Virginia Banking March/April 2015

March/April 2015

Banker Day 2015

IN THIS ISSUE

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2014-2015 Officers and Directors of the Virginia Bankers Association John R. Milleson, Chairman, Bank of Clarke County T. Gaylon Layfield, III, Chairman-Elect, Xenith Bankshares, Inc. Gary R. Shook, Immediate Past Chairman, Middleburg Bank G. William Beale, Union First Market Bank Christopher W. Bergstrom, Cardinal Bank Michael W. Clarke, Access National Bank J. Peter Clements, The Bank of Southside Virginia Barry C. Elswick, TruPoint Bank Gary Gore, Bank of America, NA Scott C. Harvard, First Bank, Strasburg William H. Hayter, First Bank & Trust Company G. Lyn Hayth, III, Bank of Botetourt Glen Kelley, Wells Fargo Bank Brad E. Schwartz, Monarch Bank John G. Stallings, SunTrust Bank Susan K. Still, HomeTown Bank Daniel G. Waetjen, BB&T Michael O. Walker, Benchmark Community Bank Robert Wojciechowicz, Capital One Financial Corp., Richmond AT-LARGE MEMBERS Benefits Corporation Chair J. Peter Clements, The Bank of Southside Virginia Management Services Inc. Chair G. Lyn Hayth, III, Bank of Botetourt Government Relations Committee Chair Ron Haley, River Community Bank, NA VBA Education Foundation Chair Charles Majors, American National Bank & Trust Co. EDITORIAL & EXECUTIVE OFFICES 4490 Cox Road Glen Allen, VA 23060 804-643-7469 Fax 804-643-6308 www.vabankers.org

SUBSCRIPTIONS If you would like to subscribe to Virginia Banking, contact Chandler Owdom at cowdom@vabankers.org.

Bruce T. Whitehurst President and CEO Virginia Bankers Association

Virginia Banking is published bi-monthly. Copyright 2015.

Chandler Dewey Owdom Manager, Communications & Government Relations Virginia Bankers Association

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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12 Banker Day 2015

cover features

16

Succession Planning: Is Your Organization Prepared?

17

Teach Children to Save Day Is April 24

in every issue 4 Calendar of Events 6 Insights 7 Worth Noting 8 Legislative Update 9 New Associate Members 10 Legal Line 18 Washington Update 20 Compliance Corner 22 Bankers on the Move

Send us your thoughts or ideas on Virginia Banking! Please email Chandler Owdom at cowdom@vabankers.org. Has your information changed? Please email Chandler Owdom at cowdom@vabankers.org with your new contact information.

March/April 2015 | Virginia Banking 3

Calendar of INSTRUCTOR-LED SEMINARS COMPLIANCE SCHOOL & ADVANCED COMPLIANCE APRIL 13 SUPERVISOR BOOT CAMP APRIL 14 SECURITY RISK WORKSHOP APRIL 22 HR & BENEFITS CONFERENCE APRIL 26 OPERATIONS & TECHNOLOGY CONFERENCE MAY 12 FUNDAMENTALS OF CREDIT ANALYSIS & BUSINESS FINANCING MAY 20 TRUST & WEALTH MANAGEMENT CONFERENCE MAY 28 VBA/WVBA ANNUAL CONVENTION JUNE 21 VBA SCHOOL OF BANK MANAGEMENT JULY 26 CFO CONFERENCE AUG. 24 CREDIT MANAGEMENT CONFERENCE OCT. 5 LEADERSHIP CONFERENCE OCT. 15-16 COMMERCIAL LENDING SCHOOL OCT. 21 ENTERPRISE RISK MANAGEMENT WORKSHOP OCT 27 WOMEN IN BANKING SEMINAR NOV. 17

WEBINARS

EMV CHIP & PIN APRIL 13 LENDING TO MUNICIPALITIES APRIL 14 FINANCIAL STATEMENT PROJECTIONS APRIL 14 LANDSCAPE OF AGRICULTURE TODAY AND TOMORROW APRIL 14 BUSINESS CASH FLOW BASICS & GLOBAL CASH FLOW INTEGRATION ISSUES FOR LENDERS & ANALYSTS APRIL 14 COMMERCIAL CONSTRUCTION LOANS: ADMINISTERING AND MONITORING APRIL 14

4 Virginia Banking | March/April 2015

Visit www.vabankers.org/event-calendar to learn more about these events.

WEBINARS RESOLVING AN UNEXPECTED COMPLIANCE EMERGENCY APRIL 14

NOTARY SKILLS FOR BANKERS: PART 2 ADVANCED NOTARY SKILLS APRIL 15 IRA DISTRIBUTIONS APRIL 15 ESSENTIALS TO IMPROVE YOUR BUSINESS DEVELOPMENT PROGRAM APRIL 16 LEVERAGE THE MIDDLE OF YOUR ORGANIZATION APRIL 16 COACHING FOR BETTER PERFORMANCE APRIL 17 APPRAISAL & EVALUATION REGULATIONS APRIL 20 IMPLEMENTING A CONTINUOUS IMPROVEMENT PROCESS APRIL 21 ESTABLISHING AND AMENDING IRAS APRIL 22 EASY TO USE AUDIT TOOLS THAT WON’T BREAK THE BANK APRIL 22 HACKING HEADLINES – THE LATEST ATTACKS IN THE IT INDUSTRY AND THEIR APPLICATION TO BANKS APRIL 22

COLLECTING & THE CFPB APRIL 23 LINKEDIN VALUE STRATEGIES APRIL 22 REVIEWING RESIDENTIAL APPRAISALS APRIL 27 BANK CAPITAL PLANNING WEBINAR SERIES & MODEL APRIL 28 IRA CONTRIBUTIONS APRIL 29 GROUP POLICIES FOR SECURING YOUR MICROSOFT NETWORK APRIL 29 CATCHING THE EVIL INSIDER – BEST PRACTICES FOR PROTECTING YOUR CUSTOMER DATA APRIL 29

WEBINARS THE FIRST THREE CALLS ON A PROSPECT: PROVEN TECHNIQUES FOR BUILDING MOMENTUM MAY 4 USING CREDIT RISK RATINGS TO DETERMINE ASSET QUALITY MAY 4 EMPLOYMENT LAW UPDATE MAY 5 RECIPE FOR AN EFFECTIVE SALES ENVIRONMENT MAY 6 ROLLOVERS BETWEEN RETIREMENT PLANS AND IRAS MAY 6 BEGINNERS' GUIDE TO INFORMATION SECURITY MAY 6 WHAT HAPPENS TO BUSINESS DEVELOPMENT WHEN LOAN RATES GO UP? MAY 6 HANDLING CONFLICT IN THE WORKPLACE MAY 8 LOAN UNDERWRITING MISTAKES MAY 12 IS YOUR CYBERSECURITY RISK ASSESSMENT COMPLETE? BASICS STEPS OF RISK MANAGEMENT MAY 13 COLLATERAL EVALUATION IN C&I LENDING MAY 14 FOUR COMPONENTS OF A SOCIAL TECH STRATEGY MAY 14 IS IT TIME YOUR BANK CONSIDERS A SOCIAL SELLING STRATEGY? MAY 19 BECOMING A RESOURCE MANAGER MAY 19 LOAN ADMINISTRATION: A TO Z MAY 20 BUILDING AND SUSTAINING A BUSINESS MAY 20 BANKING PERFORMANCE CULTURE MAY 20 MANAGING DEPOSIT COSTS IN A RISING RATE ENVIRONMENT MAY 26

CALCULATING & MAINTAINING THE ALLOWANCE FOR LOAN AND LEASE LOSSES MAY 4

www.vabankers.org

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Insights Innovation and Disruption

A Bruce Whitehurst President and CEO, Virginia Bankers Association

t the recent American Bankers Association’s National Conference for Community Bankers, there were several great speakers who talked about ways to innovate in this rapidly changing world. One of these speakers, NYU professor and author Luke Williams, talked about disruptive forces and the important role they play in sparking innovation. Williams noted that it is much harder to innovate around existing processes than for a startup firm to do so. So, it’s important to add disruptive thinking to the process of seeking new ideas and new approaches for the future.

Williams suggested that companies should create a disruptive hypothesis by doing two important things: 1. Make an unreasonable provocation. (i.e. “That will never work!”).

2. Make yourself wrong about something in order to find the right solution.

He went on to suggest that to arrive at a disruptive hypothesis, we should be asking ourselves questions like: 1. What is the opposite of what we are doing today?

2. What do we believe would not work?

3. What do the answers to these two questions suggest about potential opportunities we have not considered in the past?

Throughout Williams’ and several other presentations, I found myself thinking about the 122-year old Virginia Bankers Association and about the strategic planning process we have underway this spring. I reflected on the fact that the VBA has been very successful throughout its existence, with strong support from our member banks that has allowed us to be an effective industry voice, business partner, resource provider and, yes, innovator.

Amidst a consolidating industry, the VBA has grown in depth and breadth, particularly over the past 20 years. We have been regarded as an innovator as we helped a large number of community banks enter new lines of business like insurance, title insurance and investment brokerage. We have grown the scope of our employee benefits programs substantially, with a very high market share among VBA member banks as the result. We have evolved and grown

our education and training programs to remain a core training provider to our member banks in these ever changing times. We have produced solid results at the Virginia General Assembly and have been actively engaged at the national level in partnership with our fellow state associations and the ABA. All of these accomplishments are meaningful and bankers and VBA staff members share pride in the value we bring to Virginia banking. A key question we are asking ourselves during the strategic planning process is how we ensure continued relevance and value at the VBA for our members as industry consolidation marches ahead. We will also challenge ourselves by asking questions like: • What if the VBA had not grown and innovated over the past two decades?

• What is the opposite of some of the great things we are doing today, in any given area?

• What ideas that we believe are wrong actually require more reflection to see if they teach us something we are currently missing?

• What does disruption look like for an organization like the VBA? On the last question, it occurs to me that our dialogue with the West Virginia Bankers Association last year about a possible affiliation would definitely fall into the disruptive category. Had we proceeded to affiliate, VA and WV would have been the first two state bankers associations in the country to do so across state lines (there have been a lot of in-state mergers of multiple industry groups, like the VBA – VA League of Savings Institutions merger in 1994).

Thinking about the dialogue we had with WVBA through this lens, it seems we were doing important work – no matter the outcome – as the VBA pushes to find ways to thrive and remain indispensable to our member banks.

I am very glad I attended this recent ABA conference, and I imagine the hundreds of bankers there might now be asking themselves a lot of the same questions as they reflect on the future of their banks.

The timing of this conference and our VBA strategic planning have coincided in a most positive way and I look forward to seeing what the future holds for the VBA and for Virginia banking.

Email Bruce Whitehurst at bwhitehurst@vabankers.org with any comments on this article.

6 Virginia Banking | March/April 2015

www.vabankers.org

Noting

Worth

HOUSE JOINT RESOLUTIONS HONOR TWO VIRGINIA BANKERS House Joint Resolution No. 701 celebrates the life of John Halligan Clements. John was the former chair of The Bank of Southside Virginia and was a recognized leader in the banking industry throughout his 48-year banking career. Clements was elected president of the Virginia Bankers Association in 1989 and served the American Bankers Association on the Community Bank Council and the Government Relations Committee. Clements’ life impacted many, and he will be fondly remembered and greatly missed by the Virginia banking community.

House Joint Resolution No. 832 commends Charles Majors, a respected businessman and community leader in Danville, who retired as president and CEO of American National Bank after more than two decades of service. Majors practiced corporate and commercial real estate law for 20 years and established a strong relationship with American National Bank as the bank’s counsel and a member of the board.

In 1993, Majors became the president and CEO of American National Bank. He served as chairman of the VBA from 20102011. He helped American National Bank expand its territory

by building or acquiring new branches in and around Danville, and during his tenure, the bank’s assets grew exponentially. After his well-earned retirement, Majors will continue to offer his wisdom and leadership as non-executive chair of American National Bank and chairman of the VBA Education Foundation, and he will seek new opportunities to enhance the community through his involvement in civic and service organizations. The VBA thanks Charley for his years of service!

IN MEMORY OF GARY ENGLISH Gary Richard English, 74, of Lovettsville, VA, passed away on Monday, February 2, 2015. He was in the banking business for 53 years and served as president of Independent Bank of Manassas from 1977-1995. He was an active Virginia Bankers Association member throughout his career, in addition to being a member of the Rotary Club of Manassas and the Manassas Historical Society. Gary will be missed in the banking community, and our thoughts are with his family at this time.

VBA KEY CONTACT BANKER PROGRAM You are a vital asset to the Virginia banking industry. VBA Key Contact Bankers work with the VBA to serve as connections with elected officials by maintaining or developing strong relationships with state or federal legislators.

If you have a willingness to call upon elected officials on behalf of the banking industry, whether or not you have an existing relationship with a legislator, we hope you will become a VBA Key Contact Banker.

• • • • •

As a VBA Key Contact Banker, the VBA will provide you with contact information for a legislator or legislators in your area.

VBA Key Contact Bankers are encouraged to attend local VBA legislative meetings or participate in VBA legislative events in Richmond or Washington when appropriate.

VBA Key Contact Bankers are encouraged to invite their assigned legislators to visit their bank facilities and meet with the board and other employees to discuss local economic development and banking issues.

VBA Key Contact Bankers are encouraged to introduce their assigned legislators to other bankers, within or outside your organization, to reinforce and broaden our industry impact.

VBA Key Contact Bankers are encouraged to maintain their relationships with their assigned legislators through periodic communication, including personal interactions, related to industry’s legislative priorities.

Want to become a VBA Key Contact Banker? Visit us online at www.vabankers.org or contact Bobbi Weimer at bweimer@vabankers.org.

March/April 2015 | Virginia Banking 7

Legislative

Update

New Virginia Laws

I

n the 2015 General Assembly’s “short” 45day session, several measures were debated impacting the banking industry. While some were advanced on behalf of the VBA, there were a number of measures initiated from other sources

SATISFACTION OF JUDGMENTS We sought clarification to when a judgment payment needed to be docketed with the court clerk. To clarify that partial payments do not require docketing, Sen. Benton Chafin carried a bill to

An issue that generated several bills in past sessions, there was only one negative foreclosure bill in the 2015 session.

Matt Bruning Vice President, Government Relations, Virginia Bankers Association

on which the VBA engaged. The descriptions that follow are a snapshot of those bills; a more comprehensive overview of the new laws of the commonwealth related to banking will be available in the VBA’s General Counsel Report in advance of the July 1 implementation date.

RECORDATION OF MODIFIED LOANS Ambiguity in the law was causing local court clerks to offer divergent calculations of the recordation tax on loans that were modified to increase the amount secured. Some clerks were assessing the tax on the increased amount as well as the amount paid down on the original obligation.

Legislation advanced by the VBA sponsored by Delegates Bill DeSteph and Randy Minchew and Sen. Richard Stuart clarified that the tax should only be assessed on the amount of the increase over the original debt amount. Working with the clerks and the Virginia Bar Association, the final version that passed unanimously eliminates the potential for double taxation and clarifies the rate at which the tax is assessed.

ATM APPROVAL Credit unions initiated a bill to remove the Bureau of Financial Institutions’ review on locating an ATM. With the credit unions’ and the bureau’s approval, the VBA amended the legislation to make it applicable to banks, as well, thus removing that approval process for locating a bank ATM. Delegate Kathy Byron and Sen. John Cosgrove sponsored those bills.

8 Virginia Banking | March/April 2015

limit docketing to when the judgment is satisfied.

Delegates Manoli Loupassi and Jay Leftwich carried bills that also incorporated that needed clarification.

SMALL ESTATES The VBA supported two bills in the small estates area. The first, by Delegate Randy Minchew, authorizes the designated successor in a small estate to endorse and negotiate a check made out to the estate of the decedent. The other bill, from Delegate Barry Knight, sets up a process for the use of a certificate of qualification for a fiduciary in a small estate valued under $25,000. Liability protections for banks relying on these certificates were incorporated at the request of the VBA. FORECLOSURES An issue that generated several bills in past sessions, there was only one negative foreclosure bill in the 2015 session. Introduced by Delegate Delores McQuinn, it would have required the recordation of each assignment of a mortgage note, extended the notice period prior to taking foreclosure action and created a civil cause of action on a fraudulent foreclosure. This was identical to a bill that was defeated three sessions ago. After explaining the numerous changes at the federal level to mortgage servicing regulations, the delegate agreed to not have her bill advance.

PRIZE-LINKED ACCOUNTS Another bill generated by the credit unions authorized financial institutions to offer “prizedwww.vabankers.org

Welcome

New Associate Members

CREDIT AND LENDING RESOURCES, MORTGAGE AND REAL ESTATE SERVICES

Equifax 838 Granby St. Norfolk,VA 23510 Phone: (757) 455-9387 Website: http://retailalliance.com linked accounts.” These are savings accounts where the holder is eligible for a raffle or contest as an enticement to open an account. Until last December, banks were prohibited under federal law from offering these accounts, but Congress passed legislation to lift that prohibition subject to state law. With this change, all financial institutions are permitted to offer these accounts. Delegate Greg Habeeb and Sen. John Cosgrove sponsored these bills.

MEDICAID ASSET VERIFICATION The Department of Medical Assistance Services is required under federal law to implement an electronic asset verification system in determining eligibility for Medicaid recipients. The initial draft from the department and its vendor sought to require banks to participate in its data match system, which was not a federal requirement. The VBA voiced opposition to the mandate, citing privacy, cost and compliance concerns as well as the additional burden. Due to that feedback, the bill, patroned by Delegate Mark Sickles, was changed to be voluntary for banks, added requested liability protections and addressed other concerns.

During the session, the VBA supported, opposed and offered amendments and monitored dozens of legislative initiatives. These were some of the more salient measures, but if you have any questions about legislation from the 2015 General Assembly session, please do not hesitate to contact your VBA Government Relations team.

Email Matt Bruning at mbruning@ vabankers.org with any comments on this article. Please note that some bills might be subject to change by the governor by the end of March, after press time. www.vabankers.org

CONTACT: CATHERINE HOLDEN Email: cholden@retailalliance.com Equifax, the premier credit bureau in the nation, is far more than data. They provide comprehensive solutions for consumer lending, mortgage services, commercial credit and employment verification. As an exclusive sales agent for Equifax, RABS services banks throughout Virginia as the only direct source for Equifax credit service in Virginia.

EMPLOYEE BENEFITS, INSURANCE

The Todd Organization 3440 Preston Ridge Road, Suite 325 Alpharetta, GA 30005 Phone: (678) 624-7015 Website: toddorg.com CONTACT: GIL HARVARD Email: harvardg@toddorg.com The Todd Organization has been a pioneer and leader in the executive benefits field since 1957. They provide a full range of non-qualified plan services including compensation consulting, non-qualified plan design, financing and plan administrative services. If you are contemplating a purchase of bank-owned life insurance, they can help you review your financing alternatives.

INVESTMENT BANKING

Ortus IP 4870 Sadler Road, Suite 300 Glen Allen,VA 23060 Phone: (804) 205-5196 Website: www.ortusip.com CONTACT: DANIEL CARDANI Email: dcardani@ortusip.com Powerful computing, exponential growth in advanced data analytics and cutting-edge statistical algorithms are transforming the intellectual property marketplace. An esoteric field dominated by multinational corporations is evolving into an efficient

exchange of patents – regardless of corporate size. OrtusIP is engaged in this transformation, bringing a capital markets approach to a multi-trillion dollar IP market opportunity. They utilize a fully integrated capital markets platform comprised of investment banking, trading, sales, and research. They combine this with the highest quality IP solutions software. Each member of the executive team has 20-plus years of experience in capital markets.

IT CONSULTING AND SERVICES

TBL Networks 1801 Bayberry Court Richmond,VA 23226 Phone: (804) 822-3640 Fax: (804) 822-3670 Website: www.theblinkylight.com CONTACT: CAMERON CORBIN Email: ccorbin@tblnetworks.com TBL Networks provides their clients a wide range of advanced technology solutions and service offerings with a focus on unified communications, virtualization, storage and disaster recovery. Located in Richmond, TBL Networks is a Cisco Certified Gold Partner, Cisco Master Collaboration Specialized and a Cisco Cloud and Managed Services Master Partner. TBL is also a certified VMware Enterprise Solutions Provider, EMC Premier Velocity Partner and a VCE Qualified Partner.

MORTGAGE AND REAL ESTATE SERVICES

The Counts Realty and Auction Co. Inc. 828 Main St., 15th Floor Lynchburg,VA 24504 Phone: (434) 525-2991 Website: www.countsauction.com CONTACT:WILLIAM BRYANT, III Email: bill@countsauction.com For over 50 years, The Counts Realty and Auction Group’s successful auction results have far exceeded the industry standard, and they have been consistently ranked as one of the top 15 auctioneers in the nation.

If you are considering selling your property, call Counts and have a representative explain the Counts auction advantage.

March/April 2015 | Virginia Banking 9

Line

Legal

Directors’ Fiduciary Duties and the FDIC

W

Mel Tull General Counsel, Virginia Bankers Association

hen acting as a receiver for failed financial institutions, the Federal Deposit Insurance Corporation (FDIC) sometimes sues former directors, officers and other professionals of seized banks. Frequently, the FDIC’s claims against former directors and officers are based in negligence, gross negligence, breach of fiduciary duty and breach of contract. To protect themselves from personal liability, Virginia bank directors and officers must understand their fiduciary duties under Virginia’s statutory standard of conduct and the application of that standard to the decisions they make every day.

OVERVIEW OF VIRGINIA BANK DIRECTORS’ FIDUCIARY DUTIES Virginia codified the standard of conduct for directors in Section 13.1-690 of the Virginia Stock Corporation Act, which provides that directors must discharge their duties as directors in accordance with their good faith business judgment of the best interests of the corporation. Directors are permitted to rely on information, opinions, reports or statements of other officers or employees, professional consultants and committees of the board of directors, as long as the directors do not have knowledge or information concerning the matter in question that would make reliance on such individuals unwarranted and the directors believe the information is competent and reliable. Section 13.1-690 provides that “a director is not liable for any action taken as a director, or any failure to take any action, if he performed the duties of his office in compliance with this section.”

Importantly, the Virginia legislature intentionally excluded a reasonableness qualifier from the standard of conduct in Section 13.1-690 making the standard subjective rather than objective. Accordingly, courts have held that a Virginia director’s discharge of duties is not measured by what a reasonable person would do in similar circumstances or by the rationality of the ultimate decision. Instead, a director must act in accordance with his/her good faith business judgment of what is in the best interests of the corporation. Courts have further determined that the Virginia statutory standard of conduct is process-oriented. Good faith is measured by the directors’ resort to an informed decision-making process, not by the rationality of the decision ultimately taken.

The Virginia statutory standard of conduct does not repeal or replace the common law business judg-

10 Virginia Banking | March/April 2015

ment rule, which provides a presumption that when directors act, they do so on an informed basis and in the honest belief that they are acting in the corporation’s best interest. This presumption requires that the person alleging a director’s violation of the required standard of conduct has the burden of proving the violation.

FDIC V. WILLETTS: A CASE STUDY OF THE BUSINESS JUDGMENT RULE The business judgment rule was recently challenged in a lawsuit by the FDIC acting as receiver for Cooperative Bank (Cooperative), a North Carolina community bank, against nine former directors and officers of the failed financial institution. See FDIC as Receiver for Cooperative Bank v. Willetts, Case No. 7:11-cv-00165-BO (E.D. N.C. 2014).

To remain competitive with regional and national banks, Cooperative had pursued a plan to grow its business to $1 billion with a focus on commercial real estate and acquisition, development, and construction lending. For a few years, Cooperative’s strategic plan was successful. The local economy was booming, and the bank’s loan portfolio grew.

Throughout this period, Cooperative received high marks from its regulators at the FDIC and the North Carolina Commissioner of Banks. In 2008, Cooperative, as well as many other banks in the region, started to experience significant losses as a result of the recession. Cooperative previously routinely rated a composite CAMELS “2,” but in the FDIC’s 2008 examination report, Cooperative suddenly received a composite CAMELS “5” rating. Cooperative’s officers and directors, whom the FDIC routinely rated “2,” were suddenly rated “5.”

Cooperative closed on June 19, 2009, and the FDIC stepped in as receiver. Seeking approximately $35 million in damages, the FDIC sued the former directors and officers of Cooperative under claims of negligence, gross negligence, and breach of fiduciary duty with respect to 87 loans. The FDIC alleged that the former directors and officers did not follow prudent lending practices and ignored regulatory criticisms and warnings when they approved risky loans. The challenged loans eventually resulted in $40 million in losses to Cooperative.

On Sept. 11, 2014, the Court sided with the defendants, ruling that the FDIC’s claims against the former directors and officers for negligence, gross negligence and breach of fiduciary duty failed as www.vabankers.org

a matter of law under the business judgment rule. The Court strongly supported Cooperative’s former directors and officers finding that where the defendants did “not display a conscious indifference to risks and where there is no evidence to suggest that they did not have an honest belief that their decisions were made in the company’s best interests, then the business judgment rule applies even if those judgments ultimately turned out to be poor.”

THE IMPORTANCE OF FDIC V. WILLETTS FOR VIRGINIA BANK DIRECTORS Though FDIC v. Willetts was analyzed under North Carolina law, it carries significance for Virginia bank directors. The case has been appealed to the United States Court of Appeals for the Fourth Circuit, which encompasses Virginia.

The Virginia Bankers Association, along with the American Bankers Association and other state bankers associations, filed an amicus brief in the appeal supporting the lower court’s decision that the business judgment rule applies to protect bank directors’ decisions in these types of cases.

The Fourth Circuit has long upheld the business judgment rule, but Virginia’s banking industry must continue to advocate for the rule’s protections. A less protective rule would result in fewer qualified and talented individuals accepting bank directorships, increased unwarranted litigation and related bank expenses, a reduction in available credit and decreased investor returns as directors shy away from risky opportunities and a pervasive undermining of the long standing corporate principle that protects directors as they make informed and innovative business decisions.

For more information about bank directors’ fiduciary duties, please contact me.

This article has been prepared for informational purposes only and is not legal advice and does not create an attorney-client relationship.

For more information, contact Mel Tull, VBA General Counsel, at mtull@

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March/April 2015 | Virginia Banking 11

The VBA Leadership Division represented one fourth of the Banker Day attendees!

Virginia Bankers Leave their Mark at

Banker Day 2015

N

early 300 bankers from across the state represented Virginia banks and bankers at the General Assembly at the VBA’s 15th annual Banker Day event in January. Led by VBA Chairman Johnny Milleson and VBA Government Relations Committee Chairman Ron Haley, the event kicked off at the Greater Richmond Convention Center with remarks from Sen. Jill Vogel. Bankers then departed for the General Assembly building, where they spent the morning discussing key industry issues with their state legislators. This year’s topics of importance included the recordation tax treatment of loan modifications, clarification of payment due dates and issues dealing with the docketing of judgments.

After a busy morning, the bankers reported back to

12 Virginia Banking | March/April 2015

the convention center for a luncheon featuring Dr. Bob Holsworth, who discussed the state and national political landscape.

The VBA would like to thank everyone who participated in this year’s Banker Day. Your advocacy is critical to the VBA's lobbying efforts and our success, and the significant banker presence on Jan. 15 was noticed by legislators and lobbyists alike.

Thank you also to the Leadership Division members who attended the Pre-Banker Day Reception at the Liberty Bar. More than 40 people attended the event, which provided great networking opportunities for Banker Day participants.

Save the date for Banker Day 2016 on Thursday, Jan. 14!

www.vabankers.org

VBA Chairman Johnny Milleson, with fellow Bank of Clarke County bankers Scott Moore, Jim McCarty and Paul Yeloushan, caught up with Senator Jill Vogel, who kicked off the event.

C&F Bank attendees with Delegate Manoli Loupassi.

Bankers from The Bank of Southside Virginia with Sen. Rosalyn Dance after their meeting.

www.vabankers.org

Continued on page 14

March/April 2015 | Virginia Banking 13

Banker Day 2015 Continued from page 13

Chesapeake Bank bankers with Delegate Keith Hodges.

VBA Leadership Division members dined at Coda Urban Bistro after the Pre-Banker Day Leadership Division Reception.

Sen. Jill Vogel addresses the group of nearly 300.

14 Virginia Banking | March/April 2015

Bankers from Bank of America with Senator Kenny Alexander.

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COMPLIANCE EDUCATION INSTITUTE | WWW.COMPLIANCE-EDU.COM | 732.324.4531 The Institute of Certified Bankers (ICB), a subsidiary of The American Bankers Association, is dedicated to promoting the highest standards of performance and ethics within the financial services industry. Certified Regulatory Vendor Program Manager (CRVPM) has been approved for 7.25 CRCM credits. This statement should not be viewed as an endorsement of this program or its sponsor.

Prepping

for Change

Succession Planning: Is Your Organization Prepared?

L

By Dana Muth, MSODA, S.R. Snodgrass, P.C.

et’s face it, we all want good exams. While they can be thorns in our sides, we all know that examiners have a job to do, and we do our best to keep them on our good sides.

Seasoned bankers know that examiners have their hot buttons each year. In our travels, we sometimes see the same finding from bank to bank, depending on the year. Whether it’s Bank Secrecy Act, GLBA or asset-liability management, bankers do their best to anticipate what’s coming down the road, often through the fraternal bankers’ grapevine.

This year is no different, and one of the hot buttons is something we all think

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16 Virginia Banking | March/April 2015

about but hesitate to formalize: succession planning. This is a common finding in state exams this year: “Management has not developed a formal succession plan to address the key management positions in the event of a sudden vacancy. It is acknowledged that the Strategic Plan does highlight succession planning as one of the goals for 2014; however, management has not yet begun to formalize a plan. The succession plan should address each position and the necessary steps and requirements to fill those position duties on a short and longterm basis.”

Now, I know what you’re thinking.

Isn’t this just another “form over substance” type of finding that bankers get hit with each year? Why is there a need to formalize a succession plan? We all know who is next in line, right?

Too often we only think of succession planning in terms of who will take over for the CEO. But as we all know, many key positions could leave the bank vulnerable if someone were to move along.

IT professionals are a classic example because they often have marketable skills that are sought outside of banking. What do you do if your top IT person resigns?

Do you react, or are you prepared? What happens if the entire IT staff goes? It’s happened.

So instead of putting it off, let’s look at succession planning as an opportunity to build a stronger financial institution. A formalized succession plan will help ascertain performance and technical skills, as well as leadership potential. What is leadership potential? It’s a mixture of technical skills and cognitive abilities, coupled with emotional intelligence, or the “it-factor,” as some like to call it.

Some have “it” and others don’t.

Continued on page 17 www.vabankers.org

Our Future

Investing in

Teach Children to Save Day Is April 24 Join thousands of fellow bankers across the country in Teach Children to Save Day (TCTSD) 2015 activities. Bankers can participate in TCTSD on Friday, April 24, or any time throughout the year as part of this industry-wide initiative to educate young people about the importance of saving.

Specifically, you can take part in TCTSD 2015 by: • Talking to young students about safe and unsafe saving spots, and why a bank is a safe place to keep money.

• Encouraging elementary students to develop smart saving habits now so they can enjoy the rewards of their savings later.

• Providing teens and young adults with training and resources to develop smart financial know-how that will set them up for success during and after school.

Register today on the American Bankers Association website, www.aba.com. What better time is there to encourage financial literacy in your community?

Contact Chandler Owdom at cowdom@vabankers.org with questions, and please be sure to share your TCTSD plans with us so that we can share your work throughout the state.

Gateway Bank & Trust participated at Greensville Elementary School last year.

Succession Planning Continued from page 16 Traditionally, bankers who move up the food chain and emerge to executive leadership roles have the technical skills and ability to meet performance objectives.

Just look around your organization. Many of the executive leaders were previously great producers, right? Many probably came from the commercial line of business and know credit better than anyone around. They manage risk, credit quality, and net interest margins better than anyone. Do those technical skills equate to the leadership competence needed to navigate, lead, and execute the bank’s strategy in today’s complex environment? Not necessarily. Imagine, however, if those technical skills and performance abilities were coupled with leadership competence and a high degree of emotional intelligence.

If you really want to execute the strategic plan that you’ve heavily invested in already, you’ll need a formalized, wellconstructed succession plan to help you www.vabankers.org

identify those qualities in your next generation of leadership. Moreover, a detailed plan will help you objectively recognize successors and their readiness to take on the identified role. It will help you objectively look inside as well as outside the organization. And it will address competency gaps through development plans so that your leaders are ready when you need them to be.

An effective, formalized succession planning process will conquer this very issue by creating a solid development plan for your identified high-potential successors. Moreover, a formalized process can help you identify the dead weight.

It’s often surprising to me how many disaster recovery issues are uncovered the first time a bank performs tabletop testing.

What might appear to be a perfunctory exercise can instead become an eye-opening, helpful experience when deftly facilitated.

This exercise is not unlike good succes-

sion planning. The results can sometimes be startling, and can even help retain the good people you want to keep.

When engaging in succession planning, you should involve managers in all parts of the organization so they can continually identify gaps in talent and focus on developing the talent into high performers. This will ensure that people with the best skills are moving into the right jobs at the necessary times.

It’s often difficult for managers to see themselves the way their subordinates see them. Are managers sending the message to the high-performing subordinates that they are regarded in the organization? A formalized succession plan helps managers communicate that message.

Good succession planning is not a onetime shot; it’s an ongoing process that should be revisited from time to time. The best time to start is before the examiners make your bank’s next finding.

March/April 2015 | Virginia Banking 17

Update

Washington

Saluting America’s Hometown Bankers

W Frank Keating President and CEO, American Bankers Association

hen we asked five bankers from five states across the country to come to Dallas last November for a film shoot, we didn’t know what to expect. The bankers were invited to Dallas – a central location – to join members of a film crew and a cast of extras to produce a series of three television ads spotlighting “America’s Hometown Bankers.”

Filming television ads means long days of multiple takes at multiple locations. The weather – for outdoor segments – is another variable. For our banker-spokespersons, it was unseasonably cold during the two days of filming.

Yet through it all, our “talent” was patient, positive and proud to help promote the industry’s image. Representing Colorado, New Mexico, Oklahoma, South Dakota and Virginia, they showcased the ways bankers help their customers achieve their dreams, from buying a first home to growing a small business.

They spoke from their hearts about the values they share as bankers with their customers and communities every day. This aspect was not lost on members of Union Bank & Trust President and CEO Billy Beale and Virginia Bankers Association President and CEO Bruce Whitehurst were the production company, who were among the American bankers featured in the ABA commercials. amazed at the bankers’ naturalness that underscored the strength of their convictions and credibility.

Our ads also highlight bank technology that ca’s Hometown Bankers,” “First Home” and makes customers’ lives more convenient and “Small Business Dreams” – tell your story. secure, from 24-hour fraud monitoring to moHow banking is “more than a job.” How it’s bile check deposits. These are messages that “a people business.” How you want to help a we know from research will resonate with concustomer “realize your dreams.” sumers.

You can watch the ads on aba.com.

We unveiled our new ad campaign during The ads’ tagline is, “We’re America’s homeSunday morning talk shows on ABC, CBS, town bankers, and we’re here to help you realCNN, Fox and NBC – and on business and ize your dreams.” It’s a message made more policy programs – in December and January. powerful because our bankers believe it when The ad campaign’s three spots – “Amerithey say it. I’m sure you do as well.

18 Virginia Banking | March/April 2015

www.vabankers.org

2015 Joint Annual Convention: Virginia & West Virginia Bankers Associations June 21-24 - The Homestead - Hot Springs, VA Featuring Speakers...

Tucker Carlson

Tucker Carlson is a veteran journalist and political commentator. He is the co-host of Fox and Friends Weekend and the editor-inchief of TheDailyCaller.com, one of the largest and fastest growing news sites in the country.

Carlson joined Fox from MSNBC, where he hosted several nightly programs. Previously, he was the co-host of Crossfire on CNN.

Lee Wetherington, AAP

Lee Wetherington, AAP, is Director of Strategic Insight for Jack Henry & Associates®. Lee directs the development of actionable insight and strategy for the financial services industry at large. To this end, he creates programs, presentations, and articles designed to orient and educate financial executives on the trends and implications of new technologie

Senator Joe Manchin (Invited)

U.S. Senator Joe Manchin was sworn into the United States Senate on November 15, 2010.

Manchin served as Governor of West Virginia for six years beginning in January 2005, was Secretary of State from 2000 to 2004, and was a state legislator from 1982 to 1996. Senator Manchin currently serves on the Energy and Natural Resources Committee, Armed Services, Committee on Commerce, Science and Transportation, and the Committee on Veterans’ Affairs.

Senator Mark Warner (Invited)

Mark Warner was elected to the U.S. Senate in November 2008, and serves on the Senate Finance, Banking, Budget, and Intelligence committees. From 2002 to 2006, Senator Warner served as Governor of Virginia, and before entering public office, he was an early investor in the cellular telephone business.

Jeff Plagge

Jeff L. Plagge is the President & CEO of Northwest Financial Corporation in Arnolds Park, Iowa. He is the Immediate Past Chairman of the American Bankers Association (ABA) and is also the Chairman of the ABA Nominating Committee.

Billy Beale

G. William “Billy” Beale is the President & CEO of Union Bankshares Corporation, the holding company for Union Bank & Trust. The company is headquartered in Richmond, Virginia. A past VBA Chairman, Billy is also Treasurer of the American Bankers Association (ABA).

Dan Blanton

R. Dan Blanton is the Chief Executive Officer of Georgia Bank & Trust in Augusta, Georgia.

He is also the Chairman-Elect of the American Bankers Association (ABA).

New This Year: Exhibit Hall & Prize Drawings!

The Exhibit Hall will be open on Monday, June 22 and Tuesday, June 23. Each day, browse through the exhibits of all our wonderful vendors while sipping on your morning coffee. There will be a prize drawing at 8:15 am both days before the business sessions begin. You must be present to win. The Exhibit Hall is located in the Grand Ballroom. The Exhibit Hall will be open until noon each day. There will be a reception and game night on Monday night in the Exhibit Hall as well!

For more information, visit us online at www.vabankers.org or www.wvbankers.org.

Compliance

Corner

Buried in Regulatory Change? Dig Out with a Compliance Management Program!

By David Smith, CRCM, CAMS, Director, Accume Partners

S

ignificant regulatory changes have added new requirements for financial institutions, resulting in the need for additional staff resources to monitor, interpret, disseminate and implement regulatory rulemakings. It is imperative that financial institutions have an effective compliance management program in place to successfully implement the unprecedented regulation revisions, new laws and demands stemming from new legislation.

If you are overwhelmed and not sure where to start with your compliance program, you should begin with a compliance risk assessment. A compliance risk assessment will allow for a risk-based program where you can allocate resources to the compliance function commensurate with the level and complexity of your institution’s operations. You can then begin to build your policies and procedures starting with the high risk areas first. Selfmonitoring or testing should be conducted to ensure your policies and procedures are effectively implemented. Any deficiencies noted should be addressed in additional training for staff members.

The most challenging aspect of building an effective compliance management program is having sufficient resources to appropriately carry out the program. Aside from resource issues, it is also sometimes challenging to ensure consumer protection laws are taken into account across all business lines for changes to products, services, policies, procedures and, of course, advertising. Another struggle is ensuring regulatory changes that have been identified are implemented effectively on the departmental level. It is one thing to identify the change, but it is another thing to see the change disseminated and implemented with the required policy or procedures and training.

The need for bankers to stay on top of compliance rules increases with each new rule and regulation. An effective compliance program will alleviate the stress of change by including: board and management oversight,

20 Virginia Banking | March/April 2015

internal controls (policies, procedures, processes and training) and self-testing and audit reviews. Senior management must track, monitor and implement regulatory changes, although the board is ultimately responsible for compliance risk. Banks should have a comprehensive set of policies and procedures for each new regulation impacting them. Employees must receive sufficient training based on their job functions, which should emphasize new bank practices. Management should perform sufficient self-testing to verify new laws and regulations are implemented. These components of an effective program serve to mitigate compliance and reputation risk by providing a strong framework to ensure new regulatory requirements have been appropriately administered.

Not convinced that a compliance management program is needed to implement regulatory change? Take a look at the far-reaching changes that were enacted in 2014 and those that are expected to be enacted in 2015.

The change that had the most impact on financial institutions in 2014 was the overhaul of lending regulations (Mortgage Reform Rules) in January. These rules included: • Ability-to-Repay (ATR) and Qualified Mortgages (QM) • Homeownership and Equity Protection Act (HOEPA) and Homeownership Counseling Rules • Higher Priced Mortgage Loan Appraisal Rule • Equal Credit Opportunity Act Valuations Rule • Mortgage Servicing Rules • Loan Originator Compensation Rules As if that was not enough, the long-awaited (and controversial) Home Mortgage Disclosure Act (HMDA) proposal came out in July 2014. The Consumer Financial Protection Bureau (CFPB) is seeking to add several new categories for reporting by lenders and make changes in how the data is reported. The additional categories of data to be collected and www.vabankers.org

reported are extensive and will require financial institutions to revise current procedures and checklists and possibly add additional staff.

No one knows for sure what will take place this year, but we have a glimpse as to what might occur courtesy of the CFPB. The CFPB’s fall rulemaking agenda (they issue a rulemaking agenda in the spring and the fall) includes the finalizing of the HMDA proposal by July 2015. A final rule is also expected to update Regulation CC by June 2015. The agenda indicates that proposed rules on payday loans and deposit advances

are coming soon; a proposal on debt collection could come by April and a proposed rule on overdrafts by July.

One thing is for certain this year; historic change in the form of new mortgage disclosure forms is already set for Aug. 1. The CFPB’s final rule created new mortgage disclosure forms that eliminate the current good faith estimate, HUD-1 and Regulation Z early and final disclosures. The new rule creates two new mortgage disclosure forms that combine and streamline disclosure requirements under Regulation Z and the Real Estate Settlement Procedures Act.

Banks can stay abreast and prepare for regulatory reform through their compliance management program.

Regulators will expect management to be knowledgeable and have a strong process in place to implement new requirements. An effective program will do just that by monitoring the pronouncements of regulatory agencies, interpreting and highlighting new regulatory requirements as they apply to the bank, disseminating information on what may be expected in the future and what needs to be done to stay compliant and implementing appropriate changes.

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Consulting Services Implemented by Experienced Lenders and Risk Managers: LOAN REVIEW PROGRAMS • General Loan Review • Portfolio Acquisition Review (Due Diligence) • Specialty/Structured Finance Review

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CEIS REVIEW CONSULTING • Credit Risk Process Review • Loan Policy Maintenance • Loan and Credit Seminars

888-967-7380 • www.ceisreview.com www.vabankers.org

March/April 2015 | Virginia Banking 21

Move

Bankers on the

Bonaccorsy

Dailey

Hilali

Hill

Holmes

Bank of America

Cardinal Bank

Daniel O’Flaherty, Assistant Vice President of Employee Development

Linda Greenan, Vice President and Client Relations Officer Darren T. Tully, Vice President, Commercial Lending Officer

Burke & Herbert Bank Joseph Bonaccorsy, Vice President & Consumer Collections Manager MaryBeth Dailey, Vice President & Relationship Development Officer,Trust Services Fatima Hilali, Assistant Manager, Burke Town Centre Branch John W. Hill, Vice President & Relationship Manager, Commercial Lending Group Craig J. Holmes, Vice President & Relationship Manager, Commercial Lending Group Afshan Zaheer, Assistant Manager, Reid’s Prospect Branch

Zaheer

Carter Bank & Trust

Greenan

Tully

Sam Poole, Vice President and Greater Williamsburg Retail Regional Manager

First Community Bank R. Ramsey Martin Jr., East Virginia Regional President

Jane Ann Davis, Executive Vice President, Accounting, Branch Operations, Investments and Personnel Phyllis Karavatakis, Executive Vice President, Loans and Regulatory Compliance Bradford Kendrick, Executive Vice President, Bank Operations and Information Technology

Monarch Bank

Chesapeake Bank

Phillip Avant, President of Central Virginia Market

Catherine “Kate” J. Root, Vice President and Managing Director

Lacey Edward Putney Jr., Senior Vice President, Commercial Real Estate Finance Group C. Benjamin Vanderberry, Executive Vice President, Monarch Bank Private Wealth

SunTrust Bank

Get Introduced To Your Best Prospects.

And start building stronger business relationships today!

The official magazine of the Virginia Bankers Association, Virginia Banking reaches approximately 11,700 banking industry professionals in 130 banks throughout the state. Financial leaders in Virginia rely on this bi-monthly magazine to gather information and move their businesses forward.

You can connect with the leaders of the banking community, increase your market share and grow your business.

Visibility and repetition within your sales and marketing efforts to this powerful audience will establish the path to better relationships within this vital market. This is your direct route to get your message in front of successful C-level financial executives.

To learn more about Virginia Banking Magazine or to customize a marketing program unique to your business needs, call 800-356-8805 ext. 307 or email advertising@thewarrengroup.com.

The Official Publication of the 22 Virginia Banking | March/April 2015

www.vabankers.org

Virginia Bankers:

Make sure your bank is included in this year’s Community Investment Survey

Please make sure that your bank participates in the VBA’s 7th annual Community Investment Survey, designed to help legislators, the news media, bank employees, and the public at large understand the vital role our industry plays in Virginia’s economy.

Your participation in this survey is an excellent opportunity for your bank to be highlighted for your community service efforts.

The data gathered will be presented in a brochure that will be distributed to the following: • State and federal representatives at legislative meetings • Media outlets across Virginia • Followers on the VBA’s Facebook page • Virginia Banking magazine readers • VBA Executive Brief subscribers All participating banks will be listed on the survey report.

For more information on how to participate in this survey, please contact Chandler Owdom at cowdom@vabankers.org or 804-819-4707.

If you would like to order a copy of the completed Community Investment Brochure, please email Chandler Owdom.

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