09/25/2008

Comfort

I’ve never really thought about advertising beyond the parameters of the 4 Ps of marketing: product, place, promotion, and price. I was driving down the interstate one day and saw a Cracker Barrel billboard that said “Where Comfort Meets Food”. All of a sudden my favorite foods at Cracker Barrel popped into my head. Lazy-Boy Furniture stores have ads that say “We Sell Comfort”. Motel 6 used to advertise “A Comfortable Room at a Great Price”. (And they’ll leave the light on for ‘ya) Vendors that sell mattresses relate comfort to a good night’s sleep.

Now I’m thinking that comfort sells, even if it’s not a product, place, promotion, or price. So what exactly is comfort? A great meal? Your favorite recliner? A cozy motel room without the frills and high price? Is comfort really a good night’s sleep? Maybe it’s all of these things if you relate comfort to a good feeling. Aha! Feeling comfortable somehow means you feel good about whatever the product or service is. But there’s always a price to pay for comfort and a risk associated with the downside. There’s a risk that your meal won’t be great. Your recliner might just flip you onto the floor. You could encounter noisy neighbors in the motel room next door. And your new mattress could give you a back ache. Truthfully, how often do you think about or seriously consider the risks associated with the things that give you comfort?

Let’s talk about banking and the financial services industry. The news headlines in recent weeks and months have probably made most of us feel anything but comfort in this arena. Being uncomfortable about your finances is probably worse than any terrible meal or bad night’s sleep you’ve ever had. So the question begs to be asked, what exactly is comfort in relation to banking and financial services? The easy answer is to describe what’s so Uncomfortable about the news headlines talking about our economy being in a recession, gas prices increasing, home mortgage foreclosures at an all-time high, and giants of Wall Street looking to the federal government to bail them out of financial ruin. The best answer to describe what comfort is in banking and financial services basically boils down to knowledge and trust.

Knowledge points to good information about your financial accounts that is both accurate and timely. Trust points to your belief that your financial services provider is financially sound and accessible to answer questions you have regarding personal financial matters. Given these points, you can say that feeling comfortable with your finances means that you deal with individuals who are knowledgeable in the products and services that they offer and who work for a company that recognizes that you -- the customer -- is the reason it opens its doors every day.

Covenant Bank is my bank. We will be open eleven years in December. We are locally owned (except for one shareholder in South Carolina who happened to read a newspaper article about our bank starting when he was staying overnight at a Hampton Inn in Birmingham) and operated. Our directors and employees are all locally connected. The daily decisions that are made regarding our business --our customers’ finances-- are all made locally. There’s nobody to phone in Montgomery, Atlanta, Mississippi, Spain or Canada. We don’t have an international, national, or regional headquarters. Our “Main Office” is in Leeds and our first branch opened in Moody in 1999. These communities have been supportive of us and I am grateful for this fact. We have purchased property and plan to open a branch in Shelby County in 2009. We work hard to meet our customers’ expectations and we are growing in our communities.
If being comfortable with your finances really boils down to knowledge and trust, you need to meet the folks at Covenant Bank.

Trust your friendly home town bank with all of your banking and financial services needs.

09/18/2008

Know Your Mutual Fund Share Classes

When investing in a mutual fund, you can choose among several share classes, most commonly Class A, Class B, and Class C. The only differences among these share classes typically revolve around how much you will be charged for buying the fund, when you will pay any sales charges that apply, and the amount you will pay in annual fees and expenses. These costs that are associated with mutual funds are usually deducted from the money you've invested and can affect the return of your investment over time.

Generally, mutual fund costs consist of sales charges and annual expenses. The sales charge, also called a load, is the broker's commission deducted from your investment when you buy the fund or when you sell it. The annual expenses cover the fund's operating costs and 12b-1 fees which include management fees, distribution and service fees, and general administrative expenses. The expenses are generally computed as a percentage of your assets and then deducted from the fund before the fund's returns are calculated.

So which share class should you choose? The answer to that depends on two factors: how much you want to invest and how long you want to keep the investment.

Class A shares may appeal to you if you're considering a long-term investment in a large number of shares. When you purchase Class A shares, a sales charge, called a front-end load, is typically deducted upfront, thus reducing the actual amount of your initial investment. For example, suppose you decide to spend $35,000 on Class A shares with a hypothetical front-end sales load of 5%. You will be charged $1,750 on your purchase, and the remaining $33,250 will be invested. However, Class A shares offer you breakpoints. These are discounts on the front-end load if you buy shares in excess of a certain dollar amount. Typically, a fund will offer several breakpoints; the more you invest, the greater the reduction in the sales load. Since rules vary, read your fund's prospectus to find out how you may qualify for available breakpoint discounts.

Class B shares may appeal to you if you wish to invest a smaller amount of money for a long period of time. Unlike Class A shares, there is no up-front sales charge, so all of your initial investment is put to work immediately. Instead, Class B shares have a back-end load, often called a contingent deferred sales charge (CDSC), that you pay when you sell your shares. The load usually decreases over time. By the end of the time period no sales charge applies. At that stage your shares may convert to Class A shares.

When you purchase Class C shares, a front-end load is normally not imposed, and the CDSC is generally lower than for Class B shares. This charge is reduced to zero if you hold the shares beyond the CDSC period, which for Class C shares is typically 12 months. For those reasons Class C shares may be appropriate if you have a large amount to invest and you intend to keep the fund for less than 5 years.

Consult your friendly home town banker for all of your mutual fund investment planning needs.

09/11/2008

Will Social Security Be There For You?

Watching the news, you've probably come across many stories on the health of Social Security. Social Security has been described as needing only minor adjustments to being in crisis requiring immediate, drastic reform. The underlying assumptions used can skew one's perception of the solvency of Social Security, and even experts disagree on the best remedy. So let's take a look at what we know.

According to the Social Security Administration (SSA), approximately 54 million Americans currently collect some sort of Social Security retirement, disability or death benefit. Social Security is a pay-as-you-go system, with today's current workers paying the benefits for today's retirees. Today's workers have the first $102,000 of their annual wages subject to 12.4% Social Security payroll tax, with half being paid by the employee and half by the employer. Self-employed individuals pay all 12.4%. This money is put into the Social Security trust fund and is used to pay out current benefits.

The amount of your retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving benefits also affects your benefit amount. The full retirement age is in the process of rising from 65 to 67 in two-month increments. For instance: If you were born in 1940, your retirement age is 65 & 6 months; if you were born from 1943-1954, your retirement age is 66; if you were born in 1960 or later, your retirement age is 67. You can begin receiving Social Security benefits as early as age 62, but if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age. If your full retirement age is 67, you'll receive about 30 percent less if you retire at age 62. This reduction is permanent with no future increases available.

Demographic factors are complicating Social Security's problems. Life expectancy is increasing and the birth rate is decreasing. This means that over time, fewer workers will have to support more retirees. According to the SSA, in 1950 there were 16 workers per beneficiary. Today there are 3 workers per beneficiary, and within 40 years there will be only 2 workers per beneficiary. The SSA predicts that in 2017, Social Security will begin paying out more money than it takes in. However, the SSA estimates that Social Security should be able to pay promised benefits until 2041.

The SSA continues to urge Congress to address its solvency issues sooner rather than later, to allow for a gradual phasing in of any necessary changes. While no one can say for sure what will happen, here are some solutions that might fix the problems:

• Allow individuals to invest some of their current Social Security taxes in personal retirement accounts
• Raise the current 12.4% payroll tax
• Raise the current ceiling on wages subject to the payroll tax
• Raise the retirement age beyond age 67
• Reduce future benefits

For now, the best thing you can do is stay informed. You should periodically check your Social Security earnings record and review your Social Security Statement, which the SSA mails annually about three months before your birthday to every worker over age 25. This statement will estimate the amount of Social Security benefits you will be eligible to receive in the future, based on your actual earnings and projections of future earnings. If you have questions, call the SSA at (800) 772-1213 or go to www.ssa.gov for more information.

Contact your friendly home town banker to help you estimate and plan for the income you will receive during retirement.

09/04/2008

Recovering from Identity Theft

Last week we discussed precautions you can take to help prevent becoming a victim of identity theft. This week we will look at immediate action steps you should take if you discover you have become a victim of identity theft.

To minimize your losses, act fast. Contact, in this order:

• Your credit card companies
• Your bank
• The three major credit bureaus
• Local, state, or federal law enforcement authorities

Credit card companies are getting better at detecting fraud, but the responsibility to notify them of lost or stolen cards is still yours. If you do so within 30 days after you discover the loss, you won't be responsible for more than $50 per card in fraudulent charges. Ask that the accounts be closed at your request, and open new accounts with password protection. Follow up your initial creditor contacts with letters indicating the date you reported the loss or theft.

If your debit (ATM) card is lost or stolen, you won't be held responsible for any unauthorized withdrawals if you report the loss before it's used. Otherwise, the extent of your liability depends on how quickly you report the loss.

• If you report the loss within two business days after you notice the card is missing, you'll be held liable for up to $50 of unauthorized withdrawals.
• If you fail to report the loss within two days after you notice the card is missing, you can be held responsible for up to $500 in unauthorized withdrawals.
• If you fail to report an unauthorized transfer or withdrawal that's posted on your bank statement within 60 days after the statement is mailed to you, you risk unlimited loss.

If your checkbook is lost or stolen, stop payment on any outstanding checks, then close the account and open a new one. Dispute any fraudulent checks accepted by merchants in order to prevent collection activity against you. And notify the check-guarantee bureaus: Certegy (formerly Equifax-Telecredit) www.certegy.com, Check Rite www.checkritesystems.com, ChexSystems www.chexhelp.com, CrossCheck www.cross-check.com, NPC www.npc.net, SCAN www.arjaydata.com, TeleCheck www.telecheck.com.

If your credit cards have been lost or stolen, call the fraud number of any one of the three national credit reporting agencies:

1. Equifax (888) 766-0008
2. Experian (888) 397-3742
3. TransUnion (800) 680-7289

You need to call only one of the three; the one you call is required to contact the other two.

Next, place a fraud alert on your credit report. Once a fraud alert has been placed on your credit report, any user of your report is required to verify your identity before extending any existing credit or issuing new credit in your name. If you discover fraudulent transactions on your credit reports, contest them through the credit bureaus. Do so in writing, and provide a copy of the identity theft report you file. You should also contest the fraudulent transaction with the merchant, bank, or creditor who reported the information to the credit bureau. Both the credit bureaus and those who provide information to them are responsible for correcting fraudulent information on your credit report.

You should file a report about the theft with a federal, state, or local law enforcement agency. Once you've filed the report, get a copy of it because you may need to provide it to banks or creditors before they'll forgive any unauthorized transactions. Write down the name and contact information of the investigator who took your report, and give it to creditors, banks, or credit bureaus that may need to verify your case.

Contact your friendly home town banker for more ways to recover from identity theft.

Back to President's Articles

09/25/2008

Comfort

I’ve never really thought about advertising beyond the parameters of the 4 Ps of marketing: product, place, promotion, and price. I was driving down the interstate one day and saw a Cracker Barrel billboard that said “Where Comfort Meets Food”. All of a sudden my favorite foods at Cracker Barrel popped into my head. Lazy-Boy Furniture stores have ads that say “We Sell Comfort”. Motel 6 used to advertise “A Comfortable Room at a Great Price”. (And they’ll leave the light on for ‘ya) Vendors that sell mattresses relate comfort to a good night’s sleep.

Now I’m thinking that comfort sells, even if it’s not a product, place, promotion, or price. So what exactly is comfort? A great meal? Your favorite recliner? A cozy motel room without the frills and high price? Is comfort really a good night’s sleep? Maybe it’s all of these things if you relate comfort to a good feeling. Aha! Feeling comfortable somehow means you feel good about whatever the product or service is. But there’s always a price to pay for comfort and a risk associated with the downside. There’s a risk that your meal won’t be great. Your recliner might just flip you onto the floor. You could encounter noisy neighbors in the motel room next door. And your new mattress could give you a back ache. Truthfully, how often do you think about or seriously consider the risks associated with the things that give you comfort?

Let’s talk about banking and the financial services industry. The news headlines in recent weeks and months have probably made most of us feel anything but comfort in this arena. Being uncomfortable about your finances is probably worse than any terrible meal or bad night’s sleep you’ve ever had. So the question begs to be asked, what exactly is comfort in relation to banking and financial services? The easy answer is to describe what’s so Uncomfortable about the news headlines talking about our economy being in a recession, gas prices increasing, home mortgage foreclosures at an all-time high, and giants of Wall Street looking to the federal government to bail them out of financial ruin. The best answer to describe what comfort is in banking and financial services basically boils down to knowledge and trust.

Knowledge points to good information about your financial accounts that is both accurate and timely. Trust points to your belief that your financial services provider is financially sound and accessible to answer questions you have regarding personal financial matters. Given these points, you can say that feeling comfortable with your finances means that you deal with individuals who are knowledgeable in the products and services that they offer and who work for a company that recognizes that you -- the customer -- is the reason it opens its doors every day.

Covenant Bank is my bank. We will be open eleven years in December. We are locally owned (except for one shareholder in South Carolina who happened to read a newspaper article about our bank starting when he was staying overnight at a Hampton Inn in Birmingham) and operated. Our directors and employees are all locally connected. The daily decisions that are made regarding our business --our customers’ finances-- are all made locally. There’s nobody to phone in Montgomery, Atlanta, Mississippi, Spain or Canada. We don’t have an international, national, or regional headquarters. Our “Main Office” is in Leeds and our first branch opened in Moody in 1999. These communities have been supportive of us and I am grateful for this fact. We have purchased property and plan to open a branch in Shelby County in 2009. We work hard to meet our customers’ expectations and we are growing in our communities.
If being comfortable with your finances really boils down to knowledge and trust, you need to meet the folks at Covenant Bank.

Trust your friendly home town bank with all of your banking and financial services needs.

09/18/2008

Know Your Mutual Fund Share Classes

When investing in a mutual fund, you can choose among several share classes, most commonly Class A, Class B, and Class C. The only differences among these share classes typically revolve around how much you will be charged for buying the fund, when you will pay any sales charges that apply, and the amount you will pay in annual fees and expenses. These costs that are associated with mutual funds are usually deducted from the money you've invested and can affect the return of your investment over time.

Generally, mutual fund costs consist of sales charges and annual expenses. The sales charge, also called a load, is the broker's commission deducted from your investment when you buy the fund or when you sell it. The annual expenses cover the fund's operating costs and 12b-1 fees which include management fees, distribution and service fees, and general administrative expenses. The expenses are generally computed as a percentage of your assets and then deducted from the fund before the fund's returns are calculated.

So which share class should you choose? The answer to that depends on two factors: how much you want to invest and how long you want to keep the investment.

Class A shares may appeal to you if you're considering a long-term investment in a large number of shares. When you purchase Class A shares, a sales charge, called a front-end load, is typically deducted upfront, thus reducing the actual amount of your initial investment. For example, suppose you decide to spend $35,000 on Class A shares with a hypothetical front-end sales load of 5%. You will be charged $1,750 on your purchase, and the remaining $33,250 will be invested. However, Class A shares offer you breakpoints. These are discounts on the front-end load if you buy shares in excess of a certain dollar amount. Typically, a fund will offer several breakpoints; the more you invest, the greater the reduction in the sales load. Since rules vary, read your fund's prospectus to find out how you may qualify for available breakpoint discounts.

Class B shares may appeal to you if you wish to invest a smaller amount of money for a long period of time. Unlike Class A shares, there is no up-front sales charge, so all of your initial investment is put to work immediately. Instead, Class B shares have a back-end load, often called a contingent deferred sales charge (CDSC), that you pay when you sell your shares. The load usually decreases over time. By the end of the time period no sales charge applies. At that stage your shares may convert to Class A shares.

When you purchase Class C shares, a front-end load is normally not imposed, and the CDSC is generally lower than for Class B shares. This charge is reduced to zero if you hold the shares beyond the CDSC period, which for Class C shares is typically 12 months. For those reasons Class C shares may be appropriate if you have a large amount to invest and you intend to keep the fund for less than 5 years.

Consult your friendly home town banker for all of your mutual fund investment planning needs.

09/11/2008

Will Social Security Be There For You?

Watching the news, you've probably come across many stories on the health of Social Security. Social Security has been described as needing only minor adjustments to being in crisis requiring immediate, drastic reform. The underlying assumptions used can skew one's perception of the solvency of Social Security, and even experts disagree on the best remedy. So let's take a look at what we know.

According to the Social Security Administration (SSA), approximately 54 million Americans currently collect some sort of Social Security retirement, disability or death benefit. Social Security is a pay-as-you-go system, with today's current workers paying the benefits for today's retirees. Today's workers have the first $102,000 of their annual wages subject to 12.4% Social Security payroll tax, with half being paid by the employee and half by the employer. Self-employed individuals pay all 12.4%. This money is put into the Social Security trust fund and is used to pay out current benefits.

The amount of your retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving benefits also affects your benefit amount. The full retirement age is in the process of rising from 65 to 67 in two-month increments. For instance: If you were born in 1940, your retirement age is 65 & 6 months; if you were born from 1943-1954, your retirement age is 66; if you were born in 1960 or later, your retirement age is 67. You can begin receiving Social Security benefits as early as age 62, but if you retire early, your Social Security benefit will be less than if you had waited until your full retirement age. If your full retirement age is 67, you'll receive about 30 percent less if you retire at age 62. This reduction is permanent with no future increases available.

Demographic factors are complicating Social Security's problems. Life expectancy is increasing and the birth rate is decreasing. This means that over time, fewer workers will have to support more retirees. According to the SSA, in 1950 there were 16 workers per beneficiary. Today there are 3 workers per beneficiary, and within 40 years there will be only 2 workers per beneficiary. The SSA predicts that in 2017, Social Security will begin paying out more money than it takes in. However, the SSA estimates that Social Security should be able to pay promised benefits until 2041.

The SSA continues to urge Congress to address its solvency issues sooner rather than later, to allow for a gradual phasing in of any necessary changes. While no one can say for sure what will happen, here are some solutions that might fix the problems:

• Allow individuals to invest some of their current Social Security taxes in personal retirement accounts
• Raise the current 12.4% payroll tax
• Raise the current ceiling on wages subject to the payroll tax
• Raise the retirement age beyond age 67
• Reduce future benefits

For now, the best thing you can do is stay informed. You should periodically check your Social Security earnings record and review your Social Security Statement, which the SSA mails annually about three months before your birthday to every worker over age 25. This statement will estimate the amount of Social Security benefits you will be eligible to receive in the future, based on your actual earnings and projections of future earnings. If you have questions, call the SSA at (800) 772-1213 or go to www.ssa.gov for more information.

Contact your friendly home town banker to help you estimate and plan for the income you will receive during retirement.

09/04/2008

Recovering from Identity Theft

Last week we discussed precautions you can take to help prevent becoming a victim of identity theft. This week we will look at immediate action steps you should take if you discover you have become a victim of identity theft.

To minimize your losses, act fast. Contact, in this order:

• Your credit card companies
• Your bank
• The three major credit bureaus
• Local, state, or federal law enforcement authorities

Credit card companies are getting better at detecting fraud, but the responsibility to notify them of lost or stolen cards is still yours. If you do so within 30 days after you discover the loss, you won't be responsible for more than $50 per card in fraudulent charges. Ask that the accounts be closed at your request, and open new accounts with password protection. Follow up your initial creditor contacts with letters indicating the date you reported the loss or theft.

If your debit (ATM) card is lost or stolen, you won't be held responsible for any unauthorized withdrawals if you report the loss before it's used. Otherwise, the extent of your liability depends on how quickly you report the loss.

• If you report the loss within two business days after you notice the card is missing, you'll be held liable for up to $50 of unauthorized withdrawals.
• If you fail to report the loss within two days after you notice the card is missing, you can be held responsible for up to $500 in unauthorized withdrawals.
• If you fail to report an unauthorized transfer or withdrawal that's posted on your bank statement within 60 days after the statement is mailed to you, you risk unlimited loss.

If your checkbook is lost or stolen, stop payment on any outstanding checks, then close the account and open a new one. Dispute any fraudulent checks accepted by merchants in order to prevent collection activity against you. And notify the check-guarantee bureaus: Certegy (formerly Equifax-Telecredit) www.certegy.com, Check Rite www.checkritesystems.com, ChexSystems www.chexhelp.com, CrossCheck www.cross-check.com, NPC www.npc.net, SCAN www.arjaydata.com, TeleCheck www.telecheck.com.

If your credit cards have been lost or stolen, call the fraud number of any one of the three national credit reporting agencies:

1. Equifax (888) 766-0008
2. Experian (888) 397-3742
3. TransUnion (800) 680-7289

You need to call only one of the three; the one you call is required to contact the other two.

Next, place a fraud alert on your credit report. Once a fraud alert has been placed on your credit report, any user of your report is required to verify your identity before extending any existing credit or issuing new credit in your name. If you discover fraudulent transactions on your credit reports, contest them through the credit bureaus. Do so in writing, and provide a copy of the identity theft report you file. You should also contest the fraudulent transaction with the merchant, bank, or creditor who reported the information to the credit bureau. Both the credit bureaus and those who provide information to them are responsible for correcting fraudulent information on your credit report.

You should file a report about the theft with a federal, state, or local law enforcement agency. Once you've filed the report, get a copy of it because you may need to provide it to banks or creditors before they'll forgive any unauthorized transactions. Write down the name and contact information of the investigator who took your report, and give it to creditors, banks, or credit bureaus that may need to verify your case.

Contact your friendly home town banker for more ways to recover from identity theft.

Back to President's Articles