Kentucky banker magazine may 2015 by Kentucky Bankers Association

KENTUCKY BANKER May 2015

CONTAC TS BOARD OF DIRECTORS Mr. Bill Allen Bank of the Bluegrass and Trust Company

Ms. Lanie W. Gardner First National Bank of Muhlenberg County

Mr. William Alverson Traditional Bank, Inc.

Ms. Elizabeth Griffin McCoy Planters Bank, Inc.

Mr. Thomas J. Smith, III American Bank & Trust Company, Inc.

Mr. James W. Beach Peoples Bank & Trust Company

Mr. Gordon Kidd United Cumberland Bank

Mr. Ryan Steger Commonwealth Bank FSB

Mr. Michael H. Mercer First Security Bank of Kentucky

Mr. H. Lytle Thomas Heritage Bank, Inc.

Mr. Glenn Meyers Kentucky Federal Savings & Loan Association

Mr. Frank B. Wilson Wilson & Muir Bank & Trust Company

Mr. Michael Mineer Citizens Deposit Bank & Trust

Mr. Greg A. Wilson The First Commonwealth Bank

Mr. J. Wade Berry Farmers Bank & Trust Mr. William F. Brashear, II Hyden Citizens Bank Mr. Neil S. Bryan The Farmers Bank of Milton

Mr. Louis Prichard Kentucky Bank

Cover photo taken by Celeste Logsdon â&#x20AC;&#x153;Two Swallowtail Butterfliesâ&#x20AC;?

for the Scenes of Kentucky Photo Contest

KBA STAFF Ballard W. Cassady Jr. bcassady@kybanks.com President & CEO

Michelle Madison mmadison@kybanks.com Information Technology Manager

Audrey Whitaker awhitaker@kybanks.com Insurance Services Coodinator

Debra K. Stamper dstamper@kybanks.com EVP / General Counsel / Director of Compliance

Lanie Minton lminton@kybanks.com Administrative Assistant

Tim Abbott tabbott@kybanks.com Account Representative

Katie Rajchel krajchel@kybanks.com Staff Accountant

KBA Benefit Solutions

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

Yvonne Savage ysavage@kybanks.com PAC Services Coordinator Angie White awhite@kybanks.com Manager, Communications Solutions Steve Whitlow swhitlow@kybanks.com Systems Engineer

Consultant

John P. Cooper jcooper@kybanks.com Legislative Solutions Consultant

KBA Insurance Solutions

Chuck Maggard cmaggard@kybanks.com President & CEO Brandon Maggard bmaggard@kybanks.com Account Representative

HOPE of Kentucky Billie Wade bwade@kybanks.com Executive Director

Tammy Nichols tnichols@kybanks.com Finance Officer & Asset Manager

Lisa Mattingly lmattingly@kybanks.com Director of Sales & Service Donna McCartin dmccartin@kybanks.com Benefit Support Specialist

CONTRIBUTING EDITOR 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

May 2015 | 3

CHAIRMAN’S CORNER The Kentucky Bankers Association’s fight to keep community banking relevant and thriving in our great Commonwealth is a core element of its mission - an ongoing effort that will require our attention and resources in the foreseeable future. Our recent trips to Washington, D.C. proved to be successful endeavors, with representatives from our Kentucky banks having several great meetings, not only with Kentucky’s federal delegation, but also with other members of Congress from both political parties. Provisions in the Dodd-Frank legislation were intended to curtail the culprits of the financial crisis but, in reality, they are hurting our community banks. This isn’t the first time nor will it be the last time our industry will be under attack. However, this attack on community banks has been hyper-accelerated in recent years, with many smaller banks falling by the wayside. At the same time, the assets of the nation’s six biggest banks have grown by almost 40 percent since Dodd-Frank was introduced. According to a September 13, 2013 article in Forbes magazine: • One-third of all business loans are now made by Bank of America • One-fourth of all mortgages are now funded by Wells Fargo • JP Morgan holds 12 percent of all the cash in the United States in its vaults • More than two-thirds of all of assets in the entire U.S. banking system are now controlled by these top six banks I honestly believe our federal delegation and other federal elected officials understand this critical issue but, as history suggests, we must continue to highlight and emphasize the value and importance of a robust community banking industry for our local economies and communities. For that reason, we must continue to educate and invest in the next generation of emerging leaders in each of our

May 2015 | 4

banking institutions, so they can continue to advocate on behalf of community banks. Fortunately, the KBA offers an Emerging Leaders Program that is designed to develop the next generation of leaders in our community banks. In the program, an emerging leader from each of the KBA’s nine districts receives training in leadership development, advocacy, peer networking, community outreach, and other professional growth areas. This program helps to drive home the core values upon which most of our organizations are built and provides an enriching experience for these emerging leaders. I had the privilege of spending time with the most recent class of emerging leaders on the trip to Washington, D.C. It was great to see the enthusiasm and passion of these young men and women as they met with our nation’s leaders. After having two, and now a third emerging leader from my bank participate in this program, I can attest from first-hand experience of the benefits of this program. My employees are better leaders, more knowledgeable, more confident, and more aware of the issues facing our bank and the industry today than before they started the program. Each has become such a vital asset at our bank that they will soon take on a much more important role in our organization. The KBA Emerging Leaders Program has made a significant contribution to each participant’s professional growth and ability to face future challenges. Leadership programs lead to more engaged, focused, and productive employees. While any program that requires time away from work and some additional expense can be challenging, our communities depend on us for the leadership that is needed to keep their economies strong. In addition, developing our next generation of leaders will help us keep the community banking industry alive and strong in Kentucky and assist us in the continued fight against industry attacks.

“I’ve never worked with a government program like KSBCI. The process was streamlined as if they worked for our bank. I’ve never had a third-party process go as quickly or as simply as this one. Thank you for putting together such a great opportunity to grow our portfolio and extend services to our community!” Greg Hambrick, Citizens Deposit Bank Bardwell, KY

KENTUCKY LENDERS here’s your chance to say “YES!” to more loan volume. NEARLY

6 MILLION IN LOAN SUPPORT

HAS BEEN APPROVED

THAT SUPPORT HAS RESULTED IN

OVER

53 MILLION

IN SMALL BUSINESS LOANS

You can take advantage of a program that’s already providing a powerful spark to grow businesses and create jobs. The Kentucky Small Business Credit Initiative (KSBCI) enables lenders to finance creditworthy small business credit requests that fall just outside of normal underwriting standards. Thanks to the U.S. Treasury Department, the Kentucky Cabinet for Economic Development’s Office of Entrepreneurship can provide funding that will reduce the risk participating lenders, credit unions, and community development financial institutions assume when making loans.

The bottom line is this: KENTUCKY PROVIDES A CREDIT ENHANCEMENT, INCREASING YOUR ABILITY TO UNDERWRITE THE LOAN. And you assume less risk. Dozens of Kentucky lenders already participate. You can, too. Find out more by visiting ThinkKentucky.com/smallbizlending, or call the Office of Entrepreneurship at 800-626-2250.

The Cabinet’s services, assistance, and activities are available to all without regard to race, color, gender or national origin.

STRAIGHT TALK A Sit Down with Luther Deaton I want to mix things up a little so every so often you will see an article about a banker found around the state. For the inaugural interview, I couldn’t think of anyone better than Luther Deaton. Luther has served our industry selflessly for decades and has become the one name around the country that a lot of bankers from California to New York recognize, and for good reason. At sixteen years old, Luther Deaton must have felt like the mythological Tantalus, doomed to eternal yearning for things just out of reach. He was a teenage gas station attendant in Breathitt County, a young driver eager to hit the road, relegated to fill the gas tanks of others. “We were poor, and we didn’t know it,” said Deaton, recalling his upbringing, “but Dad taught us to work hard for what we wanted.” Besides pumping gas at the Standard Oil station, Deaton worked at the A&P bagging groceries and unloading trucks. One day, while Deaton was working at the Standard Oil station, local banker J. Field Smith was there and Deaton couldn’t help but be curious about what it would take for him to get a car. Smith explained to him that a counter check could pay for a car, even though Luther did not have the purchase price in full. That concept – banks helping people afford the tools necessary to build their lives and livelihoods – left its mark. The advice from J. Field Smith not only helped with his first set of wheels, but also to see banking as good and important work. Deaton took a job as a teller later that same year. From his days behind a teller window to his current position as one of Kentucky’s foremost bankers, Deaton’s approach to potential customers and their financial visions has always been to ask himself, “How can I make this work; what can I do to help?” Deaton knows that bankers grow communities by empowering individuals with vision and a capacity for hard work. He draws upon his unpretentious values in making those judgments about people and how best to serve them – when he can. We were sitting in Deaton’s office at Central Bank*, and

when we asked him what the most significant change has been throughout his career, he quickly replied “DoddFrank.” “It’s taken the personal relationship out of banking,” he explains. “Young people walk into my bank with a clear vision, education, and capacity to repay, but I can’t do as much to help them today as I could in the past because of the strict regulations.” Deaton has a very good reason to lament that change. Years ago, a young man named Rick Corman walked into Central Bank in need of a hefty loan. He walked into Luther Deaton’s office, who was a loan officer at that time, wearing cowboy boots and an oversized belt buckle. Deaton reviewed Corman’s financial statement, but still needed to learn, firsthand, the nature of his business before he made a decision on the loan application. He scheduled a meeting with Corman at the worksite one morning, and when he pulled up, Deaton noticed the workers anxiously hammering away, but no sign of Corman. He found Corman, on bended knee, pulling spikes from the railway, his boots sopping full of water. Corman told Deaton he was sorry, but there was no way he could keep their scheduled 8 a.m. meeting; he needed to work backup on the rail construction. Corman told Deaton that the only way his employees would receive a bonus was if they finished all work for that day and three workers had failed to show up. Most bankers would feel “blown off” after driving hours, only to be rescheduled, but Deaton relished a chance to see Corman’s work ethic in person. Deaton saw a man deeply committed to his work and this was a businessman Deaton believed in - he made the loan happen. “The terms of the first loan were 14% over three years, and instead of $300K we decided on a line of credit of $500K,” said Deaton. This made it possible for Corman to pay wages and purchase the equipment necessary to keep the business afloat even when receivables were late, and payroll still had to post. A senior advisor at the bank told Deaton that he could be fired for posting payroll amounts on an overdrawn account. Deaton called Corman to explain he would keep posting the amounts, but risked his job in doing so, to which Corman replied, “Don’t worry about it, I’ll give you a job on the rail gang.” From that point forward, R. J. Corman and Central Bank grew – and grew. The R. J. Corman railway weaving though

Let me know what you think: bcassady@kybanks.com May 2015 | 6

Kentucky is proof that when a community bank makes an investment in a vision, good things follow. Today, the R. J. Corman family of companies has divisions in 24 states as far west as Arizona, employing over 1,200 people. The home base is still Nicholasville. Corman and the company that is his legacy have been model corporate citizens, nationally and locally. Following Hurricane Katrina, the company donated time and money for railway cleanup. Most recently, it funded the construction of St. Joseph’s Hospital in Nicholasville.

requires infrastructure, “We must build bridges and roads, even if it means tolls, to create jobs and bring revenue to the state,” Deaton remarked. “The pension system is broken, and I don’t know what it takes to fix it…..an actuary has to come in, perform an audit…it has to be addressed. Social issues get people wound up, but that takes the focus off the real problems. You can’t tell people what to do in life, so social issues shouldn’t be brought into it…. It takes the focus off the problems, which are education, jobs, and pensions,” said Deaton.

Deaton went on to explain that if another Rick Corman walked into the bank today, Dodd-Frank would make it impossible to extend a loan under the same circumstances. Dodd-Frank removes the vital component of human judgment from community banking, a judgment that is key to a bank’s role in making communities prosper. “Every community bank can tell a story like this, and the effect of that success can be exponential throughout the state, throughout the country.” said Deaton. “Dodd-Frank must be scaled back if we want future generations of Kentuckians to have opportunities in their hometowns.”

Deaton believes in tax reform before laying plans for education and infrastructure. He supports the local option sales tax, implemented and levied at the city or county level. Local option is determined by voting community members regarding projects they see appropriate, roughly one cent tacked onto the sales tax until the project’s completion. According to Deaton, the Kentucky Teacher’s Retirement System is $14 billion of unfunded liability, $17 billion in state workers’ pensions (Kentucky Employee Retirement System). That’s over $30 billion our state must deliver. When asked about a candidate he might support in the 2015 gubernatorial election, Deaton didn’t have an endorsement…yet. He wants details about how current candidates would address his issues – he doesn’t vote for ambiguity. Party lines often blur politician’s opinions, but to get back on track, Deaton said the next Governor of Kentucky must be in every county, insisting citizens call their legislators about the issues that matter to them. Although Deaton will not run for Governor in 2015, he will continue to educate and rally Kentuckians on important issues facing our state. If there’s one thing for certain, Luther Deaton will speak up about the issues facing community banks, economic growth, and the prosperity of this Commonwealth. It doesn’t take a Governor to change the way we think. It’s the banker we talk to every week that gives the best advice about a financially sound future for Kentucky.

Using his birthplace as an example, Deaton explains that Breathitt County is far more sparsely populated today than in past years due to the dwindling coal industry. Without the coal industry, there aren’t jobs there. People migrate to areas where the jobs are to raise their families. Legislators need to understand it’s not the community banks that need reigning in, since community banks didn’t contribute to the crisis Dodd-Frank used to justify its onerous provisions. If the legislation is not changed, they’ll be the ones to suffer from its crippling restrictions. Prompted by customers, family members, and community leaders who longed to see a “non-politician” in the office, Deaton considered running for Governor this year. Judging by his resolute, common sense approach to banking and legislation, he would have been a refreshing candidate. His disdain for “bull-headed politicians who muddy the waters with divisive social issues and party line politics” would have resonated with many voters. Though Deaton ultimately declined to run in 2015, we discussed his top concerns for the state: education, pension/ retirement plans, and job creation. “Take the University of Kentucky for example; they get 10% of their funding from the state. That’s all… Politicians say we need to create jobs, but we can’t do that without a strong education base,” says Deaton. He went on to say that creating jobs

*Editor’s note- All Central Bank meeting spaces look similar to Deaton’s office - it was important for Luther they all look equally professional

May 2015 | 7

MY TWO CENTS PLUS SOME Part 2 of the Washington DC Trip Our group was treated to a special opportunity on Monday evening, after our first round of agency visits, EverFi treated us to an NBA basketball game—the Wizards vs. Trailblazers at the Verizon Center. EverFi is the KBA’s endorsed vendor for Financial Literacy software, connecting community banks with local schools. This unexpected opportunity provided us with a nice break from the business of DC. On Tuesday, we started out bright and early with our agency visits. First, we met with the CFPB. As usual, the CFPB had several representatives in the room. The CFPB staff seemed unaware or unconvinced of some of our concerns. While they expressed their understanding that their regulations are being implemented and interpreted by the prudential regulators, they did not appear to have any interest in establishing guidance to the prudential regulators on enforcement. Additionally, we raised concerns that the rules were overly burdensome, and changes were too rapid. Their response was that all changes to rules have been beneficial to the financial institutions covered. The CFPB did not seem to understand that constant change, even if the end result is positive, is still change that must be managed. The better process would be to slow the release dates down until the agency is satisfied that the proposal is correct. One question that was asked of every agency was whether they had any concerns about the Administration’s apparent encouragement of looser underwriting standards designed to get more people into homes. It was noted by our group that this was one of the prominent reasons we found ourselves in the 2008 housing crisis. The standard reply was that they have no opinion on that administrative policy. Surprisingly, however, when pushed the CFPB emphatically offered up that they were independent of the administration and, therefore, did not have an opinion. This was surprising because it would seem that an opinion on such an important policy is absolutely a responsibility of an independent agency which is established to protect consumers in areas of financial services, including the creation of an artificial underwriting policy which could lead to financial distress. Finally, the CFPB was very proud of, and wanted to speak May 2015 | 8

to, the recently enhanced consumer complaint database. They emphasized that the public CFPB database only tracks complaints lodged against banks with more than 10B in assets. Complaints received for smaller institutions are sent to the prudential regulator and are not tracked by the CFPB. Very little insight was given on the issue of whether any actual investigation is done on the validity of the complaints lodged. After the discussion, which was very calm and civil, we left feeling that the CFPB was more disconnected from our concerns and burdened than we even thought. After the CFPB, we visited with the FDIC. Typically, we meet with the FDIC over lunch, and they present a panel of speakers who provide an overview of recent activities in each of their respective divisions. Because of renovations, however, we met in the board room with a panel of FDIC staff. The change in the venue seemed to have an effect on the one meeting that is usually pretty lively. Our group expressed our concern that the regulations were stifling innovation and good business judgment, which leaves community banks at a significant disadvantage when looking for ways to accommodate customer needs. The FDIC indicated that they were sensitive to our plight, but blamed it solely on Congress—they are just doing what they are mandated to do. The FDIC further indicated that they believe that they do a good job of tailoring the regulations to the specific complexity of the bank being examined and that they are working hard to enhance consistencies between examiners and examinations. The agency further stressed that, despite the rumors, they do not examine to “best practices” After the meeting with the FDIC, we went to the Capital Hill Club and had lunch with Congressman Andy Barr and members of his staff. As always, the conversation with Congressman Barr was very positive and insightful on the issues relative to community banks. He continues to be a leading advocate for community banks and community survival. After lunch, we met with Representatives Yarmuth and Massie together. It was an interesting conversation, despite the party differences between the two. The primary topics covered included complexity of banking operations to regulation; cybersecurity and data breach; credit union

FSA and other GSE mission creep issues; and mortgage regulatory relief. The primary discussion with these two Congressmen, as well as all of the others, surrounded the topic of data breach costs. The retailers had recently visited the Hill and had made a compelling case that legislation on cost sharing was not necessary, as it could simply be amended by contract. The information that the retailers left out, however, was that the contract is Visa/Mastercard rules of operations. The banks, which are the ones paying the freight, have no bargaining power in that situation.

After the meeting with Senator McConnell, Yvonne had arranged for another special activity. We had a private tour of the Capitol. Our groups customarily took tours of the Capitol and/or White House before 9/11. With increased security and tight schedules, we had not been able to do that in quite some time. The tour was fascinating, and we had plenty of opportunities to learn about the history from a very entertaining guide.

After this meeting, we met with Congressmen Rogers, Whitfield, and Guthrie. The discussion in this meeting focused primarily on GSE mission creep (especially as it applies to the FCA) and regulatory relief. As Congressman Rogers chairs the Appropriations Committee, he may have a significant influence on the strategy for obtaining regulatory relief. This concluded our second day of meetings.

After the tour, we had lunch in the Capitol lunch room and visited with Senator Rand Paul. Senator Paulâ&#x20AC;&#x2122;s positions on issues were consistent with his earlier messages. That is, he believes that industries are over-regulated, and he does not support the imposition of regulation for compliance equality (for instance, he is not supportive of taxing credit unions, nor is he for a legislative imposition of damages on retailers for data breach costs). He was adamant that he would support any legislation that would take those burdens off of us, but would not support equalizing them, which we know is untenable to most. Our visit was cut short because the Senator was needed elsewhere.

On our final day, we were able to meet briefly with Senator McConnell in the Capitol. Typically, the Senator provides us with opportunity for lengthy discussion, but he was needed for hearings and votes. His staff did, however, remain and discuss our priority issues. As always, his staff is on point and knowledgeable on the issues impacting Kentucky bankers.

That was the conclusion of our meeting. I hope that you can join us next year. One meeting may not make a significant difference in our regulatory burden; however, the aggregate impact of a group of bankers willing to take time out of their lives to meet with Congress does make an impact. Please consider being a part of this process next year! Debra K. Stamper, EVP/General Counsel dstamper@kybanks.com

May 2015 | 9

The employees of First Kentucky Bank recently completed their second year of raising money for the Feeding America Backpack Program. Feeding America has been the chosen “Charity of Choice” since 2013 and will be the recipient of funds in 2015 as well. An initial $10,000 donation was made in July 2014, with an $8,972 donation submitted last week. First Kentucky’s donation will be distributed among children attending schools in the counties in which First Kentucky Bank has locations. In addition, $2,283 was distributed to Family Resource Centers in Livingston and Marshall Counties to a similar backpack program. To date, First Kentucky employees have donated a total of $41,255.00.

Kristy Gross, Vice President and Commercial Loan Officer at Community Trust Bank, Inc., presented Ann Perkins, Executive Director of Safe Harbor, with a check for $20,000 for the new fencing between the Emergency Shelter and the Transitional Houses. Also pictured is Jennifer Allen, Safe Harbor Finance Coordinator. Community Trust Bank served as the application partner for Safe Harbor to receive this grant from the Federal Home Loan Bank.

First Security Bank Opens Another Banking Center in Lexington. Located at 345 Ruccio Way, it will be more commonly known as the Bank’s Wellington Banking Center.

Heritage Bank has announced the construction of a new building in Benton to serve the people of Marshall County. A groundbreaking was held at the Main Street location at the corner of Main and 7th Street on January 30, 2015.

May 2015 | 10

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May 2015 | 13

Come to KBA’s Annual Regulators Forum ● June 18, 2015, Holiday Inn University Plaza, Bowling Green Or on ● June 19, 2015 Marriott Griffin Gate, Lexington 12:00 – 4:00 pm local time, $130 first person ($100 for each additional registration) Each seminar will begin with lunch and networking with your peers. -----------------------------------------------------------------------------------------------------------------

Let’s hear what your regulators are planning, thinking or expecting from you. Here is an opportunity for you to speak to policy makers about their expectations for the industry and the economy. Bring your questions! DUE TO THE EXPECTED POPULARITY OF THIS PROGRAM SEATING MAY BE LIMITED SO PLEASE REGISTER EARLY!

All regulatory agencies have accepted our invitation to be a part of this important program:  Office of the Comptroller of the Currency (OCC)  Federal Deposit Insurance Corporation (FDIC)  Federal Reserve Bank (Fed)  Consumer Financial Protection Bureau (CFPB)  Kentucky Department of Financial Institutions (DFI) What Should the Regulators Talk About:

CMY

What they see as hot issues for bank examinations, intense review, or concern and what are regulatory expectations for the future.

Feel free to email questions in advance to pcravens@kybanks.com. Regulators Forum - - - - - - - - - - - - - - - - copy as needed - - - - - - - - - - - - - - - - - - - - - - - - - - - - - MAIL

MARK ONE:

 June 18, 2015 Bowling Green Holiday Inn University Plaza 1021 Wilkinson Trace

 June 19, 2015 Lexington Marriott Griffin Gate 1800 Newtown Pike

Online registration is available at www.kybanks.com Name ______________________________________________________________________ Title _____________________________________________________________ Name ______________________________________________________________________ Title _____________________________________________________________ Name ______________________________________________________________________ Title _____________________________________________________________ Bank Name ____________________________________________________________________________________________________________________________________ Address _________________________________________________________________ City, State and Zip _____________________________________________________ Telephone ___________________________________________________

Email __________________________________________________________________________

CHECK ONE:  Check enclosed_______________________________________

 Send invoice

 Pay with Credit Card type and # _________________________________________________________________________ Exp date ______ Three digit sec code ______

Mail or Fax (502-584-6390)

form to Kentucky Bankers Association, 600 West Main Street, Suite 400, Louisville, KY 40202. May 2015 | Completed 14

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When and How to Amend IRA Documents by: Lisa Walker, Ascensus

Itâ&#x20AC;&#x2122;s become rare that a year goes by without new laws or other IRS guidance that in some way, directly or indirectly, affects IRAs. Lately, IRAs and retirement savings in general have been a target for change in legislative bills and government initiatives. Some recent proposals give taxpayers more opportunity and incentive to save for retirement, while others remove some of the benefits associated with retirement saving arrangements. Keeping up with these changes and understanding when IRA document amendments are needed is not always easy. Nevertheless, financial organizations are responsible for amending IRA documents when needed. They must decide which documents to amend, when to amend, and how to communicate these amendments to their clients. When to Amend Of the three documents required for IRAs, only two are subject to amendments: the plan agreement and the disclosure statement. A financial disclosure must be provided when an IRA is first established, but it is not required to ever be amended. An amendment often is necessary when a major tax law affecting IRAs is enacted. This can affect both plan agreements and disclosure statements or only may affect the language in the disclosure statement. For major tax laws, the IRS often releases guidance, usually in the form of a revenue procedure, specifying that the amendment is required and when the amendment must be completed. If the IRS does not release guidance but changes to the IRA rules affect a financial organizationâ&#x20AC;&#x2122;s documents, an amendment to the disclosure statement often is required. New legislation and rule changes are not the only reasons for amending IRAs. Many financial organization acquisitions and mergers require some form of plan document amendment. Or if a financial organization simply decides to change to a different IRA document, it should review both the IRA documents it currently uses and the new documents. In some cases, the financial organization may simply start using the new forms. In others, the financial organization may need to notify IRA owners of specific changes in the IRA documents. Plan Agreement Procedures for amending IRA plan agreements for law changes differ depending upon whether an IRS model

form or prototype plan agreement is being used. IRS model plan agreements (e.g., Form 5305 series documents) need only be amended after the IRS releases a new version of these forms and specifically requires amendments. Sometimes the IRS issues new forms but does not require amendments. If the IRS requires amendments, it provides a specific deadline to amend. Prototype plan agreements generally must be amended after each major law change that affects IRAs. IR annuity endorsements generally require amending as indicated for IRA prototype plans. Prototype documents primarily are based on sample language provided by the IRS through its Listing of Required Modifications (LRMs). The IRS periodically updates the LRMs, often accompanied with amendment guidance, for major law changes or after a series of changes affecting IRAs has occurred. Treasury regulations require plan agreement amendments to be completed no later than 30 days after the date the plan agreement amendment is adopted or 30 days after the date the amendment becomes effective, whichever is later. Disclosure Statement A financial organization is required to provide a current disclosure statement reflecting the current rules to individuals opening IRAs. Disclosure statements cannot contain language that creates false or misleading information. Further, disclosure statement amendments are required when a plan agreement is amended if the changes to the plan agreement materially affect information in the disclosure statement. If the IRS requires that plan agreements be amended, disclosure statements generally must be amended at the same time. Unless the IRS provides guidance for a specific amendment event, disclosure statement amendments must be completed 30 days after the later of the date the plan agreement amendment is adopted or the date it becomes effective. Regulations are not clear on when to amend disclosure statements for law changes if a plan agreement amendment is not required. In this case, a financial organization should provide disclosure statement amendments as soon as administratively feasible after the changes become effective.

How to Amend Most financial organizations can obtain the amendments from their forms provider. Financial organizations that draft their own amendments should consult with their attorneys for recommendations. Once a financial organization has the amendments, it should follow these procedures. 1. Mail each IRA owner a copy to the individual’s last known address. If any amendments are undeliverable and are returned, the financial organization should keep the undelivered amendment in the IRA owner’s file. Note that the amendment can be included with other materials to save postage. It also is a good idea to enclose a cover letter explaining the amendment. 2. Document that the amendment was sent by placing a copy in each IRA owner’s file or creating a master file. A master file should contain a copy of each amendment, a dated cover letter, and a list of mailing recipients. Amendments for tax law changes often do not require a signature or consent from the IRA owner. But depending on the type of document, amendment, and state laws, amendments may require the IRA owner’s consent (i.e., a fully signed amendment by both parties). Financial organizations should consult with their legal counsel for direction.

Failure to Amend If a financial organization fails to amend when required or does not amend timely, it faces potential penalties. A fi nancial organization that does not provide a required plan agreement and disclosure statement amendment to an IRA owner could be penalized as much as $100 per IRA ($50 per document). In addition, a financial organization that does not amend puts itself and its clients at risk for errors and negative tax consequences because of noncompliant documents and outdated information. Fortunately, if a financial organization uses a document provider, like Ascensus, that keeps a continuous watch on legislative changes and other governmental guidance, it may be able to minimize—or avoid—any costly amendment failures. A trusted document provider can do much in the way of guiding a financial organization throughout the amendment process. *This article originally appeared in Ascensus’ newsletter, The Link, in April 2015. Lisa Walker is a copy writer at Ascensus. She writes and reviews articles about various topics related to IRAs, ESAs, and HSAs. Her work also includes editing Ascensus’ online and printed publications, education materials, and client communications. Lisa started with Ascensus in 2005. She has earned the Certified IRA Services Professional (CISP) designation from the Institute of Certified Bankers and holds a Bachelor of Arts degree in English.

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Discover why more and more banks are using employment simulations to improve hiring, boost customer service levels, cut employee turnover, and increase sales. In a recent banking study, EASy Simulation, by Employment Technologies, was proven to pinpoint top-performing financial sales and service professionals who were: •

3 times more likely to guide customers in selecting the best financial service options to meet their needs

•

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Catch the Trend! KBA is pleased to announce a new relationship with Employment Technologies, the inventor and world’s leading provider of employment simulations. The company’s award-winning line of EASy Simulations for Financial Services is now available to KBA members at a special member rate. EASy Simulations are available for key banking jobs, including tellers, customer service/sales, leadership positions, collection officers, call center positions, and many more. Put the power of simulation to work for you! Contact Selina Parrish at 502.736.1282 or sparrish@kybanks.com, and discover the difference EASy Simulation can make.

“Franklin Bank & Trust has used Employment Technolgies Teller Vision for nearly two years. We have been extremely pleased with the assessment tool, service, and the value. I highly recommend Employment Technologies solutions to other banks.”

May 2015 | 18

- Damian Wirth, SPHR, SVP/CHRO Franklin Bank & Trust Company, Franklin, KY

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2016 KBA Calendar order form is now available! Visit our website at www.kybanks.com or email Angie White at awhite@kybanks.com to get yours today. AND THE WINNERS ARE... Donald Kiely - First National Bank, Manchester - (2 months) Juli Butler - First State Bank Lindsey Garner - Citizens Bank of Cumberland County Michael Sadofsky - Republic Bank & Trust Robin Miller - Farmers Bank Capital Trust Company Alecia Marcum (Steve Marcum) - Citizens First Bank Ross Corder - Citizens National Bank Ben Hunt (Joye Hunt) - PBK Bank Loren Appleman - Kentucky Bank Sue Woodford -Kentucky Bank Juli Butler - First State Bank

ho w e on y r e s! ev o o t t o s h k p n a d e Th tt i m sub

Shedding Light on the Farm Credit System, America’s Least Known GSE Does Ken Auer fully understand the FCS’s tax advantages? Ken Auer is president of the Farm Credit Council, the FCS trade association that lobbies on behalf of the FCS and its constituent Farm Credit banks and associations. During the 2013-14 period, the Council’s Political Action Committee raised $1.08 million and contributed $935,000 to candidates for federal office. Those contributions give the Council, and therefore the FCS, a lot of clout in Congress and especially with members of the House and Senate Agriculture Committees as the FCS fights to protect its tax exemptions while opposing the ABA’s request for periodic congressional oversight hearings of FCS activities. Here is the link to the ABA letter requesting hearings: http://www.aba.com/ Advocacy/LetterstoCongress/Documents/LetterSenateAgCommreFCS-Oversight020215.pdf A similar letter was sent to the House Agriculture Committee.

almost all of the country. Each ACA also has a Production Credit Association (PCA) subsidiary that holds its non-real estate loans; PCA profits are subject to federal income taxes. Understandably, the ACAs have a powerful financial incentive to maximize the profitability of their tax-exempt FLCA subsidiary while minimizing the income of their federally taxable PCA subsidiary. According to the FCS’s annual Information Statement for 2014, the FCS’s “nontaxable entities;” principally the FLCAs, effectively reduced the FCS’s federal tax bill by $1.26 billion, or 73%. The comparable reductions were $1.23 billion and 72% in 2013 and $1.09 billion and 72% in 2012. This federal income tax reduction gives a lie in Auer’s statement to Brownfield Ag News that “there is NO federal or taxpayer money involved in the [FCS].” The FCS’s federal income savings are financially equivalent to the U.S. Treasury Department sending checks in those amounts to the FCS. Additionally, the FCS has a $10 billion line-of-credit at the Treasury. Perhaps Auer does understand the magnitude of the FCS’s tax subsidy, but does not want to publicly admit it, especially since the FCS increasingly tilts toward lending to larger borrowers and investor-owned utilities rather than to young, beginning, and small (YBS) farmers the FCS is supposed to focus on serving. The FCA’s double-standard on enforcement actions

In the April 15 issue of Brownfield Ag News, Auer asserted that “the FCS does pay federal taxes, but has special tax provisions and does not pay many state taxes.” Auer is right that the FCS “does not pay many state taxes,” but he grossly misrepresented the extent to which the FCS is exempt from the federal corporate income tax, or perhaps he does not understand the magnitude of that exemption. The FCS’s largest tax break is its exemption from federal income taxes on profits earned on real estate lending; FCS real estate loans are carried on the books of Federal Land Credit Associations (FLCAs). All but two FLCAs are subsidiaries of the FCS’s 74 Agricultural Credit Associations (ACAs) that cover

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Like the bank regulators, the Farm Credit Administration (FCA) takes enforcement actions against FCS institutions for various reasons. Unlike the bank regulators, though, the FCA does not publish its enforcement orders nor does it even name the FCS institutions subject to those orders. However, these institutions (usually FCS direct-lending associations) do disclose the existence of those orders in their quarterly and annual reports to their members. It takes a lot of work, though, to identify those institutions. Presumably the FCA fears dire consequences if it names names, yet the FCA does not hesitate to name the individuals it has barred from serving, without the FCA’s consent, “as a director, officer, or employee of any FCS institution.” Rarely, though, are individuals prohibited from working in the FCS – over the last decade, just four persons have been subject to a prohibition order. Although the FCA does not name the institutions subject to enforcement orders, it does provide some data regarding those orders. That data, though, is not clear-cut. For instance, the FCS’s 2014 annual Information Statement reported that at the end of 2014, the FCA “had entered into written agreements with three Associations who assets totaled $1.191 billion, as compared with eight Associations whose assets totaled $4.803 billion as of December 31, 2013.” On the surface, that decline looks pretty good.

However, a March 31, 2015, report issued by the FCA’s Inspector General (IG) on the FCA’s special supervision and enforcement processes paints a more disturbing picture. According to the FCA’s IG, during the fiscal year ended September 30, 2014, eight FCS institutions were under enforcement orders and three were subject to “special supervision,” which is one step away from an enforce-

ment action. Assuming all eleven are FCS associations, this means that approximately one of every seven FCS associations experienced supervisory issues during fiscal year 2014, a time of exceptionally good economic conditions in American agriculture. Ten of the eleven associations’ “areas of concern” involved management issues and nine related to asset quality. Clearly some associations generated both management and asset quality concerns. Especially troubling is how long it takes the FCA to resolve supervisory issues. Eight institutions falling within the scope of the IG’s report were “under enforcement [that] ranged from one and a half to five years, with an average of 39 months” – over three years! It appears from data in the FCS annual Information Statements that most of these associations are relatively small – well under $1 billion in total assets, which raises this question: Why does it take the FCA so long to get these problems resolved? Further, the FCA has had to take numerous formal supervisory actions against some of these associations – six over 46 months in one case and five over 60 months in another case. Possibly some of these associations have been resolved through mergers with stronger associations. Putting a spotlight on these problem asso-

ciations, by publicizing their enforcement orders, would help greatly to reduce these problems. The new FCA Chairman, Ken Spearman, should so order. The FCS Southwest saga continues FCS Southwest, which serves most of Arizona plus California’s Imperial Valley, announced last October that due to “a sudden significant increase in the level of delinquent loans” it would have to restate its financial results. At the same time, the FCA removed from its website all call reports Southwest had filed since 2010. That financial restatement process still has not been completed. The FCA website simply states that a “data correction is underway [for Southwest] and data not available at this time.” In February, Southwest announced its intent to merge with Farm Credit West, a large California FCS association. Shortly thereafter, Farm Credit West’s CEO assumed the CEO position at Southwest and the two associations began “operating under a joint management agreement.” Almost certainly, the FCA engineered a shotgun marriage of Southwest into Farm Credit West, but that deal cannot be closed until each association’s borrower/stockholders approve it; August 1, 2015, is the anticipated merger date. However, they cannot vote on the deal until due diligence has been completed and “detailed disclosure documents [have been] provided to each stockholder.” Of course, Southwest’s financial restatement must be completed before the disclosure documents can be finalized. In the meantime, a criminal investigation reportedly is underway at Southwest related to fraudulent transactions that led to the “sudden significant increase” in delinquent loans.

May 2015 | 21

Wilson & Muir - 150 Years and Counting It’s rare when a business not only survives, but thrives for well over a century. In 1865, President Abraham Lincoln was assassinated, Robert E. Lee surrendered to General Ulysses S. Grant at the Appomattox Courthouse, and Wild

Bill Hickok killed Davis Tutt in what is regarded as the first true western showdown. A young, unruly America churned with discontent and uncertainty, but two gentlemen shared an economic vision for the future. In 1867, William Wilson and Jasper Muir purchased a bank from Richard Ship that was founded in 1865. Though times have changed dramatically, Nelson County has grown, and industry shifted, the respect Wilson & Muir employees show their customers remains unchanged. Wilson & Muir is the 3rd oldest bank in the state. Leather bound ledgers filled with handwritten records of those first transactions remain in the bank- a reminder of simpler times in the banking industry. Third generation clients frequent the bank, descendants of the original Heaven Hill Distillery, Newcomb Oil, and Embry Farms. It’s incredible a third generation farmer stands at the same counter, making the same transactions as his grandfather did years before. “It’s pretty simple, it’s a philosophy of operation, it’s a philosophy of business, but most importantly, it’s a philosophy of how you treat your customers” said Max Shapira, President of Heaven Hill Brands, in a commemorative video featuring Wilson & Muir clients and employees. The video, alongside a year’s worth of activities, celebrates the bank’s fortitude and confident presence in the community. To launch the video, bank management planned an awards event for all staff, including the Board of Directors. After analyzing hire dates, management found the average tenure exclusively at Wilson & Muir of a given employee May 2015 | 22

is fifteen years, seven employees with over forty years at the bank. Amazing statistics for any institution, albeit one hampered by recession only a few short years ago. Employees received personalized mugs at the celebration, many of which held random surprises in the form of gift cards varying in amount. “The energy in the room was special,” said President and CEO, Frank B. Wilson. Employees drew their seat number, an idea from Kathy Seyle, Compliance Officer. This encouraged networking with fellow bankers and face to face interaction- since much of today’s work is facilitated over the phone or internet. To spread the celebration to the community, the bank turned to social media sites like Facebook. The marketing plan for the 150 year celebration includes a “monthly launch” of historical posts from 1865, as well as smaller, vignette style videos posted to YouTube and social media to highlight the bank’s staying power. Furthermore, an exhibition of historical banking items (i.e. checks, ledgers) rotates from branch to branch during the yearlong celebration. Customers can view a piece of history during their routine transaction, and pick up their complimentary copy of the Wilson and Muir calendar. When asked about a key to the bank’s success, Frank B. Wilson sites an experienced Board of Directors, “They are successful business people in their own right. They keep our focus on time tested, conservative banking principles that have been the staple of the long term success of Wilson & Muir. Another business practice that pays dividends is internal promotion. Davis L. Huston III, more commonly known as “Tiger,” began his career as a teller and now

operates as Senior Vice President. “Our employees know the markets they serve… which gives them a better handle on credit decisions,” said Huston.

With holdings over 400 million, the bank is large enough to handle the regulatory burden coming out of Washington, the economics of scale work in favor of this institution, although management acknowledges the regulatory expectations get increasingly more and more difficult. Wilson & Muir creates as much buzz inside the bank as outside, fueling the excitement from within. It’s clear this institution knows what it takes to last for 150 years…. integrity. Written by: Angela White & Lane Hettich

Look for Part II in June. We will feature Wilson & Muir’s commitment to the community

Did You Know.... • Wilson & Muir Bank & Trust has branches in 4 KY counties; Grayson County, Hardin County, Nelson County, and Jefferson County • Many of Wilson & Muir’s employees have worked there for over 30 years

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Spring Conference 2015

May 2015 | 24

May 2015 | 25

Upcoming Education Events & Seminars Regulators Forum June 18 Bowling Green June 19 Lexington Human Resource Seminar June 25 Louisville BSA/AML School - Pegasus Program July 8-9 Lexington

Internal Audit Seminar August 19 & 20 Elizabethtown Lending Compliance School August 24 - 28 Louisville

Personal & Business Tax Return Analysis Seminar August 11 Bowling Green August 12 Lexington New Accounts - Pegasus Seminar August 17 Morehead August 18 Hazard August 19 Somerset August 20 Elizabethtown August 24 Paducah August 25 Bowling Green August 26 Lexington

Word on the Street

“Citizens National Bank has used IPI’s retail investment services for approximately 3 years. As the bank’s Financial Consultant, I have enjoyed working with IPI to provide the retail investment products that meet the needs of our customers. IPI has helped us to retain and attract customers, while generating non-interest income. I highly recommend IPI to other community banks!” - Betty Bradshaw, Financial Consultant, Citizens National Investment Services, Lebanon

We want to hear your feedback on KBA events, seminars, schools, and services. Tell us how you feel. Contact awhite@kybanks.com May 2015 | 26

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Under KRS 304:12-150, is the bank required to give “Notice of Free Choice of Agent and/or Insurer” at closing? And is it required to be given for both Credit Life and VSI Insurance?

First of all, yes, KRS 304:12-150 does require banks to provide the “Notice of Free Choice of Agent and/or Insurer” in certain circumstances. Specifically, the bank is required to provide the Notice when the application is pending and insurance is offered, sold or required in connection with the loan. It should be given when the insurance is offered, sold or required and credit is pending. It is NOT dependent upon the timing of the application or closing, but of the timing of the insurance. Second, the notice is not required when the customer is simply paying their portion of VSI Insurance because the insurance is not being “sold.” The bank already maintains the insurance and the customer is paying their part.

May 2015 | 27

May 2015 | 28

Ready . . Aim . . Fire. July 10th, 2015 Elk Creek Hunt Club

KBPAC presents the 1st annual

Chairman’s Cup READY AIM FIRE Don’t forget to sign up for our first annual Chairman’s Cup at Elk Creek Hunt Club, July 10th, 2015 For sharpshooters and amateurs alike, the Chairman’s Cup promises to be an exciting event. If you wish to win bragging rights enter the inaugural Chairman’s Cup- a 100 target eventeither as a team or individual. If you wish to learn more about proper technique, enter the Instructor Led 50 target event.

Prepare for a full day of sport, camaraderie, relaxation, and following the event, refreshments and hors d’oeuvres at scenic Elk Creek Vineyards.

Awards presented to the best team and best individual shooter.

Earn bragging rights and support the KBPAC. Register today!

Contact Yvonne Savage for more details. ysavage@kybanks.com or 11:00 Registration Opens visit our website at www.kybanks.com Create your four member team or compete as an individual.

Shotguns and 12 or 20 guage ammo will be provided.

AGENDA

11:30 Lunch

12:00 Safety Briefing 12:30 Shooting Begins 3:30

Awards and Reception at Elk Creek Winery

Proudly Serving KentucKy BanKS for 25 yearS

1860 Georgetown Rd., Owenton, KY 40359 Directions: Elk Creek is located at the intersection of KY Highways #227 and #330 in Owenton, KY. Within a one hour drive of Lexington, Cincinnati, and Louisville.

Contributions to Kentucky Bankers PAC and Kentucky Bankers Committee for State Government (each referred to as KBPAC in this disclosure) will be used in connection with state and federal elections, respectively. Contributions to KBPAC are voluntary and may not be deducted as charitable contributions. KBPAC may not accept corporate contributions. Contributions will be reported to the Kentucky Registry of Election Finance and the Federal Election Commission, as required. You may decline to contribute without fear of reprisal. You may contribute more or less than the amounts suggested and you will not benefit or be disadvantaged because of the amount contributed or the decision to not participate at all. The information being provided herein with respect to the KBA Political Action Committee is for informational purposes only and is not a solicitation by, or an invitation to contribute funds to, the political Action Committee. Any contribution received from non-eligible donors will be returned.

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Bill Barker Toll Free: 800.292.4563 bbarker@rsanet.com

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Louisville ~ Lexington ~ Cincinnati -KBa a SSociate M eMBer Member FINRA and SIPC • Investment Products Not FDIC Insured • No Bank Guarantee • May lose value.

May 2015 | 29

Bankers on the Move Citizens Union Bank has announced that Clayton Aylmer has been promoted to Assistant Vice President/Affordable Housing.

Citizens Union Bank has announced that Angela Beeler has been promoted to Head Teller of the Simpsonville Branch.

Citizens Union Bank has announced that Michael Campbell has been promoted to Assistant Branch Manager of the Taylorsville Branch.

Citizens Union Bank has announced that Jason Catlett has been promoted to Assistant Vice President/Collections.

Citizens Union Bank has announced that Jessica Dobner has been promoted to Assistant Vice President/Marketing.

Citizens Union Bank has announced that Toni Druin has been promoted to Vice President/Item Processing Manager.

Citizens Union Bank has announced that Tara Grasch has been promoted to Teller II - WalMart Branch.

Citizens Union Bank has announced that Brent Miller has been promoted to Vice President/ Credit Risk Manager.

Citizens Union Bank has announced that Ashley Lafferty has been promoted to Consumer Loan Officer.

Citizens Union Bank has announced that Debbie Mitchell has been promoted to Head Teller of the Downtown Branch.

Want to announce a promotion? Recognize a fellow banker? Send all photos and announcements to Angie White at awhite@kybanks.com May 2015 | 30

Bankers on the Move Citizens Union Bank has announced that Jennifer Peach has been promoted to Branch Manager II of the Downtown Branch.

Citizens Union Bank has announced that Elisa Rader has been promoted to Assistant Branch Manager of the Simpsonville Branch.

Citizens Union Bank has announced that Genny Wenta has been promoted to Vice President/ Treasury Management.

First Kentucky Trust would like to welcome Melissa Asfahl-Robich as Vice President/Senior Portfolio Manager. Melissa comes to First Trust Kentucky with over 15 years of experience in the investment management industry, with a focus on client relationships and investment strategies.

The Board of Directors of Citizens Union Bank, Shelbyville, KY, is pleased to announce that Jim Long is returning to their Elizabethtown location as Market President for CUB’s Central Kentucky Market where he will lead commercial, business banking and consumer lending efforts. Jim will continue to serve as Senior Vice President of Special Assets for the Bank as well.

Senior officials at Citizens Union Bank announced today a new and expanded focus in the greater Louisville metro markets of Jefferson, Oldham and Bullitt counties by naming industry veteran Debbie Prewitt to lead the Bank’s efforts in those markets. Prewitt will continue to serve in her current role as Senior Vice President of commercial lending.

Kentucky Bank Welcomes Retired U.S. Marshal Loren Carl to Woodford County board Kentucky Bank is pleased to welcome former U.S. Marshal Loren Carl to its Woodford County Regional Board of Directors. Loren “Squirrel” Carl served as District Coordinator for Representative Ben Chandler from 2004 until 2010. Carl is a returning member of the Woodford County Kentucky Bank Board. He also served as the Chief of Police at the Woodford County, Kentucky, Police Department from December 2003 to April 2004, and as a detective with that agency from 1980 to 1985. From 1996 to 2003, he was the Director of the Financial Integrity Enforcement Division of the Kentucky Attorney General’s Office. He served as Sheriff of Woodford County from 1986 to 1996 and was a deputy sheriff from 1978 to 1979. Prior to his law enforcement experience, Carl was a manager with the Kentucky Finance Company from 1973 to 1977. He served in the U.S. Air Force from 1969 to 1971. Carl received a general business certificate from Kentucky Business College in 1971. Loren Carl was nominated by President Obama to be the U.S. Marshal for the Eastern District of Kentucky on February 4, 2010. He is a native of Woodford County, Kentucky.

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