Episodes

Here, you will find every episode of Bank Chats, in order, from newest episode to oldest episode. Enjoy!

2024.

Episode: 11

Drew Thomas  0:01  
Fast fact, though home-based lending has been around since the 1930s, home equity lines of credit did not become popular until about 40 years ago. Between 1982 and 1988, the total value of outstanding home equity loans grew from $1 billion to $188 billion. I'm Drew Thomas, and you're listening to Bank Chats.

Drew Thomas  0:43  
So, welcome to yet another episode of AmeriServ Presents: Bank Chats. I am your host, Drew Thomas with me my part time cohost, full time editor and production manager, Jeff Matevish. Hello. And we'll introduce our guest in a second because we're going to talk about...

Drew Thomas  1:01  
We, we, I can, I can, I can kid with our guest by the way because he was actually our very first guest on the podcast, our very first guest. This is going to be Dave O'Leary returns, Dave O'Leary returns.

Jeff Matevish  1:12  
By popular demand.

Drew Thomas  1:16  
Well, there were demands, but I don't know if they were popular.

Dave O'Leary  1:19  
They were made on me.

Drew Thomas  1:21  
So, we're going to talk home equity loans today. And so just briefly, since you already spoke up, let's go ahead and tell people just refresh people about who you are and what you do.

Dave O'Leary  1:32  
My name is David O'Leary, I'm the Vice President of Residential Lending, which is typically more involved with what is considered, and I'm air quoting here, mortgage loans. Previous to that I was in the consumer lending department. I was involved day to day in home equity loans.

Drew Thomas  1:49  
Yeah, so home equity loans. I mean, you I started looking up some statistics on home equity loans, and we live in an area just, you know, full disclosure, where we record and where we live is, traditionally speaking, I would argue less affluent in terms of home values and things like that than the typical home value across the United States, right? Yeah. So, if you live in LA, or Chicago, or Miami, or some of these places, you know, your average home value is probably $300,000-$400,000 were around here, it's not usually that high. But we're going to talk about how HELOCs tie into home values and things like that. But the average home equity loan or line of credit balance is about $25,000-$26,000 right now, as of the end of 2023. And the average credit limit per account is somewhere around $70,000. So, we're going to talk a little bit about what that means, how you find equity in your home, whether or not you should take out a loan against the equity in your home, and what the difference between is between a loan and a line of credit. So, let's start there. When we talk about home equity lending, right, people say home equity loan, they say HELOC as a shorthand. But really a HELOC is different than a home equity loan. Right?

Dave O'Leary  3:02  
Correct. HELOC stands for home equity line of credit. And the last part is the part that you need to concentrate on because the line of credit means your loan or a line of credit acts as a credit card. You can draw on it, you can pay it back down. You can pay interest only if you choose to, you can pay interest in principle, it's a living thing, you have a limit. And you can run it all the way up to the limit and you can pay it back down as much as you want, and you continue to draw on it.

Drew Thomas  3:02  
So, which is more popular for people? Is it more popular to get a home equity loan or more popular to have a line of credit?

Dave O'Leary  3:35  
My gut is, we actually stopped offering home equity loans, probably fourteen years ago, okay, we just weren't getting that much business from it. Yeah. Home equity lines of credit, the HELOCs actually give the borrower a lot more flexibility. I think it's just more attractive.

Drew Thomas  3:53  
Yeah, I mean, from what I could see, it seems like that is typical of just about any bank is that a home equity loan is not really very common these days. It's mostly a home equity line of credit. And I think for the same reason that you just described, it's fluid, you can take some out, you can add pay some back, but it's always kind of there for you like, like a credit card would be. So, why would I do that as opposed to having a credit card?

Drew and Dave  4:17  
Well, for one, the rate is significantly less, and your availability is probably going to be significantly more. Because a credit card is unsecured, if you stop paying your credit card, there's not a lot short of taking you to court and filing a judgment against you that the credit cards can do. HELOC is actually secured by your home. So, as a result, it's a lot less risky for the bank, so the rates are significantly less. I mean, these days if you're lucky, your credit card rate is going to be 24%, some, somewhere in the 20% range. Yeah, that's true. I just happened to look at my Best Buy card and if you're not using it for... And after you got up off the floor. Well, I only use it, I only use it the 0% things. I keep it in a drawer in my house, but I actually looked at the statement, and it was like 27% or something, if you use it as a regular credit card.

Drew Thomas  5:09  
We've talked about that with different credit cards in the, you know, on the show, but you're right, like department store, quote unquote, I'm using air quotes now on an audio only podcast. Yes.

Dave O'Leary  5:21  
But if this goes video, I'm ready for my close up.

Drew Thomas  5:25  
Mr. DeMille, the specialty store cards, I guess you'd call it nowadays, I don't know how many department stores are still really out there other than like Macy's or Boscov’s or something like that. But those kinds of cards tend to have much higher interest rates, even then your standard sort of Mastercard, Visa, Discover, those kinds of bank kind of credit cards, although those interest rates are pretty high right now, too. Yeah. So, when we talk about home equity loans, and you say that the interest rate is lower, is it based off of a mortgage rate?

Dave O'Leary  5:55  
Well, so the majority of HELOCs are based on an index rate. It's a floating rate, because it can last forever, it could last 50 years. So, it tends to be like, for example, AmeriServ uses prime, I think most HELOCs use prime as an index rate, okay. And Prime is more or less going to sort of float along with whatever the current cost of money is. It's going to be higher a little bit than cost.

Drew Thomas  6:23  
So, when you say prime, that's like the Wall Street prime rate?

Dave O'Leary  6:25  
Wall Street prime rate is eight and a half right now. I mean, five, six years ago, that was like three and a quarter or something like Yeah, so it's, it's been going up. It typically follows what the Feds rates are. Okay. The Fed hasn't lowered the rate in a while. It's just been raising rates. So, when the Fed raises or lowers or rates by a quarter point, the Wall Street Journal announces prime is lowered. Yeah. And just the same.

Drew Thomas  6:52  
And just, just for the sake of the fact that this, these episodes live in perpetuity, we are recording this in April of '24. Correct, right. So, any rates that we may discuss, chances are, by the time you're listening to this, they may or may not be the same. So please keep that in mind. But it's hard to talk about rates without at least mentioning rates.

Jeff Matevish  7:12  
So, so okay, going back to the credit aspect. Yes. So, these loans are secured by your equity in your house, right. So, if you don't make a payment, if you default on your, on your payments, does that hurt your credit score as much? Or?

Dave O'Leary  7:29  
Yeah, I mean, typically, your credit score will sort of bump along if you're making all your payments on time, and typically will sort of rise or once it gets to a certain plateau, depending on what your, your current debt load is, how much debt you actually have. But let me go back and just say the one thing I say whenever I talk about credit scores. Anybody tells you they figured it out is a liar. I have seen people who have never heard anybody in their lives have credit scores in the low sixes. And I've seen people with bankruptcies two years ago with scores in the mid seven. So, like, it's all on a logarithm. And it's there's no rhyme or reason to it.

Drew Thomas  8:04  
Not to get too far off topic, but there are three different credit bureaus out there too primarily. yeah, that people use, and the scores can vary from Bureau to bureau. Right. So.

Dave O'Leary  8:14  
They all, they all use a slightly different formula. But getting back to your point, yeah, that'd be if you default on any piece of credit, it's going to start having an immediate negative effect on your credit score.

Drew Thomas  8:26  
You mentioned obviously, one of the advantages to having a HELOC is that, you know, it's secured by your home, it's the interest rates are lower. But you also mentioned that there's a, there's a possibility, of the idea that well, because it's secured by your home if you, if you default on the loan altogether, the bank that holds the loan could, could use your home and basically come after you. That's not a typical response, though, right? I mean, we kind of talked about that during the mortgage conversation that we had, where the bank is not trying to bilk you out of your home.

Dave O'Leary  8:59  
Yeah, foreclosing on customers is not a sound business practice or business plan. It is a last resort.

Drew Thomas  9:09  
So, one of the things that we try to focus on, on this show is clarify what banking terms mean. So, let's talk just a minute about the term equity because I don't know how many people really, truly understand what that is. So, there's, there's a simple way to explain what equity is, right? Right.

Dave O'Leary  9:25  
So, let's just say a house at 123 Main Street is worth $100,000, whether that's the market determining it, or you know, it's bought for $100,000. But at one moment in time, the house is worth $100,000. Okay, if there's debt on it, say there's a traditional mortgage like what I typically live with day to day, say there's a $70,000 mortgage, first mortgage on loan, well, the equity on the house is now $30,000.

Drew Thomas  9:53  
So, it's the difference between what the house is worth and what and what you owe on it.

Dave O'Leary  9:57  
Correct. So, the HELOCs tend to be a second loan behind a first mortgage position, they'll really won't go into a third lien position, typically our second or first lien positions, majority of the time, there's already an existing mortgage on that house.

Drew Thomas  10:16  
So, using your example, I have $100,000 house, I owe $70,000 on my mortgage, which means I have $30,000 in equity in the house, right? Does that mean that I can just come to the bank and say, hey, I want a $30,000 loan?

Dave O'Leary  10:28  
No, because the bank is going to want to have some equity in that house, so that there's, if there's any fluctuation market wise, it doesn't find itself in a position where it's upside down. So, there's a ratio, it's called loan-to-value. And it's basically what it sounds like, you add up the debt on the house the proposed debt and divide that by the value of the house. The bank shoots for on a HELOC to be no more than 89.99%. LTV. So, there's like 90% is, is a threshold that they don't really want to be above.

Drew Thomas  10:58  
Okay. And that just gives you some wiggle room.

Dave O'Leary  11:01  
Wiggle room, yeah. So, in this scenario, house is worth $100,000, first mortgage is $70,000. We'll go $20,000. Okay, on a HELOC. And that puts us at nine, just at 90%. Okay, LTV.

Drew Thomas  11:15  
This brings up an interesting dynamic, there are people out there who you know, for whatever reason, you know, they, they take out a loan against their home, they take out a HELOC, they have a mortgage, and then, you know, they lose their job, they get laid off, something happens. I mean, these are, these are real world things that could happen, right. So, now again, ideally, you know, if you go to your bank, and you say, hey, listen, I've been laid off from work, and I'm looking for work, I'm looking to try to find a job, but I'm going to your chances are your bank, or your lender is going to try to work with you in that situation within right within reason. Yeah. But ultimately, you took out a loan. Right? And, part of that loan is, is that you agreed to pay back that money with interest.

Dave O'Leary  11:57  
So, what happens it doesn't calculate in, you know, when the bank makes a loan, it's anticipating you're paying the loan, right? It doesn't say like, well, we'll take your house, you know? Yeah. So, it's, this is always a last resort.

Drew Thomas  12:10  
Let's talk just a little bit about how this actually, so that's, that's the bad side of lending. I really shouldn't say bad side, it's just the reality of lending, I guess, I should say is that it's a loan you're supposed to pay back. Right? And there, are there things that happen if you don't. But that doesn't happen, typically, I would say very often, I think most people, you know, the banks are I've gone through the process of buying a house. And we talked about this in the first episode, which was actually the only two part-er so far, because Dave is just, just like, it's full of information. No, see, I was going to say full of good information. And then you go and try to disparage yourself. But when we talk there, there is a lot that goes into evaluating the worthiness of a person to go through a mortgage. Right, right. So, ideally, and if you, if you want to know all about that, go back and listen to episodes, one A and one B, because we talk about that in depth. But because of all of that, I would argue that there's not as much in the way of defaulting on the mortgages and stuff as there might have been 30 years ago. Maybe I'm wrong, you're kind of doing the thing, so.

Dave O'Leary  13:16  
It's actually the regulations are a little more stringent now as far as protecting consumers from foreclosures that are considered predatory or whatever the word you want.

Drew Thomas  13:27  
Okay. But still, I mean, I would argue that the banks probably have a better idea of whether or not you really can make your payments though too now.

Dave O'Leary  13:34  
Yeah, from an underwriting perspective. The, yeah, I mean, yes, we have more time on we've seen, we've got better models on predictability, who pays what, you know, when people are going to pay. And so yeah, that does factor into it.

Drew Thomas  13:50  
Okay. So, I guess my whole, the whole thing I was leading up to was what's involved in evaluating whether I can get a home equity loan? Do you go through the same kinds of processes?

Dave O'Leary  13:59  
You do not. This, this process is significantly less formal and uniform. Because mortgages tend to wind up investors tend to buy huge pools of these things and turn them into security instruments and other things, because so that they're able to do that typical first mortgage underwriting is very formalized, it follows basically computerized rules on does that does actually a lot of the underwriting as far as the credit decision being made. Okay. We use a Fannie Mae underwriting system basically that makes it almost pretty much makes the credit decision for the underwriter. HELOCs are traditional credit, what I consider real credit, the HELOCs at least done at this bank, it's, it's a person underwriting and picking up a credit report and a pen and starting to mark up the credit report manually calculating out the debt to income and things like that. It's because these HELOCs are not going to wind up in a portfolio that could wind up being sold off or anything else like that it's less formalized. And it's more of a commonsense business decision on whether a deal works or not. Okay, so it, as a result, it's a lot faster, there's less documentation required. And sometimes that documentation is very tedious for people to chase down and get, because again, it's just less formalized and less uniform. Okay, it's a much faster process to get approved on a HELOC.

Drew Thomas  15:31  
Okay. So, essentially, if I want to, if I want to get a home equity line of credit, and I keep saying, I keep trying to not say loan, because they are not loans in the traditional sense, they are lines of credit. So, I'm looking to get a home equity line of credit, I have a home, it has equity in it, meaning that I, it's worth more than what I owe. And I have at least that 89%, I'm sorry, that one 10% buffer, whatever it is. So, I decide I want, I want to put, what can I use it for, what can I, what can I do with that kind of a loan?

Dave O'Leary  16:03  
You can use it for working on the house, doing renovations to the house financing that. People use it, you could have a lot of credit card debt, an unsecured debt, that you're paying high credit rates on, you know, interest rates on, and you can refinance that at a significantly lower rate, using the funds from that credit line. You could go to Greece.

Drew Thomas  16:26  
Specifically, nowhere else.

Dave O'Leary  16:30  
We have a deal with the, the Greek travel bureau, but I mean, people we use them for...

Drew Thomas  16:36  
I only want to go to countries that have white walls and blue roofs. Yes. That's...

Dave and Jeff  16:43  
So, I mean, but I mean, you, you can use it for your own purposes. Are there any restrictions? No, no, no. I mean, if you, if you've got a kid in college, and you've got expenses from that, you can use it for that, so it's, we don't really...

Drew Thomas  16:58  
Do you ask, like so, is that something you have to tell the bank like?

Drew and Dave  17:02  
We ask, just because it's part of the credit process, but it's usually not a, now if you're saying, well, I'm going to use it to do something illegal, then yeah, we probably would care then. Yeah, but you got to be a special kind of person, though, to admit that right? Yeah. Yeah. Or you're just really honest. But the yeah, as long as it's...

Drew Thomas  17:23  
The most honest person doing illegal activities.

Jeff Matevish  17:25  
Well, we like honest customers.

Dave O'Leary  17:27  
As long as it's legal and ethical, you know, where we don't really have too much concern about what the use of the proceeds are. Gotcha. But the...

Drew Thomas  17:36  
Because you know what's backing up the loan, right, the loan is being backed up by the home, right? Right. So, in the, in the end of it all, you already know the, that's why you like when you take out a mortgage, you have to say well I'm taking out a mortgage specifically to buy a house. I'm taking out a car loan on, but I'm doing it to buy a car right and the car is actually your collateral, the home is your collateral, but with for this, you already know that the home is the collateral, so...

Dave O'Leary  17:59  
You already own the home. HELOCs are not really used to purchase homes. So, you already own the home. The only time where an underwriter may have some say in the use of funds is during the underwriting process. They're marking up your credit report, and they're calculating your debt-to-income. And debt-to-income, it's again, it's another fairly self-explanatory ratio, it's your debt service that you pay every month and, and payments over your gross income. And typically, we don't want to be above 43% debt-to-income now, which means the other 57% of your gross income is spent on taxes, groceries, gas, utilities, things like that. So, if after the as they're working through the deal, and they see, he's got a lot of credit cards with some high balances on it. The underwriter in that circumstance may say like, hey, if we were going to consider this, you need to pay off and close your Bank of America card, your Best Buy credit card, whatever else. And typically, that's just to get somebody into a reasonable debt-to-income ratio. Okay, those are the circumstances where an underwriter might actually say like this is at least some of these funds are going to be used for this purpose.

Drew Thomas  19:14  
Yeah, so let's, let's, and we, maybe I'm, maybe I'm doing this a little out of order, but it's, it's as it's coming to me. So, let's, let's focus a little bit too about, okay, I'm using it to, as you said, maybe do home improvements, right. So, that's one way to actually increase equity in your home, you can increase equity in your home a couple of ways you can pay down your debt, right? Or you can add value to the home. Right. So, you have some people that will take out a home equity loan for I don't know $30,000 to stick with the same example we've been using, right? And they put, I think we said, $20,000. Okay, I'm sorry. Yeah, yeah, it was $30,000 and then yeah, with a buffer. Yeah. So, so I have a $20,000 home equity loan, I put a $15,000 deck on the back of the house, right? Which theoretically adds value to the home. Right, right. So, at some point like, do, do homeowners typically get their homes appraised regularly? Do you do an appraisal for a home equity loan to make sure there's actually enough equity in the home still?

Dave O'Leary  20:19  
Yeah, so we are required to get evaluation of the collateral, the home. Okay, there's a couple of ways we can do that. One is a full-on appraisal, like you would get for a first mortgage. Those typically cost $500 or $600. The last six years, I think the bank's paid all but $295 of it. And I believe right now they have a special going on through the end of the quarter where they're going to, they're actually covering the full amount, if an appraisal is necessary.

Drew Thomas  20:51  
The other that's here, though.

Drew and Dave  20:53  
I mean, that that's just one bank. I mean every bank is going to be different. But yeah, I'm just, I'm just throwing that out there. Yeah. Because I'm sure somebody from the bank's going to be listening to this. And call me. So, the other way we can do it is basically based on tax assessed value. So, every county in Pennsylvania has, it's called the state actually kind of takes a look at typically how long it's been since the last reassessment countywide reassessment, and then has a, it's called the common level ratio. So, it might be 6.5 for county "X", it might be 2.0 for county "Y", okay. Mostly, it just depending on how much confidence the state has that the tax assessed value is actually even remarkably, remotely close, remotely close to what the actual market value is. So, as a result, what we can do is, we can take the tax assessed value, and multiply that by the common level ratio and have a ballpark figure for what that market value might be, just using the tax assessed value.

Drew Thomas  22:00  
I think about that, because I think just like in the example, you have homeowners who will try to add value to their home. So, you know, they bought a home 10 years ago, it was valued at $150,000. They've put, you know, a significant amount of time, effort, and money into, you know, into doing things to the home. And now, you know if you were to resell it, it might be worth $200,000. Right. But if you don't get an appraisal, then you know, you have to sort of have that in mind. At the same, at the same time, unfortunately, you have people who buy a home and then just let it go to pot. And so, they bought it for $150,000 10 years ago, and they've done nothing to it. The roof is caving in, the basement is leaking, but yet you don't know that necessarily.

Jeff Matevish  22:48  
So, when would you require an appraisal versus when you would rely on the tax assessment?

Drew Thomas  22:53  
Is it based on like how much they're asking for?

Dave O'Leary  22:55  
Part of it is, typically if somebody's asking for more than $150,000, that automatically triggers an appraisal, okay. But also what we'll do is we will look at what the, we will do that calculation using the common level ratio on the tax assessed value, subtract what debt we can, we know about and that we're typically looking at a credit report and we can see a Wells Fargo or whatever else, first mortgage, and you can pretty much tell right there whether using the tax assessed value is going to work. So, if the tax assessed value is coming, coming at $90,000, and they have a $70,000 and they want to borrow $20,000, we're going to have to go to an appraisal at that, at that point. That's going to be much more in depth, that's going to be people walking in the house, taking pictures, everything else, and really should get a to the moment idea what the market value is. They're looking at houses that have sold recently in the area that are similar in quality, size, amenities, things like that. And they’re appraisers and coming up with what should be the market value today. It's still some estimate. That's not an exact science, or some art to it.

Jeff Matevish  24:05  
But that's where that wiggle room comes in.

Drew and Dave  24:07  
Right? Yeah.

Drew Thomas  24:08  
I was actually thinking too. I didn't know, you know, if the length of time that you've owned the home would play into it. And like if it was like, well, you only own the house for five years. How much could it have changed? Versus you've owned the house for 35 years. I don't know what you've done to it, you know, yeah.

Dave O'Leary  24:25  
And, you know, since we're talking about home improvements there, there are people who will say well, I put $50,000 into this house but $30,000 of it was a pool. Yeah. The common wisdom is that you don't get your money back on pools. Yeah, it's not dollar for dollar.

Drew Thomas  24:42  
Yeah, if you're living in Florida, maybe because every home in that area of the country probably has a pool. California, Texas, things like that. But if you're living in the Northeast, and you put a pool in, your interest is your I'm sorry, your not your interest your insurance, thank you, yeah, is probably going to go up more than what the value of the pool is.

Dave O'Leary  25:03  
Yeah. And in some cases, the pool actually can be a detriment when you're trying to sell the house because there are a number of people who aren't interested to having a pool. You get less land, yeah, yeah. So, I mean, it's so there is a there is always kind of a discussion when you talk with people like well, I put $50,000 into the house. Was that kitchens and bathrooms? Because that's usually when you get more for your money. Yeah. Was it, was it a pool and, you know, a roof? Which you don't really, everybody expects the roof to work. You don't really, right. Yeah, you typically don't get a lot more for having a roof put on three years before you sell it just because everybody expects the roof to work.

Drew Thomas  25:42  
Yeah, the only, the I guess the only advantage you have there when you're, when you're selling because I know, it's funny you said three years because that's, that was the, the length of time whenever I was looking at our house, they had just put a new roof on about three years prior to that. And in my mind as a buyer, while it didn't necessarily add value to the house, per se, it was a weight off my mind that well, I should have 20 years. Yeah, I should not have to worry about this for at least 10, 15, 20 years, right. Yeah. Right. But anyway, would I have paid more because it was just done? Probably not. Not unless there was a hole in the roof and I was like, well, I'm going to have to fix that now.

Dave O'Leary  26:18  
It's a jump ball between two houses and you have a 20-year-old roof and a three-year-old roof, that may be enough to push you over, yeah.

Drew Thomas  26:24  
Yeah. Typically, though, I think that, and I mean, I think that there's a lot of TV programming and things out there that give people this sense that, well, if I just put $10,000 into this house, I'm suddenly going to sell it for a million, even though it was only worth $250,000 when I started, right. That may or may not necessarily be true, yeah. Plus, you're not necessarily a professional designer, contractor, whatever. So, a lot of your home improvement costs are usually tied up in having a skilled individual doing the work, right. But that is something to keep in mind that a home equity loan can be used to theoretically, increase the value of your home, right?

Dave O'Leary  27:07  
You know, I mean, you would hope it would be used to increase the value of your home, you know, so. It's, and instead of going outside and borrowing unsecured, or, or from some other source, the rates are going to be fairly low, because it's secured by your house, and you should get a, you know, the amount of money you'll save and paying interest, a higher interest rate over time will save you.

Drew Thomas  27:32  
So, I know we, we discussed interest rates at the sort of the top of the show, but I wanted to circle back to just one other thing, because I think you did talk about this, but and if you did, I apologize, because I must not have retained it in my brain. But home equity lines of credit, you said they can, they can last for many, many, many years. Right? Right. So, are the interest rates variable?

Drew and Dave  27:54  
Right. The rate follows prime. Okay, yeah, you did say that. So, it will float up and down. So, okay. Now there are floors. I was just okay, there. Thank you. Yeah, typically, there's a floor and a ceiling so that the bank will be in a position where if, if rate of say prime went back to 2%, or something like that, that's not even covering the bank's expenses on maintaining the line. So, it obviously doesn't want to do that. So, the bank will make a decision on a floor rate. I think right now, the flow rates 3.25% if the loans again, speaking for AmeriServ, just as an example. We're at floor is, 3.25% for $75,000 or more and 4% if it's less than $75,000. Okay, and again, that that differential is just profitability.

Drew Thomas  28:43  
But and then you said, there's also usually a ceiling of some sort too, where you as the borrower know that, all right, absolute worst-case scenario, my interest rate is going to be "X". Yeah. And no matter what happens, it will never go above that. Right. Right. So, and typically, I would probably assume that that's still going to be less than a lot of credit cards. Yes.

Dave O'Leary  29:04  
You know, yeah, it will be a lot less. If you're in a situation where you've hit the ceiling, your credit card company, or your credit card rates are probably... if the, if the credit card companies are still even in business at that point. I mean, it's, they're, they're going to be astronomical. Yeah, it's a very high, very high ceiling. So, they're not high, high, but it's, it's there's a lot of wiggle room between the floor and the ceiling. Yeah. So, it should just float at prime, prime goes down, well that's to your benefit, prime goes up, your payments go up a little bit. It's, it's still basically using a market indicator of what the cost of the actual funds are going to be.

Drew Thomas  29:43  
Okay. So, how many home equity loans typically do you do in like a year? I mean, is it a pretty popular product? Is it something that people use a lot?

Drew and Dave  29:51  
It's a very popular product. I don't know the number because I'm not well, that's okay. But I mean, I mean, it's not something you do rarely.

Drew Thomas  29:57  
I mean, this is...

Dave O'Leary  29:58  
No, no, they're floating in probably every day, there's one or two HELOCs applications in every day. So, I mean, it's, it's a very we like speaking from the bank's perspective, we have a very competitive product that offers a lot of flexibility. So, a lot of people are interested in taking us up on that, that product.

Drew Thomas  30:15  
So, what I was looking at, one of the numbers that I rattled off at the very beginning was the average HELOC balance per account right now in the in the country, across the country is about $25,000-$26,000. So, that's really not, not a lot. I mean, yeah, I was going to say, I mean, to me anyway, that doesn't seem very, very high.

Jeff Matevish  30:17  
So, you're not you're not taking out a line of credit for the total value of your house necessarily. Yeah.

Drew Thomas  30:40  
I mean, there are probably some credit cards out there that have a balance, that have a $25,000 credit limit, you know, so if that's, if that's where you're at, it's not like you have to take out a $300,000 home equity to do a home equity loan is my, is my point. I mean, you can, you can do stuff that's, there's probably a floor though, too I would imagine. There's probably a point where the banks like, look, I can't give you a home equity loan for $4,500 bucks.

Dave O'Leary  31:03  
Yeah. $10,000 is our minimum. Okay. And again, it's just a question of the, the return on investment for the bank. If a $4,000 credit line, paying at prime isn't going to make enough to make it even worth carrying that loan and the books.

Drew Thomas  31:18  
So, going back to one of the things we talked about before, in figuring out how much equity is actually available in the home. And I said, you know, if you've only owned the home for five years, chances are your estimated value is probably correct, right? Because you've only had your appraisal done just less than five years ago. But you may not have paid down enough on your mortgage to even qualify for home equity at that point.

Dave O'Leary  31:39  
You know, if the housing market wouldn’t had been so volatile in the last five years, I'd be inclined to agree with you more. But I mean, we've seen remarkable increases across the country in housing costs. So, I mean just sitting on a house and paying your mortgage in some areas can lead to 30%-40% increases in the value of the house. We don't live in such a volatile area to our detriment in some way. Sometimes stability is good. Yeah. Yeah. We don't see the highs, and we don't see the super lows. Yeah, that other markets have, markets I've happened to live in. So, but yeah, it's typically in a normal world, after, you know, not, not thinking about the last couple of years, yeah, you know, you don't see that much change.

Drew and Dave  32:27  
Now, I'm not asking you to speculate. And I'm going to just, I'm going to preface this question by saying that because I'm asking you to speculate. But based on your knowledge, your, your past history, your experience in all of this, is this another housing bubble? Are housing costs, are housing values, getting to a point where they're being overestimated? Or is, you know... You would think, but the issue is, there's not a lot of houses, a lot of housing available right now.

Dave O'Leary  32:57  
So, the supply is fairly low. And the demand, even though rates have, have had a negative impact on the demand, to some extent, the supply of good housing and like, even in our market is very low. Houses don't stay on the market for very long. And typically, if a house is on the market for a while, it's either dramatically overpriced, or there's something wrong with it that people are walking. So, people are looking to buy people are looking to buy is what you're saying. And there's not really a lot of inventory.

Drew Thomas  33:28  
And why is that? I mean, is it is it that the sellers think that they can't get their value out of the house, because the interest rates are up?

Dave O'Leary  33:34  
Well, there's a there is a fairly large chunk of the population of homeowners right now that are in rates in mortgages and their existing homes and the 3%s, in some cases in the 2%s. And for them, and they may want to move into a bigger house, or you know, move on to another house. But if they do that they may have, be dealing with the rates in the 7%s. So, they're sort of staying out of the market and as a result, they're not selling, because they don't want to have this huge increase in their mortgage.

Drew Thomas  34:09  
So, is that, do you think that's leading to more HELOCs? Because are people like trying to improve what they have rather than moving to a different home?

Dave O'Leary  34:17  
It has to. Yeah, I mean, it really has to because there's, we're in a situation where, and this was actually sort of preface by COVID too, people were spending a lot more time in their house and looking around and realizing like, you know, I could do this, this bathroom is straight out of the 70's. Maybe I should, maybe I should get this bathroom redone or do it myself or whatever else. So, there already was sort of a push to renovate the houses that people already existing, are in. And again, this is where the HELOC sort of plays into that, because people are going to stay in their houses for longer while they ride out the, the current rate environment. We all sort of hope it will go back down to something similar to where it was.

Drew Thomas  34:58  
Yeah, I mean, I see a similar trend, my dad has been self-employed as a mechanic for over 50 years, and he has arguably never been busier, yeah, in terms of repairing vehicles because people don't, for a long time, there was no inventory for new vehicles, first of all. The mentality that people had of, oh, well, it needs $1,000 worth of work. Never mind, I'll just go buy a new car is giving way to a more old school mentality of hey, I got to keep what I have on the road, because I can't buy a car for $1,000. Right, you know, so I would imagine homes are probably in a similar in a similar boat or similar situation.

Dave O'Leary  35:40  
Yeah. And people are staying in their cars longer, I think because they may have bought their 2020, whatever, at 0%. And now they're looking at 7%. Yeah. And obviously, you can afford a lot less car than you could.

Drew Thomas  35:56  
Yeah. And that's, that kind of goes back to the to the HELOC thing too of, you know, a 7% mortgage rate is comparatively high compared to what it was, say, five years ago. Right, right, a 7% rate on a HELOC compared to your 24% rate on a credit card. Yeah, right. So, that rate number is relative, right, right as to whether it's high or whether it's low, right. And that's what you kind of got to think about too when you're getting a HELOC and you're saying hey, you know, it's a 7% rate on a HELOC. Why would I do that? What if I get a 7% rate on a mortgage? Well, 7% on a $25,000 HELOC is, is more than reasonable, right? 7% interest rate on a, on a $350,000 home is going to be a lot more money. Right? Right.

Drew and Dave  36:44  
And the other thing people sort of get into hooked into, it's a bad habit, but they may have a credit card, and they're, they're just paying the monthly minimum, which is typically just interest, accrued interest. Yep. And they're just banging along paying the minimums. They could have $40,000 in credit card debt. And that interest over time at 25% is a lot of money. So, you can use a HELOC and first of all, knock your minimum payment, you know, even if you just paid what your minimum payments were, you're now paying, paying the credit line down significantly. Because you're paying on the principal as well as the interest rate. Yeah, because you went from 25% to 8%, 8.5%. Yeah, so 8.5% as of today. So, I mean, that savings alone, you can use to pay down the balance on the HELOC and yeah, and, and again, the great thing about a HELOC is, the faster you pay the principal down the more room you make to be able to use it again. So, I mean, you could be paying off your credit cards one year and three or four years later, you have to dig up your front yard put in a new sewer line or something and now and you have availability on your, on your credit line.

Drew Thomas  37:54  
That's excellent. What do you got Jeff, anything? It doesn't help that we have two, Jeff is competing against the two very long winded people because I talk a lot.

Jeff Matevish  38:01  
I'm generally pretty quiet. Yes. It's a learning experience for me. You know, I get to hear the podcast early, I guess. Yeah.

Drew Thomas  38:08  
Yeah, instead of having to edit around, which you're going to have to do some editing on this. We all know that, right. Yeah.

Dave O'Leary  38:12  
So, because I use typically a lot. So, it's alright.

Drew Thomas  38:17  
We're going to, we're going to change it using AI, and we're going to change it to like, peacock, and so, okay, or something, something completely off the wall so that every time it goes up, people are going to really notice it. I'm into it. Yeah. So, well, thank you very much for your time and for your day. What else? Is there anything, before we leave you, is there anything else that we should probably know, or the average person that may be looking into doing a HELOC should probably know that we didn't cover because you know this better than I do?

Drew and Dave  38:47  
Yeah, I mean, we talked about, even if you don't have a need right now, for a HELOC, it's a good idea to have one in place. Because like that scenario I just threw out where you suddenly have to dig up your next door, my next-door neighbor's, you're dig up your next-door neighbor? Just slurred that one a little bit. But my next-door neighbor is just had a huge surprise on her sewer line, like a huge dollar amount. Yeah, so having a HELOC in place, even if it's just sitting there so that if you had a situation where you need to pay Roto Rooter to dig out your sewer line, then you obviously want that done today. Yeah, you have the funds available and they're there. The cost of carrying a credit line without using it at all is $25 a year, just an annual renewal fee $25 to have the ability to tap into equity. You know that to tap into that your house is equity to pull money out.

Drew Thomas  39:42  
Yeah, and I mean you make a good point because I remember a time whenever I was a kid we had, it was Easter Sunday, and our, my parents' water heater just blew up. Yeah, right. I mean, what do you do? You know and I mean, thankfully my dad, I mean, we live in a relatively small town like my dad knew the, the owner of the hardware store down the street and he was able to call him up and he went down, opened up the hardware store and sold him a hot water heater. But the, the end of the day, like, how long can you realistically go without a water heater in your home? Right, right. And that's just one example. And you're probably talking, you know, $800 for the water heater, maybe another few 100 bucks to have somebody come out and put it in for you if it's not exactly the same, because it has to be exactly plumbed, right and everything. Weird things like that. I mean, being a homeowner comes with all kinds of jacks in the box. So, I think you're right, I think having that availability and that peace of mind, if nothing else to just say, look, I don't want to have another payment, but it's better to have another payment and be able to handle an emergency today than not.

Dave and Jeff  40:43  
And as opposed to a home equity loan, with the line of credit, you don't have to use it. You don't have to. So, there's no minimum? There's no, no you don't have to maintain a minimum balance or anything, like if you if you get you know, once a year, we hid it for $25 for a fee. And that's mostly just to cover the cost of postage.

Drew Thomas  41:03  
Because we have to send you a statement, privacy statement. Yeah.

Dave O'Leary  41:06  
So, like, you literally can keep a reserve in place for $25 a year that you can access immediately. I mean, if you, if you have, if you bank with AmeriServ, and you have a line of credit with AmeriServ, you can go on your phone and transfer however much you need to through the app, the banking app. So, if you run into a circumstance where you have an emergency, and you need to get cash, transfer money directly into your checking account like that, yeah, so yeah, I mean, it's a, it's a good thing to have, even if you don't have an immediate need for it. Because if you have an immediate need for it, it's too late.

Drew Thomas  41:42  
Yeah, yeah. Especially if it's Easter Sunday or so. Right, exactly what the circumstance, but you know, something else you said about too, like that actually, I know, you said that, you know, figuring out how to calculate that your credit, your credit score is, is an enigma. Yeah. But one of the things that does go into calculating your credit score is available credit that's unused. Right, right. So, if you have a $25,000 or $35,000 line of credit out there, home equity line of credit out there, and you're not using it, it doesn't hurt your credit score, you know, if anything, it helps your credit score, because you're, you're showing that you could be using this money, but you're not.

Dave O'Leary  41:50  
You can live within your means. Yeah, what that tells a credit underwriter is you're able to live within your means if you have several credit cards that have zero balances. You know, you're able to exist on your, on your, your day-to-day expenses are covered by your cash flow, basically the cash that you have on hand that you need for your income or from if you're retired or whatever else. That shows stability or the on the part of a borrower from underwriter perspective. Yeah. Okay.

Drew Thomas  42:51  
I'll ask another question. Because when it comes to home equity, and we're talking about the equity itself in your home, right, what, you said adding a roof on or fixing a roof probably doesn't add, what does add more equity to a home typically?

Dave O'Leary  43:05  
Well, I'm going to put on my former realtor hat and tell you that you can't go wrong with updated bathrooms and kitchens. Okay, fresh, you know, fresh wall. If you have a house with paneling, we've talked about in the past. Yeah. So, I mean, some of it's also, yeah, some of the, some of it is basically, if you have a house that looks straight out, like it's straight out of the 70s, it's not going to be as competitive with a house that's fairly current and up to date. Yeah. So, I mean, the trick is to try to keep your house remodeled to an extent that it doesn't seem like a time capsule.

Drew Thomas  43:42  
Yeah. And, you know, we always say, because I'm in the same boat as you, I, I still think of 1970s being 30 years ago. It's not, I mean, if your house was built in 1990, yeah. You're already 34 years in, right. So, there's a, there's a different mentality too depending on what age group you're in, when you're listening to this, when you consider quote unquote, old, right, right. But just keep that in mind, you know, the trends change, tastes change. If you have seafoam green and pink in your home, which was typical in the early 90s, it's probably not very, you know, probably not something that's going to appeal to a person who's there's looking at your home today, right? But things like paint and things can be changed. It's the core places you’re like you said a kitchen where you spend a lot of your time, your bathrooms where you know, you just you want you know, updated fixtures and plumbing that works and nice showers and things like that. That really I think add an add value to a home right.

Dave O'Leary  44:50  
So, and you know if you happen to be friends with a realtor, invite them over for dinner. After, after, there's been some conversation about another topic, you may want to ask him like, hey, if I was going to throw $30,000 at this house to try to get $40,000 out of it, yeah. What would you recommend? And they probably would have an opinion. Yeah.

Drew, Dave, and Jeff  45:11  
And if you are a DIY-er for all, for all, just make sure that if your DIY-ing, your DIY-ing it right, exactly. Yeah, you know, there's a lot of there's been a lot of trends toward DIY work. And there's nothing wrong with that inherently. But if you're doing electrical, if you're doing plumbing, if you're doing anything that requires inspections and professional people involved, this feels like a disclaimer, it is kind of a disclaimer, I'm just, I'm just throwing it out there. But please, further, you know, don't, don't do that kind of stuff yourself. If you're not qualified to do it. Right. Some things you can't just learn on YouTube. Yeah. Yeah. I mean, you know if you're learning how to paint on YouTube, you're probably good. Yeah. If you're learning how to do you know, main stack plumbing.

Dave O'Leary  46:02  
Yeah, they're going to charge you more for fixing your mistakes anyway, so.

Drew Thomas  46:07  
That is true. That is true of cars, too, I might add. Yep. All right. Well, Dave, thank you very much. As always, I know we joke around a lot, but you are very knowledgeable. We do appreciate you doing the show and coming in and sharing your knowledge with people for free.

Dave O'Leary  46:21  
My pleasure, waiting for free?

Drew Thomas  46:22  
Yep. Yeah. See that water bottle? That's yours. I'm taking them both. No water for you, Jeff. Oh, yeah, Jeff's here. Alright everybody.

Drew Thomas  46:43  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program was simply intended as one source of information. The podcast is not a substitute for financial professional who is aware of the facts and circumstances of your individual situation.

Drew Thomas  47:50  
I think the biggest takeaway from our discussion with Dave O'Leary today is that a home equity line of credit can be a fantastic way to borrow just as much money as you need when you need it, and at generally lower rates than what you'd likely find from a credit card. That said, it's important to never overextend yourself by borrowing more than you can afford to repay. As always, I'd like to thank our Producer Jeff Matevish, for his excellent work with the editing, distribution, and transcription of the podcast. If you haven't yet subscribed, we'd really appreciate it if you would. We also love to hear back from our listeners, so if you have a question or comment, please visit ameriserv.com/bankchats, and leave us some feedback. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. You can find the podcast on any of your favorite podcast apps, or by visiting our website. For now, I'm Drew Thomas, so long.

2 Cents Episode: 7

Drew Thomas  0:12  
You would think that after so many of these, I would know how to start them. Yeah, but this is 2 Cents with Drew Thomas and Jeff Matevish, Jeff Matevish. And we were having a little bit of an, of a personal debate off-mic, about the advantages and disadvantages of debit cards versus credit cards. And we thought, you know, what, why don't we turn the microphones on and have this debate for you? So, I think both of us use both. I mean, I don't think either one of us is completely one side or the other. Right? I mean, you...

Drew and Jeff  0:42  
Right, I mean, I'm, it depends on the scenario. But yeah, I do use both. So, and so do I. But my trend is more debit. And I am the opposite, I tend to use more credit. Yeah.

Speaker 1  0:53  
And so, we started talking about some of the reasons why that is, and some of the advantages to both. And one of my first arguments was with debit cards, well, I can't overspend, or it's more difficult for me to overspend. If my bank allows me to overdraft my account, or I agree to allow my bank to overdraft because I don't want to be embarrassed when I'm standing at the line at the grocery store, I can theoretically spend more than what's in my, my account, but I'm gonna pay a fee, there is a penalty fee for that. So, you know, it makes me more disciplined. I think my issue comes from the fact that when I was younger, credit cards, and the education around credit cards wasn't as good as it is today. And so, I kind of got in over my head with credit cards, and I try not to use them when I don't have to. Okay, but you made some good points on the credit card side.

Jeff Matevish  1:39  
Yeah, I mean, I use credit cards, because I do get points, I get perks, there are perks with a lot of different credit cards. I pay my, my credit card bill on time, in full every month, so I'm not worrying about, I'm not worried about interest rates and all that kind of stuff. I monitor my credit card constantly on my credit card app. I know what I'm spending, so I'm not worried about spending too much.

Drew Thomas  2:02  
Yeah. And, and in that case, I would agree that you have a lot of advantages, but being honest, I mean credit card companies would not be in the shape they're in financially, if everybody was as disciplined as you.

Jeff Matevish  2:04  
Right, right. They're banking on, yeah, they're banking on people a little more relaxed. Yeah. Yeah.

Drew Thomas  2:19  
So, you know, I mean, I know for some people, especially older folks, like my parents and stuff that for a long time, they had a difficult time, sort of separating the two because they look the same. Yeah. Yeah. I mean, your debit card looks the same as your credit card. Right? Right. So, you know, with credit, you're paying interest, theoretically, assuming that you're allowing interest to carry over month-to-month, or purchases, I should say, to carry over month-to-month, you're gonna pay interest on that. Yeah. Whereas on debit, again, unless you're willing to pay a hefty overdraft fee, and even at that, you're not allowed to do that forever. There's, there's gonna be limits to how long you, or how many times you can overdraft your account. Yeah, you have to be more disciplined about only spending what you have. There are sometimes fees with credit cards too. A lot of credit cards have no annual fee. Okay, but some credit cards, there are fees, too. So, if you have one of these super perks credit cards out there that now, for like double points or, or triple airline miles or something like that, sometimes there's an annual fee that you're paying for those privileges. Have you ever done anything with like your points and stuff like that? Do you ever, have you ever traveled on your points?

Jeff Matevish  3:21  
I have not traveled on my points. And actually, I've cashed in points recently. I do around Christmas time, like for online shopping, stuff like that. Hey, I'm gonna try to save up points, you know, because you're usually spending a lot of money during the holidays anyway, so if I can save a couple of bucks, yeah, and get that extra gift that, that's what I tried to do. But no, I, it's usually just for online shopping. How about you?

Drew and Jeff  3:45  
No, I've never used a lot of my, I do use points from time-to-time, but I don't have that many saved up usually, is my thing. So, I'll use them the same as you. I'll go and I'll, I'll use them around the holidays or something like that as like, you know, found money. Yeah. And that helps whenever you don't have as much cash. But I don't always have a lot of points or anything like that to travel on. I know, I know people that use credit cards all the time. And they've traveled across the country. They've traveled across the pond to England, France, or wherever, just on points. Oh, yeah. I mean, it's amazing. Some of these credit cards, yeah, you get so much back. But again, you're, you're paying a pretty hefty fee usually. Yeah, yeah. So, so as far as your debit you don't really use your debit at all?

Jeff Matevish  4:26  
I use it almost exclusively at ATMs, or at my banks ATM just to take it. I'm a cash guy. I mean, still, I prefer cash over, you know, credit if I can use cash. I think it helps me budget a little bit better. I like having, that's true, I like having tan[gible], something tangible. But yeah, so I'll use credit cards, you know, when I gas, that's, for all my subscriptions that we've talked about. Yeah. Yeah. But I don't do any online banking with my debit card. I just, I feel that it's not as safe as a credit card, yeah, you know, when it comes to transactions when I'm giving someone my card or my card number, I definitely prefer credit card over a debit card.

Drew Thomas  5:09  
Yeah, I can get where you're coming from there, because it's probably easier to dispute transactions, fraudulent transactions, on a credit card, because it's, it's on your credit line, it's not your cash in your bank account.

Jeff Matevish  5:18  
Right, right. When that, when that's gone, you know, your bank can say, okay, well, nothing we can do about it. Yeah. At least with a credit card, you have not paid that yet. You know, yeah.

Drew Thomas  5:27  
You said you're more of a cash guy. I mean, like, I remember a time in my life where cash, cash was king, I mean, you, if you had to have cash, and you were going on vacation or something like that, you have to remember to go to the bank the day before you left or something and take out $500, $600 in cash to spend whenever you were out of state. And from a safety standpoint, I would argue that maybe it's easier to have your debit card, because now you're not carrying all the cash on you. Around town, I would agree, I mean, the around town, you're probably only carrying 50 bucks. Yeah, you know, at a time, right. But if you're traveling with all that cash, especially on a plane or a train or something like that, like that's, I don't know.

Drew and Jeff  6:06  
Yeah, no, I agree with you on that one. Yeah. But you know, to be fair, you could theoretically use like, if somebody gets your debit card, like they could try to spend a bunch of stuff before you had a chance to shut it down. Yeah. And so, you know, recently with these apps that are out there now that allow you to shut your card down. Before that, you gotta wait till you got your statement to see, you know, hey someone, someone just took $1,000 from me, and I didn't even know it until 30 days later.

Drew Thomas  6:06  
Yeah. Or if you knew your wallet was stolen or something like that from you, then you still had to wait to get to a phone, call your bank. Whereas now a lot of times, you can just pick out your app and shut your card off and stuff so they can't get to it that fast. Now there is a, there is a third option out there that we haven't really talked about yet, and that is prepaid cards. Oh, yeah. Which are not as popular as they once were, but prepaid cards are an option for people that want to have sort of like the best of both worlds. Because you can load a prepaid card with, with funds. And you can't overspend. And if it does get stolen, or there's fraud on the card, they can only take what's on the card, like it's not connected to your bank account, and it's not connected to your credit line on your credit card. Yeah. But just like anything else, there's a drawback. There's fees.

Jeff Matevish  7:22  
Yeah, yeah. I used to work with a guy that would exclusively shop online only with prepaid cards. Yeah. Yeah. Just because he was, he was so petrified that he was going to have his, his card number stolen. This was, this was before VPNs, and, you know, these services that give you temporary, yeah, credit card numbers. Yeah.

Drew Thomas  7:43  
Yeah, that's a good point. There are, there are some now I got it, I got an email from one of my credit card providers just the other day that said that they're now offering the ability, using their app or something, to generate a, you can go in, log into your account, you can generate a card number that is temporarily connected to your real card number, give that number to the retailer. It'll still bill your credit card, but then that number is a one-time use only, like if somebody steals that number, it's, it's, it doesn't matter. It won't work. It won't work a second time.

Jeff Matevish  8:09  
I guess, yeah, I know you would talk on a previous podcast episode about services like that, but yeah.

Drew Thomas  8:14  
Yeah, that was neat. And then Apple Pay. Yeah, Apple Pay is kind of like the same thing. Yeah, it encrypts your card, right. It's a one-time thing. Yeah, you don't have to go in and manually keep generating it, which is nice. Yeah, but the prepaid cards, I know prepaid cards for a while too, were big with employers for payroll, okay. And it was really big on, on employers that had like temporary workers like around Christmas, where they weren't going to be employing these people long enough to get them onto like their direct deposit process, but didn't want to cut a physical check. So, they would put it on a prepaid, you know, payroll card. But a lot of people got, got upset because they would go to their bank, or they would go to use it, and they would have to pay a fee to get their paycheck. That's like, why am I paying money to get my own money. Yeah. So, I'm already paying taxes, I don't want to pay even more money. Yeah. And then, and then they would say, well, you if you just use it in the store, you don't have to pay a fee. Like if you took it to the grocery store and buy groceries with it, there was no fee. Yeah, but what if I want to pay my electric bill? Yeah, you know, what if I need to pay my rent or my mortgage? Like, I can't do that. So, prepaid cards kind of became not as popular for that kind of thing. Yeah, yeah. There's also been from, we were talking about fraud, and we're talking about safety, like, there's also been a lot of technology changes with cards. Yeah, over the years going from magnetic stripes to EMV chips, now there's NFC chips built in with your card, you don't even have to put your card into the transaction terminal. You just hover your card over top and the information goes. So, any, any thoughts on like, mag stripe versus EMV versus NFC?

Jeff Matevish  9:44  
I mean, we had talked previously, I still am not into the tap to pay stuff. I mean, yeah. All of my cards are chip cards and I understand why magnetic strip cards are not safe anymore. I mean, people skim them and it's so easy to get your, your credit card information from a magnetic strip versus a chip. Yeah, actually that to physically put it in the terminal, you know?

Drew Thomas  10:08  
Yeah, I remember when chips, when chip cards started becoming really popular about 10 years ago, there was this whole campaign that I remember being out there where you had to, it was, they wanted people to dip their card rather than swipe their card, because everybody was so used to swiping their card, right? And they were told, like, oh, look, we're gonna dip your card and swipe your card. And that just became kind of, that never caught on because it was just weird. Yeah, but I do understand why they did it. Because you're right. I mean, you could take a hotel key card that has a magnetic stripe on it, and if you have the right equipment, which is not hard to get, and you stole someone's card, you could transfer that information on the magnetic strip right over to something else. I mean, it was, it was ridiculously easy to create fraudulent cards that way. Yeah. So, the EMV chips definitely made that more difficult, the NFC chips, they're good for, for helping to prevent fraud to a certain extent, because you're not physically putting your card in, in contact with that machine. So, a skimmer isn't going to work, right, because you're not putting your magnetic strip anywhere near a potential skimmer, true, or something like that. But if you see some of these things on, where they're selling wallets or sleeves for your cards, that say they're like NFC blocking technology, as long as nobody gets too close to you, they're not gonna be able to just pull your information off of that card. But if you ride the subway, if you're in an airport, you go to a concert, anywhere where people are really packed up near you, and they get, there are people that have machines, they can just pull your card information right off of those NFC chips. Yeah, wow. So, you do want to, if you have those kinds of cards, you probably do want to put them into some sort of like a protective magnetic sleeve or something like that, to try to help that.

Jeff Matevish  11:41  
So, if you have a physical card, there's no, there's no 100% guarantee that you're safe, pretty much. No.

Drew Thomas  11:49  
I mean, you know, unfortunately, we live in a world where nothing is 100% guaranteed to be safe. I mean, you gotta, you gotta take a certain amount of risk, but, but knowing the risks is not a reason to not do it, in my opinion. Knowing the risks is just making you better prepared to deal with them. Yeah, right. So, you take as many precautions as you can, it's no different than getting in your car and driving to work, you put your seatbelt on, you hopefully have your car with working airbags, you do everything you can to try to stay safe. But at the end of the day, you know, you are still technically taking a chance every time you get behind the wheel of a car, or get on a plane, or walk down your stairs for goodness’ sake. I mean, like, nicely said, you know, there's absolutely no way to 100% be safe all the time. But knowing the risks, you take precautions, you do what you can, you know, so I think that ultimately, there's pros and cons to all these things. I mean, like I said, I tend to be more debit, you tend to be more credit, there's, there's pros to your when there's pros to my end, whatever you as a listener decide you want to do is really up to you. But just be aware of what you can do to try to keep yourself as, as safe as you can, you know, and try to get the most benefit for yourself too. Like to your point, if you're really disciplined about credit cards, and you can get a bunch of points and earn miles and all that kind of stuff, go for it. Yeah, you don't have to be like me and be a debit only person, you know, but you know, you just got to be aware of I guess your own spending habits and how you tend to handle your finances? Sure. So, sure. But I'd be curious, we have if you go to ameriserv.com/bankchats, there is a form you can fill out and let us know, give us some comments about the show. I'd be curious, are you team debit, or are you team credit? Or are you in the real minority and are you team prepaid? I don't know, or team cash. Yeah. Team cash. I mean, that's the team cash. I mean, so cash is awesome. You know, you said about cash too and about traveling and stuff. And the only thing, the other thing that, that gets me about cash is, it's one of those things where the positive and the negative are the same. You can't track it. Yeah. You know what I mean? So, if I have cash, and I spend it or it gets stolen, I have no way to go to my bank and say, hey, listen, somebody stole $500 off of me. It's my word against nobody's, you know, so my, no bank is gonna say, oh, well, you claimed your last $500 to, well here. I'll just give you $500, it ain't gonna happen, right. So, there's that too, where at least with the, using a debit or credit card or something. At least there's some trackability there's some chance hopefully that you can prevent that loss then, or recover that loss if it's, if it's out. Yeah, cash is hard. But anyway, anything else? I think we got it. I think we got it. We're good. All right. Well, hey, if you haven't had a chance to subscribe to the show, definitely, we would encourage you to do that. You can listen to us on all the major podcast platforms, Apple, Amazon Music, Spotify, all those happy ones. Plus, you can check us out at ameriserv.com/bankchats as well. The episodes are there. There's all sorts of other good information that you can download and educational stuff. Check it out.

Jeff Matevish  14:42  
Yeah. All right. All right. Bye Drew.

Drew Thomas  14:53  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood, or interpreted to be, financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation.

Drew Thomas  15:59  
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Episode: 10

Drew Thomas  0:00  
Fast fact, Wall Street in lower Manhattan is named after the location of a real wooden wall, built by the Dutch colonists in 1653 to protect themselves from the British and Native Americans. I'm Drew Thomas, and you're listening to Bank Chats.

Drew and Frank  0:38  
Welcome to another episode of AmeriServ Presents Bank Chats. I am Thomas, your host, and we're going to talk investments today. Investing is something that I think is somewhat misunderstood, or maybe there's just not even misunderstood, maybe there's just a lack of understanding as to how investments work. And so, with us today is Frank Lapinsky. He's the President and CEO of Westchester Capital Advisors. And we're going to be talking with him and discussing all sorts of things investment related. So hi, Frank, how are you? Good. Good, Drew, thanks for having me. Absolutely. Thank you for being here. We definitely appreciate it. Because I don't know the answers to these questions.

Drew and Frank  1:16  
I hope I do. Yeah. So, tell us a little bit about yourself and your background, where you're from, how you got to where you are.

Frank Lapinsky  1:24  
Sure, I was, came up through the ranks of investing and managing money for over 37 years now, that started a long time ago been through many market cycles. I manage about a half a billion dollars overall, close to 500 clients, you know, and so, I've been around I've seen, I've seen a lot of different market cycles, economic issues going on. And it's something we deal with every day, every, so investing is 24/7 365. It never shuts down after we go home after 4:30pm.

Drew Thomas  1:59  
Yeah. So, when you say market cycles, you're talking like you know the stock market, that sort of thing? Okay.

Frank Lapinsky  2:04  
We've been through, I've been through many recessions, many inflationary type periods that we're going to know a lot of market cycles that contain wars, unfortunately, or are economic issues that come about, so you have many of them I've seen, so I've been around.

Drew Thomas  2:19  
So, basically, whenever the nightly news shows us, the DOW and the NASDAQ and things like that, you actually know what the numbers mean.

Frank Lapinsky  2:25  
Correct, those are the three that most people do pay attention to. And we focus most of our attention on the S&P 500 of those three, usually get the DOW the NASDAQ and the S&P 500. And so, we focus on the S&P 500 index.

Drew Thomas  2:40  
Okay. And you mentioned inflation in there, too, so I wanted to kind of talk about that a little bit, too. But before we get into that, all the little details, what does an investment advisor or investment company do?

Frank Lapinsky  2:52  
What we do is we take monies from our clients, and my accounts range from anywhere from $5,000, up to $69 to $70 million per account. Whenever I talk to a client, whether you have $100, you have $10 million, it's all important. So, what we try and do is when a client wants to invest monies for the future, whether it be for the personal trust account or a 401k, we sit down and we talk strategy with the client, and you see where their risk tolerance is. So, basically, somebody wants to, they've garnished some wealth, and they know they can potentially manage it on their own, because nowadays, markets are moving much faster than whenever I started 30-some years ago, so you really have to be nimble. And so, when a client sits in front of us, we sit down and we get to know him very well. And through those conversations, then we make a strategy of investing the monies for the, for the future.

Drew Thomas  3:51  
Okay, so you said something like 401k. So, really, a lot of people might be affected by this just through their retirement through their employer or, or some other profession as far as that goes, right?

Frank Lapinsky  4:01  
Correct. When I started back in the early 80s, where I was at my first job, we didn't have a 401k. Now, that's the limelight of investing is a 401k, for someone who's working, and everyone who has a job, I'd say nine out of ten employers have a 401k. And it's so important that all the investors have to realize that if an employer matches the money that you put in, let's say up to 3%, at all efforts, you should be putting in a 3% because you're making 100% on your monies before it even gets invested. Okay, so that's very important for all 401k participants to realize, too, and then not only that, but past the match every year, the way you can make your life simple, but yet, you could garnish a lot of monies at the end of your working career is add 1% to your 401k each and every year. So, let's say you start out 3%. Okay, next year, you put one more percent, and that's 4% and you keep going the whole way up as far as you can, the goal is to least get to 10% for an individual. So, if you have a spouse and your spouse at 10%, if you can get to 10%, that's 20%. I believe, personally, that's enough investing, because we all have bills, we all want to live a life, we don't want to put all of our money for the end of the end of our working career.

Drew Thomas  5:24  
I'm eating ramen now, but I can eat, I can eat steak later.

Frank Lapinsky  5:28  
There you go. So, but it's important, and most people don't realize that, you know, again, now reiterate this, whether you have $5,000 or $70 million, every dollar you have of your own is so important, you want to make it work for you and grow.

Drew Thomas  5:40  
So really that's what you're doing, you're getting your money to work for you, because, generally speaking, and again, I'm gonna say this probably a couple of times throughout this, and we always have a disclaimer, but like, when you're talking investments, there's no guarantee of a return. But there are averages that you work with, and you can look at over time, right? So. So, theoretically, or practically, you're, you are getting generally some sort of a return over enough time, that you're investing your money, and you're gonna get back more than what you put in.

Frank Lapinsky  6:11  
And that is correct. And you have to stay the course, because if you watch the news, the news is mostly giving you bad news. On the air might scare you, especially in the investment world. In the investment world, you have what is called bulls and bears. A bull is somebody who's very positive on the stock market let's say, and a bear is one is the opposite, the negative. So, to make TV interesting, they usually pit both the bull and a bear against each other during a day. And it sort of confuses you. And that's why news is more entertaining, if you will, even in the investment arena, it's always very important you have a good investment advisor to guide you through these times.

Drew Thomas  6:51  
Yeah, I agree with you there. I mean, no matter what the news is, the bad news sells. I mean, I hate to say it that way, but bad news sells. If it didn't, then every nightly news would be talking about the local skateboarding dog and not about some horrible cataclysmic event that has happened that day. Right? So, I get what you're coming from there. Now, you said, you know, this obviously can affect you as an individual, like through your 401k or what have you. You said 401k is the most common. Are there other retirement vehicles out there that people might be aware of?

Frank Lapinsky  7:21  
Yes, well, there's what is called IRAs. And the best IRA to be in is called a Roth IRA. And also, a lot of 401k plans have Roth 401k. And what a Roth is, that you pay the tax before you invest the money. So, if you're investing $100 a pay into let's say, a Roth 401k, you pay the tax up front, and then when that money grows, and if it doubles, triples, quadruples, there is no tax whenever you take that money out, versus the way most traditional IRAs and most traditional 401ks act, is its pretax. So, if you double triple your money in an IRA or 401k by the time you retire, every dollar you take out is taxable. That's why it is better to pay the small amount of tax on your investments each and every pay, and then when you garnish that huge amount of money throughout 10, 15, 20, 30 years, everything that comes out Uncle Sam does not touch because you paid it upfront. That's the greatest investment vehicle my opinion to be in anything that says the word Roth in it.

Drew Thomas  8:32  
Okay. So, you said, you know, 20, 10, 20, 30? So, essentially, there's that old adage that like, there are two best times to start investing right? 20 years ago, and today, right? That's correct. That's correct. So, can you ask your employer whether they offer a Roth 401k or a standard? Or do you have a choice?

Frank Lapinsky  8:51  
Yes, you do. Most employers are offering a choice of either the standard or the Roth. And it really, and I will say this, most people when they invest their money in a 401k, it's very confusing. It's sort of like death, nobody wants to talk about it until the very end. And then sometimes that's too late. I tell all investors, whether you're a 401k investor or personal investor, if you look at your statements at least once a year, and know what's in it, if not, again, if the markets go up 20%, but your account only went up 10% because you didn't have good investments, it's very hard to get that 10% back when the markets went up so much. But yes, you should talk, talk to your employer, talk to the vendor who has the 401k and just see and it's just it takes very few minutes that you could, you could do to try and find out this information and it will really help in the long run. But again, I will tell you drew most people, unfortunately, do not pay attention enough to their investments. Yeah.

Drew Thomas  8:51  
And you said about having a trusted advisor. I mean, I've seen the papers that come out that have all of the different investment that are as part of your portfolio right in your 401k. And I can tell you right now that there are a lot of them that I wouldn't know, A from B from C. So, I agree that's having somebody that you trust that you can work with and talk to matters a lot. Because unless you make this your life's work, you're not likely to know every little investment that's in there, right? I mean...

Frank Lapinsky  8:59  
That's correct. It's very, unless you're novice, and he may be 1 out of 100 people that really looks at it every day and every night. But most people don't want to deal with it. Because as you said, it's very confusing. You don't know the investments. That's why even here at our company at Westchester, we offer our phone numbers 24/7 365, to all of our personal clients. And when we do educations to the 401k plans, they also get access to us 24/7. How many people honestly have done that over the last 20 plus years? I'd say about a dozen. So, again, and what people don't realize is 30, 40 years ago, when 401k weren't very popular, people weren't putting a lot of money away, while a lot of younger folks that are starting in their 20s and 30s are gonna have hundreds and millions of dollars. And it really means a lot to have good advice.

Drew Thomas  11:14  
Yeah. So. So, when we talk about that, that good advice, and the people with experience, I want to touch a little bit about some of these companies that are out there now where you can do your own investing, right? They have these companies where you can, yeah, and companies like Robin Hood, and things like that, like, is it a good idea to invest a lot on your own like that? Or do you really feel like you really probably should have a past history or education in this before you, you start investing?

Frank Lapinsky  11:40  
I would say yes, but I will also add one, one other concept to that or one other idea, that before you start investing on your own, you should be maximizing your 401k or your IRA, pre-retirement and once you feel that you've put enough money away, and you want to, I'll call gamble with your money by going to a Robin Hood thinking you're gonna throw a dart at a dartboard or, or you hear something really hot on TV, you want to invest in, do that with excess cash that you may have. It's sort of like use of cash that you may go to a casino with. Yeah, and you're willing to lose it. But before you do any of that you should be funding your 401k or your IRAs. And then again, there's nothing wrong with doing that, but you don't want to take all your retirement money and go to a casino.

Drew Thomas  12:26  
Yeah. And that's kind of, I think, I think you're right, I think it's a good analogy, there's a certain amount of gambling associated with that. Because if you don't know the company, and you're talking to somebody on the street, or a buddy or something that says, hey, I got a hot stock tip for you, you don't really know whether that's a good investment or not, right. So, that's why a professional advisor really is where you'd want to go.

Frank Lapinsky  12:47  
And that's true, because even if, even if the company is good off a hot stock tip, what happens if we break out into a bigger war that we're in right now with Russia, Ukraine, or over in Israel? Again, the company may be sound, but it's the market that will bring that company down. So, if you put too much money into one individual investment like that, again, it could be a very good company, it’s not very advisable, because you don't know what could happen when you wake up the next day.

Drew Thomas  13:13  
Yeah. So, that brings me up to something that you mentioned earlier, and that I wanted to circle back to, like you said about the news, and then you're looking at the, you know, the numbers and so forth, but a lot of this stuff is affected by world events. Correct? Right. So, and even if you may, or may not be invested, if you're a self-employed person, maybe you don't have a 401k, maybe you have an IRA or something along those lines, or maybe you're just relatively young, and you haven't started investing in anything yet. This still affects you, right, because those world events affect the monetary system and things like inflation, right?

Frank Lapinsky  13:45  
Correct. Correct. Yeah. It's very complicated. It's something again, that when you invest, you got to look for the long term. We are always going to have wars which have been around since the beginning of time, we're always going to have issues internationally, which has been there for quite a while. Even the weather could, we get a hurricane somewhere that could affect insurance companies, it could affect building companies. So, yeah, there's a lot of extraneous type of, of issues that you have to look at, not just at looking at an investment that you're in, it's well advised to stay diversified as much as you can with your investments.

Drew Thomas  14:22  
Okay, so let's touch on that now. Let's touch on that word, right, because you hear that all the time, diversified. So, let's define that maybe break that down a little bit. What does that mean to be diversified?

Frank Lapinsky  14:31  
Diversify can take on several meanings. Number one, it's always advised that if you're going to invest for your 401k, we use our 401k. Okay, don't want to pick just one mutual fund and put all your money into that fund because there again, it may work for a while but with market cycles, you may be in a fund that could get hit really hard if, if inflation is around or if oil prices skyrocket. [It] all depends on what type of fund that you're invested in. It's advised that you look at anywhere from five to 10 different mutual funds for diversification. That's what diversification is, spread your money out, you don't want to, again, you don't want to go to a casino put all your, you know, I'll use this as an analogy. If you had $100, and you went to casino, most people wouldn't put that $100 in at one spin. They would, they would try and break it up amongst many spins to try and have the odds in their favor to win. Well, this is what you do with a 401k, you don't want to put all your money into one investment one mutual fund, you want to diversify it. Now, there are investments out there that have several mutual funds underneath it like an umbrella. And that's good. A lot of them called lifecycle investing, target date investing. So, there are investments, but most people because they don't understand will like to throw their arms up and say I'm just gonna put all in this one fund. Well, there again, if the markets up 20%, but that funds only up 10%, you've left 10% on the table. And that's, that's not a good thing to do. So, that's one way of diversifying is to make sure you have multiple investments. The other way of diversifying too, is that you don't put all your money into five technology funds or five financial funds. Okay, even though that may be the hot topic on TV today will be the financials and technology, especially with AI coming up. You want to make sure that the funds that you're diversified, you stay even more diversified by looking at small cap international, large cap, just again spreading your money out to be a little safer, if you will.

Drew Thomas  16:28  
So, you would have something theoretically, and then again, we're using these as examples. We're not saying this is what you should or shouldn't do. Correct. But you might have something in the medical field and then something in the technology field and then something in the services field or something along those lines.

Frank Lapinsky  16:41  
That's right, that's correct. Because again, something that's very hot today could be very cold when you wake up the next day and find out that you're down 20% or 30%, your investment.

Drew Thomas  16:51  
So, we had talked a little bit about the concept of you know, investing over time, and you'd said something could be you know, big today down tomorrow, or at the same time, if you're putting all your eggs in one basket, like your mom and grandma told you never to do. Right? Correct. And you say, yeah, well, this is down, you know, this is the market is up 20 but this is down to at what point and again, maybe this is where an advisor comes in where you've had experience, at what point has enough time passed, that you can make a determination that yes, this is not likely to perform as well as say something else?

Frank Lapinsky  17:25  
The way you can look at that is, you should always pick an advisor that you pay a fee to for performance, and the word is performance. So, if you have an advisor, and that advisor should be gauging his or her selections of your investments against indexes, like what we see on TV at night, the DOW the S&P or NASDAQ, because once again, anybody could throw you, me, we could all go, let's call Fidelity up and buy some funds. But if you don't monitor those funds, you don't keep an eye on those funds, then if the market does go up, 20, you may be down 10. And you again, you can't get that back, once again very easily. So, find an advisor and pay that person, what they call an annual fee, not a commission, and you keep their feet to the fire, or they have to show you how well they've performed, then it's up to them to show you performance. And we do that at Westchester, that's how we operate, we're not on commission we're on, we're on an annual fee, even our 401k, all of our selections, we show performance every quarter. So, that's I think that's very important. And unfortunately Drew, most money managers cannot outperform the market year in and year out. So, the newest concept is, if I can't beat the indexes, I'm going to come up with something different and they call it goal based investing. So, what they're saying is, if you have $50,000, let's say, in retirement funds and you want to grow it to $200,000, well, then that's our goal. It may take 20 years, but if you, versus if you say okay, you have $50,000 and I want to judge you on your performance, then that'll get you to that goal, your goal much quicker. So, goal-based investing is really just looking at the market values growth over time. So, again, you can be up 10%, not 20%, but the advisor kind of slides underneath the carpet with that, with that goal base. And I've grown up just the opposite way where it's all performance based. How well are we doing for our clients and how well are the 401k participants doing? We pay a lot attention to that.

Drew and Frank  17:25  
Yeah, that makes sense to me, because again, you would think there's a commercial on TV when our clients do better, we do better, right? It's the same idea, right? Correct. That's the same concept. Yes. Yeah. So, this isn't Wolf of Wall Street where you're being... no know you're right. Yeah. So, let's touch a little bit too on the concept of inflation because I think a lot of people misunderstand or, or have a bad understanding of why inflation is what It isn't how it's calculated. And how that affects the markets and so forth. Because you hear then, you know, your stuff in the news, well, the Feds gonna raise or lower interest rates based on inflation and so, so can you talk a little bit about what inflation is really?

Frank Lapinsky  20:13  
Sure, inflation is basically what you pay for a product in a store. And I'm gonna use that very, at that level. So, if you went to buy a gallon of milk, and let's say it was two or three years ago, that one gallon of milk could have cost $4. Okay, today, several years later, a gallon of milk is cost $5, $5.25. So, that increase from a couple of years ago means that the producers of that milk and the stores that sell the milk is costing them more. And why is it costing more? Well, what happens is, inflation comes about a lot of times whenever we have periods in our economy of high unemployment, which means that people aren't looking for jobs. So, to produce the product, it's going to take more people, more overtime than are currently working. So, when a company has to pay more for their workers overtime than hiring another worker, then that goes to the bottom line, that's going to cost more to produce a product. Or if you have fewer people in general, then what happens is, we'll use a car manufacturer. During COVID, when everything was shut down, manufacturers weren't producing cars. So, if you wanted to go get a brand-new car on a lot, guess what you're up 20% or 30%, because they had fewer cars on the lot. Now, where we're at today, a couple years after COVID, more and more cars are being produced, so the cost of these cars are coming down. So, inflation is too much money chasing too few goods. And that's basically what it is. So, it's, it's a, it's a tough concept to sometimes grasp. And when the Fed starts to raise interest rates, again, that could be several reasons why that's going on. Because our inflation is too hot. They want to slow things down, basically, as they raise interest rates. But after COVID, COVID changed everything. It's very difficult in the investment world now to look back at the last recession we had, let's say back in '08, and say, okay, this is how it's going to turn out. Well, since COVID came about, we're writing history not reliving history.

Drew Thomas  20:24  
So, there's, so you kind of go back to those market cycles you talked about, correct, right now we're kind of in a cycle that has never really been seen.

Frank Lapinsky  22:35  
For a lot of economists, and I'll give you an example. Last year on TV at the beginning of 2023, every economist was calling for a recession, a hard landing, basically, we're going to crash in the stock market. And it was just the opposite. And one of the things that all the economists said they missed last year at the beginning of the year was the resilience of the consumer. Because with COVID, we had, unfortunately, so many deaths, and people are just getting all that money from the government. As the money was running out from a lot of the consumer pockets, they had to go back and get jobs. Well, because there was so many job openings, a lot of places were offering starting wages that were much higher than normal $14, $16, $18 an hour. So, what that did last year, and this is where all the economists missed. As these consumers went out to get these jobs, they were able to still continue to spend just like what they were spending with the government stimulus money. And so that pushed our economy along quite well. And that's why we had a 20+% return in the stock market. That's another reason why, when you asked earlier, when's the right time to invest, and it is today, you know, or 20 years ago. If you wait for a market crash, or you think you're gonna wait for the world to come to an end, you're too late. Yeah. And you really have to be just really religious when you're investing constantly.

Drew Thomas  23:58  
Yeah, I think that the biggest takeaway that I've gotten from, from reading and, and even in my own personal experience, what I've had like in my retirement savings, and things like that, is just understanding that there used to be a thing back, I think it was like in the 90s it was really hot for a while, like day trading and stuff like that, like, this isn't day trading. It's called investments for a reason, you're investing your money, you're investing your time, there is a time cost to this, right that you that you have to be willing to accept, correct.

Frank Lapinsky  24:30  
And the earlier you can start investing, the less you'll have to work as you get older. You know, I'm in my 60s and I'm gonna go to normal retirement, but a lot of these younger kids coming out of college now they're going to have these great matchings in their 401k. Even though security may not be the same by the time they retire, if they get good advice, good education from my investment advisor or from their employer, they won't have to work half as long as you and I are working now.

Drew Thomas  25:00  
So, if I wanted to come to you as an as an investment advisor, well, I guess, let me start with this. I have a 401k through my employer, do I deal directly with my employer on that? Or do you work as an investment advisor with a company to create that 401k? Or do I go directly to you? How does that, how does that work?

Frank Lapinsky  25:17  
You go through your employer for the 401k if they offer a 401k and sometimes, they call it a 403b, if you're in the government arena of investing. But yes, you go through your employer, and then your employer hires somebody like us here at the Trust Company, hires AmeriServ to manage their 401k plan, and then we go out, and we'll educate. Okay. And then we have, we have websites that they could go to, the participants, but yes, it all starts with first going through your employer.

Drew Thomas  25:45  
Okay. Now, things like an IRA, which you mentioned earlier, I could do that on my own, or I get that through my employer?

Frank Lapinsky  25:50  
You could do that on your own. Once again, we have IRAs that we manage for, for our customers and our clients here at the Trust Company, but that's something that the employer will not offer.

Drew Thomas  26:02  
Okay. So, is there an advantage to one type of retirement vehicle, as opposed to another like, is there a 401k advantage versus an IRA advantage? Or did they have pros and cons both?

Frank Lapinsky  26:14  
They both have pros and cons both. But I would suggest that if you have a 401k and there is a matching, and believe me, I use 3%, there's some companies that will match up to 10%. So, if you put in 10%, they'll put in 10%, that's your first goal in life is to get to that 10% level or whatever match it may be. Then if your employer has a Roth 401k, that usually gives you a good amount of diversification. And that's probably better before you go to an IRA. Now, if you're a more mature employee for a company, and you're maxing out your 401k, then you can start looking at your IRAs. But until you or your spouse maximize your 401k contribution from what you could put in, I would say that the 401ks are a better option at this point than an IRA.

Drew Thomas  27:04  
Yeah, you've, you've mentioned it a couple of times, and I think that it's worth sort of focusing on just for a second this, this concept of a match. So, really, when you say 10%, just make this, make the numbers nice and easy. I'm making, I'm making, I'm making $100,000 a year, right? So, 10% of that is what you're saying I should be trying to put toward my 401k. Correct. And if your employer offers a match up to, in this case, say 10%, what they're doing is, they're putting that same amount in. So, so really, I'm getting double my investment.

Frank Lapinsky  27:35  
You're making 100% on your money before you even put your monies to work in the stock market or bond market, wherever it may be. Yes, that's what a match is called and so again, using your own monies as a percentage coming out of your pay, and whatever. And then there's, there's a misconception that I'm only going to put as much in as the employer matches. Well, again, that goes back to my earlier comments that your first goal is to get to that match, then after that every year, if you put 1% more into your 401k, when you're younger, you will not have a paycheck shock when that is happening versus there are a lot of investors, I should say a lot investors, a lot of workers out there that wait until they're 50 to start saving their 401k. Then all of a sudden, they go out and they put a 15% withdrawal out of their account out of their every two weeks pay paycheck. Now that's a paycheck shock when you see 15% are coming out. So, again, the earlier you could start the better, but definitely get to that match for your employer.

Drew Thomas  28:35  
I'm kind of reminded of that. I don't know if you've heard of this, but you probably have based on your, your, your history and what you do like, there was that, that grade school thing where someone said to you, would you rather have a penny a day doubled every day for 30 days, or would you rather have a million dollars, right? And everybody says, oh my gosh, I'd rather have the million dollars. But if you actually do the math, that penny a day, for the first two weeks, you're still only like three bucks. Right? But, but by the end, you've gotten quite a bit of money. And I think it's an interesting lesson when it comes to investing, especially things like retirement is that, it's not until you get to that last 2, 3, 4 years, where all the sudden your money is really multiplying, we're multiplying, right? Yes. But if you didn't start early enough, you'll never reach that multiplication at the end.

Frank Lapinsky  29:19  
And that's why a lot of workers will work past Social Security, because they weren't able to save enough. Now we all have financial issues in our life. Yeah, but it's just planning, planning early, and trying to save as much as you can. Yeah. And again, these younger workers, ones that are single, maybe still living at home just to have a college, there's no marriage, there's no house yet or, so if they could put even extra in as a younger person, then when they do end up having more financial responsibilities as the years go on, then they can maybe pare that back a little bit

Drew Thomas  29:55  
In your experience working with clients, how have you and how successful have you been in convincing younger people who think that it's more important to have the money now? Because I think sometimes you tend to think to yourself, like, you know, I don't know, when I was 15 years old, I wasn't going to be 50 for 100 years. I know that makes no sense, you're invincible, right? But you're 15 you're not thinking about when you're 50 years old, and suddenly 50 is like, right on top of you. So, how do you convince somebody who's younger, to maybe make that sacrifice and just put a little bit of money away? Have you, have you ever had that conversation with someone?

Drew and Frank  30:28  
Yes, I mean, we have, I mean, even my son started a job, and I begged and pleaded him to put at least 10% in. And he is doing that, because once again, he is only 18 years old, and he has no responsibilities at this point in time. But you're right, there are a lot of younger workers, when they start out as paycheck to paycheck, they want a really fancy car, you know, which may cost a lot more. And again, again, it's good to have possessions like that, but it comes a lot with the company that they're at, if the company offers an education program, like we've seen with a lot of companies, people are realizing, this is the key, we are all living longer. You know, again, the average life, whenever Social Security started back in the 30s, guess what the average lifespan was, for an adult? I really don't know. 65, and guess when you were collecting Social Security, at 65. Right? They never thought we're gonna live as long as we're living now. And this is what really opens up the eyes of some of the younger investors. Oh, wait, I'm gonna live to 85, 90 now. And all of a sudden, they start thinking about this. And again, it's through the repetition of educating the participants, and that's what we do very well to trust company. We get out there, we offer our services to come once a year to a company, and usually the first year or two is like deer in the headlights to a lot of investors. But as we go back year after year, they start to retain what we're talking about, or they start paying attention a little bit more.

Drew Thomas  30:29  
Have you ever had a situation where somebody insisted that they wanted their money invested in a particular place, or a particular vehicle, or particular company, and you knew it was a bad idea? What do you do in that kind of situation? Do you try to talk them out of it? Do you, are you obligated to do it anyway? How does that work?

Frank Lapinsky  32:17  
Well, we try and talk to them a little bit about diversifying. I had an aunt that she would watch Jim Cramer on TV. Right when she was done watching him in the afternoon, she'd call me up say, hey, I want to buy this stock, because Jim Cramer was, was suggesting it. Yeah. Well, I talked her off the ledge. But let's say she wanted to buy 300 shares; I talked her down to 100 shares. So, again, you could give advice to people, and that's what we're in a business, we give advice. We don't know, honestly Drew, what's going to happen five minutes from now and the stock market, you know, as much as I know. Our advice is looking from a long-term investing perspective, as well as keeping your investments diversified. So, if somebody wanted to go and buy 50,000 shares of Apple, we'd be trying to talk them down a little bit. But if they wanted to do that, of course, we would, we would do that for them. But most people aren't like that, quite honestly, that gets back to the Robin Hood, investing that you talked about that a lot of people are on there. And that's more gambling because again, some there, I've seen in my career, some very prominent companies that you thought would never go bankrupt, wake up one day, and they're bankruptcy, CEOs or crook, something like that something may happen. So, it's tough out there. And getting an investment advisor is probably one of the best things you could do at a young age to listening to investment advice. Let's put it that way as well.

Drew Thomas  33:02  
I think that I've read so many, you read so many stories and hear so many sports figures and things like that, too, that have, you know, they get a contract with the MLB, NFL, NBA, whatever it is WNBA, and they have more money than they know really what to do with at that point. They're young, they don't understand what's going [on], and they blow through it. And suddenly you find out that, you know, they're 35 and bankrupt and working for you know, a, a taco joint or something like that. I mean, it does happen and it's really sad, like, so again, having that person in your corner has to, has to be good. You guys also have on your website that you are a fiduciary. Can we talk a little bit about what a fiduciary is? Because I think that kind of dovetails in some of the things we've talked about already in terms of how you make your investment decisions and, and things like that, right?

Frank Lapinsky  34:28  
Yes, correct. So, a fiduciary, plain and simple, is a fiduciary supposed to look out for the best interests of their client, and I'll give you an example. If I was on commission, which I am not, I've never been on commission, I may, I may get you into an investment that has a payback to me much greater, even though it may not be the best investment for you. But I'm getting a return on that investment as a commission to myself because I will try to pad my pocket more with monies, than try to make you earn more monies through what you're investing. So, that's, that's not a good fiduciary. A fiduciary is one that sets down a strategy, buys the best possible investments for the client based off their risk tolerance, you know how much they really want to involve with risk. And you're doing the best you can for the client, not taking into account your own gain, your own self gain. That's what a fiduciary is. And years and years ago, before, we had a lot of regulation that we have now, there were like any profession, you have great doctors, you may not have doctors that are so reputable, you have great investment advisors, you may have other investment advisors that are really out there just to make as much commission as possible, and not looking at the best interest of their clients. Nowadays, that is changing the SEC, the rules coming about are making investment advisors more tight with how they invest money with their clients. They're really watching over them a lot, a lot more now. So, we're, we're a fiduciary, we always work in the best interest of our clients.

Drew Thomas  36:08  
And I think that's important when you're looking for an advisor to maybe look for somebody like that, that is really, again, you do, you do well whenever we do well, it's sort of sort of a thing. Like, because it is a, as you pointed out, like five minutes from now, you don't know any better than I do, necessarily what's going to happen. There, there are trends, there are ways to look at things over time, but at the end of the day, you don't really know what's going to, like nobody really knows what's going to happen at four o'clock today when the bell rings, correct. Right. So, and you said like too, that it's not even just like it may have been where there were only a few markets that you had to follow, like, you know, when the New York Stock Exchange closes, there are stock exchanges around the world that are just opening. And so, stock is you know, now, I don't know how much that transitions. I don't know, if a company like Google, for example, do they trade on the, the Japanese stock market as well as they do on the New York Stock Market? Or how does something like that?

Frank Lapinsky  37:05  
Yeah, they do. They trade on all the markets like that. And right now, as I mentioned earlier, an investment advisor, a good investment advisor as I mentioned, it's 24/7 365. Because when our markets close, like, as you mentioned, other markets are just opening. And so, when I come in the next day, like tomorrow, I'll see what the international markets have done or, again, it could be some tragedy, unfortunately, that happened abroad overnight that we have to deal with. And it's just not the markets. It's, it's the whole world. Its geopolitical. It's everything.

Drew Thomas  37:40  
The way you're describing it, it kind of reminds me of this sort of like, this domino effect, or a butterfly effect of sort of things. Like, you don't think about the fact that, well, I've got myself invested in, I don't know, shipbuilding, and then a worker strike at the docks is putting a hold on, on all the assembly that's going on. So, that's going to affect you. And then that affects where they would shop and where they would spend money because they're not bringing in the money that they were bringing in before. So, just trying to keep all that straight as a novice, as a person doing it yourself, has got to be daunting, I mean because you, it's, you just can't think of how many different ways one event can, can, can possibly branch out and affect other things.

Frank Lapinsky  38:22  
And that's right, and I believe that there are a lot of people out there, a lot of investors that try and do it on their own. And it's tough, and you will get, it's like winning the lottery, or going to the casino again, they'll hear that one person that hit it big. And however, you don't hear about the other 100 plus people that went out of money lost money. So, it's very tough to manage your own monies by yourself. And again, there are a lot of good investment advisors, people that could be out there, very reasonable fee. Again, my suggestion is you always pick somebody that doesn't charge any commission, but they charge you an annual fee. And then you hold their feet to the fire on performance. That's very important.

Drew Thomas  38:22  
Yeah, and I think it's, it's again, one of those old adages but you don't always, nothing's free, right? Well, nothing's good, free, let's put it that way. They're very rare that you get excellent advice, or excellent service or any, an excellent product and had paid nothing for it. So, you have to probably expect that you're going to pay a little something for this if you have a good quality investment advisor. But ideally, your that's going to be again, an investment that's going to pay off for you because they're going to be watching over you and making sure that your money is taken care of. And

Frank Lapinsky  39:36  
Investment Advisor also, it's not only a person who can make you money, but communicates the communication is probably about just as equal 50% to the investments that that person has for you. Because if you're not aware of how well you're doing, and they don't share their performance, then again, if you're in the dark, how do you have any faith in that person? Yeah, so it's very important that not only the investments but the communication be there as well for a good investment advisor.

Drew Thomas  40:04  
Okay, so just to sort of start to put a bit of a bow on some of this stuff here, you know, what, what type of information would you ask for a client? Or what would, what do you look for if someone comes to you and says, hey, I want to, I want to invest something in? Yeah, I'm, I'm maxed out with my employer, but now I have some extra money I want to talk to you about.

Frank Lapinsky  40:23  
Then we what we do is we, well as I mentioned earlier, we start to sit down and say, okay, let's say you have $100,000. What are your near-term goals for this money? Are you going to buy a new car? Are you going to remodel your house, are you gonna go buy a house down in another state? And if somebody comes to me says, you know what, Frank, I don't need the money for the next 5 to 10 years. Then after that, so we kind of get like the initial background on what their plans are, their usage for the money, if they will, if they tell me that it's just disposable money that they don't need right now, then we start to formulate, we talk about how much risk they want to take on with the risk, meaning, you want 10% in the stock market, 20%, 30%, or none at all. So, then we start to formulate a risk profile. And then from that point on, we get it invested, and then we start to report to them on a quarterly basis. Again, that's that consumer communication. And believe me, when a market from 2008, which was our last recession, basically crash in the markets, 2021, markets went basically straight up. So, all the clients, even when I was trying to call them and talk to them, oh, we're good, you don't have to call me, they, they're watching the news. And they see. But when 2022 came about, we had an unprecedented drop in both the stock market and the fixed income market, which usually doesn't happen like that, then that's when people got very nervous. So, the more that you could talk to them on a regular basis, the more they'll be prepared for something like 2022, from an investment standpoint, comes about. There again, it's not just initial meeting, getting their, you know, their goals for the money or learning their risk tolerance, it's the constant contact with them, as time goes on.

Drew Thomas  42:18  
I can truly appreciate that. Even if you take it out of the investment world and put it into some other things, you know, if you drop your car off at the mechanic, and you say, hey, just do what it needs. And then you never hear from him for a day or, a day or two, you start to wonder like what's going on, like, you know, like, I don't understand, you start to get nervous, you start to wonder. And in reality, it may be something as simple as they didn't get around to working on it yet. And there's nothing happening. On the other hand, your car could be in pieces, and there might, so that communication back and forth is very reassuring. I think for people, even in bad times the communication, the, the awareness that you know that something bad is happening too, right that you're not you're not sitting there not paying attention that I think that, that means a lot to people.

Frank Lapinsky  43:04  
It does, and you know, to be quite honest, Drew, we have the same investments that an investment advisor down the street has. What it comes down to, I'd say 95% of my clients, is becoming part of their family, getting close to them, so that they could trust you. And that's the big word, trust. Because if they trust you, then you could not only retain them as a client, but they'll end up giving you potentially more monies to invest, becoming, again, a family member, if you will. And that's what I try to do with a lot of my clients, get very close, become friends, and become a family member that way. That's, that's very important in this type of line of business. Yeah.

Drew Thomas  43:43  
Well, this has been incredibly enlightening. And I really hope that a lot of people are sort of, you know, expanded on their knowledge as I have been, because honestly, this has been, this has been very, very interesting to talk about. I'd love to have you, I'm sure there's probably more you could tell us, but.

Frank Lapinsky  44:01  
Too much probably. Yeah, more than you want to hear.

Drew Thomas  44:03  
But no, thank you very much for doing this. If you have questions or anything like that, that you would maybe like to post Frank or us, obviously go to ameriserv.com/bankchats, there's a form out there, you can fill out, you can ask questions, you can, you can give us some feedback about the show. Let us know what you think. Obviously, you know, we always encourage you to subscribe or like the podcast and you can follow us and don't miss any episodes. Frank, thank you very, very much for your time.

Frank Lapinsky  44:30  
You're welcome, Drew, appreciate the opportunity.

Drew Thomas  44:40  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. People can invest in many things. We invest in our families, in our hobbies and passions, and we invest money to provide for our future. But just as having a good teacher can better help you to learn a new language, having a qualified investment advisor who can work with you to help reach your financial goals is typically better than going it alone. No one can ever guarantee a positive result, but there are people who have the experience and knowledge to help make a stronger educated guess when it comes to your 401k, IRA, or other investments. I want to thank Frank Lapinsky for joining us on the program today. You can find out more about Westchester Capital Advisors by visiting their website. The link is in the description. My thanks as always to Jeff Matevish for his editing and production skills. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. Episodes can be found wherever fine podcasts are downloaded, or by visiting ameriserv.com/bankchats. For now, Drew Thomas, so long.

Drew Thomas  46:57
West Chester Capital Advisors, Inc. (“WCCA”) is a registered investment adviser and a wholly owned subsidiary of AmeriServ Financial Bank. Keep in mind that investing in securities involves a risk of loss that you should be prepared to bear. Over time, assets will fluctuate and be worth more or less than the initial invested amount. Depending on the investment type, differing risk levels will exist. WCCA cannot offer any guarantees or promises that a client's financial goals and objectives will be met. WCCA does not provide tax advice. Recommendations on specific investment vehicles are meant to be generic in nature. You should consult your personal financial adviser to discuss the right vehicle for you. There can be no assurance that advisory services will result in any particular result, tax, or legal consequence. WCCA does not charge fees based on a share of capital gains on, or capital appreciation of, the funds of clients, but rather on the total assets under management. This fee increases as your account value increases. See WCCA’s Form ADV disclosures to understand how fees are charged along with other important information about their services.

2 Cents Episode: 6

Drew Thomas  0:12  
Okay, so welcome to yet another episode of AmeriServ Presents: Bank Chats. I am Drew Thomas, this is a 2 Cents episode, and therefore, I have the omittable Jeff Matevish. Hey, Drew. Yeah. So, so what are we talking today?

Jeff Matevish  0:26  
We are talking FDIC.

Drew Thomas  0:29  
FDIC. Okay. So what's the FDIC?

Jeff Matevish  0:32  
That is the Federal Deposit Insurance Corporation.

Drew Thomas  0:34  
Indeed. And why are we talking about the FDIC today? Well, other than the fact that we don't want people going to sleep on us, why are we talking about the FDIC?

Jeff Matevish  0:43  
Well, so a few days ago, we got a notification that, or a news article came out that starting April 1, from April 1 until the end of the year, every FDIC logo is being updated. It's going to kind of spell out what the FDIC is a little bit better, make it a little bit more transparent for everyone to understand what the FDIC does. Yeah. So, we have what, from now till the end of the year to change pretty much everything FDIC.

Drew Thomas  1:11  
And you would think that you would think because it feels like it's everywhere, it is, from a banking perspective, we feel like we've put it on everything. But this is going to make it more conspicuous that we are an FDIC insured financial institution, right. And this is going to be true of just about every bank across the country. I mean, that's, I mean, most banks are FDIC insured. And so, what's the purpose behind it? I guess, like, is it actually going to be like the gold signs are going to change that are in the branches, or are there going to be things like...

Jeff Matevish  1:42  
So, right now on the gold signs it does say at the bottom, backed by the full faith and credit of the US government. But it's very small. Yeah, you know, the letters FDIC stand out. And if you don't know what that is, and you know, just a bunch of letters. So, the new logo is going to have bigger, bolder, you know, the backed by the full faith and credit of the US government.

Drew and Jeff  2:03  
Okay, so, so let's talk a little bit about the FDIC and what it is, because I think that there is some confusion about that. Okay. I think there's people that they do see it as just, well, that's the letters that are on every bank, but I don't really know what that means. Right? And so, I guess we can start with some history about the FDIC, and like, where it was created and why, and then we can kind of go into what it does. So, Mr. History, man, yeah, go ahead. Yeah, I know, I'm like that guy, that I'm the guy that watched Modern Marvels on History Channel all the time, and was like, oh, concrete. Yes, please. Let me, you know, give me an hour on that. Which by the way, concrete is fascinating when, anyway, I digress. So, the FDIC was created in 1933. And it was, it was basically done after the rise in bank failures that were happening during the early part of the 30s, the Great Depression going on, right 1929, the stock market crashed. And there were a lot of people that were taking their money out of their banks. And the banks were failing because they didn't have enough money to cover their losses or cover the, cover the deposit they were holding. And it really led to this rise of a lot of people sort of not being comfortable with the security of their money in banks. Right. So, the federal government actually made every bank close. And then there were new rules and regulations put in place in terms of the governance of deposits that were held at the banks. And the banks had to agree to those new rules and regulations before they were permitted to reopen. Right. Yep. So, somewhere around here, I actually have our original charter. That was, that was, yeah, it was from 1933, whenever we were permitted to reopen. Yeah. Yeah, it's pretty cool. It's under, we were US National Bank then, not the US National Bank of today, we were a different US National Bank. Back then there was no internet. So, the US National Bank could be just any, anywhere. There are lots of US national banks. But yeah, so, so that's where that comes from. So, essentially, the FDIC insures your deposits $250,000 per depositor, per ownership category at each FDIC insured bank. Okay. So, tell me what that means.

Jeff Matevish  4:07  
On the hot seat. Okay. Yeah. So, all of your accounts put together at one financial institution deposit accounts, yeah. Is insured up to $250,000. Or actually at least $250,000.

Drew Thomas  4:20  
Yeah, at least. I mean, that's what you can [guarantee]. That's what you're guaranteed.

Jeff Matevish  4:24  
You're guaranteed $250,000 insured, so if you have, if you have multiple accounts at one bank, add them together, you're insured $250,000. Yeah, so the question is, so if you are in a joint account, how does that work?

Drew and Jeff  4:38  
Okay, so, so yeah, so you're right. So, let's break this down. So, when we look at some of the issues that happened, like last year with that, with those two banks, that failed, right, they had a lot of money from very few depositors, relatively speaking. So, they had a lot of eggs in very small baskets. And what happened was, a lot of those people decided they wanted their money right then and there, which they're obligated to get, but that meant that the bank didn't have enough funds from other depositors to keep themselves afloat. Yeah. Right. So, so most banks will make sure that their deposits are spread out over lots and lots and lots of customers, so that if you, Jeff come in and say, hey, I want all my money, I'm able to say, okay, here you got, right, right. I don't want you to do that. But you're entitled to your money, right. But if too many people come in all at once and say they want their money, right, the bank only has so much on deposit available, right? Because a bank is in business to loan money. So, what really a bank is doing, is it's taking your deposits, and then it's loaning a percentage of those deposits out as far as lending. And then those are being paid back. And there's a yin and yang, there's a give and take, fancy math, yep. So, and but a bank is required to keep a certain amount of deposits available for withdrawal, right. So, you cannot, as a bank, lend out every dollar you have on deposit, you have to retain a certain amount. But if too many people come in all at once and say they want their money, that's where the bank runs into problems. So, that's where the FDIC comes in and says, okay, you know, if you Jeff have, say you have three accounts at a bank, and each of those accounts has $100,000 in it. Okay. So, that's $300,000 total across the three at that one bank. So, if something were to happen to that bank, you would be insured for at least 250,000 of that money, right? Because you are the sole owner on all three of those accounts. So, even those are $100,000 in one, $100,000 in another, and $100,000 in another, you're not insured per account, you're insured per bank for you, right? Okay. So, you add all those together, and then you get whatever you get, and that's, that, you're, you're insured for at least $250,000 of that money. If you and your wife have those three accounts, well, if you're joint owners on each of those three accounts, well, now you're insured up to $500,000, because you get $250,000 insured against those three accounts, and so does your wife. So, if there's $300,000 in those three accounts, then you would insured for all of it. Guaranteed. Okay, right? Because you get 250, she gets 250.

Drew and Jeff  4:38  
Okay. And that's per financial institution though too. So, if you had money in a different bank, that's insured as well, you could be insured. Right? Yeah. Right.

Drew and Jeff  6:55  
So, just because you got paid out on one doesn't mean you wouldn't get insured on the other, right. If you have bank A and bank B, right. Now, again, I'm gonna reiterate, it is exceedingly rare for bank failures to happen in today's world. Oh, yeah. Right. That doesn't mean they don't, remember, we saw examples of that last year. I mean, it can happen. But those people were made good. And matter of fact, I think they were actually made whole, like they were, the federal government ended up giving them back all of their money, even though they were only insured technically up to 250. They ended up getting, but there's no guarantee of that so the, so I just want to make sure that that's, that's understood that the $250,000 is what you're guaranteed to be insured for. Yeah. So, yeah, so that's the thing like, you know, keeping your money in a bank, the whole idea behind the FDIC was to give you that, that sense of security to know that no matter what happens to your bank, your money is safe.

Jeff Matevish  8:02  
So, no more hiding your money under your mattress, like your grandparents. 

Drew Thomas  8:05  
 Oh yeah, please don't do that. Okay, please. When it comes to stuff like that, I don't care what bank you put your money into, just don't do that. It's unsafe on so many levels. I mean, if people get wind first, okay, let's look at it this way. [If] people get wind, first of all, that you have that amount of money in your house, you're putting yourself at risk for people coming in and stealing from you, possibly robbing you and causing you physical harm. You don't want to do that. Alright, you don't want your money in a place where it's unsafe as far as keeping you as a, as a human being safe, right. But more than that too, you know, you're also putting yourself at risk or your money at risk if there's some sort of an event. Like god, god forbid, there's a fire, yeah, or a tornado, or a hurricane, or something that happens to your home where you're forced to make a decision on, do I save my life? Do I save my pet's life? Or do I save the money that's hidden under my mattress? Like, it's not worth it. Right? So, and you don't want to lose your I mean, you don't want to lose your life savings because you need your money. But you don't want to lose your life either. So, please don't hide your money in your house. I mean, I know somebody, I mean, keeping a certain amount of cash set aside, I get, but not all of it, like don't do that your bank is safe, you know, and the FDIC is designed to make sure you feel that it is safe because it's insured by the federal government over and above whatever your bank itself is doing. Right, right. There's also just, just to make everybody aware, I know the podcast called Bank Chats, but we talked about all things financial and financial related, right. There is a credit union version of the FDIC. Yeah. And that is called the NCUA, the National Credit Union Administration. I want to say I want to double check. Administration. Yes.

Drew and Jeff  9:45  
Is that what I said? Yeah, that's Yeah, okay. You got it. Right.

Drew Thomas  9:50  
So, the National Credit Union Administration, they, they have a very, very, very, very similar program. Yeah. Same limits, essentially the same rules. I'm not going to get into all the details because there may be some, some little nuance, yeah, difference. Yeah. Canadian Football versus the NFL, AFL versus NFL. Yeah. So, I don't know if there's any little tweaks or anything like that, but, but essentially, they have a very, very, very similar program. Okay. So, if you have your money in a credit union, then you're still protected.

Jeff Matevish  10:18  
So, it doesn't matter where you have it, as long as it's at a financial institution, you're covered if that financial institution is insured, yeah. Okay.

Drew and Jeff  10:26  
Yeah. Now, let's also touch just a minute to I think it's important to touch on what kinds of accounts are insured. Oh, yeah. Right. Right. So, checking accounts, savings accounts. That's the Federal Deposit Insurance Corporation, so deposits, deposit accounts, right. Okay. 

Drew Thomas  10:41  
So, if you have a CD, if you have a checking account, a money market, those are, those are the kinds of things that are insured. Please keep in mind that the FDIC does not insure investments. So, if you have anything that's tied to the stock market, if you have life insurance, if you have any kind of other investments that your bank helps you with, right, or that their trust company, their trust department helps you with or something like that, those kinds of accounts, those kinds of financial instruments are not covered. Okay? So, please keep that in mind that if you are investing, and there is the potential for loss, right, because, and you're going into it knowing that there is a potential for loss of that type of thing. Your, your 401 K, right, your 401 K can go up or down, right, based on where your money is invested. Anything volatile. Yeah. Yeah. You know, I hate to even use this, bring up this term, but, but things like Bitcoin and things like that, the those, those are not insured, right? So, just keep that in mind, too. You know, we're talking about depository, stuff.

Jeff Matevish  11:46  
Okay. Yeah, yeah.

Drew Thomas  11:47  
So, what else do we got? Where do we have more information about this stuff?

Jeff Matevish  11:52  
So, we do have an article in our Financial Library section on our website, it's called, "Is the Money in My Account Safe?" And in that article, you'll learn a little bit more about the FDIC, the NCUA, what kind of accounts are insured, and how much and you know, a little bit more in depth than what we've talked about here. So, you can actually you can get more information from that article.

Drew Thomas  12:15  
That's awesome. Yeah, that's, I mean, and we'll put the link in the description. Oh, yeah. Yeah. So, I know, we always say like, when we talk about stuff, like don't click on links, but you can click the link in our description, that's fine. Yeah. So, definitely keep an eye on that. There's lots of, there's other good information out there, too, on our website about other stuff, about the FDIC, so essentially, I guess, to wrap all this up, the bottom line is these changes don't really affect the consumer, except to make you more aware, right, of what institutions are covered and which ones are backed by the FDIC and which ones are not. Right. So, just keep that in mind that when you start seeing some of these changes, and these additional additions on your bank signage, or the ATMs or their mobile apps or something, it's, it's, it's nothing other than to just make you more aware. Really, is what it comes down to.

Jeff Matevish  13:04  
Yeah, you know, this change just sparked to good, you know, hey, this might make a good 2 Cents. Indeed.

Drew and Jeff  13:09  
Yeah. And I think it has. I think so too. I don't know what everybody else thinks we'll have to find out. Yeah, leave a comment. Yeah, please do. Yeah, let us know. You know, give us some feedback, go to the website, ameriserv.com/bankchats, right, there's a forum there. You can give us some feedback. Tell us what you think of the show. If you have questions that you'd like to answer. What we'd really like to do ultimately is have a show that we just go through everybody's questions. Yeah. And start, you know, answering some things back. So, that would be great. Yeah, just go to the website. Give us a question. Let us know what's going on.

Jeff Matevish  13:39  
Yeah. Topics that you want to hear us talk about. Yeah. Also, a good idea. Yeah.

Drew Thomas  13:44  
If we haven't talked about something that you're like, why haven't they talked about that yet? Let us know. Yeah, we'd love to know. And if you haven't followed the show, if you haven't subscribed to the show, first of all, why not? But please do because not only does it make sure that you don't miss any episodes or information, but it also helps the show. Yeah, it does. Absolutely. So, the more subscribers we have, the more likely it is that these algorithms out there will surface the show a little higher and make other people more aware of us. And if you like what you hear, it really does help us if you subscribe and follow the show or whatever, whatever platform you're on. They use different terms. But subscribe, follow, like, whatever it is. Yeah, that really helps, too. Yeah. So yeah. All right.

Drew Thomas  14:25  
I think we're good.

Drew and Jeff  14:26  
I think it was good. Yeah. Anything else? I'm good for the day.

Drew and Jeff  14:29  
All right. Thanks Drew.

Drew Thomas  14:42  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff have Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation.

Drew Thomas  15:48  
Thank you for listening. Please check out our full library of episodes which can be found on the ameriserv.com website. You can also download or stream the podcast from your favorite podcast app.

Episode: 9

Drew Thomas  0:01  
Fast fact, phishing is the most common form of cybercrime with an estimated 3.4 billion spam emails sent every day. I'm Drew Thomas, and you're listening to Bank Chats.

Speaker 1  0:36  
So, on today's episode, we are going to once again revisit the topic of cybersecurity scams and related topics to cybersecurity and we're going to try to focus in on this episode on things like cybersecurity scams specifically, and there are a lot of different scams out there. Phishing scams, ransomware scams, tech support scams, social engineering scams, and we're going to touch on all of those in today's episode. If you have not had a chance to listen to our previous cybersecurity episode, you can definitely go back and check that out. It is Cybersecurity 101. It has a lot of good information; we touched on a lot of these topics in general. But there are going to be some things that you can go back to and listen to. But in that episode, you would also be able to get acquainted with our guests who have returned for us today. We have Kevin Slonka with us once again, and Michael Zambotti. They're both from Saint Francis University. And Mike just kind of gave me an eyebrow. Did I get that? Right? Absolutely. Okay. You said both of our names correctly. I was, I was looking over there, and then I got the eyebrow from Mike, and I'm like, Ah, maybe...

Kevin Slonka  1:40  
Sometimes his eyebrow just twitches.

Drew Thomas  1:44  
So, thank you guys very much for coming back. I mean, this, this is a really, really deep topic. And I mean, it's an ocean of information. And so, I think that's why we really tried in the first episode to just touch on the high points, give some people some identifying sort of waypoint markers for how to think about cybersecurity and what it means to them. But today, we want to really delve deep into some of the specific scams that are out there when it comes to cybersecurity, because I think they affect both consumers and businesses on a really on a daily basis. Am I right about that?

Kevin Slonka  2:18  
Yeah. I mean, and you mentioned so many words at the beginning. I hope we didn't scare off people with all these words that they don't mean, don't worry, we're gonna talk about all of them.

Drew Thomas  2:25  
Absolutely we are. So, before we get to that, Kevin, why don't you go ahead and introduce yourself a little bit, give some people some background about who you are just in case they haven't listened to the first episode.

Kevin Slonka  2:35  
Yeah, if you haven't listened to the first episode, go back and listen to it. But if this is your first one, I'm Kevin Slonka. I teach computer science and cybersecurity at Saint Francis University. And I've also worked in industry for various defense contractors since around 1999.

Michael Zambotti  2:51  
All right, Mike. And I'm Michael Zambotti, I also teach cybersecurity and Saint Francis and I also work with industry. I work with companies to develop a more secure cybersecurity posture.

Drew Thomas  3:03  
Excellent, excellent. So, you guys aren't qualified at all to about this?

Kevin Slonka  3:06  
I don't know why you have us here.

Drew Thomas  3:09  
So, let's talk a little bit about scams. And I think that this is, you know, just to sort of lead into the topic, scams, there's a lot of terminology around scams, and a lot of it is really just designed, most of these scams are designed, to have you do most of the work in a lot of ways. It's designed to elicit information or solicit information from you to give the hacker access to your information without them having to do all the heavy lifting on their own. And it's just different ways of going about that. Is that, ss that a fair statement?

Kevin Slonka  3:40  
Yeah, I think the word that you're using is right, you know, scams, instead of hacks. Because you know, when most people hear the word hack or hacker, you imagine, you know, the guy in the hoodie, and in his mom's basement hacking into things and doing super, super technical stuff. But most of the things we're going to talk about today, if not all of them are not bad at all, you know, most of the things that people fall victim to that we're going to cover are just us messing up and doing something that we shouldn't have done that we should have known better. You know, and we'll talk more about, you know, how can we know better but, yeah, it's, it's very, it's very easy, non-technical stuff from the hackers point of view.

Michael Zambotti  4:20  
And scams have been around, they didn't just start with, with the internet and with technology, you know, scams have been around probably since the beginning of time. Sure. Like all things, technology tends to accelerate whatever the thing is both for good and bad. But we've seen scams a long time; now we see it in the digital age. And we see, like Andrew mentioned, getting you to do the heavy lifting, getting you to do something that's not in your own best interests with you know, thinking that you are.

Drew Thomas  4:46  
So, essentially digital snake oil. Yeah. So, one of the most common scam types that I think everybody has heard at least mentioned are phishing scams. And that's P-H-I S-H-I-N-G. Because I think...

Kevin Slonka  5:01  
It's not going down to the river?

Drew Thomas  5:04  
Yeah, I think, I think Mike mentioned at one point that some of this stuff is spelled really weird. And different acronyms are thrown into things, things like that. But so phishing scam so, so explain the phishing scam, what is a phishing scam.

Michael Zambotti  5:17  
Hopefully everybody has an email account and has gotten emails before. And sometimes we get an email that is maybe advertisements, or what we called spam. Okay, get those emails and it's, you know, this is not a product I want or need or anything, but harmless, but it's advertising and it's annoying. Phishing would be an email that's directing you to do something, whether it's click on a link, whether it's open an attachment, whether it's do some sort of activity, maybe contact the attacker, or the person that sent the phishing email, in another method, maybe a cell phone call, maybe a text message. So, the phishing email is going to call you to action. And that action is probably going to be something detrimental to yourself. Like, like I said, clicking on a link might think well click on a link, what can hurt, what could, what could it hurt, maybe you click on a link, and it goes to a landing page. And it looks really, really like Amazon's landing page, attackers will do that, they'll copy the original, and then they'll set up their own, so that whenever you type in the credentials, the credentials are not going to Amazon, they're going to the attacker. You know, in class, I do a demonstration. It's about three minutes long as a proof of concept to set up an Instagram landing page, which you can send as a phishing attack. And I show split screen where whenever you type in the password, it pops up on my screen. Wow. So, it's just that easy for an attacker to steal your passwords. Three minutes, three minutes?

Drew Thomas  6:36  
Well, yeah. But I think that as we talk about these things, I think that it's important to note that the reason we're talking about these things is to help educate, it's not to scare you into never using the internet again, or to stop using your social media or anything else. It's the idea that, you know, much like fire, fire is a fantastic servant is a terrible master. Right? So, you know, if you're more in the know, if you understand what to look for, you can use your computer, you can use social media, you can use the internet much, much more safely than if you're just ignorant of some of these things. So, this isn't an episode that's designed to scare you into never using your, your smartphone. Again, it's an episode that's designed to help you identify some of these things, and hopefully avoid them.

Kevin Slonka  7:20  
Just so you know, based on what Mike said, I have a story from one of the companies I used to work at. It was a managed service provider. So, they were, they acted as the IT departments for other smaller companies that may not have their own IT department. And, you know, we would always try to train everybody to detect phishing emails and show them what to look for, how to determine if something's real or not. But this one person at a company, it was a small law firm in Johnstown. So, you know, right around here, it happens to everybody. This one lady got an email. And it looked like it was from this person from a financial organization that she worked with. So, it was like dealing with some legal mortgage papers, because that was the type of law that they were doing. And, you know, it looks real, it had this person's signature, you know, the real signature of this person's email, it looked like it came from the real person, there were no misspellings. Everything was perfect. And there was a link in it, to access the documents on their secure documents site, which, you know, for anybody who's ever worked with financial institutions like that, that's a normal thing. They're not going to email you secure documents, you know, they're going to host them somewhere that is secure and make you go get them. So, everything looked real. But this lady correctly thought to herself, I wasn't working with this person today. You know, why did I get this email from her today? We don't have any business together today. So, she sent the email to us at the IT company [and] said, hey, can you just check this out? I just don't know. I didn't click anything yet, but just to be sure before I click, so I looked at it. And my first instinct was, okay, this is real. But then I started digging a little deeper. And because I know how to safely click on these links, I clicked on the link, and I saw where it took me and then I started digging around a bit. And it was exactly what Mike had just described; this link would have taken this person to a website that looked like the Microsoft Office 365 login page, looked exactly like it. If this lady would have entered her credentials and logged in thinking she was getting her secure documents, her credentials would have actually been emailed to a Russian email address. Oh, wow. So, I mean, that's the example that I always give people. If you think you're not a target, somebody from Russia was trying to attack some small law firm in Podunk Johnstown, like it happens to everybody, you are a target.

Michael Zambotti  10:02  
You know, to piggyback on that there was a defense contractor in Johnston that was actually attacked by a Russian hacking outfit. And it ended up being a federal lawsuit, and you can see the name of the Johnstown contractor in there. So, you know, often people will say, you know, we're small, we're in a small town, we're not a target, you are a target. Which is, again, not to scare people, like Drew was saying, we don't want to scare anybody, we do want you to be aware of what's possible. And once you're aware, you know, like, fire, hey, you can [be] aware of bad things that can happen with it. So, you're safe around it, you have the good safety procedures.

Drew Thomas  10:36  
So, it has to involve some serious talent and or manpower and or money on their end, to imitate these sites and build all these things. So obviously, this is a lucrative thing for them, right, doing this phishing, like they're not building a site that looks exactly like some other legitimate site, and not, not making a significant amount of money off of this, right?

Kevin Slonka  10:57  
Yeah, I think you bring up two points there. One is the, the amount of money it takes for them to do the bad stuff. And two is the amount of money they make from it. So, I think like Mike just described at the beginning, the amount of money it takes to do this is almost nothing. Like he was showing it in class, how to duplicate these websites in three minutes. So, it doesn't take skill, it doesn't take resources, you know, anybody can go out and find tools online, that can help you craft phishing emails, and just blast them out to millions of email addresses. And that's what they do. You know, when a lot of people say, nobody's going to target me, right? Why would they target me, I'm just some random person. Well, they're probably not targeting you, you're one of a billion emails that got sent, they just have to hope that one person clicks on it and falls for it, to get a couple 1000 bucks from you. So, you know, on the other end, they are making money, because you know, even if it cost them a couple $100 to buy some software, and you know, send out those phishing emails, it just takes one person to fall for it that they can take a couple $1,000 from and they just had a nice pay day.

Michael Zambotti  12:07  
Yeah. And also, we think about the motivation of attackers. Countries like North Korea and Russia, you'll have a lot of state sponsored attackers where they are given the resources of the government. And they are told, hey, this is, this is what you do. Especially in a place like North Korea, North Korea, a lot of scams come out of there. North Korea is a very poor country, there resource, don't have as many resources for the people as far as food. If you are a good cyber attacker and good hacker, you can maybe get benefits, you know, you please the government, you get better benefits. So, they have great motivation to get very, very good very, very quickly at their craft. So, you know, we see that it's not that person in the basement, in their parents' basement with the hoodie. These are professionals, these are people who do this as a living, they're very, very good at what they do.

Kevin Slonka  12:54  
And that concept of state sponsored, that, that may be a term that most people have never heard of before. But it really is governments. You know, I like to explain to my students, you know, the United States has branches of our military, the Navy, the Air Force, the Army, China has a branch that are hackers. That is what they do, and their number one charge is hack other countries, like legitimately it is their military doing this. And the same with Russia, the same with other state sponsored places. So, yeah, it's a lot of people with a lot of money. And it's their job 24/7. We have this, not to throw lots of terms that people but, we have this term in the cyber industry called APT, the Advanced Persistent Threat, and that's what we're talking about. When we talk about APTs, these governments that are persistent, like it's 24/7, they never stop, you know, you have the day shift, you have the afternoon shift, you have the night shift, and they are just hacking and hacking and hacking.

Drew Thomas  13:47  
I can't imagine a world where you get up in the morning, you go get your morning coffee, you go to your office building, you sit down and you try to extort money from people.

Kevin Slonka  13:56  
But that's the way it is. That's what these places are. Yeah.

Michael Zambotti  14:00  
Yeah, and you know, another level that these attackers have gone on, you know, we live in a subscription economy, I don't think there's anybody listening that doesn't have a subscription for something. And generally, we use the term technology as a service, okay, as a service, something software as a service, or, or whatever it is, because you're paying for it every month, rather than maybe buying a product. Well, attackers have developed what's called ransomware as a service, which is actually really genius if you think about it. We'll talk about ransomware, and what that does, and what it can do to a company or person. But generally, what it is, is that hackers will develop the software, and you as a person, you can hire them, you pay them a certain amount of money every month, and you use their malicious software, so that you don't even have to develop it yourself. You can just give them an email list and say, hey, I want to attack these people. And generally, you either pay them upfront or a percentage of the money that's gained from the victims. But it's you don't even need to have those skills and you know, to introduce another term, is that we use in technology and cybersecurity is script kiddies. Okay? Maybe people that don't have great technological backgrounds, but they're able to go online, maybe copy some code, or hire somebody else as a service, and carry out an attack. So, you don't even need the, the barriers have come down for what technological skills you need to carry out an attack.

Drew Thomas  15:20  
So, since you brought up the term ransomware, let's, let's identify that. What exactly is the difference between a phishing email and a ransomware email? Or do they cross over to some degree?

Kevin Slonka  15:31  
That's a good point. Mike you're gonna say something.

Michael Zambotti  15:36  
Sure. And you know, I would, I'd like to make comparisons to the physical world, maybe something that you've experienced, and hopefully nobody has experienced this. But if you've ever had a boot on your car, maybe not your car, but you've seen a boot on somebody's car, the big yellow thing that's... I have never had a boot on my car... I'm happy. It's got to be a terrifying thing. You can't go anywhere; you can't drive your car. So, you can get in your car, and you can turn your car on. And you can listen to the radio, but you can't drive it, because that boot is going to stop you now, how do you get the boot off of your car? Well, generally, it's not just because you know, somebody felt like putting it on your car. You parked in the wrong spot, you have to pay the fine, maybe you have unpaid parking tickets, you have to pay that fine, that ransom in order to get your car to go again. So, that's in the physical world, we think about in the digital world, we have files on our computer, okay, and we'd like to access those files, they have information that we, we need, and we'll use. What ransomware would be, would be a digital boot on those files, the attacker would somehow gain access to your computer and make those files encrypted, which would make, kind of scramble them, if you want to think about scrambling the code, so you're not able to access those files, unless you pay them money. Okay? If you pay the money, then they will purportedly descramble those files for you, so you can access them again. So, one of the things is, how badly do you want to access this file? Well, I really need it, I have to pay a couple of $1,000 ransom to be able to access the files on my own computer.

Kevin Slonka  17:04  
Wow. And that's, uh, you know, you brought up phishing at the same time. And, and that's an interesting point, because a lot of people might think, you know, how do I get ransomware? You know, how can I prevent ransomware from getting on my computer, and phishing is one way you could get it. So, when we talk about phishing emails, they could be used for various things, you know, like Mike had explained before, they can be used to just trick you into doing things. But maybe they also come with an attachment. And maybe you open that attachment, which again, if you listen to the first podcast, we said stop clicking on things, that, that goes for attachments as well. Don't open attachments when you don't know where they came from. Because maybe that attachment is that malicious, ransomware code, right, that's gonna get installed on your computer, and you know, scrambled up all of your files. So, that's a very common way that people get it. But it can also come from you visiting a malicious website too, so if you were to click on one of those links in a phishing email, go to a website, that website might automatically download something to your computer, and then bam, your files are all scrambled.

Michael Zambotti  18:12  
And those attachments could look completely innocuous, it could look like a Word document that is something else. It could look like an Excel spreadsheet, a PDF, any kind of document, and you might look at it and say, well, this document is fine. If I opened it up and nothing happened. You wouldn't notice anything happening. It happens behind the scenes in your computer. And then all of a sudden, maybe weeks or months or days down the road, those files become encrypted. You know, as a history, you know, ransomware seems to be in the news recently. We hear about it maybe the last couple years. The first ransomware attack was actually back in 1989. It was done for anybody who were really want to turn the clock back, anybody remembers the old floppy disks? All right, we had the...

Kevin Slonka  18:54  
You mean the save button?

Drew Thomas  18:56  
The save button. Exactly. You 3D printed a save button.

Michael Zambotti  19:00  
100%. You know, maybe a lot of people don't ever, never had any access to those discs or used them. They were awesome. You'd have like eight discs for a program. You'd have to keep switching them. But the first ransomware attack was in 1989, it was called the AIDS virus. And a fella took the 20,000 discs and mailed them out to people, actually physically, you know, we talked about phishing emails, but these were physical mail. They were mailed out to people, and they put, it was supposed to be about AIDS research. Now, rewind to that time, that was something a lot of people had an interest in, AIDS was up and coming, they wanted to learn about it, what was going on. So, people put it in their computer. After their computer rebooted 90 times, it would say, guess what, you can't access your files anymore unless you mail a check for, I think was like $249, to this PO box in, somewhere in South America. And then you would get a code which you could access your files. So, we hear about ransomware, we hear about cyber-attacks, and we think, oh, this is the new thing. Well, it's been around, you know, close to, you know, 35-40 years.

Drew Thomas  19:56  
So, you'd said, just using that example, you know, mail a check, and then we'll send you a code to release your information. But you're also putting your faith in a criminal too, that they're going to hold up their end of the bargain. How likely is it that when you pay this ransom, and again, we're hoping to avoid having that happen to you at all, but if something were to happen, how likely is it that the hacker will or the, the scam artists will use that term instead, will release your information?

Kevin Slonka  20:27  
So, I don't know that any of us actually know a percentage of how likely it is, but I can tell you what we say in our field; never pay the ransom. So, it’s because of that exactly what most companies will do. And likewise, what most individuals should do is you should always have your stuff backed up. Right? If something is important to you, you should have it in more than one place. So, whether you subscribe to some cloud backup service, or whether you copy your stuff to a USB stick and keep it somewhere else. You know, if a file is important, you should have it in more than one place. That way, if something happens to the main place, you go to your backup, and you don't have to pay that ransom.

Michael Zambotti  21:11  
That goes, that's the number one thing in technology, backup can save your life. And it could be ransomware, your computer could get ransomware. Or your computer could just break. Yeah, without a hacker. Yeah, right. You know, we talked about malicious attacks, but what if your computer just the hard drive crashes? Have a backup of your data.

Drew Thomas  21:27  
Yeah, I think that's really important. And you know, you mentioned like Cloud backups, things like that. I mean, or even having USB drives things of that nature. Yes, there is a cost involved in that, there's a cost usually involved in having a cloud backup, there's a cost of subscription, right? It's a subscription. Yeah. But, you know, comparatively speaking, the cost of buying those USB drives the cost of having that cloud backup is negligible, compared to the cost of permanently losing family photos, permanently losing access to your data for business, permanently, or potentially, and, again, don't do this, you know, Kevin's point, don't pay the hacker but or paying the hacker.

Kevin Slonka  22:05  
Yeah, I mean, on my personal machine at home, I have a little over two terabytes of files that I consider important, you know, photos that I've taken stuff for school, you know, all the classwork I've prepared everything. And I subscribe to a cloud backup service. It only costs me, for the level that I subscribe to, like $11 a month. So, in the grand scheme of things, I think $11 a month is well worth, you know, losing 2.4 terabytes of my personal data and never getting it back.

Michael Zambotti  22:38  
Because especially with photos, you can't replace those, you can't replace a memory. You can't recreate those.

Drew Thomas  22:42  
Yeah, you were using the example of trying to put this into the physical world. I mean, there are people that will you know, again, not trying to encourage this, but there are people that have been known to run back into a burning house to try to save family photos, because they're irreplaceable. Yeah. What, you know, for the, for the cost of two cups of coffee, I mean, you're able to preserve all that and make sure you can have access to it no matter what happens. I think that's easily worth every penny that you're that you're spending.

Kevin Slonka  23:12  
And by the way, not endorsing Starbucks.

Drew Thomas  23:15  
But it's really good coffee. Yeah, I mean, it's hard to argue that.

Michael Zambotti  23:18  
Or maybe if you don't want a cloud service, maybe you say, well, I want to have it, I want to touch and I want to feel my backup. You can buy a couple terabyte hard drive on Amazon for $50-$100. So, and then you just copy everything over maybe once a week, and you have your backups there in your house. So, which might bring up problems where hey, if something happens your house, well, then you lose your backups as well. That's why it's nice to have something off site. But you know, maybe you say I want to, you know, I want to have the old-fashioned way, and have, have the, you know, the so it's not cost prohibitive at all.

Drew Thomas  23:49  
So, we've got a couple of I'm going to do a very, very clunky segue here. So, we've been talking about different technical options on how to back up your data and avoid ransomware, or recover from a ransomware scam, that sort of thing. You said about like Tech Support scams. So, for people that don't always know what the cloud is, we were talking a little bit again, you know, prior to, prior to hitting the record button today about the fact that the cloud is not in the sky, the cloud is a physical piece of hardware somewhere. You know, I think that, you know, people that are not potentially tech savvy might be susceptible to something like a Tech Support Scam. And I wanted to kind of touch on what those scams involve and how they work.

Michael Zambotti  24:31  
Yeah, Tech Support scams would be where maybe something pops up on your computer and says, you have to contact us right away, call this number. Or maybe they call you, and maybe they call you and say there's problem with your computer, we've, we've determined that, we're from Microsoft. Now, going back to what we talked about in the last episode about fear, uncertainty and doubt. Something's wrong, I need to have it fixed, Microsoft is on the phone. Now, what I tell people is step back for a minute... how convenient... exactly. If you've ever tried to call Microsoft support, you will be on hold for a long time, days, perhaps weeks. It's like the IRS. You know, if you ever call the IRS, you don't get right through, the IRS does not call you ever. So, whenever we see this, hey, you're not talking to Microsoft tech support, they're trying to get you to do something, they'll try to get you to go to a website, give them access to your computer.

Kevin Slonka  25:21  
Yeah, that's probably the number one thing that happens with those Tech Support scams is, you know, A, they trick you into thinking they're real tech support. But what do they do? They get you to install something. And what is that thing? It's remote access. So, you'll start seeing your mouse moving, right, they now have control of your computer. And now they can do whatever they want. Any website, you're logged into any password, you have saved any file that's on your computer, they have full access to your life at that point. So, yeah, nobody's ever going to call you, you know, your bank is not going to call you and say, hey, we saw your computer was insecure, we want to make sure your money is safe, can you install this? That's not going to happen.

Drew Thomas  26:04  
Right. We partner with the American Bankers Association on a program called Banks Never Ask That. And it's a series of videos and things like that, that they put out there that say, you know, your bank will never call you to ask whether or not you prefer a Sega Genesis or, or a vintage Nintendo system, like, it uses sort of outlandish ideas to illustrate the fact that your bank will never call you to ask that kind of stuff, just like we will never call it to ask you your username, your password, your personally identifiable information. If you're a customer of a bank, then your bank has that information already. They will not call you to verify it or ask you to confirm it. Now, there's a difference there too. And I think it's important to touch on this because it applies to banks, but I think it applies to other industries as well. If you call us, we need to identify that you are who you say you are, right, because we're trying to protect you. So, if you call our call center, we may ask you certain things. We will never ask you for a password, we will never ask you, nobody does that. And that will even in those situations, we will not ask those information. But we will ask, you know, you to identify perhaps the last transaction total that happened on your account, or something that you would have access to that we can just confirm that you are who you say you are, when you call us, we will never call you and ask that information. It's never, it's never an incoming call that you would ever be asked that.

Michael Zambotti  27:26  
If you do get an incoming call from somebody, one of the best things you can do is say, could I call you back? Give me a number to call you back. Generally, they'll hang up on you at that point. But if they do give you a number, then you can check that number. Is that actually bank support? Or better, if you get a call that's purported to be from your bank saying, I'm going to call you back at the customer service number. Call the bank's actual customer service number, and yeah, and then ask, say, hey, did somebody call me?

Kevin Slonka  27:53  
And that's a really good point, because, another type of scam that people may not know about it, pretty much everybody nowadays has caller ID on their phone somehow. Caller ID can be fake. It is extremely easy for attackers to put a fake number in the caller ID of the call that they're making you. So, you may look at the caller ID and say, oh, yeah, that is my bank's number. This is legitimate. Do not believe that because it can always be fake. Yeah. So, always do what Mike said, you know, ask them for a number to call back or pop your bank's website into Google to find their real number to call back. You know, you always want to take the initiative there, because just assume everything's fake.

Michael Zambotti  28:35  
Yeah, the previous episode, we've talked about spoofing, you can get a call where pops up with somebody's name and phone number. And the attacker has, has spoofed it, they've actually put that information in there to make it look like they're calling from the bank, and it looks official. You know, I've gotten text messages, maybe you've gotten them as well, that said, you have a package from the US Postal Service. It's, it's stuck in transit, we need you to verify some information, we need you to click on this link. And so, trying to get you to do some sort of activity, if you look at the link, you know, and I've opened them up in a, in a secure environment, and they look legitimate. If you looked at that, you'd say, well, this, this looks like the US Postal Service website.

Drew Thomas  29:14  
Now, you when we were talking about like text messages and stuff like that, that, that also brings up the fact that most of the time you're receiving text messages on your phone, you're not, you're not necessarily receiving those kinds of messages through your, through your computer, right. So, some people might think that, well, it's not my computer, I can still click on this because it's just my phone. Your phone, your phone is not a phone anymore. Your phone is a miniature computer that you carry around in your pocket that has an app on it that allows you to use it as a phone. So, I think it's important to make that identifying thing you know, we use that vernacular because it's just familiar because, you know, oh, it's my phone, but it's really a miniature computer that, that can be accessed just like your other computers could be accessed, whether you're clicking on a link on that or a link on your, on your PC.

Kevin Slonka  30:01  
Everything is a computer and that, that just opened up Pandora's box in my head of things that I want to talk about. But if you ever hear the term smart, something, I'm sure you've all heard of smart TV, smart refrigerators, smart toaster, those are computers, the exact same computer, like you have your laptop or your desktop, they are full computers. They can be hacked, they can get viruses, they can steal your information. And you may think to yourself, what information does my television, or my toaster have? Well, if they're smart, they're connected to your home Wi Fi, where your real computers are that have your real information. So, yeah, I mean, all this and especially the phone, like your phone is a real computer. It has all the information that your laptop or your desktop does.

Michael Zambotti  30:50  
I've seen smart washing machines, smart toothbrushes, and I'm like, why did these devices need to be on the internet? Yeah, they don't.

Kevin Slonka  30:57  
I mean, they come with great, they're sold to you like they're amazing. And, you know, I saw like a smart oven. And the goal of the smart oven was, there's a video camera inside, and there's an app on your phone. So, you can put something in to cook, go in the other room, watch TV, your phone will notify you when the timer is up, you can look at the image of what's in your oven to see if it's done without having to get up and walk over. That seems amazing. I would love to be able to walk around my house and know that my food isn't burning, right. But also, who's to say that a hacker can't break into that and set the temperature to a million degrees and make your house catch on fire. So, there are problems with everything. I won't go down that rabbit hole, back to the phone. Yes, be well aware of, you know, not clicking links on your phone the same as you would on your computer.

Michael Zambotti  31:47  
Well, it's funny because we use the term dialing a phone, you know, yeah, there's no dial and it's not a phone. It really is a computer that happens to be able to make phone calls. But you know, at the end of the day, how often are you actually talking to somebody on your phone? Probably not very much.

Kevin Slonka  32:02  
Yeah, I hate talking to people.

Drew Thomas  32:06  
It's a digression, but, you know, we used to, there was a comedian that had a clip of this at one point, but they said about how when people used to get a knock at the front door, they would jump up to, to answer the door because they were so excited that someone had stopped by. And now if someone knocks on your door, you cringe and sort of hide behind your couch and assume that it's, who would, who would come to my house without telling me? Nobody goes outside anymore. And the same thing happens, you know, I've had people tell me, I've had people text me ahead of time and say, can I call you like we never would have thought 20 years ago that we would have to have permission to call you and talk to you using my voice, that I would have to text you ahead of time and say is it good? Is it okay? If I give you a call?

Michael Zambotti  32:49  
Oh I, if I get a call from somebody, I just assume it’s bad news. Because yeah, well why is this person calling? Let it go to voicemail.

Drew Thomas  32:55  
And if it is one of these hackers, it is bad news, sorry scam artists. I keep saying scams, I keep saying hackers.

Michael Zambotti  33:01  
Well, you know, that's, that's a great point. Maybe we can, we can digress there a little bit, hacker is not a bad thing. You know, Kevin and I are hackers. The students that we have are aspiring hackers. And we're ethical hackers. In a lot of cases, criminals are doing hacking activities, but if you look back to the 60s where the hacker terminology came about, it was people using technology to get it to do something it wasn't supposed to do. And you know, it became a pejorative term, but these are criminals. You know, these are, these are people that are conducting cybercrime actually trying to harm us and harm society. So, there's certainly good hackers out there, the ethical hackers that are you know, working for the good.

Drew Thomas  33:42  
So, one of the other things that we touched on somewhat in the, in the first episode that we had released before was, was social engineering. But I think that all of these scams to one degree or another probably rely on the term social engineering, and I want to, I want to maybe talk about that a little bit in this episode, maybe dive a little deeper into what that means. The term social engineering, what exactly is that? And how does it apply to some of the things we've been talking about?

Michael Zambotti  34:08  
Sure, I think the best way to illustrate it is an example an example that we have seen in students getting emails. Now, you know, think about a student's motivation for being in college, well it's to get knowledge right to, to learn. The ultimate goal is what, it's to get a job eventually after college unless somehow, they become independently wealthy by hitting the lottery in their college time. They want to get a job. So, college students are seeking jobs. So, if I'm an attacker, you know, and put my attacker hat on, I have a group of people that are very motivated to go get a job. So, why don't I send them an email, or maybe set up a website and tell them I'm hiring, I'm hiring? Send me your resume. Oh, your resume looks pretty good. Let me set you up for an interview. Maybe, many interviews now are conducted via Zoom, not even in person. So, I could interview somebody via a call via online, and I can say wow you, you, you did well, I want to hire you. Okay, this person's thinking, this is great, I got a job my parents are gonna get off my back now. I am going to work; I'm going to become gainfully employed. And so, what's the first thing you do whenever you get a job? You have to provide, well, you want to get paid. So, you have to provide your bank account information. Okay, you provide your social security number. So, as the fake employer, I say what, here's the documents, here's an I-9, here's the documents I need you to fill out in order to hire you. So, you say oh great, okay, I want to get paid. Here's my information. And then you just provided all your information to the attacker. You thought you had a job, that social engineering, getting you to do something that is not in your own best interests. In a scenario where you think one thing is happening, and the attacker is certainly going after something else trying to get information from you. And you can see this, well, this is not a technical attack, they're not using code or anything like that. They're, they're just, they're hacking, sometimes something that we often refer to as the weakest link in security is the human, hacking the human. And, you know, computers are silicone based, right? We think carbon base, that's us in the chair, a lot of vulnerabilities, a lot of vulnerabilities there. So, we are definitely susceptible. And all of us, we are not exempt. People in the cybersecurity industry have been socially engineered. Because again, these are professionals, these are people who are very good, they do it for a living, they're good at what they do.

Kevin Slonka  36:30  
And that scam that we just talked about earlier, the tech support scams, that's a type of social engineering scam, that's exactly what it is, you know, they're, they're preying on your emotions, essentially, you know? I like to always bring up you know, the fight, flight, or freeze, you know, emotion of people, you know, what, what are you going to do? Are you going to react? Are you going to think, you know, they're trying to make you react, they're trying to do something, like, you know, Mike said, I want a job, I got to fill out this paperwork right now. Or the Tech Support scam, I don't want my computer to be broken, I got to let them fix it. You know, whatever the case might be there. They're trying to get you to not think to do something before you take the time to think.

Michael Zambotti  37:11  
And everybody's been in that situation. Everybody's been in a scenario where, where they did something, and then whenever they look back on it in a more calm state, they say oh, I can't believe I did that. I can't, that's not me, I would have never done that. But your, sometimes your brain short circuits.

Drew Thomas  37:26  
I think it's important to remind people too that there's no embarrassment involved here. If you, if you find that you have been a victim of a social engineering ploy, or some sort of scam, you don't ignore it. And you don't hope that you know, like, well, I just won't tell anybody because man, I'm embarrassed, it's not gonna go away, it's not going to go away, you need to do something to try to resolve the situation as quickly as possible. Because a lot of damage can be done once your information is out there. Because, you know, once it's out there, it can be shared, it can spread faster than you can possibly imagine, as far as you know, being out there. And, you know, we tell our kids a lot of times, you know, posting photos online and things like that, like it's out there forever. You can put it out there. You can take it down, we see this with politicians, we see this with people all the time they put stuff on, on Twitter, or X, whatever it is today, whatever. Yeah. And then, you know, five minutes later, they take it down because it was something they didn't want to, they didn't want to, it doesn't matter, somebody has screenshot it, somebody has taken it and done something with it. And that's a long way around of saying just you know, if you find that yourself a victim of some of these things, don't, don't feel bad about it. Just take action to try to resolve it as quickly as you can.

Michael Zambotti  38:32  
The internet never forgets. Yeah. And you're right. You're a crime victim. You know, we're talking about cyber criminals, you're a victim of a crime. If you got mugged walking down the street, it wouldn't be your fault. It's the fault of the criminal. So, yeah, exactly. I heard a story one time of a receptionist that clicked on a link, and it ended up being ransomware. And she got so flustered and upset, she turned off her computer and ran out of the building. Because she didn't know what to do. Yeah. And I think that comes in to awareness and education. Having people understand what's possible, what to do, you know how to be resilient. Hey, we had a, you know, I had an incident my computer doesn't work anymore. What do I do?

Kevin Slonka  39:10  
And I think that's an if you don't mind, that's a really good time to bring up. What do you do? It is. We've been talking about these for the last episode for this episode, you know, what, what should you do if you fall victim to one of these things and, and there's so many things, it really depends on what the problem is. So, one of the easiest things to do, if you fell victim to a social engineering attack that made you log in somewhere, and you think you may have logged in somewhere that might have been bad. Step number one is to change all of your passwords. And hopefully, hopefully, if you listen to our first episode, you know that you should not have the same password on every website. If you do have the same password on every website, you have a lot of work to do, because you have a lot of passwords that you need to change, but you should immediately change your passwords, because assume the bad guy got your password. Now you need to make sure that they can't get into your account anymore, so go change them that that is step one. Do that within 30 seconds of realizing you did something wrong. But you know, maybe you put in a credit card to a website that you think might be bad. Well, it may be time to call the bank and have them you know, I don't some banks offer like monitoring services, because canceling a credit card is pretty awful, right? It's a pain. So, maybe they can monitor it for you. Maybe you can put a hold on it. Or maybe you just want to cancel it and get a new number. But you know, step one is to realize, you know, what do you think was compromised? Is it just my password? Is it my credit card? Is it my social security number? And that will inform you on you know, what, what do I need to do to protect those things?

Michael Zambotti  40:48  
Yeah, basic blocking and tackling. You know, we see this cybersecurity seems wow, it's so confusing and hard. But like Kevin mentioned that very basic, change your password have a different password on every website? Yeah. Is it, is it hard? It's a little annoying, you know, hey, it's easy to have the same password everywhere, right? I think all of us, whenever we first started out on the internet, let's make it simple for ourselves. Let's keep functionality. But as we started to think, well, what if somebody gets that password, they have all of my passwords, you have a unique one on every application, every website, it just protects you. And that's a basic thing everyone can do. You don't need to have any technological skills or level of knowledge to just have a different password or passphrase, as we talked about in a previous episode, don't just use a word. You can use a sentence, there's no rule that says you your passphrase can't be the Steelers have won six Super Bowls. That's easy to remember. And it's really, really difficult, if not close to impossible to crack.

Drew Thomas  41:43  
Yeah. Kevin, you mentioned some credit cards. And so, let's touch a little bit about like online shopping scams and things like that. I think that especially around certain times of year, and I'll say like around the holidays in general, gift giving times, things like that, you'll, you'll start to notice that you're more, you're more willing sometimes to use a website that you're not as familiar with, because you want that particular item for, as a gift for somebody or better price, or better price. That's a big deal. So, you know, what do you do when you, when you find that maybe you've visited a website, that in April, you never would have gone to but because it's that time of year and you want that gift and you want that lower price, you've, you've given your information, credit card information, things like that, to somebody like that?

Kevin Slonka  42:29  
You really got to be careful around the holidays, because you know, they will attack you via all methods. You know, we've already talked about phishing, and text message, you know, smishing, you're gonna get lots of emails, you know, like Mike had given the example you know, your package is in transit, you need to release it, you're going to be seeing lots of those, in email and text messages. They're going to try to get you to log into a fake page, so you got to be really careful about your messaging. And yeah, websites. It's really hard to tell people to do this, because you want that best price, but only shop at legitimate stores. You know, don't go to JoesRussianToyStore.com. You know, because you can get a toy for $10 cheaper, like that's probably a bad idea. Only shop at reputable places because you don't know what they are going to do with your data. We would like to think that when we type our credit card into Amazon or any other shopping site, that either they are not saving our credit card, they're just using it for the transaction and then getting rid of it, or if they do save it, it's encrypted somehow. So, if a bad guy were to break in, they can't see the numbers. We would like to think that's the way it works. And maybe it does for the big guys. But not Joe's Russian Toy Store. You know they might be saving your credit card as just the real numbers, that if they were to get hacked, everybody's credit card is now stolen.

Drew Thomas  43:59  
One of the things from a banking perspective that I can tell you too, is that if you ever encounter a store, a retailer of some sort that says, well we don't accept credit cards, but we want you to wire us the money. Oh, never wire, do not do it, just don't do it. Like the thing your mom told you. If it seems too good to be true, it probably is right? I mean...

Kevin Slonka  44:18  
Wiring is never an option.

Michael Zambotti  44:20  
Wiring is a red flag. If you hear the term, if somebody wants you to wire money either to or if they want to wire money to you and then have you wire it to someone else. That's another scam and whenever you hear that, that is a red flag. And I'll also mentioned this as far as buying things online with your credit card; you know, we want convenience, we want to use our credit card and we want to get things and there's services that will allow you to use a masked credit card number. Privacy.com is one, there's, there's several out there, which whenever you buy something on a website, you don't provide your actual credit card number, privacy.com gives you a one-time use credit card number that you can use, and you can authorize it for certain dollar amount. So, that even if somebody gets that credit card number, they don't have access to your actual credit card, they just have that one time use one. So, the scope of the damage would be much, much less. So, privacy.com is one, there's several out there, I'm not endorsing or saying, hey, go use this. It's just a resource that is available, if you would like to explore that and say, well, why am I giving the same credit card number to every retailer? Can I, you know, have a unique one. We talked about unique passwords; this is a way to you have a unique credit card number.

Drew Thomas  45:27  
That's very interesting. I had never actually heard of that.

Kevin Slonka  45:29  
I've actually used them. I bought something from a website that I was afraid, you know how like subscription services, if you forget to cancel in a certain number of days, they charge you again, I was afraid that might happen. So, I got a temporary credit card number from privacy.com and set the limit for only that one purchase. So, if it did renew, it would just get declined. Yeah. And that was just the way to save me that extra money.

Michael Zambotti  45:54  
And those Russian nesting dolls you got me for my birthday, Kevin. Exactly. From that website. Yes.

Kevin Slonka  45:58  
I mean it's a great website, it's a great website.

Drew Thomas  46:01  
You know, we talked about this from a banking perspective. And having things like online banking and having certain apps on your phone too is also helpful because especially when it comes to shopping scam scenes where you're spending money because, if you're waiting for a monthly statement to be printed out and mailed to you, sometimes you can, you can be 28 days behind in even recognizing that something has happened. That an erroneous charge has happened on your account, things like that. So, having online banking, being able to look at your statement on a daily basis, your, your account information on a daily basis, is important. A lot of banks, a lot of credit cards, AmeriServ is one of them, but, but many banks, many credit card companies have the ability to turn off your debit card, turn off your credit card, if you think that it's been compromised without, without cancelling it. Yeah, it's literally an app on your phone, you go in, you log in, you toggle a little switch, and the card can't be used until you turn it back on or until you have a chance to contact your bank and have them cancel it and reissue you a new one. I can speak from personal experience, a number of years ago, I woke up in the morning. And there were three notifications on my phone that had happened at three o'clock in the morning, where they had been doing test transactions. One was for $1. One was for $5. One was for something else. And I know that I had not done them, I very quickly got on my phone, it was six o'clock in the morning, I was able to turn off my card, so that I knew that no further transactions could come through until the bank opened and I was able to then resolve it. Because you know, they'll do that stuff in the middle of the night knowing that you can't call your, you know, if you have a small community bank, you can't call them at 3:30 in the morning and have them turn off your card, and you're sleeping, and you're sleeping, you don't know that it's happening, right. So, being able to have some limited control over the way that your bank account, your credit card, your debit card are being used is very helpful. And most of those services are normally free from your bank.

Kevin Slonka  47:49  
And I can give two examples of things that I do in that same vein. On my credit card I have, they have the ability to set up alerts. So, any charge above a certain amount, I get an email to let me know that this happens. And my limit is $200. Which may seem crazy, because you know a lot of, I'm a technology person, a lot of stuff I buy is over $200. But for me that was a good limit that, you know, if a lot of charges come in over $200, I want to know about it, because that's a lot of money if they start adding up. Yeah, so and what's the pain for me, it's not a pain, it's just a single email. So, even if it's a legitimate transaction, I just delete a single email. But it keeps me on top of big charges that may come through. So, setting up alerts is really good. And the other thing that I always tell people, I do this myself, if you have an iPhone, use Apple Pay. That is the number one thing you can do to protect your credit card from getting stolen. You might think oh, it's on my phone, my phone isn't secure. Yes, that, you know or Google Pay whatever they call it on an Android phone, using those services for credit card payments, like tapping, to be able to tap your phone to pay at a different retail outlet. Even websites have this integrated now that you can use Apple Pay and Google Pay through a website. So, you don't have to provide your credit card. Right. The way that this protects you is now you only have to trust Apple or Google like one company with your credit card. Every time you use it to buy something somewhere, they are generating those random codes like Mike had talked about. So, it's not your real credit card number getting transmitted to Starbucks when you buy a coffee. It's some random credit card number that for that one-time transaction is linked back to Apple, they link it back to your account so your account can be debited, the money or you know whatever. So, using those services is really, really nice and it is not, it is not insecure. It is one of the best things you can do to prevent your credit card from getting stolen.

Michael Zambotti  49:49  
And, and having that visibility into what's happening on your cards like yeah, like, like Drew, Andrew mentioned, or Kevin mentioned...

Drew Thomas  49:57  
One of us, one of us mentioned it.

Michael Zambotti  50:01  
Having the visibility as to what's happening on your card, you know, if you have these alerts set up, then you can be aware you're not waiting for the statement to come in the mail. You know, that was the old way. Right? You got your statement, and well, 27 days ago, I had fraud. Now, what do I do now? It's almost a month later. Now you can know real time. So, there's a lot of scams, a lot of things, technology has accelerated the attackers’ capabilities, but it’s also accelerated what defenders, what us as people who want to protect ourselves can do. Yeah.

Drew Thomas  50:27  
So, basically, just to kind of tie this up a little bit, you know, because, again, you know, there are other scams out there that we could talk about. And but I think that what we've touched on are probably the ones that are the most frequent, possibly, especially because they sometimes, to use your Russian nesting dolls analogy, they sort of work with each other, you know, phishing will work with ransomware, phishing can, can phishing can be an end in and of itself. It can also be a step toward another type of scam and sort of just, you know, adding them together. What really should people be doing? I mean, I know we said in the last episode, don't click on links. I think that bears repeating. I mean, if you're receiving emails and links and things like that, text message, links, things like that, don't click on the link, I want to, I want to leave it there, don't click on links, but especially if you don't know where it's coming from.

Kevin Slonka  51:19  
Yeah, and I think one of the words that Mike had used earlier, skepticism, having a good level of skepticism is the number one way that you don't fall victim to these things. You know, there are lots of different scams that will try to trick you and make you feel emotions in lots of different ways. Just take a second, take a second and think about it. And you know, always, you know, one of the scams we had on our list that we didn't touch on, but it could happen like an IRS scam. You think you owe the government money. You know, that, that's one that might get, you know, a really big emotional response from people. Just take a second, maybe call the IRS yourself, and verify, hey, do I really owe $10,000? Is this real? Like, be skeptical, always check for yourself. Don't trust whatever you got that made you feel that emotion?

Michael Zambotti  52:11  
Right. And to piggyback on that there's, there's other scams, and we could probably have an entire several episodes on all the scams, there's one that will come in the subject line will be a password that you've used before. So, whenever you get this email, how scared are you? Hey, that's my password in the subject. They must know something, everything else that follows must be correct, they know my password. In reality, that attackers look at data breaches that are freely available online. Yeah, and they email all the people because we have a, we have an email address, we have a password, hey, I know your password, you're gonna assume everything else is correct. And you have that fear reaction, I better send money to these people, they know my password. But, you know, take that step back, talk to somebody trusted in real life, you know, not over the internet, call somebody that that you know, and say, hey, here's a scenario, walk me through help. Help me deal with this. Don't be afraid to ask for help. Again, you are the potential victim or the victim of a crime.

Drew Thomas  53:07  
When you're receiving these communications, I think too, the scammers are getting much better at making things look legitimate. But going back to that whole idea of taking a second, taking a beat, don't, don't not just reacting instantly. Does the, the email or the text messages from the IRS, is something, is IRS misspelled? Is it coming from irs.org or.com instead of.gov? Does the logo of the company that's in the email, does it look out, does it look wrong? Does it look too tall or too short? Or the wrong color? Or there are things you can look at that, you know, that might be a visual tip off to you that maybe something's not quite right with this, even though you might do business with Microsoft, you know, are you know, is it coming from, from a website like Microsof.t.com or something, something weird like that? Just that extra couple of seconds can save you so much time. Because clicking, realizing it's a scam, and clicking delete is probably the easiest thing you can do to avoid these problems.

Michael Zambotti  54:09  
your best line of protection right there.

Drew Thomas  54:11  
Yeah. So, are there any other, any other key issues that we haven't really touched on as far as, as far as prevention that you wanted to touch on before we wrap things up today?

Kevin Slonka  54:21  
I mean, from a scam perspective, I don't think so. I think it can all be distilled to that, you know, take a second, just think it through.

Michael Zambotti  54:29  
And I would just say be vigilant. Just remember an attacker only needs to be right one time. As a defender, you need to be right all the time. Yeah. That sounds daunting. It's a big as big assignment. But the tools that we talked about on both this show and, and future shows, that's why you want to stay tuned, these are the things we're going to give you the tools to help defend yourself, protect yourself, protect your family.

Drew Thomas  54:50  
I heard you say future shows and that means that you guys are coming back because you guys, these are, these are great conversations, and we really appreciate you taking the time to come and sit down with us and, and talk through these things because I think people can be very overwhelmed by this topic.

Kevin Slonka  55:03  
Yeah. I mean, we hope to be back, you know, that was kind of Mike's way of kind of forcing you to bring us back. We're just gonna say that every episode and then we'll have to come back.

Drew Thomas  55:11  
Fair enough. All right, well, some of the information that we shared here today, we will share in the description. Some of the different websites and different materials resources that you can use to try to help protect yourself to be able to hopefully, avoid becoming an identity theft victim or a scam victim. And some of the things that you just might want to read more about, we will put in the description of the show below. And definitely subscribe to the show. If you haven't already. Not only will it make sure that you get notified when new episodes drop, but it helps promote the show to other people. And we thank you very much for listening. Thank you, gentlemen, for showing up once again today. And yeah, you're coming back, so I just want to let you know that so. Alright, thanks a lot. All right, thanks.

Speaker 1  56:04  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. Phishing scams are one of the most common types of cybercrime. Statistics show that in 2022, there were more than 300,000 phishing victims with a total loss of more than $52 million in the US alone. Scammers don't need to hack your computer if they can convince you to simply give them the information they need. The good news is that you have an excellent chance of avoiding these scams if you simply know what to look for. Be aware, think before you click, don't make purely emotional decisions. We want to thank Kevin Slonka and Mike Zambotti from Saint Francis University for joining us again on the podcast today. If you're interested in learning more, please visit ameriserv.com/bankchats or ameriserv.com/fraud for content on how you can help defend yourself against cyber criminals. I also want to thank Jeff Matevish for his excellent work in editing and producing the show. If you haven't subscribed yet, please consider doing so as it really helps us to reach a larger audience. For now, I'm Drew Thomas, so long.

2 Cents Episode: 5

Drew Thomas  0:12  
All right. So, we're looking at, we're looking ahead and we're looking at things that are coming up soon. And things that are coming up soon include things like St. Patrick's Day, and Easter and Tax Day. Yeah, Tax Day. It's good stuff. With me, of course, is Jeff Matevish. Hi, Jeff. Hello. Going to talk a little bit about taxes today. And Tax Day is April 15th this year, in 2024. Tax Day can change slightly depending on whether or not you're hitting a weekend or a holiday or something like that. But you said you looked it up? It is, it is actually April 15th this year. It is yeah. We thought, we thought we'd sit down and talk a little bit about taxes, what you, and just, we're going to do a general overview of just things you might need to do your taxes, things you want to have on hand, where you might go, how you might go about it. Just like any other thing that we do on the show, we are not endorsing any one particular service or software or anything, because we briefly discussed the idea of trying to modify some of these names to avoid... we're going to confuse ourselves. So, yeah, we're gonna confuse ourselves and we're going to confuse you. So, we're gonna throw some names out there, but please understand we're not endorsing any one of these. We're just giving you options. Yeah. And telling you what's out there and things like that. So, so let me ask you, let's start with, do you do your own taxes? Or do you use like a tax preparer? Or do you use software? How do you do taxes?

Jeff Matevish  1:35  
Yeah, I don't do my own taxes. I pay somebody for that. Okay. Used to use an accountant. Now, I'm, I think I'm gonna go to one of these just brick and mortar places that only do taxes.

Drew Thomas  1:46  
Gotcha. So, like one of the ones that have like the little curtained kiosk, like in like the, like Walmart or something. I always see those that I think to myself, like, I don't know that I would want to just sit there behind the shower curtain in Walmart and have somebody do my taxes now, but I don't know. I guess it works. Yeah. You know, or they wouldn't keep doing this.

Jeff Matevish  2:04  
I mean, this is also the first time filing jointly. Oh, yeah congratulations. Yeah, thank you. I had my own accountant. She had her own accountant. And we're kind of hitting a neutral territory. Yeah, let's go somewhere else, you know, yeah. What? Do you do your own taxes? Or do you have someone do them?

Drew Thomas  2:19  
I mean, I do my own taxes, but I don't do my own taxes. Like I use a tax software. Okay. Right. So, so I mean, there's different ones out there. There's, I mean, again, we're gonna drop a few names. There's TurboTax. There's Quicken. There's FreeTaxUSA online, there's, I think you can even do it through irs.gov. But that's a little more involved, though. I think you're actually like, you have to pick the right form and fill everything out. And you know, but it doesn't cost anything, then I guess. I don't think you have to; I don't think it would cost you to file but I wouldn't want that stress. Yeah, I don't think I would, I kind of like the idea of the software sort of walking you through it. And there's different ones, I think even the H&R Block people have, I think they started advertising a software now too.

Jeff Matevish  3:00  
Yeah, they have three different ways you can do it. You can either use their software, upload your files directly to them, you can have a quick 15-minute talk with them and hand your files off or you can have a one-on-one and, and sit there while they do your taxes for you. So, yeah, they're pretty flexible.

Drew Thomas  3:17  
I saw the, there was a commercial on TV, I think for, I think, I think it was for TurboTax. And the whole, the whole concept was, you know that they have tax preparers, right, that can, they can help you through some of this stuff? And they had a person mountain climbing and they're like, look, they're doing their taxes, you know, and then they had a person like water skiing. They're like, oh, look, they're doing their taxes. The funny thing was, if you read the fine print at the bottom, it actually says you must be present with your preparer in order for them to do taxes. So, while technically you're not doing your taxes, you still kind of have to be there. You can't be water skiing. And then like you know, unless they're, unless the taxpayer is with you on the water ski.

Jeff Matevish  3:57  
No, they're just saying, you know, we'll speed this process up so you can go water skiing. Yeah, you know.

Drew Thomas  4:02  
Yeah, yeah, I thought that, but you know, so I do that, I do that, in fact, I did do my taxes over the weekend. And they kept prompting me throughout, [are] you sure you don't want a professional tax preparer to look at this and that sort of thing that I just kept saying, no, I'm good, you know. And the software has done, you know, well for me over the years, you know, but, but I totally get where you're coming from too to having a professional do it because you want to make sure that you get that stuff done, right. Yeah. So, I have no headache then. Yeah, yeah. So, what do you do you just collect all of your documentation? Yeah, that to them. Yep.

Jeff Matevish  4:34  
W-2s and any 1099s.

Drew Thomas  4:37  
Yeah, yeah. So, a couple of so, let's, let's talk a little bit about that. So, what kind of stuff do you need to have to kind of do your taxes? I mean, you're gonna have to have your, your personal information, right? You're gonna have to provide your social security number, you're gonna have to provide a, like a, most likely like, you can actually, a lot of these softwares anymore will import like your W-2s and things like that from your employer if you provide the employers info automation. So, you can do that. That helps avoid some mis keying of numbers and things like that. Because yeah, import it for you. But some of the other documents you want to have handy if we're talking, before we go too far into this, we should say, we're talking how we would imagine most people would be doing their taxes, which is that you work for someone else. If you're a self-employed person, you're probably paying your taxes a little bit differently, even though you have to file a tax return, you're probably paying your taxes quarterly or something along those lines. But if you're retired, if you're you know, I mean, there are exceptions to this, but we're talking about the, the general schmoes like us that work for a company now and what you probably want to have. So, so a W-2 from your employer, right 1099 form for any contract work you may have completed or interest you might have earned on like a contest, or a sweepstakes or some sort of something like that, interest you may have earned from a CD or a time deposit, an IRA, that sort of thing. You want to make sure that you have handy any income that you may have gotten from unemployment or Social Security benefits, income from previous years state and local tax returns, which I don't know what that would exactly be. They always ask me that every year, do you want to apply your return to next year's taxes? And I'm always like, no.

Jeff Matevish  6:17  
Give me the money now. Yeah.

Drew Thomas  6:19  
But if you, like if you own rental properties, right, and then things like, you know, I guess it depends on whether you're doing itemized or itemized deductions or not. But there if you're doing itemized deductions, things like you know, charitable donations, moving expenses, job search expenses, insurance claims from federally declared disasters. So, there's I mean, there's all kinds of different paperwork out there. But I would, I would probably assume that most people are going to have, what did you say? Oh, 1098? Yeah, yeah.

Jeff Matevish  6:20  
If you're going to school, if you have, yeah, student loans, or you paid tuition, I mean, that goes towards your taxes, too, so...

Drew Thomas  6:54  
Yeah, tuition or else, even if you're out of school, and you're paying your loans off the interest that you have paid on your student loans, you can, you can put that on there as a deduction. So, things like that, that you want to have, that want to have handy. Some other things that may apply to some people, things like contributions to medical savings accounts, IRA contributions are a big deal. And you can usually contribute to an IRA, they usually tell you, when you can stop contributing to last year's IRA, it's usually after the first of the calendar year. So, you may still, depending on, depending on when you're listening to this, you may or may not still be able to contribute to last year's IRA, the interest from investments, stocks or other properties, costs related to childcare, education, which we just talked about, homeownership. So, mortgage interest, property taxes, energy saving improvements, but the thing of it is, you have to have a lot of itemized deductions to get past what the standard deduction is, right? So, if you're only doing maybe your property tax, and two other things, chances are, you're still going to be told that the standard deduction is bigger than what you can write off. But I mean, just things to keep in mind. So, yeah, so and, so after going through that laundry list of stuff, I can understand, again, why you might want to just have somebody else do this for you.

Jeff Matevish  8:11  
And a good thing to do, too, is you know, if you're trying to figure out what documents you need, look at your last year's return, you know, maybe you have, maybe you have, at least I keep all of my, my returns. And I know what I gave my tax prepper, the year before. So, I kind of match those documents up.

Drew Thomas  8:27  
Yeah, yeah. And when it comes to those documents too, the bank, or the mortgage provider, or the student loan servicer, they're all responsible for getting those forms. So, if you are owed a 1099, a 1098, or any of those other kinds of things, if you have investments, if you have a you know, a 1099-DIV or INT or something, the, your, your, the organization that you're through, they have to give you that stuff. So, make sure that you're, if you're, if you're missing your W-2, talk to your employer, yeah, if you're missing your 1099 or whatever it is, make sure you're talking to whoever was supposed to give it to you, because you can't just generate those. Yeah, so make sure you have those. So, let's talk a little bit about refund versus payment. So, have you ever had to, have you ever owed on your taxes? I know that's a personal question, but I'm just curious.

Jeff Matevish  9:17  
You know, not that, not that I can think of. Yeah, I can't remember any, any, any year that I had to pay anything back. How about you?

Drew Thomas  9:23  
No, I can't think of any time I had to owe, but so when you get when, again we're talking about being employed, when you get hired your human resources person, manager, whoever is probably gonna have you fill out a W-4 and the W-4 you tell them how much you want to have deducted you know, on your taxes and if you put down like a zero, they're going to take out the most they possibly can for your federal and state taxes with the idea being that hopefully you won't owe anything. Yeah, right. You put down a one or a two, you're gonna have less taxes taken out, but you got to be careful you, you want to make sure that you don't put the number up too high, because you're gonna get more in your paycheck, but then you may owe at the end of the year right taxes.

Jeff Matevish  9:28  
Gotta find that happy medium. Do you want to run yourself short now or? Yeah,

Drew Thomas  9:58  
I mean, the ultimate goal would be to be at zero. Right, right, because you don't want to loan the government money with, without interest. But at the same time, you don't want to owe the government money either. Yeah. So, ideally, you'd want to be at zero whenever your taxes come around, but a lot of us like getting that little windfall. Yeah, exactly. You know, and I'd rather be safe than sorry, personally. Yeah.

Jeff Matevish  10:30  
I don't want a big surprise at the end saying, hey, you owe a large chunk of change.

Drew Thomas  10:34  
Yeah, yeah. So, how do you get your, so how do you normally get yours back? Do you get a check? Do you get direct deposit?

Jeff Matevish  10:38  
I used to get a check. Yeah, but starting probably, I don't know, a few years back, it was direct deposit. Yeah, yeah.

Drew Thomas  10:45  
I think most, most of the what they say is, you know, if you, if you're trying to get your, your, your money back relatively quickly, direct deposit is the way to go. I think they will still cut you a check, but you're gonna wait a lot longer, I would have to think.

Jeff Matevish  10:58  
Okay, I didn't even have that option. It was my accountant said, hey, I just need to an account number and a routing number. So yeah.

Drew Thomas  11:04  
And that's a good point, you want to make sure you're giving, you're not messing those things up. Or if you're, if you're putting in a routing number and account number, make sure it's the right one so that your deposit doesn't get deposited to the wrong account. And those are found at the bottom of your checks. Yes, they are at the bottom of your check. So, your routing number and your account number would be at the bottom of each check that is true. You can usually reach out to your bank too, they'll, they'll tell you what their routing number is and your account number. Normally, it's on your statement, too. I think it's I think it's in the clear on your statement. If you, if you look, they'll have the whole, because a lot of times your account numbers like, it will be like star, star, star and then like maybe the last four digits. But I think if you actually look at your statement, you know, show the full account number. So, make sure you're giving that, that correct information, before that. I was reading too, the IRS is preparing for more than 146 million individual tax returns this season. Wow. That's a lot. Yeah. I mean, that's a lot. So, I guess the sooner you do it, maybe the faster you'll get because everybody's gonna wait till the 15th of April and then you're gonna wait longer. But that's a lot. That's a lot of work. Yeah, I mean, I don't know. I don't know anybody who works for the IRS. I never have. I don't either. I don't envy them.

Jeff Matevish  11:04  
No, because I would, I would hope that a lot of that's automated now. Yeah.

Drew Thomas  12:15  
Yeah, but I mean, when you tell [someone], I mean, that's gotta be a downer at parties. Oh, what do you do I work for the IRS. I feel bad i mean, if you're, if you work for the IRS, I mean, I maybe I'm wrong, but that just feels like that's something that most people would be like, oh, hey, well, like I gotta go refill my drink. Yeah. So, yeah, best way to get your refund fast probably to do direct deposit, I was presented with an option whenever I did mine over the weekend, where if I wanted my refund faster, they were offering me a 0% interest loan with no fees, supposedly, that they would give me, they would basically give me my tax return, and then when I got my tax return, I was supposed to pay off the loan. But that just feels like more work. Because I was reading the average says that if you're doing direct deposit, the IRS says that you should expect your refund within about 21 days, from the day your your return is accepted. Okay. So, I mean...

Jeff Matevish  13:10  
I guess if you're hurting for money, maybe but yeah, yeah. I don't know if I'd trust that either.

Drew Thomas  13:17  
I don't know. I just feel like I would try to wait the 21 days. Yeah, and not have to worry about the extra rigmarole of another loan, because I don't know this, but I would have to think that that loan is then going to ping your credit report and all that kind of stuff, too. Because you're taking out a loan. Yeah. So, that's something to think about. If you don't want somebody hitting your credit report for a loan that you're like, a temporary, like, not even three weeks basically loan. I don't know how that would go.

Jeff Matevish  13:41  
Yeah. But well, then you had mentioned before we started this conversation that you used to be able to get, what, prepaid cards for a tax return?

Drew Thomas  13:52  
Yeah, I think they did that for a while. And I don't know if they still do, but if they do, there's fees associated with those kinds of things, too. Okay. Prepaid cards are very convenient for people who may not have a bank account, per se. But the disadvantage to those is that unless you're going to a store and swiping that card, like you would a debit card or a credit card, there's probably fees. So, you can't take it to an ATM and get your money off of that without paying a fee. Okay, you can't use it sometimes online without a fee, you can't... So, I would steer away from prepaid cards if you, if you can. This is also a really great time if you don't have a checking account or bank account to talk to a bank that you trust that maybe your family uses or friends use, you know, see if you can open up a bank account because it would be a lot faster to have that stuff direct deposit, and then you're right, you got that advantage but and even cashing the check sometimes it's hard if you don't have a bank.

Jeff Matevish  14:45  
Yeah, well, you know, a lot of places won't do that at all. Yeah, at all.

Drew Thomas  14:48  
So, yeah, so my taxes are done. Yours aren't. So, you get to...

Jeff Matevish  14:54  
I have everything lined up. I'm all ready for it.

Drew Thomas  14:56  
That's good. You got all of your documents that I just rattled off a little bit ago?

Jeff Matevish  14:57  
Yep, yep, yep, I got my wife's documents, got my documents. I just got to make that call.

Drew Thomas  15:04  
That's awesome. All right, well, happy Tax Day.

Jeff Matevish  15:07  
Yeah, you too.

Drew and Jeff  15:08  
All right. We'll talk to you later. All right, sounds good.

Drew Thomas  15:20  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated.

Drew Thomas  16:27  
Thank you for listening. Please check out our full library of episodes which can be found on the ameriserv.com website. You can also download or stream the podcast from your favorite podcast app.

Episode: 8

Drew Thomas  0:01  
Fast fact, in the United States, more than 72% of small businesses have fewer than 10 employees. I'm Drew Thomas, and you're listening to Bank Chats.

Drew Thomas  0:33  
Welcome to the next episode of AmeriServ Presents: Bank Chats and today we are going to be talking about businesses. We're gonna talk a little bit about how small businesses get started, we're going to talk a little bit about how your bank might be able to help you with that small business, what kind of things you should be thinking about before you decide to get into that kind of water, as far as whether you should be an entrepreneur or run your own business, that sort of thing. The Bureau of Labor and Statistics says that 20% of small businesses fail within the first year, and 30% are out of business by the end of year two, and even 70% are out by year 10. So, if you see a business out there that was established in 1972, they're already outclassing 70% of the other businesses that started around that same time. So, to talk with me about this, because nobody wants to hear me talk all by myself, is Tara Shaffer. She is with us from AmeriServ commercial lending, as well as Mark Miller from our business services department at AmeriServ. So, Tara, tell, tell us a little bit about yourself and what you do.

Tara Shaffer  1:35  
Yeah, so, I'm an area executive with AmeriServ Bank, I run the commercial lending team in both Centre and Blair counties, as well as our portfolio manager group. I've been in banking a little over 22 years, really just on the commercial lending side of the house, both in credit and in lending. And that's what I do here.

Drew Thomas  1:54  
Awesome, awesome. And Mark, what you're, you're relatively new to AmeriServ, but what do you, what are you doing for it?

Mark Miller  1:59  
I'm new to AmeriServ. But I've spent 36 years in the banking industry. Primarily very similar to Tara. I was on the credit side and commercial lending side for a long time. For most of those years, spent 10 years on the retail side. Okay. And then there was two years in there, I kind of went away and walked away a little bit and spent two years as assistant director in SBDC, working with small businesses. So, a little bit of background there. What's the SBDC? Let's Small Business Development Centers. Okay.

Drew Thomas  2:30  
So, you know, talking about small businesses, I mean, it seems like entrepreneurship is on the rise. I mean, you look at TV shows like Shark Tank that have been on ABC for 15 years, everybody's talking about trying to start their own business, they have some product or service or something that is better than everybody else. How did these people get started? What are some of the things that that a person who's thinking about starting a small business should be thinking about?

Tara Shaffer  2:55  
I think one of the things they need to be thinking about is, you know, why? Why do they want to start a small business, because if you think that you just don't want to work for somebody else anymore, you want to be your own boss, you can be your own boss 17 plus hours a day, because that's how many hours you're going to be working at least in your, in your small business. So, I think you really need to understand why you want to go into a small business. I think that coupled with you know, is there demand for my product? Does it fit a need in the marketplace? How will it, how will it play into what customers are looking for? I think those are two of the key aspects that you really need to think about. And then who can I surround myself with? That's going to help me make this successful. Because no one person can do it alone.

Drew Thomas  3:42  
Yeah, I would definitely agree with that. I mean, I don't have any direct experience personally with running a business. But yeah, in my family, my dad has owned his own business for 52 years now. And that was one of the things that growing up, we always kind of knew that, you know, yeah, dad can be anywhere he needs to be when he needs to be except that when he's not at work, there's no money coming in. So, there are no sick days, there is no paid vacation. It's, you know, it's a little bit different, being your own boss, for sure. Absolutely. So, you mentioned, is there a place for my product or service? So, I guess what you're saying is, you know, people should probably look to see, first of all, is my product or service already out there? And I just don't know about it, or can I reinvent and sort of put a different spin on something I think is, there has to be some, some differentiating factor, right is I think what you're saying between what's already out there and what you can provide.

Tara Shaffer  3:53  
Yeah. Are you, are you solving a problem? Are you filling a gap in the market that's not there? Or is that product already out there, but you can do it better? So, I think that's what you really need to make sure that there's demand for your product because if you make the best pizza in the world, but you're in a community that doesn't eat carbs and doesn't want pizza, it's not gonna go well.

Drew Thomas  4:56  
Yeah, that's an excellent point.

Mark Miller  4:58  
And I think that that is, is a great point that you're making. Because on the SBDC side, and I said, I spent a couple of years there, what, what we used to see is, we'd see some people come in the door, and they had the, they had to way out idea that, you know, I've got this idea, and it's the greatest in the world. And we'd really say to them, what are you good at? What do you, what do you, what do you, what did you do before you came here? What, what do you know? And what can you do better at? And I think that's what really helps somebody get that off the ground. In a way not that crazy, not that, I won't say crazy, but that way out idea that I'm going to do something that nobody else has. But as Tara said, if I have, if I'm good at something, and I can provide that service better, that's, that's more of the that's more of the I think a better foundation for starting the business.

Drew Thomas  5:48  
Yeah, I mean, I just thinking about examples of something along those lines, I think of things like, like Yeti cups, or what Stanley Cups now are like the huge thing. Everybody wants a Stanley Cup, right, but I mean, people have been drinking out of, out of travel mugs forever. It's not that they invented something brand new, it's just that they, they did something that was already being done, but they just did it better. Absolutely. But at the same time, I don't think a lot of people realize that they didn't just appear there, there was research and development that went into that. There were engineering designs, there were patents that had to be filed, there's a lot of behind the scenes stuff that happens with entrepreneurs and businesses that before you get to the point where you're, you know, sitting on top of a pile of money. So, starting a small business, I mean, so what comes first, should you have money available to start the business on your own? Do you, do go to a bank to get a small business loan, what's involved in getting a business started?

Mark Miller  6:48  
Well, number one is the, you know, having the idea having the passion. If I was starting a business today, I don't know, I'd probably do something along the finance side, or help people with finances as opposed to, I don't know, doing therapy on somebody right, or trying to be, I just wouldn't do something like that. But I think and Tara made a good point earlier, it's who you surround yourself with. And I'm gonna make that pitch, there's a lot of resources out there that help you get started. And one of them is the SBDC. And I'm going to, I'll make my plug now for it. But having worked in there, you know, they provide training and resources to small businesses, startups, and existing businesses for expansion. And it's free. So, you're not outlaying any money right off the top for those, for that service that they'll provide. And they'll do everything from business planning, which I'm sure we'll talk about in this, in this segment. They'll do marketing research; they'll help you with at least knowing what licenses and things you have to do to get started maybe even help you decide what type of entity you want to be. Whether you should be a sole prop. versus an LLC, etc. So, help lay that groundwork through that business plan, which is also I think, Tara will agree with this, instrumental for the bank to have too when they're looking at, at startups and expansions and just businesses in general and that plan, that business plan is a working document. So, most people come in, and say, here's my business plan, and here it is. But what happens is, is that's a working document, and that can last you through 1, 2, 5, 10, 15 years, as long as you're in business. And you have to be adaptable and be willing to adapt it as time goes on.

Drew Thomas  8:35  
So, your business plan like you hear about people saying why put together a business plan, but what you're, so what you're, what you're saying is, your business plan, it's not something that you do once, you get your funding, you start your business, then you just throw out the window. Like your business plan has to continue, you have to have a process. Before we move forward, I wanted to touch on one other thing, too, just to make sure we understand the acronyms, so you said either a sole prop. or an LLC, what's the difference between a sole proprietorship and an LLC?

Mark Miller  9:02  
Well, a sole proprietorship is, well, if I was just doing it myself, right maybe I'm the only employee I can have multiple employees. But I'm, it's me by myself, in essence. Where an LLC I think Tara can speak maybe as well to this, is, her and I could be together in a business and we've, we've, we've got a Limited Liability Corp. which limits our liability. Okay, forward on certain things, but it gives us a framework, what tax wise etc.

Tara Shaffer  9:35  
Yeah, it's really something you want to work with your attorney and your, you know, tax professionals on to figure out what you're trying to accomplish and what is the best, you know, structure for you to start your business in, because there are tax advantages to each, there is liability protection to each. So, it's important that you understand those things and that's part of that getting your team together. And you know how Mark had mentioned the SBDC will help you with those type of things, they'll help you understand that for free. So, if you can't afford, you know, I say you should use your accountant, you should use your attorney, you might not be able to afford an attorney yet, or to afford an accountant yet. So, you use these free resources that are out there. And there are multiple SBDCs throughout the state. They're very frequently tied to a university. Okay? So, if you're trying to find an SBDC, look to your local university, that's probably a good spot to see if they have one associated with them that they can help guide you.

Mark Miller  10:33  
So, if you look at our footprint there, there are multiple ones in there. I mean, yes, I could go and name them all, but I won't. But we have one in Centre County. Yep. There's one associated with Penn State, Cambria County, here, St. Francis all the way down into Pittsburgh. Pitt has a, has one that I always looked at back in the day, they called the Center for Entrepreneurial excellence, to give a nice, fancy name. And then you have them all over the state. But each one, I think they've kind of morphed a little bit. So, they're still going to do business planning and some training for you and different things like that some research, but you might be able to find some expertise, if you're doing something internationally, somewhere at a different, you know, one that you wouldn't find maybe locally. So, the best thing is, look around.

Drew Thomas  11:25  
So, they're available more than just a Pennsylvania, right? They're across the country. Yeah. And they're funded by the SBA. Okay. So, and the SBA is?

Mark Miller  11:32  
Small Business Administration.

Tara Shaffer  11:35  
Bankers like their acronyms.

Drew Thomas  11:39  
Yeah, there's a lot of industries that use acronyms. But banking is a big one. Absolutely. So, you mentioned about not being able to necessarily afford a lawyer right out of the gate or an accountant right out of the gate, where does the money or funding come from to start a business? I mean, do you sort of have to have that funding ahead of time? Do you go to a bank and say, hey, here's my business plan, I want to get a small business loan. Where do you, where do you start there?

Tara Shaffer  12:04  
Yeah, so you know, getting a small business loan, banks are really going to be looking for some established track record We're gonna want to see some proof of concept, some, some kind of grass under your feet, that you've got things in motion, that you've got a year or two behind you, before we're going to be looking to put a bank loan in place to fund something. So, a lot of small businesses are really funded by owner savings. We call it the friends and family package, where you, you know, you go out and get investors from your, your friends and family network who invest in your company. A lot of people will leverage their own assets, they'll take out a home equity line of credit, or they'll mortgage their house where maybe they had it free and clear previously or take out more debt in those spaces to help fund those initial startup phases before their revenue generating, okay.

Drew Thomas  12:53  
So, in that case, though, you also have to consider that if your business does not get off the ground, you know that, that's a risk that you're sort of putting on yourself that, okay, I'm mortgaging my house, or I'm taking out another loan, that loan has to be paid back somehow. Yeah. So, if the business is established, as you said, if it has two or three years under it, say and it seems to be, it seems to be self-sustaining, you know, at that point, and you do get a loan, what happens if the business goes under? Does the bank then say, well, I'll take what I can get? Or do you still owe that money back? Even, even without the business being in business?

Tara Shaffer  13:29  
I mean, you're still gonna, you're still going to owe the money back that you borrowed. That's, you know, that kind of comes back to my initial concept of, why are you getting in this to begin with? Because it's, it's a long road. It's a long haul, it's a lot of work. It's a lot of hours, and it's a lot of risk. So, yeah, I mean, you still do if, if the business goes under, you're still responsible to help pay for those debts that you took out. Yeah.

Drew Thomas  13:52  
I mean, just from your experience, and without naming any names, I mean, do you have any, any sort of stories that maybe either you tried to warn somebody off on something, or maybe somebody didn't quite understand that before they got involved in, in doing a business of their own?

Tara Shaffer  14:08  
You know, I talk with a lot of startup businesses because I love the, I love the space, I love to work with people who are trying to figure out how to make it work and how to learn in those spaces. And I've had, I've had a lot of interesting questions over the years. I don't know if it's exactly where you are going with, with that, but you know, I had one person asked me one day well, do I put my, I'm building a budget. Do I put my salary in that budget? I said, okay, good question. Are you going to pay yourself a salary? Well, I'm not doing this for free. And I went, well, then it needs to go in the budget. Yeah. So, it's just you know, some people were just really trying to figure out where to start from and how to make this work. And, and I very frequently tell my customers, from talking to you, you are thinking like an entrepreneur, or you are thinking on the conservative side or you're thinking, you know, you're thinking about your craft, I don't see you thinking about the financial piece of it. Or I'll see someone that knows the financial piece inside and out, but they don't really have the craft part of the business. And that's when I say, you know, if you're a fantastic pottery maker, but you can't build a budget to save your life, you need to find a partner, you need to find that other piece, very few people that I've ever met in my 20 plus years, are great at both. It's a matter of putting the right people around you, whether it's a partner, whether it's an advisor, whether you know, it's one of your accountants or someone else, but don't, don't try to go it alone, because you need all of those pieces to make it work.

Drew Thomas  15:41  
I think that, that's probably a good point, it's probably the reason why so many businesses fail so quickly, is that you might have a fantastic idea. But if you can't implement it in a way that is financially stable, to be able to keep yourself in business, yeah, you're just not gonna be able to make a go of it. I guess, I guess that kind of leads into my next question, which was sort of the idea of, if the business doesn't succeed, does the bank sort of, okay, I'll use this example. If, if you mortgage your house, right, banks are not in the business of wanting to sell your house, they don't want to take over your house, they don't want that on their books, they don't want to have to resell it, you know, that's not the bank's goal, right? But ultimately, your house is your collateral, right? If, if for whatever reason, you can't make your mortgage payments, and there's no way to work out an alternative payment plan or whatever it is that your bank would most likely work with you on first, ultimately, the bank could then use the home as, as a repayment for the loan. Right? The asset of the house. Yeah, it was collateral. So, is the business, like a lot of businesses rent space, so there is no building that they own? A lot of businesses are service based, so maybe there is no product overhead to handle. So, how does a person protect themselves personally, and their personal assets from, how do they keep them separate from the business? I guess, is my question.

Tara Shaffer  17:05  
And that's, I think that's the really hard part. Because like you said, you're renting a space, you don't have a building as collateral. If you're, you know, you don't have a whole lot of equipment, you know, if you're a restaurant, liquidating tables and chairs from a collateral perspective isn't getting you a whole lot, right.

Mark Miller  17:23  
I was gonna say, yeah, very little on the dollar there. Yeah, with a restaurant, so...

Tara Shaffer  17:28  
Yeah. So, I mean, the concept of protecting yourself personally, with the concept of starting a business doesn't really vibe together. You're, you're kind of all in, you don't really get to the point where you can really start to protect yourself, until the business is already standing on its own to begin with. Because if we're doing a loan for the business, we're going to want you as a personal guarantor, on the loan, or in some cases, a co-borrower, depending on the structure of the loan.

Mark Miller  17:56  
And I've done that throughout, with different businesses, and yeah, you're all in on this. So, I mean, you have to, you have to ask that question. I go back a little bit, as to how much risk are you willing to deal with? Some people are risk averse, and they're like, well, I really don't want to do that. That's why I'd probably never start a business. But I think those who are, are good with risk. They can, they can, I won't say survive, but they can at least get off the ground, right. And they understand what those risks are when they get into it. And they have to be all in. And a lot of times, they have to be, they have to be comfortable with signing the front of the check, instead of the back of the check. So, yeah, because people, we get our checks, goes back to the 80s when I first started, sorry, but you know, people will sign the back of them. Okay, I'm getting paid. Now, you might not get paid, goes back to you know, whether I'm putting my salary or not, that first year, two, you might not take that salary, right, you might or might not. So, you have to be willing to take what you're making and write that check back in and reinvest it and continue to grow. So, if you're not willing to do those type of things, on top of just under, also understanding that, that you have to be comfortable with public failure too.

Drew Thomas  19:23  
That's, that's probably a good one. Yeah, absolutely.

Mark Miller  19:25  
If I start a business, I go down the street, and I don't make it, everybody knows I don't make it. Right? So, if you know, I mean, I'll use this example. You know, if you don't, if you decide not to go to law school, you know, you just say to somebody, I just decided not to go to law school, I flunked the LSAT, or I want to spend more time with my family, I got left go. But when you fail in the business, you are the business and when you fail, you have to be comfortable with those couple things. I think, yeah, as a business owner, or at least on the risk side, you know, I gotta be willing to be all in on this, and it might go south, and I could be on the hook, I have to be willing to do that if I want to take that step.

Drew Thomas  20:15  
And I think this is, this is the conversation we've had so far really seems to, I don't want it to sound like a Debbie Downer, like you can't, like you can never do this don't even try. That's not what this is about. But I think really, what we're learning so far here is that there's a lot of people that want to spend time focusing on the successes of entrepreneurs. And there's a lot of people that want to point to the Elon Musks of the world, they want to point to the, the, the people that have, that have made something out of nothing. And they want to be that, right. And there's nothing wrong with having that kind of a dream. But you have to also understand that there was a lot of work that went in behind the scenes, and a lot of, a lot of struggles and a lot of failure that may have come along with that before they reached that pinnacle. And you have to, to your point, Mark, you have to be, to be willing to accept that.

Tara Shaffer  21:10  
Well, and I think it's important to know, and to think about, that 64% of American jobs are small businesses. This is such, such an important segment. And it's important that we do everything we can as a society to protect this segment and help them grow and help them reach the next step. And I think going into the experience with your eyes wide open as to what to expect is really the first step in helping them figure out how to make it. Because you don't get a big business unless you started with a small one.

Mark Miller  21:42  
So, I'll just preface this by saying the restaurant is still going strong. I can remember being at the SBDC, and a young man walked in one day and, and he wanted to start a restaurant. And he came in and he knew everything about how to run a restaurant. I mean, he had done it, he managed them, he just never owned his own. But he wasn't as good on the finance part. And so, we did, at the SBDC, we did every, you know all the legwork for him, put the business plan together, put the numbers together. And he wanted to go to his bank. I wasn't so sure that was going to work. And he went to the bank. And they did a loan for him. They did it because going back to what you said Tara. His, his father, very well-known and established, and went in there and became a co-borrower with him and went in on this with him. And through the years they, and somebody could probably figure out who it might be, I don't know, but they said they've survived two fires, they have continued to rebuild and reinvent. And they're still there today. And it was all because you know, again, going back to a success story, it can happen. It does happen. And it's in our best interest for it to happen, because he's employed a lot of people over the years there. And I've eaten her many times. And it's just, you know, I just think it's a, it's a good story. And if they can succeed, it's not all like you said, it's not all Debbie downer, right? Yeah. 80% of them, do make it right. According to the statistics. The First year.

Drew Thomas  23:16  
You said, you said that 64% of businesses in the United States are small businesses.

Tara Shaffer  23:23  
64% of the new jobs are created by small businesses.

Drew Thomas  23:26  
Okay, so that, that is a very important statistic too, I think. I mean, we talked about in November, they always have, you know, Small Business Saturday, right, which is like the Saturday right after Black Friday. And, you know, it seems like sometimes that's the, the only time that there's a lot of public recognition of the fact that small businesses really keep the country moving in a lot of ways. Your local hardware store, your local bookstore, your local coffee shop, whatever it might be, where you go to have lunch every day. Those are the kinds of places that are sort of salt of the earth type businesses that maybe don't get the recognition publicly or across the nation. But if you took 64% of our small businesses away, what would you have left?

Tara Shaffer  24:11  
Yeah, and those, they contribute to 44% of our US economy, economic activity, according to the SBA, I mean, they're, they're super crucial.

Drew Thomas  24:21  
Wow. So, I wanted to touch a little bit on the business plan too. What goes into a business plan, like what do you need to have in there other than a budget, for example?

Mark Miller  24:33  
Well, you're, you're starting off with, parts of it would be your management structure. So, as we said before, maybe at that point, you've decided that you are just going to be a sole prop. or you're, maybe you do want to do an LLC or a single owner, LLC, or whatever that might be. And so that will be laid out in there. Not entirely, but it will be laid out, you know, the name of your business, right? You have to have a name and you have to file fictitious names and different things like that. So, that's in there. Organizational structure. So, if you have multiple employees, or however that's going to be, you know, maybe Tara and I are partners or somebody else's working, I've got two other people working for me. So, that whole management structure layout, maybe you're located, there's, there's a lot of background information. I've even seen it to the point where there's background information on the owner himself, which is extremely, extremely important for everyone, right involved, because we have to know that this person is lack of a better term qualified or knowledgeable, I mean, what they're going to do going forward, right. So, that's in there. And then at the end of the day, I think you can have your own separate marketing plan, but there's probably going to be a little bit of a marketing plan in there to help kind of, whether it's going to be social media, or whatever that's going to be to start out, and you're probably going to be on a shoestring budget there anyway. But you still have to have a marketing plan. And that can be included in that. And again, the most important thing is going to be your numbers, right? What those projections are going to look like and, and they have to be realistic. I've gone through, as a credit guy, and a lender, I've gone through those and you see things that you know, sometimes just don't make sense or aren't realistic. So, the more realistic the numbers, the more realistic projections, the better. Okay, like I said, it's a working document because your marketing plans can change. Employees might change over time. You might increase, right, you might expand your market. Maybe right now you're just focusing on Johnstown, or State College or whatever. But then it might be, hey, I can, you know, I'm marketing to all of Western Pennsylvania, or Central Pennsylvania. So, that all goes into that business plan. And it's a start. It's a foundation. But again, it's a working document that should stay with you. Too many people just take it and then okay, I got it and put it away. But it should be evolving as you evolve.

Tara Shaffer  27:10  
Yeah, absolutely. And I like to see some industry analysis in there, who your comp, who your competitors are. Good point, I like to see a lot of that stuff in, in the business plans as well. And then I also challenge you know, the entrepreneurs that I do work with, to kind of go back and keep looking at that initial business plan as you update it. And, and remember why you got started, remember how this started. It doesn't mean that that's the way you still have to do it but remember why you got started and what's gotten you to where you're at now, because that kind of can help guide where you're going from here.

Drew Thomas  27:42  
Okay. So, assuming that, let's start looking at this from a more positive perspective, assuming that I've got my business off the ground, I'm relatively successful, I'm making ends meet, I'm making a profit, I'm doing all those kinds of things. And then, for example, in my business plan, it says, okay, well, between the years six and eight, my plan is to expand, to add a second location, to find a new market, whatever that might be. And in order to do that, at this point, I kind of need a loan or something like that. When you go to your bank, is it similar to getting a mortgage? Or is it a little bit of a different process? How do you go about getting a business loan at that point?

Tara Shaffer  28:21  
Yeah, so business loans are definitely different than consumer loans. And I think a lot of people get confused about that, like, especially if they're going to buy their first building, they're like, okay, we're ready to be done renting, we're gonna buy our first location. And they, they come to the bank, and they're looking for a 30-year fixed rate loan for their, their business building that they're going to buy. That's how you do residential lending. That is not how you do business lending. So, business lending is going to be definitely different. You're looking at, you know, probably a max of a 25-year amortization and not a 30 year. And you're also looking at probably a max of a five-year fixed rate. And then those rates going to reset after five years, and you're going to renegotiate the loan and start over. You know, mortgages, typically, you can pay whatever you want over and above on a mortgage. That's not always the case. Sometimes there's prepayment penalties and commercial loans, and they're all structured a little bit differently based on your needs. But there's, they're very, very different than what people are used to from a consumer lending perspective. And that's usually an eye opener for entrepreneurs.

Drew Thomas  29:25  
I'm curious would a prepayment, why would there be a prepayment penalty? Like what did? Why is that in there?

Tara Shaffer  29:30  
Yeah. So, when a commercial business funds your loan, we know what margin we're making, what profit we're making on lending that money to you. And we often on the back side, from what a bank does, we'll go and invest or have funds that will fund your loan and we protect our margin on that side. So, how interest rates are moving you paying that loan off could be detrimental to the bank from a protecting our margin piece. So, that's really why banks should be doing it. Some banks use prepayment penalties as handcuffs, they don't want you going somewhere else, they put a lot of work up front end to getting your loan on the books and putting everything in place. So, they put a prepayment penalty, and if you're going to refinance your loan at another bank, a lot, a lot of banks treat prepayment penalties that way. Yeah. I like them more from a protecting our margin perspective, just like you would as a business, you want to protect your margins. Sure. Yeah.

Drew Thomas  30:26  
And I think it's important to maybe sometimes understand the logic behind why a bank does certain things, right? Because you know, from, from an entrepreneur’s perspective, or even from a personal perspective, sometimes your bank does something and you think to yourself, why would they do, they're just trying to... And that's not really the case. It's really, there is a logic, there is a process, there's a purpose to what they're doing. And maybe sometimes that isn't explained as well as it might be to understand both sides of the coin.

Tara Shaffer  30:26  
Yeah, like a lot of banks, you'll see banks charging unused fees on a line of credit. And someone's like, well, why are you charging me when I'm not, I'm not using your funds? Well, if we've given you a million-dollar line of credit, we have to reserve capital for that line of credit, we have cost to keeping that line of credit open. If we're not using it, if you're not using it, we're not making any interest on it. So, I explain to my customers, you know, you own this strip plaza, and your tenant says I want to rent unit A, and I'm pretty sure at some point, I'm going to rent unit B, so don't rent that to anybody else. Just leave that one open in case I need it in the future. Whoa, wait a minute, I'm losing money if I can't rent unit B to somebody else. How is this? You know, and then they start to understand those concepts of why banks are doing the things that we're doing. Banks aren't nonprofits. You know, yeah, the majority, I should say the majority, you know, the majority, credit unions and that kind of stuff, yes. But you know, banks are for profit entities. And a lot of people don't, they don't think about that piece of it.

Drew Thomas  31:57  
And even if you're not necessarily a for-profit entity, you still have to cover your expenses. Absolutely. Right. You have employees, you have things that you, you have overhead, you have buildings. So, even if you're not necessarily in it for profit, you still have to cover your expenses. Right? And there's a cost to doing business. Sure. And I think sometimes that from a banking perspective, we deal with a lot of intangible things. We don't, you can't walk in and take a box off the shelf and say, this is my loan, right? It's sort of like a theoretical thing that you have papers and stuff. But, but putting it in the perspective of okay, you have a strip mall, and you can't rent half of your spaces just in the event that I might want to do something with them someday, I think puts it in a good sort of tangible, realistic way to helping understand that. What kinds of things can your bank do to help you run your business? Are there, beyond a loan, I should say, are there certain products, services, things like that, that your bank might be able to help you do? I'm thinking along the lines of things like, like remote deposit capture, or budgeting, that sort of thing.

Mark Miller  32:58  
And you've, you've started off pretty well there. I mean, online banking, remote deposit capture, right, that should be something that every business has, regardless of what your size is. Because you want to be able to view your balances and view your activity daily. So, those are things that help you on a daily basis and help you get your money in there. Look, what we're trying to do on the business services side, is we're trying to help companies manage those things, manage their day to day and become efficient through managing their receivables and payables, protecting them against fraud, there are protections out there, because fraud is prevalent, and at the end of the day, optimizing their cash flow. That is hugely important, I think, to the business side, because as we've been talking here, you know, it's sometimes not easy to get that loan or get that funding. And someday, sometimes the best way to fund yourself is to optimize and utilize your internal funding, as I like to call it, or your cash flow. And we, we here at AmeriServ, or most banks, will be able to put products in, in place for them to be able to do that. So, whether it's online banking, mobile deposit capture, ACH services, right? Not only for debiting payments, but crediting, okay, paying bills, and then also paying your employees if you do have employees, right making life a little bit easier and a little bit more efficient. Wire transfers, something that people don't, don't think about. Sometimes you have to make a larger payment than normal. How do I get that money to that supplier? How do I get to where it needs to be? And you can do them online. So, if you have online banking, with a pre-authorization and an agreement, you can utilize and do it online. So, if you can't get to the bank, right, it's snowing real bad and I gotta get this out, but I can't get there. Oh, I have it online, I can do it, making life a little bit easier. But it's managing those aspects, the liquidity, the fraud, the cash flow, those are the things that we can help them with on a daily basis with these products and services. And I'll get back to fraud, which...

Tara Shaffer  35:18  
That's huge. Absolutely.

Mark Miller  35:20  
And businesses are not averse to it at all. I mean, it's happening to everybody. We have, we have such things as check positive pay, and ACH positive pay. We also have debit block filters that can help them limit their exposure to fraud. And it's something, I was talking not too long ago to a group of small businesses in the area. And I mentioned to them that, regardless of what size you are, you should take advantage of that, protecting yourself against fraud. Doesn't matter if your large business or small business. They said is there a cost to it? Well, there is a cost to it, unfortunately, there is. But would you rather lose $10,000 $12,000 $15,000 plus, or something like that, you know, in a fraudulent activity, or protect yourself paying X number of dollars a month for the for the product or the ability to control that side of it, so.

Tara Shaffer  36:17  
Yeah, and like, like Mark said, with like the positive pay, and some of the different things we can do like that, you know, I tell my customers, it's fire insurance before you've had the fire, after everybody's had fraud, and they've gone through it, they all have positive pay now, they all have those things in place, because they realize what a nightmare that was to just go through. And I said get the fire insurance before you have a fire, not after.

Drew Thomas  36:39  
Yeah, explain what positive pay is, I don't know if that's, I don't know if that's an industry term, but you could find anywhere or if it's just what AmeriServ term is, but explain what positive pay is.

Mark Miller  36:50  
It's pretty much an industry term. But it's basically on the check side, you're, you're putting in a check register every time you're writing checks. So, there's numbers of checks, and amounts and different things that you're, you're giving, you know, you're providing the bank. And then as checks come through, to keep it very simple, if something is not on that register, that you've submitted, then you're gonna get a notification. So, hey, Drew, here's check number, here it is, is, and you have the chance to either pay it, or decline it, or deny it based on what you see there by a certain time every day. And it's well worth doing that every day, because as Tara said, we've seen fires happen, and then people want to put out the fire after it's occurred. And then they've lost something and then we put it in place for them going forward. But in the case of positive pay, that, the check positive pay, that, that's one there that you can control on a database, same way with ACH, too. You know, you can submit who's going out there, what money is going out there. You're paying electronically, right? Yeah. And then there's a list, and then if something comes in there that's not on that list, you're gonna get a notification, and you're gonna have the ability again, in that instance, to approve or decline that transaction.

Tara Shaffer  38:06  
Yeah, because like, the types of fraud that we're seeing with checks, are people taking a check and duplicating it, and then changing the payee. Or they duplicate it, and they change the dollar amount. So, if everything on the check that's being presented to the bank doesn't match the list that you gave us, that said that what that check should say, that's when we say, woah, woah, yeah, yeah. And we kind of, you know, we stopped the process.

Drew Thomas  38:30  
Yeah, that makes, oh, that makes sense, too, because a lot of banks will charge for even stop payments, right? So, it's whether you're being charged for positive pay, or charged for a stop payment, or, or being hung out to dry because you experienced fraud and now your, your, your account is down, as you said, $10,000 $15,000 out of, out of a payroll account or something like that. You're paying somehow, you know, and I think I agree, I would rather pay a few dollars a month for a service that allowed me to be proactive rather than reactive.

Mark Miller  39:05  
And as a small business, you're working so hard every day, right? Putting in that time and that effort, and then to have no ability to control that side of it, that fraud side of it. I think every business should need to look at that and take advantage of that. Because you don't want to absorb some loss, on that side. It's just me.

Drew Thomas  39:27  
It’s no I agree with you. And honestly, I think of, it's funny because there's, there's an adage time is money, right? And everybody knows that adage, but nobody seems to apply it very well, at times to a business. You think about, well, I'm gonna buy this piece of, piece of equipment, right? And the piece of equipment is $5,000 but they have a better version of that piece of equipment that's $7,500, and it does three of the things that I'm going to have to do manually with, with, with machine number one, it does automatically. My time is worth money. Right? So, if I have to, yeah, I could save $2,500 buying the piece of equipment that, that I have to do three manual things with, right? But if I'm doing those manual things, that means I'm not devoting my time to something else that could be making me more money. Right? So, and it kind of comes down to the same thing with your banking, you know, if you can use online banking, if you can head things off at the past and do things proactively, get a notification on your phone that says, do you want to pay this bill? Do you want to pay this check, whatever, without having to always take the time to run to your local branch and do things like that, that's time you could be investing in your business, that you're not spending driving to the bank every day.

Tara Shaffer  40:37  
Absolutely. And if you have, you know, oh, well, my assistant does that for me every day, she runs over lunch and takes the, takes the deposits to the bank every day, well you know, if she's in an accident on the way to the bank, that's your insurance. She's doing business work. Yeah, yeah, over that, you know, it's just some things that people don't even think about.

Mark Miller  40:56  
Yeah, and payroll. People sweat over doing payroll all the time. Right? So, I know, we have two methods of it, you know, we have the ACH side, the online side where you do a template, or create a template, and have all your information in there. And it's, it's just saving you more times, because you're not writing a check. You're not logging it in putting it in this template or making sure that the right amounts are in there, it's already been tested and sent out and direct deposit, you're hitting a button, it's gone. Okay. And then we have another third party that we work with here, right? And a lot of places have this, that they do everything, soup to nuts, okay, with regards to payroll, and delivering payroll, even some HR functions, some things that maybe you just get too tied up on. And so that's another added service that we provide on our side of the business services side that helps them run more efficiently, in their day-to-day. And as you both, both you and Tara said, you get tied up in certain things, and then you can't turn your attention to other things that matter. Yeah, as well. So, if we can help that, that business run more efficiently, then we're doing our job. Got it? Yeah.

Drew Thomas  42:16  
Absolutely. So, Mark, I think you started talking a little bit about this a little bit ago, about fictitious names and things like that. So, what do you need to do? What does your bank need to know, to be able to open up an account in the name of the business rather than in your name?

Mark Miller  42:33  
Yeah. Well, I mean, first, you have to register your business with the state. So, you have to have a state registration, a fictitious name, which should be filed. So, if it's Mark Miller, doing business as Bridge City, I'm looking at a picture, there, just making up Bridge City Solutions, making up a name there. I have to register that fictitious name with the state. Right? So, nobody else has that name. So, it's my name, right? So, you have to have that. If you're an LLC, you're going to need an operating agreement. You're going to need other various licenses, depending on what type of business you are in to open that account. And of course, we're going to need your IDs, as well, and anybody else associated as a signer on that account. So, depending on, now, sole proprietorships are a little bit different in a way, as far as accounts go, but I still suggest that, you know, I'm not putting it into my personal account, I should have a separate account for the sole proprietorship, although I do see people that try to...

Tara Shaffer  43:47  
Your accountant will thank you for having a separate account.

Mark Miller  43:52  
But yeah, they should be they should be having separate accounts, okay.

Tara Shaffer  43:55  
And it's really important when you have multiple people who will be signers on the account, that when you do those, you know, operating agreements or bylaws, that you're specifically listing out, okay, who has authorization to open accounts for the business, who can close accounts for the business, who can sign on behalf of the business? Sometimes I see people put those documents together and they don't address those things at all. And those are things that the bank, you set the roles for, as the entrepreneur, you set the rules for your business. It's our job as the bank to follow them.

Drew Thomas  44:26  
Yeah, that's, that's a really good point. You know, you don't want somebody just coming in off the street and saying, yeah, I can take money out. You have to tell the bank ahead of time, you know, who's allowed to access that account, who's not just like, if it was your personal account, you know, nobody can just come in and take money out of my account, theoretically.

Mark Miller  44:42  
And that has to be set up that way. And being on the retail side, we take that, we take that very seriously.

Tara Shaffer  44:48  
Extremely seriously. And some people will make sure who we can talk to. Yeah, they'll make their rules really restrictive. And I'm like, that's fine. And then when someone else calls in and wants information, you know, I can't give it to you, you have to go, well, what do you I mean, I have to go, I'm like, I'm following your rules. Yeah. You guys are the ones that set it up this way. So, you know, and that's fine. However someone wants to set it up, we're happy to work within those rules, but we're gonna follow whatever they asked for.

Drew Thomas  45:14  
And that's probably another one of those situations where if you've, if you've got people around you, helping you to that, whether it's your lawyer, your accountant, whatever, make sure you're talking to them, make sure that communication within your business is good, so that you understand what, how your accounts are being set up, and you know what you're doing. So, you've both worked with business owners for many, many years. And just as a way of sort of trying to wrap all of this up into a nice bow, based on the business owners, you know, the people you've worked with, have you, have you ever gotten any pieces of advice from those business owners, that might benefit a person who's thinking about starting a business, you know, knowing what things that they wish they would have known when they started?

Tara Shaffer  45:57  
You know, I talked to a few of my entrepreneurs, business, people who have established multiple businesses before I came here, you know, kind of as part of my background prep work. And some of the advice that they gave me, I said, you know, what did, what would you wish someone had told you, and, you know, they said, have a good budget in play, make sure that you know, what your costs are going to be, and then add some more on because it's going to be higher than you think. It's like every project you come into, even if you're working on a project at your house, it always ends up being more expensive than you expected, something always comes up. Ain't that the truth. That was one of the pieces of advice. And then the other one, from the other individual said, it's, it's who you surround yourself with, I mean, he really pounded that concept home of surrounding yourself with the right people that are going to help push you forward and help give you good advice and tell you the hard things that you might not want to hear, but you know, you need to hear. So, making sure that you build that network around you is really going to help make sure that your business succeeds.

Mark Miller  45:57  
And I think, you know, just perseverance is a big thing. Because you're gonna go through some ups and downs in your business life. I'm gonna use a quick story here. So, I was thinking about this the other day in preparation for all this actually, a couple of weeks here in preparation. But my brothers-in-law have owned a business, and they've been in business for over 40 years. And it's changed over the years. And it, they started out with one singular product being sold to one segment. And they were selling to homebuilders, and, you know, contractors, etc. And through the years, they have more, and it's always been with wood, but through the years, they have done everything from making chairs, tables, I have few in my house. They have done, different, they just even just manu-, not even manufacture, but just resurfaced the wood. Right? A contractor would bring them wood and it was rough wood, and they would just plane it down and fix it, get it all dried up and out it would go back out to him so they can do the contractor would do what they could do. And the big thing for them is it has been perseverance and adaptability over the years. And one thing they did that Tara keeps ringing in my ears here, is surrounding themselves with good people. Okay, they got themselves a good accountant, got themselves a bank that they've been working with for years and years, that knows them now. And through this, they've just continued to work, and I don't see them quitting anytime soon. Yeah. But you know, they had lost their jobs after the flood, and ended up going into business for themselves controlling their futures. And they've gone this far with it. And I just think, you know, adaptability, perseverance surrounding yourself with good people. It's all great advice.

Drew Thomas  46:56  
I think, I think surrounding yourself with good people to include your bank. Yeah. I mean, right. I mean, it really does. I mean, you have to have a bank that you feel like you can work with. A person, ideally at your bank that you feel like you can work with, because that's going to be an ongoing relationship too. Even if you're only, you think you're going in for a small business loan, or you think you're going in to just open a checking account, that ongoing relationship that you have with your bank is going to be important too, because being able to call somebody up and say, hey, I'm having a down year, I'm having this, or I'm having trouble with that. And having someone who knows you can then talk you through okay, well, here are your options. Here's what we can do to help. Here's how we can try to maybe take some of the pressure off short-term and then come and revisit it again as you get back on your feet. That sort of thing makes a big difference. Well, thank you both very much for your time. I really, really appreciate you coming down and I know Tara, you, you made a trek in the ice, you know, and so forth. Mark, you're here every day, so.

Mark Miller  49:05  
I got lost going from the fourth floor to the second floor, so. I haven't been here that long. Thank you very much. Thank you, thank you.

Drew Thomas  50:22  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who's aware of the facts and circumstances of your individual situation. Our appreciation to Tara Shaffer and Mark Miller from AmeriServ for joining us on the podcast today. Opening a small business can be both incredibly rewarding and incredibly demanding. Often being your own boss means also being your own inventory manager, bookkeeper, or janitor. Success comes with long hours and difficult challenges. But we want to reiterate that being a small business is no small thing. The 64% of US workers whose jobs depend upon small businesses produce 44% of the US economy. So, if you're interested in opening one, meet the challenge by surrounding yourself with good people, find your niche and work hard. If you haven't followed or subscribed to the podcast, we'd really appreciate it if you would, it helps a lot. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. Production and distribution by Jeffrey Matevish. Episodes can be found on your favorite podcast service or by visiting ameriserv.com/bankchats. For now, I'm Drew Thomas, so long.

2 Cents Episode: 4

Drew Thomas  
We're talking heating with this, and the utilities. How do you heat your house?

Jeff Matevish  
Let's start that with, it is still winter, and it is still frigid here.

Drew Thomas  
It really is.

Jeff Matevish  
And my heat is cranked up.

Drew and Jeff  
Yeah, it would be really nice for the furnace to not be running for just, like a couple hours a day at this point that would be great. Yeah. And we're not even close to being done with winter I mean, we're gonna get a little bit of a break, we got false spring, you know it's going to, yeah, this is, this is Western Pennsylvania we have, this is, what is this? This is first spring. And then there's second spring, and then there's false spring, and then there's spring Yeah. Which immediately turns into hot sweltering summer and then immediately back into, and we get excited every year. We do for this first thaw. Yep. That is absolutely true. So, yeah, so now that it is winter, what does your furnace run on?

Jeff Matevish  
So, I do have a boiler, so I'm gas as my, my energy source. And I got radiant heat, radiator floorboards. Okay.

Drew and Jeff  
It's actually in the floor. Well, no. baseboard. Oh ok, do you have to bleed them? Probably.

Jeff Matevish  
They do. They do make some noise. So, I'm gonna assume that yeah, I do have to do that.

Drew and Jeff  
I remember my grandparents having to bleed the radiators. That was a thing. Yeah. There's like a process you have to do like the farthest away from the boiler first or something like that. Yeah, I got a YouTube it. Yeah, I'm not sure. So, is it natural gas? Natural gas. Yeah. Okay. But it's, but it heats a boiler then water heats. Yeah, mine's, I'm, natural gas too but I have forced air. Okay. I wish I had that. So, you know, it's positive and negative. I mean, I'm lucky enough, when I bought the house, it has a whole house humidifier unit on it, which helps a lot. But a lot of times with forced air, you're dealing with a lot of like static electricity and dry air in the winter and nosebleed right? Oh, yeah. Dry eyes, sore throat, try to pet the cat, you get shocked. But, so obviously, we're not going to talk about like, you know, how to maintain your furnace. But we want to talk about the cost involved in this and how to potentially, you know, limit your costs when it comes to heating and so forth, and so forth. Like so, I think one of the first ways is to talk about, what do you keep your house temperature at? And do you have to fight with the wife to do that?

Drew and Jeff  
We are both on the same team with that. No, we, we both like it pretty warm, so. Okay. I'm a shorts in the wintertime in my house guy. So 70, my house does not go under 73.

Drew and Jeff  
Okay, see, we keep ours usually at 72. So, we're not that far away. No, no. Now they recommend, and I don't know who they is because they recommend a lot of things, but I've read that they recommend you keep your house at like 68. I can't keep it that cold.

Jeff Matevish  
In the summer, yeah, I'd love that. Yeah, but not in the winter. Yeah. Well, so we're looking at some of the articles from our website, actually. Yeah. And one of these articles I saw said that even raising, or I guess, lowering for the winter, lowering your temperature in your house by one degree can save you up to 3% of your cost for heating your house. Really? Yeah. I thought that was pretty high. That seems a lot. Yeah. So, maybe, maybe next month, I'll drop my house down to 72 and see if I save 3%.

Drew and Jeff  
No yeah, see, I don't know like well, okay, so lowering temperature. like, I have a smart thermostat. Okay. Because I'm a geek and I have all kinds of technology in my house. Yeah, but the, so the smart thermostat, so my, my smart thermostat actually detects whether my phone and my wife's phone, if they're in, if we're if we're in the house. It keeps the temperature whatever we set it. If both of our phones leave the thermostat is smart enough to know that we're not home and it lowers the temperature. Oh, now so...

Jeff Matevish  
That's cool, and a little bit creepy, but yeah.

Drew and Jeff  
Hey, you have an Alexa enabled house too.

Jeff Matevish  
I know, but my Alexa doesn't know where I'm at.

Drew Thomas  
Doesn't it?

Jeff Matevish  
I want to think it doesn't. Okay. All right. All right.

Drew and Jeff  
Now, at the same time, you could argue that every time we come home it's got to run for an hour and a half to bring it back up to temp. Yeah. But chances are it wouldn't have run that long for the eight hours we were at work to make up. I think it does make a difference.

Jeff Matevish  
But that would be a little bit hard on your furnace too though if, I guess, and I don't know, I don't know. I was always told don't do drastic changes to your temperature at least for gas forced air, you'll burn that blower out or...

Drew and Jeff  
Yeah, I mean, I don't know. I mean, it bottoms out like I can tell it where I want it to go. So, just because we leave like it just doesn't keep it at 72 but it bottoms out at like 65. Okay. So, if it gets to 64 It'll still turn on and get the house back up to 65.

Jeff Matevish  
Yeah, and the chances of it going that low because I'm sure, Mr. Geek you have a very energy efficient house. I'm sure you have at least double pane windows and stuff like that. Oh, yeah, yeah. Good insulation.

Drew and Jeff  
Yeah, there was double pane windows when we moved in. And the attic has a lot of blown in insulation, which is nice. Because that blown in stuff, I guess the thicker it is, and the fluffier, you keep it and the more effective it is. You look in my attic, and there's this tiny little space probably, I don't know, like an eight foot by 10-foot space that I can put stuff on to. The rest of the attic is just snow. I have not actually, I've been in the house almost three years, I don't think I've ever actually been to the other side of my attic because I don't know what's under the snow. And I don't want to be Clark Griswold and go straight through my ceiling and into my downstairs. Smart man. Yeah, that's what it looks like. It's like snow. But that does help.

Jeff Matevish  
So, it probably doesn't take too much for your house to heat back up or probably doesn't lose too much heat throughout the day, even in the coldest days of the winter.

Drew and Jeff  
No, it doesn't. I mean, it's like a pulse furnace. So, it turns on, it gets up to temp, and then it drops down. But it's not like the old days where, like my sister's house, she has a furnace that's like from way back. And it, it'll turn on and it'll take her house up to like 78. And then it'll drop and then like it won't turn on for like three hours, but it'll drop to 68. And then it'll turn on again and run it all the way up. So, you have like this, like 10-degree temperature swing in the house, like mine won't do that. Yeah, mine either. I think mine's maybe about two degrees. And then after two degrees turns back on. So, so I mean, different types of heating, you obviously have different costs. We're both natural gas, but there's obviously electric heat. That's an option.

Jeff Matevish  
Which I heard that that's pretty expensive compared to other forms.

Drew Thomas  
I guess it depends. I mean, gas right now isn't that bad? At least yet at least here. Yeah. Trying to figure out how they, how they charge you for gas, it's like you need a cryptogram and like an Indiana Jones medallion to understand how that is calculated on your bill.

Jeff Matevish  
I just trust they're not ripping me off. Yeah. They're not out to make a ton of money. They're giving us a utility or they're providing us a utility.

Drew and Jeff  
Yeah, yeah, but they're still for profit. They are for profit.

Jeff Matevish  
But one of these articles even says that the utility companies are not out to make a massive profit.

Drew Thomas  
I mean, that's true.

Jeff Matevish  
Like you said, we had a short little conversation before this, that, you know, some companies will actually give you some money back if you buy energy efficient appliances, or our electric company, they'll send us LED light bulbs, because they want us to use more energy efficient light bulbs.

Drew Thomas  
That's true. That's true. And honestly, when you say that, you're right, when I moved into the house, they gave me a rebate by buying my, my smart thermostat. I got the smart thermostat for like; I think I only ended up paying like $60 for it even though it was a $200 thermostat because I got it on sale. And then I got a rebate from my electric company because it's in their best interest to not have to supply me with as much gas or electric or whatever. So, electric heat, yeah, I mean, I've always, I had electric heat back in the day, before we bought the house and I lived in an apartment, I have electric heat. And there was always that smell whenever you first turned it on in the fall, and you burned all the dust off of it, because it was just basically a giant radiator. I mean, I guess or whatever. Big toaster, yeah. And that was not cheap. I mean, my electric was, was pretty high, you know. I remember one year my electric bill in December was something like $400. It was, it was crazy. Yeah, I've never had a gas bill that high but like I said, right now gas is a little cheaper. One thing you can do, is a lot of utility companies, they'll let you, it depends on the state that you're in, I guess I don't know if every state allows you to do this. But we're in Pennsylvania, and in Pennsylvania, you can buy your electric or your gas from your chosen supplier. So, you know, even though like it's, say it's First Energy as my electric company, I don't have to buy my electric from First Energy, I can buy it from another company in Ohio, or Virginia, or wherever. I still pay my local electric company for the bill, but my cost per kilowatt hour goes up or down based on where I'm getting my energy from. But you got to be careful with those. Because sometimes, they'll say they'll give you some deal, and they'll say okay, for the next three months, your kilowatt, your cost per kilowatt hour is like, I don't know a penny, right? But you don't, you read the fine print, and it says after six months, it can go up to some ridiculously high thing. So, if you're going to do a search for an energy supplier, make sure that you're locked into a contract that won't raise your rate unexpectedly. You know, they have to tell you like if it's a twelve-month contract, a six-month contract, whether it's variable, whether it's, whether it's a fixed rate. So, make sure you're careful about how you do that. Because you can, you can kind of get snowed early and think, oh, I'm gonna really save a bunch of money and you do for three months.

Jeff Matevish  
And then, so make that change in winter, at the beginning of winter. So, you get that good deal at the beginning of winter, and not in the summer when you don't need it.

Drew Thomas  
Yeah, but here's, here's the trick. If, if you're in a twelve-month contract, and you only get that deal for the first three, then you could end up paying more for the next nine months. So, you just gotta be very careful. You know, when you're doing those, doing your research, make sure that you're doing, I recommend like when I do it, I don't know if I should say I recommend but when I do this for myself, I only use like twelve-month contracts and fixed rates. Okay. And if that fixed rate is lower than what my current electric supplier is, or my current gas supplier is, then I figure, hey, at least for the next twelve months, I'm most likely getting a better deal. Okay, but I know that it can't move, you know. So, if it goes down, I don't get the benefit of that either. But it can't go up.

Jeff Matevish  
So, along those lines, we're talking about contracts and things like that, some, some utility companies let you make payments on it like a payment plan. Is that something you do? I mean, I know I've had relatives do that. They'll take your highest amount used for a month. Oh, yeah. They'll break it out. Instead of paying $25 or $30 in June, you may pay $120 in June, and $120 every month instead of $200 in December. Yeah.

Drew Thomas  
Yeah, I did. I did that when I was at the apartment after my $400 winter bill. Yeah. They call it like an equal payment plan. Yeah. So, you're right, you're paying possibly more than what you're using in the summer months, say, you know, when we're talking heating, right, you're, you're probably paying more in the summer months than you normally would. But it helps to offset the spikes in the winter. So, you're sort of paying ahead. Yeah, if you want to look at it that way. Yeah. And sort of building yourself a little nest egg in your account. And then when the electric goes up in the winter, you're not having to pay those giant spike bills. So, that's a good point. Yeah, you could definitely...

Jeff Matevish  
You're not really saving on money. But you're, you're kind of making a little bit easier to budget.

Drew Thomas  
Yeah. Oh, it definitely makes it easier to budget. Yeah. Because you know exactly what it's going to be. And a lot of times, too, they'll revisit you like every quarter. So, if you, if they look at your, if they look at what your equal payment plan is, and they'll say, oh, you're paying too much, you know, then maybe in the second quarter, it'll go down a little, because they kind of have an idea of how much you're going to need. But yeah, that's I mean, that's not a bad idea. Yeah. Especially if you're on a budget, because then you, then you don't have to try to worry about what it's gonna look like whenever it goes way up. Yeah. Yeah. You know, $25 electric bill in June is great. A $450 electric bill in January is not.

Jeff Matevish  
Yeah, yeah. But if you run air conditioning, you're never gonna see that $25 bill in June anyway.

Drew Thomas  
That's true. That is, that is true. So, yeah, I don't know which one of those, those types would be cheaper. I don't know if it would be electric or gas. I don't know what else is out there. Propane, oil, heating oil, you know, and not everybody has the ability to choose either, you know, if your house is in an area where they don't have natural gas lines, it's gonna be hard to use natural gas. If your, if your house isn't piped for natural gas, plumped for natural gas. So, you know, my parents actually have three different heating sources in their house. When they bought the house, it was electric. They have a wood burner downstairs and a fireplace in the living room that they can use. And then years ago, when I was a kid, they put in propane. So, primarily, they use the propane, right, but from a resale value on the house, technically, they can sell it as a three-heat source home. So, you can kind of pick how you want to, how you want to heat it. You know, if you're okay with chopping wood and you want to use the wood burner, you can go ahead and do that. You know, but not everybody wants to chop wood all the time. Yeah, you know.

Jeff Matevish  
So, so propane, they have to get that filled what twice a year or?

Drew Thomas  
Um, yeah, I guess probably they, it's not something that's, it's not like natural gas, where it's like they run lines on the ground like the truck comes up and right, right, you know, fills up the propane tanks. And they have the, they have these giant tanks out back that look like the Jolly Green Giant's version of what's under your grill. They used to have two, now they have three. So, that usually, it's usually like once a year they get them filled. Okay, you know, but I again, your mileage may vary depending on how hot you keep your house Yeah, yeah. So, yeah, so we, so we kind of talked about, like some of the other stuff like the insulation, the windows, things like that, and keep that in mind. You said about, I think you said before we started about turning down your hot water tank.

Jeff Matevish  
Yeah, for natural gas. That's a good way of saving a little bit of money.

Drew Thomas  
So, if you don't mind a slightly cooler shower, you know, just, you mean turned down like the temperature on it. Right. Right. Okay. Yeah. Right.

Jeff Matevish  
So, you're saving on heating that hot water to, to a hotter temperature. Yeah, yeah. And in the wintertime, I don't need a super hot shower, you know, anything above room temperature.

Drew Thomas  
Yeah, that's a good point. And in the summertime, honestly, you don't always want really hot showers either, because...

Jeff Matevish  
You're not heating your house in the summertime. So, that cost is you know, lower anyway.

Drew Thomas  
That's true. You mentioned about the budgeting, and I think the, the budget plan and stuff, I mean, whether you go on a budget plan from your utility provider, or whether you do it yourself, I think just having a budget is the big thing to try to remember. Like, you know, budget out for it understand that if you live in an area where there's cold winters or hot summers, you're gonna have peaks and valleys in your heating costs or your cooling costs. So, budget for that. I mean, if you know that's going to happen, you know, make sure you have a budget somehow. Yeah, you know, budgeted somehow.

Jeff Matevish  
You mentioned, or we talked a little bit about your smart thermostat. I don't personally have a smart thermostat. But I have a hack for that. So, not necessarily that it's going to be controlled, but to kind of keep track of your, your temperature a little bit more. So, using old mercury thermostats, they're not very accurate, you know, you can be within a couple of degrees and not know it. So, buy yourself a little digital thermometer, and put that next to your thermostat or fairly, you know, in the same room as your thermostat. I keep my house at 73. But, you know, on my thermostat, it looks like 75. I gotcha. And that's kind of how I keep track of my temperature and dial it in a little bit more, literally.

Drew Thomas  
That's probably a good point, because sometimes people make adjustments to their house after they're built. Like most, I would have to say that most of the time when a house is built, your thermostat is usually wired in somewhere, that's first of all convenient. But then second of all, it's supposed to be in some sort of a centralized location that is away from drafts and things like that, so that it maintains an accurate temperature. But then people make modifications to their house, they put a door in where they didn't used to be a door. So, they can go out on the deck, knock a wall, they knock a wall down, they put a wall up, whatever it is. So, you know, keep that in mind, too. If you're doing home renovations, or if you think your house has been renovated prior to you moving in, and your thermostat isn't where it's most efficient. It's, it's not a cheap prospect to move your thermostat. But you know, it's just something to keep in mind. I think you make a good point. Like, keep a thermometer somewhere else in the house where you can base your setting on your thermostat on the actual temperature of the house, not necessarily what the thermostat says it is because it may or may not be accurate. Yeah. Yeah. You know, I mean, that's a good point. If you do have multiple options, you know, for heating, like my parents do, which, like I said, not every house does, but, you know, keep an eye on the electric company, you know, maybe the electric is cheaper next year. Probably not. But it could be, you know, I mean, yeah. For all of you people that work for electric companies don't send us hate mail. But yeah, yeah.

Jeff Matevish  
And you know, if you can close a room off, close the door cover a vent, you know, if you don't need to heat that room, don't heat that room, if you're not going to be in there. That's a really good point, I think, or if you have the option for zoning. Some, some houses and some thermostats, some, some furnaces, you can, you can actually have zones in your house, you know.

Drew Thomas  
Yeah, actually use that. Bigger houses a lot of times to have zones, you know, but use that functionality. Yeah, you said about smart thermostats, some smart thermostats, not all but some smart thermostats actually have remote sensors, you can put in different parts of the house. And it'll read back to the thermostat that, hey, this room in the house is cooler than that room. And if your house is like mine with forced air, the ductwork can be opened and closed with little valves, little levers on the ductwork. And the goal should be really to heat your house evenly, so that you don't have hot and cold spots. But the only way to really do that is to put a temperature sensor in multiple places so that you know whether or not your house is being heated evenly or not. So, that's something you could also look into if you're not zoned, you know, your house either wasn't big enough to be zoned, or if it just, just wasn't because it's an older home or something like that. There are technological alternatives to possibly be able to do sort of a, not really a zoning, but at least be able to help even out your heat. Yeah, no, that's, that's a good point. You know? And if he and if you can make your downstairs warmer heat rises, heat rises. I mean, it really does. You have a wood burner you have a fireplace on a lower level, and it's not... It also depends on... Let's talk about fireplaces for a second here too. Fireplaces, you want to look at too, is it wood burning fireplace? Is it a gas fireplace? And then if it's a gas fireplace, is it an insert where most of the heat comes into the room? Or is it more like a wood burning fireplace or gas logs where most of the heat goes right up your chimney? So, you want to consider that too. You know that just because your house has a fireplace doesn't necessarily mean that all of the heat is going into the house. A lot of it can go right up the chimney if you're not careful. So, you got to...

Jeff Matevish  
I have a gas or a not gas. I have a wood burning fireplace, but I also have a wood burning stove in my basement for that same reason. You heat the basement up heat that floor up yeah, you know and hopefully save a little bit on heating the rest of the house with, with that natural gas.

Drew Thomas  
What kind do you have like, is there space under your wood burning stove? Or is it like one of those...

Jeff Matevish  
I have space underneath it. It's, it's, it's not strictly wood. It's I think it's actually a coal burner. Okay, but we burn wood there too.

Drew Thomas  
I only ask because my parents they have a wood burner. Their wood burner downstairs has a space under it. And we had a cat, whenever I was younger, that used to literally love to sleep under it and it's only like eight inches off the ground. You know, and like we had a cat that would sleep under there. I thought she was going to just combust one day, but she loved it. She absolutely loved being under there and those things get hot. Oh yeah. Oh, you know, but no, she...

Jeff Matevish  
We haven't had that; we would have that happen yet. Yeah, yeah, work. Yeah, but be careful. Yeah. Yeah. Well, she just started going downstairs, so. We just started letting her down, oh probably actually just a week or two ago, so. Oh, really? Keep an eye on it. Yeah. Yeah.

Drew Thomas  
what else, what else we got?

Jeff Matevish  
If you haven't had your furnace checked by someone who is a trained professional within the last couple of years, probably not a bad idea to make sure it's still efficient and working properly, that it is not dangerous. That could save you some money.

Drew Thomas  
That's a good point. Yeah, absolutely. Good point. So, same thing with chimneys and things like that if you haven't had them cleaned, creosote, things like that build up, you know, from it. I mean, it's not necessarily a cost saving thing. I mean, we're talking cost savings because, you know, Bank Chats and all that. But, I mean, from a safety perspective, you know, you don't want to be fired. It's cost-saving if you don't have to rebuild a house. Yeah. Yeah. Didn't you say you just had your chimneys clean? Like last year? Yeah. I

Jeff Matevish  
had looked at it. Yeah. Oh, it wasn't okay. Yeah. Okay. It wasn't, wasn't too bad. But yeah, but yeah, I burned I burned those, creosote logs. I don't know if it actually helps. I've heard they help. Anti-creosote. Yeah. Whatever you want to call them.

Drew Thomas  
That's true. If they're creosote logs...

Jeff Matevish  
Yeah, that's exactly the opposite of what I want. Yeah, yeah. All right. Yeah. I don't know if that actually works. But it's a peace of mind. Yeah.

Drew Thomas  
I would have to, I mean, that's not hurting anything. Yeah. See, from a bank perspective, we're not allowed to say anything that isn't true. But, but other marketing can be a little bit more free with that stuff. But I'd have to think they probably work, I would assume. I hope they do. Yeah. For the sake of your chimney and your cat. Yeah, yeah. Yeah.

Jeff Matevish  
My house is still standing.

Drew and Jeff  
All right. Well, you try to stay warm. Yeah, you too. It is pretty warm this week. But I think we're gonna get back down to below freezing here. Yeah. This weekend or next week? Yeah. And try to, try to save some money in the process. You know, yeah.

Drew Thomas  
If anybody has any, any tips, tricks, anything like that, that they want to share, feel free to throw it in the comments. I always like to hear back from you guys, love to hear your questions, things like that, too, that we can touch on in a different episode. And if you haven't listened to the most recent episode of Bank Chats, had the full episode with this is Bank Chats, but it's the full episode of Bank Chats. The not 2 Cents episode of Bank Chats. We had a really, really interesting conversation with John Valkovci about crypto that's out there right now, so you can check that out too.

Drew Thomas  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with a goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to bank chats, is not intended and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for financial professionals who is aware of the facts and circumstances of your individual situation. AmeriServ presents Bank Chats is produced and distributed by AmeriServ Financial Incorporated.

Drew Thomas  
Thank you for listening. Please check out our full library of episodes which can be found on the AmeriServ.com website. You can also download or stream the podcast from your favorite podcast app. For now. I'm Drew Thomas, so long.

Episode: 7

Drew Thomas  0:01  
Fast Fact. In May of 2010, a man in Florida paid 10,000 Bitcoins for two pizzas, generally considered the first Bitcoin transaction for a commercial purpose. At the time, 10,000 bitcoins were worth about $40. If you have 10,000 bitcoins in January of 2024, they have a market value of more than 440 million. I'm Drew Thomas, and you're listening to Bank Chats.

Welcome to another episode of AmeriServ Presents: Bank Chats. And today we're going to be talking about what I think is probably a very misunderstood or at least under understood if that's a word topic, and that is that of cryptocurrency. The topic has definitely had a series of sort of reputational dings placed on it in recent years. And I think that it's a topic that relates to banking, but honestly, is a very, very different type of topic, different type of product than any bank has ever had, you know, in history. Joining us today, I have first of all, my compatriot from Bank Chats: 2 Cents, which is Jeff Matevish. Jeff is actually joining us today for this episode as well. And we have an expert with us today, John Valkovci. He is going to give us some, some details about his background. I know that you teach for Saint Francis University, but you have a number of other qualifications for being our expert today as well. A few Yeah. So, would you like to give us a little bit of your background? Explain a little bit about what you do and how cryptocurrency is sort of woven into your career.

John Valkovci  1:57  
Sure, sure. Happy to. And let me first thank you Drew, and Jeff, for inviting me to speak with you today. It's a pleasure to be here. And I hope that we can give some insights to the audience when they're listening about crypto, because it is a really interesting topic. But as far as my background goes, Jeff and Drew, I began my career in Navy JAG as a lawyer. And after I finished my tour in Navy JAG, I became a federal prosecutor in Pittsburgh, and then moved to Johnstown to head and open the Johnstown office where I worked for 28 years. It was in about 2014, and we have to realize that crypto just came about, Bitcoin came about in 2009. So, about five years after crypto came about, I had a federal agent, and I'm not going to say which three letters represent the agency, came into my office, and said, I have this case, and it's involving this thing called Bitcoin. By that time, we had all heard about Bitcoin and knew what Bitcoin was, in a way, but never really paid much attention to it. And I said, oh, that's great. And he explained the case to me, and I said, well, is there anything else? And he said, yes, it deals with this thing called a blockchain. And I said, what's a blockchain? He pulled a textbook out of his briefcase, had it tagged with a post it note and began reading the standard textbook definition of a blockchain. This is a decentralized, distributed ledger. And I said, wow, I said, that's interesting. I said, what's all that mean? And he said, I don't know. And I said, well, you know, if we're going to prosecute this, you think that maybe one of us should know what this is all about. Yeah. And he said, yeah, he goes, go for it. And that's really, that began my journey into crypto, and all things digital. And I realized that there was such a dearth of skill sets and knowledge when it came to digital assets, and cryptocurrency and digital forensics among all law enforcement agencies, including the Federal law enforcement agencies. So, I kind of made it my mission then to try to work with them and to take all the training offered by the Department of Justice. I took training outside the Department of Justice. And it got to the point where when we were doing digital forensics, I would just tell the agent to kind of move over and let me drive the mouse. Yeah. Okay. So, anyways, I also then began teaching as an adjunct at Saint Francis University, working with cyber crimes and those types of topics, because I felt that was great to teach the agents now, but we need to develop a whole new generation of cyber warriors and people who understand this going into law enforcement. And so, when I retired from the federal government in 2018, there were four different universities who were asking me to teach full time and develop their cybersecurity program. I selected Saint Francis because they had the beginnings of a really, really great program. I worked with Dan Wetklow, and Dan Wetklow who is one of the computer science professors up there. He really kind of worked with me very closely and I worked with him, and we put the whole program together. And initially, I taught most of the courses, everything from ethical hacking to drones and automobile hacking to dark web analysis, digital forensics, and cryptocurrency. And then about a year and a half ago, I was poached by a company out of the UK called Asset Reality, and I became their Senior Vice President of learning and development where I have a team of people now and we develop training for international law enforcement agencies for governments for the judiciary in different countries, and I've conducted multi-day trainings for US law enforcement. I conducted two three-day training sessions on cryptocurrency for the DEA and DEA agents and analysts and other federal agencies. I've taught in the British Virgin Islands, Kosovo, Ukraine, Kenya, trying to work with their financial investigations unit to bring them up to speed on digital assets, on digital asset seizure and digital asset forfeiture. And so that's been part of my mission. I've been designated as an expert, actually by the Council of Europe, in virtual assets and virtual assets service providers. And it sounds like a mouthful, and it really is. Basically, what it is, I was part of a parliamentary Working Group in Kosovo, working with them to develop their regulatory framework on digital assets and on virtual assets service providers. Virtual assets service provider is just a fancy name for something maybe like a cryptocurrency exchange and other businesses that deal in crypto. So, that's my background in crypto, it's pretty much what I do most of the time.

Drew Thomas  2:05  
So, what you're saying is I need to apologize to our listeners for having such a novice, as, as, as our expert today, no, that is fantastic. And very interesting. I mean, it sounds like we could probably have a day long conversation about some of the, the stories that you probably have dealing with some of this stuff. But we're going to try to focus in on cryptocurrency today. So, you mentioned that it was something that was still relatively new to people in 2014 that Bitcoin started in 2009 I think you said?

John Valkovci  6:39  
The first Bitcoin transaction was in 2009. But the actual white paper written by Satoshi Nakamoto was in 2008. And that's where Bitcoin got its start. But it really began in late 2008, early 2009.

Drew Thomas  6:51  
And so why was this created? What exactly is the purpose of cryptocurrency?

John Valkovci  6:57  
Crypto was created as a form of digital money. It was designed to remove the middleman. When you think about it, every financial transaction that we do on most days, whether using a bank card, or a credit card, or a check, some form of payment like that, you present that to the vendor, the vendor then runs it through a machine, it makes its way back to your bank, your bank has to approve it, it reduces your balance. And then it's sent on to the vendors, financial institution, and it's credited to them on their side. So, there's always that middleman on any financial transaction. The only time we can have a true person-to-person financial transaction is perhaps with cash or with bartering. But anytime you're dealing with anything commercial, there's always that middleman. It's either the government who controls the money supply, in our case, it's the Fed, or it's a bank, it's some sort of central institution. Bitcoin was designed to avoid that central institution, to avoid the Fed, to avoid monetary policy, to avoid banks. I'm sorry, you might not want to hear that Jeff, being here. But yeah, it was designed to take you out of the equation. In other words, Bitcoin was designed, and it's nothing more than a massive peer-to-peer network where anybody can join, and I can send you Bitcoin, and it doesn't have to pass through a central server, it doesn't have to pass through a central bank. It's no different than me handing you a $10 bill or something like that. It's simply just, it was designed as a way as a form of digital money to avoid any type of central institution or central control.

Drew Thomas  8:29  
Okay. And then, and I'm guessing that the general purpose of that was the idea of being able to avoid taxes or avoid that interference. There's a reason to use cash, right? I mean, like, if we're being honest, most people that use cash, it's convenient. I mean, its legal tender, but it's also one of those things that I think that most governments, if they really were honest, they would probably get rid of because they can't track it. So, is blockchain probably something that, er I'm sorry, crypto we'll get to blockchain in a second, but was that the purpose was trying to avoid those things, or?

John Valkovci  9:01  
Actually, when it was invented by, or created, I guess, is a better word by Satoshi Nakamoto, funny story, nobody really knows who Satoshi Nakamoto is. The person or persons never came forward. We don't know if it's a male or a female or a group of people we don't know to this day, the identity of Satoshi Nakamoto remains a mystery. Satoshi took these ideas that were just put together by people all over the place and said, let's create this blockchain and let's have this digital currency as its first application. I'm sure there was an element there perhaps of trying to avoid. If you're trying to avoid a government, if you're trying to avoid a bank, then you're trying to avoid people recording what you do. You're trying to avoid people tracking your transactions. So, there is that privacy interest in digital currency. And so, your question to me was whether or not it was, part of it was to, to avoid taxes. I think we can probably assume that, but if you really look at the, at the papers that were written by Satoshi Nakamoto in the creation of Bitcoin, it was to avoid the central authority. Okay, they were trying to avoid the man, as I said, in the 60s.

Drew Thomas  10:07  
So, so I think that the reason that I sort of posed the question that way was because I think it's been written, and it's been, it's been argued that that was part of the purpose. But I think sometimes people read a purpose into things after the fact that you can assign whatever purpose you want to something after it's been out there for 20 years and things have happened, but in the moment, and he may not have been or she or they may not have been thinking about that at all, it might have just been simply a thought experiment, or something along those lines that we're now assigning meaning to that may not have necessarily been the original intent.

John Valkovci  10:37  
It may not have been, but it certainly has blossomed into that. The IRS is certainly interested in crypto, what two, three years ago, there was the one question on your 1040, which asked you do you have or own any crypto simply yes or no question. And as we can see in the 1040s are developing, there's going to be more and more information. The IRS treats crypto as property, simple property. So, it doesn't tax it as income, that it will tax it as a capital gain. So, if you own crypto, and if you own it for longer than six months, and then you sell it you like any other capital asset, you would take your basis away. If it's more than six months, it's a long-term capital gain. If it's less than six months, it's a short-term capital gain. So, they're treating it like that. And they're taxing it as a capital asset as property.

Drew Thomas  10:37  
Okay, so cryptocurrency is built on something called a blockchain, as I understand it, so can you explain a little bit about what a blockchain is and how cryptocurrency comes out of something like that?

John Valkovci  11:33  
Sure. The technical definition is a distributed, decentralized, transparent public ledger. But if we take that and break that down, it's rather complex that way. But think of it as nothing more than a very large database. We're all familiar with databases. Okay, we use them every day in our work. And usually, they're in our home life as well. A database records information. In this case, this database records transactions that are made in Bitcoin. It's distributed because there's no central authority. As I said, there's no central server, a copy of this database, this ledger, if you will, is maintained on 1000s of computers around the world, they all have an exact copy of that database. Anytime there's a transaction in Bitcoin, that transaction is broadcast to the network, the network records it. So, basically, you would have, and I'm using 10,000 as a round number, because there are approximately anywhere between 10,000 and 15,000 active nodes in the Bitcoin blockchain on any given moment. But let's use 10,000 as a nice round number. And all of these computers will update. And again, when we're talking about a global network, there may be a little bit of a latency period, but you're talking a few seconds, maybe. So, the entire network keeps track of every single transaction. And the entire network verifies every single transaction. So, if you were to come back and try to change a transaction, you can't, I will explain that in a minute. Let me give you an example, perhaps that I use for my students when I teach them about blockchain for them to wrap their head around this. In the South Pacific, there's an island, and the name of the island is Yap, Y-A-P. The form of currency on the island of Yap is something called a rai stone. And these stones aren't just something you can hold in your hand. They're massive stones, some of them are six feet across and weigh hundreds and hundreds, if not several tons. Okay. The funny thing about these stones is, they're not mined or created on the island of Yap. About 200 nautical miles away on the island of Palau, that's where the stones are mined. So, the islanders on Yap have ocean going canoes, they sail to the island of Palau. And they mined these massive stones out of calcite, I believe, okay. They load them onto the boat, and they sail back, and they roll these stones, because they're circular with a hole in the middle, say put a log and they roll them this way is the only way they're able to be moved. And they let them rest in a certain spot on the island. And they never move. Okay, I understand what you're trying to think, okay, wait a minute. So, let's, let's think of it this way. Each of these stones has a certain value, why do they have value? Because work was expended to create them. You had to have your canoes, you had to hire some workers, you had to sail across the ocean, you had to mine it and bring it all the way back. So, there is a value attached to that stone. And let's assume that one of the stones we just dropped right there on the path from the village to the lagoon. And everybody in the village now knows that John owns that stone on the path to the lagoon. Drew, you have a herd of goats and I want to purchase your herd of goats. And I will say I will give you my stone for your herd of goats. And you say yes. So, word has passed to the entire village that this transaction took place. And everybody in the village now knows that the stone on the path to the lagoon is now owned by Drew, okay, there is no central bank. The money is nothing more than history. That's how blockchain works. If I'm going to send you Bitcoin, I basically create the transaction, I send it to you, it's broadcast to the network, we all understand that the transaction took place. And then once it's approved, it's part of the blockchain. Now, the blockchain is made up of blocks. Each of these blocks contains a certain number of transactions. And once there's, reaches a certain number of transactions, or after a certain time, then that block is closed, and all of those transactions are placed into the block. That block is then what we call mind, it's verified. In other words, the miners, the people who use the blockchain all the time, they go through all the information. And they do some fancy mathematics called hashing and things like that, they verify all the transactions, and then they approve it. Once it's approved, then the miners have, they engage in, in sometimes you hear it called some sort of complex mathematical puzzle, it's really not, they're, they're just in a guessing game, they're trying to guess a certain number that makes the equation work. So, they're not solving an equation, you're just guessing a number. And the first one to solve that, the first one to guess that correct number, then they basically have the privilege of placing that block on the blockchain, and it's added to the block below it. It's also linked cryptographically to the block below. So, there's a certain code that's on the new block that's attaching it to the old block. Okay, I know what you're thinking it's complicated, it is it really is, let me put it this way. The reason we call it cryptocurrency is because all the transactions in the block are, the blocks are cryptographically linked to the previous block, the code that they put on it, that mathematical number that they assigned to the block, they also incorporate that into the next block. If any of the information in that block were to change, that number would change. Because the number is derived from all the information in the block, it's called a hash value. And so, once a block is placed on the blockchain, it becomes what we call immutable, you can't go back and change it. Because if you were to change any transaction in that block, it's going to change that number that we spoke about. And then that would make that block not work.

So, that part of it actually makes sense. I mean, I can understand the connection between blocks. I guess my thing, and I think that, that thing is something that a lot of people who are novices or who are sort of new to the concept of cryptocurrency is, and going back to your analogy of the stones on the path, you have to still assign value to it. It's not, the stone isn't worth anything unless every villager believes that it has value. And the same thing I think happens with cryptocurrency, you know, there's, there's a sort of, and I guess you could I mean, you could argue it's the same with cash. I mean, we all, we all have bought into the idea that $1 bill is $1 bill, and it's all worth $1. But at the end of the day, it's made out of cloth and paper and ink. And if we all decided tomorrow, that $1 wasn't worth $1 anymore, then it wouldn't be worth anything. So, I guess my question, sort of, that's a roundabout way of asking, why is this valuable?

That's a good question. To your dollar example, to that point, it's because the Fed, I mean, $1 is backed by the full faith and credit of the United States and they say it's worth $1. And everybody agrees and says, okay, it's worth $1. And we all agree, and we trust the system will work that way. There is no central authority when it comes to blockchain or Bitcoin. So, we don't have somebody saying, this is what it's worth. So, why is bitcoin trading at what $41,000 today for one Bitcoin, something like that? Yeah, it went from 35 to 45, within the last what, week, or 10 days? So, so why does, why is Bitcoin worth so much? There's a couple of different reasons. One, if you remember, the stone on the island has value because it took work to create that, there was something somebody had to expend something to, to create that. When it comes to Bitcoin blockchain, they use a consensus mechanism called Proof of Work. In other words, these miners who are trying to verify the transactions and add that block to the blockchain, they have to use a significant amount of computing power. The computers they use, it's not your home computer, it's not a laptop or anything else like that. They're using special mining computers that could process close to 50 trillion calculations per second, and it still takes them 10 minutes, because on average, it takes 10 minutes to add a block to the Bitcoin blockchain. So, even going 50 trillion per second, it still takes them about 10 minutes to figure that number out, you and I were talking about, okay, because it's such just an astronomically large number that we're looking at here and how to arrive at that. So, they have computing power, they have cooling power, it takes a lot of resources to mine that, and therefore there is proof of work and when you guess that you broadcast that number to the entire blockchain, the other miners type in that number and say, hey, it does work. Okay. And you've just proved that you've done the work to reach this point. Okay, so there is a lot of expenditure involved in mining a Bitcoin just from purchasing the computer, the electricity to run the computer, cooling the computer, the time involved. But another factor that we have to keep in mind is supply and demand. When it comes to Bitcoin, the way the Bitcoin protocol was originally drafted is there will never be more than 21 million Bitcoins ever produced. That's the limit is part of the Bitcoin code, there can never be more than 21 million Bitcoin. Right now, we're at about 19.5 million Bitcoins in existence. So, we have about a million and a half to go. And I think it's just like any other commodity when it comes to supply and demand, the more that supply starts to shrink, maybe the more the demand might go up. So, that's another element. Another element that drives the price of crypto is the regulatory scheme. I know the SEC and the commodities market are trying to regulate crypto, but everybody's struggling with what, how they can possibly regulate crypto, because how do you regulate this decentralized network where the computers are spread all over the world?

Drew Thomas  20:59  
I was going to say, how do you regulate something that was intentionally designed to be unregulatable?

John Valkovci  21:04  
That's exactly what many governments including ours are really grappling with right now. So, they're looking for choke points to regulate. And we can talk about that in a minute when it comes to cryptocurrency exchanges that are regulating the exchanges, as opposed to regulating the actual crypto and thinking they could manage some degree of control over it that way. So, there are a number of factors that drive crypto, but when it comes down to it at the end of the day, it's basically because we think it's worth $41,000. Yeah.

Drew Thomas  21:30  
So, I guess you had mentioned that there's a limit, right? There's 21 million Bitcoin is all that there ever can be. But there's also a thing called halving, right? So, every so often, it was every four years or something like that, there's, there's what they call a halving event, where it essentially takes twice as much computing power to create a Bitcoin as it does, you know, the day before that. So, I guess my question is, it's sort of ingenious in a way, like, the Bitcoins are limited, but in a weird way, they are also unlimited, because half of a half of a half of a half of it, you'll never get to 21 million, you'll always end up getting, the minute that you get to 20.9 million, it'll go into a half and then you'll have to mine that much more to get to, it's kind of like a penalty in football, right? You can't, you know, it's half the distance to the goal, you can never actually score a touchdown on a half a distance to the goal. Right?

John Valkovci  22:23  
Good point, I've never looked at it from that perspective, when you talk about half the distance of the goal. The halving refers to the reward. Remember, I talked to you about the miners who tried to guess that number? Well, the one miner who guesses it correctly, they are given a reward, the Bitcoin protocol issues them so many Bitcoins. And right now, I think it's about six and a half Bitcoin isn't it, or no? Yeah, it's about six and a half Bitcoin. And every four years, that number drops in half, then you get down to 3.25, then you dropped off that in half every four years. Actually, it halves on about every 200,000 blocks that are added to the blockchain is really when that, that is supposed to change. If we look at that and keep progressing down on the halving, after every 200,000 blocks at the current pace, it's estimated that the last Bitcoin will be issued in the year 2140. But it will be so infinitesimally small, that it may not have much value, and it will be significantly less than the cost it's going to take to produce it unless, of course, the value of Bitcoin increases to something astronomical over $100,000 or $200,000, which I think some people are holding right now hoping that it happens.

Drew Thomas  23:33  
And I know that they've said that in the past, and then the bottom fell out. And, and we can talk a little bit about why that happened in a little bit. But before we get too far into this, specifically about Bitcoin, I also just want to touch on the fact that there are a lot of different cryptocurrencies out there, correct? I mean, there are, there's Bitcoin, there's Ethereum, there's Dogecoin, which was made as a, I guess, started out as sort of a joke but became a thing. What's the difference? Are they, are they all basically built along the same ideas? Or is Bitcoin obviously is the most well-known? Is there a reason for that? Like, is it somehow better than Ethereum or Dogecoin, or any of the others?

John Valkovci  24:09  
There are 1000s and 1000s of different cryptocurrencies out there. Bitcoin was the first, it's the most well-known. Ether, which runs on a different blockchain network called the Ethereum network, was probably the second one came, coming about in somewhere around 2014 or 2015. Really, we look at Bitcoin as being the granddaddy of all cryptocurrencies.  Anything else, any other coin is referred to as an ALT coin as an alternative cryptocurrency, an alternative coin. So, those are called ALT coins, but they all share one thing in common, they use blockchain technology. Now, most cryptocurrencies reside on their own individual blockchain. The Bitcoin blockchain hosts Bitcoin and Bitcoin cash the Ethereum blockchain hosts Ether. Dogecoin runs on its own blockchain. So, they all use blockchain technology, and all blockchain technology functions, even if I described it poorly earlier, it still functions in the same basic way where you have a consensus mechanism. For Bitcoin, it's proof of work, for Ethereum, it's called Proof of Stake, there still has to be some way for the miners to verify that transaction. Keep in mind, we're talking about the village on that island right now. So, anytime there's a transaction on any of the blockchains using any crypto, it has to be broadcast to the network. And when it's broadcast to the network, those individuals who, who are part of that network will verify it and add it to their blockchain. The reason we have so many is because they were created for different reasons. Really, when it comes right down to it, you mentioned Dogecoin, it was created pretty much as a joke. And, and Elon Musk goes on TV, or it goes on a podcast and says the word Dogecoin and it jumps up to 70 cents per Dogecoin. And shortly thereafter, it drops down again. Yeah, so if you want some Jeff, let me know I have several thousand Dogecoin.

Jeff Matevish  25:59  
Do these work the same as Bitcoin where there's a finite amount of you know, that can be created? Or are these different?

John Valkovci  26:05  
They're all different. Okay. Okay, let's just start with Bitcoin. Bitcoin was created and designed to be digital cash, and to be an asset that can increase in value, not so much as an investment just, but something you can put, to hold value, but it was designed to be digital currency, and pretty much that's it. Ether or Ethereum, on the Ethereum network is everybody refers to it, was designed to be much more. It was designed to be digital currency, but it was also designed to be a way to create smart contracts, to have distributed applications and things like that. So, on the Bitcoin network, if you're talking trying to embed some sort of document or some sort of text onto the Bitcoin blockchain, it's very, very limited because its scripting engine is very limited, and maybe you can get 20 characters. So, it's possible to put what we call a micro message onto the Bitcoin blockchain, and you can stitch those messages together, those characters, to form a coherent message on the Bitcoin blockchain. In fact, it was used frequently by terrorist groups to send coded messages to the people in the different cells around the world. The Ethereum blockchain said, okay, we're going to digital currency, but we're going to take it a step further. And they have a much more robust scripting engine. So, we can actually create smart contracts, self-executing pieces of code that we call smart contracts on the Ethereum network, we can create distributed applications. What that is, is we all have apps, we call them, on our cell phones and our laptops and tablets and things like that. Well, this app is distributed on the entire network. So, it's a distributed application. So, it's much more robust. It's designed to host tokens and non-fungible tokens, NFTs and things like yeah, that's a whole other podcast. It really is.

Drew Thomas  27:47  
So, what I'm gathering is that it's not so much like the difference between, say, the yen and the dollar and the peso and, where there's an exchange rate, where one can be exchanged for the other. They're literally designed to be different applications, or am I wrong? Can you exchange an Ethereum, an Ether for a Bitcoin? And is there an exchange rate for something like that?

John Valkovci  28:11  
To answer your first question, they're all designed to be digital currency in a way, but they have different purposes. Some are designed to be faster. In other words, as I mentioned, it takes about 10 minutes to mine that block. So, if I were to send you Bitcoin right now, Drew, we won't even see it on the blockchain for at least 10 minutes, it won't appear. So, if you're trying to purchase something with Bitcoin right now and you give it to a vendor, you're gonna be standing there in line waiting for 10 minutes for that transaction to actually go through when you think of it that way. Okay, the Ethereum network, which was the really the second type of, the second most popular cryptocurrency, they felt that 10 minutes was simply too long. So, it takes on average about 12 to 15 seconds to mine a block on the Ethereum network. So, the transactions go through much more quickly. Other cryptocurrencies saw what Bitcoin did, and maybe they want more privacy. So, we have privacy coins, like Dash and Monero, which are really privacy coins and designed to be much more private because even though when we talk about crypto and if you want to talk about privacy and the use of crypto, we can a little bit later. So, basically, they each have different purposes. Can you exchange one for the other? Yes, you can, you can go to something called a cryptocurrency exchange. And there are different types of exchanges, Binance is an exchange, Coinbase is an exchange, FTX was an exchange. And basically, if I own Bitcoin, I can go to Coinbase exchange, and I can create an account and say I want to swap or exchange my bitcoin for Ether or for Doge or for Solana, or any of the many other Cryptos. Not every exchange will support every type of cryptocurrency. Think of it as nothing more than a currency exchange at an airport. If you've ever gone to an airport and walk past the currency exchange, you're going to give them money, and they're going to give you a currency from another country, maybe a euro or a yen, as you mentioned before, and they're going to take that a small fee for that. And these exchanges these cryptocurrency exchanges work the very same way. So, yes, you can exchange one cryptocurrency for another, depending on the exchange, but you will pay a fee for it.

Drew Thomas  30:14  
So, that actually brings up another question that I sort of was thinking about when you were explaining the process of moving these coins. So, not every, well, I don't know if, I don't know if I'm right in saying this or not. But Jeff, and I do not mind Bitcoin, right? But say, somehow someone paid me for something in Bitcoin and I accepted that. Do I then have to become a bitcoin miner to be able to do anything with that? Or does someone sort of do that on my behalf? And then I'm able to say, well, I want to move my bitcoin to Jeff, someone does that for me, right? And then kind of like to your explanation of the currency exchanges, do they take like, a fraction of my bitcoin as payment for transacting that for me? Or do I have to actually literally get a server and start mining Bitcoin?

John Valkovci  31:00  
You don't have to mine Bitcoin; you can simply go online and create what we call a wallet. A wallet is going to hold a private key. When you trade cryptocurrency, when you send cryptocurrency, you send it to somebody's wallet address. A wallet address is nothing more than a very large alphanumeric sequence. It's about 30 characters, 30-35 characters long. And basically, what happens is, when you choose a, your wallet will choose a random number, it will then apply some mathematics to it. And ultimately, you're going to get this address after you apply some different types of math to it. That's really not important for us right now. Sure, but because that address is derived mathematically from this random private key, the private key controls it so the way I can send you Bitcoin, I can send it to your wallet address and your wallet is controlled by your private key. That's where your private key is stored. I can't send you Bitcoin, okay, your wallet doesn't store your Bitcoin. Your wallet doesn't really send your Bitcoin, your wallet, basically stores your private keys. And that's pretty much all it does. Most people think that well, they're used to what a wallet is, it stores my money. No, it doesn't, not on the Bitcoin blockchain. But we can, if you want to talk more about wallets, we can as well. But you can simply create a wallet if you choose, and it doesn't cost any money, you can just go online, create the wallet, and then you generate an address. You then Drew would give Jeff, your address, and he would open up his wallet and send it to your address and it goes through the blockchain that way, no central authority, no exchange nothing. On the other hand, if you wanted to, to make life easier, and you didn't, you don't want to worry about the technology of trying to download a wallet or create a wallet or worry about addresses and private keys, you can go to many of the exchanges, Coinbase and Binance, and create an account. It's very similar to a bank account, and you open it up and you then tie that account to a physical bank. I have what I call my crypto account at a local bank. And anytime I could use that account to purchase money, or to purchase crypto using fiat currency, or I can sell my crypto and then fiat currency is sent by the exchange to my bank account. So, it's very similar to a debit card when you think of it that way. So, if you wanted to, instead of creating your own wallet and maintaining it and controlling yourself, you simply create an account on Coinbase, and then Coinbase will generate the, your address and you say, Jeff, send it to this and it goes to your Coinbase account. You can have a Coinbase wallet, or you can have a Coinbase account.

Jeff Matevish  33:30  
Okay, so, there's many ways you can create a wallet or many places you can create a wallet online, right?

John Valkovci  33:36  
You can have a hardware wallet, which looks like a thumb drive. There's the Ledger Nano, there's a Trezor. These are hardware wallets. You can create a mobile wallet on your cell phone, you can have a wallet on your desktop, you create a paper wallet if you chose. So, there's many different forms of wallets. The two primary, primary types you want to be careful of is what's called custodial and one's noncustodial. A custodial wallet is maintained. As I said, Coinbase they maintain your wallet, they maintain your private key, they control all the crypto that you own. A noncustodial is where you actually own the wallet, you own the private key nobody else does. So, you control your own crypto.

Jeff Matevish  34:13  
There's no central authority. So, if somehow your wallet got hacked, is there any way to get your money back or your crypto back? What are the security concerns with, with something that's not regulated?

John Valkovci  34:25  
That's a really good question. Let's just kick back and talk about this for a while. If you have a wallet, a custodial wallet, say hosted on Coinbase and Coinbase gets hacked. There's really not much you're going to be able to do because Coinbase controlled that wallet on your behalf. They control your private key. They got hacked for some reason. Now they may out of the kindness of their heart, give some money back if there was a hack or some sort of data breach, but typically they don't. If it's your wallet and it got hacked and the crypto is gone, will you be, be able to get it back? And the answer to that is usually not sadly, if I can just diverge for a minute. I've worked on many, many cases with victims of some sort of online fraud, whether it's pig butchering, or whether it's a romance scam or an investment scam, where they're told to send crypto here or if you invest so much in crypto here, invest a 10th of a Bitcoin. And I promise you a 30% return in 30 days, and you send your Bitcoin to this address trusting that this is going to work out and it does. I mean, you actually earn 30%. And they, they tell you, here's your 30%, and they offer you another one and another one. And after a while human nature kick in, perhaps greed, I guess, or will become somewhat desensitized, and they say, you know, you've been such a great customer, you've done this with us three times we have this special program for what we call our Platinum customers. And if you just send us five Bitcoin right now, we can get to that 30%, we'll get it to you in two weeks, not 30 days, and all of us anything well 30% of five Bitcoin, that's a lot of money. And you do and then that site goes dark, and you never hear from them again. So, when you're a victim of some sort of scam of some kind, can you get your money back whether your wallet is hacked, or you're the victim of a scam? The answer is usually no. Now what we can do is we can trace the funds leaving your wallet across the blockchain, to the criminal’s wallet and then we can keep tracing it as it moves across the blockchain. Think of the blockchain as a highway. On a highway, you need an on ramp and an off ramp. So, most of those on ramps and off ramps are what we call the cryptocurrency exchanges. So, sooner or later, if you're going to send money, if your money is hacked or your wallet is hacked, or you're sending money to a scammer, that money will move across the blockchain. Sooner or later that criminal is going to want to cash out. The Bitcoin is great, but they want the cash. They want the money. That's why they're defrauding people. So, they usually have to have some means to cash out to hit that off ramp to get off the blockchain, turn that crypto into fiat currency. And it's done through an exchange. So, most exchanges are regulated right now, as I mentioned earlier, that's the choke point that the SEC and other agencies are looking at around the world by regulating cryptocurrency exchanges, because they're considered to be, they're defined as money transactors. So, they have anti-money laundering and know your customer, just like your bank does here. If I were to come here and open an account, you're going to require my driver's license, my social security number, all sorts of biographical information, you're going to photograph that and you're going to keep it in a file because ever since 911, and the Patriot Act, all financial institutions have that KYC regulatory, that know your customer. Cryptocurrency exchanges have the very same thing. So, we can trace your cryptocurrency from your wallet that was hacked Jeff, to an exchange, then law enforcement can contact the exchange and ask for all that KYC information about the individual who cashed that out. Okay.

Jeff Matevish  37:59  
Okay, so before that, you're unknown, right?

John Valkovci  38:03  
Right, because if they want to just keep it on the, on the blockchain, it's very difficult. It's just there, because the blockchain was designed to be pseudo anonymous. When you create a wallet, when you deal with crypto, when you trade crypto, all the transactions are completely transparent. We can go back on the Bitcoin blockchain right now and see every single transaction since the very first Genesis block, since the very first transaction happened back in 2009. So, it's all transparent. The problem is, it's, it's only an address. It's that long, alphanumeric number I was telling you about. It's not tied to your email address; it's not tied to a username. It's not tied to an account. It's not tied to anything else, any physical address or any of the biographical information. Now, there are some methods using open-source intelligence techniques that we can perhaps de-anonymize an address. Most of the time we're about 50% to 60% accurate with, with de-anonymizing a crypto address, depending on how it's been used, and who's using it, and the technical expertise of the people doing it. So, I know it's a long answer to a really short question, Jeff. But if your wallet is hacked, and you lose your crypto, if you're part of, or if you're the victim of a cryptocurrency scam in some way, shape, or form, is there a chance you'll get that crypto back? The answer is yes. But it's not a very strong probability. Okay.

Drew Thomas  39:21  
So, you were sort of talking about the on ramps and off ramps and sort of converting that crypto over to fiat currency and so forth. So, I guess that leads into my other question, which is you know, it's, it's all fine and grand to say okay, I have this Bitcoin on the blockchain and you know, I say that I have so much and we all agree that I have so much but ultimately, I can't, and I'm gonna say this with a little bit of irony because as I understand it, the first the first transaction happened Bitcoin was to buy pizza was, but, but I can't buy pizza with Bitcoin, right? I can't call Domino's and be like, I've got a Bitcoin. I want two pizzas.

John Valkovci  39:56  
There's some places you can do that. Okay. There are I don't know if you'd want to.

Drew Thomas  40:02  
I was going to say but, so how do you convert this? And I think that's where a lot of people get sort of stuck. Is this idea that okay, you know, I'm willing to take the, the conceit that we all agree that Bitcoin is worth something, I'm willing to, I'm willing to buy into the idea that my anonymous series of letters and numbers is assigned to a certain amount of bitcoin but at the end of the day, if I want to spend it, if I want to buy a car with Bitcoin, how do I do that?

John Valkovci  40:28  
That depends on the vendor. But there are vendors, there's in fact, there's an increasing number of vendors out there who are accepting crypto as a form of payment. And the way it works is, as I said, you have it in your wallet address. It's an address that exist on the blockchain. That's where your cryptocurrency exists on the blockchain, in that massive database that spread around the world, that's all the blockchain is, is this this large database that records all the transactions. It's in your address, you haven't moved it, you haven't spent it, you haven't transferred to anybody else. If you go to a car dealer and they're willing to accept crypto, they'll give you, their address. And then you simply open up your wallet, you create a transaction and send the crypto from your wallet address to their wallet address, and now it's in their wallet address. Most vendors who sell large ticket items like cars don't want crypto, Bitcoin particularly is extremely volatile, you can see it moving 1000s of dollars in a day. So, if I were to send you one Bitcoin, today, it's worth $41,000. For a car tomorrow, that same Bitcoin might be worth $35,000, it could be worth $50,000. Okay, so you don't see it often used for that, but you can use it for different vendors. And the way you spend it is you simply send it to their wallet address, they provide you with their wallet address, and you simply create the transaction and send the crypto to them and they deliver the goods to you. It takes about 10 minutes for that transaction to be recorded on the blockchain. But that's as simple as it is. There's many ways you can convert crypto, you can take crypto to an exchange and exchange it for fiat currency if you want cash back. They actually have crypto ATMs right now too, have you seen one? There's one in the, there's more than one in the gallery. Yeah, I saw one a couple weeks ago. Is there really? Um, yeah, right by the lottery booth.

Jeff Matevish  42:12  
I pushed some buttons. I didn't know what I was doing. I was just curious about how do they work. I mean, how do they work?

John Valkovci  42:17  
It works just like any other ATM. You can put money in, and you basically tell them what your wallet address is, and they'll send it then to your wallet address. Now there's a fee for that don't get me wrong, just like there's a fee for using an ATM. But think of it that way, you have a wallet address. Now this wallet address that we're talking about this long, alphanumeric sequence, you can transform that into something like a QR code. And you put the QR code on your phone. So, you go to the ATM at the Galleria Mall, and you slip in five $20 bills, and then you hold your QR code up, your phone up to the screen, that camera reads it, and that's your address, and then the organization or the company that runs that will then send so much Bitcoin to your address and you have it and they give you a receipt showing you what the transaction was and whatnot. Now they're gonna take a fee out of that. And some of these ATMs have some pretty steep fees. Some of them are 3%, 4%, 5%, 6% what, the transaction is. And it's the same way too, if you want to, you can have your wallet address and send Bitcoin to that, and they'll money will come out of the ATM machine.

Drew Thomas  43:20  
Wow. So, I have read and again, you know, when you put something out there like a podcast or something on the internet, it lives forever. Somebody could be listening to this when we release it in January, and some could be listening to this next January. But at the time that we're recording this, they're talking about an ETF being developed for Bitcoin, it could be approved as early as early 2024. And that seems to have a lot of people sort of excited about adding to the legitimacy, I guess of Bitcoin. Can you explain a little bit about why that would be a big deal.

John Valkovci  43:56  
An ETF is an exchange traded fund, okay. And those are regulated by the SEC. And right now, actually, there's, there's a number of funds out there that are Bitcoin related ETFs and you can purchase shares in it like you would money market, the only difference between a money market and an ETF like this with Bitcoin is that this you can actually buy on an exchange. And there's a number of them right now that are tied to cryptocurrency and Bitcoin related companies that work with Bitcoin, but none of the ETFs right now directly own any Bitcoin. The reason the SEC has been so hesitant to, to sanction this and to allow this is because Bitcoin has to go through these exchanges. And even though the exchanges are regulated, not all exchanges follow those regulations. Coinbase and Binance, two of the largest ones in the world, they do adhere to those anti-money laundering Know Your Customer regulations, because those aren't unique to the SEC. Those aren't unique to the United States. The EU, Europol, UK, most have the same type of regulatory scheme when it comes to exchanges. But not all exchanges are the same. There are some exchanges around the world that maybe have a different format. We have something called a centralized exchange or a decentralized exchange. So, some of them will not maintain the same level of, I guess, how should I say this? Some of them don't take their obligations, regulatory obligations, as seriously as others. Okay, you can contact one exchange and say I need all of the KYC information for this individual and they'll send you page after page of transaction history and biographical information. It's a complete dossier on the individual who owns that account. Other exchanges will send you a piece of paper saying the person who owns this is, his name is Bob. Thanks. So, the reason the SEC is so concerned about approving a Bitcoin ETF is even with the regulatory scheme we have right now, we can't guarantee that all Bitcoin transactions will go through an exchange that takes their regulatory obligations seriously. And Bitcoin is, can frequently be traded every day on exchanges that don't follow any type of regulation. And they don't want to do that because the SEC's job as we all know is to protect the investor as well. And to maintain that level of confidence that level of, of, I guess surety within the monetary system, and that the consumer is protected from different types of investment options. That's why they began regulating ICOs, initial coin offerings, if you remember, many years ago, you can do an initial coin offering create your own coin, and it was not regulated by the SEC, and people would buy into it thinking it was very much like an IPO, an initial public offering, which is regulated, and when things went south, they had no place to go since SEC wasn't involved. The SEC now to a pretty large part does regulate ICOs, initial coin offerings. But the reason that we, we don't have a Bitcoin, direct Bitcoin owning ETF is because of the SEC is concerned. I know the SEC is working on this and there's been talk about it being approved. But I think if it's approved, it's going to be very, very limited to certain exchanges only and certain funds. And so, I think you're going to see a pretty heavy hand of the SEC in anything that could be approved.

Drew Thomas  47:20  
So, just based on the conversation that we've had, you know today and knowing your experience and you and your, your expertise in the legal world, do you think that Bitcoin, or not specifically to Bitcoin, do you think cryptocurrency has a legitimate future? Or is it always going to be this sort of a casino where, where you never know what you're gonna get when you're gonna get it? How you're gonna get it? Some people cash out and win big and some people lose everything? Is cryptocurrency ever going to be considered a legitimate form of payment or currency? I know you're not a future teller. But I mean,

John Valkovci  47:59  
I'm not giving investment advice because you don't, want investment advice, right? No, we don't. I have Dogecoin right now that I thought it's gonna go back. I'm still waiting for Elon to get on some podcasts and Dogecoin so I can sell mine. Yeah. But I do think there's a legitimate use. There are right now legitimate uses for Bitcoin. I mean, there's certainly legitimate uses for blockchain technology. Because blockchain technology and blockchain is different from Bitcoin. Let's separate that out right now. Because think of it as the Internet and the World Wide Web. The Internet is just that interconnected network of computers. The World Wide Web, basically, is that overlay on top of the internet that uses HTML protocols to communicate for graphics.

Drew Thomas  48:43  
For those of us that are old enough to remember a difference between the two.

John Valkovci  48:47  
Yeah, there was, right. In other words, the Internet can survive just fine. Without the World Wide Web. The World Wide Web cannot survive without the Internet. And it's the same thing with Bitcoin and blockchain. Blockchain technology has many uses from voting, to supply side management to real property and property recordings. Okay, because it's on this permanent ledger that can't be changed ever, ever, ever and everybody can see it. So, there are legitimate uses. But again, blockchain can survive just fine without Bitcoin. Bitcoin can't survive without the blockchain technology. So, there are many uses right now. Bitcoin does service, some underfunded countries, countries who don't have a strong monetary system, countries where people don't have access to ATMs or banks. If they get some Bitcoin, they can start using that. So, there are some legitimate uses for now. Will it ever have the legitimacy of say, the dollar or the yen or some sort of fiat currency that we're used to? We have something called stable coins. Have you? Have you heard that term before?

Drew Thomas  49:45  
I've heard the term, I don't know, Jeff, I've heard the same thing. Yeah.

John Valkovci  49:49  
A stable coin is nothing more than, than a cryptocurrency that's pegged or tied to a fiat currency. We have the USDC the US dollar coin or USDT, the US dollar token, those are tied to the value of the US dollar. So, the value of a USDC, a US dollar coin is anywhere from 98 cents to maybe $1.02. It fluctuates, but it's not volatile at all because it's pegged to the value of the US dollar. So, yes, something like a stable coin being used for currency. I think that's a possibility. Something like Bitcoin, I'm not quite sure. Most cryptos because of the level of volatility associated with them, may not become mainstream. And there's other issues as well. One is just volatility, two, when we talk about Bitcoin Drew, is, who wants to wait 10 minutes for a transaction to be approved? I mean, people right, as society is changing right now, fast food isn't fast enough for most people right now. I mean, they want things instantaneously, it's true. You know, they don't even want to go to the mall and shop anymore. They want to sit there in their jammies and sipping their coffee. And so, you know, they hit a couple of keys or mouse clicks. And then next day, things miraculously appear on your porch and boxes.

Drew Thomas  51:00  
Yeah, I mean, that's again, I mean, not to diverge too much from the topic, but you're right. I mean, I'm old enough to remember when ordering something and having it shipped, was, you know, three to five weeks for delivery. And now if you order something online, and it doesn't show up in the next, you know, 72 hours, you're frustrated and calling the company and saying why aren't you delivering my stuff fast enough? So, so yeah.

John Valkovci  51:25  
That's how I feel, I just think because of the volatility, because of the time, even if you're talking Ether coin, Ether is fine. 12 seconds for a transaction, that's fine for me, I can wait 12 seconds to make sure that transaction goes through and is verified. But what about the volatility? I don't want to spend, you know, half of a Bitcoin today on something, and then find out the next day that, that the value went from, say, $20,000 to $25,000. I would be kicking myself. Yeah. And if you're the vendor, you're going to take that half a Bitcoin for $20,000. The next day, it's worth $15,000. Okay, you know, you're gonna be kicking yourself. So, I don't think because of the volatility we're going to see become really, really mainstream. I think you're talking about stable coins? Absolutely. And I think a lot of governments right now are really, really wrestling with that central bank, digital currency. They're all trying to think of how the government can create its own digital currency.

Drew Thomas  52:19  
Is that even is that even a thing? Is that even something that's necessary, though? I mean, because you can go online, and you can move money electronically, I can move dollars electronically, I don't need to literally hand you a $10 bill, I can go onto my online banking, I can issue a transfer through Venmo. I can do Apple Pay, I can do any number of different electronic transfer methods for the, for dollars from my account to your account. So, the idea of the government creating a stable coin sounds good, but in reality, is it even needed? Or is it one of those things where they're trying to sort of jump onto this idea of like, well, we have a crypto and it's tied to the dollar, but it's really just a digital dollar?

John Valkovci  52:59  
That's pretty much what it would end up being. Yeah. But it puts the government onto the, onto the crypto playing field. Yeah. And they feel if you have that CBDC, that central bank digital currency, that people will start using that. And when you think about that, it goes through probably government servers and whatnot, even if there's only an internal blockchain of whatever it might be. It gives the government a degree of control over that money that just like they control the money right now. So, is it needed? No, I don't see it as needed for the very reasons you just said. Will it come about? Maybe, but I don't think we're going to see it anytime in the next six months to a year. Yeah.

Drew Thomas  53:37  
Well, I gotta tell you this is, and honestly, there are parts of this that I feel a lot more educated on. There are parts of this that I still feel confused.

John Valkovci  53:48  
Can I help with anything? I know that my explanation...

Jeff Matevish  53:52  
It all sounded really good. You're very well spoken. Yes.

Drew Thomas  53:54  
Yeah, no, no, it's not you. It's just it's a lot to wrap your brain around. It really is a lot to wrap your brain around. And I think that, you know, we sort of alluded to we use the acronym NFT earlier in the conversation. And there's, that's a whole other conversation, but it kind of reminds you of that in a little bit of a way. Like there's so much, I think there's just so much faith that you're putting in this thing being valuable and having that faith that other people are going to continue to find value in it without any sort of a regulatory or stabilizing force to sort of incent that value to remain where it should, that it just feels, I think this is the reason why a lot of banks a lot of investment firms a lot of trust companies have are very, very resistant to getting involved in, in cryptocurrency and things like that, because there's just no way to legitimately look at a customer right now and say, I can with relative assurance feel like I can navigate these waters and help you to invest your money in a way that's going to be beneficial to you. Because it's a gamble, nobody knows what it's gonna be tomorrow, you know, I mean, in the stock, I mean, and you can say the same for the stock market, I suppose. But there's a lot more that goes into calculating a stock price than there is to calculating Bitcoin.

John Valkovci  55:09  
I agree with you 100%. In fact, I've been asked this because I've spoken at different fiduciary conferences and other, other types of industry conferences on just that subject. And my comment is, you know, I would never use invest and Bitcoin in the same sentence unless I would be telling you don't invest in Bitcoin. When you're investing in a stock, we have certain metrics we can look at, we can look at the PE ratio, we can look at all sorts of different things, to kind of see where the stock was, where it's going, why did it move that way? What's going on? We don't have really many metrics when it comes to Bitcoin other than it was up and it was down. What caused that, what may have caused that right now? What causes Bitcoin in the last week to jump the way it has? I don't know, it could have been a bunch of different market factors playing on it, right? We don't have any metrics. So, you're really not investing in Bitcoin, you're speculating. And that's all you're doing; you're hoping that it goes up. And in fact, many of these ETFs right now that deal with these Bitcoin companies, they deal with futures, okay, and as most of your investor customers out there probably know, a future is nothing more than a contract that's going to take place at some point in the future. And, you know, I hope it goes up or goes down depends on what I want to do with it, if I want to short it or not. So, you know, it's nothing more than speculation, Jeff, you don't have any way of really predicting where Bitcoins going to be. Okay, I can tell you right now, I think I can, you know, unless some great contract comes about, I can tell you where Apple stock is going to be, or some other stocks based on a lot of things but Bitcoin I, it's if we had a crystal ball, it'd be great. Yeah, yeah. I know, when, when, when COVID hit if you recall, Bitcoin tanked. I mean, it really, really went down. And it was to the point where I actually contemplated buying a Bitcoin. I own some Bitcoin, but not much. And I thought, oh, maybe now's the time, just get the credit card out and buy a Bitcoin? And I said, no, it's just going to keep going down. And now we're at what $40,000? So, it would have been a nice little investment for me.

Drew Thomas  57:11  
Yeah, yeah. Or speculation as you put it.

John Valkovci  57:15  
Yeah, that's all you're really doing.

Drew Thomas  57:17  
Yeah. John, this, this has been really great. I mean, this, this has been a fantastic conversation. And you obviously know, and have dealt with a lot of this, you know, from a legal standpoint alone, if you could find a way to identify that marker, the fact that it cannot be changed, going back all the way to 2009, you know, actually makes it very easy. From a from a legal standpoint, not easy, but it's very reliable, to be able to say, well, this can never be changed. So, if this is the marker today, it's the same marker that it was, you know, you know, 10 years ago, but if right now, there's only a 50/50 shot at getting that marker to be identified correctly, in a courtroom, I can't imagine that that's anywhere close to enough to sway someone to convict someone for money laundering or terrorist activities, or any of those other things, which is, I suppose, why you said earlier that, you know, some of these groups are using some of these blockchain technologies to move money around and things like that. But it just I don't know. It's, it's fascinating, but it's also very, very, I would definitely not recommend anybody who's not as educated as you are getting too involved in something like this.

John Valkovci  58:30  
You can get involved just by opening a little bit up. I mean, we were talking earlier about the Coinbase, where they host your wallet, they control your private key, because Coinbase is a centralized exchange, all transactions involving that exchange Coinbase have to go through their central server. That's why they can maintain very healthy KYC and other types of regulatory schemes because they can just pull up the information right away if everybody who uses their service. When you think about it, that pretty much defeats the purpose of the entire blockchain, which are supposed to be no centralized authority, right. But now we and you can still use the blockchain that way, but you need that off ramp. Are there other off ramps that you can use that don't have that central authority? Well, perhaps you can use the ATMs, but those are limited in how much you can withdraw in a day. There's other ways in other words, if I just meet up with somebody on the internet and a chat group or something saying, I have a Bitcoin, I want to sell to somebody, would you meet me in the McDonald's parking lot, and I'll transfer the Bitcoin and you give me $40,000 in cash? I wouldn't recommend that. Yeah. Let's just stop for a second and think how that's going to work out. Yeah, I don't think it's anything. I don't think we'd use the word it's going to work out well, for anybody on that one. But, but so, you know, when it comes back down to it, it is a fascinating topic. I think blockchain is there. I really do. But crypto and Bitcoin, there's some issues with it. There really are.

Drew Thomas  59:52  
Yeah, I know that, and maybe we can talk about this and then we can kind of adjust but I also just wanted to get just very quickly your take on the whole FTX, from a legal standpoint, I mean, what happened there? I mean that, they were advertising that on the, on, like during football games on TV and like sponsorships and everything else. And I mean, so was FTX, like Binance or Coinbase, or were they different?

John Valkovci  1:00:16  
It was an exchange very similar to Coinbase and Binance. And it was very well, very well-known actually around the world. And we had many celebrities and athletes who were buying into it and advertising for it and whatnot. There's a couple of different reasons that, things we can look at with FTX. One is there was a degree of mismanagement, you pretty much had a bunch of people who really didn't have the experience in managing a large company, particularly a large financial company like that. And they didn't do certain things there, the protocols weren't in place, there weren't things that you would need, from a regulatory standpoint, things that you would need, just from a simple running a business standpoint that most people who run a small mom and pop business would be doing that they didn't even do. So, we had a degree of mismanagement there. But what it, when it really came right down to it was that liquidity pool, and you can really compare it very, very, it's a very direct comparison to the run on the banks that caused the Great Depression here in the 1920s. When all of a sudden there was a rumor that, oh, the bank is going to fail, everybody would go in and pull their money out of the bank. The bank, of course, at that time didn't have enough cash reserves, they didn't have enough of a liquidity pool, and the bank failed, and the bank closed. And that's what caused the FDIC to be created. That's why your deposits are now insured up to a certain amount, so that if the bank does fail, the government will come in and rescue you. Back at the time of the Depression, we didn't have the FDIC. A very similar thing happened with FTX, there were just different things that cause people to start withdrawing money, okay, and FTX is an exchange just like a currency exchange at an airport, people will send money in and take coins out. So, they have a certain liquidity pool at FTX. Well, the more people started to run on it, and the more that word spread, people started cashing out their Bitcoin and their other cryptos, high value. And the liquidity pool for FTX wasn't sufficient to basically absorb everybody trying to take their money out. It was basically a run on the bank, it was a run on FTX, just like that caused the Great Depression, the liquidity pool wasn't large enough, and it failed. So, it was as a result of mismanagement, insufficiently funded liquidity pools. And there's some other reasons in there, too. Don't get me wrong. I can't we can't rule out at this moment, any type of criminal activity that was involved with it as well. But those are the two primary reasons if we take a look at it objectively, that, that FTX failed. Is that possible for any other exchange? It could be, it could be.

Drew Thomas  1:02:40  
Hopefully not. Yeah.

John Valkovci  1:02:42  
Hopefully not.

Drew Thomas  1:02:43  
All right. I think that I think we'll go ahead and wrap this episode up. And I definitely appreciate the time and the expertise on your part. Jeff, thank you for joining us. Well, thank you. Yeah, absolutely. You know, we'll have to, we'll have to invite you on to some of the longer form Bank Chats, you know, more often. So, yeah. And so yeah. So, we're gonna go and let John go, but thank you very much, I definitely appreciate it. I hope you'll come back and talk with us again, about some, some of these other things that we sort of touched on today that we didn't get to sort of elaborate into. I would be happy to. Yeah, absolutely. Thank you.

John Valkovci  1:03:13  
All right. Thank you very much, Jeff, and thank you Drew for, for allowing me to kind of work with you today, and I'd be happy to come back any time.

Drew Thomas  1:03:28  
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats, expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for financial professional who is aware of the facts and circumstances of your individual situation. Our thanks once again to John Valkovci for joining us to talk about cryptocurrency today. From a banking perspective, this topic is both fascinating and terrifying. We must emphasize how high risk getting involved in cryptocurrency can be. Crypto is still much more of a gamble than an investment. And while some may gamble and win, many others have lost. There may be a day when coins like Ethereum and Bitcoin become mainstream, but that day is still in the future. As always, I want to thank Jeff Matevish both for joining us on the podcast today, as well as for his assistance in the editing, production, and distribution of Bank Chats. We truly couldn't do this without his talents. We also can't do the show without you, our listeners. If you haven't yet, please consider helping the show by subscribing. Plus, you'll never miss a new episode AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. All of our episodes can be found on ameriserv.com/bankchats, or by finding the show on your favorite podcast app. For now, I'm Drew Thomas, so long.

2 Cents Episode: 3

Yeah, welcome to the next episode of Bank Chats 2 Cents. And I of course am Drew Thomas and with me is Jeff Matevish Jeff Matevish. So, last time, whenever we sat down, the two of us sat down, we were talking about subscriptions and things like that. And then, you then after the fact told a story about something relating to subscriptions, but not exactly the same. So, let's start with that, and then we'll get into what today's actual topic is. We'll, we'll see people can figure out what the topic is based on your story.

Okay. So, where do we start? So, we're into the new year. We are, yeah, Happy New Year, by the way, Happy New Year. Yeah. So, we're into the new year, and this is the time where, you know, a good chunk of the population decide to you know, get fit and join a gym for that first month, remove that chunk that I have around my way, and then and then stop going after January. Yeah. So, I thought about doing that last year, and I got so far as to go into the gym and inquire about opening an account. And I was assuming I could pay with a credit card or a check or something like that. But they require...or cash. I mean, I'd, cash is king with me, yeah. Legal tender. Yeah, yeah, yeah. I, so I tried to open an account and they required to link my bank account with, with them. So, that you know, I guess I didn't not pay, and you know, they could auto tap my, my account for payment. And that kind of scared me. So, I'm still as heavy as I was last year. I did not join the gym. But yeah, I mean, what, so what are your thoughts on, on linking bank accounts or auto payment in general?

Yeah, I mean, there, there are, that's a good, I mean, that's a good topic. And if you haven't figured it out, that is our topic for today. For those of you that didn't read it before you started hitting play. No, auto paying accounts, I you know, there's a lot of stuff out there that promotes auto pay, I know that my cell phone provider gives me a discount for auto pay. So, because you, okay, so you can, you can auto pay a couple ways. You can auto pay directly to the vendor, and then you can, you can do sort of automatic payments through your bank, like through bill pay, for example, you can set up an automatic payment. But they're a little bit different, because you're controlling the bill pay through your bank. Whereas when you sign up for auto pay, and you're giving your routing number and your account number and so forth to that vendor, and you're saying you're allowed to automatically debit my account on this date for this service every month, I think that's a, it's a little bit different. You're kind of giving them control a little more.

So, so bill pay is you're pushing a payment to the vendor, whereas auto pay is the vendor is pulling a payment? Yeah, yeah.

Yeah, that's a good point. So, so yeah, I mean, I do have auto pay on my cell phone, because I want the $10 a month. But you know, it's also, it's also a double-edged sword. Because you know, the bottom line is they're giving you that discount, but they just they want to make sure you're making the payment is what it comes down to. They don't want people; they don't want people defaulting and making late payments and stuff. So, it's in the vendors’ best interest to auto debit your account, so they know they're getting paid. But the trick becomes, is there money in your account to pull? Yeah, so you know, we were looking at a couple of different articles about this, because while we both have personal experience with it, the bottom line is we're not a vendor, I don't, I don't know what I can pull and what I can't pull. So, I started looking around at some stuff, and there was an article from CBS News that was published back in August of last year. It is last year now, how about that? Just talking about, you know, the benefits or the pros and cons of auto pay. And they said that, you know, one of the benefits to auto pay is that, you know, it means you'll never have to pay late fees, right. So, a lot of these organizations, they charge you a late fee, if you're if you're late on your payment, whether it's a credit card, or your cell phone or whatever. If it's auto debit, then there's no late fees, right? One of the cons is that if you don't have enough money in your account, right, your bills are not going to get paid. And you may not notice because it's on auto pay, and you think that the bills are coming out without you having to do anything, and then all of a sudden, it's not.

Well, so, are you talking about auto pay with a credit card or with a with a bank account. So, if there's not enough money in the account, right, it wouldn't make any difference with a credit card until you have to go pay their credit card.

True, but then you're, with a credit card, if you think about it, you're paying a lot more interest then, too. Oh, yeah, yeah, okay. So, you're, if you're not paying your credit card off every month, now you're paying interest on whatever bill you're paying. Okay. Yeah, so, yeah, but you could I mean, I guess you're right, you could set up auto pay on a credit card as your as your funding source. The other side of that is setting up auto pay to pay your credit card bill. Oh, that's scary. Isn't it though?

We just talked about that on the last one, you know, always look at your bill.

Yeah, and if you're not looking at your bill, then you don't know first of all, if there's fraudulent stuff on there. But even at that, if you're, if you're not looking at your bill, you know, just because your minimum payment last month was $100, if you racked up a bunch of stuff on your credit card last month for Christmas, and then you know, your minimum payment goes to $140, but your, your auto pay is set for $100, now, you're going to still be late.

Right. Or you only have $100 in your, your bank account, and you're over drafting then. Yeah, yeah.

And if you're, if you're late on the credit card, then they're going to ding you with a late fee, and you're going to pay interest on the late fee, and it just, it just becomes a snowball like huge really fast. Okay, I don't know. So, I'm guessing you did not, you said you did not sign up for the gym, right? Was it? Was it just because of the auto pay? Like, what are your, what were your concerns about auto pay?

I didn't know much about it. I mean, so it's one thing to fight a credit card transaction, you know, something fraudulent or something that, you know, I paid for, but I didn't get what I had paid for. I can always fight that transaction with my credit card company. How does that work with you know, if you have a bank account tied to, to a vendor? Yeah. If I decided I wanted to stop going to the gym and cancel my membership. But they for some reason, don't cancel it for an extra month, do I get my money back? And how?

Yeah, I guess you I mean, you'd have to, I guess you'd have to fight the vendor, like you'd have to find the gym. Okay. Yeah.

I mean, I, nobody can fight the gym. That's bigger than me, no.

Wasn't there, wasn't there a Friends episode or something about that? About like, I want to quit the gym? I think so, I think there was, you know, it was, you can't get out, it's impossible. Yeah. So, you would, I guess you're right. I guess you'd have to fight to try to get the money from them. Then, well, and then you also said something interesting about the, you said that you're under contract, like if you quit your contract, yeah. So, you could cancel your auto pay, but that doesn't cancel your contract. Right. And that's another thing to remember about these auto pay solutions is that, you know, if you're like me, and you have your cell phone on auto pay, and you decide, okay, I don't want my, I don't want, you know, my cell phone provider pulling my money automatically out of my account anymore. I'm going to, I'm going to start paying it manually. And then you forget, just canceling your auto pay doesn't cancel your contract, they're still going to keep billing you. Right? And you don't want to end up with a letter in the mail saying that you're five months past due on your cell phone bill or something like that. Although I guess they probably shut it off before then, but you'd think but you never know. Yeah, yeah. Yeah, I don't know. I get it. I, my dad, I use him a lot as an example, but my dad is one of those ones. He was very resistant at first, whenever even the utility companies started, not insisting because I don't think anybody can make you pay through auto pay. They can encourage it. I don't know that there's any vendor out there that can legally force you to pay your bill that way.

They can make it less attractive to not pay, yeah, with auto pay. Yeah.

But still, it was, you know, it was some ridiculous fee to pay by credit card or check or something like that. And he was still very, very resistant to giving out his bank account information, because he was like, look, once I give them, what's to stop them from debiting anything else that they want to, they want to take? And I mean, your contract says that they can only take what they're owed, but that doesn't mean that somebody in that company couldn't be malicious. Yeah, yeah. And deciding, I mean, can you imagine if somebody at one of the major cell phone providers decided that they just wanted to take an extra $5 out of every person that was a subscriber to that cell phone service and just add an extra fee? Yeah, just wrap it into that fee section, yeah, that you have no idea what it is. It ends up being a $5, "I'm going to vacation permanently in Cabo." Oh, yeah. You know, for some, I mean, seriously, though, if you think about there's got to be millions of subscribers to, I mean, there's only three cellphone providers. So, either Verizon, AT&T, T-Mobile. And I'm not saying that could happen there, I'm not saying that at all. But just imagine if somebody did that, if you said $5 on every subscriber, and they just took that money and ran. That would just be insane. Yeah, I'm sure there are legal things to stop that from happening, but that's a, it's an interesting thought experiment.

Yeah. Yeah.

What else do you, so, you don't pay auto pay on anything, then?

Well, I do. I mean, so ironically, just a couple of days ago that I had a utility company say, you know, I got an email from them, and I auto pay with it with a credit card, and they said, you know, because of credit card transaction fees going up, normally, I get a discount on my bill for doing auto pay. That discount is going to be cut in half if I don't connect a bank account. Gotcha. So, to kind of avoid that transaction fee, so I don't know what I'm going to do. I mean, I do have auto pay for like you said, cell phone and a couple of, like streaming services. Haven't gotten rid of those yet.

There's that bugaboo again, let's talk streaming. Yeah, yeah.

Stuff like that. I mean, it does pay stuff that, that is consistent. You know, I have the same total every month on my credit card for that, so I know how much I'm paying. And if I look at my, my statement, and it's ridiculously higher, I know something's wrong. So, I tend to only auto pay for things that can stay consistent.

Yeah, and that was something that was in one of those articles, too. I can't remember if it was the Experian article or the CBS News article or what it was, but they said, if you're going to do auto pay, you should do it on the things that remain consistent throughout the year, you know, within, within maybe within a slight variation. So, chances are, your water bill is within $5, $10 a month, back and forth. You're not suddenly going from probably $20 a month for a water bill to $200 a month for water bill, like, you know, so stuff like that, that's like a consistent fixed fee is better for auto pay than stuff that like, like a credit card that could vary because of Yeah. So, I was also looking at the Consumer Financial Protection Bureau put out an article again, last year, in August, and said that, you know, there's a couple of ways you can stop automatic payments from your bank account. One is, to your point earlier, whenever you said you'd have to fight the gym, you got to call or write the company and tell them you're taking away permission for the company to take automatic payments out of your bank account. And that company's customer service should be able to help you. Oftentimes, there's an online form you can use, or you have to send them an email or write a letter, old school. Do they still teach cursive anymore?

Oh, I don't think so. Yeah, I think my generation was kind of the last ones.

Yeah, you know what, I'm going to digress for just a second here on the whole cursive thing. So, so here's my thing about cursive. You may not necessarily need to write in cursive. But if you want to be able to read it, if you want to read anything written from 1975 back, you kind of need to know cursive, right? I agree. Yep. Yeah. All right. Anyway, you can call or write your bank or your credit union. So, if you've revoked authorization for the company to take automatic payments from your account, their customer service should be able to help you, your bank and credit union might have a form online or something along those lines. And again, you can, you can write a letter or an email. And there are some, some links here in this article from the CFPB that can give you some samples on what those might look like. So, we can put a link in the description, sure, to sort of direct you to some of these. And then there's also the option of doing a stop payment, which you know, any bank could do a stop payment, but there's usually a fee for a stop payment on a check or any kind of electronic debit transaction, something like that. So, just be aware that it's usually cheaper to just go directly to the, to the vendor, and say, I'm revoking my authorization than it is to go through a stop payment at your bank because your bank is probably going to charge you for a stop payment.

Okay, that was a little bit complicated, more so than just handing a vendor a wad of cash. Yeah. So, I'd say one big takeaway I got from this was make sure that the vendors that you're setting up auto payment with are credible, you know, and not going to run away with your money or sell you a false set of goods that you got to fight, yeah, a transaction or something like that.

Yeah, I agree. I mean, you know, we kind of were joking a little bit before about what it would be like, but I mean, really your cell phone provider, your electric company, your water company, your gas company, I mean they're, they're credible vendors. I mean, these are, these are institutions that have been around a long time that are that are held accountable, not only to the government but also to the literally millions of people that do business with them. Yeah, so you're probably okay setting up an auto pay, if you so choose, with somebody like that.

But that jelly of the month club that's got one star rating, you may want to reconsider.

Probably, yeah, I'm thinking you know, jelly of the month club. Alright, Clark. Yeah. So, all right. So, I mean, I think that pretty much covers what we were going to, what we were going to talk about today. I mean, was there anything else that I that I missed here? I don't think so.

No, I'm still not going to join a gym I guess but I'll buy an elliptical or something.

Yeah well, I bought a, but you know what, though? That doesn't work either. I bought a not Peloton. I don't know what it, I don't know what brand it is. It's a bike. It's like a Peloton, but it's not a Peloton. Okay. It was about $4,000 cheaper than a Peloton. But it has you know what, though, if you talk about subscriptions, which we talked about the last 2 Cents, and then you talk about this, there is a subscription to their virtual gym, yeah, right, where they have all these people that guide you through these bike exercises, things like that. And my waistline indicates that I am wasting my money on this virtual gym membership that I'm paying, you know, and that's a gym membership that's in my house and I'm not disciplined enough to go downstairs and use the dang bike.

Hey, YouTube, just watch YouTube while you're riding your bike, I'm sure you can get something very similar.

You know what, you're probably right. There's probably somebody that has ripped off the actual exercise videos from this company and put them on YouTube for free, most likely.

Don't, don't watch copyrighted material, but yeah, well,

YouTube usually takes that stuff down, they're usually pretty good at getting rid of copyrighted material. But yeah, I mean, I'm with you. I keep saying this all the time, but if anybody saw my picture about this, I'm not the poster boy for a gym, that's for sure. I used to be 20 years ago. Not anymore. So, all right. Well, Happy New Year again. Happy New Year Drew. Yeah, January 2024.

It's going to take me a while to start writing that 24 instead of 23.

Just make sure you print it and don't put it in cursive. All right, off we go all right.

This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated.

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2023.

Episode: 6

Fast fact, Americans spend approximately $1,000 on Christmas each year, with 71% of holiday budgets assigned to gift buying. I'm Drew Thomas, and you're listening to Bank Chats.

All right, today we're going to be talking, budgeting on the podcast. Very excited to talk about this, because this is something that affects so many people, it affects every single person really out there that has a house or rents a place or has a car or is basically just living life, right. So, the average household right now earns about $94,000, in 2022, before taxes, and spent $72,967, according to a survey by the most recent Consumer Expenditure Survey. That seems like a high number, and we're going to talk a little bit about where those numbers come from, and how you can budget and all that happy stuff. It's going to be a really good conversation and with me to have this conversation, because I can't have it alone is Kerri Mueller. She is the Senior Vice President of Retail Banking at AmeriServ, and I want to introduce her and, hi, how are you doing today?

Great, Drew. Thank you. Absolutely.

So, tell me a little bit about yourself and where you, where you come from and what your background is. Sure.

So, I've been in banking, probably for a little bit over 30 years now. And I received my bachelor's degree from the University of Pittsburgh at Johnstown. And a few years later, in about 2011, I went back and got my masters, and I've been in banking since then. And I pretty much have been in every position of banking, so that has definitely helped me be well rounded as far as being a branch manager of a branch and working with customers regarding this very subject to, you know, to being able to manage now 17 branches altogether.

So yeah, so managing 17 branches, I'm sure you talk to a lot of customers. I mean, you know whether personally or through your branch network, I'm sure you've heard stories and things like that about people. What are kind of, what are some, well, let's start with what budgeting is. Because I think a lot of people think that budgeting has to be a very complicated process. Is that true? Is that not true? Like let's, let's talk a little about the basics of what it means to have a budget.

Absolutely. So, a budget is something that most people need it in any terms. So, it's a way of seeing where your money is going each month, and it can help you feel more in control of your finances, make it easier to save money for goals. The trick really is to figure out what works for you. And that's what I found, I think most rewarding whenever I work with customers, as far as, you know, whether they come to me and you know they're in debt, or they want to start a budget because they don't want to go in debt. There's always a way to figure out or a tool to figure out and how to be able to help them. And it honestly does not matter what age you are, whether you're just starting out or whether your retirement budget is everything at any stage of the game.

Yeah, I would imagine that. I think a lot of people don't, don't think about that. And that maybe I didn't really think about that either. But as you, as you get to your retirement age, you're not going to have that consistent income, right. So, maybe budgeting actually becomes even more important at that point.

And you're exactly right. One of the relationships that I established whenever I was a branch manager, and I'll never forget this, was a couple that was in their 70s. And they came to me because obviously, you know, they had both retired, they were working on a limited income. But in the past few years, they had ran up their credit card debt, and they still had a mortgage and so forth. And they just couldn't make it. So, we sat down, and we talked, and we looked at different ways on how we could maybe consolidate a little bit of their debt to be able to increase their cash flow so that they could have more disposable income. And I was able to do a home equity loan for them and consolidate all of that debt. And they were so thankful, you know, the next day that I got flowers from them, because they were just, they were just elated. They could relax and they could live their lives now.

I think that's great. I mean, and I don't think that people sometimes recognize just how much of a relief it can be to sort of know where your money is where it's going, no matter how much your budget is. You know, just because you're making, you know, if you're making $94,000, which $94,000 sounds like, was it $94,000 or $96,000? $94,000 a year is the average in the United States. That has to be artificially raised by some of these people like Elon Musk or something. I agree, billions of dollars. I don't imagine that that's a pretty common thing and in a lot of towns, but regardless of how much money you have to work with, at the end of the day, knowing where it's going and how much you have allocated, every bin has got to be a relief.

And, and I think that's true. I think, you know, one of the fears that we have, even myself, is your right, no matter how much money you're making, it, if you don't know where that money is going and at the end of the month, you know, you're living paycheck to paycheck, it is very, very difficult, you know, to try and pay all of your bills, and then still have money left over.

Yeah. So, let's talk about some common misconceptions about, about budgeting. Right, because I think sometimes, I don't know, I think sometimes whenever people say like, well, you need to have a budget, it almost comes across as an accusation, right? You’re right. Like you're not managing your money properly, you need to have a budget. But what I mean, budgeting really is as simple as what you were just saying, it's really just a matter of sort of writing down or taking note somehow of how much you've coming in, and how much you have going out, right? I mean...

And that's exactly right. And we'll get into that a little bit later, but it really is. It's about figuring out, you know, how much you bring in on a monthly basis and tracking your expenses. And then what you have leftover, and if you find yourself in the negative at the end of the, end of completing your budget, you're going to need to make some changes. Yeah. And, you know, if you find yourself that you have some income left, then you need to decide on how you want to, you know, split that up. Whether you want to, you know, put that towards some short term or long-term goals. But I think the biggest thing is, is having a budget decreases your, I guess, opportunity to overspend and, and really just make purchases that you really don't need. Yeah.

So, if I was, so let's talk about starting a budget. So, assuming that I'm a person that has never had a budget before, and I think we've all been there at one point, I know, I was whenever I was younger, I sort of just flew with whatever I got in my paycheck. And you know, at one point I was working commissioned, so my paycheck could have been very different from, from pay period to pay period, right? What are some of the like, do you have to use, I mean, obviously, there's a lot of budgeting tools out there, like you can use online tools, you can use online banking tools, you can use software, what's the best way to get started?

To be honest with you, you're exactly right. I mean, if you Google any type of budget tools or calculators, there are tons of things out there that can help you. And some are, some are very easy, some are free, but it can also get very complicated. But my recommendation would be that if you're starting out for the first time and creating a budget, like, and I'll be honest with you, whenever I first started a budget, I started with an Excel spreadsheet and by hand, and I still use that by hand. And I have a binder and I put all my bills in there on a monthly basis. And I pay my bills twice a month whenever I get paid. And it's as simple as having a piece of paper and writing down exactly where your money's going and knowing where and what bills need to be paid when.

So, I mean, that's, that's comforting in a way that you know, despite what you might see online or in the media, you don't have to get some big, complicated program. I mean, it literally can be a matter of writing down two columns on a piece of paper and how much you have coming in and writing down what you have going out.

You're exactly right. I mean, we have you know, Dave Ramsey and Suze Orman, Suze Orman, she is always on TV. And you know, they're always giving financial advice, which is great, and you can listen to that. But for some of us, it could be over our heads, and we might not be able to, you know, comprehend. And so sometimes I think that the simplest way is the best way.

So, obviously just writing down a list of what you have coming in and what you have going out isn't, that's a good starting point, but you kind of have to have a goal, right? I mean, so your, what is your goal of a budget? Is it literally to just make sure that you're coming out even on both sides every month? Is it, is your goal to have a little money left over, like what should your goals be, ideally, when you're starting out building a budget?

Well, I do think that, you know, you need to come out at the end equal. I mean, obviously, if you're in the negative, then you need to start looking at your expenses. But, you know, the biggest part is, I mean, the best solution would be if you came out with some extra money that you had, and you could decide what to do with that, whether you wanted to save that or whether you were going to use that for a special purchase. But I think you know, the first step in calculating your budget is to make sure that you're using your net income and really the foundation of that is that's your take home pay. 

Okay, yeah, I was gonna say let's, let's, let's, let's define net income, right? So, Right.

So, when you look at all the deductions that come out of your pay, it's just the opposite of like, when you apply for a loan, they take actually your entire income.

They take gross income. Yeah, exactly. We've had, we had, we had an episode about loans, and we talked about gross income, right.

But technically, that is not what you bring home. So, that can be a little bit of a conundrum. Because when you consider your take home, pay it's your total wages of salary, minus the deductions for your taxes, and anything else that you might be putting towards retirement or health insurance. So, focusing on your total salary instead of net income, could lead to overspending because you think you have more available money than what you really do?

So, just so, so, just using as an example, let's pretend I make $50,000 a year, right? So, I make $50,000 a year. But that's, that's what the, that's what my employer tells me that I make. That's exactly right. But, and that's what I would tell a loan officer or something, if I were looking to do a mortgage, or looking to take out a loan, that my gross income is $50,000 a year, but my net is $50,000, minus all of those pre-tax deductions plus my taxes, right? So, like my taxes come out, things like that. So, what you get on your paycheck, is really what you want to be looking at when you're starting your budget. Absolutely. Okay. Absolutely. So, and some people now, now here's the other thing, like you said, you get paid twice a month, correct. So, some people get paid twice a month, some people get paid bi-weekly, some people get paid once a month. So, that also I think, has to factor into your budgeting, right? Because if you're the type of person that only gets paid maybe once a month, you got to make that stretch for four weeks.

That's exactly right. And that can have a big effect on, on your bills. I mean, whether they come due, you know, in mid-month, or whether they come due at the end of the month, you need to plan, so you actually need to plan a month ahead of time. Right? In order to have the money to pay your bills for the next month.

Yeah, because you're not paying your electric bill for last month. You're paying it for next. Exactly, yeah. So, and I can speak from some experience in that, you know, I said before I worked, commissioned sales for a while. And you know, especially around this time of year, we're recording this in December, right? So, the holiday season and stuff, man, I had more, I thought I had more money than I ever knew what I was going to do with and that was great. But I had to also think about the fact that in February and March, I was going to be making a lot less, and I still had to pay my bills. So, you have this sort of like rich man syndrome, where you get paid, and you're like, oh, I've got all I got more money than I know what to do with. And then, you know, three weeks later, you're like, oh, geez, I can't pay my car insurance, right? So, so I think, especially in those situations, having a budget where you literally know, like, I'm putting this amount of money into this bin, this money into this bin, you can sort of tell yourself how much money you can spend every week, while still being able to pay all your bills.

And I can't agree more, I think a lot of us have, have an idea that we have all the money, disposable income is really what it's called what's leftover. And, you know, we'll go shopping, and we'll buy that sweater, or we'll buy, you know, an extra purchase, you know, could be anything, a TV. But what happens is, you're exactly right, those bills come due, and you've already spent that money. And so, I think that's why it's so important to really take a look at your budget. And once you know how much money you have coming in, the next step is to really find out, okay, what are my expenses now? Where is it going?

So, what are some good, are there any good tips or methods for sort of doing that, for sort of setting that money aside ahead of time? You know, there are some methods that maybe people can use that would be maybe more tangible than just writing it down on a piece of paper and trying to be disciplined enough to not spend the money?

Sure. I mean, to explain, to first to explain your expenses. I mean, there's two kinds of expenses, there's fixed expenses, which are basically, you know, those expenses that you have every month that includes your mortgage, your utilities, you know, even groceries, I mean, these are the things that you know, fixed expenses that you need to have in order to live, right?

Food is important. Absolutely, absolutely. If anybody has seen my picture, they know that food is important.

So, the other part of the equation is variable expenses. And variable expenses are something that can change, and they change from month to month. They could be entertainment, they could be gas for your car, I mean, anything like that. So, I think this is an area where we possibly could, in the end, find opportunities to cut back on. I think one of the most important things and I think I heard in one of the podcasts before is that the, probably the most important expense, fixed expense that you want to pay first is your mortgage, right? Because you need a place to live. And normally your mortgage and your car payment are going to be your two most important expenses that you want to pay. And then you can look at all the other areas that you may want to cut back.

That's a good point because like you said, you need a roof over your head, whether you're, whether you're paying a mortgage, or you're just renting whatever it is, you need to have a roof over your head, and then transportation, you know, people tend to think like car like, oh, well, I can, I can hold off on the car. But if you don't have a car, now, how do you get into work? Right, you either have to take a bus, you have to take a train here to public transportation, that costs money. So, having that, you know, working vehicle and being able to be you know, get yourself from point A to point B, that's, that's an important thing.

Yeah, that's exactly right.

So, let's talk a little bit about, I’ve heard about something called the envelope method, what is the envelope method?

So, as you mentioned before, there are so many different tools and apps out there that can help you budgeting and the envelope method is basically where you title an envelope for, you know, your different expenses. And so, each month, and a lot of the older generation, whenever they receive Social Security, tend to come into the bank, and they pull out their money, and they use that envelope method. So, they put money in there in order to pay their rent, and or mortgage in one envelope. They put money in there, in another envelopes who pay for utilities, they put money in another envelope to pay for groceries, and they the, the final envelope would be for any type of entertainment or anything else that might come up. So, once that money is gone, right, you know that you cannot spend any more.

I mean, that's, that's a, it seems like a very effective way to do it, because you can also kind of see when your money is getting a little low. And maybe you, you know, when you go grocery shopping, maybe okay, maybe I don't buy two bags of chips, or that extra thing is soda or something, maybe I buy just like the staples, because I can see that my money is getting a little lower.

That's exactly right. I mean, you have a fixed amount of money for your groceries, and you need to stick to that.

So, that was, that's a really good method for people that still like to use cash. Correct, right. But let's be honest, not all of us use cash. Right. So, what other kinds of things can we look at for people that maybe are more like, debit card credit card type, you know, folks?

So, there's an, there's, there's a lot of other methods. And one of the other methods including myself that I use, I have a house account. So, again, you know, if you have a bank, and right now, I mean, direct deposit is probably most popular in how people are receiving their pay at this point. But to open up, maybe one or two more different accounts and name those accounts, whether it be a house account, or whether it be a savings account. And when your paycheck comes in, you can either automatically have that money be transferred to those different accounts, or you can do it manually. But those accounts, then how's that money for those particular expenses. And so rather than pay cash, you can write a check, you can use your debit card to pay those types of bills as well.

So, speaking is a person who's worked in a bank for such a long time, right? So, as far as having those, like, do you have to, you can usually find some sort of a free version of an account, right? Or like a, like a free checking or something like that, savings accounts, things like that? Because you don't want to end up you know, feeding yourself into, you know, an additional cost. But most of the time there's a, there's an account at your bank, you know that you can have multiple versions. That's exactly right. Okay. So, let's also talk a little bit about something called the 50/30/20 rule, which you mentioned, I don't know if you mentioned it on the mic, but you mentioned it before, what is the 50/30/20 rule?

So, the 50/30/20 rule is a budgeting technique that actually divides your take home income into three categories. And it's a simple way to track your spending. So, basically, what the 50/30/20 rule states is that 50% of your income goes to your needs. And those needs might be obviously your rent or your mortgage, your car payment, utilities, groceries. 30% is going to go towards your wants. And that's going to be, whether it be shopping, vacations, streaming services, and then the other 20% is going to be dictated by savings or your debt. So, it's going to be either like an emergency fund, or it's going to go towards retirement, your child's education, different things like that.

Okay. So, you said it's, it's what is it, its needs, wants, needs, wants, and then sort of emergency. Okay, so that makes sense. I mean, because that, that's another thing that I think a lot of people tend to forget about is paying themselves if they can. That's exactly right. And it's not always easy to do, especially because you're the first person to let yourself off the hook whenever you say, well, I know I can live, future me can deal with, with that problem. I want my, you know, Starbucks coffee, now. You know? But ultimately, it's a little bit about being disciplined and saying, no, I have to treat myself like a bill. You know, and, and I have to pay myself a certain amount of money, even if it's $5. Because that savings could really come in handy down the road someday. Absolutely.

Absolutely. I mean, the rule of thumb is, is that, you know, any type of savings account, they tell you that you should have twice your salary, you know, in a savings account, and you know, that can build fairly quickly, especially, right now, obviously, with the interest rates they are. Yeah, that's a whole other subject that we could possibly just hit upon. But again, you know, paying yourself first and putting that money into a savings account, and seeing that savings account grow, gives you a feeling of accomplishment, and really, you know, it allows you to spend that money then on what you need to.

So, I think we've kind of we've, we've sort of touched on this a little bit, throughout our normal, or throughout the discussion we've had so far. But if we can talk just a little bit about some of these challenges, so like, what kind of, in your experience, what are the biggest challenges people have, when, when starting a budget or trying to stick to a budget?

I think really, sometimes whenever you are trying to adjust your spending to stay on a budget, it can be really hard, because I think sometimes you feel very restrictive. And sometimes you feel like, okay, I can't do the things that I want to do. And that obviously can have an effect on you. But the one thing that I can say is, you know, you need to constantly look at your budget, and you need, just because you, it's not set in stone. So, just because you, you know, one month, you set your budget for the first time, the second month, you need to relook at your budget and make sure that you know, everything is still obviously working because there's so many other variables. I mean, you could get a raise at work, you know, expenses might change, and goals are changing. And so, I think the biggest thing is just being able to be flexible enough to change your budget the way you need to.

I think too, sometimes after you do a budget for the first time, you get through a month, and then you realize that there were five or six things that you pay money out to every month that you didn't remember, when you first added it to your budget, you kind of have to go back and add those things. That's exactly right. We briefly, I know you haven't had a chance to hear this yet, but we, we just had a conversation the other day on a, on a Two Cents mini episode about, about subscriptions. And those fly under the radar so easily. When you have things like Netflix and Hulu, and maybe it's a, you have your cat food on subscription with Amazon or whatever it is, but those they kind of fly under the radar, and they just sort of auto debit. And then you forget to add them to your budget, and then suddenly you've, you're looking at your budget numbers and you're going to why am I $50 shy? Well, it's because you have all these subscriptions coming out and you didn't think about them. So, you said about like having to sort of, you kind of can feel restrictive sometimes because you're used to spending money in a certain way. And then you have to sort of cut back. Is it kind of like a diet? Like if you fall off the wagon, maybe it's you don't just throw the budget out the window, you kind of just have to just okay, I slipped a little bit, I'm going to try to refocus.

That's right. I mean, that's, that's a very, very good analogy. I think that, you know, because you feel restrictive, and if you do slip, if you do kind of, you know, maybe slip for a month and you spend a little bit more than you need to, or that you should, it's okay, it's okay. I mean, you know, a budget is something that, like I said, is not set in stone. And sometimes emergencies come up, or sometimes maybe, true, just another want comes up that you want to spend money on. But in that case, if you do decide to do that, or need to do that, then you're going to need to make sure that you make up for it the following month.

So, and again, I know you know, the weird thing about a podcast is we're living in a certain time, but then, you know, people are listening to this at a different time. But we're recording this around the holidays, and I think that's another time when people tend to overspend. So, are there anything, is there anything out there that you can think of that, you know, may be a good way to try to sort of, sort of anticipate that, that holiday growth and spending, that can try to help with something like that?

Sure. And again, you know, that comes into a savings account. And a lot of banks even have Christmas clubs where you can put money into a Christmas club and that money again can automatically come out of your paycheck, so you don't even see it. You don't even know that it came out and it automatically goes into the Christmas club. And then every year, you know, a check is drawn, or it's transferred into your checking account. And it could add up depending upon what amount of money you decide to put towards it every month, or every pay. It could amount to a couple of $100, and that could be your Christmas fund. And then another way, interestingly, just a few weeks ago, so I bought two books that I saw advertised, and they have little pockets in them, I bought one for my daughter and one for myself, okay, and there's, they're little plastic pockets, and it tells you how much to put in there. Because really, you're not going to miss it, if you have, you know, a few bucks in your wallet, you're not going to miss that. So, you start out small and you may put, I don't know, $2 or $3 in the first one, and that's your first page of pockets. And the more the further you get in the book, with the pockets. Right? The higher get so like it, maybe it's $5 the next month. And by the end of the book, that right there is almost $500, oh wow, that you've, you have saved, and you didn't even realize it. Yeah. But $1 here, $5 here, you know, again, just like you said, we don't, we don't really, I guess comprehend how much in a month we spend when we do go to Starbucks every single morning, spend that money on coffee, or, you know...

Going out to lunch. Yes. I mean, you know if you're, it sounds really like a dumb thing. Because you're thinking oh, well, you know, how much is my $6 or $7, that McDonald's or Burger King really costing me but when you think about it, if it's, if it's $7 a day, five days a week, that's $35 a week, that's $140 a month. And I'm impressing Kerri with my quick math, mental skills. But that's $140 a month you're spending on lunch where, you know, if you bought some, some chipped ham, and some buns and whatever, and I'm letting my Western Pennsylvania come through with chipped ham. But you can I mean, that's, that's a way to cut back and you're still eating lunch, but you're not necessarily spending as much money.

And that's a great example. And people tend, you know, when we look at it, we think oh, five bucks here is nothing right? But, and that's how most people look at spending money. They don't really add it up over time. But when you do it in the way you just did it, it really does amaze you on how much money you're spending on, on, you know, things that you possibly there's another way of, of getting around.

And going back to that sort of diet analogy, like, okay, you know, maybe you don't go cold turkey. You know, if you're used to eating lunch out every day, you know, maybe you say okay, well, next month, I'm only going to eat out three days a week. You know, and then the ones after that maybe two, maybe one you know, so you treat yourself you give yourself that sort of like permission to sort of spend one day but you don't have to go like just cut it off at the at the limb, and that's well that's it, I can't do that anymore.

And I think you're right. And I think that that's important whenever you're just starting a budget. It's not as though, and I think like I said, when we go back to feeling restricted, when you first start a budget, it doesn't mean that you have to account for every single dollar that you're spending. I think when you start a budget, you know, obviously you want to list your expenses, you want to list your income, but it doesn't mean that you have to stop everything, right? Anything or like whether you want, if you want to go get a coffee maybe once or twice a month, you can do that and kind of just back off gradually, but eventually you're going to see exactly, you know, what it is and how much you can spend each month on those kinds of things.

Yeah, so let's talk a little bit too about some, some, some ways that maybe you can overcome certain hurdles, like for example, like, it's not even so much a hurdle, but just life changes. You know, I mean, I think it's important too, that you know, you set a budget, and then kind of like you said, like, you've got to look at it every month, especially when you're first starting. But after you get sort of comfortable with a particular budget and your, your income and so forth, you kind of fall into a pattern. And then something changes, like you get married, or you have a child, right, or something happens where you, where you all of a sudden have a whole set of new expenses that you never had before. So, one way of course, is to try to cut back, right, which we've kind of talked about, but I think sometimes the other side of a budget is well, maybe I need to look for some additional income. Right? So, what like, you know, does that mean you know, changing your, your, your everyday nine to five does it mean adding a side hustle, like how what are some ways that maybe like you can adjust for major life changes?

Right and, and I think that that's important. I mean, obviously I know a lot of people that do have side jobs that can possibly supplement your income. But that can be hard, right? That can be hard on you, that can be hard on time, especially whenever you have a family with small children. I think one of the biggest things that you can do when you start your budget, as another step is to set realistic goals. I think, you know, once you start sifting through all of the information that you've tracked, you start making a list of your short term and your long-term goals. And so throughout that budget, you know, your short-term goals might be like, I don't know, three to five years. And that might include things like setting up an emergency fund, or possibly paying down credit cards, but your long-term goals are where you're looking at maybe getting married, or you're saving for retirement. So, you have to incorporate those into your budget. So, that, that's another step. When you sit down to make a budget, I think that's just as much, it's just much as important as just determining where your money is going at that time.

So, that kind of goes back to making yourself a priority to a certain extent, and just understanding that your life is not always going to be exactly what it is today. That you even when you're starting a budget, you know, if you think that's something that might be in your future, try to start budgeting for it now.

I mean, I think goals are everything. And you know, we have goals in every aspect of our lives, whether it be career, whether it be you know, whether it be anything, it definitely could be incorporated into a budget as well. Yeah.

So, you know, if you were, other than listening to this, you know, incredibly useful podcast, what, what kind of resources, would you recommend somebody look into if they were looking to start a budget? Like, is there, is, are there any websites or apps or books or anything like that, that you could sort of point people to?

Yeah, I mean, again, Drew, I think that anytime that you can, I mean, honestly, if you just go out on the internet, and you Google, there are tons of free apps out there, I know that there's apps on bank websites that you can also use. But again, sometimes the simplest form is the best form. And that's what I choose, I'm not using an app, I'm just, I'm using an Excel spreadsheet. And sometimes, you know, again, it works for me, but I think that the biggest thing is just finding out what works for you. And there are tons of books out there on budgeting. And, you know, I know that we have done classes, and there's different educational tools out there too, that you can use. And especially important to for you to teach your children just as much as you know, when you're sitting there doing a budget to have your, your teenagers or however old they are, if they're, they need to be old enough to understand the value of money, but to have them sit down with you and to really understand exactly what it is and where that money is going.

You know, that, that is I think, that's a fantastic point, because we're sitting here talking about this in terms of okay, well, you know, there are people that literally don't understand how, or have never had to create a budget before and they're adults. And whether it was because their parents just felt like that wasn't something they'd be interested in learning when they were kids, or maybe their maybe their parents didn't have a budget either, and they, they were sort of floundering financially. I think that's a really good point to make, that incorporating your kids and teaching them the value of financial education and financial literacy is a really important thing.

You know, I remember whenever I was young, you know, like, we always heard our parents say that, you know, money doesn't grow on trees, right? Yeah. And, and I think today, I think a lot of our teenagers, you know, just think that they can, they can go out and they can buy what they want, and the parents can usually fund it for them. But in my experience of teaching Junior Achievement in high school, there is an exercise that we do with the students, and we basically have them choose what, what we think that their life is going to look like, right? What kind of car do they want to drive, where what do they really want to do in their careers, what kind of housing do they want, do they want some kind of loft or, you know, a terrace apartment or something? But by the time they get done, there's numbers that are, that are affiliated with each one of those, and when we take the income, when they take their income of what they're gonna make, and they take the expenses, they find out that they're, not only do they have they don't have any money left during the whole negative and so it kind of wakes them up a little bit as to okay, this might not be as easy as I thought it was going to be. Yeah.

And, and too you know, we talked at the very beginning of the episode about you know, that, that average annual income of like $94,000 a year, but, you know, that, that also depends a lot on where you live. You know, if you're the type of person who grew up in a small town where the, you know, the local population, maybe, maybe in your town, your, your, your average salary, or the average income for the family was maybe a lot less than that. And you want to be the type of person that says, well, I want to live in New York, I want to live in Chicago, I want to live in, you know, Atlanta or something. Suddenly $94,000, even though that might be twice what your parents made is still not enough.

That's exactly right. I mean, the cost of living in different areas can really, really have an effect on, on what your budget is. I mean, that dollar may not go as far as what you, what you thought whenever you were growing up.

Yeah, I mean, we, you know, we're in Pennsylvania, and I was reading something the other day that said that Pennsylvania ranks 33rd in rent cost, okay. So, and 33rd, meaning that, like 51 is the most expensive, right? So, including, including DC, Pennsylvania is 33. The average rent, monthly rent in Pennsylvania is $1,660 a month. And I can tell you that around here, that would be just, that would be a really nice house payment. It certainly would be. But you know, depending on where you live, that, that can be a big deal. So, again, that $94,000, if you're if your rent is almost $2,000 a month, that's not as much so sometimes maybe it's a matter of also being realistic about where you're living, and, and what kind of job you want to have where, you know, sometimes if you want to be an actress, you want to be a, you know, you want to be a racecar driver, you, you have to live in a certain area. Right? But most of the time, there's some flexibility in terms of well, I can do this, and maybe, maybe remote work comes into play, nowadays that sort of thing. I don't know. But I think your budget also depends on, I think it's a long way round of saying I think your budget has a lot of where you are.

Absolutely. Absolutely.

Well, I'll tell you, I think we kind of got through most of, most of what we were going to, what we wanted to discuss today. Was there anything else that you can think of that maybe we, we want to make sure that we share with, with listeners before we sort of let them, let them go?

No, I think I would just as a reminder, I think that you know, just sitting down and, and really just getting started probably is the most important step in determining your budget. And, you know, starting out by listing your income, listing your expenses, and, and finding out exactly where you stand, and then reviewing your budget regularly and setting goals. Those are some of probably the most important things that we talked about in setting a budget. Especially in today's economy when the inflation obviously is so high and your dollar doesn't go as much, I think is now probably the most important time to really sit down and really take a long look at, at your money. Yeah.

And that's, that's, that's probably a conversation that we could have another entire episode on the whole concept of inflation and all that, but it is, it's, it's crazy, crazy how much you know, things cost today, compared to the way they were even five years ago. I mean, the pandemic just didn't real number on the economy.

It really did. It really did. And, and your dollar just certainly does not go as far. And so when you go to the grocery store, and you know, you budgeted, you know, $100 you know, to get your groceries and it actually, you know, right has come to maybe $150. Yeah, that's $50 that you didn't budget for. So...

Yeah, well, that goes back to what you said, you gotta, you gotta keep on top of your budget too.

You can't just set it and forget it. Right. You need to track it regularly.

Yeah, what was it's not Ron Popeil. It's not set it and forget it. You know, Kerri, thank you very much. I really appreciate your time today; I know that you're a very busy person. But it's, it's really nice to be able to get your insight on some of this stuff. And I think that people really can benefit from, from a lot of what we talked about today. There are a lot of articles, if you visit ameriserv.com, we have a series of financial literacy articles out there under our Financial Library section that you can visit. There's all kinds of stuff, there's stuff in there about the 50/30/20 rule, there's stuff in there about household budgeting as a general concept, so please feel free to check those out. They're free, you can go to the website, you can look at them. You can, there's even coaching sessions, you can kind of be more interactive with that sort of thing. And but yeah, thank you. Thank you very much for your time.

Thank you for having me. Absolutely.

This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with a goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to bank chats, is not intended, and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. We want to offer our sincere thanks to Kerri Mueller, Senior Vice President of Retail Banking at AmeriServ for providing her time and expertise on the show today. Ultimately, the key takeaway from our conversation is that any budget is better than no budget. Start small, stick with it, and don't be discouraged if you fall short. If you're comfortable with using budgeting software, that's great. But a few envelopes and the ability to dedicate a short amount of time each month to planning out your spending are all that's really needed. We also appreciate all of you who have liked subscribed and follow the podcast. If you haven't yet done so and you like what you're hearing, please consider helping the show by subscribing. Plus, you'll never miss a new episode. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. Production assistance by Jeffrey Matevish. Previous episodes can be found on ameriserv.com/bankchats, or by finding the show on your favorite podcast app. For now, I'm Drew Thomas, so long.

2 Cents Episode: 2

So, we are back with another 2 Cents episode of Bank Chats, a mini episode of Bank Chats. A very small, shortened version of Bank Chats, if you will. I am Drew Thomas with me is Jeff Matevish as before. Hey, Jeff. Hello. And so, we sat down today to talk a little bit about subscriptions. And I think we all have some kind of subscription that we currently have signed up for, whether it's streaming or streaming services, even, even certain apps like weather apps that you know, you get some that are free, some that you have to pay for. There's all kinds of different things out there; car starters and different subscriptions you might order like, from like stores and things like that.

Magazines, I mean if people still read magazines, but yeah, well, you'd have

a digital magazine. Yeah, yeah, that's true. That's true, newspaper. Yeah, news. That's, you know, that's a really good one, like the newspapers out there that have gone to a digital model. And you're paying for that digital newspaper to be delivered to your inbox. Are you really reading it? Right, right. Maybe you are, maybe you're not. But that's kind of what we're going to talk about today are subscriptions that have sort of gotten lost in the shuffle that you're paying for, that you might not necessarily be using. And that money's being spent whether you're using it or not. Right. So, you know, I was looking at an NPR article, and in that NPR article, they were talking a little bit about subscriptions. They say on average, about 8% of customers canceled during the months when they're asked to actively renew their subscription. Only 2% of those who cancel are doing so during other months. And I think that that's kind of the key is that you get a lot of these subscriptions that do this sort of idea of, hey, there's a free trial, right? And you get you get your free three months, and then we're going to start, you know, then your subscription automatically renews. Yeah, right. Yeah. Do you have anything like that? Like, what do you, what do you subscribe to?

Streaming services galore, definitely. Because yeah, you can't have one app that does it all anymore.

No, that's true. I'm the same way I have. I have like every streaming service out there, I think, yeah, yeah. And I'm paying as much for those as I am for cable, which is sad. I'm probably I mean, seriously, when you add up all those individual likes, and, you know, like, $6.99, $7.99, and $2.90, whatever it is, and like, you add all that up, and all of a sudden, it's like spending $70.00-$80.00 a month on streaming services. Yeah, you know, pretty easily.

I want to watch this one movie while I gotta get out of this app and go to this app. I don't know where it's at. You know?

Yeah. And we get you is that there are some shows that are available on multiple streaming services and some shows that are only available on one and then you're paying for that one show. Like that was a big deal when, when The Office left Netflix, I remember that was a big, and Friends it, there's The Office and Friends that were, there were both on Netflix at one point. Yeah. And they, they moved to other platforms. And people were just losing their mind over the idea of having to switch to whatever platform they moved to. I can't even remember I think, I think The Office went to HBO Max? Something like that, which is no longer HBO Max it's now Max, because you know, we just keep changing names and colors and you know, gotta keep people confused. Fresh. Yeah, you know, fresh or con-, you say fresh, I say confused. So, so is that, is that why you have multiple streams is so you, so you can watch like one show on one thing? Oh, yeah,

I mean, pretty much. Yeah, yeah, pretty much. What other subscriptions do we have? Shopping subscription. So, you know, you may have Amazon you know, for example, Amazon Prime, you pay a subscription to be able to get two-day shipping. Go even further, you know, you have Amazon Music, which is still an Amazon product, but it's a completely different subscription, you know, yeah,

that's true. Well, that's true because you get well speaking of videos, so you get Prime Video as part of your Amazon subscription for Prime, but you only get a limited music library as part of your Amazon Prime subscription. If you want the full music library, you have to get the Amazon Music subscription. True, true. So, I think with this article, and there are a number of articles. There was another article we were looking at from a lesser-known publication called Techlicious, which I just love the name, is talking about what do you do whenever you don't realize you're, you're paying these, these fees? Because I think to your point about shopping, if I have a subscription for, I don't know coffee beans, right, I'm getting coffee beans delivered to my front door. Like I recognize that I must have paid for this because it showed up. You have something tangible. Yeah, yeah, exactly. The same thing like, you know if you talk about auto pay with like your electric bill or your water bill. Like if you don't have water, you know that something is wrong, your pipes are frozen, or you didn't pay your bill. Yeah, but with these streaming subscriptions, especially and sometimes you just don't realize you're paying the money. You, you, you to your point you, you bought it to watch one show or one movie, and then you forgot about it.

Yeah. Or you sign up for that, you know, 99 cents a month, you know, for a year, starter fee, and you know, you don't think about it, because you, like you said you wanted to watch one show. Yeah. And then your year is up, and it's now, you know, $20 a month.

Yeah, you bring up a good point, I just bought a, I just bought a car about six months ago. And as part of buying the car, they said, hey, you get three months of Sirius XM, you know, as a thank you for buying the car because the car came with Sirius XM, right? And then they said at the end of the three months for an additional $2 we'll extend we'll double your subscription. For $2, you can have six months of Sirius XM. And now I'm coming to the point where I'm getting close to that end of the six months. And I'm starting to think about how do I cancel this subscription? Yeah,

you better start thinking about that early. Yeah, because actually I had a relative that tried canceling XM Radio, and he had a heck of a time. Really? Yeah. Yeah. Because you mean, you make a phone call and now you talk to a robot, and you can't always get through to an actual person. He ended up going to his credit card company and said, you know, hey, just stop paying refused to pay this because I've tried and tried, and I can't get through to anybody to cancel this subscription. Yeah, that's crazy.

That's crazy. And well, you bring up credit cards, your statement. So, sometimes you can look at your bank statement, your credit card statement, and you see these entries on there. Yeah. And that's one way that you can take a look and see what subscriptions you're signed up for that maybe you're not using. Yeah, but sometimes it's tough to even tell what those descriptions are, you know, when you go down through and you see, you know, $6.99 and its sort of a gobbledygook of letters, that if you know what it is, you know what it is, but to the average person, it's, it's not easily decipherable. Yeah, yeah. And we have stuff, you know, even for things like computers, like you have to have subscriptions now, for things like Microsoft Office, a lot of times you have a subscription. Or, if you have a gaming system, like an Xbox or PS5, you might have a subscription to be able to just play games online.

Yeah, the physical disk is going extinct. Yeah. Yeah. I

remember, whenever I was a kid, you actually had friends come over and physically sit in the room with you and play video games. Now. Now, you may not even do that half the time anymore. Yeah, yeah. But those are the kinds of things that I think we're talking about, too, is this idea that okay, you, maybe you were a gamer three years ago, but you got a different job, you don't have the time, you had kids. Now you, you have other interests, but you're still paying that subscription fee to be able to play that video game online, even though you haven't picked up a controller in a year and a half. Yeah. Right. So, let's talk a little bit about how to cancel subscriptions that you're no longer using. Okay. Yeah. Because one of the things that I was reading here is that that's not always easy. You absolutely cannot always figure out exactly where your subscription is housed. Let's put it that way. I think if you go to like to your Apple iPhone, don't, isn't there a subscription section in your Apple iPhone? Like in the settings? There is? Yeah,

yeah. Under your Apple ID,

I think yeah, yeah. So, is that subscriptions that you signed up for on your phone?

I'm thinking, probably? I would think. Yeah. So,

if I sign up for a subscription on my phone, the subscriptions probably housed in there. Yeah. What happens whenever my subscription is through some other service? Say, for example, I get a new cell phone at Verizon, and Verizon says, hey, for the first year, you get a free subscription to Disney+, how do I cancel? Do I cancel Disney+ with, with Disney? Or do I cancel with, with Verizon?

Well, usually how it goes is you call one they tell you to call the other than that, that provider tells you to call the, the other one back. So, yeah, it goes around in a circle.

Yeah, that's frustrating. I mean, it's, and especially when you start thinking about like the, I think they are very, very deliberate in terms of what their fees are. I think most of these, these places, their fees are probably under $10.00, right? Per month. Yeah. So, you look at your debit card or your credit card, and you say, ah, it's only $7.00, I'll just, I'll just, I'll just let it go. It's only $8.00, I'll just let it go. Or maybe it was only $8.00, I thought, maybe that's what I spent at, at the convenience store yesterday, because I bought some chips, and I bought a soda. I mean, so they kind of fly under the radar a little bit. But if you think about it, if you had an $8.00 subscription to a service that you're not using, and say you have three of those. That's like $300.00 a year that you're wasting on stuff that you're not even using, man. Yeah, I mean, and you know, to some people, maybe $300.00 isn't much, but to me, it is something.

That's a utility bill. That's, that's a present, that's a Christmas present. That's true.

Yeah. And you know, we're recording this right at the beginning of December. So, I can guarantee you that there are going to be people out there right now listening to this, who have gotten introductory subscription offers at this time of year, that these places, they're hoping that you forget about them. Yeah. I mean, that's really what it comes down to. They're hoping that you forget about them, definitely. Yeah. So, there are apps out there and I think you did some research about different apps and different services out there that you can theoretically use that are, they say that they are designed to help locate and eliminate subscriptions that you're not using? Yeah,

some, you know, they will fight one of your subscriptions to try to get you a lower rate. Or if you're trying to cancel a subscription and you can't, they'll have an agent do it for you. But a lot of times there is a fee with that. So, you know, of course there is exactly it's another subscription.

I'm suppl-, supplanting one subscription for another

is what you're saying. Yes, yes. But in hopes that you're, you're gonna save money. Yeah. So that's, that's the big thing you got to look at, okay, how much can I potentially save? And is getting one of these apps or using one of these services worth it? You know, if the free version doesn't come with whatever feature you're looking for. So, what kind

of feet-, so, so you said about free. So, what, well, give me an example, like what would be something that would be part of the free version that isn't necessarily part of the paid version?

I think a lot of the free versions have budgeting tools. So, it may not be something to get rid of a subscription. But it may give you more of a visual of, hey, this is where I'm paying the most money on this subscription. Or, you know, hey, next year, I want to try to save, you know, $100.00 a month. Okay, how are you going to do that?

So, looking at some of the ones that you looked at, like you looked at like Mint, I think you, you looked at like a PocketGuard, Truebill, which is, which is I think Rocket Money, which is a pretty popular one, I think. And again, you know, just like everything else that we talk about on this podcast, we're not endorsing or trying to, we're not trying to sway you one way or the other. We're not trying to, we're not trying to tell you to use one and we're not trying to tell you not to use one, we're just trying to put the information out there about how they work. And whether or not, you can decide for yourself whether or not you think they're worthwhile. But I think, I'm looking down the list here, it looks like most of these come with some sort of a free version to start. Yeah. And then, you know, there's limits on how many subscriptions they'll track, there's limits on, you know, like this one here, like, you know, this, this one app here, I'm not going to looks like it's well, it's under Mint, but it's called Billshark? I don't know what that is, it says it keeps 40% of the savings, and then you keep 60%. So, if they save you $100.00, they're taking $40.00 as their fee, and then you're getting $60.00 back. So, that brings up a question, once they identify all your subscriptions, and you're able to pick and choose which ones you want to cancel, I don't need this anymore than right? I mean, theoretically, yeah.

I think that was, that was a complaint I did read because some of these apps, you know, you have to manually put in your information, your subscriptions and everything for them to be able to track it. By that point, you know what you're paying for. So, why are you using that?

Good point. And maybe it's so that they, maybe they know the secret that your, your family member didn't as to how to get in touch with people.

That, that could be you know, but you got to pay, you know, I don't think any of these, you know, the free version includes a subscription cancellation feature, you know, that, that's premium.

So, I mean, they get to coming or going, they really do. But I'm looking down here at this, this Rocket Money, so, it's like agent driven subscriptions, agent driven bill negotiations, but again, they're keeping anywhere from 30% to 60% of the amount that they're saving you. So, I think the, I think the bottom line is if you can identify some of this stuff on your own, it's probably just as easy for you to cancel your own subscriptions as it is to pay another company another fee to try to save money. I agree. You know, that's my take on it. I mean, I don't know, like, I know that a lot of banks, you know, will offer some sort of free budgeting software as part of their online banking service, things like that. And, you know, maybe that's it, maybe that's your avenue, you know, you look through there and you figure out your budget. I think, I think the big trick is just understanding where your subscriptions live and being able to cancel them that way. True. So yeah, so I think that's, I think that pretty much gives, gives a pretty, pretty good flavor about what we were talking about. I mean, just keep an, keep an eye on what you're buying, you know, and especially in the holiday season. When you're signing up for stuff, you know, put a little reminder in your calendar, you have a sma-, if you have a smartphone, put a reminder in your calendar that says hey, in three months, I gotta cancel subscription X. Yeah, you know, if you, if you look back and you think yourself, man, I haven't watched anything on that particular streaming platform in six months, cancel it. It's not like they're not gonna, they're not gonna, it's not like once you leave, they're not going to let you back in. You know, you can re-subscribe if you want to, but cancel it for now. Save yourself the money. Yeah. Right. Any other suggestions that you can think of? Don't just

pay your credit card bill. Look at what you're paying for first. That I

mean, that's, that's a really good point. I mean, you know, blind paying just all, I owe this much I pay it. Boy, that's, that can, that can definitely get you into trouble sometimes. And

it's so, so easy now that, you know, most people will go to paperless billing, you know, you don't get that piece of paper in the mail anymore saying, hey, this is how much you owe. You know, you don't open anything. You may get an email saying hey, your statements ready or something like that, but...

Which is buried in 25,000 other emails we

get every day, right, right, those emails from companies that want you to sign up for a subscription, right?

Exactly. All right. Well, you know what, Jeff, if we don't talk to anybody have a happy holiday season. Hey, you as well. Absolutely. And Happy New Year. I'm sure we'll talk again in January. It'll be completely fresh and new. And we'll be subscription free. Yes. Yeah, thanks. And if you haven't listened to the most recent full episode of Bank Chats, make sure you check that out. I think we were talking Trusts episode 5 was the one right before here. And we've got, we've got a good one coming up later this month on budgeting. So, we're gonna stick with that theme. Yeah, we're sticking with the theme. That's, you know, it's the holiday season. We're all overspending, we can definitely use some budgeting talk. So, we're going to talk some budgeting later on this month with a special expert guest as well. So, good deal. All right. Hey, Jeff, take care. Hey, you too Drew. Thanks. Thank you.

This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated.

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Episode: 5

Fast fact. James Smithson created the Smithsonian Institute through a bequest found in his last will and testament. I'm Drew Thomas, and you're listening to Bank Chats.

So today on the episode, we're going to have a general discussion about trusts. And we are pleased to welcome David Finui, the President & CEO of AmeriServ Trust and Financial Services Company. Hi, Dave, thank you for joining us today. Thank you. So, we are here today to talk about trust. And I think that a lot of people really have a difficult time fully comprehending what trust means, and what a trust company really does. So, I know we're gonna get a little bit, we're not going to get too deep today into everything. But let me let me just, you know, see if you can, if you wanted to go ahead and give me just a generic idea of what, what a trust company really does what it's there for.

It is the management, it's the management of somebody's financial lives, actually. What we do is actually manage money for people. We manage money for three types of people; those that don't want to do it themselves, those that shouldn't do it themselves, and those that absolutely can't do it themselves. Those that don't want to do it themselves, the best examples that I can give for, these are people that are building their wealth. They're, they're, they're busy in their own careers, they may own a company, they may be working for somebody as an executive, whatever that is, and they are busy with their own jobs, okay. So, they really don't have the time to manage their own money or invest their own money. And we can take care of that for them as part of their financial planning, and they're part of their estate planning. Where we run into really what a trust department or trust company does is when we manage that money for people that shouldn't do it themselves or can't do it themselves. If they shouldn't do it themselves, for instance, mom and dad have some money, they pass away, they want to leave it to their children, but they know their children can't manage their own money. They might be spendthrifts, they, if they, if they come into a pile of money, what they'll do is they will spend it down immediately, and then they'll be out of money. Okay, so they leave that money to us in a trust company or trust department. And what we do is we can control their financial lives a little bit that we can make sure that that money is preserved for them and for their best interests and for their best use.

Now, now, do you make that decision? Or does the person who opens the trust and the, the, for example, the parent, does the parent make the decision on how the money is, is managed or spent? Or, is that something that you would then do is as a, as an expert?

Well, what happens is that whenever the parents let’s use, keep with that example, if the parents set up a trust and, we'll tell you what a trust is in a second. But if they set up a trust, say under their will, they can leave specific provisions within that trust that can direct us, okay. Normally, we're allowed, for instance, to make distributions for what is known as health, education, maintenance and support of that individual. But the parents can leave some, some specific directions. For instance, yes, we're allowed to spend money for a house, we're allowed to help them with a business, we're allowed to be a little more liberal or a little more restrictive. And they established that within the trust document, okay. Okay. Third category are those people that absolutely cannot do it for themselves. Two examples, one would be very, very young children, they just don't have the legal capacity, in essence, to manage that money themselves. Or, if they, if somebody becomes incapacitated, in some level, and they are adjudicated incompetent by a court of law, and we can establish a guardianship for those people, and we manage 100% of their lives. And those are under the rules of engagement by law as to what we are allowed to do with a guardianship and not allowed to do with a guardianship.

So, when we talk about trusts, and before we get into too much detail, can you talk a little bit about what a trust is.

A trust is a legal arrangement. It can be verbal, but normally it's put on paper. It's easier to manage that way because there's no ambiguity about it. But it is an arrangement that involves actually three different parties. One is known as the grantor, and the grantor is, is the originator of the trust. That's the person that is drawing up the trust and they want something to happen with that agreement. Okay. A trust then takes control of the assets of that individual that they want to put into the trust, and those assets are then managed by the second party, which is the trustee. You have to name who that is going to be, and, and that trustee then manages those assets for the benefit of the beneficiaries. So, there's those three parties, the grantor, the trustee, and then the beneficiaries. Okay. Okay. What are the duties basically, of that trustee? The duties are the trustee must manage the assets for the benefit of the beneficiaries in their best interests. And where we get into a little bit of ambiguity, is what happens if there are multiple beneficiaries?

Sure, yeah. Because everybody has, you know, maybe a different goal or different needs.

That's exactly right. Some, some beneficiaries might be, look, I need income. That's what I need, I need that right now. Other beneficiaries at that same trust, might say, look, I'm not concerned with what happens right now, I need growth for the future. I want to preserve this money; I need it for some time in the future. So, it becomes a very tricky situation in which the trustee must manage for the benefit of all of the trustees. And that's under law, that it has to do that. So, it's a fiduciary relationship.

And I'd like to take a moment to talk about that term, because I don't think a lot of people know what a fiduciary relationship is. Can you explain what a fiduciary is?

Well, that's, that's really what it comes down to is a fiduciary must act in the best interest of the beneficiaries. In a non-fiduciary investment management relationship, normally, what happens is the financial advisor can act and recommend things that are simply suitable for the person. So, there's a difference between the suitability rules and the best interest rules. Okay. One of the things I do want to make a distinction of here, though, too, is the trustee does not have to be a trust company, or a trust department, what we call corporate trustees, it can be individuals, and you can name an individual as the trustee of your trust, okay. However, under law, those trustees still must act in the best interest of the beneficiaries. And in Pennsylvania, in particular, and most states are very, very similar, where we op-, we, we operate under the Uniform Trust Code. Pennsylvania has the Decedents, Estates and Fiduciaries Code, specifically for Pennsylvania, that operates under the Pennsylvania Uniform Trust Code. And it doesn't distinguish between corporate trustees or individual trustees. It is trustees, so who polices that? The Commonwealth of Pennsylvania, like I said, you know, is, has a regulation that all trustees must follow. The problem is whether they know that or not. And who would regulate that on an individual trustee? Normally, what happens is the beneficiaries are the ones that bring action against the trustee, because the trustee has done something that they view is incorrect. So, what will happen is they'll petition the court and sue the trustee for breach of trust. And one of the, it's sort of a tangent at this point, but one of the hardest things for a trustee to do is to interpret the need for discretionary distributions from the trust. A lot of times the trust, trustee is given full discretion in making distributions. And I'd mentioned earlier, health, education, maintenance and support. Well, let's use a quick example. So, we have a sum of money for a child, and we're allowed to make those distributions for his education, his or her education. So, the first thing is, is where to go to college. Okay, so somebody gets accepted to Harvard, but their trust is only $100,000. You know, is this something that's in the best interest of that child? Well, they have to understand we're not going to be able to pay from the trust the full part of that education for them, because that's much more expensive than that. Sure. Okay. Now, if we're looking at a much larger trust, that becomes a little bit of an easier decision. I use another example, what happens, you know, they need a computer for school? Well, that's a very legitimate thing right now. Now, do they need a computer that has full gaming capabilities, you know, too, for their college education? Well, if we have a very large trust, maybe that's not such a big deal. We have a much smaller trust, and we have to be concerned about preserving for that child for their entire four years or six years, whatever their education is going to take, then we must be a little bit more conservative about something like that. So, those are just two examples.

Now, now I think those are fantastic examples. And one of the things that you, I think we were kind of getting into and we might have gotten a little deviated was, there are different, there are different ways to classify trusts and different ways that those basically types of trusts that are out there. And I'm sure that they have different rules as to how they, how they are managed.

And again, just from a very high level, we really look at trust, maybe coming into again, three types. One is a revocable living trust, the grantor sets up the trust for their financial planning, for their estate planning purposes, while they're alive, that's why it's called a living trust. Okay, and revocable, meaning that that grantor can amend the trust or revoke the trust at any time. They don't need permission; they can just do it. So, those are very, very flexible, there's not a lot of tax advantages for anything like that, you're really looking for the investment management of the trustee, you're looking for the expertise and health of the trustee. But it's really a very open document that they can, they can keep control of as long as they're alive. Okay, the second type of trust, though, would be an irrevocable trust. This is where a grantor wants to actually put money into a trust and give it away, take it out of their estate, give it to somebody else, beneficiaries, but still not give it outright to the beneficiaries, they still want some control over those funds, they still want, you know, the trustee to be able to preserve those funds for the beneficiaries. But they actually do put it into an irrevocable trust. That trust, just by its name, cannot be revoked, and cannot be amended. There's always, you know, exceptions to that, because it can be revoked or amended by the court. And there are certain ways that it can be revoked, but generally speaking, they have made a completed gift, and they've taken the money out of their estate, and they've placed it into an irrevocable trust for the beneficiaries, and that's gone. And then the third type that we talk about a good bit is a testamentary trust. Testamentary just means testament is under will. So, they place a trust under will to take care of their children or take care of the whatever beneficiaries they want to take care of, when they die. That trust does not come into effect and has no assets until the person passes away. It's under their will. Okay, and those trusts are irrevocable once they're established, once the person passes away, trust is established for the benefit of the beneficiaries. And the trustee manages and preserves the assets for the benefit of those beneficiaries as we talked about earlier under a fiduciary capacity.

Okay. So, and you kind of mentioned a will, so is that, is that really what a will is as a testamentary trust in in all situations or is a will something different?

A will is something different. A will, a will is just how you want to distribute your assets after your death. It does not have to contain a trust. For instance, husband and wife situation, I can have what we call I love you wills where I simply say that everything goes to my wife, okay, okay? And she gets it outright, doesn't have to be in a trust. However, if my wife is a spendthrift, then we can use the opposite example, if the wife is the business owner or the main and the husband is a spendthrift, it can work both ways. But what happens is then that trust can be established and the money can be placed into a trust instead of giving it to the surviving spouse outright. Okay. Those are just quick examples. Okay.

It sounds like there are a number of advantages really to having a trust versus something as simple as a will. So, what, do you want to talk about maybe some of the advantages of why trusts are created and why people tend to use them?

Yeah. Several reasons why, why trust. The first reason or first advantage of the trust is it does give the trustee control of those assets for the benefit of the beneficiaries, like we talked about earlier. So, the beneficiaries don't receive the money outright. And there, like I said, there's, there's a lot of reasons for that. But then we get into the technical reasons for trust, for instance, where to minimize estate taxes. And when I talk about estate taxes, I want to talk about both state taxes and Pennsylvania inheritance taxes. There's a difference between the two. But one of the only ways to avoid estate taxes or in a particular Pennsylvania inheritance tax is to give the money away now, you take it out of your estate, and you give it to somebody else's estate and you, you make an, a completed gift to that person right now. You can either do that in cash, or you can utilize a trust, like I had mentioned earlier an irrevocable trust, which means the grantor now can't take the money back, can't revoke the trust, can't do anything to get that money back. But they can still control that money for the benefit of the beneficiaries through the trust, and through the trustee. So, it takes it out of their estate, and puts it in someone else's estate. Okay, so that estate taxes and inheritance taxes are avoided in that particular situation. The other one is and, and we talked about this is to shield the beneficiaries from their creditors. If you hand over a sum of money to your child, and that child has debts, that becomes their asset, and it becomes subject for those creditors to take that money, in essence, to pay the child's debt. Okay. By utilizing a trust, even though the money has been given to that child for the, for their benefit, they can have a spendthrift provision within the trust, that's said, only the money that we distribute, becomes that child's asset directly for the creditors benefit. They can keep it in the trust, and if it's not distributed, the creditors cannot come back and get that money for them. Okay, so it can shield that. It can preserve assets for children, until they're grown, until they can, they can take control of it themselves. Now we've seen trusts where they, they shield money from their children, up until their 60s and 70s. But in most cases, what happens is that look, the child is 15 years old, something happens, the trust is established, and what we want to do is we want to preserve that money for them until they can take care of it themselves. And we determine what age that is normally 21, 25, somewhere in that area, and you say, okay, at that point in time, the trust ends, and the money goes to them. Because normally by that time they've been educated. And sooner or later, they have to stand on their own two feet.

Right. Either, either by school or by life, they've been educated exactly right.

A lot of times what will happen is, say that we must distribute the income of the trust, we can hold the principle under a discretionary authority. Okay, other times, the whole thing is discretionary. And just thinking through this a little bit, another way that a lot of trusts are structured, is that they give out portions of the trust at different times in that beneficiary's life. For instance, at 21, we'll give a third of the trust to them, okay, and a 25, will give half of the remaining trust and 30, they get 100% of everything. And what happens is, is somewhat of a teaching experience, because if they get it at 21, and they blow it, they get their second distribution, they should have a little bit of an education and say, okay, I gotta be more careful this time around. Sure. And, and we've actually seen that work very well, very well.

And I would suspect, and I could be completely wrong here, but I would suspect that there are situations where someone has earned their money and built their wealth, you know themselves from the ground up, and has an appreciation for all of the work and effort that it took to accumulate that wealth. And they are followed by certain family members that have never had that experience of having to work as hard or overcome the same challenges that the person who earned the wealth in the, to begin with had. And so, they don't have as much of an appreciation of how quickly that money can, can disappear.

There is an old saying in, in the industry is that the first generation makes the wealth, builds the wealth, the second generation enjoys it, and the third generation wastes it. And we've seen some very ingenious trust structures, in essence to bypass that inevitability. So, it is used, trusts are used for that purpose so that it stays preserved for future generations for a long period of time.

Yeah, that makes a lot of sense to me. What would some other, what would be some other advantages of trusts?

One of the advantages that we would want to get into with, especially establishing, say, a revocable living trust. Why, why would somebody do that even for themselves naming themselves the grantor is actually their own beneficiary until something happens to them. So, the grantor establishes the trust, the trustee manages the trust for them, but the grantor is also the beneficiary. And what happens is then, the trust document can say that the trustee has discretion to make distributions should the grantor become incapable or incapacitated to make those distributions or to direct those distributions for themselves. So, it somewhat bypasses the need for a court to come in and declare somebody incompetent. A court declaration of incompetence or through guardianship is a very, very messy situation. A lot of family members fighting over all of that type of thing as well. And the revocable living trust can bypass that situation as well. The second thing gets into a specific type of trust that we would like to go into maybe in a future presentation is the special needs trust. This has become one of the biggest growing areas of trust that I've witnessed in my career. And what a special needs trust does is that the money in that special needs trust should the person be incapable, and also receiving government benefits, for instance, Medicaid, or Supplemental Security Income. If they have too much money in their name, or if they have too high of an income in their name, and those, those limits are very, very small, then they are not eligible for those government benefits. They're called needs-based benefits. But the special needs trust can be established, that takes the money out of their assets, for those purposes, but they still have the right to use the money or the ability to use that money for their benefit, to keep them going. So, that's another, and normally, like I said, that is somebody that's incapable of handling their own assets, they, they have some type of special need.

Okay, now, we've talked a lot about money, literal, you know, money changing hands, but can trust also be used, I would assume, for things like property? If you have a, you know, a family estate, or something, a house, a place that, you know, you can, you can pass that along through a trust as well, correct? It's not just cash?

No, any, any asset at all can be placed into a trust. You know, that just reminds me a little bit, some of the things that are happening now, that we didn't worry about in the, in the, in the past, and not too distant past are such things as digital assets. You know, your phone, for instance, right now has, has a wealth of information on it about you personally, that is a digital asset. And, and there are specific provisions now in trusts and in wills, giving the executor and the trustee the right to access those digital assets. So, so that's one thing, that's just a little bit of a sideline. But yes, real estate, property, can be placed in trust, any, anything along those lines. And the trustee is responsible for preserving those assets in accordance with the trust document. And one thing they do want to be very, very careful of, though, and I do want to mention that placing a house in a trust, and it is a personal residence trust, there are specific provisions that can be used with that. But people do have to be careful with that, because their personal residence is considered an exempt asset for Medicaid, whenever we were talking about that earlier. So, I can only have so many assets in my name, and still be eligible for medical assistance. Okay, if I placed the house in a trust, that becomes a non-exempt asset now, which means that it is counted in that person's assets when applying for medical assistance. And you have to be very, very careful about doing that. It depends on the specific situations and the financial condition of the people setting up that trust. If they are extremely wealthy, and they are looking to transfer that house with, you know, outside of the tax base, and we talked about that earlier, yes, that you can place it into a trust. But if, if you're like most of us, and you don't have those huge assets, then we want to be concerned with that and we really need, and we'll mention this here, all of this advice, we are not attorneys, this is not legal advice. This is not accounting advice, please, that is something that you really want to check with your attorney on to make sure you're establishing that correctly and for the right purposes.

You had mentioned earlier that you're obligated to work in the, in the best interest of the beneficiary. Right, and that in some, in some cases that those interests are different if there are multiple beneficiaries listed. So, have you ever encountered a situation, I know you can't get into details about specific you clients or customers, but have you ever encountered a situation where someone was just being vindictive? And just decided they wanted to give you 95% to one child and 5% to another. And how do you handle something like that? When, because you can't just ignore the rule, right? Or what the intent was. But, but, or can you?

Well, that is interesting, that does bring up a specific example. And I obviously can't say names, but it was a trust under will that I was reviewing for workability. And the gentleman that drew up the trust, or the gentleman, the will was for, extremely wealthy, and had five children and had disowned one of them. Okay, so the, the, the will was really set up and trust for setup for the remaining four children. And they did give $1 to the disown child, basically, just to say, I didn't forget about you, but this is what you get. But there was a provision within the, in the trust under will, that said that the children, his living issue, could remove the trustee or change trustees, if they had 100% vote, and did not specifically say that that, the disown child did not have a vote. And so, you know, the four could have said, Yeah, we want to change trustees, but the one that was left out could have ruined the whole plan. Yeah, when that was pointed out to the attorney, they did say that cut and paste, copy and paste is a bad thing sometimes. And that's it. Yes. The other situation is that, as I mentioned earlier, I've been involved in a situation where one child needed income and wanted the trust to be invested solely for income, because it said, we could distribute the income or must distribute the income to them. The other child was like, I don't want income right now, I want this to be preserved for my children later on, and I want it to grow. And so, there were two competing beneficiaries there. And simply becomes a matter of the trustee having to balance those, those needs, and to invest it accordingly, to make sure that both of them are, are treated as fairly as possible.

And I think this goes back to what you were saying earlier that, you know, it's nice to have an objective party, and not a family member, not one of the beneficiaries making those decisions on behalf of the others.

You know, one other thing, I'm gonna mention this Drew, just as we were discussing this, because we were saying about maybe the advantages of a corporate trustee, as opposed to an individual. But I do want to mention, you know, for the people listening in on this, one of the ways to handle both situations is to name co-trustees. You name, and, the corporate trustee, for instance, that manages the investments that handles the discretionary distributions, that type of thing, but you also have a co-trustee, that's a friend or a relative that has some special knowledge about the family needs. And that's always advantageous to the corporate trustee in trying to determine if the distributions are reasonable or not.

That makes sense. Okay.

That makes sense. Those situations do occur.

So, I, again, we're trying to, we're trying to keep this very high level, and I really appreciate I think we've covered a lot of, a lot of ground. And I think we've, we've given people a really solid preview as to some of the other things that we might want to talk about on this, on this, on this podcast, you know, as we as we progress through but the one other question that I had before I let you go today is, is there a, a limit, in terms of how many assets you have, how much income you have? What you have available to you, you know, before a trust becomes a benefit to you? Is there, is there a, is there a level that you just generally don't, don't get into trusts? Or is there, is it something that almost anybody might benefit from in some way?

As a corporate trustee? Yes, we do have limits as to how much money, how much in assets you must have before a trust can be established within a Trust Company. But remember, we're also talking about individual trustees and that other type of thing. So, that, you know, there's no real specific limit. On a realistic level, if you do not have a lot of assets, or, you know, if you have very small assets that are passing along, or if they're all going to one place and you don't mind them going out right to that individual, then, then there's no need for a trust. Let me put it this way. I had a situation years ago where a number of companies were going through the area, and they were selling the benefits of trusts. And they come with a pre-made package of trust documents that are fill in the blank, and you, and you, the, the biggest thing that they were trying to do was say that trusts are not subject to probate and probate expenses. When it really comes down to it, probate is not a very big expense in comparison to other expenses of dying. And they were selling these to people as a package. And I had an individual come to me, and they came to me and said, I need to borrow $2,500. And I said, okay, well, first of all, it's the wrong area, but what do you need the money for? And he said, well, I'm buying the living trust from the trust company that was setting these up. And I really said, well, first of all, if you have to borrow the $2,500, for the trust, you probably don't need a trust. And that's really what it comes down to. Okay.

And I think that it is important to know that, that, like you said that there are companies, and I'm air quoting, there are companies out there that will sort of try to lead you down a path that is maybe not in your best interest. And it's important to know that who you're dealing with is reputable and working again in your best interest and not in theirs.

That's extremely well said.

All right. I thank you very much for your time today, David, I welcome you back anytime to talk more in depth about some of the subjects we briefly touched on today. It's, it's truly been a very beneficial and educational experience. So, thank you.

This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with a goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to bank chats, is not intended and should not be understood or interpreted to be financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. Thank you for listening. Before you go, we'd like to thank our guest, David Finui, President & CEO of AmeriServ Trust and Financial Services Company, for joining us today. While we hope that this podcast provided some good information about the general workings of a trust company, we plan to delve deeper into some of the particulars of trust products and services in the future. If you have questions or would like additional information, we invite you to visit our website at ameriserv.com/bankchats or leave us a comment. We look forward to hearing your thoughts about the show. AmeriServ Presents: Bank Chats is produced by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. Production assistance from Jeffrey Matevish. If you haven't had an opportunity to listen to our previous episodes, we invite you to check those out either by visiting ameriserv.com/bankchats, or by finding the podcast on your favorite podcast service. Don't forget to like, follow, or subscribe to be sure you never miss an episode. And sharing the podcast with your friends and neighbors is always appreciated. For now. I'm Drew Thomas, so long.

2 Cents Episode: 1

All right, so we decided we are going to try to do something a little bit different. Of course, you know me, I think at this point, I'm Drew Thomas. And for those of you who can't remember, but with me is my compatriot, my partner in crime, Jeff Matevish. Hello, hello. And you may, you may recognize Jeff's name from the end credits when he does all the extra production work on the full episodes of Bank Chats. But we found a really interesting article and we just decided to sit down and talk about it. Yeah, yeah. And so, so for all of us that have, have done this, we were having a discussion here that contactless payments, and let's talk about like Apple Pay and Android Pay and Samsung Pay, and every other brand out there that we are not endorsing, pay, and contactless payments with cards, do you use contactless?

You know, I, I don't but you know, now working at a bank I may get into it a little bit more. I came from a software engineering background, and you were always like, very skeptical of anything, technology that you weren't in control of. So, I can appreciate that. So, yeah, anything where I'm putting my information out that I don't know what actually is happening? I'm a

little skeptical. Yeah. I will say that, there's, I guess there's some legal drama going on with contactless payments, right. And you really only have Apple and Google that are, that are handling contactless from a smartphone perspective, not necessarily what is on your cards. Because like, there are contactless credit cards out there too. And yeah, debit cards and things like that. But I guess there's a lot of sort of hand wringing happening between whether or not Apple and Google have too much control over your contactless payments and how they work. And I will say, you know, I get both sides. You know, it is, it is a scary situation to start wondering like, well, if I'm giving my credit card information to Apple, what are they doing with it? And how is it being handled?

Right? So, you, you're a user, you're a supporter? 

I am, a why, yeah, I am. I have to, I have to admit I am. But some of it is because I helped set it up for our bank. So, I got a really early introduction to Apple Pay and how it works. And ironically, right now, statistically, it is one of the most secure ways you can make a payment. I've heard that too. Yeah. Because it doesn't share any information with your, with your vendor. So, when a vendor gets hacked or something, your credit card information, like your card number, your, your CVV number, your expiration date, your name is not passed to that vendor. The, the Apple Pay converts it into a code key that is delivered to the vendor, the vendor delivers that code key to Visa, Visa says yes or no, and then it sends it back through the vendor, and it's completely anonymous. So, it's

tokenization on tokenization. 

It is yeah, yeah. Talk tokenization Mr. Technology, what's tokenization?

Usually, you know, if you're doing some sort of like eCommerce, and you're storing credit card information that, that's hashed, you create a token, where it's encrypted. And you're, you're sending that encrypted data across to, you know, the end processor, I guess. So, Visa, MasterCard, Discover. That's right. So, it's completely encrypted, you know, it's safe, can't be intercepted, you know?

Okay. So, so I guess that's why like, when I look at this, and I say, well, when I use Apple, and first of all, I mean, I'm not endorsing Apple Pay, because Google Pay is very much the same, but I just happen to be an Apple owner. So, that's the one I'm most familiar with. But I don't want to say that there's anything wrong with Google's or Samsung's or any of the other kind of Droid versions of this. Yeah. But it's simple. I mean, it's just so easy to be able to use your thumbprint or your face or something, some biometric to prove that you are who you say you are.

And I think that's what scares me. That's the simplicity that if it’s if it's too simple, you know, 

It’s yeah, but sometimes it's one of the things where, you have a voice assistant all through your house. I yeah, I do and so, so you can appreciate it's so complicated it's simple, right?

Yes. And that took me a long time too, to really use it. Yeah, I was, I was one of those you know, I'm never gonna have an Alexa or I'm never gonna have Google Home or anything like that. And you get one device and hey, that's pretty convenient. Yeah, and you get one for every room in your house and all of the sudden your lights don't work if they don't go off, if it goes offline. Oh, yeah, yeah, yeah. Yeah, don't even worry about a power outage just the network outage is yeah horrific. Now see, I now see I'm in the same boat as you I have some of that stuff at home, but I have a lot of times I have switches that are connected. So that worst case scenario I can still use this switch even if it's not connected to the Wi Fi.

Yeah, well, and I have some fail safes too. most of my house is on uninterrupted power supplies. So, you know, even if I lose power, I can still watch that that movie and surf the web. So, that's interesting.

So, yeah, so you understand so complicated that it's simple. Yeah, that's when it comes, when it comes to money, I guess I'm a little more, you know, skeptical.

Yeah. Well, there's and you know, we could go into a whole big conversation about things like FinTechs and stuff too. But you could argue Apple is trying to become a fin-, FinTech is financial technology meshed. Right. So, you could argue that Apple is trying to be a FinTech at this point. Yeah. With their good, they have a relationship with, who I don't know, who does the credit card. Is it Goldman Sachs? That I don't know. I don't know, they have a credit card through, through some of the, one of the bigger banks. Okay. And, so it seems like they're trying to get to that point where they're doing more financial stuff, but, and trying to make it easy, but easy, doesn't always mean safe. Yeah. And so I get your point there.

So, this article about this subject by Craig Guillot, they're talking about, you know, Apple Pay, and Google Pay being the two top dogs, actually the only top dogs. Do you see that, you know, staying? Or do you see one of them becoming the top and the only contactless payment processor?

Yeah, that's a good question. I don't know. I mean, I can't see either one of them becoming the, the payment processor, because there's a pretty even split, I would say out there between Apple and Google, in terms of people who own phones. And they both have their strengths and weaknesses. Yeah. But I think if one of them was going to become the dominant, they would have by now like, there's enough, I think there's enough Android acolytes and enough Apple followers, yeah, to keep that separate. Whether you'd ever see a third or fourth, I don't know, because I think they both have such a head start. I don't know what you do.

Yeah. I mean, you don't even, well, look, we only have a handful of, you know, cell phone makers to begin with in the United States.

Yeah. Oh, yeah. Well, and we're even seeing like, not that they're not the same, but even cellphone providers are getting smaller, smaller. I mean we got the big three now. I mean, T-Mobile acquired Sprint. Right, right. So, you got Verizon, AT&T and T-Mobile. That's the, those are your big three. Right. And all respect to Ryan Reynolds, Mint Mobile is not...

Yeah, your wholesalers are, you know, getting smaller and smaller too.

Yeah. Now. But that kind of goes back to what you said about our little sort of side discussion about, about home assistants. I mean, you had a couple that you had, you had Amazon with, with Alexa that got a very early start. You had Google with the, the whole, you know, hey, Google, OK, Google, you know, Google Home, right, platform. And then Apple, one of the biggest technology companies, arguably in the world, wha-, if not the biggest technology company in the world right now, monetarily, came late to the party with Apple HomeKit, and nobody uses it. Yeah, yeah. So, you know, you get a head start. And all of a sudden, you're kind of out of that. But I don't know,

you know, like, it'd be a price point to I don't know, I'm not sure what the going rate for, you know, Apple HomeKit products are but could be, you know, yeah, it could be if it's like any other Apple product, it's it's, you know, significantly higher price than competitors.

Yeah. But I don't see that. I don't see how in terms of smartphone, I don't see how a third or fourth party gets involved with with NFC payments. I mean, even Google's, what's, what's Google's Pixel phone took a while to hang on. And the Amazon that's in contrast, and Amazon tried to get into the smartphone market with the, with their Fire Phone. Yeah. And it went nowhere. Yeah. So I think that I don't see a third or fourth party. I think that's, I think, I think the, the, the author has a point in the article that you're kind of stuck. You have you have Apple or Google as a choice. Yeah. Yeah, I have to agree with you. I don't see how you're gonna get somebody else in there. No. So, yeah, so, so these are, our little conversations are not a full episode. I mean, we're gonna wrap this up, I would say, you know, pretty, pretty rapidly here. But I think it's important like we can, we can grab some of these little articles and we can kind of talk about things when they come across, and we'd love to hear your feedback. Oh, absolutely. Yeah. You know, what platform do you use? Do you use, do you use contactless payments? I don't know. Yeah. That'd be interesting thing to talk about, the next time. Thanks Drew. All right. Don't forget, episode four is currently available, the full episode of, of Bank Chats is available and episode five should be coming out later this month. I'm excited about it. It's good stuff. Thanks, everybody. Thanks, Jeff. Thank you Drew.

Episode: 4

Fast fact, human error accounts for 95% of cyber-attacks, which makes them preventable. I'm Drew Thomas, and you're listening to Bank Chats.

Welcome to the next episode of AmeriServ Presents: Bank Chats, I am Drew Thomas and today we are going to be talking about cybersecurity. And, in this episode, we are not going to delve super deep into any one particular aspect of cybersecurity. But I want you to know before we even get started that what we're going to talk about today is high level. And quite frankly, we are we have plans to be able to go much much deeper into a lot of these sub sections of cybersecurity, but we want to, especially this being Cybersecurity Awareness Month, we're releasing this in October of 2023, for those of you that may be listening at a different time. It's really, really important to start to understand what cybersecurity is and how that relates to your financial health and education. So with that in mind, I want to introduce our guests for the topic today. We have Kevin Slonka, and Michaels Zambotti from Saint Francis University in Loretto, and welcome gentlemen, we really appreciate you being here today.

Thank you. Glad to be here. Thank you.

Yeah, absolutely. Thanks for having us. So I'm just going to randomly pick somebody because I don't want to play favorites, so Kevin, we'll start with you. Clearly favorite. Yeah, just give us maybe a little bit of background about your education and your history.

Sure. So I have been in academia since 2007, currently teaching at Saint Francis University, I teach computer science and cybersecurity. I've also worked in industry since around 1999 for various government contractors around the area. Let's see, got my doctorate at Robert Morris, various IT certifications, you know, not going to bore anybody with with that whole list. But uh, my focus in cybersecurity is kind of more on the the offensive side, what most people would call hacking.

Oh, okay. Excellent. And, Mike, did you want to go ahead and give us some background about yourself as well?

Sure, absolutely. I went to Penn State University, graduated from Penn State, and graduated with a degree in finance. And I worked in in the financial sector as a financial advisor for about 10 years. And then I went back to school, got my Master's in cybersecurity, and I've been teaching and working in cybersecurity for about the past five or six years. So, where my focus is, is a blend between the financial sector and cybersecurity where they intersect, and also looking at cybersecurity as a business problem. Not necessarily just a technology problem, but a business problem. This is something that impacts companies across the board, from profits to their customers to their potential customer, so looking at it, in that respect.

I was reading something in, and I may be misquoting myself because I'm doing this from memory. But the the total number of fraud related events in businesses last year was in the in the billions for the United States alone, I believe.

No, absolutely. And look no further than the newspaper. You know, if anybody's reading the newspaper or whatever, news website, you read, the casinos MGM and Caesars recently have been in the news, both had had cyber incidents. And you know, it looks like Caesars paid out about $30 million in ransom. Clorox, which is a company that you wouldn't think maybe is a big cyber target. They had an attack back in August, and it's going to impact their supply chain out to next March. Wow. After the news came out, you know, they have to, they're required to file to the SEC, and the stock fell several percent, so there was definitely a business impact. You know, it's not just a technology thing where they say, hey, you know, we had a ransomware attack, and our technology doesn't work. It's impacting the shareholders, it's impacting people that want to buy Clorox wipes. You might go to the store, and you know, not see so many Clorox products and because they're having a supply chain issue, so there's a real-world impact to what we see in the cyber world.

So, before we get too deep in any one particular example, or any of it, let's, let's talk about just what is cybersecurity? I mean, that's a term that is thrown around a lot. You hear it on the news, you know, but what exactly does that entail?

Yeah, I mean, for most people, you probably know what security is right? Like locking your house, you know, keeping your person safe, things like that. This is really the same thing. It's just you know, the combination of two words, cyberspace and security. So, it's doing all those same things, but to your online presence. So, we all, I'm sure that we all if you're listening to this podcast, access our bank, online, we have an app on our phone, everybody probably shops online. So, you know one way or another you have personal information, online credit card address, social security number in some places like your bank's website. So just being able to protect that, you know, that's generally what we're talking about when we talk about cybersecurity. It's protecting the data that we deemed sensitive.

And it's not exclusively, I think that, you know, there are a number of people who think that if they're, if they're not particularly active online, I know that like my, I'll just use an example from my personal life. My dad is not a technology guy. He got his first iPhone last year, and it was mostly because his flip phone broke, and I had one sitting in a drawer, and I said, you're getting a smartphone. But even if you're not particularly active online, or in cyberspace, like that, you still should be concerned about cybersecurity.

Oh, absolutely. I like to always tell people, you know, you can never have touched a computer ever, but do you have a house with a mortgage? All of that information that you filled out and wrote on those papers are stored on your bank's servers, which are connected to the internet. So, if your bank got hacked, all of your information goes with it. So, you could be living out in the middle of nowhere. But if you're a human being with a social security number, your data is on the internet somewhere for somebody to be able to steal.

And I think you made a good point like is, okay, so using a mortgage as an example, since you said about filling out mortgage papers. If you bought your house 30 years ago, is that still something to be worried about? Like, do you how long did your bank keep that information, and would it have been transferred from paper to digital whenever they moved their servers and created new things?

I mean, that's a that's a good question for you. Just, you know, from personal experience, I know like in the medical field, with doctors’ offices, you know, some of them are very slow to convert their own paper records to digital records. But, my assumption would be that every company will, at some point, do that. So eventually, if you bought a house in the 50s, your data is going to be on a server somewhere. Yeah.

And banks are pushing people toward, not, not pushing people, but strongly recommending people look at the app, you know, look at the ways to, you know, don't just wait for your monthly statement to come in. Yeah. So, so you're seeing more people adopt that technology, even people that are older, you know, and, you know, sometimes we think, oh, older people, they don't use technology. Well, I look at my father, he's in his 70s, he uses technology every day, my grandmother is in her 90s, she does online banking. So, people in that age group, I think, are still using the technology and sure, there's some people that don't use it. But, like Kevin said, even if you don't use the technology, whoever you're interacting with does. So, your information is digitized, it's computerized. It is possibly available to somebody who would like to see it that might have malicious intentions.

Yeah, and you're absolutely right. I mean, I use my dad as an example of the of the of the group that does not generally use technology. My mother is the same age and she has a laptop, she's online every day, she's doing stuff on her phone, she's taking pictures, she's doing everything that you would you might expect of someone younger. So, you're absolutely right, it's not just an age group thing. You know, older people might use technology, younger people might shun technology to a certain degree. But that doesn't mean that it's not, that cybersecurity isn't something that you should be concerned with either way.

Right? Even things like email, emails, a very large attack vector. You see a lot of scams come in over email, they're called phishing scams, I'm sure we'll go into that in detail how they work and, and how the attackers might operate. But, even people maybe that don't use online banking, might use email, and might have a situation where they get an email that says, hey, something happened to your bank account. And the attacker tries to get you know, activate your brain in a in a fear, uncertainty and doubt and get you to act before you have a chance to think about it. And hey, I better do something. My account's been compromised, I better interact with this person who's telling me this. They seem, it looks like it came from my bank.

Yeah. So that kind of dovetails right into the, the question that I was going to ask next was, the most common cyber threats that individuals and businesses, which I'm sure Mike can talk a lot more about in detail, will face, so it sounds like email phishing scams, those are probably some of the most common but what other types of scams should people be aware of? Or how does, maybe scams is a bad term. What other types of cybersecurity events should people be aware of?

Well, I mean, Mike mentioned phishing, which is probably the biggest, you know, for most people to get those emails to try to trick you into doing something, but not only email, there's a similar attack called smishing. Ever, you know, we love these weird words in cybersecurity, but it's the same thing just over SMS text message. So, you can get the exact same thing from a text message, you know, click this link to reset your password or whatever. And if you fall for it, I mean, who knows who you're giving your information to. So, a lot of the attacks that people have to be aware of are just things that are, like Mike said, they're trying to play on your fear, or your, your emotions to make you react without thinking. And, I think both of us can agree that whenever we teach this stuff, that's really what we try to tell people. Just stop and think, you know, take a minute, does this make sense? Should I really click on that?

Yeah, um, and what I've seen too, is that it's not always people trying to make you, I mean, you are, you're trying to make people react rather than think. But sometimes they're even getting crafty and saying, like, well, we're trying to prevent a cyber incident for you, click this link to make sure that we can reset your password. It's not even just trying to say that you were hacked, or something you're trying to say that, we were trying to prevent a hack. And we need you to give me your information. So, like, as speaking from a bank's perspective, we will never, we will never call you email, you text you and say, we need your username and password for your online banking, that will never happen. We have that information already. We don't need to ask you for it. And I would say in a lot of other industries, it would have to be the same.

Yeah, most companies, they do the same thing. You know, they will tell their people don't ever give it out over the phone. Nobody needs that. And like you said, with those emails, I mean, that goes back to rule number one of email, stop clicking on things, like never click a link. And even if the email looks like it's from a friend, it might not be right, phishing attacks are really good. Don't click on links and emails, because you never know, unless you're technically savvy, you know, we could tell you in great detail how to figure out where those links are really going. I don't know that, that would work in an audio only form, probably need some video to show you. But unless you know how to do that, just don't click the links, you know, if you need to reset your password for your bank's website, go to the bank's website on your own. Type it in the browser yourself, so you know that you're going there.

And one of the things I do in class, one of the themes that I will consistently present in every class, is building a healthy skepticism. Like the great President Ronald Reagan said, trust but verify. Yeah. And you know, I'll tell you, you know, a couple of interesting stories Drew, you hit on a scam where you get an email that says, hey, somebody tried to compromise your account, and they weren't able to, so we're here to help. That's actually how one of the DNC hacks a couple years ago against John Podesta occurred. He actually received an email, and if you search online, you can see the email he received, and it said, hey, somebody tried to access your account from I believe Ukraine, click on this link and change your password. So, he actually did that. He clicked on a link and he put in his password which was given to the attacker, now they had access to his account. They didn't actually change it. And there was another one, you know, you talk about other scams, phishing is a big one. Invoice scams, invoice scams are a very big deal. And what that is, is an attacker will email an invoice to a company and say, hey, you owe us money. Now you wouldn't, you might think, who's gonna pay that? Who's going to just pay an invoice? Well, Facebook was in a scam, Facebook paid $10s of millions, actually, I think it was up to around $100 million, over a couple years of fake invoices. This fella was just sending Facebook invoices, and Facebook kept paying them. So, he was eventually caught, but you know, a lot of money. And, you know, locally. Sometimes people think well, you know, we're in, we're in a small area who would target us? Somerset County last year was the target of an invoice scam. And the county lost about $17,000. They got an invoice, they wired out money to the attacker and, and the money was lost. So that's right here, right in our right in our backyard.

I think some, some of the time, and again, I'm making a generalization here, but I think sometimes older people, they came from a space mentality where if someone said they owed them money, they felt very obligated to immediately make that right. They didn't really question it, because they just assumed that they had forgotten to pay the bill or that they had misplaced something and not follow through. And they didn't want to have that reputation for having not been, you know, making good on their debts. So, when someone comes to them and says, you know, you didn't pay your electric bill last month, they don't really question it at all. It goes back I think to what to what you were saying was, you know, this idea of reacting rather than thinking, you know, they just assumed that they must have forgotten to pay it and they don't want that reputation for having, you know, been behind on their bills. So, they just immediately send money.

Yeah, and to get all sciency for a second, you know, any, you know, biology experts will be familiar, but there's a term called amygdala hijacking. Amygdala hijacking is actually that, it's getting your body to short circuit, the logic part of your brain and act before you can think. And that's what whenever we talk about fear, uncertainty and doubt, you get these emails and they're scary. You know, somebody, hey somebody got my password, somebody has information about me. I better do something right now, I'm not going to think I'm gonna just act and you know, it's a chemical reaction, our brains, we can't really control it. But it's over time, you can start to realize, and once you develop that healthy skepticism, yes, I got this email, but let me take a step back from my computer. Let me just take a minute, take a breath. Is this something I need to react to? There's a biology behind this. It's not you know, if you're a victim of one of these scams of a phishing attack, don't feel bad, don't feel like you did something wrong. You know, these are the something that these are professional criminals who are really, really good at what they do. So, there's a lot of victims out there, the most important thing is to be educated to prevent yourself, hopefully becoming a victim. But if you are, well, what are the steps you can take to, to limit the damage, limit the blast radius of whatever. If you've gone and, you know, changed your password, you thought you change your password, but you actually gave it to an attacker. Well, okay, maybe it's a case where you actually type in the website and go specifically to that website, change your password that way, the correct way, rather than a link that's in your email. But, you know, going back to what Kevin said, you know, rule number one, stop clicking on links in your email. You know, banks, I think you've become educated to the fact that, hey, let's not put links in people's emails ever. Let's direct them, hey, don't click on a link and email go directly to the AmeriServ website. Yeah, type in your credentials the correct way. So that they can say, well, I'm never gonna send you a link. So, if you do get a link that says it's from us, it's not from us.

Yeah, it's, it is a difficult thing sometimes. Because, you know, from a banking perspective, we're sending out communications at times that involve accessing things like, like privacy policies, and letting them know like, we're legally obligated to tell you like, hey, your bank statement is now available if you're receiving them electronically, because you're not getting that envelope in the mail anymore, right. So, we have to send you an email. And usually in that email, what it'll say is, your bank statement is available, we encourage you to log into online banking, and then access your statement. We may provide you for your convenience, here's a link, but there is always a really a way to reach that information without clicking that link. Because of that reason, because we want you know, we're constantly preaching to people don't click on links and emails, and then, you know, yeah, we'll send you an email that has a link in it, which is a little counterintuitive, but we want to make sure that people understand that you don't have to click the link, there is always a way to get to that information some other way.

And what we always like to tell people, you know, your, your one, you might be wondering, you know, why can't I just click the link, I see where it's going, the link says, you know, HTTP ameriserv.com, it says where it's going. But, when it comes to putting links in emails, you know, attackers can change where it actually goes, what you see in the email doesn't have to be the link, then it'll actually take you to. So, one easy way around that, you know, let's use AmeriServ as an example. If you, for customer service reasons, provide people a link, they still shouldn't click it, but what can they do to make their life easier? Well, they can copy and paste it. So, you can see the letters on your screen, and you can see what the link says, rather than clicking it, highlight it, copy it pasted into your web browser. And then you can literally see on your screen what got put in your web browser and where it's going to go. Yeah, because it's very easy to hide, you know, www.hacker.com, behind a link that says ameriserv.com. But if you copy and paste what you see on the screen, that can happen.

Yeah, and going into, this may be a little deeper than we wanted to go, and we can maybe touch on this in a future episode, if we want to get really deep into how this works. But, I recently received an email from Meta, which is the parent company of Facebook, for those of you that may not be in the know. And, the funny thing was, is that it was, it was not in fact, from Meta, but they had used an ASCII character that looked like a letter M. But you could tell that it was slightly more narrow than the rest of the font that was being used. And, so it was not coming from Meta it was coming from random ASCII character that looks like an M, eta. And, they can get very, very creative in trying to make it look like it's coming from a company that you recognize or respect or deal with, when it's not actually coming from that particular company.

Even an uppercase L or an uppercase i or an L. Sure. Yeah, don't look identical. And you're right, attackers will buy domains, and they'll look very, very similar and you know, our brains are awesome error correcting devices. And whenever we read something If we see the first couple letters in the last couple letters, we kind of tune out the middle, and we can make sense of what the word is. And you'll see often one switch of a letter in the middle of a longer word. And your brain just tosses that out and says, I know what that word is, and you read on. So, you know, we see that as in spoofing, you know, we see that in domains, we also see it in who it looks like it's coming from, you know, hey, I'm gonna send an email to somebody and say, I'm Kevin, and it's gonna look like it came from Kevin, but it didn't. And then all of a sudden, you know, the people that got it, thought it was, they think they're interacting with a different person than they are.

I want to, I want to stop just for half a second and go back to something you mentioned spoofing. Let's talk about what that is. Let's define that for people that may not know.

No great point. Spoofing is whenever you are assuming somebody else's identity, you know, it's almost similar, like identity theft, lite? We're going to see an email that it just says, hey, this is coming from John Smith. Okay. So, you look at the, where it says from, he says, John Smith, and it's coming from John Smith, you know, you're not reading any further you, you've got the information, especially if it's somebody you know, you know. I'll tell you a funny story that several years ago, my mom actually got an email that was spoofed, and it was spoofed in that it looked like it was coming from me, okay, and it said, hey, great news, I'm recommending this new weight loss product. And, you know, and we're at this family event. And my mom kind of sheepishly said, hey, did you, did you recommend me this, this this diet pill? I was like, no. What? I got this email that said it was from you. And, you know, I'm gonna, I was, you know, looking into it. I was like, so whenever we went back to her house, I looked at the email and said, okay, it's definitely not for me, and there are ways to look at the technical details, but you know, it's really about to have that healthy skepticism. Does this make sense? Okay, this email that, that looks like it's coming from somebody I know. And to find out somebody, you know, it's easy to look you up online, see who your relatives are, you know, anybody can do that. And attackers will take advantage of that.

So, I think that goes to one of the other terms that, that I think we may have mentioned, but I wanted to sort of touch on is social engineering. The idea that you know, what you put out on the internet, you may put it out there for completely benign reasons. But people can use that at times to try to make things look more legitimate.

Yeah, this is, this is something that I actually teach my students how to do in our ethical hacking classes. And I'm sure Mike also teaches it in some of his open source intelligence classes that we can take the things that people put online, and make really good guesses about what your email might be, what your username might be, what your password might be. You know, a lot of people when they're making their passwords, they make them something that somebody who knows information about them might be able to guess. You know, a lot of people might use their dog's name, or you know, their family name or something easy to guess. So, the more you put on Facebook, the more you put on LinkedIn, the more, I'm sure everybody have seen these on Facebook, when people say, you know, I just want to see you know, what my friends will say? And there's like a 30 questions survey that they copy and paste asking you, what's your favorite movie? What was your favorite vacation? If you fill those out, you're giving attackers everything they need to make really good guesses about what your password is, or anything about you. Like those security questions. If you forgot your password, and it makes you answer three questions to prove that you're you. Those were probably some of those things that you answered in that Facebook post. So, you've just been socially engineered, and you didn't even know it, people are able to just trick you into giving out information that you probably shouldn't be giving out to random people online. So, you know, less is more. Don't, don't fill out those stupid surveys, don't post things that you don't need to post. And more importantly, don't accept friend requests from people you don't know, just so your follower count goes up on Instagram. Yeah, like, I know, that means a lot to some people, but don't do that.

Yeah. I was gonna ask a question, one of the things that I had read at some point, and I don't know if this is a good idea or not, you don't, you mentioned security questions that a lot of people, businesses and so forth will present to you to confirm your password or to reset your password. You don't actually have to answer the question that's asked of you.

Because the bank knows what state I was born in? They don't know.

So, you could put anything.

Yeah. So, I mean, you could, you could choose the question, what state were you born in? And the answer could be your favorite color, right? As long as you remember that you change the answer, the prompt doesn't really have to correlate to the, to the response you provide.

Don't outsmart yourself. Right? Exactly. Whenever you go back in, you have to remember what you put down. But you know, I think social engineering, you brought up a really interesting concept. You know, sometimes whenever people think cybersecurity and hackers, what, what comes to mind is that, that person with a hoodie, hunched over, typing away and doing all these very, very technical things. Some of the classes that we have, we teach extremely technical things where you can break into a computer. And that's what people will think a hacker looks like. Sometimes a hacker will do something called social engineering, which means they're using non-technical methods to get you to do something that is not in your own best interests. And it could be something as simple as a phone call, many, many scenarios, there's a two-minute video on YouTube of this woman, and if you saw her you'd never think hacker. But she socially engineers, a phone company into changing the interviewers password, and also adding herself to the interviewers account, and he's just facepalming. He's like, but what she did was, she actually put a baby crying audio on her computer. So, she's talking to the rep, and then she says, oh, I'm sorry, my baby's crying, my husband was supposed to add me to the account, he didn't, can you add me on? And the person said, sure, I can add you on, you seem, you know, without going through the security protocols. Because he was trying to help you know, he's the service and customer services, that person is trying to help. And social engineers take advantage of that all the time.

That is, that is a crazy story. But that's, I never would have thought I mean, I guess I would make a terrible hacker, I never would think to do that. But it's a, that's a really interesting story.

Well, you can try to, you know, hack into somebody's devices with a technical means, or you can go the simple route, and just ask them for their password. And, you know, sometimes it's just that easy. And, honestly, in a discussion like this will say, well, who would fall for that. But in the moment, it is very, very effective method. You know, it's, it's social engineering, we want to think of that non-technical hacking of a person.

And again, you'll find different statistics on, on cybersecurity, no matter, you could, you could Google today and get different stats, but it's something on the order of 90 to 95% of cybersecurity breaches could have been prevented had somebody just stopped to think before they provided the information, right out right in the clear. Without anybody having to hack into your account or anything else.

Yeah, movies tend to glorify the guy in the hoodie in his mom's basement. Yeah, typing away at a keyboard. But in real life, it's much easier than that, you just have to trick somebody.

So, we started talking and then, and this is, this is fantastic information, but I want to make sure we get to a number of the different sort of overview topics that we were talking about. So, let's talk a little bit about passwords and how they, how they're either acquired, or, you know, how do you create a strong password? What is this? What is something you should be doing to create a strong password? Yeah,

let's start there. So, the way I like to explain this to people is there are two things you have to think of when you're trying to make a strong password. You have to be able to trick a computer, and you have to be able to trick somebody who knows you, a human. So, tricking a computer, you know, how do you make sure that that hacker with a supercomputer can't break your password. So, the way that you do that is very simple, you make it long, the longer you make it, the longer it takes a hacker with a supercomputer to break it. You know, once you go over 12 to 16 characters, that supercomputer will not be able to break that password within your lifetime. So, we can essentially say it'll never be broken. So, length is the key, make it long, but then you get people saying, you know, how do I remember something that that's long? So, then we get into the part about being able to trick a human, and what it means for you as a person to be able to remember that password. Don't think of the password as a word, think of it as a sentence, or a phrase. So, what I tell people to do, I give them the example, what if your password was this, my house is the color dog. And there was a capital M on my, there was an exclamation point at the end. That sentence is over 20 characters long. So, you're already able to trick a computer, it's long. It's a sentence, so it's easy for you to remember, and it doesn't make sense, right? Dog is not a color. Right. So, if your best friend who knows everything about you tried to guess your password based on things they know about you, they wouldn't do it because it doesn't make sense. So just make it a sentence. You know, most places that allow you to set a password will allow spaces in passwords. So, you can do that. And even if they don't allow spaces, just remove the spaces, just run the sentence together. But either way, it's something very easy for you to remember and it's really long, so computers won't be able to break it. Okay, and

that that certainly may make sense. Mike, did you have?

Yeah, I saw an interesting cartoon. I love memes online and it said, somebody gets my password. So, I have to rename my dog. And because so many people will use a pet's name or something close to them, or add 2022, and attackers know this. And going back to what we talked about social media, hey, I just got a new pet my name, my dog's name is Fluffy. Well, I'm going to try to guess your password, I'm going to start with Fluffy, Fluffy2023. So, like Kevin said, right on target, think about a passphrase. Think about a sentence, you have the length of that thought that is going to be something that's close to you. And whenever you look into words, hey, what winter 2022 or so things like that, the attackers will get those. And like whenever Kevin mentioned the supercomputers, there's libraries of possible passwords, popular passwords, they'll try all those first. And if you have a sentence, you have a passphrase, it's not going to be in any of those, what we call dictionaries of popular passwords.

You okay, so we're talking about how to create a strong password. But what do you do when you have so many passwords to remember, and everybody is telling you to use a unique password for every site, or every app you're using.

That was the key that I was just going to key in on there, having different passwords for every site, that's actually a good thing. You should never ever use the same password for multiple places. So, before I answer the real question that you're asking, I just want to touch on this part real, real quick. So, you know, if you are a person who uses the same password for every site that you have, let's think about why that could be a problem. So, you know, let's say somebody breaks into the McDonald's app, because McDonald's has bad sec-, I don't know that they have bad security. But let's just assume, McDonald's

does not have bad. So, we are not saying from a legal standpoint, McDonald's is not a bad security.

But, but let's just assume that they did. And somebody hacked McDonald's, and they were able to get all of the passwords for everybody's McDonald's account. And you might think, who cares? It's McDonald's, they don't have any of my personal information, I don't care. But if you use the same password for everything, now, they also have the password that you use for your email. And you might think, Oh, who cares? Who do I email? You know, what am I doing with my personal Gmail, but isn't that email, the same email that you use to reset the password for your bank account? And for Amazon, that probably has your credit card saved, as well, and all of these other places? So, you know, if, if hackers can get back to your email, they own your entire life, you know, you don't want them to have access to your email. So, if you use the same password everywhere, you're just making it one step easier for the attacker. So, use different passwords for everything. And that sounds awful.

Oh, absolutely, Kevin, that sounds like wow, I'm gonna have to remember like, you know, hundreds of passwords. How am I going to do that?

How are you going to do that? Well, there are apps out there to help you. You know, I used to recommend LastPass to people. But LastPass recently had a very big lapse in security, that we in the in the government sector have decided let's stop using that. So, I don't recommend LastPass anymore. But there, there are other ones such as 1Password, and that's kind of the one that I tell people to use now, but we call them password managers. So, say you want to go make an account, and again, we are not saying go do this, because we're not endorsing anything on this podcast, but if you were to pick something like 1Password, that would be a thing that you could use, you remember a single master password to get into this app. And then the app keeps track of all your 100 other passwords for you. So, you don't have to remember 100 other passwords.

Now, when it comes to that, how do you access the passwords, right? Because if it's being stored in a database of sorts behind your master password, you have to enter that password and then go search out the password for your app and then find it and then enter it, or do these apps sort of make things a little more streamlined than that in most cases?

Some have a plugin where it'll actually plug into your browser, or you can do a copy, paste. And honestly, some people, we talked about healthy skepticism, will say, you know, password managers sound great, and then you say, well, where's the password stored? It's stored on someone else's computer or in the cloud, in the application. So, you might say, well, hey, I don't don't really want all my passwords stored in that type of environment, which is fine. You know, you can also get a password manager that's local to your computer, which passwords will be saved on your computer. So, either in the cloud or on your computer, either one is going to be in an environment where you have all your passwords behind that master password, which will be very long you know, when we talked about the sentences, the past phrases, make it very, very difficult to guess. And, and then you have your passwords there and hopefully makes your life easier. And also, you know, some of them will actually have alerts and say, this password was in a breach. I've seen those before with password managers. And because they have your passwords, they'll say with this password was, was found in a data breach, make sure you change it.

Okay, so we've so we've, we've established essentially, and again, I feel like I keep needing to reiterate this, this is all just, we could go into a 40-minute conversation just on passwords. I mean, there are so many different things to consider and things you can know. But that's the general, the general overview that I think that we wanted to make, make sure that we touched on today. I do want to take some time to talk about, what are some some of the other cybersecurity practices that people should be following regularly when it comes to their, their smartphones and their, their, their, their laptop, computers, things like that?

So, one that I'd like to add on the kind of goes along with passwords is this idea, if any of the listeners have ever heard or seen this acronym, MFA, or 2-FA you may have seen, it stands for multi factor authentication, or two factor authentication. And even if you haven't heard of that, you've probably used it whenever you go to sign into your bank's website, and they send you a text message. And you have to enter that code as a second thing to be able to log in. So, while a lot of people might say that's annoying, I hate that it takes 10 more seconds now to log into my stuff, that is one of the best things that you can do to protect yourself online. If a website allows you to set up or turn on MFA, you should do it. And the reason we tell people to you know, take that extra 10 seconds is because in the cybersecurity world, we always tell people assume your password has been stolen. You know, passwords have been around for decades, hackers are good at getting them, like we've already talked about, social engineering and all these other things, you should be living your life, assuming that hackers have your password for everything. So, what does that mean? Well, that means they can access everything, right, your email, your bank, whatever. So, if we're assuming that they have our passwords, and they can access our stuff, what can we do to make sure that they can't access our stuff? And MFA is one of the best ways to do that, because if they have your password, what don't they have? They don't have your physical cell phone, that you're getting that text message on, or that you're opening up Google Authenticator and getting that randomly generated six-digit code. So, they don't have your physical device, that second factor of authentication. So, if you turn that on, that is a great way to prevent bad guys from getting into your accounts. And we can go down that rabbit hole with you know, other attacks that can happen with MFA. But, you know, that's always suggestion number one, turn that on, if you have the ability to turn it on. And, you know, most financial institutions will force that to be turned on or you don't have a choice, but some don't, and some other websites that maybe aren't financial institutions, don't turn it on by default. But if you go into the settings, and you look, and it's available, turn it on, for everything, you know, every account I have has that turned on, you should see my list in my authenticator app of all the different codes I have. It's crazy, but it's necessary. It's one of our only protections, you know, against the bad guys who we know are going to get our passwords somehow.

From what I've seen, too, there are now companies that are sort of experimenting and password managers that are experimenting with the idea of not using the password at all. Like you put in your username, and the only way to gain access to that account is for them to you, you put that username in, and it says okay, we've sent a link to your app on your phone, we've sent a text message, you have to respond to that, or you just can't get in.

Yeah, we are starting to see some websites try to move away from passwords, and you know, passwords have been around a long time. Eventually, we'll see the end of passwords, we'll see other authentication methods, but it's not going to be in the near future. Like, as Kevin mentioned, it's so important to have those, those extra protective measures, multifactor authentication. You know, another one is, you know, you want to assume your information has been at a data breach, you can actually check to see if it has been there's a great website, it's called have I been poned. Okay, and then in cybersecurity, we like to spell words wrong, and we like to use acronyms. So it's haveIbeen, b-e-e-n, and then pwned, okay. You can go to that website, and you can put your email address in and you can actually see if you've been in data breaches. It'll say, you've been in data breach, and it'll give you that information so you can find out for sure. And we can probably provide a link in the show. I actually, I believe it's haveIbeen pwnd. Okay,

we'll make sure we put it in the description. Yeah, but it's

free service, you can put your email address in, or you can actually put any anybody's email address and, and see if they've been in a data breach.

Yeah, well, we'll put it in, we'll put that in the description of the show. It is a link, you can click on or copy and paste, the link.

We'll email you the link.

That's, it's a slippery slope, you know, you really it really is, you know, it's a slippery slope to tell people, you know, to make absolute statements of don't do this. And then, well, how else am I gonna get you this information? Right. So now that we'll definitely put that in the description of this episode. Some other things too, that I just wanted to get your, get your take on things like keeping your operating system up to date. You know, right now, as we're recording this, Apple has just released their latest iOS version. And if tradition holds true, in about a week, there will be a point one version of that, that comes out. Because there's some sort of a security issue or some other kind of fix that has to go in. How important is it to keep your windows up to date, your, your smartphone up to date, things like that? And for some people that aren't technologically savvy, how easy is that to do?

It's absolutely critical. I mean, and it's another, I feel like I'm, you know, a broken record. Because every time I talk about something, I say, well, this is something that everybody hates, because it takes 10 extra seconds. Yeah, doing those updates, you know, whenever you see on your Windows machine, that little pop up that, you know, once a month, Microsoft, we've given it the name Patch Tuesday, because the second Tuesday of every month, Microsoft releases all of their updates that you should be installing. And you know what, why should we do that on our phones on our computers? It's because these companies are finding vulnerabilities that hackers have taken advantage of. And they know that if we don't fix these, your computer or your phone now has a hole in it, that hackers know about that they can break in and steal your data. So yes, clicking that button to update your machine, you know, once a month, it is going to take five to 10 minutes for those updates to install, your computer to reboot, it's going to be a hassle. But again, it's just one of those easy things we can do to make sure that we are protected, and our data isn't at risk. Okay.

Right, for the security updates, yeah, it is a bit of a hassle for us. It's also a bit of a hassle for the companies. Microsoft doesn't want to have to come up with patches all the time. It's expensive to them. What it means is every time there's a security patch, that means there was a vulnerability found, not just for Windows or Mac OS, but any of the applications you have on your phone. You'll see they're constantly hey, there's a new update, you always want to have the most recent updates, because you run into a situation where if you have an older one, well once the vulnerability is exposed, attackers are like, you ever, you ever go down to the water in the lake and throw some food in and all the fish come? That's what the attackers look like. That's what we're going for is that vulnerability. You know, we saw just a couple weeks ago, defense contractor in the UK that makes fencing for military bases. They were breached because they were still running Windows 7, Windows 7, went end of life back in 2020, January 2020. So, so anybody listening, if you are still running Windows 7, you want to make sure you upgrade to Windows 10 or Windows 11. Because windows 7 is not, they don't have any security patches, any vulnerabilities found can be actively exploited and are being actively exploited by attackers. So, it's just as simple as bumping that up. It's,

so wait, I don't want to do that because I don't want to pay Microsoft money.

Exactly. Right. Yeah, exactly. But a lot of times you can get a free upgrade. But in the case where you have a very old computer, if you do have to pay for it, great investment, it much better to have the most recent operating system then lose 1000s of dollars and hours and hours of your time. You know, we talk about MFA, you know, Kevin mentioned an extra 10 seconds. It's so aggravating, you know, in our fast-paced lives, 10 seconds is an eternity. But we think about it, do I want to be on hold with the bank for hours or sitting there dealing with a cybersecurity event or incident? That's a lot of time, that's a real hassle, that 10 seconds becomes well I wish I would have done that. And

and honestly speaking from experience when, when we're dealing with identity theft, hours, cleaning it up is a, is a really, really good scenario. You're normally talking days, weeks, depending on, on the severity, it can drag on for quite some time it can involve litigation. There is a lot that comes from having your identity stolen that, that is I agree, Mike, you'll want to spend the 10 seconds.

What's the phrase, an ounce of prevention is worth a pound of cure? Yeah, that sounds like it would be apropos in the situation.

Yeah, absolutely. So based on what we've talked about today, some of the key takeaways that people should probably have and maybe a few resources that where they can go beyond the one that we're already putting in the description to try to find some good resources on, on cybersecurity prevention and things like that.

So, if I was to pick, you know, one, one take, or let's pick two takeaways, because I can't narrow it down to one, stop clicking on things and emails, and enable MFA. You know, if there were two things, I would say from this show that you want to go out and do right now, do those two things that will probably pay dividends in the future.

Another one is awareness. You know, I hear this so often from small businesses and individuals as well, oh, I'm just a small business. I'm just one person, no one's coming after me. If you are on the internet, if you have an email address, if you have access to an application, you are a potential target, by what's called an opportunistic attacker, somebody who's just looking for that low hanging fruit. So, you are a potential victim. Even if you're a small business, even if you're just an individual, attackers will find those scenarios that find your password in a password dump. So, awareness is important to understand, yes you could be a potential victim, the positive is there are things you can do. Like I've mentioned, stop clicking on links. You know, if you have a link in your email, that healthy skepticism, do I really want to click on this? Do I need to click on this? It says it's from Amazon, let me just go to the browser and type in amazon.com and go in that way. And see, does that match up with the reality of what this email says.

And there's, there are a lot of places online that offer free cybersecurity awareness, I don't want to call them courses, but videos that you could watch. I mean, even the Department of Defense, you know, we're not necessarily talking to federal contractors, you know, who are listening to the show, but their cybersecurity awareness training video is free that anybody can sign up and take it. And it covers the basics of pretty much everything we've been talking about. Yeah. So, you know, if you wanted a really good resource to go and learn the basics of what to look out for, you know, just do a Google search for Department of Defense, a cybersecurity awareness, and you'll find their website and be able to watch their course.

I can speak from my own side and say that there is the National Cybersecurity Alliance, stay safe online.org, where you can go, and you can get a lot of really great free information about cybersecurity and information security and things like that. And we'll put, again, a lot of these things in the description for you to find the, there is information on the AmeriServ website. If you go to ameriserv.com/fraud, we have a lot of great information, links out there that you can find that will, you know, be able to, to hopefully help you through some of this information as well. So yeah, gentleman, I mean, I really, really appreciate your time today, going through some of this stuff. And again, really looking forward to talking with you in future episodes to really delve into some of the stuff that we talked about today in more detail, because believe it or not, there is more detail. There is so much more detail. We, it may seem overwhelming, and we seem to have gotten into some, some weeds, but believe it or not, there are more things to talk about. Different types of, of malware and different terminology that's used, I think that we could probably do a significant conversation just on some of this some of these terms that we've tried to identify a little bit throughout our conversation today that are thrown around by people that maybe assume that you know what they are, but maybe you don't. Any final thoughts before we, before we wrap things up?

No, not really, stop clicking on links.

You know, I would say ask questions, reach out to us. We are always happy to engage with you any questions, you want to reach out and say, hey, I had a specific question. I'd be glad to answer it on a future show.

That'd be great. So, with that, I think that we'll wrap this particular episode up and I thank you both very much. And we'll talk again in a future time.

All right, thanks a lot, man great.

This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to bank chats, is not intended, and should not be understood, or interpreted to be, financial advice. The host, guests, and production staff of bank chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation.

Our thanks once again to Kevin Slonka and Michael Zambotti from Saint Francis University for joining us today. We opened the episode with a fast fact that 19 out of 20 or 95% of cyber-attacks are a result of human error. That statistic should not make anyone feel badly about having been a victim. We all make mistakes. But this statistic is actually great news, because it means that we can make a significant impact on reducing cybercrime through education. And that has been our goal today. Don't forget that links to websites and other educational materials discussed in our conversation today can be found in this episode's description. Please make sure to like, follow, and subscribe to the podcast to make sure you don't miss any additional episodes on cybersecurity, or our other discussions on topics related to banking and financial wellbeing. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. Production assistance by Jeffrey Matevish. Previous episodes can be found by visiting ameriserv.com/bankchats, or on your favorite podcast service. For now, I'm Drew Thomas, so long.

Episode: 3

Fast fact. Money lending can be traced back to about 3000 BC in ancient Mesopotamia. Before currency was widely used, ancient peoples used food as a way to pay their debts. With the promise of harvest in the spring, farmers would borrow seeds, and then share their crops to pay their debts. I'm Drew Thomas, and you're listening to Bank Chats?

Today, we're pleased to have with us, Senior Vice President of Retail Lending at AmeriServ, his name is Rusty Flynn. Hi Rusty, how are you?

Good Drew, how are you?

I'm great. I'm great. So, tell us a little bit about yourself. Tell us a little bit about your background.

I've been lending money for 32 years. I started with a finance company for about seven years, and then over the last 25 years, I've been in community banks, last 17 with AmeriServ.

So, 25 years and community banks. Yeah, it's been a long time. So, we're going to talk a little bit about consumer lending today. When, when someone comes to a bank to ask for a loan, where does that money come from exactly?

The vast majority of our money, our funding sources, come from our depositors. So, we take in deposits, whether it's checking accounts, savings accounts, CDs, generally, what we do is try to turn that money into lending opportunities. And the difference between what you lend out compared to what you have on deposit, that's how we make our money. One of the simplest sources of how, you know, banks make money over a period of time. So banking, at its simplest source, is really it comes down to interest revenue, fee income, or investment income. So, when it really comes down to it, well, what we're trying to do is take loan interest, what we get on our deposits, you lend it out, and the difference is interest revenue. So that's really what it comes down to is a simple source of use our own funds to make money.

So, theoretically, I come in and I deposit you know, we'll use, we'll use vague numbers, I come in, and I deposit $1,000. And I can take my money back anytime, anytime I want, correct? Correct. All right. But, at the same time, you're using some of my money to lend to other people to generate interest is what you're saying. Right?

Absolutely. Who I mean, we're pooling everybody's money in there to generate income for everybody that's involved in a process.

So, it's not that the bank has all this money, right? We're just holding that money and then reallocating it to, out into the community.

Absolutely. I mean, we're reallocating it and the bank has other funding sources too; lines of credit, that we have to cover sources if we would happen to need it overnight, borrowing from the Federal Reserve, and other lending sources, but generally speaking, you know, our first funding source is our deposit base.

Okay. All right. So that makes sense. So, I think a lot of people have the misunderstanding sometimes that the bank is just full of money, and that we just give it out to the people we like the best or something. And that's not really the case. It's the depositors that we have that give us the ability to lend that money back out.

Yeah, absolutely. I think everybody has misconception that the vault has, you know, piles and piles of cash, we're just ready to get out. So yeah, there's limited sources of actually cash on hand. But, you know, at the end of the day, we're trying to lend out what we have on deposit.

Okay. All right. Well, that makes sense. So, what kinds of loans would, would use, like, what's the difference between, for example, a secured and unsecured loan, maybe we just start there.

I'll start on the simplest ones. The unsecured loan is just a personal loan, as somebody who might take out you know shorter term, it's a term loan, a term loan, just means you're taking out a fixed amount of money at a fixed interest rate paying it back over a period of time, okay? So, if you want to take out $5,000, over 36 months, your payments gonna be equal over 36 months, and once it's done, it's paid off, you're down to zero, the loan is gone. Okay? So, a line of credit, on the other hand, is it's a fixed amounts where the bank is going to say, you know Drew, you come in, you apply for $10,000. So, think of it as a credit card, it is a line of credit that you can use over and over again, you're only going to pay interest on what you borrow at any one time, pay it off, you can use it again. You know, it's there as a safety net. I always say credit lines are good for a safety net or for short term borrowings versus long term borrowings. So, you can use it pay it off. Generally speaking, you know, credit lines are going to be variable rate, where installment loans can be a fixed rate. So, variable rate might be something, you know, most loans are tied to prime rates. So, Wall Street Journal prime rate plus a margin. So, that can, and we'll change over time, and we've had a rate rising environment over the last couple of years, so, interest rates have increased dramatically. Whereas the fixed rates you know, generally speaking, are going to be lower than a credit line, because it's a one-time loan, it's fixed and locked in at the time you do the loan, and then it's going to be paid off over a period of time that lessens the risk for the bank. Where a credit line, the risk stays out there for a long period of time, because we're giving you $10,000 access at any one time, whether we know your financial situation, you know, three years from now.

Okay. Yeah, that's a good point. So, in a fixed loan, you're looking at a snapshot of what my financial situation is today. And then you're making a decision whether or not to give me that loan, because you know, in advance how long it's going to take me to pay it back and what the interest rate is, and how much I'm likely to be able to make those payments. But if you give me a line of credit, and I lose my job five years from now, you can't, you can't possibly know that ahead of time. So, that's why the interest rate tends to be higher is what you're saying.

Generally speaking, that's absolutely correct. Because what happens is on a term loan is you're paying it down, our risk is down, because your balance goes down over a period of time. Where if you're at financial struggles over time, generally speaking on credit line, most people are going to tap into those resources, you know, maximize the amount they have borrowed out there. They might be using it to live on and things like that. So, typically a bank is not going to find out that you're having financial problems until probably maxed out that credit line, and then all of a sudden you stop paying or you get past due. So, that's when a bank knows that the risk is a lot higher. And that's why credit lines typically are riskier than term loans.

Okay. Yeah. And that's a good point, you don't realize, the bank doesn't realize that it's an issue until you've racked up a lot more debt on that credit line, because you've basically maxed it out.

Most times the banks are not going to know until it's too late. Because if it's too late for a customer paying on their loan, generally speaking, they probably already have other bills that are past due too, whether it's her house or car, other credit cards. Generally, people pay for their housing first, their car second, and then anything else after that. You gotta keep in mind, people still got to eat, buy groceries, pay insurance and things like that.

Yeah. And I'd like to come back to, to the topic of debt here in a minute. But one of the questions that I wanted to sort of clarify, you mentioned that a line of credit is kind of like a credit card. So, what's the difference?

Generally, I would say a credit card is good to have, especially for people to travel with, or have different things, but credit card interest rates are much higher than what a credit line interest rate at a bank is going to be. So, flexibility of a credit card is, you can use it at any kind of retail or anything like that, just by swiping a card or tapping a card, where a credit line is through your bank, you're gonna get a set of checks where you can do online transfers, or stuff like that. It's going to have more than likely a much lower interest rate. So, the credit line of the bank is still a good choice, it's just offers a little less flexibility, where the credit card is generally accepted. At any kind of retailer where you can use it almost anywhere.

Yeah. And I would have to think too, with a line of credit at your bank, if you need access to cash, that's probably a better option than, than a cash advance on a credit card. Because I know with credit card companies, a lot of times your cash advance interest rate is even higher than your purchase interest rate. So is a credit line the same either way, whether you take out cash or whether you write one of those checks, it's the same interest rate? It's the

same interest rate, there's no fees for taking out any kind of cash advance and things like that. So, like a credit card, like you said, it's going to have a higher interest rate. And a lot of times it may have a fee that goes along with it, where credit line to the bank, you're just going to be transferring your own money that you're already pre-approved for into your account. It's not gonna have any kind of fees on it, it's gonna have the same interest rate, whether you write a check, or you're doing online transfer or transfer by any other mode.

Okay. So, you mentioned, and I said I wanted to kind of go back on this, you mentioned about accumulating all that debt, right? And why the interest rates are a little bit different based on the different account types. So, can we talk a minute about consolidation loans, right? You, you hear about that all the time, like you can lower your debt, and you can try to get out of debt with a consolidation loan. And it seems counterintuitive, I think, sometimes to people that, why would I take on more debt to get out of debt?

You take on more debt to get out of debt, because you can consolidate into a much lower interest rate. I typically like to tell people, if you're going to consolidate that, do it into a term loan, where you're going to have a fixed interest rate to pay it off. Because if you just put it into a credit line to extend it, and maybe pay interest only, you're not doing yourself any kind of favor because all you're doing is extending the time in the interest savings that you potentially get. So, you don't want to trade debt for debt where it's not being paid down over a period of time. People can go through and consolidate debt, if they do it responsibly. They're going to have a term loan, pay it off and hopefully they use a credit line, you know to more responsibly for short-term borrowing needs versus long term.

Okay, so would you recommend or does the bank normally recommend that you close those other lines of credit? When you do a consolidation loan? Or do you leave those out there, because if those credit lines are still out there, you could theoretically continue to use them. And then you wind up right back where you were?

It really depends on the customer and their situation and things like that. If people were just consolidating debt, and they're not overwhelmed with debt, we may not require them to pay off and close those credit cards. But there's times where we do say, hey, you're coming in to pay all these debts off, you might be a marginal borrower, we might, you know, mandate that those credit cards are paid off and closed. If you're not, we may leave them open. And most times, people will let you know, you know, what kind of credit cards they want to do. I'm not opposed to having credit cards out there. But I think, you know, generally speaking, if you have two or three, that's plenty of capacity on a credit card, especially if you're traveling or making hotel reservations, you need a credit card for necessities, most people do. Most people don't need 10, 12, 15 credit cards. And we see that every day in our business where very average normal income people working class people coming in with 10, 12, 15, 18 credit cards. And if you have that many credit cards, typically they're carrying balances of a few $1000. Or we've seen people with 40, 50, $60,000 in credit card debt. Wow. So, that's not an uncommon occurrence that we see on a day-to-day basis. So, that's why we try to tend to shift people into more secure, debt long term debt, and I'm sure we're going to talk about home equity loans at a point here, too.

So, home equity, I think that goes to one of the first things we were sort of, sort of touched on I think we kind of got away from was, the idea of a secured loan versus an unsecured loan.

Right an unsecured loan is just your signature, and we're hoping that you're gonna pay us back on time pay us off through the end of it. And if you have another financial need, you're coming back, a secured loan, you know, could be against her own money, it could be a CD secured loan could be an auto loan or holding some type of piece of collateral. And the biggest kind of collateralized loan or secure loan is a home equity loan where we're filing a mortgage or a lien against your house as collateral. However, when you do that, you're going to get a much lower interest rate on any kind of borrowings, whether it's a credit line, or a term loan, you're going to get a much lower fixed interest rate, if you do it that way. And that's where we do a lot of consolidations, where we're using equity in your home, paying off on a term loan paying off all those unsecured debts, typically, to give you the savings and give you the access to that equity in the future.

So, with something like a home equity loan, would you be looking at the average mortgage rate that's out there right now and then basing the home equity on that? Or is it a different thing entirely?

Generally speaking, in a normalized rate environment, home equity rates are going to be slightly higher than what you would find on mortgage rates. However, currently, the market environment you know has been rapidly escalating for first mortgages. Home equity rates have actually been slightly lower than mortgage rates, because what happens is, you're taking a second lien, typically on a home equity loan, so the risk is higher when you're taking a second mortgage against the house versus the first mortgage. And it all depends on the terms. The shorter the term on a home equity loan, typically, the lower the interest rate. You go 3 years, versus 10 or 15 years, the interest rates going to be higher, because the risk of that for the bank is a lot lower, because you're going to pay off, you know, in 3 years versus 10 or 15 years is where the risk is.

So, when it comes to home equity, you have to have equity in your home too, right? So, you can't necessarily get a home equity loan if your mortgage is a year old? Or could you?

Generally, no, you're not going to be able to get a home equity, because I've had a lot of people over the years, say what do you call a no equity home equity, I call it an unsecured loan. If you have no equity in your house, you cannot get a home equity loan. Most banks, including AmeriServ, might lend up to 85 to 90% of the value of their house, and then minus your first mortgage, and that's your lendable equity. So, just in round numbers, if your house was worth $100,000, and say we're gonna lend 90%, that's $90,000 minus whatever your first mortgage is. So, if your first mortgage is $50,000, we can lend you $40,000. So, that's just kind of the simple math behind it, where you know, 90% of whatever the value is, minus your mortgage is your lendable equity. Well, we potentially could lend you on a home equity loan. Now you have to qualify and a lot of other standards, whether you have good credit, your stability as in your job, your housing history, how much debt you have, what the ratio of debt is, how it's made up and things like that. So, there are a lot of factors that go into.

Okay. So, I think that's one of those terms that gets thrown around that maybe people don't always, don't always pick up on is equity, right? Because it's, it sounds very, I don't know, mysterious, I think to some people that don't have a banking background and stuff and they say oh, well do you have equity in that? But equity is essentially what you have available on the, on the piece of collateral you're putting up.

I mean, true equity is just the value of anything, whether it's a house, a car, or anything physical. And if you have, owe anything against, so it's the difference between the two. The lendable equity is, we're taking a little bit smaller factor, in a home equity, in our case, it's 90% of that value, minus if you owe anything on it. And that's your lendable equity. So, there is a little bit of a difference, but generally speaking, equity is just the difference between the value and anything that's owed.

Okay. And one of the other terms that you had mentioned earlier that I wanted to touch on, too was marginal. You said if the lender, not the lender, the applicant, the loan, the borrower is marginal what's, what's marginal in terms of banking?

But those are the kind of things, marginal bar might be someone that has marginal or average credit, and they have too much of it. You know, another term we use is debt ratio. I don't know if you want to talk about it. Yeah, absolutely. I mean, a debt ratio is just simply, its gross monthly income. So, whatever your income is, before all taxes and deductions are taken out, that's your income for the month, we take all your monthly bills, you know, your housing payment, the new payment we're gonna have on our loan, and any other credit card debt, student loans, any other kind of auto loans, all those monthly payments are added up. And then we divided by your gross income to come up with a debt ratio. And most lenders out there on the consumer lending side of the house, you're looking for somewhere in that 40% range, give or take, as being the high side, if it's over that, that's probably means that you don't have enough money to live on. Here again, there's a lot of other factors that come into play.

So, your gross income is obviously your payment before all your deductions, right? And your net is after your taxes come out and after your maybe your, your health care is paid for by your employer that comes out. Maybe you have a retirement saving that comes out. So, why do banks use gross income rather than net?

The real answer comes down to it's a consistency thing, it's a way for everybody to be judged on a consistent basis. Because your net income can be greatly changed by a lot of discretionary items, like what healthcare you choose, and how much are you taking out for a 401k or any kind of retirement savings, those kinds of things can change. So, if you have a lot of money going out or a 401k, technically, you could reduce that to bring home more net income. So, there's a lot of things that you can do on a discretionary basis, that would be, really minimize what could be taken out there. So, it's a way as a level playing field for all lenders to look at all borrowers on a similar basis, versus looking at it from a discretionary side.

Okay, that makes sense. So, really, it's, it's a, it's playing fair, you know, with everybody. Playing fair

with everybody, from a gross standpoint, gross income, because the net income is your take home pay. Yeah. And that might come into a decision where we look at how much take home pay when I talked about marginal, do you have excess disposable income? If your margin on your debt ratio, like we talked about a couple minutes ago, how much discretionary income do you have to pay utilities? To put food on the table? Pay insurances, homeowners, auto insurance? So, those are where your net income might come into play into the decision for consumer loan.

Is there anything that is exempt from that, that you don't consider discretionary income? Like something like say, a cell phone, for example, you know, most people used to have a landline, right? And that was just the, you had the landline for the house, and that was considered pretty necessary. But as cell phones sort of bridges that gap, right, you have the necessary part of the phone, you have the unnecessary part of maybe having a smartphone with an unlimited data plan and things like that. So, what, what kinds of things are considered in that calculation, what and, what kinds of income or spending is not?

We're just taking any kind of debt, any kind of loan you have. So, any kind of utility, cell phone, things like that, that's not included in a debt ratio. So, that's why we use the gross income as our calculation method, and we realize that people are going to have lots of other debts, or bills that don't show up on a credit report that you got to pay for on a monthly basis. Okay.

I've heard of a lot of people, and I'm sure you have too, who come in and say, well, I've never had a loan, so I should have no trouble getting a loan, right? I don't have any debt. So, I should have no trouble. Is that always true? Or is it kind of one of those things where having no debt could end up actually hurting your chances of getting a loan?

You need to have some stability, and generally most lenders are going to want to have somebody co-sign with you or maybe ask for a secure kind of loan depending on the situation. If you're maybe just starting out and have no history whatsoever, your real short time on the job, you're probably going to need someone to co-sign or be a co-applicant on the loan to get you started. Once you illustrate that you can pay a loan over a period of time, I personally like to see seasonality on a loan. Can you pay a loan three or four seasons, because sometimes people make the mistake of coming in, say, have no loan, loan, experience, they borrow and pay me back in two months. Well, you didn't really prove to me that you could pay me over a period of time. So, the next time you come back, we're probably gonna say, hey, we still need to have that same kind of stability or someone else back and you want that. Generally, what I see, the other side of it is, people try to get, you know, some credit cards, some loans, they go out and get 6, 7, 8 of them all at one time. So, that's not good either. So, it's a good balance to you know, take it kind of slow, you know, maybe get a credit card, get a term loan, pay that term loan over a period of time, get some experience and then you'll be able to do things on your own, you know, from there on out as long as we're responsible.

I think it's important to make the differentiation or the, or to explain the difference between a co-signer and what their responsibilities or their, their liabilities are, versus co-applicant. Yes, thank you.

Yeah. A co-applicant versus a co-signer, a co-signer is obligated for the debt in general, whereas a co-applicant, you're obligated for the monthly payments. So, lenders typically like to see a co-applicant because if you're going on with somebody, you're obligated for that monthly payment, you're gonna be much more aware earlier, there was an issue with repayment, where a co-signer might be a little bit late to the game, where they find out that personally, we're trying to help out to get established, not living up to their obligations. So, generally, most lenders like to see co-applicant versus co-signer. I've always said in my history I've been known as 32 years is, a co-signer or co-applicant, if you're helping someone else, that's a strength to them, to the loan, that's why you're making a loan because of their strength. Somebody's not paying me I'm going to them first, because that's why we made a loan.

Yeah, I think maybe some people don't always quite realize what they're signing on, what they're signing on the dotted line for when it comes to that. And I think that's important. If you're, if you're being asked to co-sign or co-apply for a loan, to understand that you're, you're just as responsible for paying that loan back as the other person is.

Yeah, I mean, even 25 years ago, and I'd be face-to-face with customers, they had co-signers or co-applicants, I would be much stronger with the co-applicant saying, this is your responsibility to pay. Because a lot of times, way back in my history, I would collect loans also. So, you call a co-signer or co-applicant and they're like, well, I only signed my name so they could get the loan, I didn't really want to pay it back. We're like, well, that's why you signed your name. So, we're coming after you for the payment, and if you don't perform your obligations were coming after you from a legal perspective.

So, really, if we break it down, if your friend asked you to borrow money, right, you're most likely going to ask your friend well, how are you going to pay me back? And you might ask your friend, well, have you ever borrowed money somewhere else? And did you pay them back? So, it's in simpler terms, it's really just the idea that having no credit history means that we have no knowledge either for or against the idea that you could pay me back we just, we just don't know. And so that's why usually ask for somebody just co-sign that does have a credit history that you can say, okay, well, you can't pay me back this other person could.

I mean, lenders are always looking at the, there's, I mean, there's lots of different scenarios and acronyms out there. But the four C's of credit, whether credit history, collateral, capital and character, so if you're borrowing from your friend, they know their character, you know, what's the likelihood of Drew pay me back over a period of time, if he comes to me and asked me for money? And we're looking at the same kind of thing, but we're looking at your work history, your credit history, your income, all those factors are taken into consideration, and what's the likelihood of you paying us back? So, the same thing as a family friend or something like that would be the same. With a bank, you're gonna get credit on a credit report where the friend you're not going to get any kind of credit for

that? Sure. Sure. So, let's, so let's talk about a credit report, because we hear all the time about whether it's your credit card company or an ex-, maybe it's Credit Karma, or all these different places that you say, well, you can look at your credit score anytime you can get it once a month, once a week, once a day. But what goes into a credit report?

Credit report is going to memorialize your history, your address history, any kind of work history, if, as long as lenders are putting it in whenever they're doing it, in any kind of loans or credit card history out there. Anytime you inquire for a loan, so if you go try to buy a car and they send it to six different banks, you're going to have six inquiries on there. So, we're going to see, are you shopping for debt? Are you doing things like that? Not all credit reports, or, you know, credit scores are equal. You hear you know Credit Karma, and some of those or different times customers come in and say my credit score is 950. Well, the banking industry typically uses the FICO score, Fair, Isaac and Company, FICO score, that's the most widely used by the banking industry. So, that number goes from 450 to 850. So, your highest credit score is 850. So, when someone tells me they have 928, I know they're using a credit score from a credit card or something like that. So, it might be a good indicator that they might have good credit. But not all credit scores are made the same. And there, they don't have the same kind of scales, so credit scores really just an indicator on, what's the likelihood of you paying us back on time. So, it's not a be all and end all just because you have a high credit score, we're still going to look at your stability, your ability to repay. I mean, that's the big thing, do you have the ability to pay us back based on our debt ratio, like we talked a little bit ago?

And are there different things you said about an inquiry? There are things such as soft inquiries and hard inquiries, what's the difference between those two kinds of things?

A hard inquiry is when you're going out to look for a loan or apply for a loan, there's going to be hard inquiries thrown at Drew, you applied for a loan, at XYZ bank last week, and then you come to us today to do an application. So, we're going to see that you applied somewhere else, and we're going to question, what did you do there? Did you get another loan? Did you get turned down? What happened there? Okay, soft inquiries, typically, for an existing account. You might be doing a credit line review, any kind of, we talked about credit lines earlier, we put them out in certain kinds of loans, like home equity loans, we review on a periodic basis, just to make sure that your credit hasn't deteriorated. So, there's only certain things we're looking at. But lenders always have a right to do a soft pull to see the performance of the loan, how it's being done on a credit line kind of product.

So, it kind of goes back to what we were talking about before your, your you can't do it all the time. But you're, you're kind of, you're kind of testing the waters to see if somebody's getting in over their head before it's too late.

We, we definitely try to do it if it's only on a periodic basis. So, generally, when you're doing those kinds of reviews, if you see it, it's probably still too late, because, you know, it's already out there and people are struggling. Yeah, yeah, it's like I said, when you go back to the credit scores, you know, different variables we look at, I've always looked at credit scores just being an indicator, not a be all and end all. So, you can have a 720 credit score, that's on the average above average side, but that doesn't mean you're gonna get a loan, you might be overloaded with debt. You might have a 650, which is on the lower side. It might be just because of one small item might have hit it, you might have a small collection account, a medical collection account or cell phone, or those kinds of things impact you and no stay on your credit report for at least seven years.

So, you're getting into a little bit of the weeds with credit reports and credit scores, there are things that impact that score more than others. What are some of the ways that you could most effectively impact your score in the least amount of time, like what are the things that are most important when it comes to your credit score?

The most important thing is always pay all your debts on time. The other thing is don't take on too much debt. Don't be out there getting credit cards every month, and racking up things like that. The type of debt you have, and the availability of debts also comes into play. Do you have a lot of term loans versus credit cards and credit lines? Credit cards and the availability of what you have, you know can fluctuate on a day-to-day basis because you make big purchases, you might pay them off. Ultimately, your credit score comes down to a handful of factors, and everybody's credit score is different. And it can change on a day-to-day basis based on whether you bought more items, you paid things down. So, like the FICO score is really based on the four most prevalent factors on your credit report. On your specific credit report. Yours is going to be different than mine and yours could change on a day-to-day basis. So, I always tell people pay your debts on time. Don't take too much out. You don't have to worry about what your credit score is. So, a lot of times people get fixated on they want to 800 credit score. Yeah, and I'm one of those people and sometimes I'm like, alright, if it's not 800 or over if you're 798 you have no issues no problems. At the end of the day 798 is a very high credit score.

And there are three different primary credit card or credit score, I don't want to say providers, but I guess they are providers, Experian TransUnion, and Equifax, right? And the credit scores could vary slightly between those three.

Generally, they're going to vary between the three, most debts are going to show up on all three. But you might have regional lenders or credit unions who only report on one of the three. So, that's where the differences can come up. Or if you have a collection or something that's more on a regional basis, certain credit reports are more prevalent in certain areas.

So, the idea that you should get your credit score from one of those three providers every, every year, like you can get your annual credit report, things like that, is that still something that people should consider doing?

I think it's just, it's a good idea to keep an eye on where you're at. If you stagger them, at least you can see if there's inconsistencies or any kind of potential fraud or something like that. If you stagger them, you're also going to be more aware of what your debt situation is. You're going to see that over the summer, I've racked up a lot of debt here. So those kinds of things, if you're gonna do it, probably more on a staggered basis, that way you can see if there's anything unusual that sticks out to you, or maybe it's more self-awareness for your financial pictures and build a budget on it. Yeah, build a budget and financial awareness.

Yeah, and, and I don't want to get too far into it. But you actually mentioned fraud. And I think it's important to mention that too that, you know, if you're noticing something on one of your credit reports that you didn't do, that's also a good thing to sort of keep an eye on to make sure that you can report that if it's something that is out of the ordinary.

Yeah, if you see anything out of the ordinary, reach right out to, you know, whoever it is, a credit card or lender right away. If it's not yours, make sure you're reaching out to put a stop to it. And then put an alert on your credit report, you can reach out, and the credit reports are obligated to share with the other two credit reports. So, if you do one, it does flow over to the other two.

You can put a notification on your credit too, right? You can tell them that if they get anything, you can basically freeze your credit.

You can freeze your credit, you can put a statement on if anybody inquires for credit, call me at X number and it can put a time period on. A lot of times we'll see it where people will put it on for the next 12 or 18 months, if you see any kind of inquiry, you have to reach out to me to verify that I'm the one that applied for the loan. So, we see, see it on a periodic basis, and we reach out to the customer. And then we're gonna go through and verify that your identity for you know a couple qualifying questions that you would only know the answer to Okay.

Keeping things on track with lending in this episode, I think is important to spend a minute talking about repayment, because you're making your payments on time is obviously a huge part of your credit score, and your credit report. But it is also something that I think people have a little bit of a misconception about when it comes to what the lender expects. The lender is not necessarily looking to collect on your collateral, right? I think it's in the best interest of the lender to have you make your payments on time, is that right?

Banks are definitely not in the collection business. I mean, we collect loans, but we're not in a real estate or car business. We don't want your house; we don't want your car. We want to lend you money, yeah we want you to pay us back. That's definitely something over a long period of time that we want people to succeed. I've always said, I've never made a bad loan, I've had good loans good bad, because if I felt you couldn't pay me back, there was an issue with a loan up front. Of course, we've all had loans go bad, it's just the nature of the business. I've lent billions of dollars over the years. So, it's just a matter of, you're gonna have people that have, come on hard times, they lose their job, they're laid off, there's a sickness. But at the end of the day, we want you to succeed, we want you to pay back, and banks are going to work with you to pay back. They're not just going to come in and repossess your car foreclose on your house. I mean, there's gonna be a long period of time, and you're really trying to work with you to get back on track.

Yeah, I think that's, that's definitely something that people at times, I think have this misconception that the bank is just out to try to take, take whatever they can take. And at the end of the day, it goes back to what we started talking about, which was, I mean, yes, we are in business to make a profit, and we are a business ourselves. But we're basically in business to help our communities, to help the people that need the money to open their first business, to buy their first car, to get their student loan, whatever it might be.

And you're going to take a loss. Anytime you repossess something you're going to take a loss on no matter what the value is or what they owe, you're taking a loss on something like that. So, my job is to take our deposit money, lend it out and you said it correctly is, we want those people to pay us back, come back the next time they have a need. So, we want to be their partner for life. I mean, I know it's one of our slogans or our tag lines, but we want to lend money to people when they need it. And when they come back, we want to be able to lend them money again.

Yeah, yeah, absolutely. The only thing that I don't think we really touched on much and I don't know how you, how much you want to get into this is calculating interest on a loan.

From a lending standpoint you're going to use simple interest, it's simple daily interest. So, all loans are based on the amount your dollar outstanding balance based on your daily interest rate. So, it's really just taking your decimal point out two points, you know say it's a 7% interest rate. So, point 0.07 is 7%. If you divide it by 365, you get a daily interest factor multiplied by the balance, and that's how much interest on a daily basis. So, whether it's a credit card, or credit line or a term loan, your interest is always going to be calculated on the balance outstanding. However, many days in a period between your last payment in this payment. It's a little different for credit lines, because credit lines are based on a prior period, you just think about the credit card analogy I used earlier, you're always paying on a prior period. So that prior period, credit line works just the same way a credit card does is they're gonna find out what was your balance on every day, and what, what interest rate was established for those days. If there was a change in interest rate, it might be different, and every day is going to have what your daily interest is you add it up, that's what your interests are gonna be charged. Okay. On a term loan, it's going to be the number of days between the payments, so your interest paid from your last payment till the next one. So, if it's every 30 days, automatically, you're gonna see your interest go down just a tick, a little bit here and there. I think you might pay 25 days next month, and then you might go 35 to the next one. Here, you'll see a little difference in it but, the days of pre-computed interest that changed a long time ago, where you're paying top heavy interest, everything today is based on simple interest and a daily interest factor.

So, if I have that, right, you know, because sometimes we'll say, well, I want to pay off my loan early, I need to get my loan paid off. So, what you're doing when you ask for that loan payoff is the bank is calculating what you have remaining on the loan. And then the difference between your last payment and whatever date you're trying to make the payoff to calculate the daily interest that would have been added? Because you haven't reached your next payment date yet? Correct. Okay.

So yeah, I mean, a long time ago, you know where there was interest where it's pre-computed interest, and you're paying higher interest, cost on a monthly basis, upfront, the earlier in a loan versus the back end of the loan. So, when it changed to simple daily interest, you're not being penalized. So, you pay it off, it's only based on the interest that you've accumulated from your last payment or your last statement, to the day of pay off. Okay, you might hear the term per diem, per diem is just the daily interest rate, or the daily interest calculation, how much your interest you need. So, your payoff today, Drew is $5,240, and our per diem of $1.20. If you pay it off tomorrow, you add $1.20. And then each day after that, because your balance has a move. So that's how much your interest is on a daily basis until you pay us off.

Okay. And that's why you can't really use that same formula with a credit card, because you could change your balance on that credit card several times a day, if you really think about it. You could

change your balance on a credit card or interest rates could change, prime rate could change, or whatever the index you use could change midcycle. So, yeah, it's a little bit different on a credit card, where you can't use like you would on a term installment loan.

So, you had mentioned before, and you just did it again, about the Wall Street prime rate. Can you explain a little bit about what that is, and why banks use that as the rate of choice or their, their benchmark rate?

It's a widely used index, you know, it's based on various economic factors, and it's a consistent factor out there. So, you got your interest rate, and then any, everybody would add a margin, which is the difference what you're charging over prime rate. So, it depends if it's a secured or unsecured loan, how big a margin might be. Like a home equity loan, most lenders are at prime rate. So, if you use a credit line, home equity credit line, you might be paying prime rate, which today is eight and a half percent. So, that's dramatically climbed over the last couple years, what you're paying 3.5, 4%, two years ago is now 8.5%. So, that's why I always say, a credit line should be used for short term borrowings versus long term. But if it's an unsecured loan, it's going to be paid, you're gonna pay maybe 3% over 4 or 5% over prime rate.

Okay. Okay, so it's essentially a starting point for every bank in the US, and then they kind of take in other factors, regional factors, your particular factors and then calculated an interest rate off of that.

Yeah, I mean, generally, that's what's happening out there. There are other indexes that banks may use, but prime rate is the most widely used, I would say out there.

Okay. Well, I thank you very much for doing this with us. I mean, it's a lot of really great information and we can easily go much, much deeper into a lot of these topics, and I'm sure that we will at some point. But I think this gives people a good overview of what it, what it is involved in doing a simple, a simple bank loan that you might need. And you can, you can use bank loans for just about anything. When you come to your bank and you, and you ask for a loan that, does, does the purpose of the loan, get calculated into your decision as to whether or not you, you grant it? Or can you use a loan for a vacation as easily as giving your son or daughter a wedding?

It really depends on what you, the factors are using the debt ratio and things like that, because we see people use it for home improvements, vacations, weddings, education, debt consolidation. If you're consolidating debt, we want to know what debts you're going to pay off. If you're paying those debts off, we're not going to include that in your debt ratio. That might mean the difference between you qualify and not qualifying. So, very things we see people use. But if you're highly qualified, you're coming in for a smaller dollar amount. It probably doesn't matter what the purpose is. If you're marginal, and you're on the on the cut line, where we say, hey, we're comfortable, not, and a lot of times we have, you know, applications come in, it doesn't say what the purpose is. And say you're denied because you got too much debt. And then all of a sudden, while they wanted to pay off the six credit cards and all this stuff, I'm like, well, if we knew that we would have calculated differently, then obviously, we go back and recalculate and say, okay, Drew, now you qualify because you want to pay off all these debts. So, a lot of different things in there. So, we always want to know the purpose, it's not because we're being nosy, it's because we're trying to make sure we don't calculate things that we shouldn't calculate into the ratios.

Okay. Yeah, that makes sense. Okay, so thank you very much. I hope you, hope you enjoyed visiting with us today.

I mean, I definitely enjoyed it. Yeah.

Absolutely. Thank you very much.

AmeriServ Presents: Bank Chats. This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts to help take some of the mystery out of financial topics. We live our lives using bank products and credit products, mortgages, auto loans, credit cards, but many of us don't always understand what we're getting ourselves into. Please keep in mind that the information in this podcast and in the resources available for download from our website or other sources relating to Bank Chats, is not intended and should not be understood or interpreted as financial advice. We expressly recommend that you seek advice from a trusted financial professional before making financial decisions. Drew Thomas is not an attorney, accountant or financial advisor, and the program is simply intended as one source of information. We are not a substitute for our financial professional who is aware of the facts and circumstances of your individual situation.

Thank you for listening. Before you go, we want to once again thank Rusty Flynn of AmeriServ Financials lending division for joining us on the podcast today. If you have questions about the discussion or would like additional information, you can visit us at ameriserv.com/bankchats, or leave us a comment. We look forward to hearing your thoughts about the show. AmeriServ Presents: Bank Chats is produced by AmeriServ Financial Incorporated. Music by Rattlesnake, Millo, and Andrey Kalitkin. Production assistants by Jeffrey Matevish. Please check out our full library of episodes which can be found on the ameriserv.com website. You can also download or stream the podcast from your favorite podcast app. For now, I'm Drew Thomas, so long.

Episode: 2

AmeriServ Presents: Bank Chats, with Drew Thomas.

Assuming that I put an offer in on a home, how long does it take from the day that you say yes, I want to buy this house, to the day I get the keys and can walk in and start painting? I typically tell people 45 days, but it can go either direction. A big chunk of that time is sitting around waiting for an appraisal report to be prepared. And the appraisal basically gives us dollar value, an estimate of the market value of the house at that moment, you know, the appraisals are ordered,

typically, once we have an idea that this is going to at least be conditionally approved, and then it's typically a 30-day window. Sometimes they float in really quick, and sometimes, depending on the complexity of the property, the circumstances around it, the location of it, it can go 45 days, sometimes even two months, to get an appraisal back.

So, the waiting really is the hardest part is what you're saying.

Tom Petty, indeed, was right. And, like I said that there's a whole process involved with the appraisals so, that it's kind of going into minutiae about that part of it. But an appraisal is assigned, the appraiser acc-, you know, accepts an offer, makes a bid, basically, it's accepted, it's assigned. And then the appraiser typically has a couple of weeks to actually go out, they'll actually walk through the property, they'll walk around the property, they'll take pictures of the exterior, take pictures of the interior, and then they'll sit down and start looking at recent sales of comparable houses. And they're called comps. And try to come up with a, an idea of comparing comp, one what might have, has a three-car garage, well, this only has a two-car garage. And that house sold for $200. So, I'm gonna say I'm gonna have to knock $20,000 off because it's got a smaller garage. Yeah. So, there's a bunch of adjustments that are made in it. And some of that science and some of its art.

I was gonna say it sounds like maybe there's, there's a little bit of, of subjectivity to it. There can be.

Yeah. Because it, because again, there's no formula for any of this. But at the end of the day, the appraiser is basically signed, and an appraisal would be like, by the time it's done, it's like 30 pages. Now, a lot of that is boilerplate. But you know, it's also, at the end of the day, the appraiser saying, I've looked at the house, I have my hands around the condition of the house, the quality of the house, I've, I've looked at the recent market activity, identified at least three houses that have sold reasonably close in geography and time. And I've made adjustments to those three sales, trying to more or less, get my hands around a number, even the playing field. Yeah, right. At the end of the thing, they boil it down to a number. Yeah. And there's, there's, like I said, it's part science, part art. But at that point, the bank now has dollar value for what the collateral, the purchase, you know, the property that's being purchased. And it's another one of our ratios that we look at, it's called the loan-to-value ratio. So, we can say, you're borrowing $100,000, the appraiser says the house is worth $200,000. Well, that's a 50%. loan-to-value ratio. Yeah. And that's where that 80% loan-to-value that we talked about, which tends to trigger this PMI, and yes, like that comes in. But that's, that's really kind of the biggest chunk of the delay. At the same time, while that's going off, going on, it should, there should be somebody doing a it's called title work. And it's basically going back in time and the history of that house as far as the ownership of it and making sure that there's no outstanding mortgages that were not satisfied. Outstanding liens of other types. We have their hands around who the actual seller is the legal seller, those sort of things that's being done by a vendor or a title agent. But that's going on roughly around the same time that the appraisers...

Yeah there's, from the I, I, I dabble in history, and it's one of those things where, you know, things like jokes and so forth come about from, from little tidbits of truth in a lot of ways. And the idea of being able to sell the, you know, there were somebody out there that that years ago, sold the Brooklyn Bridge, like 12 times. Because nobody confirmed that he actually didn't own it to begin with. Exactly. So, you know, you have to understand it, you know, you got to make sure that the person who's selling you the house is actually the person who owns the house to begin with and is legally allowed to sell it to you. It's very important. Yeah, that is a big deal.

Yeah. So, the title works going on at the same time, so usually within, once the appraisal has been in and an underwriter needs to look at the appraisal and say, alright, this will make some sense to me. And there's, like I said, because there's some, it's part art part science, and there's sometimes you look at an appraisal and you go boy these adjustments, some of them are just weird. And sometimes you push back, you go back to, to the appraiser, basically. And again, I'm trying not to go too into the, into the weeds here, but we actually use an outside vendor to manage our appraisers. So, we'll actually go back to that vendor and say, you know, I've looked at this appraisal, and I don't understand the adjustments that were made here, here, and here, I just need, it needs an explanation. And a lot of times a good appraiser will have, will already identify if there's some strange things on there, and they'll document it and they'll sort of articulate yeah, normally, I wouldn't use a house like this, but it was the only one within a five-mile radius... Yeah. At the same time, the borrower gets a copy of the appraisal after it's been approved by the underwriter. And we've had occasions where, you know, the borrower has said, I disagree with the appraisal and is appealed it. So, in that case, we basically get a, they fill out a form, we forward that to AM-, to the AMC company, the appraisal management company. And then that gets forwarded to the appraiser and the appraiser has to respond. So that can take up a little more time as well. But typically, once you have an appraisal in the title work in hand, it's usually at that point, it's really just a question of any final conditions that we're chasing? And scheduling it with the title agent to get it closed.

So, let's you know, as we're getting sort of close to the end of the process here. So, you know, people, when they're looking to buy a house, they know that they're going to need a downpayment, right? They, they know they need, and depending on the mortgage, that can be a certain percentage, it could be 3% 5% 20%. I don't know how many people actually have 20%, to put down on a house these days. I know that used to be very typical that you needed 20% down. But I think what a lot of people tend to look over are closing costs, and how much money you need to bring to the table to get your keys even after all of this process. So, what goes into a closing cost?

So, closing costs are typically things like, the bank charges an origination fee, that could be anything from $100 to a couple $1,000, depending on the financial institution, size of the loan, things like that. Other closing costs are things that are specific to the title company, the cost of the title insurance policy, because as part of the closing the, there's going to be a title insurance policy written to which I guess we probably should have touched on. And that's basically, the person that did the search on the property to make sure it was transferred correctly, everything else is basically ensuring that there aren't going to be any surprises on the bank's ability to have the first lien on that property. So that's a charge. There's two kinds of those policies, actually, the borrower has the option to get one too. So typically, the bank requires one, it's optional for the borrower, but the borrower may say, well, I'm buying this house for $200,000, if that turns out, there was a Native American burial ground that nobody knew about, and now it's a thing, which, which has happened, like in the south more, Florida, I know it happened. I have some way to recover my investment. Right, but the bank's gonna at least be covered for, like I said, like banks lending $100,000, the title policy is going to be for $100,000. And that's just making the bank whole. So other, there's various, there's the fee to actually prepare the documents or to get them signed. Those documents, some of them, the actual mortgage, which is the document that gets filed with the county saying that that's a lien against the property, that gets filed, there's transfer taxes, various document fees, things like that, that need to be covered.

And really your, your down payment is when you actually bring that to the table to, right, which is, which is kind of sort of backwards when you think about because you think about a downpayment being at the beginning of the process when you're, when you're starting everything, but it's actually something you bring to the table when you're, when you're closing.

So, it's a good point. So typically, on a contract, especially when, in times like they, like these that we're in and have been in for the last couple of years, the seller isn't going to want to take their property off the market for 45 days, without some kind of down payment an initial down payment. So typically, what you'll see on a purchase sale contract is, that requires, say, $10,000, due at signing. And that's typically held in escrow by the sellers, realtor or somebody else. But the, so there is that initial down payment that was written at the time of the sales contract. But yeah, but to get at the end of it, that's where, and that's why, like I've mentioned a couple times, we're looking at their deposits, deposit accounts, things like that, just to make sure that they have enough money actually to get to closing because, you know, most of the time, when you go to closing, except on maybe a refinance, you're writing a pretty, pretty stout check, because you're buying, you may be putting 20% down on top of the closing costs.

And that's why you're looking back several months, even from the, from the day is because you're trying to make sure that, you know, people didn't go to their, their buddy, and say, hey, can I borrow 5 grand or 10 grand or whatever, and throw it in my bank account, and then claim that I have the money to pay my bills, when, when I don't, right. So that's why you're looking back to make sure that...

And to put a finer point on that, actually what we're looking for is to make sure you didn't borrow money and then agree to repay it. Because part of that, you know that because that would need to be factored into the debt to income. So, what we're looking for is the $40,000 in your checking account is $40,000 of your own money. There are some exceptions, you can have gifts from family members and things like that. But that family member actually signs an affidavit saying, this is just a gift. There's no repayment expected, required, anything else, you know, I'll never see this money again. So, there are ways around that. But really what we're looking for is, did you borrow somewhere to get this $40,000? Or do you have $40,000 because you've been scrimping and saving for a couple of years to put that money together?

Okay. So, so, so now we have a house. Theoretically. Yeah. Which is awesome. And now we get...

...your headaches really start. Yeah. At least the homeownership headaches.

I really genuinely think that a lot of people, they, they don't appreciate what goes into a mortgage, you know, and they, and that also may speak to some of the reason why some of these ages that I talked about at the very beginning of the show have gone up because people don't have the savings. People don't necessarily have the income at 29 that they maybe did in 1981, even accounting for inflation and things like that. They, you know, people don't necessarily have that coming in at a younger age these days. And there are other factors that result in...

The cost of housing has gone up so much. Yeah. Actually, I was reading an article and I, I'm almost positive, it said the first-time homebuyer in San Diego is paying something between $400,000 and $600,000 for their first home. Yeah, a lot of times first homes are sort of classified as two-bedroom, one bath. Yeah, sort of things. I mean, this is a small house in San Diego for $600,000. So, because of that, because the real estate prices have gone up so much. It squeezed out younger people.

And I know too, like even just the, the, the, the income streams are not what they, what they may have once been. I mean, the days of you know, my grandfather, who was a single, had, was a single income household. My grandmother was a homemaker my grandfather worked, was the only one that got, and they, they had a house in a nice neighborhood with three kids and did all that on his income. That's not always easy to do these days either. Almost impossible. So, so, so I mean, owning a home is wonderful, and it has a lot of advantages, but there are a lot of responsibilities that come with it. And I think that just as a last point, I wanted to sort of just highlight something that you had said was that the house is your collateral, right? So, you're buying a house, but technically it doesn't belong to you until you've paid for it. So, kind of like your student loans or any other kind of loan that you're taking, if you don't make your payments, that for you, yeah, that, there can be consequences to that. Right. So, there can be consequences to it, you know, and typically the way a mortgage loan gets vetted, you're trying to weed out circumstances where somebody either can't afford it or has a history of not repaying their debts, things like that, and trying to weed that sort of scenario out very early in the underwriting process. But yeah, there are circumstances, things change, people lose jobs.

Well, you mentioned divorce earlier. And then, yeah.

The Right, exactly. I mean, it's changed jobs, change jobs, change circumstances. And if you find yourself in default, on a mortgage, it is a long, protracted process, partly because it's not in the bank's interest to take you out of that house, the bank will typically do everything they can to try to keep you in that house, as long as you're making a good faith effort to try to rectify the situation. But yeah, the bank doesn't necessarily want to be in that house, because a hou-, a house sold by a bank, it's basically a sign that you can buy that house, if you're an investor, you know, somebody's looking to buy that house for a lot less than if it was being sold under regular circumstances. There's a, there's a certain amount of duress in that transaction. So, the banks don't want to be part of that, unless they absolutely have to. But it does happen.

Yeah. And I think, I think you make a good point. I think that a lot of times when something like that happens to someone where they can't necessarily make their payments or something happens, you know, you don't always know, but you assume it's out of their control. Like, they maybe they lost their job, through no fault of their own or something like that. It's not really something where someone is predatorily trying to take your house away from you.

Right, right. I mean, that in, there may have been circumstances historically, where those sorts of things happened. Fair, yeah, fair. In today's environment, it's hard to imagine a lender would lend you $200,000 to buy a house, and not want $200,000 plus all the accrued interest back, that they'd rather have the house that you bought. But, the one thing, and just to bring this up, that's some people seem surprised by is, when you walk away from a house, it's not just done. You still owe 100, say, $180,000 on that house. If the bank sells that house for $140,000. You still owe $40,000. Right, right. Yeah. So, it's, you know, that, when I was living in Jacksonville in 2008, when the housing market crashed, I talked to a couple people who said, well, I bought the house for $100,000, and now it's only worth $60,000, I'm just walking away from it. And I told them, I was like, that's not a reason to walk away from a house. First of all, prices go up and they go down. They generally always wind up going up when you look at it over time. Yeah, give it enough time. Yeah, give it enough time. And I said, if you walk away from that house, you're still going to owe them whatever the deficiency is, after they sell it. And they're going to, they're going to accrue expenses that you're going to, that is going to come out of that and everything else. You're not just walking away from it free and clear. Yeah. So, you know, unless the bank agrees to something like that. And that's called the short sale. But the yeah, it's there, It's the same thing with cars too. You decide you don't like your car anymore, and you toss the keys to the bank, yeah, and you owe $10,000, and the car gets sold for $5000, you still owe a $5,000 deficiency, right. It's yeah. So, there are some people who are unaware of that whole concept and make rash decisions that can have long term effects for them. Yeah.

Well, listen, I, I really appreciate your time and everything and going through all this. It's been, it's really an education. It truly is. And well, it's been very enjoyable for me because I love to hear myself talk.

Yeah, it's not my typical procedure to berate the guest. So, I will not counter that statement. Yeah. Well, when I listen to this may I scheduled time on to, to rebut? Yeah, absolutely.

No, we would, we would love to have you back. I mean, we would love to have you back. And as I'm sure the listeners know that we're still early on in this process. I mean, I can imagine having you back on, you know, many times. And we can reiterate some of this conversation, some of the subjects can change, I mean, look at how much has changed just in the last three years, when it comes to mortgages and home buying, and it's really much more complicated than what people I think, imagine it to be. Yeah. But that doesn't mean that if you have, if you have somebody that's good at guiding you, if you have a good lender, if you have a good realtor that can help guide you through these processes, it's not something that's undoable, right, but it isn't something that should be taken lightly either.

Right. And I tell people, when they're, especially at my age, now, these tend to be children of friends of mine, who are buying their houses for the first time, and I'll talk to him about the process. And I'll tell him, like, first of all, like, the whole process is just fraught, emotionally. You know, I bought my first house in 1998. And I think I threw up in a trash can. It's, so it's fraught with emotion. But at the same time, if you, if you just work through the process, at the end, you have a 30-year loan, typically with a rate of percentage or two points less than if you bought a car for a five-year loan. So, the process is designed to sort of homogenize all of the loans to get everybody comfortable with the val-, you know, with, with what was put into it. And that, that what's on paper is actually what's true. But as a result, you wind up with a very, fairly low-price loan for a long term. And, and it's a house, houses is typically over time, an appreciating asset it builds wealth. There are neighborhoods where people don't own their own homes, and those, those neighborhoods tend to have lower incomes and lower levels of wealth. A chunk, a big chunk of it can be attributed to the fact that they don't own real estate. So, it's an investment. Work through the process. You know, you can it's certainly okay to ask for explanations of the process, but work through the process, because at the end, you're gonna own a home for a fairly low rate and fairly reasonable terms.

Yeah. And you get to pay school taxes. You get to pay school taxes. And you get to play in Pennsylvania. I don't know if that's yeah, I don't know. And

you get to every, every couple of years replace a, an outlet, or, you know, or a wall switch or, you know.

No, I think, I mean, all joking aside, I think what you just said is fantastic. And I don't know that I could really say anything that could sum it up better than that. I think that, you know, having that appreciating asset in your back pocket, especially like you said, compared to a car or something like that is more value than then I think people fully understand or appreciate sometimes.

Because a car is a depreciating asset. Yeah, yeah.

And I can't imagine a lot of, a lot of, a lot of people opening up a barn door in 40 years and saying, a Kia Soul.

Yeah. I can't believe it, when we're off or offline I'll tell you some stories about that, yeah.

Yeah, thank you. You're welcome. All right, have a great day, thank you, you too.

This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts with the goal of helping to take some of the mystery out of financial and related topics, as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast and any resources available for download from our website or other resources relating to Bank Chats, is not intended and should not be understood or interpreted to be financial advice. The host, guests, and production staff have Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial Incorporated.

We want to once again thank David O'Leary of the AmeriServ mortgage team for joining us on this walk through a typical home buying process. While there are often unforeseen bumps and detours along the way when purchasing a home. This does give a good sense of what the process should look like. We also would like to thank you, our listener for joining us on the second episode of AmeriServ Presents: Bank Chats, and hope you'll stick around for the next episode, and the next, and the next. We have a lot of great discussions coming up in the near future. Please check out ameriserv.com/bankchats for details about the podcast, along with any supplementary materials that may be posted. And don't forget to subscribe so you know when new episodes are available. For now, I'm Drew Thomas, so long.

Episode: 1

AmeriServ Presents: Bank Chats, with Drew Thomas.

So, with me today, is David O'Leary, he is a mortgage professional with AmeriServ Financial Services. And yeah, so tell me a little bit, hi, Dave. Hi, Drew. Hi, how are you doing?

I'm well, how are you?

I'm doing, I'm doing good. So, tell me a little bit about yourself and your background and,

about my, my lending background, background? Yeah. So, I've,

I've, unless you were a circus performer at some point in the past,

I did have a career before, a brief career before, I was in banking and lending, but I used to go out repo cars, and Baltimore and things like that. And, yeah, and that's sort of taught me how it looks, how a deal when it's not done correctly, looks, okay. Postmortem of it. Eventually, I moved into consumer lending. I'm from like I said, I'm from Baltimore. I,

we won't hold that against you. That's

proud Baltimore. I came up here, and I worked commercial lending for a little bit. And then I, two years ago, I moved down to the mortgage department, Residential Lending, and I run the operation down there.

So what's, so what would you say is the biggest difference between doing residential mortgage versus the commercial mortgage you did before?

Well, it's a good question, because they're very different. Just to start off with residential lending, mortgages, and I'm air quoting, is really probably the most heavily regulated form of lending there is. Residential Lending is very much by the numbers. If you talk to a lender and you answer a certain number of questions correctly, well, that's considered an application at that time. The presence of an application triggers a bunch of disclosures, those disclosures have to be done correctly, or there's financial consequences for the bank on top of any regulatory consequences as well. Commercial lending is, every commercial deal is different. You, there's not a common thread that runs through them, for the most part. It's not very regulated, commercial lending has a certain amount of creativity to it as far as, you're able to structure things, customized to that particular borrower in that particular situation.

Okay. So obviously, we're talking today a lot more about mortgage from a residential standpoint, right? But I think sometimes people don't realize that there are business mortgages, there are commercial mortgages that are out there. Because when you think of a mortgage, you think of buying a house. Right. So, one of the things that I found interesting is I was sort of, you know, researching some stuff and preparing, you know, for the, for the conversation we were gonna have today is that the percentage of homebuyers who are first time buyers, was at the lowest percentage ever in 2022, just 26%. So do you have any idea like, have you seen that like the, the average, you know,

my gut on that is, in 2022, there was some financial ambiguity for people. And I think, plus, at the same time, home prices were skyrocketing between, from 2020 2021. And I think it just drove a lot of people out of the home buying market for a while.

Yeah, I mean, it's, it's been crazy. I mean, from 2020, with the peak of the pandemic, and interest rates going through the floor, to now whenever they're among the highest they've been in, what about a decade? Yeah, probably at least about a decade. So, what does that do to a price of a home when someone's buying a home, and the interest rate goes from, say, 3% to 5%? It doesn't sound like a lot, but I would expect that it probably is.

Well, what it's going to do to pricing is if I had a house, that's, I, that is worth $200,000 I'm trying to sell for $200,000, when the mortgage rates were in the twos, I had a huge pool of available buyers that would qualify for that house. As the mortgages really have doubled, obviously, that pool of buyers that could afford that house has shrunk dramatically. So, I think what we're gonna start to see and it hasn't really, I read that it's happening, but I haven't seen it necessarily yet, is there's going to be some downward pressure on housing prices, the actual cost of a house. And I think it's gonna just basically eat away at some of that dramatic increase in prices that we saw in the last couple of years.

Okay. So, when you say downward, what you mean, like the price of the house itself will go down, even though the interest rate may not necessarily go down? Yeah,

a year ago, I could have sold this house for $200,000. Today, I may have to sell it for $160-$170,000, something like that.

Which means if you paid $180,000 for it, five years ago, you're losing money, now. Where maybe two years ago, if you would have sold it, you made some money, time as everything. So that's, so from a seller's point of view, that's not, that's not so great. From a buyer's point of view, the housing price coming down helps but the interest rate being higher? Yeah, it's hard.

Yeah. And those are two, the prices going down are going to help a little bit, but the fact that the rates are so high is going to be an issue. And you know, the funny thing is, when you talk to people that work in this field, is we have we saw almost no refies last year, refinances, refinances. Yeah. Where that, where somebody has an existing house, and they refinance the, the mortgage loan they took out on it, because the rates, and for the last, say, four or five years prior to 2022, were so low. So, I kept saying like, sooner or later we're going to run out of people to refinance. Yeah,

yeah. Yeah. I mean, if you bought a house at 3%, and you may never refinance your house. Yeah,

it would be a strange circumstance to want to refinance your 3% loan at 6%. Yeah.

So, so let me circle back to what you had said, you had said something about paperwork. And, you know, when you do a certain number of paperwork and consent, it's considered to be an application and so forth. And you said, you know, things go so, so much by the books. And two of the terms that are, that are thrown out there a lot that I think are, are a source of confusion for some people, are the terms pre-qualified, and pre-approved, right. Okay, so what are the, what's the difference between someone who is pre-qualified versus someone who is pre-approved?

So, a pre-qualified loan is basically a lender, or, a pre-qualification is basically a lender saying, if certain criteria were met, and nothing else weird happened with the deal, we would most likely approve you for a loan. And so a lot of times when you're, somebody's looking for a pre-qualification letter, especially in the last year or two, where you basically had to have evidence that you were pre-qualified for a loan just to put a contract in, because there was so much competition for, for housing, that pre-qualification is not anything binding or anything else. And like, for example, AmeriServ, will do a pre-qualification, will issue a pre-qualification letter, after sort of getting an idea roughly of what the credit background is, the income looks like, their assets, their capital situation. And it'll be sort of a range, like we would do this pre-approval, which AmeriServ doesn't do is more actionable. It's basically saying like, yeah, you're approved. Yeah, we'll do this. Right, right. So that's why, that's why a lot of banks won't actually do a pre-approval. That term gets used interchangeably, sometimes pre-qualification and pre-approval, right. But most, most banks are going to actually be talking pre-qualification. And just to circle back to it, sometimes pre-qualification can be done without anybody, with a house in mind or anything else. They can just be saying, like, we're gonna go house shopping, and we think we would potentially look for a house between $200-$300,000. And so that, that's sort of based on that range.

Yeah, there was, I was reading there were, there were actually certain situations during, during the peak of the pandemic, during COVID, where, if you didn't have a pre-qualification, they wouldn't even show you a house. The realtor wouldn't show you a house, like, it was like because they didn't want people just going out on Saturday and going to open houses and walking through the house or something like that. They literally shut all that stuff down and said if you're not a serious looker, we don't, we don't even want you in the house.

I think some of that was partly because of COVID, they just didn't want people in the houses. But also, especially once we sort of worked our way out of that initial COVID locked down period, the realtors were so busy, I think they just didn't want to waste their time with somebody that at least hadn't talked to a mortgage company and yeah, at least had something enhancing. Yeah, that these people are credit worthy to some extent.

Gotcha. Okay. So, so as a, so as a first-time homebuyer, first time homebuyers, the age of those have gone up too, I mean, the, the average age of the first, the person buying their first house is now like 36, where it used to be, used to be much, much younger. Yeah, but if I'm a first-time homebuyer, what, what are some of the things that you said things are very by the book and very, very rules oriented. What are the some of the things that you have seen from first time homebuyers that, that maybe they were surprised by, like the biggest thing that kind of shocked them? Yeah, process.

This, the process of getting to an approval for a mortgage loan is very document driven. And I mean, it's, it's very specific, and because, just to sort of circle back a little bit to why that exists, why, and I hear that from people too. They're like, I can't believe how much work it was to get approval, and I went to the car dealership and filled out a form and I drove away in the car an hour later. Sure. Yeah. So, mortgage lending, residential lending, on the consumer side is document heavy. One, because of all of the regulations, two, because frankly, a lot of the loans that are originated, wind up being sold on the secondary market to other investors like Pennymac, or Truist, or Wells Fargo, until recently, was in that, that game to that, that secondary market thing. As, because of that, the fact that these are bundled up and sold to, sometimes multiple investors, and then eventually sometimes can wind up, and you may have heard this term thrown around a lot in 2008, mortgage-backed securities, everyone involved in that process needs a certain level of comfort that the loans were processed and documented and handled in the same way. Because these all sort of wind up not all, but a number of them wind up as various forms of collateral down the road. And the investors all have to have a belief that the loans are credit worthy, there's gonna be repayment without too much issue, things like that.

So, what kind of so, so as so, so kind of getting back to the what the documents are like, what, what do I need to provide you as a first-time homebuyer to start the process? Like if I just wanted to,

to start the process, typically early in the process, and let me just say, I'm not a Mortgage Loan Officer, I'm not on the front end. Fair enough. But typically, the conversation is going to be roughly, what do you look, how much are you looking to borrow? How much do you have to put down? And then a discussion about credit quality, your, you know, your FICO score,

which is probably not, I wouldn't touch on that too, which is probably not the number you're getting from your credit card company, or some of those free sort of yeah,

the those, those free FICO scores have a lot of strings attached, and a lot of fine print. When it gets to the point where we're actually pulling credit on somebody, we actually access all three major credit bureaus. It comes out in a single report, you know, it's Experian, Equifax, and TransUnion, maybe TransUnion, yeah. So those three bureaus have their own FICO formulas roughly, and they all report things a little differently too, so you'll see a swing of FICO scores between the three of them, and sometimes it can be a pretty dramatic swing, because one may be showing a collection or something else that the other two don't have. So, as a result, we take the middle score, and use that as, okay, and that's, that's your, that's what we use is your effective FICO score.

And that helps to determine what your interest rate offer is and things like that. Right.

So, because at some point, once your bureaus, your bureau has been pulled, we have a rough idea of what your debt to income is going to be, which is a ratio of your monthly debt service divided by your gross income. That's not your disgusting

income that's the, that's the, the income before you take out your tax, before taxes and Social Security, yeah.

Your health premiums and everything else so, right. And so, the industry standard is you typically want to be 43% or below, okay. With the other 57% of your gross income going to things like your taxes, your utility bills, your groceries, things

like that, because buying a house isn't just paying your mortgage, right? Buying a house is also having to pay for your electric and your sewage and your water and on and on and on. So, and I think a lot of people forget that, you know, they do one of these mortgage calculators online somewhere that doesn't take into account the taxes on the property. It doesn't take into account, the utility bills, the home insurance that you're going to likely need and depending on, and I'd like to touch on this too, in a minute, depending on the type of mortgage, you may have, different insurances that you have to have. Correct, right? So okay, so I'm applying for a mortgage I've given you, I'm assuming you have to give bank statements or something to prove your income?

Yeah, down the road, we're still sort of in the initial part of it here, where we're, a lot of this is going over the phone or in face to face with a loan officer, okay. And, at some point, the loan officer will say, will basically be able to say, well, you say you have, you make $5,000 a month, you have $20,000, in the bank, you know, we've pulled your credit report, you know, we, we should be able to move forward with this. Okay. At that point, and typically, you know, once we have an actionable credit report, they'll start chasing items, like, we need your last two months of bank statements, we need your last two full pay stubs, and it should be at least one full month’s backwards. So, if you get paid weekly, will be four, you know, there's usually an estimate of like what your homeowner’s insurance is going to be and what the taxes, the property taxes are going to be, trying to think of other documents that they'll, they'll be asking for upfront.

But this goes to show just kind of, to your point earlier, why you can't just walk in and sign a paper like you can with a car, exactly, and, and walk out with a loan the same day, like there's a lot of prep and a lot of research that goes into this to prove that you have the funds available, right, to do what you're going to do,

right. And then once that documents that we've discussed have been sort of accumulated, an underwriter, a credit officer is going to roll their sleeves up and dig in and then validate to the penny, every penny of income, every penny you have in deposits, try to get their hands around taxes and insurance, things like that, make sure it at least makes sense. If it's a refi, we actually usually have that information there too, because you will be your insurance isn't going to change shouldn't change too much. And your taxes obviously aren't going to change.

So, this also to me, speaks to why you always hear that thing, don't go open up a credit card, whenever you're buying a house. You know, if you're if you're planning to buy a house, and people do that, they'll, they'll go out and they'll say, well, I'm buying a new house, I need to buy furniture, right? Or I need to buy stuff to fill the house with and they go out and they get a credit card halfway through this process. And it's not just the bank or the or the financial institution just being jerks, it's about the fact that we've done all this research, and we validated all this information, and now you've gone out and changed the status quo on us midstream. And that just throws things into a

loop. We've had deals that went off the rails, because six or seven days before closing customer went out and bought a truck and suddenly added $450 of debt service to their debt-to-income ratio. And the debt-to-income ratio was already a little skinny. Wasn't a lot of room there. So yeah, I mean, you know, it is a wise thing to not get a credit card, not get a car loan, you know, obviously, you may have, like you mentioned, you're gonna have some expenses that you may want to finance down the road, but wait till you're 30 days out, you've closed in 30 days is gone. Because in a case like where you're, and this is the reason, in that case, we caught it, we'll actually do a, what's called a soft poll on your credit report a few days before closing, just to make sure that your credit situation hasn't changed. And also, an investor may do the exact same thing too. So, if you, if you've obtained credit, and it hasn't been disclosed at the time of purchase, or the time the application was taken, everything's off the table, you basically run the risk of having to start all over again. So, it's, it's wise advice. Stay. Don't, don't buy anything, don't finance anything, until you have the keys to the house in your hands. Yeah.

So, advantages and disadvantages to, to different mortgage types, right? So, you have, you've got you've got fixed rate mortgages, you've got adjustable-rate mortgages, FHA mortgages, I mean, there's, there's different letters behind all these mortgages that people go out and research. So, can you talk just maybe a little bit about what the differences are between those?

So, kind of starting at the, as an overview, there's a couple of different kinds of lending. There's conventional mortgage lending, which is what 90% of what we do, which is basically deals, a deal or it's not, it's closes, money changes hands it's sometimes sold to an investor, or we'll hang on to it for our portfolio, and it just moves on. There are government backed loans like FHA, VA, USDA, there's probably another couple of different sets of initials that are I'm forgetting, but those are loans that are mostly, there's some sort of guarantee by a government entity, FHA Federal Housing Authority, USDA, US Department of Agriculture. Yeah. And then the VA, which is for veterans of our armed services. So, there's, those have different, their own specific requirements and things like that. They have different paperwork, requirements, sometimes they require inspections of the house that don't come up and conventional loans.

Sometimes the home has to be in the literal certain location to yeah,

yes. Typically for USDA loans. They tend to need to be in more rural areas.

But the agri-, being agriculture, that makes sense. Yeah, exactly.

But, you know, in our footprint in our immediate area, like the greater Johnstown area, there are areas that qualify for USDA loans through their rural program, there are ones in the next zip code over that don't. So, sure, in some of those cases, it does require specific, being in a specific zip code. So, the other thing you brought up was like, a fixed-rate loan versus an ARM, which is an adjustable-rate mortgage. Okay, that is more or less based determines the pricing and the repayment of it. And how, over on the

volume No, no, no, no, that was No, no, no, that was me. I wouldn't I wanted to take a sip of coffee I had I had to do that.

Yeah, I was, yeah. Some of it, I can't help but look at the board, I sort of want to control it. I have control issues leave me alone, I have control issues. So, a fixed rate loan is basically say a 30 year term loan and your rates 5%, and it's going to be that throughout the entire length of the loan. Your interest rate it's not going to move. An adjustable-rate mortgage typically has an initial rate, which is usually, in theory, should be less than what the fixed rate loans offering at that moment, for a specified period of time. So, a lot of times, it'll look like a ratio, like a, like a fraction almost. So, you'll see like a seven slash one or a five slash six or, and what that saying is, the first number before the slash is the number of years where that initial rate is going to stay the same throughout the entire, throughout, throughout the course of that five-year period. So okay, using the five slash one example. So that's 60 payments. On the 61st payment, your rate is going to adjust, and that's typically using an index of some sort. AmeriServ uses the SOFR rate, which is I think, standard overnight finance rate? SOFR, we'll go with that. Yeah, we'll go with that. We'll go with that SOFR, and plus a certain number of percentage over the top of that. So, after the initial rate is over, your rate adjusts. And then it adjusts to say it's whatever the SOFR is that day plus 3%, and that's your new rate. And that would be for another five years? Well, that's, now we're going to talk about the, the second number in there behind the slash, okay, so that second number basically identifies how often that, that rate is going to readjust, in this case, that one signifies one year. So, on the anniversary of that readjustment every year, it's going to adjust again to whatever the SOFR rate is that day plus, using this example 3%. So, the ARMs are good for, like I, when I was with Chrysler Financial early in my career, there was a period where I was living in a different house in a different town every year. I moved a lot for a little while there. And after a while, I realized like, I'm not going to be in this house for more than a couple of years, so why get a fixed rate? When I can get a lower rate the ARM, and most likely I'm going to move out. So, if you're in that sort of circumstance where you know, you work for the government, you find yourself moving every couple of years, an ARM rate is actually a better deal than, than a fixed rate. Yeah, that makes sense. And to tell you the truth, when I moved to Jacksonville, Florida, I thought I was going to be moving again in a year or two and I wound up saying seven years because I got a, I wound up changing employers, I was tired of moving. And actually, I was sweating the first adjustment five years later, because I never had to deal with this before, and my rate actually went down. At the time they didn't have floors and things like that on the on the ARMs. So, it actually went down two years in a row, and I think the third year floated back up almost to the original rate it was the initial rate was so, ARMs can, they will fluctuate, but they're not necessarily going to be the worst thing in the world either. There are people who just are so concerned about that adjustment period that they would rather pay a higher rate for the, for peace of mind knowing that that rates are never going to move for 30 years. Right. My mortgage is going to be $847 through the next 30 years. Yeah.

Now, now, so let's talk about the monthly payments, since you kind of brought that up, like, you know, having that fixed payment idea. And let's, let's talk a little bit about what goes into an escrow. I think a lot of people again, you do these calculators online, and you say, oh, wow, you know, I can afford a $200,000 house, because this calculator online that I'm looking at tells me that my mortgage payments only going to be $600. Right? But you're not, that calculator, in that case, is most likely not taking into account the other stuff that you're gonna have to pay and, and that may, either may be in an escrow account with the with the lender, right, or you might pay it separately.

Yeah, majority of the time, at least with the loans, we see, taxes and insurance are escrowed. taxes, property taxes, insurance is just your homeowner’s insurance. Both those things are in the bank's interest to make sure are kept up and not, you know, falling behind or not being paid in the case of insurance. So, it's mutually beneficial to both because it helps the borrower sort of budget, and then the bank is sure that the taxes are getting paid, there's no notices that the house is going to take, you know, a sheriff sale or something else like that. Right, right. Or there's a big loss in a house and you find out that the insurance lapsed three years ago for non-payment. So, from the bank's perspective, escrows are attractive, they're a little bit of a headache, because there is some work involved with them. But

so so is it up to the lender to decide to do that, or is it up to the borrower? Or is there a conversation that says like, well, I want to do this, or I want to do that? Yeah,

so, there are certain circumstances where escrow can be waived, and I think, I believe it has an impact on your rate as well, because there's a little bit more risk involved. Stronger deal can get an escrow waiver, a deal that's closer to the bone as far as debt to income, or maybe credits, not 100% where you'd want it to be, are less likely to get an escrow waived.

And it is up to the homeowner, obviously, to find insurance for the home. Like that's not something you do through the, through the lender, right? That's

because, yeah, that because that's a different animal. If in a circumstance and, and it runs, they run into it in HELOCs, the borrower signed a document saying that they're going to maintain the insurance on this house throughout the life of the loan. And if the borrower doesn't meet that obligation, the insurance lapse or something like that, the bank actually has the right to, it's called force-placed insurance, and contact an insurance company and get at least the replacement value or, you know, the the amount of the loan covered so that in the event that there was a loss, the bank's covered. The premiums on force-placed insurance are very high, very high. So, you know, and that's passed on to the to the borrower as well. So yeah, it's, it's in the borrower's interest to, to shop for insurance that meets the minimum amount of coverage requirements, and is also the most affordable for them as well.

Now, so now sometimes, though, when it comes to certain insurances, you there are insurances you have to have over and above your homeowner’s insurance, right? So, like, for example, like on an FHA loan, don't you also have to have like mortgage insurance?

There is a, there is a premium on FHA loans, because they tend to be high LTV deals, loans. And, and that sort of ties into a discussion that people have heard PMI, private mortgage insurance. If a loan-to-value is typically over 80%, it's required to have PMI on it. And that's basically in place until the borrower can prove the loan is now at roughly 80% or less LTV, okay, that can go away. FHA, it can't go away, it's baked into the deal, it's gonna be there forever. So, but that is another kind of insurance that's on there. It's not on every deal. It obviously depends on the loan to value. And then there are certain loan programs that can waive PMI as well, but that's kind of getting into the weeds is yes, but the other kind of insurance that you may have to carry is flood insurance. If you're

which we know a lot about in this area. Yeah.

For good reason. Yeah. So yeah, so flood insurance, basically, that's, that's more or less identified at application roughly. We do a search, and I think every lender does the exact same thing, does a search on the address early in the process. And there's, there's a couple different databases that different vendors use, but basically, it goes into, FEMA maintains these flood maps. And if the house is in what's considered, I think it's 100-year floodplain, it has to have flood insurance on it. Because typically, homeowners’ insurance policies won't cover water damage, regular water damage. You know, if a pipe breaks in your house, that's one thing, but if you, the creek in the back of your house rises and floods your house out, your standard policy isn't going to cover that. So that's where the flood insurance comes in. Okay. So on, those maps do get rewritten. And typically, though, those floodplains are expanding, so one of the things you're required to do is even if you're not in the floodplain at that at the time of closing, if the FEMA rewrites those maps, and your house is suddenly in a flood zone, you have to at that point get flood insurance on it. Okay. So, the maps, like I said, those maps usually expand, they rarely contract. But if it, if it did happen, so say two years into your loan, you went and had a flood search done on it, and now suddenly, you're out of the flood zone, we can't require you to carry it if you're no longer in the in the floodplain.

Gotcha. Okay, so, so, okay, so, so we've kind of gone from, you know, this whole pre-approval pre-qualification, you can, you know, we, we might, we might consider giving you a loan at some point, here's, here's a piece of paper that says, you can go look at houses, yeah, to the point of, of acquiring all of these documented documents and bank account statements, and, and so on. So assuming that I put an offer in on, on a home, you know, how long does it normally take from the day that I say, yes, I'd like to buy this house, and of course, I'm just going to qualify this as saying like this assumes that there are no hiccups in terms of the seller deciding at the last minute, they don't want to sell you the house, or that there's

decided they don't like the cut of your jib. Yeah.

Or that, you know, a meteor does not come down and crashed through the roof of the house and in the process. But assuming that everything goes as smoothly as is typical, how long does it take from the day that you say, yes, I want to buy this house, to the day I get the keys and can walk in and start painting?

I typically tell people 45 days, but it can go either direction. A big chunk of that time is sitting around waiting for an appraisal report to be prepared. And the appraisal basically gives us a dollar value, an estimate of the market value of the house at that moment, you know, the appraisals are ordered, typically, once we have an idea that this is going to at least be conditionally approved, and then it's typically a 30-day window. Sometimes they float in really quick and sometimes, depending on the complexity of the property, the circumstances around it, the location of it, it can go 45 days, sometimes even two months.

AmeriServ Presents: Bank Chats. This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts to help take some of the mystery out of financial topics. We live our lives using bank products and credit products, mortgages, auto loans, credit cards, but many of us don't always understand what we're getting ourselves into. Please keep in mind that the information in this podcast and in the resources available for download from our website or other sources relating to bank chats, is not intended and should not be understood or interpreted as financial advice. We expressly recommend that you seek advice from a trusted financial professional before making financial decisions. Drew Thomas is not an attorney, accountant or financial advisor, and the program is simply intended as one source of information. We are not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation.

We just finished discussing how waiting is a major component of the residential mortgage process and waiting is exactly what you'll need to do to hear the second half of our conversation with David O'Leary from AmeriServ Financial. Luckily, you won't need to wait long. We've already posted episode two of AmeriServ Presents: Bank Chats. It's waiting for you so that you can hear the conclusion of this conversation. And we have a number of fantastic guests waiting in the wings to discuss banking related topics such as cybersecurity and budgeting, additional lending topics, trust and financial services, topics, retirement and more. So please be sure to subscribe and we cannot wait to take this journey with you. For now, my name is Drew Thomas, so long.

DISCLAIMER
This podcast focuses on having valuable conversations on various topics related to banking and financial health. The podcast is grounded in having open conversations with professionals and experts, with the goal of helping to take some of the mystery out of financial and related topics; as learning about financial products and services can help you make more informed financial decisions. Please keep in mind that the information contained within this podcast, and any resources available for download from our website or other resources relating to Bank Chats is not intended, and should not be understood or interpreted to be, financial advice. The host, guests, and production staff of Bank Chats expressly recommend that you seek advice from a trusted financial professional before making financial decisions. The host of Bank Chats is not an attorney, accountant, or financial advisor, and the program is simply intended as one source of information. The podcast is not a substitute for a financial professional who is aware of the facts and circumstances of your individual situation. AmeriServ Presents: Bank Chats is produced and distributed by AmeriServ Financial, Incorporated.