Ballard Cassady, CEO of the Kentucky Bankers Association

Intro: Helping community bankers grow themselves, their team, and their profits. This is the Community Bank Podcast. Well, hey everybody, and welcome to Episode 45 of the Community Bank Podcast.

Caleb Stevens: Thanks for joining the conversation today. I’m Caleb Stevens. And I hope our time together helps you grow yourself, your team, and your profits. Thanks to all who joined us for our conversation last week with Tom Michaud, CEO of KBW man that was a great discussion on the future of community banking on M&A and just the landscape as we’ve gone from 18,000 banks back in the 80s to 5000? And what does the future look like for community banking, and we’re going to continue that discussion this week with Ballard Cassady. He’s the CEO of the Kentucky Bankers Association, in Louisville, Kentucky, and he’s plugged into the scene up in Washington, all the things coming down the pipe, with regulation. So, we talk about that a little bit.

And we also talk about the qualities of a great leader and when it comes to community banking, and we look forward and we continue to have more consolidation. What is the community banking space look like? And what does it take to lead a community bank well, as we move forward here on the face of FinTech, competition, regulation, consolidation, and all of those things, and joining me for this discussion is Chad McKeithen, he’s the head of the strategy over at Duncan Williams, our broker-dealer over Memphis, Tennessee, so appreciate him joining this episode as well. And man, we’ve got a lot of great shows coming out the rest of the year, we’ve got Jon Acuff, he’s the New York Times bestselling author of seven books.

He’s a global speaker, and he’s 100 top leadership speakers and appreciates him coming on the show soon. And we’ve also got Mark Richt, the former football coach for the Georgia Bulldogs, someone who will be very familiar to our folks listening down south also coached the Miami Hurricanes for a couple of years. And we appreciate Coach Rick giving us this time and are excited for you guys to hear that as well. Before we dive into today’s show with Ballard have a quick question for you. What do you do when a customer comes to your bank and asks for a long-term fixed-rate loan? I’m talking 10 15, maybe even 20 years? Do you make the loan? Do you put it on the balance sheet and take the risk? Do you try to talk them into a shorter-term and maybe risk losing their business then goes into a bank down the street?

Do you sign them up for a back-to-back interest rate swap program complete with derivatives Dodd-Frank reporting, hedge accounting, and all the things that make your CFO question whether or not they want to stay in the banking industry? That’s exactly why we created the Arc Loan Hedging Program, that’s ARC, the Arc program. Arc allows you to offer up to a 20 year fixed rate loan to your borrower while booking that loan at a floating rate on your balance sheet, generate fee income all without any Dodd-Frank reporting, no hedge accounting, no mark to market all you have on your book as a floating rate loan, your customer gets the fixed rate that they desire. And you generate fee income as well it’s a win-win. And we would love for you to check it out at southstatecorrespondent.com/arc but don’t take my word for it. Here’s a quick soundbite from Rich Solomon chief lending officer at an American state bank in Tyler, Texas to tell you more about the arc program.

Rich Solomon: So, we reached out to you guys, we were looking for a competitive advantage against the banks that we’re dealing with, not only in our marketplace but also in the northeast Texas area. And so this arc program allows us to obtain customers we would have never had been able to do. It allows us to mitigate the risk of interest rate changes up or down. And so that’s been huge. And it also provides for some of our customers now that we’re working with the arc program. They had a level of sophistication and an understanding of a slop hedge that we would have never been able to talk to them about that because we couldn’t offer that. In our marketplace, there are very few community banks that have a 15 20 year fixed rate product. And so that allowed us to go out and seek those customers in furthermore, we could not have offered them the creative financing that the arc program allows us to do for those folks.

We appreciate Rich giving us that soundbite and check it out southstatecorrespondent.com/arc to learn how it’s helped hundreds of community banks around the country win and retain their best credits and deals. So, thanks for joining us today. Here’s our conversation with Ballard Cassady.

Caleb Stevens: Well, Ballard. Thanks for being here today on the community bank podcast. It’s good to see you. How are you doing?

Ballard Cassady: I’m doing great. Caleb and I got to tell you, I’m excited about being here and I’m honored that you all asked me to talk with you on your podcast.

Caleb Stevens: We appreciate you giving us some time let’s start here. Give us a little bit of your background. How did you get into the banking space? How did you get to the Kentucky Bankers Association and tell us a little bit about everything you guys do?

Ballard Cassady: Well, I guess I’m one of the few people in this business who has been on all three sides of the banking world and I’ve been a banker, I’ve been a regulator, and I’ve also been an advocate. So, I’ve experienced all three sides. My wife and I both are born-bred Kentuckians and I ended up getting into the banking business, almost as a lark. But I started at 14 in the mailroom of a bank just sort of run in the mail for some extra money. And I got a story got interested in it; they let me bounce out the cages at the end of the day.

And I thought that were a big deal and one thing led to another and the next thing you know I was thinking about making banking your career. But after I got out of graduate school, I applied for a job here in [unclear 05:58], worked for first, [unclear 06:00] in the corresponding division, which you guys would understand, and went from there to run a bank in Eastern Kentucky, and then from there to the banking Commissioner, for Kentucky, underneath the governor Collins, and then from there to this job 36 years ago. So, it’s been a whirlwind.

Chad McKeithen:Yes. And this is Chad McKeithen. And I’ve run the strategies and research over it, Duncan, Williams in the state bank, and I’ve worked with Ballard off and on in different education, and training situations with some of the member banks, they’re in Kentucky for a long time. So, I’ve got a lot of respect for him I know that his member banks do as well, too. I think it’s always interesting, when we can have a leader of his stature on the podcast, you know, Ballard as we look at the second half of 2021, let’s just get right into it. I mean, what do you think are some of the biggest headwinds that we see for the community banking sector, and maybe not even just the second half of 21, but even longer-term, some of the things that, you’re dealing with your members, maybe things that you’re dealing with, from the regulatory and the political side as well, too. But just like to get a few of your thoughts there. I know that some of our listeners, a lot of our listeners are always looking at the industry in a long term. What do they do going forward? So, just like to get a few of your thoughts there on headwinds, maybe, short term and long term?

Ballard Cassady: Yes. Well, thank you for those kind words, Chad, I appreciate it. When I look at it, the second half of 21, what I look back at is the COVID in the PPP, that we just went through, and it’s good news, bad news. The good news is, we just educated Congress that the fastest safest, quickest, easiest way to get to the American public is the banking system. The bad news is we just educated Congress that the fastest quickest, easiest, best way, safest way to get to the American public is through the banking system. So, what we’re looking at is a little bit of social engineering, I guess it’s the best way to put it, it’s staring us in the face-up in Washington right now. So I would say, in the second half of 21, short term, we’re looking at regulations probably as being the biggest headwind coming our way.

We’ve got everything from Congress starting to talk about having banks fill out a form on the environment, every time they make a loan, to the IRS talking about wanting us to fill out forms on every single transaction that happens inside our bank. It just goes on and on as to what they’re wanting us to be and it’s almost as if the goal is had the banks to be the protector, the advisor, the enforcer, the policeman they want us to do all of that. And so, if I’m looking short term, I think regulations are probably the number one thing that’s going to hit us, and other than that, I’d say, the second thing I would say is facing this is the economy. And Chad, I would always refer to you on that I wouldn’t even begin to talk over the top of you on that. So, I think the banks are going to be trying to figure out where the business is coming from.

Chad McKeithen:Yes, that’s a good point. I mean, one of the things if I go back 15 months ago, I got to pat community banks on the back pretty hard because you talk about billions and billions of dollars that rolled quickly through, heavily through community banks in a matter of weeks. And now it almost seems like, you talk about any other industry that is a conduit for billions of dollars to get it in the hands of businesses and that shorter timeframe. Do you think they would be applauded and it almost seems like now that the checks and balances on that have been pretty tough and so, the community banking side did a wonderful job over the last year to me?

Being a conduit to what got the economy, what bridged the economy; you go back a year, 15 months ago, what was going to be a tough period. I do want to go back, though, about a year ago, 15 months ago, the biggest I had a president, a CEO of a bank, tell me if you can figure out the net interest margin problem over the next year or two, because loan yields, bond yields, etcetera, were falling in deposit rates were floored, you’re going to solve a lot of our issues. And that didn’t end up net interest margin did fall quite a bit over the last year it dropped a good bit, net interest income dropped a good bit. But this other thing that we couldn’t foresee, which was the fee income from the Triple P program, and then the refund, from the Fed pushing mortgage rates down so low, that kind of supported income it a lot of community banks, most community banks over the last 15 months or so.

What I’m starting to hear a little bit as we look forward, those programs are starting to go away, we’re not going to expect triple P to stay around that fee income sources stay around for a long period and mortgage refinance or should see somewhat of a burn out there. So, it does get back to traditional net interest income to a degree, do you guys hear from your members, is that starting to become a little bit of a concern? Kind of that back to business, not relying so much on some alternative revenue sources. Is that starting to filter into anything that you guys are hearing going forward?

Ballard Cassady: Yes, you made a great point. I had the fortune of hearing your podcast with Steve Andrews from the western states I was listening to that. And I know his big concern then, was the net interest margin. And I’m like you; I’m worried because I think we were put to sleep a little bit with the fees off of the PPP stuff. And I talked to our backers and they are going, hey, we had a great year. What they forget was, we were flying a plane as we were building it with the PPP program. And so all events now coming back to roost, we’re having to fight over with the regulators with SBA on getting forgiveness, it seems like the 150 and billows doing, okay, above 150, you’re going to have to fight on. I think going forward, the net interest margin is the big question at I mean, I would ask you, and we just got through lending money to all of our businesses. So, whose inline borrows money?

Chad McKeithen:Yes, good point. Savings are high. It’s everybody’s D levered. Right, now, I think that’s the big question is when do consumers and businesses work through some of that liquidity and get back to borrowing. And that may be a bit of time before it happens, unfortunately, that liquidity injection over the last year supported the economy, but it also may be, kind of kicks the can down the road a little bit as far as getting some real earning assets on the balance sheet. So I do think if I’m a banker, and I’m looking at the long term, I might have to look at some other things that, how operationally maybe I save cost? Or are there alternative ideas, maybe in the short run that are going to generate revenue? Or maybe there’s not, and we just got to be honest with the board of directors and say, it’s can be a thin, dense spread thin margin for a bit.

Ballard Cassady: Exactly, right. Kentucky is sort of an unusual place, our capital levels are good. And who was it Mark Twain said when the time comes, he wants to be a Kentucky because everything happens 10 years late there? And so we’re shielded a little bit from all the activity, but I still think that we’re going to have to be honest with our boards, and we’re going to have to sit down and tell them to look, especially in the smaller community banks, our customers are just not going to be there for a while. We’re going to have to have some patience, we’re going to have to live off of what we’ve got, and it’s a hunter-gatherer philosophy.

Caleb Stevens: Well, Ballard, that’s a good segue into our next topic here, we had Tom Michaud the CEO of KBW on our podcast recently, and he threw out a stat that I thought was interesting. He said, “When I was first coming out of college, and starting in banking, there were 18,000 banks in the United States today, there’s, you know, around 5000, and some change. We’ve seen massive consolidation over the past 10 20 years, we’ve seen these big regional mergers of equals become pretty popular, as banks rush to gain scale as they rush to try to keep up and compete with Fin Techs and also gain efficiencies.” What role do you see the traditional Community Bank playing today? Or is there one, what are your thoughts on that?

Ballard Cassady: I would say there is one. But let me back up just a little bit and hit on something that you hit on there and took off, which is FinTechs, we’re facing that every day. The thing about the banking industry, and I try to explain this to my millennial children. The thing about the banking industry is that we’re dealing with every single generation from the baby boomers to Gen X, millennials, all of them. And what that requires us to do is to have not only bricks and mortar but also have the internet and also have internet banking, the apps and all that kind of stuff that everybody wants.

The FinTechs are different, and that they’ve got the internet, number one, number two, they can absorb huge losses that we can’t, if you think about a FinTech, FinTech is nothing more than venture capital and they’re rolling loans out of there, couple of 100 an hour maybe I don’t know. But the last time I sat down, I was on a panel with a gentleman one day, it was running nerd wallet. And we were talking about what kind of loss can you absorb? And he said, 10 12% and I’m thinking my gosh, banks had 10 12% we’re in jail. So, we’re looking at a 1% loss because it does not venture capital money it’s the depositor’s money. And so because it’s the depositor’s money, that’s where all the regulations come from and so right now we’re competing against an intruder, I guess, is the way I look at it.

Although, a lot of banks are doing it well, and they’re partnering well with them. But we’re competing against an intruder that’s coming in without any regulations with venture capital that can absorb losses said that we don’t. So, I think the landscape is exactly as you said; we’ve got a lot of stuff going on. We will remain relevant. I have no doubt, I don’t and we talked about I guess, how’s that going to happen? What kind of skill sets are they going to need, where the banker is going to turn to and everyone I talked to, and this is nothing that I’ve come up on my own? This is stuff that I just sit around and talk to bankers all day, and stuff they come up with and it’s all about people. It’s all about recruitment, retention development and there’s a little bit of hope, I think, of going back to the old days of community banking.

And I don’t know that that’s so farfetched, because I remember growing up, my dad wanted to be on the local bank board, not because he wanted to see the bank sold, and he wanted to get multiple [inaudible 18:47]. He wanted to know what was going on in community number one and number two, the more people they could find the more businesses that they can bring in the more people that can help the more customers he had as a businessman. And so his goal was really to be on that board to build the community it was not to sell the bank and I think that we’re going to have to see community banks move back to that model a little bit. Because there’s just no availability of capital for them in the same price range that you would for some like Bank of America, or Chase, or something like that.

It’s just a huge cost of capital for them. So, I think that they’re going to be there. I think the key is going to be people. One of my best friends here is a banker he’s no football coach. And he always tells me since Ballard it’s not the X’s and O’s it’s the Jimmies and Joe, the point being that you can come up with all the strategies you want. You can come up with anything you want, but if you don’t have the people if you don’t have people that are well trained, that are self-starters are willing to get out there, and if they run into a problem, bust through that problem, find a solution and get on down the road. You’re not going to make it, we’ve got some great things going on here and I’m sure they’re going on in other states, as well but I give an example.

More than one of our banks, but I know of at least one that has a sort of a shadow board of directors. What they have done is they’ve taken their major stockholders who were on their boards, and they’ve gone to the air appearance of that stock. And they brought him in sort of an emerging leader or an emerging board if you would, and they work with him behind the scenes. And they educate him about what their goal is for the community. They educate him about how they try to do business there, why they’re there. They involve him in all the volunteer work that they’re doing in the community, so that when the time comes, for them to step up, there’s no delay time.

Caleb Stevens: They’re ready to go. Yes, that’s great. And it seems to like a lot of the De novo activity that we have seen, we haven’t seen a lot. But the ones that we have seen, they do have that true focus of, as you said; you’re not getting the multiples you used to get in 15 years ago. And so if you’re starting a bank today, and you’re putting up that capital, and you’re making that investment, it’s got to be something that’s truly near and dear to your heart and something you believe in. So, I think it’s a great point.

Ballard Cassady: Absolutely. Congressman Barr, we were talking again, last night about, he’s introduced a bill that would ask the regulators to give a great deal of forbearance on de novo banks, they would have three to five years to get the capital together they needed. There would also be some forbearance on some of the other regulatory requirements of being a new bank, just so that we can start getting banks that in those areas where quite frankly, nobody else wants to be. And that’s why you’re always for no other reason that’s how you’re going to have community banks. There are towns where big banks don’t want to be somebody has to take care of them and our backers as well.

Caleb Stevens: Yes, that’s good.

Chad McKeithen:Yes, that’s a good point. And I think you mentioned the people side of it is an important thing I think there’s a place for FinTechs, there’s a place for large money center banks, I always use this example, whenever I’m talking to people looking at the banking industry. I was in Chicago, Illinois, about four years ago and got one of those alerts you get when something’s going wrong with your card. And there’s some productivity and it was a debit slash credit card usage and I got to the call center, I was with a large bank out of Tennessee.

And it was very difficult to work back and forth between was this a debit scenario or a credit card scenario, and then that fear of wait this is not going to be covered as it’s going to be reimbursed and my wife and I ultimately went to, get my free plug, Paragon Bank, and Memphis, which is a small community bank there, and we’ve stayed with them ever since. And I probably am giving up something that may be a FinTech or large money center bank could give me. But the ability to walk in the lobby, and have them sit with me and call the right people, I don’t have to worry that my calls going halfway around the world, there’s security in that. Especially as we get more of these things with malware and things you want to look at people sometimes and whether you’re a business or an individual.

Ballard Cassady: You’re exactly right, Chad. The other side of that coin is that your banks have to build networks and they have to build partnerships [unclear 24:01]. I know that a lot of our banks have developed networks of key services, through people like yourself that generate revenue from and are dependable people they trust. And that they can be with for a long time. They have to develop those they have to work on their efficiency. That’s always going to be in the front row for community banks is their efficiency ratios. And it’s those networks, I think, that is going to make a big difference for community banks going down the road. And the partnerships are vital with the banking trade associations, whether it’s the KBA or Florida or western states or whoever is listening in, those are vital networks for these people because we’re providing them with services that they can’t get anywhere else, at a cost, that is only a fraction of if they tried to do it on their own. And so developing those and maintaining those and having some partnerships and some networks are going to be key.

Chad McKeithen:Well, that’s good. And just the main reason that we wanted to get you on the podcast today, and one of the things that I’ve always admired probably 10 15 years ago, I started to see you speak and just a leadership quality that you have a lot of people that are in the room, you might be speaking to three or 400 people at a time, and there’s definitely always good stability to your leadership style, the level of knowledge that you have from the political the regulatory side, and then just the nuts and bolts of community banking within the state of Kentucky has always been very impressive.

So, kind of the last question and I always kind of take this, and if you were talking to somebody that’s a young, aspiring executive, somebody that wants to be a CFO, or a chief operating officer or CEO of a bank, or just any organization, but specifically, the banks. What do you think it takes, from the leadership standpoint, to grow a thriving community bank, and I read a piece that you’d written recently on leadership, and I’m trying to force you a little bit into maybe even talking about some of that, but just, kind of back up, you’re sitting with a young person that their focus is to run a community bank, what’s it going to take to be successful?

Ballard Cassady: Well, I appreciate those kind words Chad that sounds nice. When you talk to young people, today, and I’ve got three or four of them now in my house, and you have to be a little cautious when you talk, because they talk in terms of movies, and lands in movies, and we talk in terms of glancing books, and it’s a little different atmosphere. But I think when you look at leadership, over the years, it’s people who stick to their knitting are the ones that turn out to be the best leaders, it’s knowing what your purpose is, it’s knowing who you’re there to serve, it’s knowing what it is you do, what it is you do well, what it is, you don’t do well, and getting somebody to do that for you and surrounding yourself with people that are smarter than you are.

That’s always been the number one go for me is, I hope everybody I hire a whole lot smarter than I am because otherwise, I’m wasting my money and my time. But we got to get young people involved in banking and we’ve got to find bigger and better ways to do that. We have banks out there that are going to their local high schools I’ve got one bank; I think he said 20% of his employees are valedictorians of the local high school. And I’ve got other banks who have 60% of their customer base are on some kind of government draw program. So, you have to mix what you’re doing with what you’ve got.

And you have to know what it is you have to work with before you can design a program around it, I have heard Alex and I heard, Steve both mentioned is, for me, it’s about helping people meet their dreams when I was in banking that was the exciting part. I’ve seen bankers go out and loan $20,000 to somebody and 20 years later, come back and the guy’s a billionaire. And he built a business with that $20,000, and then nobody else in town would lend him because the banker sat down with him at a table. And it may have been over a cup of coffee or sandwich and they talk through his plan, and they believed in him. And the fact that you go to church with these people, you coach their kids in Little League and they coach your kids in Little League and you go to church, their kids go to school with your kids and it’s a community atmosphere. And when you can get young people to buy into that community, then you’ve got yourself exactly what you need to be successful in banking.

Chad McKeithen:That’s, good.

Caleb Stevens: Yes, that’s a great place to end it. And that’s a great way to take it home. Ballard, we appreciate your time. If folks want to get more involved with what you’re doing at the KBA if they want to learn more about you guys, how can they get in touch with you?

Ballard Cassady: It’s B Cassady with an A at kybanks.com or just kybanks.com. Just give us a holler and we’ll take care of you any way we can. And I want to tell the two of you how much we appreciate everything you’re doing for the community banking industry, Caleb and Chad. I know you’re out there every day doing your best force in our town, which I appreciate what you’re doing.

Caleb Stevens: Well, likewise, and we’re looking forward to seeing you at your conference there in September so we can’t wait.

Ballard Cassady: Great, looking forward to seeing you guys.