KENTUCKY BANKER September 2014
Key To Success Providing products designed specifically for community banks is key to becoming the best correspondent bank in the marketplace. Let The Bankers’ Bank of Kentucky offer your institution innovative solutions to meet the challenges of today’s complex banking environment.
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CONTAC TS BOARD OF DIRECTORS Mr. William Alverson Traditional Bank Mr. James W. Beach Peoples 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 Farmers Bank of Miton 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 Ms. Lanie W. Gardner First National Bank of Muhlenberg county Mr. Don Jennings First federal Savings Bank of Frankfort Ms. Elizabeth Griffin McCoy Planters Bank, Inc. Mr. Michael H. Mercer First security Bank of Kentucky Mr. Glenn Meyers Kentucky Federal Savings & Loan Association
Cover Photo taken by Kathleen Ayers “Old Barn In the Fall”
Mr. Stephen Miller Peoples Bank of Kentucky, Inc. Mr. Louis Prichard Kentucky Bank
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
Chris Kelso ckelso@kybanks.com Manager, AIB, Education Solutions Michelle Madison mmadison@kybanks.com Information TEchnology Manager Lanie Minton lminton@kybanks.com Administrative Assistant
Selina O. Parrish sparrish@kybanks.com Director of Vendor Solutions
Tammy Nichols tnichols@kybanks.com Convention & Membership Services Coordinator
Matthew E. Vance mvance@kybanks.com Chief Financial Officer
Katie Rajchel krajchel@kybanks.com Staff Accountant
Miriam Cole mcole@kybanks.com Executive Assistant
Yvonne Savage ysavage@kybanks.com PAC Services Coordinator
Paula Cross pcross@kybanks.com Education Services Coordinator
Angie White awhite@kybanks.com Manager, Communications Solutions
Jamie Hampton jhampton@kybanks.com Education Services Coordinator Natalie Kaelin nkaelin@kybanks.com Assistant General Counsel
Steve Whitlow swhitlow@kybanks.com Systems Engineer
Consultant
John P. Cooper jcooper@kybanks.com Legislative Solutions Consultant
KBA Insurance Solutions
KBA Benefit Solutions
Brandon Maggard bmaggard@kybanks.com Account Representative
Lane Hettich lhettich@kybanks.com Benefit Manager
Audrey Whitaker awhitaker@kybanks.com Insurance Services Coodinator
Donna McCartin dmccartin@kybanks.com Benefit Support Specialist
Chuck Maggard cmaggard@kybanks.com President & CEO
Lisa Mattingly lmattingly@kybanks.com Director of Sales & Service
HOPE of Kentucky Billie Wade bwade@kybanks.com Executive Director
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
September 2014 | 3
CHAIRMAN’S CORNER in Washington. We understood achieving major accomplishments would be difficult. We have not reached every goal we desired. It has been a time of slow progress. At times it has been tempting to throw in the towel and to just view the current regulatory environment as unfixable. We have resisted that sentiment. The Association has persevered despite the headwinds encountered.
Neil Bryan KBA Chairman It has been my honor to be Chairman of the Kentucky Bankers Association for the past twelve months. Years ago my father told me that time goes by more quickly as you get older. I thought that was the most ridiculous thing I had ever heard. As with most things, I have come to admire his wisdom. My term began with high hopes, tempered by the political realities
The Chinese proverb that comes to mind is, “A journey of a thousand miles begins with a single step”. Hopefully this year will be remembered as the first steps of positive change following several bleak years that were ushered in by the Great Recession. Getting positive legislation introduced in the House Financial Services Committee was a small step in the right direction. Seeing the U.S. House of Representatives pass a number of bills favorable to our interests moved us a little further
on our journey. Finding bipartisan support for common sense solutions to everyday problems has started to occur notwithstanding the partisan divide in our political system. It is our belief that as consensus positions are constructed our chances of passing meaningful legislation improves. I also hope we have fostered a spirit of optimism. No matter how bleak times appear we have proven that community banks are innovative and resilient. Banking is not as much fun right now as it was when the economy was stronger. I think we have been forced to take a critical look at ourselves in order to survive. Kentucky banks have not only survived, we have prospered relative to our peers. We have laid the foundation for a long and profitable future, even as the struggle with lower than desired profitability continues. Most of all I will look back on my term with gratitude.
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You have received me into your banks with courtesy. Your support has been appreciated. It is humbling to have been allowed to represent the Kentucky Bankers Association. Whenever my shortcomings have been an issue for me, dedicated bankers throughout the state have provided their expertise. That is a microcosm of the KBA. Collectively we are very formidable. Individually we have our shortcomings. Together we find solutions that a single bank alone would be unable to put into practice successfully. I know my successor will enjoy your continued support. I am confident Lytle Thomas will be an excellent spokesman for our industry.
Please engage him openly about your needs and concerns. Your advice and counsel will always be required to effectively lead the Association.
I will never be able to express how much I have been enriched by your friendship and hospitality. I greatly value each of you.
This year we have established a positive direction for the Kentucky banking industry’s road to the future. Please continue to help us sustain the momentum in Frankfort, Washington, and our own towns. Using one final sports analogy, we are in a marathon not a sprint. Keep up the good work. Stay positive about the ultimate outcome. If we persevere we will prosper!! One more thing I would like to say. THANK YOU!!!!
Meaningful relationships, beyond the bottom line. MCM’s Financial Institutions Services Team strives to help banks succeed by assessing and managing the risks associated with vendor management. By identifying and managing risk throughout the vendor life cycle, from planning, due diligence and selection, to oversight and accountability, we help ensure that your third-party relationships add value and encourage confidence in your board and regulatory agencies.
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STRAIGHT TALK A Picture Is Worth A Thousand Words Those of you who read my monthly column know I have a lot to say. This month, I decided to take a different route to make my point. As they say, “a picture is worth a thousand words.�
Senator Elizabeth Warren (D - Mass), commonly regarded as the mother of the Consumer Financial Protection Bureau (CFPB), shown at a fundraiser in Louisville, Kentucky with Senate hopeful, Alison Lundergan Grimes.
Let me know what you think: bcassady@kybanks.com September 2014 | 6
STRAIGHT TALK
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Pictured left to right: Mr. Ballard Cassady Jr. of the Kentucky Bankers Association; Mr. Jeff Plagge of the American Bankers Association; Mr. Luther Deaton of Central Bank; Mr. Neil Bryan, KBA Chairman and President of Farmers Bank of Milton; and Mr. Wes Hoskins, Texas banker and Chairman of Bankpac. The photograph was taken at the annual ABA Bankpac event in July 2014.
September 2014 | 7
MY TWO CENTS PLUS SOME
I Am a Person, Not a Generational Representative
I have to be straight here…I have always hated the generational names given by social scientists. I do not like, and do not see, a value in these gross generalizations. The Population Reference Bureau and other “demographers” suggest the following as examples of generational labels: 1871-1889 – New Worlders 1890-1908 – Hard Timers 1909-1928 –Good Warriors/Greatest Generation 1929-1945 – Lucky Few/Silent Generation 1946-1964 – Baby Boomers 1965-1982 – Gen X 1983-2001 – New Boomers/Gen Y/Millennials 2000-?? – New Silent Generation/Gen Z Labeling groups of people under these categories allows us to “easily” pigeonhole people, regardless of whether they are customers, employees, friends, etc. The problem this leads to, however, is that we forget that the people we are categorizing are individual people. When you look at the labels up to Baby Boomers, you can almost understand the label—it was a label of the generation rather than the individuals within it. New Worlders struck out to establish a new world, free from the oppression (real or imagined) that they suffered in the old world. The Hard Timers lived through WWI, WWII and the Great September 2014 | 8
Depression. The Good Warriors fought in WWII for our country and rights—they were predominantly blue collar and had the largest population of American born. The Lucky Few had the smallest immigrant population in history, they lived during a period of peace, they entered white collar jobs at an increased rate, and married younger. The Baby Boomers doubled the population (largely because of the success of the Lucky Few). Then it starts to get murky. Gen X information shows more women than men getting advanced education, delayed marriages and parenthood, and increased immigration. The Gen Y population shows the largest population growth ever, but there is little statistical analysis of either Gen Y or Gen Z because they are so young. After we started labeling generations (around the time the Baby Boomers grew up), social scientists started to look for common characteristics. Baby Boomers are optimistic, made and spent a lot of money, believed in social causes, inventive/resourceful and healthy. Gen X’ers welcome diversity, question leaders, are highly educated, and are entrepreneurial. Millennials are slow to gain independence, skeptical of religion, technologically savvy, and less civically involved. I have to question whether these stereotypes are any more valuable than other, more negative framed stereotypes of the past. (Think about the negative, inaccurate stereotypes we are faced with every day.) What do these generalizations tell us about the 65 year old woman who enters your bank to open an account, or the 23 year old employee you just hired to become a new teller? Nothing. Despite what new age authors might tell us, there is no magic formula or strategy for servicing or marketing all members of any designated generation. This lack of easily defined strategy is complicated by all of the choices (and the rate at which those choices can be made or changed) that are available today, which were not available even a few decades ago. More choices are principally driven by tech-
nology, but you also have to consider ease of mobility, education, and family dynamics, as well as many other things. Taking all of that in consideration, how do we reach our customers, employees, neighbors efficiently? Provide them with choices, recognizing that some will appeal to one, but not to others. Give them the option of developing characteristics of products that suit their lifestyle, rather than provide them with limited, defined products that don’t. Also, provide them with added value/ push content which will help them be better customers, better financial planners, and better consumers. This type of content could help to develop long term customer loyalty (especially since your local bank can serve you from a distance) by showing that your bank is interested in helping them to understand the issues involved in money management. Push content means that you send the information to them, rather than putting it on a static page on your website and expecting the customer to look it up. I will give you an example—you may have articles or calculators on your website to assist your customers in certain financial decisions (like “how to determine how much house you can afford”). But, a customer may not think to go to your website to look for that information. It is more likely that the customer will go to Wikipedia or “google” it. That lessens your bank’s value and clutters your website for no reason. Instead, think about sending e-mails or texts to your customers with a link to a specific topic, or make the information concise enough that it can be included in the message. For instance, send an email indicating a three part series on credit score. The first email could explain what a credit score is, how it is used, and what is considered a good credit score. The next day, part 2 could include tips on how to improve your credit score. Finally, part 3 could explain why certain behaviors hurt your credit score. These should be quick reads, easy to understand, and limited to a very specific topic.
This strategy keeps the bank’s name and brand in front of your customer regularly. It is a simple message, which can be read and understood while the customer is scanning through their smartphone. It
should not contain any specific account information, so that it can be easily deleted if not relevant to the specific customer. It will provide the customer with value added content that will, perhaps,
If you like having a “one stop shop”, you are going to love the new “Communities” section of our KBA website. Now there’s a place for you to go to ask questions, share articles and announcements, or “bounce” ideas off of your peers. Just click on the “Online Communities” tab on our homepage and subscribe to any or all of the forums that apply to your position. You can choose from Compliance, Communications and Marketing, or Trust. It’s simple to do with your KBA login. An example of the discussions that take place on the “Communities” site deals with opening accounts at college fairs. Question: The bank would like customers to open deposit accounts at college fairs, expos, etc. We’d like to mimic
make the customer think of the bank the next time they are confused about a financial issue.
the account opening process that we currently perform when the customer walks into a physical branch to open the account. The only difference would be at these offsite locations, we would NOT accept deposits and the customer would have to physically bring in the deposit, submit it via mobile remote deposit capture, etc. It appears this would be acceptable under 286.3-180. Is this correct? Answer: Yes, you should be able to do this. I know many other banks do so, they just don’t book the deposits until they are back at the bank. Be sure that you still follow all procedures you normally would to open an account, including CIP. As always, feel free to contact Assistant General Counsel with your compliance questions: Natalie Kaelin at nkaelin@kybanks.com
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Legislative Spotlight
Senator Tom Buford (R) District 22 Serves Fayette, Garrard, Jessamine, Mercer and Washington counties As part of the KBA’s diligence to governmental affairs we wanted to introduce a new feature column. Kentucky legislators who agree to an interview will be featured regularly. We hope you enjoy this recurring feature. Q: What is the most rewarding aspect of serving as a Kentucky Legislator?
instead of Dodd and Frank. This ACT from Washington shows a lack of understanding about Wall Street and Main Street.
A: I have found the most rewarding aspect of serving in the KY General Assembly is to be trusted in presenting and passing legislation that can truly make our state a better place to live and raise a family. It is my duty to realize and understand the power entrusted to me by those in my district and to guide my decisions that will meet with their approval. The most important aspect of this process is to discover that my position meets the needs of Kentucky and the district. Having served in the minority, and now the majority, I realize the importance of being respectful to your fellow legislators regardless of their positions or political party. Always build friendships across party lines. Your success in Frankfort will depend on what your friends will help you with and what your enemies will allow.
Q: What is the best way for a banker to reach you about a concern?
Q: What is the least favorite part of your service? A: The least favorite part of being an active legislator is there is just not enough time to accomplish everything you desire. Most of Kentucky Legislators are not surrounded with staff 24/7 and are limited to that extent- one cannot contact constituents as soon as they may expect. Those in Congress have an army of staff and can respond in lighting speed if they so choose. I cannot select any part of this position that can be listed as least favorite. A legislator must remember to keep his work and position in perspective, for I am certain it is more difficult, and a greater responsibility, to give birth or raise a child. One must always remember the taxpayer is in charge and you are their representative. Q: Can you describe the difference between how you thought your job as a Legislator would be before you were elected and how it actually played out?
A: Every year in either January or February the Legislature meets to engage in the process of public decision making. The objective is to reach consensus on a wide range of issues affecting every citizen and the future prosperity of Kentucky. The process involves cooperation to make critical decisions in everyone’s best interest. An effective legislator will rely heavily on input from many different sources. The views and interests of those who elect them are extremely important. It is imperative that bankers become engaged with legislators. For their individual participation to be most effective there are several ways to be in the process. Call the legislative information center. Call the legislator’s office. Study on how a bill becomes law. Read the legislative overview page on the internet. Listen or watch newscasts or broadcasts of committee hearings. Make yourself an expert and rely on your legislative representatives within the KBA. One of the best methods to receive the best attention of your representative or senator is to be engaged in his or her campaign. This is one of the best ways to form a relationship so they are even more obligated to remember your name and your issue. Do not berate the legislator, argue, or slam the door so you can continue to reach that legislator on future issues. Build on common ground you both hold. Attend Town Hall meetings, make a personal visit, write a letter, send an email or testify before a committee. Become an expert in the process.
A: There have not been any surprises how I perceived this position compared to how it has actually played out. I was 41 when elected in 1990 and worked in three or four different occupations before the election, so many previous life experiences were useful in forseeing problems and knowing how to resolve them. Q: Is it important to hear from bankers in your district? Why? A: It is always interesting and impressive to hear from Kentucky Bankers. Bankers have a real pulse for the economy and the nature of individual’s thoughts as they relate to the district. Kentucky Bankers know what is happening in the area and make it their business to understand the financial trends. My background in banking and finance gave me a great opportunity to handle my own personal affairs and understand the challenges of my fellow Kentuckians. Our nation would be in a better position to recover had Washington listened to bankers September 2014 | 10
Biography: Senator Buford is in his 22nd year in the Kentucky State Senate. Senator Buford made Kentucky history on the day of his inauguration to the Senate--he is the first Senator ever to be sworn in as a new member and as a leader in his caucus. He served the first two years of his term as the Republican Whip, and later served four years as Republican Caucus Chairman. Senator Buford’s committee assignments include the Appropriations and Revenue Committee, Licensing and Occupations Committee, Health and Welfare Committee, Chairman of the Banking and Insurance Committee, Chairman of the Budget Review Subcommittee on Health and Human Resources, Program Review, and the Long
Term Policy Research Center Board. Senator Buford was recognized by Common Cause as one of the 13 most ethical legislators, and he was selected and awarded by the Republican National Committee and President Bush as one of the top 10 legislators in the United States. Senator Buford graduated from the University of Kentucky in 1971. He started his professional career at Central Bank in Lexington. He is a retired Vice President with Kentucky Bank and operates Tom Buford
Properties, a residential company. His family includes his wife, Carol, and his daughter and son, Stephanie and Beau. He is the great, great nephew of Major General John Buford of the Battle of Gettysburg. His son, Beau, was in the US Navy. Mr. Buford is the 13th member of the Buford family to serve in the Kentucky general assembly. A special thanks to Mr. Tom Buford and Karen Evans for their assistance. We appreciate your commitment to our industry.
UPCOMING EDUCATION EVENTS & SEMINARS COMMERCIAL LENDING SCHOOL September 15-19 Louisville Bank Marketing Seminar September 25 Louisville Asset Liability Management Seminar (IRR Management & Investment Strategies) October 8 Louisville Tricks of the Trade - Collection Strategies, Workouts and Judgment Remedies Seminar October 9 Louisville FDIC Community Bankers College October 21 Bowling Green October 22 Lexington ESSENTIALS OF BANKING SCHOOL November 3-7 Louisville IRA Basics Pegasus Seminar November 5 Bowling Green
November 6 Madisonville November 12 Paducah November 13 Elizabethtown November 17 Morehead November 18 Hazard November 19 Somerset November 20 Lexington Cash Flow Seminar November 12 Bowling Green November 13 Lexington Ag Lending Seminar December 2 Bowling Green IRA Administration Pegasus Seminar December 2 Paintsville December 3 Somerset December 4 Paducah December 9 Elizabethtown December 11 Lexington December 16 Bowling Green
Safe Deposit Seminar December 3 Bowling Green December 4 Lexington Coming in 2015…. Appraisals and Evaluations Compliance Review Seminar: An In-depth Study January 21 Lexington January 22 Bowling Green How to Improve Your Collection Department Seminar January 28 Louisville Training the Credit Analyst Seminar (Two-day Program) March 24 & 25 Bowling Green March 26 & 27 Lexington
Training Tidbits KBA introduces the New ABA Certificate in Lending Compliance
• Get the latest on key lending compliance regs taught by expert faculty
• Enjoy one year unlimited access to the course content and updates
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Questions: Call Chris Kelso at 502-736-1300 or email ckelso@kybanks.com.
Annual Meeting of the Kentucky Thrift Foundation At the 20th Annual Meeting of the Kentucky Thrift Foundation (KTF), held on June 26, 2014 at the Griffin Gate Marriott Resort in Lexington, officers were named for the 2014-2015 fiscal year. Mr. Glenn Meyers, CEO, Kentucky Federal Savings & Loan Association, Covington, was elected to serve as President of the Kentucky Thrift Foundation and currently serves on the KBA’s Board. Mr. Ryan Steger, President/CEO, Commonwealth Bank, FSB, Mt. Sterling, was elected to a three-year term on the KBA’s Board beginning at the close of the annual convention on September 22, 2014. Mr. Steger will serve as Vice President of the KTF. Mr. Don Jennings, CEO, First Federal Savings Bank, Frankfort, will complete his threeyear term on the KBA’s board at the close of the annual convention. Also, at the June 26th joint meeting of the Kentucky Thrift Foundation and Central Kentucky League of Savings Institutions, Mr. Ryan Steger, President/CEO, Commonwealth Bank, FSB, Mt. Sterling, was elected to serve as President of the Central Kentucky League of Savings Institutions for 2014-2015.
Following the KTF annual meeting, a joint dinner was held with the Central Kentucky League of Savings Institutions where Past Presidents/Chairmen of the Kentucky League of Savings were invited to gather for the joint dinner and meeting of the Central Kentucky League.
September 2014 | 12
Mr. Bill Woodward, Past President of the Kentucky League in 1969, and Mr. Tony Whitaker, Past Chairman of the Kentucky League in 1988, attended the dinner. Mr. Adam Noah was the guest speaker. Noah is the senior vice president for congressional relations of the American Bankers Association, leading ABA’s lobbying efforts with the Senate Republican Caucus, including Senate Leadership and Banking Committee members.
Upcoming Bankers Roundtable KBA members are invited to attend the Bankers Roundtable meeting that will be held on Monday, November 10, 2014 beginning at 8:30 a.m. (ET) and adjourn at 12:00 Noon. There is no charge to attend the meeting.
of the arrival date. Failure to notify the hotel will result in a charge of one night’s tariff, plus state and local taxes. For more information on the Galt House Hotel & Suites, their website is www.galthouse.com.
The Bankers Roundtable is a networking opportunity for “bankers only” to discuss key issues that Kentucky financial institutions are dealing with in today’s economic environment, including regulatory and examination concerns. Please complete the registration form on the KBA website and provide any specific topics that you would like to discuss at the meeting. Return your completed registration form to Selina Parrish at the KBA via email to sparrish@ kybanks.com or via fax at (502) 584-6390 no later than Friday, October 31, 2014. The Roundtable meeting will be held in the KBA’s Board Room (600 West Main Street, 4TH Floor). This is a two block walk from the Galt House Hotel. Public parking is available in the parking garage on Sixth Street. Continental breakfast will available at 8:00 a.m. in the board room. The Galt House Hotel & Suites, located at 140 N. Fourth Street in Louisville, has a block of rooms reserved in the Rivue Tower ($120) and Suite Tower ($140) for Sunday, November 9. Please contact The Galt House Central Reservations Office to make your room reservation by calling 1-800-THE-GALT (1-800-843-4258) and reference the “Kentucky Bankers Association” to book your room in the block. The room block will be released on Friday, October 10, 2014. Room charges/expenses are the responsibility of each registrant upon check-out on Monday. Cancellation of a reservation must be received at the Galt House 48 hours in advance
On Sunday, November 9, everyone is invited to meet at Al J’s at The Conservatory located at The Galt House Hotel for a networking reception. Al J’s at The Conservatory is located on the third floor of The Galt House, which spans Fourth Street and links the hotel’s Suite Tower and Rivue Tower and is an impressive glass-domed great room overlooking the Ohio River. The “on your own” reception will begin at 5:30 p.m. At 6:00 p.m. Computer Services, Inc. will host a dinner function for the group. Please mark the registration form if you plan to attend the dinner event. Additional details regarding the dinner will be provided prior to November 9. If you have questions or need additional information, please contact Selina Parrish by calling (502) 736-1282 or send an email to sparrish@ kybanks.com. We look forward to seeing you at the meeting on Monday, November 10.
September 2014 | 13
RESPA/TILA Reform - Through Mortgage Disclosure Integration Remember back in 2012 when the CFPB proposed the “Integrated Mortgage Disclosures”? This rule requiring the Knowbefore–you-Owe disclosures was touted by many as the perfect marriage of TILA and RESPA. Before we buy into that description, let’s take a deeper dive into exactly what changes are found buried within the 1,888 pages of explanations, requirements and model disclosures. The CFPB received over 3,000 comments when the rule was first proposed. The CFPB expected this type of reaction because of the significant changes. The new requirements not only affect two major regulations, they also affect the entire residential real estate industry. The CFPB responded to the comments by adding over 750 pages to the regulation, bringing the total to 1,888 pages for this amendment alone. Of course the agency is justifying these changes by stating that the actual regulatory changes only accounts for 70 pages, bringing the total to 279 pages in length. By any standard, that is a lot of information to digest and implement. Ah, I digress. Let’s put these facts out of our mind and move on to what this actually means to us as bankers. The purpose of the rule is to improve the way consumers get loan information whey they apply for and close on a mortgage loan. The majority of the requirements are about the two required disclosure documents, which are the Loan Estimate (replaces the current GFE, Appraisal Notice, Servicing Disclosure, ECOA notice and the Early Truth-in-Lending) and the Closing Disclosure (replaces the current HUD and the Final Truth-inLending). The rule also contains some key provisions about the timing of these disclosures. The purpose of reducing the number of the disclosures to only two is not only to reduce the burden on the lenders and other loan personnel who prepare these forms, but to also simply the forms to be easily understood by the consumer. Before we go into the requirements of the new forms we would be remiss if we did not also note that the proposed integrated mortgage disclosure rule added some language to the official interpretation of Regulation Z which is seemingly unrelated to integrated disclosures. The CFPB slipped in a fairly big change that may broaden the scope of Regulation Z to expressly include loans to trusts. Section 1026.3(a)(2) of Reg Z specifically exempts extensions of credit “to other than a natural person.” Many compliance specialists often argued that because trusts, are not defined as “natural persons,” a loan to such an entity would be exempt from the regulation. While there has been debate to the contrary, and even some case law suggesting that revocable trusts are still subject to the rule, there was no definitive guidance — until now. The integrated disclosure rule now amends the commentary to section 1026.3(a)(2) and provides, in part that, “Credit September 2014 | 14
extended for consumer purposes to certain trusts is considered to be credit extended to a natural person rather than credit extended to an organization.” (Commentary to 12 CFR 1026.3(a)). The commentary further explains: “Regardless of the capacity or capacities in which the loan documents are executed, assuming the transaction is primarily for personal, family or household purposes, the transaction is subject to the regulation because in substance (if not form) consumer credit is being extended.” If a loan to a trust is for a consumer purpose, then Regulation Z, and all its glory, will apply. Now for the agencies’ stated purpose of the rule, let’s break the requirements of the final rule into five sections: First, either the lender or the broker may deliver the Loan Estimate to the consumer; however, ultimate responsibility falls on the lender. The final form that the CFPB developed is a three page form. The final form de-emphasizes APR because, in testing, the consumers found the APR to be confusing, but includes some new disclosures that were mandated by Dodd-Frank, such as total interest percentage and the “In 5 Years” calculation. Second, there are multiple versions of the loan closing form to account for different transaction types, for example a refinance and a purchase have different forms from each other. This will be a training concern — ensure lending staff understands the definition of each type of transaction and the “real purpose of the loan.” For instance, staff should be able to differentiate between a land-only loan, construction-only and construction-to-permanent loan. There also is a “seller-only” form required for closed-end loans in residential transactions. Other loans, such as reverse mortgages and home equity lines of credit and other mortgages secured by a mobile home or by a dwelling that is not attached to the real property, will still use the HUD-1 form. The new Loan Estimate co-mingles lender and settlement costs with loan terms and replaces the HUD line numbers with an alphanumeric system. The Closing Disclosure itemizes the costs and includes section totals rather than lumping costs together and rolling them up into one line item. Because the form is a combination of loan information and settlement costs, communication and cooperation between the lender and closing agent is vital. If the settlement agent completes the loan closing disclosure form, the lender needs to provide a copy of the loan estimate form to provide the information necessary for an accurate Closing Disclosure. Third, the initial Loan Estimate must be delivered or mailed to the borrower no later than three business days after the lender receives the mortgage application and no less than
seven business days before consummation of the loan. A revised Loan Estimate due to changed circumstances must be delivered or placed in the mail within three business days of the lender’s knowledge of a changed circumstance; however the borrower must receive it no later than four business days before consummation of the loan. The borrower must receive the Closing Disclosure no later than three business days prior to the consummation of the loan. A revised loan Closing Disclosure can, in most cases, be delivered and received at the closing. Key points of the Three-day Rule include: •
•
•
If disclosures are not delivered in person, but are instead delivered by mail, electronic media or a courier; the borrower is considered to have received the disclosure three business days after being placed in the mail, sent by email or placed with a courier. Accordingly if delivering other than in person, an additional three business days is required in order to ensure receipt by the borrower no later than three business days prior to consummation. The lender is allowed to rely on evidence that the consumers actually received the disclosure earlier, if the disclosure is sent by email (assuming the consumer has consented to email and complied with E-sign requirements), and receipt is acknowledged the same day as the lender sent them, then the lender can rely on the actual day of receipt and consummation may take place on the third business day after the actual receipt. The loan closing disclosure can change from the time received by the borrower and consummation unless (a) the APR changes by 1/8 of 1%, or (b) the loan product changes, or (c) a prepayment penalty is added. In any of those three instances, a re-disclosure must be received by the borrower three business days before consummation, meaning that consummation would be delayed.
Fourth, the “tolerance levels” are kept intact; however, some of the items falling within the “buckets” will be changed for loans that require the disclosures. In the zero tolerance bucket; there can be no increase for any item in this bucket in the amount paid at closing over the estimated amount on the loan estimate form for borrower paid: • • •
•
Charges paid to the lender and/or broker for their own fees, such as origination charges; Transfer taxes; Fees paid to an affiliate of the lender or broker for a service required by the lender (this is a change from the current tolerances); and Fees paid to an unaffiliated service provider for a ser-
vice required by the lender if the borrower was not allowed to shop for the provider (which is not a zero tolerance item under current HUD regulations) In the 10 percent bucket, charges for services that can increase, but by no more than 10 percent in the aggregate are: • Fees paid to an third-party provider not affiliated with the lender for a service required by the lender if the lender permitted the borrower to shop and the borrower still selected off the lender’s provider list; and • Recording fees paid by the borrower Changes that can increase by an unlimited amount over the estimated amounts on the loan estimate form include: • Prepaid interest; • Property insurance; • Amounts for escrow deposits (taxes, insurance); • Fees paid to third-party providers selected by the borrower and not on the lender’s list of providers; and • Charges paid for third-party services not required by the lender. The lender can issue a revised Loan Estimate if a “changed circumstance” occurs. If a “changed circumstance” occurs causing an increase in charges above the applicable “tolerance level” the lender must provide an updated loan estimate form within three business days after having knowledge of the change. Examples of “changed circumstances” that would allow for revisions in the loan estimate include: • • • • •
•
The consumer asks for a change; Information provided in the application was inaccurate or has changed since the application; New information as to the consumer or transaction is provided that the lender had not relied on; The Loan Estimate expires; Interest rate dependent charges (when the rate is locked by the consumer, lender must provide revised loan estimate showing all such changed charges); and Extraordinary event occurs beyond the control of any party
It is critical to start now on system changes, training (to include how to complete the new forms), policy and procedures/processes. It may seem like the mandatory compliance date of Aug. 15, 2015, is far off, but the clock is ticking and there is a lot of work to be done. By Darlia Fogarty, Director of Compliance and Dimitris Rousseas, Association General Counsel
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United Southern Bank Steps Up Marketing Do you know who your customers are? Are they 27 and prefer to use the ATM and mobile banking app? Are they 67 and know each of the tellers by name because they prefer to do business in the lobby? Whoever they are, it’s important for your bank to reach each and every one. But how do you actually go about doing this? Marketing, of course! Sure, offering services reflective of your community, being involved and keeping a pulse on economic and commercial growth are certainly key to reaching customers, but utilizing marketing tools correctly can increase that reach beyond your imagination (and the walls of your bank). United Southern Bank in Hopkinsville has done just that. A few years ago, Todd Mansfield, President of USB, and his team took their vision of developing a new, fresh image before the Board of Directors, employees, and community. The key to the bank’s success was a “buy in” from everyone, which led to the complete overhaul of USB’s brand and image. “You have to create products for your customers instead of bringing your customers to your products,” explained Jane Boley, COO. When USB made a decision to bring technology to the forefront, the intent wasn’t to yield to the new, technical banking trends necessarily, but to incorporate technology so it would provide the most effective tools to fit their customers’ ever changing needs. You can still bank in the lobby or you can bank on your cell phone, the choice is yours. Mansfield explained that during the past four years his 18 year old daughter has only stepped in the bank twice to do business. “She does all her banking from her phone….and that’s something we paid attention to with regard to younger customers.” To reach this demographic, some of the bank’s marketing has shifted focus to the use of social media, while maintaining good old fashion stewardship and community involvement.
All marketing plans start with a catalyst, and for USB it was the logo. In 2010, the bank hired an outside marketing firm, Thrive, to initially address the logo. The iconic cupola which sits atop many of the bank branches inspired the new logo. From that point, USB made a game plan for incorporating the new Todd Mansfield, logo both internally and externally. The President of United Southern Bank lobby was redesigned to promote a more approachable environment. “You don’t feel underdressed in our bank lobby- it’s inviting and comforting whether you have on a suit or overalls,” compliance officer Cara Anderson stated. This approachable “look and feel” has become the backbone of many marketing initiatives for USB. Following the redesign of the logo, USB’s marketing plan focused on digital, paper, and social platforms. Facebook is used to announce specific events and community involvement of the bank’s employees, while Twitter is the chosen platform for sharing industry news. USB’s Twitter schedule is mapped out by the marketing firm, proofed by bank contacts for terminology and accuracy, and then broadcast on social media. As for the website, the bank keeps it geared mostly toward business (few, if any social or non-banking items are found there.) For example, they recently launched BaZing, a place for their customers to go to find the best deals in retail, restaurants, etc. This is now found on the website with the icon that links you to registration of the service. The approach to the re-branding was similar to that of Coke; no matter if words appear or not, you always know it’s a coke
September 2014 | 18
product by their branding. The brand consistency USB has chosen for their website and social media outlets creates a consistent look in a way that is identifiable back to them. “The image we present must be approachable and trustworthy,” said Boley. “That’s why it’s pertinent to modernize the website and the look of the bank. Bank customers view USB from different angles, and they should all paint the same picture.” Between 2010 and 2014, the partnership between USB and their marketing agency brought about the launch of a new logo, website, lobby interior, and new mobile banking app just to name a few. But they wanted the employees to share their side to the new look. Soon to be revealed website photos will include employees and board members being themselves. Silly action shots, no ties, and one handsome director in overalls just to name a few. Stay tuned…it’s a must see! USB constantly challenges management and employees to evaluate their digital presenceWhat are we doing that can be done better? What are we not doing? By Mansfield’s suggestion, bankers should ask themselves, “Can a 72 year old navigate your mobile banking app? If not, perhaps it’s time to reevaluate.” In the community, USB continues to stay involved through a variety of activities. This continued involvement is part of the marketMarketing example from USB’s mobile banking campaign. ing plan that connects bankers with community members by use of social media now, but is also something that the employees, management, and USB has had a continuous growth in business since the directors at the bank truly believe in and have always done. marketing plan has been in place and they project even The bank recently hosted an Agriculture Appreciation Day more in coming years. Nearly everyone in the community where a local expert spoke and a free lunch was provided knows of USB and what they stand for in the community. to all participants. The bank also sponsors a “Player of the USB is a shining example of a bank staying current with week” during football season where one player from any of technology, while staying true to their roots. the six local high schools is eligible to be featured as athlete of the week. As with any new marketing initiatives, it takes time and sometimes some “tweaks” to make sure your message is coming across the way you intend… “Reinventing the brand is a process and takes time” said Mansfield. But the payoff can be exponential!
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Feed Your Brand Every Day 12 Brand-Feeding Approaches to Improve Your Sales Sales are important. You have to make sales in the short term and over the long term in order to pay your bills, compensate your employees, and make a profit so you can stay in business. Selling is the lifeblood of every business. However, if all you do is focus on selling, you may end up with a very weak brand as an organization. If that happens, then you have to start over each day from scratch and try to sell your products and services to someone new. When your organization has a very weak brand in the marketplace, it makes the act of selling exponentially more difficult. When your organization has a very strong brand in the marketplace, it makes selling exponentially easier. Think of selling a Carrie Underwood song before she won American Idol and after she won American Idol. Compare selling a ticket to a Los Angeles Galaxy soccer game before David Beckham showed up with selling a ticket while he played there. Compare selling hamburgers at a startup local restaurant with selling hamburgers at McDonald’s. The key to driving large numbers of sales is having a strong brand. A strong brand acts like a giant magnet where customers want to buy from you rather than you having to search far and wide to find a potential customer that you then have to convince to buy from you. Take time each day to strengthen your organization’s brand. One day you will look back and be amazed by the number of sales you are making to people who come to you wanting to buy your products and services. Here are a dozen ways you can feed your brand every day:
Brand Feeder #1: Carefully look at what your customers see. If your website is the first thing your potential customers see, then study it carefully. Does it easily explain what business you’re in and how you add value to customers? Is it clear what you sell and why those products and services are of value to other people? Do you have some type of free value on your website so people can gain a sense of what it is like to work with you? Is it clear how a person can contact your organization? To be honest, I don’t understand companies that make customers fill out an information sheet in order to be called back. Why not just put your phone number and an email address on your website? Why make it so
hard for people to reach you? Would you have people walk up to your door and tell them to fill out a form and that you might call them back? If the first interaction a potential customer has with your organization is at a retail location or at an office, does that physical space exude the type of look that you want it to project? Does it make the potential customer comfortable or uncomfortable? You might not be in charge of your website or your facility, but you can at least look at it from the customer’s
perspective. Then find a convenient time to calmly discuss your observations with whoever is in charge of the website or the facility. Be mature and professional and use tactfulness, but at least let the person know what you’re seeing. Brand Feeder #2: Look at how you and your staff interact with customers and prospects. Your brand is the value people think they receive when they buy your products and services. Do you and your staff members interact with your customers and prospects in ways that help them to feel respected and supported, or do you laugh at them when they don’t know something? Are you patient and pleasant or rushed and rude? Feed your brand today by being on the alert as to how you talk with your customers and prospects and make at least one improvement right away. Get your staff members to focus on how they interact with customers and prospects. We all get one chance to make… Brand Feeder #3: Study the quality of your products and services and make one improvement. When the customer unwraps that new product from your organization and tries it out is he or she going to be happy on the first time, the fiftieth time, and the five-hundredth time? Will the person brag to their friends and co-workers about the service they received from your organization? If not, you will end up with a weaker brand than you could have had. Brand Feeder #4: Provide encouragement to your employees. September 2014 | 21
Your brand exists in the minds of your customers, but it is built through the efforts of your employees. Do they feel encouraged and supported by you to do their very best work? Somewhere down the road your customers are going to be affected directly or indirectly by your employees. Is there a way that you can affect your employees today that will increase the chances that they will have a positive impact on your customers in the future? Brand Feeder #5: Do your prices reflect your brand positively or negatively? If a person looked at your price today and compared it to the prices of your competitors, do you feel that your current price would enhance your brand or weaken your brand. Don’t be fooled into thinking that people always want the cheapest price. They don’t. They want an appropriate price. If a MercedesBenz salesperson told me I could walk off the lot with a brand-new Mercedes for $14,000, I wouldn’t trust him or her. That price doesn’t fit the brand. I would believe something was wrong with the car. If someone charged me $24 for a hamburger, I would question what I was doing there. Do you have the appropriate price for the brand you want to be known for? Your price can endear a customer to you or make them furious. Brand Feeder #6: Take social media seriously or not at all. If you say you’re going to blog every week or every day, then do it. If you say you’re going to post updates on Facebook, then do it. If you say you’re going to Twitter away with tips every morning, then do it. Some companies take social media seriously and have dramatically enhanced their brand. Others talk about taking social media seriously and then people question their brand because things happen only very sporadically. Either take it seriously, or don’t do it. Brand Feeder #7: Consider what your brand says and what it doesn’t say. The ultimate brand-killer is trying to be something different every day just to close a sale with a different customer September 2014 | 22
every day. No organization is for every pocketbook. You can build a massive company with a very clear brand (Disney: entertain all members of the family; Ralph Lauren: selling the luxury lifestyle; American Girl Doll: in the little-girl business), but you can’t even build a successful little business without people having a clear understanding of the value you sell and who you sell it to. Take time today to look at your brand. How do people describe the value they receive and what it is like working with your organization? Brand Feeder #8: Send a personal touch to a customer. Rather than wondering what you can do today at work and just filling up your time with busywork, I suggest you pull out a stack of personal note cards and write a handwritten note to your Top 25 customers. If you do that once a quarter, think how much stronger your relationship will be with each of them. Don’t just write the same thing to each person. Make each note personal and unique. If you don’t know your customers because of the role you’re in, then write a handwritten note to your Top 25 franchisees or suppliers or employees. The point is you strengthen your brand when you strengthen your personal relationship with key people associated with your organization. Brand Feeder #9: Look at your advertising from your customers’ point of view. If your company invests in tv, newspaper, online, billboard, email, and/or radio advertising, then observe that advertising as though you were a customer or a prospective customer. Does the advertising make sense to you? Is it clear how you would be better off as a result of using that product or service? Does it in some way increase your emotional desire to buy from your organization? Be honest with the people responsible for the advertising. In a professional, one-on-one conversation let the person know what your observations were like. Take ownership
of your brand and at least express your opinion. Do so with tact and maturity, but let your thoughts be known. Brand Feeder #10: Provide free value (otherwise known as The Santa’s Approach). One of my favorite movies on branding is Miracle on 34th Street. That’s the one where the Santa at Macy’s tells the moms where they can buy certain toys that aren’t available at the Macy’s. In other words, Santa gave away free value and instead of losing customers he actually increased customers for Macy’s because the moms knew they would get good advice on where to find things. He was like an early version of Google, which also gives away tons of information for free and has built an amazing business. What value that is relevant to your customers can you give away for free? This is important. People love the opportunity to try out an organization before they commit to a paying relationship. Can you put free advice on your website, can you give away free samples of your product, or can you let your customers try your service for free for thirty days? A brand is based on a relationship. That relationship is based on a promise you make to your customers. When you keep your promises, you strengthen your relationship with the customers. Brand Feeder #11: Look at your schedule and make sure your efforts support the desired brand. This is the whole point of this article. Are you really feeding your brand every day in some way, or are the hours in your day being eaten up by stuff that won’t enhance your organization’s brand at all? Look at your schedule for the rest of today and tomorrow. What specifically will you do to enhance the brand? If you don’t have anything on your calendar, then you better look at what you can take off and what you can put in place to advance your brand in some way. You might decide the one thing you can do today is to let ten of your friends and
family members know more about your company’s products and services.
All the marketing in the world doesn’t make a brand strong if the delivery of the promised value is poor.
If every employee raved about their company to the people they know, it could be a tremendous step forward toward strengthening their organization’s brand.
Brand Feeder Bonus: Get away from your work so you come back with better mental energy. Ironically, you need to stop working in order to better understand your brand. When you are away from your work, stay away. Give your brain a rest. Then when you come back to looking at your brand you can do so with fresh eyes. You might just see something obvious that you never saw before.
Brand Feeder #12: Search for ways to improve the operational aspect of delivering value to your customers. A brand is built, or ruined, by an organization’s ability to consistently and efficiently deliver the value it promised would be delivered.
About Dan Coughlin Dan Coughlin works with leaders in business and healthcare to improve results in a sustainable way by impacting teamwork, execution, innovation and branding in their organizations. Visit Dan Coughlin’s Business Leadership Idea Center at www. thecoughlincompany.com He is the author of the book, The Business Leader’s Impact: five critical drivers of sustainable profitable growth. His clients include Texas Bankers Association, McDonald’s, Cisco, Anheuser-Busch InBev, Abbott, GE, American Cancer Society, VHA, Marriott, Coca-Cola, Shell, Toyota, RE/ MAX, Boeing, Subway, Cardinal Health, BJC HealthCare, St. Louis Cardinals, Prudential, and more than 200 other organizations.
Think of Apple, McDonald’s, and Wal-Mart. They sell an amazing amount of products every year and yet the consistency and efficiency of their operations are remarkable.
Look at the flow of your organization. From the time a customer requests a certain product or service to the time he or she receives that product and service to all the times he or she uses that product or service was there anything that could be done to improve the consistency and quality of the customer’s experience with that product or service? Is there anything that B:7.75” could be done to improve the efficiency with which the value T:7.5” was delivered to the customer? Reprinted with permission. S:7”
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T:5”
S:4.5”
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Shedding Light on the Farm Credit System, America’s Least Known GSE Every young farmer in America has an FCS loan???
loans while other young farmers have none. Granted the FCS is a very aggressive lender, but it is well known that it has not been aggressive in providing credit to young farmers.
The FCS and the Farm Credit Administration (FCA) attempt to justify the FCS’s tax exemptions and taxpayer-backed funding by claiming to make a special effort to provide credit to young, beginning, and small (YBS) farmers. The FCA defines a young farmer as someone age 35 or younger “as of the date the loan was originally made,” a beginning farmer as having 10 or less years of farming experience on the loan origination date, and a small farmer as someone who “normally generates” less than $250,000 in annual gross sales of agricultural or aquatic products when the loan was originated.
Given the FCS’s well-known propensity to lend to larger farmers and agribusinesses, the FCS’s data on its lending to small farmers is suspect, too. At the end of 2012, the FCS had 36,270 loans and loan commitments outstanding to “small” farmers that exceeded $250,000 each. These loans and commitments totaled $18.885 billion, or an average of $521,000 per loan and commitment, more than twice the maximum annual agricultural sales of a “small” farmer. It is quite likely that many of these “small” farmers with large FCS loans are owners of country estates with minimal, if any, farm sales, weekend farmers with substantial non-farm income, such as doctors and lawyers, or hunting and fishing clubs who financed their property with an FCS loan. As one FCS association president told me years ago, if the land has the “potential” to be farmed, the FCS can finance it.
One major flaw in the YBS data, which the FCA readily acknowledges, is that YBS loans get double- and triple-counted. For example, a loan to a 32-year-old farmer who has farmed for seven years and has annual agricultural sales of $185,000 is triple-counted in the YBS data—once as an Y, once as a B, and once as a S. Likewise, each loan to a farmer meeting the YBS criteria is tallied as a YBS loan, so if the farmer in this example has a farm mortgage, a production loan, and loans used to buy a tractor and a pick-up truck, the FCS will count those four loans a total of twelve times in its YBS data. Term loans also lead to overstated YBS loan numbers. For example, a 15-year mortgage extended to a 34-year old farmer will get counted as a loan to a young farmer until that farmer turns 49. The FCA could easily eliminate this gross exaggeration of the FCS’s YBS lending but so far it has refused to do so.
In her June 25, 2014, testimony to a House Agriculture subcommittee, FCA Chairman Jill Long Thompson claimed that the FCS “continued to show gains in loan dollars outstanding and loan numbers outstanding to YBS producers,” yet she provided no insight into who these borrowers really are, such as doctors, lawyers, and hedge-fund managers. She then stated that “despite these gains, YBS results as a percentage of the [FCS’s] total farm loans have either declined or remained flat over the past few years. These results likely reflect the shrinking pool of YBS farmers in the United States.” While the Ag Census reported that the number of farms with annual sales of less than $250,000 shrank 6.7% from 2007 to 2012, to 1.854 million farms, it is clear from the YBS data that few of those farmers borrow from the FCS, or at least they are not identified as such. As FCW readers know so well, most of the FCS’s outstanding loan balance, as well as its loan growth in recent years, has come from large agricultural enterprises as well as non-farm businesses.
FCS consumer lending exploding
The YBS exaggeration becomes starkly evident when linking the USDA’s 2012 Census of Agriculture (http://www.agcensus.usda.gov/Publications/2012/) with the FCS’s YBS data. For example, the FCS claimed that at the end of 2012, it had 170,157 loans outstanding to young farmers (35 or younger) while the USDA census reported that 119,833 full and parttime farmers were 34 or younger. Setting aside the one-year age gap between the two sets of numbers, this data suggests that every “young” farmer in American has at least one FCS loan or, alternatively, some young farmers have several FCS September 2014 | 24
An analysis of the FCS’s YBS data published in the FCS Annual Information Statement shows an interesting trend in recent years – the number of loans under $50,000 to borrowers other than small farmers have exploded in recent years, rising from 140,667 at the end of 2007 to 156, 893 at the end of 2010, to 187,832 at the end of 2012, and 215,634 at the end of 2013. The average size of these loans grew from $16,514 in 2007 to $22,501 last year while the aggregate amount of these loans more than doubled, rising from $2.32 billion at the end of 2007 to $5.89 billion at the end of last year. These loans do not represent a significant amount of total FCS lending – less than 3% at the end of last year – but this lending category is growing faster than total FCS lending, and may be quite profitable. Similar growth in loans to non-small-farmers was seen for loans in the $50,000 to $100,000 size range. These loans
rose in number from 62,115, for $3.67 billion, at the end of 2007 to 72,646, for $5.41 billion, at the end of 2013. The average loan size grew from $59,020 to $74,457.
THIS IS AN ADVERTISEMENT.
Some of these loans may be to farmers not classified as YBS borrowers, but given the high level of farm income in recent years, larger farmers are more likely to pay cash for smaller equipment purchases. Some of these loans may be to non-farmers eligible to borrow from the FCS. More likely, though, much of this growth in small loans has stemmed from FCS associations lending to borrowers ineligible to borrow from the FCS or from FCS indirect lending programs, such as AgDirect, that clearly reach out to borrowers ineligible to borrow directly from the FCS. Other loans may simply be consumer loans that banks should be making. The FCA needs to explain who these non-small-farmer borrowers are while clamping down on this especially egregious lending abuse by FCS associations. At the other end of the lending spectrum, individual loans and loan commitments over $1 million to nonsmall-farmers have grown steadily as a percentage of total FCS loans and commitments, from 61.2% of total FCS loans and commitments at the end of 2007 to 66.0% at the end of 2013. The average size of these loans also rose over that six-year period, from $1.087 million to $1.238 million. Of course, as noted above, the FCS does not report loan data aggregated by borrower, so FCS credit exposures to individual large borrowers are much greater than these individual loan amounts.
FOIA request filed with Treasury Department Pressing on in my investigation of the $10 billion lineof-credit the Farm Credit Insurance Corporation (FCSIC) secretly obtained last year from the Treasury Department’s Federal Financing Bank, I have finalized a Freedom of Information Act (FOIA) request with the Treasury Department to conduct an extensive search of its records pertaining to the creation of that line of credit. There will be a cost associated with this search, but it will be worth it if it produces further insights as to how this line-of-credit came to be created. On a related note, this one-year line-of-credit expires on September 24. It will be interesting to see if it is renewed and if so, what changes will be made in it.
at the
2014
Kentucky Bankers Association Annual Conference
Celebrating 40 years of legal service in the banking industry.
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. Reprinted with permission.
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What Banks Should Expect from a Security Assessment in 2014 It is nothing new for banks to have a third-party perform a security assessment in order to meet GLBA compliance. While the regulation isn’t new, the constantly changing challenge for banks is determining what they should be learning from these assessments. Unsurprisingly, the same assessment performed ten years, or even one year ago, may not sufficiently meet GLBA requirements in terms of “insuring the security and confidentiality of customer information.” This article identifies the aspects of a security assessment that banks should expect in 2014. These aspects are broken down into the following categories, each including a checklist for key actions. Know Your Threat Surface If you don’t know it is vulnerable, you can’t protect it. Most banks should already have an inventory of devices, and should have their data classified and controls around sensitive data. The question for many banks is “How current are those inventories?” As you prepare for your annual assessment, ensuring you have a current understanding of where sensitive data resides and related technologies and processes is key to defining the scope of your security assessment.
Testing Scope How many ways might a malicious individual attempt to access confidential information? Banks are well aware that the means are endless, but that the approaches can be categorized into: Technical, Physical and Social/Human. Most banks address some aspect of these on an annual basis, but doing the same type of testing each year will result in gaps in testing. Using the questions identified in the previous section, ensure your testing scope effectively addresses your needs. Assessment vendors have typically offered “standard” assessments designed to comply with GLBA and to assess your environment from an “external” and an “internal” perspective. Most assessment vendors also offer more detailed assessments designed to test specific aspects of your environment. Below are some common aspects of a bank’s environment which aren’t tested as fully as possible in most “standard” assessments: • Virtualized servers • Wireless • Malicious network activity • Cyber insurance policy review
Checklist:
• ATM
• What technology changes have you made since your last security assessment?
• Web application
• Have you added any new physical locations where you’ll have sensitive data? • Do you have a network diagram? • Can you provide an inventory of devices? • Have you identified your critical data and where it is located? • Have you performed an annual IT risk assessment to help identify high-risk areas? September 2014 | 28
• Mobile application • Firewall rules • End user training (social engineering) for: • Malicious e-mails, media, and phone calls • “Dumpster Diving” • Unauthorized physical access • Goal-based penetration testing While it isn’t practical for most banks to perform detailed assessments in
each of these areas every year, rotating over a three-year period will provide significantly more information on your security posture. The closer a technology or process comes to your sensitive data, the more valuable a detailed assessment is to your organization. Checklist: • Rotate assessment vendors at least once every four years. Testing with different tools and approaches may identify issues you may not have otherwise uncovered. • Identify technologies and processes that would benefit from a more detailed assessment. Focus on those closest to your sensitive data. • Are non-technical controls being evaluated? • What are you doing to test what you didn’t test last year? Documentation to Drive Action “Big Data” and “Analytics” have been buzzwords in information technology for years and are becoming more common when talking about security. While it is true that more and more data tends to be available to help improve security posture, turning that data into actionable information is key. More individuals involved with security and compliance within a bank further complicate the challenge of making security data useful. A report that is useful to the technical team when it comes to remediating issues may be useless to someone focused on compliance. Assessment deliverables should provide the right level of detail to each of the various types of audiences reviewing the information. These may even take the form of different deliverables based upon the same findings and recommendations. For example, an organization that will have a compliance team, technical team, and an executive team reviewing the assessment results may require each of the following deliverables:
• Executive summary
Checklist:
sues were effectively addressed.
• Prioritized risk ratings of findings and recommendations
• Require that assessment data be documented for each level it will be reviewed at in your organization.
• Include assessment results as input into your other planning processes such as your technology roadmap, training plans and process improvement initiatives.
• Technical details including raw data A Q&A period on a draft version of the report can be useful to ensure the accuracy of information and revise risk ratings and recommendations before the report is finalized. The same critical finding in one environment may not be critical in another environment.
• Require that recommendations be provided for each critical finding. •Require that a Q&A period with iterations is included in the base scope. Trust, but Verify Receiving the assessment report is just the beginning of the process! Not only do critical vulnerabilities need to be identified, banks need to be prepared to demonstrate to the auditor that they have been effectively addressed. When remediation isn’t easily documented, remediation verification testing provides clear documentation to auditors as to whether the issue has been effectively remediated or not.
Conclusion In 2014, a security assessment provides more value to a bank than a compliance checkmark. With proper planning, documentation and followup, it provides valuable insight into the bank’s security posture and business processes in general. Make your security assessment more than just a task list for your compliance, audit, and technology teams. Maximize the value it brings to your bank by ensuring it is a tool that drives value throughout the organization.
Checklist: • Engage your assessment vendor to perform remediation verification testing as documentation that critical is-
Article courtesy of SDGblue
CITIZENS NATIONAL CORPORATION AND PEOPLES SECURITY BANCORP, INC. AGREE TO MERGER Paintsville, KY: August 14, 2014 –Citizens National Corporation (OTCQB: CZNL), the holding company for Citizens National Bank, Paintsville, Kentucky, and Peoples Security Bancorp, Inc., the holding company for The Peoples Security Bank of Louisa, Louisa, Kentucky, today announced their agreement that Peoples Security be acquired by Citizens for approximately $663.15 per share in a merger involving Peoples Security and a Citizens subsidiary. The cash and note transaction is subject to shareholder and regulatory approval and is expected to close before the end of the first quarter of 2015. The purchase price is subject to adjustment, up or down, based on Peoples Security’s shareholder’s equity at the closing. Through its subsidiary, Citizens National Bank of Paintsville, Citizens operates 11 offices throughout Boyd, Carter, Floyd, Greenup, Johnson, Magoffin and Pike Counties. As of June 30, 2014, Citizens had approximately $525 million in assets and $417 million in deposits. Through its subsidiary, The Peoples Security Bank of Louisa, Peo-
ples Security operates 2 offices in Lawrence County. As of June 30, 2014, Peoples Security had approximately $48 million in assets and $41 million in deposits. In commenting on the transaction, John L. Burton, Jr., President and CEO of Peoples Security, said, “We’re very excited about this new partnership with Citizens National Bank. This is an excellent fit for both companies. Peoples Security Bank and Citizens National Bank share a similar commitment to customers, employees and the communities we serve. This merger will preserve our tradition of community banking and local loan decision making.” “This acquisition will allow us to expand financial services and product offerings to the new and current customers within Lawrence County,” said V. Burton Bellamy, President & CEO of Citizens National Bank. “Additionally, the culture of Peoples Security Bank is similar to our own in that there is strong emphasis on personal service. Customers will expect no less from Citizens National Bank and we are committed to both meeting and exceeding those expectations, as we take banking personally.” September 2014 | 29
Improve Your Bank’s Efficiency & Profitability
The KBA is excited to announce our recent endorsement of Profit Resources, Inc. (PRI) for consulting services to improve efficiency and profitability at your institution. PRI was chosen by the KBA for their level of expertise to help our members reduce expenses and increase income to best serve your customers, employees and shareholders. Through PRI’s bottom line solutions, there are various services to choose from when focusing on improving profitability and efficiencies inside your bank. These solutions include: Revenue Enhancement; Expense Reduction; Process Improvement; Best Practice Review; Merger & Acquisition Integration Services; Retail Review; Customer Service Modeling; Account & Relationship Profitability; Total Card Analysis; Systems Evaluation, Selection & Implementation; Project Management; Lending Review; and Enhanced Performance Training. PRI can help! They know how to properly utilize and maximize returns from your established income generating tools, as well as implement new tactics that will revitalize your revenue strategy and positively affect the bottom line. Their methods generate proven results and they have always guaranteed improvement of at least three times that of their fee. We know you will be pleased with PRI’s services to improve profitability and efficiency! For more information, contact Selina Parrish (502) 736-1282 or sparrish@kybanks.com. We look forward to hearing from you!
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RECRUITING THE RIGHT ADVISOR FOR YOUR INVESTMENT PROGRAM A successful investment program offers a community bank many advantages: attracting and retaining customers, competing with national banks and brokerage firms, credibility in the community and non-interest income opportunities. One of the biggest deterrents to banks, however, is how to identify and attract the right advisor to meet the financial needs of your customers. As you might imagine, hiring the right rep is arguably the single most important factor in determining the success of a program. Most agree that the best approach is to recruit an experienced, successful advisor from within your community. The advantages of hiring an experienced rep are significant: •
The success rate is low in the brokerage industry (only one rep in eight remains in the industry after their first two years), so hiring an experienced advisor only increases the odds of success.
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Existing advisors typically bring some of their client base with them, providing potential new customers to the bank, as well as an almost-instant revenue stream.
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An experienced rep has already established skills in assisting clients with their financial needs, greatly reducing the likelihood of learning the business at the expense of your customers.
But why would an already successful advisor leave their current firm to work for a community bank? Not surprisingly, a bank offers many advantages to a rep. Credibility and goodwill is the single biggest advantage a rep inherits through a relationship with the bank. While some investment firms maintain a positive reputation, few approach the credibility community banks have earned from their customers. An advisor representing your bank will be able to leverage this goodwill to get in front of more prospects than they otherwise would as a representative of a brokerage firm, allowing them to build their practice much more efficiently. The opportunity for referrals is also an obvious benefit to a candidate. Advisors working outside of banks receive no referrals directly from their firm – in fact those working in large offices actually compete against their fellow employees for customers, rather than relying upon them for referrals. In most cases, a community bank offers an improved entrepreneurial environment for building a business. Many of the conflicts that exist among pure brokerage firms are non-existent within a community bank: pressure to sell more profitable products, ever-changing sales quotas, negative press, revolving branch managers and changes to compensation
packages are just a few of the frustrations advisors in our industry experience on a regular basis. In the early years, bank brokerage was saddled with the reputation of second-rate status to the major brokerage firms – a place for reps that couldn’t make it with the Wall Street firms. As the broker dealers working with banks evolved to offer the same products, services and technology available at the largest national firms, the perception has shifted and many advisors have left for the advantages of a community bank, recognizing that there is no quicker way to build a practice. A bank’s broker dealer partner should be an invaluable resource when it comes to choosing the individual that will staff your program. To learn how to leverage IPI’s 22 years of bank brokerage experience to help build a program for your bank contact Vince Bailey at 210.542.8508.
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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When it comes to the banking industry, KraftCPAs has the bases covered. Services • Merger/acquisition assistance • Valuation services • Internal & external audit • Information systems assurance & consulting • External & internal penetration testing • Social engineering • Compliance reviews • Loan reviews & grading systems
Wynne E. Baker - (615) 782-4230 Member-in-Charge Banking Industry Team
Gina Pruitt - (615) 782-4207
Member-in-Charge Information Systems Assurance & Consulting
• Enterprise risk management • Forensic accounting • SOX documentation & testing • Tax planning & compliance
www.kraftcpas.com/Banking.htm • Serving the banking industry since 1958
Kentucky Bank Offers New Checking Options to Build Financial Stability Kentucky Bank’s new checking account, Opportunity Checking, may give those who have had a hard time qualifying for checking accounts in the past a new opportunity. Many people have had financial difficulties in their lives and have not been able to qualify for banking services. This account, with new guidelines, can help families move forward and build a stable financial foundation. Opportunity Checking is designed to provide banking options to an underserved population. Reports show that almost 9 million American households are unbanked or underserved (meaning they do not have a checking or savings account). The reasons for 7.7% of Americans being unbanked vary, but for the most part it has to do with past banking issues and being listed in ChexSystems®. CEO and President, Louis Prichard, said, “Kentucky Bank’s goal is to reduce the number of people without a bank or those underserved with banking options – those who rely on alternative financial services such as payday loans. We may be able to help people who do not have a bank account due to past financial issues and are looking for a second chance. The Opportunity Checking account is a great step forward.” September 2014 | 32
Getting started is easy. Visit Kentucky Bank’s office, bring a photo ID (driver’s license, passport, state ID card, etc.) along with your social security number or individual taxpayer identification number, and another form of identification, to see if you qualify for one of our new Opportunity Checking accounts. Kentucky Bank has been recognized as one of the top 200 community banks nationwide and one of Kentucky’s Best Places to Work for three consecutive years. Kentucky Bank’s historic strength and stability offer their customers invaluable peace of mind. Kentucky Bank has fifteen locations in ten Kentucky Counties. Kentucky Bancshares, Inc. is traded under the symbol, KTYB. Visit Kentucky Bank online at www.kybank.com.
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ON THE MOVE Cherith Griggs of CFSB recently graduated from the KBA General Banking School. The KBA organizes the school into two one-week sessions with participants attending classes for one week for two consecutive years. The program also requires participants to complete an intersessions exercise between the two years. The purpose of the intersession exercise is to help bankers understand how the concepts and principles that are introduced in the first year of the program apply to the management of a high performing bank.
Central Bank Chairman, President and CEO, Luther Deaton, Jr., has announced that Brenda Oaks has been promoted to Assistant Vice President, internet banking. Brenda has been with Central Bank for a total of twenty years, all of which have been spent in operations. She currently manages the internet banking department.
Citizens National Bank is proud to announce that Jason Suman, currently the Regional Manager and Vice President of Business Banking, will assume the position of Northern Region Market President. Suman joined Citizens National Bank as Vice President and Business Banking Officer in January of 2012.
Central Bank has announced that Robin Oliver has joined as Senior Vice President, financial planning. Robin brings 16 years of experience to her new position with Central Bank. She comes to us from Crowe Horwath, a top 10 public accounting firm. Robin graduated from the University of Kentucky with a BS in accounting. She is also a licensed CPA in Kentucky, Tennessee and New Jersey.
At the June 2014 meeting of the Board of Directors of the Farmers Bank & Capital Trust Co. Jill Van Hook was named Assistant Vice President. Mrs. Van Hook joined the Frankfort bank in 1999. She began at the Franklin Square Branch before transferring to the Trust Department. Mrs. Van Hook’s area of specialty is employee benefit plans.
Central Bank Chairman, President and CEO, Luther Deaton, Jr., has announced that Julie Szymanski has been promoted to Vice President, Special Assets. Ms. Szymanski, who has been with Central Bank since 2005, manages bank owned properties. Julie attended Ohio State University, where she studied accounting. She has two children and currently lives in Jeffersonville, Indiana.
Central Bank Chairman, President and CEO, Luther Deaton, Jr., has announced that Beth Lakes has joined as Vice President. Beth brings a wealth of experience to Central Bank from her years spent working as a commissioned compliance examiner for the Federal Deposit Insurance Corporation. Beth received both a BBA in finance and an MBA from the University of Kentucky, where she also studied economics and international business.
Central Bank has announced that Justin Whipple has joined as Vice President, Employee Benefits Officer. Justin brings nearly 15 years of insurance experience to his new role as Employee Benefits Officer. He will provide life and health insurance to individuals and group benefits to businesses. Before moving into the insurance field, he was a mortgage loan officer with American Lending Group. Justin received his bachelor’s degree in finance from the University of Kentucky.
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. September 2014 | 34
Send On The Move announcements to: Lane Hettich, lhettich@kybanks.com.
ON THE MOVE Mark A. Gooch, President and CEO of Community Trust Bank, is pleased to announce that Andrew R. Pyles has been promoted to the position of President of the Williamsburg Market.Andrew Pyles was formerly a Vice President and Senior Commercial Loan Officer at Community Trust Bank’s London South office.
Andy D. Waters, President and CEO of Community Trust and Investment Company, is pleased to announce that Erin Serrate has been promoted to the position of Vice President with Community Trust and Investment Company. Erin Serrate is a Trust Relationship Officer in the Trust and Estate Services division of Community Trust and Investment Company.
Mark A. Gooch, President and CEO of Community Trust Bank, announced that Freddie Hunt, Vice President and Central Retail Credit Manager at the Bank’s Operations Center in Pikeville, Kentucky, has retired from Community Trust Bank after more than 46 years of dedicated service. During his time at Community Trust he also held the positions of Loan Assistant, Loan Officer, Compliance Officer, and Loan Operations Manager.
Pictured left to right, Mr. Gary Ulmer and Mr. William “Bill” Mudd.
U.S. Bank has appointed two longtime members of Louisville’s business and civic communities to its local advisory board: William “Bill” Mudd, Chief Financial Officer of Churchill Downs Incorporated, and Gary Ulmer, President of the Louisville Bats. “We’re pleased to welcome Bill and Gary to our local advisory board,” said David Wombwell, Market President for U.S. Bank in Louisville. “Bill and Gary bring diverse perspectives and decades of experience in business and leadership roles. We look forward to their input and guidance.” The goal of U.S. Bank’s advisory board is for community leaders to share information and ideas and help the company’s market leadership make decisions. The bank has 27 branches and nearly 250 employees in greater Louisville. A lifelong Louisville resident, Ulmer has been President of the Louisville Bats since 1993. He previously spent ten years in commercial banking at Liberty National Bank. Active in the community, he serves or previously served on a number of boards including The Convention and Visitors Bureau, St. Xavier high School, Louisville Sports Commission, Better Business Bureau, Boy Scouts, Bellarmine University Board of Trustees, the Louisville Community Foundation, Metro United Way, Salvation Army, Children’s Hospital Foundation, Main Street Associates, Friends of the Waterfront and others. Ulmer is a graduate of St. Xavier High School and the University of Kentucky.
United Community Bank of West Kentucky celebrated National Drive Thru Day on July 24th by honoring the drive thru tellers at our four locations.
A native of Marion County, Mudd has served as Executive Vice President and Chief Financial Officer for Churchill Downs Incorporated since 2007. As CFO, he oversees the company’s financial reporting, strategic planning, business planning, compliance, capital management, risk management and investor relations. Prior to joining Churchill Downs, Mudd held a series of senior financial roles with General Electric over a 15-year career with the company. Active in the community, he serves on the Bellarmine University Board of Trustees and Norton Healthcare Committee on Finance and Core Operations. Mudd holds a bachelor’s degree from Bellarmine University and an MBA from Webster University. He also served as a captain in the United States Army Reserves with 14 years of service.
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