Kentucky Banker June 2014

KENTUCKY BANKER June 2014

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CONTACTS BOARD OF DIRECTORS Mr. William Alverson Traditional Bank Mr. James W. Beach Peoples Bank & Trust Company Owenton Mr. J. Wade Berry Farmer’s Bank & Trust Company Marion Mr.William F. Brashear, II Hyden Citizens Bank Mr. Neil S. Bryan The Farmers Bank of Milton Mr. G. Anthony Busseni Century Bank of Kentucky, Inc. Ms. Katherine Reese Capps First State Financial, Inc.

Mr. David P. Heintzman Stock Yards Bank & Trust Company

Mr. Stephen Miller Peoples Bank of Kentucky, Inc.

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

Mr. Louis Prichard Kentucky Bank

Mr. Don Jennings First federal Savings Bank of Frankfort Ms. Elizabeth Griffin McCoy Planters Bank, Inc. Mr. Michael H. Mercer First security Bank of Kentucky Mr. Glenn Meyers Kentucky Federal Savings & Loan Association

Cover Photo taken by Ross Corder “Big South Fork”

for the Scenes of Kentucky Photo Contest

Mr. Thomas J. Smith, III American Bank & Trust Company, Inc. Mr. H. Lytle Thomas Heritage Bank Mr. Frank B. Wilson Wilson & Muir Bank & Trust company Mr. Greg A. Wilson The First Commonwealth Bank

KBA STAFF Ballard W. Cassady Jr. bcassady@kybanks.com President & CEO Debra K. Stamper dstamper@kybanks.com EVP / General Counsel / Director of Compliance Paula B. Cravens Sturgeon pcravens@kybanks.com Director of Education Solutions Selina O. Parrish sparrish@kybanks.com Director of Vendor Solutions Matthew E. Vance mvance@kybanks.com Chief Financial Officer Miriam Cole mcole@kybanks.com Executive Assistant Paula Cross pcross@kybanks.com Education Services Coordinator Jamie Hampton jhampton@kybanks.com Education Services Coordinator

Natalie Kaelin nkaelin@kybanks.com Assistant General Counsel

Chris Kelso ckelso@kybanks.com Manager of AIB Education Solutions Michelle Madison mmadison@kybanks.com IT Manager Lanie Minton lminton@kybanks.com Administrative Assistant Tammy Nichols tnichols@kybanks.com Convention & Membership Services Coordinator Katie Rajchel krajchel@kybanks.com Staff Accountant Yvonne Savage ysavage@kybanks.com PAC Services Coordinator Angie White awhite@kybanks.com Communications Coordinator Steve Whitlow swhitlow@kybanks.com Systems Engineer

Consultant

John P. Cooper jcooper@kybanks.com Governmental Affairs Consultant

KBA Insurance Solutions

Chuck Maggard cmaggard@kybanks.com President & CEO Brandon Maggard bmaggard@kybanks.com Account Representative Audrey Whitaker awhitaker@kybanks.com Insurance Services Coordinator

Lane Hettich lhettich@kybanks.com Service Manager Donna McCartin dmccartin@kybanks.com Account Representative

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

KBA Benefit Solutions

Lisa Mattingly lmattingly@kybanks.com Director of Sales & Service

CONTRIBUTING EDITORS Lane Hettich lhettich@kybanks.com

Angie White Awhite@Kybanks.com

CONTACT 600 West Main Street Suite 400 Louisville, KY 40202

Phone: 502-582-2453 Fax: 502-584-6390 www.kybanks.com

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CHAIRMAN’S CORNER the tepid recovery that has followed.

Neil Bryan KBA Chairman

As I write this month’s article for the Kentucky Banker, I have just completed the western Kentucky portion of the annual Group Meetings. These first three meetings held in Paducah, Central City, and Bowling Green pointed out both the challenges and opportunities we face in Kentucky.

We are geographically a very diverse state. When you crossed the state line into Tennessee in the late 1960’s their signs proclaimed “Welcome to the Three States of Tennessee”. This was a deliberate recognition of the very unique social, topographical, and economic characteristics of the separate regions that combined into one political subdivision. That sign would be just as appropriate for our Commonwealth today.

Large scale farming, high sulphur coal extraction, and small cities are a few of the hallmarks of the mostly rural and largely flat lands of the western portion of Kentucky. Economically the area is not booming but it has largely weathered the worst of the Great Recession and June 2014 | 4

The central region of Kentucky contains the largest population centers including the state’s two largest cities, Louisville and Lexington. This region has the majority of the industrial base. Farming is more diversified. Cattle, horses, and tobacco predominate. It is an area of rolling hills and relative economic prosperity.

The east is comprised of very small farms, smaller cities, mountains, and great scenic beauty. The coal industry is the major contributor to the economic well being of the area with timber, oil production, and tourism providing some support. This portion of the coal industry is in deep trouble from EPA regulation which has led to sharply falling demand. High unemployment is widespread through out much of the region.

The above list is representative of the differences but it is far from all inclusive. So, how does an organization like the Kentucky Bankers Association help its members deal with the problems and opportunities that result?

The Group Meetings point out the challenges that distance creates.

From my location in north central Kentucky it is 4 hours to both Paducah and Prestonsburg. The KBA recognizes this issue. Training is provided via on site seminars, webinars, and online training venues to help mitigate the travel time needed to get the up to date information required to comply with

the fast paced regulatory changes mandated under the Dodd Frank Law. One reason we have Group Meetings is our desire to personally bring KBA to your area. We think it is crucial for our understanding of your problems. It gives us a chance to meet with you on your local turf to discuss areas of common interest. We also hope it gives you a better opportunity to bring your concerns to our staff and elected leadership. We need to hear what you have to say. It is vital to our industry to have a frank ongoing dialogue about the issues that are important to each member bank.

The commonalities are also numerous. We all share the need to find more quality loans. Interest rate risk and margin compression are universal concerns. Regulatory risk is a high priority item for every bank. Where do we find investments that meet both our need for income today while mitigating our market value exposure when rates rise? By the way, when do we expect rates to rise? How much will they rise, and how quickly, when the markets start to move?

Speakers at the group meetings try to help answer those questions.

We also try and paint an accurate picture of the legislative landscape in Kentucky and nationally. Our updates in this area are designed to give each bank up to the minute information about where we stand in our legislative efforts. I also hope the meetings provide encouragement for each bank in the state to get involved with KBA. When we speak with a united

voice we get heard! Encourage the group members that are not currently active in the association to get involved. We need everyone’s help to engage our legislators in a meaningful discussion of what our banks require to continue to provide the financing, advice, and counsel that is necessary to keep our businesses, farmers, and consumers provided with reasonably priced, well structured financial products.

It is also my fervent hope that we can send a message to Washington that we are proactive. We are attempting to lessen the burdens created by the “unintended consequences” of Dodd Frank and the CFPB’s rule making. We are trying to help develop and pass legislation that will benefit both the consumer and the banker. Our wish list is a long one. The fight is a very uphill battle.

We are fortunate to have a Kentucky Congressman who has taken the time to understand how the current legislation, combined with the implementing regulations, impacts our communities. Andy Barr,(R)-6th district, has sponsored a number of bills which correct problems that were created by the new law. He has even included my number one priority…..the creation of an independent ombudsman to hear examination related issues. These bills have started to pass the House of Representatives but are being held hostage in the United States Senate. Despite that unfortunate fact, it still establishes some forward momentum as we look ahead.

tively than any of us can be separately. Please get involved. The industry, our commonwealth, and our communities need you!!

Chairman Neil Bryan nbryan@fbmilton.com

We are a very diverse industry, with very unique problems, in a most unusual time. Through the auspices of the KBA we have the opportunity to be stronger collec-

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STRAIGHT TALK Economics 101 it. We started learning and thinking about the possibilities of savings accounts, CD’s, and even mutual funds.

We started listening to the opinions of professors, economists, and stock broker buddies. Finally, at some point, we started to understand that investment strategies were important.

Our first lessons in economics come early and from a variety of sources: our grandparents might pay us or give us a treat to help them with projects in the summer; our parents might give us a weekly allowance to complete our assigned chores; our neighbors might pay us a few dollars to cut their grass or wash the car; or the local ice cream shop might give us a free cone for straight A’s on our school report card. Whatever it was, we started to understand the value of effort and think about the power of money. As kids we were anxious to spend our hard earned money, even if we were saving for a larger purchase, so it made sense to stick the money in a sock drawer or cigar box until we found something to spend it on or saved enough to purchase the object of our desire.

We weren’t thinking of anything long term—no thoughts of investments or the future beyond maybe a new bike for summer. Then something happened: Maybe the price of the bike went up right after we saved enough to cover the original price, or odd jobs weren’t as available as before. We started thinking that there must be more to financial planning. At some point we realized that socking away money in the mattress wasn’t cutting

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Maybe some of you were faster studies than I was, but that was pretty much how I started planning for my financial future. And now, based upon my rich and varied experiences (some good/some not so good) in financial planning, I have come to the conclusion that there are two basic strategies to handle investment capital.

The first, and as far as I am concerned, the most inefficient way, is to find a reasonable return on a tax free investment. You see this going on a lot in financial circles today. The average person can take advantage of certain retirement vehicles. Others, who might have a bit more to invest, might take a more circuitous route to avoid taxes. Some companies have become very comfortable with booking profits overseas, and even doing some M&A overseas to avoid taxes here in the U.S.. While this workaround might result in the tax free growth that I believe is the most efficient way of increasing capital, it results in limiting the potential growth in the U.S. by expatriating those dollars. This strategy is potentially good for the individual investor, but does little (if anything) for the economy as a whole.

The second strategy for capital growth is to purposefully push it into the economy. This method has the potential of creating jobs, building the economy, and stimulating growth not only in the specific industries invested in, but also industries closely associated. This one represents a more holistic and good for all type of investment strategy.

There are many other investment strategies and businesses and individual investors have the right and freedom to choose either method they want, which is one reason why this country is so great.

But, remember what my Granny used to say, “Money goes where it is invited.” That is, regardless of what strategy you think is best, if it isn’t developed in such a way that the investor can expect a reasonable return it won’t work.

I am reminded of this saying when I hear about proposals for the “public good” which try to tell investors how they can spend their money.

For instance, I recently heard a television personality touting an option for repatriating investment capital that was earned outside the United States, free of taxes, but with a mandate on how the funds are spent once they come back into the country.

That only gets the formula half right.

It starts with the following: “Good for you. You figured out how to make money and avoid taxes, by taking it out of the country.” But, then it takes a strange turn: “We recognize that you made a good decision for your investment. But, now we want you

STRAIGHT TALK

to bring it back to the U.S. and only invest it in the things we tell you.”

Tell me how this is a good idea for a free country?

Imagine your Mom and Dad saying, “Johnny, you did such a good job in making money for your hard work.

But, you cannot buy the ice cream cone you want. You need to pay for part of Sally’s lemonade stand instead, so that she can do better as well.” Any child, even one who might volunteer to help Sally, will tell you that such a plan is inherently wrong, unfair, and counter to promoting hard work and savings.

I get that this should not be an all or nothing approach—that is, it is just as bad to tell an investor that they can avoid all taxes and invest without recourse in whatever they want (does that make me a Moderate?!).

There must be some compromise for our system to exist.

This rambling takes me all around the mulberry bush and back to DoddFrank. I would like to extend a “JobWell-Done” to Barney Frank (feel the sarcasm). Barney’s signature legislation was successfully adopted and forced on the U.S. Banking Industry. It creates an artificial system of capital investment for U.S. banks

and has resulted in creating a system where banks are afraid to do business. Banks are not able or willing, because of the handcuffs placed on them, to invest record levels of capital in the best manner possible and, as a result, our economy has all but crawled since. Bravo Barney to keeping America at the top of the financial investment game (again, insert sarcasm here). You did yourself, your party, Congress, the banking industry, and the American people proud. It may have been your finest moment.

For Republic Bank, the Commercial Rebate Program was a very smart financial decision.

Steve Trager, Chairman & CEO Republic Bank

Republic Bank knows a thing or two about making smart investments for the future. After making energy-efficient upgrades, they earned more than $14,000 in rebates through LG&E and KU’s Commercial Rebate Program.

Cash rebates and long-term savings—now that’s something of substantial interest. To see how your business can apply for up to $50,000 in rebates per facility, visit lge-ku.com/rebate.

Let me know what you think: bcassady@kybanks.com

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2/28/14 6:39 PM

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MY TWO CENTS PLUS SOME Every Month Should be Financial Literacy Month the push to help the poor and feed the hungry in December, while forgetting that they probably need to eat all year long.

Of course, financial literacy is essential. It results in both tangible and intangible benefits to individuals, families, communities, governments, and financial services institutions. But, the key is to create a system which provides for ongoing and retained financially sound behavior and values, and that is where you come into the picture.

April was designated as National Financial Literacy Month. During the month of April, you saw a lot of marketing and opportunities for financial literacy training. Everyone wants to solve the problem of financial illiteracy, but it seems that a lot of effort is made into identifying the problem in April and then a hodgepodge of services are identified throughout the year to follow up without a GRAND PLAN. And often that results in no lasting financial education. It reminds me of

Kentucky Department of Education. Marissa wanted to know how to insure that school banks were handled properly and how best to encourage a bank/school partnership. Marissa pulled together a team and we will be working to establish sample checklists, forms, and other materials to assist school staff with starting and maintaining a school bank.

Your bank can sponsor and assist with a local school bank. School banks have been around a long time, but new interest in school banks waxes and wanes when schools, the Department of Education, and financial institutions have a difficult time explaining and/or understanding what is required and how to get started.

In the meantime, I wanted to let each of you know that sponsoring a school bank is much simpler than you might imagine. The core consideration is that the purpose of the school bank be financial education, not profit, and that it be located on the school property. We look forward to working with the Department of Education to create guidelines that will make the creation of school banks across the state an easy process and the norm in every community.

Recently I received a call from Marissa Hancock in the office of Career and Technical Education at the

dstamper@kybanks.com

COMPLIANCE CORNER Question: When do we have to make direct deposits available for withdrawal?

Answer: Both the Expedited Funds Availability Act (“Regulation CC”) and Regulation E seem to apply to this particular question. http://www.fdic.gov/regulations/laws/rules/6500-3210. html#fdic650022912 In Section 229.10 of Regulation CC, it states that, in general, electronic payments must be made available for withdrawal not later than the business day after the payment is received. So technically, Regulation CC does not require banks to make the deposit available the same day.

However, Regulation E seems to say differently. Section 205.10 of Regulation E ((a)(3) Preauthorized transfers to June 2014 | 8

consumer’s account) states a financial institution that receives a preauthorized transfer shall credit the amount of the transfer as of the date the funds for the transfer are received. http://www.fdic.gov/regulations/laws/ rules/6500-3100.html#fdic6500205.10 After reading through the definitions of Regulation E (and seeing that electronic transfer is defined as “direct deposit” and 205.10(a) refers to a regular preauthorized electronic credit to the consumer’s account), Regulation E’s requirement of same day crediting would apply and direct deposits should be made available for withdrawal the day of receipt.

Information courtesy Natalie Kaelin, KBA Assistant General Counsel. If you have a nagging compliance issue that fellow bankers may face, send Natalie an email: nkaelin@kybanks.com

Community Bank Shares of Indiana, Inc. to Acquire First Financial Corporation of Elizabethtown, Kentucky NEW ALBANY, INDIANA & ELIZABETHTOWN, KENTUCKY – Community Bank Shares of Indiana, Inc. (NASDAQ GM: CBIN), the holding company for Your Community Bank and The Scott County State Bank, and First Financial Service Corporation (NASDAQ GM: FFKY), the holding company for First Federal Savings Bank of Elizabethtown, jointly announced today they have entered into an agreement and plan of share exchange (the “Agreement”). Under the terms of the Agreement, Community Bank Shares of Indiana, Inc. will exchange all of the issued and outstanding common shares of First Financial Service Corporation for 0.153 shares of CBIN’s common stock, subject to potential adjustments at closing. Based on CBIN’s 20 trading day average common stock price of $22.33 per share, as of April 17, 2014, assuming no exchange ratio adjustments, the transaction is valued at approximately $17.9 million. As part of the transaction, FFKY’s outstanding preferred stock, all of which was issued in the Troubled Assets Relief Program, will be redeemed at or promptly following closing of the acquisition for approximately $12.3 million, plus accrued but unpaid interest. In addition, CBIN has entered into subscription agreements with investors to purchase approximately $25.0 million of CBIN common stock immediately prior to the consummation of the share exchange transaction at a price of $22.33 per share.

The transaction is subject to receipt of FFKY shareholder approval, CBIN shareholder approval and customary regulatory approvals. We expect the transaction to close in the late third or fourth quarter of 2014.

Upon the consummation of the transaction, First Federal Savings Bank of Elizabethtown will be merged with and into Your Community Bank. At that time, First Federal June 2014 | 10

Savings Bank of Elizabethtown offices will become branches of Your Community Bank. CBIN estimates it will have approximately $1.6 billion in assets and 41 branch offices throughout southeastern Indiana and Kentucky after the transaction closes. CBIN expects the transaction to be accretive to earnings per share in the first full year of operations, excluding any one-time restructuring charges, and that all subsidiary banks will exceed “well-capitalized” thresholds under all regulatory definitions.

James D. Rickard, President and CEO of Community Bank Shares of Indiana, stated, “We are excited to add to our presence in the Louisville and Bardstown markets, while expanding into Elizabethtown and neighboring communities. We believe this transaction creates a dynamic community banking franchise across the entire Louisville MSA. Community Bank Shares enjoys strong market share in the northern counties of Louisville and the addition of FFKY adds a strong presence in Louisville’s southern counties. The acquisition of FFKY is the second transaction we have undertaken in the last twelve months. These activities are part of an integrated strategy to drive shareholder returns through both organic and acquisition related growth.”

Gregory Schreacke, First Financial Service Corporation’s President, commented, “We are excited to partner with a strong and reputable firm, such as Community Bank Shares. Our shared values and synergies will create a tremendous new opportunity for our associates, shareholders, customers and community. Our combined financial institution will offer a wider array of products and services while continuing our long-standing personal commitment to our customers and community. ”

ABOUT COMMUNITY BANK SHARES OF INDIANA, INC. Community Bank Shares of Indiana, Inc. is a bank holding company with $846 million in total assets as of March 31, 2014 and includes two wholly owned, state-chartered subsidiary banks include Your Community Bank and The Scott County State Bank. The Company’s stock trades on the NASDAQ Global Select Market under the symbol “CBIN”.

The Company may be contacted at (812) 944-2224 or 101 West Spring Street, New Albany, Indiana 47150.

To learn more about the Company, please visit www.yourcommunitybank.com and www.scottcountystatebank.com.

ABOUT FIRST FINANCIAL SERVICE CORPORATION Established in 1923, FFKY, through its wholly owned subsidiary, First Federal Savings Bank of Elizabethtown (“First Federal Savings Bank”), operates 17 offices in Kentucky including seven offices in the Louisville metro area, seven offices in the Elizabethtown metro area, and two offices in Bardstown. At December 31, 2013, FFKY had approximately $859 million in total assets, $467 million in loans and $783 million in deposits.

Sterne, Agee & Leach, Inc. is serving as financial advisor to CBIN on the transaction and as placement agent on the offering. Stoll Keenon Ogden PLLC is serving as legal counsel to CBIN on the transaction and the offering. FFKY is represented by the investment banking firms of Keefe, Bruyette & Woods and Professional Bank Services, Inc. and the law firm of Frost Brown Todd LLC.

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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Banking Through the Years: The Strother Family Continues to Lead The Commercial Bank of Grayson him, becoming a banker was never even a question.

by Angie White Picture this, 1891 in Carter County, KY. Dr. J.W. Strother, along with 25 other local citizens, invested in and opened the doors to the Commercial Bank of Grayson.

Dr. Strother was the principal stockholder, Chairman of the Board, and first President of the bank. Five generations and 123 years later, the bank is still operating under the Strother’s leadership. We had the privilege of sitting down with three generations, Jack Strother Sr., Jack Strother Jr., and Mark Strother, to gain some insight into just what makes this strong, family business so successful.

Jack Strother Sr., a centenarion plus one, is still very much a part of the bank. He visits daily and lends his experience wherever he can. Jack Sr. started with the bank back in 1933 when he was just 20 years old. For

Photograph of a tobacco farmer during the Great Depression.

Jack Senior recounts banking during the Great Depression and cites customer loyalty as a reason for the bank’s longevity.

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He came into the family business during the worst economic time in U.S. history, The Great Depression.

While so many banks failed during this time, the Commercial Bank of Grayson survived. When asked why he thought they made it through that tough, economic time, Jack Sr. simply said, “We knew our customers; we knew their struggles.” With telephones not being a common household item for most people during the early 1930’s, Jack Sr. remembers his first job with the bank - driving an old car out to each customer’s farm to talk to them about their crops: What did they expect the crops to bring in? What did they expect the next year to bring? Jack Sr. asked clients to sign a new note to pay only interest for a year and then they could discuss the full loan repayments after the harvest. It was that type of personal customer service that made the farmers loyal and become long term clients of the bank after the depression.

As the Great Depression came to an end in 1939, another challenge loomed in the wings...World War II. Jack Sr. had served in the United States Navy before returning home to start his full time career with the bank as a Teller. He shared stories about how daily bank business was done by hand back then, validating the checks, ensuring amounts were correct, signatures were verified, etc. The manual process was hard and time consuming and also left room for human error, but it was all they knew. The technology providing automation wouldn’t come until later. Jack Sr. was President of the bank when its assets hit the $1 million mark, which was quite a show of a strong community given the economic conditions the country had been through.

Like his dad, Jack Jr. never thought twice about going into the family business. When Jack Jr. started with the bank as a teller, in the late 1960’s, automation was coming to the forefront. Checks were being printed with account numbers on them and the validation process inched towards efficiency. One of the biggest challenges that Jack Jr. shared with us was when the checks started to be printed; “Educating our customers on how the checks worked with the account numbers already on them was definitely a challenge, but the process was more efficient and allowed us to become more familiar with our customers.” You also had, during that time, the automation of the credit

bureau. This allowed the bankers to receive information on customers much more efficiently. It was around 1969, when Jack Jr. was acting President of the bank that it had hit the $10 million mark.

As we all know, regulations to the industry affects business and brings about new challenges daily. Jack Jr. and Mark both agree that one of the areas that has been affected for them is loans. “Back then, a customer would walk in and need a note for $5,000 and we could approve them based solely on their history with the bank and they could walk away the same day with a check. Now, with all of the regulations, loan approvals are being taken out of our hands and it’s making it more difficult for our customers to get the money they need in a timely matter” said Jack Jr. “Trying to explain to customers why they have to wait is hard because our customers really don’t care about the regulations or the processes, they just know that they’ve always been able to come in and receive their funds quickly.

Definitely a great challenge for community banks” said Mark Strother.

Mark Strother, son of Jack Jr. and grandson to Jack Sr., started working part time at the bank while in high school. Unlike his dad, he wanted to move to a big city, go to college and do something outside of the family banking business. But in his freshman year of college the student paper did an article on Mark, where he then made it known to his family that he was planning on returning home after college to work in the family bank. He started out as a Teller, following the footsteps of his father, grandfather, and two generations before him.

By the time Mark became full time at the bank, technology had changed yet again. We are now seeing new ways people can conduct their banking business, via smart phones, computers, etc. This also brought about a change in their customers. Now you have the Gen “Y” group coming into the picture. Gen Y customers, (born 1980-1992), were raised in an environment of financial stability, never experiencing the hardships their parents and grandparents did. When you think about this generation, you can almost call them “financial freshman,” in the sense that they are inexperienced in the area, rookies. When asked how the bank deals with these new customers, Mark stated that the bank focuses on educating the youth in town. The EverFi program is used in schools to help with this effort. The Strothers’ are very much aware of the changing times in the industry and are always active in their community, trying to educate and share their knowl-

edge.

Today, the Commercial Bank of Grayson holds approximately $163 million in assets, despite the challenges that each new decade brings. This is not just a family business, but a community bank that has stood by the people during troubled economic times and those people in turn have stood by them. It’s a tough battle out there, with banking services available at so many other businesses, including many cyber sites where there is never any personal interaction. But the Strothers, and the bank, have managed to understand and grow during these changing times.

Although banking is in the Strothers’ blood, and it is their family business, they have so many other sides to them. Like Jack Sr. getting his pilot’s license, Jack Jr. wanting to go to clown school when he was younger, and Mark wanting to move to a big city and do something other than the family business…but all three of them have been drawn back to the family business for one reason or another.

Community banking to them is where they can make a difference in their hometown, be the leaders that they are, and make a difference with their customers, one product at a time. This is definitely a family who believes in commitment, community, and customers.

They’ve survived for over 123 years and with more generations of Strothers looking to make their mark in the family business, I would bet that this bank will become one of the oldest, family run businesses in Carter County. Success runs in the Strother family!

Pictured from left to right: Jack Strother Jr., Jack Strother Sr., and Mark Strother. Three generations of bankers who put the community first.

June 2014 | 13

Compensation Strategies For Community Banks

by Jon Doukas Changes are continuing to take place in the way community banks compensate their employees. Under traditional merit-based systems, banks have previously rewarded employee’s performance and longevity by increasing their base salary. Even though management and employees may be comfortable with this approach, it has two shortcomings, as it inflates personnel costs over time and it fails to properly reward those employees for top performance.

Community banks are discovering that they can overcome both of these problems by adopting a compensation strategy based on incentive payments rather than traditional salary increases. Properly used, an incentive-based compensation program motivates employees to increase their own earnings by adding to the bank’s bottom line.

The chief executive officer must be responsible for overall employee compensation. However, a change to incentive-based compensation serves its purpose best as part of a program to enhance the bank’s profits. Because some rethinking of the bank’s overall philosophy and strategic plan may well be involved, this is an issue on which directors and the chief executive officer should agree. Directors should certainly be informed about this industry trend.

Staffing Costs Personnel costs have remained mostly stable during the past few years, ranging from 1.25 percent to 1.75 percent of assets. To a large extent, these figures are the result of improved workforce productivity brought about by technology, mergers and acquisitions, and reengineering efforts. With this in mind, a closer look at base salary and incentive compensation strategies is warranted.

Base Salaries Banks, of course, compete with other local employers for competent workers. Therefore, they must set their base hiring salaries in line with the prevailing market.

These salaries, influenced mainly by the cost of goods and services in the market area, change constantly, and the bank needs an accurate source of information in order to adjust its pay scales appropriately.

A review of salary surveys show that bank salaries have increased annually between 2.0 percent and 2.5 June 2014 | 14

percent during the past five years. Surveys also indicate that the differential between minimum and maximum salaries for positions has declined from 40 percent to 60 percent previously to a current spread of only 30 percent to 40 percent. A teller’s salary, for example, may have ranged between $7.00 and $9.00 an hour, but now the difference will be more likely $9.00 to $10.00 hour. This means that experienced employees are paid little more than new hires. In addition, an annual raise of two to three percent will be almost meaningless to an employee when starting salaries in the market place are going up at the same rate.

The situation has encouraged many community banks to establish what is essentially a single rate for a given position based on experience and credentials, a system used more widely in government and education salary programs.

Incentive Compensation Incentive programs address the need to reward employees for the quality of their work and for their contribution to profitability. These one-time payments do not increase an employee’s base salary, but provide the opportunity for an employee to add a more significant amount to his or her total compensation. The strongest argument in favor of these programs is that those banks that have adopted successful incentive programs pay their employees more, but their profits have grown at an even faster pace.

An incentive compensation program can take a number of forms, but to be successful it must be designed to support the bank’s strategic plan and provide employees with meaningful levels of rewards. A bank may have a number of incentive programs in effect, so that an employee may benefit from individual, departmental, and/or bank-wide plans.

The primary message to employees must be that as bank’s profits go, so goes their pay. A sales incentive program would also be part of any incentive plan considerations.

Benefits The change in philosophy from merit-based to incentive-based compensation also changes the structure of benefit programs. There can be more variables, but here again, profitability drives payments. More organizations are establishing or converting retirement plans to 401(k) and/or ESOP arrangements which directly

relate to profitability, giving employees and management even more incentive to perform.

Total Compensation: 155 percent of base salary = $38,750

Compensation Structure

It is important to remember that when an incentivebased program is well-designed, the bank will experience increased profits that will more than pay for the increase in employee compensation. Thus, both employees and shareholders benefit. To accomplish this goal, the bank needs to set levels of expected performance and only provide payments for performance above these expectations.

The following examples compare components of a typical merit-based and a typical incentive-based compensation plan.

1.Merit-based Compensation (example) Base Salary: 100 percent (71 percent of total compensation) = $25,000 Benefits: 30 percent (22 percent of total compensation) = $7,500 Bonus/Incentive: 10 percent (7 percent of total compensation) = $2,500 Merit-Based Compensation Structure

Future Considerations Current trends in compensation indicate that: •Financial institutions are continuing to actively manage their personnel costs and staffing levels.

•Organizations are reducing the number of positions, in part by increasing productivity levels and the efficiency of operations.

•Financial institutions are paying competitive salaries for qualified individuals.

•Employees are paying more of their benefit costs.

•Increasingly, the industry is offering various incentive awards to encourage higher levels of employee performance.

Total Compensation: 140 percent of based salary $35,000 2. Incentive-based Compensation (example) Base Salary: 100 percent (65 percent of total compensation) = $25,000 Benefits: 25 percent (16 percent of total compensation) = $6,250 Bonus/Incentive: 30 percent (19 percent of total compensation) = $7,500 Incentive-Based Compensation Structure

Together, these trends indicate that leaders of forward-looking banks constantly evaluate the methods by which they can enhance their operations, maintain a competitive position, and better reward employees for results. It is apparent that well designed performance driven incentive compensation has become an integral part of this process.

The major challenge in converting to any incentive compensation plan is educating and building employee acceptance. In most cases, the traditional merit-based system was familiar and comfortable to employees and represented far less risk. A new incentive-driven plan, on the other hand, requires a higher level of performance and may or may not provide payments since rewards are tied to performance. For these reasons, it is best to change a bank’s compensation structure over a period of time to allow for employee education and acceptance. At the same time, however, banks are using more attractive compensation approaches to attract and retain qualified personnel.

Community banks must first review their current compensation practices to decide whether changes June 2014 | 15

are warranted. This process, in itself, requires a great deal of research just to determine the relevant questions and where to find reliable information. Those who have made the effort, however, have found that incentive-based compensation can help them reach new levels of productivity and profitability if the plans are carefully crafted to be manageable and attainable by the bank staff.

Developing an Effective Compensation Program 1. Develop a compensation policy statement. This provides a framework for your compensation program.

State the desired purpose, approach, results, importance, and focus of the bank’s compensation plan.

2. Define responsibilities. To assign accountability and maintain time frames, name the parties responsible for developing, implementing, and reviewing compensation activities. The board of directors should appoint a compensation committee to perform the program’s initial review and analysis, and provide final recommendations to the full board. Management should review, analyze, and determine bank needs and the best approach available. The board approves all policies based upon management’s recommendations.

3. Gather information. Many sources of compensation information are available to banks, including state associations, government publications, chambers of commerce, colleges and universities, libraries, and financial service salary surveys.Using market salary data lets you objectively review internal salaries relative to the market. It also shows you how competitive your bank is locally.

• Sales Incentives. Community banks excel at providing products and services to customers. There’s always room for improvement. However, for example, providing sales incentives for opening new accounts will increase business and motivate staff to become more sales-focused. One common incentive is a monetary reward for each type of sale.

• Overall bank performance incentive program. The most common type of incentive program is to reward employees based upon annual bank performance. In designing this program, focus on the measurement system and reward levels. Use the Bank’s historical performance and budget projections to determine annual goals. The reward should provide payments to employees for results achieved and still motivate them for further improvements.

• Individual and/or departmental incentive programs.

Employ the same process as the overall incentive programs to set individual and/or departmental goals.

Once you determine expectations and define results, apply that system to any unit within the bank – for example, loans, operations, and/or branches. The major consideration in implementing departmental incentive programs is to ensure that goals are achievable and that the rewards are reasonable for the expected results.

No one compensation program will fit all organizations. Establishing a compensation process, however, will help implement a final product that will work effectively for both your organization and your employees.

4. Establish base salaries. Once salary information has been collected, establish salaries or salary ranges for all positions. Then develop procedures for reviewing employee performance and making salary adjustments.

5. Work within budgetary constraints. Budgets determine the resources available for staffing needs and salary adjustments. The salary program establishes a method to allocate the dollars available. You can accomplish this using guidelines, departmental allocations, or equal increases for all employees. The best approach is to establish salary increases based upon individual performance and the relationship of the individual salary to the salary data.

6. Consider incentive compensation. Banks should examine how incentive programs can better motivate employees to serve customers and to improve productivity.

June 2014 | 16

About The Author Jon A. Doukas is senior vice president at Professional Bank Services, Inc., Louisville, KY. Prior to joining the company in 1986, he served as personnel director for a statewide bank and later as the manager of staffing and training for a regional bank. He is a graduate of Boston College and the University of Southern Maine.

The author can be reached at (800) 523-4778.

Residential Appraisal Services Keep You in Compliance To assist you with the compliance and regulatory requirements, KBA has expanded our endorsement relationship with Southwest Financial Services, Ltd. (SFS) to provide residential appraisal management solutions. SFS residential appraisal management process is flexible and can be set up to meet the unique needs of your bank.

Over the past 25 years, Southwest Financial has developed a proprietary appraisal management system designed to guarantee accuracy and efficiency. They offer a full line of residential appraisal services with a comprehensive online management solution, allowing you to control all of your residential appraisal interests.

Benefits/Features you will enjoy include: • Approved Appraiser Panel – SFS understands and appreciates the value of your relationships with your approved appraisers; they will work to utilize your network exclusively.

• Access to network of Appraisers outside your market area – SFS has a national network of experienced appraisers ready to assist in any market outside your traditional market area.

• Enjoy controlled costs for appraisal services – To comply with Dodd-Frank, Southwest will work in partnership with you to determine reasonable and customary appraiser fees for your market and then apply a “cost-plus” pricing model.

• Each appraisal processed through Southwest will undergo a comprehensive review to ensure completeness and compliance: appraisal complies with USPAP; appraisal meets federal standards and requirements; and, appraisal meets lenders unique requirements.

• Quick and easy to use online ordering; convenient transparency – Place order, upload documents, view status, submit inquiries, and view appraisal images right at your desktop.

Please contact Selina Parrish at the KBA (502) 736-1282 sparrish@kybanks.com or Nina Bedel at Southwest Financial Services at (800) 733-3312 Ext. 136 nina.bedel@sfsltd.com to discuss how Southwest’s residential appraisal management services can keep you in compliance.

Training Tidbits Train your commercial lenders or credit analysts without leaving the bank with ABA created Evaluating and Structuring Commercial Loans: A decision tree approach with over 35 hours in training included in the courses:

•Understanding Business Borrowers

•Analyzing Business Financial Statements and Tax Returns

•Analyzing Personal Financial Statements and Tax Returns

•Qualitative Analysis and Determining a Credit Risk Rating

•Loan Structuring, Documentation, Pricing and Problem Loans

Questions: Call or email Chris Kelso 502-736-1300 or ckelso@kybanks.com June 2014 | 17

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Louisville Volunteers Help Teach Children to Save LOUISVILLE, Ky. — Volunteers from the Louisville Branch of the Federal Reserve Bank of St. Louis and from other local banks visited second-grade classrooms to teach personal finance topics as part of national Teach Children to Save Day, which was celebrated during the week of April 7-11, 2014.

In the Frankfort and Louisville areas, a total of 22 schools, 64 classrooms, and 1,521 students participated in this event.

Teach Children to Save Day is a national initiative that brings financial institutions and financial literacy organizations together to provide basic personal finance education to elementary school students. The volunteers taught a lesson based on Less Than Zero, a children’s book by Stuart J. Murphy about a penguin who learns how to save money.

The Louisville Branch would like to thank the following banks/organizations for participating in the event: BB&T, Citizens Union Bank, First Capital Bank of Kentucky, Forcht Bank, Kentucky Department of Financial Institutions, Republic Bank, and Stock Yards Bank and Trust.

The Branch staff would also like to thank the following volunteers for participating in the event: Abby Anthony, Tara Bopp, Pamela Britt, Bart Brown, James Brown, Amy Bryant, Sarah Butler, Ray Clark, Kim Coleman, Adam Davis, Wade Davis, Amber Dietz, Josh Donley, Jennifer Doom, Kara Endres, Marni Gibson, John Hanks, Doug Harper, Adrienne Hayes, June 2014 | 18

David Heintzman, Ja Hillebrand, Jennifer Holmes, Kimberly Hudson, Alan Kissel, Debra Manley, Jennifer Mattingly, Kelly May, Bryan Miller, Amber Nichols, John Nohalty, Kristeen Pate, Melissa Poole, Anna Pray, Richard Robben, Tina Streble, Alec Taylor, Eddie Weaver Jr., Andrew Weishaar, Rachel Woodlee, and Erin Zimmer.

Finally, the Branch staff would also like to thank the following schools: Atkinson Academy, Blake Elementary, Bowen Elementary, Brandeis Elementary, Breckinridge-Franklin Elementary, Bridgeport Elementary, Carter Traditional Elementary, Collins Lane Elementary, Coral Ridge Elementary, Farmer Elementary, Field Elementary, Greenwood Elementary, Indian Trail Elementary, Lincoln Elementary Performing Arts School, Peaks Mill Elementary, Sanders Elementary, Semple Elementary, Shelby Traditional Academy, St. Andrew Academy, St. Gabriel School, Westridge Elementary School, and Wilkerson Elementary School.

This program was coordinated by Erin Yetter, economic education specialist at the Louisville Branch, with help from Jennifer Doom, Kara Endres, Alan Kissel, and Alec Taylor. If you would like more information about the economic and personal finance education resources we have available for teachers, please call Erin Yetter at 502-568-9257.

Resolution of Appreciation for

Mr. William J. Butler WHEREAS, the Boards of Directors, Management, and Team Members of Community Financial Services, Inc. and Community Financial Services Bank, Inc. wish to express their deepest gratitude to our long-time friend, supporter, and director Mr. William J. Butler, upon this occasion, his retirement from our boards; and WHEREAS, Mr. William J. Butler is fondly remembered for his many contributions made to the banking industry from July 15, 2008 to March 11, 2014. While serving in the role of director at Community Financial Services, Inc. and Community Financial Services Bank, Inc., he gave tirelessly of his talents and energy to these corporations as well as various executive banking committees and causes; and WHEREAS, Mr. William J. Butler served on the Audit, Budget, and Investment Committees, serving as Chairman of the Budget and Audit Committees, bringing those committees to a new level of performance; and contributing his expertise to effectively leading the organization during his tenure.

WHEREAS, Mr. William J. Butler did, during his tenure, share in decisions which resulted in: the construction and occupancy of the Calloway County Banking Center, Murray, KY; and the construction and occupancy of the Benton Banking Center Corporate Headquarters; and WHEREAS, Mr. William J. Butler did contribute greatly to the oversight of the Community Financial Services, Inc. ESOP; under his direction this successful employee retirement plan saw the market value of the holding company stock increase from $1,239.00 per share to $1,930.00 per share; and WHEREAS, Mr. William J. Butler joined his fellow board members and the management staff of the Community Financial Services Bank, Inc. in embarking on numerous measures that increased the bank’s assets from $383,345,206 to $637,567,966; and with keen oversight and continued community involvement assisted our companies in securing over sixty-four percent of the customer base in Marshall County, Kentucky; and NOW, THEREFORE, BE IT RESOLVED that these boards and team members extend their heartfelt congratulations and thanks to Mr. William J. Butler who retired following the March 11th, 2014 meetings and was placed in director emeritus status. Both boards recognize the loyalty, pride and dedication exhibited by

Mr. William J. Butler with wishes that his Board retirement be most joyous and fulfilling.

BE IT FURTHER RESOLVED, that this RESOLUTION be recorded in the minutes of Community Financial Services, Inc. and those of Community Financial Services Bank, that copies are presented to and to the Kentucky Bankers Association for publication.

Mr. William J. Butler,

This RESOLUTION adopted by the Boards of Directors of Community Financial Services, Inc. and Community Financial Services Bank, Inc. on the 11th day of March, 2014.

_________________________

Carolyn E. “Betsy” Flynn CHAIR TO THE BOARDS

Attested to:

Darlene Miller, CORPORATE SECRETARY

June 2014 | 19

FCS credit risk on Verizon loan almost $500 million As the March FCW reported, CoBank’s $725 million loan to Verizon closed on February 21, which meant that this loan would be reflected in the FCS’s March 31, 2014, call reports.

I previously estimated that CoBank’s lending limit most likely falls in the range of $150-$175 million (CoBank will not disclose this number), which meant that CoBank had to sell most of its Verizon loan to other lenders. While CoBank has the sole authority within the FCS to lend to utility and other types of cooperatives as well as to businesses, such as Verizon, which compete against cooperatives, other FCS institutions can purchase participations in loans that only CoBank has the authority to originate. Given the FCS’s self-imposed $1 billion lending limit to any one borrower, other FCS institutions apparently did purchase a substantial portion of the Verizon loan that exceeded CoBank’s lending limit.

The quarterly call reports filed by FCS banks and associations provide a breakdown of loans by loan-type. One of those categories is called “Communication Loans,” which is where the Verizon loan should be reported. Since FCS communication lending at the end of 2013 totaled $4.15 billion (little changed from the end of 2012), the Verizon loan was quite evident at March 31, 2014, as total FCS communication lending increased $472 million, or 11.4%, during the first quarter of 2014. CoBank accounted for $165 million of that increase and other FCS institutions for the balance, or $307 million.

These numbers suggest that CoBank sold approximately $250 million of its Verizon loan outside the FCS. CoBank did not disclose whether it incurred a gain or suffered a loss in selling the major portion of its Verizon loan.

What is especially interesting, based on call-report data, are the FCS institutions which appear to have purchased a piece of the Verizon loan and which did not. Two other FCS banks were large purchasers of the Verizon loan. Farm Credit Bank of Texas’ communication loans increased $42.8 million during the first quarter of 2014 while AgFirst FCB’s communication loans rose by $25.4 million. AgriBank, the other FCS bank, actually had a $763,000 decrease in communications lending during the first quarter of 2014, which suggests that it did not buy any portion of the Verizon loan. Eleven of the largest associations increased their communications lending during the quarter in amounts ranging from $10.3 million to $21.7 million, for a total of $165 million. Two of the largest associations – American AgCredit and Farm Credit East – actually experienced slight declines in communications lending, which suggests that they did not buy any portion of the Verizon loan.

The cardinal rule in buying loan participations is that the purchaser is supposed to make its own independent evaluation of the loan’s credit risk and is not supposed to rely upon the seller’s representations about the loan’s creditworthiness or a seller’s assertion that it will buy back the loan should it get into trouble. That independent credit evaluation is especially important in this situation since Verizon is barely an investment-grade credit and was downgraded by the three major rating agencies last September, when Verizon announced the Vodafone transaction that led to this loan. One can reaJune 2014 | 20

sonably question, for example, how well the credit analysts at Farm Credit Bank of Texas understood what is perhaps its largest individual loan to an entity other than an FCS association or how well the Alabama ACA, which had no communication loans outstanding at the end of 2013, understood what appears to have been a $726,000 piece of the Verizon loan that it purchased. CoBank should never have made the Verizon loan to begin with, much less shifted a substantial portion of this credit risk to FCS institutions who do not understand it. Spreading a large corporate loan across lenders unable to properly assess its credit risk does not enhance risk management within the FCS. AgFirst greased the 2011 merger of three associations On January 1, 2011, two Florida FCS associations – Farm Credit of North Florida and Farm Credit of Southwest Florida – merged into Farm Credit of South Florida (South Florida). This merger was driven by net operating losses the first two associations experienced in 2010, totaling $21.5 million, which reflected widespread declines in Florida real estate values.

South Florida was in better shape, with net earnings of $8.5 million in 2010; however, those earnings were half of what they had been in 2007 due to a substantial increase in South Florida’s loan-loss provision. According to South Florida’s 2010 annual report, “to facilitate the merger, the [three] associations entered into an agreement with AgFirst Farm Credit Bank . . . that limits future losses, which could jeopardize the viability of Farm Credit of Florida,” South Florida’s new name.

While there have been other instances of weak FCS associations being merged into stronger associations, this is the first situation I am aware of where an FCS bank assisted the acquisition of a weak association by a stronger one. Interestingly, this assistance did not involve the Farm Credit System Insurance Corporation, which last year obtained a $10 billion line of credit at the U.S. Treasury, as I reported in the March FCW. According to the FCS’s first-quarter 2014 Information Statement, $9.8 million of AgFirst assistance was still available to Farm Credit of Florida to limit future losses from its acquisition of the two troubled associations.

FCS merger activity accelerating?

As the FCW has reported, the FCA held two secret symposia earlier this year to plot the future of the FCS, a future which entails substantial consolidation within the FCS beyond that which has been occurring for years. That accelerated pace of mergers may already have begun. Ten years ago, at the beginning of 2004, there were 97 direct-lending FCS associations – 85 Agricultural Credit Associations (ACA) and 12 Federal Land Credit Associations (FLCA). ACAs do both real estate and non-real estate lending while the FLCAs do only real estate lending. Over the last decade most of the FLCAs converted to or merged into ACAs as the total number of ACAs and FLCAs declined to 82 by the end of 2013. However, four separate sets of mergers effective on January 1 of this year reduced the association count to 78, including just two FLCAs. I anticipate more mergers this year.

FCS’s humiliation of the FCA is now complete As the February FCW reported, Congress included a provision in the 2014 Farm Bill that barred the Farm Credit Administration (FCA) from implementing a regulation the FCA had initiated last year that would have given owner/borrowers in FCS associations an advisory, non-binding vote in certain circumstances on the compensation of the senior management of

their association – a so-called “say on pay” rule. The senior management of FCS institutions lobbied long and hard to get this prohibition of say-on-pay votes into the Farm Bill, and they won, as evidenced by an interim final rule the FCA issued on March 21 killing the say-on-pay rule once and for all. If ever there was an instance where the FCS clearly trumped its regulator, this is it.

Banish the Separative Approach to Risk Management

by Keith Monson The recent financial crisis is slowly fading from our memories, yet its lasting effects continue on. One area that’s garnering increasing attention from regulators and examiners is risk management.

Regulators are of the general opinion that if bankers aren’t collectively considering all their risks, then they are not really managing risk, which could foster the type of poor decision-making that led to the financial crisis in the first place.

Rather, a bank’s risk areas should be viewed as interactive parts of a solid whole, each affecting the other. This approach, called Enterprise Risk Management (ERM), helps both management and the board of directors gain a complete picture of all risk areas and how they work together to ultimately affect a bank’s overall performance.

The Office of the Comptroller of the Currency (OCC) has defined eight risk areas that should remain a top priority for all banks– credit, interest rate, liquidity, price, operational, compliance, reputation and strategic. An essential factor with ERM is the ability to set key risk indicators (KRIs)—a set of markers that help proactively identify changes in the probability of risk incidents— that take subjectivity out of the risk rating. In other words, management will no longer rely on educated opinion alone to make decisions.

Overcome the Obstacles to Establishing ERM Financial institutions must ensure they are implementing an ERM program that is tailored to their size and complexity. Start with a strong business plan for the coming three years and apply all the specific risk measurements, then branch out from there.

The obstacle we’re basically facing is a change of culture for banks and bankers—because nobody really likes change. What bank management must do is challenge their thought process and take a proactive approach to a culture change.

Banks that welcome this change will find that it will enhance their relationship with regulators and possibly improve their exam cycle. And while there’s no guarantee that an exam will be easier, if the bank’s compliance rating is outstanding, its exam cycle likely could occur only every three years, rather than annually.

Remember, regulators are looking for this approach, so anything banks can do to be proactive is good.

Evaluate Your ERM Needs Start by taking a look at your most recent exam results and iden-

tify areas that concerned the examiners. Then determine what steps will take you out of a reactive mode and into a proactive mode for managing risk.

Further, review your internal and external audits. The hope is that your auditors will catch issues, report them to the board, and get them corrected before the examiners come in. Also, make sure you have no repeat findings—those risks identified over more than one exam or audit cycle—or address them immediately if found.

Execute Your ERM Plan Once you’ve taken a hard look at your audit and exam findings, it’s time to address the policies and procedures and guidelines that have already been approved by the board—what we refer to as residual risk. To execute an ERM program, first identify your KRIs within the OCC’s top eight categories and start tracking them. For this, financial institutions can develop—or work with a trusted third party to customize—a database or library of KRIs. Then take a look at the policies and procedures to ensure you’re mitigating any risks that were identified. Think of it this way: these policies and procedures represent the existing ERM process at your bank.

Effective ERM third-party software can identify risks earlier by automatically applying KRIs to bank data and alerting management when risks are elevated. The most advanced software solutions also create the ability to efficiently collect, store, analyze, score and report on risk data, direction, and activities. This allows bank management to focus more on their day-to-day functions: taking care of customers’ needs.

The time is now for banks to abandon the separative approach to risk management. Use ERM to gain holistic transparency, visibility, and data aggregation— and provide your institution with a clear view of historic, current and future risk.

About the Author: Keith Monson is vice president of application compliance for Computer Services, Inc. (CSI). In this role, Keith maintains focus on CSI’s compliance initiatives to establish and build out an enterprisewide compliance framework for risk assessment and reporting, issue management and other key components of CSI’s corporate compliance program. He also works closely with CSI’s Board of Directors Audit Committee as well as other compliance teams across the organization to promote a culture of engagement and connectivity while implementing and advising on practices and related standards.

June 2014 | 21

Louisville, KY- H. David Hale, Chairman, President & CEO of First Capital Bank of Kentucky, “A Kentucky Bank with Local Roots” announced that the bank’s eighth full-service branch opened in mid-March 2014, at 9819 Brownsboro Road (at Chamberlain Lane). The addition of this location gives First Capital Bank another local community in which to provide excellent service and convenience for its customers. The “Official” Grand Opening Celebration was March 24-28, 2014, with a ribbon cutting with local dignitaries, business leaders, customers, and the public on Wednesday, March 26, 2014.

Refreshments were served and festivities began at 10:00 A.M. and continued until 1:00 P.M. There were drawings for gift baskets, and prizes of various types throughout the event. Guests registed to win the grand prize offering: Four (4) tickets to the 2014 Kentucky Derby!

Kelly Newcom, Branch Manager, Kirk Esarey, Banking Officer, and the entire staff welcomed customers and visitors. Banking hours for all branches are Monday thru Thursday, 8:00 A.M. – 5:30 P.M., Friday 8:00 A.M. – 6:00 P.M., and Saturday 9:00 A.M. – 12:00 Noon.

First Capital Bank of Kentucky is a full-service community bank that has served Louisville-area consumers and businesses since February 1996. Its home office is located at 293 N. Hubbards Lane in St. Matthews, and there are five other convenient branch locations: 6512 Bardstown Road in Fern Creek, 2735 Bardstown Road in the HighJune 2014 | 22

lands, 2862 Frankfort Avenue in Crescent Hill, 13704 Shelbyville Road in Middletown, and 9306 Taylorsville Road in Jeffersontown, plus a limited hours full-service branch in Treyton Oak Towers.

Founded in February 1996, First Capital Bank of Kentucky is locally owned with approximately $470 million in assets. It offers a full range of products and services for retail and commercial customers.

Members of the Board of Directors other than Mr. Hale are: Ronald G.

Geary, John S. Greenebaum, Daniel H. Jones, Brian G. Karst, Fairleigh Lussky, and Bosworth M. Todd, Jr. Congratulations First Capital Bank of Kentucky!

As Technology Propels the World Forward, Webinar Training Keeps You in the Know Why Webinars Make Sense for your Business More than any time in history, the business world is changing. We live in a world where yesterday’s supercomputers are today’s smartphones, where complex filing systems fill networks instead of warehouses, where encyclopedic knowledge is a few keystrokes away.

It’s a brave new business world, where the need to maximize both budget and efficiency is at an all-time high. Today’s world demands that we do more with less, especially in keeping employees not only up-to-date, but ahead of changing regulations and technologies.

It’s a business world where, more than ever, webinar training just makes sense.

What is a webinar?

A webinar is an online, virtual training session. Attendees view presentations on their computer or tablet device and listen to audio via computer speakers or their tablet, smartphone, or telephone. The interactive capabilities allow for communication between the presenter and the audience for questions, polling surveys, etc.

What are the benefits for your financial institution, training department, and staff?

Webinars are cost effective and create economies of scale.

The cost of attending a webinar is much lower than in-person training. Your staff can view the webinar together from one location for the cost of one registration fee, eliminating travel costs that can include gas, meals, hotel expenses, and overtime. This can result in a very low per-person viewing cost, with the option to revisit the material in an on-demand form.

Webinars increase productivity and convenience.

When you choose webinar training, your computer or mobile device is the conference room. Participants can view the meeting from their desk without the travel or downtime that comes with attending a live meeting.

Webinars are typically 60 to 90 minutes, scheduled during normal work hours, making them the perfect fit for tight schedules. The webinars take place in a comfortable, relaxed environment, with the materials needed close at hand. The convenience of webinar training also reduces the need for evening or early-morning training sessions that take staff away from home and family.

Webinars hold long-term value.

Many webinars allow access to the program for a specific period of time after it has been presented. This allows your staff to review the information and access the handouts and tools as often as necessary.

Webinars lower administrative planning, scheduling, and cost.

Registering for and communicating a scheduled webinar to your staff can cost 75% less than organizing and presenting a face-to-face meeting. When you weigh the benefits versus the costs, webinars are ideal for leveraging your time and resources to keep staff at the leading edge of today’s business world.

The Kentucky Bankers Association through its group offers a large variety of webinars for you to choose from. Visit www.kybanks.com and click on EDUCATION SOLUTIONS to review your training opportunities. Questions – email kbaeducationsolutions@kybanks.com .

June 2014 | 24

UPCOMING EDUCATION EVENTS & SEMINARS Branch Management Workshop Series June 17 Louisville GENERAL BANKING SCHOOL June 1-6 Louisville HR Seminar June 5 Louisville Regulators Forum June 19 Bowling Green June 20 Lexington

Certified Teller Seminar July – August 11 Various Locations Internal Audit Seminar August 12 & 13 Bowling Green August 14 & 15 Lexington COMMERCIAL LENDING SCHOOL September 15-19 Louisville Asset Liability Management Seminar October 8 Louisville

Cash Flow Seminar November 12 Bowling Green November 13 Lexington Safe Deposit Seminar December 3 Bowling Green December 4 Lexington

FDIC Community Bankers College October 21 Bowling Green October 22 Lexington

Bank Security Seminar June 26 Louisville

When it comes to the banking industry, KraftCPAs has the bases covered.

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www.kraftcpas.com/Banking.htm • Serving the banking industry since 1958 June 2014 | 25

ON THE MOVE

Central Bank Chairman, President and CEO, Luther Deaton, Jr., has announced that Jordan Owens has been promoted to Assistant Vice President, Commercial Mortgage Lending. Jordan’s career at Central Bank began in 2006. He has been a Financial Planning Officer, and more recently, a Commercial Lending Officer. Originally from Maysville, Jordan is a graduate of Georgetown College and the Graduate School of Banking in Madison, Wisconsin. He now lives in Lexington with his wife Julie and their two children

Troy Fedders has joined Central Bank as Vice President, Retail Officer. Troy brings ten years of banking experience to his new role. He will manage the Ft. Mitchell Central Bank location. Originally from Edgewood, Troy is a graduate of Covington Catholic High School and Northern Kentucky University. He has also taken courses with the American Institute of Banking. Mr. Fedders and his wife Amy have three children.

Home Federal Bank President/CEO, Alex Cook has announced the promotion of Diana Miracle to Senior Vice President/Chief Accounting Officer. Diana has been with Home Federal for nine years and most recently served as the bank’s Controller with responsibilities for the finance and human resource departments.

Farmers National Bank of Lebanon is pleased to announce the promotion of Cindy Kelty to Branch Manager of the Main Office and Head Teller.

Congratulations Cindy!

Home Federal Bank President/CEO, Alex Cook has announced the promotion of Adam Frederick to Vice President/Technology Manager.

Prior to the promotion Adam most recently served as the bank’s Senior Network Engineer. Adam has been with Home Federal since 2002.

John Finley has joined Central Bank as Senior Vice President, Private Banking. John has joined Larry Luebbers to create the Northern Kentucky Private Banking Group, John brings over 40 years of banking experience to his new role. He began his career at Barnitz Bank in Ohio. John attended Miami University in Oxford, Ohio, where he received a B.S. in Finance and Economics. He has also taken AIB courses.

Home Federal Bank President/ CEO, Alex Cook has announced the appointment of Chris Foley as the bank’s Bank Secrecy Act Officer and HMDA Analyst. Chris joined the Home Federal Bank team in 2008.

Prior to the appointment, he served as the bank’s BSA Analyst and Hiring Coordinator.

Karen Hartig has joined Central Bank as Vice President, Private Banking. Karen brings nearly thirty years of banking experience to her position. She began her career at Eglin Federal Credit Union in Florida, where she served as a Retail Loan Processor. Karen attended Northern Kentucky University and AIB. She is also a member of the Northern Kentucky and Greater Cincinnati Chamber of Commerce.

Our industry works hard to serve the communities, we want to recognize bankers who excel in their positions.

There are plenty of ways to be “On The Move” in your Kentucky bank. A recent promotion, a new employee, even a new grandbaby! Let us share your good news with our readers.

Send On The Move announcements to: Lane Hettich, lhettich@kybanks.com.

June 2014 | 26

ON THE MOVE Congratulations to the The Principles of Banking Class participants.

The class was held at South Central Bank Glasgow for 10 weeks from September to December 2013. The bankers who attended the class were from the South Central Bank locations of Bowling Green, Glasgow and the Holding Co. Front Row (left to right): Danielle Lawless, Instructor, Sanja Rakanovic, Cierra Templin, PJ Jones, Courtney Marshall, Alicia Bell, Robin Owen, Rachel Wimpee, Chris Kelso Manager AIB Education Solutions. Back Row (left to right): Jane Slinker, Duncan Cotton, Jordan Haile, Eric Hanley.

Not pictured David Harrison, Dora Sweatt, Sabrina Farris, Andrea Childress, Timothy Wiley, Haley Frazier, Crystal Oswald, and Charlie Orr. Photo above: Congratulations to Amy Manning of Central Bank. Amy was awarded the KBA Scholarship to the Human Resources Management School at the University of Wisconsin-Madison School of Banking. Amy is pictured with AIB Managing Director Chris Kelso.

Anthem Blue Cross and Blue Shield.

We believe healthy employees make for a healthy business.

Research shows that companies with wellness programs have less sick leave, lower direct health care costs and fewer worker’s compensation claims.* That’s why Anthem Blue Cross and Blue Shield offers a variety of health and wellness programs. They all work together to help your employees manage and improve their health.

Learn more about what Anthem Blue Cross and Blue Shield has to offer at anthem.com/connects2.

* The Economic and Health Impacts of Obesity, Institute on the Costs and Health Effects of Obesity, National Business Group on Health, February 2009.

Anthem Blue Cross and Blue Shield is the trade name of Anthem Health Plans of Kentucky, Inc. Independent licensee of the Blue Cross and Blue Shield Association. ®ANTHEM is a registered trademark of Anthem Insurance Companies, Inc. The Blue Cross and Blue Shield names and symbols are registered marks of the Blue Cross and Blue Shield Association.

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June 2014 | 27

10th Annual Golf Extravaganza at The Club at Olde Stone Monday, August 11th, 2014

To register your golf team, contact Yvonne Savage at ysavage@kybanks.com To inquire about sponsorships, contact Angie White at awhite@kybanks.com

June 2014 | 28