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KENTUCKY BANKER MAGAZINE October 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

EXECUTIVE

CONTENTS KBA STAFF

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

STAFF

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

Cover

Thomas Cox, Road to Rock Bridge Scenes of Kentucky Photo Contest

COLUMNS Chairman’s Corner.........................5 Straight Talk.................................6 My Two Cents...............................8

DEPARTMENTS Education.....................................21 Products and Services...................18 Making News................................24 On the Move................................26

FEATURES Buck Resolution.............................4 Alexander Resolution......................9 Emerging Leader Spotlight.............13 Annual Convention Recap..............16 Brownfields in Kentucky Part I........22

October 2013 | 3

CHAIRMAN’S CORNER Through all of these changes community banks have remained viable partners in fostering state and local prosperity. However, today I see disturbing trends. The sheer volume and complexity of the Dodd-Frank law that was passed to “cure” the ills of the housing crisis has ushered in unprecedented costs for our industry. A regulatory emphasis on creating banks that conform to a set of standards that do not exist except in the mind of each individual regulator places a burden on bank boards that is daunting.

For example how much interest rate risk is too much?

The individual bank can set its own policy based on its unique circumstances. Of course after you set Neil Bryan your limits you are guaranteed to be second guessed/ KBA Chairman criticized based on the regulators own subjective standards. Experience has taken a back seat to modeling. Knowledge of your market and individual When I was employed by the Bedford Loan & Deposit customers has been relegated to an aside as some Bank in September of 1973 I embarked upon a career regulators seem to believe the underwriting of loans that has now spanned four decades. Banking has should become virtually automated. undergone quite a metamorphosis over these past Despite it all I am still an idealist. I think community forty years. banks are a crucial part of the fabric of our society.

Just out of college, newly married, and impossibly We help our customers and communities survive the idealistic, I was going to do important things to help tough times until they ultimately return to prosperity. my community. What I did was start filing checks. It Today’s world is much different that the one I stepped was a humbling experience to realize how much I had into after I graduated from college. I began work in to learn about the business of banking. a time when experience was valued. Ideas were evaluated in the context of that experience coupled It was an era of regulated interest rates. Mechanical with common sense. posting machines, full keyboard adding machines, and proof machines were the cutting edge technologies. I believe that a return to that philosophy is desirable.

Consumer compliance consisted of Regulation Z. Whatever the current realities, rest assured the KBA is Banking was pretty simple. If you made good loans hard at work to help the membership deal with today’s and collected them in a timely fashion you were challenges while proactively working to improve assured of making money with margins mandated tomorrow’s banking environment. Never hesitate by the government in the form of usury ceilings and to communicate your concerns. Tell the association Regulation Q. officers, directors, and staff your needs. Most of all get involved!! You are the strength of the KBA. That is Over the intervening years we have seen Reg Q wiped one fact that has never changed over time. I doubt it out by high inflation that lead to even higher interest ever will!! rates. Droughts, floods, and terrorist attacks have buffeted our economy. Reg. Z is still around but it has been supplemented by too many consumer regulations to list in a short article. Technology exploded upon the Neil Bryan scene enabling capabilities that created efficiencies we could only dream about forty years ago. It is a much different banking system than when my career began.

October 2013 | 5

Who Cares? Not Me. What doesn’t happen? Well, Military, border patrol agents, air traffic controllers, the FBI and the TSA are among those who remain on duty. The President and members of Congress are also exempt. Basically anyone involved in National security, protecting life and property and providing benefit payments are exempt. Why the President and Congress are included I don’t know. All entitlement recipients will get their checks (even those not deserving of one) and Medicaid and Medicare continue to “flow.”

By the time you read this, our legislators will have hopefully come to an agreement and “turned the power back on” so to speak. Of course that would mean that the Government’s assault against the coal industry has stopped as well but, we can HOPE! The New York Times (if you can believe the media) estimated 800,000 people face furloughs in the government shut down. I have a question: If you are not an essential employee why the heck are you on our payroll in the first place?

What sort of message do we send when our own elected officials cannot agree on national policy and debt management? Well, I tell you what kind I get.

I hear one side saying, “enough of this haphazard spending with constant increases in debt and no end in sight!” “Stop this Keynesian* madness!” While I hear the other side say, “We need more spending and therefore more debt if we are to complete this Socialist transformation we have begun! Don’t you think it would be cool to look like Europe?” I am sure you know which side I fall on, but it does bring about a question.. Why do they make these shutdowns sound so damning? This is the 18th time this has happened.

President Jimmy Carter (the best ex-President ever) and President Ronald Reagan (can you hear the Angels singing?) each dealt with six shut downs during their terms lasting anywhere from one day to 2 ½ weeks.

The last shutdown lasted three weeks and ranks as the longest in U.S. history (12/16/95 to 1/6/96). All furloughed employees (here are those non-essential employees again) were eventually paid.

So, who gets blamed for shut downs? This one is interesting. Generally speaking, no one comes out looking good since this is their only real job. However, a Pew Research poll conducted 9/22/13 shows 39% blame the Republicans and 36% blame the Democrats and 17% blame both! The real interesting thing is that post shut down polls of the past show that the public spreads the blame around nearly identically.

Basically it gets back to the beginning. It’s sort of a Kabuki dance* we have every so often where the ideology of both sides takes a stand. Of course the ruling side always wins because they have the votes.

In this case the Democrats will get what they want primarily because the Senate can’t muster enough votes for a super majority to override the Presidential veto and if you think Obama won’t veto any bill that does away with ObamaCare (no matter that 60% of Americans don’t want it) then you are, as they say, “smoking something.” So, we do this little dance every now and then in hopes that both sides can educate the uninformed electorate so that in the next election young people or people in general for that matter will do a little research before they go to the polls and vote. I know, I can’t stop laughing either! *Keynesian economists often argue that private sector decisions sometimes lead to inefficient macroeconomic outcomes which require active policy responses by the public sector, in particular, monetary policy actions by the central bank and fiscal policy actions by the government, in order to stabilize output over the business cycle. Keynesian economics advocates a mixed economy – predominantly private sector, but with a role for government intervention during recessions.

Let me know what you think: bcassady@kybanks.com October 2013 | 6

Keynesian economics served as the standard economic model in the developed nations during the latter part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the oil shock and resulting stagflation of the 70’s. The advent of the global financial crisis in 2008 has caused a resurgence in Keynesian thought. *Kabuki Dance - In common English usage a kabuki dance, also kabuki play, is an activity or drama carried out in real life in a predictable or stylized fashion, reminiscent of the Kabuki style of Japanese stage play. It refers to an event that is designed to create the appearance of conflict or of an uncertain outcome, when in fact the actors have worked together to determine the outcome beforehand. The term was first used by American political pundits as a synonym for political posturing. It acquired this derogatory meaning after drawn out peace-time treaty negotiations between the United States and Japan which had extended to 1960, and because Japan, in an effort “to shed its image as a global marauder” sent Kabuki Theater tours to the U.S. after World War II to sow the seeds of goodwill.

It all adds up …to results. At Clark Schaefer Hackett, we’ve provided traditional auditing and tax assistance to financial institutions for over 25 years and risk management services for 15 years. More than half of our clients have been with us over a decade.

Our solutions are focused toward the needs and budgets of community-based banks and savings institutions and delivered by one of the strongest specialized financial institutions industry teams in the area.

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A Battle is Brewing Prepaid credit cards have been around for a while. When they first started, you purchased a card for an amount of money and when it was used up, you tossed the card.

Now, you can “reload” a prepaid card (add more money) whenever you want and even remotely so that you don’t have to go to bank to do it. Think about it: Your customer purchases a prepaid VISA card from AAA or the grocery store and gives it to their child who is going to college.

They deposit a certain amount each month and the child starts thinking of this as their “bank account.” They can use it for just about anything they need to, so why open a traditional account.

A battle is brewing in the payment systems arena – and banks are losing. Consumers, businesses, and even the government want real-time payment systems that are secure and safe. The system set up by the Fed is not keeping up. We need to see this as an opportunity to gain ground and reclaim our position as the central provider of traditional banking services. If we don’t, the costs could be huge.

Competitors, whether they are start ups or entrenched businesses, have seen the opportunity to grab a segment of traditional banking business and use it to their advantage. Some have succeeded and some have not, but one thing is clear…banks are not insulated from their efforts.

Here are some examples of some of the “payment” systems that I have seen: •Prepaid credit cards •Decoupled debit cards •PayPal—the one that everyone has heard of…

•Bill me later •Cell phone companies You are probably looking at this list and saying, “so what, they still have to use the underlying ACH system” right?

My response is yes, but every time someone else steps between you and your customer, your customer thinks less and less of the value of your service.

Let’s look at each of the examples above and what they do.

October 2013 | 8

Next, let’s think about decoupled debit cards. That is a debit card that is not issued by the bank where your money is housed. The user determines what account or source is used for funding. Target just started offering a decoupled credit card through its stores. It costs you nothing for the service and whenever you use it, you get 5% off of your entire purchase. The customer signs up and assigns a bank account to be ACH debited for the charges, which the customer can change at any time.

Five percent off at Target is a big deal. The underlying bank and bank account become less important, as the customer boasts to friends about their Target card.

PayPal is a name that everyone knows. You can send money to friends or businesses. Originally, it was just used for online businesses, so what’s the big deal? It’s safer than putting your credit card number directly on the web, right? Again, the payments are linked to a “behind the scenes” bank account which is debited for the charges, again making the bank less important. But, it’s becoming even more complicated than that. First of all, you can now hold a cash balance in a PayPal “account.”

You can transfer money to and from this account to others with PayPal without ever touching a traditional bank account. You can also now obtain a PayPal payment card or use a PayPal Smartphone app, which allows you to pay at certain stores for purchases. Again, why do you need a bank?

PayPal is also getting into the small loan business. First, they have acquired Bill Me Later, an “instant credit line added to your PayPal account.” Additionally, on 9/24/13 the American Banker ran an article entitled “PayPal Offers Small Business Loans.” This service is tied to business sales through eBay in which the consumer is paying through PayPal. All of these connections create a stronger relationship and less need for a traditional bank.

How are these loans regulated? I don’t know. Also, on 9/26/13 another article appeared in American Banker which described PayPal’s recent $800 million acquisition of Braintree payment processor, which allow for easier, more seamless payments by consumers. What next? I expect PayPal to develop a new innovative product that

allows customers to pay non-tech merchants with a slip of paper representing a promise to pay…

Another one that really worries me is cell phone companies. As soon as they started allowing payments to be made via text message, I knew we were in trouble. The first examples were payments for apps and then it migrated to charitable donations for relief efforts. Now, you can agree to pay (via text message) for a cup of coffee at certain coffee shops. The payment amount shows up on your next monthly bill. Sometimes a convenience fee is added—isn’t that a short term loan? I don’t know, but I do know that everyone has their phone with them, so do they need a bank?

DOES YOUR TECHNOLOGY PARTNER HAVE I.T. COVERED?

When online bill pay was first introduced, some banks saw it as an opportunity to show consumers that we were on the leading edge of technology and that we could simplify their lives. However, most of those same banks charged a fee for the service. That fee allowed other businesses the gap that they needed to compete, by setting up their own payment sites, for free to the consumer, eliminating the need for the bank’s bill pay system. Many banks have recovered some of this market by eliminating most fees.

We have to catch up and overcome. Our collaborative efforts have worked in the past. Remember the time when consumers could only use ATMs of their own bank? Our industry saw the need to change that and we put our heads together and developed a system where consumers can use virtually any ATM worldwide.

We need to work together with our core processors, other banks, and all involved to seize this opportunity and gain control of the payment system once again. We know what our customers want, we have networks in place if we can get them to work together, and we are already one of the most highly regulated industries, so who better to protect the consumer? We are at the doorstep and we need to step over the threshold, walk through the door and take hold of this opportunity.

Debra Stamper dstamper@kybanks.com

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October 2013 | 11

KY Banker full page 2013.pdf

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Emerging Leader Spotlight: Greg Young prestigious award.

‘Mission Possible’ was this year’s theme for the 122nd Annual Convention.

Being a part of the KBA’s inaugural Emerging Leaders group, I know that the theme “Mission Possible” fits the program perfectly. Each Emerging Leader has a “mission” to work hard and to make things “possible” every day at their jobs. The KBA, along with our respective bank leaders who nominated us, made this “Mission Possible” for all of us. We thank you for this wonderful opportunity.

The convention experience for me began in Grayson, Kentucky. I met two other members of the Emerging Leader group in Grayson and we headed toward “The Greenbrier.” It was to my surprise that we took the “scenic route 60.” We got to see every little town along the way!

This was my first trip to the ‘The Greenbrier.’ It was amazing! As I pulled up the front drive, I admired the well kept grounds and thought of the history that has happened in such a beautiful place.

I appreciated the warm welcome the KBA staff had to offer each one of us. Our group was invited to attend a dinner that night. The dinner provided an opportunity for us to speak with past KBA Presidents, Chairmen and even current officers. Several bankers were awarded for 50 years of service in the banking industry. It was a great experience to talk with these men and women and learn more about the changes the banking industry has seen over the past 50 years. I hope that someday I will be granted such a

On Sunday morning we were able to participate in the KBA Annual Golf Tournament.

As we approached the club house, I noticed a parking spot reserved for the notorious Tom Watson. I knew my game was not at Tom Watson’s level, but I would have a good time anyway. I had a great time golfing with Dale Gray, Mark Miller, and Steve Patton, but I am sure as the day progressed I proved to all of them that I spend way too much time in the office!

Following the golf tournament, we attended the reception and dinner.

During the reception I had the opportunity to meet other bankers from around the state. There were also representatives from Clark Shaefer Hackett, Federal Home Loan Bank, Investors Title to name a few.

The representatives were in tune with the needs of the banking industry and demonstrated an eagerness to support KBA. The Convention really kicked into high gear on Monday morning.

Congressman Andy Barr spoke to us regarding the importance of ‘Holding Washington Accountable.’ Michael Berman, CEO of Ncontracts discussed vendor management compliance and Trey Grayson, Institute of Politics Director at Harvard University discussed that it is possible to get politics to work for you. Jim Olson, former CIA Agent, was the final speaker for the day. It was so interesting to hear about his life as an undercover CIA Agent. All of the speakers shared interesting and compelling stories regarding their experiences.

Monday afternoon, Lytle Thomas, Heritage Bank President and I had the opportunity to enjoy some of the activities The Greenbrier grounds had to offer. We tried our luck at shooting sporting clays. Before we got started I shared with Lytle that I had never shot sporting clays and would probably make a fool of myself. Lytle, the incoming Vice Chairmen for KBA is

an excellent marksman. I took some harassment from him and our guide that day but I enjoyed every minute of it.

On Tuesday, Dr. Donald Ratajczak, Regents Professor Emeritus of Economics at Georgia State University discussed some positive and negative points regarding the 2013 economic outlook.

Jeff Plagge, Chairman Elect, American Bankers Association discussed the new and existing laws that are affecting the banking industry.

Then Chad McKeithen, Managing Director Fixed Income Strategies and Services shared his ideas regarding the Affordable Care Act. Finally, Lieutenant Carey Lohrenz, first woman F-14 Fighter Pilot, shared her philosophy regarding challenges in life. These included statements such as “Don’t be afraid of failure, focus on what matters and be tenacious.”

The final event of the convention included an address from John Calipari, University of Kentucky Head Basketball Coach. His motivational message included “Dream beyond your surroundings, refuse to loose, make one person a day feel special and when you are able to climb the latter of success don’t take the latter down when you are through but help someone else climb the latter.”

I enjoyed the convention and meeting other bankers from around the state.

I look forward to attending the 2014 Annual Convention at the French Lick Resort. See you there!

Greg Young Assistant Vice President Heritage Bank

October 2013 | 13

2013 Annual Convention The golfers practicing before the scramble

The Fifty Year Club...Congratulations!

The new 2014 Board

The passing of the Chairman’s pin Enjoying the Welcome Reception

October 2013 | 14

2013 Annual Convention

A couple of Emerging Leaders with one of KBA’s own

Coach Calipari, the Keynote Speaker

James E. Bruce Award receipients Congress Barr, Melissa Swan, David Heintzman and Ballard Cassady Jr.

Stopping for a quick pose on the course

October 2013 | 15

cuisine and hospitality at our reception and dinner with our exhibitors.

“Who are you and what are you doing here?”

- Max from Mission Impossible We are the KBA and we were showing our appreciation to KBA past Presidents, Chairs, members of the Fifty Year club and other special guests. Our 122nd Annual Convention was held at the Greenbrier in West Virginia and was the best attendance we’ve had. From the welcome reception to the final dinner, everyone was talking about Mission Possible.

Our convention started off with the Resolution committee presenting resolutions to the following: • • • • •

Senator Mitch McConnell Congressman Andy Barr David Heintzman, outgoing Chairman Tony Whitaker, Past Chairman Board’s retiring members: Bruce Kimbell, Owen Lambert, Luther Deaton • Tom Buford, Kentucky Senate Banking and Insurance Chairman • Jeff Greer, Kentucky State House Banking and Insurance Chairman • Convention Sponsors, 2013 Expo Participants and others who contributed to our successful event Then there was our golf scramble on Sunday. What a day that was! We want to again congratulate the team who came in first place; Hugh Mitchell, Roger Lewis, Marty Snowden, and Jimmy Kiser. As always, everyone had a great time, despite the chilly start to the day.

After golf, House Banking and Insurance Chair Jeff Greer and Senate Banking and Insurance Chair Tom Buford addressed the Government Affairs Committee and discussed the 2013 session, expectations for the 2014 session and regulatory and legislative activity in D.C. We wrapped up our Sunday with some traditional Southern October 2013 | 16

Let the formality of the convention begin! KBA Chairman David Heintzman and moderator Melissa Swann kicked off our Monday with a welcome and speaker introductions, followed by a panel discussion. Our speakers were amazing and enlightened us all with the issues impacting our industry, trends in elections and the changes occurring as a result of social media.

A big shout out to our speakers, Congressman Andy Barr, Michael Berman (CEO of Ncontracts) and Trey Grayson (Director of the Institute of Politics at Harvard and former Kentucky Secretary of State). The final speaker for Monday was Jim Olsen, a former CIA agent who fascintated and captivated the attendees with his stories and descriptions of his life as a covert agent and the impact it had on his life, family and values. Exciting stuff to say the least.

Other speakers that attended our convention were Dr. Ratajczak, Regents Professor of Economics at Georgia State University, Jeff Plagge, Chairman Elect of the ABA and President and CEO of Northwest Financial Corp (Iowa), Chad McKeithen, Managing Director of Fixed Income Strategies & Services of Duncan Williams; and finally Lt. Carey Lohrenz, the first female F-14 Tom Cat Fighter Pilot who gave an entertaining and motivational speech which tied her lessones learned as a pilot into our daily lives as leaders in the banking industry.

This year’s convention, as always, wrapped up with a Key Note Speaker. This year we had the pleasure of having Coach John Calipari. Coach Cal has partnered with Kentucky banks to help teach financial literacy.

Just another reason to add him to your favorites list.

He was very entertaining and humble throughout his speech and stayed around until after dinner for photographs. Thanks Coach Cal! All in all, this year’s annual convention was a huge success! We are continuously striving to make each year exciting and bring you useful information you can take back with you. Here’s to another successful Convention...Cheers! *2014 Annual Convention will be held at French Lick Resort September 20-23, 2014.

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PRODUCTS AND SERVICES

KBA Announces Endorsement of CSI WatchDOG Social Compliance Solution - Solution helps institutions better manage risks associated with social media use -

The Kentucky Bankers Association is pleased to announce our recent endorsement of WatchDOG Social Compliance through Computer Services, Inc. (CSI) for social media compliance requirements.

Today, many conversations between financial institutions and their customers are occurring within the public domain. Increased social media usage among consumers has forced institutions to significantly revamp their traditional communication techniques. Because of this, many banks are hesitant to join the social media conversation for fear of saying the wrong thing and the potential compliance penalties that may follow.

CSI has introduced its WatchDOG Social Compliance solution to aid financial institutions in managing their risk assessment strategy surrounding social media compliance. By implementing the solution, KBA members can more easily comply with regulatory requirements, allowing them to actively participate in social media without the risk of incurring compliance violations.

As part of WatchDOG Social Compliance, CSI provides your bank with an array of comprehensive tools to further ensure total regulatory compliance: • Archive all Facebook, Twitter, YouTube and LinkedIn posts for required timeframes; • Create an approval process within the institution to ensure posts meet regulatory guidelines; • Utilize targeted search capabilities; • Perform reputation and sentiment analysis; and • Evaluate the institution’s competitive landscape.

In conjunction with recent guidance from the Consumer Financial Protection Bureau (CFPB) surrounding unfair, deceptive or abusive acts and practices (UDAAP), WatchDOG Social Compliance delivers a comprehensive method for managing customer complaints as part of the solution’s key offerings. In addition to ensuring institutions are in compliance with regulatory guidelines, the solution provides federal regulators with the information necessary to complete their annual assessments.

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KBA Insurance Solutions is dedicated to providing custom, affordable insurance plans tailored to your needs. We strive to be an agency of choice by providing coverage that works for your bank and service that never stops.

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BANKERS BREW A seminar designed for directors, CEOs, CFOs, CIOs and others involved in bank management.

Two locations

November 15, 2013, Lexington, KY November 19, 2013, Bowling Green, KY

CPE available for CPA attendees

Schedule

Registration: 9:30 am local time Program: 10:00 am to 3:00 pm local time For registration and pricing, visit

www.kybanks.com

(click Education Solutions, then Seminars).

October 2013 | 19

Education Solutions Upcoming Programs

Upcoming Education Events

Asset Liability Management Seminar October 3 Louisville

December 10 Lexington December 11 Bowling Green

Internal Auditing Two-Day Seminar From Assessment to Audit Coverage to Audit Plans: A Comprehensive & Complete Approach October 9 & 10 Lexington October 16 & 17 Bowling Green

Credit Administration Seminar: Seven Effective Habits January 29 Bowling Green January 30 Lexington

Power Prospecting: A Business Banking Sales Seminar October 22 Bowling Green October 23 Lexington ESSENTIALS OF BANKING SCHOOL November 4-8 Lexington IRA Basics Evening Program Pegasus Program November 7 Elizabethtown November 12 Paducah November 13 Madisonville November 14 Bowling Green November 18 Morehead November 19 Hazard November 20 Somerset November 21 Lexington

Key Ratio Analysis & Consumer Lending Seminar Two-day Program February 27 & 28 Bowling Green March 13 & 14 Lexington Loan Documentation Workshop Two-day Program April 1 & 2 Bowling Green April 3 & 4 Lexington Cash Management Seminar April 9 Louisville Trust Based Selling May 7 Bowling Green May 8 Lexington

Bankers Brew for Bank Directors & Management November 15 Lexington November 19 Bowling Green Basic Management Issues in Banking November 19 Bowling Green November 20 Lexington Lending Compliance Update Pegasus Program December 4 Elizabethtown December 5 Paducah December 6 Bowling Green December 9 Lexington December 16 Somerset IRA Administration Pegasus Program December 3 Lexington December 5 Elizabethtown December 9 Hazard December 10 Somerset December 11 Paducah December 12 Bowling Green Training for Loan Assistants and Loan Processors Seminar

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October 2013 | 21

Brownfields In Kentucky: A New and Innovative Approach (Part I) By: Adam T. Goebel and Lea Pauley Goff

The reuse and development of contaminated property, referred to as brownfields, has always posed unique and challenging issues. The Commonwealth has a strong interest in promoting the development of such properties.

Brownfield revitalization can have positive economic impacts beyond just one site; entire corridors of property can be transformed to beneficial use for the communities that Kentucky banks serve.

Conversely, the Commonwealth has the obligation to enforce environmental laws, and the potential liability associated with brownfields has always hindered their development. Environmental liabilities are inherently complex and uncertain. Uncertainty has been compounded by the fact that Kentucky’s Energy and Environmental Cabinet (Cabinet) has not had the authority to provide, in writing, any assurance to a potential purchaser concerning the scope of that purchaser’s liability. To complicate the matter further, even if a purchaser could begin to feel at ease with a particular transaction, there would always be an outstanding question as to whether certain actions by the purchaser while it owned the property could unintentionally expose it to greater liability.

Fortunately the landscape concerning brownfields is changing. In 2012, Kentucky passed a new statute creating a brownfield redevelopment program, which addresses the liability of purchasers of contaminated property. The Cabinet issued interim guidance in June 2013, which was revised in September 2013, concerning transactions under the statute. The Cabinet also issued draft regulations in September 2013 adopting many of the concepts contained in the revised interim guidance. These new developments in Kentucky law have significant implications for both purchasers and lenders with respect to transactions involving brownfields. A number of transactions have already proceeded under the new statute and properties that may have otherwise remained vacant due to the existing environmental liability are now being redeveloped.

Importantly, both current owners and prospective purchasers can take advantage of the liability protection offered by Kentucky’s new program.

Kentucky’s Brownfield Statute and Key Improvements Over Prior Law Kentucky’s brownfield program is codified as KRS 224.1415. Under this statute, an owner of contaminated property shall not be liable for responding to contamination if the property owner can certify, and the Cabinet finds, that the contamination predates the acquisition and the owner (1) performed “all appropriate inquiry” (i.e., an October 2013 | 22

appropriate Phase I) before acquisition; (2) has provided all legally required notices concerning the contamination at the site; (3) is in compliance with all land use restrictions and will not impede any institutional controls required for the property; (4) has complied with any information requests from the Cabinet; (5) is not affiliated with any responsible party; and (6) has not caused or contributed to any release and will provide access for the Cabinet or responsible party to respond to the contamination. These requirements are very similar to the requirements to be a bona fide prospective purchaser (BFPP) under Kentucky’s “Superfund” statute, KRS 224.1-400(25), and the federal Superfund Statute, 42 U.S.C. § 9601. To date, the Bona Fide Prospective Purchaser (BFPP) defense has been the main defense available to protect a purchaser of contaminated property from liability.

There are three significant improvements between the existing BFPP defense and Kentucky’s new brownfield redevelopment program . These improvements should be of particular interest to lenders and purchasers. First, with respect to the BFPP defense, the Cabinet was not able to provide any assurance in writing that the new owner would not incur liability if it purchased the property. The Cabinet would instead remain silent on the issue, thereby creating uncertainty and likely chilling interest in the property. Under the new statute, the Cabinet will provide a purchaser written assurance that the purchaser will not have liability for responding to contamination at the site upon acquisition. The written assurance will be in the form of a “Notice of Eligibility” that the prospective purchaser may participate in the brownfield redevelopment program and a “Notice of Concurrence,” which the Cabinet will issue after title passes to the new purchaser.

Second, a party is now able to obtain certainty before closing on the transaction that it will not have liability for responding to contamination once it acquires the property.

A purchaser may submit its application to the Cabinet before closing and the Cabinet will inform the purchaser, via the Notice of Eligibility, that it will not incur liability for the contamination upon its acquisition of the property.

The third improvement concerns an owner’s continuing obligations at the site. A prospective owner can now define its post-acquisition obligations at the site to minimize the chance that its conduct might inadvertently cause it to lose liability protection. This is achieved by the owner developing, and the Cabinet approving, a Property Management Plan (PMP). In general, the PMP will be a governing document for managing activities at the site to ensure such activities are protective of human health and the environment.

The PMP is an attempt to solve a fundamental problem with the BFPP defense: a BFPP has little direction concerning the care it must take at a site to avoid losing liability protection. Court decisions on the care that must be exercised by a BFPP are more helpful in demonstrating risks involved with acquiring contaminated property than with providing solutions on how to avoid litigation and adverse determinations. For example, if any construction is to take place at the property, lack of certainty concerning whether particular techniques will be considered protective is a significant impediment to redeveloping the property. Under the PMP, the Cabinet and the new owner can agree in writing on the manner in which the property owner will conduct activities at the site including, for example, construction management. Under the proposed regulations for KRS 224.1415, discussed in Part II, so long as the property owner complies with the PMP, it will retain liability protection.

A second benefit is that Kentucky’s new brownfield statute may reduce the risk of taking ownership of the collateral after default. For example, under the federal secured lender exemption from liability, a secured lender is required to take reasonable steps to market the property in order to maintain its exemption. While case law exists that discusses “reasonable steps,” this requirement is murky and “reasonableness” could be determined by a Court with the benefit of hindsight. In addition, a secured lender must be careful not take any action that may be deemed to cause a release. Kentucky law is even more uncertain, it provides that in order for a financial institution to be exempted from liability, it cannot know or have reason to know,, “at the time it acquired the site,” that contamination existed at the site.

Read literally, if the borrower performed a Phase I environmental assessment and the lender knows that the Phase I identified contamination, then the financial institution arguably does not qualify for the exemption.

Concerning the interests of lenders, all bankers know that environmental contamination is not just a property owner issue. Lenders with a good loan prospect may see underwriting stopped in its tracks by an environmental issue. In addition, if the loan is near or in default, lenders face a number of issues in deciding how to move forward with contaminated property. For example, the presence of contamination raises uncertainty about the value of the property and ability to market it. The existence of contamination also creates uncertainty with respect to the actions that a lender make take in asserting ownership and control over the property without incurring liability.

By utilizing Kentucky’s new brownfield statute and a Property Management Plan, a financial institution can address the uncertainties that exist in pre-existing federal and state law. Instead of being forced to question whether each action it takes at a site is appropriate, a lender can reach an agreement with the Cabinet in writing concerning its protection from liability and the actions it may take at the site without losing its exemption from liability. In many ways, the statute and proposed regulations have been drafted with lenders in mind because participation by a community’s lenders is crucial to the program.

For lenders, the new statute offers two new benefits in transactions involving brownfields. The first benefit is the ability to obtain from the Cabinet, in writing, a determination that the property owner will not have liability for addressing existing contamination. This guidance allows lenders to evaluate with more certainty the potential liabilities associated with the transaction. In addition, lenders will be able to evaluate with more certainty the appropriate manner of addressing a borrower’s potential default. If a lender knows that the property is capable of being sold to a potential purchaser free from the existing environmental liability and with an understanding of any continuing obligations, then it can have more confidence in the value of the asset.

Watch for Part II In November’s Issue Of Kentucky Banker

October 2013 | 23

MAKING NEWS “We were thrilled to get this notification after submitting our new television commercial for consideration in this competition,” said Susan Guess, Senior Vice President of Marketing at Paducah Bank. “This video is just one more piece of the bank’s overriding misPaducah Bank’s new “Paducah is Home” telesion to not only provide exceptional financial prodvision commercial has received multiple TELucts and services, but to lift up all that is wonderful LY awards in the annual national competition about our hometown. Our marketing team did a terfor local, regional, and cable video projects. rific job of bringing our message to the community.”

Paducah Bank TV Spot Wins National TELLY Awards

The television spot featuring 10-year-old Lone Oak student Mia Vasquez won silver awards (first place) in the categories of Copywriting and Lighting. The spot won bronze awards (second place) in the categories of Sound/ Sound Design and Videography/Cinematography. The commercial also won bronze awards in two banking categories for local and regional television marketing.

The television commercial was written and produced

by Darlene Mazzone, President of Mazzone Communications, and Curt Stewart of Emerging Media Productions under the supervision of Guess. “In this business there is really nothing more gratifying than a collaboration that results in something terrific like this new Paducah Bank spot,” commented Mazzone.

The TELLY awards recognize outstanding local, regional, and cable TV commercials and video projects. Winners represent the best work of advertising agencies, production companies, and corporate video departments in the country.

“Making a great TV spot requires a strong team and we had the perfect storm on this one,” Stewart added. “Darlene wrote an incredible script and I couldn’t be more proud of Aaron Severns and Amanda Wallace, our team at Emerging Media Productions. Paducah Bank is one of our favorite clients to work A prestigious judging panel of more than 500 induswith and you couldn’t ask for a more dramatic backtry professionals, each a past winner of a TELLY and drop than Paducah’s historic Columbia Theatre.” a member of the Silver TELLY Council, judges the competition. Less than 10% of entries are chosen as The video can be viewed on youtube at www.youwinners of the silver TELLY. In 2013 the TELLY awards tube.com/user/PaduchaBank received nearly 11,000 entries from all 50 states.

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October 2013 | 24

MAKING NEWS

Wealth of Experience

By KENDRA PEEK kpeek@amnews.com It’s been quite an interesting career, according to Judy Carpenter, a Perryville native who will retire this month after working 45 years in the banking industry.

“You have to be so adaptable to change,” Carpenter said with a smile, seated behind her desk at Farmers National Bank, where she is vice president and loan operations manager.

Adaptability to change is one of the biggest lessons she’s learned during her years at the bank.

Over the years, Carpenter notes, there have been many changes, including tighter banking regulations and a push to go electronic.

“When Palm Beach was open and the ladies would come in ... they didn’t have direct deposit at that time,” she said with a smile. “You don’t see that anymore. Most people do it online ...

I miss that, miss seeing people.”

Over the years, a lot of interesting people have come through the office, Carpenter said, customers whom she will miss, along with her coworkers.

Those she has worked alongside over the years have become her family and she theirs.

“She’s been like a mother to some of us,” said Lorie Munford, a bank employee whom Carpenter hired and helped train.

“We have hired so many young people, looking for a job. That’s my greatest accomplishment,” Carpenter said. Several of those employees, such as current bank president Greg Caudill, have remained with the company, some within her department. “Those are like my children.”

has shared with her new hires and trainees, as one of those, Debbie Bartley, noted.

“We’ve learned a lot (from Judy).

She’s a wealth of knowledge,” Bartley said. “She’s been a good mentor.”

“Those are the good stories,” Carpenter said, breaking into a smile as she thought of Bartley, Caudill and the many others she’s trained.

“To me, those are true accomplishments.”

Even her son, Rodney, felt the love that flowed from the Farmers bank family, according to Carpenter.

“As a child, he would come in ... there were older ladies in our bookkeeping area, he would go visit the ladies in the back because they all had chocolate, all kinds of gifts. He loved that,” she said, smiling at the memories.

“It’s such a family-oriented bank.

It’s still that way ... overall, everyone cares about everyone else,” Carpenter said of her coworkers.

As she draws closer to Sept. 26, her official last day at the bank, Carpenter says it’s “getting a little harder.”

However, she’s comforted in knowing that she will be able to spend more time with her family, specifically her grandchildren, who live in Texas. The two are 15 and 11 and, as any proud grandma, she is excited to venture out for visits.

“You’re giving of yourself,” she said.

She also plans to enjoy more time reading, explaining that she loves to read.

Mostly, though, Carpenter noted that she is a people-person and will have to “get out” and get involved.

This article was posted on The Advocate Messenger website September 16, 2013 www.centralkynews.com If you see news that you think is worthy of the Kentucky Banker, please send it to us and we will review for possible publication.

Please send to: Lane Hettich Lhettich@kybanks.com

Otherwise, Carpenter laughingly said she has been pondering “what am I going to do with my life now that I’ve grown up.”

Volunteering with area organizations, specifically the Ephraim McDowell Regional Medical Center’s hospital auxiliary, is at the top of her list.

In the past, Carpenter has been a hospice volunteer, noting that was very rewarding because she was doing something for someone else.

The many lessons she’s learned, she October 2013 | 25

ON THE MOVE Stephen P. Brunson has been appointed President/ CEO of Citizen Bank of Northern Kentucky, Newport

Tom McFarland of First United Bank, Madisonville, has been named Senior Vice-President Chief Lending Officer

Chris Findley has been named Vice-President Mortgage Banking Manager of First United Bank, Madisonville

Bill Rudd will Vice-President gage Banker United Bank, ville

serve as / Mortof First Madison-

David Bond has joined Central Bank of Jefferson County as Retail Development Officer

October 2013 | 26

www.kybanks.com

Quin Broadbent has joined WealthSouth/ Farmers National Bank, Danville as an Investment Analyst

Logan Foster has joined WealthSouth/Farmers National Bank, Danville as Chief Investment Officer

Eleshia Brandon was promoted to Vice-President / Compliance & Collections Officer of The Murray Bank

Andy Graham was promoted to Senior VicePresident / Chief Lending Officer of The Murray Bank

Tony Ryan has been promoted to Vice-President / Mortgage Loan Officer

Brenda Sykes has been promoted to Senior Vice-President / Retail Officer of The Murray Bank

Chad Stubblefield has joined the team at The Murray Bank as Vice-President / Loan Officer

Brandi Todd has been promoted to Assistant Vice President at Farmers National Bank, Danville

Others ON THE MOVE...

Jeff S. Koonce has joined Your Community Bank, New Albany, as President / Central Kentucky Market Charles Darst has been named Market Manager / Team Leader of the Louisville Commercial Division of First Federal Service Corporation Rob Whartenby has joined First Financial Service Corporation as Executive Vice-President / Chief Credit Officer

Do you have someone that is

ON THE MOVE?

_______________ Jeremy Leigh has been promoted to Assistant Vice President at Farmers National Bank, Danville

Submit any promotions, new hires or recognitions for possible submission to KENTUCKY BANKER

TO: LANE HETTICH lhettich@kybanks.com Debbie Bartley has been promoted to Assistant Vice President at Farmers National Bank, Danville

KENTUCKY BANKER...

promoting your bank and your community!

October 2013 | 27

Collectively Benefiting Kentucky Banks