Still Waiting to Hear from Your EFT Provider?

Still waiting to hear from your EFT provider?

At SHAZAM you’ll be heard. As a member-owned and -controlled company, you’ll have a voice in the direction of the network. So stop waiting — join the network where your voice counts. Your voice... your vision... your SHAZAM. BE shazam.net • 800-537-5427 HEARD THE TEXAS INDEPENDENT

VOLUME XXXIX NO. 2 BANKER MArCH/AprIL 2013 Still waiting Growth

20 TechMecca 2013 Explores Technology Solutions to Meet the Needs of Community Bankers to hear from 24 How Did Sub S Banks Fare in the Fiscal Cliff Deal? By Patrick J. Kennedy, Jr and William Sutherland

26 Managing Bank M&A in Today’s Market: your EFT Evolving Strategies for Community Banks By Joseph M. Ford

30 Branching Strategies & Market Evaluation: A New Direction By Melissa Kinion

32 Avoiding the Fiscal Cliff By Lance M. Davis

Bonnie Kankel / Editor in Chief 34 The 28th Annual IBAT Leadership Conference Mary E. Lange / Contributing Editor Darlene Revers / Advertising Manager 36 What Your Board of Directors Should Know: Creating a Strong Leslee Walker / Advertising Assistant (and effective!)Community Bank Board of Directors John Wilson / Cover Design/Illustration by Kelly Goulart Barbara Jezek / Design/Production

IBAT’s bi-monthly magazine, The Texas Independent At SHAZAM you’ll be heard. As a member-owned and -controlled Banker, welcomes letters from readers. The Texas Departments Independent Banker, March/April, Volume XXXIX, Issue 2. Published bi-monthly by the Independent Bankers company, you’ll have a voice in the direction of the network. So stop Association of Texas, 1700 Rio Grande Street, Suite Up Front 100, Austin, TX 78701, 512/474-6889, FAX 512/322- 4 16 Association News 9004. Inquiries should be sent to the Editor. Editorial waiting join the network where your voice counts. guidelines are available upon request. Advertising rates may be obtained by contacting Advertising Sales at 6 Foundation Footprints 18 Leadership Division News 800/749-4228 or 512/474-6889. Advertisements do not imply sponsorship by IBAT. ©2013 by the Independent Bankers Association of Texas. No part of this publication 8 Services Solutions 43 Advertising Directory Your voice... your vision... your SHAZAM. may be reproduced in any form without written permission of the publisher. Opinions expressed in this publication do not necessarily reflect official policy of the 10 General Counsel’s Corner 44 IBAT Around the State Independent Bankers Association of Texas. 12 Interest rates 44 IBAT Calendar 14 personnel Update 46 Compliance Guy Quote: Robin Williams shazam.net • 800-537-5427 March/April 2013 www.ibat.org ★ 3 Up Front

Rite of Passage

here I stood. All four foot two of me. “How could my on Capitol Hill. One of Texas’ most revered and respected pub- mother be so cruel?” I thought to myself. lic relations firms specializing in industry messaging was hired As if the white jacket and white bow-tie were not to leverage their contacts and reintroduce community banking enough, the black and white leather “spectator” shoes to Texans and throughout America. And, man, has it paid off were killing my feet. Making my way to the runway in a in spades! tlong line of giggling school girls all clad in pink and yellow and Just in 2012 alone, IBAT leadership and senior management white dresses, it soon occurred to me that I was the only boy in staff have been quoted or featured in articles or event focused the annual Scarbrough’s department store Easter fashion show. coverage some 510 times, nearly 1.5 times every business day. “Now children,” I heard the old biddy say, “stay in line, wait We have established ourselves as a go-to resource for anything your turn and walk slowly enough so everyone can get a good banking and financial related, and we continue to complement look at you.” “Walk slowly?” I thought to myself. I wanted to ICBA’s vast and effective media reach. The end result has been run and hide. I was surely going to be the laughingstock of the a more informed public and policymakers as to the need to seg- 4th grade class of the St. Louis Catholic School if any one of my regate the industry from indictment. We feel it each time we classmates were to get a glimpse of me. walk the capitol halls in Austin or DC and plead for the need to After being pushed on to the stage, I could see a throng of establish two tiers of bank regulation...a set of rules for the risky adoring parents and photographers. I was sure the broad smiles and greedy too-big-to-fail banks and another for bona fide com- on their faces would soon turn into uncontrollable laughter. munity financial institutions. Flash bulbs flashed. If not one, a hundred it seemed. But it was We are still early in this journey and your IBAT Board has almost over. Or so I thought. reaffirmed our ongoing commitment in 2013 and beyond to Waiting backstage, the lifestyle editor of the Austin Amer- engage in the public relations war that is so desperately needed ican-Statesman prepared to snap another picture for the Sunday if we are to parlay our message into real reforms. paper. Now everyone was about to see what a complete fool In many ways that embarrassing and frightful spring day my mother had made of me. A promised trip to the store’s toy on the third floor of the Scarbrough’s department store was my department was little consolation. “rite of passage” into the cold hard As near as I can remember, that is the first time my name world of media exposure. and picture appeared in any paper. Funny how things have Unlike that day, there is no trip changed. to the toy department following, Today we pressure ourselves with the creation of blogs, but I am confident an even bigger opinion pieces, tweets, letters to the editor, articles and arranged prize is emerging...the resurgence interviews in our quest for exposure and attempt to tell the com- and appreciation for the commu- munity banking story. No newspaper, magazine or industry pub- nity banking model that has and lication is too large or small if it will advance our message. will continue to serve this country Late in 2010, after the great financial meltdown and the with integrity and distinction and advent of the Dodd-Frank massacre, your IBAT Board and Lead- corresponding public policy that ership determined that it was high time we went on the public reflects it. ★ relations offensive. Sickened and frustrated by press reports that CHRISTOPHER L. all banks were to blame for the crisis, we launched a campaign WILLISTON, CAE, is to set the record straight. Significant monetary and personnel resources were reallocated and reassigned to aggressively pursue President and Chief an agenda to redefine the true culprits and causes of the financial Executive Officer of the crisis. Our goal was to take our message far and wide, from local Independent Bankers business journals to the largest and most widely read national Association of Texas. daily newspapers and, perhaps most importantly, to publications

4 ★ The Texas Independent Banker March/April 2013

IBAT ad 01.2013.pdf 1 12/12/12 5:07 PM

FoUnDation Footprints

Do you prefer a transaction or a lasting relationship?

e know there are other providers and options as programs. Tuition is a nominal cost. Learn about Building you begin/continue/enhance your involvement Wealth, Money Smart, Junior Achievement, Lemonade Day in helping build financially literate communi- and more. ties across Texas. Some providers are expensive, • BUILD your own “Innovations Brainstorming Team” in your some offer a product for your bank’s website, bank to prepare for April as financial literacy and community Wbut few offer the advantages of IBAT’s Teach the Teacher pro- banking month. Every community bank has untapped talent gram™. In previous issues we have provided numbers and details, on its staff who are eager to reach out to your community. A but let me frame the question asked in the title. Most True Texas checklist of interview questions is posted on the IBAT web- Community Bankers that I know prefer building solid and last- site to use as a starter. ing “relationships” that will be around long after the financial • We have more ideas and, best of all, a call or email to Mary

literacy “transaction” is gone and forgotten. Lange will engage your IBAT Ambassador! (mlange@ibat. C

The IBAT Teach the Teacher program™ will showcase org) M

your bank in your community by providing the opportunity to Y

be the sponsor, mentor and a spokesperson to bring the program In my view the right answer to the question raised in the CM to your local school administrators and teachers. You may reach title is demonstrated by the way “True Texas Community Bank- MY out to the teachers who actually go to the classroom and teach ers” operate their banks by working every day to build lasting CY

CMY every day. Your bank people may become mentors to teachers, relationships with the people they serve. They don’t want a trans- K earning a direct relationship by being their go-to resource on action . . . they want a relationship financial questions that come from the classroom. And, finally, and the IBAT Education Founda- you may determine your cost by the different levels of sponsor- tion is standing by and ready to ship provided by the IBAT Education Foundation. help! ★ Check this out . . . besides the Teach the Teacher program™ IBAT has access to a plethora of additional low cost ready solutions that are easy to incorporate in a low tech-high touch relationship. • FREE Career Day speech outlines that are customizable to your bank that cover financial literacy and careers in com- WILLARD J. STILL is munity banking. (Go to www.ibat.org/foundation/banker and the Board Chairman click on career day tools.) of the IBAT Education • LIVE Workshop. Mark July 25–26 on your calendar for the Foundation and Vice Texas Financial Literacy Summit. This workshop brings Chairman of American community bankers and teachers together to share best prac- Bank, N.A. in Waco tices, teaching tips and updates on existing financial literacy

6 ★ The Texas Independent Banker March/April 2013 IBAT ad 01.2013.pdf 1 12/12/12 5:07 PM

CMY

K services solUtions

Deluxe Business Advantage

onnect with small business customers...engage them. Deluxe Business Advantage is a business referral program Talk to them. Become their key resource; not just that provides personalized service for your branch with a simpli- their loan officer. fied check ordering and referral process for business customers to “What’s your story?” help them make their dreams a reality. It’s also a lead generation Do you ever ask small business customers this program for products and services offered by your financial insti- cquestion? tution…all at no cost to you. Do you ever ask them to tell you about their hopes, dreams, When your goal is to effectively serve small businesses, it’s goals? important to get the right products into their hands, right from Most likely not. Seems irrelevant, doesn’t it? the start. Helping them get exactly what they need increases Actually, it’s not. Small business owners dream about their their satisfaction and builds loyal, long-term relationships. business. It plays like a video in their heads; they operate with Deluxe will not rest until every customer — from the small- an unending level of energy, a grin of satisfaction, and a limit- est business to the largest community bank — views Deluxe as less desire to please their customers. They come early, stay late, an indispensable partner for growth. Consider the following and have an attachment to their inventory or service they never Deluxe Business Advantage facts: thought possible. • Over 4 million active small business customers and 6,200 Their business challenges their stamina and their resil- financial institution clients ience, but with each milestone achieved, they are increasingly • The go-to expert on small business for financial institutions encouraged. • Hosted more than 500,000 websites for individuals and Most of all, they wish they had someone — a friend, a businesses confidant, a banker (yes, a banker) to keep them connected to • Have the first social networking site built specifically for the energy that fueled them to start their business. They yearn business owners for someone to reassure them when it’s time to take the next The Deluxe Business Advantage program is proven to big step. Someone who can connect them with people who’ve increase revenue, reduce costs, save time and add value. already traveled the small business road — quit- Deluxe Business Advantage ting their day jobs, hiring their first non-family program will: member, worrying about payroll and cash flow. • Maximize reorders and maintain Hmmm, why not a banker? your revenue stream through on- Imagine giving your small business custom- going customer engagement ers a dedicated team working on their behalf to • Strengthen small business rela- help them realize their dreams. That’s Deluxe. Deluxe brings tionships by offering the best a full line of critical supplies and marketing resources to help products that meet their needs your business account holders run their businesses smoothly and • Reduce overhead costs and gain new customers — all while providing your institution with increase staff efficiency unlimited growth and profit potential and giving you the oppor- • Position your business bankers tunity to become your account holder’s key resource. and officers as a resource to help The Deluxe team strives to be an indispensable partner to your business accounts holders JOHN W. JAY is Chair of the small businesses and financial institutions you serve. Their and community grow the IBAT Services Board goal is to provide you with products, services and advice you See the new Deluxe on T V, the and President of Roscoe need to help you achieve success. From personalized printed web, in print and on YouTube. State Bank. products to logo design, web services, and search engine market- Work Happy. ing that helps your business account holders get found, Deluxe For more information, please contact Janine works to deliver the most innovative products and services to Kasper, Account Executive, at 303-335- help them live their passion. 7627 or [email protected]. ★

8 ★ The Texas Independent Banker March/April 2013 Credit Insurance is in a Great state with american national and Dial Dunkin & associates

Since 1992, American National Insurance Company and Dial Dunkin & Associates have provided credit insurance to more than 200 independent banks throughout the state of Texas.

We use our combined experience of more than 76 years to provide quality service to you and your customers. American National has been evaluated and assigned the following ratings by nationally recognized, independent rating agencies: A.M. Best Company’s rating of A (Excellent) and Standard and Poor’s rating of A (Strong).* You can offer credit insurance products confidently.

Customers trust their independent Texas banks, and independent Texas bankers trust American National and Dial Dunkin.

AMERICAN NATIONAL INSURANCE COMPANY dIAL dUNkIN & ASSOCIATES Credit Insurance Division | P. O. Box 696785 1305 Stuart Place Road San Antonio, TX 78269-6785 Harlingen, TX 77580

*The ratings are current as of June 2011. A.M. Best A (Excellent) is the third highest of 13 active company ratings. A.M. Best’s active company rating scale ranges from A++ (Superior) to D (Poor). Standard & Poor’s A (Excellent) is sixth highest of 20 active company ratings. Standard & Poor’s active company rating scale ranges from AAA (Extremely Strong) to CC (Extremely Weak). Plus (+) or Minus (-) modifiers show the relative standing within the categories from AA to CCC. Ratings reflect current independent opinions of the financial capacity of an insurance organization to meet the obligations of its insurance policies and contracts in accordance with their terms. They are based on comprehensive quantitative and qualitative evaluations of the company and its management strategy. The rating agencies do not provide ratings as a recommendation to purchase insurance or annuities. The ratings are not a warranty of an insurer’s current or future ability to meet its con-

Form CID-195 8-2-12 Form tractual obligations. Ratings may be changed, suspended, or withdrawn at any time. For the most current ratings view the full rating reports on American National’s Internet site at www.anico.com. General coUnsel’s corner

Size Matters

rom the time we are toddlers, we long for growth…like company, the aggregate asset size is not the determinant factor. the day when we are big enough to ride the really scary rather, it is based on each bank’s size. rides at the carnival. But in the world of banking, getting Interchange Rules. The caps on interchange revenue from bigger (in assets, deposits or number of employees) has debit cards under regulation II apply to debt card issuers with regulatory consequences. Let’s look at a few of these. over $10 billion in total assets. However, this test is based on the FCapital. As assets grow, capital must keep pace. Both risk assets of all affiliates — not a bank by bank test. based and leveraged capital are calculated based on the assets Branch Closing. And sometimes banks shrink. The FDIC of the bank. With proposed Basel III, the types of assets will Improvement Act included requirements relating to notice of become even more significant with regard to capital. Therefore, branch closing. The interagency policy statement clarifies what any growth plan must have a strong capital plan along with it. is required. An insured bank must submit a notice of any pro- Sadly, increasing through retained earnings is rarely going to be posed branch closing to the appropriate federal banking agency enough of a “plan” for capital. no later than 90 days prior to the date of the proposed branch Community Reinvestment Act. The size of the bank will closing. The required notice must include a detailed statement drive the exam. A “small bank” is one with assets less than of the reasons for the decision to close the branch and statistical $1.186 billion; an intermediate small bank is one between $296 or other information in support of such reasons. million and $1.186 billion in assets. Although banks can choose The law also requires an insured depository institution to to be examined under all three tests (lending, services and notify its customers of the proposed closing. The institution investment) or under the strategic plan option, small banks are must mail the notice to the customers of the branch proposed generally tested based on the lending test. to be closed at least 90 days prior to the proposed closing. The Audit. Banks with assets of $500 million or more must com- institution also must post a notice to ply with 12 CFr part 363, which requires outside financial audit customers in a conspicuous manner plus management report on internal controls as well as other on the premises of the branch pro- reports. The audited financial statements must be prepared in posed to be closed at least 30 days accordance with GAAp. For an insured depository institution prior to the proposed closing. with consolidated total assets of $1 billion or more as of the The Worker Adjustment beginning of such fiscal year, there must also be an assessment by and retraining Notification Act management of the effectiveness of such internal control struc- (WArN) requires most employ- ture and procedures as of the end of such fiscal year. ers with 100 or more employees to HMDA. Banks with a location in an MSA and with assets provide 60 days’ advance notice of over $42 million (as of December 31, 2012) must maintain logs “plant” closings. For banks, this can of mortgage loan applications (loan application register) and be triggered when a branch is closed submit their reports annually on March 1. The asset thresh- and it meets these employment KAREN NEELEY old for HMDA is adjusted every year. The Federal reserve was thresholds. received her BA and responsible for the calculation in the past. Now the Consumer Employment Laws. Size can also JD from the University Financial protection Bureau (CFpB) makes that calculation. be related to the number of employ- of Texas at Austin. Once the threshold is passed (December 31), the bank must ees. Different federal laws are trig- She is a director for start collecting the LAr info for the next year. gered at different employment levels. the Texas Association CFPB Exam Authority. Although the CFpB has “ride The Equal Employment Opportunity of Bank Counsel and along” authority to accompany federal compliance examiners, Act requirements are triggered when General Counsel for the its authority to examine banks directly is triggered when the there are 15 employees. However, Independent Bankers (Continued on page 45) institution exceeds $10 billion in assets. This is determined on Association of Texas. a bank basis. So if there are multiple banks in a bank holding

10 ★ The Texas Independent Banker March/April 2013

interest rates

New Regulations for Municipals in 2013 Dodd-Frank, Section 939 A Investment Strategies and Interest Rate Risk Seminar

ffective January 1, 2013, bank regulators implemented summary of those guidelines to aid your institution in imple- For over thirty years, The Baker Group has helped financial institutions new standards for municipal investments that require menting such a framework. The bottom line is this: examiners navigate through volatile and unpredictable economic environments. We most banks to adopt a new approach to the credit anal- must see proof of an internal credit analysis process. work as partners with our clients to help them on the things that ysis process. The biggest take away is clear: credit rat- are critical to their success. Because points of will change regularly ings will no longer serve as sole justification for credit Key Factors for All Municipal Investments April 4-6, 2013 as conditions evolve, our task is to help financial institutions develop processes and strategies for optimal performance in any environment. quality. 1.) Confirm spread to UST is consistent with bonds of similar Austin, Texas e We do this by using robust tools and resources for investment and credit quality. Fortunately for most community banks, credit ratings have Hyatt Regency Lost Pines Resort interest rate risk management. In facing the challenge of an uncertain 2.) Confirm risk of default is low and consistent with bonds of become an afterthought in the credit review process. The first and Spa environment, The Baker Group can help you sharpen your similar credit quality. blow came several years ago when, in the wake of the financial 575 Lost Pines Road crisis, the lion’s share of monoline credit insurers lost their AAA 3.) Confirm capacity to pay and assess the financial and oper- The Baker Group’s upcoming Investment Strategies and Interest Rate Lost Pines, TX 78612 ratings and the associated ratings on insured municipal bonds. ating performance through internal credit analysis. Seminar will address specific bond portfolio strategies to improve Investors soon realized the importance of analyzing the under- 4.) Understand local demographics/economics. Consider margin and mitigate unnecessary IRR. We will discuss security selection lying credit profile of the municipality, regardless of ratings or unemployment data, local employers, income indices, and processes and liquidity management, present tools for assessing credit risk in municipal bonds, and explore stress tests for the entire balance sheet credit enhancement features. home values. using our Interest Rate Risk software. There is no cost for this seminar. regulators have also addressed the appropriateness of using Key Factors for General Obligation Bonds Thursday, April 4 — Dinner third party research. While the use of a reliable third party to Friday, April 5 — Seminar and Dinner aid the bank in its credit analysis process is acceptable, third 1.) Evaluate the soundness of a municipality’s budgetary posi- An In-Depth Program Saturday, April 6 — Golf Financial institution managers will come away with sound ideas for party analysis is neither required nor appropriate as the only tion and review management experience. using the bond portfolio as an effective tool in managing liquidity, assessment of credit quality. In the same way that it is no longer 2.) Determine the stability of tax revenues and the issuer’s cash flows, and interest rate risk. Attendees will also gain insight into acceptable to rely solely on credit ratings, a third party cannot taxing authority. 3.) Consider debt profile and level of unfunded liabilities. the remarkable changes the banking industry is experiencing in the be the only assurance the institution has to justify credit quality. current market environment. Seminar topics include: 4.) Identify the diversity of revenue sources. Bob McTeer In the absence of a third party’s credit rationale, using third party National Center for Policy Analysis data is sufficient so Current Economic Conditions and Fed Policy Outlook Key Factors for Revenue Bonds Jeffrey F. Caughron long as the insti- Developing an Effective ALCO Process to Manage Interest Rate Risk and Liquidity 1.) Assess the source and strength Ryan W. Hayhurst tution can justify How to Build an Investment Portfolio Without Being Sold One of the revenue structure for Edward A. Krei a credit opinion Characteristics of High Performance Portfolios municipal authorities. Lester F. Murray internally. Developing a Municipal Credit Analysis Process to Comply with Dodd-Frank 2.) Consider obligor’s financial Phil Stenseth Amidst much Top Strategies to Prepare for the Next Rate Cycle speculation as to condition and reserve levels. Managing Cash Flows and Options Risk in the Investment Portfolio how to implement 3.) Compare annual debt service How to Effectively Reduce Extension Risk in the Bond Portfolio a robust credit and debt coverage ratio. Who Should Attend Financial institutions’ CEOs, analysis frame- 4.) review credit enhancements, Minimizing MBS Prepayment Risk with the Right Loan Attributes legal covenants, and nature of CFOs, investment officers, work, the FDIC, CPE credits will be earned for your attendance. the project. board members, and those OCC, and the who are directly or indirectly Federal reserve responsible for financial man Many banks have already estab- have set out clear DREW SIMMONS agement functions will benefit For your convenience, register online at . For lished internal credit analysis proce- guidelines for Vice President – Financial from this seminar. more information, call Skoshi Heron at dures, utilizing key credit metrics what they expect Strategies Group such as those highlighted in The in determining the The Baker Group LP permissibility of Baker Group’s Municipal Credit pro- municipal invest- file. As shown in the example below, ments. Below we this allows the investor to perform have compiled a (Continued on page 42) Member: FINRA and SIPC Oklahoma City, OK Austin, TX Birmingham, AL Indianapolis, IN Salt Lake City, UT Springfield, IL 12 ★ The Texas Independent Banker March/April 2013 The Baker Group 1601 Northwest Expressway, 20th Floor Oklahoma City, OK 73118

TBG-TX-01-2013-SeminarAd.indd 1 12/6/12 2:10 PM ocus fInvestment Strategies 2013 and Interest Rate Risk Seminar

For over thirty years, The Baker Group has helped financial institutions navigate through volatile and unpredictable economic environments. We Location work as partners with our clients to help them focus on the things that are critical to their success. Because points of focus will change regularly April 4-6, 2013 as conditions evolve, our task is to help financial institutions develop Austin, Texas processes and strategies for optimal performance in any environment. We do this by using robust tools and resources for investment and Hyatt Regency Lost Pines Resort interest rate risk management. In facing the challenge of an uncertain and Spa environment, The Baker Group can help you sharpen your focus. 575 Lost Pines Road The Baker Group’s upcoming Investment Strategies and Interest Rate Lost Pines, TX 78612 Risk Seminar will address specific bond portfolio strategies to improve 512.308.1234 margin and mitigate unnecessary IRR. We will discuss security selection processes and liquidity management, present tools for assessing credit risk in municipal bonds, and explore stress tests for the entire balance sheet Agenda using our Interest Rate Risk software. There is no cost for this seminar. Thursday, April 4 — Dinner Friday, April 5 — Seminar and Dinner An In-Depth Program Saturday, April 6 — Golf Financial institution managers will come away with sound ideas for using the bond portfolio as an effective tool in managing liquidity, cash flows, and interest rate risk. Attendees will also gain insight into Speakers the remarkable changes the banking industry is experiencing in the Bob McTeer current market environment. Seminar topics include: National Center for Policy Analysis n Current Economic Conditions and Fed Policy Outlook Jeffrey F. Caughron n Developing an Effective ALCO Process to Manage Interest Rate Risk and Liquidity Ryan W. Hayhurst n How to Build an Investment Portfolio Without Being Sold One Edward A. Krei n Characteristics of High Performance Portfolios Lester F. Murray n Developing a Municipal Credit Analysis Process to Comply with Dodd-Frank Phil Stenseth n Top Strategies to Prepare for the Next Rate Cycle n Managing Cash Flows and Options Risk in the Investment Portfolio Who Should Attend n How to Effectively Reduce Extension Risk in the Bond Portfolio Financial institutions’ CEOs, n Minimizing MBS Prepayment Risk with the Right Loan Attributes CFOs, investment officers, board members, and those CPE credits will be earned for your attendance. who are directly or indirectly responsible for financial man- Registration agement functions will benefit For your convenience, register online at GoBaker.com/seminars. For from this seminar. more information, call Skoshi Heron at 888.990.0010.

TBG-TX-01-2013-SeminarAd.indd 1 12/6/12 2:10 PM personnel UpDate

Williston Odle Berry Carney Francis Mecredy

Taylor, P. Blankenship Bryan Urquizu Phillips Ahmed

Austin and was previously the vice president of credit analysts and underwriters. Berry is a Independent Bankers Association of administration for IBAT Services. In her graduate of Texas Tech University with a Texas announced that Christopher L. new role, Molina will serve as registrar dual degree in Finance and Accounting. Williston, VI, has received the Certified for IBAT events and assist with plan- Barbara Carney began her career Association Executive designation. Wil- ning and implementation for educational with TIB in 1999, beginning as a loan liston is currently in his fourth year with programs. admin before moving into the A/L man- IBAT and seventh in the Association agement department. Today, Carney industry. He serves as IBAT’s vice presi- Boerne oversees analytics, modeling and adminis- dent of communications. He is a graduate Mark Odle has joined the executive tration for ALX Consulting, Inc., which is of Texas Christian University and Brite team at Texas Heritage Bank as senior wholly-owned by TIB. She is a graduate of Divinity School. Other IBAT staff mem- vice president and manager of the Leon Stephen F. Austin State University, where bers who have achieved this certification Springs Banking Office. A graduate of she earned a B.B. A. Additionally, she is a are Chris Williston, Mary Lange, Ursula Abilene Christian University, Odle has 2010 graduate of the Southwestern Gradu- Jimenez, T.J. Scott, Kerry Hall, and Julie extensive experience in commercial lend- ate School of Banking at SMU and a 2002 Courtney. ing, asset-based lending, operations, col- graduate of the Bank Operations Institute Marni Robinson has joined IBAT lateral examination, retail management at Texas A&M, Commerce, Texas. Services as administrative assistant. rob- and financial management. Diane Francis joined TIB in 1986 inson brings more than 25 years of experi- and, during her 26 years at the bank, has ence in a variety of administrative roles. Dallas worked in numerous departments, includ- During this time, she also gained valuable TIB-The Independent BankersBank ing Safekeeping, Deposit Operations and marketing experience. She has worked in has announced the promotions of six offi- Wire Transfer. For the past 21 years, she diverse settings, including an energy com- cers to senior vice president. has served as the senior Fed Funds trader. pany, advertising agency, jewelry manu- Craig Berry joined TIB in 2005 as a She currently holds the position of trea- facturing company, church and the Office credit analyst before moving up to become sury management manager, overseeing of the Attorney General of Texas. a correspondent lender. Currently, he pro- TIB’s daily liquidity position. Jessica Molina is the new vice presi- vides lending assistance to community Ryan Mecredy started at TIB as a dent for the IBAT Education Foundation. bankers in Dallas and the Texas panhan- credit analyst in 2001. He subsequently Molina has been with IBAT for 13 years dle regions. He also manages TIB’s team of advanced to become a correspondent

14 ★ The Texas Independent Banker March/April 2013 lending officer and now serves bankers been awarded the status of Accredited the only Texan. The panel, which was throughout Houston, Southeast Texas ACH professionals (AAp), the high- established in 2009, provides advice and and portions of the Gulf Coast of Texas. est honor for those who work with the recommendations to the agency on com- Mecredy is a graduate of Texas Christian ACH network. The AAp accreditation munity bank policy and regulatory mat- University, where he earned a degree in is awarded once a year to those who pass ters. The advisory committee members Finance. a comprehensive exam on the intricacies represent a cross-section of community Jorja Morgan has been with TIB since of the payment industry and the ACH bankers from around the country. 2003 and, in total, has more than 25 years network. of banking industry experience, includ- The new recipients of the AAp Happy ing stints with the FDIC and in com- accreditation are: Rachael Davis, TIB- Jim D. Bryan has joined Happy State munity banking. Morgan possesses Series The Independent BankersBank, Dallas; Bank as Senior Vice president in Com- 63 and Series 7 licenses and currently Theresa Ferguson, Citizens Bank, Kilg- mercial Lending. Bryan holds a Bachelor serves as investment operations manager ore; Michael Jeffcoat, SWACHA, Dal- of Arts Degree in Economics from the for TIB, overseeing the bank’s consider- las; Leisha Morris, Vintage Bank, Waxa- University of Texas of the permian Basin able Safekeeping and Bond Accounting hachie; and Marisa Truelove, Extraco in Odessa. He has over 30 years of bank- operations. Banks, N.A., Temple. ing experience and will be located in the Paul Taylor joined TIB in 2009, hav- bank’s Amarillo Downtown office. ing previously served with the Tennessee Grapevine Houston Bankers Association. paul is a 31-year Cynthia L. Blankenship, vice presi- veteran of the banking industry and cur- dent and COO at Bank of the West, has Mike Urquizu has been promoted to rently serves as a correspondent relations been named to serve on the FDIC Advi- senior vice president, sales and account officer to community bankers throughout sory Committee on Community Bank- management. Urquizu’s new responsibili- Tennessee, Kentucky and North Carolina. ing. Blankenship has previously served as ties involve managing and directing the He earned an MBA at the University of chairman of both the Independent Bank- company’s sales and business development Kentucky. ers Association of Texas and Independent activities. He was previously responsible According to an announcement from Community Bankers of America. She is for pULSE’s national financial institution SWACHA, several IBAT members have one of 15 bankers on the committee, and (Continued on page 40)

March/April 2013 www.ibat.org ★ 15 association neWs

First Data names Dell offering iBat members from Denney James, Dell’s IBAT Territory new account manager the power to do more! Manager: [email protected] or 512/728-8763. For further information, First Data IBAT member banks and associates contact ramona Jones in the IBAT Ser- Online Banking will receive a higher level of customer vices office: [email protected] or 512/275- has named Jay benefits through Dell’s exclusive offering 2209. Carrigan its Senior that includes price breaks and competitive Account Execu- pricing on Dell’s electronic and software ★ tive for Texas. First products. This program is in addition to new abound resources survey Data Online Bank- IBAT’s currently endorsed program, Dell shows areas of concern for ing provides inter- SecureWorks. The program applies to net-based financial all IBAT members and their employees community Bank executives services for retail whether the bank has a relationship with Abound resources’ recent survey of and commercial a Dell representative or a reseller. The community bank executives shows that banks, including secure internet banking, program includes technical experts from chief executive officers are much more small business banking, account aggrega- all brands and product lines within Dell: pessimistic going into 2013 than they tion and bill payment. SecureWorks, Boomi, Kace, Quest, Gale were going into 2012. The primary driver Carrigan has been with First Data Technologies, Wyse, perot Systems, etc. of the pessimism is an increasingly diffi- Online Banking (originally FundsXpress) Dell has issued an IBAT Customer cult regulatory environment. for 14 years and has called on community Link Number GS126658178 that must be “This year CEOs are decidedly more banks across the US for more than 30 referenced early in the proposal process. pessimistic than they have been since we years. register the link and receive guidance launched our annual survey four years ago,” Brad Smith, president and chief executive officer of Abound resources, legacytexas Bank supports the troops said. mailing represented the culmination of Despite uncertainty about the econ- a Lone Star Salute to Troops, a month- omy and regulations in 2012, commu- long effort that is part of the bank’s nity bank executives felt they could plan annual Veterans Day celebration. for the impact of regulations. However, “This is the largest number of pack- going into 2013 they are concerned about ages we have mailed, and it speaks well increasing regulations, uncontrolled pow- of our customers and the entire region,” ers of the Consumer Financial protec- phil Dyer, LegacyTexas Bank president, tion Bureau and increasing inconsistency said. “people want to show appreciation among bank examiners. to our military during this holiday sea- ★ son, and this salute is a great opportunity to do so.” pUlse signs personal care items and snack foods long-term agreement with were gathered in collection boxes at illinois-based Bank each of the 20 locations of LegacyTexas pULSE and Champaign, Illinois- Bank. Contributions were received from based Busey Bank have extended their individuals and businesses throughout affiliation through a long-term agreement North Texas. The care packages were that includes pIN point-of-sale debit and Volunteers from LegacyTexas Bank assembled and boxed for shipping by ATM services. Busey’s relationship with in plano mailed nearly 600 care pack- bank volunteers and members of the pULSE originated in 2005. ages to troops stationed around the North Texas Chapter of Blue Star “With debit and ATM services play- world this past holiday season. The Mothers. ing a significant role in how consumers

16 ★ The Texas Independent Banker March/April 2013 in memoriam Danny King of Austin passed away on December 26 after a long and extended bout with cancer. Danny, who has produced IBAT’s legendary Songwriter Review Show for the past 13 years, will be remembered for his love of song writing and deep devotion to the advancement of song writing in Texas and the nation. In spend and access their accounts, it has addition, Danny produced hundreds of songwriter shows for community bankers never been more important to provide our he met throughout the years to aid in local charity benefits. customers with reliable debit services,” Danny had truly become one of the IBAT family and we mourn his loss along with Don Schlorff, executive vice president his wife Kay and daughter Amy. of corporate administration for Busey Bank, said. “This was a vital consider- Jonathan ray (J. r.) nunn passed away February 11 in Amarillo. He was born April 18, 1926, in ation in continuing our partnership with Roosevelt County, New Mexico, and grew up in Elida, New Mexico. pULSE.” After graduating from high school, he joined the U.S. Navy and served in WWII as a naval radioman. Busey, a wholly-owned subsidiary of Jonathan married his high school sweetheart Jakie Jo Murphree in 1946, and they were happily married First Busey Corporation, has total assets of for over 66 years. Jon attended Eastern New Mexico University and New Mexico State University, where he approximately $3.5 billion with 43 bank- received a Bachelor of Science degree in Agriculture. ing center locations in Illinois, Indiana Nunn worked for the Farmers Home Administration and in cattle ranching before beginning his banking career with the Bank of Las Vegas in Las Vegas, New Mexico. He moved to Tucumcari, New Mexico, in and Florida. 1964 and was elected Executive Vice President of Citizens Bank. J.R. was later elected President and then ★ Chairman of the Board. During his 44 years with the bank he helped lead the bank in becoming one of the safest and most financially sound banks in the country with locations in Tucumcari, New Mexico, and iBt continues steady Growth Claude and Tulia, Texas. He was active in the local community, in state banking organizations, and he led IBT recently announced that despite the Independent Bankers Association of America (IBAA) as its president in 1988. regulatory uncertainty, low interest rates Survivors include his wife Jakie of Amarillo; daughter Linda and her husband Mark Johnson of Col- and sluggish loan growth for banks, it lege Station; son Ray and his wife Nancy of Colorado Springs, Colorado; and son Jeff and his wife Kathi of continues its steady growth and consistent Amarillo. Survivors also include his sister, Blanche Hitson, along with seven grandchildren and 18 great- profitability. IBT’s revenue continued to grandchildren. climb yielding positive cash flows, increas- He was preceded in death by his parents, Joseph and Laura Nunn, and four brothers: Dwight, Law- rence, J.W., and Irvin. ing its cash position and extinguishing its debt. Its i2Suite product platform continues to add new customers in the midst of the continued consolidation landscape. forecasts for Dodd-Frank stress testing series—available at www.swacha.org— “In this unsettled regulatory climate, requirements and prepare for BASEL consists of more than 30 videos focus- banks and credit unions look for part- III requirements for estimating default ing on topics such as payments basics, ners that provide solutions for customers probabilities. operations, risk and fraud, and rules and while keeping the cost of providing those “The decision to develop the Busi- compliance. services reasonable,” Mike Golebiowski, ness Credit report was really logical for us “We couldn’t be more excited to president of IBT, said. given that it sits squarely at the intersec- launch this video series, which gives ★ tion of our two core businesses, collecting us another effective method to provide and analyzing private company financial financial institutions with the informa- sageworks offers Free probability data and providing credit risk manage- tion they need to be successful in the pay- of Default reports ment technology to financial institu- ments industry,” Dennis Simmons, AAp, Sageworks recently released the tions,” Scott Ogle, Sageworks president, president and chief executive officer of Business Credit report, which assesses said. SWACHA, said. the probability of default for small and ★ ★ medium sized businesses. It is now making three free reports available to all banks. sWacHa launches online First Data and Webster Bank Institutions interested in generating their training video series extend merchant services reports should visit www.sageworkscred- Dallas-based SWACHA, a not-for- agreement itreport.com. profit regional electronic payments associ- First Data Corporation and Web- The Business Credit report can be ation, recently launched a series of online ster Bank, N.A., a wholly-owned subsid- used to enhance loan decisions, detect training videos designed to sharpen the iary of Webster Financial Corporation, problems earlier in loan review, produce skills of payments professionals. The video (Continued on page 18)

March/April 2013 www.ibat.org ★ 17 S

region 9 Hosts meeting ASSoCIATIoN NEWS cont’d region 9 recently hosted an edu- announced they have signed a new long- cational forum titled Opportunity, Risk term deal extending their merchant ser- & Regulatory Implications in 2013 Driv- vices partnership. First Data will continue ing Profitability — Integrating Regulatory to provide merchant processing services Compliance sponsored by the Doeren to Webster’s customers at its 167 bank- Mayhew Financial Institutions Group ing offices throughout the northeastern

New and attended by an estimated 45 com- United States, munity bankers from the Houston area. “We’re extremely excited to have the robin Hoag, shareholder in the opportunity to continue our partnership Doeren Mayhew Financial Institu- with Webster Bank,” Neal Korzekwinski, tions Group, facilitated the discussion senior vice president of First Data, said. and presented to the group the potential of how the Current Expected Credit Loss “We have built our relationship around (CECL) Model would impact Allocation for Loan and Lease Losses (ALLL) of com- our ability to distribute innovative prod- munity banks. ucts and services at a local level to Web- Dr. Jim Bexley, ph.D., Chair of the College of Business Administration at Sam ster’s clients.”

ISION Houston State University, discussed how the direction of banking is changing from the past (when customers sought Convenience, Access, and price) to now (when ★ they want Control, Interaction, Better Information and Convenience). sHaZam Bolt$ mobile app for Kurt purdom, Director of Bank and Trust Supervision for the Texas Department

Iv Debit cardholders launches of Banking, covered the effects of balance sheet risk vs. reward, new product lines Mobile app SHAZAM BOLT$ pro- adopted by community banks in order to compete with peers, and the consequences vides SHAZAM debit cardholders with of trimming overhead costs especially relating to training. on-the-go access to their debit card

D “This was a valuable information exchange,” said Hazem Ahmed of Integrity accounts. The app, available to smart- Bank. “I think everyone left with information they can take back to discuss with phone and tablet users, allows debit their shareholders and officers if we are to survive in this new world of risks and cardholders to check balances, set param- regulations and provide the tools our employees need to increase our profitability.” eters for email alerts, and will eventually allow them to initiate person-to-person Bank commander registration Underway transfers. The theme of this year’s Leadership Conference is Bank Commander and, for “Community banks and credit unions those familiar with the A&E television reality series Duck Dynasty, you’ll want are searching for mobile solutions to help to be sure to attend. One of the famous bearded mil- them compete in the growing financial lionaire brothers, Jase Robertson, will be one of our services marketplace,” Dan Kramer, senior RSHIP featured guest speakers. vice president of marketing and merchant Jase shares the same passion for duck hunt- services at SHAZAM, said.

e ing as his dad and brothers. He is also very SHAZAM BOLT$ is an extension hands-on helping the family business to succeed of SHAZAM’s fraud-prevention services, and is in charge of the manufacturing part of Duck alerting cardholders directly to potentially Commander, making sure that every call is hand- fraudulent activity on their accounts. tuned in order to give the consumers the best duck The mobile app is being offered to all call possible. SHAZAM network participating finan- These Louisiana bayou family members are cial institutions at no cost. ★ living the American dream and face everyday prob-

LeAD lems with a strong belief in God and family values. Another featured speaker will be astrophysicist Dr. Jeff Hester. While you may not be familiar with the name, you will recognize one of his most important contributions to space exploration. (Continued on page 39)

18 ★ The Texas Independent Banker March/April 2013 Are you looking for the calm in the storm?...

For over 100 years, we have been serving Community Banks with:

 Superior and Innovative Products  Financial Institution Crime Bond  Directors & Officers Indemnity  Bank Employment Practices Defense Policy  Check Kiting Fraud Indemnification Policy  Internet Banking Theft Catastrophe Bond  Banking Privacy Liability Policy  Cost of Replacing Compromised Bank Cards Policy  Competitive Premiums  Realistic Underwriting  Prompt Claims Service

EXPERIENCE...There is no substitute!

For more information, give us a call at (785) 228-0000. A Live, Intelligent Human Being Will Always Answer The Phone!

The Kansas Bankers Surety Company A Member Of The Berkshire Hathaway Inc. Group of Insurance Companies Phone (785) 228-0000 - Fax (785) 228-0079 1220 SW Executive Drive - 66615 P.O. Box 1654, Topeka, KS 66601

Rated A++ (Superior) By A.M. Best TechMecca 2013 explores technology solutions to meet the needs of community Bankers

he Independent Bankers and increasing compliance costs are limit- solutions, which often fail to produce the Association of Texas (IBAT) ing the amount of money that bank boards desired return on investment. recently hosted more than are willing to commit to new technology 200 bankers and 80 exhibit- Is this a perfect storm for community banks? ing companies at the Omni The opening general session of Tech- Fort Worth Hotel to provide SPONSORS answers to the most press- Mecca 2013 tackled this question head ing technology needs facing community eXclUsive on. Joe Calloway, author of Becoming a Category of One and the upcoming Be the Tbanks today. Below is a recap of trends, key SWACHA – The Electronic Payments Resource learnings and other hot topics discussed Best at What Matters Most, maintains that at this two-day, technology-focused event titaniUm the future is not so bleak for community attended by industry leaders from Texas Diebold banks as long as they don’t forget the core value proposition of community banking. and beyond. PULSE “All of the technology in the world won’t what are the most pressing technology platinUm make your bank the best at customer ser- needs facing community banks? vice,” Calloway said. “Technology is the First Data Without a doubt, technology has icing on the cake of an organization; it’s Dell SecureWorks played a major role in the evolution of not the most important way for you to the banking industry over the last several Deluxe show your customers that you care and are decades. Bankers have, for the most part, available to serve them.” GolD responded well to these changes. However, Jim Van Dyke, founder and president it seems the most recent years have seen Bank Technology News of Javelin Strategy and research, provided a fast-forwarding of technological impact, First American Payment Systems insight into consumer attitudes towards and many community bankers now feel SHAZAM new technology channels. “Forty percent like they’re scrambling to keep up. of customers surveyed between 2009 and Branch transformation, remote silver 2012 don’t see the value in mobile bank- deposit capture, mobile banking and per- Yennik, Inc. ing,” Van Dyke said. Even more customers sonal financial management are just a few (44%) have concerns about the security BronZe of the 900-pound gorillas that community of mobile banking that will keep them banks are considering in their efforts to Banc Professional Service from embracing mobile devices to do reach the next generation of bank cus- Talaris their banking. tomers. All the while, compressed margins TransFund Van Dyke also pointed out that (Continued on page 22)

20 ★ The Texas Independent Banker March/April 2013 March/April 2013 www.ibat.org ★ 21 members of Generation Y (currently 18-34 years old) are more likely to prefer visiting a bank branch to monitor their primary accounts than any other segment of consumers. Twenty-five percent of older Gen Y members (25–34 years old) prefer this method, nearly double the average (14%) of all other consumer demographics. That’s good news for community banks in the short term, but not a guar- antee that they won’t have to expand customer interaction channels in the future. While these statistics are bound to change over time, they support the claim that, currently, technology bells and whistles in the banking relationship are still a “nice to have” convenience, not a “must have” for most consumers.

Is there a universal answer? If there’s a single conclusion to be taken away from TechMecca 2013, it’s that the waters of financial services are getting murkier every day. Old players like the mega-banks and payments processors are looking to expand their footprint, while big data companies like Google are aggressively pursuing the holy grail of consumer financial data. For now, community banks have one major advantage — consumer trust. primary banks are still seen as having the highest level of trust for the protection of consumer data, far outpacing the non- financial institution companies like Ama- zon, Google and telecom companies, all of which have flirted with taking a larger role in our financial lives. “Big data has big plans for financial services but it’s important for community banks to remember that, as the owners and trusted protectors of their customers’ data, they hold the cards,” Chris Willi- ston, IBAT president and chief executive officer, said. “It’s most essential that community banks gauge their technological expansion on meeting customer needs, not keeping up with the most cutting- edge innovations in the marketplace.” ★

22 ★ The Texas Independent Banker March/April 2013 March/April 2013 www.ibat.org ★ 23 How Did Sub S Banks Fare in the Fiscal cliff Deal?

By patrick J. Kennedy, Jr and William sutherland

ith the signing of Tax Rates same top tax bracket. More specifically, the American Tax- We all knew tax rates were going to capital gains and dividend rates remain at payer relief Act go up, but many were able to dodge a bul- 15% for taxpayers in the 25-35% brack- of 2012 (H.r. 8) S let with the permanent extension of cur- ets and zero for taxpayers in the 10-15% corp banks and their rent tax rates for those earning less than brackets. Capital gains and dividends are owners now have $400,000 if filing individually, $425,000 if also subject to the 3.8% Net Investment some certainty about filing as head of the household or $450,000 Income Tax (NIIT) described below. taxes, at least for the foreseeable future. if filing jointly. For those who earn more H.r. 8 also increased the social secu- WIn addition to tax rate preservation (for than the thresholds mentioned, the top rity tax from 4.2% to 6.2% on earnings some), Congress also enacted a number of tax bracket has been raised to 39.6%. up to $113,000. In addition, there is a other “business tax” extensions that were Capital gains and dividend rates have Medicare tax surcharge of .9% on earned specific to S corps. been increased to 20% from 15% for the income above $250,000 (joint) and

24 ★ The Texas Independent Banker March/April 2013 S corps’ charitable contributions has also Trust Specific Matters been extended, which allows an S corp The NIIT proposed rulemaking con- shareholder to use the adjusted basis of tains special rules for Qualifying Subchap- Did Sub S Banks Fare in the Fiscal liff Deal? the contributed property rather than the ter S and Electing Small Business Trusts, fair market value. as well as S corps in general, in connec- By atrick J. Kennedy, Jr and William utherland tion with the calculation and recognition Net Investment Income Tax and the Health Care Act of net investment income, expense and gain. It is time for the impact of the Health Certain trusts will not be subject to Care and Education reconciliation Act the NIIT: of 2010 (Health Care Act) to be felt. • Trusts that are exempt from income pursuant to section 1411 of the Internal taxes imposed by Subtitle A of the revenue Code, the new 3.8% NIIT is Internal revenue Code (e.g. charitable set to begin January 1, 2013 on taxpay- trusts and qualified retirement plan ers making more than $250,000 (joint) or trusts exempt from tax under IrC sec- $200,000 (single). When it comes to the tion 501, and Charitable remainder NIIT the devil is in the details, so much Trusts exempt from tax under IrC sec- so that the IrS just issued 42 pages in the tion 664). Federal register of proposed regulations • Trusts that are classified as “grantor governing the implementation of the trusts.” NIIT. A quick review of these will reveal • Trusts that are not classified as “trusts” an extraordinarily complicated proposal for federal income tax purposes such that will require significant study and fur- as real Estate Investment Trusts and ther interpretation by tax professionals Common Trust Funds. and the IrS about whether and when the tax will be imposed. Big picture for the S Corp Banks Still viable typical S corp bank is: While most S corp shareholders will • The tax will be imposed on certain S pay more tax and there will be more pres- corp bank earnings if the taxpayer is sure on banks to distribute more cash to passive with respect to the income. In cover those higher taxes, S corp bank general, if you “materially participate structure benefits still are very much in the business,” you may not be sub- intact and the principal advantages of an ject to the tax. S corp still remain. Cash distributions to • Treasury Reg 1.469-5T(a) provides a shareholders of S corps will not be subject list of tests to determine who would be to tax and retained earnings will increase considered to be materially participat- basis, thereby, reducing the capital gains ing. An example might be a director tax upon sale. There is a case to be made who spends 500 hours or more on bank that there is more value in owning an S business attending meetings, promot- corp bank than a C corp bank as a result ing the bank, etc. of these features, especially over the long • With respect to a shareholder who term. In addition, the S corp structure materially participates, net invest- provides certain opportunities to create $200,000 (single) on top of the current ment income does not include loan or a tax advantage for a buyer that can be 2.9% tax. investment income since that income obtained upon a properly structured sale is “derived in the ordinary course of a of the bank, which can add significant Built-in Gains trade or business” for a bank. value to the franchise. These fundamen- A very relevant S corp provision of • Estates and Trusts will be subject to tals all remain intact after H.r. 8. ★ H.r. 8 is the extension of the five year the NIIT if they have undistributed built-in gains recognition (holding) period, net investment income and also have Mr. Kennedy and Mr. Sutherland are partners rather than a return to the ten year rec- in the law firm of Kennedy Sutherland LLP, a adjusted gross income over the dol- ognition period. This provision has been firm headquartered in San Antonio, Texas with lar amount at which the highest tax a comprehensive practice in financial institu- extended for an additional two years. bracket for an estate or trust begins for tions law. Mr. Kennedy is President and founder Charitable Contributions of the Subchapter S Bank Association. Mr. such taxable year (for tax year 2012, Sutherland serves as the Association’s Execu- The special basis adjustment rules for this threshold amount is $11,650). tive Director.

March/April 2013 www.ibat.org ★ 25 managing Bank M&A in today’s Market evolving strategies for community Banks

By Joseph m. Ford

part i: return to pre-recession M&A deal pricing community banks. Look for more stock- or numbers of deals. But the deals will keep for-stock and partial stock deals even the current playing Field on coming. Two influences will drive the where the acquirer may not yet be a pub- trend. Believing that size matters in mod- lic company with readily tradable public M&A Market Remains Tentative ern markets, some community bank own- stock. The safe course through unknown M&A activity among community banks ers will seek to accelerate growth through territory may be to join a wagon train led had a detectable pulse in 2012, but inves- acquisitions. Growth typically multiplies by someone who seems to know the way tors may have been waiting for 2013 and return on equity and shareholder value, forward. relative economic and political clarity to at the cost of increased risk and increased become more adventuresome. Some may difficulty in preserving concentration of Creative Deal-making Recognizes Needs and Challenges continue to wait, but deals are happen- control as size increases. Other commu- ing today. Buyers who were looking at nity banks still enjoy ample capital and Every consultant working in this problem banks are now looking at healthy stable rural markets and can afford to area will agree that deals are harder to get banks. Most community bank acquirers wait. These banks could reasonably make done these days. That is still partly due are themselves growing community banks the strategic choice to sacrifice growth to the remaining gap between the sellers’ who believe, like r.E. Lee, that the best in exchange for healthy distributions of expectations and market realities. Asset defensive strategy may be to remain on the current earnings through a Subchapter S problems are no longer the central issue, offensive as long as possible. Deal activity structure. That is probably the safe choice but the challenge remains to find creative will also pick up when and as more assis- for banks that lack management depth ways to balance and accommodate diverse tance arrives from the capital markets for and ample capital resources. Indeed, if stakeholder interests in times when cash, mid-market banks, both in terms of access those two vital components are in short leverage and excess capital are in short to capital and stock pricing. Capital is still supply, the bank’s owner should perhaps supply. King, so the pace of bank consolidation consider an early sale, even at today’s In general, growing community will likely remain sluggish for the time depressed prices, or at least embracing the banks cannot remain independent for too being for lack of robust funding. notion that retaining ownership of half-a- long unless they can find reliable continu- loaf is considerably better than none. ing sources of capital and liquidity for Bank Owners Adjust to A market comprised of eager buy- shareholders. Death and taxes will not be New Market Realities ers and reluctant sellers calls for creative denied. Tightly-controlled banks cannot Because of these factors, community thinking. That could take the form of usually manage this feat for an extended bank owners are unlikely to see a quick an upsurge in mergers-of-equals between (Continued on page 28)

26 ★ The Texas Independent Banker March/April 2013 March/April 2013 www.ibat.org ★ 27 Branching Strategies cont’d advice if they have a sense of what is possible and know which questions to ask. Always begin with capable economic period without sacrificing some or all con- and financial modeling of the expected trol. And thus, the pace of banking con- consequences of any potential bank solidation will inevitably go on. acquisition or combination. The bank’s There are still 7,500 or so commu- accountants or financial advisers can spe- nity banks in the United States, of which cifically help with this task. Having good almost 40% are below $100 million in size. pro formas will tell the buyer what it can Although the larger banks will remain on reGUlatorY afford and what challenges to capital ade- the shoreline awaiting larger fish, smaller quacy an acquisition would present. regional players are looking among the aGencies Even with the current emphasis smaller banks for new partners to share on cash and common equity as funding the vision with stock-for-stock and partial media, some room remains to structure stock offers. Only by that means will they balance sheets in creative ways and to themselves solve the problems of raising the time to sell! That does not mean you achieve the optimum leverage available capital and affording reasonable interim in the circumstances. Consider using a liquidity for shareholders, while still should blind yourself to any opportunities that may still arise. Look around your own hybrid security like convertible preferred building shareholder value for their own stock as part of the purchase consider- shareholders. markets. You will see at a glance which community banks are survivors (or too ation. The key is having a sense of what Translating Information into Action expensive to buy) and which are not. You is achievable within the constraints of current regulatory policy, taking real- Of course, the important question is: might be surprised how attractive your istic account of the quality of avail- What does the trending market data say offer of a stock-for-stock merger could be able managerial and long-term funding to guide meaningful strategic planning for if the target bank otherwise finds itself resources. bank owners? Strategic planning is really grinding away under regulatory pressure Every acquisition or sale must also be about preparing a franchise for optimum and going nowhere in terms of building informed by some reasonable assessment sale, over the long term or short term long-term shareholder value. of the prospective rate of return to share- depending on the resources and prospects Generally, community banks should holders from doing nothing. Strategic of each individual bank at any given time. never slam the door on any creditable awareness includes knowing enough to In other words, in the real world, strategic potential suitor offering a fair price. It is recognize a good thing and not try to fix it planning is all about exit strategy. If you not as if anyone believes the golden age unless it is broken. are thinking strategically, you should be of community banking lies before us. But But if you think there may be room asking yourself when and how to sell the that said, poor prospects for some banks for improvement, current market con- bank. will be seen as opportunities for others, ditions may present multiple potential That may well not be any time soon. and life and deal making will go on. opportunities to build shareholder value picking the right time to sell is important, For most community banks, there are with a strategic branch or a nonbank- but not the only thing. Optimizing the only a handful of acquisition targets that ing acquisition, or even an acquisition of gain you can expect to realize upon a sale make operational and geographic sense. another smaller bank. means first optimizing the logical market The reverse is also true. There are only opportunities available to the bank in light a relatively few buyers available for most Take Another Look at Mergers-of-equals of the management and capital resources community banks. The universe of mean- available to it, and doing so within a rea- ingful opportunities is so small that alert In particular, potential mergers- sonable horizon of investor expectations. bank owners will always want to answer of-equals may deserve careful consider- In other words, if time and opportunity when opportunity knocks regardless of ation, or even reconsideration, in some permit, it makes sense to grow franchises whether the markets are relatively up or situations. Many of the challenges facing to their logical extents and constraints relatively down at that particular time. smaller banks today, particularly the com- before a sale, which could include branch- pelling needs to maintain good manage- Deal-Making is a Useful Survival Skill ing or a few key acquisitions to fill in and ment, access to capital and afford reason- round out the franchise. For these reasons, an important sur- able liquidity for shareholders, can more vival skill for modern bank managers has easily be met by combining resources to Remain Open to New or become understanding the mechanics provide a broader economic base to draw Novel Opportunities and dynamics of successful deal making. from. After all, the current trends in the Good investment bankers can help, but It may not be easy to craft a legal and market do not leap out and say: Now is thoughtful bank operators will get better social structure that will blend disparate

28 ★ The Texas Independent Banker March/April 2013 cultures and stakeholders into a har- voting rights, while leaving operational Harmonizing stakeholder interests monious whole, one that is bigger and management reasonably unfettered. and rallying support for common strategic better than the sum of its parts, but it In the long term, the tested mecha- objectives ultimately falls to management. can be done. The starting point is fresh nisms of customary corporate governance That’s why they call it leadership. That’s thinking. usually work pretty well to harmonize what bank owners mostly want. They will Bank owners are often eager to share interests, especially as the shareholder usually be eager to be led by someone control, especially in favor of manage- base grows and becomes more diverse. with good credentials and a good plan— ment. A broader vision is required to From one annual meeting to the next, someone who can get the deal done. That meld disparate management teams into coalitions of shareholders may freely form means that today’s bank manager, in addi- a new team that can rally behind a new and reform to promote their respective tion to the other hats he or she is expected leader, but these qualities can be found visions. to wear, must also be prepared to become and coaxed into reality, sometimes with More importantly, it is not neces- a deal creator and deal manager when the particular ease when one group of com- sary that individual banks actually be strategic opportunity strikes. ★ peting stakeholders lacks a coherent man- merged to achieve most of the benefits of agement succession plan. the MOE structure. Although high-level Part II of this Article explores how to provide Of course, MOE’s are never exactly management will need to be uniform deal leadership, giving specific techniques for equal, and it may be a mistake to try to across the franchise, considerable local negotiating and closing bank M&A transac- make them more so through elaborate autonomy could be preserved at the bank tions in today’s market environment. The corporate engineering. Often the best level. The benefits of giving shareholders complete article can be found at www.ibat. course is to recognize broad equity bal- access to expanded capital resources and org/resource-library. ances among stakeholder interests merely greater personal liquidity come from com- Joseph Ford is Senior Partner with Fenimore, through allocation of board representa- bining stakeholders at the holding com- Kay, Harrison & Ford, LLP in Austin; jford@ tion, perhaps supported with cumulative pany level. fkhfpartners.com.

March/April 2013 www.ibat.org ★ 29 Branching strategies & Market evaluation a new Direction

By melissa Kinion

tart with a hefty amount of restrained optimism, add a generous dose of wariness, and community bankers are ready to roll in 2013. With growth identified as a key initia- tive, many banks are cautiously re-entering expansion mode this year. While robust expansion is still uncommon, selective opportunities do exist when considering market Sexpansion.

30 ★ The Texas Independent Banker March/April 2013 Does this sound like your bank? “over-banked”? Criteria defining an over- you say “our people”? Or “our service”? How does your bank evaluate a new banked market must include business Wait, looks like the replacement NFL ref market? Once a market is selected, how model (full-service, LpO, express service) just threw a flag! does it select the actual branch site? along with institution count. The gap Before you protest that call, read on. Here’s what we see in “typical” decision- must align with what your bank wants to Yes, of course you are right: people and making: offer. If your strength supports an LpO and service are truly the community bank 1. Many bankers evaluate new markets market demand favors a personal Bank- advantage. But the differentiation must and make market expansion decisions ing Deposit & Investment Center, this is go further. based on a “realtor sense” of available probably not your selective opportunity. Launching new markets and revitaliz- space and cost. Is the cost reasonable A second consideration is your bank’s ing current ones requires a brand identity for the market? Better yet, is it a little growth plan. Do your plans include having that stands out in the increasingly com- under? more than one location in this market or petitive financial industry. Without this 2. Sometimes there is a personal bias: a forming a regional corridor? A recent BAI brand differentiation, many banks falsely prestigious location or even “we really study found that the expectation of “more rely on generic promises and positioning. picked the location because our direc- branches equals faster growth” is statisti- Community bank brands have to be stron- tors like it.” cally true only for the top 30 banks in the ger than this. They must be positioned in 3. Statistics and market demographics are country. For community banks, successful a unique way, or we run the risk of simply often considered but are usually not growth depends on your people, your vis- fading into the bland brand image that the deciding factor. ibility, your unique position / brand, your commoditizes the financial industry and 4. pro formas are prepared, although they investment in the communities you serve. confuses consumers. Our people are peppy! are often subjective, too, and probing That doesn’t mean you shouldn’t expand, Our service is sassy! You get the idea. questions are asked and analyzed: but it does mean “build it and they will Developing your brand position is a • Will the new location grow new come” won’t work. Instead, look beyond strategic decision and is critical to your customers, serve existing customers, or your current footprint for selective bank’s growth strategy in 2013, whether both? opportunities, for ways to reach growing, the growth is external or organic. Your • What is the loan and deposit poten- emerging and underserved markets. Cast brand position will guide all of your deci- tial from new and existing customers? the net far and wide and then narrow the sions — from products and pricing to • What is the competitor penetration? options. technology to hiring to the overall cus- • What is the projected demographic Finally, dig deep into the data. Look tomer experience. plus, successful brand growth rate for the market? for ways to evaluate market potential positioning extends your reach into your 5. And the one that’s a real killer: “One beyond the typical demographic review to identified customer segment in new mar- of our board members was able to get recognize those stand-out markets. What ket. Make it easy for them to choose your us a great deal on this location.” All do the demographics tell you about mar- bank over the competition! the marketing dollars in your budget ket potential? What specific products are 3. Branches: plant it or prune it, but plan it! can’t fix the lackluster results caused by purchased and what are future predictives? There has been a lot of discussion a poor location. How active is the small business lending about the future of the brick-and-mortar Many of the above steps are prudent community? You can even go deeper with branch; much of it has been about the and should be taken, but knowing which psychographic segmentation, which sepa- demise of branches. Yet while most branch steps are right for your bank can be daunt- rates a defined market area into groups transaction counts are declining, most of ing. In our experience, the key to success based on needs, preferences and values— us believe the branch has a viable future. is to align objective analysis and inten- allowing your bank to specifically target How? By refocusing on the delivery of tional planning with your bank’s long- profitable segments more efficiently. All expertise, by encouraging more personal term strategic goals. of this data is valuable to the analysis pro- interactions and by actually capturing cess because it not only supports setting sales and marketing opportunities. Could Here are three steps to guide realistic goals and expectations, but also you ever replace the advice, counsel and and direct the process. allows your bank to be immediately posi- understanding given by community bank- 1. identify and prioritize market opportunities tioned as a useful, valued brand. ers when working with small businesses or All markets are not created equal. when helping children and seasoned citi- And what’s right for one bank may not be 2. Develop and launch with a differentiated zens open accounts? brand position right for yours. The first consideration is Here are some ways to tackle your market saturation. Is there room for one Quick: What is the one thing that branch effectiveness: more bank? How does your bank define differentiates your bank from others? Did (Continued on page 38)

March/April 2013 www.ibat.org ★ 31 Avoiding the Fiscal Cliff By lance m. Davis

HE FIS- tax years begin- CAL ning in 2013, CLIFF the maximum — the expensing amount dramatic under Code Sec. decline 179 is increased in the from $25,000 to federal budget deficit $500,000. The Tthat was to occur in investment- 2013 because of pre- based phaseout viously enacted tax amount for tax increases and spend- years beginning in ing reductions that 2012 and 2013 is were set to be effec- also increased to tive. Many experts $2,000,000. How- believed that the fis- ever, for tax years cal cliff would lead to beginning after a recession and higher 2013, the maximum unemployment. It expensing amount would have such a is scheduled to drop negative impact on to $25,000 and the the economy. It was the focus of signifi- Act that will affect financial institutions investment-based phaseout amount is cant debate and media coverage as 2013 as well as the individual income tax pro- scheduled to drop to $200,000. grew ever closer… visions that will affect shareholders of The 50% first-year bonus deprecia- In an effort to avoid the Fiscal Cliff, financial institutions. All of these pro- tion has been extended so that it applies in the early morning hours of January 1, visions are effective for years beginning to qualified property acquired that is 2013, the Senate, by a vote of 89-8, passed after 2012 unless otherwise indicated. placed in service before Jan. 1, 2014. In H.r.8, the “American Taxpayer relief addition, the rule treating qualified lease- Act” (the 2012 Taxpayer relief Act). Business provisions — hold improvement property as 15-year Later that same day—hours after the gov- The American Taxpayer Relief Act property has been retroactively revived ernment had technically gone over the he act contains two significant tax and extended through 2013. Thus, such “fiscal cliff” — the House of representa- breaks for businesses regarding depre- property is eligible for a bonus 50% first- tives, by a vote of 257 to 167, also passed tciation — the extension of increased year depreciation deduction if placed in the bill. The 2012 Taxpayer relief Act, expensing under Code Sec. 179 and the service before Jan. 1, 2014. which the president signed into law on extension of 50% bonus depreciation. Another potentially significant tax January 3, 2013, prevents many of the tax These provisions will significantly reduce break for businesses is a provision that hikes that were scheduled to go into effect the income tax liabilities of both C corpo- applies only to S corporations and deals this year and retains many favorable tax rations and S corporations. with determining the net recognized built- breaks that were scheduled to expire. The maximum expensing amount in gain. For tax years beginning in 2012 or This article will focus on the business under Code Sec. 179 is increased for 2012 2013, the recognition period is the 5-year provisions of the 2012 Taxpayer relief from $139,000 to $500,000. Effective for period beginning with the first day of the

32 ★ The Texas Independent Banker March/April 2013 first tax year for which • Undistrib- new the corporation was an 2011 & increase 2013 top medicare uted net investment 2012 top from 2012 Federal tax 2013 top S corporation. increase income, or Federal tax relief income tax effective in Federal from 2011 type of income rate act rate 2013 rate to 2013 • The excess of Individual income tax AGI over the dollar provisions — Wages 35.00% 4.6% 39.60% .90% 40.50% 5.50% amount at which the The American Taxpayer Taxable 35.00% 4.6% 39.60% 0% 39.60% 4.60% highest income tax Relief Act Retirement bracket applicable he act limited the Distributions to an estate or trust expiration of the Long Term 15.00% 5.00% 20.00% 3.80% 23.80% 8.80% begins Bush tax cuts to Capital Gains t Net investment higher income taxpay- 15.00% 5.00% 20.00% 3.80% 23.80% 8.80% Qualified income is investment ers who are above the Dividend Income income reduced by “applicable threshold” Passive Income 35.00% 4.60% 39.60% 3.80% 43.40% 8.40% the deductions prop- — $450,000 for joint Active Income 35.00% 4.60% 39.60% .90% 40.50% 5.50% erly allocable to such filers and surviving from Partnership income. Investment spouses; $425,000 for Active Income 35.00% 4.60% 39.60% 0% 39.60% 4.60% income is the sum of: heads of household; from S Corporation (1) gross income from $400,000 for single fil- C Corporation 35.00% 0% 35.00% 0% 35.00% 0% interest, dividends, ers; and $225,000 for Income annuities, royalties, married taxpayers filing and rents (other than separately. The ordinary income derived from any trade or busi- income tax rates for most individuals will effective for 2013 on investment income. ness to which the tax does not apply); remain unchanged. However, a 39.6% This additional tax is certainly worthy of (2) other gross income derived from any rate will apply for taxable income above discussion as it could apply to passive S trade or business to which the tax applies; the “applicable threshold.” corporation shareholders as well as all C and (3) net gain (to the extent taken into The top rate for capital gains and corporation shareholders. account in computing taxable income) dividends will permanently rise to 20% For an individual, the tax is 3.8% of attributable to the disposition of property (up from 15%) for taxpayers with incomes the lesser of: other than property held in a trade or exceeding the “applicable threshold.” For • Net investment income, or business to which the tax does not apply. taxpayers whose ordinary income is gen- • The excess of modified adjusted gross In the case of a trade or business, erally taxed at a rate below 25%, capital income (MAGI) over the threshold the tax applies if the trade or business gains and dividends will permanently be amount is a passive activity with respect to the subject to a 0% rate. Taxpayers who are The threshold amount is $250,000 taxpayer. Therefore, the tax applies to a subject to a 25%-or-greater rate on ordi- for a joint return or surviving spouse, passive shareholder of an S corporation. nary income, but whose income levels fall $125,000 for a married individual filing The tax does not apply to other trades or below the applicable $400,000/$450,000 a separate return, and $200,000 for all businesses conducted by a sole proprietor, thresholds, will continue to be subject to a others. partnership, or S corporation. Thus, for 15% rate on capital gains and dividends. For an estate or trust, the Medicare a taxpayer who doesn’t engage in a pas- Although not part of The American contribution tax is 3.8% of the lesser of sive activity, “net investment income” Taxpayer relief Act, a new Medicare tax is either: (Continued on page 38)

March/April 2013 www.ibat.org ★ 33 June 13–15, 2013 Horseshoe Bay resort marriott

he Leadership Conference is one of IBAT’s flagship events, combining education and networking with family-friendly activities. This 2½ day conference is designed to inspire community bankers to become more enthusiastic leaders with the Leadership Division approach to opportunity, attitude, and quality service. And while you’re learning what it takes to be a good leader, your children can learn about earning and managing money at the Kids Money Camp. This year’s destination is the Horseshoe Bay resort Marriott. This 347-room AAA Four Diamond Austin hotel and conference center offers visitors a unique yet complete Texas resort experience, including one of Texas’ premier SPONSORS Tgolf resorts, overlooking picturesque Lake LBJ and surrounded by lush manicured waterscapes and gardens. Platinum Silver Golfers can spend a few days enjoying any or all of the three The Baker Group BKD, LLP robert Trent Jones, Sr. Texas championship golf courses. The Gold Cox Smith Matthews lake resort also features a full-service marina where you can rent AccuSource Solutions Fenimore, Kay, Harrison & Ford, LLP everything from kayaks to luxury cabin cruisers. For tennis enthu- Advantage Health Plans Trust JMFA siasts, there are a dozen adult tennis courts and three child courts. Federal Home Loan Bank of Dallas PULSE Treat yourself to a day of relaxation at the full service Bayside Spa. Sharp BancSystems Bronze Indulge your palate at any of eight Hill Country restaurants and Talaris First American Payment Systems lounges. First Data For more information or to register, visit www.ibat.org. ★

34 ★ The Texas Independent Banker March/April 2013 AGeNDA GeNeRAL SeSSIONS wednesday, June 12 2:00-5:00pm Conference Registration The Morning After: Recovering from the 2:30-5:00pm Leadership Board of Directors Disaster You Should Have Seen Coming Meeting — Dr. Jeff Hester 3:00-5:00pm Exhibitor Set Up A leader is the person out in front who is making 6:00-9:00pm Leadership Board of Directors the decisions that set the course of an organization. Reception and Dinner Leadership requires vision, and vision is grounded Thursday, June 13 in knowledge. As humans we have a strong ten- dency to hang on to the things that we think that we 8:00am-1:00pm Golf Tournament know. That complacency can mean death in times 10:00am-5:00pm Conference Registration as volatile as these. The good news is that there is a way to improve an organization’s vision and create 2:00-3:15pm opening General session new opportunities at the same time. In this lively The Morning After: Recovering from the Disaster presentation rich with stories from the front lines, You Should Have Seen Coming Dr. Hester offers his perspective on what it takes to — Dr. Jeff Hester make high stakes decisions in a fast-paced world. 1:30-7:30pm Exhibitor Tabletops How to Think Big and win Big Marketing ROI 3:00-5:30pm Kids Money Camp (even in Nontraditional Media) 3:30-4:45pm General session — Andy Slipher How to Think Big and Win Big Marketing RoI Recent years have brought the promise (and, often, (Even in Nontraditional Media) disappointment) of social media as a marketing tool — Andy Slipher for banks. Add in new FFIEC guidelines, and many God, Family, Ducks…In that order! 4:45-6:00pm Exhibitor “Speed Dating” bankers have opted to avoid any online presence — Jase Robertson outside of their own website. In this session, Andy Fans of A&E’s Duck Dynasty already know that Jase 6:00-7:30pm opening Reception with Exhibi- Slipher of Slipher Marketing explores strategies for tors and Purse & Toy Auction Robertson has a “different” way of looking at life… maximizing your marketing return on investment, God, Family and Ducks – In that order! With his Friday, June 14 including the use of social media. characteristic wit, Jase will be on hand to challenge 7:30am-noon Conference Registration attendees to examine life’s priorities and make sure 7:30-9:30am Pancake Breakfast served by you’re having a little fun along the way. the Leadership Board of Directors Purpose of the IBAT Do You Know Credit? Beyond the Numbers: 7:45-8:15am Devotional — Jase Robertson, Leadership Conference How FICO Credit Scoring Really works – Duck Commander Eddie Johansson 8:30-9:30 General session — Developing leaders Get ready to have your credit score assumptions God, Family, Ducks…in that order! shattered. Learn ways to accurately reflect your cus- —Jase Robertson, Duck Commander in Texas community tomers’ credit risk that raise their credit scores – vital information to lead your bank and your customers in 9:30-10:30am Autographs, Pictures, Meet & banking through focused these times. Gain knowledge you can teach others to Greet with Jase Robertson education, industry take your organization to a new level in credit exper- 10:30-11:30am Do You Know Credit? Beyond tise and service. From the basics to the advanced, the Numbers: How FICo Credit Scoring Really Works involvement, and Johansson is a well-known, popular and experienced — Eddie Johannson educator on how the FICo scoring model works. This presentation includes new information on the 11:30-noon Changing of the Guard, personal relationships. How/What/When of the FICo ‘08 model. A Question Leadership Excellence Award, and Answer session follows his presentation. Five Star Award eXHIBITORS Get Your Ducks in a Row! Moderated Point/ noon-12:30pm Lunch Buffet Abound Resources Counterpoint Discussion 12:30-2:30pm General session AccuSource Solutions Topics Covered: Get Your Ducks in a Row! Moderated Point/Counter- Advantage Health Plans Trust point Discussion Corporate Account Takeover (CATo) The Baker Group 2:30-5:30pm Afternoon Free CFPB Mortgage Rules BKD, LLP 5:30-6:30pm Hospitality Suites Deluxe Interest Rate Risk Management and the Reach for Yield 6:30-10:00pm Friday night Family Fun Diebold — Dinner and Dancing Featuring Bruce Robison Federal Home Loan Bank of Dallas Communication Saturday, June 15 JMFA Risk Management vs Risk Tolerance 7:30-9:30am migrating Farewell Breakfast PULSE Cyber Fraud – Join your fellow Leadership members for a planning Talaris Strategic Planning – Preparing for 2014 in 2013 session on how to stay connected after the conference

March/April 2013 www.ibat.org ★ 35 What Your Board of Directors should Know creating a strong (and effective!) community Bank Board of Directors

By Kelly Goulart

e all recognize that balanced. One critical task is making and needs of each group of stakeholders bank directors must sure that whomever is selected reflects and providing strategic vision. make decisions that the community, but is not duplicative of A board member should be compe- impact three very another board member. Individually they tent. Gone are the days when Aunt Tilly distinct stakehold- understand the market and have a stra- was put on the board for the simple fact ers — sharehold- tegic vision for the bank that resonates Aunt Tilly’s family has had a member on ers, depositors, and with shareholders and senior management. the board for 50 years. Any candidate regulators. There is another distinct Those individuals understand that the being considered should bring strong Wstakeholder for a community bank board: role of a board member is to focus on the business expertise to the board, preferably the very community they live, work, and sustained value of the bank while growing banking experience. Simply put, the day worship in. The fact that we call on our their community, and how they can con- of the amateur part-time board member is community bank board members to help tribute to both. However, board members over. Look for community business lead- supervise and guide a critical part of com- and candidates should have diverse profiles ers who understand the wants and needs munities across the state means that a and thoughts. A diversity of skills, exper- of the various stakeholders, understand community bank board member must be tise and experience promotes discussion the concept of risk management, and balanced, competent, and committed to and a certain amount of what we like to can make tough business decisions. But the task. Not an easy chore when trying call “efficient friction.” This kind of bal- just because they are strong business lead- to identify and develop candidates for the anced board membership can bring real ers does not mean they will be equally job. value to the bank by addressing the wants effective as board members. They need First, a board member should be to be consensus builders. Each board

36 ★ The Texas Independent Banker March/April 2013 member should work toward making sure training. They need to be educated not an individual says “I had no idea it was the board functions as a team and that it only on their core duties and responsibili- going to be so much work!” One way understands and “owns” the strategy of ties and liabilities but also more specifi- to help avoid that is by providing every the organization. cally on topics such as BSA/AML and fair prospective (and existing) board member Finally, a board member should be lending. They absolutely must understand with a written “job” description. That job very committed to the role. Being a mem- “conflict of interest” issues, code of con- description should address the role of the ber of a community bank board takes duct/ethics requirements (including Bank director and what exactly will be expected a certain level of dedication that not Bribery Act), and confidentiality require- of them, including the time and educa- every person can muster. For example, ments. regulation O and regulation W tional commitment. Everyone should any individual being considered should are very important for them to under- have a very clear understanding of the be unequivocally dedicated to the con- stand as well.” That level of education strategic function of the board and should tinuing educational demands that will and understanding will require a board sign off on a job description that includes be placed upon them. This requirement candidate who is committed and willing their role and specific responsibilities should be clearly addressed in both the not only to learn, but to re-learn. before joining the board. It’s a good idea appointment process for selecting candi- for the board to revisit those written “job” dates and in the responsibilities for con- So any prospective board member descriptions at least annually so they can tinuing board members. should be balanced, competent, and com- sharpen their focus. ★ Karen Neeley, IBAT General Coun- mitted. That should be made clear from sel, in a recent email wrote, “I would sug- the very beginning. The last thing that Kelly Goulart is IBAT’s Regulatory Compliance gest that one important issue is director should happen is, after joining the board, Manager.

March/April 2013 www.ibat.org ★ 37 Branching Strategies cont’d for those selective opportunities, analyze and dissect them thoroughly, brand them Start the year viewing the branch distinctly, and plant them in a cultivated, from a new perspective. The branch is supportive environment for long lasting TIB now a relationship builder where deeper, growth and success! ★ Capital Markets more profitable relationships are formed — a cross-selling center for all deposit Melissa Kinion is CEO of The Genesis Group, Turnkey. Integrated. Bankers. IBAT’s endorsed provider for marketing ser- and investment products, all types of vices. She can be reached at mkinion@forgen- loans and a must-have to attract the busi- esis.com. ness market. (Notice this section does not mention typical reinvention solutions that involve coffee service or ipads.) • Begin the process of staffing all loca- Avoiding the Fiscal Cliff cont’d tions with a universal position, often called a relationship banker or personal will include non-business income from banker. Or, even better, title the job in interest, dividends, annuities, royalties, line with your brand position. Select rents and capital gains, minus the allo- new hires with strong interpersonal cable deductions. Business income won’t skills and a professional background. be included. For a taxpayer engaging in a Meaningful recognition and rewards passive activity, “net investment income” are essential. will include the above items, plus the • To improve current branch productiv- gross income (minus allocable deduc- ity or start with a fresh approach in tions) from the passive activity. a new market, assess and realign staff It is important to remember the 3.8 with the market in mind. Align goals percent Medicare surtax only applies if a and expectations with the market taxpayer has net investment income and potential you have uncovered in the modified adjusted gross income in excess market analysis. of the applicable threshold. • As you build or update branch interi- The table below analyzes the effect of ors, create spaces that are branded with recent congressional action on tax rates. inviting stations that accommodate multipurpose functions. Overall size is what does all of this mean? smaller, open and bright. Most taxpayers welcomed the news By the way, “branch” planning is of The American Taxpayer relief Act. more than bricks and mortar. What about Obviously, the higher income earners will your “virtual branches” — your website, not benefit quite as much as other taxpay- mobile and tablet banking? It is equally ers; however, compared to the income tax as important to retain the droves of your environment they would be facing with- best customers who now interact primar- out any legislation, they too should be ily with these channels as it is to acquire very receptive to the new provisions. new customers. If your sites and apps are While the income tax provisions of static, tired and outdated and if upgrad- The American Taxpayer relief Act will ing to an engaging website and a brilliant provide benefits in the short term, there mobile app are not on your to-do list for is obvious concern that we will soon be 2013, take action now. Otherwise, you faced with another fiscal cliff. The income risk damaging your brand and negating tax breaks are short-term and the spend- the investments you are planning for new ing cuts still need to be dealt with. How- market growth. Much of consumer runoff ever, in the meantime, taxpayers should is driven by online impatience and frus- take advantage of the benefits of the cur- tration in today’s expectation of instant rent provisions and plan strategically for information. what may lie ahead. ★ In closing, the bottom-line is always Lance M. Davis, CPA, is a partner with BKD, the bottom-line. profitability potential LLP, and can be contacted at lancedavis@bkd. must always direct growth strategies. Look com.

38 ★ The Texas Independent Banker March/April 2013 LEADERSHIP DIVISIoN NEWS cont’d

He was a member of the team responsible for the first camera on the Hubble Space Telescope. His famous Hubble Space Telescope image, entitled the “pillars of Creation,” With over $18 billion of investments under management, ALM First was recently selected by Time Magazine is an SEC-registered investment advisor, acting as an unbiased as one of the 100 most influential photo- third party, offering commission-free, fee-based services to over graphs in history. 175 financial institutions across the country. Services include: Dr. Hester has had a front row seat for some of the most extraordinary events • Asset Liability Management • ALM Validations in the history of science and his presentation will inspire the imaginations of both • Investment Advisory • Investment Portfolio Analysis adults and children. • Merger Valuations • MSR Valuations To register and learn more about this • Hedging with Derivatives • Training and Education year’s Leadership Conference, log on to • Loan Profitability Analysis • and more... www.ibat.org.

To find out more, contact Bob Stevens at( 214) 451-3930 or march is pac Drive month [email protected] or visit our website: www.almfirst.com IBAT is asking all our members to conduct a Bank pAC Drive during the month of March. The Leadership Divi- sion is making its long-range goal to see that each IBAT member bank conducts a Job #: ALMF-1230 Qrt Pg Ad Client: ALM First Pub: N/A pAC drive with its directors, officers and JUSTBleed: N/A RIGHT Trim: 4 3/4” x 3 3/4” Live: N/A Gutter: N/A LS/Colors: BW Insertion: N/A employees. The IBAT pAC and IBAT The BankersFor questions Bank call: may Justin be M cGuffin 214.446.0996 FedpAC are important to the very survival of community banking. larger than the correspondent As you prepare for your pAC Drive, departments of many big select a volunteer to champion the pAC Drive. That individual may want to banks – but we operate on develop fun and entertaining ways for a personal level. your employees to contribute. perhaps extra perks for those who contribute to the pAC such as Friday T-shirt day, Friday sundaes, or a drawing for lunch or dinner at a local restaurant. One of our most successful pAC fund- raisers last year was the Dream Vacation. This is a simple way for all of your employ- w w w.thebankersbank.com • 800-522-9220 ees to participate in the pAC Drive. For a $10 contribution to the IBAT pAC, the employee receives an entry for the Dream Vacation drawing worth $5,000. By participating in the pAC Drive, your employees have a stake in their industry’s future. ★ Editor’s Note: For more information and articles Mark your calendar! about the IBAT Leadership Division, go to the Leadership Division page on the IBAT website: www.ibat.org september 21–24, 2013 iBat’s 39th annual convention • San Antonio

SEPTEMBERMarch/April 2013 www.ibat.org ★ 39 Clark Montgomery Dinsmore Evans Taylor, G. Harris

Clark has devoted his 25 years in bank- continue to serve as vice chairman and PERSoNNEL UPDATE ing to specializing in real estate and com- chief executive officer of Texas Bank and cont’d from page 15 mercial banking. He is a board member of Trust affiliate Lindale State Bank. He sales program and managed a team of CCIM (Certified Commercial Investment holds a Bachelor of Science degree from pULSE sales executives. Urquizu joined Member) and is a member of the Mortgage Stephen F. Austin State University and pULSE in 2001 as a sales executive. Bankers Association as a CMB (Certified is a graduate of the Graduate School of The move follows the decision of Commercial Mortgage Banker). Banking of the South at LSU in Baton Leah Henderson to transition from her Long time Houston banker and one rouge, Louisiana. position as pULSE executive vice presi- of Integrity’s original 13 employees, Phil Jennifer Harris has been promoted dent, sales and account management to a Montgomery is taking on the role of exec- to vice president and operations divi- special advisor role reporting directly to utive vice president and chief credit offi- sion project coordinator with Texas Bank pULSE president Dave Schneider. cer. Montgomery has specialized in credit and Trust. Harris has worked at the bank Integrity Bank has announced the administration for over 37 years. He is the since 2009. In her new position she will promotions of four veteran Houston bank’s senior associate in the risk Man- be responsible for business development bankers, along with the hiring of a new agement Association (rMA). and project management activities for the executive officer. Deborah Dinsmore has joined Integ- bank’s operations division. She holds a Charlie Phillips has been promoted rity Bank as executive vice president, chief Bachelor of Science degree from the Uni- to executive vice president and chief lend- operations officer, and chief information versity of Texas at Austin. ing officer. phillips joined Integrity during officer. In her new role at the bank, she Jennifer Harper is now a vice presi- its inception in 2007. He has 24 years’ will focus on process improvement and a dent in the lending division at Texas Bank banking experience, primarily focused on balanced approach to risk management. and Trust. Harper has 20 years’ banking commercial and industrial lending. In his Robert “Bob” Evans has joined experience, and has served in a variety of new role, phillips will manage the bank’s CommunityBank of Texas as senior vice roles with the bank since 1998. In addi- lending staff and will be responsible for president and brings nearly three decades tion to her own lending and account the overall growth of the bank. of residential construction lending exper- management responsibilities, Harper will Hazem Ahmed, another original tise to the independent regional bank. assist the bank’s president as well as other bank employee, was promoted to execu- prior to joining CommunityBank, Evans senior lenders in the commercial lending tive vice president — commercial lend- had established a state-wide residential division. ing. He will also be the new branch man- construction lending team with relation- Sharon Stratton has been promoted ager of the bank’s Southeast location, ships totaling more than $800 million in to assistant vice president in the Texas scheduled to open in late spring. Ahmed line of credits and other real estate loans. Bank and Trust lending division. With has focused his 16 years in banking pro- He earned an honorable discharge from over 30 years of banking experience, viding tailored banking relationships to the United States Army where he was a Stratton currently maintains a loan port- owner operated businesses with needs member of the US Army Shooting Team folio and assists one of the bank’s senior relating to real estate, working capital and and received an Outstanding Soldier vice presidents with commercial and con- equipment financing. He serves on the Award. sumer lending. She holds a bachelor of Leadership Division Board of Directors business administration degree from Ste- for the Independent Bankers Association Longview phen F. Austin State University. of Texas, is secretary of Class 53 and is Gary Taylor has joined the staff Rogers Pope, Jr., has been named an Alumni Board Member of Southwest of Texas Bank and Trust Company as Texas Bank and Trust vice chairman and Graduate School of Banking. executive vice president and commercial chief operating officer. He joined the Rick Clark was promoted to senior lending officer. Taylor has been involved bank in 1994 and assists with the overall vice president — commercial lending. in banking for over 35 years, and will management of the bank and its holding

40 ★ The Texas Independent Banker March/April 2013 Harper Stratton Pope Hackney Vanderburg Foerster company, Longview Financial Corpora- banker for 50 years, Hackney has been a operations officer at peoples Bank. Since tion. pope received his bachelor of busi- member of the bank’s board of directors joining the bank in 2004, Vanderburg has ness administration degree from Baylor since 1995, and previously served as the experienced several promotions and vari- University with a major in finance and bank’s president from 1995 to 2004. He ous responsibilities. He is a 1991 graduate received his juris doctor degree from Bay- graduated from Southern Methodist Uni- of Texas Tech University and holds a Mas- lor Law School. He currently serves on versity with bachelor of business admin- ter’s Degree from Texas A&M University. the board of directors for the Independent istration and master of business admin- Anthony Foerster has been pro- Bankers Association of Texas, the South- istration degrees. He completed his final moted to senior vice president at peoples western Graduate School of Banking term as a member director of the Federal Bank. He joined the bank in 2007 as an Foundation, and TIB-The Independent Home Loan Bank of Dallas in 2012, hav- agriculture loan officer and will continue BankersBank, as well as the federal del- ing served ten years in that position. to serve as branch manager at peoples egate board for the Independent Commu- Bank Shallowater. Foerster attended and nity Bankers of America. Lubbock played football at Hardin-Simmons Uni- Howard Hackney has been named Troy Vanderburg has been promoted versity in Abilene and at Texas Tech, president of Texas Bank and Trust. A to executive vice president and chief (Continued on page 43)

The Correspondent Division of CenterState Bank employs over seventy dedicated correspondent professionals, and we manage over 590 relationships throughout the United States.

As our customers and their communities expand and grow, CenterState Bank is committed to delivering innovative products and services that Include:

Capital Markets Services International Services Portfolio Strategies Foreign Wire Transfers Bond Accounting and Safekeeping S.W.I.F.T. Messaging BondRisk and SwapRisk Software Foreign Currency and Travelers Checks Foreign Check Clearing Treasury Services Foreign Drafts  Brokered CDs Foreign Exchange Advisory Services  Repurchase Agreements  Federal Funds Accommodations Payment Solutions  Derivative Instruments Cash Management  Converge (On-line Platform) Asset/Liability Management Modeling and Consulting  Sweep Account  Plansmith Bankers GPS - Call Report Model  Federal Funds Program  FICast Sendero - Instrument-Level Model

Bond School and Customized Educational Functions

3800 Colonnade Parkway, Suite 210  Birmingham, Alabama 35243  205.968.2900  800.848.8573 www.csbcorrespondent.com

March/April 2013 www.ibat.org ★ 41 INTEREST RATES cont’d from page 12

a pre-purchase credit analysis that is both useful and efficient. These credit metrics are derived from the bond’s official statement, financial statements, and other relevant filings from the obligor. Hyperlinks to these documents are embedded within the Credit profile, allowing the investor to perform further analysis. The Credit profile also provides bond level data such as the purpose of issuance, pledged security, and tax status; three years of trend data; macroeconomic indicators such as unemployment and income statistics; and the obligor’s pension funding status. This kind of reporting has received positive feedback both from portfolio managers and examiners, especially in light of the regulations imposed by Dodd-Frank. To comply with these regulatory guidelines, banks are advised to review the relevant metrics, establish appropriate bench- marks before the purchase decision, and perform an annual post purchase review of each credit in the portfolio. Clearly, credit analysis has become an important anniversaries issue for bank investment officers. Now GUARANTY BOND BANK, MOUNT PLeASANT— January 20 – Ty Abston, CEO and that regulatory expectations are clarified, Chairman of the Board, with IBAT’s Milton McGee banks will need to ensure that they have in place the reporting tools, processes, and resources necessary to properly manage the investment portfolio. Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven onlending the moveYour approach of total resource integration utilizing software and products developed by Plainview-basedExpertise HCSB, a state bank- Mason National Bank has completed Baker’s Software Solutions* — combined ing association, has changed its name its conversion to a Texas state-chartered with our solid investment experience and tipsto Centennial for helping Bank inyou conjunction help bank and changed its name to Mason advice — makes us the investment firm smallwith its businessesmerger with sister become bank Citi- Bank. With assets of $93 million, the of choice for many community financial zens Bank, Slaton. Centennial will do bank has served the Mason commu- institutions. For more information, con- business as a wholly-ownedgood subsidiary nity for 108 years. Mason Bank has 17 tact Drew Simmons at The Baker Group: of Commerceloan candidates. Bancshares, Inc. (for- employees with 398 years of service to 800-937-2257, www.GoBaker.com, or merly HaleCo Bancshares, Inc.). The the bank, an average of more than 23 email: [email protected]. ★ bank will operate 12 full-service bank- years per employee. ★ *The Baker Group Lp is the sole authorized dis- ing centers and two loan production tributor for the products and services developed offices throughout the Hill Country, and provided by The Baker Group Software Lubbock, panhandle/South plains and Solutions, Inc. West Texas.

42 ★ The Texas Independent Banker March/April 2013 PERSoNNEL UPDATE cont’d from page 41

aDvertisinG DirectorY

alm First Financial advisors www.almfirst.com pg 39

american national insurance co McKay Thompson Edney www.anico.com pg 9 the Baker Group National Bank, has been appointed to www.gobaker.com pg 13 the Office of the Comptroller of the Cur- BKD, llp rency’s Minority Depository Institutions www.bkd.com pg 45 Advisory Committee (MDIAC). The caltech MDIAC will provide advice to the Comp- www.caltech.com pg 48 troller of the Currency about minority depository institutions and will assess the centerstate Bank www.centerstatebank.com pg 41 current condition of minority depository institutions, regulatory changes that may First american payment systems www.first-american.net pg 7 Lopez Werner ensure the health and viability of minority depository institutions, and other Granville Financial Group earning a Bachelor of Science degree in issues affecting these institutions. www.granvillegrp.com pg 15 Agricultural and Applied Economics from iBat services Tech in 2001. Mesquite www.ibatservices.com pg 29 Jordan McKay has been promoted to Deborah Edney has been promoted iBt, inc. vice president and loan officer atpeoples to vice president at First State Bank. www.ibtapps.com pg 11 Edney has over 18 years’ experience in the Bank. He joined the bank in 2007 and is icBa a 2007 graduate of Texas Tech University following management positions: bank- www.icba.org pg 5 with a degree in General Business from ing operations, customer relations, bank Kansas Bankers surety company the rawls Business College. McKay serves office processing, ATM/debit card process- 785-228-0000 pg 19 peoples Bank with consumer interim con- ing, teller/customer service management, pUlse struction loans for new homes and remod- product implementation/testing, ACH www.pulsenetwork.com pg 47 eling needs. administration, and wire transfers. Kevin W. Thompson has joined First State Bank has elected Ed A. sHaZam www.shazam.net pg 2 Centennial Bank as senior vice president Lopez, executive vice president, chief and Boerne market manager. Thompson lending officer/loans and special assets, the Bankers Bank www.thebankersbank.com pg 39 will manage the bank’s presence in the advisory director, and executive commit- Boerne market, develop commercial loan tee member. Lopez has served in Texas tiB and deposit relationships and provide banks located in Corpus Christi, Laredo www.mybankersbank.com pg 38 community leadership and support. He is and Seguin, and previously was employed a summa cum laude graduate of Abilene by the FDIC Division of Liquation. Lopez Christian University with Bachelor of has a BBA degree from Texas A&I Uni- Arts degrees in Communication and versity and is a graduate of the Graduate Ministry, and holds a Masters of Busi- School of Banking at the University of ness Administration from the McCombs Wisconsin-Madison. School of Business at the University of Texas at Austin. Quitman Bob Dyer has been elected vice Mercedes chairman and chief executive officer Joe Quiroga, president of Texas (Continued on page 45)

March/April 2013 www.ibat.org ★ 43 visit to First national Bank January 22 of Granbury. anti-money laundering & January 15 Bank secrecy act seminar in visit to texas national Bank Houston and lubbock. of Jacksonville. January 23 anti-money laundering & anti-money laundering & Bank secrecy act seminar Bank secrecy act seminar in tyler. in irving. mastering HmDa seminar in January 24 lubbock and temple. anti-money laundering & Bank secrecy act seminar in January 16 temple. introduction to lending compliance seminar in lub- January 25 bock and temple. anti-money laundering & Bank secrecy act seminar in January 17 san antonio. iBat leadership Division regional meeting, “oppor- January 26 tunity, risk & regulatory iBat teach the teacher pro- implications in 2013 Driving gramtm in san antonio. profitability – integrating January 28 regulatory compliance,” iBat regional meetings in sponsored by Doeren may- Graham and Fort Worth. hew at integrity Bank in Houston. January 29 iBat regional meetings in mortgage lending: start to amarillo and lubbock. Finish seminar in lubbock and temple. January 30 iBat regional meetings in January 20 el paso and san angelo. 100-year anniversary celebration of Guaranty Bond January 31 Bank in mount pleasant. iBat regional meetings in Waco and san antonio. January 21-22 December 11 January 10 techmecca 2013 in Fort cBao Board meeting in texas Deposit Documenta- Worth. IBAT oklahoma city. tion seminar in Houston. December 11-13 Around iBat services participates in Dell World in austin. iBat calendar December 12 the March 25–26 Financial Literacy Summit, Dallas iBat associate member advisory council strategic 27–28 Nuts & Bolts of Banking Summit, August State planning in Houston. Dallas 15–16 Lending Compliance Summit, and beyond networking luncheon in April Houston for area associate Dallas members and other local 11–12 operations Compliance Summit, 29 IT Security Summit, San Antonio companies. Austin December 1 September iBat teach the teacher pro- December 13 23–26 IBAT Congressional Visit 5–6 Investment & A/L Management gramtm in mount pleasant. visit to Bank of the West in 30 Credit Analysis Summit, Dallas Grapevine. Summit, Dallas December 4 iBat speaks on Bsa/aml at sWacHa Board meeting in May 10–11 Branch Manager Summit, Dallas the san antonio area Bank Dallas. 1–2 Advanced Credit Analysis 12 Head Teller Summit, Dallas compliance association January 2-4 Summit, Dallas 21–24 IBAT Convention, San Antonio meeting in san antonio. iBat represents texas com- June December 5-7 munity banks in Washing- October ton, D.c. 4–5 Bank on Boot Camp, Austin iBat, iBat leadership Divi- 13–18 Bank operations Institute sion, and iBat services January 8 13–15 Leadership Conference, 29 Credit Analysis Summit, Boards meet in Dallas. south central Bankers Horseshoe Bay association meeting in San Antonio schulenburg. July 30–31 Advanced Credit Analysis 9–10 Branch Managers Summit, Summit, San Antonio The Woodlands For information about any of these programs, 11–12 Head Teller Summit, contact Julie Courtney at 800-749-4228 or The Woodlands [email protected], or visit www.ibat.org.

44 ★ The Texas Independent Banker March/April 2013 PERSoNNEL UPDATE ® cont’d from page 43 weLCOMe New MeMBeRS of BankTexas. Dyer previously served alm First Financial advisors the security center as president and then vice chairman at Bob stevens lyn rieger, central and south tX area sales another area bank. Dallas, tX manager Dallas, tX www.almfirst.com www.securitytexas.com Lori Sirman has been named executive vice president at BankTexas. She has ALM First is a leading, trusted strategic partner for The Security Center, headquartered in Dallas, has been serv- financial advisory services. With over $18 billion of ing the needs of community banks for 50 years, providing worked for several banks in the region. investments under management, ALM First is an SEC- sales, installation and service of physical and electronic Worth Jackson has also been named registered investment advisor, acting as an unbiased security equipment: vaults, vault doors, safe deposit boxes, executive vice president. He has been third party, offering commission-free, fee-based services night depositories, cash safes, drive‐in equipment, 2‐way to over 175 banks and credit unions across the country. audio/video, teller equipment, alarm, access and video with BankTexas since 2001. Services include ALM, investment advisory, merger valu- surveillance systems. Troy Robinson, who has served as ations, hedging with derivatives, ALM validations, MSR U.s. merchant card solutions valuations and other additional services. president and CEO of BankTexas for the Ken Givens, regional manager past 13 years, will continue his service to loan review and training austin, tX the organization as president and chief richard Gallagher, owner/manager www.usmstexas.com Frankston, tX U.S. Merchant Solutions’ Executive Consultant, Ken Givens, operating officer with expanded responsi- www.loanreviewandtraining.com bilities in the areas of bank operations. has been helping merchants, associations and nonprofits Performs loan reviews for lenders with focus on agricul- with many types of PCI compliant card processing for 19 tural, commercial, and real estate loans. Also provides years. Consulting on Mobile, Ewallet, PoS, Ecommerce, and weatherford on-site lender training tailored to meet the lender’s or gift/reward cards. Reducing business owners’ card process- Fred Werner celebrates his 50th bank’s needs. ing fees up to 20% saving hundreds. Profit sharing with financial institutions. ★ anniversary with The First National Bank of Weatherford. Werner began his career at FNB in 1963 at the age of 18. He started in the bookkeeping department filing checks, and eventually rose to the position of loan officer. He currently serves as senior vice president and is leading a new experience direction branch of the bank that opened on Col- lege park Dr. in Weatherford. ★

GENERAL CoUNSEL’S CoRNER cont’d from page 10 BKD National Financial Services Group

Equal pay for Equal Work is triggered at 20 employees as is COBrA insurance requirements. Furthermore, the need for 1200 CLIENTS an affirmative action plan comes into play when a bank has 50 or more employees. Where are you headed? The financial services industry is constantly shifting. How The Family Medical Leave Act require- do you gain a competitive advantage when the only certainty is change? We can help. ments are applicable when an employer BKD National Financial Services Group knows what you need to know. We help approximately 1,200 financial institutions work to improve shareholder value, mitigate has 50 or more employees within a 75 risk and achieve their business goals. We’ll help you understand the issues and show mile radius. you how to confront them with confidence so you can forge ahead with certainty. Conclusion. As your bank plans to grow — or shrink — your business plan Debbie Scanlon // Houston // 713.499.4600 must take into consideration these legal Jon McDowell // San Antonio // 210.341.9400 and compliance requirements. Be pre- Doug Van Meter // Oklahoma City // 405.606.2580 pared for new obligations and make sure bkd.com that your policies and procedures (as well as any reporting requirements) have been adapted accordingly. ★

March/April 2013 www.ibat.org ★ 45 THE CoMPLIANCE GUY

By Kelly Goulart

So...You’re Buying a Branch our bank management has entered made. provide these disclosures 30 days before into an agreement to purchase a the effective date of the sale. branch, and as is usually the case they Regulation CC — You are going to need turn to the Compliance Officer to to provide an initial disclosure outlining your work with the marketing and opera- bank’s Funds Availability policy in accordance tions team to make sure the conver- with §229.17. You can’t rely on the Funds Avail- sion goes well. Feeling overwhelmed ability disclosures provided by the selling bank, is a normal reaction no matter if this is your first even if your policy is essentially the same. pro- Yor tenth branch acquisition. So where do you vide these disclosures 30 days before the effec- start? tive date of the sale. One of the best pieces of advice I can give is Regulation DD — You are going to need to get a copy of the purchase agreement and read to provide a Truth In Savings disclosure on your it thoroughly. For example, are you purchasing just the deposits, own account terms and conditions in accordance with §1030.4. or the deposits and the loans? The second piece of advice I can I suggest providing new account terms and conditions regard- give is to open the door for communications with your own legal less of the fact you may or may not be changing their existing counsel and a reliable and informed contact at the selling bank. terms and conditions — just be sure they know what, if any- Make no mistake that complex questions will arise and commu- thing, is changing. Your disclosures must be in writing and in a nications are going to be key. form the consumer may keep. Each item that must be disclosed Usually the selling bank will prepare a letter to the cus- must be written in plain language. If you are going to be con- tomers of that branch informing them of the sale. Aside from verting account types on day 1 of the sale, you need to get your rumors, that letter from the selling bank will most likely be your TISA disclosures to the accountholders being converted 30 days “new” customers’ first introduction to your bank. You will need before the sale date. to read that letter carefully and review it with your own opera- Regulation X — If you are purchasing loans and any of tions team and your data processor, because that will provide those are residential mortgage loans, you will need to provide important information in planning your compliance strategy the Mortgage Transfer Disclosures required under §1024.21 of and timeline. As the purchasing bank you will need to send a the real Estate Settlement procedures Act. If the servicing of a welcome letter as well, and try and have it arrive with or just covered loan is to be transferred, the transferor and the transferee shortly after the selling bank’s letter announcing the sale. must each give the borrower notice of the transfer. The easiest You need to know if you are migrating the current accounts way to satisfy the notice requirement is by a notice given jointly or converting to your own products. You also need to know by the transferor and the transferee. The transferor notice, or when they will become live on your processing system. Day 1 the joint notice if notice is given jointly, must be given not less or perhaps a day in the near future? Your welcome letter should than 15 days before the effective date of transfer. The transferee include a conversion booklet with everything they need to notice must be given not more than 15 days after the effective know — product changes, terms and conditions, availability of date of the transfer. Bottom Line services during conversion, information about new checks and This is just a short list of the major regulatory issues sur- debit/ATM cards, Internet banking and bill payment services, rounding the purchase of a bank branch. These same guidelines “It has saved our bank numerous times.” and recurring ACH transactions. Those are just some of the can also be applied if you are purchasing an entire bank and not In the early ‘80s, Mr. Heitkamp and ValueBank Texas were looking for a network product and service issues. What about the compliance issues? just a branch. The bottom line here is that with a great deal of partner that understood the needs of a community bank. PULSE was the perfect fit. While it would be impossible to address all the potential compli- communication with your own legal counsel, the selling bank, Over the years, ValueBank has utilized many of our innovative products and services ance issues, here are the key points. and your operations team, you should be able to create a time- to help them grow. When it comes to fraud detection, they rely on DebitProtect®. Regulation E — You are going to need to provide an initial line for the regulatory compliance issues that will make it easier It provides early warnings on fraudulent card activity, which has helped them disclosure outlining your bank’s Electronic Funds Transfer policy and less stressful for you, the Compliance Officer of the newly significantly reduce their fraud losses. That’s good for ValueBank’s bottom line. in accordance with §1005.7. Be sure you highlight the contact expanded banking operation. ★ information for the person or office to be notified if the cus- “If you’re not using DebitProtect, you better take a good look at it.” To take a good Kelly Goulart is IBAT’s Regulatory Compliance Manager tomer believes that an unauthorized transfer has been or may be look at DebitProtect and hear what else Mr. Heitkamp had to say, go to: ©2013 PULSE ©2013 46 ★ The Texas Independent Banker March/April 2013 Bottom Line “It has saved our bank numerous times.”

In the early ‘80s, Mr. Heitkamp and ValueBank Texas were looking for a network partner that understood the needs of a community bank. PULSE was the perfect fit. Over the years, ValueBank has utilized many of our innovative products and services to help them grow. When it comes to fraud detection, they rely on DebitProtect®. It provides early warnings on fraudulent card activity, which has helped them significantly reduce their fraud losses. That’s good for ValueBank’s bottom line.

“If you’re not using DebitProtect, you better take a good look at it.” To take a good look at DebitProtect and hear what else Mr. Heitkamp had to say, go to:

Simplify Bank Meetings Securely.

Your job: Make your bank more profitable, secure and successful. Our job: Make your job easier. Introducing BankPad, a new iPad app designed to enhance bank security, reduce administrative costs, and improve collaboration. Simple, secure, portable and paperless, it features real-time e-document syncing, easy-to-use editing tools, and advanced security functions. Developed for the iPad by ICSA Software, and backed by dedicated support from CalTech, BankPad is the simple way to disseminate, organize and notate minutes, protect sensitive information, and securely access bank committee and board data from anywhere.

Learn more at GetBankPad.com. For more information or a live demo, call 325-947-5500.