INSIDE IBA Hosts 2015 Legislative Briefing and Reception Story on page 10. Hoosier Banker FEBRUARY 2015
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Indiana Bankers Association Officers, Directors & Staff IBA Officers Chairman ...................................................... Larry W. Myers, First Savings Bank, Clarksville First Vice Chairman ............................... Michael H. Head, First Federal Savings Bank, Evansville Second Vice Chairman ................. Annette M. Russell, Security Federal Savings Bank, Logansport Immediate Past Chairman ............................................ David W. Heeter, MutualBank, Muncie President and Chief Executive Officer ..... S. Joe DeHaven, Indiana Bankers Association, Indianapolis Constituent Directors ICBA State Director ........................................ David M. Geis, Jackson County Bank, Seymour ABA Membership Council ....... ................ Michael K. Bauer,Your Community Bank, New Albany Future Leadership Division President .......... Lucas White,The Fountain Trust Company, Covington Non-Indiana Headquartered Bank Director ............... Tim Massey, BMO Harris Bank, Indianapolis Northeast Region Directors Michael C. Marhenke, iAB Financial Bank, Fort Wayne Gregory Maxwell, Farmers State Bank, Mentone Michael S. Zahn, First Federal Savings Bank, Huntington Northwest Region Directors Patrick Duffey, State Bank of Burnettsville Karen I. Miller,The Farmers Bank, Frankfort Arden L. Cramer, Logansport Savings Bank, FSB Southeast Region Directors George W. Ferriell, Bath State Bank Archie M. Brown Jr., MainSource Financial Group, Greensburg Dennis Wayman, State Bank of Medora Southwest Region Directors Kurt D. Rosenberger, Our Community Bank, Spencer Matthew W. Howrey, North Salem State Bank Clay W. Ewing, German American, Jasper IBA Staff President & Chief Executive Officer ........................................................... S. Joe DeHaven Executive Vice President .............................................................. Paul W. Freeman, CAE Senior Vice President–Government Relations ........................................ Amber R.VanTil, JD Vice President–Meetings & Events ............................................ Christina M. Bennett, CMP Vice President–Government Relations ........................................................... Dax Denton Vice President–Products & Services ................................................................. Rod Lasley Vice President–Education & Training ........................................................... Laurie A. Rees Vice President–Communications .................................................................. Laura Wilson Events & Products/Services Assistant .............................................................. Susan Clark Education Meeting Coordinator ................................................................ Elizabeth Kilty Education Meeting Coordinator ................................................................. Marlene Wells Staff Accountant ....................................................................................... Timothy Fry IT and Facilities Manager ...................................................................... Tracy Wainscott Administrative Assistant ........................................................................... Michelle Long Government Relations & Communications Office Manager ............................ Joshua A. Myers Email addresses: First initial of the staff member’s first name plus last name; example: jdoe@indianabankers.org Please send news releases to: IBAcommunications@indianabankers.org Mission To advocate for and sustain an environment in which banks can succeed. Vision To provide exemplary service to members as the premier state bank trade association in the country. Values In fulfilling our mission, we will: • Maintain the highest ethics, integrity and respect for others; • Serve with professionalism, innovation and resourcefulness; • Instill passion, positive attitude and enthusiasm; • Remain mindful that the success of the IBA is judged by the success of its members. View Hoosier Banker Digital at www.ourdigitalmags.com/ publication/?m=19522&l=1. Publication Disclaimer Hoosier Banker articles are published by the IBA Service Corp., a subsidiary of IBA Holding Company Inc., that is a wholly owned subsidiary of the Indiana Bankers Association. All material published in Hoosier Banker and/or on the IBA website is the property of the Indiana Bankers Association.
5 Hoosier Banker TABLE OF CONTENTS VOLUME 99 NO. 2 6925 Parkdale Place Indianapolis IN 46254-4673 Phone: 317-387-9380 Fax: 317-387-9374 Twitter @indianabankers www.indianabankers.org Publisher: S. Joe DeHaven Editor: Laura Wilson Advertising: Rod Lasley Email news releases to: IBAcommunications @indianabankers.org Hoosier Banker (ISSN 0018-473X) is published monthly by the IBA Service Corp., a subsidiary of IBA Holding Company Inc., that is a wholly owned subsidiary of the Indiana Bankers Association. The magazine invites news from IBA members. Copy deadline: first of the month preceding publication. Advertising: Rates available upon request or online at www.indianabankers.org. Advertisers should provide electronic PDFs by the 15th of the month preceding publication. Hoosier Banker advertising is available to members and associate members of the Indiana Bankers Association only. Subscriptions: Hoosier Banker subscriptions are provided free of charge exclusively to members and associate members of the Indiana Bankers Association. Public access to Hoosier Banker Digital is available at www.indianabankers.org. COVER STORY 10 IBA HOSTS 2015 LEGISLATIVE BRIEFING AND RECEPTION Amber R.Van Til, JD, IBA FEATURES 6 PRESIDENT’S PONDERINGS S. Joe DeHaven, IBA 8 IBA CALENDAR OF EVENTS DIRECTORS / SENIOR MANAGEMENT 14 ALTA BEST PRACTICE NO. 6: JUST BECAUSE 'STUFF HAPPENS' Jonathan Biggs, Investors Title Insurance Company 18 YIELD CURVE CHANGES AND MANAGEMENT OF THE INVESTMENT PORTFOLIO Jeffrey F. Caughron,The Baker Group PSP SHOWCASE 24 TITLE SERVICES TO CALLYOUR OWN Rod Lasley, IBA DEPARTMENTS 16 IN MEMORY OF 16 VIDEO BONUS 20 COMPLIANCE CONNECTION Larry C.Tomlin, Krieg DeVault LLP 21 ANNIVERSARY MILESTONES 22 FROM THE BOARD ROOM 23 BANKING ON COMMUNITY 25 ASSOCIATE MEMBERS' CORNER 26 HONORABLE MENTIONS 27 BANKERS ON THE MOVE 30 TAKING IT EASY 30 ADVERTISERS INDEX 5 Hoosier Banker FeBruary 2015 Bankers and legislators gather for the 2015 IBA Legislative Briefing and Reception. Access this month’s Amplify video bonus on page 16.
6 Hoosier Banker February 2015 About a year ago, my counterpart from South Dakota, Curt Everson, wrote an article for the South Dakota Banker magazine that compared a particularly bad weather day to the difficulties that bankers face daily. I was struck by the analogy and would like to echo those sentiments. The past couple of winters have seen many a cold day, plus many a day of icy snow and subzero winds. Living in Indiana requires the ability to be resilient to these conditions. Even so, it is difficult to remain focused on the task at hand when fighting the elements to get to work, and then fighting them again to get back home. Day after day of struggling for survival can wear us down. Yet we know that eventually winter gives way to spring and summer, and that howling winds calm into gentle breezes. The location remains the same, but time and circumstances change. Those who are steadfast and hold their ground are rewarded over time with warm blue skies and beautiful sunshine. Being a banker for the past several years has been a lot like functioning in a prolonged winter. Being resilient is not an option, it is a requirement. The world that bankers live in and work in has completely changed since 2008, due to the financial crisis. The response by Congress to punish the survivors is known as the Dodd-Frank Act. This lengthy, anti-bank legislation has cast thousands of pages of regulations upon an industry that already was one of the most regulated in this country. The damage to the image of bankers ‒ at one time as respected as the clergy ‒ was immeasurable. Not only did Congress punish bankers, but it punished those who regulated banks, because they had not been hard enough in their examinations. Regulators responded by becoming more difficult in their examinations in order to prove their toughness, at the very time when banks needed their help, not their criticism. Regulators even responded to the creation of the Consumer Financial Protection Bureau by adding burdens to income streams for services desired by customers, such as overdraft protection programs. Fortunately, winter does end. Extreme temperatures and environments are abated at some point. So, too, are the difficult times for the banking business. Oh, we still are overregulated. We still are stymied in many of the services we work hard to provide. However, bank closings have diminished to very few, and our image among customers has improved greatly from those difficult days of not so long ago. Loan demand has gone up, as has asset quality. We are better positioned as an industry, with stronger capital levels. While not at pre-recession levels, income performance has improved, too. Now we need to look to the future. While we are far from operating in a perfect environment in which to be a banker, it is time to look forward and determine what needs to be done to prevent, or respond to, the next winter of a recession. We must do this as an industry, and it will be incumbent upon the associations that represent you to assist your efforts. Bankers will need to decide what to do, and must prioritize those tasks. Some examples of what to do include defining what a bank is, so that our image can never again be tarnished by shadow banks and other nondepository institutions. Also, relieving the obvious overkill of regulation will be paramount, if banking is to survive in any form resembling what the United States historically has enjoyed. Additionally, we need to find ways to protect entities, such as the Federal Home Loan Bank System, that have been key to our survival. Thank you, Curt Everson, for reminding us that this, too, shall pass. Congratulations to all of you who have weathered this long, frigid winter. Now let’s all work together to accomplish what we must, so that there can never be another winter that damages us so badly. FEATURE President’s Ponderings S. Joe DeHaven, President & Chief Executive Officer, Indiana Bankers Association Amplify is a public relations and grassroots tool designed to help rebuild the image of banking. Developed by the American Bankers Association, Amplify is available to all bankers, both ABA members and nonmembers, free of charge. For more information, visit amplifybankers.com, or contact Erin Scheithe at 202-663-5436, email: escheithe@aba.com. Additionally, view a simple explanatory video available through Hoosier Banker Digital. For details, turn to page 16. t AmplifyYour Outreach Association, to all bankers, and nonmembers, For more amplifybankers.com, Erin Scheithe Additionally, simple
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CALENDAR UPDATE 8 Hoosier Banker February 2015 Calendar of events Register online at indianabankers.org/education-events The IBA Center for Professional Development is located at 6925 Parkdale Place, Indianapolis. Phone: 317-387-9380. Alternative Delivery Channels … Available at your convenience via Webinar, CD-ROM or On-Demand Indiana Deposit Account Administration March 5 - IBA Center IBA Leadership Development Program: Session 1 - It’s Simple, But It Isn’t Easy March 10-13 - Wooded Glen Executive Retreat & Conference Center, Henryville Day at the Statehouse, sponsored by IBA Future Leadership Division March 16 - Indiana Statehouse Understanding and Implementing the New Integrated Disclosure Rules March 16-17 - IBA Center Human Resources Director Forum March 17 - IBA Center Annual Security and Risk Management Conference March 18-19 Indianapolis Marriott North Residential Mortgages and Construction Lending March 20 - IBA Center Training the Credit Analyst March 24-25 - IBA Center Flood Insurance: Key Fundamentals and Flood Compliance by the Case March 26 - IBA Center Trust Officer/Financial Adviser Forum April 7 - IBA Center Home Mortgage Disclosures Act Seminar April 9 - IBA Center Bank Robbery Prevention April 13 - Huntingburg Event Center April 14 - Best Western Plus, New Albany April 15 - Chapman’s Restaurant, Bloomington April 20 - Fort Wayne Hotel April 21 - Best Western Executive Plaza Lafayette April 22 - Batesville (site TBD) Social Media Bootcamp:The Risks and Opportunities of Your Bank’s Online and Social Media Footprint April 14 - IBA Center Certification Training for the Certified Community Banking Security Professional April 15-16 - IBA Center Branch Management Series: Session 2 - Growing the Retail Bank April 21 - IBA Center Essentials of Banking: Session 2 - Business Operations and Management April 22 - IBA Center Compliance Administration and Audit April 22 - IBA Center Train the Trainer: Plans, Programs and Processes That Work April 23 - IBA Center Auditing BSA April 23 - IBA Center IBA Consumer Lending School April 28-29 - IBA Center Senior Retail Lender Forum May 6 - IBA Center Today’s Bank Board Secretary - More Than Just Taking Minutes May 7 - IBA Center IBA Mega Conference May 11-13 - Indiana Convention Center Community Bankers for Compliance Series: Session 2 May 18 - Courtyard by Marriott, Fort Wayne May 19 - IBA Center May 20 - IBA Center Risk Management Officer Forum May 21 - IBA Center BSA/AML Compliance School June 2-3 - IBA Center IBA Leadership Development Program: Session 2 - Do Something That Scares You June 3-5 - Wooded Glen Executive Retreat & Conference Center, Henryville IBA Commercial Lending School June 7-12 - IBA Center Chief Financial Officer Forum June 16 - Group 1 - IBA Center June 19 - Group 2 - IBA Center Integrated Disclosure Rules for Processors and Lenders June 16 - Location TBD June 17 - IBA Center IBA Commercial Lending School June 7-12 - IBA Center Senior Lender Forum June 17 - Group 1 - IBA Center June 18 - Group 2 - IBA Center Auditing Operations June 18 - IBA Center Marketing Director Forum June 23 - IBA Center Essentials of Banking: Session 3 - Customer Service, and Safeguarding the Bank June 24 - IBA Center IT Officer and Operations Officer Forum June 25 - Group 1 - IBA Center June 26 - Group 2 - IBA Center Human Resources Director Forum July 14 - IBA Center Real Estate Lending Compliance July 28-29 - IBA Center Community Bankers for Compliance Series - Session 3 Aug. 10 - Courtyard by Marriott, Fort Wayne Aug. 11 - IBA Center Aug. 12 - IBA Center March 2 - Bank Call Report Prep for Beginners - Part 2 March 3 - Best-Ever Compliance Checklists for Commercial Loans March 3 - BIRA Series:Traditional and Roth Fundamentals and Compliance Consideration March 4 - Completing the SAR Line-by-Line March 4 - Qualifying Borrowers Using Personal Tax Returns Part 2: Income From Rentals, Royalties, Partnerships, S Corporations and Farms March 5 - Free Checking Trends in Today’s Market: Feasibility, Regulations and Benefits March 9 - Bank Call Report Prep for Beginners - Part 3 March 9 - For Salespeople: Grow Your Businesses, Get Introductions! March 10 - Directors’ Series: Update on Capital Planning, Contingency and Basel III for the Board March 12 - Notary Public March 12 - Legally Handling ATM and Debit Card Claims Under Regulation E March 13 - CTR Exemptions: Reviews, Mergers, Revocations and More March 16 - Bank Call Report Prep for Beginners - Part 4 March 18 - Fair Lending and the CFPB in Underwriting, Servicing and Collections March 19 - Health Savings Accounts March 19 - Living Trust Documents March 19 - Real Estate Valuation: Current Issues and Best Practices March 23 - Bank Call Report Prep for Beginners - Part 5 March 23 - Teller Compliance Issues March 24 - The TILA / RESPA Integrated Disclosure Line-by-Line Part 1: Loan Estimate March 25 - RESPA / TILA March 25 - Call Report Revisions and Update: Including an Overview of Basel III Regulatory Capital Changes to Schedule RC-R March 26 - Power of Attorney March 31 - New Accounts Series - Opening Trust Accounts: Compliance, Documentation, Signing Authority and Deposit Insurance Issues April 2 - UCC April 2 - Emerging Leader Series - Branch Transformation: Balancing the Trend Toward Virtual Banking,While Enhancing Your Customer’s Experience April 9 - Call Report - Lending Schedule for Banks April 9 - Deposit Regulation Update April 9 - Advanced Issues in Dormant Accounts, Unclaimed Property and Escheatment April 14 - The Pitfalls of Vault Security, Disaster and Self-Service Boxes - 2015 Update April 14 - Writing an Effective Credit Memo April 14 - CFPB Real Estate Loan Collection Rules for Mortgage Servicers April 15 - Excel Explained: Introduction to Spreadsheets April 16 - Reg E - How Expensive Is a Compliance Mistake? April 16 - UpdatingYour Bank’s BSA/AML/OFAC Risk Assessment April 17 - Understanding and Addressing Critical Interest-Rate Risk Issues:The Regulatory Perspective
10 Hoosier Banker February 2015 COVER STORY More than 200 bankers, associate members and legislators attended the 2015 Indiana Bankers Association Legislative Briefing and Reception, held Feb. 3 in downtown Indianapolis. This annual event gives IBA members the opportunity to interface with elected officials in a relaxed setting to build relationships and discuss banking issues. The day began with a morning meeting of the IBA board of directors, followed by a luncheon for the IBA Government Relations Committee, hosted by The KeyState Companies. The luncheon featured guest presentations by Dennis L. Bassett, director of the Indiana Department of Financial Institutions, and Thomas C. Fite, DFI deputy director of depository institutions. Director Bassett is well known to IBA members for his prior service as chairman of Chase Bank in Indiana; he retired from the bank year-end 2013 and shortly after was named DFI director. Following the luncheon, members of the GR Committee met with the IBA Government Relations Team for a review of more than 30 pieces of legislation potentially affecting the business of banking in Indiana. As part of the purpose of the GR Committee is to serve as a sounding board of banker opinion, the review meeting was interactive, with the GR Team highlighting pertinent legislation, and member bankers voicing their views. At 4 p.m., the official Legislative Briefing began with a summary of the most prominent bills of interest to Indiana bankers. • HB 1102 – Patent Protection • HB 1279/SB 555 – HERO Plan • HB 1281 – Local Government Investments • HB 1456 – Servicemembers Civil Relief Act • HB 1631 – Identification Cards Without an Image • SB 7 – Abandoned Mobile Homes • SB 56 – Legacy Trust • SB 195 – Investments by Local Government • SB 415 – Vacant and Abandoned Housing • SB 435 – Public Depositories • SB 447 – Management of Funeral Trust Accounts • SB 489 – State Board of Accounts Issues • HB 1495 – Various Government Administration Matters As has been recent IBA tradition, the briefing also provided a recognition opportunity for member banks of the “200% Club” — banks which in 2014 contributed at least 200 percent of their fair share goals to Indiana BANKPAC during 2014. Thirty-three banks were so recognized, and the IBA very much appreciates their support of the PAC. IBA also appreciates the support of this year’s sponsors of the Legislative Briefing: The KeyState Companies, Equias Alliance, Continuity Control and Bose McKinney & Evans LLP Following the briefing, the evening continued with the Legislative Reception, giving IBA members the chance to mix and mingle with elected officials. Despite heavy snowfall in the northern part of the state, turnout was outstanding. This annual Legislative Briefing and Reception is the first of many grassroots opportunities throughout the year to give IBA bankers a voice in the legislative process. An upcoming related event is the firstever Future Leadership Division (FLD) Day at the Statehouse, set for March 16 in Indianapolis. This outing gives FLD members and prospective members the chance to witness firsthand and learn about the legislative process and grassroots advocacy. Contact Josh Myers, 317-917-8047, email: jmyers@indianabankers.org, for more information about Day at the Statehouse, or to subscribe to IBA Insighter, an electronic newsletter distributed regularly throughout Session with updates on bankingrelated legislation. t IBA Hosts 2015 Legislative Briefing and Reception About the Author Amber R. Van Til, JD, is senior vice presidentgovernment relations of the Indiana Bankers Association. She can be reached at 317-917-8047, email: avantil@indianabankers.org.
11 Hoosier Banker February 2015 LEGISLATIVE BRIEFING AND RECEPTION PHOTO GALLERY
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14 Hoosier Banker February 2015 DIRECTORS / SENIOR MANAGEMENT When the Real Estate Title Insurance Company of Philadelphia issued the first title insurance policy in Pennsylvania in 1876, there was a need to protect a consumer’s investment in real estate because, simply, “stuff happens.” At times it seems that bad things happen to good people for no particular reason, a la Murphy’s Law: “If anything can go wrong, it will.” So how do we guard against stuff happening, to us or our clients? We buy insurance. The recommendation to real estate clients is that they purchase title insurance. Title insurance protects against a number of risks that are symptomatic of the recording system in the United States, such as unknown legitimate claims to title that were not discoverable in the public record. In many instances, the lender does more than request title insurance – it makes lender’s coverage mandatory. Lenders want protection in the event “stuff happens” to their security, because they generally wind up holding the bag when it does. Furthermore we may choose to, or be required to, purchase multiple forms of insurance. The title insurance underwriter or state law may require additional forms of insurance, such as errors and omissions professional liability insurance, fidelity coverage, surety coverage, or cybertheft and fraud coverage. In the case of ALTA Best Practice No. 6, the standard is simple: Agents must carry whatever the title underwriter or state law requires. ALTA Best Practice No. 6: Maintain appropriate professional liability insurance and fidelity coverage. Purpose: Appropriate levels of professional liability insurance or errors and omissions insurance help ensure that title agencies and settlement companies maintain the financial capacity to stand behind their professional services. In addition state law and title insurance underwriting agreements may require a company to maintain professional liability insurance or errors and omissions insurance, fidelity coverage or surety bonds. Errors and Omissions Insurance Errors and omissions insurance is for professionals who provide advice or service to clients. It protects the client in the event of a negligent act of the professional who has caused financial harm to the client. While the client would have a claim against the professional, the errors and omissions insurance would step in and protect the client from the financial loss. The professional could be pursued by the errors and omissions insurance company but, ultimately, the errors and omissions insurance makes the client whole and does not rely upon the professional for the compensation to the client. In the case of a real estate transaction, title insurance covers many incidents that might ultimately be the error of the professional performing the title examination. ALTA Best Practice No. 6: Just Because ‘Stuff Happens’ The American Land Title Association (ALTA), a title insurance and settlement company, gives guidance to help ensure the protection of consumers during real estate transactions. ALTA offers seven standards — known as ALTA Best Practices — by which each bank should measure its service providers. In recent months, Hoosier Banker has been featuring a series of articles by Investors Title Insurance Company outlining the seven best practices. Topics covered to date are: Licensing; Escrow Accounts: Follow the Money; Information Security – Keeping Secrets From the Backyard to the Boardroom; Do It on Time, and Do It Right; and “It Ain’t Over, ’Til It’s Over.” About the Author Jonathan Biggs is vice president, director of risk management and education for Investors Title Insurance Company. He oversees risk management functions related to the company’s approved provider system. Prior to joining Investors Title in 2012, Biggs was partner at a firm in Durham, North Carolina, where he practiced residential and commercial real estate law for more than 20 years. He earned a bachelor’s degree from Duke University and a JD from Wake Forest University School of Law. Investors Title Insurance Company is an associate member of the Indiana Bankers Association and an IBA Preferred Service Provider.
15 Hoosier Banker February 2015 For example if the professional does not discover an uncancelled lien or judgment that takes priority over the purchaser’s deed or lender’s new security instrument, title insurance would potentially be called upon to make the purchaser or lender whole. In such an instance, the title insurance company, having paid the claim, by virtue of subrogation would stand in the shoes of the purchaser or the lender to make a claim against the professional. In this case, if there is a responsible party, the resulting liability would come back to that professional who made the negligent error. At this point, the professional would refer the title insurance company to the errors and omissions carrier to make it whole. In short, professional errors and omissions insurance protects the professional, as well as the client. Other Relevant Forms of Insurance While professional errors and omissions insurance is required by nearly every underwriter, there are other types of insurance that may be required by the title underwriter, or that the professional may wish to have. Fidelity bond. A fidelity bond is an insurance policy that protects the professional from the fraudulent acts of specified individuals. In particular the professional might purchase this insurance and/or bond to protect from the malfeasance or dishonesty of employees. These acts could include many instances, including theft, fraud or forgery. A review of the terms of the policy would reveal the exact coverage limitations. A fidelity bond is significantly different from a professional errors and omissions policy, because it protects the professional for wrongful acts, not mere negligence. Some might refer to a fidelity bond as a type of “crime insurance” policy. A fidelity bond will certainly protect the professional but, in this instance, it is not a case of bad things happening to good people. It is, rather, a case of bad things happening because of bad people. At present ALTA Best Practice No. 6 only requires a fidelity bond if it is required by the title underwriter or by the prevailing laws of the jurisdiction. Consult the title underwriter and licensing authority for the requirements in this regard. Surety bond. There are many types of surety bonds, but they all are generally three-party agreements. The surety bond protects a second party in the event that the first party fails to meet a certain obligation. The type of surety bond that is applicable in the context of a professional providing real estate settlement services would be a fiduciary obligation to monitor the funds held in trust. In other words, a surety bond is in place to make sure that a professional or principal does not steal the money. If it sounds odd to buy an insurance policy to make sure that the professional does not steal, it is; however, in some instances, there may be a level of assurance required by a client that cannot be achieved another way. • $2.7 billion of equity investments & permanent loans • 550 developments supported, serving 75,000 people • 20 years of stellar execution • No foreclosures • 100% on time reporting to investors • 100% success in delivering target IRR to investors A full service community development finance institution supporting healthy, vibrant and sustainable communities. www.capfund.net | 877.FOR.GLCF Continued on page 16.
16 Hoosier Banker February 2015 At present, ALTA Best Practice No. 6 only requires a surety bond if it is required by the title underwriter or the prevailing laws of the jurisdiction. Consult the title underwriter and licensing authority for the requirements in this regard. Cyberfraud and cybertheft insurance. Cyberfraud and cybertheft insurance is currently not required by the ATLA Best Practice No. 6. We cannot, however, have a complete conversation about insurance without mentioning this growing area of the insurance marketplace. Twenty years ago, when assessing the risk for theft from our entrusted funds in the trust accounts, we looked to our employees, our partners and our clients. Today we have to consider threats that did not exist last week, let alone 20 years ago. The advent of online banking has provided crooks in a foreign land an avenue to potentially rob our trust account. This is a new threat that has to be examined carefully to make sure that the trust that has been placed in us is warranted. The next time we sit down at the computer to perform an online banking function, consider that a criminal halfway around the world could potentially do anything online that we can do. Compare this type of coverage to the coverage offered by a fidelity bond, and consider that the opportunity to interview an employee exists before he or she sits at a computer with access to online banking. In both instances, a professional may be the victim of theft due to the malfeasance of another. Purchasing cyberfraud and cybertheft insurance is not a substitute for appropriate risk management measures regarding online banking; it is a complement to those efforts. Conclusion There are many types of insurance available to protect ourselves and our clients. Ultimately the different forms of insurance are not a substitute for professional policies, procedures and practices. Title insurance is not a substitute for a complete and thorough title examination. Errors and omissions insurance is not a substitute for adhering to standards of professionalism. Fidelity insurance is not a substitute for a background check and interview of potential employees. Cyberfraud and cybertheft insurance is not a substitute for a firewall and virus protection software to protect online communications. Try as we might to guard against all of the risks present in our everyday professional responsibilities, “stuff happens.” The insurance that we purchase – some required by our title underwriter and some required by state law – is merely a safety net, so that we can continue another day to provide professional real estate services to another client. t Learn step by step how to build your bank’s image with Amplify, a grassroots communications program. To view a brief explanatory video, go to Hoosier Banker Digital indianabankers.org, and click on the red arrow. Give Banking a Stronger Voice Video Bonus: Gary Michael Monnett, 55, chief financial officer, vice president and board member of Our Community Bank, Spencer, died Jan. 7. He became a certified public accountant in Elkhart before opening an accounting firm in Cloverdale. Monnett joined the bank in 2000. He attended DePauw University. t In MeMory of Continued from page 15.
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18 Hoosier Banker February 2015 Bank investment strategies must be developed within a framework that considers multiple dimensions of risk and reward. We begin with a “big picture” view of the bank and its balance sheet. The asset/ liability posture, liquidity position, tax considerations, and expectations for loan demand and deposit growth must all be taken into account. Along with these factors, management must also consider the shape of the yield curve and the cash flow profile of the investment portfolio. This is important, since there are distinct strategies that make sense for a steepening yield curve, and different strategies that are optimal for one that is flattening. Textbook portfolio management tells us that when the slope of the yield curve flattens, a duration-weighted combination of short and long maturities will generally perform better than continuous cash flows across the time horizon. On the other hand, if the curve steepens, a laddered cash flow of maturities is preferred. As a simple example, we can examine the effects of a change in yield curve slope on positions in three Treasury notes: a twoyear maturity, a 10-year maturity, and a 3.5-year maturity, which has a duration that is roughly the average of the two- and 10-year combination. We can focus on the relative price changes for the three different bonds. What we want to study is the change in price or market value for a combination of two-year and 10-year bonds versus the 3.5-year bond. When we look at the actual behavior of Treasury yields from year-end 2013 through the second quarter of 2014, we can see that the curve flattened noticeably. For the three bonds in our example, the two-year yield rose by five basis points, while the 10-year fell by 50 basis points. Meanwhile, the 3.5-year maturity was virtually unchanged. So when we do the math, we can see that the duration-weighted barbell combination of twos and 10s outperformed the single 3.5-year maturity. This is because the price appreciation of the 10-year more than offset the depreciation of the two-year, so the net effect was an unrealized gain on the combination. All the while, the middling 3.5-year maturity sat quietly and ended the period at precisely the same yield, with no change in price. Even if the duration weighting requires a four-to-one ratio of two years versus 10 years, the combined DIRECTORS / SENIOR MANAGEMENT Yield Curve Changes and Management of the Investment Portfolio In Praise of the ‘Modified’ Barbell
19 Hoosier Banker February 2015 position wins. It confirms what portfolio managers have always known: All else being equal, a barbell structure will outperform sequentially laddered cash flows when the yield curve flattens. There is much more to the “modified barbell” structure that we generally recommend for bank portfolios. The short end of the barbell provides a source of re-investable liquidity that allows us to maintain a smooth moving average of yield, as we add newly purchased securities. The longer end of the barbell should be populated with high-grade bankqualified municipal bonds (assuming the bank is fully taxable), where the portfolio can achieve high tax-equivalent yield to meld with the liquidity ladder. In combination, this modified barbell provides the optimal mix of liquidity and yield. The structure of cash flows has always been a key consideration for portfolio managers. As conditions change, the precise distribution of cash flows can be stretched out or pulled in, depending on specific needs. This, among other reasons discussed, is what gives the modified barbell its power and makes it a highperformance strategy. t About the Author Jeffrey F. Caughron is a managing director with The Baker Group, where he serves as chief operating officer and director of asset/liability management. He has worked in financial markets and the securities industry since 1985, with an emphasis on banking, investments and interest-rate risk management. His trading experience includes several years on the Treasury desk for an international bank on Wall Street, with subsequent positions trading mortgage-backed securities and other taxable fixed-income products for regional broker/ dealers. Caughron has expertise in broad asset/liability management issues, working with institutional accounts on controlling interest-rate risk exposures and maximizing returns. He has published numerous articles on risk management topics and is quoted frequently in the financial press. A graduate of the University of Oklahoma, Caughron has served on the faculty of several banking schools and has done consulting work for foreign banks. The author can be reached at 800-937-2257, email: jcaughron@ gobaker.com. The Baker Group is a Diamond Associate Member of the Indiana Bankers Association and an IBA Preferred Service Provider. Their Financial Future Starts with You Teach Children to Save is an ideal opportunity to start children in your community on the path to sound money management and a productive adulthood. Join with bankers across the nation as we inspire children to reach for their dreams. To learn more and to register, visit aba.com/Teach. TEACH CHILDREN TO SAVE DAY Friday, April 24, 2015 #TCTS2015
20 Hoosier Banker February 2015 COMPLIANCE CONNECTION Question: One of the bank’s borrowers has written “Payment in Full” on the memo line of his check for this month’s loan payment. According to the bank’s records, a balance well in excess of the amount of the check remains due on the loan. May the bank endorse the check with a statement that payment is accepted “under protest” or “with reservation of rights,” and accept the check without losing its ability to collect the remaining balance? Answer: The borrower is attempting to make an accord and satisfaction. An “accord” is “an express contract between two parties by means of which the parties agree to settle some dispute on terms other than those originally contemplated, and the term ‘satisfaction’ denotes performance of the contract.”1 In other words, the borrower is attempting to enter into a new contract with the bank to discharge the balance of the loan for an amount equal to the tendered check. “As a contract, accord and satisfaction requires a meeting of the minds or evidence that the parties intended to agree to an accord and satisfaction.”2 The borrower may raise accord and satisfaction as an affirmative defense in the event that the bank attempts to collect the balance of the loan, but would have the burden of specifically pleading and proving that the parties formed an accord and satisfaction, which will depend upon a number of factors.3 Because the borrower tendered a check — which is a negotiable instrument — the Uniform Commercial Code as adopted in Indiana (“Indiana UCC”) controls the situation.4 The relevant sections of the Indiana UCC provide that a debt may be discharged, if the debtor proves that: • He tendered the check in good faith as full satisfaction of the loan; • The amount due on the loan was subject to a bona fide dispute; • The bank received payment for the check; and • The check or a written communication included with the check contained a conspicuous statement to the effect that the check was tendered as full satisfaction of the loan.5 Subject to the exception noted below, the borrower’s check would not operate as an accord and satisfaction, and the debt would not be discharged, if: • Prior to the borrower tendering the check, the bank sent the borrower a notice which conspicuously stated that “communications concerning disputed debts, including an instrument tendered as full satisfaction of a debt, are to be sent to a designated person, office, or place” and the check was “not received by that designated person, office, or place” or • The bank tenders repayment of the check to the borrower within 90 days of its receiving payment on the check.6 If, however, the borrower proves that, within a reasonable time before initiation of collection of the check, the bank, or an agent of the bank having direct responsibility with respect to the disputed obligation, knew that the check was tendered in full satisfaction of the claim, the bank could not use the foregoing defenses.7 The bank may either accept or reject the check on its terms, but the bank may not obtain the benefits of the check without also accepting its burdens.8 Accordingly, the bank’s acceptance of the check accompanied aBout ComplianCe ConneCtion In order to address compliance inquiries from members, IBA provides Compliance Connection, an assistance program offering advice on Indiana-specific compliance questions. If the matter requires legal advice, IBA Compliance Connection will refer the bank to a law firm. The material in this issue was prepared by Larry C. Tomlin, partner with Krieg DeVault LLP, Indianapolis, and IBA compliance consultant. Submit Compliance Connection questions to IBA’s Amber R. Van Til at avantil@ indianabankers.org. Your supplier for over 150,000 marketing and promotional items. FORMING A PARTNERSHIP WITH INDIANA BUSINESSES. 1419 Fabricon Blvd. • Jeffersonville, IN 47130 (800) 736-1326 • Full-Service Printing • Document Imaging • On-Demand Printing • On-Line Ordering Systems • Micr-Encoded Documents • Forms Management Call us for your FREE forms cost analysis! Adam McCoskey Vice President - Sales Southern Indiana 812-989-9236 arm@voluforms.com Tom Staley Vice President - Sales Central / Southern Indiana 812-258-2722 tjs@voluforms.com Susan Voyles Garr Vice President - Sales Southern Indiana 812-987-6008 svg@voluforms.com Jim Hutchinson Vice President - Sales Southern Indiana 812-258-2723 jfh@voluforms.com Scan QR code to visit www.voluforms.com
21 Hoosier Banker February 2015 This information is provided for general education purposes and is not intended to be legal advice. Please consult legal counsel for specific guidance as to how this information applies to your institution’s circumstances or situation. 1 Wolfe v. Eagle Ridge Holding Co., LLC, 869 N.E.2d 521, 524 (Ind. Ct.App. 1994), quoting Mominee v. King, 629 N.E.2d 1280, 1282 (Ind. Ct.App. 1994) (external quotation marks omitted). 2 Mominee 629 N.E.2d at 1282. 3 Ind. R.Tr. P. 8(C). 4 Ind. Code §§ 26-1-1 to -10. 5 Id. § 26-1-3.1-311(a) and (b). 6 Id. § 26-1-3.1-311(c)(1) and (2). 7 Id. § 26-1-3.1-311(d). 8 Mominee, 629 N.E.2d at 1284. 9 Wolfe v. Eagle Ridge Holding Co., LLC, 869 N.E.2d 521, 527 n.3 (Ind. Ct.App. 1994) (“[c]hecks clearly tendered in good faith as full satisfaction of a claim work an accord and satisfaction if the creditor Traci Trotter, administrative assistant, human resources, First Bank Richmond, NA, has completed 20 years of service with the bank. Chuck Viater, senior vice president and north region president, MutualBank, Muncie, has completed 20 years of service. Todd Yarbrough, vice president and program manager, MutualBank, Muncie, has completed 20 years of service. Mutual Savings Bank, Franklin, celebrates its 125th anniversary this year. The bank was formed on Feb. 13, 1890, as the Mutual Building and Loan Association. The $121 million institution has branches in Franklin, Nineveh and Trafalgar. t AnnIversAry MIlestones A salute to bankers with 20+ years of service by the statement “under protest” or “with reservation of rights” would not prevent the debt from being discharged.9 As described above, the question of whether an accord and satisfaction is formed and a debt is discharged is highly fact-sensitive and subject to many potential pitfalls for the unwary. Accordingly, before the bank accepts a check marked “Payment in Full” or a similar statement, it should seek the advice of counsel, unless it intends to discharge the debt. t © 2015 Krieg DeVault LLP THINKING BEYOND TRADITIONAL SOLUTIONS FOR FINANCIAL INSTITUTIONS FOR OVER 130 YEARS • Corporate Representation • Mergers and Acquisitions • Capital Offerings • Regulatory • Compliance • Supervision and Enforcement • New Product Development • Litigation • Commercial / Consumer Loan • Creditors’ Rights • Trust • Tax • Securities • Employment • Intellectual Property One Indiana Square • Suite 2800 • Indianapolis, Indiana 46204 p: 317.636.4341 f: 317.636.1507 INDIANA • ILLINOIS • GEORGIA • FLORIDA • MINNESOTA www.kriegdevault.com cashes the check, regardless of whether the creditor attempts to reserve rights to collect more than the amount of the check”).
22 Hoosier Banker February 2015 Randy Sizemore, chief financial officer and senior vice president, has been elected to the board of directors of First Federal Savings Bank, Huntington, and Northeast Indiana Bancorp. He has 21 years of banking experience. Sizemore is a member of the Huntington Rotary Club, a board member for Huntington County Economic Development, and a past board member and board president for Pathfinder Services. He earned a bachelor’s degree from Ball State University and has completed the Graduate School of Banking at the University of Wisconsin. t Kyle Koob has been elected to the board of directors of First Federal Savings Bank, Huntington, and Northeast Indiana Bancorp. He is president of Advanced Machine & Tool Corp., Fort Wayne. Koob previously served as vice president, marketing and engineering, and sales manager with the company. Larry Heydon has been named chairman of the board of directors for Citizens Bank, Mooresville. He replaces former chairman Stephen Mills, who has retired as chairman, but remains a member of the board. froM the BoArd rooM Heydon has served on the board for two years. He is the president/CEO of Johnson Memorial Health in Franklin and formally served as chief financial officer. He earned a bachelor’s degree from Butler University and an MBA from Indiana Wesleyan University. Donald E. Hall, executive vice president and chief financial officer, has been elected to the board of directors of DeMotte State Bank. He joined the bank in 1997 as vice president and controller. He was promoted to senior vice president, chief financial officer, in 1999 and to executive vice president, chief financial officer in 2002.
23 Hoosier Banker February 2015 West End Bank, Richmond, has donated $2,500 to Circle U Help Center, a local organization that serves over 1,600 hot meals to community members in need. The funds were donated through the West End Bank Charitable Foundation. Garrett State Bank has donated $250 to The American Cancer as a result of the bank’s “Deck the Walls” contest. Bank employees decorated their work spaces and posted photos to Facebook to determine whose was most festive. Mary Placencia, assistant branch manager, was voted the winner. Second and third place winners also donated winnings to local charities. Home Bank, Martinsville, in conjunction with other members of Morgan County Bridges Out of Poverty, held Poverty Awareness Week in Morgan County on Jan. 25-31. The week was set aside to raise awareness of the impact of poverty. The bank funded and distributed 15,000 wristbands with the phrase, “Poverty Hurts,” that were handed out to Morgan County students. The week included daily messages and activities at the schools that taught the impact of poverty in their community. t Community First Bank of Indiana, Kokomo, has donated gifts to Healthy Families and the Family Service Association. Bank employees helped provide gifts for 51 families in their community for Christmas. Farmers State Bank, LaGrange, has donated $15,845.48 to the United Fund of LaGrange County. The bank operates a campaign each fall to allow employees the option of contributing to the United Fund of LaGrange County, a nonprofit, volunteer driven organization that works to improve the quality of life for the residents of the county. West End Bank, Richmond, presents a donation check to Circle U Help Center to support meals for those in need. BAnkIng on CoMMunIty Bob Hickman, senior vice president, Community First Bank of Indiana, stands with gifts donated by the bank. Farmers State Bank, LaGrange, presents a donation check to the United Fund of LaGrange County. Pictured (left to right) are: Greg Todd, senior vice president, Farmers State Bank;Angie Kresse, United Fund of LaGrange County; and Joe Pierce, president and CEO, Farmers State Bank. Bracelets were funded by Home Bank and distributed to Morgan County students for Poverty Awareness Week. Mary Placencia, Garrett State Bank, sits in the “most festive” office at Garrett State Bank, which resulted in a donation to the American Cancer Society. infotex Managing Technology Risk Actionable Events Competitive Pricing Completely Customizable 24 x 7 x 365 Real Time Monitoring Daily Reporting of Actionable Events Trend Reporting (Pushed To You!) Health Reporting We make sure you only see what you need to see, when you need to see it! elmdemo.infotex.com Fight the Noise! Event Log Management In Real-Time (800) 466-9939
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