Transactions Magazine - March 2012

Page 1

March 2012

New York Regional Ombudsman

Glenn A. Watler Working Hard To Find You Answers

That’s My Bank

MALVERN FEDERAL SAVINGS BANK CELEBRATES 125 YEARS Page 14

Legislation

FDIC COVERAGE FOR TRANSACTION ACCOUNTS Page 33

Marketing

COMMUNITY BANKING WEEK Page 37


UPCOMING EDUCATION EVENTS APRIL • 2012

Community Banking Week April 2-6, 2012 Statewide IT Compliance Seminar April 4, 2012 DoubleTree Monroeville - Monroeville, PA IT Compliance Seminar April 5, 2012 PACB Headquarters - Harrisburg, PA New Era for Balance Sheet Management (CFO Seminar) April 17, 2012 DoubleTree Monroeville - Monroeville, PA Security Seminar April 18, 2012 Holiday Inn Hbg.- Hershey - Harrisburg, PA

MAY • 2012

JUNE • 2012

SEPTEMBER • 2012 (CONT)

Directors Conference June 5-6, 2012 The Nittany Lion Inn - State College, PA

ALM Seminar September 27, 2012 DoubleTree Monroeville - Monroeville, PA

AUGUST • 2012

OCTOBER • 2012

135th Annual Convention August 17-20, 2012 Vail Marriott Resort & Spa - Vail, CO

ALM Seminar October 3, 2012 PACB Headquarters - Harrisburg, PA

SEPTEMBER • 2012

Tech Conference October 10, 2012 PACB Headquarters - Harrisburg, PA

Compliance Seminar September 18, 2012 PACB Headquarters - Harrisburg, PA Audit Seminar September 20, 2012 PACB Headquarters - Harrisburg, PA Compliance Seminar September 26, 2012 DoubleTree Monroeville - Monroeville, PA

Leadership Conference May 1-2, 2012 Omni Bedford Springs Resort - Bedford, PA HR Conference May 16-17, 2012 Holiday Inn Hbg.- Hershey - Harrisburg, PA

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.

2 | Transactions | www.pacb.org

Marketing Conference October 17-18, 2012 Hilton Garden Inn - Hershey, PA

NOVEMBER • 2012

Directors College November 1, 2012 Doubletree Monroeville - Monroeville, PA


Re

r e t gis

e n i l on

g! r o . cb a p at

IT COMPLIANCE SEMINAR

“MASTERING IT COMPLIANCE” “MASTERING IT COMPLIANCE”

DATES & LOCATIONS April 4 DoubleTree Monroeville Monroeville, PA April 5 PACB Headquarters Harrisburg, PA

CREDITS CPE Credits Attendees are eligible to earn up to 7 CPE credits.

SPEAKERS Dr. Patrick Engebretson Assistant Professor of Computer and Network Security Dakota State University John Waldman Senior Information Security Consultant Secure Banking Solutions, LLC

QUESTIONS? Contact Saundra J. Cunningham, PACB VP-Education Services, at 717.231.7447 or saundra@pacb.org.

A technology explosion has occurred in community banks with even more technologies being considered over the next couple of years (merchant capture, branch capture, mobile banking, VoIP, document imaging, online account openings, etc.), providing hackers even more avenues to steal customer information, and providing regulators even greater concern about IT risk management. Gramm-Leach-Bliley requires your bank to develop a written information security program with appropriate safeguards, and the state and federal regulators will review your program to see if your bank passes the test. “Mastering IT Compliance” will cover many of the important topics that regulators look for, including: _ Latest Technology Trends _ Latest Security and Hacking Trends _ Regulatory Updates/Changes _ Regulatory Hot Buttons in IT _ Information Security Program Design and Testing _ IT Risk Assessment _ 3rd Party Risk Assessment

_ IT Audit _ Third Party Vendor Selection and Management _ Penetration Testing _ Vulnerability Assessment _ Gramm-Leach-Bliley Compliance _ Emerging Information Security Tools _ Activities to mitigate Commercial Account Takeover

IT COMPLIANCE TOOLKIT In addition to the invaluable information obtained during the seminar, you will also receive an “IT Compliance Toolkit” that includes: • A document that outlines a blueprint to develop your Information Security Program which contains the items required in an ISP. • An examination of technology trends that can be used in your strategic planning sessions and risk assessment processes. • An examination of security trends, threats, and controls (both internal and external) to use in your risk assessment and security awareness training programs. • A demonstration of a tool that automates risk assessment, third party risk assessment, policy development and audit so that you can see the integration of these important programs. • Documents that you can use in your vendor selection and management program. • Best practices in penetration testing and vulnerability assessments. Join us for this very practical seminar as Secure Banking Solutions discusses what banks should do to protect sensitive information, avoid data breaches, achieve regulatory compliance, drive efficiencies in your organization, and execute a successful IT examination. www.pacb.org | Transactions | 3


Contents March 2012

FEATURE ARTICLES 10 What’s In A Name?

Pennsylvania Act 133 of 2011 and what it means for banks and their names.

13 The Consumer Financial Protection Bureau Launches Inquiry Into Overdraft Programs The impact of the CFPB on financial institutions.

14 Providing 125 Years of Service, Malvern Federal Savings Bank Hits a Milestone in 2012 Their proudest moments and their year-long celebration.

18 Management Succession Planning: Why Is It Important for Community Banks?

Why boards of directors of community banks need to ensure that there is a management succession plan in place.

22 FDIC Increases Regional Coverage for Ombudsman

Harleysville Savings Bank president and CEO, Ron Geib, sits down with New York Regional Ombudsman Glenn A. Watler to discuss his role in the FDIC.

32 Commercial Lending & Compliance Converge. Will You Be Ready? It’s time to start evaluating your policies and practices now.

33 Full FDIC Coverage For Transaction Accounts The key benefits of full FDIC coverage.

34 Five Minutes With Congressman Mike Kelly

His first year in Congress, the committees he’s on, and his future priorities.

37 Free Publicity for Community Banking Week

Are you prepared for Community Banking Week? Promote your events with some of these great publicity ideas!

38 Strategies for Replacing Lost Revenue in a PostDurbin Market

Coping with today’s debit environment, resulting from Reg E and Regulation II implementing the Durbin Amendment.

40 A Utilitarian Solution to Disappearing Margins

A look at “BOLI”, a potential remedy to burdensome regulations and low interest rates.

ADVERTISERS 09 11 26 26 31 36 39 41 42

Pulse Financial Outsourcing Solutions Kilpatrick Townsend Shazam Newtek Business Services Smith Elliott Kearns & Company, LLC Shumaker Williams ParenteBeard AAS Debt Recovery, Inc 4 | Transactions | www.pacb.org


ON THE COVER

New York Regional Ombudsman Glenn A. Watler at his exclusive meeting with Ron Geib www.pacb.org | Transactions | 5


d n i F ! k n Fra START HAVING SOME FUN WITH PACB’S MONTHLY PUBLICATION! Find Frank offers a way to get rewarded for reading Transactions’ important articles every month. Somewhere on these following pages, a Frank A. Pinto bobble head is hidden. Want to play? Here’s what you do: 1. Find Frank 2. Have a bank representative post on the PACB Facebook wall the exact location (page number & exact location) www.facebook.com/PACommunityBanks 3. Make sure your entry has a contact name & email 4. Submit!

THE PUBLICATION OF THE PENNSYLVANIA ASSOCIATION OF COMMUNITY BANKERS

Pennsylvania’s Community Banks. For people and their neighborhoods.

is published monthly by the 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 www.pacb.org

PACB STAFF: Dominic D. DiFrancesco, nick@pacb.org - President/CEO Saundra J. Cunningham, saundra@pacb.org - VP–Education Services Shirley A. Regan, sar@pacb.org - Comptroller/Office Manager Patricia Kuharic, patty@pacb.org - Administrative Assistant Frances M. Harris, frances@pacb.org - Director of Government Relations Eric A. Kovac, eric@pacb.org - Publications Manager Natalie S. Bombatch, natalie@pacb.org - Publications Manager

2011-2012 PACB LEADERSHIP EXECUTIVE COMMITTEE Chairperson - Chuck Leyh President/CEO, Enterprise Bank Chairperson Elect - Ronald B. Geib President/CEO, Harleysville Savings Bank Vice Chairperson - Dennis D. Cirucci President/CEO, Alliance Bank Secretary/Treasurer - Andrew W. Hasley President/CEO, Allegheny Valley Bank President/CEO - Dominic D. DiFrancesco Pennsylvania Association of Community Bankers Immediate Past Chairperson - Richard L. Meares President/CEO, Fleetwood Bank Ex-Officio/General Counsel - Keith A. Clark, Esq. Chairman, Shumaker Williams, P.C.

STANDING COMMITTEES: CHAIRS & VICE CHAIRS EDUCATION Diane McElwee, Bally Savings Bank Kevin Schmidt, Neffs National Bank FINANCE & BUDGET Frank S. DePaolo, Sharon Savings Bank FIRSTPAC George M. Evans, Indiana First Bank LEGAL Reginald Evans, Esq., Shumaker Williams, P.C. Angela L. Thomas, Esq., Latsha Davis Yohe & McKenna, P.C. LEGISLATIVE Timothy Zimmerman, Standard Bank Frank Godino, First Star Bank MEMBERSHIP Ted Peters, Bryn Mawr Trust Company Andrew W. Hasley, Allegheny Valley Bank *PACB member banks only please.

6 | Transactions | www.pacb.org

STRATEGIC PLANNING David Hunsicker, New Tripoli Bank


PACB CHAIRMAN CHUCK LEYH

A WORD FROM PACB’S CHAIRMAN Nick and I continue to travel across Pennsylvania meeting with our members and discussing what is important to them. There is an overwhelming majority of our membership that has expressed concern about the regulatory exam atmosphere, especially as it relates to compliance. ICBA and PACB hear your concerns and are taking steps to introduce legislation and to educate our members as to what their options are when experiencing a difficult examination environment. This month’s edition contains articles designed to assist you when you experience a difficult exam environment and are the result of the PACB executive committee traveling to Washington to discuss this matter with the regulators. ICBA and PACB continue to lobby for less regulation for community banks. We continue to push for a law that will temper the existing harsh regulatory exam process which hinders economic growth in this country, especially for small business. Frank Keating, President and CEO of the ABA recently took a position in writing that states there is no good reason to have a two tiered regulatory structure for large banks versus small banks in this country and that Congress and regulators should stop this from continuing as a result of the DoddFrank legislation. The document makes it seem as though the “carve out” negotiated by ICBA for our benefit is unfair and not needed. In the perfect theory world I would agree, but in the real world that we live in – I strongly disagree! There has never been a fairness between how the Wall Street banks

are regulated and how the Main Street banks are regulated. For example, our Bank consists of about 50 full time employees and our regulators usually staff our exam with four to five people for a month long period. The ratio of examiners to employees is between 1 to 10 and 1 to 12. This level of scrutiny is very time consuming for our staff as loans and policies are reviewed and criticized. To make my point – if Bank of America were to be examined and staffed at the same level as we are, there would be between 15 to 18 thousand examiners in their operation for a one month period. We all know Wall Street banks are not regulated as closely as Main Street banks. If they had been, there never would have been a financial crisis because the regulators would have picked up on the unacceptable loan underwriting practices Wall Street was operating under and stopped it. ICBA and PACB championed a carve out from the many new regulations because it created a more level playing field between Wall Street and Main Street in the real world and it results in regulating Wall Street Banks who cheated and caused the problem which caused the need for additional regulation in the first place. When Mr. Keating and the ABA shows me 15,000 examiners going into Bank of America for a month to examine them the way we as Main Street banks are, I will reconsider my opinion as to what a fair playing field really is! Sorry for the ramble, but this type of manipulation of the truth really angers me! I look forward to seeing many of you in the near future. Thanks for all you’re doing to build and serve Pennsylvania communities and our industry.

www.pacb.org | Transactions | 7


building relationships with strong leaders like Glenn Walter, the New York Regional Ombudsman for the FDIC. As you will read in the centerfold article, Mr. Walter’s mission is to ensure that all banks are treated with respect and that the review process is fair. Should an agency or a particular agent from a regulatory body overstep their authority, the Office of the Ombudsman is there to ensure a fair resolution to any conflict.

PRESIDENT/CEO NICK DIFRANCESCO IF YOU BELIEVE THAT THE COMMUNITY BANKING INDUSTRY IS UNDER ATTACK, YOU MUST ALSO BELIEVE THAT WE NEED TO BOLSTER PACB THROUGH STRONGER MEMBERSHIP NUMBERS AND A MORE AGGRESSIVE COMMITMENT TO A COMMUNITY BANK-LED ADVOCACY PROGRAM. As you read through this month’s edition of Transactions, I hope you’ll note the focus and join the movement. The past 18 months have been comprised of reflection, selfevaluation and strategic planning. While our commitment and core mission remain to secure the future success of the community banking industry, the culture of PACB is shifting to promote a higher level of member participation. Our goal is not only to share the story emphasizing the importance of a strong community banking industry; it is to motivate community bankers to share the story as well. This month we once again highlighted one of our members, Malvern Federal Savings Bank, as they celebrate 125 years of serving their community. Sharing the community banking story is important because far too many people do not realize how vital Main Street banking is to our nation’s economy. The truth in this statement is accentuated by the fact that we have a regulatory oversight system in place that fails to acknowledge the dynamic role that community banks serve in small towns and neighborhoods of big cities throughout the nation. Our nation’s leaders have implemented policies specifically designed to reduce the number of American bank charters. Economic conditions in communities across the nation are further damaged by misguided policies enacted in Washington in the wake of the disaster on Wall Street. Hardnosed reviews that tie up capital and force consolidations are not good for small business, nor are they good for the financial health of America. That is the reason that your 2012 PACB leadership team has invested so much time

8 | Transactions | www.pacb.org

While the Ombudsman is there to ensure the integrity of the review process, the greater issue remains that the community banking industry is threatened by the prevailing policy winds blowing out of Washington, including the current threats on the TAG program and Washington’s push to allow credit unions to expand their unfair competitive advantage. If you believe that the community banking industry is under attack, you must also believe that we need to bolster PACB through stronger membership numbers and a more aggressive commitment to a community bank-led advocacy program. In the coming weeks you’ll read more about the ways in which your PACB leadership team is guiding our staff to become an even more aggressive voice for community banking. We will put to rest the notion that the credit union industry is politically strong because every member of congress belongs to a credit union. Facts are facts, and credit unions are strong because they know how to lobby. PACB is on the verge of launching a program that matches the credit union resolve in terms of supporting a strong policy agenda. Winning in Washington and in Harrisburg requires numbers, and it is time for community banks across this Commonwealth to fully engage in the political process. As an industry, we need to add the voice of every employee, every bank director and every customer who relies on a community bank to our message, in order to stem the tide of Washington’s destructive policies. As our membership becomes more engaged, PACB grows stronger. Through an aggressive banker-to-banker membership drive in 2011, we were able to add seven new community banks to our ranks. In 2012, your PACB Board of Directors is even more motivated to recruit new members because we all understand the threats to the community banking industry. Overcoming challenges requires an aggressive focus, not on a broad financial services agenda, but on an agenda that preserves and protects the interests of our Commonwealth’s community banks. Our fight continues! As you prepare for Community Banking Week, I hope you’ll take the time to share with us how you are “Making a Difference on Main Street.” Each month, our goal is to highlight a PACB member and a business that owes its success to that community bank. The article is an opportunity for your bank and your employees to shine, but more than that, it is a chance to show our nation’s leaders why America’s community banks are TVTF (Too Vital To Fail)!


In today’s climate, you need to be confident about where your debit card program is headed. Our singular focus on debit for more than 30 years provides you with insight, resources and guidance to help you optimize a secure debit program to retain customers and attract new ones. Go to pulsenetwork.com to learn how we can help you take the right road.

Š2012 PULSE

www.pacb.org | Transactions | 9


WHAT’S IN A NAME?

PLENTY IF YOU ARE A BANKING INSTITUTION. By: Reginald S. Evans, Esq Shumaker Williams, P.C.

B

anking names used to be a relatively uncomplicated subject. In the years in which banks could not branch beyond one adjacent county, many banks and thrifts called themselves by names that they were marketing within their respective localities. State law as applied through federal law and vice versa restricted banking institutions in Pennsylvania to branching within their home county plus into an adjacent county as recently as the 1980’s. Then state law was amended to allow bicontiguous branching so that banks could branch two counties over from their home county. So began the expansion of branching powers in Pennsylvania.

Even the FSLIC in effect had a name change when it relinquished its deposit insurance duties to the Federal Deposit Insurance Corporation and changed its name to the federal Office of Thrift Supervision (“OTS”). Gone from the government agency name list was FSLIC and that word of the day, “savings”. Even the government got rid of the word “savings” from FSLIC’s government agency name.

Savings Is Not a Four Letter Word. Hey, what is wrong with the word “savings”? Nothing really. “Savings” is a good word and a good thing for families to have and grow through their community banking institutions. But present day marketing causes banks and thrifts to want as much flexibility as possible to name themselves as they see fit in their respecREMEMBER TO CONSIDER tive markets and marketTRADEMARK PROTECTION FOR ing. And as we all know, marketing matters. YOUR NAME AND LOGO.

Evolution. Branching rules similar to those in Pennsylvania were prevalent in other states. The common feature of the gradual expansion of branching authority and branch locations of banking institutions was the occasional clash of names that used to be local and then created confusion when similar bank names arrived in areas beyond their local counties.

At the federal level, national banks were required to have the words “national bank” or “national association” or the letters “N.A.” in their formal corporate names. Savings associations at the federal and state levels were required to have the word “savings” in their names. Then along came the savings and loan crisis of the 1980’s and suddenly thrifts regulated by the then Federal Savings and Loan Insurance Corporation (“FSLIC”) or the Pennsylvania Department of Banking no longer wanted to be known by the “savings” name because of the savings and loan crisis taint attached to that moniker. Some Pennsylvania savings associations changed their names to savings bank or in some cases used the “PASA” acronym at the end of their names to replace the word “savings” or “savings and loan” in their names. Some savings banks used the acronym “PASB” for similar reasons. 10 | Transactions | www.pacb.org

Branching authority beyond bicontiguous counties in Pennsylvania received a jump start in 1994 with the enactment of the federal Interstate Banking and Branching Efficiency Act. This federal law constituted Congressional authorization for interstate branching to be engaged in by banking institutions. Pennsylvania and most other states amended their respective state banking laws to allow state-chartered banking institutions the same interstate branching authority as national banks. Meanwhile, federal thrifts quietly already had nationwide branching authority. So the banks were just catching up. The name game remains the same. Well, not exactly. While Pennsylvania state-chartered banks, bank and trust companies, and savings banks have had the ability to apply for parity with the name authority of national banks, such parity has not been as clear as it could be regarding what state banking institutions may place - or not place - in their names versus the name authority for national banks.


New Banking Name Law Recently Enacted in Pennsylvania. Recently, on December 22, 2011, Governor Corbett signed into law Pennsylvania Act 133 of 2011. Secretary of Banking Glenn Moyer was a promoter and strong supporter of this bill that became law and that broadens and clarifies the name authority available to Pennsylvania state-chartered banking institutions. Act 133 amends the “charter” name and the “fictitious” name authority in the Pennsylvania Banking Code of 1965. The amendment clarifies that a bank or a bank and trust company must have the word “bank” in its name. The amendment also provides that either entity that engages in fiduciary activities may have the word “trust” in its name as well. Pursuant to the Act, the preexisting fictitious name authority has added that the fictitious name (i) must not lead to the conclusion that the institution may engage in activities it is not legally allowed to engage in, and (ii) must not contain any word that makes the institution sound like it is affiliated with or an arm of federal or state government. Conclusions. As bank branching authority evolved, the tectonic plates of banking geography have pushed into other similar names in other geographies. The names of similarly named banks expanding into geographies of any other similarly named banks were either confusing the public or diluting the brand name identification that the respective banks wanted. The manner of resolution of such name conflicts involved demand letters, negotiation, dollar payments, restrictions on geographic future growth. When negotiation

Navigating a complex regulatory environment?

could not solve the name conflicts between banking institutions, litigation usually did ensue. If your bank is a name sponsor of a local ballpark and would prefer to use a fictitious name when marketing the ballpark name and in other marketing, there is new flexibility to obtain and use a fictitious name, perhaps such as one that might lack the word “bank” but otherwise is a known name in the marketplace. So go ahead, file for your dream fictitious name, because the chances of getting it approved have been increased substantially by the 2011 advent of Pennsylvania Act 133. And remember to consider trademark protection for your name and logo as well. 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.

INTERNAL AUDIT & COMPLIANCE CONSULTING FOS is a leading provider of internal audit and compliance services to more than 70 financial institutions located in Pennsylvania, New Jersey, Maryland, Delaware, and New York. Our professionals are dedicated solely to providing internal audit and compliance services to financial institutions. We offer a wide range of services including: • Internal Audit Outsourcing • Information Technology Examinations • BSA Compliance Examinations • Fraud Examinations • Internal Audit Co-sourcing • FDICIA Implementation & Training • Trust Department Examinations

• • • • • •

Regulatory Compliance Training Quality Assurance Reviews Asset Liability Management Audits Special Projects Sarbanes-Oxley Documentation & Testing

...Work with the best.

Financial Outsourcing Solutions • www.fosinternalaudit.com • 1.800.569.5199 Harrisburg • Lancaster • Lehigh Valley

www.pacb.org | Transactions | 11


In today’s

s

Environment

Staying on course can be difficult.

JMFA can help you get back on track to a more stable bottom line. Recognized as the leading provider of 100 percent compliant overdraft solutions, JMFA has the expertise your bank needs to improve your performance and provide your customers with financial stability. JMFA OVERDRAFT PRIVILEGE® provides: Comprehensive Employee Training Account Holder Education Streamlined Processes Easy-to-use Account Monitoring Software Guaranteed Results

JMFA is a preferred vendor for the Pennsylvania Association of Community Bankers.

© 2012 John M. Floyd & Associates, Inc. J|M|F|A®, JMFA OVERDRAFT PRIVILEGE® and JMFA are registered trademarks of John M. Floyd & Associates, Inc.

PACB Signs Agreement with JMFA PACB announces the endorsement of John M. Floyd and Associates (JMFA) as a preferred vendor for overdraft services with the JMFA Overdraft Privilege® program. The JMFA Overdraft Privilege® program is a valuable non-discriminatory, 100 percent compliant automated overdraft program that strengthens account holder satisfaction. JMFA monitors all compliance issues for clients to proactively minimize regulatory risk and warrants that the program is compliant with existing state and federal regulations as currently interpreted by regulatory agencies. For more information please contact Ken Kuzma, JMFA's regional sales director, at 412-951-7542, or Ken.Kuzma@JMFA.com.

www.JMFA.com • 800-809-2307 12 | Transactions | www.pacb.org


The

Consumer Financial Protection Bureau Launches Inquiry Into Overdraft Programs…

What It Means For Your Institution

W

hile there has been much speculation on the impact the Consumer Financial Protection Bureau (CFPB) would have on financial institutions, there was some clarification earlier this year when the Bureau’s new director, Richard Cordray, announced efforts to focus on financial literacy issues that affect consumers. Then, on February 22 the CFPB sharpened that focus directly on checking account overdraft programs when it announced an inquiry to determine how such program practices are impacting consumers. As part of this inquiry, the CFPB will request data from previously identified banks and is seeking information from the public to gain insight into overdraft practices. In addition to this inquiry, the Bureau will collect data from several of the largest banks in the country to evaluate how those institutions’ overdraft policies affect consumers. While this news should be a cause for concern for institutions that offer undisclosed overdraft programs, the increased scrutiny should actually be welcomed by banks that are concerned about fees and practices that are deemed harmful for consumers. Armed with this notification, informed banks can avoid increased scrutiny by taking steps to address the following practices identified in the inquiry notification: • Transaction re-ordering that increases consumer costs Make sure your check clearing procedures are in order. Transactions should be processed in a neutral order that avoids manipulating or structuring payment order to maximize customer overdraft and related fees. Examples of a neutral order include: order received, check number, serial number sequence or other approaches when necessary, based on sound business justification. • Missing or confusing information Clear disclosure of terms and fees associated with your overdraft program is essential. Well-informed

By: John M. Floyd, Chairman and CEO John M. Floyd & Associates customers can anticipate and avoid unnecessary overdraft fees when they are made aware of, qualify for and take advantage of alternative means of covering overdraft transactions. This can be achieved through proper staff training to ensure that employees understand your processes and fees well enough to explain your overdraft program benefits and costs to your customers. • Misleading marketing materials Full disclosure is also imperative with initial efforts to promote your overdraft program. Make sure account holders understand the fees associated with opting in to overdraft coverage for electronic transactions, as well as their options for avoiding the fees. • Disproportionate impact on low-income and young consumers In an effort to mitigate chronic or excessive use by some customers, effective account holder education should also include information on alternatives to overdraft payment programs that may be less expensive and better-suited to a customer’s need for short-term credit. Compliant overdraft programs are still a valuable service that helps consumers to better manage their finances and helps banks strengthen their relationships with customers and improve their performance. However, proper account monitoring and customer communications are critical components of an institution’s efforts to protect consumers from undisclosed overdraft solutions that can cost more than any account overage they are supposed to correct.

Maintaining compliance is easier with an expert on your side While the CFPB inquiry is currently focused on a pre-determined number of banks, its final ruling will impact institutions across the board. A compliance expert can help you determine any aspects of your overdraft program that is not aligned with regulatory expectations and assist you in implementing and managing a completely transparent program that is 100 percent compliant, that provides a valuable service to your customers and improves your institution’s performance. www.pacb.org | Transactions | 13


PROVIDING

125 YEARS OF SERVICE,

MALVERN FEDERAL SAVINGS BANK

HITS A MILESTONE IN 2012

14 | Transactions | www.pacb.org


T

his year is a time of celebration for Malvern “For the past 125 years we’ve strived to fulfill the financial Federal Savings Bank, as 2012 marks the needs of people and businesses in southeastern Pennyslvabank’s 125th anniversary. While this is quite nia by offering our extensive line of banking products and a note-worthy milestone for any business, it services,” said Ron Anderson, president and CEO of Malvern is a significant milestone for Malvern FederFederal Savings Bank. “Equally important, however, is our onal. In a world of bank mergers and closings, going commitment to serving all members of our community this stability is truly distinguished. The bank, through charitable initiatives, volunteer activities and commuwhich first opened its doors in 1887, began as a single loca- nity leadership. Businesses and residents on the Main Line and tion in Malvern. It has since transformed into a mainstay in throughout Chester and Delaware County can count on us to the community, expanding to eight state-of-the-art finan- continue to meet and exceed their expectations by providing cial centers, spanning two counties with its headquarters superior financial services and community involvement for in Paoli. Each financial many years to come.” center, with locations in WE’VE BEEN AROUND LONG ENOUGH TO Berwyn, Coventry, Exton, In conjunction with all of Lionville, Malvern, Paoli the other festivities comHAVE SEEN MOST BUSINESSES WITHIN THE and Westtown in Chester memorating the bank’s REGION ESTABLISH THEMSELVES. County and Concordville 125th anniversary, Malin Delaware County, ofvern Federal Savings fers a variety of personal Bank and its employand business banking products and a host of banking servic- ees have commenced “125 Days of Sharing,” a companyes along with a complete range of loan programs, including wide community service and volunteer project that will last consumer and mortgage loans. through the end of 2012, and hopefully beyond that. The entire staff has pledged to provide 125 days of community Malvern Federal is a fine example of an organization that is service to nonprofit organizations within the communities in dedicated to providing outstanding personal service com- which the bank’s employees either live or work. The bank bined with the latest in banking technology. This model has has partnered with the Chester County Community Foundaallowed it to endure many years of success, as demonstrated tion to help identify a variety of local nonprofit organizations by this landmark anniversary. The bank’s willingness to ben- within close proximity to the bank’s footprint. Upon compleefit the community that it serves is a lasting mark that indi- tion of their volunteer efforts at the end of 2012, employees cates not only the passion and hard work of Malvern Federal’s will be recognized during a special ceremony. employees, but also the bank’s resiliency to withstand the test of time as it has served several generations from around the “We’ve been around long enough to have seen most busiarea. To celebrate this special milestone, Malvern Federal in- nesses within the region establish themselves and we have vites customers, neighboring businesses and the community founded relationships with many of these organizations,” at large to enjoy special events, product promotions and free said Scott Sterling, Director of Marketing. “Our participation giveaways the bank has planned throughout 2012. in 125 Days of Sharing gives us an opportunity to thank our www.pacb.org | Transactions | 15


customers, neighbors and friends for their loyalty and support extending more than a century.” Customers and neighbors of Malvern Federal can track the progress of the bank’s “125 Days of Sharing” initiative on a microsite, www.malvernfederal125.com, devoted to the hallmark anniversary. The site will serve as a portal providing up-to-date information on employees’ charitable endeavors, including photos from their volunteer experience. Regular updates will also be posted to Malvern Federal’s Facebook page at www.facebook.com/malvernfederal. “Though we have always supported the community, we are excited to have embarked on this endeavor to put volunteering at the forefront of our efforts as a community bank,” said Rich Fuchs, Senior Vice President of Operations. “We wouldn’t be where we are now without reaching out and helping the communities that we serve.” Throughout its history, Malvern Federal has made charitable contributions to local organizations as a means of giving back to the communities that have shown loyalty to the bank for decades. In doing this, Malvern Federal has become more than just a local bank, but one that is willing to demonstrate its

Berwyn Veterans Memorial and annually draws hundreds of participants. Malvern Federal has also served as threetime sponsor and host of Paoli Blues Fest, an all-day street festival featuring live music, performances and children’s activities. During this October event, the bank’s parking lot transforms into a major stage for Blues bands and a venue for kid-friendly entertainment. And for several years the bank has spread community cheer by participating in Malvern’s Victorian Christmas. This past winter they served as presenting sponsor of this holiday celebration and helped collect over 1,500 pounds in food donations for the Chester County Food Bank. Most recently, Malvern Federal participated in America Saves Week, an FDIC sponsored national program that encourages non-saving Americans to save through a social marketing approach. During this week, Malvern promoted the nationwide-savings program with “Malvern Federal Saves,” the bank’s personal initiative to assist customers and other local members in assessing their financial conditions, educating them on the significant benefits of saving, and encouraged them to start developing good savings habits at a young age. The bank also pledged to put the first $5 into any youth statement savings account opened during America Saves Week.

We wouldn’t be where we are now without

REACHING OUT AND HELPING dedication to the local community. In addition to “125 Days of Sharing,” Malvern Federal has shown a longstanding commitment to the community through its support and involvement in a number of local events, including the Berwyn Victory Run, Paoli Blues Fest and Malvern’s Victorian Christmas. In fact, the bank’s community outreach efforts have earned it a number of awards and recognitions within the region. Malvern Federal has won the “Best of the Main Line” award by readers of the Main Line Times and Main Line Suburban Life newspapers in 9 of the last 10 years. The bank received this honor as part of the publications’ annual “Best of Life” Readers’ Choice Awards, based on more than 40,000 online votes and thousands of votes cast in print. Malvern has also been a recurring participant in Community Banking Week, and in 2008 was named Overall Winner of PACB’s Community Banking Week Award. The bank’s theme was “Plant a Seed for a Secure Financial Future with Malvern Federal Savings Bank,” which earned them recognition for their “go green” environmental approach. The bank was also honored for the innovation and creativity of its theme, number of people affected and its success in promoting community banking. By providing customers with environmental tips and educational information, Malvern Federal helped increase awareness of the importance of going green and encouraged the community to engage in eco-friendly activities. This year will mark the bank’s return as title sponsor for the Berwyn Victory Run, a 5K run that raises money for the 16 | Transactions | www.pacb.org

“As we look back on the past 125 years, there is so much history and accomplishment to be proud of,” said Anderson. “We are especially honored to have served the surrounding communities for such an extensive length of time and as we embark on the next 125 years, we will continue to serve clients and businesses with the same dedication to providing a rewarding banking experience. We look forward to fulfilling our customers’ needs, not only as their bank, but as an active member of the community.” For more than a century, Malvern Federal has been a constant presence in the area. Much of Malvern Federal’s success over the past 125 years is due in part to three key objectives: understanding the communities it serves; being knowledgeable about and aiming to provide the best and latest in product and service offerings; and tuning in to what its customers want and need. As an institution rooted in the community, it is important to the bank to hire and retain dedicated employees who are committed to providing award-winning customer service. In exchange, it is important to Malvern Federal to consider the well-being of its employees and customers at all times. Malvern Federal’s strong commitment to serving others, combined with its ability to remain steadfast even in a down economy, has not only helped the bank to reach this milestone anniversary, but has earned it an award-winning reputation spanning decades. Malvern Federal welcomes everyone to join them in celebrating 125 years of serving the communities of Chester and Delaware counties. For more information, please visit www.malvernfederal.com.


www.pacb.org | Transactions | 17


MANAGEMENT SUCCESSION PLANNING:

WHY IS IT IMPORTANT FOR COMMUNITY BANKS?

By: Christina M. Gattuso, Kilpatrick Townsend & Stockton LLP

A

change in executive leadership is inevitable for any company and can be a very challenging time. In recent years, succession planning has been in the news with respect to high-profile public companies such as Bank of America, Apple and Hewlett Packard. Many community banks are finding that their bank regulators are now also focusing on succession planning in connection with the regulatory examination process. This article discusses why boards of directors of community banks need to ensure that there is a management succession plan in place and that succession planning is considered by the board of directors at least annually. A board of directors has a fiduciary responsibility to address major business risks to which a community bank may be exposed, which includes the loss of a senior executive officer. Indeed, one of the most important decisions that a board of directors of a community bank can make is the selection of the chief executive officer and the bank’s senior management team. It is also important that chief executive officer and other senior management executives be assessed annually under a formal assessment process. Consistent with these decisions, a board of directors must ensure that the 18 | Transactions | www.pacb.org

bank is prepared for a temporary or an eventual, permanent change in leadership, either planned or unplanned, to ensure that the bank continues to operate without interruption until new leadership is appointed. In examining a bank, the bank regulators review the quality of risk management. One of the objectives of such a review is to ensure that the board of directors has adopted polices that enable the board members to fulfill their duties and responsibilities as directors and to comply with laws and regulations relating to safety and soundness. Examination guidance provided by the bank regulators cite a management succession plan as an example of a common policy that is specific to the board of directors of a bank. It is also a factor taken into account in the management component of a bank’s CAMELs rating. The Director’s Book published by the Office of the Comptroller of the Currency states that the board of directors should develop a management succession policy and that such a policy should identify critical positions at the bank and qulified potential, including interim, replacements. The Director’s Book also notes that the board of directors should review these contingency plans annually to determine if they remain viable. The examination policies of the other federal banking regulators and many state banking regulators are


similar. For community banks that are publicly-traded companies, recent Securities and Exchange Commission guidance makes clear that succession planning is a key board function and a significant governance issue.

absence and, if the board of directors has indentified the person or position that will serve as interim chief executive officer during the temporary absence, the plan should name that person or position.

Given these considerations, it is important that the board of directors of a community bank develop a management succession plan. Depending on the size and complexity of the bank, the key officers covered by a bank’s succession plan could include the chief executive officer, the chief financial officer, chief operating officer, chief loan officer and, for larger banks, the chief risk officer. The board of directors should adopt a management succession plan and such plan should be reviewed at least annually. The annual review of the plan should be reflected in the bank board minutes.

Another component of the succession plan is how the bank will handle an unplanned change in chief executive officer, such as the death or permanent disability of the chief executive officer. In this type of event, it is important to avoid a crisis situation and to ensure that the bank’s operations are not interrupted while the board assesses the leadership needs of the bank. As such, the plan should address how the board will handle the unplanned departure and indicate who will fill that position, whether on an interim or permanent basis. Unless limited by the board of directors, the interim chief executive officer would have all the powers of the position.

As a starting point in developing a plan, the board of directors needs to determine who has the primary respon- Lastly, the succession plan should also address a persibility for succession manent change in the planning. The full board chief executive offiTHE PROCESS OF DEVELOPING A SUCCESSION of directors could have cer, whether due to a such responsibility or the planned retirement or PLAN INVOLVES A DETERMINATION OF THE responsibility for develresignation or whether oping a succession plan SKILLS AND EXPECTATIONS FOR THE POSITION. to appoint the person may be delegated to a who will succeed the committee of the board interim chief executive of directors – a compensation committee, nominating/gov- officer following an unplanned change in chief executive ernance committee or a succession planning committee. It is officer. The plan should provide that the board of direcalso important that the chief executive officer be involved in tors will ultimately determine whether the position will the process and assist in the evaluation of possible succes- be filled by an internal or external candidate, based on sors for his or her position as well as with respect to other guidelines to be established by the board of directors or a identified senior management positions. The chief executive committee thereof. The plan also can provide for the apofficer should also have the responsibility to keep the board pointment of a search committee to interview candidates of directors apprised annually as to the identification of in- for the position or to retain an executive search firm to ternal management talent for purposes of providing poten- assist in the search for potential external candidates to tial successors to the chief executive officer role. fill the role of chief executive officer. Depending on the bank’s management structure, the management succesThe process of developing a succession plan involves a deter- sion plan should also address the process by which intermination of the skills and expectations for the position, tak- im or permanent successors ing into account the bank’s strategic plan, culture and com- for other identified managemunity. As part of this process, the board of directors should ment positions will be identiconsider, among other things, an individual’s familiarity with fied and how such positions the bank’s market area and participation in and ties to local will be filled. businesses and organizations; financial, regulatory and business experience and knowledge of the banking industry; ability to represent the bank’s best interests and devote sufficient Ms. Gattuso is a partner in time and energy to the performance of his or her duties; and the Washington DC Office personal and professional integrity, honesty and reputation. of Kilpatrick Townsend & Stockton LLP and a memA succession plan should set forth the process by which a ber of the Firm’s Finansuccessor would be chosen. This should include a formal cial Institutions Team. process to interview and assess internal candidates, inMs Gattuso focuses her practice on corpocluding exposure to board members, as well as a process rate and securities matters, mergers and acquisitions to review outside candidates. The succession plan should and financial institution regulatory matters. She adaddress the temporary absence of the chief executive offivises boards of directors and board committees on cer (i.e., an absence in which it is expected that the chief excorporate governance matters, including corporate ecutive officer will return once the events precipitating the and regulatory best practices, and represents finanabsence are resolved, but is more than a regular vacation cial institutions on a wide range of bank regulatory or routine illness.) The plan should set forth the procedures and enforcement matters. for how the board of directors will handle the temporary www.pacb.org | Transactions | 19


135TH ANNUAL CONVENTION VAIL MOUNTAIN RESORT & SPA 路 VAIL, CO AUGUST 17-20, 2012

CONTACT SAUNDRA CUNNINGHAM, AT (717) 231-7447 OR BY EMAIL AT SAUNDRA@PACB.ORG.

20 | Transactions | www.pacb.org


2012 SPONSORS & EXHIBITORS VAIL MOUNTAIN RESORT & SPA · VAIL, CO • AUGUST 17-20 • 135TH ANNUAL CONVENTION

SPONSORS DIAMOND

Jack Henry Banking

PLATINUM

FHLBank Pittsburgh

GOLD

Griffin Financial Group, LLC Luse Gorman Pomerenk & Schick, P.C. PNC Capital Markets S.R. Snodgrass Stevens and Lee

SILVER

BMO Capital Markets Elias, Matz, Tiernan & Herrick LLP Shumaker Williams, P.C. Stifel Nicolaus Weisel

EXHIBITORS Allied Solutions Barone Murtha Shonberg & Associates Inc. GTM Risk Management Herbein & Company, Inc. Hergenroeder Rega Scotti Ewing ICBA ICBA Securities iHELP Jack Henry Banking Mortgage Services III, Inc Northland Securities, Inc. Secure Banking Solutions SHAZAM, Inc. Shumaker Williams, PC Terrapin Financial Services, LLC Vantiv Woodcraft Industries

BRONZE

GTM Risk Management

GENERAL SPONSORSHIPS The Kafafian Group, Inc. Travelers Insurance Group Vantiv

WHY SPONSOR

Are you looking for an opportunity to support the Pennsylvania “Community Banking” industry? Look no further….Sponsorship of the PACB 135th Annual Convention could be the best investment you make. Our Convention is a great juncture to network with community bank presidents/CEOs, senior management and directors from across Pennsylvania. Your 2012 marketing plan should definitely include a sponsorship at the PACB 135th Annual Convention! There are a variety of sponsorship opportunities available. We will work with you to provide a sponsorship that fits your budget.

WHY EXHIBIT

This “one-stop-shop” advantage provides Pennsylvania community banker presidents/CEOs, directors and senior management an opportunity to explore the latest in banking and technology. In today’s economic environment, our members are looking for ways to streamline operations and productivity while increasing profitability at the same time. This “one-stop-shop” venue provides every exhibitor the opportunity to meet with a large contingency of Pennsylvania community banking “decision makers” one-on-one.

QUESTIONS

If you have any questions, contact Saundra Cunningham, PACB VP-Education Services, at (717) 231-7447 or by email at saundra@pacb.org. www.pacb.org | Transactions | 21


I

n 2009 the Federal Deposit Insurance Corporation (FDIC) increased the number of its Regional Ombudsmen from three to six. Each Regional Ombudsman is now responsible for only one of the FDIC’s six Regions. The Regional Ombudsman for the New York Region is Glenn A. Watler. His background and experience in the Dallas and New York Regions makes him well suited to address concerns resolved through the Ombudsman role. The FDIC’s Office of the Ombudsman was created by Congress in 1994 to serve as a confidential, neutral and independent resource for individuals who have a question, concern or complaints about the FDIC regulatory process. FDIC Ombudsman Cottrell Webster and his staff of Regional and Senior Ombudsmen are advocates for fair process and are available to help resolve banking issues in an informal, discreet manner.

22 | Transactions | www.pacb.org


www.pacb.org | Transactions | 23


We advocate for fairness in the process. We don’t advocate for the bank or for the FDIC. That’s where our neutrality comes in. 24 | Transactions | www.pacb.org


Ron Geib (RG): Clearly, right now, we’re in a period of tunity to talk openly, to hear your thoughts, your expressions, time where I think the regulatory environment has sur- your ideas, and your concerns, good, bad, or indifferent. This passed the legislative environment in terms of the focus of week I am visiting banks in Connecticut and Pennsylvania. banks’ attention. With everything that happened on Wall I’ll take those comments and write a summary to my director Street, and so forth, there’s a really intense pressure on in Washington, D.C., stating, “This week I visited community a lot of the banks now, and there’s a huge focus on the bankers in Connecticut and Pennsylvania; here are their comregulatory environment. That’s created some tension be- ments.” The bankers’ names are never mentioned. tween banks and regulators, and one of the reasons why we reached out to you and wanted to sit down to really RG: So outside of the banks actually contacting your talk about the Office of office, there’s also outthe Ombudsman and reach that you’re doing. I DO CONTINUOUS OUTREACH. I HAVE get a feel for what you do and how your office RESPONSIBILITY FOR BANKS IN THE 14 STATES GW: Yes, I do continuis designed to assist in ous outreach. I have reOF THE FDIC NEW YORK REGION. tense situations. sponsibility for banks in the 14 states of the FDIC Glenn Watler (GW): Usually bankers contact us, asking New York Region. I try to group banks in a geographic us to proceed on their behalf. At that point I would inform area, along with their commissioner and trade associathem of our neutrality, independence, and confidentiality. In tion, to get a feel for what they’re thinking and seeing, order to proceed, the bankers give their authority and per- and also solicit variety in thought. When I return to Pennmission to be identified, saying, “Glenn, it’s okay, you can sylvania, I will probably visit your office, and I will see go ahead and use my name.” Otherwise, I proceed on their the Commissioner again in Harrisburg, and I will select behalf, but keep them anonymous. five to ten banks within the state and just talk to them. All my reporting to D.C for that week will be focused on RG: You mentioned something that’s pretty critical, and Pennsylvania banks. that is confidentiality. Can you talk a little bit about that? RG: I see a number of different tactics that the banks emGW: Confidentiality means just that. For example, no one ploy. Some are very outspoken and if they don’t like what outside the Office of the Ombudsman knows that I’m here they’re seeing, they’ll bring it up and they’ll fight their except for the people in this room. I’m not hiding from any- battle. Others are a little more cautious and reserved, and body, but my effectiveness starts with confidentiality. Com- they more or less don’t feel the confidence or the security bined with independence, confidentiality gives me the oppor- to step up and challenge some of the things in a report. www.pacb.org | Transactions | 25


Community banks are operating in an increasingly challenging and dynamic environment. At Kilpatrick Townsend, we have more than four decades of experience handling legal and practical issues in the business and financial world. We understand your needs and goals, and provide the highest quality legal services to help reach them. Most importantly, we listen to and build relationships with our clients, just like community bankers do in their communities. To learn more about how to connect your business with trusted counsel, visit www.kilpatricktownsend.com.

www.kilpatricktownsend.com ATLANTA AUGUSTA CHARLOTTE DENVER SEATTLE SILICON VALLEY STOCKHOLM

DUBAI NEW YORK OAKLAND RALEIGH SAN DIEGO SAN FRANCISCO TAIPEI TOKYO WALNUT CREEK WASHINGTON WINSTON-SALEM

freedom of choice Choose an EFT Network Invested in You While some would like community financial institutions to have fewer choices and less control, SHAZAM believes that community financial institutions must remain in control of their own futures. SHAZAM is owned and operated by community financial institutions. We understand who you are and what you believe in. We’re here for you, providing the cost-effective technology that makes you more effective. You do have a choice in EFT networks. Choose the only EFT network invested in your success.

www.shazam.net

26 | Transactions | www.pacb.org

(800) 537-5427


What makes the process work well when a bank does decide to challenge an issue? GW: The FDIC Office of the Ombudsman first encourages bankers to give the normal supervisory channels of review and appeal the opportunity to work. Examiners, field supervisors, case managers, regional directors, and headquarters staff are typically willing to listen to bankers, especially when errors in fact or interpretation can be demonstrated. However, when the communication process between bankers and supervisory personnel is broken, or the results are unsatisfactory to bankers, the FDIC Ombudsman has a liaison role to serve. Sometimes our office simply builds a bridge between the bankers and the supervisory staff, all on an informal basis, to re-establish relationships or hopefully produce satisfactory outcomes for all parties involved. That’s why part of my role is to reach out to the bankers who are not aggressive or feel the need to call my office, rather than their relationship manager or other supervisory personnel. We meet and, if you feel comfortable with me, you become my ambassador and say to your colleagues, “You remember that issue we talked about? There is somebody you can call.” I like being a referral. If your co-horts feel like I’m a man to be trusted, that trust is passed along. It’s about the integrity of my office. We are trying to build relationships.

ers, “These are preliminary findings, your draft findings, and you have recourses to this through informal and formal processes. The Office of the Ombudsman is also an avenue for you.” I reach out to field offices to let the examiners know on a continuous basis, “I’m here. Remind bankers who have issues that the Ombudsman is available to them.” To answer your question, you have to bring me into the process. RG: And this applies to any process, the safety and soundness and compliance? Because, we find those are two different experiences, almost like they come from two different silos. The spirit, the culture, the feel from those two different exams is different. It’s hard to imagine that they are both under the FDIC. GW: I’m conversant with the risk (safety and soundness) and compliance rating methodology because I am a former examiner. The examination process for each of those areas is unique and can sometimes give bankers a sense that risk and compliance examinations operate at crosspurposes. I am happy to discuss any examination topic with a banker. Perhaps I can explain the process more fully or assure the banker that the particular experience is not unprecedented or unfair, but simply new to the banker. I am speaking in terms of an informal process,

We want to support a

HEALTHY AND VIBRANT BANKING SYSTEM RG: Now, this actual meeting started with a trip by the executive committee of PACB down to DC to reach out to the Washington office. We felt this was important to share. A lot of the banks seemingly know you’re there, but a lot of them are just uncertain. One of the things that came up through some rolling dialog isn’t just how a banker is being evaluated, but also the issue of consistency between regions. GW: Bankers have mentioned the issue to our office as well, and we work closely with the supervisory staff when we hear those kinds of consistency comments. We meet on a regular basis with supervisory staff on any matters that we are hearing which may be systemic in nature, be it risk or compliance. RG: You mentioned about hearing the pushback from bankers to examinations. If a bank doesn’t agree with part of the review process after an exam, they can “throw the red flag”; they can challenge or push back. Do you see those pushbacks and challenges? If we don’t come to you directly, are you aware of our concerns? GW: Unless you bring me into the picture, I won’t be a part of the process. It starts with you. The examiner should be informing you, and they often do. They’ll say to the bank-

of course. Once the FDIC initiates a formal process, I’m out of the picture. However, the Ombudsman’s independence allows me to reach in and talk with multiple levels of our organization, so if the issue is important and systemic I report it to Washington. RG: Taking off on a point you just made. I’m assuming it’s better for a bank to approach you earlier in the process than later in the process. GW: Right, it’s better to approach me as early as possible when the process doesn’t seem fair and formal action has not commenced. Fairness is the key word there; we advocate for fairness in the process. We don’t advocate for the bank or for the FDIC. That’s where our neutrality comes in. RG: We understand the reality of relationships and employments, but there seems to be talk among the banks that some examiners are almost protecting their careers by being tougher. In other words, if they give passing grades and then the bank fails, they go back to previous exams to see how the examiner missed this. The examiners’ careers are at stake, so it’s almost as though the examiners figured out that if they give everybody a “C”, they can’t lose. www.pacb.org | Transactions | 27


GW: Each step of the review process is independent of the other. So if a rating is not supported at the field level, it shouldn’t move past the next review step at the regional level, or at the Washington level. There is no conspiracy, although I realize that bankers feel that there is. The process is designed to eliminate unfairness, period. The FDIC doesn’t mandate examiners be heavy-handed, because we want the facts to guide the exam. In the end, we want to support a healthy and vibrant banking system that is able to lend and support the broader economy. RG: Has your activity picked up in the last three years since more Ombudsman positions have been added? GW: In 2008, there were only three Regional Ombudsmen positions in the entire country. In 2009, as the industry and economy changed, the number of Regional Ombudsmen

A 30-year FDIC veteran, Mr. Watler served most recently with the risk management staff in the Dallas Region. He began his career as an examiner trainee in the New York Region. He has been a Class Liaison for the Corporate Employee Program, a longtime instructor for the Examination Management School and has served several assignments at the FDIC’s Training Center in Arlington, Virginia. He holds a Bachelor of Science degree from Northeastern University, Boston, Massachusetts.

increased to six, so now every FDIC region is staffed. Problem banks and resulting bank closings in the last four years shifted my assistance to the depositors and the loan customers of failed banks. Now we’re back to the traditional Regional Ombudsman role because the bank closings have slowed. The six Regional Ombudsmen are making a lot more contacts with executives like you, bank commissioners, and of course, bankers. RG: To close up the interview, is there anything else that you would like to say to the banks regarding your office? GW: Let me again stress the independence, neutrality and confidentiality of the FDIC Office of the Ombudsman. Bankers should feel comfortable in talking to me and knowing that I will work hard at finding an answer to their questions and concerns. That’s the sum of it.

The FDIC is committed to being responsive to its primary stakeholders – insured depositors and the bankers who serve them – and encourages anyone with an unresolved banking issue to contact the Office of the Ombudsman, a group that performs independent, neutral and confidential reviews. Regional Ombudsman Glenn A. Watler may be reached at (917) 320-2699 in New York. FDIC Ombudsman staff in Washington, D.C. may be reached toll free at (877) ASK-FDIC.

We’re back to the traditional Regional Ombudsman role because the bank closings have slowed. The six Regional Ombudsmen are making a lot more contacts with executives like you, bank commissioners, and of course, bankers.

28 | Transactions | www.pacb.org


Combined with

independence, confidentiality gives me the opportunity to talk

openly www.pacb.org | Transactions | 29


Re

r e t gis

e n i l on

g! r o . cb a p at

APRIL 18

Holiday Inn Harrisburg - Hershey

SECURITY SEMINAR

OVERVIEW INTRODUCTIONS & SECURITY UPDATE Crime trends are as important as headlines when evaluating actions and reactions for financial institutions. The Security Director must stay current in order to make informed decisions and report to the Board. Here’s where you learn what’s new. CONDUCTING A PHYSICAL SECURITY REVIEW This information packed program will provide you with a recipe on how to conduct your annual security review. No longer can you just use a checklist to determine if your bank is safe. We will instruct you on how to think like a criminal to protect your assets, information and people. Today, the criminal world attacks your bank via computer, customers and social engineering ploys. Your annual review should find or correct problems with physical security, robbery procedures and staff training.

CREDITS CPE Credits Attendees are eligible to earn up to 7 CPE credits.

PRESENTER Barry Thompson, CRCM Managing Partner Thompson Consulting Group, LLC

QUESTIONS? Contact Saundra J. Cunningham, PACB VP-Education Services, at 717.231.7447 or saundra@pacb.org. | | 30

Transactions

www.pacb.org

WHEN SOCIAL MEDIA ATTACKS Facebook, LinkedIn, MySpace, Google+ and other social media websites are changing the world. Banks use the social networking phenomena as an effective method for attracting an ever-younger (and an ever-older) client base. Social Media can also be used as a weapon against a bank. We will review how this channel unmonitored can become a nightmare for public relations. This session will demonstrate how a social media attack can be constructed. A successful attack could in one day cause the bank to lose market share, accounts and negative publicity that might eventually cause a bank to merge. This presentation demonstrates the need to monitor your bank’s image as it appears on social media websites. We will discuss embarrassing problems that other businesses and financial institutions have had to handle – and pro-active solutions that will keep your bank in the “like” category. ELDER FRAUD As the baby boomer generation ages, “Elder Fraud” will be the biggest growing segment for crime in our country! The criminals will target highly educated people for the greater riches they provide. Often they have worked in occupations that have placed them in close contact with senior citizens. They know exactly how to manipulate the elderly and don’t care anything about the victims. Many of those who become victims will not admit to it or be unwilling to prosecute the criminals. The reason is simple they don’t want anyone to know that they were deceived. We will review how the attacks work as well as how to get the unfortunate help! This information packed session will give you a whole new perspective on elder fraud. INTERNAL FRAUD: THE WARNING SIGNS Defalcations/Embezzlements were one of the most reported SAR events filed by financial institutions from 1996 to 2011. Internal embezzlements have caused financial institutions to fail overnight. This riveting session identifies the behavioral changes that can identify internal frauds in the making! We will review the warning signs that every staff member should look for or be able to identify to help stop an internal embezzlement.


LOAN PORTFOLIO SERVICING

R

N

G

YOUR SBA BUSINESS LENDER SERVICE

R

Newtek can provide you with comprehensive Business Lending services to promote customer & deposit retention, reduce your

I

C

I

costs and mitigate risk from Guaranty repair issues.

R

V

Th e R e fe rra l Pro g ra m Newtek offers a unique fee based business model originating form our referral partnerships. Includes relationships with: Banks

E

Credit Unions Other Finance related entities such as Morgan Stanley

Newtek provides one or more of its services to more than 100,000 business accounts throughout the United States. Newtek has

S

been branded as a one-stop shop of business

“ Wh i te L a b e l ” O ri g i n at i o n s

services to the small- and medium-sized business market

O

Underwriting, Closing and Secondary Market Sale of YOUR loans by SBA professionals Loans are underwritten to meet SBA Guaranty Eligibility, with your institution providing necessary Credit Committee & funding

L

I

Our clients utilize the Newtek proprietary platform for the broad based marketing and sale of the SBA guaranteed portions of your SBA 7(a) The Newtek platform facilitates solicitation of bids from up to 13 participating

F

O

institutions and broker-dealers Upon acceptance of a bid by you, Newtek will prepare and issue the Loan Sale Package (Security documents, 1086, etc.) to the investor. Upon acknowledgement of Colson’s acceptance of the loan for Servicing,

P

O

R

T

Newtek updates the portfolio database and all ancillary reports

full suite of business solutions

Lo a n S e r v i c i n g / Sp e c i a l S e r v i c i n g

-Accounts Receivable Financing

Party Loan Servicing of small balance ($50,000 to $10,000,000) “conventional”

-A/R Management Services

loans, SBA Loans originated in the 7(a) and Express Loan Programs and other government guaranteed loans from programs originated by USDA and other agencies

A

N

with receivables Financing and Merchant Cash Advance Divisions

O

also includes:

Standard & Poors rated as a Commercial Loan Servicer/Special Servicer for Third

Active Commercial Lender, providing SBA 7(a), 504 and Express Lending along

L

Newtek Business Services, Inc.’s

C O N T A C T

-Insurance Services -Merchant Cash Advance -Merchant Processing -Ecommerce -Web Services -Data Storage -Payroll Services

Robert T. Hawes Senior Vice President 212-273-8197 rhawes@newtekbusinessservices.com www.pacb.org | Transactions | 31


COMMERCIAL LENDING & COMPLIANCE CONVERGE

WILL YOU BE READY?

H

By: Kimberly Songer, Director of Risk Solutions & Jay T. Jennings, Managing Senior Compliance Counsel

istorically, commercial lenders have not been burdened by the same volume of regulations and standard processes as consumer and mortgage lenders. A few notes on a napkin were all a lender needed to initiate a commercial loan request. Times are changing, and 2012 could bring significant changes to the amount of regulatory compliance commercial lenders must deal with. President Obama’s recent recess appointment of Richard Cordray as the director of the Consumer Financial Protection Bureau (CFPB) will accelerate the regulatory reform process that began with the enactment of the Dodd-Frank and Wall Street Reform Act of 2010 (the DoddFrank Act). Lenders will have to be agile in order to keep up. Legal and Regulatory Drivers There are two legal and regulatory drivers that suggest more formality is necessary in the commercial loan application process. One already exists, and one is brand new. The Equal Credit Opportunity Act (ECOA) and Regulation B have long required lenders (yes, even commercial lenders) to understand when they have received an application for credit so they can provide the Regulation B required notices (such as adverse action notices or incomplete application notices). It is also critical for Regulation B purposes to understand when a received application is complete in order to comply with the timing requirements to provide such notices. The Dodd-Frank Act increases the compliance stakes in the commercial application process through new data collection requirements. Section 1071 of the Dodd-Frank Act amended the ECOA to require lenders to collect additional data at the time an application is submitted when the applicant is a small business, or a minority-owned or women-owned business. This change is often referred to as the new “small business data collection” requirements, and the 14 data points specified in Section 1071 are similar, but not identical, to data collected for HMDA and CRA reporting. This data must be maintained and ultimately reported to the CFPB annually and others upon request. The CFPB will issue rules to implement this new requirement and will undoubtedly expand the data points listed in Section 1071. These rules will be critical for defining what kinds of commercial loan applicants are small businesses or minority-owned or women-owned businesses, and how lenders are to go about the process of collecting, maintaining and reporting the data. These new requirements will not only impact the data collected by a lender when an application is taken, but also will drive new application time processes and call for new controls related to data access, storage and reporting. 32 | Transactions | www.pacb.org

for Harland Financial Solutions for Harland Financial Solutions

Reevaluating the Commercial Application Process It’s not too early to start thinking about how the Dodd-Frank Act ECOA changes may impact your commercial loan application policies and processes, and how you will build the necessary data collection steps into those processes. Will your current processes be sufficient to help you comply with the new regulations? A few key questions that you should ask: • What constitutes a credit application according to your institution’s policies? • When is a credit application ‘complete’ according to your institution’s policies and practices? • What are your compliance obligations in light of those policies and practices? When doing this review, it is important not only to consider what your policies are, but also to evaluate your practices, i.e., what really happens within the institution. For example, your policy may state that a commercial application must be in writing on a specific bank form. However, if your practice is to allow customers to request a loan by simply calling a loan officer, then when it comes to regulatory requirements, you must treat these applications the same way you would if they had been submitted in writing – which may be less than ideal in light of the new ECOA data collection requirements. Clearly defining what information is necessary to have a completed commercial loan application will also be very important. The information collected on the back of that napkin will no longer cut it. Because the new ECOA data collection requirements are specific to a subset of applicants, knowing when to collect data and, more importantly, when not to collect data should be identified in the application process. Those institutions that have processes and systems that support consistent, disciplined entry of commercial application data will be better positioned to capture, maintain and report the necessary data to the CFPB and others. There is a lot of regulatory rule-making work to be done by the CFPB before we will know exactly what the compliance obligations will be. However, that should not prevent you from evaluating your policies and your practices to see where they may be out of alignment and what changes will need to be made to the commercial application process. One thing is for certain, change is coming – will you be ready? Kimberly Songer is director of risk solutions at Harland Financial Solutions and can be reached at kimberly.songer@harlandfs.com. Jay T. Jennings, managing senior compliance counsel for Harland Financial Solutions, can be reached at jay.jennings@harlandfs.com


FULL FDIC COVERAGE FOR

TRANSACTION ACCOUNTS By: Fran Harris

D

uring the financial crisis in 2008, the FDIC sought to stabilize and provide liquidity to the banking system by extending full FDIC coverage for transaction accounts. The program was established to prevent sudden withdrawal of deposits that could have destabilized the banking system exacerbating the crisis. Transaction accounts do not have restrictions on withdrawals, and are typically used by businesses of all sizes as well as municipalities, hospitals and other nonprofit organizations to meet payroll and operating expenses. This program has allowed banks of all sizes to maintain the liquidity, stability and customer deposit confidence to grow and make new small-business and consumer loans in local communities. Today, the economic recovery is still fragile and the global banking system is in a tenuous state; the loss of full coverage would be unsettling. It is important to the overall banking system that we maintain a continued flow of credit as the economy regains its footing. We must let our congressmen and women know that we support the extension of this program for another five years and that it must be passed as soon as possible. Full FDIC coverage for noninterest-bearing transaction accounts will expire December 31, 2012. Here’s a list of the key benefits of full FDIC coverage: • Full FDIC coverage for transaction accounts works. The program gives banks the liquidity and stability to grow and make new small business and consumer loans. But the economy remains at risk. Even though economic and financial market conditions have improved, the recovery is far from entrenched. A worsening of the crisis in Europe could shock the financial system and drive the U.S. economy back into recession. Depositors and other investors remain highly sensitive to risk, as evidenced by the historically low yields on U.S. Treasury debt and bank deposits. • A potentially destabilizing shift in deposits must be avoided. If full FDIC coverage ends abruptly, transaction account funds in excess of $250,000 could flee an institution at the click of a mouse with uncertain economic consequences. The shift in funds could destabilize the recovering banking system, curtail credit, and threaten the fragile economic recovery. • Full FDIC coverage is fully paid for. The cost of the additional coverage is reflected in the FDIC’s assessment

rate schedule. Importantly, large banks pay for insurance coverage which, because of their systemic importance, they would implicitly enjoy without the program. • Full FDIC coverage keeps business and municipal accounts secure. Small businesses, hospitals and other entities use transaction accounts to meet payroll and other expenses. Municipal governments use these accounts to deposit local tax revenues and for operating expenses. These entities depend on insurance coverage to keep their deposits safe and secure. • Full FDIC coverage keeps business and municipal deposits in the community. For community banks, full FDIC insurance coverage of noninterest-bearing transaction accounts has been essential to retaining business payroll and checking accounts. Full coverage helps community banks attract and retain deposits from municipal governments, keeping local funds invested in the community. Because deposit accounts are often packaged with loans and lines of credit, the significance of full FDIC insurance coverage goes beyond deposit retention to lending opportunities and community bank profitability. The loss of full FDIC coverage for transaction accounts would contribute to further consolidation in the banking industry, harming the customers and communities served by community banks. • Full FDIC coverage deters deposit concentration. Full FDIC coverage for noninterest-bearing transaction accounts helps community banks compete with the largest banks for deposits and deters concentration of deposits in a small number of institutions. Full FDIC coverage helps preserve the viability of community banks and a balanced financial system. • Full FDIC coverage supports government revenues. The higher premiums paid to the FDIC as a result of full coverage for transaction accounts support a robust FDIC deposit insurance fund (DIF) and provide increased revenue to the government under unified budget accounting. If you are looking for more information about what is happening in the PA Legislature or in Congress, please don’t hesitate to reach out and contact me at frances@pacb.org or 717-231-7447.

www.pacb.org | Transactions | 33


FIVE MINUTES

WITH CONGRESSMAN

MIKE KELLY FRAN HARRIS (FH): You were elected in 2010 and began your term in January 2011. Can you give us your perspective as a freshman on your first year in Congress? What was most unexpected?

a common sense that comes with you that you can bring, that I think was the best part. The most unexpected thing was the amount of time, again, spent on the continuing resolutions and the debt ceiling debate. There are a lot of things that we don’t have to keep doing to ourselves. We’re slowing down our ability to recover by getting involved in things that don’t make sense to anybody in the private sector.

CONGRESSMAN KELLY (CK): It went by much too quickly. But unfortunately, one of the things that was disappointing is the fact that we had continuing resolution after resolution and debt ceiling debates. There is a lot of legislation that FH: After your first year I THINK I HAVE A LITTLE DIFFERENT we needed to move on, in Congress is there PERSPECTIVE HAVING LIVED LIFE A LITTLE BIT anything you would that I think we needed to move on much quickchange about the instiLONGER THAN A LOT OF MY COLLEAGUES. er, but it hasn’t gotten tution itself? there yet. Coming out of the 111th Congress with no budget to work with, really CK: You know, I would hope that after being in Washingslowed down the process even more than it usually does. ton, where a lot of this new blood came from the private The best thing I had my first year was at my age having sector, we brought common sense experiences with us. lived an awful lot of life. I’ve had my nose bloodied on We have been living in the outside world, outside the many occasions; you learn and being there as a freshman Beltway, and are not career politicians. I think that’s abagain, I think I have a little different perspective having solutely essential. I think when the founders first devellived life a little bit longer than a lot of my colleagues. oped our form of government they knew that, and you Being in the private sector my whole life, I think there is look where they came from. They were all just common


men coming forward, forming the greatest institution in the world and they knew that was going to take place in the private sector going forward. I think it’s morphed into something that’s different. If I were to change it at all, I think term limits are something that makes sense to a lot of us. I will tell you right now; will it happen? I think a constitutional amendment is very difficult to get. We couldn’t get a balanced budget amendment through; I don’t know that we’re going to get term limits through. Especially when some people like the idea that it can become a career and not a cause. So, I would love to see more of us from the private sector, more common sense people get there that don’t have too many links to the way things have been done for too long. FH: You’ve been assigned to three committees and several subcommittees. Can you tell us about your work with these committees, and if you have a favorite, which one would it be and why? CK: You know as far as a favorite, I don’t have a favorite; I like them all! I wish I had more time to spend with each committee; being on three requires you to do an awful lot of homework and a lot of prep work. But

the state of the Middle East. And I can tell you from being in every one of those countries and talking to their political leaders that the one thing they keep wondering is ‘Is the US going to weigh in on these things?’ ’Is the US going to take a lead on these things?’ In the past, we’ve always looked to you (United States) for a sense of direction and a sense of commitment. And what I heard from every one of these folks, to a person, was we need the United States to be more vocal; we need the United States to be more present; we need the United States to again assume its leadership of the world. You are the one that we all look to. Whether we like it or not, in this world everybody wants to be like us. Now some people hate us; they’d like to see us done away with, but overwhelmingly they look to the United States; they love who we are, they love our freedom, they love our democracy. Look at what’s happening in that area of the world. These folks want democracy, they want their personal liberty. We are that beacon of light, and they turn to us all the time, but we’re not leading as strongly as we should and as strongly as we need to. My impression from the other part of the Middle East was, “boy, what a state of turmoil!” If people think that this thing with Iran is going to work itself out, they are absolutely wrong. Iran is a very aggres-

Whether we like it or not, in this world

EVERYBODY WANTS TO BE LIKE US I’ve been able to see things happen in (Committee on) Oversight; we have jurisdiction over everything in the government. We’re the eyes of the people, we’re their government. On Oversight, I’ve enjoyed that whether it be fast and furious, whether it be the NLRB debate, whether it be the HHS language debate, whatever it would be, we get a chance to weigh in on it. Now, the Education and Workforce (Committee) reviews the No Child Left Behind and things such as healthcare issues. That could perhaps get involved with looking at, while we may not be happy with it, the Patient Protection and Affordable Care Act, which some people call Obamacare. It’s okay to be against it, but you better have something that’s better. We are working on making that even better; more affordable, more accessible to Americans. Lastly, when you talk about Foreign Affairs, being on that Committee has given me a chance to view the world in a whole different light and a whole different view. So, I enjoy all three of them. They keep me very busy but it’s been very worthwhile. FH: In January you took a Congressional Delegation bpartisan trip to the Middle East; Turkey, Qatar, Saudi Arabia and the United Arab Emirates. Can you give us your impressions from the trip about the current state of Middle East? CK: All you have to do is turn on your TV at night to see

sive country. They are not developing nuclear weapons to protect themselves; they are developing weapons so they can be aggressive, they want to be the aggressor. All those countries that we talked to, they think if Iran has nuclear weapons, we better get nuclear weapons because they’re not going to just sit on them. They are going to come after us. And when you look at how close all these countries are, how interlinked they are, you know right now that’s a very close neighborhood. They need Iran to be put in place, and make sure that they don’t get nuclear weapons. I think they’re (Iran) on a fast pace to get them. A much faster pace than the American public knows. Those people in that area of the world are scared to death of what’s happening. What they’re more afraid of is that the United States is not going to come in and take the lead on this. Look at Israel right now. Israel is going to have to defend itself; it’s not going to sit back and wait for the United States to weigh in. We need to take an aggressive stance; we need to tell these folks it ends today. And if you’re going to say it, you better actually have the will to do what you have to do. It’s a dangerous situation. It’s a very tough deal because that section of the world has so much of the energy resources and a lot of the world relies on them for their energy sources. You don’t want that region to be unstable. FH: What are your legislative priorities going into the second year of your term? www.pacb.org | Transactions | 35


CK: You know what? The same as the legislative priorities as the first year: get Americans back to work. Look at the government. It has got to reduce its effect on American industry, on everything. I’m not just talking about people that make things, I’m talking about people who sell things, I’m talking about people in your industry, the banking industry. You cannot be constantly under the fear of some new regulation, and thousands and thousands of pages of rules and regulations that nobody has had a chance to read yet because they weren’t written at the same time the law was passed [Dodd-Frank]. We’ve got to find a way to reduce the size of government, to back off on the regulations. Make it possible for the private sector to take the risks that they are willing to take, as long as they know they have a shot at making it. It’s uncertainty that holds us all back. Whether you’re selling cars or putting products on the shelf. You’ve got to have some degree of certainty that you’re going to be able to actually do it. I don’t know how the world will move forward if the banks don’t become stabilized. In our country, we rely on the ability to borrow money and do it in a sensible way. We rely on the ability to make decisions moving forward. We know there’s some risk, but we know there’s some opportunity if it’s done the right way. I would say the Republican Party right now, and a lot of people from the Democratic side too, want to see us reduce the size of government because of the number of regulations we have. Make it possible for Americans to dream again. Make it about the opportunities that actually exist, and not have them fear that the government has become too onerous.

Congressman Kelly is on the: Committee on Oversight and Government Reform • Subcommittee on Regulatory Affairs, Stimulus Oversight and Government Spending • Subcommittee on Technology, Information Policy, Intergovernmental Relations and Procurement Education and the Workforce Committee • Vice Chairman • Subcommittee on Early Childhood, Elementary and Secondary Education • Subcommittee on Workforce Protections Committee on Foreign Affairs • Subcommittee on Asia and the Pacific • Vice Chairman • Subcommittee on Oversight and Investigations Mike Kelly was born in Pittsburgh and raised in Butler, PA, where he has lived for the past 53 years. After graduating from Butler High School in 1966, Mike attended the University of Notre Dame on a football and academic scholarship. After college, Mike moved back to Butler to work at Kelly Chevrolet-Cadillac, Inc., a company founded by his father in the early 1950s. Mike took ownership of the dealership in the mid-1990s, expanding its operations to include Hyundai and KIA franchises. Dedicated to improving education, Mike founded the Butler Quarterback Club and The Golden Tornado Scholastic Foundation, which provides unique and innovative educational programs for students in the Butler Area School District. Mike and his wife, Victoria, a former elementary school teacher, also established the Mary McTighe Kelly Creative Teaching Grant for elementary educators and the Lighthouse Foundation’s One Warm Coat Program, which helped collect over 500 winter coats for students in need in the Butler community. Mike and Victoria have four children: George III, Brendan, Charlotte and Colin; and are the proud grandparents to George IV, Vivian, Elizabeth, Helena, and Elaina. Mike looks forward to representing the interests and voicing the concerns of the 3rd District, especially as they relate to Mike’s work on the Oversight and Government Reform Committee, the House Committee on Foreign Affairs, and the Education and Workforce Committee.

36 | Transactions | www.pacb.org


FREE PUBLICITY FOR COMMUNITY BANKING WEEK By: Natalie Bombatch It’s almost April and that means Community Banking Week is just around the corner. You have your event and activities planned. Now, it’s time to bring attention to your bank and let the public know the good you’re doing for your community. With the simple ideas listed below, you can increase the attendance of both the public as well as the media to your Community Banking Week events. Before Your Event Begin by building a press list of media contacts in your community, including daily newspapers, weekly/community newspapers, TV stations, radio stations, websites, and blogs. Collect phone numbers and email addresses for local reporters and keep them organized in a spreadsheet. This will make it easier for you to note when you send them information, when you follow up, and when stories publish. About two weeks before your event, send details to news organizations with community calendars. It’s a great way to let the public know that you’re holding an event that will benefit the local community. Also, if you utilize social media like Facebook or Twitter, start posting about Community Banking Week. Perhaps gain interest by asking trivia questions with prize giveaways at the event. Next, develop a media advisory, typically written in future tense, that describes the “who, what, where, and when” details of your event. You want your event on reporters’ radar, so make it easy for them to find key information. Also, think strategically when sending out your media advisory. Reporters love community human interest stories; be sure to include specifics about the activities and the organizations you’re helping. You want them to get excited about covering your event. If you want to have reporters with cameras come to your bank, make sure you provide a good visual that will draw them to your location. Distribute the media advisory by email to your press list about one week before the event. Follow up with phone calls to make sure they’ve received it. About two to three days before the event, resend the media advisory. When you call to follow up, ask the reporters they’re planning to attend. The day before your event starts, make calls to any reporters from whom you have not received a firm answer. During Your Event During Community Banking Week, greet the reporters who attend the event. It’s also a good idea to have a media sign in sheet in order to track which organizations attended and make for easier follow-up. Make sure that important people for the media to talk to are available.

Reporters have short deadlines, so they’ll appreciate anything you can do to help them. In addition, don’t forget to utilize social media outlets during Community Banking Week. Post pictures and video clips of customers and organizations enjoying the events that are benefitting good causes. On the last day of your event, distribute a press release to your media contacts. This piece is typically written in past tense and resembles a news article. Sometimes, news organizations will print your piece with only a few minor changes, so keep it interesting, but also keep the text impartial. Include quotes from speakers or attendees to add opinions and emotion to the story. If you have an interesting photograph or short video clip, you may want to attach the file to your email for those news organizations that weren’t able to attend your event. Again, be sure to follow up with the reporters after you send the press release. After Your Event In the days following Community Banking Week, keep your eyes peeled for articles about your event. Most of the time, articles will appear in daily newspapers within a day or two after the event and in weekly newspapers within a week or two. If you haven’t seen an article from a reporter you know attended the event, it’s okay to call and ask when he or she expects to write the story. As you can see, there is a lot of preparation before Community Banking Week, but it is all worth it when you can spread your message to and educate a wider audience. Let people know what community banking is all about – helping the community! If you need assistance with Community Banking Week, please don’t hesitate to contact me at natalie@pacb.org or 717-231-7447. PACB is here to help you make Community Banking Week a fun and exciting time for you and your community!

www.pacb.org | Transactions | 37


STRATEGIES FOR REPLACING

LOST REVENUE IN A

POST-DURBIN MARKET

By: Judith McGuire PULSE

R

egulatory changes resulting from Reg E and Regulation II implementing the Durbin Amendment are estimated to cost the banking industry some $50 billion annually in lost revenue, according to the research firm Novantas. Not surprisingly, financial in-

38 | Transactions | www.pacb.org

stitutions have been looking for new sources of revenue to minimize the impact of these regulatory restrictions. In today’s environment, it is increasingly imperative for both large and small financial institutions to become more lean and efficient in order to operate within the new debit envi-


ronment. Looking forward, it also is important to develop strategies that will help issuers improve their bottom lines. One important step financial institutions can take is to analyze their own card transaction data. Analytics tools can help issuers better understand their debit portfolio performance and will take on increasing importance as the economics for debit continue to evolve. By focusing on revenue sources, types of transactions and their customers’ attitudes toward fees, institutions can ensure they develop targeted marketing strategies – to market the right products to the right consumers. Identifying growth areas among current account holders is more cost-efficient than attracting new ones. Issuers also can use analytics to make more informed decisions about implementing fees (if necessary), and how much to charge for different products. Many institutions also will find that it makes sense to promote PIN over signature debit, since PIN debit can have significant cost advantages, such as lower processing fees, fewer chargebacks and lower fraud costs. In structuring network participation, aligning with a strong PIN debit network offers financial institutions considerable benefits. It aggregates volume to secure best pricing, enables more effective fraud detection and prevention, provides for comprehensive reporting, and streamlines operations and compliance.

tomers access to more than 20,000 surcharge-free ATMs, located in cities from coast-to-coast. Financial institutions save the cost of adding new ATM locations while the added convenience of a broadened ATM network will appeal to consumers, helping issuers attract and retain cardholders. In summary, the effects of Reg E and Regulation II implementing the Durbin Amendment, though significant, can be neutralized by developing and adjusting product and marketing strategies. By taking a closer look at both the needs of their current customers and existing card transaction data, and by offering products that will attract the attention of new ones, financial institutions can more effectively mitigate the effects of the new regulations and ultimately improve their profitability. Judith McGuire serves as Executive Vice President, Product Management for PULSE, a Discover Financial Services company and operator of the PULSE® electronic funds transfer network, headquartered in Houston, Texas.

Another strategy is to increase focus on mobile commerce technologies. Just as the Internet changed the way consumers shop, smartphones are now changing the way they access the Internet. A recent study has shown that three out of five U.S. cell phone users are accessing the Internet on a wireless device. For that reason, many companies are building mobile components into their Web marketing strategies. Mobile commerce technologies represent a particularly great opportunity for financial institutions because many consumers are already accessing financial data via their phones. According to comScore, Inc. research, 29.8 million Americans accessed financial services accounts (bank, credit card or brokerage) via their mobile device in 2010, an increase of 54 percent from a year before. To truly engage with consumers via their phones and to take advantage of this growing opportunity, financial institutions need to have platforms that are interactive, intuitive and tailored to their customers’ specific needs. Mobile banking applications also can reap savings by reducing costs associated with operating call centers by offering consumers immediate access to information about their accounts. Financial institutions also are responding to the market by offering new incentives to retain the customers they already have. One way to do that is to increase the number of surcharge-free ATMs available to cardholders. Partnering with an established network of surcharge-free ATMs is the most effective way to support this strategy. For example, PULSE’s collaboration with MoneyPass enables participating financial institutions to offer their cus-

Shumaker Williams

is a premier, client-focused law firm assisting individuals and businesses throughout Pennsylvania, Maryland and New Jersey with a wide range of services, including: • Financial Services, Banking and Mortgage Regulation • Securities and Capital Enhancement • Corporate and Business Services • Employee Benefits and Labor Law • Residential and Commercial Real Estate Settlements • Real Estate, Land Development and Financing • General Business Law and Business Formation • Trademark Registration and Protection • Litigation, Arbitration and Mediation • Estate Planning, Taxation and Asset Preservation • International Law and Contracts • Immigration • Liquor Licenses and Hospitality Services Law

HARRISBURG, PA 3425 Simpson Ferry Rd. Camp Hill, PA 17011 (717) 763-1121

YORK, PA 1 East Market St. York, PA 17401

(717) 848-5134

TOWSON, MD 901 Dulaney Valley Road, Suite 610 Towson, MD 21204 (410) 825-5223

For more information about our confidential advice and services, visit:

www.shumakerwilliams.com

www.pacb.org | Transactions | 39


A UTILITARIAN SOLUTION TO DISAPPEARING MARGINS A POTENTIAL REMEDY TO BURDENSOME REGULATIONS AND LOW INTEREST RATES

By: John Gagnon, Principal GW Financial, Advisor Firm to M Benefit Solutions – Bank Strategies

& Russell McMillan

M

any of today’s community banks find themselves in a tough spot. The exponential rise in the cost of compliance and the low interest rate environment is adversely impacting banks’ bottom-lines. The new regulations are affecting everything from mortgage lending to the viability of owning some of a bank’s already limited range of permissible investments. One asset, however, that appears to have come through this regulatory cyclone unscathed, is bank owned life insurance (BOLI).

M Benefit Solutions – Bank Strategies

largest institutions, whose failure would pose the greatest risk to the financial system, or at the lending practices that led to the crisis. Even so, the changes are so sweeping that many industry analysts have questioned whether the overall weight of regulation poses a threat to the future of the community bank model. – Federal Reserve Board Governor Elizabeth A. Duke at the 2012 Bank Presidents Seminar, California Bankers Association1

The massive new regulations are broad and complex which will cause compliance costs to significantly increase. A properly administered BOLI program shouldn’t add to this cost, however, as the regulators have provided clear and decisive guidelines to follow via the InteragenCommunity banks have, in general, withstood the economic cy Statement on the Purturmoil and are preparchase and Risk Manageing themselves to thrive COMMUNITY BANKS HAVE, IN GENERAL, ment of Life Insurance when the economy in(OCC 2004-56)2. evitably recovers. BankWITHSTOOD THE ECONOMIC TURMOIL AND ers are waiting for their ARE PREPARING THEMSELVES TO THRIVE opportunities while still The Agencies also somaking careful, profitable WHEN THE ECONOMY INEVITABLY RECOVERS. lidified their opinion of loans. However, there are BOLI in the recent Voloutside influences, becker Rule Proposal3. In yond their control, eating into their profits: increasing regulait, Separate Account BOLI was exempted from the rule and tory burdens and the manipulated interest rate environment. referenced the adequacy of existing, long-standing guideBOLI counters both issues with clear, venerable, regulatory lines. While this is still in proposal form, and there is no guidelines for banks to follow and the enjoyment of tax faguarantee it will make it to the final rule, it re-emphasizes vored returns that typically exceed after-tax returns of more the permissibility, and the utility, of BOLI ownership. traditional bank investments by 150 to 300 basis points. The Low Rate Environment - A Depressant, Not a Stimulant Not Every Banking Activity Needs a New Regulation Economic indicators appear to be pointing toward a reDespite recent overtures from federal agencies promiscovery. Or do they? What we do know is that the Federal ing to ease the burden on smaller institutions, bankers Reserve initially announced they would hold rates down remain unconvinced. through 2013; strike that, now it’s through 2014! The Fed issued a press release stating, “… (The Committee) antici…For the most part, the new regulations are directed at the pates that economic conditions--including low rates of re40 | Transactions | www.pacb.org


source utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”4 Well, at least that removes some uncertainty for bankers. Now they’re certain they won’t make money until 2015. Camden Fine, President/CEO of the Independent Community Bankers of America (ICBA), made this point recently on his blog:

“…But with the Fed setting rates at nearly zero percent and slack credit demand, how are community banks supposed to make a viable spread on their funds? Most community banks are swimming in liquidity. Meanwhile, they’re holding shortterm investments (encouraged by their field examiners, by the way) under the assumption that rates would begin to rise within the next year or so. Now they are faced with at least two more years of zero interest in a struggling economy.”5 With the Federal Reserve’s promise to keep interest rates low through 2014, coupled with low loan demand and regulatory pressure to keep investment funds in short-term lowto-no yielding securities, banks are challenged to find ways to grow revenue or to make a viable spread. Bank owned life insurance confronts these challenges by providing higher before- and after-tax returns than most traditional bank investments while reducing risk exposure to sudden rate changes. BOLI carriers mitigate some of the portfolio rate risk by facilitating smooth earnings to the bank due to: assets (and yields) in the portfolio being carried at book value; average duration of portfolio assets being typically shorter

than bankers realize; and any gains/losses from purchases/ sales being amortized over a long period. As community banks struggle to generate earnings via their core business, lending, they are being further threatened by considerable new regulations and an extended low interest rate environment. While not a cure all, bank owned life insurance, with its regulatory certainty and tax favored status, can provide a useful and timely solution for community banks. 1

See, e.g., Board of the Federal Reserve System Speech (“Opportunities to Reduce Regulatory Burden and Improve Credit Availability”) (Jan. 13, 2012) (http://www.federalreserve.gov/ newsevents/speech/duke20120113a.htm). 2 See, e.g., Bank Owned Life Insurance, Interagency Statement on the Purchase and Risk Management of Life Insurance (“Interagency BOLI Guidance”) (Dec. 7, 2004). 3 See, e.g., Sec__.14, Restrictions on Proprietary Trading and Certain Interests in and Relationships with Hedge Funds and Private Equity Funds (FRS Docket No. R-1432 & RIN 7100 AD 82; OCC Docket ID OCC-2011-14; FDIC RIN 3064-AD 85; SEC File Number S7-41-11). 4 See, e.g., Board of the Federal Reserve System Press Release (Jan. 25, 2012) (http://www.federalreserve.gov/newsevents/ press/monetary/20120125a.htm). 5 See, e.g., Independent Community Bankers of America (ICBA) (“Finer Points”) (Aug. 15, 2011) (http://camfine.wordpress.com/2011/08/15/backdoor-bailout-for-wall-street-backof-the-hand-for-main-street/).

www.pacb.org | Transactions | 41


THE PUBLICATION OF THE PENNSYLVANIA ASSOCIATION OF COMMUNITY BANKERS

Pennsylvania’s Community Banks. For people and their neighborhoods.

LIKE WHAT YOU SEE? WANT MORE?

SUBSCRIBE TODAY! www.pacb.org/transactions

Each issue of Transactions is overflowing with timely news and information concerning all aspects of community banking, including: • PACB Member Spotlights • Legislative Updates From the State and Federal Levels • Vendor News • Regulatory Issues Impacting Community Banks • Hot Topics • New Products and Services Announcements PACB Members & Associate Members:

$60 PER SUBSCRIPTION

(Non-Members: $84 per subscription)

LET YOUR VOICE BE HEARD AND GET INVOLVED IN SHAPING OUR FUTURE!

PACB introduces our

BRAND NEW GRASS ROOTS WEBPAGE


REGISTER TODAY!

WEBINAR & TELEPHONE SEMINARS MARCH

APRIL

MARCH 13, 2012

APRIL 3, 2012

MARCH 15, 2012

MARCH 20, 2012

MARCH 22, 2012

MARCH 27, 2012

MARCH 29, 2012

MARCH 30, 2012

Flood Compliance 2012: Review & Update Ann Brode, Brode Consulting Services, Inc. Writing Effective HR & E-Policies to Manage Behavior, Maximize Compliance & Mitigate Risks Nancy Flynn, The ePolicy Institute™ Director Series: Managing Liquidity Risk: The Board’s Role Gary Young, Young & Associates, Inc. You Received a BSA Exam Request Memo, What are the Proper Steps? Ann Brode, Brode Consulting Services, Inc. Real Estate Loan Workouts, Foreclosures, Short Sales & Deficiency Judgments Elizabeth Fast, Bankers Choice Identifying & Preventing Elder Financial Abuse Luann Kohlmann, WACHA BSA Alert: Navigating the New CTR & SAR Forms (Effective July 1, 2012) Deborah L. Crawford, gettechnical inc

APRIL 5, 2012 APRIL 6, 2012

APRIL 10, 2012 APRIL 11, 2012

APRIL 12, 2012 APRIL 17, 2012 APRIL 19, 2012

APRIL 24, 2012 APRIL 26, 2012

Call Report Revisions and Updates Judith Jenkins, Bank Training Services ACH Rules Update 2012 Shelly Simpson, AAP, EPCOR Making Sense of Bank Financial Statements and Significant Ratios for Directors Tim Harrington, CPA, Team Resources Auditing Your Bank’s Website Ann Brode, Brode Consulting Services, Inc. Computer Security for All Staff Barry Thompson, CRCM, Thompson Consulting Group, LLC Handling the Bank’s Right of Setoff Elizabeth Fast, JD & CPA, Banker’s Choice Regulatory Compliance For the Frontline Deborah L. Crawford, gettechnical inc Credit Processes and Asset Quality Issues: Your Bank’s Biggest Risk S. Wayne Linder, Young & Associates, Inc Agricultural Lending Update & Outlook Dr. David Kohl, Agrivisions, LLC Auditing Capital Records: Are Your Bank’s Squeaky Clean? Rhonda Hudson, Compliance +, Inc

www.pacb.org | Transactions | 43


PRSRT STD U.S. POSTAGE PAID HARRISBURG PA PERMIT NO. 547 RETURN SERVICE REQUESTED 2405 N. FRONT STREET HARRISBURG, PA 17110

PACB PREFERRED VENDORS JUST ANOTHER VALUE INCLUDED IN THE PRICE OF PACB MEMBERSHIP! PACB PREFERRED VENDORS OFTEN OFFER DISCOUNTS OR PROMOTIONS ON PRODUCTS AND SERVICES TO PACB MEMBERS.

CALL PACB AT 717-231-7447 TO FIND OUT HOW YOUR ORGANIZATION CAN BECOME PART OF THIS SELECT GROUP OF PROFESSIONAL FIRMS. WITH THE EXCEPTION OF OFFICIAL ANNOUNCEMENTS, THE PENNSYLVANIA ASSOCIATION OF COMMUNITY BANKERS AND STAFF DISCLAIM RESPONSIBILITY FOR OPINIONS EXPRESSED AND STATEMENTS MADE IN TRANSACTIONS. THIS PUBLICATION IS INTENDED AND DESIGNED TO PROVIDE ACCURATE AND AUTHORITATIVE INFORMATION, NOT TO PROVIDE LEGAL, ACCOUNTING, OR OTHER PROFESSIONAL SERVICES.


Turn static files into dynamic content formats.

Create a flipbook
Issuu converts static files into: digital portfolios, online yearbooks, online catalogs, digital photo albums and more. Sign up and create your flipbook.