Virginia Banking May/June 2016

May/June 2016

IN THIS ISSUE

VBA/ABA Government Relations Summit VBA/ABA2016 Government

BANKERS HELP TO TRAIN THE COMMONWEALTH'S FUTURE FINANCIAL LEADERS

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May/June 2016

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

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

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SUBSCRIPTIONS If you would like to subscribe to Virginia Banking, contact Chandler Owdom at cowdom@vabankers.org Virginia Banking is published bi-monthly. Copyright 2016.

Statements of fact and opinion are made on the responsibility of the authors alone and do not imply an opinion or endorsement on the part of the officers or members of VBA.

The Warren Group Design / Production / Advertising www.thewarrengroup.com custompubs@thewarrengroup.com

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

cover

14

VBA/ABA Government Relations Summit

features

17

Bankers Celebrate 20 Years of Teaching Children to Save

19

VBA Bank Day Scholarship Program

in every issue 4 Calendar of Events 5 Insights 6 Worth Noting 7 Legislative Update 8 Legal Line 10 Washington Update 12 Compliance Corner 22 New Associate Members 22 Bankers on the Move Send us your thoughts or ideas on Virginia Banking! Please email Chandler Owdom at cowdom@vabankers.org. Has your information changed? Please email Kellee Edelin at kedelin@vabankers.org with your new contact information.

Calendar of

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

INSTRUCTOR-LED SEMINARS

WEBINARS

SUPERVISOR BOOT CAMP - GLEN ALLEN JUNE 14-15, 2016

MOBILE THREATS & BEST PRACTICES JUNE 9, 2016

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

CALL REPORT LENDING SCHEDULES JUNE 13, 2016

VBA SCHOOL OF BANK MANAGEMENT - CHARLOTTESVILLE JULY 31-AUGUST 5, 2016 CFO CONFERENCE - RICHMOND AUGUST 28-30, 2016 FINANCIAL MANAGERS SCHOOL PRESENTED BY FINANCIAL MANAGERS SOCIETY AND GRADUATE SCHOOL OF BANKING - MADISON, WI SEPTEMBER 18-23, 2016 CREDIT MANAGEMENT CONFERENCE - CHARLOTTESVILLE OCTOBER 3-4, 2016 LEADERSHIP CONFERENCE - RICHMOND OCTOBER 6-7, 2016

THE TOP TEN MISTAKES IN ANALYZING BUSINESS FINANCIAL STATEMENTS JUNE 14, 2016 THE TOP TEN MISTAKES IN APPRAISAL COMPLIANCE JUNE 16, 2016 BANK ACCOUNTING ESSENTIALS JUNE 17, 2016 BUSINESS ACCOUNTING ESSENTIALS JUNE 20, 2016 YOUR FIRST TRID EXAM: WHAT TO EXPECT JUNE 21, 2016 CONDUCTING INVESTIGATIONS JUNE 21, 2016

COMMERCIAL LENDING SCHOOL - GLEN ALLEN OCTOBER 11-12, 2016 BANK TECHNOLOGY SECURITY SCHOOL PRESENTED BY THE GRADUATE SCHOOL OF BANKING AT THE UNIVERSITY OF WISCONSIN-MADISON MADISON, WI OCTOBER 23-28, 2016 WOMEN IN BANKING CONFERENCE - RICHMOND NOVEMBER 9, 2016 ENTERPRISE RISK MANAGEMENT WORKSHOP - GLEN ALLEN NOVEMBER 16, 2016

MANAGING FRAUD IN THE PAYMENTS WORLD JUNE 22, 2016 HOW ORDINARY PEOPLE BECOME EXCEPTIONAL LEADERS JUNE 23, 2016 CONDUCTING SUCCESSFUL HR AUDITS JUNE 24, 2016 COMMERCIAL REAL ESTATE LENDING IN TODAY’S ECONOMY, 2-PART SERIES JUNE 27, 2016 BRANCH TRANSFORMATION BOOT CAMP, 2-PART SERIES JUNE 29, 2016

Virginia Bankers Association

Thanks 2015-2016 VBA Chairman Gaylon Layfield!

Thank you to Gaylon Layfield, President & CEO of Xenith Bank, for your year of service as Chairman of the VBA. Thank you for the leadership you provide to the Virginia Bankers Association and to the banking industry!

4 Virginia Banking | May/June 2016

www.vabankers.org

Insights

Focused on the Future “Wisdom in a leader is key to a victorious future.” —Wayne Chirisa

W Bruce Whitehurst President and CEO, Virginia Bankers Association

e have some cool things happening at the VBA as we focus and execute on key elements of our most recent strategic plan. Knowing the banking industry depends upon great leadership in order to excel, we are establishing a new, important group and renaming and rebranding another; both will support future leadership development for Virginia banking.

Our new group is the Retired Banking Executives, comprised of retired and semi-retired Virginia bankers and developed in partnership with a core group that has met twice this year to help us refine the vision first laid out in last year’s strategic plan. This group will allow retired banking leaders to connect with each other through the VBA, to remain active in VBA advocacy and to provide guidance and mentorship to future banking leaders. The Retired Banking Executives’ inaugural event will take place in September, adjacent to the CEO Forum. Please contact the VBA’s Tom Garner at tgarner@vabankers.org or (804) 484-4153 for more information, and also see the related article in this issue of Virginia Banking on page 6.

Our newly renamed and rebranded group is the VBA Emerging Bank Leaders (EBL), formerly known as the VBA Leadership Division. This vibrant group – chaired this year by Brandon Atkins of American National Bank in Danville – represents what we like to call a succession plan for Virginia banking. EBL has three primary objectives: Develop, Connect and Engage. EBL members benefit from peer interaction and networking as they come together in numerous ways, such as: • VBA advocacy events, like Banker Day at the General Assembly, the Government Relations Summit in Washington, D.C. and regional meetings with state and federal legislators. In fact, EBL participation in all these events has been very high in recent years, with EBL members taking on speaking and presiding roles in many cases.

• VBA and bank-specific financial literacy events, including the Bank Day Scholarship Program, Teach Children to Save Day and Get Smart About Credit Day. • Regional networking and educational events, including this spring’s six Burgers with Bruce luncheons, with over 150 EBL members and banking leaders in attendance.

• Multi-industry networking events, in which young bankers, attorneys, CPAs and insurance agents come together for networking and relationship building on a regional basis.

• The annual VBA Leadership Conference, scheduled this year for October 6-7 in Richmond.

Our VBA staff contact for the EBL group is Chandler Owdom, director of communications & strategy; contact her at cowdom@vabankers. org for more information.

EBL’s roots trace back to the VBA Young Bankers Section, where so many of today’s banking leaders first connected with the VBA and with each other. For those of us who derived so much benefit from our active participation in Young Bankers, it is easy to see why the VBA’s emphasis on developing future leaders through the EBL is so important. With the renewed focus on EBL, plus the addition of the new Retired Banking Executives group, we have taken this VBA commitment to a higher level than ever before.

Getting people together is a fundamental part of what we do at the VBA; with these two groups, we will now be even more intentional about the transfer of knowledge and wisdom that will result from bringing past, current and future leaders together to benefit all who participate and build leadership for Virginia banking. Yes, we have some pretty cool things happening at the VBA these days!

“Leaders don’t create followers, they create more leaders.” —Tom Peters Bruce Whitehurst can be emailed at bwhitehurst@ vabankers.org or tweeted at @BruceTW for questions or comments on this article.

May/June 2016 | Virginia Banking 5

Noting

Worth

VBA TO FORM ‘RETIRED BANKING EXECUTIVES’

AMERICAN BANKERS MUTUAL INSURANCE LTD. DISTRIBUTES $1.1M TO ABA MEMBER BANKS

The American Bankers Association announced in December that American Bankers Mutual Insurance Ltd., the reinsurer for the ABA-endorsed insurance program, distributed $1.1 million to be shared by qualified ABA member banks insured through ABA Insurance Services Inc. This declaration marks the 26th consecutive year that the industry’s leading professional liability insurance provider has declared distributions to eligible ABA member banks, bringing the total to $81.2 million in distributions since the program’s inception. Banks that purchase their directors and officers, bond and related insurance from this program and are current ABA members are eligible to receive a distribution. During the ABA National Conference for Community Bankers Conference in February, ABA Insurance Services held a breakfast reception for bankers that received a distribution for their participation in the ABA Insurance Program. Pictured here are Bruce Whitehurst, VBA, and Billy Beale, Union Bank & Trust.

Acknowledging the experience and expertise retired banking executives can bring to the association, the VBA is pleased to announce the formation of the new Retired Banking Executives group. With the help of a task force of retired banking leaders, this new group has been established to provide a meaningful way for retired bankers to serve the association while creating a venue to stay connected with other retirees.

In addition to networking opportunities and roles in leadership, financial literacy and mentoring other bankers, this group will enjoy access to VBA’s educational offerings, the Virginia Banking magazine and the VBA Executive Brief, among other benefits of membership. The Retired Banking Executives will also have their own listing on the VBA website.

Plans are underway for a fall event which will coincide with the CEO Forum in September. For more information, please visit the VBA website or contact Tom Garner at tgarner@vabankers.org.

WE WILL MISS …

George Bernard “Bernie” Barnhart, 74, passed away Saturday, April 9, 2016. Born in Rockingham County on November 3, 1941, Bernie grew up in Grottoes but had adopted Waynesboro as his hometown. Bernie was a member of Masonic Lee Lodge #209, the Acca Temple Shrine, the Waynesboro Elks Lodge and First Baptist Church. He was a former board member of the Waynesboro YMCA and was the CEO of Bank Design & Equipment. Our thoughts are with Bernie’s family at this difficult time.

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6 Virginia Banking | May/June 2016

The Official Publication of the

www.vabankers.org

Legislative

Update

A Picture Is Worth A Thousand Words

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

t is often said that a picture is worth a thousand words. As part of the recent VBA/ ABA Government Relations Summit in Washington, D.C. in March, 75 Virginia bankers met with our federal representatives on Capitol Hill to discuss the key issues facing our industry.

Bankers from across the commonwealth – joining with those from around the entire country – delivered the message that action is critical on a number of initiatives in Congress. Each of the individual bankers who led the conversation about our priorities – regulatory relief, a level playing field with credit unions and cybersecurity and data breach standards – did an outstanding job of explaining the issues, relating them to the impact on our bank customers and legislators’ constituents, and urging their support for our solutions.

The themes discussed were not new to our bankers or our congressional delegation. Seeking assistance to further drive home the real impact of the burdensome regulatory scheme foisted upon our industry by Washington, we used the graphics included with this article to illustrate the hard data of the impact and illuminate our elected officials on the consequences of Dodd-Frank on banks and their customers.

Blown up on a large poster board, legislators could not avoid the facts staring them in the face.

The depiction of how regulations have nearly doubled in totality since the passage of Dodd-Frank, how compliance costs have correspondingly risen and how customers are being negatively affected reinforced our message about the desperate need for relief and rebalance. Tom Rasey, a VBA Emerging Bank Leaders member from The Farmers Bank Continued on page 9

THE IMPACT OF THE DODD - FRANK ACT ON BANKS ARE YOU SEEING DELAYS IN LOAN CLOSINGS BECAUSE OF TRID?

MASSIVE NEW REGULATIONS 52,475

23% 26,755

2009

+96%

77%

2015

Total Banking-related Regulatory Restrictions in the Federal Register Source: George Mason University Mercatus Center

REGULATORY COMPLIANCE BY THE NUMBERS FOR SMALL BANKS:

11 % OF PERSONNEL EXPENSE 16 % OF DATA PROCESSING 20 % OF LEGAL COSTS 38 % OF ACCOUNTING & AUDITING 48 % OF CONSULTING SERVICES $4.5 billion ANNUAL COSTS TO COMMUNITY BANKS 22 % OF NET INCOME Source: Conference of State Bank Supervisors, 2015 Community Banking in 21st Century

Yes (By approximately how many days?)

No

Banks reported delays in closing anywhere from one day to 20 days, with an approximate average of 8 days. Source: ABA

A TYPICALSMALL BANK :

Size: $250 Million Compliance Costs as Percent of Budget

15%

3% 2009

2015

5 X Larger!

Chart prepared by SIR, Inc. from public data, 2016

May/June 2016 | Virginia Banking 7

Line

Legal

Split Decision by U.S. Supreme Court Fails to Resolve Interpretation of Banking Regulation

T

Mel Tull General Counsel, Virginia Bankers Association

he first 4-4 split decision by the U.S. Supreme Court following the unexpected death of Justice Antonin Scalia failed to resolve conflicting interpretations of a banking regulation by the Sixth and Eighth Circuit Courts of Appeals. In Hawkins v. Community Bank of Raymore, the Supreme Court affirmed an Eighth Circuit Court of Appeals decision finding that the Equal Credit Opportunity Act (ECOA) and Regulation B apply only to loan applicants, not to those who guarantee the loans.

In a one line opinion, the Supreme Court stated that the Eighth Circuit’s “judgment is affirmed by an equally divided Court.”

The even split among the justices means the Eighth Circuit decision is not overturned and remains the law in the states within the Eighth Circuit. However, the decision does not overturn a Sixth Circuit Court decision that reached the opposite conclusion on the same issue, nor does the decision provide binding precedent for courts in other circuits such as Virginia, which is in the Fourth Circuit.

The Hawkins case involved two wives who executed personal guaranties guaranteeing commercial loans made to their husbands’ business. When the husbands’ business failed to make required loan payments, the bank declared the loans in default and demanded payment from the wives as guarantors. The wives sued the bank seeking an order declaring their guaranties void and unenforceable.

They alleged the bank had required them to execute the guaranties solely because they were married to their husbands. They claimed this requirement constituted discrimination against them on the basis of their marital status in violation of the ECOA. The bank argued the wives were not “applicants” within the meaning of the ECOA and thus the bank had not violated the ECOA by requiring them to execute the guaranties.

8 Virginia Banking | May/June 2016

The ECOA makes it unlawful for any creditor to discriminate against any “applicant,” with respect to any aspect of a credit transaction on the basis of, among other things, marital status. The statute defines “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” Interpreting this statutory definition, the Federal Reserve Bank promulgated Regulation B which provides that the term “applicant” includes guarantors. Relying on Regulation B, the wives argued they were applicants within the meaning of the ECOA because they guaranteed the debt to the bank.

Applying the framework established by Chevron U.S.A. Inc. v. Natural Resources Defense Council to determine whether it should defer to the Federal Reserve’s interpretation of the ECOA’s definition of applicant, the Eighth Circuit determined the ECOA definition of “applicant” was unambiguous and unmistakably provides that a person is an applicant only if she requests credit. The Eighth Circuit reasoned that while a guarantor desires for a lender to extend credit to a borrower, the guarantor is not requesting credit and therefore does not qualify as an applicant under the ECOA. Because the ECOA definition was unambiguous regarding whether a guarantor constitutes an applicant, the Eighth Circuit refused to defer to the Federal Reserve’s interpretation of applicant, and concluded that the guarantor wives were not applicants protected from marital status discrimination by the ECOA. The Eighth Circuit further reasoned that its conclusion comported with the purposes and policies underlying the ECOA, which Continued on page 11 www.vabankers.org

Picture continued from page 7

of Appomattox, did a phenomenal job in connecting the facts and figures highlighted in our “prop” with the real-life consequences to banks in communities throughout Virginia and, ultimately, the customers and communities they serve as well as with the necessary legislative proposals for which our group was advocating.

Visualizations of the magnitude and cumulative impact of regulatory overreach stemming from Dodd-Frank and other federal laws aids in making a connection for our elected officials and the hope is something clicks, motivating them into action. Two years ago, Peter Clements, chairman, president and CEO at The Bank of Southside Virginia, brought to our attention a graphic generated by the CFPB that was supposed to be a flow chart for banks to navigate the Qualified Mortgage rule’s small creditor requirements. Even supersized as a poster, it looked more like a chaotic labyrinth or bureaucrat-created Rorschach test than a helpful guide, thus reinforcing the complexity of the rules and dispelling the myth that Dodd-Frank was not going to impact community banks. It helped turn our rhetoric of the challenges with the requirements into a tangible example legislators could see with their own eyes.

Anyone who has seen an industry update presentation from the VBA over the past five years likely recalls the graph displaying the overwhelming number of pages contained in Dodd-Frank as it dwarfs other landmark financial legislation. Those attending this spring’s Burgers with Bruce events received two new images that, sadly, complement and update that story. Both from a recent study by the Mercatus Center at George Mason University, the first depicts how the cumulative new restrictions imposed through Dodd-Frank outpace those created from all the other laws enacted during the Obama Administration combined.

The other points out that banks were dealing with over 25,000 regulations pri-

or to the passage of Dodd-Frank, undercutting the delusion that spawned DoddFrank that banking was under-regulated, while showing the steep and mounting climb since 2010.

A recent study by the Southeastern Institute of Research (SIR) commissioned by the VBA and financially supported

by The Fund for Economic Growth, aggregated research and data, including the information in our Summit graphics, which tells the story about the millstone of regulatory burden on banks. One of the findings from SIR’s report was the importance of using the size and scope of that burden – the hard data – to get the attention of policymakers. The figures and their image depictions can sharpen the focus and jolt an eureka moment towards comprehension.

Numbers, however, cannot do all the talking, nor can the picture absolutely replace those thousand words. Indeed, it is critical that we frame the discussion of the statistics and data on what it means for consumers and customers. While visual aids, props and graphics are part of our overall messaging, the connection back to how it touches the people and communities we serve – exactly what Tom did in D.C. to deliver the message to our legislators – is central to crafting the case for meaningful action. So we must continue to both point to the numbers and pictures while weaving them into the narrative of the importance of banking.

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

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

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

May/June 2016 | Virginia Banking 9

Update

Washington

Help Us ‘Power Up’

I Rob Nichols President and CEO, American Bankers Association

think most bankers would agree that the policy environment today is not a heck of a lot better for our industry than it was in 2008. Politicians continue to take cheap shots at banks, even going so far as to force the industry to pay for the highway spending bill enacted last December.

This is an untenable position. Banks are far too important to hometowns across America to unfairly remain a political punching bag. It’s not just that the continued sweeping, anti-bank rhetoric damages our reputation, which could deter customers from banking. That is a problem, to be sure – and policymakers should see how counterproductive it is to send consumers away from the safety of regulated institutions.

But the more damaging result is the policies – particularly in the form of overly prescriptive regulations – that follow the rhetoric. Policies that do not recognize how banks interact with their customers, or how bank lending propels the growth and prosperity of their communities, do more far more harm than good. They deny credit to creditworthy borrowers, make homeownership prohibitive and perversely promote consolidation among smaller banks that are sometimes the only financial services provider in town.

This needs to change.

That’s why ABA spent the first few months of 2016 reviewing and revitalizing the advocacy tools and programs bankers use to amplify their voice in Washington. We found we do some things well, but also that there were other things we should be doing better, differently or on a grander scale. We’ll be implementing changes on our end, including using new social and digital advocacy tools to better communicate, mobilize and coordinate our efforts. But we need bankers to make a shift as well.

Specifically, we are asking bankers to do three things that we think will help rebuild the banking industry’s political clout. We are calling this initiative “Power Up,” and I am asking for your active participation.

THREE STEPS TO ‘POWER UP’ 1. Engage in grassroots leadership. You are already community leaders, which makes you important to elected officials. We need to go the next level and become an invaluable resource to them.

10 Virginia Banking | May/June 2016

Host lawmakers in your community and in your bank. Introduce them to other community VIPs, including your business customers. Help them with their campaigns either by hosting a fundraiser or providing manpower.

As you do so, your member of Congress will learn the valuable role your bank plays in the community, and how policy affects your customers – their constituents. That is the best way to ensure they will consider your views when a banking issue comes up for a vote.

If you have or are willing to build or deepen a relationship with your lawmaker, please let ABA know by filling out our Lawmaker Relationship Form at aba.com/PowerUp. 2. Join BankPac, or your state’s Federal Pac. BankPac and connected state political action committees comprise a critical tool for advancing a probanking agenda in Washington, but we can only talk to bankers about it – and how they can support it – if a senior executive at the bank provides prior approval.

It is critical that we obtain this prior approval as soon as possible. ABA is already contacting those banks that have provided approval – particularly those whose leaders serve on ABA councils – about hosting in-bank campaigns for BankPac. A signed prior approval form will permit us to help banks implement a simple employee deduction plan which, when multiplied by thousands of banks, can yield big results. The BankPac prior approval form is available on aba.com/PowerUp; please fill it out.

3. Donate to the Fund for Economic Growth.

The fund is the new name for the 501c4 that several ABA banker leaders started in 2012. It helps demonstrate the economic impact of U.S. banks and pro-growth policies by educating policymakers and the public, promoting legislation and bolstering political candidates.

Unlike BankPac, the fund can accept both personal and corporate contributions, which are unlimited. The more contributions the fund receives, the more we can do to improve the policy environment in Washington. More information and a donation form are available on aba.com/PowerUp. All of these steps are aimed at dramatically expanding bankers’ participation in the political process and thereby increasing our political strength. www.vabankers.org

Interpretation of Banking Regulation continued from page 8 But it is equally important that we deploy our expanded resources more deliberately and aggressively. That means being more discerning in our financial support to lawmakers and more proactive in our use of media in political campaigns. Rest assured that the state associations will remain critical partners in making these kinds of funding decisions.

I firmly believe that the three components of our Power Up initiative will set banking on the path to becoming a more formidable political force. We won’t get there overnight. In fact, I expect we will need a good two years to fully “power up.” But with your support and leadership, I’m confident we will build banking’s clout and create a more positive policy environment for your customers and communities.

were to curtail the practice of creditors who refused to grant a wife’s credit application without a guaranty from her husband, and these policies focus on ensuring fair access to credit by preventing lenders from excluding borrowers from the credit market based on the borrowers’ marital status. The considerations are different in the case of a guarantor, the Eighth Circuit Court said, noting that by requesting the execution of a guaranty, a lender does not exclude the guarantor from the lending process or deny the guarantor access to credit. The Eighth Circuit emphasized that the wives were not excluded from the lending process due to their marital status, instead they complained they were improperly included in that process by being required to execute guar-

Email Rob Nichols at nichols@aba.com.

anties.

The Sixth Circuit recently reached the contrary conclusion, finding it to be ambiguous whether a guarantor qualifies as an applicant under the ECOA, and deferring to the Federal Reserve’s interpretation. The issue is now settled in the Eighth Circuit.

Banks in the Sixth and other Circuits should continue to proceed cautiously until the issue is reconsidered by a full Supreme Court.

For more information about ECOA, Regulation B and the Hawkins case, contact Mel Tull, VBA general counsel, at mtull@vabankers.org or (804) 8194710. This article has been prepared for informational purposes only and is not legal advice.

With a 360° perspective, our financial services team is with you every step of the way.

More than 160 banks in the Southeast depend on Elliott Davis Decosimo for personal attention, industry experience and services, including external and internal audit, SEC reporting, M&A consulting, taxation and compliance. Our financial services practice is more than 100 professionals strong, with a 60-year reputation for helping banks operate stronger, wiser, better. Let us help you move forward.

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May/June 2016 | Virginia Banking 11

Compliance

Corner

Big Changes for Small Creditors This Spring

W Silvia Garcia Maggio Assistant General Counsel, Compliance Alliance

hen the CFPB released their final rule on Small Creditor Balloon-Payment QMs, small creditors were relieved that the definition of small creditor had expanded and the end of the temporary exemption for Balloon QMs was pushed back to April 1, 2016. Then, Congress stepped in and passed the HELP Act (TITLE LXXXIX of the FAST Act) on Dec. 4, 2015, which required that the CFPB establish an application process to allow businesses and residents who apply to have areas designated as “rural.” In addition, the HELP Act required the word “predominantly” be struck from the language in Regulation Z that required that a lender act “predominantly” in a rural or underserved area in order to qualify as Rural or Underserved Small Creditor. The CFPB responded by creating an application system on March 3, 2016 and then, by issuing an interim Final Rule, completely revamping the definition of Rural or Underserved Small Creditor on March 22nd, 2016.

With all the changes that occurred between September and this spring, here’s what you need to know: FINAL RULE The September final rule was changed in large part by the March 22, 2016 interim final rule. However, a couple items are still important and in place as of the interim final rule.

First, the threshold for qualifying small creditor originations was increased from 500 firstlien covered transactions to 2,000 first-lien covered transactions. Loans that the creditor or its affiliate originates and keeps in their portfolio are excluded from the loan origination limit.

When determining whether a creditor and its affiliates extended more than 2,000 first-lien covered transactions, the creditor only counts first-lien covered transactions that were sold, assigned or otherwise transferred, or were subject to a commitment to be acquired at the time of consummation. The rule maintained the asset limit of $2 billion (adjusted annually), but required that the creditor count not

12 Virginia Banking | May/June 2016

only its assets, but also the assets of any affiliate that regularly extended first-lien covered transactions in the preceding calendar year.

A grace period was provided to allow certain creditors to operate as a small creditor or small creditor that operates predominantly in rural or underserved areas for applications received before April 1 of the current year.

HELP ACT The HELP Act required the CFPB establish an application process which now allows lenders to apply to have areas designated as “rural.” The act also removed the word “predominantly” in the rural small creditor qualification within 90 days of the passage of the FAST Act. The CFPB had interpreted the term “predominantly” in the September Rule to mean a lender that makes more than 50 percent of their loans in a rural or underserved area to qualify as a Rural or Underserved Area Small Creditor. Thus, the removal of the term led to a new interpretation from the CFPB in the March Interim Final Rule.

APPLICATION PROCESS As mandated by the HELP Act, the CFPB released the application process for an area to be designated as “rural.” It’s important to note that the HELP Act is set to sunset April 8, 2017. Therefore, applications will be accepted March 31, 2016 through April 8, 2017. Any application received on or after April 8, 2017 will only be reviewed at the CFPB’s discretion. There’s no set model application so applicants need to create their application based on the process put forth in the March 3rd release. Once received, the CFPB will evaluate whether the application was fully completed, that the application area isn’t already considered a rural area, that there’s not already an application for that area to be considered, or if an application has already been denied for that location. The CFPB approval process also includes publication of the application in the Federal Register and a public comment period of at least 90 days. The CFPB will then www.vabankers.org

make a decision on the application within 90 days after the end of the comment period.

Any applicant needs to provide information about the location (including the state) that the area is located in.

The applicant must also attach information to support their conclusion that the area should be considered rural. The CFPB requires that applications include whether the Census Bureau, Office of Management and Budget, Department of Agriculture or State Bank Supervisor has or has not deemed this area rural and include supporting documentation. In addition, the applicant is required to provide information about the population by providing the number of persons per square mile data from the Census and providing supporting documentation. The applicant must also provide information about nearby areas that have a higher population density that has been deemed rural by the CFPB. The applicant will include their name, contact information, and the fact that they are doing business in the state where the area they are applying for is located. They must include supporting documentation showing evidence that the applicant may do business in the state (e.g. a license from the state). No other personal information may be included and the applicant may request that their sensitive information is redacted in the Federal Register by making a request on the cover page of their application.

INTERIM FINAL RULE After complying with the requirement to establish an application process, the CFPB released their Interim Final Rule which expanded the definition so much, it’s likely to exponentially decrease the amount of lenders who need to or would want to apply for that designation. As noted above, per the September rule, to be a small creditor that operates predominantly in rural or underserved areas for 2016, a creditor would need to extend more than 50 percent of its total first-lien covered transactions on properties located in rural or underserved areas in the calendar year 2015. The March Interim Rule now puts forth a one-loan test, which requires that the lender have made at least one loan in a rural or underserved area as defined by the CFPB. The one-loan test is determined by loans made in the preceding calendar year or if an application was received before April 1 of the current calendar year, either of the two preceding calendar years.

In addition to the one-loan test, the Interim Final rule changes the language relating to escrow in 12 CFR www.vabankers.org

1026.35(b)(2)(iii). That section exempted small creditors who make more than 50 percent of their covered loans during the preceding calendar year (or if the application was received before April 1 of the current calendar, the last two calendar years) in rural or underserved areas. Now that language has been changed to match that definition in 12 CFR 1025.43 by removing the “predominantly-lend” test language and replacing that with the one-loan test.

Finally, the rule also added the HELP application process in the definition of “rural” area. The regulation will now include areas that: 1) are not in an MSA per the Office of Management and Budget; 2) are not located in a census block that is in an urban area per the U.S. Census Bureau; or 3) have been designated as rural by the CFPB via the HELP application process, as discussed above. The interim final rule redefines which small creditors are deemed to operate in a small or underserved area, clarifies the exemption from HPML escrow accounts and redefines which areas are considered “rural.” It’s important to note that the rule had a 30-day public comment period, but it was effective as of March 31, 2016 so as to ease any issues between the final rule and the April 1, 2016 temporary exemption deadline.

With all the changes (and the expected final rule), it’s important to know which areas are deemed rural or underserved, to understand the lookback period for qualifying loans, and to know whether your bank qualifies for the QM and escrow exemptions. Even if it is hard to keep up with all the changes, the expansion to a one-loan test is a bright spot in the regulatory heap for many community banks.

Silvia Garcia Maggio serves as an associate general counsel for Compliance Alliance. After graduating from The University of Texas School of Law in 2011, Silvia began her career in real property and foreclosure law. Employed by a national mortgage servicer since 2012, Silvia worked on the OCC independent foreclosure audit and in compliance for Enterprise Risk Management, gaining a multitude of experience dealing with multi-state and federal banking regulations. Silvia started with Compliance Alliance in March of 2014. Silvia is part of a team of attorneys who assist Compliance Alliance members with a wide-range of regulatory and compliance inquiries. Compliance Alliance offers a wide variety of compliance management solutions.

To learn how to put them to work for your bank, call (888) 353-3933, visit compliancealliance.com or email info@ compliancealliance.com.

May/June 2016 | Virginia Banking 13

Fighting for

the Industry

From left: Reps. Robert Hurt, Randy Forbes and Rob Wittman came to see their banker constituents.

Virginia Bankers Discuss Regulatory Burden, Cybersecurity and Credit Unions at the VBA/ABA Government Relations Summit

S

eventy-five Virginia bankers joined 1,000 bankers from across the nation at the VBA/ABA Government Relations Summit March 14-16 in Washington.

On Monday, VBA Emerging Bank Leaders attended the Emerging Leaders Forum, which centered on leadership development and the importance of advocacy. Attendees had the opportunity to share their leadership challenges and network with peers from across the country at a reception following the Forum. The next day, all attendees heard from an impressive line-up of high-profile speakers including ranking members of the House and Senate. Bankers spent the majority of that day on the Hill meeting with members of our Congressional delegation. For more details about the Summit, please see Matt Bruning’s Legislative Update on page 7.

Bruce Whitehurst welcomes Rep. Gerry Connolly to the room.

14 Virginia Banking | May/June 2016

Former White House Press Secretary Dana Perino was one of the highlights of the general session during the Summit.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) addressed the nearly 1,000 registered bankers. www.vabankers.org

From left: Rep. Bob Goodlatte, VBA Chairman Gaylon Layfield, Xenith Bank, and VBA President & CEO Bruce Whitehurst listen to Bank @lantec’s Susan Ralston (right) discuss leveling the playing field with tax advantaged institutions.

From left: Greg Godsey, Union Bank & Trust; Brian Plum, Blue Ridge Bank; Rep. Bob Goodlatte; Laurie Hart, HomeTown Bank; and Carolyn Kiser, HomeTown Bank.

Rep. Scott Rigell was one of the ten House members the group was able to meet with at the GR Summit. www.vabankers.org

Rep. Randy Forbes and Peter Clements, The Bank of Southside Virginia.

May/June 2016 | Virginia Banking 15

VBA/ABA Government Relations Summit Continued from page 15

Rep. Dave Brat (middle) with a group of his constituents.

Tom Rasey reviews statistics on regulatory burden. For more information, see page 7.

Gaylon Layfield (right) welcomes Sen.Tim Kaine (left).

From left: Sharon Cook, FHLBank Atlanta; Randy Ferrell, The Fauquier Bank; and Scott Brennan, FHLBank Atlanta at the VBA reception sponsored by the FHLBank Atlanta.

From left: ABA President & CEO Rob Nichols; Bruce Whitehurst; and Jeff Szyperski, Chesapeake Bank.

Many Emerging Bank Leaders were also at the event. From left: Cary Ayers, Union Bank & Trust; James Bowen, First Bank & Trust; Nancy Sullivan, Community Bankers’ Bank; Adam Hill, Union Bank & Trust; and Joe Waters, First Bank & Trust.

Charlie Cook and Stu Rothenberg rounded out the general sessions with a presidential campaign update and forecast.

Rep. Morgan Griffith responding to the three topics bankers presented.

Union Bank & Trust bankers show off their pride in Virginia banking by displaying their Proud to Be a Virginia Banker buttons.

16 Virginia Banking | May/June 2016

www.vabankers.org

Our Future

Investing in

Bankers Celebrate 20 Years of Teaching Children to Save Chesapeake Academy first graders recently visited Bank of Lancaster for Teach Children to Save Day. Pictured, front row, from left: Quenton Harding, Brooks Parker and Jimmy Hodsden; back row, from left: Corty Mumma, Valerie Edmonds, Khloe Hohensee, Isabelle Fries and William Weddle.

Blue Ridge Bank employees had a fantastic time at Elkton Elementary School. They had the pleasure of teaching four kindergarten classes a lesson on safe places to keep money, reaching 61 students in total at that school.

Sara Burrus Szymanski of TowneBank shares big smiles with the second graders at Pioneer Elementary School after sharing a lesson on saving as part of Teach Children to Save Day. TowneBank has reached over 2,800 students through their bankers visiting schools this year.

More than 13,000 bankers hosted financial education events across the country in celebration of the 20th annual Teach Children to Save Day on April 29. In Virginia, 399 presentations were made by 290 bankers reaching 14,750 students. Virginia bankers will continue to make presentations throughout the rest of the year as well.

Since 1997, Teach Children to Save Day and the American Bankers Association Foundation’s financial education initiatives have reached approximately 8.2 million children with the help of more than 245,000 banker volunteers. The Virginia Bankers Association and Virginia banks have been participating in Teach Children to Save Day since its start 20 years ago.

In a Teach Children to Save Day classroom lesson, bankers teach students the fundamentals of financial literacy through age-specific activities and interactive scenarios. The lessons cover the basics of saving, as well as how to create a budget and distinguish needs from wants.

Nearly 740 banks of all sizes and charters hosted Teach Children to Save Day events this year. Twenty-eight banks in Virginia participated. Read on for examples of how banks participated in their communities, and contact Chandler Owdom at cowdom@ vabankers.org to find out how you can get involved in Teach Children to Save Day efforts. www.vabankers.org

CHESAPEAKE BANK Chesapeake Bank held nine presentations, reaching close to 200 students for Teach Children to Save Day, and has several more presentations scheduled for June.

The children learned the importance of saving money and protecting the environment from the Living Green, Saving Green presentation. They also learned the importance of keeping their money in a safe place from the story “Sam’s Silly Saving Spots.” For other groups, they used the stories “Bunny Money” and “Less Than Zero.” Students learned the importance of saving money instead of wasting it on things that don’t last. They discussed opportunity cost and how to decide what you really want, rather than wasting money spontaneously.

BANK OF MCKENNEY Bank of McKenney taught approximately 1,500 elementary school students during April. They used some of the activities they learned at Back to School at the VBA, such as the Allowance Game. Back to School at the VBA is an event held every spring when bankers visit the VBA’s office to learn new presentations to present in schools on Teach Children to Save Day, as well as Get Smart About Credit Day. Continued on next page May/June 2016 | Virginia Banking 17

Teaching Children to Save Continued from page 17

A First Century Bank employee at Jackson Memorial Elementary in Max Meadows.

Virginia Commonwealth Bank employees with the students at the afterschool program at First Baptist Church.

BANK OF LANCASTER Bank of Lancaster kicked off its annual Teach Children to Save Day program with a visit from Chesapeake Academy first graders and their teacher, Mrs. Kelly Antonio.

Hazel Farmer, senior vice president and consumer education director for the bank, gave the students a tour of the bank’s corporate headquarters in Kilmarnock, presented the Teach Children to Save Day program, and the day concluded with a great lunch at Lee’s Restaurant in Kilmarnock. The bank reached approximately 500 students at presentations that took place throughout April and May. “This program 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 on how to develop the know-how needed to manage their money,” Farmer said.

FIRST CENTURY BANK INC. First Century Bank Inc. (FCB) reached out to over 400 students at ten different schools in nine communities for Teach Children

Summit Community Bank employees know that sometimes it’s best to get on the students’ level when you are reading to them!

to Save Day. Bank employees visited classrooms in local schools to speak to students about the importance of saving and tips and lessons on how to save. Children were also given a FCB savings activity booklet and FCB glow in the dark pencils. The bank has participated in Teach Children to Save Day for over ten years and their employees are always thrilled at the opportunity to visit local schools to interact with students.

VIRGINIA COMMONWEALTH BANK Virginia Commonwealth Bank partnered with Petersburg Parks and Recreation for Teach Children to Save Day, which paired them with First Baptist Church for their afterschool program. Bankers taught the students about savings and budgeting using the Piggy Bank Primer Savings and Budgeting workbook from the Federal Reserve Bank. They worked on several activities during the time together and encouraged the students to complete the remainder of the workbook with their families. At the end of the lesson, bankers presented each student with a goody bag that included a piggy bank, savings stickers, pencil, bracelets and candy.

Thank you to the 28 Virginia banks that have participated in the Teach Children to Save program so far this year: Bank of Hampton Roads

EVB

SunTrust Bank

Bank of Lancaster

Farmers & Merchants Bank

The Farmers Bank of Appomattox

Bank of Marion

Farmers Bank

TowneBank

Bank of McKenney

First Bank and Trust Company

TruPoint Bank

Blue Ridge Bank

First Century Bank, Inc.

Union Bank & Trust

Burke & Herbert Bank

First National Bank

United Bank

Cardinal Bank

First Virginia Community Bank

Virginia Commonwealth Bank

Chesapeake Bank

Peoples Bank

Wells Fargo

City National Bank

Sonabank

Essex Bank

Summit Financial Group

18 Virginia Banking | May/June 2016

www.vabankers.org

Middleburg Bank

Virginia High School Seniors Participate in the

VBA Bank Day

Scholarship Program

N

early 375 Virginia high school seniors spent the day shadowing bankers across the commonwealth as part of VBA Bank Day, a statewide effort sponsored by the Virginia Bankers Association, VBA Education Foundation and the VBA Emerging Bank Leaders, on March 15, 2016.

The purpose of the day is to expose students to the banking industry and provide an opportunity for them to learn about banking, financial services and the vital role banks play in their communities.

The third Tuesday in March was declared Bank Day by the Virginia General Assembly in 1991, and this year almost 375 students participated in this important program at 36 different banks. Students will write an essay based on their time in the bank, and six regional college scholarships ($2,500) and one statewide scholarship ($5,000) will be awarded to the winning www.vabankers.org

students. There will also be six honorable mention scholarships of $1,000 this year (one in each of the six regions). Regional winners and honorable mention winners will be announced soon.

The six regional winners will then have the chance to win the overall statewide scholarship of $5,000, receiving $7,500 in total scholarship monies.

The students participated in various activities depending on which bank they visited. Activities included meeting with various bank departments to learn about the loan process, the importance of good credit, the profile of a qualified borrower, appropriate etiquette during a job interview, how banks are involved in the community, the Federal Reserve System, payments and more.

For more information about the VBA Bank Day Scholarship Program, please contact Chandler Owdom at cowdom@vabankers.org.

Continued on next page May/June 2016 | Virginia Banking 19

VBA Bank Day Continued from page 19

First National Bank

First Bank, Strasburg

Farmers Bank

Bank of Botetourt

Blue Ridge Bank

Bank of Lancaster

Farmers & Merchants Bank

Burke & Herbert Bank

C&F Bank

Citizens Community Bank

20 Virginia Banking | May/June 2016

www.vabankers.org

Village Bank

The Bank of Southside Virginia Union Bank & Trust

Old Point National Bank

The Bank of Fincastle

Select Bank

River Community Bank

The Host Banks

Thank you to the banks that hosted students on Bank Day: Bank of Botetourt Bank of Fincastle Bank of Lancaster Bank of Marion Bank of McKenney Bank of Virginia BB&T Benchmark Community Bank Blue Ridge Bank Burke & Herbert Bank C&F Bank Chesapeake Bank Citizens Community Bank www.vabankers.org

Essex Bank Farmers & Merchants Bank Farmers Bank First Bank & Trust First Bank, Strasburg First Century Bank First Community Bank First National Bank First Sentinel Bank HomeTown Bank Middleburg Bank National Bank New Peoples Bank

Old Point National Bank River Community Bank Select Bank The Bank of Southside Virginia The Farmers Bank of Appomattox TruPoint Bank Union Bank & Trust United Bank Village Bank Wells Fargo

May/June 2016 | Virginia Banking 21

Welcome

New Associate Members

CORRESPONDENT BANKS, FINANCIAL INSTITUTIONS

IT CONSULTING AND SERVICES

IT CONSULTING AND SERVICES

FirstBank Correspondent Mortgage Partners

Advanced Network Systems Inc.

ByteSpeed

355 Rio Road West, Suite 201 Charlottesville,VA 22901-1360 CONTACT: LORRI HANEY,VICE PRESIDENT Phone: (434) 973-4747 Email: lhaney@getadvanced.net Web: www.getadvanced.net Advanced Network Systems specializes in helping financial institutions with design, installation and ongoing support of their information technology solutions. The company’s expertise covers IT applications including network security, data center and workstation virtualization, data storage, disaster recovery/business continuity, IPbased telephone systems, as well as secure wireless and remote applications. With IT experts in multiple locations in Virginia, Advanced Network Systems helps their banking clients understand and leverage the most effective IT solutions available.

3131 24th Ave. South Moorhead, MN 56560 CONTACT: JODI HOLLAND, ACCOUNT MANAGER Phone: (877) 553-0777 Email: jholland@bytespeed.com Web: www.bytespeed.com Since 1999, ByteSpeed has custom-built Intel based computer systems. They provide industry leading “no hassle” warranties and free lifetime tech support. ByteSpeed is ISO 9001:2008 and 14001:2004 certified and partners with Intel, Microsoft, Ruckus, Asus, Barracuda, Cisco, D-Link and more to provide quality systems and top notch security for their customers.

89 Sonia Drive Greer, SC 29650-4540 CONTACT: SEAN CHERRY, ACCOUNT EXECUTIVE Phone: (864) 848-3608 Email: scherry@firstbankonline.com Web: www.fbmortgagepartners.com Need a strong partner committed to your success in mortgage lending? FirstBank Correspondent’s Partner Services Program offers a variety of competitive services to community banks and mortgage companies.

They can help you grow your business!

Move

Bankers on the

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

Pritchard

Bell

BNC Bank Patrick W. Pritchard, Executive Vice President, Senior Operations Officer EVB Barry Almond, Senior Vice President/Director of Treasury and Deposit Services Chris Layne, Director of Commercial Banking First Community Bank Todd Murray, City Executive of the Virginia Valley Market

22 Virginia Banking | May/June 2016

Davis

Gillan

Lovell

First National Bank Sarah M. Bell, Mortgage Loan Originator LaDonna S. Davis, Retail Business Development Officer Nickolas R. Gillan, Retail Business Development Officer Sophie M. Lovell, Retail Business Development Officer Scott W. Martin, Retail Business Development Officer Cheria B. Taylor, Retail Business Development Officer

Martin

Taylor

HomeTrust Bank Amy Lowman, Vice President, Mortgage Lending Manager National Bank Harvey Brookins Jr., Vice President and City Executive

www.vabankers.org

please save the date The Virginia Bankers Association and the Virginia Chamber of Commerce Present:

2017 Financial Forecast January 6, 2017 11:00 am - Registration 12:00 pm - Luncheon Greater Richmond Convention Center Speakers to Be Announced For more information, contact: Courtney Fleming Virginia Bankers Association Senior Vice President, Education & Training/ Communications cfleming@vabankers.org 804-819-4748

VA

Janu ar

y

on-2pm ~ Ri o ch ~N m 6

, nd o

For sponsorship, contact: Amy Binns Virginia Bankers Association Senior Manager, Industry Partnerships abinns@vabankers.org 804-819-4726