January/February 2012
VIRGINIA BANKERS ASSOCIATION — SERVING VIRGINIA’S FINANCIAL COMMUNITY SINCE 1893
PLANNING FOR
2012
IN THIS ISSUE
2012 FINANCIAL FORECAST | THE ABCS OF AMCS | THE REAL RISKS IN BANKING
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January/February 2012
V I R G I N I A B A N K E R S A S S O C I AT I O N — S E RV I N G V I R G I N I A ’ S F I N A N C I A L C O M M U N I T Y S I N C E 1 8 9 3
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
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.
PUBLISHED BY
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
12
Bruce T. Whitehurst President and CEO Virginia Bankers Association
features
600 People Attend the 2012 Financial Forecast The event was the first of its kind in Virginia.
Chandler Dewey Manager, Communications/ Marketing and Financial Literacy Virginia Bankers Association
SUBSCRIPTIONS If you would like to subscribe to Virginia Banking, contact Chandler Dewey at cdewey@vabankers.org.
Hit Us with Your Best Shot The VBA is hosting a photo contest – your photo could be on the cover of this magazine!
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The Real Risk in Banking’s Future Bank boards must focus on the discovery and development of top leadership.
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Outsourcing Appraisal Management in Virginia: The ABCs of AMCs What all bankers should know about appraisal management companies.
Virginia Banker is published bi-monthly. Copyright 2012.
DIRECTORS Timothy M. Warren Chairman Timothy M. Warren Jr. CEO & Publisher David B. Lovins President FINANCE & ADMINISTRATION Jeffrey E. Lewis Controller / Director of Operations
280 Summer Street, Boston, MA 02210 Phone: 617-428-5100 Fax: 617-428-5118 www.thewarrengroup.com
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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.
January/February 2012 | Virginia Banking 3
Calendar of
Events
INSTRUCTOR-LED SEMINARS BRANCH MANAGER – SESSION 1, GLEN ALLEN FEBRUARY 9
INTRODUCTION TO LENDING COMPLIANCE SEMINAR, SANDSTON FEBRUARY 14
MORTGAGE UPDATE – B TO Z SEMINAR, SANDSTON FEBRUARY 15
2012 MASTERING HMDA SEMINAR, SANDSTON FEBRUARY 16
BSA 2-DAY SCHOOL, GLEN ALLEN FEBRUARY 28
BRANCH MANAGER – SESSION 2, GLEN ALLEN MARCH 8
ONLINE/INSTRUCTOR-LED SEMINARS
MANAGING THE BANK’S INVESTMENT PORTFOLIO FEBRUARY 12
AIB MARKETING FINANCIAL SERVICES FEBRUARY 14
AIB MONEY AND BANKING FEBRUARY 14
AIB PRINCIPLES OF BANKING ACCELERATED FEBRUARY 14
AIB SUPERVISOR CERTIFICATE FEBRUARY 14
AIB PRINCIPLES OF BANKING FEBRUARY 21
RETAIL BANKING AND MARKETING CONFERENCE, CHARLOTTESVILLE MARCH 13
Live Event
Online Seminar
Webinars
AIB GENERAL ACCOUNTING FEBRUARY 21
IRA ONLINE INSTITUTE FEBRUARY 27
AIB CONSUMER LENDING FEBRUARY 27
AIB ANALYZING FINANCIAL STATEMENTS MARCH 5
AIB INTRODUCTION TO TRUST PRODUCTS & SERVICES MARCH 5
AIB INTRODUCTION TO MORTGAGE LENDING MARCH 5
AIB PRINCIPLES OF BANKING MARCH 5
AIB LAW AND BANKING: APPLICATIONS MARCH 5
MANAGING INTEREST RATE RISK MARCH 12
AIB PRINCIPLES OF BANKING ACCELERATED MARCH 12
AIB PRINCIPLES OF BANKING MARCH 19
WEBINARS
ADVANCED COLLECTION TECHNIQUES FEBRUARY 14
DEFINING LEADERSHIP DEVELOPMENT AND ITS ROLE IN COMMUNITY BANKING – PART 1 FEBRUARY 15
FIVE STEPS TO A SUCCESSFUL IT RISK ASSESSMENT FEBRUARY 15
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 2012
www.vabankers.org
Insights
Creating the Future
A Bruce Whitehurst President and CEO, Virginia Bankers Association
new year gives us the opportunity to pause, reflect and determine what we might like to do differently. A lot of times this manifests in personal resolutions, but I believe it is also appropriate to reflect on our industry and what we can do to create a better future than the reality of the past few years might suggest. I have written frequently about the events of the past four years and how they have affected our country, our economy and our industry. As the voice of Virginia banking, the VBA has engaged with media representatives regularly to talk about the financial crisis, TARP, Dodd-Frank, the Durbin Amendment and bank fees, to name just a few topics. We endeavor to provide a different perspective than the one we often see and hear from the media and from some of our national political leaders. To be sure, we have faced many challenges in this era, but I firmly believe that challenges breed opportunities as long as we remain open to that possibility. With a new year comes a fresh start and 2012 feels like a turning point to me; hopefully it does to you as well. How can we create the future we desire? I would suggest that together we focus our efforts to communicate, advocate and participate to reclaim banking’s rightful place as one of the most respected industries in America.
The best way to predict the future is to create it. — Peter Drucker The VBA will communicate with you about industry issues, our advocacy efforts on your behalf and training opportunities and other valuable member services we offer. We will communicate about the industry to the media, the general public, legislators and regulators. The only way we can excel as we do this is with good input and feedback from our member banks, so please communicate with us so we can learn from you how best to represent you.
We will advocate for banking with state and federal legislators and regulators. We will stay focused not only on legislative challenges and opportunities, but also on the many regulations coming from Dodd-Frank and how we can help shape them through comment letters and dialogue with regulators. We need all banks to engage with us in our advocacy efforts as the best way to show the strength and commitment of our banking industry. In advocacy, numbers count and we need to build upon our legacy of strong banker participation at legislative meetings and events. The VBA’s success is a direct result of banker participation and we are pleased to have hundreds of bankers active on VBA boards, committees, task forces and the VBA Leadership Division. If you are interested in being more active with the VBA, please make 2012 the year in which you raise your hand. For our part, we will continue to visit all member banks every year as we derive tremendous value from these visits. We learn about each of our member banks and we also gain valuable information on industry trends that enhances our ability to speak and advocate for the industry. Another way the VBA participates with you is that several members of the VBA team speak to bank boards, officer and employee groups every year in addition to other public speaking opportunities to a wide range of constituencies. We value the opportunity to speak to our member banks, whether on industry issues, to provide legislative and regulatory updates, or to support your bank’s BankPAC campaign. Please contact me if you would like to arrange a VBA presentation at your bank. Together, we can create a positive future that serves our banks, our communities, consumers and businesses well. It is time for us to define our industry rather than letting others do it for us. We will do our part at the VBA and we will benefit from your active communication, advocacy and participation. See you soon.
Bruce Whitehurst can be reached by email at bwhitehurst@vabankers.org. www.vabankers.org
January/February 2012 | Virginia Banking 5
Noting
Worth
VIRGINIA ASSOCIATION OF COMMUNITY BANKS HIRES STEVEN C.YEAKEL The Virginia Association of Community Banks (VACB) announced the hiring of Steve Yeakel, CAE, as the executive vice president of the organization. Yeakel represented the Montana Independent Bankers Association for a number of years, providing management resources and governmental affairs advocacy for the community bankers in Montana. He brings experienced leadership to the new position and will begin officially on Feb. 1, 2012. Yeakel has nearly two decades of successful experience in association management, including the Montana Independent Bankers Association. He also has been active in legislative relations and governmental affairs and has worked with Montana’s Congressional delegation on a variety of federal issues. Yeakel is a graduate of Washington and Lee University, where he received a bachelor’s degree in politics. He is a former resident of Lexington, and he and his wife Beth have three children.
COMMUNITY BANKERS’ BANK CELEBRATES 25 YEAR ANNIVERSARY Congratulations to Community Bankers’ Bank on its 25 year anniversary! CBB was formed in January 1987 when a group of Virginia bankers led the effort to establish a client-owned, correspondent bank that was not a competitor for their customers. Community Bankers’ Bank was organized to do business exclusively with community financial institutions. CBB’s strategic plan and mission statement dictate that it exists solely for the purpose of supporting and facilitating the success of its clients and shareholders. For 25 years, CBB has been a correspondent partner that can be relied upon in good times and bad, never competing for clients’ customers. CBB is part of a network of 16 bankers’ banks currently serving more than 6,000 community banks in 50 states by providing a comprehensive mix of wholesale correspondent and related services. CBB continues to fulfill a vital role in the community – providing high-quality, solid and dependable correspondent banking services to community banks throughout the mid-Atlantic region.
6 Virginia Banking | January/February 2012
MONARCH BANK NAMED ONE OF INSIDE BUSINESS’ ROARING 20 Inside Business and Cherry, Bekaert & Holland LLP recently announced this year’s winners of the Roaring 20 awards program, honoring 20 of Hampton Roads’ most dynamic businesses. The Roaring 20 award not only highlights the region’s fastest-growing companies, but also shares stories of determination, perseverance and fortitude. The winners prove that success is attainable, even in challenging economic times. Congratulations to Monarch Bank and its CEO, Brad Schwartz, on this incredible award.
AMERICAN NATIONAL BANK AND TRUST COMPANY ANNOUNCES EXECUTIVE PROMOTIONS American National Bankshares Inc. and its banking subsidiary, American National Bank and Trust Company, announced that Charles H. (Charley) Majors will become chairman and will continue as CEO of American National Charles H. Majors Bankshares Inc. He will remain as chairman of American National Bank and Trust Company. Charley is a past chairman of the Virginia Bankers Association. Jeffrey V. (Jeff) Haley will become CEO of American National Bank and Trust ComJeffrey V. Haley pany and president of its holding company, American National Bankshares Inc. He was also named to the board of directors for the holding company, and he will continue as president of the bank and as a member of the bank’s board of directors. Congratulations to both on their new roles!
www.vabankers.org
New Associate Members
CONSULTING & TRAINING
THE MARATHON ORGANIZATION, LTD 3300 Ocean Shore Ave., Unit 601 Virginia Beach, VA 23451-1037 Phone: (757) 434-2710 CONTACT: JOHN A. B. (ANDY) DAVIES, JR. Email: adavies@marathonorg.com Former bank CEO Andy Davies has lead the successful turnaround of two Virginia financial institutions and offers a customized, focused and engaged approach to help bank CEOs, management teams and boards of directors enhance shareholder value.
CONSULTING & TRAINING, COMPLIANCE SERVICES
MOUNTAINSEED ADVISORS 4200 Northside Parkway Building 12 Atlanta, GA 30068 Phone: (404) 973-2569 Website: www.mountainseed.com CONTACT: CARL STRECK CEO Email: carl@mountainseed.com MountainSeed is a multi-disciplined consulting firm that specializes in meeting the needs of financial institutions across the United States. MountainSeed has refined its skill set to specialize in valuation-related services and appraisal management. MountainSeed has grown over the years through its stellar reputation in the financial services industry and its dedication to developing relationships with clients so that, with a deep knowledge and appreciation of their business, they can meet their needs in ways the client never thought possible.
INVESTMENT BANKING, INVESTMENT & TRUST SERVICES
VINING SPARKS
775 Ridge Lake Blvd. Memphis, TN 38120 Phone: (877) 786-0955 Fax: (901) 766-3321 Website: www.viningsparks.com CONTACT: MCNEILL WELLS Senior Vice President Email: mwells@viningsparks.com Vining Sparks delivers products and services designed specifically for bank and trust department portfolios. As a national leader in executing fixed www.vabankers.org
income securities transactions, Vining Sparks is uniquely qualified to provide portfolio managers with opportunities to better meet their stated objectives. The firm’s approach to successful investing combines strategic support services with broad trading capabilities.
SECURITY SERVICES
ALL CLEAR SYSTEM™, LLC 372 Technology Trail Lane, Suite 210 Duffield, VA 24244 Phone: (276) 393-1592 Website: www.allclearsystem.com CONTACT: KEVIN W. MULLINS Chief Executive Officer
are most vulnerable – during the opening and closing process. All Clear System also provides a bank-defined dashboard of real-time information for monitoring your human resources, including storing data needed for compliance audits and reporting. All Clear System ensures your institution’s safety procedures meet federal regulations, while giving your valued employees protection and peace of mind. With 30-plus years of experience in banking and consulting, the founders of All Clear System have developed a state-of-the-art alert system that is filling a void in bank security technology.
GARY MCCONNELL President and COO Email: kevin@allclearsystem.com Protect your employees by providing safer opening and closing procedures with All Clear System™. All Clear System offers the first technology-based communications process to safeguard your assets and employees when they
SEND US YOUR NEWS! Please send submissions for Worth Noting and Bankers on the Move to Chandler Dewey at cdewey@vabankers.org.
Jason Caskey, CPA Financial Services Practice Chair
Not all of a bank’s assets are found on its balance sheet. More than 100 banks in the Southeast, large and small, depend on Elliott Davis for personal attention, industry experience and services, including external and internal audit, SEC reporting, taxation and compliance. Our financial services practice is 90 professionals strong, with a 60-year reputation for helping banks operate stronger, wiser, better. Let us know how we can be an asset to you.
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January/February 2012 | Virginia Banking 7
Legislative
Update
Fed Up With Government Inaction
T Matt Bruning Director of Government Relations, Virginia Bankers Association
his fall’s Legislative Update article (“Federal Lawmakers Waver, but Banking Industry is Steadfast,” September-October 2011) outlined the results of the compromise legislation approved by Congress on the debt ceiling. When we last left our country’s financial saga, the congressional “Super Committee” was charged with finding $1.2 trillion in deficit reduction strategies. Not surprisingly, the 12 legislators tasked with brokering a deal failed to reach agreement. So now we’re stuck in neutral with both sides entrenched in their positions and the trigger for automatic acrossthe-board spending reductions set to take place due to the failure. Once again, a pox on both houses. The constant gridlock in Congress on the overriding issues of importance is a great frustration for most Americans. Those frustrated include elected officials. In a recent conference call with around 50 Virginia bank executives, Sen. Mark Warner expressed his continued frustration and disappointment on the inability to reach a compromise on what he and many see as the seminal fiscal issue facing our country. Unfortunately, it is not just a resolution on federal deficit and debt matters that remains elusive on Capitol Hill. With scant exception, not much is moving through the process. While lawmakers talk endlessly about focusing on job creation and economic recovery, many of the initiatives to address those issues have been stymied. On legislation that affects the financial services industry, the final results remain unknown. Many officials have voiced support for addressing the overburden of regulation facing our banks. Efforts earlier this summer to thoughtfully revisit the restrictions on interchange fees established in the Dodd-Frank Act garnered a majority support in the Senate, including both senators from Virginia, but failed to reach the necessary supermajority of 60 to become law. Despite ongoing complaints from large retailers, this is an issue we hope to revisit as the negative consequences bear out in the marketplace. The House overwhelmingly passed HR 1965,
which updates the SEC shareholder threshold reporting requirement. Similar measures have been introduced in the Senate, including one co-sponsored by Warner, so there is hope that this common sense change will be enacted in 2012. Likewise, there is general support for raising the market cap exemption for Sarbanes-Oxley auditor attestation reporting. A bill to raise the threshold to $350 million is making its way through the House and we are hopeful on its eventual prospects. Likewise, many of our bankers participated in recent Calls to Action in support of HR 3461, the Financial Institutions Examination Fairness and Reform Act. Seeking to implement greater clarity and constituency in the exam process and adding a new appeals process, this legislation is helping to change the dynamic in the message Congress is sending to our regulators. We are pleased that Rep. Robert Hurt and Rep. Frank Wolf are two of the 66 co-sponsors of this bill. A committee mark-up of this bill was planned for sometime in January. We’re continuing to work for its enactment, but believe it is already benefitting the industry by sending a clear message to our federal regulators that their process is broken. While it is often disconcerting and frustrating that the congressional process plays out in an unnecessarily protracted fashion with what feels like insurmountable hurdles, as an industry we must remain focused on taking the inaction head on in our pursuit of common sense changes. Progress can seem daunting, but it is not an excuse to throw up our hands and walk away. Instead, we must have the resolve to double our efforts, show our support for these measures and press ahead. In order to overcome obstacles and display our strong industry unity, we need you to lend your voice to the cause. Congressional action – and inaction – impacts each of our member banks and their employees. So the next time you receive a request to write your congressman, please do it. Let them know how important it is to your bank, your community, Continued on page 22
Matt Bruning can be reached by email at mbruning@vabankers.org. 8 Virginia Banking | January/February 2012
www.vabankers.org
Update
Washington
Talk to Power
W
Frank Keating President and CEO, American Bankers Association
hen members of ABA’s Commu-
they make decisions that will help bankers like
nity Bankers Council recently met
you help your communities.
in Washington, they made it a point
Our Government Relations Summit, which will
to take the time to visit with their members of Con-
take place March 19-21 in Washington, is a key
gress to talk about the industry’s top policy priori-
opportunity for bankers to “talk to power” and
ties. The bankers – including Randy Ferrell, presi-
continue this important dialogue about banking’s
dent and CEO of Fauquier Bank in Warrenton, and
role in the nation’s economy. Keep in mind, too, that
Susan Still, president and CEO of HomeTown Bank
our legislative advocacy helps shape the regulatory
in Roanoke – wanted to remind their lawmakers
process. In 2012, the bank regulatory agency
that some policies do more harm than good by inter-
leadership will be completely new, which provides
fering with banks’ ability to serve their customers.
an exceptional opportunity to reach out to regulators.
I cannot stress enough how important these
Last year, nearly 1,000 bankers – unified in mission
conversations are. As banking leaders, you stand
and purpose – joined the ABA and the state bankers
for prosperity for ordinary people in communities
associations in Washington for this important event.
across the country. Washington decision-makers
It’s critical that we again show the strength and
need to be reminded of that continually so that
Continued on page 22
Gov. Frank Keating can be reached by email at fkeating@aba.com.
Ba VBA
p
•
d
ou nd atio n
•
e sor Spon
VIRGINIA BANKERS ASSOCIATION BANK DAY SCHOLARSHIP PROGRAM
ay Scholarshi
am og r Pr
Calling all bankers! Participate in the VBA Bank Day Scholarship Program!
D nk
by F the on VBA Educati
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 students to learn about banking, financial services, and the vital role banks play in their communities. From their experience, students are required to write an essay on the topic, “How Banking Benefits My Community.” Seven scholarships (six regional and one statewide) will be awarded on the basis of the essays. Bank Day is Tuesday, March 20. For your bank to participate, please email Chandler Dewey at cdewey@vabankers.org for more information.
www.vabankers.org
January/February 2012 | Virginia Banking 9
Line
Legal
Virginia Foreclosure Practices Upheld by Fourth Circuit Court of Appeals
F
Mel Tull General Counsel, Virginia Bankers Association
oreclosure trends and practices have been making headlines across the nation in the past year, including several legal challenges to how foreclosures are conducted. In particular, borrowers in default are disputing who has the right to foreclose on a property in light of the complex nature of the securitization process. Fortunately, the law in Virginia is well established: a lender in possession of a promissory note endorsed in blank has the authority to enforce it, including the authority to foreclose on a home covered by a deed of trust provided as security for the note. In a recent case, Horvath v. Bank of New York, the Fourth Circuit Court of Appeals reaffirmed the lawfulness of this foreclosure process and rejected a theory that only the original lender had the right to foreclose on the property. Horvath involved a familiar set of facts for a foreclosure case: a homeowner took out a loan reflected in a note, endorsed in blank, which was secured by a deed of trust on his home. The homeowner agreed to repay the loan in monthly installments but failed to do so for more than six months, prompting the bank in possession of the note to foreclose on the property. The homeowner took issue with the foreclosure because the bank that foreclosed on him was not the original lender. As is common in the mortgage lending industry, the original lender pooled the loan with other loans and then sold shares in the pool of loans to investors. In the course of this transaction, the note changed hands, ending up in the possession of the Bank of New York. It was this bank that foreclosed on the homeowner. The homeowner filed his claim against the Bank of New York challenging the Bank of New York’s legal ability to enforce the note and foreclose on the property securing the note. The homeowner’s complaint centered on the theory that the note and its accompanying deed of trust should be treated separately under the law. He argued that the selling and trading of the pieces of his mortgage during the securitization
process caused the deed of trust to split from the note and become unenforceable. However, the text of this particular deed of trust envisioned that it would be sold with the note. The text of the deed of trust read, “[t]he Note or a partial interest in the Note (together with this Security Instrument) can be sold one or more times without prior notice to the Borrower.” As the court pointed out, cases dating back to the nineteenth century support this notion that interests in deeds of trusts accompany the promissory notes that they secure and are freely transferable. Referencing both the language of the instruments at issue and centuries of Virginia case law, the court rejected the plaintiff’s central claim that the note and deed of trust should receive different legal treatment regarding their transferability. Lastly, and perhaps most importantly, the note was endorsed in blank. Under Virginia law, and the law of most states, a note endorsed in blank allows the person in possession of the note to enforce it. This right to enforce the note transfers to whoever comes into possession of the note. Thus, an entity other than the original lender can enforce the note as long as it has possession of the note. The Horvath court, the Code of Virginia and centuries of Virginia case law clearly support such authority. The free and unfettered transferability of notes and other negotiable instruments has long been vital to commerce in Virginia and the nation, and it is not uncommon for a borrower’s note to change hands as the homeowner’s note did in Horvath. For that reason, two regulations have been adopted to inform homeowners of these transfers and who subsequently owns the note. The Truth-in-Lending Act requires notice to the homeowner within 30 days of the purchase of his or her loan. The Dodd-Frank Act will soon require servicers to disclose to the homeowner the identity, address and contact information of the owner or assignee of a loan within 10 days of receipt of a request from the homeowner.
Mel Tull can be reached by email at mtull@vbankers.org. 10 Virginia Banking | January/February 2012
www.vabankers.org
Hit Us with Your Best Shot
W
e’re seeking the best photos to feature on the upcoming covers of our magazine. This is an opportunity for aspiring photographers at VBA member banks to showcase their photos and photography talents statewide. Images should be high resolution, digital photos* and represent Virginia’s seasonal landscapes, scenic landmarks, and/or present dynamic representations of banks and banking in action. Winning photos will be chosen by VBA staff and photographers will be recognized in the magazine. So don’t delay … get your shutter snapping and send in your photos today! Details Photos may be sent to info@vabankers.org by the close of business on March 5 and must be original images. Multiple photos from one photographer may be submitted, but must be sent as separate en-
tries. You might submit a release form with your photos. Winning photos will be announced by March 30, 2011, showcased in future issues of Virginia Banking and may be displayed at 2012 VBA events. The VBA may also require people featured in photos to sign a release form. Please include the following information with each entry: • Your name • Your title • Your department (if applicable) • Member bank name • Phone number • Email • Name of photo • Signed release form for your photo *Find photo submission details on our website at www.vabankers.org or request them by calling (804) 819-7461. Please submit a photo release form with photos featuring people.
Their Dreams Start with You Teach Children to Save Day is the ideal opportunity to start children in your community on the path to sound money management and a productive adulthood. On April 24, 2012, join with bankers across the nation as we show children how to reach for their dreams. To learn more about available program resources and to register, visit aba.com/Teach.
Teach Children to Save Day April 24, 2012
ABA Education Foundation
www.vabankers.org
January/February 2012 | Virginia Banking 11
600 PEOPLE Attend the 2012 FINANCIAL FORECAST
12
O
n Friday, January 6, the Virginia Bankers Association and the Virginia Chamber of Commerce hosted the 2012 Financial Forecast, a forum which brought business leaders from across the commonwealth together to hear from distinguished speakers for an economic update and outlook on Virginia and the U.S. Welcome and speaker introductions were given by Bruce Whitehurst, president and CEO, Virginia Bankers Association; Barry Duval, president and CEO, Virginia Chamber of Commerce; Bill Couper, president, Mid-Atlantic, Bank of America, and chairman of the Virginia Bankers Association; and Whitt Clement, partner, Hunton & Williams, and chairman of the Virginia Chamber of Commerce. Elizabeth A. Duke, member of the Board of Governors of the Federal Reserve System, and past chair of the Virginia Bankers Association and American Bankers Associa-
tion, discussed monetary policy and a general economic outlook based on what The Federal Reserve Bank is seeing. She also touched on Europe and on housing. Dr. Edmond J. Seifried of Seifried & Brew discussed what can save the economy, pent-up demand and housing. He also discussed energy independence, its impact on Virginia, and the fact that it will be the salvation for the U.S. economy. Dr. Dennis O’Toole, VCU School of Business Professor Emeritus, went into more detail about Europe and why what is happening there is so important to the U.S. economy. He also discussed what international opportunities lie ahead for Virginia. Thanks to all who attended the event. Please save the date for the 2013 Financial Forecast on Jan. 4, 2013. Select photos from the Financial Forecast by Kevin Schindler.
13
Compliance
Corner
Compliance Challenge Grows Exponentially in 2012 Regulators Will Pressure Bank Management By Donna Rakes and Jim Dray The Thomas Compliance Associates, Inc.
T
he still-new year will be one of the most challenging compliance years bankers in Virginia and across the country have seen, even more challenging than the past two years: • The Consumer Financial Protection Bureau (CFPB) mandated by Dodd-Frank will begin to flex its muscles. • Thrift institutions that transitioned to the Office of the Comptroller of the Currency (OCC) will find the agency ready to dig deeply into compliance management issues. • UDAAP, the acronym that stands for “Unfair, Deceptive or Abusive Acts or Practices” will become a big part of banking terminology. A serious expansion of the FTC’s consumer protection provisions, UDAAP came to life as part of the Dodd-Frank legislation that created the CFPB. • The focus on Fair Lending enforcement will remain high at least in the foreseeable future. • Changing expectations for compliance will result in the need for a transformation of compliance management. At some banks, the transformation will be wrenching. Bank managements, including boards of directors, already are under an increasingly bright spotlight as federal regulators re-emphasize compliance. With all of the challenges banks are facing on safety and soundness issues, you’d think the compliance focus would shift to those areas. You’d be wrong. As many institutions have discovered, regulators have honed in on compliance management, intent on assuring that individual bank compliance management remains comprehensive and effective – and that supervised institutions haven’t drained resources away from compliance. The regulatory pressure is on bank management. As a result, banks expecting the internal compliance structure they previously relied upon to carry the regulatory day are not realistic: • Regulators have made it clear that they will look first at how a bank manages compliance, work-
14 Virginia Banking | January/February 2012
ing on the assumption that if a bank’s compliance management process is well planned and well managed, an environment for correct implementation of individual regulations will be present. • Bankers and compliance officers will have to work harder because examiners will work harder, which means the compliance officer’s job will be even more challenging in 2012. • Both the CFPB and recent initiatives at the more traditional banking agencies center on protecting consumers from bankers and bank excesses. • You cannot expect a single compliance officer to be responsible for compliance at virtually any institution today. • Similarly, you cannot expect to keep up with the crush of new requirements with your old compliance management system (CMS). • Expect compliance reviews that focus on policies, procedures and processes, and compliance management. • Consequently, banks that hope to survive with minimum regulatory hassle in the new compliance world must constantly reassess how they design and apply their CMS. To begin, ensure that your approach to compliance management evolves to meet evolving expectations. Expect the new consumer protection approach promulgated by the CFPB to trickle down to the other agencies and affect banks of every size. The intensity of examinations will continue to increase, because examiners want to show they, too, can protect the consumer and – not so incidentally in the Washington environment – are worthy of their jurisdictional rights (and jobs). Compliance has become a full-time responsibility. Banks that hope to succeed with a part-time compliance officer may pay a costly regulatory price that is the nearly inevitable result of a perceived lack of inbank expertise. Even with qualified in-house compliance management, a compliance committee may be the best way to ensure compliance is owned by business unit leaders. www.vabankers.org
Repeat violations still are the kiss of death for a compliance program. Self-identification and self-correction remain the measuring sticks of a comprehensive, effective CMS. It’s critical for bank management to monitor adherence to compliance policies and expectations by all employees. Compliance officers can’t do that alone. Staff training is not only the way to ensure that staff stays up to date. Equally important is management’s willingness to hold both staff and members of the management team accountable. Doing so emphasizes the importance of compliance – from the top down. Keep your board of directors involved in the compliance conversation. The compliance officer should have regular access to the board, which in turn must be engaged in the compliance process. At the same time regulators are demanding greater bank accountability, management has an opportunity to be more creative. With so many new laws and regulations, plus the very real expectation of significantly more to come, it may be time to re-think how you manage compliance and re-build your compliance management efforts. Outsourcing has always been an important option for institutions seeking to manage compliance costs and retain (or establish) credibility and accountability. Technology has become a valuable tool for outsourcing assistance: Virtual, off-site support provides an additional layer of depth, expertise and accountability.
There is considerable of buzz around the concept of enterprise-wide risk management. Although much of the conversation remains conceptual, managing risk from an enterprise-wide perspective can be accomplished many different ways. No matter how you choose to do it – a single vendor or a package of vendors – management must provide the resources needed. Periodic assessments and action plans will help to ensure that a bank’s program remains proactive. Although regulators recently have been quick to remind bankers that they are not consultants, keep the lines of communication open. The regulatory focus has shifted toward enforcement, but feedback from many sources often is helpful in managing compliance risk. It’s always a good idea to stay in touch. Don’t forget about involving compliance in the development of new products or services. Usually when things go wrong, it’s because the compliance officer was not involved in the process in the planning and development stages. VBA members seeking additional compliance management perspective or assistance should call TCA’s Donna Rakes or Jim Dray. The toll-free number is 800-934-7347. Rakes is manager of TCA’s East Coast regional office in Rustburg. Dray is president of TCA. TCA is the VBA’s endorsed provider of compliance services.
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January/February 2012 | Virginia Banking 15
The Real Risk in Banking’s Future
By Alan J. Kaplan Founder and CEO, Kaplan & Associates, Inc.
I
n my 27 years of association with the banking industry, I have never heard a CEO or bank director disagree with the old saying that “people are our most important asset.” However, too many CEOs and board members pay lip service to this cliché and fail to deliver on this imperative for their bank’s future. There are roughly half as many banking institutions in the U.S. today than there were when I joined the First Pennsylvania Bank Management Training Program in 1984. Yet few bankers or directors today would disagree that despite this significant industry consolidation, the need for strong banking leadership is more important than ever. A bank board’s singularly most important responsibility is the selection and oversight of the bank’s leadership. Making sure that the CEO sets the tone at the top, and selects a great team, are vital to long-term success. Along these lines, it is the board’s responsibility – not simply the incumbent CEO’s – to focus on leadership succession in a pro-active way. Simply allowing the “next in line” to be presumed as the best successor may be selling the institution short. The board’s management of the complexities of leadership succession
requires pro-activity, strong communication, and sometimes dealing with the elephants in the room. Community bank boards are accountable for ensuring that the bank’s leadership builds a talent pipeline not only to successfully compete in the market, but to survive and thrive for the long term. Some community banks, especially smaller institutions, may immediately respond by saying that they cannot afford such an approach. My reaction would be “you cannot afford not to invest in the future leadership of your institution”. Investing does not need to cost big money, but failing to develop the next generation of leaders, in a worst case situation, could put the institution itself at risk. Here is a quick list of actions that boards can encourage on the path to developing senior bankers and potential future leaders of the institution: • Start early! Succession and talent development are long-term programs, not shortterm projects. Planning three, four, or even five years ahead for succession provides plenty of time for alternatives to develop. • Take an honest assessment of the talent throughout the institution, even if this means using an outside resource to provide an objective perspective. You need to start by knowing who has upside potential and is worth investing in. • Explore mentoring. The personal involvement of their boss (often the CEO) is a great motivator and retention tool. Wherever possible, consider a cross-mentoring program where senior execs in one area mentor upand-comers in another department. This is easy – and free! • Rotate key people into new areas of responsibility. Not every role change requires a step up – many productive career moves are lateral. Give your stars meaningful exposure to other areas of the bank if they are really con-
Alan J. Kaplan is founder and CEO of Kaplan & Associates, Inc., a retained executive search and talent advisory firm focused on serving community banks. Based in suburban Philadelphia, K&A is the country’s only retained executive search firm member of both the VBA and the ABA. 16 Virginia Banking | January/February 2012
www.vabankers.org
tenders for a future top job. You can’t afford not to, even if it means moving someone out of an important role and allowing someone new the chance to step up in their place. Well-rounded banking skills are crucial for future leaders. • Consider outside coaching for your true future leaders – the handful of folks who could someday run the bank. At some level, succession becomes less about technical
• Get involved! Not with every employee who attends a training seminar, but with the future leaders. Boards and rising stars need exposure to each other, and often the board can provide selective mentoring where appropriate as well. Terms like “talent development” and “succession management” may seem like they only apply to or can be afforded by mega-banks. The
competency and banking knowledge, and more about how people manage and lead others. • Send your top people to industry conferences, whether national, state, or private organizations. There is not only strong content at many gatherings, but the development of peer relationships with non-competing fellow bankers is vital.
truth, however, is that many talent initiatives do not need to be big or fancy. For boards and CEOs that accept the premise that “people are our most important asset,” investing in the future leadership of the institution should come naturally. Failing to focus on “talent” as the differentiator in your bank’s performance and long term viability could put the institution at significant risk of survival.
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January/February 2012 | Virginia Banking 17
Outsourcing Appraisal Management in Virginia: The ABCs of AMCs By Nathan Brown Chief Legal Officer, MountainSeed Appraisal Management
I
n general, appraisal management companies (AMCs) serve as an intermediary between a bank and the licensed or certified appraisers who prepare the real property appraisals that banks are required or choose to obtain in connection with collateral reviews, risk management, loan originations, workouts and other situations. Typically, an AMC establishes and maintains a panel of qualified appraisers. When a bank notifies the AMC that it needs an appraisal, the AMC identifies a qualified appraiser from its panel, communicates the order to the appraiser, tracks deadlines and delivers the completed appraisal to the bank. AMCs may also offer additional services, such as reviewing the appraisal for compliance with the Uniform Standards of Professional Appraisal Practice (USPAP). Virginia is one of roughly 25 states that has passed final AMC legislation. AMCs operating in Virginia that do not qualify for an exemption are subject to certain state-law requirements and restrictions. In comparison to many other states, however, Virginia’s AMC regulations are relatively sparse. As an example: while many other states require AMCs to register with the state appraisal board, post security bonds, pay fees and other requirements, Virginia does not. Additionally, other states require background checks for key personnel and require AMCs to designate compliance managers who are responsible for ensuring regulatory compliance, but Virginia’s law does not include similar requirements. In general, Virginia’s AMC laws simply mirror the “independence re-
Failure to comply with the Final Rule, among other consequences, can result in specific, heavy civil monetary penalties, both for a bank and an AMC. 18 Virginia Banking | January/February 2012
quirements” contained in the federal regulations, and because Virginia does not currently require AMCs to register with the Virginia Real Estate Appraiser Board or obtain a license, many AMCs operating in Virginia may not be complying with the state’s legislation, or the myriad applicable federal regulations. The federal government directly regulates AMCs. An example is the Interim Final Rule amending Regulation Z, which implements the Federal Truth in Lending Act. The Final Rule was promulgated by the Board of Governors of the Federal Reserve Board (FRB) in response to the appraisal provisions contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). As such, it directly regulates an AMC’s involvement in consumer credit transactions secured by a consumer’s principal dwelling. www.vabankers.org
Failure to comply with the Final Rule, among other consequences, can result in specific, heavy civil monetary penalties, both for a bank and an AMC. “In general, the vast majority of federal and state law that specifically regulates AMCs has been implemented within the last five years, and a substantial portion of these are less than one or two years old,” said Carl Streck, principal of Mountainseed Advisors, a real estate research and advisory firm that provides appraisal management solutions to financial institutions. “The Final Rule, for example, has been effective for less than one year, and the net effect is that many AMCs have simply not done the appropriate deep dive into the relevant regulations and, as a result, bankers cannot assume that any AMC they choose to do business with is, in fact, compliant.” While the Final Rule contains appraiser independence requirements, prohibitions on conflicts of interest and other requirements, two specific regulations contained in the Final Rule stand out for their unique impact on an AMC’s operations. The first is the so-called “customary and reasonable fee” requirement. In general, the Final Rule requires that a “fee appraiser” – a term of art under the statute – receive a customary and reasonable fee for its services in performing the appraisal. The Final Rule establishes two detailed presumptions of compliance with the requirements. Any bank contemplating engaging an AMC should understand the customary and reasonable fee requirements and be Continued on page 20 www.vabankers.org
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Continued from page 19 comfortable that the AMC has satisfied one of the two presumptions of compliance. Banks should also take into account the effect that an AMC’s appraiser compensation structure has on the AMC’s panel appraisers. Certain industry groups have been very vocal in complaining that AMC practices and policies that unreasonably “squeeze” appraiser fees are detrimental to the quality of appraisals that banks receive.
In general, the vast majority of federal and state law that specifically regulates AMCs has been implemented within the last five years, and a substantial portion of these are less than one or two years old. The Final Rule also includes mandatory reporting provisions. In certain circumstances, AMCs (and creditors) are required to report an appraiser to the board if they have a reasonable basis to believe the appraiser is failing to comply with USPAP, is violating applicable laws, or is otherwise engaging in unethical or unprofessional conduct. Banks should confirm that their AMC has appropriate policies and procedures in place to govern reporting. Also, it’s important to remember that, as most banks are aware, there is a substantial body of federal regulation, rules and guidance that govern a bank’s creation and implementation of a collateral valuation program. While many of those regulations are enforced by federal bank regulators who don’t have direct control over AMCs, they do govern the bank clients’ engagement and relationship with AMCs. AMCs should be intimately familiar with these regulations. Since the implementation of Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) in the early 1990s, each primary federal bank regulator has promulgated regulations governing the appraisals obtained by regulated institutions. In 1994, the agencies jointly issued appraisal and evaluation guidelines to provide further guidance. Recently, 20 Virginia Banking | January/February 2012
the federal regulators have jointly issued revised guidelines that replace, in their entirety, the 1994 guidelines. Among other restrictions, the revised guidelines (which are generally applicable to both residential and commercial property) include appraisal independence regulations that fall heaviest on those banks that maintain in-house appraisal staff. Those requirements require the structural separation of loan production staff from the collateral valuation team, both with respect to their reporting lines and their compensation. “The revised guidelines also govern the communications between the bank and the appraiser by specifying certain prohibited communication, and they also regulate the development and use of so-called ‘approved appraiser’ lists, which is still a common practice at many banks,” said Streck. “So engaging an AMC to stand between the bank and the appraiser may help to alleviate some of the independence concerns implicated by the revised guidelines.” The revised guidelines also require that appraisal reports be reviewed for compliance with appraisal regulations, the revised guidelines, and internal bank policy, prior to a final credit decision. The revised guidelines contain some guidance on the scope of that review in various circumstances, but the details are beyond the scope of this article. While it is not possible for a bank to completely divest itself of any responsibility for the appraisal quality regulation in the revised guidelines, AMCs that offer appraisal review by qualified appraisers may be able to assist a bank with its loan review compliance burden. Indeed, the revised guidelines recognize that “[a]n institution may find it appropriate to employ additional personnel or engage a third party to perform the reviews.” However, the guidelines do make clear that “an institution remains responsible for the quality and adequacy of the review process” and, in a dedicated section on third-party arrangements, clarifies that institutions are responsible for “understanding and managing the risks associated with the arrangement.” “If your bank sells loans to the GSEs, you should note that the revised guidelines do not apply to www.vabankers.org
transactions that qualify for sale to, or meet the approval standards of, a U.S. government agency or U.S. governmentsponsored agency, like Fannie Mae and Freddie Mac,” said Streck. Any bank considering engaging an AMC in connection with loans that the bank intends to sell to Fannie or Freddie should be familiar, and ensure that their AMC complies, with Fannie Mae and Freddie Mac’s appraisal requirements, including those listed in the Fannie Mae and Freddie Mac Selling Guides and the Appraisal Independence Requirements (AIR). During the vetting process, bankers will invariably hear the term “HVCC compliance,” referring to the Home Valuation Code of Conduct. It was created by the FHFA, which regulates Fannie Mae and Freddie Mac, and applied only to loans sold to Fannie and Freddie. What bankers need to know is that Dodd-Frank provided for the elimination of the HVCC effective immediately on the promulgation of the Final Rule, and was replaced by AIR. While “HVCC compliance” appears to have become, in informal parlance, a rough synonym for “regulatory compliance,” banks would be wise to use caution when they are approached by AMCs touting “HVCC compliance,” as it may indicate that the AMC is not familiar with the latest developments in the law, or with Fannie and Freddie’s current requirements. Finally, any bank evaluating AMCs should be aware that the regulatory agencies have each adopted guidance on transactions with third parties, especially with respect to technology (and most AMCs today use technology and software systems to deliver their services). A good place to start would be the FFIEC Statement on Risk Management of Outsourced Technology Service (Nov. 28, 2000). Quality AMCs will be familiar with the standard due diligence that www.vabankers.org
banks are encouraged to perform under the relevant guidance, and should be willing to assist as a bank walks through the process. MountainSeed Appraisal Management is the VBA’s newest endorsed vendor. MountainSeed is a multi-disciplined
consulting firm that specializes in meeting the needs of financial institutions across the United States. For more information on how MountainSeed can help you, please visit them at www.mountainseedamc.com or contact Wes Wells at 404-736-6214 or email him at wes@mountainseed.com.
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.
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January/February 2012 | Virginia Banking 21
Move
Continued from page 8
Bankers on the
Arceo
Matthews
Newell
Bank of Virginia Christy F. Quesenbery, Senior Vice President of Operations Cardinal Bank Lori Arceo, Vice President, Commercial Services Executive Carter Bank & Trust Judy G. Matthews, Branch Manager StellarOne James Birckhead, Financial Center Manager Bill Newell, Senior Executive Vice President and Director of Commercial Banking
Perez
Franz
Ewing
Anita Diane Staton, Financial Center Manager TD Bank Lewis P. Perez, Store Manager Brian Franz, Store Manager Virginia Commerce Bank Robert M. Belch, Senior Vice President, Community Banking Christopher J. Ewing, Executive Vice President and Chief Operations Officer Stephanie Lykins, Senior Vice President and Regional Manager Bob McCoy, Senior Vice President and Regional Manager
Are your bankers on the move? Email submissions to cdewey@vabankers.org.
Continued from page 9 conviction of our united industry in 2012. We’re also asking you to bring along your directors, senior management and other staff members who can help tell lawmakers how your bank makes a difference in your community. Please know that no prior experience meeting with a member of Congress is necessary. We’ll make sure all summit participants are fully briefed on the industry’s issues through both on-site orientation and a pre-summit conference call. Another important note: the summit
Need more
will be held at the same time that the
risk management manpower?
credit unions will be in Washington. This makes it even more important for us to have a strong showing. The ABA recently mailed bank CEOs a brochure to help educate employees and members of Congress about the
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that they make these changes. Even better than an email or a letter, join us March 19-21 in Washington for the Government Relations Summit. If you can’t attend the entire event, join us for our visits with the Virginia members of Congress the afternoon of March 20. Show your representatives that you are willing to choose action over inaction, and hopefully they will follow your lead.
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credit union-backed bills that would raise the member business-lending cap for a handful of large credit unions from 12.25 percent to 27.5 percent of total assets. Our brochure is intended to help us generate a strong grassroots response on this issue. Credit unions will have thousands in D.C. in March lobbying for their bill. We need to make sure our industry’s voice of opposition to that bill is heard, too. Through
your
involvement,
your
lawmakers will better understand who bankers really are, and what banks do for their constituents. Our message: Let bankers be bankers – an engine of economic growth and job creation in communities throughout America.
22 Virginia Banking | January/February 2012
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