California Banker Issue 2 2025

CaliforniaBanker A PUBLICATION OF CALIFORNIA BANKERS ASSOCIATION ISSUE 2 2025

WHAT’S INSIDE: 6 A Conversation with Janet Silveria

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15

Legislature Focuses on Induced Fraud and Financial Institution Liability

Scarcity or Prosperity: The Efficiency Ratio Under Attack

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Contents ISSUE 2 2025

P. 4

P. 6

FEATURES

DEPARTMENTS

A Conversation with Janet Silveria

6

Association Update

4

California State Charter Under Attack

10

CBA Partners

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Legislature Focuses on Induced Fraud and Financial Institution Liability Costly CalAccount Proposal Could Compete with Banks for Accounts and Deposits

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23

Advertising Index

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Scarcity or Prosperity: The Efficiency Ratio Under Attack

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Ask the Compliance Guru

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The Future of Small Business Credit Card Programs

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P. 19

CBA members travel to Washington D.C. for the Annual Visit

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View this issue and past issues of CaliforniaBanker online any time at www.CalBankers.com

CaliforniaBanker is the official publication of California Bankers Association.

California Bankers Association , 1303 J Street, Suite 600, Sacramento, CA 95814, P: 916-438-4400/F: 916-441-5756, Email online at www.CalBankers.com. ©2025 California Bankers Association | NFR Communications, Inc.. All rights reserved. CaliforniaBanker is published four times each year by NFR Communications, Inc. for California 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 member 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 California 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. CaliforniaBanker is a collective work, and as such, some articles are submit ted by authors who are independent of California Bankers Association. While California Bankers Association 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.

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CaliforniaBanker | Issue 2 2025

Association Update

All of our engagements ensure that our advocacy efforts remain strong and that the voices of our members are heard at both the state and federal levels.

CBA Remains Active On Multiple Fronts

A

t the California Bankers Association, our un wavering commitment to serving our members drives us to advocate for critical legislative and regulatory issues, deliver exceptional educational resources, and create meaningful networking opportu nities within the industry. I’m excited to share several updates that reflect our ongoing efforts on behalf of our members. Government Relations The California legislative session is in full swing, and our Government Relations team is working diligently on a myriad of legislative issues that impact financial services, including elder financial fraud, climate-related disclo sures, mortgage forbearance, credit card fees, and CalAc counts, to name a few. In addition, our team and 22 bank members, recently traveled to Washington, D.C., to meet with legislators and regulators, and participated in the American Bankers Association’s Washington Summit. These engagements ensure that our advocacy efforts remain strong and that

the voices of our members are heard at both the state and federal levels. Recently, we hosted a Membership Update featuring the new Commissioner of the California Department of Financial Protection and Innovation (DFPI). More than 100 members joined the virtual meeting to hear directly from Commissioner Mohseni, who shared regulatory in sights and provided key updates on the DFPI’s priorities. The session offered valuable perspectives on compliance, supervision, and emerging risks shaping the financial industry. Member Visits In the past weeks, I had the privilege of meeting with many of our member banks and prospective members in person. These conversations provide a valuable oppor tunity to share the benefits of membership while learn ing firsthand about the challenges and opportunities our banks are experiencing on the ground. Understanding these insights allows us to better support and advocate for our members.

4 www.CalBankers.com | CaliforniaBanker

Events and Education We were thrilled to host the 2025 Annual Conference & Directors Forum at the historic La Quinta Resort and Club. This premier event featured an outstanding lineup of speakers, including legendary football player Joe Theismann as our keynote speaker. In addition, attendees participated in a fun-filled golf tournament, insightful conference sessions including a dedicated director’s track, numerous networking opportunities, and much more. Mark your calendars for the 2025 Women in Banking Forum on June 24-25 at the Hyatt Regency Orange County in Garden Grove, Calif. We are looking forward to this in-person event which will empower, educate, and connect women in the banking industry.

Community Impact Videos To showcase our bank members and the critical work they do in their communities, we are launching a com munity impact video project. Bank members should have received an email about this initiative. CBA will select up to 10 submissions and create short videos to share on our website and social media. We greatly appreciate your membership and remain committed to serving you. We hope to see you at the Annual Conference and many of our upcoming events throughout the year!

Bringing members together. Making our banks better.

Kevin Gould President & CEO, California Bankers Association

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CaliforniaBanker | Issue 2 2025

6 www.CalBankers.com | CaliforniaBanker

A Conversation with Janet Silveria Q:

Can you share a bit about your career path and what led you to your role as President and CEO of Community Bank of Santa Maria? I started my career in banking as a loan clerk and, over time, held nearly every position in the bank — except teller. I’ve often said my career path was driven more by boredom than ambition. I’ve always enjoyed learning and was constantly asking, “What’s next?” That curiosity and willingness to take on new challenges opened a lot of doors. Still, I never envisioned myself as a CEO. But the two founders of Community Bank of Santa Maria, Jim Glines and Bill Hares, apparently saw something I didn’t. Early in the bank’s history, they approached me about the idea of eventually succeeding Jim Glines as President and CEO. Never one to shy away from a challenge, I stepped into the succession plan. I became president in August 2012, and was honored to take on the additional role of CEO in January 2015. It’s been an incredible journey — one shaped by oppor tunity, trust, and a deep commitment to the bank and the community we serve. I have often said, “everything I am and everything I ever hope to be as a banker, I owe to Jim Glines and Bill Hares.” And I mean it sincerely. Thanks for the awesome ride, gentlemen! What lessons have been most valuable to you through out your leadership journey? My failures have been my greatest lessons. It’s a short answer, but it’s the truth. Success teaches you what works — failure teaches you why it matters. Those mo ments of falling short have pushed me to grow, to re assess, and to lead with more humility and awareness. They’ve shaped how I show up for others and how I navigate challenges.

I don’t seek failure, of course — but I don’t shy away from it either. Because every mistake has taught me a lesson I wouldn’t trade. As a leader, what principles or values guide your decision-making? Integrity and transparency are at the core of how I lead. I strive to bring those values into every situation, not just in the decisions I make, but in how I make them. I believe decision-making should be a learning experi ence — for everyone involved. When I’m faced with a decision, I like to share my thought process. Not only does that reflect transparency, but it also opens the door for learning, collaboration, and often, better outcomes. I value dialogue — hearing other perspectives sometimes challenges my thinking and even shifts the direction of a decision. I welcome that. And finally, I believe in mov ing forward without regrets. We make choices based on the best information and intentions we have at the time. If something doesn’t work out, it’s not a failure — it’s a lesson. And that mindset allows us to grow, improve and lead with resilience. Community banks are known for their close ties to the communities they serve. How does the Community Bank of Santa Maria foster these relationships? Our staff is everywhere. No, really — everywhere. And I am so incredibly proud of them. There isn’t a service club or nonprofit in this community that doesn’t have some connection to the bank or one of our team mem bers. We might not be a big bank writing the biggest checks, but we show up in force, roll up our sleeves, and help where it counts. Sure, organizations appreciate donations — but they remember who stood beside them, who volunteered, who stayed late to clean up after the fundraiser. And

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CaliforniaBanker | Issue 2 2025

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our customers see that, too. They’re right there with us because they’re our neighbors, our friends, and the people we sit next to at community events. That’s how we build trust — by being present, by supporting the causes that matter to the people we serve. Our commitment goes well beyond financial products and services. We’re invested in the entire community, whether someone is a customer or not. That’s the heart of who we are. Can you share examples of how the bank has supported small businesses and local economic growth? As a true community bank, we’re here to serve ev eryone — but our focus has always been on small- to mid-sized businesses. We provide the products and services they need, but more importantly, we offer them with flexibility and creativity. We don’t operate inside a box; we stay nimble and look for ways to say “yes.” That kind of responsive ness is exactly what small businesses need to thrive. One of the clearest examples of this was during the rollout of the Paycheck Protection Program. At the time, we weren’t yet an SBA-approved lender, but that didn’t stop us. We moved quickly, got approved, and made sure our customers could access the funds they needed without turning to a bank that didn’t know them. In the end, we also helped a large number of non customers, simply because they couldn’t get the help they needed at their own institutions. Many of them moved their full relationship to us afterward. In a moment of anxiety and uncertainty, they experienced firsthand what it means to have a bank that’s truly in their corner. That’s who we are: not just lenders, but partners in our community’s economic growth. Beyond financial services, what role does your bank play in strengthening the Santa Maria community? We’re deeply embedded in the fabric of Santa Maria. You’ll find us out in force supporting local nonprof its and service organizations — not always with the biggest checks, but with boots on the ground, ready

to help. Whether it’s volunteering, lending a hand at events, or simply showing up, we believe presence matters. We’re also actively involved in workforce develop ment initiatives, serve in leadership and support roles with the Chamber of Commerce, and make it a point to be front and center at the events that bring our community together. I’m proud that when someone in the community needs support, whether it’s an indi vidual, a cause, or an organization, Community Bank of Santa Maria is often one of the first calls made. We’ve earned that trust, and being recognized as a true partner to the community is not only an honor — it’s one of the most rewarding parts of what we do. How has the Community Bank of Santa Maria responded to economic challenges within the community, such as supporting businesses during uncertain times? This example might be getting a little “well-worn,” but it’s such a clear reflection of how seriously we take our role in the community that I never mind sharing it. During the pandemic, we didn’t close our doors. We stayed open with a live person answering every phone call. I can’t give you an exact number, but I’m confident we spoke daily with customers from other banks, people who simply couldn’t get a hold of any one at their own institution and needed help. When the Paycheck Protection Program rolled out, we weren’t even an SBA-approved lender yet. But we moved fast, got certified, and made sure our custom ers had access to the support they needed. Not sur prisingly, we also ended up helping hundreds of non customers, because we were one of the few banks they could reach. Many of those businesses moved their entire relationship to us after that. Why? Because we were there when it mattered most. If you look back even further, the Great Recession was another moment that set us apart. While many banks were foreclosing, we were working with our borrowers. Yes, we took some losses, but I like to focus on the losses we didn’t take, because they were significant.

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What advice would you give to aspiring leaders, looking to advance in the banking industry? My biggest piece of advice is simple: whatever needs to be done, do it, even if you don’t know how. I moved forward in my career by stepping up wher ever I could, offering to help beyond my job descrip tion, and being willing to take on tasks I’d never done before. That mindset opened doors and gave me a broader understanding of the business than I would have gained by staying in my lane. I wasn’t focused on whether every extra effort came with an immedi ate reward. I trusted that if I demonstrated my ca pabilities, the right opportunities would come. And they did. I’d also say: always be true to your highest convic tions. Character will carry you a long way in both life and leadership. Let people see your integrity, your re liability, and your commitment to doing what’s right. When you lead with character, you build trust — and with trust comes respect, influence, and ultimately, success. Is there a piece of advice or perspective that has stuck with you throughout your career? Yes. I’ve tried to live by Leo Rosten’s words: “The purpose of life is to be useful, to be responsible, to be honorable, to be compassionate. It is, after all, to matter, to stand for something, to have made some difference that you lived at all.” It’s an ambitious ideal, and maybe some people wouldn’t associate those words with a career in bank ing. But I truly believe that community bankers are dream makers. We help people buy their first homes, start small businesses, support their families, and in vest in their futures. That’s what keeps me passionate about this work — it allows me to live out Rosten’s vision in a very real and personal way. What’s next for you and the Community Bank of Santa Maria? We will keep doing what we’ve been doing for nearly 25 years: serving the community.

Some of those problem loans took years to resolve, but we stuck with our customers, and together, we made it through. That’s what community banking is all about: showing up, standing by your people, and staying committed — even when it’s hard. What are some key community initiatives or pro grams that the bank has been involved in recently? Lately, we’ve been focusing heavily on workforce development. We’ve increased our presence at lo cal job fairs to help students understand the wide range of career opportunities in banking — includ ing roles that don’t require a college degree, as well as management and C-suite paths for college-bound students. We’ve also partnered with an agency within the coun ty education office to take a more active role in job training. This includes hosting student interns and even welcoming teacher interns who want to refresh their understanding of today’s workplace skills. That way, they can better align their curriculum with what employers like us and others are actually looking for. While part of our motivation is to build our own fu ture workforce, our reach goes beyond that. We’re also helping to develop the broader workforce that our business customers will one day depend on. It’s a long-term investment in the economic strength of our entire community. As digital banking continues to grow, how does Com munity Bank of Santa Maria balance technology with the personal, relationship-driven approach that de fines community banking? We have a motto: “Technology when you want it. People when you don’t.” At some point, a customer is going to have a problem or a question, and they’re going to need to get someone on the phone or sit down across the desk. Today’s tech nology is a convenience, it is not a replacement for a relationship. We can harness technology to improve the customer experience and improve internal efficiencies, but relationships will always be at the heart of what we do.

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CaliforniaBanker | Issue 2 2025

he United States has the most diverse and robust bank ing sector in the world and is represented by banks of T California State Charter Under Attack By Kevin Gould, president and CEO, California Bankers Association

dual banking system, which pro vides bankers with a choice of op erating under a national charter or a state charter. Unfortunately, the Cal ifornia state charter is under attack and its value proposition is dimin ishing. Just this year, several Cali fornia legislative measures explicitly target state-chartered banks or will be preempting limiting the measure’s application. One such measure allows the com missioner of the Department of Fi nancial Protection and Innovation to enforce violations of the federal Dodd-Frank Act (DFA) through un fair, deceptive, abusive acts or prac tices claims. Proponents claim that

this measure is necessary because the Consumer Financial Protec tion Bureau (CFPB) under President Trump’s administration will not en force DFA. The reality is that the commission er already possesses this authority; however, to deploy it, the commis sioner must provide notice to the CFPB, which may become a party to the action and/or can seek to remove the action to federal court. The ra tionale behind this potential inter vention is to avoid duplicative and uncoordinated enforcement actions. Large big box retailers are pushing a measure to limit the charging of

all sizes that serve every segment of the American economy. The na tion’s 4,700 banks include commu nity banks, midsize banks, regional banks, and large banks. Banks of every size add unique value and are critically important to our financial system, and our economy. While banks may have different business models and strengths, institutions succeed when they meet the needs of their communities. Part of what makes the United States’ banking system special is the

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an interchange fee by prohibiting the fee being assessed against sales tax. These retailers forget about the con venience and certainty credit card payments have provided to them and that the underlying infrastruc ture that facilitates these transac tions has a cost, not to mention that interchange fees support low and no-cost bank accounts and credit card reward points programs that customers appreciate. The bill will be preempted for federally chartered banks, leaving its application to state-chartered banks. Another measure establishes a state level Community Reinvestment Act (CRA) applicable to certain state licensed entities, including Califor nia-chartered banks. This effort is duplicative and potentially contra dictory to the federal CRA for which all banks, irrespective of charter, are already subject to. Rather than lay ering on top of state banks, the mea sure should be amended to apply solely to California-chartered credit unions who have escaped a federal CRA requirement even though they are depository institutions and op erate more similarly these days to banks than not. As we have fiercely advocated for our member banks, we commonly hear legislators express apprecia tion for community banks. But with measures advancing like the ones described above, we are increasingly convinced that those are just words

and that their actions prove other wise. Banks are highly-regulated entities and miraculously excel at finding a path to compliance on what seems to be a never-ending list of new laws and regulations. But there is a break ing point. Consolidation within the industry has been driven, in part, by over-regulation. Smaller community banks, just like small businesses, are struggling to keep up with overregu lation and are finding that they must get to scale to survive the regulatory avalanche. We are gravely concerned that con tinuing down what appears to be the routine path of serially adding new

laws and regulations will accelerate consolidation and may leave com munities who need access to bank ing services in financial deserts. This unfortunate result will push the door more widely open to the less-regulat ed shadow banking industry where there is often less consumer protec tion. And because of the dual-bank ing system, banks can exercise their choice and operate under a national charter which leaves the state with less oversight. If policymakers really care about the important role of community banks, as they have suggested, it’s time they put a stop to efforts that make the state charter less valuable.

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CaliforniaBanker | Issue 2 2025

Legislature Focuses on Induced Fraud and Financial Institution Liability

By Jason Lane, Senior Vice President and Director of Government Relations, California Bankers Association

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B 909, introduced by Assem blymember Schiavo, seeks

es, statutory penalties, and attorneys’ fees for noncompliance. The bank has the burden of proof to disprove the allegation of induced fraud. These requirements are operation ally unrealistic given the complexity of fraud cases and the need for due diligence. Moreover, the bill extends joint liability to other institutions that may have merely received trans ferred funds, creating a sweeping net of legal exposure across the financial system. SB 505, authored by Senator Rich ardson, introduces new consumer protections in response to the rise of fraud in digital wallets and stored value platforms. The bill requires operators of these platforms to reim burse users for losses resulting from fraudulently induced transfers, where a consumer is tricked into sending money under false pretenses. The legislation defines these transfers as those initiated due to manipula tion, deception, or coercion, even if the consumer technically authorized the transaction. By shifting liability to the platform, SB 505 challenges the commonly accepted principle that holds consumers responsible for authorized payments — even when made under fraudulent influence.

The bill mandates multiple channels for customers to submit reimburse ment claims, including via app, web site, email, phone, or mail. Operators must investigate claims within 10 business days or provisionally credit the user while extending the inves tigation up to 45 days. No police report is required to initiate the pro cess. Once a fraud is confirmed, re imbursement must occur within one business day. While the legislation exempts banks, SB 505 represents a frightening shift — treating fraud losses as a platform responsibility rather than a consumer risk.

to expand protections for elderly and dependent adults who fall vic tim to fraud by creating significant and problematic liability exposure for banks and financial institutions, fundamentally altering long-standing standards of consumer responsibility, due process, and operational feasibil ity in fraud detection. Among other things, this measure re defines “fraudulently induced trans actions” and limits consumer liability for them to just $50 — or the value lost before the bank had reason to suspect fraud — regardless of how the transaction was authorized. Fi nancial institutions would bear the burden of proof to show that the transaction was not fraudulent or that the consumer failed to report it in time. This inversion of liability and investigative burden ignores the fact that many such scams are engineered to appear legitimate and are inten tionally designed to evade detection, even by well-trained fraud depart ments. The bill also requires banks to inves tigate and determine within 10 busi ness days whether a consumer is a victim, with potential treble damag

Jason Lane is Senior Vice President, Director of Gov ernment Relations for the California Bankers Associa tion and manages Califor nia state tax policy for the association, which involves

analyzing legislation and regulatory activity, and the development of policy positions for the asso ciation. Lane is one of three lobbyists at CBA and, in addition to his primary focus on taxation, he also lobbies on behalf of the association on issues re lated to the state budget, and consumer lending legislation.

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Costly CalAccount Proposal Could Compete with Banks for Accounts and Deposits

By Chris Shultz, Vice President, Government Relations, California Bankers Association A proposal pending in the Cal ifornia legislature would of fer voluntary, zero-fee, zero penalty, federally-insured, households “not interested” in hav ing a bank account.

of potential CalAccount consumers would be truly unbanked. To achieve sufficient enrollment, the feasibil ity study would necessitate moving 467,000 to 631,000 households — representing $31 to $92 million in revenue — away from their current banks and credit unions. CalAccount would require a 10 year subsidy The feasibility study identified state general fund costs of $121 to $201 million over 10 years, but the poten tial fraud costs, and whether those costs would be borne by the state or the financial services provider, were not addressed in the feasibil ity study. The feasibility study also found that it costs credit unions and banks $175 to $400 per year to maintain a bank account while each CalAccount would require an oper ating subsidy.

Since the Blue Ribbon Commission report, the Federal Deposit Insur ance Corporation released an up dated study documenting the steady decline of unbanked households in California: from 5.6 percent in 2019 to 5.0 percent in 2021, and further reducing to 4.3 percent by 2023. The feasibility assessment confirmed low interest in CalAccount: only 10 percent of unbanked households were “very interested” — while ap proximately 50 percent remained “not interested” in having a bank account. (See chart.) Takes customers and deposits out of banks and credit unions Hidden in the report, enrollment es timates reveal that merely 30 percent

no-cost accounts to all Califor nians. While California banks gen erally agree with the public policy goal of providing all Californians access to safe, affordable banking products at insured depository in stitutions, this 2025 proposal goes far beyond serving the truly un banked. Low interest, small target In 2021, the Legislature created a CalAccount Blue Ribbon Com mission under the State Treasurer, with SoFi Bank’s Virginia Varela and Legacy Bank’s James D. Hicken representing banking interests. The July 2024 report revealed that 5.1 percent of California households are unbanked, with half of those

Of the 5.1% Unbanked (study), real target in 2026 only 1.9 percent

Newly banked per 2023 FDIC study

.8 percent

CalAccount target

1.9 percent

Not interested

2.4 percent

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California government not more trusted than banks Advocates assume the state seal would attract new cus tomers, but the unbanked population’s trust in banks (56.3 percent) is nearly identical to trust in California government (57 percent). This casts doubt on whether CalAccount would appeal to unbanked individuals. Furthermore, the study did not investigate how many unbanked people might be intentionally avoiding gov ernment tax and child support levies. New mandates on businesses and landlords AB 1365 would require employers with more than 10 employees to offer CalAccount direct deposit, contrac tors with over 25 workers to use CalAccount payments, and all landlords to accept CalAccount rent payments. These extensive mandates would impact nearly every business and property owner in California.

Private-sector alternatives exist Banks and credit unions are already addressing un banked populations through the BankOn program. This initiative provides safe, affordable transaction ac counts with low fees, no overdraft charges, and robust banking capabilities. With many California financial institutions already participating, promoting BankOn would be a more cost-effective and lower-risk approach than AB 1365.

Chris Shultz is Vice President, Government Relations for the California Bankers Association. He formerly served as chief deputy commissioner at the California Depart ment of Financial Protection and Innovation.

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Scarcity or Prosperity: The Efficiency Ratio Under Attack By Dr. Sean Payant, Chief Strategy Officer, Haberfeld

any financial institution executives spend con siderable time thinking about strategies to im prove efficiency in order to improve overall profitability. The efficiency ratio is the ratio of non-interest expenses (less amortization of intangible as sets) to net interest income and non-interest income, so it is effectively a measure of what you spend compared to what you make. The very name — efficiency ratio — makes us think about how efficient we are with those precious income dollars. If a financial institution has a high efficiency ratio, they are simply spending too much of what they make … right? That is exactly what the name implies (emphasis on the spending side of the equation). But this is just a ratio of two numbers, and as we all know, there are two ways to bring the ratio down — reduce costs or increase revenues. The focus across industry press and conference best practices is generally aimed at strategies to cut expenses — using technology, looking at staffing levels, increasing productivity, etc. Although this advice is sound, what happens when a financial institution has already cut what can be cut AND it is still struggling with efficiency? M

It is sometimes difficult to save your way to prosperity.

For many financial institutions, the focus should also be on the bottom portion of the equation — increasing rev enues. Let’s look at an institution that has $500 million in assets, a good return at 1 percent ROA, and a rea sonable efficiency ratio of 60 percent. Let’s assume the FI can improve its efficiency ratio by 5 percent through revenue increase or expense reduction. It shouldn’t be surprising that increasing revenues provides better performance even though this sometimes seems like a counterintuitive approach. Because many financial insti tutions need to increase investments for growth in order to significantly grow their revenues, thereby increasing the expense side of the equation, and because of their ex cess capacity, this will actually make them more efficient over time. Many financial institutions have cut expenses almost to the bone and can’t materially improve their effi ciency ratio by further reducing costs. They need to take a step back and realize some fundamental business dynam ics that are often ignored in our industry. Most community financial institutions still have tremen dous excess capacity, meaning they could serve signifi cantly more customers without significantly increasing

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5% Efficiency Ratio Improvement by Revenue Increase

5% Efficiency Ratio Improvement by Expense Decrease

Financial Metric

Before

$500,000,000

$500,000,000

$500,000,000

Assets

60%

55%

55%

Efficiency Ratio

$12,500,000

$13,636,364

$12,500,000

Net-Interest and Non-Interest Income

$7,500,000

$7,500,000

$6,875,000

Non-Interest Expense

$5,000,000

$6,136,364

$5,625,000

Net Income

1.00%

1.23%

1.13%

ROA

$1,136,364

$625,000

Change in Net Income

expenses. The answer to improving the efficiency ratio is to fill excess capacity with brand NEW profitable customers. How do other businesses look at the issue of excess capac ity — for example a manufacturing company? • The facility is running at 50 percent of the capacity it was built to produce; • The factory has done everything it can to be as effi cient as possible — evaluate staffing levels, implement technology solutions, etc.; and • Management’s major goals and objectives are still focused on improving profitability by further evalu ating already efficient processes and selling more to current customers. Given the excess capacity at the manufacturing company, wouldn’t it also make sense to evaluate if more widgets can be run through the facility? Would the market support pro viding more products to more people in order to increase net income without substantially increasing expenses? The manufacturing company analogy is very similar to the situation being faced by community financial institutions. They have branches currently attracting 30 to 50 percent of the new customers they were built to serve each year and it is getting worse as transaction volume continues to decline in branches. Most financial institutions have used technology and staff reductions to become more efficient; however, they still spend much of their time, effort and en ergy focusing on cost reductions and additional efficiency enhancement.

When a community financial institution starts welcoming significantly more new customers per year, fixed costs do not substantially change — no new branches have been built, no additional employees have been hired. Actual data from hundreds of community financial institutions illustrates the impact on actual expenses is just the mar ginal costs — generally an additional $30 to $50 per ac count per year (even if we must mail a paper statement). Conversely, the same data base shows the average annual contribution of each new account per year is between $250 and $350. When comparing clients that have embraced this strategy to the overall industry over a three-year period of time (2014 to 2017), their improvement in efficiency ratio was 63 percent better. This has been accomplished by signifi cantly increasing the number of new customers coming in the front doors of existing branches. There is only so much blood in a turnip. Controlling costs, embracing technology to reduce process costs and evalu ating staffing are all things financial institutions should be doing; however, if they have already become very ef ficient in these areas, the focus must shift to driving rev enue. Most financial institutions have tremendous excess capacity in their existing branches today. The solution is to start filling them up. Sean C. Payant, Ph.D., is Chief Strategy Officer at Haberfeld, a data-driven con sulting firm specializing in core relationships and profitability growth for commu nity-based financial institutions. He can be reached at 402-323-3614 or Sean@ haberfeld.com.

16 www.CalBankers.com | CaliforniaBanker

Our bank notified a customer that their provisional credit (following our Regulation E error resolution investigation) Q: Ask the Compliance Guru

credit could be seen as “deceptive” (a misrepresentation that misleads the customer) or “unfair” (monetary harm to the customer that they could not reasonably avoid.) While some may argue that in these instances, the customer may potential ly be getting a “windfall” via double crediting (i.e. both that from the bank and the merchant), one thing seems clear — Regulation E, being consum er-protective in its creation and spirit, does not appear to permit a bank to claw funds back once they’ve been fi nalized. Q: For Regulation O purposes, does our Board of Directors have to submit annual personal financial statements? A: Strictly speaking, there is not an explicit requirement under Regulation O to have any insiders — or the board — within scope submit an annual per sonal financial statement; such a deci sion is generally going to be more of a safety and soundness consideration,

and a determination that is reliant upon on the bank’s own internal / in vestor guidelines. But, acknowledging that the spirit and intention of Regulation O is to prevent the preferential treatment of a bank’s insiders, it is important to keep in mind that if the bank requires annual personal financial statements from other “non-insider” borrowers on similar credit transactions, then that same requirement should likely be imposed equally to any insider within scope. If ever in doubt, Compliance Hub’s Regulation O Toolkit is packed with resources that can help your bank navigate the requirements and best practices as they relate to extensions of credits to insiders. Compliance Alliance offers a comprehensive suite of compliance management solutions. To learn how to put them to work for your bank, call (888)353 3933 or email info@compliance.com and ask for our Membership Team.

was finalized, but then the merchant issued a credit as well. Is the bank able to recapture our provisional credit? (or the merchant credit?) A: Unfortunately, Regulation E itself does not appear to encompass — or even contemplate — such a scenario (that is, the reversal of final credit due to a subsequent merchant credit be ing awarded). In a strict reading of § 1005.11, there is not any language that would expressly allow the re versal of a final credit, nor to revisit the amount of final credit provided based on later information, such as a subsequent merchant credit. Indeed, not only does the regulation not spe cifically allow for this, but there would likely be UDAAP concerns with such a practice — particularly given that the customer had already been notified of their final credit, and any ensuing attempt by the bank to reverse this

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CaliforniaBanker | Issue 2 2025

The Future of Small Business Credit Card Programs

By Anil Goyal, CEO, CorServ

S

mall businesses are the heart of community and regional banks, but they often face challenges when managing

over financial operations, ensur ing transparency and efficiency. • A simple employee onboarding feature makes adding employ ees to the credit card program a seamless process. As businesses expand, they can quickly onboard team members, allowing them to make necessary purchases while maintaining oversight and con trol. On average, small businesses have four cardholders. • Highly configurable alerts and controls empower businesses to set spending limits, impose mer chant category restrictions and receive real-time notifications. Banks can assist in the preven tion of unauthorized transac tions and ensure compliance with company policies. • Flexible payment options , in cluding individual pay and con solidated pay. Individual pay al lows employees to pay, manage and be reimbursed for their ex penses independently. Consoli dated pay simplifies management by consolidating all employee transactions into a single state ment to be paid. These options provide businesses with adapt ability to suit their specific needs. • Integration with accounting tools like QuickBooks, stream lining small business bookkeep

ing processes. This integration simplifies expense categoriza tion, financial reporting and tax preparation, saving time and re ducing errors. • Access to credit with some cred it card program providers helps businesses manage cash flow ef fectively. Whether it’s covering operational expenses or han dling unexpected costs, custom ers look for financial flexibility and stability with credit lines designed to support the needs of small businesses. Tailored credit card programs are critical for financial institutions seeking to support small businesses in their communities. By addressing pain points like transaction manage ment, employee onboarding, cash flow and more, your bank can work with small business customers to simplify financial management.

their finances, especially when it comes to separating personal and business expenses. Many small busi ness owners resort to using personal credit cards for business purposes, which can lead to financial confu sion, inefficiency and a lack of secu rity. Separating personal and busi ness transactions is a necessity for clear financial management, accu rate bookkeeping and smoother tax preparation. Banks have an opportunity to tap into the potential of offering a cred it card program that caters to the unique needs of small business own ers, providing tools and features that elevate their banking experience. In tegrating a credit card issuing pro gram can feel daunting, but there are programs built for financial institu tions of all sizes that make issuing features will enhance customer experience? • A sleek business administration portal provides customers with a centralized financial overview, especially for multiple card holders, offering real-time in sights into transactions, expense tracking and enhanced control simple, effective and lucrative. What credit card program

Anil Goyal co-founded CorServ in 2009 and acts as the company’s CEO. He has an extensive background in credit risk management, technology, and portfolio

optimization. Throughout his career, Anil held se nior roles at top card issuers and provided strategic consulting services to American Express.

18 www.CalBankers.com | CaliforniaBanker

CBA MEMBERS TRAVEL TO WASHINGTON D.C. FOR THE ANNUAL VISIT APRIL 7-9, 2025

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CaliforniaBanker | Issue 2 2025

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CaliforniaBanker | Issue 2 2025

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CaliforniaBanker | Issue 2 2025