KENTUCKY BANKER MAGAZINE March 2014
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CONTACTS BOARD OF DIRECTORS Mr. William Alverson Traditional Bank Mr. James W. Beach People’s Bank & Trust Company Owenton Mr. J. Wade Berry Farmer’s Bank & Trust Company Marion Mr.William F. Brashear, II Hyden Citizens Bank Mr. Neil S. Bryan The Farmer’s Bank of Milton Mr. G. Anthony Busseni Century Bank of Kentucky, Inc. Ms. Katherine Reese Capps First State Financial, Inc.
Mr. David P. Heintzman Stock Yards Bank & Trust Company
Mr. Stephen Miller People’s Bank of Kentucky, Inc.
Ms. Lanie W. Gardner First National Bank of Muhlenberg county
Mr. Louis Prichard Kentucky Bank
Mr. Don Jennings First federal Savings Bank of Frankfort Ms. Elizabeth Griffin McCoy Planter’s Bank, Inc. Mr. Michael H. Mercer First security Bank of Kentucky Mr. Glenn Meyers Kentucky Federal Savings & Loan Association
Cover Photo taken by Timothy Hudson “Beautiful Sky Across Fields”
for the Scenes of Kentucky Photo Contest
Mr. Thomas J. Smith, III American Bank & Trust Company, Inc. Mr. H. Lytle Thomas Heritage Bank Mr. Frank B. Wilson Wilson & Muir Bank & Trust company Mr. Greg A. Wilson The First Commonwealth Bank
KBA STAFF Ballard W. Cassady Jr. bcassady@kybanks.com President & CEO Debra K. Stamper dstamper@kybanks.com EVP / General Counsel / Director of Compliance Paula B. Cravens Sturgeon pcravens@kybanks.com Director of Education Solutions Selina O. Parrish sparrish@kybanks.com Director of Vendor Solutions Matthew E. Vance mvance@kybanks.com Chief Financial Officer Miriam Cole mcole@kybanks.com Executive Assistant Paula Cross pcross@kybanks.com Education Services Coordinator Jamie Hampton jhampton@kybanks.com Education Services Coordinator Natalie Kaelin nkaelin@kybanks.com Assistant General Counsel
Chris Kelso ckelso@kybanks.com Manager of AIB Education Solutions Michelle Madison mmadison@kybanks.com IT Manager Lanie Minton lminton@kybanks.com Administrative Assistant Tammy Nichols tnichols@kybanks.com Convention & Membership Services Coordinator Katie Rajchel krajchel@kybanks.com Staff Accountant Yvonne Savage ysavage@kybanks.com PAC Services Coordinator Angie White awhite@kybanks.com Director of Communications & Marketing Steve Whitlow swhitlow@kybanks.com Systems Engineer
Consultants
John P. Cooper jcooper@kybank.com Governmental Affairs Consultant
KBA Insurance Solutions
Chuck Maggard cmaggard@kybanks.com President & CEO Brandon Maggard bmaggard@kybanks.com Account Representative Audrey Whitaker awhitaker@kybanks.com Insurance Services Coordinator
Lane Hettich lhettich@kybanks.com Service Manager Donna McCartin dmccartin@kybanks.com Account Representative
HOPE of Kentucky Billie Wade bwade@kybanks.com Executive Director
KBA Benefit Solutions
Lisa Mattingly lmattingly@kybanks.com Director of Sales & Service
CONTRIBUTING EDITORS Lane Hettich lhettich@kybanks.com
Angie White Awhite@Kybanks.com
CONTACT 600 West Main Street Suite 400 Louisville, KY 40202
Phone: 502-582-2453 Fax: 502-584-6390 www.kybanks.com
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CHAIRMAN’S CORNER
Neil Bryan KBA Chairman
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Going on the KBA Washington trip this year was unusually interesting. A group of twenty two bankers, third party vendors, and KBA staff met with the ABA, OCC, FDIC, Federal Reserve, CFPB, and each of our elected representatives over a three day period. We came to town as individual bankers representing our own concerns. We also took seriously the need to communicate the needs of all the banks in Kentucky. Our message was presented clearly. We discussed issues and realities that addressed a broad spectrum of your concerns. A whole laundry list of items were placed on the table for discussion. Among the items we highlighted were the following: The communities we serve are still struggling economically. Over regulation is a major problem. Rules being promulgated are unworkable in the real world (such as the 120 day rule for foreclosures). Economic recovery is being stalled by overly aggressive bank examinations. Those exams need to be subject to independent review to bring fairness to the process. New regulations make it difficult to make loans that traditionally get booked. This is true for both consumer and business credit further exacerbating the economic recovery. Taxation was discussed at each stop. We pointed out that the common bond for credit unions has become virtually meaningless. This has led to billion dollar plus institutions that pay no tax. That inequity adds two billion dollars a year to the deficit annually. The Farm Credit System has an effective tax rate of only 5%-6% rationalized by their stated purpose to help struggling farm families. You probably did not know that Verizon received a $750 million dollar loan from Farm Credit to help purchase British telecom giant Vodafone. Last time we checked Verizon was not a farm enterprise. Our solution is not to limit competition. We do propose that entities which engage in commercial banking be taxed like commercial banks. We gave examples of the problems with the flood insurance regulations. Whole communities in Kentucky fall within the 100 year flood
plain. While we agree that the movement to a risk based premium is necessary to bring solvency to the flood program, it is necessary to phase it in to avoid massive problems for our customers living in these areas. The issue of properties being placed into the flood zone retrospectively when the flood maps were redrawn was also discussed. Cyber security was a point of emphasis. Getting liability attached at the point of the data breach was proposed by our contingent. The regulators, legislators, and ABA were all somewhat sympathetic to that approach. I did not feel encouraged that the sympathy would translate into a fix. The concerns with how to make that a reality were communicated to our group. The issue of how to determine where the breach occurred was one point of contention. The complexity of the payments system with a whole myriad group of participants makes getting a consensus more difficult according to the ABA. Without a united industry movement on this issue or any banking issue becomes problematic. Trying to get these issues addressed prior to the fall elections appears to be an uphill fight. The refrain we most often heard was “if the Republicans gain control of the Senate this will have a better chance of being changed”. Since virtually all of our congressional delegation is Republican that partisan message was expected. It does not change the fact that we need to effectively support people who are committed to helping our industry. That is my non partisan message this month. We need to recruit, support, and elect individuals who have the foresight and common sense to understand that a large, diverse economy requires a diverse banking system. Wall Street is vital to our country, but so is Main Street. One size fits all regulation is not the answer for our country but it is a large part of the problem. In a nation that celebrates diversity it makes no sense to pass laws that stifle the very outcomes we hope to achieve by demanding a mind numbing financial sameness through regulation.
STRAIGHT TALK “The truth, the whole truth and nothing but the truth,” yeah right! Have you noticed that telling the truth in today’s society is deemed more as rude behavior than anything else? Seriously, it seems that when people ask you for your opinion, and you give it to them “straight” and unabashedly, they accuse you of being politically incorrect or just plain rude. I had my first experience with this phenomenon in the court room a few years ago. I was a witness in a fraud scam because I had called the sources for a back ground check and found the defendant had “stolen” his credentials and was wanted in two other states and by the military. I was told before I testified that I couldn’t discuss what I was told by the “official sources” because it was prejudicial. So, when I took the stand and was sworn to tell the truth, the whole truth and nothing but the truth, I said no (for what I thought were obvious reasons). The judge went nuts and threatened to hold me in contempt, so I said yes. Then, when asked why I called the FBI on the defendant I told them the truth as I knew it to be. This drove the judge even nuttier and he sequestered the jury and gave me a mighty lecture and threatened contempt again when I said, “but, your honor, you MADE me swear to tell the truth and that is all I was doing.” Needless to say things didn’t go well from there and I was soon told what to say and dismissed. Now, coming from a house full of lawyers I know why they did what they did, but in my mind it was wrong
to swear to tell the whole truth, but then not tell the whole truth because you can’t according to court rules, and then get in trouble. It just didn’t make sense to me. That is a long winded way of saying I just don’t understand how people can ignore the truth when they ask for it. I get that same feeling when I hear people talk about banks causing the “financial crisis” of 2008. IT WASN’T CAUSED BY THE BANKING INDUSTRY, IT WAS CAUSED BY CONGRESS and Dodd-Frank was the vehicle by which Congress covered up their complicit behavior. The first mortgage crisis wasn’t in 2008; the first was in the 60’s after Congress loosened the standards on FHA in 1957 to help stimulate growth of housing. Predictably, this resulted in a boom which led to a….you got it, a bust in the late 60’s. The pattern is recurring and predictable. The difference was that this time “Congress’s policies were so pervasive and were pursued with such vigor… that they caused a financial crisis as well as the usual cyclical housing market collapse.”(1) Prior to 1992, Fannie Mae and Freddie Mac dominated the housing market and market forces were led to believe that they were government backed because of a $2.5 billion line of credit with the Treasury. This “misunderstanding” did not lead to immediate problems, however, as 20% down payments, good credit reports, and low debt- to-income ratios were the standard of the industry. This led to a fundamentally sound mortgage market up until 1992 when
Let me know what you think: bcassady@kybanks.com March 2014 | 6
the “affordable housing” goals for Fannie and Freddie were changed by Congress. In 1992, political pressure from an activist segment of Congress directed Fannie and Freddie to increase their low and moderate income quotas/goals to 30%, then 42% (1996), then 50% (2000), and, alas, 56% (2008). These goals became harder and harder to meet, so Congress suggested lowering the underwriting standards. Zero down payments and lax borrower credit standards did the trick and resulted in a bonanza of sub-prime loans. To everyone but Congress, this led to a very predictable outcome. As a result of lower loan quality, 76% of ALL mortgages went on the GOVERNMENT agencies’ books, being managed by government policies. This is the truth. These are the facts. It should leave no doubt where the unprecedented demand for the mortgages came from. These changes worked in our economy like a welloiled machine. Supply and demand was king. With housing demand increasing, housing prices rose. By 2000, the developing “bubble” was already nine times larger than any “previous bubble.” It finally burst in 2007 and when that happened the economy reacted as any historian or marketing major could tell you- prices fell and defaults rose. The interrelated mortgage backed securities fell with them, again, as you would expect. But, the impact was again manipulated by government interference. In 1994, “mark to market” valuation was required. The result was, when there was no market for homes, and values were dropping, it became a market value free-for-all. (I firmly believe that there were then, and are now, alternative ways to value assets that would have averted the crisis, but fear of liability by auditors and examiners would not allow them to use these tools.) The rest is very well known. Financial firms had to write down their mortgage backed securities, which led to large capital drains, which led to insolvencies.
Again, these are the facts and this is the truth. The crisis wasn’t caused by insufficient regulation but by government intervention into the market place through Fannie and Freddie. In order to cover their tracks and culpability Congress started screaming FOUL by the financial industry, and passed knee jerk legislation called Dodd-Frank to insure the public that they wouldn’t tolerate this kind of behavior and forbid these big, bad banks to ever do this again! It was the worst thing they could have done because we all know where it has led us today. Slower recovery, burdensome and useless regulations, downward pressure on consumers, and the loss of community banks that can’t afford to keep up with the paper work. There, you wanted the truth, the whole truth and nothing but the truth ….you got it! P.S. Another truth to think about: Literacy groups collect contributions because we have 30 million illiterate citizens in the U.S. That’s a good thing. However, the other side of the coin is we have 30 million illiterate voters! Think about that. (1) Thanks to Peter J. Wallison Chair of Financial Policy Studies at the American Enterprise Institute. Quotes come from a paper he wrote entitled “The Case for Repealing Dodd-Frank” Nov. 5, 2013.
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MY TWO CENTS PLUS SOME Fast forward to 2013.
Who’s in Your Wallet? I am fascinated, offended and intrigued by all the discussions about payment systems and virtual economies. I know that I already wrote on this topic a bit, but new information just keeps presenting itself. All of this makes me wonder what has happened to the reputation of the banking industry and why are people so quick to throw their money at non-traditional providers of services. The fascination started for me when I first started learning about check cashers, title loan companies, fly-by-night mortgage brokers and similar providers of services. At first, I wondered why people would use these services when they have safe and sound, highly regulated banks where their money would be protected. Then, of course, I recognized that some people don’t qualify for traditional banking services and that these may be their last resorts. But then I started hearing about people going to these services because it was “easier” or a “better deal” and that is when I started worrying. The result was exactly what we expected—greed and cheating were being contributed to the economic problems we are facing, and banks have ended up with reputational damage even when they were not involved. March 2014 | 8
Our standard for payment processing is archaic. We went from a system where everyone—payers and recipients alike— expected a certain lag time. Regardless of whether you were handling checks, credit cards or loan applications, time was something that you could rely on to give an opportunity for review and consideration. But, it also gave thieves a window of opportunity—think check kiting. From there, technology allowed and demanded that everything speed up. Consumers began expecting instant gratification. They wanted to day trade stocks, get instant cash, pay bills immediately…but they did not want to pay for it. Isn’t technology free? Banks tried to keep up by offering faster, more modern spins on banking. We saw online banking and check services, phone apps, telephone transfers, etc. But, we missed a few things along the way; One, thieves will always out-pace businesses in the misuse of technology. Two, technology becomes obsolete very quickly. Three, private companies can compete in this area better than banks because they are not hampered by regulations and they do not pay FDIC premiums. It’s that last comment that has placed us in the difficult position we face today. We (banking industry) are now doing business in a world where we are losing control of the one thing that distinguishes us from everyone else—the universal payments system supported by FDIC insurance. Here are examples of what I mean: Decoupled debit cards—Target was the first place I saw doing this, although I am sure there are others. You bring a voided check to Target. They give you a Target “red” card which can be used anywhere as a debit card, debiting from your existing checking account. For every Target purchase, you get a 5% discount. That does two things—it
promotes more spending at Target and it removes the bank brand from the customer’s mind. They start thinking of Target as their “bank” and the actual bank as a vendor behind the scenes. (But, the bank still holds the liability, as we recently saw… was it just coincidence that none of the “red” cards were compromised?) PayPal and similar payment systems— Again, the payments are made through your checking account, but the customer is removed from their relationship with the bank. You can pay for merchandise and pay bills on PayPal. The merchant pays the fees. To the customer and the merchant, the payment is instantaneous, because PayPal shows immediate transfer between accounts (even though PayPal is actually waiting for clearance through the regular payment system). You click on a button on a merchant’s website and all you have to remember is your password. You don’t need to have your credit card handy or type in that long series of numbers. You can also open up a line of credit through BillMeLater (a subsidiary of PayPal) so that you can eliminate your bank account altogether. You can also make gifts to other friends on PayPal. From the consumer’s perspective, it is faster, easier and cheaper than a bank. Bitcoin—This example makes me think people have truly gone crazy! Bitcoin started as some weird social experiment or something. It almost sounded like some “Wall Street” virtual reality game. It started in 2008 as a person to person closed payment system with its own currency. In 2009 it became open source, but the usage was still fairly limited. Once the word started spreading, usage grew. Some people used it as a way to track bartering—for example, a restaurant would give you a meal for a Bitcoin, which the restaurant owner would exchange for local produce etc. But, everyone had to be using Bitcoin. There was no exchange.
Some people used it as a gamble or a game—they would ask people to give them Bitcoin credits by Facebook posts or signs held up at a ball game. Then, the bad guys tuned in. The most notorious was Silk Road, which was an online comprehensive drug operation organized by a college student, who accepted only Bitcoin as payment. He was shut down in 2013. Once the participation grew large enough, exchanges opened—these included individuals paying actual currency for Bitcoin transfers, sometimes at card tables in public parking lots. Some governments were even considering recognizing Bitcoin as an actual currency. At least one small local government (not in Kentucky) paid employees with Bitcoin credits. Now, after all of this, how were people surprised when a Bitcoin exchange was recently hacked and all of the Bitcoin that was being held for others was taken and they had no legal recourse and, GASP….no FDIC insurance! (Like paper currency, you have no proof of
ownership after it is transferred.) Or, when a Bitcoin user tossed out his old hard drive, without backing up the equivalent of 4 million British pounds in Bitcoin. Who thought this was good idea??? Postal Service—Some suspected, after Dodd-Frank, that the current Administration desired to create a single network of government sponsored banks. This seems possible given the excessive constraints put on smaller banks and the micromanaging applied to the largest banks. But, even more telling are the rumors in DC that the USPS is considering a run at banking, in order to stay in business. It is genius. They already have a branch in every community and a teller that goes door to door. They deliver checks and sell money orders. Couldn’t they just as easily sell prepaid payment cards or short term loans? What next? Health exchange kiosks?
Where does that leave us? It leaves us at a crossroad. Do we keep walking down the same path, allowing others to dictate our future and our success or do we look for resolutions. The FRB recently released a white paper on the payment system and why it needs to be overhauled. The FRB requested input. Less than 200 responses were received. How can that be? Twenty thousand commented on KYC rules so many years ago (We won that battle, but lost the war.) We should be up in arms! I sat on a “taskforce” designed to discuss the payment systems issue. I knew that I was in wrong place when everyone else wanted to target a 10-year deadline for restructuring our systems. The current system is already 10 years behind. I realize that this sounds like one of Ballard’s columns. I guess I learned from the best. We have to be proactive on this issue or risk real consequences.
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Kentucky Bank: One of the Best Places to Work Kentucky Bank has been recognized, for the third year in a row, as one of the Best Places to Work in Kentucky in the 2014 statewide competition organized by the Kentucky Society for Human Resource Management and the Kentucky Chamber of Commerce. This statewide survey and awards program was designed to identify, recognize, and honor the best places of employment in Kentucky, benefiting the state's economy, its workforce, and businesses. “This honor is a testament of the commitment of our entire team to make Kentucky Bank not only a strong, well run financial institution, but a place that people enjoy working because of a positive working environment. We recognize that in today’s world, all of us are challenged to balance work and life outside of work. We hope that at Kentucky bank that we have helped our representatives accomplish that,” commented Louis
Prichard, President and Chief Executive Officer of Kentucky Bank. The Kentucky Society for Human Resource Management (KYSHRM), in conjunction with the Kentucky Chamber of Commerce, announces the winners in the Tenth Annual Best Places to Work in Kentucky competition. The selection process, managed by Best Companies Group, is based on an assessment of the company’s employee policies and procedures and the results of an internal employee survey. Kentucky Bank has over 200 employees throughout its service market of ten counties in central and eastern Kentucky. The company has had banking charters since 1851, and currently has $769 million in assets. Kentucky Bank’s trading symbol is KTYB.
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Best Practices for Success in Social Media...Whether Seasoned or Beginner Is there anyone left who isn’t engaged in social media? No longer a fad or for younger generations only, social media has captured the attention of the masses. That’s why financial institutions need to consider being social, too. But financial institutions can only be productive members of the social media conversation by knowing where it’s happening, and consciously joining in. Remember, even if your institution doesn’t join in, it’s still being discussed on social media, but without having a say—or maybe even a clue. Whether your institution is new to social media or in need of ideas to reinvigorate your existing presence, the following best practices are a helpful start to either beginning or enhancing your social media program. Planning for Social Media Strategize First, Then Jump: The first step in a successful social media plan is putting the pieces into place beforehand. Think through your brand and marketing strategies and determine how social media will fit—today, tomorrow and in the longer term. Decide what you want to achieve with social media, which demographics you wish to reach, and which platforms you will use. Remember, many institutions start out with one platform, typically Facebook, to test their plan before expanding. Assign Ownership: Someone must be responsible for the day-to-day activities of your social media plan. This person or team needs to be accountable for it and report any issues to the board. And everyone else in your institution should know who that person is. Also, before you launch your social media program, train your employees on it. Make sure they understand how it will work, what role they will play, and what is acceptable in that role. Assume the Best but Prepare for the Worst: After successfully fulfilling the steps above, your institution’s foray into social media should go smoothly. But what happens if, the week after you launch your institution’s Facebook page, your website goes down or your institution suffers a data breach? You most likely will be inundated with angry posts and comments. Proactively develop a crisis communication plan for just such instances, so it can be implemented immediately if something goes awry. Social Media in Progress Now, you are ready to begin or reboot, but what to post? And where and how to do it effectively? Never Forget Who You Are: Your brand should be the crux of your social media content. If your institution is known for its “Genuine Hometown Banking” slogan, reflect that within everything you do on social media. That doesn’t mean
overstating the slogan or slapping your logo everywhere. It means subtly reinforcing that message when you converse on social media, and being yourself by focusing on your products, services, areas of expertise and place within your community. Tailor to Your Audience: Social media should help you build and maintain relationships. To make that happen, match each demographic to the appropriate channel, keeping in mind that user preferences shift frequently. In addition, match the style of content best-suited to each demographic, and don’t try to be so trendy that you forget who you are—a financial institution. Never Slack Off: What happens when you don’t keep up your end of a conversation? The other person moves on to a more interested party. Once you put a social media plan in place, continually post new information and monitor incoming posts. If you start a discussion, keep it going by responding to those who comment. And join in on your fans’ or followers’ comments. Take the Good with the Bad: Nobody likes to hear criticism, financial institutions included. But even if you don’t have a proprietary social media presence, criticism about your institution will surface in other places, probably unbeknownst to you. Use your social media presence to gather both the positive and negative feedback firsthand, so that you can effectively control the response. Go with the Flow: The one thing that remains constant about social media is that it is ever-changing, from the shifting popularity of platforms, to the rules for each and the way consumers and businesses use them. Your social media team needs to be diligent in watching the trends, keeping track of your platforms’ terms of service, and listening to your customers. There are many valuable uses for social media—engaging customers, problem resolution, marketing, product research, and even fraud detection. So if at first you didn’t succeed, try again with these best practices and see just how far the conversation can take your institution. About the Author Lee Thomas is a customer relationship manager with Computer Services Inc. (CSI), Paducah, Ky. He has been with the company for 10 years, serving in sales and account management, and presents regularly on Regulation E error disputes and social media compliance. Thomas can be reached at 888-494-8449, email: lee.thomas@ csiweb.com.
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The Bank of Maysville Spotlight So much happened in 1835, starting with Andrew Jackson paying off the National debt in its entirety on January 8th of that year (which only lasted a year), followed by the attempted assassination of President Jackson on January 30th by an unemployed house painter; the first ever attempted assassination of a U. S. President. In 1835 P.T. Barnum’s circus toured the United States and carefully avoided Texas, where Revolution was brewing. The first issue of the New York Herald headlined the Great Fire of New York.
Q. We understand that the Bank of Maysville commenced business as a branch of the Bank of Kentucky, receiving its first deposit on June 26, 1835. How does this history of nearly 200 years impact the way you do business today? A. History is a fine teacher. We know loyal customers are the lifeline of our bank. We understand that people have a choice to bank at other institutions and we want to ensure we remain their only choice by treating our customers with respect and appreciation for their business.
In our Commonwealth, there was something equally historic happening…the Bank of Q. Do you have Maysville opened their Bank of Maysville Third Street Branch clients who have doors as a trusted community financial institution and planted roots in this been with the bank for generations? Ohio River town. A. Yes! We can trace at least fifty families that still bank We wanted to know more about our state’s oldest with us today. This is a great testament to the way we bank so we contacted Vicky Lowe, Vice President of conduct business. the bank: Q. What is the most unique piece of architecture that still exists today from the banks inception? A. Our vault at the main location. It is a round door which is fifteen inches thick and weighs 20 tons. We also have in that same lobby encased in glass, a pistol and spur worn by an officer who was a member of Morgan’s Raiders. The bank was closed and all of the money was moved to another location in Hillsboro, Ohio until it was safe to return it a week later.
Q. What do you see in store for the bank over the next 100 years? Bank of Maysville Main Branch March 2014 | 12
Maysville, KY Fast Facts Maysville was historically important in Kentucky’s settlement. Frontiersmen Simon Kenton and Daniel Boone were among the city’s founders. In 1998 a series of historical murals were created on the downtown floodwall. Over ten years Robert Dafford and his team painted ten murals exploring the history of Maysville on various sections of the floodwall (“Bandstand Mural,” pictured below, depicts Market Street in the 20’s and 30’s).
A. We keep up with technology and we see that continuing. We will always provide the needed services our customers desire and we will continue to treat them with the same respect we always have…our customers are our family. Special thanks to the the Maysville Visitor’s Bureau and Vicky Lowe for their assistance.
Maysville was home to one of the largest tobacco auction warehouses in the world for most of the 20th
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mcmcpa.com | Kentucky | Indiana | Ohio March 2014 | 13
Shining a positive light on the industry is sometimes challenging for all of us. We are busy with regulators, examiners, and customers and sometimes forget to focus on the good news within our bank. Here at the KBA, we know what our members do within their communities; how much they give back by donating time, hosting fundraisers, and simply lending a helping hand. But not everyone has the opportunity to see that side of our members. Last year, the KBA decided it was time to get the word out that our bankers are truly vested in their communities. We developed a campaign, One on One, to help us achieve this goal. The program was designed as a way for us to share positive stories about all of the ways our members give back to their communities and the KBA committed $25,000 to the initiative. This is how it worked: a member could send in a completed form that stated what charity they helped and some sort of story, article, etc. that supported their form. In turn, we would send them $100 to donate to that charity, on behalf of their bank. This was our way of generating the positive publicity for both the banks and the industry as a whole. It also brought about a positive light to the organizations, some of which many people may not have thought of until this campaign. In 2013, our members helped organizations such as food pantries, school supported teams and associations, parks, garden clubs, outreach programs, and so many more!
At the end of the year, we had used $22,300 of the $25,000 that was committed. We thought the best way to use the remaining $2,700 was to let the bank who had the most completed forms choose the charity to make one more donation to and that bank was Citizens Union Bank with 14 nominations. It goes without saying that this program exceeded the expectations of the KBA and most certainly brought about the positive outlook for our members. Thank you to all who participated in this campaign and know that all of us here at the KBA are always looking for those moments to shine a light on all you do! Here’s to a successful community campaign…and to more positive initiatives in the future!
Experience is one thing you can’t get for nothing.” – Oscar Wilde
Well-designed and effective internal controls help community banks successfully manage risks in today’s ever-changing regulatory environment. Choose CRI, where our community bank risk management experience is your checkmate. banks@CRIcpa.com CRIcpa.com | blog.CRIcpa.com INTERNAL AUDIT | EXTERNAL AUDIT | TAX | REGULATORY COMPLIANCE | LOAN REVIEW | IT SERVICES
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INSTANT FINANCIAL CARD ISSUANCE Emerging Revenue Opportunities for Your Bank KBA endorsed, Datacard Group, is an innovative developer of instant issuance and PIN selection solutions for banks. CardWizard® is the leading instant issuance solution for Visa® and MasterCard® debit cards in the United States. The company offers fully integrated solutions that allow financial institutions and retailers to quickly and securely issue ATM, debit and credit cards instantly at branch or store locations. Datacard Group is building on a 40-year heritage of innovation and customer success. Their portfolio of solutions, backed by expert service and support, enable card and secure ID programs for financial institutions. With an unmatched commitment to customer satisfaction, Datacard remains the industry’s best-selling brand of secure ID and card personalization solutions. When you select Datacard Group for instant issuance, you are leveraging more than 40 years of experience and expertise. That means you can expect unmatched service and support from a stable, proven company that serves customers in 120 countries. It also means you can rely on Datacard for solutions that deliver: -Secure Issuance Anywhere™ via central or instant issuance -Industry-leading card image quality -Full range of issuance hardware: direct-to-card printers, embossers, retransfer printers -Comprehensive service: installation, maintenance, support, security and consulting -Tailored configurations for your specific program requirements -Affordable deployment with no additional workstations, branch servers or software required Let Datacard Group and CardWizard show you where to turn for new revenue by utilizing instant issuance and discuss the numerous benefits for your bank and for your customers. Simply contact Selina Parrish at the KBA (502) 736-1282 or sparrish@kybanks.com for more information.
Training Tidbits from KBA Education Solutions Train your commercial lenders or credit analysts without leaving the bank with ABA created Evaluating and Structuring Commercial Loans: A decision tree approach. Over 35 hours in training included in the courses: •
Understanding Business Borrowers
•
Analyzing Business Financial Statements and Tax Returns
•
Analyzing Personal Financial Statements and Tax Returns
•
Qualitative Analysis and Determining a Credit Risk Rating
•
Loan Structuring, Documentation, Pricing and Problem Loans Questions? Call or email Chris Kelso 502-736-1300; ckelso@kybanks.com March 2014 | 15
U. S. Bank Scholarship U.S. Bank is now accepting applications for the 2014 U.S. Bank Scholarship Program, continuing its support of current and future college students. In the program’s 18-year history, U.S. Bank has awarded more than $500,000 in college scholarships to students across the country. U.S. Bank will award $1,000 scholarships to 35 students through a random drawing. New this year, it will award one $5,000 scholarship to a student who completes a series of eight Financial Genius education courses online. Applications will be accepted through May 29, 2014. Students can review official terms and conditions and apply online at www.usbank.com/scholarship. “We are proud to continue the U.S. Bank Scholarship Program for the 18th consecutive year,” said Erica Opstad, Vice President, Office of Corporate Citizenship & Financial Education at U.S. Bank. “The addition of a financial education element to the scholarship program will help students learn about personal finance at an important stage in their lives.” The online financial education courses will cover topics such as savings, credit, and identity protection. U.S. Bank partnered with Washington, D.C.-based education technology company EverFi to implement the activities, which aim to train and motivate students to make positive financial decisions. U.S. Bank is one of the top student banking institutions in the nation, providing a comprehensive line of student banking products including mobile and online banking, campus ID card programs, U.S. Bank student checking and savings, and Visa Buxx® prepaid spending cards. Students and parents can find information and tips about financial education for students on U.S. Bank’s website – www.usbank.com/studentbanking.
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Farmers National Bank and Coach Calipari Team Up Farmers National Bank and the Calipari Family Foundation are excited to be embarking on the second year of their initiative to bring financial literacy education to students across six school districts by providing them with access to the Vault™ – Understanding Money learning course. This web-based program uses the latest in new media technology – simulations, avatars, gaming and adaptive-pathing – to bring complex financial concepts to life for today’s digital generation. Through the course, students at 17 elementary schools in Boyle, Burgin Independent, Danville, Garrard, Lincoln, and Mercer counties will become certified in hundreds of topics in personal finance, allowing them to become more informed, responsible citizens. Over the course of the last year and a half over 1,100 students have become more financially literate thanks to Farmers National Bank’s sponsorship of Vault. Teacher Ruthie Young from Perryville Elementary had nothing but praise and appreciation for the program when she stated that Vault was “the best program I ever used!” Greg Caudill, President/CEO, added, “As we face the worst economic crisis in generations, it is more important than ever to arm young people with the skills to navigate an increasingly complex financial system. We are excited to offer students an innovative educational experience that uses the tools they love–digital learning and gaming–to teach this important topic.” Vault™ - Understanding Money is an interactive learning platform specifically designed to introduce financial literacy skills early in a child’s cognitive development. Course topics include saving, budgeting, responsibility and decision-making, credit and debt, careers, income, charity, and more. The course features interactive lessons, games, and story-based activities that challenge kids to make choices in real-life scenarios to best achieve important goals around saving and job planning. “From the small rural towns to major cities across the US, EverFi technology is literally transforming how students learn, and we are incredibly grateful for the public-private partnerships that make this possible,” said EverFi CEO Tom Davidson. “Farmers National Bank is critical to the success of our mission to ensure that these cutting-edge tools reach all communities.” EverFi, Inc. is the leading education technology company focused on teaching, assessing, and certifying K-12 and college students in the critical skills they need for life. The company teams with major corporations and foundations to provide the programs at no cost to K-12 schools. Some of America’s leading CEOs and venture capital firms are EverFi investors, including Amazon founder and CEO Jeff Bezos. Farmers National Bank, a community owned bank since 1879, has banking facilities in Danville, Burgin, Harrodsburg, Junction City, Lancaster, Perryville, and Stanford.
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Shedding Light on the Farm Credit System... ....America’s Least Known GSE FCA Board holds secret meetings to plot the future of the FCS On January 16, and again on February 19, the Farm Credit Administration (FCA), the FCS’s regulator, held all-day, closed-door “Symposiums” to address “Consolidation in the Farm Credit System: The Factors Influencing Consolidation and the Potential Impact on Mission.” Despite requests from ABA staff and from me, members of the public and the media were barred from attending these Symposia. The three members of the FCA board actively participated in the first Symposium and almost certainly did in the second one as well. Under the Government in the Sunshine Act, the presence of even two of the FCA board members at these Symposia would require that these events be open to the public. During her time in Congress, FCA Chairman Jill Long Thompson was a champion of increased transparency in government. As FCA Chairman, she clearly has tossed that commitment aside. The FCA has yet to respond to a Freedom of Information Act (FOIA) request I filed with regard to these Symposia asking for, among other things, a list of the Symposium invitees and attendees, a transcript or recording of the Symposium proceedings, staff notes, and presentation materials. I was able to obtain the agendas for the two Symposia so we know who the speakers were and the topics they addressed. The FCA has posted on its website the opening statements of the three FCA board members as well as the papers presented by nine speakers at the first Symposium; they can be found at: www.fca.gov/reports/symposium2014.html. In discussing consolidation within the FCS, FCA board member and former FCA chairman Leland Strom stated that “we have not declined a single merger request, but we have enhanced our review requirements of merger applications . . .” As was evident from some of the papers presented at the first Symposium, continued FCS consolidation clearly is desired by many within the FCS as well as by its cheerleaders. For example, Chuck Conner, CEO of the National Council of Farmer Cooperatives and former USDA Deputy Secretary, stated quite emphatically that “nothing in the legislative history [of the Farm Credit Act] suggests that Congress wanted FCA to dictate [FCS] bank size. If anything, the clear direction was for the banks to optimize efficiencies in order to keep [the 1987 ag crisis] from ever happening again.” Interestingly, Conner’s organization shares office space with CoBank’s Washington office, which suggests, quite reasonably, that Conner was providing CoBank’s views on this matter. Prior to the ag crisis, there were 37 FCS banks. Today, there are just four FCS banks. Interestingly, several of the papers presented March 2014 | 18
at the first Symposium noted the FCS’s poor performance as a lender to young, beginning, and small (YBS) farmers. Especially telling was this observation by Ferd Hoefner, Policy Director of the National Sustainable Agriculture Coalition: “Whatever the outcome may be on merger and consolidation proposals, we would strongly encourage an ongoing and enhanced commitment to [FCS] YBS activities . .. Going forward, careful attention should be paid to the roughly third or more of [FCS] associations who have not met their YBS goals in recent years.” [emphasis supplied] This statement is a powerful affirmation of what FCA data show – FCS lenders cannot even meet the low YBS lending thresholds established for them by the FCA. We do not know yet how many FCS employees and directors attended the first Symposium but we know that five FCS representatives participated in a panel discussion at the second Symposium to present FCS’s “Views of the Future Relative to Consolidation in the [FCS],” including CoBank president Mary McBride and Doug Stark, CEO of Omaha-based FCS of America, the largest FCS association. Unfortunately no commercial bankers were asked to share their views about consolidation within the FCS. While FCS views are not irrelevant, the fact that they were conveyed behind closed doors reinforces the widespread belief that the FCA is a “captured regulator” responding to the whims and wishes of the FCS and especially of its largest entities, such as CoBank and FCS of America. Congress kills “say on pay” for FCS borrower/stockholders Buried in the 2014 Farm Bill is Sec. 5404, Compensation Disclosure by [FCS] Institutions. Despite its innocuous title, this small piece of the Farm Bill represented a major victory of the FCS over the FCA. As I reported in the June 2013 FCW, the FCS voraciously opposed an FCA regulation that would give borrower/stockholders of FCS associations the option of calling for an advisory vote on the compensation of the senior management of their association – a so-called “say on pay.” FCS associations – that is, the senior management of those associations and their complicit boards of directors – lobbied long and hard for this Farm Bill provision. After proclaiming that “the participation of stockholders in the election of the boards of directors of [FCS] institutions provides stockholders the opportunity to participate in the management of their institutions,” the bill contends that directors “importantly establish and oversee the compensation practices of [FCS] institutions.” The bill then states that “any regulation should strengthen and not hinder the ability of [FCS] boards of directors to oversee compensation practices.” Now comes the kicker: “the [FCA] shall review its rules to reflect Congressional intent that a primary responsibility of the boards of directors of [FCS] institutions . . . is to oversee compensation practices.” The
clear-cut message to the FCA – kill its “say-on-pay” rule. Score an important victory by the FCS over its regulator. Why did the FCS work so hard to get this provision into the Farm Bill? This provision, plus the discussions at the FCA’s Symposia, could be a signal that major mergers within the FCS are in the offing. FCA board member Strom defends CoBank’s Verizon loan During his opening remarks at the January 16 Symposium, FCA board member Leland Strom offered a rousing defense of CoBank’s recent $725 million loan to Verizon, stating that “greater lending capacity provides opportunity for [FCS] institutions like CoBank to participate in large corporate banking transactions such as the recent Verizon purchase of Vodaphone’s stake in Verizon Wireless. This loan was made under the Farm Credit Act’s similar-entity lending authority as it relates to rural telecom lending. In my opinion, not only does that authority not extend to Verizon borrowing from CoBank, but it certainly is contrary to Congress’s rationale for creating the FCS – to provide credit to farmers and ranchers unable to obtain credit from other sources. Strom, who recently chaired the FCA board, must have felt compelled to justify such an egregious loan in public because I understand the FCA had no knowledge of the loan until I made it public in last October’s FCW. In a dramatic backwards spin, worthy of the Sochi Olympics, Strom attempted to create the impression that the FCA was awake at the wheel when this loan was made. Strom also indicated that CoBank has syndicated portions of the Verizon loan within the FCS when he referred to “its subsequent participation [of the Verizon loan] to other [FCS] institutions.” I plan to analyze FCS call reports to determine the extent to which the Verizon loan was participated to other FCS institutions. Report FCS lending abuses to: green-acres@ely-co.com Bankers are continuing to send FCW reports of FCS lending abuses, such as FCS loans for rural estates, weekend getaways, and hunting preserves. Email reports of similar lending abuses in your market to: green-acres@elyco.com. Please provide as much detail as possible about any loan which violates the spirit, if not the law, governing FCS lending.
Got News to Share? Let us help spread the word on what your bank is doing... Email Angie White at awhite@kybanks.com
Pictured left to right: Robert Cecil, Gus Miles, Troy Jennings, Amy Riley and George Maddox. Over the holidays, the employees at Kentucky Home Bank in Bardstown held a food drive at their location for the local food pantry. In addition to the boxes of non-perishable food items that were collected, the employees made a donation of $250. Now that’s making a difference in your community!
Reprinted with permission from Bert Ely’s Farm Credit Watch. February, 2014 (No. 191).
March 2014 | 19
March 2014 | 20
UPCOMING EDUCATION EVENTS & SEMINARS
Speed
Intro to Consumer Lending & Key Ratio Analysis Seminar Two-day Program March 13 & 14 Lexington
Networking
Event
Fiduciary & Business Accounts Pegasus Program March 10 March 11 March 12 March 13 March 24 March 25 March 26 March 27
Gilbertsville Madisonville Bowling Green Elizabethtown Morehead Hazard Somerset Lexington
KBA Spring Conference
NETWORKING,
WINE TASTING
DRINKS AND APPETIZERS
April 13-15, 2014 Hyatt Regency, Lexington
The Old 502 Winery May 14 at 6 p.m. 120 S. 10th St., Louisville, KY 40202
A speed networking event for emerging professionals that are members of the Kentucky Society of CPAs, Louisville Bar Association or Kentucky Bankers Association. Emerging professionals are those who are age 40 or younger and/or have 10 years or fewer of banking experience.
Loan Documentation Workshop Two-day Program
RSVP to Becky Ackerman at backerman@kycpa.org.
April 1 & 2 Bowling Green April 3 & 4 Lexington
Train the Trainer Pegasus Program
Cash Management Seminar
May 12 May 13 May 14 May 15
April 9 Louisville LENDING COMPLIANCE SCHOOL April 21-25 Louisville Business Development & Officer Calling Seminar May 7 Bowling Green May 8 Lexington
Gilbertsville Bowling Green Elizabethtown Lexington
Branch Management Workshop Series May 13 June 17 August 12 September 9
Louisville Louisville Louisville Louisville
Appraisals and Evaluations: Keeping Your Valuation Program Compliant Seminar May 14 Lexington May 15 Bowling Green GENERAL BANKING SCHOOL June 1-6 Louisville
March 2014 | 21
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The Arnett Foster Toothman banking team: Kentucky’s #1 accounting resource. How does one team harness so much horsepower? While the reasons are many, sound judgement and proven experience head the field. Arnett Foster Toothman delivers the most complete stable of audit, tax, consulting/compliance and IT services of any firm. And with a half century of experience, your bank benefits from our trustworthy reputation and counsel.
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CONTACT
Chris Nice, Member chris.nice@aftcpas.com 800.642.3601
NCONTRACTS HAS A BANNER YEAR: INCREASING SALES BY 90% Brentwood, Tennessee-January 7, 2014 – Ncontracts today announced it achieved 80% business growth for its fiscal year ending December 31, 2013. It also reported that 90% of its sales came from the addition of 103 new financial institution clients in 26 states-significantly outpacing the growth of other compliance focused companies. Vendor management is a hot topic for financial institutions, which face growing compliance scrutiny and costs. Michael Berman, CEO at Ncontracts, explains, “Our web-based solution, together with consulting services and paralegal support allows our clients to streamline what has become a very labor intensive process. In addition to saving money, every financial institution utilizing Ncontracts has successfully passed the third party risk management portion of their exam. We expect our growth to continue because to our knowledge we are the only company that provides a total solution for the issues of vendor management.”
About Ncontracts Ncontracts® is a leading provider of vendor and contract management services in the United States. Ncontracts combines full service implementation services with a professional contract management application that provides clients with the ability to have insightful summaries of their contracts, alert notifications, and robust compliance services. Together, these features allow clients to reduce expenses, enhance profitability, and improve internal efficiencies. For more information, visit http://www.ncontracts.com.
March 2014 | 23
Kentucky Bankers Association
It was Selling, then it was Officer Calling, then Business Development, and then it became Relationship Management, NOW . . . it’s all about RESOURCE MANAGING! How the New RM—the Resource Manager—is Trumping the Competition. Like he’s done every day for the past decade, Tom arrives to work at National Bank at 8 a.m. He opens emails and responds promptly to client needs. He reviews overdrafts, takes a look at his calendar for the day and checks the bank’s intranet for any internal news. Like thousands of commercial and business bankers in Kentucky, Tom views himself as a dedicated Relationship Manager who makes certain his clients are happy. Tom has a challenge, though. Business has leveled off and his pipeline is skinny. Even the deals he is getting are closing with lower margins. He continues to lose sales to Janet, a new officer at a competing bank. Janet’s morning takes a similar path, differently. Janet is at the bank at 7:00 AM. She reviews LinkedIn to see who has reviewed her profile and she checks in on any discussions she can get involved with in one of her 10 targeted groups. Janet then takes her Pulse – the one on her LinkedIn home page - that guides her to some targeted articles she thinks might be of value to the marketplace. She copies a couple, prints two of them and shares three more with her network of more than 700 LinkedIn connections. Then, she sends articles out to a prospect and two clients before the clock strike eight. She reviews overdrafts, checks the bank intranet and now she is ready to head out for her first of three sales calls. Both Tom and Janet are well educated, experienced, hard-working and good at what they do. What makes Janet more successful? One difference is that Tom is a Relationship Manager, while Janet, considers herself a Resource Manager. She even has that title on her business card to let people know how different she is. Relationship Managers maintain a portfolio of clients to serve and to deepen relationships with. It’s their job to be operationally efficient, fair and equitable, and to keep the client happy enough to stay with the bank in the face of competitive pressures. Resource Managers are certainly all of that—but tend to think differently, more proactively. They’re constantly looking for fresh ideas to share with clients, and coming up with ways to challenge the thinking of business owners and CFOs to ensure they’re considering lots of ways to grow their companies. Some of this was caused by the environment. Today, companies want to use their capital more effectively and are looking for new ideas that make them more effective and efficient. At the same time, interest margins are shrinking and the options entrepreneurs have to do their banking are growing. Business is more dynamic than ever with money in motion (MIM) constantly. Gaining mindshare is therefore a key success strategy. Relationship managers sell products, resource managers provide solutions. Look at any study and that’s exactly what business owners and companies want—and increasingly expect—from their banker. This condensed article is by: Jack Hubbard, chairman and chief sales officer of St. Meyer & Hubbard.
Want to know more – attend the upcoming KBA Seminar with Jack Hubbard! “Business Development and Officer Calling Seminar” May 7th in Bowling Green, at the Holiday Inn May 8th in Lexington, at Four Points Hotel You can register online, or contact Jamie Hampton jhampton@kybanks.com. March 2014 | 24
Leizel Miles has been named Executive Vice President, Chief Credit Officer for Farmers Capital Bank.
Hollie Still was promoted to Vice President, Corporate Compliance/ BSA Officer of Farmers Capital Bank.
Adam Leeshaft has been promoted to Branch Manager of the Kimberly Square Kroger store in Nicholasville of United Bank.
Alex Ulm was promoted to President of the Bank of Edmonson County.
Lexington | Louisville | Little Rock | Chattanooga | Cincinnati | St. Louis | Birmingham
Bill Williams was promoted to Senior Vice President/Chief Credit Officer for Citizens Union Bank.
Our industry works hard to serve the communities, we want to recognize bankers who excel in their positions. There are plenty of ways to be “On The Move� in your Kentucky bank. A recent promotion, a new employee, even a new grandbaby! Let us share your good news with our readers. Send On The Move announcements to: Lane Hettich, lhettich@kybanks.com March 2014 | 26
ON THE MOVE Chastity Ewing was promoted to Branch Manager of the Locust Street location in Versailles of United Bank.
Michelle Coleman was promoted to Chief Executive Officer of the Bank of Edmonson County.
Belinda Nichols was recently hired as Senior Vice President/Business Development for Citizens Union Bank.
Sean Sanders has been promoted to Loan Officer at the Bank of Edmonson County.
Stacy Allen was promoted to Branch Manager of the Midway location of United Bank.
Kim Dodson was promoted to Senior Vice President/Head of Treasury Management for Citizens Union Bank.
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