2016 02 17 GSATC Learning Lunch | Mark Terry | Inside Look at Banking IT

We are merging Palmetto Bank with United Community Bank, so you're doing that. This is happening right now or this weekend? This weekend.

So it asked me to come this week, so I told him that I did tell him that this was going on this weekend, so I thought I might need to come now because I am still hoping to be the chief technology officer Monday too, so hopefully it'll all go well. So it asked me to just give you some information about a few things. It asked me to talk about banking, the challenges that you're facing, talk about the acquisition of Palmetto by United Community Bank and what we'll be doing at United Community Bank. I told them I'd actually do all of it because it's all associated together; one led into the other. So just getting into talking about the challenges in banking: if you're not familiar, the financial industry has had lots of challenges in the last few years. Compliance and regulatory environment since the Dodd-Frank Act passed in 2010, there was a lot of it in reaction to the crisis that we had in 2008-2009, and you can imagine there's been lots of activity around compliance and regulatory. Economic environment: we've had an economic environment that has been very detrimental to banking for probably eight to nine years now at this point. So we've had to deal with changing needs of our customers. Banks for years invested all this money in having these branches so that we could do all this face-to-face service, and then suddenly people stopped showing up at the branches. Everybody wants to do things by phone now, so we're trying to invest in all new ways to work with our customers. And then security, of course, everything that's been happening in the security world has been happening in banks and affects banks. The worst part about it is all of these things have been happening simultaneously for the last five years, so it's really changed the banking industry in many ways, which of course has an impact on technology.

First, just talking about some of the things we deal with on the compliance and regulatory front and how this impacts technology. I heard you all know that there's a presidential election and there's some politicians around in the area now, so if you've been seeing that on the news or getting calls constantly at home like we've been getting, one of the things I was watching: one of the candidates made a comment this past week that banks have been running wild and we need more regulatory control of banks. So every time I hear that, I have to slide that JPMorgan Chase put in their annual report a couple years ago. It gives you a very clear picture if you're in banking what your relationship is to what regulatory office within the government. So here it is, you can see it's very simple. And as you can see, depending on what area you are in banking, you may have four different regulatory groups that you report to. And you'll find this hard to believe, but they don't actually coordinate all of this together sometimes. So you have these different groups who are coming in with different regulations. So in banking, we have entire teams. At Palmetto, even larger team at United, and their job is to keep up with all these regulations that are coming out. So they monitor these regulations, they analyze our systems, then they go back and let us know if our systems will meet those regulations. If not, then they sponsor projects in IT to make all of the changes. And it's simple things: someone will decide that there'll be a new regulation that on a statement you need to now show X, so suddenly we have a project to change all of our statements. We may have a project to track some type of field that we've never tracked before, so now we have to go back and acquire all of that data. This is something that we spend a lot of time with. Has anybody ever closed a loan? How much time do you spend? Did you have to initial a lot of papers? Or open a new deposit account? Do you get a stack of papers to take home with you? And you all read through every single page of that information. So what happens is all of that is because at some point there has been some regulation that says when a consumer opens a loan or needs to get a new account, this is the information they have to have that should be disclosed to them at that time. And then they come in annually, they pull samples of all those openings and of loans and deposits, and we have to prove that you as a consumer had the opportunity to review all of that information. So we have to pull out copies of all of those packages with all of the initials. So that's what creates all of that that we work with in banking, and obviously has impact on you as well.

The economic environment: back in 2008-2009 economic downturn, any time a bank is working with a particular sector that there's an economic downturn, obviously that's when you start to have defaulted loans in that sector and it impacts banks. So this was a big shock to the banking industry in 2008-2009. The other thing that has really hit banks is the interest rate. As you probably know, what happens is the Federal Reserve, any time there's a downturn, they lower interest rates because that is how they spur activity that normally spurs economic activity to help the economy. The problem is they lowered interest rates as far as they could possibly go and it didn't work. So over the last several years, we've been in a situation where there's a fear if they raise interest rates, we're going to now make things even worse and have the opposite effect. So for years, when I was in the bank, you think about what a bank does: you come into the bank, you open a deposit account, you put money in the bank. We then in turn pay you some type of interest rate for the use of your money, provide you a system that you can do financial transactions through checking, ATMs, debit cards, online banking, mobile banking, any kind of payments. And then we take that money and we go over to another person and we loan it to them. The difference in the rate that we receive for the loan versus the rate we're paying you as a depositor is what they call the interest margin. And that's what the bank gets its revenue from. So for years, when I first got started in banking, what banks tended to work out was about a four and a half percent interest margin, which means in the normal world, you're loaning money on average at seven and a half percent and you're paying probably three percent as far as rates, and that four and a half percent was really the main source of revenue to the banks. So as you can imagine, when interest rates go low, when the average loan is three and a half to four percent, it's really hard to get a four and a half percent spread. So a couple of things happen: that's why a lot of you are probably getting point one or point two percent on your deposits and seeing these low rates. The other thing that happens is imagine going into any industry and telling them that your main source of income is now going to go down by twenty-five percent, and that's what's happened to a lot of the banks over the last several years. In December, the Fed raised rates by point two five percent. That was the first time the rates had changed in I believe probably about seven years, and it was the first time the rate has actually increased in over nine years. So that has had a big impact on banking.

The other thing we didn't deal with is the changing way we work with our customers. As you can see right now, this was a 2015 survey of all banking customers: number one way people access information in their bank is on the internet. Branches have fallen to second, ATM, mobile, mail, telephone. When I was here a few years ago, I shared some of this information and I talked about one of the challenges Palmetto had at the time was differences in age groups. Palmetto had a large deposit base that was out of Laurens that was mainly a lot of senior accounts, and that was our largest depositor. But all the growth was coming from Anderson, Greenville, Spartanburg in areas where we had a much younger deposit base. So the challenge was how do you provide service to a group who wants that face-to-face at the same time providing service to a group that just wants convenience and doesn't want the face-to-face? I will say what we've seen over the last couple years is that's changed somewhat. There's still demographic groups that prefer one or the other, but what we're seeing is it's not even. Even now, if you see this tabletop survey for people that are sixty years and over, their number one way they're interacting with the bank is still internet over branch at this point, and more and more are using mobile. So what happens is I think the younger demographic is taking up this accessing the new technology quicker, but at the same time, it's not like the younger demographic has stopped going to the branch or stopped using the ATMs or doing everything. What we're seeing is there is not one group now that's doing everything one way. The biggest difference is people need to interact with the bank depending on what they're doing. An example of this slide: this is a recent one. If you look at different things, this gives you the number one way people interact with their bank when doing a specific transaction. So as you can see, if you're checking balances, number one is mobile. Now that's a low percentage, but that's because it's split across checking at the ATM, doing the automated call, doing an in-person call, checking on the internet. So it's a smaller percentage, but number one is still now mobile. Go over to the third one: making a deposit. Even though we have mobile deposit and ATM deposit, sixty percent of people across all age groups still prefer the branch when they're doing a deposit. Drawing cash: seventy-five percent of people use an ATM when it comes to cash. So what you can see is it's almost a situation where you have to be all things to all people depending on what they're doing at the time, and that creates the challenge of how we set up our systems and what we're investing in for the future.

Security challenges: anybody notice anything in common about all of these? One of the things we have to deal with in banking is the threats. Banking has the same threats as all these other companies, but the additional threat we have is the third-party breaches. Because when Target or Home Depot is breached, what they breached was debit card and credit card information. Then guess what happened? They start using that information. So as a bank, on one end we're trying to keep the people out of our systems, but on the other end we're trying to deal with situations where our customers have had their information breached and they're getting fraudulent transactions. So we have to protect our customers against all the other companies in the world that are being breached at the same time. And social engineering: the other thing that happens is our customers are targets of fraud. People get emails, they give out their information when they shouldn't, respond to an email, click on things. Suddenly that information is in fraud losses in the bank, and we're having to help protect our customers against that as well. Some of the contributors in banking, as I mentioned: expanding business products, we're moving into all types of mobile systems and outsourced systems that we never had before. Somebody talked about a conversation about your information and where it is. That's one of the things we have to keep up with. Years ago, in banking, everything was inside the bank, inside the data center. Now your information can be in all kinds of systems. You're putting your banking information out on other systems. There are aggregation systems where you're going through some other site and putting in your credentials to log in to our site to download your information so you can see all of your accounts together. So we're having to make sure that that's happening safely in a system that we have absolutely no control over. So those are just some of the challenges we're dealing with in the security world in banking.

This is a picture of my hometown in the 1980s. Two things you see: when I grew up, there were two banks: Corbin Deposit Bank, which is where my parents always banked, and across the street from it was First National Bank of Corbin. Corbin is in southeastern Kentucky, about 7,000 to 8,000 people in town, and we had two local banks. Did anybody else grow up in a town where you had local banks? Are those banks still there? Because these two banks are gone. One bank is totally gone now, the other bank is now part of a large statewide group. So all of the things I've described have been the impact on banks over the last several years. When that picture was taken back in the 80s, there were probably 15,000 banks in the United States. By 2006, it was down to about 7,500. In the last 10 years, we're down to just over 5,200 banks in the United States. So it's consolidation, and that is what is happening. All of those things that I mentioned to you that banks have been going through has spurred consolidation in the last seven or eight years. If you're a small community bank and suddenly you have to invest in online and mobile systems that do everything that Bank of America or Chase does, or you're having to deal with all of the cuts in your income and all of the new compliance rules that you're having to hire people to keep on top of, that's why the small banks are selling to the large banks at this point. And here's the reason why: efficiency ratio is something that banks track. What the efficiency ratio is: back in that four percent spread, that income that you get, how much of that income has to go to just keeping the doors open to your bank? That's not paying deposits, that's just the people, the businesses, the computer systems. If we did not make a single loan tomorrow, how much would we have to spend just to keep what we have operating? In a small bank, those small town banks would fall into this last category of less than $100 million bank. The size of Palmetto would be between 65 to 70 percent. The bank the size of United is over at 62 percent. So that's the difference. So as you can see, if you are a bank and you're taking maybe a 20 to 25 percent hit to your income and you're already spending 80 percent of your income on just keeping the doors open, there's not much for you to do at that point. That's why small banks continue to be acquired, and that's why the banks that are not being acquired are trying to acquire and get larger. It's all about efficiency.

That leads us to Palmetto Bank. Palmetto Bank, a lot of you if you're from this area may be familiar with, was founded in 1906 in Laurens, South Carolina. It had grown to be just over a billion in assets, 25 locations throughout the Upstate. In 2009, the bank went through a situation where they had a lot of loan losses and changed a lot of the executives at the time. So a new group came in and started making changes at the bank. I was recruited to the bank in 2011. At the time I came to the bank, we were through the loan issue, but we had a situation where we were facing the same scenario as I mentioned, and we had to become efficient quick. So we invested heavily in automation and efficiency and actually starting to put out new products for mobile and online for our customers. The turnaround was successful. Then what happened with Palmetto Bank is we were at a situation where we had to grow. How does Palmetto Bank get to the $10 billion mark when they're at the $1 billion mark? That mark means total assets, basically loans and other investments and the property that you own as a bank. Of course, that is a slow process. Going through acquisitions or just natural growth takes a long time to get there. One of the things that happened at that point is we had to make a decision: is the bank, now that it has been successful, are we more as a bank that can grow, or are we worth more as a bank that can be acquired by a larger bank and looking for someone to merge with? The good thing is we had an opportunity. We had several banks for a period of time that we had been talking to, and a great bank came along which was United Community Bank, and it became almost a perfect match for Palmetto.

Some of the things that we look at: when I went out as I've been introduced to United Community Bank, they talked about the three-legged stool: the shareholders, the customers, and employees. The merger between United and Palmetto was one that actually benefited every single one of these. Obviously it benefited the investors. For the customers, it gives us the opportunity to remain all of the branches that remain throughout all the areas, provide the same service, but now we have the backing of a much larger bank so we can offer even more products, even more services, and even better products than what we've been able to invest in before. And for the employees, interesting thing about United: United Community Bank was founded in Blairsville, Georgia, and is headquartered out of Blairsville in the northeastern part of Georgia. But they have a very large executive presence in Greenville. If you look at the top 10 executives in the company, one is based out of Atlanta, four are based out of Blairsville, and now five are based out of Greenville. I know we've recently started using Crawford Strategies, which is our marketing firm here in Greenville. But they did not have the branch network and didn't have the bank network in the Upstate. I think we had one branch in the Upstate that opened last year. So what they were wanting to do was grow in the Upstate. We were wanting to be able to merge with a bank and basically continue the legacy of Palmetto, and it was something we were able to do. I will say, as far as any time there's a merger, it does impact individuals, but I have never seen a merger where as many folks have been able to move across and join the bank. Part of that is the customer-facing people: as long as you're not closing branches, the customer-facing people and those people in the branches, those people are working direct making loans, those people a lot of times are going to go forward to the bank. The question a lot of times is operations in the back room, and that is the area that is usually the most hard hit in any type of merger. But the difference here was that United had moved their loan operations to Greenville. So we have a large area on River Place where we house a lot of the loan operations. So they came in and were able to, through not only just the acquisition that they needed for the additional counts that they'd be processing, but even just in open positions that they had currently, be able to pick up a much larger percentage of the support group than I have ever seen. Additionally, they reached out through our executives and tried to take on as many people as they possibly could and still make it the fiscal responsibility of making sure that they meet the needs that they need for the investors as well.

In total, there are 25 branches of Palmetto, there's one for United. We are consolidating two branches. Palmetto had a branch on Grove Road that was an older building, and they have a brand new branch on Augusta Road. United had a brand new branch on Augusta Road just a few blocks away. So we are going to consolidate those buildings, but we were able to actually move the people from one location to the other and actually consolidate them all together in one location. Other than that, there's no impact to any of the branches at Palmetto other than all new signs and new ATMs and a lot of other things that are happening this week as well. I think in total, between the branches and Operations Group, we have close to about 350 employees in the Upstate. The call center: we have a large call center. United was looking at expanding their call center. Palmetto had a large call center in Laurens that is going to continue to be the call center for the combined bank. So that call center is coming forward. So like I said, a lot of synergies between the banks that we would not have gotten if we had gone with others. I was able to actually be on a couple of the due diligence of the last couple of banks we talked to. There was one bank that we talked to that I think was very interested, but I knew what would happen: they would have come in, but all the branches and every operational position would have been gone at that point and would have moved to out of state to a different location. So it was really good to find somebody who not only wanted to benefit everybody in the bank, as I mentioned the three-legged stool, but also really had a desire to grow and continue to employ people in the Upstate as well.

A little bit about United Community Bank. This is their business model. I could probably get you guys up here to tell it better, but a couple of things: as you see here, number one in customer satisfaction according to customer service polls, one of the top 100 best banks in America ranked by Forbes, number one in the Southeast in customer satisfaction. So a very well-run bank. The comment I've heard is 'the bank that service built' has been repeated a lot. For me personally, I came into the role of chief technology officer effective January first. Between that date and this date, it is a transition for me because we are also in the middle of still having separate systems, but all of that changes this weekend. United Community Bank, as you can see, is heavily in the North Georgia area, East Tennessee, Western North Carolina, and now with the Palmetto branches, the Upstate. If you look at this like a circle, there was a big pie missing of that circle, and it was the Upstate of South Carolina. So this is the area that obviously they were interested in, and they were interested in purchasing Palmetto. At this point, they continue to grow and we're actively seeking additional growth. I know we've opened some loan offices down in Columbia and Charleston. There's also existing branches down in the Brunswick, St. Simons, Savannah areas. So I think the natural growth that they'll be looking at now is up the coast, the Charleston area, Columbia area as well. So we'll continue to try to grow into those areas.

As far as the importance to the Upstate to the bank, this is the numbers last year after the merger of the banks. As you can see, South Carolina immediately becomes the second largest region of the bank, and by far one of the fastest growing areas, which is basically on the activity here in the Upstate. I know a lot of you before have had to switch over email systems, switch out all your local area networks, you've had to change your signs, you've had to put in all new servers, you've had to roll out new wide area networks, new phone systems. But we're doing all of that Friday for 25 locations and 250 people. So as you can imagine, this takes quite a bit of time. We've been working on this since planning since July of last year, and it all comes together on Friday. Basically, if you're a Palmetto Bank customer, when you walk in Friday, I won't say I there in the middle of changing signs this week, but if you walk in Friday, they will be running on the Palmetto systems that they've always run on. Everything will be running as normal. If you go back Monday morning at nine o'clock, everything will be different. So it's a big impact because not only are we dealing with the system side, we'll work on that on Friday night and Saturday, but Sunday all the employees of the bank are coming through because they've got to make sure that they can get logged into the new system. So it's also a learning curve. Any time you put a new business application in, you have to train people, and then there's always a few days there where people are learning the new system. Now imagine every business system they have, and it's all happening now. They've been working very hard on doing training over the last six weeks. So a bank integration is not small; it is something that is a lot of effort. We have had hundreds of people working on this, lots of outside business partners helping with this, changing all of the ATMs as I mentioned.

Just for the numbers: Palmetto before in loans and deposits, we have over a hundred thousand accounts, 35,000 debit cards that are being reissued this weekend. We have those hundred thousand accounts being merged over into the United system. We have 20,000 online banking users who this weekend their whole world is changing as far as their mobile apps, the online banking, everything changes. So as you may imagine, we're also really ramping up the call center because we expect people are going to have issues. Even if there's no technical issues, people are going to call because they're not going to know where to go to find this. So that's where we'll really be focusing on for the technology group. What we'll be doing this weekend is making sure all of these things happen. We'll spend Saturday and Sunday verifying all the accounts, making sure everything balanced, making sure everybody got over, everybody's information moved over the way it needed to. Monday morning, we'll be spread out through all of the branches because the number one goal on Monday morning is to make sure that the bank can handle any kind of customer issues. So we'll be spread out through the branches reacting to any type of issues as quickly as we can.

Going forward, one of the things I've been talking about is all of the changes that we have, all the challenges that we face in banking. So what does it mean for us? In my new role as we walk into United Community Bank, as we start looking at all of the challenges, all of those challenges don't go away because we're a bigger bank. You still have the same challenges whether you're a small bank or a big bank. But the thing that you have to deal with now is that now you have a lot more resources. So now we have the resources that we can handle those challenges even better. Regulatory and economic strategy: one of the things we have a whole strategy around is how we can't change the regulatory environment, we can't change the economic environment, so it will all be about automation. One of the things we did at Palmetto over the last several years, when I was brought in and asked to make the bank as efficient as possible, we put in lots of automation. So basically what I will be doing is trying to take a lot of those techniques that we did and now do it at a much larger bank. So we'll be focusing on workflows. We have lots of different business applications, especially when you get to the bank the size of United. You have multiple business applications because you may have a mortgage group working on a different system than the group that's doing car loans, for instance. So what we have to do is make sure all of that information is integrated as possible. We'll be working on workflow systems. A lot of our business applications have workflows built into them, so we're making sure we're utilizing all of those imaging systems, trying to eliminate the paper that has to be moved around. As I mentioned, you go into the bank, you open up an account, you get a stack of paper. Well, that stack of paper has to get into the system somehow, so trying to stop the paper from being moved. We'll be working on that. And then in the end, there's going to be gaps. The business applications will integrate, we'll use the imaging workflows, but they'll still be some type of gaps. So we've got a large SharePoint project. Andy Newton here, we have 40 or 50 items we've identified that we're going to be implementing over the next six months to try to fill those type of gaps. So probably a lot of the same type things that you guys are doing in your businesses as well.

Infrastructure optimization: one of the things that has happened with United Community Bank is it's a collection of community banks, so we have different phone systems, different communication systems. Integrating all of those into one will be actually putting a very large phone system with over 134 locations, probably 2,000 phones, implemented over the next six or seven months. Also implementing SIP trunking and voice over IP to connect all of these locations to become much more efficient in our communication. We also have networks at Palmetto, we have networks set at United, we have different networks. So we're trying to meet with all of these different groups to see how we can optimize these networks to get the most bandwidth to every location. The other thing that is happening is as we start doing these imaging workflows and things like that, as you can imagine, then we start eating up all of the bandwidth at the location. So trying to create a network roadmap for the future, we'll be doing that over the next few months and then acting on that over the next several months.

Application consolidation: I mentioned we have different groups that are using different systems. We were looking today, we have four different CRM systems that are being used by different groups. So trying to look at those, can we consolidate those and actually get the benefit? Which is a challenge because the reasons you have those systems is they're all good at one thing. So trying to find a way, is there a room to consolidate these applications? And then market and sales expansion: I mentioned looking at expansion in the South Carolina area, which means these things we're doing this weekend we'll keep on doing. So if there's another acquisition announced in the next few months, we will immediately start on it. We'll immediately finish Palmetto and we'll start on the next one, because those take several months. The challenge to that is changing systems and doing an acquisition at the same time. One of the things we've done, one of the people I work with is the chief strategy officer, Lee Dixon, who also worked with me at Palmetto. So one of the things we have worked on is trying to get basically we went through all of the bank to get all of the projects. We have this huge enterprise project list because there were IT projects, but as you know, there are shadow projects happening in every area of the bank. So get that on one list and actually start to sequence it, because there are things that you can't do while you're doing an acquisition. If I'm in the middle of testing merging all these accounts together, I can't be changing the core system that all these accounts are going to be merged on at the same time. So really trying to make sure all of this is sequenced. We have a very large effort going around that right now.

Specialty and niche type lending: I know with Palmetto, Palmetto had gotten into indirect car dealer lending, had gotten into mortgage servicing. So all of those areas are actually coming over into United and will continue on with United because United did not have those servicing areas in the past. And we're looking at others. Every one of those creates some type of IT project around making sure the business applications, workflows, and processes are in place. One thing I mentioned to you earlier was about trying to look at how we deal with our customers and how they use the system. This is something that I saw a couple years ago at a Fiserv meeting, I may have shared with the group before when I was here a few years ago. Banking has become like eating: it's never always the same thing. The example is sometimes I want a snack, sometimes I want dinner. It's the same thing but it's not the same thing, and I don't want the same experience. My wife joined me here today. Last week was our anniversary, so she called me and told me she's got somebody watching the kids, she wants to go out to dinner for our anniversary. That day I had to run back from Georgia and I had to get gas and had five minutes to eat, and I stopped in at a QuikTrip and had a great lunch for that day. I could have taken her to QuikTrip that night for dinner, but it wouldn't have been the dining experience that I think she would have been happy with. So it's the same thing with banking. If I have a problem, I want to be able to pick up the phone and talk to a live person. If I want to check my balance, I don't want to have to drive even though I only live half a mile from a branch. It's a half mile down Woodruff Road, I don't want to spend 15 minutes on Woodruff Road driving to the branch to see what the balance is in my account. I want to be able to pick up my phone, and I don't even want to log in, I just want to hold my thumb on that little thing and let it log in for me so I can do it while I'm sitting at the red light on Woodruff Road. If I open a mortgage or if I'm setting up an investment account, I don't want to do that on my phone. I want to go to the branch and actually have a live person that's an expert that can talk to me. And that's how we bank, and that's not ever going to change. So the challenge is what do we do to become what has been said for years would happen, which is actually now happening: an omni-channel bank, which means it's your choice how you're going to bank with us. The challenge of that is we have to have a mobile infrastructure, we have to have an ATM infrastructure, we have to have a branch infrastructure. Having all of that at the same time is a challenge. But these are the channels that we focus on: mobile, online, ATM, branch, contact center. And with the contact center, that also includes the automated voice systems if you call into those as well. So we are developing projects this year that will be implementing to enhance every single one of those touch points. This is something that we talked about doing at Palmetto, we did some. When I say enhance, you can do some things, but when you get to the size with the merger between the two banks, we get this energy that we can really do a lot more with these top systems.

For instance, we're putting all new call center software in this year, actually goes live in April, working with our call center so that they can better handle our customers. Online and mobile: we're moving to a system that will be implementing in September that is a single platform. One of the problems with bank software is we go out and purchase software to provide you online and mobile. The problem with that is we buy one for the retail customer, we buy another one for the business customer, and we buy another one for mobile. So what your experience normally is I can go online to the internet banking and do something, but when I get to the mobile, I don't have all that same functionality. We are investing in a different system where it is one platform across all, and it doesn't matter what you're on: if you're on your iPad, if you're on your phone, if you're on your computer at home, if you're on your work computer and logging into your business accounts, all the options are there for everything. That is something that we will be investing in this year, going live in September. Host sourcing: one of the things that we're looking at as far as efficiency and customer support is looking more at outsourcing these products. It is hard to have a data center in a bank where you have people at limited hours, but you're trying to keep a channel up that is being used 24 hours a day, seven days a week by your customers. There's no one there at five o'clock in the morning on a Sunday in the data center if the mobile banking comes down. So we have alerts, we have people go in, but starting to move this to outsource centers where we have 24-hour, seven-day-a-week support. That's a big part of what we'll be doing. Also, as you all know, especially the guys here from the data centers, they have the type of infrastructure that it would not make sense for us to try to replicate for a single business. So that's why we'll be continuing to try to outsource more and more of these solutions.

For ATM debit cards, I mentioned we're replacing all the ATMs, implementing self-service tools. So if suddenly I get the call that I've lost my debit card and it's a Saturday and I can't get hold of somebody at the call center to tell them to lock up my debit card, I can block my debit card myself without having to contact the call center. So we have that system that will be going in this year as well. Apple Pay: we have Apple Pay for credit cards now, releasing it for our debit cards. And for the branch, putting in all new communication upgrades for our branches, all new teller systems, and expanding branch automation so that when you hand that information to a teller, right now you hand that information to a teller, the teller has to take that information, key it into their system, give you a receipt, it goes back and gets scanned later. Basically, as you hand that to a teller, it goes through a scanner right there, everything is processed immediately. That's the type of automation that we've actually contracted with already here at the first of the year, and so will be putting that in by the end of the year as well. So a lot of ways we're trying to continue to improve every aspect that a customer has with the bank.

Finally, on security: one of the issues we deal with is security. Of course, it's the same thing as everybody else is dealing with. We have the same issue as every business. If you look at the breaches that happened at Target, Home Depot, the problem was those guys have become good enough that they go in under the radar. If you look at those breaches, the people were in those systems for months before anyone knew about it. A lot of times the people that are breached don't know about it until they get a call from the FBI or find out that all their information has been up for sale somewhere on the internet. So what we are doing is continuing to invest heavily in these anomaly systems in case we get breached. At the same time, we have to implement fraud systems because in most cases, it's not the bank being hacked, it's the merchants or the individuals that are being hacked. So we have to not only protect our systems, we have to protect your money if some other system gets hacked. So we're continuing to invest in fraud. We look at things to determine, right now every debit card transaction you do is fraud has calculated as some type of fraud, and we have thresholds. We can change those thresholds. So if we hear that in the state of Mississippi there's a lot of fraud scheme going on, we can tell our systems if this transaction comes from the state of Mississippi, lower that fraud threshold, give it a little extra scrutiny. Those are the type of things that we do. It is frustrating for some people sometimes: you do a transaction and it gets denied, or you get that call from somebody saying we see some kind of activity so we're going to shut down your card. That can be frustrating if you're doing something good. But I also tell you, we got the call a couple weeks ago: somebody in Canada tried to buy $900 on your debit card. Is that you? No, it's not me. And they stopped it. So those are the type of systems that we will continue to invest in as well. Incident response and programming, that response program, team awareness, audit testing. One of the things that we invest in is testing our systems. I know we did this at Palmetto, we do this at United, and will continue to expand that. At United, we do social engineering tests on our own employees. We hire auditors to try to break into our systems, to try to get into areas, and then we get reports back from them so that we can go back and train our own people: 'OK, this is what happened, this is how you can prevent that in the future.' And then BYOD: one of the issues, not only is mobile important for customers, it is also important for employees. As we start to grow, I have IT employees now in Greenville, Laurens, Atlanta, Blairsville, I have one down in Savannah, and they have to all work together like they're in the same room. At the same time, some of those people are traveling. So if I am visiting my parents in Kentucky, I need to be able to log into the system and work and have a day where I need to build a login system that will work just like I was sitting here at my office in Greenville. The same thing that you're experiencing at home, we're experiencing in the workforce: people are asking how can I just pull this up on my iPad at home while connecting, why can't I do this at work? So making sure that we have the systems that make it easy for people to work wherever they may be. So that's a little bit about what we're doing. Sorry if the banking information is boring or a lot of work, but I guess is there any questions anybody has?

OK, so first on the debit card and the credit card. Credit cards generally fall under the merchant roles like Visa, which I think depends on the transaction. I'm not an expert in that area, but I think it's like they cover everything up to like $50 loss or something at that point. What we do at the bank is if you call and report that on the credit card, on a debit card, the concern is generally a credit card doesn't actually you know you get that bill and you see an issue, you can go back and work with the credit card company to do it. The concern they have on debit cards is if it hits your account, the money's actually potentially left your account. But as a bank, we are required if you call and say I did not do that transaction, we're required to give you that money back into your account until we can investigate and verify whether you did that transaction or not.

It depends on the procedures. I will tell you that for a consumer, for a retail account, it is actually regulation that we have to do it. It's consumer protection that we have to do that. For a business, the business is not subject to the same government regulations, but most banks do the same thing for a business. The exception might be if it's a you know the only potential exception is that a lot of banks may put some type of limit on what that would be as well, but of course because obviously with a business you can have much larger transactions than what you would with a consumer. But the way that would work is the money would go back into your account, and generally we would go back to the merchant to try to recover that money from the merchant for you. The only time I've ever been aware that the person doesn't end up getting their money back is if you show that the person did something negligent themselves or falsely reported it. So that's the difference: the difference in the business and retail is one is regulated by the government, one is not. But at the same time, most banks follow the same procedure for the business and for that.

Small business is breached as a result, there's a loss. Once again, I think it would depend on the situation and who's negligent in doing that. For a normal transaction, a lot of times that's going to be covered for a small business. For larger companies, there's some expectation that for a large commercial company, there's usually contracts involved and the contracts stipulate all of that out as far as any kind of limits. There is the assumption if we're dealing with a large company that you have the ability to protect that, you should be taking the natural protection that anybody should as well. The issue with businesses, large businesses, is that there's availability that a consumer would never have. As a consumer, you can move money in and out of your own account, do things. Businesses are loading direct deposit payments for all of their employees, loading large wire transfers and things like that as well. So that's why there's usually a contract with those that limit the bank where we agree on some liability with the large businesses. Small businesses usually don't fall into that, so you have to talk to the bank. There are specialty specialists at the bank that will go through all of that with you.

How many people? Around 10 million? What I have reporting to me is about 55 people. At Palmetto, I had 12. So that will give you an idea of the difference. Those 55 people are business application experts, network experts, phone experts. Now that's just the people that we decide to have internally. In addition to that, there is a whole group of third parties we use. At United, those 55 people are just the people required to keep the systems up and running the information at a $10 billion bank. Information security splits. One of the things that bank regulators have, if you follow any of the governance frameworks, it's very good to have is you split the information security. So the IT operations processes flow up through the chief strategy officer and the chief operating officer, but the information security flows up through a chief risk officer. So we have like five people dedicated to information security. That is a big asset that you have at the bank of the size of United that we could have never had at the bank the size of Palmetto.

As far as prioritizing your projects, if you look, you've had IT synergy targets to achieve, you also have a line of businesses who have grown energy targets with a merger, and a lot of times those can conflict with each other. The question is about how the challenges of those competing projects. The challenge of the competing projects to me is who makes those decisions. I had a very good support group at Palmetto, and so far we've had a very good support group at United. So I've been able to go directly to our chief executives and help resolve that. The challenge is getting someone to put a priority on things because the worst case I've ever seen in IT when you're dealing with project management is the squeaky wheel syndrome: I'm working on whose every project is yelling the most at the time. So actually, what we did is put the enterprise list together, went out and of all the projects, we sequenced them. Basically, in an order that said I can't do this project until this project is done, doesn't matter if you want it or not, nothing I can do. So for instance, we had some projects to make some changes in our core system. So right away, nobody's getting that project started until after February 20th because we're not changing the core system in the middle of trying to integrate Palmetto at the same time. So we set up some of those rules. We interviewed the people, and then we internally, this is a group of the project managers, me, Lee Dixon who's the chief strategy officer, we came back, worked with and tried to align them as best as we thought and got their feedback. Most people were pretty easy to work with from that point. We did have a few conflicts and a few issues there where people were basically saying this is the most important thing, this is the most important thing. We put that list together, we were able to go to our operating council, which is some of the top executives of the bank, and say help us make these priorities. And they were very good to do that. I think as long as you have that support, it becomes a pretty easy task.

Yeah, I agree with the fact that I would you know my personal, and of course his personal opinion, I think the information should be available to the people who need it, but only if they go through the right sources. It does concern you if they open up these back doors, who's actually using those back doors? If those back doors were there and being used only for the things that we're all concerned about, that would be okay. But the concern is once they open up those back doors, not knowing who's down there. So I do think the information needs to be out there, kind of like what you said, it's nice to know that you got an extra backup just in case. But at the same time, do you think it needs to be very controlled who can access that information? Yeah. Thanks a lot.