner. Studies indicate that 87% of consumers consider a financial institution with in-branch digital signage to be trustworthy, and 90% regard it as experienced — two essential qualities that financial institutions aim to convey to their consumers. By creating a seamless and engaging client experience, FIs can cultivate brand loyalty and encourage repeat visits. By providing a dynamic and interactive medium for delivering content, digital signage platforms empower marketers to engage audiences, IT professionals to streamline operations in a secure manner, and consumers to make informed decisions. As FIs continue to embrace digital transformation, digital signage platforms will play a crucial role in enhancing engagement, efficiency and overall consumer experience. As the chief strategy officer of PWCampbell, Kevin Poirot is a visionary leader who drives the organization forward with a strategic focus on elevating brand presence and leveraging cutting-edge technology. Kevin has a keen understanding of market trends and consumer behavior and works with the senior management team to formulate innovative strategies that equip PWCampbell to adapt to the evolving needs of our clients and company. By providing a dynamic and interactive medium for delivering content, digital signage platforms empower marketers to engage audiences, IT professionals to streamline operations in a secure manner, and consumers to make informed decisions. 16 The CommunityBanker
3 STEPS TO EVALUATE CREDIT TRENDS AND RISK MANAGEMENT By Erica Crain, Managing Principal of Value & Risk Services, CLA When a message is repeated, it’s likely intended to carry some weight. In this regard, the federal banking regulators have issued more than a “friendly reminder” by placing credit risk in the top examination priorities for the year. Additional emphasis was focused on assessing how banks are identifying and responding to credit risk as economic conditions evolve. Then, in February 2024, news headlines reiterated the significance of credit risk with an update about New York Community Bank and a lacking loan review program and deteriorating credit quality trends for banks has come to the forefront. Credit risk has been in the spotlight for years. In May 2020, federal regulatory bodies came together and issued guidance about the significance of credit risk review systems. In 2021 and 2022, financial institutions got a heavy dose of guidance on the Allowance for Credit Losses, which included key principles around credit risk identification and management. Last year, the federal regulatory agencies issued guidance on loan accommodations and workouts in anticipation of a commercial real estate meltdown. The messaging has been quite strong. So, how is a weak loan review program a critical matter in 2024 for one of the largest financial institutions in the United States? Working with financial institutions across the nation, a common question asked is about the reassessment of credit risk appetite, culture, risk reduction strategies, 17 The CommunityBanker
concentration management and credit review functions in light of the current economic shifts and ongoing regulatory focus. However, the usual response is that not much has changed or been considered necessary as the financial institution has never received any criticism from regulators in the past. Financial institutions have significant experience navigating evolving credit cycles, and this evolving economic and regulatory environment presents another opportunity to consider whether strategies need to change. Credit stresses are growing, and borrowers have to adjust to tighter financing conditions. Cash flow stress, lower income and higher costs are realities of an increasing number of consumer and commercial borrowers that impact their repayment performance. For your financial institution, look at the evolving credit risk exposure and consider some simple steps such as: 1. Assess your current loan portfolio by key segments and document the risk exposure. Although commercial real estate has been making headlines, there are also signs of weakness in other consumer lending categories. Stay informed and consider the ripple effect of softening conditions throughout the entire portfolio. 2. Evaluate your independent loan review process. Consider if your internal team is adequately staffed or providing the expertise needed. Challenge the results of third-party providers and go deeper into areas demonstrating increased risk for your financial institution. Your loan review process shouldn’t just be a validation of your assigned risk ratings. If your third‑party provider is not giving you the insights you need in the current environment, consider other options. 3. Engage proactively with your borrowers who appear to be at risk to identify opportunities to help. The time investment today could help offset potential significant losses in the future. Last but not least, you can also engage a trusted partner who can help you navigate the risks in your portfolio by providing a credit risk review that empowers management with insights and opportunities in your bank’s loan portfolio. 18 The CommunityBanker
VACB 47th ANNUAL CONVENTION & TRADE SHOW October 6-8, 2024 Kingsmill Resort Williamsburg, VA DON'T MISS IT! www.bccadvisers.com WE VALUE BANKS. Business valuation for... ▪ Gifting and stock transfers ▪ ESOP/KSOP valuation ▪ Buy/sell agreements ▪ Estate settlement ▪ Stock offerings ▪ SBA 7(a) loans Lindy Ireland lindy@bccadvisers.com 434.333.6814
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Innovation Station MAKING THE CASE FOR RESPONSIBLE INNOVATION By Charles E. Potts Executive Vice President Chief Innovation Officer, ICBA The rapid pace of today’s financial services landscape pulls community banks in varied directions. You must balance technology upgrades with budgetary constraints and identify your bank’s pressing priorities. And as you look to evolve technology stacks, products and services to meet growing demands, I recommend keeping this point in mind: The best strategy is to invest in responsible innovation. Responsible innovation speaks to a walk-before-you-run mindset, identifying the combinations and permutations of innovation that will be the most beneficial and the least disruptive. You enjoy a unique, relationship‑oriented business model that’s sacred, and it remains an attribute that needs to be guarded. So, seek out a way to move the innovation process forward with minimum impact on the qualitative nature of the relationship. THE FIRST STEP The good news: There are plenty of ways to begin the journey without client-facing effects. Over the past few years, we have found that the back office offers an easier starting point for most banks. That’s why providers like HuLoop Automation, from our sixth ThinkTECH Accelerator cohort, have resonated. Leveraging Huloop’s robotic process automation (RPA) tools to create more efficient backoffice processes and eliminate historically redundant, manual ones frees up time to focus on the customer relationship. By starting with back-office solutions, you can also minimize your initial investment and the impact on day‑to-day operations, while also allowing for measurable improvements. This approach will create space for course adjustments as necessary, grounded in a lean, agile method that sets out to hypothesize, test, measure, review, refine and repeat. FUTURE CONSIDERATIONS Once you’ve taken that first step, I encourage you to continue on the path toward responsible innovation. Lending may be the pinnacle of innovation success with the most potential for complexity, but it also holds the biggest opportunity to find efficiencies and apply fresh solutions. In fact, our most recent ThinkTECH Accelerator cohort offers solutions that carry all the way through to risk mitigation with the likes of RiskScout, a cloud-based tool to help you manage BSA/AML compliance and regulatory challenges, and more efficient client-facing experiences like the solutions of Savvi AI, which helps you build, launch and manage AI apps for the end-to-end lending (or other) process. So, as you read this issue, do it with an eye toward what’s to come. Think about how you can best prepare for the opening of the lending floodgates, as customers get more comfortable with the new norm of interest rates. Don’t wait and see — take this time to invest in responsible innovation and get the foundational elements in place to better position your institution for the future. Charles E. Potts is ICBA’s executive vice president and chief innovation officer. Potts drives ICBA’s innovation initiatives and financial technology strategies. 21 The CommunityBanker
6 STRATEGIES TO BOOST DEPOSITS By Dennis Falk, SVP & Regional Manager, PCBB Community banks have been looking for the perfect recipe to attract deposits in a market in which consumers and commercial customers continue to switch institutions in search of better rates. Over the past few years, high interest rates combined with bank failures and accompanying wariness have driven customers to seek better returns on their investments. Despite many financial institutions raising the rates on their deposits to attract and retain customers, deposit rates have been slow to catch up with yields on alternative investments, such as certificates of deposit (CDs) and money market funds. In April 2023, $1.1 trillion in deposits left U.S. financial institutions. Since then, deposits have started to climb slowly and are set to grow in the second half of 2024. In this climate, growing healthy deposits has become the number one business challenge for bankers, according to BAI’s 2024 Banking Outlook. The strategies to do so vary depending on the type of deposit growth you are seeking. While rates and fees associated with deposits matter greatly, other strategies become key to driving growth once rates are within an acceptable range. We explore three key strategies for both consumer and business deposit growth that have proven successful. 22 The CommunityBanker
STRATEGIES TO ATTRACT CONSUMER DEPOSITS 1. Maximize the use of technology. A good online and mobile offering allows banks to increase their reach to audiences across the country. Moreover, coupled with a personal touch, it is a critical part of a slick customer service offering. Veritex, a Texas-based bank with $12.1 billion in assets, invested in technology to streamline its account opening process. They credit the new technology — and the extensive employee training program that went with it — for the $135 million spike in deposits in the first 90 days after launch. 2. Offer reward checking accounts. For many institutions, reward checking accounts have proven effective in boosting long-term deposits by 4%. Essentially, reward checking offers a high return, around 6%, on a portion of the deposit — perhaps the first $20,000 — in exchange for a minimum level of engagement, such as card usage, online banking usage and so on. Lower engagement leads to a lower rate, with the interest rate dropping on deposits over the initial $20,000. Overall, the 6% peak rate is appealing to customers. What’s more, due to the nature of the product, customers are engaged and interact regularly with the institution, making them more likely to stay. 3. Consider promotions and offers. Many financial institutions are now offering free gifts to attract new deposits. Consultants say this can boost new account openings by more than 15%. Other institutions are foregoing the physical gift in favor of a cash bonus, the value of which is often linked to the amount deposited. However, whatever promotions and offers a bank might adopt to woo customers, excellent customer service is key to retaining them. STRATEGIES TO ATTRACT COMMERCIAL DEPOSITS 1. Explore niche markets. Expand your institution’s reach into niche markets to attract more commercial deposit customers and offer specialized services for those markets. For example, property management businesses could benefit from disbursement services and property management software integration. Homeowners Associations (HOAs) could use automated dues collection and detailed financial reporting tools. Healthcare providers could use secure patient billing and payment processing systems. 2. Institute conditional or incentivized deposit programs. Implement policies that require businesses to maintain deposit accounts, including their primary operating account, as a condition for securing a loan. This not only enhances liquidity, but also fosters a deeper relationship with those commercial business customers. Another option is incentivized deposit programs that may include bundled services to offer fee reduction perks or a limited-time deal on an earnings credit rate (ECR), for example. 3. Increase operating account support. Encourage business customers to grow their deposit accounts by providing services, tools and personalized support. Offering cash management services can help businesses manage their cash flow, forecast expenses and plan for growth. Assign dedicated relationship managers to provide personalized support and help businesses optimize their financial strategies. Growing deposits in a competitive and ever-changing market requires a blend of innovative technology, customer‑focused strategies and personalized support. By implementing multiple strategies, community banks can effectively attract and retain both consumer and commercial deposits. 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 services such as Settlement and Liquidity for the FedNow® Service, international services, lending solutions and risk management advisory services. 23 The CommunityBanker
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