Appraiser Independence, a bedrock of our banking system, is under siege.
What happens when an artificially inflated value leads to overextended credit? What happens when the bank’s hands are tied—fund a bogus appraisal or face lawsuits? When banks are forced to insert themselves into the appraisal process—when they become influencers of value—safety and soundness go out the window. And it’s not just appraisers who lose. The entire financial system is at risk.
Plus!
Ballard Cassady Considers the Crushing Weight of the CRA Women in Banking 2024 Recap A Day in the Life of KBA Chairman Mark Strother & More!
BOOM
Compliance: Shattering Expectations
October 25, 2024
The Foundry
Frankfort, KY
WE KNOW BANKS
“We were content with the coverage we had and were not shopping our plan. After meeting with KBA Insurance Solutions, we had no choice but to make the move to Chuck and his team. They proposed a thoughtful plan design & introduced benefits that we had not previously offered. When we showed the rates KBA Insurance Solutions offered to our prior agent, she said: “…you have to make this change.” Since changing our results have been better coverage, expanded offerings and greater cost savings. I would highly recommend that any bank explore the options available through KBA Insurance Solutions.”
Mr. Charlie Dicken, EVP Trust Officer, First Kentucky Trust
WHO WE ARE: The KBA is a nonprofit trade association that has been providing legislative, legal, compliance and educational services to its member institutions since 1891. KBA's directors and staff work together with its members to make the financial services industry a more effective and successful place to work. The strength of the KBA is bankers unifying as an industry to speak as one voice.
WHAT WE DO: The purpose of the Kentucky Bankers Association is to provide effective advocacy for the financial services industry both in Kentucky and on a national level; to serve as a reliable and responsive source of information and education about areas of interest to the industry; and to provide a catalyst and forum for collective industry action. The KBA does this in 4 ways:
1. Government relations & industry advocacy
2. Information interchange
3. Education
4. Products and services
KENTUCKY BANKERS ASSOCIATION
600 West Main Street, Suite 400 Louisville, Kentucky 40202
KENTUCKY BANKER is the official bi-monthly magazine of the Kentucky Bankers Association (KBA). No part of this magazine may be reproduced without express written permission from the KBA. The KBA is not responsible for opinions expressed by outside contributors published in KENTUCKY BANKER. The KBA reserves the right to publish submissions at the discretion of the KENTUCKY BANKER editorial team. For more information, or to submit an article, pictures or pass on a story lead, contact Matt Simpson, Managing Editor, at msimpson@kybanks.com
Ballard W. Cassady Jr. President & CEO bcassady@kybanks.com
Timothy A. Schenk General Counsel tschenk@kybanks.com
Wesley Githens IT Support Specialist wgithens@kybanks.com
2023-2024 OFFICERS & BOARD
CHAIRMAN
Mark Strother, President & CEO Commercial Bank of Grayson
VICE CHAIRWOMAN
April Perry, Chairman & CEO Kentucky Farmers Bank Co.
TREASURER
W. Lee Scheben, President Heritage Bank, Inc
GROUP REPRESENTATIVES
Represents Group 1
Jeff McDaniels, President & CEO Farmers Bank & Trust Company
Represents Group 2
Michael W. Hunt, President & CEO The Sacramento Deposit Bank
Represents Group 3
Greg Pawley, President & CEO The Cecilian Bank
Represents Group 4
Jason T. Jones, President Morgantown Bank & Trust Co.
Represents Group 5
Don D. Jennings, CEO First Federal Savings Bank of KY
Represents Group 6
Robert Miles, President & CEO Peoples Bank of Lebanon
Represents Group 7
Lucas Shepherd, CEO First National Bank of Manchester
Represents Group 8
Lonnie Foley, CFO Peoples Bank of KY, Inc.
PAST CHAIRWOMAN
Ruth O’Bryan Bale, Chairman South Central Bank, Inc.
KBA PRESIDENT & CEO
Ballard W. Cassady, Jr., President & CEO Kentucky Bankers Association
Represents Group 9
James Ayers, Regional Manager First State Bank, Inez
THRIFT REPRESENTATIVE
Glenn Meyers, Executive Vice President Citizens Federal Savings & Loan Assoc.
BANK SIZE REPRESENTATIVES
Represents Banks w/ Assets of $1B+
Michael F. Beckwith, Executive Vice President, Chief Banking Officer, German American Bank
Represents Banks w/ Assets of -$1B & at least $200M
H. Alexander Downing, President & CEO Franklin Bank & Trust Company
EDUCATION ALLIANCE REPRESENTATIVE
Lanie W. Gardner, Community President First Southern National, Central City
KBA BENEFITS TRUST COMMITTEE REPRESENTATIVE
W. Fred Brashear, II, President & CEO Hyden Citizens Bank
July / August 7 Chairman’s Corner
8 CRA & The Crushing Weight of Govt. Overreach
14 The Erosion of Appraiser Independence 17 Literary Corner - James Ayers
26 Onward & Upward Recognitions
THANK YOU TO OUR ADVERTISERS AND CONTRIBUTORS ICBB KENBANC IMAGEQUEST
MORGAN POTTINGER MCGARVEY FHLB CINCINNATI
COMPLIANCE ALLIANCE
NCONTRACTS
SOUTHSTATE | DUNCAN WILLIAMS K4 ARCHITECTURE & DESIGN
A Day in the Life
by Mark Strother | KBA Chairman, 2024
That’s my favorite Beatles song. It ends with a dramatic flourish of the orchestra’s ever-growing crescendo of sound until every instrument hits in unison the final note, and then the sound drifts quickly towards silence.
For me, leading my bank comes with its share of drama. I imagine many of you can say the same. Helming a community bank in 2024 is often a roller coaster. Whether the numbers fall below, meet, or exceed expectations, challenges still come quickly, and often unexpectedly. Not a year goes by when I don’t say something to the effect of “I’ve never encountered anything quite like that before!” Just when you think you’ve seen it all, something quirky rears its head.
One day begins with a co-worker making a decision on their own that will likely cause a loss. Just before morning break, a client who has fallen victim to a romance scam reviews the withdrawals they’ve made to buy gift cards for their significant other. Right before the Chamber lunch meeting, you meet with a business owner who gave too much control to someone with too much access. Waiting for you when you return is a long-term client seeking a Cashier’s check to move funds to the aggressive credit union competitor. After you’ve signed that check, a client whose business had been booming comes to you panicked as a result of their deteriorating work due to the slowing economy. Mid-afternoon begins with a conversation with a good friend who wants to see if they can borrow some money to help clear up their financial struggle caused by too many trips to the new nearby casino. At 3 PM, an extended conversation takes place with an exam team questioning a practice the bank has engaged in continually for over 20 years. The day ends with a call from a shareholder disappointed with the last quarter’s results.
It’s enough to make your head spin, and after a day like that, selling a community bank and ending up on a beach somewhere sounds more than a little compelling. Thank goodness, in spite of the continued regulatory overreach, the headaches, the disappointments that come as a part of life, there remain other, more uplifting days, too...And that makes all the difference!
For instance, take a morning that begins at a Rotary meeting where a co-worker is recognized for their involvement in a successful club project. Leave breakfast to visit a corporate client
who was struggling just months ago, but you and the bank stuck with them, gave them another few weeks to get that payment made, and now they are thriving again.
Mid-morning commences with the dedication of the next new addition to the community park. It was a project that was introduced 20 years ago and is now a reality thanks to the park board you serve on. Have lunch at your local restaurant where friends and clients you’ve helped for 30 years stop by to say hello.
Time and time again, someone thanks you for taking a chance on them and helping them buy the house they’ve made a home for years now. Good friends tell you the recent market turbulence has made them uncomfortable and now they’re moving a good part of that investment account back to your bank, where they know the funds will be safe.
Your next client was trying to apply for a loan, but didn’t qualify. You gave them specific steps to take so that the bank would be able to help them and they have done so, raising their credit score many points. As the evening arrives, you visit the office of your retiring loan officer, finishing up her final day of work. She thanks you for the opportunities she’s had, the retirement plan the bank has provided that will take care of every foreseeable need, and for the friendship she knows will continue. What a day in the life that is!
It’s the reason you and I joined this profession. When you have those rough days, just know you aren’t alone and there’s a whole network of banking friends who would be a good ear to listen to your frustration. Reach out to them to vent and to receive encouragement. Recognize you have an Association doing everything in its power to help make your difficulties fewer. Be active and seek out their professionalism when you need them. Just remember: the better days outweigh the others. Remember why there are few jobs in the world better than being a community banker and understand the difference you make to many each and every day.
May this day end for you with a positively dramatic flourish.
The 2024 KBA Convention is now a memory— and a great one, according to your feedback.
I’m getting a head start just mentioning it here, as the next magazine will provide a more thorough recap...but while it’s fresh, I just wanted to thank a presenter line-up that included Governor Michelle Bowman from the Federal Reserve, Congressman Andy Barr, Rob Nichols, CEO of the American Bankers Association, and Lindsey Piegza, a returning speaker back by popular demand. And if baseball legend Jim Abbott can’t inspire you, it’s time to check your pulse.
We are equally thankful to the vendors whose presence helps create a dynamic meeting space, enriches the Convention experience with valuable resources, and fosters both professional and personal relationships—many of which have flourished for decades.
If this Convention had a ‘theme’ running through our hundreds of conversations, it was our members’ disgust with the FDIC and their “new” approach to the CRA. Most of our featured speakers agreed that while the CRA was founded with good intentions, those intentions have been undermined by misguided oversight and enforcement.
We had plenty of illustrations from our members to share in return. Our current examiner team here in Kentucky apparently perceives bank downgrades as a good thing—oh, really? Maybe they’ve recently become a personal promotion strategy. It can be hard to tell the difference.
[I can’t help comparing it to Fed Chairman Gruenberg, who was forced to resign but is somehow still there, lecturing bankers on morality –– a quintessential example of the “pot calling the kettle black.” It’s hard to find a more horrible track record in office, even in a federal government with examples at every turn!]
We continue pushing our lawsuit against the CFPB, focusing on banks’ First Amendment rights to inform their customers of their own rights. We expect to be in court soon. We are also working on a suit with the CFPB on Regulation 1033 data collection section of the Consumer Protection Act ( I know, it’s hard to keep a straight face when you say or read THAT title). Our goal is to protect our customers’ information in the face of what seems like an effort to let everyone know everything about bank customers. The ABA currently has three (3) lawsuits against the agencies, collectively and some separately.
The point I’m trying to make here is this: Congress has allowed our regulators to go rogue at great cost to our industry and our customers, especially over the last three years. However, when the United States Supreme Court ruled in favor of West Virginia vs. the EPA, it basically reset the Chevron doctrine that allowed federal bureaucracies to become so bloated and corrupted.
Today, Congress has been given a chance to reassert its Constitutional responsibility and prerogative to intervene when an ideologically skewed bureaucracy expands regulation beyond any legislative intent. There’s no better example than when the CFPB turned three (3) pages of 1071 in Dodd-Frank into a staggering 888 pages of suffocating regulation. I still say Dodd-Frank was passed with the primary goal of killing community banking –– but that’s just based on 14 years of watching cause and effect. What do I know...
We were able to get all of our critical issues on the table for discussion by the people who probably have the most knowledge about the damage these regulations inflict – other than the bankers in the room who directly serve customers and their communities. For some reason, Congress and the regulators aren’t terribly interested in what we think.
Depending on your goals, I guess it’s better to work in the dark than the light!
In other news...In the short time since the Convention, our region has suffered another natural disaster of historic
magnitude. Our hearts go out to our friends across the southeastern U.S. whose lives and communities have been forever changed by Hurricane Helene. With parts of western North Carolina experiencing the worst of the devastation, the KBA will be making a donation to the North Carolina Hurricane Relief Fund, which is structured like the KBA’s to prioritize the affected bank employees and supply relief efforts in affected communities. For more info on that, please scan the QR code below.
Governor Michelle Bowman standing in front of 5,000 pages of regulations passed in 2023 ALONE. By the way, she thought it was horrible as well (my words not hers).
Welcoming April Perry
At our 133rd KBA Annual Convention, April Perry, CEO of Kentucky Farmers Bank, was presented the Chairman’s Gavel and Pin by current KBA Chairman, Mark Strother. We celebrate Mark’s outstanding leadership and thank him for the immense impact he’s made here with all of us. April will take over as Chairman at the conclusion of our KBA Annual Convention.
April will begin contributing to the Kentucky Banker Magazine next month and we can’t wait to hear from her. In the meantime, enjoy this sneak peak at April during our Annual Convention.
TTHE OF APPRAISER INDEPENDENCE
by Tim Schenk | KBA General Counsel
his month, we’re talking regulation...Big surprise, right? But here’s an issue that’s at your doorstep as we speak. I’m talking about appraiser independence.
Federal regulators require appraiser independence. A dedicated section in the Code of Federal Regulations discusses this issue. Key parts of the code state that the “appraiser must be independent of the lending, investment, and collection functions and not involved, except as an appraiser, in the federally related transaction.”
“If an appraisal is prepared by a fee appraiser, the appraiser shall be engaged directly by the regulated institution or
its agent, and have no direct or indirect interest, financial or otherwise, in the property or the transaction.”
“A regulated institution also may accept an appraisal that was prepared by an appraiser engaged directly by another financial services institution, if: (i) The appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction; and (ii) The regulated institution determines that the appraisal conforms to the requirements of this subpart and is otherwise acceptable.”
In short, appraisals must be independent to ensure that the integrity, safety and soundness of the financial sector is not compromised. That independence is part of the core of safety soundness and one that has been engrained in bankers’ minds
for years. The appraisal is the appraisal and the bank conducts its credit analysis accordingly.
On July 26, 2024, federal agencies released their Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations. While the agencies state, “This final guidance is supervisory guidance that does not have the force and effect of law or regulation and does not impose any new requirements on supervised institutions,” I will let you decide how that applies to your bank.
Enter reconsideration of value (ROV) and goodbye independence (at least in my opinion).
Before discussing the ROV process, the agencies discuss at length current regulatory statutes and regulations. “The Equal Credit Opportunity Act (ECOA), and its implementing regulation, Regulation B, prohibit discrimination in any aspect of a credit transaction. The Fair Housing Act (FH Act) and its implementing regulation prohibit discrimination in all aspects of residential real estate-related transactions..” It should go without saying that these are all principles our bankers understand and incorporate into their policies and procedures.
“A financial institution’s use of third parties in the valuation review process does not diminish its responsibility to comply with applicable laws and regulations. Moreover, whether valuation review activities and the resolution of deficiencies are performed internally or via a third party, financial institutions supervised by the Board, FDIC, NCUA, and OCC are required to operate in a safe and sound manner and in compliance with applicable laws and regulations, including those designed to protect consumers.” Again, here’s another principle we all understand and clearly know is being monitored through various forms of examination.
After reiterating existing regulatory principles, the agencies discuss the actual reconsideration of value process.
“An ROV request made by the financial institution to the appraiser or other preparer of the valuation report encompasses a request to reassess the report based upon deficiencies or information that may affect the value conclusion. A financial institution may initiate a request for an ROV because of the financial institution’s valuation review activities or after consideration of information received from a consumer through a complaint, or request to the loan officer or other lender representative.”
“A consumer inquiry or complaint regarding a valuation would generally occur after the financial institution has conducted its initial appraisal or evaluation review and resolved any issues that it has identified. Given this timing, a consumer may provide specific and verifiable information that may not have been available or considered when the initial valuation and review were performed. Regardless of how the request for an ROV is initiated, a consumer inquiry or complaint could be resolved through a financial institution’s independent valuation review or other processes to ensure credible appraisals and evaluations.”
“An ROV request may include consideration of comparable properties not previously identified, property characteristics, or other information about the property that may have been incorrectly reported or not previously considered, which may affect the value conclusion.”
Bankers want to conduct their business in accordance with regulatory standards and operate their bank in a safe and sound manner. They all want to be “valedictorians,” receiving the highest marks after their examination. They want to serve their customers and communities while preserving their financial integrity to ensure that their bank can serve generations of customers for years to come.
The ROV process puts that independence at risk. An otherwise completely independent process has now opened the door for dependence on banks.
Under this new “guidance,” banks must now “consider” whether to submit an appraisal for reconsideration on behalf of customers. Is it even really a consideration? Banks are required to respond to consumer complaints. If a consumer complains about an appraisal, are banks really going to say “no” and risk regulatory scrutiny?
How will appraisers react? They clearly came up with a value the first time that they believed to be true. Is there really any substantially compelling evidence to change that number? Or will appraisers give in and just say, “what do you want it to be worth.”
I am confident that not all appraisals are “correct” because they are subjective to a degree. However, the one thing that can not be argued is that appraisals are independent. Now, banks are being forced to insert themselves in the actual appraisal valuation process, which is much different from reviewing appraisals for regulatory violations, and potentially being forced to influence appraisers’ valuations.
Some may ask why this is a problem. I see a myriad of problems. ROV takes away independence and makes the bank an influential intermediary of the appraisal process. This is a lose-lose proposition for the bank in questioning a licensed appraiser’s valuation.
More importantly, this could jeopardize the integrity of the financial system. What happens if an appraisal is for a lower dollar amount that is “correct”, then the consumer demands a ROV, and the bank acquiesces, with a higher value given that is not truly justified? That would be overextending credit, leaving the bank with the decision to fund the inflated appraisal or risk being sued. Does that not jeopardize safety and soundness?
The long-term effects of this “guidance” are yet to be seen but could have a ripple effect for our industry. We will likely not see the actual results for years to come, but the shift from independence to dependence should be concerning to those charged with protecting the safety and soundness of our economic system.
Author: James Ayers Assistant Vice President Regional Retail Manager
Market First State Bank
REVIEW: DISCIPLINE IS DESTINY: THE POWER OF SELF CONTROL BY RYAN HOLIDAY
Discipline is Destiny is divided into three parts: The Exterior (body), The Inner Domain (temperament) and The Magisterial (soul). Holiday opens with a short discussion of Dwight Eisenhower, stating that he was one of the greatest leaders of any time period throughout history, yet what made him great was not “rooted in aggression or ego…but in how he commanded himself”. Holiday asserts that Eisenhower conquered the world by first conquering himself. This introduction sets the stage for the book, essentially a history of discipline winning the day, time and time again. Here’s some of the most thought-provoking and inspirational ideas from Discipline is Destiny:
Holiday argues that discipline makes it more likely that you will be successful. That’s easy enough to agree with. An assertion that is more thought provoking is his statement that even if you fail, as long as you have discipline, you are still great.
Another observation about Eisenhower; he was a 3-4 pack a day cigarette smoker for 38 years when he quit, cold turkey, at 58. The lesson here is that it doesn’t matter how long you have had a bad habit. What matters is what you do about it. Overcoming vice requires virtue.
Others may choose to live differently than you do. They may even attack you for your choices, either out of ignorance or their own insecurity. You may see people rewarded for things that you find abhorrent. In both scenarios, it’s the other person’s problem, not yours. The best course of action- the stoic course of action- is for you to ignore them. This is not easy to do; it requires discipline, which is the point.
In the chapter ‘Elevating Yourself’, Holiday discusses Marcus Aurelius at length. Aurelius believed that character was something that he had to continually work on. He never stopped wanting to learn or get better, believing that the moment that he stopped he would begin declining. Marcus viewed bad things that happened to him as opportunities to
conquer, writing to himself that “what stands in the way, becomes the way.”
In “Get Better Everyday,” Holiday discusses the Japanese concept of Kaizen, continual improvement. At the root of this is to find something to work on, to make progress on, every day. If this seems like too much, then endeavor to make fewer mistakes every day. He offers Lou Gehrig as an example. Gehrig’s manager attributed much of the baseball legend’s athletic success to his commitment to never making the same mistake twice.
Holiday observes that almost every regret, mistake, and embarrassing moment occurs because someone lost control of their emotions. It’s okay to get angry, but it’s not OK to do something about it. You must constantly and consistently control your emotions and be disciplined not to act impulsively. Slowing down, thinking things through, and not being persuaded by things that we can’t control are the keys to mastering our emotions.
Seneca wrote that the one thing all fools have in common is that they are always ‘getting ready’ to live. There is no better time than today for us to begin living. The Stoics had a saying, “if you don’t know where you are sailing, no wind is favorable”. We are each the captain of our own ship. And each day we have a choice to make between vice and virtue. Which will we choose? Reading Discipline Is Destiny will inspire you to choose the latter.
Title: Discipline is Destiny
Author: Ryan Holiday
Publisher: Portfolio Publishing
PHOTO RECAP | THE GALT HOUSE, LOUISVILLE |
AUG 20 - 21
Our Women in Banking Conference continues to be a highlight of our year here at the KBA. We cherish this opportunity for networking, personal growth, and knowledge sharing, surrounded by the future of the industry: professional women. Thank you for everyone who attended and contributed this year. A very special thank you to our MC, Lanie Gardner. Finally, thank you to each of our sponsors for making this possible.
SPONSORS:
KBA FRAUD ACADEMY 2024
RECAP | HILTON, DOWNTOWN LEXINGTON | AUG. 6-8
Streaming live for the first time ever, our KBA Fraud Academy was the best attended education event we’ve had yet...and it’s easy to see why. It’s no suprise that fraud is on the rise. Now, more than ever before, the country is under constant attack. Utilizing romance scams, credit card skimmers, dark web hacks, and state-of-the-art AI technologies, fraudsters are on the war path, affecting everyone you know. With a carefully curated team led by Central Bank’s Fraud Prevention Specialist, Shane Ensminger, Fraud Academy is ready to fight back against the bad guys. Stay tuned as we announce next year’s Academy!
PHOTO
Joseph H. Framptom
In recognition of dedicated service to the banking industry, the KBA is proud to induct Joseph H. Framptom into the fifty-year club!
Joe Frampton has been a key figure in the banking industry for five decades, beginning with his role on the Board of Directors of The Paducah Bank and Trust Company in 1974. He played a pivotal role in the creation of Paducah Bank Shares, Inc., a one-bank holding company that acquired ownership of Paducah Bank in 1984. Joe served as president and CEO of both entities, and in 1994, he became chairman and CEO of Paducah Bank, a role he held until 2022, when he stepped down as CEO while remaining chairman. Joe is a past president of the Kentucky Bankers Association and has been a driving force in both banking and economic development throughout his career.
Michael Q. Shields
In recognition of dedicated service to the banking industry, the KBA is proud to induct Michael Q. Shields into the fifty-year club!
Bonnie Horton
In recognition of dedicated service to the banking industry, the KBA is proud to induct Bonnie Horton into the fifty-year club!
Bonnie Horton has been a cornerstone of her bank since she began as a Proof Operator and Teller in 1974. Her career at First National Bank in Grayson has seen her rise through the ranks, serving as Assistant Cashier in 1990, then Cashier in 2000, and eventually becoming Vice President in 2003. In 2022, she was appointed Chief Operating Officer. Throughout her remarkable journey, Bonnie has earned numerous accolades, including the prestigious KBA 50 Years of Service Award, a Kentucky Colonel honor, and multiple proclamations, including “Bonnie Horton Day” in Carter County. Her legacy is celebrated with a permanent place on the bank’s Wall of Fame and even her own designated parking spot.
Onward & Upward
First Kentucky Bank Pennyrile Region Market Executive, Doug Smith announces that Sandy Goff has joined First Kentucky Bank as Beaver Dam Branch Manager. Goff has 11 years of banking experience. She graduated from Scott County High School and attended Owensboro Community Technical College. At First Kentucky Bank, she will be responsible for managing our Beaver Dam Office and providing exceptional service to our customers.
First Kentucky Bank President/CEO Will Hayden announces that Cole Arnel has joined First Kentucky Bank as Vice President, Commercial Lending. Arnel has nine years of banking experience. He graduated from Ballard Memorial High School and Murray State University with a Finance degree. At First Kentucky Bank, he will be responsible for business development and commercial lending in Graves, Livingston, and Marshall counties, as well as the surrounding areas.
Mark A. Gooch, Chairman, President and CEO of Community Trust Bancorp, Inc., is pleased to announce the appointment of two new Danville Market Advistory Board Members to Community Trust Bank,
Inc., Dr. Aaron Rowland and Nicholas Spoonmore.
The Murray Bank President and CEO, Bob Hargrove, presented Maurice Thomas with the Employee of the Quarter award at the Bank’s recent employee meeting. Thomas currently works in the Solutions Center at The Murray Bank. Thomas expressed her gratitude upon receiving the award, stating, “I am passionate about my work at TMB, and being recognized in this way is truly meaningful to me. The work environment here is exceptional, and I am grateful to contribute to it. Joining the TMB family has been a wonderful experience, and I feel blessed to be a part of it.”
Congratulations are in order to Bank of America on the breaking of new ground for their Jeffersonville Financial Center in Jeffersonville, IN.
Central Bank Chairman, President, and CEO Luther Deaton, Jr. would like to announce the following promotions: The promotion of Ed Cundiff to Senior Vice President, Retail Development Officer; the promotion of Clayton Rogers to Vice President, retail banking officer III; the
promotion of Chris Eder to assistant vice president and card services systems manager; the promotion of Andrea Creech to assistant vice president and human resources benefits manager; the promotion of Janette Hodges to assistant vice president and talent acquisition manager; the promotion of Kimberlyann Smith to officer, trust operations supervisor; and the promotion of Ken Kirk to assistant vice president and card services operations manager. Congrats to all on your continuing journey in banking!
Please join us in congratulating Ashley Yocum of Peoples Bank of Kentucky on her recent promotion effective January 1, 2024. Ashley has been promoted to Senior Vice President ~ Chief Operations Officer. Ashley has been with PBK Bank since August 2008 and previously served in the role of Supervisor of Bookkeeping and Compliance Officer.
Bank of the Bluegrass & Trust Co. in Lexington is pleased to announce Kristina Carpenter-Miller has joined their Financial Center on Romany Road as a Universal Banker.
Sandy Goff
Dr. Aaron Rowland
Maurice Thomas Cole Arnel
Nicholas Spoonmore
Ed Cundiff
Clayton Rogers
Kristina Carpenter-Miller
Andrea Creech
Chris Eder
Kimberlyann Smith Ken Kirk
Ashley Yocum
KBA Chairman Mark Strother (President & CEO, Commercial Bank of Grayson) presents the ABA BankPac with a contribution of $32,500.
With new loan originations, one-year or longer termed Advances can be priced as low as FHLB’s cost of funds through our Economic Development and Community Investment programs
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If you have new loan originations, check to see if you qualify for a discounted Advance Contact your FHLB relationship manager or visit www fhlbcin com to learn more!
Bank-Owned Life Insurance (BOLI) Non-Qualified Benefit Plans
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BCP is steadfastly committed to serving Kentucky’s community banks, and we are privileged that our clients include 10 of the past 11 Chairs of the KBA.
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Spotlight On...
New KBA Endorsed Company!
KBA is excited to announce the endorsement of DDI Technology! DDI Technology is an industry leader in providing vehicle dealers and lenders with the resources and tools needed for processing titles and total-loss transactions more efficiently. Their focus is to deliver superior products, professional service and hi-touch customer service for all areas of vehicle title management.
DDI Technology has fostered relationships with many progressive and innovative businesses by supplying new technologies that enable their customers to provide superior service to their customers. Their easy-to-use, streamlined solutions are delivering time efficiencies and reducing operating costs for their customers throughout the vehicle registration and titling process.
To schedule a demo and to learn more about DDI Technology services, please contact Anthony Lipinski, ELT Inside Sales Representative at anthony.lipinski@dditechnology. com or call him at (803) 587-5680.
If you have questions, please contact me direct at (502) 736-1282 or sparrish@kybanks. com. Thank you!
WHERE TO FILE: PROPERLY PERFECTING YOUR SECURITY INTEREST
When securing a loan with personal property collateral the goal is to have a first priority perfected security interest. The security interest attaches to the collateral once your debtor has signed a security agreement with granting language, and you have given value to the debtor and adequately described the collateral to which the security interest attaches.
The security agreement controls the relationship between you and your debtor regarding the collateral. However, it is the perfection of the security interest that controls your bank’s priority as to every other person in the world who might claim an interest in your collateral: other secured parties and lien creditors including a debtor in possession or trustee in bankruptcy.
Security interests can be perfected by control of collateral such as deposit accounts (not held at your bank) and investment securities, title liens on collateral for which a state title system exists, filing with the FAA perfects on aircraft, or possession of collateral. But the most common means of perfection on commercial collateral is by filing a financing statement.
Under prior versions of UCC Article 9, a secured party had to chase its collateral around the nation and file a financing statement wherever its collateral was located. As the US shifted from the local economies of 1960 (the effective date of the UCC in Kentucky) to a national economy, this requirement became burdensome. Prior to Revised Article 9, I handled a secured transaction that required filing in 36 states, 12 with dual filing (local and central). To perfect the client’s security interest I filed 48
financing statements with different filing fees and often on unique forms.
Revised Article 9 resolved those issues. A secured party need only file a financing statement in the filing office for the state where Article 9-307 (KRS 355.9-307) deems the debtor located. For any form of registered organization, that state is the state in which the debtor was originally organized, NOT a state where it is registered to do business.
This rule, although a boon for Delaware, provides a bright line standard for a secured party to perfect its security interest by filing a financing statement in a single state. I recently handled a case where the secured party filed a financing statement with the Kentucky Secretary of State for a debtor registered to do business in Kentucky with its principal place of business in Kentucky, but originally organized in Ohio. The proper place to file was Ohio. The failure to perfect the security interest in the correct state was challenged by a lien creditor.
When you look up your debtor’s organization on the Kentucky Secretary of State’s website, don’t be fooled, it may just be the registration of your debtor to do business in Kentucky. Examine the web page closely and determine whether it is a Kentucky organization or just registered here. That page also designates the state in which the organization was organized, which is the jurisdiction in which you must file your financing statement to properly perfect your security interest.
Morgan Pottinger McGarvey is a
John McGarvey
Off the Balance Sheet But Not Off the Hook
by Eric Hanson, CPA FI Assurance Senior Manager Clark Schaefer Hackett
All financial institutions have now adopted the Current Expected Credit Losses (CECL) model. Countless hours and resources were directed to implementing the new standard. Now the examiners are making their first visit and making sure all the boxes are checked. One box that is consistently being overlooked is the need to assess an allowance for credit losses (ACL) related to off-balance sheet (OBS) credit exposures. These are your unused lines of credit, unfunded commitments to extend credit, letters of credit, etc. This includes any agreement, unless unconditionally cancellable, that is legally binding. If the bank is not able to unilaterally and irrevocably cancel the debt at any time, these contracts can expose the institution to potential credit losses. Calculating a loss reserve for unfunded commitments is technically not a new concept, but it was not a focal point under the old incurred loss model. Upon adoption of CECL, those that evaluated the ACL related to OBS credit exposures are at times surprised at the significance of this ACL balance.
The ACL related to OBS loan commitments is recorded in other liabilities, rather than being netted against the loan portfolio like the ACL on outstanding loans. The fluctuations in this ACL are reported separately as credit loss expense on the income statement. The estimate will consider the contractual period in which the credit risk exposure exists, as well as the likelihood of funding. This analysis can be performed on a collective basis, similarly to the loan portfolio. If material and not recorded, institutions may be understating liabilities and overstating net income. Even if not material, examiners and auditors will want to see that there is a policy being followed to make sure consideration is being given at the same frequency as the ACL on loans.
Below are some common considerations that can help assess the institution’s ultimate exposure to risk.
For example, many SCALE Model users didn’t realize this analysis was needed or applicable upon adoption. You may find that your CECL model or software does not actively provide for an ACL analysis for unfunded commitments, or potentially only certain types of unfunded commitments due to the software being unable to aggregate from your loan system. It is the responsibility of management to consider, support, and complete appropriate calculations outside the regular model. Banks should consult with their accounting firms and CECL vendors to ensure all of their bases are covered. Clark Schaefer Hackett’s CECL experts have been assisting community banks with CECL readiness and implementation for years and we are happy to assist in any way that we can. Having the appropriate steps incorporated into your periodic CECL calculation policies and procedures will set you up for success in making sure all the right boxes are checked when outside eyes come to visit.
