Virginia Banking Jan/Feb 2015

January/February 2015

4th Annual

Financial Forecast

IN THIS ISSUE

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

SUBSCRIPTIONS If you would like to subscribe to Virginia Banking, contact Melanie Reilly at mreilly@vabankers.org.

Bruce T. Whitehurst President and CEO Virginia Bankers Association

Virginia Banking is published bi-monthly. Copyright 2015.

Melanie Reilly Communications Coordinator Virginia Bankers Association

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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: The Warren Group, 280 Summer Street, Boston, MA 02210. Call 800-356-8805.

14

cover features

4th Annual

Financial Forecast

16

Opening the Core Data of Banking Systems to Community Bankers

22

Why You Should Care About Your Customers’ Financial Literacy

in every issue 4 Calendar of Events 6 Insights 8 Worth Noting 9 New Associate Members 10 Legislative Update 11 Washington Update 12 Legal Line 20 Compliance Corner 21 Bankers on the Move

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

January/February 2015 | Virginia Banking 3

Calendar of INSTRUCTOR-LED SEMINARS

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

INSTRUCTOR-LED SEMINARS

WEBINARS

RETAIL BANKING & MARKETING CONFERENCE OMNI CHARLOTTESVILLE HOTEL MARCH 10-11

ANNUAL CONVENTION THE OMNI HOMESTEAD RESORT JUNE 21-24

APPRAISAL REVIEW SEMINAR VBA TRAINING CENTER MARCH 11-12

CFO CONFERENCE OMNI DOWNTOWN RICHMOND AUGUST 24-26

IRA REQUIRED MINIMUM DISTRIBUTIONS FEBRUARY 18

BANK DIRECTORS SYMPOSIUM RICHMOND, VA MARCH 17

CEO FORUM WILLIAMSBURG LODGE SEPTEMBER 14-15

DESIGNING AN ALLL RESERVE METHODOLOGY IN TODAY'S CHANGING ENVIRONMENT FEBRUARY 19

BLACKSBURG, VA MARCH 18

CREDIT MANAGEMENT CONFERENCE OMNI CHARLOTTESVILLE HOTEL OCTOBER 5-6

CAPITAL PLANNING IN THE CURRENT ENVIRONMENT FEBRUARY 25

LEADERSHIP CONFERENCE MOUNTAIN LAKE LODGE OCTOBER 15-16

FIVE WAYS TO IMPROVE THE VALUE OF YOUR ORGANIZATION FEBRUARY 25

COMMERCIAL LENDING SCHOOL VBA TRAINING CENTER OCTOBER 21-22

IRA TRANSFERS AND ROLLOVERS FEBRUARY 25

NORTHERN VIRGINIA MARCH 19 BACK TO SCHOOL AT THE VBA VBA TRAINING CENTER APRIL 9 COMPLIANCE SCHOOL AND ADVANCED COMPLIANCE SESSION OMNI CHARLOTTESVILLE HOTEL APRIL 13-16 SUPERVISOR BOOTCAMP VBA TRAINING CENTER APRIL 14-15 SECURITY RISK WORKSHOP OMNI CHARLOTTESVILLE HOTEL APRIL 22-23 HR & BENEFITS CONFERENCE OMNI CHARLOTTESVILLE HOTEL APRIL 26-28

ENTERPRISE RISK MANAGEMENT WORKSHOP VBA TRAINING CENTER OCTOBER 27 WOMEN IN BANKING CONFERENCE WESTWOOD CLUB NOVEMBER 17

FUNDAMENTALS OF CREDIT ANALYSIS & BUSINESS FINANCING VBA TRAINING CENTER MAY 20-21 TRUST & WEALTH MANAGEMENT CONFERENCE VBA TRAINING CENTER MAY 28 4 Virginia Banking | January/February 2015

ALCO FUNDAMENTALS FEBRUARY 26 EMV - WHAT DO HACKERS KNOW AND WHY SHOULD YOU CARE? FEBRUARY 26 IT EXAMINATION HOT SPOTS MARCH 2

GOVERNMENT RELATIONS EVENTS VBA/ABA GOVERNMENT RELATIONS SUMMIT WASHINGTON, DC MARCH 23-25 WEBINARS

OPERATIONS & TECHNOLOGY CONFERENCE OMNI CHARLOTTESVILLE HOTEL MAY 12-13

HOT TECHNOLOGY AND SECURITY CONCERNS - WHAT HAS ARRIVED AND WHAT IS COMING? FEBRUARY 18

CRE CASH FLOW: ANALYZING INCOMEPRODUCING OR RENTAL REAL ESTATE, PLUS GLOBAL CASH FLOW ISSUES FEBRUARY 17 ENTERPRISE RISK AND THE ALCO PROCESS: BUILDING YOUR CAPITAL BUFFER THROUGH ALCO STRESS TESTING FEBRUARY 17 KEYS TO UNDERSTANDING PERSONAL AND GLOBAL CASH FLOW FROM TAX RETURNS FEBRUARY 17

DEVELOPING YOUR INCIDENT RESPONSE PLAN TO EXCEED REGULATORY EXPECTATIONS MARCH 3 INTEGRATING TECHNOLOGY INTO YOUR BANK'S STRATEGIC PLAN MARCH 3 ANALYZING THE COMPANY'S LIQUIDITY POSITION USING THE CASH CONVERSION CYCLE MARCH 4 CYBERSECURITY AND REGULATORY EXPECTATIONS MARCH 4 IS YOUR ATM AN OVERSIZED SLOT MACHINE? MARCH 4 www.vabankers.org

Sponsored by the VBA Education Foundation and the VBA Leadership Division

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VIRGINIA BANKERS ASSOCIATION BANK DAY SCHOLARSHIP PROGRAM

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CALLING ALL BANKERS! PARTICIPATE IN THE VBA BANK DAY SCHOLARSHIP PROGRAM!

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by nF the o i t VBA Educa

The third Tuesday in March was declared Bank Day by the Virginia General Assembly in 1991. On this day, high school seniors spend a day in banks across the Commonwealth shadowing a banker in their daily duties. The purpose of this experience is for the students to learn about banking, financial services, and the vital role banks play in their communities.

From their experience, the students are required to write an essay on their Day. Seven scholarships (six regional and one statewide) will be awarded on the basis of the essays.

There will also be six honorable mention scholarships of $500 this year (one in each of the six regions).

Bank Day will take place on Tuesday, March 17th, and the VBA Leadership Division will participate in, lead and help promote the program.

Participation Criteria: High school senior Cumulative GPA of 3.0 or higher Teacher sponsor Scholarship Amounts: $500 Each for Six Honorable Mention Scholarships $2,000 Each for Six Regional Winners $4,000 Statewide Winner ($6,000 total since all candidates will also be regional winners) Deadlines & Important Dates Mar. 13, 2015: Deadline to sign-up for the program.

Mar. 17, 2015*: Bank Day! April 3, 2015: Student essays due by 5 pm. Essays submitted directly to VBA via email.

April 30, 2015: Regional winners & honorable mention winners notified.

May 8, 2015: State winner notified.

Please contact Chandler Owdom at cowdom@vabankers.org with questions. *You may hold your Bank Day on a different day than March 17th, but please keep the deadlines in mind and allow the student adequate time to write his or her essay after your day.

Insights The Consummate Banker

Con-sum-mate (Webster.com): extremely skilled and accomplished.

J Bruce Whitehurst President and CEO, Virginia Bankers Association

ohn Clements, former chairman and long time CEO at The Bank of Southside Virginia, was the consummate banker. His passing on October 21, 2014 represented a huge loss to his family, his community and Virginia banking, and John’s impact throughout his life cannot be overstated.

I first met John in January 1993. I had accepted a position at the VBA and was able to spend some time with Leton Harding, whose position I was taking, while I worked out my notice at Jefferson National Bank and Leton prepared to return to a banking career. On one of the days I was at the VBA with Leton, there was a meeting of the Virginia Title Center Board of Directors. The VBA had just become involved with the VTC, and John Clements was at the head of the table chairing the meeting. John welcomed me and said that if Walter Ayers had selected me to join the VBA staff, then that told him a lot about me already, and that he looked forward to working with me. I was 28 years old and looked 15,

so John’s words gave me a boost of confidence as I entered a new chapter in my professional career.

Already a past VBA President (1989-1990), John went on to partner with me as the inaugural chairman of the VBA Products & Services Corporation – what we now know as VBA Management Services, Inc. – shortly after I started at the VBA. John also chaired the VBA Benefits Corporation and was always one of the VBA’s strongest supporters and advocates. John stated many times that only by working together as industry leaders could we maintain the best possible environment for banking, so that banks could serve and invest in their communities. His active engagement and leadership at the VBA certainly showed that John practiced what he preached.

John’s legacy of commitment to the VBA and the industry continues in a meaningful way. John’s son Peter, also a past VBA chairman (2008-2009), currently chairs the VBA Benefits Corporation. Peter’s son Will, who has been at The Bank of Southside Virginia for a few years, is active in the VBA Leadership Division and serves on the VBA marketing committee.

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

6 Virginia Banking | January/February 2015

www.vabankers.org

From left: John Clements, Will Clements, Jennifer Clements and Peter Clements at the 2011 VBA Annual Convention.

Consider the incredible level of engagement that John gave to the VBA and to the industry – with Peter and Will following in his footsteps – and consider that John did the same for his church, his town, his alma mater and countless other organizations that are much better off for John’s leadership. Think about the fact that John did all these things while also running one of the most profitable banks in the country and spending quality time with his family at home, at the beach and on trips, including many VBA Annual Conventions. That is the consummate banker and quite a role model!

I have written in the past about the value of mentorship and how much of a difference it makes in our lives. I am both humbled and inspired by the example John set and am grateful to be one of the many individuals John mentored along the way. The Clements family has been uplifted by the outpouring from hundreds of people, through their attendance at John’s service, their cards and letters, their phone calls and their contributions made in memory of John and his legacy. Numerous Virginia bankers are on that list, which is fitting given what John Clements meant to Virginia banking.

“The mentors in my life inspired me to fulfill my highest potential.”

— Lailah Gifty Akita

January/February 2015 | Virginia Banking 7

Noting

Worth

CAPITAL ONE BREAKS GROUND ON MCLEAN HEADQUARTERS CAMPUS On Nov. 17, Capital One held a groundbreaking ceremony to kick off the expansion of its McLean headquarters campus and celebrate 20 years as a public company. Construction will soon begin on a new 470-foot headquarters tower on the campus. The building will be the tallest structure in the area, outside of the Washington Monument. The expansion is a reflection of Capital One’s commitment to Virginia and its plan to continue hiring great people and play a significant role in the community.

EDITH FULCHER NAMED FDIC REGIONAL OMBUDSMAN FOR THE ATLANTA REGION

Fairfax County Board of Supervisors Chairman Sharon Bulova; Gov. Terry McAuliffe; Capital One Founder, Chairman & CEO Rich Fairbank; Sen. Mark Warner; and Fairfax Supervisor Linda Smyth break ground on the new Capital One headquarters tower.

C. TODD ASBURY APPOINTED TO SUCCEED JONATHAN H. MULLINS AS PRESIDENT AND CEO OF NEW PEOPLES BANKSHARES The board of directors of New Peoples Bankshares, Inc. announced that Jonathan H. Mullins resigned from his position as president, CEO and director of the company and its subsidiaries, effective Dec. 17, 2014. On the same day, the board of directors appointed C. Todd Asbury to succeed Mullins as president and CEO of the company and its subsidiaries.

Asbury has served as executive vice president, chief financial officer and treasurer of the company and its subsidiaries since May 2009; secretary of the company and its subsidiaries since May 2010; and senior vice president, chief financial officer and treasurer of the company and subsidiaries from the time he joined New Peoples Bankshares in December 2003 to May 2009.

Federal Deposit Insurance Corporation (FDIC) veteran Edith (Edye) Fulcher has been named as the new regional ombudsman for the Atlanta region, effective December 2014.

Fulcher has 29 years of bank supervision experience with the FDIC and was most recently an assistant regional director in the Atlanta region of the FDIC’s Division of Risk Management Supervision where she supervised over 150 financial institutions and managed a staff of case managers, examination specialists and field supervisors. She also had oversight responsibility of the region’s trust examination and capital markets programs. Fulcher received a B.S. in finance from Virginia Tech in 1983, and is a 2002 graduate of the Stonier Graduate School of Banking, Georgetown University.

CHARLEY MAJORS RETIRES FROM EXECUTIVE CHAIRMAN OF AMERICAN NATIONAL BANKSHARES INC. American National Bankshares Inc., parent company of American National Bank and Trust Company, announced on Dec. 16, 2014, that Charles H. Majors (left) retired from his role as executive chairman on Dec. 31, 2014. As the final step in the company's succession plan, he is transitioning to non-executive chairman of the boards of the company and the bank

Join us April 9, 2015 at the VBA Training Center for Preparing for Teach Children to Save Day and Get Smart about Credit Day Register online at www.vabankers.org or email mreilly@vabankers.org.

8 Virginia Banking | January/February 2015

www.vabankers.org

and will continue to be involved in the strategic direction of both.

Majors became president of the company and the bank in January 1993 and CEO of both entities in January 1994. He continued in those roles until the company's management succession plan was established. In June 2010, Jeffrey V. Haley was named president of the bank, and Majors was named bank chairman. On Jan. 1, 2012, Majors became chairman of the company and Haley became president of the company and president and CEO of the bank. One year later, Haley became president and CEO of the company and the bank and Majors was named as the full-time executive chairman of both entities.

C&F FINANCIAL CORPORATION ANNOUNCES EXECUTIVE PROMOTION The board of directors of C&F Financial Corporation (CFFI) is pleased to announce that Thomas F. Cherry has been promoted to president of C&F Financial Corporation (or C&F) and C&F Bank. In addition to his role as president, Cherry will continue as chief financial officer until a successor is named. Board Chairman Larry Dillon will remain the chairman and CEO of C&F and C&F Bank and will actively participate in strategic and operational initiatives at all of C&F's companies.

Tom Cherry has been with C&F for 18 years during which time he has served as executive vice president and chief financial officer of C&F and C&F Bank since December 2004 and as secretary of C&F and C&F Bank since 2002. He is a CPA and has a Bachelor of Science degree in business administration from Old Dominion University and a Master's Degree in business administration from the College of William & Mary.

BLUE RIDGE BANKSHARES NAMES PRESIDENT/CEO Monte Layman retired as president and CEO of Luraybased Blue Ridge Bankshares Inc. and Blue Ridge Bank Inc. Brian Plum has been appointed as Layman's successor.

Plum also joins the board of the company and the bank.

Layman had been with the company for nearly 14 years, serving as president and CEO for the past 11 years. During Layman's tenure, the bank grew significantly and expanded into two new markets.

Plum joined the bank in August 2006 and assumed the position of chief financial officer in 2007, a role in which he served until February 2014 when he became chief administrative officer. Plum received a B.A. in accounting and economics from Eastern Mennonite University, an M.A. in accounting from James Madison University, and an MBA from the Darden Business School at the University of Virginia. He is a Certified Public Accountant and has been www.vabankers.org

New Associate Member CORE PROCESSING

The Payments Company 10800 Midlothian Turnpike Suite 126 Richmond, VA 23235 CONTACT: BRIAN COOK Email: brian@thepaymentscompany.com Phone: (804) 317-9229 Fax: (804) 379-0052 Website: www.thepaymentscompany.com The Payment Company’s advantage solution enables their clients to focus on their core business while The Payments Company implements full-scale electronic payments to their suppliers in a single efficient payment workflow process that includes Card, ACH and check payments.

thrice named a Super CPA by Virginia Business and the Virginia Society of Certified Public Accountants.

IN LOVING MEMORY OF BOB SPENCER Robert E. Spencer, Jr., 73, died at his home in Chesapeake on Wednesday, Dec. 17 from complications related to Parkinson’s Disease. Bob enjoyed a rewarding career as a U.S. Navy flight officer and served on active duty for seven years before spending another 16 years in the U.S. Navy Reserves, retiring with the rank of commander. After retiring from active duty, he started a second career in banking and worked at banks all over the Hampton Roads area. He served as president of Bank of Isle of Wight in Smithfield and Citizens National Bank in Windsor. He retired in 2007 and served as chair of the board until 2011. The Virginia banking community will greatly miss Bob, and our thoughts and prayers are with his family.

WE WILL MISS BILLY FERRELL James “Billy” William Ferrell, III, passed away Dec. 21, 2014. Born June 20, 1938 in Petersburg, Va., Billy worked in the banking industry, calling on community banks in the state of Virginia. He was a member of the Commonwealth Club, the Sons of the Revolution and The General Society of Colonial Wars. Billy was a longtime associate member and strong supporter of the Virginia Bankers Association. He will be greatly missed.

January/February 2015 | Virginia Banking 9

Legislative

Update

2015 General Assembly Preview

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Matt Bruning Vice President, Government Relations, Virginia Bankers Association

hile the Virginia General Assembly remained in session for the preponderance of 2014, the 2015 version of the legislative session is upon the commonwealth. After 10 months of special session in which elected officials debated, finally passed and then returned later to revise the state budget plan, debated and failed to expand health care coverage, and filled some but not all judicial seats, the General Assembly begins anew on Jan. 14, 2015.

Fresh issues, both comprehensive and localized, will commingle with familiar efforts to formulate the policy landscape over the course of the “short” 45-day session held in odd-numbered years.

Being cast within the ubiquitous political dynamic of all 140 state legislative seats on the fall ballot portends an array of challenges and opportunities for lawmakers. Some will view the session as the final chance before Election Day to display to voters an ability to solve problems, reach consensus and govern effectively. Others will cling to the expedited timeframe, hoping to bide their time until freed to re-enter the campaign fundraising season. Unfortunately, some will move to generate greater favor from certain partisan interests as divisive primary elections and politically-tailored districts beget increasingly polarized positions.

In the end, many of the issues created from the latter approach will dominate media headlines, provide fodder for campaign brochures and ultimately distract from the largely bipartisan and harmonious outcomes. High political stakes loom in the future composition of the Virginia Senate where Republicans regained a razor-thin 21-19 edge this summer. Between announced retirements of at least four long-serving Senate members – two from each party – contested primary challengers emerging and the fundraising prowess of Gov. Terry McAuliffe readying an attempt at securing a political legacy, removing the political considerations from policymaking in 2015 is wishful thinking.

While undoubtedly there will be no shortage of red meat intended to satiate each political base, substantive issues will have a place in the debate.

The legislature and McAuliffe agreed on substantial

budgetary reduction strategies for the current biennium of the state spending plan in anticipation of flat revenue projections while in special session over the fall. While this proactive, bipartisan approach addressed significant fiscal decisions, lawmakers still must identify an estimated $322 million in additional cuts or savings to ensure a balanced budget. Continued examination of the state’s mental health system, energy plan and proposed pipelines and land conservation tax credit program are all assured to garner legislative attention.

Other high profile issues that will be considered include two that have caused Virginia unflattering national attention. Legislation on the parameters of gift giving, personal financial reporting and overall ethics reform relative to elected officials will be plentiful, spurred from the conviction of former Gov. Bob McDonnell and his wife Maureen on federal corruption charges. There will be serious efforts to address sexual assault on college campuses in light of the Rolling Stone magazine article centered on the University of Virginia.

Finally, despite last November’s federal election being the second such contest under redrawn Congressional district boundaries after the redistricting process of 2011, a three federal judge panel found the current configuration in violation of the 14th Amendment in October. While the ruling is being appealed to the U.S. Supreme Court, the panel instructed the General Assembly to redraw the districts by April 1, 2015. Whether and how lawmakers endeavor to do so during the regular session will infuse another layer of politics into the capitol.

On the banking side, proactive measures seeking clarifications to the assessment of recordation tax on modified loans, docketing of judgment satisfactions and small estate procedures are being advanced with the support of your association. As in previous sessions, the VBA will be reviewing and weighing in on a number of anticipated topics with potential impact to the industry including lien preferences, collateral protection, fraud liability and homeowner associations. You can follow the progress of banking related legislation by contacting the VBA to receive the VBA Legislative Bulletin, distributed weekly during the session.

Email Matt Bruning at mbruning@vabankers.org with any comments on this article.

10 Virginia Banking | January/February 2015

www.vabankers.org

Update

Washington

It’s Time to Reform the Farm Credit System

I Frank Keating President and CEO, American Bankers Association

n a recent radio interview in San Antonio, Texas, Michael Mauldin, regional president of First Financial Bank, Hereford, Texas – described how the Farm Credit System has used its government guarantee to finance loans outside of its mission. Case in point: A $725 million loan for Verizon to buy out a European telecom company.

The incredulous response from the show’s host: “What does that have to do with farming and ranching?”

Earlier, in Birmingham, Ala., Bob Jones, president and CEO of United Bank, Atmore, Ala., and a member of ABA’s Board of Directors, explained in another radio interview how the Farm Credit System has lost sight of its original mission. “In 2012, only 17 percent of the $247 billion in outstanding Farm Credit System loans went to small farmers,” he said. “It morphed, as many bureaucracies do, into a much more far-reaching enterprise.”

Bankers across the country – even those in suburban areas – have compelling stories about how the tax-advantaged Farm Credit System unfairly tilts the competitive playing field while exposing American taxpayers and our nation’s economy to significant risks. ABA is helping you share these experiences. And with guidance from our special ABA Agricultural Credit Task Force, composed of bankers and state association executives, we’re elevating and expanding our advocacy on this issue. In short, we're taking a more strategic and aggressive approach.

That approach includes a new website – ReformFarmCredit.com – that will shine a spotlight on the Farm Credit System, the first and leastknown of the government-sponsored enterprises.

The website will help you tell your story to members of Congress and opinion leaders. It will be a powerful tool in getting the word out about FCS abuses and on-going mission creep.

Taken together, the system is a $266 billion entity.

If the Farm Credit System were a bank, it would be the ninth largest in the United States. In fact, it’s bigger than 99.9 percent of all banks in the country.

These are facts policymakers need to know.

They also need to know that as a GSE, the Farm Credit System represents a risk to taxpayers in the

same way that Fannie Mae and Freddie Mac do.

And, while it creates additional risk for taxpayers, it ironically benefits from significant tax breaks. In 2013, those tax breaks totaled $1.3 billion – that’s quite a competitive edge. Today, the Farm Credit System is making risky loans with government backing, formalized last year by the creation of a $10 billion line of credit with the U.S. Treasury.

ABA and the state bankers associations are committed to exposing these truths. We need you to help, too.

We’ll be asking you to take a stand and encourage your lawmakers to do the same. You need to let your lawmakers know that the FCS’ tax-free status and ever-expanding mission make it difficult to meet the needs of your customers and their constituents. No one can convey this message better than you.

This is not a new battle. We’ve been fighting long and hard to put an end to the FCS inequities. We’re making progress, but we need to keep pushing.

Earlier this year, for example, ABA and Kansas banker Leonard Wolfe testified before a House subcommittee that has oversight over the Farm Credit System, bringing some much-warranted focus on its activities. Shortly after the June hearing, Rep. Marlin Stutzman (R-Ind.), a member of the House Financial Services Committee, penned an op-ed urging that “Farming should be at the center of the Farm Credit System … Unless we return the Farm Credit System to its original mission, taxpayers could be on the hook for a bailout in the near future and farmers’ access to credit could be reduced.”

Now, with the rollout of ReformFarmCredit. com – and your engagement and involvement – we will continue to up our game. You’ll also be able to personally lobby this issue – along with other key banking advocacy priorities – at ABA’s 2015 Government Relations Summit, March 23-25, in Washington, D.C. Registration for the Summit is free. Go to www.aba.com/Summit to learn more.

With all of these resources in place, it’s time to continue to show lawmakers the real threat that the Farm Credit System poses to taxpayers and the economy, and the need for reform.

Email Frank Keating at keating@aba.com with any comments on this article. www.vabankers.org

January/February 2015 | Virginia Banking 11

Line

Legal

Virginia’s Uniform Power of Attorney Act Fees for Dormancy and Legally Required Action for Abandoned Deposit Accounts

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rontline tellers and branch managers are frequently presented with powers of attorney. This article reviews the Virginia Uniform Power of Attorney Act provisions that are most important to bankers.

Mel Tull General Counsel, Virginia Bankers Association

A POWER OF ATTORNEY AND REQUESTING SUPPORTING DOCUMENTATION To encourage widespread acceptance of powers of attorney, the act provides certain protections for persons accepting acknowledged (notarized) powers of attorney. Under Section 64.2-1617, a bank that, in good faith, accepts an acknowledged power of attorney without actual knowledge that the instrument is forged, void, invalid or terminated; the agent’s authority is void, invalid or terminated; or the agent is exceeding or improperly exercising his or her authority, may rely on the document and the agent’s instructions as if each were genuine, valid, properly exercised and still in effect. This provision does not apply if the signature of the principal is not genuine, making it important for banks to confirm the authenticity of questionable signatures.

Knowledge about a power of attorney will not be imputed to bank employees if the bank follows commercially reasonable procedures for communicating knowledge about its customers’ powers of attorney among the bank’s employees.

As an additional protection, within seven days of being presented with a power of attorney, a bank can request supplemental documentation to confirm the validity of the instrument. A bank may request any or all of the following: an agent’s certification under oath as to any factual matter concerning the principal, agent or power of attorney; an English translation of the power of attorney; or an opinion of counsel for the principal, agent or bank as to any matter of law concerning the power of attorney. The principal is responsible for the cost of an English translation or opinion of counsel prepared by the principal’s or agent’s attorney. A bank may rely on these supplemental documents without any further investigation and must accept the power of attorney within five business days of receiving them.

REJECTING A POWER OF ATTORNEY Section 64.2-1618 enumerates six safe harbors

12 Virginia Banking | January/February 2015

that allow a bank to reject an acknowledged power of attorney even after a certification, translation or opinion of counsel is produced. A bank is not required to accept a power of attorney if: • the bank would not be required to engage in the transaction with the principal in the same circumstances, or the principal has relieved the bank from an obligation to engage in the transaction with an agent representing the principal under a power of attorney; • engaging in the transaction with the agent or principal would be inconsistent with federal law; • the bank has actual knowledge of the termination of the agent’s authority or of the power of attorney; • a request for a certification, translation or opinion of counsel is refused; • the bank, in good faith, believes that the power is not valid or that the agent does not have the authority to perform the act requested; or • the bank makes a report to the local adult protective services department stating a good faith belief that the principal may be subject to physical or financial abuse, neglect, exploitation or abandonment by the agent.

PROHIBITION ON REQUIRING A FORM POWER OF ATTORNEY Banks are prohibited from requiring an individual to use the bank’s form power of attorney. Under Section 64.2-1617, a bank may not require an additional or different form of power of attorney for authority granted in the power of attorney presented. Rejecting an instrument for this reason will expose the bank to liability for wrongfully rejecting a power of attorney.

LIABILITY FOR WRONGFULLY REJECTING A POWER OF ATTORNEY If a bank refuses to accept an acknowledged power of attorney and is not covered by one of the six enumerated safe harbor provisions, it may be subject to a court order mandating acceptance of the power of attorney and liability for reasonable attorneys’ fees and costs incurred in any proceeding that confirms the validity of the power of attorney www.vabankers.org

or mandates acceptance of the power of attorney.

AUTHORITY GRANTED IN A POWER OF ATTORNEY WITH RESPECT TO BANKS Section 64.2-1622 requires certain powers to be specifically granted in the power of attorney. An express grant is required for the agent to: • create, amend or terminate an inter vivos trust; • make a gift (except for certain charitable gifts); • create or change rights of survivorship; • create or change a beneficiary designation; • delegate authority granted under the power of attorney; • waive the principal’s right to be a survivor beneficiary of an annuity retire-

ment plan; and • exercise fiduciary powers that the principal has authority to delegate.

Except where a specific grant is required, a power of attorney may grant an agent general authority to do all acts the principal could do. Section 64.2-1629 provides that, unless the power of attorney states otherwise, a general grant of banking authority authorizes the agent to take the following actions: • establish, modify and terminate an account or banking arrangement; • contract for services from a financial institution, including renting a safe deposit box; • withdraw money or property from a financial institution; • receive account statements, notices and similar documents from a bank;

• enter a safe deposit box and withdraw or add to its contents; • borrow money, pledge personal property or pay debts of the principal; • make, assign, draw, endorse, accept and pay negotiable and non-negotiable instruments of the principal or payable to the principal; • receive for the principal and act on a sight draft, warehouse receipt or other document of title; • apply for and use credit and debit cards and electronic transactions; and • consent to an extension of time of payment in a transaction with a financial institution.

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

For more information about the Virginia Uniform Power of Attorney Act, contact Mel Tull, VBA General Counsel, at mtull@vabankers.org or (804) 819-4710.

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January/February 2015 | Virginia Banking 13

Virginia Bankers Association and Virginia Chamber of Commerce Host Close to 650 Members of the Business Community for the...

4th Annual

Financial Forecast O

n Jan. 9, close to 650 bankers and business people attended the Virginia Bankers Association/Virginia Chamber of Commerce 2015 Financial Forecast at the Greater Richmond Convention Center. Each year, the event aims to help prepare the state’s business community for what lies ahead for Virginia and for the economy.

This year’s Forecast speakers provided dynamic economic updates and an overall optimistic outlook for Virginia and the U.S. John Reinhart, CEO and executive director of the Virginia Port Authority, discussed the impact of Virginia’s ports on our state’s economy. Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, covered an all-encompassing economic outlook for the U.S. Reinhart kicked off the event with an overview of the Port of Virginia, sharing its mission to foster and stimulate growth for Virginia’s economy. The six Virginia ports have had record-setting volumes in 10 of the last 18 months, with two of the main container terminals working at or near capacity. Reinhart shared that the port contributes to Virginia’s economy in three ways: through transportation of export and import cargo within Virginia and across it from other states and countries, through the export of goods made in Virginia and by processing and distributing imports retained in the commonwealth. Shifting towards talk of the future, Reinhart remarked that Virginia is ideally situated as a population center and cargo site.

14 Virginia Banking | January/February 2015

In another speech, Lacker discussed the potential for GDP growth to rise between 2.5 and 3 percent in 2015. He shared that the recent strength in consumer spending and decline in the saving rates suggests that current higher growth rate could be sustained. Lacker shared potential challenges, including sluggishness in the housing market, declines in government spending and the potential for weaker exports.

Lacker concluded, “To sum up, the key consumer sector has picked up in recent months, and I believe the growth we’ve seen recently is more solidly based and is likely to continue.

Business investment should also contribute to growth this year, but residential investment probably won’t add much.

Federal spending and net exports will likely subtract from overall activity.”

Welcome and speaker introductions for the event were given by Bruce Whitehurst, president and CEO, Virginia Bankers Association; Gary Thomson, regional managing partner, Dixon Hughes Goodman LLP, and chairman of the Virginia Chamber of Commerce; John R. Milleson, president and CEO, Bank of Clarke County, and chairman of the Virginia Bankers Association; and Barry Duval, president and CEO, Virginia Chamber of Commerce.

Thanks to all who attended the 4th Annual Financial Forecast. Please save the date for the next Financial Forecast on Jan. 8, 2016. www.vabankers.org

www.vabankers.org

January/February 2015 | Virginia Banking 15

Big

Data

Opening the Core Data of Banking Systems to Community Bankers

By Yoni Elmalem & Harry Hughes, Inbox America

Inbox is an associate member of the VBA and global consulting firm that specializes in marketing and predictive analytics. Inbox employs marketing and banking professionals to design solutions that help clients enhance mutually beneficial relationships with their customers.

C

ustomer data analytics – also referred to as data mining – is a rapidly expanding field that is providing big returns to those who are exploring it. Marketing and distribution departments use it to enrich their customers’ knowledge and gain accuracy, relevancy and profitability: Customer value, lifecycle, up and cross-sell propensity, marketing campaign optimization, retention plans, etc. are the key elements to build or strengthen customer relationships.

However, the analytics market tends to be overrun by some buzzwords like “big data.” This brings confusion, knowing that the biggest stake for small and mid-sized organizations remains the same: How can I transform my data – considered as an asset – into valuable customer knowledge?

16 Virginia Banking | January/February 2015

Community bankers represent a segment of the banking industry that has built its existence on what experts regard as the foundation of all success: knowing the customer and building strong relationships. But based on who in the banking sector is reaping the most benefit of this innovative strategy, it seems that all too often customer analytics means big costs. Small and mid-sized players thus see it as a tool only available to the big banks with plentiful resources. However, “[c] ommunity banks cannot afford to wait to set their strategies once a future standard emerges,” said a top-level executive at the management consulting firm Oliver Wyman.

Continued on page 18 www.vabankers.org

Their Financial Future Starts with You Did you know that a child with a college savings account is seven times more likely to attend college than one without? 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.

To learn more and to register, visit aba.com/Teach.

TEACH CHILDREN TO SAVE DAY Friday, April 24, 2015 #TCTS2015

Big Data Continued from page 16

tem (CRM) or has the features to do the things that have become critical to future success. Ironically, many of the banks that do have a CRM will tell you it has become jokingly referred to as their ‘Can’t Really Measure’ system.

The actual trend is considering that relationship management should be supported by customer experience management. On the other hand, CRM is the engine of the customer interactions, not the solution, and like every engine, it requires some energy. The CRM’s gasoline is relevant information, and the higher its grade, the better performance you’ll obtain. Analytics will help you to refine your solicitation process and to identify the hidden gems in your customer database, leveraging your CRM usage.

CUSTOMER KNOWLEDGE SHOULD NOT MEAN BIG COSTS How many times do you suppose that a C-level executive of a community bank – struggling to maintain market share and grow its business – has daydreamed about actually having the analytic horsepower and resources to tap the muscle and might of various data? This could serve their obvious goals: to improve branch performance, identify developing trends that provide pivotal guidance on commercial and retail delivery strategies, keep up with customer’s needs and anticipate trends that allow proactive action before the window of opportunity has vanished.

Inbox recently met with one of the most recognizable banks on Wall Street with worldwide offices. They employ several hundred dedicated analytic programmers in their Market Research and Strategy department. Small and mid-sized banks certainly won’t hire such a team and won’t invest in dedicated servers clustered to run cutting-edge and expensive analytical software. We just want to emphasize the fact that we are talking about methodology and scalable technology. Innovative banks are already taking advantage of the valuable data gathered from their core banking system in a big way because they anticipated the real stake: relevant 18 Virginia Banking | January/February 2015

data collection. So, where are the golden nuggets lying?

COMMUNITY BANKS HAVE THE RIGHT TO ACCESS THEIR OWN DATA Community banks that try to capture strategic data should be confident in their right to retrieve their own proprietary data from their existing core banking providers (eg. SAB, Atlas, Delta, Orion, FISERV, FIS), and as often as they wish.

For the very few core providers who still make it difficult for banks to access their own data, Inbox suggests to write it clearly in the contract when renewing your existing core or shopping for a new system. Remember, it’s your data! It does not have to be so hard to get it in the desired format that is useful or most importantly, actionable.

WHEN DID YOU WANT YOUR REPORTS? Now you are ready to execute an optimized solicitation campaign; it’s time to measure the performance of your relational actions. What about a dashboard exposing how you dramatically improved the sales ratio and increased your customers’ portfolio value? The information is hosted in your core system.

Sadly, it’s a commonly heard reply from IT managers who hate to say no to any request that could improve profitability: “I’ll have to check with our core provider and find out how long it will take to get that data (and how much it might cost) ... When did you want that by, 2015 or 2016?” In other words in IT dialect: “Fuggedaboutit!” Hopefully, most core banking systems provide back-up features that allow a bank’s IT department to extract that data. It’s simple, free and usually included in your contract.

WHY NOT SIMPLY USE THE CRM WE PURCHASED FIVE YEARS AGO…?

GET THE CUSTOMER INSIGHTS YOUR CORE WON’T OFFER

The usual answer at a lot of community banks is that “our resources were limited when we purchased our latest CRM several years ago, and it doesn’t really interact transparently with our core system.”

In many cases, the older a bank’s core system, the less likely it shares data with the customer relationship management sys-

Having a good, flexible and readily available analytical partner is a smart choice to seize the benefits of big data and predictive analytics. Such a partner will help you gain a competitive edge by assessing the hidden potential of your bank and performing these “musthave” services: www.vabankers.org

1. Enriching customer data with valuable insights (e.g. sales opportunities, loyalty scores), 2. Providing daily sales leads to your sales team, 3. Capturing transactional data to help focus and manage a sales team’s daily activities to prioritize smart actions to reach sales goals, 4. Aligning your marketing and sales strategies for more agility and quicker time to market.

YOUR STRATEGY TO MEET NEXT YEAR’S GOALS IS AVAILABLE TODAY You should be considering looking for an analytical partner now if you are willing to leverage your bank’s data and unlock your core banking system. Starting with a segmentation tailored for your bank’s specific customers is certainly the bedrock to supporting next year’s sales and marketing effort. You can also ask your partner to perform these key strategic studies that will drive profitability for 2015 and years after: 1. Cross and up-sell potential 2. Price sensitivity analysis 3. Prediction of future needs 4. Identification of preferred channels of communication 5. Customer loyalty assessment

With a 360° perspective, our financial services team is with you at every turn.

More than 100 banks depend on Elliott Davis Decosimo for personal attention, industry experience and services, including external and internal audit, SEC reporting, taxation and compliance. Our financial services practice has a 60-year reputation for helping banks operate stronger, wiser, better. Let us help you stay on course.

Other services include sending your sales team a daily list of sales opportunities compiled from real-time analysis of your customer and prospect database. With the buy-in commitment of your sales team, this will enable your branches to have the datadriven focus and guidance they need to improve performance each day.

Last but not least, since your analytical partner hopefully works for many banks, he can offer the kind of guidance and resources big banks have, and you can expect pricing to be structured with an understanding of community banks' resources.

For more information: (202) 802-3149 inbox-america@inbox-group.com @inbox_america www.vabankers.org

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North Carolina |

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elliottdavis.com

January/February 2015 | Virginia Banking 19

Compliance

Corner

Apple Pay Raises Compliance and Security Questions for Banks

By Pamela Stockwell and Dimitris Rousseas, Associate General Counsels, Compliance Alliance

O

n Oct. 20, 2014, Apple released Apple Pay, a way for consumers to securely pay with their smartphones. Apple bills the new payment system as a permanent and more secure replacement for your checkbook, plastic cards and wallet.

HOW APPLE PAY WORKS Apple Pay is a cardless, mobile payment system lauded for its ability to make payments directly through a mobile phone. Through Apple Pay, customers may take a photo of their credit card, and their iPhone stores it virtually on a secure chip inside. To make a payment, customers enable the app and waive the phone over a merchant’s reader.

Here is how it works: After launching the payment application on a phone, the phone and credit card terminal connect using near field communication technology (NFC). The customer then enters either a passcode or uses a finger scan to verify the transaction. The transaction is then validated with a chip that relays the autho20 Virginia Banking | January/February 2015

rization back to the NFC modem by providing a one-time, transaction-specific digital signature.

The payment then processes the same way it would in a traditional credit card swipe transaction.

APPLE PAY RISKS Information security is the biggest risk associated with any payment system, and Apple Pay is no different, especially in light of Apple’s recent and notorious iCloud breaches. Apple Pay’s claim of “more secure payments” revolves around the one-time, transaction-specific digital signature. Credit cards work by using a single account number embedded in the magnetic strip. Thieves who obtain credit card numbers can easily use the same number for subsequent unauthorized transactions. In contrast, a transaction initiated through Apple Pay does not involve any account numbers. A thief who steals the transaction specific number used to purchase a movie ticket cannot use it for anything else. www.vabankers.org

Move

Bankers on the

Are your bankers on the move?

Email submissions to mreilly@vabankers.org.

Sobey

Barnette

Robinson

Webb

Neblett

Shaw

Meyer

Gillen

Bank of Lancaster

Carter Bank & Trust

Regina Sobey, Senior Mortgage Loan Originator, Patterson Avenue office

Nathan F. Neblett, Branch Manager, Madison Heights office Stefany O. Shaw, Branch Manager, Independence Boulevard office

Benchmark Community Bank

Community Bankers’ Bank

Jerry Barnette, Relationship Banker Tammy Robinson, Vice President/Relationship Banker John Webb, Assistant Vice President/Branch Manager

Amanda S. Harris, Vice President of Finance

C&F Bank Mark J. Eggleston, Williamsburg and Peninsula Regional President

Cardinal Bank Todd A. Monash, Vice President, Commercial Services Executive

Apple claims not to have any information stored on their server, such as credit card account numbers, which hackers can steal to defraud customers. Notably, however, Apple disclaims any liability for fraudulent transactions submitted through Apple Pay. Apple requires an agreement with both the issuer bank and the customer in order for customers to take advantage of Apple Pay. We can speculate that the reason Apple requires an agreement with the account holding institution is because it enables Apple to avoid Regulation E error resolution and requirements and liability. A nonaccount holding service provider like Apple is exempt from Regulation E liability if it has an agreement with the account holding institution. See 12 C.F.R. § 1005.14. If Apple gets hacked, banks and merchants pay for any losses.

COMPLIANCE MANAGEMENT To best manage compliance risks associated with Apple Pay, banks should conduct the proper vendor management procedures and do a risk assessment on Apple. Bear in mind that there are not any specific disclosures banks would need to provide to customers since they contract directly with Apple.

Even with proper due diligence and www.vabankers.org

Farmers & Merchants Bank John Meyer, Vice President and Special Project Manager,Timberville branch

Freedom Bank of Virginia Richard Hutchison, Senior Vice President, Chief Mortgage Officer

John Marshall Bank Betty Gillen, Vice President, Business Development Officer

third-party vendor management, security risks still remain when allowing a third-party vendor to use customer information. However, banks are insulated from most of the risk because customers would be providing information directly to Apple.

WHO CANNOT USE APPLE PAY Apple Pay is only available through the most recent iPhones, the iPhone 6 and iPhone 6 Plus models, which were released in September. Additionally, certain retailers, like Rite Aid and CVS, block Apple Pay payments, supposedly because they intend to offer their own mobile payments system. Other retailers, like Target and Whole Foods, have already set up Apple Pay receiver devices at checkout terminals.

Apple’s terms and conditions state that the following cards are not eligible for Apple Pay: cards enabled for ATM access only; issuer gift cards; Health Savings Account cards; cards not issued for personal, family or household purposes; cards that access a home equity line of credit; cards issued on behalf of issuer non-consumer customers, such as a card issued to disburse government benefits or court-ordered payments; and flexible spending account cards.

LOOKING FORWARD Apple Pay will not replace checkbooks and wallets anytime soon with its currently narrow base of iPhone 6 users.

However, Apple Pay has at least set a precedent, as Apple rivals are already trying to release other pay systems that will work with any smartphone with added benefits, such as customer incentives.

While Apple Pay works with most major credit cards, many from smaller banks would also need to get on board.

Smaller entities may not find the convenience of Apple Pay to be worth the associated costs and risks. Banks on the cutting edge of technology may see the benefits sooner.

January/February 2015 | Virginia Banking 21

Building

Better Relationships

Why You Should Care About Your Customers’ Financial Literacy In a world where banking relationships are becoming increasingly virtual, financial institutions are struggling to find new ways to connect with customers – and prevent the exodus of a new generation of tech-savvy consumers that’s growing in economic impact. While digital tools like mobile check deposit offer efficiency and convenience, they’ve also made banking relationships pretty transactional. The result? Customer loyalty is at an all-time low. In fact, more than 70 percent of millennial consumers say that they would likely bank with a revered tech brand like Apple, Google or Amazon if they offered financial services.

Amidst rapidly changing consumer preferences, banks are increasingly focused on finding new and better ways to grow customer relationships in the digital age. Forward-thinking institutions are

shifting dollars away from traditional advertising toward a more transparent, education-based approach that resonates with today’s consumer. Digital education creates new touch points to strengthen relationships and educates consumers on bank offerings, while also building credibility, trust and loyalty.

A recent survey conducted by FICO found a correlation between higher financial literacy and better customer engagement, more use of bank services and decreased likelihood to switch banks. “Educating consumers, especially Millennials, about their financial rights makes good business sense,” said Anthony Sprauve, senior consumer credit specialist of FICO. “Basic financial literacy equips consumers with the knowledge and confidence they need to make responsible financial decisions at all stages of their lives.”

Leading companies are making financial education a core part of their business, providing prospects and customers with an open, transparent way to build their financial knowledge at every stage of life, whether it’s educating a first-time home buyer, helping customers grow their portfolio or providing information on retirement resources. Consumers that engage with a company through education are actually five times more likely to make a purchase than those reached by direct marketing. Providing dedicated and relevant educational content is a powerful way to secure customer loyalty, sell new products and meaningfully connect with a new generation of customers.

To learn how EverFi is helping Virginia banks build customized consumer education programs, visit www.everfi.com/loyaltymatters.

Get Introduced To Your Best Prospects.

And start building stronger business relationships today!

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

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

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

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

The Official Publication of the 22 Virginia Banking | January/February 2015

www.vabankers.org

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