November/December 2013
The
Emerging Internet & Mobile Community Rewriting the Future of Banking
IN THIS ISSUE
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November/December 2013
2013-2014 OFFICERS AND DIRECTORS OF THE VIRGINIA BANKERS ASSOCIATION Gary R. Shook, Chairman, Middleburg Bank John R. Milleson, Chairman-Elect, Bank of Clarke County Jeffrey M. Szyperski, Immediate Past Chairman, Chesapeake Bank Christopher W. Bergstrom, Cardinal Bank Katherine E. Busser, Capital One Financial Corporation Tim Butturini, Wells Fargo Bank, N.A. J. Peter Clements, The Bank of Southside Virginia Randy K. Ferrell, The Fauquier Bank Gary Gore, Bank of America, N.A. Scott Harvard, First Bank, Strasburg William H. Hayter, First Bank & Trust Company G. Lyn Hayth, III, Bank of Botetourt T. Gaylon Layfield, III, Xenith Bankshares, Inc. Monte L. Layman, Blue Ridge Bank Susan R. Ralston, Bank @Lantec John G. Stallings, SunTrust Bank H. Watts Steger, III, Bank of Botetourt Susan K. Still, HomeTown Bank David P. Summers, Virginia Heritage Bank Daniel G. Waetjen, BB&T Michael O. Walker, Benchmark Community Bank AT-LARGE MEMBERS Benefits Corporation Chair J. Peter Clements, The Bank of Southside Virginia Management Services Inc. Chair G. Lyn Hayth, III, Bank of Botetourt Government Relations Committee Chair 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 Bruce T. Whitehurst President and CEO Virginia Bankers Association Chandler Dewey Manager, Communications & Government Relations Virginia Bankers Association
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SUBSCRIPTIONS If you would like to subscribe to Virginia Banking, contact Chandler Dewey at cdewey@vabankers.org. Virginia Banking is published bi-monthly. Copyright 2013. Statements of fact and opinion are made on the responsibility of the authors alone and do not imply an opinion or endorsement on the part of the officers or members of VBA.
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cover
The Emerging Internet & Mobile Community is Rewriting the Future of Banking
features
17
How Participating in Bank Day Shaped My Career
18
Financial Literacy and Grassroots Advocacy Highlights of Fall 2013
20
Bringing the World to Virginia
in every issue 4 Calendar of Events 5 Insights 6 Worth Noting 7 New Associate Members 8 Legislative Update 10 Legal Line 11 Washington Update 16 Compliance Corner 22 Bankers on the Move Send us your thoughts or ideas on Virginia Banking! Please email Chandler Dewey at cdewey@vabankers.org . Has your information changed? Please email Kellee Edelin at kedelin@vabankers.org with your new contact information. November/December 2013 | Virginia Banking 3
EDUCATION & TRAINING SAVE THE DATES FOR 2014 CONFERENCES AND EVENTS 2014 FINANCIAL FORECAST GREATER RICHMOND CONVENTION CENTER JANUARY 3, 2014 BRANCH LEADERSHIP VBA TRAINING CENTER FEBRUARY 19-20, 2014 BANK SECRECY ACT TWO-DAY SCHOOL VBA TRAINING CENTER FEBRUARY 25-26, 2014 RETAIL BANKING & MARKETING CONFERENCE OMNI CHARLOTTESVILLE HOTEL MARCH 11-12, 2014 ANALYZING FINANCIAL STATEMENTS VBA TRAINING CENTER MARCH 18-19, 2014 BANK DIRECTORS SYMPOSIUM THE WESTIN RICHMOND APRIL 1, 2014 THE INN AT VIRGINIA TECH APRIL 2, 2014 WESTFIELDS MARRIOTT - NORTHERN VIRGINIA APRIL 3, 2014 COMPLIANCE SCHOOL AND COMPLIANCE HOT TOPICS OMNI CHARLOTTESVILLE HOTEL APRIL 6-11, 2014 SECURITY & ENTERPRISE RISK MANAGEMENT CONFERENCE OMNI CHARLOTTESVILLE HOTEL APRIL 23-24, 2014
HR & BENEFITS CONFERENCE OMNI CHARLOTTESVILLE HOTEL MAY 4-6, 2014 OPERATIONS & TECHNOLOGY CONFERENCE OMNI CHARLOTTESVILLE HOTEL MAY 13-14, 2014 APPRAISAL REVIEW SEMINAR VBA TRAINING CENTER MAY 21-22, 2014 TRUST & WEALTH MANAGEMENT CONFERENCE VBA TRAINING CENTER TBD ANNUAL CONVENTION THE SANCTUARY AT KIAWAH ISLAND JUNE 15-18, 2014 CFO CONFERENCE OMNI RICHMOND HOTEL AUGUST 25-27, 2014 CEO FORUM THE GREENBIER SEPTEMBER 15-16, 2014 COMMERCIAL LENDING SCHOOL VBA TRAINING CENTER OCTOBER 15-16, 2014 CREDIT MANAGEMENT CONFERENCE OMNI CHARLOTTESVILLE HOTEL OCTOBER 6-7, 2014 WOMEN IN BANKING SEMINAR TBD NOVEMBER 5, 2014 LEADERSHIP CONFERENCE TBD NOVEMBER 13-14, 2014
4 Virginia Banking | November/December 2013
www.vabankers.org
Insights A Connected Industry
W Bruce Whitehurst President and CEO, Virginia Bankers Association
ithout a doubt, the banking industry is one that is connected in numerous ways. Through the Virginia Bankers Association, bankers come together for industry advocacy, education and training and to address industry challenges and concerns. The VBA is fortunate to have many active bankers from banks all over Virginia; it makes our voice stronger while also creating networking opportunities and lasting friendships among bankers. Banks of all sizes are not only connected through their active participation in the VBA, but also through their joint efforts in communities all over the commonwealth. Go to any civic club meeting in any town or city, and you are sure to see bankers from more than one bank there. Look at the board rosters and list of contributors for nonprofit organizations and you will find bankers and banks there. Check the leader board for United Way campaigns and you will see more of the same. Collective work on community leadership is simply part of a banker’s DNA. Another clear way banks are connected is through cooperative efforts to meet customers’ needs. For community banks in particular, this means working with correspondent and invest-
ment banking firms. Correspondent services give community banks more flexibility to offer larger loans and meet various other needs of their customers, without having to offer every service on a standalone basis. Investment bankers help community banks raise capital, plan for future growth and stay up to date on industry trends. This issue will explore how community bankers can bring their approach to banking to a global audience, sometimes with the help of correspondent and investment banking services. A number of firms that offer these services are connected to each other and the industry through their active support of and membership in the VBA. They benefit from the networking and dialogue opportunities the VBA affords them and we rely on them to help us accomplish our mission of enhancing Virginia banking so banks can best serve their customers and communities. Banks compete daily for business – that’s what the free enterprise system is all about – yet they also connect and collaborate, making our industry even stronger as a result. Those of us on staff at the VBA are honored to play a key role in creating good and lasting connections within our industry.
Bruce Whitehurst can be reached by email at bwhitehurst@vabankers.org.
2014 Financial Forecast
3
JANUARY 3, 2014
-2 p m ~ Ri ch A d, V on
www.vabankers.org
oon N ~
m
Ja nu ar y
HOSTED BY THE VIRGINIA BANKERS ASSOCIATION AND THE VIRGINIA CHAMBER OF COMMERCE
GREATER RICHMOND CONVENTION CENTER
VISIT WWW.VABANKERS.ORG FOR MORE INFORMATION November/December 2013 | Virginia Banking 5
Noting
Worth
HARRY RAUNER HONORED WITH LIFETIME ACHIEVEMENT AWARD Harry Rauner, president and CEO of The Business Bank, was honored with the Dulles Regional Chamber of Commerce’s Lifetime Achievement Award on Sept. 6, at the Westin Washington Dulles Hotel and Resort in Herndon, Virginia. ABA President and CEO Frank Keating spoke at the luncheon and was introduced by Virginia Bankers Association President and CEO Bruce Whitehurst. Harry is the founding director and past president of the Rotary Club of Dunn Loring; a former director of the Community Foundation of Northern Virginia; and a former chairman of the board of the Community Bankers Bank, headquartered in Richmond. Currently, Rauner serves on the boards of the Potomac Conservancy and the Greater Reston Chamber of Commerce. He is also a member of the George Mason University School of Management’s advisory board and serves on the board of governors for The Tower Club in Vienna, Va. Congratulations, Harry, on this well-deserved award!
VIRGINIA BANKERS HAVE A HEART The Virginia Bankers Association and Virginia banks supported the Bankers Have a Heart Movement and the American Heart Association’s Heart Walk on Sept. 28 in Richmond. As a group, banks and bankers from the Central Virginia region raised over $62,000 to help in the fight against heart disease and stroke. It was impressive to see 423 walkers from area banks. Total funds raised from walker dollars and other bank sponsorships totaled $82,621. Way to go team!
SUMMIT FINANCIAL GROUP CFO TESTIFIES BEFORE CONGRESS
From left: Eileen Curtis, president and CEO, Dulles Regional Chamber of Commerce; Harry Rauner, president and CEO, The Business Bank, and Dulles Chamber’s Lifetime Achievement Award recipient this year; Governor Frank Keating, president and CEO, American Bankers Association; Don Owens, chairman, Dulles Chamber; and Bruce Whitehurst, president and CEO, Virginia Bankers Association.
Robert Tissue, CFO of Summit Financial Group in Moorefield, W.Va., testified before the Subcommittee on Financial Institutions and Consumer Credit of the Committee on Financial Services in the U.S. House of Representatives on Oct. 29. He recommended that Congress replace the CFPB director with a board that has a background in prudential supervision, encourage accountability by requiring the CFPB to be funded by congressional appropriations, and ensure that nonbanks are regulated at least as rigorously as banks. We applaud Rob for his efforts to support our industry.
SEND US YOUR NEWS! Please send submissions for Worth Noting and Bankers on the Move to Chandler Dewey at cdewey@vabankers.org. 6 Virginia Banking | November/December 2013
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Welcome
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November/December 2013 | Virginia Banking 7
Legislative
Update
Email Advocacy
I Matt Bruning Vice President, Government Relations, Virginia Bankers Association
n Capital One’s latest witty television commercial, Alec Baldwin is filling in for a teacher on vacation. Told by a student that it is a spelling class, Baldwin questions why spelling is a subject when we have spell check programs. My second-grade phonics teacher might be cringing at that notion, but technology is certainly reshaping – for good or bad, for our future grammarians – our means of communicating. It doesn’t matter if the content is a viral video of a South Korean singer, tweets and Facebook posts empowering and encouraging protests in the Arab Spring or your grandmother forwarding that chain email with the latest urban legend; the available reach of any message has greatly expanded. This rapid globalization of communication has made interconnectedness easier and more accessible. There is clearly a downside to this evolution in communicating. Overindulgence in consuming the multitude of memes and pitches hurdled from every direction can desensitize one to the message clutter, making it more difficult for truly important voices to be heard and effectively delivered. With the vast array of competing mediums supplying
copious information in real time, legitimacy of information often must be questioned. And with brevity as the norm, one can also effortlessly pick and choose the message he or she wants to hear, depriving the recipient of nuance or competing arguments. While we must acknowledge the shortcomings of modern communications methods, there are significant benefits to be embraced. The move to a more open, egalitarian communications space has afforded a platform to new and previously unheard and voiceless sources. Different viewpoints and perspectives on an endless range of issues and topics now have room in the public sphere. Technological advances make delivery expedient and adaptable by facilitating instantaneous conversations with multiple parties. Like countless other facets of life, the changing culture of communications is impacting the means by which legislative advocacy is approached. It is also affecting the messages used in promoting an issue stance or vote request. Traditional advocacy methods are still vitally important. A face-to-face conversation with an elected official remains the most effective form of advocacy. Making that personal connection and being able to have a discourse on the reasoning for a position, the impact of potential changes or how best to solve a challenge is something that emerging technology cannot compete with in influencing change. While this approach is more time and labor intensive, it is those same reasons that cause it to be increasingly valuable. The fall legislative meetings across Virginia that are concluding, Banker Day at the state capital on Jan. 9, and our Washington Hill visits on March 24 through 26, are all opportunities to engage in traditional grassroots advocacy. The direct communication afforded through those interactions is the bedrock of grassroots, which other communication methods supplement and enhance, but cannot replace. While in-person advocacy is the most powerful way to engage with key decision makers, alternative forms of communication offer significant benefits. We encourage bankers to participate in our grassroots call-to-action
Matt Bruning can be reached by email at mbruning@vabankers.org. 8 Virginia Banking | November/December 2013
www.vabankers.org
Paul Pickett, CPA Shareholder
requests on pressing legislative matters. The system we use makes it simple to click and quickly send a message to your representative. In determining how they will vote, lawmakers do take into account the feedback from constituents. Numbers make a difference. Customizing the message to fit your individual banking experience or personalizing the impact on your specific institution can add to the effect, but raw numbers of contacts on any side of an issue are taken into account. Form or personalized, advocacy emails are an easy form of communication with your elected officials that helps move the needle. Social media outlets are an emerging and potent force in advocacy outreach. Twitter, in particular, can be an effective method to disseminate a message on policy positions, as well as communicate directly with a legislator, third party or fellow supporter. The potential broad reach of the “twitterverse” can spur a ripple effect and elevate the message to those that typically might not be aware of a certain issue. A current prime example is the tweets the VBA and the ABA have been sending out in support of taxing credit unions. Utilizing the hashtag #itstime2pay, several disparate entities, including industry associations, banks and individual bankers and supporters, are uniting and reinforcing a consistent message that Congress must act now to remove the antiquated and unwarranted tax exemption for credit unions. Employing traditional and modern advocacy practices creates a comprehensive, integrated approach to grassroots communication. Choose the method that is most comfortable for you, but be engaged. We hope you see the VBA as a resource in doing so and encourage you to learn more about industry advocacy and leveraging social media at www.amplifybankers.com. And remember that no matter what means you use, it is always best to use spell check. www.vabankers.org
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804.239.0452 November/December 2013 | Virginia Banking 9
Line
Legal
Limiting Liability under the New Mortgage Regulations
B Mel Tull General Counsel, Virginia Bankers Association
ankers across Virginia and the nation are preparing for the new mortgage regulations that become effective in January. I recently spoke with a loan officer about the personal liability exposure of individual loan originators for violations of the mortgage loan originator compensation rule, and whether errors and omissions insurance is an effective means of limiting an individual’s exposure to that liability. Below are some of the thoughts we discussed. While this discussion is specific to the MLO compensation rule, much of it applies equally well to mitigating liability under the other mortgage rules. Under the Dodd-Frank Act, individual loan originators are subject to civil money damages for violating Truth in Lending Act regulations on, among other things, originator compensation, loan steering and originator qualification. Damages may include the consumer’s actual damages, statutory damages up to $4,000, finance charges and fees paid by the consumer, and the consumer’s litigation costs, including attorney’s fees. Damages are capped at the greater of the consumer’s actual damages or three times the compensation received by the mortgage originator, plus the consumer’s litigation costs and attorney’s fees. The statute of limitations period was increased to three years from the date of each violation. These damages may be incurred on each loan, meaning a loan originator’s potential liabilities increase with each loan he or she makes while not in compliance with the rules. The best way to avoid this liability is to make a good-faith effort to comply. This often involves a thorough analysis of the new rules and how they apply to your current compensation and business practices, developing compensation policies and business practices that are designed to comply with the regulations, training applicable employees on the new rules, policies and procedures, and regularly monitoring and evaluating compliance with the new rules, policies and procedures
and taking corrective action as necessary. It is vitally important to carefully document these efforts in writing. Documentation can be used to defend against allegations that a compliance violation occurred due to a loan originator’s intentional, reckless or grossly negligent disregard or indifference for the new rules. Findings of intentional, reckless or grossly negligent conduct can substantially increase liability and are excluded from most errors and omissions insurance policies. It is also advisable to consult with experienced legal counsel and compliance consultants given the magnitude and complexity of the new rules and the dramatic impact they are having on mortgage loan originator compensation and business practices. Experienced advisors can help you develop policies and procedures that comply with applicable regulations and limit potential liabilities, but also that are competitive in the marketplace. It is important to obtain appropriate errors and omissions insurance coverage, but understand the limitations of such coverage and behave accordingly. Affordable coverage often has substantial deductibles, maximum coverage limits and material coverage exclusions. For example, E&O policies often do not cover intentional violations of laws or regulations or punitive fines, penalties or damages. Extensively documenting that you made a good faith effort to comply with applicable regulations is a good way to avoid a denial of coverage for this reason. When shopping for E&O coverage, be sure to explicitly discuss the mortgage rules, including the individual liability provisions, with an experienced insurance broker or insurance company representative to ensure that you and they understand the scope of needed coverage and the likely policy limits and exclusions. You may also want to review your company’s articles of incorporation and bylaws and your employment agreements to make sure they Continued on next page
Mel Tull can be reached by email at mtull@vabankers.org. 10 Virginia Banking | November/December 2013
www.vabankers.org
Update
Washington
Targeted Relief for Community Banks
G
Frank Keating President and CEO, American Bankers Association
etting legislation through Congress and signed by the president these days is an extremely heavy lift. However, while legislative advocacy – and action – is both challenging and difficult, we don’t give up because the job got harder. We pull together, become more engaged and work to educate lawmakers about our issues. That’s how we’re moving forward on issues like regulatory relief, credit unions’ unfair and unnecessary tax exemption and the Farm Credit System’s outdated and outmoded tax breaks. We also work with the regulators in identifying problems and proposing solutions that will help you get back to the business of banking – serving customers and building communities – rather than devoting increasing resources to excessively burdensome regulations. In a recent letter I sent to the federal banking regulators, we identified several steps that can be taken to strengthen community banks, and our nation. These actions do not require additional legislation. They are practical and do-able. They will help address a disturbing trend identified in the FDIC’s latest Quarterly Banking Survey, which covers the year’s second quarter. In it, the FDIC reported a sad milestone: The number of banks in the United States declined to fewer than 7,000, a number last seen in 1891. While no one can definitively say what the optimal number of banks should be, I think we can agree that for the largest and most diverse economy in the
world, fewer banks is clearly a trend moving in the wrong direction. We want to move forward. That’s why we told the regulators that it’s time to begin to work together to identify changes that will make a difference and promote the strength and resurgence of community banking. And we need to act soon before further erosion takes place. Our suggestions are meant to kick-start the discussions. We proposed that the regulators: end punitive regulation of mortgage servicing assets; ensure the Volcker Rule does not impose inappropriate compliance requirements on community banks; strengthen the ombudsman programs in each agency; simplify the Call Report; remedy the disadvantages Basel III imposes on Subchapter S banks; and speak out about the competitive impact of tax-advantaged credit unions and the Farm Credit System. There’s no doubt that both ABA and the regulators can add more action items to our list. We are prepared to meet with them to identify more issues and propose more practical solutions. Don’t hesitate to share your thoughts on what rules work, what don’t and what can be done to make things better as we move ahead. It’s essential to begin – now – the resurgence in community banking. As I told the regulators, it’s important not only to preserve community banks, but to create conditions for its vitality and growth for the benefit of the customers and communities that rely on them.
Gov. Frank Keating can be reached by email at keating@aba.com.
Legal Line Continued from previous page have provisions that provide liability limits, indemnification and litigation expense advances for officers and employees of the company. This is another important way to protect individual employees from liability for actions they take in their official capacity on behalf of the company. Unfortunately, the mortgage rules are new and untested and there are a lot of uncertainties. Regulators continue to modify the new rules through amendments and interpretive guidance. www.vabankers.org
Examiners and the courts have yet to interpret the new rules by applying them to real world compensation arrangements and business operations. E&O carriers have not yet considered actual claims involving the new rules to determine which coverage limitations and exclusions may apply. It will be important to maintain a vigilant and cautious approach to mortgage lending compensation and business practices for the next few years, as these uncertainties are resolved. November/December 2013 | Virginia Banking 11
The
Emerging Internet & Mobile Community Rewriting the Future of Banking
BY STEVE BROWN, PACIFIC COAST BANKERS’ BANCSHARES
The banking industry has seen profound changes since the financial crisis began some six years ago. Customers have become much more informed about their choices, competition is fierce, regulatory scrutiny is high and non-banks are flooding into the financial space. As if that weren’t enough for community bankers to deal with, it seems nearly all of the industry regulations have been rewritten, technology usage by customers is accelerating rapidly and the historical ways of doing business are under stress. Despite all of this, community bankers say over and over the best way to do business is still face-to-face. That is true, but admittedly the opportunity of getting to know a local business owner that ventures into your branch is dropping rapidly. Technology is everywhere; it is becoming embedded in our lives, and booming Internet and mobile trends have swept through the financial landscape. This shift has left all bankers scrambling to keep up. When it comes to branches alone, considerable studies now show branch activity is declining at about a 5 percent per year pace. That is very fast indeed, but when you extrapolate, based on what has already occurred, it means banks are on track to see branch activity decline by 12 Virginia Banking | November/December 2013
60 percent in the next five years. That is a quantum shift from where the industry is right now, and this trend will have to be monitored closely to see if it slows down or shifts direction. As things currently stand, it means community bankers will have to change the underlying business model to remain relevant to and embedded in the community in this increasingly mobile world. Many community bankers I talk to across the country say they are already too exhausted to deal with something so different and strange than what they already know. If you find yourself feeling that way, too, the important thing is to stay hungry and focused on the positive. Control what you can control, keep learning, keep testing new things and know that thousands of community bankers everywhere are feeling the same pain.
A Brave New World To be sure, changes to the banking industry and the business model are
happening so quickly and so deeply that in some odd way, the feeling may seem similar to what Henry Ford’s first employees must have felt. After all, imagine riding your trusty horse to work at the automobile plant, where you would build car after car. At the end of each day, you would then ride your horse home and then start all over the next day with the same routine. In what likely seemed like the blink of an eye, you notice as you ride home on your horse that cars are everywhere. Soon, automobiles quickly overtook horses as the preferred method of transportation, stoplights emerged and gas stations appeared all over the country. You may have been fond of horse travel, so you fight the trend for awhile, even though you work for Henry, but eventually you succumb. Things have changed quite a bit since then and today, as you drive around in your shiny new car, you would be hard-pressed to see any horses on the road in any major city, or even in many small towns. The changes to the banking industry right now feel like something even more seismic is afoot. Technology, regulation, customer behaviors, competition and other factors are all putting pressure on the business model like never before. To survive and thrive, take the time to step back and consider thoughtfully how the Internet and mobile have become much Continued on page 14 www.vabankers.org
The Emerging Internet & Mobile Community Continued from page 13
Using your mobile phone, have you done any of the following in the past 12 months?
Checked an account balance or recent transactions
87%
Transferred money between two accounts
53%
Downloaded your bank's mobile banking app
49%
Received a text message alert from your bank
29%
Made a bill payment using banking website or app
27%
Located the closest in-network ATM for your bank
24%
Deposited a check using mobile phone camera Received a fraud alert
21% 4%
Source: Federal Reserve Bank Consumer and Mobile Financial Services Study, 2012
more than just product delivery channels, and how best to respond. These changes alone have brought the digital world outside into the very “community” your bank serves, and torn down geographic boundaries.
Ground Zero No one knows for sure where everything is heading with such massive change and innovation, but it appears the financial industry is at ground zero. Just think about the potential impact to your customers and their loans you may already have on your books once driverless cars and trucks, and glasses that do much more than help you read, become commonplace. One thing is certain – in this environment of hyper-change, community bankers are responding. Information is more readily available to you and your customers, competition is coming from inside and outside the industry, and a growing sub-industry is evolving around mining customer data to better target products and services. Given all the information availability and industry change, it has become increasingly difficult for a bank to stand out from the crowd amid the deafening roar of digital activity. How then should a community bank begin to redefine itself, given so many changes and the immediacy of information available to customers and 14 Virginia Banking | November/December 2013
competitors through the internet? One thing that seems critically important is to actively embrace these changes. You don’t want to see business slowly wither away, so adaptation of the business model will be needed. That doesn’t mean you have to change everything you are. It is true that the technological changes sweeping the industry cannot be stopped, but community bankers are positioned well right now. You may not have excess money that you can spend on the latest and greatest technology, but tinkering with things, testing and learning is a critical process many community bankers are doing to adapt. As you shift more resources to accessing customers through the internet, social media and smartphones, it is just as critical not to forget what drives the success of your bank in the first place. You already have great customers, so take extra care not to forget them or try to force them to use digital channels if they don’t want to do so. This is a time of transition for everyone, and some are moving faster than others; you will have to focus on each customer to meet their specific needs and expectations. It is also important to keep in mind that while parents are currently the business owners, they will eventually retire and hand things off to a very technologically savvy group of kids. Banks must
explore digital delivery of products and services in order to capture and keep these children as they grow up, so be sure to have a team focused on this and empowered to act.
Assume Nothing Everyone knows community banks provide great service, but when the digital noise level is so high and attention spans are so short, it never hurts to be sure customers and potential customers know your bank. Assume nothing; focus on talking to each customer the way they want to be contacted when they are most receptive to having a discussion. Whether you see these customers and potential customers face-to-face, talk to them through social channels or visit with them at community events, tell your story, over and over, through their eyes. Let them know how your bank helped a small business owner just like theirs get a loan they needed at the right time; how your team helped another client understand their financial situation; or how your team helped a customer avoid a problem. In this age of immediate gratification, tell your story, but be sure to do so through their eyes. People innately enjoy listening to stories, so be sure to tell yours through both digital and non-digital channels. Another important consideration www.vabankers.org
as you adapt your business to these environmental and business changes is not to assume anything. Technological and industry changes are happening rapidly, and customers are adapting. They are shifting their behaviors and your bank must adapt and improvise right alongside them. To truly understand where you are starting from, throw out any biases you may have, open your mind and spend real time doing a deep analysis to be sure you fully understand your customer base. Talk to your best customers. Find out how much they are using the Internet to do research, how many mobile services they use and what else they want from your bank. Be sure to ask where else they may bank now, why and where else they
get information about financial services. Be sure to focus energy on where your best customers may gather – in both the physical world and in the digital world – and then send your teams in to serve them there. Proactively seek out what the customer is trying to do and where they are doing it, no matter the channel, and you are in good stead to keep them well into the future. Change is one of the most difficult things people must do, and many will fight it for a longer time than seems logical with hindsight. Try to skip a few steps and know that the world is quickly changing, technology is everywhere and your community is now much broader than when you originally set up the bank. Proactively take steps to understand key
changes, ask your customers what they are doing online and you will be making great strides forward. At times it may seem as though you are standing still and the whole world is passing you by, but know that such significant changes are impacting everyone, so you are not alone. If you find yourself thinking this way, just take a deep breath, check your smartphone to see if you need to do anything right now, and look through the lens of your technology equipped glasses as you begin to move forward into the mist. Your first steps don’t have to be big ones, but it is extremely important to begin moving, because as they say – a body in motion tends to stay in motion, while a body at rest tends to stay at rest.
Steve Brown is president and CEO of Pacific Coast Bankers’ Bancshares and its subsidiaries. He may be reached at sbrown@pcbb.com or (415) 399-5831.
ABA National Conference for Community Bankers February 16–19, 2014 JW Marriott Desert Ridge | Phoenix, Arizona
Generation next: Customers, Employees, Technology
Ever wonder what the banking industry will look like five, 10, even 20 years from now? Explore the possibilities at the ABA National Conference for Community Bankers. Our sessions and speakers will offer insights and advice on the latest industry developments, legislative and regulatory actions, and products and services available to community bankers. You’ll also find plenty of networking opportunities, from roundtable discussions to memorable receptions. For details and to register, visit aba.com/Community
www.vabankers.org
November/December 2013 | Virginia Banking 15
Compliance
Corner
Too Small to Thrive? Not If We Can Help It! By Scott Daugherty President and General Counsel, Compliance Alliance, Inc.
R
emember the catch phrase “Too Big to Fail”? Well, the new catch phrase is “Too Small to Survive.” During the past year, I have had the opportunity to travel around the country and visit with bankers, regulators, state banking associations and industry experts. I have heard the same refrain over and over: “Community banks are becoming too small to thrive and survive.” Community bankers are concerned with the price of compliance brought on by the onslaught of new regulations that have been implemented or that are now being proposed and implemented in the near future. While the largest banks have gotten even bigger and more profitable, community banks find it increasingly tough to survive, in part because they must commit more of their limited resources to comply with new regulations stemming from the global near-meltdown. Compliance costs as a share of operating expenses are two and a half times greater for community banks than large ones. Money spent on compliance is money that cannot be loaned out to small businesses. The nation’s 6,900 community banks control $1.4 trillion in assets. That’s 11 percent of all bank assets in the country. They currently have $257 billion in loans to small businesses and farms on their books – a substantial number that gives community banks a significant market share and makes very clear their role and value in our economy. The rules and regulations developed by the Consumer Financial Protection Bureau (CFPB) affect all commercial banks, regardless of size, and will have a disproportionate impact on community banks. The CFPB’s focus is on consumer protection and has focused on groups such as pensioners, students and consumers who lack financial literacy. These are the types of customers that community banks serve, which means significant compliance costs increases that community banks will find harder to absorb. Many community banks have increased their staffing needs for compliance. An example of this is a $100 million bank that, in 2006, devoted one half of
an FTE to compliance, currently devotes one and a half FTE to compliance, and expects to soon increase this to two FTE. That is a 400 percent increase in just employee cost. The cost of implementing the new rules and regulations, as well as committing more staff to oversight in compliance, has increased pressure on the owners and directors of small banks to sell out to the larger banks. Smaller banks have been exempted from some of the new requirements; for example, the bigger banks are required to keep more reserves for losses. Smaller community banks that offer home loans in underserved rural areas are allowed to make certain mortgages, such as balloon payments, that would come under greater regulatory scrutiny if underwritten by larger banks. While the community bankers are grateful for these policies, they also know they are the ones left to deal with the field examiners who are less likely to encourage small banks to be creative or stray from the standard path. Community bankers know that while the smaller banks are not required to perform sophisticated risk analysis testing, if a field examiner recommends the test as a matter of “best practice,” the bank will be required to do some level of the testing. A few community bankers have been preparing for a merger or sale because of the “regulatory fatigue” that banks are experiencing. They simply do not believe that their banks can attract and maintain the resources necessary for compliance with regulation going forward. Community banks must look beyond traditional methods of managing compliance and scale their functions and expense by utilizing the same economies of scale that the mega banks enjoy. Rather than going in circles with the idea of “should we take a stand with our examiners, can we afford to hire the extra personnel to implement and oversee the new requirements, or do we consider a merger?” The Continued on page 19
For more information, visit www.compliancealliance.com or contact Scott Daugherty at scott@ compliancealliance.com or (888) 353-3933. 16 Virginia Banking | November/December 2013
www.vabankers.org
Day
Bank
How Participating in Bank Day Shaped My Career
Pioneer Bank.
CALLING ALL BANKERS! HOST A HIGH SCHOOL SENIOR IN YOUR BANK FOR VBA BANK DAY! D nk
p
•
d
by
ou nd atio n
•
ay Scholarshi
am og r Pr
On Bank Day, high school seniors spend a day in banks across the Commonwealth shadowing a banker in their daily duties. The purpose of this experience is for students to learn about banking, financial services, and the vital role banks play in their communities.
e sor Spon
www.vabankers.org
Dorothy Welch is loan administration and special assets officer at Stanley-based
Ba
A
s a high school senior, my aspiration was to become a psychologist. I had already planned the school I would attend and I was fairly certain psychology was my passion. Prior to graduation, my high school guidance counselor approached me about participating in Bank Day. No other student in the school had expressed an interest in participating in Bank Day, and she felt as though she could send me to our local community bank knowing I would be a good representative of the school. Our local community bank, Pioneer Bank, welcomed me on Bank Day 1999 with excitement. I toured the bank and was shown areas of banking I never knew existed. The individuals I met were gracious and treated me as a valued member of their team. It made an impression. Within six months, I was hired as a part-time teller, and I have worked for the same bank since. I continued my collegiate path and obtained a degree in psychology, which has proven very useful in my banking career. When I agreed to participate in Bank Day, I agreed in an effort to help my guidance counselor, and for the possibility of obtaining a scholarship for college. While I never received a scholarship, I have received a 14-year career in banking that has transformed me into a passionate
history filled with both charm and turbulence; it also has the potential for a promising and rewarding future. The banking industry needs the involvement of today’s youth through banking careers and as stakeholders in our companies. I encourage all youth to consider participating in Bank Day; I guarantee you will gain a new respect for the banking industry and how it affects your life and your community. Plus, you just may discover a passion you never realized you had.
VBA
By Dorothy Welch
banker. I believe in the value community banks add to their community and the stakeholders they serve, which includes the local high school seniors who participate in Bank Day. Banking can be transactional, but a true banker makes it relational. We build value in the lives of our customers, our communities and our fellow bankers. The banking industry offers a career with the potential for growth and constant change through the implementation of technological advancements and other areas of innovation. Banking has a rich
F
the on After the day, students are VBA Educati required to write an essay, based on their experience in the bank. Seven scholarships (six regional and one statewide) will be awarded on the basis of the essays.
Bank Day will take place on March 18, 2014. If you are interested in hosting local high school students, please email Chandler Dewey at cdewey@ vabankers.org for more information. November/December 2013 | Virginia Banking 17
Community
Involvement
Financial Literacy and Grassroots Advocacy
T
hank you to all of the banks that participated in our fall government relations and financial literacy efforts, including legislative meetings with federal and state legislators across the commonwealth and Get Smart About Credit Day on Oct. 17. Around 340 bankers from 13 banks in Virginia made 150 presentations and reached a total of 6,892 high school students on Get Smart About Credit Day. Bankers taught students lessons on developing good credit habits, such as paying on time, protecting their identities, using credit wisely and not borrowing more than they can repay.
Get Smart About Credit Day
Linda Doolittle represented Bank of Botetourt at James River High School on Get Smart About Credit Day and presented “Katrina: Financial Lessons from a Hurricane.�
Thank you to the banks that participated in 2013! Bank of Botetourt Benchmark Community Bank Chesapeake Bank Citizens Community Bank City National Bank of West Virginia Colonial Virginia Bank First Bank & Trust Company
Citizens Community Bank CEO James Black left the bank for the afternoon to visit with local high school students in the classroom at Park View High School in South Hill.
Johanna Northstein, Chesapeake Bank, participates in Get Smart About Credit Day at Gloucester High School.
Hampton Roads Bankshares SonaBank StellarOne Bank TowneBank TruPoint Bank Wells Fargo Bank, N.A 18 Virginia Banking | November/December 2013
Yvette Massie from TowneBank Mortgage taught students from Indian River High School. She was one of many volunteers in the region to participate. www.vabankers.org
Highlights of Fall 2013 Thank you
Jonah Pence, Farmers & Merchants Bank; Greg Godsey, Union First Market Bank; Dustin Branner, Farmers & Merchants Bank; Cindy Craun, United Bank; and Carl Craig, First Bank & Trust Company, attending the meeting in Staunton.
Senator Emmett Hanger, Bruce Whitehurst, and Delegate Ben Cline participate in the legislative meeting at the Stonewall Jackson Hotel.
to the 138 bankers who met with 67 legislators, including three congressmen, during the legislative meetings in Williamsburg, Wytheville, McLean, Staunton, Virginia Beach, Danville, Fredericksburg and Richmond.
Bankers gather for breakfast and interaction with elected officials.
Compliance Corner Continued from page 16 Virginia Bankers Association shares these same concerns, and provides a solution for your bank. Compliance Alliance offers a back-room compliance department full of attorneys, former regulators and compliance professionals. We will answer your regulatory or compliance questions, provide you access to more than 800 quality compliance documents (including policy and procedure templates, cheat sheets, check lists, flowcharts and much more), sumwww.vabankers.org
marize the new rules and requirements, provide monthly webinars on hot issues, review advertising and marketing, walk you through new product development, and create tools to assist the bank in meeting those regulatory “best practice� recommendations. All these resources come at a price far below the cost of an additional FTE, helping your bank remain profitable and a critical and valued community resource. November/December 2013 | Virginia Banking 19
Expanding
horizons
Bringing the World to Virginia COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS ARE CONDUITS FOR OPPORTUNITY
By Jane Henderson President and CEO, Virginia Community Capital
T
echnological advances within the past five years have created a remarkable shift for community banking. The internet’s vast connectivity has delivered the world to many, when transactions with customers in Paris or Portsmouth can be done with relative ease. At Virginia Community Capital (VCC) and other Community Development Financial Institutions (CDFIs), this access revolution has generated a slightly different result. The core focus for CDFIs will always be invigorating local communities. But, our horizons have expanded tremendously in terms of partners and resources available to support our mission and work. VCC and our for-profit Community Capital Bank of Virginia (CCB) strengthen communities throughout Virginia in core areas of affordable housing, job creation, community facilities like health care or child care, and Main Street revitalization. Within the past year, like other CDFIs across the country, we’ve broadened our focus to include healthy foods. VCC has also reached out to address needs through small business lending. Success depends on mobilizing strong collaborations to promote vibrant local communities, create jobs, and deliver innovative capital across Virginia. We have solid relationships with the public sector (local and state) as well as with many partner banks. Within the past few years, much as community banking has opened its doors to a global audience, CDFIs have cultivated national and regional partners through innovative programming or products. With VCC, these high-profile partnerships elevate our work to a global platform and, in doing so, create
20 Virginia Banking | November/December 2013
exponential impact for Virginians. Engaging national prospects has required diligent research, extensive upper-level conversations, and detailed knowledge of innovative models for community development investment. As with most CDFIs who are also mission-focused, VCC analyzes every potential project, program, or loan through two lenses: will it provide lasting impact to an underserved market and does it make financial sense? When national issues emerge, we dedicate minds and resources to considering how these initiatives can improve lives across Virginia. If an opportunity passes the mission-money litmus test, we proceed with vigor. Our ongoing participation in the Goldman Sachs 10,000 Small Businesses initiative offers a perfect example of a national, mission-related investor complementing VCC’s dedication to helping small businesses excel. We began conversations with Goldman Sachs over a year ago. We introduced them to our broad portfolio of successes in communities across Virginia and openly discussed our strategy to expand our small business support. Preliminary conversations turned to targeted program development through their 10,000 Small Businesses initiative; and in July, we announced a $4.4 million investment in VCC by Goldman Sachs. The funding includes $4 million going directly to VCC’s loan fund to lend money to small businesses that are growing and creating jobs in low- to moderate-income areas and an additional $400,000 serves as a loan loss reserve and expands our small business lending outreach and assistance. The Goldman Sachs support has already delivered noteworthy impact. Funds leveraged a loan to earlystage Evatran, developer of Plugless Power, the world’s first wireless charging system for electric vehicles. The support allowed for acceleration of beta units to market, which galvanizes opportunity for an integrated product with major U.S. and German automobile manufacturers for 2015 vehicles. Parts will fly from Richmond to Munich as the result of the VCC/CCB support and Goldman Sachs partnership. Further, the Goldman Sachs/VCC collaboration has created 49 jobs and retained an additional 20. Restoring America’s manufacturing landscape is a national priority and so is elimination of food deserts across our country. The Food Trust introduced a CDFIwww.vabankers.org
based initiative for healthy food support back in 2010 after a study found that 42 percent of the urban youth surveyed shop in corner stores two times a day and 53 percent surveyed visit once a day. In absence of a traditional grocery store, many residents of urban food deserts are primarily purchasing food from local corner stores which carry high-calorie, processed and unhealthy foods. In its own backyard, VCC found one of the most severe food deserts in the country for cities of a similar size – Richmond. “Get Fresh East End!” represents a dynamic collaboration of local philanthropic, government, nonprofit, and health partners including the City of Richmond Health Department, the Bon Secours Health System, Councilwoman Cynthia Newbille, Tricycle Gardens, the Community Foundation, Neighborhood Resource Center, and Shalom Farms. Dedicated to expanding the opportunity for fresh foods in Richmond’s East End neighborhood, “Get Fresh” is focused on three goals: increase access to fresh and local foods in corner stores, work with and educate the store owners on the business aspects of marketing and selling fresh foods, and educate the community about how to prepare and enjoy healthy foods. Progress within the first year has been noteworthy with two neighborhood stores offering fresh, local vegetables to their customers. VCC will expand the corner store program to other food deserts as part of a larger statewide effort announced this summer. Seeded locally, the Healthy Foods project received national attention in June when VCC was recognized at the Clinton Global Initiative America (CGI America) for launching the Virginia Fresh Food Loan Fund (VFFLF), an $11 million fund dedicated to building opportunities for healthy foods in urban and rural areas across the commonwealth. VCC’s VFFLF was accepted as a CGI Commitment to Action – defined as a plan for addressing significant social and economic challenges. To date, CGI members have made more than 2,300 Commitments to Action, which have improved the lives of over 400 million people in more than 180 countries. VCC’s Commitment addresses the unmet capital needs of healthy food enterprises throughout rural and urban regions in Virginia and will catalyze growth of Virginia's healthy foods sector. The VFFLF
combines small business technical assistance as well as lending opportunities to increase the capacity of urban corner stores to sell and market healthy items and foster the expansion and formation of food hubs primarily located in rural communities. The VFFLF introduces a new tool in building access to healthy foods as well as strengthening the overall food system throughout Virginia. As the CGI recognition has placed VCC in an international spotlight, the work we undertake in Virginia might well inform progress in communities around the world. CDFIs are establishing important, new frontiers with national philanthropic partners. The Jessie Ball duPont Fund, one of the nation’s most respected private foundations, has embarked on a ProgramRelated Investment (PRI) with VCC and a CDFI in its home state of Florida. The $1.5 million impact investment with VCC will be used to enhance affordable housing opportunities and spur business growth in the Northern Neck area. As the second PRI the fund has committed, the community development and finance worlds will be watching closely. While many national partners are joining VCC at the table, we can never overstate the importance of our local banking community to VCC/CCB. As one of Virginia’s largest CDFIs, we complement the work of community banks. CDFIs are able to blend private capital with philanthropic and government money. In doing so, we fortify communities and businesses with the intention of opening doors for our community banking partners. We may offer that small business its seed financing. Three years later with solid growth, that business may be ready to work with its local community bank. So, when we truly consider how globalization and the internet have redefined community, CDFIs occupy an innovative and important niche. We attract national partners and investments from as large a resource as Wall Street, channeling these resources, in the case of VCC, to Virginia’s Main Street. We demonstrate ways that investment capital can positively enhance our collective experience, whether the support creates an expanded market for a manufacturing plant, increased financial protection for a sole proprietor, or healthier food options for young people in an urban setting. Every language and culture appreciates the importance of jobs, security, and home.
Jane Henderson is president and CEO of Virginia Community Capital and its subsidiary community development bank, Community Capital Bank of Virginia. Learn more about VCC at vacommunitycapital.org. www.vabankers.org
November/December 2013 | Virginia Banking 21
Move
Bankers on the
Gaydica
Bohanon
Gill
American National Bank & Trust Company Michelle Gaydica, Senior Vice PresidentRetail Banking
Bank of Virginia Don Andree, Executive Vice President
Benchmark Community Bank Ace Bohanon, Vice President/Branch Manager Natasha Gill, Relationship Manager
Cardinal Bank Kelly Bell, Senior Vice President, Retail Banking Manager Andy Williams, Branch Manager and Banking Officer
Bell
Williams
Correll
Brandt
Kelley
Cordia Bancorp Inc.
TD Bank
Mark Severson, Executive Vice President & CFO
William Brandt, Jr., Vice President, Senior Loan Officer in Commercial Real Estate Lending Leslie Parker, Store Manager Michael Perez, Store Manager Cameron Walker, Store Manager
Hampton Roads Bankshares, Inc. Thomas Dix III, Executive Vice President, CFO & Treasurer Myra Langston, SVP, Controller & Chief Accounting Officer
MainStreet BankShares, Inc. Lisa Correll, Senior Vice President and Chief Financial Officer
Middleburg Bank Linda Perry, Senior Vice President, Commercial Relationship Manager, Community Executive
Virginia Community Bank Dave Herold, Vice President and Commercial Lender Stacy P. Roe, Assistant Vice President and Branch Manager
Virginia Heritage Bank Alan Drewer, Chief Real Estate Lending Officer
Wells Fargo Glen Kelley, Virginia Regional President
Your Data. Your Future. CRM offers FUTURE FOCUSED Risk Management Tools 22 Virginia Banking | November/December 2013
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