Virginia Banking SEPT/OCT 2012

September/October 2012

VIRGINIA BANKERS SCHOOL OF BANK MANAGEMENT 2012 SUMMER SESSION IN THIS ISSUE

LOW-INCOME HOUSING TAX CREDITS | Q&A WITH LEADERSHIP DIVISION CHAIRMAN

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And another reason why Diebold has remained a leader for more than 150 years.

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September/October 2012

2012-2013 OFFICERS AND DIRECTORS OF THE VIRGINIA BANKERS ASSOCIATION Jeffrey M. Szyperski, Chairman, Chesapeake Bank Gary R. Shook, Chairman-Elect, Middleburg Bank William Couper, Immediate Past Chairman, Bank of America, NA O. R. Barham, Jr., StellarOne Corporation Christopher W. Bergstrom, Cardinal Bank Katherine E. Busser, Capital One Financial Corporation Tim Butturini, Wells Fargo Bank, N.A. Larry G. Dillon, C&F Bank Randy K. Ferrell, The Fauquier Bank Larry A. Heaton, Franklin Community Bank, NA T. Gaylon Layfield, III, Xenith Bankshares, Inc. John R. Milleson, Bank of Clarke County Susan Ralston, Bank @Lantec John G. Stallings, SunTrust Bank David P. Summers, Virginia Heritage Bank Daniel G. Waetjen, BB&T Michael O. Walker, Benchmark Community Bank

12

Virginia Bankers School of Bank Management 2012 Summer Session 65 students graduated from the school this year.

Photo courtesy of grogan photography.

AT-LARGE MEMBERS Benefits Corporation Chair Richard M. Liles, Bank of McKenney Management Services Inc. Chair Frank Bell, III, Chesapeake Bank Government Relations Committee Chair Monte L. Layman, Blue Ridge Bank VBA Education Foundation Chair H. Watts Steger, III, Botetourt Bankshares, Inc.

features

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 Chandler Dewey at cdewey@vabankers.org.

Bruce T. Whitehurst President and CEO Virginia Bankers Association

Virginia Banking is published bi-monthly. Copyright 2012.

Chandler Dewey Manager, Communications/ Marketing and Financial Literacy Virginia Bankers Association

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.

16

Low-Income Housing Tax Credits After the Crash A look at the federal program, 25 years after its birth.

18

Get Smart About Credit Day October 18, 2012 Join hundreds of bankers in educating children about credit.

20

Q&A with VBA Leadership Division Chairman Get to know Ward Currin.

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4 Calendar of Events 5 Insights 6 Worth Noting 7 Welcome New Associate Members

8 9 10 14 22

Legislative Update Washington Update Legal Line Compliance Corner 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.

September/October 2012 | Virginia Banking 3

Calendar of

Events

Live Event

INSTRUCTOR-LED SEMINARS

Online Seminar

ONLINE SEMINARS

2012 LEADERSHIP CONFERENCE, WINTERGREEN OCTOBER 11

INTRODUCTION TO AGRICULTURAL LENDING OCTOBER 9

COMMERCIAL LENDING SCHOOL, GLEN ALLEN OCTOBER 17

AIB ANALYZING FINANCIAL STATEMENTS OCTOBER 9

2012 MASTERING HMDA SEMINAR, LYNCHBURG OCTOBER 30

AIB PRINCIPLES OF BANKING OCTOBER 9

2012 MORTGAGE UPDATE – B TO Z SEMINAR, LYNCHBURG OCTOBER 31

AIB LAW AND BANKING: PRINCIPLES OCTOBER 9

HOW TO ENSURE COMPLIANCE WITH DEPOSIT REGULATIONS SEMINAR, LYNCHBURG NOVEMBER 1

AIB MARKETING FINANCIAL SERVICE OCTOBER 9

AIB LAW AND BANKING: APPLICATIONS OCTOBER 15

AIB PRINCIPLES OF BANKING ACCELERATED OCTOBER 15

INFORMATION GOVERNANCE, GLEN ALLEN NOVEMBER 7

IMPLEMENTING THE NEW CTR AND SAR, CHARLOTTESVILLE

NOVEMBER 27

AIB GENERAL ACCOUNTING OCTOBER 15

IMPLEMENTING THE NEW CTR AND SAR, SANDSTON NOVEMBER 28

AIB CONSUMER LENDING OCTOBER 22

IMPLEMENTING THE NEW CTR AND SAR, CHESAPEAKE NOVEMBER 29

AIB PRINCIPLES OF BANKING OCTOBER 22

ACH PROCESSING & COMPLIANCE SEMINAR, SANDSTON DECEMBER 4

AIB INTRODUCTION TO MORTGAGE LENDING OCTOBER 22

ACH PROCESSING & COMPLIANCE SEMINAR, ROANOKE DECEMBER 5

AIB ANALYZING FINANCIAL STATEMENTS NOVEMBER 5

COMPLIANCE WITH FEDERAL LENDING REGULATIONS SEMINAR, SANDSTON DECEMBER 18

AIB PRINCIPLES OF BANKING NOVEMBER 5

MANAGING INTEREST RATE RISK NOVEMBER 12

AIB PRINCIPLES OF BANKING ACCELERATED NOVEMBER 12

AIB MONEY AND BANKING NOVEMBER 12

AIB GENERAL ACCOUNTING NOVEMBER 12

Name________________________________________________ Bank/Firm______________________________________________ Address____________________________________________________ City___________________________ State/Zip________________

Webinars

Phone________________________________________________ Fax________________________________________________________ Email______________________________________________________

For more information go to www.vabankers.org.

4 Virginia Banking | September/October 2012

Information and online registration is available at the VBA website. Please either go to www.vabankers.org or use this form to check the box next to the program you want information about, then fax the form to the VBA office at 804-643-6308. The VBA will send you information about the program as soon as it is available, usually eight weeks before the program.

www.vabankers.org

Insights

Developing Future Leaders “I didn’t get here alone That road’s just too rough and long I might be the one the spotlight’s on But I didn’t get here alone” — Kenny Chesney

Bruce Whitehurst President and CEO, Virginia Bankers Association

S

hortly after our very successful School of Bank Management Resident Session in Charlottesville this August, my family and I had the chance to see Kenny Chesney and Tim McGraw in concert. It was a great concert and although he did not perform it that evening, I was reminded of one of my favorite Kenny Chesney songs, “I Didn’t Get Here Alone.” Chesney wrote this song a few years back as a tribute to the many people who helped him along the way to superstardom. No, he was not referring to the federal government, but to his parents, his mentors in the music business and all the people who have contributed to his success.

We may not be superstars in the same sense as Kenny Chesney, but as leaders in the banking industry, we play a vital role in our communities and in our economy. We also know that we didn’t become leaders alone, but rather through the support and mentorship of many who have helped us along our career paths. As a young banker, I benefitted greatly from mentors within the bank as well as from my attendance at Bank School (go class of ’90!) and my active participation in the Young Bankers Section. These VBA experiences opened my eyes to the business of banking and the impact we can have working together.

That Jefferson National Bank invested in me, through internal and external training and mentorship opportunities, made me a better banker and employee at the time and also set me on a path for a great career in this great industry. As I have written before, my time at the VBA has given me the gift of numerous mentors. In addition to my predecessor, Walter Ayers, and other internal mentors, I get to learn from the best banking lead-

ers, year in and year out, as they devote time to leading the industry by way of service to the VBA. 119 years old and strong as ever, the VBA does a lot of things on behalf of and in partnership with our member banks. One of the coolest things we have the privilege of doing is to play a direct role in leadership development in several meaningful ways. We have a wealth of education and training opportunities that help bankers stay current with their chosen profession and develop their leadership skills. We have numerous committees on which hundreds of bankers serve, giving the VBA invaluable feedback and bankers an outstanding peer networking opportunity. We have our Leadership Division, the reincarnation of the Young Bankers Section. With over 300 members and growing almost daily, the Leadership Division connects emerging banking leaders with each other and the VBA, providing a great network and leadership development opportunities as these rising stars plug in to VBA legislative grassroots and financial literacy programs. We help banks do for their employees what Jefferson National Bank did for me earlier in my career.

Please take advantage of the opportunities the VBA affords you to be actively engaged, not only on behalf of your industry, but also to enrich your own professional and leadership development. If you are one of our nearly 3,600 Bank School graduates, encourage others in your bank to consider pursuing this opportunity. Consider – for yourself or others – the Graduate Banking School at LSU (www.gsblsu.org), which the VBA and 14 other southeastern state bankers associations own and sponsor. Take a look at our Executive Leadership Institute. Attend or send others from your bank to our first Leadership Conference Oct. 11-12 at Wintergreen. Go to www.vabankers.org for information on these and other upcoming VBA events.

The older I get, the more I realize how much I have yet to learn. But I do know this, without a doubt: I didn’t get here alone and my future success will continue to depend on guidance and mentorship from others. To that end, I look forward to seeing you – and learning from you - at a VBA event soon.

Bruce Whitehurst can be reached by email at bwhitehurst@vabankers.org. www.vabankers.org

September/October 2012 | Virginia Banking 5

Noting

Worth

VBA SAFETY GROUP RETURNS DIVIDENDS

VBA BANKPAC AND ABA BANKPAC PARTNER FOR SUCCESS In July, the VBA stepped up with a $110,000 contribution to ABA BankPAC, which closely coordinates all political giving in Virginia with the VBA. Thank you to all VBA member banks who support BankPAC at the federal and state levels.

It’s not too late to register! Sign up today!

a le a de r s hi p c o n f e * vb ren ce

The VBA Safety Group Dividend Program returned dividends of $183,977 to participating banks from the 2010 program year. This program is a joint effort with VBA Management Services, Inc. and Zurich North America Financial Enterprises (formerly the Fidelity & Deposit Companies). The goal of the VBA Safety Group Dividend Program is to provide banks the opportunity to reduce their overall insurance costs.

Pictured here is John Bowers, VBA director of member services, presenting Rick Wheeler, chairman, president and CEO of Franklin Federal Savings Bank, with his safety check. Since its inception in 1997, the program has returned dividends totaling $3.94 million to participating Virginia member banks. A dividend has been paid for 12 out of the 14 years the program has been in existence.

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the voice of your

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Agenda and registration information available at www.vabankers.org.

6 Virginia Banking | September/October 2012

KIM SNYDER GRADUATES FROM THE ABA STONIER GRADUATE SCHOOL OF BANKING Kimberly B. Snyder, executive vice president and CFO of Valley Financial Corporation and its subsidiary Valley Bank, recently graduated from the ABA Stonier Graduate School of Banking held at the University of Kim Snyder Pennsylvania.

She will also sit on the Stonier Advisory Board. Congratulations, Kim! www.vabankers.org

Welcome

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September/October 2012 | Virginia Banking 7

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Legislative

Update

The Importance of the Struggle Matt Bruning Director of Government Relations, Virginia Bankers Association

L

ike millions across the globe, I watched in wonder the many events of the London Olympics. While I will undoubtedly not watch another minute of competitive archery, fencing or synchronized diving for another four years, I enjoy viewing these less followed sports. Often, I find myself drawn into an event more for the personal stories of the participants than any understanding of their specific sport.

These Olympic games were no different. Whether it was South African sprinter Oscar Pistorius overcoming the loss of both his legs at a young age or the women athletes from countries where they are treated as second-class citizens, there are always great stories of athletes overcoming the odds to achieve their dreams.

The Olympic creed states, “the most important thing in the Olympic Games is not to win but to take part, just as the most important thing in life is not the triumph but the struggle. The essential thing is not to have conquered but to have fought well.” While far more athletes return home without medals than with, all should take pride in their accomplishments and their perseverance in their pursuit. It never ceases to amaze me that individuals put in countless hours of training and effort to compete at the highest level in events that sometimes last mere seconds.

That creed has application in nearly every aspect of life, including, I believe, the advocacy of our industry. Make no mistake, I prefer winning to the alternative and that is the goal to which we continually strive in our legislative and regulatory efforts.

However, just as the Olympic competitors trained rigorously for their race or match in order to be best prepared to prevail, so too must we make the efforts necessary to obtain the results we desire. We may not always achieve the changes we advocate for or convince decision-makers of the superiority of our arguments, but if we truly want to achieve those goals, we must continue to try, no matter the obstacles.

I recently had the opportunity to join Johnny Milleson and others at Bank of Clarke County for a visit with Rep. Frank Wolf at the bank. The bankers were able to tell the congressman about the bank and the customers and communities they serve. We also

discussed the important legislative and regulatory issues our industry is facing. When we got to the issue of credit union business lending, Wolf – who has declined to sign on as a co-sponsor of the bill to expand their business lending – noted that a group of credit union members had recently visited him. That should serve as a reminder that there are those out there pursuing their goals that run counter to ours, making it that much more imperative that we continue our efforts.

Milleson and his bank understood the importance of being proactive in our outreach by inviting the congressman to visit. Hundreds of bankers across Virginia have made the effort to attend Banker Day and legislative meetings, email their representatives or send comment letters to regulators. All of those activities are part of the important struggle each of us must assiduously participate in order to achieve advocacy success.

We hope you take part in any of our upcoming legislative events. Our meetings thus far with members of Congress and the General Assembly have gone well and produced a good dialogue between bankers and our elected officials. Be on the lookout for events in your area and save the date for Banker Day in Richmond on Thursday, January 10, and our VBA/ ABA Government Relations Summit on April 15-17.

We hope you send comment letters to the regulators on any of the proposed rules that will impact your daily operations. The VBA is working on several and values your input as we respond to the concerns raised in the thousands of pages of draft regulations.

We hope you consider inviting your congressmen and women and state legislators to your bank. These are great opportunities for you to tell your bank’s story to your local elected leaders. The VBA is happy to help coordinate these visits.

Working together, it need not be a struggle, but a collective dedication to accomplishing what is best for your institution and our industry as a whole. Like the Olympians, there will be obstacles that need to be overcome and the outcome uncertain, but it is important that we fight and fight well.

Matt Bruning can be reached by email at mbruning@vabankers.org.

8 Virginia Banking | September/October 2012

www.vabankers.org

Update

Washington

Relationship Management

O Frank Keating President and CEO, American Bankers Association

“

ne thing I often hear is how banking is a relationship business. You strive to get to know your customers, understand their needs and provide them with solutions.

These relationships, with proper care and nurturing, can be managed and grown. With your help and expertise, a small manufacturer today might become a regional force tomorrow. That’s not just good for the manufacturer and your bank.

It’s also good for your community.

These customer relationship management, or CRM, principles apply equally to lawmakers, who have proven their ability to impact your bank’s bottom line. Relationships with your elected representatives must be grown and nurtured. This is the heart of grassroots political advocacy, and it requires patience and perseverance. Helping bankers succeed at it is one of the primary goals of our revamped Banker Advocacy and Grassroots Committee.

We announced this new committee at our recent Summer Leadership Meeting in Chicago. The

We want banker s who are already involved

to develop deeper relationships with their representatives, senator s, and their staffs.

”

committee’s co-chairs for the new association year – which begins with the ABA Annual Convention in October – are Bill Hayes, president and CEO of Kishacoquillas Valley National Bank, Reedsville, Penn., and Max Cook, president and CEO of the Missouri Bankers Association.

Having a state association executive co-chair the committee reflects the importance of statebased and local advocacy efforts in achieving our

industry’s policy goals. The rest of the committee will be composed of politically active bankers in each state. Together, they will plan advocacy and grassroots strategies for the new 113th Congress that will convene next January.

Our new committee – with banker representation from all 50 states – builds on what ABA and bankers already do very well while recognizing that we need to do more. We are very good at quickly mobilizing and communicating with members of Congress on the issues.

Now it’s time to take it to the next level. We want bankers who are already involved to develop deeper relationships with their representatives and senators, and their staffs in Washington and back home. That means talking to and meeting with lawmakers in between votes, asking about their needs, not just ours. We also want to encourage novice banker advocates to take the first step in establishing a connection with their elected leaders.

To help on both fronts, ABA is producing a series of brief videos on building effective relationships with members of Congress. The series – which includes not just “how to’s” but also “why to’s” – walks viewers through advocacy essentials, beginning with why bankers should get involved in grassroots advocacy and how to set up a successful bank visit. Additional videos will be added over the next several months, so please be on the lookout for them.

Never underestimate your power as a constituent. You have a great story to tell about what your bank is doing for its customers, communities and local economies. And by providing first-hand accounts of your work and its challenges – not the least of which is a hefty stack of compliance directives – you are enabling your lawmaker to cast informed votes on issues that affect you.

Learn more and view our new grassroots advocacy training videos at aba.com/ grassrootstraining.

Gov. Frank Keating can be reached by email at keating@aba.com.

www.vabankers.org

September/October 2012 | Virginia Banking 9

Line

Legal

Supreme Court Enforces Pre-Foreclosure Face-to-Face Meeting Requirement

T

Mel Tull General Counsel, Virginia Bankers Association

he Virginia Supreme Court alarmed many mortgage lenders recently when it required a face-to-face meeting between a lender and borrower before the lender could foreclose on real estate securing a Federal Housing Authority (FHA) loan. In Mathews v. PHH Mortgage Corp., the court considered whether a defaulting borrower could enforce U.S. Department of Housing and Urban Development (HUD) foreclosure regulations referenced in, but not expressly incorporated into, a deed of trust securing a FHA loan.

The court’s opinion begins with an in-depth review of what constitutes a material breach of a deed of trust. Refusing to accept the lender’s argument that an event of nonpayment should bar the borrower from enforcing other conditions precedent to foreclosure, the court instead took the view that a deed of trust allows a nonpaying borrower to enforce the full provisions of the deed of trust, despite the payment default on the related note. The court emphasized that the deed of trust outlines many restrictions on how a lender may proceed with foreclosure after the borrower has defaulted on the note. Those restrictions provided sufficient evidence for the court to hold that the lender and the borrower contractually agreed that an event of nonpayment does not constitute a material breach of the deed of trust.

Because the deed of trust referenced certain HUD regulations, the court found that those regulations were part of the contractual terms of the deed of trust. The lender argued that the reference to HUD regulations: • was ambiguous because it was a general reference and could potentially incorporate a wide variety of regulations • did not expressly incorporate those regulations into the terms of the contract • was an agreement between the lender and HUD, not between the lender and borrower.

The court dismissed these arguments, finding that because the deed of trust’s foreclosure provision referenced HUD foreclosure regulations,

it was clear that the parties intended to incorporate all of the HUD foreclosure regulations into the deed of trust, including the face-to-face meeting requirement; a reference to the HUD regulations was sufficient to incorporate them into the deed of trust; and the plain language of the deed of trust indicated it was a contract between the lender and borrower.

The lender further argued that HUD had interpreted its own regulations to mean that a faceto-face meeting was only required if the lender operates a “servicing office” within 200 miles of the borrower’s residence. Because the lending industry often relies on HUD’s interpretations, the lender argued that the court should give deference to HUD’s guidance. The express language of the rule, however, states that the lender must perform a face-to-face meeting prior to foreclosure when the lender operates a “branch office” within 200 miles of the borrower’s residence. The court dismissed HUD’s guidance, holding that an agency may not redefine an unambiguous term such as “branch office” simply by issuing guidance to interpret “branch office” to mean “servicing office.” The court held that all lenders with a “branch office” within 200 miles of the borrower’s residence must conduct a face-to-face meeting with the borrower, but the lender’s loan servicing professionals may attend such meeting either in person or by teleconference.

In addition to confirming the face-to-face meeting foreclosure requirement in FHA mortgage loans, the Virginia Supreme Court’s Mathews decision provides several important lessons for Virginia mortgage lenders. First, a payment default on a note will not bar a borrower from enforcing conditions precedent to a foreclosure sale in the related deed of trust. Second, if a deed of trust or other contract makes any mention of a regulatory agency’s rules and regulations, courts may deem those regulations to be incorporated by reference into the terms of the contract. And, third, courts may not always defer to an agency’s interpretive guidance when interpreting the agency’s regulations.

Mel Tull can be reached by email at mtull@vabankers.org.

10 Virginia Banking | September/October 2012

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VIRGINIA BANKERS SCHOOL OF BANK MANAGEMENT 2012 SUMMER SESSION

This summer 199 Virginia bankers from across the commonwealth met at the Darden Graduate School of Business at the University of Virginia in Charlottesville for the Virginia Bankers School of Bank Management. The university, with its wide respect in the national business community and beautiful grounds designed by Thomas Jefferson, provided the ideal setting for this learning experience. The location, combined with a top-notch faculty, a group of excellent fellows, and fun social and community involvement events sprinkled throughout the week, made for a perfect Bank School Summer Session.

65 students graduated from the school this year.

Photo courtesy of grogan photography.

The Virginia Bankers School of Bank Management is successful because of the quality of the instructors who teach there, making the school one of the best in the nation. This year’s faculty members include: Thomas S. Bateman, McIntire School of Commerce at the University of Virginia; Richard S. Coughlan, Ph. D., Robins School of Business at the University of Richmond; Mark M. Faircloth, Faircloth Performance Partners; Lynn Hamilton, McIntire School of Commerce at the University of Virginia; Gary F. Higgins, Bank of America;

12 Virginia Banking | September/October 2012

Jeffrey S. Kane, retired from the Federal Reserve Bank of Richmond; Angela M. Robinson, Igniting-Success, Inc.; Kerry S. Sauley, Ph. D., Louisiana State University; Jimmy Sawyers, Sawyers & Jacobs LLC; Edmond J. Seifried, Ph. D., Seifried & Brew; Stephen P. Theobald, Hampton Road Bankshares; and Bruce Whitehurst, Virginia Bankers Association.

The classes taught, including new additions like Orientation/Communications, Presentation Skills, Retail Banking/ Marketing, and Leadership, all tie into the curriculum, which

www.vabankers.org

First Year Class Officers, from left: Kelly Johnson, Old Point National Bank; William Rothwell, Sandy Spring Bank; Marie Brooks, Cardinal Bank; and Melinda Williams, Old Point National Bank.

Second Year Class Officers, from left: Russel Marsh, Virginia Commerce Bank; Diane Smith, Fulton Bank; Bobby Gutierrez, Virginia Commerce Bank; and Andrew Stone, TowneBank.

Third Year Class Officers, from left: Chip Jones, Union First Market Bank; Sharon Martin, Old Point National Bank; and Jason McDonough, Cardinal Bank.

The third year class had a bowling tournament to benefit the Wounded Warriors Program. The class was so successful with their efforts that they raised $13,589.55!

is designed to provide students with specific skills in the functional areas of banking, an understanding of how commercial and savings banks fit within the financial services industry, sales and business development strategies, the ability to solve problems, work in teams and make decisions in a managerial setting, and exposure to the increasingly complex and important areas of banking law and regulations.

In addition to the required classes that students attend during their three, one week, summer sessions, bank school

students must complete eight home study problems – four after each of the first two years. The typical assignment requires research and the preparation of a paper based on the research. The home study problems reinforce many of the concepts learned during the on-campus sessions and give participants a heavy dose of hands-on analysis of real-world banking situations. The school also requires participation in a bank executive simulation, which this year was done entirely

www.vabankers.org

Continues on page 19

September/October 2012 | Virginia Banking 13

Compliance

Corner

New Regulatory Focus Increases CMS Importance Support from Board, Top Management Becomes Critical as CFPB Sets CMS Program Standards

By Wylli Foote Director of Visiting Compliance Management Services, Thomas Compliance Associates, Inc.

E

ven though the Dodd-Frank created Consumer Financial Protection Bureau has direct oversight responsibility only for banks with assets of $10 billion or more, the CFPB’s “Supervision and Examination Manual” has become the new regulatory guide for examiners from every banking agency.

The reason: A memorandum of understanding (MOU) signed by the federal banking regulatory agencies in May that commits each to work with the others in supervising financial institutions. The impact is likely to be seen first in CMS programs.

For banks in Virginia, and elsewhere, the MOU means that your bank’s compliance management system, or CMS, must measure up to the CFPB’s standards.

Rules and responsibilities matter. As a practical matter, here is a summary of what your bank’s CMS must achieve: • The board is responsible and makes necessary resources available.

• Management oversees day-to-day implementation, holds staff responsible.

• The compliance committee establishes systems, processes, disclosures and the like.

• The compliance officer/manager/director provides expertise and management of the CMS. It is nearly impossible to over-emphasize the importance of top-level CMS support. If directors and senior bank management fail to clearly demonstrate both individual and collective commitments to compliance, the CMS program starts at a significant disadvantage.

The commitment, by the way, must include an effective allocation of resources – i.e., staffing, training and technology.

The CMS also must incorporate employee responsibilities – and performance. As a practical matter, that means written policies and procedures and supervised day-to-day practices become the standard against which employees operate.

Consequently, specific job descriptions must incorporate compliance-related responsibilities against which

performance can be evaluated. Each employee must understand and comply with the rules within their job function.

In fact, each employee’s understanding of her, or his, compliance requirements and performance becomes a factor in salary, bonuses, and, if necessary, disciplinary action.

At the same time, VBA members must assure that compliance training is adequate – and documented for the examiners – and that any corrective action is taken quickly and effectively.

COMPREHENSIVE PROGRAM

Your bank’s formal CMS program establishes the infrastructure upon which specific compliance elements are built. Building the program includes: • Comprehensive, written policies and procedures.

• A risk-based compliance training process that is fully documented.

• Effective, risk-based monitoring of key processes, to provide early detection of problems.

• A comprehensive, formal, written, annual risk assessment.

• Testing, driven by risk assessments, monitoring and independent review testing.

• A process to manage compliance changes.

• Vendor management process that includes the vendor’s liability insurance.

Once thought of as an add-on to many CMS programs, expectations and public perception of the importance of the complaints process have been significantly raised by the CFPB: Not only must banks establish processes to respond to written (including email) complaints, verbal complaints should also be addressed.

All complaints must be carefully tracked and analyzed to identify inconsistencies, and potential UDAAP and Fair Lending implications. Compliance professionals also should track complaints for other purposes – indications of poor customer service or weaknesses in staff training, for example.

VBA members seeking information about their bank’s CMS program structure, or assistance with bringing their CMS programs up to expected standards, should call TCA’s Wylli Foote, a certified regulatory compliance manager and member of the TCA senior management team. The toll-free number is 800-934-7347. TCA is the VBA’s endorsed provider of compliance consulting and support.

14 Virginia Banking | September/October 2012

www.vabankers.org

INDEPENDENT REVIEW

Whether the process is called a “review” or “audit” at your bank, there are key aspects that need to be part of the Independent Review process. All of the following aspects need to be part of the component to be acceptable.

Sufficient independence. Different levels of independence are acceptable. Some banks view “independence” as completely external to the bank, without any previously-gained knowledge of the activities that are the subject of the review. Others hold a view that independence is solely a factor of whether or not the reviewer was involved in any aspect of the activity.

Regardless of the level of independence deemed acceptable by the bank (and the regulatory agency), the board should understand and accept the “independence” determination.

Sufficient expertise. Compliance expertise goes far beyond completing a checklist. Unless the reviewer has appropriate expertise for the activities being reviewed, the results may be unreliable and the conclusions uncertain. Whether the reviewer is internal to the bank or a trusted external provider, their expertise needs to be understood and accepted by the board.

Reporting. The results of the independent review should go to the board (or designate). The written report should identify the scope, detail the findings, and be supported by clear, complete work papers. The reviewer should present findings to the board.

Review scope Reviews should cover applicable and appropriate rules with a risk-based focus. The importance of careful scoping comes into play during the pre-review stages, although care must be taken to make certain the reviewer is not inappropriately influenced during the scoping process.

Review structure. Reviews should be structured as appropriate for the bank’s size and complexity. The review should consider the uniqueness of the bank, its activities, its product mix, its delivery channels and other risk factors.

Timely reporting. The reviewer should provide timely, accurate reporting to the www.vabankers.org

supervisor/manager of the area covered and the compliance officer to permit verification of the accuracy of findings prior to delivery of the formal report to the board.

Corrective action. Following verification of the accuracy of review findings, the root cause of each issue should be identified. A corrective action plan

should be developed and implemented.

Following correction of the root cause, the specific issue identified should be resolved.

The work isn’t finished at this point, however: Once the root cause and issue have been fixed, the corrective action should be validated to ensure that the issue has been fully resolved.

It’s only a sampling, but look what’s in the compliance services package TCA provides VBA member banks: • • • • •

Hands-on help, with scheduled on-site audits.

Timely, accurate information about compliance issues and trends.

Advice about how to meet federal compliance requirements.

An e-newsletter heads-up when the rules change.

Access to the TCA compliance professionals, the people who make TCA the most respected source of compliance information and assistance in banking.

Whether your need is BSA/AML, IT vulnerability scans and web site security reviews, or training that keeps your staff — and directors — up-to-date, TCA is your Compliance Advantage.

Call us . . . today . . . to learn more. 1-800-934-7347.

Thomas Compliance Associates, Inc. 2846 N. Mildred Avenue, Suite 150 Chicago, Illinois 60657 1-800-934-7347

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September/October 2012 | Virginia Banking 15

Low-Income Housing Tax Credits After the Crash

By Dan Tatar Vice President of Equity Investments, Virginia Community Development Corporation

W

ith the stroke of a pen in 1986, President Ronald Reagan authorized the creation of the Low-Income Housing Tax Credit (LIHTC) program that was part of the Tax Reform Act of 1986. Reagan believed that private sector accountability was necessary in most areas of society and he hoped that it would make multi-family rental housing for lower income people successful in the long run. LIHTCs are used by the housing developer to bring in investors who provide an equity investment in the housing development. Today, the LIHTC program is the largest federal housing program and, by far, the most successful in terms of production and quality of rental units. A considerable number of VBA member banks have invested in LIHTCs and are realizing the benefits of their investment.

Over the 25-year history of the LIHTC program, many studies have documented the success of the program. The most recent was published in August 2011 by the Reznick Group, entitled “The Low-Income Housing Tax Credit Program at 25: A Current

Look at its Performance.”1 This article summarizes the study’s description of the program’s success, as measured by median physical occupancy, median hard debt ratio and median per unit cash flow. “Median” implies that 50 percent of the sample is above the median and 50 percent is below. The Reznick Group reviewed these three measures of success over the three year period of 2008 to 2010. Using the Reznick data, this article seeks to compare the Reznick conclusions with the portfolio of LIHTC funds of the Virginia Community Development Corporation.

INTRODUCTION TO LOW-INCOME HOUSING TAX CREDITS

On its surface, the LIHTC program appears to be simple. Investor(s) make an equity investment to own part or all of a multi-family rental housing development for low and moderate income people and families. Low and moderate income is defined as households with incomes at or below 60 percent of the area median income. In exchange for its equity in-

Save the Date

hip Sponsors vailable nities A Opportu ter,

The Virginia Bankers Association and the Virginia Chamber of Commerce Present:

Rann Payn ident, Contact Vice Pres ve uti .

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2013 Financial Forecast January 4, 2013 Noon-2PM Richmond Convention Center

16 Virginia Banking | September/October 2012

Ja nu ar y

Karen Surmacewicz Virginia Chamber of Commerce Director of Events k.surmacewicz@vachamber.com 804-237-1452

A d, V on

Courtney Fleming Virginia Bankers Association Vice President, Education & Training/ Communications cfleming@vabankers.org 804-819-4748

4

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For more information on the event please contact:

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vestment, the investor receives two forms of return: • 10-year flow of federal tax credits, which are a dollar for dollar reduction in the investor’s federal tax liability (profit and loss statement impact); and • annual passive losses from the project, such as depreciation and interest expense (income statement impact).

Under the LIHTC program, a properly structured multi-family rental housing development should return to the investors a competitive after-tax market rate of return. This requires that the housing be rented to income-qualified people and be economically feasible for a 15-year compliance period (tax credit flow is accelerated for the first 10 years, but the development must remain in compliance with IRS regulations for 15 years). Investor return is not related to property value appreciation, but instead to flow of housing tax credits and passive losses. Thus, a key risk in investing in LIHTC development lies in the 15-year compliance period.

In essence, investors have two approaches to investing in LIHTC-financed rental housing.2 One approach is to directly invest in a LIHTC development whose developer has obtained an allocation of LIHTC from an awarding state housing finance agency. As a direct investor, the investor will own the housing and assume the 15-year compliance burden. The second approach is to invest indirectly through a managed fund that takes on the responsibility for the entire compliance burden on behalf of the fund’s investors.

With this second approach, it is advisable to invest in a LIHTC fund with a proven track record of experienced management of compliance and real estate risk.

2011 REZNICK STUDY

Many studies have documented the success of the LIHTC program, both for investors and communities needing quality affordable housing. The significance of the 2011 Reznick study is that it documents the success of the LIHTC program in the three years immediately following the nation’s economic turmoil that began in 2007.

PORTFOLIO PERFORMANCE – 2008, 2009, AND 2010

The Reznick study collected data from www.vabankers.org

over 32 currently active LIHTC syndicators and investors. The sample included over 14,700 properties, with 1,049,723 units that will be used as the statistical sample for data below. This data was collected for the calendar years of 2008, 2009 and 2010.

Reznick – Study

2008

2009

2010

Median physical occupancy

96.4%

96.3%

96.6%

Median hard debt coverage ratio

1.15

1.19

1.24

Median per unity cash flow

$246

$335

$412

Over the same calendar years, VCDC’s investment portfolio revealed the following results for those same performance measures: VCDC – Portfolio

2008

2009

2010

Median physical occupancy

97.6%

96.5%

97.1%

Median hard debt coverage ratio

1.36

1.43

1.40

Median per unit cash flow

$578

$519

$604

The physical occupancy measure measured the percentage of units that provide a full year of rent payments. Generally, the underwriting of LIHTC properties assumes a 7 percent vacancy rate or an economic occupancy of 93 percent. The vacancy rate assumes the periodic turnover of apartment units, or the non-collection of rent. The debt coverage ratio (DRC) measures the relationship between the net income and debt service. Having a DCR lower than 1 implies a potential problem of nonpayment for the mortgage. Per unit cash flow is net operating income less required reserves and debt payments divided by the number of apartment units.

1. Reznick Group is a top 20 national CPA firm. Its Tax Credit Investment Services group is a dedicated business unit within Reznick Group and is the author of the August 2011 study.

2. Various different models of direct and indirect investments are possible, but the majority of investments are made in one of the two ways discussed.

VBA BANKER DAY JANUARY 10, 2013 Join the Virginia Bankers Association at our annual Banker Day at the State Capitol on January 10, 2013.

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.

Don’t miss this chance to meet your delegation and let your voice be heard!

Contact Bobbi Weimer at 804.819.4725 or bweimer@vabankers.org for more information.

September/October 2012 | Virginia Banking 17

Jason Caskey, CPA Financial Services Practice Chair

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Oct 18: Get Smart About Credit Day

T

he Get Smart About Credit program is a nation-wide campaign to demonstrate the profound impact of financial literacy education by banks in their communities. The official target date is Oct. 18, but all related financial literacy efforts conducted in the fall will count toward the program.

Get Smart About Credit is sponsored by the Virginia Bankers Association and the American Bankers Association Education Foundation and is eligible to all banks, both members and non-members.

To participate in this year’s Get Smart About Credit program: (1) schedule credit-focused financial literacy outreach during the month of October, (2) assemble financial literacy resources and (3) register with the Virginia Bankers Association at www.vabankers.org (under the Financial Literacy tab).

Please be sure to keep the VBA up to date on your efforts, so that we can publish your stories in Virginia Banking, online through our Facebook page, and in our other publications.

For more information, please contact Chandler Dewey at the VBA at 804-8194707 or cdewey@vabankers.org. www.vabankers.org

Continued from page 13

online by the students in teams. This phase of the school allows third year students the opportunity to make decisions acting as senior officers of a bank.

Working in teams, students make operating, lending and pricing decisions for eight fiscal quarters that influence bank profitability and bank stock prices. As in the real world, good decisions lead to improved profits and higher stock prices and bad decisions generate reduced earnings and reduced stock prices. A group of eight fellows are on staff to lead and assist the students with the bank executive program. They are: Frank Bell, Chesapeake Bank; Donald S. Buckless, Old Point National Bank; J. Peter Clements, The Bank of Southside Virginia; AJ Duke, Federal Reserve Bank of Richmond; Gregory D. Frederick, Middleburg Bank; Jeffrey S. Kane, retired from the Federal Reserve Bank of Richmond; Edmond J. Seifried, Ph. D., Seifried & Brew; and H. Watts Steger, III, Botetourt Bankshares, Inc.

2013

By the time the summer sessions are completed, students have developed a range of skills that will enhance current performance and qualify them as candidates for advancement.

Since the students work very hard and are in class all day, it is important to also allow them the opportunity to have a little fun and make connections that will last throughout their entire banking careers. Throughout the week, several socials and mixers were held, which allowed the students to get to know each other outside of the classroom. Additionally, the third year class organized a bowling tournament to benefit the Wounded Warriors Program. The event raised $13,589.55 for the program, which is quite an accomplishment!

On August 3, 65 third year students completed their last year of Bank School and graduated from the program.

Completion of the program is based upon attending all classes, satisfactory

performance in class discussions, examinations, home study problems and completion of any other assignments.

The accomplishment is slightly bittersweet as many of them began to look forward to attending Bank School every summer.

Each year, the VBA recognizes the student in the third year class with the highest GPA. This year, the Honor Graduate was M. Robin Honnick, Virginia Commerce Bank, who had a GPA of 99.1! We would also like to congratulate all the students who graduated this year and want to make special mention of the top 10 percent of the class of 2012: Brandon D. Atkins, American National Bank & Trust Co.; Laura E. Jones, Virginia Commerce Bank; Jason R. McDonough, Cardinal Bank; Garret R. Reed, Virginia Commerce Bank; William S. Via, American National Bank & Trust Co.; and Sun Hee Waite, Virginia Commerce Bank.

Congratulations, graduates!

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September/October 2012 | Virginia Banking 19

Q&A with VBA Leadership Division Chairman

T

he Virginia Bankers Association created the Leadership Division in 2009 to ensure a continuum of leadership for the future of Virginia banking.

The VBA Leadership Division has grown to over 260 members and has three objectives: to improve the financial literacy of Virginia’s youth to create sustainable and responsible money management skills; to positively influence the legislative landscape in support of value added industry initiatives; and to foster and develop the unique leadership abilities of Division members through mentorship programs, board involvement and community outreach.

Take a minute to get to know our new VBA Leadership Division Chairman, Ward Currin!

Ward, please tell us a little about yourself.

I live in Kilmarnock with my wife, Tucker,

and my daughter, Madden (2 years old).

I am originally from Roanoke, and then moved to Richmond after graduating from Radford University. I worked for three years as a manager of a financial firm in Richmond before starting with Bank of Lancaster in Kilmarnock in 2005, running their loan resolution department. I moved into retail in 2007 and have been a branch manager since then. I am also the government relations coordinator for the bank, making sure everyone is up to date on the current legislative landscape affecting our industry. If I ever find any spare time, I am always up for a round of golf.

How long have you been involved with the VBA Leadership Division?

I became involved with the Leadership Division in 2009, my first year at the Virginia Bankers School of Bank Management. Soon

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after, I joined the steering committee and was the Capital Region director for the past year.

What are some of your favorite experiences from being involved in the VBA Leadership Division?

Some of the best experiences from the Leadership Division involve two things for me. First is participating in the Get Smart About Credit campaign and being able to help lay the foundation for the next generation of students as they begin facing financial decisions that will affect the rest of their lives. The second experience that comes to mind is the overall feeling of becoming more familiar with Virginia bankers. When I went to my first Banker Day in Richmond, I remember being overwhelmed with how many people were there and only knowing two or three of them. It feels very good to now go to a VBA function and know so many people because I met them through Leadership Division events.

As the new chairman of the VBA Leader-

ship Division, are there any specific goals you would like achieve?

I would like to continue our momentum and see the Leadership Division keep growing. I want to see it become something that people want to be a part of the minute they come into our industry. Right now, we are still somewhat in the “recruiting” phase, where we are actively seeking new members. When the day comes that Leadership Division is so big and beneficial it is one of the first things people request to join, that will be an excellent achievement.

What advice do you have for anyone who wants to get involved with the VBA Leadership Division?

I would say ask around your bank and get involved. The Leadership Division is something that is for anyone interested in furthering their banking career. Please don’t feel intimidated or feel that you should have some specific prerequisite to join. All it takes is some interest and enthusiasm. If you don’t have anyone at your bank who you can talk to, or you need some help defining the ben-

efits of Leadership Division to your supervisor or even yourself, get in touch with me, and I will be more than happy to assist.

If you are interested in joining the Division, think about coming to our first ever Leadership Division Conference. It will take place October 11-12 at Wintergreen Resort, and we have an excellent agenda planned, with speakers on topics such as the role of an emerging banking leader in Virginia; an economic update; the role of the CFPB; negotiating success in your banking career; interactive networking; emerging bank technology; and social media. Contact Anna Clay at aclay@vabankers.org for more information or to register.

Anything else you would like your fellow bankers to know?

Just want to remind everyone to take an active role in furthering their careers, because if you don’t make the effort, no one else will.

Ward Currin can be reached at wcurrin@ banklanc.com.

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September/October 2012 | Virginia Banking 21

Move

Bankers on the

Devlin

Bettius

Estep

Access National Bank Meg Taylor, Senior Vice President and CFO

Bank of the James Michael Syrek, Executive Vice President and Senior Loan Officer

C&F Bank Katie Devlin, Assistant Vice President, e-Commerce Manager

Cardinal Bank Alex J. Bettius, Assistant Vice President, Real Estate Loan Officer James Estep, Vice President, Commercial Lending Robert Lane, Vice President, Commercial Loan Officer Jason R. McDonough, Assistant Vice President, Real Estate Loan Officer

Central Virginia Bank Melanie R. Keene, Vice President and Controller of Finance

Lane

McDonough

Thompson

M. Delores Nabors, Assistant Vice President and BSA/AML Officer Michelle H. Simon, Vice President and Sales and Marketing Manager Theresa A. Trimmer, Assistant Vice President and Deposit Services Manager

Highlands Union Bank Amy Mellinger, Assistant Vice President and Branch Manager Leisa Thompson, Assistant Vice President and Branch Manager

Middleburg Bank Marie Doe, Senior Vice President of Credit Marybeth Muir, Senior Vice President of Process Improvement Jim Maki, Senior Vice President and Commercial Relationship Manager

StellarOne Bank Gary Rowe, Reverse Mortgage Program Manager

Rowe

Corno

Worthy

SunTrust Bank William Carter, Vice President, Community Development Manager Debra R. Pollock, Vice President, Private Wealth Management Division Todd Connor, Vice President and At Work Business Development Officer

TD Bank Chris Corno, Assistant Vice President, Store Manager Mark H. Worthy, Vice President, Middle Market Relationship Manager

Valley Bank Andrew B. Aggee, Executive Vice President, Chief Lending Officer Mary P. (Gill) Hundley, Executive Vice President, Chief Risk Officer Edward C. Martin, Executive Vice President, Chief Credit Officer Connie W. Stanley, Executive Vice President, Chief of Retail Banking Kevin S. Meade, Executive Vice President, Chief Operating Officer

Virginia Commerce Bank Ladonna L. “Donna� Coley, Assistant Vice President, Branch Manager

Virginia Commonwealth Bank C. Rodes Boyd, Executive Vice President/ Chief Banking Officer Brad Hildebrandt, Senior Vice President/ Commercial Banker James A. Motley, Senior Vice President/ Chief Credit Officer John G. Dane, Vice President/Commercial Loan Officer Shauna L. Robertson, Vice President of Retail Branch Operations Adam M. Jante, Commercial Loan Officer Jill R. Thomas, Human Resource Officer Tanja Brown, Branch Manager Kristina Nieves, Branch Manager Stephanie Stables, Branch Manager

Union First Market Bankshares Robert M. Gorman, Executive Vice President and Chief Financial Officer

Xenith Bank Hilary Blanchard, Senior Credit Administrator Brad Nott, Senior Vice President and Commercial and Industrial Banking

22 Virginia Banking | September/October 2012

www.vabankers.org

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