Virginia Banking March/April 2016

March/April 2016

Virginia Bankers

Advocate for Industry Issues at the General Assembly on VBA Banker Day 2016

IN THIS ISSUE

TEACH CHILDREN TO SAVE DAY IS APRIL 29!

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 8th 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.

March/April 2016

2015-2016 Officers and Directors of the Virginia Bankers Association T. Gaylon Layfield, III, Chairman, Xenith Bankshares, Inc. John G. Stallings, Chairman-Elect, SunTrust Bank John R. Milleson, Immediate Past Chairman, Bank of Clarke County G. William Beale, Union Bank & Trust Christopher W. Bergstrom, Cardinal Bank Michael W. Clarke, Access National Bank Barry C. Elswick, TruPoint Bank Scott C. Harvard, First Bank, Strasburg William H. Hayter, First Bank & Trust Company Charles Henderson, Bank of America, NA Glen Kelley, Wells Fargo Bank, N.A. Brad E. Schwartz, Monarch Bank Joe A. Shearin, EVB Susan K. Still, HomeTown Bank Daniel G. Waetjen, BB&T Michael O. Walker, Benchmark Community Bank Robert Wojciechowicz, Capital One Financial Corporation AT-LARGE MEMBERS VBA Benefits Corporation Chair J. Peter Clements, The Bank of Southside Virginia Management Services Inc. Chair M. Andrew McLean, Middleburg Bank Government Relations Committee Chair Ronald D. Haley, River Community Bank, NA VBA Education Foundation Chair Charles H. Majors, American National Bank & Trust

EDITORIAL & EXECUTIVE OFFICES 4490 Cox Road Glen Allen, VA 23060 804-643-7469 Fax 804-643-6308 www.vabankers.org Bruce T. Whitehurst President and CEO Virginia Bankers Association Chandler Owdom Director, Communications & Strategy Virginia Bankers Association

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

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Virginia Bankers Advocate for Industry Issues at the General Assembly on VBA Banker Day 2016

features

13

Teach Children to Save Day is April 29

Virginia Banking is published bi-monthly. Copyright 2016.

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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Š 2016 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: custompubs@thewarrengroup.com Call 800-356-8805.

in every issue 4 Calendar of Events 5 Insights 6 Legislative Update 7 Worth Noting 8 Washington Update 10 Legal Line 12 Compliance Corner 14 New Associate Members 14 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 Kellee Edelin at kedelin@vabankers.org with your new contact information.

Calendar of INSTRUCTOR-LED SEMINARS HUMAN RESOURCES MANAGEMENT SCHOOL PRESENTED BY THE GRADUATE SCHOOL OF BANKING AT THE UNIVERSITY OF WISCONSINMADISON MADISON, WISCONSIN APRIL 10-15, 2016 COMPLIANCE SCHOOL AND ADVANCED COMPLIANCE CHARLOTTESVILLE APRIL 11-15, 2016 BACK TO SCHOOL AT THE VBA GLEN ALLEN APRIL 14, 2016 CONSUMER LENDING SCHOOL GLEN ALLEN APRIL 20-21, 2016 HR, BENEFITS, & TRAINING CONFERENCE CHARLOTTESVILLE MAY 1-3, 2016 FINANCIAL MANAGERS SCHOOL PRESENTED

BY FINANCIAL MANAGERS SOCIETY AND GRADUATE SCHOOL OF BANKING AMHERST, MASSACHUSETTS MAY 9-13, 2016 ADVANCED CREDIT ANALYSIS & BUSINESS FINANCING GLEN ALLEN MAY 10-11, 2016

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

ENTERPRISE RISK MANAGEMENT WORKSHOP GLEN ALLEN OCTOBER 27, 2016

COMMERCIAL CONSTRUCTION LOANS: ADMINISTERING AND MONITORING – PART 2 APRIL 19, 2016

WOMEN IN BANKING CONFERENCE RICHMOND NOVEMBER 17, 2016

NOTARY BASICS – PART 1 APRIL 19, 2016

WEBINARS HOW TO CRAFT AN EFFECTIVE COMMERCIAL LOAN WRITE-UP – PART 2 APRIL 13, 2016 HSA BASICS APRIL 13, 2016 DOES YOUR BYOD DRIVE YOU TO BYOB? APRIL 13, 2016 USING RESEARCH TO IMPROVE YOUR DECISIONS AND GUIDE YOUR FUTURE APRIL 13, 2016 10 TRAPS TO AVOID ON THE FRONTLINE APRIL 13, 2016 REVIEWING RESIDENTIAL APPRAISALS APRIL 14, 2016 IS YOUR BUSINESS DEVELOPMENT A HOUSE OF CARDS? APRIL 15, 2016

THE BUSINESS OF BANKING: UNDERSTANDING THE FACTORS THAT DRIVE BANK PROFITABILITY – PART 2 APRIL 20, 2016 ADVANCED HSAS APRIL 20, 2016 DIGITAL FORENSICS IN A DIGITAL CRIME WORLD APRIL 20, 2016 ACH RISK MANAGEMENT – PART 1 APRIL 20, 2016 THE BUSINESS OF BANKING: UNDERSTANDING THE FACTORS THAT DRIVE BANK PROFITABILITY – PART 3 APRIL 21, 2016 LANDSCAPE OF AGRICULTURE TODAY AND TOMORROW – PART 2 APRIL 21, 2016 INTERVIEWING SKILLS FOR BETTER HIRES APRIL 22, 2016

OPENING FIDUCIARY ACCOUNTS: POA, GUARDIANS, ESTATES & MORE APRIL 15, 2016

INTRODUCTION TO INTERNAL AUDIT – PART 1: HOW DOES INTERNAL AUDIT ADD VALUE? APRIL 22, 2016

OPERATIONS & TECHNOLOGY CONFERENCE CHARLOTTESVILLE MAY 17-18, 2016

GETTING IN THE DOOR WITH PROSPECTS APRIL 18, 2016

SUPERVISOR BOOT CAMP GLEN ALLEN JUNE 14-15, 2016

RISING RATE PREPAREDNESS KIT: ALIGNING STRATEGY, CAPITAL, LIQUIDITY AND FUNDING PLANS FOR CHANGING RATE – PART 1 APRIL 18, 2016

RISING RATE PREPAREDNESS KIT: ALIGNING STRATEGY, CAPITAL, LIQUIDITY AND FUNDING PLANS FOR CHANGING RATE – PART 2 APRIL 25, 2016

VBA ANNUAL CONVENTION THE GREENBRIER, WHITE SULPHUR SPRINGS, WEST VIRGINIA JUNE 19-22, 2016

AGRICULTURAL LOAN DOCUMENTATION & ADMINISTRATION APRIL 18, 2016

VBA SCHOOL OF BANK MANAGEMENT CHARLOTTESVILLE JULY 31-AUGUST 5, 2016

FINANCIAL STATEMENT PROJECTIONS: TOOLS FOR MAKING A SIMPLIFIED AND EFFECTIVE FORECAST – PART 1 APRIL 19, 2016

CFO CONFERENCE RICHMOND AUGUST 28-30, 2016

LOAN UNDERWRITING MISTAKES APRIL 19, 2016

FINANCIAL MANAGERS SCHOOL PRESENTED

BY FINANCIAL MANAGERS SOCIETY AND GRADUATE SCHOOL OF BANKING MADISON, WISCONSIN SEPTEMBER18-23, 2016 CREDIT MANAGEMENT CONFERENCE CHARLOTTESVILLE OCTOBER 3-4, 2016 LEADERSHIP CONFERENCE RICHMOND OCTOBER 6-7, 2016

4 Virginia Banking | March/April 2016

THE BUSINESS OF BANKING: UNDERSTANDING THE FACTORS THAT DRIVE BANK PROFITABILITY – PART 1 APRIL 19, 2016 LANDSCAPE OF AGRICULTURE TODAY AND TOMORROW – PART 1 APRIL 19, 2016 BUSINESS CASH FLOW BASICS AND GLOBAL CASH FLOW INTEGRATION ISSUES FOR LENDERS AND ANALYSTS – PART 2 APRIL 19, 2016

INTRODUCTION TO INTERNAL AUDIT – PART 2: INTERNAL AUDIT PLAN APRIL 25, 2016 FINANCIAL STATEMENT PROJECTIONS: TOOLS FOR MAKING A SIMPLIFIED AND EFFECTIVE FORECAST – PART 2 APRIL 26, 2016 TROUBLED DEBT RESTRUCTURING APRIL 26, 2016 BUSINESS CASH FLOW BASICS AND GLOBAL CASH FLOW INTEGRATION ISSUES FOR LENDERS AND ANALYSTS – PART 3 APRIL 26, 2016 COMMERCIAL CONSTRUCTION LOANS: ADMINISTERING AND MONITORING – PART 3 APRIL 26, 2016 GETTING THINGS DONE WHEN YOU’RE NOT IN CHARGE APRIL 26, 2016 ADVANCED NOTARY SKILLS – PART 2 APRIL 26, 2016 TRANSFERS AND ROLLOVERS APRIL 27, 2016

www.vabankers.org

Insights

Banking Renaissance “Every act of creation is first an act of destruction.” —Pablo Picasso

M Bruce Whitehurst President and CEO, Virginia Bankers Association

www.vabankers.org

y daughter Cameron, a high school senior on her way to college this fall, wrote an essay a few years ago based on the Picasso quote above. She talked about how when the artist puts even one paint stroke on a blank canvas, he or she has destroyed what that canvas was in order to make something beautiful emerge.

Or when a sculptor begins to chisel at marble or mold a piece of clay, the same phenomenon takes place. In the process of creating art, the artist reinvents what was into something entirely different.

So it is with banking, where our industry reinvents itself on almost a continuous basis. Two years in a row, a prevailing theme at the ABA National Conference for Community Bankers has been the presence of disruptive forces and how innovation causes both disruption and opportunity.

While this is a fascinating topic that has gotten a lot of attention in recent years, innovation and disruption have been part of banking for a long time.

Some of you remember well the emergence of the Automated Teller Machine in the 1970s and the major questions it raised relative to the future role of branching. You might also remember the Monetary Control Act of 1980 – a.k.a. Interest Rate Deregulation – which had a major impact on the core business model of banking and which also came at a time of historically high interest rates (about as opposite as you could be from today’s rate environment) that impacted the savings and loan industry in a devastating way.

The 1990s brought nationwide, interstate banking that led to significant industry consolidation, which continues to be a major force in banking today. We also got a glimpse of the internet and early stages of e-commerce, including online banking. From a competitive standpoint, disintermediation of deposits into mutual funds was a big concern and a subject of much discussion.

As we entered the 21st century, mobile banking emerged as the latest technology and customer convenience, bringing even more questions about branches. Would all the branch innovations we see today be occurring without the disruption

of new technology that has revolutionized how people bank?

The financial crisis of 2008 and all that followed had no small impact on banking, our economy and our country. The protracted low interest rate environment and regulatory overkill that followed the financial crisis have made it very challenging to operate profitably and have driven the need for maximum efficiency – all challenges to which the industry has responded.

Now comes FinTech, the new buzz phrase for the 4,000 companies active in financial products and services innovation. Disintermediation has moved from the deposit to the loan side, with online marketplace lenders acting as a major disruptive force. Just as we did when mutual fund growth exploded and became a competitive force, we are now seeing banks employ various strategies to adapt to the FinTech revolution. Some banks are partnering with marketplace lenders; some are focused on developing digital banking applications to compete directly in this space; others are watching the evolution of FinTech and waiting to determine their roles. At the VBA, we are actively observing and learning as we seek to determine the best role we can play to support our member banks in this area.

Amidst all these changes, innovations and disruptions, where are those stodgy old bankers that are often referred to, not with the most flattering of terms? Given how adaptable, flexible and innovative the banking industry has proven itself to be – time and again – I’m not sure the stodgy old banker was ever more than a myth. What’s more, I believe we are in another banking renaissance and one in which we will reinvent ourselves once again. We do not need to destroy something in order to create, but we can certainly take what we have today and continue to develop it into something even better and more beautiful than it was before.

I have every confidence we will do just that and I look forward to seeing what comes next.

Bruce Whitehurst can be emailed at bwhitehurst@ vabankers.org or tweeted at @BruceTW for questions or comments on this article.

March/April 2016 | Virginia Banking 5

Legislative

Update

Elder Financial Abuse

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Matt Bruning Senior Vice President, Government & Member Relations, Virginia Bankers Association

urrently, more than 1.4 million individuals, or about 18 percent of Virginia’s population, is age 60 or over. By 2030, 24 percent of Virginia’s population or approximately 2.3 million individuals will be age 60 or older – a 64 percent increase in two decades. As the population nationally and here in Virginia ages, and as the Boomers enter into their golden years, there are public policy decisions that are being made to address the issues those shifting demographics raise.

One such issue that has garnered attention specifically at the state level is how best to prevent, identify, and punish financial exploitation of the elderly.

Legislators understand this is a growing concern, with estimates of older Americans losing about $2.9 billion from reported elder financial abuse cases. In recent sessions of the Virginia General Assembly, there have been several proposals related to how best to confront the challenges associated with elder financial abuse. Many of those legislative initiatives focused on law enforcement involvement and

the criminal penalties for those who take advantage of seniors.

Financial institutions have a vested interest in ensuring the financial protection of their customers.

Banks and their employees undertake that in many ways. Many banks work with community partners, including law enforcement, on information and educational offerings to raise awareness of potential financial abuse, scams and schemes for their customers. There is a tremendous amount of training, especially for frontline customer-facing employees, on how to identify potential exploitation, how to report such suspected instances and how to traverse the sensitive interaction with customers when there is potential financial abuse.

Under current Virginia state law, financial institutions are voluntary reporters of elder financial abuse to their local social services departments of the adult protective services hotline. Even under voluntary reporting, the Virginia Department of

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www.vabankers.org

Aging and Rehabilitative Services reported 1,079 substantiated reports of financial exploitation in 2014. Since 2009, the agency has seen a 580 percent increase in financial institution reporting.

Clearly, financial institutions are fulfilling an important role in identifying and combating financial exploitation.

As the senior population increases, the challenges associated with elder financial abuse – where instances are underreported due to numerous reasons such as shame, dementia and the fact that many times it is a relative or trusted associate of the victim that is perpetrating the abuse – are becoming more acute. There were several bills in the 2016 General Assembly session dealing with elder financial abuse. Many dealt with when adult protective services needs to turn investigations of suspected abuse over to local law enforcement as there was widespread agreement that those agencies are best equipped to handle that process. Bankers have often raised the concern that once they report suspected financial exploitation, they are concerned the local social service agencies do not have the capacity or resources to adequately follow up. Involving law enforcement to a greater degree should assist on the back end.

Two bills were submitted that attempted to stop exploitation on the front end. One would have given financial institutions the authority to refuse to execute a transaction if they, in good faith, believe the customer is being exploited. Reflective of the challenges that face bank employees identifying potential abuse, the committee considering the bill raised concern over the discretion on what could be considered potential abuse and the unintended consequences of refusing a transaction. Another bill would have created a new procedure for a bank customer to file a letter of diminished financial capacity. This letter, held at the bank, would name a trusted individual of the customer to be notified if the customer exhibits signs of a decline in their ability to manage their assets in their best interests, including the inability to understand the consequences of investment decisions. While a well-intentioned effort to be proactive before financial abuse of someone vulnerable occurs, the logistics and consequences would be confusing and administratively burdensome at best.

Those two bills did not advance, but another bill creating a work group to examine how to improve the ability of financial institutions to identify financial exploitation and the reporting process was approved. The work group would consist of representatives of state agencies, local social service workers, law enforcement and banks. As the VBA engages in this effort, any insight into what you see as best practices at your bank, where you see opportunities for improvement in the process and where pitfalls might occur, please feel free to share. Your input will be critical as the work group is tasked with providing recommendations to the governor and General Assembly in advance of the 2017 session.

As your bank builds on your existing efforts to protect older customers from financial abuse, we encourage you to join the VBA in supporting the ABA Bank Community Engagement’s Safe Banking for Seniors program. They offer a suite of resources to engage your older customers and financial caregivers, as well as your communities. For more information on the Safe Banking for Seniors program, contact Chandler Owdom at cowdom@vabankers.org. www.vabankers.org

Noting

Worth

GUTSHALL ANNOUNCES RETIREMENT

Ellis Gutshall announced his retirement effective March 31, and he plans to consult for BNC for up to two years. Gutshall entered banking as a management trainee at First Virginia Bank in 1973 after graduating from Washington and Lee University. In 1995, he joined Valley Bank a few months ahead of its launch in the spring of that year.

After 20 years under Gutshall, Valley Bank grew to nine offices.

Gutshall plans to do more golfing and vacationing at his home in Bald Head Island, North Carolina. The VBA wishes Gutshall the best in his future plans.

FAUQUIER BANKSHARES NAMES NEW PRESIDENT AND CHIEF EXECUTIVE OFFICER Fauquier Bankshares, Inc., parent company of The Fauquier Bank, announced in February that it selected Marc J. Bogan as the new president of the company and the bank. Additionally, he was appointed to the boards of directors of both organizations. Bogan succeeds Randy K. Ferrell, the longtime president of both organizations, who announced a year ago his intention to retire in the spring of 2016.

Bogan most recently served as president and chief operating officer of NewDominion Bank, a $300 million-asset community bank based in Charlotte, North Carolina, where he directed overall banking operations, grew the retail and commercial loan base, and successfully engineered a secondary market mortgage platform during his tenure. He began his banking career over two decades ago with Wachovia Bank, and moved into community banking with South Carolina Bank and Trust and Ameris Bank in Georgia before joining NewDominion Bank in 2011. Bogan is a graduate of Winthrop University in Rock Hill, South Carolina, earning a degree in business administration. He is president of the Winthrop University Foundation, serves on the American Bankers Association’s Community Bankers Council, and is an active member of the Rotary Club of Charlotte as well as several local boards and committees. He and his wife, Michelle, have two daughters and relocated to the Warrenton area from Charlotte.

WE WILL MISS …

John Weldon Boyle Jr., 75, of Roanoke, Virginia, passed away Dec. 31, 2015. John graduated in 1962 from Washington & Lee University. His banking career began in Richmond at First & Merchants as an executive, moving on to Sovran, then Sovran/C&S. He completed his banking career, rising to president of First American Bank out of Nashville, Tennessee. John was an active member of the VBA and a past president, serving his term from 1970-1971.

The VBA thanks John for his service to our organization, and our thoughts are with his family at this difficult time.

March/April 2016 | Virginia Banking 7

Washington

Update

Educating Consumers Helps Demonstrate Banking’s Value

W Rob Nichols President and CEO, American Bankers Association

hen I was a kid, my first hands-on experience with a bank was when I opened a junior savers account at a Seattle-based institution that is now part of Bank of America. I was flush with cash earned from a newspaper route and mowing lawns, and my father rightly advised me that I needed a safe place to deposit my money so it could earn interest and grow.

This was a big deal. Opening a first bank account was a valuable, confidence-inspiring rite of passage in terms of my taking on greater realworld personal financial responsibilities. It also instilled in me respect for banking.

Looking back, I was taught valuable lessons during my regular visits with my father to my bank. I’m sure all of you continue to impart these lessons today to your new generations of customers walking through your doors. And many of you go even further, delivering lessons on savings and credit in classrooms and community centers, lecture halls and student forums. It’s an important service to provide your customers and community that has the added benefit of reminding today’s youth of the banking industry’s value.

It’s imperative that tomorrow’s customers see the need for banks in their lives today. Our industry’s future literally depends on that.

This message about the need to preserve banking’s relevance is one that I’ve been spreading everywhere I’ve travelled since being named ABA’s CEO. Demographic changes make the message both urgent and compelling.

Consider that, according to one survey, onethird of Millennials – the 84 million Americans born between 1981 and 2000 who now comprise one-third of the U.S. population – don’t think they need a bank at all. And a disturbing 71 percent say they would rather go to a dentist than listen to what banks have to say. The same survey, dubbed the Millennial Disruption Index, also found that nearly half of Millennials are counting on tech start-ups to overhaul the way banks work.

That’s tough to hear. But at the same time, other surveys show tremendous opportunity for banks to appeal to Millennials and showcase their expertise.

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A recent study by PwC and the Global Financial Literacy Excellence Center on young adults’ financial capability found that U.S. Millennials are lacking in their understanding of financial concepts, with only 24 percent demonstrating basic financial knowledge. Thirty-four percent reported that they were “very unsatisfied” with their current financial situation, and 50 percent said they lacked the ability to cope with even a moderate financial shock.

The study, which surveyed Americans aged 23-35, also found that debt obligations, particularly from student loans, are a main point of concern. Two-thirds said they carry at least one source of outstanding long-term debt, and 54 percent are concerned about their ability to repay. More than half reported carrying over a credit card balance in the last 12 months, and many reported turning to alternative financial services, such as payday lenders or pawnshops.

They should be turning to banks. That’s where they can find help with managing debt and building savings. That’s where they can find both “Fintech” innovations and the commitment to security that comes with doing business with an FDIC-insured and regulated institution.

Banks have a good story to tell, and it’s up to us to tell it. Community outreach and financial education programs – like the ABA Foundation’s Teach Children to Save (see page 13) and Get Smart About Credit programs and our newest Safe Banking for Seniors initiative (see pages 6-7) – can help. These programs and others like it demonstrate your commitment to the people and communities you serve. They help create more informed, financially capable and confident customers. And they help safeguard customers’ money by making people wise to poor money management habits as well as fraud.

They are a win for both banks and customers. If you already participate in such programs, thank you. If not, I strongly encourage you to enroll today. Learn more at aba.com/Engagement.

Email Rob Nichols at nichols@aba.com. www.vabankers.org

Virginia Bankers

Advocate for Industry Issues at the General Assembly on VBA Banker Day 2016

Nearly 260 bankers participated in Banker Day in Richmond this year.

N

early 260 bankers from across Virginia made their presence known at the General Assembly on Jan. 14 at the VBA’s annual Banker Day event.

Led by VBA Government Relations Committee Chairman Ron Haley, the event was kicked off at the Greater Richmond Convention Center with remarks from Delegate Jimmie Massie and a briefing by VBA staff members. Bankers then headed to the General Assembly building to meet with their state legislators throughout the

morning, discussing key industry issues.

Bankers discussed the bills on the VBA’s proactive agenda, as well as advocated against the bills that the credit unions had submitted in order to expand their authorities. After a busy morning, bankers headed back to the Convention Center for a luncheon, which featured a presentation from Alex Vogel, co-founder and managing partner of VogelHood Research, on the upcoming presidential election.

The VBA would like to thank everyone

Bankers gathered at the Richmond Convention Delegate Danny Marshall, Scott Griffin, Brenda Center for breakfast and to hear from Delegate Peters, Tonya Carter and Ron Haley of River Jimmie Massie before heading to Capitol Square. Community Bank.

Chris Everett and Jim Clements from The Bank of Southside Virginia with Delegate Roslyn Tyler and Tanya Ricks and Daerick Wilkerson from Bank of McKenney. www.vabankers.org

Randy Ferrell, Delegate Michael Webert, Phil Quintana and Chip Register of The Fauquier Bank

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. 14 was noticed by legislators and lobbyists alike.

Thank you also to the Leadership Division members who attended the PreBanker Day Reception at the Liberty Bar. Forty-eight Leadership Division members were present at Banker Day. Save the date for Banker Day 2017 on Thursday, Jan. 12!

A group of the 48 Leadership Division members that were in attendance.

Julie Sturt, Kaitlin Parm, Delegate Manoli Loupassi and Erin Greer of Essex Bank.

March/April 2016 | Virginia Banking 9

Line

Legal

Practical Considerations for Implementing a Record Retention Policy

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nformation is everywhere and the amount of data and information that is created every minute multiplies as the years go by1. Because of this vast proliferation of data and information, banks and employees tend to retain this information longer than is required by any statute or regulation for several reasons.

One, data is data – it is not stored on a desk or in file cabinets and therefore keeping it in perpetuity on a computer does not prevent an employee from seeing his computer, unlike paper on a desk. As the saying goes, “out of sight, out of mind.”

Second, many employees have no idea of the costs and risks associated with storing data and information that no longer needs to be retained by any statute, regulation or legal hold, and no longer provides any value to the bank.

Mel Tull General Counsel, Virginia Bankers Association

Finally, data is everywhere. It is no longer just on an employee’s workstation or a bank server. It is on their smartphone, in the cloud, or on their tablet or iPad. So what can banks do to manage the information that comes through their servers and stays there or on the myriad of devices and servers available to employees?

One answer is implementing a record retention policy. While there is no “one-size-fits-all” record retention policy for any organization, including banks, there are some considerations that banks can apply when implementing a record retention policy and schedule. First, banks and their employees must understand what a record is and what it is not. Not every piece of information is a record. For example, in the world of emails, per-

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elliottdavis.com

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sonal, transitory or informational emails are not likely records that need to be retained for any specific period of time.

Second, banks should consider the “buckets” of information that need to be retained. For example, certain records must be retained for a specific period of time by federal or state statute or regulation and others must be retained because of legal hold orders related to anticipated or current litigation. Those records must be retained for the period of time required by either statute or regulation or, in the case of a legal hold, until the litigation is closed and the legal hold lifted. A quick reference guide to statutory and regulatory record retention requirements applicable to banks is available from the Virginia Bankers Association.

Next, banks should consider which records without a regulated retention period have business value and how long those records have value. Retaining information simply because it may be useful in the future does not necessarily mean the information retains value2. For example, records related to active projects have value for only a certain amount of time after the project ends and therefore, should not be kept indefinitely.

Banks should perform a cost-benefit analysis with respect to each category of data they maintain that is not subject to a statutory, regulatory, or legal retention requirement to determine the benefits of retaining the information versus the costs and risks associated with its disposal3. The cost-benefit analysis should consider applicable claims limitation periods. For example, in Virginia the general statute of limitations period for written contracts is five years, but it may be increased or decreased by statutes governing specific types of contracts or the terms of a contract. It is often appropriate to retain written contracts for the period the contract is effective, plus the applicable claims limitation period.

Banks should also consider where their records are stored, as they are no longer just in paper in an organized file cabinet.

Banks should evaluate where their employees can store information – from their email mailbox to the desktop of their computer workstation to certain shared server files to even their personal tablet. Banks need to understand where their records are to effectively implement a record retention policy. Without an idea of the sources and forms of their records (paper, email, instant message), it is difficult to monitor compliance with any retention policy.

A record retention policy is an important component of an organization’s broader information and record management policy. Related matters that may be addressed in the broader policy include how documents are organized and indexed for efficient retrieval when needed, and how to protect and secure documents from unauthorized access or destruction.

Employees must be aware of the retention policy and follow it to effectively manage information. Information management cannot exist in a vacuum. Accordingly, the stakeholders in the retention policy, including leaders in record management, legal, information technology, bank operations and finance/accounting, need to not only understand the retention policy but be its champions, including practicing what the retention policy preaches. Additionally, these stakeholders need to assist in informing and training bank employees on what the policy is and www.vabankers.org

how they can comply with it. The more information that is provided to employees on what must be retained and what can be discarded, the more effective the retention policy can be.

To purchase a copy of the VBA Guide to Record Retention, contact Amy Binns at abinns@vabankers.org or (804) 819-4726.

This article has been prepared for informational purposes only and is not legal advice.

For more information about record retention policy considerations contact Mel Tull, VBA General Counsel, at mtull@vabankers.org or (804) 819-4710.

Footnotes 1. See Data Never Sleeps Infographic 3.0, https://web-assets.domo.com/blog/ wp-content/uploads/2015/08/15_domo_data-never-sleeps-3_final1.png.

2. See The Sedona Conference Commentary on Information Governance, 15 The Sedona Conference Journal 125, 148 (2014) https://thesedonaconference. org/download-pub/411.

3. See id.

March/April 2016 | Virginia Banking 11

Compliance

Corner

Are You Inviting Suspicious Activity Monitoring Missteps?

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By Brian Crow Executive Vice President, Thomas Compliance Associates

key process for every financial institution’s Bank Secrecy Act (BSA) program is suspicious activity monitoring. The challenge is determining how suspicious activity should be identified. Rather than formally documenting this process or training staff on the patterns of activity that could be potentially suspicious, many institutions elect to place all of the responsibility on the BSA officer or follow the “We’ll know it when we see it” process.

The BSA officer may be the most knowledgeable staff member, but unlike elementary school teachers, BSA officers do not have eyes in the back of their head, nor can they possibly review every transaction that passes through the institution. Sole reliance on the BSA Officer’s analysis of manual reports or automated monitoring system alerts could result in suspicious activity going undetected.

The 2014 FFIEC BSA Examination Manual offers additional insight into potential sources of suspicious activity identification. These include: • Employee Identification • Law Enforcement Inquiries and Requests • Manual Reports • Automated Monitoring Systems EMPLOYEE IDENTIFICATION Perhaps one of the most critical components to identifying suspicious activity and the most challenging is employee identification. Frontline staff have the most direct contact with the customer base and the greatest opportunity to obtain vital information relating to transactions. Staff are often reluctant to ask customers questions relating to the source of deposited funds or the reason for large withdrawals. Staff training can assist in overcoming these objections, and encourage those who are hesitant to inquire about transactions to treat the conversation as an opportunity to gain useful information about the customer.

Another common objection to asking customers too many questions is that criminals will not provide honest answers. While this is true, law enforcement has commented that it is much easier to prove that the suspect intended to commit a crime if they are caught in a lie. Bank records document-

12 Virginia Banking | March/April 2016

ing a lie can assist law enforcement in obtaining indictments and convictions.

LAW ENFORCEMENT INQUIRIES AND REQUESTS Sometimes an institution’s first indication that one of its customers is engaged in suspicious activity is the receipt of a law enforcement inquiry or request.

These could include a grand jury subpoena, National Security Letter or a positive information sharing request match under Section 314(a) of the USA PATRIOT Act. Smaller institutions may not see the need to include suspicious activity monitoring procedures relating to law enforcement requests because the BSA officer may also be the officer in charge of processing these requests. To ensure program continuity and to provide for adequate internal controls as the institution grows, examiners expect that applicable sections in the BSA policy and procedures will reflect that the institution performs reviews of customers who are the subject of law enforcement inquiries. For larger institutions that utilize a legal department to process law enforcement requests, procedures should require that the BSA Department receive notification of each request.

Institutions are not required to file a Suspicious Activity Report (SAR) solely because it receives a law enforcement request. It is simply a red flag that the BSA officer should perform an investigation and determine if there is any suspicious activity on the account. If the BSA officer concludes that a SAR is not warranted, the conclusion should be documented as a “SAR not filed.” If a SAR is filed, the narrative should only state the activity that is considered to be suspicious and not specifically mention the existence of the law enforcement request.

MANUAL REPORTS Many smaller institutions still rely on a variety of manual reports to identify suspicious activity. These could include cash activity, wire activity, large dollar, balance fluctuation, kiting suspects and overdraft reports. These reports are generally reviewed daily and initialed by the reviewer. As expectations for suspicious activity monitoring increase, some ex-

Continued on next page www.vabankers.org

Financial

Education

Teach Children to Save Day is April 29

J

A student learns the importance of saving for the future on Teach Children to Save Day.

oin the thousands of fellow bankers across the country participating in Teach Children to Save Day (TCTSD) 2016 activities! Since the program started in 1997, more than 210,000 bankers have taught savings skills to some 7.2 million students.

Friday, April 29 is the official Teach Children to Save Day, but bankers can participate in Teach Children to Save activities 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 Teach Children to Save Day 2016 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 de-

velop 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 lit eracy 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 efforts throughout the state.

Are You Inviting Suspicious Activity Monitoring Missteps?

Continued from page 12 aminers are requesting that institutions document their conclusions regarding specific customers on the reports that they reviewed. It may no longer be sufficient to simply scan the report, date and initial it. Also, since the manual reports segregate the various transaction types, examiners may question whether or not the reviewer can obtain the “big picture” for each customer. Identifying suspicious activity such as structuring can also be challenging if the reviewer is only looking at a single day’s transactions and cannot identify a pattern of activity over time. To address these concerns, some institutions have elected to work with core providers to export the manual reports into a spreadsheet so the data from several days can be combined and sorted by customer, enabling the reviewer to look for patterns of activity such as structuring or cash transactions followed closely by wire transfers.

AUTOMATED MONITORING SYSTEMS Institutions that implement automated monitoring systems often operate under the impression that their investment in the software will solve all of their suspicious activity monitoring concerns. What may not be represented during the sales process is that it can take approximately two years for an institution to customize the parameters so that the system generates meaningful alerts. Institutions may receive examiner criticism if they elect to utilize the software vendor’s default parameters as these may not be reasonable based on the institution’s size, complexity or risk profile. Additionally, the institution must ensure that all of its transaction codes are appropriately mapped into the software so the data accurately represent customer transactions. www.vabankers.org

Similar to staff that merely initial core reports, staff that resolve AMS alerts should provide a detailed narrative that explains why the activity identified in the alert is not considered suspicious.

Lastly, management may be under the impression that an automated system will reduce the need for staff. Although the system will generate alerts more efficiently than manual reports, it often will generate more alerts that require a review than manual reports.

Suspicious Activity Monitoring could be deemed as inadequate if system alerts are not resolved on a timely basis. Ignoring alerts or adjusting parameters for the sole purpose of reducing the number of alerts could result in criticism. Examiners do encourage institutions utilizing automated systems to at least annually review parameters to ensure that they are still reasonable based on the institution’s risk profile. If parameters are adjusted resulting in fewer alerts, the BSA officer should document what activity is no longer being reviewed and explain why this activity is not suspicious.

Suspicious Activity Monitoring is not just the BSA officer’s job.

Every staff member that directly interfaces with customer activity has a responsibility to identify activity that is out of the ordinary.

Brian Crow is a nationally recognized BSA/AML expert with a strong bank compliance management background and a welcome ability to provide focused educational support to Thomas Compliance Associates (TCA) client banks. Concerned that your BSA investigation process may not stand up to examiner scrutiny? Schedule an Independent BSA Review with TCA before your next exam! Contact Melissa Hoeft, CAMS, Director, at (800) 934-7347 for more information.

March/April 2016 | Virginia Banking 13

Welcome

New Associate Members

EMPLOYEE BENEFITS

Benefit Services LLC Address: 7208 Hollyberry Road Roanoke,VA 24018 ROBERT BYE Phone: (540) 777-5035 Email: bob.bye@nm.com Provides executive benefit plan design, BOLI and plan administration.

COMPLIANCE SERVICES/SECURITY SERVICES

LAW FIRMS

MARKETING

Lenhart Pettit

EdgeMark Partners, Inc.

Address: 530 East Main St. Charlottesville,VA 22902 DONALD D. LONG Phone: (434) 817-7977 Fax: (434) 977-5109 Email: ddl@lplaw.com

Protect Quest Address: 1059 Dulin Dr. Amissville,VA 20106 RANDALL MOORE Phone: (540) 829-5340 Email: randy@protectquest.com

Address: 4510 Cox Road, Suite 305 Glen Allen,VA 23060 DOUG GLASCO Phone: (804) 967-2000 Email: dglasco@ edgemarkpartners.com

Lenhart Pettit is a law firm with offices in Charlottesville and Harrisonburg. Lenhart Pettit represents banks in lending, human resources, compliance and corporate matters.

At Protect Quest, they offer innovative solutions that increase productivity and streamline daily operating procedures. Their software simplifies the compliance process and ensures continuity during disaster recovery situations. They have simplified, secured and consolidated the management of physical assets, codes, combinations, credentials.

Specializing in complex, data-driven communications for financial services and investments clients, including targeted direct marketing campaigns (acquisition, activation, retention) as well as customer notifications supporting merger/acquisitions, platform conversions and other highly personalized regulatory communications.

Move

Bankers on the

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

Liles

Clay

Stevens

Stroud

Gee

Jenkins

Lewis

Puleo

Stewart

Skigen

American National Bankshares Inc. Cathy W. Liles, Senior Vice President and Chief Accounting Officer

HomeTown Bank Lisa Correll, Accounting Manager

Bank of McKenney Justin Clay, Vice President, Controller Mark Stevens, First Vice President, Chief Lending Officer Craig Stroud, Mortgage Loan Officer

John Marshall Bank Heather Skigen, Executive Vice President/Chief Credit Officer

Benchmark Community Bank Cheryl Gee, Vice President/Branch Manager Susan Jenkins, Assistant Vice President/Branch Manager Scott Lewis, Assistant Vice President/Business Banker Janice Puleo, Vice President/Administration Teresa Stewart, Vice President/Business Banker EVB Toby Blatt, Branch Manager

14 Virginia Banking | March/April 2016

Petry

Oak View National Bank Jennifer Knighting, Director of Marketing, Vice President Bob Sylcox, Vice President and Senior Credit Analyst Old Point National Bank Rachel Blankenship, Director of Human Resources Village Bank Jennifer Merritt, Director of Marketing Virginia Community Capital, Inc. Zachary Petry, Vice President – Loan Officer www.vabankers.org

2016 Annual Convention

123rd VBA Annual Convention | June 19-22, 2016 The Greenbrier | White Sulphur Springs, WV Visit www.vabankers.org for more information and to register.

Elliot Eisenberg, Ph.D. Elliot Eisenberg, Ph.D. is a nationally acclaimed economist and public speaker specializing in making the arcana and minutiae of economics fun, relevant and educational. Eisenberg, formerly a Senior Economist with the National Association of Home Builders in Washington, D.C., has been invited to testify before lawmakers and is often asked to comment on proposed legislation. His research and opinions have been featured in Bloomberg Businessweek, Bureau of National Affairs, Forbes, Fortune, and many other publications. He is regularly featured guest on cable news programs, talk and public radio, writes a syndicated column and authors a daily 70 word commentary on the economy that is available at www.econ70.com.

John A. Ikard John Ikard is the Immediate Past Chairman of the American Bankers Association (ABA) and the Chairman of the ABA Nominating Committee. He is also the President and CEO of FirstBank Holding Company in Lakewood, CO. Ikard has held leadership positions in a wide variety of organizations beyond ABA and FirstBank Holding Co., such as serving on the board of directors of the Federal Reserve Bank of Kansas City. Ikard is known for his constant effort to establish connections with others, both within his company and the community. That approach is one of the many reasons he was recognized as “Community Banker of the Year” in 2010 by American Banker newspaper.

A.B. Stoddard A.B. Stoddard is the associate editor and a columnist at The Hill newspaper and a regular contributor to the paper’s Pundits’ Blog.

She also appears regularly on Fox’s Special Report with Bret Baier, as well as MSNBC, CNN and BBC for her expertise as a political commentator. Nonpartisan, Stoddard addresses elections and the political landscape of the day. Frequently meeting with sources and politicians of all stripes, Stoddard has her finger on the pulse of Washington, DC as she offers detailed and smart political and electoral analyses. Stoddard has also published articles in the Boston Globe, Congressional Quarterly, and The Federal Paper and is known for her commentary on the 2008 and 2012 U.S. presidential elections.

Scott Wayne Scott is the lead negotiator of The Frontier Project. Working predominantly within the Frontier Envoy unit of the firm, he discreetly investigates global market opportunities, moderates executive summit meetings, leads product development teams and provides negotiation support to key clients. Prior to founding The Frontier Project, Scott worked as a British Diplomat and led business development for a global law firm. He keynotes regularly on the interplay of decision dynamics and innovation in global markets and the personal discipline of innovation. As with his teammates at Frontier, Scott passionately believes that shareholders, society and the environment all mutually benefit when innovation and market influence strategies are deployed for sustainable returns.

Agenda

Sunday, June 19 1:30-7:00 pm Registration & Exhibit Hall Open 6:00-7:00 pm Welcome Reception & Youth Reception Monday, June 20 7:30-8:15 am Group Fitness Class 7:30 am Exhibit Hall Opens 8:30-9:50 am Welcome & General Session 10:00-11:50 am Concurrent Breakouts 10:00 am Spouse Program 11:45 am Golf Tournament Shuttle Service Begins 12:30 pm Golf Tournament 2:00 pm Youth Activity Tuesday, June 21 7:30-8:15 am Group Fitness Class 7:30 am Exhibit Hall Opens 8:30-11:40 am General Session & Election of Officers 4:00 pm Silent Auction Preview & Mobile Bidding Begins 6:00-7:15 pm Chairman’s Reception & Silent Auction 7:15-9:15 pm Dinner & Live Auction 9:15-11:00 pm Entertainment Provided by the band The Swingin’ Medallions Wednesday, June 22 9:00-10:00 am Silent Auction Checkout Departure

Their Financial Future Starts with You Teach Children to Save is an ideal opportunity to start children in your community on the path to sound money management and a productive adulthood. Join with bankers across the nation to help shape the future of young people in your community. Your participation will inspire them to reach for their dreams—and enhance your bank’s image.

NEW! Take your efforts to the next level by supplementing your presentations with financial-education themed books through the ABA Foundation Book Award Program.

TEACH CHILDREN TO SAVE aba.com/Teach | #TCTS2016