Walmart in Banking?

Last week saw the much-ballyhooed announcement that Walmart is moving to offer no-fee checking accounts. The arrangement between Walmart and Green Dot Bank is similar to the one announced between American Express Bluebird and the retailer last year. Walmart will sell the GoBank “starter debit card” for $2.95 in stores. Consumers will then go online to set up their account, which requires no minimum balance and no regular monthly fees (if a direct deposit over $500 is set up). Walmart will also operate to accept deposits onto the cards. GoBank accounts will be FDIC insured.

The full GoBank account agreement is online for your review.

“The nation’s community banks have offered low-fee and no-fee basic checking accounts for decades. Meeting the financial needs of citizens in thousands of communities across America is at the heart of the community banking business model,” said ICBA President and CEO Cam Fine.

“So the message is simple: if a retailer like Walmart is going to serve as a conduit for offering checking accounts and other traditional banking services, it needs to know its customer and protect the customer’s financial health just as is required of all banks. This means that these accounts should be subject to the same legal and regulatory framework, consumer protections and oversight as traditional checking accounts offered by banks.”

Staff Contact: Chris Williston, cwilliston@ibat.org, 512-474-6889

Community Banking Trends

Last week, the Conference of State Bank Supervisors (CSBS) and the Federal Reserve Bank of St. Louis partnered to hold the second “Community Banking in the 21st Century” Conference. The conference featured the findings of the Community Banking in the 21st Century National Survey, which included a thorough analysis on the impact of the CFPB’s ability-to-repay and qualified mortgage rules enacted earlier this year, as well as data on technology and compliance expenses faced by community banks.

Other research papers presented at the conference included:

A full list of conference presentations can be found here.

Several Texas community bankers were present at the conference, including IBAT Chairman-Elect John Jay of Roscoe State Bank, J. Pat Hickman of Happy State Bank and David Lacy of Community Bank & Trust, Waco.

"We're the white hat guys. We're the good guys. We're the environmentally friendly, organic business providers. We're not the big machine," Hickman was quoted as saying in one session. "So why do you keep beating us up? We didn't cause these issues. Politicians tell us that. Regulators tell us that. Then why is everybody here feeling beat up by the regulators?"

IBAT applauds Commissioner Charles Cooper, CSBS and the Federal Reserve Bank for their continuing efforts to effect meaningful changes in the regulatory environment that is negatively impacting community banks and the customers they serve.

Staff contact: Chris Williston, cwilliston@ibat.org, 512-474-6889

Baker Market Update

The US reaffirmed its safe-haven status this week as global capital flowed into dollar denominated assets following the commencement of bombing in Syria by the US and its Arab allies. This escalation of the campaign against ISIS is coupled with a still-simmering situation in Eastern Ukraine as Russian threats to seize foreign assets caused an already-stressed European Union to worry about further pressure on their economy. And finally, China is teetering on a great wall of worry about its rapidly declining output. All of this has pushed global investors into the greenback which now sits at its highest level on foreign exchange markets since 2010. For its part, the US Treasury market rallied during the week and the 10yr T-Note yield fell around 8bps from a 2.61% to 2.53% level.


Executive Leadership of Cybersecurity

Texas community bank CEOs, Directors and other officers are encouraged to participate in Executive Leadership of Cybersecurity – Taking the Fear Out of Cyber Threats. 


IBATTBA, SWACHA, law enforcement and both federal and state banking regulators have partnered to bring you this overview of cyber threats to the banking industry as well as resources and actions you can take to manage these evolving threats.  In the past, cybersecurity events have been directed towards operations staff.  With recent headlines of large scale cyber breaches, cybersecurity has moved from the back room to the board room.  


This event is designed for CEOs and Directors who have focused their careers on the non-cyber aspects of banking to help them manage one of today’s most challenging aspects of bank risk management.  Table Top Exercises and an Action Planning exercise are tailored specifically for CEOs and directors.  General Sessions will bring participants up to date on current threat landscape.  


Registration will be open soon so please save the date - December 3, 2014, 8:30 a.m. - 4:15 p.m., Austin Hilton Airport. 


Also, don’t forget that October is Cybersecurity Awareness Month.  Click here to link to a previous story from IBAT, highlighting a number of resources to use during the month of October.


Call to Action

In a comment letter filed yesterday with the Federal Housing Finance Agency, IBAT called upon the agency to abandon a proposed requirement that each member of a Federal Home Loan Bank (FHLB) maintain at least 1% of its assets in long-term home mortgage loans and at least 10% of its assets in residential mortgage loans.

The letter, drafted by IBAT President and CEO Chris Williston, pointed to the onerous mortgage rules promulgated by the Consumer Financial Protection Bureau (CFPB) earlier this year, which have resulted in reduced mortgage lending activity by many community banks. Williston expressed concern that the CFPB rules, coupled with new threshold requirements for FHLB membership, “could disqualify many [community] banks.”

Further, Williston argued that the proposal stands in contrast to Congressional desire to expand FHLB membership.

IBAT members are encouraged to use our letter as a guide in drafting your own response to the proposed rule. As always, it is also recommended that you include specific information regarding the potential impact on your bank in your comment letter. The comment period is open until November 12, 2014.  

Staff contact: Chris Williston, cwilliston@ibat.org, 512-474-6889

Dallas Fed Election

Polls are now open for the election of certain directors to the board of the Federal Reserve Bank of Dallas. 

In keeping with IBAT’s longstanding policy of only making endorsements in Federal Reserve or Federal Home Loan Bank races where only one IBAT member appears on the ballot, we recommend the election of Christopher Doyle, President and CEO of the Texas First Bank in Texas City for the Group 1 Director slot.

Chris is currently serving as a Board member for both IBAT and the Southwestern Automated Clearing House Association (SWACHA) and, serves as a Federal Delegate Board member of the Independent Community Bankers Association of America.

We believe Chris and his vast knowledge of banking policy and payment issues uniquely qualifies him for this important post and deserves your support. Please remember that you are directed to list your first and second choice for this position on your ballot or it might otherwise not be counted.

Polling will remain open until October 8, 2014. Thank you for your consideration.

Staff contact: Chris Williston, cwilliston@ibat.org, 512-474-6889

S Corporation Terminations

By Jacque Kruppa

S corporations have an obligation to police their shareholder base to see that all shareholders remain eligible.  A common problem S corporations face is making sure that after the subchapter S election (the “S election”) is made, it stays effective.  When a bank is gearing up to make its S election, attorneys and accountants are typically reviewing shareholder documentation to confirm eligibility.  But, after the S election is effective, most banks do not regularly review their shareholders’ list to confirm eligibility.  Actions beyond the bankers’ control, such as the death or divorce of a shareholder, can result in an inadvertent termination of the S election.  The tax consequences can be disastrous.

One critical component in preserving the bank’s S election is confirming that all of the bank’s shareholders are eligible shareholders of an S corporation.  Generally, eligible shareholders include individuals, most trusts that make appropriate elections, and estates (please note that, while an estate is an eligible shareholder, an estate does terminate for tax purposes at some point, so as a general rule, shares cannot be held in an estate indefinitely).  Corporations, limited liability companies, partnerships (including family limited partnerships), and eligible trusts that have not made the appropriate elections are ineligible shareholders. 

Here is a common scenario.  A bank has a shareholder who passes away.  The executor, who is much more concerned with administering the estate than protecting the bank’s S election, either transfers the bank shares to an ineligible shareholder or does nothing and leaves the shares in the estate.  The executor fails to notify the bank that the shareholder has passed away for several years.  Dividend checks continue to be cashed in the name of the deceased shareholder.  All the while, the banker is not aware of what has happened. 

Then, sometimes years later, something raises the issue.  For example, the executor may finally contact the bank to effect the transfer of the shares, or a new review of the bank’s shareholder list (for example, in connection with a potential sale of the bank) may raise questions about why an estate is still a shareholder.  Only then does the banker realize that the shareholder’s will transferred the shares to a corporation or that the shares have been sitting in the estate for many years.  As a result, the S election has been compromised. 

The good news is that the Internal Revenue Service (the “IRS”) has a program in place for S corporations to request relief for inadvertent terminations.  However, consent of 100% of the S corporation shareholders is required, along with a filing to the IRS and a substantial filing fee.  If the issue is caught early enough, such expense may be avoided. 

It can be time consuming to obtain the requested relief from the IRS, but going through the process is essential if there has been an inadvertent termination.  However, bankers can avoid the inadvertent termination in the first place, which is obviously preferable.  Below are some suggestions for protecting the bank’s S election from an inadvertent termination:

1. Review the bank’s shareholders’ list frequently:  The bank’s internal audit program (or other ingrained system) should conduct a detailed review of the shareholders’ list on at least an annual basis to confirm all shareholders are eligible shareholders.  In addition, every two years, the bank’s accountants or attorneys should conduct a detailed review of the shareholders’ list.  It always helps to have a new set of eyes checking the bankers’ homework to make sure nothing has been overlooked.  If an issue is detected early, it is generally easier to fix.

2. Review the bank’s shareholders’ agreement:  Most S corporations have a shareholders’ agreement in place to protect the S election.  A shareholders’ agreement generally provides that certain transfers, such as transfers to ineligible shareholders, are not permissible.  If the shareholders’ agreement was drafted several years ago, an attorney should review it to confirm that the agreement is up to date with current law.  In addition, the agreement should contain protections in the event the S election is inadvertently terminated, such as shareholder indemnification of the expenses incurred in connection with obtaining relief for the inadvertent termination and a covenant by the shareholders to take all steps necessary to remedy the inadvertent termination.  There are other provisions that are useful as well.

3. Shareholder communication:  On an annual basis, banks should send a certification to each shareholder to confirm the shareholder still qualifies as an eligible shareholder.  This annual certification requirement can be built into the shareholders’ agreement or something that the bank just sends out on its own each year.  In our experience, shareholders have good intentions, but executors often times do not notify bankers when a shareholder passes away, and the executor may not understand the consequences of being a shareholder of an S corporation.

4. Remind shareholders of estate planning issues:  Either in conjunction with the annual certification or separately, remind the bank’s shareholders about the consequences if the shares pass upon the shareholder’s death.  For example, a shareholder should talk with the attorney who drafted his or her will to confirm that the shares pass under the will to an eligible shareholder. 

5. Train the bank’s corporate secretary:  The bank’s corporate secretary or whomever is in charge of maintaining the bank’s shareholders’ list should be mindful of S corporation qualifications and eligibility issues as well as common issues that could impact the S election.  For example, if shares are transferred to an estate, the corporate secretary should be asking questions such as where do the shares pass under the will, when does the executor plan to transfer the shares out of the estate, etc.  The corporate secretary can possibly help avoid an inadvertent termination by being proactive and asking the right questions.  Our experience is that community bankers know when a death has occurred.  After an appropriate and respectful delay, these questions should be respectfully asked.

6. Road map memos:  Banks should consider requiring shareholders (for example, as part of the shareholders’ agreement) to have their estate planning attorneys provide the bankers with a letter or memorandum detailing what happens to the shares upon the death of a shareholder, especially if the shares are already held in a trust.

By taking the steps above, a potential inadvertent termination of a bank’s subchapter S election can be avoided.  An ounce of prevention is worth a pound of cure.

Jacque Kruppa is an Attorney with Hunton & Williams in their Dallas office and can be reached at 214.468.3347 or jkruppa@hunton.com.

Salary Survey Results

The results are in and IBAT's 2014 Community Bank Salary and Compensation Survey report is now available for purchase! Whether you're looking to recruit new bank personnel or preparing your bank's 2015 budget, IBAT's survey report and online custom reporting tool will provide you the confidence and most accurate Texas community bank compensation data you need to remain competitive when it comes to attracting and retaining quality talent.

In addition to a static PDF report of the results, the online custom reporting tool enables you to cut the data by bank asset size, geographic region, ROA and market environment for true peer comparison reports on demand.

Results for IBAT's 2014 Salary Survey can be purchased by contacting Christopher Williston.

Staff Contact: Christopher Williston, clwilliston@ibat.org, 512-275-2208

Texas Lyceum Conference

On Friday, October 17, Texas Lyceum will host its 28th Public Conference on the topic, Money and Banking in Texas: The Impact of Monetary Policy, Too Big to Fail Policy, and Banking Regulation in the Lone Star State.

The conference will include an impressive lineup of industry representatives and policymakers, including:

  • Harvey Rosenblum, Former Director of Research for the Federal Reserve Bank of Dallas
  • Dick Evans, Chief Executive Officer, Frost Bank
  • Tom Hoenig, Vice Chair, FDIC, and former President of the Federal Reserve Bank-Kansas City.

Texas Lyceum is offering IBAT members discounted registration of $125 for the event, which will be held at the Adolphus Hotel in Dallas. Click here for full details and to register.

Reaching Gen Y

With millennials expected to represent approximately $200 billion in buying power by 2017, data efforts are underway to better understand the economic outlook and mindset that informs millennials’ buying decisions. Separate articles in USA Today and The Atlantic last week brought light to the developing trends, including:

  • Openness to new banking relationships - One in three millennials is open to switching banks in the next 90 days but 53% don’t think their bank offers anything different than other banks.
  • Distrust of big banks - The four largest banks in the United States all appear on millennials' top ten list of “least trusted brands.”
  • Aversion to consumer credit - 63% of people ages 18 to 29 don’t have a credit card, carrying substantial impact to the development of credit scoring and future credit availability.

“There’s no doubt that the millennial generation has the potential to disrupt the financial services industry,” said IBAT President and CEO Chris Williston. “This data represents that community banks have an opportunity to win the millennial generation if they can adequately invest in technology and differentiate through invested customer service relationships.”

research guide to better understanding the millennial generation is also available via the U.S. Chamber of Commerce.

Staff contact: Christopher Williston, clwilliston@ibat.org, 512-275-2208

Unclaimed Property Requirements

By Valerie Jundt

For banks, unclaimed property compliance can often take a backseat to other critical issues. However, if unclaimed property issues are not managed and addressed properly, the associated risks of noncompliance can directly impact customer retention, the reputation of your bank, and the business of growing assets.

Unclaimed Property: The Definition & The Duties
Unclaimed property is any financial obligation generated during the course of an organization’s daily operations that is due and owing to another party whether it may be a customer, vendor, employee, or investor. For property to be considered unclaimed by state law it must be held or issued in the ordinary course of business, a debt or obligation to a creditor (owner) and unclaimed for more than the statutory dormancy period.

When property goes unclaimed for longer than the statutory dormancy period, it is a holder’s duty to file an unclaimed property report listing the relevant information (including the account owner’s information, amount and property types) in the state mandated format to the state of the owner’s last known address. It is important for holders to comply with state provisions pertaining to their obligations to perform due diligence, maintain copies of the reports and supporting documentation, and protect the funds until they are reported and transferred to the state.

With a lengthy list of duties, maintaining compliance is often difficult and overwhelming, especially for those who lack the internal resources. Many banks find themselves losing customer assets due to escheatment or struggling to develop policies and procedures to properly prevent and/or address escheatment. Customer relationships are the bedrock for banking success, but if assets that consumers have entrusted to your bank are escheated to the state, those relationships could be in jeopardy – or worse, terminated altogether. In order for banks to avoid these risks, they must understand unclaimed property issues at a fundamental level, but also take the necessary steps to reduce the opportunity for escheatment and increase the retention of customer relationships and assets.

Managing Multiple Jurisdictional Requirements
The unclaimed property landscape is accompanied by various challenges and complexities due to the lack of uniformity across the reporting jurisdictions. Despite most states’ unclaimed property laws being modeled after one of the four Uniform Unclaimed Property Acts, no two state laws are alike. The nuances and intricacies that exist between state laws require banks to closely monitor the legislative and regulatory environment to determine if any pending or passed legislation will impact their organization, customers, and most importantly, their obligations.

Banks can begin to assess their reporting obligations by first looking at the states in which they operate. If they operate in multiple states, the banks must determine which jurisdictions they owe an unclaimed property report. When customers move to different states without a forwarding address and leave an account(s) in the state of origin, the bank will be required to report the unclaimed property to the state of the owner’s last known address.

Another area for high consideration is if your institution has gone through a merger or acquisition. Banks involved in a merger or acquisition should be aware that when one bank acquires another, they also acquire all of the associated unclaimed property risks and liabilities. A thorough review of each bank’s dormant accounts and corresponding outreach should be a top priority to minimize escheatment. Note:  Prior to converting customer data into the acquiring bank’s systems, it is critical to make sure that a) a copy of the original information is preserved for record keeping purposes and b) that the account owner information transferred accurately (in particular the date of the owner’s last activity on the account). Oftentimes the date of the conversion overrides the date of last activity and becomes the date recorded.

And lastly, the banking industry has seen a pronounced trend of reduced dormancy periods for banking property types such as savings and checking accounts. Since 2003, the number of states that operate under a three-year dormancy period for most banking properties has increased by 90%. This trend of reduced dormancy periods results in a shorter timeframe for banks to confirm owner activity, locate and communicate with customers that may appear to be dormant and perform due diligence to prevent escheatment.

The Lone Star State Specifics
Since 2007, approximately $1 billion of unclaimed property has been returned by the Texas Comptroller.1 Texas has prioritized unclaimed property as a top business initiative and has implemented programs to return lost assets to its citizens.

Banks which are domiciled in Texas or which have a reporting obligation to Texas must be aware of report deadlines, the required banking property types to report, and statutory dormancy periods, in addition to the multitude of state-specific requirements.

Below is a brief listing of requirements for banks with a reporting obligation to Texas:  

  1. Unclaimed property reports are due to the Texas Comptroller of Public Accounts on July 1. The cut-off date for banks to submit unclaimed property reports is March 1. 
  2. The most common property types for banks to monitor are checking accounts and savings accounts. The dormancy period for these types of accounts is three years.
  3. Banks are required to retain records for 10 reporting years after the date on which the property became reportable, including the supporting documentation.
  4. Negative reports (which are reports that must be filed if no reportable property exists) are not required in Texas and should not be submitted.

Those responsible for filing unclaimed property reports should reference Texas’ Unclaimed Property Reporting Instructions for complete information.

Banking Best Practices
Banks both large and small can begin the path to compliance by performing an initial self-review to identify areas of potential exposure for current and past due property. Following an assessment of your bank’s current filing status and past reporting practices, you should:

  • Link accounts together and encourage online account monitoring – If your bank offers online banking, it is a best practice to ensure that all of a customer’s accounts are linked together so activity can be assessed holistically.
  • Conduct proactive searches – It is essential to use all of the available search resources to reconnect with owners such as electronic search programs, credit bureaus, real estate records, and phone records.
  • Act early and prioritize outreach based on dormancy periods – With a large volume of inactive accounts and limited time for owner location and reactivation, it is important to develop a formal knowledge of this population so you can start communication efforts quickly.
  • Send multiple notifications using a variety of communication tactics – Using varied communication techniques and changing the appearance of each communication will also accelerate and increase overall response, as will customizing the specific details of the communication to the customer’s unique situation.
  • Continuously educate customers and employees – Whether it is on the web or printed on statement inserts, educating customers about the need to keep their accounts active is a worthwhile endeavor.
  • Conduct periodic reviews performed by an independent unclaimed property specialist – While no one knows your business processes better than you, an independent specialist can often identify and detect potential gaps and risks in compliance. The comfort of reaffirming that compliance is being met and the procedures are working as stated is well worth the effort as well.

When managed properly, banks can safeguard their customer accounts from escheatment and prevent costly audits. Through the strategic implementation of internal policies and procedures or with the help of an experienced partner, your bank can directly increase asset retention and customer relationships while simultaneously minimizing escheatment and reducing the encountered compliance challenges.

Valerie Jundt is Managing Director of Keane’s National Consulting & Advisory Services.  For more information on Keane’s services to the banking industry, please visit www.KeaneUP.com


1 Aldridge, J.  (2013) Texas Returns $1 billion in unclaimed property.  San Antonio Business Journal.  Retrieved from http://www.bizjournals.com/sanantonio/news/2013/07/10/texas-returns-1-billion-in-unclaimed.html


On Wednesday, September 24 at 2 p.m., IBAT Services will host a webinar showcasing IBAT’s newest endorsed product - WatchDOG Social Compliance.

Learn more about the evolving customer communication puzzle that comes with Facebook messages, tweets, blog posts, text messages and video. Ensure your bank is communicating effectively, as well as complying, through social media channels.

Registration is now open for the 60 minute webinar.

Staff contact: Gordon Moore, gmoore@ibat.org, 512-275-2245