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American Banker article: Criticism of Regulation

September 9, 2013

Father-Son Team at N.Y. Bank Ramp Up Criticism of Regulation
by John Reosti
SEP 5, 2013 4:13pm ET

    The subject of bank regulation is a rather touchy one for Frank Hamlin 3rd, the president and chief executive of Canandaigua National in upstate New York. 

    Hamlin and his management team are irate with the Consumer Financial Protection Bureau. Specifically, he is upset with a rule from the CFPB that will essentially shut down the $2 billion-asset company's dealings in loans with balloon payments.

    The rules, set to take effect on Jan. 14, prohibit banks outside of communities designated as rural and underserved from offering loans with balloon payments. So Canandaigua will no longer be able to offer a callable mortgage that it has marketed for more than three decades.

    "The people who are taking out these loans are our neighbors," says Hamlin, who resents being associated with companies that have used balloon payments to exploit consumers. "We're not looking to fleece them. We're looking to build relationships with them.

    Canandaigua, Hamlin adds, has made about 15,000 callable loans over the years — without receiving a single complaint.

    Hamlin, who recently succeeded his father, George, as the company's chief executive in April, has been taking steps to let shareholders and politicians know how he feels about the regulatory climate.

    Canandaigua's response has taken several forms over the past three years. The company is vocally supporting a bill introduced by Rep. Blair Luetkemeyer (R-Mo.) that would exempt banks with less than $10 billion of assets from the CFPB's mortgage underwriting rules.

    And then there is the letter writing.

    Hamlin and his father, who remains Canandaigua's chairman, take shareholder letters seriously, viewing them as "an opportunity to have a real discussion" with investors, Frank Hamlin says.

    Always detailed and informative, the company's letters began growing longer about three years ago, as the Hamlins started pouring out their frustration with the new regulations to investors.

    George Hamlin, who has done the lion's share of the writing, probably wishes he could get paid by the word. His letter introducing the 2012 annual report was an astounding 18 pages. A year earlier, his letter ran 21 pages. Frank has chipped in, too, adding his own six-page missive to this year's annual report, written in his capacity as Canandaigua's president. 

    In contrast, the company's 2009 annual report included a more concise, 10-page letter from the elder Hamlin. Before that, the page count never exceeded the low single digits.

    There is nothing coincidental about the longer letters and heightened regulation. "It's tied pretty tightly to the Dodd-Frank Act," the younger Hamlin says. "Reams of regulation have flowed from that."

    The style of the letters also seems to reflect the personalities of the men who write them.

    The younger Hamlin is more reserved than his father, who flew more than 100 combat missions over North Vietnam, piloting an F-105 bomber for the U.S. Air Force.

    The elder Hamlin is also well known locally for his involvement in community theater. He loves to share stories about Canandaigua's 125-year history, while citing famous authors ranging from Charles Dickens to Frederick Hayek. The shareholder letters often include lengthy quotes from President Obama's speeches.

    In contrast, Frank Hamlin prefers to keep his letters focused strictly on the challenges and opportunities that bankers face. "My father had a propensity to be very good with his pen," the younger Hamlin says. "I'm trying to cut down on that a little."

    That being said, Canandaigua's shareholder letters will still have a fair amount of zeal when necessary. "When you feel passionate about something, you're going to want to communicate about it," Frank Hamlin says.

    Among community banks, letters like the Hamlins' are "out of the ordinary" says David Baris, executive director of the American Association of Bank Directors. "I think it is often looked at as, 'We have to write a letter, so let's rehash the numbers and add a few sentences of prose,'" Baris says.

    Open communication with investors will have greater importance in the future. Canandaigua finally decided to deregister its shares, viewing the move as a way to find some relief from an overload of regulatory compliance.

    Canandaigua's stock has never been listed on an exchange, and the company is already well-capitalized and has no plans to tap the capital markets, says Chief Financial Officer Lawrence Heilbronner.

    Thus, deregistration, which took effect on Wednesday, was a pure cost-cutting move. It should save Canandaigua, parent of Canandaigua National Bank and Trust, about $250,000 annually, not to mention untold hours completing paperwork.

    It may not sound like much, but those savings are important to a bank that earned $11.5 million in the first six months of this year and $22.5 million in 2012.

    "We are so heavily regulated and the amount of reporting is so redundant," Frank Hamlin says. "We were reporting the same information to multiple agencies, simply putting the same numbers on different forms."