Client Happiness Yields Bank Profits
Central Bank CEO Luther Deaton says feedback from customers is the most important metric
LUTHER DEATON
Luther Deaton has served as president and chief executive officer of Central Bank & Trust Co. since 1996 and was elected chairman, president and chief executive officer of Central Bancshares in 2003. He joined Central Bank in 1978 in retail banking and progressed up through the lending department, becoming executive vice president and head of commercial and retail banking in 1991. Deaton completed the Graduate School of Banking of the South at Louisiana State University and the National Commercial Lending School at University of Oklahoma. He is the current treasurer and a board member of the American Bankers Association, a past board member and president of the Kentucky Bankers Association, and a past chairman of Commerce Lexington. Deaton has served on the boards of the Kentucky Chamber of Commerce, the Kentucky Economic Development Partnership, University of Kentucky Athletics, the Downtown Lexington Corp., Bluegrass Tomorrow, the Kentucky Council on Child Abuse and is a former advisory board member of the Federal Reserve Bank of Cleveland. Deaton is a native of Jackson, Ky., and now resides in Nicholasville.
Mark Green: Reports are bank customers conduct at least 75% of their interactions digitally. To what extent does Central Bank outsource development of its customer app and online platform?
Luther Deaton: In order to ensure our customers have a quality and highly secure online experience, we partner with trusted vendors for our online platforms and mobile apps.âŻThese vendors are thoroughly vetted by our internal risk and compliance department. While the services are outsourced, our Central Bank teams collaborate with our vendors to provide direction for each product. Our dedicated teams support our online products and services locally and you will always get a real person when you call about issues with these services.
MG: In a rapidly shifting marketplace, how aggressively are you aiming to move more customer interaction online?
LD: We continuously seek to provide the most up-to-date, innovative online services to our customers while still ensuring quality in-person services to customers at our branch locations. We do not look to exclusively move customer interaction online, but we aim to offer effective solutions to those customers that prefer it. We want to make sure we are able to serve all of our customers, whether your preference is online or in-person banking.
MG: How loyal is todayâs bank customer? At what age is a typical Kentucky customer likely to lock into their banking relationship for life?
LD: Our customer-centric service model attracts new customers from all age groups. They tend to remain very loyal as a result of the personal service level they receive. It used to be more of a generational trend. For example, parents would take their child down to âtheirâ bank to open their first account, which tended to establish loyalty early on.
In todayâs world, a lot of children are subjected to elements of change in many aspects of their life, so loyalty may not be as strong as it used to be. Thatâs why itâs important that we are a one-stop-shop for your banking needs. We offer banking, insurance, investments and more. When a customer can consolidate all their needs into one bank, they are more likely to keep their loyalty, especially when thatâs combined with a high level of personal service.
MG: National financial news media present reports that banking is an early adapter of artificial intelligence tools. How is Central Bank approaching AI? Is there a defined strategy?
LD: AI can be a disruptive technology that has been shown to have many benefits. Central Bank has developed a strategy and is cautiously exploring multiple-use cases with a focus on increasing customer service and bank efficiency.
MG: Do you have an opinion about cryptocurrency that you would care to share publicly? Do your customers seem to embrace it or be seriously curious?
LD: Our customer base has shown almost no interest in cryptocurrency. We have seen zero enticement or reason to get involved.
MG: Should private banks be in the business of making student loans, which now cannot be dismissed in bankruptcy? Should the law be changed?
LD: Our bank leaves the student loan offerings to the government-sponsored programs and private providers in the marketplace.
MG: This might not be a bank chairmanâs area, but can you characterize the level of cybersecurity protection you and other banks maintain to protect your deposits, assets and transactions?
LD: Protecting customer information and ensuring the availability of all systems should be a top concern for every financial institution. Central Bankâs board of directors and senior leadership prioritize cybersecurity throughout all banking platforms and processes.
Central Bank continues to make significant investments in staffing and technologies to guard against the increasing threat of cyberattacks. The bank employs dedicated cybersecurity engineers that operate the bankâs large amount of advanced cybersecurity protections. Central Bank uses a security-first approach when evaluating and implementing all new technologies.
Protecting our customers against fraud is another top priority for the bank.⯠Weâve made significant investments in building one of the largest community bank financial fraud investigative units in the nation with our Financial Intelligence & Security Unit. We employ a staff of 11 full-time investigators who have over 125 years of banking experience combined with over 65 years of prior local, state and federal law-enforcement experience.
Additionally, in 2019 we developed an in-house, five-week-long fraud training program called the Fraud Academy, which has resulted in over 150 current employees becoming certified fraud detection specialists.âŻThe success of our Fraud Academy spread throughout the financial industry, and over the past two years our fraud team has trained over 300 other community banks across the nation in fraud-fighting techniques.
MG: What are your top earning categories currently, and does this change very often?
LD: Being a commercial bank, lending has always generated the most revenue for us. Even in the very volatile interest-rate environments that have been prevalent over the past few years, this has held true. We have a very diverse set of revenue, so the percentages may change amongst all revenue categories (lending, trust, insurance, investments, etc.) as the business cycle changes.
MG: What strategy and/or approach is essential to success in banking today?
LD: We strive to have integrity and fairness in all that we do. The basic tenet of our strategy is to focus on the needs of the customer. We must be available at all times, ready to resolve any issues should they arise. Providing a customer with exceptional customer service is our No. 1 goal. As long as we have a positive and trusting relationship with our customers, we will be successful.
MG: Do banksâ priorities now lean more toward attracting deposits or new lending customers?
LD: We try to maintain a good balance of growth in the traditional banking approach: appeal to the local customer that needs either deposits or loans and oftentimes both. A prudent balance between the two is important to maintaining a solid foundation.
MG: How do bank executives navigate the semi-conflicting jobs of playing a financially supportive role in the community (philanthropy, direct investment) and being a passionless number cruncher who is able to maximize profits? Is that the decision-making magic a bank CEO or chairman must bring to the table?
LD: We are privately owned, so we can take a longer-term perspective. We feel if you take care of your customers and your employees, the rest will take care of itself.
All âpassionless numbersâ can be traced back to a face or customer identity. We are a for-profit corporation, but we try to remain focused on the fact that we operate in a group of communities that are populated by those many faces and customers.
MG: What is your view of how well state and federal regulators are doing their job? Their oversight can make it harder to qualify borrowers and have adequate capital to lend, while alternatively the cost of one bankâs failure to other banks is considerable.
LD: It is from the federal level that Kentucky banks continue to see increased regulation, with even more proposed. Currently, most of the newer regulations tend to come from individual regulatory agencies whose emphasis is on what they would like to see done and not so much how can they work with the other agencies in improving on the already reliable framework that has been built over many years and decades.
It is true that the bank failures that were in the news last year contributed to all banksâ cost since the resolution of those failures is paid out of the insurance fund that all insured banks pay into. However, those failures were unique to just a couple of institutions with their own unique circumstances and histories.
MG: If you could adjust regulation, what would you do?
LD: We view our relationship with regulators as trusted partners. We are very transparent with them, and as a result, they maintain a high level of trust in us.
MG: Are current Kentucky economy conditions the best that you have experienced in your career?
LD: I think Kentucky is on fire right now and Iâve said that. I think what weâre doing is good.
MG: With the largest manufacturing projects in state history set to go into operation in 2025, should we be preparing for good times?
LD: Kentucky has attracted some very impressive projects, but the full economic benefits will develop over time, and the long-term impact will prove out over decades.
MG: What about the commonwealthâs economic development incentives? Is Kentuckyâs portfolio competitive in todayâs marketplace and adequately funded to keep bringing more âwinâ projects Kentucky needs?
LD: About the development incentives to get people come here, I think itâs worked pretty well. A lot of people donât understand that, but when you give somebody a tax incentive, if they donât create the jobs they donât get it. People donât understand that.
MG: What is Central Bank expecting to see play out economically in the commonwealth over the foreseeable future? How does that affect your general strategy?
LD: Kentucky usually follows closely behind the trends seen nationally although usually more muted on both the downside and upside. We prepare for a wide range of possible economic environments.
MG: What source of information do you follow closely to assess what is happening in the economy and to guide your strategic decision making?
LD: We look at some national stuff, but we mostly look at whatâs happening in our communities, feedback from our clients. For example, when interest rates start going up, we didnât raise our deposit rates like a lot of people didâwe should have but we didnât. Because we got loans that are locked in; you canât fund long-term liabilities with short-term liabilities.
We look at the Federal Reserve, but itâs hard to figure them out. Mostly what we look at is our community and our areas we serve and what we see there. Do we see people pulling back? Do we see people going ahead with creating new jobs, or are they laying off? We look at all that. And if you look at our numbers, weâre doing great.
MG: In 2017, six banksâincluding Central Bankâjoined together to create a $150 million Kentucky infrastructure investment fund for public-private partnerships. Is anything like that happening today?
LD: There is one initiative I can tell you about on affordable housing. Last year Transylvania Universityâs baseball field came up for sale, 12 acres. Iâm on the board over there, but they didnât discuss it with us. I called (Norwood) âBuddyâ Cowgill, who is the chairman of the board, and he said, âYeah, weâre asking 3.4 something (million dollars) for it. Itâs 12.5 acres on Paris Pike and I-75.â
I said, âBuddy, Iâm going to my (Central Bank) board and see if they will allow me to buy that property and then get all the banks together to put up a fund and buy it.â So, I went to the board and then I got five developers here â AU Associates, Winterwood, Habitat for Humanity, Urban League of Lexington and Lexington Housing Authority â and asked, âCan you guys make this work (for affordable housing development)?â
The first offer I made was $2.6 million; Buddy came back with $3 million. I said, âBuddy, Iâll split the difference with you â $2.8.â So, we closed it last January.  Transylvania said, âWe donât want this to be a political issue; we donât want any politicians involved in this.â  I called every bank in town together and said, âThis can be a transformational thing.â
I got Community Trust, Traditional, Republic, Stock Yards. I put in $800,000; Stock Yards and Republic put in $700,000; and Traditional and Community Trust put in $400,000. We bought that property and didnât tell anybody. Transylvania had a news conference about helping affordable housing.
We wrote the check for it, us and four other banks. Weâre going to use this $3 million fund as capital. We are going to buy this, do the infrastructure, then when they build them (houses) and sell them, they pay us back with no interest, and then that fund keeps going. We do other projects.
The legislature has provided funding to do the infrastructure. We think this collaboration between the land seller, the banks and affordable-housing developers with a revolving fund will make it easier to do affordable housing. The cost of land is the problem. We think this model is something we can replicate elsewhere, around the state and all over the country.
