Spotlight: At Kentucky’s Central Bank and Trust, advisory boards help to fill the director pipeline

‘We recruit some of our best customers to serve on our advisory boards. It’s a business feeder.’

Veteran Kentucky banker Luther Deaton Jr. says even the best boards need to be open to changing as the banking industry evolves. That’s why he is looking to add one or two directors to the board of Central Bancshares Inc., from seven at present.

“We’ve got a great board. I can call them any time day or night with any concern,” says Deaton, who is chairman, president, and CEO of both the holding company and Central Bank and Trust Co., a $3.5 billion-asset bank in Lexington, Kentucky. But his board isn’t getting any younger, and he wants to round it out with some directors who are working and running companies and who can add new, diverse perspectives. Luckily, the bank operates advisory boards in its key markets, and his last three directors came up through his feeder system. The advisory board provides a great way for the bank and potential future directors to get to know each other better, Deaton says.

“We recruit some of our best customers to serve on our advisory boards. It’s a business feeder. They get insights from us, and they help us by recommending us to their friends in the community. It has worked great,” Deaton explains. There’s no formal expectation that an advisory role will translate into a board seat, but the board has added directors with technology know-how by tapping into this resource.

He hasn’t set a deadline to expand the board, stressing that “it has to be the right person.” Conversations with prospective directors take time, too, he noted. Candidates know serving on a bank board is an honor, but learning what the position entails can be eye-opening.

“It’s not all about status. Directors have to understand their responsibilities and recognize that this is not a showplace,” Deaton says. “It’s a serious business, and board members take on liability risk. Once you tell people what the responsibilities are, they back up a little bit.”

Deaton, who grew up in modest circumstances in Kentucky’s Breathitt County, exemplifies a breed of banker that is harder and harder to find. He started at Central Bank and Trust as a teller in 1978. He previously worked for a finance company, but was traveling a lot and missed his growing family. So he applied at Central Bank and Trust Co. and grabbed the only job they had open.

In subsequent years, he says, “I leaped from teller to cash vault teller to assistant manager to manager of the retail banking center, and then came down over commercial lending. Back then, they would take you through all departments of the bank so you could understand it.”

The bank has thrived under his stewardship, with assets growing tenfold since he became president in 1995. He’s seen a lot of ups and downs in that time.

Today, he sees deposit competition as one of the big issues that all banks and directors must grapple with, as rising interest rates have provided a graphic lesson for boards in the value of good asset/liability management.

“When the pandemic hit and every bank was flush with cash, a lot of them put money in long-term bonds. We didn’t do that; instead, we took a much more conservative approach by positioning the excess funds much shorter in our investment portfolio.” The strategy paid off with lower unrealized losses and more cash flow to meet liquidity needs when rising interest rates sapped the bond market. The initial below-peer investment yields took some explaining to his board to help them understand how the bonds fit in with the bank’s overall asset/liability risk structure.

Deaton says transparency is key to maintaining great board relations. “Every year, I share with them my financial statements and my tax returns, and I do the same with my regulators.”

Accessibility is a hallmark of his personal style too. In a bank of over 500 employees, he still has lunch with every new hire, sharing his story and philosophy and learning about employees, their families, even their pets. And he circulates. In every two-year cycle, he spends one year meeting with every bank employee face-to-face in small groups or individually. In the other year, he convenes the President’s Roundtable to hear from employees in detail.

He’s seen how vibrant communities are when they have a good community bank in their midst—and he’s seen the opposite, too. “A community bank is the heart of the community,” Deaton says. “Our job is to strengthen every community we serve.”