November/December 2014
Grassroots Advocacy
& Financial Literacy IN THIS ISSUE
FINDING THE RIGHT RETIREMENT PLAN | ADDRESSING SMALL BUSINESS NEEDS WITH PREPAID CARDS
VBA BANKER DAY
JANUARY 15, 2015
Join the Virginia Bankers Association at Our Annual Banker Day at the State Capitol on January 15, 2015! As banks face difficult economic and political challenges, this is an opportunity to voice your views in person. You will have the chance to share success stories and concerns with your state legislators. In 2014, our group had more than 350 bankers, and we are looking for more participants. Please send a team from your bank to represent your organization. Don’t miss this chance to meet your delegation and let your voice be heard! For more information and to register visit: www.vabankers.org/banker-day Contact Bobbi Weimer at bweimer@vabankers.org with questions.
November/December 2014
2014-2015 Officers and Directors of the Virginia Bankers Association John R. Milleson, Chairman, Bank of Clarke County T. Gaylon Layfield, III, Chairman-Elect, Xenith Bankshares, Inc. Gary R. Shook, Immediate Past Chairman, Middleburg Bank G. William Beale, Union First Market Bank Christopher W. Bergstrom, Cardinal Bank Michael W. Clarke, Access National Bank J. Peter Clements, The Bank of Southside Virginia Barry C. Elswick, TruPoint Bank Gary Gore, Bank of America, NA Scott C. Harvard, First Bank, Strasburg William H. Hayter, First Bank & Trust Company G. Lyn Hayth, III, Bank of Botetourt Glen Kelley, Wells Fargo Bank Brad E. Schwartz, Monarch Bank John G. Stallings, SunTrust Bank Susan K. Still, HomeTown Bank Daniel G. Waetjen, BB&T Michael O. Walker, Benchmark Community Bank Robert Wojciechowicz, Capital One Financial Corp., Richmond AT-LARGE MEMBERS Benefits Corporation Chair J. Peter Clements, The Bank of Southside Virginia Management Services Inc. Chair G. Lyn Hayth, III, Bank of Botetourt Government Relations Committee Chair Ron Haley, River Community Bank, NA VBA Education Foundation Chair Charles Majors, American National Bank & Trust Co. EDITORIAL & EXECUTIVE OFFICES 4490 Cox Road Glen Allen, VA 23060 804-643-7469 Fax 804-643-6308 www.vabankers.org
SUBSCRIPTIONS If you would like to subscribe to Virginia Banking, contact Melanie Reilly at mreilly@vabankers.org.
Bruce T. Whitehurst President and CEO Virginia Bankers Association
Virginia Banking is published bi-monthly. Copyright 2014.
Melanie Reilly Communications Coordinator Virginia Bankers Association
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12
cover
Grassroots Advocacy and Financial Literacy
features
14
Deciding on the Right Retirement Plan for Executives
18
Purchasing and Payroll Cards: Small Business Needs, Solved With Prepaid
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 20 Compliance Corner 22 Bankers on the Move
Send us your thoughts or ideas on Virginia Banking! Please email Melanie Reilly at mreilly@vabankers.org. Has your information changed? Please email Melanie Reilly at mreilly@vabankers.org with your new contact information. November/December 2014 | Virginia Banking 3
SAVE THE DATES FOR 2015 VBA CONFERENCES & EVENTS FINANCIAL FORECAST Greater Richmond Convention Center January 9, 2015
HR & BENEFITS CONFERENCE Omni Charlottesville Hotel April 26-28, 2015
BANKER DAY Virginia State Capitol January 15, 2015
OPERATIONS & TECHNOLOGY CONFERENCE Omni Charlottesville Hotel May 12-13, 2015
BANK SECRECY ACT TWO-DAY SCHOOL VBA Training Center February 24-25, 2015
FUNDAMENTALS OF CREDIT ANALYSIS & BUSINESS FINANCING VBA Training Center May 20-21, 2015
RETAIL BANKING & MARKETING CONFERENCE Omni Charlottesville Hotel March 10-11, 2015 APPRAISAL REVIEW SEMINAR VBA Training Center March 11-12, 2015 BANK DIRECTORS SYMPOSIUM Richmond,VA March 17, 2015 Blacksburg,VA March 18, 2015 Northern Virginia March 19, 2015 VBA/ABA GOVERNMENT RELATIONS SUMMIT Washington, DC March 23-25, 2015 BACK TO SCHOOL AT THE VBA VBA Training Center April 9, 2015 COMPLIANCE SCHOOL AND ADVANCED COMPLIANCE SESSION Omni Charlottesville Hotel April 13-16, 2015 SUPERVISOR BOOTCAMP VBA Training Center April 14-15, 2015 SECURITY RISK WORKSHOP Omni Charlottesville Hotel April 22-23, 2015
4 Virginia Banking | November/December 2014
TRUST & WEALTH MANAGEMENT CONFERENCE VBA Training Center May 28, 2015 ANNUAL CONVENTION The Omni Homestead Resort June 21-24, 2015 CFO CONFERENCE Omni Downtown Richmond August 24-26, 2015 CEO FORUM TBD September 14-15, 2015 CREDIT MANAGEMENT CONFERENCE Omni Charlottesville Hotel October 5-6, 2015 LEADERSHIP CONFERENCE Roanoke,VA TBD COMMERCIAL LENDING SCHOOL VBA Training Center October 21-22, 2015 ENTERPRISE RISK MANAGEMENT WORKSHOP VBA Training Center October 27, 2015 WOMEN IN BANKING CONFERENCE TBD November 17, 2015
www.vabankers.org
Insights New Year, New Congress, Same Message “Nothing in the world can take the place of Persistence … The slogan ‘Press On’ has solved and always will solve the problems of the human race.” — Calvin Coolidge (1872-1933)
I Bruce Whitehurst President and CEO, Virginia Bankers Association
n 2007, Bernard Clineburg, chairman and CEO of Cardinal Bank and the VBA chairman at that time, spoke at our Bank School graduation and urged the graduating students to keep this famous Calvin Coolidge quote in mind as they advanced in their careers and as banking industry advocates through the VBA. In fact, Bernard had cards printed for all the graduates, with the VBA logo and this quote, as a tangible reminder of the very important role persistence plays in our lives. Given what has transpired in the years since Bernard’s 2007 Bank School address, he certainly offered great advice for all of us in the banking industry. Come January, we will have a new Congress in Washington with three new members in the Virginia delegation. We will no doubt also reflect on our challenges for 2015 and we will renew our commitment to persistently pursue our top priorities to address these challenges. While we may identify new priorities, we will also maintain our strong focus on key objectives that have been before us for years. These include the following: • Serving our customers and our communities in a time of rapid societal and technological changes; bringing leadership to economic growth and development as our industry has done for as long as we have had a banking system.
• Seeking a more balanced regulatory environment, in which consumers are adequately protected – a clear goal that is already in all banks’ DNA – and where regulatory overkill, which actually harms consumers in multiple ways, is reigned back in to the appropriate level. • Advocating for a fair competitive playing field for banks relative to credit unions, many of which have long since abandoned their stated mission to reach people of modest means and instead use their tax exemption to expand their marketing efforts, build facilities, pay for naming rights at athletic facilities, and lobby Congress for even more powers while clutching their long outlived tax exemption for all that they are worth. Fortunately for banking – and for this country, given our key role as economic drivers – we are an industry full of great people who understand what President Coolidge so aptly described: Persistence matters. We take a long-term view in our advocacy efforts. We understand that standing up for our industry and for the best possible environment in which banks can serve customers and lead in their communities is a career-long endeavor for all of us. Major battles come and go over time, but always staying engaged – with an eye toward a better future for banking, for our economy and for our country – is essential to our long term success. Ralph Waldo Emerson wrote, “That which we persist in doing becomes easier, not that the task itself has become easier, but that our ability to perform it has improved.” As 2015 approaches, we keep our eye on the ball and we press on.
Email Bruce Whitehurst at bwhitehurst@vabankers.org with any comments on this article. www.vabankers.org
November/December 2014 | Virginia Banking 5
Noting
Worth
Area banking leaders at the Dulles Regional Chamber’s annual industry luncheon. From left: Howard Pisons, president and CEO, Community Bankers’ Bank; Jeff Dick, chairman, president and CEO, MainStreet Bank; Gary Shook, president and CEO, Middleburg Bank; Mary Gayle Holden, chairman, Dulles Regional Chamber board of directors; Shaza Andersen, president and CEO, WashingtonFirst Bank; Dave Summers, chairman and CEO, Virginia Heritage Bank; Mike Fitzgerald, chairman, president and CEO, Bank of Georgetown; and Mike Clarke, president and CEO, Access National Bank. Photo by Nic Lanzetta.
VIRGINIA HERITAGE BANK CEO DAVE SUMMERS HONORED WITH LIFETIME ACHIEVEMENT AWARD In September, the Dulles Regional Chamber of Commerce held its annual Banking Luncheon with nearly 200 area bankers and financial leaders in attendance. At the luncheon, the chamber presented a lifetime achievement award to Dave Summers, chairman and CEO of Virginia Heritage Bank. In addition to his leadership with Virginia Heritage Bank, Summers has been a very active and strong supporter of the Virginia Bankers Association (VBA) for many years. Summers has also chaired Bankers Insurance, LLC, a large bank-owned insurance agency started by the Virginia Bankers Association in 1999. He has supported the Association’s Education Foundation, which focuses on financial literacy programs across Virginia. Congratulations, Dave, on this much-deserved award!
WE WILL MISS… We are very sad for the loss of Morgan Nathaniel Trimyer Jr., who passed away in early October at his home in Norfolk, Virginia. Morgan enjoyed a lifelong career in the insurance business – as a partner in Welton, Duke, and Hawks in Portsmouth, VA and later as Senior Vice President of Bankers Insurance, LLC. He also served as past Director of Community Bank, based in Staunton, Virginia, and on the agency councils of several insurance companies. Heavily involved in the community, he was a past president of the Norfolk Rotary, the ODU Monarch Club, and the Maury Booster Association, as well as a member of the VA Jaycees, Sacred Heart Church and Blessed Sacrament Church. Our thoughts and prayers are with Morgan’s family during this difficult time. 6 Virginia Banking | November/December 2014
VBA'S JOHN BOWERS RETIRING IN JANUARY VBA Director of Member Services John Bowers will retire at the end of January. John has served the industry with distinction throughout his career, beginning as commercial loan officer and vice president at Rockingham National Bank in Harrisonburg before joining the VBA in the early 1980s, focusing on professional development. He left Richmond for Annapolis, continuing to serve the banking industry as president and CEO of the Maryland Bankers Association for 14 years, leading that organization’s efforts in advocacy, communication, education and services. John served as a senior consultant for Clark Consulting, where he developed the sales team and sold and marketed the company resources. Our association was fortunate to have John return in 2007, bringing a career of knowledge and experience serving as director of member services. He is a graduate of Fork Union Military Academy; a Randolph Macon College Yellow Jacket; and a graduate of the Virginia Bankers School of Bank Management at UVA. John’s sense of humor, willingness to help with any project, and deep knowledge of the membership will be missed by all of his colleagues. We wish John and his wife, Pam, much health and happiness as they enjoy their retirement in Murrell’s Inlet, South Carolina.
IN LOVING MEMORY OF JOHN H. CLEMENTS From left: J. Peter Clements, John H. Clements and J. William Clements at the 2013 VBA Annual Convention. John Halligan Clements, 83, of Carson, Virginia, and a native of Dinwiddie County, passed away on Oct. 21, 2014. Born on Dec. 20, 1930, John lived by the commitment of his time, talents, gifts and service to his Heavenly Father. John had a long and accomplished career in business, first running his family farming operation, and then the family general store, P.B. Halligan Co. Inc. John was elected to the board of The Bank of Southside Virginia in 1966 and chairman of the board and CEO in 1977. He was named president in 1983. His career in banking was notable, as he was elected president of the Virginia Bankers Association in 1989. John served as the inaugural chairman of the VBA Products & Services Corporation (now known as MSI) and also chaired the VBA Benefits Corporation. His legacy of commitment to the VBA and the industry continues in a meaningful way. John’s son, Peter Clements, also a past VBA Chairman, currently chairs the VBA Benefits Corp. Board. Peter’s son Will, who has been at The Bank of Southside Virginia for a several years, is active in the VBA’s Leadership Division and serves on the VBA Marketing Committee. John also served key positions in the American Bankers Association, serving on the Community Bank Council and Government Relations Committee. John’s valuable contributions to the VBA will not be forgotten, and he will be greatly missed. www.vabankers.org
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Banking in a
Brave New World ABA National Conference for Community Bankers February 8–11, 2015 | Boca Raton, Florida Boca Raton Resort & Club, a Waldorf Astoria Resort
Community bankers are eagerly watching the industry advance from a state of recovery to one of resurgence —and new opportunities. How we are positioned to achieve greater profitability and sustain long-term growth in this unique environment will be explored at the 2015 ABA National Conference for Community Bankers. Join us!
Register at aba.com/Community. November/December 2014 | Virginia Banking 7
Legislative
Update
Learning to Lead
T
Matt Bruning Vice President, Government Relations, Virginia Bankers Association
here are countless numbers of books, articles and scholarly research on the topic of leadership. Several adorn my shelves, the lasting vestige of my liberal arts secondary education. My office wall even has a picture and quote from legendary Packers coach Vince Lombardi. I’ve studied leadership theories and cases for classes, completed the excellent VBA Executive Leadership Institute, recognized it firsthand in teams and organizations I’ve been a part of and given my best effort to demonstrate components of leadership in both my personal and professional life. But I’ve always had a difficult time defining what leadership is – it always seems too fluid and situational for rigid classification. Leadership can take many approaches, vary in look and feel at different circumstances and be successful or a failure. I believe the common characteristics of leadership revolve around two main points – relationships and purpose. Relationships are central to leadership as leaders inherently require followers. Leaders can have a position of power that facilitates a relationship or they may arise outside of org chart hierarchy or title. Followers can be many or few. In every case, there is a known, or sometimes unknown, relationship. Purpose is necessary – without it there is no reason for the relationship to exist. Whether the purpose is lofty and altruistic values or basic and bottom line motivation, having a goal, a shared purpose is incumbent in exercising leadership. At the VBA, our Leadership Division embraces both relationships and purpose as it seeks to be “the succession plan for Virginia banking.” The relationships exist both in the peer-to-peer networking and in the connection through the VBA with the overall industry we serve. The purpose is captured in the division’s mission statement: “To ensure a continuum of leadership for the future of Virginia banking.” At our recent state legislative meetings across the commonwealth (see page 12), we highlighted the Leadership Division as part of our program. Thanks to those outstanding
members who stepped up and did a terrific job speaking about the division – Darren Tully, Browning Herbert, Joe Waters, Brandon Atkins, Scott Griffin, Tracie Gallahan, Adam Hill, Jonah Pence and Jonathan Comer. Your leadership in both the Leadership Division and in our advocacy efforts is much appreciated. There has been much discussion about the impact of the Millennials or Gen Y, including within the banking industry. In the next decade, Millennials will represent as much as 75 percent of the workforce and outnumber the Baby Boomers. From an advocacy viewpoint, it is critical that the millennial cohort is engaged in government relations and understands the importance of doing so for the industry. That is why grassroots advocacy is one of the three objectives of the Leadership Division, along with financial literacy and professional development. That change in workforce composition is already being seen in elected office – six members of the Virginia House of Delegates are age 34 or younger. Our Millennial bankers are poised to make strong connections with our Millennial legislators. Studies show Millennials are more likely to job-hop than previous generations of workers. Engaging emerging leaders at your bank in opportunities for leadership – through relationships and shared purpose – through avenues like the Leadership Division and advocacy could help in retaining and growing these future banking leaders. One of Coach Lombardi’s great quotes about leadership was, “Leaders are made; they are not born. They are made by hard effort, which is the price which all of us must pay to achieve any goal that is worthwhile.” With all the demands of the many responsibilities at the bank, it is often difficult to take the time to engage in advocacy events, like our upcoming Banker Day on Jan. 15 in Richmond. However, it is an effort worth making for the goal of protecting, sustaining and advancing our industry. The VBA Leadership Division and all our advocacy offerings are opportunities to make leaders for our great industry.
Email Matt Bruning at mbruning@vabankers.org with any comments on this article. 8 Virginia Banking | November/December 2014
www.vabankers.org
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Line
Legal
A Refresher on the Virginia Laws Governing Bank Loan Interest Rates and Fees
I Mel Tull General Counsel, Virginia Bankers Association
am often asked about the Virginia laws that govern the interest rates and other fees banks can charge on loans. Virginia, like other states, has enacted a multitude of statutes limiting the amounts and types of fees that lenders can charge borrowers. These statutes include usury provisions that impose a maximum interest rate, provisions that impose waiting periods before interest can be charged, and provisions that prohibit or limit prepayment penalties and late fees. For example, Virginia law caps the interest rate for most loans at 12 percent per year. However, there are some important exemptions to these limits that Virginia bankers should understand.
Installment loans. Unlike open-end lines of credit, the 12 percent maximum interest rate imposed by Virginia law generally applies to installment loans. Banks, however, are exempt from this restriction. Virginia Code § 6.2-309, which is very similar to its open-end line of credit counterpart, provides that banks “making a loan payable in installments may impose finance charges and other charges and fees at such rates and in such amounts and manner as the borrower has agreed.” This exemption also applies “notwithstanding any statutory or case law to the contrary.”
USURY EXEMPTIONS Open-end lines of credit. Virginia law is relatively permissive when it comes to finance and other charges that can be imposed on open-end lines of credit. Virginia Code § 6.2-312 permits any finance charge or other charge agreed upon by the borrower to be charged by most open-end line of credit lenders. However, such charges are permissible only so long as no charge is imposed if the unpaid balance is paid in full by the next billing date, which must be at least 25 days after the prior billing date. Banks, however, are not bound by this 25-day waiting period under Virginia Code § 6.2-313.A. Thus, a bank may charge interest on a home equity line of credit from the first day the credit is drawn. Importantly, this exemption is available “notwithstanding any statutory or case law,” meaning that this statute preempts any state law to the contrary, whether created by the legislature or the judiciary. This exemption from the 25-day waiting period does not apply if the openend line of credit is accessed via a credit card.
Virginia Code §§ 6.2-309 and 6.2-313.A. provide that “notwithstanding any statutory or case law to the contrary,” banks making open-end lines of credit or installment loans may impose finance charges and “other charges and fees” at such rates and in such amounts and manner as agreed to by the borrower. This also exempts banks from statutory restrictions on other fees, such as late fees and prepayment fees. For example, Virginia law prohibits lenders from charging late fees on consumer loans in excess of five percent, but the above-cited language permits banks to charge any late fees on open-end lines of credit and installment loans that are agreed to by the borrower. Similarly, banks are exempt from several Virginia statutes that limit prepayment penalties on many loans secured by residential real estate.
EXEMPTIONS FOR LATE FEES AND PREPAYMENT PENALTIES
This article has been prepared for informational purposes only and is not legal advice and does not create an attorney-client relationship.
For more information about the Virginia laws on abandoned property and dormant accounts, contact Mel Tull, VBA general counsel, at mtull@vabankers.org or (804) 819-4710. 10 Virginia Banking | November/December 2014
www.vabankers.org
Update
Washington
‘.bank,’ the ABA and You
W Frank Keating President and CEO, American Bankers Association
hen the Internet Corporation for Assigned Names and Numbers – ICANN – announced that more than a thousand new top level domains would be unleashed on the Internet, there was little doubt about our response. The ABA, guided by our banker leadership, did just as it has done since 1875. We led. In 2008, ICANN approved a program to enable the creation of an unlimited number of new generic top-level domains, or gTLDs. The most common of these today are .com, .org, .net, etc. From January to May 2012, ICANN accepted applications for new gTLDs and received nearly 2,000 submissions. So far, ICANN has approved more than 100 of those, with many more expected. Among the new domains is “.bank.” And, thanks to a multi-year effort by the ABA and other banking organizations, that domain will be operated by the banking industry. Specifically, it will be operated by fTLDRegistry Services, which the ABA, the Financial Services Roundtable and others founded in 2012 for this purpose. The ABA decided it was in the best interest of the global banking community for .bank to be owned and managed by the banking industry. Our reasons were twofold. We wanted to protect the interests of the banking industry by ensuring outsiders, whose main interest would have been making a profit, were not at
the controls. And we wanted to preserve customers’ trust in banking. We are doing that by making sure proper security controls are in place to protect .bank. Those controls begin with the fact that only verified members of the banking community will be able to register for a .bank site. The new domain also will have enhanced levels of security and adhere to 31 strict standards developed by the ABA and FSR. These will help prevent users from being redirected to fake bank websites, help make it more difficult for criminals to create spoofed emails from a .bank domain, provide a higher level of encryption and more. We expect the domain to be available in June 2015, at which time fTLD will have a website that will guide banks through the registration process. In the meantime, you’ve got some planning questions to consider with your marketing, IT and legal staffs, as well as your core processor. These questions include whether to move all of your Internet activities to .bank or keep some activities in the bank’s existing .com or .net site. To learn more about .bank and the process for applying for a domain, including a special process for trademark holders, visit aba.com/dotbank. ABA’s work to secure the .bank domain is a reflection of our longstanding leadership in payments and cybersecurity. Count on us to continue that leadership role as the field becomes ever more complex and important.
Email Frank Keating at keating@aba.com with any comments on this article.
www.vabankers.org
November/December 2014 | Virginia Banking 11
Community
Involvement
Wells Fargo’s Glen Kelley addresses the legislative meeting attendees in McLean.
Grassroots Advocacy
& Financial Literacy American National Bank & Trust Co. was proud to teach students about taking out a loan with their loan calculator tool at the First Annual Career Choice SOVA Youth Expo in Chatham, VA. 12 Virginia Banking | November/December 2014
TowneBank’s Theresa Dozier teaches J.P. Knapp students at Get Smart About Credit Day this October. www.vabankers.org
Thank you to all of the banks that participated in our fall government relations and financial literacy efforts, including legislative meetings with state legislators across the commonwealth and Get Smart About Credit Day on Oct. 16.
Fall Legislative Meetings a Success
This fall, the VBA hosted legislative meetings in 12 cities: McLean, Leesburg, Fredericksburg, Abingdon, Danville, Roanoke, Lynchburg, Williamsburg, Richmond, Virginia Beach, Harrisonburg and Charlottesville. Bankers and legislators enjoyed hearing about the current ways in which Virginia banks are benefitting their communities, as well as discussing upcoming general assembly banking-related topics. Overall, nearly 230 bankers met with 70 legislators during the meetings – thank you to all who attended!
Get Smart About Credit Day
Jonathan Comer of Blue Ridge Bank (standing) speaks about the efforts of the Leadership Division with (from left) Monte Layman, also of Blue Ridge Bank, Delegate Steve Landes and Delegate Ed Scott in Charlottesville.
Approximately 340 bankers from nine 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 how to understand and check their credit score, planning and saving for college, and protecting their identities. Many bankers, like Theresa Dozier of TowneBank, have a passion for teaching financial literacy and look forward to volunteering in the schools. Julie Stevens, training and education officer at TowneBank, commented, “Theresa really knew how to speak to both high school-aged children as well as younger children. I’m proud to work for a bank that has employees like Theresa who care so much about educating the next generation.” Many banks will continue their Get Smart efforts throughout the school year, preparing thousands of students for smart financial planning for life after high school!
Thank You to the Banks that Participated in Get Smart About Credit Day in 2014 American National Bank & Trust Co. Bank of Botetourt Burke & Herbert Bank Chesapeake Bank City National Bank of West Virginia Shore Bank TowneBank TruPoint Bank Wells Fargo Bank www.vabankers.org
Delegate Randy Minchew (left) and VBA Vice President of Government Relations Matt Bruning listen to VBA Chairman Johnny Milleson (Bank of Clarke County) at the breakfast in Leesburg.
From left: Brian Webb, Rick Webster and Delegate Sam Rasoul pose for a picture during the Roanoke legislative breakfast. November/December 2014 | Virginia Banking 13
Planning
Ahead
Deciding on the Right Retirement Plan for Executives By David Shoemaker and Ken Derks Equias Alliance
Equias Alliance is the VBA’s exclusively endorsed provider of BOLI and executive/ director benefits consulting services. Banks are challenged to attract and retain both key executives and key producers. While cash compensation plays a major role in this process, many community banks use nonqualified benefit plans, which provides supplemental retirement income as an attractive recruiting and retention tool. As one of the leading BOLI and nonqualified benefit consulting firms in the country, Equias Alliance recently published the following article on BankDirector.com.
N
onqualified deferred compensation plans are popular with banks. But how do you decide which one is right for your bank? Banks are challenged to attract and retain both key executives and key producers. While cash compensation plays a major role in this process, many community banks use nonqualified benefit plans, which provide supplemental retirement income as an attractive recruiting and retention tool. According to the American Bankers Association’s 2013 Compensation and Benefits Survey, 64 percent of banks offer some type of nonqualified deferred compensation plan. These plans are limited to select management or highly compensated employees. Nonqualified plans are generally categorized as either defined benefit plans or defined contribution plans. With different types of nonqualified plans available, how do you decide which plan your bank should provide? 14 Virginia Banking | November/December 2014
In a typical defined benefit plan, the executive is promised a fixed dollar amount or percentage of final pay at retirement as the plan is designed to overcome a retirement shortfall or achieve a specific wage replacement ratio. The executive receives a stated amount (e.g. $50,000 per year) for a stated period of time (e.g. 15 years) beginning at separation from service, or a specified date or age. Defined contribution plans vary in design. The executive’s deferred compensation balance might consist of all bank contributions, all executive contributions, or a combination of the two. Bank contributions might be predefined, such as a specific dollar amount or percentage of salary each month, or they may vary based on achievement of certain performance goals (often called performance-driven retirement plans). The deferral or contribution is credited with interest by the bank and the accrued amount is paid beginning at separation from service or a specified date or age. Continued on page 16 www.vabankers.org
Public Eye Two thousand fourteen was a busy year for the banking industry, and the Virginia Bankers Association was on-hand to lend helpful insight to numerous Virginia and national media outlets.
In May, NBC12 looked to VBA President and CEO Bruce Whitehurst for his opinion on changes in the Consumer Debit Card Protection Act: “I think the main message here is that consumers already really have the same kind of protections in place. There are some differences in the actual regulations but ultimately with so much rolling up to VISA and MasterCard, you really have a similar situation with credit and debit cards,” he said. Whitehurst says instead of new regulations, there needs to a bigger push to go after criminals. “We really want to see attention given to making sure there is a system of accountability in place, where those who perpetrate the fraud are held accountable for the cost,” he said.
In June, SNL examined the impact of regulations on several Virginia banks’ decisions to consolidate. When it comes to M&A in Virginia, everyone is looking at everything. That is the view of several bankers and industry observers on the state’s banking sector, and the cause is mainly down to regulation. “The current regulatory environment and the related compliance burdens are obviously increasing the cost of doing business,” Bruce Whitehurst, president and CEO of the Virginia Bankers Association, told SNL. “There’s not always a real clear sense of what the regulations are really trying to accomplish or whether they accomplish their stated objectives.”
Virginia Business investigated the impact of the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2012 on smaller, local financial institutions. “The smaller the bank, the greater the burden, because they don’t have the depth of staff or the revenue base needed” to cope with added compliance expense, says Bruce T. Whitehurst, president of the Virginia Bankers Association. “It is quite challenging.”
In July, ABA Banking Journal‘s cover story discussed how banks and their trade associations are finding and shaping future bank leaders. Chandler Dewey, Communications and Government Relations Manager at the VBA shared, “The mantra for the Leadership Division at the Virginia Bankers Association is to ‘create a succession plan for Virginia banking...’Today’s Division members are tomorrow’s CEOs.”
In 2014, the VBA: • Received 32 press inquiries, including five on television and one on radio • Talked to 22 media outlets • Gained 251 new Twitter followers
Number of Contacts By Category 9/1/13-10/1/14 Credit Unions 3% Security/Fraud 16%
Patent Trolls 5%
Misc. 33%
Event 8%
Financial Literacy 3% Foreclosures/ Housing Issues 3% General Assembly Topics 8%
Industry Issues 8%
Legal Issues 5%
Government Regulations/DoddFrank 8%
Planning Ahead Continued from page 14 On the surface, it may seem that the performance-driven designs provide more alignment of the executive and shareholder interests; however, that may not be the case for the following reasons: 1. Executives generally prefer defined benefit plans over performance-driven plans. The defined benefit plans provide a base level of retirement income to supplement the variable/uncertain amount of retirement income from the executive’s 401(k) plan and stock awards. The executive may favor the employer that offers the defined benefit SERP and may be willing to take a lower retirement benefit because of the higher degree of certainty. 2. Once implemented, properly designed defined benefit plans are easy to administer and the expense can be budgeted for years to come. Both benefit plan types require various terms and conditions to be documented in a contract between the bank and the
executive. The contract should provide strong retention hooks, as described in a recent Bank Director article. A couple of recent examples will help illustrate the board’s rationale for the implementation of both types of SERP: DEFINED BENEFIT Bank A conducted a nationwide search to hire a CEO. As part of the CEO’s compensation package, the board of directors agreed to provide a SERP designed to replace 70 percent of his final compensation, after taking into consideration his 401(k) and social security benefits. The board considered various alternatives but believed the defined benefit SERP was the most effective method to achieve its objective. Since the executive was only 50 years old, he would earn the SERP over the next 15 years. The executive was incentivized to take the position, in part, because of the promise of a stable retirement income, which would allow him to focus his energy on bank performance.
Calling all bankers! Host a High School Senior in Your Bank for VBA Bank Day, March 17, 2015
Ba VBA
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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.
by F the on VBA Educati
In addition, the executive was provided with restricted stock that would provide alignment of the executive’s and shareholders’ interests. Lastly, the board favored the stability of expense the defined benefit SERP provides and the fact that the design does not promote excessive risk-taking. PERFORMANCE DRIVEN At Bank B, the board felt strongly that supplemental executive retirement benefits should be provided using a performance-driven design. The board believed that to maintain a high-performance culture that aligns management and shareholder interests over the long-term, a defined contribution approach was the best fit. The plan provided that annual contributions would be measured based on performance targets established by the board. To provide additional protection against excessive risk-taking, the benefit payments would not begin until age 65 and would be payable in monthly installments over a 10-year period. All benefits would be forfeited if the executive was terminated for cause, if there was a material misstatement of the financial statements or if the executive competed with the bank after termination of employment. SUMMARY There is no one-size-fits-all approach with regard to nonqualified benefit design. The facts and circumstances of the case, including bank culture and objectives, will dictate the best design for any given bank and executive. David Shoemaker, CPA/PFS, CFP®, is a principal of Equias Alliance. He may be reached at
After the day, students are required to write an essay, based on their experience in the bank. Thirteen scholarships (12 regional and one statewide) will be awarded on the basis of the essays.
dshoemaker@equiasalliance.com or (901)
Bank Day will take place on March 17, 2015. If you are interested in hosting local high school students, please email Chandler Dewey at cdewey@ vabankers.org for more information.
securities through ProEquities, Inc.
16 Virginia Banking | November/December 2014
754-4924. Ken Derks is a principal of Equias Alliance. He may be reached at kderks@equiasalliance.com or (469) 252-1037. Equias Alliance offers member FINRA & SIPC. Equias Alliance is independent of ProEquities, Inc.
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Costs
Controlling
Purchasing and Payroll Cards: Small Business Needs, Solved With Prepaid By Kari Mitchum, Senior Director of Payment Solutions, ABA Prepaid
I
n today’s ever-changing business environment, our commercial customers are still looking to fulfill the same banking relationship goals as they’ve had for years – happy employees and low overhead. Enter purchasing and payroll cards. Known to consumers as alternative checking accounts, these prepaid products offer new, useful – and profitable – ways for small business customers to meet their objectives. PAYROLL CARDS FOR EMPLOYEES For many of us, it is hard to imagine life without direct deposit. However, according to a Wall Street Journal article, an estimated 50 percent of small businesses have yet to embrace this payroll option. Even so, many employers who have direct deposit can still be cutting paper checks for more than a quarter of their employees. This happens for a variety of reasons. New hires typically spend a few weeks on the job before they fill out their direct deposit paperwork. Some simply never get around to it. And lots of times, employees don’t actually have a checking account that is available for direct deposit. With 25 million underbanked and 9 million unbanked households across the U.S., according to a 2012 FDIC survey, there’s room to assume many of those paper checks are going to this population. Industries that might employ the underbanked or unbanked include agriculture, food processing, hospitality, manufacturing, retail, restaurants and transportation. Many fast-food chains have high turnover,
Costs to Access Paycheck for an Employee Without a Checking Account Accessing Money Cashing a check
$29-$47
ATM Withdrawals Paying Bills
N/A
Rent, car insurance & car payment Phone, cable & electric Total Monthly Costs
$3-$12 each $3-$6 each $35-$96
18 Virginia Banking | November/December 2014
and the onboarding process alone contributes to a lower rate of direct-deposit employees. Also, many industries hire seasonal employees who don’t have local banking relationships. An employee without a checking account faces a large amount of monthly costs to access their paycheck (see chart, lower left). The direct deposits calculator on electronicpayments.org tells us it costs the average company with 100 employees about $8.61 to process and print each paper check. A payroll program allows a company to get higher rates of direct deposit, which saves them money. The employees also save money – a win-win for both parties. The advantages of payroll cards to banks are numerous. A payroll card in lieu of paper checks puts the employee wages on deposit at the bank while they are on the card. Additionally, with each swipe, the bank earns interchange. And, with every new hire, the bank gets a new customer. Not to mention since employees are instantly able to access to their funds, there are fewer lines at the bank. And because an employee’s earnings are loaded on the card in their entirety, the spending on payroll cards is larger than a student card or other prepaid products offered by the bank. The bank gains transactions share for the whole paycheck as the employee loads their payroll account number into their household bill payments. PURCHASING CARDS FOR EMPLOYERS Not every small business can simply hand over the debit card for day-to-day expenditures. Prepaid purchasing cards make this task easier while controlling expenses in a hands-off way and reducing the risk of fraud. Purchasing cards are also a great budgeting tool for small businesses. Say your office supply budget is $500. Loading that amount onto a purchasing card will alert a business owner if costs go up and their funds were depleted. Technically, debit cards can only be used by the account owner, which is not always the person making the purchases for the small business. Everyone in banking has had to explain to a small business owner that any purchase an employee makes is considered “authorized” once the owner hands over his or her debit card. For banks that don’t extend credit cards to commercial customers – or any customers – providing a www.vabankers.org
prepaid purchasing program for small businesses is a great way to regain that share of wallet spending they might currently be losing to a big-bank credit card. Many small businesses have their employees use their personal credit cards for business purchases, and then seek reimbursement from the company. Not all employees have stellar credit, and expense reports and disbursements use valuable accounting time. FRAUD PREVENTION To mitigate fraud, both by employees and during merchant breaches, encourage a purchasing card for your commercial customers. Small businesses are notoriously tight on liquidity. When a merchant is breached or otherwise compromises the integrity of the company’s account numbers, a small business loses valuable time resolving the situation. Getting a new account is often a hassle, and documenting the fraud is time consuming. So why not avoid the risk? Visa and MasterCard – and you, the bank – protect customers from the actual financial loss, but many people now want to protect themselves against the inconvenience of merchant breaches. Purchasing cards also come with text alerts. So, in addition to the employee getting a text message that money had been spent on their purchasing card, a small business can also have their account department pinged with an email. A nice heads up for accounting. Banks should take a look at these simple, beneficial solutions for their commercial customers. Purchasing cards help your small business clients better manage their money, and payroll cards save the small business and their employees both time and money. Payroll cards are also a bridge for the un-banked and the underbanked into the financial world. Take a look at your bank’s current offerings and make sure that prepaid is one of them. It could be just what your small business customers are looking for.
With a 360° perspective, our financial services team is with you at every turn. More than 100 banks in the Southeast depend on Elliott Davis for personal attention, industry experience and services, including external and internal audit, SEC reporting, taxation and compliance. Our financial services practice is 90 professionals strong, with a 60-year reputation for helping banks operate stronger, wiser, better. Let us help you stay on course.
Kari Mitchum is the senior director of payment solutions at ABA Prepaid, a VBA/
Georgia | North Carolina | South Carolina | Virginia | elliottdavis.com
MSI endorsed product. She can be reached at kmitchum@aba.com or (202) 663-5573. www.vabankers.org
November/December 2014 | Virginia Banking 19
Compliance
Corner
Compliance is Not Just for Compliance Officers Anymore
By Darlia Fogarty Director of Compliance, Compliance Alliance
I
n today’s environment, bankers must spend too much time and commit too many resources to regulatory compliance, leaving too little time and resources for providing actual bank services to their customers. Much of the effort does not support bank soundness and has little or no benefit to customers or shareholders. Every banker knows that complying with the growing set of regulations, as well as adjusting to changes in regulations, takes hours out of the business day and has become a major expense to the bank. Banks must devise new ways to stay on top of all the new regulations and minimize the drain on the bank’s resources. No bank wants a compliance department with countless employees. To avoid this, everyone (including the CEO and the board) must wear their “compliance hats” daily to be the eyes and ears of the compliance department and ensure that the bank does business according to the regulators’ expectations. Compliance is best if it comes from the top down. Otherwise, the compliance function becomes “the enemy” and something to avoid or get around. One way to avoid adversity is by clearly identify-
ing the specific regulations for which every line of business is responsible. Compliance should become their partner, and they should work together to facilitate effective and streamlined communications as well as monitoring and joint accountability for the compliance function within each line of business. Regulators are concerned about pressures to generate revenue growth at all costs. The stretch for yield is already present in many facets of bank operations and lines of business, ranging from pricing to relaxation of credit standards and consideration of new lines of business that have different profitability and risk trade-offs. The compliance risk management program should be woven through the entire bank’s lines of business. Regulatory attention has shifted more toward bank operations, of which compliance is a major component. Issues such as BSA/AML, mortgage foreclosures, vendor risk management, information security and business continuity now need to be addressed via rigorous processes, strong talent, dynamic systems and a strong audit and risk management process to review the procedures in place to mitigate these risks. The board of directors is responsible for ensuring the proper management of the bank’s compliance program. To this end, the board of directors may delegate the performance of its duties to a committee or even to a position, but may not delegate its responsibility to ensure that the bank operates in compliance with regulatory requirements. The bank’s board and senior management are responsible for determining the necessary course of action to ensure that the adherence to laws and regulations is managed in an effective and consistent manner for the entire organization. To ensure that compliance becomes an integral part of a bank’s operations, compliance must start at the top with the board and CEO. If they do not believe compliance is vital to the survival of the bank, and act accordingly, then nobody else in the bank will buy into the importance of the compliance program.
Darlia Fogarty, director of compliance, Compliance Alliance, may be reached at darlia@compliancealliance.com or (888) 353-3933. 20 Virginia Banking | November/December 2014
www.vabankers.org
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Move
Bankers on the
Are your bankers on the move? Email submissions to mreilly@vabankers.org.
Beck
Nagpal
Toth
Biehl
Mardeusz
Robinson
Skigen
Bank of Georgetown
Martha S. Wilson, Vice President in Commercial Lending Division
Jeff Hedderly, Executive Vice President & Chief Credit Officer Bobby Wright, Senior Vice President & Commercial Loan Officer
Carter Bank & Trust
Burke and Herbert Bank
Brandy M. Mardeusz, Assistant Vice President, Managing Officer of Culpeper Office
Josefina Beck, Manager, Kingstowne Branch Amit Nagpal, Manager, Monroe Avenue Branch Joshua Toth, Manager, Cooper Road Branch
Community Bankers’ Bank
Capital One Financial Corp.
Meghan Kelly, Vice President, Senior Credit Officer
Amanda S. Harris, Vice President of Finance
EagleBank
Mike Wassmer, Central Virginia Market President
Farmers & Merchants Bank
Cardinal Bank
Matt Robinson, Assistant Vice President, Farmers & Merchants Bank and Investment Consultant, Infinex Investments, Inc.
Apichada C. Arquette, Vice President,Woodbridge Banking Center Jamie L. Benz, Assistant Vice President, Retail Operations Specialist Sean Biehl, Vice President, Manager of Union Mill Banking Office Amber D. Burton, Assistant Vice President, Manager of Cardinal’s Annandale Banking Office Charlene E. Davis, Assistant Vice President, K Street Banking Center Aurelia M. Dinoso, Assistant Vice President, Reston Metro Banking Center Valerie A. Gulliford, Assistant Vice President, Deposit Operations Manager Robert W. Gutierrez, Assistant Vice President, Business Analyst Jeffrey P. Lee, Vice President, Fairfax Banking Center Laura E. Lobb, Vice President, Product Manager Andrew J. Peden, Executive Vice President, Real Estate Lending Diane L. Reynolds, Assistant Vice President, Stafford Banking Center Jose A. Rodriquez, Vice President, Security Officer Michael Straub, Bank Officer, Senior Accountant Monica L. Tressler, Vice President, Commercial Services Executive Michael R. Williams, Vice President in Commercial Lending Division
First Bank Sam J. Crow, Executive Vice President, Chief Credit Officer Thomas M. McGloon, Vice President/Mortgage Loan Officer of the First Mortgage Division Jeffrey R. Smith, Vice President/Business Development Officer
John Marshall Bank Barry Benishek, Senior Vice President, Loan Documentation Manager Rudy Dekrooj, Assistant Vice President & Branch Manager Heather Skigen, Senior Vice President & Chief Credit Officer
Pinnacle Bankshares Corp. Tony Bowling, Senior Vice President and COO
Virginia Partners Bank Kevin Fastabend, Senior Vice President
Union First Market Bank Cary Ayers, Senior Vice President, Commercial Lending
VIRGINIA BANKERS ASSOCIATION — SERVING VIRGINIA’S FINANCIAL COMMUNITY SINCE 1893
Our Members Are Your Best Prospects. To learn more about Virginia Banking Magazine and customize a marketing program unique to your business needs, call 800-356-8805 ext. 307 or email advertising@thewarrengroup.com.
22 Virginia Banking | November/December 2014
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