Banks keep borrowers above water

FOLLOW THE MONEY

Flood season is fast approaching, but some hardy souls have no doubt put off the task of insuring themselves against the threat of high water.

Insuring against floods is not mandatory, but regulators are reminding people that it's a good idea.

And if you don't believe them, just ask your banker.

Banks, it turns out, are some of the biggest flood-insurance advocates around.

That's because of a little-known federal rule (the government has a lot of these). It requires banks to ensure that mortgaged property is protected by flood insurance if it's in a vulnerable area.

"The banks have become the watchdog for (flood insurance)," said Jeff Embly, chief lending officer at Orrstown Bank.

He should know. Orrstown was recently dunked by federal regulators fo r allegedly failing to keep tabs on some property owners. Nine of the bank's loans were secured by underinsured property, Embly said. The bank will pay a fine of S 1,665 (no office coffee for the next month) and beef up its insurancemonitoring.

The upshot of the rule is that property owners in high-risk areas are required to insure against flooding unless they own their property outright.

Maybe that's not such a bad thing. The state Insurance Department points out that property owners in Pennsylvania drew the second-highest total of flood-insurance payments in the U.S. after the 2004 hurricane season. And in the last five seasons, the state sustained more than $337 million in flood losses, according to the department.

By the way - you can't beat the system by calling up your insurance agent when the water's at your door. Policies take 30 days to kick in.

Death, taxes and tax litigation

For a break from disasters, let's take a minute to talk about taxes.

The state constitution guarantees uniformity - if not fairness - in taxation.

That's why, for example, Pennsylvania does not have a progressive personal-income tax, said Raymond Pepe, a partner at law firm K&L Gates in Harrisburg. That was held to violate the constitution years ago.

Such constitutional tax-rules are at the heart of a legal battle between - you guessed it - banks and credit unions.

Bankers argue that credit-union tax exemptions violate the uniformity clause and other clauses of the constitution that govern how tax exemptions can be granted. The bankers are talking only about the largest credit unions, Pepe said.

The courts have agreed to consider the first part of the argument, but they are still trying to decide whether to take on the second.

It's one of the more complicated tax cases out there, Pepe said.

"This is unique litigation," he said.

3D earnings at Integrity

You might want to wait until your head stops spinning before opening Integrity Bank's new annual report.

It's a pop-up book. And it's hard to say whether bank leader Jim Gibson is more proud of the presentation or the content. (Integrity reported a $1.4 million profit in 2006.)

"We wanted to say to (shareholders), 'Hey Integrity Bank's a different kind of bank,'" Gibson said.

The report opens with a pop-up letter from Gibson, followed by a three-dimensional chain of stars and an intricate web of numbers. The tagline: "That's Integrity unfolding."

Companies go to great lengths to design flashy annual reports, but do investors actually care? Gibson thinks so.

"It's a reflection of health of the company and what the company's vision is," he said.

[Sidebar]

Integrity Bank's annual report features pop-up pages with the tagline "That's Integrity unfolding."

[Author Affiliation]

Have a banking or finance tip? E-mail David Dagan at davidd@journalpub.com