Virginia Banking May/June 2015 by The Warren Group

May/June 2015

VBA Bank Day SCHOLARSHIP PROGRAM

IN THIS ISSUE

VIRGINIA BANKERS GO TO WASHINGTON | STUDENTS PARTICIPATE IN TEACH CHILDREN TO SAVE DAY

Truth is...

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May/June 2015

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 Bank & Trust 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 Shannon Wagner at swagner@vabankers.org.

Bruce T. Whitehurst President and CEO Virginia Bankers Association

Shannon Wagner Communications Coordinator Virginia Bankers Association

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12 Bank Day 2015

cover features

Nearly 100 Virginia Bankers Defend the Banking Industry at the VBA/ABA Government Relations Summit

More than 11,800 Students across the State Receive Financial Education Through Teach Children to Save Day

in every issue 4 Calendar of Events 6 Insights 6 New Endorsed Vendors 7 Worth Noting 8 Legislative Update 10 Legal Line 11 New Associate Members 18 Washington Update 20 Compliance Corner 22 Bankers on the Move

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

Calendar of

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

INSTRUCTOR-LED SEMINARS

WEBINARS

2015 ANNUAL CONVENTION – HOT SPRINGS JUNE 21, 2015

SAFE DEPOSIT POLICIES & PROCEDURES, PART 1 JUNE 4, 2015

VBA SCHOOL OF BANK MANAGEMENT – CHARLOTTESVILLE JULY 26, 2015

OPENING DEPOSIT ACCOUNT FOR NONRESIDENT ALIENS JUNE 8, 2015

CFO CONFERENCE – RICHMOND AUG. 24, 2015

ESCROW RULES REVIEW & UPDATE JUNE 9, 2015

CREDIT MANAGEMENT CONFERENCE – CHARLOTTESVILLE OCT. 5, 2015

SAFE DEPOSIT LEGAL DOCUMENTS & ISSUES, PART 2 JUNE 11, 2015

COMMERCIAL LENDING SCHOOL – GLEN ALLEN OCT. 21, 2015

THE TOP 10 MISTAKES IN ANALYZING BUSINESS FINANCIAL SITUTATIONS JUNE 15, 2015

ENTERPRISE RISK MANAGEMENT WORKSHOP – GLEN ALLEN OCT. 27, 2015 WOMEN IN BANKING SEMINAR – RICHMOND NOV. 16, 2015

SAFE DEPOSIT DISASTER RECOVERING, PART 9 JUNE 19, 2015

FINANCIAL FORECAST - RICHMOND JAN. 8, 2016

4 Virginia Banking | May/June 2015

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Insights The Mainstay Main-stay: a person or thing that acts as a chief support or part (dictionary.com)

A Bruce Whitehurst President and CEO, Virginia Bankers Association

s we come together for the VBA’s 122nd annual convention this June, we complete a full and active year in support of Virginia banking. Reflecting on the past year reminds me of a simple, yet important fact: Since 1893, the Virginia Bankers Association has been a mainstay for our industry, providing the chief support and partnership captured in the above definition. Highlights of the past year in the life of the VBA reinforce this reality. We left the 121st annual convention with the expectation that the VBA and West Virginia Bankers Association would likely affiliate under a holding company structure, an idea that made sense in light of the expected long-term trend of industry consolidation. While the affiliation did not occur as contemplated, the fact that the discussion took place reveals a key to the VBA’s long term success: a willingness on the part of Virginia bankers to see the VBA evolve, change and grow in order to best serve our member banks. The VBA board’s receptiveness to this dialogue acknowledged the wisdom of pursuing new and different paths if they would strengthen the VBA as a valued mainstay of Virginia banking. Amidst action and accomplishments with our ongoing VBA priorities – advocacy, serving as the industry voice, providing comprehensive

education and training, employee benefit programs, products and services and financial literacy efforts – the VBA board and staff undertook a strategic planning process this spring that will culminate in a new VBA Strategic Plan to guide us for the next three years. While still under way, this year’s planning process is stretching us in new directions as we contemplate how banking will change and how the VBA can best respond to these changes and continue to be a strong supporter and partner for Virginia banking. Industry consolidation – technology – generational and societal changes – the competitive landscape – the regulatory environment – achieving legislative and regulatory imperatives – leveling the playing field – the economy – delivery channel changes and evolution – social media: these all represent both challenges and opportunities for banks and for the VBA. To me, they are also what make being a part of banking so interesting, as we are truly in a time of dynamic change. To be sure, leaders who came before us also faced many changes and challenges, and I know the mutual support and collaboration among and between banks and the VBA – for 122 years and counting – has made a big difference. Here’s to year 123 for the mainstay, and here’s to our members – banks and associates – for all you do in support of the VBA.

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

VBA MSI WELCOMES NEW ENDORSED VENDOR DECISION DYNAMICS INC.

The board of directors of VBA Management Services Inc. recently endorsed Decision Dynamics Inc. (DDI). DDI provides complete Electronic Lien and Title (ELT) solutions for Virginia banks through Premier eTitleLien®, a user-friendly, secure, web-based software service that ensures Virginia banks are compliant with the new Virginia DMV requirements. As of Oct. 1, the Virginia DMV is requiring all financial institutions that process 50 or more titles in a year to enroll in the ELT program, in order for Virginia lenders to have the 6 Virginia Banking | May/June 2015

capability to exchange lien and title information with the DMV. Through ELT, Virginia banks have the benefits of saving time, reducing paper, enhancing security and deterring fraud, while enhancing their daily vehicle titling processes. DDI has a wealth of experience in serving more than 3,200 lenders throughout the United States and serves as a strategic partner with three other state banking associations. For more information, visit www.etitlelien.com or contact Amanda Jensen at (803) 808-4922 or Rann Paynter at (804) 819-4708. www.vabankers.org

Noting

Worth

ROBERT L. BUZZO RETIRES FROM FIRST COMMUNITY BANK Robert L. Buzzo will retire from First Community Bank on May 31, after 42 years of service to the bank. Buzzo most recently served as president-emeritus of the bank, a member of the bank’s board of directors and vice president and secretary of First Community Bancshares Inc. He also served on the boards of the bank’s Insurance and Wealth Management subsidiaries. Buzzo will continue to serve on the bank’s board of directors post-retirement. A Bluefield native and graduate of Concord College, Buzzo joined The Flat Top National Bank of Bluefield (which later merged with First Community Bank) in 1973. Beginning his banking career as a teller, Buzzo progressed through the management ranks, becoming president and CEO of The Flat Top National Bank of Bluefield in 1994, president of First Community Bank in 2000 and his most recent role as president-emeritus in late 2013. Throughout his career, Buzzo was actively involved in community, civic, business and banking industry-related activities, holding leadership positions in numerous organizations. Buzzo is a past board member of the Virginia Bankers Association and the West Virginia Bankers Association, where he served as chairman in 2011-2012.

OCC APPOINTS SUSAN RALSTON TO MUTUAL SAVINGS ASSOCIATION ADVISORY COMMITTEE The Office of the Comptroller of the Currency (OCC) appointed five new members, including VBA Board Member and President and CEO of Bank @LANTEC Susan Ralston to its Mutual Savings Association Advisory Committee (MSAAC). The MSAAC’s responsibilities include assessing the condition of mutual savings associations, regulatory changes or other steps the OCC could take to ensure the health and vitality of mutual savings associations and other issues of concern to these depository institutions. Kudos to Susan on this recognition!

BANKERS MEET WITH CFPB DEPUTY DIRECTOR IN RICHMOND At the request of the Consumer Financial Protection Bureau, a group of Richmond area community bankers participated in a small roundtable discussion with CFPB Deputy Director Steve Antonakes and other senior staff on Thursday, March 26. The roundtable, done in advance of a Bureau field hearing in downtown Richmond, provided an opportunity for local bankers to discuss key regulatory issues directly with the CFPB and Virginia Commissioner Joe Face. Much of the discussion centered around pending CFPB-issued mortgage regulations, including the combined RESPA/TILA disclosure August implementation deadline, forthcoming HMDA field additions, the parameters of rural and small creditor exemptions under ATR/QM and the cumulative impact of the regulatory burden. Antonakes outlined the current rulemaking agenda, including efforts on pre-paid cards, debt collection, HMDA, payday lending and their efforts to collect data on overdraft practices. Thanks to Jane Stafford, EVB; Mike Arthur, Benchmark Community Bank; Tammy Hamilton, The Bank of Southside Virginia; Andy McLean, Middleburg Bank; JG Carter, Union Mortgage Group; Jeff Farrar, Union Bank & Trust; Robin Coates, New Horizon Bank; and Kathy Grasty, New Horizon Bank, for participating and ably representing Virginia banks' concerns to the CFPB.

WE WILL MISS …

John Wesley Lainhart III passed away on March 25. Jack was a WWII Army Veteran and a retired Army Major. He was the former president of The Fauquier Bank of Warrenton. He was also VBA president from 1984-1985. Our thoughts are with Jack’s family during this difficult time. May/June 2015 | Virginia Banking 7

Legislative

Update

Finish the Work

2 Matt Bruning Vice President, Government Relations, Virginia Bankers Association

015 marks the sesquicentennial of the end of America’s Civil War. Earlier this spring marked key moments of the war’s conclusion here in Virginia – President Lincoln’s walk through Richmond, the Battle of Sailor’s Creek and, ultimately, Confederate General Robert E. Lee’s surrender at Appomattox Court House to Union General Ulysses S. Grant. After four long years of waging combat, Lee and Grant saw the inevitability of the outcome. In their shared “desire to avoid useless effusion of blood,” they agreed to the terms of surrender in what history records as executed in a gracious and respectful manner on both the victor and vanquished sides. Just a month preceding Lee’s surrender, President Lincoln pointed towards reconciliation in his second inaugural address, intoning, “with malice toward none; with charity for all; with firmness in the right, as God gives us to see the right, let us strive on to finish the work we are in; to bind up the nation’s wounds.” Despite the proclivity for heightened rhetorical bombast and gratuitous partisanship, the divisiveness of today’s political and societal arguments pale in comparison to the war-torn fissure of 150 years past. Whether our nation’s current leaders can lay down their figurative arms and heed Lincoln’s exhortation to work towards a common cause remains to be seen. There is no doubt that the banking industry has been under attack in recent years from those in positions of governmental power. Nearly five years out from the passage of Dodd-Frank, gridlock in Washington has failed to deliver meaningful relief from the avalanche of regulatory burdens imposed on Virginia’s banks. Some proponents have treated the law – cobbled together hastily as Congress is wont to do in response to crisis – as sacrosanct, shielded from even common sense alteration. The 114th Congress provides a limited opportunity to finally ensure progress in addressing the overreach and misguided aspects of Dodd-Frank. With a House of

8 Virginia Banking | May/June 2015

Representatives that has a proven record of revisiting key aspects of the law combined with new leadership in the U.S. Senate that has indicated a similar desire, tangible results are possible. As with most issues in Washington, it is imperative that our efforts have strong bipartisan support to ensure success. While some will continue blindly accepting that every word in Dodd-Frank is etched in stone, comments from both sides of the aisle from our Virginia officials provide hope that this way of thinking will not prevail. In late March, dozens of Virginia bankers joined over 1,100 bankers from across the country in meeting with our federal elected officials (see page 16). During our time on the hill, we met with 11 of the 13 members of our Virginia delegation and a key staffer to one other. The discussion centered on specific regulatory relief measures pending before Congress, as well as the totality of the regulatory burden facing the banking industry. Efforts to broaden the Qualified Mortgage exception to loans held in portfolio, extending the examination cycle and better tailoring regulation in a targeted manner were brought to our representatives. Without exception, no matter the partisan affiliation, our Virginia members of Congress expressed an openness to revisit provisions that are stifling banks’ ability to serve their customers. Similarly, our bankers continued to educate members of Congress on other key issues, such as the impact and cost of data breaches and the anachronistic tax advantage held by credit unions. Many did not fully comprehend the responsibility banks shoulder when data breaches occur. Pressing for national security standards and breach notification requirements for retailers and others resonated when bankers explained the current lack of shared responsibility. Our continued drumbeat on the unequal treatment of credit unions is necessary to keep from further expansion of their scope and to be at the table should tax reform advance. www.vabankers.org

With a 360° perspective, you get the information you need to make the most critical decisions. Several bankers also had the opportunity to meet with CFPB Deputy Director Steve Antonakes and other key Bureau staff at a recent community bank roundtable in Richmond (see page 7). The bankers in attendance did an outstanding job of conveying the concerns on a range of regulatory topics including implementation of the combined RESPA/TILA disclosure, forthcoming HMDA reporting expansion and the cumulative impact of rulemaking on community financial institutions. As with our elected officials, we must take every opportunity to engage with our regulators and directly voice our concerns. Thank you to all those who took the time to engage with us in Washington for our visits or at the CFPB roundtable. We hope more of you set aside March 14-16, 2016 for next year’s Government Relations Summit. Unfortunately, with next year’s elections approaching, there is a narrow window to achieve real results on these critical issues. Through your efforts, the stage is set for action on meaningful regulatory relief, data breaches and other key banking issues. President Lincoln’s words in the waning days of the Civil War were not passive as he understood much work lay ahead to reunify the country. We, too, must follow his admonishment to “strive on to finish the work we are in,” to make the effort to ensure those making decisions impacting our business find common ground and deliver results. Email Matt Bruning at mbruning@ vabankers.org with any comments on this article. www.vabankers.org

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May/June 2015 | Virginia Banking 9

Line

Legal

Mortgage Loan Originators May Still be Exempt from Federal Overtime Requirements

Y Mel Tull General Counsel, Virginia Bankers Association

ou may have heard that the U.S. Supreme Court recently determined that mortgage loan originators are not exempt from federal overtime requirements. This is not exactly true. While the Supreme Court’s decision means that mortgage loan officers are not eligible for the “administrative exemption” to the overtime requirements, other exemptions exist that may apply to mortgage loan originators, depending on their specific duties and how they conduct business. Prior to 2010, the Department of Labor’s (DOL) position was that mortgage loan originators did qualify for the administrative exemption to the overtime requirements under the Fair Labor Standards Act (FLSA). In 2010, the DOL reversed its interpretation and stated that mortgage loan originators were not eligible for the administrative exemption. In Perez v. Mortgage Bankers Association, the Supreme Court considered whether the DOL was required to issue a formal proposal and seek public comment before it could change its position. The court determined that a formal proposal and comment process was not required, and thereby upheld the DOL’s new interpretation, making mortgage loan originators ineligible for the administrative exemption. However, your mortgage loan originators may still be exempt from the overtime requirements if they qualify for one of three other exemptions. The “outside sales exemption” may apply to your mortgage loan originators if their primary duty is sales and they customarily and regularly perform this duty away from your offices or an office in their home. The DOL has interpreted “customarily and regularly” to mean greater than occasional but less than constant; it includes work normally done every work week, but does not include isolated or one-time tasks. Mortgage loan officers who are substantially compensated with commissions based on sales may qualify. Mortgage loan officers that primarily perform office work may qualify for the “highly compensated exemption” if they earn at least

10 Virginia Banking | May/June 2015

$100,000 per year and serve in an executive capacity, such as managing your mortgage business or a subdivision of your mortgage business and directing the work of two or more employees. Mortgage loan originators that serve in a leadership role, but do not earn at least $100,000 per year, may qualify for the “executive exemption” if their primary duty is managing your mortgage business or a subgroup and they regularly supervise at least two fulltime employees and have authority to hire and fire employees. If the person’s primary duty is mortgage lending, the executive exemption will not apply, even if the individual directs the work of two or more employees. To qualify for this exemption, it is important to carefully define the “primary” duty of individuals who serve in multiple roles. As you can see, the facts and circumstances of each individual’s unique situation will determine whether or not an exemption applies. It is important to realize that the Supreme Court’s decision does not prohibit mortgage loan originators from qualifying for one of these other overtime exemptions. Many mortgage lenders are now examining the roles and duties of their mortgage loan originators to determine whether one of these other exemptions may apply or whether minor changes can be made to job descriptions or how jobs are performed in order to qualify for these other exemptions. If your mortgage loan originators were previously exempt from overtime under the administrative exemption, you may want to consult with an attorney familiar with the FLSA to see if you can easily qualify for one of the other exemptions. For more information about the applicability of the FLSA overtime exemptions to mortgage loan originators contact Mel Tull, VBA General Counsel, at mtull@vabankers.org or (804) 819-4710. This article has been prepared for informational purposes only and is not legal advice and does not create an attorney-client relationship. www.vabankers.org

Welcome

New Associate Members

CREDIT AND LENDING RESOURCES/ IT CONSULTING & SERVICES

CONSULTING AND TRAINING

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Hamilton Management Consulting

Address: 1324 North Lake Drive Lexington, SC 29072 Phone: (803) 808-4922 Fax: (803) 808-3780 CONTACT: AMANDA JENSEN Email: amanda.jensen@dditechnology.com Premier eTitleLien® is a web-based application that allows lienholders to manage their vehicle titles electronically and provides an electronic ownership record in lieu of a paper title. Premier eTitleLien® works primarily with Electronic Lien and Title (ELT) programs offered by U.S. states, but allows companies to manage all titles, electronic or paper, from any state in a single application.

CONSULTING AND TRAINING, OFFICE SYSTEMS

American Office

A general Consulting firm that specializes in Community Bank Management, Hamilton Management Consulting works with boards and management to develop and implement performance improvement strategies. Key practice areas include: Strategic planning, all forms of compensation, executive search/development and outplacement, sales and service management and all areas of human resource planning and management.

FINANCIAL INSTITUTIONS

City First Bank of DC Address: 1432 U Street NW Washington, DC 20009-3916 Phone: (202) 243-7100 CONTACT: BRIAN E. ARGRETT Phone: (202) 243-7100

Address: 4870 Sadler Road, Suite 250 Glen Allen,VA 23060 Phone: (804) 346-2267 Fax: (804) 270-2845 CONTACT: GREG PARSONS Email: gparsons@americanoffice.com Your office is a reflection of your brand, a tool for productivity and driver for success. Since 1932, American Office has helped create innovative, inspirational and adaptable work environments. A Certified Herman Miller Dealer with over 300 furniture lines, American Office offers comprehensive service throughout Maryland, Virginia and Washington, D.C.

City First Bank delivers innovative and creative community development finance services to low- and moderate-income communities of Washington, D.C. and nearby suburbs. The only dedicated community development bank in the region, City First focuses on building assets – financing small companies, affordable housing and community facilities. City First provides a range of banking services to nonprofit organizations and small businesses.

2016 Financial Forecast

JANUARY 8, 2016 A d, V on

www.vabankers.org

on-2pm ~ R o ic h ~N m

Ja nu ar y

HOSTED BY THE VIRGINIA BANKERS ASSOCIATION AND THE VIRGINIA CHAMBER OF COMMERCE

GREATER RICHMOND CONVENTION CENTER

SAVE THE DATE! May/June 2015 | Virginia Banking 11

At Bank of Fincastle, students began their day with an exclusive look behind the teller line and inside the vault. The students also learned how the bank handles and orders money from the Federal Reserve. Among other things, they toured the Operations and Bookkeeping departments, discussed how the bank detects and deals with fraud, had lunch with CEO John Kilby, learned about the interview and application process and talked about the Federal Reserve System and how the bank makes money. They also discussed the Community Reinvestment Act (CRA) and how the bank gives back to the communities it serves.

More than 275 Virginia High School Seniors Participate in

VBA BANK DAY

Scholarship Program

n March 17, more than 275 Virginia high school seniors spent the day shadowing bankers across the commonwealth as part of VBA Bank Day, a statewide effort sponsored by the Virginia Bankers Association (VBA) Education Foundation and the VBA Leadership Division. The purpose of the day is to expose students to the banking industry and provide an opportunity for the students to learn about banking, financial services and the vital role banks play in their communities. The third Tuesday in March was declared Bank Day by the Virginia General Assembly in 1991, and this year the students participated at 25 different banks. From their experience, students wrote an essay based on their time in the bank, and six regional college scholarships ($2,000) will be awarded to the 12 Virginia Banking | May/June 2015

winning students. There will also be six honorable mention scholarships of $500 this year (one in each of the six regions). The six regional winners will then have the chance to win one overall statewide scholarship of $4,000, receiving $6,000 in total scholarship monies. The students participated in various activities depending on which bank they visited. Activities included meeting with various bank departments to learn about the loan process, the importance of good credit, the profile of a qualified borrower, appropriate etiquette during a job interview, how banks are involved in the community, the Federal Reserve System, payments and more. For more information about the VBA Bank Day Scholarship Program, please contact Chandler Owdom at cowdom@vabankers.org. www.vabankers.org

Bank of McKenney in Colonial Heights had a very successful tour and visit with the students from Colonial Heights High School. They had 15 students and one teacher attend. The students also had plenty of questions for the bank employees during a Q&A session.

Bank of Botetourt hosted students from Northside, James River and Lord Botetourt high schools.

The Host Banks Bank of Lancaster had 18 students representing Lancaster, Northumberland, Washington & Lee, Colonial Beach and Essex high schools, as well as two home-schooled seniors. Students visited all areas of the bank, including discussing a day in the life of an IT professional and a marketing program presentation in the board room. The students were also treated to lunch at Leeâ&#x20AC;&#x2122;s, one of Kilmarnockâ&#x20AC;&#x2122;s favorite restaurants!

River Community Bank students met with Scott Griffin (top right).

George, Jayme and Rosie from Stonewall Jackson High School (pictured with host Aaron Green) visited Farmers & Merchants Bank.

Thank you to the banks that hosted students on Bank Day: Bank of Botetourt Bank of Clarke County Bank of Fincastle Bank of Lancaster Bank of Marion Bank of McKenney Benchmark Community Bank Blue Ridge Bank C&F Bank Chesapeake Bank Farmers & Merchants Bank Farmers Bank First Bank First Bank & Trust Company First National Bank MainStreet Bank MCNB Middleburg Bank New Peoples Bank Old Point National Bank River Community Bank Sonabank Union Bank & Trust Virginia Commonwealth Bank Virginia Community Bank

Bank Day at Chesapeake Bank. www.vabankers.org

May/June 2015 | Virginia Banking 13

VBA Bank Day Continued from page 13

Students at Farmers Bank met with Vernon Towler, president of the bank. They also listened in on a branch manager’s meeting.

MainStreet Bank’s group.

Benchmark Community Bank’s group.

Union Bank & Trust's students met with President and CEO Billy Beale.

Students at Sonabank’s Clifton Forge branch. 14 Virginia Banking | May/June 2015

www.vabankers.org

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Fighting For

the Industry

Nearly 100 Virginia Bankers Defend the Banking Industry at the VBA/ABA Government Relations Summit

early 100 Virginia bankers joined 1,100 bankers from across the nation at the VBA/ABA Government Relations Summit March 23-25 in Washington. The group heard from an impressive lineup of high-profile speakers, including top national regulators and ranking members of the House and Senate. Bankers spent the majority of the first day on the Hill meeting with members of our Congressional delegation. In the overall very positive meetings, bankers covered topics including leveling the playing field with tax advantaged institutions, cybersecurity and regulatory reform. ABA Chairman-Elect Dan Blanton led a delegation of community bank CEOs, including Immediate Past VBA Chairman Gary Shook of Middleburg Bank, to a meeting with Treasury Secretary Jack Lew to discuss the need for regulatory relief and the importance of reviving bank startups. The participants explained how

Congressman Gerry Connolly, Johnny Milleson, Jim McCarty and Ellie Schmidt.

Patricia Gallagher, Congressman Rob Wittman, Rob Shuford, Jeff Szyperski, Karen Mason and John Muller.

Brandon Atkins, Charley Majors, Randy Ferrell, Congressman Robert Hurt and Jeff Haley.

Johnny Milleson, Congresswoman Barbara Comstock, Zach Cafritz from Congressman Don Beyerâ&#x20AC;&#x2122;s office and Bruce Whitehurst.

Johnny Milleson, Congressman Dave Brat, Congressman Bobby Scott and Bruce Whitehurst.

16 Virginia Banking | May/June 2015

www.vabankers.org

Congressman Morgan Griffith, Blake Edwards and Peter Clements.

Housing Equity Funds of Virginia Over 25 years of Profitable Tax Credit Investing

Virginia Community Development Corporation // vacdc.org For more information, please contact Arild Trent at 804.343.1200 x116 or atrent@vacdc.org

Leadership Division Members Josh Hale, Jonah Pence and Adam Hill at the Emerging Leaders Forum Reception.

Adam Hill was one of the nearly 100 bankers who came to meet with Virginia legislators, including Sen. Mark Warner. excessive regulations are impeding their ability to lend and offer products their customers want. For more details about the summit, please see Matt Bruning’s Legislative Update on page 8. Thank you to the nearly 100 Virginia bankers in attendance. Meeting with our congressional representatives is imperative as we fight for the industry about which we are all so passionate. www.vabankers.org

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May/June 2015 | Virginia Banking 17

Update

Washington

The Future Is in Good Hands

I Frank Keating President and CEO, American Bankers Association

’ve noticed a growing trend in Washington that bodes well for our industry: An increasing number of young bankers coming to the capital to participate in bank visits and industry conferences oriented toward advocacy. This infusion of talent is a sign of great things to come, and it is largely attributable to the diligent work state associations have been doing to identify and develop emerging leaders. The presence of young bankers in the halls of Washington – and at gatherings all around the country – is reminiscent of ABA’s origins. In fact, 140 years ago, it was a young Missouri banker named James Howenstein, who at the age of 33 took the initiative to organize a gathering of bankers in New York that led to the formation of the American Bankers Association. He and 16 other bankers – many of them what we today would call “emerging leaders” – gathered to “put their heads and hearts together to bring into a union of business interest and hearty affection the bankers of our country for a better bankerhood.”

As the faces of Congress continue to change and become more diverse, our industry’s advocates must reflect that change.

These bankers recognized the importance of networking and engagement, even if they didn’t call it that. Whether it’s participating in a panel discussion on “The 21st Century Banker” – as Katie Boyd from FirstCapital Bank in Texas, Tom Richards from Owingsville Banking Company in Kentucky and Siya Vansia from ConnectOne Bank in New Jersey did at ABA’s Annual Convention in Dallas last fall – or participating in state young banker divisions and leadership programs, these young leaders bring

fresh energy and valuable insights to the debates shaping our industry. The 100-plus that gathered for ABA’s Emerging Leaders Forum, which is a growing part of our annual Government Relations Summit in March, certainly proves that to be true. The trend is also evident in the number of emerging leaders participating in the ABAState Association Washington Visit Program, which brings more than 1,400 bankers to the nation’s capital every year to advocate for the industry and support grassroots programs. It’s especially important to encourage tomorrow’s leaders to engage in such activities, since grassroots advocacy has become a core responsibility in a banking leader’s job description. Anyone who plans a future in banking needs to be developing relationships now with the very people who could dictate it. That means Congress and regulatory agency leaders. And as the faces of Congress continue to change and become more diverse, our industry’s advocates must reflect that change. Remember that these officials are often advised by younger staffers – staffers who, depending on how long their member of Congress has been in office, may know very little about banking. What better way to introduce them to our issues – and how policies established in Washington affect banks’ customers and communities – than through a conversation with a banker who is much closer to being their own peer. There is nothing but “upside risk,” as the Fed might say, to turning today’s young bankers into advocates for the industry. Between the state associations and ABA, we have abundant resources to help make it happen. From schools and conference planning committees to financial literacy and grassroots contact programs – the demand for young banker talent is high. Let’s continue to develop that talent together. Young bankers represent the future of our industry, and judging by what I’ve seen, it is in very capable hands.

Email Frank Keating at keating@aba.com with any comments on this article. 18 Virginia Banking | May/June 2015

www.vabankers.org

Our Future

Investing in

More than 11,800 Students across the State Receive Financial Education A large group of third grade students at Richmond County Elementary School received a lesson from Bank of Lancaster bankers Charity Jenkins and Kirsten Self (back row, from left). On April 24, banks across the Commonwealth partnered with schools to celebrate Teach Children to Save Day with savings education. More than 11,800 students explored the difference between needs and wants and learned how to identify expenses, trade-offs and ways to cut spending. More than 800 bankers from 28 Virginia banks have conducted 240 presentations through this program so far in 2015. Bankers will continue to make presentations throughout the rest of the year as well. Established by the American Bankers Association in 1997, Teach Children to Save Day has reached 7.2 million young people nationally through the commitment of 210,000 banker volunteers. “Financial capability is the combination of attitude, knowledge, skills and self-efficacy needed to make and exercise money management decisions,” said Virginia Bankers Association President & CEO Bruce Whitehurst. “Through this program we can motivate students and instill positive habits at a young age, creating a community of lifelong savers.” Bankers work hard to make sure the principles learned continue beyond Teach Children to Save Day. Many sent students home with activity packets designed to continue a dialogue about smart saving and spending between children and parents, as well as additional materials for parents to use to help children understand how the decisions they make today impact their future. Bank of Lancaster’s Hazel Farmer has been involved with Teach Children to Save Day since it was created in 1997. “We love taking this program into our local classrooms here in the Northern Neck, and we thank our schools for giving us the opportunity,” said Farmer. “We also want to thank the VBA because, after participating in its training program, Back to School at the VBA, we can take what we know as bankers and relay it to a 6 year old! It’s exciting to watch the children learn, see those ‘light bulbs’ go on and know that if we can reach just one child with this important message, we’re ahead of the game!” Thank you to the hundreds of bankers who took part in making this day memorable and impactful for Virginia students! Visit our Facebook page at www.facebook.com/virginiabankersassociation to see photos of bankers in action on Teach Children to Save Day. Next up on the financial literacy agenda: bankers will celebrate Get Smart about Credit Day with high school students on Oct. 15. www.vabankers.org

Rep. Don Beyer (D-VA, on left) and ABA President and CEO Frank Keating (second from right) visited Drew Model School in Arlington, Virginia for Teach Children to Save Day. Rep. Beyer and Gov. Keating taught 50 fourth and fifth graders a lesson in distinguishing between needs and wants. Bruce Whitehurst (second from left) and Ryan Mack with Operation Hope (right) were on hand for the presentation as well.

Michelle Mogel from TowneBank at O.B. Gates Elementary. TowneBank employees reached 95 students through five presentations on Teach Children to Save Day.

Kelly Rich from Virginia National Bank used the book, Alexander, Who Used to Be Rich Last Sunday, to teach a lesson to a group of 1st grade students at Powhatan Elementary.

Thank you to the 28 banks that participated in Teach Children to Save Day 2015: Bank of Hampton Roads Bank of Lancaster Bank of Marion Bank of McKenney Benchmark Community Bank Burke & Herbert Bank Cardinal Bank Chesapeake Bank City National Bank of West Virginia Community Bank of the Chesapeake CornerStone Bank, NA EVB Farmers & Merchants Bank

Farmers Bank First Bank First Bank and Trust Company First Capital Bank First Century Bank Mainstreet Bankshares, Inc. New Horizon Bank, NA Old Point National Bank Peoples Community Bank Select Bank Sonabank TowneBank TruPoint Bank Union Bank & Trust Virginia National Bank May/June 2015 | Virginia Banking 19

Compliance

Corner

How Does a Charged-off Checking Account Become a Minefield of Issues? By Darlia Fogarty, Director of Compliance, Compliance Alliance

e’ve been made aware of a process that quite a few banks have been doing for many years that could very easily cause the bank many issues with the regulatory agencies. Here is the scenario – banks have made it a policy to add the balance of a charged-off deposit account to the principal of a loan the customer has at the bank. This policy presents a minefield of issues that must be addressed, including contractual language, UDAAP, safety and soundness and compliance issues (disclosures). This memo highlights some of the issues presented by this policy in light of the continued regulatory focus on overdraft programs. Just a few of the issues presented, by adopting this practice, in light of the continued regulatory focus on overdraft programs are: 1. With respect to overdrafts, banks need to follow GAAP and the Call Report guidelines and should be reporting these charged-off accounts as such. In an issuance from 2005, the FFIEC requires that an overdraft be charged off against current year’s income when the account is overdrawn for 60 days, as stated in the FFIEC guidance on overdrafts. Paying off an overdraft by adding principal to an existing loan effectively sidesteps the rule and masks the loss of income. This presents a safety and soundness issue because the bank may be over reporting income because the loss will no longer be reflected on the books. In essence, you are capitalizing a past due loan and calling it income. Additionally, the existing loan that has had the overdraft tacked onto the principal balance could well be considered as impaired since now the borrower has demonstrated that they do not have the ability to remain current on their debt obligations. 2. Whether this practice is even permissible would be governed by the agreement between the borrower and the lender. Since each loan is unique, the bank will have to consult their counsel to determine their rights and remedies with respect to the specific loan. Often, banks assume that there is a provision in the loan agreement permitting this. Rather than assuming, the bank should carefully read the loan agreement to determine if this is accurate. Keep in mind, this action would not be considered in the same category as force placement of insurance. 3. There is also a question of whether disclosures are nec20 Virginia Banking | May/June 2015

essary under Reg Z prior to converting the balance of the overdraft to a loan that accrues interest. As a reminder, Reg Z and Reg DD, of course, would only apply to consumer loans/accounts. With that being said, any fee for overdrafting an account must be disclosed per Reg DD. The official commentary to Reg DD provides: (5) Fees for overdrawing an account. Under §1030.4(b)(4) of this part, banks must disclose the conditions under which a fee may be imposed. In satisfying this requirement, banks must specify the categories of transactions for which an overdraft fee may be imposed. An exhaustive list of transactions is not required. It is sufficient for an institution to state that the fee applies to overdrafts “created by check, in-person withdrawal, ATM withdrawal or other electronic means”, as applicable. Disclosing a fee “for overdraft items” would not be sufficient. Any interest accrued by virtue of adding the amount to the principal of a loan would likely be considered a “fee” for the overdraft that must be disclosed at account opening. Unless the bank disclosed the fact that an overdraft may incur interest charges, you would be in violation of Reg DD. Even if the possibility were disclosed on Reg DD, the program would then be a de facto overdraft line of credit. As such, you would likely need to provide Reg Z disclosures for open-end lines of credit. 4. There is also a significant UDAAP concern with the practice of adding an overdraft balance to the remaining principal of an existing loan converting the overdraft balance to a loan that accrues interest. Under Dodd-Frank, an act or practice is unfair when: • It causes or is likely to cause substantial injury to consumers; • The injury is not reasonably avoidable by consumers; and • The injury is not outweighed by countervailing benefits to consumers or to competition. First, while there is no specific definition of “substantial injury,” it typically means that monetary harm has been sustained. In this case, the customer is being charged interest on a loan whereas before he or she was not. Second, the bank may say that the injury is “avoidable,” but regulators will not likely see it that way. In any case, it may not be “reasonably” avoidable, especially if the customer does not have the means of paying it off. Finally, the third test of the unfair analysis is to prove this is beneficial for the consumer. It would be difficult to think of any situation where a consumer is better off for having to pay interest. www.vabankers.org

Even if it is not “unfair,” a regulator may still find a UDAAP violation, as the practice can be abusive or even deceptive depending on how the program is administered. In any case, the bank is opening itself up for increased scrutiny for UDAAP. While there is no conclusive guidance on the practice of capitalizing an overdraft balance into an existing loan, the practice presents many issues that need to be addressed. During regulatory panels, regulators have said this is a practice that would cause “great concern,” and we are aware of at least one bank that has had issues with regulators suggesting that this practice violates UDAAP. Even though this practice may have been going on for some time, banks need to re-evaluate the program in light of the tighter regulatory environment Dodd-Frank has created.

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May/June 2015 | Virginia Banking 21

Move

Bankers on the

Are your bankers on the move? Email submissions to swagner@vabankers.org

David

Hall

Hammock

Shorter

Childers

Levenson

Phillips

Dolan

Poore

Newton

Kapur

Karavatakis

Davis

Kendrick

Liles

Barbee

Engel

Peterson

Barker

Hill

Jones

Meece

Nelson

Sparks

Blackmon

Saylor

Biser

Erazo

Manning

Dyson

Pollard

Greenleaf

Berry

American National Bank & Trust Company Julie D. David, Commercial Relationship Manager Derwin L. Hall, Assistant Vice President and Commercial Relationship Manager Todd Hammock, Senior Vice President & Market President Robert W. Shorter, Vice President and Commercial Relationship Manager

Shirley G. Jones, Vice President – Security/Training Officer William Andrew “Andy” Meece, Vice President Diann P. Nelson, Vice President Marion D. Sparks, Vice President

Bank of America Victor Branch, Richmond Market President

Communit y Bank of the Chesapeake Barbara Saylor, Branch Market Manager

Bank of Georgetown Lori Childers, Senior Vice President, Consumer Residential Lending Michelle “Mickie” Riley Levenson, Senior Vice President, Commercial Lending Josh Phillips, Senior Vice President, Commercial Lending

Farmers & Merchants Bank F. Marie Biser, Business Development Specialist

Benchmark Communit y Bank Renee Dolan, Accounting Officer Tabitha Poore, Vice President/Controller Matthew Newton, Information Technology Manager

First Virginia Communit y Bank Marc A. Erazo, Vice President, Commercial Loan Officer

Cardinal Bank Shalini Kapur, Assistant Vice President, Gainesville Banking Office Manager

John Marshall Bank Jennifer Manning, Senior Vice President/Director of Finance and Accounting

Car ter Bank & Trust Phyllis Q. Karavatakis, Executive Vice President & Chief Lending Officer Jane Ann Davis, Executive Vice President & Chief Operating Officer Bradford M. Kendrick, Executive Vice President of Information Technology Cathy W. Liles, Senior Vice President & Chief Financial Officer Benjamin Clifton “Cliff” Barbee, Senior Vice President John J. Engel III, Senior Vice President David K. Peterson, Senior Vice President John E. Barker, Vice President Alan L. Hill, Vice President

The Bank of Marion Brent Dyson, Assistant Vice President and Business Development Officer

22 Virginia Banking | May/June 2015

C&F Bank F. Arnold Blackmon, III, Senior Relationship Manager, Richmond Commercial Banking Team

First Communit y Bank Michael Ratliff, City Executive, Abingdon Division

First Tennessee Bank Charlie Vaughters, Commercial Banking Relationship Manager

Virginia Commonwealth Bank William D. “Bill” Pollard, Jr., Senior Vice President – Commercial Banking Virginia Communit y Capital, Inc. Bill Greenleaf, Loan Officer Diana Berry, Portfolio Analyst United Bank Harry S. Smith, Market President www.vabankers.org

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