December 2012
President Barack Obama
Unf inished Business
UPCOMING Education events
Plan your training for this year with our variety of educational seminars and conferences. Registration is easy and just a click away at pacb.org.
CCBSP Q1 Session January 15, 2013 DoubleTree Monroeville - Monroeville, PA
April • 2013 (CONT)
IT Compliance Seminar April 24, 2013 PACB Headquarters - Harrisburg, PA
October • 2013
CCBSP Q1 Session January 16, 2013 PACB Headquarters - Harrisburg, PA
May • 2013
CCBSP Q4 Session October 23, 2013 PACB Headquarters - Harrisburg, PA
January • 2013
February • 2013
Commercial Lending School February 19-20, 2013 Crowne Plaza Harrisburg - Harrisburg, PA Credit Administration Seminar February 26, 2013 PACB Headquarters - Harrisburg, PA
April • 2013
Security Seminar April 9, 2013 PACB Headquarters - Harrisburg, PA CCBSP Q2 Webinar April 15, 2013 IT Compliance Seminar April 23, 2013 Pittsburgh Area 2 | Transactions | www.pacb.org
HR Conference May 7-8, 2013 Hilton Garden Inn Hershey - Hummelstown, PA
June • 2013
Directors Conference June 4-5, 2013 Hershey Lodge - Hershey, PA
July • 2013
CCBSP Q3 Webinar July 15, 2013
September • 2013
ALM Seminar September 10, 2013 PACB Headquarters - Harrisburg, PA 136th Annual Convention September 20-23, 2013 Boston Marriott Copley Place - Boston, MA
CCBSP Q4 Session October 22, 2013 DoubleTree Monroeville - Monroeville, PA
November • 2013
Security Seminar November 4, 2013 DoubleTree Monroeville - Monroeville, PA ALM Seminar November 5, 2013 DoubleTree Monroeville - Monroeville, PA Directors College November 6, 2013 Monroeville, PA Audit Seminar November 13, 2013 PACB Headquarters - Harrisburg, PA Tech Conference November 20, 2013 PACB Headquarters - Harrisburg, PA
THIS ROAD leads to SALES opportunities. PACB HAS MANY WAYS FOR YOU TO PERSONALLY INTERACT WITH AND BUILD MEANINGFUL RELATIONSHIPS WITH OUR MEMBERS. LOOK FOR THE 2013 SPONSORSHIP OPPORTUNITIES BOOKLET TO HIT YOUR DESK SOON! Contact Saundra Cunningham for more information about convention and education sponsorships at 717-231-7447 or saundra@pacb.org. www.pacb.org | Transactions | 3
Contents December 2012
FEATURE STories 26 A Second Term: Stay the Course or Another Route? An inside look at the hardships that community banks face everyday and what needs to change in order to help ensure their survival. 34 The Season of Giving Integrity Bank and New Tripoli Bank are making a difference in their communities this holiday season. Read how in this month’s community bank profile.
Articles 10 Board Meetings 2.0 12 Identifying Opportunities for Community Banks Through Syndicated Loans & Loan Participations 14 The Mystery of Bankcard Interchange 17 ICBA’s Fine Recognized on The Hill’s List of “Top Lobbyists” 18 Three Banking Modernization Bills Become Law in Pennsylvania 20 It’s a Mad, Mad, Mad, Mad Election 24 Lending Compliance: 6 New Flood Insurance Rules Lenders Need to Know 38 EMV Chip Technology to Replace Magnetic Stripe 40 ICBA Encourages Consumers to Go Local This Holiday Season 42 Five Minutes with Congressman Chaka Fattah 44 PACB Brings Home An Award 45 News From You
Advertisers 16 Terrapin Financial Services, LLC 19 Shumaker Williams P.C. 23 Shazam 33 Financial Outsourcing Solutions 37 ParenteBeard 41 Signature Information Solutions 41 Rhoads & Sinon LLP 44 Stradley Ronon 4 | Transactions | www.pacb.org
Cover photo by Tyler Driscoll for Obama for America
ON THE COVER
A look at what lies ahead for community banks during the second Presidential term for Barack Obama as viewed by Pennsylvania community bankers and their allies.
Photo by: Scout Tufankjian for Obama for America www.pacb.org | Transactions | 5
That’s My Bank
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THE PUBLICATION OF THE PENNSYLVANIA ASSOCIATION OF COMMUNITY BANKERS
Pennsylvania’s Community Banks. For people and their neighborhoods.
Transactions Magazine is published monthly by Pennsylvania Association of Community Bankers 2405 North Front Street, P.O. Box 5319 Harrisburg, PA 17110-5319 Business Hours: 8:30 a.m. - 5:00 p.m. M-F Telephone: 717.231.7447 Fax: 717.231.7445 www.pacb.org
PACB Staff: Dominic D. DiFrancesco, nick@pacb.org - President/CEO Tim G. Arthun, tim@pacb.org - Director of Government Relations Natalie S. Bombatch, natalie@pacb.org - Publications Manager Saundra J. Cunningham, saundra@pacb.org - VP–Education Services Eric A. Kovac, eric@pacb.org - Publications Manager Patricia Kuharic, patty@pacb.org - Administrative Assistant Shirley A. Regan, sar@pacb.org - Comptroller/Office Manager
2012-2013 PACB Leadership Executive Committee Chairperson - Ronald B. Geib President/CEO, Harleysville Savings Bank Chairperson Elect - Dennis D. Cirucci President/CEO, Alliance Bank Vice Chairperson - Andrew W. Hasley President/CEO, Allegheny Valley Bank Secretary/Treasurer - Terry L. Foster EVP/CEO, MCS Bank President/CEO - Dominic D. DiFrancesco Pennsylvania Association of Community Bankers Immediate Past Chairperson - Chuck Leyh President/CEO, Enterprise Bank General Counsel - Keith A. Clark, Esq. President, Shumaker Williams, P.C.
Standing Committees: Chairs & Vice Chairs Education Gary Bradley, Cresson Community Bank Wendy Nagle, C&G Savings Bank Finance & Budget Troy M. Campbell, Altoona First Savings Bank Roger A. Zacharia, Ambler Savings Bank FIRSTPAC George M. Evans, Indiana First Bank Richard L. Meares, Fleetwood Bank Legislative Rory Ritrievi, Mid Penn Bank Todd R. Hurley, First Savings Bank of Perkasie Marketing Pat Evans, Northwest Savings Bank Linda DeAngelis, C&G Savings Bank Membership Kevin J. Gallagher, Huntingdon Valley Bank Barron P. McCune, Community Bank Strategic Planning Tim Zimmerman, Standard Bank, PaSB Terry Sager, William Penn Bank
PACB Chairman RON GEIB
A word from PACB’s Chairman In reflecting on my experiences and interactions with community bankers from a recent trip to Western PA, I developed three takeaways that I’d like to share. First, I visited a member bank undergoing an office expansion. When there is an office expansion, there is growth. That sends a strong message to the community and also acknowledges a growing concern – you don’t invest in your business and build infrastructure if your business is not doing well. From what I have heard during my travels, the economy and the overall economic health of our communities is stabilizing. To me, it was very positive to see a community bank illustrating the stabilizing economy by thriving and expanding. This leads me to my second point, that in order to thrive, we must stand up and fight for what we believe in. One of the major issues to surface while meeting with some PACB members was the regulatory burden on community banks. They requested that I bring to the attention of Congressmen in Washington how the regulations bring about additional personnel costs, impact operations and ultimately take away from the value that they can give back to the community. PACB knows that regulatory burden is still a major issue for community banks and we plan to voice that as much as we can. In fact, there is some positive action evolving on the regulatory front. When Nick and I attended a roundtable meeting with the Acting Chairman of the FDIC in New York, we asked him if the FDIC had ever completed a study on the effects of regulatory compliance costs on community banks. Though his response was no, the conversation resulted in the FDIC developing
a survey as part of a regulatory compliance costs case study. I received and submitted my survey and look forward to seeing the results. There is hope that the FDIC is taking to heart our concerns as community bankers. Although regulatory compliance is alive and well, we are being heard and they are responding to our needs. We must remember that change begins with such communication. Finally, I recently had an interesting conversation with a community banker in his office. Through casual conversation, the topic of history came up. I talked with him about my appreciation for individuals who came before us, from those who settled the colonies in America to the settlers out west. He agreed and shared with me a story about fighting for freedom: A British soldier in his uniform was captured by a colonist dressed in rags. He said to the colonist, “What are you doing? Why are you trying to separate and gain your freedom from England? You won’t be any better off even if you succeed.” To which the colonist replied, “No, but my son will live better.” At that moment, it struck me… that is the community banking spirit. A lot of what we’re fighting for may not be to make tomorrow or next week better, but rather it is for the industry to be better off in the long run. We want those who come behind us to have a strong, viable industry in which to operate, free from regulatory burden. That spirit is what this country was founded on, and if that spirit returns to Washington, DC, we have a chance. Right now, I don’t think this spirit is in Washington, DC, and that’s likely why we get frustrated. We are more interested in the longer term, and not just the here and now. Merry Christmas and Happy Holidays!
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president/ceo nick difrancesco
From the president/ceo’s desk December is the time of year that many of us seek to spend with family and friends. The hustle and bustle of everyday life tends to give way as the spirit of the holidays takes over. Yes, it is true that the business year is about to come to a close, but for many, December is a month in which we invest our time into visits with friends and family members that we don’t often see. As Bing Crosby crooned in the movie “White Christmas,” December is also a time to count your blessings! As an industry, we do have much to celebrate. Sometimes the gleam of our success fades below the tarnish of stress. There is stress brought on by the economy and the regulatory environment, but at the core of the community banking industry you’ll find a lining of pure silver. All you need do is drive around town and the tarnish of stress fades. All across Pennsylvania, young families are purchasing their first homes because of the assistance of their local community banks. Likewise, homegrown jobs are being created as small businesses continue to sprout, grow, and prosper because of Pennsylvania’s community banking industry. The fruit of our Commonwealth’s community banks can be seen all around town, in every major city, and throughout rural Pennsylvania. While the future may still bring questions, PACB remains committed to supporting our members, and to reminding our elected officials that a world without community banking truly resembles “Pottersville” in the movie “It’s a Wonderful Life.” The truth is that we constantly strive to improve our service to you, our members. This month we introduce an enhancement to Transactions magazine. The
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lead story, written by veteran Patriot News reporter Jack Sherzer, takes an in-depth look at what key leaders believe the Presidential Election of 2012 will mean to community banking. Jack’s addition to the Transactions team means our readers can expect monthly articles that delve a little deeper into the issues of the day. Our goal is to move past the rhetoric and expose the core of the debate. Our readers can also expect more cutting news at their fingertips as we make improvements to our web site (www.pacb.org). While change is necessary, this month’s edition remains full of articles on key topics important to our readers. This month we cover the benefits of loan participations, paperless board portals, and Pennsylvania’s new bank modernization laws. We also offer a recap of last month’s election, insights into bankcard interchange, and introduce you to U.S. Congressman Chaka Fattah. When looking for ideas and information on trending banking products, key political insights, and a real celebration of community banking, Transactions is your one stop solution! As always, I urge you to read this and every edition, and then let me know what you think. If you have an opinion about an article in Transactions, share it. We just may print it in the following month’s issue. As we enter the Christmas Season, I hope you’ll celebrate with me. Community banking is alive and well in Pennsylvania, and our Commonwealth is better off because of this fact. Whether it is through the numerous giving campaigns, like Integrity Bank’s “Toys for Tots” drive, or New Tripoli’s efforts to support their local food pantry, or through the ICBA’s campaign to promote holiday buying at local businesses, community banking is something to celebrate! I wish you and your family every blessing this holiday season.
Didn’t make it to PACB’s Directors Training? Want to share valuable information with your Directors?
No problem! We videotaped these two Directors Training education sessions presented by: KENNETH J. ROLLINS, ESQ. & KATHRYN D. SALLIE, ESQ. RHOADS & SINON, LLP
W
THE GAME IS ABOUT TO CHANGE - WHAT A COMMUNITY BANK DIRECTOR NEEDS TO KNOW ABOUT THE NEW CAPITAL RULES This session includes overview of the capital rules recently proposed by the federal banking regulators as they are likely to apply to community banking organizations. The session focuses on those aspects of the rules that a community bank director needs to know in order to ensure their institution is prepared for the transition to the new framework. Additionally, because the new rules will almost certainly require community banking organizations to hold more capital, this session also discusses the primary sources of capital available to such organizations and the means by which a community bank can raise such capital in light of the recently enacted JOBS Act. IT’S 2012...DO YOU KNOW WHERE YOUR RISKS ARE? UNDERSTANDING AND PREVENTING COMMUNITY BANK DIRECTOR LIABILITY IN A NEW REGULATORY WORLD As the banking crisis continues to unfold, banking directors and officers find themselves under heightened scrutiny and at increased risk for their personal decisions. An era of heightened regulatory enforcement has led to a vast amount of rules, regulations, and guidance aimed at increasing banking directors’ responsibilities. The goal of this session focuses on the risks that directors face as individuals given the current regulatory environment and how directors can be proactive in reducing the likelihood of facing individual liability. Specifically, this session discusses the traditional role and duties of banking directors, the common mistakes and risks that can lead to individual director liability, and the preventative measures that directors and officers of community banks can take to mitigate the risk of individual liability.
Purchase a DVD
today!
PACB Members: $135 Non-Members: $185
ORDER ONLINE AT PACB.ORG! www.pacb.org | Transactions | 9
Board Meetings
2.0
By: Bill Evers Director of Business Development Computer Services, Inc. 10 | Transactions | www.pacb.org
J
ust like your customers and employees, your board members also are on the move – relying on laptops, mobile phones, and tablets to keep in touch with bank business while on the road. Remote access delivers numerous conveniences, and various technologies make it easy to connect from home, the office, and anywhere in between.
And banks should mirror this shift in the board’s behavior: relying on traditional paper packages for sharing important documents and reports, banks will have a difficult time giving board members access to the information they need in a timely, cost effective manner. Secure Connections
ing from enforceable complex passwords, encryption or patching, and remote-wiping rules. Policies should detail an acceptable-use strategy detailing the ways in which board members may use their devices while using bank networks or resources. To prepare for the worst-case scenario, the policy must outline a plan in the event a device is lost or stolen. Board members need to know the protocol, including when and to whom they must report a lost item, as well as their rights concerning remote wiping or deactivation. These preparations are often useful beyond board access, too. Many banks are allowing regular staff to use their own mobile devices on the corporate network, and these safeguards will provide stronger security for board use as well as employee use.
Preparing and disseminating sensitive bank documents can be a daunting task. You and your staff undoubtedly spend Reduced Cost days collecting, compiling and duplicating important materials. Once assembled, these packages must be distributed to Community banks also are finding board portals can save board members in advance, so that they can review the manot only time, but also money. It is extremely important for terials and prepare for any upcoming decisions. And mail- today’s bankers to focus on operational costs and identify ing paper documents creates its own privacy concerns, since ways to reduce those costs whenever possible. One post to confidential information is an online board portal eliminow exposed outside the four nates the need to assemble walls of the organization. packages for each individual Online board portals can be a board member, saving hours cost-effective, secure way to Increasingly, banks are turning of preparation and reams of to online board portals to adpaper. Accessing documents streamline communications. online will also eliminate dress these challenges. Board courier and supply costs, portals allow authorized perwhich can add up over time. sons to post and access confidential data from the convenience of their home or office. Instead of waiting for a paper package to be assembled and shipped, the necessary people receive in- Online board portals can be a cost-effective, secure way to streamline communications. stant, secure access to documents that are posted to the portal. Bring your board communicaThe portal should be fully compatible with web browsers and tions into the future while saving on supply costs and enhancing mobile devices, enabling board members to bring their paperaccess to reports. work to board meetings on their laptop, tablet, or smartphone. Enhanced Security Ease of access is important, but security remains the top priority for sensitive and confidential board documents. Viable portal providers incorporate key security features within the technology. The most beneficial feature allows only designated individuals access to confidential materials. An extended security feature can enable users to limit who can view certain materials and allows directors to specify which board members or committees can access particular documents. But what about lost or stolen devices? Many banks fret about this occurring, but you can ensure compliance and security with a little planning and preparation. Banks must develop corporate policies that cover every aspect of device use—and these policies should extend to board members as well. One important aspect to include is Mobile Device Management, whereby the organization decides which devices will be supported and what level of access is acceptable for compliance, with options rang-
Computer Services, Inc. (CSI) delivers end-to-end technology solutions that empower financial institutions to remain competitive, compliant and profitable. A preferred provider among many state associations, CSI works with financial institutions nationwide by offering a wide range of solutions, from core bank processing and Internet banking to cloudbased services and regulatory compliance automation. CSI’s Board Portal is PACB’s latest preferred vendor. The solution gives banks an easy-to-use tool for engaging board members more effectively. You may learn more about Board Portal by contacting Bill Evers at bevers@csiweb.com or (800) 545-4274, ext. 19224. Rick Byrne, rick.byrne@csiweb.com is the CSI contact for Core and other CSI services for Pennsylvania.
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Identifying Opportunities For Community Banks Through Syndicated Loans and Loan Participations
By: Lyle Washowich, Esq. and Alexandra Malatesta Burns White LLC
I
n the aftermath of the Great Recession, community banks have struggled to find ways to regain lost revenue in the face of fewer traditional loan opportunities. However, in the wake of such challenges, investment banks and other financial institutions have been more frequently looking to community banks to diversify these larger institutions’ investment portfo-
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lios and diffuse the risk of extraordinarily large loans.1 In kind, by investing in syndicated loans or purchasing loan participations, community banks can find ways to grow revenue by expanding beyond (a) traditional deposits, (b) real estate-related loans, or (c) fixed-income securities laden with interest rate risk and low returns.2 In addition, in many instances, syndicated loans and loan participations allow access to industries
normally precluded by regulated capital requirements or the local economy of a bank’s immediate community.3
nity banks should also consider independent collateral review and/or meeting with the potential borrower.17
Though commonly confused, loan syndication and loan participation are separate and distinct methods of facilitating a loan to a single borrower. A syndicated loan is made by two or more lenders who contract directly with a borrower under the same credit agreement.4 Under this type of loan, each lender possesses a direct legal relationship with the borrower, with each lender receiving its own promissory note from the borrower.5 Hence, if the lead bank (often the leading lender) becomes insolvent, the obligations between the borrower and other syndicate banks will be unaffected.6 The decision to underwrite this type of loan evidences confidence in the stability of the borrower and the quality of the investment.
Loan Syndication and Participation Agreements allow community banks to grow revenue and expand beyond single borrower/bank relationships. With the “loan-todeposit ratio of the banking system as a whole...as low as it has been in 20 years,” syndicated loans and loan participations are potentially lucrative ways for community banks to “access loans and higher yields” in a safe and efficient way.18
A loan participation, on the other hand, involves the sale of portions of a loan. After issuing the loan, the lead bank retains an interest in the loan but subsequently sells portions of its ownership to other banks.7 Such sales are memorialized in a “Participation Agreement” that creates a contract between the lead bank and the purchasing “participant” bank that is independent from the contract between the lead bank and the borrower.8 In exchange for an economic interest in the loan, participant banks become creditors of the lead bank (and not creditors of the borrower).9 Paperwork is maintained by the lead bank – which deals directly with the borrower on behalf of the other participants.10 Both syndication and loan participation are dependent upon the comprehensiveness of the disclosures made by the lead bank and the syndicates’ or participants’ comfort with the structure of the original loan. While the amount of information exchanged between the lead bank and the prospective syndicates/participants can vary in terms of depth and complexity, the lead bank provides an information memorandum that describes the nature of the loan and the stability of the borrower.11 This memorandum can include, among other things, information about the borrower’s business, financial models, investment considerations, terms and conditions or, in the case of more complex arrangements, extensive discussion of due diligence and financial projections.12 Syndicates and participants rely on the loan documentation provided by the lead bank in order to conduct an independent credit evaluation of the borrower.13 Hence, transparency is crucial not only for the lead bank’s adherence to its fiduciary duty, but also to allow community banks to answer the essential question: is this the type of loan we would make ourselves? Prudent negotiation of Loan Syndication or Participation Agreements requires consideration of the extent of a community bank’s oversight and management influence over the leading bank’s portfolio.14 In-market participations and strategic syndicates/participants consisting of local competitors can serve to lessen the risk assumed by the community bank when entering into a syndication or loan participation.15 And, regulatory oversight encourages banks to minimize risk by confining loans to local, familiar markets.16 Depending upon the size of the bank’s investment, commu-
Lyle D. Washowich is CoChair of the Banking and Financial Services Litigation Practice Group at Burns White LLC. With experience handling disputes in state/ federal courts and private venues, he has represented national banks, federal and state savings associations, state-chartered banks, community banks and other affiliated entities in alleged breaches of contract, disputes among partnerships and other business interests, alleged breaches of fiduciary duties, alleged conspiracy claims, claims involving the Uniform Commercial Code (UCC), and other types of statutory and common law claims. Alexandra Malatesta is a law clerk at Burns White LLC, where she provides research and writing support to the firm’s practice areas.
1. Allison Bisbey, Smaller Banks Get Chance to Break into Loan Syndicate, AMERICAN BANKER, Feb. 16, 2012, at 1. 2. Allison Bisbey, Smaller Banks Get Chance to Break into Loan Syndicate, AMERICAN BANKER, Feb. 16, 2012, at 1. 3. Katerina Simons, Why Do Banks Syndicate Loans? NEW ENGLAND ECONOMIC REVIEW, Jan.-Feb. 1993, at 45. 4. FDIC Risk Sharing Asset Management Guidance RSAM-2011-15, FDIC Commercial Loss Mitigation Guidance for Loan Participations, June 24, 2011, at 1. 5. FDIC Risk Sharing Asset Management Guidance RSAM-2011-15, FDIC Commercial Loss Mitigation Guidance for Loan Participations, June 24, 2011, at 1. 6. Syndicated Loan, ENCYCLOPEDIA- BUSINESS TERMS, INC.COM, www. inc.com/encyclopedia/syndicated-loans.html (last visited Oct. 18, 2012). 7. Katerina Simons, Why Do Banks Syndicate Loans? NEW ENGLAND ECONOMIC REVIEW, Jan.-Feb. 1993, at 46. 8. Katerina Simons, Why Do Banks Syndicate Loans? NEW ENGLAND ECONOMIC REVIEW, Jan.-Feb. 1993, at 46. 9. Keith Mullen, Understanding Differences Between a Syndicated Loan & Participated Loan is Crucial When it Turns Bad, LENDERS 360- WINSTEAD ATTORNEYS, Mar. 7, 2010. 10. FDIC Risk Sharing Asset Management Guidance RSAM-2011-15, FDIC Commercial Loss Mitigation Guidance for Loan Participations, June 24, 2011, at 1. 11. Standard & Poor’s, A Guide to the Loan Market, Sept. 2011, at 9. 12. Standard & Poor’s, A Guide to the Loan Market, Sept. 2011, at 9. 13. Katerina Simons, Why Do Banks Syndicate Loans? NEW ENGLAND ECONOMIC REVIEW, Jan.-Feb. 1993, at 46-47. 14. Allison Bisbey, Smaller Banks Get Chance to Break into Loan Syndicate, AMERICAN BANKER, Feb. 16, 2012, at 2. 15. Rachel Witkowski, Small Banks Slowly Reconsidering Loan Participations, AMERICAN BANKER, Mar. 15, 2012. 16. Rachel Witkowski, Small Banks Slowly Reconsidering Loan Participations, AMERICAN BANKER, Mar. 15, 2012. 17. Allison Bisbey, Smaller Banks Get Chance to Break into Loan Syndicate, AMERICAN BANKER, Feb. 16, 2012. 18. Allison Bisbey, Smaller Banks Get Chance to Break into Loan Syndicate, AMERICAN BANKER, Feb. 16, 2012, at 1, quoting Brian Sterling, co-head of investment banking at Sandler O’Neill.
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The Mystery of Bankcard Interchange
By: Clint Lucas Managing Partner Terrapin Financial Services, LLC (TFS)
I
t is Monday, Oct. 29, 2012, at 9:15 p.m. in New Freeof local economies all over this country. They rely on their dom, Pa (southern York County). Hurricane Sandy community banking partners to provide support, including is raging outside my kitchen window, and we lost funding, depository and other operational services, investpower about an hour ago. So, no Monday Night ment services, and business and personal financial advice. Football tonight, no Internet, no office work, back to the 19th century for at least 24 hours. I am writOften, this relationship includes merchant processing sering this with a pencil and paper using candlelight. vices, as it should in most cases. If you are a community My wife tells me that Anderbank and do not have a solid son Cooper said on “Andermerchant processing partner son Live!” that candles are (i.e., a growing, robust portas a general rule, merchant a fire hazard during storms. folio), you are susceptible to processors, in most cases, will I gingerly suggested that I relationship attrition. In case do not care what Anderson you have not noticed, the over promise and under deliver. thinks, about that or anything large national and super-reelse. My biggest fear is that gional banks lead with merthe 100-year-old red oak in my backyard does not fall on chant services. They use merchant processing as an account my house. Anyway, I have been meaning to complete this (operating or lending) acquisition tool. article for a couple months now, and it will happen tonight, God willing. I wish the best to our PACB member banks The merchant processing business is highly fragmented. during this historical weather event. Processors use many techniques to secure accounts, including the infamous telemarketing approach, street walking, In previous articles, I have alluded to the importance of networking groups, hardware/software affiliations, asso“Main Street Merchants” to community banks. These are ciations, buying groups, and lastly, but most importantly to the community-based businesses that form the backbone TFS, community-based financial institutions. As a general 14 | Transactions | www.pacb.org
rule, merchant processors, in most cases, will over promise and under deliver. One MAJOR issue on the minds of businesses accepting credit/debit cards is cost. This discussion is designed to explain this phenomenon in laymen’s terms, if possible. It is an important issue to all businesses these days. Oh, I just let my Chihuahua, Romeo, out to go to the bathroom, and he almost blew away. CREDIT CARD INTERCHANGE Processing merchant transactions primarily involves three parties: 1) the Associations (Visa, MasterCard, Discover, and American Express), 2) the financial institutions who issue the cards and earn a percentage of the income on their use (PACB Member Banks), and 3) the processors (such as TFS). The Associations, dominated by Visa, make the rules and set the pricing. This pricing, referred to as Interchange, is published every April and October. The published interchange is ALL processors’ base cost for routing merchant transactions. The folks at the Associations who designed the interchange tables may have previously worked at the IRS, because credit card interchange and the Federal Tax Code have much in common. Some terms that come to mind for both are “compli-
trying to simplify the system (just kidding), has 268. Visa and MasterCard jointly account for approximately 90 percent of branded credit/debit cards. Discover, American Express, and a few others account for the remaining 10 percent. For discussion purposes here, they are not important, though they both hold important niches in the card payment industry. MERCHANT PROCESSING PRICING SCHEMES Merchant processors primarily employ three pricing schemes, “fixed,” “tiered, aka blended,” and “pass through interchange plus.” The pass through plus method is by far the most advantageous for merchants. Fixed rates have not been used much until recently for mobile card acceptance applications (as seen on the Square and Intuit TV commercials). Fixed rates are easy to understand, and thus have great appeal from that regard. The problem with fixed rates is that they are typically much higher than the published rate on any particular card. The merchant pays a stiff premium without realizing that fact. Tiered/blended rates remain the predominant pricing method of most processors. A merchant will pay a “Qualified” rate on each card accepted. Qualified applies to standard debit/credit cards, or those with no benefits going back to
Its basis as the most competitive pricing structure
in the industry is undeniable cated,” “jibberish,” and “in need of reform.” For merchants, Interchange is essentially indecipherable. Complicating this fact are the predatory practices of many merchant processors who compound the confusion. We are constantly asked how much accepting credit/debit cards will cost a business. The honest answer depends on the mix of cards accepted for that particular month, as explained in the following paragraphs. The Association’s (i.e., Visa’s) goal is to make credit card usage so convenient and advantageous to the cardholder (you and me), that we use our card at every opportunity. Visa in particular has done a masterful job of market segmentation. Benefits such as airline miles, Disney Points, hotel stays, and cash back are just a few of the options. The problem is that the value proposition for each cardholder is not the same. My wife loves to get points by using her Chico’s Card, which does not appeal to me in any way. I may value points at Cabelas, Bass Pro Shops, GolfSmith, Chevrolet, Ford, etc. Thus, many types of rewards and affinity programs exist to cover virtually every need, for consumers, businesses, and Government entities. The result of this is a highly convoluted set of interchange rates. By the way, the interchange rates are public information, and Visa’s can be found at www.visa.com. Click on “Merchants” and then type “Interchange” in the search bar. Visa alone has 288 separate and distinct interchange rates. MasterCard, in
the cardholder (a very small percentage of credit cards on the street have no rewards these days). Keyed cards, or Card Not Present (CNP) transactions, will receive a “Mid-Qualified” rate. Rewards, business, and government cards will receive a “Non-Qualified” rate. A typical tiered scheme is 1.75 percent Qualified, 2.50 percent Mid-Qualified, and 3.50 percent Non-Qualified. This concept is relatively easy for a merchant to understand. However, like the fixed scheme, a stiff premium still exists. Also, no explainable methodology exists for how cards are classified into each of the three classes. The rules for downgraded transactions are all over the map, depending on processor. The Pass Through Plus methodology applies the published and verifiable cost to each card type accepted by the merchant, and a small, fixed margin is then added to each transaction. For instance, the published rate on a Regulated (Durbin) Debit Card is 0.05 percent plus a 22 cent authorization fee. If this same merchant is priced at Pass Through Plus 0.30 percent (30 basis points), then the total cost for that card is 0.35 percent plus 22 cent authorization fee. A typical fixed rate for this card would be in the 2.75 percent plus 30 cent range, and blended would be 1.75 percent plus 30 cents. It is easy to see the advantages of Pass Through Plus pricing in this instance. The main advantages of the Pass Through Plus pricing www.pacb.org | Transactions | 15
methodology are outlined below: • Each card accepted has a published, verifiable cost (no “smoke and mirrors”) • Merchants take full advantage of the pricing afforded by the Durbin Amendment • Card mix can be readily identified on each monthly statement • Trends in card acceptance, which can increase costs, can be quickly identified and remedied • Margins on EVERY card accepted remain static and constant • Overall costs are most competitive CONCLUSIONS Though credit/debit interchange is a challenge to understand, its basis as the most competitive pricing structure in the industry is undeniable. TFS uses this methodology almost exclusively, and it promotes a level of trust between us, our merchants, and our community bank partners. Hopefully, the Associations will simplify the interchange tables and make this pricing methodology even more advantageous. It is now 2 a.m. on Oct. 30, my house and oak tree remain standing, but still no power. The eye is passing directly over York County now, and the winds are brutal. Hope everyone associated with the PACB fared well with this storm. See you in Boston in September 2013!
Clint is co-owner and Managing Partner of Terrapin Financial Services, LLC. For nine years (1997 – 2006) Clint managed Financial Institution Sales for Mellon Network Services (MNS) and Fifth Third Bank Processing Solutions. During his time at Mellon and Fifth Third, he won numerous sales and service awards. Prior to joining MNS, Clint managed Large Corporate Commercial Banking Sales for First National Bank of Maryland. In his eight years at FNB MD, he contributed to consistent double-digit growth of both loan activity and service business with Fortune 500 clients. Clint started his banking career managing insolvent financial institutions under contract with the FSLIC Insurance Division. Clint holds an MBA in Marketing and Finance from the University of Maryland (Beta Gamma Sigma and Phi Kappa Phi Honor Societies), a B.S. in Computer Science from the University of Pittsburgh, and a B.S. in Mineral Engineering from the Pennsylvania State University.
“At PeoplesBank, our clients expect and deserve the best possible service we can provide and we expect the same when choosing our business partners. Terrapin has not disappointed us! They have helped us to significantly enhance our relationships with our clients, while at the same time improving the profitability of our merchant program. They have also always responded to the “urgent” needs of our clients. We are extremely pleased and proud to partner with Terrapin.”
Larry J. Miller President and CEO PeoplesBank, A Codorus Valley Company York, Pennsylvania
888-588-5757 • 32 McCurley Drive • New Freedom, Pennsylvania 17349 • www.terrapinfinancial.com
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ICBA’s Fine Recognized on The Hill’s List of “Top Lobbyists”
Fine’s job is to make sure new regulations don’t damage smaller community lenders
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ashington, D.C. (Oct. 31, 2012)— Camden R. Fine, president and CEO of the Independent Community Bankers of America (ICBA), the nation’s voice for community banks, was named a top lobbyist by The Hill on its annual list of the most influential advocacy leaders. Fine has been named to the list every year since 2008. The story, released by The Hill today, says “it is Fine’s job to make sure the new regulations don’t end up damaging smaller community lenders.” “As a former community banker, and one who now has the privilege of advocating for the nation’s more than 7,000 community banks, I’m deeply honored to be named by The Hill as a top lobbyist on behalf of the community banking industry,” Fine said. “ICBA has a top-notch staff and we never let up when it comes to advocating for our members. ICBA makes sure Washington policymakers know that community banks are a vital part of America’s economic system and that they work overtime to serve their customers and communities. My job is to continue to spread that message and ensure that community banks have a bright future. It’s a mission I couldn’t be more proud of and am passionate about fulfilling.” Fine joined ICBA in May 2003 and was named president and CEO in 2004. A native Missourian, Fine previously chartered and organized Midwest Independent Bank in Jefferson City, Mo., and served as its president and CEO
for nearly 20 years. In addition, he owned Mainstreet Bank of Ashland, Mo., a $45 million-asset community bank in central Missouri. An active member of ICBA prior to becoming the association’s president and CEO, Fine served on the ICBA Bancard board, several ICBA standing committees and the association’s board of directors. Fine is currently leading the charge on a host of issues critical to the community banking sector including advocating for a community bank exemption from the proposed Basel III regulatory capital standards and for an extension of the Federal Deposit Insurance Corp.’s (FDIC) Transaction Account Guarantee (TAG) program, while also working to ensure that community banks are not hindered by burdensome mortgage rules and regulations. The Independent Community Bankers of America®, the nation’s voice for more than 7,000 community banks of all sizes and charter types, is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education and high-quality products and services. For more information, visit www.icba.org.
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THREE BANKING BILLS BECOME LAW
MODERNIZATION IN PENNSYLVANIA By: Reginald S. Evans, Esq. Shumaker Williams, P.C.
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n Oct. 24, 2012, three banking modernization legislative bills, passed by the Pennsylvania General Assembly, were signed into law by Governor Corbett to become Pennsylvania Acts 170, 171, and 172 of 2012. These new laws become effective on or about Dec. 24, 2012. The three new laws, respectively, modernize the Pennsylvania Banking Code, Department of Banking and Securities Code, and the Loan Interest and Protection Law. Act 170 of 2012 – Amendments to the Banking Code. Act 170 modernizes the Banking Code by simplifying and modernizing the loan rules and application requirements for 18 | Transactions | www.pacb.org
various banking activities engaged in by Pennsylvania statechartered banking institutions, including trust companies. The modernizations include but are not limited to the following: 1. 2. 3.
Confirms that federal savings banks may act as fiduciaries in Pennsylvania. Eliminates the former requirement for investors to file an application with the Department for authority to invest above a certain threshold in national banks. Raises the amount of Other Real Estate Owned (OREO) property allowed to be held by a bank without prior approval from the Department from 25 percent to a new higher threshold of 100 percent of capital, surplus, undivided profits, and capital securities of a stock bank (or subordinated securities in the case of a mutual savings bank).
4.
Removes corporate seal requirement on bank contract documents. 5. Vastly simplifies general lending rules by removing outdated requirements and simply stating lending requirements across the board. 6. Codifies the most favored lender doctrine to allow Pennsylvania state-chartered banks a level playing field in the form of access to loan rules available to other in-state and out-of-state lenders. 7. Codifies the requirement for banks to comply with RESPA, TILA, ECOA, and other federal loan disclosure and related requirements. 8. Requires written disclosures and loan agreements to be given to the loan customer. 9. Minimum capital requirements become completely discretionary to the Department of Banking and the old minimums are repealed. 10. Regarding cash dividends, allows transfer of accumulated net earnings to surplus of a merged institution - that has been acquired through such merger - if done within seven years of the date of merger. 11. Annual audit of banks is formally required to be done by certified public accountants. 12. Allows credit unions to convert to mutual savings banks. 13. Allows stock savings banks to convert to bank and trust companies and vice versa. 14. Removes the prohibition on banks acquiring savings banks. 15. Requires standard of care of bank directors to conform to the same standard as is applicable to all Pennsylvania corporations pursuant to the Pennsylvania Business Corporation Law. 16. Moves authority for Department of Banking to examine affiliates of state-chartered banks from the Banking Code to the Department of Banking Code. 17. Provides that legal holidays listed in the Banking Code are no longer applicable to national banks. 18. Continues to allow licensed installment sellers to facilitate car loans by banking institutions. Act 171 of 2012 – Amendments to the Department of Banking Code. Act 171 modernizes the Department of Banking and Securities Code which contains rules by which the Department of Banking and Securities may conduct its regulatory and enforcement activities. The new rules add to and clarify the enforcement authority of the Department. Pursuant to the amendments, the Department may: issue orders, assess examination fees against licensees, disclose the existence and terms of an order against a banking institution, impose civil money penalties against a bank or its officers for violations of law or orders relating to unsafe and unsound practices. The Pennsylvania Attorney General is provided authority to enforce the federal Consumer Financial Protection Bureau Act against banks but only with the approval of the Department of Banking, and provides the Department with visitorial powers.
Act 172 of 2012 – Amendments to the Loan Interest and Protection Law (Usury Law). Act 172 modernizes Pennsylvania’s usury law, known as the Loan Interest and Protection Law. The new rules specifically allow banks, bank and trust companies, and adds that savings banks may also charge interest up to the maximum allowed on a most favored lender basis as authorized by the Banking Code or other applicable federal or state law. The amendments also remove disclosure language regarding variable mortgage interest rates that is inconsistent with federal loan disclosure law requirements such as TILA and RESPA. Mr. Evans’ practice includes representation of banks, savings associations, holding companies, and nondepository mortgage lenders and brokers, regarding regulatory compliance, licensing, and enforcement issues under federal and state law, charter conversions, mergers and acquisitions, and intellectual property. Mr. Evans served as chief counsel to the Pennsylvania Department of Banking from 1995 to 2003.
Wishing all of our colleagues and friends a healthy and prosperous Holiday Season!
www.shumakerwilliams.com
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It’s a Mad, Mad, Mad, Mad Election By: Tim Arthun
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he advertisements have stopped running, the phones have stopped ringing, and only a few campaign signs remain scattered along highways and roadways. After all of the excitement and frustration that was the 2012 Election, the dust has settled and the government is preparing to go back to doing the work of the people. Immediately following the election many political neophytes and seasoned pundits asked the same question; what, if anything, changes? It’s a little premature to see what policy initiatives will be rolled out as that will likely wait until the next year, but what we can see is that the composition of the elected federal and state legislature is only slightly different than it was a matter of weeks ago. Election Results
An area disconcerting for the Community Banking industry was the election of Elizabeth Warren for the US Senate seat in Massachusetts. Warren has long been a critic of banks and a champion for consumer protection organizations. It remains to be seen whether she will secure a spot on what is likely to be her preferred committee: Banking, Housing, and Urban Affairs Committee. So what happens next? President Obama has been careful not to show his hand as everyone tries to guess whether he will use his second term to work from the middle of the political spectrum or appease the more liberal wing of his party and pursue their preferred policy objectives. A few things are clear with the gridlock remaining strong in Washington.
Not a whole lot has changed down in Washington D.C. It is unlikely for the Patient Protection and Affordable Care Act (PPACA) to be repealed with regard to the political or significantly overhauled landscape. President Barack as the leadership remains enObama was re-elected, havthe dust has settled and the on both sides. Had ing won 6 of 8 “battleground government is preparing to go back trenched Republicans been successful states”, the Senate Demoin either retaking the Senate crats retained control of to doing the work of the people. or Presidency it would have the Senate, picking up two been a very real considernew seats with one each in ation, but the dream of the bill’s opponents will have to wait Maine and Missouri, and the House Republicans retained control of the House with a significant, though slightly until the next go around, at the earliest. diminished, majority. For all of the huffing and puffing There has been much speculation about Dodd-Frank beand gossip about leadership shakeups, those elected to leadership by their respective caucuses won based on the ing rolled back now that the effects are becoming less blessing of the party bosses. jumbled and more tangible. While the President looks to undertake substantial financial initiatives, chief among Senator Bob Casey successfully defended his seat from Re- them Tax Reform, revisions to Dodd-Frank will likely republican challenger Tom Smith. Casey, who was criticized main a low priority. Still, the situation is not entirely dire from many in his party for failing to run a strong campaign, as members of both parties have expressed concern over kicked into high gear the last few months and convinced the current format and are looking for a fix to the issue. supporters to send him back to the Senate for a second term. Reform of the Government Sponsored Entities (GSEs) Here in the Commonwealth, three new members will join will also likely take a back seat for this session. Perhaps the Pennsylvania Congressional delegation. Republicans Scott Perry and Keith Rothfus, and Democrat Matthew because it isn’t seen as juicy enough to be talked about Cartwright, will journey down to Washington for the first in the media, or perhaps because everyone is cautious to time. All other incumbents up for re-election were successfix the mortgage market, it is an issue that will get little ful in their bids due in part to a weak field of challengers, play time as members focus more on initiatives such as a long term Farm Bill, Tax Reform, and local interests. with a few exceptions. 20 | Transactions | www.pacb.org
The Financial Services industry is waiting with bated breath to see who will succeed Treasury Secretary Timothy Geithner. Geithner has said he will not stay on for a second term and a growing list has developed of possible replacements. Leading candidates for the job are as diverse as Jacob Lew, Erskine Bowles, Larry Fink, and Sheila Bair. The former FDIC Chair is highly unlikely given her criticism of the Administration but has not stopped pundits from throwing her name into the mix. State Row Office Elections at the state level provided few shakeups in the legislature but a world turned upside down for the row office positions. Some political talking heads surmised that the clean sweep by Democratic candidates for state row offices was a midterm referendum on Governor Corbett’s performance thus far, while others credit the victory to the coattails of the President being up for re-election. The most closely watched race was for attorney general in
state’s top fiscal watchdog. Both candidates, members of the General Assembly in Pennsylvania, received recognition and accolades across the state for their records to government openness and transparency. Maher had the distinction of being “the only Auditor running for the office” but the message failed to sway enough independents and democrats to his side. He was a CPA by trade, prior to his election to the State House. Rob McCord, current State Treasurer, was successful in his reelection bid over challenger Diana Irey Vaughan. The race flew under the radar for much of the election season and nearly mimicked the results of the Presidential race in the state. Both parties were relying on their top ticket candidate to spur turnout and deliver down ticket races such as the State Treasurer position. McCord did appear on television in a few markets spotlighting his first term accomplishments. State House Year after year there are gripes and complaints about incumbents being in office too long and the need for new
It’s a little premature to see what
policy initiatives will be rolled out which Democrat Kathleen Kane ran away with the win over Republican Dave Freed. Kane was helped with name recognition following a brutal primary fight against former Congressman Patrick Murphy as she had introduced herself to all voters with several television ads in just about all media markets. Polls for the race had Kane leading Freed the whole way through the election cycle. One of Kane’s main messages was her promise of a thorough review of then Attorney General Corbett’s handling of the PSU scandal. In Center County, home to PSU Main Campus and a slightly leaning democratic county, Kane outperformed the President by 7.2 percentage points proving her message resonated well with voters in both parties. Kane’s victory was an historical event as it marked the first time a democrat will hold the position as an elected official and the first time a female won the elected position. (Current AG Linda Kelly was appointed by Governor Tom Corbett.) The Auditor General will continue to have Democratic leadership as Eugene DePasquale edged out John Maher to be the
blood. This election proved that while they may not be happy with incumbents on the whole, their representative isn’t the problem, it’s everyone else’s. Yes, the old “I like my guy but not your guy” was key in seeing only a handful of seats switch parties. That, added to the defeats in the spring primary, means that the composition of the House will have several new members but nothing new on the aggregate. Many races focused on rematches from two years ago such as Rep. Rick Saccone vs. Dave Levdansky and Rep. Peter Daley vs. Richard Massafra out West, and Rep. Warren Kampf vs. former Rep. Paul Drucker in the Southeast. The only State House incumbent to fall on election day was Rep. Tom Quigley (Montgomery County) bringing the year total of incumbents defeated in primary and general election races to 6. Republican Richard Geist and Democrats Babette Josephs, Joseph Preston, Ken Smith, and Kevin Murphy were defeated earlier this year.
ELECTION RESULTS RACE
REPUBLICAN
DEMOCRAT
MARGIN OF VICTORY
President
Mitt Romney
Barack Obama
5.3 D
US Senate
Tom Smith
Bob Casey
8.7 D
Attorney General
David Freed
Kathleen Kane
14.5 D
Auditor General
John Maher
Eugene DePasquale
3.0 D
State Treasurer
Diana Irey Vaughn
Rob McCord
7.9 D www.pacb.org | Transactions | 21
balance of power
* - Three US House seats have not yet been called as of November 24, 2012. State Senate
* - The two Independent Senators have stated they will be caucusing with the Democrats
Data from Pennsylvania Department of State – Unofficial Election results Data from CNN 2012 Election Center 2 1
Senate Democrats were feeling pretty good on Nov. 7 with the pickup of three new Senate seats: Erie County, Allegheny County, and Dauphin County. The three-seat swing, all of which were previously held by Republicans, brings the composition of the Senate down to a +4 Republican margin (27 Republicans to 23 Democrats). The gains by Democrats signify the largest gain by either party since 1994 when Republicans gained 4 seats. The last time the Democrats experienced such a gain was 1970. 22 | Transactions | www.pacb.org
If you want to know more about the comings and goings in the PA Legislature or Congress, please feel free to call or e-mail me at 717-231-7447 or tim@pacb.org.
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(800) 537-5427 www.pacb.org | Transactions | 23
Lending Compliance: 6 New Flood Insurance Rules Lenders Need to Know
By: Anthony Dandola ICS Risk Advisors
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Overview
n July 6, 2012, the President signed into law the Moving Ahead for Progress in the 21st Century Act, also known as “MAP-21.” The bill largely concerns transportation programs but “Division F – Miscellaneous” of the law covers several areas not related to transportation, including changes to the National Flood Insurance Program (NFIP). The flood insurance subtitle – known as the BiggertWaters Flood Insurance Reform Act of 2012 – extends NFIP through September 30, 2017 and significantly changes the cost structure and lender obligations. Cost is the primary reason for the flood insurance program overhaul. The federal government subsidizes NFIP because the premiums paid by flood insurance policy holders are not sufficient to cover claims and operating expenses. For several years the program has been allowed to lapse, only to be reauthorized for short periods of time without addressing the core concern of federal subsidies. Biggert-Waters significantly alters the manner in which NFIP, administered by the Federal Emergency Management Agency (FEMA), operates. The law changes how NFIP premium rates are set, permits annual premium increases of up to 20 percent, and encourages the use of private flood insurance as an alternative to the federal program. It also establishes a Technical Mapping Advisory Council to provide recommendations to FEMA about how to consider the impact of sea-level rise in Flood Insurance Rate Maps (FIRM), and allows FEMA to update the maps to include data on flood hazards caused by land-use changes. Modified flood maps may expand the size of flood hazard areas and encompass previously exempt properties. Several studies of other possible program changes are also required. The preceding changes will primarily impact the cost of 24 | Transactions | www.pacb.org
flood insurance for borrowers, but there are also provisions that directly impact lenders. Disclosure procedures must be modified and operations enhanced to avoid the substantially higher civil money penalties for failing to assure that loan collateral located in flood-prone areas is adequately insured. The following are the six major elements of the legislation (with the related section numbers) that affect lenders: 1. Increased Civil Money Penalties (Section 100208): Originally, civil money penalties were set at $350 for each violation with a maximum penalty of $100,000 per calendar year, and subsequent legislation applied an inflation adjustment to the penalties. Biggert-Waters increased the base penalty from $350 to $2,000 per violation (also to be periodically adjusted for inflation), and the maximum penalty per calendar year has been eliminated. The new penalties became effective when the Biggert-Waters was signed into law. 2. Levels of Flood Insurance Coverage (Section 100204): While the current maximum NFIP coverage of $250,000 for 1-4 family residential buildings and $500,000 for commercial buildings has not changed, effective immediately the maximum insurance available for multi-family dwellings (five or more residential units in a single building) has been increased to $500,000. 3. Disclosure of the Availability of Flood Insurance (Section 100222): In connection with any loan subject to the Real Estate Settlement Procedures Act (RESPA), regardless of property location or flood hazard, lenders must provide borrowers with a notice (as part of the RESPA disclosures) that flood insurance is available through the federal program or a private insurance company. The notice shall encourage borrowers to compare the flood insurance coverage, deductibles, exclusions, conditions, and premiums of a NFIP policy with terms available under a private insurance policy.
RESPA covers “federally-related mortgage loans,” which are generally defined as loans secured by 1-4 family residential real estate. While the legislation does not provide an effective date for this requirement, it appears that the Consumer Financial Protection Bureau, which is responsible for the regulations that implement RESPA, will need to modify RESPA disclosures to include the notice. 4. Private Flood Insurance (Section 100239): As an alternative to the federal program, flood insurance policies issued by insurance companies that provide the same coverage as is available under NFIP, and which satisfy the requirements of Fannie Mae and Freddie Mac, must be accepted by lenders. Borrowers that are required to carry flood insurance must be provided a notice that flood insurance is available through the federal program or a private insurance company. The notice shall encourage borrowers to compare the flood insurance coverage, deductibles, exclusions, conditions, and premiums of a NFIP policy with terms available under a private insurance policy. Note that a notice provided to borrowers with RESPA disclosures appears to satisfy this requirement. This change is effective immediately. 5. Force-placed Flood Insurance (Section 100244): While the notice requirements to borrowers who fail to maintain flood insurance coverage have not been changed, lenders must determine when existing coverage actually lapses. Biggert-Waters requires lenders to refund forceplaced insurance premiums and fees paid by a borrower for any period when the borrower’s policy was in effect. To avoid reimbursements for the cost of excess flood insurance coverage when a force-placed policy may be needed, a lender must determine when the existing policy will lapse, rather than the common practice of considering the date of a non-payment notice from an insurer to be the date of lapse. If a borrower subsequently purchases a policy to replace force-placed flood insurance, the lender is required to accept an insurance policy declarations page that includes the flood insurance policy number and insurance company contact information as proof of insurance. This provision is effective immediately. 6. Flood Insurance Premium Escrow Requirements (Section 100209): The law generally requires that each federal regulator, in coordination with other Federal Financial Institutions Examination Council (FFIEC) members, implement regulations requiring the institutions it supervises to collect flood insurance premiums in escrow for all new and existing loans secured by real estate and mobile homes located in a flood hazard area. This escrow account requirement will be effective on July 7, 2014, which is two years after the enactment of Biggert-Waters. There is a narrow exception provided for a regulated institution that had total assets of less than $1 billion on or before July 6, 2012, was not previously required to collect flood insurance premiums in escrow for residential real estate and mobile home loans, and did not have a policy of uniformly requiring borrowers to deposit property taxes or other charges in an escrow account.
Action Plan 1. A review of existing multi-family loans is required to comply with the higher level of insurance available for multi-family buildings (increased from $250,000 to $500,000). If the current level of insurance is not adequate, the lender must notify the borrower and take the necessary steps to obtain adequate flood insurance coverage. 2. When a subject property is located in a flood hazard area, the law requires notice to new borrowers that a private flood insurance policy may be considered as an alternative to a NFIP policy. It is unclear whether the notice must be made using a specific form, or whether use of the language contained in Section 100239 of Biggert-Waters is sufficient. Similarly, for loans subject to RESPA, the law requires notice to all borrowers regarding the availability of flood insurance through NFIP or private insurers. But such a notice may require changes to the RESPA implementing regulations. 3. Lenders will need to change the procedure used for obtaining a policy since borrowers now have the option of selecting private flood insurance. Typically, lenders request mandatory flood insurance through NFIP with no input from the borrower, but the provision for insurer selection by the borrower will require a different approach. 4. Force-placed insurance procedures must be amended immediately to avoid any overlap of coverage between a policy obtained by a borrower and a forceplaced policy obtained by a lender and charged to a borrower. Lenders must reimburse any force-placed flood insurance premiums for periods already covered by a borrower’s flood policy. References For more information, please review the bill, that was signed into law, at the following web address: http://www.gpo.gov/fdsys/ pkg/BILLS-112hr4348enr/pdf/BILLS-112hr4348enr.pdf Anthony brings more than 30 years of banking experience to ICS Risk Advisors. His expertise covers all areas of consumer compliance and banking operations. Anthony provides ICS Compliance Managers with legal research and opinion concerning complex regulatory questions. He holds a Certified Regulatory Compliance Manager (CRCM) designation and conducts training for others in preparation for the CRCM exam. Anthony is the editor of the ICS Risk Advisors Regulatory Compliance Weekly Update distributed to clients and writes extensively on the latest compliance topics that impact ICS clients.
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A Second Term: Stay the Course or Another Route? By: Jack Sherzer Guest Author
Photo by: Christopher Dilts for Obama for America 26 | Transactions | www.pacb.org
In the end, that’s what this election is about. Do we participate in a politics of cynicism or a politics of hope? - Barack Obama
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Photo by: Christopher Dilts for Obama for America
On every front there are clear answers out there that can make this country stronger, but we’re going to break through the fear and the frustration people are feeling. Our job is to make sure that even as we make progress, that we are also giving people a sense of hope and vision for the future. - Barack Obama
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Americans still believe in an America where anything’s possible - they just don’t think their leaders do. - Barack Obama
Photo by: Christopher Dilts for Obama for America
A
s far as much of the public was concerned, the presidential election centered on debates about job creation, tax rates, health care, and measures to prevent another financial meltdown. Bandied about in the swirl of political arguments were phrases like “too big to fail,’’ exhortations to reign in the “big banks’’ and much talk about “Main Street versus Wall Street.’’
Recently, community bankers saw a bright spot when they and advocates such as the Pennsylvania Association of Community Bankers and the Independent Community Bankers of America convinced federal banking regulators to delay implementing Basel III requirements that would have forced banks to increase minimum levels of required capital and hurt the ability of smaller banks to lend. But at the moment it’s only a temporary reprieve.
Too many times, community bankers found they were lumped in with the general banking system and faced rhetoric that didn’t distinguish between them and multibillion dollar institutions. Worse, legislation coming out of Congress either didn’t appear to be making the distinction or set broad guidelines and left it up to regulators to pen in the details.
“I think community banks have been hurt, primarily from the perspective that the regulatory environment under President Obama has gotten so stringent,’’ said Nick DiFrancesco, president and CEO of the Pennsylvania Association of Community Bankers. “I think most of that was focused on Wall Street, but a lot of that fell to community banks, which have a lot less staff to keep up with the barrage of regula-
So, what lies ahead and While President Barack how may the recent election too many times, community Obama in the past year acimpact community banks? knowledged the important bankers found they were lumped in Though there are no clearrole community banks play cut answers, various Pennwith the general banking system. sylvania community bankers with small business development, under his administrasay the industry will have tion small banks found themto work harder than ever to selves facing the threat of overwhelming regulation. And keep addressing concerns with not only Basel III, but with though Gov. Mitt Romney vowed to repeal Dodd-Frank, Dodd-Frank and the budding Consumer Financial Proteche was quick to say during the Oct. 3 debate that “we’re tion Agency that it empowered. Regulations yet to be writnot going to get rid of all regulation.’’ He also backed new ten concerning the residential mortgage market, the fees mortgage standards, leaving unanswered how community banks can charge for services, and the compliance cost of banks may have been treated had he won election. these new regulations are among key concerns.
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tions that have come from this administration.” “What I’m hopeful for is that through the lobbying efforts of the [Independent Community Bankers of America] and PACB, the administration will be more responsive to the fact that community banks are different from Wall Street banks, and are worth protecting and not have this onesize fits all regulatory approach,’’ DiFrancesco said. “They have to take into consideration that community bankers didn’t operate in the same risky manner and don’t deserve to have the same stringent regulatory enforcement that’s been forced on them.’’ Just the cost of complying with new regulations could have a huge impact on the community banking industry. A survey released in early November of community bankers by accounting firm KPMG LLP found that 57 percent said they expected their bank would be involved in a merger or acquisition primarily driven by the need to better handle regulatory costs. Additionally, 37 percent of the bankers felt that Basel III requirements would force them to raise additional capital and 29 percent said at the time they were still analyzing the potential impact. “You’re talking about half of the community banks in the country needing to go out and raise capital, so that would
terchange fees, or amount banks can charge merchants when customers use a debit card, as setting a disturbing tone. “I think that’s a terrible policy and I think the marketplace should set fees, but that’s not the majority view,’’ Toomey said. Community bankers will also have to be watchful for what comes up regarding GSE reform, or how government backed entities such as Fannie Mae, Freddie Mac, and Ginnie Mae can handle mortgage products and other regulations involving that market, he said. “Small banks getting hit with this new avalanche of regulations may find it impossible to afford [and be forced to consolidate with other banks],’’ Toomey said, adding that he’s concerned such activity could weaken access to credit and impede the economy. “To think that excessive government regulations will cause a wave of consolidations is a terrible thing to happen and I am very concerned.’’ Winthrop Watson, president and CEO of FHLBank Pittsburgh sounded a hopeful note that the concerns of community banks regarding Basel III and Dodd-Frank will be heard in Washington. “There is still a lot of debate,’’ Watson said. “It appears that senior members of the various regulatory agencies
Community banks really are
the engine of the economy be a staggering impact,’’ said John Depman, national leader of Regional and Community Banking for KPMG. “The concern is that if that many banks would need to raise capital, the cost of capital would be very high.’’ U.S. Sen. Pat Toomey, R-Pennsylvania, who sits on the Senate’s Banking, Housing and Urban Affairs Committee, said the possibility of community bank consolidation as an unintended consequence of additional regulations is also of concern to him and that he sees tough regulatory fights ahead for the industry. “I’m very very concerned and very actively engaged in this, because I think the combination of Dodd-Frank and the attitude of regulators and various other factors are going to be problematic for community bankers if we don’t push back,’’ said Toomey, who got 53 other senators to join him in a letter asking that Basel III requirements be delayed. Getting community banks exempted from the additional capital requirements remains a priority, he said. Toomey said he’s hopeful that with the election over that politics can take a backseat to policies and that Democratic lawmakers and the Obama administration will acknowledge issues with Dodd-Frank and work in a bipartisan fashion to ensure smaller banks are not hurt. But he pointed to the Durbin Amendment to Dodd-Frank, which lowered the in30 | Transactions | www.pacb.org
are certainly expressing that they are going to listen carefully to community banks and we certainly hope that is the case; we think it’s important that community banks keep reaching out. We hear from the people on Capitol Hill that they really do listen and do want to hear the impact from various participants in the industry; we applaud the activities that PACB has undertaken and encourage them to continue.’’ Peter Knight, FHLBank’s director of government relations, said he realizes that community bankers are likely feeling exhausted from the battles that have already taken place, but that it’s more important than ever to stay engaged. “There is a constant need to be with legislators, to tell them positive stories about the impact community banks have in their communities and how they would be hurt by some of these overly reactive regulations,’’ Knight said. “If the economy doesn’t get going again then everything is going to be that much more difficult, and community banks really are the engine of the economy.’’ Concerns about excessive regulation are certainly not limited to community bankers. The National Association of Home Builders has expressed concerns that under DoddFrank regulations looking at a borrower’s ability to repay –
Nobody wants to put the creditworthiness of the United States in jeopardy. Nobody wants to see the United States default. So we’ve got to seize this moment, and we have to seize it soon. - Barack Obama
Photo by Christopher Dilts for Obama for America www.pacb.org | Transactions | 31
Photo by: Scout Tufankjian for Obama for America
There’s not a liberal America and a conservative America there’s the United States of America. - Barack Obama
as part of what is called a “qualified mortgage’’ – could hurt home builders as well as lenders. “A narrowly defined QM would put many of today’s sound loans and creditworthy borrowers into the non-QM market, which would undermine prospects for a housing recovery. Loans that fail to qualify as QMs would be less available and far costlier because lenders and investors would face a much greater risk of violating the terms of the new ability-to-repay requirement,’’ testified Rick Judson, NAHB first vice chairman and a Charlotte, N.C. builder before a House financial services subcommittee over the summer. “NAHB urges the Consumer Financial Protection Bureau and policymakers to consider the long-term ramifications of these rules on the market, and not to place unnecessary restrictions on the housing market based solely on today’s economic conditions.’’ Rory G. Ritrievi, president and CEO of Millersburg-based Mid Penn Bancorp, said there’s no question that over the 32 | Transactions | www.pacb.org
last four years he believes the Obama administration targeted banks with its rhetoric and actions without paying attention to the important distinction between community banks and investment banks. And though the administration has acknowledged the importance of community banks to small businesses, Ritrievi said so far he hasn’t seen anything from the administration to put community banks in a better position to help: “Dodd-Frank added cost, constrained income, and made it more difficult for us to do our job.’’ As did Toomey and other bankers, Ritrievi said he’s concerned about what regulations will also come out of the new Consumer Financial Protection Agency. Should the agency start limiting what can be charged for various banking services, it would further hurt small banks. Even if the agency tries to make pricing regulations only apply to larger institutions, the reality of the competitive industry is that all banks will have to follow suit. In a letter sent to Senate and House leaders in September,
the American Bankers Association pointed to what it said was the danger of trying to enact further price controls on the industry, and pointed to the Durbin Amendment setting interchange fees as an example. “More than two years after its enactment, the net effect of that amendment has been an increase in profits at big-box retailers, higher costs to small merchants, significant reductions in the revenue available to banks to serve local communities, and no sign of the lower retail prices consumers were promised.’’ Ritrievi, who took part in lobbying efforts against applying the Basel III capital requirements to community banks, said he, too, believes there will be consolidation in the banking industry and that it will be a challenge for small banks to survive. Consolidation is not necessarily a bad thing, he said, as long as true community banks remain. The fear is that rural areas would no longer have a community bank serving their needs if increased regulation means those institutions can no longer bring in enough revenue to survive. Bottom line, Ritrievi said, is that he hopes that all parties will be able to work together now that the election is over. “Barack Obama is the president of the country and we should all want him to have a successful administration; I certainly do. The better he does, the better the country does and we all do,’’ Ritrievi said. “The energy that was put into the election, I now hope that shifts to everyone pulling together figuring out how to get things done in a logical man-
Navigating a complex regulatory environment?
ner and in a way that will get our country back on track.’’ PACB Chairman Ronald B. Geib said he, too, sees the ongoing challenge as making sure community banks aren’t caught in the crossfire of regulations aimed at solving problems they didn’t create. “President Obama came into a very tough time in the economy and I think we experienced, as community bankers, getting caught up in the blame game involving investment banks that were involved in the subprime lending market and we were all painted with the same paintbrush,’’ said Geib, president and CEO of Harleysville Savings Bank. “Whether you were a big bank, a Wall Street bank or a small bank, you were a bank,’’ Geib said. “That’s where our trade group [reached out to lawmakers] to make them understand that the small banks are not part of the problem and we don’t have to be fixed. That’s been the challenge.’’ Jack Sherzer is a professional writer and principal partner with Message Prose LLC (www.messageprose.com), a communications and public relations firm in Harrisburg.
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www.pacb.org | Transactions | 33
Happiness doesn’t result from what we get, but from what we give. -Ben Carson
34 | Transactions | www.pacb.org
THE
Season of Giving
By: Natalie Bombatch
W
hether it may be the joy of pickfor Tots, whose mission is “to collect new, unwrapped toys ing out the perfect gift for some- during October, November, and December each year, and one we love, gathering together distribute these toys as Christmas gifts to less fortunate with family and friends, or hon- children in the community in which the campaign is conoring our religious beliefs, there ducted.” The primary goal of Toys for Tots is “to deliver, is something about this time of through a new toy at Christmas, a message of hope to less year that awakens in us the spirit fortunate youngsters that will assist them in becoming reof giving. During this season of giving, Integrity Bank sponsible, productive, patriotic citizens.” and New Tripoli Bank remind us all that counting James T. Gibson, President our blessings and giving to The primary goal of toys for tots and CEO of Integrity Bank, those less fortunate in the feels very strongly about is to deliver a message of hope community are what make supporting Toys for Tots. the holidays such a special He said, “One of the greatto less fortunate youngsters. time of year. As the weathest pleasures of Christmas er gets colder and the holiis giving to those who have days arrive, many families reach out for help to care for not been blessed as we have. You cannot compare the littheir children. To show their support for families in need tle that everyone gives, to the magnitude of the joy that a during the holiday season, Integrity Bank, based in Camp child experiences.” Hill, holds a Toys for Tots donation drive, and employees at New Tripoli Bank, based in New Tripoli, join forces Each year, Integrity Bank sets out collection boxes on the with the Christ’s Church at Lowhill Food Pantry. Friday after Thanksgiving to kick off the Toys for Tots campaign. “There are a lot of big sales for Black Friday Integrity Bank shopping. Starting the campaign at this time gives people a chance to purchase more gifts with less money. The more gifts we collect the more hope we can share with the Since opening in 2003, Integrity Bank has supported Toys
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children in our community.” explained Daphne Hudson, Marketing Specialist at Integrity Bank.
ery 15 or 45 seconds so I fill the signs with as many different Toys for Tots messages as I can.”
New, unwrapped toy donations are collected, typically for children up to the age of 12, until about two weeks before Christmas. At that time a person from the Marine Corps collects the boxes directly from the bank’s branches and corporate offices to be sorted and distributed to children in need. Jim Washington, Local Community Coordinator for Toys for Tots, said, “We get great support and a lot of toy donations to distribute from both the branches and the offices.”
Toys for Tots appreciates all of the toys collected from Integrity Bank. Washington ended, “Integrity Bank has been on board for many years. They are definitely a community service-oriented bank. They look for organizations to help, and Toys for Tots is lucky to be one of them.” New Tripoli Bank
New Tripoli families in need To advertise the campaign, of assistance once had to Integrity Bank sends an travel 30 minutes to a pantry it gives us a great feeling email to employees, and this in Allentown to collect food knowing that we’re helping year may also hold a comdonations. All that changed petition to see which branch about three and a half years people within our community. collects the most toys to add ago when Christ’s Church at to the fun. “But we don’t Lowhill, Ebenezer UCC, New just get our employees involved,” said Hudson. “We Life Lutheran Church, Weisenberg Lutheran Church, Ziewant our customers, family, and friends, really the whole gels Union Church, Hope Community Church, and Jacob’s community, to be involved. And when they think of holChurch gathered together to begin a local food pantry in an iday giving, we want them to think of Integrity Bank’s old schoolhouse. The Christ’s Church at Lowhill Food PanToys for Tots drive.” try was serving so many area families that an addition to the building was needed. In addition to an internal email message, the bank utilizes their branches’ LED signs to advertise to anyone driving by. “New Tripoli Bank saw value in this cause and donated Hudson added, “The signs usually include the Toys for Tots money to support the pantry both during the initial renovalogo and ‘Donate Here’ in bold letters to capture the atten- tion of the schoolhouse and during the expansion. We have tion of passersby. And some of the signs rotate messages evsupported the Christ’s Church at Lowhill Food Pantry from
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the start,” explained Ann Bavaria, VP, Human Resources, Marketing and Compliance Officer at New Tripoli Bank. In addition, due to the limited hours volunteers are able to staff the pantry, the bank volunteered to be a collection drop off site. “We wanted to do what we could to help the pantry to more accessible to donors.”
members love to help. Sharon Nicholas, AVP and Branch Manager, said, “I participate in holiday gift giving because Christmas is for children and I want all children to enjoy the holiday.” Judy Peters, VP, added, “Since I no longer have small children, this gives me an opportunity to go shopping for the little ones who so look forward to Christmas!”
The bank’s participation in this ongoing activity evolved into helping during the holiday season. After running the food pantry for six months, the churches realized they were seeing many young families with children come into the pantry and felt that they could fulfill a need by partnering with local businesses to collect Christmas gifts for the families to give their children. “The food pantry reached out to the bank to see if staff would like to volunteer to sponsor children for Christmas. The Christmas gift project has been well-received; this year, 22 out of 40 employees and the entire Board of Directors are participating,” said Bavaria.
Following the collection, the churches hold a Christmas party luncheon for the children where they distribute the gifts prior to Christmas. “People step forward from the teller line all the way up to our CEO. It gives us a great feeling knowing that we’re helping people within our community,” closed Bavaria.
After volunteering, Christ’s Church at Lowhill Food Pantry provides the sponsor with the child’s age and wish list. Each volunteer is asked to provide three wrapped gifts for their child at a cost of $20 per gift. Bavaria explained, “The food pantry collects gifts for children newborn through age 17. A three-year-old might write down that they’d like crayons and coloring books, slippers, or a Mickey Mouse toy, while a 17-year-old might be more likely to ask for a video game, outdoor gear, or a gift card.”
This holiday season we could all benefit from following the lead of Integrity Bank and New Tripoli Bank by taking the time to help those in need in our communities. In doing so we only strengthen the relationships we have with our neighbors and local charitable organizations. If you would like Transactions to feature your bank as our Community Bank Profile in an upcoming issue, please feel free to contact me at natalie@pacb.org or 717-231-7447.
No matter the age, New Tripoli Bank employees and board
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EMV Chip Technology to Replace Magnetic Stripe
By: Jim Ghiglieri Senior Vice President of Corporate Communications SHAZAM
T
he magnetic stripe currently used on debit and credit cards today is extremely vulnerable to fraudsters equipped with inexpensive magnetic stripe readers, card duplication gear, and Internet-sourced card data. This combined with weak signature based authentication
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(versus the security of the PIN) has resulted in an outbreak of counterfeit fraud, costing financial institutions, merchants, card issuers, and consumers millions of dollars. While EMV technology may solve many current fraud challenges, financial institutions have several implementation and regulatory considerations to carefully consider before rolling out EMV.
Smartcard Technology Equals Reduced Fraud Other nations around the world have enjoyed reduced fraud losses as a result of EMV technology. The EMV standard, named for the company founders (Europay, MasterCard®, and Visa®) is based on smartcard technology and is shown to significantly reduce counterfeit card fraud losses. By replacing the current unencrypted magnetic stripe with a chip embedded in the card, smartcard technology adds dynamic data to the transaction process, making it far less vulnerable to fraudsters. Because every EMV card is essentially a small, secure computer, EMV cards are nearly impossible to counterfeit. Interestingly, EMV was originally designed to address telecommunication deficiencies in Europe. Merchants couldn’t go online to get an authorization so EMV was invented to allow merchant acceptance of offline transactions. Reduced fraud was merely an added benefit. In appearance, an EMV card is the same size and thickness as a standard magnetic-stripe card. However, the card is inserted into a slot on the POS terminal, rather than being swiped through a reader. This “contact” method connects the card to the terminal, allowing the card and terminal to communicate. EMV cards can also support “contactless” payments where it can either be tapped at or waved by the POS ter-
nerable to cross-border card fraud. EMV issuance has begun in the U.S. with a few large banks and credit unions having issued EMV cards to their corporate and high net-worth customers. However, broad-based issuance is still a few years away. One hundred percent EMV deployment in the U.S is expected to take a decade or longer. Nationwide, EMV implementations will cost billions of dollars, and unfortunately for card issuers, the fraud benefits are only realized years after all the players make the investment. Upgrading merchant terminals and ATMs, issuing new cards, and educating consumers on how the new cards work takes time and money. Specifically, U.S. merchants must upgrade more than 10 million devices with new security hardware and software in POS terminals. The total cost of this upgrade will range between $2.4 and $2.6 billion. Card reissuance is projected to cost issuers somewhere between $2.42 and $2.85 billion. The cost of ATM updates is an estimated $310 million or more.* Durbin Amendment and EMV for Debit Even after all the above is considered, there is a huge regulatory question that needs to be addressed before debit card EMV rollouts are possible. Specifically, Regulation II mandates that the merchant have a choice of two unaffiliated debit networks over which it may route each debit transaction,
The migration of the U.S. payments system to EMV is a
Multi-layered and complex issue minal for transactions. A card capable of performing both transactions is called a Dual Interface Card. EMV technology can also be built into smartphones equipped with NFC (Near Field Communication) chips. To help ensure payment acceptance, nearly all EMV cards also have a magnetic stripe for use at terminals that haven’t been upgraded to EMV. PIN or Signature Options Currently, financial institutions can deploy EMV cards using either PIN or signature as the cardholder verification method. Additionally with EMV, cards can be utilized in either an “online” or “offline” mode. Generally speaking, “online” mode means information will be verified with the card issuer (such as authorization, card validation, and PIN validation). Cards can also be configured for “offline” mode, which would not require online issuer authorization, card validation, or PIN validation. EMV Up Front Costs Run High EMV technology is currently in play globally, with more than 1.3 billion EMV cards in circulation and 15.4 million EMV POS terminals in use.* The United States, as the largest card and terminal market, now finds itself increasingly vul-
in order to give the merchant a measure of least-cost routing control. With EMV, the merchant choice currently is not feasible. That’s because EMV specifications on the card inform the terminal to utilize a priority application, set by the issuer. This application selection process, combined with other EMV specifications, constrains the present-day BIN routing rules, and thus, effectively eliminates merchant routing choices. As you can see, the migration of the U.S. payments system to EMV is a multi-layered and complex issue. To better understand how your financial institution can prepare, consult with your payment partners to determine the best route and the best timeline for you and your cardholders. *Statistics source: Mercator Advisory Group
Jim Ghiglieri is the Senior Vice President of Corporate Communications for SHAZAM. He can be reached at jghiglieri@shazam.net.
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ICBA Encourages Consumers to Go Local This Holiday Season Do At Least 30 Percent of Shopping at Small Businesses
A
s the holiday season quickly approaches and shoppers across the country start making their lists and checking them twice, the Independent Community Bankers of America (ICBA) is encouraging them to Go Local and do at least 30 percent of their holiday shopping at area small businesses. By doing so, consumers will be supporting small businesses that create local jobs and fuel their local economy—making everyone’s holiday on Main Street a little bit sweeter.
and $1 million. Representing more than 24,000 locations nationwide and employing nearly 300,000 Americans, ICBA members have nearly $750 billion in loans to consumers, small businesses, and the agricultural community. “By lending to local entrepreneurs and small businesses, community banks help their local economies thrive,” said Camden R. Fine, ICBA president and CEO. “American shoppers have that same power, and that’s why the holiday season is a great time to take on this 30 percent spending challenge and get to know your local small businesses and what they have to offer. I have no doubt that once shoppers see the great services and products that they can obtain locally, they’ll be back for more throughout the New Year.”
“It’s easy to spread holiday cheer this season by purchasing even just a few of those ‘wish list’ items from small businesses within your com- By lending to local entrepreneurs and To learn more about ICBA’s munity,” said Jeffrey L. GerGo Local initiative and small businesses, community banks hart, chairman of ICBA and ways you can go local this Bank of Newman Grove, holiday season, visit www. help their local economies thrive. Neb. “Not only will you be icba.org/golocal, and to helping local entrepreneurs join the conversation, folsucceed, but you’ll also be making an investment in your low @ICBA’s hashtag #golocal. community that you can be proud of throughout the holiday season and beyond.” To find your local community bank, visit ICBA’s community bank locator at www.banklocally.org, or download the free Encouraging consumers to do at least 30 percent of their ICBA locator app for your iPhone, Android, or Blackberry. holiday shopping at local small businesses isn’t a stretch for the nation’s more than 7,000 community banks. Community banks help small businesses succeed throughout the holiThe Independent Community Bankers of America®, the day season and beyond by lending to them. And because nation’s voice for more than 7,000 community banks of community banks are small businesses themselves, they all sizes and charter types, is dedicated exclusively to partner with their small business customers to help them representing the interests of the community banking inunderstand local market dynamics and the opportunities dustry and its membership through effective advocacy, best-in-class education, and high-quality products and and challenges that small businesses in their area face. In services. For more information, visit www.icba.org. fact, community banks under $10 billion in assets provide nearly 60 percent of small business loans between $100,000 40 | Transactions | www.pacb.org
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Five Minutes
with Congressman
Chaka Fattah TIM ARTHUN (TA): How has your district changed as a result of redistricting? Are the issues that are most important to the old district similar to those of your new district?
b. The Fattah Neuroscience Initiative ranks high on my list of accomplishments this past Congress. In December 2011, I won bipartisan support to set up the Interagency Working Group on Neuroscience (IWGN). Housed at the White House, the IWGN establishes unprecedented cooperation and a heightened priority among federal agencies involved in neuroscience research.
CONGRESSMAN CHAKA FATTAH (CF): The election demonstrates that, despite boundary changes, constituents in the new 2nd District continue their strong support for President Obama and his program. They share concerns about infrastructure, urban and suburban transit, c. Education has always been one of my top priorities. My health care, education, and a regional approach to Philasignature education program - Gaining Early Awareness delphia’s growth. The 2nd District remains one of the most and Readiness for Undergraduate Programs (GEAR UP) compact in the Common– has, during the past 13 wealth, with no significant years, received $4 billion As federal regulators hammer out the in federal funds and has change in its demographics or political profile. It helped some 12 million rules and regulations surrounding includes many neighborlow-income students in this law, they must take into account hoods of West, Northwest, 49 states, Puerto Rico, the and North Philadelphia District of Columbia, and the needs of community banks. (although some wards are U.S. territories in grades new) as well as portions of 6 to 12 prepare for college Montgomery County (adding Lower Merion Township and its unique educational culture. instead of Cheltenham Township). d. As part of my push to maintain and grow the nation’s manufacturing base, I have used my position as Senior DemTA: You have just been re-elected to your 10th term in ocrat on the Appropriations subcommittee for the Commerce Congress with the largest number of votes of any House Department to fund programs that provide seed money and member. What do you consider to be some of your greatest technical support for manufacturers and manufacturing inaccomplishments during your time in Congress? novation. As part of this push I have I have secured some CF : a. I was the chief sponsor of the American Opportunity $300 million for programs to expand research and developTax Credit Act, a $14 billion piece of legislation that proment and grow the manufacturing base through: the Manuvided a $2,500 tuition tax credit for college students or their facturing Extension Partnership, the National Innovation parents. To date 4.5 million students and their families have Marketplace, Advanced Manufacturing Technology Consorreceived a tax refund from the AOTC. tia, and the Advanced Manufacturing initiative. 42 | Transactions | www.pacb.org
e. I championed the Emergency Homeowners’ Loan Program that applied $1 billion in TARP funds to the threatened mortgages of hundreds of thousands of unemployed homeowners so they could remain in their homes. The program traces its roots to a similar Pennsylvania program, the Homeowners Emergency Mortgage Assistance Program, which I created while a Pennsylvania State Legislator. HEMAP has provided more than $236 million to tens of thousands in need. The federal measure directed more than $100 million to Pennsylvania.
that that the current generation had growing up. We cannot maintain world leadership on the cheap.
TA: You serve on the very powerful Appropriations Committee and are a member of the Subcommittee on Energy and Water Development and the Ranking Member for the Subcommittee on Commerce, Justice, Science and Related Agencies. What are some of the challenges you face in these assignments?
CF: The capital requirements are aimed at reducing the risk that the nation could have another financial disruption like the one that we saw beginning in 2008. I am definitely for a balanced approach by regulators in implementing the new requirements that came out of the Dodd-Frank reforms. As federal regulators hammer out the rules and regulations surrounding this law, they must take into account the needs of community banks.
CF: I’ve always said that our country is at a crossroads. We are the world’s only superpower, with numerous advantages in science and technology. We’re the world’s wealthiest country. However, the advantages that used to be absolute are now relative, with foreign economic competitors trying to overtake us in a number of different areas. I like to think of my work on Appropriations as more than just “spending.” It’s really about setting priorities, and making the tough choices about the type of country we want to be: are we content to fall behind in the areas of space, science, technology, and energy or will we make the necessary investments now to ensure that future generations of Americans enjoy the same opportunities and economy Congressman Chaka Fattah is serving in his 9th term in the U. S. House of Representatives. Before his election to United States Congress in 1994, he served six years as a Representative in the State House followed by six years as a State Senator. Congressman Chaka Fattah is a Senior Member of the House Appropriations Committee. This committee is responsible for setting spending priorities of more than $1 trillion in annual discretionary funds. Congressman Fattah is Ranking Member on the Subcommittee on Commerce, Justice, Science and related agencies (CJS). The Subcommittee on CJS oversees close to $70 billion in discretionary spending. He also sits on the Energy and Water Development Subcommittee. Fattah attended Philadelphia Community College and received his associate’s degree in 1976. In 1984 he attended Harvard University’s John F. Kennedy School of Government where he received a certificate in the Program for Senior Executives in State and Local Government. In May of 1986, Congressman Fattah earned a Master’s degree in Governmental Administration from the University of Pennsylvania, Fels Center of Government. Fattah is architect of 1998’s Gaining Early Awareness and Readiness for Undergraduate Programs (GEAR UP) for lowincome students pursuing a college education. More than $3 billion in federal funds have been distributed to some 12
TA: Your district is home to several Community Banks including Royal Bank America, Valley Green Bank, Bryn Mawr Trust Company, and several others. In your opinion, what is the best approach for the regulation and capital requirement standards of smaller banks as compared to systemically important financial institutions?
TA: I know you keep an extraordinary schedule, but can you share a little bit with us about your personal life? What do you like to do in your spare time? CF: My wife, Renée Chenault-Fattah, and I live in northwest Philadelphia with our two young daughters, and I have two adult children in Philadelphia. As a family we enjoy bicycle outings as well as sampling the city’s vibrant cultural life. I regularly visit Philadelphia schools and meet with young people as often as possible. million students nationwide as a result of the measure. He founded a program in 2003 called College Opportunity Resources for Education (CORE), which has awarded $26 million in scholarships to Philadelphia high school students for first-year college costs. He has long lobbied for the nation’s cities, which he says need more federal aid to combat crime, drug abuse, and unemployment. He was named chairman of the Congressional Urban Caucus in January 2008. In 2009 he introduced the American Opportunity Tax Credit Act, which provides $2,500 tax credits to help 3.7 million students meet their college expenses. Fattah is the recipient of numerous honors and awards including 10 honorary doctorates and the University of Pennsylvania’s Fel’s Center of Government Distinguished Alumni Achievement Award. Time Magazine named Fattah one of the 50 most promising leaders in the country. The Congressman is married to Renée Chenault-Fattah and they have four children. Mrs. Fattah is a lawyer and TV News Anchor. Congressman Fattah and his family are long-time members of the Mt. Carmel Baptist Church in Philadelphia, PA. An avid golfer, Congressman Fattah is also a bike enthusiast.
www.pacb.org | Transactions | 43
Bombatch submitted for the award a public relations campaign that she created to improve Community Banking Week. Having noticed a drop in participation, Bombatch developed a comprehensive plan to build a stronger relationship between the association and community banks across Pennsylvania. PACB is proud to announce a 400% increase in member usage of PACB materials from last year. PACB won the award for the category of Non-Profit Public Relations Program/Campaign for its successful Communi-
Entries were professionally judged by the Florida Public Relations Association. The judges called the plan “outstanding, logical and a pleasure to read.” It was announced at the award ceremony that Bombatch had the highest scoring entry of the 20 Keystone Award submissions. Bombatch and the marketing committee plan to make adjustments to the campaign to continue to improve Community Banking Week each year.
Partnering with Pennsylvania banks since 1926 For more than 80 years, Stradley Ronon has helped Pennsylvania banks build their businesses. With combined experience of more than 60 years in banking law, our practice group leaders head a group of 35 attorneys representing over 50 banks – helping them manage their legal challenges, so they can focus on running their institutions. www.stradley.com/banking
Philadelphia Malvern Harrisburg Cherry Hill Wilmington Washington, D.C.
(From left) Stradley Ronon Banking & Financial Services partners Linda Ann Galante, Valentino F. DiGiorgio III and Christopher S. Connell.
44 | Transactions | www.pacb.org
m/RogerThatP w.facebook.co otography • ww Roger That Ph
ty Banking Week campaign. Staying within a budget of $3,400, the actions involved increasing communication with member and nonmember community banks, offering more cost-effective promotional materials for purchase, improving promotion of Community Banking Week to bank customers and obtaining feedback to improve the event in following years.
Photo credit to
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n November 8, 2012, Natalie Bombatch, Publications Manager for the Pennsylvania Association of Community Bankers, accepted a Keystone Award on behalf of the association from the Public Relations Society of America, Central PA Chapter. According to the PRSA Central PA Chapter website, “Each year, the Keystone Awards recognize exemplary public relations campaigns, strategies and tactics in Central Pennsylvania. Just as the elements in an arch depend on the keystone for structural support, businesses and organizations depend on public relations practitioners for strategic counsel in achieving success. The 2012 Keystone Awards recognize work that best demonstrates the highest standards of public relations research, planning, implementation and evaluation. “
hotography
PACB Brings Home an Award
News From You Beneficial Bank Partners With Cristo Rey High School Work-Study Students to Provide Valuable Job Skills
Innovative school program allows students to earn money and gain valuable work experience Cristo Rey Philadelphia is a new independent, college preparatory Catholic school for low-income students that helps students build skills to succeed in college and the modern workplace. Based on a successful model used in 24 cities across the U.S., teams of four students work five days per month in partnering corporations, which provide them with invaluable work experience and subsidize approximately 60 percent of the cost of their education. Beneficial Bank is a Job Partner for the school’s inaugural year, along with 19 other area corporations. The Beneficial Foundation contributed $30,000 for Cristo Rey to establish its innovative program in Philadelphia.
(L to R) Beneficial Bank Vice President of Lending Operations Merle Brown; Cristo Rey Admissions Coordinator Unique Saunders; Cristo Rey students Yohalis L., Mark H., Kelliann A. and David J.; and Beneficial Bank Vice President of Community Development Robert Juliano. PHILADELPHIA, PA – Four students from the new Cristo Rey Philadelphia High School didn’t just start another school year on Sept. 4 – they also began working at the Center City headquarters of Beneficial Bank. The four freshmen - Yohalis L., Kelliann A., Mark H. and David J. – are learning about accounting, lending, and compliance, among other areas, and are gaining real-life job skills in the process.
Beneficial Bank President and CEO Gerry Cuddy said, “Because Beneficial’s mission is to help customers do the right thing financially, we were pleased to have the opportunity to support this innovative educational initiative. It is especially rewarding for us to mentor such enthusiastic students, and to introduce them to the world of banking. This partnership also allows us to help train and contribute skilled, responsible workers to our region.” Cristo Rey Philadelphia President John McConnell commented, “Beneficial Bank is a terrific Job Partner for the Cristo Rey Program. At Beneficial, our students receive great coaching from enthusiastic mentors. They challenge the students to learn valuable skills that will help them succeed in college and beyond. We are very grateful for Beneficial’s willingness to invest in the future of our community.”
Meridian CEO Forum Features Best Selling Business Author Devon, PA – On Oct. 2, 2012, as part of Meridian Bank’s quarterly CEO Speaker Series, Eric Herrenkohl, author of the Amazon best-seller “How to Hire A-Players,” spoke on that topic to two dozen gathered CEOs and business owners. Herrenkohl, whose business consulting firm is located in Wynnewood, PA, provided the attendees with a step-bystep process for pro-actively building a great management
team rather than simply filling individual positions on an ad hoc basis. He also answered questions and facilitated a discussion on the topic among the participants. The Meridian CEO Speaker Series consists of quarterly events designed to promote education and interaction for area business leaders. C-level executives and business owners interested in information about future events in this series can contact Jessica Annas, 484-568-5035. www.pacb.org | Transactions | 45
HATBORO FEDERAL SAVINGS DONATES $222,222 TO EDUCATIONAL FOUNDATIONS AND COMMUNITY GROUPS The Union Library of Hatboro, founded in 1755, is the second oldest library in Pennsylvania, and some of the original books shipped from England are still in the library’s possession. In 1978, the building was placed on the State Registry of Historical Places. The library expanded in 1991, and in 2000, space was dedicated for the Children’s Wing. The funding donated to the Union Library is in recognition of, and support for its noted children’s reading and educational programs. For addition information regarding all library programs, log on to www.hatborogov.org/library.html.
(L to R) Robert J. Phillips, Centennial Education Foundation President; Barbara N. Lyons, Esq., CB Cares President; Kimberly L. Cambra, CB Cares Executive Director; Harriet Ehrsam, Union Library of Hatboro Librarian; Joseph J. Tryon, Jr., Hatboro Federal Savings CEO/President; Laurie Rosard, Hatboro-Horsham Educational Foundation Executive Director; Bob Schrader, Centennial Education Foundation Executive Director; Constance T. Wood, Hatboro Federal Savings COO/Senior Vice President. HATBORO, PA - Hatboro Federal Savings President and CEO Joseph J. Tryon, Jr. is pleased to announce the bank’s donation of $222,222 to five Bucks and Eastern Montgomery County educational foundations and organizations. The recipients of the educational funding are the Centennial Education Foundation, CB Cares, the Hatboro-Horsham Educational Foundation, the Upper Moreland Educational Foundation, and The Union Library of Hatboro. “Getting a good education is the most direct route to a successful and satisfying career,” said Tryon. “Our yearly contributions help students and teachers offer enriched classroom experiences by providing state-of-the-art instructional tools and mentors, as well as special educational outreach programs. For more than 70 years, Hatboro Federal has remained steadfast in this mission to keep our branch communities healthy, and our financial contributions to education are a vital part of this mission.” The Centennial Education Foundation (CEF), located in Warminster, Bucks County, is a non-profit organization committed to providing enriching educational opportunities, programs and projects for students in the Centennial School District. Since 1997 its mission is to secure resources from individuals, corporations, community organizations and other foundations to be distributed in support of programs that benefit students in the Centennial School District. “The grant funding we have received from Hatboro Federal has had the effect of a bolt of lightning on our foundation board and district staff,” said Executive Director Bob Schrader. It will allow us to become a more active partner with the school district, and, in turn, we can continue to provide programs and services to thousands of students.” 46 | Transactions | www.pacb.org
The Hatboro-Horsham Educational Foundation is a nonprofit organization created to encourage excellence and to enhance and enrich educational opportunities offered to the students of the Hatboro-Horsham School District. “We are a volunteer organization working in partnership with the Hatboro-Horsham School Board, administration, faculty, staff, and students as we design and implement programs enhancing the Hatboro-Horsham School District curriculum and our students’ lives,” said Executive Director Laurie Rosard. “We are very appreciative of Hatboro Federal for their ongoing support.” The foundation is celebrating its 25th Anniversary this year. For more information, log on to www.hhef.org. CB Cares, located in Doylestown, is a community coalition of individuals, businesses, and agencies, whose goal is to promote positive values, attitudes, and behavior, particularly in our community’s youth. For more than 16 years its mission has been to engage, empower, and link individuals and organizations to meet this end. The framework for CB Cares’ programs and initiatives is the 40 Developmental Assets, a research-based approach to cultivating the most important qualities which create caring, competent, and resilient individuals. The more assets an individual possesses, the more likely they are protected from the risk factors that face them in their daily lives. For additional information, contact www.cb-cares.org. The Upper Moreland Education Foundation, located in Willow Grove, was formed in 1999 by a group of Upper Moreland area residents as a private, non-profit foundation. The foundation exists to provide the Upper Moreland community with enhanced learning opportunities through creative and innovative educational programs. To contact the organization log on to www.umef.org. Hatboro Federal Savings, one of Bucks and Eastern Montgomery Counties’ leading community banks, was chartered by the Federal Home Loan Bank Board in February 1941, and has current assets of more than $528 million. Headquartered at 221 S. York Road, in Hatboro, Hatboro Federal also has branch offices in Warrington, Warminster and Jamison, offering financial products and services to individuals and families.
Miners Bank: A 2012 Best Place to Work in Pennsylvania
Minersville, PA - Miners Bank was recently recognized as one of the 2012 Best Places to Work in Pennsylvania. This means the bank is one of the top 100 employers in the commonwealth! Rankings have not yet been announced, but will be available in early December following the Best Places to Work in Pennsylvania event. Miners Bank is incredibly proud and attributes receiving the recognition to positive employee morale. Through frequent communication, employee involvement in decision making, and providing employees the opportunity to provide feedback, Miners Bank builds positive morale. On a biannual basis, Miners Bank requests that all employees complete an Employee Engagement and Satisfaction Survey. This survey gives employees an opportunity to provide feedback on the following areas: leadership and planning, culture and communications, daily responsibilities, career development opportunities, compensation & benefits, and work environment. Senior Management reviews the results carefully, seeks to identify the opportunities for improvement, addresses concerns, and provides timely feedback. Miners Bank also has in place several committees comprised of employees from different departments. An example is the Incentive Compensation Committee, where employees share past life experiences and have a say in the development of the 2013 Incentive Compensation Program. The bank likes to give employees an opportunity to be involved in the decision making process and know that they are part of Miners Bank as a team.
To ensure employees are well informed, Miners Bank holds quarterly employee meetings led by George H. Groves, President/Chief Executive Officer. Groves also sends a monthly correspondence email to all employees, which includes an update on the financial condition of the organization and a summary of upcoming projects. An employee newsletter, Miners Mentions, is sent to all employees on a quarterly basis. The newsletter allows Miners Bank to formally congratulate employees for their personal and professional achievements, educate employees on changes that may impact them, and contains articles written by each member of the Senior Management Team. In addition to frequent communication, the bank gives employees the opportunity to participate in fun activities and community service. This, too, helps employees bond as a team and boosts morale. Miners Bank has a kickball team comprised of 17 employees, organizes group community service activities for employees and their families, and has several fun and engaging annual activities. For example, Miners Bank employees and their families welcomed a home a unit of returning soldiers in 2011. Miners Bank strives to be an employee oriented bank where employees experience positive morale and motivation. In addition to its recent recognition as one of the 2012 Best Places to Work in Pennsylvania by the Best Places Group, Miners Bank was also acknowledged as one of the 2012 Fastest Growing Companies in the Greater Lehigh Valley and received an “A” Grade from Banking Grades, for its commitment to small business lending. By building positive morale, Miners Bank is definitely making their mark on Pennsylvania. With strong leadership and positive employee morale, it is amazing what good things can happen in the community.
In every issue of Transactions magazine, we would like to include updates from you, our member banks, regarding newsworthy happenings in your banking facilities. LET US KNOW ABOUT: • Branch Openings • New Facilities • Awards or Recognition • New Customer Services • Special Staff Training or Education • Community Involvement • Individual Promotions or Hirings • Anniversaries or Celebrations For publication consideration, please email press releases to Eric Kovac, Publications Manager, at eric@pacb.org. To ensure timely delivery in each issue of Transactions magazine, all entries must be received by the 10th of the preceeding month.
News From You www.pacb.org | Transactions | 47
k n a b r u ? o d e y r is a p e r p 0101011010100011110010101110100110101 0100100101001001010010010100101001010 1001010101010111111110100010001001010 0101010010000000111101010011111010101 1111010000010110101001110101000101111 1100111000101111110001010110010100010 0010101001010010010111100111000101111 11000101010100001000 FRAUD 001010001 0001010010001001100100100101010100000 010010 PHISHING 00111111110000010101 0101001110100111000011110010101001010 010010101000001 IDENTITY THEFT 111010 1001111101010111110100000101101010011 0000000111011111000111111110000010101 1000100010100100010011001001001010101 0010101001000000011110101001111101010 1010100010111111001110001011111101110 1011001010001010001000101001000100110 0100100101010100000001110111110001100 0100000010101010100111010011100001111 Q1 Sessions January 15, 2013 • DoubleTree Monroeville • 101 Mall Blvd., Monroeville, PA 15146 0010101001010010010100101010010000000 January 16, 2013 • PACB Headquarters • 2405 N. Front St., Harrisburg, PA 17110 1111010100111110101011111010000010110 In partnership with: INTERESTED? 1010011101010001011111100111000101111 Please contact Saundra Cunningham, 1100010101100101000101000100010100100 VP-Education Services, at 717-231-7447 or saundra@pacb.org about this important, 0100110010010010101010000000111011111 new certification. www.protectmybank.com
IN 2013, YOUR STAFF CAN BECOME CERTIFIED COMMUNITY BANK SECURITY PROFESSIONALS.
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