DON’T LET THE BIG ONE GET AWAY!
The Bankers’ Bank can help you reel in that big loan! When your customer has borrowing needs that exceed the capacity of your bank, partnering with the Bankers’ Bank enables you to retain valuable business and continue to serve as the primary bank for your customer. Let our highly skilled loan professionals help you reel in that big loan.
Give us a call today.
Van Davidson
John Clark
Derek Hetherington
EMAIL: vdavidson@bbky.com
EMAIL: jclark@bbky.com
EMAIL: dhetherington@bbky.com
502-382-0460
800-248-3229
800-248-3229
1891-2016 | Celebrating 125 Years
KBA STAFF
OFFICERS
Ballard W. Cassady Jr. President & CEO bcassady@kybanks.com
Chairman Mr. Louis Prichard Kentucky Bank
Debra K. Stamper EVP & General Counsel dstamper@kybanks.com
Vice Chairman Mr. Michael H. Mercer First Security Bank of Kentucky
Matthew E. Vance Chief Financial Officer mvance@kybanks.com
Treasurer Mr. Timothy E. Barnes Hometown Bank of Corbin
Selina O. Parrish Director of Vendor Solutions sparrish@kybanks.com
Past Chairman Mr. H. Lytle Thomas Heritage Bank, Inc.
Paula B. Cravens Sturgeon Director of Education Solutions pcravens@kybanks.com
BOARD OF DIRECTORS
Josh Fischer Director of Communications jfischer@kybanks.com Billie Wade Executive Director, HOPE of Kentucky bwade@kybanks.com Miriam Cole Executive Assistant mcole@kybanks.com John P. Cooper Legislative Solutions jcooper@kybanks.com Paula Cross Education Services Coordinator pcross@kybanks.com Jamie Hampton Education Services Coordinator jhampton@kybanks.com Natalie Kaelin Assistant General Counsel nkaelin@kybanks.com Michelle Madison IT Manager mmadison@kybanks.com Lanie Minton Administrative Assistant lminton@kybanks.com Tammy Nichols Convention Coordinator Finance Officer, HOPE of Kentucky tnichols@kybanks.com Katie Rajchel Staff Accountant krajchel@kybanks.com Yvonne Savage PAC Services Coordinator ysavage@kybanks.com Angie White Sponsorship Relations awhite@kybanks.com Steve Whitlow Systems Engineer swhitlow@kybanks.com
Mr. Bill Allen Bank of the Bluegrass and Trust Co. Mr. William Alverson Traditional Bank, Inc. Mr. James W. Beach Peoples Bank & Trust Co. Mr. J. Wade Berry Farmers Bank & Trust
APRIL 2016
CONTENTS CHAIRMAN’S CORNER........................................5
»STRAIGHT»TALK».........................................6 WHO’S TO BLAME?..............................................8 A LEGACY OF EDUCATION.............................10 WHAT IS A LIVE WEBINAR? ...........................12 BANKERS ON THE MOVE................................14
Mr. W. Fred Brashear, II Hyden Citizens Bank
THE CECILIAN BANK SINCE 1903................16
Ms. Lanie W. Gardner First Southern National Bank
A LEGACY OF EDUCATION.............................20
Mr. Gordon Kidd United Cumberland Bank Mr. Glenn Meyers Kentucky Federal Savings & Loan Assoc. Mr. Michael Mineer Citizens Deposit Bank & Trust Mr. Dale Sights Field & Main Bank Mr. Thomas J. Smith, III American Bank & Trust Co., Inc.
INSURANCE INSIGHTS.....................................24 BANKING ON INDUSTRIAL HEMP...............26 MAKING CRA PROFITABLE.............................28 FINANCIAL LITERACY WITH EVERFI...........30
Mr. Ryan Curtis Steger Town Square Bank Mr. John T. Taylor PBI Bank
Our Mission Statement Together We Make A Difference
Mr. Jed Weinberg Bank of Hindman
Chuck Maggard President & CEO cmaggard@kybanks.com Lisa Mattingly Director of Sales & Service lmattingly@kybanks.com Tim Abbott Account Representative tabbott@kybanks.com
Our Commonwealth
One Voice Unifying Banking in Kentucky The KBA is a nonprofit trade association that has been providing legislative, legal, compliance and educational services to its member institutions since 1891. The KBA’s directors and staff work together with its members to make the financial services industry a more effective and successful place to work. The strength of the KBA is bankers unifying as an industry to speak as one voice.
Brandon Maggard Account Representative bmaggard@kybanks.com
Kentucky Bankers Association 600 West Main Street, Suite 400 Louisville, Kentucky 40202
Donna McCartin Benefit Support Specialist dmccartin@kybanks.com
Phone: 502-582-2453 Fax: 502-584-6390 Website: www.kybanks.com
Audrey Whitaker Insurance Services Coordinator awhitaker@kybanks.com
The purpose of the Kentucky Bankers Association is to provide effective advocacy for the financial services industry both in Kentucky and on a national level; to serve as a reliable and responsive source of information and education about areas of interest to the industry; and to provide a catalyst and forum for collective industry action. The KBA does this in four ways: 1. Government relations & industry advocacy 2. Information interchange 3. Education 4. Products and services
ADVERTISE/SPONSOR Call Angie White 502-736-1284 or email awhite@kybanks.com
MAGAZINE
SUBMIT/SUBSCRIBE Call Josh Fischer 502-736-1283 or email jfischer@kybanks.com
Kentucky Banker Magazine (KBM) is the official monthly periodical of the Kentucky Bankers Association (KBA). No part of KBM may be reproduced without written permission from the KBA. The KBA is not responsible for opinions expressed by outside contributors of articles published in KBM.
Get a jumpstart on your banking career with this effective training. Give your employees the education they need to better serve your customers.
GENERAL BANKING SCHOOL
At the 2016 Kentucky Bankers Association’s General Banking School we enhance banker’s understanding of the business of managing a bank, the financial decisions that face bankers every day, how each bank department is inter-related and the current economic climate of banking. The KBA General Banking School’s Year I and Year II effectively and efficiently prepares bankers for any of the national graduate schools of banking. Only your state’s Bankers Association can give you the tools you need to succeed in the ever-changing business of banking in Kentucky.
WHEN June 12-17, 2016 WHERE Holiday Inn Louisville East Louisville, Kentucky TO ENROLL CONTACT PAULA CROSS Email: pcross@kybanks.com Call: 502-736-1276
TRAINING YOU CAN TRUST
MORE INFORMATION ON KBA’s GENERAL BANKING SCHOOL IS ON PAGE 10
CHAIRMAN’S CORNER
Be Persistent and Work Hard Success is a marathon, not a sprint. Never give up.
Robert Nichols, the new CEO of the American Bankers Association, Ballard Cassady, and members of Congress like Andy Barr, are not giving up. As an example, Congressman Louis Prichard, KBA Chairman Barr, in our recent visit, assured us that he intends to diliPresident & CEO, Kentucky Bank gently persevere to find a way to help banks deal with the Recently, a group of us from the Kentucky Bankers Associ- limitations that the Qualified Mortgage rules impose on ation had an opportunity to attend the American Bankers our customers, through his Portfolio Lending Bill. Ballard Association Government Relations Summit in Washington, is continuing to persevere in his effort to remove artificial DC. There were approximately one thousand bankers and regulatory asset thresholds that regulate banks, but rather association executives in attendance. This was my third have them regulated through the “Tailor Act” which allows regulations to be applied by risk and business models. time attending this summit, and I can very easily say that this can be a disheartening experience. The ABA is going to persevere to remove multiple impediments to serving our customers. Here is a sample of a few of Over those three years of presentations by a variety of Sen- these ongoing efforts: ators, Members of Congress, and political analysts, one could become very discourFair Lending: We need laws that apply in a aged about the progress, or the lack thereof, coordinated effort so we, as banks, can creas it relates to any relief for the banking inate products to meet individual and market dustry, and specifically, for the community needs. banking world. Outdated Regulations: We must vigorously petition Congress to review and roll back I will concede that there have been some unnecessary and outdated rules. minor successes in our efforts, such as privacy notice relief, extended exam cycles for Capital and Liquidity: We need to free up many banks, and an ability to appeal the our resources that are devoted to meeting Consumer Finance Protection Bureau’s “ruunnecessary complex capital requirements, ral” definition in mortgage rules. None the so that we can fulfill our mission of lending less, the fact does remain that there is still money and helping the economies grow in so much to work on that has not been comour markets. pleted because of so many varying degrees of obstacles, that one might become so discouraged and de- I have just cited these few because, if I listed all of the signifcide to give up on our efforts. icant issues that our industry faces, we might be tempted to throw up our hands and quit. But we have no intention of Our industry’s hope was that in 2015 we would obtain some doing that. Our leadership at the KBA and at the ABA are more significant assistance through the Omnibus Budget committed to working hard on our behalf. Bill but, unfortunately, we fell short despite the efforts of many of our Kentucky members of Congress. However, We should always remind ourselves, through a quote by the 2016 is a new day and, despite our defeats, we must perse- great Bobby Jones, “No virtue in this world is so oft rewardvere. F. Scott Fitzgerald wrote, “Never confuse a single de- ed as perseverance.” To be successful in this environment, we are obligated to persevere. feat as a final defeat.”
2016 is a new day, despite our defeats, we must persevere.
Serving the Commonwealth
www.kybanks.com
April 2016 | KENTUCKY BANKER 5
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Palm Sunday and Government Ballard Cassady, KBA CEO bcassady@kybanks.com
I have been laboring heavy over what to write this month for a couple of reasons. First, I received a well-deserved comeuppance from one of our Congressmen this past week for writing with too broad a brush about Congress and banking reform. He was right. Republicans have taken the side of community banks – especially the Congressman I had offended – only to be blocked by Democratic leadership. That doesn’t give us many good courses of action. Bless KBA chairman Louis Prichard for choosing perseverance for starters – don’t miss his article this month. We have no choice but to stay the course, but should we be rethinking that course?
kind – geographic, economic, language. Was it a fluke that Jesus was born in an unprecedented historical moment in which the earliest Christian missionaries could travel good roads in relative safety, sharing their story with people whose interest in such learning was flourishing in the absence of war and famine? I think not. For me, the teaching of render unto Caesar is more likely to be a call to honor and seek BOTH kinds of peace. Was Jesus giving government both legitimacy and new boundaries for its exercise? Maybe limits on the power of government, the dream of philosophers as far back as Socrates, was being made the charge of a universal Church. America’s Christian foundations in that respect were clear when James Madison, the drafter of our Constitution, wrote: If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. Where am I going with this? Simple. Government is a necessary evil. Without government, our lives would be violent and short. War is a necessary evil. Without war, we would all be subject to the most powerful evil among us. Taxes are a necessary evil. Without taxes, we have no infrastructure and no ability to protect ourselves. But without limits born of ideals about liberty and justice, we have nothing worth protecting. It is thought that Jefferson once said: Government is a creature whose nature it is to grow at the expense of the individual and his freedom of every kind, including freedom of conscience.
That question weighed heavily this week. Palm Sunday rolled around with a ticking deadline and I had no clear direction. I wasn’t looking to a sermon for any help, but I got it anyway – sort of. It turns out there were two parades into the city of Jerusalem on the day Jesus rode in on a donkey. In the other one, Pontius Pilate represented Caesar on a stallion, surrounded by the Roman cavalry. At least a few of the witnesses must have recalled a startling statement Jesus had been made days earlier: Render unto Caesar that which is Caesar’s and unto God the things that are God’s. In that teaching our preacher saw a stark choice for the people of Jerusalem, and for us: choose the kind of peace enforced at This is my point: as an industry we must persevere on the point of a sword or the kind of peace Jesus offered. a course of resisting government over-regulation that hurts our customers, our communities and our econoI couldn’t disagree more. my. However, without a plan for action that is clear and One thing about being married to Marcy is that I learn has consensus from our industry then perseverance a lot about ancient history, ready or not. The same Cae- just becomes acquiescence. sar so despised by the good people of Jerusalem had instituted a government that ushered in 200 years of Instead, I’m calling for every Kentucky banker to honpeace, the Pax Romana. Peace is always relative; wars or the anger that we feel about the injustice of excesdidn’t cease altogether. But Rome had created a vast sive and unjust regulation. There is no reason for our empire that was breaking down boundaries of every government to be so heavy handed with community continued on next page
6 KENTUCKY BANKER | April 2016
www.kybanks.com
Serving the Commonwealth
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continued from the previous page
banks. Whether it is Congress by virtue of the Democratic leadership, Dodd-Frank, CFPB, FDIC or any one of the other acronyms, the burden is too great to bear for the community banking system. Community banks are the backbone of our economy and if they don’t lighten up soon they will dismantle the most effective economic recovery tool they have. So Perseverance yes, acquiescence no. Last but not least, most Democrats I talk to will tell you they are for community banking reform but not Wall Street banking reform. Because they can’t seem to differentiate between the two, then ALL must suffer because their leadership forbid them from voting
for any reform. My belief is until every Congressman remembers that they are in Washington DC to serve their constituents and their country, not their party, we will continue to have a problem. Any Congressman that has voted for something they were against, or against something they were for only because their leadership told them to, is part of that problem! Jesus and James Madison had it right. We need government but we also need to realize that government isn’t run by a bunch of angels, so it needs to be VERY limited. We need to mount our offensive as an industry lest we be subjected to tyrannical government hell-bent to destroy us.
ANNUAL WASHINGTON DC TRIP MAY 22-25, 2016
Contact Yvonne Savage ysavage@kybanks.com You will be staying at the Hotel Monaco, a luxury boutique hotel that calls Penn Quarter and Chinatown home. This historic highend hotel is located across from the Smithsonian’s National Portrait Gallery and just steps from the Verizon Center, the International Spy Museum and the National Mall.
AUGUST 1, 2016
KBPAC GOLF OUTING
JUNE 3, 2016
KBPAC CLAY SHOOT
“I had a great experience on our visit (to Washington DC). The hotel and accommodations were top notch, and what a great location! The daily itinerary was planned well and you all did a great job adjusting to the Congressmen and Senators’ schedules. I feel privileged to have been a part of the whole experience.” Jamie McCune, Home Federal Bank, Middlesboro, KY
Annual Chairman’s Cup Clay Shoot
Elk Creek Hunt Club, Owenton, Ky Prepare for a full day of sport, camaraderie and relaxation. For sharpshooters and amateurs alike, the Chairman’s Cup promises to be an exciting event. Everything you need for the tournament will be provided including shotguns, ammo and a safety briefing. Or, you can bring your own.
Annual Golf Outing
Big Spring Country Club, Louisville, Ky Established in 1926, historic Big Spring Country Club offers terrific views and challenging championship-level golf holes for players of every skill level. Well-groomed fairways and smooth greens keep Big Spring Country Club difficult, yet friendly.
Contact Yvonne Savage at the KBA for more information: ysavage@kybanks.com or call 502-736-1267
my 2 cents
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Who’s To Blame? "The good news is that there are probably ways to fight back on this trend."
We all got pretty nervous when we saw the FDIC going after bank directors personally for mistakes made by the institution. It seemed unfair to both the bank and the director. No other industry expects the board members to be as involved and trained as the regulators expect in banking. It made our members’ job of finding competent, willing board members harder…if not impossible. What next? Personal liability on compliance officers. Let’s think about this. Usually, but not always, a bank compliance officer is not an executive officer. Usually, but not always, a bank compliance officer finds out about new products and services after the operational lines have decided they should be implemented. Usually, but not always, a bank compliance officer is restricted in the amount of education and training allowed during a year. Usually, but not always, other bank employees don’t really understand what a bank compliance officer does, but expect the compliance officer to keep the operations in compliance, without any participation or responsibility on the operational teams. Until the current wave of new regulations, most of our member banks had compliance officers who were splitting duties between compliance and operational responsibilities. Additionally, a bank compliance officer is often expected to know and UNDERSTAND: • state and federal laws and regulations and applicability to the bank; • the risk and business profile of the bank and its products and services; • how to communicate/train operational employees on compliance/regulatory/legal issues; • whether the information communicated is being used to maintain a compliant environment; and • an effective method of conveying efforts, successes and failures of compliance to the bank’s board and executives. These somewhat universal characteristics of bank compliance officers spell trouble, both for the bank and the compliance officer. The bank runs the risk of active non-compliance because of the lack of authority of the compliance officer or lack of shared responsibility to all employees. The compliance officer runs the risk of fatigue, overload and burnout. But, the scariest concern is that some regulators have begun to look to hold chief compliance officers personally responsible for certain compliance violations. The most publicized case is U.S. Department of Treasury v. Thomas E. Haider, which is still in very early stages of litigation, even 8 KENTUCKY BANKER | April 2016
Debra Stamper KBA Executive VP & General Counsel dstamper@kybanks.com
though it was filed in 2014. Other cases have been brought and settled. In an industry where the regulators are trying to learn about changes in the regulations at the same speed as the institutions they oversee, does it make sense to go after those who are working diligently to help with compliance? The good news is that there are probably ways to fight back on this trend. Some things to consider are: • Fight back on any regulatory actions designed to hold individuals accountable for activities, absent clear evidence of egregious personal actions. • Make sure that everyone, from the cleaning staff to the CEO, knows that compliance is a corporate wide responsibility shared by all. And, remind them regularly of their responsibilities. Lead by example. • Provide compliance personnel with the resources needed to ensure that strong compliance is a priority and achievable. This means allowing for sufficient, ongoing training as well as access to resources such as Compliance Alliance. • Allow compliance officers the authority to report (and get support) as high up the corporate chain as necessary to ensure that everyone is onboard with required risk management. • Manage third party vendor relationship from beginning to end to ensure that compliance is not suffering at the hands of others. This can be done through assistance of nContracts or similar services. • Document audit efforts, violations found and remedial efforts taken. Compliance officers and departments have become increasingly complicated positions. Somehow, we must change our linear thinking and ensure that compliance is a part of everyone’s job, with compliance being more of a traffic cop and internal resource. Both Natalie and I have compliance experience. We understand the complexities of the job and the need for support. Call us to assist. Selina is constantly visiting with our members seeking information about unmet needs and concerns. She responds by seeking out resources that address those needs. Call her if you need a vendor or resource. Paula and her education staff do an incredible job of staying current on the new regulations, examination trends and market changes. The classes, seminars, schools and workshops offered reflect the needs of our industry. But none of these efforts are successful if we are missing a need that you have or if you don’t take advantage of our resources. Support your employees by supporting the KBA.
www.kybanks.com
continued on next page Serving the Commonwealth
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And then some
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Now let's talk about Education. The Kentucky Bankers Association mission statement reads: The purpose of the Kentucky Bankers Association is to provide effective advocacy for the financial services industry both in Kentucky and on a national level; to serve as a reliable and responsive source of information and education about areas of interest to the industry; and to provide a catalyst and forum for collective industry action. The Kentucky Bankers Association does this in four ways: 1. Government relations and industry advocacy 2. Information interchange 3. Education 4. Products and services
Providing reliable education is a cornerstone of our commitment to you. Not only can you be sure to find training on topics that are timely and comprehensive, but we also offer them at the very best price—which we are able to do because of the nature of our association relationship to our members. But, in order to continue to offer education in the locations, on the topics and with the quality of speaker that you are accustomed to, we need your input. Please let our Education Solutions staff know which topics are valuable, which ones are not and what new topics you would like to see. Let the KBA be your first stop for your financial institution’s training and education needs. Your support allows us to continue to provide our support.
2016 KBA EDUCATION CALENDAR Loan Review Seminar Details p. 27 May 10 | Lexington May 11 | Bowling Green Call Report Seminar Details p. 27 May 25 | Bowling Green May 26 | Lexington General Banking School Details p. 10 June 12-17 | Louisville Bankruptcy Part II Seminar Details p. 27 June 21 | Louisville Regulators Forum June 23 | Bowling Green June 24 | Lexington Certified Teller Seminars Details p. 27 July-August | Various Locations Business Law Basics & Lender Liability August 10 | Bowling Green August 11 | Lexington Women in Banking Workshop August 18-19 | Louisville Commercial Lending School Details >> August 22-26 | Louisville IRR Seminar The Baker Group August 24 | Louisville Cyber Security Seminar Details p. 27 October 6 | Bowling Green October 7 | Lexington Loan Documentation Two-Day Program November 1-2 | Bowling Green November 3-4 | Lexington Essentials of Banking School Details >> November 14-18 | Louisville
COMMERCIAL LENDING SCHOOL WHEN WHERE
August 22-26, 2016 KBA Offices, 600 W. Main Street, Suite 400, Louisville
The purpose of the KBA’s Commercial Lending School is to prepare mid-level bankers to serve effectively and profitably as commercial loan officers by developing: • A better understanding of the economy and how it affects the lending decision; • An understanding of how a business is structured and how it competes; • An understanding of the role of a company’s management and how to analyze and evaluate that management; • A thorough understanding of basic and advanced analytical techniques; • An opportunity to apply these analytical techniques in a series of lending situations and to carry them forward in a structuring of loans; • An understanding of relationship banking - how to meet multiple customer financial needs profitably; • A thorough understanding of how problem loans develop and the appropriate techniques to use in managing a problem loan; and • An understanding of their bank’s tolerance for risk, the risks assumed in the loan portfolio and their bank’s credit process to manage the risks. If you have any questions, or need additional information, contact Paula Cross at the KBA 502-736-1276, pcross@kybanks.com. To register online visit www.kybanks.com
ESSENTIALS OF BANKING SCHOOL WHEN WHERE
November 14-18, 2016 KBA Offices, 600 W. Main Street, Suite 400, Louisville
The curriculum of the KBA’s Essentials of Banking School consists of practical classroom sessions and exercises with a computer-generated bank simulation. Through this hands-on practical training, bankers will gain: an increased understanding and appreciation of complex bank management, an understanding of banking’s role in the financial services industry, the opportunity to expand skills and knowledge beyond on-the-job training as preparation for additional responsibilities and an excellent program for bank continuing education. This school serves as a prerequisite for the advanced curriculum of the General Banking School. If you have any questions, or need additional information, contact Paula Cross at the KBA 502-736-1276, pcross@kybanks.com. To register online visit www.kybanks.com
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A Legacy of Education
“The KBA General Banking School is an excellent and valuable tool for Kentucky bankers." KBA General Banking School
June 12-17, 2016 Holiday Inn Louisville East 1325 South Hurstbourne Parkway Louisville, Kentucky
The following requirements are suggested:
TRAINING YOU CAN TRUST
For over a century the Kentucky Bankers Association has been training and educating bankers. The banking industry has changed dramatically since 1891 when the KBA was founded. For decades the staff of the KBA has been keeping its members up to speed on the latest information on managing a bank company, the financial decisions that must be made daily, how each bank department is inter-related and the economic environment of the business of banking.
• An associate degree, ABA courses in Money and Banking, Principles of Banking, and/or Accounting, or equivalent college courses and three years’ experience in the financial service industry; or • A bachelor’s degree in finance or economics and one year of experience in the financial service industry; or • A master’s degree in finance or economics and no experience in the financial service industry; or • A graduate of the Essentials of Banking School. The school is designed for recent college graduates, management trainees, and bank employees who wish to build skills that will make them an asset to their banks and jumpstart their banking careers.
Graduation Requirements The benefits of attending the Kentucky Bankers' General Banking School are numerous, which hundreds of Ken- To successfully complete the required course of study and tucky bank employees have experienced. Its practical cur- graduate from the school, the following requirements must riculum enhances how banking gets done in the Bluegrass. be met. Participants must: "The General Banking School builds a bridge between concepts and application," said Paula Cravens Sturgeon, Director of KBA Education Solutions. "The curriculum of the General Banking School consists of practical classroom sessions and experience with a computer-generated bank simulation, BankExec. We give you bank training that you just cannot get anywhere else, and, for the price, it's the best value out there."
1. Attend all classes 2. Successfully complete Year I 3. Attend intersession day in the Fall, complete the intersession exercises and receive a satisfactory evaluation of the exercises. 4. Participate in BankExec, as part of the Year II curriculum and receive a satisfactory evaluation. 5. Pass all exams.
The balance of classroom and simulation creates a program that will be of value to bankers throughout their career. The What graduates are saying... school provides bankers with: Year I - “The KBA General Banking School provides invalu• A comprehensive understanding of the connections able opportunity for networking, in addition to the informative and interesting lectures provided by knowledgeable peobetween banking functions and environment. ple who are leaders in their respective fields."
• Practical application of classroom learning by com- Year II - “I have thoroughly enjoyed both years of KBA pleting Intersession assignments. School. The staff and speakers are wonderful and I feel it has truly been an honor to come. I have learned so much, grown • Experience the complexity of managing a successful as a banker and person and love the friendships & contacts bank through a hands-on computer simulation. made along the way." 10 KENTUCKY BANKER | April 2016
www.kybanks.com
KBA 1891-2016
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We Are Here to Educate You Professional Bank Services, Inc. (PBS) is pleased to partner with the KBA to provide Kentucky bankers with high-quality, dependable educational training for your compliance needs. PBS has been providing consulting and educational services to the financial industry for 38 years. Our staff is comprised of former federal and state regulators, bankers, attorneys, and financial analysts. PBS has presented seminars on regulatory compliance topics all over the United States to thousands of bankers through our public seminars, webinars, publications, and through our relationships with banking associations and several banking agencies. For more information on PBS’ consulting services, please contact Selina Parrish at sparrish@kybanks.com National Seminar Provider PBS is a premiere national provider of seminars for financial institutions across the country. Whatever their differences, financial institutions share many concerns. Our seminars are designed to address these common needs in a way most beneficial to our clients. Each seminar focuses on a specific topic and covers the information in a clear, easily understood manner that relates to the day-to-day experience of those attending. The PBS seminar series was developed in response to the need for continuing professional education in the financial industry. Attendee Benefits What are the benefits to attending a PBS seminar event? As an attendee, you will: • Learn and interact with other attendees that are facing the same challenges you are; • Receive the most up-to-date information on industry topics, including any recent issuances from the regulatory agencies; • Learn from and ask questions of the industry’s leading subject matter experts on the topics that are important to you; • Hear real-world experiences as part of our practice to help you apply what you have learned to your institution; • Receive a certificate of attendance with applicable hours for your continuing professional education credit; and • Receive an in-depth reference manual that will serve as an invaluable reference tool for you.
Mastering HMDA - Provides a comprehensive discussion of the regulation and common errors and violations. Learn how the CFPB’s final rule is changing HMDA and how the implementation phases will impact the institutions and transactions covered; the information required to be collected; and the processes for reporting and disclosing that data. CRA Compliance for Community Banks - Covers the purpose and background of CRA, which helps to put compliance and regulatory issues in perspective. Also covered are technical rules for small, intermediate and large banks, and factors taken into account by examiners in assessing CRA performance. ACH Processing Compliance – Reviews the basis and structure of all ACH processing – the NACHA Rules and includes discussion on both receiving and origination. Recent and upcoming changes to the Rules including Unauthorized Entry Fees, ACH Network Risk and Enforcement, Person-to-Person (P2P) transactions, Dishonored Returns, Health Care Payments via ACH, and ODFI Return Reporting Rate adjustments, are discussed in detail. Loan Products Workshop - Approaches lending compliance from the perspective of the product – the way financial institutions organize their services – rather than the regulation. The program focuses on origination and servicing obligations that are specific to certain products. For example, if an institution has an ARM loan, what specific disclosures with respect to an ARM are required? How will adjustable rates be disclosed on the Loan Estimate and Closing Disclosure? What are the ATR requirements?
Our subject matter experts will share their knowledge and experiences with you to help you not just hear the requirements, but also help you process how those rules impact your institution’s policies and procedures. We know the issues and concerns that are important to you and we offer practical knowledge and skills to help you get through those issues.
Real Estate Lending Compliance - Designed to offer the attendee comprehensive instruction on all the topics that affect consumer mortgages. This seminar is structured to address “Fair Lending” related topics followed by focusing on disclosures and contract provisions of the major consumer protection topics such as Regulation Z, RESPA and others.
Upcoming Topics
Webinars - PBS and KBA also offer a full array of compliance regulatory topics through webinar training. For more information on webinar topics, visit www.probank.com or www.kybanks.com
Following is a brief description of a few of the topics PBS and KBA will offer this year. For more information, please visit: www.probank.com or www.kybanks.com Managing Fair Lending Risk - Covers the basics of Fair Lending laws and regulations along with current issues and areas of regulatory emphasis. Types of discrimination, examination procedures and preparation and Fair Lending program requirements will also be covered. Celebrating 125 Years
UPCOMING PBS LIVE COMPLIANCE SEMINARS May 10 May 16 May 17 May 31 June 1 June 2 Oct 21 Dec 16
www.kybanks.com
Real Estate Lending Compliance Loan Products Workshop Real Estate Lending Compliance Fair Lending Workshop Mastering HMDA CRA Compliance ACH Processing Compliance ACH Processing Compliance
Louisville Lexington Lexington Bowling Green Bowling Green Bowling Green Lexington Bowling Green April 2016 | KENTUCKY BANKER 11
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Choosing a Webinar That Works How Do I Choose: Live or On-Demand Webinar? Since schedules differ from department to department, there are two great options available to fit both types of schedules: bankers who prefer to engage in live webinars and bankers who prefer to catch up on webinars when their schedule allows with on-demand webinars. What is a Live Webinar? A live webinar is essentially a seminar conducted over the internet. You can view the presentation (i.e. PowerPoint slides) and possibly participate in a real-time chat and interactive polls. Love webinar registrants receive a toll-free number and passcode to allow entrance to the online webinar and conference call. Live webinars occur in real-time so you should schedule these only if you can guarantee your time will be free from the scheduled start of the webinar until it ends. And yes, you can have other employees in the same room with you to view a live webinar!
visuals, and handouts, so you can learn at your own pace. The presenter’s email address is normally provided for follow-up questions as an added benefit. On-demand webinars expire within a certain time frame, normally 6 months. We recommend that you view the material relatively quickly so as not to lose out on the information. On-demand webinars do not occur at a certain time of day, you are free to choose when you want to view the material. This convenient option is also extremely helpful when training other employees, as the on-demand webinar can be viewed by as many employees as desired.
The KBA Education Solutions staff works hard to make inWhat is an On-Demand Webinar? dustry information concise, coherent, and readily available. When you don't see a topic you need on our website contact An on-demand webinar is very much like on-demand TV. Paula Cross at pcross@kybanks.com with questions. For You can watch an on-demand webinar when it is conve- your convenience previous webinars are available on-denient for you, 24 hours a day, 7 days a week. On-demand mand, and don't forget, a webinar allows you an unlimited webinars are recordings of live webinars, including audio, number of employees with only ONE registration fee.
Please contact Paula Cross at pcross@kybanks.com with any questions. See May and June's Live Webinar schedule on the next page >>
2016 PEGASUS COMPLIANCE SEMINARS BSA/AML Compliance School May 25-26 Lexington
New Accounts in Kentucky August 15 Paducah August 16 Bowling Green Deposit Compliance Fundamentals August 17 Elizabethtown August 2 Somerset August 18 Lexington August 3 Bowling Green August 22 Morehead August 4 Gilbertsville August 23 Hazard August 9 Elizabethtown August 24 Somerset August 11 Lexington 12 KENTUCKY BANKER | April 2016
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KENTUCKY BANKER MAGAZINE The Education Issue
WEBINARS MAY 2016 May 3 Loan Participation Due Diligence May 3 Call Reports: RC-C Loan Coding and Related RC-R Reporting May 4 Real Estate Law for Bankers May 4 Coaching Excellence: The Real Solution May 5 Conducting the Annual Physical Security Review May 5 Writing an Effective Credit Memorandum May 5 All About Escrows May 9 Are They Really a Bank Prospect? May 10 Effective Branch Administration Monitoring May 11 Fee Income Strategies 2016: Challenges, Issues & a Look Ahead May 11 Understanding Commercial Loan Documentation May 11 Lending 101 May 12 Excel Explained: Minimize Spreadsheet Errors May 12 BSA For the Frontline May 12 Regulator Issues for the Credit Analyst May 17 Strategies for Remaining Independent: Alternatives to Selling May 18 Managing the Force-Placed Insurance Process May 19 Wire Transfer Compliance, Including International Remittances May 20 Examining Complex TRID Issues, Part 2 May 20 Officer Calling: Prospecting, Preparing and Presentation May 24 Marketing & Advertising Compliance, including UDAAP Expectation May 24 Developing Quality & Efficiency in Your IT Audit May 25 Real Estate Loan Workouts, Deeds in Lieu, Short Sales, Foreclosures, Deficiency Judgments & Receiverships May 25 Allowance for Loan and Lease Losses: Calculating and Maintaining May 26 Compliance Perspectives May 26 Understanding & Managing the CFPB Complaint Process May 26 Carrot and the Stick: Incentive & Motivation in the Workplace May 26 What Bankers Need To Know About Loan Participations WEBINARS JUNE 2016 June 2 What to Do When A Customer Dies June 2 Business Accounts: Who is Authorized to Open, Close, Transact? June 7 Health Savings Accounts: Basics, Rules, Reporting, Tax Consequences & Health Care Reform June 7 Basic Underwriting June 7 BSA Examinations: 10 Hot Spots June 8 Excel Explained: Pivot Tables June 8 Regulation CC - Check Holds June 8 FFIEC Cyber Security Risk Assessments: Recent Findings & Recommended Actions June 9 Dealing with Subpoenas, Summonses, Garnishments, Tax Levies, Etc. June 9 New Federal Rules Target Student Bank Accounts - Top 10 Issues June 9 Commercial Appraisal Review: Income & Sales Comparison Approach June 14 ACH Rules for Deceased Accountholders & Federal Government Payments June 14 How to Analyze the Purchase of an Existing Business June 16 Credit Administration in Commercial Banks: Seven Effective Habits June 16 SSNs, EINs, and ITINs: Understanding our Job as a Withholding Agent June 21 Compliance & Legal Issues in Employee Screening Pre & Post Hire June 21 Checks and Deposits - Vital Issues June 21 TILA-RESPA Integrated Disclosure (TRID) Rule: Fallout from Implementation June 22 Cyber Security and FFIEC Examinations June 22 Regulator Guidance of HVCRE: Issues, FAQs & Clarification of Basel III Standards June 23 Preparing Call Report Basic Lending Schedules: Coding, Classifications & Loan Loss Allowance June 23 Lending to Municipalities June 23 Compliance Perspectives June 28 Skills & Tools for Improving Teller Performance June 28 HMDA June 28 Handling Social Security Representative Payee Accounts - 25 Questions and Answers June 30 Understanding FCRA Permissible Purposes in Obtaining Credit Reports Celebrating 125 Years
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April 2016 | KENTUCKY BANKER 13
KENTUCKY BANKERS ON THE MOVE
Ken Dozer
Mark Suter
Your Community Bank has named Ken Dozer as Market President for Hardin County. Dozer is a business banking specialist who will lead the bank’s Business Services and Treasury Management units. He will also lead the bank’s Hardin County financial centers in Elizabethtown, Radcliff and Vine Grove overseeing staffing, coaching and community involvement.
Farmers Bank Jessamine County is pleased to announce that Mark Suter has been named Senior Vice President and Chief Credit Officer. Mark has over 30 years of banking experience, including seven years with Farmers Bank.
Bruce Marshall
Nicholas R. Eberhard
Farmers Bank Jessamine County is pleased to announce that Bruce Marshall has been named President and CEO. Bruce has over 24 years of banking experience and has been with the bank as Senior Lending Officer for the last six years.
Citizens Bank announces the recent promotion of Nicholas R. Eberhard to Senior Vice President/Commercial Loan Officer. Mr. Eberhard joined Citizens Bank in October 2004. Nick has served in a variety of roles throughout the bank, but has been a valuable asset as a commercial lender for the last 6 years. Nick graduated from the University of Kentucky in 2003.
Fontaine (Chip) Banks, III
Sarah Suitor
Farmers Capital Bank Corporation announced the promotion of Fontaine (Chip) Banks, III as Senior Vice President and Chief Investment Officer of the company. Mr. Banks will begin his new role on April 1, 2016. Mr. Banks has 30 years of banking and investment experience with Farmers Bank & Capital Trust Co., a subsidiary of the company.
Sarah Suitor has joined the team of The Paducah Bank and Trust Company as a Vice President/Commercial Relationship Manager. She brings 10 years of financial services experience to Paducah Bank. She earned a Bachelor of Science degree in business administration from Auburn University and a Masters in Business Administration degree from Murray State University.
Greg Siegrist
Seth Darnell
Greg Siegrist has joined Forcht Bank as Senior Vice President and Commercial Banking Officer at the Jeffersontown Banking Center. Mr. Siegrist has 23 years of experience in community banking and business lending. Mr. Siegrist is a graduate of Indiana University. He is active in his community as a member of Hand in Hand Ministries and Volunteers of America.
Murray Bank announced that Seth Darnell has been promoted to the position of Consumer Loan Officer. While Darnell is new to the position of Consumer Loan Officer, he is not new to The Murray Bank. He started his career as a part-time teller in June of 2011, was moved to fulltime teller shortly thereafter, and was named head-teller of the Hazel Office upon it’s opening in 2013.
Debbie Murdock
Taylor Hicks
Murray Bank announced the hiring of Debbie Murdock as Retail Operations Manager. Murdock comes to The Murray Bank from BB&T, where she served as Teller Supervisor. She also brings over 34 years of experience in the financial industry, including both retail and commercial banking.
Community Financial Services Bank (CFSB) recently promoted Security Analyst Taylor R. Hicks to Information Security Officer for CFSB. This promotion, unanimously approved by CFSB President/CEO/Chair Betsy Flynn and the Community Financial Services Board of Directors, was made to ensure customer service and further secure the future of CFSB.
Jeremy Teater
Wendy Kozlowski
Farmers Bank Jessamine County is pleased to announce that Jeremy Teater has joined the lending staff at the Main Office. Jeremy has 14 years of banking experience and is a lifelong Jessamine County resident.
Farmers Bank Jessamine County is pleased to announce that Wendy Kozlowski has been named Senior Vice President and Loan Officer. Wendy has over 18 years of banking experience, including six years with Farmers Bank. Her area of expertise is mortgage lending.
Want to announce a promotion? Email photos & announcement to jfischer@kybanks.com A promotion announcement in KENTUCKY BANKERS ON THE MOVE consists of the following: Banker name, bank name, branch, new position, previous position, college and hometown. 14 KENTUCKY BANKER | April 2016
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Independence Bank Named Overall Top Third Party Originator Cindy Aull Recognized as Top KHC Lender
Independence Bank was named Overall Top Third Party Originator for 2015 by the Kentucky Housing Corporation (KHC). Independence Bank was one of the 87 lending partners throughout the state that work with first time home buyers through the Kentucky Housing Corporation program. This is the first time Independence Bank has won the Top Third Party Originator lender award, closing 49 loans with KHC for the 2015 calendar year. The 11th Annual Lender Luncheon, announcing top KHC producers, was held Thursday, March 3, 2016, at Claudia Sanders in Shelbyville, Kentucky. Cindy Aull (at right) of Independence Bank was also recognized as a top KHC lender for 2015. Cindy has been partnering with KHC for 15 years in the mortgage lending business. When asked what her clients liked about working with KHC, Aull said: “I love partnering with KHC to make ‘Dreams Come True’ by offering a product that fits the client’s needs.”
Proudly Serving KentucKy BanKS for 25 yearS t ax -f ree /t axaBle M uniciPal B ondS • uS t reaSurieS /a gencieS
Bill Barker Toll Free: 800.292.4563 bbarker@rsanet.com
One Riverfront Plaza • 401 W Main St, Suite 2110 • Louisville, KY 40202
Louisville ~ Lexington ~ Cincinnati -KBa a SSociate M eMBer Member FINRA and SIPC • Investment Products Not FDIC Insured • No Bank Guarantee • May lose value.
Celebrating 125 Years
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The Cecilian Bank: Where Tradition and Progress Meet
by Angie White, KBA Sponsorship Relations
community. In 1976, the bank opened its second branch in Rineyville, Kentucky and 113 years later The Cecilian Bank CECILIA, Ky - In 1903, Theodore Roosevelt was President, operates 12 branches in 4 counties – Meade, Hardin, Grayson, the first Tour de France race was announced, Wizard of Oz and Breckenridge. made its debut, Ford Motor sold the first Model A car, and The Cecilian Bank opened its doors just five miles west of Elizabethtown in what is now called Cecilia, Kentucky, under the leadership of Mr. Allen Arment. The bank started with $15,000 capital and in just a year reported earnings of $859.35. Within a couple years, the bank had grown, had purchased its first adding machine and issued its first paycheck to Mr. J.C. Cardwell, Cashier. Fast forward 25 years later, it is now 1928 – the first air conditioned office building opened in San Antonio, Mae West made her New York City debut, Time magazine puts out its first issue, and The Cecilian Bank issued a memo from its Board of Directors announcing that a “new and more modern building” that would provide protection from burglary by utilizing a burglary proof vault. This would enable the bank to operate in a more secured environment. The new building was completed just two months after the crash of the New York Stock Exchange, which was the beginning of the Great Depression. While many banks had to close their doors during this time, The Cecilian Bank remained open because of its new construction.
Mr. Greg Pawley was appointed CEO/President in 2011 after Mr. Bob Owsley, who has been employed at the bank since 1958, was promoted to Chairman of the Board of Directors. Pawley started with the bank in 1997, serving as Chief Financial Officer and transitioned into the role of Chief Executive Officer in 2005. “While the culture of the bank is to hang on to its traditional core values, we continue to advance the vast amount of services that we provide,” said Pawley. “We have a saying that The Cecilian Bank is where Tradition and Progress Meet.”
The Cecilian Bank is unique in many ways, but the most important thing to note is that it has always been locally owned and operated under the same name, a rarity in today’s bankOver the years, the bank continued to grow alongside the ing world.
Debbie Lassiter Named Employee of the Quarter at The Murray Bank MURRAY, Ky – The Murray Bank President and CEO, Bob Hargrove, presented Debbie Lassiter with the Employee of the Year award at the Bank's recent employee meeting (pictured at left). Lassiter currently works in Deposits/Operations at the Main Office. The Murray Bank Employee of the Year award is decided by the vote of fellow employees. Lassiter has worked at The Murray Bank for 11 years. She lives in Murray with her daughter Susan and enjoys reading and crocheting. “I am flattered to receive the Employee of the Year award,” said Lassiter. “It’s such a pleasure to work every single day in an environment that fosters success with people who lead by example!” “Debbie is an employee who is the ultimate team player,” said Hargrove. “Her quiet dedication, commitment and capacity to contribute at the bank and in her community combine to make Debbie a uniquely valuable resource in the eyes of her colleagues at The Murray Bank.” 16 KENTUCKY BANKER | April 2016
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Farmers National Bank Paducah Bank Presents Receives March of Dimes Award
DANVILLE, Ky - Farmers National Bank recently was recognized by the March of Dimes Foundation, Bluegrass Division, for fundraising efforts during 2015. Farmers National Bank accepted the No. 2 Fundraising Team award for Boyle, Garrard, Lincoln and Mercer counties. Pictured below: Greg Caudill, President, congratulated 2015 committee members Whitney Cash; Beth Pike; Mary McKitric & Angie Baker for leading bank staff in fundraising efforts. Staff members within Farmers National Bank locations of Boyle, Garrard, Lincoln and Mercer counties participated.
Check to Baptist Health
PADUCAH, Ky - Paducah Bank employees Terry Bradley and D’Che Harper-Beyer presented a check for $2,000 to Baptist Health Paducah (pictured below). The check represents donations from Paducah Bank customers and staff who placed ornaments on bank lobby Christmas trees during December. Each ornament was customized with the name of a loved one who had battled cancer, for a minimum donation of $10. The proceeds will be used by Baptist Health Foundation Paducah for their cancer fund which supports cancer patients and their families. “We began this holiday project in 2014, and it was such a great success we continued it for Christmas 2015,” said President Mardie Herndon. “I never cease to be impressed by the generosity of our staff and customers!"
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The Two Days in 2016 That Will Impact Your ACH Program by John Westbrook & Rick Taylor, MCM This year there are two major changes that will impact your ACH Program, Same Day ACH and Unauthorized Entry Fee’s. Your institution should already be preparing for these important changes to the ACH Network.
modifications as necessary as well as consider additional pricing and charges for this service. • Review credit risk management processes and consider prefunding.
RDFI Impact: All RDFIs will be required to begin acceptSeptember 23, 2016 ing Same-Day ACH transactions starting during Phase 1. Rule: Same Day ACH: Moving Payments Faster - PHASE 1 RDFIs should be aware of the following impacts to their ACH Program: Changes: This rule will enable ACH Originators to send Same-Day ACH transactions to any RDFI. Each Same-Day • RDFIs need adequate staffing to meet the demand of entry will be assessed a Same-Day Entry Fee to help mitimultiple daily clearing windows. gate the cost of enabling and supporting Same-Day ACH for RDFI’s. Phase 1 will introduce two clearing windows for • RDFIs will receive 5.2 cents per each Same-Day TransSame-Day ACH, 10:30 AM and 2:45 PM, with settlements action received. occurring at 1:00 PM and 5:00 PM, respectively. All Credit transactions, except for IAT, any transaction less than • RDFIs should process based on Settlement Date pro$25,000, and Automated Enrollment Entries (ENR) will be vided by ACH Operator. available for Same-Day processing under Phase 1. • RDFIs will be required to provide funds by the end of ODFI Impact: Same-Day ACH services will be an optional the processing day. service for all ODFIs to offer to their originators, however, if they decide to begin offering this service, they should pre• RDFIs will have to perform adequate vendor manpare by doing the following: agement to ensure that vendors and processors are prepared to handle Same-Day transactions and re• Update internal processing applications and procedures view downstream applications the may be impacted by to accommodate the new windows for Same-Day ACH. Same-Day entries. • Determine what risks are presented by offering SameDay ACH and update their risk assessment to reflect the new environment. • ODFIs that offer Same-Day ACH must take care to ensure they are appropriately using the Effective Entry Date to prevent inadvertently originating Same-Day ACH when it was not the originator’s desire. • ODFIs will have to perform adequate vendor management to ensure their vendors and processors are prepared to handle Same-Day ACH transactions. • Review contract wording and guidelines and complete 18 KENTUCKY BANKER | April 2016
• RDFIs should consider impacts to customers who currently have their payroll available at the opening of business on settlement date. If the employer shifts to Same-Day ACH, availability could be later. This could cause an increase in overdrafts. • RDFIs should review Same-DAY ACH transactions for BSA implications. Faster payments could mean additional SAR monitoring and reporting. Originator/TPS: Originators and TPS should discuss SameDay ACH with their Financial Institution to determine if it is appropriate for them. Additionally, they should decide if
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it is cost effective at the current rate of 5.2 cents per transaction. Industry Opinion: All DFIs should be proactive on the subject of Same-Day ACH. These changes will affect workflow, may require staffing changes, and could impact intra-day cash positions. While the Same-Day process will be a long (and perhaps cumbersome) road for smaller institutions, it is important to focus on one stage at a time. For this stage the important take-away for most DFIs is to not panic. This process is being implemented in stages because NACHA recognizes that these changes will impact every facet of the ACH network. If you are aware of the impact it will have on you either as an ODFI, RDFI, or originator, you should be able to make the necessary changes to your program and be ready for Phase 1 in the required timeframe.
ODFI Impact: ODFI’s already calculate an unauthorized return rate for each of their originators and should be able to predict the potential cost this rule will create. While NACHA has not released a final fee amount, it is projected to be between $3.50- $5.50 a return. ODFIs will continue to work with originators to ensure that these instances are kept low and the percentage of unauthorized returns stays below .05%. After the final fee amount is releases, financial institutions may want to consider amending origination agreements to pass the associated fees on to the originators. RDFI Impact: RDFIs will be credited fees via their settlement account. RDFIs should implement a system to track those unauthorized returns that originate to ensure that it matches the amount of credited fees received.
October 3, 2016 Rule: Unauthorized Entry Fee
Originator/TPS: These fees will undoubtedly trickle down to the originators, as they will be the reason the ODFIs will have to bear additional fines for unauthorized returns.
Changes: This rule establishes a fee system where the ODFI will pay RDFIs for each entry they return under any unauthorized return code (R05, R07, R10, R29, and R51). This is being implemented to help reduce unauthorized transactions across the ACH network.
Industry Opinion: NACHA has been slowly increasing the pressure on ODFIs and originators to try and minimize the amount of unauthorized returns in the ACH network. As the amount of overall unauthorized returns goes down, the fee imposed is expected to increase.
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KENTUCKY BANKER MAGAZINE The Education Issue
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From the archives... 1938 Kentucky Banker Magazine
20 KENTUCKY BANKER | April 2016
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Your Local ABA Training Provider Convenient. Affordable. Online. ABA Training is a comprehensive source for training and education available through the American Bankers Association (ABA) or previously through the American Institute of Banking (AIB). All AIB courses, certificates, diplomas and more are now part of ABA Training, and are brought to you by KBA's Education Solutions, your local ABA Training provider. ABA Training includes extensive learning opportunities suited to specific job roles, in both facilitated and self-paced online formats, as well as in person. Online training delivers unmatched content that meets the needs of today’s learners and the changing demographics of the banking industry. Many courses meet the requirements of the Institute of Certified Bankers (ICB) for exams or continuing education credits. Flexible and cost-effective, ABA’s online training opportunities are continually updated to provide a superior learning experience that can be accessed from anywhere, at any time. Facilitated Online Training Courses These courses are available in a virtual classroom environment, complete with fellow students, instructor guidance and feedback. Facilitated online training courses offer banking-specific content supported by: • Experienced instructors with banking expertise • Exercises and exams to validate your understanding • A flexible weekly schedule with no set day or time Self-Paced Online Training Courses These courses offer the greatest flexibility in skill-building and practical application as they are independent study and include real-life practice scenarios. Self-paced online training courses offer: • Rich graphics and interactivities in mobile-ready courses • Frequent self-checks to measure comprehension • Built-in-tools and job aids to support ongoing learning Diplomas and Certificates For more than 100 years, bankers have taken advantage of ABA diploma and certificate programs to prepare for careers in banking or to enhance the skills and knowledge they already possess. Certificates build the skills necessary for a specific position in the bank and can be taken entirely online as a certificate curriculum. Diplomas provide broader and more indepth coverage of banking as a profession. ABA Textbooks and Reference Materials ABA textbooks support the ABA Training curriculum. They are used in the delivery of facilitated online courses and can also be used to deliver training in your bank.
Visit www.kybanks.com, click on Education Solutions and click on ABA Training, for more info. Contact Lanie Minton at lminton@kybanks.com if you have any questions. Celebrating 125 Years
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Graduate Banking Schools Excellence in Educational Advancement
July 17-29, 2016
May 22 - June 3, 2016 From the LSU website... Over 15,000 executives have successfully completed the program which is held each spring on the LSU campus in Baton Rouge. The School’s purpose is to fill the need for graduate level study by bank officers and others meeting admission requirements leading toward a broader knowledge and understanding of major banking functions. KBA member testimonial... "I would definitely say that The LSU Graduate School of Banking was a key component in my career advancement to president and CEO of our local hometown bank. AND… I loved those ice cream sundaes in the cafeteria!!” Mike Mercer, KBA Vice Chairman President/CEO, First State Bank, Central City, KY
June 2 - 9, 2016 From the Stonier website: Did you know Stonier is the nation’s original graduate banking school? Now celebrating over 80 years of excellence in banking education, Stonier continues to lead the way, with a reputation as the industry’s preeminent graduate school. From it’s prestigious faculty and student body, to its partnership with the Wharton School, Stonier delivers the highest standard of executive education. 22 KENTUCKY BANKER | April 2016
From the Colorado website... Since 1950, the Graduate School of Banking at Colorado (GSBC) has built an impeccable reputation as a banking school geared to help students achieve lasting success in the banking and financial industries.
July 31- August 12, 2016 From the Wisconsin website... Since 1945, the Graduate School of Banking at the University of Wisconsin-Madison has been widely recognized as being the best, and most progressive, banking school in the country. We invite you to explore exceptional leadership and growth opportunities available through GSB for professionals across all areas of financial services. KBA member testimonial... "My experience in Wisconsin was a confirmation of how well the KBA General School of Banking prepared me for the Graduate School. The faculty at the KBA school were not only just as qualified academically, but provided a great foundation upon which to build at the graduate school. In hindsight, the intersession project at KBA was perhaps the single most useful tool I took to Wisconsin. Thank you so much for making the program a great stepping stone for my future career!" Dave Kunze, Vice President/Operations Officer Whitaker Bank, Georgetown, KY
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M&P Obtains $1.412 Million Jury Verdict in Favor of KBA Member Bank by Thurman Senn
This month, jurors were asked to decide to what extent an Eastern Kentucky community bank had been damaged when the defendant bank breached four Participation Agreements. The case was Citizens National Bank of Paintsville v. MCNB Bank and Trust Company, No. 7:12102, U.S. District Court, Eastern District of Kentucky, Pikeville Division. After deliberating less than two hours, the jury awarded 100% of the damages claimed by Citizens National Bank (“CNB”) in the amount of $1,412,650.64. M&P represented CNB from the very beginning of the lawsuit and was assisted at trial by Russell Davis of Baird & Baird PSC in Pikeville. As readers know, banks have a lending limit on loans made to a single borrower. If a lending limit is exceeded, a bank will sell a portion of the loan to another bank via “a loan participation.” Banks typically agree to participate in the loan in proportion to the amount of the loan principal they provide. In this case, MCNB (Weston, West Virginia) sold portions of four hotel construction loans to CNB, which paid $5.9 million for its share of the loans via four Participation Agreements. The borrowers made payments for several years, but MCNB eventually decided it no longer wanted to participate with CNB. Ultimately, MCNB unilaterally wire transferred $5.3 million to CNB, claiming that this terminated the Participation Agreements because it represented CNB’s percentage share of the principal amount of the loans remaining unpaid. CNB disputed MCNB’s right to terminate and filed suit in August 2012 to recover damages for breach of contract. Federal Judge Karen Caldwell ruled that MCNB had breached its contracts with CNB and ordered a jury trial on damages only. The first issue at trial was how to value the
future stream of payments. CNB used a formula to discount the anticipated future stream to a present value and offered evidence that its formula was appropriate to address any uncertainties. The second issue was a mitigation-of-damages defense by MCNB. CNB invested the money MCNB wired to it in an account at the Federal Reserve (the account to be used by the banks, per the agreements), which paid daily interest at a rate adjusted as the Fed raised and lowered rates. MCNB argued that this account was too conservative, and that CNB should have invested the $5.3 million in “mortgage-backed securities” (“MBS”). MCNB claimed that if these funds had been invested in this manner, CNB would have earned enough to fully offset its lost interest. CNB countered that there were no guarantees how much such MBS would earn; its regulators warned against buying too many of them; it already had more than it wanted; and a rise in interest rates could adversely affect the MBS’ market value. After hearing the evidence, the jury adopted CNB’s damages calculation and rejected MCNB’s mitigation-ofdamages defense. There are several important lessons from the verdict. First, the case only reached the jury because CNB’s Participation Agreements were written to prohibit a unilateral termination by MCNB, which highlights the importance of well-written bank contracts. Second, the jury was shown a number of CNB’s internal policies (including its investment policy and liquidity policy), which demonstrates the importance of appropriate, well-written policies. Third, M&P’s experience is that juries have little sympathy for banks perceived as acting improperly, and, for this reason, if ever in the shoes of the defendant bank, you need to evaluate thoroughly what might represent a fair settlement and the risks of going before a jury.
M&P is a leading banking and finance law firm representing financial institutions, businesses and individual clients throughout Kentucky and Indiana.
MorganandPottinger.com Thurman Senn is of counsel at Morgan & Pottinger, P.S.C.
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This article was written by Chuck Towle, President of one of our newest partners, KBS. A long time fixture in the bank insurance market, KBS is overhauling its product offerings in a major way, and we’re proud to be representing the “new” KBS. If you have any questions or comments, or if I can be of service, just drop me an email, or give me a call. Chuck Maggard, President & CEO, KBA Insurance Solutions 502-736-2671 | cmaggard@kybanks.com
Non-Customer Deposits to Your ATM May Result in Losses by Chuck Towle, President, KBS
Business Decorations brought suit against both Midwest State Bank and East Coast National Bank. Under Uniform Commercial Code §3-206(c)(2), if a check bears the words “for deposit,” a conversion liability is imposed on the depositary bank if it fails to deposit the check to the payee’s account unless the payee otherwise receives the amount of the check.
Midwest State Bank received in its ATM a $1,500 check for deposit. The check was payable to Business Decorations, and was endorsed “For Deposit Only.” The depositor was a customer of East Coast National Bank and was depositing the check to an account in East Coast National Bank. Midwest State Bank did not have any information about this account except that the ac- However, it was unclear which bank was the deposicount number was an account at East Coast National tary bank. Under UCC §4-105(2), a depositary bank is the first bank to take the check. This would make Bank. Midwest State Bank the depositary bank. Under Regulation CC (12 CFR §229.2), Midwest State Bank employa depositary bank is the ees processed the check as bank holding the account they would have any other forinto which the check is deeign ATM deposit. The check posited, even though the was sent through the normal check is physically received clearing process. The funds and endorsed first by anwere credited to the East Coast other bank. This would National Bank for deposit to make East Coast National the account linked to the ATM Bank the depositary bank. card. Both banks argued that they were not the deposiSimilar ATM deposits became tary bank based on these a regular occurrence over the opposing definitions. next three years, with more than 300 deposits totaling in excess of $500,000. In an instance similar to this, the court applied the Eventually the management of Business Decorations UCC definition, finding that the bank that owned the noticed their accounts receivable were growing rapid- ATM was liable. In a future case, a court could easily ly and began investigating their records. Many of their decide to use the Regulation CC definition, or an ATM customers claimed payments had been made on their Network Agreement could hold the bank that holds accounts. These customers produced copies of the paid the account liable as the depositary bank. This liability checks. Business Decorations then discovered that could occur even though the bank would never see the its bookkeeper, Jane Crook, had been depositing the deposited check and would never know the check is endorsed “For Deposit Only.” checks through an ATM into her personal account.
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The loss above resulted in the bank that accepted checks through its ATM being liable for failure to see that the checks were deposited to the account of the payee. This liability was imposed even though this bank had no knowledge of the name on the account in the other bank. Some ATM network agreements can contractually define which of the banks is liable to the other bank under what conditions. If your bank is accepting deposits through your ATM for deposit to customers of other banks, your employees should be verifying the endorsements and verifying that the checks are deposited to an account in the name of the payee of the check. Failure to do the proper verifications could result in significant liability to your bank unless a network agreement allows passing the liability to the other bank. If your ATM system does not allow you to know the complete name on the account at the other bank, you should reconsider whether or not you will accept the substantial risk of blindly taking deposits to accounts in other banks through your ATM.
You also may want to reconsider whether or not you will allow your customers to make deposits in other banks’ ATMs. Unless the other banks have a contractual obligation to your bank requiring them to verify endorsements and follow restrictive endorsements, you may have a substantial risk when you allow your customers to make deposits in other banks’ ATMs. All ATM deposits need to be verified in the same manner as other deposits received by your bank. Your employees must look at the payee, the endorsement and the name on the account to which the check is being deposited to make certain that the check can be properly deposited to such account. In cases where the ATM system prevents this proper verification process, checks should not be accepted for deposit. Crooks often choose to use ATMs to make deposits of checks payable to others because it is much easier than facing a teller. Unless the deposits are handled with care, banks can and will continue to have substantial losses.
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Banking on Industrial Hemp
by Richard A. Vance, Partner, Stites & Harbison Colorado has legalized marijuana for medical and recreational use. Kentucky has legalized the production of industrial hemp. Both substances are derived from the same species, cannabis sativa l., which Congress has declared unlawful under the Controlled Substances Act (CSA) [1]. In both these states, new businesses see lots of economic opportunity and are rapidly organizing and expanding to take advantage. Can banks assist in these new economic ventures? Can Kentucky banks learn anything from recent litigation in Colorado? Although marijuana is still illegal under the CSA, more than 20 states have legalized marijuana for medical or recreational purposes. Rather than strictly enforce the federal prohibition, the Justice Department issued guidance to local U.S. attorneys as to its “enforcement priorities”: distribution to minors; gang activity; export to states where marijuana is still illegal; preventing violence; illegal use of firearms; and drugged driving.[2] Many inferred from this memo that federal law enforcement will “look the other way” if lower-priority marijuana activities are involved. Colorado bankers must comply with the Bank Secrecy Act [3], which requires banks to report suspicious transactions in order to help federal law enforcement detect and stop money laundering, drug trafficking, and other criminal activities. They wonder if they are required to file Suspicious Activity Reports (SARs) on customers operating in medical or recreational marijuana dispensaries. In response, the Department of Treasury Financial Crimes Enforcement Network (FinCen) published guidance in which it proposed a “Marijuana-Limited” SAR filing, where a bank could indicate that its customer was engaged in marijuana activities that were of low-priority in the eyes of federal law enforcement. [4] If the customer were engaged in higher-priority marijuana activity, the bank would be required to file a “Marijuana-Priority” SAR. But banks still remain concerned that federal law enforcement could invoke the onerous civil forfeiture laws to seize bank accounts, real estate, and other collateral used by marijuana-related businesses (the new acronym is MRB), thereby endangering loan portfolios.
denied their application for a “master account.” A “master account” [5] or access to one through a correspondent bank is a practical necessity to have access to the Federal Reserve payments system. The Fourth Corner Credit Union sued the Kansas City fed, asking the federal district court to order the bank to set up a master account. But the court, observing that federal law still prohibits growing and selling marijuana and assisting those who do, refused, stating that courts cannot use their equitable powers to facilitate criminal activity. [6] The court refused to rely on the recent advice from the regulators that seemed to suggest that they might “look the other way” for “low-priority” activities. The frustrated judge observed: “a federal court cannot look the other way.” The court called the current inconsistency between state and federal law “untenable” and pleaded for congressional action to clear up the confusion. Under this ruling, it appears that MRBs will have to continue to operate as cash businesses, lacking access to the banking system. This decision is pending in the Tenth Circuit Court of Appeals. [7]
Fortunately, the legal framework governing industrial hemp in Kentucky is much different and much more business-friendly. Even though industrial hemp is the same species, cannabis sativa l., by statutory definition it is limited to 0.3% of tetrahydrocannabinols (THC), an amount that has no psychoactive properties. Unlike the marijuana at issue in Colorado, industrial hemp is legal, not just under state law, but under federal law. In the 2014 Farm Bill, Congress specifically authorized “agricultural pilot programs” to research industrial hemp. Such pilot programs must be conducted only by (or under the supervision of) institutions of higher learning and state departments of agriculture, and are limited to the study of the growth, cultivation and marketing of industrial hemp. In Kentucky, growers and processors may participate in a pilot program only after a criminal background check and approval of a proposed research program by the Kentucky Department of Agriculture (KDA). Then the grower or processor must enter a memorandum of understanding with the KDA, confirming the scope of research and agreeing to certain other parameters. Banks considering lending to industrial hemp businesses should confirm that the proposed borrowers have To encourage Colorado bankers to do business with the passed the criminal background check and have a valid MOU MRBs, a creative solution was needed. MRBs sought and re- with an approved research program. Then banks may take ceived from the Colorado Division of Financial Institutions a the usual real estate, equipment and accounts as collateral. license to establish their own credit union to serve their in- As to the raw industrial hemp and hemp seeds, banks cannot dustry. However, the Federal Reserve Bank of Kansas City rely on such property as collateral, because possession by anycontinued on page 30 26 KENTUCKY BANKER | April 2016
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KENTUCKY BANKER MAGAZINE The Education Issue
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KBA Education Seminars What you need to know from those who know it.
Loan Review Seminar (Jeremy Gray)
This seminar explores the following topics: Credit Risk Management (including sub-topics such as Determining Risk Tolerance), Risk Supervision, Risk Monitoring and Structuring of an Effective Risk Management Process, Purpose & Role of Loan Review (including how to Define Objectives), How to go About the Selection Process/Determining Scope, Loan Policy Compliance, Loan Review as an early warning function and quality control mechanism, and Risk Rating System Criteria/Examples. May 10, 2016 | 9 a.m. – 4 p.m. Four Points, 1938 Stanton Way, Lexington May 11, 2016 | 9 a.m. – 4 p.m. Holiday Inn, 1021 Wilkinson Trace, Bowling Green Cost: $275 For more information and to register visit www.kybanks.com
Call Report Seminar (Crowe Horwath, LLP)
Accurate financial reporting is key to a well-run financial institution and a focal point of the regulatory agencies in assessing safety and soundness. However, with the multitude of changes in both the accounting and regulatory landscape, completing the Call Report is no simple task. Our Call Report Seminar will help you navigate these changes by focusing on the following areas: Schedule RC-R, Schedule RC-C, Changes to Call Report and Hot Topics and an Open Forum to discuss any other aspects of call reporting. May 25, 2016 | 9 a.m. – 4 p.m. Holiday Inn, 1021 Wilkinson Trace, Bowling Green May 26, 2016 | 9 a.m. – 4 p.m. Four Points, 1938 Stanton Way, Lexington Cost: $275 For more information and to register visit www.kybanks.com
Bankruptcy Part II Seminar (Martin Tucker & Sarah Mattingly with Dinsmore & Shohl, LLP)
When bank customers enter bankruptcy, it can be difficult to understand and navigate the many complex issues facing financial institutions and their affected credits. In order to best protect and preserve your bank's rights after a customer files bankruptcy, you must have a basic understanding of bankruptcy fundamentals. However, in many instances being armed with the fundamentals is not enough to fully assess the quality and risks associated with their customers and collateral in the bankruptcy arena. You must also comprehend how that basic knowledge translates into practical applications. This seminar will give you a deeper understanding of the bankruptcy process. June 21, 2016 | 10 a.m. – 3 p.m. KBA Offices, 600 W. Main St., Louisville Cost: $275 For more information and to register visit www.kybanks.com
Certified Teller Seminar (Starla West, Starla West International)
During this content-rich and interactive workshop, Executive Presence Coach, Starla West, will equip your teller team with the knowledge and tools needed to confidently make smart decisions about how they dress for work each day. After attending this seminar participants will be able to describe how their professional dress impacts the customer experience, identify the various levels of professional dress and explain when and where they are most appropriate, and use the ROI of clothing purchases to get the most out of their dollar when shopping for work-appropriate clothing. July-August Various Locations (See www.kybanks.com) Cost: $65 For more information and to register visit www.kybanks.com
Business Law Basics & Lender Liability Seminar (David Osborn)
This seminar will provide the banker with a basic framework of Business Law including the judicial process. Emphasis will be placed on how the legal system can help/harm the banker including how to avoid a lawsuit due to lender liability through maintaining both ethical behavior and effective negotiations. August 10, 2016 | 9 a.m. – 4 p.m. Holiday Inn, 1021 Wilkinson Trace, Bowling Green August 11, 2016 | 9 a.m. – 4 p.m. Four Points, 1938 Stanton Way, Lexington Cost: $275 For more information and to register visit www.kybanks.com
Cyber Security Seminar (Chad Knutson, SBS Institute)
October 10, 2016 | 9 a.m. – 4 p.m. Holiday Inn, 1021 Wilkinson Trace, Bowling Green October 11, 2016 | 9 a.m. – 4 p.m. Four Points, 1938 Stanton Way, Lexington Cost: $275 For more information and to register visit www.kybanks.com
Celebrating 125 Years
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Making CRA Profitable Interview conducted by Angela White, KBA Sponsorship Relations The Community Reinvestment Act (CRA) has been referred to as “just a cost of doing business” by some financial institutions. While that might be the perception of some bankers, we believe that there are many strategies that can be deployed to provide for a positive return on CRA. One investment strategy is using the Low Income Housing Tax Credit to offset federal income tax liability while meeting the housing needs of those with low to moderate incomes. To further understand this tax credit, I spoke with Norma Polanco-Boyd (NPB), District Community Affairs Officer at the OCC and Jon Welty (JW), Vice President at Ohio Capital Corporation for Housing (OCCH), a KBA endorsed Business Vendor. The following are some highlights of our conversation that I wanted to share with our Members. What is the Housing Investment Partnership of Kentucky? JW: HIPK is a collaborative effort of the Ohio Capital Corporation for Housing and others including the KBA, HOPE of Kentucky, and the Federation of Appalachian Housing Enterprises (FAHE) to facilitate private investment in affordable housing throughout the Commonwealth of Kentucky. The purpose of HIPK is to raise and invest corporate equity capital into quality, sustainable, affordable rental housing funded through the Low Income Housing Tax Credit Program administered by the Kentucky Housing Corporation.
ties in acquisition/rehabilitation deals. The units must be leased to income-qualified tenants at affordable rates. The LIHTC allows investors to claim tax credits on their federal income tax returns. Once a property is placed into service, the tax credits are claimed annually over a 10-year period; however, the project must satisfy specific low-income housing compliance rules for the full 15year compliance period. If the project fails to comply with LIHTC program rules during the 15-year compliance period, the IRS may recapture previously claimed credits. The property must remain affordable for at least 30 years. What are the characteristics of an LIHTC equity fund? JW: At OCCH, an equity fund is structured as a Limited Partnership, where OCCH serves as the General Partner and the bank investors comprise the Limited Partners. The equity fund then invests in the project level limited partnership where OCCH and the bank investors control the limited partner interest. The general partner interest is typically owned by the developer. OCCH offers one multifamily equity fund a year which contains between 30-40 projects located across Kentucky and Ohio, with 100% of the units dedicated to low- income elderly, families or special needs populations. The projects may range from 25 units in rural communities to a 100+ unit high-rise building in an urban area. OCCH’s equity funds average $200M - $250M annually and are issued in January of each year with a final investor closing in June.
How long has OCCH been involved in the LIHTC program? JW: OCCH was formed in 1989 as a nonprofit organization to cause the construction, rehabilitation and preservation of affordable housing. In 2001, OCCH expanded its service area to include Kentucky, as well as spurring over $300M of private investment used to create 3,005 units of affordable housing located in 68 projects and 38 counties within the Commonwealth.
How is an organization like OCCH involved? JW: OCCH is a nonprofit financial intermediary that provides developers of affordable housing with access to capital markets. OCCH provides pro-bono consulting services to nonprofit and for-profit developers who produce affordable housing in the communities in which they serve. Services range from early predevelopment work with funding applications from KHC, local and state agencies, banks and the Federal Home Loan Bank, as well as structuring the tax credit syndication through an OCCH sponsored equity fund. Multiple projects are then combined to form an equity fund allowing for investment by financial institutions. OCCH also provides on-going asset management services including annual unit and project inspections, required income qualification compliance, financial oversight and reporting to our investors. OCCH is a nationally recognized leader in affordable housing and offers numerous training programs, seminars, and conferences to continue to build and strengthen the relationships and knowledge of our partners.
How does the program work? NPB: The LIHTC program authorizes state housing credit agencies (HCAs) to award federal tax credits to developers of qualified affordable rental housing. The tax credits are used by developers to raise equity for their projects. The equity capital generated from the tax credits lowers the debt burden on LIHTC properties, making it easier for owners to offer lower, more affordable rents. The equity raised with LIHTCs can be used for newly constructed and substantially rehabilitated affordable rental-housing properties for low-income households, and for the acquisition of such proper-
How can LIHTCs benefit a bank? NPB – As noted previously, loans and investments in LIHTC-financed properties help banks meet community credit needs, and may therefore be eligible for CRA consideration. And as Jon mentioned, the yields can be attractive. A bank’s return on a LIHTC investment depends on a number of factors, including the bank’s underwriting and management of the investment. As an asset class, historic returns on investments and loans in LIHTC projects have been competitive with similar alternative investment opportunities. Banks may choose to invest in LIHTC projects for additional
What is the Low-Income Housing Tax Credit program? NPB- The Low-Income Housing Tax Credit (LIHTC) is the federal government’s primary program for encouraging the investment of private equity in the development of affordable rental housing. Since its creation in 1986, the LIHTC has helped to finance more than 2.8 million newly developed or rehabilitated affordable rental-housing units nationwide.
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reasons. Involvement on the investment side of LIHTC transactions may generate additional commercial lending opportunities with existing customers, as well as help to establish new banking relationships. LIHTC-financed projects often require additional loan products and bank services, including pre-development financing, bridge loans, construction loans, and permanent mortgage financing. How does OCCH work with financial institutions? JW: OCCH provides various services to its bank partners, ranging from due diligence presentations to assisting in CRA reporting. Each investor is provided with a tailored due diligence package for use in underwriting the investment, which may include an on-site meeting at OCCH’s office in Columbus and/or a site tour anywhere in Kentucky to view some of OCCH’s past and present investments. Construction and permanent financing opportunities are also presented to investors when a local need exists. On a quarterly basis, OCCH provides updated financial reporting and projections for each equity fund so investors can adjust the projected tax benefits as necessary should there be an unexpected change. OCCH hosts several annual events for its investors to remain engaged and network with other investors and developers. Do banks receive positive Community Reinvestment Act (CRA) consideration for making a tax credit investment? NPB: Yes, banks can receive positive CRA consideration for such investments provided they benefit a bank’s assessment area or the broader statewide or regional area that includes a bank’s assessment area. Banks may receive positive CRA consideration for investments made in LIHTC projects and funds and if they provide predevelopment financing or construction/permanent financing for LIHTC projects and funds. An investment in a LIHTC project (or in a fund consisting of several LIHTC projects) is an example of a qualifying investment permitted for national banks, under the OCC’s public welfare investment authority (12 CFR Part 24). Part 24 outlines certain filing requirements, which are also described in this Public Welfare Investments Fact Sheet (*link below) Federal savings associations may make community development investments in affordable housing projects that use LIHTCs, using different statutory and regulatory authorities than available for national banks. FSAs’ public welfare investments are also subject to different investment limits which are outlined on the OCC’s web site. Information about public welfare investments for FSA can be found at www.occ.gov/pwi. What are the risks to bank investors? NPB: While investing in LIHTCs has benefits, there are risks that need to be identified and understood. Careful planning, selection of good partners, effective documents, and diligent oversight can help banks mitigate risks. A bank should consider the compliance, tax planning, underwriting and credit, liquidity, and operational/ reputation risk of any investment it may make. To take full advantage of the tax credits under the LIHTC program, a bank should have taxable income projected for the term of the investment and evaluate its exposure to the alternative minimum tax. In addition, there needs to be some sort of ongoing oversight to assure that the properties are financially sound and the units are leased to income qualified tenants at affordable rates. LIHTCs are subject to recap-
ture during the 15- year compliance period. Bank investors typically underwrite LIHTC investments as commercial real estate transactions. A bank investor must perform front-end due diligence to ensure satisfaction with the financial capacity, performance, management capacity, and expertise of the project developer and general or managing partner. As an investor in a multifamily property operating for a minimum of 30 years, a bank must be comfortable with the quality of physical improvements in the properties, projected reserves, debt service coverage, and guarantees. Once a transaction meets a bank’s underwriting criteria, the bank can evaluate the transaction from an investment perspective. Banks should consult their own tax advisors about the tax treatments and consequences that may apply to their own transactions. JW: While all investments have risks, OCCH has been able to mitigate risks by using over 25 years of experience and historical operational data of its portfolio of over 40,000 units to effectively underwrite projects. Additionally, I think it is important to note that tax credit investments have the lowest rate of foreclosure in the commercial real estate asset class. No OCCH sponsored investment has ever been in foreclosure or not provided the anticipated tax benefits to its investor. How can a KBA Member learn more about investing in tax credits? NPB: I can be reached at (216) 274-1247 or Norma.PolancoBoyd@ occ.treas.gov. Additional information is available on-line: http://www.occ.gov/topics/index-community-affairs.html http://www.occ.treas.gov/topics/community-affairs/publications/ insights/insights-low-income-housing-tax-credits.pdf JW: I would be pleased to provide additional information on tax credit investing to any interested KBA member. I can be reached at (614) 224-8446 or jwelty@OCCH.org [NPB] Ms. Polanco-Boyd is the District Community Affairs Officer (DCAO) for the OCC in the Central District. Norma is based in Cleveland, Ohio, but her service area includes the states of Ohio and Michigan, northern Kentucky and the St. Louis MSA. As a DCAO, Norma provides examination support to examiners conducting CRA exams, as well as guidance and technical support to banks on CRA activities and assistance in identifying community development opportunities. Jonathan Welty is a Vice President at Ohio Capital Corporation for Housing (www.occh.org) where he is responsible for the Investor Relations and the Y15 disposition management. He also serves as President of Ohio Capital Finance Corporation where he oversees the management of the Ohio Affordable Housing Loan Funds. He can be reached at jwelty@occh.org. OCCH is an Endorsed Vendor of the Kentucky Bankers Association and has raised over $3.5B of investor equity for affordable housing in Kentucky and Ohio.
* http://www.occ.gov/topics/community-affairs/publications/fact-sheets/fact-sheet-public-welfare-investments.pdf Celebrating 125 Years
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April is Financial Literacy Month!
KBA’s Program with EVERFI is Available for Students and Adults KBA’s Financial Literacy Program with EverFi is the perfect April, EverFi has seen thousands of teachers, bankers, polsolution for banks looking to expand their outreach in the iticians, business people, deans, parents and students stand community to students and adults! At EverFi, they wish up doing their part to make Financial Literacy Month imFinancial Literacy Month was a year-round portant and impactful, improving the lives of countless students and adults. event. Fueled by this groundswell of effort from across the country, EverFi wants to do their part to spread the message about the value of quality financial education. Everyone has a role to play in preparing students and adults for their financial futures and now is the time to make a difference!
EverFi’s team works day-in and day-out with students and families across the country; they see the lasting consequence that can result from limited financial knowledge. In a survey conducted with over 20,000 high school students, 60% reported that they were worried about money . . . this is in high school. The stress only grows from there, with 79% of college students stating that they frequently worry about their debt.
For more information on how your bank can support Financial Literacy needs in your community, contact Selina Parrish at (502) Having the month of April when everyone – bankers, local 736-1282 or sparrish@kybanks.com. EverFi is ready to companies, educators, and local leaders – can come togeth- provide the financial literacy support that your students er to help educate people in their communities is what keeps and adults need in the markets that you serve! the EverFi team motivated year-round. Since the start of
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Banking on Industrial Hemp one without an MOU is still prohibited. However, guidance from the Drug Enforcement Administration and the Kentucky Attorney General has indicated that industrial hemp products may be sold once they are processed or once they have no measurable THC in them. A potential concern is that new MOUs must be approved by the KDA and executed on an annual basis, a short period that seems likely to limit investment, due to the risk that future applications might not be granted. KDA should consider extending the term of MOUs for processors due to the greater capital investment required as compared to growers. Kentucky’s legal framework should allow banks to begin doing business with industrial hemp growers and processors in the Farm Bill pilot program. Ultimately, to expand hemp production to commercial scale, additional federal legislation is needed. Senate Bill 134, the “Industrial Hemp 30 KENTUCKY BANKER | April 2016
Farming Act of 2015,” has eleven cosponsors including the two Kentucky senators, and is currently before a Senate committee. This legislation would expand the existing exemption from the Controlled Substances Act to allow commercial scale industrial hemp production, expanding economic opportunity in the Commonwealth. [1] THE COMPREHENSIVE DRUG ABUSE PREVENTION AND CONTROL ACT OF 1970, 21 U.S.C. § 801 et seq. [2] U.S. Department of Justice, “Cole Memorandum”, August 29, 2013. [3] 31 U.S.C. § 5311 et seq. [4] U.S. Department of the Treasury, Financial Crimes Enforcement Network, Guidance, February 14, 2014. [5] Their application for share credit insurance to the National Credit Union Administration (NCUA) was also denied, and Four Corners Credit Union filed a separate suit in federal district court. [6] Fourth Corner Credit Union v. Federal Reserve Bank of Kansas City, 2016 US Dist. LEXIS 517 (D. Colo. January 5, 2016). [7] The related NCUA case is still in litigation before a different district judge.
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40,000
725
Units of affordable housing Brighton Recovery Center Florence, KYMechanicsville Cottages of Owensboro, KY
Developments and partnerships Raceland Meadows Raceland, KY
Join current OCCH Investors to meet your CRA needs. BB&T
FirstMerit Bank
Park National Bank
Citizens Bank
Freddie Mac
Peoples Bank
Cortland Banks
Heritage Bank
Peoples Exchange Bank
Fannie Mae
Huntington CDC
PNC Bank
Farmers National Bank
JPMorgan Capital Corporation
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FC Bank Fifth Third CDC First Federal of Lakewood First Financial Bank
Key CDC Nationwide Life Insurance Company Northwestern Mutual Life Insurance
Springfield State Bank Stock Yards Bank & Trust U. S. Bancorp CDC WesBanco Bank Westfield Bank
Working together throughout Kentucky to create affordable housing
For more information contact: Hal Keller, President | Jonathan Welty, Vice President | 614.224.8446 88 East Broad Street, Suite 1800, Columbus, Ohio 43215
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