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paBanker Magazine 2019 Q3

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QUARTER 3 VOLUME 21 3 Welcome 2019 20 BOARD MEMBERS Introducing PA Bankers New Mobile App Top 10 Reasons Why You Should Connect with PA Bankers This Fall PA Bankers Association Quarter 3 2019 1 Q A WITH YOUR NEW VICE CHAIR WESLEY WEYMERS OF THE GRATZ BANK

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thisISSUE BRINGING TIMELY NEWS AND INFORMATION TO THE MEMBERSHIP OF THE PA BANKERS IN EVERY ISSUE 6 Chairman s Insights 8 From the CEO to the CEO 10 10 Ten on Page 10 12 Community Corner 23 Government Relations 32 A Look Ahead 36 From Your Peers 38 Vendor Articles on the cover FEATURES 16 Welcome 2019 20 Board QUARTER 3 VOLUME 21 3 18 Meet Your New Vice Chair Wesley Weymers 20 Get to Know Karen McDermott 22 Coming Later This Fall Pa Bankers New Mobile App Welcome 2019 20 BOARD MEMBERS Introducing PA Bankers New Mobile App Top 10 Reasons Why You Should Connect with PA Bankers This Fall PA Bankers Association Quarter 3 2019 1 Q A WITH YOUR NEW VICE CHAIR WESLEY WEYMERS OF THE GRATZ BANK 22 WELCOME 2019 20 BOARD PA Bankers Association Quarter 3 2019 3

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Procedures COMPLIANCE AUDIT BSA RISK ASSESSMENT ACCOUNTING STAFF TRAINING INFORMATION TECHNOLOGY Policy Tools HUMAN RESOURCES Forms ADVERTISING MARKETING Checklists DEPOSIT OPERATIONS Cheat Sheets LOAN OPERATIONS C A COMPLIANCE PRODUCTS BY TOOL TYPE Calculators Risk Assessments Summaries Training Past Events ALL INCLUSIVE PRODUCTS 4 PA PA Bankers Association Bankers Association REVENUE CENTERS 54 COST CENTERS Volume 21 1pabanker com Quarter 1

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PA Bankers STAFF DIRECTORY magazineSTAFF General Phone Switchboard 717 255 6900 Managing Sara E Hocker Editor Editorial J Duncan Campbell III Advisors Jacqueline A Catalano Daniel J Reisteter Louise A Rynd Michelle L Staton Cynthia L Wallett Wayne R Whipple PA Bankers Services Corporation Board of Directors and Officers President Steven G Fisher Secretary David P Ruddock Treasurer J Duncan Campbell III Officers Maureen H Bellman John D Blecher Gerard A Champi Trudy K Everhart Richard L Greslick David E Raven Jennifer A Roxbury Daniel J Schaffer M Theresa Schwartzer Jeffrey A Stopko Address Correspondence to President Chief Executive Officer J Duncan Campbell III dcampbell pabanker com 717 255 6916 External Relations Amy L Doyle External Relations Administrative Assistant adoyle pabanker com 717 255 6937 Erin L Kanter Director Advocacy Government Relations ekanter pabanker com 717 255 6910 Daniel J Reisteter Vice President Government Relations dreisteter pabanker com 717 255 6933 Federal Government Relations General Counsel Lisa R Brandt Legal Assistant lbrandt pabanker com 717 255 6936 Louise A Rynd Esq General Counsel lrynd pabanker com 717 255 6935 Finance Operations Jill A Ametrano Registrar and Records Coordinator jillametrano pabanker com 717 255 6927 Michelle L Bosch Receptionist and Administrative Assistant mbosch pabanker com 717 255 6900 Connie A Ferraro Director Information Technology cferraro pabanker com 717 255 6921 Sara E Hocker Director of Marketing Communications shocker pabanker com 717 255 6912 Annette M Moshgat Director Finance amoshgat pabanker com 717 255 6938 Michelle L Staton Senior Vice President Finance Operations mstaton pabanker com 717 255 6923 Member Relations Professional Development PA Bankers Services Corporation Jacqueline A Catalano Vice President Professional Development jcatalano pabanker com 717 255 6939 Tiffani A Chambers Director PA Bankers Services Corporation tchambers pabanker com 717 255 6928 Karen J McDermott Director Member Relations kmcdermott pabanker com 717 255 6914 Linda A Scott Member Relations Administrative Assistant lscott pabanker com 717 255 6903 Cynthia L Wallett Senior Vice President Member Relations and Professional Development and Managing Director PA Bankers Services Corporation cwallett pabanker com 717 255 6913 Wayne R Whipple Vice President Business Development wwhipple pabanker com 717 255 6925 Marilyn M Wisniewski Director Residential Schools Meeting Operations mwisniewski pabanker com 717 255 6934 paBanker Magazine c o Pennsylvania Bankers Association 3897 N Front St Harrisburg PA 17110 Tel 717 255 6915 Fax 717 233 1477 E mail shocker pabanker com paBanker Magazine is published four times a year by the PA Bankers Services Corporation Services Corporation a subsidiary of the Pennsylvania Bankers Association PA Bankers The Association serves Pennsylvania banks and financial institutions with educational programs member services and represents members on the state and federal level Since 1895 PA Bankers continuously worked to be the premier financial services organizaion supporting a diversified membership through volunteer participation a knowledgeable staff state of the art technology and a commitment to excellence paBanker Magazine is the official publication of PA Bankers Subscriptions are free to all member institutions and PA Bankers volunteers Additional copies are available to members at a rate of 40 per year Non member subscriptions are available for 60 per year Editorial The opinions expressed in articles by authors other than Association staff and officers are the responsibility of the authors only and not necessarily those of the PA Bankers the Services Corporation or its members All articles unless otherwise notied have been written by paBanker Magazine staff Questions and comments should be addressed to the Managing Editor PA Bankers members may reproduce any non commercial part of this publication with verbal permission from the editor All others must receive written permission from the editor prior to reproduction of any part of this publication Copyright 2003 PA Bankers Services Corporation All Rights Reserved Postmaster send all address changes to paBanker Magazine 3897 N Front St Harrisburg PA 17110 Printed by HAAS Printing Co Sponsored by PA Bankers Association Quarter 3 2019 5

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chairman sINSIGHTS T MICHAEL PRICE President CEO First Commonwealth Financial Corporation Engaging to Advance the Industry Adapted from His Remarks at PA Bankers 2019 Convention I am very proud to assume my role as the 2019 2020 chair of the Pennsylvania Bankers Association following in the success and leadership of my predecessors before me I would personally like to thank our past chair Jim Dionise for his guidance over the last year With his class dignity and care in his approach to leadership he thoughtfully moved this association forward and positioned our members and the industry for success Thank you Jim for your example I am proud to be a banker and practice what I think is a noble profession As a branch manager and lender my first business loan was to a Hungarian pool contractor trying to create a better path for his family It was not unusual to help a widower or widow balance their checkbook As bankers we solve problems and express confidence in our customers one by one Collectively banks provide the fuel that propels our commonwealth s growth The Pennsylvania banking industry funds home mortgages business loans and farm loans to nearly 13 5 million customers Pennsylvania banks employ roughly 73 000 people and we provide nearly 6 billion in total compensation each year That s a huge economic impact and responsibility As I think ahead I hope to honor the legacies of our recent past chairs by 6 PA Bankers Association helping advance important initiatives that have become ingrained in the fabric of our association including Improving our industry image by telling our story and promoting the good that we do for our customers and local communities Advancing and expanding our advocacy efforts in Harrisburg and Washington Deepening our member engagement programs such as the Women in Banking and Emerging Leader Networks and Expanding the PA Bankers Champions program so that we may deliver on a value proposition to all our members Beyond these fundamentals there are at least three other areas that I believe are critically important to our industry s future success Digital banking Financial literacy and Building on a vital industry need diversity and inclusion In today s world the standard for the consumer experience is set by Facebook Apple Amazon and Google Consequently digital needs to be at the forefront of our association s emphasis as well as our own strategic and marketing efforts While this might seem daunting I am excited about the prospect of new digital tools and strategies to empower banks as trusted financial partners to help our consumers navigate their financial journey Another area of passion for many of us is financial literacy It is disheartening that so many of the good people in our communities lack a basic understanding of financial principles Consider that 58 percent of Americans have less than 1 000 in their savings and 33 percent of American adults have only a few thousand dollars saved for retirement As bankers we have the obligation to improve the financial lives of our neighbors and their businesses At First Commonwealth we have a fulltime champion of financial literacy named Anna Frank who personally met with 23 school districts 3 340 students and held 138 sessions in our communities in 2018 The principles she teaches are simple and lifechanging Namely 1 Borrow only the money you need A grandparent might have encouraged us to avoid unnecessary debt 2 Save the money you might need soon 3 Manage the money you make That same grandparent might have admonished us to live within our means 4 Protect the money you will want in the future PA Bankers and its members participate in a variety of financial pabanker com

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literacy events throughout the year We need to extol the virtue of these principles with our employees and within your communities Lastly we all can do a better job as an industry to broaden our diversity and inclusion efforts including employees senior management and our boards of directors Our lives are enriched by understanding listening to and including a variety of perspectives Our stakeholders to include investors shareholders our clients our regulators and our employees will demand as much from us Besides being the right thing to do our diversity and inclusion efforts will add to our bottom line through better strategic thought processes and execution We have instituted strong accountability at First Commonwealth so we can track our progress on at least two main objectives Increase the number of diverse employees in our organization and Expand the diversity of businesses with whom we partner As an example and just one dimension we have more than doubled the number of racial minorities over the past six years We are striving to at least double that number again by the end of 2021 More than training and hope for change diversity and inclusion is a commitment from our leadership team to get into our communities and develop strong ties as we deliver results and real change As I assume my role as chair of this association I look forward to learning from you and building with you an association prepared to meet our challenges I am excited to help lead the PA Bankers into its 125th anniversary year And I am deeply honored to stand on the shoulders of Jim Dionise and a host of other committed leaders to support the good that our industry is doing in our communities across the commonwealth and throughout the nation Thank you Electricity Procurement Sustainability ALL THINGS ENERGY Facility Assessment TRUSTED SINCE 1996 Natural Gas Management MORE THAN 1 000 BRANCHES SERVED Energy E ciency Your Industry Expert Michael Payne JD LLM 800 520 6685 D 667 330 1131 mpayne appienergy com www appienergy com PA Bankers Association Quarter 3 2019 7

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from the CEO to the CEO DUNCAN CAMPBELL President CEO PA Bankers Association Strategizing to Enhance Our Association and Industry I t s hard to believe that another summer has come and gone Kids are back at school Halloween candy is on display And with this September magazine issue we have all but completed the first quarter of the new association year Tempus fugit right It seems like just yesterday we were conducting our annual business meeting at PA Bankers 2019 Convention when Jim Dionise passed the chair s baton to Mike Price We celebrated the accomplishments of 2018 19 while preparing for the challenges of 2019 20 I want to take a moment to thank Jim Dionise for his leadership of PA Bankers In particular the 2018 19 association year was marked by several significant achievements the launch of our PA Bankers Champions program our re commitment to the essential mission of advocacy both at the federal and state levels and the establishment or continuance of several workforce development programs These programs included participation in the inaugural Next Generation Bankers Academy bringing the Bankwork program to Pittsburgh and helping to facilitate the first Pennsylvania winner of the Conference of State Bank Supervisors 8 PA Bankers Association CSBS Case Study Competition as Juniata College brought home the national hardware per the advisory support of Kish Bank These initiatives are a testament to volunteer banker engagement sustained volunteer banker engagement fostered by the leadership of our chair his fellow officers the board of directors and our policy committees For 2019 20 Mike Price has willfully taken the hand off from Jim committed to continuing the ongoing association agenda that doesn t end at the conclusion of the chair s term In fact you can go back the line of chairs and find a lasting imprint of concepts or initiatives that are passed from year to year from industry image to women in banking to deeper member engagement The examples from last year advocacy workforce and Champions will only get stronger with more active attention given to them again this year At convention Mike outlined his priorities for this year as association chair He referenced three areas of focus that are critically important to our industry digital banking financial literacy and diversity and inclusion Further he identified some specific ways in which his bank First Commonwealth has approached each of these challenges Last month the PA Bankers board met for its annual strategic retreat to discuss priorities for the current fiscal year Over the course of the twoday retreat we walked through the challenges and objectives that are outlined in the PA Bankers strategic plan Challenges include such things as bank consolidation leadership succession regulatory political environment workforce and nonbank competition from credit unions and others e g PLGIT PSDLAF and INVEST The plan s goals and objectives are geared towards helping to sustain the banking industry providing value to our members enhancing member engagement meeting member needs and doing all of this with excellence in operations The plan s goals and objectives serve as the basis for the blocking and tackling that our association staff and volunteers commit themselves to on a daily basis so that our banks can continue to serve their customers and local communities in the most effective way possible But there is more After the board reviewed the strategic plan it shifted its attention to the issues that Mike had outlined in his convention pabanker com

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remarks back in May specifically strategies to enhance our diversity and inclusion efforts as an industry along with strategies to promote digital banking to the membership Led by Mike and his efforts at First Commonwealth the board delved into these two specific issues We heard from FHLBank Pittsburgh s Winthrop Watson and Kris Williams as they offered us some very specific thoughts around their approach to diversity and inclusion an approach that takes into consideration the FHLBank workforce the FHLBank workplace and the broader FHLBank marketplace As a regulated entity of the Federal Home Finance Agency FHFA FHLBank Pittsburgh has certain diversity and inclusion expectations from their regulator but FHLBank Pittsburgh doesn t lead with that Regulation shouldn t be the driving reason to devise your diversity and inclusion strategy In fact Mike s presentation had regulation last First it s the right thing to do Second as McKinsey Company has cited in its Diversity Matters research paper diversity and inclusion is a significant factor in positive business performance And if you are not convinced by these first two points it s only a matter of time before our regulators make diversity and inclusion a measurable rule as the FHLBank can attest From the board s discussion at retreat the staff will begin to work on several tangible deliverables for our members including aggregating resources to help them with their own diversity and inclusion efforts and offering training opportunities both for bankers and for directors Specifically we will look to incorporate diversity and inclusion into our convention lineup and throughout our conferences and schools Just as with advocacy diversity and inclusion needs to be a part of our DNA ingrained in our business fabric allowing us to do good and do well at the same time Similarly the issue of digital banking is one that our banks need to understand or face the consequences of being left behind Simply defining what digital is can be an overwhelming task The board spent time diving deeply into the digital challenge Led by Mike and his efforts at First Commonwealth we began to outline the tenants of a digital strategy issues such as delivering a personalized customer experience interacting with your cores personal financial management account openings and payments These issues along with others will form the body of a digital strategy template which will be reviewed by the association s Information Technology Committee and offered for discussion at a peer exchange during this year s Digital Banking Conference mark your calendars for Nov 12 and 13 in Harrisburg and make sure your bank is represented for this discussion Our goal will be to provide the membership with a template that can assist them with their digital banking efforts as well as augmenting that template with training opportunities throughout the year Digital is here to stay and will only get more necessary as customer demographics shift and technology matures One thing is for certain for the future of banking not having a digital plan in place or in development truly is not an option As always there is a lot going on in our industry and at the association We are prepared to roll up our sleeves and address these issues and many more on behalf of the industry but we need your help What can you do to help you might ask Here are three things that will help us help you Get involved we need all of our members to engage with their industry peers by volunteering on our committees attending peer exchanges and participating in our advocacy events so that we understand the needs of your institutions Identify a PA Bankers Champion s this program is intended to ensure that your bank is fully aware and appropriately engaged with our industry efforts Take advantage of it Run a PaBPAC campaign It s not too late to support our political advocacy efforts and it is essential to our industry sustainability that we are represented by pro banking probusiness policymakers If you haven t run a campaign in the past it s not too late to start one this year The viability of the Pennsylvania banking industry depends upon it I am excited about the year to come and even more excited about the years to come because of the strength of the Pennsylvania banking industry Together we are making a difference This is not a solicitation for PaBPAC federal PA Bankers Association Quarter 3 2019 9

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tenONpageTEN Top 10 Reasons Why You Should Connect with PA Bankers This Fall PA Bankers will offer several opportunities to bring our members together to learn grow serve and engage with their peers communities and lawmakers this fall The association has built a strong reputation as a leading advocate for pro banking policies at the state and federal levels as well as the delivery of quality education products and services for banks of all sizes and their employees Serve Your Community Learn In Depth Knowledge of Industry Hot Topics Volunteer Within the Association 10 PA Bankers Association Network with Regional and Statewide Peers pabanker com

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Learn More About PA Bankers Initiatives Hear from Industry Experts Advocate for the Industry Gain Continuing Education Credit Receive Professional Development Opportunities for All Levels of the Bank Receive Association Recognition of Yourself Peers To view a list of our upcoming professional development opportunities please visit the Look Ahead on pages 32 34 For questions about how your institution can become connected with PA Bankers please contact our main line 717 255 6900 PA Bankers Association Quarter 3 2019 11

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communityCORNER PENN COMMUNITY BANK JOINS HABITAT FOR HUMANITY TO DEDICATE SPONSORED HOME IN BUCKS COUNTY UNIVEST REACHES 3 000 STUDENTS THROUGH FINANCIAL LITERACY PROGRAMS U P enn Community Bank executives joined Habitat for Humanity of Bucks County on June 29 to celebrate the dedication of a new home for a family in Morrisville Borough Penn Community Bank served as the Whole House Partner on the project pledging to donate 100 000 over three years to help finance construction of the house More than 40 Penn Community Bank team members executives and directors volunteered their time on site to help build the house which will now become a home for Evita and her two children Before beginning to work with Habitat for Humanity of Bucks County Evita and her two children were living doubled up with family High rent prices had prevented her from living independently and she believed that those same high living costs put homeownership out of the question for her Then she found Habitat Bucks Individual volunteers along with those from local businesses organizations faith groups and schools contributed more than 800 hours working along with Habitat Bucks and the family to build this home 12 PA Bankers Association nivest Financial educated 3 000 students through its financial literacy initiatives during the 2018 2019 academic year Employees visited local schools and youth organizations to teach age appropriate lessons about saving money and making smart financial choices Univest also partnered with EverFi a leading education technology company that provides real world education through innovative digital learning Through its partnership with EverFi Univest delivered tailored financial education to 11 local schools in an effort to improve the students financial proficiency This year the program reached 1 200 students who completed 3 610 hours of critical learning The courses are designed to empower learners to make safe smart and informed financial decisions leading to a successful financial future Univest sponsors the program to offer access to the curriculum at no cost to the schools or taxpayers Univest also participated in the American Bankers Association s Get Smart About Credit Day and Teach Children to Save Day These national campaigns which occur every October and April respectively raise awareness about the importance of saving using credit wisely and encouraging smarter financial choices later in life Univest employees visited more than 1 800 students in grades K 12 pabanker com

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THE NEFFS NATIONAL BANK DONATES EITC FUNDS TO AREA EDUCATIONAL FOUNDATIONS T he Neffs National Bank recently presented donations to eight area educational foundations totaling 100 000 The educational foundations included Parkland School District Educational Foundation Northern Lehigh School District Educational Foundation Wildlands Conservancy Inc Carbon County Community Foundation Circle of Seasons Inc Northwestern Lehigh Educational Foundation Lehigh Carbon Community College Foundation and Wildlife Information Center Inc These donations were made through The Neffs National Bank s participation in the state s Educational Improvement Tax Credit Program Do you have hometown happenings that you d like to share Send your bank s community news to Sara Hocker PA Bankers director of marketing communications shocker pabanker com for a chance to be featured in paBanker magazine or on PA Bankers social media channels and website PA Bankers Association Quarter 3 2019 13

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communityCORNER THE FARMERS NATIONAL BANK OF EMLENTON DONATES TO LOCAL NONPROFIT ORGANIZATIONS E mployees of The Farmers National Bank of Emlenton recently donated 1 085 to the Ridgway Knights of Columbus and United Way of Clarion County through donations gathered through the Community Jeans Day program Community Jeans Day is an employee program that spans bank wide and benefits local organizations within the Bank s footprint Employees of the Bank are encouraged to donate each month and in return are permitted to wear jeans on Fridays All money raised goes back into the community through gifting to local non profit organizations Since the start of the program in late 2012 employees have raised over 37 500 F 1ST SUMMIT BANK EMPLOYEE FOUNDATION GIVES TO VETERANS MEMORIAL MUSEUM The Veterans Memorial Museum located at 1ST SUMMIT Arena Cambria County War Memorial Johnstown received a donation of 1 000 from the 1ST SUMMIT BANK Employee Foundation The 1ST SUMMIT BANK Employee Foundation organized a fundraiser in which employees could make a donation to the Veterans Museum that would allow them to wear jeans to work each Friday in May Through various fundraisers the Bank s employees fund the Foundation so that it can make donations separate from the company s corporate donations FIDELITY BANK SPONSORS OUTREACH idelity Bank employees recently held a Dress Down Day and raised 1 026 to sponsor 10 families in the Outreach Challenge Outreach improves the lives of over 5 000 families each year with an award winning workforce and family development programs that support individuals as they navigate through life s challenges 14 PA Bankers Association pabanker com

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ABA BA NK ERS C O NF E RENC E November 10 13 2019 Hyatt Regency Dallas Dallas Texas Power of Partnership As an ag banker serving your customer means more than providing a lending channel It s about being in touch with the intricacies of the farm as a business to help guide your customers to growth Join us in Dallas to learn the power of partnership network with colleagues and experts and gain unique perspectives aba com AgConference3

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Welcome 2019 20 BOARD CHAIR T Michael Price President and Chief Executive Officer First Commonwealth Financial Corporation Indiana Pa FIRST VICE CHAIR J Bradley Scovill President and Chief Executive Officer C N Wellsboro Pa Policy Committee Chairs PROFESSIONAL DEVELOPMENT Gregory T Hayes President and Chief Operating Officer Kish Bank State College Pa GOVERNMENT RELATIONS Blair T Rush President and Chief Operating Officer Covenant Bank Doylestown Pa MEMBER RELATIONS David R Hunsicker Chairman President and Chief Executive Officer New Tripoli Bank New Tripoli Pa 16 PA Bankers Association SECOND VICE CHAIR Wesley M Weymers President and Chief Executive Officer The Gratz Bank Gratz Pa IMMEDIATE PAST CHAIR James V Dionise President and Chief Executive Officer Mars Bank Mars Pa Deposit Category Representatives CATEGORY A 0 300M in deposits James Wang President and Chief Executive Officer Asian Bank Philadelphia Pa CATEGORY B 301 750M in deposits Gary C Beilman President and Chief Executive Officer The Dime Bank Honesdale Pa CATEGORY C 750M 2 5B in deposits Randall E Black President and Chief Executive Officer First Citizens Community Bank Mansfield Pa CATEGORY D 2 5B in deposits Ronald J Seiffert President and Chief Executive Officer Northwest Bank Warren Pa pabanker com

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Welcome 2019 20 BOARD PA Bankers Group Representatives GROUP 1 Rebeccca A Stapleton Senior Executive Vice President Chief Banking Officer S T Bank Indiana Pa GROUP 2 Jeane M Vidoni President and Chief Executive Officer Penn Community Bank Perkasie Pa GROUP 3 Daniel J Santaniello Director President and Chief Executive Officer Fidelity Deposit and Discount Bank Dunmore Pa GROUP 4 Robert J Glunk Chairman President and Chief Executive Officer The Muncy Bank and Trust Company Muncy Pa At Large Representatives Philip H Johnson Regional President M T Bank Williamsport Pa Francis J Leto President and Chief Executive Officer The Bryn Mawr Trust Company Bryn Mawr Pa Mark A Ritter Executive Vice President Wealth Management The Northumberland National Bank Northumberland Pa Dale Westwood Executive Vice President Chief Retail Officer QNB Bank Quakertown Pa Non voting members GROUP 5 Angie Sargent Senior Executive Vice President Chief Information Officer Fulton Financial Corporation Lancaster Pa J Duncan Campbell III President Chief Executive Officer and Treasurer Pennsylvania Bankers Association Harrisburg Pa GROUP 6 Carol A Myers CPA Executive Vice President Chief Financial Officer 1ST SUMMIT BANK Johnstown Pa Steven G Fisher Senior Executive Vice President Chief Revenue Officer Northwest Bank Warren Pa PA Bankers Association Quarter 3 2019 17

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MEET YOUR NEW VICE CHAIR We would like to welcome our second vice chair Wesley Wes Weymers of The Gratz Bank We asked Wes to answer a few of our burning questions Get to know Wes below addition to the banking schools had a profound positive effect on me as a person and ignited a passion to both teach about our industry and support it by giving my time My first experience with understanding how the association worked was joining the former Executive Committee I remember being in The Hotel Hershey at a meeting not knowing a soul but wondering how I was fortunate enough to be there The rest is history and no matter what else I can do for PA Bankers I will always owe a debt that will never be fully repaid What was your first experience and or event with PA Bankers I began my banking career with U S Bank now AmeriServ in 1983 as a teller at the Coalport branch office In 1984 I was placed in a management trainee program subsequently becoming branch manager in Coalport My predecessor Dale Gabrielson had been promoted to business development officer and he highly recommended the PA Bankers Advanced School of Banking to enhance my knowledge of the banking industry I took Dale s advice and this event changed my life I was next employed by Curwensville State Bank CSB in a higher management position The president of CSB Larry Brubaker taught me the importance of giving back to the industry where I would earn a living He provided several examples of how I could 18 PA Bankers Association accomplish this but I always felt he steered me toward the Pennsylvania Bankers Association I will always be grateful for his leadership and for directing me to PA Bankers Attending educational seminars in What is one piece of advice that you have for the next generation of bankers This question was not as easy as I first thought and I had to reflect before I came up with a satisfactory answer There are several topics pabanker com

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that my management team and I frequently discuss and all are younger than I am so they are truly next generation bankers I go back to education first This is extremely important to me and I think tomorrow s bankers must learn as much as possible about our industry and the factors that affect it Every year since I have been the CEO at The Gratz Bank we have had at least one employee attend the PA Bankers Advanced School of Banking all of whom previously attended the oneyear School of Banking Attendance at seminars and webinars and reading banking periodicals will be necessary to be effective in any industry in which one participates Younger people must educate themselves through processes that should only end on the day they retire and I offer this advice to anyone who will listen I tell future bankers that if community banking is going to be preserved in whatever form it takes they must have a deep passion for their job Leaders must commit themselves to the bank and its stakeholders including employees shareholders customers vendors directors and examiners These bankers must study the industry itself and commit to giving time to the banking industry I believe leaders have an obligation to their staff they owe the people who they lead and they must understand that a true leader understands they will have to make sacrifices Creating a culture which to me is the sum of beliefs actions ethics and mantrasthat empowers staff members and allows them to do what they are good at doing is a key to success This is true at every level of banking everyone must buy in and contribute Restated I advise anyone who will listen that personal authority is far more important than positional authority I have studied some of the greatest leaders in the history of the world and one common bond is the treatment of those upon whom they rely Treat your fellow employees as human beings not as co workers I always try to drive home the point that people will only perform to what they believe is expected of them and will never fully reach their ability without coaching support and encouragement from a mentor If the banking industry is a chosen career I tell everyone that they should strive to be the best they can possibly be and never get complacent Rather always be curious about whatever affects you and your career What s one goal that you d like to accomplish during your time on PA Bankers board I was flattered and honored when I was nominated to be the second vice chairman of PA Bankers and humbled when I was elected I really did not identify myself with one cause or goal when I agreed to my nomination But there are several goals that I would like to see accomplished beginning with diversity inclusion and equity Our current chairman Mike Price from First Commonwealth Bank is dedicated to and passionate about this issue as is Joe Major The Victory Bank who is now a past chairman I was inspired every time I heard these gentlemen speak about this topic They dedicate time and resources not only from their respective banks but also personally to keep this issue in the forefront They know that studies have proven that more diverse companies have higher employee satisfaction enjoy superior financial results and have better decision making abilities Substantial improvements have been made in this area but the work is far from complete and I want to make sure that I work hard toward achieving their vision Another past chairman Joe Bower from CNB Bank worked to improve civility not only in banking but in the country in general during his time as chair In today s world I can think of few topics that are more relevant at this time in my life I embrace Joe s vision that employees current and future in the banking industry will play a key role in uniting people through the concept of civility My goal is to continue to promote civility so that people respect each other much more than they do now and that our country better realizes how important banking is to the success of our country and the world I want to ensure our banking schools remain as the premier schools in the country and that the Pennsylvania Bankers Association continues to be a respected voice representing our industry Another primary goal is to promote advocacy so that all bank employees become aware of how necessary it is to have our voices heard and to promote our industry We can do more in this area and the association has already taken proactive steps to do so But perhaps when everything is combined my goal is to preserve community banking so that future generations can be as fortunate as I have been There is no substitute for making a difference in peoples lives and as bankers we do that every day I want others to feel the pride and enjoy the successes that I have been fortunate enough to realize by being a banker and I will work hard to achieve this end PA Bankers Association Quarter 3 2019 19

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Get to know KAREN MCDERMOTT PA BANKERS NEW DIRECTOR OF MEMBER RELATIONS Tell us about your family I have been married to my husband Bob for 26 years and we live in Mechanicsburg We have three children Erin and Kevin who live in State College and Michael who is a freshman at Penn State Needless to say we are huge Penn State fans We also have an adorable 11 year old dog named Danaher What excites you most about joining PA Bankers I look forward to meeting members of the banking community and building upon the relationships already created within our association I have heard only positive things about PA Bankers and in my short tenure here I already know them to be true What is your favorite thing to do outside of work Watching sports especially college football running and anything outside What is something that not many people know about you I know how to communicate with sign language I learned how to sign in 8th grade and love to use it when I have the opportunity 20 PA Bankers Association pabanker com

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SOMEONE IS MAKING MONEY ON TITLE INSURANCE IT SHOULD BE YOU It s like owning your own title insurance company only better PA Bankers Services Corporation along with Investors Title Insurance Company will help you become part of a multi bank owned title insurance agency and share in the pro ts every time title insurance is written To learn more simply give us a call at 717 255 6925 and we ll show you how your bank can earn non interest income from title insurance

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Coming Later This Fall PA Bankers NEW Mobile App Stay Tuned Will be available in the App Store for Android and Apple Users Connect With PA Bankers Like Never Before 22 PA Bankers Association pabanker com

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governmentRELATIONS Engaging in Advocacy T hriving families Vibrant local communities A prosperous economy These are not just phrases or policies They are goals that we are constantly striving to achieve As bankers we make the loans to help families thrive the tools to strengthen local communities and the investment to support a prosperous economy While the Pennsylvania Bankers Association is undertaking a new advocacy strategy beginning in 2019 PaBPAC Pennsylvania Bankers Public Affairs Committee has always been committed to supporting candidates who advocate for the banking industry Pro banking candidates are dedicated to supporting the same principles we are In the near future a member of the PaBPAC Board of Directors will be contacting you to request your participation in PaBPAC As part of the new advocacy strategy the PaBPAC Board of Directors has set goals for the next three years 425 000 in 2019 467 500 in 2020 and 537 625 in 2021 With less than 54 percent of our member institutions currently conducting internal solicitation campaigns we are committed to growing that base in new and exciting ways I am thrilled to chair the PaBPAC Board of Directors as we navigate a new advocacy strategy It is an exciting time to be involved and we hope you will engage in this effort Contributing to PaBPAC is one way you can be involved in advancing the values of the banking industry It only takes 3 minutes to write a personal check or to contribute online https www pabanker com government relations pabpac PABPAC MEDALLION LEVELS BRONZE 1 199 SILVER 200 349 GOLD 350 799 PLATINUM 800 999 DENNY S DARE 1 000 and above Please address any contributions and correspondence to PaBPAC 3897 N Front St Harrisburg PA 17110 If you have any questions do not hesitate to contact Erin Kanter 717 255 6910 or ekanter pabanker com Now more than ever we need our entire industry engaged in advocacy and political advocacy is a key component of that engagement Thank you for your support of PaBPAC ABOUT THE AUTHOR DENNIS E DOLL PRESIDENT CEO RELIANCE BANK NEW TO PA Bankers Affiliate Members AJ Consultants LLC Chatham Financial Insured Financial Institutions IFI Omega Systems Pearl S Buck International Performance Trust Capital Partners Select Vendors Ncontracts Financial Institution Welcome William Penn Bank PA Bankers Association Quarter 3 2019 23

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governmentRELATIONS Reframing the Credit Union Debate F or too long banks with legitimate concerns about unbridled credit union growth have been portrayed as Goliath picking on David The truth is that in many states a credit union is one of the largest local financial institutions outranking most of the state s community banks in size But rather than trying to convince policymakers or the public that central casting got it all wrong that it s big credit unions that are harming small banks ABA with guidance from our long standing banker Credit Union Task Force has made a deliberate effort in the past two years to raise the level of awareness about credit union policy issues and excesses among third parties and the media We believe this strategy is effectively reframing the debate from banks vs credit unions to credit unions vs taxpayers a crucial step toward drawing more oversight of the industry More people now are questioning whether credit unions which enjoy a generous federal tax exemption are earning this benefit Even major media outlets like The Wall Street Journal The New York Times and National Public Radio have turned a critical eye to credit union practices running stories on the lax enforcement of meaningful membership restrictions and an expose of the industry s taxi medallion loans which imposed predatory terms on thousands of taxi drivers and drove some credit unions out of business The most recent criticism comes from a respected independent research firm Federal Financial Analytics run by veteran banking policy analyst Karen Shaw Petrou who has a strong interest in matters of economic inclusion ABA commissioned the study but had no editorial control over Federal Financial Analytics research and conclusions Petrou s study assessed not only the extent to which credit unions meet their mission but also how their federal regulator judges and enforces it The paper found among other things that credit union members are disproportionately from middle and upper income households that the National Credit Union Administration maintains no data on credit unions effectiveness at providing financial services to people of small means and that its definition of low income is far more expansive than that used by other federal agencies This lack of credit union mission compliance is the rub for Petrou Sometimes the question of credit union mission compliance is seen as an us versus them battle between bankers and credit unions she said This study readily acknowledges the vital role credit unions can and should play in household financial services its goal is not to question credit unions but to remind policy makers of their vital mission to ensure that taxpayer benefits received are credit union benefits earned ABA does not disagree We have long maintained that there is a role for credit unions in our financial services ecosystem But that role has become blurred as some credit unions increasingly look and act like banks even purchasing them It s past time for policymakers to take a truly critical look at today s 1 5 trillion credit union industry to ensure the American taxpayer is not being cheated We have called for just such scrutiny urging NCUA in particular to conduct a top to bottom assessment of whether the industry is meeting its targeted statutory mission to serve households of small means We have also asked the NCUA Inspector General to review the regulator s role in allowing credit unions to lose sight of their mission In the meantime ABA is continuing to challenge NCUA in the courts Our lawsuit against NCUA over its expansive field of membership rule is still active we won two of four counts are appealing the other two and a decision could come any day But we are excited to move our case to the court of public opinion and even more encouraged that the response isn t a knee jerk dismissal of our grievances as competitive sour grapes Others are now seeing the serious implications of credit unions mission failures and lax oversight and such awareness is crucial to achieving a level playing field ABOUT THE AUTHOR ROB NICHOLS PRESIDENT AND CEO AMERICAN BANKERS ASSOCIATION 24 PA Bankers Association pabanker com

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A PA Forward Student Loan Program pplications are now available for the Commonwealth s new PA Forward Student Loan Program currently offering a suite of borrowerfriendly private loans for undergraduate and graduate students and parent borrowers A PA Forward Refinance Loan will be offered later this year to combine all of a borrower s Federal and private loans into one convenient monthly payment As a longtime partner of Pennsylvania s lending community PHEAA is also offering a PA Forward Student Loan referral program This allows partnering lenders to earn revenue while providing co branded loans to their banking customers through a special referral channel on their website without having to incur additional development or compliance costs PHEAA will originate and service PA Forward Student Loans with tax exempt allocation provided by the Pennsylvania Department of Community and Economic Development DCED Leveraging the combined resources of the Commonwealth allows PHEAA and its lending partners to provide the program at competitively low interest rates and with superior borrower benefits Undergraduate and graduate student borrowers can receive a 0 5 percent interest rate reduction upon successful graduation and an additional 0 25 percent interest rate reduction for immediate repay through direct debit Student borrowers can also benefit from an available 6 month grace period after graduation before the first payment is due Additional partner benefits include Co Branded Financial Literacy materials including web based financial education tools A stronger relationship with current new and prospective customers and members Additional revenue generation without capital investment and Product training for Pennsylvania lender employees PHEAA continues to stress that students and families should always exhaust all opportunities for Grants Scholarships and Federal Student Loans before applying for private student loans For more information about how to become a PA Forward Student Loan Program Referral Lender please contact Ken Shutter at 717 720 3551 or email kshutter pheaa org To learn more about PA Forward loans and to apply online visit PHEAA org PA Forward Legal Solutions for Pennsylvania Bankers Commercial class action and complex litigation Business transactions and real estate deals Loan facilities Bankruptcy and creditors rights claims DELAWARE NEW JERSEY OHIO PENNSYLVANIA WEST VIRGINIA BURNSWHITE COM PA Bankers Association Quarter 3 2019 25

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governmentRELATIONS Preparing for the LIBOR Transition S ince the mid 1980s the London Interbank Offered Rate LIBOR has played an essential role in the global financial system This key benchmark interest rate is set by a small group of institutions on a daily basis across five different currencies serving seven different maturities Simply put LIBOR is the most referenced rate in the world representing more than 200 trillion in financial contracts The Significance of LIBOR While the vast majority of these contracts are derivatives LIBOR is also used to set interest rates for everything from adjustable rate mortgages and mortgage backed securities to student loans and credit cards LIBOR is also heavily utilized in the business model of the FHLBanks from advances and debt to derivatives and investments The scope of the financial activity impacted by LIBOR is significant as the LIBOR market is 10 times the size of the U S Treasury market The Challenges of LIBOR The financial crisis highlighted LIBOR s shortcomings as a benchmark index particularly its ability to be tampered with by institutions participating in the daily setting of LIBOR While steps were taken to address the issues that led to the manipulation of the benchmark rate the market s confidence was never fully restored Furthermore average daily trading volume in the interbank market which LIBOR is intended to represent has steadily declined and now stands 26 PA Bankers Association at only 500 million As a result LIBOR no longer reflects a robust transactionbased market rate Instead it is increasingly based on subjective judgments of panel banks that submit estimates of their borrowing costs Phasing Out LIBOR Due to LIBOR s weaknesses a global initiative to find more suitable benchmark rates has been underway for several years In the U S the Alternative Reference Rate Committee ARRC a working group of market participants and regulators was convened and tasked with developing a rate to replace LIBOR and ensuring a successful transition Market participants are anticipating LIBOR s elimination at the end of 2021 based on remarks made by the UK authority responsible for regulating the rate Introducing SOFR Ultimately the Secured Overnight Financing Rate SOFR was selected by the ARRC as the recommended alternative to LIBOR Unlike LIBOR SOFR is supported by the very deep liquid overnight Treasury Repurchase Agreement repo market which features average daily trading volume close to 1 trillion This enables SOFR to be set in a transparent fashion based solely on transactions LIBOR SOFR Comparison The Role of FHLBanks A smooth transition from LIBOR to SOFR will be crucial to the stability of the financial markets and a robust market for SOFR debt must be developed as part of that transition As the largest issuer of floating rate debt the FHLBanks are uniquely positioned to help develop and shape the market for SOFR linked debt The FHLBanks have established a System wide transition task force We are a participant in the ARRC working groups And we are collaborating in the issuance of SOFR debt The FHLBank system has already issued more than 115 billion in SOFR debt nearly half of all SOFR debt issued as of Aug 31 2019 In addition FHLBanks are committed to supporting our member financial institutions throughout the course of the transition Preparing for the Transition pabanker com en be tra fa be w th ac be

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Preparing for the Transition That support starts with encouraging financial institutions to begin their preparations for the LIBOR transition today 2021 may seem far off but there is a lot to be done between now and then The sooner we begin individually and collectively the better off we will be The following activities serve as a framework to begin your transition planning Organize a Team It s important that banks establish a structured transition team that includes representation from executive management treasury loan operations accounting legal information technology risk management and others as needed Inventory All Instruments Once a team is in place a comprehensive portfolio review should be conducted The goal is to quantify all financial exposure to LIBOR and identify those instruments maturing before and after the 2021 phase out date Review Fallback language A review of legacy LIBOR contracts will also need to take place to determine if current fallback language is adequate to provide a smooth transition to SOFR or another reference rate A primary consideration will be the calculation of interest in adjustable rate instruments in the absence of LIBOR Contract language for those agreements should be amended as needed in compliance with banking securities and consumer protection laws In addition it will need to be determined if changes to contracts require consent of various parties named in the agreements Develop Language for Transactions Going Forward Once you ve evaluated fallback language in legacy contracts you ll need to develop language for LIBOR transactions going forward When amending contract language or developing language for new transactions a focus should be maintained on mitigating risks of disputes with borrowers or other parties to the financial contract It will be beneficial to create procedures and mechanisms to handle any disputes that may arise Assess Operational Readiness The next undertaking in your transition plan will be to assess your organization s operational readiness It will be imperative to identify changes to systems models and other operational processes that will be triggered by the LIBOR phase out Accounting systems loan systems pricing models risk models and other management information systems will likely require changes You will also want to include your vendor relationships as part of this assessment Establish a Communications Plan Communicating to your stakeholders outside your institution will be just as important as effective communication within your organization Establish a plan for communicating relevant information and changes to customers and other appropriate parties on an ongoing basis Stay Informed To communicate effectively both internally and externally you will need to stay informed of industry developments and best practices New developments and unanticipated events will almost certainly affect the timing and the nature of the transition Processes will be required to stay up to date on these developments so that they can be shared with others when appropriate Getting Started There is no question that transition plans will need to be revisited and adapted along the way but the most important step is to get started in the establishment of a comprehensive transition plan today FHLBank Pittsburgh and the FHLBank system are prepared to serve as resources to our member institutions as they develop and refine their respective plans Additional information and resources pertaining to the transition from LIBOR to SOFR can be found online at www newyorkfed org arrc ABOUT THE AUTHOR BY WINTHROP WATSON PRESIDENT AND CEO FHLBANK PITTSBURGH PA Bankers Association Quarter 3 2019 27

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governmentRELATIONS 2019 20 State Budget Recap O n June 28 Gov Wolf signed an appropriations bill HB 790 and related amendments to the Administrative HB 1461 Education HB 1615 Fiscal SB 712 and Tax Reform HB 262 Codes The 33 397 billion FY19 20 commonwealth budget package includes increases in state funding for basic special career technical and higher education The budget package is also predicted to allow for a designation of 317 million for the state s Rainy Day Fund It does not include the governor s requested increase in the 7 25 state minimum wage Of interest to our members were amendments to the Education Code Educational Improvement Tax Credits EITC which fund scholarships at private schools will increase by 25 million and were revised in procedural respects Fiscal Code The Department 28 PA Bankers Association of Agriculture is authorized to fund additional agricultural programs and allow up to 165 000 in the Agricultural Conservation Easement Purchase Fund to fund grants of up to 5 000 for farm family succession planning on land subject to easements and Tax Reform Code Revisions are estimated to cost only 29 2 million in state revenue While legislation to clarify the sales and use tax regarding core processing services bank fees and the purchase of financial institution security equipment was not included in the tax reform bill senate leadership did obtain an assurance from the administration that it will work to resolve the issues presented by the Department of Revenue s audits and assessments of two banks regarding core processing services in a non legislative manner The nature and scope of that resolution are still being determined We will provide more information as soon as possible AGRICULTURE LINKED INVESTMENT PROGRAM ENACTED The governor also signed HB 1526 into law which creates a program to encourage farmers to borrow funds in order to use approved nutrient odor manure agricultural erosion sedimentation or federal conservation management plans An institution approved by the Board of Finance and Revenue that enters into an agreement with the state treasurer may participate in the program Upon approval of an eligible borrower s loan application the institution will submit to the state treasurer a request for the transfer of Agriculture Linked Investment Loan money in an amount equivalent to the amount of the loan approved in the form of a collateralized certificate of deposit pabanker com

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THE BANKING FUND The PA Department of Banking and Securities Banking Fund is a special revenue fund composed of monies received from fees assessments charges and penalties collected or recovered from persons firms corporations or associations under the supervision of the Department It provides for the administration of the Department and regulation of the financial services industry The Institution Resolution Restricted Account is to be used at the discretion of the Secretary in the event of a seizure or liquidation of a financial institution association or credit union a group of PA House Republican members as a means to avoid tax increases Not until after the 19 20 Governor s budget report request was published see H9 pg 791 of 898 did PA Bankers learn that a transfer of 21M from the Banking Fund had been made to the General Fund in June 2018 citing the authority granted by Act 44 of 2017 to make up to 300M in transfers from special fund accounts Use of existing state accounts was initially proposed by Preliminary discussion of this issue by the Government Relations Policy Committee directed that staff discuss the Banking Fund transfer with key legislators in an effort to educate them on the operations of the Fund The GRPC considered the pendency of the sales and use tax issues which have a much higher fiscal impact for banks in PA in coming to this preliminary decision Updates on PA Bankers State Legislative Priorities PA Bankers is still vigorously working on the following issues Elder Financial Abuse Prevention Data Breach Legislation and Directed Trusteeship Trust Termination Proposals We will update the membership as new information becomes available Unclaimed Property Administration The association is seeking changes to PA s Unclaimed Property Law to clarify treatment of tax deferred accounts and modernize the statute Our requested amendments would clarify that 1 IRAs will not be presumed abandoned before their mandatory distribution date 2 Securities and other securities entitlements are not abandoned unless mail to their owners is returned undelivered The rule peculiar to PA and its financial institutions which allows parties to claim escheated property from 3 the institution which then must seek reimbursement from Treasury would be repealed and Securities distributions paid into an active account are not presumed abandoned 4 The association is also seeking an exemption from the law for rewards programs PA Bankers met in June with staff of the PA Treasury Department Before any further discussions are held the Treasurer s staff has requested PA Bankers provide for its consideration a statutory holder due diligence standard such as a requirement that holders search the Social Security Administration s Death Master File DMF We will ask our Unclaimed Property Working Group to discuss this issue PA Bankers Association Quarter 3 2019 29

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governmentRELATIONS Property Assessed Clean Energy Equipment Financing in Pennsylvania Proceed With Caution O n June 12 2018 Pennsylvania enacted legislation that authorizes counties and municipalities to finance commercial clean energy and water conservation projects and alternative energy systems using the proceeds of voluntary assessments on real property that are collected and enforced by local governments in the same manner as property taxes The U S Department of Energy reports that similar commercial property assessed clean energy C PACE programs are in effect in 18 other states and are in the process of implementation in 10 states including Pennsylvania Plans to implement C PACE programs in Pennsylvania are currently under development or consideration in at least 16 counties Proponents of C PACE programs claim the programs allow commercial property owners to obtain low cost long term financing for energy efficiency improvements that can cover 100 percent of project costs and will generate energy savings greater than construction and financing costs The programs are promoted as being beneficial to property owners who wish to make long term investments in building energy efficiency projects while passing on the costs to pass for the improvements to subsequent purchasers C PACE financing is also touted as beneficial to investors because the programs provide financing repaid on the property tax bill that will provide strong security 30 PA Bankers Association that allows lenders to offer better interest rates and longer repayment terms than are otherwise available Before proceeding to implement or participate in C PACE financing however these claims deserve careful scrutiny C PACE Basics The Pennsylvania legislation Act 30 of 2018 allows any county or a municipality with a community or economic development department to implement a PACE program by adopting an ordinance which designates a district in which the program will operate and establishes criteria and procedures to determine the eligibility of participating property owners Counties and other municipalities establishing PACE programs may establish whatever criteria and procedures they deem advisable provided that each project must 1 have an energy consumption baseline energy savings projections and a scope of work determined by a qualified contractor 2 comply with national clean energy standards and 3 have the completion of construction verified by a qualified inspector In lieu of establishing their own criteria and procedures municipalities may also select a program administrator to establish and operate a PACE program The law allows local governments to provide bond financing for C PACE projects but also allows any type of financial institution to also provide financing The term financial institution is defined very broadly to not only include banks savings associations and trust companies but also mortgage bankers and brokers insurance companies employee health and welfare funds and any type of business association engaged in development or improvement of real property The law even allows a property owner to finance its own improvements using assessments that will continue in effect after sale of the property to a new owner In Pennsylvania financing for C PACE programs will most likely be provided by non governmental capital providers Each C PACE project is implemented through the execution of an agreement between the property owner and a sponsoring municipality or its program administrator Before an assessment is imposed notice must be given to all holders of liens on the property to be assessed and approval must be obtained from all lien holders Based on the recommendations of the Pennsylvania Bankers Association the notice and consent requirements apply not just to mortgages as is the case of many other states but to all types of liens that secure payment obligations If consent is granted by property owners and lien holders C PACE assessments will enjoy the same first priority status as local property tax liens and the obligations to pay assessments will be treated as taxes imposed by the sponsoring municipality or county Assessments must also be recorded with title and public notice must be given regarding project financing A prominent feature of Act 30 is that the legislation does not provide any mechanism for state regulatory pabanker com

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supervision or oversight of C PACE programs Instead each sponsoring county or municipality is expected to supervise its own programs Because counties and municipalities lack any commercial lending experience these regulatory responsibilities will most likely be outsourced to private program administrators To overcome the lack of any state regulation over C PACE programs the Sustainable Energy Fund and the Keystone Energy Efficiency Alliance working in cooperation with the Philadelphia Energy Authority and the Pittsburgh Office of Sustainability have adopted voluntary guidelines for C PACE programs and are promoting the use of the Sustainable Energy Fund and the Philadelphia Energy Authority as PACE program administrators The Pennsylvania Department of Environmental Protection is also encouraging the use of the guidelines to promote consistency among PACE programs The guidelines include procedures to determine the eligibility of property owners approve PACE capital providers and contractors and implement levy and lien agreements between sponsoring municipalities and property owners It is unclear however whether voluntary guidelines developed and implemented by parties with financial interests in C PACE financing can substitute for effective governmental regulatory authority In determining whether to participate in a C PACE program several factors should be carefully reviewed What are the costs of C PACE financing The U S Energy Department reports that C PACE programs typically assess origination fees of between 0 2 percent to 5 percent of the amount financed annual fees of between 0 25 percent to 3 percent of the outstanding balance and investment interest rates of 3 to 4 percent plus closing costs Currently the Sustainable Energy Fund has indicated that it will charge 1 25 percent for the first 1 million financed 1 percent for projects between 1 million and 2 million and 0 75 percent for financing projects greater than 2 million subject to a cap of 50 000 per project plus a 0 15 percent annual servicing fee and other optional charges Because C PACE assessments legally are classified as local tax assessments projects may also be subject to Pennsylvania s prevailing wage law which generally increases project costs by approximately 20 percent The requirement that assessments must be collected in the same manner as local property taxes may also increase costs This may occur because some local tax collectors are entitled to commissions that are a percentage of all taxes collected that will reduce amounts distributed to capital providers The timing of local tax collections may also increase interest costs Rather than providing for monthly amortization property taxes generally must be paid either in a single lump sum amount subject to a 2 percent discount for timely payment and a 10 percent penalty for late payment or in three monthly installments It is unclear whether local tax collectors may or will modify these payment schedules discounts and penalties to accommodate monthly repayments In the event assessments become delinquent county tax claim bureaus or local collection agents may also impose additional interest and penalties in addition to amounts due to a project s capital provider Is the original obligor released from liability upon the sale of an assessed property The imposition of an obligation that runs with title to land may or may not be a credit enhancement that allows longer term loans and lower interest costs depending on whether or not the original property owner is released from liability upon the sale of property Although under Pennsylvania law a prior owner is not subject to future property tax obligations upon the sale of property nothing in Act 30 address the question of whether the agreement to levy a C PACE assessment between a property owner and a sponsoring government or its program administrator may impose personal liability on the original property owner subsequent to the transfer of title If the original property owner is released from liability a capital provider may be left with a new debtor that is less creditworthy than the original property owner Upon the release of the original owner a capital provider may also be left with no way to ensure compliance with the terms and conditions of a financing agreement upon the transfer of title For example the lender may lack any ability to prevent the removal of energy efficiency improvements from the property enforce property maintenance requirements require adequate insurance on financed equipment and the assessed property or forceplace insurance if the property owner fails to do so To cover these risks lenders may require higher interest rates than can be offered using conventional financing Alternatively if an assessment agreement requires the original property owner to remain personally liable for a default subsequent to the transfer of title C PACE financing may not be a desirable alternative to traditional mortgage financing because most property owners may insist on full payment of all past due and future assessments prior to the transfer of title Satisfying a PACE assessment upon a transfer of title continued on page 49 PA Bankers Association Quarter 3 2019 31

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alookahead As you plan your training and development for 2019 2020 we hope you ll consider learning with us Here s a sneak peek at some of the opportunities to learn with PA Bankers this coming year Visit www pabanker com for more information and pricing details about each event Please note all dates and locations are subject to change Compliance Regulatory Risk Management OCT 30 MAR 24 26 BSA AML UPDATE SEMINAR SCHOOL OF COMPLIANCE PA Bankers Training Room Harrisburg PA Bankers Training Room Harrisburg General Association OCT 8 OCT 9 OCT 10 GROUP 3 GROUP 2 GROUP 5 Fall Group Meeting Recognition Reception Fall Group Meeting Recognition Reception Fall Group Meeting Recognition Reception Radisson Lackawanna Station Scranton PineCrest Country Club Lansdale Sheraton Harrisburg Hershey Hotel Harrisburg OCT 22 OCT 23 OCT 24 GROUP 4 GROUP 6 GROUP 1 Fall Group Meeting Recognition Reception Fall Group Meeting Recognition Reception Fall Group Meeting Recognition Reception Williamsport Country Club Williamsport Blair County Convention Center Altoona Pittsburgh Marriott North Cranberry Township 32 PA Bankers Association pabanker com

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alookahead Government Relations SEPT 26 27 2019 WASHINGTON VISIT Washington D C Lending Credit NOV 4 5 ESSENTIALS OF COMMERCIAL LENDING SEMINAR PA Bankers Training Room Harrisburg AGRICULTURAL BANKERS CONFERENCE Nittany Lion Inn State College NOV 21 22 DEC 10 LENDING CONFERENCE The Hotel Hershey Hershey APRIL 22 ANALYZING PERSONAL FINANCIAL STATEMENTS TAX RETURNS SEMINAR PA Bankers Training Room Harrisburg Networks MAR 11 12 WOMEN IN BANKING CONFERENCE Hershey Lodge Convention Center Hershey PA Bankers Association Quarter 3 2019 33

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alookahead Technology Wealth Management Trust Investments NOV 12 13 NOV 6 8 DIGITAL BANKING CONFERENCE WEALTH MANAGEMENT TRUST CONFERENCE EXHIBITION Best Western Premier The Central Hotel Conference Center Harrisburg Hershey Lodge Convention Center Hershey Training Employee Development NOV 14 OCT 2 DEC 2 DIRECTOR TRAINING SEMINAR FDIC DIRECTORS COLLEGE TRAIN THE TRAINER SEMINAR PA Bankers Training Room Harrisburg Hershey Country Club Hershey PA Bankers Training Room Harrisburg DEC 3 FEB 6 FEB 25 EFFECTIVE PRESENTATIONS SEMINAR CALL REPORT PREPARATION AN UPDATE SEMINAR ECONOMIC FORECAST AND BUSINESS LEADERSHIP SUMMIT PA Bankers Training Room Harrisburg TBD Sheraton Harrisburg Hershey Hotel Harrisburg BRANCH MANAGER BOOTCAMP HARRISBURG Session 1 Feb 19 20 Session 2 April 1 2 CRANBERRY TOWNSHIP Session 1 Sept 9 10 Session 2 Oct 28 29 TREASURY MANAGEMENT SEMINAR PA Bankers Training Room Harrisburg 34 PA Bankers Association APR 28 29 SUPERVISORY TRAINING SERIES HARRISBURG Jan 22 March 17 and May 5 CRANBERRY TOWNSHIP Jan 23 March 19 and May 7 DIRECTORS INSTITUTE JUNE 25 Hershey Country Club Hershey pabanker com

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The Stability You Want should come with the service you deserve Addressing Your Bank s Needs FOS SERVICES Internal Audit Co sourcing Asset Liability and Liquidity Management Exams Bank Secrecy Act Anti Money Laundering Exams Information Technology Risk Management Exams Fraud Exams Compliance Exams Sarbanes Oxley Testing Trust Department Exams Transactional Asset Allocation Analysis HERBEIN SERVICES Business Valuations Litigation Support Services Asset Based Field Exams Mergers and Acquisitions Audit of Financial Statements Tax CONTACTS James A Michalak CPA CITP Thomas R Strause CIA CFE CBA CFSA CISA CICA Debbi S Fetter CFIRS CISA CFSA CRMA CRCM CCSA 1 888 212 8799 Succeed With Confidence www fosaudit com www herbein com A subsidiary of Herbein Company Inc

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from yourPEERS P A Bankers is looking for one or several PA Bankers Champions within your institution to raise awareness of how PA Bankers can assist your bank and its employees through educational opportunities advocacy communications access to resources profitability enhancements and more The program s goal is to connect resources and people so that each member institution can maximize the value of its membership and the association can deepen member engagement to achieve greater sustainability A PA Bankers Champion ideally has deepseeded connections among his her peers and has the authority to both disseminate information to all levels of the organization from the association and act as a spokesperson for the institution to the association to ensure regular two way communication between the two entities PA Bankers Champions will meet with association staff and fellow Champions at least twice a year along with regular check in calls to learn from PA Bankers serve as a conduit to their fellow employees in sharing information about the association and its offerings and provide feedback Expected Outcomes Benefits of Participation MEMBERS PA BANKERS Return on membership investment Member engagement Effective efficient communications about PA Bankers offerings initiatives Effective efficient communications about PA Bankers offerings initiatives Profitability and access to money saving products resources Advocacy Employee development Sustainability Employee retention Industry engagement Currently more than 50 percent of our member banks have identified their own PA Bankers Champion If you have not yet selected YOUR Champion we ask you to do so today by contacting Karen McDermott director member relations via kmcdermott pabanker com or 717 255 6914 36 PA Bankers Association pabanker com

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TESTIMONIALS FROM SOME OF OUR CHAMPIONS The PA Bankers Champions Program has helped to strengthen our relationship with PA Bankers by giving us a voice to express our desires and concerns as well as connecting us with other Champions across the state We have enjoyed attending the Champions webinars and Group Meetings to gain a greater understanding about the role PA Bankers provides in our industry The email training notifications pertaining to PA Bankers seminars conferences and webinars have helped us provide specific trainings to departments in our organization We are excited to see what the next year of PA Champions offers and continued ways for us to network through different technology mediums Jody Snyder Vice President Corporate Training Manager Employee Training and Development Department S T Bank and Sarah Pasko Organizational Development Specialist S T Bank At Kish we have a strong commitment to supporting the ideals and mission of PA Bankers This has historically been driven by our senior leadership but in recent years we ve expanded and reached further into the organization to include leaders at all levels This effort has been enhanced by the PA Bankers Champions program As a Champion I have had the ability to attend the Group Meetings and monthly webinars and I have benefited from a strong network of my peers from banks across the state This program has helped Champions to spread the message throughout our banks about some of the key issues facing our industry today such as the importance of advocacy and developing the next generation of bankers The PA Bankers Champions program has given me access to resources that I can share with others at Kish to help them advance in their careers webinars training and conference opportunities as well as introduce us to tools and suppliers that can help maximize the value of our membership Christina L Bagrosky AVP CEO Kish Travel Private Client Relationship Manager FINANCIAL INSTITUTIONS SERVICES GROUP HELPING BANKS STAY COMPLIANT AHEAD OF THE CURVE BY PROVIDING RESPONSIVE FORWARD THINKING INNOVATIVE SOLUTIONS Internal Audit Model Validation Staff Augmentation BSA AML Consulting Regulatory Compliance SOX FDICIA Consulting Enterprise Risk Management Information Technology Audits Salvatore Zerilli CPA CAMS Managing Director Chair Financial Institutions Services szerilli mercadien com Princeton NJ 609 689 9700 Philadelphia PA 215 854 4059 Mercadien com PA Bankers Association Quarter 3 2019 37

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vendorARTICLES Are Silos Stunting Your Compliance and Risk Management Efforts W hen it comes to compliance and risk management there s a big difference between thorough and redundant Thorough is a unified top down approach to process oversight one where all decisions and discoveries originate from a central place Redundant is everything else It may sound dramatic but it s true As regulatory guidance has expanded the scope of regulations over the past few years the overlap between different areas of compliance and risk management has grown significantly Enterprise risk management business continuity planning compliance cybersecurity and vendor management can no longer be thought of as stand alone elements of the bank s operational risk management program they are intertwined Consider security breaches of critical vendors a regulatory hot topic It s so hot in fact that it touches five areas of risk management 1 Vendor management Regulators want banks to know if critical vendors are required to provide notice if there s a security breach 2 Cybersecurity The FFIEC s Cybersecurity Assessment Tool specifically asks if all critical vendors are required by contract to notify the financial institution when there is a security breach 3 Business continuity planning A bank should know how long it will take critical vendors to notify the institution of a security breach 4 Compliance The Gramm Leach Bliley Act specifically mentions that vendors with access to protected data should be required to notify the financial institution of a security breach 5 Enterprise risk management A bank needs to determine if critical vendors are required to notify the institution of a security breach In theory overlapping requirements like these should make compliance and risk management simpler for banks one person or team can address these concerns and report back to everyone who needs the information But that s not always what happens Too often banks rely on a decentralized approach The IT department handles cybersecurity compliance tackles vendor management and someone else in IT oversees business continuity planning The result is silos Each team meticulously follows regulatory requirements and best practices for risk management never considering the possibility that someone else at the bank might be tackling a similar task 38 PA Bankers Association While this might have worked in the past when there was less overlap today a siloed approach to compliance and risk management results in redundancies inefficiencies and discrepancies Redundancies In the security breach example there may be as many as five different groups compiling lists of third party vendors assessing the criticality of individual vendors and determining which vendors should report breaches and when When it comes time to test controls each control is tested five times instead of simply testing it once and sharing the findings with everyone involved This repetition isn t thorough it s just a waste of time and resources Inefficiencies There can also be as many as five teams monitoring and setting policy for security breaches of critical vendors Instead of working cooperatively to maximize knowledge and resources each group starts from scratch The compliance department doesn t benefit from IT s knowledge of cybersecurity The vendor management and contract teams don t necessarily understand the expectations of business continuity planning Enterprise risk management isn t providing the overall leadership needed to make the process function smoothly It s a waste of expertise Discrepancies When different groups unknowingly have overlapping responsibilities it can create conflict as each group sets different standards and notification times For instance the IT team may require breach notification within one hour while compliance may say 24 hours These kinds of discrepancies are red flags for regulators Banks can avoid these complications with a unified approach to risk management developing systems that connect all areas so that every requirement can be studied from multiple perspectives It begins with enterprise risk management which should serve as an umbrella for all other areas of risk management including compliance Not only does this ensure the bank s business strategies are integrated into every risk decision it creates a central hub so risk management can be viewed holistically Compliance also acts as an umbrella uniting cybersecurity business continuity planning and vendor management ERM Simplifies Banking The idea of streamlining risk management so that it starts at the top intimidates many banks It seems like a lot of work when existing processes seem to be working just fine But just because something is easier or faster doesn t make it right pabanker com

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Consider the difference between making a strategic decision using ERM vs a siloed approach This chart shows a siloed approach to decision making Faced with the risk of losing small business lending market share to unregulated nonbank competition a bank decides to offer unsecured small business loans funded within 24 hours The competition is doing it The bank wants to remain competitive Decision made But that decision making process isn t really a process It s a shoot by the hip gut decision Some of the potential risks are probably brought up but there isn t any kind of systematic discussion to ensure risk is analyzed thoroughly And forget about communication Without a process not everyone is in the room who needs to be Maybe compliance is invited in maybe it isn t What about IT Marketing Other key departments By failing to invite input the opportunity to uncover risks and opportunities is lost Worse yet once the decision is made and marching orders are passed on this siloed approach is likely to produce redundancies Consider third party risk Cyber risk reputation risk compliance risk and even credit and financial risk are all impacted by third party risk Will each department individually address third party risk This will result in an inefficient duplication of resources and also introduce the opportunity for conflicting results With different areas using different standards for assessing elements of third party risk there will likely be conflicting work that leads to complications It s a simple ordered chart but an ineffective one because there are no connections This chart depicts strategic decision making with ERM The ERM chart does not offer the same calm vibes It s busy There are arrows pointing every which way It s revealing overlap and a need for communication and that sounds like work Except the ERM approach will actually lead to less work An FI that uses an ERM approach to strategic decision making knows that it needs everyone in the room before a decision is made It uncovers problems and conflicts early on allowing them to be addressed at the beginning when a program has the most flexibility It allows different areas to leverage existing work and reach a consensus And it leads to smarter decision making That leads to less work for everyone The key to making ERM work is baking it into the strategic decision making process Instead of making a decision and then picking up the phone to tell the CFO Hey we just signed a contract with a new vendor for lending How does it look it s getting input before it s signed when it s still possible to make changes ERM is about understanding the interconnected nature of risk and having systems in place to uncover them It s about considering risk from the very beginning and working together to make more informed decisions If your FI hasn t embraced ERM or doesn t have systems in place to ensure ERM is informing your strategic decisions now is the time to put them in place It may seem easier to put the decision off or keep things the way they are but the truth is you re wasting resources and probably spending more time cleaning up messes that could have been prevented with a little foresight When silos are eliminated risk management becomes more effective with departments building on and leveraging each other s work resulting in better oversight greater efficiency and lower costs It s the very definition of thorough ABOUT THE AUTHOR MICHAEL BERMAN FOUNDER CEO NCONTRACTS PA Bankers Association Quarter 3 2019 39

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vendorARTICLES In a Challenging Earnings Climate There Is No Room for Lazy Capital T he persistently challenging earnings environment that has resulted from a stubbornly flat yield curve requires that bank managements examine all avenues for maximizing earnings through active capital management While benign credit conditions have afforded banks some respite from earnings pressure the impending adoption of CECL potentially only adds to earnings volatility going forward Combine that with the continued rise in expenses resulting from compliance and the ongoing technology arms race it s easy to understand the cautious outlook on future earnings growth and the need to work every lever to maximize earnings and earnings per share 40 PA Bankers Association The challenge to earnings per share growth has been a major impetus to the development of more broadly based capital management plans Community bank boards and managements have by necessity upped their respective games They ve always been required as part of their regulatory activities to have policies regarding capital but increasingly more community banks are also developing capital management playbooks as part of their broader strategic plans Managements have a number of levers available to manage capital The key as to when and which lever to pull are a function of the strategic plan A strong plan is predicated on staying disciplined but it also needs to retain enough nimbleness to address the unforeseen curveballs that are inevitable Consider the significant downturn in bank stock prices during the fourth quarter of 2018 A significant number of bank boards moved quickly to authorize share repurchase plans increase the amounts authorized or revive activity under existing plans Beyond the general bullishness of these actions the activity shines a light on the value of a proactive capital management strategy by boards and managements which contributed in some measure to the rise in bank stock prices through the first half of 2019 Effective capital management is in large part an exercise in identifying and understanding future risks today Capital and strategy are tightly linked a bank s strategic plan is highly pabanker com

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dependent on its capital levels and its ability to generate and manage it In our work with clients we discuss and model a range of capital management techniques to help them understand the pros and cons of each strategy the potential impact on earnings per share and capital and ultimately the potential impact on value creation for shareholders Bank acquisitions M A will continue to offer banks the most significant strategic and financial use of capital As internal growth slows due to the economic cycle or competition external growth via acquisitions has the ability to leverage capital and significantly improve the pro forma company s earnings stream While materiallyimproved earnings per share should help drive stock valuation it is important to note that the market s reaction to transactions over the last several years has been much more focused on the pro forma impact to capital as represented by the reported dilution to tangible book value per share and the estimate of recapturing that dilution over time Share repurchases Share repurchases are an effective way to return excess capital to shareholders Share repurchases are a more tax efficient way to return capital when compared to cash dividends In addition a repurchase will generally lift the value of a stock through the reduction in shares outstanding which should increase earnings per share and the stock price Share repurchases are generally the favored mechanism of institutional owners and can make tremendous sense for broadly held and liquid stocks Cash dividends Returning capital to shareholders in the form of cash dividends is generally viewed very positively both by the industry and by investors Banks have historically been known as cash dividend paying entities and the ability and willingness to pay them is often perceived as a mark of a healthy and stable company A company s decision regarding whether to increase a cash dividend or to repurchase shares can be driven by the composition of the shareholder base Cash dividends are often viewed as the provenance of individual shareholders rather than institutional shareholders Business line investment Community banking at its core is a spread dependent business The ability to diversify the revenue stream through the development or acquisition of a fee generating business can be an effective and worthwhile use of capital Common areas of investment include mortgage banking wealth management investment products and services insurance and the lift out of lending teams A recent development for some is investment in technology as an offensive play rather than a defensive measure Capital Markets Access Effective capital management plans also consider the ability to access the capital markets In the community banking space accessing capital is not always a foregone conclusion Over the past couple of years the most common forms of capital available have been common equity and subordinated debt It s our view that for banks of a certain size and market cap it s a prudent capital management strategy to file a shelf registration Form S 3 The optionality provided by having a shelf registration far outweighs the concern that the shelf itself suggests a shareholder dilutive activity is on the horizon There are a couple of guidelines that managements should bear in mind as they develop their capital management plans First the plan needs to be realistic and achievable The windows for accessing capital are highly cyclical There is limited value in building a plan around an outcome that is unrealistic Second don t look a gift horse in the mouth If there is credible information from trusted sources indicating that capital is available get it Certain banks by virtue of sustained outstanding performance may be able to manage the just in time model of capital but that s a perilous strategy for most It s important to note that these capital management activities can be utilized individually or in combination An acquisition may necessitate the need to access the capital markets Or given the relative inexpensiveness of sub debt raising some for the purpose of a share repurchase could make sense A strong capital management plan can position a company to manage through the good times and maybe more importantly the challenging times Information contained herein is from sources we consider reliable but is not guaranteed and we are not soliciting any action based upon it Any opinions expressed are those of the author based on interpretation of data available at the time of original publication of this article These opinions are subject to change at any time without notice ABOUT THE AUTHOR JAY JUNIOR MANAGING DIRECTOR D A DAVIDSON CO PA Bankers Association Quarter 3 2019 41

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vendorARTICLES FTC Investigation Highlights Small Business Lending Risks O n May 23 the FTC launched an investigation into unfair or deceptive practices in the small business financing industry Press reports of this investigation emphasized the investigation s relevance for online lenders and providers of merchant cash advances as the bad practices that spurred the investigation including alleged misuses of confessions of judgment were attributed to such actors However banks as well as nonbanks are subject to the prohibitions against unfair or deceptive acts or practices contained in section 5 of the FTC Act which underpin the investigation Thus it is important for banks to understand the basis for this investigation and pay close attention to its findings The FTC s investigation was announced closely on the heels of 42 PA Bankers Association the agency s May 8 workshop titled Strictly Business An FTC Small Business Forum on Small Business Financing At the conclusion of that workshop FTC Bureau of Consumer Protection Director Andrew Smith addressed the agency s ability to apply the section 5 prohibitions to transactions involving small businesses as follows Unlike other federal regulators we re not constrained by personal family or household purposes We believe that our statute our organic statute the FTC Act allows us to address unfair and deceptive practices even with respect to businesses The UDAP prohibitions came into being in 1938 when Congress amended the FTC Act to add them to existing proscriptions against unfair methods of competition On its face the Act appears to preclude citing UDAPs in connection with a commercial transaction as section n of section 5 specifies that The Commission shall have no authority under this section or section 57a of this title to declare unlawful an act or practice on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers UDAPs are cited in commercial transactions however as the FTC interprets the term consumer broadly to include small businesses themselves not just the natural person owners and employees of such businesses as a form of protected consumer The position that a small business is a consumer for purposes of section 5 was directly challenged in FTC v IFC Credit Corp a motion to dismiss action brought in the District Court for the Northern District of Illinois Eastern Division In upholding pabanker com

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the FTC s interpretation the court in FTC v IFC Credit Corp noted that It would not have been a difficult feat of draftsmanship for Congress in subsection n to have restricted the operation of the FTC Act to those unfair practices that affect individuals purchasing household goods for personal use Finding the language of section 5 unclear with respect to small businesses the court proceeded to review the applicable legislative history noting that during the long history of section 5 the FTC has interpreted the term consumer both broadly and narrowly The court then considered the ramifications of excluding small businesses noting that this outcome would exclude from regulation literally millions of transactions that occur on a daily basis regardless of how deceptive or unfair the acts or practices that prompted those transactions might be The court also reviewed dictionary definitions of the term consumer concluding that no single accepted definition existed Based on the foregoing analysis the court held that the FTC s interpretation was reasonable and entitled to deference under Chevron U S A Inc 467 U S at 863 1984 In the case of banks section 5 is enforced by the federal banking agencies To this end in 2009 the FDIC issued a cease and desist order against Advanta Bank citing multiple violations of section 5 in connection with that institution s business credit card activities This reliance on section 5 was necessary because with few exceptions the federal Truth In Lending Act the TILA and Regulation Z do not apply to business purpose credit Hence the FDIC could not cite the alleged wrongful acts as violations of the TILA Although this action ended in a settlement it has been cited as precedent by other federal banking agencies The Commonwealth of Pennsylvania maintains its own UDAP prohibitions in the form of the Unfair Trade Practices and Consumer Protection Law the UTPCPL In the 1990 case In re Fricker the U S Bankruptcy Court for the Eastern District of Pennsylvania considered whether a business purpose loan made by a nonbank lender was subject to the UTPCPL The In re Fricker plaintiffs were appealing from a sheriff s sale of their home which had resulted from the lender s enforcement of a confession of judgment After nullifying this sale on the basis that Pennsylvania law bars using a confessed judgment to compel the sale of a residence the court turned its attention to whether the UTPCPL could be used to challenge the validity of the underlying loan In considering the plaintiffs UTPCPL claim the In re Fricker the court noted that both the TILA and the several Pennsylvania laws regulating maximum interest rates and finance charges specifically exempt businesspurpose credit After concluding that the loan clearly was made for a business purpose the court posited whether it might be subject only to the law of the jungle and hence beyond the grasp of the law to remedy Ultimately however the court found that the loan s validity could be challenged under the UTPCPL In explaining the reasons for its decision the court stated Even in a business transaction UDAP is susceptible to as broad an interpretation as necessary to serve its purpose of preventing any form of fraud or overreaching It is a weapon which has been crafted especially for the purpose of curbing the creditorpredator like behavior which we find pervades the conduct of the lender in the instant transaction In sum UDAP is best described as a wild card that runs counter to the general presumption of armslength equal bargaining power in commercial dealings and in some cases counter to express statutory or regulatory exclusions In this regard inserting contract language specifying that a loan is being made for a business purpose and not for personal or household purposes will not prevent a bank agency or court from finding UDAPs whether in the guise of section 5 of the FTC Act or the UTPCPL When dealing with small businesses banks should assume that the subject transaction may be scrutinized for potential UDAPs by any or all of plaintiff lawyers bank agencies attorneys general or a court This does not mean the technical requirements of statutes that do not apply by their terms should be complied with Rather the transaction should be considered in light of both commonly accepted notions of fairness and the copious guidance interpreting section 5 that has been issued by the FTC and the federal banking agencies Lastly if doubt exists regarding UDAP risks qualified legal counsel should be consulted ABOUT THE AUTHOR MARK T DABERTIN PEPPER HAMILTON LLP PA Bankers Association Quarter 3 2019 43

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vendorARTICLES The Importance of Board and Senior Management Training I n today s banking world it is clear that Board and Senior Management Training is at the intersection of effective corporate governance and risk management practices It is growing increasingly difficult for independent directors to execute their fiduciary duties due to the velocity of change within the financial services industry Adding to this challenge is an uncertain regulatory environment and shifting regulatory focus Directors must be vigilant with continuing education to ensure an appropriate knowledge base Strong corporate governance is the foundation for safe and sound operations Directors must provide a clear corporate governance framework that has a sound objectives b effective policies and c appropriate risk limits Boards must monitor whether senior officers and employees are complying with the framework Directors must offer Credible Challenge to ensure that senior management s recommendations are sound in judgement aligned with the board approved risk appetite and supported with appropriate documentation 44 PA Bankers Association Credible Challenge cannot be accomplished unless directors understand current banking trends across the industry Continuing education is critical Directors owe their fiduciary duties to the corporation and its shareholders The Duty of Loyalty requires directors and officers to administer the affairs of the bank with candor personal honesty and integrity The Duty of Care requires directors and officers to act as prudent and diligent business persons in conducting the affairs of the bank Directors must a have sufficient knowledge of material facts b thoroughly examine all available information with a critical eye and c actively participate in the decision making process Directors and officers cannot execute their Duty of Care without maintaining in depth knowledge of critical financial trends regulatory changes and effective industry practices Continuing education is critical An assessment of risk management practices is the backbone of every regulatory examination Generally speaking risk management is comprised of a board and senior management oversight b effective policies and procedures c risk monitoring and an effective MIS system and d appropriate Internal controls Risk management practices must evolve with an institution s size and complexity Effective risk management practices hinge on a well informed board and senior management team As noted above this knowledge base cannot be limited to only your institution s operations Instead a broad understanding of industry trends economic variables best practices and regulatory hot buttons is critical Continuing education is critical The array of topics that directors and senior managers must know can be dizzying Loan stress testing interest rate risk strategies BSA AML trends CRA changes cybersecurity and CECL implementation are just a few And the need for continuing education is not limited to risk assessments Directors and senior managements must understand how to measure and drive value Understanding whether Earnings per Share EPS or Tangible Book Value per Share TBVS is the appropriate metric is the starting point Too many pabanker com

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banks erroneously focus on return on assets or return on equity when assessing the value proposition Directors and management should know the trading and take out multiples for institutions in their geographic areas and how their respective banks compare This type of continuing education is often overlooked by boards but remains a critical element in their fiduciary duties of Loyalty and Care As we interact with boards and senior managers of community banks throughout the country we most often encounter individuals who acknowledge the need for continuing education but cannot find time due to already overbooked calendars Many independent directors have robust careers outside the bank and most senior managers are more than fully engaged with day to day activities It is for this reason that FinPro partnered with the Pennsylvania Bankers Association to offer a meaningful solution FinPro s Webinar Package is a series of 26 webinars offered throughout the year Unlike other programs there is one flat fee per bank which allows the bank to provide webinar access to as many as 300 participants Also the webinars are recorded so you have the ability to watch a webinar at your convenience should an unexpected conflict occur Please contact Scott Polakoff at FinPro or Jackie Catalano at Pennsylvania Bankers Association for more information AUTHORED BY You are Losing Commercial Depositors to Square Square is aggressively pursuing and winning accounts that are typically the domain of commercial banks In addition to giving you tools to win these accounts Approval Payment Solutions will increase your non interest income Benefits to partnering with APS Retain and attract commercial depositor relationships Provide solutions for startups growing and established businesses Access to four processing platforms Offer revenue driving ancillary products PA Bankers Services Corporation Select Vendor since 2008 Approval Payment Solutions Inc is a registered ISO of Wells Fargo Bank N A Concord CA Discover additional benefits by contacting Megan Noe Sims at 888 311 7248 ext 5011 Mnoe apsolutions net Apsolutions net PA Bankers Association Quarter 3 2019 45

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PA Bankers Corporation PA Services Bankers Services Corporation Vendors Provide PA Bankers Members SelectSelect Vendors Provide PA Bankers Savings Service and Quality Members Savings Service and Quality RISK TECHNOLOGIES Automated CAT Tool Digital Forensic Investigation Network Consensus Cybersecurity Allen Mitchell 215 485 7315 armitchell atrisktech com ABA INSURANCE SERVICES Bond D O Cyber Insurance and Employment Practices Liability Patricia Williams 216 220 1280 pwilliams abais com ACCUME PARTNERS Outsourced Internal Auditing and Risk Management Services Nicole Lloyd 717 903 3142 nlloyd accumepartners com ANDERSON GROUP Integrated Marketing and Communications and Business Intelligence Ray Melcher 610 678 1506 rmelcher thinkanderson com APPROVAL PAYMENT SOLUTIONS Merchant Processing Search Engine Optimization Website Design and Social Media Management Megan Noe 888 311 7248 ext 5011 mnoe apsolutions net THE BAKER GROUP Asset Liability Management Software and Services Charles Amis 405 415 7231 Charlie gobaker com COMMONWEALTH CHARITABLE MANAGEMENT Cristine Clayton 570 278 3800 cclayton commonwealthcharitable org COMPLIANCE ALLIANCE Quality Compliance Services That Complement and Assist Internal Compliance Personnel Wayne Whipple 717 255 6925 wwhipple pabanker com CORNERSTONE ADVISORS Core Debit EFT Card Program Loan Origination Bill Pay Mobile Banking ATM Contract Negotiation Jennifer Wagner 480 425 5204 JWagner crnrstone com 34 banks received credits in surplus of over 8 9 million in 2018 with an average net funding increase in single digits Wayne Whipple 717 255 6925 wwhipple pabanker com AFFILIATED POWER PURCHASERS INT L Electricity and Natural Gas Procurement Services Utilities Management Platform Jane Seagraves Sidebottom 800 520 6685 jseagraves appienergy com 46 PA Bankers Association CRA Partners BITS Managed Service Provider for Voice and Data Communication Christian Ericson 973 474 1828 Christian ericson bitsnetwork com Receive High Yielding CRA Credit Sue Shaffer 901 529 4787 sue shaffer SHCPFoundation org As of 4 12 19 pabanker com

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DEALERTRACK COLLATERAL MANAGEMENT SERVICES INC Electronic Lien and Title Program Wayne Whipple 717 255 6925 wwhipple pabanker com DELUXE Check Program Todd Wroblewski 724 625 5599 todd wroblewski deluxe com GLOBALVISION SYSTEMS INC Anti Money Laundering Catherine Lew 818 998 7851 x128 clew gv systems com INVESTORS TITLE INSURANCE COMPANY Multi Bank Owned Title Insurance Program Karen Brittain Barnett 419 577 5900 kbarnett invtitle com EQUIAS ALLIANCE AN NFP COMPANY BOLI Executive Compensation and Long Term Care David Shoemaker CPA PFS CFP 901 754 4924 dshoemaker equiasalliance com EVERFI Financial Education Technology Platform Matt McDonald 415 672 7586 mmcdonald everfi com L R WEBBER Multiple Medical Drug Dental Vision Options and EB Solutions Brad Webber 814 695 8066 bwebber lrwebber com NCONTRACTS Mark Schwartz 615 210 3775 mark schwartz ncontracts com OPTIMUM SYSTEM PLUS Outsourced Internal Purchasing Office Supplies Inventory Control and IP Address Marketing Sales Pat McMahon 570 207 5107 pmcmahon opoffice com THE KAFAFIAN GROUP Performance Measurement Robert E Kafafian 973 299 0300 x106 rkafafian kafafiangroup com PA BANKERS SERVICES CORPORATION CAREER CENTER Icon Bridge Icon Marble CMYK CMYK CMYK CMYK CMYK CMYK CMYK B 90 PWC FONT Handwriting draft_free version B Screen Black 80 Campbell FONT Century Gothic _ Regular CMYK Connecting Professionals www pbasc com PMS485 BUILDING CONFIDENCE FONT Handwriting draft_free version THE FULCRUM GROUP INTERNATIONAL INC Reviewing Re negotiating and Bidding Check Printing Relationship Ted Amon 770 736 5787 ted thefulcrumgroupintl com KEYSTATE CAPTIVE MANAGEMENT Brian Amend Managing Director VP Sales Eastern Region 302 425 5158 bamend key state com Black 80 PWCAMPBELL Planning Design Coordination and Construction Management Erin Campbell 800 253 7430 Erin campbell pwcampbell com Vendor selections and recommendations are made in accordance with PA Bankers Services Corporation s stated mission It is believed that the promoted products and services merit strong consideration by PA Bankers member banks PA Bankers Services Corporation due diligence and selection criteria should not be construed as a guarantee as the ultimate appropriateness may vary from bank to bank In addition member banks are encouraged to conduct their own due diligence reviews of recommended vendors Remuneration received by PA Bankers Services Corporation is utilized in part to support the PA Bankers Association through contracted agreements corporate sponsorships and overhead coverage This financial support expands resources and strengthens the services and programs of the PA Bankers Association As of 4 12 19 PA Bankers Association Quarter 3 2019 47

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index of ADVERTISERS ABA 15 ACCUME PARTNERS IFC APPROVAL PAYMENT SOLUTIONS 45 APPI ENERGY 7 BURNS WHITE 25 COMPLIANCE ALLIANCE 4 BANK HEALTH CARE CONSORTIUM OF PA 50 HERBEIN 35 MERCADIEN 37 PILLAR AUGHT 48 S R SNODGRASS BC THE BAKER GROUP IBC TITLE INSURANCE 21 WHICH CAME FIRST IS ALL A MATTER OF PERSPECTIVE No matter which side of the argument Pillar Aught knows how to consider all perspectives to best protect and advance your interests Keen insight extreme responsiveness and deep expertise explain how Pillar Aught has raised the bar Learn how we can impact your business and how we ve transformed the legal services experience pillaraught com 48 PA Bankers Association pabanker com

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Property Assessed Clean Energy Equipment Financing in Pennsylvania Proceed With Caution continued on page 31 however may expose the property owner to prepayment penalties The ability of capital providers to waive pre payment penalties may also be affected by requirements of the Pennsylvania law that assessments cannot be accelerated or extinguished until fully repaid What are the risks assumed by capital providers C PACE financing is being promoted as a low cost alternative to conventional financing that will structure loan payments to be less than the monthly energy savings meaning no increase in a borrower s existing operating budget Given the volatility of energy prices however projections of energy costs savings are inherently unreliable Furthermore equipment may fail to function in the manner predicted for the full term of an assessment When C PACE programs fail to live up to promotional representations the Model Guidelines of the Sustainable Energy Fund relieve the fund and the sponsoring local government of any liability Instead property owners and capital providers are required to conduct due diligence to ensure that qualified and reputable contractors are chosen to perform work according to plans specifications and requirements set forth in the Program Guidelines and are required to certify that contractors comply with program requirements Allegations that capital providers deceived property owners regarding the benefits of C PACE financing may generate claims of fraudulent or negligent misrepresentation and claims for treble damages under the Pennsylvania Unfair Trade Practices and Consumer Protection Law What are the political risks associated with C PACE financing C PACE programs depend on local tax collectors to collect assessments and on tax claim bureaus or other delinquent tax collectors to initiate foreclosure actions to satisfy delinquent assessments These officials may not be under the jurisdiction of the county or municipality establishing a C PACE program During times of economic distress and especially if energy efficiency improvements do not function as advertised or are removed destroyed or damaged without available insurance coverage tax collectors and local governments may also become reluctant to discharge these duties especially with respect to subsequent purchasers that never agreed to the assessments This may result in delays in tax collection or foreclosure efforts or in changes to the Pennsylvania C PACE law Delinquent property owners may also raise constitutional challenges to the use of public officials as de facto debt collectors for private capital providers and the delegation authority to operate C PACE programs to private administrators Under Art III 31 of the PA Constitution the General Assembly may not delegate to any private corporation or association the power to levy taxes supervise municipal improvements of the use of municipal moneys or perform any municipal function Likewise under Art IX 9 the General Assembly may not authorize a municipality to provide money to any corporation association institution or individual but it may provide standards by which municipalities may give financial assistance to commercial enterprises if necessary to the health safety or welfare of the commonwealth or any municipality If questions are raised regarding whether the C PACE law makes an impermissible delegation of power or fails to provide adequate standards for providing financial assistance to commercial enterprises how such claims will be resolved is difficult to predict This article is for informational purposes and does not contain or convey legal advice The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer Any views expressed herein are those of the author and not necessarily those of the author s law firm or its clients ABOUT THE AUTHOR RAYMOND P PEPE ESQUIRE OF COUNSEL K L GATES LLP PA Bankers Association Quarter 3 2019 49

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S E M I N A R C E L E B R AT I O N 2 0 1 9 Join us at our 40th Anniversary seminar celebration in Scottsdale AZ at The Westin Kierland Resort Spa For forty years The Baker Group has been known for its proven software and products and for helping clients make sound strategic decisions OCT October 24 25 2019 Scottsdale Arizona The Baker Group s Interest Rate Risk and Investment Strategies Seminar was developed specifically for managers of financial institutions Designed to meet current financial challenges it is an in depth examination of topics including Economic Overview Market Update and Fed Policy Outlook Interest Rate Cycle Dynamics Preparing the Balance Sheet for the Next Environment Best Practices to Comply with the Latest Liquidity and IRR Regulatory Guidance What Should Our Institution Be Buying Today Seeking the Best Relative Value Managing Cashflow Optionality to Protect Against Extension and Contraction Risk Protecting Your Portfolio with a Robust Municipal Credit Process Guest Speaker David Rosenberg Chief Economist Strategist Gluskin Sheff Associates Who Should Attend Financial institutions CEOs CFOs investment officers board members and those who are directly or indirectly responsible for financial management functions will benefit from this seminar There is no cost for this seminar Thursday Breakfast 7 30 am Seminar 8 30 am Lunch 12 00 pm Adjourn 4 30 pm Dinner 7 00 pm Friday Breakfast 7 30 am Seminar 8 30 am Conclusion 11 30 am Golf 12 45 pm The Westin Kierland Resort Westin Kierland Golf Club 6902 E Greenway Pkwy Scottsdale AZ 85254 480 624 1000 15636 N Clubgate Dr Scottsdale AZ 85254 480 922 9283 Register online at GoBaker com arizona For more information call Skoshi Heron at 888 990 0010 11 hours of CPE credits will be earned for your attendance Member FINRA and SIPC www GoBaker com 800 937 2257 Oklahoma City OK Atlanta GA Austin TX Indianapolis IN Long Island NY Salt Lake City UT Springfield IL The Baker Group LP is the sole authorized distributor for the products and services developed and provided by The Baker Group Software Solutions Inc

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NO OTHER FIRM No other accounting or consulting firm offers more knowledge of community banks challenges and opportunities than S R Snodgrass www srsnodgrass com banking 833 404 0344 Unlike other accounting or consulting firms that work in banking S R Snodgrass works only in banking every day every week of every month for more than 70 years In fact no other accounting and consulting firm has greater knowledge of the needs challenges and opportunities of today s community banks than S R Snodgrass If you think our unique blend of unrivaled banking expertise and personalized service could benefit your bank please allow us to introduce ourselves We d be delighted to meet you