Page 1

KENTUCKY BANKER MAGAZINE February 2014


Responsive. Innovative. Flexible.

There’s good reason why our services directly support the on-going success of the banking communities we serve... The community bank landscape is more complex than ever before. This complexity intensifies our on-going commitment to bringing relevant, logical and streamlined solutions to keep you competitive. Our first, and most important, step is simple.

We listen.

Then we research. We respond. We innovate. And, we customize a program for our customers. Our correspondent banking services are designed for you, for this marketplace, and for your profitability.

Correspondent Banking Services Cash Management Settlement BBKY Mortgage Loan Participations Investment Services

Asset Liability Management ACH Origination Shareholder Discount Program QNET Online

Federal Fund Lines of Credit Holding Company Loans Credit Card & Gift Cards International Wire Transfer Foreign Check Collection

For more information on any of our services please contact a member of the Correspondent Banking Team at 800-248-3229. John Clark, jclark@bbky.com Lynn Ellis, lellis@bbky.com Ralph Ising, rising@bbky.com Scott Jones, sjones@bbky.com Van Davidson, vdavidson@bbky.com

800.248.3229 | 502.695.3000 | www.bbky.com BBKY-7273 KBA Advertisement 2014-final.indd 1

1/30/14 4:36 PM


EXECUTIVE

CONTENTS KBA STAFF

Ballard W. Cassady Jr. - bcassady@kybanks.com President & CEO Debra K. Stamper - dstamper@kybanks.com EVP / General Counsel / Director of Compliance Paula B. Cravens Sturgeon - pcravens@kybanks.com Director of Education Solutions Selina O. Parrish - sparrish@kybanks.com Director of Vendor Solutions Matthew E. Vance - mvance@kybanks.com Chief Financial Officer

STAFF

Miriam Cole - mcole@kybanks.com Executive Assistant Paula Cross - pcross@kybanks.com Education Services Coordinator Jamie Hampton - jhampton@kybanks.com Education Services Coordinator Natalie Kaelin - nkaelin@kybanks.com Assistant General Counsel Chris Kelso - ckelso@kybanks.com Manager of AIB Education Solutions Michelle Madison - mmadison@kybanks.com IT Manager Lanie Minton - lminton@kybanks.com Administrative Assistant Tammy Nichols - tnichols@kybanks.com Convention & Membership Services Coordinator Katie Rajchel - krajchel@kybanks.com Staff Accountant Yvonne Savage - ysavage@kybanks.com PAC Services Coordinator Angie White - awhite@kybanks.com Director of Communications / Marketing Steve Whitlow - swhitlow@kybanks.com Systems Engineer Consultants John P. Cooper - jcooper@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 KBA Benefit Solutions Lisa Mattingly - lmattingly@kybanks.com Director of Sales & Service Lane Hettich - lhettich@kybanks.com Service Manager Donna McCartin - dmccartin@kybanks.com Account Representative HOPE of Kentucky Billie Wade - bwade@kybanks.com Executive Director

Cover

Photo taken by Alecia Marcum “Summertime Memories” for the Scenes of Kentucky Photo Contest

COLUMNS Chairman’s Corner..........................5 Straight Talk..................................6

DEPARTMENTS Products and Services...................15 Making News................................24 Education.....................................21

FEATURES Emerging Leader Spotlight.............11 Executive Survival Guide................14 Gray Resolution.............................17 System Evaluation and Selection....14 Wilson Resolution..........................22 Bondurant Resolution....................25 First Data Announcement ..............27

February 2014 | 3


CHAIRMAN’S CORNER

Neil Bryan KBA Chairman

Technology has changed the face of America over the last fifty years. Nowhere has that been more evident than in community banking. We had ink wells and eyeshades in 1964. Computers filled whole buildings. Full keyboard adding machines were cutting edge. When you added $800,000 in deposits you had to hire another person to handle the extra paper work. Fast forward to 2014. Computers can be held in your hand. Calculators are throw away items. Checks are cleared electronically as images. Deposits can be made remotely in a variety of ways. Debit and credit cards, together with online transactions, are rapidly becoming the preferred mode of payment. The increase in assets necessary to trigger the hiring of another employee now measures in millions, not thousands of dollars. The rapid pace of change has brought about new challenges for our banks. We are asked to perform a whole series of risk assessments to isolate and quantify areas that potentially can harm the bank financially or undermine our reputation. ACH, privacy, information security, disaster recovery, and business resumption are but a few of the areas where risk is assigned with plans developed to help mitigate the risk. Over time technology has evolved. In many respects the creation of risk management is a recognition of this evolution. As electronic transactions eclipse paper checks I am left to wonder why the law has not been amended to place more responsibility at the point of sale. One well publicized breach of security has been the recent Target debacle where up to 110 million customers have been compromised. It is likely many other retailers have had similar, but unreported, data security issues. The problem for banks arises from the fact that, under the law, we are responsible to make good the losses that stem from these unfortunate events.

The media is full of articles telling customers how to protect themselves if their information has been compromised. This is a very good thing. A vigilant public is highly desirable. However, the "remedy" for these innocent customers who have suffered real or potential harm falls primarily on banks. We reissue cards, screen for fraud, and pay for the losses of our customers that are not filtered out by our systems. These are generally unreimbursed expenses. It doesn't help our reputation much either. After all, since we have to pay the loss, it follows in the mind of the consumer that we did something wrong that made us liable. President Harry Truman famously remarked that the "buck stops here". The fraud "buck" should stop with the entity that allowed the fraud to occur. We cannot do an assessment, nor can we effectively mitigate the risk, for every participant in the payments process. The solution to more effective data security is both systemic and user specific. Newer technology makes data contained on our cards more secure if we use encryption and embedded chips. Those are systemic issues. Companies that have vulnerabilities that hackers can exploit are examples of user specific problems. Both areas need to be effectively addressed. I do not have all the answers. I do have one solution that I think is of paramount importance. We need to amend the law to have liability attach to the person or company where the breach occurs. If liability attaches at that point, those entities will have skin in the game. This will help insure they do everything in their collective power to strengthen their security. It will also help insulate community banks from losses they did not cause and are powerless to prevent. I think that makes sense. I hope you will make sure your Senators and Representatives in Washington understand this basic truth. This is a change that common sense dictates should be made quickly!!

Neil Bryan February 2014 | 5


STRAIGHT TALK This comparison continues in my mind at each meeting I attend where a regulator gets to speak about the state of banking. I never know whether to laugh, cry, or take offense. These regulators actually sound as if they believe that the economy and the banking industry are improving because of their efforts, rather than because of the actions of the real soldiers in the field. Theses regulators can’t see, or won’t acknowledge, that we are succeeding IN SPITE OF THEM, not because of them. Every day is a battle for the reputation and success of the banking industry. Every day we go to battle. And every day the regulators, through their examining teams, are creating the equivalent of a muddy battle field making it even harder for us to do our job. If your interests include the history of warfare, you’ve probably read enough – or watched enough History Channel – to have a sense of some basic rules that operated even in the ‘barbaric’ ancient world and long before the Geneva Conventions. One of the most consistently observed conventions of war was that you didn’t shoot the wounded.

In the war-like atmosphere of post-2008 banking regulation, I only wish we were still barbaric enough to observe such a convention. Instead, banking regulators not only shoot our wounded but they send in the newest of their recruits to do the job. In the agonizing conversations that I’m having with community banks in their crosshairs, I’m realizing how that somehow adds painful insult to the injury.

History has also given us a sense of what is honorable and fair on the field of conflict. That sense is deeply offended when our regulatory agencies hide in the rear while banks are being attacked on all fronts. We feel undermined in more than our safety and soundness when we suspect those regulators of privately deciding, “We’ll hang back and if things go badly we’ll blame it on the troops (bankers); and if they somehow prevail, we’ll join the survivors in taking credit for the victory.”

Here is just one example of what I mean. Just last week a banker called and told me of an examiner suggesting (we all know how that goes) that the bank consolidate several loans outstanding to one of their prime borrowers. This customer had never been late with a payment and never missed a payment—he was a great customer in all respects. The customer agreed to the consolidation and was ultimately very happy with the change because it resulted in a lower overall interest rate to the customer, since some of the consolidated loans had been on the books for a while and interest rates have dropped. So, even though there was nothing in the credit file that prompted the consolidation, the banker took the examiner’s “recommendation” and consolidated the loans.

Imagine that banker’s surprise when the examiner returned and identified the consolidated loan as a TDR and insisted that it be deemed impaired. Now, based upon regulatory guidance and standards, an argument could be made that the consolidation is an impaired loan because it ended up with a lower rate (today’s market rate by the way), but the examiner is missing the fact that there was no credit file reason to warrant the consolidation—it was made only after the examiner suggested that the banker consolidate. After months of arguments and attempted reasoning, not to mention the time and money spent by the bank on its defense, the OCC saw the error of their way and took the loan off impaired status.

Let me know what you think: bcassady@kybanks.com February 2014 | 6


That is just one example, but there are many more. Take, for instance, the recent case of the JP Morgan Chase Multi-million dollar fine for the pre-2008 actions of Bear-Sterns, the brokerage firm that Chase purchased only after the US Government begged them to buy it during the 2008 crisis.

Now, I don’t know about you, but if the Government ever came back and asked for my help in future battles, I think I would have to pass. It just isn’t worth the inherent risks. While on the topic, has anyone heard about any actions against the past Congressman John Corzine whose company blatantly stole hundreds of millions from their customer? No? I guess the good ole boy network still holds water in Washington! Maybe the regulators should go over and kill that wounded duck. But I digress.

customers. No soldier goes into battle to lose and the same holds for bankers. We don’t go in everyday hoping to lose money, or to make bad loans, or to ruin our reputations through bad business decisions, or to destroy our communities. Yet, there is an entire industry of regulators that seem to be doing that daily. Any reasonable person has to look at the regulatory scheme in banking with total dismay. You have to eventually wonder if regulators and examiners are trying to figure out how they can make things worse for banking in general, and community banking in specific, which in turn keeps the economy from starting back up and dampens economic growth in these rural communities.

But what do I know? I’m just an ole redneck trying to put food on the table and a roof over my family’s head.

The real soldiers (the banks) are fighting every day, working hard to help their communities and their

The KBA One on One Campaign was a huge success. As you recall, the One on One Campaign ran through 2013 and was designed as a way to remind us all to share positive stories about ways that our members give back to their communities. A $100 contribution was made by the KBA, on behalf of the member, for every One on One nomination received. The KBA Board had committed to a $25,000 One on One Campaign during 2013. In 2013, $22,300 was spent.

of choice selected by the bank with the largest number of One on One nominations in 2013, Citizens Union Bank with 14 nominations. Look for an upcoming, comprehensive feature story about the One on One Campaign and your submissions. We know that you ALL go One on One with your community—now we have the proof.

Therefore, the Campaign ended with a $2,700 surplus. We will donate that amount to the charity

February 2014 | 7


Monticello Banking Company Helps Keep Seniors Safe Thanks to Monticello Banking Company, residents of the Bowling Green Nursing and Rehab Center, Bowling Green, KY will live in a safer and even more secure environment. Monticello Banking Company partnered once again with the Senior Housing Crime Prevention Foundation, Inc. (SHCPF), and is helping to protect those seniors by funding the Senior Crimestoppers program for seniors residing in this care facility. Monticello Banking Company joined the SHCPF in their efforts in 2008. The Senior Housing Crime Prevention Foundation is a national organization that serves as a conduit for banks to use to fulfill their federally mandated Community Reinvestment Act (CRA) requirements through providing aid to low and moderate income individuals in their local community. The Foundation’s mission is to provide safe and secure living environments for our nation’s senior nursing home residents, many of whom are low and moderate income individuals, through the operation of the nationally-acclaimed Senior Crimestoppers program. Crime against the elderly in our society is a longstanding, constant battle that can be reduced and prevented through the operation of the Senior Crimestoppers program in nursing homes and assisted living facilities. Senior Crimestoppers is a coordinated set of components that work together to create a zero tolerance to crime platform in senior housing facilities. Components include personal lockboxes for the residents, cash rewards up to $1,000 paid anonymously for information about wrongdoing of any kind, and effective, on-going education and training for staff members and residents. Senior Crimestoppers has reduced all aspects of crime in participating facilities by 92%. “Senior Crimestoppers is a way for an administrator to further enhance the lives of the residents they serve. They all work very hard to provide safe, secure, comfortable living environments and their desire to implement the program is just one more example of this. Implementing this program does not mean that the facility currently has a crime problem, but that the administrator is proactively finding a way to keep problems from occurring in the future,” said Terry Rooker, President of Senior Crimestoppers. Kenny Ramsey, President and CEO of Monticello Bankshares, Inc. said, “We are very pleased to be partnering once again with SHCPF. We are committed to serving our elderly population in any way that is February 2014 | 8

available, so this partnership is very important to us. In establishing our Trust Department at Monticello Banking Company, we’ve carefully planned to create and offer trust services and estate planning that will meet the needs of the more vulnerable members of our society, our senior citizens. We desire and strive to be the premier financial institution in the communities we serve. We are honored to be a part of the Senior Housing Crime Prevention Foundation. Our Compliance Officer, Pattie Corder is an active member on the Community Reinvestment Act (CRA) advisory committee with the Foundation as well.” The Monticello Banking Company is a state-chartered commercial bank that has been in business since 1895. The bank’s main office in Monticello, Kentucky remains in the original downtown location and has operated under the same name for over 100 years. The Monticello Banking Company currently has twelve offices located in seven counties throughout Southern Kentucky. For more information about Senior Crimestoppers contact Terry Rooker at 800-529-9096 or visit us on the web at www.seniorcrimestoppers.org.


2014 Fundraising On the Move! Get Involved!

• Professional Membership • Payroll Deduction • KBA Annual Events • 13th Board Meeting • Charitable Match • Bank Sponsorship

February 2014 | 9


COMMUNICATION

SOLUTIONS

There is still time to secure your annual sponsorship package with the KBA! With so many options, you can choose what you want to make it work for YOU!

BUILD IT YOUR WAY

2014 Build It Your Way Sponsorship Program

with the 2014 KBA Annual Sponsorship program Conact: Angie White at 502-736-1284 or email her at awhite@kybanks.com to get your way started!

February 2014 | 10

The possibilities are endless when you Build It YourWay


Emerging Leader Spotlight I would like to say thank you to the KBA for establishing the Emerging Leaders program and to David Long, our President/CEO, for his support throughout my career. The leadership program allowed a group of bankers from various positions throughout our state to come together and build lasting relationships. The Washington DC trip was such an informative and tremendous opportunity for our group to hear important discussions concerning the banking industry. I have truly looked forward to each of our monthly sessions. Regardless of whether we traveled to DC, The Greenbrier, or met at the KBA Office, the meetings were always informative and enjoyable. I am honored to be a part of this program and look forward to working with the KBA and future emerging leaders. Nicole Sullivan Branch Administration Officer, First Kentucky Bank What an experience it has been to be a member of the Emerging Leader program. This program has allowed me to travel with our current banking leaders, amd build banking relationships with other bankers across the state. These relationships made will benefit participants and our banking community for years to come. I wish the best of luck to the new members and the Emerging Leader program. What an honor it has been to be a member of this inaugural class and the KBA. Shawn Woolum Vice President, First State Financial The Kentucky Bankers Association’s Emerging Leaders program allowed us young bankers to have a common place to discuss ideas, trends, and many different facets of the financial sector. We have all became great friends throughout the process, and this truly is a group of bankers that I will have to call on and bounce ideas off of, throughout the rest of my career. The relationships built through this program are truly invaluable, as we believe that one day we too will become executives in the financial industry. We Emerging Leaders have learned so much throughout the last year with regard to being community bankers...from lobbying legislature, to discussing ideas about banking with seasoned veterans in the industry. The accessibility that the KBA, and all the bank executives, gave us was absolutely imperative to the success of the program because it allowed us to have access to the most brilliant minds in our field. It is said that “The farther you can look into the past, the farther you will see into the future.” I feel that the pairing of Emerging Leaders with Bank Executives helped us feel more comfortable, and gave us a wonderful resource for questions, comments, and of course knowledge about where banking has been and where it is going. Justin Dixon Business Development Officer, Citizens Guaranty Bank

Coming Soon! The Class of 2014. The Emerging Leader class of 2014 will hold their first meeting in March and attend the Spring Conference in April. We urge you to connect with these leaders and meet with these promising bankers. Watch for a full feature story in the next issue of the Kentucky Banker Magazine.

February 2014 | 11


Today’s Evolving Cyber Crime By Craig M. Collins, OneBeacon Professional Insurance

In our digital society, banking is more accessible than it’s ever been. Bank customers can automate monthly bill pay, deposit checks with cell phone cameras, transfer funds through text messages, and tweet about the entire process directly from a bank app. Banks can serve millions of customers without a single branch office. Banking has become so easy, customers don’t even have to think about it. Unfortunately, criminals are thinking about it. With more money increasingly changing hands through the internet, theft through these digital channels is on the rise. One of the more frequent scams today is known as Corporate Account Takeover. According to the Texas Bankers Electronic Crimes Task Force1, Corporate Account Takeover happens when thieves manage to gain access to a business’ banking information through “legitimate” channels by stealing user credentials and passwords. The thieves then initiate transfers to other accounts, often held by money mules, who then withdraw the funds or transfer them on to other criminals. Small to medium size businesses are particularly at risk because they carry much larger account balances than individuals and generally have lower-level security in place than large corporations. Compromising the users’ banking credentials is far easier than trying to hack directly into a bank’s secure system. Some of the more popular methods the FBI has seen employed by thieves include: • Sending infected emails containing a Trojan horse virus called Zeus that records keystrokes for passwords and account information • Planting pop-up advertisements on legitimate websites that install viruses once the user clicks • Redirecting a user away from a banking website and asking them to verify key account information which criminals can then use to take over the account Corporate Account Takeover can happen in all types of business accounts, including churches, hospitals and government entities. Banking customers often assume their bank will reimburse them for any funds missing from their account, but, for instance, if the account was accessed using the customer’s verified legitimate credentials, is the bank responsible for these missing funds? Depending on the circumstances, liability for these types of thefts can be heavily litigated. The Internet Crime Complaint Center (IC3) published a Fraud Advisory on Corporate Account Takeover2. The IC3’s Advisory suggests banks take a three-part approach to trying to prevent this type of fraud: Protect, Detect and Respond.

Protect IC3 encourages banks to “implement processes and controls to protect the financial institution and corporate customers.” These controls can include elements such as verifying bank protocols for transfers, educating bank employees on the threat of fraudulent transfers and encouraging them to follow bank procedures to the letter. For example, if a customer call-back is a part of the confirmation process for a transfer, it may be advisable to call the customer as opposed to answering a call from the supposed customer. Many criminals will immediately call the bank to verify the transfer in order to prevent the bank from making the call to the true account owner. Additionally, bank employees should not conduct bank business from their personal computer at home, or send bank information through personal email accounts. Banks may also want to consider providing tips to the customers themselves, or establish requirements for certain customers. For instance, it’s not unusual for a bank to require corporate customers to carry their own crime insurance to have protection in place in the event of certain types of losses. Banks might also consider requiring a certificate of insurance from business customers that demonstrates the proper insurance is in place, much like what is already required for closing on a loan.

February 2014 | 12


Email accounts for small businesses are notoriously easy to break into, giving criminals access to all the details and procedures normally used with email transfers. As a result, banks may consider recommending to customers that they designate an individual computer that is used only for account transfers. The use of a dedicated machine may help prevent unauthorized users from engaging in transfers, and also potentially help the business provide a secure environment for these transfers by avoiding the malware that can be acquired through email and web browsing. It may seem like an unnecessary expense to designate a computer for this one purpose, but the cost of one machine is far more affordable than the potential cost of a breach or theft. Cash Management Systems are also susceptible, and with an administrator’s credentials, thieves can gain access to individual accounts and Personally Identifiable Information (PII) across the entire system. For example, one method being employed by cyber criminals is to use the system to add unauthorized ACH payroll accounts. Unauthorized payroll payments can sometimes go unnoticed, so banks might consider recommending to business customers potential caps to the amounts distributed through the payroll. Banks might also consider encouraging business customers to evaluate their overall security procedures and protection options.

Detect There are tools available to banks today to potentially detect thefts in progress. Many of these systems use scoring techniques to attempt to grade the likelihood of a transaction as legitimate or as a potential fraudulent transfer. Banks shouldn’t underestimate the ability of employees to potentially identify in-progress theft as well. For example, if an employee notices that a small company that deals locally is suddenly sending a large transfer to an overseas location, and then seeks to verify the legitimacy of the transaction, he or she might be preventing a possible theft.

Respond Fraudulent transfers should be responded to in a matter of minutes, not hours, warns IC3. The sooner banks respond, the greater the chance of recovering a customer’s money. The IC3 website offers suggestions for reacting to a fraudulent transfer, which include verifying that the transaction is in fact fraudulent, attempting to reverse the transaction and reporting the theft to the proper authorities. While some attempted fraudulent transfers can be stopped or reversed, losses due to Corporate Account Takeover are in the hundreds of millions of dollars each year. Banks can’t prevent all fraud attempts, but diligence is invaluable. As with many forms of fraud, the criminals will evolve with the prevention techniques. Work to keep your employees educated and alert. 1 Texas Bankers Electronic Crimes Taskforce, “What is Corporate Account Takeover?” http://www.ectf.dob.texas. gov/aboutcato.htm 2 Internet Crime Complaint Center, “Fraud Advisory for Businesses: Corporate Account Takeover” http://www. ic3.gov/media/2010/corporateaccounttakeover.pdf

Craig M. Collins is the president of Financial Services for OneBeacon Professional Insurance. He has more than 20 years of experience in the financial institution industry. He can be reached at ccollins@onebeaconpro.com.

Copyright 2013, OneBeacon Professional Insurance, Inc.

February 2014 | 13


Executive Survival Guide: Bridging the Banking Tech Chasm by: Bret

Anderson

IT has become all-encompassing within the banking environment. This development has major implications for leaders in every aspect of the industry. Traditionally, the executive’s job has been to simply carry out the company mission. Of course there are requirements that must be met and a stewardship of dollars to maintain profitability. Ultimately, executives set their alarms for 5 a.m. and undergo morning traffic to get to work to achieve this mission, to fulfill this passion. Unfortunately, when this mission meets the fast-evolving nature of information technology and its growing influence on business operations, it presents a major problem for executives, especially in the financial sector. The nature of technology in banking has changed in recent years. Put simply, the importance, influence, and reach of IT has expanded exponentially. Compliance, audits, security… Virtually all banks are entirely dependent on technology which is constantly evolving, becoming more advanced and more complex in the process. The complexity and scope of IT has created a chasm between the mission and technology- the tech chasm. The problem is that bank executives are responsible for making critical decisions that impact whether or not their companies will achieve their goals, and IT is an inseparable component of many of these decisions. Because of this, failing to appreciate its nature or importance will lead to poor decisions and negative outcomes for the business as a whole; a failed mission. Fortunately, these leaders don’t need an intimate understanding of IT, but a sufficient understanding of the most basic elements of their companies’ IT strategies and objectives. In particular, there are three main components: the IT network (workflow), security considerations (protection and compliance), and the issue of who will handle IT responsibilities (who needs to have the expert skill sets?).

For instance, the in-house IT team may have expertise in banking specific applications, but they are often pulled from strategic roles to fix mundane user issues. This bank may benefit from a third party helpdesk. There are a number of factors that you need to keep in mind when considering these three options. However, for an executive in the banking industry, one of the most crucial considerations of using a 3rd party is that of SOC 2 compliance. You absolutely must ensure they have achieved their SOC 2 certification. Because the reality is, outsourcing exposes your institution to risk and reinforces the need for effective vendor due diligence. Experience has shown that simple questionnaires and contractual clauses aren’t sufficient for critical vendors – you need to obtain an independent SOC report. A SOC 2 report is designed to certify the security, integrity, availability, confidentiality, and/or privacy (Trust Service Principles) of hosted systems and the data they store or process. Service organizations are held to a standardized set of controls criteria for each of the principles covered in their report. SOC 2 reports can be produced as either a Type I or Type II. Type I reports on management’s description of a service organization’s system and the suitability of the design of controls. Type II reports on management’s description of a service organization’s system and the suitability of the design and effectiveness of control. Making the right decision concerning how the business’ IT needs will be met is a high-level task for banking executives. This includes not just choosing in-house, outsourced or hybrid services, but also ensuring that whomever is helping you bridge the tech chasm in your firm has the necessary skills and compliance capabilities to successfully do so.

Bret Anderson is the Vice President of Marketing and Development at NetGain Technologies

In this article, we will focus on expertise. Executives have three primary options in this regard. The first is to keep all IT operations entirely in-house. This strategy has obvious appeal, as communication among IT staff with the rest of the organization would seem less complicated. The second is, in fact, to outsource the IT responsibility to a third-party. This is necessary when the budget cannot stretch far enough to justify the expense of hiring permanent, full-time IT staff dedicated to the full spectrum of skills required to run and maintain a bank’s network. The final option businesses may choose is to pursue a hybrid solution, outsourcing certain IT operations while keeping the rest in-house. February 2014 | 14

NetGain Technologies is one of the region’s largest privately-held managed services providers. They have been providing best-in-class IT solutions for 30 years. www.NetGainIT.com Lexington | Louisville | Little Rock | Chattanooga | Cincinnati | St. Louis | Birmingham


Capitalizing on Reputation Investment Professionals, Inc., endorsed by KBA, is your solution for capitalizing on reputation! It’s no secret that reputation is among a community bank’s biggest advantage. The most successful community institutions capitalize on their reputational advantage by continually expanding their services to increase market share.

One often overlooked service, however, is the ability to offer competitive on-site financial products and advice to customers and prospective customers. Customers already look upon their bank as a trusted advisor and would almost certainly choose to purchase investments on bank premises if given the opportunity. Yet many banks allow these would-be customers to go elsewhere resulting in missed opportunities or, worse yet, loss of client relationships. With third-party firms adept at guiding banks through the set-up and maintenance of an onsite investment program, banks don’t have to learn on their own. The best of these firms help banks partner with an already established local advisor with an equally positive reputation, further enhancing the bank’s standing in the community. Strong compliance processes, extensive screening of financial advisor candidates, and contractual indemnification minimize risk and liability. It’s been over 20 years since regulators first granted banks the ability to offer investments to their customers – making it a mature industry that has stood the test of time. With unprecedented need for non-interest income in this post-Dodd-Frank era, it’s not surprising that a record numbers of institutions are capitalizing on their hard-earned reputations and expanding their services to include investments. Since 1992, San Antonio-based Investment Professionals, Inc. has made its reputation by assisting community banks in operating successful investment programs. Whether implementing a new program or reviewing one that hasn’t lived up to expectations, IPI can help! For more advice on leveraging your reputation to attract new customers and generate non-interest income, contact the IPI Business Development team at (800) 679.1237; or contact Selina Parrish at the KBA at (502) 736-1282 or sparrish@kybanks.com.

Securities and investment advisory services are offered through Investment Professionals, Inc., member FINRA/SIPC.

February 2014 | 15


With Operation 411, compliance isn’t a 911.

In the next few years, financial institutions will face mandatory changes to the self-service channel. Diebold is responding now, with Operation 411: 4 compliance requirements, from 1 company with 1 request. With Diebold as a proactive partner, you’ll be efficiently ahead of change to meet everything from Windows® 7 updates to PCI compliance. Operation 411. It’s another example of how Diebold never stops watching the future, as it helps you now.

For the entire story, visit www.diebold.com/411.

requests@diebold.com www.diebold.com.

February 2014 | 16


February 2014 | 17


Powerful Networking Enroll Now

Send your team’s most dynamic performers to the Graduate School of Banking at the University of Wisconsin, where we’re developing the next generation of banking leaders through top-notch education and powerful networking. GSB graduates, more than 20,000 strong, know how to make the critical connections that align strategy with execution. At GSB-Madison, bankers learn from knowledgeable faculty who are current and former bankers, industry consultants and academics who bring real-world relevance to the classroom.

Graduate School of Banking - August 3-15 Bank Technology Management School - March 30-April 4 NEW

Bank Technology Security School - September 28 - October 3

Human Resource Management School - April 6-11 Financial Managers School - September 21-26 Advanced Management Forum - Watch gsb.org for details Online Seminar Series - Ongoing Throughout the Year

Visit gsb.org to request a catalog or for information on curriculum, student profiles, scholarships and more. Energize your career with powerful networking … enroll now for a 2014 GSB program!

Take advantage of GSB’s exceptional curriculum to spark powerful new ideas that will energize your organization and its leadership team.

Educating February 2014 | 18

Professionals, Creating Leaders

GSB.org


FIRST KENTUCKY FULFILLS $20,000 DONATION TO FEEDING AMERICA Mayfield, KY. - The employees of First Kentucky Bank recently completed another year of raising money for their “Charity of Choice.” Feeding America was the recipient for 2013. “Through the efforts of our employees and their willingness to donate via payroll deduction, we were able to provide weekly food for over 200 children this year,” commented Tamara Brindley, First Kentucky Human Resources Officer. An initial $10,000 donation was made in August, with the remaining $10,000 donation submitted this week. First Kentucky’s donation will be distributed among children attending schools in the counties in which First Kentucky Bank has locations. The mission of Feeding America is to feed America’s hungry through a nationwide network of member food banks and engage our country in the fight to end hunger. To narrow this nationwide problem down to a local level, First Kentucky President & CEO David Long added, “Each year the percentage of children that qualify for free or reduced lunches in our school systems dramatically increases. Approximately 74% of the schools across First Kentucky’s footprint currently report at least half of their students at free or reduced lunches. This is a staggering percentage.” “Because of the great need in our area, we have decided to once again choose Feeding America as the bank’s Charity of Choice for 2014. In addition to donating funds through payroll deduction, we hope to conduct additional fundraisers this year and increase our $20,000 donation to an amount even greater. First Kentucky is committed to reducing the number of hungry school children in our communities,” stated Brindley.

Central Bank Announces New Advisory Board Members for 2014 Lexington, KY. – Chairman, President & CEO Luther Deaton, Jr. announced the selection of eight new members to its Lexington Advisory Board, including Bill Brewer, Trustee, Poole Enterprises; Tom Jones, President, Taper Roller Bearings, Inc.; Mike Kerwin, President, Mike Kerwin Homes; Craig King, President, R.J. Corman Company; Ralph Pawsat, President, Wald, LLC; Christine Riordan, Provost, University of Kentucky; Dr. William Rood, Rood & Riddle Equine Hospital; Bill Thomason, President, Keeneland Association, Inc. They join Sheila Bayes, Dr. Michael Karpf, Dave Houchin, Brent Rice, Charlie Scroggin, Lisa Ball-Sharp, Linda Slagel, Nick Strong, Dennis Anderson, Shaw Hopkins, William Lear, Pat Madden, William Owen, P.G. Peeples, Steve Sherman, and Michael Tearney who are continuing to serve. Central Bancshares, Inc. is a financial services holding company in Lexington, Kentucky. The Company’s wholly-owned subsidiaries serve individual consumers and businesses with full-service banking, investment, mortgage, insurance and wealth management services in 26 banking offices and 31 ATMs in Boone, Clark, Fayette, Jefferson, Jessamine, Kenton, Madison and Scott counties. The subsidiaries include Central Bank & Trust Co., Central Bank of Jefferson County, Central Insurance Services and Central Investment Center. Central Bank was recently recognized as one of the Best Banks to Work For in America.

Got News to Share? Let us help spread the word on what your bank is doing... Email Angie White at awhite@kybanks.com

February 2014 | 19


February 2014 | 20


UPCOMING EDUCATION EVENTS & SEMINARS IT Risk Management & Future IT Exams Seminar February 18 Lexington February 19 Bowling Green Intro to Consumer Lending & Key Ratio Analysis Seminar Two-day Program February 27 & 28 Bowling Green March 13 & 14 Lexington Deposit Account Administration Pegasus Program March 10 Gilbertsville March 11 Madisonville March 12 Bowling Green March 13 Elizabethtown March 24 Morehead March 25 Hazard March 26 Somerset March 27 Lexington

Branch Management Workshop Series May 13 Louisville June 17 Louisville August 12 Louisville September 9 Louisville

r u o Y Mark rs! a d n e l Ca ____

______

_____

______

_____ ______

KBA Spring Conference April 13-15, 2014 Hyatt Regency, Lexington Loan Documentation Workshop Two-day Program April 1 & 2 Bowling Green April 3 & 4 Lexington Cash Management Seminar April 9 Louisville LENDING COMPLIANCE SCHOOL April 21-25 Louisville Business Development & Officer Calling Seminar May 7 Bowling Green May 8 Lexington

Appraisals and Evaluations: Keeping Your Valuation Program Compliant Seminar May 14 Lexington May 15 Bowling Green GENERAL BANKING SCHOOL June 1-6 Louisville Regulators Forum June 19 Bowling Green June 20 Lexington Bank Security: Critical Management Seminar June 26 Louisville

Train the Trainer Pegasus Program May 12 Gilbertsville May 13 Bowling Green May 14 Elizabethtown May 15 Lexington February 2014 | 21


February 2014 | 22


U.S. BANK CONTRIBUTES $25,000 TO FUND FOR THE ARTS LOUISVILLE, Ky. - U.S. Bank announced today a $25,000 contribution to Fund for the Arts as the organization approaches the kick off its annual workplace giving campaign in early 2014. U.S. Bank’s funding will be used to match contributions made by either new donors or current donors who increase their giving level. Founded in 1949, Fund for the Arts is the oldest united arts fund in the country and, just this year, has provided more than 500 grants to various organizations throughout Kentuckiana to provide financing for arts experiences and administrative support. Its mission is to maximize the impact of the arts on economic development, education and the quality of life for everyone in the region by generating resources, inspiring excellence, and creating community connections. “For decades, Fund for the Arts has had a wide-ranging impact on the arts community throughout this region,” said David Wombwell, market president for U.S. Bank. “We hope that by providing incentives for new donors to get involved or to increase current donation levels, Fund for the Arts will be able to connect with potential lifelong supporters.” “U.S. Bank’s contribution comes at a great time now that we’re gearing up for our upcoming workplace giving campaign,” said Barbara Sexton Smith, president and CEO of Fund for the Arts. “We have tremendous relationships with our corporate partners, as companies like U.S. Bank understand the role of the arts in making this region a great place to live and work.”

U.S. Bank is committed to supporting the arts in the region. In addition to hosting an annual workplace giving campaign for Fund for the Arts, the bank has also been a primary sponsor for the 2013 St. James Court Art Show. The bank has 27 branches and employs nearly 250 people in the Louisville area.

About Fund for the Arts Fund for the Arts is the oldest united arts fund in the country and has generated more than $188 million since its establishment in 1949. In 2013, the Fund for the Arts awarded 516 grants to various organizations through the region to provide financing for arts experiences and administrative support. The Fund for the Arts also hosts power2give.org, an online crowd-funding platform for any 501(c)3 organization in Kentucky and Southern Indiana to post arts and culture projects. Other Fund sponsored activities include The EVERY CHILD Arts Education Initiative and the NeXt! leadership development program for young professionals. For more information, visit www. fundforthearts.com.

About U.S. Bank U.S. Bancorp (NYSE: USB), with $361 billion in assets as of September 30, 2013, is the parent company of U.S. Bank, the 5th largest commercial bank in the United States. The Company operates 3,088 banking offices in 25 states and 4,937 ATMs and provides a comprehensive line of banking, brokerage, insurance, investment, mortgage, trust and payment services products to consumers, businesses and institutions. Visit U.S. Bancorp on the web at usbank.com.

February 2014 | 23


“The Good, The Bad & The Ugly” - Lien Release Case By M. Thurman Senn and Eric M. Jensen MORGAN & POTTINGER, P.S.C. With apologies to Clint Eastwood, a Kentucky Supreme Court decision issued this past December in a lien release lawsuit reminds us of a classic spaghetti western – “The Good, The Bad & The Ugly”. In Bratton v. CitiFinancial, Inc., No. 2012-SC-630, the Brattons owned three parcels of real estate and sold only one to the Brookses. The deed to the Brookses and the mortgage from the Brookses to Citi, however, listed all three parcels. The Brattons’ attorney contacted Citi about the problem. A deed of correction for the deed was recorded, but there was no correction of the erroneous mortgage. The Brattons sued seeking a release and statutory damages under KRS 382.365. As many bankers know, those damages start at $100/day beginning on the 15th day after receipt of written notice of a failure to release a satisfied lien without good cause, and they increase to $500/day beginning on the 46th day. A successful plaintiff can also recover attorneys’ fees. The Fayette Circuit Court ruled in favor of the Brattons and awarded $71,500 in statutory damages, prejudgment interest of $10,499.73, and attorneys’ fees of $10,482.50. What’s the “good”? When the Kentucky Supreme Court

considered the case, it held that KRS 382.365 did not even apply. The Court ruled that KRS 382.365 only applies “to liens ‘satisfied by payment in full’” and does not apply when the dispute is over a mortgage that was erroneously taken and recorded. This decision reduces the situations in which a lienholder is at risk under KRS 382.365. What’s the “bad”? The Court never considered Citi’s argument that it did not receive proper statutory notice. At the Court of Appeals, Citi won by arguing that the notice requirements of KRS 382.365 – written notice, properly addressed, sent by certified mail (or via personal delivery) to the person listed in the statute -- are mandatory even if the lienholder has actual notice. It would have been nice for the Kentucky Supreme Court to have affirmed that ruling. What’s the “ugly”? In our view, it is the sloppy closing process that incorrectly described in recorded documents the property sold and mortgaged. The case highlights a lender’s need to have appropriate safeguards in place to prevent (as much as reasonably possible) this type of problem. Here, the closing appears to have been handled by an outside closing agent, so the case also demonstrates a lender’s need to have proper vendor-management procedures and agreements in place to address these situations. THIS IS AN ADVERTISEMENT.

When it comes to banking and finance law, trust is equity. M&P is a leading banking and finance law firm representing financial institutions, businesses and individual clients throughout Kentucky. Our commitment to personal service and dedication to resolve matters quickly has earned us the trust of our clients, peers and the banking community.

MorganandPottinger.com

EXPERIENCE MATTERS. Delivering the bottom line to Kentucky lenders and financial institutions for more than 30 years.

February 2014 | 24 Equine Commercial Litigation Real Estate Banking & Finance

LEXINGTON

LOUISVILLE


ON THE MOVE

Central Bank Chairman, President and CEO, Luther Deaton, Jr., has announced the promotion of Shane Anderson to Credit Officer. Shane began his work at Central Bank as a part time Teller in 2003. He has since found his way to the Credit Analysis department. He is a graduate of the University of the Cumberlands and also holds an M.B.A. from the University of Kentucky.

Jerry Pelphrey has joined First Southern National Bank in a Loan and Business Development role at the bank’s Somerset branch. Pelphrey comes to First Southern with 11 years of banking experience. Pelphrey is a graduate of East Tennessee State University. He and his wife Julie have two daughters, Challie and Laney.

Central Bank Chairman, President and CEO, Luther Deaton, Jr., has announced the promotion of Gayle Dockery to Assistant Vice President, Trust Officer. Gayle has been with the Central Bank Trust department for 31 years. A graduate of Sullivan University, Gayle has also attended the Cannon Financial Institution’s Trust Investments School.

Citizens Union Bancorp of Shelbyville, Inc. is proud to announce the appointment of Mr. David Bowling to Chief Exective Officer of Citizens Union Bank.

Citizens Union Bancorp of Shelbyville, Inc. is proud to announce the appointment of Darryl Traylor – Chairman and Chief Executive Officer of First Farmers Bank and President of Citizens Union Bank.

Vicky Foster has joined Central Bank as Vice President, Employee Benefits Administrator. She was most recently with SunTrust Bank in Atlanta. A native of Monticello, Kentucky, Vicky received her B.A. in Business Education from the University of Kentucky. She also holds several Securities and Insurance Licenses, including Series 7, Series 63, Series 24, and Georgia Life, Accident & Health Insurance, and a GA Variable Annuity License.

Central Bank Nicholasville Market President, Alan VanArsdall, has announced that Monna Treadway has joined Central Bank as Assistant Vice President, Mortgage Loan Officer. Monna is joining Central Bank Mortgage with a résumé that includes 10 years of experience as a Mortgage Loan Officer. She will be based out of the Keene Road location in Nicholasville.

Citizens Union Bancorp of Shelbyville, Inc. is proud to announce the appointment of David Lyons to President of First Farmers Bank.

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. February 2014 | 26

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


2014 Spring Conference Agenda Sunday, April 13th 11:30 a.m. - Lunch and golf at Kearney Hill Golf Links OR 11:30 a.m - Lunch and wine tasting at Jean Farris Winery 6:30 p.m. - 8:30 p.m. - Meet & Greet Reception

Monday, April 14th 9:00 a.m. - 10:00 a.m. - KBA Speaker 10:00 a.m. - 11:00 a.m. - Stress Testing for Capital Adequacy & BASEL III Guidelines 11:00 a.m. - 11:15 a.m. - Break (networking) 11:15 a.m. - 12:15 p.m. - The Investment Portfolio Dilemma - What Makes Sense Today? 12:15 p.m. - 1:15 p.m. - Lunch 1:15 p.m. - 2:15 p.m. - Liquidity Risk - How Do We Stress Test For This Critical Element? 2:15 p.m. - 3:15 p.m. - Interest Rate Risk - Breaking Down the Modeling Mystery 3:15 p.m. - 3:30 p.m. - Break (networking) 3:30 p.m. - 4:30 p.m. - Competing For Those “A� Borrowers 6:30 p.m. - 7:00 p.m. - Reception 7:00 p.m. - 9:30 p.m. - Dinner & Entertainment with Steve Ford

Tuesday, April 15th 9:00 a.m. - 10:00 a.m. - KBA Speaker 10:00 a.m. - 11:00 a.m. - How Community Banks Can Survive the New Ability to Pay Rules 11:00 a.m. - 12:00 p.m. - FHLB Advances - How to Enhance Interest Rate Risk & Funding Costs 12:00 p.m. - Adjourn

Anyone at your bank can benefit from our spring conference...come join us and see for yourself! Contact Paula Cravens for more information: pcravens@kybanks.com February 2014 | 27


Have you registered for Spring Conference? www.kybanks.com

Kentucky bankers magazine february 2014