May/June 2012
VIRGINIA BANKERS ASSOCIATION — SERVING VIRGINIA’S FINANCIAL COMMUNITY SINCE 1893
16TH ANNUAL
TEACH CHILDREN TO SAVE DAY A SUCCESS IN THIS ISSUE
GOVERNMENT RELATIONS SUMMIT | COMPLIANCE ALLIANCE | BANK DAY SCHOLARSHIPS
With its customers under water, Diebold went where it had to go. Above and beyond.
In the aftermath of Hurricane Katrina, Diebold assembled a comprehensive unit to respond to every customer without exception. It’s another example of Diebold doing more to build relationships. Relationships that have inspired us to become leaders and innovators in the banking industry for more than 150 years. For the entire story, visit diebold.com/boldservice. 1.800.806.6827 diebold.com requests@diebold.com
May/June 2012
2011-2012 OFFICERS AND DIRECTORS OF THE VIRGINIA BANKERS ASSOCIATION William Couper, Chairman, Bank of America Jeffrey M. Szyperski, Chairman-Elect, Chesapeake Bank Charles H. Majors, Immediate Past Chairman, American National Bank & Trust Co. O.R. Barham, Jr., StellarOne Corporation Frank Bell, III, Chesapeake Bank Katherine E. Busser, Capital One Financial Corporation Tim Butturini, Wells Fargo Bank, N.A. Larry G. Dillon, C&F Bank Randy K. Ferrell, The Fauquier Bank Larry Heaton, Franklin Community Bank Gail Letts, SunTrust Bank John R. Milleson, Bank of Clarke County Samuel L. Neese, Highlands Union Bank Susan Ralston, Bank @Lantec Gary R. Shook, Middleburg Bank David P. Summers, Virginia Heritage Bank Daniel G. Waetjen, BB&T Richard T. Wheeler, Jr., Franklin Federal Savings Bank AT-LARGE MEMBERS Benefits Corporation Chair Richard M. Liles, Bank of McKenney Management Services Inc. Chair Frank Bell, III, Chesapeake Bank Government Relations Committee Chair Christopher W. Bergstrom, Cardinal Bank VBA Education Foundation Chair J. Peter Clements, The Bank of Southside Virginia
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 Chandler Dewey Manager, Communications/ Marketing and Financial Literacy Virginia Bankers Association
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Virginia Bankers Participate in Teach Children to Save Day April 24 Marks 16th Annual Event
features
SUBSCRIPTIONS If you would like to subscribe to Virginia Banking, contact Chandler Dewey at cdewey@vabankers.org. Virginia Banker is published bi-monthly. Copyright 2012. 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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Virginia Bankers Join ABA for Government Relations Summit Virginia brings the largest delegation to the VBA/ABA event.
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Compliance Alliance Delivers Regulatory Aid in Aftermath of Dodd-Frank Regulatory burden can be alleviated by an innovative compliance program.
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VBA Bank Day Scholarship Program The six regional essay winners are announced.
in every issue 4 Calendar of Events 5 Insights 6 Worth Noting 7 Welcome New Associate Members
8 9 10 14 22
Legislative Update Washington Update Legal Line Compliance Corner Bankers on the Move
Send us your thoughts or ideas on Virginia Banking! Please email Chandler Dewey at cdewey@vabankers.org. Has your information changed? Please email Kellee Edelin at kedelin@vabankers.org with your new contact information.
May/June 2012 | Virginia Banking 3
Calendar of
Events
INSTRUCTOR-LED SEMINARS
DODD-FRANK/ REGULATION Z ABILITY-TO-REPAY SEMINAR, ARLINGTON JUNE 14
2012 ANNUAL CONVENTION, HOT SPRINGS JUNE 17
2012 ANTI-MONEY LAUNDERING AND BANK SECRECY ACT COMPLIANCE SEMINAR, ROANOKE JUNE 19
2012 ANTI-MONEY LAUNDERING AND BANK SECRECY ACT COMPLIANCE SEMINAR, CHARLOTTESVILLE JUNE 20 2012 ANTI-MONEY LAUNDERING AND BANK SECRECY ACT COMPLIANCE SEMINAR, SANDSTON JUNE 21
SCHOOL OF BANK MANAGEMENT, CHARLOTTESVILLE JULY 29
CFO CONFERENCE, CHARLOTTESVILLE AUGUST 27
CONSUMER LENDING SCHOOL, GLEN ALLEN SEPTEMBER 18
CREDIT MANAGEMENT CONFERENCE, CHARLOTTESVILLE OCTOBER 1
COMMERCIAL LENDING SCHOOL, GLEN ALLEN OCTOBER 17
Live Event
ONLINE SEMINARS
AIB GENERAL ACCOUNTING JUNE 11
AIB PRINCIPLES OF BANKING JUNE 11
Online Seminar
MANAGING THE BANK’S INVESTMENT PORTFOLIO JUNE 18
AIB PRINCIPLES OF BANKING ACCELERATED JUNE 18
INTRODUCTION TO AGRICULTURAL LENDING JUNE 18
AIB INTRODUCTION TO TRUST PRODUCTS & SERVICES JULY 3
ANALYZING BANK PERFORMANCE JULY 3
AIB ECONOMICS FOR BANKERS JULY 9
AIB INTRODUCTION TO MORTGAGE LENDING JULY 9
AIB PRINCIPLES OF BANKING JULY 9
AIB MONEY AND BANKING JULY 16
AIB LAW AND BANKING: APPLICATIONS JULY 16
AIB CONSUMER LENDING JULY 16
AIB MARKETING FINANCIAL SERVICES JULY 23
AIB LAW AND BANKING: PRINCIPLES JULY 23
AIB SUPERVISOR CERTIFICATE JULY 23
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 | May/June 2012
www.vabankers.org
Insights
Finding the Regulatory Balance
W Bruce Whitehurst President and CEO, Virginia Bankers Association
idespread frustration with the ultraconservative bank examination process. Highly-rated banks considering their charter options as relationships with their current regulators get more and more tense. Dialogue among and between regulators and the banking industry about the exam process, reports of inconsistent actions by field examiners and lack of clarity in communication throughout the exam process. Does all this sound familiar? It describes the bank regulatory environment in the early 1990s in the wake of the savings and loan crisis, and the passage of FIRREA and FDICIA by Congress. First as a banker/lender and then as a new staff member at the VBA in 1993, I experienced these times in a couple of ways. One of the first projects I was tasked with at the VBA was to conduct a confidential regulator survey of banks – at the request of one of the bank regulatory agencies. The movement in Virginia from national to state charters and from state non-member to state member bank status was unprecedented. Banks were not switching charters or Fed membership status to run from their own regulatory problems; they would not have been allowed to make the change if that had been the case. Instead, they were saying “enough is enough” and hoping the grass would be greener with a different primary federal regulator simply with regard to a positive, balanced relationship with their examiners. I bet you thought my opening statements were about now, not 20 years ago. Fast forward to 2012 and we find ourselves in similar circumstances, only this time they are exacerbated by the fallout from the Dodd-Frank Act of 2010, which includes: • Hundreds of new regulations. • Numerous new reporting requirements. • An entirely new federal bureaucracy known as the Consumer Financial Protection Bureau and self-described “cop on the beat.” • A clear sense from the political world that our federal bank regulators did not adequately supervise our industry in the run-up years before the financial crisis and great recession; never mind the fact that so much of the riskiest lending occurred outside the heavily-regulated traditional banking industry.
So what should we make of all this? Knowing all individual circumstances are different, I would suggest that the most important thing we can do as an industry is to stay in close contact with our regulators. They are faced with many of the same challenges as banks – massive changes in the regulatory world make it all the more challenging for them to learn the new rules with which they examine banks. Open communication as we move into this new regulatory era can only be positive for all involved. I have been pleased to see the federal agencies ratchet up their outreach substantially over the last year or so. The VBA and VACB have been in close contact with all the agencies and we have had good dialogue backed by very helpful industry feedback – both from bankers directly and through the VBA’s Regulatory Feedback Initiative. Over the past few months, we have met with the Richmond Fed, attended the FDIC’s national and regional meetings on the future of community banking, and met with the OCC’s New York District Office. We have also maintained a consistent and positive dialogue with Virginia Banking Commissioner Joe Face and his team at the Bureau of Financial Institutions. Virginia is fortunate to have a structure that allows our commissioner and his key deputies to make careers at the bureau; this leads to effective long term relationships between the bureau and state chartered banks. As I visit with bankers across Virginia, I see and hear more optimism – cautiously so, but evident – about 2012 as perhaps the first year of true economic recovery. Loan demand is starting to pick up more so in some places than in others, but the overall sense that maybe our heavy train of an economy is finally getting close to the top of its very long climb is clearly there. At the VBA, we remain focused on doing all that we can to foster and maintain the best possible environment for banking so banks can be the key drivers of economic growth in their communities. The regulatory climate obviously plays a great role in our ability to serve our communities. To that end, please let us hear from you, either about your specific experiences or with more general feedback or with suggestions that we can pass on to our regulatory partners.
Bruce Whitehurst can be reached by email at bwhitehurst@vabankers.org. www.vabankers.org
May/June 2012 | Virginia Banking 5
Noting
Worth
PEAY BECOMES CHIEF BANKING OFFICER FOR UNION FIRST MARKET BANK D. Anthony “Tony” Peay has been named chief banking officer for Union First Market Bank and will continue as executive vice president. Union First Market Bankshares is the holding company for Union First Market Bank. Peay, 52, has been chief financial officer of Union First Market Bank since 1994 and executive vice president since 2003. Good luck to Tony in this new role!
MAJORS NAMED TO NEW ABA TASK FORCE Charles Majors, chairman and CEO of American National Bankshares Inc., will serve on the American Bankers Association’s new payments systems task force. He will be joined by seven other bankers across the country. With many emerging digital and mobile payment solutions, it is important to ensure competitive access and participation for banks of all size and charters. The Payment Systems Task Force will work to ensure consumer benefit from the safety and security provided by bank-operated payment solutions. We know that Majors will represent Virginia well!
VBA ANNOUNCES PHOTO CONTEST WINNERS The VBA is pleased to announce the winners of our recent photo contest.
FIRST PLACE:
RUNNERS-UP:
“Winter in Southwest Virginia,” Patsy Phillips, TruPoint Bank
“Summer on the Dan River,” Michelle Thurnes, Virginia Bank and Trust
SECOND PLACE:
“Maberry Mill November,” Neva Mannon, Bank of Floyd
“Pilot Mountain in Montgomery County,” Neva Mannon, Bank of Floyd
THIRD PLACE: “Winter Sunrise,” Jerry Hankins, Virginia Bank and Trust Please watch for these photos in upcoming issues of our magazine, as well as at various VBA events. Thank you to everyone who participated in the contest!
DOBBINS RECEIVES SERVICE TO SORENSEN AWARD In April, Helm Dobbins, executive vice president and chief credit officer of American National Bank & Trust Company, received the “Service to Sorensen” alumni award for exemplary service to Sorenson. The award recognizes the graduate who has most given of his or her time, talents and efforts in supporting the Sorensen Institute in the past year. The Thomas C. Sorensen Institute for Political Leadership seeks to improve political leadership in Virginia, thereby strengthening the quality of governance at all levels of government. The Sorensen Institute hosts a number of public and private special events throughout the year. Kudos to Helm on this achievement!
6 Virginia Banking | May/June 2012
www.vabankers.org
Welcome
New Associate Members
COMPLIANCE SERVICES, CONSULTING & TRAINING
CMPG
14619 Cressington Circle Louisville, KY 40245 Phone: (502) 432-4272 Website: www.cmpg.com CONTACT: JEFF HARPER, EXECUTIVE VICE PRESIDENT Email: jharper@cmpg.com CMPG is a leading consultancy focused on helping Virginia banks reduce costs and drive financial performance. Our resources and knowledge enable your bank to make optimal, informed, and market-qualified decisions. Benchmark-based. Knowledgedriven. CMPG is also the developer of VendorINSIGHT and BCP-Insight.
CONSULTING & TRAINING
HA-TLE LLC
4419 Kings Court Drive Roanoke, VA 24018 Phone: (540) 776-0371 CONTACT: ROBERT SPENCER, OWNER Email: rbtspencer@aol.com
CREDIT & LENDING RESOURCES
BANCALLIANCE, INC.
4445 Willard Ave. Chevy Chase, MD 20815 Phone: (301) 232-5472 Website: www.bancalliance.com CONTACT: MARIO SHAFFER, PRESIDENT Email: mshaffer@alliancepartners.com The BancAlliance network is a shared commercial and industrial (C&I) loan platform that identifies, evaluates, and refers loan opportunities to its community and regional bank members. It enables members, the banks that direct the network’s activities, to both acquire highquality commercial and industrial loans and develop relationships with larger borrowers in their markets by distributing loans back to the network that exceed a member’s hold or concentration limits.
FUNDING & CAPITAL SOURCES, INVESTMENT BANKING
SKYLINE CAPITAL STRATEGIES, LLC
10 S. Jefferson Street, Suite 1130 Roanoke, VA 24011 Phone: (540) 983-7755 Website: www.skylinecapitalstrategies.com CONTACT: GREG FELDMANN, PRESIDENT Email: gfeldmann@skylinecapitalstrategies.com Skyline Capital Strategies provides strategic advisory and corporate finance services to community banks and middle market companies. The firm is co-owned by Woods Rogers PLC law firm and Greg Feldmann.
MORTGAGE & REAL ESTATE SERVICES
CORPORATE SETTLEMENT SOLUTIONS 10556 Houslow Drive Woodstock, MD 21163 Phone: (443) 618-3635 Fax: (440) 249-5059 Website: www.corpsetsolutions.com CONTACT: MIKE KELLY, VICE PRESIDENT AND NATIONAL SALES MANAGER Email: mkelly@corpsetsolutions.com
INTEGRITY HOME MORTGAGE CORPORATION 621 W. Jubal Early Drive, Suite D Winchester, VA 22601 Phone: (540) 450-0222 Fax: (540) 450-0223 Website: www.ihmcloans.com CONTACT: AUDREY ANDERSON, OFFICE MANAGER Email: aanderson@ihmcloans.com Integrity Home Mortgage Corporation, (IHMC) a Winchester, Virginia-based mortgage company, was founded in May 2005. IHMC is a well-established, seasoned lender licensed to do business in Virginia, West Virginia and Maryland. IHMC has a full line of conventional and government mortgage products, specializing in custom mortgages and lending solutions to increase home purchase potential and meet borrowers entire purchase and re-finance needs.
WESTSTAR MORTGAGE, INC. 3350 Commission Court Woodbridge, VA 22192 Phone: (703) 497-3914 Website: www.weststarmortgage.com CONTACT: EBONY HOLMES, HR DIRECTOR Email: eholmes@weststarmortgage.com
CSS partners with and provides solutions to meet the challenges faced by community and regional mortgage/equity lenders with multi-county or multi-state footprints. Talk to them about handling your appraisal, title and settlement needs.
COUNTRYSIDE HOLDING COMPANY, INC. 28 Imperial Drive Staunton, VA 24401 Phone: (540) 886-6155 Website: www.countrysideinc.biz CONTACT: STEVE TOMASI, CFO Email: stomasi@countrysideinc.biz Countryside is a regional real estate investment development firm with services including construction management and real estate brokerage.
SEND US YOUR NEWS! Please send submissions for Worth Noting and Bankers on the Move to Chandler Dewey at cdewey@vabankers.org.
www.vabankers.org
May/June 2012 | Virginia Banking 7
Legislative
Update
At Summit, Officials Take Strong Stance on Banker Participation in Government
A Matt Bruning Director of Government Relations, Virginia Bankers Association
t the American Bankers Association Government Relations Summit in mid-March, over 1,100 bankers – including almost 100 from Virginia – listened to several speakers and panelists discuss the key issues facing our industry and our nation. Between these informative sessions, visits were made to members of Congress to discuss major legislative proposals and remind our elected officials of the importance of financial institutions of all sizes to our economy and our communities. These annual visits to Washington are critical components of our unified advocacy efforts and the effect of bringing our requests, concerns and stories to these decision-makers is real and impactful. The meetings between legislators and bankers were positive and productive. At a time when it feels like our business is daily under siege, often by the very inhabitants of our nation’s capitol, progress, albeit slowly, is occurring on increasing the understanding of our issues and the opportunities necessary to return sanity and stability to banking. While those meetings were indeed beneficial, the programmatic piece of the Summit raised a number of topics worthy of further consideration. Presenters offered several pieces of advice to the gathered participants of the three day conference that are worth considering as we continue to improve our advocacy efforts. Virginia Sen. Mark Warner advised bankers to be engaged in the major issues facing our country, especially the deficit crisis that the senator is working on with the bipartisan Gang of Six. While allowing that elected leaders must tackle these contentious matters, he admonished those in attendance that it is also, “your responsibility as well because you as bankers … as the providers of capital … as the income-generator of our business community have as much at stake in getting this right as anybody.” Indiana Gov. Mitch Daniels also spoke at length about the many challenges facing our country and outlined some of the potential solutions necessary to get our financial standing on track. However, it was a simple acknowledgement that “change is disruptive,” and the need to adapt, lead and innovate
through those disruptions, which I found to be wise advice as our industry deals with the uncertainty and confusion of the many changes occurring. Change has and will continue to take place – in regulation, technology, markets and the products and services banks provide. Some changes are good, while others can and will create harmful and undesirable consequences. It remains our responsibility to recognize this new set of circumstances and adjust. That is not to say Daniels’ advice was to sit idly by and accept whatever changes come. Instead, it was a reminder that we cannot afford to stick our collective heads in the sand and hope that all will be as it once was when we resurface. The VBA will continue to actively advocate for repeal, revision or mitigation of detrimental changes, but disruption is already happening and it is important to recognize that reality. ABA President Frank Keating addressed both Warner’s admonition on active banker participation on the critical national issues and Daniels’ advice on facing head on the disruptive changes taking place. Speaking not only to the bankers in the room preparing to visit their congressmen, but to all bankers, Keating emphasized that bankers, “need to be front and center, aggressive and unapologetic because we are right.” Not only should bankers be involved, but that we need to remain leaders. Not only leaders in the boardroom or the many philanthropic and community organizations bankers across Virginia are involved in, but leaders in the legislative and political processes. We cannot allow parts of our industry to be fractured or allow others to define us in a negative light. Instead, we must heed Keating’s charge and be proactive in telling our stories and not be passive in communicating our stance on issues. And, while the ABA and VBA will continue to be so, it is imperative that every banker be aggressive, unapologetic and actively engaged in standing proud to be a banker. While different, the common thread tying the advice from Warner, Daniels and Keating was the call to be active. Whether on national issues, in the midst of change or in support of our industry, Virginia bankers cannot afford to be passive.
Matt Bruning can be reached by email at mbruning@vabankers.org. 8 Virginia Banking | May/June 2012
www.vabankers.org
Update
Washington
Power-Talk
W
Frank Keating President and CEO, American Bankers Association
here were you March 19-21? If you were in Washington D.C., with your fellow Virginia bankers attending the largest-ever ABA Government Relations Summit, thank you. There’s no question that you made a difference. If you missed the meeting, you might want to put next year’s dates on your calendar today. It’s becoming the can’t-miss event of the year – a unique gathering of the banking industry’s current and emerging leaders who share a passion for industry advocacy. A record 1,100 bankers came to Washington for this year’s event. The summit’s theme was “Talk to Power,” and bankers like you did just that, proudly articulating banks’ role as the engines of economic growth and job creation in their communities. They also urged their mem-
bers of Congress to clear away the regulatory underbrush and allow them to better serve their communities. Banker delegations also focused on specific legislation and got results. Case in point: Congress’ enactment and the president’s subsequent signing of the JOBS Act, which includes ABAbacked provisions that increases the SEC registration threshold from 500 to 2,000 for financial institutions and also raises the deregistration threshold from 300 to 1,200 shareholders. The ABA first proposed raising the shareholder threshold seven years ago. It’s been a long, difficult road. Working together, the ABA, the state associations and our grassroots bankers pushed this legislation across the goal line. Our conservative estimate is that the new share-
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Gov. Frank Keating can be reached by email at keating@aba.com. S:6.75”
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May/June 2012 | Virginia Banking 9
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Line
Legal
Factors to Consider Before Terminating Exchange Act Registration
T
he recently adopted Jumpstart Our Business Startups Act (JOBS Act) raises the shareholders of record threshold for deregistration under the Securities Exchange Act of 1934 (Exchange Act). This may provide community banks an opportunity to avoid expensive and time-consuming registration and reporting obligations. However, there are a number of factors unique to each bank that a board of directors should consider before deregistering.
Mel Tull General Counsel, Virginia Bankers Association
REGISTRATION AND DEREGISTRATION REQUIREMENTS
To terminate or suspend its Exchange Act registration and reporting obligations, a bank must meet each of the following three Exchange Act requirements: • Section 12(b) -- its shares may not be listed on a national securities exchange such as NASDAQ. • Section 12(g) -- it must have fewer than 1,200 shareholders of record. • Section 15(d) -- it may not have an effective registration statement under the Securities Act of 1933 (Securities Act). The JOBS Act amended Section 12(g) to increase the deregistration threshold for banks from 300 to 1,200 shareholders of record, but did not change the other deregistration requirements. Shareholders of record are persons identified in the issuer’s records as the owners of the shares. Shareholders of record do not include shareholders who (i) own their shares through brokerage accounts, or (ii) acquired their shares in exempt employee compensation plan transactions. Each bank’s unique circumstances will dictate the actions it must take to satisfy the deregistration requirements. • A bank with shares listed on a national securities exchange can terminate its Section 12(b) registration by delisting its shares from such exchange. • A bank with more than 1,200 shareholders of record can terminate its Section 12(g) registration by conducting a “going private” transaction to reduce its number of shareholders of record. Going private transactions include stock repurchases,
reverse stock splits, subsidiary mergers and stock reclassifications. • A bank with an effective Securities Act registration statement can suspend its Section 15(d) reporting obligations by terminating its Securities Act registration statement if no applicable sales have occurred in the current fiscal year. BOARD CONSIDERATIONS
Deregistration is a significant corporate decision and the board of directors should be mindful of its fiduciary duties when evaluating whether or not to deregister. When making significant decisions, directors of Virginia corporations must act in accordance with their good faith business judgment of the best interests of the corporation. This is often accomplished by conducting an informed decision making process in which directors avail themselves of all material information reasonably available to them, frequently receiving advice from management, a financial advisor and legal counsel. Advantages of Exchange Act deregistration that a board might consider include: • Reduced reporting and other regulatory burdens. Exchange Act filers must make extensive disclosure filings annually, quarterly, when shareholder votes are taken, and upon the occurrence of other significant events. They are subject to extensive accounting and internal controls requirements. Their directors, officers and significant shareholders must file reports disclosing their stock ownership when they purchase or sell shares. These reporting and regulatory requirements, and the associated compliance costs, can be avoided by deregistering from the Exchange Act. • Without quarterly reporting obligations, a bank may be better able to focus on its long-term strategy rather than short-term expectations. • Deregistered banks may have less securities law liability risk and lower D&O insurance costs. • Deregistered banks will be subject to fewer corporate governance mandates and may be able to adopt more efficient organizational structures.
Mel Tull can be reached by email at mtull@vbankers.org. 10 Virginia Banking | May/June 2012
www.vabankers.org
Disadvantages that a board might consider include: • Reducing the amount of publicly available information about a bank may be unpopular with some shareholders. • Delisting from an exchange will likely reduce the liquidity of a bank’s stock. • Delisting and lack of liquidity may reduce a bank’s stock price. • Deregistration may limit the ability to raise additional capital. Stock that is not publicly traded on an exchange may not be as attractive to new investors. Once deregistered, short form Securities Act registration statements and shelf takedown transactions will no longer be available, thereby increasing the time and cost of any public offering. • If bank regulators are concerned about a bank’s capital levels, they may be particularly concerned that deregistration and/or delisting could limit a bank’s access to capital. • Contractual provisions may require a bank to be an Exchange Act reporting company or to list its shares on a national exchange. These contracts may include agreements with shareholders or private equity investors, agreements relating to TARP funds, agreements with bank regulators, and employee stock option plans. • Going private transactions that reduce the number of record shareholders are often complex transactions that require extensive public filings with the SEC, shareholder approvals and several months to complete. • Terminating effective Securities Act registration statements may limit the ability to offer a bank’s shares to its employees through 401(k) plans, employee stock benefit plans, or dividend reinvestment plans. • Deregistration and/or delisting may limit the ability of a bank to use its stock as consideration in future mergers or acquisitions. When considering Exchange Act deregistration, community bank boards of directors will often benefit from consulting www.vabankers.org
with their legal counsel and financial advisor to help them comply with their fiduciary duties, advise them of the advantages and disadvantages of deregistration to their particular bank, and identify the specific Exchange Act requirements their bank must satisfy to deregister. This article is designed to provide information on the subject addressed. It is provided
with the understanding that none of the author, contributors or publisher is engaged in rendering legal, accounting, or other expert or professional services. If legal or other expert assistance is required, the services of a competent professional should be sought. This article in no way intends or effectuates a restraint of trade or other illegal concerted action.
It’s only a sampling, but look what’s in the compliance services package TCA provides VBA member banks: • • • • •
Hands-on help, with scheduled on-site audits. Timely, accurate information about compliance issues and trends. Advice about how to meet federal compliance requirements. An e-newsletter heads-up when the rules change. Access to the TCA compliance professionals, the people who make TCA the most respected source of compliance information and assistance in banking.
Whether your need is BSA/AML, IT vulnerability scans and web site security reviews, or training that keeps your staff — and directors — up-to-date, TCA is your Compliance Advantage. Call us . . . today . . . to learn more. 1-800-934-7347.
Thomas Compliance Associates, Inc. 2846 N. Mildred Avenue, Suite 150 Chicago, Illinois 60657 1-800-934-7347
www.tcaregs.com
May/June 2012 | Virginia Banking 11
From left: Arlington Traditional School Teacher Fran Figari; Cardinal Bank Williamsburg Boulevard Branch Manager Shannon Owens; and Arlington Branch Manager Tahiya Kettles help students at Arlington Traditional understand the concepts of money and saving during Teach Children to Save Day.
VIRGINIA BANKERS PARTICIPATE IN TEACH CHILDREN TO SAVE DAY
APRIL 24 MARKS 16TH ANNUAL EVENT
Banks across the Commonwealth partnered with schools to celebrate Teach Children to Save Day with savings education on April 24. Thousands of Virginia students explored topics like the difference between needs and wants, learning how to identify expenses, trade-offs and ways to cut spending. Established by the American Bankers Association Education Foundation in 1997, Teach Children to Save Day has reached more than five million young people through the commitment of more than 120,000 banker volunteers. Virginia banks have been participating in Teach Children to Save Day since it began. “This program gives bankers the opportunity to use their life experiences and banking knowledge to motivate students to become lifelong savers,� said Bruce Whitehurst, president and CEO of Virginia Bankers Association. In Virginia, over 35 banks participated. Teach Children to Save Day is a celebration of the work bankers do throughout the year to promote financial literacy across Virginia. Please plan to participate in Teach Children to Save Day next year, in April 2013!
Bank of McKenney welcomed third-grade students into their Matoaca branch for the day.
The business development team at MainStreet Bank used a fun, interactive PowerPoint presentation along with a question and answer game for the children. It allowed them to interact with the students and teach them the concept of saving. 12 Virginia Banking | May/June 2012
Tom Rasey and Dawn Tolley of The Farmers Bank of Appomattox read to students at Appomattox Primary School. www.vabankers.org
Farmers and Merchants Bank had multiple presentations on Teach Children to Save Day. Pictured are bankers and first-grade students at Plains Elementary in Timberville.
Colin Borgstrom, Oak View National Bank, partnered with Marshall Middle School for a third year to provide several presentations for over 70 teens in sixth to eighth grades.
THANKS TO ALL THE BANKS THAT PARTICIPATED THIS YEAR!
Lisa Cox, Union First Market Bank, presented to 200 students at JB Watkins Elementary in Chesterfield County. She used the book “Alexander, Who Used to Be Rich Last Sunday.”
Amanda Ulishney and Anne Conner participated in Teach Children to Save Day at Williamsburg Christian Academy. They taught students the difference between what money can and can’t buy and allowed the students to make posters to represent the concept.
American National Bank & Trust Company Bank of America, N.A. Bank of Botetourt Bank of Lancaster Bank of McKenney BB&T Cardinal Bank Chesapeake Bank Citizens and Farmers Bank Citizens Bank and Trust Company EVB Farmers & Merchants Bank First and Citizens Bank First Bank of Virginia First Century Bank First Community Bank Franklin Federal Savings Bank HomeTown Bank MainStreet Bank National Bank Oak View National Bank Peoples Community Bank Sandy Spring Bank Southern Bank and Trust Company StellarOne SunTrust The Bank of Southside Virginia The Farmers Bank of Appomattox The Fauquier Bank TowneBank TruPoint Bank Union First Market Bank United Bank Village Bank Virginia Commerce Bank
The Bank of Southside Virginia taught students at Harrison Elementary in Disputanta. www.vabankers.org
May/June 2012 | Virginia Banking 13
Compliance
Corner
UDAAP Concerns May Change Your HELOC Regulatory Focus on Consumer Benefits Makes HELOCs a Problematic Product By Steve Field Information Technology Compliance Consultant, Thomas Compliance Associates, Inc.
T
he increasingly subjective interpretation of “unfair, deceptive or abusive acts or practices” – that’s UDAAP, of course – is forcing many banks to review their home equity lines of credit. Some are choosing to make revisions. Here’s why: The current regulatory environment is generating considerable concern in compliance risk management circles about the typical home equity line of credit (HELOC) product, with interest only payments and a balloon payment at maturity. VBA member banks that have consistently renewed HELOCs without addressing the issue of principal payments with the borrower may be inadvertently setting themselves up for accusations of abusive practices – even if the borrower qualifies for renewal at maturity. The typical HELOC offers a short-term (generally five years) line of credit at a variable rate of interest. Minimum payments are based on the monthly finance charge with a balloon payment due at maturity. When home values were on the rise in the early 2000s, consumers were encouraged to use HELOCs for home improvements and to pay off expensive credit card debt. At the height of the housing boom, it was common for first time home buyers to avoid private mortgage insurance by utilizing a HELOC for their down payment. This practice added risk by allowing a loan to a borrower with little or no initial down payment or equity, creating a high loan-to-value ratio. The practice continued for several years with consumers making interest only payments. Banks were happy to renew the performing loan at maturity without encouraging the customer to begin paying down the principal balance. When housing crashed and many consumers found themselves upside down on their mortgages, many banks elected to avail themselves of the option in the HELOC agreement to freeze the line of credit, based upon a significant decline in value of the collateral. Consumers who had been encouraged to use their equity for home improvements, debt consolidation or emergency expenses suddenly found themselves in a difficult situation. The borrowers had no cushions of equity in their homes, making it more difficult for
14 Virginia Banking | May/June 2012
them to refinance their mortgages or to cover the costs of selling their homes. The housing market conditions, coupled with the industry’s failure to promote prudent HELOC management by requiring principal payments, raises the question: Can these practices be deemed unfair, deceptive or abusive in the new pro-consumer regulatory environment ushered in by the Great Recession and Dodd-Frank? There’s a second question as well: If such practices are determined to be unfair, etc., what changes should banks make in their HELOC programs? WHAT IS UNFAIR OR DECEPTIVE?
Section 5 of the Federal Trade Commission Act prohibits lenders from taking actions related to a loan in an unfair or deceptive manner. A practice is “unfair” when it causes, or is likely to cause, substantial injury that consumers cannot avoid and which is not outweighed by countervailing benefits to consumers or to competition. A practice is “deceptive” when it involves a material representation or omission that is likely to mislead a reasonable consumer. It is important to note that the FTC Act prohibition against unfair or deceptive practices applies to all aspects of a loan transaction, including servicing and collection. What is particularly frightening is that an action can be legal under the consumer laws and regulations governing a particular lending transaction, yet be deemed unfair or deceptive. For example, Regulation Z allows a lender to freeze or terminate a HELOC in the following circumstances: • The value of the collateral declines significantly below the appraised value. • The lender reasonably believes the borrower will be unable to make payments as agreed because of a material change in the borrower’s financial circumstances. • The borrower is in default on a material obligation under the HELOC Agreement. Despite the fact that a lender follows the provisions of Regulation Z in taking one of the above described www.vabankers.org
actions, the lender’s approach could be considered unfair or abusive if it causes substantial injury that the borrower cannot avoid. Similarly, a lender that advertised its HELOC product as a means to easily obtain credit without also indicating that access to such credit can be frozen, reduced or terminated could be charged with deceptive advertising. DODD-FRANK ADDS ABUSIVE PRACTICES
The Dodd-Frank Act added a new category of prohibited practices – “abusive” practices. Under the law, the Consumer Financial Protection Bureau (CFPB) can limit or bar any product or practice that it deems abusive. There is a great deal of case law and regulatory guidance on “unfair and deceptive” acts or practices, but very little exists on “abusive” acts or practices. Dodd-Frank offers some guidance, defining a product or service as abusive if it materially interferes with the ability of a consumer to understand a term or condition of a product or takes unreasonable advantage of the ability of a consumer to understand it.
But this guidance offers little information on how to avoid abusive acts or practices. Bankers should be particularly concerned by the fact that the CFPB apparently intends to address the subject through enforcement actions rather than rulemaking. This means lenders will have no advance guidance on how to prevent abusive practices until an enforcement action against an unlucky lender is made public. As a result of still-evolving – and sometimes conflicting – rules, it may be time for lenders to consider a HELOC product with a conversion option after the draw period which will require amortizing monthly payments. Such a provision will help demonstrate prudent HELOC management by the bank. VBA members seeking information or assistance with IT compliance issues should call Steve Field, a CISSP (Certified Information Systems Security Professional) and TCA’s compliance consultant for information technology. The toll-free number is 800-934-7347. TCA is the VBA’s endorsed provider of compliance consulting and support.
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May/June 2012 | Virginia Banking 15
Virginia Bankers Join ABA for Government Relations Summit
V Peter Clements (The Bank of Southside Virginia) poses a question.
Bruce Whitehurst (Virginia Bankers Association), Sen. Mark Warner, and Billy Beale (Union First Market Bank).
Attendance at the General Session had never been higher. 16 Virginia Banking | May/June 2012
irginia brought the largest contingency of bankers from any state to join the nearly 1,100 bankers from across the nation at the VBA/ABA Government Relations Summit in Washington, March 19-21. The group heard from an impressive line-up of high-profile speakers including top national regulators, Rep. Shelley Moore Capito, Indiana Gov. Mitch Daniels, Virginia Sen. Mark Warner, and MSNBC “Hardball” host Chris Matthews. Bankers spent the majority of the first day on the Hill meeting with members of the Congressional delegation. In the overall very positive meetings, bankers covered topics including our opposition to increasing the credit union small business lending cap; our desire to reduce regulatory burden and the unintended consequences of Dodd-Frank; and our opposition to the proposed requirement that bankers providing financial advice to municipal entities become registered with the SEC (Dodd-Frank Section 975). Thank you to the 100 Virginia bankers in attendance at the Summit! Some of the participants also attended the ABA Women’s Leadership Forum. Nearly 100 women leaders from the banking industry were present for this event – the largest yet. Thanks to the women who represented Virginia at this event. Meeting with our Congressional representatives is imperative as we fight for the industry about which we are all so passionate.
Bruce Whitehurst addresses the summit participants. www.vabankers.org
LEADERSHIP DIVISION PERSPECTIVE By Ward Currin, Bank of Lancaster
Rep. Robert Hurt with Virginia bankers.
Rep. Eric Cantor met with the group.
As the government relations coordinator for Bank of Lancaster, I have had the privilege of regularly attending the ABA Government Relations Summit held in Washington, D.C. By participating in this event, you will not only better our future as an industry, you will improve your knowledge of the banking industry and how our government works. Yes, it was somewhat intimidating that first year. Here I was in a room full of CEOs and banking executives who make the decisions that affect our communities, and I was only a couple of years out of college. I knew probably six people out of the 700 there, and an even smaller percentage of how things in Washington worked (you might argue that is a good thing). But the experience of being there and learning how much influence we, as ordinary bankers, can have on our country is remarkable. You have a chance to directly influence legislation. As bankers, we are the people our legislators look to for advice on financial decisions. The first ABA Summit I attended was held during the week Congress was voting on the first economic stimulus package. They were literally asking if we should or should not spend $787 billion in stimulus money. There may not always be a landmark piece of legislation coming down the line each time we are in Washington, but I cannot stress enough how important it is to participate and show our congressmen that we are an integral and essential part of our communities. As I have learned over the years, there are no prerequisites to participating and making a difference. All it takes is a desire to be involved and a willingness to learn. I encourage each and every one of you who have aspirations of making a career in the banking industry to attend the summit along with Banker Day in Richmond each year.
Participants at the ABA Women’s Leadership Forum. www.vabankers.org
May/June 2012 | Virginia Banking 17
Compliance Alliance Delivers Regulatory Aid in Aftermath of Dodd-Frank Regulatory Burdens Sprout Innovative Compliance Program By Rann Raynter Executive Vice President, Virginia Bankers Association
F
ollowing the passage of the Dodd-Frank Act, business practices are changing quite a bit for banks across America. The demands of human and financial resources needed to tackle the act are overwhelming for many. In its creation, Dodd-Frank consisted of more than 2,300 pages and is expected to generate over 5,000 pages of new regulations. Community banks must comply with 1,700 pages of consumer regulations governing how banks conduct their business, what products they can offer and what they can charge for their services.
As a result of the drastic and alarming changes, the VBA and its boards discussed how the banks would deal with the storm of regulations proposed by the bill. The primary question posed was simple: “What kind of resources could the association provide to make the job of the compliance officers easier?” The answer was anything but simple. The consensus of the bankers was that keeping up with the additional regulations coming as a result of Dodd-Frank would be challenging. Ultimately, we determined to combine our efforts with other state bankers associations in a jointly-owned compliance resource, Compliance Alliance, Inc. The utmost goal is to provide quality compliance services to free up bank personnel, allowing them to focus on their already demanding, day-to-day tasks. The Compliance Alliance aims to pro-
Drowning in a sea of regulations? Has the onset of regulatory changes made your bank struggle to keep its head above water? With the tsunami of regulations coming, the amount of work, financial resources and time demands will put a tremendous strain on banks. Facing the storm alone can be risky. Compliance Alliance is a banker’s life raft to safety and security.
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18 Virginia Banking | May/June 2012
HOW IS COMPLIANCE ALLIANCE DIFFERENT?
Compliance Alliance is unique in that it goes beyond what many other compliance firms offer. This company answers hotline calls, but also takes recently introduced regulations and summarizes them in easily understood terms and provides banks the tools to effectively implement and utilize them. In order to survive the regulatory onslaught, increased operational complexity, risk and regulatory requirements under Dodd-Frank, many community banks are choosing to use the expertise of third parties to navigate the tricky compliance environment. How can a bank know whom to trust? That is where Compliance Alliance comes in. Compliance Alliance is the only compliance resource that is owned, managed and directed by state bankers associations. Not only does the corporation support bank compliance officers, but it does so at a fraction of the cost of adding one or more new employees. WHAT COMPLIANCE OFFICERS ARE SAYING
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vide necessary support and resources for the compliance officer, at a price a community bank can afford given the tough economic and legislative environment. “Given the demands all community bankers have on their time in this regulation-heavy environment, they need a valuable resource simply to help them keep track of all the new regulations and how to implement them,” said VBA President and CEO Bruce Whitehurst. “Compliance Alliance is an ideal and affordable solution the VBA and several other state bankers associations are offering to community banks to meet that need.”
“As the compliance officer for a small community bank, I wear many other hats besides compliance – [and] with the increasing compliance workload, it’s necessary to have compliance support that I can count on. Compliance Alliance has already helped us review new prodwww.vabankers.org
ucts and marketing. The daily email updates with alerts, forms and matrices are one of the first items I check each morning. Compliance Alliance is truly a great value for our bank!” “Compliance Alliance is saving us half of an FTE right out of the gate and we feel this will evolve into a savings of one full FTE by the time the CFPB is fully up and running. Being a member has greatly exceeded our expectations.” “It is difficult to staff community bank compliance departments sufficiently to write policies/procedures and perform necessary monitoring on all of the new regulations, let alone the new interpretations of the old regulations. Compliance Alliance does an excellent job at keeping its member banks informed of the hot topics and areas of regulatory focus. Our bank feels the commitment we have made to Compliance Alliance has been a worthwhile investment.”
Washington Update Continued from page 9
holder provisions will immediately help at least 500 banks that have been affected by the outdated threshold and its associated regulatory burden. The credit unions were also on Capitol Hill during our summit – outnumbering us four to one. Even so, bankers continued to push back – loud and clear – against legislation that would give more bank-like powers to taxavoiding credit unions. Our bankers also continued to build support for the exam fairness bills, legislation that offers solutions to the many problems banks have been reporting about their examinations, from untimely reports to a lack of an effec-
tive appeals process. In fact, we gained 21 co-sponsors for the bills in the week following bankers’ visits. As I told the bankers at the summit, our industry needs to be front and center, aggressive and unapologetic, because we are both right on the issues and indispensible to America. Banking is the white-hat industry. The bankers responded with energy and enthusiasm, and their commitment to advocacy provided a very clear example of what we can accomplish, and how we can make a difference, together. Our summit represents the largest banking political advocacy event of the year. We not only speak to power, we exercise it.
COMPLIANCE ALLIANCE STAFF BRINGS EXPERIENCE AND UNDERSTANDING
Compliance Alliance’s regulatory compliance team, consisting of eight veteran employees with more than 80 years of combined banking, regulatory and compliance experience, is well qualified to assist banks in addressing the challenges of the rapidly changing regulatory environment. THE SOLUTION
Compliance Alliance will keep you well informed of regulatory changes and requirements and provides easy to understand analysis of new and amended rules and regulations. Any one of your staff may call, email or live chat to have their questions answered by one of Compliance Alliance’s attorneys or compliance specialists. Compliance Alliance ensures you will get the answers you need when you need them. Visit www.compliancealliance.com to learn more, or contact John Bowers at jbowers@vabankers.org or (804) 819-4732. www.vabankers.org
May/June 2012 | Virginia Banking 19
VBA Bank Day Scholarship Program
O
Bank of Botetourt bankers and students.
Village Bank students with their banker shadow.
Bank of Lancaster had 20 students participate. 20 Virginia Banking | May/June 2012
n March 20, over 130 Virginia high school seniors spent the day shadowing bankers across the Commonwealth as part of VBA Bank Day, a statewide effort sponsored by the VBA Education Foundation and the VBA Leadership Division. Bank Day began when the third Tuesday in March was declared Bank Day by the Virginia General Assembly in 1991. The purpose of the day is to expose students to the banking industry and provide an opportunity for the students to learn about banking, financial services and the vital role banks play in their communities. From their experience, students had the opportunity to write an essay on the topic, “How Banking Benefits My Community,” and six regional ($1,000) college scholarships and one statewide ($2,000) scholarship will be awarded to the winning students. Thank you to the 16 banks that participated this year! The VBA is pleased to announce the regional winners of the essay contests. • Capitol Regional Winner: Owen Holt, Christchurch School, Chesapeake Bank • Central/Southside Regional Winner: Megan Harvey, E.C. Glass High School, StellarOne Bank • Hampton Roads/Tidewater Regional Winner: Brandon Euker, Tabb High School, Old Point National Bank • Northern Virginia Regional Winner: Ashley Baboota, Lake Braddock Secondary School, Union First Market Bank • Southwest Virginia Regional Winner: Taylor Banner, Castlewood High School, TruPoint Bank • Valley Regional Winner: Kelsey Smith, Turner Ashby High School, StellarOne Bank Each student will receive a $1,000 scholarship and will be entered into the statewide competition for the chance to receive an additional $2,000 scholarship. Congratulations to all the winners! www.vabankers.org
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The Bank of Southside Virginia’s participants.
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May/June 2012 | Virginia Banking 21
Move
Bankers on the
Barrons
Cohen
Harbold
Bank of Lancaster Deborah Evans, Senior Vice President, CFO and Cashier Susan Pittman, Senior Vice President and Commercial Lending Administrator Benchmark Community Bank Todd Jones, Vice President and Relationship Banker Cardinal Bank Karen Barrons, Assistant Vice President and Manager
Goldman
Ferssizidis
Adam I. Cohen, Senior Vice President, Senior Portfolio Manager, Cardinal Wealth Management Division Kathy Harbold, Senior Vice President, Real Estate Loan Officer Cheryl S. “Libby” Goldman, Vice President and Credit Administration Manager TD Bank Constantine Ferssizidis, Store Manager Timothy Duggan, Senior Vice President, Middle Market and Government Contract Banking
Duggan
Kelly
Merrill
Matthew Jesinsky, Vice President, Federal Funding Manager for TD Equipment Finance John J. Kelly, Vice President, Commercial Loan Officer in Commercial Lending Virginia Commerce Bank Christopher Elliott, Assistant Vice President,Virginia Commerce Wealth Management Services Nicole Faddoul, Assistant Vice President, Branch Manager Mark S. Merrill, Executive Vice President, Chief Financial Officer
Are your bankers on the move? Email submissions to cdewey@vabankers.org.
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