Credit Insurance

I S I N A G R E A T S T A T E

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

You can offer credit insurance products confidently.Customers trust their independent Texas banks, and independent Texas bankers trust American National and Dial Dunkin.

We use our combined experience of more than 76 years to provide quality service to you and your customers. American National Insurance Company has been evaluated and assigned the following ratings by nationally recognized, independent rating agencies. The ratings are current as of July 31, 2013.

A.M. Best1 – A Standard & Poor’s2 – A

AMERICAN NATIONAL INSURANCE COMPANYCredit Insurance Division | P.O. Box 9007

League City, TX 77574

DIAL DUNKIN & ASSOCIATES1305 Stuart Place Road

Harlingen, TX 77580

Form

CID

-195

8-

13

Ratings reflect current independent opinions of the financial capacity of an insurance organization to meet the obligations of its insurance policies and contracts in accordance with their terms. They are based on comprehensive quantitative and qualitative evaluations of the company and its management strategy. The rating agencies do not provide ratings as a recommendation to purchase insurance or annuities. The ratings are not a warranty of an insurer’s current or future ability to meet its contractual obligations. Ratings may be changed, suspended, or withdrawn at any time. For the most current ratings view the full rating reports on American National’s Internet site at www.anico.com. 1 – A.M. Best’s active company rating scale is: A++ (Superior), A+ (Superior), A (Excellent), A- (Excellent), B++ (Good), B+ (Good), B (Fair), B- (Fair), C++ (Marginal), C+ (Marginal), C (Weak), C- (Weak) and D (Poor).2 – Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

May/June 2014 www.ibat.org ★ 3

22 Business Continuity Planning

By Christopher Williston & Kelly Goulart

24 Back to the Future: 29th Annual Leadership Conference

26 FASB's CECL Model: How to Prepare for Changes By Tim McPeak & Ed Bayer

30 Mobile Matters: How Mobile Devices Affect Your Banks and Customers By Jeff Multz

32 Search Engine Optimization: Where Are You? By Bruce Moore, D. Eng.

INDEPENDENT BANKERVOLUME XL NO. 3

MAY/JUNE 2014

Quote: Yoda

DEPARTMENTS

4 Up Front

6 Foundation Footprints

8 Services Solutions

10 Frontline Leadership

12 General Counsel’s Corner

14 Interest Rates

IBAT’s bi-monthly magazine, The Texas Independent Banker, welcomes letters from readers. The Texas Independent Banker, May/June, Volume XL, Issue 3. Published bi-monthly by the Independent Bankers Association of Texas, 1700 Rio Grande Street, Suite 100, Austin, TX 78701, 512/474-6889, FAX 512/322-9004. Inquiries should be sent to the Editor. Editorial guidelines are available upon request. Advertising rates may be obtained by contacting Advertising Sales at 800/749-4228 or 512/474-6889. Advertisements do not imply sponsorship by IBAT. ©2014 by the Independent Bankers Association of Texas. No part of this publication may be reproduced in any form without written permission of the publisher. Opinions expressed in this publication do not necessarily reflect official policy of the Independent Bankers Association of Texas.

Bonnie Kankel / Editor in Chief

Mary E. Lange / Contributing Editor

Darlene Revers / Advertising Manager

Leslee Walker / Advertising Assistant

John Wilson / Cover Design/Illustration

Barbara Jezek / Design/Production

16 Personnel Update

18 Association News

40 IBAT Calendar

40 IBAT Around the State

41 Advertising Directory

46 Compliance Guy

THE TEXAS

4 ★ The Texas Independent Banker  May/June 2014

Not even after the great economic fallout and subsequent con-

solidation of banks in Texas in the mid and late 1980’s did we

see such a great divide.

In the wake of the current financial crisis community bank-

ers find themselves attempting to absorb an avalanche of regula-

tion brought about by the greed and ambivalence of a few who

threw caution and risk to the wind and the interests of the finan-

cial system with it. Is it any wonder that we now question the

future of the community banking industry without regulatory

bifurcation of the industry?

Yes, a lot has changed since that first day of April in 1989.

But in many ways it feels as though I am just starting all over

again. Gone is the trepidation of one’s first day on the job,

replaced with the great challenge of restoring some semblance

of regulatory certainty again.

We may have a divided industry but IBAT is not a house

divided. We remain committed to our tried and true mission of

aligning ourselves with any constituency that shares our inter-

ests in preserving this great indus-

try we call community banking.

We have the resources and a belief

that good will come to those who

put the interest of consumers and

the long term stability of the fran-

chise above everything else.

We will not waiver from our

long term objective of achieving

regulatory bifurcation and consid-

eration that regulation that is good

for the large may not be so good for

the small.

Even if it takes us another

twenty-five years to get there.

Now, I wonder where I parked

my car? ★

CHRISTOPHER L.

WILLISTON, CAE, is

President and Chief

Executive Officer of the

Independent Bankers

Association of Texas.

UP FRONT

Reflections

Entering the parking garage of the United Bank build-

ing my mind was racing a thousand directions. I still

don’t recall the short journey from my parking spot to

the elevator that would take me to the 7th floor. So

much so, by the time I entered the double white doors

of the Independent Bankers Association of Texas offices and was

greeted by the receptionist, I wasn’t sure I even parked in the

correct space on the assigned floor.

It was my first day as IBAT’s CEO. April 1, 1989. Being just

thirty-four, I wondered if I was truly ready. It wasn’t that I lacked

confidence in my abilities. To the contrary, I was certain my pre-

vious twelve years’ experience in the industry had prepared me

for this day. But it was all on me now. Although active in state

legislative matters, the organization had laid largely dormant for

years leaving most of its members searching for relevance.

Just five short weeks had passed since my meeting and sub-

sequent hiring by IBAT’s executive committee. They made it

clear that they were prepared to expend the necessary resources

to elevate the awareness of IBAT’s mission and reconstitute its

service offerings to the members. And so the task began.

This month marks my twenty-five year anniversary with

the association. It hardly seems possible that time can move so

swiftly; almost as fast as the organization’s culture has had to

adapt to the ever changing and emerging needs of its member-

ship. But one thing has not changed. That is, IBAT’s complete

and total advocacy exclusively for community banks.

Every association executive should have it so easy, where

decisions driving the direction of the organization are black and

white and are not clouded by competing interests of the mem-

bership. Having been exposed to great torment and uncertainty

of such competing interests, I can speak first hand that such

uncertainty leads to compromising one’s position on issues large

and small.

Never in the history of the industry has the competing inter-

ests of the mega banks and community banks been so evident.

http://ibtapps.com/

6 ★ The Texas Independent Banker  May/June 2014

WILLARD J. STILL is

the Board Chairman

of the IBAT Education

Foundation and Vice

Chairman of American

Bank, N.A. in Waco

FOUNDATION FOOTPRINTS

Fighting for the Cause

in 2010. Now a retired HS teacher from Longview, Texas, she is an important member of the faculty of the IBAT Teach the Teacher Program™. This program provides instructional meth-ods to engage teachers and students in practical conversations about personal financial management. 1. Determine want versus need 2. Think about consequences 3. Remember the government gets part of your pay 4. Pay yourself first 5. Make a budget 6. Use credit wisely 7. Treat your money like a business 8. Don’t forget about interest 9. Protect yourself 10. Don’t be afraid to ask for help

For a full description, go to www.ibat.org/consumer-tips-archives.

3. Financial Literacy SummitDon’t miss attending or sending your designated financial

literacy champion to the 2014 Financial Literacy Summit on July 24–25 in Dallas. This impressive event is held each year at the stately Federal Reserve Bank of Dallas. If you have not attended a meeting there it will be a bonus for your attendance at the Summit. I have always enjoyed conversa-tions with banker friends and the program is educational, enjoyable, and worth your time.

Finally, we are so grateful for the support you provide to the IBAT Education Foundation. Many other organizations ask us about the programs we provide that have been so successful. When they do it is another reminder that we are so fortunate to have the support of True Texas Community Bankers who believe in our mission.

You are the best…thanks for all you do! ★

1. Local Excellence — One Teacher At A Time

First, thank you so much for putting our request last month into action. We received the highest number of nominations EVER for the Teaching Excellence in Financial Literacy Awards.

More than 25 entries in so far (100% increase over last year) and thankfully they are still flooding in on this last day! This is no small feat; for those who participated, there are several steps — the interaction with the local superintendents, then select-ing the teacher, then a good banker nominator — not a small effort and we thank you so very much. True community bankers find a way to connect with their local schools and outstanding teachers!

The banker comments included in each application tell their own story:

•Thisissuchagreatcause.(GayDavis,CitizensBank-Henderson)

•ItmightinterestyoutoknowthatBruceville-EddyISDisusing the Banking Is program sponsored by First National Bank of Moody to teach financial literacy to all students in grades 9 through 12…250 Students!!! (Glen Thurman-FNB Moody)

•Thankyousomuchforallowingustheprivilegetonomi-nate. (Natalie Needham, Citizens Waxahachie)

•ThanksforsponsoringthisAwesomeAward.(NormaLongo-ria, FNB Eagle Lake)

•Ourteacherscanimpactourstudentsinsomanyways,butdo not always receive the credit they deserve. (Stacie Smith, Happy State Bank)

So now the hard work begins for our panel of judges. We will announce the winners after this magazine has gone to press, but watch the web and IBAT e-news for the selection of winners.

2. Personal Finance Principles Every Child Should KnowAs we are coming to the end of another school year, the

timeless principles of personal finance can be promoted in your banks and your internal and external newsletters, websites, local radio and civic speeches. Take a look at the IBAT Consumer Tips for April, which lays out 10 principles for Financial Lit-eracy Month. We asked one of our core instructors for the IBAT Teach the Teacher Program™ for her insights. Judy Haley won the IBAT Teaching Excellence in Financial Literacy Award back

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8 ★ The Texas Independent Banker  May/June 2014

SERVICES SOLUTIONS

ROGERS POPE, JR.

is Chair of the IBAT

Services Board and Vice

Chairman and Chief

Operating Officer of Texas

Bank and Trust, Longview.

ICS and CDARS Positioning Your Bank for the Long Term

$4 million in public fund deposits and more than $3 million

in retail customer deposits. On average, the bank was able to

attract one new ICS customer per month over a twelve-month

period. Combined, these efforts have primed the bank for suc-

cess by reducing the cost of funding; locking in long-term, valu-

able customers; and opening up new cross-selling opportunities.

Financial institutions across the country are using ICS and

CDARS to replace higher-cost funding (e.g., repurchase sweeps

and letters of credit). They are also using enhanced relation-

ships from CDARS and ICS Reciprocal deposits to capitalize

on cross-selling opportunities. And they are substituting collat-

eralized deposits with ICS and CDARS

deposits, which enable them to repurpose

funds invested in collateral into higher-

earning assets, reduce collateral-tracking

costs, improve asset liquidity, and lower the risk of shortfall due

to collateral-value deterioration.

All of this makes ICS and CDARS smart choices for bank-

ers today and tomorrow. To learn

more, please visit www.promnet-

work.com, or call (866) 776-6426

ext 3432 or ext 5810. ★

For banks, the industry aggregate loan-to-deposit (LTD)

ratio remains depressed and very near its lowest level

in the past 10 years — 69.0% for banks with more than

$1 billion of assets and 73.6% for those with less than

$1 billion of assets.

But the current glut of deposits will not last forever. Many

in the industry see loan demand picking up and expect competi-

tion for deposits to increase.

How can your bank stay ahead of the competition and be

ready to fund future growth? As a member of the Promontory

Network, your financial institution has at its disposal power-

ful tools for attracting

and retaining depositors.

With ICS®, the Insured

Cash Sweep® service,

and CDARS®, your bank can offer customers the security

associated with access to FDIC insurance, the return they seek,

and the flexibility they desire. These services provide access

to multi-million-dollar FDIC insurance on funds placed into

demand deposit accounts (through ICS), money market deposit

accounts (through ICS), or CDs (through CDARS).

Your bank sets the interest rate earned on customer deposits

placed through the services and, with respect to ICS, can even

set the rate to zero if desired.

But your bank doesn’t have to wait for higher interest rates

to begin reaping the benefits of ICS and CDARS. Both services

can help improve your bank’s bottom line today.

By offering ICS as a cash management solution, one com-

munity bank was able to generate over $14 million in ICS depos-

its over a twelve-month period. ICS provided this bank with

the opportunity to bring approximately $7 million back onto

its balance sheet from an off balance sheet sweep account that

it had previously placed with a large investment bank. It also

was able to capture over $7 million in additional ICS customer

deposits. The new, large-dollar relationships consisted of over

10 ★ The Texas Independent Banker  May/June 2014

KEVIN MONK

is Chairman of the

Leadership Division and

Senior Vice President at

Alliance Bank in Sulphur

Springs.

FRONTLINE LEADERSHIP

Another Great Year for the Leadership Division

Well, they say that time flies, and I guess that’s true. It seems like only yesterday that I was beginning my term as your Chairman, but almost a year later, here we are. What a truly wonderful honor and experience to have the opportunity to lead this

Division.Some very special “thank yous” to my dear friends and

members of the Executive Committee — Michael Moores, Mark Sheffield, Doak Crabtree and Brandon Bartek; to the IBAT Leadership Division Board of Directors; to the IBAT Board of Directors and Executive Committee; to the entire IBAT Staff; to my Alliance Bank family; to my family — Kristin, Carter, Kate and Claire; and to all of you who passed along words of encouragement along this journey. It has been a pleasure!

us benefit from the efforts that those funds are used for. We still have funds coming in and some of you may conduct your PAC Drive at different times of the year, but we have been successful in increasing the participation. Although we are not at 100%, we are making progress. Several of our Associate Members con-ducted PAC Drives in their organizations. Thank you to you all!

Many of us just recently returned from our annual mem-ber Congressional visit to Washington D.C. What a great trip! Although politics is not a favorite topic for many of us, and the political process is long and arduous most of the time, it is important that we let our voices be heard. We have to protect those things that are most important to our industry, so that we can continue to serve the needs of our customers and communi-ties the best way we know how.

The Leadership Division Conference is coming up on us quickly. Scheduled for June 26–28 at the J.W. Marriott Hotel and Conference Center in San Antonio, we have a fabulous lineup of speakers, breakout sessions and entertainment. Now that all of the Regions have converted to the new Leadership Division structure, one of the things we will do at the Confer-ence is have roundtable discussions regarding PAC, Membership and Events involving those members from all Regions. If you haven’t had a chance to register, I would encourage you to do so. You don’t want to miss out!

Again, many thanks for the support and confidence in my abilities, it has been an honor. I leave you with one last Leadership quote:

“A leader is best when people barely know he exists, when his work is done, his aim fulfilled, they will say: we did it ourselves.” — Lao Tzu, Chinese Philosopher

Until we meet again…God Bless! ★

Kevin, Carter, Kate, Claire and Kristin Monk with Jase Robertson of “Duck Dynasty” at the 2013 Leadership Conference.

Now on to business! Welcome to my friend Hazem Ahmed of Integrity Bank in Houston, who will be joining the Leader-ship Division Executive Committee as Secretary/Treasurer in June. Hazem is a current member of the Leadership Division Board of Directors and has recently been a very integral part in the success of our Dream Vacation sales benefitting the IBAT PAC.

Speaking of the PAC…we had a very successful Bank PAC Drive in the month of March. As you are aware, the Leadership Division had an initiative this year to encourage those member banks who traditionally have not conducted a PAC Drive to do so with a simple goal of $1,000 each. Traditionally, only about 20% of the member banks conduct a bank PAC Drive, yet all of

http://smithhamiltoninc.com/

12 ★ The Texas Independent Banker  May/June 2014

GENERAL COUNSEL’S CORNER

KAREN NEELEY

received her BA and

JD from the University

of Texas at Austin.

She is a director for

the Texas Association

of Bank Counsel and

General Counsel for the

Independent Bankers

Association of Texas.

(Continued on page 41)

A Legal Potpourri

In the rush to deal with the humongous changes put into

play by the Dodd-Frank Act, let’s not overlook the many

other laws and regs that hang over a banker’s head. Here are

just a few that have recently crossed my desk.

Record Retention Schedules for Email

Don’t be surprised if your auditor asks you for your record

retention guide for email. Worse, don’t be caught with decades

of emails when a “litigation hold” is sent to you as a result of a

lawsuit and discovery requests. Alternatively, a policy that clears

out email boxes every 30 days (with no archive) can be equally

disastrous.

The real dilemma with regard to this issue is that “email”

is not itself a record. Rather, it is a medium of communication.

The contents of the email are the record that must be retained.

Some emails are the current day equivalent of a message slip,

letting you know that Mr. Brown would like for you to return his

call. Others are simply efforts at setting up a meeting or confer-

ence call. You might reasonably keep these only long enough to

get that call organized.

By contrast, you may have emails that represent collec-

tion efforts with delinquent borrowers. Or email (hopefully of

the secured variety) may be the “cover letter” by which you are

transmitting documents or proposals. These communications

truly are documents that you should save.

The tough discipline that needs to be put into place is

the practice of “profiling” emails to clearly categorize them for

appropriate archiving. Thus, the IT department needs to partici-

pate in the email record retention planning. Find out what kind

of systems can be readily installed to sort and save or discard

emails. Identify the types of messages that are transmitted and

determine the appropriate retention period for each. Remember

that the flip side of record retention is record destruction. Be

sure that the system to discard emails when they have “aged out”

is also in place.

Federal Contractor Status

Surprise! Your bank is probably considered to be a “federal

contractor.” Some pronouncements consider the mere fact that

a bank is federally insured to be enough to create the federal

contractor status. But other ways you could fit this characteriza-

tion are through sale or redemption of savings bonds, servicing

of federally insured student loans, or serving as a depository of

Federal funds. So, why do you care?

First, if you have over 50 employees and are a federal con-

tractor, you must have an affirmative action plan. Second,

recent amendments to the rules relating to hiring vets and peo-

ple with disabilities require federal contractors to affirmatively

recruit, hire, train and promote qualified veterans and people

with disabilities. And finally, President Obama has issued an

Executive Order on February 12, 2014 establishing a minimum

wage of $10.10 per hour for “new” federal contractors. Rules are

expected by October 1. Hopefully, the “new” requirement will

effectively grandfather banks.

Mortgage Loan Originators

Bankers have been focused on the Dodd-Frank Act require-

ments relating to their MLOs that went into effect January 1,

2014. But many have somehow

overlooked the Department of

Labor reversal of the treatment of

MLOs under the Fair Labor Stan-

dards Act (FLSA). These employ-

ees are now considered by DOL to

effectively be “order takers” and

thus not exempt from the overtime

and recordkeeping requirements of

the FLSA. If you are paying your

MLOs commissions as well as sal-

ary, then their hourly rate determi-

nation for purposes of the overtime

calculation is a bit tricky since it

can change weekly.

http://www.accusourcesolutions.net/

14 ★ The Texas Independent Banker  May/June 2014

INTEREST RATES

(Continued on page 41)

JEFFREY F. CAUGHRON

is Associate Partner with

The Baker Group LP

Strategic Bond Swaps Optimizing Risk and Reward in Investments

Prudent management of a community bank investment portfolio requires an approach that starts with strategic analysis of the balance sheet, and then moves to tac-tical decision-making. This sort of top-down method first requires a look at the bank’s asset/liability pos-

ture in order to identify exposures to interest rate risk. Once this is done, the investment portfolio can then be used as a vehicle for managing that risk. To do this properly, an invest-ment officer must be prepared to actively manage the portfolio by rebalancing and restructuring the bonds to achieve the opti-mal risk/reward profile for the market conditions that exist at the time.

Some banks still pursue a “buy-and-hold” strategy for bonds. This passive management style can potentially result in substan-tial opportunity costs and underperformance. At least once a year, portfolio managers or investment committees should eval-uate the overall posture of the investment portfolio and make any adjustments that are dictated by changes in balance sheet mix, tax considerations, or the risk position of the bank. The best time of year to make such adjustments is at the turn of a year when the bank can do tax loss swaps as well as restructure the portfolio for better efficiency.

When considering adjustments to the portfolio, it’s impor-tant to clearly outline the pros and cons of selling securities. If a bond is currently on the books at an unrealized loss, remem-ber that selling it now involves simply taking today what is an actual loss of income spread out over time… you either take the loss now or take it later. For example, consider a $1mm agency bullet with a one-year maturity that has a $10,000 unrealized loss. Let’s say the book yield on this bond is 2%, yet the market yield is now 3%... a difference of 1%. If we do the multiplication, $1mm X 1% X 1 year, we come up with $10,000, the amount of the unrealized loss. So the choice is to either sell the bond or to hold it — lose $10,000 today or $27 each day for a year. Either way, it adds up to $10,000.

If we choose to sell today, we can be certain of the yield we will achieve on the reinvestment of the proceeds. If we wait for maturity, we must accept some uncertainty and risk. Where will rates be in one year? Are we willing to bet rates will be higher? In a sense, waiting for maturity is a bet that rates will be the

same or higher than today. Meanwhile, from a tax standpoint, Uncle Sam will pick up 34% of the loss (assuming a fully taxable bank) so that an institution can reduce tax expense in a good year so they don’t have to in a bad year. Here are some further ideas on bond swaps:

Duration Adjustment Swap: The purpose of this swap is simply to move in or out on the yield curve to either take advantage of better relative value or to alter the position of the portfolio with respect to potential price risk. Right now the yield curve is steep, so some banks may wish to extend duration simply to pick up yield. Others may need to rein in their overall duration to shore up their interest rate risk exposure. Duration adjustment is a textbook asset/liability management strategy for banks that are too asset (or liability) sensitive and need to extend (or shorten) the net duration of their assets.

Relative Value Swap: At any given point in time, some sectors of the bond market offer better value than others. Moreover, the relative advantage of the different sectors (as measured by their yield spread relationships) is constantly changing. Mortgage-backed securities versus municipals, callables versus MBS… all of these relationships should be monitored as markets move. Savvy portfolio managers will take advan-tage of the changing relationships and do swaps that sell what is rich and buy what is cheap compared to historical averages. As always, each bank will have a different sec-tor allocation that is optimal for them given their liquidity and cash flow needs, tax position, etc. Here again, a big-picture view of the bal-ance sheet is necessary.

Muni Tax-Loss Swap: Banks should always be looking at their tax position and working with their accountants to optimize their after-tax performance. Each bank has its own unique set of circumstances,

Winning the Performance Challenge

Interest Rate Risk Monitor ; Asset/Liability AnalysisYour management team will find that The Baker

Group’s quarterly review of the loan and deposit

information outlined in the Interest Rate Risk Monitor

and Asset Liability Analysis is an effective tool in

managing your risk and

Advanced Portfolio MonitorThe Advanced Portfolio Monitor is a key monthly

report that we utilize to help you measure, monitor,

and manage the overall risk and of

your investments.

Investment Portfolio AccountingThe Baker Group will provide you with accurate,

easy-to-read reports that are delivered electronically

to you each month.

Quarterly Interest Rate Risk StrategyOur quarterly Interest Rate Risk Strategy provides a

template for the effective discussion of your current

and future investment and asset/liability position.

Investment and Asset/Liability PoliciesThe Baker Group will assist in the development and

review of policies to ensure optimal integration with

your management system.

Securities SelectionThe selection of securities used in the development

of your portfolio is critical to the achievement of

goals and managing interest rate risk.

The Baker Group specializes in identifying the best

relative value in the market through competitive bids

and offerings that will fit your financial institution.

To obtain the resources you need to maximize the of your bank, call our Financial Strategies Group

at 800.937.2257 today and ask for Ryan Hayhurst.

Maximize the

of Your BankWe’re serious about banks who are serious

about minimizing their upfront expenses. That’s

why we’re offering a six-month free trial of our

entire service package.

Member: FINRA and SIPC Oklahoma City, OK Austin, TX Birmingham, AL Indianapolis, IN Salt Lake City, UT Springfield, IL The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

TBG-TX-05-2014-FreeTrial1.indd 1 3/14/14 11:36 AM

Winning the Performance Challenge

Interest Rate Risk Monitor®; Asset/Liability AnalysisYour management team will find that The Baker

Group’s quarterly review of the loan and deposit

information outlined in the Interest Rate Risk Monitor

and Asset Liability Analysis is an effective tool in

managing your risk and performance.

Advanced Portfolio Monitor®

The Advanced Portfolio Monitor is a key monthly

report that we utilize to help you measure, monitor,

and manage the overall risk and performance of

your investments.

Investment Portfolio AccountingThe Baker Group will provide you with accurate,

easy-to-read reports that are delivered electronically

to you each month.

Quarterly Interest Rate Risk StrategyOur quarterly Interest Rate Risk Strategy provides a

template for the effective discussion of your current

and future investment and asset/liability position.

Investment and Asset/Liability PoliciesThe Baker Group will assist in the development and

review of policies to ensure optimal integration with

your management system.

Securities SelectionThe selection of securities used in the development

of your portfolio is critical to the achievement of

performance goals and managing interest rate risk.

The Baker Group specializes in identifying the best

relative value in the market through competitive bids

and offerings that will fit your financial institution.

To obtain the resources you need to maximize the performance of your bank, call our Financial Strategies Group

at 800.937.2257 today and ask for Ryan Hayhurst.

T R I A L

Maximize the Performance of Your BankWe’re serious about banks who are serious

about minimizing their upfront expenses. That’s

why we’re offering a six-month free trial of our

entire service package.

Member: FINRA and SIPC | www.GoBaker.comOklahoma City, OK | Austin, TX | Birmingham, AL | Indianapolis, IN | Salt Lake City, UT | Springfield, IL | 800.937.2257The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

TBG-TX-05-2014-FreeTrial1.indd 1 3/14/14 11:36 AM

16 ★ The Texas Independent Banker  May/June 2014

Keiser Coker McBrayer Matthews Clarke Springer

PERSONNEL UPDATE

(Continued on page 42)

Gartz Taylor Hood Bjork Best R. Pope Jr

DallasSWACHA has announced its 2014 Board of Directors.Charlie Schuchardt, executive vice president of Frost Bank

in San Antonio, succeeds Andy Littlejohn, president of City National Bank in Taylor, as chairman of the board. Martin Bell, executive vice president of Guaranty Bond Bank in Mount Pleasant, has been elected vice chair of the board, and Rhonda Kleinecke, chief financial officer of TDECU in Lake Jackson, has been elected Secretary-Treasurer. Each officer will serve a one-year term.

Kenneth Clayton, president of Western Bank in Artesia, New Mexico was elected to a three-year term on the board. Rhonda Festervand, senior vice president of Allegiance Bank Texas in Houston, and Brandy Young, senior vice president of OmniAmerican Bank in Fort Worth, were each appointed to fulfill two unexpired terms. Donovan Shand, senior vice presi-dent of Comerica, and Peter Davey, vice president of Capital One, were appointed as advisory directors.

In addition, Dennis Simmons, CEO of SWACHA, has announced he will retire from his position as of December 31, 2014, after 18 years with the association. Simmons joined SWACHA in 1996 as director of training and education. He was promoted to president and CEO in 2001. Under his leader-ship, SWACHA has broadened its membership base to include approximately 1,000 financial institutions throughout Texas, Louisiana, New Mexico, Georgia and several other states. Sim-mons was recently honored by NACHA with the Distinguished Service Award for his many years of service dedicated to the support of the country’s ACH Network.

Laura Steele has taken on the title of president and COO. Steele was previously executive vice president and COO of the organization. She joined SWACHA in 2013 and is a veteran of the financial services industry with more than 20 years of experience.

Fort Worth

Cliff Keiser has been promoted to president at Meridian Bank Texas. Keiser joined the bank in 2006 as executive vice president of energy lending. A graduate of Louisiana State Uni-versity, he earned a BS in Petroleum Engineering. In addition to his executive management duties, Keiser is also responsible for building and monitoring a balanced portfolio of energy related relationships. He brings over 30 years of banking and lending experience.

Cory Coker has joined Colonial Savings as senior relation-ship manager. In his new position, Coker will be responsible for portfolio development and maintenance as well as commercial loan origination. He will also assist with the cultivation of Colo-nial’s small business banking in the DFW area. Coker has more than 14 years of experience in commercial and retail banking,

Frisco

Kelly McBrayer has joined Texas Republic Bank as vice president, commercial lending. She will work in the bank’s new branch in Richardson. Her responsibilities include managing a variety of existing relationships as well as developing new commercial business in the DFW market. McBrayer earned a

JOB 10205683 IBAT MAGAZINE SIGN POST

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ASSOCIATION NEWS

18 ★ The Texas Independent Banker  May/June 2014

IBAT Board Renews Endorsements with Abound

Resources and DieboldThe IBAT Board of Directors is

pleased to announce that it has approved renewals of its endorsements with Abound Resources and Diebold at its first quarter board meeting.

“Abound Resources serves a critical need for IBAT member banks and deliv-ers exceptional value through technology consulting, contract negotiation, vendor selection and performance improvement,” IBAT Services Vice President — Busi-ness Development, Gordon Moore, com-mented. “Diebold’s leading-edge solutions and single point of contact with Integrated Services offer community banks reliability they can count on and a reduced burden as it relates to vendor management.”

Curt Nelson, President of IBAT Services, added, “the integrity of IBAT’s endorsements is earned as a result of staff ’s due diligence and we are proud to have the Board’s continued confidence in the significant role endorsed providers such as

Diebold and Abound play in enhancing the profitability and competitive position of our member banks.”

★

Cardtronics Acquires Assets of Automated Financial

Cardtronics has grown its U.S. ATM estate to 66,400 ATMs — the result of adding 2,100 merchant ATM contracts when Cardtronics USA, Inc. acquired the ATM business assets of Chandler, Ari-zona-based Automated Financial, LLC.

Delivering growth to Cardtronics’ Independent Merchant ATM business, as well as additional diversification to the company’s global ATM portfolio, the Automated Financial transaction also helped the company establish a sales and service office in Arizona. In recent years, acquisitions by Cardtronics have added regional hubs for the company in New Jersey, Minnesota, Oregon, California and now Arizona.

All Automated Financial cash machines will be converted to the Cardtronics brand.

★Texas Bankers Hall of Fame

Names Four HonoreesThe Texas Bankers Hall of Fame has

selected Tieman H. Dippel, Jr., Tom C. Frost, Joseph M. Grant, and Rogers Pope, Sr. as this year’s honorees.

The Texas Bankers Hall of Fame was established by the Smith-Hutson Endowed Chair of Banking at Sam Houston State University in Huntsville to recognize out-standing bankers who have served their industry, community, and state.

Tieman H. Dippel, Jr. serves as chair-man and CEO of Brenham Bancshares, Inc., and Dippel Venture Capital Corpo-ration. Tom C. Frost is chairman emeritus of Frost, which offers banking, insurance and investments through more than 110 financial centers across Texas in the San Antonio, Austin, Corpus Christi, Fort

TRUST TEXAS BANK was named Small Business of the Year by the Victoria, Texas Chamber of Commerce. The bank, which opened in 1921, has five branches in the South Texas cities of Cuero, Victoria, Yorktown and Kyle. L-R: Tiffany Martinez, Jay Howard, Jennifer Crockett, Sean Garcia, Debbie Humphries, Jared Bittlebrun.

TECHMECCA WINNERS L-R: Joe Mengden, Tradition Bank; Cody Yanchak, First American Payment Systems. Joe won the gun from FAPS’ raffle at TechMecca. Said Cody: “The first and only time I have ever walked into a bank with a gun…and it was acceptable.”

May/June 2014 www.ibat.org ★ 19May/June 2014 www.ibat.org ★ 19

(Continued on page 20)

Worth, Houston, Dallas, and Rio Grande Valley regions. Joseph M. “Jody” Grant is the founder and chairman emeritus of Texas Capital Bancshares and founder, chairman and partner of BankCap Part-ners. Rogers Pope, Sr. serves as chairman of the board of Texas Bank and Trust in Longview, Texas.

Best of Community Banking Competition Deadline June 23

Highlight your bank’s involvement in your community and the exceptional projects you’ve undertaken during the past year by entering the 2014 Best of Commu-nity Banking Awards competition. This is an opportunity to put the “best of the best” efforts of IBAT members on display.

Entry categories include Architec-tural Design, Financial Literacy, Commu-nity Service and Marketing.

Entries are due in the IBAT office by 5 pm on June 23, 2014. A panel of judges will review each entry and all Gold, Silver and Bronze awards will be displayed dur-ing the Annual IBAT Convention. Gold Award winners will be recognized at the Best of Community Banking Awards Lun-cheon on September 29 at the Worthing-ton Renaissance Hotel in Fort Worth.

For more information, go to the IBAT website or call Mae Beth Palone at 800-749-4228.

Sealy, Caldwell and Waco Designated Main Street CitiesStaff of Independent Bankers Association of Texas (IBAT) joined Texas First Lady

Anita Perry and representatives of the Texas Historical Commission (THC) for the Texas Main Street Program’s 2014 First Lady’s Tour. The tour, an annual event celebrat-ing Texas Main Street communities, visited Sealy, Caldwell and Waco.

The THC’s Texas Main Street Program is a revitalization program for historic down-town and neighborhood commercial districts. Today, there are 87 official Texas Main Street programs in communities of all sizes and in all areas of Texas. During her time as First Lady, Mrs. Perry visited 49 cities and designated them as Main Street Cities.

IBAT has sponsored the First Lady’s Main Street Tour for the past 20 years, visit-ing 82 cities. “Community banks have long been the lifeblood of many cities and towns across Texas and we are proud of their contributions to help local communities prosper and main street businesses thrive,” said IBAT President and CEO Chris Williston.

Chris Williston and Anita Perry at the Main Street Tour stop in Sealy.

ASSOCIATION NEWS cont’d

First Data and The Members Group Offer Streamlined

EMV ImplementationFirst Data and The Members Group

(TMG) are offering an expedited EMV to qualifying financial institution clients. The streamlined program enables TMG’s clients to launch their EMV programs quickly, efficiently and with reduced com-plexity. First Data has qualified with both Visa and MasterCard to offer the expe-dited EMV credit card issuance program.

“Offering this expedited process from First Data helps make the transition to EMV less burdensome for our clients,” Brandon Kuehl, product manager of TMG, said. “By partnering with the right organizations, our clients can get EMV cards in market more quickly, giving them a competitive edge with today’s tech-savvy consumer.”

To take advantage of the program, clients must meet eligibility requirements outlined by the card networks, including the prior successful completion of a U.S. chip-issuing project. Financial institu-tions qualify for the streamlined process if they choose the same personalization parameters and the same chip certified under the express program.

★IBT Transitions to Cloud Technology

IBT recently launched its new-est cloud-based technology — i2Suite — that will provide cost-effective ways to drive growth, increase efficiency and improve customer experiences. Demand for i2Suite includes i2Core account pro-cessing, i2OLB online banking, i2Mobile mobile banking and i2Payments (end-to-end debit card, bill payment and treasury management) with comprehensive finan-cial reporting.

“IBT is dedicated to using modern cloud technology to drive growth and suc-cess,” Mike Golebiowski, president of IBT, said. “It will continue to provide commu-nity financial institutions with unparal-leled integration, features and functions for product development.”

In MemoriamWilliam R. “Bill’’ Sinkin passed away February 3 at the age of 100. Sinkin was a philanthropist, activist, banker, entrepreneur, teacher, father and husband, who had a penchant for bow ties. He was elected president of Independent Bankers Association of Texas for 1978-1979.

Sinkin obtained a business degree from the University of Texas at Austin in 1934 and returned to San Antonio to work at his father’s wholesale clothing manufacturing company. He later went into banking and helped start Texas State Bank and Texas Bank North, both of which he sold in 1987. As the banks’ CEO, he focused on giving loans to small and neighborhood businesses on the East and South sides, areas that had previously not received much attention from financial institutions.

Sinkin is widely credited with bringing HemisFair ‘68 to fruition, an event that many say was the catalyst that changed the face of San Antonio. He was the fair’s first president, and reportedly devoted 1961 to selling the concept to every bank in the city and raising sufficient funds for planning the celebration.

Although Sinkin retired in 1987, he did not stop working. He opened his own consulting firm, William R. Sinkin and Associates. In 1999, he launched Solar San Antonio to promote renewable energy awareness and development.

Sinkin is survived by two sons, Lanny and Richard, and by three grandchildren and three great-grandchildren.

Elizabeth May passed away February 28 after a 71-year career in banking.Elizabeth attended Centenary College in Shreveport, LA and the University of North Texas in Denton,

where she studied opera and vocal arts.In 1943 she went to work at the First National Bank of Bonham and remained with the bank through its

many changes in management and ownership. She became Assistant Vice President and was “The Grand Lady” of customer service and public relations for the American Bank of Texas. In addition to her loyalty and devotion to the bank and its customers, Elizabeth was a dedicated public servant, working tirelessly for many organizations in the community.

In 2011 a coworker at the bank nominated Elizabeth for the Independent Bankers Association of Texas “Making a Difference Award.” The panel of judges decided that Elizabeth May had done a lot more than make a difference – she had made a lifetime of difference to the bank and her community. To pay tribute to her, the judges created a new award: the Lifetime Community Star Award.

Elizabeth is survived by her two daughters, Faye May Wedell and Vicki May Horne; two granddaughters, six great-grandchildren, two nieces, and many grandnieces and grandnephews. She is also survived by her valued companion, James Renfroe.

20 ★ The Texas Independent Banker  May/June 2014

NORTHSTAR BANK OF TEXAS Joins Church on Habitat for

Humanity ProjectOn March 15, NORTHSTAR BANK

OF TEXAS and Denton Bible Church joined together to start a 12-week Habi-tat for Humanity project in Denton, TX. This is the second project the two orga-nizations have partnered on to represent their commitment to the community.

“This important project is something we enjoy participating in as a group,” Tony Clark, president and chief executive offi-cer of NORTHSTAR BANK, said. “It is especially rewarding to not only be work-ing together out in the community, but to know that a family in Denton is benefit-ting from this great program.”

★

LegacyTexas Bank Ships 650 Care Packages to Troops

LegacyTexas Bank in Plano recently shipped 650 boxes to United States mili-tary personnel stationed around the globe. Bank branches served as drop-off loca-tions for donations and employees while local Scouts and the North Texas Chapter of Blue Star Mothers helped assemble and ship packages filled with toiletries, notes, magazines, snacks, boxes of Girl Scout cook-ies and more. This was LegacyTexas Bank’s most successful drive yet.

“The community has been very sup-portive of Lone Star Salute for several years, but this year was extraordinary,” Phil Dyer, president of LegacyTexas Bank, said. “The gifts and messages for men and women serving our country were over-whelming and the letters of thanks from our troops make it clear how much these packages are appreciated.”

★

Texas First Bank Named Small Business of the Year

Texas First Bank has been recognized as the Texas City-La Marque Chamber of Commerce’s Small Business of the Year. In addition to recognizing business success, the award noted Texas First Bank’s contri-bution to community support. Members of the chamber’s board and staff surprised

Texas First Bank Chairman of the Board Chuck Doyle and his son, Texas First Bank president and chief executive officer Christopher Doyle, with the award.

“I have to give all the credit to Chris and the employees at all of the locations because we have some great people,” Chuck Doyle said. “We do the same things in all our communities, not just here in

Texas City. That’s why I am proud to be associated with the bank’s staff.”

Texas First Bank has 24 locations and more than 250 employees with branches in Galveston, Harris and Chambers coun-ties. It is expanding to Liberty County and two additional locations. Texas First Bank also owns a mortgage company and insurance firm. ★

May/June 2014 www.ibat.org ★ 21

22 ★ The Texas Independent Banker  May/June 2014

Over the last few years, Texas community bank-ers have learned first-hand the importance of disaster preparedness. In the wake of disasters like Hurricane Rita, the Bastrop wildfires

and the fertilizer plant explosion in West, we have all seen the devastating effects that natural and man-made disasters can have on communities and the ability of Texas businesses to serve their customers.

While much has been written on the necessity for disaster preparedness for these types of catastrophic events, many community banks live under a different but serious threat: over-reliance on key personnel.

What would you do if 25-50% of your bank’s employees suddenly contracted the flu? That’s exactly what happened to one IBAT member bank (which will remain unnamed) in late 2013. Tellers, loan offi-cers and senior staff alike were suddenly and without warning absent from the bank for days at a time.

In this kind of nightmare scenario,

there is no shortage of issues which might be affected. While the bank might rally to ensure that frontline interactions with customers are covered, there is likely to be an overall disruption in the continu-ity of some business operations. It might be impossible to ensure that business con-tinues as usual, but there are a few things that community banks can do to prepare for this scenario.

Cross-Training

Cross-training of employees in dif-ferent tasks is always a good idea, even though it will never be exhaustive enough to cover every aspect of the bank’s opera-tions. The Society of Human Resource Managers recommends that employees “swap” or exchange jobs for a defined period of time. In addition to providing natural backups for employees, it also gives them the opportunity to contribute at a different level of bank operations and expands employee skill sets.

While cross-training might result in more training time for each employee, it can prove to serve the bank well in times

of distress, or in the event of scheduled employee time off.

Develop a Continuity Plan

Every department knows its strengths and weaknesses. Rather than relying on management to develop a plan for busi-ness continuity in each department, have employees take the lead with their individualized understanding of business processes. As part of this planning, ask employees to identify critical versus non-critical tasks in the day to day workflow. In the event of a catastrophic staffing occurrence, it might be necessary to inter-rupt non-critical products or services.

Additionally, have departments submit a written plan to management detailing what would be required for their departments to continue operations with 25% and 50% of employees out of the bank.

Risk Assessment

Extraordinary times call for the bank to reexamine its risk profile and determine

(Continued on page 44)

Business Continuity

Planning

By Christopher Williston & Kelly Goulart

June 26–28, 2014

JW Marriott San Antonio Hill Country Resort &

The Leadership Conference is one of IBAT’s flagship events, combining education and networking with family-friendly activities. This 2-1/2 day conference is designed to inspire community bank-

ers to become more enthusiastic leaders with the Leadership Division approach to opportunity, attitude, and quality service.

And while you’re learning what it takes to be a good leader, your children can learn about earning and managing money at the Kids Money Camp.

This year’s destination is the JW Mar-riott San Antonio Hill Country Resort & Spa. This property has firmly established

itself as the city’s premier luxury destina-tion and the most renowned resort in the magnificent Texas Hill Country. Rated 4-Diamonds by AAA, and just 12 miles north of San Antonio International Air-port, the resort features the Lantana Spa, the six acre River Bluff water park, seven distinctive restaurants, 265,000 sq. ft. of

SPONSORS

Gold SponsorsAdvantage Health Plans TrustThe Baker GroupDeluxe CorporationFederal Home Loan Bank of Dallas

Silver SponsorsAccuSource SolutionsBKD, LLPCox SmithJMFA - John M. Floyd & AssociatesPULSE

Bronze SponsorsAmerican National Insurance Co.Fenimore Kay Harrison & Ford, LLP

Blue Ribbon SponsorsBank on HoldFirst American Payment SystemsThe Genesis GroupSWACHA

EXHIBITORS

AccuSource SolutionsAdvantage Health Plans TrustAmerican National Insurance Co.Bank Compensation ConsultingBank on Hold/Works 24BKD, LLPCalTechCatalyst Financial CompanyD+HDellDell SecureWorksDeluxe CorporationDieboldEmployer FlexibleFirst American Payment SystemsFirst DataGarland HeartThe Genesis GroupGlory Global SolutionsHarper & Pearson Company, PCHigh CottonInfinex Financial GroupJMFA - John M. Floyd & AssociatesLowery Property AdvisorsOne LogosPromontory Interfinancial Network, LLCPULSESHAZAMSmith HamiltonSNL FinancialSWACHATransFundUnicom Technologies

PURPOSE of the IBAT Leadership Conference — Developing leaders

in Texas community banking through focused education, industry

involvement, and personal relationships.

June 26–28, 2014

JW arriott an ntonio ill ountry Resort & Spa

GENERAL SESSIONSYour Network Matters: The Art of Maximizing the Business Relationship - Thom Singer Thom Singer has more than 23 years of sales and marketing experience with firms such as RR Donnel-

ley, Brobeck Phleger & Harrison LLP, Andrews Kurth LLP, Marsh Inc., and Wells Fargo Bank. He is an expert in branding, positioning and networking, and has trained thousands of professionals in the art of building professional contacts that lead to increased business.

Being a Rebel at Work: Lessons from a CIA Leader – Carmen Medina You will be led through a path of how national security and the lessons learned are applicable to all

business leaders. Learn about the necessity to project optimism and the realization that leaders and followers are engaged in an emotional relationship. Find out how important it is for the calendar to reflect your priorities, and how someone’s failure to plan does not make it a crisis for others. This ses-sion will focus on how to be an effective innovator within your organization; how to be a change agent; and how to communicate your ideas to leadership.

The Art of Leadership – Daryl Johnston Daryl “Moose” Johnston was drafted by the Cowboys in the second round of the 1989 NFL Draft. As

a Cowboy, Johnston played in 149 consecutive games from 1989-1997. He also became one of the greatest special teams players in franchise history. In 1993 Johnston became the first fullback ever selected for the Pro Bowl, earning trips in 1993 and in 1994; and he was a member of three Super Bowl winning teams. Johnston retired at the end of the 1999 season, after suffering a neck injury.

AGENDA

Wednesday, June 252:00pm – 5:00pm Leadership Board of

Directors Meeting2:00pm – 5:00pm Conference Registration 3:00pm – 5:00pm Exhibitor Table

Top Setup6:00pm – 9:00pm Leadership Board of

Directors Reception and Dinner

6:00pm – 9:00pm Associate Member Advisory Council Meeting and Dinner

6:00pm – 9:00pm Leadership Board of Directors Child Care

Thursday, June 267:30am – Noon Golf Tournament –

TPC San Antonio10:00am – 1:00pm Exhibitor Table Top Setup10:00am – 5:00pm Conference Registration1:30pm – 7:30pm Exhibitor Table Tops1:30pm – 2:30pm Connecting Leaders Breakout

– Membership1:30pm – 2:30pm Connecting Leaders Breakout

– Events1:30pm – 2:30pm Connecting Leaders Breakout

– PAC2:00pm – 2:45pm Opening General Session –

Exhibitor 2-minute stage demos, booths 1-18

3:15pm – 4:15pm General Session – Your Network Matters: The Art of Maximizing the Business Relationship – Thom Singer

4:00pm – 6:00pm Kids Money Camp4:30pm – 5:30pm General Session –

Exhibitor 2-minute stage demos, booths 19-36

5:30pm – 7:30pm Opening Reception with Exhibitors and Purse and Toy Auction

Friday, June 277:30am – Noon Conference Registration7:30am – 9:30am Buffet Breakfast8:15am – 9:15am Breakout – Operations8:15am – 9:15am Breakout – Sales & Marketing8:15am – 9:15am Breakout – Lending9:15am – 9:30am Refreshment Break9:30am – 10:30am General Session –

Being a Rebel at Work: Lessons from a CIA Leader – Carmen Medina

10:30am – 11:30am General Session – Bank to the Future: The Current State of Community Banks – Chris Williston

11:30am – Noon Changing of the Guard & Awards

Noon – 12:30pm Buffet Lunch Served by the Leadership Board of Directors

12:30pm – 2:00pm General Session – The Art of Leadership – Daryl Johnston

2:30pm – 5:30pm Afternoon Free5:30pm – 6:30pm Hospitality Suites6:30pm – 10:00pm Friday Night Family Fun –

Dinner & Dancing featuring Aaron Watson

Saturday, June 288:30am Farewell Breakfast

state of the art meeting and event space, free WiFi in the lobby and over a thou-sand custom designed guest rooms.

Golfers will enjoy The AT&T Oaks Course, designed by PGA TOUR legend Greg Norman with player consultant Ser-gio Garcia. It reflects the TOUR’s depar-ture from the modern tournament style course (expansive grass areas and specta-tor mounding) to a more natural look and feel, without sacrificing the fan experi-ence, making it very tournament friendly. The AT&T Oaks Course plays host to the PGA TOUR’s Valero Texas Open.

For more information or to register, visit www.ibat.org. ★

The December 2012 issuance of the Financial Account-ing Standard Board’s (FASB) latest proposal brought about the Current Expected Credit Loss (CECL) model. With it came a number of changes

and controversy, as banks recognized the potential of an increase in allowance lev-els as a result of the changes to how losses are estimated.

While many banks, associations and firms submitted comment letters to provide feedback to the FASB on the model, it is ultimately left in the Board’s hands to determine the final model and the associated implementation timeline. It is expected that the FASB will release final guidance in 2014, with implementa-tion coming some years later. Despite the uncertainty, there are several steps to take now to prepare for the proposed changes.

Overview of the CECL Model

The draft proposal from the FASB is broad in scope and would have impacts beyond the calculation of the ALLL for financial institutions. However, there are three key departures from current guidance, as they relate to the ALLL calculation.

1) Forward-Looking View — The proposal requires that forward-looking information and forecasts are considered for the estimation of credit losses. This is a critical change from the current model’s reliance on “incurred” losses to estimate loss rates.

2) Longer Time Horizon — Loss esti-mates would use the lifetime of the credit

FASB’s CECL ow to repare for

By im eak & d Bayer

26 ★ The Texas Independent Banker

instrument as the time horizon as opposed to the next 12-month period. These fore-casted estimates will need to be defensi-ble, which could be particularly challeng-ing for longer term loans.

3) “Probable” Threshold Removed — The “probable” threshold for loss rec-ognition used in the current guidance is removed, leaving institutions to evaluate whether or not a loss exists at that time for the financial asset. The removal of this threshold could accelerate the timing for when institutions are required to recog-nize impairment.

These changes relate primarily to the FAS 5 (ASC 450-20) portion of the allowance calculation, as it appears that the current methodology for spe-cific impairments under FAS 114 (ASC 310-10-35) will be largely unchanged. Though it is difficult to estimate without finalized guidance from the FASB, the overall impact of these changes would likely mean an increase in the overall reserves banks need to hold. The move to a longer time horizon in particular could have a significant impact on required reserves.

In addition to the potential for higher reserve rates, banks will also likely face additional compliance burdens. Many already spend significant time and resources on data collection and modeling for their ALLL calculation, but they could see this increase under the new methodol-ogy. For smaller banks, the complexity of the new standards could necessitate the engagement of outside consultants and heavier reliance on their existing accoun-tants and auditors.

Ways to Prepare for the FASB Changes

Improve Data Collection

No matter the final details of the new guidance, banks will need more robust data on their loan portfolios, borrowers and external economic factors to make supportable estimates of credit losses going forward. And, they can begin gathering that data now to ensure access to the right data and to establish processes to collect information on an ongoing basis.

Specifically, if it isn’t already being captured, loan-level data like historical balances, risk ratings, charge-offs and recoveries should be collected. Addition-ally, other data that could be correlated to loan losses should be collected as well. Examples include national, regional and local economic data; borrower financial data and real estate metrics such as price indexes. At this stage, it is likely better to err on the side of too much information,

as it may prevent hunting down historical data down the road.

Here’s a chart that shows the new data pieces that could be required with the CECL model. Some banks may need up to 1000 times more data to comply.

If banks don’t improve data collec-tion and only maintain aggregate histori-cal charge-off calculations for loss rates (versus migration analysis), they will pro-duce a much more subjective calculation. Loan-level detail for proper justification will not exist.

Evaluate Third Party Solutions for Data Collection

A common obstacle faced by smaller banks is the ability to improve and collect data in such a robust form. For those fac-ing this obstacle, a common solution has been using a third party software solution for assistance with the ALLL calculation. An ancillary benefit of using software is its

(Continued on page 28)

B’s CECL Model How to Prepare for Changes

By Tim McPeak & Ed Bayer

May/June 2014 www.ibat.org ★ 27

28 ★ The Texas Independent Banker  May/June 2014

integration with the core system, which makes data available for a variety of multi-dimensional reports.

Another consideration for a third party software solution is the transition to the CECL model. Most third party ALLL providers, like Sageworks, are already planning adjustments to align with the new guidance (once it’s released).

While transitioning from a spread-sheet-based incurred loss model to a software-based incurred loss model can be a complicated transition, switching to the CECL model at the same time could further complicate the transition and increase associated costs.

Capital Planning

Most analysts believe that the CECL model will increase a bank’s allowance reserve between 10 and 50 percent, requiring a one-time capital adjustment. Bankers agree with this expectation, as noted in a Sageworks survey conducted

first in February 2013 and again in Febru-ary 2014.

Model Flexibility

As current ALLL models are updated each month or quarter, consider the potential changes and try to make cur-rent models flexible enough to adapt.

Spreadsheet-based models may need to be significantly reworked to accommo-date the new guidance, so limiting hard coded cells and maintaining clear docu-mentation on the model will be critical. This is especially true when there has been turnover in staff, and the original

FASB's CECL Model cont’d

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May/June 2014 www.ibat.org ★ 29

author of the model is no longer with the institution.

Utilize Available Resources

Keeping an open dialogue with examiners, auditors and other external consultants and vendors on the proposed changes will be critical to understanding the eventual compliance requirements and the impact on reserve levels. These professionals likely have some familiarity with the institution and can therefore be a sounding board or advisor as the proposal is modified and eventually finalized.

Keep in mind the appropriate level of model sophistication for each institu-tion. As the details of the CECL model are confirmed, there could be a push from these outside resources toward highly sophisticated models and analytics that are more appropriate for large financial institutions. For community banks, the focus should be on how their current pro-cesses can be modified and expanded to comply with the new guidance.

Conclusion

Despite the uncertainty regarding the final guidance and timeline, finan-cial institutions can take the previously discussed steps to get ahead of the curve and be better prepared for the potential changes from the FASB. These institu-tions should utilize available resources, develop a set of talking points, improve data collection and look into their capital planning, especially if a one-time allow-ance adjustment looks probable. Further, it is critical that ALLL methodologies are flexible enough to incorporate potential changes quickly and easily. Taking these steps now can reduce the headaches once the FASB releases the final guidance and timeline for implementation.

Sageworks is a financial information company that works with financial insti-tutions, accountants and private-company executives across North America to col-lect and interpret financial information. Thousands of bankers rely on Sageworks’

web-based suite of solutions to streamline credit analysis, risk rating, portfolio stress testing, loan administration and ALLL estimation. Sageworks’ risk management team of consultants also assists clients with the implementation of their ALLL methodologies. To find out more, visit https://www.sageworksanalyst.com/. ★

Tim McPeak is a director for the financial institutions division at Sageworks, where he consults on risk and portfolio management with financial institutions nationwide. Previous to his current position, Tim led Sageworks’ stra-tegic partnership program, through which the company partners with consulting, loan review, accounting and other professional services firms.

Ed Bayer is the managing director of business development and market analysis at Sage-works, where he is responsible for revenue generated in our financial institution market. He previously served as a senior risk management consultant, with a primary focus on allowance for loan and lease losses (ALLL) and stress testing loan portfolios.

30 ★ The Texas Independent Banker  May/June 2014

To be, or not to be mobile, that is the question. Either way, you’ve got a problem.

Thirty-two percent of U.S. adults bank online via their mobile phones, accord-ing to an August 2013 report

from the Pew Research Center. Mobile banking has doubled since 2011. Last year, Juniper Research reported there were 590 million mobile banking users and expects the number to hit 1 billion by 2017. Need help running all this mobile banking? There’s an app for that. Aye, there’s the rub. Mobile apps — both iOS and Android Apps — have vulnerabilities that could provide attackers with personal identifiable information of your custom-ers, including the current location of their mobile devices. Insecure Web apps and mobile apps can allow attackers to inter-cept customer data and sensitive company data in transit and at rest.

Mobile Applications

Having conducted several tests on hundreds of mobile banking applications, security researchers have discovered many of them are susceptible to various attacks.

Banking applications generally use SSL encryption for securely transporting pri-vate documents via the Internet, but 90 percent of the tested apps initiated several non-encrypted connections during their operation. This could allow an attacker to intercept traffic and create a fake logon prompt. Cybercriminals create and make available in third-party stores versions of banking apps that look and act just like your authentic banking apps, but they have malware hidden in them. To prevent that from happening, you should advise customers to go to your home page and click on a button that sends them directly to either the Apple or Android store to download your mobile app.

Mobile Malware

No mobile device, whether com-pany issued or otherwise, should ever be allowed to connect to your network in any manner because if there is any malware on the mobile device, it could infect your network. Mobile antivirus is not 100 per-cent effective and can easily be disabled. Many mobile applications have malware built into them. When users download the apps, the malware can disable the (Continued on page 45)

Mobile

antivirus. The most popular mobile bank-ing malware, Zitmo, steals financial trans-action information so the attacker can later go into the user’s account and steal funds. Zitmo forwards all incoming SMS messages to a remote Web server so the attackers can grab your mobile transac-tion authentication numbers, or mTANS, defeating your security control.

Take Arms Against a Sea of Troubles

While there is nothing you can do to ensure the security of mobile banking, you can take the following steps to help prevent fraud.

•Provideuserswithpoliciesandadviso-ries so they are well-informed of your mobile banking guidelines.

•Manuallyauditandassessapplicationsbefore launching them.

•Provideuserswithadditionallevelsofsecurity like multifactor authentication services and text message notifications.

•Ensureallyourapplicationsarebuiltwith secure data transmission stan-dards, secure data storage and applica-tion logging.

May/June 2014 www.ibat.org ★ 31

Matters How Mobile Devices Affect Your Banks and Customers

By Jeff Multz

32 ★ The Texas Independent Banker  May/June 2014

Search Engine Optimization Where are you?

By Bruce oore, D.

May/June 2014 www.ibat.org ★ 33

To prepare for a sales call on a small bank, I Googled the bank’s name. The one I wanted didn’t appear on the first page, or the second. I couldn’t find anything on this bank until my third Google

query. Clearly, this bank had not done the basics of search engine optimization (SEO). Most Texas banks rank at the top of the page for a name query on Google, Bing or both. Unfortunately, some Texas banks cannot be found when searching for them by name on Google and Bing, let alone by “bank city.”

This article is for executives at these banks, for associate members whose busi-ness doesn’t show up on a name search in Google and for loan officers trying to help a borrower improve a business’s market-ing. If your bank’s Google results don’t look like the results for the Google query “bank of the west,” you’ve got the basic SEO work done, but there are probably two items addressed in this article that you haven’t done.

Search engine optimization is one of those things that is easy to do—if you know how to do it. There are nine basic steps:1. Register your domain with Google Webmaster Tools2. Register your old domains3. Update regulatory filings4. Create a site map and register it with Google Webmaster Tools5. Repeat the preceding steps with Bing Webmaster Tools6. Review Webmaster Tools reports periodically7. Make sure that metadata is filled in8. Improve your site with structured data9. Set up Google Places

Register Your Domain With Google Webmaster Tools

Purchasing your domain name (your-bankname.com) from Go Daddy, Network Solutions or one of the many web hosting firms does not register the domain name with the various search engine providers; Google, Bing and the other search engine

providers won’t start to scan and index your website until you register the domain name with them. Registration must be done by an IT person who has the system authorities to put a small randomly named HTML file into the root web page of the server. The search engine uses this file to prove that the person registering the site is actually the site owner.

Once the site is registered, the search engine will start to scan and index it over a period of several days. The sections that follow discuss basic things that you should do to control what gets scanned and how to improve you website’s position in search results.

Register Your Old Domains

About ten percent of Texas banks have changed domain names and redi-rect to a new domain name. Make sure to keep both the new and old domain names registered with each search engine, and make sure to modify the settings on the old domain’s search engine registration so

Search Engine O Where are you?

By Bruce Moore, D. Eng.

(Continued on page 34)

34 ★ The Texas Independent Banker  May/June 2014

Search Engine Optimization cont’d

that the search engine knows to redirect old index references to the new domain name.

Update Regulatory Filings

Make sure to update the domain name that is used for regulatory reports — that is the domain name that will be used by third party bank analysis websites. A surprisingly high number of Texas banks have obvious typos in the domain name that is present in the FFIEC database, and another significant minority have old domains listed in regulatory filings.

Part of the algorithm for search rank is based upon other sites linking to your site; if the link at a third party analysis site is based upon the website that is listed in FFIEC data, it will point to the wrong location and you won’t get any benefit from the third party link.

Create a Site Map and Register It With Google Webmaster Tools

You’ve probably seen a “site map” link on many web pages and wondered why on earth people put this page out there. It isn’t for humans — it’s for the robots that scan and index your website. Include information about how frequently each page is updated, as this will influence how frequently the search engines scan your site.

For instance, the page with your inter-est rates should probably show an update frequency of daily or weekly, while the page with your loan application probably would show a monthly or longer update frequency.

Once you’ve created the site maps, register them with Google Webmaster Tools, and add a reference in your robots.txt file (for an example, look at the bot-tom of https://www.bankofamerica.com/robots.txt). This will tell the search engine robots how often to scan each of the pages on your website.

Repeat the Preceding Steps With Bing Webmaster Tools

Once you’ve completed the steps to register your website with Google

FORCE YOUR ENTIRE SITE TO HTTPS

Google, all large banks and many smaller banks have changed their websites to force the use of the encrypted HTTPS protocol whenever someone tries to connect using the unencrypted HTTP protocol. Why are institutions doing this for parts of a website that don’t have sensitive information?

When a customer connects via an unencrypted session, it is possible for a criminal to attack a cus-tomer visiting a bank’s website WITHOUT compromising the bank’s website. A criminal could attack your customer and obtain login credentials and neither of you will know it until the customer bounces a check or looks at a bank statement and discovers missing funds.

Without going into a lot of details, using an encrypted HTTPS session makes it significantly more difficult to do this—that is why Google and large institutions have already moved to the encrypted HTTPS protocol for all traffic.

For the same reasons, vendors to banks should consider converting to using the encrypted HTTPS protocol for their websites, to make it more difficult for criminals to attack bank personnel.

Converting to HTTPS requires obtaining and installing an SSL certificate. All banks should opt for an “Extended Validation Certificate” which will cost a few hundred dollars, while small businesses can reasonably use a less expensive low validation certificate for a site that doesn’t allow online ordering. For the latter, StartSSL.com provides a free low validation certificate, while Comodo, GeoTrust, Tawte, Go Daddy, Verisign and other vendors provide similar certificates at relatively low cost.

Where are you?

(Continued on page 37)

90+What are you reflecting on? Improving shareholder value? Reducing risk? Increasing capital? You need ideas. We can help. BKD brings more than 90 years of experience to the table, and the advisors of BKD National Financial Services Group can help you manage change, make wise decisions and stay compliant. Experience how our expertise can help give you a better vantage point.

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Debbie Scanlon dscanlon@bkd.com // 713.499.4600

Doug Van Meterdvanmeter@bkd.com // 405.606.2580

experience perspective

Jon McDowelljmcdowell@bkd.com // 210.341.9400

bkd.com

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25 yearsAmerican National Insurance Company ★ League City, Texas

20 yearsElan Financial Services ★ Pittsburgh, Pennsylvania

Fox, Byrd & Company, PC ★ Dallas, Texas FTN Financial ★ Memphis, Tennessee

John M. Floyd & Associates ★ Baytown, TexasThe Baker Group ★ Austin, Texas

15 yearsAbound Resources ★ Austin, Texas

Chandler Signs ★ Dallas, TexasCommerce Street Capital, LLC ★ Dallas, TexasCSI (Computer Services, Inc.) ★ Austin,Texas

Equias Alliance, LLC ★ Plano, TexasJack Henry & Associates ★ Monett, Missouri

MPA Systems, Inc. ★ Sanger, Texas Raymond James/Morgan Keegan ★ Memphis, Tennessee

SHAZAM ★ Irving, TexasSteven H. Shimotsu, CPA ★ McAllen, Texas

SWBC, Financial Services Division ★ San Antonio, Texas

10 yearsBank Compensation Consulting, Inc. ★ Plano, Texas

Bank On Hold ★ Edmond, OklahomaBriggs & Veselka Co. ★ Houston, Texas

I.T. Works ★ Houston, TexasJackson Walker L.L.P. ★ Austin, Texas

Southwestern Regional Insurance Center ★ Houston, Texas

2014 Associate Members

Anniversaries

May/June 2014 www.ibat.org ★ 37

Webmaster Tools, you will have covered the search engine set-up for most of the web searches in the United States. To get most of the remaining searches, register with Bing. The process and mechanics are very similar.

Review Webmaster Tools Reports Periodically

Once you have your site registered with the various search engines, an employee should be assigned to review at least the Google webmaster tools each day, starting with the “Security Issues” section. If the Google or Bing robots find malware on your site, you have an “all hands on deck” level problem. Don’t be like Target and discover malware weeks after the compromise.

Make Sure That Metadata is Filled In

Once you have your site registered to be scanned and indexed, it is time to turn to the content of your website. Use the various webmaster tools to tell you

what metadata is missing from your site. At the very least, each page should have a description tag and a keywords tag.

As your site is scanned by the robots, the webmaster tools will start to list the terms that the search engines are using to index the site; if there are concepts and terms that aren’t listed, look at the con-tent of the actual pages and improve the copy to make sure that relevant terms are included in the text of the articles and product descriptions on your site.

Improve Your Site With Structured Data

Once you have the content on your site set up and the basic metadata in place, you can start to enhance how your site is displayed by the search engines. To do this, start to set up structured data which is sometimes referred to as micro data or breadcrumbs. If you Google “bank of the west” you will see a well organized search result for the Bank of the West web page as the first result. This is probably due to a good implementation of structured data on the Bank of the West website.

Set Up Google Places

Once your website is in order, you should begin to look at locality improve-ments to search and potentially set up Google Places. This may help for queries like “bank grapevine texas” and is used to get a Google map display of branch loca-tions as part of the search results.

SummaryThe steps in this article provide the

basic search engine optimization steps that will get your bank or business listed at or near the top — when someone is look-ing for your organization by name, but not necessarily by “bank and city.” The steps in this article should be viewed as a start-ing place for making sure that your bank can be found on the Internet. ★

Bruce Moore received his Bachelor of Science in Chemical Engineering from the University of Michigan, his Doctor of Engineering from Southern Methodist University and his banking education at the Southwest Graduate School of Banking. He is the owner of Moore Software Services, LLC, where he develops statistical and optimization software.

Search Engine Optimization cont’d

Leaders in Mergers and Acquisitions

© 2014 Hunton & Williams LLP • www.hunton.com

Atlanta • Austin • Bangkok • Beijing • Brussels • Charlotte • Dallas • Houston • London • Los Angeles McLean • Miami • New York • Norfolk • Raleigh • Richmond • San Francisco • Tokyo • Washington

While the strategic business objectives that drive major corporate transactions may vary, the need for experienced, effective legal counsel remains constant. The mergers and acquisitions practice of Hunton & Williams LLP helps senior business leadership negotiate the increasingly complex M&A path, from initial planning, structuring and negotiation of a deal, through due diligence and regulatory approvals, to completion of the project and postclosing integration.

• For 2013, according to SNL Financial, the lawyers of our financial institutions corporate and regulatory group have been involved with over five percent of all bank M&A transactions.• In 2013, we were ranked #1 for the fifth time in seven years in SNL Financial’s league tables for bank and thrift legal advisers, by number of deals and ranked in the top five for cumulative deal value.• We have been recognized as a leading M&A practice by Chambers USA and have received multiple M&A Atlas “Deal of the Year” awards.For more information, visit www.hunton.com.

38 ★ The Texas Independent Banker  May/June 2014

IBAT’s 40th Annual ConventionSEPTEMBER 27-30, 2014Worthington Renaissance Hotel • Fort Worth

SCHEDULE OF EVENTS

Saturday, September 27 4:00-6:00pm Chairman’s Tailgate Party Evening Free

Sunday, September 28 7:00-7:30am Devotional 11:00am-12:00pm Regulator Roundtables 12:00-3:00pm General Session (includes lunch) 3:00-5:00pm Exhibits 5:00-7:00pm Reception with Exhibitors Evening Free

Monday, September 29 7:30-9:00am Informational Breakfast featuring

Exhibitor Stage Demos 9:00-11:00am Exhibits 11:00am-noon Learning Labs 12:15-2:00pm Best of Community Banking Awards Luncheon 2:00-3:00pm Learning Labs 3:00-4:45pm General Session 5:00-6:30pm Hospitality Suites 6:30-9:30pm 26th Annual PAC Auction 9:30-11:30pm Songwriters’ Late Show

Tuesday, September 30 7:30-8:30 am Banker to Banker Resource Sharing 8:45-9:45 am Learning Labs 9:45-11:45am General Session & Annual Meeting (includes Brunch)

Comptroller of the CurrencyComputer Services, Inc.Condley and Company, L.L.P.Consultants + Builders, Inc.CSPICurtis 1000, Inc.D + HDavis Kinard & Co, PCDEI IncorporatedDell Inc.Dell SecureWorksDeluxe Corp.DieboldEquias AllianceFarmer MacFederal Home Loan Bank of Dallas

EXHIBITORS

Abound Resources, Inc.AccuSource SolutionsAdvantage Health Plans TrustAmerisource Funding, Inc.The Baker GroupBancVueBank Compensation Consulting, Inc.Bank Financial Services GroupBankers Healthcare Group, Inc.BankOnITBriggs & Veselka, Co.CalTechCardtronicsCatalyst Financial CompanyCenterState BankChandler Signs

First American Payment SystemsFirst Data Online BankingGarland Heart - Security / Compliance

/ Consulting

Glory Global SolutionsGraduate School of Banking at

ColoradoGulf Coast Business CreditHarper & Pearson Company, P.C.Holman Capital Corporation

Investment Professionals, Inc., (IPI)J. B. Lloyd & Associates, LLCJohn M. Floyd & AssociatesLEVEL5, LLCMain Street Checks, Inc.MEA Financial Enterprises, llc

MG ArchitectsModern Banking SystemsNicola Banking System, Inc.Outsource ATMPrecisionLenderPromontory Interfinancial Network, LLCPULSEQuest AnalyticsReynolds Williams GroupSHAZAMSNL FinancialSubchapter S Bank AssociationSWACHATexas Department of BankingTransFundVerafin

May/June 2014 www.ibat.org ★ 39

CONVENTION SPONSORS as of 4/25/14

TITANIUM SPONSOR(S) $50,000 and above

The Baker Group

PLATINUM SPONSOR(S) $20,000-49,999

PULSE

GOLD SPONSORS(S) $10,000-19,999

Advantage Health Plans TrustDeluxe Corp.Federal Home Loan Bank of Dallas

SILVER SPONSOR(S) $5,000-9,999

BKD, LLPBracewell & Giuliani LLPDieboldHunton & WilliamsPadgett, Stratemann & Co., LLP

BRONZE SPONSOR(S) $1,500-4,999

AccuSource SolutionsAmerican National Insurance CompanyAmerisource Funding, Inc.Crowe Horwath LLPD + HDavis Kinard & Co, PCDell Inc.Dell SecureWorksEquias AllianceFederated Investors, IncFenimore, Kay, Harrison & Ford LLPFirst American Payment SystemsFrost BankIndependent Community Bankers of

AmericaKennedy Sutherland LLPMG ArchitectsRosenthal Pauerstein Sandoloski Agather

LLPTIB-The Independent BankersBankVerafinYennik, Inc.

BLUE RIBBON SPONSOR(S) $750-1,499

The Bankers BankCatalyst Financial CompanyCondley and Company, L.L.P.The Genesis GroupSubchapter S Bank AssociationSWACHA

Register now!Leadership Conference

June 25–28, 2014

JW Marriott • San Antonio Hill Country Resort & Spa

Experienced Correspondent Bankers

If you are a current or retired correspondent banker and have built a solid trust with Texas bankers we’re interested in visiting with you.We have other experienced bankers on our team and are building a presence a Texas.

Part and full time positions available. Contact Robert Mendez at 405-570-2723

DEGREES IN BANKING

SAM HOUSTON STATE UNIVERSITY COLLEGE OF BUSINESS ADMINISTRATION

Contact us for a free brochure.866-BEARKAT or (936) 294-3764, email: pamthaler@shsu.edu

shsu.edu/see/banking

BUSINESS ADMINISTRATION

40 ★ The Texas Independent Banker  May/June 2014

IBAT Around

the State

and beyond

IBAT Calendar

A

February 3–4IBAT presents TechMecca in Austin.

February 4IBAT Education hosts the 2014 Anti-Money Launder-ing and Bank Secrecy Act in Houston.

February 5–6IBAT meets with key Con-gressional and Regulatory officials in Washington, D.C.

February 9–11IBAT hosts Winter Summit XIV in Lake Tahoe.

February 10–12IBAT Services participates in Deluxe Exchange ‘14 Client Conference in Boca Raton, FL.

February 11IBAT Education hosts Mov-ing Forward with Dodd-Frank Rules in 2014 in Lubbock.

February 12IBAT Education hosts 2014 Mortgage Lending: Start to Finish in Lubbock.

February 13IBAT Education hosts 2014 Mastering HMDA in Lubbock.

February 15IBAT Education Founda-tion presents the Teach the TeacherTM Program in Edinburg.

February 20–21IBAT Education hosts Hold, Fold or Raise? An M&A Workshop for Community Banks in Dallas.

February 23–24IBAT participates in the SWGSB Assembly.

February 25IBAT Education hosts the Castroville Area Cluster Pro-gram: Key Factors for your 2014 BSA/AML Program.

February 26–28IBAT hosts the pre-ICBA Convention Program in Maui, HI.

March 1IBAT Education Foundation presents the IBAT Teach the TeacherTM Program in Wichita Falls.

March 2–6IBAT attends ICBA’s annual convention in Honolulu, HI.

March 11IBAT Regional Meetings in Galveston, Schulenburg and Harlingen.

IBAT Education presents Moving Forward with Dodd-Frank Rules in 2014 in Tyler.

March 12IBAT Regional Meetings in Corpus Christi, Houston and Kilgore.

IBAT Education presents 2014 Mortgage Lending: Start to Finish in Tyler.

March 13IBAT Regional Meetings in Sulphur Springs and Dallas.

IBAT Education Foundation presents 2014 Mastering HMDA in Tyler.

March 18IBAT Education presents Credit Analysis Summit in Dallas.

IBAT Education presents Key Factors for Your 2014 BSA/AML Program in Brenham.

March 19–20IBAT Education presents 2014 Advanced Credit Anal-ysis Summit in Dallas.

March 21IBAT speaks at the meeting of the East Texas Compli-ance Group in Tyler.

March 24The IBAT Board of Directors holds its quarterly meeting in Dallas.

The IBAT Leadership Divi-sion Board conducts its quarterly meeting in Dallas.

March 25IBAT Education presents Key Factors for Your 2014 BSA/AML Program in San Angelo.

The IBAT Services Board of Directors holds its quarterly meeting in Dallas.

March 26IBAT Education presents Key Factors for Your 2014 BSA/AML Program in Fort Stockton.

March 26–27IBAT Education presents 2014 Sales Culture Summit in San Antonio.

March 27IBAT Education presents Key Factors for Your 2014 BSA/AML Program in Marfa.

IBAT joins Texas First Lady Anita Perry for the Main Street Tour to Sealy, Caldwell and Waco.

May 20 Leadership Division Region 1 Golf Tournament, Amarillo

22 Leadership Division Regions 3 & 4 Networking Event, Dallas

22 Associate Member Networking Event, Dallas

June 3–4 Bank on Boot Camp

26–28 Leadership Conference, San Antonio

July 24–25 Financial Literacy Summit

August 14–15 Operations Compliance Summit

28 Appraisals Summit

September 27–30 IBAT Convention, Fort Worth

October 12–17 Bank Operations Institute, Dallas

31 Certified Community Bank Directors Program

November 1 Certified Community Bank Directors Program

6 Investment & Asset/Liability Management Summit

13 Leadership Division Region 8 Networking Event, Austin

16–21 Bank Lending Institute, Austin

For information about any of these programs, contact Julie Courtney at 800-749-4228 or jcourtney@ibat.org, or visit www.ibat.org.

May/June 2014 www.ibat.org ★ 41

ADVERTISING DIRECTORY

AccuSource Solutions www.accusourcesolutions.net p 13

AHPT www.advantagehealthplans.com p 35

ANICO www.anico.com p 2

The Baker Groupwww.gobaker.com p 15

The Bankers Bankwww.thebankersbank.com p 20

Bank On Itwww.bankonitusa.com p 39

BKD, LLP www.bkd.com p 34

Caltech www.caltech.com p 21

FAPS www.first-american.netp p 7

FWIT www.fwitexas.org p 28

Granville Financial Group www.granvillegrp.com p 29

Hunton & Williamswww.hunton.com p 37

IBAT Services www.ibat.org/services p 9

IBT, Inc.www.ibtapps.com p 5

JMFAwww.jmfa.com p 48

PULSEwww.pulsenetwork.com p 17

Sam Houston State Universitywww.shsu.edu p 39

Smith Hamiltonwww.smithhamiltonllc.com p 11

Transfund www.transfund.com p 47

Checks and Unauthorized Signatures

Customers are still supposed to review their bank statements and report unau-thorized signatures. And customers still don’t do that. Then when the account gets badly overdrawn, they come in to the bank to question why. At this point, the customer realizes that (a) their significant other, (b) someone taking care of grand-dad, or (c) the company’s bookkeeper [pick the one that fits!] has been embez-zling for years. Obviously, this is not the customer’s fault and so they expect the bank to restore all of the stolen money. (Does this sound familiar?)

Your deposit account agreement should (and doubtless does) contain a provision admonishing the customer to review statements and clearly stating that unauthorized check transactions must be reported within 60 days after the state-ment date or they will be cut off. Such a provision is consistent with Texas law and statements by the Texas Supreme Court. In short, the cost is not that of the bank but rather on the customer.

But don’t forget that if the disputed transaction is a debit card one, the rules from Regulation E will apply if this is a consumer account. However, remember that if the customer gave the debit card to someone and authorized her to use it, that person can continue to use it (at least in the eyes of the bank) until the bank is informed that the authorization has been revoked.

Bottom line: the bank may have defenses to these claims!

Powers of Attorney

On January 1, 2014, the Estates Code (chapter 752) new power of attorney form went into effect. Apparently a lot of folks didn’t notice this since custom-ers are still bringing in old style forms to open up accounts. The good news is that the POA law doesn’t create an exclusive form. Nonetheless, the new section on “Important Information for Agent” really should be a part of any new POA after the

effective date. Remember, too, that POAs created under prior law are judged under the law in effect when they were created.

The final POA kerfuffle involves the Texas Supreme Court decision in Norwood v. Texas Finance Commission in which the court effectively invalidated the ability to use a POA to close a home equity loan. The POA must have been executed at the lender, an attorney’s office, or title com-pany. Because of the difficulty of proving that up, most title companies simply won’t close a home equity loan on a POA. ★

GENERAL COUNSEL’S CORNER cont’d from page 12

INTEREST RATES cont’d from page 14

but generally the Tax Code allows for a loss on the sale of securities to be deducted for tax purposes. Moreover, for a taxable bank, the interest income from reinvest-ment is allowed to be earned tax free if the proceeds are used to purchase munici-pals. The bottom line is that the bank can recoup a tax-deductible loss with tax-free income. This strategy in particular is best executed at the turn of the year in order to have an entire twelve months to recover any loss.

Cash Flow/Liquidity Management Swap: To a large extent, investment portfolio management is simply the management of cash flows. Just as we look at rate sen-sitivity for the overall balance sheet, we must also take a macro view of the port-folio and pay close attention to the posi-tioning of cash flows for reinvestment. This involves creating and maintaining a schedule of maturities, prepayments, and other sources of principal return that will optimize the risk and reward of reinvest-ment in future months and years, regard-less of the direction of interest rates. Cash flows for many securities, callable bonds, and MBS in particular, are moving targets because of the options risk. This makes it critical that the profile be monitored and measured for changes in rates, and adjusted with bond swaps when necessary.

The Baker Group has always main-tained that active portfolio management has distinct advantages if it is done properly.

(Continued on page 42)

42 ★ The Texas Independent Banker  May/June 2014

R. Pope Sr Steinmetz Martin Wilmeth

Stegemoeller Whitaker Crawford Barrow

PERSONNEL UPDATE cont’d from page 16

LongviewTexas Bank and Trust has announced

several promotions.Kevin Hood was named president

and chief operating officer. For the past year, Hood has served TB&T as senior executive vice president and as a senior lender. In his new role, he will assist in the overall management of the $1.9 bil-lion bank and its 19 branches.

In announcing Hood’s appointment, board chairman Rogers Pope, Sr. added that the change in senior leadership was influenced, in part, by the decision of Howard Hackney to return to retire-ment this year. Though Hackney will step down from day-to-day management, he will remain a consultant for and director of the bank.

Randy Bjork, chief financial offi-cer, has been promoted to senior execu-tive vice president. Bjork, manager of the bank’s accounting and risk management division, joined the bank in 1994. A cer-tified public accountant, he has served in the role of chief financial officer for the bank and its parent holding company since that time.

Shane Best, chief lending officer, has also been promoted to senior execu-tive vice president. Best joined TB&T in 1989. As chief lending officer, he oversees all lending activities of the bank, which include consumer, commercial, and real

INTEREST RATES cont’d from page 41

Kuehl Mullens

B.A. in Business from Baylor University and an M.B.A. with a concentration in Finance from University of North Texas. Previous experience includes completion of a formal credit training program and subsequent work in real estate, SBA and USDA lending.

HoustonWanda Matthews has been promoted

to senior vice president of operations for Integrity Bank. She will manage the loan operations and deposit operations of the bank, including wire transfer, ATM debit cards and fraud. Throughout her 31 years of banking experience, Matthews has worked in the areas of loan operations, deposit operations, technology, project management, risk management and pro-cess engineering.

John A. Clarke has joined Integ-rity Bank as senior vice president. With over 32 years in Houston banking, Clarke will focus on commercial lending to

professional service firms, including legal, accounting, medical architectural and consulting. He holds a BBA in Finance from the University of Houston.

Chris Springer has been promoted to banking officer/commercial lender at Integrity Bank. Springer joined the bank in 2011 as credit analyst. He holds a BBA in Finance from Texas A & M University.

Randy Gartz has joined Community-Bank of Texas as executive vice president, commercial lending. Gartz will work to expand the bank’s commercial lending relationships in the greater Houston mar-ket. He earned his BBA in Finance and Accounting from Texas A&M.

IrvingKathy Taylor has joined Banc State-

ments, Inc. as vice president of marketing. Taylor will utilize her creative acumen to spearhead brand development and man-agement, strategic analytics and market-ing organization.

We work with clients to develop a sound decision-making process and well-defined goals as well as reporting systems that allow for pre-trade analysis or scenario simula-tions. The tools and processes for making better decisions and achieving optimal performance are available, and now is the time to take advantage of them. ★

Since 1979, we’ve helped our clients improve decision-making, manage interest rate risk, and maximize investment portfolio performance. Our proven approach of total resource integration utilizing software and products developed by Baker’s Software Solu-tions* — combined with our solid investment experience and advice — makes us the invest-ment firm of choice for many community financial institutions. For more information, contact Jeff Caughron at The Baker Group: 800-937-2257, www.GoBaker.com, or email: jcaughron@GoBaker.com.

*The Baker Group LP is the sole autho-rized distributor for the products and services developed and provided by The Baker Group Software Solutions, Inc.

May/June 2014 www.ibat.org ★ 43

estate loan origination and relationship management.

Texas Bank and Trust also announced that Rogers Pope, Jr., will transition from his previous role as chief operating officer to chief executive officer in conjunction with his vice chairman duties. Rogers Pope, Sr. will continue to serve as chair-man of the bank, as well as chairman and chief executive officer of the bank’s par-ent holding company.

LubbockVista Bank has announced several

promotions and new hires.John D. Steinmetz has been pro-

moted to president. Steinmetz has been with the bank for six years and previously served as the market president. He will oversee all banking activities, direct the planning and achieving of strategic goals, and will be responsible for all employee and client relations.

Cheryl Martin has been promoted to senior vice president. Martin has been with the bank for 32 years.

Matt Wilmeth has been promoted to

senior vice president of Vista Bank; he has been with the bank for ten years.

Troy Stegemoeller has been pro-moted to chief lending officer where he now oversees all lending activities. Ste-gemoeller has been with the bank for 24 years, and is a graduate of the LSU Gradu-ate School of Banking of the South, and of Texas Tech University.

Matt Whitaker has joined Vista Bank as business development officer where he will work to increase client value by build-ing relationships on trust and integrity. He is a graduate of Texas Tech University.

MarionJoyce Damerau, vice president and

cashier of Marion State Bank, has com-pleted 50 years working in the banking industry. Damerau began her banking career in 1963 in the bookkeeping depart-ment at Seguin State Bank & Trust Co. She joined Marion State Bank in 1973, working as a teller and bookkeeper. In 1978 she was named cashier, and later was appointed secretary to the board of direc-tors and then vice president. (Continued on page 44)

PlanoSharon Mull has received the Shelby

Distinguished Service Award at Legacy-Texas Bank. The employee of the year award is named after LegacyTexas Chair-man Pat Shelby. Mull joined the bank as a loan secretary in 1977, and recently retired as an executive lending assistant in the bank’s commercial loan department.

San AngeloMark Edens has joined CalTech as

the firm’s new operations manager. Edens has worked for the past six years in the energy sector in west Texas as a regional business leader. He received a BBA with a Finance Major from Midwestern State University in 2005. In his new role, Edens will be responsible for strategic develop-ment and accounting management.

San AntonioChristine Walters has been promoted

to chief financial officer of Investment Professionals Inc. Promoted from IPI con-troller, Walters has over 20 years of expe-rience in the accounting sector and holds

Do You Tweet?Twitter 101 Video Series Now Available

Last year, IBAT’s Strategic Planning Committee charged

staff with developing resources to help community bank-

ers better understand social media. In particular, the com-

mittee identified Twitter as an area of interest for bankers

to consider due to its value for grassroots interaction

with lawmakers. As a result, IBAT staff have developed

five short instructional videos to help community bankers

answer the basic questions, “What is Twitter?” and “How

do I use it?”

All of the videos can be found on IBAT’s website at www.

ibat.org/twitter-101. Videos available are:• Creating an Account• Following and Finding Followers• Composing a Tweet• Reply, Retweet and Favorite• How to Use Hashtags

All of the videos are 1-3 minutes in length. If you have questions or sug-gestions for topics to be covered in future videos, contact Christopher Williston at clwilliston@ibat.org, 512-275-2208.

44 ★ The Texas Independent Banker  May/June 2014

Business Continuity Planning cont’d

how it will minimize risk for the duration of the catastrophic staffing event. This might require the bank to cut back on the number of daily reconciliations made by staff, possibly extending some out to every other or every third day, where possible.

In other cases, banks might consider shutting down the lobby and funneling all transactions through the drive through or vice versa, ceasing the opening of new accounts or the acceptance of new loan applications. You still need to provide essential services to your customers, but you might have to get creative about how you are going to provide those ser-vices. Any task that is reliant on staff-intensive verification (including wire transfers) should be considered for inter-ruption to protect the bank from undue risk while handling the bare minimum for

PERSONNEL UPDATE cont’d from page 43

her FINOP designation. She joined IPI in 2008, and earned her BS in Account-ing from Eastern Illinois University and an MBA from Illinois State University. As controller, Walters is responsible for all aspects of the accounting and finance department; as FINOP, she is also respon-sible for regulatory reporting.

WacoFirst National Bank of Central Texas

has named a new president and three executive vice presidents.

Randall Crawford has been elected president, and Joe Barrow, Sloan Kuehl and Steve Mullens have been promoted to executive vice president.

Crawford served the bank as execu-tive vice president for the past 18 years. He will be the chief operating officer and chief financial officer. Barrow and Kuehl will direct the bank’s lending activities. Barrow will continue his role as president of the Woodway-Hewitt location. Mullens will focus on the operations and technol-ogy side of the bank. Jim Haller, execu-tive vice president, will continue to direct the marketing activities of the bank. ★

(Continued on opposite page)

LUXURY CLASSThe Baker Group

FIRST CLASSBank Compensation Consulting

The Bankers BankDell

Dell SecureWorksDeluxe Corp.

Federal Home Loan BankFirst American Payment Systems

Granville Financial GroupThe Todd Organization

BUSINESS CLASSBKD, LLP

Doyen Sebesta Ltd. L.L.P.Equias Alliance

ICBAJohn M. Floyd & Associates

PULSE

COACHAccuSource Solutions

Advantage Health Plans TrustBracewell & Giuliani, LLP

Catalyst Financial CompanyDiebold

Fenimore, Kay, Harrison & Ford LLP

CARGOAbound Resources

American National Insurance CompanyBOK Financial

Harper & Pearson Company, P.C.MG Architects

Pattillo, Brown & Hill, L.L.P.

Thank you to our 2014 Regional Meeting Sponsors!

May/June 2014 www.ibat.org ★ 45

WELCOME NEW MEMBERS®

AFFILIATE MEMBERSKevin Mutscher, Shareholder Betts, Walters & Mutscher, P.C. Brenham, TX

Sterling Broadbent, Principal Sterling Compliance Services Austin, TX

Steven Damiani, VP Business Development Infinex Financial Group San Antonio, TX

ASSOCIATE MEMBERSBOK Financial Sarah Graves, Vice President Tulsa, OK www.bokf.com

BOK Financial Corporation is a 25 billion in assets financial holding company with retail banking oper-ations in eight states in the southwest United States. Through BOK Financial’s Correspondent Banking Department we provide a full suite of products to meet your financial needs, including traditional cor-respondent bank products as well as International, FX, Mortgage, Consultant Services and Mineral Management. BOK Financial is one of the largest and most well-established North America Fiduciary mineral managers. Our products are nationally com-petitive, but delivered locally to meet the specific needs of our customers. Contact: John Smithson, Correspondent Banking, 918-588-6034; Sarah Graves, Mineral Management, 913-904-8776.

Bush & Ramirez, PLLC Keith Wier, Shareholder/Attorney Houston, TX www.bushramirez.com

Bush & Ramirez represents the financial services industry in litigation and regulatory/compliance matters nationwide. Its client base includes debt buyers and asset purchasers, auto finance compa-nies, payday lenders, and third party debt collectors

and their attorneys. With the current regulatory climate, the firm is engaged in assisting clients with matters involving the FTC, the CFPB, and the Texas Attorney General.

CCG Catalyst Consulting Group Paul Schaus, President Phoenix, AZ www.ccg-catalyst.com

CCG Catalyst is a bank consulting firm providing strategic direction and focused guidance for banks. CCG Catalyst’s team of industry specialists assist cli-ents as a trusted advisor in strategic services related to all areas of banking — lending, finance, retail, operations, M&A, technology, ERM, compliance, marketing, and business development.

Smith Southern Equipment, Inc. dba Smith Hamilton Jeff Braselton, President Houston, TX www.smithhamiltoninc.com

Smith Hamilton is Texas owned and operated, and now in 18 states! We’re the largest independent bank equipment and service company in Texas. We sell and service ATMs, cash recyclers, drive-in, alarm, video access control, safes & vaults, locks, BR protective barriers, and more! Ask about our ATM Outsourcing Program!

Valesco Industries Bud Moore, Managing Director Dallas, TX www.valescoind.com

Valesco Industries invests subordinated debt and equity in lower middle market businesses. Our investments supplement senior debt loans where cash flow financing is needed. Valesco’s capital comes primarily from 53 regional and community banks, located mostly in Texas. We focus on invest-ments in manufacturing, distribution, and select busi-ness services. ★

Contact the IBAT FS Team to learn more about cyber insurance. 800.749.4228 •  www.ibat.org

When all else fails…Does your cyber insurance offer the broadest coverage available?

•ExamineyourcurrentWebandmobileapplication designs at least quarterly, and test the apps directly through the user-interface.

•Assessthesecurityandcompliancerisks of your entire mobile application, the backend systems and network it connects to, and the interactions and data flows between them.

•Conductadetailedmanualtechnicaltesting and targeted source code review to expose vulnerabilities which are not apparent from end-user interface test-ing only.

•Haveanindependentsecuritycon-sultant assess your app’s security from the app itself to your backend support-ing systems and the communications in-between.

•TestInternet-facingsystemsthatsup-port the mobile application.

•Workwithanexpertwhocantellyou exactly what you need to do to fix holes in your apps to protect your network and data, and to be compliant with industry regulations. ★

Jeff Multz is Director of Midmarket North Amer-ica at Dell SecureWorks. Dell SecureWorks, a global information services security company, helps organizations of all sizes reduce risk, improve regulatory compliance and lower their IT security costs. For more information, con-tact jeff@secureworks.com.

Mobile Matters cont’d

ACH customers. Even if staff who usually handle those processes are not out of the bank, shutting down those services for a temporary period of time will free them up to handle other tasks.

Back Up Partnerships

If you haven’t already done so, you might consider entering into an agree-ment with another community bank to serve as a backup processor. While this will depend on being able to find a bank using the same platform program, doing so will add an extra level of protection and allow for certain operations to continue in the most dire of circumstances. ★

Christopher Williston VI is IBAT’s Senior Vice President – Communications; Kelly Goulart is IBAT’s Regulatory Compliance Manager.

46 ★ The Texas Independent Banker  May/June 2014

By Kelly Goulart

THE COMPLIANCE GUY

Know Any Compliance Officers Looking For A Job?

Not a month goes by that I don’t get a call from a bank saying something along the lines that “My compliance officer has ________ (quit, retired, found another job) and I need to find another one fast!”

That becomes a bigger problem when the bank has built a compliance program

around an individual rather than as a critical function of the bank. In other words, if the bank’s compliance officer informs senior management that he or she is “...headed out the door!,” has the bank planned for that inevitability by having a compliance function rather than a compliance person? The loss of an experi-enced compliance officer can certainly degrade the compliance function, but it should not disable it.

Compliance professionals often talk about the “four pillars” of an effective Bank Secrecy Act / anti-Money Laundering program. If you aren’t a compliance nerd and have never heard of the pillars, bear with me. Those “pillars” function as must-haves for holding the BSA/AML roof up. That same kind of approach can be used for ensuring that a bank — regardless of the size — has a compliance function and not just a compliance officer. Senior management and the board should be asking what are the essential pillars of a compliance program, and build an effective compliance program using those pillars.

The driving questions for the compliance officer and senior bank management are (1) What are the risks?; and (2) What can be done to mitigate that risk?

That brings us to the first pillar: a written compliance pro-gram. At a minimum that written program defines roles and responsibilities, sets out objectives for the identification of risk, establishes accountabilities for all bank employees including senior management, and provides for the direct board oversight of the program. The written program is probably the single most important pillar of the compliance function. When (not if) the compliance officer leaves, the program remains, and if it was running smoothly it will continue to operate until a new com-pliance officer can be found.

The second pillar is a formalized risk assessment. There are a number of ways to accomplish a risk assessment, but there is no required process. At the very minimum it should address each product and service, outline the inherent risk (or exposure) for each of those products and services, and provide a probability for the occurrence of that risk. The risk assessment is intended to

be dynamic and not static, so it should be subject to regular review and updating. It should also include specific risk trends for each product or service. Those trends, coupled

with the inherent risk and likelihood of occurrence, direct the resources of the compliance officer. Regularly updating your risk assessment will direct resources and provide a plan going forward for staff and the new

compliance officer when one is hired.The third pillar is testing and monitoring

for performance. Using the written compliance program and the risk assessment, the compliance function should continue with testing and moni-toring without a named compliance officer. This vital part of the compliance function should not stop because a single person leaves the employ-ment of the bank.

The fourth and final pillar is the compliance committee. I am a big fan of a compliance committee. The regulatory compli-ance workload really is too much for a single person to handle, even in a small bank. The compliance officer can direct and steer the committee, but the involvement of other product and service segment managers can be extremely helpful. The dis-semination of knowledge and responsibilities means the com-pliance function is not dependent exclusively upon any single individual.

A compliance committee also serves to help the compli-ance officer feel less overwhelmed, and that’s a major concern these days and may even be the reason your compliance offi-cer left. Even if it is just two or three other individuals talk-ing every month or quarter with the compliance officer, don’t underestimate the value. A compliance committee can also help to develop talent from within. Regulatory compliance is not for everyone, but for those who have the knack it can be tremen-dously rewarding. A compliance committee can help identify and encourage those individuals to pursue a career in regulatory compliance and perhaps become the bank’s next compliance officer or at least a competent interim compliance officer while you search for your next compliance officer. That internal focus recognizes the fact that, for a variety of reasons, internal talent rather than outside talent may be better suited to and able to step into the role of the compliance officer.

So have you given any thought to that day when your com-pliance officer knocks on your door and says “Can we talk?” ★

Kelly Goulart is IBAT’s Regulatory Compliance Manager.

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For a very limited time, TransFund will provide equipment, project management expertise, installation and training to financial institutions that sign up for EFT processing – all at no extra charge!

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