NEW SHERIFF BRINGS CFPB TO A SCREECHING HALT

Contents VOLUME 107 • NO. 2 • FEBRUARY 2018 8 12 16 26

Features Columns 8 Blockchain 101 4 Message from the President Your right and obligation as a citizen 5 questions every bank should ask 6 Chairman’s Forum 12 Practical action plan Welcoming Chris Furlow to TBA Three steps to help banks prepare for CECL 28 Banker to Banker 16 Embracing innovation and change First United Bank opens new training center 134th Annual Convention travels to Houston, May 2-4 29 Your Advocate 26 Community Banker Spotlight New sheriff brings CFPB to a screeching halt Uvalde cattleman rides for the brand 30 Compliance Hotline ‘It’s a Dodd-Frank world, we’re just living in it’

Jim R. Purcell Departments Immediate Past Chair John L. Holt Jr. Community Bankers Council Chair 18 News & Trends Raymond H. Rust III Regional Bankers Council Chair 24 Partner Focus A. Ford Sasser III Government Relations Council Chair 32 Bank People James D. Dreibelbis Gary Claxton Robert W. Hoxworth J. Eric T. Sandberg Jr. Chairman Vice Chair Treasurer TBA President/CEO 34 Marketplace

EDITORIAL OFFICES: Olivia Carmichael Solis ADVERTISING: 203 West 10th Street, Editor Tam Nguyen Austin, Texas 78701-2388 Katherine Kolstedt [email protected] 512-472-8388 Art Director Texas Bankers Association fax 512-473-2560 203 West 10th Street www.texasbankers.com Jocelyn Carby Austin, Texas 78701-2388 Associate Editor 512-472-8388 or 800-462-7295 Jamie Tanner www.texasbanking.com/magazine FIND US ON SOCIAL MEDIA Assistant Editor

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 3 TEXAS BANKERS ASSOCIATION BOARD OF DIRECTORS Darrell W. Adams, First Bank & Trust, Seymour ERIC SANDBERG Quinn J. Alexander, First National Bank, Paducah TBA PRESIDENT & CEO Eddie Aldrete, International Bank of Commerce, San Antonio MESSAGE FROM THE PRESIDENT Coleen Beck, Union State Bank, Florence Micah C. Boles, First National Bank of Bosque County, Valley Mills

Scott Bowyer, Commercial Bank of Texas, N.A., Nacogdoches Your right and obligation Harry J. Brooks, Commercial State Bank, Kingwood Danny B. Butler, Jefferson Bank, San Antonio as a citizen Gary W. Claxton, Panola National Bank, Carthage R. Terry Cullen, CTFA, First National Bank in Port Lavaca, Port Lavaca

Greg Dodds, Texas Bank, Brownwood

James D. Dreibelbis, Woodforest National Bank, The Woodlands

Spring is fast approaching and that David A. Emerick, JPMorgan Chase Bank, N.A., Austin means it’s almost time for the 2018 pri - Robert R. Franklin, Jr., CommunityBank of Texas, N.A., Houston mary elections. Did you know, Texas is GET Jesse Lee Haggard, III, First National Bank of Trinity, Trinity the FIRST state in the nation to hold primary elections? Mark W. Hamilton, Peoples State Bank, Shepherd I can’t emphasize enough how OUT John L. Holt, Jr., NexBank Capital, Inc., Dallas important these elections are to all Michael R. Hoskins, Texas Advantage Community Bank, N.A., Alvin Texans! The reason you ask? Well, in many instances, the primary is where THE Robert W. Hoxworth, First National Bank Texas, Killeen the REAL races exist. The lower the Robert A. Hulsey, American National Bank of Texas, Terrell turnout, the more opportunity for spe - Thad W. Jennings, CPA, Community Bank & Trust, Waco cial interest groups to win elections. VOTE Roger W. Kalina, Texas Financial Bank, Big Lake TBA is one of the founding organiza - s T. Luke Longhofer, First Financial Bankshares, Inc., Abilene tions of the Texas Business Roundtable. This group represents 500,000 employers and 7 million voters. Now, just think how this Steven S. Mack, Texas Heritage Bank, Boerne group can impact the election process if everyone will exercise their Randall H. McCauley, Providence Bank of Texas, SSB, Southlake

civic duty! Randy McCurley, First State Bank of Mobeetie, Mobeetie I urge you to encourage your staff to go vote. Their votes in the Robert D. Mrlik, Central Bank, Houston primary races can help elect qualified candidates. The primary elec - tions will be held March 6 and early voting begins Feb. 2. David W. Osborn, WestStar Bank, El Paso Many banks have organized political action committees and many Jim R. Purcell, State National Bank, Big Spring more have employees who contribute to TBA’s BankPac. If everyone Joseph M. Rankin, III, Sage Capital Bank, N.A., Gonzales who participates makes the effort to vote and encourages a fellow Raymond H. Rust, III, Commercial Bank of Texas, N.A., Nacogdoches employee to do the same, the business community can have a strong voice. J. Eric T. Sandberg, Jr., Texas Bankers Association, Austin The last few election cycles have produced very low voter turnout A. Ford Sasser, III, Rio Bank, McAllen and this is disturbing. Our nation was organized by the people and Steve Stapp, R Bank, Round Rock

for the people and those founding fathers wanted our citizenry to Oscar Temblador, RiverBend Bank, Fort Worth have a strong voice in the way our country is governed — all through Kathy Tittle, Community Bank, Longview the election process. Now, to insinuate we have a perfect system would not be accurate; Cee Yager, Worthington National Bank, Fort Worth however, we have the best system in the world. Exercise your right to Guy W. Young, First National Bank, Quitaque vote. Call me at 512-472-8388 or email me at [email protected] Expressed opinions in any signed article of Texas Banking are those if you have questions about candidates. But go to the polls and sup - of the author and do not necessarily reflect the viewpoint of editors or the Texas Bankers Association on the subject. While this magazine port our electoral system. makes reasonable efforts to establish the integrity of advertisers, it Help yourself and help Texas by taking the few minutes out of your does not endorse advertised products or services unless specifically so stated. Texas Banking © 2017, Texas Bankers Association. Articles busy day and participate!! may not be reproduced or reprinted without the expressed written per - Remember the primary elections will be held March 6 and early mission of the Texas Bankers Association. voting starts Feb. 2! Texas Banking (ISSN 0885-6907) is published monthly by the Texas Bankers Association, 203 W. 10th St., Austin TX 78701-2388. Periodicals Postage Paid at Austin, TX and at additional mailing offices. POSTMASTER: Send address changes to Texas Banking, Texas Bankers Association, 203 W. 10th St., Austin TX 78701-2388. Annual dues of TBA members include $20 for each one-year sub - scription to Texas Banking. Annual rates for additional subscriptions are $48 for member banks and $96 for non-members.

4 TEXAS BANKING • FEBRUARY 2018

JAY DREIBELBIS TBA CHAIRMAN CHAIRMAN’S FORUM Welcoming Chris Furlow to TBA

On Jan. 12, former TBA Chairman Homeland Security, Executive Jim Goudge and I traveled to TBA Director of the Homeland Security headquarters to announce to staff Advisory Council at the Department that after an 18-month search the of Homeland Security and as com - selection committee had identified munications director for former U.S. Christopher J. Furlow to fill the posi - Rep. Jim McCrery (R-La.) of the tion of CEO of the Texas Bankers House Ways & Means Committee. Association upon the retirement of Meanwhile, his national and state Eric Sandberg later this summer. political experience will be of tremen - Chris brings 25 years of experi - dous value to TBA’s advocacy efforts. ence in business, government, Chris served as national field direc - opolitics and strategic communications tor/deputy political director for the to TBA. He also has Texas ties — his Republican National Committee wife, Jan, grew up in Plano and is a Christopher J. Furlow during the 2000 presidential election graduate of Texas A&M University — and he is a former executive director a fact that impressed me greatly! “walk on water.” I believe that Chris’ for the Republican Party of Louisiana. As I stressed to TBA staff — and leadership experience, entrepreneur - On a more personal note, Chris want to express to all TBA members ial background, advocacy and cyber and Jan have four children — one in — our association is highly regarded and risk experience make him the college, two in high school and one throughout the nation. We are well perfect candidate to lead TBA. in middle school. An active 4-H known for our influence in state and His experience includes serving family, they currently live on a farm in national political affairs, and our edu - as president of Ridge Global, where Virginia just outside of D.C. and have cation and compliance products are he is responsible for managing the a small herd of cattle. second to none. operations, staff and business devel - I’d like to express my thanks to As evidence, we received inquiries opment services of the international the selection committee, which was from approximately 300 individuals, risk management consulting firm. headed by Jim Goudge and included including some political leaders and This has included advising financial Micah Boles, Ken Burgess, Ron other influential policymakers and institutions, insurance companies, Butler, Tim Cooper, Bobby Hoxworth, regulators. From this pool, we culled business associations and other Jim Purcell, Charlotte Rasche, Rusty the list to 100 candidates. After clients on cybersecurity and regula - Rust, Oscar Temblador and myself. extensive review and hours of inter - tion. And he has developed Chris will join TBA April 1; he will views, we narrowed our focus on innovative training and education pro - work closely with Eric to learn the ins three candidates, who we inter - grams for both corporate board and outs of running TBA. He will take viewed again, at length. members and small business owners. over his CEO duties on July 1. I look Our job description, which was Chris has an extensive policy forward to welcoming Chris to TBA. I developed with input from members background at the federal, state and am confident that once you meet of the banking community, was local government levels, where he him, you’ll agree that, although he detailed and comprehensive. One served as Deputy Assistant Secretary doesn’t walk on water, he’s the per - banker made the comment that the of Commerce, director for State fect choice to lead our association to individual we selected would have to Affairs in the White House Office of a successful future.

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My 16-year-old son is a car nut. One of his favorite podcasts Bitcoin vs. blockchain recently featured three exotic-car experts going back and Like my son, many bankers’ interest in blockchain rises and falls with bit - forth for 40 minutes on the topic of … cryptocurrencies. coin’s price, but few take time to understand the difference between Now my son owns bitcoin. cryptocurrency applications and the protocols upon which those applica - One 40-minute podcast and he’s all in. He knows precious tions operate — blockchain chief little about bitcoin’s consensus mechanisms, cryptography or among them. It’s a distinction banks blockchain, but he wants a piece of the action. He reports his must make and master. Bitcoin’s blockchain is only one gains and losses to me daily. very specific kind of distributed ledger technology (DLT) originally With every dramatic swing in the price of bitcoin, its developed so that complete underlying blockchain technology enjoys another 15 minutes strangers could exchange value under the sun. When bitcoin’s price goes up, blockchain’s directly, anonymously and securely genius is confirmed. When the price goes down, blockchain is in a “trustless environment”; i.e., without the need for trusted interme - the bath water we shouldn’t throw out with the bitcoin baby. diaries like banks. Blockchain offers a single ledger Each surge in the price of bitcoin churns up another cycle of that is distributed and replicated frothy claims: democratized payments, secure networks and across nodes on a public network. efficiencies beyond anything we’ve known. Every decline in Instead of banks and clearinghouses exchanging transactions and recon - price, however, sends us searching for ways to salvage and ciling their respective ledgers with perfect the power and potential of the technology beneath one another, blockchain is a single, bitcoin, giving rise to more than 1,300 cryptocurrencies, cryptographically hashed, irrevocable data table that records and chains countless utility coins and several distributed-ledger initiatives together “blocks” of transactions veri - by and for banks. fied by consensus on the network.

8 TEXAS BANKING • FEBRUARY 2018 Blockchain vs. distributed ledger and testing of various DLT-based DLTs find their footing in banking, technology (DLT) platforms and banking applications. they will be permissioned and tightly Just as many bankers fail to distin - But here’s the hitch. For the aver - controlled — they must be to survive guish bitcoin from the blockchain on age bank to realize anything near a regulatory scrutiny. which it sits, many bankers also fail 20 percent reduction in operating To bottom line the relevance of to distinguish blockchain from other costs, every financial institution with blockchain and DLTs and assess types of DLTs. Banks can no longer which it exchanges value and/or value realistically, banks must clearly afford to remain ignorant of these information must also be connected consider the opportunities these distinctions. Even if your bank never to the distributed ledger in question. technologies present and the hurdles implements or participates in any In other words, the promise of DLTs they must clear. form of distributed ledger technology is systemic. DLTs are subject to the — and there’s a strong case for that “network effect.” All banks must par - Five questions every bank should — all banks must understand the ticipate for each bank to achieve ask growing strategic, economic and risk gains in efficiency. And that makes I grew up in payments, cut my teeth implications of blockchain and other the timeline for DLT relevance uncer - on the intricacies of electronic trans - DLTs. tain at best. actions, clearing windows and Cryptocurrencies are a complex The good news is that not all dis - return-reason codes. If you’ve never topic. Their volatility, shady use cases tributed ledgers are designed to held the heft of an ACH rules book, and sheer number make them easy disintermediate banks. DLTs can be you may underestimate the mechan - for banks to dismiss. But dismissing customized and optimized for ics required to settle transactions — blockchain and other DLTs along with access, speed, security, identity and much less the disputes and fraud cryptocurrencies can blind banks to anonymity. In fact, every DLT-based involving those transactions. strategic opportunities to operate banking application currently under If you didn’t grow up in payments, more securely and more efficiently. development uses a permissioned it may also not be obvious what Some analysts insist DLTs could network (rather than a permission- blockchain, bitcoin and many other ultimately reduce the cost of running less network like bitcoin’s). cryptocurrencies are missing. a bank by 20-50 percent. And this is Permissioned distributed ledgers Therefore, to know when or whether precisely why some banks — mostly (PDLs) control for which entities can any given distributed ledger or DLT big banks — have poured consider - be nodes on the network; e.g., only application will matter, ask the follow - able resources into the development chartered financial institutions. If ing questions:

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 9

Someone requests The requested transaction is VALIDATION a transaction broadcast to a P2P network The network of nodes validates consisting of computers, the transaction and the user’s known as nodes. status using known algorrithms.

#1. The parity question: Is it at #2. The UX question: Will it #3. The chicken-and-egg least as good as what it’s improve user experience? question: When will it be replacing? Pick up any “Top 10 Trends in ubiquitous? Blockchain is often described as a Banking” report and user experience In concept, distributed ledgers are new form of database technology. In (UX) will be at or near the top. While paragons of efficiency: replace lots a limited sense, it is. It stores trans - DLTs are often cited as the better, of ledgers with one ledger. The prob - actions irrevocably. Great. But it safer way to do payments, the real lem is no one wants to join the currently lacks the very protections driver of payments adoption is UX; ledger’s network until everyone else that make a good payment system i.e., what is the easiest, fastest way has joined first. But everyone else viable as a medium of exchange. for someone to pay in the moment? doesn’t want to join until you do. What happens if your virtual bitcoin This is called the “law of least effort” This is a classic problem in the world wallet is stolen or destroyed? No and it dictates the adoption and dif - of payments. People want to be able deposit insurance? What happens fusion rate of all new technologies, to pay anybody, anywhere, anytime. when a transaction is initiated fraud - especially payment applications. Ubiquity simplifies UX but is diffi - ulently? No reverses or returns? So, do distributed ledgers improve cult to achieve from scratch. Zelle, What is the process by which dis - UX? No, not inherently. Why? They’re the bank-to-bank P2P application, putes are settled? There are none? slower. Centralized systems rely on a and Real Time Payments (RTP), The Who’s the final arbiter? No one? single trusted entity to verify transac - Clearing House’s new real-time pay - When presented with any new data - tions. Decentralized systems rely on ment rail/system, now face the same base technology, information system a quorum of untrusted peer approval. problem: how to get every financial or application, the first question is Visa can centrally verify 60,000 trans - institution in the country to join the always this: “is it at least as good as actions a second. The bitcoin system so that the system’s users what it’s replacing?” The second network can verify only 7 transactions can send payments in real time to question is “how much better is it?” a second. anybody at any financial institution in Moreover, from the end-user van - the country. The timeline for reaching tage, it takes 7-10 minutes for a ubiquity is wildly speculative and bitcoin transaction to achieve con - usually grossly optimistic. But the sensus verification and another hour question of ubiquity always haunts or so for that transaction to replicate any new DLT application and, there - in the copies of the blockchain on fore, must be factored soberly. each node of the network. Bitcoin’s blockchain consensus is as efficient as American democracy. It isn’t. And this is why no new real-time pay - ments initiative in the U.S. uses a distributed ledger.

10 TEXAS BANKING • FEBRUARY 2018 A verified transaction can involve cryptocurrency, contracts, records or other information. The new block is then added to Once verified, the transaction is the existing blockchain, in a way The transaction combined with other transactions that is permanent and unalterable. is complete. to create a new block of data for the ledger.

#4. The quantum question: Is #5. The crypto question: How do The bottom line this new system vulnerable? cryptocurrencies expose your For the average bank, spending Distributed ledger networks and bank to risk? money now on developing cryptocurrency applications employ You and your bank may never blockchain/DLT protocols would be a variety of consensus mechanisms acquire or hold cryptocurrencies. No like spending money on HTTP devel - to verify transactions. Some rely on matter. Your customers will, and this opment in 1995: premature and randomization (Proof-of-Stake), but reality presents a series of questions unnecessary. most (like bitcoin’s Proof-of-Work) all banks must consider: Will your Most banks aren’t in the business rely on computationally intensive res - bank finance crypto companies, facil - of developing new protocols for olution of mathematical problems. itate cryptocurrency exchanges or databases and information systems. One of the threats to a distributed lend to borrowers with crypto expo - Most don’t even build applications system is centralization of the verifi - sure? How will you service on top of those systems. They wait cation/consensus mechanism: if any individuals or businesses who invest and buy the best, most reliable, most one entity, or group of entities work - in cryptocurrencies, accept cryp - secure and cost-efficient applications ing in coordination, achieve 51 tocurrencies as tender or participate that technologists build for those percent of the “hashing power” in cryptocurrency futures? systems. Blockchain and DLTs are no (required to mine value or verify The recent creation of cryptocur - different. transactions), a bad actor could rency futures markets is attracting Even so, monitoring develop - compromise the integrity of the institutional investors and, therefore, ments and remaining informed entire system. broadening the scale and scope of enough to identify and size indirect Moreover, if an entity perfects risk and exposure. Banks must factor risk exposure is crucial. In the short quantum computing, that kind of all tangential exposures to cryptocur - term, just knowing the right ques - leap in processing power would rency risks, especially given the tions to ask will be important — immediately render the system vul - World Economic Forum’s recent especially if my 16-year-old son nerable to dominance and monopoly. warning that cryptocurrency specula - applies for a loan. China is currently leading the world tion will constitute a threat to He’s already under water on his in quantum computing innovation. economic stability this year. bitcoin portfolio. Lee Wetherington is director of strategic insight, Jack Henry & Associates Inc.

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 11 Practical action plan Three steps to help banks prepare for CECL By Mary Ellen Biery

While most non-public business entities aren’t required to implement the current expected credit loss (CECL) model for the allowance for loan and lease losses (ALLL) until after Dec. 15, 2020, many institutions have begun the transition to ensure effective implementation of this major change in estimating losses. Institutions can begin taking reasonable steps now so that they are prepared when regulators begin evaluating implementation efforts. Following are three steps to consider in your CECL action plan:

12 TEXAS BANKING • FEBRUARY 2018 much of that data needs to be col - agencies encourage institutions lected and analyzed. Loan-level to discuss the availability of his - information will be required in CECL torical loss data internally and — a big change for many banks, with their core loan service which currently may only archive providers because system data at the pool level. changes related to the collection Interagency guidance on CECL and retention of data may be issued Dec. 19, 2016, described warranted. Depending on the requirements this way: estimation method or methods “Specifically, with regard to data, selected, institutions may need to implement CECL, an institu - to capture additional data and tion should collect and maintain retain data longer than they have relevant data to support its esti - in the past on loans that have One step banks will need to take in mates of lifetime expected credit been paid off or charged off to this process involves making sure losses in a way that aligns with implement CECL.” the institution is clear on what types the method or methods it will of data will be needed, what systems use to estimate its allowances With this in mind, three areas of bank will need to be in place and how for credit losses. As such, the data quality on which to focus are:

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 13 Adequacy Assurance Historical loss rate calculations The CECL guidance is intentionally What controls are in place to ensure Identifying the methodology options non-prescriptive, meaning institutions the data can be relied upon, is for your bank based on your portfolio will have some flexibility in deciding updated frequently enough to makeup will help clarify the needed which methodology or methodolo - accommodate bank needs and is data points and data history the bank gies work best for their portfolio or secure? Data should be backed up is likely to need. They will also shed segments of their portfolio. frequently and have redundancy to light on the material inputs and However, to ensure flexibility in minimize risk. assumptions that the bank may need selecting appropriate methodologies, While most institutions, when to finalize. it is important for banks to capture a asked, say their data is in good wide range of data points. Certain shape for CECL, Sageworks, a finan - Qualitative adjustments data points might be useful for utiliz - cial information company that Q Factors, or qualitative factor ing one methodology but not regularly polls institutions on issues adjustments, have been a part of another. around their allowance, has found the allowance calculation for a while, For example, individual loan origi - that changes to data collection and but the inputs may need adjusting. nation amounts might be useful storage are needed on a go-forward How will Q Factor procedures need when applying vintage analysis, basis. In order to have sufficient data to change under CECL to ensure while individual loan risk classifica - to produce lifetime estimates under the reserve is reflective of loss tion would be needed for migration certain methodologies, more histori - experience? analysis. Some data points, such as cal data will be needed, so the individual loan charge-offs, individual sooner the data is identified and col - Workflow changes loan recoveries and individual loan lected, the more complete it will be. Understanding more about the duration, could be used for multiple bank’s historical loss calculations, methodologies. If data is inadequate qualitative adjustments and docu - at present, identify a timeframe mentation/reporting needs will required for collecting sufficient data prompt discussions about changes to be able to defend the election of a that might be needed to the work - specific methodology. flow. Certain steps may take longer than before, require different reports Coherency to be built, require sign-off from dif - It is possible the bank stores loan ferent teams at the bank or create data in different places — mortgages new steps that haven’t yet been in one system, auto loans in another, important such as life of loan etc. What data has been tested or calculations. historically reconciled to make sure that inconsistencies across the sys - Additional department inputs tems do not cause problems? Is Another actionable step banks can These discussions will also help there a report writer in place to draw take to prepare for CECL is to iden - determine whether other depart - this loan-level data into a single tify how the new model will require ments already have some of the calculation? modifications to ALLL procedures needed data or inputs in some form and mapping out sequencing and or whether remediation assistance ownership. Some reasonable steps from a third party may be needed. to take now include examining:

14 TEXAS BANKING • FEBRUARY 2018 Documentation and reporting Data Input selection Banks may end up with multiple Data is the foundation of historical The expected life of each segment methodologies (one for auto loans, loss experience calculations and and/or prepayment behavior will for example, and another for 1-4 mul - may be difficult to aggregate and need to be determined prior to per - tifamily loans). As those become manage in expected loss models. forming any calculation. As such, apparent, banks will consider what Clarify what third-party providers institutions should have a clear components and material inputs offer for data archives, data architec - understanding of responsibilities and should be documented in order to ture and data adequacy services and costs specific to calculating and sup - be able to defend the calculation. compare that to in-house capabili - porting material inputs. It is also This may require implementing ties. Consider costs for cleanup, important to understand the availabil - data management systems to make archiving and assurance, and under - ity, expertise and costs/fee structure that reporting more efficient. Even stand best practices and related to training, advisory services outside of reporting, some of the expectations for data remediation. and technical support. Does the procedural changes required by Compare the degree of automation bank have resources internally or will CECL may be significant enough that and flexibility available for each it need to add those? the bank considers acquisition of a option. software solution to keep the calcula - Model risk and auditability tion internalized but supported. Methodologies Documentation and support is often Having options to choose from a time-consuming exercise in today’s among various methodologies will ALLL processes. The new standard provide flexibility in the future as data will require more inputs, assumptions issues become apparent during exe - and analysis at the pool-level. cution. Consider costs for developing Tracking, consolidating and display - and maintaining these options in- ing all information necessary to house versus the methodology review, support and recalculate will options that may be available out of be a critical function of any home - the box from third-party providers. grown or vendor-based solution. How automated and flexible are Consider what level of trans - the various options? What, specifi - parency and auditability is offered by cally, is the process for calculating, a third-party solution and take into evaluating and changing methodolo - account costs associated with model gies? Consider what advisory risk and/or time spent preparing doc - Since the model will require more assistance and support is available umentation and support. inputs, assumptions, analysis and doc - for each of the methodologies. umentation, the option to automate Mary Ellen Biery is a research specialist at and modernize the process becomes Sageworks (sageworks.com), a financial informa - significantly more attractive than under tion company, where she produces content for existing accounting standards for the company’s blogs and websites, as well as for many banks. If banks are considering other outlets. She is a veteran financial reporter software to comply with the regula - whose work has appeared in The Wall Street tions, they may choose to build their Journal and on Dow Jones Newswires, own software solution or work with a CNBC.com, MarketWatch.com, Nasdaq.com and third-party vendor. In either case, other sites. banks have several considerations to help narrow the playing field.

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 15 Embracing innovation and change

134 th Annual Convention travels to Houston, May 2-4

The banking industry’s survival could Jo Ann Barefoot of known for making complex eco - very well depend on how it embraces Barefoot Innovation nomic issues easily understandable. innovation and change — from tech - Group will discuss bank - nology trends to the state of our ing innovation, focusing Ronald Rubin, an attor - economy, cybersecurity challenges, on how to help banks ney and writer in polarizing politics and shifts in con - thrive as technology transforms Washington, D.C., will sumer behavior. To find out what is finance. She will offer suggestions discuss the Republican changing and what financial institu - for community banks wanting to shift Consumer Financial tions can do to thrive, bankers are to an innovation culture. Barefoot Protection Bureau. Rubin knows his invited to the 134th Annual was the first woman Deputy topic well, having helped build the Convention, May 2-4 at the Marriott Comptroller of the Currency. She CFPB together with Elizabeth Marquis Houston, where nationally served on the staff of the U.S. Senate Warren, and then defending clients recognized speakers will tackle these Banking Committee, served as co- against CFPB enforcement attorneys topics and more. chair of the consulting firm Treliant he had trained. Later, as chief Risk Advisers and was a partner and adviser on regulatory policy at the Kicking off Thursday’s managing director at KPMG House Financial Services Committee, general session is Evan Consulting. The company she he assisted in investigations of the Smith, CEO and co- helped found, Hummingbird CFPB itself. He has been an outspo - founder of The Texas Regtech, is a startup focused on ken critic of Elizabeth Warren, Tribune, a pioneer non - anti-money laundering operations. Richard Cordray and the CFPB, profit, nonpartisan digital news which he has said is “doomed by a organization that covers Texas poli - Back by popular demand structure that made it an inherently tics and public policy. In addition, in is Dr. Mark Dotzour, who political agency.” “Overheard with Evan Smith,” a pro - will provide an economic gram that airs on PBS stations, outlook for investors and In addition to the general session Smith interviews some of the nation’s business decision- speakers, this year’s Convention fea - most fascinating public figures, makers. Dr. Dotzour is a real estate tures two days of breakout sessions. including politicians, authors, artists, economist who served for 18 years These include: actors, journalists and businessmen. as the chief economist of the Real • Balance Sheet Strategies in the Previously, he spent nearly 18 years Estate Center at Texas A&M Current Environment/Navigating at Texas Monthly, including eight University. In 2015, he stepped down Strategic Alternatives in this years as the magazine’s editor and a from his position at the Real Estate Market. Kamal Hosein of Stifel year as its president and editor in Center to focus his time and effort on Financial Corp. will discuss how chief. Smith will provide a glimpse analyzing current economic condi - continuing changes to regulatory into Texas politics, often referred to tions and communicating his and accounting rules have as the nation’s bellwether. analysis to others. Dr. Dotzour is see “Annual Convention,” p. 21

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Broadway bankers mentor students for cyber security challenge

Cyber security experts at Broadway Bank are spending some time back in the classroom. This time they are at the front of the class, mentoring and coaching students in a worldwide cyber security challenge. The eight students, members of the MacArthur High School Junior ROTC, were more than up for the challenge. In this case, the challenge is the 10th annual Cyber Patriot competition and with the coaching from Broadway bankers, Sonny Montiel, network Cheering on students at the Jan. 19 international competition are, left to right, Aiden Cruz; Peter Meyers, mentor; Dr. security officer, and Paul Guido, sys - Sean Maikia, Northeast ISD assistant superintendent; Sonny Montiel, Broadway Bank; Dr. Brian Gottardy, tems engineer, the team is performing superintendent; Dr. Donna Newman, associate superintendent; Robert Henson, instructor; Anthony Guajardo, UTSA; 6th in Texas against a field of 309 Morgan Erickson, UTSA Air Force ROTC recruiter; Lawrence Garcia, MacArthur High School JROTC instructor; Paul teams and 70th in the nation in a field Guido, Broadway Bank; and Sharon Brodbeck, Broadway Bank. of more than 1,700 teams. On competition day, the gram and they train our cadets to be in every round of the competition. CyberPatriots set up shop at one of the best CyberPatriot units in “Sometimes they work down to the Broadway Bank taking full advantage the nation,” said Garcia. wire and we remind them to start wrap - of 90-inch screens, high-speed inter - The Broadway Bank CyberPatriots ping up and give themselves time to net, endless snacks and unlimited tackle cyber scenarios during the close down. There are penalties for not moral support. The team is led by rounds of competition with a strict hitting the six-hour mark,” said Guido. MacArthur High School Junior ROTC time limit of six hours. During that “I am beaming with pride to watch instructor and Army veteran, time, each team must remediate as these kids do this work,” he added. Lawrence Garcia, Major, retired. many vulnerabilities as possible on Every Monday, Guido and Montiel “Sonny and Paul are very impor - the provided computers and complete take a field trip to MacArthur High tant to our team. In fact, I would a networking test. The problems to School and spend time with these consider them as members of this solve get progressively more difficult extraordinary students. team. They sacrifice their own time to assist us in our endeavor in the pro - BancorpSouth completes Texas acquisition Giving back BancorpSouth Bank recently wel - products and services we can bring comed First State Bank of Central to our customers as well as the addi - Thanks to the following for donating Texas to its eight-state company. tional support we can provide in the to the Hurricane Harvey Relief Fund: Effective Jan. 15, BancorpSouth com - communities across our service pleted the merger with the parent area.” BANKS company of FSB, Central Community BancorpSouth Bank, headquar - First State Bank, Barboursville, WV Corp., which is based in Temple. tered in Tupelo, Miss., has Texas Regional Bank, Harlingen, TX “This merger will accelerate our approximately $17 billion in assets growth in a strong Texas market and and operates 276 full-service branch INDIVIDUALS that is good news for everyone locations as well as additional mort - Wilma & Marc Borel Jason Hill involved,” said Don Grobowsky, gage, insurance and loan production Karen Call George Hollidge Denise A. Dodini Mark Leyva former FSB chairman and CEO, who offices in Alabama, Arkansas, Florida, Thomas & Lisa Steve Nelson now serves as BancorpSouth’s Louisiana, Mississippi, Missouri, Duryea John F. Nohr Central Texas area chairman and a Tennessee and Texas, including an Mani Ganesamurthy Anna Sukhovnin member of the board of directors. insurance location in Illinois. As of Marcia Gerg Decheng Yang “By joining a powerful regional part - Dec. 31, First State Bank Central Heather D Harrell ner, we are excited about the new Texas had $1.41 billion in assets.

18 TEXAS BANKING • FEBRUARY 2018 Doug Bready announces retirement effective Feb. 28

Following a distinguished 32-year through his involvement in a variety the past eight years growing the banking career, Vantage Bank Texas of community-based activities. He is Vantage Bank Texas brand in the Rio Rio Grande Valley Regional President an Eagle Scout. He has served as the Grande Valley while spending his Doug Bready has announced his plan council president of the Rio Grande entire career making South Texas a to retire effective Feb. 28. Bready has Valley Council, Boy Scouts of better place in which to live and do held his leadership position with America. He has served on the business. He will be greatly missed.” Vantage Bank Texas since joining the boards of directors of the Fellowship Vantage Bank Texas is a $540 mil - company in August 2009. of Christian Athletes and Palm Valley lion Texas-based community bank Under his leadership, Vantage Church as well as the Advisory Board with offices in the Rio Grande Valley, Bank Texas has established itself as a of the UTRGV College of Business & San Antonio and other cities in South relevant competitor in commercial Entrepreneurship. Along with Elaine, Texas. and business banking in the Rio his wife of 40 years, he plans to dedi - Grande Valley. Prior to joining cate his retirement to continued Vantage Bank Texas, Bready spent 24 service to the community. READY FOR A years in leadership positions with “Doug Bready is the embodiment Texas State Bank. of business and community leader - JOB CHANGE? Throughout his career, Bready has ship at its highest level,” said Guy Visit dedicated his time and energy to Bodine, president and CEO of www.texasbankers.com/jobbank helping the Rio Grande Valley Vantage Bank Texas. “He has spent

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 19 INDUSTRY NEWS

First Financial completes acquisition of Commercial Bancshares

Abilene-based First Financial totaling $22.3 million in accordance footprint especially in the high growth Bankshares Inc. recently announced with the definitive agreement. area around Houston.” that it has completed the acquisition of As of Dec. 31, Commercial State “With its larger size and successful Commercial Bancshares Inc. and its Bank had total assets of approxi - track record, First Financial offers our wholly owned subsidiary, Commercial mately $390.2 million, total loans of customers new and expanded serv - State Bank, Kingwood, effective Jan. 1. approximately $271.5 million and ices and creates more opportunity for First Financial’s banking operations total deposits of approximately our employees,” said Harry J. now include 73 locations that span $345.9 million. Brooks, chairman and CEO of from Hereford in the Panhandle to “We are excited to welcome the Commercial State Bank. Orange in Southeast Texas. Commercial State Bank team into the In accordance with the terms of First Financial family,” said F. Scott the definitive agreement, First Dueser, chairman, president and CEO Citizens National Financial issued 1,289,371 shares of of First Financial. “We are most acquires Union State First Financial common stock, with an impressed with the employees, offi - approximate value of $59.4 million, to cers, management and board of this Bank the shareholders of Commercial quality bank, who share our same Henderson Citizens Bancshares Inc., Bancshares. In addition, prior to clos - values, philosophies and commitment the holding company for Citizens ing, Commercial Bankshares paid a to outstanding customer service. National Bank in Henderson, recently special dividend to its shareholders They are an excellent addition to our announced the completion of its agreement to acquire Union State Bancshares Inc. and its banking sub - sidiary, Union State Bank. USB is a community bank with Engaged, PProven and Trurusted assets totaling more than $470 million as of June 30, 2017. Founded in 1928, Commmercial Portfolioo USB is a full-service bank with eight locations in seven communities in Coonsultants Central Texas. The transaction expands CNB’s footprint into the fast-growing Texas counties of Bell and Williamson. see “Citizens National,” p. 22

TBA calendar of events February 6 TBA Board of Directors update call 15 TBA Audit & Finance Committee conference call CONNTACTA US NOW TO LEAARN MORE! 28 TBASCO Board meeting, Austin March 888-967-73880 // www.CEISRevCEISRevview.comcom 7 TBA Executive Committee meeting, Omni Barton Creek LOAAN REVVIEW PROGRAMSO LOAN LOSS RRESERVEV Resort, Austin • Commercial Loan Review – Remotee & On-Site METHODOLOOGY 7 TBA Audit & Finance Committee • Portfolio Acquisition Review (Due DDiligence) • Methodology Vaalidation meeting, Omni Barton Creek • Leveraged Loan Review/Structuredd Finance Review • Methodology Ree nement Resort, Austin 7 TBA Past Chairmen’s Council LOAAN PORTFOLIOT STRESS TTESTING w REVVIEW COONSULTINGT meeting, Omni Barton Creek • Bottom Up Loan Level Approach • Credit Risk Proccess Review Resort, Austin • Topo Down Capital Adequacy Assesssment • Loan Policy Maintenance 8 TBA Board of Directors meeting, • Stress Teste Methodology Validationn Omni Barton Creek Resort, Austin

20 TEXAS BANKING • FEBRUARY 2018 Banking Commissioner Charles Training will help participants pro - Annual Convention Cooper, Kristie Elmquist of the mote a learning culture at their continued from page 16 FDIC and Troy Thornton of the banks. She’ll help bankers ensure OCC, Southern District. all responsible parties are account - complicated balance sheet man - • The New Normal: Applying an able for training that transfers to agement. Craig McMahen of Effective Framework to learning. Keefe, Bruyette & Woods will Cybersecurity Risks. Steve These nationally recognized explain how the tax bill, deregula - Sanders of CSI will present five speakers join keynote speaker Ann tion and the respective market cybersecurity strategies that could Coulter, best-selling author, syndi - reaction are impacting regional defend against roughly 85 percent cated columnist and television banks’ profitability, as well as M&A of cybersecurity attacks. commentator. Coulter, a conservative and capital markets activity within • Future of Banking with Emphasis Republican, will explore current the industry. on Performance: John Brinkworth events, the political process and its • A Regulatory Panel, moderated by of Harland Clarke will discuss the impact on the world. With her exten - TBA General Counsel John impact of fintech on product offer - sive insight into the national political Heasley, will examine current and ings and how to manage customer scene, Coulter’s presentation is sure upcoming priorities of the financial experience in a changing environ - to be engaging, funny and anything regulators, hot topics and areas of ment. but dull. concern. Participants include • Employee Learning: What to For more information and to Robert L. Triplett III of the Federal Expect and How to Inspect: register for Convention, please visit Reserve Bank of Dallas, Texas Honey Shelton of InterAction texasbankers.com/convention.

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@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 21 INDUSTRY NEWS

Citizens National We Wish to Welcome continued from page 20 36 branches. Citizens National Bank and Thank Our Newest anticipates converting the charter and Associate Members “This is great news and has the operations of USB into CNB later this potential to be transformative for our year. Automated Systems Inc. company, shareholders and both USB Citizens National Bank, which was 1201 Libra Dr. and CNB customers,” said Brad established in 1930 at the height of Lincoln, NE 68512-9331 Tidwell, president and CEO of CNB. the Great Depression, is a privately Phone: 402-420-6000 Combining the banks takes CNB owned community bank that serves [email protected] from $1.75 billion to approximately East and Central Texas with its net - www.asiweb.com $2.2 billion in assets and from 28 to work of 28 branches. Since 1981, Automated Systems Inc. (ASI) has been a leader in pro - viding innovative core banking, digital banking and data process - ing solutions to community banks nationwide. An array of integrated applications provides partnered banks with tailored, cost-effective and competitive choices. ASI deliv - ers industry-leading technology backed by unparalleled in-house conversion, training and support teams, paving the way for progres - sive, top-notch customer service.

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22 TEXAS BANKING • FEBRUARY 2018 TBA members register online at www.texasbankers.com/store

UPCOMING SEMINARS, SCHOOLS & CONFERENCES BSA/AML Compliance Wealth Management & Trust Consumer Lending Basics Feb. 5, McAllen Conference May 16-17, Farmers Branch Feb. 6, Houston March 27-28, Frisco New Accounts in Texas Feb. 7, San Antonio Advanced Commercial June 11-14, TBD ABA training includes self-paced online courses Feb. 8, Dallas Lending June 25-28, TBD that are taken on your schedule and entirely at Technology Conference April 4-5, Farmers Branch Flood Insurance your own pace. It also includes facilitated online Feb. 7-9, Georgetown Agriculture & Rural Affairs July 10, TBD courses that offer collaboration with a group of Lending School Conference Real Estate Lending peers and a virtual instructor who guides the class Feb. 11-15, Austin April 4-6, Kerrville Compliance through each week’s content and provides Call Report Update TBA Bankers Legal July 11-12, TBD individual feedback. Course lengths vary from four Feb. 13, San Antonio Conference CFO Conference to 16 weeks. April 5-6, Austin June 13-15, San Antonio Changes and Trends Affecting BANKING FUNDAMENTALS Compliance School Special Needs Trusts Senior Management Summit (all three courses below offered together at a discount) Feb. 15-16, Austin April 8-13, Austin July 18-20, San Antonio The Banking Industry Women in Banking Compliance Update School Financial Literacy Summit Bank Lines of Business Conference April 10-11, Austin July 24-25, Farmers Branch Building Customer Relationships Feb. 22-23, San Antonio ABA Government Relations Credit Analyst Boot Camp Summit Real Estate Loan Aug. 14-15, Farmers Branch Visit www.texasbankers.com/ABAtraining for a April 23-25, Washington, D.C. Documentation HR & Operations Conference complete list of titles, descriptions, dates and to Annual Convention March 5, San Antonio Aug. 15-17, Lost Pines enroll online. March 6, Dallas May 2-4, Houston FEBRUARY 2018 UPCOMING WEBINARS 5 Building Customer Relationships 5 Commercial Lending FEBRUARY 2018 20 Writing an Effective 2 Call Report Lending 5 Money and Banking 5 CRE Appraisals Credit Memorandum Schedules 12 Analyzing Financial Statements 6 Train Smarter and More 20 8 Steps to Improve 5 Commercial Construction 20 CTFA Online Review Course Effectively Cross-Selling Lending 20 Marketing Planning 21 ACH Rules Update 6 Residential Construction 6 Opening Personal 20 The Mortgage Business Accounts Lending 21 Open-End Lines of 26 Introduction to Agricultural Lending 7 Top 10 Loan Credit – Compliance 6 Compliance for 26 Introduction to Trust Products and Documentation Mistakes Issues Commercial Loans Services 8 FFIEC Information 22 Ransomware and Cyber 7 Compliance Perspectives Security Handbook Extortion 8 How to Analyze a Start- MARCH 2018 8 Opening Business 22 Vital Check and Deposit up Business 2 Building Customer Relationships Accounts Issues 1 12 Create, Cultivate and 5 CRCM Online Review course 9 Masterful Time 23 Appraisal Regulations Convert Sales Leads 5 The Banking Industry and Requirements Management 13 Analyzing Mortgage 16 Marketing Planning 12 Consumer Real Estate 26 Personal and Business Appraisals 19 General Accounting Loans Tax Return Analysis 14 New Mortgage Servicing 13 When Your Safe Deposit 27 BSA Emerging Issues Rules Renter Dies 27 What’s All the Fuss 14 CTR & SAR Reports 13 Opening Trust and About Escrows? 15 Cybercrime and the Dark Fiduciary Accounts 28 TRID Checkup Web OnCourse Learning provides a broad range of 14 Regulation CC Check 28 ACH Origination and 15 Accounts, Checks and customizable and easy-to-implement online Holds Same Day Entries IRS Reporting at Death courses with their comprehensive course 15 Compliance for CRE 20 Garnishment catalogue. For more information, visit Loans MARCH 2018 Requirements www.texasbankers.com/OnCourse. 15 Multi-Tiered Business 1 Addressing Threats of 21 Steps to Pass the CRA Accounts Violence Exam 16 Call Report Update 1 Basic Bankruptcy

30 UNDER 30 Secure Banking Solutions offers cybersecurity To encourage participation, professional growth and cost-effective certifications. Each certification course is available training for younger bankers, TBA is offering member bankers online and is tailored to specific roles within an under 30 years of age an additional 30% off select live events. institution. For more information, visit Check registration information to see which events qualify. www.texasbankers.com/SBSinstitute.

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 23 PARTNER FOCUS CRA Partners: Meaningful CRA credit guaranteed

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Board portals, comprehensive board meeting software solutions, have become the standard tool banks uti - lize to streamline meetings and • Always up-to-date board book: laptop and Windows Surface. improve governance — saving time Board materials automatically save • Resource Center: Place the and money. and instantly sync across every annual report, corporate policies, “OnBoard offers an experience device. You’ll always have the bylaws, corporate charter and all that combines secure collaboration latest copy of your board book. your key documents into a central with unmatched ease of use,” said You’ll never be surprised by a last- location that’s always one click Wanda Stevens, TBA vice president minute change. away. and executive director of TBASCO. • Notes and annotations: Easily add • Complete security: OnBoard’s “From the boardroom to loan commit - your thoughts and changes by security is built on a foundation of tee meetings, OnBoard allows banks highlighting, touching and typing. Microsoft Azure and includes bio - to move faster without assuming Your notes and ideas are always metric login security, end-to-end unnecessary liability.” accessible, private, searchable encryption, granular access per - OnBoard is a meeting solution that and synced across all your mission model, salted and stored can be used on any device, anywhere, devices. SHA256 passwords and multiple that makes preparing for board and • Fits the way you work: Read, data centers. committee meetings easy. OnBoard review and annotate your board Luke Hoffmann offers a suite of tools to improve the materials as suits your work-life [email protected] preparation for and conducting of style. Anywhere, anytime and on 765-535-1882 every meeting. Key benefits include: any device: iPhone, iPad, Android, www.passageways.com/onboard

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Uvalde cattleman rides for the brand JOE HARGROVE DIRECTOR HONDO NATIONAL BANK

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“In character, their like never was or Joe Hargrove, a director at Hondo National Bank, referring to the Texas will be again. They were intensely National Bank, is a rancher and cat - banking crisis of the ’80s. loyal to the outfit they were working tleman with intense loyalty to his Gilles says that when Hargrove tells for and would fight to the death for it.” outfit. In this instance, the outfit is you he’ll do something, his word is his That quote describes Texas cattle - Hondo National Bank. bond. Hargrove’s a cattleman who men from the autobiography of E.C. “When the bank had a lot of diffi - “rides for the brand,” Gilles says, an “Teddy Blue” Abbott, a cowboy who culty in 1988, when he came in as a expression of loyalty that also extends drove a herd of cattle from Texas to shareholder, he really saved the to his work as a bank director. Montana in the late 1800s. bank,” says Tim Gilles, CEO, Hondo The brand is a ranch’s trademark. i26 TEXAS BANKING • FEBRUARY 2018 When you ride for the brand, it means back to the communities Hondo that you’ve signed on to the mission, “Do you wonder National Bank serves. “Anything involv - that you’re committed and that you’re ing our youth, we try to help,” he says. a dedicated team player. how an old-timer “People like Joe make small inde - The family business pendent banks possible — people remembers a certain The 75-year-old Hargrove was born with Joe’s perseverance,” Gilles says. and raised in Uvalde, where the Texas date? When you go Hill Country and South Texas meet. Banking in Hondo He’s been a rancher and cattle - Hondo National Bank has operated through some of man his whole life. “My family have continuously since its inception in been farmers and ranchers for gener - 1901, including weathering the Great those wrecks, ations,” Hargrove says. Depression. Today, he owns and operates Hargrove was instrumental in you remember Uvalde-based Southwest Livestock growing the bank from one location Exchange with his daughter, Melody in Hondo when he came on in ’88 to those dates.” Speer, and son-in-law, Jimmy Speer. Hondo National Bank’s five locations Hargrove began Southwest Livestock today. In addition to Hondo, a city 40 estate market for growth. Tax incen - at the age of 24 with his wife Nadine miles west of downtown San Antonio, tives started the flow of capital into until her untimely death in 1981. the bank also has locations in commercial real estate but that boom Hargrove sells roughly 50,000 each of Bandera, Uvalde, Tri Canyon and ended in 1986 after Congress cattle, sheep and goats per year. Blanco. removed the incentives when it over - Hargrove and Hondo National “When Joe started with the bank, hauled the U.S. tax code. These Bank were familiar with each other the bank was about $18 million,” events proved too much for most from the livestock auction his family Gilles says. “Today it’s about $255 Texas banks to overcome. has operated for more than 50 years. million.” Gilles says Hondo National According to the Federal Reserve, Hondo National Bank approached Bank probably wouldn’t have sur - in the 1980s, 349 Texas commercial Hargrove in ’88 to invest in the bank. vived without Hargrove’s investment banks failed and an additional 76 “I never thought I’d be on the and vision for growth. required assistance from the FDIC. other side of the desk,” Hargrove In the 1980s, the price of oil “It was tough back then,” says with a laugh. “It’s been quite an dropped, throwing the Texas econ - Hargrove says, referring to saving experience the way we’ve been able omy into a recession; this led Texas Hondo National Bank amid the crisis. to grow the bank.” Hargrove is quick banks to turn to the commercial real “Do you wonder how an old-timer to point out that when he says “we,” remembers a certain date? When you he’s referring to all the Hondo go through some of those wrecks, National Bank employees. OPPOSITE PAGE LEFT TO RIGHT: Joe Hargrove 1 you remember those dates.” In addition to working with his provides starting bids on cattle to auctioneer Rusty After saving the bank and directing daughter and son-in-law, Hargrove’s Oxford at a Southwest Livestock Exchange cattle it to grow, Hargrove insisted that grandsons, Justin and Cline, are auction. 2 The Hargrove family gathers for Hondo National Bank continue to involved in the agriculture business. Christmas at their farm in Crystal City. From left, serve the type of customers it always Family is an important brand that Riggin Glasscock, Joe Hargrove, Melody Hargrove has. “The thing I like most about Joe Hargrove rides for, too. Speer, Jimmy Speer, McKenzie Speer, Justin Speer, is that he wants the bank to be true Madison Speer, Bethany Speer, Cline Speer, Sherida to its roots,” Gilles says. “We have a Natho, Alyson Glasscock and Katie Gourley lot of farmers, ranchers and small What is your favorite book? Glasscock. 3 Hargrove likes to get on horseback business customers; that’s what Will James’ biography and work the cattle in preparation for the weekly we’re good at and that’s what we do Who is your favorite President? cattle sales. Hargrove and his granddaughters, to help these communities.” 4 Ronald Reagan McKenzie and Madison, on their annual trip to the To sum up his feelings about What are your favorite sports San Antonio Stock Show and Rodeo. Hargrove being a bank director, Hargrove says, 5 teams? “It’s been a good experience and stands atop the pens overseeing the cattle as they Dallas Cowboys and Phil Lyne, humbling at times.” are being worked and sorted below. 6 Hargrove an All-Around Cowboy purchased Southwest Livestock Exchange on Hargrove not only feels passionate Champion and member of the Highway 55 in Uvalde on Feb. 25, 1967. about the work he’s done with the ProRodeo Hall of Fame. bank, he feels it’s important to give

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 27 DONNY PALMER TBA MEMBER RELATIONS OFFICER BANKER TO BANKER First United Bank opens new training center

“From a modest capital base of billion and now has 15 locations in 11 $12,000 in 1907, The First State West Texas communities. Sadly, Ray Bank of Dimmitt, now First United Bain did not live to see the 110th Bank, has grown to approximately anniversary celebration, but his pres - $52 million in capital with more than ence was certainly felt. $700 million in assets in 13 banking To celebrate the new milestone, I centers in the Texas Panhandle. had the privilege of having Ray’s These numbers are impressive after son, CEO Mark Bain, give me a tour 100 years of operations that started of the Ray M. Bain Training and in Castro County.” Conference Center in Lubbock. I I wrote these very words 10 years must say, as far as design, this is far ago — in my sixth year at TBA — and beyond any training center in after attending one of the best 100th Texas that I have seen. The attention anniversary celebrations during my to detail, coupled with the historic f tenure at TBA. I had the huge honor memorabilia and artwork throughout of knowing Ray Bain, CEO, at that Donny Palmer presents Mark Bain with a proclamation the facility, are fantastic. time. It was very clear he was the in honor of First United Bank’s 110th anniversary. The center is 1,800 square feet patriarch of the Bain family, and the and contains all the kitchen and joy he shared in the 100-year accom - Let’s fast forward to 2017 when serving facilities needed to serve plishment was very evident not only the bank celebrated its 110th anniver - trainees and the community. Artist with his family but with the Castro sary at the Lubbock location in grand Laura Lewis has produced imagery County community. style! First United has grown to $1.2 of the bank’s founding principles of “Generosity, Loyalty, Integrity and Community.” Most enjoyable are the anecdotes of the bank’s history and the stories of Ray Bain and the development of the banking dynasty over the years. The most fascinating part of the facility is the ongoing “history wall,” which includes all of the aforemen - tioned things. I have enjoyed getting to know Mark Bain over the years and consider him a good friend and great banker in the family tradition. I probably won’t be around for the next celebration but wish First United and my friend nothing but the best! [email protected]

28 TEXAS BANKING • FEBRUARY 2018 JOHN HEASLEY TBA GENERAL COUNSEL YOUR ADVOCATE New sheriff brings CFPB to a screeching halt

Late January had Washington con - providers by secretly subpoenaing sumed with government shutdown evidence and then bringing action in issues. Some federal agencies would federal court. be affected more than others. In the Rather than fight a zealous, deep- financial regulatory sphere, the pocketed agency in court and risk Commodity Futures Trading reputational damage, most defen - Commission and the Securities and dants settled their cases. Some of Exchange Commission would be the funds were cycled through self- most limited in a shut down. Not so described consumer protection for bank regulators, which are funded groups that helped the CFPB identify by the entities that they supervise. and prosecute targets. The settle - The OCC and the FDIC would keep ments were used like scalps to humming along. The Federal Reserve demonstrate the agency’s power and earns income from interest on securi - Acting CFPB director, Mick Mulvaney ended up substituting for the normal lties purchased through the system’s practices of notice and comment and open market operations. Fed the agency had reserves and did administrative procedures used by The Consumer Financial not need the budgeted $145 million every other federal agency. Protection Bureau is a totally differ - for the second quarter of 2018. He Mulvaney has also requested ent animal. Created by Barney Frank also suggested that the Fed return comments from all stakeholders on to have limited Congressional (and the funds to the U.S. Treasury. how the bureau demands information Judiciary) oversight, the CFPB does Just as amazing, when compared and other ways the agency deals not have to rely on appropriated to the practices of the CFPB from with firms it investigates. He wants to funds or even assessments from reg - 2011 to 2017, is the agency’s new add a “due process” element to ulated lenders. It can automatically mission statement. It states that the investigations which would be a wel - obtain up to 12 percent of the CFPB “helps consumer finance mar - come change to any company that Federal Reserve System’s revenue, kets work by regularly identifying and finds itself in the CFPB’s crosshairs. which can amount to more than $600 addressing outdated, unnecessary or A strong hand from Mulvaney will million a year. The CFPB received unduly burdensome regulations, by also be needed because the CFPB is $573 million from the Fed in 2017. making rules more effective, by con - ready to roll out a number of regula - What is astonishing is that in the sistently enforcing federal consumer tions that would involve data most recent quarterly request for financial law and by empowering collection and HMDA-like processes money from the Fed, the acting consumers to take more control over for small business lending. Unduly CFPB director, Mick Mulvaney, asked their economic lives.” burdensome would be an understate - for zero dollars. The prior director, During the Obama years, the ment for a project this ambitious. Richard Cordray, who left to run for CFPB promulgated 2,000 pages of Hope and change may have office in Ohio, asked for and mortgage regulations that lessened finally come to the CFPB. After his received $217.1 million for the prior mortgage credit availability and first day as acting director, Mulvaney quarter. Mulvaney, who also serves increased legal risks for mortgage paraphrased a statement made by as Trump’s head of Office of lenders. The agency went after a our former president: “Elections have Management and Budget, told the number of financial services consequences at every agency.”

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 29 ELIZABETH MADLEM ASSOCIATE GENERAL COUNSEL, COMPLIANCE ALLIANCE COMPLIANCE HOTLINE ‘It’s a Dodd-Frank world, we’re just living in it’

It is only natural that during the first with data collection for applicable years of its existence the Consumer ... the CFPB is in the businesses, historically, there exists Financial Protection Bureau would very little data on small business turn its gaze on consumer finance. preliminary stages of loans aside from data collected by After all, its title and purpose encom - the Small Business Administration, pass “consumer financial implementing an which makes up a minute portion of protections.” Debt collection prac - the market. tices, payday loans, mortgage oft-forgotten mandate For example, 2010 was the first lending — the CFPB broadened its year banks were required to report overview of consumer lending by buried within the the size of their small business loan expanding protections and intensify - portfolios on a regular basis. Even ing its web of collected data. 2010 Dodd-Frank Act: the very definition of “small busi - iYet, while neither financial institu - ness” remains undetermined. tions nor the CFPB understand the Section 1071. Borrower revenues or size of new considerations initiated in the workforce may be large, general recent Home Mortgage Disclosure definers, but as the comments to the Act (HMDA) or the Equal Credit government in effectively enforcing CFPB point out, there has been a Opportunity Act (ECOA) amend - fair lending laws in attempts to better lack of clarity and a persistent chal - ments, now the CFPB is in the serve the needs of small businesses, lenge in defining small-business preliminary stages of implementing this act requires financial institutions loans. Banker Kent Franzen of an oft-forgotten mandate buried to compile specific data points, Henderson, Neb., attacked small within the 2010 Dodd-Frank Act: including the type and purpose of businesses’ elusiveness in his com - Section 1071. the financing, the amount of funding ments to the CFPB: The Dodd-Frank Act ravaged sought and received, as well as the “Is the purpose of the loan to gen - financial reform law, which has location and most recent annual rev - erate or support the production of generally been geared towards con - enue, of all applicants. income? If the answer is yes, it is a sumer lending. But Section 1071 of It also keeps open-ended the pos - small business loan; answer no and the act amends ECOA and requires sibility that the CFPB may add it is a consumer purpose loan ... I lenders to collect and report credit requirements to what it collects as its fear that the heavy hand of the CFPB data on small business lending, power extends to “any additional will force standardization and regi - women-owned businesses and data that the Bureau determines mentation upon the small business minority owned businesses. Keeping would aid in fulfilling the purposes community bank relationship at the in line with ECOA’s mission, this new [of the law].” expense of borrowers, lenders and data collection’s stated purpose is to So how did commercial lending society as a whole.” “facilitate enforcement of fair lending end up in a predominantly con - This fear is now shared among laws.” sumer-fueled act? It was the result commercial lending institutions. The Just like that, commercial lending of an overhaul from an earlier bill complexity that small business lend - is introduced to the Dodd-Frank to revamp the Community Reinvest - ing brings prompted a movement order the rest of consumer lenders ment Act. Although this provision backed by the American Bankers have already been living under. requires both banks and nonbanks Association to request an extension With the intention of aiding the (such as online lenders) to comply to the comment period back to

30 TEXAS BANKING • FEBRUARY 2018 NPE NO PATENT EXTORTION September 2017, which the CFPB obtaining credit directly from a bank, granted. there exists a possibility that the With a lack of information about CFPB will, similar to its presence in The nation’s first access to credit, what does this auto lending, influence the small association-created potentially mean for commercial business lending market without patent defense lenders? The CFPB’s first phase to direct supervisory oversight through begin implementing Section 1071 disparate impact data. product for banks was this Request for Information. Currently, the bureau’s role in Five broad topics were explored: (1) small business lending is limited to BENEFITS definition of a “small business”; (2) the enforcement of ECOA, so prac - the data points the CFPB should tices of adversely affecting one • Experienced outside require banks to report; (3) the group of people of a protected char - counsel’s initial lenders to be encompassed by the acteristic over another fall under its evaluation of data collection; (4) the financial purview. This leaves online lenders products offered to small busi - with more potential scrutiny than with infringement and nesses; and (5) privacy and traditional banks. Traditional bank validity issues. confidentiality concerns related to underwriting examines FICO scores, data collection. debt-to-income ratios, credit history • Experienced outside Commercial lenders are now and collateral to determine a sound counsel representation being pressured to accept the investment; online banks generally on one IP license per CFPB’s growing regulatory voice employ less traditional methods, plan year. within the commercial lending such as education level and even process. Many are not following college major. • An outside counsel blindly, and rightly so. The American These methods avoid a back - drafted and signed Bankers Association has argued wards-looking analysis of an repeatedly for the repeal of Section applicant and are generally untested indemnity demand 1071, noting “that its conflation of due to their newness. So, while letter. consumer and commercial lending applicants may be approved more is misguided.” often with online lenders’ metrics, • Information sharing. The CFPB offers no expertise or higher rates or complicated financial • Automatic 15% fee proficiencies to comprehend the products are a risk. requirements of data collection on For now, the CFPB still has many discount on any small businesses and the interwork - hurdles to overcome when it comes engagement of plan ing of commercial lending. Will small to collecting small business data. counsel for additional banks be exempted? Will there be a The actual rule-writing itself will pose definitive definition for “small busi - even more questions: what type of services and, if ness loan”? What does this mean for loan products will be included, what mutually agreed, a financial institutions’ internal protocols size loans will be under the scope of non-hourly fee and recordkeeping requirements? the rule, will this lead to an increase agreement. What is an application date for a com - in loan costs associated with compli - mercial loan or, better yet, what is a ance or will sole proprietorships “complete commercial application”? meet the small business threshold or Additional information and These are just a few of the questions fall under consumer lending? application available soon. left by the looming possibility of CFPB The most important thing now for Be included in the first offering regulatory supervision. banks to do is to begin developing of this new product! While it is not disputed that protocols of a more regimented Go to women and minority-owned busi - approach to commercial lending www.texasbankers.com/TrollFree nesses traditionally were more likely and procedures and to anticipate a to sign up today. to seek credit through SBA loan pro - growing CFPB presence within grams, suggesting a difficulty in commercial lending processes.

@TEXASBANKERS TEXAS BANKING • FEBRUARY 2018 31 BANK PEOPLE

BROWNSVILLE MCALLEN IBC BANK IBC BANK John Cowen Jr. to the Alin I. Lopez to bank officer. board of directors. John Michael “Mike” Ortega to vice president of DALLAS commercial lending. TIB THE INDEPENDENT John Cowen Jr. Chuck Phelan Chuck Hudspeth Travis Stephens BANKERSBANK, N.A. SAN ANTONIO Chuck Phelan to advisory BROADWAY BANK director of the board. Chuck Christopher M. Belz to Hudspeth to senior vice assistant vice president, president/senior relationship banking services officer. officer. Travis Stephens to Erika de la Rosa, PHR to senior vice president/senior human resources business correspondent officer. Guy partner and employee rela - Lookabaugh, Michael C. tions/compliance manager. Michael C. Ann Marie Brown Jerry Song Ron Corcoran O’Rourke O’Rourke and J.J. David M. Flint, CCP, GRP to Woolston to first vice presi - assistant vice president, dents. Tamara Carter, Kim compensation and 401k Nguyen and Barbie Redd to benefits manager. Brooke vice presidents. Allison Stocks to assistant vice Murphy to investment sales president, marketing analyst. officer. Austin Scheets, Clifford Bandy to executive Matthew Sharp and vice president in the bank’s Bernetra Thompson to card Private & Business Banking Jeff Wyatt Alin I. Lopez John Michael Christopher M. Belz “Mike” Ortega services officers. Group. John Ensminger to executive vice president, FORNEY chief technology officer. TEXAS BANK AND TRUST Ann Marie Brown to presi - WACO dent of the Forney market. COMMUNITY BANK & TRUST FRISCO Darrin Banik to executive TEXAS REPUBLIC BANK vice president and chief Erika de la Rosa, David M. Flint, CCP, Brooke Stocks Clifford Bandy PHR GRP Jerry Song to senior vice operations officer and president-lending officer. cashier. Thad Jennings to Ron Corcoran to executive executive vice president and vice president-loan officer. trust officer. Jeff Holloman to senior vice president and LONGVIEW chief financial officer. TEXAS BANK AND TRUST Jeff Wyatt to senior vice Send your promotions and new hire John Ensminger Darrin Banik Thad Jennings Jeff Holloman president and chief informa - notices to [email protected] tion officer.

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