CONGRESSMAN ROBERT HURT JOINS VBA FOR 120TH ANNUAL CONVENTION
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2012-2013 OFFICERS AND DIRECTORS OF THE VIRGINIA BANKERS ASSOCIATION Jeffrey M. Szyperski, Chairman, Chesapeake Bank Gary R. Shook, Chairman-Elect, Middleburg Bank William Couper, Immediate Past Chairman O. R. Barham, Jr., StellarOne Corporation Christopher W. Bergstrom, Cardinal Bank Katherine E. Busser, Capital One Financial Corporation Tim Butturini, Wells Fargo Bank, N.A. Larry G. Dillon, C&F Bank Randy K. Ferrell, The Fauquier Bank T. Gaylon Layfield, III, Xenith Bankshares, Inc. John R. Milleson, Bank of Clarke County Susan Ralston, Bank @Lantec John G. Stallings, SunTrust Bank David P. Summers, Virginia Heritage Bank Daniel G. Waetjen, BB&T Michael O. Walker, Benchmark Community Bank AT-LARGE MEMBERS Benefits Corporation Chair Richard M. Liles, Bank of McKenney Management Services Inc. Chair Frank Bell, III, Chesapeake Bank Government Relations Committee Chair Monte L. Layman, Blue Ridge Bank VBA Education Foundation Chair H. Watts Steger, III, Botetourt Bankshares, Inc. EDITORIAL & EXECUTIVE OFFICES 4490 Cox Road Glen Allen, VA 23060 804-643-7469 Fax 804-643-6308 www.vabankers.org
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Bruce T. Whitehurst President and CEO Virginia Bankers Association
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Getting to Know Congressman Robert Hurt
VBA Bank Day Scholarship Program Hosts Over 220
VBA/ABA Government Relations Summit
Teach Children to Save Day 2013
in every issue 4 Calendar of Events 5 Insights 6 Worth Noting 7 Welcome New Associate Members
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2013 ANNUAL CONVENTION, HOT SPRINGS JUNE 16
ANALYZING BANK PERFORMANCE JULY 2
VBA SCHOOL OF BANK MANAGEMENT, CHARLOTTESVILLE JULY 28
AIB ECONOMICS FOR BANKERS JULY 8
CFO CONFERENCE, CHARLOTTESVILLE AUGUST 28
AIB INTRODUCTION TO MORTGAGE LENDING JULY 8
ETHICS:YOUR LICENSE DEPENDS ON IT, CHARLOTTESVILLE AUGUST 28
AIB PRINCIPLES OF BANKING JULY 8
CEO FORUM, HOT SPRINGS SEPTEMBER 12
AIB LAW AND BANKING: APPLICATIONS JULY 15
CONSUMER LENDING SCHOOL, GLEN ALLEN SEPTEMBER 17
AIB CONSUMER LENDING JULY 15
CREDIT MANAGEMENT CONFERENCE, CHARLOTTESVILLE OCTOBER 7
AIB MONEY AND BANKING JULY 15
COMMERCIAL LENDING SCHOOL, GLEN ALLEN OCTOBER 16
AIB LAW AND BANKING: PRINCIPLES JULY 22
COMPLIANCE HOT TOPICS II, GLEN ALLEN OCTOBER 23
AIB SUPERVISOR CERTIFICATE JULY 22
2013 LEADERSHIP CONFERENCE, LEESBURG NOVEMBER 14
AIB MARKETING FINANCIAL SERVICES JULY 22
WOMEN IN BANKING CONFERENCE, GLEN ALLEN NOVEMBER 19
AIB GENERAL ACCOUNTING JULY 29
AIB ANALYZING FINANCIAL STATEMENTS AUGUST 5
AIB PRINCIPLES OF BANKING ACCELERATED JUNE 17
MANAGING THE BANK’S INVESTMENT PORTFOLIO AUGUST 5
INTRODUCTION TO AGRICULTURAL LENDING JUNE 17
AIB PRINCIPLES OF BANKING ACCELERATED AUGUST 5
AIB INTRODUCTION TO TRUST PRODUCTS & SERVICES JULY 2
AIB BASIC ADMINISTRATIVE DUTIES OF A TRUSTEE AUGUST 12
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4 Virginia Banking | May/June 2013
A Bruce Whitehurst President and CEO, Virginia Bankers Association
third of a year in days; a little over two years in weeks. A decade of monthly board meetings; thirty years of quarterly meetings. All of these add up to 120, as does the sum of VBA Annual Meetings, with the addition of this June’s. A small group of wise bankers assembled in Richmond in the fall of 1893. It had been a challenging year in the United States. On the positive side, there were some remarkable firsts in 1893, like: • The Great Northern Railway was completed, connecting Seattle with the East Coast. • The world’s first Ferris Wheel – and an enormous one at that – premiered at the Chicago World’s Fair. • The Duryea brothers invented the country’s first gas-powered automobile (Henry Ford was already hard at work and would revolutionize auto production not much later). • Katherine Lee Bates wrote “America the Beautiful“ in Colorado. But, as Grover Cleveland became our 24th president, the Panic of 1893 caused “great crashes” on the New York Stock Exchange in early May and late June. Large companies and hundreds of banks failed as the value of silver plummeted when the Sherman Silver Act of 1890 – which required the federal government to buy silver with its gold reserves – led to its logical conclusion when the government ran out of gold and the market for silver went away. Banker JP Morgan lent a significant amount of gold to the government (how is that for a reverse bailout?) and the Sherman Silver Act was repealed, but only after the damage was already done. Our Virginia banking leaders of 1893 gathered that fall to organize the Virginia Bankers Association, with the belief that being unified as an industry would be much more powerful than each bank advocating for itself. That belief has held and continues to be the core purpose and strength of the VBA to this day. Col. William Taylor, who had
been Gen. Robert E. Lee’s top aid during the Civil War, was our first VBA president. A century later, Vernard W. Henley, a highly regarded African American banking leader in Richmond, led the VBA – a fitting juxtaposition. We benefit this year from the leadership of Jeff Szyperski of Chesapeake Bank as the 120th VBA chairman. Jeff and each and every one of his predecessors has upheld the original purpose for which the VBA was formed 120 years ago: to speak with a strong and unified voice. This is far from an easy task, but one that Virginia bankers have accomplished, year in and year out. Every year has been memorable and notable in the life of Virginia banking and the VBA. We have survived – and led our economy back from – several financial crises, the Great Depression, two world wars, and sweeping legislative changes, including: • The Federal Reserve Act of 1933 • The Glass-Steagall Act of 1933 • The FDIC Act of 1933 • The Monetary Control Act of 1980 • FIRREA in 1989 and FDICIA in 1991 • Riegle-Neal Interstate Banking Act of 1994 • Sarbanes-Oxley in 2001 and the PATRIOT Act in 2002 • Oh yes, and one called the Dodd-Frank Act of 2010. I have written and we have talked a lot about this one, which is still evolving in terms of its regulatory promulgation. Considering this list of challenges – which is far from all inclusive – it is clear that bankers are a very resilient group of people. You are leaders in your communities and builders of your communities. It may sometimes be a challenge to get everyone to truly understand how much value bankers and banks bring to every community they serve, but it is the mission and the privilege of the VBA to tell your story and to stand up for the banking industry. It has been that way for 120 years and will no doubt be that way for the next 120 years. Happy 120th, VBA!
Bruce Whitehurst can be reached by email at email@example.com. www.vabankers.org
May/June 2013 | Virginia Banking 5
EXECUTIVE LEADERSHIP INSTITUTE CLASS OF 2012-2013 GRADUATES
THE FEDERAL RESERVE BANK OF RICHMOND WELCOMES MARK MULLINIX The Federal Reserve Bank of Richmond has announced that Mark L. Mullinix is the organization’s new first vice president
The Executive Leadership Institute (ELI) Class of 2012-2013 graduated on March 22 after completing a five-month program and delivering capstone presentations. This leadership development program is designed to enhance the leadership, organizational and performance skills of high-potential bankers currently in or progressing toward a senior level position. We are so proud of all participants and their hard work! From left: Jean Light, Chesapeake Trust Company; Nancy Eberhardt, ELI Instructor; Shaby Tabibi, Congressional Bank; D.J. Seeterlin, Chesapeake Bank; Matt Bruning, Virginia Bankers Association; Becky Foster, Chesapeake Bank; Eric Tusing, Village Bank; Laura Shreaves, C&F Bank; Ross Berman, Congressional Bank; Laura Williams Calvert, Old Point National Bank; Robert Miller, Middleburg Bank; Belinda Tucker, Pioneer Bank; David Evinger, Chain Bridge Bank; Kim Norwood, Citizens Community Bank; Bill Bailey, Farmers Bank; Lisa Kilgour, Middleburg Bank; Jakeeta Plumley, Village Bank; Karen Conrad, ELI Instructor; Randy McDaniel, American National Bank & Trust Co.; Lisa Rutherford, First Bank, Strasburg; Bill Pollard, Farmers Bank.
System. He will oversee the financial services and support areas of the bank’s Fifth District operations, beginning June 1, 2013. Mark served as executive vice president with the Federal Reserve Bank of San Francisco before transferring to Richmond. Congratulations, Mark!
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As Jeff Szyperski’s tenure as Virginia Bankers Association chairman ends, all of us at Chesapeake Bank salute our chairman on a job well done. For Jeff szyperski “it’s all about community” isn’t merely a slogan. it’s an outlook on life. because at chesapeake bank, we see Jeff’s true devotion to community—whether that community is in Eastern Virginia who call us their bank, or the Virginia bankers association community Jeff has led over the last 12 months as chairman. as always, job well done.
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5/15/13 7:19 AM7 May/June 2013 | Virginia Banking
Educate, Advocate and Change
T Matt Bruning Vice President, Government Relations, Virginia Bankers Association
he 113th Congress began on Jan. 3 with several new members, including the new junior senator from Virginia, former Gov. Tim Kaine. While some of the faces may have changed, there is little function difference in the composition with Republicans maintaining the majority in the House of Representatives, a Democratic majority in the Senate and President Barack Obama returning for another four year term. Voters once again selected divided government in the federal legislature at the polls last November, but respond in polling that they want collaboration and compromise on important matters. Earlier this spring, 1,100 bankers from around the country congregated in our nationâ€™s capitol to meet with their federal representatives. As part of the American Bankers Association Government Relations Summit, over 80 bankers from Virginia joined the group to hear from industry and government speakers as well as bring our advocacy message to the elected officials from the commonwealth in Washington. Encapsulated in the theme of Educate, Advocate and Change, bankers spent their time discussing the legislative and regulatory issues most critical to our industry. In some capacity, we were able to meet with all eleven of the Virginia members of the House of Representatives or their key staff and our two U.S. senators. Throughout the afternoon of meetings, a number of important topics were raised as we sought to educate legislators on issues ranging from credit union taxation to examination reform to regulatory overburden. As forceful advocates for the entire banking industry, they delivered the message that changes are necessary to ensure banks of all sizes can continue to meet the needs of their customers. One issue that was continually discussed with our members of Congress was the current tax exemption for credit unions. At a time when overall tax reform and debt and deficit reduction are prominent national topics, our bankers emphasized that the time is now to re-examine the fact that credit unions are benefitting from an unwarranted free ride. Noting that Virginia banks
paid over $2.2 billion in federal and state taxes in 2012, while credit unions paid nothing, legislators heard how this lack of equity has impacted federal coffers, created an unlevel playing field for competition and not delivered a benefit to consumers. While several lawmakers were candid about their reluctance to either increase any form of taxation or take a public stance in what they view as a dispute between two industries they support, there was some recognition that the large, aggressive credit unions had strayed from their original purpose. Another important piece of legislation we are requesting our legislators to support is the Financial Institutions Examination Fairness and Reform Act. Submitted by Reps. Shelly Moore Capito (R-WV) and Carolyn Maloney (D-NY) in the House and Sens. Jerry Moran (R-KS) and Joe Mansion (D-WV), this is the same bill that garnered over 190 co-sponsors in the last Congress. The bill has three main components that endeavor to create greater consistency, accountability and common sense to bank examinations. First, it would establish an independent appeals process in the FFIEC that removes the threat of retaliation from the current procedures. It also sets firm deadline for final reports and exit interviews. Finally, it prohibits regulators from downgrading the classification of certain commercial loans that are current. As the regulatory pendulum swung excessively over the past several years through rigid and overzealous examinations, this bill seeks to push back by implementing reasonable standards. We encouraged our legislators to support HR 1553 and S 727 and have received several positive responses thus far. Finally, the consequences and impact of several recently proposed or finalized regulations were discussed. Members were thanked for their previous efforts to push back on the proposed Basel III capital standards with an emphasis on the potential negative effects on community banks. Recently introduced S 731 would require a comprehensive study of the proposalsâ€™ impact on community banks before any final rules Continued on page next page
Matt Bruning can be reached by email at email@example.com. 8 Virginia Banking | May/June 2013
Amplifying What You Do
W Frank Keating President and CEO, American Bankers Association
arren Buffet has said, “It takes 20 years to build a reputation.” We know from our industry’s long history that many banks have been carefully shepherding and enhancing their reputations for decades longer. As we pointed out in “The Business of Banking,” the publication that we distributed to policymakers on Capitol Hill earlier this year, a large number of banks have proven to be in business for the long haul. In fact, two out of every three banks in the United States have been in business 50 years or more. And one in three has been in business for more than a century. That’s a lot of years of service in support of your communities and our national economy. We think you deserve some credit for what you’ve done and what you will do. That’s why ABA is launching a new and innovative public affairs and advocacy program to help everyone enhance our industry’s reputation. The program is called “Amplify.” We are beginning this effort in eight states: Virginia, Oregon, Missouri, Pennsylvania, Colorado, Maine, Vermont and New Hampshire. Over time it will be nationwide, in all 50 states. What is Amplify? It is a new resource to help
bankers, state associations and ABA enhance the overall reputation of the industry. The focus is on the important role bankers and banks play as they invest in the customers, neighborhoods, and businesses they serve. This is an effort to make sure that what your bank does – supporting the community and the economy, as well as your creativity and innovation – becomes both better known and appreciated. Amplify is the next step in our work to improve the perception of banking in the eyes of policymakers and the public. It will take time to build out, but it is designed to provide a lasting infrastructure that can be used going forward to ensure that bankers’ contributions at every level are effectively communicated. This is a grassroots effort, because that is where you make a difference – at home, in your communities, and in your state. Together we will leverage what banks like yours mean to our communities, cities, counties, states and the nation. Our goal is for policymakers to understand your role as the cornerstone of our nation’s economic vitality, and promote a regulatory environment that helps all banks thrive. We think that’s a message that must be amplified.
Gov. Frank Keating can be reached by email at firstname.lastname@example.org.
Educate, Advocate and Change Continued from previous page would be published. We also thanked Senator Mark Warner for taking the lead on S 710, which would exempt financial institutions from the SEC requirement to register as municipal advisors, a needed correction to Dodd-Frank. Rep. Robert Hurt, a member of the House Financial Services Committee and a featured speaker at the VBA Annual Convention this June, announced he submitted legislation to remove the requirement under Sarbanes-Oxley that mandated rotating your outside audit firm, a rule opposed by the VBA when first proposed. Legislators also were educated about the significant concerns about the Qualified Mortgage proposal and CFPB guidance www.vabankers.org
on indirect lending, both on their implementation as well as the potential bearing on fair lending (See more in Mel Tull’s Legal Line article, next page.) Thanks to all the bankers who took the time to meet with our Virginia Congressional delegation and those who engage and communicate with their elected officials throughout the year. It is vital that we educate and advocate our lawmakers on these and other important industry issues if we are to cause the necessary changes. Be sure to be on the lookout for future opportunities to engage your elected officials and make our unified voice heard. May/June 2013 | Virginia Banking 9
Between a Rock and a Hard Place Could Compliance with Dodd-Frank’s Ability-to-Repay Rule Trigger Disparate Impact Claims Against Mortgage Lenders?
L Mel Tull General Counsel, Virginia Bankers Association
enders who are busily processing the new ability-to-repay rules from the Consumer Finance Protection Bureau (CFPB), implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), could not have been encouraged by HUD’s Feb. 15, 2013, announcement of a final rule adopting a three-part burden shifting test for disparate impact claims under the federal Fair Housing Act (FHA). The final rule formalizes the approach taken by HUD and 11 of 12 federal courts of appeals to disparate impact claims in which lenders can be held liable for the discriminatory impact of facially neutral underwriting practices despite the absence of
any discriminatory intent. In the meantime, the CFPB issued a March 21, 2013, bulletin reaffirming its position that indirect auto lenders may be liable under the Equal Credit Opportunity Act for facially neutral practices that encourage dealer markups that create disparities along demographic lines. Both the CFPB bulletin and the HUD final rule announcement followed the unexpected agreement by the parties to dismiss Magner v. Gallagher, a case in which the Supreme Court had been asked to decide whether the FHA allows for the disparate impact approach taken by HUD and the federal courts of appeals. In Magner, the Continued on page 20
Mel Tull can be reached by email at email@example.com
Thank You, Jeﬀ Szyperski
10 Virginia Banking | May/June 2013
VBA Bank Day Scholarship Program Hosts More Than 220 Students Students shadowing bankers at Old Point National Bank got an inside look at the teller’s space behind the counter. They also toured the bank’s vault.
Bank of Lancaster hosted 12 seniors and provided a tour of the corporate headquarters and a visit to the Operations Center. Participating in the day were, front row, seated: Julie King and Kayla Leland, Northumberland High; Skylar Kellum and Kelvonna Clayton, Lancaster High; Viola Thompson, Essex High; and Jenifer West and Amanda Fallin, Rappahannock High. Standing, from left: Joe Biddlecomb, manager, Bank of Lancaster’s Main, Burgess and Heathsville offices; Tevin Pollard, Northumberland High; John McIntosh, Washington & Lee High; Nicholas Slaughter, Northumberland High; Sam Friday, Lancaster High; Davarien Sayles, Essex High; and Ward Currin, manager of the bank’s White Stone Office and the chairman of the VBA Leadership Division.
High school seniors throughout the state of Virginia learned about banking, financial services and the vital role banks play in their communities during Bank Day presentations on March 19, 2013. This year’s Bank Day featured 28 banks hosting over 220 students. The third Tuesday in March was declared Bank Day by the Virginia General Assembly in 1991. On this day every year, students shadow bankers across the commonwealth as part of a statewide effort to promote financial literacy and the banking industry sponsored by the VBA Education Foundation and the VBA Leadership Division. After participating in this event, students had the opportunity to write essays on the topic “How Banking Benefits My Community.” Six regional college scholarships ($2,000) and one statewide scholarship ($4,000) will be awarded to the winning students. Congratulations to the following regional scholarship winners: • Nadia Rutter, Powhatan High School,Village Bank, Capitol Region • Holmes Laughon, E.C. Glass High School, First National Bank, Central/Southside Region • Megan E. Preti, Frank W. Cox High School, Old Point National Bank, Hampton Roads/ Tidewater Region • Nathaniel Clemens, Broad Run High School, Middleburg Bank, Northern Virginia Region • Emily Cassell, Northwood High School, Bank of Marion, Southwest Virginia Region • Austin Painter, Riverheads High School, StellarOne Bank,Valley Region Thanks to all banks that participated in Bank Day this year! www.vabankers.org
River Community Bank welcomed students on March 19 for Bank Day. From left: Kevin Velez, Bassett High School; Heather Wyatt, loan assistant; Brenda Peters, mortgage specialist; Kinya Moore, Martinsville High School; Amanda Hylton, Patrick County High School; Leslie Reeves, Carlisle School; and Scott Griffin, commercial loans.
Chesapeake Bank enjoyed a visit from local high school seniors, who learned about specific job roles and the bank’s work in the community. PARTICIPATING BANKS Bank of Botetourt Bank of Lancaster Bank of Marion Bank of McKenney BB&T C&F Bank Carter Bank & Trust Chesapeake Bank Citizens Community Bank CornerStone Bank Farmers & Merchants Bank First Century Bank First National Bank Middleburg Bank Old Point National Bank River Community Bank, N.A. Select Bank
Shore Bank StellarOne Bank The Bank of Fincastle The Bank of Marion The Bank of Southside Virginia TruPoint Bank Union First Market Bank United Bank Village Bank Virginia Heritage Bank Wells Fargo
May/June 2013 | Virginia Banking 11
A group of Virginia bankers met with the congressman during the 2012 VBA/ABA Government Relations Summit in Washington, D.C.
Getting to Know Congressman Robert Hurt A native of Pittsylvania County, Rep. Robert Hurt began his time in public service in 2001 as a member of the Chatham Town Council. From 2002 to 2007, he served in the Virginia House of Delegates, representing parts of Pittsylvania and Henry counties, and the city of Martinsville. Starting in 2008, Hurt represented the 19th District in the Senate of Virginia for two years, which includes the city of Danville, Pittsylvania and Franklin counties, and part of Campbell County. He was elected to the U.S. House of Representatives in 2011.
He spoke with Virginia Banking about his service to the people of Virginia. You were first elected to Congress in 2010 – what are you most proud of accomplishing since being elected? Representing the people of Virginia’s 5th District is a great honor. We are at a pivotal time in our nation’s history. As we debate critical issues such as reducing our debt and deficits and providing a regulatory environment where our businesses can succeed and create jobs, I am proud to be able to serve as a voice for the people of Virginia’s 5th District. 12 Virginia Banking | May/June 2013
You served in the Virginia General Assembly in both the House of Delegates and State Senate before coming to Congress. What has been the most rewarding aspect of being a public official? The most rewarding part of my job is meeting and working with the people I represent. Since being elected to represent the 5th District, I have traveled far and wide, meeting with families, farmers, small business owners and workers. Their concerns remind me why the work we do in Washington is so important to our communities back home. It is an honor for me to repre-
sent the good people of Virginia’s 5th District and to be able to address the concerns they bring to me. Much of the legislation I have introduced has come directly from concerns brought to me by constituents. What do you see as the biggest challenge facing Virginia in the next 10 years? Virginia is in a great position as it is consistently noted one of the best places in America to do business. However, like most states, the fiscal challenges we face at the federal level present Virginia with challenges of our own. Many aspects of our www.vabankers.org
The VBA’s vice president of government relations, Matt Bruning, and Middleburg Bank’s president and CEO, Gary Shook, met with Rep. Hurt at the 2013 VBA/ABA Government Relations Summit.
economy rely heavily upon federal spending. Unfortunately, at a time when our nation is $16 trillion in debt, it is critical that we diversify our Virginia economy and find ways to curb our reliance on federal funding. As we look for ways to do that, I look forward to working with folks like you all in the private sector and also with those at the state and local levels to ensure the economic diversification Virginia needs to be able to overcome this challenge and maintain the vibrant economy we have today. The 5th Congressional district is bigger than New Jersey, so you represent a wide range geographically and demographically of Virginia. What are the main concerns you are hearing from constituents in your district? Our district spans 10,000 square miles from the North Carolina border up to Fauquier County, covering much of Southside and Central Virginia. While many miles may separate us, the concerns that I hear from Danville to Warrenton are the same. Fifth District Virginians are concerned about federal over-reach and how the growing federal government is affecting our families, farmers, and small businesses. A $16 trillion debt, the threat of higher taxes, rising fuel prices, the president’s health care law, and burdensome regulations all contribute to fewer jobs and a sluggish economy in our local communities. Since being elected in 2010, I have been committed to reducing our debt and deficits and keeping taxes low for everyone so that we may preserve this great nation for our children and grandchildren. I have also been committed to enacting a reasonable and responsible energy policy to ease the burden on our families and small businesses www.vabankers.org
who are already paying too much at the grocery store and at the gas pumps. And finally, I remain committed to fighting to repeal and replace the President’s health care law with patient-centered reforms that increase access to affordable, quality care without placing additional burdens on our families, workers, and small business owners. You recently met with almost 100 Virginia bankers at the VBA/ABA Government Relations Summit. What surprised you from your discussions with them? What stuck with me the most was how much each of the people in the room seemed committed to their communities and the families, farms, and small businesses that they serve. We are all rowing in the same direction to get Southside and Central Virginia back on track and everyone understood that the way you reach this goal is by getting private capital to Main Street America. Our Virginia banks are at the forefront of this effort and it showed through our conversation in Washington. As a member of the House Financial Services Committee that deals with banking legislation, what are your thoughts on the regulatory environment for banks in today’s marketplace? Whenever I visit with bankers, either in Washington or their places of business in the district, we always talk about the complicated regulatory environment and how it hinders their ability to help small businesses grow and create jobs. Dodd-Frank was sold to the American people as dealing with the systemic issues in our financial system. It instead, however, added
new layers of regulation instead of finding ways to streamline the current system. We are now seeing how the disproportionate share of these costs has been passed down to Main Street banks across the country. That is why I am proud to cosponsor H.R. 1553, the Financial Institutions Examination Fairness and Reform Act, which my colleagues, Reps. Capito and Maloney, introduced to address ongoing problems with the lack of consistency and quality in the bank examination process. I believe that this bill would take a major step toward a more balanced and transparent approach regarding regulators’ decision making during the examination process. I look forward to working with them on the Financial Services Committee to gather support for this important bill and advance it through the legislative process. In April, you introduced the Audit Integrity and Job Protection Act. H.R. 1564 will amend the Sarbanes-Oxley Act to allow public companies to maintain quality auditing practices and avoid unnecessary additional costs that ultimately are passed on to investors and consumers. How will this help Virginia banks if it is passed and how did you decide to introduce this bill? There is substantial academic and economic research debunking mandatory audit firm rotation, making it seem that there is no net benefit for investors in moving forward in the consideration of the Public Company Accounting Oversight Board proposal. Mandatory audit firm rotation would be extremely costly and disruptive to the U.S. capital markets, harmful to investors, and have far reaching negative consequences. A GAO Study conducted pursuant to Sarbanes-Oxley found that initial year audit costs under mandatory audit firm rotation would increase by more than 20 percent over subsequent year costs, in order for the auditor to acquire the necessary knowledge of the public company. Both the Securities and Exchange Commission (SEC) and Congress have previously rejected mandatory audit firm rotation. Continued on page 22 May/June 2013 | Virginia Banking 13
Almost 100 Virginia Bankers Meet with Federal Legislators at the VBA/ABA Government Relations Summit By Chandler Dewey Manager, Communications & Government Relations
A large group of Virginia bankers visit with members of Congress in the Capitol.
Chris Bergstrom, regional president and chief credit officer, Cardinal Bank, speaks on a panel about credit unions.
irginia brought the largest contingency of bankers from any state to join nearly 1,100 bankers from across the nation at the VBA/ ABA Government Relations Summit in Washington, April 15-17. After remarks from ABA President and CEO Frank Keating, the attendees heard from Alan Krueger, chairman of the President’s Council of Economic Advisers, and Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee. On Wednesday, speakers included Senate Minority Leader Mitch McConnell (R-Ky.), Sen. Jon Tester (D-Mont.) and bestselling political funnyman P.J. O’Rourke. “The economy has turned a corner and is recovering thanks to the resilience of American citizens and
businesses,” Alan Krueger told attendees. “Our financial system is much stronger than it had been. I firmly believe that our economic glass is more than half-full, and I encourage you to take this optimistic view.” Tester issued a call to “restructure our housing finance system” in his remarks. “Our economy cannot fully recover until we strengthen our housing mar-
14 Virginia Banking | May/June 2013
ket,” said the Senate Banking Committee member. “We need to bring more private capital back into the mortgage markets to better cushion risk and protect taxpayers.” Speaking on the Dodd-Frank Act and the creation of the Consumer Federal Protection Bureau, McConnell said, “We need to change the structure of [the CFPB] to make it responsible to someone,” he explained. “We’ve said we need a supervisory board to which the director reports. We think the agency should come to Congress for its funding. And we think it needs to operate within the context of safety and soundness.” Virginia bankers also engaged with leading bankers who participated on panels and with regulators from the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Consumer Federal Protection Bureau and the Federal Reserve. Betsy Duke, Federal Reserve Board of Governors member and past VBA president, met with the Virginia bankers and told them that the banking agencies are paying close attention to bankers’ concerns, especially with the Basel III capital proposals. Attendees spent a portion of the three-day summit on Capitol Hill meeting with their congressmen to discuss the issues facing the banking industry. Discussion topics included issues such as Basel III, bank examination reform, equal tax treatment for credit unions, mortgage regulations and municipal advisors. Led by VBA Chairman Jeff Szyperski of Chesapeake Bank, the Virginia bankers were able to take their message to each Virginia representative and Sens. Tim Kaine and Mark Warner. Reflecting on his experience at the event, Szyperski said, “The Government Relations Summit is our time to discuss important issues with the leaders of our nation and help them to understand the challenges that banks are faced with and threat that overregulation poses to a bank’s ability to serve its customers.” Thanks to the bankers who represented Virginia at this event. Meeting with our Congressional representatives is imperative as we fight for the industry about which we are all so passionate. www.vabankers.org
Billy Beale, Union First Market Bank; Matt Bruning, VBA; and Bruce Whitehurst, VBA, pose with Rep. Rob Wittman (second from left) following a meeting at the Capitol.
Herb Marth, Central Virginia Bank; Susan Ralston, Bank @Lantec; and Rob Shuford, Old Point National Bank, prepare for the start of the General Session.
Ward Currin (left), Bank of Lancaster, chairman of the VBA Leadership Division Steering Committee, and Jeff Szyperski, Chesapeake Bank, VBA chairman, enjoy interacting with fellow bankers at the Summit.
Tony Peay, Union First Market Bank; Nicole Baker, Union First Market Bank; Patricia Gallagher, EVB; Marion Pace, Union First Market Bank; and Mike Leake, Union First Market Bank mingle during Hill visits at the Capitol.
May/June 2013 | Virginia Banking 15
Teach Children to
Virginia Bankers Bring Financial Education to Nearly 12,000 Students By Kathryn Roberts Coordinator, Education & Training/Communications
Ashley Schavel and Sharon Burkhard (left to right) of Shore Bank visited Cape Charles Christian School and taught the lesson “Kids and Coins” to a group of 50 students.
Johanna Northstein of Chesapeake Bank reads to a group of children during one of the nine presentations the bank gave for Teach Children to Save Day. They talked to over 500 elementary school students about the importance of saving money.
ow did Virginia bankers celebrate the 17th Annual Teach Children to Save Day? Over 400 bankers across the state partnered with schools in their area to make presentations to elementary and middle school students on the importance of saving. Nearly 12,000 students learned the difference between needs and wants and practiced ways to save money through interactive activities with bankers. Hazel Farmer, senior vice president and consumer education director for the Bank of Lancaster in Kilmarnock, said “Teach Children to Save Day helps young students to discover the joys and rewards of saving for something special, provides an understanding of the difference between a want and a need, and gives them practical training to develop the know-how needed to manage their money. If these good habits can be learned early, it will help these youngsters become wiser money managers and help them from making poor financial decisions as young adults that could take years to overcome.” Established by the American Bankers Association Education Foundation in 1997, Teach Children to Save Day has reached more than 5.6 million young people through the commitment of more than 123,000 banker volunteers. Virginia banks have been participating in Teach Children to Save Day since it began. Donna Beck of Village Bank led a presentation at J.L. Francis Elementary School in South Richmond. She summed up the program by saying, “The curriculum that we taught was fun and interactive for the students in the classrooms. The adults probably had even more fun than the kids! The experience was truly mutually rewarding.” Along with visiting students in the classroom, bankers invite groups to travel to the branch and learn bank operations firsthand. Tours of the bank include standing behind the teller line, working the drive-up window, playing games on
16 Virginia Banking | May/June 2013
the bank’s website, and exploring the inside of the vault. Banks work hard throughout the entire year, not just April 23, to provide students the information needed to become educated, responsible consumers and to help them understand how the financial decisions they make today will impact their future. Bankers will celebrate Get Smart About Credit Day with high school students on October 17.
THANK YOU TO THE FOLLOWING BANKS THAT PARTICIPATED IN TEACH CHILDREN TO SAVE DAY 2013: Bank @Lantec Bank of Botetourt Bank of Hampton Roads Bank of Lancaster Bank of McKenney Cardinal Bank Chesapeake Bank Citizens Community Bank City National Bank Farmers & Merchants Bank Farmers Bank First and Citizens Bank First Bank of Virginia Franklin Federal Savings Bank HomeTown Bank MainStreet Bank Peoples Community Bank Shore Bank Sonabank StellarOne Bank SunTrust Bank The Bank of Southside Virginia The Fauquier Bank TowneBank TruPoint Bank Union First Market Bank Virginia Heritage Bank Wells Fargo Bank www.vabankers.org
Sherri Crowder of Bank of McKenney presented to an eager group of students on saving for the future.
After drawing the item they want to save their money for, students posed with bankers Carman Choate and Madonna Hall from Citizens Community Bank in South Hill to show off their artwork.
Darlene O’Bier, Barbara Bryant, Sandra Perry and Susie Burton of Union First Market Bank visit students at Richmond County Elementary School on Teach Children to Save Day.
Your Data. Your Future. CRM offers FUTURE FOCUSED Risk Management Tools www.vabankers.org
May/June 2013 | Virginia Banking 17
Time to Get Ready for CFPB’s Final HPML, Credit Insurance and Arbitration Rules By Jim Dray, CRCM, Thomas Compliance Associates, Inc.
he CFPB’s final rule that establishes new appraisal requirements for higher-priced mortgage loans doesn’t become effective until January 2014, the same month that the Consumer Financial Protection Bureau’s final rules concerning Loan Originator Compensation under Regulation Z kick in. However, given the time it inevitably takes to get programs and staff up to date, next January isn’t all that far away. Here for VBA members, therefore, is a review of vital information. (Note that prohibitions on mandatory arbitration clauses and financing single premium credit insurance have an early effective date of June 1.) HPML The statutory term “higher-priced mortgage” has been replaced with the Truth-in-Lending term HPML (higher-priced mortgage loans) for two reasons: The definitions are very similar, and HPML is already familiar to creditors. The new rule will become effective on Jan. 18, 2014. Under the Dodd-Frank Act, mortgage loans are higher-priced if they are secured by a consumer’s home and have interest rates above certain thresholds. Consistent with Dodd-Frank, the rule allows a creditor to extend an HPML only if the following conditions are met (unless an exemption applies, as discussed below): • Creditors must use a licensed or certified appraiser. • Creditors must obtain a written appraisal report based on a physical visit of the interior of the property. • Creditors must disclose to applicants information about the purpose of the appraisal. • Creditors must provide a free copy of any written appraisal obtained for the transaction at least three business days before consummation. If the seller acquired the property for a lower price during the prior six months and the price difference
exceeds certain thresholds, creditors will have to obtain a second appraisal at no cost to the consumer. This addresses fraudulent property flipping by seeking to ensure that the value of the property legitimately increased. The rule exempts several types of loans, such as qualified mortgages, reverse mortgages, temporary bridge loans and construction loans, loans for new manufactured homes, and loans for mobile homes, trailers and boats that are dwellings. The rule also has exemptions from the second appraisal requirement to facilitate loans in rural areas and other transactions. The agencies intend to publish a supplemental proposal to request additional comment on possible exemptions for “streamlined” refinance programs and small dollar loans, as well as to seek clarification on whether the rule should apply to loans secured by existing manufactured homes and certain other property types. The final rule may be found at www.fdic.gov/ news/news/press/2013/pr13004.pdf. LOAN ORIGINATOR COMPENSATION The CFPB’s final rule concerning Loan Originator Compensation under Regulation Z has an effective date of Jan. 10, 2014. But buried in §1026.36 are prohibitions on mandatory arbitration clauses and financing single premium credit insurance. These additional rules have an effective date of June 1, 2013, not Jan. 10, 2014, as the compensation rules do. The prohibition on using mandatory arbitration clauses states that a loan’s terms cannot require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction. There are many reasons why such clauses are popular; they provide the bank with a degree of confidentiality; costs tend to be less than litigation; proceedings tend to be quicker, and the like. Starting June 1, however, such contractual clauses are not allowed if the loan is secured by a dwelling.
VBA members can obtain additional information about all of the many home lending aspects by calling TCA’s toll-free number, 800-934-7347. TCA is the VBA’s endorsed provider of compliance consulting and support. 18 Virginia Banking | May/June 2013
The rule includes HELOCs if the loan will be secured by the borrower’s primary dwelling. This doesn’t mean that arbitration cannot be used if both parties agree; it just can’t be dictated in the loan terms. The second provision prohibits the financing of any premiums or fees for credit insurance in connection with a consumer credit transaction secured by a dwelling. The rule identifies specific types of credit insurance included under the new rule: • Credit life. • Credit disability. • Credit unemployment. • Credit property insurance. • Any other accident, loss-of-income, life, or health insurance. • Any payments directly or indirectly for any debt cancellation or suspension agreement or contract. Interestingly, the provision excludes credit unemployment insurance for which the unemployment insurance premiums are reasonable, the creditor receives no direct or indirect compensation in connection with the unemployment insurance premiums, and the unemployment insurance premiums are paid pursuant to a separate insurance contract and are not paid to an affiliate of the creditor. The bureau declined to provide a definition of what it considers “reasonable.” It did affirm that the new rule does not apply to mortgage insurance.
products sold in connection with dwelling secured consumer credit. If you are currently selling in the secondary market, you probably already have procedures to prevent such insurance
products from being sold as a single premium. If you are not active in the secondary market, now is a good time to establish appropriate controls over the financing of these products.
WHAT TO DO NOW First, review your consumer mortgage agreements to ensure they do not contain clauses that may directly, or through interpretation, bar a consumer from bringing a claim in court pursuant to any provision of law for damages or other relief in connection with any alleged violation of any federal law (such as an arbitration clause). Second, review credit insurance www.vabankers.org
May/June 2013 | Virginia Banking 19
Between a Rock and a Hard Place Continued from page 10 Virginia Bankers Association had joined the American Bankers Association and fellow state associations on an amicus brief arguing that the FHA’s text does not support disparate impact liability without proof of discriminatory intent. Because the parties agreed to dismiss the case before the Supreme Court could decide this issue, disparate impact claims will continue to be decided under HUD’s three-part test, at least for the foreseeable future. Under HUD’s test, a plaintiff must first prove that a lending practice results in, or predictably would result in, a discriminatory effect on the basis of race, color, religion, sex, disability, familial status, or national origin. 24 C.F.R. § 100.500. If a plaintiff proves a discriminatory effect, then the burden shifts to the defendant to prove “that the challenged practice is necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests.” If the defendant meets its burden, then
the plaintiff “may still prevail upon proving that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect.” Predictably, lenders have expressed concern that compliance with the CFPB’s new ability-to-repay rules might create disparate impacts along demographic lines, exposing the lenders to disparate impact claims under the FHA. Briefly, the ability-to-repay rules require lenders to determine a potential consumer borrower’s reasonable ability to repay before making a residential mortgage loan. The determination must be based on a variety of factors including credit history, current income, expected income, and current obligations. Lenders must also verify income by reviewing third party documents, such as W-2s, tax returns, payroll receipts and financial institution records. Failure to adequately determine and document a
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Do business with someone who thinks like you. www.CBBonline.com 20 Virginia Banking | May/June 2013
borrower’s ability to repay will subject lenders to significant legal and financial liabilities. There is a legal liability safe harbor for “qualified mortgages” that meet specified criteria. However, many borrowers and properties will not be eligible for qualified mortgages under the underwriting criteria used by most banks and the secondary market. Banks legitimately attempting to limit their legal liability by mostly making qualified mortgages may inadvertently expose themselves to disparate impact claims if such a policy disparately impacts the relative number, types or costs of loans made to individuals in the protected classifications. Responding to this concern in its final rule release, HUD stated that it “does not believe that the [disparate impact] rule will … encourage lawsuits challenging … the requirements of the Dodd-Frank Act.” HUD also reiterated that its disparate impact rule “permits practices with discriminatory effects if they are supported by a legally sufficient justification [and that] … the lender is free to defend any allegation of illegal discriminatory effects by meeting its burden of proof.” Missing from HUD’s response, however, is the commonsense recognition that even a successful defense against a disparate impact claim leaves a mortgage lender exposed to substantial legal expenses and significant reputational harm. Thus, while HUD states that it “is unaware of any lender found liable under the discriminatory effects standard for failing to make a loan to a member of a minority group who did not meet legitimate nondiscriminatory credit qualifications,” this statement does not take into consideration cases where a lender has spent considerable time and money to defeat or settle disparate impact claims and to repair its public image after being wrongly accused of illegal discrimination. The Virginia Bankers Association will continue to monitor this important issue and advocate for a more commonsense approach to fair lending enforcement. www.vabankers.org
VIRGINIA IS FOR (small business)
How do we love small business? Lenders, let us count the ways Virginia State Small Business Credit Initiative 1. Cash Collateral Program 2. Loan Purchase Participation Program 3. Economic Development Loan Fund 4. Virginia Capital Access Program Credit Enhancement Solutions designed for Small Business Lenders!
May/June 2013 | Virginia Banking 21
Bankers on the
Benchmark Community Bank
First Virginia Community Bank
Nicole Young, Relationship Banker Rhonda Wilson, Vice President/Branch Manager
Joshua Steele, Senior Vice President, Commercial Lending Steffany Watson, Senior Vice President,Treasury Management
Andrew Kerr, Commercial Banking Manager Michael Snow, Private Bank Advisor
Carter Bank & Trust Anthony T. Wilson, Branch Manager
Citizens Community Bank
Hampton Roads Bankshares, Inc.
Vera H. Primm, Chief Financial Officer
Robin Witt Gregory, Manager of East Bank Financial Center in Norfolk
Patricia T. Allen, Senior Vice President & Director of Loan Operations Clayton N. Minter, Vice President & Chief Credit Officer Thomas L. Woodward III, Vice President & Suffolk Market Leader Chad A. Rountree, Vice President & Windsor Market Leader
Sandy McNamara, Business Development Executive
Shore Bank Adam James, Assistant Vice President / Commercial Relationship Manager James C. Johnson, Senior Vice President / Senior Credit Officer John C. Schroeder, Senior Vice President – Commercial Lending Shannon Sharp, Branch Manager
Village Bank Donnie Kaloski, Assistant Vice President, Accounting
Village Bank Mortgage Corp. Michael Cao, Vice President Lee Sansom, Vice President Ingrid Sell, Vice President Barbara Woodburn, Vice President and Manager of Hanover Office
Virginia Commerce Bank Christopher J. Ewing, Chief Risk Officer Wendy M. Dunham, Chief Security Officer
Virginia Heritage Bank Jeremiah Behan, Senior Real Estate Lender Bryan Decker, Chief Marketing Officer & Director of Corporate Communications Trish Smith, Chief Human Resources Officer
Getting to Know Congressman Robert Hurt Continued from page 13 Most recently, the Jumpstart our Businesses Startups Act (JOBS Act) explicitly banned audit firm rotation for emerging growth companies. Congress also made the decision to not include mandatory audit firm rotation in the Sarbanes Oxley Act. Mandatory audit firm rotation would be a blunt instrument hampering the growth of job-creating small businesses. I believe that this is an issue that Republicans and Democrats can come together on and, if implemented, would actually weaken independent auditing committees and negatively impact the quality of audits. I appreciate the active role Virginia banks took during the PCAOB’s comment period in actively opposing the proposed mandate. I look forward to working with you all on moving this important bill through the legislative process.
22 Virginia Banking | May/June 2013
How can bankers be helpful to you and other members of the Virginia delegation? I cannot do my job unless I hear directly from the people I represent in Virginia’s Fifth District. I hope that all of the banks through the district will take the opportunity to reach out to me or my staff to discuss issues you are seeing that Congress can address. Especially as a member of the House Financial Services Committee, I am in the position to work with my colleagues on the Committee to find legislative solutions, work directly with regulators, and ensure that they are brought to the attention of the chairman. Outside of your busy work schedule, how do you choose to enjoy your free time? I enjoy spending time with my family in Chatham. I love reading about Virginia
and U.S. history and I love fishing for small mouth bass. We are very excited to have you speak at the VBA’s 120th Annual Convention. What do you hope will come from your time speaking with Virginia bankers? I greatly appreciate the opportunity to address bankers from across the commonwealth at VBA’s 120th Annual Convention. As with our previous meetings, I believe that these are great opportunities for us to have a sustained dialogue on what Washington can do, or refrain from, to create a better economic environment for banks to focus on what they do best – getting capital into the hands of small businesses, farms, and families so that they can strengthen their communities and create jobs. I look forward to seeing you all at the convention and our continued relationship into the future. www.vabankers.org
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