KENTUCKY BANKER MAGAZINE January 2014
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EXECUTIVE
CONTENTS KBA STAFF
Ballard W. Cassady Jr. - bcassady@kybanks.com President & CEO Debra K. Stamper - dstamper@kybanks.com EVP / General Counsel / Director of Compliance Paula B. Cravens Sturgeon - pcravens@kybanks.com Director of Education Solutions Selina O. Parrish - sparrish@kybanks.com Director of Vendor Solutions Matthew E. Vance - mvance@kybanks.com Chief Financial Officer
STAFF Miriam Cole - mcole@kybanks.com Executive Assistant Paula Cross - pcross@kybanks.com Education Services Coordinator Jamie Hampton - jhampton@kybanks.com Education Services Coordinator Natalie Kaelin - nkaelin@kybanks.com Assistant General Counsel Chris Kelso - ckelso@kybanks.com Manager of AIB Education Solutions Michelle Madison - mmadison@kybanks.com IT Manager Lanie Minton - lminton@kybanks.com Administrative Assistant Tammy Nichols - tnichols@kybanks.com Convention & Membership Services Coordinator Katie Rajchel - krajchel@kybanks.com Staff Accountant Yvonne Savage - ysavage@kybanks.com PAC Services Coordinator Angie White - awhite@kybanks.com Director of Communications / Marketing Steve Whitlow - swhitlow@kybanks.com Systems Engineer Consultants John P. Cooper - jcooper@kybank.com Governmental Affairs Consultant KBA Insurance Solutions Chuck Maggard - cmaggard@kybanks.com President & CEO Brandon Maggard - bmaggard@kybanks.com Account Representative Audrey Whitaker - awhitaker@kybanks.com Insurance Services Coordinator KBA Benefit Solutions Lisa Mattingly - lmattingly@kybanks.com Director of Sales & Service Lane Hettich - lhettich@kybanks.com Service Manager Donna McCartin - dmccartin@kybanks.com Account Representative HOPE of Kentucky Billie Wade - bwade@kybanks.com Executive Director
Cover
Photo taken by Lanny Hubbard “Hay Rake” for the Scenes of Kentucky Photo Contest
COLUMNS
Chairman’s Corner..........................5 Straight Talk..................................6 My Two Cents...............................10
DEPARTMENTS
Products and Services...................18 Making News................................19 Education.....................................20
FEATURES
Dunkleberger Resolution................9 Lewis Resolution...........................12 Emerging Leader Spotlight............24 System Evaluation and Selection....14 Day Resolution.............................26 Feed the Hungry...........................27
January 2014 | 3
CHAIRMAN’S CORNER going forward? The conversation Ballard Cassady and I had a few weeks ago comes to mind. Is the Federal Reserve going to fight to protect their place in the payments process? I think we can unite in encouraging the Fed to invest the resources necessary to remain the predominate player in the payments system by creating affordable solutions for traditional banks to access as the digital environment evolves.
Neil Bryan KBA Chairman
Past KBA chairman David Heitzman told me one of the most difficult tasks of the Chairmanship of our Association would be writing these articles for the membership. Trying to find relevant topics that cut across bank size and regional differences can at times seem daunting. Our differences can make finding consensus on certain topics a problem. In looking at the scholarly predictions for the banking industry in 2014, certain predicted issues should help unite the industry. One prognosticator, Jim Marous, compiled lists from “60 global financial service leaders including bankers, credit union executives, industry providers, financial publishers, editors and bloggers, advisors, analysts, and fintech followers” for an article published in Bank Marketing Strategy magazine. Some of his perceived Top 10 Retail Banking Trends and Predictions for 2014 follow for your consideration. Not making the list formally, but in his view items that are so pervasive that they do not need to be included, are the previous and upcoming regulations to implement the Dodd Frank law combined with CFPB rule making. I think we are united in our agreement that this will be a challenge again in 2014. A drive to digital banking services is viewed as the number one trend. The rapid expansion of smart phone and tablet devices empowers their owners in ways never before seen. Will Kentucky banks efficiently and effectively transition to service a segment of our society that may never walk into one of our brick and mortar edifices? We had better figure out a way to make this transition a pleasant one for customers because our competitors are working overtime to take market share from traditional banks. A related topic is payment disruption. Why even use our banks if you can pay your bills and invest your savings through non banks? Who will control the payment process
I am going to combine three items that I believe are related: increased competition, simplifying engagement, and differentiating brands. I think all of these items are disproportionately impacted by the amount of regulation traditional banks face as compared to our less or virtually unregulated competition. Did you ever stop to think how difficult it has become for us to just open an account when you compare it to a “nonbank” entrant into the market place? I had a call this week from an individual I have known all my life. He moved back into our market intending to open a checking account. One of our branches had not been able to immediately open the account because he could not produce a current photo ID with his local address. Is the regulated process simple, competitive, and designed to enhance our brand? Have you ever opened a Paypal account? No government issued photo ID is required. They don’t even know you, probably will never see you, but they can sign you up with a few key strokes….no waiting required. Yet, they provide bank like services. As community banks, our strengths are many. Our challenges are also numerous. As we look forward to this year, speaking with a united voice has never been more important. Trying to get the inequities in the competitive playing field effectively addressed is crucial. We will be asked to invest our time and money into new technologies. To leverage the investment we need fair rule making that simplifies our customer’s life while preserving our identity as community banks. They must be rules that give us a level playing field. Leveraging the knowledge of our customer to improve service will remain of paramount importance. Learning to “know” the customers we service in an increasingly digital world is crucial. To create and maintain the loyalty we have traditionally enjoyed may require us to think outside our comfort zones. It may require a different mindset. Every New Year brings its own set of rewards and challenges. The author did not even mention interest rate risk, the economy, finding qualified employees, or bankers “fatigue” resulting from dealing with all of these problems and many more. As I tell my shareholders nearly every year, I am cautiously optimistic as I look forward to this year. I have the same outlook for our industry. We face many headwinds in 2014. I have faith we will find ways to turn problems into opportunities. Have a wonderful New Year. Let us face the future fearlessly by standing united while being ready to fight the good fight for our shareholders, employees and communities.
Neil January 2014 | 5
STRAIGHTTALK
Lessons Learned develop a strong plan to protect the sound and practical traditional bankers who make up the very core of our communities, a certain national association leader (whose name I won’t mention but you can refer to previous articles on him) has taken opposing positions on various legislative and regulatory changes, which left our industry vulnerable to passage of laws and regulations, including the Dodd-Frank Act, which may be the single most damaging blow to our industry in our lifetime. Now, this guy can say what he wants (and he usually does), but when you sit at the table and take a contrary point of view to the majority of the industry, cuddle up to the one who wants to destroy the industry and even accept your invitation to proudly attend the signing of the DoddFrank Act, all the while lauding the benefits of Dodd/Frank to community banking, it is pretty strong evidence that someone did not learn their lesson.
January is often the coldest month of the year—and, this year, that has certainly been true! But, the interesting thing about this bleak, harsh month is that it holds a promise of new beginnings—a promise that no other month can claim. So, almost every January I start reflecting on the year that has just past and the hope for the future. Because of my nature, however, this is seldom a sentimental exercise. I usually start thinking about successes, but it moves me quickly into thinking about the things that did not go the way I would have liked and I try to develop my upcoming year’s game plan based upon what I call my “Lessons Learned.” So, now, I want to share with you some of the lessons I learned in 2013, and which I hope might benefit others, as I am a giving kind of guy. When the horse is dead, dismount; or, two heads are better than one. The second half of this lesson you have heard your whole life, from your parents, your teachers, your bosses. If you are strong willed, you probably fought that sage advice for quite a while thinking that you could develop a stronger plan by yourself. But, eventually, you figured out what they meant by this advice and looked to surround yourself with trusted and sound advisors. This made your decision making stronger and kept you from pursuing problematic plans—at least some of the time. Apparently, it takes some of us longer to learn this lesson than others. For instance, rather than working together to
I know, I know—this guy claims that he was “misunderstood.” He didn’t really support it (the print media misquoted him I’m sure). He thought the law (despite what the industry experts were saying) would not impact the traditional banking community, because that is not who caused the problems. Right! and there is no such thing as retribution by examiners! Before you persnickety types say that this lesson was learned prior to 2013, I respond “YOU ARE CORRECT.” But, it still ticks me off, primarily because he did it again this last year by announcing on CNBC in February that the ICBA wholeheartedly “supported the Volker rule.” Now here we are once again trying to fix his mistakes by suing the regulators to allow TRUPs so that community banks don’t have to write them off this year. Maybe the industry should learn its lesson and be more careful who they let speak on their behalf. Sometimes laws are given names for “marketing” purposes. Back in the good ole’ days, when the statutes were published in one book that you could actually hold to read, bills and laws were given basic, informational “names.” Sometimes, the bill will be given a “title” using the sponsors’ name and the bill is also given an official “name” which is descriptive of the nature of the bill. Increasingly, I am learning that the descriptive name does not have to be descriptive of the actual bill to which it is assigned. It can be drafted to convince people to support it without realizing what it actually does.
Let me know what you think: bcassady@kybanks.com January 2014 | 6
STRAIGHT TALK Take, for example, the “Patient Protection and Affordable Care Act.” Doesn’t that sound great? To most people, that sounds like exactly what we all need—protection from health care abuses and reasonably priced insurance. But, once you get into the details and past the rhetoric, it is clear that ACA has chewed up affordability and spit out subpar health care. And even those of us who knew better had no idea just how bad it would be. For instance, for once Kentucky has the distinguished honor of being one of the first states to be lauded as ready on time with the state run exchange. Consumers were able to get through, obtain information, and secure health care. The fact that was not shared freely is that most of those enrollees are existing or new Medicaid recipients, being HUGELY subsidized by the federal and state governments and ultimately by you and me. In other words, NOT PAYING CUSTOMERS! But, the masses still have their heads in the sand—who knew the government had such a sophisticated marketing arm! You don’t have to be on welfare to benefit from government handouts. Now, I am going to be honest on this lesson…it took me longer to learn than some of the others. I have long been a proponent that welfare programs should be a handup, not a hand-out, and that our current programs fail miserably, as seen by the generational welfare and creative tactics used to milk the most from the system. It may not be the programs that need fixing, so much as the government supporting them. Look at how easy life could be working as a paid government employee. First, you are paid on a scaled system—there is no room for evaluation of job performance. The least competent in a position is paid as much as the most competent. That means if you are smart and efficient, you can figure out a way to work full time with minimal effort using most of your time on things you like—surfing the net, texting friends, eating. Just think of your last experience with any government office. If there was a line of people, I know you know what I mean. Then you have the benefit of additional vacation days, when the government has to shut down because it is too dysfunctional to finish its only real job—setting the budget. Before you get worked up because so many of these families live paycheck to paycheck, I agree. I am not talking about the hardworking individuals who are just trying to make it. I am talking about how to take full
advantage of the system. Those who got unemployment benefits while off and also then took the “back-up pay” when it came. Whew, that was a pretty profitable layoff for many federal Government employees And, if you have the proper education (say, basic math skills) you can get a job as a new examiner. This gives you all of the benefits above, with the added perk of on-thejob training, which translates in the real world to potential profitable return as a consultant. Thank goodness Kentucky has Senators and Congressmen who get it. But, they are just one small piece of the puzzle. Unless, and until, every American starts voting with their head, instead of their emotions, this is not going to change. Finally, people don’t like change. Let me say it a different way...people don’t like difficult change. That is human nature. Unless we are in control of it, and we see a benefit to ourselves as likely to result, change is not going to happen. That is a lesson that our country as a whole has to relearn. Our forefathers knew that you had to sacrifice for improvement. They knew that you cannot artificially increase benefits, wages, and accolades and expect the results to change. Our current leaders don’t seem willing or able to accept this. There has been much debate about how and why we have gone through the current economic difficulties. There has been much finger pointing and blame—more than enough. But, I see very little personal responsibility. Have any of your customers come to you and said…I bought and spent more than I could afford? Everyone talks about how our country is suffering, and it is, but there are plenty of individuals who aren’t. When I am sitting in a nice restaurant and I overhear the couple at the next table talking about financial woes, I want to say “go home and eat peanut butter!” We have to take responsibility for ourselves and our leaders should expect no less… Well, I have rambled on for too long about things I can’t change. That is frustrating. But, here is a thought. Let’s share our opinions on these and similar issues with our co-workers, friends and family and encourage them to vote for a better, stronger future. That might make a difference.
January 2014 | 7
January 2014 | 8
MY TWO CENTS PLUS SOME
ESIGN vs. UETA...Which One Applies? to facilitate electronic commerce by placing electronic records and signatures on equal footing with their paper counterparts. The law does not require electronic records and signatures, but it allows for them where agreed upon by ALL involved parties. Unfortunately, these laws have some conflicting provisions, which sometimes hinders rather than helps navigating digital waters.
In a world full of email, digital signatures, internet, and document scanners, the question comes up – do we really need paper? To assist with navigating this new digital world, two laws were enacted – “ESIGN,” a federal law, and “UETA,” a state law. Unfortunately, the interaction between these two laws has caused much confusion. In June 2000, the federal government passed the Electronic Signatures in Global and National Commerce Act (“ESIGN”). ESIGN was intended to address conflicts and uncertainties under federal and state law regarding signing contracts and maintaining records by electronic means. It adopts the underlying principal features and policies of the Uniform Electronic Transactions Act (“UETA”), which was adopted by Kentucky in 2000. In general, ESIGN provides that “electronic signatures” and “electronic records” may not be denied legal effect, validity, or enforceability solely because they are in electronic form. This statute was not intended to replace existing statutes, regulations and case law; but instead, is intended to supplement the requirements for contract formation, record retention, and notices and disclosures that relate to business, commercial, and consumer transactions. Because of this, ESIGN does not provide the complete law regarding the enforceability of electronic signatures and electronic records. ESIGN does recognize that electronic signatures or records may be legally binding without the necessity of a written or manual signature. Like ESIGN, UETA, which can be found in KRS 369.101-369.120, was intended January 2014 | 10
First let’s talk about the similarities between ESIGN and UETA. They both have the same definitions, including “electronic agent”, “electronic record”, and “electronic signature.” They are both founded on the same three principles. Both laws also include the same “opt-in rule,” the same record and check retention rules, the same rule permitting electronic originals, and others. Both laws have adopted exclusions for wills, codicils, and testamentary trusts, as well as Articles 3 through 9 of the UCC. And, both laws allow for record retention in electronic form so long as they remain accessible and accurately reflect the information set forth on the physical record. So where is the confusion? It begins with exclusions. ESIGN does not apply to the following: • Oral communications for purposes of consumer notices and disclosures. • State statutes governing adoption, divorce, and other matters of family law; • Court documents requiring execution in connection with court proceedings; • Notice of utility termination, default, or foreclosure under mortgage or lease, termination of health or life insurance, and product recalls and safety notices; and • Notices that accompany transportation or handling of hazardous materials, pesticides, and other toxic materials. These are not specifically excluded under UETA. Further, ESIGN upholds the enforceability of transferable records and allows for the execution of a transferable record by an electronic signature. “Transferable record” is defined in ESIGN as an electronic record that would be a note under UCC Article 3, where the issuer has agreed that it is a transferable record and the electronic record relates to a loan secured by real property and documents under UCC Article 7. The person seeking to enforce such a record must prove control of the record and be
able to identify. In contrast, UETA does allow for the digitalization of transferable records of these documents, but also allows for the digitalization of unsecured notes and transferable notes NOT secured by real property. UETA also expressly excludes from the statute’s application any “law governing the conveyance of any interest in real property” and any “law governing the creation or transfer of any negotiable instrument or any instrument establishing title or an interest in title.” Since ESIGN specifically allows a state’s passage of UETA to trump the federal preemption of ESIGN, one would think that in Kentucky you cannot have electronic signatures and records for “any law governing the conveyance of any interest in real property” or “any law governing the creation or transfer of any negotiable instrument or any instrument establishing title or an interest in title.” However, ESIGN explicitly overrules this provision. Why does ESIGN preempt this part of UETA? Because, if a state excludes parts of state law other than those specifically listed by the UETA drafters, the Federal law controls. UETA excluded coverage for real property transactions, while the Federal bill specifically covers real property transactions. So ESIGN trumps UETA that excludes any transaction governed by law relating to the
conveyance of any interest in real property. So what exactly does that mean for Kentucky banks? In general, ESIGN and UETA allows banks to digitally store documents and get rid of the paper copies so long as the bank can show it has systems in place to maintain control and that it accurately reflects the original. This becomes hazy when the document conveys an interest in real property or establishes title or an interest in title through a negotiable instrument. Due to ESIGN specifically stating it covers real property transactions, it appears that even though Kentucky excludes application of UETA to these documents, ESIGN would still apply allowing for electronic signature and electronic record keeping. Keep in mind, the provisions of UETA requiring all parties to agree to electronic signatures and records would still apply in these cases! Confused yet?
Debra Stamper dstamper@kybanks.com
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
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www.kraftcpas.com/Banking.htm • Serving the banking industry since 1958 January 2014 | 11
January 2014 | 12
Winning the Performance Challenge For 35 years, The Baker Group has helped community financial institutions steer through unpredictable economic environments with the use of robust tools and resources for interest rate risk and investment portfolio management. Moving through 2014, we must set our focus on strategies that raise our performance and meet new challenges. Our task is to help financial institutions develop effective processes and strategies for optimal performance in any environment.
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System Evaluation and Selection How to profitably evaluate and select the right system By: Gladys Rodriguez, Profit Resources Community banks are faced with a technology environment that is more dynamic than ever. Personal computer purchases are declining year after year, and the number of customers using mobile applications to conduct their banking business is increasing to an estimated 112 million users in 2016. While mobile banking is important to most financial institutions’ abilities to remain relevant, technology isn’t all about mobile banking. The industry has tremendous pressure to automate and innovate just to remain profitable and compliant. That pressure doesn’t stem only from banks and credit unions—competitors from outside the traditional industry (PayPal, Wal-Mart, etc) are forcing adoption and innovation of new products and technologies. Add the consumer perception that community banks are behind when it comes to technology, and the heat is on. Banks across the country feel the pressure to innovate, but it must be strategic. As financial institutions develop strategic plans for growth, they must align the strategic plan with what is currently being offered in the market today and anticipate what will be offered tomorrow. But technology is not only driven by the institution’s desire to offer products and services that meet customer product requirements. Technology is also needed for regulatory compliance, to improve the efficiency of product delivery and service, or occasionally for an effective operation and process. Using a well-formed strategic plan, IT departments support the innovation section of the strategic plan, including new product delivery. With all of the technology needs infiltrating executives’ conversations, it’s easy to let IT drive the bank and its strategic direction. However, IT costs rank among banks’ top three expenses, and spending is on the rise. Executives must keep a close eye on this expense to keep it in alignment, particularly since the expense side of profitability is under tight scrutiny for most community banks and credit unions. In response to the pressure on financial institutions, vendors are moving rapidly to ensure that core applications are scalable to meet customer demands. According to FinTech 100, there are forty one core applications included in the top seven vendors nationwide (among them CSI, FIS, Fiserv, Jack Henry, etc.) While these vendors work to improve their technology and solution offerings, financial institutions continue to evaluate ways to cut non- interest expense. Consequently, the challenge is choosing the vendors best-suited to provide cost-effective solutions that meet specific processing and customer needs. So, it’s time to evaluate a current system. Perhaps it’s the core, perhaps another significant ancillary system. With so much to keep in mind, how will you analyze your current vendor and review alternatives? How can the overall review and selection process be executed to address all of the institution’s needs from initiation through implementation? This white paper will explore these issues and help to determine when to evaluate systems/products, what to evaluate, how to select the right system for the organization, and how to manage implementation. We will even discuss what to do to ensure system and resource maximization. When to evaluate Financial institutions spend millions on technology for all areas of the bank. Despite this expenditure, in corporate America, IT consultants estimate that only 60% of technology capabilities are being used effectively. At Profit Resources, our experience has been that banks rarely use more than 30% of their core system’s feature functionality. Time and time again, CIOs, COOs, CFOs and CEOs have indicated that getting the maximum value from existing technology and vendor relationships is of great importance. However, bankers buy the technology because the feature functionality is sexy and exciting, but then they don’t use it in their day-to-day processes. January 2014 | 14
It is estimated that 7% of community banks replace their core applications each year. However, the evaluation process begins far in advance of the implementation of a new application. While an 18–24 month evaluation cycle is typical, anytime is a good time to review system feature functionality. System utilization should constantly be monitored to ensure system performance measures up to the vendor’s commitment and that users are accessing the system as designed, utilizing the system to its fullest capacity. There are, however, events or milestones that promote a thorough evaluation of a system. Let’s explore these events individually. Milestones that Prompt System Evaluation New Technology – New products and services are changing the landscape of banking, and will continue to mold the way customers do business. While a large percentage of products and services will be initiated by ancillary solutions, traditional banking processes are changing. In today’s environment, vendors are prepared to buyout existing contracts now more than ever. Expense Lowering Initiatives - IT Costs – The economic downturn over the past several years has led to an erosion of bank revenue, while the strain and burden of ever-expanding regulatory compliance has caused increased costs. However, even with these outside influences impacting the bank, there is one controllable category of non-interest expense that financial institutions can address: IT costs and outsourcing of core processing. IT costs rank among banks’ top three expenses and are trending up. On average, banks can reduce these costs by 24% if a disciplined approach in selecting the right vendor is applied. One avenue to consider when dealing with IT costs is outsourcing, which could provide cost savings to the bank while moving out mundane, monotonous activities. Contract Renewal - System evaluations cannot start close to the contract renewal date. This leaves the vendor in a position of power and the financial institution loses in the end. System evaluations should begin at least 18–24 months before the contract renewal; a timeline which is typically known by strong IT managers and operational executives. Mergers/Acquisitions – Aside from a contract renewal, there is no better time to evaluate contracts than that of an impending merger or acquisition. It will be important to determine which core system will be able to support the long term strategic plans for the merged organization. During this time, vendors will be anxious to renegotiate contracts to maintain long term relationships. What to Evaluate Everything that supports core business needs should be analyzed or evaluated. To begin, the strategic plan should be reviewed, which would include a review of the IT Strategic Plan and clarification of any differences between the two. Institutions without an IT Strategic Plan should develop one and ensure it aligns with the strategic initiatives of the bank. The development of these plans should include a thorough discussion with management of all lines of business. Growth plans and marketing plans should be evaluated, including target markets and customer needs. This would include a review of the technology tools, as well. Current consumer and business products/services should be reviewed to understand how the feature functionality fits with the marketing plans. Current system weaknesses should be identified, as well as ‘must haves’ in a new system. And bank initiatives, such as operational efficiency, profitability modeling, and customer remote capture should be included in this review, to establish the foundation for the system evaluation and selection process. Understanding every functional area (such as deposits, loans, debit/credit cards, etc.) will ensure that the proper system is selected to support what is offered today and what the financial institution plans to offer in the future. How to Select a System Your strategic initiatives are defined, and you know you need to renegotiate the current system vendor contract or seek out potential new vendor partners. When determining whether to seek out potential new partners, January 2014 | 15
consider if there are changes in product offerings, a lack of service provided by the current vendor, gaps in the operational effectiveness of the current system or simply a need to understand what other vendors have to offer. This is where it can be advantageous to have third-party assistance. Having a partner who understands the banking business, has experience with vendor review and selection and is knowledgeable about evolving technology can be key to selecting the best option available. There is a logical approach to this sometimes overwhelming process, which should easily identify the current challenges/opportunities that support strategic goals. The following ten step process ultimately leads to selecting the right vendor and successful system implementation. 1. Appoint a selection committee. To begin the process, a vendor selection committee should be formed to provide system evaluation oversight. This committee should be comprised of 5 – 8 members who represent all key areas of the financial institution; Technology, Finance & Accounting, Operations, Loans, Deposits, Branch & Marketing Administration, Business Banking, Wealth Management, etc. Key stakeholders are not all at a management level. The people who best know how the current system works or doesn’t work are the ones that consistently use it. Furthermore, the best employees for the committee are typically not afraid to share system feedback with management. 2. Perform needs assessment. Once this vendor selection committee has been identified, it is time to determine the overall goal in selecting a vendor. Support of strategic objectives would certainly be part of this review process, but consideration should also be given to regulatory, customer, and processing needs. This is typically defined as high level business requirements and is completed by working with departmental leaders and subject matter experts, as well as system users. 3. Analyze volume dynamics. Customer needs and processing needs are key drivers; however, the volumes of data and analysis of the same will also drive future plans for your institution. Analyzing the customer needs through volume driven data will provide clearer insight of the type of functionality required and potential ancillary solutions that will be integrated with the system. Transaction cost is also important to identify and understand in terms of the overall cost of the contract. 4. Develop system specifications. Consideration needs to be given to the system specification, such as hardware deployment, current interfaces, controls, production deadlines, customer commitments and procedural changes. This should be detailed in a systems requirements document and used in the vendor analysis. 5. Develop and publish RFP. The RFP process is more than the actual request for proposal, which includes the comprehensive questionnaire, vendor resume, and customer references. It involves some investigative work such as reviewing the vendor’s background, financial stability, market share of peer institutions and service reputation. This investigative work can be accomplished through user site visits, current customer references, and vendor interviews (on-site and telephone). Request the vendor provide a complete customer list of financial institutions within your area, not a list of specific customers selected by the vendor. Attending a vendor’s User Conference or User Group Meeting and visiting with the vendor’s customer staff can provide crucial information regarding both the vendor and the product. 6. Evaluate proposed alternatives. Evaluation and review of the organization’s strategic goals and the resulting business requirements in comparison to vendors’ functionality and experience is critical. Also, detailed analysis of the vendors’ proposals is necessary on an “apples to apples” basis. Vendors most likely will have some very cutting edge technology, and while it looks very attractive, the selection committee must determine if the technology provides benefit to your bottom line and if it will be used by customers. 7. Select vendor and negotiate. Once a decision has been made on the final candidates, analyze costs—including the one-time investment and ongoing servicing and support costs. Vendor demos should be offered, as well as computer labs which will allow your users to actually test the system. Go through the proposed contract with a fine-toothed comb and be sure that you’re getting a good value. 8. Implementation. The implementation process is an absolute critical part of the vendor selection process and execution. The key driver of the process is obviously the right system/solution choice. But without proper implementation, the system may fail to live up to expectations. The multi-faceted work streams involved in January 2014 | 16
implementing a new core application require that a highly effective program office be established. Coordination of tasks and activities within the program office involve individual business units, training, scheduling, testing or quality assurance, policies and procedures, risk assessment, continuity of business, system certification, internal and external communication, and the actual conversion. 9. Post-Implementation. An objective post-implementation review of system functionality is necessary to ensure that the vendor has delivered system/solution commitments, the functionality is performing as designed within the bank environment, and customer needs are being met. Ensure that what was purchased is being correctly used and that the feature functionality is continuously delivering as committed by the vendor. If exceptions exist, document them in an action plan and work with the vendor to close the gaps. Other factors of a post-implementation review include a budget review, remedial training as needed, and implementation of process improvements. 10. Ongoing Process Improvement. Kaizen, a Japanese word for continuous improvement, became popular in the mid-1990s throughout the United States. It basically means a never-ending effort to expose and eliminate root causes of problems. Ongoing process improvement is done in small steps, by paying attention to detail and encouraging individuals to take responsibility to identify root causes of problems instead of dealing with them as exceptions. Ongoing process improvement results in better products/ services, lower costs and greater customer satisfaction. System evaluation is the opportunity to meet strategic growth plans and establish a foundation for the future. Summary Technology will continue to provide leading edge solutions for banking customers at an increasingly rapid pace. And customers will continue to look for products and services accessible at their fingertips. How can an institution be sure that a system will meet strategic growth plans, customer needs, and competitive pressure, while positioning itself for lower costs and greater efficiency? System evaluation and/or selection, if completed in a thorough, methodical manner, is the opportunity to meet strategic growth plans and establish a foundation for the future. Core systems should be evaluated based upon any major milestone that impacts the organization, and specifically 18–24 months before a contract renewal. Engaging a well-defined vendor review process, including utilizing key resources that understand your business, will help demystify the system selection process. When a financial institution can answer the age-old questions of who, what, when, where, why, and how regarding system evaluation and selection, the foundation has been laid for a great outcome. 1 Business Performance Innovation Network via Marketwide News Releases, May 20, 2013 2 White Paper “Leveraging Technology To Its Fullest Capacity�, by Jeff Janisse, June 13, 2012
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PRODUCTS AND SERVICES Improving Sales & Productiity Through Reducing Turnover (Case Study) With the central focus of being simply “incredible” a family owned bank opened in Wisconsin almost 50 years ago. Customer-centered values and a forward-thinking attitude have developed that single institution to a multi-location institution in Wisconsin and Michigan with a primarily commercial customer base. The founding couple’s core values to encompass customers, community, excellence, ethics, and employees with an incredible experience has been the strength that has differentiated this bank from their competition. Following is a case study in how they have developed continued success. In 2008, the bank realized they were experiencing difficulty in a new area—relationship building. Their front-line staff, Customer Service Representatives (CSRs), were the first to see arriving customers and the last to say goodbye. CSRs serve in the teller role, but have additional duties as well. They also set the tone within the lobby for all customer interaction within the bank. Focus group research indicated that when customers come to the bank, it is important that they feel the bank sees them as people instead of accounts. The bank has found that if CSRs can talk to the customer about more than just the transaction, they can suggest solutions that may be helpful (rather than pushing a sale). For example, if a customer mentions they have a child going off to college, the CSR can ask them if a prepaid debit card could be helpful to them. The bank realized these relationships were no longer developing as frequently because they were experiencing about a 50% turnover rate in the CSR role. Once this was identified, the bank realized the turnover was also having a drastic impact on productivity. Professional development was stunted because it prevented CSRs from developing into broader customer service roles that are crucial for servicing and retaining customers. Executives identified that the service impact was negatively affecting their customer relationships. The bank was already using an assessment; however, that assessment did not rank or score employees individually or evaluate attributes such as thinking style. Executives wanted to be able to evaluate their employees and see how they intertwined with the style needs of the bank. It became clear that CSRs needed particular technical and personal attributes to be successful. Bank leaders identified the ProfileXT® assessment as a tool that could allow the bank to find individuals with the necessary traits to be successful in helping the bank achieve its goals. After using the assessment as a selection tool, they could continue to incorporate the results for onboarding, training and delivery—closing gaps more quickly. The organization found acceptance for the new tool in the role because employees realized the bank wanted to help CSRs advance their careers. The bank used quantifiable data to identify top performers within their institution. They approached these employees and told them they were identified as top performers and asked that they complete the assessment. The bank promised they would share the results with the employee. The bank found that CSRs liked that the bank was investing in them. The data collected was then used to create a success profile (called a Performance Model) to help reveal the degree to which individuals “fit” the needs of the position. By 2008, turnover had decreased from roughly 50% to 18.78%. Assessing CSR candidates and comparing their results to the Performance Model has allowed the bank to build a front-line staff that is naturally more sales oriented. The bank can now foster people who are comfortable in that role and the CSR position can become more transitional. The bank can create more employee and organizational growth, adding sales as a key focus to how the bank conducts business and emphasizes building relationships. The bank found that this strategy developed more effective CSRs than their former front-line incentive policy. They found that they had generated revenue during a time that other banks were showing loses or folding. The bank used the ProfileXT® for training to create a more structured approach for CSRs, geared towards their learning style. Other staff took the assessment and the results were shared with managers so they could better understand how to manage their employees. It was incorporated with ongoing coaching and refresher training to stay focused on a value-added mindset. January 2014 | 18
(continued from page 18) The bank is incorporating the ProfileXT® assessment into succession planning as well, considering incorporating different tracks—retail, operational, and other business lines (wealth management, commercial, mortgage and insurance). They began to set up Performance Models for other positions as well, realizing that if they could grow their own employees they would know all aspects of the business and have a stronger commitment to the business. The bank has retained its customer-centric culture while adding a focus on acquiring and developing new business. All employees assist in generating revenue. Based in Louisville, KY, Personnel Profiling Inc. has been helping businesses maximize their people resource for over 25 years. For more information, please contact us at 502-895-9297 or trevaw@personnelprofiling.com. www.personnelprofiling.com
SBA Honors Community Trust Bank as Kentucky’s Top SBA Community Bank Lender, 2012 – 2013 PIKEVILLE, KY. – Community Trust Bank, Inc. was recently honored with the “Gold Lender Award” by the United States Small Business Administration (SBA) as Kentucky’s top community bank SBA 7a lender in 2012-2013. This is the fifth consecutive year the bank has received this award from the SBA. In the federal fiscal year 2012 – 2013, Community Trust Bank funded 89 SBA loans for more than $16.89 million. In Kentucky alone, the bank funded 77 loans totaling $10,263,700. Community Trust also had the fifth highest number of SBA loans approved in West Virginia (7 for $343,500) and was among the top dozen SBA lenders in Tennessee in dollars loaned with three loans for $4,823,900. In the last five years, Community Trust has funded more than 410 SBA loans, providing approximately $67 million for small businesses through its partnership with SBA. Community Trust Bank, Inc. has been originating loans for over 110 years. They have been an active participant in the government’s SBA programs for many years. In all, 27 loan officers at Community Trust Bank’s 81 locations in Kentucky, West Virginia and Tennessee were successful obtaining SBA loans for their customers during the year. “We are pleased to once again receive this honor from the Small Business Administration,” said Mark Gooch, President and CEO of Community Trust Bank, Inc. “Over the years, the relationship with the SBA has been an excellent one for both Community Trust Bank and our customer base, allowing us to offer competitive business loan products across our service area. I’m proud of our employees as we look forward to continued profitable growth in this business in 2014.” “Community Trust Bank, Inc., with 77 SBA loans valued at over $10.2 million this past fiscal year, has continued to set the standard for SBA 7(a) loans in Kentucky,” stated Ralph Ross, SBA Kentucky District Director. “This represents an increase of over 40% in SBA loan numbers and over 25% in SBA loan dollars over the prior year. We value their commitment to SBA and to the business community across the Commonwealth and look forward to growing our relationship with Community Trust Bank in the future.” Terry Spears, SBA Officer for Community Trust, said 2014 should be a good year for small businesses seeking SBA-guaranteed loans, as SBA has eliminated the guaranty fee for loans up to $150,000 for all small businesses and loans up to $350,000 for SBAExpress loans to veterans. “SBA has implemented some new policies which should greatly benefit small businesses in 2014,” said Spears. “We plan to use these new tools to continue helping small businesses grow stronger and to create jobs in the communities we serve.” The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. The SBA recognizes that small business is critical to the United States’ economic recovery and strength, to building America’s future, and to helping the United States compete in today’s global marketplace. Although the SBA has grown and evolved in the years since it was established in 1953, the bottom line mission remains the same. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, the SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam. January 2014 | 19
FOR RELEASE NOVEMBER 18, 2013 Announcing the Grand Opening of Pinnacle Bank PIKEVILLE, KY - Announcing the Grand Opening of Pinnacle Bank, formerly First Community Bank, Lewis County, at 230 South Mayo Trail in Pikeville. The name change from First Community, to Pinnacle Bank coincides with the new building grand opening. “We’re very proud of our new name and new building,” said President Bill C. Burchett, “We have the same great people, same great services with a new name and beautiful new location to serve the community.” Pinnacle Bank has been serving customers since 1976, as First National Bank of Lewis County and First Community Bank, Lewis County . We are a small community bank based in Kentucky with locations in Lewis and Pike counties. We currently have two branches in the Lewis County area, our original office, which is located in Vanceburg and the Garrison branch, which opened in 1981. In November 2012, we were pleased to introduce our products and services to the people of Pike County with the opening of our newest branch located in Pikeville. As we continue to grow we assure our customers that their satisfaction will continue to be our first priority.
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UPCOMING EDUCATION EVENTS & SEMINARS Credit Administration Seminar: Seven Effective Habits January 29 Bowling Green January 30 Lexington Intro to Consumer Lending & Key Ratio Analysis Seminar / Two-day Program February 27 & 28 Bowling Green March 13 & 14 Lexington Attend one or both days! Loan Documentation Workshop/ Two-day Program April 1 & 2 Bowling Green April 3 & 4 Lexington Cash Management Seminar April 9 Louisville Lending Complaince School April 21-25 Louisville Trust Based Selling May 7 Bowling Green May 8 Lexington
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As banks slowly emerge from recent economic and credit deterioration, having the right partners can be crucial in navigating the industry’s new challenges and complexities. MCM’s Financial Institutions Services Team offers more than the traditional tax and accounting services. In addition to our established governance and risk management practices, we’re also well positioned to help financial institutions define and prioritize strategic initiatives. Whether its board development, strategic mentoring or creating project management, MCM advisors provide solutions to keep clients on the path to success. Contact us to ensure you’re headed in the right direction. Henry Hawkins, CPA Financial Institution Services Director henry.hawkins@mcmcpa.com 502.882.4490
E. Shane Satterly, CPA shane.satterly@mcmcpa.com 859.514.7771
January Louisville 2014 | 22 | Lexington | Frankfort | 502.749.1900 | www.mcmcpa.com
Congratulations to all the Midwest Agricultural Banking School Graduates!
Enrollment at the 41st session of the Midwest Agricultural Banking School was 50 students. The students came from five states; twenty-eight from Indiana, nine from Michigan, six from Kentucky, five from Illinois, and two from Ohio. The School is co-sponsored by the Indiana, Illinois, Kentucky, and Michigan Bankers Associations, the Ohio Bankers League, and the Department of Agricultural Economics at Purdue University. For information regarding the 2014 Midwest Agricultrural Banking School, please contact Paula Cross at (502) 736-1276 or pcross@kybanks.com.
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It’s been an exciting year for our Emerging Leaders. As we usher in a new class of Leaders, we would like to reflect on what our 2013 class learned from their experience. A few of the Emerging Leaders gave their perspective on the importance of the program in their careers. The view from the best seats in the house. Stoll Keenon Ogden graciously donated Keeneland box seats for the Emerging Leader’s October excursion, a day at the races!
“The KBA Emerging Leaders Program has been an invaluable asset to my banking career. The opportunities provided by networking with other bankers, learning at seminars and conventions, traveling to meet our legislators, as well as forming lifelong friendships with my fellow Emerging Leaders has given me a vital key to advancing my career in banking. I want to express a tremendous amount of gratitude to First Federal Savings Bank of Frankfort for supporting me in the program, as well as to the KBA for their remarkable investment in Kentucky’s young bankers. Congratulations 2013 graduates!”
– Lee Ann Hockensmith
“The Emerging Leaders Program was an experience that I will never forget. The program allowed me the opportunity to participate in events and educational forums that were very beneficial. The best part of it all is that I met some really great people and formed relationships that will last a lifetime.” -Jason Jones The Emerging Leaders program surpassed all my expectations. We met bankers across the state and attended meetings and events with great banking leaders. My favorite event was the trip to Washington D.C. It was a great experience to visit different regulatory agencies and communicate with elected officials. This program was an excellent opportunity for the Emerging Leaders to experience, and I would recommend it to anyone interested in a career in banking. -Jaime Coffey January 2014 | 24
A great way to visit Washington, with Kentucky’s finest bankers and governmental relations officers. Emerging Leaders took a trip to Washington in February 2013
Holiday Fun and Fundraising in our Banks
Community Action Angel Tree Toy Collection at Kentucky Home Bank
A tree divided
KBA Insurance Staff enjoying a Christmas get together.
Community Food Drive at Kentucky Home Bank
Each year Kentucky Home Bank collects money to sponsor a family during the holidays - This is some of what was bought for this year’s family
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Feed the Hungry with Paducah Bank More than 750,000 Kentuckians, or 17% of the state’s population, do not always know where their next meal will come from. Close to one in four of Kentucky’s children lack consistent access to enough food for a healthy, active lifestyle. Paducah Bank would like to change that. “Beginning January 1, for every 100 signature-based transactions Paducah’s Bank’s personal account customers make, the bank will contribute $1 to a fund to feed the hungry in this community,” explained Mardie Herndon, President of Paducah Bank. “So every time customers swipe their debit card for a signature-based purchase, they’ll be supporting the need for food for families in Paducah. Our team of employee/owners is dedicated to our community in many ways. We devote thousands of volunteer hours and hundreds of thousands of dollars to meaningful causes each year. This program is just one more way for us to make an impact on our community in a very positive way. This program is ‘creatively distinctive’ just like our wonderful community.” The bank’s goal is to average 250,000 transactions per month, which would raise $2,500 each month in funding for the new program. The distribution of the funding will occur once per quarter (goal of $7,500) to the four selected organizations that provide the benefits to citizens in the community.
“We are looking for four organizations which we can identify to help us with this project,” said Susan Guess, Senior Vice President of Marketing for Paducah Bank. “We’re asking those who would like to participate to send in a profile of their organization and to tell us who and how they serve the food needs in our community. We will then select four organizations to help us utilize these funds to provide healthy food for our friends and neighbors in our community.” Applications for selection should be sent to Susan Guess at susan@paducahbank.com<mailto:susan@paducahbank.com> by January 15. Paducah Bank is an award-winning, locally-owned bank with banking locations in the city and county. The bank also has 9 ATMs throughout the community and employs 130 people. Paducah Bank is currently the top small business lender and the top mortgage lender in Paducah/ McCracken County. Paducah Bank was named the Best Place to Work in Kentucky among mediumsized companies in 2006. In 2008, Paducah Bank was chosen by the Wall Street Journal as one of the nation’s Top 15 Small Workplaces. In 2013, the bank was named as one of the Top 10 Banks in the nation for the effective use of social media by the Independent Community Bank Association.
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Register now for the 2014 spring conference!
april 13-15 hyatt Regency Lexington
contact Paula Cravens for more information. pcravens@kybanks.com