January/February 2014
3
rd ANNUAL FINANCIAL FORECAST
Draws More than 600 Attendees
IN THIS ISSUE
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January/February 2014
2013-2014 OFFICERS AND DIRECTORS OF THE VIRGINIA BANKERS ASSOCIATION Gary R. Shook, Chairman, Middleburg Bank John R. Milleson, Chairman-Elect, Bank of Clarke County Jeffrey M. Szyperski, Immediate Past Chairman, Chesapeake Bank Christopher W. Bergstrom, Cardinal Bank Katherine E. Busser, Capital One Financial Corporation Tim Butturini, Wells Fargo Bank, N.A. J. Peter Clements, The Bank of Southside Virginia Randy K. Ferrell, The Fauquier Bank Gary Gore, Bank of America, N.A. Scott Harvard, First Bank, Strasburg William H. Hayter, First Bank & Trust Company G. Lyn Hayth, III, Bank of Botetourt T. Gaylon Layfield, III, Xenith Bankshares, Inc. Monte L. Layman, Blue Ridge Bank Susan R. Ralston, Bank @Lantec John G. Stallings, SunTrust Bank H. Watts Steger, III, Bank of Botetourt Susan K. Still, HomeTown Bank David P. Summers, Virginia Heritage Bank Daniel G. Waetjen, BB&T Michael O. Walker, Benchmark Community Bank AT-LARGE MEMBERS Benefits Corporation Chair J. Peter Clements, The Bank of Southside Virginia Management Services Inc. Chair G. Lyn Hayth, III, Bank of Botetourt Government Relations Committee Chair Monte L. Layman, Blue Ridge Bank VBA Education Foundation Chair H. Watts Steger, III, Botetourt Bankshares, Inc.
EDITORIAL & EXECUTIVE OFFICES 4490 Cox Road Glen Allen, VA 23060 804-643-7469 Fax 804-643-6308 www.vabankers.org Bruce T. Whitehurst President and CEO Virginia Bankers Association Melanie Reilly Communications Coordinator Virginia Bankers Association
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features
Virginia Bankers Association and Virginia Chamber of Commerce Host More Than 600 Members of the Business Community for Third Annual Financial Forecast
16
Hear No Weevil, See No Weevil – A Field Trip to Zuni
18
Gaining Knowledge by Organizing Sales and Marketing Data for Success
Virginia Banking is published bi-monthly. Copyright 2014. Statements of fact and opinion are made on the responsibility of the authors alone and do not imply an opinion or endorsement on the part of the officers or members of VBA.
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Š2014 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: The Warren Group, 280 Summer Street, Boston, MA 02210. Call 800-356-8805.
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in every issue 4 Calendar of Events 5 Insights 6 Worth Noting 8 Legislative Update 9 New Associate Members 10 Legal Line 11 Washington Update 14 Compliance Corner 22 Bankers on the Move Send us your thoughts or ideas on Virginia Banking! Please email Melanie Reilly at mreilly@vabankers.org. Has your information changed? Please email Kellee Edelin at kedelin@vabankers.org with your new contact information. January/February 2014 | Virginia Banking 3
Calendar of
Events
Live Events
INSTRUCTOR-LED SEMINARS
2014 BRANCH LEADERSHIP, GLEN ALLEN FEBRUARY 19
BANK SECRECY ACT SCHOOL, GLEN ALLEN FEBRUARY 25
RETAIL BANKING & MARKETING CONFERENCE, CHARLOTTESVILLE MARCH 11
ANALYZING FINANCIAL STATEMENTS, GLEN ALLEN MARCH 18
COMPLIANCE SCHOOL, CHARLOTTESVILLE APRIL 7
COMPLIANCE HOT TOPICS, CHARLOTTESVILLE APRIL 10
SECURITY & ENTERPRISE RISK MANAGEMENT WORKSHOP, CHARLOTTESVILLE APRIL 23
HR & BENEFITS CONFERENCE, CHARLOTTESVILLE MAY 4
OPERATIONS & TECHNOLOGY CONFERENCE, CHARLOTTESVILLE MAY 13
CFO CONFERENCE, RICHMOND AUGUST 25
CREDIT MANAGEMENT CONFERENCE, CHARLOTTESVILLE OCTOBER 6
COMMERCIAL LENDING SCHOOL , GLEN ALLEN OCTOBER 15
Webinars
WEBINARS
ADVANCED HSAS FEBRUARY 12
LIQUIDITY RISK: BASICS – MEASURING AND MANAGING FEBRUARY 18
IRA REQUIRED MINIMUM DISTRIBUTIONS FEBRUARY 19
CALCULATING AND MAINTAINING THE ALLOWANCE FOR LOAN AND LEASE LOSSES FEBRUARY 24 ENTERPRISE RISK AND THE ALCO PROCESS: BUILDING YOUR CAPITAL BUFFER THROUGH ALCO STRESS TESTING FEBRUARY 24 GETTING IN THE DOOR WITH PROSPECTS FEBRUARY 24 USING CREDIT RISK RATINGS TO DETERMINE ASSET QUALITY FEBRUARY 24 COMMERCIAL REAL ESTATE APPRAISALS: REVIEWING AND INTERPRETING FEBRUARY 25 KEYS TO UNDERSTANDING PERSONAL AND GLOBAL CASH FLOW FROM TAX RETURNS FEBRUARY 25
IT’S TIME FOR SUBCHAPTER S FEBRUARY 26
IT AUDIT FOR COMMUNITY BANKS FEBRUARY 26
COMMON MISTAKES IN MERGERS AND ACQUISITIONS FEBRUARY 27
FIVE WAYS TO IMPROVE THE VALUE OF YOUR ORGANIZATION FEBRUARY 27
Information and online registration is available at the VBA website. Please either go to www.vabankers.org or use this form to check the box next to the program you want information about, then fax the form to the VBA office at 804-643-6308. The VBA will send you information about the program as soon as it is available, usually eight weeks before the program.
Name ___________________________________________________ Bank/Firm______________________________________________ Address_____________________________________________________________________________________________________________________ City ________________________________________________________________ State/Zip ___________________________________ Phone ___________________________ Fax _________________________ Email __________________________________________________ For more information go to www.vabankers.org.
4 Virginia Banking | January/February 2014
www.vabankers.org
Insights Telling Your Story
M Bruce Whitehurst President and CEO, Virginia Bankers Association
y dad has always loved to tell stories, which served him well as a missionary and United Methodist Minister. My mom, also a former missionary and a retired college professor, is equally as good a storyteller. In retirement, my parents have co-authored two books: one on missions, and the other their memoirs, published and presented to their family as priceless gifts at Christmas a little over a year ago. My dad has written three books full of short stories about Pungo, the quaint and still somewhat rural area of Virginia Beach near Sandbridge. My mom wrote weekly family letters for decades, keeping our spread-out aunts, uncles, cousins and grandparents current on our family through stories; you might call this a labor intensive precursor to email and social media. All these years later, carbon copies of these letters formed the basis of my parents’ memoirs. My parents’ stories make it clear that they have touched many people’s lives in a meaningful way; I certainly top that list and I am blessed to be their son. In a quick Internet search near the end of last year about 2014 trends, storytelling showed up in several places as a top marketing trend. Commentary on this “trend” suggests that while storytelling is nothing new, societal and technological changes have paved the way for it to have a key role in marketing. Social media in particular has opened up an entirely new way people communicate with each other (to the degree of Too Much Information sometimes, especially on Facebook!) and also how businesses communicate with their customers and communities. We all know that two-way communication through social media has pros and cons, but I have seen a number of banks use social media in very positive ways that tell stories and reinforce the valuable role banks play in their communities. Telling your bank’s story – which will be one of caring for your clients and making a meaningful difference as leaders in your community – is a great thing to do for your bank and for our industry. Using social media to keep your customers up to date on things happening at the bank has changed the relationship between bank and customer to one that is a little less formal and a little more famil-
iar, something I view as a transformative benefit of social media. At the VBA, we often talk about how banks are really the sum of the bankers who work there and that bankers are great people; social media has brought that point to life. At the VBA, we get to tell the story of Virginia banking, and it is something we love to do. We also get to spend time with bankers, which is an important and enjoyable part of our work at the VBA. See Tom Garner’s article in this issue about a recent day he and Amy Binns spent with bankers and some of the people they serve; Tom tells a great story and makes some important points about bankers and their valued role. We use the VBA’s Facebook page to highlight the great things banks all over the commonwealth are doing day in and day out. We tweet about key industry events and when we have spoken with the media on behalf of the industry. We tell stories and use bankers’ anecdotes as key elements of our advocacy on your behalf. Saying that a current or proposed law or regulation is a problem is one thing; bringing legislators and regulators specific examples of how their actions have or might affect banks and bank customers is another thing entirely and it brings power and impact to the discussion. When several hundred bankers came to the Virginia General Assembly on Jan. 9 for VBA Banker Day, their stories about the good things their banks are doing – despite the oppressive current regulatory environment – made a huge impact and reinforced the critical role of banking in our economy. We will do the same at the Government Relations Summit in Washington this March. Last fall, the American Bankers Association launched Amplify (www.amplifybankers.com) a free resource available to all banks that has a wealth of resources designed to help you tell your bank’s story and the story of banking in general; the VBA was one of several state associations that helped pilot Amplify. This new resource acknowledges how important it is for banks to tell their stories. Given your leadership role in financial literacy, community development, charitable work and Continued on next page
Bruce Whitehurst can be reached by email at bwhitehurst@vabankers.org. www.vabankers.org
January/February 2014 | Virginia Banking 5
Noting
Worth
as president of the VBA. Among his survivors is his wife Linda Bramblett. We send our condolences to to Pete’s family.
ROBERT F. SHUFORD, SR. HONORED BY THE VPCC BRUCE WHITEHURST SPEAKS ON ENTREPRENEURSHIP;VISITS WITH VBA BANK DAY SCHOLARSHIP PROGRAM WINNER Bruce Whitehurst, President and CEO of the VBA, spoke at the University of Virginia’s College at Wise on Nov. 19 as part of the Alfred and Shirley Wampler Caudill Lecture in Entrepreneurship Series. “Banking on Entrepreneurs” was the subject of the lecture, which was open to the public. Dr. Donald W. Caudill endowed the Alfred and Shirley Wampler Caudill Lecture in Entrepreneurship Series in memory and honor of his parents to promote entrepreneurship. One of the audience members was Victor Scott (pictured here with Bruce), a past VBA Bank Day Scholarship winner, who is now a junior at UVA Wise. He is doing well and was excited to hear Bruce speak on entrepreneurship!
BILLY BEALE TO BE HONORED BY GERMANNA Germanna Community College’s Educational Foundation will honor Billy and Linda Beale with the Foundation’s Distinguished Person of the Year Award for 2014 at an annual event scheduled for Feb. 7 at the Fredericksburg Country Club. The award, which started in 2009, recognizes long-term community service. Congrats to Billy and Linda on this honor!
VBA REMEMBERS PETE AUSTIN We were saddened to hear of the passing of retired banker James Rawley “Pete” Austin on Nov. 20. Pete was a former CEO of Peoples National Bank in Shelbyville, Tenn., joining the bank after a successful banking career in Virginia, where he served
The Virginia Peninsula Chamber of Commerce (VPCC) has named Robert F. Shuford Sr., the 2013 Distinguished Citizen Award recipient. He was nominated and selected for his outstanding leadership qualities and contribution to improving the Peninsula region throughout his lifetime. Shuford was presented the VPCC’s Distinguished Citizen Award at the Chamber Annual Meeting on Dec. 9 at the Newport News Marriott at City Center. Congrats to Shuford on this award!
WE WILL MISS The VBA lost a dear friend and coworker in Eileen Scott (“Scotti”) Kalupa on Dec. 29, 2013. Scotti worked as the executive assistant for former VBA President & CEO Walter Ayers as well as for other members of the VBA team. Scotti worked at the VBA for eight years, retiring in July 2007. Scotti was a beloved mother devoted to her children, a sister, aunt, great-aunt and friend to many. She was a wonderful coworker, and we will miss her dearly.
Telling Your Story Continued from page 5 civic engagement, you as bankers have a lot of great stories to tell as we remind people what banking is really all about. This missionary/preacher’s kid learned a lot about story telling from his mom and dad. I am privileged to be in a role where a big part of my job is to 6 Virginia Banking | January/February 2014
tell the story of banking. Bankers often thank me for the work those of us on the VBA staff do on behalf of Virginia banking. I always appreciate this positive feedback – and it makes me want to do an even better job telling your story – but I also say that representing
bankers is actually a very easy thing for me to do. You see, telling stories about the great people in banking and all the great things they do is an awesome part of my job. Please keep telling your story. We’ll keep telling it too. www.vabankers.org
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Legislative
Update
2014 General Assembly Preview
T
Matt Bruning Vice President, Government Relations, Virginia Bankers Association
he Virginia General Assembly convened the 2014 legislative session on Jan. 8 at Mr. Jefferson’s Capitol in Richmond. With a new governor and many new faces in the legislature, there were many unknowns as work began on bills dealing with myriad topics. Scheduled to be a 60-day session, the dynamics of a new administration, a politically divided government and a possibly unresolved partisan split in the State Senate could lead to conflicts – avoidable and not – that may cause it to feel longer. As of press time though, all is going well in Richmond. Gov.-Elect Terry McAuliffe begins his term, as all Virginia governors do, with the task of navigating the General Assembly’s fundamental function – crafting the biennial budget, the state spending plan for the next two fiscal years. While the previous occupant of the governor’s mansion, Bob McDonnell, had first crack at laying out the financial blueprint, McAuliffe and the General Assembly must come to an agreement on a final, constitutionally-mandated balanced budget. With state general spending roughly stalled at pre-recession levels and revenue projections confounded with the uncertain impact from federal sequestration, there will not be an abundance of wiggle room for new initiatives or program expansions. While each participant in the budgetary process will advance and ultimately secure some of their priorities, there will be ample need for compromise. The update to the state educational funding formula, bolstering mental health services and dealing with ever-increasing health care costs will drive the spending discussions. However, the issue most likely to dominate budgetary discussions will be whether, as McAuliffe and Democratic legislators prefer, to expand the state Medicaid program with the use of federal health care reform funds. Republicans are resistant, citing the tapering off of those federal funding levels and uncertainty about whether the state will be left picking up the tab in the future. Ethics reform will receive attention in the wake of the investigations into former
McDonnell’s acceptance of gifts. While efforts to repeal last year’s transportation funding plan will not come to fruition, there will likely be revisions and adjustments to components in that bipartisan compromise. Despite the vast majority of legislation passing unanimously or in an overwhelmingly bipartisan manner, media focus will continue on divisive social bills pushed by both parties. As far as legislation important to banking, the VBA board has set the policy agenda for our industry at the state level, and your association has laid the groundwork to advance those items. On the second day of session, hundreds of bankers from across the commonwealth met with the local elected officials at the annual Banker Day. And your VBA government relations team will continue to advocate on your behalf throughout the session. The VBA has been actively involved in a coalition of business interests seeking ways to amend the Virginia Code to dissuade patent trolls from harassing Virginia banks with abusive litigation. Patent trolls send demand letters to businesses claiming, often baselessly, to hold patent licensing rights to technologies like ATM and wireless services. Banks of all sizes in Virginia have been recipients of these extortive letters, so legislation is being pursued to make it more difficult for entities to assert patent rights in bad faith. Although patent law is governed at the federal level – and Virginia Congressman Bob Goodlatte is leading efforts to address the issue there – we believe state law can be changed to add more deterrents to this frivolous litigation. As health care costs rise – due to new Obamacare taxes as well as other factors – banks are not immune to the effects. The VBA Benefits Corporation has successfully been delivering employee benefits to member banks for over 50 years. As a way to attempt to mitigate the growing cost of health care and provide greater flexibility in benefit plan delivery, legislation has been introduced to provide the authority Continued on next page
Matt Bruning can be reached by email at mbruning@vabankers.org. 8 Virginia Banking | January/February 2014
www.vabankers.org
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2014 General Assembly Preview Continued from page 8 for VBA Benefits to self insure their health care programs. Doing so would remove state tax expenses and allow greater plan design flexibility to tailor health benefits to meet the specific needs of bank employees. Additional legislation seeking technical or incremental improvements are also being pursued. Beyond our proactive agenda, efforts will be taken to prevent bad legislation from being enacted. While we do not anticipate the efforts to add cost and complexity to Virginia’s foreclosure process to return as in previous sessions, there are always misguided or inadvertent measures that could negatively impact Virginia banks that we will fight to defeat. We hope you will keep updated on what is happening at the Capitol throughout the 2014 session. We encourage you to read the latest on legislation by contacting the VBA to receive our Legislative Bulletin emails, sent weekly during the session.
www.vabankers.org
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January/February 2014 | Virginia Banking 9
Line
Legal
Proper Debtor Name Required to Perfect a Lender’s Security Interest
A Mel Tull General Counsel, Virginia Bankers Association
rticle 9 of the Uniform Commercial Code deals with secured transactions in which a creditor takes an interest in a debtor’s personal property. Virginia, 44 other states and the District of Columbia have adopted revisions to Article 9 to clarify the proper naming convention for debtors on financing statements. In Virginia and most of the other states, revised Article 9 became effective July 1, 2013. Complying with revised Article 9 is critical to properly perfect a lender’s security interest. Revised Virginia Code §8.9A-503 (UCC §9503) clarifies how to determine the correct debtor name on a financing statement. For a debtor that is a corporation or limited liability company, the correct name is the name shown on the entity’s “public organic record.” In most cases, the public organic record is the publicly available record filed with the state to form the entity, such as the articles of incorporation for a corporation. It is important to note that creditors cannot rely on the debtor’s name listed in a state’s business entity database, which may contain abbreviations or other omissions and errors that could render a filing ineffective to perfect a security interest. Secured parties should always refer to the entity’s charter document for the accurate debtor name. For individual debtors, Virginia, 36 other states and the District of Columbia adopted the “only if” approach, which mandates that the debtor’s correct name is the name shown on the debtor’s state-issued driver’s license or other identification. If the debtor does not have a driver’s license or other valid identification, the correct name is the debtor’s full legal name or surname and first personal name. Several other states adopted the “safe harbor” approach, which provides that the debtor’s correct name may be any of the following: the name shown on the debtor’s state-issued driver’s license or other identification; the debtor’s full legal name; or the debtor’s surname and first personal name. The “safe harbor” alternative has been adopted in
Alaska, Colorado, Connecticut, Delaware, New Hampshire, Oregon and Wyoming. California has enacted a non-uniform “safe harbor” provision. In all instances, the debtor’s driver’s license must be issued by the state in which the financing statement will be filed. If the debtor holds two driver’s licenses, the correct name is the name shown on the most recently issued license. All UCC financing statement filings made after July 1, 2013, in Virginia and the 45 other jurisdictions that have adopted revised Article 9, including all UCC-3 amendments and/or continuations, must comply with the naming conventions prescribed by revised Article 9. Filings made before July 1, 2013, that do not comply with the new naming conventions will remain effective for five years from the filing date, unless they expire or are terminated sooner for other reasons. This means the outside date for all UCC financing statements to comply with revised Article 9 is June 30, 2018. A UCC-3 financing statement filed after July 1, 2013, will only be effective if the underlying UCC1 financing statement satisfies the requirements of revised Article 9. Accordingly, lenders should include any debtor name amendments in all UCC3 financing statements filed during the five year transition period. The Virginia State Corporation Commission allows multiple actions to be taken in a single UCC-3 filing without additional charge (for instance, the same UCC-3 financing statement may amend a debtor name, amend and restate a collateral description and continue an existing UCC-1 financing statement). For local UCC filings or filings in other states, lenders should confirm with the filing office whether multiple amendments may be filed on a single UCC-3 financing statement. If separate filings must be made, the UCC-3 financing statement addressing the debtor name change should be filed first. At this time, Alabama, Arizona, New York, Continued on next page
Mel Tull can be reached by email at mtull@vabankers.org. 10 Virginia Banking | January/February 2014
www.vabankers.org
Update
Washington
Advocacy for You and by You
W
Frank Keating President and CEO, American Bankers Association
hen ABA’s Government Relations Council Administrative Committee met early in December, followed by our board of directors, the bankers serving on both helped complete a process that begins with each of you: The adoption of our priority policy positions for the new year. These are developed by the Government Relations Council with input and suggestions from a broad range of our members, state bankers associations and ABA committees and councils. They are adopted by the ABA Board and serve as our political advocacy roadmap for the coming year. Our priority policy positions – whether it’s leveling the competitive playing field by eliminating the outdated and unnecessary tax exemption for credit unions or calling for meaningful regulatory relief for community banks – unite our industry in both common purposes and shared goals. That’s also a function and strength of the Alliance between ABA and state bankers associations. Our alliance depends on the leadership of Virginia Bankers Association President and CEO Bruce Whitehurst and the commitment and engagement of Virginia bankers, including: • G. William Beale, Union First Market Bankshares Corp., who serves on ABA’s board of directors, is the chairman of ABA’s Government Relations Council Administrative Committee and serves on ABA’s Banker Advocacy
and Grassroots Committee. • Monte Layman, Blue Ridge Bank, who serves on ABA’s Government Relations Council Administrative Committee. • Susan Ralston, Bank @Lantec, who serves on ABA’s Mutual Institutions Council Administrative Committee. • Jeffrey Szyperski, Chesapeake Bank, who serves on ABA’s Board of Directors and Membership Council. These bankers have stepped up to set our agenda and to help us move forward in reaching our goals. We’ve got another challenging year ahead for our industry’s political advocacy. So when these bankers ask you for your support on an industry issue, please don’t hesitate to give it to them. If you want to become more actively involved in promoting our industry’s advocacy efforts and supporting the ABA-state bankers associations alliance, there’s no better opportunity than the ABA Government Relations Summit, March 24-26 in Washington. This event is your opportunity to personally meet with members of Congress and the regulators. The theme of our GR Summit is “Linking Principles to Policy.” This is an advocacy challenge. We want you and your banking colleagues to make sure that lawmakers and regulators understand the principles that guide our industry and incorporate them into policy.
Gov. Frank Keating can be reached by email at keating@aba.com.
Legal Line Continued from previous page Oklahoma and Vermont have not enacted revised Article 9. Those states are expected to consider adopting revised Article 9 in 2014. A secured party filing a UCC financing statement must determine whether revised Article 9 has been adopted in the relevant jurisdiction in which the financing statement will be filed, as well as whether the “only if” or the “safe harbor” approach to individual debtor names has been enacted. www.vabankers.org
For more information about revised Article 9, please contact Mel Tull, VBA General Counsel, at mtull@vabankers.org or (804) 819-4710. This article has been prepared for informational purposes only and is not legal advice. This article does not create an attorney-client or similar relationship. You should consult with your legal counsel if you have a legal matter requiring attention or need legal advice.
January/February 2014 | Virginia Banking 11
Virginia Bankers Association and Virginia Chamber of Commerce Host More Than 600 Members of the Business Community for Third Annual Financial Forecast
O
n the first Friday of the new year, more than 600 bankers and business people attended the 2014 Financial Forecast, sponsored by the Virginia Bankers Association and the Virginia Chamber of Commerce, at the Greater Richmond Convention Center. Now in its third year, the event aims to help prepare the state’s business community for what lies ahead in 2014. Two distinguished speakers provided an economic update and mostly optimistic outlook for Virginia and the U.S. Sarah Watt House, economist, Wells Fargo Securities, LLC, discussed the Virginia economy, and Stephen Moore, editorial board member and senior economics writer, The Wall Street Journal, discussed the U.S. economy. Kicking off the event, House stated that we will see a little bit stronger growth in the economy in 2014, but that it will still be an uphill battle and Virginia will trail the nation due to the effects of federal budget cuts. She also discussed the current housing market, saying that “much stricter down payment requirements have made it harder for first-time homebuyers to buy houses. That’s a group that’s missing in the current housing environment.” In his speech on the U.S. economy, Moore discussed the energy industry in depth in order for attendees to fully appreciate how the energy revolution is changing the country. 12 Virginia Banking | January/February 2014
“If we get this right, and move ahead with our natural resources, by 2020 we will switch from an energy import to an energy export country. This is a very big deal, as we spend $3 billion buying oil from other countries. It could be a game changer for the jobs market, and we would have a balance of trade surplus instead of a balance of trade deficit. This also changes our geopolitical situation, and the risk of terrorism faults,” said Moore. Moore also discussed how well American countries are run today. “The best run companies are American. Once those companies start spending the money they have in reserves, it will create an expansion of economy,” Moore said. This information, combined with the energy revolution outlook, allow Moore to feel “incredibly upbeat” about the future of the overall economy. Welcome and speaker introductions for the event were given by Bruce Whitehurst, president and CEO, Virginia Bankers Association; Barry Duval, president and CEO, Virginia Chamber of Commerce; and Gary Shook, president and CEO, Middleburg Bank, and chairman, the Virginia Bankers Association. Thanks to all who attended the Third Annual Financial Forecast. Please save the date for the 2015 Financial Forecast on Jan. 9, 2015. www.vabankers.org
www.vabankers.org
January/February 2014 | Virginia Banking 13
Compliance
Corner
The Regulators are Coming! By Darlia Fogarty Director of Compliance, Compliance Alliance, Inc.
T
he regulators are coming, the regulators are coming… The board believes the compliance officer has been given adequate policies, training and staff to ensure the bank will not encounter any issues when the regulators arrive for the compliance exam. So the exam should be a non-event right? Let’s talk about the process of an onsite visit. For the staff involved, this regulatory visit can be painful to endure, but it is necessary to ensure the safety and soundness of the bank.
An overlooked mistake could be minor in the overall scheme of things; however, in the worst case scenario, it could cause major penalties up to and including personal liability for the board. So how do you know whether your bank is ready for an exam? How do you determine whether you’re conducting the proper periodic maintenance and routines to keep your compliance programs as effective as possible? The answer is simple by examiners standards – by exercising proper oversight of these programs
Darlia Fogarty, director of compliance, Compliance Alliance, Inc., may be reached at darlia@ compliancealliance.com or (888) 353-3933. 14 Virginia Banking | January/February 2014
www.vabankers.org
at the board level. If only there was a definite way to determine what the regulators deem “proper” oversight. Oversight is carried out by reviewing the right reports with the right content at the right times. The board must ensure that they are being given solid, accurate information to carry out their fiduciary duties as well as to make informed decisions. One way to do this is to demand quality reports at specified intervals. Reports that are inaccurate, incomplete or delivered too infrequently may conceal weaknesses that should be addressed. Reports should occur at three basic intervals: monthly, quarterly and annually. Monthly reports should focus on the execution of the board’s policies by delivering performance data and metrics. These reports should cover frontline activity and clearly demonstrate whether the day-to-day work of compliance is being done on time and accurately. Monthly reporting should expose where weaknesses may exist, and state the corrective actions being taken to remedy the deficiencies. Quarterly reports should focus on trends and analytics that demonstrate whether risk exposures are increasing or decreasing. The quarterly report gives insight into how the compliance program is functioning over time. These reports should contain information about regulatory trends and upcoming or changing rules in addition to considering the environmental and operating conditions that could affect the bank’s progress and performance. These reports should also summarize the results of compliance monitoring activities that occurred during the quarter and which activities are planned in the quarter ahead. This data allows directors to conclude what, if any, internal events or changes will influence the bank. In general, these reports show the up-to-the-minute state of preparedness for exams and audits. Finally, annual activities such as audits or third-party reviews generate reports on the compliance program’s effectiveness. This annual look back reflects how well the bank kept its risk exposures to acceptable levels. These types of reports often detail the overall effecwww.vabankers.org
tiveness of the senior management team and compliance management in carrying out their responsibilities. These reports take an independent look at the program to gauge its effectiveness, efficiency and performance over a historical period. That being said, remember that, if the reports are not accurate or are considered to be inadequate, the reports will be of no benefit. When reviewing your bank’s reports, keep in mind the following signs that should alert you to ineffective reporting: • Reports that are too long or too detailed. Key points cannot be extracted when the volume of information presented buries the real meaning. • Reports that state only facts but provide no analytical statements or ratings. The board needs to understand whether the data being presented is positive or negative. • Reports that fail to identify the root causes of weaknesses. Failure to identify the root cause delays the implementation of corrections. • Reports that identify the root causes of deficiencies, but do not suggest appropriate corrective action. Solutions should be offered in reports. • Reports that only emphasize weaknesses and ignore strengths. Focusing only on the negatives may inappropriately exaggerate the scope or materiality of an identified problem. • Reports that do not reflect the materiality or severity of an issue. Treating every issue uniformly is a sign that perspective may be lacking. The report should clearly identify whether or not the issue is systemic or isolated. Oversight of a compliance program that can withstand not only regulatory scrutiny, but the changing economic environment and regulatory conditions is a tough assignment. Proper reporting ensures proper maintenance of the compliance program, and a well-maintained program that can be clearly communicated to examiners is the key to passing the exam. January/February 2014 | Virginia Banking 15
Connectedness
In Person
Hear No Weevil, See No Weevil – A Field Trip to Zuni
VBA’s Tom Garner got the chance to explore a cotton picker during his trip.
By Tom Garner Special Projects Coordinator, Virginia Bankers Association
I
t all started in October, over dinner at a VBA event in Charlottesville. Amy Binns, John Bowers and I had been invited to dinner by John Cavanaugh of Pacific Coast Bankers’ Bank, whose company hosted several bankers, among others, to this dinner event. The group included four bankers from Farmers Bank in Windsor: Pete Carr, Vernon Towler, Clay Minter and Thomas Woodward. Pete Carr had the misfortune of being seated across from me.
16 Virginia Banking | January/February 2014
As the evening progressed and Pete and I became more comfortable, we exchanged barbs about many topics, even our accents. We apparently both thrive on sarcasm – what fun! We talked about cotton farming, the boll weevil, the song about the boll weevil and many other topics, including where Pete lives – in Zuni, Virginia. Pete asked if I knew where Zuni was. I said, “Of course, but remind me which direction it’s in.” “That’s it,” Pete said. “You and Amy must www.vabankers.org
Tom Garner, second from left, visited with (from left) Kathy Bryant, Dick Holland, Shirley Robinson, and Pete Carr from Farmers Bank. come to Zuni and let me show you the good life.” I believe he called me something of a city slicker! A few days later Amy and I decided to accept Pete’s invitation (or dare) and contacted him to arrange a trip. (I would later Google the history of the boll weevil, and its eradication, so I would seem less of a city slicker to my hosts.) The weather served up a beautiful day when we arrived at Farmers Bank in Windsor at 10 a.m. on Nov. 20, having passed a small sign for Zuni a few miles west of Windsor. Zuni does exist! We were greeted warmly by many of the staff, but we would spend much of the day in the company of Pete, Kathy Bryant, Shirley Robinson, Jennifer Hogan and Dick Holland – and quite a day had been planned! Our first stop was to tour the production facility of Commonwealth Gin, owned by brothers Len and Tom Alphin. Tom is a life-long customer of the bank, and a member of the board. His mother, the late Betty Alphin, was a former board member and the bank’s first woman vice president. We met Tom’s son, Chris, and his nephew, Bruce, and discovered it truly is a family endeavor, with both Tom and Len’s wives involved in running the business. We saw the cotton gin (yeah!) in production, learned about the defoliation process of the cotton plant, and what boll buggies are used for. Did you know each farmer’s cotton crop is numbered and can be followed through to the finished product? The Alphins were generous with their time. I thought, “These are really good, good people.” We ended our time with them as Tom Alphin jokingly said the company’s tag line was “See
no weevil.” Next up, Pete was bound and determined to find us a ride on a cotton picker. His resolve paid off when we found Tommy Rountree picking cotton on his John Deere in a field nearby. Well sir, Tommy gave both Amy and me quite an experience. My time in the cab with him reaped such information as: the newest John Deere cotton picker costs about $825,000 (wow), but it picks, bails and packages the cotton all at the same time, eliminating the need for extra employees. Picking at night can be hard on the eyes, especially if it’s a good crop – the tractor lights on the white cotton can be blinding. Tommy smiled and said, “However, all that blinding white means money!” The most unsettling thing I learned was the use for a hammer on the floor of the cab in front of me. “Oh, that’s to break out the windshield if the picker catches on fire,” Tommy said. Ouch! Our day concluded with a tour of delightful Smithfield and lunch at Smithfield Station. Throughout the day, our hosts demonstrated how connected they are to their customers and communities. As a career banker, I know how important that is, especially in small towns like Windsor and Zuni. It was great to see that connectedness in person again. To Dick Holland and all the Farmers Bank family, we give heartfelt thanks for our field trip to Windsor. Amy and I were so thankful we got to spend the day getting to know some of our Virginia bankers and their communities better. We did find Zuni – and thankfully no weevil!
Tom Garner, special projects coordinator for the VBA, may be reached at tgarner@vabankers.org or (804) 819-7467. Contact Tom if you are interested in him visiting your bank. www.vabankers.org
January/February 2014 | Virginia Banking 17
Knowledge
is Power
Gaining Knowledge by Organizing Sales and Marketing Data for Success By Guenther Hartfeil Associate Director of Product Management, SNL Financial
O
ver 400 years ago, Francis Bacon said, “Knowledge is power. If knowledge is utilized properly, it yields money, which is power in today’s times.” The same is true today. Knowledge is more important than ever in the business world and has led to much more effective sales and marketing through the use of customer, prospect, officer, branch and market information and analytics. Today, bankers can be equipped to answer questions like: • Who are my best customers? • Who is most likely to buy? • Which sales officers need coaching? • How many new customers did we get last week? • Which branches have the most untapped opportunities? The raw material of knowledge is data. It becomes knowledge when placed into context and combined 18 Virginia Banking | January/February 2014
with the experience and creativity of people. Banks are awash with data, but data needs to be organized and accessible. This article will briefly discuss three key ways to organize data for sales and marketing purposes: householding, product grouping and household assignments. These form the foundation for understanding the customer relationship, assessing customer opportunities, establishing new goals and assigning responsibility for execution. HOUSEHOLDING Householding is the process whereby individuals or businesses are linked to all their customer accounts and then brought together as joint decision-makers. For example, Jo Smith owns a savings account, Josephine Smith owns a mortgage and Jossie Smith owns a credit card. If there are common Continued on page 20 www.vabankers.org
Ba VBA
am og r Pr
VIRGINIA BANKERS ASSOCIATION BANK DAY SCHOLARSHIP PROGRAM
•
d
ou nd atio n
•
e sor Spon
CALLING ALL BANKERS! PARTICIPATE IN THE VBA BANK DAY SCHOLARSHIP PROGRAM!
ay Scholarshi D p nk
by F the on i t a VBA Educ
Sponsored by the VBA Education Foundation and the VBA Leadership Division The third Tuesday in March was declared Bank Day by the Virginia General Assembly in 1991. On this day, high school seniors spend a day in banks across the Commonwealth shadowing a banker in their daily duties. The purpose of this experience is for the students to learn about banking, financial services, and the vital role banks play in their communities. From their experience, the students are required to write an essay on their experience. Seven scholarships (six regional and one statewide) will be awarded on the basis of the essays. Bank Day will take place on Tuesday, March 18th*. If you would like to participate, please email Chandler Dewey at cdewey@vabankers.org for more information. Participation Criteria: High school senior Cumulative GPA of 3.0 or higher Teacher sponsor Scholarship Amounts: $2,000 Each for 6 Regional Winners $4,000 Statewide Winner ($6,000 total since all candidates will also be regional winners) Deadlines & Important Dates Mar. 14, 2014: Deadline to sign-up for the program. Mar. 18, 2014*: Bank Day! Apr. 4, 2014: Student essays due. Essays submitted directly to VBA via email. Apr. 30, 2014: Regional winners notified. May 9, 2014: State winner notified. *You may hold your Bank Day on a different day than March 18th, but please keep the deadlines in mind and allow the student adequate time to write his or her essay after your day.
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January/February 2014 | Virginia Banking 19
Organizing Sales and Marketing Data Continued from page18
data attributes (e.g., email address or tax ID number), these three different names can all be brought together as one person with three accounts. If Josephine has a joint checking account with Alex Mays and shares an address and phone number, they can be brought together as a household. Similarly, if three businesses are owned by two people, those three businesses can be separately identified as customers, but can also be brought together as a household if there is enough visible evidence to link them together. Householding software uses account information, such as tax ID numbers or name, and combines it with special look-up tables (e.g., nicknames, business names) to process business rules which define individuals, households and addresses. Each of these outputs is given a special key or number that does not change over time. Plus, each of these keys is attached to every name and account on the system to make it easy to see full customer relationships. With householding, executive management can assess and set goals for both adding new households and reducing lost households. They can compare the number of new and lost households by branch or officer and design campaigns, refocus on customer service or coach employees to increase the number of net new households (i.e., new minus lost). Executing an onboarding process for new checking customers is a best practice that reduces attrition. Call the customer in a week to make sure all materials have been delivered (e.g., checks, debit cards) and call again in a month to sell more products and inquire about service delivery. Establish goals to sell some key sticky services such as bill pay at the time checking accounts are opened. It is easier to track what occurred when customers and households are accurately identified. PRODUCT GROUPING The product grouping process aggregates bank products in increasingly broad levels. Banks sell hundreds, even thousands of products. Sifting through all the products is tedious and time-consuming. Different levels of aggregation help bankers discover sales opportunities and coaching op-
portunities that could be easily overlooked. For example, a bank’s senior checking account could be categorized as a non-interest checking account, more broadly as a checking account, and even more broadly as a deposit account. Think of these as levels with deposits at level 1, checking at level 2 and so on. Each level of aggregation offers a different perspective so goals can be designed for each level if required. A key performance indicator is the cross-sell ratio (i.e., the number of products or services per customer or household). The cross-sell ratio typically counts the number of product or service types a client owns rather than the number of accounts. Every bank seems to calculate this differently, so it is very hard to compare them bank to bank, although there are recommended ways that enable peer comparisons to be made. Banks should develop multiple goals for cross-selling at different levels of aggregation (e.g., no loan without a deposit is a level 1 goal while reducing single service households is typically a level 3 goal). HOUSEHOLD ASSIGNMENTS Household assignment is the process of assigning accounts, customers and households to the appropriate branch, officer or channel for sales and/or service responsibility. These assignments are often not present or correct on existing bank systems. For example, a customer may have opened a checking account at Branch A 15 years ago, but has moved and is now using Branch B for all their banking needs. The GL system will assign the checking account and hence customer to Branch A. The branch that can best impact future sales and service satisfaction is Branch B. Similarly, sales officers come and go over time, so the assigned account officer may no longer be relevant. A household may also be assigned to different officers for different purposes. Accurate assignments are critical for knowing where to send a lead list for sales and who to hold accountable for excess attrition if service is poor. It is also useful to evaluate the assigned household “book of business� for cross-sell opportunities.
For more information about SNL Financial, please contact Julie Jones at jjones@snl.com or (434) 951-4419. 20 Virginia Banking | January/February 2014
www.vabankers.org
Their Dreams Start with You Did you know that a child with a college savings account is seven times more likely to attend college than one without? Teach Children to Save Day is an ideal opportunity to start children in your community on the path to sound money management and a productive adulthood. On April 11 2014, join with bankers across the nation to help shape the future of young people in your community. Your participation will inspire them to reach for their dreams—and enhance your bank’s image. To learn more and to register, visit aba.com/Teach.
Teach Children to Save Day April 11, 2014
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Move
Bankers on the
Are your bankers on the move? Email submissions to mreilly@vabankers.org.
Strader
Mascarenhas
American National Bank & Trust Company H. Gregg Strader, Executive Vice President and Chief Banking Officer
Cardinal Bank Sylvana F. Mascarenhas, Vice President and Manager Kriti R. Rao, Banking Office Manager
Community Bankers’ Bank
First Virginia Community Bank Alissa Curry, Senior Vice President and Commercial Team Lender
Monarch Bank Karyn Mercier, Senior Vice President of Retail Banking
Sandy Spring Bank Ronda McDowell, Chief Credit Officer
TD Bank
Jo Ellen Archer, Senior VP, Investment Officer and Correspondent Relationship Manager
Justin Wilson, Assistant Vice President, Store Manager
Park Sterling Bank Bobby Cowgill, Senior Vice President and Central Virginia Real Estate Executive Steve Farbstein, Group Senior Vice President and Head of Mortgage Banking Rob Leitch, Group Senior Vice President and Head of Central Virginia Commercial Banking Michael Williams, Group Senior Vice President and Head of Wealth Management Tom Zachry, Senior Vice President and Senior Commercial Banker
Oak View National Bank Michael A. Ewing, Vice Chairman and Chief Executive Officer Kevin A. Lee, President and Chief Credit Officer
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Send Your Rising Stars to Stonier In partnership with the renowned Wharton School, Stonier provides an unparalleled executive education experience. Now accepting applications for Stonier 2014.
The ABA Stonier Graduate School of Banking June 5–12, 2014 University of Pennsylvania Philadelphia, PA Visit abastonier.com for details.
22 Virginia Banking | January/February 2014
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