NexTier Bank

Q: What should be the focus of community banks in the next 10 years? 

A: I believe there is still a need for the smaller community banks to serve the businesses that are less than $20 million in sales. We serve as advisors but also advocates for that size of company. It is becoming more difficult to serve consumers as each generation becomes more attuned to high-tech (read expensive!) delivery channels. We can still out-deliver the larger financial institutions when it comes to the closely-held businesses.

 

Q: How has the economic downturn affected your bank's lending?

A: The bread and butter of most community banks' growth over the past several years has been commercial real estate (CRE) loans, and we were no exception. With the dramatic slowdown in all real estate development, along with the wide-spread reduction in value that almost all CRE realized, financial institutions large and small took hits on their portfolio. Many banks were over-exposed in their CRE portfolios and had to stop all real estate lending and even sell off their portfolios at a loss to get back into compliance.

 

Q: Do you believe that there should be a separate regime of regulations for community banks that is less burdensome than the regulations on larger banks? Why?

A: While I believe that oversight for all financial institutions should be under the same regulatory umbrella, I do feel that there is a strong case for a different set of regulations for community banks. The latest set of regulations to hit our industry is over 5,000 pages long and will add an exorbitant amount of expense to the already bloated overhead caused by prior regulations. I believe that many of the pending regulations are the result of an over-reaction to egregious activities of much larger institutions, and now our whole industry is being penalized. 

 

It appears that the regulators and Congress are showing signs of hearing the united voice of community banks, and in some cases either giving us more time to become compliant or giving us waivers on some regulations entirely. Community bankers certainly understand the importance of regulation and the role that the regulators play. Many of them are challenged because they believe that some regulators expect community banks to deliver compliance plans that are on par with plans developed by much larger banks, with far fewer resources.

 

Q: As to the community banking industry, what is keeping you up at night, if anything?

A: The expense/lost revenue that will result from the new regulations must be recouped in some manner, more than likely passed on to customers. As privately owned companies, we must continue to earn a strong return for our shareholders to continue to have the capital necessary to turn around and loan money to consumers and small businesses. An example of a new regulation that is particularly frustrating to me is in the Federal Reserve's debit card interchange proposal; it directly inserts the government into a price fixing role, mandating competitive inequities in the marketplace. The Federal Reserve proposal suggests limiting the fees charged for processing a debit card transaction. This will have a dramatic impact on banks' fee income and carries the assumption that merchants will pass on their savings and lower the cost of their product/service. Merchants get many benefits from the payments system - and they should pay for them. The proposal ultimately will harm consumers. Everyday consumers will pay more for basic banking services and merchants will not pass on their savings.

 

Q: What is the most important thing you have learned as a community banker?

A: NexTier went through a difficult year in 2010. We had signed an agreement to merge with another bank, but the transaction was terminated 6 months later. During those 6 months, I was humbled by the outpouring from our customers and community representatives, showing their support for our 132-year old bank. I heard many heart-warming stories about how our bank had helped them buy their first home or start their business. One woman called to tell me that her very first bank account was with us, and she had opened it 68 years ago.

 

Those 6 months were difficult for me, since my great grandfather had founded our bank in 1878, and it was going to be difficult to say goodbye to an organization that was truly part of my family. But I learned that we were also a significant member of our communities, and what an integral part we had played over the years. I learned that wherever the concept of "community" is still important, there should be a community bank as part of it.

 

Q: What do you wish more people understood about the Federal Reserve?

A: The Federal Reserve is not a government agency. They are a stand-alone institution that is self-funded, paying their expenses from their earnings on government securities and providing services to banks.

 

Q: As a whole what are community banks doing right? Where are they falling short?

A: Community banks are good at staying close to their customers and understanding their needs. I am concerned, however, for those community banks who are not keeping up with the ever-growing needs of the customer base by offering new technology or basic cash management services. Larger financial institutions will start feeding on what is typically our bread-and-butter customer base - the small business - and community banks will be caught flat footed and not have the service offering that is necessary to stay significant. They need to continue investing capital into their systems to stay relevant.

 

Q: What are you most proud of about NexTier Bank?

A: Like so many industries, our industry is becoming less and less personalized and more automated. While I'm certainly a fan - and a user - of automation, I'm a true believer in maintaining a high level of customer service and customer contact. We offer the services of much larger organizations, but still have the customer contact that our customer base has come to expect and appreciate. 

 

About Weir and NexTier Bank

Margaret Irvine Weir has been President of NextTier Bank since 2000; she is the fourth generation of her family to serve in the role. Additionally, she served as Director of the Federal Reserve Bank of Cleveland, Pittsburgh Branch, from 2007-2010. NextTier Bank was founded in 1878 and is a privately held bank. It has 15 branches in western Pennsylvania.

Banks Can Be Subject to HIPAA Requirements - and HIPAA Penalties for Non-Compliance

by Lisa J. Bray

Financial institutions may not first come to mind when thinking about federal medical privacy laws. But banks and other financial institutions that engage in services on behalf of certain health care entities can be directly subject to the provisions and penalties of the Health Insurance Portability and Accountability Act ("HIPAA").

Enacted in 1996, HIPAA is a well-known and, at times, complex federal statute. Broadly speaking, HIPAA provides uniform requirements governing the use and disclosure of individually identifiable health information, also called "protected health information." HIPAA is composed of a privacy component that regulates the means protected health information can be used, as well as a security component requiring the implementation of administrative, physical and technical requirements for electronic protected health information.

Read the full article on our website.

This is the second in my occasional series discussing board and officer liabilities in light of increasing FDIC scrutiny. Last month in my article "FDIC Goes on the Attack," I discussed specific allegations made by the FDIC in its recent legal actions against the board members and officers of failed banks. In this article, I am taking more of a "thirty-thousand foot view" and looking at the broader principles that underpin director and officer duties - namely the seminal duties of loyalty and care.

Not surprisingly, the FDIC focuses heavily on the duties of loyalty and care in the "Statement Concerning the Responsibilities of Bank Directors and Officers" (FIL 87-92). Those duties being described, as follows:

1.  Duty of Loyalty - Plainly put, directors and officers should administer the interests of the Bank by giving precedence to the needs of the Bank and not their personal interests. The duty of loyalty prohibits self-dealing, fraud and conflicts of interest. 
2. Duty of Care - Directors and officers are required to be prudent and diligent business persons in the conduct of bank affairs. In other words, directors and officers are to use a certain (minimum) level of care in the performance of their duties. In practical terms it means, among other things, directors and officers are responsible for 1) the hiring of competent high-level employees; 2) properly monitoring the bank and its employees; 3) ensuring procedures are properly followed; and 4) making business decisions on the basis of fully informed and meaningful deliberation.

Read the full article on our website.

The North Carolina Court of Appeals recently underscored the importance of verifying your bank's loan documents contain all necessary provisions related to a specific loan, including any forum selection clauses. The lessons learned from this new decision are important to consider when underwriting and preparing documents and agreements associated with complex transactions and when funding deals with other lenders.

In Speedway Motorsports Int'l, Ltd. v. Bronwen Energy Trading, Ltd., et al., No. COA09-558, Slip Copy (February 15, 2008), the Court of Appeals reversed the North Carolina Business Court's dismissal of a lawsuit based on a forum selection clause requiring that litigation take place in Geneva, Switzerland. The forum selection clause was contained in a letter of credit between Plaintiff and a third-party involved in the lawsuit - not between the Plaintiff and Defendant. Nonetheless, the Business Court said that the third-party claims were closely related to the issues between the Plaintiff and Defendant, and therefore the Swiss forum selection clause operated to require litigation in Geneva.

Read the full article on our website.