Banking Mid Atlantic | Premiere | Winter 2019 by ambizmedia

P R E M I E R E

I S S U E

An Inside Look At How Two Local Institutions Are Growing Beyond Geographic Limitations

> CUSTOMER

RETENTION: ITâ&#x20AC;&#x2122;S ABOUT MICRO NOT MACRO

A PUBLICATI O N O F A M E R I C AN B U S IN ES S M ED IA

> YOUR NEW

BANK STAFF: ALEXA AND SIRI

> THINK AGAIN!

INNOVATION STARTS WITH REFRAMING PROBLEMS

Our 100 years means that wherever you are going, we can guide you there.

WILLIAM J. NOWIK, PRINCIPAL IT ASSURANCE SERVICES

At Wolf & Company, we pride ourselves on insightful guidance and responsive service. As a leading regional firm, our dedicated professionals and tenured leaders provide Assurance, Tax, Risk Management and Business Consulting services that help you achieve your goals. Visit wolfandco.com to find out more.

WINTER 2019

Strategy

To Become An Innovator, Start By Reframing

24 Active Voice 4 Letter From

The Publisher Here To Help

6 Banking

Business

Customer Retention Tips

14 Feature

OceanFirst’s Strong Growth

Financials

Fourth Quarter Declines

Angels 14 Sand For Charity

10 Feature

24 FinTech

Voice Commands And Your Bank

28 Economics

Valley National’s Expansion

Prepping For Inversion

CONTENTS

Banks Put The Customer First, 6 When Deposits Grow

www.ambizmedia.com BANKING MID ATLANTIC

LE T T E R F RO M T H E P U B LIS H E R

BANKING MID ATLANTIC: The Magazine Built For You

his is a pretty confusing time to be a community banker. Regulation is supposed to be easing up, but there’s little evidence that the rules – or the mountains of paperwork – are getting any less voluminous. Is the lending market healthy, or getting ready for an implosion? Do customers want personal service, or appbased applications? And what about product selection: is “Non-QM” just a new term for subprime? Will fintech competitors upend the traditional banking model? And on, and on… These questions are why the leaders of community banks and credit unions need a great network. They need knowledgeable advisors and industry partners who can provide guidance and opportunity, and they need to be able to meet their peers and share ideas and concerns. That’s why we’ve created Banking Mid Atlantic magazine. It’s part of our expanding network of banking and credit union publications, and a key partner in our growing roster of events for community bankers – both live and on the web. From complimentary email news alerts, to hands-on programs tailored just for you – and free to you, too – we’ve got a lot to share with this important community of colleagues. Over the past few years, we’ve been building a series of state, regional and national conferences for banks and credit unions. These events are designed to be efficient and effective for attendees: take just a day (or two) and get access to an array of informative sessions, along with opportunities to meet companies who can help you expand your bottom line. We now host more than a dozen such conferences across the country (you can see them all at www.bankconferences.com), including our largest, BankWorld in New England, BankHorizons in the Mid Atlantic, and the Great New England Credit Union Show. But these aren’t just one-off meetings. They’re the building blocks for a support network unlike any other. American Business Media’s banking network is exclusively for you. There’s no membership fee. There’s no alliance with any ideology. There’s no direction from any trade association. This is a pure network of information and resources to help community bankers learn more, lead more, and leverage more. That’s it. From our many live events, we saw that there was great information available – but only to those who were showing up at the conferences. So we’ve also invested in new highly-interactive webcast forums, to bring banks and credit unions the best in online learning, both live and on-demand. This is also free to you. And now we’re giving you a new magazine, designed specifically to bring you helpful articles, strong insight and thoughtful opportunities to make you a better banker. Because in a confusing time, it’s comforting to know there’s a support network looking out for you. And in this region, that’s Banking Mid Atlantic and all of the offerings from American Business Media.

STAFF PUBLISHER Vincent M. Valvo ASSOCIATE PUBLISHER Barb Dimauro EXECUTIVE EDITOR John Hassan MANAGING EDITOR Keith Griffin CONTRIBUTING EDITOR Patrick Sanders OPERATIONS MANAGER Kurt Schenher ONLINE CONTENT DIRECTOR Navindra Persaud GRAPHIC DESIGN MANAGER Stacy Murray GRAPHIC DESIGNER Scott Ellison Interested in receiving additional copies of Banking Mid Atlantic Call (860) 719-1991 or email kschenher@ambizmedia.com

www.ambizmedia.com © 2019 American Business Media LLC All rights reserved. Banking Mid Atlantic magazine is a trademark of American Business Media LLC. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: American Business Media LLC 345 North Main St., Suite 313 West Hartford, CT 06117

VINC E N T M. VALVO

Publisher

BANKING MID ATLANTIC

The Numbers Speak For Themselves... gs in k n a R r o is v d A l ia Top Financ eals. and thrift merger d ic bank Advisors in domest of deals Ranked by number Rank Since 20141 1

lue of deals Ranked by dollar va

Deals

Firm rtners, L.P.

Sandler O’Neill & Pa

257

Rank Since 20141 1

Deal Value Dollars in Millions

Firm

rtners, L.P.

Sandler O’Neill & Pa

$70,126

For the past 5 years we have advised on more bank and thrift M&A deals with a greater aggregate deal value than any other ﬁrm.

2018: 51 transactions with a total deal value of $16.99 2017: 48 transactions with a total deal value of $15.49 2016: 40 transactions with a total deal value of $15.89 2015: 60 transactions with a total deal value of $15.60 2014: 58 transactions with a total deal value of $ 6.13

billion through October 2 billion billion billion billion

S T R ONG | IN DEPENDENT | FOCU SED Sandler O’Neill is the largest independent investment banking ﬁrm focused on ﬁnancial services companies. For over 30 years, our deep insight into banks and thrifts has enabled us to deliver sound, valuable advice to our clients. To learn more, please contact William Hickey or Brian Sterling, Principals & Co-Heads of Investment Banking, at 800.635.6855.

Sandler O’Neill + Partners, L.P.

(1) Source: S&P Global Market Intelligence, M&A acquisitions of whole companies, 1/1/2014 – 10/31/2018. (2) Source: S&P Global Market Intelligence, M&A acquisitions of whole companies, the date ranges are for the full-year indicated, with the exception of 2018 which is 1/1/2018 – 10/31/18.

BANK I N G B US I N E S S

STOP CUSTOMER FLIGHT THERE’S A COUNTY-BY-COUNTY SOLUTION TO RETENTION

B Y KA ITLYN KEEG A N

ccording to the latest New Jersey and Pennsylvania Customer Experience Benchmarks, there are 1.24 million households and 352,000 businesses looking to switch banks in 2019 – because they are unhappy with their current financial institution. More urgent is that half of those households are already actively looking at other banks. With this much market share in play, it is critical that your bank works to retain its customers. Survey results show that 41 banks in New Jersey and Pennsylvania have over 20% of their customers actively looking to switch banks. These banks will struggle to stay in business if they cannot convince their customers to stay.

BANKING MID ATLANTIC

Only 38% of households in Pennsylvania and 33% of households in New Jersey are classified as “highly loyal” to their bank. But why are so many consumers looking to leave their banks? The Benchmarks revealed that the reasons change depending on which area of the state you look at. In Morris County, New Jersey, customers are upset over the lack of banking solutions provided by their bank. In Bergen County, NJ customers are tired of getting the runaround when asking questions. In Camden County, NJ customers are very rate-conscious and say they want to switch to get more competitive rates. In Allegheny County, Pennsylvania, customers feel that branch staff can’t answer their questions because

38% OF HOUSEHOLDS IN PA AND 33% IN NJ ARE CLASSIFIED AS “HIGHLY LOYAL” TO THEIR BANK. of insufficient training. In York County – like in Bergen County, NJ – customers are tired of the runaround. In Bucks County, PA customers want better tools and better training to use their banks’ technology such as their apps and websites. Many of the reasons boil down to this – the customer experience. In today’s financial industry, customers expect their banks to provide excellent in-person service along with seamless technology. They want their bank to work for them. The banking Benchmarks include over 100,000 interviews with NJ and PA households and businesses. Respondents had such insights as “[my bank] is not proactive about offering relevant products for my business. I have to look for the benefits” and “in one branch, customer representatives make things up when they don’t know the proper answer and are generally wrong. They are unprofessional and in severe need of training.” Customers also noted things such as “their web site is not user friendly. It seems outdated and slow and the older tellers don’t know how to use it either. They are no help and you have to wait to talk to a younger teller.” Banks that want to grow their portion of the market share need to pay attention when it comes to the customer experience. If not, the institutions will find themselves swallowed up by more successful banks.

50%

The Customer Experience

“Customer experience is an umbrella and an overall challenge for banks,” said Lance Kessler, president of Lance Kessler & Associates, a marketing and consulting firm for financial institutions in Harrisburg, PA. “It’s critical to be customer centric.” The customer experience is divided into two sections, Kessler says, human engagement and digital engagement. Banks need to work from the customer’s perspective and figure out how the experience should look and feel for the customer. In the past, he said, banks focused on their products and what their perspective was. “You have to work back from the end result,” says Kessler. One thing Kessler stressed was that banks need to remember their branches just as much as their digital presence. “Millennials are still using the branch,” he notes. “Branches have very different, meaningful interactions. The mundane transactions have gone to digital.”

A Positive Experience

When banks put the customer first, the desired loyalty will begin to grow. “They are very responsive and have great customer service,” one respondent surveyed by Customer Experience Solutions said. “They have reached out to me when an issue arose and have

OUT OF THE OVER 1.5 MILLION CONSUMERS THAT ARE LOOKING TO CHANGE INTUITIONS, 50% ARE ALREADY ACTIVELY LOOKING AT OTHER BANKS.

BANKING MID ATLANTIC

NEW JERSEY AND PENNSYLVANIA BANK CUSTOMER LOYALTY PA HOUSEHOLDS

MODERATE LOYAL VULNERABLE

HIGHLY VULNERABLE

15%

47%

HIGHLY LOYAL

38%

NJ HOUSEHOLDS

MODERATE LOYAL VULNERABLE

HIGHLY VULNERABLE

50%

17%

HIGHLY LOYAL

33%

PA BUSINESSES

MODERATE LOYAL VULNERABLE

43%

HIGHLY VULNERABLE

23%

HIGHLY LOYAL

34%

NJ BUSINESSES

MODERATE LOYAL VULNERABLE

41%

HIGHLY VULNERABLE

26%

HIGHLY LOYAL

33%

Data from Customer Experience Solutions

suggested good, new services.” “The staff begins to know you and your needs personally which is nice,” another customer said. “They also answer any questions directly and won’t leave me needing to ask again.” When customers are happy, they are not as easily swayed by better rates to leave their bank. They become strong customers who are more likely to recommend the bank to others. “I don’t think [my bank] has the best rates, but they are so good to me and make me feel like my money is totally

WHEN CUSTOMERS ARE HAPPY, THEY ARE NOT AS EASILY SWAYED BY BETTER RATES TO LEAVE THEIR BANK. 8

BANKING MID ATLANTIC

safe. I won’t go elsewhere,” a customer surveyed said. In an economy where growing your market share is increasingly difficult, institutions must also retain their current customers in order to succeed. Responding to specific needs is a good place to start any smart retention plan. The NJ and PA Banking Customer Experience Benchmarks are produced by Customer Experience Solutions. Individual banks can learn more about their own objective customer ratings by emailing info@cescx.com.

Technology & Strategy | April 15 - 16, 2019 RESORTS CASINO HOTEL / ATLANTIC CITY, NJ

www.bankhorizons.com BankHorizons Technology & Strategy, April 15 & 16, 2019, Atlantic City, NJ is your chance to meet with banking professionals, including management & key staff involved in Operations, Technology, Lending, Retail Banking, Marketing, Human Resources, Security, Compliance and Risk Management. Also, interact with the latest products and technology and learn about new innovative solutions driving change within the banking industry. And, don’t miss BankHorizons Senior Management & Leadership, October 16, 2019, Atlantic City, NJ - Mid Atlantic’s gathering of C-level banking executives looking to take their institutions to the next level. Thought leaders will be on hand presenting on topics that should be top-of-mind for key executives at financial institutions in the Mid Atlantic region, such as corporate synergy, disruption, team-building and corporate culture. Not for the faint of heart – this will be a sobering but motivating meeting of some of the top minds in the industry. There’s nothing quite like standing face-to-face with potential new clients. At American Business Media, we are proud to be the nation’s largest producer of bank and credit union conferences, putting financial executives in direct connection with vendors and advisors who help them succeed.

To see all of our banking shows, visit bankconferences.com or call 860.719.1991.

COMING SOON!

F E AT UR E

It’s Always Sunny In Clearwater

WHY NJ’S VALLEY NATIONAL IS PUSHING FOR PROFIT IN FLORIDA

BY PATRICK SANDERS

f you’re not actively looking to grow de$816 million. In total, Valley has spent $1.33 billion, posits, you’re falling behind in the race mostly in stock transactions, in acquiring Florida – because your competition is looking to banks. grab more market share and deposits too. These moves have paid off. In 2017, Valley reportThere are two avenues to growth – you ed net income of $169.1 million. This year, despite can find more market share in your exabsorbing its biggest purchase, Valley is projected to isting footprint, or you can expand into have net income of $197.7 million. EPS is projected to new markets by opening new branches or be 23 cents per share this quarter, an increase from 18 through mergers and acquisitions. The latter option is cents per share in the same quarter a year ago. becoming more appealing to banks today, particularly The acquisitions gave Valley a coast-to-coast idenafter Congress rolled back portions of Dodd-Frank and tity in Florida. Valley now has about 30 percent of gave more flexibility to small and regional institutions. its business in the Sunshine State and more than 230 “Many banks have operated in branches in New Jersey, New York, their current geography for a long Florida and Alabama. It has also time and may have saturated that come at a cost. Valley is in the proregion for a particular service,” cess of closing 20 branches to im“Many banks have said David Poole, head of the Fiprove efficiencies and has invested operated in their current nancial Services Center of Excel$48 million to upgrade technology. geography for a long lence at Publicis.Sapient, a Boston “From a geographic perspective, firm that works with banking cliwe looked at what the growth looks time and may have ents in thought leadership, digilike in the New Jersey and the New saturated that region for a tal transformation and customer York marketplace and the outmitrends. “They can now explore gration we were seeing with regard particular service.” markets elsewhere that may be to individuals, as well as businessunderserved or involve fewer comes,” he said. “While the migration petitors.” numbers looked pretty flat or inValley National Bank, headquartered in Wayne, New creased a little bit, the composition of what was going Jersey, is taking expansion to another level by moving on was a little bit disturbing to us. Some of the wealth south – far south. Valley has completed three acquisifactor was really moving. And it was those individuals tions in Florida over four years to give it a solid footthat were entrepreneurial types of businesses that are print throughout the state. typically our types of customers that were moving out of the metropolitan area of the marketplace down into VALLEY LOOKS SOUTH higher growth or lower tax states. Florida seemed to be natural for us.” The New York and New Jersey markets have beGetting there, however, proved tricky because the come saturated by $4 billion in converted thrifts, said bank wasn’t looking for a slow expansion of organIra Robbins, who became Valley’s president and CEO ic growth. It instead chose the merger and acquisition this year. The move to Florida opened Valley’s doors route, swallowing other banks to get instant market to lower-cost, low-beta deposits instead of attempting share. to compete in a New York-New Jersey market that was “We found that to be a dominant player in the Florida becoming overheated. market, there were certain MSAs or geographies that Valley began its move to Florida by purchasing we needed to be in, so we attempted to be strategic as 1st United Bank, based in Boca Raton, in 2014 for to the three organizations that we went into,” Robbins $312 million. It followed that up by acquiring CNL said. “1st United Bank had a very large presence in the Bancshares in Orlando in 2015 for $207 million, and east coast of Florida. CNL, while being geographically then Clearwater-based USAmeriBank last year for

BANKING MID ATLANTIC

“THE WINNERS WILL BE THOSE WHICH ARE HIGHLY AWARE AND RESPONSIVE TO LOCAL NEEDS, INCLUDING TO BOTH CONSUMERS AND BUSINESSES. THEY’LL CONTINUE TO INNOVATE AND PROVIDE A COMPELLING VALUE PROPOSITION.”

diverse across the state, had a large presence in Orlando, and the USAB group had a very large presence in the Tampa footprint. Having scale across the state of Florida definitely provides a benefit as we look to grow the organization there. We would not be able to have the same traction if we were only a southeast bank, per se, in the Florida footprint.” Making the series of moves came with its challenges as Valley incorporated three different companies into its own culture and platforms. That meant working out a lot of bugs, such as in IT and the mechanics of working with staff hundreds of miles away. Gone were the days where Robbins could hop into a car and drive 20 to 30 miles to visit any branch. “From traditional technology issues to managing and operating a footprint that’s not right next door, it is definitely a challenge. Having to rethink how our internal technology area is structured, where our mainframe sits, and how we connect to our servers across the entire platform becomes much different,” Robbins said. “One of the things we said when we went down to Florida was, we didn’t want to be a New York bank telling Florida

bankers how to make loans,” he said. “We were really conscious about making sure there were local decision makers in each of these individual branches who had actual authority to make loans and to connect with their customers.” “As we went through and walked through the three different acquisitions, one of the challenges that became notable to us was that you had almost three different procedures throughout the organization on how things are done,” Robbins said. “A lesson learned for us was that empowering local is something you definitely need to do. However, making sure there was a centralized structure behind it is probably something we should have done a little bit earlier.”

SUCCESSFUL BANKS WILL BE IN THE EXPANSION GAME

The outlook is good for small and regional banks in 2019, said Mark Hamrick, senior economic analyst and Washington bureau chief at Bankrate.com. “We’ve seen many mid-sized banks spread their proverbial

BANKING MID ATLANTIC

“WHEN YOU THINK ABOUT HOW TECHNOLOGY HAS CHANGED AND THE APPLICATIONS AND SERVICES THAT PEOPLE CAN ACQUIRE THROUGH DIFFERENT DELIVERY CHANNELS, 65 PERCENT OF NEW ACCOUNTS ORIGINATE WITHIN A BRICKAND-MORTAR BRANCH.”

wings in recent years, expanding beyond their original footprints. That’s part of the natural and ongoing sorting out of winners and losers,” Hamrick said. “The winners will be those which are highly aware and responsive to local needs, including to both consumers and businesses. They’ll continue to innovate and provide a compelling value proposition. They’ll need to be mindful that their customers want access to good technology as well as a high level of personal service when needed, including with their brick-andmortar operations.” Todd Nicholson, CMO of BookingBug, a management platform that works with banks globally to help them connect with customers, said banks that are expanding are taking advantage of the continued desire for brick-and-mortar branches, despite the increasing popularity of online banking and the convenience of mobile services. “While consumers are certainly moving in the direction of online banking, the main priority for financial institutions should be utilizing real-time data to deliver a personalized experience – regardless of channel. This means orchestrating a unified customer journey across digital and physical channels and turning the physical footprint and staff expertise into a competitive advantage,” he said. “However, these innovations should not mean that banks abandon

BANKING MID ATLANTIC

their in-branch strategy, as the human-to-human connection is still essential to building lasting customer relationships.” Valley maintains a strong online presence that’s important to the company’s growth, Robbins said. But it’s an omnichannel experience that he said will help the company, now with nearly $30 billion in assets, prosper in 2019 and beyond. “When you think about how technology has changed and the applications and services that people can acquire through different delivery channels, 65 percent of new accounts originate within a brick-andmortar branch. People today still feel a level of comfort when they’re talking about their finances with a trusted local partner,” Robbins said. “These are big financial decisions and many times having someone who is an expert becomes really important.” “As we look at our branches today, we’ve migrated toward a universal banker model and have really provided expert advisory consultative employees within our branch network as opposed to what was traditionally looked at as tellers or transactional kinds of employees,” he said. “I think that people, when it comes to money, want to feel comfort that if there’s ever an issue there’s someone there for me to talk to, and having that physical footprint form a branding perspective becomes really important.”

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the power of experience

F E AT UR E

Gotta Collect Them All Like A Passionate Pokemon Player, OceanFirst Is Gobbling Up Its Competition

B Y PATRI CK SA ND E RS / P H OTO GR AP HY CO U RT E SY O F O C E AN F I R ST B AN K

hen Superstorm Sandy lashed the fabled New Jersey shoreline in 2012, causing $70 billion in damage and leaving scars still visible today in many coastal communities, OceanFirst Financial Corp., based in Toms River, New Jersey, was right in the middle of the catastrophe. And the bank sprang into action. Within 48 hours of the storm touching down, the bank’s foundation poured $500,000 into the community to make sure first responders had all the tools they needed to provide aid. The bank was one of the biggest providers of construction loans in the state, and when customers couldn’t get to the bank to have an insurance check endorsed, OceanFirst officials simply went to them. “If you had a mortgage with us and you had a catastrophic incident, then the bank has to sign off on that in-

surance check,” said Christopher D. Maher, OceanFirst’s chairman and CEO. “That can be a really hard thing in a disaster area. We had people call us and they were devastated. They said they had a contractor there, they can do the work and they have a check from the insurance company, but how are they going to get it endorsed? We said, ‘No problem, we will send someone out this afternoon, we’ll take pictures, we’ll endorse a check and it will be done and over.’” Fast-forward to today, and OceanFirst seems primed for a strong 2019. The bank is working on its fifth acquisition in the last three years and has its quadrupled its deposits to become the largest community bank in central and southern New Jersey. After struggling through late 2018, analysts have bullish optimism for OceanFirst stock, which is expected to report a 35 percent year-over-year increase in earnings

> OceanFirst is scanning the

horizon for growth opportunities.

BANKING MID ATLANTIC

when it reports in late January. And the bank is celebrating recent recognition from a customer servey commissioned by the media company Forbes, which named it one of the best in-state banks in the country, and the No. 1 bank in New Jersey. “Size is one thing, but performance is our primary focal point,” Maher said, OceanFirst’s chairman and CEO. “We want to be an exceptional bank as far as our customers see us.” So far, so good. “OceanFirst Financial has certainly had a good run of late,” said David Bakke, financial expert at Money Crashers. “It’s been successful based on management discipline in a variety of areas, improved customer service, and low costs.”

OCEANFIRST FINANCIAL’S GROWTH

OceanFirst’s expansion drive kicked off in earnest when it completed its acquisition of Colonial American Bank in Monmouth County, New Jersey in 2015. Next up was Ocean City Home Bank and Cape Bank in 2016, with both purchases increasing OceanFirst’s presence in southern New Jersey. Earlier this year, the bank completed another acquisition, Sun National Bank, and announced plans to buy Capital Bank of New Jersey, which operates in southern New Jersey and greater Philadelphia. That transaction should close in 2019. “OceanFirst’s acquisition strategy has dramatically expanded its footprint, but management has been aggressive without sacrificing the health of its balance sheet,” said Wayne Duggan, a senior financial reporter at Benzinga and author of the book “Beating Wall Street With Common Sense,” which focuses on practical strategies used to outperform the stock market. “As a result, OceanFirst stock is well-positioned to

provide solid growth for investors in a relatively weak banking space,” Duggan said. “In the most recent quarter, net interest margin, a key measure of profitability for retail banks, dropped 0.6 percent to 3.64 percent. While a drop in margin is always something an investor should keep an eye on, OceanFirst should be able to keep NIM at or near 3.5 percent in coming years, a healthy range for a regional bank.” Of seven analysts who cover OceanFirst stock, three of them rank it as a “strong buy” and the other four list a “buy” recommendation.

IT’S ALL ABOUT THE PEOPLE

Maher, who’s been leading OceanFirst since 2013, credits the bank’s employees – and specifically, its new employees – to helping the bank expand its footprint. “It’s all about the people,” he said. “In these communities the name of the bank is not all that important. The relationship with their branch manager or their mortgage rep or their commercial lender or even their local teller is. If you keep those people in place, you keep the customers. The key today to bank mergers and acquisitions is if you keep the people that matter to the customers, you will keep the customers.” OceanFirst made a point of guaranteeing jobs for all retail employees at banks it acquired. “If you are a commercial lender or a retail lender and you have a client base, you have a job,” Maher said. “And we say that early, because when a customer walks into the branch they’re going to say, ‘You just got sold to OceanFirst, Sally or Joe, are you OK?’” “We want that employee to be in a positon to look the customer in the eye and say, ‘It’s all good, we’re fine. I’m staying with the company.” OceanFirst also created a digital banker training program, which allows employees in the branches and in its CONTINUED ON PAGE 17

BANKING MID ATLANTIC

OceanFirst In The Community

OceanFirst Foundation reached out to its community with a special event on October 28, 2017 at a Seaside Park beach on the Jersey Shore to commemorate the fifth anniversary of Hurricane Sandy. The bank organized an attempt to break the world record for the most people simultaneously making sand angels. The event was not recognized by Guinness but it did raise $30,000 for Ocean County Long Term Recovery and the Salvation Army.

BANKING MID ATLANTIC

“WHEN YOU ENTER A NEW COMMUNITY BY MAKING AN ACQUISITION, THEY’RE UNDERSTANDABLY GOING TO BE A LITTLE DUBIOUS. THEY’RE GOING TO SAY, ‘I DON’T KNOW. YOU BOUGHT MY COMMUNITY BANK, ARE YOU GOING TO BE AS COMMITTED TO MY COMMUNITY AS THEY WERE?’ AND I THINK WE’VE DEMONSTRATED THAT WE ARE.” Christopher D. Maher Chairman of the Board President and Chief Executive Officer

call centers to be more responsive to customers who have digital banking questions – even if the questions have nothing to do with OceanFirst directly. “We developed a seven-week program that teaches our folks how to handle the questions that our people care about today, and by doing so they become experts in things like Venmo and Paypal, or how to interact with a mobile device,” Maher said. “As of last week, we have 538 employees that have fully completed that digital banking program.” The company is also on the forefront of compensating workers, which is important as unemployment rates continue to drop and finding qualified workers becomes more competitive.

Maher delivers student scholarship check to Atlantic Cape Community College, part of $400,000 distributed to eight partner schools by the OceanFirst Foundation in 2018.

“We have fewer numbers in the branches but the people in the branches are really important,” Maher said. “In fact we went to a $15-an-hour minimum wage, as announced last December 2. Because we knew the quality of people we need is CONTINUED ON PAGE 18

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BANKING MID ATLANTIC

CONTINUED FROM PAGE 17

going to be higher and higher and we’re not going to get them if we’re not paying them properly.”

GIVING BACK

The OceanFirst Foundation, established in 1996, was the first of its kind to support nonprofits in central New Jersey, Maher said. So far, the foundation has given $36 million to more than 900 charities. Grants go to everything from scholarships, to summer camps to local arts to health care facilities. Recent efforts included $250,000 to a total of 25 New Jersey schools though its Model Grant program. For OceanFirst, the foundation work is an important part of being a community bank. “Community banking has been around local connections, speed of service, having connections and having a strong bond between your employees your customers and your community,” Maher said. “It’s all interwoven.” “When you have that positive feedback loop, investing in your people, investing in your communities, it matters to your

customers and they will bond better to your bank,” he said. “We’re not trying to be the highest yield, highest interest rate, money market account you can find. We’re trying to be a diversified relationship-driven financial services company for our clients and that model works for us.”

Start Building Stronger Business Relationships Today. Now with coverage across New Jersey, Pennsylvania and Delaware, bankers across the region turn to our magazine, Banking Mid Atlantic, for essential news, information, and analysis in an evolving marketplace. As a source for thought leadership in the banking industry throughout the mid atlantic, banking executives and managers rely on the magazine for vital information on how to better serve their customers, efficiently run their institutions, and adapt in a transforming industry. Advertising in Banking Mid Atlantic will give your brand a significant advantage within a competitive market and increase your exposure among thousands of companies that serve the banking industry. Position your message in front of 400+ financial institutions and over 8,000 industry professionals – 90% of whom are executives, vice presidents, and department managers. To learn more about BANKING MID ATLANTIC or to customize a marketing program unique to your business needs, call 860-719-1991 or email bdimauro@ambizmedia.

BANKING MID ATLANTIC

FINANCIALS

Market Watch B Y S US A N J . M ON TI MA N AG ING DIRECTO R OSTROWSKI & COMPANY, INC.

ourth quarter 2018 showed significant declines in broad market indices

fueled by the threat of rising interest rates, potential trade issues and the possibility of a government shutdown. Financials were among the sectors suffering the greatest declines. The DJIA and the S&P 500 reported declines in excess of 7% and 14% respectively while the NASDAQ Banking Index reported a decline in excess of 19% for the same period. As illustrated in the following report Mid Atlantic banks and thrifts experienced similar trends.

Mid Atlantic Banks < $1 Billion Bancorp of New Jersey, Inc. Emclaire Financial Corp Fidelity D & D Bancorp, Inc. Meridian Corporation Stewardship Financial Corporation Mid Atlantic Banks < $1 Billion Average Mid Atlantic Thrifts < $1 Billion HV Bancorp, Inc. Magyar Bancorp, Inc. (MHC) MSB Financial Corp. Standard AVB Financial Corp. WVS Financial Corp. Mid Atlantic Thrifta < $1 Billion Average Mid Atlantic Banks $1 - $3 Billion 1st Constitution Bancorp ACNB Corporation AmeriServ Financial, Inc. Bank of Princeton BCB Bancorp, Inc. CB Financial Services, Inc. Citizens & Northern Corporation Codorus Valley Bancorp, Inc. DNB Financial Corporation First Bank FNCB Bancorp, Inc. Malvern Bancorp, Inc. Marlin Business Services Corp. Mid Penn Bancorp, Inc. Norwood Financial Corp. Orrstown Financial Services, Inc. Parke Bancorp, Inc. Penns Woods Bancorp, Inc. Peoples Financial Services Corp. Republic First Bancorp, Inc. Riverview Financial Corporation SB One Bancorp Two River Bancorp Unity Bancorp, Inc. Mid Atlantic Banks $1 - $3 Billion Average Mid Atlantic Thrifts $1 - $3 Billion ESSA Bancorp, Inc. Prudential Bancorp, Inc. Mid Atlantic Thrifts $1 - $3 Billion Average Mid Atlantic Banks $3 - $30 Billion Bancorp, Inc. Bryn Mawr Bank Corporation CNB Financial Corporation ConnectOne Bancorp, Inc. Customers Bancorp, Inc. First Commonwealth Financial Corporation Fulton Financial Corporation Lakeland Bancorp, Inc. OceanFirst Financial Corp. Peapack-Gladstone Financial Corporation S&T Bancorp, Inc. TriState Capital Holdings, Inc. Univest Corporation of Pennsylvania Mid Atlantic Banks $3 - $30 Billion Average Mid Atlantic Thrifts $3 - $30 Billion Beneficial Bancorp, Inc. Columbia Financial, Inc. (MHC) Investors Bancorp, Inc. Kearny Financial Corp. Northfield Bancorp, Inc. Northwest Bancshares, Inc. Oritani Financial Corp. Provident Financial Services, Inc. WSFS Financial Corporation Mid Atlantic Thrifts $3 - $30 Billion Average Mid Atlantic Banks > $30 Billion Valley National Bancorp F.N.B. Corporation PNC Financial Services Group, Inc. Mid Atlantic Banks > $30 Billion Average Mid Atlantic OTC Banks < $ 1 Billion 1st Colonial Bancorp, Inc. Absecon Bancorp American Bank Incorporated Apollo Bancorp, Inc. Brunswick Bancorp Capital Bank of New Jersey CCFNB Bancorp, Inc. Centric Financial Corporation

State

Price 12/31/2018

Trading Range High

Low

Price Change (%) QTD

YTD

NJ PA PA PA NJ

13.02 30.34 64.18 17.17 9.10

17.95 38.70 75.00 20.79 12.75

12.49 28.67 41.30 15.26 8.36

-23.86 -18.66 -6.96 -0.17 -14.15 -12.76

-25.09 -8.03 55.40 -14.06 -11.22 -0.60

PA NJ NJ PA PA

14.98 12.25 17.85 29.88 14.77

18.50 13.50 21.95 39.45 18.05

13.75 11.69 16.14 28.75 12.25

-2.41 0.74 -12.50 -3.92 -8.77 -5.37

-1.51 -5.77 0.00 -0.66 -4.63 -2.52

NJ PA PA NJ NJ PA PA PA PA NJ PA PA NJ PA

19.93 39.25 4.03 27.90 10.47 24.78 26.43 21.25 28.49 12.12 8.44 19.73 22.33 23.02

27.00 41.45 4.55 35.45 16.10 36.95 28.99 31.86 38.30 15.00 12.00 27.25 31.95 37.90

16.15 27.30 3.93 26.77 10.12 22.82 22.00 20.27 25.84 11.13 7.01 18.03 20.36 21.69

-3.72 5.51 -6.28 -8.64 -24.40 -19.68 1.07 -28.58 -22.79 -7.83 -13.61 -17.62 -22.60 -21.03

8.91 32.83 -2.89 -18.75 -27.79 -17.40 10.13 -18.95 -15.46 -12.49 15.62 -24.69 -0.31 -30.45

PA PA NJ PA PA PA PA NJ NJ NJ

33.00 18.21 18.72 40.24 44.06 5.97 10.90 20.44 15.26 20.76

40.58 27.05 24.80 47.69 52.00 9.30 14.55 32.85 19.90 25.50

28.76 18.10 16.71 38.53 39.01 5.85 10.11 19.30 11.54 18.24

-15.73 -23.49 -16.64 -7.39 3.92 -16.50 -19.85 -18.89 -12.00 -9.34 -13.59

0.00 -27.88 0.18 -13.61 -5.41 -29.35 -17.11 -23.87 -15.83 5.11 -9.56

PA PA

15.61 17.60

16.80 19.87

14.16 13.92

-4.00 1.68 -1.16

-0.38 0.00 -0.19

DE PA PA NJ PA PA PA NJ NJ NJ PA PA PA

7.96 34.40 22.95 18.47 18.20 12.08 15.48 14.81 22.51 25.18 37.84 19.46 21.57

12.00 50.35 32.86 31.40 32.34 17.91 19.55 21.20 30.90 38.00 47.77 30.10 30.15

7.64 32.84 21.43 17.07 16.72 11.33 14.38 13.77 21.30 23.96 35.60 18.20 20.18

-17.00 -26.65 -20.48 -22.23 -22.65 -25.15 -7.03 -17.95 -17.30 -18.48 -12.73 -29.49 -18.45 -19.66

-19.43 -22.17 -12.54 -28.27 -29.97 -15.64 -13.52 -23.06 -14.25 -28.10 -4.95 -15.39 -23.10 -19.26

PA NJ NJ NJ NJ PA NJ NJ DE

14.29 15.29 10.40 12.82 13.55 16.94 14.75 24.13 37.91

18.60 NA 14.69 14.80 17.54 18.56 17.30 29.12 57.70

13.74 NA 9.94 11.26 12.76 15.50 14.07 22.22 33.75

-15.44 -8.44 -15.24 -7.44 -14.89 -2.19 -5.14 -1.71 -19.60 -9.33

-13.13 NA -25.07 -11.28 -20.67 1.26 -10.06 -10.53 -20.77 -13.88

NJ PA PA

8.88 9.84 116.91

13.38 14.92 163.59

8.42 9.35 108.45

-21.07 -22.64 -14.16 -19.29

-20.86 -28.80 -18.98 -22.88

NJ NJ PA PA NJ NJ PA PA

12.30 80.00 12.50 45.25 8.50 27.30 49.75 9.74

13.00 99.00 12.50 50.00 10.50 30.75 58.99 12.70

10.86 77.00 10.67 42.15 6.50 20.00 46.70 8.66

-4.58 12.30 -11.81 -6.43 5.93 9.17 -5.73 1.69 -8.11 17.24 BANKING MID ATLANTIC 11.43 47.57 -1.78 1.22 -22.08 11.95

Columbia Financial, Inc. (MHC) Investors Bancorp, Inc. Kearny Financial Corp. Northfield Bancorp, Inc. Northwest Bancshares, Inc. Oritani Financial Corp. Provident Financial Services, Inc. WSFS Financial Corporation Mid Atlantic Thrifts $3 - $30 Billion Average Mid Atlantic Banks > $30 Billion Valley National Bancorp F.N.B. Corporation PNC Financial Services Group, Inc. Mid Billion MidAtlantic AtlanticBanks Banks<>$1 $30 Billion Average Bancorp of New Jersey, Mid Atlantic OTC BanksInc. < $ 1 Billion Emclaire Financial CorpInc. 1st Colonial Bancorp, Fidelity D& D Bancorp, Inc. Absecon Bancorp Meridian AmericanCorporation Bank Incorporated Stewardship Financial Apollo Bancorp, Inc. Corporation Mid AtlanticBancorp Banks < $1 Billion Average Brunswick Mid Atlantic $1 Billion Capital BankThrifts of New<Jersey HV Bancorp, Inc. Inc. CCFNB Bancorp, Magyar (MHC) Centric Bancorp, Financial Inc. Corporation MSB Financial Clarion CountyCorp. Community Bank Standard AVBNational FinancialFinancial Corp. Corporation Commercial WVS FinancialBankers' Corp. Corporation Community Mid Atlantic Thrifta < $1 Billion Average Cornerstone Financial Corp. Mid Atlantic Dimeco, Inc.Banks $1 - $3 Billion 1st Constitution Elmer Bancorp, Bancorp Inc. ACNB Corporation Enterprise Financial Services Group, Inc AmeriServ Financial, First Commerce BankInc. Bank Princeton Financial Corporation First of Community BCB FirstBancorp, ResourceInc. Bank CB FinancialBank Services, Inc. Fleetwood Corporation Citizens & Northern FNB Bancorp, Inc. Corporation Codorus Valley Services, Bancorp, Inc. Inc. GNB Financial DNB Financial Corporation Hamlin Bank and Trust Company First Bank Bancorp, Inc. Highlands FNCB HonatBancorp, Bancorp,Inc. Inc. Malvern Bancorp, Inc.Trust Co. Jonestown Bank and Marlin Business Inc. Services Corp. JTNB Bancorp, Mid PennValley Bancorp, Inc. Corp. Juniata Financial Kish Bancorp, Inc. Landmark Bancorp, Inc. Mars Bancorp, Inc. Mauch Chunk Trust Financial Corp. MidCoast Community Bancorp, Inc. Mifflinburg Bancorp, Inc. MNB Corporation Muncy Bank Financial, Inc. Neffs Bancorp, Inc. New Tripoli Bancorp, Inc. NMB Financial Corporation Northumberland Bancorp Penn Bancshares, Inc. Peoples Limited Shore Community Bank Susquehanna Community Financial, Inc. Turbotville National Bancorp, Inc. UNB Corporation Victory Bancorp, Inc. Woodlands Financial Services Company York Traditions Bank Banks <<$$11Billion Mid Atlantic OTC Thrifts BillionAverage Harleysville Financial Corporation Lincoln Park Bancorp (MHC) Quaint Oak Bancorp, Inc. SSB Bancorp, Inc. (MHC) William Penn Bancorp, Inc. (MHC) Mid Atlantic OTC Thrifts < $ 1 Billion Average Mid Atlantic OTC Banks $1 - $3 Billion First Keystone Corporation 1st Summit Bancorp of Johnstown, Inc. ENB Financial Corp Embassy Bancorp, Inc. QNB Corp. Franklin Financial Services Corporation Somerset Trust Holding Company Citizens Financial Services, Inc. Mid Atlantic OTC Banks $1 - $3 Billion Average

BANKING MID ATLANTIC

NJ NJ NJ NJ PA NJ NJ DE

15.29 10.40 12.82 13.55 16.94 14.75 24.13 37.91

NJ 8.88 Price PA 9.84 State 12/31/2018 PA 116.91

NA 14.69 14.80 17.54 18.56 17.30 29.12 57.70

NA 9.94 11.26 12.76 15.50 14.07 22.22 33.75

13.38 8.42 Trading 14.92 Range 9.35 High Low 163.59 108.45

NJ PA NJ PA NJ PA PA NJ PA NJ NJ PA PA NJ PA NJ PA PA PA PA PA NJ PA NJ NJ PA PA PA NJ NJ PA NJ PA PA PA PA PA PA PA PA PA NJ NJ PA PA PA PA NJ PA PA PA PA PA PA PA DE PA PA PA PA PA NJ PA NJ PA NJ PA PA PA PA PA PA

13.02 30.34 12.30 64.18 80.00 17.17 12.50 9.10 45.25 8.50 27.30 14.98 49.75 12.25 9.74 17.85 8.52 29.88 21.05 14.77 8.50 9.25 40.75 19.93 17.30 39.25 9.00 4.03 6.45 27.90 23.00 10.47 8.50 24.78 74.25 26.43 135.00 21.25 53.00 28.49 285.00 12.12 15.05 8.44 105.51 19.73 24.00 22.33 16.38 23.02 21.25 32.00 13.75 380.00 15.33 5.35 23.65 32.52 34.75 367.00 921.00 4.60 34.80 42.00 64.00 12.06 20.00 93.16 151.00 7.25 28.85 18.70

17.95 38.70 13.00 75.00 99.00 20.79 12.50 12.75 50.00 10.50 30.75 18.50 58.99 13.50 12.70 21.95 11.00 39.45 28.00 18.05 9.00 10.74 44.00 27.00 20.00 41.45 15.21 4.55 7.75 35.45 28.50 16.10 12.65 36.95 88.00 28.99 175.00 31.86 71.90 38.30 345.00 15.00 19.00 12.00 125.00 27.25 30.00 31.95 17.25 37.90 24.00 48.88 18.50 425.00 16.00 5.74 NA 45.50 34.95 400.00 1,120.00 NA 36.75 46.00 66.50 16.25 24.00 93.16 189.90 NA 34.00 21.00

12.49 28.67 10.86 41.30 77.00 15.26 10.67 8.36 42.15 6.50 20.00 13.75 46.70 11.69 8.66 16.14 8.52 28.75 20.50 12.25 8.14 7.83 33.72 16.15 17.26 27.30 9.00 3.93 5.50 26.77 20.25 10.12 8.05 22.82 67.51 22.00 130.00 20.27 46.25 25.84 276.00 11.13 12.60 7.01 100.10 18.03 23.70 20.36 15.35 21.69 19.65 29.00 13.60 362.00 14.20 4.65 NA 29.00 32.00 354.00 876.00 NA 32.55 42.00 59.06 10.75 18.96 67.10 151.00 NA 28.15 18.00

PA NJ PA PA PA

23.30 10.00 11.82 8.65 33.25

25.99 13.00 14.00 NA 42.00

22.34 10.00 11.82 NA 28.00

PA PA PA PA PA PA PA PA

20.95 112.00 34.55 14.95 38.50 31.50 41.50 55.55

29.00 NA 37.50 18.35 50.00 37.98 47.00 66.50

20.01 NA 34.06 14.06 38.50 29.26 41.50 55.51

-8.44 -15.24 -7.44 -14.89 -2.19 -5.14 -1.71 -19.60 -9.33 -21.07 Price Change (%) -22.64 QTD -14.16 -19.29 -23.86 -18.66 -4.58 -6.96 -11.81 -0.17 5.93 -14.15 -5.73 -12.76 -8.11 11.43 -2.41 -1.78 0.74 -22.08 -12.50 -8.97 -3.92 -10.81 -8.77 2.41 -5.37 -8.42 -2.40 -3.72 -9.53 5.51 -13.71 -6.28 -12.24 -8.64 -2.13 -24.40 -24.44 -19.68 -6.60 1.07 -7.69 -28.58 -0.93 -22.79 -13.37 -7.83 -17.53 -13.61 -2.31 -17.62 -9.77 -22.60 -1.92 -21.03 -1.12 2.40 -17.96 -7.32 -0.13 -5.31 NA 0.06 3.58 -8.25 -12.29 -14.02 0.14 -8.70 -1.18 -22.44 0.76 0.00 -1.68 -8.23 -7.09 -2.35 -6.53 -1.89 -18.70 -15.27 -6.28 -2.92

NA -25.07 -11.28 -20.67 1.26 -10.06 -10.53 -20.77 -13.88 -20.86 -28.80 YTD -18.98 -22.88 -25.09 -8.03 12.30 55.40 -6.43 -14.06 9.17 -11.22 1.69 -0.60 17.24 47.57 -1.51 1.22 -5.77 11.95 0.00 -12.16 -0.66 -5.39 -4.63 -5.56 -2.52 -7.50 14.66 8.91 -8.95 32.83 -34.59 -2.89 23.56 -18.75 9.52 -27.79 -24.44 -17.40 -1.00 10.13 0.75 -18.95 0.00 -15.46 -14.93 -12.49 16.22 15.62 1.45 -24.69 -15.79 -0.31 5.68 -30.45 6.25 10.34 -14.06 0.00 2.20 15.05 NA 1.63 0.58 7.94 -5.54 NA 5.45 0.00 3.38 10.64 -5.66 16.45 -20.53 NA 1.23 2.47 -0.05 0.22 -18.37 -9.08 NA NA

-9.01

-9.08

-17.19 0.00 -5.86 -14.81 -16.12 -9.40 -1.54 -11.19

-25.84 0.00 0.88 -6.56 -13.97 -15.69 -2.35 -10.94

-9.52

-9.31

MAKING BRANCHES EXCEPTIONAL.

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BANKING MID ATLANTIC

ST RAT E GY

BEING AN INNOVATOR SHOULD MEAN GETTING MESSY By Amy Radin, Special to Banking Mid Atlantic

I AMY RADIN

f you feel tremendous pressure these days to innovate, you are not alone. According to the Gartner 2018 CEO and Senior Business Executive Survey, 62 percent of 460 CEO respondents reported their organizations have digital initiatives or transformation programs underway. The recognition that new sources of client and shareholder value must be pursued to remain vibrant is pervasive across all sectors of the economy, including financial services. The trends – including demographic and societal shifts, technology disruption, regulatory change, and many others – are creating opportunity, as well as threats, for banking sector incumbents. The forces of change have made status quo untenable for businesses, their employees, and external constituents. Few business leaders come out openly as being against innovation. But innovation is hard to do and invites pushback, even resistance. Being an innovator on a daily basis means knowing that efforts may not succeed the first, second, or even third time. Confronting this possibility can make innovation controversial, even polarizing. It conjures up the

62%

BANKING MID ATLANTIC

idea of cool stuff, but it also means change in a world where shareholders have come to expect – and reward – predictability. Complexity, ambiguity and uncertainty are part and parcel of living in innovation territory. The reality is, innovation is a non-negotiable priority, but it is daunting to execute and deliver results. The good news is that any organization can influence the success of its innovation outcomes. Where is the starting point? Leaders must be willing to set aside legacy ways of doing things, and adopt the tools, methods, metrics, processes, policies, talent and structures that enable and accelerate innovation. Be open to the many possible forms innovation can take. There may be opportunities to innovate the client experience, communications or the brand, the business model in its entirety, or internal processes and technology platforms. You may be seeking incremental innovations to sustain your business, or a few small bets on potentially disruptive moves. What should your innovation portfolio look like?

OF 460 CEO RESPONDENTS REPORTED THEIR ORGANIZATIONS HAVE DIGITAL INITIATIVES OR TRANSFORMATION PROGRAMS UNDERWAY.

"LEGACY PERFORMANCE MEASURES MAY HAVE LITTLE RELEVENCE TO INNOVATION BREAKTHROUGHS, AND CAN TURN OUT TO UNDERMINE POTENTIAL OPPORTUNITIES."

Have a clear business objective. Are you seeking to attract and build relationships with a particular client segment, grow revenues, decrease expenses, or both? What are the drivers of your objective in today’s business model, and where do you see your leverage to have an impact? Factor in the feasibility requirements to make your ideas operational realities. Actively engage to get insights about your clients especially their emotional needs, and not just those that are rational. A few years back I worked with a team that pioneered a digital experience where borrowers who were late on loans could arrange new payment terms. What was the appeal to clients? Collections phone calls, the industry standard, are embarrassing. Most people are good people to whom bad things happen: a job loss, medical emergency, even a car repair can set a borrower back financially. By providing a private, additional alternative to the collections call, the bank found repayment levels increased meaningfully. Understanding client emotions around their financial needs has implications for business performance, and can be a source of innovation that delivers results. Use metrics that are relevant to assess innovation performance and potential. Legacy performance measures may have little relevance to innovation breakthroughs, and can turn out to undermine potential op-

portunities when they are applied to nascent concepts. Consider focusing on metrics that can nurture these investments and empower the team. Choices should have rigor, be reasonable for the evaluation of potentially unprecedented products and services, and be able to hold their own even in zero-sum resource allocation processes. New growth opportunities are put at risk when overly precise and backward-looking metrics, from traditional business models, are applied to gauge potential impact and measure worthiness to continue to move forward. Deploy prototyping and experimentation capabilities, including active collaboration with users. Could any of us have imagined, even 10 or 15 years ago, that we would find it impossible to leave home without our hand-held multi-functional computer and communications device? Very few people can articulate their dreams of what is possible, so answers to questions like, ‘What do you need?’ tend not to be terribly productive. That’s why prototyping can be so valuable: by giving users a model, even a very rough one, to play with and to which they can react, product development, marketing and technology colleagues can figure out

through observation what client needs and preferences are. User collaboration in product, service and experience developments also helps get everyone within the organization on the same page with regard to where their efforts and investment dollars can have the greatest impact. Innovation can be messy compared to the banking sector’s traditional operating standards. Innovation is not neat or linear. Think about it as a series of interconnected, irregular and moving loops. Compared to the structure of pre-digital organizations, it can feel messy, even chaotic. But now more leaders are realizing that innovation has a rhythm and discipline all its own. Those who are embracing new approaches to tools, metrics, processes and policies, as well as talent and structure are making progress. These leaders know that innovation is no longer tomorrow’s problem, and that the means to create innovation impact on key goals is within reach.

Amy Radin is an innovation catalyst, advisor, and keynote speaker on making innovation happen.

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F I N T E CH

“Siri: Pay My Mortgage” Growth Of Voice Assistant Programs Pushing Banks to Adapt

by PATRICK SANDERS

oday’s convenience-driven, technologyobsessed society is changing the banking world – again. Banks, credit unions and investment services are exploring ways to give consumers powerful tools to access their accounts, pay bills, transfer money and buy and sell stock with the sound of their voice. The new era of voice commerce - brought on by the proliferation of smartphones, mobile banking services and the rise of smart speaker technology is driving massive changes in the banking industry, experts said. “I think that the biggest thing is understanding that your clients are going to want to experience the bank or credit union in their preference. Sometimes you’re going to have clients that want to have a digital experience at an ATM, in branch, or mobile, or voice,” said Mark Ranta, head of digital banking solutions at

BANKING MID ATLANTIC

ACI Worldwide. “Voice is just a single stop on this evolutionary trend. First it was desktop, then it was laptop, then it was mobile, then it was tablet, then it was bringing the multichannel from branch to ATM to online to digital to voice.” “The next stop is probably virtual reality,” he said. “And who knows where it goes from there.” The growth of voice assistant programs – Amazon’s Alexa, Apple’s Siri and Google Assistant – are a major driver in expanding voice programs at banks and credit unions. U.S. Bank, American Express and Capital One are among those that are Alexa-enabled. J.P. Morgan Chase is now allowing institutional customers to access analysts’ reports via Alexa. In October, TD Ameritrade broke new ground by becoming the first bank to allow customers to make stock trades using voice commands. “While the confluence of AI and machine learning and voice interfaces is a very powerful mix, it’s just

in its infancy,” said Sunayna Tuteja, lead for digital strategy, experience and innovation for TD Ameritrade, a brokerage based in Nebraska. “Where we are today compared to where we’re going to be in five years – it’s going to be like the iPhone (growth) experience. Five years ago the whole idea of trading on a device that you use to play Angry Birds and Candy Crush, it was like, ‘What are you doing?’ It was a novelty. Today the idea that you would have a bank account or a trading account or any relationship with a financial services company that isn’t mobile first is unfathomable.” “So we believe that these technologies, while maybe novel, become necessities,” she said. “The shift from novelty to necessity happens very quickly.” It’s not a matter of if, but when. Flush with mammoth research and development budgets, the nation’s big banks are well on their way to perfecting voice technology. But what about regional banks, smaller institutions and credit unions? When do these players – assisted by fintech partners – jump into the voice command pool? A few have. New England Federal Credit Union has an Alexa skill that tells members branch hours and rates for auto loans, but the skill doesn’t allow you to make transactions. “I think that question is different for every bank or credit union. You need to take a step back and go, ‘OK, what is my DNA?’” said Chad Watkins, director of market intelligence at Informa Research Services. “Who am I? How big am I? I think there needs to be a lot of selfreflection before you can make that decision.” “If you are Chase or Bank of America, it probably is extremely important that you are cutting edge and that you’re in the front,” Watkins said. “But if you’re a community bank that isn’t necessarily concerned with being the most technically savvy bank then it probably doesn’t hurt to wait and let that play out and let the vendors that you deal with figure it all out before you move forward.” Outside of Alexa, TD Bank uses voiceprint technology to allow customers to access their accounts. TD VoicePrint uses a customer’s voice to confirm their identity. The bank rolled out the service a year ago and it now has 2 million users. “TD Bank’s authentication system makes account verification easier and

more secure for customers by using voice biometric technology to analyze the sound, pattern and rhythm of a caller’s voice to create a voiceprint and confirm their identity,” said Lindsay Sacknoff, head of U.S. contact centers for TD Bank. “A person’s voiceprint is as unique as their fingerprint – no two are exactly alike. Once a customer enrolls in TD VoicePrint, there’s no need for them to remember PINs or security questions – their voice is their password.” One of the newest entrants in the field

and the confluence of AI and machine learning and voice just in the last few years. People forget that five or six years ago there was no such thing as an Alexa in your life. Today, there are over 15 million Alexa-powered devices in the United States and that number is projected to hit 100 million by 2020.” “Just the pervasiveness of the technology, even though it’s nascent, how it’s becoming part and parcel of our daily lives is a trendline that we are watching,” Tuteja said.

is TD Ameritrade, which partnered with Amazon to create a voice platform to allow customers to check stock prices and made trades using Alexa. “Despite all the great technologies around us, finance still suffers from that perception - and a little bit of reality that it’s complex and jargony and keeps people out rather than making it more inclusive,” TD Ameritrade’s Tuteja said. “We believe that with the power of these new interfaces and technologies, we can break down those barriers. And one of the ways to break down those barriers is to go where the consumers are.” “In this case consumers are spending more and more of their time with smart speakers,” she said. “How do we meet them in an ecosystem where they feel more comfortable? We looked at the technology and the trendline around it

SECURITY IS PARAMOUNT It’s one thing to tell Alexa to add bananas to your grocery order or asking Apple’s Siri if it’s going to rain today. But using voice commands to bank is another matter. First, there’s the regulatory hurdle unique to financial institutions. And even if a small bank or credit union hires a fintech vendor to do the heavy lifting in rolling out a voice command application, the financial institution still has the regulatory requirement and is on the hook should the vendor suffer a data breach. There’s also the matter of getting consumers comfortable with the idea of processing financial transactions without talking to someone face to face, using an ATM or seeing a confirmation on their smartphone or computer.

BANKING MID ATLANTIC

“Security is always a concern with the introduction of new functionality. Security methods, principles, and testing techniques have to be introduced in tandem. Instances where new technologies, such as voice recognition, have come into the spotlight have been when security testing and approach was not evolved along with the new technology,” said Lori Williams, vice president of fulfillment at Gigster. “With that being said, you can have the top team of security experts in the world and it is still impossible to cover every base. Innovative new things inevitably bring even more innovative ways to break them,” she said. “Turn that innovative new thing into a medium that can be easily accessed by nearly 7.5 billion people and you’ll get very innovative ways to break it.” “With this – like any new feature – security policies and methods have to be not only responsive but creative in order to adequately protect the platforms they serve in order to ensure the safety and scalability of voice recognition in banking apps,” she said.

Tuteja said TD Ameritrade made security and privacy a priority when rolling out its product. “The bottom line for us is that we’re in the trust business,” she said. “Whether you are trusting us with your money and executing a trade by coming in to one of our branches and talking to one of our financial consultants, or if you’re doing it online or through our mobile app or now through Alexa, we want to make sure the same degree of prudence is applied to all ecosystems.” Watkins, who said he doesn’t see himself using voice services for banking, said widespread use of voice technology by banks and financial institutions is “inevitable.” “Throughout history, usually the technology wins,” he said. “If there is a major event such as a data breach or something comes out very negative in relation to this technology, then maybe that will curb it and delay it, but I think that we’ve kind of moved past that too.” “Is the horizon two years? Five years or seven years?” he said. “I don’t know. I think those bumps in the road are going to dictate that, but I think it’s coming.”

CSI KNOWS HOW TO PLAY.

BANKING MID ATLANTIC MA_Bankers-1118.indd 1

10/23/18 2:06 PM

STAT I ST ICS

CONSUMERS ARE QUICKLY ADOPTING FINTECH. 10%

Borrowing

50%

10%

Financial Planning

THEY REPORT USING FINTECH FOR

20%

Savings and Investments

Money transfer and payment

24%

Insurance

GRAPHIC: BANKING MID ATLANTIC

1 in 3 people in the U.S. are using fintech. The demographic most likely to use fintech is 25- to 34-year-old consumers followed by 35- to 44-year-olds. These demographics are comfortable with the internet and mobile technologies and also require a wide range of financial services as they achieve life milestones. Data according to the EY FinTech Adoption Index 2017. Survey respondents could select more than one depending on their usage.

BANKING MID ATLANTIC

E CON OM I C S

WHAT TO EXPECT WHEN THE YIELD CURVE GOES TOPSY-TURVY

Prepping For Inversion

by Mike Davis

eath, taxes and inversion. Inversion isn’t that certain, but it seems more inevitable every day. The spread between the 10- and 2-year Treasury yield stands at 14bps, potentially just a single Fed move away from turning negative. We are often asked when we think the curve will invert, when recession will occur and when rates will fall. We do not have the proverbial crystal ball, but we can look at history to give guidance on the future.

curve inversion, respectively. See Chart I Below: Average Historical 10- and 2-Year Treasury Yields during Inversion Periods

A SIMPLE VIEW OF HISTORY To keep this exercise simple, we take the average of the 10- and 2-year Treasury yields from the last three curve inversion periods of 1989, 2000 and 2006 and plot them below in Chart I. Point “0” on the x-axis is the first quarter of inversion. The negative and positive numbers indicate the months prior to and after the initial

HOW TO POSITION THE BALANCE SHEET Lessons from the past say that interest rates are likely to move higher from here. The Fed is certainly pointing to higher rates with a median Fed Funds rate of 3.375% by 2020 as indicated by the dot plot. Rate direction is less certain on the long-end. The 10-year Treasury yield stands at 3.15%, down from its recent peak of 3.23%. This por-

MIKE DAVIS

A few observations: • With current curve spread at 14bps, we are historically 6 months away from inversion • From 6 months prior to inversion, short rates increased 96bps while long’ rates increased 41bps • Interest rates, both short and long, immediately fell once the curve inverted • Inversion lasted 9 months on average • Recession began 16 months after inversion and lasted 11 months

Chart I: Average Historical 10- and 2-Year Treasury Yields during Inversion Periods Recession

7.50 7.00 We are here

6.50 6.00 5.50 5.00 4.50 4.00 -24

-21 -18

-15

-12

-9

Average 10-Year

BANKING MID ATLANTIC

-6

-3

Average 2-Year

tion of the curve will be driven more by inflation and growth expectations. Incorporating history and adjusting for what we know today, we offer the following balance sheet suggestions. LIQUIDITY Historically, liquidity becomes an issue for depositories at this point in the rate cycle. To offset margin compression, financial institutions typically grow the loan portfolio to add higher yielding assets. Additionally, deposits either migrate to CDs or move out of the banking system in search of higher returns, causing more reliance on wholesale funding. We hear anecdotally that these same patterns are reemerging in this cycle. We suggest that financial institutions focus on adequate asset side liquidity sources. We recommend keeping a minimum percentage of assets in securities that can be readily converted to cash and having a secondary loan trading program. Through secondary loan trades, financial institutions can sell non-core loans to fund loan growth instead of using bond portfolio cash flow to fund growth. Additionally, in the event of a liquidity crunch, financial institutions will look to the bond portfolio for quick access to cash.

INTEREST RATE RISK Managing interest rate risk can be tricky at this point in the rate cycle. Near-term, deposit betas are likely to increase with competition heating up, leading to margin compression. Long-term, the industry faces the inevitable decline in rates once the economy takes a downturn. We think the latter could have a more material impact to earnings. For our asset-liability clients, the down 100 scenario poses the most impact to earnings with a 4.89% decline in net interest income; under a bear flattener scenario, our client group gains 3.62% in net interest income. To manage, we suggest a modified barbell structure. We like keeping a portion of assets short through floating-rate loans/securities or short cash flow investments. We like weighting some cash flow longer-term with call protection. Adding fixed-rate loans with prepayment penalties or investments with limited optionality should be the playbook. Any mix of float/fixed should be determined on an institution specific basis. BOND PORTFOLIO In the context of our barbell strategy, we

recommend SBA pools on the short end. SBA pools are full faith and credit, tied to the Prime rate and reset monthly or quarterly with no interest rate caps. Additionally, these securities offer historically attractive relative value. Discount SBA floaters can be found at an effective spread of Prime -247 bps, which compares to a long term average of Prime -265. To add some duration to the portfolio, we suggest well-structured CMOs with loan balance collateral. This collateral offers call protection as smaller loan balance borrowers are less likely to prepay when rates fall. We also recommend agency CMBS product. FNMA DUS and Freddie Kâ&#x20AC;&#x2122;s are good investments to pick up spread to Treasuries and offer good call protection through yield maintenance or defeasance. Conclusion The markets are moving fast. We recommend having a plan to position once the rate cycle changes to protect income and margin. Mike Davis is the managing director of strategies at SunTrust Robinson Humphrey. BANKING MID ATLANTIC

DE M OG R A P H I CS

WOMEN ARE SWITCHING BANKS MORE THAN MEN DO. Ranging between the ages of 25 to 34, they make between $25,000 and $50,000. At least 38% have a college degree, 55% are married, 45% have children and they spend 20-40 hours online per week.

Lower Rates And Fees

More Convenient Locations

THEY’RE SWITCHING BANKS BECAUSE THEY WANT…

Better Customer Service

Better Online and Mobile Banking Services

Women surveyed say banks don’t communicate enough and they generally don’t feel valued as a bank customer. *Data according to Resonate

BANKING MID ATLANTIC

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www.srsnodgrass.com/banking (800) 580-7738

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