WINTER 2023 President’s Message ADVOCACY IS A YEAR-ROUND TEAM ACTIVITY AMID THE AI HYPE, WHAT SHOULD YOUR BANK DO? BANKER WEST VIRGINIA
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CONTENTS ©2023 The West Virginia Bankers Association | The newsLINK Group, LLC. All rights reserved. West Virginia Banker is published four times each year by The newsLINK Group, LLC for the West Virginia Bankers Association and is the official publication for this association. The information contained in this publication is intended to provide general information for review, consideration and education. The contents do not constitute legal advice and should not be relied on as such. If you need legal advice or assistance, it is strongly recommended that you contact an attorney as to your circumstances. The statements and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the West Virginia Bankers Association, 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. West Virginia Banker is a collective work, and as such, some articles are submitted by authors who are independent of the West Virginia Bankers Association. While West Virginia 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. 5 President’s Message: Advocacy is a Year-Round Team Activity By Mark Mangano, WVBankers President & CEO 6 Washington Update: The High Cost of Too Much Capital By Rob Nichols, President and CEO, American Bankers Association 8 Amid the AI Hype, What Should Your Bank Do? By Milton Bartley, President and CEO, ImageQuest 10 Escheatment Laws in West Virginia By Randy Cole, Suttle & Stalnaker, PLLC 14 “Keep It Long Enough, It Will Come Back in Fashion” Buydown Program Considerations By Elizabeth Madlem, Bankers Alliance 18 B2B Marketing Quickly Identify and Engage Small Business Prospects By David Adams, Equifax 21 Unmaking the Myths Fact-Checking Community Banking By Achim Griesel and Dr. Sean Payant, Haberfeld 4 West Virginia Banker 8 18 14
Advocating on the West Virginia banking industry’s behalf is one of the most critical roles the West Virginia Bankers Association plays for its members. Advocacy at the state capitol during the legislative session is the most visible part of the advocacy function, but it is only a piece of a much larger advocacy effort. The larger advocacy effort involves two components: issue advocacy and relationship building. Issue advocacy involves addressing state and federal issues, working with legislative and administrative offices and agencies, and coordinating and negotiating with other trade associations and interest groups. Effective issue advocacy requires identifying and understanding issues, educating policymakers and association members, fostering member consensus and formulating and executing strategies to positively influence outcomes. Relationship building is focused on improving the chances that our carefully prepared issue advocacy will find a receptive audience through active political engagement, fostering personal relationships with relevant decision-makers and building our reputation for being knowledgeable, thoughtful and trustworthy. In West Virginia, the state legislature convenes early each year for 60 days to introduce, consider and vote on bills that shape the state’s laws and administrative rules. The legislative session unquestionably creates the most active and intense advocacy environment in which the West Virginia Bankers Association participates. I am looking forward to my first legislative session as the lead advocate for the association. Association advocacy is a team activity. The “team” includes association staff, volunteer bankers serving on the Legislative and Government Relations and Political Action Committees, members of specific issue workgroups, subject matter experts and individual bankers from across the industry. By the time the session begins on January 10, the association team will have been busy throughout the year preparing strategies to advance beneficial bills and to address misguided initiatives. Despite careful preparation, the legislative session presents an environment for issues to arise suddenly and evolve rapidly. We are looking forward to reacting quickly and keeping you informed during the legislative session. The association team engages in active advocacy throughout the year to influence both federal and state legislation and rulemaking. On a weekly basis, team members interact in a coordinated fashion with the state’s United State Senators, Congressional Representatives, federal agencies, state agencies, state constitutional officers and other industry groups. Team members are often consulted by federal and national policy leaders for perspective on how national policies will impact West Virginia and West Virginia banks. The association expands its advocacy resources by working with the American Bankers Association and other state banking associations on policy positions, message development, issue education, grassroots and grasstops initiatives and best practice development. Cooperation with other associations contributes to a better perspective on advocacy challenges, increased effectiveness and greater efficiency. The association’s advocacy team works throughout the year to foster relationships with key decision-makers through political engagement, personal meetings, community activities and participation in educational forums. The association staff and the association’s political action committee are looking forward to increasing support for bankers interested in understanding the advocacy process and providing training and opportunities for bankers to engage in relevant and satisfying political engagement activities. The association’s advocacy role has never been broader or more important than it is today. Our critical industry faces challenges from all sides; the issues are often complex, and the appropriate responses may be nuanced. Only through a team approach can we achieve our maximum effectiveness. I am thrilled to work with such a deep, committed and talented banker team to advance our industry. The association’s advocacy role has never been broader or more important than it is today. President’s Message Advocacy is a Year-Round Team Activity By Mark Mangano, WVBankers President & CEO 5 West Virginia Banker
Washington Update The High Cost of Too Much Capital By Rob Nichols, President and CEO, American Bankers Association In early October, I sat down with Federal Reserve Vice Chairman for Supervision Michael Barr at ABA’s Annual Convention in Nashville. The topic of our conversation was bank capital. The failures of Silicon Valley Bank, Signature Bank and First Republic Bank have prompted regulators to begin clamoring for major capital increases at larger banks. My question to Vice Chairman Barr was: why? Why, when the spring bank failures were attributed to a combination of idiosyncratic liquidity challenges, poor risk management practices and oversight missteps, did regulators put capital in the crosshairs? Why, when policymakers — including the vice chairman himself — have repeatedly stated that the banking system is strong, resilient and well-capitalized, is a major change in capital levels suddenly warranted? While I appreciated the vice chair’s willingness to engage in the conversation, I found the answers I received unsatisfying, to say the least. He echoed a common argument among proponents of the socalled “Basel III endgame,” namely that the last set of capital changes — instituted after the 2008 financial crisis — did not lead to dramatic economic declines and that the banking system continued to grow, even while holding higher amounts of capital in reserve. While these statements aren’t false, they’re a poor justification for additional capital increases now. The truth is the postcrisis capital changes did affect economic growth, and they succeeded in driving business outside of the regulated banking sector. Just look at bank mortgage originations in the years since 2007. The share of mortgage originations by banks has declined steadily since the post-crisis rule changes, plummeting from around 80% to just under 30% in 2022. That’s just one example — there are others. Here are the facts: We already have an effective framework in place that requires regulators to sensibly tailor rules based on a bank’s risk profile and business model. Banks are already holding sufficient capital, as evidenced by the industry’s collective weathering of several significant events in recent years, from a global pandemic to a period of rapidly rising interest rates to resiliency in the face of the isolated bank failures in the spring. The proposed rules on the table would return our current framework to a one-size-fits-all approach that would put U.S. banks at a competitive disadvantage to their foreign peers. They have the potential to drive more business away from banks and into the less regulated shadow banking sector. They also fail to appropriately consider the potential economic consequences of forcing banks to hold even more capital in reserve. Bankers know there is a cost to holding too much capital — and it’s paid by both consumers and businesses who need credit. To ignore these realities would be a misstep, especially since history tells us that any capital increase for larger banks will eventually affect community banks as well. That’s why ABA has been so vocal in calling on regulators to conduct a thorough quantitative impact study to determine the full extent of potential economic consequences — which they agreed to do in mid-October, alongside an extension of the comment period. However, simply collecting the data is not enough. Regulators and the public need ample time to review and evaluate the data to understand the full picture — and the current timeline, even with the comment deadline extension, does not allow for that. Given the wide-ranging effect this rulemaking could have, the only appropriate course of action is for regulators to withdraw and repropose the rule after the data can be fully assessed. Changes to capital rules — even if they are only intended for the largest banks — will inevitably affect all parts of the banking system. This is too important to get wrong. Email Rob at nichols@aba.com. 6 West Virginia Banker
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Amid the AI Hype, What Should Your Bank Do? By Milton Bartley, President and CEO, ImageQuest There has been much excitement over how artificial intelligence can improve efficiency and productivity. Every conference, regardless of the host and theme, includes a session or sessions on AI, and articles everywhere trumpet the promise of AI. AI tools can analyze large volumes of data in real time and provide immediate decisions or guidance on subjects from creditworthiness to fraud detection. They can automate routine tasks, including compliance reporting, data entry and email or chat support, freeing your team to focus on strategic initiatives. AI tools can even write reports, generate presentations and craft custom marketing images. But while current market fervor may prompt jumping on the AI train, we want to caution our community banking friends to consider these points first. Regulators have yet to issue requirements surrounding the use of AI. But they are certainly discussing it. The Federal Reserve, the FDIC, the OCC, the CFPB and the Senate Banking Committee have all commented this summer on their concerns about the use of AI. The main fears center around potential discrimination in lending and criminals using AI to impersonate customers. In October, President Joe Biden issued an Executive Order on Safe, Secure and 8 West Virginia Banker
Trustworthy Artificial Intelligence. This new directive will likely boost efforts already underway to police the use of AI with an emphasis on preventing privacy and discrimination-related concerns surrounding personal data and financial transactions. In January 2023, the National Institute of Standards and Technology (NIST), the nation’s leading authority on standards and technology specific to the nation’s economic security, issued a new Artificial Intelligence Risk Management Framework and a companion playbook. This is the first comprehensive attempt at industry guidance, and it is an effective tool; however, this framework will likely be updated as organizations evaluate its effectiveness. An American Banking Association Journal report quoted Acting Comptroller of the Currency Michael Hsu as urging banks to be cautious in implementing AI products. Hsu urged bankers to talk with their regulators as they consider AI products “rather than engaging with them afterward.” That is sound guidance, even if, at this point, regulators are at best only in the comment stage with any requirements around AI. We know the marketplace is ripe with competitors who may have the means to introduce AI products, so we assume your bank will, at some point, introduce AI products. But before you do, here’s our second point. Develop a clear AI strategy for your bank. What problems do you think AI can solve at your bank? How can AI help your bank? What exactly would AI help you do faster or more accurately? The Large Language Models that have garnered marketing cache (e.g., ChatGPT, Bard, Perplexity) use deep learning algorithms that can recognize, summarize, translate, predict and generate content using large datasets. But there are dozens, if not hundreds, of niche AI products that solve particular business problems. Consider where you need help with bottlenecks or unsatisfactory customer experiences. What is routine — and time-consuming? Where do you need answers quickly about trends? And decide if an AI tool can fill that gap in your business process. Common suggestions include fraud detection, generating compliance reports, business intelligence reporting (e.g., tracking loan trends) and customer service. But what specific issues does your bank face? Are there other ways to solve these problems? Develop policies for the use of AI at your bank. Are you concerned that your employees already use AI tools to help them with their work? Have you asked them? Have you or your legal team reviewed the terms and conditions of these commercially available tools like ChatGPT? What about the fear of using “poisoned data” or data that has been corrupted or altered in misleading ways? Who owns the data you type into the tools? These are all points that a well-crafted AI policy should address. What precautions will you take to prevent bad actors from using AI against your bank and customers? What controls can you enact to keep a criminal from impersonating a customer and fooling your AI platform? These are all questions you should consider and address in your policies and procedures before adopting any new AI-based technologies at your bank. Consider using outside expertise. Your community bank is likely already facing pressures from larger competitors, who presumably have internal staff who are experts in AI for financial institutions. You can benefit by leaning on reputable fintechs, including your core processor. They have the resources to test and refine AI software to meet banking requirements. And they understand the business problems you are trying to solve. But beware — there are many startup companies in the marketplace offering AI-powered fintech for banks. With recent interest rate changes, many have or are quickly running out of capital. Exercise good judgment during due diligence. Even then, consider consulting with a company, such as ImageQuest, that routinely assesses IT and AI services for our clients. We can help you choose the correct solutions for your bank’s specific issues — and, in some cases, help curate the best tool(s) for your bank. The Trough of Disillusionment Gartner, a leading research and advisory firm, has coined the phrase “Gartner Hype Cycle” to represent the social reaction to new technology. The cycle includes the “Technology Trigger,” introducing a new or breakthrough technology, followed by the “Peak of Inflated Expectations.” AI hit peak excitement in Q1 2023. Now AI is in Gartner’s “Trough of Disillusionment,” where a new technology fails to deliver on its early promise. To be sure, the Hype Cycle continues as more people work with and understand this emerging technology, leading to “Mainstream Adoption.” But for now, we don’t want our community banker friends disillusioned over costs, mistakes and disappointment with their plunge into AI. If you follow the measures above, you will be ahead of the curve. 9 West Virginia Banker
Escheatment Laws in West Virginia By Randy Cole, Suttle & Stalnaker, PLLC With recent changes to unclaimed property laws in West Virginia, now is a good time for a refresher on the escheatment laws currently in place to ensure your bank is in compliance. Notable changes to laws over the last few years include reduced dormancy periods for certain property types and guidelines on dormancy periods for virtual currency. Unclaimed property is any asset that has remained unclaimed for a specific period of time, such as unredeemed stock, a check that was never cashed or contents of a safe deposit box. This typically happens when an owner cannot be located after a period of time known as the dormancy period. The state then becomes the custodian of the unclaimed property. Banks must report and remit unclaimed property to the West Virginia State Treasurer’s Office, where it is held until the rightful owner, or their heirs, come forward to claim it. Under the West Virginia Uniform Unclaimed Property Act, unclaimed property must be reported to the West Virginia State Treasurer’s Office by November 1 of each year. Specific guidelines for the abandonment of various types of property that banks may typically hold are as follows: • Traveler’s checks are abandoned 15 years after issuance. Money orders are abandoned seven years after issuance. • Stock or other equity interest in a business association or financial organization is abandoned five years after the earlier of (1) the date of the most recent dividend, stock split or other distribution unclaimed by the apparent owner or (2) the date of the second mailing of a statement of account or other notification or communication that was returned as undeliverable or after the holder discontinued mailings, notifications or communications to the apparent owner. • A demand, savings or time deposit, including a deposit that is automatically renewable, is abandoned five years after the maturity of the deposit. A deposit that is automatically renewable is deemed matured on its initial date of maturity unless the owner consented in a record on file with the holder to renew at or about the time of the renewal. • Property in an individual retirement account, defined benefit plan or other account or plan that is qualified for tax deferral under the income tax laws of the United States is abandoned three years after the earliest date of the distribution or attempted distribution of the property, the date of the required distribution as stated in the plan or trust agreement governing the plan, or the date, if determinable by the holder, specified in the income tax laws by which distribution of the property must begin in order to avoid a tax penalty. • Tangible personal property held in a safe deposit box or other safekeeping depository in West Virginia in the ordinary course of the holder’s business and proceeds resulting from the sale of the property permitted by other law are presumed abandoned if the property 10 West Virginia Banker
Unclaimed property is any asset that has remained unclaimed for a specific period of time, such as unredeemed stock, a check that was never cashed or contents of a safe deposit box. remains unclaimed by the owner for more than five years after the expiration of the lease or rental period on the box or other depository. • Virtual currency held or owing by any bank or other entity engaged in virtual currency business activity is abandoned three years after the owner’s last indication of interest in the property. • All other property types are abandoned three years after the owner’s right to demand the property or after the obligation to pay or distribute the property arises, whichever first occurs. When an interest is presumed abandoned, any other property right accrued or accruing to the owner as a result of the interest is also presumed abandoned. While banks typically think of abandoned property in terms of customer accounts, the bank’s employees could have abandoned wages. Wages or other compensation for personal services are abandoned one year after the compensation becomes payable. Property is unclaimed if the apparent owner has not communicated in writing, or by other means reflected in the holder’s records, with the holder concerning the property and has not otherwise indicated an interest in the property. An indication of an owner’s interest in property includes the presentation of a check or other instrument of payment for a dividend, owner-directed activity in the account, deposits to or withdrawals from an account or the payment of a premium with respect to a property interest in an insurance policy. For demand, savings and time deposits, any indication of an owner’s interest in any deposit account with a bank is an indication of interest in all deposit accounts held by that bank. For the most up-to-date and accurate information about the escheatment laws in West Virginia, it is recommended to consult the official website of the West Virginia State Treasurer’s Office or refer to the latest version of the West Virginia Code. Suttle & Stalnaker, PLLC is ready to help you. If you would like more information on how this applies to you, contact Kelly Shafer, CPA at kshafer@suttlecpas.com or (304) 343-4126. You may also contact Randy Cole at rcole@suttlecpas.com or (304) 485-6584. Randy Cole is an audit and consulting manager at Suttle & Stalnaker, PLLC and has over 11 years of experience in public accounting. Randy has significant experience working with financial institutions providing such services as external and internal auditing, regulatory compliance and other consulting support, as well as audits of nonprofits organization, governments, and for-profit organizations in various industries. He also has experience in financial reporting consultation and audit preparation consultation. 11 West Virginia Banker
“Keep It Long Enough, It Will Come Back in Fashion” Buydown Program Considerations By Elizabeth Madlem, Bankers Alliance The early 2000s are re-emerging with their crop tops, low-rise jeans, flip phones and mortgage buydowns. Deja-vu! Pre-crisis teaser rates have been reborn into mortgage buydowns, both temporary and permanent. With the housing markets remaining pricey and rates still higher than they have been in years, many buyers are looking for assistance in any form. And as the refinancing market cools down, mortgage originators are becoming increasingly more creative in finding innovative ways to bring business through the door. And this has led to lender, builder and seller concessions to help close deals. Buydowns generally are going to refer to when a borrower pays “points” upfront to reduce the mortgage rate to a level that places their monthly payments in a range they can afford. It is thought that the rate has been “bought down” from its original rate for the entirety of the mortgage by paying a lump sum upfront. The more recent trend has been for these to be seller-paid rate buydown concessions, with the seller offering to reduce the buyer’s mortgage interest rate for either the first few years (temporary) or for the duration of the loan (permanent). The seller is either contributing to the buyer’s closing costs or paying for a temporary rate buydown. What the market is seeing now is an influx of temporary buydowns, with the most common ones being a “2-1” and “1-0,” meaning a 2% interest rate reduction in the first year and a 1% interest rate reduction in the second year, or a 1% interest rate reduction in the first year only, respectively. Sellers, builders, lenders or a combination of all three put up money to cover the difference in interest rate payments between the original mortgage rate and the reduced mortgage rate. So, for a 2-1 example, the mortgage rate is reduced by 2% for the first year and then will step up by 1% in the second year and another 1% in the third year to reach the actual mortgage rate at origination. It essentially works as a subsidy for the first two years of the mortgage before reverting to the full monthly payment. And the benefits are there for consumers — it can make purchasing a home more affordable (even if temporarily) and can “buy time” for borrowers to refinance into a lower rate should interest rates fall. With permanent rate buydowns, generally, it will be a seller paying a portion of the buyer’s closing costs that are used towards buying mortgage discount points, with each point reducing the rate on average by about 0.25 percentage points, costing 1% of the loan amount. So, if a borrower bought a $500,000 home with a 20% down payment, the mortgage amount would be $400,000, with each point costing $4,000. With permanent buydowns, borrowers are historically slower to refinance, given the cost/benefit decisions taking place with recouping upfront money put down for the loan versus refinancing costs associated with a new loan. But one of the biggest issues with buydowns, either temporary or permanent, is proper disclosure on the Loan Estimate (LE) and Closing Disclosure (CD). For disclosure purposes, there are specific Regulation Z contemplated buydowns: third-party buydowns reflected in a credit contract; third-party buydowns not reflected in a credit contract; consumer buydowns; lender buydowns reflected in a credit contract; lender buydowns not reflected in a credit contract; and split buydowns (see 12 CFR 1026, Supp. I, Paragraph 17[c][1]—3 through 5). Regulation Z provides numerous scenarios that determine whether the terms of the buydown should be reflected in the LE and CD. Generally, the following buydowns are reflected in the disclosures: third-party buydowns reflected in a credit contract; consumer buydowns; lender buydowns reflected in a credit contract; and split buydowns (consumer portion only). Otherwise, a third-party buydown not reflected in a credit contract, a lender buydown not reflected in a credit contract and a split buydown 14 West Virginia Banker
(not third-party e.g., seller’s portion) are not included. With most of the criteria for determining whether a buydown is reflected on the LE and CD being dependent upon a credit contract, it is important to note that Regulation Z does not define a credit contract. But it is stated as being a contract that forms a legal obligation between the creditor and the consumer, as determined by applicable State law or other law. So whether or not a buydown agreement would be considered a credit contract or legal obligation between the creditor and consumer depends upon what “State law or other law” consider to be a legal obligation. Whether a buydown agreement is actually modifying the terms of a note or contract is going to depend on how it is structured and whether that note or contract ultimately reflects that lowered interest rate. Counsel should be included in any final determinations, as well as investor requirements. So where should the terms of the buydown be reflected in the LE and CD? Unfortunately, the commentary does not provide an “item-by-item” list of what parts of the LE and CD the buydown should be reflected in. The key requirement to remember is that if the buydown is required to be reflected, it must be reflected in the finance charge and all other disclosures affected by it. That includes the “Finance Charge” on page five of the CD (except for seller-paid buydown fees as those are considered seller’s points); the “Annual Percentage Rate” on page three of the LE and page five of the CD; the “Projected Payments” table on the first page of the LE and CD; and the “Product” on the first page of the LE and CD reflecting a step rate. There are different ways proper disclosure can be done, dependent upon the specific loan scenario. Sometimes a buydown is money going to the borrower from the seller, while other times, it is money going to the bank from the seller. These would be disclosed differently. So, the first question to ask: Who is giving money to whom, and for what purpose? A more common scenario for temporary buydowns is where the buydown is seller paid and is not being reflected in the note or credit agreement as it is contracted for between the buyer and the seller. How is this properly disclosed? Well, the most common way to disclose this, since it is not reflected in the note or credit agreement, is to disclose this as a Seller Credit. Since this is not considered discount points that either the buyer or the seller are paying to the bank, the 15 West Virginia Banker
bank would not disclose them in Section A. The bank is not involved in the scenario where a buydown agreement is solely between the borrower and the seller. Rather, the regulation and commentary do not specify that this must be disclosed in any particular way, so it is viewed generally as just a concession from the seller, which has multiple ways of compliant disclosure. Disclosing as a Seller Credit, as noted above, is the more common. This would be found in the Calculating Cash to Close Tables (LE & CD) and also in Section L on the CD, as it is not a credit that is paying any specific fee listed on page two of the disclosure. It could also be disclosed in Section N of the CD as a seller credit due at closing. If it is a situation where the buydown funds are from the seller to the bank, it would be disclosed in Section A in the Seller Paid column and not Section H because the recipient of Section H fees are third parties, and the bank is the one receiving the fee. In this instance, the money from the seller is specifically being used to buy down the rate, which is a Section A fee, since that is paid to the bank. There are other arrangements in which the seller just gives the borrower some money to make up the difference in what the borrower is paying between Rate A and Rate B with no actual buydown of the rate taking place. This is a Section N disclosure. But in the instance in which the bank will actually be the recipient of the fee, and the fee from the seller is to pay for a specific loan cost, it should be disclosed in Section A. The remix is happening — the early 2000s are repeating themselves. But even more so now with the increased examiner focus and scrutiny on consumer harm, it is important to make sure the bank is aggressively reviewing its buydown loan programs for the risks they can bring: reputational, compliance, legal, credit and fair lending, and diligently documenting justifiable business decisions, reviewing investor requirements and examining for proper disclosure and fair lending implications. Enjoy your association news anytime, anywhere. Scan the QR code to visit our online publication to stay up to date on the latest association news, share articles and read past issues. west-virginia-banker.thenewslinkgroup.org A more common scenario for temporary buydowns is where the buydown is seller paid and is not being reflected in the note or credit agreement as it is contracted for between the buyer and the seller. 16 West Virginia Banker
B2B Marketing Quickly Identify and Engage Small Business Prospects By David Adams, Equifax The landscape of small businesses is evolving, and the numbers speak for themselves. Over the past three years, the small business marketplace has experienced an exponential surge. New business applications surpassed 14.8 million compared to 10.2 million in the preceding three years.1 This remarkable growth presents both opportunities and challenges for B2B marketers. Identifying marketable businesses amidst a sea of gig businesses and holding companies has become a daunting task. It impacts small businesses’ access to essential resources like credit, services and support. The surge in new small businesses is a testament to the entrepreneurial spirit and innovation driving the economy. Small businesses are the lifeblood of: • Communities • Creating jobs • Driving economic growth • Fostering diversity in the marketplace However, this remarkable growth also means greater competition and challenges for these small enterprises. The Identification Challenge One of the primary challenges in today’s B2B marketing is distinguishing genuine small businesses from gig workers or holding companies. Identifying businesses that fit your target audience and align with your products or services is crucial for effective marketing. Strategies For Identification • Data Analytics Leverage data analytics and machine learning to analyze business data, financial statements and online presence to distinguish true small businesses. • Firmographic Data To segment your prospects, collect firmographic data such as: o Company size o Industry o Location • Activity Metrics Understand small business activity, including revenue and transactions, to help distinguish between the gig businesses and small businesses primed for growth. Resource Scarcity and Competition With a growing number of startups and small businesses vying for limited resources such as credit, services and support, the competition is fierce. B2B marketers can play a pivotal role in helping these businesses access the resources they need to thrive. 18 West Virginia Banker
Identifying businesses that fit your target audience and align with your products or services is crucial for effective marketing. Strategies For Resource Allocation • Tailored Content Create content that addresses the unique challenges and needs of small businesses. Position your products or services as valuable solutions. • Networking and Partnerships Forge partnerships with organizations that provide resources to small businesses, establishing yourself as a valuable ally. • Customized Marketing Campaigns Develop targeted marketing campaigns that resonate with small business owners. Showcase how your offerings can fuel their growth. The Impact on Small Business Growth Effective B2B marketing in this environment can make the difference between small business growth and failure. By assisting small businesses in identifying the right resources and solutions, marketers contribute to their success. Thriving small businesses drive economic development, create jobs and contribute to the well-being of society. Strategies For Small Business Growth • Consultative Approach Adopt a consultative approach in your marketing efforts, offering guidance and support rather than selling a product or service. • Education and Training Provide educational resources and training to help small businesses make informed decisions and maximize the value of your offerings. • Customer Success Programs Implement customer success programs to ensure ongoing satisfaction and growth for your small business clients. By identifying marketable businesses, addressing the resource scarcity issue and supporting small business growth, marketers can make a significant impact on both individual businesses and the economy as a whole. Embracing these strategies can be the difference between small business growth and small business failure, and it positions your B2B marketing efforts as a force for positive change in the dynamic world of small business. 1 SBE Council Facts and Data on Small Businesses. https://sbecouncil.org/ about-us/facts-and-data/. A seasoned technology expert, David Adams has spent his career specializing in SaaS based technology and high growth markets. With Equifax, as the Head of Commercial Product Marketing, David is responsible for the Go-To-Market strategy for the entirety of the commercial portfolio, from marketing to acquisition to managing solutions. Discover FedNow Instant Payments Insights for Community Banks Presents with the Payments Professor February 22, 2024 The Foundry Frankfort, KY 19 West Virginia Banker
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Unmaking the Myths Fact-Checking Community Banking By Achim Griesel and Dr. Sean Payant, Haberfeld Banking, and specifically community banking, is essential to the overall health of our country. By design, it serves as the backbone for our financial system and communities while playing a crucial role in helping individuals, businesses and governments thrive. In this highly competitive environment, community banks must continuously adapt to the changing landscape and competitive pressures. The key to success is to challenge and shatter the traditional banking myths that have been prevalent for years. Let’s explore five such myths and why they need to be shattered. 1.The Efficiency Ratio Myth: Managing expenses is the best way to improve overall efficiency. Fact: Increasing overall revenue is much more impactful. The efficiency ratio is an important metric for financial institutions (FIs) to track as it measures how efficiently FIs are using resources to generate revenue. It is often thought the best way to improve the efficiency ratio is to manage expenses by embracing technology, controlling costs and determining appropriate staffing levels. But, managing expenses is a very finite opportunity. The unlimited opportunity for FIs to improve their efficiency ratio is not on the expense side. It is on the revenue side, as illustrated in Figure 1, by comparing high-performing banks to others. Institutions should focus on growing revenue, as this will have a much bigger impact on profitability. There are two ways to accomplish this effectively: (1) growing core customers and (2) growing share of wallet. The bigger, more strategic option is in growing core customers because this also enables your FI to exponentially grow share of wallet. Figure 1 Metric Eagles Other %Variance Return on Assets 3.24% 1.01% 220% Return on Equity 32.78% 11.09% 196% Net Interest Margin 3.70% 3.22% 15% Cost of Funds 0.30% 0.29% 3% Yield on Loans 5.44% 4.77% 14% Loan/Deposit Ratio 71.62% 69.95% 2% Noninterest Income to Assets ($000 per $1M in assets) $18.07 $4.60 293% Noninterest Expense to Assets ($000 per $1M in assets) $26.81 $23.55 14% Equity Capital to Assets 10.09% 8.83% 14% Note: Data Through 9/30/22 (annualized) 21 West Virginia Banker
2.Growing Core Deposits Myth: A rising rate environment is the time when institutions need to focus on core deposits and relationships. Fact: Growing core deposits and relationships should be an always-on, strategic initiative. With the recent rate increases and the decline in deposits since mid-2022, bankers are once again focusing on core deposits and core relationship growth. Large banks are promoting cash rewards that triple prior offers, and they are marketing at a frequency that is 3-4 times that of prior years. Why? In order to acquire new core relationships. FIs see the current environment as a prime time to grow low-cost core funding. However, this is far from the truth. The truth is, it is always a good time to focus on growing core relationships and core deposits regardless of the economic environment. By doing so, FIs position themselves well for any rate and non-interest income environment. 3.Deposit Market Share Myth: Deposit growth is a function of deposit market share. Fact: Deposit growth is a function of household and business market share. FIs often focus on deposit market share as a measure of growth, but this is not always the best indicator. Instead, it’s important to focus on household and business market share. Essentially, what percentage of the FI’s footprint are they serving? Deposit market share is very much driven by larger deposits that often come at a higher cost. It is also distorted by branch locations, or lack thereof, for digital banks. Household and business market share is a much better indicator of the ability to attract and retain consumers and businesses, and it provides a clearer picture of overall growth and success. 4.Staffing Challenges Myth: It isn’t possible to hire or retain employees in the current environment. Fact: Retention and recruitment are a function of an FI’s investment in and focus on developing better leaders and coaches. Staffing and human capital challenges have been one of the most prominent issues for FIs since the pandemic. Finding talented employees continues to be difficult, and retaining talented employees is a must. While the combination of these factors results in staffing challenges, the solution lies in an FI’s approach to its leadership and coaching strategy. By investing in the development of leaders and creating a strong coaching culture, FIs can ensure their staff is well-equipped to deal with the challenges of the industry while also feeling valued by the institution. The result is a decrease in turnover, improved knowledge and stronger alignment with the brand; this ultimately creates improvements in customer satisfaction and improved overall performance. 5.Sales Culture Myth: Having a “sales culture” is the only way to drive results. Fact: Aspiring to have an escalated service culture will result in increased product and service usage. FIs often aspire to have a “sales culture,” but this is generally not the best approach. The key to success is to have an escalated service culture, where the focus is on providing products and services to make people’s lives better. By focusing on providing excellent customer service, FIs can build stronger relationships with consumers, increase overall satisfaction and create a positive image for the institution. A result will be increased sales and improved overall performance. By challenging and shattering these traditional myths or approaches to banking, FIs can create a more efficient and effective approach to their operations, which will lead to increased profitability, meaningful growth and measurable success. By focusing on the right metrics, investing in the development of leaders and creating a strong service culture, FIs can ensure that they are well-positioned to succeed in this highly competitive industry. Achim Griesel is President and Dr. Sean Payant is Chief Strategy Officer at Haberfeld, a data-driven consulting firm specializing in core relationships and profitability growth for community financial institutions. Achim can be reached at (402) 323-3793 or achim@haberfeld.com. Sean can be reached at (402) 323-3614 or sean@haberfeld.com. The key to success is to challenge and shatter the traditional banking myths that have been prevalent for years. 22 West Virginia Banker
The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc. www.GoBaker.com | 800.937.2257 MEETING CLIENT NEEDS » Asset Liability Management » Investment Portfolio Services » ALM/Investment Education » Funding/Liquidity Management » Bond Accounting/Analytics/ Software Solutions » Public Finance » Regulatory Compliance To be successful in today's financial climate, you must have not only the proper partner, but also the proper approach to achieve high performance. The Baker Group is this partner, and our approach is to offer sound strategies and accurate information to guide your institution to the next level. This is the reason we’ve been the industry’s recognized leader in innovation for more than forty years. To experience The Baker Approach in meeting your financial objectives, call your Baker representative or Ryan Hayhurst at 800.937.2257. The Baker Approach Oklahoma City, OK | Austin, TX | Long Island, NY | Salt Lake City, UT | Springfield, IL | Member: FINRA & SIPC
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