KENTUCKY BANKER MAGAZINE July 2013
As we celebrate our 25th Anniversary, we express our sincere appreciation for the support and loyalty of our customers.
Our goal, like that of the Community Banks we serve, continues to be delivering the leading, strongest customer service in the correspondent banking industry. We look forward to the future and the continued opportunity to care for our customers.
800.248.3229 | 502.695.3000 | www.bbky.com
David P. Heintzman KBA Chairman Stock Yards Bank & Trust Company Louisville Richard Barto KBA Vice Chairman Citizens Bank of Northern Kentucky Newport Neil S. Bryan KBA Treasurer The Farmer’s Mank of Milton Milton Tony D. Whitaker KBA Past Chairman First Federal Savings & Loan Association Hazard Ballard W. Cassady, Jr. KBA President & CEO GROUP REPRESENTATIVES R. Bruce Kimbell- Group 1 First Community Bank Clinton Michael Mercer- Group 2 First Security Bank of KY Central City Frank B. Wilson- Group 3 Wilson & Muir Bank & Trust Company Bardstown Owen Lambert- Group 4 South Central Bank Glasgow James W. Beach- Group 5 People’s Bank & Trust Company Owenton Anthony Busseni- Group 6 Century Bank of Kentucky Lawrenceburg Katherine Capps- Group 7 First State Financial Middlesboro Stephen Miller- Group 8 Peoples Bank of Kentucky Flemingsburg Greg A. Wilson- Group 9 The First Commonwealth Bank Prestonsburg THRIFT REPRESENTATIVES Don Jennings First Federal Savings Bank of Frankfort Frankfort Glenn Meyers Kentucky Federal Savings & Loan Covington BANK SIZE REPRESENTATIVES Luther Deaton Central Bank Lexington Elizabeth Griffin McCoy Planters Bank Hopkinsville EDUCATION ALLIANCE REPRESENTATIVE Lanie W. Gardner First National Bank of Muhlenberg County Central City PEC REPRESENTATIVE Fred Brashear, II Hyden Citizens Bank Hyden
CONTENTS STAFF MANAGEMENT TEAM Ballard W. Cassady, Jr. President & CEO Debra K. Stamper EVP/General Counsel/Director of Compliance Paula B. Cravens Sturgeon Director of Education Solutions Selina O. Parrish Director of Vendor Solutions Matthew E. Vance Chief Financial Officer STAFF Miriam Cole Executive Assistant Paula Cross Education Solutions Coordinator Kyle Elmore Director of Communications Jamie Hampton Education Solutions Coordinator Natalie Kaelin Assistant General Counsel Chris Kelso Manager of AIB Education Solutions Michelle Madison IT Manager Lanie Minton Administrative Assistant Tammy J. Nichols Convention & Member Services Coordinator Katie Rajchel Staff Accountant Yvonne Savage PAC Services Coordinator Steve Whitlow Systems Engineer CONSULTANTS John P. Cooper Governmental Affairs
Mimosa Photo shot by Courtney Lucas for the 2013 Scenes of Kentucky Photo Contest
COLUMNS Chairman’s Corner.........................5 Straight Talk.................................6 My Two Cents Plus Some...............8
DEPARTMENTS Education....................................20 Products and Services..................23 Making News...............................24 On the Move................................27
KBA INSURANCE SOLUTIONS Chuck Maggard President & CEO Brandon Maggard Account Representative Audrey Whitaker Insurance Services Coordinator
KBA BENEFIT SOLUTIONS Lisa Mattingly Director Sales & Service Lane Hettich Service Manager
CFPB & Service Providers..............18
HOPE OF KENTUCKY Billie Wade Executive Director
Emerging Leader Spotlight............10 One on One Update......................13 122nd KBA Convention.................14 New KBA Employee......................21 PAC Golf Scramble........................22
July 2013 | 3
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CHAIRMAN’S CORNER practices were put into place. One other fact in the report is the number of reporting institutions. In 2008, there were 8,494 banks present compared to the 7,019 reporting in the first quarter of 2013. We have 17% fewer banks in the country in just over five years. While I can’t put a number on it, I doubt we have 17% fewer regulators. Maybe the regulators should realize they may overregulate themselves to the unemployment line. Regulation is essential to a strong banking system, but bankers and regulators need to work as a team. Bankers need to respect regulators and value the insight they have from visiting numerous banks. Regulators need to work with bankers, not against them. The tone is set at the top where regulators appear to be reasonable people. So where does David Heintzman the disconnect happen? When I’ve visited with KBA Chairman regulators in Washington, reasonable people with reasonable views seem to be in the majority. When With summer fully upon us, I look to the fall and I suggested that vendor management be handled realize (in baseball terms) that I have rounded third similar to shared national credits, I received an open base and am heading for home. Yes, my year as response. Examiners review a national credit once your Chairman has flown by and there are less than and it receives a rating that all examiners use with three months until I pass the gavel at the Greenbrier every bank that owns a portion of that loan. How convention. As I thought about what my letter this about vendor management being dealt with the same month might say, I came across the March OCC way? If an examiner reviews Fiserv, for example, Central District report, as well as the FDIC Quarterly and assesses it sufficient, each bank could use this Profile, and found plenty to write about. assessment and prevent a thousand banks from First and foremost, we, as an industry, are doing having to go through the same exercise. This would better. Time and low rates have allowed the economy be tremendously time-saving to small banks. But this to heal, so to speak, and our balance sheets have requires collaboration and a willingness to say “we gotten stronger. The first quarter of 2013 marked are all on the same team, serving our communities.” the highest ROA since the second quarter of 2007. This could be real if regulators want it to be. But, Provisions for loan losses continued to drop to levels more than likely I’m only dreaming. not seen since the first quarter of 2007. Retained Until next month, keep pounding it out and I hope to earnings grew, reliance on non-deposit liabilities see you in West Virginia in September. lessened, and the number of failed or problem banks continued to decrease. So, with all this good news, why did the OCC have 16% of banks in 2010 with a composite rating of “one” while in 2013 only 10%? Quite frankly, I believe that most of our banks are better off today than they were in 2010 but the examiner ratings don’t appear to agree. I believe we all should be given a gold star for merely surviving the last six years. We all stretched too far during the glory days, but the examiners are just as culpable. The same appraisals, policies, etc. that they criticize today were acceptable to them when implemented. The regulators have the luxury of criticizing decisions back in time without regard to the fact that they too were present years earlier when these now “unsafe” July 2013 | 5
Since we all agree that FDIC employees are the smartest people in the world (tongue in cheek here), we must use our resources more effectively and employ that genius in our own banks. I propose a cure to the second guessing nature of FDIC examiners with regards to community bank decisions.
We assign one FDIC examiner to each bank. This examiner can sit with the loan officer and give a “thumbs up or thumbs down” approach to the loan decision. This will save time, money, resources, and guarantee examiners and banks agree with the rationale behind a loan. A win-win for all. Once the loan has been approved by the loan officer and the examiner it can never be downgraded or criticized again solely for the decrease of collateral value or economic downturn. After all we had the smartest guy in the room help with the original approval. Furthermore, community banks could allocate resources for these examiners to have an office (or at least cubicle) where they may write comments and analyses for inclusion in examination reports as to the adequacy of said bank’s procedures and practices. Since they would be sitting side by side with the CEO and the board, there could never be any criticism of those either. Once again you had the smartest person in the room help write them! The “in house” approach should solve most our problems going forward and the examiner could paint a much clearer picture of the situations Kentucky bankers face every day when writing their glowing reports on the banks activities. Since rarely do examiners appeal in favor of community bankers, with this proposal there will be no need for appeals.
From what I have been told, most positions with the FDIC require an undergraduate degree in business, finance, or accounting with six semesters of accounting work. Obviously, a loan officer with only 25 years of experience could benefit from the advice of a 26 year old examiner with all that education. With approximately 7,400 examiners and 6,048 commercial banks to cover- I think we can do a fine job covering the territory at a 1:1 ratio. My critics may say hosting examiners for all loan transactions and policy decisions is a conflict of interest, and to that point I remind them bankers and examiners ultimately have the same goal (or at least should): the security of customers’ money and soundness of the institution itself. Oh and I forgot all the paperwork required for proving that you aren’t discriminating or charging too much. After all we could let the examiners fix those stupid customers of ours who want a loan that fits their ability to repay. Really stupid stuff like balloon payments, rolling interest for a month because the customer was short, or (heaven forbid) explain to the customer how three different appraisers came up with three different values and why we took the lowest one. This proposal will keep FDIC examiners and bank employees on the same page. Regardless if the economy goes up or down, regardless if the situation of the loan applicant changes, the FDIC cannot second guess the decision of the bank since examiners will hear every point discussed during the meeting. Let’s put the genius in the room to work and save our own time in the process. Basketball icon John Wooden once said, “Whatever you do in life, surround yourself with smart people who’ll argue with you.” Let’s take that sentiment literally (since disagreeing with Examiners is par for the course). Let’s work together with the FDIC and find a cure for what ails them. We welcome examiners into our community banks, come join the team and see how easy it is to keep the community running and keep customers coming in the door.
Let me know what you think: firstname.lastname@example.org July 2013 | 6
MY TWO CENTS PLUS SOME
Let’s Talk Notary of execution and acknowledgement of instruments. 2. An NP, as a public officer should perform services for any individual who reasonably and lawfully requests such service. 3. An NP should not refuse notary services based upon characteristics of a protected class and “should not refuse to notarize a document solely because the individual requesting notarization is not a client or customer of the notary or the notary’s employer.” 4. An NP should refuse services if it is believed that the signer is being coerced or does not understand the consequences of signing. The position of notary public is a time honored position of public trust which has been around since the Roman Republic (106-43 BC). It started as a defined legal public office position and has adapted through the centuries to meet the needs of various countries and states. In the United States the appointment and responsibilities/ powers of Notary Publics are matters of state law. In Kentucky, “[a] notary public is a public servant appointed by state government to witness the signing of documents and to administer oaths.” (Secretary of State’s website.) In Kentucky, a Notary Public may be commissioned to act within the state-at-large, which means that they are not limited geographically, so long as the act being notarized occurs within the borders of Kentucky and the notary documents may be sent and recognized out of state so long as they are acceptable to the other jurisdiction. In Kentucky, a Notary Public can also obtain a “special commission” which means that the notary documents may not be accepted outside the state. Most of the laws regulating Kentucky appointed Notary Publics are contained in KRS Chapter 423 and are very basic. The Secretary of State’s office summarizes the limits and powers of Notary Publics (“NP”), which is further summarized here and many of which, I am sure will surprise you: 1. An NP may administer oaths and take proof July 2013 | 8
5. An NP should refuse services if the signer is not present; the NP is the signer; the signer cannot produce acceptable identification and is not otherwise known to the NP; or the NP has an interest in the underlying transaction. 6. An NP is not required to provide services outside of the NP’s regular office hours, nor is an NP required to travel. 7. An NP, unless also a licensed attorney, may not give legal advice or interpret documents. While I take issue with some of these requirements (such as refusing service if the NP believes that the signer does not understand the underlying consequences of the document), I think that it is a good reminder that a notary service is serious business and should only be provided with the signer present (highly recommended that the document be signed in the NP’s presence) and identification be presented. Otherwise, an NP is subject to potential liability for mistakes made. In addition to the editorialized summary of NP responsibilities above, the Secretary of State’s office also publishes a Notary Public Handbook (Revised January 2012). This expands the commentary provided on the website. Among other things, the Handbook suggests that an NP
maintain a journal of notarial acts performed. Even though it is not required under Kentucky law, I agree with this recommendation as it serves to memorialize the steps taken in performing official acts. There are prepared notarial journals available for purchase. Further, the Handbook explains that the fees allowed are .50 cents for each official act; .75 cents for recording in a journal; .25 for notice of protest; and, .20 for administering an oath, in accordance with KRS 64.300. This fee schedule was passed in 1942. We all know from experience that no one followed this schedule until recent years. Now, when you look up NP’s in Kentucky, they charge .50 cents for the service and then a travel or administrative fee. A representative from the Secretary of State’s office has verbally opined that an administrative fee is acceptable. This leaves bank employed NP’s in a difficult position. First, they have to be properly trained to understand the responsibility of their position. (In the past, I have heard stories of secondary market lenders which were requiring signature guarantees from Kentucky banks, rather than notary seals, because of the lax standards in Kentucky. Signature guarantees are a story for another day, but the liability is MUCH HIGHER for the bank than NP liability and should be guarded as such.) Second, they have to make sure they follow identification requirements and journal the same. Third, even though the Secretary of State’s office has taken the position that an NP “should” not limit services to clients only, I am not aware of any law which requires that—thus, the bank has to make the risk decision of whether to limit notarial services to customers only…and stick with it/no exceptions which could subject you to discrimination charges. Fourth, the bank must decide what administrative fee is to be charged for NP services and whether those should be charged to customers as well as non customers. We may look at the Uniform Act for notary services and see if that would be beneficial to Kentucky banks. Look for a survey on that. Debra Stamper email@example.com
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6/25/13 12:21 PM
Emerging Leader Spotlight: Lee Ann Hockensmith and our individual group meetings throughout the state.
It is hard to believe that the first half of our year as Emerging Leaders is complete. It seems like yesterday that we all converged on the KBA office in Louisville to meet one another and learn about the exciting year ahead of us, which included a trip to Washington DC, a visit with legislators in Frankfort, the Spring Conference in Lexington,
Among those events in our agenda for each month of the year were also opportunities of training in leadership held specifically for the audience of the eight Emerging Leaders.Â The first of these training sessions was about Community Involvement and was held in June at the office of the KBA.Â Our speaker was Terry Bunnell, President/CEO of The Peoples Bank in Marion, Kentucky. Over the lifetime of his career in banking, Terry has served countless hours serving in a multitude of organizations in his community. Due to his unbridled passion for community involvement, Terry shared a wealth of information he has gleaned
over these years. Foremost, Terry shared with us the importance and impact we can have as bankers that give back and serve in our communities, and ideas and avenues in which we can get involved. His overlying theme was that being a Community Banker essentially EQUALS Community Involvement and that we have a responsibility to give back to the communities we serve. He also emphasized how important it was to have a passion to serve, and to start small in a way that we can be accessible to people in our communities as we serve in leadership positions. He concluded with the importance of balancing family life as a community leader, as well as being open to finding the best fit for service in the
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is responsible for organizing a Community Service Project As we openly discussed Community during the month of July with Involvement, I was astounded at an emphasis on the needs of hearing the many ways that we, our local schools. Many of us as Emerging Leaders, are already are planning school supply, involved within our communities. clothing and shoe drives. We Some of the organizations and all look forward to sharing programs in which your Emerging with you about the impact Leaders are involved include the these projects will have in the Lyons Club, the United Way, Big communities in which we live, Brothers/Big Sisters, respective work and serve. Chambers of Commerce, PTSA and Site Based Decision Councils in Lee Ann Hockensmith local schools, Junior Achievement, and various booster clubs, just to First Federal Savings Bank of Frankfort name a few. In conjunction with this leadership training, each Emerging Leader
July 2013 | 11
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Federal Home Loan Bank | Financial Management Conference August 6-7, 2013 | The Westin Hotel Cincinnati
Who is Going One on One?
$25,000 to Char
First Commonwealth Bank
Picture to right: First Commonwealth Bank’s President/CEO Greg Wilson presenting a “One on One” Campaign donation check to the Highlands Center for Autism.
The Highlands Center for Autism is the only center-based program in Kentucky exclusively using Applied Behavior Analysis (ABA) in a clinical setting. ABA is a science that uses KBA’s “One on One With My Community” initiative i behavioral techniques to teach children basicThe and complex skills. It works by reinforcing appropriate behavior sharingwhile the Kentucky banking industry’s commitment to comm decreasing or eliminating challenging behavior. Accepting Kentucky. Each time that a bank or banker goes “One on O the check on behalf of the Center is Dr. Shelli Deskins, directhis message tor of the Highlands Center for Autism. Dr. Deskins, along with their local community, the KBA will dona with the rest of the Highlands Center for Autism team, be- of that bank’s choice. Help us share the tru local charity lieve that all children deserve the opportunityindustry to laugh and with our neighbors and support local charities in play, and to become healthy, happy and productive adults.
Community Trust Bank
Picture above: CTB Employee Tiffany Reeder and Joe Gunter, Youth Pastor at Flemingsburg Baptist Church.
Community Trust Bank’s Tiffany Reeder shared a story about the bank’s recent One on One experience. In February, CTB donated to God’s Pantry of Lexington, KY. The city of Flemingsburg held a monthly food distribution with God’s Pantry. Volunteer Joe Gunter helped organize the distribution, which was held at his church, Flemingsburg Baptist Church. Yet another example of our bankers helping more than just bank customers!
July 2013 | 13
SEPTEMBER 14-17, 2013
THE GREENBRIER, WHITE SULPHUR SP IN,GS, WV THE GREENBRIRER WHITE SULPHUR SPRINGS, WV
SEPTEMBER 14-17, 2013
T IT... P E C C A O T E S O O H C U O Y D L YOUR MISSION, SHOU EMBER 16 MONDAY, SEPT
R 14 SATURDAY, SEPTEMBE
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4:30 – 5:30 p.m. 6:00 – 7:00 p.m.
Breakfast with the Exhib
8:00 a.m. – Noon
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7:00 – 9:00 p.m.
Reception & Dinner wi Exhibitors
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Compliance Vendor Management Michael Berman CEO Ncontracts
9:45 – 10:00 a.m.
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10:00 – 10:15 a.m.
Presentation of James Awards
10:15 – 11:00 a.m.
rk – Getting Politics to Wo on Not an Impossible Missi Trey Grayson s Director, Institute of Politic y Harvard Universit
erent Kind of Career: 11:00 a.m. – Noon A Diff Undercover in the CIA Jim Olson Former CIA Agent Lunch on your own Dinner on your own (se
July 2013 | 14
Moderators: • Melissa Swan, isville WHAS11 News Anchor, Lou Jr. dy, ssa Ca • Ballard W. • David Heintzman
9:00 – 9:45 a.m.
Call to Order & Welcome David Heintzman rs Association Chairman, Kentucky Banke Bank & Trust ds Yar ck Chairman/CEO, Sto Company, Louisville
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t Presidents, Joint Dinner for KBA Pas r Club, KBA Past Chairmen, Fif ty-Yea Special Guests Officers & Directors and – By Invitation Only
7:00 – 8:00 a.m.
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TUESDAY, SEPTE 7:00 – 8:00 a.m.
Breakfast with th
8:00 a.m. – Noon
8:00 – 9:00 a.m.
9:00 – 9:30 a.m.
9:30 – 10:00 a.m.
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Moderators: • Melissa Swan, WHAS11 News Anch or, Louisville • Ballard W. Cassad y, Jr. • David Heintzman 2013 Economic Ou tlook Dr. Donald Ratajcz ak Regents Professor Emeritus of Econom ics Georgia State Unive rsity SponSor: raymond J ameS, naShvill e, Tn ABA Report Jeff Plagge Chairman-Elect, Am erican Bankers Asso ciation President and CEO, FirstBank Holding Company Lakewood, Colorad o
6:00 – 6:45 p.m. 7:00 p.m.
Annual Banquet Presiding: David Heintzman Chairman, Kentucky Bankers Entertainment: Secret Guest to be anno Recognition and Recognition and Adjourn
Thanks to Conven Thanks to Exhibi
ON INTELLIGENCE REPORT KBTI KBA CONVEN A CO N V EN TI ON IN TE LLIGENCE REPORT
Business - Report of Resolu tions Committee - Installation of KB A Board Members - Election & Installa tion of KBA Treasu rer 2013-2014 - Installation of KBA Vice Chairman 2013 -2014 - Installation of KB A Chairman 2013-2 014 10:00 – 10:15 a.m. Break – Refreshm ents with the exhi bitors 10:15 – 11:00 a.m. Balance Sheet M anagement is Ab out to Matter Chad McKeithen Managing Directo r, Fixed Income Stra tegies & Services Duncan-Williams, Inc. 11:00 a.m. – Noon Fearless Leadersh ip: Never Say Ne ver Again! Lieutenant Carey Lohrenz First Female F-14 To m Cat Fighter Pilot in the U.S. Navy Lunch on your ow n
July 2013 | 15
GENERAL INFORMATION Registration Forms tion forms and return Please complete the enclosed registra . Only those registered to the KBA office as soon as possible the official registration by August 16th will be included on please be sure to name , list. Note: On the registration form see forms for all registrase Plea . your bank’s voting delegate tion fees. Golf Tournament for the Golf TournaRegistration information is included clubs and send them to r ment. The Greenbrier will store you r reserved tee time, you or the golf club for the tournament your clubs. Also, if on e nam r you so please be sure to put lable. you prefer, they have rental clubs avai
Spa treatments with stateCombining native sulphur water spa Greenbrier Spa treatThe , of-the-art therapeutic experiences ss-relief therapy stre and ucts ments feature the finest prod soothing and both ides prov Spa er any where. The Greenbri sore muscles, improve curative treatments designed to ease rall health and well-beskin composition and revitalize ove arrival to schedule your ing. It is suggested you call prior to 5. appointments by calling 304 -536 -774
Lodging at The Greenbrier, please If you have not reserved your room rence that you are refe to call 1-888-889-0965 and be sure Convention. A on ciati Asso part of the Kentuck y Bankers ests regarding requ ial spec any For . deposit will be required rates and availability. rooms, contact The Greenbrier for Travel to The Greenbrier ance from your area Driving — You may gauge the dist • isville, approximately Lou from by knowing it is 366 miles follows if you would as is ress add 6 hours of driving. The etown: The Greenlike to map your route from your hom hur Springs, West brier, 300 West Main Street, White Sulp Virginia 24986. by major carriers Flying — Flight service is available • Daily prop jet serVA. e, into Beckley, WV, and Roanok The Greenbrier into ays Airw vice is available via Silver rg, WV, which isbu Lew in ted Valley Airport(LWB) loca It is suggested that is 15 minutes from The Greenbrier. e arrangements. you contact your travel agent to mak Department at on Contact The Greenbrier Transportati pick up and ort airp 304 -536 -1100 ext. 7259 to arrange departure. ted 50% to KBA Parking — Valet parking is discoun • dates of the the ing dur rier enb guests at The Gre at The Greenbrier KBA Convention. When arriving part of the KBA be sure to reference that you are ted service. Convention to receive this discoun Dress Code tions Please see enclosed flyer for specifica Dining ts please visit www. For more information on the restauran is suggested you make greenbrier.com and click on Dining. It ng 888-889-0965 #1. calli by dinner reservations prior to arrival Golf al golf, see the proIf you wish to make a tee time for casu need to be a registered gram for open times. You will first 888-889-0965 #1 to guest at The Greenbrier, then call golf courses are: The er schedule a tee time. The Greenbri Meadows. The and Old White TPC, The Greenbrier
s Adventure & Recreational Activitie information. e mor for flyer Please see the enclosed Other Information y from 6-9 a.m. in Complimentary Coffee is offered dail • the Upper Lobby are offered Monday Interior or Exterior Historical Tours • by at 10:30 a.m. – Lob er Upp – Saturday departing the ed space is limited, first come first serv y in the Gourdail red offe are ons trati ons Culinary Dem • is ce limited, first met Shop at 11 a.m. and 2 p.m. – spa come first served 4 to 4:45 p.m. in the Afternoon Tea is offered daily from • Main Dining Room access The Greenbrier’s For additional information you may website at ww w.greenbrier.com. Tammy Nichols at If you have questions please contact ks.com. You may also ban 502-736 -1280 or email tnichols@ky tion forms and stra regi the access the KBA website for all banks.com. w.ky ww at tion ven information about the con
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CFPB Says Banks are Responsible for Service Providers
by Jonathan Biggs, Investors Title Insurance Company
The Consumer Financial Protection Bureau (CFPB) issued a three-page memorandum (“Memo”) in April 2012, (http:// files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf) that put banks on notice that they have “legal responsibility” to “oversee their business relationships with service providers…” The Memo specifically singles out service providers as: “. . . any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service.” For the purpose of this article, we will focus on those service providers that have the most direct impact on your real estate closings: title agents and settlement agents, including attorneys. The Memo acknowledges the banks’ use of service providers as an appropriate business decision. The CFPB has asked banks to look at their service provider relationships to make sure they are working with trusted, ethical professionals. The CFPB wants banks to use and oversee service providers “in a manner that ensures compliance with Federal consumer financial law, which is designed to protect the interests of consumers and avoid consumer harm. The CFPB’s exercise of its supervisory and enforcement authority will closely reflect this orientation and emphasis.” These statements in the Memo sent a shockwave through the lending industry as banks can now be fined or sued by the CFPB over the illegal activities of their service providers. The Memo says that banks are expected to: •
Conduct thorough due diligence to verify that the service provider understands and is capable of complying with the law;
Request and review the service provider’s policies, procedures, internal controls, and training materials to ensure that the service provider conducts appropriate training and oversight of employees or agents that have consumer contact or compliance responsibilities;
Include in the contract with the service provider clear expectations about compliance, as well as appropriate and enforceable consequences for violating any compliance-related responsibilities;
Establish internal controls and on-going monitoring to determine whether the service provider is complying with the law; and
Take prompt action to address fully any problems identified through the monitoring process.
The CFPB gave these broad examples of expectations without any defined way to measure or quantify compliance. Some might say that the CFPB should give examples of due diligence or what should be in the service provider’s policies. In the CFPB’s wisdom, they did not try to define all of these metrics nor did the CFPB presume to tell the lending industry what is enough. In reality, the CFPB merely stated that banks must know your service providers. The CFPB, however, added “legal responsibility may lie with the supervised bank.” Since the Memo lacks detail on compliance with this new mandate, the American Land Title Association (“ALTA”) has stepped forward to provide direction by promulgating industry Best Practices. The ALTA Best Practices offers the title industry (title agents and settlement agents, including attorneys) guidance to be a trusted and ethical title professional in the new regulatory environment. ALTA’s Best Practices offers banks the guidance to know your service providers. The ALTA Best Practices help banks and service providers navigate the requirements of the Memo. ALTA has also provided a mechanism for the banks to verify compliance. ALTA has offered 7 questions that each bank should ask its service providers. Every service provider may be measured by 7 standards called the ALTA Best Practices (http://ALTA.org/BestPractices) that can be summarized with 7 routine questions, which are: ALTA Best Practice #1 - Licensing •
Are they properly licensed?
ALTA Best Practice #2 - Escrow Account Controls • July 2013 | 18
Do they have proper controls in place to safeguard the millions of dollars that your bank sends through their trust/escrow accounts?
ALTA Best Practice #3 - Protect Confidential Info •
Do they have proper controls in place to safeguard the bank customers’ personal information from identity theft and cyber fraud?
ALTA Best Practice #4 - Follow Federal & State Consumer Laws •
Do they know and follow the consumer laws that are required to protect the bank’s customers?
ALTA Best Practice #5 - Deliver Policies on Time •
Do they have procedures in place to make sure that title matters are concluded in a timely fashion?
ALTA Best Practice #6 - Maintain Appropriate Insurance •
Do they maintain the appropriate levels of insurance to protect the bank’s interests and the bank customers’ interests in the event that things do not go according to plan?
ALTA Best Practice #7 - Address Consumer Complaints •
Do they address the bank’s complaints and the bank customers’ complaints (if any) in a timely and professional manner?
An elementary evaluation of the service provider relationships would prompt one to ask these seven routine questions. The CFPB is now requiring that banks (i) ask these questions, (ii) be assured that the service providers’ policies are appropriate for the circumstances, (iii) be assured that the service provider follows its own policies and (iv) have mechanisms to be aware and address failures when the service provider does not follow its own policies for the protection of the bank and the bank’s customers. Compliance with some of the ALTA Best Practices can be as simple as asking: “Does the service provider have a proper license?” Others like Escrow Account Controls, for example, are more complex. But one thing your bank and a service provider both agree on is that the bank’s money and the bank customers’ money must be protected. How the money is to be protected may bring about some differences of opinion. ALTA Best Practice #2 should help resolve those differences with definitive guidance. Best Practice #3 requires that confidential information be kept confidential. The bank goes to great lengths to guard confidential information. When the bank hands that information to a service provider, the bank needs assurances that confidentiality extends into those respective offices. Gramm-Leach-Bliley (“GLB”) set forth the rules for protection of NonPublic Personal Information (“NPI”). GLB has been in place for 14 years without substantial change. ALTA Best Practices #3 merely requires banks and service providers follow the existing laws regarding confidential information. These rules speak to digital security of NPI (encryption technology), physical security of NPI (clean desk policy) and proper disposal security of NPI (shredding and decommissioning of digital storage). This Best Practice seeks to offer the bank a sense of security that when the bank gives the service provider a customer’s valuable personal information, that it is protected. With respect to these Best Practices, ALTA has developed an assessment standard, so that service providers may earn a certification from their title underwriter and/or qualified third party accountant confirming they have substantially met the standards. ALTA took the lead by defining the expectations contained in the Memo and providing a way to measure compliance. Using compliant service providers will not eliminate the bank’s responsibility to perform due diligence and know their service providers, but it gets a lot of due diligence questions answered for the bank without the expense of performing the due diligence themselves. One of the concerns banks have raised is that their trusted service providers will not be compliant and the bank will have to stop using them. While in many cases the compliance bar has been raised, with proper preparation the compliance standards are within every good service provider’s reach. The first step is AWARENESS, the second is PREPARATION. Start by sharing this information with your service providers so that they can prepare themselves to comply with the CFPB Memo, ALTA Best Practices and your newly heightened expectations.
Jonathan Biggs is the Vice President for Risk Management at Investors Title Insurance Company and a member of the ALTA Best Practice Task Force. July 2013 | 19
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Kentucky Bankers Association 600 West Main Street, Suite 400 Lousville, KY 40202 Phone (502) 582-2453 or (800) 392-4045 Fax (502) 584-6390 email firstname.lastname@example.org
Meet Chris Kelso
Chris Kelso, the KBA’s newest employee and Manager of AIB Education Solutions is excited to speak with you about personnel education. Chris’ experience in banking and AIB/ABA products make her the perfect fit for our team. I learned a bit more about her personal and professional life in our interview. LH: What does your new role with the KBA entail? CK: I am the Manager AIB Education Solutions at KBA. This means working with Kentucky member bankers to find out their training, education and career development needs and match those with American Institute of Banking (AIB)/ American Bankers Association (ABA) products and solutions. It means asking the right questions to find out what skills the bankers need for their current position and also for the future. It is important to make sure that I am recommending the right products. LH: Do you have any goals in mind with this new role?
CK: AIB has been around for 110 years . My goal is to work with all the KBA member banks introducing the newest generation of Kentucky Bankers to AIB/ ABA online training. Online training appeals to the younger bankers who not only learn from the KBA seminars and schools, but can supplement that training with state of the art retail and business banking, commercial lending, mortgage lending, Wealth Management and Trust and risk and professional compliance online training. Many of these products include pretests so that bankers can “test out” of sections they know, and concentrate on the areas they need to learn. This training is available through the internet which makes it available when and where the bankers need it. Since ABA has declared 2013 the “year of the certification,” much of this training can be used for the pre-education or requirements and preparation for certifications such as the nationally respected CRCM and CTFA. LH: What is your background in banking industry? CK: I am a former banker. I spent 9 years at Fifth Third in Cincinnati and was VP of Trust Operations and Wire Transfer. I also spent 14 years marketing ABA/AIB products in Ohio so I know the products well.
LH: What do you enjoy outside of work? Any special hobbies or interests? CK: I love to cook. I also am passionate about volunteering. I am a member of the United Way of Greater Cincinnati Financial Stability Council, which supports the work of United Way agencies partners in Cincinnati and Northern Kentucky to ensure that all families achieve financial stability with stable jobs and income. I also am the Board Treasurer for the Greater Cincinnati Microenterprise Initiative which works with micro entrepreneurs with training and access to capital. LH: One thing our readers would be surprised to know about you? CK: Most people would not think of me as adventurous. In August last year I went with a group of friends and climbed 7 miles to the top of Mt. Le Conte and then 7 miles downhill the next day. At the time I had a knee injury which I made worse with the climb- but I do not regret the climb at all. However my climbing days are over! Chris can be reached at email@example.com, 502-736-1300, or cell 513-235-1166. July 2013 | 21
9th ANNUAL PAC GOLF EXTRAVAGANZA MONDAY, AUGUST 12, 2013 THE CLUB AT OLDE STONE BOWLING GREEN, KY
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Mail or Fax form with payment to: Kentucky Bankers Association, ATTN: KBPAC 600 West Main Street, Suite 400 Louisville, KY 40202 Phone: 502-582-2453 Fax: 502-584-6390
PRODUCTS AND SERVICES
SAY “YES” TO MORE LOANS The KBA is excited to announce our endorsement of The Lenders Protection Program through Open Lending. Lenders Protection is a comprehensive automobile loan generation program that combines the power of sophisticated risk-based pricing techniques, financial modeling, automated loan underwriting, and default protection insurance. The key value propositions can be summarized in three components: 1. Generate more Loans through expanded underwriting guidelines featuring the ability to offer longer loan terms on vehicles up to 7 years old, loan advances up to 125% of NADA wholesale plus back-end product sales, and borrower credit scores down to 580 (auto enhanced FICO). 2. Generate higher net yields through their sophisticated risk-based pricing tool that includes your banks’ unique cost of funds, origination costs, servicing costs (all customizable). 3. Manage Risk through high-quality loan default insurance provided by an “A” rated carrier. The insurance absorbs more than 80% of loan portfolio losses. It’s hard to compete profitably with sub-2% interest rates, and with the introduction of Lenders Protection, you don’t have to. This 13 year old company is helping over 130 lenders across the country achieve 3-5 times the net profit of a typical prime auto loan portfolio. Lenders Protection has helped Lenders generate over $2B in auto loans. This is not “sub-prime” lending, it’s a near prime program that allows your bank to control all loan approvals, retain all servicing, and set ROA targets to achieve your banks’ goals for net yield. There is no software to buy, no loan volume commitment, and the program uses the application flow you currently have, but may be conditioning, or turning down altogether. Program implementation takes less than 30 days. Once your customers know you are able to help them with reasonably priced (and structured) auto loans, your application flow is sure to increase. To learn more about the Lenders Protection Program, please contact Selina Parrish at the KBA (502) 736-1282, or John Flynn, CEO of Lenders Protection at 888-892-3555. You can also visit their website at http://www.openlending.com for more information. With investment yields below 50 basis points, its time to say ‘YES’ to more loans.
June 2013 | 23
SNL Financial Identifies Four Kentucky Banks
SNL Financial released their top 100 performing banks for 2012. Congratulations to the four Kentucky Banks identified for this honor. Kentucky Farmers Bank Corporation in Ashland ranked thirty-first in “assets below $500M.” Three banks placed on the list for “assets between $500M and $5B.”
Republic Bancorp came in at #22; Independence Bank Owensboro at #41; and First Southern Bancorp in Stanford #97. The Kentucky Bankers Association extends congrats to these outstanding banks and the employees who make them so successful.
First Citizens Bank Participates in “Teach Children to Save” Program First Citizens Bank staff members recently participated in the American Bankers Association “Teach Children to Save” program by presenting educational materials about saving, earning money, and planning a budget to local elementary school students. The staff members reached over 1,100 children in seven different schools within Hardin and Bullitt Counties. Pictured here is Jennifer Gray, Sr. Vice President/Retail Bank Administration, speaking to a class at Heartland Elementary School in Elizabethtown.
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July 2013 | 24
Auburn Bank a Top Peforming Community Bank Our banking professionals are dedicated to finding the best answers for you. And admittedly, we believe that not everything has to be a complicated equation. So we employ the latest data mining techniques to ensure efficiency and overall quality.
The ABA Banking Journal spotlights top performing community banks each year. The June issue featured a cover story on the top-performing community banks based on ROE in the sub-$100 million category and the $100 million-$1 billion category. Kentucky’s own Auburn Banking Company made the impressive list. As an overall trend, the banks on the list found ways to grow loans in profitable niches and boost noninterest income with refi and secondary market fees. Congratulations to the Auburn Banking Company.
Maynard Retires from Community Trust Bank Bowling Green Russellville (270) 782-0700 (270) 726-7151 CRIcpa.com | blog.cricpa.com
Mark A. Gooch, President and CEO of Community Trust Bank, announced that Barbara Maynard, Vice President and Market Senior Loan Officer at the Main Office in Pikeville, Kentucky, has retired from Community Trust Bank after 32 years of dedicated service.
As Market Senior Loan Officer, Barbara Maynard assumed overall responsibility for the market loan portfolios, evaluated loans, analyzed trends, and reviewed and approved loan reports. She monitored the Market’s current loans to ensure conformity with terms, policies and procedures, and attended to the needs of customers. “My biggest asset is the knowledge I have gained over the years and the friendships I have developed with coworkers and customers. I thank Community Trust Bank for providing me with the material, training, and coaching to be part of the ‘Best Team’ in the nation,” said Ms. Maynard. “I wish to say thank you to my coworkers and customers for allowing me to be part of your life; that will remain with me forever.” INTERNAL AUDIT | EXTERNAL AUDIT | TAX | REGULATORY COMPLIANCE | LOAN REVIEW | IT SERVICES
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July 2013 | 25
Kentucky Bank Announces Fayette County Employees Paris, KY - Kentucky Bank, recently announced they have regulatory approval to expand into Fayette County. The office in Lexington, located at 360 E. Vine Street, Suite 100 will be open May 20th. Kentucky Bank has chosen some of the most well regarded, experienced individuals to support its new venture. Kentucky Bank is known for being a very strong community bank with high customer service standards.
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Jim Elliott, a Lexington native, has been named Fayette Market President. Jim has 40 years of experience in financial services. Jim is also director of the bank’s Wealth Management and Trust Division. “His experience and broad financial background make him an outstanding choice to lead Kentucky Bank’s newest market” added Louis Prichard, President, Kentucky Bank. Jeff Rowland has been a commercial and consumer lender for 25 years. When approached with the vision of helping Kentucky Bank develop business in Fayette County, he quickly agreed to come on board as vice president and private banker. He will be meeting with people who need loans for commercial projects and helping them develop a structure that works for them, as well as advising them on personal financial needs. Rowland understands that delivery and customer service are the keys to success. Born and raised in Lexington, he loves the city he calls home. Glenda Featherston, Banking Officer, will be managing the day to day activities of the office in Lexington. Her previous financial experience encompassed assisting clients and bankers creating a seamless process. Glenda has worked with customers in the financial industry for 14 years. Glenda was eager to begin working with Kentucky Bank because of the bank’s culture and emphasis on service. Amber Reynolds, Retail Banker, has been with Kentucky Bank for 11 years. In her position she will be assisting customers with new accounts and personal credit. Prior to joining the Lexington office, Amber worked in the bank’s Versailles office. Angie Clem, Head Teller, has worked with the Kentucky Bank for 14 years. Trish Marcus, Teller, has been with Kentucky Bank for 3 years. Both Angie and Trish have worked in Kentucky Bank’s Winchester operations. Kentucky Bank is a community bank, with offices in Cynthiana, Georgetown, Lexington, Morehead, Nicholasville, Sandy Hook, Versailles, Wilmore and Winchester. The bank is proud to have been named one of the Best Places to Work in Kentucky.
If you would like to submit to the Kentucky Banker Magazine please contact: Lane Hettich email@example.com
ON THE MOVE
Mark A. Gooch, President and CEO of Community Trust Bank, is pleased to announce the following promotions: Mike Damron has been promoted to the position of Pikeville Market Assistant Vice President with Community Trust Bank, Inc. Donna Angel has been promoted to the position of Richmond Market Vice President with Community Trust Bank, Inc. Ms. Angel’s duties include administrative control over local market office functions and implementing local policy and Company programs and calling on existing and prospective clients to develop new business and to retain and expand existing business.
Andy Waters, President and CEO of Community Trust and Investment Company, is pleased to announce that Ryan M. Gray has been promoted to the position of Assistant Vice President with Community Trust and Investment Company. Ryan Gray is a Relationship Development Officer in Wealth and Trust Management. He works at the
Community Trust and Investment Company main office located at 100 East Vine Street in downtown Lexington, Kentucky. Mr. Gray earned a Bachelor’s of Business Administration degree, with an emphasis in Finance, from the University of Missouri – St. Louis. Mr. Gray resides in Nicholasville, Kentucky.
PRACTICE MAKES PERFECT
Deanna L. Wellman has been promoted to the position of Tug Valley Market Assistant Vice President with Community Trust Bank, Inc.
To be successful in today’s banking industry, strong and matured Credit Administration Practices are crucial to addressing evolving regulations and recent economic challenges. The playing field is more complex and the game is riskier warranting real time play calling for governance and risk management oversight. Practice makes perfect when it comes to market risk management, credit risk underwriting, loan origination risk, loan quality reviews, managing OREO loans and identifying loans qualifying for debt restructuring.
David Burt has joined United Bank as Vice President and Lender for the bank’s Jessamine County market. Please join us in welcoming David to United Bank.
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Elizabeth Hobbs has been promoted to Sr. Vice President with United Bank’s Jessamine County market. Please join us in congratulating Elizabeth on this well deserved promotion.
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July 2013 | 27
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