INSIDE Bill Harrod banks on trust as leader of First Harrison Bank, Corydon. Story on page 10. Hoosier Banker SEPTEMBER 2014
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Indiana Bankers Association Officers, Directors & Staff IBA Officers Chairman ................................................................ David W. Heeter, MutualBank, Muncie FirstVice Chairman .................................... Larry W. Myers, First Savings Bank, FSB, Clarksville SecondVice Chairman ........................... Michael H. Head, First Federal Savings Bank, Evansville Immediate Past Chairman ..................... James C. Marcuccilli, STAR Financial Bank, Fort Wayne President and Chief Executive Officer .... S. Joe DeHaven, Indiana Bankers Association, Indianapolis Constituent Directors ICBA State Director ........................................ David M. Geis, Jackson County Bank, Seymour ABA Membership Council ....... Michael K. Bauer, Community Bank Shares of Indiana, New Albany Future Leadership Division President .......... Lucas White,The Fountain Trust Company, Covington Northeast Region Directors James G. Hiatt, First State Bank of Middlebury Michael C. Marhenke, iAB Financial Bank, Fort Wayne Gregory Maxwell, Farmers State Bank, Mentone Northwest Region Directors Annette M. Russell, Security Federal Savings Bank, Logansport Patrick Duffey, State Bank of Burnettsville Karen I. Miller,The Farmers Bank, Frankfort Southeast Region Directors Dennis Wayman, State Bank of Medora George W. Ferriell, Bath State Bank Archie M. Brown, MainSource Financial Group, Greensburg Southwest Region Directors Clay W. Ewing, German American, Jasper Kurt D. Rosenberger, Our Community Bank, Spencer Matthew Howrey, North Salem State Bank IBA Staff President & Chief Executive Officer ........................................................... S. Joe DeHaven ExecutiveVice President .............................................................. Paul W. Freeman, CAE SeniorVice President–Government Relations ........................................ Amber R.VanTil, JD Vice President–Meetings & Events ............................................ Christina M. Bennett, CMP Vice President–Government Relations ........................................................... Dax Denton Vice President–Products & Services ................................................................. Rod Lasley Vice President–Education & Training ........................................................... Laurie A. Rees Vice President–Communications .................................................................. Laura Wilson Events & Products/Services Assistant .............................................................. Susan Clark Education Meeting Coordinator ................................................................. Marlene Wells Education Meeting Coordinator ................................................................ Elizabeth Kilty Staff Accountant ....................................................................................... Timothy Fry IT and Facilities Manager ...................................................................... Tracy Wainscott Administrative Assistant ........................................................................... Michelle Long Government Relations & Communications Office Manager ............................ Joshua A. Myers Email addresses: First initial of the staff member’s first name plus last name; example: jdoe@indianabankers.org Please send news releases to: IBAcommunications@indianabankers.org Mission To advocate for and sustain an environment in which banks can succeed. Vision To provide exemplary service to members as the premier state bank trade association in the country. Values In fulfilling our mission, we will: • Maintain the highest ethics, integrity and respect for others; • Serve with professionalism, innovation and resourcefulness; • Instill passion, positive attitude and enthusiasm; • Remain mindful that the success of the IBA is judged by the success of its members. View Hoosier Banker Digital at www.ourdigitalmags.com/ publication/?m=19522&l=1. Publication Disclaimer Hoosier Banker articles are published by the IBA Service Corp., a subsidiary of IBA Holding Company Inc., that is a wholly owned subsidiary of the Indiana Bankers Association. All material published in Hoosier Banker and/or on the IBA website is the property of the Indiana Bankers Association.
5 Hoosier Banker TABLE OF CONTENTS VOLUME 98 NO. 9 6925 Parkdale Place Indianapolis IN 46254-4673 Phone: 317-387-9380 Fax: 317-387-9374 www.indianabankers.org Publisher: S. Joe DeHaven Editor: Laura Wilson Advertising: Rod Lasley Send news releases to: IBAcommunications @indianabankers.org Hoosier Banker (ISSN 0018-473X) is published monthly by the IBA Service Corp., a subsidiary of IBA Holding Company Inc., that is a wholly owned subsidiary of the Indiana Bankers Association. The magazine invites news from IBA members. Copy deadline: first of the month preceding publication. Advertising: Rates available upon request or online at www.indianabankers.org. Advertisers should provide electronic PDFs by the 15th of the month preceding publication. Hoosier Banker advertising is available to members and associate members of the Indiana Bankers Association only. Subscriptions: Hoosier Banker subscriptions are provided free of charge exclusively to members and associate members of the Indiana Bankers Association. Public access to Hoosier Banker Digital is available at www.indianabankers.org. ASSOCIATION UPDATE 6 PRESIDENT’S PONDERINGS S. Joe DeHaven, IBA 8 BOARD REVIEW Lucas White,The Fountain Trust Company, Covington 9 IBA CALENDAR OF EVENTS COVER STORY 10 BILL HARROD: SMALL TOWN, BIG VALUES FEATURE 16 REGULATORY FEEDBACK INITIATIVE MAKES BANKERS' VOICES HEARD 24 OUR WAR ON REGULATORY BURDEN Camden R. Fine, ICBA 25 A GROWING NEED FOR FINANCIAL EDUCATION Frank Keating,ABA DIRECTORS / SENIOR MANAGEMENT 14 DON'T LOOK AT INTEREST-RATE RISK THROUGH ROSE-COLORED ASSUMPTIONS Lester F. Murray,The Baker Group GR SPOTLIGHT 20 IBA REGIONAL MEETINGS WRAP UP WITH SUCCESS Amber R.Van Til, IBA PSP SHOWCASE 22 FLOODPLAIN CONSULTANTS: PROVIDING ACCURACY AND RELIABILITY TO INDIANA BANKS Rod Lasley, IBA DEPARTMENTS 13 NEW BRANCHES, BUILDINGS & OPENINGS 13 HONORS 18 COMPLIANCE CONNECTION Larry C.Tomlin, Krieg DeVault LLP 19 ASSOCIATE MEMBERS' CORNER 21 BANKING ON COMMUNITY 23 ANNIVERSARY MILESTONES 27 BANKERS ON THE MOVE 30 FROM THE BOARD ROOM 30 FINANCIAL LITERACY DIGEST 30 ADVERTISERS INDEX 5 Hoosier Banker septemBer 2014 Bill Harrod is president, CEO and director of First Harrison Bank, Corydon, and of First Capital Inc.
6 Hoosier Banker September 2014 Recently, I came across a quote from Tony Hsieh, CEO of Zappos. The quote is: “If you get the culture right, most of the other stuff will just take care of itself.” I think that is a powerful statement and right on target. Every organization has a culture, whether it is good or bad, whether it makes people want to do business with you or not. Zappos, for those of you who do not know, was founded in 1999 and is now a subsidiary of Amazon. It is an online shoe and clothing store, although it does have an outlet store in Shephardsville, Kentucky, just outside of Louisville. I will admit that I have never purchased anything from Zappos. However, I have heard people describe shopping there with nearly the same zeal as going to see a grandchild or going to their favorite social event. It is just amazing to me. Zappos shoppers become loyal customers and, often, a free means of advertising for Zappos. We all know that there is a direct correlation between employee satisfaction, strong customer service and customer loyalty, and it all starts with a positive culture. In light of the above quote – “If you get the culture right, most of the other stuff will just take care of itself” – what is the culture at your bank? Is it the right culture? These are important questions to consider. In the prioritization of responsibilities, successful businesses are evaluating culture as part of their “to do” lists. What is a good culture? The simplest definition of culture, for our purposes, is civilization characteristics. Let’s assume that means how people work together to get things done to serve our customers. Now Tony Hsieh’s quote is becoming a little clearer. It is the collective attitude of the entire organization, not just each individual employee’s attitude, but the sum of all employees. This collective attitude of the companies’ employees becomes the culture of the organization. We have all seen both good and bad cultures. If it is true that the collective attitude of the employees becomes the culture of the organization, does it not follow that the hiring process is a very important part of our success? This may be akin to the old data processing mantra of “garbage in, garbage out.” If we hire people with great attitudes who want to provide customers with the very best experience, every time, won’t our culture become equally positive? Would we not gain a similar respect and appreciation that Zappos has earned from its customers? Like you, I have visited hundreds, perhaps thousands, of businesses, and have witnessed both good and bad ASSOCIATION UPDATE President’s Ponderings S. Joe DeHaven, President & Chief Executive Officer, Indiana Bankers Association C M Y CM MY CY CMY K cultures. Most of us form an impression within minutes regarding the culture of an organization, generally based on customer service. Some businesses have employees who practically trip over each other to welcome anyone who walks through the door while, in others, staff seems more intent on letting someone else take care of customers or prospects. Oh, I am sure that when regular customers come through the door, they generally will be well-served in either culture, but remember most businesses need to grow in order to survive. Therefore, I believe that it follows that the organizations with the positive cultures will win in the end, because customers want to do business with them. Culture is a difficult thing to change, just as the attitude of an individual is a difficult thing to change. It can and must be done in the competitive world in which we live today, if our organization is to survive. We may not attain the lofty standards of Zappos, but we must continue to strive to get to the positive culture point that permits us to grow and survive. No wonder I am enamored by Mr. Hsieh’s quote: “If we get the culture right, most of the other stuff will just take care of itself.” Bridging Bankers, Building Leaders Oct. 29-30 l Sheraton Indianapolis Hotel For more information or to register, go to: indianabankers.org Train tomorrow’s leaders at the “Bridging Bankers, Building Leaders” second annual leadership conference, hosted by IBA’s Future Leadership Division. This quality event is designed to help grow the next generation of bank leadership.
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8 Hoosier Banker September 2014 Dear Banking Colleagues: As a fourth-generation banker, my past is steeped in bank history. As vice president and director of The Fountain Trust Company, my present position keeps me busy. And as president of the Indiana Bankers Association’s Future Leadership Division, my future dovetails with IBA’s goal of preparing today’s bankers for tomorrow’s challenges. My banking history goes back to my great-grandfather William N. White, who traded in farming for law school after his wife, the story goes, vowed to never slop a hog again after spilling hog slop down her high-laced boot. As a result, he became a lawyer. It was during the Great Depression, pre-FDIC, and local attorneys handled the mechanics of bank closures. My great-grandfather became knowledgeable about banking and came to realize that, as long as banks make good loans, they will survive. His interest in banking increased, he bought shares in The Fountain Trust Company, and in 1940 he became bank president, at the age of 65. He continued until he passed away at age 90. Fast-forward to the present. My father Kip White, my brother Campbell and I have all followed in my greatgrandfather’s footsteps, as did my late grandfather, Luke White. We all became bankers – serving The Fountain Trust Company – and lawyers. Currently, as a banker, my responsibilities are asset liability management, interest-rate risk and investments. Because our bank has always operated conservatively, we keep our loan-to-deposit ratio at about 60 percent. As a lawyer, my main duties are in criminal defense, because I serve as Fountain County public defender. I’m also involved in our bank’s legalities, and I would say that a legal background comes in handy in banking. It helps in reading and interpreting regulations. My whole life, I knew I wanted to follow family tradition through banking and law. As a teenager I had some excellent bank training by serving as evening drive-up teller, then later learning operations in the computer room,. “Work hard, play hard” was (and is) my motto. I would do bank work 20 to 25 hours a week during the school year, then spend summers abroad. I managed to complete high school in three years, giving me the chance to spend a year traveling throughout Europe. Later, when I enrolled at Indiana University, I planned to pursue law school, so I had the freedom to study any topic for undergraduate work. I chose philosophy and Italian. As for my future, I intend to remain at The Fountain Trust Company. It has always been home, plus it must be the only bank in the world with its own bagpipe band: The Fountain Trust Pipe Band. It is actually a very good band, and my parents and brother all perform with it. My professional future includes the Indiana Bankers Association, because IBA has benefited me through networking and government relations (GR) opportunities. The more involved I have become, the more my focus has shifted away from “my bank, my career” to the banking industry as a whole. Currently I serve IBA as a member of the board of directors through my position as Future Leadership Division (FLD) president. FLD is now in a major growth phase, and our goals are to continue growth and visibility, to provide programs and products for the next generation of bankers, and to strengthen GR and grassroots connections. This fall FLD is hosting the second annual “Bridging Bankers, Building Leaders” conference, set for Oct. 29 and 30 at the Sheraton Indianapolis Hotel. What sets FLD apart is that it is geared not only for the next round of top bank leaders, but for all levels of future bank leadership. We welcome all motivated banking professionals who want to dedicate their careers to banking. In my personal life, my wife Sue and I are enjoying raising our two sons: Lyric, two-and-a-half, and Oliver, 11 months old. We live in a 150-year-old house that originally belonged to my great-grandfather, the one who started the banking/law tradition. Sue is yet another attorney in the family: She operates her own law firm and is director of Court Appointed Special Advocates (CASA) in Fountain County. Sue and I have been together since first dating in high school. We celebrated our eighth wedding anniversary on Sept. 2. We both love to travel as far and wide as we can, and our hobbies include marathon running and statewide bike rides. Overall, I feel fortunate to have a grounded past, engaging present and focused future. Thank you for the opportunity to serve on the IBA board, and please keep the October FLD conference in mind for the emerging leaders in your institutions. Board Review Lucas White, IBA Future Leadership Division President The Fountain Trust Company, Covington ASSOCIATION UPDATE Lucas White, The Fountain Trust Company, Covington, shares why he is eager to attend the “Bridging Bankers, Building Leaders” conference of the Future Leadership Division – scheduled for Oct. 29-30 in Indianapolis. To view the video, click on the red arrow in Hoosier Banker Digital at www.indianabankers.org. Video Bonus
CALENDAR UPDATE 9 Hoosier Banker September 2014 Calendar of events Register online at www.indianabankers.org/education-events The IBA Center for Professional Development is located at 6925 Parkdale Place, Indianapolis, 317-387-9380. Alternative Delivery Channels … Available at your convenience via Webinar, CD-ROM or On-Demand IBA Annual Convention Sept. 28-30 - French Lick Springs Resort Small Business Banker Development Program Session 1 - The Fundamentals of Small Business Oct. 1 - IBA Center Small Business Banker Development Program Session 2 - Underwriting Small Business Loans Oct. 2 - IBA Center ACH Compliance and Processing Oct. 2 - IBA Center Community Bankers for Compliance School Lending Module Oct. 6-9 - IBA Center 2014 FDIC Banker College Oct. 9 - Hilton Indianapolis North Hotel HMDA - Update and Review Oct. 10 - IBA Center CFO Forum Group 1 - Oct. 14 - IBA Center Group 2 - Oct. 17 - IBA Center Lenders’ Comprehensive Guide to Mortgage Lending Oct. 14-15 - IBA Center Senior Lenders Forum Group 1 - Oct. 15 - IBA Center Group 2 - Oct. 16 - IBA Center Small Business Banker Development Program Session 3 - Getting in Front of Your Prospect Oct. 16 - IBA Center IRA Basics Oct. 21 - IBA Center Intermediate and Advanced IRA Issues Oct. 22 - IBA Center Consumer Loan Documentation Oct. 22 - IBA Center 2014 IBA Leadership Development Program Session 4 - Who Dares,Wins Oct. 22-24 - Wooded Glenn Executive Retreat & Conference Center, Henryville Vendor Management Oct. 23 - IBA Center Commercial Loan Documentation Oct. 23 - IBA Center Lending to Municipalities Oct. 24 - IBA Center Internal Audit and Risk Management School Oct. 27-28 - IBA Center The Bank Audit Committee Responsibilities Oct. 29 - IBA Center Small Business Banker Development Program Session 4 - Reviewing Results and Perfecting Your Sales Presentations Oct. 29 - IBA Center Future Leadership Division Conference - Bridging Bankers, Building Leaders Oct. 29-30 - Sheraton Indianapolis Hotel Annual Regulatory Training for the Frontline Nov. 3 - Huntingburg Event Center Nov. 4 - Best Western Plus, New Albany Nov. 5 - Chapman’s Restaurant, Bloomington Nov. 6 - Sherman House, Batesville Nov. 17 - Best Western, Lafayette Nov. 18 - Fort Wayne Hotel Branch Management Series: Session 4 - Raising the Bar for Sustainable Growth Nov. 4 - IBA Center 2014 Community Bankers for Compliance School - Operations Module Nov. 5-6 - IBA Center IT and Operations Officer Forum Group 1 - Nov. 6 - IBA Center Group 2 - Nov. 7 - IBA Center Human Resource Directors Forum Nov. 12 - IBA Center Fundamentals of Commercial Lending Nov. 13-14 - IBA Center Annual Regulatory Training for the Frontline Nov. 17 - Best Western Lafayette Executive Plaza & Conference Center Nov. 18 - Fort Wayne Hotel Community Bankers for Compliance Series - Session 4 Nov. 17 - Courtyard by Marriott Fort Wayne Nov. 18 - IBA Center Nov. 19 - IBA Center The Total Teller: Compliance, Security and Legal Issues Nov. 19 - IBA Center IT Security and Risk Management Conference Nov. 19-20 - Hilton Indianapolis North Hotel 2014 Midwest Agricultural Banking School Dec. 1-4 - Purdue University, West Lafayette Trust Officer / Financial Adviser Forum Dec. 2 - IBA Center 2014 Ag Clinic Dec. 4 - Purdue University, West Lafayette Auditing the Ability to Repay Qualified Mortgages and ARMs Dec. 9 - IBA Center Advanced Commercial Lending School Dec. 11-12 - IBA Center Oct. 2 - Opening Trust Accounts: Documenting Authority and Liability Oct. 6 - Build a No-Excuses Sales Environment Oct. 7 - Compliance and Legal Issues in Employee Screening: Pre-Hire and Post-Hire Oct. 7 - Analyzing Tax Returns for Mortgage Decisions Oct. 8 - Risk Management Series: Defining Risk Management Officer Expectations and Responsibilities Oct. 9 -Your Depositor Has Died: Now What? Oct. 14 - EverythingYou Need to Know About Regulation CC Oct. 15 - ReportingYour Credit Data, E-OSCAR, METRO2 and FACTA and CFPB Compliance Oct. 15 - Recent Accounting Developments and Future Issues Oct. 16 - Managing the Force-Placed Flood and Hazard Insurance Process Oct. 21 - Ratio Analysis to Determine Financial Strength Oct. 21 - Safe Deposit Boxes: Compliance, legal Issues, Delinquencies and Death Oct. 21 - Compliance Perspectives Oct. 22 - How to Reduce IT Risk Assessment Time by 70 Percent, and Still Satisfy Examiners and Your Board Oct. 22 - Mortgage Servicing Oct. 23 - Successful Collections: Scripting to Collect in Full Oct. 28 - The Eight Keys to Teller Excellence Oct. 28 - Social Media Update: Facebook, LinkedIn, Twitter andYouTube Oct. 29 - Required Compliance Series: Regulatory Compliance for Deposit Operations, Including BSA Oct. 29 - Tips,Tricks and Trends: Lessons Learned From 2014 Regulatory Examinations Oct. 30 - Mobile Payments:WhatYou Need to Know Now, WhatYou Need to Do Next Nov. 4 - Appraisals Nov. 4 - Director Series: Developing an Effective SuccessionPlanning Strategy for Management and the Board Nov. 5 - Emerging Leaders Education:Turning Financial Statements Into Useful Ratios and Trends Nov. 5 - The Four Cs of Exceptional Supervision: Conveying, Coaching, Correcting and Celebrating Nov. 6 -Your Bank’s Loan Review Program: Meeting Risk Management Needs and Regulatory Requirements Nov. 10 - An Eight-Step, No-Fail Phone Call Approach Nov. 12 - Call Report Preparation: Balance Sheet Schedules - RC, RC-E, RC-F, RC-G, RC-K Nov. 12 - BSA Series: BSA Customer Due Diligence and Enhanced Due Diligence Nov. 13 - Vendor Compliance Issues: Risk Management, Contracts and Accounting Nov. 13 - IRA Audit and Compliance Nov. 18 - Effective Use of Credit Risk Rating Nov. 18 - Compliance Perspectives Nov. 18 - Bank Protection Act Robbery Preparedness for All Staff Nov. 19 - Safe Deposit Boxes: 40 Million Reasons to Follow Proper Procedures Nov. 19 - IRS Reporting Requirements: 1098s, 1099s,TINs, Backup Withholding and More
10 Hoosier Banker September 2014 COVER STORY Bill Harrod: Small Town, Big Values Small-town values loom large in the banking career of William W. Harrod, 58. As president, chief executive officer and director of First Harrison Bank, Corydon, and as president, CEO and director of First Capital Inc., Harrod respects the value of trust as the key to community banking. Harrod’s career in banking began with Louisville Trust Bank in 1978. He later was named to positions as president and CEO of Harrison County Bank and as president and CEO of HCB Bancorp Inc. He also was a director of HCB Bancorp. Active in banking statewide, in 2001 Harrod served as president of the Community Bankers Association of Indiana. He currently serves the Indiana Bankers Association as a BANKPAC captain. Harrod was named to his positions with First Capital in 2000 and with First Harrison Bank in 2012. He earned a bachelor’s degree in business management from Eastern Kentucky University and completed the Graduate School of Banking at the University of Wisconsin. Hoosier Banker interviewed Bill Harrod at First Harrison Bank’s main office in Corydon, Indiana’s first state capitol. What are your responsibilities with First Harrison Bank and First Capital Inc. holding company? “My first responsibility is to lay out the strategic vision for the bank and holding company. “Second, I work with our senior management team in looking for safe and sound ways to drive earnings. That includes looking at the cost structure to make sure we’re doing everything we can to improve shareholder value. “Third, as a leader, I need to set a good example. I make an effort to attend events before and after hours on behalf of the bank. “Finally, it is my responsibility to advocate for community bankers and the services they provide. Our bank acts as an advocate, not only by lending money within the community, but by stepping up to help those organizations that couldn’t make it without our financial support.” What drew you to banking as a career? “After graduating from college, my choices were to work either in the tobacco warehouse business or sell fire alarms. I didn’t want to do either. “During college, I worked summers in a tobacco warehouse, working in the lumberyard to prepare the warehouses. Eastern Kentucky University is located in Richmond, Kentucky – tobacco country. I enjoyed the work, but I was getting married and wanted to find something more stable. “My first real interview was with a company that sold fire alarms, which back then were actual big bells. The job was to carry around a briefcase with four alarm choices inside, sell the alarms, then install them in commercial buildings. I didn’t want that for a long-term career, either. “I was fortunate that my stepfather introduced me to a friend with business connections in Louisville, Kentucky. Through that connection, I met with the personnel officer at Louisville Trust Bank and was hired into the management training program. “Though I hadn’t set my sights set on banking, it worked out fine.” How did your career develop? “After working in the management training program at Louisville Trust Bank for nine months, I moved to the branch manager position. By then I had been a teller and assistant manager. “My boss was a wonderful mentor named Wally Bateman. He was a great leader and taught me not only how to be a good banker, but a good person to work with. “Wally was very supportive. If I made a mistake, Wally was there to say, ‘Let’s learn from this experience. The senior management team of First Harrison Bank are (left to right): Bill Harrod, president, CEO and director; Dennis Thomas, SVP-credit officer; Jill Keinsley, SVPhuman resources director; and Chris Frederick, EVP and chief financial officer.
11 Hoosier Banker September 2014 Continued on page 12. Let’s take that and use it in the future.’ “Wally recently retired as president of Paducah Bank. We still stay in touch. “I was also mentored by another good banker, Rick Hobart, who was Wally’s boss. Rick eventually left and went to a bank in New Albany that was under a regulatory order. He invited me to join his team in turning the bank around. “That experience helped me prepare for my move to the position of president and CEO of Harrison County Bank and, years later, of First Harrison Bank.” What is involved in turning a bank around? “A lot of hours go into it. You basically break down the project into parts and try to deal with the parts separately. Then you work to make it all come together as a ‘whole.’ “For the bank we were working on, we raised capital and restructured the balance sheet. Beyond that, we worked on solving asset quality problems, found new management and got people trained. “It took about a year and a half. Rick Hobart, the CEO, raised a significant amount of capital through some good investors in New Albany. The bank did so well, they sold it. “We also had support from Don Husk, deputy director for banks and credit unions with the Department of Financial Institutions. He was key to our success.” What do you most enjoy about banking? “I really enjoy a challenge. While this business is heavily regulated and can, at times, be frustrating, it still has great challenges to grow earnings and assets and relationships. “I know that I have business relationships that will go well beyond my banking days as friendships for years to come.” How did your upbringing influence you as a bank leader? “My father died when I was 10, and my mother was left to raise my three older sisters and me by herself. It was the mid 1960s, and it was tough for a lady back then, but our mother did a great job. “While growing up in Frankfort, Kentucky, everyone in that small town knew the Harrods, since they were local business owners. Since everyone knew my family, I would never have done anything that would embarrass my mother or my family. “In the position of president of First Harrison Bank, many people know who I am and who I work for. I am proud to wear the First Harrison Bank logo on my shirt. In that role, I am entrusted with the assets of a lot of people in southern Indiana and, just as I learned growing up, I would never do anything to cause those people to lose trust in their bank. “That’s what I tell our employees. I say, ‘People trust us to protect their money, and they trust us to give them good advice when we’re loaning them money. That’s all we really have, and if we lose that trust, we don’t get it back.’ “It is up to us to continue to earn the trust of our customers and those we work with every day.” How do you benefit from your involvement with the Indiana Bankers Association? “Again, I think the relationships will last well beyond my business career. I am very proud to say that I am a community banker from Indiana. Indiana bankers have done very well through these tough times. Stuffed animals and whimsical wall hangings bring a sense of levity to the office of Bill Harrod. Favorite sayings, comics and quips greet visitors to Bill Harrod’s office. Artwork and awards are on display throughout First Harrison Bank.Among other achievements, the bank has been recognized several times by the Indiana Chamber as one of the Best Places to Work in Indiana.
12 Hoosier Banker September 2014 Continued from page 11. “The years that I spent at CBAI events and now spend at IBA events – networking, peer groups and education – have helped me lead our bank through this period. I cannot tell you how many times over the years I have been able to reach out to other bankers, or vendors, or the IBA office and ask, ‘Tell me what if …’ or ‘Have you tried …?’ Not one time has anyone not offered a suggestion. “We all do that for each other. That’s what makes us such great friends – we share, and we talk to each other. That’s one reason Indiana did so well through the recession. We have a lot of smart bankers in Indiana.” What advice would you offer to young bankers? “Make as many contacts as you can, and be patient. It takes time to get where you want to be. I would not be where I am today without those contacts who helped me, and I always made sure that I thanked them along the way. “Volunteer for everything, be a sponge, and never pass up an opportunity to work in another area of your bank, even if just for a day. It is an opportunity to learn a little more about how your bank works. “You’ll also develop an appreciation for what other folks in the bank do. Then later, when you’re trying to make decisions, you’ll have a much bigger understanding of the bank as a whole.” Please describe your home life/ pastimes. “I am grateful to have a great support group. My wife of 35 years, Kim, has always been supportive of work and the time spent before and after. She is a businesswoman herself, running her own commercial embroidery business. “We have two daughters. Rachel lives in Silver Spring, Maryland, and works for Discovery Communications. She is an interactive photo editor working on websites for the Discovery Channel and some of its other smaller networks. She also owns a wedding photography business. “Elizabeth lives in Indianapolis, in the Broad Ripple area, and works for Arthur Murray Dance Studio. She loves to teach dancing and also is a certified yoga instructor. “I like to play golf, and Kim and I enjoy camping. When traveling, we like to eat at the local diners, driveins and dives to see if they are really as good as they say. “Now that our children are grown and doing well, it’s great that Kim can join me at most, if not all, work events that I attend. It’s a good phase in life.” t Several plaques and awards adorn the office walls of Bill Harrod. In addition to the awards pictured, Harrod holds a Sagamore of the Wabash award. managing half a billion 16 years in business, worth of assets Managing Your Wealth, Securing Your Future 1024 N Karwick Road • Michigan City 219.877.3500 • 888.649.8969 www.harbourtrust.com We strive to provide truly personal service, prudent investment guidance and astute retirement and estate planning advice for our clients. We respect the trust, confidence and loyalty placed in us by our existing clients and look forward to offering our professional advice and counsel to the new clients we meet. More than 200 years of combined experience in: • Trust and financial services • Wealth management • Retirement funding • Estate and tax planning We look forward to helping you make the most of your financial future. “We have a lot of smart bankers in indiana.”
13 Hoosier Banker September 2014 Sheila Klinker and Olympic gold medalist David Boudia. The new location is a full-service branch and features an open “pod” concept teller line. 1st Source Bank, South Bend, is set to begin construction on two full-service banking centers in Fort Wayne. The Illinois Road banking center will be located at 7821 Carnegie Blvd., at the corner of Illinois and Carnegie, and the Dupont Oaks banking center is to be built at 4605 E. Dupont Rd., in an out lot of Dupont Commons Shopping Center. t First Bank of Berne opened a new operations center on Aug. 18. The new location is to house loan operations, trust operations, information technology staff, the bank’s call center and branch support, deposit operations, accounting, marketing and management. Groundbreaking and construction for the project began last October. Lafayette Savings Bank held a ribbon-cutting ceremony on July 31 to celebrate the grand opening of a new West Lafayette banking center. The event was held in conjunction with the Great Lafayette Commerce and included West Lafayette Mayor John Dennis, State Rep. Wielding shovels at the site of the new Illinois Road banking center of 1st Source Bank, South Bend, are bank staff (left to right): Luke Squires, business banker; Jan Wilhelm, private banker; Larry Mayers, Fort Wayne region president; Deb Moser, regional sales manager; and Jim Seitz, bank president. New BraNches, BuildiNgs & OpeNiNgs First Bank of Berne employees release balloons to mark the opening of a new operations center located on the north side of Berne. infotex Our clients sleep at night. www.infotex.com (800) 466-9939 Three member banks of the Indiana Bankers Association were presented with regional lender awards by the U.S. Small Business Administration at the SBA Great Lakes Lenders Conference on Aug. 1. The awards recognize outstanding lender performance in the states of Indiana, Ohio and Michigan. Winning IBA-member banks were: • Chase Bank - Diversity Lender of the Year Award – given to the lender that best supported diverse small businesses including minorities, women and veterans. • 1st Source Bank, South Bend - Community Lender of the Year Award – presented to a community bank, considering the performance factors of total loan volume, historical performance and overall coverage of service areas within Indiana, Ohio and Michigan. • Huntington National Bank, Indianapolis – Great Lakes Lenders Conference Lender of the Year Award – presented to the financial institution that has demonstrated the best overall performance. t hONOrs
14 Hoosier Banker September 2014 DIRECTORS / SENIOR MANAGEMENT Thanks to some specific and oft-repeated exhortations from various supervisory authorities, community bankers have learned over recent years just what risks are of the greatest concern to bank examiners. Whether one goes back to 2010’s FFIEC Advisory on Interest Rate Risk, or the more recent FDIC Financial Institutions Letter-46 from last October, this message is clear: Regulators are afraid that the traditional modeling assumptions applied to the behavior of nonmaturing deposits may be producing results that mask some real and significant risks to both earnings and capital. Their point is a good one. Nonmaturing deposits (NMD) have historically been considered to be very stable as to balance, and very insensitive as to price volatility. One can readily see that, even though one’s earnings projections and economic value of equity measurements might look pretty rosy, a change in NMD behavior could significantly darken that bright outlook in a hurry. If a stronger economy sparks the threat of disintermediation, what happens to the stability of those stable deposits? If a higher rate environment suddenly makes NMD owners much more sensitive to the rates they’re receiving for their deposits, what does that do to their price volatility and resulting interest expense? These are valid questions and have been the basis for the regulatory disquiet surrounding the assumptive inputs of NMD modeling, along with the need to stress those assumptions. Who can trust the output of an exercise that uses unrealistic inputs? Two Sides to Everything While the need for accurate-aspossible modeling treatment for liabilities is important for projecting accurate-as-possible interest expenses and accurate-as-possible fair values, there are also assumptions governing the behavior of income-producing assets. For modeling purposes, it is generally considered a given that earning assets, precisely because they are earning assets, will participate fully in whatever rate increase occurs. That makes sense. Why would a lender, living in a time of rising rates, limit his or her earnings potential by not charging borrowers a rate that reflects the rising-rate environment? Well, maybe it’s because the competition won’t allow it, and therein lies the rub. In the last seven months of 2013, the yield on the 10-year Treasury note rose by about 140 basis points, but the loan rates at most community banks stayed pretty much unchanged. So while some earning assets, like investment securities, are bringing in substantially higher yields than they were in the first About the Author Lester F. Murray joined The Baker Group in 1986 and currently serves as a senior vice president within the firm’s financial strategies group, helping community banks develop and implement investment and A/L management strategies. He is a frequent speaker at investment conferences and educational seminars. Prior to joining Baker, Murray worked at two broker/dealer banks in Oklahoma City and also was an assistant national bank examiner. He is a graduate of Oklahoma State University. For more information, contact Lester Murray at 800-937-2257, email: lester@gobaker.com. The Baker Group is a Diamond Associate Member of the Indiana Bankers Association and an IBA Preferred Service Provider. Don’t Look at Interest-Rate Risk Through Rose-Colored Assumptions
15 Hoosier Banker September 2014 half of 2013, the same cannot be said for the loan portfolios of most community banks. One might wonder, then, why it is that the pricing sensitivities, or betas, of the various loan categories at most banks are still being modeled as if they were participating in a higher-rate environment when, in fact, they are not. While much discussion has centered around the possibility of higher betas for NMDs, causing unexpectedly large increases in interest expense, little concern has been mentioned about the risk of lower betas on loans, precluding interest income from rising commensurately with rates. That, however, is exactly what has happened. Stress This! While regulatory hand-wringing over how to best model NMDs has brought us the need to stress whatever assumptions are being used on the liability side, the assumptions for asset behavior have not garnered the same level of attention. Attempts to quantify the effects of nontraditional depositor behavior have resulted in higher betas being modeled, so that management can see the potential results on earnings if banks are forced to be more market- responsive. Further behavioral stress comes in the form of shorter average life assumptions and reduced time lags for the imposition of higher rates. Whether or not these behavioral changes ever manifest themselves is yet to be determined, but knowing what the potential results might be can aid management in avoiding the trap of making decisions based on best-case scenarios. When it comes to earning assets, though, the vast majority of community banks are, in fact, modeling their behavior based upon assumptions that reflect a best-case scenario. Assuming higher rates can be fully passed on to borrowers with no delay will certainly help maximize projected interest income, but, as has been discussed, that is not what has happened. So if the fear is that assigning altruistic behavior to the owners of NMDs understates projected interest expense, that concern should also extend to the possibility that interest income from loans might be overstated, by presuming that loan rates will move up with other market rates. Empiricism vs. Speculation It might make sense, then, for managers of interest-rate risk to put a little stress on the left side of the balance sheet. Just as pricing sensitivities for deposits are increased to apply behavioral stress, one could make the case that those same sensitivities for loans ought to be decreased. This would not only give management a look at what might happen in the future – it would also more accurately reflect the present. t The rooTs run deep And The growth is strong. 2.7 Billion of investment and lending Over 525 developments Over 1.3 Million in commercial space Serving over 75,000 people No Foreclosures No Recaptures Delivered on the stated rates of return 100% on time reporting 20 years of stellar execution GreAT LAkes Capital Fund is a full service financial organization supporting healthy, vibrant, and sustainable communities. www.capfund.net 877.FOR.GLCF 2.7 Billion of investment of investment and lending
16 Hoosier Banker September 2014 FEATURE Regulatory Feedback Initiative Makes Bankers' Voices Heard Inconsistency is among the top concerns bankers have regarding examinations and visitations by their regulators. Rather than coping with these inconsistencies and the uncertainty regarding what issues will be covered in an examination or how a regulation will be enforced, as well as wondering whether the bank down the street has a similar exam experience, bankers can take action with the Regulatory Feedback Initiative (RFI). This initiative is a powerful tool in the form of a confidential electronic survey which allows bankers to anonymously provide details on their most recent examinations or visitations, creating a new level of transparency in the examination process. Survey results are aggregated and analyzed to identify discrepancies in how banking regulations are enforced, and to help avoid misguided regulatory treatment. Bankers need not be concerned with the anonymity of the survey. Data cannot be traced back to the reporting bank, as it is reported only in aggregate form. Participation in the survey will not violate the confidentiality requirements associated with any exam. The federal banking regulatory agencies have reviewed the questions within the survey and have raised no concerns regarding confidentiality; rather, the agencies have expressed The Certified Community Banking Incident Handler Certification includes lectures with a relevant topic related to common incidents banks face, including BYOD, incident response policies, CATO, malware analysis, insider threats, and data breach response. The Certified Community Banking Ethical Hacker Certification provides attendees with a solid foundation of theory and understanding, along with plenty of keyboard experience in running the tools and interpreting the results of penetration testing and ethical hacking. In the Certified Community Banking Board of Directors Certification, directors will learn the key elements of each critical component of an information security program. The Certified Community Banking Technology Professional Certification program provides a deep dive into critical components of an information security program to explore the technical design and implementation of security controls. The Certified Community Banking Security Professional Certification program will enhance each attendee’s skill set and knowledge base in the areas of information security to better demonstrate their abilities for risk management, information security program development, and auditing. The Certified Community Banking Vendor Manager Certification provides attendees with a solid foundation of theory, along with an understanding of the third-party management process. 6925 Parkdale Place Indianapolis, IN 46254 lrees@indianabankers.org (317) 387-9380 The SBS Institute serves community banks, providing educational programs to certify bankers with the knowledge and skills to protect against today's information security threats. Certification Program Register online at www.indianabankers.org
17 Hoosier Banker September 2014 strong interest in viewing the aggregated survey results. RFI has already achieved success in helping to improve the quality of banks’ examinations. Based on two years of survey data, the initiative found that the proportion of survey respondents who were “very satisfied” with their safety and soundness and compliance exams by the Office of the Comptroller of the Currency rose from 17 percent in 2012 to 22 percent in 2013. Even more noteworthy is a victory achieved in early 2012, when significant discrepancies in the way fair lending regulations were being enforced nationwide were uncovered, due to RFI. Based on data received from over 1,000 surveys completed in 2011, national fair lending criticism rates varied among the four federal regulatory agencies by up to 40 percent. It was discovered that a regional office of one regulator had a fair lending criticism rate above 70 percent, while another regulator’s nationwide criticism rate was at 20 percent. After this information was shared with the regulator’s director, the criticism rate in the regional office decreased dramatically, to under 30 percent. Identifying inconsistencies in how banking regulations are being enforced has never been more important, given the avalanche of new requirements resulting from the Dodd-Frank Act. As many of the rules have became effective, both regulators and the industry are working to understand and implement the new requirements. Bankers have the power to help ensure that the new regulations are enforced consistently across the country. The continued success of RFI depends on banks’ integrating the survey into their ongoing regulatory compliance processes, by completing a survey immediately following each regulatory exam or visitation. One of the primary benefits of the initiative is the ability to identify discrepancies in real time. Bankers have a unique opportunity to improve the industry’s regulatory climate and truly hold examiners accountable, by making their voices heard after each exam. When sufficient data has been gathered from the survey, participating banks of the Indiana Bankers Association may also request Let your voice be heard ! Take the RFI* survey at www.allbankers.org *RFI = Regulatory Feedback Initiative By taking our survey you are providing anonymous feedback that will be used to hold regulators accountable. More than 2000 bankers have already participated. Take a stand. Take the survey. (without revealing your identity) Indiana Bankers Association a proud member of a report from IBA that summarizes the feedback of similarly situated banks (based on asset size, primary federal regulator, region, etc.),which can serve as a powerful resource in exam preparation efforts. More information about the Regulatory Feedback Initiative can be found at: www.allbankers.org/ initiative, or contact Rod Lasley at the IBA at 317-387-9380, email: rlasley@ indianabankers.org. t
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