Hoosier Banker APRIL 2016 INSIDE Junior Boards of Directors: Innovative Bank Financial Literacy Story on page 8. 1916 - 2016 YEARS
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TABLE OF CONTENTS VOLUME 100 NO. 4 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 BANK JUNIOR BOARDS OF DIRECTORS: FINANCIAL LITERACY OPPORTUNITY FEATURES 5 CEO PONDERINGS S. Joe DeHaven, IBA 6 IBA CALENDAR OF EVENTS 7 IBA BOARD REVIEW Joseph D. Carlson, Community State Bank, Royal Center 10 HOOSIER BANKER HERITAGE 20 FROM FARM CREDIT TO FINTECH:THE CASE FOR LEVELING THE PLAYING FIELD Robert S. Nichols,ABA 22 FROM FARCE TO MENACE Camden R. Fine, ICBA DIRECTORS / SENIOR MANAGEMENT 12 KEY RISK ISSUES EVERY TREASURY MANAGEMENT OFFICER SHOULD CONSIDER Lori Jean, Krieg DeVault LLP 15 HOW THE COW ATE THE CABBAGE Are Your Interest-Rate Risk Reports Giving You the Unvarnished Truth? Lester F. Murray,The Baker Group PSP SHOWCASE 17 NEW IBA PREFERRED SERVICE PROVIDER OFFERS OFFICE SUPPLIES AND MORE Rod Lasley, IBA GR SPOTLIGHT 26 NEXT STEPS FOR INDIANA BANKING ADVOCACY Joshua A. Myers, IBA DEPARTMENTS 16 NEW BRANCHES, BUILDINGS & OPENINGS 18 COMPLIANCE CONNECTION Brett J.Ashton, Krieg DeVault LLP 19 ANNIVERSARY MILESTONES 23 ASSOCIATE MEMBERS’ CORNER 23 FROM THE BOARD ROOM 24 HONORABLE MENTIONS 27 TAKING IT EASY 28 BANKING ON COMMUNITY 30 BANKERS ON THE MOVE 34 VIDEO BONUS 34 ADVERTISERS INDEX 1916 - 2016 YEARS 3 Hoosier Banker April 2016 Junior Boards of Directors Junior boards offer unique financial literacy benefits.
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 Chairman ..................... Annette M. Russell, Security Federal Savings Bank, Logansport SecondVice Chairman ............................................ Clay W. Ewing, German American, Jasper Immediate Past Chairman .................................. Larry W. Myers, First Savings Bank, Clarksville 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 ...................... Kristin Marcuccilli, STAR Bank, Fort Wayne Non-Indiana Headquartered Bank Director ............... Tim Massey, BMO Harris Bank, Indianapolis Northeast Region Directors Gregory Maxwell, Farmers State Bank, Mentone 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 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 Ernst, First Financial Bank, NA,Ter re Haute J. Daniel Maddox, Citizens State Bank, New Castle Andrew J. Saner, MainSource Bank, Greensburg Stephanie Schrage, Centier Bank, Northern Indiana 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 IBA Staff Chief Executive Officer .......................................................................... S. Joe DeHaven President ..................................................................................... Amber R.VanTil, JD ExecutiveVice President .............................................................. Paul W. Freeman, CAE 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 ................................................................. 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 April 2016
5 Hoosier Banker April 2016 FEATURE CEO Ponderings S. Joe DeHaven, Chief Executive Officer, Indiana Bankers Association Amber R. Van Til has been named president of the Indiana Bankers Association, effective March 31. Additionally she has been designated successor to S. Joe DeHaven, chief executive officer of the IBA, in preparation for his upcoming retirement in 2017. Van Til joined the Association in 2002 as a lobbyist and has served as vice president-government relations, as senior vice president-government relations and as executive vice president. She was honored as 2015 Association Professional of the Year by the Indiana Society of Association Executives, and in 2008 she won in the category of Banking & Financial Services for the Best & Brightest awards, sponsored by Junior Achievement of Central Indiana Inc. A graduate of the University of Indianapolis and of the Indiana University Robert H. McKinney School of Law, Van Til has completed the Graduate School of Banking at the University of Wisconsin (UW) and earned the prestigious certificate of executive leadership from the UW Wisconsin School of Business. She serves on the board of directors of the Indiana Statewide Certified Development Corp. and is a member of the Governmental Affairs Society of Indiana, The Columbia Club and the Indiana Society of Association Executives. t VanTil Named IBA President Transitions in life are often difficult. A transition means leaving an area of comfort to enter into the unknown. Think back to how it felt to leave childhood behind to go off to college, the military or the workforce. All we had known to that point was the security of home and school. Though the transition brought the excitement of change, it also brought challenges. With proper planning, however, transitions can go smoothly. Nearly 10 years ago, the Community Bankers Association of Indiana merged with the Indiana Bankers Association, a major transition for the Indiana banking community. Both associations and boards took the time to plan every detail of that merger, and consequently it flowed seamlessly. Now the IBA is at the threshold of another transition. It will have far-reaching effects, but we have been preparing for it for years. Six years ago, we began to formally address IBA succession planning. The executive committee set into motion a plan that was to be updated regularly, so that we would be prepared whenever that day came. Last year the board of directors took the plan a step further and selected Amber Van Til to become the next leader of the IBA. At the March board of directors meeting, Amber was elected president of the Indiana Bankers Association and also named as my successor. As she transitions into this new role, Amber and I will be working together closely to ensure that this will be a seamless transition, as well. Amber is extremely qualified to assume the role as the leader of the IBA, as evidenced by the announcement on this page. She has been with the IBA and its predecessor organization, the CBAI, for nearly 14 years, successfully leading our government relations efforts. It was largely through her work that financial institutions tax reductions have occurred, the Public Deposit Insurance Fund (PDIF) has been protected, and the state is paying back general operating funds that it borrowed from the PDIF years ago. She also has championed tirelessly for legislation to shorten the lengthy foreclosure process in Indiana law, benefiting both Indiana bankers and the community at large. I have worked with Amber throughout her career ‒ hiring her following her graduation from law school ‒ and have enjoyed watching her success and leadership growth. In preparation for this succession, the last couple of years I have been focused on assessing Amber’s leadership skills; I am confident that the board chose wisely. The IBA has been very successful since the aforementioned merger, and Amber played a large role in that success. She recognizes the high skill level of the IBA staff and appreciates the leadership that exists throughout the IBA. She understands the importance of government relations, education and networking that banks value so highly from the IBA menu of services. She understands the importance of the many relationships the IBA has developed with associate members, particularly our Preferred Service Providers. I am proud of Amber and happy for her as she transitions into this new role. Of course that means that I, too, have a transition to make. My banking career started in 1970 in Muncie. In 1990 I left to lead the CBAI, and then I came to the IBA in 2006 as a result of the merger. In 2013 I informed the IBA board of directors that I would be retiring in 2017. While I am still working out the details of my transition to retirement, I can feel myself growing more comfortable with it each day. I intend for it to be a seamless transition, too!
6 Hoosier Banker April 2016 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 Understanding and Navigating the Indiana Code for Compliance Professionals April 15 - IBA Center Certified Teller Program - SafeguardingYour Branch: Steps the Frontline CanTake to Minimize the Impact of PotentialThreats and Current Fraud Schemes April 18 - Huntingburg Event Center April 20 - Courtyard by Marriott Lafayette April 21 - Hillcrest Country Club, Batesville April 26 - Holiday Inn Express, Valparaiso April 27 - Hotel Fort Wayne April 28 - Best Western Plus, New Albany Branch Management Series: Session 2- Growing the Retail Bank April 19 – IBA Center Community Reinvestment Act April 19 – IBA Center Flood Insurance Update and Review April 20 – IBA Center Essentials of Banking: Session 1 - Banking 101 April 20 - IBA Center Loan Review Best Practices April 21 - IBA Center Consumer Lending School April 26-27 - IBA Center IBA Mega Conference May 3-5 - Indiana Convention Center Community Bankers for Compliance Series - Session 2: Compliance Management Systems and Risk Assessment May 9 - The Landmark Conference & Reception Centre, Fort Wayne May 10 – IBA Center May 11 – IBA Center CRE Appraisals: Reviewing and Interpreting May 11 - IBA Center Leadership Development Program - Session 2: Do SomethingThat Scares You May 11-13 – Wooded Glen Retreat & Conference Center, Henryville CRE Cash Flow:Analyzing IncomeProducing or Rental Real Estate May 12 - IBA Center Train the Trainer: Plans, Programs and Processes That Work May 17 - IBA Center Senior Retail Banking Forum May 18 – IBA Center Risk Management Officer Forum May 19 – IBA Center Compliance for Loan Processors May 19 – IBA Center Commercial Lending School June 5-10 – IBA Center Chief Financial Officer Forum June 14 - Group 1 – IBA Center June 17 - Group 2 – IBA Center Senior Lender Forum June 15 - Group 1 – IBA Center June 16 - Group 2 – IBA Center Real Estate Lending Compliance June 15-16 - IBA Center Essentials of Banking: Session 2 - Business Operations and Management June 23 - IBA Center IT & Operations Officer Forum June 23 - Group 1 – IBA Center June 24 - Group 2 – IBA Center Marketing Directors Forum June 28 – IBA Center BSA/AML Compliance School June 28-29 – IBA Center Auditing Regulation Z July 12 – IBA Center Human Resources Directors Forum July 12 - IBA Center Analyzing Tax Returns in SelfEmployed and Small Business Situations July 13 – IBA Center BuildingYour Incident Response Program July 14 - IBA Center Analyzing C&I Business Cash Flow July 14 – IBA Center Community Bankers for Compliance Series: Session 3 Aug. 8 - The Landmark Conference & Reception Centre, Fort Wayne Aug. 9 - IBA Center Aug. 10 - IBA Center Branch Management Series: Session 3 - Leading, Developing and Engaging the Team Aug. 23 - IBA Center IBA Leadership Development Program: Session 3 - Limitations Are Self-Imposed Aug. 24-26 - Wooded Glen Retreat & Conference Center, Henryville Essentials of Banking: Session 3 - Safeguarding the Bank and Customer Service Aug. 25 - IBA Center Senior Retail Banking Forum Sept. 7 - IBA Center Advanced Credit Analysis School Sept. 8-9 - IBA Center Advanced Ag Lenders Workshop Sept. 8-9 - Purdue University, West Lafayette IBA Annual Convention Sept. 11-13 - French Lick Springs Hotel Risk Management Officer Forum Sept. 15 - IBA Center Deposit Account Administration Sept. 15 - IBA Center In-Bank Training: How to Train Staff Using Bank Policies, Procedures, Forms and Disclosures Sept. 16 - IBA Center Mortgage Lending School Sept. 20-22 - IBA Center IBA Annual Washington Trip Sept. 25-27 – Washington, D.C. Annual Security Management Seminar Sept. 27 - IBA Center CBC Compliance School - Lending Compliance Module Oct. 3-6 - IBA Center Essentials of Banking: Session 4 - Lending, Bank Investments and Bank Performance Oct. 4 - IBA Center Chief Financial Officer Forum Oct. 11 - Group 1 - IBA Center Oct. 14 - Group 2 - IBA Center Senior Lender Forum Oct. 12- Group 1 - IBA Center Oct. 13- Group 2 - IBA Center Cybersecurity Conference Oct. 13-14 - Location TBD Marketing Directors Forum Oct. 18 - IBA Center IRA Essentials Oct. 18 - IBA Center Advanced IRAs Oct. 19 - IBA Center Social Strategy Workshop Oct. 19 - IBA Center BSA/AML Compliance Management Oct. 20 - IBA Center April 12 - Critical Issues of Certificates of Deposits April 13 - ACH Rules Update 2016 April 15 - BSA Officer Series: Managing Your BSA Alerts April 19 - New Federal Regulations Targeting Student Accounts, Including Debit and Prepaid Cards: Effective July 1 April 20 - HR Series: Managing Absenteeism and Leave of Absence April 20 - Dos and Don’ts of Checks: How to Avoid Loss April 20 - Developing and Organizing an Effective Remote Deposit Capture Program April 21 - Regulation E Compliance - Five Best Practices for Handling Disputes April 21 - Effective Management of Credit Report Disputes April 26 - Call Report Series: Examining Bank Assets, Liabilities and Income in Call Report Preparation April 26 - Analyzing Appraisals for Mortgage Decisions April 27 - Examining Complex TRID Issues, Part 1:Application Through Loan Estimate and Revised Loan Estimate April 28 - Auditing Your Safe Deposit Department April 28 - Regulator Expectations for Risk Assessment: Policies, Procedures and Steps in Obtaining Board Approval April 28 - Opening New Accounts III - Trust, Fiduciary and Minor Accounts May 3 - Loan Participation Due Diligence: Practices, Documentation, Servicing and Risks May 3 - RC-C Loan Codes for the Call Report May 4 - Real Estate Law for Bankers May 4 - Coaching Excellence:The Real Solution May 5 - Conducting the Annual Physical Security Review May 5 - Writing an Effective Credit Memorandum May 9 - Are They Really Bank Prospects? May 10 - Emerging Leader Series: Effective Branch Administration Monitoring May 11 - Fee Income Strategies for 2016: Challenges, Issues and a Look Ahead May 11 - Commercial Loan Documentation May 11 - Lending 101 May 12 - Excel Explained: Minimize Spreadsheet Errors May 12 - BSA for the Frontline May 18 - Managing the Force-Placed Insurance Process
7 Hoosier Banker April 2016 Our staff members give back to the community in many ways. We have some who read to children at the local libraries once a week, and everyone is involved in either their churches, clubs, livestock activities, coaching and all the other happenings of small communities. One form of outreach that has been helpful to both the community and to our bank is a scholarship program. We give an annual $1,000 scholarship, renewable for four years, eligible to any high school senior furthering their education in a business-related field. The program helps us, because when we’re interviewing somebody for the scholarship, at the same time we are interviewing that person as a future candidate for our operation. We need to be attracting the next generation of employees, and this scholarship process gives us a unique way to find talent. For those who are new to banking and want to further their careers, I offer three pieces of advice. First, develop a network. One effective way is through the IBA Leadership Development Program. Our bank is now sending our third person to this outstanding program. Every time we send someone, that person comes back invigorated with new skills and a network of banking peers. Second, I encourage people to find a mentor. It doesn’t necessarily have to be a banker, but it does need to be someone who has your best interest at heart. Third, look for ways to help customers achieve their financial goals. Our foremost responsibility as bankers is to help customers succeed. It’s what community bankers do. I see this demonstrated by our staff, who continually go above and beyond to take care of our customers and each other. That same caring atmosphere is in my home life. My wife Deb and I have been married for 40 years, and I have benefited from her strength throughout our life together. Deb is an elementary school counselor at the Pioneer Regional School Corp. She also is my partner with our livestock enterprises, and we, along with our daughters, own The Royal Centre Record, a local weekly newspaper which has been in continuous publication for 135 years. We have been blessed with two daughters, a son-in-law and three charming young ladies who Deb and I count as granddaughters. One granddaughter starts kindergarten in the fall, one is in the fifth grade, and the other is getting ready to go to college. They are awesome young ladies who are comfortable with the hard work, and the fun, of showing cattle and raising goats. At home and at the bank, I am surrounded by great people. My door is always open to assist or to listen. I try to lead by example and by remembering the past, managing the present and focusing on the future. ASSOCIATION UPDATE In 1979 Community State Bank, Royal Center, had an opening for an agricultural loan officer. I didn’t know anything about banking, but a gentleman at church encouraged me to apply. He said I’d be ideal because of my agricultural background: raised on a farm, studied animal sciences at Purdue University, former herdsman on a dairy farm, plus at that time I was working as a hog buyer for a packing plant. At first I wasn’t interested in the bank position, but then one day at the packing plant, the gentleman in charge of hog procurement looked at me and called out, “Hey, you.” He obviously didn’t know my name, even though I had been there three-and-a-half years. That convinced me that I wasn’t going anywhere in that organization. I called Community State Bank to confirm that the position was still open, then stopped by to fill out an application. Not expecting to interview with anyone, I wore blue jeans and work shoes, much to my mother’s dismay. One of the vice presidents approached me, after completing the application, and asked if I could stay a bit, and soon I wound up in the middle of a board of directors’ meeting. They were all wearing suits and ties, but I left with a job. It was an interesting start to what has turned out to be a long-term career move. Throughout the years, I have continued to learn and assume duties as they arose, wearing many hats, as we all do in our community banks. I gained additional education through the SW Graduate School of Banking at Southern Methodist University, and I also learned by networking with other bankers. This is not my first term of service on the Indiana Bankers Association board of directors. Years ago I previously served on the IBA board, and also on the board of the Community Bankers Association of Indiana. I was considerably younger then, and I found a couple of mentors who were of great help to me over the years. In January 1991 I was elected to our board, and when Merle C. Nice, one of my mentors, retired in April 2002, I was asked to assume the role of president/CEO of Community State Bank. Today my role includes involvement in the day-to-day operations of a four-office operation and management of an agribusiness loan portfolio. I am still active in farming ‒ my family operates two livestock enterprises, Carlson Cattle and Crooked Creek Boer Goats ‒ and that involvement helps me understand the marketplace and business cycles that affect our agricultural customers. Another role as president and CEO of the bank is taking care of employees and customers. Our board of directors is very supportive and gives me the latitude to be helpful in any way. If a staff member or someone in the community is experiencing health issues or other problems, I hear about it pretty quickly, and the bank and I do all we can to help. Relationships are what drive Community State Bank. Board Review Joseph D. Carlson, Northwest Region Director Community State Bank, Royal Center
8 Hoosier Banker April 2016 COVER STORY April is Financial Literacy Month, shining a spotlight on efforts by bankers and community advocates nationwide to elevate the financial literacy of consumers. Examples of related events are Indiana Money Smart Week, created by the Federal Reserve Bank of Chicago, which takes place April 23-30; and Teach Children to Save Day, sponsored by the American Bankers Association Community Engagement Foundation, scheduled for April 29. Additionally, the Independent Community Bankers of America designates April as Community Banking Month. Each April, Hoosier Banker pays homage to Financial Literacy Month by focusing on one aspect of consumer education outreach. The magazine reported on member banks’ involvement with Junior Achievement in 2015, and on in-school bank branches the year prior. This year Hoosier Banker proudly draws attention to the concept of a bank “junior board of directors” (JBOD), an innovative financial literacy program for youth that has been adopted by a few banks nationwide. Designed as a dual benefit effort, establishing a junior board helps area youth develop business leadership skills; setting up a junior board also gives banks access to some of the best and brightest potential future employees. Typically junior boards are made up of area high school juniors and seniors who are interested in pursuing business careers and who demonstrate outstanding records in academics and community service. Banks work closely with area schools to identify student candidates and may confer with school business departments to set up programming for junior board meetings. Most junior boards meet monthly during the school year. Meetings may focus on educating board members about business or banking topics, frequently with guest speakers from various professions making presentations to the students, or may involve community outreach projects. Deep community engagement can help motivate students to return to their hometowns after earning their college degrees. In Indiana, two member banks of the Indiana Bankers Association have reported that they have junior boards of directors in place. One bank implemented its board recently, and the other has been operating a junior board of directors for several years. Crossroads Bank,Wabash Indiana’s first junior board of directors was formed by Crossroads Bank in 2009. The board consists of two juniors and two seniors from each of the four Wabash County schools. Each junior director’s term is for two years. To recruit board members, applications are sent to the participating schools, where counselors select four top applicants from each school. A selection group from the bank then reviews the applications, without seeing the names of the students, to make final selections. Criteria are academic excellence, extracurricular involvement and overall leadership skills. Bank Junior Boards of Directors: Financial Literacy Opportunity Roger Cromer (left) president of Crossroads Bank,Wabash, is pictured with the bank’s 2015-16 junior board of directors. In 2012, several members of the Crossroads Bank junior board of directors participated in a project benefiting the March of Dimes.
9 Hoosier Banker April 2016 Support for the junior board has been strong not only from area schools, but also from the community at large. Local businesses and nonprofit organizations host the monthly board meetings, making presentations to the students about area opportunities, and leading tours through their facilities. These area visits help expose students to future employment opportunities. Additionally, to bolster the benefit for junior board members, every other meeting includes a segment on financial literacy. All members of the junior board are required to volunteer in at least two community service projects annually. Past projects have included the March of Dimes; Wabash County Animal Shelter; Special Olympics; Chili for Charity; Living Well in Wabash County; Relay for Life; and Rake & Run, which provides lawn raking for the elderly. When the bank implemented its junior board several years ago, one long-term goal was to entice talented students to return to Wabash after earning college degrees, to help build a strong workforce and potentially attract new business to the community. To date, two former junior board members have served as interns at the bank, and one former junior board chairman is now a Crossroads Bank employee. Alliance Bank, Francesville In October 2015, Alliance Bank implemented its junior board of directors. Like the Crossroads Bank model, the Alliance Bank JBOD consists of 16 students from four local high schools, with two juniors and two seniors from each. Students serve on the board for two-year terms. Members of the board are selected by Alliance Bank through an application process, and administrators at area schools have been extremely supportive of the program. JBOD members participate in monthly meetings, held at local businesses or nonprofits that the students tour. The duration of each meeting is 90 minutes, with the first half hour devoted to meeting time, and the final hour reserved for the business presentation and tour, followed by a question-and-answer session. Meetings follow Roberts Rules of Order protocol and include a review of previous minutes, a treasurer’s report, plus updates on marketing/communications needs and community service projects. Junior board members currently are making plans for a year-end celebratory meeting event. Junior board member requirements include attendance at all meetings and participation in at least two community Crossroads Bank junior board of director members led a pledge campaign to motivate youth to pledge not to text and drive. events per year. Some students have participated in existing community programs, but others have created new events, such as a food drive connected to high school basketball games. Through community service, students earn merits of $15 per volunteer hour performed. The JBOD collectively may collect merits up to $1,000, and may then designate an organization to receive merit funds at the end of the year. Alliance Bank views its JBOD as an opportunity to bring together students, community organizations and local businesses through real-life experiences. The program builds leaders, supports the community, develops local talent and forges relationships, while educating students about local opportunities that await them post-college. t Terry Stevens, president of Alliance Bank, Francesville, leads the junior board of directors on a tour of the bank on orientation day. Members of the inaugural Alliance Bank junior board of directors gather in front of the bank’s main office. The Alliance Bank junior board of directors presented a check to the athletic director of North White High School as a result of funds raised through a “Food Drive Throw Down” that the junior board created.
10 Hoosier Banker April 2016 It was the decade that spawned the “greatest generation,” so named by journalist Tom Brokaw. Those who had struggled through the Great Depression of the 1930s willingly risked life and limb in the ’40s to defend the Allies during World War II. Those remaining on the homefront contributed to the cause by rationing goods, 1916 - 2016 YEARS HOOSIER IBA’s Forba McDaniel, founder of Hoosier Banker, was featured in a January article celebrating the 25th anniversary of the magazine.The article concluded:“We wonder if the Hoosier Banker will be arriving in Indiana banks each month during the next twenty-five years.The chances are bright, providing banks can remain privately owned and operated.” 1941 “Remember Pearl Harbor” was emblazoned on the cover of the January 1942 Hoosier Banker, shortly after the surprise attack on Dec. 7, 1941. 1942 1940 When the First Bank and Trust Company of South Bend moved to a new location, a Diebold Safe & Lock Company professional opened safe deposit boxes, in arrears more than four years, in the presence of inspectors, including a local court judge. 1943 Ensign Lucille Pryor, a practicing attorney, was on leave from Union Trust Company, Indianapolis, when she became the first WAVE admitted to practice before the Supreme Court of the United States. WAVES were “Women Accepted for Volunteer Emergency Service.” planting victory gardens and buying up war bonds. Banks were prime points of purchase of the war bonds, which helped to mitigate the massive expense of the war. Additionally, banks themselves were major purchasers of the bonds, which later would enhance their lending ability upon the end of the war in 1945. Indeed, there was much need for lending in the boom economy following World War II. The Servicemen’s Readjustment Act of 1944 ‒ a.k.a. the G.I. Bill of Rights – made college education and homeownership a reality for millions of Americans, whose schooling and house-buying helped fuel the economy. Further, the postwar Marshall Plan opened a vast European market for U.S. products and services, keeping the American economy running at full throttle. In the world of finance, the 1940s saw the creation of the World Bank and the International Monetary Fund. For Indiana bankers, a milestone was marked in 1947, when the Indiana Bankers Association celebrated its 50th anniversary. At the IBA Annual Convention in May of that year, incoming President Robert D. Mathias, Old National Bank, Evansville, coincidentally turned 50 years old the day of his installation; he was presented with 50 red roses at the annual dinner. t
11 Hoosier Banker April 2016 The Farmers Bank, Frankfort, sponsored the 1947 grand champion steer of the Clinton County 4-H Beef Calf Club. A local provision company bought the 1,050 pound steer at 70 cents per pound. 1947 The Exchange Bank, Culver, proudly displayed its new employees’ lounge, which featured full cooking facilities, comfortable seating and a radio. 1944 On March 26, 1948, a Good Friday tornado ravaged the town of Coatesville, killing 14 people and destroying or damaging 80 percent of the town.The First National Bank of Coatesville, shown the day after the tornado, reopened the following Monday at the local school.A Hoosier Banker article details how C.D. Knight, president of the bank, led a successful campaign to rebuild the town. 1948 More than 850 bankers and guests attended the 1946 IBA Annual Convention dinner. 1946 The Farmers National Bank, Shelbyville, offered a trailer to lend to any Shelby County farmer who planned to hold a farm sale. 1949 The March Hoosier Banker cover story opened with: “This is Joe … one of 12,000,000 Joes in our armed forces.” Indiana banks had set a goal of selling $239 million in bonds for the sixth war loan; banks instead sold more than $369 million. 1945
12 Hoosier Banker April 2016 DIRECTORS / SENIOR MANAGEMENT Treasury management agreements often remind me of the Winchester Mystery House. The Winchester Mystery House is a beautiful, sprawling and bizarre Victorian mansion located in San Jose, California. The story goes that Sarah Winchester, reeling from the untimely deaths of her infant daughter and husband, William Wirt Winchester (whose father founded the Winchester Repeating Arms Company), consulted a medium. The medium advised Mrs. Winchester that her family and fortune were being haunted by the spirits of American Indians, Civil War soldiers and others killed by the Winchester repeating rifle ‒ a.k.a. “The Gun That Won the West.” The medium instructed Mrs. Winchester to move West and build a great house for the spirits. So long as construction never stopped, the spirits would be appeased. Thirty-eight years of uninterrupted construction, beginning in 1884, transformed a tidy, eight-room house into a rambling maze of a mansion with 160 rooms and nearly as many architectural oddities: a staircase that descends seven steps and then rises 11, columns installed upside down, stairs that lead to the ceiling, doors that go nowhere, and more. For many financial institutions, their treasury, or cash management, agreements started out like the original, eight-room Winchester house: neatly constructed and limited in purpose, perhaps at first addressing basic ACH services. With the addition of each “room” ‒ online business banking, positive pay, sweep accounts, lockbox, remote deposit capture ‒ the agreements grew bigger and disjointed, perhaps even unintentionally conflicting, like stairs leading to a ceiling. Such add-on drafting of treasury management agreements creates fraud, operational, regulatory and legal risks. A comprehensive review and update of your bank’s treasury management and other related bank agreements can mitigate these risks and provide additional benefits to your bank, such as reducing fraud losses. Reduce Fraud Losses Are your bank’s agreements structured to take advantage of changes in the law? With the exponential increase in wire and other electronic transfers between commercial accounts comes increased cyberrisk and the related risk of unauthorized transactions. The general rule is that the bank bears the risk of loss for fraudulent transfers from a commercial deposit account.1 UCC Article 4A provides a key exception to this rule, but your bank’s agreement must be properly structured to take advantage of it. If a bank and its customer have an agreement as to what constitutes a commercially reasonable security procedure,2 the risk of loss for fraud shifts to the customer if the bank proves that it accepted a fraudulent payment order: in good faith, and in compliance with the security procedure and any written agreement Key Risk Issues Every Treasury Management Officer Should Consider About the Author Lori Jean is a partner with Krieg DeVault LLP, Indianapolis, and a member of the firm’s financial institutions practice group. Her background spans 26 years in the corporate and legal industries. Prior to joining Krieg DeVault, she served as senior vice president, assistant general counsel and chief compliance officer for 1st Source Bank, South Bend. Previously she was assistant general counsel for Coachmen Industries Inc., senior managing counsel for Tellabs Operations Inc. and a partner at the law firm of Baker & McKenzie. Jean earned an undergraduate degree from Butler University and a JD from the Villanova University School of Law. The author can be reached at 574-485-2011, email: ljean@kdlegal.com. Krieg DeVault LLP is a Diamond Associate Member of the Indiana Bankers Association.
13 Hoosier Banker April 2016 Continued on page 14. or instruction of the customer restricting acceptance of payment orders issued in the name of the customer.3 Also, if a bank has established commercially reasonable security procedures that a customer has declined to use, and the customer instead agrees in writing to be bound by payment orders issued in its name and accepted by the bank in accordance with another security procedure, then the customer will bear the risk of loss from a fraudulent payment order.4 Thus, it is vitally important to ensure that your bank’s treasury management agreement addresses security procedures, so that you can take advantage of the risk allocation rules of Article 4A. Improve the Customer Experience While Shortening Time to Revenue Are you using separate agreements for each treasury management service you offer, or did your bank start with a single agreement when it first launched ACH services, then tack on provisions over time so that it has become a rambling mansion of an agreement? Whether you are using separate agreements for each service offering or one long agreement that addresses all treasury management services, it can improve the customer experience to restructure the material into a master agreement, designed to include supporting addenda for each service offered. This structure will speed up initial onboarding and will simplify the addition of future services for the customer. Further, from an administrative and legal perspective, using a master agreement structure ensures that defined terms, standard terms and conditions, and security procedures are addressed consistently across all service offerings. Ensure Legal Enforceability, and Manage Regulatory Risk Does your bank’s treasury management agreement: TODD ANDRITSCH tandritsch@equiasalliance.com 11416 Forest Knoll Circle Fishers, IN 46037 Tel: 317.517.5000 www.equiasalliance.com Equias Alliance helps banks in Indiana, and across the country, meet their financial goals, manage benefit liabilities and enhance shareholder value with a custom designed BOLI program. Todd and the team at Equias Alliance want to be your source for strategic benefit and BOLI solutions. In Indiana, The Checkered Flag for BOLI is Todd Andritsch! The American Bankers Association (through its subsidiary, the Corporation for American Banking) has endorsed services provided by Equias Alliance. Todd Andritsch is a registered representative of and securities are offered through ProEquities, Inc., a Registered Broker/Dealer, and member FINRA and SIPC Equias Alliance LLC is independent of ProEquities, Inc. ©2016 Equias Alliance EA-Ad-03-2016-Indiana-HP-01ab.indd 1 3/3/16 10:01 AM • Accurately reflect its current service offerings? • Dovetail with your deposit account and other bank agreements? • Include provisions required by rules mandates or “recommended” by regulation? It is not uncommon for a bank’s treasury management agreement to be out of sync with its current service offerings. For example a marketing initiative results in an inadvertently architected “upside down column” in the treasury agreement, which refers to the bill pay service as “PayEase,” but the business unit is selling a service called “EasyPay.” In some cases, a service is discontinued, yet is still addressed in the agreement. More often, a service is added or a functionality is changed, but the agreement does not address it. This confusion creates legal risk. If the agreement does not properly address the service and the related obligations the customer is assuming, the legal enforceability of the
14 Hoosier Banker April 2016 Continued from page 13. 1 U.C.C. §4A-204 (Unif. Law Comm’n 1989). 2 U.C.C. §4A-201 (Unif. Law Comm’n 1989). 3 U.C.C. §4A-202(b) (Unif. Law Comm’n 1989). 4 U.C.C. §4A-202(c) (Unif. Law Comm’n 1989). 5 NACHA Operating Rules & Guidelines,App. 8, Part 8.4. Part 8.4(a) provides a list of items that must be contained in an origination agreement. 6 Federal Financial Institutions Examination Council, Risk Management of Remote Deposit Capture (2009). agreement is called into question, not only regarding the customer’s obligations, but also regarding general terms and conditions that protect the bank. It is also common that a bank’s treasury management agreement does not dovetail with its deposit account agreement and/or online banking terms and conditions, and this situation likewise creates legal risk. For example if the security procedures detailed in the treasury management agreement differ from those indicated in the online banking terms and conditions, which version of the security procedures prevails? The issue may impact the bank’s ability to avoid a fraud loss under the risk allocation provision of UCC Article 4A. There is regulatory risk as well. If your bank’s treasury management agreement does not accurately reflect all services, it may fail to include provisions mandated by applicable rules. For instance National Automated Clearing House Association (NACHA) rules require, among other provisions, that a bank audit its customer’s compliance with ACH rules.5 Your bank’s treasury management agreement should expressly grant this audit right. Furthermore, the treasury management agreement, if not updated, may fail to follow recommended regulatory guidance. As an example, the Federal Financial Institutions Examination Council has issued guidance on Remote Deposit Capture6 (RDC) that recommends that a treasury management agreement contain numerous contractual provisions that address the parties’ respective roles and responsibilities, such as: procedures regarding handling and record retention of RDC information, types of items that may be transmitted, and aggregate limits on daily deposits. It is advisable to heed such guidance because today’s “recommended” guidance will likely become required within one or two examination cycles. While the architectural oddities of the Winchester House have created a tourist attraction, the drafting oddities of treasury management agreements create fraud, operational, regulatory and legal risks. By updating your bank’s treasury management agreement and by ensuring consistency with other bank agreements, you can reduce fraud losses, improve the customer experience while shortening time to revenue, and ensure legal enforceability and manage regulatory risk. t Call SHAZAM today. SHAZAM is a financial services company offering you choice and flexibility to use the products and services that meet your needs, help you stay in control of your future and allow you to compete in the market. From debit cards to core processing to marketing services and more, we deliver. Delivering Unlimited Possibilities 855-314-1212 | shazam.net | @SHAZAMNetwork
15 Hoosier Banker April 2016 DIRECTORS / SENIOR MANAGEMENT As instructive idioms go, “hope for the best, but prepare for the worst” is a good one. While recognizing the human tendency for optimistic expectations, it acknowledges the practical contingency that an undesirable outcome may occur. It also exhorts us to be ready for it. For community bankers trying to prepare for a higher interestrate environment, the exercise of modelling the potential risks to earnings and capital is an attempt to do just that. By projecting the changes that happen to interest income and interest expense when the repricing of earning assets and paying liabilities occurs in higher-rate scenarios, risk managers can quantify the potential results a higher-rate climate might produce. In a recently published “Range of Practice Memorandum,” results of surveys conducted by the Office of the Comptroller of the Currency reveal that only a small number of institutions reported elevated levels of interest-rate risk. Quite naturally, the reported risk measurements were the surveyed banks’ modelling results, and that’s where hoping for the best collides with preparing for the worst. The Past May Not Be Prologue Regulatory authorities, aware that a variety of assumptive inputs are part and parcel of the interest-rate risk measurement process, continue to remind us of their expectation that assumptions are reasonable, institution-specific and supported by empirical evidence. Assumptions, however, despite the efforts expended and resources utilized in their genesis, are still assumptions; their accuracy never comes with a guarantee. In the context of the postcrisis business cycle and economic recovery process, and the manner in which these events and conditions differ from historical patterns, even the reliability of time-tested causal relationships comes into question as a predictor of future behavior. Nowhere are these circumstances more relevant and the related assumptions more apt to be questioned than in the modelled portrayal of those assumptions governing the behavior of non-maturing deposits (NMDs). Despite the oftentimes-exhaustive efforts to produce assumptions that will help management anticipate the behavior of the owners of those deposits, such efforts still leave many questions unanswered. The three most relevant questions that seem to be on the minds of many relate to price sensitivity, balance stability and the impact of disintermediation: • Will the historically low beta price sensitivity of NMDs continue into a higher-rate environment, or will yield-starved customers demand a greater degree of market sensitivity? • Will the long average lives characterized by the unflaggingly core-like nature of NMDs play out as expected, or will these accounts become more volatile with higher decay rates? • Will these surging deposits even stay in the bank, or will they have to be replaced by costlier funding alternatives? How the Cow Ate the Cabbage Are Your Interest-Rate Risk Reports Giving You the Unvarnished Truth? About the Author Lester F. Murray, associate partner of The Baker Group, joined the firm in 1986. He previously worked for the Office of the Comptroller of the Currency as an assistant national bank examiner and is a frequent speaker at investment conferences and educational seminars. Murray is a graduate of Oklahoma State University. The author can be reached at 800-9372257, email: lester@GoBaker.com. The Baker Group is a Diamond Associate Member of the Indiana Bankers Association and an IBA Preferred Service Provider. Continued on page 16.
16 Hoosier Banker April 2016 Be Your Own Bearer of Bad News Questions about inputs unfailingly lead to questions about outputs and have become the source of much regulatory consternation. Regulators are concerned that model-generated reports, driven by overly optimistic assumptions, are leaving community bankers with a false sense of security as they evaluate their risk preparedness. To address this concern, risk managers are encouraged to conduct sensitivity testing of their assumptions. By isolating a particular assumption and stressing its value to the bank’s detriment, management should develop a better understanding of the risks associated with overly hopeful assumptions. While regulatory pronouncements have left the degree of stress unspecified, pricing betas for NMDs should be appreciably ratcheted up, if management truly wants to see what levels of interest expense might await Home Bank, Martinsville, opened a mortgage loan center in February at 16 S. Jackson St., Suite 1B, in Greencastle. David Taylor, mortgage loan officer, will be the sole officer at the location, serving Putnam and surrounding counties. t David Taylor, mortgage loan officer, is pictured at the new mortgage loan center, located in Greencastle, of Home Bank, Martinsville. New BraNches, BuildiNgs & OpeNiNgs Continued from page 15. Chicago Indianapolis St.Louis Milwaukee 201 NORTH ILLINOIS STREET, SUITE 1400 CAPITAL CENTER, SOUTH TOWER INDIANAPOLIS, INDIANA 46204-4212 T: 317.464.4100 • F: 317.464.4101 • SALAWUS.COM Locally Sourced, Handpicked Lawyers Growing in Indiana to meet your company’s legal needs A FULL SERVICE business law firm with a simple promise – PUT YOU FIRST STEVEN LAMMERS MARTHA LEHMAN LARRY TOMLIN JOHN TANSELLE STEPHEN STITLE DEBRA MASTRIAN MARK WENZEL PHILLIP FOWLER them. The rock-solid and long-lived nature of those NMDs should also be put to the test with higher decay rates and shorter average lives than what historical analysis might suggest. Your perceived insulation from economic value of equity (EVE) depreciation might prove to be a false perception. And finally, simulating the effects of having to replace the loss of a significant percentage of core deposits with brokered funds or borrowings has negative implications for earnings-at-risk and EVE volatility. The results of these input changes may paint a picture of risk exposure far less sanguine than what is currently perceived, but that’s the point. By stressing these key assumptions, risk managers are forced to evaluate the results of an environment they are loathe to accept, but which may more accurately reflect future conditions. While this news may be no more welcomed than finding out that the cow has eaten the cabbage, it’s preferable to being blindsided by faulty assumptions. t
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