West Virginia Bankers Association 2014 Annual Convention Breakout Session: Ask the Experts Panel Panelists: Paul Reynolds David Thomas Christian Gonzalez Michael Dailey

Ask the Experts Panel What Questions Are on the Minds of Bankers?  Board and Corporate Governance  Mortgage Servicing Rules – Foreclosure  Mergers and Acquisitions – What to Look Out For  Social Media – Risk Management

Board and Corporate Governance What will regulators expect from boards in the near future and how will director training and education change?  More Director education in topics important to the regulators (risk, compliance, financial)  Education should enhance the Directors’ ability to, and practice of, challenging management  Informed knowledge and decision making is an important goal of education programs

Board and Corporate Governance What are the trends in management and director liability following the financial crisis?  Personal liability – FDIC actions  Other enforcement and regulatory actions against management and directors  The interest and focus of shareholders and regulators are not necessarily aligned when determining what is important  Insurance and indemnification

Board and Corporate Governance What is the ideal composition for a board and how is board governance evolving?  Separation of titles and board independence are focus areas for regulators  Necessary skills – financial and risk expertise not necessarily required for community banks but advisable  Reports and information are keys to Director effectiveness

Board and Corporate Governance What should directors and management focus on with respect to succession planning?  Board’s role in management decisions and succession  Mandatory retirement and impact on building an effective Board in today’s regulatory environment

Mortgage Servicing Rules – Foreclosure In general, how do the new mortgage servicing rules implemented by the CFPB affect my ability to foreclosure upon a loan secured by a residential dwelling?

Mortgage Servicing Rules- Foreclosure  Depends upon whether you are a “small servicer” (service 5000 or less mortgages)  “120 day rule” applies to all banks  More strict requirements for larger servicers  Special notices and timing requirements  Live contact requirements  Loss mitigation becomes more important  Need to review policies/processes

Mortgage Servicing Rule - Foreclosure Do I have to wait until the mortgage loan is 120 days past due before sending a notice of right to cure default and when should right to cure be sent?

Mortgage Servicing Rules - Foreclosure  Cannot initiate “first notice or filing” until loan is more than 120 days past due  CFPB clarified it is document that establishes sale date  WVCCPA requires at least 10 day right to cure  Also need to look at loan documents/deed of trust  WVCCPA: Can’t threaten action prohibited by law  May consider sending multiple notices  Review policies/automated notices  Carefully review/analyze before referring to foreclosure

Mortgage Servicing Rules - Foreclosures Can I foreclose if the borrower is continually in default, but remains less than 120 days delinquent?

Mortgage Servicing Rules – Foreclosure  CFPB rule reads “more than 120 days delinquent”  No guidance/commentary to define  Two ways to interpret:  (1) Loan in default for 120 consecutive days v/s  (2) Loan is literally more than 120 days past due  May need to look at loan documents/state law  What about non-monetary defaults?  Stay tuned!

M & A: What to Look Out For What issues should be on the minds of senior management and the board when considering a transaction?

M & A: What to Look Out For  Forming the team  Internal  External  Due diligence  Financial plan and structure  Consideration mix  Transaction structure  Integration

M & A: What to Look Out For What are the critical areas to review and analyze during diligence?  Legal – governance, litigation, environmental, regulatory compliance, shareholders  Financial – statements/reports, ALLL, taxes, pricing  Operational – loans, employment issues, employee benefits, vendors

M & A: What to Look Out For What issues are on the minds of the regulators when evaluating an application for a transaction?

M & A: What to Look Out For  CAMELS Rating  Consumer compliance – CRA, BSA, Fair Lending  Presentation of pro formas  Impermissible investment activities  Pre-application meeting

M & A: What to Look Out For Generally, what are the significant negotiated issues or points in a definitive agreement?

M & A: What to Look Out For Typical Elements of Agreement:  Price and adjustments  Consideration mix  Representations and warranties  Covenants  Termination/Break-up fees  Survival of representations and warranties  Closing mechanics

M & A: What to Look Out For Negotiation Topics in Definitive Agreement  Price/fairness opinion  Financial; reserves and allowances  Disclosures  Employee and benefit matters  Taxes  Pending litigation  Contracts  Environmental

M & A: What to Look Out For How does the regulatory application process work?  Holding company applications and waivers  Bank subsidiary application  Timing

M & A: What to Look Out For What are some other issues and pitfalls in bank M & A?  Data Conversion – costs, expenses and timing  People Integration – culture  Customers – retention and communication

Social Media Is there one overarching regulatory concern/issue relating to social media in the banking industry?

Social Media  Yes! Risk management  Risk Management Program  Governance structure – board/senior management  Oversight and monitoring  Audit function and compliance  Third party vendor management  Reporting and evaluation

Social Media What consumer compliance laws and regulations are implicated by the use of social media?

Social Media  Truth in Savings/ Reg. DD  Fair Lending – Equal Credit Opportunity/ Reg. B; FHA  Truth in Lending/ Reg. Z  UDAAP  Fair Debt Collection Practices Act  Deposit Insurance Rules  CRA  Privacy Laws – GLBA; CAN-SPAM

Social Media In order to manage risk to the bank from negative postings on social media, do we have to widely monitor social media sites?

Social Media  No, But Must Monitor Own Sites  Facebook page  Twitter account  Sponsored bulletin boards  Direct customer complaints via social media  Risk based monitoring of other’s social media  Analyze risk of not responding

Social Media Is it necessary for our bank to have a policy to govern employee activity on social media? If so, what should be in the policy?

Social Media  YES, your bank needs a social media policy  Clear, concise and tailored  Describe social media covered  Indicate applies during and after work  Specific actions/comments prohibited  Confidential information; proprietary  Inform that bank may monitor social media activity  Who permitted to post

Thank you for your participation!

West Virginia Bankers Association 2014 Annual Convention Breakout Session: Ask the Experts Panel Paul Reynolds David Thomas Christian Gonzalez Michael Dailey