Kentucky Bankers Magazine January/February 2022

KENTUCKY BANKER

Charging INto 2022 AMAZING GRACE page 9 WESTERN KENTUCKY TORNADO IN PICTURES starting on page 16

JAN/FEB 2022

Official Publication of the Kentucky Bankers Association

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Ballard W. Cassady Jr.

Brandon Maggard

President & CEO bcassady@kybanks.com

Account Representative KenBanc Insurance bmaggard@kybanks.com

Debra K. Stamper

Chuck Maggard

EVP & General Counsel dstamper@kybanks.com

WHO WE ARE: The KBA is a nonprofit trade association that has been providing legislative, legal, compliance and educational services to its member institutions since 1891.

KBA's directors and staff work together with its members to make the financial services industry a more effective and successful place to work. The strength of the KBA is bankers unifying as an industry to speak as one voice.

WHAT WE DO: The purpose of the Kentucky Bankers Association is to provide effective advocacy for the financial services industry both in Kentucky and on a national level; to serve as a reliable and responsive source of information and education about areas of interest to the industry; and to provide a catalyst and forum for collective industry action. The KBA does this in 4 ways:

Miriam Cole

President & CEO KenBanc Insurance cmaggard@kybanks.com

Lisa Mattingly

Executive Assistant mcole@kybanks.com

Director of Sales & Service KBA Benefit Solutions lmattingly@kybanks.com

John P. Cooper

Donna McCartin

Legislative Solutions jcooper@kybanks.com

Benefit Support Specialist dmccartin@kybanks.com

Paula Cross

Tammy Nichols

Education Coordinator pcross@kybanks.com

Finance Officer HOPE of the Midwesttnichols@ kybanks.com

Josh Fischer

Katie Rajchel

Director of Communications jfischer@kybanks.com

Nina K. Gottes

Accounting Manager krajchel@kybanks.com

Selina O. Parrish Director of Membership sparrish@kybanks.com

1. Government relations & industry advocacy 2. Information interchange 3. Education 4. Products and services

Sponsorship & Business Development ngottes@kybanks.com

Casey Guernsey

Timothy A. Schenk

kybanks.com

Jamie Hampton

KENTUCKY BANKERS ASSOCIATION 600 West Main Street, Suite 400 Louisville, Kentucky 40202 KENTUCKY BANKER is the official bi-monthly magazine of the Kentucky Bankers Association (KBA). No part of this magazine may be reproduced without express written permission from the KBA. The KBA is not responsible for opinions expressed by outside contributors published in KENTUCKY BANKER. The KBA reserves the right to publish submissions at the discretion of the KENTUCKY BANKER editorial team.

For more information, or to submit an article, pictures or pass on a story lead, contact Josh Fischer, Managing Editor, 502-736-1283 or jfischer@kybanks.com

Enrollment and Billing Specialist cguernsey@kybanks.com

Education Coordinator jhampton@kybanks.com

McKenzie Just Caldwell Staff Accountant mcaldwell@kybanks.com

Assistant General Counsel tschenk@kybanks.com

Jennifer Schlierf Sales Support KBA Insurance Solutions jschlierf@kybanks.com

Matthew E. Vance, CPA Chief Financial Officer mvance@kybanks.com

Natalie Kaelin, Esq.

Billie Wade

Director of Education Alliance nkaelin@kybanks.com

Executive Director HOPE of the Midwest bwade@kybanks.com

Tamuna Loladze Chief Operating Officer HOPE of the Midwest tloladze@kybanks.com

Audrey Whitaker Insurance Services Coordinator awhitaker@kybanks.com

Michelle Madison IT Manager mmadison@kybanks.com

facebook.com/kybankers Bold frame denotes management team member. Please feel free to email us, we are here to help!

CHAIRMAN James A. Hillebrand, Chairman & CEO Stock Yards Bank & Trust Co.

PAST CHAIRMAN J. Wade Berry, President & CEO Farmers Bank & Trust Co.

VICE CHAIRMAN Ruth O’Bryan Bale, Chairman South Central Bank, Inc.

KBA PRESIDENT & CEO Ballard W. Cassady, Jr. Kentucky Bankers Association

TREASURER Mark D. Strother, President & CEO The Commercial Bank of Grayson GROUP REPRESENTATIVES Represents Group 1 Randell Blackburn Market President, McCracken County Community Financial Services Bank

Represents Group 8 Anthony Kinder President & CEO, Peoples Bank of Kentucky, Inc.

Represents Group 2 R. Steven Cox President, Hancock Bank & Trust Co.

Represents Group 9 April R. Perry Chairman & CEO, Kentucky Farmers Bank Corporation

Represents Group 3 Greg Pawley President & CEO, The Cecilian Bank Represents Group 4 Michelle Coleman CEO, Bank of Edmonson County Represents Group 5 Gregory D. Goff President & CEO, First National Bank of Kentucky Represents Group 6 Charles Beach, III Chairman, Peoples Exchange Bank Represents Group 7 D. Alex Cook President & CEO, Hearthside Bank

EDUCATION ALLIANCE REPRESENTATIVE Lanie W. Gardner Community President First Southern National

THRIFT REPRESENTATIVES Jaime Coffey President & CEO First Federal Savings & Loan of Hazard BANK SIZE REPRESENTATIVES Represents Banks with Assets of $1B or more Elmer K. Whitaker President & CEO Whitaker Bank Represents Banks with Assets at Least $200 M; less than $1B H. Alexander Downing President & CEO Franklin Bank & Trust Company

KBA BENEFITS TRUST COMMITTEE W. Fred Brashear, II President & CEO Hyden Citizens Bank

ADVERTISE IN KENTUCKY BANKER Want to advertise in KENTUCKY BANKER magazine?

CONTACT Nina Gottes Sponsorship & Business Development ngottes@kybanks.com 513-293-2467

WANT TO BECOME A KBA SPONSOR?

KENTUCKY BANKER JAN/FEB 2022

7 Chairman’s Corner 9 Straight Talk 11 Debra 12 KY Bar Recognizes KY Banks 13 Junk Fees? CFPB 14 Interest Rate Hikes 2022 SPRING CONFERENCE 16 WKY Tornado in Pictures French Lick Resort 23 Thank You 28 The Digital Dynamic 30 Concerning the FDIC 33 Ransomware Attacks 34 Louisville Geek 39 Education Schedule

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KBA CHAIRMAN’S CORNER by James A. Hillebrand Chairman & CEO, Stock Yards Bank & Trust Co. 2021-2022 KBA Chairman

EMBRACING THE

“Great Retention”

Every challenge is an opportunity. For many of us, one of the biggest hurdles facing our banks in 2022 is our people.

By now, you’ve heard of the “Great Resignation” – an economic trend where employees are resigning from their positions en masse, at a pace never seen before. I challenge you to think of it instead as the “Great Retention.”

This growing trend is a reminder of the importance of intentional and proactive actions to retain the employees you have. Here are some questions to ask yourself and your management staff to explore where you can improve your retention and attraction efforts.

Are we listening to our employees?

One fantastic tool we’ve found is the annual “Best Banks to Work For” employee satisfaction survey through American Banker. I was happy to see several Kentucky banks on this year’s list alongside Stock Yards Bank & Trust including United Community Bank, Independence Bank, and Kentucky Farmers Bank.

I personally read every single comment that comes back through those surveys. Our team combs through responses to identify themes, grade our own performance and create actionable plans for improvement.

Every bank should have dedicated staff and feedback channels to collect and review constructive criticism from employees and work to foster an environment that encourages employees to speak up and provide their perspective. In many cases, employees don’t quit jobs, they quit managers or environments. Actively listening can ensure that any potential issues are identified and resolved before they push good team members out the door.

While you may think all employees know what your company stands for and how it got where it is today, you could be surprised to find they aren’t as rooted in your team as you’d like. Look to identify ways to live your philosophies and show pride for what your bank has overcome.

Are we celebrating each other?

Don’t leave it up to the company to plan events and congratulate your teams.

At Stock Yards, we ask our managers to go above and beyond to celebrate members of their staff on birthdays, holidays and any day when recognition and encouragement could be warranted. Taking an interest in the priorities and affinities of staff gives us opportunities to personalize our approach to management and celebrate each other better.

We also encourage community involvement so that staff can choose the charities and causes that mean the most to them. This gives individuals a sense of accomplishment that’s tied to the work they do for you.

We also create awards programs based on our core values to ensure our employees actions match our overall vision. Here we can honor staff in a way that’s meaningful and authentic.

Are we building a path forward together?

We talk a lot about building relationships with customers, but internal relationships are just as vital.

Stock Yards Bank is proud of its history and values – and we work to ensure our staff is too.

Talk openly and honestly with staff about where the bank is going and how we can get there together. Managers should be empowered to meaningfully review each employee annually. This means giving managers the time and tools they need to focus on individual staff members and work with them to chart their course with the company together.

We review our core beliefs each year to adapt and evolve along with our business and industry. We talk a lot about the ‘why’ behind those core beliefs, both internally and externally, to build trust and loyalty.

Banks need to also help their teams learn and grow. KBA has a number of valuable training tools and events to further a staff member’s career within your organization. Be sure those opportunities are readily available and encouraged among your team members.

Are we living our core values?

continued on the next page >>> KENTUCKY BANKER MAGAZINE | 7

continued: Embracing the “Great Retention” Are we able to offer more?

Are we only looking at experience?

Every bank can offer a unique benefit to its employees. If you don’t have the ability to raise wages or beef up benefits packages, explore what you can offer that no one else can.

Great employees have intangible elements to their personality that help them thrive. We always look beyond the resume to explore how an employee fits with our core beliefs and our culture.

Think about what’s special to your bank, its location or your overall values to brainstorm added benefits to include. It doesn’t have to be expensive! This could be celebrating your bank’s anniversary or just finding a small and unexpected way to show your appreciation.

Are they friendly and professional? Do they emit positive energy? Are they smiling?

Are we attracting the right talent?

Retail positions are especially tough to maintain good staff with some of the highest turnover rates. As more in-bank positions move from being transaction-focused to service-oriented, working to attract the right talent can lead to higher retention rates.

While incentives and promotions may increase the volume of applications, you might not find the best fit for your bank. At Stock Yards, we work to engage our managers and team members in prospecting new talent to fill current and future needs.

We look for a ‘do whatever it takes’ mentality to put the customer first and prioritize the needs of the people and businesses we serve.

Be sure that your core values and beliefs are part of the interview process. You are selling your business and culture to a potential new hire as much as they are selling themself to you.

Are we ready for what’s next?

Making it through this “Great Retention” is just one step in the journey, invest in your team now to navigate whatever the future brings.

We’ve also found that referrals from current team members often deliver better leads. Who better to pitch your business than the ones who know and live your values already? Current employees grasp what it takes to be successful and can see who does and doesn’t fit.

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8 | KENTUCKY BANKER MAGAZINE

STRAIGHT TALK by Ballard Cassady KBA President & CEO bcassady@kybanks.com

AMAZING GRACE I doubt there’s a more recognizable hymn around the world than Amazing Grace, with its deeply personal reflections on receiving a gift of that which we cannot earn. Whether sung in a tiny church or a cathedral at a stateman’s funeral, it has always tapped a deep well of nameless emotion for me. Today, I can give it a name: gratitude.

On the morning of December 11, my Saturday morning coffee turned bitter as I watched the emerging footage of western Kentucky’s devastation. I started calling our bankers in the area without regard for the early hour, knowing that none would have slept. Sure enough, they were already joining the ranks of first responders. While on those calls, my phone was blowing up with calls from KBA staff.

All of us were asking the same question: what can we do?

As the images and heart-rending interviews of victims went national, calls began to pour in from my counterparts around the country. Those calls were galvanizing. They helped move us from shock into action mode. We actually had a framework in place, the Kentucky Bankers Relief Fund, that we’d set up in 2005 for the victims of Katrina and for victims of comparable disasters all over the US and Puerto Rico. Our KBA Board immediately re-seeded the fund with $50,000. By the time I was asked to give a report on our ABA weekly zoom call two days later, that relief fund had already begun to receive pledges, from $5 to $100,000. The ABA had stepped up to help us gather money for the Relief Fund with a large chunk of that coming from its own coffers. CSI had called to commit another monumental donation. Between what we were learning about the tornado’s aftermath and the response of our banking community, I couldn’t get through that report with composure. Not in the face of such amazing grace.

By then, our bankers on the ground had begun to articulate needs: “We need water and food and clothes and” …basically everything. The first funds to be spent filled a box truck with all of the above that our staff drove to a Central City holding station. There, we saw every banker in the area knee-deep in community service of the most grueling kind, we drove a little further and realized many of them were neglecting the effects of the storm on their personal homes to meet the needs of more tragically impacted neighbors. That and dozens of conversations with bankers

“

“...every western Kentucky banker that will help direct your gifts will have lived through this disaster with their neighbors as a first responder.”

across the affected region helped us to see that our industry’s gifts should prioritize the needs of bank employees.

Some of our early disbursements went for rent, clothes, food, transportation, etc. I never thought that baby diapers and Gatorade could make so many so happy!

As quickly as local bankers could make time to confer with us, the KBA enlisted them in an advisory group to work on smart and effective allocation of the funds you’ve given, especially those that remain to address broader community needs. With counsel from bankers in other regions of Kentucky who’d experienced comparable disasters, we know that near-term federal relief funds will come and go quickly –– but recovery will take far longer, with many needs only becoming clear down the road. While local political figures often labor with whole hearts and the best of intentions concerning disaster relief aid allocations, these battered western Kentucky towns will be well-served by having a fund that can be directed by their community bankers. By virtue of what they do every day, no one is better equipped to spend your gifts wisely and well.

But it goes beyond their capabilities, every western Kentucky banker that will help direct your gifts will have lived through this disaster with their neighbors as a first responder. And they realize these are gifts freely given by their peers, that they were shown caring and GRACE by people they may never meet. That carries a heavy responsibility, one they accept with gratitude.

I add my own gratitude –– through a few more tears –– to the bankers here in Kentucky and from all over the country, to my counterparts across America, to all who have made a huge difference in the aftermath of a historic disaster, a difference that wise stewardship will extend for many years to come.

To my fellow state executives and their banks, thank you for showing such Amazing Grace.

WESTERN KENTUCKY TORNADO IN PICTURES starting on page 16 KENTUCKY BANKER MAGAZINE | 9

Employee Shortage In Rural Areas

The COVID impact on the U.S. Economy is broader than just health.

It has resulted in closures of small businesses, especially, restaurants.

There is an unbelievable backlog in shipping container vessels, just floating for months in ports all over the world. There is a shortage of healthcare workers of every level. And, service quality in any area (except banking, I hope) is at an all-time low. Much of this is attributable to the labor shortage.

Before COVID, everyone knew that at some point in the future we would face a labor shortage, as baby boomers (being one of the most populous generations) retired and are being replaced with much smaller generations. COVID brought that prediction to life and complicated it with other factors.

First, people were afraid to go to work. Then workers were paid more not to work than to show up. Some employees decided to retire earlier than they had planned. Some parents found that they couldn’t work with their children at home—daycare was unavailable or just too expensive. Others just liked the idea of working from home and refuse to return to the office while they chase the perfect remote employment.

Where does that leave banks looking for employees, especially in rural markets?

Rural banks have all of the same issues that other banks and non-bank companies have, but they are complicated with the issue of location and/or potential candidates. But rural banks are also facing the additional challenges of keeping home grown talent from moving to more urban areas. They are also saddled with the burden of creating a more diverse employee and board population in a community that may not reflect diversity.

How does a rural community bank get this all accomplished?

I can share with you some advice offered by “employment” experts: • Pay more money • Meet the generations where they are (whatever that means) • Apply workplace trends, like continuing flex-schedule, let them bring their pets to work, put a slushie machine in the kitchen (this is my personal wish) • Offer more time off, with pay • Better benefits These ideas sound great, but they don’t work in every company. A rural community bank is unlikely to be able to compete on wages with a “BIG” bank in an urban area. The size of smaller banks makes some other suggestions unworkable. But there are some things you can do.

SUGGESTIONS These are just my suggestions, in no specific order of importance.

I have not scientifically tested them, but they work in my mind: • Promote from within. This instills loyalty and you don’t miss out on talent you have right there already in-house.

• Take a chance on local highschoolers, whether family members work at the bank or not. Get them interested in banking as a career and comfortable with your bank’s culture. Maybe a part-time job or partial scholarship.

• Talk to universities throughout the state, not just the closest to you and see if a student would like to work as a summer intern in your community. If a university has an established program that connects students with employers, take advantage.

• Establish a sense of trust in your bank. Make sure that managers and HR personnel are properly trained in leadership and that they give honest answers to employee questions, whether it is about pay, time off, promotions etc. When a manager gives an answer that is untrue or “hopeful” it creates unease and poor morale. This is true during interviews as well.

• Don’t require a diploma for every job. Can an applicant be trained on the job?

• If a position you are looking to fill can be handled remotely, expand your employee search to out-of-town prospects.

• Create a culture that makes your employees proud to be bankers.

Make sure everyone in the community recognizes that culture. Social media is a great tool for this kind of campaign.

• Sell the community as well as the bank to out-of-town applicants.

• Take a chance on applicants who have been out of the workforce for a while or who tried the early retirement path and found out it did not work.

• Make sure anyone involved in the hiring process goes into each interview with the assumption that the applicant is the ONE. • Look at employees in other businesses already in your area. If you see a retail sales manager who has all of the qualities you want in a personal banker, ask them if they are looking for a change! continued on the next page

KENTUCKY BANKER MAGAZINE | 11

continued: Employee Shortage in Rural Areas MORE SUGGESTIONS • Look at whether a person would “fit” in your bank and your community. Sometimes that is a good place to start.

• If an applicant comes from out of town to interview, make their travel worth the time. Invite their spouse, if they are married. Take them to lunch at the local favorite restaurant, even if it is a local bar/pub that has a great lunch special. Tell them about housing prices and the town’s culture and community.

• Always be on the hunt, even if a position isn’t open right at that moment.

You may have tried some or all of these ideas, so I may not have added anything to your bag of tricks. But, don’t stop trying things just because they did not work once.

Hiring/recruiting should be assigned to one of the most optimistic people in the bank. The one who sees the best in the bank, the town, the people and the applicant!

I think someone from a larger city would be surprised at the sense of community and purpose you can get from working at a smalltown bank. I see the difference every day as I work with you.

• Don’t turn someone away just because they can only commit for a set amount of time—maybe they intend on retiring in five years or they intend to leave the country for an extended “camper” tour in a few years. Plans change and it gives you time to continue your search, while filling the position now.

• If someone sends in a resume, but you don’t have an opening, interview them anyway. The applicant will appreciate it and you might find that they fill a space you did not know you had.

• If you are interviewing a minority applicant, answer any questions they have about community diversity honestly. Don’t set them up for surprises.

Kentucky Bar Foundation Recognizes Kentucky Banks The Kentucky Bar Foundation and Kentucky IOLTA fund are working with banks to pay over-market interest rates on IOLTA accounts. The interest on these accounts is used to provide funding for civil legal services for low-income individuals in our Commonwealth. Participation in this program may result in Community Reinvestment Act credit for participating banks.

The IOLTA Board of Trustees appreciates the generosity of the following banks:

Gold Level (1% interest on IOLTA Accounts): Blue Grass Federal Savings & Loan Central Bank Citizens Bank – Mount Vernon Commercial Bank of West Liberty Community Financial Services Farmers Bank – Jessamine County First National Bank of Kentucky The Murray Bank First State Bank of the Southeast

Silver Level (.75% on IOLTA Accounts): Century Bank of KY, Inc. 12 | KENTUCKY BANKER MAGAZINE

If you are interested in participating in this program contact: Guion Johnstone email: gjohnstone@kybar.org

COMPLIANCE CORNER

by Timothy A. Schenk KBA Assistant General Counsel tschenk@kybanks.com

Junk Fees?...

CFPB’s New Regulatory Front

On February 2nd, the Bureau of Consumer Financial Protection (CFPB) took aim at banks and others by requesting feedback from consumers due to their concern that “consumer finance has become part of a ‘fee economy’” and that “exploitative ‘junk fees’” charged by banks and non-bank financial institutions have become widespread, with “the potential effect of shielding substantial portions of the true price of consumer financial products.”

I was initially shocked at the use of the term “junk fees” in a formal request for comment published in the Federal Register. These “junk fees” included: “return item fees; stop payment fees; wire transfer fees; ACH fees, overdraft fees; ancillary fees in the foreclosure process”; and other fees. The list includes over twenty-five different fees, admonishing nearly every entity that has charged any fee regardless of its amount, validity or prior disclosure.

The publication never mentioned that these “junk fees” are heavily regulated by the Truth in Lending Act (TILA), the Electronic Fund Transfer Act (EFTA), the Fair Debt Collection Practices Act (FDCPA), the Unfair, Deceptive, or Abusive Practices Act (UDAAP), and other regulations for years with banks and others adhering to strict guidelines so that fees are not a surprise to consumers. Credit cards, an apparent primary target of the commentary, are required to abide by the Credit Card Accountability Responsibility and Disclosure Act that places caps on late fees and other charges. These “junk fees” are not unregulated.

Even more surprising is the fact that all of this comes at a time when many banks are moving away from traditional fees such as overdraft fees by reducing fees to as low as $10 with many eliminating them all together. Overdraft fees made up less than 2% of banks’ overall revenue in 2019 in a climate where banks are operating with record low margins. Return on assets are at near record lows with quarterly net operating revenue to average assets at its lowest level since 1984.

Despite the already organic transition away from these fees, industry experts generally agree that the analysis is simple: Rather than discuss particular fees, it is easier to lump them together into one category. The term “junk fees” is unpalatable to nearly every consumer and by asking consumers what they think about “junk fees,” it is an almost certain that the overwhelming response from consumers will be “we don’t like junk.” From there, the CFPB will likely act within its powers under UDAAP to further regulate these fees.

As one banker said to me, “It’s like asking if you would rather pay $2 or $3 for your milk. No one is going to want to pay more.”

cardholders, the merchant and the issuer. If that pool shrinks, you look at those three legs and say, “How would you adjust any of those?””

Neither consumers nor lenders win.

The only readily apparent “winners” in this are class action lawyers.

As one legal publication stated, “The CFPB’s continued focus on fees for financial services is likely to spur an active plaintiff’s bar that has created a cottage industry of pursuing class action lawsuits against financial institutions alleging insufficient disclosures with respect to consumer banking fees. The risks associated with these types of consumer class actions are not insignificant. A court recently approved an award of fees to class action plaintiff’s counsel of $25 million, to be paid from a $75 million settlement fund, in a consumer class action targeting bank fees.”

James Cooper, a law professor at George Mason University’s Antonin Scalia Law School, and a former deputy director in the Federal Trade Commission’s Bureau of Consumer Protection captured the real effect by stating, “Competition is always the best protection against high prices, whether in the form of overdraft fees or any other financial service.

And it’s already happening without the government’s help. Reports this (last) summer show that many major banks have altered overdraft programs to be more transparent and affordable ought to please Mr. Chopra. Regulatory mandates discourage competition by making disruptive entry more expensive. If the CFPB, other agencies and Congress really want to help consumers of financial services, they should do what they can to foster competition.”

The CFPB should seek commentary from, and work with banks to recognize the value their products, services and institutions have on the lives of the people in their communities. Anyone that would walk into any community bank in Kentucky could readily identify the impact the bank and its bankers have on the community. It would make much more sense to have meaningful conversations with those on the front lines of their communities than to burden banks with additional oversight and regulation that ultimately reduces bankers’ ability to serve consumers.

As bankers we must continue to hope that CFPB leadership changes course in choosing to work with banks on resolving any concerns and understand that better results can be reached through cooperation rather than rulemaking. In the meantime, make sure you monitor your “junk fees” to ensure they are consistent with current regulation.

The reality is that with further regulation comes additional costs and angst for everyone involved. As one credit card CEO stated, “Each store-branded card is a three-legged stool with a pool of benefits for KENTUCKY BANKER MAGAZINE | 13

5 Things Banks Can Do to Prepare for Interest Rate Hikes

by H.D. Barkett, Senior Managing Director IntraFi Network With inflation running hot, the Federal Reserve Board has recently begun accelerating its tapering program. In addition, the latest dot plot for the median Federal Funds rate show that short-term interest rates could increase three times in 2022.

Bank leaders should be preparing for rising interest rates, a challenge that will be difficult given the extraordinary liquidity in today’s market. Below are five tips to help them do just that.

1. Evaluate pricing strategies.

Banks that haven’t adjusted their deposit rates to match current market rates, which are effectively zero, should think about doing so now. Given the relative yields of other cash alternatives, deposit rates could be higher than they should be.

2. Segment customers by rate sensitivity.

For the first time in recent memory, most banks don’t need— or even want—all their deposits. This presents a unique opportunity for banks to evaluate the rate sensitivity of their customers and consider adding rate-insensitive customers down the road.

3. Take a harder look at derivatives.

Many banks have been reluctant to embrace derivatives, but swaps can be a valuable tool for hedging against rising rates, as swapping a floating rate for a fixed rate will benefit banks once interest rates rise and funding costs increase. Also, tying funding to a swap that mirrors funding characteristics is an activity that can qualify for hedge accounting, which means the swap doesn’t need to be marked to market and doesn’t hit the income statement.

Formerly Promontory Interfinancial Network

4. Shorten the duration of securities portfolios.

Many bankers are wrestling with how to deploy deposits in the absence of loan demand. Shorter-term loans and securities are currently yielding little to nothing, but longer-dated assets could be underwater as soon as next year. It’s a tricky balance, but banks may wish to consider keeping the duration of their securities as short as possible while keeping their heads above water.

Margins may suffer in the near term, but having large portfolios of longer-dated securities could be even more problematic. Tools such as reciprocal deposits, which are insured, could provide relief by reducing the amount of collateral banks need to hold.

5. Review wholesale funding strategies.

Wholesale funding also helps banks manage interest rate risk—more so than retail deposits. By borrowing amounts at terms more or less in line with those of a commercial loan, banks can effectively match funding to long-term, fixed-rate positions. And in an environment where rates are projected to rise, banks that lock in low rates today, or refinance higher-cost funding, can earn higher spreads once loan demand picks up.

Challenges The challenges facing today’s banking industry are many, and interest rate risk is a big one. However, by proactively thinking about repricing deposits, segmenting customers, taking a closer look at derivatives, not overextending the securities portfolio, and reviewing wholesale funding strategies, bank leaders can position their institutions to ride out the uncertainty and succeed in the future.

For more information on KBA Endorsed Vendor IntraFi Network’s products contact: David Still, Managing Director (866) 776-6426 x3439 / dstill@intrafi.com / IntraFi.com Your KBA contact is Selina Parrish, Director of Membership: sparrish@kybanks.com 14 | KENTUCKY BANKER MAGAZINE

TO LISTEN VISIT kybanks.com/video

Western Kentucky Tornado in Pictures

16 | KENTUCKY BANKER MAGAZINE

KENTUCKY BANKER MAGAZINE | 17

FACEBOOK POSTS OF SUPPORT!

18 | KENTUCKY BANKER MAGAZINE

KENTUCKY BANKER MAGAZINE | 19

$

5.3 Billion of private investor equity 55,000

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88 East Broad Street, Suite 1800 Columbus, Ohio 43215 614-591-9356 | www.occh.org

KY BANKERS SUPPORT THEIR COMMUNITIES

KY BANKERS SUPPORT EACH OTHER

KENTUCKY BANKER MAGAZINE | 21

Thank You Bank Associations The ABA Foundation has partnered with the Kentucky Bankers Association to support relief efforts. At KBA’s request, the ABA Foundation is collecting donations from across the country to support the Kentucky Bankers Relief Fund.

“You can’t look at the images of the devastation in Kentucky and not be moved to action. We are proud to stand with our friends and partners at Kentucky Bankers Association in raising funds through the ABA Foundation to help bank employees directly affected by the tornadoes and provide additional relief to hard-hit communities,” said Rob Nichols, American Bankers Association (ABA) President & CEO. “We can’t thank enough Rob Nichols, and his team at the ABA, for their support of Kentucky bankers, especially now in the midst of one of Kentucky’s worst natural disasters in our state’s history,” said Ballard Cassady, KBA President & CEO. “The ABA Foundation spread the word to banks across the country, and have gone above and beyond with their efforts and assistance.”

“We have already seen a strong response from bankers across the country to our fundraising efforts,” added Nichols. “We know thousands of Kentuckians, including members of our banking family, need help right now and we hope that the generosity of fellow bankers across the country through the ABA Foundation can provide some relief.”

“Our banks have shown time and time again in the last few years how vital they are to their communities, and with the support of organizations like the ABA, we can do so again in a time of great need,” said Cassady.

Thank You GSB at LSU John Naughton (at left, center), EVP/Executive Director of the Graduate School of Banking at Louisiana State University, presents a donation check of $20,000 for the Kentucky Banker Relief Fund to Ballard Cassady and Natalie Kaelin of the KBA. Additionally, Naughton brought a donation check of $500 from a former student and employee of the Peoples Bank of Missouri. THANK YOU Graduate School of Banking at Louisiana State University and Peoples Bank of Missouri.

22 | KENTUCKY BANKER MAGAZINE

STATE BANKERS ASSOCIATIONS American Bankers Association Missouri Bankers Foundation North Carolina Bankers Association New Jersey Community Bankers North Dakota Bankers Association Ohio Bankers League (Paul & Laurie Reed) Pennsylvania Bankers Association South Carolina Bankers Association West Virginia Bankers Association Products & Services Tennessee Bankers Association Texas Bankers Foundation Alabama Bankers Association Colorado Bankers Association Iowa Bankers Association Kansas Bankers Association (KBA Insurance) Michigan Bankers Association Minnesota Bankers Association Nebraska Bankers Education Foundation Virginia Bankers Association Florida Bankers Association (Lesley Jordan) Indiana Bankers Association Massachusetts Bankers Association Utah Bankers Association Washington Bankers Association (Glen Simecek) Delaware Bankers Association (Sarah Long) Mississippi Bankers Association (Sara Hart & Gordon Fellows) Montana Bankers Association New Jersey Bankers Association (John McWeeney) New Mexico Bankers Association Oregon Bankers Association (Linda Navarro) Alaska Bankers Association (Yuri Morgan) Hawaii Bankers Association Kansas Bankers Association Louisiana Bankers Association (Ginger Laurent) Wisconsin Bankers Association (Rose Oswald Poels)

22

February 20

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SCAN THE QR CODE TO CONTRIBUTE or visit kybanks.com/relieffund

KENTUCKY BANKER MAGAZINE | 23

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Thank You For Contributing to the Kentucky Bankers Relief Fund What has happened in our country in the last 24 months given the Covid pandemic has been beyond unimaginable. When we saw the news regarding the devastation in Western KY from the tornadoes, we immediately thought about how we could help? The client relationships we have built over the years have meant the world to us. We can’t fathom the losses that some of our banking friends have endured. We will continue to pray for them and their families.

Lou Moore , Managing Principal Lon P. Haines, Managing Principal Banc Consulting Partners It was incredibly important for the BHG Bank Group to contribute to such a great cause.

Donating to the Kentucky relief fund was deeply rewarding for us to assist our Kentucky communities during such tragic times. The BHG Bank Group holds an underlying promise to our Kentucky Bankers, Kentucky Bankers Association, and all patrons of Kentucky to always provide unmatched loyalty and support. We are grateful for the opportunity to participate and want to thank the KBA for organizing the Kentucky relief fund! We wish nothing but courage, peace, and love to all of those affected.

Jordyn Sollars, VP, Institutional Relationships BHG Bank Group Growing up in western Kentucky, the community banks in the area have always been a part of my life - from my first passbook savings account to my many valued clients today.

When I woke up the morning after the tornado and saw the news, my heart dropped.

Places I’d been days before were unrecognizable. My wife and I started considering different ways to help out, and the KBA’s effort allowed me the opportunity to give back to the community banking family that has given me so much.

Christopher D. Meriwether, CPA Managing Director, BKD There are many reasons why I donated and while money does not solve every problem, it is a means to provide resources in a time of crisis. If my small contribution provides to a greater impact to those who are in need, I am happy to give. Kentuckian’s still need support and my hope and prayer is Kentucky recovers from the devastation and loss and know there are brighter days to come.

Paul Strain, Business Development Manager Optimal Blue a division of Black Knight The pictures of the damage were jarring, and I knew that people in those communities would need help. Kentucky bankers are a big part of the fabric of communities like those affected, and I knew that they would be helpful in the recovery / rebuilding process. It was a great idea to establish the Relief Fund.

Charles R. Crowley, Managing Director Boenning & Scattergood, Inc. CRA Partners is gratified by the opportunity to help our Kentucky neighbors, as we rely on help from their banks to support our Foundation programs that benefit seniors in the state.

Aimee Leeper, Director of Marketing CRA Partners

“On the morning of December 11, the day following the devastating tornadoes that tracked across our Commonwealth, CSI’s initial response was to check the status of our employees and customers who were in the direct path,” said David Culbertson, President and CEO, CSI “By 8:00 AM, our Relationship Management teams were connecting with bankers, our Human Resources team was reaching out to employees, and our tech teams were assembling spare network equipment so that we could assist in our customers’ relocation and connection restoration efforts. Culbertson said that he spent a lot of time on the phone that Saturday after the tornado, including a pair of calls to KBA President and CEO, Ballard Cassady. “Ballard made me aware of the Kentucky Bankers Relief Fund, and I loved the fact that it was set up to help our community banks and their employees, added Culbertson.

“The generosity of those who have given to the Kentucky Bankers Relief Fund has been remarkable,” said Cassady. “David’s and CSI’s support has really kicked off a concentrated effort of assistance to those who have been impacted by this tragedy.

David Culbertson, President and CEO, CSI Investors Title thanks the Kentucky Bankers Association for setting up the Kentucky Banker Relief Fund and allowing us to participate in this important effort to provide much-needed aid and support to the people of Kentucky. At Investors Title, we believe in standing in solidarity with our partners and friends during a time of need. We are honored to be part of a great community that demonstrates care and compassion while going above and beyond to make a positive impact. The people of Kentucky are our extended family, and we stand together.

Norma Carroll, VP Multi-State Marketing Investors Title After the recent disastrous tornados that hit a number of Kentucky communities hard, and affected a number of community bank facilities, the K4 Team felt the need to contribute to continue to support the many Kentucky families who lost so much. We also hope to lend our support to Kentucky Banks as well as their customers, employees, and families. The K4 Family and Team always compliment community banks for all they do to support their customers and the communities they serve, and we are honored to support the KBA in their efforts to support these communities. As a bordering neighbor, the success of community banks in KY is vital to our business.

When you thrive, we all survive!

Jeffry C. Klump, AIA President, K4 Architecture + Design It’s heart-wrenching to see the anguish of families dealing with the aftermath of a natural disaster. Tornado recovery is painfully relatable – our former offices were in the path of a tornado that struck Nashville in April 1998, and our current Nashville location closed for several days following a devastating tornado in March 2020. For our neighbors grieving today in the Bluegrass State, we’re happy to assist through the Kentucky Banker Relief Fund, and we offer you heartfelt wishes for recovery and peace.

Michael Davis, CPA, CFSA, MAcc Member, Assurance Services, KraftCPAs PLLC

Our experience suggest that the local banking community is uniquely positioned to know exactly what the needs are and how to help families after a natural disaster. Hence, the KBA seemed like the best way we could channel resources to those who are striving to rebuild hurting communities.

Morgan Pottinger McGarvey donated to the Kentucky Banker Relief Fund because Kentucky bankers are always there when their communities need them. From helping businesses survive to supporting customers as they get back on their feet, they carry on.

Bank employees worked tirelessly among the devastation, and in some cases, uncertainty in their own lives. We wanted to support their efforts, recognize their commitment and let them know we care.

Craig Callahan, VP Business Development Floodplain Consultants Incorporated

John McGarvey, Shareholder Morgan Pottinger McGarvey KENTUCKY BANKER MAGAZINE | 25

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BCP is steadfastly committed to serving Kentucky’s community

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Thank You for Contributing to the Kentucky Bankers Relief Fund Ncontracts has been proud to partner with KBA, providing solutions for financial institutions in Kentucky, for over 5 years. We are part of the community and have a responsibility to offer support that we take very seriously. With so many residents and institutions devastated by the recent tornadoes, we were honored to have the opportunity to donate to relief efforts that assist those we consider neighbors--and part of our family.

Michael Berman, CEO, Ncontracts Donating to the Kentucky Banker Relief Fund was just a small way that PRI could help our banker friends begin to rebuild. We felt a strong obligation to support the recovery; as a part of the KBA community, it’s what we’re called to do. Our hearts go out to all those affected by the devastation.

Mike Holt and Mikelle Brady Partners at Profit Resources Inc. As a community bank, our main priority has always been to meet the needs of the people in our local communities,” Collectively, we stand with Kentucky and all areas that have been affected by the recent tornado outbreak. Thank you to all of our employees, clients, and partners that have responded quickly and generously in relief efforts.

We are glad to do what we can to help our friends in Kentucky. When friends ask for help, you help.

Rob Buchanan, Regional Director of Sales Shazam We need to take care of our neighbors and families.

Paul Ratterman, Managing Director Stifel When I heard the news about the destruction to my friends and others in Kentucky, I was devasted. My first reaction was to pray for those who had suffered so much and for the long road back they face. However, knowing the faith and strength of my Kentucky banker friends and associates, I know they will return stronger than ever. I was honored to make a small contribution to help in their recovery. It was the least I could do.

Paul Taylor, SVP, Senior Relationship Officer TIB I feel it is important to support communities, especially the ones that suffer devastating events. I have family, friends and customers in those areas affected by the tornados that rolled through Western KY and I wanted to help.

Chuck Sulerzyski, President and CEO Peoples Bank

Jason Buckley, President Titan Armored, Inc.

Our community banking clients exist to serve the financial needs of the people of our commonwealth, and when any of our communities are hurting from tragedy, we all suffer. Every team member of our firm has contributed in some way to help those affected, and we are all very thankful to the Kentucky Bankers Association for giving us another outlet to share our resources with the people that our client banks serve. We hope and pray with confidence that the determined, faithful, and resolute character of our Western Kentucky brothers and sisters, in the face of such sorrow and loss, will continue to inspire all the citizens of Kentucky to greater generosity and service to others in need.

I donated to this fund because in times of our human frailty and need, partners show up for each other. We are just embarking on our partnership and as I sat in my shelter that frightful early morning, thankful to come out unscathed, I cannot imagine being in the path of a Tornado and experiencing the devastation. It is the least I can do. The KBA and Kentucky are in my prayers, still to this day.

Marcy Holman, Director of Partnerships TrustMAPP

Robert H. “Bob” Downs, President Premier Banking Consultants, LLC Kentucky banks and Kentucky bankers are a strong part of the fabric and identity of ProBank Austin, and we were all heartbroken over the tragedy and damage to lives and property caused by the tornados across the state. We were looking for ways to support the people and communities impacted, and of course the KBA stepped up and provided the way to directly contribute to and support our Kentucky bankers.

We are happy to have been even a small part of this strong state and region wide showing of support for these families. Thank you KBA for your strong support for Kentucky bankers and leading the way in this relief effort.

Vincent P. Van Nevel, Managing Director ProBank Austin Being a native of western Kentucky, I spent a lot of time in Mayfield and the surrounding areas growing up. It broke my heart to see such devastation and hear stories of heartache and loss. My hope is that our fundraising efforts helped families pick up the pieces and begin to move forward.

SEE FULL LIST

of contributors visit kybanks.com/relieffund

David House, VP Correspondent Banking Officer ServisFirst Bank

KENTUCKY BANKER MAGAZINE | 27

The Digital Dynamic:

Community Banking in the Modern Age

by Achim Griesel and Sean Payant Going back a couple of years prior to the pandemic, “digital” was the latest catchphrase in banking. Accelerated by the pandemic and beginning in March of 2020, there has not been a single day where we haven’t had the opportunity to read even more about the digitization of the industry.

actually true? Early in the pandemic, the data showed that the percentage of new PFI relationships earned through digital channels, specifically at community-based financial institutions, dramatically increased.

From American Banker to The Financial Brand, our industry publications are flush with articles that include the word “digital.” In each case, the articles address topics such as the fintech threat, alleged changes in consumer banking behaviors or the lure of large financial institutions. If you read further, some even argue that community banking as we know it is headed for extinction as digital channels continue to change how consumers interact with their primary financial institutions (PFIs).

What few address is the true and sustainable role that community financial institutions play in our country and our communities. Community banking is a different business model than the models in large national banks or fintech companies. At Haberfeld, our business is the business of keeping community financial institutions thriving, not just surviving. As such, we use data to make informed decisions regarding the reality of growing a community financial institution in the digital age.

Realistically, we cannot ignore the significant impact digital channels have had on banking. Consumer friendly and technologically sound digital tools are crucial to providing the customer experience desired by consumers and businesses.

Based on community bank data, over 70% of customers use their debit cards, over 60% use online banking and almost half use mobile banking. In today’s environment, it would be difficult to imagine a relationship with your PFI without access to these tools.

That being said, the high adoption rate of digital channels can often mislead bankers into thinking digital channels are the key to earning NEW PFI customer relationships. But is that 28 | KENTUCKY BANKER MAGAZINE

Based on the previous data, many industry publications concluded that the percentage of new PFI relationships established online tripling from just over 6% early in 2020 to over 23% in April of 2020 was a sign that the pandemic dramatically accelerated the trend to digital channels. Furthermore, the assertion was this trend would continue as it relates to growing new PFI relationships.

While online openings did in fact increase, in reality, the percentage of openings utilizing digital channels spiked for two reasons: 1) many financial institutions shuttered their lobbies or significantly restricted access, and 2) in the absence of person-to-person opening options, financial institution employees actively directed consumers to online channels when available. The result – significantly fewer checking accounts were opened through branch channels for a period of time.

Based on the data, online openings peaked at 23% in April of 2020; however, by the third quarter of 2021, they had normalized to just under 10% of all new accounts opened, slightly above the pre-pandemic levels of 6%.

The takeaway, 90% of new relationships at community-based financial institutions are still established through branch channels.

Taking this a step further, it is imperative to understand the difference between relationships established online versus those earned through branch channels. Financial institutions that have a desire to grow need to: 1) consistently increase the number of customers they serve, and 2) make sure those new relationships are profitable. The new relationships established have to become PFI relationships. To determine how online versus in-branch originated relationships compare when it comes to profitability, we studied key metrics for accounts opened online versus those opened at the branches during the same period of time.

Based on this data, what conclusions can we draw?

Given these findings as well as the fact that 90% of consumers still prefer to establish their NEW relationships through branch channels, online openings are neither the holy grail nor the end to community banking as we know it. Our data suggests it is another – valuable – channel for community financial institutions. Admittedly, this may be different for digital only financial institutions, fintechs or mega banks – many of whom strive to compete on rate, size or technology.

We, as community-based financial institutions, have to win on the playing field where we are the best, executing on the value created by genuine service and personal relationships.

Given that reality, the key to earning and retaining new relationships rests with our people. As leaders, we must support them with the right tools and equip them with the skills to win – in branch as well as online!

1. Customers who established relationships online have a tendency to be slightly more transactional; 2. However, they also have much lower balances; and 3. Their attrition is significantly higher.

Achim Griesel is president and Dr. Sean Payant serves as the chief strategy officer at Haberfeld, a data-driven consulting firm specializing in core relationships and profitability growth for community-based financial institutions. Achim can be reached at 402.323.3793 or achim@haberfeld.com. Sean can be reached at 402.323.3614 or sean@haberfeld.com

Welcome Keith Larson

Morgan Pottinger McGarvey is pleased to welcome Keith Larson to the firm.

Practice Areas Bankruptcy and Creditors’ Rights Business Law and Litigation

LEXINGTON

LOUISVILLE

NEW ALBANY

mpmfirm.com

Concerning Recent Developments at the FDIC An Interview with Former FDIC Board Member and Banker Joe Neely The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation’s banking system by insuring bank deposits. It has served this function since its creation in 1933, in a purposely designed, balanced, non-partisan manner. However, in December, some members of the Board of Directors bypassed the normal agenda and staff vetting procedures in an unprecedented move that seems to be politically motivated.

These actions led to the FDIC Chair’s abrupt resignation and have led some to question the remaining leadership’s objectiveness, including former FDIC board member, Joe Neely. He is a former career banker, a state Commissioner of Banking and Consumer Finance, retired Chief Executive at First National Bankers Bank, and currently principal of Neely and Associates, LLC, a banking consulting entity. Neely’s broad banking experience including his time on the FDIC board gives him unique knowledge of this situation. His perspectives are informative to all bankers in order to raise their awareness of recent developments and the current environment at the FDIC.

FDIC Background 101 The FDIC is governed by a five-person Board of Directors that includes the Comptroller of the Currency and the Director of the Consumer Financial Protection Bureau, and three independent FDIC Directors all of whom are appointed by the President and then confirmed by the Senate.

Each board member must meet certain statutory requirements. For example, one must have state bank supervisory experience. The number and composition of board seats has varied somewhat due to changes made by Congress over the almost 90 years of the FDIC’s existence.

Importantly, no more than three board members can be from the same political party.

Currently the Vice Chairman seat is vacant and, as of February 4, 2022, Chairman Jelena McWilliams’ resignation leaves the Chairman position officially vacant. FDIC Director Martin Gruenberg will likely function as Interim Chairman until which time the White House elects to nominate a Chairman and that nominee is subsequently confirmed by the Senate. As of publication, the board members are Martin Gruenberg, Director, FDIC; Michael Hsu, Director, Acting Comptroller of the Currency; and most recently appointed, Rohit Chopra, Director, CFPB. All three are considered Democrats and were appointed by Democratic presidents, meaning there is currently no voice from the Republican party on the board.

What Happened in December Newly appointed member Chopra and longtime member Gruenberg acted unprecedentedly when they held a private, unscheduled vote to solicit public feedback on potential changes to the FDIC’s bank merger approval process. The FDIC Chair controls the agenda, and Chopra and Gruenberg attempted to override that protocol. McWilliams did not participate in the vote and cited the maneuver as improper and out of 30 | KENTUCKY BANKER MAGAZINE

order. In an official statement, the FDIC said the action was not valid.

This then led to debate over whether a majority of the board can force items onto the board agenda without the consent of the Chair.

“The FDIC has three responsibilities,” said Neely. “To effectively supervise state-chartered banks, to protect and preserve the integrity of the deposit insurance fund, and to provide for the orderly liquidation of failed institutions. For 88 years, the FDIC has successfully and efficiently accomplished this mission. And for that time, the Chairman has managed the agenda [of Board meetings]. Chopra and Gruenberg circumvented 88 years of process and protocol, as well as bypassed FDIC staff, with their attempt to publish their proposed rule for comment.”

Then, at a December 14 board meeting, McWilliams rejected a bid by Chopra to add a record of the vote to the FDIC’s official minutes.

Just two weeks later, McWilliams submitted her resignation letter.

McWilliams had been FDIC Chair since 2018 and she was appointed for a term extending through 2024. Her resignation leaves key regulatory agency leadership positions for President Biden to fill, pending Senate confirmation. President Biden’s recent pick for Comptroller of the Currency, Saule Omarova, withdrew after facing bipartisan Senate opposition in December.

What it Means for the FDIC Now

What Can Be Done

“I was very impressed with Chairman McWilliams, having had the opportunity to meet with her personally and privately. Her heart was in the job, and I have no doubt that she tried every day to do the right thing, especially given her background,” said Joe Neely. McWilliams immigrated to America from Yugoslavia in 1991, and her father lost all deposits in a bank failure.

“The FDIC cannot effectively operate with political influence. Congress will have to act to help restore balance to the board. But for Congress to act, they must hear from American citizens and the banking industry,” said Neely.

Neely was appointed to the FDIC board of directors in 1996. He was a Republican appointed by President Bill Clinton (Democrat). It was a 5-person board at the time. However, the Office of Thrift Supervision Director held the seat now held by the CFPB Director.

“Since its founding, the board has worked collegially to achieve the Corporation’s mission by blending their combined expertise and experience while relying heavily upon the support of FDIC staff. As a board member, you must leave your personal or political agendas at the door.

What has happened recently is a classic example of what happens when partisan politics enters the boardroom of what should be an independent agency,” he said.

Neely said that during his own 14-month confirmation process that no one once tried to influence his vote, including any Senator or the White House. He believes that appears to have changed now. “Certain Directors are clearly carrying out the motives of their political supporters and the current administration. For example, Chopra initiated this pre-meditated coup less than three weeks after being sworn in as Director of CFPB,” he said.

He continued that he is also very concerned about the FDIC staff.

“FDIC staff was bypassed in the drafting of the drafting of the proposed bank merger document. As a result, it was filled with inaccuracies, omissions, and misrepresentations that would not have been present had the experienced people at the FDIC been allowed to research and prepare the document. No Director is intelligent, astute, or seasoned enough to make informed decisions on complex and technical matters without assistance and support of the capable and experienced staff at the FDIC,” he said.

Given the mission of the FDIC, Neely believes that every banker should be concerned about what is currently going on within the board at FDIC. “Each pillar of the mission affects every deposit holder in America. The overwhelming majority of Americans are banking at FDIC regulated and insured banks, and you want a regulator who is not using political bias or an agenda when supervising the safety and soundness of that institution. You also want the deposit insurance fund protected and preserved without prejudice or bias toward any depositor. And, if a bank should fail, you want to see that the institution is liquidated and assumed in an orderly and independent process without favor to any depositor, claimant, or stakeholder.”

Neely handled one bank failure while he was the Mississippi Commissioner of Banking and Consumer Finance, and it’s an experience he said he’ll never forget. “It was the right decision. But no one was as nervous as I was walking into that bank. However, because of the long-standing protocols and procedures in place established by the FDIC, everything was handled properly and efficiently. That’s the system that needs to be preserved. You don’t want partisan politics interfering with that process and skewing the balance somehow.”

Neely advocates for returning to the three-member board composition that existed prior to the passage of FIRREA in 1989 as a result of the savings and loan crisis. “The more agencies that are represented on the board, the more convoluted it becomes.” The CFPB did not even exist when the board structure was changed from 3 seats to 5 a few decades ago. The CFPB has a seat on the board as a result of the passage of Dodd-Frank in 2010, which eliminated the OTS and created the CFPB. According to Neely, that was the prime opportunity to return to a three-member board and internally refocus the FDIC’s mission.

Not only is it not balanced politically now, but the FDIC board does not accurately represent the banking industry or the depositor base across the country. “The FDIC shouldn’t make any policy decisions until there is a voice representing the minority political party on the board. There used to be a commitment to representation from both parties, and that commitment needs to be reestablished. And until this happens, it is eroding the board’s ability to meet its mission in a bipartisan manner,” he added.

He said it’s also worth pointing out that there is currently no community bank representation on the board. No present board member has experience supervising state-chartered banks, which is required by statute. Neely was the first FDIC Director to meet this newly adopted statutory requirement, having served as Mississippi’s Commissioner of Banking and Consumer Finance. The Conference of State Bank Supervisors (CSBS), a national group dedicated to advancing state bank regulation and supervision, addressed this in a letter to Senate leadership on January 31.

According to Neely, “The FDIC is one of the sacred success story institutions in American history. It was created from a horrible situation, and it has done a wonderful job to ensure that situation doesn’t happen again.”

Neely said that countries all over the world use the FDIC as a model for insuring deposits within their institutions. While Neely was on the board, he worked with the nation of Korea to establish the Korea Deposit Insurance Corporation. “The entire free world beats a path to the FDIC’s door and envies the American system of depositor protection.

Why would we allow that system to be compromised or placed in jeopardy?”

He is strongly advocating for bankers to get involved and reach out to Congress so the FDIC system can be preserved and proper balance on the board can be restored. “We don’t need to tinker with the FDIC. We need to make sure this system prevails and performs its primary missions for the benefit of the American depositor and our country.”

Overall, Neely emphasized that the FDIC is still the strong institution it always has been, and the deposit insurance fund is sound. This invasion of partisan politics into FDIC governance is just a “crack in the veneer,” but one that needs attention immediately to maintain the ability of the FDIC to meet its mission for the benefit of the American public.

KENTUCKY BANKER MAGAZINE | 31

Most likely you’ve been hearing more and more reports on the growing threat of ransomware. Attacks at pipelines, meat packing plants, and insurance companies have been in the news. Banks have not been immune to these attacks. The article below, written by my friends at ABA Insurance Services, will hopefully give you a little more background on the crisis. Chuck Maggard, President & CEO, KenBanc Insurance | cmaggard@kybanks.com

Ransomware Attacks Becoming More Prolific Recently, well-publicized ransomware incidents have targeted entities across industries, from government organizations and school districts to privately held operations, hospital systems and financial institutions. While the threat of ransomware is nothing new, we are learning of alarming trends suggesting attacks are evolving to become more disruptive and payment demands more consequential than previously known. Ransomware is no longer simply a nuisance; attacks are rendering businesses inoperable, significantly eroding public confidence, and costing businesses millions to remediate.

There are emerging technology solutions available to help fortify your defenses against malware. A number of providers offer solutions that monitor entry points and network workflow to detect threats. The tools capture and analyze big data across many channels and use machine learning to continuously refine their algorithms to predict and prevent both novel and known variants of malware. The detection and response capabilities work in real time and are significantly more effective in thwarting threats from ransomware and other novel malware than off-the-shelf antivirus software.

Ransomware attacks typically begin with a targeted email message containing malicious software. Once introduced, the malware spreads throughout the network, encrypting documents or files and rendering them inaccessible until a ransom is paid by the victim.

As the frequency and severity of ransomware attacks continue to increase, it is critical that institutions evaluate the security measures they have in place and implement/update security measures to keep a step ahead of potential threats.

In the past, these attacks normally targeted specific documents or files. Today, however, the attacks are creating havoc by infiltrating entire operating systems; deleting onsite backups; and exfiltrating sensitive data, with threat actors threatening to publish confidential information if their demands are not met. As these criminals become more emboldened, they are seeking larger ransom payments, now easily reaching seven figures.

The claims scenario in this material is provided to illustrate a possible exposure faced by you or your clients. The facts of any situation which may actually arise, and the terms, conditions, exclusions, and limitations in any policy in effect at that time, are unique. Thus, no representation is made that any specific insurance coverage applies to the claims scenario. This information provides guidance and is not intended as a legal interpretation of any federal, state or local laws, rules or regulations. ABA Insurance Services Inc. (“ABAIS”) does not warrant that all potential hazards or conditions have been evaluated or can be controlled. The liability of ABAIS and its affiliates is limited to the terms, limits and conditions of the insurance policies issued by ABAIS. 102020.SA12 © ABA Insurance Services Inc., dba Cabins Insurance Services in CA (CA license #0G63200), ABA Insurance Services of Kentucky Inc. in KY, and ABA Insurance Agency Inc. in MI, 3401 Tuttle Rd., Suite 300, Shaker Heights, OH 4412

In one recent incident, a bank was shut down for several days after numerous systems in its environment were attacked, including its core operating system, online banking platform, and telephones. The extortionists demanded a ransom in excess of $1,000,000.

The increasing frequency of attacks has garnered the attention of the U.S. Treasury’s Office of Foreign Assets Control. An advisory issued in early October 2020 provides some background on attacks, identifies several known malicious actors, and suggests a risk-based compliance program to mitigate exposure. The advisory also warns victims can be fined if they pay ransom to groups that are under economic sanctions. A similar advisory was issued by the Financial Crimes Enforcement Network.

Experts continue to suggest common-sense security measures are the best first step in protecting your institution. These recommendations include: 1) Training employees to recognize suspicious emails and attachments; 2) Keeping antivirus and anti-malware software up to date; 3) Ongoing, regularly scheduled offsite (cloud based) backups that are not connected to the networks being backed up; and, 4) Refining incident response and business continuity plans to reflect today’s threat environment.

Your bank has probably noticed significant changes in its Cyber policy at its most recent renewal. These changes can include steep premium increases, as well as possible reductions in coverage.

If you’d like help in navigating your Cyber renewal, give us a call. We help over 125 community banks with their Cyber insurance.

Chuck Maggard, President & CEO Cell 606-682-1950

KENTUCKY BANKER MAGAZINE | 33

Coronavirus, Not Computer Virus

by Ben Lawrence, Managing Partner, Louisville Geek When you’ve been servicing customers as long as we have, some 18 years, occasionally something happens and the only option is to laugh. Whether it’s a customer calling to complain a new computer is missing its cup holder (think DVD tray) or an employee loses an hour troubleshooting a suspected faulty desktop power supply (only to discover the computer was connected to an electrical outlet controlled by a wall-mounted switch), laughter sometimes proves the best choice.

After living through the last two years of difficult pandemic-related challenges, as we all have, a case like this one is simply too good not to share. Here goes.

Ready?

Our account team, while quite adept understanding, navigating and communicating within the complex technical world of information technology, sometimes drops its guard when it comes to internal communications. Were you to describe our in-house discussions as relaxed, or even rustic, you wouldn’t be wrong.

These are kind, respectful and easy-to-talk-to folks, likely the reason they’ve chosen the careers they have. They may even drop occasional Kentucky accents into their conversations, especially when speaking quickly and frankly, all qualities customers frequently love and seek, regardless of industry.

We won’t name names, but a couple reps had been working diligently conducting considerable research and effort to land a new, fairly sizable account. Internally, they describe such opportunities as whoppers. However, when pronouncing the word, they sometimes dramatically extend that first syllable, appending a series of w’s before arriving at the “hopper.” Everyone needs a little lightheartedness, after all, to relieve stress and endure these trying times, right?

So, last month, an account representative emailed a “wwwhopper” prospect to learn whether the contact had questions regarding a recent quote. The prospect replied with alarming news. He said everything looked good, but his organization hadn’t been able to make any decisions because “the virus is our main concern, and getting back to somewhat operational is the primary focus, at this point.”

Now, we realize such statements might not resonate with some of you the way they do for us, but when IT professionals specializing in cybersecurity see or hear the words “virus” and “operations” in the same statement, that means one thing.

34 | KENTUCKY BANKER MAGAZINE

They were breached! The prospect is battling a ransomware attack. We should learn whether they wish for our cybersecurity team to get involved. We could come in and save the day!

Naturally, the account rep forwarded the email to a manager. The manager immediately called the rep.

Before the manager could even speak, the rep asked, “Did you see the email I sent you?”

“I just read it.”

“And?” “You think they’re in the middle of a ransomware attack?” the manager sought to confirm.

“Yes.” The rep was clearly anxious.

This opportunity was perfect for showcasing the value of a timely, professional response. The earlier technicians respond, the better. The urgency is palpable.

“It’s in the email message right there,” the rep stressed, “The ‘virus is our main concern.’”

How could the manager not see the importance of immediate, qualified intervention, here, the rep remembers thinking.

The answer came back.

“Considering your ‘wwwhopper’ specializes in healthcare for the elderly,” replied the manager, “maybe the coronavirus’ Omicron variant is their main concern at this time, no?”

The rep paused. The realization required only a few seconds to sink in.

And that’s how some days go, when you work in IT. But better a momentary misunderstanding than having to battle the nuances of a complex, calculated malware infection. That’s why we view the incident as a welcome “missed opportunity” here at Louisville Geek.

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Deepen connections. Build better relationships. Show business customers you understand their needs by offering streamlined, easy-to-use solutions to help them run, grow and succeed.

Fitech joins Deluxe

Deluxe, the original payments company, has acquired Fitech. This acquisition enables Deluxe to become a scaled and leading player in merchant services with Fitech’s end-to-end payments platform, providing our combined customers with access to more robust payment technology services and products. © 2021 Deluxe Corporation

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