MAY/JUNE 2019
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Do you know where KBPAC money comes from and where it goes? See page 11 >>
2019 KBA STAFF DIRECTORY
4 | KENTUCKY BANKER
Ballard W. Cassady Jr. President & CEO bcassady@kybanks.com
Timothy A. Schenk Assistant General Counsel tschenk@kybanks.com
Debra K. Stamper EVP & General Counsel dstamper@kybanks.com
Jamie Hampton Education Services Coordinator jhampton@kybanks.com
Matthew E. Vance Chief Financial Officer mvance@kybanks.com
Paula Cross Education Services Coordinator pcross@kybanks.com
Selina O. Parrish Director of Membership sparrish@kybanks.com
Tammy Nichols Events Coordinator/Finance Officer, HOPE of KY tnichols@kybanks.com
Natalie Kaelin, Esq. Director of Education nkaelin@kybanks.com
Katie Rajchel Staff Accountant krajchel@kybanks.com
Billie Wade Executive Director, HOPE of KY bwade@kybanks.com
Casey Guernsey Enrollment and Billing Specialist cguernsey@kybanks.com
Josh Fischer, Director of Communications jfischer@kybanks.com
Chuck Maggard President & CEO, KenBanc Insurance cmaggard@kybanks.com
Miriam Cole Executive Assistant mcole@kybanks.com
Lisa Mattingly Director of Sales & Service, KBA Benefits Solutions lmattingly@kybanks.com
John P. Cooper Legislative Solutions jcooper@kybanks.com
Brandon Maggard Account Representative, KenBanc Insurance bmaggard@kybanks.com
Michelle Madison IT Manager mmadison@kybanks.com
Donna McCartin Benefit Support Specialist dmccartin@kybanks.com
Steve Whitlow Systems Engineer swhitlow@kybanks.com
Audrey Whitaker Insurance Services Coordinator awhitaker@kybanks.com
Nina K. Gottes Sponsorship & Business Development ngottes@kybanks.com
Jennifer Schlierf Sales Support, KBA Insurance Solutions jschlierf@kybanks.com
2018-2019 OFFICERS & BOARD OFFICERS Chairman Mr. David M. Bowling, CEO Citizens Union Bank of Shelbyville Vice Chairman Mr. Lloyd Hillard, Jr. Chairman of the Central & Southern KY Region, WesBanco Treasurer Mr. J. Wade Berry President & CEO Farmers Bank & Trust Co. Past Chairman Mr. Timothy E. Barnes President & CEO Hometown Bank KBA President & CEO Mr. Ballard W. Cassady, Jr. Kentucky Bankers Association
Representing Group 5 Mr. Gregory D. Goff President & CEO First National Bank of Kentucky Representing Group 6 Mr. Darin L. Young President & CEO Century Bank of Kentucky Representing Group 7 Mr. Steve Tolliver Market President The Monticello Banking Company Representing Group 8 Mr. Anthony Kinder President & CEO Peoples Bank of Kentucky
BOARD OF DIRECTORS
Representing Group 9 Mr. Andrew Jones Regional President Community Trust Bank
Representing Group 1 Mr. J. Brent Bugg President & CEO Fredonia Valley Bank
Representing Thrifts Ms. Shanda L. Smith President & CEO Blue Grass Federal Savings & Loan
Representing Group 2 Mr. J. Jason Hawkins President & CEO First United Bank & Trust Co. Representing Group 3 Mr. John W. Key President Commonwealth Bank & Trust Co.
Representing Bank Size; $1B or more Mr. Ja Hillebrand, CEO Stock Yards Bank & Trust Company Representing Bank Size Assets at least $200M; less than $1B Mr. David W. Hobbs President, River City Bank
MAY/JUNE 2019
IN THIS ISSUE 3 7 8 9 10 11 14 15 17
KBPAC Infographic Chairman’s Corner HOPE of Kentucky Straight Talk Field & Main My Two Cents NewGround Designs Protect Profit Do IT Right 18 LSU Graduates 19 Paducah Bank 20 Spring Conference 22 KBA DC Trip 25 Good Employees 26 Relief 27 Overdraft Strategies SUBMISSIONS
Please send submissions and questions to Josh Fischer, Managing Editor. Email: jfischer@kybanks.com
SUBSCRIPTIONS
$30/year for KBA members $60/year for KBA non-members Additional single copies $5 each Email: jfischer@kybanks.com
ADVERTISE
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Representing Group 4 Mr. Dan M. Harbison President & CEO The Farmers National Bank of Scottsville
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KENTUCKY BANKER is the official bi-monthly magazine of the Kentucky Bankers Association. No part of this magazine may be reproduced without written permission from the KBA. The KBA is not responsible for opinions expressed by outside contributors published in KENTUCKY BANKER. The KBA reserves the right to publish submissions at the discretion of the KBM editorial team.
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CHAIRMAN’S CORNER Mr. David M. Bowling, CEO Citizens Union Bank of Shelbyville 2018-2019 KBA Chairman
What an Washington DC interesting place... I think this was my third KBA Washington DC trip and it never disappoints in providing some interesting memories and thought-provoking experiences. As my travel schedule worked out I got to DC very early on Sunday so I decided to take in a little of the many sightseeing opportunities the city has to offer. I had visited the Holocaust Museum before with my daughter’s eighth grade class but wanted to see it again with a little more time to really take it in. I spent 2-3 hours this time and I was glad I did. What a powerful, yet somber, place. It still amazes me that something that horrifying could happen in a “civilized” world, but it did. It was also interesting to see such a large crowd of tourists file through the many exhibits in almost total silence as they took it all in. You cannot experience that place and come away unmoved. It was a beautiful day so I sort of wandered around the Mall area the rest of the day and ended up at the National Portrait Gallery. Nothing like the Holocaust Museum of course, but interesting nevertheless to see the various portraits of the many men and women who shaped our country.
THREE FULL DAYS The first scheduled day of the trip was Monday when we had meetings with the ABA staff, FINCEN, the Treasury Department, the CFPB, the FDIC and the OCC. While I think all the meetings were informative, for me one of the most interesting elements was the obvious change in “tone” from the CFPB folks. Much has been made of the appointment by President Trump of Kathy Kraninger to follow Mick Mulvaney as head of the CFPB and it appeared to me at least that her staff has adopted a much “kinder and gentler” approach to the banking industry and that seemed to come through even our Q&A. Different leaders make a big difference. The other first day highlight I thought was the lively exchange we had with Sydney Menefee, Deputy Comptroller and Chief Accountant at the OCC, regarding the impending implementation of CECL. She was very knowledgeable about the issue and answered each of our questions as best she could given the implementation dates are still a ways off. While I’m not sure we learned anything new, I think the entire group was impressed with her candid responses. The second day started with a visit to the Federal Reserve and a sitdown meeting in the historic FRB Board room with new Fed Governor Michelle (she insisted we call her “Micki”) Bowman. She was a breath of fresh air to say the least. Having come from a $185M community bank in Kansas where she was later banking commissioner, it was great to have someone at the Fed who truly understands community banking. She was engaging and listened intently to our questions and issues. One of the best meetings we had.
THE KENTUCKY DELEGATION From there we went to Capitol Hill. I think no matter how many times I visit the Capitol I will always be amazed by the sheer size and power of the Federal Government. It’s an impressive beast with lots of moving parts. And, it’s hard to not feel the history all around you as you walk the same halls as Jefferson and Franklin. We started with lunch with Congressman Andy Barr and later met with Congressmen, Comer, Guthrie and Massie. We discussed our key issues with them (CECL, hemp, AML reform, a proposed farm tax bill) and they pledged their support. I think everyone agrees that we have some bright rising young congressmen in those four. Congressman Yarmuth (thankfully) and Congressman Rogers were not able to meet with us. On Wednesday we concluded our trip with a meeting with Senate Leader McConnell who listened to our issues and questions but admitted that unfortunately not much of substance was likely to happen in DC between now and the 2020 election. It’s good for Kentucky to have such a powerful Senator and he seemed to be already shifting into reelection mode. Unfortunately, Senator Paul’s schedule changed at the last minute we were unable to meet with him. It was a busy three days with lots of time for networking with old friends and some new ones. Spending time with other bankers may in fact be the most valuable part of the trip each year. I typically learn something valuable for my bank on these trips and it usually comes from another Kentucky banker.
OUR IMPRESSIVE EMERGING LEADERS I would be remiss if I did not point out how impressed the entire group was with the group of KBA Emerging Leaders who also made the trip. Eleshia Brandon, Mackenzie Carter, Ryan Newcomb, Jake Pepper, Logan Raley, Kelcey Rock, Taylor Rousey, Amber Smith, Haley Thomas and Jessica Watts all acquitted themselves very nicely on the entire trip. They were professional, articulate, engaging, inquisitive and active participants in most every meeting. If all of the young leaders in banks across the Commonwealth are like this group the future of banking in Kentucky is in good hands. All in all it was an interesting trip to an interesting place and one I encourage all Kentucky bankers to make at some point.
WASHINGTON DC TRIP PHOTO ALBUM SEE PAGES 22 & 23 >> 7 | KENTUCKY BANKER
Building a Brighter Future What is HOPE of Kentucky? HOPE of Kentucky is a Consortium of banks formed to pool funds in to make loans on affordable housing projects. What is the mission of HOPE of Kentucky? Our mission is to help build a brighter future for communities in Kentucky, and surrounding regions, by providing safe, well-built, affordable housing for workforce employees and seniors. What does HOPE of Kentucky provide banks? The HOPE of Kentucky Consortium limits credit and interest rate risks for banks by lending to multiple building projects. The HOPE of Kentucky Consortium’s approach gives banks the opportunity to participate in the highly technical world of the affordable housing industry. What do you mean by HOPE? We wanted to use a word that demonstrated our mission, and “hope” is the best word that encapsulates what we do. Why is affordable housing so important? HOPE of Kentucky believes everyone deserves the right to have safe, decent, affordable housing. With the current state of housing and economic development many Americans can no longer afford to own their own home, or rent market rate rental units. How can a bank become a member of HOPE of Kentucky? A bank can join the HOPE of Kentucky Consortium by completing a simple application and paying a one-time fee based on bank asset size. We also ask banks to pledge the total dollars they are willing to commit to lend over the next three-year time frame. This pledge allows us to know how many projects we can realistically fund. An interested bank can contact HOPE of Kentucky to obtain a current listing of members. Who leads HOPE of Kentucky? HOPE of Kentucky is being led by Executive Director Billie Wade. Mr. Wade is a CPA and former Kentucky banker who has 20-plus years of experience lending to, and investing in, affordable housing projects. Mr. Wade knows most all the major players in the industry: developers, syndicators, consultants, nonprofit groups; these parties are active in developing affordable housing. Mr. Wade can introduce developers to officials at HUD, FHLB of Cincinnati, Kentucky Housing Corporation, City Housing officials, all of whom provide funding sources.
CONTACT Billie Wade, Hope of Kentucky Executive Director DIRECT: 502-736-1285 CELL: 502-321-5000 EMAIL: bwade@hopeofkentucky.com
www.hopeofkentucky.com
STRAIGHT TALK Ballard Cassady KBA President & CEO bcassady@kybanks.com
Have we ever had a better 12 months?
Our Chairman, David Bowling, said to bankers at each of our recent Group Meetings: “I don’t know, that in our lifetimes, if the KBA has had a better 12 months.” I certainly can’t think of one. We have had a tremendous 12-month run. How better could you describe a period that included the passage of SB 2155 by Congress and the passage of HB 354 by the Kentucky General Assembly? SB 2155 gave us our first significant taste of relief from the crippling overreach of Dodd-Frank, while the passage of HB 354 fixed a taxation imbalance that was seriously inhibiting Kentucky’s community banks from helping their communities. Most of you know just how unique what happened in Frankfort was, but for those of you who may not, think about what we were facing: an unprecedented budgetary crisis that has yet to be resolved, and the passage of bank tax reform during a short session. Thanks to a Herculean effort of our bankers, as well as the foresight of our legislators, we were able to take an enormous step forward in reestablishing the health of our industry in the Commonwealth. SB 2155 was desperately overdue. I’m not going to waste your time rehashing the timelines and the GSE’s (Fannie and Freddie) role in the collapse, although heavily debated with fingers pointing in all directions, resulting in Congress having forgotten that home ownership is a privilege, not a right. Instead, what I would like to spend time on is to point out the continued backlash from over-regulation. For decades we have heard economists say that there are too many financial institutions in the United States. Well, it is either a mighty coincidence, or they have taken care of that problem. We have gone from 18,000 banks in the 1980s to less than 5,000 today. But, the real problem that not many are discussing is the fact that Congress painted the entire industry with one brush, taking little to no time or effort to determine which banks were involved in the 2008 mess. The result of treating a $100M community bank the same as a $100B bank is that most of the banks that were lost were community banks, those serving and necessary to the stability of the smallest communities. This Dodd-Frank fiasco required state banking associations, like the KBA, to keep doing what they do best, battling for the continued success of their member banks. However, even as hard as the state banking associations fought for equality, legislation was always slanted to do more harm to community banks than good. Case in point - the ability-to-repay provision in Dodd-Frank sounded harmless enough, but this provision morphed into everyone needing a two-year proven track record of cash flow to be able to handle requested debt. What about farmers who get paid only once or twice a year, and experience a year where their crops are destroyed through the vagrancies of mother nature or the tariffs battles of government? They have the collateral and the knowledge to recover, but oops! - there goes their proven two-year cash flow! DENIED.
The KBA is alive and healthy and stands ready to fight the battles of today and tomorrow. I could go on for pages and pages, 1,400 pages as a matter of fact, on the overreach of regulation as a consequence of Dodd-Frank. Although the battle is now being fought by the regulatory agencies on behalf of our industry (thank goodness for Joseph Otting, Jelina McWilliams and Mary Kraniger - regulators who were all previously bankers), we need to remember ELECTIONS MATTER. More now than ever before, for our generation and our children’s generation. Here at the KBA we have been able to diversify our revenue stream so that we are not solely reliant upon bank dues to arm us for the battles we need to fight on behalf of our community banks. Our staff is second to none. Anyone who has utilized our compliance, legal, education, GR or product lines knows well the talent level at your association. But we are threatened by the same exigencies that the industry faces. As our number of members decreases, our ability to maintain a heightened level of expertise is threatened. The result might be devastating if we rest on our laurels. I watched in this last legislative session all our bankers rowing in the same direction for the first time in my 30-plus years. The outcome was amazing! These efforts MUST be continued going forward. We need to maintain the effort, not only for the needs of the industry, but also for the vehicle our industry uses to be the tip of the spear, YOUR KBA. If you have a need for products or services for your bank, or your customers, give the KBA a call BEFORE you call anyone else. Our line of products and services cover everything from mailing to cybersecurity, from insurance to CRA needs, from education to legal direction. When you do business with the KBA, you are doing business with yourself. Even if you decide not to do business through the KBA, at least give us a chance to make others prove their mettle. We can offer a competitive or better bid on just about anything we offer, which may push your current vendor to sharpen their pencil. As I have always said, if the KBA were to go out of existence today, the first meeting the surviving bankers would have is to discuss how they could join together and build an organization to help with the cost of education, GR and legal needs that are all too high for one community bank to handle. Fortunately for Kentucky bankers, the KBA is alive and healthy and stands ready to fight the battles of today and tomorrow. THANK YOU, Kentucky bankers, for your support and dedication! For those few banks that ride your coattails without being members of the KBA, I say shame on you for putting all the pressure on your fellow bankers. With or without their support, we will fight on regardless.
9 | KENTUCKY BANKER
Field & Main Bank Opens Lexington Banking Center Field & Main Bank is opening the doors to its first full-service banking center in Lexington, Kentucky. The new Field & Main banking center is located in the heart of downtown Lexington at 369 E. Main Street. The lobby will be open from 9:00am–4:00pm, and drive thru access will be available from 9:00am– 4:00pm as well. The banking center will be closed on Saturday and Sunday. Jennifer Drennan will lead the Lexington team as the President of the Lexington Market. Drennan brings 16 years of banking industry experience to the position, with a background in retail, lending, operations, information technology and regulatory examining. She has been with Field & Main since 2013 (then BankTrust Financial). “The opening of our Lexington banking center is a thrill for us. This is the culmination of many years of preparing and planning for this event. When we formed Field & Main in 2015 as the result of merging Ohio Valley Financial Group and BankTrust Financial, we placed high on our priority list the goal of opening a full-service bank in Lexington,” said Scott Davis, Chairman and CEO, Field & Main Bank. “We have successfully operated a loan production in this market since 2013, and to be transitioning to a bonafide full-service branch is a real joy for the entire Field & Main team.”
BANK SHOTS FEATURED ON FACEBOOK We want to celebrate every bank promotion and new hire with all our members. This is what Bank Shots is for. We only have a short space to include these in our magazine - much of the story gets missed. Where did they go to school? What branch will they be working? Where do they volunteer in their community? For this reason, and to help build our Facebook community, we are moving your Bank Shots to the KBA Facebook page. Continue to send your promotions and new hires to jfischer@kybanks.com and within 48 hours your Bank Shot will appear on our page and in your feed. (Subject to KBA approval.)
10 | KENTUCKY BANKER
LIKE/FOLLOW US TO KEEP TABS ON THE KBA COMMUNITY To make sure you see all your bank and employee related posts, and to keep up with community news, be sure to like our Facebook page, follow our posts and be sure to invite co-workers, associates, friends and family to like and follow our page.
www.facebook.com/kybankers
MY TWO PENNIES
Debra Stamper KBA EVP & General Counsel dstamper@kybanks.com
Do You Know Where KBPAC Money Comes From and Where it Goes? A few months ago, I used this column to discuss the importance of the KBPAC. This column will give you some insight into where PAC dollars come from and how they are spent. I’ll start with some basic numbers: • • • • •
The KBPAC aggregate goal is (and has been for many years) $175,000. In 2018, we raised only $156,260 in PAC dollars. In previous years we have met our goal. In 2018, if every bank had met their PAC goal, we would have raised $246,850. In 2018, only 1102 of 13,438 (just 8%) of all bank employees in Kentucky contributed PAC dollars. In 2018, if every employee had contributed just $15 we would have exceeded our goal.
In 2018, the following banks met their aggregate PAC goals through employee contributions (remember that corporate contributions are not allowed): Bank of Edmundson County Central Bank & Trust Company Citizens Bank of Kentucky, Inc. Citizens Deposit Bank of Arlington, Inc. Citizens First Bank, Inc. Citizens Union Bank Commercial Bank of West Liberty Commonwealth Bank & Trust Commonwealth Community Bank, Inc. Community Financial Services Bank Community Trust Bank, Inc. Farmers & Traders Bank of Campton Farmers Bank & Trust Company Field & Main Bank First Community Bank of the Heartland, Inc. First Federal Savings & Loan of Hazard First Federal Savings & Loan Association of Morehead First Federal Savings Bank of Kentucky First National Bank of Kentucky First Southern National First State Bank of the Southeast First State Bank, Inc. First United Bank and Trust Company Heritage Bank, Inc., of Erlanger Home Federal Bank Corporation Hometown Bank of Corbin, Inc. Hyden Citizens Bank
Kentucky Bank Kentucky Farmers Bank Corporation Magnolia Bank, Inc. Morgantown Bank & Trust Company, Inc. Owingsville Banking Company Peoples Bank of Kentucky, Inc. Peoples Exchange Bank Stock Yards Bank & Trust Company The Cecilian Bank The Commercial Bank of Grayson The Farmers Bank of Milton The Farmers National Bank of Danville The Farmers National Bank of Lebanon The First National Bank of Russell Springs The Monticello Banking Company The Paducah Bank and Trust Company Traditional Bank, Inc. United Community Bank of West Kentucky, Inc. In 2018, in addition to general party contributions, the PAC contributed to both Republicans and Democrats, in accordance with the PAC Guidelines which have been approved by the PAC Committee. PAC contributions are made to legislators who have a record of supporting bank-friendly issues or who are new and have campaigned on a business-friendly platform (as affirmed by bankers in their districts). We do not consider their positions on non-banking issues. Except for certain leadership/caucuses and committee positions, PAC contributions are usually limited to state legislative candidates in an active race during that year. During 2018, the PAC contributed to the following state candidates and/or legislators: Julie Raque Adams (R) Rocky Adkins (D) Ralph Alvarado (R) Lynn Bechler (R) Linda Belcher (D) Danny Bentley (R) John Blanton (R) Adam Bowling(R) Kevin Bratcher (R) R. Travis Brenda (R) Randy Bridges (R) George A. Brown Jr. (D) continued on page 14 11 | KENTUCKY BANKER
4.25 Billion in private corporate
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Attention CRA Investors
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Central Bank & Trust City National Bank
Community Trust Bank Farmers National Bank Heritage Bank
Kentucky Bank
Peoples Exchange Bank Republic Bank
Springfield State Bank HELPING KBA MEMBERS MAKE CRA PROFITABLE SINCE 1991
Stock Yards Bank & Trust WesBanco Bank 88 East Broad Street, Suite 1800 Columbus, Ohio 43215 www.occh.org
Transform, Grow Your Bank with Daring Design Thinking by Jeff Winter, SVP and Amanda Jasper NewGround
GROW
Our world is in a perpetual state of metamorphosis.
Everyone wants their business to skyrocket to new heights. There are three ways to grow:
Thanks to our evolving economic conditions, high client expectations, and rapid changes in technology, businesses have experienced more dramatic changes than ever before. With this new standard in the business world, there is steadfast pressure for businesses to improve performance and redesign products and services—this is where “design thinking” can give you the edge you need.
DESIGN THINKING
Design thinking zeroes in on your target market and provides a solution-based approach to uniquely solving problems. If you can under+ + + +stand ++++ + +user, + + +you + + +can + + challenge +++ the assumptions, and identify issues and +++++++++++++++++++++ solutions.
+++++++++++++++++++++ +++++++++++++++++++++ Institute of Design at Stanford, the + + + +Developed + + + + + + +by + +the + + +Hasso-Plattner +++++ + + + +five + + +phases + + + +of + +design + + + +thinking + + + + include, but are not limited to: +++++++++++++++++++++ +++++++++++++++++++++ + + + + + + +1.+Empathize + + + + + + +with + + + your + + + users +++++++++++++++++++++ + + + + + + +2.+Define + + + + +your + + +users’ + + + +needs, + their problems, and your insights +++++++++++++++++++++ +++++++++++++++++++++ + + + + + + +3.+Ideate + + + + by + + challenging + + + + + + + assumptions and creating ideas for solutions + + + + + + +innovative +++++++ +++++++ +++++++++++++++++++++ + + + + + + +4.+Prototype + + + + + + +to+start + + +creating ++ solutions +++++++++++++++++++++ +++++++++++++++++++++ + + + + + + +5.+Test + + +solutions ++++++++++ +++++++++++++++++++++ + + + +Unlike ++++a + linear + + + + process, + + + + + +design + + thinking is unique because we can think +++++++++++++++++++++ of the box. + + + +creatively + + + + + + and + + +innovatively—outside ++++++++ +++++++++++++++++++++ + + + +Design + + + + +thinking + + + + + +digs + + +deeper + + + to expose ways to improve—for your + + + +clients, + + + + +for + +your ++++ + + + + + your business, for yourselves. Successful brand,+for +++++++++++++++++++++ companies like Apple, Coca-Cola, and Nike have outperformed other +++++++++++++++++++++
1. Products and services 2. Mergers and acquisitions 3. Branching If you can target at least one of these areas to improve, you’re off to the right start. But that’s only the first step on the stairway to success.
ALIGN Your team also needs to see eye-to-eye on your Brand, Place, and Culture. If your visions and goals don’t match up, you put the company at risk to forfeit potential growth and success. It is imperative to determine the overall alignment of your leadership team to see what you are doing right—and what needs to change for the greater good.
TRANSFORM You can transform your business in a variety of ways—but it really comes down to interactions. More importantly, it is about how those key interactions are uniquely different. What do you need to change about your business, brand, and space? How can you stand out from the other fish in the sea? If you are willing to tackle the steps to Grow, Align, and Transform, you can survive and thrive in the next evolution in banking.
companies by 211%, all using the design thinking approach.
But you want the “wow” factor, no matter what realm of business you’re in. In the financial services arena, if you’re not growing—you’re dying. Clients can deviate from their usual bank in the blink of an eye. They will “ghost” you, so to speak. So, what can YOU do to keep that from happening? Repeat after me: Grow, Align, and Transform.
Field & Main Bank in Cynthiana, KY 13 | KENTUCKY BANKER
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James Buckmaster (R) Tom Buford (R) Tom Burch (D) McKenzie Cantrell (D) John “Bam” Carney(R) Jared Carpenter (R) Danny Carroll (R) Matt Castlen (R) Terri Branham Clark (D) Jeffrey Donohue (D) Myron Dossett (R) Jim Duplessis (R) Linda Edwards (D) Danial Elliott (R) C.B. Embry (R) Bill Farmer (R) Emily Ferguson (D) Joseph Fischer (R) Ken Fleming (R) Kelly Flood (D) Deanna Frazier (R) Chris Fugate (R) Al Gentry (D) Robert Goforth (R) Jim Gooch (R) Derrick Graham (D) Joe Graviss (D) Jeff Greer (D) David Hale (R) Chris Harris (D) Ernie Harris (R) Mark Hart (R) Angie Hatton (D) Richard Heath (R) Gary “Toby” Herald (R) Jimmy Higdon (R) Jeff Hoover (R) Paul Hornback (R) Regina Huff (R) Joni Jenkins (D) DJ Johnson (R) Alice Forgy Kerr (R) Dennis Keene (D) Kim King (R) Adam Koenig (R) Stan Lee (R) Derek Lewis (R) Scott Lewis (R) Savannah Maddox (R) C. Ed Massey (R) Chad McCoy (R) David Meade (R) Reginald Meeks (D) Michael Meredith (R) Russ Meyer (D) Suzanne Miles (R) Charlie Miller (D) Jerry Miller (R) 14 | KENTUCKY BANKER
Terry Mills (D) Phil Moffett (R) Tim Moore (R) Kimberly Moser (R) Jason Nemes (R) David Osborne (R) Ruth Ann Palumbo (D) Dennis Parrett (D) Jason Petrie (R) Phillip Pratt (R) David Ramey (D) Rick Rand (D) Dorsey Ridley (D) Steve Riley (R) Rob Rothenburger (R) Bart Rowland (R) Steven Rudy (R) Sal Santoro (R) Dean Schamore (D) Wil Schroeder (R) Dan Seum (R) Steve Sheldon (R) John Sims Jr. (D) Brandon Smith (R) Diane St. Onge (R) Wilson Stone (D) Jim Stewart (R) Walker Thomas (R) James Tipton (R) Tommy Turner (R) Ken Upchurch (R) Robin Webb (D) Russell Webber (R) Susan Westrom (D) Mike Wilson (R) Max Wise (R) Les Yates (R) Brent Yonts (D) Jill York (R) This is a very basic summary of PAC activity in 2018. Let me know if you have any specific questions.
Contributions to Kentucky Bankers PAC and Kentucky Bankers Committee for State Government (each referred to as KBPAC in this disclosure) will be used in connection with state and federal elections, respectively. Contributions to KBPAC are voluntary and may not be deducted as charitable contributions. KBPAC may not accept corporate contributions. Contributions will be reported to the Kentucky Registry of Election Finance and the Federal Election Commission, as required. You may decline to contribute without fear of reprisal. You may contribute more or less than the amounts suggested and you will not benefit or be disadvantaged because of the amount contributed or decision to participate at all.
Time to Protect Profit Strategies to protect earnings:
by Chad McKeithen & Shannon Reburn Duncan-Williams, Inc. Depository Strategies www.duncanwilliams.com Bank profitability has been strong the last three years. A combination of asset sensitivity, rising bond yields, loan growth and lagging deposit rates have pushed ROAs to their highest level (KY = 1.25%, FDIC) in eighteen years. However, the same asset sensitivity that fueled earnings is now creating concerns. If the FOMC does cut rates then the asset sensitivity along with low cost of funds (KY = 0.87%) combines to create a problematic earnings scenario. Asset yields have much more room to fall than cost of funds. Banks need to be looking at protecting earnings now. It will become too expensive to do so once the problem is upon us. Most institutions cannot easily alter the duration of their deposits or loans but they can lengthen the bond portfolio. Most portfolios are already too short. In the first quarter the average portfolio duration was 3.74 (Duncan-Williams Portfolio Analysis Peer). Asset sensitive banks or banks with low cost of funds should be extending this to between four and five years to protect NIM.
1) FNMA MBS DUS (>7yr) with prepayment penalties. Banks have upped their reliance on DUS due to the prepayment penalties which protect against refinancing. 2) 15-30yr MBS/CMO with low coupons, low loan balances and low premium prices. 3) Lengthen the call protection in Municipals, Agencies and Corporates. 4) Banks should be looking at swapping out of low yielding, near-term portfolio cash flow and floating rate bonds and swapping into bonds highlighted above. This will eliminate short-term reinvestment risk in the portfolio. Depositories get caught up in the present too often when profitability is good. Now is the time to plan two steps ahead and protect the earnings.
Save the Date hedging bets strategies for a changing market August 6-7, 2019 FHLB Cincinnati will host its 2019 Financial Management Conference at the Hilton Cincinnati Netherland Plaza in Cincinnati, Ohio. This year’s speakers include: Craig Dismuke, EVP, Chief Economist, Vining Sparks, IBG Ryan Hayhurst, Managing Director, The Baker Group Kamal Hosein, Managing Director, Stifel, Nicolaus and Company, Inc. Kamal Mustafa, Chairman, Invictus Group Jimmy Sawyers, Chairman and Co-Founder, Sawyers & Jacobs, LLC For more information, visit www.fhlbcin.com.
This de novo Bank Does IT Right by Sean Martin, CSI Managed Services Product Development Manager From 2000 to 2008, nearly 1,100 de novo banks were newly chartered in the U.S. But that number plummeted following the financial crisis in 2008. When Infinity Bank in Santa Ana, California, opened its doors on Feb. 1, 2018, it became only the ninth new bank in the United States in 10 years. Maybe it’s because launching a de novo bank is anything but easy. Just ask Victor Guerrero, Infinity Bank’s COO and CFO. Infinity is the second de novo institution Guerrero has launched in 30 years of banking. He says building a bank from the ground up is an arduous process that requires holding dozens of meetings with regulators, completing thousands of pages of paperwork and raising millions of dollars in capital. Additionally, before a bank opens its doors, executives must also make important technology decisions that will affect their institution for years to come. And choosing the wrong managed IT services partner can cost a bank considerable time and money. Unfortunately, this is a lesson Guerrero learned with his first de novo bank.
The First Time Around In 2002, Guerrero opened Orange County Business Bank to serve customers whom he felt were forgotten or overlooked by larger financial institutions in the Southern California community. But the bank was nearly derailed due to managed IT services vendors that, according to Guerrero, did not properly set the institution up for success, even though they were broadly used in the de novo bank space. “We were a shambles,” Guerrero says. “Systems were not working properly, we were advised to purchase hardware that we did not need, and we paid for things to be installed that never were.” To help get Orange County Business Bank back on track, Guerrero turned to an IT managed services provider that delivered a more strategic IT approach, customized to the bank’s specific needs. Doing so made all the difference in the world. “It was transformative for our bank,” he says. “We went from a hodgepodge of IT systems management to something much more sophisticated. We were far more comfortable knowing we were protected and set up for the future.” So years later, when it came time to establish his second de novo, Guerrero knew that his existing managed services partner should be involved with Infinity Bank right from the start, including the lengthy application process.
Strategic Support from the Beginning One of the application requirements for a de novo is creating a thorough business plan to guide the institution’s first three years in operation. Among many things, the business plan must address the bank’s IT strategy, including details regarding its core banking system, internal
networks, internet and mobile banking applications, etc. Banks must also include strategies for disaster recovery, incident response, cyber threat intelligence, governance, testing and more. Guerrero says Infinity Bank counted on its managed services partner for strategic support throughout the application process, garnering assistance and knowledge that took pressure off its leadership team during this important pre-launch phase. “Turning to a reputable managed services provider eased the application process considerably,” Guerrero says, adding that regulators were impressed with what the bank and its provider had accomplished: “… it wasn’t even a conversation with the regulators. They moved on to the next subject.” Once the application process was complete, the bank’s managed services provider implemented the network infrastructure and IT services that would help Infinity Bank serve as a foundation for local businesses in Orange and Los Angeles counties.
Bankers Should be Bankers Infinity Bank leverages managed services from a provider that specializes in the fintech industry, and the services they utilize include network and firewall management, intrusion detection and prevention, email services and service desk support. Guerrero says the ability to focus more on banking and less on IT is always appreciated, but especially crucial when opening a new institution. “From a service standpoint, it’s pretty exceptional when I don’t have to worry about what’s happening behind the scenes,” Guerrero says. “As a CFO, this gives me great confidence.” The partner also lends the bank a helping hand during audits, making sure Infinity’s IT policies and procedures are updated, and providing the knowledge and assistance that make the audit process less intrusive. “When we have internal auditors come in, and they do nothing more than confirm what (our provider) is telling us, that’s a comforting feeling,” Guerrero says. “Because if the audit shows something different, then that means we’re going to have to spend more money and time exploring the issue. And that just doesn’t happen.”
As a product development manager for CSI Managed Services, Sean Martin implemented CSI’s managed security monitoring and management service, and actively maintains this system. In his role, Sean identifies and implements solutions designed to maximize security and profitability for financial institutions. Sean speaks regularly on a variety of financial technology issues, ranging from managed services to IT security best practices.
17 | KENTUCKY BANKER
LSU Graduate School Grads Eight Kentucky Bankers Earn Diplomas from LSU’s Graduate School of Banking On May 31, 2019 one hundred eighty-five bankers received graduation diplomas from the Graduate School of Banking at Louisiana State University. This three-year program provides courses covering all aspects of banking, economics and related subjects. Students traveled from twenty-one states and Mexico to participate in this Session. Eight bankers received diplomas from Kentucky: Brett Aaron First National Bank Russell Springs Stacy Aldridge First Kentucky Bank Mayfield Michael Bush United Cumberland Bank Whitley City William Hayden First Kentucky Bank Mayfield Jane Hurt Farmers National Bank Bowling Green Ryan Milauskas Heritage Bank Hopkinsville Tammy Smith Middlefork Financial Group Hyden Shawn Tyra Citizens Bank & Trust Co. Jackson Sponsored by 15 southern state bankers associations in cooperation with the Division of Continuing Education at LSU, the banking school requires attendance on campus for three years, with extensive bank study assignments between sessions. The faculty consists of bankers, business and professional leaders, and educators from all parts of the U.S. During their three summer sessions at the Graduate School of Banking, students receive 190 hours of classroom instruction, planned evening study, and final examinations at the end of each session.
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Paducah Bank Brightens Future Paducah Bank taps into the future by asking a group of bright young students for their view on banking and finance in the 21st century. Our new network of teens will work alongside our financial professionals at the bank on real-life project strategies for marketing the bank’s products and ideas to young people. They get the opportunity to literally be a part of our bank marketing team. They will post preapproved graphics to their social channels, participate in social videos, and community projects. They will work under the direction of Susan Guess, senior vice president of marketing. We will partner them with teens from our Alumni Board to serve as mentors and they will hear from speakers about the responsibility of social media, mindfulness, along with financial literacy. They will also be a part of enhancing the Kindness Mural at MAKE. We know they are building a resume for college and looking for opportunities to be a part of something outside of classrooms and clubs. The Paducah Bank Teen Ambassadors will give them a chance to work in a banking environment and learn from financial professionals about careers that might interest you after college and into their “tomorrow.” “It’s a win-win for all us,” says Mardie Herndon, President of Paducah Bank. “The Teen Ambassadors are receiving real world experience, and the bank is receiving feedback as to what this generation is interested in doing as far as their financial capability.” Fifty students, representing seven school districts, have been selected for the 2019 Class (student, grade, high school): 1. Tyson Asher, Senior, McCracken County High School 2. Maggie Aydt, Sophomore, McCracken County High School 3. Keiler Belt, Junior, PTHS 4. Chloe Bilak, Senior, PTHS 5. Marissa Brock, Freshman, McCracken County High School 6. Brooke Bowling, Sophomore, McCracken County HS 7. Lilly Brown, Sophomore, PTHS 8. Livie Burkeen, Senior, McCracken County High School 9. Raven Butler, Sophomore, PTHS 10. Alexis Carter, Senior, McCracken County High School 11. Sydney Carter, Sophomore, McCracken County High School 12. Gina Caturano, Senior, McCracken County High School 13. Kaden Chiles, Junior, Marshall County High School 14. Taliyah Conner, Senior, PTHS 15. Gabrielle Copeland, Freshman, PTHS 16. Erin Eickholz, Junior, McCracken County High School 17. Madeline Elmore, Senior, PTHS 18. Adisyn Fleming, Senior, St. Mary High School 19. Mitchell Guthrie, Senior, McCracken County High School 20. Karlie Hack, Sophomore, McCracken County High School 21. Rosemary Halvorson, Senior, Homeschooled 22. Sarah Hobbs, Senior, PTHS
23. Hillary Hollowell, Freshman, McCracken County High School 24. Alexis Jernigan, Junior, PTHS 25. Morgan Jez, Freshman, McCracken County High School 26. Abby Kuntz, Junior, McCracken County High School 27. Sammy Lambert, Junior, PTHS 28. Lynzi Lawrence, Sophomore, McCracken County HS 29. Megan Lorch, Sophomore, St. Mary High School 30. Hallie Ludovissie, Junior, McCracken County High School 31. Patrick McHaney, Junior, McCracken County High School 32. Walker McNeill, Junior, McCracken County High School 33. Dylan Nevels, Sophomore, PTHS 34. Rodney Perry, Senior, McCracken County High School 35. Hadley Pierce, Sophomore, PTHS 36. Danni Poat, Junior, McCracken County High School 37. Hallie Riley, Senior, Marshall County High School 38. Allee Rudolph, Junior, PTHS 39. Garrett Rudolph, Junior, MCHS 40. Breanna Rushing, Senior, Massac County High School 41. Gabbi Smith, Junior, McCracken County High School 42. Madison Smith, Senior, McCracken County High School 43. Brooke Stepter, Senior, Massac County High School 44. Mallory Stewart, Freshman, McCracken County High School 45. Jenna Thomas, Senior, Ballard County High School 46. Leah Tyrell, Sophomore, PTHS 47. Emily Veatch, Sophomore, St. Mary High School 48. Laura Walker, Sophomore, McCracken County High School 49. Sawyer Wilson, Junior, Community Christian Academy 50. Mason Wooten, Sophomore, McCracken County High School
19 | KENTUCKY BANKER
2019 KBA Spring Conference French Lick Resort
TOP LEFT: Lanie Gardner opens the 2019 Spring Conference. ABOVE: Commissioner Vice takes the stage. AT LEFT: Hemp panel. BELOW: Keynote Speaker UK Athletic Director Mitch Barnhart. BOTTOM LEFT: Joe Micallef uses the movies to motivate.
2019 KBPAC FOOT GOLF FUNDRAISER CHAMPIONS
TOP: The Emerging Leader team takes first place at the KBPAC Foot Golf Fundraiser. MIDDLE LEFT: The KBPAC Foot Golf Fundraiser was not without controversy; James Brown discovers a doctored soccer ball. #deflategate. ABOVE: Foot Golfers on the course. LEFT: Tony Kinder provides more cowbell for the Louisville Crashers at the 2019 Spring Conference after-party.
KBA ANNUAL WASHINGTON DC TRIP
NEXT PAGE (TOP) KBA Annual Washington DC Trip group shot at the ABA. NEXT PAGE (BOTTOM) KBA Emerging Leaders pose with KBA CEO Ballard Cassady on the steps of the Capitol.
2019 KBA ANNUAL WASHINGTON DC TRIP MAY 20-22 (ABOVE) KBA CEO Ballard Cassady shakes Senate Majority Leader Mitch McConnell’s hand; (RIGHT) US Representative Andy Barr addresses the KBA contingency in DC; (BELOW) KBA members at the Federal Reserve.
Pictured L to R: Tom Coffey, Mindy Sunderland, Morgan McGarvey and Thurman Senn
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Relief for Community Banks An important reform of the rules governing reciprocal deposits will make it easier to compete for business. by David Still, Regional Director, Promontory Interfinancial Network The recent bank reform bill made a lot of news, but what may surprise you is the specific provision of the Economic Growth, Regulatory Relief, and Consumer Protection Act that community bankers believe will have the biggest impact on their daily business. Before the bill became law, a lot of attention was placed on the provision raising the systemically important financial institutions, or SIFI, threshold from $50 billion to $250 billion in assets, above which banks must contend with a heavier compliance burden. Yet, the provision involving SIFIs directly impacts only a small number of commercial banks based in the United States—the dozen-plus with between $50 billion and $250 billion in assets. Perhaps that’s why when Promontory Interfinancial Network queried bankers for its second-quarter Executive Business Outlook Survey, executives from the 390 banks that responded pointed elsewhere when asked to identify the law’s most impactful provision. Thirty-seven percent of respondents said the law’s provision that allows most reciprocal deposits to be treated as nonbrokered deposits ranked highest on a scale of one to five, placing it first among the seven other provisions tested. It was up against stiff competition. The other provisions included those that eased the qualified mortgage rule, extended the regulatory exam cycle and simplified capital rules for community banks, among others. “We think the change to reciprocal deposits is great,” says Christopher Cole, executive vice president and senior regulatory counsel for the Independent Community Bankers of America. “It clarifies the status of reciprocal deposits and alleviates the concerns many community banks had about using them.” Similarly, the American Bankers Association noted that, “the definition of brokered deposits needs to be modernized and we appreciate that Congress took a first step by recognizing reciprocal deposits are a stable source of funding for many community banks.” The change in the law makes sense, says Neil Stanley, president of community banking at TS Banking Group, which owns three banks, including Treynor State Bank, a $400 million bank based in Treynor, Iowa: “This is one of those areas that reflects what bankers always thought was true—when a large, local depositor does business with us, any deposits above the $250,000 FDIC insurance threshold shouldn’t be considered brokered or highly volatile just because we place them with other institutions on a reciprocal basis.” Underscoring the significance of the change, 58 percent of respondents to Promontory Interfinancial Network’s survey said they plan to start using, or expanding their use of, reciprocal deposits immediately or 26 | KENTUCKY BANKER
very soon because of the new law. An additional 29 percent said they would consider doing so in the future. To put this in perspective, according to the same bank leaders, the next most impactful provision included in the new law relates to the easing of rules surrounding commercial real estate loans, followed by the provision that shortened call reports and then by the provision that provided qualified relief. The change in reciprocal deposits may seem like a peripheral issue, but it addresses a fundamental inequity in banking. It does so by helping to level the playing field between the handful of large, money center banks headquartered in places like New York City and the thousands of smaller banks spread across the country that serve as economic lifelines in their communities. Institutional investors have often favored big banks because of the belief they are “too big to fail.” And since they have more resources to invest in mobile and online banking technology, big banks have become magnets for deposits from the new generation of digitally savvy consumers. These banks no longer need to rely as heavily on building branches in rural communities to compete with community banks for funding; they can now reach small-town customers through their smartphones. As such, many of the nation’s biggest banks are reporting organic increases in deposits. And the competition on the funding side of the balance sheet will only intensify as interest rates climb. The Federal Reserve’s Open Market Committee has raised the fed funds rate multiple times this year and is expected to continue doing so. By making it easier for community banks to use reciprocal deposits, in turn, the new law strengthens their ability to grow relationships and deposits from a local customer base without losing either one to bigger banks with deeper pockets. “This is a step in the right direction,” says Bert Ely, a principal of Ely & Company, where he monitors conditions in the banking industry. “It makes it easier for community banks to accommodate large depositors.” Given all this interest, it seems likely that the use of reciprocal deposits will increase in the coming months and years. Banks not currently familiar with them would thereby be wise to familiarize themselves with how reciprocal deposits work and their benefits.
To learn more about reciprocal deposits and the impact of the new law, contact David Still at dstill@promnetwork.com
Five-Star Overdraft Strategies by Mark Roe, John M. Floyd & Associates National Sales Director Now more than ever, ratings, likes and social recommendations play a major role in the process of selecting the products and services consumers use every day. When it relates to maintaining one’s financial well-being, reliability, transparency, fair pricing and pleasant service experiences are key must-haves for generating a thumbs up or multistar assessment. So how do financial institutions capture the consumer enthusiasm that generates initial interest from prospects and creates long-term account holder loyalty? Following are five characteristics that can help to ensure your overdraft strategy will rank at the top of any list of essential services that support financial security. 1. Aligns with all account holders’ needs: Unexpected financial needs can happen to anyone. A fully disclosed overdraft program provides a reliable way for account holders to make sure important expenses will be covered — whether they are having difficulty making ends meet, make a mistake on their account or are hit with an unexpected financial situation. A socially-responsible overdraft program is fully disclosed, easy to use, and provides counseling and practical information about alternative solutions that fit individual circumstances. These features increase the benefits of the program for account holders and provide compliance peace of mind for the institution. 2. Incorporates updated tools and resources: Greater focus is now being placed on high-tech solutions throughout the industry. An effective overdraft solution should be designed to solve consumer problems while helping institutions maintain efficient operations. Next generation overdraft strategies improve processes and provide measurably better performance results through: • • • • • •
Best-in-class software for increased program automation and efficiencies; more in-depth account tracking and analysis; up-to-date compliance proficiency and guarantee for compliance certainty; more continuous employee training and educational opportunities; on-going guidance and comprehensive consulting; and performance-based pricing.
Utilizing an automated communications resource — with access to prepared, compliance-tested messages — can simplify the process of keeping account holders up to speed on their account status, program procedures and fees, as well as their responsibilities when using the program. 4. Strengthened by on-going employee training: Balancing a multitude of service responsibilities can make it difficult to focus on the details that are vital to consistently addressing account holder needs. But maintaining a command of regulations and best practices around overdraft services is critical, especially in an age of increased legal activity and class action risk. Providing on-going, comprehensive employee training will ensure that everyone in the institution understands the benefits an overdraft program provides to account holders, how the processes and procedures work, and how to explain the program effectively. If you rely on current staff members to train new employees — based on knowledge they acquired years ago, or information they received as their supervisor was heading out the door for another job — chances are something important may be overlooked. The more accurately and confidently your employees explain your overdraft solution, the less likely you are to have any negative situations with account holders or examiners. 5. Guided by a team of experts: If you don’t have the luxury of expertise in technology and data analytics, compliance, employee training and performance improvement strategies, professional overdraft consultants can help. They will guide you through areas where opportunities exist for improving results. Then they will work alongside your staff to effectively address issues that are key to meeting consumer, regulatory and performance expectations. From there, they can provide recommendations on how to meet or exceed your goals. Combining a proven strategy and reliable resources leads to exceptional results: As consumer expectations of speed and convenient financial services are combined with compliance requirements and operational challenges, it can be difficult to maintain the highest level of performance. An experienced overdraft service provider can help you align your program’s processes and resources, and recommend updates and service enhancements to help make sure everything is running smoothly — and compliantly. As a result, you can take command of your service and performance goals … and the five-star ratings, thumbs up and positive reviews will follow.
3. Respects all account holders’ need to know: Wouldn’t it be great if you had the support you needed to make sure all of your account holders were familiar with your overdraft policies? A fully disclosed program prevents account holder confusion that can lead to criticism, as well as increased scrutiny by regulators. 27 | KENTUCKY BANKER