January/February 2013

IN THIS ISSUE WHITEHURST CELEBRATES 20 YEARS | TAKE YOUR ELECTED OFFICIAL TO WORK DAY

Second Annual Financial ForecastSecond Annual Financial Forecast

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STATUS: Pending client review and approval.

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V I R G I N I A N O R T H C A R O L I N A P E N N S Y L V A N I A W E S T V I R G I N I A

2012-2013 OFFICERS AND DIRECTORS OF THEVIRGINIA BANKERS ASSOCIATION

Jeffrey M. Szyperski, Chairman, Chesapeake Bank

Gary R. Shook, Chairman-Elect, Middleburg Bank

William Couper, Immediate Past Chairman

O. R. Barham, Jr., StellarOne Corporation

Christopher W. Bergstrom, Cardinal Bank

Katherine E. Busser, Capital One Financial Corporation

Tim Butturini, Wells Fargo Bank, N.A.

Larry G. Dillon, C&F Bank

Randy K. Ferrell, The Fauquier Bank

T. Gaylon Layfield, III, Xenith Bankshares, Inc.

John R. Milleson, Bank of Clarke County

Susan Ralston, Bank @Lantec

John G. Stallings, SunTrust Bank

David P. Summers, Virginia Heritage Bank

Daniel G. Waetjen, BB&T

Michael O. Walker, Benchmark Community Bank

AT-LARGE MEMBERS

Benefits Corporation Chair

Richard M. Liles, Bank of McKenney

Management Services Inc. Chair

Frank Bell, III, Chesapeake Bank

Government Relations Committee Chair

Monte L. Layman, Blue Ridge Bank

VBA Education Foundation Chair

H. Watts Steger, III, Botetourt Bankshares, Inc.

EDITORIAL & EXECUTIVE OFFICES4490 Cox Road

Glen Allen, VA 23060804-643-7469 Fax 804-643-6308www.vabankers.org

Bruce T. WhitehurstPresident and CEOVirginia Bankers Association

Kathryn RobertsCoordinator, Education & Training/

CommunicationsVirginia Bankers Association

SUBSCRIPTIONSIf you would like to subscribe to Virginia Banking, contact Kathryn Roberts at kroberts@vabankers.org Virginia Banking is published bi-monthly. Copyright 2013.

Statements of fact and opinion aremade on the responsibility of theauthors alone and do not imply anopinion or endorsement on the partof the officers or members of VBA.

featuresSecond Annual Financial Forecast Attracts Nearly 700 Business Leaders

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

10 Legislative Update 11 Washington Update12 Compliance Corner 13 Legal Line 14 Bankers on the Move

Send us your thoughts or ideas on Virginia Banking! Please email Kathryn Roberts at

kroberts@vabankers.org Has your information changed? Please email Kellee Edelin at

kedelin@vabankers.org with your new contact information.

8

in every issueThe Warren GroupDesign / Production / Advertisingwww.thewarrengroup.comcustompubs@thewarrengroup.com

©2013 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: The Warren Group, 280 Summer Street, Boston, MA 02210. Call 800-356-8805.

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January/February 2013 | Virginia Banking 3

January/February 2013

INSTRUCTOR-LED SEMINARS

TWO-DAY BSA SCHOOL, GLEN ALLEN FEBRUARY 12

PROTECTING BANK DIRECTORS AND OFFICERS SEMINAR, RICHMOND FEBRUARY 25

DIRECTORS SYMPOSIUM, RICHMOND FEBRUARY 26

PROTECTING BANK DIRECTORS AND OFFICERS SEMINAR, BLACKSBURG FEBRUARY 26

DIRECTORS SYMPOSIUM, BLACKSBURG FEBRUARY 27

PROTECTING BANK DIRECTORS AND OFFICERS SEMINAR, FALLS CHURCH MARCH 5

BRANCH MANAGER CERTIFICATION, GLEN ALLEN MARCH 5

DIRECTORS SYMPOSIUM, FALLS CHURCH MARCH 6

BACK TO SCHOOL AT THE VBA, GLEN ALLEN MARCH 7

RETAIL BANKING & MARKETING CONFERENCE, CHARLOTTESVILLE MARCH 12

ANALYZING FINANCIAL STATEMENTS, GLEN ALLEN MARCH 12

COMPLIANCE SCHOOL, CHARLOTTESVILLE APRIL 8

COMPLIANCE HOT TOPICS, CHARLOTTESVILLE APRIL 11

TELLER SCHOOL, GLEN ALLEN APRIL 11

SECURITY CONFERENCE, CHARLOTTESVILLE APRIL 24

ONLINE SEMINARS /INSTRUCTOR-LED SEMINARS

AIB PRINCIPLES OF BANKING ACCELERATED FEBRUARY 12

AIB MARKETING FINANCIAL SERVICES FEBRUARY 12

AIB MONEY AND BANKING FEBRUARY 12

AIB SUPERVISOR CERTIFICATE FEBRUARY 12

AIB PRINCIPLES OF BANKING FEBRUARY 19

AIB GENERAL ACCOUNTING FEBRUARY 19

AIB CONSUMER LENDING FEBRUARY 25

IRA ONLINE INSTITUTE FEBRUARY 25

AIB PRINCIPLES OF BANKING MARCH 4

AIB ANALYZING FINANCIAL STATEMENTS MARCH 4

AIB LAW AND BANKING: APPLICATIONS MARCH 4

AIB INTRODUCTION TO MORTGAGE LENDING MARCH 4

Live Event Online Seminar

4 Virginia Banking | January/February 2013 www.vabankers.org

Calendar of Events

For more information go to www.vabankers.org.

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.

Name___________________________________________________ Bank/Firm _____________________________________________

Address ____________________________________________________________________________________________________________________

City ________________________________________________________________ State/Zip __________________________________

Phone ___________________________ Fax _________________________ Email _________________________________________________

This February 1st marks my 20th anni-versary as a member of the VBA staff. I arrived in 1993 with 10 years of banking

experience – three years part time in college and seven years full time as a branch manager and then commercial lender. As you look at the accom-panying picture that announced my addition to the VBA staff, you can see why one staff member asked Walter Ayers why he had hired a 12-year-old!

Having always been interested in the legislative process, I was thrilled to join the VBA and to com-bine my banking experience and legislative inter-est in my new role. Little did I know what a great opportunity I had just walked into, much less how much change the next 20 years would bring.

Consolidation has been a dominant industry theme the last two decades, fueled by the Riegle-Neal Interstate Banking and Branching Act of 1994. The banking industry has about half as many insti-tutions now as we did in 1993, with consolidation expected to continue. In Virginia, we are likewise down about half in the number of charters, but less so when you consider all the banks that have branched or acquired their way into this very at-tractive state.

Regulatory burden is clearly at an all-time high, yet it is not a new trend. Almost immediately after I joined the VBA, we participated in a national in-dustry campaign to “Cut the Red Tape,” following Congress’s response to the savings and loan crisis by passing FDICIA and FIRREA. It took us the bet-ter part of the 1990s to achieve a more balanced legislative and regulatory climate, but we did so –

a lesson to remember as we now face similar chal-lenges that are even greater.

We did not talk about credit unions 20 years ago nearly as much as we do now, but that changed rather abruptly in 1998 when Congress passed the Credit Union Membership Access Act after our industry won a Supreme Court case affirming a single common bond. With a tremendous grass-roots effort, the credit union industry persuaded Congress to open an enormous door to member-ship – through multiple common bonds and even community-based access – while letting them keep their tax exemption. With this act, Congress essen-tially created a tax-exempt community banking industry parallel to and in direct competition with ours.

We learned a lot about grassroots as credit unions gained such a significant and unfair advan-tage with the help of Congress. As a result, we have become much more effective in our grassroots lob-bying efforts, and it shows. While we have yet to persuade Congress to fix the fundamental problem of an unfair tax exemption (wouldn’t now be the perfect time to do so?), we have prevented credit unions from gaining even more powers, such as expanded commercial lending. We will continue to point out the inequities between credit unions and banks and we will prevail in the bigger fight as we stay committed to our just cause.

Technology has impacted our everyday lives in ways we could not have imagined 20 years ago. In 1993, ATMs and telephone banking were about as cutting-edge as we got. Fast forward to today and mobile banking is the fastest-growing deliv-ery channel, with online banking now a given. How we evolve the role and the look of branches is a major strategic question for banks and an area where we are seeing great innovations.

I am sitting at my kitchen counter writing this column on my laptop. My iPad and iPhone are nearby. My Outlook inbox fills up every day; my physical inbox at the office, not so much. My voicemails are automatically emailed to me so I can listen and respond to them from where ever I am. In my early years at the VBA, we did not have voicemail or email. From the road, I would call Su-

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

Bruce Whitehurst

President and CEO,

Virginia Bankers Association

Twenty Years

www.vabankers.org

Insights

January/February 2013 | Virginia Banking 5

Continued on page 11

SANDY FITZ-HUGH HONORED AT VCC ANNUAL LUNCHEON

On Dec. 13, 2012, at the meeting of the board of directors of Virginia Community Capital (VCC) and Community Capital Bank of Virginia in Richmond, Sandy Fitz-Hugh received a special award for his many accomplishments and dedication to the community, the Commonwealth of Virginia and VCC. He retired from both boards at the end of 2012, after seven years of service as the gubernatorial appointee. Sandy was previously the Virginia president for Bank of America and served on the VBA Board for a number of years. Congratulations, Sandy!

www.vabankers.org

LAURIE MILLIGAN JOINS VBCH BOARD OF DIRECTORS

Laurie Milligan, the Virginia Bankers Associa-tion Benefits Corporation’s chief operating officer, is now a member of the Vir-

ginia Business Coalition on Health (VBCH) board of directors. We are proud of Laurie for this new position.

VCC WINS 2012 COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS GRANT

The U.S. Department of Treasury recent-ly announced that Virginia Community Capital (VCC) was a top award winner for the 2012 Community Development Finan-cial Institutions (CDFI) program. VCC will receive a grant for $1,453,806 to cover op-erations, reserves and lending capital. The CDFI funding will help VCC to continue their work on mission-directed projects and programming to support low-income communities across Virginia.

This year’s awards included both the CDFI Program and the Native American CDFI Assistance Program (NACA) and represent the largest single designation of award dollars in the fund’s 18-year history.

The grants will be spread across 210 in-stitutions in 41 states. VCC received the maximum amount designated for this par-ticular award cycle.

MONARCH BANK’S BRAD SCHWARTZ NOMINATED TO FEDERAL RESERVE BANK OF RICHMOND BOARD OF DIRECTORS

Brad Schwartz, CEO of Monarch Bank in Virginia Beach, has been nominated to serve on the Federal Reserve Bank of Rich-mond board of directors, a nomination endorsed by the VBA board of directors at their September meeting. Each Federal Re-serve Bank has a nine-member board and each director is elected to serve a three-year term. Schwartz has been nominated to join the Class A board of directors, a group rep-resenting the stockholder member banks. Kudos to Brad on his nomination!

WE WILL MISS …

We are very sad for the loss of Larry Heaton, head of MainStreet Bankshares and Franklin Community Bank, and a friend and VBA

board member, who passed away on Sun-day, Dec. 9, in an automobile accident. Ear-lier in his banking career, Larry was senior vice president and regional retail banking manager with BB&T; president, CEO and director of the Bank of Ferrum; and senior commercial loan officer at Piedmont Trust Bank. He served as director of the Franklin County YMCA and the Blue Ridge Founda-tion among many other organizations. Larry will be greatly missed by the communities where he lived, worked, and volunteered.

The VBA will sincerely miss Larry and his family is in our thoughts and prayers.

We are also sad to hear that Milton L. Drewer, Jr., passed away on Oct. 17, 2012. Milton served as president of the Virginia Bankers Association from 1981-1982. He was born and raised in Saxis, Va. and was head football coach and athletic director at The College of William & Mary from 1957 to 1963. His banking career spanned sev-eral decades, culminating in his position as president and CEO of First American Bank of Virginia. Our sympathies go out to Mil-ton’s friends and family.

JEFF HALEY PROMOTED TO CEO OF AMERICAN NATIONAL BANKSHARES, INC.

Jeffrey V. (Jeff) Haley has been promoted to CEO of American National Bankshares, Inc., parent company of American Na-

tional Bank & Trust Company in Danville, Va. Haley will remain as president of the company and as president and CEO of the bank. His predecessor, Charles H. (Charley) Majors, will serve as the full-time executive chairman of the company and the bank. Congratulations to Jeff in his new role!

VACB NAMES STEVE YEAKEL PRESIDENT AND CEO

Steven C. Yeakel, CAE, is the new presi-dent and CEO of the Virginia Association of Community Banks (VACB). Yeakel joined the VACB in February 2012 and has assumed numerous responsibilities related to the governmental affairs and administration of the organization. Con-gratulations!

CITIZENS COMMUNITY BANK APPOINTS JAMES BLACK PRESIDENT AND CEO

Citizens Community Bank (CCB) ap-pointed James R. Black as president and CEO. He has been executive vice president and chief financial officer of CCB since May 2007, and has over 19 years of banking experience. He joined the bank in October 2006. Good luck to James in his new role!

NotingWorth

6 Virginia Banking | January/February 2013

AMERICAN BANKER RECOGNIZES ‘BEST IN BANKING’

American Banker magazine named Ron Paul, CEO of Eagle Bancorp in Bethesda, Maryland, one of the top three finalists for Community Banker of the Year. In ad-dition, Bernard Clineberg, chairman and CEO of Cardinal Financial in McLean, was one of 10 CEOs named as the “Best in Banking” for 2012. Clineberg was in-cluded on the “Community Banker of the Year: Honorable Mentions.” Congratula-tions to both of these outstanding bankers for their work to better their communities and the lives of their customers.

VBA MSI WELCOMES NEW ENDORSED VENDOR: PLEXUS CAPITAL LLC

The board of directors of VBA MSI recently endorsed Fund III of Plexus Capital, a small business investment corporation (SBIC). Plexus Capital focuses on investments and partnerships with middle market businesses that need capital for growth. Whether the need for capital is driven by new market opportunities, a transition of ownership or strategic acquisitions, the Plexus team has the capital and experience you need.

With $255 million under management, more than 50 investments completed since 1995, and experience managing through all economic cycles, they have proven themselves to be patient investors with the experience it takes to succeed.

For more information, please contact Kel Landis (klandis@plexuscap.com, (252) 903-6355) or John Bowers (jbowers@vabankers.org, (804) 819-4732).

www.vabankers.org

INVESTMENT BANKINGDUNCAN WILLIAMS

1 Park West Circle Suite 306-IMidlothian, VA 23114Phone: (804) 464-8795Website: www. duncanwilliams.comCONTACT: DAN CARDANI, SENIOR VICE PRESIDENTEmail: dan.cardani@duncanwilliams.com

Minority-owned, full-service broker/dealer headquartered in Memphis, TN.

WelcomeNew Associate Members

January/February 2013 | Virginia Banking 7

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Their DreamsStart with You

Teach Children to Save Day is the ideal opportunity to start children inyour community on the path to sound money management and aproductive adulthood. On April 23, 2013, join with bankers across thenation as we show children how to reach for their dreams. To learn more about available program resources and to register,visit aba.com/Teach.

Teach Children to Save DayApril 23, 2013

ABA Education Foundation

www.vabankers.org8 Virginia Banking | January/February 2013

www.vabankers.org January/February 2013 | Virginia Banking 9

O n the first Friday of the new year, nearly 700 bankers and business people attended the 2013 Financial Fore-cast at the Richmond Convention Center, sponsored

by the Virginia Bankers Association and the Virginia Chamber of Commerce. In its second year, the event aimed to help prepare the state’s business community for what lies ahead in 2013. The event grew by over 100 attendees from last year, exemplifying the im-portance of economic forecasting to leaders in the commonwealth.

Speaker Christine Chmura of Richmond-based Chmura Econom-ics & Analytics discussed how Virginia could be affected by the pos-sibility of the federal government’s budget sequestration.

“We do expect Congress to come up with an alternative so that we don’t see sequestration,” Chmura said. “Even so, we’re expect-ing Virginia to grow slower than the nation in 2013.”

Gov. Bob McDonnell told the audience he thinks Virginia can strengthen its economy by focusing on education, workforce devel-opment and improving transportation. He also noted that Virginia relies heavily on defense spending and government procurement.

The final speaker, Daniel Mitchell, a senior fellow at the Cato Institute, agreed with Chmura’s statement that the sequestration could hurt Virginia, but believed that measures must be taken to cut back spending.

Welcome and speaker introductions were given by Bruce White-hurst, president and CEO, Virginia Bankers Association; Barry Duval, president and CEO, Virginia Chamber of Commerce; Jeff Szyperski, chairman, president and CEO, Chesapeake Bank, and chairman, VBA; and Ned Massee, vice president, corporate affairs, MeadWestvaco Corporation, and chairman, Virginia Chamber of Commerce.

Despite the challenges facing Virginia, many bankers left the event with optimism about the economic outlook for 2013. The forecast provided hope that most Virginia industries will expand in the coming year and continue economic recovery.

Thanks to all who attended the event. Please save the date for the 2014 Financial Forecast on Jan. 3, 2014.

Second Annual Financial Forecast Attracts Nearly 700 Business Leaders

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Bring Your Elected Official to Work

The old adage that you never understand someone until you walk a mile in their shoes is something bankers can relate to

when discussing business with those outside of our industry. The complexities, compliance and constant change inherent in banking may seem difficult to explain to those not immersed in the daily operations of financial services, even if it is second nature to those within banking. We are frequently reminded that the level of knowledge the majority of the public has on our industry-specific issues – the ones that drive what we do every day – is often frustratingly, but also understandably, lower than those in the profession.

Since we cannot realistically expect everyone to be a subject matter expert on mortgage regulations, deposit fees or Regs A through YY, we need to be proactive about educating our customers, the media and elected officials about how banking works. The VBA, in conjunction with our members, continues to be aggressive in all of these areas. Bankers are leading in educating today’s and tomorrow’s consumers through their significant monetary investment and ongoing involvement in

many programs for financial literacy. Proactively informing the media on the important issues to bankers is a key initiative undertaken by the VBA through a number of mediums.

Regarding our elected officials, your VBA Government Relations team is dedicated to educating these decision-makers on the processes and procedures of banking, especially how banks are impacted by potential policy decisions. Our industry has benefited by the hundreds of Virginia bankers who are engaged in advocacy to their representatives, whether through participation

in Banker Day in Richmond, the Government Relations Summit in Washington, local legislative meetings or contacts to officials on a specific issue.

Educating those policymakers who – increasingly – directly affect our business is critical. Most elected officials do not hail from the financial services field. For some, their experience with the operations of a bank is limited to using a checking account and getting a home loan. Obviously there is a continuum of knowledge and experience, but it is important to remember that they come to their position with a different set of experiences and understanding of banking. As one state delegate noted in a recent meeting, he is an engineer and could tell us all about the systems of a fighter jet, but he relies on his local bankers to inform him on our issues. To assist them in better understanding how banks function and the many issues bankers deal with, it is constructive to provide them the opportunity to walk in your shoes. Maybe not a mile, but enough to convey a greater appreciation as they consider policy matters concerning banking.

As part of our overall grassroots advocacy efforts, the VBA continues to encourage our bankers to invite their local elected leaders to their individual institutions. Inviting your locally elected leaders to visit your bank is a great opportunity to share your story, educate them on the business of banking and discuss the policy issues important to our industry.

Several banks have already hosted successful visits with their local officials. Whether it is your congressman, state legislator or local councilperson and supervisor, the VBA is ready to assist in making these connections.

In coordination with a national push by the ABA, the VBA is working on coordinating a “Bring Your Elected Official to Work” day, with the hope that bankers will target that time to invite elected officials to tour their facilities, meet employees and directors and learn more about how your bank works and the impact you have on your communities. We will be communicating additional material on how to maximize this opportunity, but we hope you will commit to participating in these efforts.

Matt BruningVice President, Government

Relations,Virginia Bankers

Association

UpdateLegislative

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

10 Virginia Banking | January/February 2013

Since we cannot realistically expect ever yone to be a subject matter exper t on mor tgage regulations, deposit fees or Regs A through YY, we need to be proactive about educating our customers, the media and elected officials about how banking works.”

“

www.vabankers.org

Building Relationships and Sharing Your Story

Whatever you thought of the election outcome in November, it’s time to plan now to meet with your new

members of Congress – and any other new regula-tory officials – to help them understand the abso-lutely essential role your bank plays in your com-munity and in the national economy.

That’s why I’m urging every banker in Virginia to make plans right now to participate in ABA’s Gov-ernment Relations Summit in Washington, D.C., April 15-17. Your participation is vital. We need you to talk with policymakers about how decisions made in Washington play out back home – with your employees, customers and community.

More than 1,000 bankers and bank directors par-ticipated in our 2012 Government Relations Sum-mit. That kind of volume makes a statement. It says that bankers are not bystanders – that they are actively engaged in important policy debates and passionate defenders of their role in meeting the fi-nancial needs of American households, businesses and communities.

The bankers who assemble this year will repre-sent banks of every size, charter and business plan. By reflecting the diversity of the industry, they will help us explain – especially to new lawmakers and new staffers – what banks do and who bankers are.

Even if your schedule does not allow you to at-tend the summit, I hope you’ll make or renew a

commitment to speaking up for banking this year. Between ABA and the Virginia Bankers Associa-tion, there is no shortage of opportunities for you to engage. We currently are lining up more than 100 bankers for ABA’s “Freshman Fly-In,” to be held Feb. 12-13, when bankers will sit down with newly sworn in members of Congress for an introduction to banking and bank policy issues. ABA also will again host dozens of state association delegations during the Summit as part of our Washington Visit Program this year. And we will continue to develop tools to help you learn and practice the art of grass-roots advocacy.

2012 offered several examples of how engag-ing in the legislative and regulatory processes can make a difference. Responding to an outpouring of concerns by bankers, regulators first extended the comment period on Basel III and then delayed its ef-fective date as it considers recommended changes. Congress passed ATM placard legislation to protect banks from frivolous but expensive lawsuits, and it enabled the SEC to relax registration requirements for smaller banks. And the credit union industry’s bid for more commercial lending powers was again thwarted.

These are significant accomplishments that all are attributable to bankers’ engagement – engagement that is on display and enhanced at the Government Relations Summit. I hope to see you there.

UpdateWashington

Frank Keating President and CEO, American Bankers

Association

January/February 2013 | Virginia Banking 11

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

san Mason – our awesome receptionist and VBA ambassador – for my phone messages. Upon re-turning to town, I would have to be at the office to work since we were so heavily paper-based. I now have almost everything I need at my fingertips no matter where I am.

Yes, a lot of things have changed in the last two decades, but here are some constants:• The VBA is a great place to work with a terrific

team in place.• Virginia bankers are extraordinary people who

make a difference for their customers and com-munities every day.

• A lot of these same bankers are active leaders in the VBA who continue a legacy that is now 120 years strong.

I am very fortunate to have been a part of the VBA for the past 20 years and Virginia banking for 30 years. Who knows exactly what the next 20 years will hold, but no doubt there will be all kinds of changes and challenges. Here’s to stick-ing together as much in the future as we have in the past; it serves us well.

Continued from page 5

www.vabankers.org

VBA members can obtain additional information about HMDA by calling TCA’s toll-free number,

800-934-7347. TCA is the VBA’s endorsed provider of compliance consulting and support.

12 Virginia Banking | January/February 2013

HMDA – or, formally, The Home Mortgage Disclosure Act of 1975 – requires most mortgage lending institutions with offices

in metropolitan areas to publicly disclose information about their home-lending activity:• Characteristics of home mortgages originated or

purchased during a calendar year. • The geographic location of the properties.• Information about the borrowers.

The disclosures are intended to help the public de-termine whether the lenders are adequately serving community housing finance needs, but the gathered data also are intended to facilitate enforcement of the nation’s Fair Lending laws.

That all seems relatively simple, but bankers each year encounter issues that could have a large impact on the data submitted to the Federal Financial Institu-tions Examination Council (FFIEC). To help stay out of regulatory trouble, banks should ensure they have detailed written procedures to show consistent meth-ods for obtaining and recording HMDA information for their Loan Application Register (LAR).

Here for VBA members are some suggestions:

PRE-APPROVAL REQUESTS

Only institutions with a covered pre-approval pro-gram should report pre-approval requests on their HMDA-LAR.

To be a covered pre-approval program, the written commitment issued under the program must result from a full creditworthiness review of the applicant. The review should include verification of income, re-sources, and other matters typically done by the insti-tution as part of its normal credit evaluation program.

The commitment also must state an amount and expiration date.

In addition to conditions involving the identifica-tion of a suitable property and verification that no ma-terial change has occurred in the applicant’s financial condition or creditworthiness, the written commit-ment may be subject only to other conditions (unre-lated to the financial condition or creditworthiness of the applicant) that the lender ordinarily attaches to a traditional home mortgage application approval.

These conditions are limited to situations such as requiring an acceptable title insurance binder or a cer-tificate indicating clear termite inspection.

PRE-QUALIFICATIONS

A pre-qualification request is a request by a prospec-tive loan applicant for a preliminary determination as to whether the prospective applicant likely would qualify for credit under an institution’s standards, or for a determination on the amount of credit for which the prospective applicant likely would qualify.

This is not the same as a pre-approval request.Some institutions evaluate pre-qualification re-

quests through a procedure that is separate from the institution’s normal loan application process; others use the same process. In either case, Regulation C does not require an institution to report pre-qualifica-tion requests on the HMDA/LAR, even though these requests may constitute applications under Regula-tion B for purposes of adverse action notices.

GOVERNMENT MONITORING INFORMATION

When applications are taken face-to-face, the lender must request the government monitoring information (GMI) at application. If the applicant chooses not to provide the information for an application taken in person, note this fact on the form and then – to the ex-tent possible – note the applicant’s ethnicity, race and sex on the basis of visual observation and surname.

If the applicant declines to answer these questions or fails to provide the information on an application taken by mail, telephone or through the Internet, the data need not be provided. In such a case, indicate that the application was received by mail, phone or Internet, if it is not otherwise evident on the face of the application.

When an applicant meets in person with a lender to complete an application that was begun by mail, Internet or telephone, the institution must request the GMI. If the meeting occurs after the application pro-cess is complete – at closing, for example – the institu-tion is not required to obtain monitoring information.

By Jim Dray,CRCM,Thomas

Compliance Associates, Inc.

CornerCompliance

HMDA Reporting Season: How to Avoid the Pitfalls

Continued on page 14

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

January/February 2013 | Virginia Banking 13

Last month the Security and Exchange Commission (SEC) shut down ZeekRe-wards.com, calling it a $600-million Ponzi

scheme on the verge of collapse. According to the SEC’s complaint, ZeekRewards investors were promised up to 50 percent of the company’s daily net profits through a profit sharing system in which they accumulated rewards points that could be used for cash payouts. However, the website fraudulent-ly conveyed the false impression that the company was extremely profitable when, in fact, the payouts to investors bore no relation to the company’s net profits. Most of ZeekRewards’ total revenues and the “net profits” paid to investors had been com-prised of funds received from new investors in classic Ponzi scheme fashion. The court handling the case appointed a receiver to recover the assets investors lost in the alleged scheme.

As part of the scheme, investors were asked to purchase cashiers’ checks from their local banks, payable to ZeekRewards. Many of those cashiers’ checks had not been cashed at the time ZeekRe-wards was shut down. Investors then asked wheth-er they could stop payment on their uncashed ca-shiers’ checks.

The receiver’s answer, as confirmed by the court, was: “No. When you purchase a cashier’s check, the bank immediately debits the money from your ac-count, and the cashier’s check represents the bank’s obligation to pay the amount of the check. A bank issuing a cashier’s check is deemed to have accept-ed the check upon its issuance.”

The Uniform Commercial Code as adopted by

Virginia supports this answer. It provides that a customer purchasing a cashier’s or teller’s check has no right to stop payment (see Virginia Code Section 8.4-403, Comment 4). If a bank wrongfully refuses to pay a cashier’s check or teller’s check, the person asserting the right to enforce the check is en-titled to compensation from the bank for expenses and loss of interest resulting from the nonpayment and may recover consequential damages (see Vir-ginia Code Section 8.3A-411). Comment 1 to Section 8.3A-411 explains that these rules are designed so that cashier’s, teller’s and certified checks are gen-erally looked upon as substitutes for cash. The com-ment states that in a dispute between a debtor and creditor in which the check is given in payment, “a debtor using any of these types of checks has no right to stop payment. Nevertheless, some banks will refuse payment as an accommodation to a cus-tomer. Section [8.3A]-411 is designed to discourage this practice.”

A similar conclusion was reached in MidAmerica Bank, FSB v. Charter One Bank, FSB, 905 N.E.2d 839 (Ill. 2009), where the Illinois Supreme Court refused to permit a bank to stop payment on its own ca-shier’s check at its customer’s request, even though the customer claimed she was defrauded by a third party into issuing the check.

In the ZeekRewards matter, the court’s order re-lied on the Uniform Commercial Code to establish that the uncashed cashier’s checks in the receiver’s possession were receivership assets, and that the receiver was required to present those cashier’s checks for payment and had no discretion not to.

Bank Customers Cannot Stop Payment on Cashier’s Checks

LineLegal

Mel Tull General Counsel, Virginia Bankers

Association

It’s not too late to register!

Bank Day is Tuesday, March 19. For your bank to participate, please email Chandler Dewey at cdewey@vabankers.org for more

information.

Calling all bankers! Participate in theVBA Bank Day

Scholarship Program!

VBA

Ban

k Day Scholarship Program

Sponsored by the VBA Education Found

ation

• •

MoveBankers on the

Fallen

Blakey

HammockMcAbee

Hassell

Pool

Phelps

Shepherd

Bridgeman

Wilson

Canavos

Youngblood

NguyenLovelace

Crawford

Kitts

www.vabankers.org14 Virginia Banking | January/February 2013

American National Bank and Trust Company

Brandon D. Atkins, Vice President/Operations Risk Manager

Stuart C. Evans, Assistant Vice President/Relationship Manager

Lisa A. Grishaw, Assistant Vice President/Relationship Manager

William (Bill) L. Kirby, IV, Vice President and Area Manager

Carter Bank & TrustJason M. Crawford, Branch Manager April L. Fallen, Assistant Vice President and

Managing OfficerKelly C. McAbee, Assistant CashierTammy S. Pool, Vice President Charles T. (Chuck) Shepherd, Assistant Vice

President/Managing Officer Anthony T. Wilson, Loan Originator

Community Bankers’ BankHoward F. Pisons, Executive Vice President

First BankJim Youngblood, Executive Vice President and

Senior Lending Officer

First State BankGarry Martin, Vice President and Branch

Manager

First Virginia Community Bank William Byers, EVP/Chief Lending OfficerDenise Calabrese, EVP/Chief Retail OfficerMichael Huang, SVP/Controller

Franklin Community Bank, N.A.Todd S. Hammock, Vice President – Business

Lending

Highlands Union BankTim Kitts, Assistant Vice President, Branch

Manager and Lending Officer

Peoples Community Bank Zirkle Blakey, III, Executive Vice President

and CFOConstance L. Hassell, Senior Vice President

of Loan Administration and ComplianceRandy L. Phelps, Vice President of Retail

Banking & Human Resources

Virginia Community Capital Tom Bridgeman, Director of OperationsCosta Canavos, Senior Lending OfficerTeri Lovelace, Corporate Development

ManagerBill Nguyen, Director of Information

Technology

CONSISTENT APPLICATION DATES

Lenders should have procedures to re-port dates accurately on the HMDA-LAR. A source document in the loan file should authenticate a consistent method for obtain-ing the information.

Application dates could be the date the application was dated on a face to face ap-plication, the date the customer completes an Internet application or the date the ap-plication was entered into an origination system. The bank should have a consistent method and written procedures for deter-mining the application date.

WITHDRAWN AND DENIED APPLICATIONS

For a loan application that was denied or withdrawn, the loan amount the applicant

applied for should be recorded on the LAR.Withdrawn application dates should

reflect the date the bank received the ap-plicant’s express withdrawal or the date shown on the notification from the appli-cant, in the case of a written withdrawal. Denied applications should be the date the application was denied by the bank or the date of the adverse action notice.

BROKERED LOANS

When an institution takes and processes a loan application and arranges for another financial institution to acquire the loan at or after closing, the original institution is act-ing as a broker. An institution that acquires a loan from a broker is acting as an investor.

If the broker makes a credit decision, it reports that decision; if it does not make a credit decision, it does not report. If an in-

vestor reviews an application and makes a credit decision prior to closing, the investor reports that decision.

The key is to remember that the institu-tion making the credit decision on the ap-plication reports the decision for HMDA purposes.

COMMERCIAL LOANS

Banks should ensure that commercial loans are reviewed and reported on the HMDA-LAR. The purpose of the loan trig-gers HMDA reporting. Commercial loans for the purpose of improving or purchasing a multi-family dwelling are HMDA report-able.

HMDA reporting obviously is not new, but lenders continue to stumble. It is im-portant, therefore, to review and, especially, document your loan processes.

Continued from page 12

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