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
MAY 2016 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
MY TWO CENTS AND THEN SOME................8
Mr. Bill Allen Bank of the Bluegrass and Trust Co.
KBA ENDORSES MERIDIAN LEASING........10
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. William Alverson Traditional Bank, Inc. Mr. James W. Beach Peoples Bank & Trust Co. Mr. J. Wade Berry Farmers Bank & Trust Mr. W. Fred Brashear, II Hyden Citizens Bank
CONTENTS CHAIRMAN’S CORNER........................................5
»STRAIGHT»TALK».........................................7
KBPAC CHARITABLE MATCH.........................11 KBPAC CLAY SHOOT.........................................11 KBA PROFILE: LANIE GARDNER...................15
Ms. Lanie W. Gardner First Southern National Bank
5-STAR RATING FOR KENTUCKY BANK.....16
Mr. Gordon Kidd United Cumberland Bank
BANKS USING APPLE PAY..............................22
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.
BIG CHANGES FOR SMALL CREDITORS....22 BERT ELY’S FARM CREDIT WATCH...............28 EDUCATION CALENDAR.................................31
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.
When it comes to BOLI,
we are committed to Kentucky!
Lou Moore
MANAGING PRINCIPAL
We have been working with Kentucky community banks for 15 plus years and meaningful, long-term relationships remain the foundation of our business. Banc Consulting Partners
440.356.8860 PHONE 216.789.8889 MOBILE 440.730.3130 FAX lmoore@yourbankpartner.com
(BCP) is a national leader in the design, implementation, and administration of Bank-Owned Life Insurance (BOLI). We are endorsed by the Kentucky Bankers Association and have earned the trust of more Kentucky community banks than any firm in the country. So when you want the best for your BOLI portfolio and a firm that is dedicated to Kentucky community banks, talk to Lou Moore & Lon Haines at Banc Consulting Partners.
Lon P. Haines
MANAGING PRINCIPAL 267.773.7617 PHONE 856.577.7305 MOBILE lphaines@yourbankpartner.com
www.bancconsultingpartners.com
CHAIRMAN’S CORNER
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Learn to Analyze the Details Get all the facts, all the input. Learn from your mistakes.
3) Approximately 17% of the banks surveyed indicated that mortgages held in their bank’s portfolio will decrease in the next twelve months.
Louis Prichard, KBA Chairman President & CEO, Kentucky Bank
In the interest of not interjecting my own interpretation, take a moment to analyze these numbers and come to your We bankers like to view ourselves as analytical sorts. We own conclusions. would like to think that we gather all the facts, and then come to some logical conclusions based on those details. Specific to Kentucky banks, here are some additional, interFacts can serve two purposes. First, they can help us analyze esting numbers: what has transpired in the past that has placed us where we are today. Second, many forecasters examine current details to predict where we might be headed in the future. In this month’s article, my intent would be to share some details about our industry. Then it will be up to us to analyze those and, after analysis, come up with our own conclusions. The first set of data comes from a Federal Reserve 2015 national survey entitled Community Banking in the 21st Century. This survey was gathered from over 800 banks ranging Again, one can draw his/her own conclusions from this from below $50 million to greater than $10 billion in assets. data. The fact of the matter is, each of us needs to take a look Over 80% of the respondents were banks in the $50 million at all of these numbers and determine what is truly driving them. We may not like the facts behind to $1 billion range. Furthermore, 86% of those Our goal in the numbers, but we shouldn’t ignore them banks operate in just one state. These are some of the more significant numbers that were re- analyzing details either. The important thing is to examine ported. is to take the ini- them and react to them accordingly.
tial data and then My guess is that regulators may have their 1) Regulatory compliance accounted for follow up with own opinions about some of this data, but 11% of personal expenses, 16% of data processing expenses, 20% of legal expenses, more questions. I’m not certain that this data supports it. Our goal in analyzing details is to take the 38% of accounting, and 48% of consulting initial data and then follow up with more expenses. Analyze those numbers and see questions. In analytics, success is dependent upon asking how they apply in total cost to your bank. According to the right questions. W. Edwards Deming said: “If you do this survey, this number would total 22% of the responnot know how to ask the right question, you discover nothdent’s net income. ing.” Let’s analyze the facts listed above, ask the right ques2) In 2014, 75% of banks reported that one to four famitions, and come to the right conclusions that will ultimately ly mortgages were a primary product line. In 2015, after lead us to the best answers for our banks, customers, and the Q.M. rules were implemented by the C.F.P.B., that shareholders. number dropped to 69%.
UNITED IN SERVICE
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MAY 2016 | KENTUCKY BANKER 5
“
When our bank is looking for products and services, we always turn to the KBA’s list of companies that have been approved through their thorough due diligence process. KBA’s Vendor Solutions are an important resource for all KBA members. Garland Certain, CEO United Community Bank of West Kentucky Morganfield, Ky
Contact Selina Parrish at the KBA for Vendor Solutions (502) 736-1282 or sparrish@kybanks.com
Regulations change, but our focus on banking and finance law doesn’t. That’s why banks hire Morgan & Pottinger. Known for banking and finance law. Experienced in much more. BANKING & FINANCE LAW cOMMERcIAL LItIGAtION EQuINE LAW GOvERNMENt LAW REAL EstAtE LAW
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»STRAIGHT»TALK»
125
“What Has America Become?” I read a lot and listen even more. Both can fall into one of four categories for me: 1) it stimulates me to know more; 2) it stimulates my thought process; 3) it makes me wish I had the time that it took to read or hear it back (I worry about the National gene pool sometimes you know); 4) or I have a “WOW” sort of simpatico moment.
That “WOW” moment is when I read/hear something and it says exactly what I’ve been thinking for quite some time. The letter to the editor that I am reprinting this month did just that for me. It is from a small town newspaper in a small Northern Michigan town called Tawas City. Enjoy.
Ballard Cassady, KBA CEO bcassady@kybanks.com
are unable to close our border with Mexico, but have no problem proHas America become the land of tecting the 38th parallel in Korea; the special interest and the home of if you protest President Obama’s policies you’re a terrorist, but if the double standard? you burned an American flag or Let’s see: if we lie to the Congress, George Bush in effigy it was your it’s a felony and if the Congress lies 1st Amendment right. to us it’s just politics; if we dislike You can have pornography on TV a black person, we’re racist and if a black dislikes whites, it’s their or the internet, but you better not 1st Amendment right; the govern- put a nativity scene in a public park ment spends millions to rehabili- during Christmas; we have elimitate criminals and they do almost nated all criminals in America, they nothing for the victims; in public are now called sick people; we can schools you can teach that homo- use a human fetus for medical resexuality is okay, but you better not search, but it’s wrong to use an anuse the word God in the process; imal. you can kill an unborn child, but it’s We take money from those who wrong to execute a mass murderer; we don’t burn books in America, work hard for it and give it to we now rewrite them; we got rid of those who don’t want to work; we the communist and socialist threat all support the Constitution, but by renaming them progressives; we only when it supports our politiEditor,
cal ideology; we still have freedom of speech, but only if we are being politically correct; parenting has been replaced with Ritalin and video games; the land of opportunity is now the land of handouts; the similarity between Hurricane Katrina and the gulf oil spill is that neither president did anything to help. And how do we handle a major crisis today? The government appoints a committee to determine who’s at fault, then threatens them, passes a law, raises our taxes, tells us the problem is solved so they can get back their reelection campaign. What was happened to the land of the free and the home of the brave? Ken Huber Tawas City, Michigan
SPRING CONFERENCE PHOTO ALBUM
Pages 20-21
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MAY 2016 | KENTUCKY BANKER 7
my 2 cents
And then some
125
Fight When You Are Right Debra Stamper KBA Executive VP & General Counsel dstamper@kybanks.com Several years ago, the KBA joined with a member bank in a lawsuit against the FDIC. The issue was refund anticipation loans, also known as RAL’s. The FDIC had taken the position that RAL’s were bad, without any support in law or fact, and decided to force a KBA member bank out of the business of making RAL’s. Because of the limited number of KBA member banks involved in RAL’s, some members thought our involvement was ...our involvement misplaced, while others were was based solely on thrilled to see us involved. Our involvement was not, however, the belief that the an attempt to ensure that these FDIC had repeatedly few banks be able to offer this exceeded the scope one limited product. Instead, our involvement was based of its authority... solely on the belief that the FDIC had repeatedly exceeded the scope of its authority and the result was that our member banks were being forced to operate in accordance with the whims of the current agency bias, which allowed our members no certainty that the laws and regulations were their guiding limits. (This is very similar to the CFPB’s self-admitted “regulation through enforcement” efforts.) The KBA joined in the lawsuit because the KBA believed what the FDIC was doing was wrong. Ultimately, the suit was settled and the FDIC made it clear that the bank had no option but to get out of the business of RAL’s. In the opinion of the FDIC, there was no way that the bank could make this perfectly legal product acceptable to the agency. Obviously, the KBA was disappointed in this result. But, we felt vindicated when, on February 19, 2016, the FDIC Office of Inspector General (OIG) posted an Executive Summary entitled, Report of Inquiry into the FDIC’s Supervisory Approach to Refund Anticipation Loans and the Involvement of the FDIC Leadership and Personnel. This report shows exactly how wrong the FDIC was and shows how important it is to fight back when you know you are right.
History Prompted by a letter from a member of Congress dated December 10, 2014, Chairman Gruenberg requested that the OIG conduct a review of actions of FDIC Staff in the Department of Justice’s Operation Choke Point. The OIG issued its preliminary report in September 2015, but indicated the OIG’s review had raised concerns on a specific area and the agency would conduct further investigative work on the appropriateness of FDIC staff response and the FDIC’s supervisory approach to financial institutions that offered a credit product known as the afore-mentioned refund anticipation loan. RAL’s are typically offered by a lender through a national or local tax preparation company in conjunction with the filing of a taxpayer’s income tax return, offering almost immediate access to the taxpayer’s refund. Findings of the OIG The OIG’s more in-depth review in January of 2008 on the issue of RAL’s indicated that then-FDIC Chairman, Sheila Bair, indicated her belief that FDIC-regulated institutions should be forced to exit their RAL product line. Shortly thereafter, various FDIC personnel began to cause supervised banks to exit the business line. To achieve the their goal, the FDIC began utilizing aggressive and unprecedented efforts to use their own supervisory and enforcement powers to damage the impacted institutions and force them out of the RAL business. Examples of this aggressive and unprecedented behavior found by the OIG included the following: • FDIC leaders pressured field staff to assign lower ratings in the 2010 Safety and Soundness exams for two institutions with RAL programs and required examination report narratives to be changed to coincide with these lower ratings (overruling the field examiners’ beliefs that these lowered ratings were unwarranted); • FDIC leaders pursued these actions even after FDIC’s legal division counseled that such enforcement remedies against the banks presented high litigation risk; • Without precedent or authority, the FDIC deployed 400 examiners to examine 250 tax preparers (unregulated entities) throughout the country to attempt to identify compliance violations occurring in the stream of the RAL implementation; continued on next page
8 KENTUCKY BANKER | MAY 2016
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my 2 cents
125
And then some
continued from the previous page
• The FDIC used “strong moral suasion” which ultimately led to meetings and phone calls where banks were abusively threatened by an FDIC attorney; and • The FDIC disclosed non-public supervisory information to one bank about another to undercut the bank’s bargaining position. These tactics and behaviors led to large insurance assessment increases, reputational damage to the banks, and litigation and other costs to those affected banks. Ultimately, the FDIC forced all of these banks out of the RAL business, thus achieving its end goal. Why is this important now? This vindication, if you will, is what the KBA and our members need as a reminder that sometimes a difficult legal challenge is about more than the singular issue being raised and more than the bank listed as the plaintiff. Some may have thought that the KBA was being shortsighted by taking on this particular lawsuit, but we believe that the ultimate result is all the evidence we need to prove that the role and mission of the KBA is to stand up and support our banks
and “fight when you are right,” ...we believe that even if the odds seem heavily the ultimate result weighed against us. is all the evidence We believed, from the we need to prove beginning, that this was a bigthat the role and ger issue than the RAL business – this was an issue of the FDIC mission of the KBA utilizing abusive tactics to force is to stand up and banks out of a legal business, support our banks... which was low risk and clearly of interest to consumers. This principle is reinforced in the OIG’s report where it is stated: “we acknowledge that the events in our report surrounding RALs involved only three of the FDIC’s many supervised institutions, the severity of the events warrants such consideration.” The role of the KBA Sometimes a fight is bigger than the single issue at hand; when that is the case, the KBA will be there to help our banks fight when it’s right.
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KENTUCKY BANKERS ASSOCIATION
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KBA Endorses Meridian Leasing as Direct Lessor for Members The Kentucky Bankers Association (KBA) is pleased to welcome Meridian Leasing Corporation as one of our newest endorsed KBA Vendor Solutions. Meridian Leasing provides flexible lease options to KBA member banks and your customers.
As part of KBA’s valuable member community, Meridian provides member banks and your customers the insight and expertise to acquire equipment in a way that fits the individual business objectives of the company.
Customized financing programs cover costs of equipment, Meridian understands the speed of equipment obsoles- IT, software, services, and maintenance. Off-lease equipcence and the potential financial burden that comes with ment sales with an inventory including but not limited to purchasing. With end-to-end support, market intelligence, high-quality printers, PC hardware, scanners, data storage price watch, secondary market equipment solutions, evalu- equipment. Asset tracking software through Meridian Cliation of trade-in values on existing equipment, customized ent Access Portal (MCAP) for online monitoring of leased asset tracking, and a responsive back office team, Meridian assets and details. Leasing offers clients the flexibility of a leasing strategy option as a powerful business enabler to consider. Since 1979, Meridian Leasing has been serving customers in finance, education, healthcare, manufacturing, retail and As a direct lessor, Meridian Leasing will: more. For more information on Meridian Leasing, please - Help acquire new technology and other equipment contact Selina Parrish at the KBA at (502) 736-1282 or spar- Replace aging technology or expand IT infrastructure rish@kybanks.com. - Update communications hardware As a lessor for member bank customers, Meridian will: - Provide leasing on all types of equipment - Own the equipment and assume the risk - Service the lease transactions on your behalf - Enhance your yield and market penetration
Kane’s Krew Benefit Luncheon at CFSB BENTON, Ky - Community Financial Services Bank (CFSB) held a spaghetti benefit luncheon for Kane Powell, 2, who has recently been diagnosed with epilepsy. He is the brother of Kruz and son of Sam and Kurt Powell of Benton. Kane’s grandparents are Nathan and Leslie White (CFSB Team Member) and Rhonda Powell. CFSB Team Members (pictured at left, from left to right) Emily Holley, Dallas Jo Young, Beverly Ladd and Cari Holder, along with many others, prepared the food for the CFSB Team to eat for lunch. Proceeds of the meal will go to the Powell family for their medical expenses. 10 KENTUCKY BANKER | MAY
2016
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KBA 1891-2016
KENTUCKY BANKERS ASSOCIATION
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Charitable Match Program
Making Contributions to your KBPAC is as Easy as 1-2-3! 1) Select a Charity
by Yvonne Savage, KBPAC Services Coordinator ysavage@kybanks.com Making contributions to the KBPAC doesn’t have to be complicated. One easy way to contribute is by using the Charitable Match program. Here’s how to start your own Charitable Match program; it’s as easy as 1, 2, 3.
The bank can either a) select a charity that will be the matching recipient; b) allow the employees to select the charity; or c) offer a selection of charities.
2) Spread the Word
Communicate to your staff that for each dollar that they contribute to the KBPAC, the bank will match that contribution with a donation to the charity selected in accordance with No. 1.
Many banks already have a charitable contribution fundraiser for their staff. It may be a collection to give to chari3) Kick off your Fundraiser ties such as the United Way, American Cancer Society, Feed Do a Jean’s Day, have a luncheon, or an employee training to the Children, or a local charity, to name just a few. kick off the fundraiser. If your employees are already giving, this is an opportunity for their money to go twice as far. You If you do have a charitable contribution fundraiser for your can have multiple events, or one yearly event, the choice is staff then you already have the ideal situation, so skip step yours, so be creative. 1. If you don’t have a charitable contribution fundraiser for your staff then just follow these three easy steps to take adSo that’s it. It’s as easy as 1-2-3! vantage of our Charitable Match program.
Need more information about your KBPAC?
Let us come and talk to you about how easy this Charitable Match program is, the importance of the KBPAC to banking in Kentucky and how to make your charitable dollars go even further.
Second Annual KBPAC Clay Shoot Friday, June 3 at Elk Creek Hunt Club, Owenton, Kentucky
You may have heard the stories, or seen the pictures. If you weren’t at the first KBPAC Clay Shoot event last year, then you missed out on a ton of fun. So it is with more fun in mind, in addition to the added benefit of raising money for our important Political Action Committee efforts, that we are excited to announce the 2nd Annual KBPAC Clay Shoot! Join us on Friday, June 3, at Elk Creek Hunt Club in Owenton, Kentucky, for a unique event that welcomes experienced and amateur shooters alike. Elk Creek is a world-class shooting club. We will hand out some excellent prizes, including the Kentucky handcrafted glass Chairman’s Trophy to the top team. (This Celebrating 125 Years
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trophy will be kept at the KBA offices with the winning team added to the list of champions.) Everything you need will be provided for you on site. (You also have the option to bring your own guns and ammo.) Show your support for our KBPAC efforts and bring a team, then be prepared to have a blast! If you have any questions, contact Yvonne Savage, KBPAC Services Coordinator, for more information. Email is ysavage@kybanks.com
KBPAC GOLF OUTING AUGUST 1, 2016 MAY 2016 | KENTUCKY BANKER 11
Independence Bank Awards Scholarships Independence Bank awarded a record amount of $117,500 to area high school seniors within our service area at a recent scholarship reception (recipients shown above). The Independence Bank Scholarship Program is designed to encourage high school seniors in the Bank’s twelve county service areas of Calloway, Daviess, Franklin, Graves, Han-
cock, Henderson, Hopkins, Jefferson, McLean, McCracken, Warren and Webster counties to continue their education. Applicants were judged based on high school grades, ACT/ SAT scores, essays and personal interviews. Since 2001, Independence Bank has awarded $695,350 in college scholarships to area high school seniors.
Cox Elected to Sebree Bank of Columbia Deposit Bank Board Board Member Passes SEBREE, Ky – Mark T. Cox, IV was recently elected to serve on the Sebree Bankcorp Board of Directors and the Sebree Deposit Bank Board of Directors. Cox is currently self-employed as President of Chalk Bluffs Foundation for Historic Preservation and Conservation. He previously served as a United States Alternate Executive Director of World Bank. This position was appointed by President Reagan in 1988 and confirmed by the Senate to represent the United States on the boards of the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation and the Multilateral Investment Guarantee Agency. Cox holds an MBA in Finance and Banking (1971) and a BA in European History from Columbia University (1966) and Hispanic Studies with the University of Madrid (1961). 12 KENTUCKY BANKER | MAY 2016
LEXINGTON, Ky - Michael Farmer of Lexington, KY passed away on March 3, 2016. Farmer was a board member, since June of 1998, of Bank of Columbia, one of the oldest banks in Kentucky, founded in 1866. Michael practiced law in London and Lexington. According to Kentucky Trial Reports he ranked number one among Kentucky attorneys for three years in number of jury trials. He was a candidate for State Representative for the 79th District in 2006.
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First Tennessee Correspondent Services offers a range of robust financial and business solutions to support community banks. When you work with First Tennessee, you’ll get the personal attention that’s made us a continuous provider of correspondent services for over 100 years.
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TALK TO A RELATIONSHIP MANAGER ABOUT YOUR BANK’S NEEDS. CALL 800-453-7686 OR EMAIL CORRESPONDENTSERVICES@FTB.COM © 2016 First Tennessee Bank National Association. Member FDIC.
KENTUCKY BANKERS ON THE MOVE
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Michael Noftsger
Conner Frampton
Forcht Bank announced Michael Noftsger has been promoted to Executive Vice President of Bank Administration. In his new role, he will be serving on the Forcht Bank Executive Team as Administrative Officer assisting across all major departments including: Human Resources, Marketing, Facilities, Informational Technology, and Operations. He also serves on Senior Loan Committee.
Conner Framptom has been elected to the Paducah Bank Shares, Inc. Board of Directors. Paducah Bank Shares is the holding company for The Paducah Bank and Trust Company. Framptom was previously elected to the Paducah Bank Board of Directors in 2014.
Carolyn Todd
Denise A. Van Steenlandt
FNB Bank is proud to welcome Carolyn Todd as a Relationship Manager to the Murray Office, located at 1445 Lowes Drive. Carolyn brings with her an extensive background in banking, lending and management experience wherein she has proudly served the Murray-Calloway community for over 27 years. In her new role, Carolyn will be responsible for developing existing and potential customer relationships and assisting customers.
Denise A. Van Steenlandt has been named President, CEO of Bluegrass Community Bank, headquartered in Danville, Kentucky with branch facilities in Perryville. Ms. Van Steenlandt brings a wide range of banking and administrative experience to the new appointment having served tenures with Alliance Banking Company in Winchester, KY, Chartwell Capital Ltd. In Palm City FL, Town & Country Bank & Trust, in Bardstown, KY.
Ryan M. Gray
Mitsie Witherspoon
Community Trust and Investment Company announced that Ryan M. Gray has rejoined his team as Vice President, Business Development, Investment Sales Officer with CTIC’s Wealth and Trust Management (WTM) division. As a key member of the business development team, Mr. Gray’s responsibilities include initiating new relationships with high net worth individuals and institutions for actively managed fee-based business.
Mitsie Witherspoon has been named director of retail banking and marketing for First Community Bank. Witherspoon joined FCB in 2015. Her role will now include guiding the marketing efforts for the company. Witherspoon currently manages the company’s deposit product line, assists with growth strategies and communication, as well as, supports ways to monitor and improve customer experience.
Carla Pobst
Cheryl Hartsell
Carla Pobst has been named Mortgage Lender for First Community Bank’s Ballard County market. Joining FCB in 2013, Pobst has served as a mortgage and consumer lender. Pobst will be relocating to the FCB banking center located at 952 Kentucky Avenue, in Kevil, KY. She earned a B.S. in public relations and marketing from Murray State University.
Cheryl Hartsell has been named senior Vice President, COO by First Community Bank of the Heartland. Hartsell joined FCB in 1996 serving as the Loan Review Officer. Over the years, Hartsell diversified her role into supporting internal audit, operations, and technology. With this promotion, Hartsell will be focusing her leadership to key operations functions, as well as, managing the company’s various technology platforms.
Dustin Renfrow
Katherine Kelly
Dustin Renfrow has been named assistant Vice President, Loan Officer for First Community Bank. Renfrow joined FCB in 2015 as a loan officer. Renfrow began his career as a field technician for USDA and then served with Hurst Seed Company as a regional field representative. Renfrow has also served as a loan officer with the Kevil Bank. Renfrow is a graduate of the KBA’s General School of Banking and Commercial Lending School.
Katherine Kelly has been named Customer Service Coordinator by First Community Bank of the Heartland. Kelly joined FCB in 2013 and most recently has served within the loan administration team. Kelly will be providing support to the company’s toll free service line, as well as, supporting customers with one-on-one assistance as needed. Kelly will add another layer of direct customer service support to the company’s base office in Clinton.
Rachel Drummond
Tim Goodin
Rachel Drummond has been named Deposit Operations Specialist – Director of ebanking for First Community Bank. Drummond will be supporting and leading the development and management of FCB’s ebanking services, as well as, providing support to some key areas within deposit operations. Drummond joined FCB in 2012 as the marketing director.
Tim Goodin has been named Chief Financial Officer for First Community Bank. Goodin joined FCB through the company’s purchase of the Kevil Bank in 2013. Goodin began his career with USDA as a farm loan/rural housing specialist, which brought his family to Ballard County, in 1990. After 11 years with USDA, Goodin began serving with the Kevil Bank as a Loan Officer and finally the bank’s President.
TO ANNOUNCE A PROMOTION: EMAIL PHOTOS & ANNOUNCEMENT TO jfischer@kybanks.com A promotion announcement in KENTUCKY BANKERS ON THE MOVE consists of: banker name, bank name, branch, new position, previous position, college and hometown. Submissions are published based on space and editorial approval. 14 KENTUCKY BANKER | MAY
2016
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KBA 1891-2016
LANIE GARDNER
KBA BANKER PROFILE
Community President First Southern National Bank. KBA Board Member representing Group 2 and KBA Education Solutions. 2000 graduate of the KBA’s Essential Banking School. 2002 graduate of the KBA’s General Banking School. Member of the Muhlenberg Community Hospital’s Board of Trustees. Spring Conference emcee extraordinaire (pictured above on the 2016 Spring Conference stage). Sunday School Teacher. Mother. Grandmother. Lanie Gardner wears many hats. She took time out of her busy schedule to answer a few questions about what it’s like to have so many hats to choose from. KBA: What is your most memorable banking experience?
KBA: When you attended the KBA’s General Banking School, what was your experience? GARDNER: Meeting people from all areas of Kentucky in the banking industry is an awesome experience. Jason Redfern, Alex Keltner and I were all in the same graduating class at the General Banking School. Now, we all three are Community Presidents in different markets working together at First Southern National Bank! The KBA staff did not just teach, they became my friends and mentors. My favorite aspect (of the school), however, continues to be that “ah-ha” moment… you know the one… when the light comes on and you realize that you didn’t just read and hear, you grasped the concepts as well as the ability to apply and discuss with other team members your own thoughts and ideas. The General Banking School gives you an opportunity to learn and grow. It is without a doubt the very foundation of a Kentucky banker. It gives you the knowledge to understand the overall picture.
GARDNER: There’s nothing more exciting for me than to take the stage of Gospelfest every year on behalf of First Southern National Bank. Gospelfest is one way First Southern National Bank gives back to not only our community but many surrounding communities. Our staff and community donated nearly 4,000 canned and boxed goods during Gospelfest for the Feed My Hungry Children program in Muhlenberg County. Bankers are generous with their time, their leadership KBA: What is the best advice you have ever received? abilities, their resources, and their commitments. Giving back in so many different ways, inside and outside of the bank, is GARDNER: Stay true to yourself. Give generously. Listen in the quiet times. Put your heart, soul, and mind into even the what a community banker does. smallest detail, because attention to detail really does matter. KBA: What are some of your pastimes? KBA: What advice would you give a new banker? GARDNER: Four grandkids keep me living in the life of slobber kisses, squeezy hugs, story-telling and being silly. I love GARDNER: Connect with a mentor and learn from them. the beach, reading, making cakes, and serving on various civ- Define who you are and what you want to be. Have patience ic committees and boards, teaching Sunday School, writing because the best is yet to be. And don’t forget, look for that “ah-ha” moment, it comes when you least expect it. Christmas programs, drinking sweet tea and loving life.
KBA EDUCATION SOLUTIONS WOMEN’S WORKSHOP - AUGUST 18-19, LOUISVILLE
KBA GENERAL BANKING SCHOOL - JUNE 12-17, LOUISVILLE
Celebrating 125 Years
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Kentucky Bank Once Again Receives 5-Star Rating from BauerFinancial PARIS, Ky - Kentucky Bank, Paris, Kentucky, is honored to announce it has once again earned BAUERFINANCIAL Inc.’s highest 5-Star Superior rating. A 5-Star rating indicates that Kentucky Bank is one of the strongest banks in the nation, excelling in such areas as capital, loan quality, profitability and much more. Karen L. Dorway, president of BauerFinancial, recognizes that, “As market conditions continue to change, banking institutions must be adept enough to evolve with them. With Kentucky Bank’s stellar financial condition and track record, we have no doubt in its ability to do so.”
Established in 1851, Kentucky Bank has been serving its neighbors for the past 165 years. Today it operates through 17 conveniently located branch offices in 11 Kentucky communities. BauerFinancial is located in Coral Gables, Florida, and is the nation’s leading independent bank and credit union rating and research firm. It has been reporting on and analyzing the performance of U.S. banks and credit unions since 1983. No institution can pay for or opt out of a BauerFinancial rating. Consumers may obtain free star-ratings by visiting bauerfinancial.com.
Commercial Bank of Grayson Celebrating 125 Years with an Epic Block Party Commercial Bank of Grayson will be celebrating their 125th anniversary with an epic block party on Friday, May 27th. There will be food vendors set up on the street, red carpet photo booths, giveaways, and a headlining concert featuring one of country music’s hottest bands – OLD DOMINION! This free, family-friendly event is open to the public at 6 p.m. with local acts taking the stage at 6:30. Old Dominion, the Academy of Country Music’s Best New Vocal Duo/Group of the Year, goes on stage at 8:30.
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Blues & Barbecue Festival Announces Field & Main Bank as Presenting Sponsor HENDERSON, Ky - Field & Main Bank returns as presenting sponsor of the 2016 W.C. Handy Blues & Barbecue Festival, a four-day music festival that draws extraordinary talent and entertainment, as well as visitors, to Henderson, Kentucky each year. This year’s event is June 15-18 in Audubon Mill Park, along the Henderson riverfront. Last year, the Handy Festival celebrated a milestone year – its 25th year of the festival – and was named a “Top 20 Event in the Southeast for June 2015” by the Southeast Tourism Society. It was also chosen “Best in Kentucky” in the Music Festival category by the readers of Kentucky Living Magazine. Steve Gold, W.C. Handy Blues & Barbecue Festival board president, said the organization will build on last year’s success. “We are delighted to continue our relationship with Field & Main Bank, who returns as presenting sponsor,” Gold said. “The bank’s support for bringing world-class artists and experiences into this community reflects its values as an organization. Field & Main has been a supporter of the festival from the very beginning; it has been a healthy collaboration as both of our organizations have grown and reached new audiences.”
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Scott P. Davis, chairman & CEO of Field & Main Bank, said, “The Handy Festival, which has deep roots in this community, really speaks to our values at Field & Main. We, too, share a passionate commitment to one’s craft and an appreciation for creating tailor-made experiences that bring community together.”
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18 KENTUCKY BANKER | MAY 2016
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SPRING CONFERENCE PHOTO ALBUM
KBA Chairman Louis Prichard and KBA CEO Ballard Cassady
Spring Conference Golf Outing at Kearney Hill, Lexington
Spring Conference Golf Outing at Kearney Hill, Lexington
Spring Conference Golf Outing at Kearney Hill, Lexington
The KBA’s Paula Cross and Jamie Hampton at Registration
Lanie Gardner emcees from the Spring Conference Stage
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Mike Schlappi speaks from the Spring Conference Stage
Mike Schlappi shows the bullet that put him in a wheel chair
Beatrice Simpson Lane is honored for her 70 years in banking
Attendees place bets at the KBA’s Night at the Races
Attendees cheer on their horses at the KBA’s Night at the Races
Billie Wade cheers on his horse at the KBA’s Night at the Races
Celebrating 125 Years
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KENTUCKY BANKS USING Central Bank Announces Apple Pay Now Available to their Customers LEXINGTON, Ky - Central Bank, one of the largest community banks in Kentucky, now offers its customers Apple Pay, which is transforming mobile payments with an easy, secure and private way to pay that’s fast and convenient. Security and privacy is at the core of Apple Pay. When you use a credit or debit card with Apple Pay, the actual card numbers are not stored on the device or on Apple servers. Instead, a unique Device Account Number is assigned, encrypted and securely stored in the Secure Element on your device. Each transaction is authorized with a one-time unique dynamic security code.
“We want to offer our customers the most secure and convenient payments possible and Apple Pay allows us to deliver them,” stated Luther Deaton, Central Bank chairman, president and CEO. In participating stores, Apple Pay works with iPhone 6, iPhone 6s, iPhone 6 Plus, iPhone 6s Plus and Apple Watch. When paying for goods and services within apps, Apple Pay is compatible with iPhone 6, iPhone 6 Plus, iPhone 6s, iPhone 6s Plus, iPad Air 2, iPad mini 3, iPad mini 4 and iPad Pro.
Forcht Bank Announces Apple Pay Now Available to their Customers Forcht Bank customers can now add a Forcht Bank debit card to the Wallet App on their Apple iPhone, iPad, and Apple Watch. The Wallet App with Apple Pay offers an additional layer of security when shopping online or at participating retailers.
commitment to technology by looking at what we’ve done over the last couple of years – online loan applications and account openings, person-to-person payments with mobile banking, mobile check deposit, and now Apple Pay,” said Tucker Ballinger, Forcht Bank President and CEO.
When someone adds a debit card to an Apple device through the Wallet App, the actual card numbers are not stored on the device or on Apple servers. The Device Account Number, along with a transaction-specific dynamic security code, is used to process the payment. The debit card numbers are never sent to merchants. To pay in stores that accept Apple Pay, the customer just holds the Apple device near the card reader and waits for the terminal to process the payment using NFC (Near Field Communication).
In addition to the Apple Pay option, Forcht Bank recently began issuing EMV Chip Debit Cards to all its debit card customers. For customers who don’t own an Apple device, EMV Chip Debit Cards work in a similar fashion to protect the debit card number.
Forcht Bank is a Kentucky-owned community bank with approximately $1 billion in assets and 30 banking centers in 12 counties - Fayette, Jefferson, Boone, Grant, Madison, Taylor, Pulaski, Laurel, Whitley, Knox, McCreary and “We continue to invest in technology to make banking with Green. Forcht Bank more convenient and secure. You can see our 22 KENTUCKY BANKER | MAY 2016
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First United Bank Celebrating 20th Year First United Bank and Trust Company is celebrating 20 In addition to supplying local banking services, the years of service to Hopkins County on Tuesday, March 29, bank is known for its support of the community over the 2016. Opening its doors on that day in 1996, First United years. It was the inaugural sponsor of the Coffeehouse SeBank of Hopkins County was the first new bank chartered ries at the Glema Mahr Center for the Arts; a staunch supin Hopkins County since 1907. It’s organizers, a group of porter of education, including an important contribution local business men, wanted to return community banking to the new Murray State Building at Madisonville Commuto the area, as all local banks had been purchased by region- nity College; a lead contributor to the local Relay for Life al banks at that time. and United Way efforts; a founding sponsor of the annual So with one hundred fifty shareholders, $4 million in 4thFest celebration; and most recently the benefactor for capital and eleven employees, First United Bank of Hopkins the new First United Bank Plaza in Madisonville. County became a reality. Currently, the bank has over $200 First United has planned a celebration of its 20-year million in assets and employs over 50 people. It has grown history in a manner reflective of its culture. The staff will to have two locations in Madisonville, one in Earlington, band together to perform 20 Acts of Kindness throughout and is in process of acquiring a bank in Ohio County. the community on March 29. “We could think of no better First United contributes its success to focusing on way to celebrate than to thank the community for making community banking. “We created this bank to serve people our success possible,” says Karen Glenn, President/ CEO. and businesses like they were our friends and neighbors”, Staff members will fan out across the town to do acts states Jerry Markham, Chairman of the Board and one of of kindness all day. The acts range from picking up checks at the original organizers of the bank. “We wanted to make local restaurants, visiting nursing homes, taking food to the B:7.75” sure this community still had access to hometown bank- food bank and supplies to the humane society, to delivering T:7.5” ing.” blessing bags to Door of Hope and Breaking Bread. S:7”
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Regulators Scrutinize Lender Compensation
by Drew Young Kraft CPA’s
With the Consumer Financial Protection Bureau (CFPB) cracking down on improper lender compensation plans, banks should anticipate increased scrutiny in this area from their primary regulator.
pliance and ensure that compensation is actually paid in accordance with those plans. Lenders also must maintain records of the compensation actually paid for each transaction and the agreement that was in effect when the interest rate was set. Keeping records for bonuses paid to individuThe CFPB’s enforcement activity reflects heightening scru- al loan originators is also necessary to ensure compliance tiny of compensation plans that may inadvertently incen- with the records retention requirements of Truth in Lendtivize loan officers to steer consumers into loans with high- ing. The rule generally requires that sufficient records of er interest rates. A financial institution should be cautious all compensation paid to loan originators, along with loan with how it compensates lenders and avoid plans that may originator compensation agreements, must be maintained be found to be based on transaction terms or a proxy for for three years after the date of payment. transaction terms. In instances where civil money penalties were assessed, the CFPB found that plans impermis- Ultimate Responsibility sibly tied loan officers’ compensation to the interest rates on the loans they originated. The following companies were If you’re a board member of a bank and you’re not sure assessed large civil money penalties that were directly cor- how lenders’ compensation is determined, you need to ask. related with lender compensation: The institution’s board of directors and management have responsibility for ensuring compliance with compensation Castle & Cooke Mortgage, LLC was required to refund more rules. than $9 million to 9,400 consumers who were illegally steered into mortgages with higher interest rates. Castle & Cooke, One common error is paying loan originators bonuses that which does business in 22 states, paid its loan officers illegal are based on the bank’s year-end net income. Year-end net bonuses based on the interest rates charged to consumers. The income can contain fees that are based on consumer mortcompany and two of its officers were ordered to pay a $4 mil- gage transaction terms. The CFPB has stated that net inlion civil penalty. come is a proxy for loan terms when paying bonuses if the financial institution’s net income contains fees from mortThe CFPB has filed a consent order that would require RPM gage transactions and interest earned on consumer mortMortgage, Inc. to pay $18 million in redress to consumers gage transactions. and a $1 million civil penalty for illegally paying bonuses and higher commissions to loan originators to incentivize them There are concessions for paying individual loan originators to steer consumers into costlier mortgages. The consent order bonuses based on net income including a 10 percent of total would also require RPM’s CEO, Erwin Robert Hirt, to pay an compensation rule. However, the lender can still establish additional $1 million civil penalty for his involvement in the volume-based incentives or set aside bonus pools in adunlawful practices. vance that are not distributed based on loan terms or profits. Further information regarding other acceptable forms Guarantee Mortgage Corporation was required to pay a civil of compensation can be found in the CFPB’s Loan Origipenalty of $228,000 for paying its branch managers based, in nator Rule Small Entity Compliance Guide (page 40). The part, on the interest rates of the loans they closed. rules expressly recognize seven permissible compensation methods with respect to payment of salary, commissions Documentation Expectations and other compensation. They are effectively safe harbors. Financial institutions need to establish written compensation plans or agreements, carefully review them for com24 KENTUCKY BANKER | MAY
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Source: OCC, FDIC, CFPB, FTC, and NCUA, reference 12 CFR Parts 1026, Section 36
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How Are Banks Affected by the Employment Executive Orders? by Richard A. Vance, Stites & Harbison, Louisville
gender identity is considered a best practice. Other Executive Orders are also amendments to EO 11246 and so will While many legislative proposals have stalled in Congress, reach banks. EO 13496 require that employees be given President Obama has moved forward with a variety of la- notice of their rights under the federal labor laws by means bor and employment initiatives by means of Executive Or- of another poster. EO 13665 protects job applicants and ders. Such orders are limited to the regulation of “federal employees from discrimination based on disclosing or discontractors” and by their own terms. Whether banks and cussing their compensation or the compensation of other their employees are covered depends on a variety of factors. applicants or employees. Banks should revise their employee handbooks to address these issues. The original equal employment opportunity order, Executive Order 11246, was signed by President Lyndon B. John- Fortunately, the coverage of some Executive Orders does son on September 24, 1965 to establish requirements for not track EO 11246. OFCCP guidance indicates that EO non-discriminatory practices in hiring and employment on 13658, mandating a minimum wage of $10.10 per hour, the part of U.S. government contractors. It “prohibits federal will be determined by whether the work is covered by the contractors and federally assisted construction contractors Davis-Bacon Act, which requires payment of prevailing and subcontractors, who do over $10,000 in Government wages on government construction contracts, and the Serbusiness in one year from discriminating in employment vice Contractors Act, which requires payment of prevailing decisions on the basis of race, color, religion, sex, or nation- wages to service employees in various classes. These statal origin.” It also requires contractors to “take affirmative utes do not typically reach financial institutions, although action to ensure that applicants are employed, and that eminstitutions located on federal property or primarily serving ployees are treated during employment, without regard to federal employees may pose special circumstances. In Perez their race, color, religion, sex or national origin.” Although v. Mortgage Bankers Association, 135 S.Ct. 1199 (2015), the there is some dispute, the Department of Labor’s Office of Supreme Court upheld the Department of Labor’s interpreFederal Contract Compliance Programs takes the position that a financial institution covered by deposit insurance is tation that mortgage loan officers are not exempt from the a federal contractor and is required to follow the equal em- Fair Labor Standards Act, which establishes minimum wagployment opportunity regulations that implement Execu- es, overtime pay, and youth employment standards. tive Order 11246, the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA), 38 U.S.C. § 4212 and Section 503 of the Rehabilitation Act of 1973 (Section 503). Acting as a depository for government funds or a paying agent for savings bonds are also bases to be covered by the EO. Covered employers must post the EEO notice. The VEVRAA prohibits discrimination against returning and disabled veterans. Section 503 prohibits discrimination against individuals with disabilities.
There is no OFCCP guidance yet on the Paid Sick Leave Executive Order (EO 13706), but it appears likely to follow the coverage of the minimum wage rules. Implementing regulations are expected to be promulgated later this year. By Executive Order 13673, President Obama mandated that federal contractors adopt Fair Pay and Safe Workplaces standards. This EO applies to procurement contracts exceeding a value of $500,000. Most employment lawyers believe that the regulations deal with procurement contracts, In 2014, President Obama signed EO 13672 to add sexual and not government depository relationships, deposit inorientation and gender identity to the prohibited bases of surance or savings bonds activities. discrimination. As an amendment to EO 11246, it will also apply to insured depositary institutions. A new EEO sup- Banks will need to update compliance policies and proplemental poster will be required. Affirmative action plans grams and revise employee handbooks to meet the requireneed not be revised, although the labor department states ments of these new labor and employment executive orders. that revision of AAPs to mention sexual orientation and Celebrating 125 Years
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Big Changes for Small Creditors lien covered transactions, the creditor only counts first-lien covered transactions that were sold, assigned, or otherwise transferred, or were subject to a commitment to be acquired at the time of consummation. The Rule maintained the asset limit of $2 billion (adjusted annually), but required that the creditor count not only its assets, but also the assets of any affiliate that regularly extended first-lien covered by Silvia Garcia Maggio transactions in the preceding calendar year. A grace period Assistant General Counsel, Compliance Alliance was provided to allow certain creditors to operate as a small When the CFPB released their final rule on Small creditor or small creditor that operates predominantly in Creditor Balloon-Payment QMs, small creditors were re- rural or underserved areas for applications received before lieved that the definition of small creditor had expanded April 1 of the current year. and the end of the temporary exemption for Balloon QMs was pushed back to April 1, 2016. Then, Congress stepped December 4, 2015 - Helping Expand Lending Practices in in and passed the HELP Act (TITLE LXXXIX of the FAST Rural Communities Act (HELP Act): Act) on December 4, 2015, which required that the CFPB The HELP Act required the CFPB establish an application establish an application process to allow businesses and res- process which now allows lenders to apply to have areas designated as “rural.” The act also removed idents who apply to have areas designated as the word “predominantly” in the rural small “rural.” In addition, the HELP Act required creditor qualification within 90 days of the the word “predominantly” be struck from passage of the FAST Act. The CFPB had the language in Regulation Z that required interpreted the term “predominantly” in that a lender act “predominantly” in a rural the September Rule to mean a lender that or underserved area in order to qualify as makes more than 50% of their loans in a ruRural or Underserved Small Creditor. The ral or underserved area to qualify for as a CFPB responded by creating an application Rural or Underserved Area Small Creditor. system on March 3, 2016 and then, by isThus, the removal of the term lead to a new suing an interim Final Rule, completely interpretation from the CFPB in the March revamping the definition of Rural or UnInterim Final Rule. derserved Small Creditor on March 22nd, 2016. With all the changes that occurred March 3, 2016 - Application Process: between September and this spring, here’s As mandated by the HELP Act, the CFPB what you need to know: released the application process for an area September 21, 2015 - Final Rule: to be designated as “rural.” It’s important The September final rule was to note that the HELP Act is set to sunset changed in large part by the March 22, 2016 April 8, 2017. Therefore, applications will interim final rule. However, a couple items be accepted March 31, 2016 through April are still important and in place as of the 7, 2018. Any application received on or Interim Final Rule. First, the threshold for after April 8, 2017 will only be reviewed at qualifying small creditor originations was the CFPB’s discretion. There’s no set modincreased from 500 first-lien covered transel application so applicants need to create actions to 2,000 first-lien covered transactheir application based on the process put tions. Loans that the creditor or its affiliate originates and keeps in their portfolio are excluded from forth in the March 3rd release. Once received, the CFPB the loan origination limit. When determining whether a will evaluate whether the application was fully completed, creditor and its affiliates extended more than 2,000 first- that the application area isn’t already considered a rural continued on the next page 26 KENTUCKY BANKER | MAY
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continued from the previous page
In addition to the one-loan test, the Interim Final rule changes the language relating to escrow in 12 CFR 1026.35(b)(2)(iii). That section exempted small creditors who make more than 50 percent of their covered loans during the preceding calendar year ( or if the application was received before April 1 of the current calendar, the last two calendar years) in rural or underserved areas. Now that language has been changed to match that definition in 12 CFR 1025.43 by removing the “predominantly-lend” test language and replacing that with the one-loan test. Finally, the rule also added the HELP application process in the definition of “rural” area. The regulation will now include areas that: 1) Are not in an MSA per the Office of Management and Budget; 2) Are not located in a census block that is in an urban area per the U.S. Census Bureau; or 3) Have been designated as rural by the CFPB via the HELP application process, as discussed above. The interim final rule redefines which small creditors are deemed to operate in a small or underserved area, clarifies the exemption from HPML escrow accounts and redefines which areas are considered “rural.” It’s important to note that the rule has a 30-day public comment period, but it was effective as of March 31, 2016 so as to ease any issues between the Final final rule and the April 1, 2016 temporary exemption deadline. With all the changes (and the expected Final Rule), it’s important to know which areas are deemed rural or underserved, to understand the lookback period for qualifying loans, and to know whether your bank qualifies for the QM March 22, 2016 - Interim Final Rule: and Escrow exemptions. Even if it is hard to keep up with After complying with the requirement to establish an appli- all the changes, the expansion to a one-loan test is a bright cation process, the CFPB released their Interim Final Rule spot in the regulatory heap for many community banks. which expanded the definition so much, it’s likely to exponentially decrease the amount of lenders who need to or COMPLIANCE ALLIANCE TESTIMONIAL would want to apply for that designation. As noted above, per the September Rule, to be a small creditor that operAfter participating on a Compliance Alliance live ates predominantly in rural or underserved areas for 2016, demonstration, I saw the tools and resources provided a creditor would need to extend more than 50 percent of by Compliance Alliance, including their toll-free hotline its total first-lien covered transactions on properties locatfor prompt answers to compliance questions, to be just ed in rural or underserved areas in the calendar year 2015. what is needed for our newly appointed Compliance OfThe March Interim Rule now puts forth a one-loan test, ficer to stay on top of the ever changing requirements. which requires that the lender have made at least one loan As an added bonus, I was excited about monthly newsin a rural or underserved area as defined by the CFPB. The letters than contain articles addressed to the Board of one-loan test is determined by loans made in the preceding Directors to keep them apprised of compliance concerns. calendar year or if an application was received before April 1 of the current calendar year, either of the two preceding Angie Pendergrass, Vice President, Commercial Bank calendar years. West Liberty, Kentucky
area, that there’s not already an application for that area to be considered, or if an application has already been denied for that location. The CFPB approval process also includes publication of the application in the Federal Register and a public comment period of at least 90 days. The CFPB will then make a decision on the application within 90 days after the end of the comment period. Any applicant needs to provide information about the location (including the state) that the area is located in. The applicant must also attach information to support their conclusion that the area should be considered rural. The CFPB requires that applications include whether the Census Bureau, Office of Management and Budget, Department of Agriculture or State Bank Supervisor has or has not deemed this area rural and include supporting documentation. In addition, the applicant is required to provide information about the population by providing the number of persons per square mile data from the Census and providing supporting documentation. The applicant must also provide information about nearby areas that have a higher population density that has been deemed rural by the CFPB. The applicant will include their name, contact information, and the fact that they are doing business in the state where the area they are applying for is located. They must include supporting documentation showing evidence that the applicant may do business in the state (e.g., a license from the state). No other personal information may be included and the applicant may request that their sensitive information is redacted in the Federal Register by making a request on the cover page of their application.
Celebrating 125 Years
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Bert Ely’s FARM CREDIT WATCH
2015: Almost Half of FCS Lending Goes to Just 4,458 Borrowers
by Bert Ely, American Bankers Association
to the operations of an eligible borrower.” For example, Verizon and AT&T are similar entities because CoBank can For years, the FCS’s Annual Information Statement present- lend to cooperatives which provide telephone and wireless ed data on the number of FCS loans outstanding at year- communication services. However, similar entity loans end by size of loan, with this loan data aggregated by size cannot be made to companies engaged in activities outside range. I have long criticized this practice, because many the FCS’s lending authorities. For example, the FCS cannot FCS borrowers, especially larger ones, have multiple FCS lend to an investor-owned casino since FCS institutions loans. Consequently, Information Statement readers could cannot lend to a cooperatively owned casino. Presumably, not gain a sense of the extent to which the FCS provides similar-entity lending levels the playing field between entitaxpayer-subsidized loans to very large borrowers, even ties eligible to borrow from the FCS and direct competitors though the FCS has long had the capability of aggregating ineligible to borrow from the FCS. By virtue of being able to loan data by borrower. borrow from the FCS at taxpayer-subsidized interest rates, those similar-entity borrowers, of course, gain a financing In fact, prior Information Statements provided data on the edge over competitors who do not borrow from the FCS. total amount lent to the FCS’s ten largest borrowers. Finally, the 2015 Information Statement provides data for all loans Similar-entity lending occurs when one or more FCS inaggregated by borrower. What an eye-opener! At December stitutions “purchase participations in loans originated by 31, 2015, just 4,458 persons or entities – less than one per- [non-FCS] lenders to qualified similar entity borrowers,” cent of the FCS’s 527,462 borrowers – had each borrowed subject to three limitations. First, the aggregate amount lent at least $5 million from the FCS. Their loans totaled $107.3 to the borrower by all FCS institutions “must not, at any billion, or 45.5% of total FCS loans outstanding at year-end time, equal or exceed 50 percent of the principal amount 2015, for an average loan size of $24.1 million. Within that of the loan.” For example, FCS institutions, in the aggregroup were 49 borrowers with an average loan balance of gate, cannot buy more that $50 million of participations in $417 million, including one loan exposure in the $1 to $1.5 a $100 million loan a commercial bank had made to a large billion range and another five loan exposures in the $750 sugar producer. Second, the total amount lent by an FCS inmillion to $1 billion range. Can taxpayer-subsidized financ- stitution to a single similar entity “must not exceed 10 pering be justified for any of these borrowers? cent of an institution’s total capital,” unless its shareholders have approved a higher limit, up to 25 percent. Third, “the FCA raises doubts about FCS similar-entity lending aggregate dollar volume of similar entity participations held by [any one FCS] institution must not exceed 15 percent of Perhaps in response to criticisms raised at the House Ag- its total assets.” riculture Committee’s December 2 hearing on the FCS, on March 10 the Farm Credit Administration (FCA) issued a If each FCS institution’s similar-entity lending had reached bookletter on “similar-entity” lending by FCS institutions. that 15 percent limit at the end of 2015, total FCS simiBookletters are regulatory guidance the FCA issues to FCS lar-entity lending could have equaled $67.1 billion, given institutions. According to the bookletter, a qualified simi- that the combined assets of all FCS banks and associations lar-entity borrower is “a person or entity that is not eligible on December 31, 2015, totaled $447.4 billion. That amount for [an FCS] loan but has operations ‘functionally similar’ of similar-entity lending would have equaled 28.5 percent continued on the next page 28 KENTUCKY BANKER | MAY
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Bert Ely’s FARM CREDIT WATCH continued from the previous page
of all FCS loans outstanding at the end of 2015. It is unlikely that total FCS similar-entity lending would have reached that limit, but interestingly, the FCS Annual Information Statements provide no data on the FCS’s similar-entity lending. Future FCS financial statements should do so.
eral liability and FCSIC assessments binds the four FCS banks and 76 direct-lending FCS associations into what essentially is one highly interconnected financial institution implicitly backed by U.S. taxpayers. The FCS’s similar-entity lending authority has enabled the FCS to make loans to borrowers not otherwise eligible to According to the bookletter, “Congress established the sim- borrow from the FCS, thereby increasing FCS’s taxpayer ilar entity authority to provide [FCS] institutions and [non- risk by untold billions of dollars. That additional credit risk FCS] lenders [including banks] with a tool to manage risk. resides in those sectors and regions of the economy where By lending to similar entities, [FCS] institutions can reduce the FCS already has a substantial risk concentration, further geographic, industry, and individual borrower concentra- exacerbating the FCS’s already extremely concentrated risk tions.” That is a highly dubious proposition, for this reason: in large borrowers, as reported in the article above. For that The similar entities to which FCS institutions can lend are reason alone, Congress needs to reexamine the rationale for limited to the same industries as entities and persons eli- the FCS’s similar-entity lending authorization. gible to borrow from the FCS. Similar-entity lending authority does not empower the FCS to lend to persons and CoBank: $1.7 billion of loans to investor-owned utilities entities FCS institutions cannot lend to, such as casinos and automobile manufacturers. Since CoBank can lend to tele- Although CoBank normally does not disclose informaphone cooperatives, that supposedly justifies CoBank lend- tion on its similar-entity lending to investor-owned utiliing to Verizon and AT&T. Presumably, individual FCS in- ties, such as Verizon and AT&T, during CoBank’s annual stitutions can diversify their geographic and industry risks investor conference call on March 10, I posed this question: by purchasing participations in loans to borrowers located At year-end 2015, what was the total amount of CoBank’s elsewhere in the country or by purchasing a portion of a lending to investor-owned utilities. To my present surprise, loan participation CoBank had previously purchased in a CoBank later provided an answer – approximately $1.7 billoan to an investor-owned utility such as AT&T or Verizon. lion. That amount equaled 8.7% of CoBank total lending However, through such transactions, the FCS, as a whole, on December 31, 2015, to electric, telecommunication, and has increased its aggregate risk exposure to those industries, water/wastewater utilities. These participations are espeincluding agriculture, where it already has substantial cred- cially profitable for CoBank because of its tax breaks and it risk. That increased risk concentration hardly represents cheap funding; that additional profitability subsidizes its sound risk diversification for the FCS. other lending activities. Although the four FCS banks are separately chartered and managed institutions, they have joint-and-several liability for debt securities sold to investors by the FCS’s Federal Farm Credit Banks Funding Corporation. However, the first line of defense in preventing an FCS default on its debt securities is the Farm Credit System Insurance Corporation (FCSIC), which is funded by assessments, comparable to FDIC assessments, on the FCS banks. The FCS banks in turn pass a portion of those assessments through to the associations they fund; in 2015, the FCS banks assessed FCS associations for $169 million of the $261 million in premiums paid to the FCSIC. The combination of joint-and-sevCelebrating 125 Years
CoBank did not provide data on participations in loans to investor-owned utilities it had sold to other FCS institutions, but it probably is substantial since those other institutions had a total of $6.1 billion of utility loans outstanding at the end of 2015, almost all of which consisted of loan participations purchased from CoBank. CoBank’s spokesman said it is routinely approached by large commercial banks to buy loan participations. That may be true, but that does not mean that CoBank should buy them. CoBank’s rationale reminds me of the Flip Wilson saying: The devil made me do it.
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“Our schools, seminars and webinars continue to provide our bankers with the information they need to succeed in this ever-changing financial industry. Join us to learn, enrich and enhance your career. If you have any questions about anything please give me a call or email. We’re here to help!” Paula Cravens Sturgeon | Director of Education Solutions | phone 502-736-1275 | email pcravens@kybanks.com
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Call Report Seminar May 25 | Bowling Green May 26 | Lexington
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