Hoosier Banker oosier NOVEMBER 2016 INSIDE Hoosier banker voices were heard on the Hill at the 2016 IBA Washington Trip. Story on page 8. 1916 - 2016 YEARS
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TABLE OF CONTENTS VOLUME 100 NO. 11 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 fifth day 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 8 BEING HEARD ON THE HILL: 2016 IBA ANNUAL WASHINGTON TRIP Dax Denton, IBA 10 IBA ANNUAL WASHINGTON TRIP PHOTO RECAP FEATURES 5 CEO PONDERINGS S. Joe DeHaven, IBA 6 IBA CALENDAR OF EVENTS 12 HOOSIER BANKER HERITAGE 20 TAKING OUR STAND Camden R. Fine, ICBA 21 DODD-FRANK’S PRICE TAG Robert S. Nichols,ABA DIRECTORS / SENIOR MANAGEMENT 14 PREPAY PROTECTION – THERE’S NO FREE LUNCH Drew Simmons,The Baker Group 24 CORPORATE GOVERNANCE:WHAT EVERY BANK DIRECTOR MUST KNOW Michael J. Messaglia, Krieg DeVault LLP OPERATIONS / TECHNOLOGY 18 THE BRANCH OF THE FUTURE Jeff Klump, K4 Architecture + Design MARKETING / SALES 22 TOP THREE SEO MISTAKES BANK WEBSITES MAKE Brian Reilly, PrintMail Solutions Inc. PSP SHOWCASE 29 TITLE CENTER OF INDIANA LLC: A WIN-WIN OPTION FOR NON-INTEREST INCOME Rod Lasley, IBA DEPARTMENTS 9 NEW BRANCHES, BUILDINGS & OPENINGS 15 ASSOCIATE MEMBERS’ CORNER 16 COMPLIANCE CONNECTION Brett J.Ashton, Krieg DeVault LLP 26 ANNIVERSARY MILESTONES 26 TAKING IT EASY 27 BANKING ON COMMUNITY 28 HONORABLE MENTIONS 30 BANKERS ON THE MOVE 34 FROM THE BOARD ROOM 34 ADVERTISERS INDEX 1916 - 2016 YEARS 3 Hoosier Banker November 2016 The 2016 IBA Annual Washington Trip took place in late September.
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 indianabankers.org 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. Indiana Bankers Association Officers, Directors & Staff IBA Officers Chairman ........................................... Michael H. Head, First Federal Savings Bank, Evansville FirstVice Chair .......................... Annette M. Russell, Security Federal Savings Bank, Logansport SecondVice Chair .................................................. Clay W. Ewing, German American, Jasper Immediate Past Chair ....................................... Larry W. Myers, First Savings Bank, Clarksville Chief Executive Officer ....................... S. Joe DeHaven, Indiana Bankers Association, Indianapolis President .................................. Amber R.VanTil, JD, Indiana Bankers Association, Indianapolis Constituent Directors ICBA State Director ........................................ David M. Geis, Jackson County Bank, Seymour ABA Membership Council ................................Michael K. Bauer,WesBanco Bank, New Albany Future Leadership Division President ...................... Kristin Marcuccilli, STAR Bank, Fort Wayne Non-Indiana Headquartered Bank Director ............... Tim Massey, BMO Harris Bank, Indianapolis Northeast Region Directors Gregory Maxwell, Horizon Bank, NA, Michigan City Michael S. Zahn, First Federal Savings Bank, Huntington Michael C. Marhenke, iAB Financial Bank, Fort Wayne Northwest Region Directors Benjamin J. Bochnowski, Peoples Bank, Munster Arden L. Cramer, Logansport Savings Bank Joseph D. Carlson, Community State Bank, Royal Center Southeast Region Directors Archie M. Brown Jr., MainSource Financial Group Inc., Greensburg Dennis Wayman, State Bank of Medora George W. Ferriell, Bath State Bank Southwest Region Directors Matthew W. Howrey, North Salem State Bank Michael L. Baker, State Bank of Lizton, Brownsburg Kent L. Parisien, The First National Bank of Odon IBA Staff Chief Executive Officer .......................................................................... S. Joe DeHaven President ..................................................................................... Amber R.VanTil, JD ExecutiveVice President .............................................................. Paul W. Freeman, CAE SeniorVice President–Government Relations ................................................... Dax Denton Vice President–Meetings & Events ............................................ Christina M. Bennett, CMP Vice President–Products & Services ................................................................. Rod Lasley Vice President–Education & Training ........................................................... Laurie A. Rees Vice President–Communications .................................................................. Laura Wilson AssistantVice President–Government Relations ......................................... Erika L. Hall, Esq. Events & Products/Services Assistant .............................................................. Susan Clark Education Meeting Coordinator ................................................................. Marcy Borden Education Meeting Coordinator ................................................................ Elizabeth Kilty Staff Accountant ....................................................................................... Timothy Fry IT and Facilities Manager ............................................................................. Tracy Kubly 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 4 Hoosier Banker November 2016 Future Leadership Division Board President - Kristin Marcuccilli, STAR Bank, Fort Wayne Vice President - Kirby Drey, Kentland Bank Emily Boardman, Crossroads Bank,Wabash Craig Buse, Springs Valley Bank & Trust Company, French Lick Jason L. Ernst, First Financial Bank, NA,Ter re Haute J. Daniel Maddox, Citizens State Bank, New Castle Andrew J. Saner, MainSource Bank, Greensburg Jeremy Siegle, Bank of Wolcott Lucas White,The Fountain Trust Company, Covington Billy Winter, Bippus State Bank, Huntington Melodie K.Yarnell, Jackson County Bank, Seymour
5 Hoosier Banker November 2016 This is the third of my four closing Hoosier Banker articles in which I say both thank you and goodbye, as I prepare to retire on Dec. 31. This month, my focus is on the many leadership bankers that I have worked with and for during the past 26 years. As with the legislators I thanked in last month’s column, I cannot possibly list all of the people that I have reason to thank. I am glad that next month’s year-end special edition Hoosier Banker will list all the board past presidents and chairs of the Indiana Bankers Association, Community Bankers Association of Indiana and Indiana League of Savings Institutions, each of whom merit recognition. All of those Association leaders that I have had the good fortune to work with became friends, and I continue to visit with many on a regular basis. It is because of the leadership of these dedicated professionals that the IBA has enjoyed so much success throughout the years. These leaders made bold decisions that collectively have advanced the industry and the IBA. I will name a few, because a unique story or important event accompanied their rise to leadership. Joe Pierce of Farmers State Bank, LaGrange, chaired the Community Bankers Association of Indiana the year that it merged into the Indiana Bankers Association; two years later, he served as IBA chair. I often joke with him that his name is the answer to the trivia question: “Who chaired both the CBAI and the IBA?” He is the only one. Harry Bailey, Ameriana Bank, New Castle, holds a similar distinction. Harry served as chair of both the Indiana League of Savings Institutions and of the Indiana Bankers Association, also as the result of a merger. Harry’s name, then, is the answer to a trivia question about leadership of the Indiana League and the IBA. That aside, these two mergers were probably the most impactful events to occur during my years of service. Bringing all three organizations together made it possible for the unified IBA to advocate with and for bankers with a clear, strong voice; to provide a cohesive and thorough offering of educational and convening events; and to consolidate financial strength. Past IBA chairs Chuck Crow of Community Bank, Noblesville, and Mike Cox of First Merchants Bank in Muncie were instrumental in completing these merger transactions. Two times I asked for Jim Marcuccilli of STAR Bank, Fort Wayne, to serve ‒ once on the American Bankers Association Government Relations Committee, immediately after the financial crisis, and again to ascend through the IBA chairs when we were working to save the Public Deposit Insurance Fund (PDIF) and to effect reductions in the financial institutions tax. Jim stepped up both times, resulting in some carve outs for community banks after the crisis, and in leading the charge for saving the PDIF and getting the first reduction to the financial institutions tax. Dave Geis, Jackson County Bank, Seymour, originally stood up to then-Gov. Mitch Daniels and his administration in opposition to the attempted raid on the PDIF, which set the stage for Jim to negotiate to save the fund. Dave was the right person at the right time to take a stand, and Jim was the right person at the right time to deal with the important issues, both nationally and statewide. Dave Geis; Joe Pierce; Mike Bauer, WesBanco in New Albany; and Mark Schroeder, German American, Jasper, all returned to the IBA board ‒ serving as liaisons either to the American Bankers Association or to the Independent Community Bankers of America ‒ following their service as IBA board chairs. Consequently I have worked with each of these individuals over a very long time, and count each as close friends. Pat Glotzbach of The New Washington State Bank, Charlestown, was in service as IBA chair for just over two months when tornadoes destroyed much of Henryville, where his bank had the only branch in town. Pat worked tirelessly for months to help the good people of Henryville. As a result, the IBA got involved in helping to create and raise monies for the New Hope Services/Indiana Bankers Association Disaster Relief Fund. My hope had been to raise $25,000 to $50,000. That all changed when country music group Lady Antebellum adopted the fund as its charity of choice and held a concert in honor of Henryville. When all was said and done, we collectively raised more than $380,000, every penny of which went to victims of the disaster. That remains a deeply touching memory for me personally. Other bankers whose input as board chairs had particular significance were Mark Fogt of Garrett State Bank and Mark Schroeder, who wrestled with whether the Association should get involved with New Markets Tax Credits. As former bank chief financial officers, both fully understood the complexities of this program. Through their leadership, the board did become involved, setting the foundation for the rock-solid financial strength of the IBA. I could relay anecdotes about the achievements of every Association chair and every board member who served during my time. All were important to the success of IBA, and important to my career. I thank you all for your leadership, counsel and friendship! FEATURE CEO Ponderings S. Joe DeHaven, Chief Executive Officer, Indiana Bankers Association
CALENDAR UPDATE Calendar of events Register online at indianabankers.org/education-events The IBA Center for Professional Development is located at 6925 Parkdale Place, Indianapolis, IN 46254 Phone: 317-387-9380 Twitter: @IndianaBankers Alternative Delivery Channels … Available at your convenience via Webinar, CD-ROM or On-Demand Certified Teller Program: Today’s Frontline ‒ Preparing for What’s on the Horizon Nov. 3 - The Landmark Centre, Fort Wayne Nov. 7 - Hillcrest Golf & Country Club, Batesville Nov. 9 - Huntingburg Event Center Nov. 10 - Courtyard Marriott, Lafayette Implementing the New HMDA Rules Nov. 7 - IBA Center Branch Management Series: Session 4, Raising the Bar for Sustainable Growth Nov. 8 - IBA Center Human Resources Directors Forum Nov. 9 - IBA Center Fundamentals of Commercial Lending Nov. 9-10 - IBA Center ABA National Agricultural Bankers Conference Nov. 13-16 - JW Marriott Indianapolis Midwest Agricultural Banking School Nov. 14-17 - Purdue University, West Lafayette Community Bankers for Compliance Series - Session 4: Mortgage Lending Under Regulation Z (OmittingTRID) Nov. 14 - The Landmark Conference Centre, Fort Wayne Nov. 15 - IBA Center Nov. 16 - IBA Center Certified Community Banking Technology Professional: Certification Training Nov. 16-17 - Lewis University, Oakbrook, Ill. FDIC Banker College Nov. 17 - Indianapolis Marriott North Successful Business Development - Making 2017 a Record Year Dec. 6 - IBA Center Sharpening Your Vendor Management Skills Dec. 7 - IBA Center Advanced Commercial Lending School Dec. 8-9 - IBA Center Lending Compliance Update Dec. 13 - IBA Center Branch Management Series: Session I, Managing a Successful Branch Jan. 17, 2017 - IBA Center Retail Banking Forum Jan. 18 - IBA Center Developing Your Risk Appetite Jan. 18 - IBA Center Measuring Financial Conditions and Performance for Agricultural Business Jan. 19 - IBA Center Risk Management Officer Forum Jan. 19 - IBA Center BSA Graduate School Jan. 24-25 - IBA Center Nov. 7 - New CFPB Amended Rules for Mortgage Foreclosure and Bankruptcy Protections Nov. 8 - Developing a Risk-Based Compliance Audit Process for Deposits Nov. 9 - FFIEC Reporting and Guidance for CRA Compliance Nov. 9 - What to Do When a Customer Dies Nov. 9 - Understanding and Managing the CFPB Compliant Process Nov. 10 - Writing an Effective Credit Memorandum Nov. 10 - Safe Deposit Boxes:Top 50 Most Important Procedures, 2016 Update Nov. 14 - The Major Performance Factors for Success in Banking Nov. 14 - Proper Repossession, Notice and Sale of NonReal Estate Collateral Nov. 15 - Employment Records and How to Keep Them Nov. 15 - Director Series:What the Board Needs to Know to Manage IT Nov. 15 - Ratio Analysis to Determine Financial Strength Nov. 16 - Dealing With Appraisals: Regulations and Requirements Nov. 16 - Lending 101 Nov. 16 - Appraisal and Evaluation Guidance on Collateral Valuation: Lender and Board Perspectives Nov. 17 - Recognizing and Responding to Elder Fraud: What Every Staff Member Should Know Nov. 17 - Opening High-Risk Customer Accounts: More Is Better Nov. 22 - Handling ACH Exceptions and Returns: Unauthorized, Revoked or Stop Payment Nov. 29 - Annual Robbery Training for All Staff: Meeting Your Bank Protection Act Requirements Nov. 29 - Teller Compliance Issues: CTRs, Reg CC and Checks Nov. 29 - Signature Cards and Account Agreements: Understanding Account Titling, Ownership and Access Nov. 30 - Top 10 IRA Issues: Compliance, Reporting, Death and Distributions Dec. 1 - The CFPB’s Four Ds of Fair Lending: Deceptive Marketing, Debt Traps, Dead Ends and Discrimination Dec. 1 - IRAs:Way Beyond the Basics - Beneficiaries and Distributions Dec. 6 - Rewarding and Retaining the Best Employees Dec. 6 - Understanding Commercial Loan Documentation Dec. 6 - Ten Simple Rules for Tellers to Save You Thousands Dec. 7 - Excel Explained: Introduction to Spreadsheets Dec. 7 - Seven Habits of Highly Successful Supervisors Dec. 7 - Improving the Call Reporting Process: Documentation, Efficiency, Accuracy, Common Errors and FAQs Dec. 8 - Business Accounts:Advanced Issues Dec. 8 - Powers-of-Attorney In-Depth: Good Faith, Fraud and Fiduciary Capacity Dec. 9 - IRA Audit and Compliance Dec. 13 - Meeting Federal Requirements for Tech-Based Marketing:Website, Social Media, Robo Calls and More Dec. 13 - Core Management Skills Dec. 14 - IRS Information Reporting:WhatYou Need to Know About the Rules and Forms Dec. 14 - E-Sign Compliance and the Account Life Cycle Dec. 14 - Loan Review: Consumer, Commercial and Real Estate Dec. 15 - Branch Transformation: Strategies for Moving From Transaction Centers to Customer Engagement Centers Dec. 16 - Opening Deposit Accounts for Minors Dec. 16 - BSAYear-End Round Up Dec. 20 - Regulation E Error Resolutions and Disputes Dec. 20 - Accounting Principles for Lenders Dec. 20 - The Growing Scope of Vendor Management: Business Continuity, Cybersecurity, Contract Negotiation and More Dec. 21 - Essential Compliance Training for the Board and Senior Management Dec. 21 - Notary Public Jan. 4, 2017 – Cross-Selling Products and Services: Compliance With TCPA and FCRA Jan. 5 - Same-Day ACH: Lessons Learned and FAQs for RDFIs Jan. 10 - Top 10 HMDA Issues for 2016 Reporting: Checkup for March 1, 2017 Submission Jan. 11 - Account Documentation Series: Compliance and Due Diligence at Account Opening Jan. 17 - Identifying Fraudulent Transactions: Including Recent FinCen Advisory on Email Fraud Schemes Jan. 18 - ACH Specialist Series: Direct Deposit Tax Refunds – Posting and Exceptions Jan. 19 - Loan Underwriting Basics: Interviewing, Credit Reports, Debt Ratios and Regulation B Jan. 24 - IRA and HSA: Review and Update 6 Hoosier Banker November 2016
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8 Hoosier Banker November 2016 The American Bankers Association, the Independent Community Bankers of America and the Conference of State Bank Supervisors provided briefings on the most relevant, pertinent federal issues and proposed regulations, before we took to the Hill. On the first day of our visit, we met with officials from the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the CFPB. On the second day of the trip, bankers visited each of the offices of the Indiana Congressional delegation. The large number of bankers who attended clearly made a recognizable impact on the regulators and the members of Congress. This year’s trip was marked with several special events. On Monday evening, the IBA hosted Representatives Todd Young, Larry Bucshon, Jackie Walorski and Todd Rokita at the Capitol Hill Club for dinner. All graciously shared their insights on our industry, and what we can expect from Congress over the next few months and coming year. On Tuesday evening, the group took in a Washington Nationals baseball game COVER STORY About the Author Dax Denton is senior vice president-government relations of the Indiana Bankers Association. He can be reached at 317-917-8047, email: ddenton@ indianabankers.org. In September the Indiana Bankers Association hosted a delegation of Indiana bankers on the 2016 IBA Annual Washington Trip to our nation’s capital. A strong contingent of 64 bankers, spouses and a handful of associate members – who generously sponsored events during the trip – joined us Sept. 25-27 in Washington, D.C. The timing was ideal, as Congress was in its final stretch of work before it was set to recess the following week, then return after the election. Indiana bankers met in person with almost every member of the Indiana congressional delegation, affording us the opportunity to voice concerns directly to decision-makers on Capitol Hill, plus at the regulatory agencies. Foremost topics included the CHOICE Act, a broad regulatory relief bill in the House, and regulatory relief in general, as well as both Farm Credit Services and credit union overreach. Many bankers also voiced concerns about the growing issue of data breaches and the future of additional regulations crafted by the Consumer Financial Protection Bureau (CFPB). to wind down a busy two days on the Hill. During the daytime on Tuesday, Sept. 27, the delegation had the distinct privilege to meet with House Financial Services Chairman Jeb Hensarling, R-Texas. This meeting was particularly timely, as Chairman Hensarling had recently authored and consequently moved through his committee a comprehensive regulatory relief bill labeled the CHOICE Act. It was apparent throughout our meeting that Hensarling shared a strong desire to enact meaningful regulatory relief, and that this goal would remain moving into the next Congress. He devoted substantial time to listening to our bankers as they shared concerns about the future of the industry. In addition our delegation met with the banking counsel staff member for Chairman Richard Shelby, R-Alabama, who currently chairs the Senate Committee on Banking, Housing, and Urban Affairs. The counsel outlined what the committee and Chairman Shelby have been working on related to regulatory relief from a Senate perspective. These meetings represented two significant opportunities to make Indiana bankers’ voices heard with the individuals who are key drivers in the push to find a solution to the growing challenges of regulatory burden. Many of the elected officials that we visited with expressed their frustration with the gridlock in Washington. Congress continues to enact very little in the way of Being Heard on the Hill: 2016 IBA Annual Washington Trip
9 Hoosier Banker November 2016 laws, less than previous bodies in recent history. With the looming presidential election and anxiousness about who would be controlling the U.S. Senate, the atmosphere in DC was one of extreme uncertainty and a need to wait for election outcome on Nov. 8, before determining how to proceed. At this point, the future of legislation is widely unknown, but it is speculated that this will not be the year for the passage of significant regulatory reform. This environment – with events moving at a slow, open pace – creates opportunity for those who are able to make their case. This year’s Indiana bankers took advantage of this unique opportunity by educating our congressional delegation. Your IBA Government Relations Team challenges each of you to consider how government has impacted your bank. Government is in every paper you file, in every examination you sit through, and in every loan committee that tries to conduct the business of banking. Government has its hand in every aspect of your business. Thank you to the following associate members, whose sponsorship of the 2016 IBA Annual Washington Trip made the event possible: American Bankers Association Cinnaire Corporation Continuity Equias Alliance Federal Home Loan Bank of Indianapolis Independent Community Bankers of America Krieg DeVault LLP Renninger & Associates LLC SmithAmundsen LLC t DCTrip Sponsors Instead of complaining, get engaged. Be heard. Tell your story and how it impacts the customers you serve. The DC trip is a perfect opportunity to ensure that occurs. Please join us on the 2017 IBA Annual Washington Trip, dates and details forthcoming. t Securities, insurance and advisory services offered by BOK Financial Securities, Inc., member FINRA/SIPC and a subsidiary of BOK Financial Corporation. Some services offered through our affiliate, Institutional Investments, Bank of Oklahoma which operates as a separately identifiable trading department of BOKF, NA. NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE 866.440.6515 | www.bokfinancial.com/institutions Our balance sheet services are designed to not only find solutions to potential problems but also help you identify opportunities for increased profitability. From Asset/Liability Modeling to CD Underwriting, we’ll give you the edge you need to stay ahead of the curve. Please note our name has changed. BOSC, Inc. is now BOK Financial Institutional Advisors. Helping You Manage Issues Before They Become Issues. BOKF-WM-7658_Issues_HoosierBanker_V3.indd 1 9/2/16 10:01 AM Bank of Geneva celebrated the grand opening of a branch in Monroeville on Sept. 10. The new branch is located at 103 Main St. t Pictured at the new Monroeville branch of Bank of Geneva are (left to right): Danielle Winters, Gilda Cross and Melissa Zimmerman, Bank of Geneva; Donald Gerardot, Monroeville town board; Jim Buckingham, Bank of Geneva; Jeff Nolan, Chamber of Commerce; and bank President Andrew Briggs, Phil Lucas, Sarah Hunter, Patty Hahn and Joel Seip, Bank of Geneva. New BraNches, BuildiNgs & OpeNiNgs
10 Hoosier Banker November 2016 IBA ANNUAL WASHINGTON TRIP PHOTO RECAP
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12 Hoosier Banker November 2016 HOOSIER BANKER HERITAGE: 2010-2016 1916 - 2016 YEARS The 2010 IBA Commercial Lending School attracted bankers from Indiana, Ohio and Wisconsin. Shown are students gathering for an end-of-course dinner in Indianapolis. 2010 The years 2010-16 saw much change for banks nationwide. The decade opened under the shadow of the financial crisis of 2008, with lingering side effects of a struggling economy and misplaced disparagement of banks. In fact misunderstandings about banking were so pronounced, and fear of a repeated crisis so intense, that in 2010 President Barack Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. The result was the most comprehensive influx of banking regulation since the Great Depression, with increased regulatory burden affecting banks to this day. A byproduct of the Dodd-Frank Act was the establishment of the Consumer Financial Protection Bureau. Other major banking developments since 2010 were the development of Basel III standards in 2011; emergence of chip-based credit card technology in 2012; new mortgage rules in 2013 involving “Qualified Mortgages,” which resulted in a tightening of mortgage lending; mobile phone bill pay, as introduced in 2013; and the launch in mid-2015 of .BANK, a bank-specific website domain. For Indiana banks, several statewide legislative victories took place. In 2010 the Indiana Bankers Association Government Relations Team advocated so successfully against legislation harmful to banking that it won a statewide award from the Indiana Society of Association Executives (ISAE). In 2012 the IBA GR Team earned another ISAE award for its work in advocating against a provision in HB 1072 that would have included Federal Low Income Housing Tax Credits into assessed values of low-income properties ‒ which would have significantly increased the property taxes of future low-income developments. Perhaps most notably, in 2013 the IBA won a major victory in its yearslong campaign to protect the Public Deposit Insurance Fund (PDIF) — a pool of funds, unique to Indiana, that protects local taxpayers — with the signing of HEA 1018 into law. In addition to creating a statutory fence around the PDIF, HB 1018 reduces the Financial Institutions Tax from 8.5 percent to 6.5 percent, incrementally phased in over a four-year period; provides for repayment over 10 years of the $50 million that the Indiana General Assembly had borrowed from the PDIF in 2003; and reverses interest back to the PDIF, which had been directed to supplement the pre1977 Police and Firefighter Pension Fund. Additional legislative victories this decade include the passage in 2014 of SEA 1, a state and local taxation bill that phases down Indiana’s Corporate Income Tax rate from 6.5 percent in 2015 to 4.9 percent in 2021, and also phases down the Financial Institutions Tax rate to 4.9 percent in 2023. By contrast, the FIT rate had been 8.5 percent prior to the passage of HEA 1018 one year earlier. Another recent legislative win was the collaborative crafting in 2015 of SEA 415, which focuses on new tools and changes to existing law aimed at reducing vacant homes and neighborhood blight. Through all of these ups and downs, Hoosier Banker magazine has continued as the flagship publication of the IBA, helping keep members informed in support of the Association’s mission: To advocate for and sustain an environment in which banks can succeed. Next month, the December 2016 issue of Hoosier Banker will be a commemorative edition, rounding out the year-long celebration of the magazine’s 100-year heritage.
13 Hoosier Banker November 2016 Bankers take part in a team-building project at the 2015 IBA Future Leadership Division Annual Conference. 2015 Dawn Downs (left) and Jeana McElhaney of Bippus State Bank display food and gifts assembled by staff volunteers for a holiday collection program. 2012 Craig Dwight, Horizon Bank, NA, Michigan City, graced the cover of the September 2011 Hoosier Banker, the first issue to be available in digital format. 2011 Mark Fogt, Garrett State Bank, was the cover feature of the March 2014 Hoosier Banker. Shown chatting with Terri Gall of the bank, Fogt’s profile included a widely viewed video bonus.To watch the video, go to this issue of Hoosier Banker Digital at indianabankers. org, and click on the phrase:“The Future of Community Banks.” 2014 Elected officials and members of the Indiana banking community meet in the office of Gov. Mike Pence for the ceremonial signing into law of HB 1018. 2013 Annette Russell, Security Federal Savings Bank, Logansport, accepts the IBA leadership gavel from Mike Head, First Federal Savings Bank, Evansville. In 2017 Russell will be the first female in IBA history to serve in the Association’s top leadership position. 2016
14 Hoosier Banker November 2016 DIRECTORS / SENIOR MANAGEMENT About the Author Drew Simmons is vice president of The Baker Group and has been working in the field of finance since 2003. He works with community banks specifically covering interest-rate risk, asset and liability management, and fixed-income portfolio management. Simmons earned bachelor’s and master’s degrees from Oklahoma City University. The author can be reached at 800-937-2257, email: drew@GoBaker.com. The Baker Group is a Diamond Associate Member of the Indiana Bankers Association and an IBA Preferred Service Provider. Prepayments from September increased the most since the 2012 Refi Wave, the result of near lows in mortgage rates and a few more days in the day count for mortgage applications to close. As is typically the case as prepayments rise, demand for prepayment protection is on the rise. Investors in specified pools know all too well the benefits of low loan balance collateral as a form of prepayment and extension protection, but many are finding it difficult to stomach the relative “payups” associated with these pools in today’s market. As always, it boils down to a simple discussion of risk versus reward. Portfolio managers should avoid viewing any attribute of an MBS pool in isolation. For example, it’s no secret that higher coupon pools (compared to their lower coupon counterparts) offer far less price volatility in a rising-rate environment. However, we would be remiss if we simply focused our product selection on high coupon pools alone. When rates fall, higher coupon pools will have a larger incentive to refinance; therefore, investors should also seek out prepayment protection attributes to mitigate these risks. High coupon pools coupled with loans that have low loan balances, high investor/vacation mortgage loans, or HARP collateral have proven to provide the best forms of prepay protection. Figure 1 is a comparison of speeds in the universe of Fannie Mae 15year 4s with moderate seasoning (30-60 WALA). We’ve compared this cohort’s speeds (orange line) to FNMA AL6043, a 15-year Mega 4 percent specified pool (blue line) with 31 months of seasoning. The loans in the FNMA 15-year Mega have a max loan size of $110K, 43 percent of which are investor or vacation mortgages. Since the pool was originated in November, it has paid at an average 9.5 CPR. During this same time, its cohort has averaged about 4 CPR faster at 13.3 CPR. Figure 1 - Fannie Mae 15-year 4% Moderately Seasoned Speeds The prepay benefits of this 4 percent Mega pool come with a price in the form of a 109-5+ premium. At this level, with a projected 12 CPR, the bond yields 1.6 percent and 61bps of spread to a duration equivalent Treasury. You might be saying to yourself, surely there are cheaper bonds out there, and you’d be right. For example, a recently issued FNMA 15-year 2.5 has been trading at a much lower premium of 103-22 (FNMA AL8777). This has a slightly lower spread of 53bps, but an even better yield of 1.68 percent, assuming a 10 CPR. Prepay Protection - There’s No Free Lunch FIGURE 1
15 Hoosier Banker November 2016 To the uninitiated, this information alone would suggest you should buy the newer issue 15-year for more yield. So the question is: What is the premium on the higher coupon Mega giving me, considering I’m sacrificing 8bps of yield? Figure 2 shows price shocks in 100bp increments, as well as the swing in the bond’s average lives for these two examples. In the more extreme example of rates up 300bps, the 110K 4 percent Mega has price depreciation of -10.9 percent, compared to -14.5 percent for the new issue pool. The 110K 4 percent Mega also has far less extension risk with a 4.78-year average life, as rates are shocked up 300bps compared to 6.23 years for the 2.5 percent 15-year. Clearly the 4 percent coupon is much more defensive in a rising-rate environment compared to the 2.5 percent option. However, there’s no free lunch in this market, and you’ll need to pay a 5+ point premium for the lower price volatility 4 percent pool. Figure 2 - Price Volatility Comparison Option 1: FNMA 15-year 4% 110K Max Mega Option 2: FNMA 15-year 2.5% New Issue You’ll also notice that the projected prepays using Citi’s Yield Book model are significantly higher as FIGURE 2 - Option 2 FIGURE 2 - Option 1 rates fall in the 2.5 percent 15-year. So despite paying a lower premium for this option, these fast speeds cause the yield to quickly deteriorate as the cash flows are accelerated. If rates fall 100bps from today’s level, the 2.5 percent 15-year goes from a five-year bond to a two-year bond, while the 4 percent 15-year will shorten by just a few months, from 4.1 years to 3.7. The question comes down to whether or not the 8bps of additional yield and lower premium are worth the associated risks. For a block size of $1million, that’s only $800 of additional interest income a year. Every basis point counts in this low-rate environment, but for my money, the lower premium of the new issue 2.5 percent 15-year isn’t worth the cash flow uncertainty and price volatility. t Elizabeth Doebler has been promoted to senior consultant with BKD, LLP, Indianapolis. She is a member of BKD National Financial Services Group and has 17 years of banking experience. BKD, LLP, Indianapolis, has been named to INSIDE Public Accounting’s 2016 Best of the Best Accounting Firms list. The recognition is based on overall superior financial and operational performance, using metrics that measure growth, profitability, income, productivity, accountability, turnover, professional development and governance. Welcome, New Members The Indiana Bankers Association welcomes the following companies to the IBA network as associate members. Blue and Company John Brater, 513-834-6901 blueandco.com Blue & Co. LLC, ranked as the 53rd largest CPA firm in the United States by INSIDE Public Accounting, was started in Indiana in 1970. With 13 offices in four states ‒ Indiana, Kentucky, Ohio and Texas ‒ and more than 400 professionals, Blue is proud to serve clients in the financial services industry. Luse Gorman PC Thomas Hutton, 202-274-2027 luselaw.com Luse Gorman PC is a law firm specializing in securities; corporate, regulatory and transactional law; executive compensation; and employee benefits. It represents clients on securities and regulatory law matters before the Federal Deposit Insurance Corp.; the Board of Governors of the Federal Reserve System; the Office of the Comptroller of the Currency; the Securities and Exchange Commission; and state, securities and banking/savings and loan regulators. Russell Roberts Appraisals Inc. Russell Roberts, 270-872-5510 commercialappraiserky.com Provider of commercial appraisal services on a regional basis in the states of Indiana, Kentucky, Tennessee, Georgia, Alabama and Mississippi. t For more information about the benefits of associate membership, please contact Rod Lasley at 317-387-9380, email: rlasley@indianabankers.org. assOciate MeMBers’ cOrNer News from IBA’s valued associate members
16 Hoosier Banker November 2016 COMPLIANCE CONNECTION About Compliance Connection In order to address compliance inquiries from members, the 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. Acting as IBA’s compliance counsel is Brett J. Ashton, partner with Krieg DeVault LLP, Indianapolis, and chair of the firm’s financial institutions practice group. Submit Compliance Connection questions to IBA’s Erika Hall at ehall@indianabankers.org. Question 1: Our bank recently entered into a marketing agreement with an insurance company, with the goal of generating additional income by offering life and property insurance products to our loan customers. Does Indiana law allow us to require customers to obtain insurance with their loans? Answer: Yes, Indiana law generally permits you to require loan customers to obtain insurance, but with some significant caveats. For the sale of life insurance products, Ind. Code § 28-1-11-2.5(a) provides that “A bank (or trust company) may act as an insurance producer for the sale of any life insurance policy or annuity contract issued by a life insurance company authorized to do business in any state in which the agent operates.” That said, the bank must follow the requirements of the Indiana Insurance Code, and cannot condition an extension or renewal of credit, or the amount charged for extending the credit on the customer purchasing the policy from the bank, an affiliate of the bank, or through any particular insurer, insurance producer, broker or group of insurers or producers.1 A bank may, however, inform the customer that acceptable insurance is required; that loan approval is contingent upon the customer’s obtaining this insurance; and that the bank, or the insurer that you have an ownership interest in, offers insurance. The bank must also disclose that the insurance related to the loan may be purchased from an insurer or insurance producer chosen by the customer. Question 2: If we cannot make customers purchase insurance from our bank employees, can we at least have some say in the kind of insurance policies they may obtain elsewhere? For large credits, we want to ensure we have adequate protection in the event of an unexpected death. Answer: Yes. While Indiana law prohibits a bank from “unreasonably” rejecting insurance coverage obtained by a borrower, it does provide some protection for banks from accepting coverage from insurers that may not be as financially stable as others. Ind. Code 28-1-11-2.5(d) clarifies that the insurance product marketing restrictions discussed above do “[n]ot prohibit a bank (or trust company) from requiring that a person, as a condition to the transaction, obtain a life insurance policy from an insurance company acceptable to the bank.” What constitutes an “acceptable” life insurance product to the bank is yet to be decided by Indiana courts; however, at least for a loan on which a bank requires property insurance, Indiana law does provide guidance. Ind. Code 27-1-38-7(4) provides, 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 Ind. Code § 28-1-11-2.5(d); Ind. Code § 27-1-38-7. 2 See 12 C.F.R. 14; 12 C.F.R. 343. “[r]ejection is not unreasonable if the rejection is based on uniformly applied reasonable standards that: (A) relate to the extent of insurance required; (B) relate to the financial soundness and services of the insurer issuing the policy; (C) do not discriminate against a particular kind of insurer; and (D) do not require rejection of an insurance policy because the insurance policy provides coverage in addition to the coverage required for the loan of money or extension of credit.” Banks should carefully review Indiana Code § 27-1-38 for the relevant standards applicable to the sale of insurance products in their branches, in addition to applicable federal laws and regulations2 to ensure compliance. t Indiana marks its 200th anniversary of statehood this year. As part of the year-long celebration, Indiana its 200th niversary statehood IBA-Member Banks Sponsor Bicentennial Medals the Indiana Bicentennial Commission has minted a commemorative medal, for which the IBA is the presenting sponsor. This sponsorship entitles IBA-member banks to serve as exclusive distribution points for official medal order forms. To facilitate bank participation, the IBA has provided kits to all member banks. Additionally downloadable promotional materials are available at: indianabankers.org/bicentennial. For questions or more information, please contact IBA’s Christina Bennett at 317-387-9380, email: cbennett@ indianabankers.org. t
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18 Hoosier Banker November 2016 OPERATIONS / TECHNOLOGY About the Author Jeff Klump is president, principal and founder of K4 Architecture + Design, Cincinnati. He has more than 30 years of experience in architectural and construction management, specializing in financial markets and retail development. Klump is affiliated with the American Institute of Architects and the National Council of Architectural Registration Boards, and he is a member of the building and facilities committee of the Diocese of Covington, Kentucky. He earned a bachelor’s degree from the University of Cincinnati and can be reached at 513-842-5400, email: jklump@k4architecture.com. K4 Architecture + Design is an associate member of the Indiana Bankers Association. As design professionals in the financial arena, it is not uncommon to hear, “What is the branch of the future?” or “What is the competition doing that we should be thinking about?” This is a unique situation, because there is not a clear direction that has been established. For example our company is currently working on 15 to 20 projects, and no two are alike. Community banks need to be creative with their approach to the branch of the future, because innovation is a proven path to differentiation and competitiveness. The mentality of “this is the way that things have always been done” needs to be eliminated and replaced with a long-term commitment to branch transformation that goes well beyond technology upgrades. Bank branch design is evolving in a number of ways, including, but not limited to: • The decreasing size and footprint of the facilities; • The overall facility design, including exteriors and interiors; • The shift toward a more retail-oriented space; • The staff and types of personal services versus automation/technology; • The new role of the facility itself within the community. The new design basis should consider that people need to connect with others in order to feel confident about financial issues, but the delivery method can vary. Whether meeting privately or in an open banking environment, or in a high-tech or traditional branch – let people choose their preferred experiences in order to create confidence. Branch footprints will get significantly smaller as bank branches continue to evolve, due to the changes and types of services that will be provided. Multiple clients have inquired about reducing the overall size of their prototype branches, as well as how they might downsize their existing branches, and re-purpose the balance of the space for other uses or potentially other tenants. From the branch exterior to the interior, it will be important that community banks think about brand consistency. Branch exteriors will be more visible and inviting to customers, and will be more in line with retail-oriented facilities. The building exteriors will have an exterior-branded theme, such as the iconic architectural element, and a consistent pallet of materials and vibrant colors, to capture people’s attention and make the building stand out from the competition. New branch facilities should also be transparent, with plenty of glass to convey the message that they are open and inviting to the customer. Finally, the overall curb appeal can be enhanced with appropriate landscaping and exterior lighting to make the building a beacon to the community, both day and night. From the interior, the primary lobby spaces will be open, inviting and comfortable environments, with attractive color schemes that make a connection to the bank’s brand and to the community. The use of warm tones and soft curved features, combined with comfortable and attractive furniture, will add to the first impression upon entrance of the facility. The Branch of the Future
19 Hoosier Banker November 2016 Pods or customer interaction counters break away from the traditional barrier-type teller counters and offer a progressive, collaborative, open concept to the customer. Many clients say it offers a more personalized level of service. New levels of technology will be introduced, such as smart ATMs or interactive teller machines, allowing real-time transactions to be handled by video with bank staff who are located in call centers or in a centralized location. Within the centralized open lobby space will be digital message centers, touch-screen technology, virtual sales and cross-channel integration, which will become the normal mode of operation to provide a seamless and omni-channel customer experience. It is also important that the environmental graphics convey a sense of the local geography and a connectivity to the community and the history of the organization. Although technology will be integrated more into the branches of the future, it will be increasingly important to not lose sight of the human element. People still want to have access to real people, and a trained staff needs to be accessible. The concepts of greeters and universal bankers or universal associates are introduced, who are well versed in all the services available, but also are skilled in terms of communication and sales. As transactions continue to decline within the facilities, branches will transform from transactional-based to advisory-based training and sales centers, taking advantage of every possible client touch point. This transformation additionally provides a better ROI for the bank by maximizing staffing and operational efficiencies. Offices within the branches will be more visible and open ‒ if the branch has any offices at all. Not only will branches be designed with open counters, but there will also be space for social interaction and engagement. The new facilities will be designed to promote an environment for customer guidance and instruction on how to use the new technology or make them aware of the various products and services and offer alternatives that best suit their needs and lifestyles. If customers want a private area to discuss financial matters or to review their options for services, branches will be equipped with conference centers or personal meeting spaces that offer updated technology and video-teleconferencing. If the universal associates cannot answer questions on premise at the facility, they can provide access through real-time video to someone who can address the customer’s concerns. Banks should evaluate other nonfinancial services or product offerings that can bring the right kind of traffic into their facilities. Consider options like a mixed-use branch – a café or coffee bar, meeting or huddle spaces, or space for social interaction to engage with the community and encourage repeat visits to the branch. In the digital age, many industries are trying to get customers into their locations and increase their time spent there to foster relationship-building and enhance customer service opportunities. In order to stay competitive in today’s financial markets, community banks must be willing to change and adapt, or risk becoming obsolete. Today’s financial environment warrants not only the skill and will to adapt to change, but also the foresight to anticipate it. It is crucial that community banks know and understand the importance of their market saturation and the demographic make-up of the communities that they support. Bank branches of the future will need to be convenient, open, comfortable and accessible to all ages; including the right combination of branch transformation elements – facility design, people and technology integration ‒ to create a seamless banking experience and reinforce the ultimate customer relationship. t
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