Diversity, above average employment keep financial institutions busy
By Robert Hadley
Amid a strengthening post-recession economy, banks in Central Kentucky find themselves in interesting times.
On the one hand, manufacturing sector job growth and new restaurant, hotel and retail construction are driving consumer and business demand for financial services. However, other forces are requiring banks to make tough choices about the allocation of resources.
Strong performance of Central Kentucky banks
A bright spot seems to be a strong job market. Job growth has kept Fayette County’s unemployment rate at or below 4.5 percent for year-to-date 2016, according to Bureau of Labor Statistics data.
Charles Vice, commissioner of the Kentucky Department of Financial Institutions, cited transportation, utilities, education and health care as sectors seeing the most growth.
That strength is driving demand for housing and, in turn, for mortgages. David O’Neill, property valuation administrator, said in the agency’s 2015 annual report that the county had seen 13 straight months of year-over-year home sales increases, with 2015 totals topping the previous year’s by 14 percent.
Overall, the performance of key financial institutions in Lexington has borne out the theory that a recovering economy is creating positive impact for area banks.
In December 2015, Community Trust Bank was bestowed the Gold Leader Award by the U.S. Small Business Administration in recognition of its strong record of authorizing SBA loans in recent years, some of them during the height of the recession.
According to a release, Community Trust Bank closed or increased 101 SBA 7a and 504 loans, representing $19.5 million. In Kentucky, the bank closed or increased 90 loans, totaling $15.7 million.
“We see an improved economy in Central Kentucky from a year ago, particularly in Fayette and Scott Counties,” said Mark Gooch, president and CEO of Community Trust Bank. “We continue to adhere to all regulatory requirements regarding cybersecurity, lending and regulatory compliance. We’ve also added resources to strengthen our posture and capabilities in information technology and regulatory compliance.”
In a January 12, 2016, letter to shareholders, Bank of Lexington CEO John Mauldin said the bank “continued to perform at a high level” and “delivered year-over-year increases in loans, deposits and earnings.” The bank reported net income of $1.9 million, up 2 percent over 2014, whereas loan demand was up 5 percent and 90-day delinquencies were at zero.
With advertisements for LifeLock and other credit monitoring services flooding the airwaves and email inboxes, identity theft and fraud are top of mind these days for consumers.
The same issues are concerning banks as the incidence of financial cybercrime increases. Vice said one Kentucky bank reported a 300 percent increase in fraud over the past year, while another reported an astonishing 10,000 hacking attempts on its servers – in one weekend.
They were all unsuccessful.
“Fortunately, they had a robust firewall,” he said. “But 10,000 is a lot for one weekend for a small bank.”
To help raise awareness, the KDFI co-sponsored a seminar for banks last March during National Crime Prevention Week. Partners included the Ohio Division of Financial Institutions, the Indiana Department of Financial Institutions and the Conference of State Bank Supervisors (CSBS).
“One thing I’ve been surprised with is that every conference dealing with cybersecurity that I’ve been to – including a couple in Kentucky – when presenters ask audiences about ransomware, at least three to five people raise their hand,” he said.
Hackers using ransomware – where malicious software encrypts a hard drive until a dollar amount is paid – are becoming much more savvy, Vice said. Typically, they set ransoms low enough to make it more cost-effective for the victim to pay rather than buying new hardware.
While the amounts demanded for individuals range from $300 to $500, banks and other businesses face ransoms as high as $10,000 to $20,000.
“Banks can pay the amount or try to reconstruct the data from off-site backup tapes,” he said.
With some portions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act still being implemented, banks are still facing issues related to implementation, Vice explained.
“The biggest impact for banks right now is the compliance costs associated with originating mortgage loans,” Vice said. “Most banks are telling me they have to hire one or two additional employees in the compliance area.”
These additional workers are needed to ensure requirements for qualified mortgage are met. Every “small-dollar” value loan, such as a home mortgage or auto loan, requires two or three additional reviews, demanding an 10 to 20 percent of the loan officer’s time.
“Banks have to ask, ‘Do I originate 20 percent fewer loans, or hire more people?’” Vice said.
Fortunately, despite having to make such choices, banks are still landing in the black. While year-end 2014 saw one to four family mortgages at 24.1 percent of state-chartered banks’ total assets, Vice said that today the figure has climbed to 24.5 percent.
Bank of Lexington
Bank of the Bluegrass & Trust Company
Bankers’ Bank of Kentucky
Branch Banking & Trust Co. (BB&T)
Central Bank & Trust Co.
Central Kentucky Federal Savings Bank
Century Bank of Kentucky Inc.
Citizens Guaranty Bank
Citizens Commerce National Bank
City National Bank
Community Trust Bank Inc.
Cumberland Valley National Bank & Trust Co.
Deposit Bank of Carlisle
Farmers Bank & Capital Trust Co.
Farmers National Bank
Farmers National Bank Corp.
Field & Main Bank
Fifth Third Bank
First Federal Savings Bank
First Southern National Bank
First State Financial
Guardian Savings Bank
Peoples Exchange Bank
Republic Bank & Trust Co.
South Central Bank
Town & Country Bank and Trust Co.
United Bank & Trust Co.
Commonwealth Credit Union
Greater Kentucky Credit Union
Health and Education
Federal Credit Union
Kentucky Employees Credit Union
Federal Credit Union
Lexington Postal Credit Union
Members Heritage Federal Credit Union
Metro Employees Credit Union
Park Community Federal Credit Union
University of Kentucky Federal Credit Union
Baldwin CPAs PLLC
Blue & Co LLC
Crowe Horwath LLP
Dean Dorton Ford PSC
Donald & Co. PSC
Dulworth, Breeding & Karns LLP
Duncan, Smith & Stilz PSC
Fister,Williams & Oberlander PLLC
Hisle & Company
Miller, Mayer, Sullivan & Stevens LLP
Mountjoy Chilton Medley
Potter & Company
Radwan, Brown and Co. PSC
Ray, Foley, Hensley & Company PLLC