Banking Northeast, Issue 4, 2022

Funding customized for your bank’s evolving needs.

Lock in low-cost funding now with flexible terms and tailored structures.

With interest rates rising, now is a good time to analyze your bank's cost-of-funds and to explore alternative sources of funding.

Whether your bank seeks fixed- or floating-rate pricing, overnight or term options, or millions or billions of dollars, funding from IntraFi® is the answer. IntraFi is a reliable funding source—one of the largest in the U.S. Funding from IntraFi counts as deposits, not borrowings, and is available without collateralization, credit lines, or stock purchases, enabling your bank to use the entire value of the purchased funds for revenue-generating opportunities.

Get in touch at (866) 776-6426, option 3, or contactus@intrafi.com

IntraFi.com

Use of IntraFi Network Deposits and IntraFi Funding is subject to the terms, conditions, and disclosures in the program agreements, including the IntraFi Participating Institution Agreement. Limits apply and customer eligibility criteria may apply. A list identifying IntraFi Network insured depository institutions at which funds may be placed through IntraFi Network Deposits may be found at https://www.intrafi.com/network-banks. As provided in the applicable Deposit Placement Agreement, the depositor may exclude particular insured depository institutions from eligibility to receive the depositor’s funds.Network Deposits and the IntraFi hexagon are service marks, and IntraFi, ICS, CDARS, and IND are registered service marks, of IntraFi Network LLC.

Appeals Changes Fall Short Of Progress

The FDIC has proposed changes to its new supervisory appeals structure aimed at increasing its independence, but the system still requires significant overhauls to preserve banks’ due process rights, the Bank Policy Institute, the American Bankers Association, the American Association of Bank Directors, the Consumer Bankers Association, the Independent Community Bankers of America and the Mid-Size Bank Coalition of America said in a letter.

What’s happening: After it reinstated the Supervision Appeals Review Committee (SARC), the FDIC recently proposed new changes:

• adding the FDIC Ombudsman to the SARC as a non-voting member;

• requiring the Ombudsman to monitor the supervision process following a bank’s submission of an appeal;

• requiring materials considered by the SARC to be shared with both parties to the appeal;

• allowing banks to request a stay of a material supervisory determination while an appeal is pending.

These modifications would make modest incremental improvements, but fall short of the meaningful reforms necessary to preserve due process for banks appealing supervisory decisions. Unfortunately,

even with the proposed modifications, the process leaves ample room for biased insider decisions that violate the impartiality that should apply to supervisory appeals.

What the banking organizations are saying: “By abandoning the OSA after only five months of operation, the FDIC has prematurely given up on a process that holds extraordinary promise of providing FDIC-supervised banks a fair and impartial forum for appeal,” the trades said in the letter. “While we appreciate the agency’s stated objective to enhance due process … on the whole, the FDIC’s most recent proposal sets forth a patchwork of changes that do not fundamentally alter the shortcomings of the appeals process.”

The background: The FDIC dismantled a newly formed Office of Supervisory Appeals (OSA), an impartial forum for reviewing banks’ appeals of major supervisory determinations, and replaced the OSA with its predecessor, the SARC. The low number of appeals filed with the agency over time reinforces the lack of trust in the SARC process and its impartiality. The SARC is comprised of FDIC Board members, or their designees, meaning its members often defer to FDIC staff’s initial review of the matter, leaving little room for dissent on supervisory decision-making.

members;

• Enable banks to bring appeals directly to the SARC;

• Prohibit ex parte communications during an appeal and require those that inadvertently occur to be documented and shared with both the SARC and the appealing bank in a timely manner;

• Require that the SARC, rather than the Division Director, be the one to consider and grant the stay of the supervisory determination pending appeal, and adopt reasonable standards in evaluating requested stays of supervisory determinations.

OUR MISSION

DIRECTOR OF STRATEGIC GROWTH

Alison Valvo

DESIGN MANAGER

Meghan Hogan

GRAPHIC DESIGN MANAGERS

Christopher Wallace, Stacy Murray

DIRECTOR OF EVENTS

Navindra Persaud

UX DESIGN DIRECTOR

William Valvo

PROJECT MANAGER

Julie Carmichael

MARKETING & EVENTS ASSOCIATE

Melissa Pianin

ONLINE ENGAGEMENT SPECIALIST

Kristie Woods-Lindig

‘Abandoning OSA [shows] FDIC has prematurely given up on fair and impartial forum for appeal’

Credit Cards Defy Slowdown In Broader Credit Demand And Access

The latest Credit Access Survey from the Federal Reserve Bank of New York’s Center for Microeconomic Data shows consumers asking for less credit while at the same time credit declines increased.

The study reveals a decline in consumer credit demand in 2022, with most credit application rates stable or weakening, except for a rise in credit card applications. Current application rates for any type of credit remain below pre-pandemic levels for those with credit scores below 680 but are higher for those with credit scores over 760. Reported rejection rates on credit applications rose slightly overall but declined for new credit card applications. The strength in credit card demand and access coincided with the record growth in credit card balances over the past year. Looking ahead over the next 12 months, households anticipate they will be less likely to apply for an auto loan, mortgage, or mortgage refinance loan, but report a higher average likelihood of applying for a credit card or credit card limit increase.

Consumers expect some easing in credit standards, reporting slightly lower average perceived likelihoods of a future credit application being rejected, conditional on applying over the next 12 months.

REJECTION RATES:

• Reported average rejection rates for auto loan, mortgage loan, and credit

card limit extension applications in 2022 exceeded those in 2021, while those for credit card applications declined slightly.

• The average rejection rate for credit card applications during 2022 declined by 2.4 percentage points to 18.5%.

• The average rejection rate of mortgage applications increased by 2.2 percentage points to 14.6% in 2022, considerably above the 2019 rate of 10.2%

• The average rejection rate on auto loans increased by 1.6 percentage points to 5.2% in 2022.

• The reported rejection rate for credit card limit increases rose slightly to 35.3% in 2022 from 32.3% in 2021.

• The average rejection rate on mortgage refinance applications remained stable at 9.9% in 2022.

• Voluntary account closures for any type of credit increased to 15.4% in 2022 from 14.2% in 2021, the same rate as in 2019.

APPLICATION RATES:

• The application rate for credit cards remained robust during 2022, reaching 27.1% in October 2022, above its October 2021 level of 26.5% and its prepandemic reading of 26.3% in February 2020. The average application rate for credit cards for 2022 overall was 26.7%, 3.6 percentage points higher than the average rate for 2021.

• The application rate for credit card limit increases also remained stable during 2022, at 11.2% in October 2022, compared to 11.3% in October 2021; both were just below the pre-pandemic October 2019 level of 12.0%.

• The application rate for auto loans in October 2022 was 12.9%, equal to the rate in October 2021, but the average application rate for the year overall declined from 14.6% in 2021 to 13.0% in 2022.

• Mortgage loan application rates declined

Those with better credit scores seeking more credit, Fed Reserve determines

The average rejection rate of mortgage applications increased by 2.2 percentage points to 14.6% in 2022, considerably above the 2019 rate of 10.2%.

from 8.5% in October 2021 to 6.7% in October 2022. The average rate for 2022 overall was 7.2%, 0.8 percentage points below the 2021 average, and 0.7 percentage points below the 2019 average.

• Application rates for mortgage refinancing plummeted during 2022, falling from 21.4% in October 2021 to 8.9% in October 2022. The latter is comparable to levels that prevailed during the October 2017-2019 period, prior to the recent refinancing boom.

KEY FINDINGS FROM THE SURVEY:

Reported application rates for any kind of credit over the past 12 months declined slightly throughout 2022, after rebounding in 2021 following a large decline in application rates at the beginning of the pandemic. Current rates remain below prepandemic levels for those with credit scores below 680 but are higher for those with credit scores over 760. Overall, the average 2022 application rate of 44.8% was slightly below its 2021 level of 45.6% and below its pre-pandemic 2019 level of 45.8%.

Reported rejection rates among applicants increased by 0.5 percentage points to 18.0% in 2022 from 17.5% in 2021, just above the 2019 rejection rate of 17.6%.

The average share of respondents who were too discouraged to apply for credit over the prior 12 months, despite needing it, continued its gradual decline, falling slightly to 6.5% in 2022 from 6.6% in 2021 and 7.0% in 2020, while remaining just

above its 2019 level of 6.4%.

Considering applications and rejections experienced by respondents in the 12 months preceding each survey for specific credit types (credit cards, credit card limit increases, auto loans, mortgages, and mortgage refinancing), we find:

32%

EXPECTATIONS

Responses regarding an unexpected expense suggested a slight increase in the subjective financial fragility of U.S. households. The average probability of needing $2,000 for an unexpected expense in the next month decreased to an average of 32.0% in 2022 from 33.1% in 2021, while the average probability of being able to come up with $2,000 if an unexpected need arose within the next month decreased to

67.5% in 2022 from 68.2% in 2021. Both series have been remarkably flat since 2015, including during the pandemic.

The proportion of respondents who report that they are likely to apply for at least one type of credit over the next 12 months decreased slightly, falling to 28.0% in October 2022 (26.7% for 2022 overall) from 28.9% in October 2021 and 29.5% for 2021 overall. The decrease was driven mostly by those with credit scores below 680.

The average likelihood of applying for a mortgage decreased to 7.3% from 8.5%. The average likelihood of applying for a mortgage refinance over the next 12 months reached a new series low of 4.9% in October 2022. For the year overall, the average likelihood of applying for a mortgage refinance dropped to 6.1% in 2022 from 11.0% in 2021.

The average likelihood of applying for an auto loan declined to 10.9% in October 2022 (11.4% for 2022 overall) from 11.5% in October 2021 (11.5% for 2021 overall).

The average likelihood of applying for a credit card or credit card limit increase over the next 12 months instead rose to, respectively, 13.6% and 7.2% in October 2022 (12.6% and 7.3% for 2022 overall) from 12.0% and 6.9% in October 2021 (11.1% and 7.3% for 2022 overall).

The average perceived likelihood of a future credit application being rejected, conditional on applying over the next 12 months, was slightly lower in 2022 relative to 2021 for all loan types.

> The average probability of needing $2,000 for an unexpected expense in the next month.

Omnichannel Is The Future Of Banking

technology

Financial institutions are mistaking multichannel account openings for omnichannel account openings, according to The Omnichannel Account Origination Report released by Mantl, a provider of account origination solutions. More than one-third of banks and credit unions (35%) that claim to offer omnichannel account openings do not have the ability to start an application in one channel and resume it in another channel, revealing they have multichannel account openings instead.

“This data is alarming because multichannel technology differs greatly from omnichannel technology. A multichannel account origination strategy has severe limitations, as it creates siloed customer journeys and will not grow customer satisfaction or lifetime value. Commercial and retail customers expect seamless experiences across all banking channels and only omnichannel technology will meet that demand while improving an institution’s bottom line,” said Nathaniel Harley, cofounder and CEO of Mantl.

“The adoption of true omnichannel account origination technology is still early at regional and community banks and credit unions. However, the data makes one thing abundantly clear: omnichannel account origination is the future of the banking industry, and banks and credit unions are prioritizing adoption.”

The Omnichannel Account Origination Report, commissioned by Mantl in partnership with The Financial Brand, surveyed U.S. banks and credit unions to identify omnichannel banking priorities and explore existing consumer and commercial account opening capabilities by channel. The report findings underscore the important role omnichannel account origination technology will play in financial institutions’ ability to remain resilient and competitive. The report also revealed significant opportunities to leverage the technology to improve operational efficiency and better service commercial customers.

THE URGENCY FOR OMNICHANNEL

Currently, only 12% of banks and credit unions offer omnichannel account opening for both businesses and consumers. The report revealed that relationship managers are still the primary driver of new account openings, and financial institutions only open a small volume of deposit accounts via digital channels. Nearly half (48%) of financial institutions open less than 20% of their consumer deposit accounts online.

However, there is a growing sense of urgency to implement omnichannel account origination technology in the immediate future. In the next 12 months, half of institutions (50%) plan to

implement consumer omnichannel account opening and a fourth of institutions (27%) plan to implement commercial omnichannel account opening.

BUSINESSES ARE UNDERSERVED

The majority of banks and credit unions (61%) are opening almost all of their new commercial accounts (80-100%) via a relationship manager. Two-thirds of institutions do not offer the ability to open a commercial account online (68%) or in a call center (67%). That number is even higher for a mobile app (78%) or an in-branch kiosk (90%).

“Many financial institutions selfidentify as commercially focused, yet they are not investing in commercial banking experiences,” said Harley. “This is especially problematic when you consider that business owners are also consumers and expect the same digital convenience across banking channels.”

BRANCH SENTIMENT TOWARD DIGITAL CHANNELS

Shockingly, one-fourth of banks and credit unions (25%) claim branch staff who are responsible for onboarding new customers feel threatened by online account opening channels. Currently, almost one in four financial institutions (22%) have no way to attribute new accounts opened digitally to a specific branch or relationship manager, and 37% of banks and credit unions believe that account attribution would change how their branch staff feels about online account openings.

“This disconnect signals to larger issues we are seeing industry-wide in regard to banking technology adoption and change management,” said Harley. “The benefits of modernizing must be communicated across all levels of a financial institution and bank leadership should invigorate adoption. Investing in technology that elevates the employee experience, empowering branch staff to become more data-driven and better serve their customers will help fuel adoption.”

There's a growing sense of urgency to implement this

“Many financial institutions self-identify as commercially focused, yet they are not investing in commercial banking experiences. This is especially problematic when you consider that business owners are also consumers and expect the same digital convenience across banking channels.”

Nathaniel Harley

Cybersecurity: Look Within & Make Sure You're Armed

Government agencies are updating standards and regulations

BY STEVE GOODE, STAFF WRITER, BANKING NORTHEAST MAGAZINE

The Conference of State Bank Supervisors has been offering banks their baseline and enhanced cybersecurity exam programs for years in an effort to help them check, and bolster their defense systems, if necessary, ahead of an inspection by regulators.

Now they’ve offered the same programs to nonbanks, including mortgage lenders, as well.

Chuck Cross, senior vice president at CSBS, said in a recent interview that the idea is to have lenders “look at themselves and identify their preparedness.”

“These areas of cybersecurity protection are so important,” Cross said.

The development of the cybersecurity exam programs - one for smaller banks, the other for larger institutions - came about largely as a result of the 2017 Equifax data breach that exposed 605 million records and the personal information of approximately 147 million people. Then in 2019 First American Financial Corp. suffered a cybersecurity breach that resulted in the exposure of 885 million customers’ records containing personal information.

More recently, Lakeview Loan Servicing acknowledged in March that it had been the victim of a cyberattack that affected more than 2.5 million borrowers. That same month, lender American Financial Resources reported a cyberattack that had exposed personal information - including social security numbers - of more than 200,000 customers.

And in December, Pingora Loan Servicing discovered a data breach that affected hundreds of thousands of borrowers.

Regardless of the breaches, Cross said government agencies are upgrading rules and standards in an effort to prompt private companies to up their game, take a deep dive into their controls and ask themselves if they have enough safeguards in place.

“It’s just good business practice,” he said.

THE COST OF CYBER ATTACKS

According to cybersecurity provider Minecast in its 2021 global survey of 1,400 information technology and cybersecurity professionals from a dozen countries, 95% of respondents said their cybersecurity resilience had been impaired by insufficient funding and that 80% of the companies they work for are bracing for the fallout from an email attack.

According to the survey, 75% of the respondents worked for companies that were hurt by a ransomware attack in 2021, up from 61% in 2020. Also, 64% of those companies paid the ransom demanded, but 40% never recovered their data.

The company’s analysis found that the frequency of cyberattacks is expected to increase to 1 every 2 seconds as perpetrators refine their malware and methods of attack, and that those breaches will cost $265 billion by 2031.

A 2022 annual report by IBM Security that studied 550 organizations around the world affected by data breaches, found that the average cost of a breach was $4.35 million, and that the U.S. led the world in the cost of a breach at $9.44 million. Sixty percent of those companies increased their prices to

consumers to cover those costs.

Also, the average time it took to identify a breach was 277 days, which added to the cost of addressing it.

WHY SPEND THE MONEY AND TIME TO STOP IT

The nature of cyber attacks hasn’t changed all that much since the Equifax breach five years ago. Phishing via email is still the tried-and-true method for getting past a company’s security protocols. The technology to stop an attack is expensive and the cost of employing professional security teams is “very prime at this point,” said Rick Hill, vice president of industry technology, for the Mortgage Bankers Association.

But the cost of stopping them at the gate outweighs the price that is paid by letting them in, in Hill’s view.

“The harm to your business can be significant, but spending the money to protect yourself is better,” Hill said.

Hill said that the MBA is encouraging its approximately 1,900 member organizations to conduct annual training programs about phishing schemes to help make employees aware and be wary.

“You want their antenna to go up,”

Hill said, adding that the MBA also hosts multiple annual webinars on the subject.

The MBA has also encouraged its members to embrace the use of the CSBS cybersecurity exam programs, which Hill said provide help on multiple levels, from helping financial institutions and nonbank lenders understand the reasoning behind the questions that regulators and inspectors are asking, and helps them think about improving their security posture. The organization is likely to conduct a webinar on the exam programs sometime this fall.

“I look at it as another way for folks to ask themselves questions,” he said. “It certainly helps our members develop skills in this area.”

For Hill, the use of the exams and the interaction with regulators and inspectors also provides another benefit as both parties can see each other in a different light.

“The financial institution is also seen as a victim,” Hill said. “This is not trying to be a gotcha, it’s about trying to understand and mitigate risks as best you can.”

Cross agreed.

“This is not your typical adversarial relationship,” he said.

Hill added that there is also still

something to be learned from the big events such as the Equifax breach in 2017, because it prompts big questions from boards of directors to security managers about what they’re doing and what they’re seeing, as well as what it costs.

“That drives awareness,” he said.

THE END OF CYBER CRIME

Cybersecurity experts are concerned about the idea of quantum computers on the horizon that can break through encryptions organizations used to fend off attacks, but work is being done to prevent that from becoming a reality.

For now, Hill said, he continues to see the evolution of phishing attacks through emails that he notes “can be very, very good,” and organizations that stay ahead as best they can.

But will the day come that victory can be declared?

Hill said he has asked that question of experts many times over the years and been told “no.”

“The answer is not in the foreseeable future,” Hill said. “There are bad guys - I don’t think we’ll ever get rid of bad actors. Geopolitical or financial, they are going to do it.”

“The harm to your business can be significant, but spending the money to protect yourself is better.”

–Rick Hill

Input Sought For New Digital Money Platform

Part of private/public partnership on innovation

Members of the U.S. banking community announced the launch of a proof of concept (PoC) project that will explore the feasibility of an interoperable digital money platform known as the regulated liability network (RLN). Using distributed ledger technology, the proposed platform would create innovation opportunities to improve financial settlements and would include participation from central banks, commercial banks of various sizes and regulated non-banks.

The 12-week PoC will test a version of the RLN design that operates exclusively in U.S. dollars where commercial banks issue simulated digital money or “tokens” – representing the deposits of their own customers – and settle through simulated central bank reserves on a shared multi-entity distributed ledger. The PoC will also test the feasibility of a programmable digital money design that is potentially extensible to other digital assets, as well as the viability of the proposed system within existing laws and regulations.

Members of the U.S. banking and payments community involved in this PoC (as listed further below) are pleased to be working alongside the New York Innovation Center (NYIC) that is part of the Federal Reserve Bank of New York. The NYIC collaborates with the private and public sectors on innovations aimed at enhancing the functioning of the global financial system and the ability of central banks to carry out their missions. For information from the New York Innovation Center on this collaboration, see here.

OTHER KEY ASPECTS OF THE POC INCLUDE:

Regulatory framework: The platform will align with the existing regulatory framework and preserve existing requirements for depositbased payments processing, notably maintaining know your customer and anti-money laundering requirements.

Scope: The PoC will simulate digital money issued by regulated institutions in U.S. dollars, although the concept could potentially be extended to multi-currency operations and regulated stablecoins.

Tokens: The PoC will simulate tokens that are 100% fungible and redeemable with other forms of money.

Industry collaboration: The PoC will include dialogue with the broader U.S. banking community, including community and regional banks.

Results: Following the conclusion of the PoC, the banking group will publicize the results, which they hope will be an important contribution to the literature on digital money.

Future plans: The banking group participants are not committed to any future phases of work once the PoC has been completed.

This project will be conducted in a test environment and only use simulated data. It is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed. The findings of the pilot project will be released after it concludes.

In addition to the NYIC, the other participants on this project include the following financial institutions and payments organizations: BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo. The technology is being provided by SETL with Digital Asset, powered by Amazon Web Services. Swift, the global financial messaging service provider, is also participating in the initiative to support interoperability across the international financial ecosystem. Legal services are being provided by Sullivan & Cromwell LLP and Deloitte will be providing advisory services.

HONORING THE BEST

A Recognition Of The Top Women In Banking

At Banking Northeast, we recognize the growing impact that women have on the banking industry. We’re producing a feature to shine a light on the many trailblazers who are leading the way for others in this once male-dominated area – but to do this, we need you to tell us: who is making significant contributions in the credit union and community banking industry?

Tell us what your nominee has done, both professionally and in civic and volunteer capacities, to impact her institution, industry or community. Feel free to include links, photos, a resume, etc. The more we know, the better able we will be to determine who should be recognized as 2023’s Northeast Women in Banking.

Nomination Deadline: July 14, 2023 The conference will take place in Newport RI. You’ll see a stellar array of accomplished women leaders from throughout the region, as well as special keynote presenters. This is the only event specifically designed for all women in the banking, credit union, and mortgage professions throughout New England, and you don’t want to miss this amazing opportunity.

Fintechs And Consolidation The Way Forward For Banks

BY DOUG PAGE, STAFF WRITER, BANKING NORTHEAST MAGAZINE

While mergers are down, they are the future of community banking

Merger

banking

acquisition activity in

If the past is prologue, it’s possible 2023 will see even fewer bank mergers. Why? The looming recession coupled with continued high inflation and increased interest rates will make any potential acquisition more costly and, as a result, less attractive, one industry observer says.

In the year’s first six months, reported S&P Global, there were fewer bank mergers compared to the two previous years, 81, down from 100 in the same time period in 2021 and 118 in the first half of 2019. The company reported there were 47 U.S. bank mergers in the first three months of 2022 “but it slowed down in the latter three months with 35 announcements between April and June.”

“These headwinds, along with a strengthening U.S. dollar, combined to pull stocks downward and sharply boost companies’ cost of capital – two major negatives for deal makers,” wrote Tim Johnson, a Chicagobased KPMG partner focused on the financial services industry, in a report that examined bank acquisitions in this year’s third quarter.

Still, there are compelling reasons for banks to merge, he told Banking Northeast.

In fact, some of those reasons were mentioned when, Connecticut bank, Webster Financial Corp., purchased Pearl River, N.Y.-based Sterling Bancorp for just over $5 billion.

Johnson also says the increased focus for the last 20 years on money laundering and knowing customers compels banks to search for merger partners.

“The more you can band together through M&A, you can spread those costs over a larger revenue base, and it makes it that much more efficient,” he said.

As much as consumers might complain about bank mergers, Johnson points out that the foreseeable trend is more mergers, not fewer.

“We’ve gone from 17,000 plus banks in mid-80s to 10,000 banks in the ‘90s to 6,000 coming out of 2010s,” he said. “We’re turning below 5,000 now, so the long-term trend is consolidation.”

leadership, like the CEO or president, or even some privately owned banks, that don’t have a succession plan,” PwC banking consultant Dan Goerlich said. “And the best way to have a sort of living will for the organization is to sell to a larger bank or merge with another bank organization that has a management team that’s in a different spot.”

But not every bank wants to fulfill the request.

“You also have banks that aren’t as apt to grow in some technological capacities that are demanded in the marketplace,” Goerlich said. “And rather than take on that cost themselves, it’s just more efficient for them to have another organization to assume them.”

$5 billion

“There are two main expense pressures that are driving institutions together,” he said. “One is digitization and the ability to reach customers – both business and individual consumers – in a digital way is driving up costs.

> Approximate Purchase Price

Webster Financial Corp. purchased Sterling Bancorp.

ALTERNATIVE WAYS TO GROW

“If you look at many of the deals that have been announced over the last 24 to 36 months, part of the talk track the banks will use is the cost savings and the synergies that are generated through the acquisition to invest in digital,” he continued. “The second thing – and this is on the community bank level – is compliance costs.”

Given that KPMG consults with banks and other financial institutions, Johnson refused to name the banks he used as examples.

HUMAN REASONS TO MERGE

Despite the regulations and the market demand for banks to increase their digital abilities, there are other reasons to merge.

“In some cases, you have bank

While it would seem the only way for a bank to grow is through acquisitions, Goerlich says there are bank CFOs investigating alternative methods to expand their bank’s profile.

“We speak with a number of CFOs at large banks who have been watching the consolidation process but don’t believe that it’s the most effective way to maximize value,” he said. “The way they choose to grow is through offering new products.”

One method, Goerlich says, is acquiring portfolios or “you can find flow partners for, say, auto lending, other small ticket consumer lending or equipment finance.”

TIM JOHNSON

and

the

industry was down in the first half of 2022.

Walmart:

If there’s a surprise to the banking industry, it might be the competitor it never saw coming, Walmart.

The country’s leading retailer is in the pole position with consumer checking accounts, with more than 101 million, and they’ve done it in less than a decade. Bank of America, says the estimate, comes in second with over 68 million checking accounts.

“Walmart is opening 9,000 checking accounts per day nationwide,” says a report from Lake Forest, Ill.-based Moebs Services, a financial services consulting firm. “With 101+ million accounts, Walmart’s runner up, Bank of America, is 33 million accounts behind.”

Between businesses and consumers, there were just over 873 million checking accounts in the United States, Moebs estimated in June. Of those, 408 million were consumer checking accounts, Moebs estimated.

CONSUMER TRUST

Why would anyone turn to Walmart for their checking account?

Moebs Services Vice President J.V. Proesel describes the store’s financial services customers as “people that are turned off by larger banks and trust Walmart because they’re shopping there once a week.”

The majority of Walmart shoppers, nearly 53%, says Boston-based FinancesOnline.com,

have an annual income of less than $50,000. While 81% of U.S. adults, The Federal Reserve reported in 2021, are “fully banked,” meaning they have at least one bank account, unbanked and

underbanked consumers, the Fed noted, tend to have an income of less than $50,000.00.

The 5.9 million unbanked households, the FDIC reported recently, are described as not having “a checking or a savings account at a bank or a credit union.”

The 18.7 million underbanked households are defined differently. The FDIC described them in October as having a “bank account but used nonbank financial products and services during the year,” which could include check cashing services as well as payday and pawn shop loans.

Another consultant says Walmart’s branded banking services, even though they are coming through a third-party provider, Utah-based Bonneville Bank, which is owned by Green Dot, fits the times. “Brand-based banking is a significant growth trend,” Bain banking consultant Richard Walker said.

One of the reasons Walmart introduced its prepaid debit card was to reduce the amount of money it pays annually for interchange –sometimes called “swipe” – fees, a charge a merchant pays anytime a consumer uses a credit card or debit card to pay for goods, Proesel said.

By all appearances, Walmart isn’t stopping to catch its breath. Nearly two years ago, it created a new fintech firm. Walmart made headlines again last year when it announced it hired two Goldman Sachs executives to run its fintech operation.

A few months ago, the retailer announced that, in select locations, its customers would be able to shop for a mortgage through the Lenders One Cooperative.

THREAT TO BANKS

Does Walmart’s success with checking accounts pose a serious threat to the country’s bank industry?

At least one New York City-based bank sees it that way, a Barron’s article noted in 2021.

“’While much has been made about the competitive threat of challenger banks/neobanks to the traditional bank business model, it’s our view that a competitive threat such as (Walmart) is likely a more potent one,’” Barron’s reported in a story about Citigroup’s take on Walmart’s entrée into financial services. Walmart would not respond to numerous attempts seeking confirmation on the estimates provided by Moebs Services.

J.V. PROESEL

It’s Not Just A Megastore, It’s Practically A Bank

DAN GOERLICH

RICHARD WALKER

Other ways to expand, he said, include buying asset and wealth management organizations and fintech firms.

“Finding out where your business has product gaps and (filling them by) doing acquisitions of them instead of merging with a bank is another way that we’ve seen banks scale up over time,” Goerlich said, adding that additional product lines is another way for a bank to broaden its customer base besides adding branches.

Due to the nature of his company’s business, Goerlich, like Johnson, would not disclose which banks he was referring to during the interview with Banking Northeast.

THE FINTECH THREAT?

According to one published report from Cornerstone Advisors, younger generations are flocking to fintechs for

financial services, not the traditional brick and mortar bank. Since 2020, Cornerstone Advisors says, more and more Gen Z (born between 1997 and 2012), Millennial (born between 1981 and 1986) and Gen X (born between 1965 and 1980) consumers use Chime, Cash App or PayPal as their primary checking account provider.

“The news for U.S. megabanks – Bank of America, JPMorgan Chase and Wells Fargo – is even worse,” the report said. “The percentage of Gen Zers whose primary checking account is with a megabank has dropped from 35% in 2020 to 25% today and among Millennials and Gen Xers, the percentages declined by nearly half during that span.”

This trend among younger consumers, suggests Bain consultant Richard Walker, is a reason for banks to work with and possibly buy a fintech.

“Fintechs and banks have a common mission, which is to provide services to clients in the most compelling way possible,” he said. “Fintechs are typically better at that because they’re unencumbered with legacy systems and legacy processes.”

Wagner says traditional banks and fintechs have a symbiotic relationship with one another.

“Banks have a lot of data about customers and transaction history,” he said. “Fintechs have great technology that is hungry for data, so when you bring those two things together and you enable the collaboration between them, you get the best result for the customers of each.”

CULTURAL DIFFERENCES

But KPMG’s Johnson warns there’s potential for a sizable divide between a legacy bank and a fintech.

“There’s a big cultural difference between a fintech startup and a legacy bank,” he said. “The offices they work in, the clothes they wear to the office, and so I think what the banks are starting to learn is the way they integrate another depository institution is different than the way they would integrate a fintech.

“(Banks) need to look at those cultural differences and manage through that in a way that’s effective so they don’t crush the butterfly,” he added.

‘Fintechs and banks have a common mission, which is to provide services to clients in the most compelling way possible.’

–Richard Walker

PHILADELPHIA FED APPOINTS NEW EVP, DIRECTOR OF RESEARCH

Roc Armenter will become the Federal Reserve Bank of Philadelphia’s next executive vice president and director of Research. He will succeed Michael Dotsey, who will retire after more than four decades in the Federal Reserve System.

On Jan. 2, 2023, Armenter will start his new role leading a staff of economists and analysts who conduct research on macroeconomics, banking, finance, and the regional economy. He will serve as the Bank’s chief economic advisor and director of the Consumer Finance Institute, oversee the Financial Statistics Department, attend meetings of the Federal Open Market Committee (FOMC), and make regular presentations on the economy to the Bank’s board of directors.

Armenter is currently a vice president and economist and has been promoted several times since joining the Philadelphia Fed in 2008. While at the Philadelphia Fed, he has played a critical role in the design of balance sheet policies and the evolution of the monetary policy implementation framework. He has also developed a very broad research agenda, with publications at top journals on topics ranging from international trade to the perils of inflation targets.

Armenter started his career with the Federal Reserve System at the Federal Reserve Bank of New York, where he worked as an economist in the International Research Function from 2004 to 2008.

JANNETTE THOMPSON JOINS BANK OF NEW HAMPSHIRE

Bank of New Hampshire welcomed Jannette Thompson, who has joined their team as assistant vice president –Moultonborough banking office manager.

In her role, Thompson will be responsible for management of the office’s deposit portfolio, customer relationship management, new business development, and community engagement. She will also

oversee all daily operations of the office.

Thompson joins Bank of New Hampshire with 15 years of experience in financial services. Her management experience in the technical aspects of banking as well as the day-to-day operations of a banking office will serve her well as she leads the office team in Moultonborough.

“We are delighted to add Jannette to the Bank of New Hampshire Retail Management Team. Janna’s many years of retail bank management and her knowledge of the community made her the perfect choice to lead the Moultonborough team,” said Cecile Chase, senior vice president - retail sales & development manager for Bank of New Hampshire.

PARTNERS BANK HIRES

Bank’s Business Escrow Services group, Netto is responsible for leading business development efforts in New York City.

Before joining Bridge Bank, Netto spent six years as a corporate attorney in the New York City office of Hogan Lovells, where she focused on domestic and cross-border mergers and acquisitions across a wide range of industries. She also has deep experience in venture investments made by technology and media companies and general corporate law. Directly prior to joining Bridge Bank, she was associate general counsel at MAXEX, LLC, the first digital mortgage exchange.

WILLIAM WOOD

AS MARKET MANAGER

Partners Bank announced that William Wood has joined the bank as vice president and market manager for its Buxton, Limerick, and Waterboro, Maine branches.

In this role, Wood will be responsible for the overall management of the three branches, including new business development, customer service, and oversight of daily operations.

Wood has a long and varied background in banking and customer service. He began his career in lending before moving on to customer service and branch management. Most recently, he held the position of branch manager, vice president at Biddeford Savings Bank.

“We believe William’s background and understanding of the community where he lives and works makes him the perfect person for this busy position,” said Partners Bank President and CEO Blaine Boudreau. “We’re glad to have him aboard.”

BRIDGE BANK ADDS NETTO TO GROWING EAST COAST TEAM

Bridge Bank announced an expansion of its East Coast Business Escrow Services team with the addition of attorney Allison Netto As a senior vice president in Bridge

“The skills Allison brings from the legal world will serve Bridge Bank’s growing portfolio of Business Escrow Services clients well,” said Alex Tsarnas, senior managing director of Bridge Bank’s Business Escrow Services. “Allison’s experience as M&A counsel to strategic buyers, coupled with her breadth of experience advising on a wide range of in-house matters, equips her to advise our clients with a strong consultative approach.”

MARIO SINDONE JOINS COASTAL HERITAGE BANK

Coastal Heritage Bank announced that Mario Sindone has joined Coastal Heritage Bank as a Senior Vice President, Commercial Loan Officer. Sindone has an extensive career in community banking, specializing in commercial lending.

Robert Terravecchia Jr., chairman/CEO of Coastal Heritage Bank commented, “Coastal Heritage Bank is very pleased to have someone with Mario’s skillset and experience join the Bank. His exceptional business acumen and professionalism will be an excellent complement to the Coastal Heritage Bank’s Commercial Lending team.”

A graduate of Northeastern University, Boston University Real Estate certification program and Babson School of Financial Studies, Sindone is a resident of North Scituate.

Allison Netto

Jannette Thompson

William Wood

Roc Armenter

Mario Sindone

THE POWER OF DATA STORYTELLING

BY AMBER ROBINSON, SPECIAL TO BANKING NORTHEAST MAGAZINE

Across every industry, data analytics is a top priority. In fact, the global data analytics market is expected to reach nearly $347 billion by 2030 – a 30% increase from 2022.

This surge is for good reason. Data allows organizations to gain better insight to transform the customer experience, inform and empower strategic decisions, support risk management efforts, and understand emerging trends.

But data alone doesn’t change behavior and lead to action; emotions do.

UNDERSTANDING

DATA STORYTELLING

At its most basic function, data storytelling is the practice of building a narrative around a set of data and supporting visualizations to help convey the meaning of that data in a powerful and compelling way. It’s the difference between reading numbers on a spreadsheet and bringing that data to life.

By simplifying complicated information and making it digestible, individuals better understand the data. If constructed well, it inspires action and empowers individuals to make critical decisions quicker and more confidently

THE PSYCHOLOGY BEHIND DATA STORYTELLING Storytelling dates back to the Cro-Magnon era. While we’ve moved far beyond cave paintings, the psychology behind it remains the same: the human brain prefers stories over numbers.

If constructed well, data storytelling inspires action and empowers individuals

This is because the human brain consumes massive amounts of data, processing as much as 74 GB each day – the equivalent of watching 16 movies. To prevent information overload, the brain constantly filters what’s important to process and remember and what can be discarded.

Stories win over raw data. They’re more memorable and engage the brain in a way that numbers do not. First, the brain lights up and begins to process the story to relate to their own experiences. Neurons then mirror between the story itself and the person receiving the information, which plays a role in empathizing.

Dopamine is then released, resulting in easier and more accurate recall. At the onset of processing facts, both the Broca’s and Wernicke’s areas – which control language comprehension – are activated.

What does this all mean?

With data storytelling, a person can evoke an emotional response on a neurological level to ensure that their points are remembered and acted upon.

THE THREE ELEMENTS OF DATA STORYTELLING

How can banks tell compelling data stories? It starts with three main elements.

1. DATA

At the core of data storytelling is the data itself. Banks have no shortage of data but are often paralyzed by antiquated and siloed processing systems and the inability to efficiently access that data.

Consequently, teams spend countless hours manually extracting and compiling data from various systems. Not only is this inefficient, but it’s prone to human error.

Further complicating this challenge is that each team and department is pulling their own sets of data, as well as manually manipulating that data, leading to inconsistent information across the institution.

Because of this laborious process, teams are also compiling information as-needed. This might be once a year or less, meaning teams are operating with inaccurate and outdated information.

To engage in effective data storytelling that encourages the right action, data must be accurate, complete and consistent throughout the organization. If banks start with dirty data, decisions made and actions taken could be more harmful than helpful.

And at the end of the day, data alone is just data.

Data allows organizations to gain better insight to transform the customer experience, inform and empower strategic decisions, support risk management efforts, and understand emerging trends.

2. POWERFUL VISUALS

To make the story clear and memorable, visual representations play a significant role. These can be charts, graphs, diagrams or infographics, helping to enlighten and engage the audience and turn data into something simpler and digestible.

Data visualizations should help reveal patterns, trends and other findings from an unbiased viewpoint. It should provide context, interpret the data and articulate insights to help teams make meaningful decisions.

providing context and meaning to then support recommended actions.

A compelling narrative combines data with powerful visuals to paint a clear picture. It helps the audience understand complex information, gives meaning to it, and then helps inform and empower strategic decisions.

Without a compelling narrative, data becomes numbers and visuals are just charts and graphs. The narrative is what compels action.

Creating a data narrative follows the

that Maria needs a line of credit to relieve her from temporary price increases of coffee beans.

Not only did the bank help her, but it has now built a relationship with her. Maria is considering moving her other accounts to the bank. How many other “Marias” does the bank have as a single product customer who would be willing to expand their relationship now that they’ve helped save their business? That narrative hits a little differently than looking at a spreadsheet during a Monday morning meeting,

An effective way to do this is through the use of interactive data dashboards. By organizing and displaying important information in an easy-to-understand format in a single location, teams can quickly interpret complicated metrics to help build a compelling narrative.

As examples, teams can gain better visibility into past and current trends, empowering them to forecast future trends with greater accuracy. Teams can also leverage up-to-date customer analytics to enhance and transform the customer experience and increase customer profitability.

3. COMPELLING NARRATIVE

Narratives, also called storylines, help communicate insights gleaned from data,

same elements of any other story. It needs characters, a setting, conflict and resolution.

For instance, a bank may review all its single product loan customers and find that PPP loans are nearly double any other loan category, therefore presenting the greatest opportunity for cross selling.

Rather than showing a spreadsheet of loan totals across each category, a compelling narrative paints the picture of Maria, the owner of a small coffee shop who took out a PPP loan during the pandemic through a community bank other than her primary institution.

Today, however, Maria is worried about the economy. Inflation is soaring and she’s struggling to keep up. Rather than waiting for her to call the bank, a relationship manager proactively calls her. It turns out,

doesn’t it?

Maria’s story is just one of many ways banks can leverage data storytelling and bring data to life. The benefits extend far and wide. By combining data, powerful visuals and a compelling narrative, teams are empowered with strategic insights, helping to drive profitability and improve productivity at every level of the organization.

Amber Robinson is a Senior Executive at KlariVis. Created by veteran community bank executives, KlariVis was developed to enable institutions of all sizes to see their institution clearly and access transformative data in an efficient way, interpret it, and act decisively on it. For more information visit www.KlariVis.com.

Welcome To The Northeast's Premier Banking Event!

The amazing BankWorld is back for its 27th year, and once again, this is your can’t-miss opportunity to learn about the future of banking at the Northeast’s largest and most exciting banking show.

This expansive conference provides you with essential educational sessions, interactive panels, cutting-edge exhibits, countless networking opportunities, raffles, and so much more – all with an eye to giving you an edge against the competition.

Take advantage of the opportunity to get your hands on the latest products and technology that are revolutionizing the future of banking. If you’re

an executive, senior management, or staff member involved in operations, technology, lending, retail banking, marketing and sales, human resources, security, or compliance and risk management, BankWorld is for you.

Peruse the agenda of events taking place. Make sure not to miss the inspirational words of Rocky Bleier, a four-time Super Bowl winner with the Pittsburgh Pirates. End your day with the Financial Marketing & Community Champion Awards.

Thanks for being a part of the largest banking show in the Northeast!

The nation's largest regional banking conference.

AGENDA

January 12 – 13, 2023

Thursday, January 12, 2023

3:00 pm — 5:00 pm

Exhibitor set-up. Not open to attendees

5:30 pm — 8:00 pm

New Leaders In Banking Awards Dinner

Recognizing young bankers across Connecticut who display leadership skills above the ordinary.

Separately-Ticketed Event

BANKWORLD IS BROUGHT TO YOU BY

Friday, January 13, 2023

7:00 am Registration Opens

7:30 am C-Suite Breakfast Service Begins Invitation only

8:00 am C-Suite Breakfast Session

This invitation-only event features a special keynote speaker only for C-Suite banking executives and select sponsors.

Fintech Engagement –Why it’s Important

The community banking landscape is changing and keeping up with those changes is more challenging than ever before. The increase of fintechs in the banking space has given rise to unprecedented competition among banks and challenger companies. To stay relevant in today’s market, community bankers must embrace these new companies and the

benefits they can provide to a bank’s customer base. Finding the sweet spot between high tech and high touch is crucial to surviving and thriving in this exciting new competitive landscape. Taking a wait-and-see approach to new technologies just won’t work anymore and our presenter –Charles E. Potts, executive vice president and chief innovation officer for the Independent Community Bankers of America –will share his thoughts on what’s happening in the marketplace and how banks can leverage these Fintechs.

PRESENTED BY Charles E. Potts, Independent Community Bankers of America

8:45 am — 10:15 am

SBA Training Session

Join representatives from Conn., RI and Mass. offices of the U.S. Small Business Administration for updates on lending programs, training on new initiatives and forecasts for opportunities in the offing.

(Continued on following page)

AGENDA

January 12 – 13, 2023

Friday, January 13, 2023 (Continued from following page)

8:45 am — 9:30 am

Concurrent Sessions

MEETING ROOM 1

CxO

Panel: Navigating & Negotiating For Technological Survival

Join moderator Aaron Silva of Paladin fs and three senior bank executives as they candidly discuss the difficulties in remaining technologically competitive and relevant in an industry controlled by legacy core suppliers. Learn how they survive by using past lessons to avoid future mistakes in forming true partnerships with contemporary fintech vendors. Take away a roadmap of practical answers to the most vexing questions facing all bank leaders.

PRESENTED BY Aaron Silva, Paladin fs

MEETING ROOM 2

The Case for Cash Recycling

Banks and CUs are seeing more cash-deposit volume at the ATM than ever before. With notes-in reaching the tipping point, there is an urgency within the industry to understand how to implement a recycling program and how to size/measure the expected benefits. With cash servicing comprising 20%-30% of the ATM’s

average operating expense, recycling-enabled ATMs will be a crucial component of controlling future costs that are expected to increase over the next 5 years. This presentation will take you through the key steps in determining how to prioritize the deployment of recycling across your network, estimated cost savings associated with servicing a recycling network, the hidden benefits of offering denomination selection options and what your FI must do to prepare for a recycling future.

9:30 am — 10:15 am

Concurrent Sessions

MEETING ROOM 1

Learn about this growing and important topic. Stay ahead of the crowd and the regulators.

PRESENTED BY Marc Riccio, Specialized Data Systems

MEETING ROOM 2

What Happens When We Assume: Understanding The Value of Assumed Breach Penetration Testing

Climate

Risk – Are You Ready For The Regulators?

Like it or not, Climate Risk regulations are coming for banks, but climate-related risk exists nonetheless. Banks that take the lead can help shape the regulations and make them more practical and realistic while developing a system of measuring real climate risk that threatens their institution. So even though there are no climate risk regulations now, bankers should be incentivized to develop and implement climate risk reports and policies.

Many organizations today perform some level of vulnerability assessment and penetration testing on an annual basis to fulfill compliance requirements and understand their potential exposure to cyberattacks. However, security strategy for most organizations surrounding this type of testing has yet to take the next step. This session examines the importance of planning and performing assumed breach penetration testing and the value that these exercises can ultimately provide.

PRESENTED BY Nathaniel C. Gravel, GraVoc Associates, Inc.

Michael Kannan, GraVoc Associates, Inc.

Charles Potts

Aaron Silva

Marc Riccio

Nathaniel Gravel Michael Kannan

10:15 am — 11:00 am

KEYNOTE SESSION

Stop At Nothing

Legendary member of the fourtime World Champion Pittsburgh Steelers, Rocky Bleier is one of America's most courageous sportsmen. Crippled by enemy fire in wartime conflict, he fought overwhelming odds and demonstrated the courage and determination to overcome his injuries, becoming one of the NFL's premier running backs.

Rocky Bleier's life story – a gripping tale of courage on both the football fields of America and the battlefields of war – has held audiences in rapt attention for years. Yet, the motivational message behind it, detailing how ordinary people can become extraordinary achievers, defines success in the new American century.

With the same optimism, sense of humor and steadfast determination that were his trademarks as a Pittsburgh Steelers running back, Rocky Bleier takes banking leaders from his early years through his professional career and talks about the lessons he learned along the way… lessons that we all can benefit from.

Not falling within the ideal of what a running back should look like, Bleier had to run harder and play smarter to be able to stand out. Despite his drive

and ability to make the big play, the Pittsburgh Steelers only considered him a late round pick. But before the season ended that first year, he was drafted again – this time by the United States Army. At the height of the Vietnam War, Bleier was thrust

into combat early and was seriously wounded when his platoon ran into an ambush. Receiving wounds from both rifle fire and grenade fragments in his legs, he was barely able to walk and his professional football career seemed to have ended before it began.

For more than two years, he drove himself. Little by little he overcame obstacles and fought his way back. He not only made the Pittsburgh Steelers, but also eventually became a starting running back on a team that won four Super Bowls and became the greatest football team of the 20th century.

The hard lessons Rocky Bleier learned early in his life that helped him overcome adversity and reach his goals, have paid off after football. Some of those lessons are seen between the lines in the popular book on his life, Fighting Back, and an ABC-TV movie of the week by the same name. We’re thrilled to welcome him to BankWorld, and to show community bankers what they can learn from the lessons of an American hero.

PRESENTED BY

Rocky Bleier, Pittsburgh Steelers

11:00 am

Exhibit Hall Opens

11:30 am — 1:15 pm

Reception lunch and open bar with exhibitors

1:30 pm

Exhibit Hall Closes

Rocky Bleier

Agencies Announce Results Of Resolution Plan Review For Largest And Most Complex Domestic Banks

Acting comptroller says resolving capabilities is ‘not just passing a paper test.’

The Federal Reserve Board and the Federal Deposit Insurance Corporation announced the results of their joint review of the resolution plans — also known as living wills — that the eight largest and most complex domestic banking organizations submitted in 2021. The agencies identified a shortcoming in Citigroup Inc.’s resolution plan and did not identify any other shortcomings or deficiencies in the plans from the other banking organizations.

Resolution plans must describe a financial company’s strategy for rapid and orderly resolution in bankruptcy in the event of its material financial distress or failure. A shortcoming is a weakness that raises questions about the feasibility of the plan and could result in additional requirements if not corrected, but is not as severe as a deficiency.

Acting Comptroller of the Currency Michael J. Hsu, in his capacity as a Federal Deposit Insurance Corporation (FDIC) board member, said in a statement, “The collaborative review of the plans by the FDIC and Federal Reserve Board identified areas in which each of the firms should continue to improve its capabilities to facilitate a rapid and orderly resolution. The agencies’ shortcoming determination with regards to Citigroup is consistent with the OCC’s supervisory cease and desist order issued against Citibank, N.A., in October 2020 to require the bank to take broad and comprehensive corrective actions to improve risk management, data governance, and internal controls.

“Resolvability is about capabilities, not just passing a paper test. The agencies’ determination regarding Citigroup reflects and reinforces this.

“The next Title I review will constitute the first full plan review under the elongated review cycle, which was adopted in 2019. A lot has changed in the intervening period. I will be particularly focused on assessments of firms’ legal entity rationalization and separability capabilities.”

In Citigroup’s resolution plan, the agencies found a shortcoming related to data quality and data management concerns previously identified by the board in its October 2020 enforcement action.

The agencies previously identified shortcomings in the 2019 plans of Bank of America Corporation, The Bank of New York Mellon Corporation, Citigroup, Morgan Stanley, State Street Corporation, and Wells Fargo & Company, related to the ability of each firm to reliably produce, in stressed conditions, data needed to execute its resolution strategy. The agencies determined that the 2021 resolution plans of these firms successfully addressed those shortcomings.

The agencies have provided feedback letters to each of the firms. The letters note continued development of firms’ resolution strategies and capabilities and the expectation that work will continue. The feedback letters also note the expectation that the next plan review will include expanded testing of the firm’s resolution capabilities.

For Citigroup the letter describes the specific weaknesses resulting in the shortcoming and the actions required by the agencies. A plan to address the shortcoming is due to the agencies by January 31, 2023.

“Resolvability is about capabilities, not just passing a paper test. The agencies’ determination regarding Citigroup reflects and reinforces this.”

Latino Spending Power Greatly Undervalued In U.S.

According to a new report from McKinsey & Company, “The Economic State Of Latinos In The US: Determined To Thrive,” if Latinos were a separate company, they would have the third highest gross domestic product (GDP) rate in the past decade. Yet, their spending power lags well behind non-Latinos.

The report says its “research estimates that the Latino consumer base has unmet needs of more than $100 billion currently, and this could grow six-fold to $660 billion if we address the parity gap between Latinos and non-Latino Whites based on share of population.”

The McKinsey authors note, “Over the past decade, Latinos have grown their household consumption to reach a cumulative $1 trillion market in 2021—a 6 percent annual growth rate over the last decade. Their household spend is higher compared to other groups at similar income levels, and yet marketing spend directed at Latinos most likely does not reflect this. Latinos are conscious of their impact, choosing brands that value the environment and their employees, all of which make them more influential than their income levels would suggest.

However, Latino consumers are often highly dissatisfied with the products offered to them—especially compared to their non-Latino White counterparts. This dissatisfaction ranges across product categories, from food and beverages to financial products, which may point to unresolved needs that impact their daily life. If brands address the drivers of dissatisfaction in terms of access and value proposition, there is a collective $109 billion of revenue at stake when considering current spending and future potential should improved products be offered.

BY MCKINSEY & COMPANY, SPECIAL TO MORTGAGE BANKER MAGAZINE

According to the McKinsey report, closing the Latino wealth gap would strengthen the existing consumer opportunity by more than 500%.

SAVINGS AND INCOME GAPS

In a scenario in which Latinos match their spend to their share of the population, Latino consumers would spend around

$554 billion more than today. Closing this gap would require addressing the underlying income and savings gaps between Latinos and non-Latino Whites. Employers and society at large have much to gain from providing Latinos with better jobs that also provide advancement and leadership opportunities.

In pursuing greater prosperity and fulfillment, Latinos increased their share of professional roles to 25% — a five percentage point gain over the past decade. However, Latinos still face barriers in the workplace through discrimination, implicit biases, or a lack of opportunities for advancement in new roles. In fact, if Latinos were represented at job levels in line with their share of the population and paid the same as nonLatino Whites, they would receive an additional $281 billion in annual income that could be further deployed to drive economic growth.

Latino savers have only a fifth of the median wealth of their non-Latino White counterparts, and their savings have been depleted; today, almost half of Latinos have little or no retirement savings. Only 23% of Latinos are considered financially healthy in 2022 compared to 35 percent of non-Latino Whites. Nevertheless, Latinos’ net wealth is increasing at a faster rate (9 percent for Latinos, versus 4 percent for non-Latino Whites), narrowing—but not yet closing—the gap with non-Latino Whites. If the trend continues, Latino households could reach an average net worth of $47,000 this year.

RESTRICTION TO DEBT

While Latinos have about half as much debt as non-Latino White counterparts, this may be because they find it difficult to access appropriate financial products. Latinos are 1.7 times more likely than non-Latino Whites to be turned down for a loan, and 30 percent are unbanked or underbanked compared to 12 percent of their non-Latino White counterparts.7 For financial institutions, this is a significant opportunity to address an underserved consumer market.

The report also says Latino voices remain underrepresented in the C-suites of corporate America, where product offerings and capital allocation decisions are made, and this is particularly true of Latina women. As a result, Latino

consumers are often overlooked by companies that do not recognize them as a priority demographic. Less than 5% of seats in Fortune 500 boards and in C-suites of corporate America are occupied by Latinos despite this community representing 19 percent of the US population.3 Latina women hold 1% of seats in Fortune 500 boards, the smallest percentage of board seats compared to any racial or ethnic demographic in the United States.

The report’s authors conclude, “The right combination of structural and immediate interventions can accelerate Latino economic advancement and prosperity. Action is needed in several key areas: improving Latino representation and inclusion in decision-making bodies; expanding product portfolios, optimizing value propositions and targeting marketing and sales strategies for Latino

Facts About Latinos

consumers; increasing access to capital for Latino entrepreneurs; improving access to education, reskilling opportunities, and better jobs for Latino workers; and removing bias and discrimination.

“Winning the US Latino consumer, worker, saver, and entrepreneur is an outsize opportunity for organizations that act now and invest in the right people, processes, and systems to serve a market that has not been as visible as its numbers would foretell.”

This report is a collaboration among Ana Paula Calvo, Carolina Mazuera, Jordan Morris, Lucy Pérez, and Bernardo Sichel. It is available here: https://tinyurl.com/38xbfd53

Latinos are a fast-growing population that will represent over 25 percent of the population by 2050 and a significant share of the US labor force. Latinos will make up nearly a quarter of the US labor force by 2030 and nearly a third by 2060.

Latinos are concentrated in low-wage occupations, are less likely to have nonwage employer benefits, and are strikingly underrepresented in higher-paying occupations based on their share of the US labor force.

Latinos are highly entrepreneurial but constrained by lower access to capital, which limits their abilities to start and scale their businesses.

While Latino consumption is growing at a faster pace than that of non-Latino Whites, it still lags well behind Latinos’ share of the US population, constrained by lower incomes and wealth.

Latino wealth has grown at a rate more than twice that of non-Latino White wealth, given low participation in assets that accumulate wealth (for example, stock market) and a lower base ($36,000 for Latinos versus $188,000 for non-Latino Whites)

“Latinos are conscious of their impact, choosing brands that value the environment and their employees, all of which make them more influential than their income levels would suggest.”

Only 11% Of U.S. Banks Currently Well-Positioned To Pursue Growth

Asmall number of U.S. banks (11%) are currently well-positioned to adopt growth activities, according to a comprehensive business designation study from The ROIG Group, a specialized consultancy with a focus on executable, customer-centered outcomes. Inversely, the research found that most banks (89%) should be focused on other challenges to drive value.

The ROIG Group examined 397 U.S.-based publicly traded banks using 2021 data, including net interest income and non-interest income, efficiency ratio, equity capital, the cost of equity capital, and market value, amongst others.

ROIG assessed both the historical and future implied performance of each bank in order to classify each bank into one of four designations based on the results-- Revive, Optimize, Incubate or Grow. Banks that earned a “Grow” designation are in the best position to evaluate acquisitions, explore product or service diversification, or pursue customer, channel, or market innovation choices.

“Most executives are wired to grow, resulting in too many companies being hyper-focused on growth activities, such as product and service expansion, growth through acquisitions, attracting new customers, expanding channels, and diversifying product and service offerings through new capabilities, when they are not ready to successfully execute. The customer or top-line revenue and bottomline or profitability challenges vary widely based on the company’s designation. Getting the strategic direction right really matters and getting it wrong can be disastrous,” said Rob Willey, managing partner at The ROIG Group.

The ROIG Group research uncovered the following about banks and their designations:

Thirty-three percent (33%) of banks fell into the Revive designation. These banks do not deliver profits in excess of their cost of equity capital and may even face liquidity challenges. The relationship with their best customers is fractured. Revive banks must prioritize their efforts on fixing what is broken, pruning non-customer-facing expenses and underperforming assets, and improve the earning asset mix. CEOs must be prepared to place large bets to turn the company around.

Fifty-six percent (56%) of banks fell into the Optimize designation. This group of banks is profitable today, but the market

believes they will be worth materially less in the future. Some banks may be hemorrhaging customers while other banks are actually growing. Optimize banks need to invest in improving the customer experience on one side while optimizing expenses and assets on the other. Streamlining is the mantra. It is difficult, but not impossible, to “restart growth” again. Growth efforts outside of existing capabilities should be scrutinized. Acquisitions need to be carefully vetted –there is no room for error.

Eleven percent (11%) of banks fell into the Grow designation. Most banks with a Grow designation are not only profitable today, but the market believes they will be more profitable in the future. The challenge for these companies is to make sure the five-year business plan contemplates the right mix of growth.

The type of growth innovation available includes product and services expansion, product and service diversification, acquisitions, and exploring new customer markets and channels.

This designation research has emerged just in time to help answer a highly debated question: will banks be able to keep up with fintechs in the payments race? Banks have many inherent strengths to be competitive in the payments race, but they must understand their designation and create a strategy that helps them pursue the right path forward. The ROIG Group’s

Payments and Financial

Services Practice

Lead Sheree Thornsberry explains:

“Banks are jumping into payments innovation out of fear of ‘losing the race’ to fintechs, but how banks expand or diversify their presence in payments or make decisions to build, buy or partner are often more complicated than anticipated. They can be taken by surprise when they realize what they are trying to build does not fit with the structure, designation, or capabilities of their organization. What a bank should work on, and more importantly, how they should approach the work is materially different depending on designation.”

To learn more about The ROIG Group’s bank designation research, visit www. theroiggroup.com or download The ROIG Group’s new eBook, How Banks Win the Payments Race: Using a Bank’s Business Designation as the Path to Long-Term Success.

ABOUT THE RESEARCH

The ROIG Group’s banking study was conducted from Jan. 1, 2021, to Dec. 31, 2021, and examined 397 U.S.-based publicly traded banks with revenue over $25M across all U.S. regions. The banks included commercial mortgage banking and services, other mortgage banking services, residential mortgage banking and services, U.S. commercial banks (Midwest and West, East and South), U.S. savings institutions (East, South, and West), and diversified states savings institutions.

The database is built from public financial information normalized to create a precise comparison on economic value. The analysis examined several years of company P&L, balance sheet, cash flow statements, and market value of equity as performance indicators. ROIG has been performing its proprietary designations research since 2010 across other industries including manufacturing and retail. This is the first examination of the U.S. banking sector.

Research shows an understanding of company designation is integral to uncover the options for sustainable growth