Banking New York Third Quarter

THE INDUSTRY MAGAZINE FOR FINANCIAL EXECUTIVES & PROFESSIONALS • ISSUE THREE 2018

MERGER BRINGS NEW FACE TO ROCHESTER INCREASING FEE INCOME

YOUR LOAN PORTFOLIO:

2FAST URIOUS? 2F

REELING IN LENDING RISK

PROTECT AGAINST SOCIAL MEDIA CRIMINALS

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CONTENT 18

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Educating employees to protect against social media cyber criminals

ISSUE THREE / SUMMER 2018

18

20

Banks need to educate employees to protect against social media cyber criminals

Even with Amazon, a single product is not the Holy Grail

Protect Your Bank

4

10

IBANYS President John Witkowski weighs in on the first half of 2018

How fast is your loan portfolio going?

President's Message

6

Analyze Risk

Public Affairs Update

8

15

Increase your income without strapping customers with fees

Ways to get more women involved in banking

Other Ways to Get Revenue

Generations Bank to merge with Medina Savings

12

Coming Soon to Rochester

Roundup of state, federal legislation

Don't Panic Yet

Generations Bank to merge with Medina Savings

Welcoming More Women In The Workforce

12

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10 STAFF

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How fast is your loan portfolio going?

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Issue Three | 3

PRESIDENT’S MESSAGE | By John Witkowski

After A Busy First Half Of 2018, IBANYS Prepares For Annual Convention In September

T

he first six months of 2018 have been among our busiest in memory. We have held educational programs for a wide array of officers, directors and employees of New York community banks. Working with our peer groups, our executive committee, our board and our staff, we have designed, developed and held a number of important programs and conferences that have addressed key strategic and operational issues and concerns impacting our banks.

We have welcomed input from our membership as to what topics and issues they want to hear about, and have assembled – in each instance – outstanding groups of speakers, presenters and panelists to provide their expertise and insight.

From February through June, we held regional conferences for our member banks’ human resources officers, compliance officers and security officers. We held two-day programs for our lending officers and for the senior executives of our member banks (IBANYS’s Banking Executive Symposium, formerly known as our CFO/Senior Executive Conference).

We also hosted CEO Forums to provide informal roundtable discussions for our CEOs to address an agenda they themselves requested.

We also held our Directors Conference to continue to keep the board members of our member banks fully informed and up-to-date on the responsibilities, opportunities and strategic options they need to know to provide the guidance and leadership their institutions require going forward.

That’s a full plate, and our New York community banks responded. In terms of their attendance, participation and feedback, the first half of 2018 was a major success.

However, there is no rest for the weary, and IBANYS has not slowed down as we prepare for the fall and our signature event of our association calendar year: Our 2018 Annual Convention & Trade Show, scheduled for Sept. 25 – 27 in our state capital of Albany, New York!

IBANYS’ member bankers, preferred providers, associate members, vendors and friends will gather at the Hilton Hotel Albany for a comprehensive program on many of the timeliest, most important issues facing community banks now, and in the future. We’ll have a terrific trade show as well, with exhibitors displaying and discussing the products and services that can be of great benefit to community banks’ strategic 4 | Banking New York

planning, profitability and operations.

Of course, we’ll also hold our annual – and traditional – PAC raffle to benefit our state political action committee, NYSIBPAC. That promises to be more JOHN WITKOWSKI important than ever this year, with extremely competitive elections ahead this November for the State Legislature and statewide offices.

We’ll have a full menu of recreational and networking opportunities, some wonderful receptions, breakfasts, luncheons and dinners, and the chance to share time and thoughts with friends and colleagues from all across our industry and state.

We’ll be making announcements over the summer regarding our program, but I’m pleased to report that our luncheon speaker on Wednesday, Sept.26 will be the state’s top financial services regulator: New York State Superintendent of Financial Services, Maria Vullo.

IBANYS runs on the energy, time, commitment and participation of our membership. You’ll hear any number of organizations claim they are “member-driven”. . .but let me assure you, in our case that’s the absolute truth. Our members – and our board – help design our policies, programs and operations. It’s their association, and it’s our job to see that it works for them.

IBANYS was formed in the summer of 1974 to ensure that local, independent community banks had a place at the table and a voice in the room when policies are made that impact our industry. The banks responsible for establishing IBANYS believed there was a special need for an organization committed solely to the interests of community banks throughout New York State.

More than 40 years later, we remain true to those principles.

Join us this September for our Annual Convention & Trade Show. ■ John Witkowski is president and CEO of the Independent Bankers Association of New York State. He may be reached at johnw@ibanys.net or (518) 436-4646.

IBANYS BOARD OF DIRECTORS OFFICERS CHAIRMAN R. Michael Briggs US New York Bank, Geneva, NY VICE CHAIRMAN Thomas Amell Pioneer Bank, Albany,NY SECRETARY/TREASURER Michael Wimer Cattaraugus County Bank, Little Valley, NY IMMEDIATE PAST CHAIRMAN Douglas Manditch Empire National Bank, Islandia, NY John Buhrmaster First National Bank of Scotia, Scotia, NY Thomas Carr Elmira Savings Bank, Elmira, NY Randy Crapser Bank of Richmondville, Cobleskill, NY DIRECTOR EMERITUS Ronald Denniston First National Bank of Dryden, Dryden, NY Christopher Dowd Ballston Spa National Bank, Ballston Spa, NY John Eagleton Steuben Trust, Hornell, NY Robert Fisher Tioga State Bank, Spencer, NY Anthony Delmonte Bank of Akron, Akron, NY Gerald Klein Tompkins Mahopac Bank, Brewster, NY Richard Koelbl Alden State Bank, Alden, NY Mario Martinez Catskill Hudson Bank, Kingston, NY Paul Mello Solvay Bank, Solvay, NY G. William Ryan Cayuga Lake National Bank, Union Springs, NY Anders Tomson Capital Bank/ a division of Chemung Canal Trust Company, Albany, NY Kathleen Whelehan Upstate National Bank, Rochester, NY IBANYS STAFF John J. Witkowski President and CEO Stephen W. Rice Vice President of Government Relations and Communications William Y. Crowell III Legislative Counsel Linda Gregware Director of Administration and Membership Services

ANNUAL CONVENTION & TRADE SHOW September 25–27, 2018 Hilton Hotel Albany

40 LODGE STREET / ALBANY, NEW YORK

www.ibanys.net Issue Three | 5

PUBLIC AFFAIRS UPDATE | By Stephen W. Rice

New York State Legislature Adjourns For Year:

Big Win For Community Banks As Credit Union Bill Is Stopped

IBANYS and the local independent community banks we represent had a big win in the closing hours of the 2018 state legislative session.

Tax-exempt credit unions and their allies in the Legislature had launched a last-ditch STEPHEN W. RICE effort to be authorized to participate in the State Business Development Program – which was designed for, and is currently limited to, banks.

If enacted, the legislation (S.9094, Hamilton/ A.6949-c, Zebrowski) would have resulted in the taxexempt credit unions being able to bid on, accept and hold state public deposits, and to receive property tax exemptions for ten years.

When we saw that this legislation was being pushed to the front burner during the final days and hours of session, IBANYS launched an all-out effort to stop it.

6 | Banking New York

• We drafted and circulated to legislators a strong Memo in Opposition, laying out the reasons why tax-exempt entities should not be allowed to hold public deposits.

• We also initiated a grassroots action alert asking IBANYS member banks to contact their local state legislators in the Senate and Assembly to urge them not to vote for the legislation.

IBANYS thanks all our New York community bank members who called, emailed and met with their Senators and Assembly Members, and reinforced the message IBANYS was sending to legislative leadership and key lawmakers. Together, we won the battle. The State Senate has adjourned for the year without taking any action on the bill. It’s a big win for New York community banks.

For community banks, the session will be remembered as one in which IBANYS played an

aggressive and effective “defense” on their behalf. In addition to defeating the credit unions’ effort to enter the State Business Development program, we also beat back several other legislative initiatives that would have made what is already an uneven playing field for them even more so by expanding their powers and authorities.

Another proposed bill would have enacted additional onerous ATM security mandates.

With New York community banks already complying with the ATM Safety Act, the proposal seemed more like “piling on banks” than about protecting consumers.

The 2018 legislative session was marked by unusual developments. The coalition between Republicans and the breakaway Independent Democrats (IDC) that had governed the State Senate the past few years came to an end mid-session, as the Democrats reunited. However, the GOP retained control of the Senate despite the fact that Democrats hold 32 of the 63 seats, since one Democrat (Simcha Felder of Brooklyn) still votes with the Republicans.

We saw a change in the Senate Banks Committee leadership in April, as former Chair Jesse Hamilton of Brooklyn, a member of the IDC, was removed and replaced by Republican Elaine Phillips of Long Island – a former longtime financial services professional.

At session’s end, no party had the necessary 32 votes to control legislation because one GOP Senator (Tom Croci, Long Island) went on active military duty and was absent from the Senate. While it’s possible the Legislature could return for a special session over the summer to address some of the major non-

IBANYS will be working over the second half of 2018 to prepare for the 2019 legislative session, and will be seeking input from our officers, directors and Government Relations Committee throughout the process. be poised to make a serious run to gain the majority. However, the GOP expresses confidence as well.

IBANYS will be working over the second half of 2018 to prepare for the 2019 legislative session, and will be seeking input from our officers, directors and Government Relations Committee throughout the process.

Community Banks Win Major Regulatory Relief In Washington NYS SENATE BANKS COMMITTEE CHAIR ELAINE PHILLIPS (R-LONG ISLAND)

banking-related policy issues left unresolved (e.g., gun control, sports-betting cash bail reform, speed cameras in school zones, etc.) it would not appear any banking issues would be on the agenda.

The 2018 election will be significant, as control of the State Senate would appear to be very much up for grabs. A number of incumbent Republican senators are not seeking re-election, and Democrats may

President Trump signing one of the most significant regulatory relief bills for community banks since the Dodd-Frank Act was enacted in 2010.

The big news was the passage and signing of the most significant regulatory relief bill for community banks since the Dodd-Frank Act was enacted in 2010. The legislation (S.2155, Economic Growth, Regulatory Relief and Consumer Protection Act) received bipartisan support in both the Senate and House, and was signed by President Trump. It is the culmination of a multi-year effort to create regulation that is tiered to the size, risk, complexity, and business model of community banks. Much of the new law stems from ICBA’s “Plan for Prosperity” regulatory relief platform, which IBANYS endorsed and advocated for in numerous meetings and outreaches to members of the New York Congressional Delegation.

The Congress continues to debate and consider the new Farm Bill (the old one is due to expire Sept. 30), and IBANYS will continue to work with ICBA to represent the interests of New York community banks at the federal level. ■

Steve Rice coordinates government relations and communications for the Independent Bankers Association of New York State. He has worked in the New York banking industry and New York state government for more than three decades.

Issue Three | 7

REVENUE | By Sean Payant

Increasing Fee Income WITHOUT Raising Fees

O

Sean C. Payant, Ph.D., is Chief Consulting Officer at Haberfeld Holdings. He can be reached at Sean@haberfeld.com.

ver the last 10 years the banking industry has seen a steady decline in fee income associated with checking accounts – community banks under $10B have seen a 32% decline and banks over $10B have seen a 45% decline in fee income when compared to a 2008 baseline.

Many institutions are raising fees. Should you?

One option: start adding minimum balances in order to get additional income from your current customers. Following the lead of big institutions, some community banks have tried to make up fee income by instituting additional account fees with disappointing results.

This is not isolated to the banking industry; other retailers and business have tried this approach.

Case in point, several years ago, Starbucks ran a test where they required a minimum purchase in the drive-thru to encourage those wanting a $1.85 cup of coffee to come into the store. As you can imagine, the pilottest ended abruptly – less than a month later. What Starbucks really knows is when customers come into the store they will spend more; however, creating a minimum purchase requirement was not the solution, it upset customers and hurt their image in those markets.

As community bankers, we need to look through the lens of the prospective customer.

One of the primary reasons consumers switch banking providers is to eliminate monthly checking account service charges.

The majority of consumers still do not want to pay for a checking account. Price matters.

In 2010 prior to the implementation of the Dodd-Frank changes related to retail debit cards and overdrafts services, an extremely profitable-midsize bank in the northwest decided to implement a $9 per month service fee on checking accounts. Their fee income dropped dramatically and attrition went up substantially. In a public statement, the CEO ultimately stated the bank made a mistake; however, much of the damage was already done. If monthly service charges aren’t the answer, then what is?

Understand Capacity

Understanding capacity is one of the biggest challenges in the banking industry.

Banks have very high fixed costs and very low marginal costs. Each branch is an expensive “factory” that is running at 15%-40% capacity, 50% if you’re lucky.

The typical community institution averages 1,000-1,200 core relationships per branch.

The big banks average 3,000-5,000 per branch. If you have factories running at 30% capacity, your primary objective should be to fill the excess capacity by serving more customers.

Client data shows marginal expenses (core processor, account servicing, etc.) for the next core customer are approximately

One of the primary reasons consumers switch banking providers is to eliminate monthly checking account service charges.

8 | Banking New York

$30-$50 per year; however, each new core customer generates approximately $300$500 in revenue each year. Excess capacity allows us to look at the each new customer as a marginal investment who can spin off multiples in revenue.

While not all customers drive the same level of fee income, it is important to create and grow primary financial institute (PFI) relationships. After analyzing millions of core banking relationships, over many years – the data shows for 73% of customers the checking account is the foundation of the relationship, creating opportunities to provide additional products and services.

Understand Risk - Remove Ineffective Filters

Most financial institutions use some type of screening service during the account opening process. Banks need to understand these services only report negative information, which is rarely updated. Client data consistently shows these systems are not doing what banks think they are doing – reducing fraud. They are, in fact, reducing opportunities to grow fee income by turning away customers who value overdraft services.

There is no viable reason to evaluate a credit score prior to opening a checking account.

What other filters are you using? Do you require a spouse to be present to open a checking account? If your organization does, you need a better process for adding joint signers after account opening. Credit scoring? Stop it. There is no viable reason to evaluate a credit score prior to opening a checking account. How many forms of ID do you require to establish a relationship? One government issued, unexpired ID should be sufficient as long as consumers can provide their Social Security number (not their Social Security card), physical address (does not need to match the address on the ID) and date of birth. Are you in compliance or well beyond? Think through why your bank is saying no today and develop strategies to say yes more frequently.

Review OD/NSF Services Policies

Provide everyone with up to $100 of overdraft credit at account opening. People

who value this service will not wait 30- or 60-days to utilize it. Be there when your new customer needs you.

We analyzed the subsection of new customers who had an overdraft in the first 30 days. We found over a seven-month period banks were seeing a 51% closure of accounts where the bank required a 30-day waiting period. We then looked at banks that paid overdrafts early within the first 30 days. There was only a 36% attrition rate, meaning 64% of the new customers were still active and 79% of them continued to utilize overdraft services.

Banking is a business of high fixed costs with low marginal costs for the next customer and high additional revenues. Nearly every bank has tremendous capacity. In addition, client data continues to show more accounts equals more profitability and opportunity.

The focus should be on growing core customers and making sound decisions in the process. ■

Issue Three | 9

RISK MANAGEMENT | By Bo Singh

ZOOM ZOOM? How Fast Is Your Loan Portfolio Going?

S Bo Singh, President, T. Gschwender & Associates, Inc. can be reached at info@tgschwender-assoc.com

10 | Banking New York

uppose you are out for a drive and the posted speed limit is 55 miles per hour (mph). If you decide to go 75 mph, one can reason you are taking more risk.

If the speed limit is 55 mph, and because of current conditions, you decide to slow down and go 45 mph, one can conclude that you are taking less risk. This same thought process can be applied to your loan portfolio. However, you need to know how fast you are going and what is a safe speed limit. Let’s discuss.

One way to measure how much risk you are taking in your loan portfolio is to calculate the Weighted Average Risk Rating (WARR). Like the speed limit, it can quantify the risk in the loan portfolio into a single number.

The Weighted Average Risk Rating, rather than the Average Risk Rating, is routinely used by T. Gschwender & Associates, Inc. (TGA) to assess the

risk within the portfolio, or a segment of the portfolio (i.e., C&I Loans, CREMs, Construction Loans, loans originated in different years, etc.). The WARR takes into account the loan balance as well as the corresponding risk rating.

Usually when calculating the average or arithmetic mean, each number has equal value or weight. A weighted average, on the other hand, considers one or more numbers in the range to be worth more, or have a greater weight than the other numbers. For example, a $1 million loan risk rated Substandard will have a greater impact on the portfolio risk than a $1 thousand Substandard loan. The WARR is calculated by multiplying the balance of the loan times the risk rating for each loan in a sample. These values are then summed and divided by the sum of all the loan balances in the sample. But how do we know what is a safe WARR (speed limit)? There is a straightforward, logical, answer to this question.

One key factor of using the WARR to gauge risk in the portfolio is that the loans have to be properly risk rated, especially those in the Pass/Watch risk rating.

Typically, loans risk rated Pass/Watch should fall in one of the following categories:

Suppose your risk ratings are composed of the following: RISK RATING

DESCRIPTION

1

Secured by Liquid Collateral

2

Excellent

3

Satisfactory

4

Pass/Watch

5

Special Mention

6

Substandard

7

Doubtful

8

Loss

WARR = 3.50

Based on our experience, a relatively safe, moderate risk WARR would be around 3.50. The lower the WARR, let’s say 3.05, the less risky the portfolio. The higher the WARR, for example 3.85, the riskier the portfolio. This is better illustrated by the charts below.

The following chart shows where the majority of the loan portfolio rests in the 3-Satisfactory risk rating. The WARR of this portfolio is 3.38. As more dollars in the loan portfolio move towards the lower risk ratings, the less risky the portfolio becomes.

The following chart shows where the majority of the loans rests in the 4-Pass/ Watch risk rating, with a corresponding WARR of 3.63. As more of the loan portfolio moves towards the higher risk ratings, the riskier the portfolio becomes. This can all be captured by knowing the WARR – the speed the portfolio is traveling.

• Those lacking current financial statements.

• Loans approved based on projections.

• Loans dependent upon the owner’s cash flow (i.e., primary Debt Service Coverage Ratio is weak but the Global Debt Service Coverage Ratio is good).

• Loans within the Pass/Watch risk ratings have to be closely monitored. If you have too many loans in this category, the probability that the portfolio will experience stress during an economic recession is higher than normal.

If the majority of your loans are risk rated Pass/ Watch, the following actions should be considered to reduce the risk in the portfolio: • Have the Loan Officers review all Pass/Watch risk rated loans to determine the reasons for the Pass/Watch risk rating. Determine if the Loan Officer can resolve the reasons for Pass/Watch risk rating. This may be as simple as getting new financial statements from the Borrowers.

• Advise the Loan Officers that until the bank’s overall WARR improves to an acceptable level, the bank will not consider any new loans rated Pass/Watch (loans based on projections or loans dependent on owner’s cash flow for approval).

Also, consider monitoring the WARR for new originations by Loan Officer and tie that in with staff bonus and compensation.

• Any Pass/Watch rated relationship that comprises more than 25% of the ALLL should be given priority during annual reviews and have very good collateral protection.

• Consider purchasing USDA/SBA loans in the secondary market and adding them to the loan portfolio. These loans are 100% guaranteed by a government entity and are considered 1 rated for credit risk purposes. This can help reduce the risk in the portfolio.

Below is the recommended WARR for banks using different number of pass risk ratings: NUMBER OF PASS RISK RATINGS

ACCEPTABLE WARR

3

2.50

4

3.50

5

4.25

6

5.00

These are your speed limits. Once you know your speed limit, it’s easy to determine if you are taking high risk or low risk based on the current WARR. Make sure you are monitoring your speed! ■

Issue Three | 11

BANK PROFILE | By Lisa Backus | SPECIAL TO BANKING NEW YORK

A New Face In Rochester Generations Bank To Merge With Medina Savings

D

uring a time when banks are looking for new ways to innovate and for new communities to serve, Generations Bank of Seneca Falls is expanding to the other side of Rochester.

Generations Bank, as part of a mutual holding company, is set to merge with Medina Savings and Loan Association and expand its services around Rochester by seeking a limited commercial charter to do business with municipalities.

Since the merger is with a mutual entity, Generations Bank will not have to pay a purchase price. But Generations Bank’s parent company, SenecaCayuga Bancorp, will issue shares of its common stock to the mutual holding company based on an appraisal by a third party.

The deal will add about $50 million to Seneca-Cayuga’s assets and all of Medina’s employees will be retained, according to Generations Bank.

Generations is “trying to grow in similar markets with the acquisition of Medina and in larger markets with the charter to serve municipalities,” said Susan Monti, a managing director with Ostrowski & Company, Inc., which advises banks on financial and strategic matters.

The bank will have to pick up the tab for experts and consultants to prepare for the merger which will likely affect earnings in the short term, said Generations Bank President and CEO Menzo D. Case in his annual letter to stockholders. “However, we believe the transaction could be expected to add to Generations’ value should we ever implement another stock offering or a second step stock conversion,” he said.

With the pending merger with Medina Savings and Loan Association, Generations Bank will gain two additional branches on the other side of Rochester, said AG Cutrona, senior vice president, director of growth and profitability.

The bank, headquartered in Seneca Falls, will also seek a charter as a limited purpose commercial bank to extend cash management and other services to municipal clients throughout the Finger Lakes region.

While Generations Bank offers many of the same services as a commercial bank, it’s a mutual, which traditionally provides mortgages and encourages AG CUTRONA GENERATIONS BANK savings. “In New York, mutuals are not allowed to SENIOR VICE PRESIDENT service municipalities,” Monti said. Traditionally, commercial banks are more profitable, added Monti, who was speaking as an analyst.

12 | Banking New York

“We are community focused and we want to be able to provide new services to the community. We want to be the local solution.”

The limited commercial charter will allow the bank to access municipalities, which are a good market, she said.

It’s about growth and diversification, said Cutrona, who added that the company’s strategy was to remain a community bank. “There’s a strong commitment from our board to retain our independence which we’re doing by diversifying into new markets,” he said.

Established in 1870 as Seneca Falls Savings Bank, the institution reorganized to a two-tiered mutual holding company structure as a subsidiary of Seneca-Cayuga Bancorp in 2000. It was renamed Generations Bank in 2012. The bank will celebrate its 150th anniversary in 2020.

Generations is hoping to capture a share of the market in its expanded service area with the merger for municipal clients with populations of 1,500 to 30,000 or 40,000 to “keep those dollars working in our communities,” Cutrona said.

The goal isn’t necessarily to take on every aspect of a municipality’s finances, but rather to allow the entities to place some of their business with the bank to take advantage of the cash management services, account reconciliation and online banking tools that are already offered, he said.

The bank has already crafted a marketing strategy that includes

targeting what types of municipalities could benefit from their services.

Marketing will begin once the deal has been approved by the Federal Reserve hopefully by this fall, he added.

Generations is hardly alone when it comes to strategic plans to retain profitability and provide new services through mergers and charters which require approval by the Federal Reserve. Small community banking organizations with assets under $1 billion made up nearly half of the applications approved by the Federal Reserve in 2016, according to the regulatory agency.

Generations currently has nine branches offering a wide range of services including mortgages, loans and online transactions, and insurance and investment services through the Generations Agency, from Rochester to Syracuse.

With assets totaling $290.5 million, the small community banking organization will extend its footprint with Medina’s two branches on the other side of Rochester, Cutrona said.

“There are some economies of scale and it will allow us to serve a larger geographic area,” he said. “We have quality individuals on both sides who want to continue to serve the community.”

The Federal Reserve is expected to approve the deal by the end of the second quarter in 2018. ■ Issue Three | 13

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WOMEN IN BANKING

PART II

WOMEN

Special to Banking New York This is Part two of a two-part series; part 1 appeared in Issue 2 of Banking New York. Part 1 presented results of a survey of commercial bankers and framed the issue of gender diversity in the industry; part 2 seeks and proposes solutions.

WOMEN in Banking Welcoming More Women in the Workforce

By Neil (Dima) Berdiev

Below are ideas and suggestions on how to work through stereotypes and misconceptions of women not wanting to be in banking, if we want to create an environment for successfully balancing personal and professional lives. Just survey the women in your organization and you will find the answer.

Fear of Competition is Natural It is naĂŻve not to expect that some men will be afraid of or hesitant to support more competition in the workforce, even if it comes from equalization long overdue. It is naĂŻve not to expect that there will be more competition in the workplace as we create the environment for women to choose to stay and choose to pursue growth opportunities.

But we must recognize that providing equal opportunities for men and women is the right thing to do and it should have happened a long time ago. As it did not, we are responsible for championing this change.

Issue Three | 15

Organizations that focus on talent pools that the majority pass on will have the early mover advantage in shaping their talent pipeline.

Women Don’t Want to Be in Commercial Banking Let’s accept for the moment the idea that women do not want to be in commercial banking, including in positions of authority. If that were to be true (and it is not!), the industry is in serious trouble as it faces generational turnover. As noted in Women in Banking, Part I, women represent a majority of the population (51 percent), and represent 47 percent of the “employed in civilian labor force” ages 25 to 64.

If the industry cannot retain women from Gen X and Millennials, and cannot attract and retain women from upcoming generations, it will face significant labor shortages leading to a range of challenges. These challenges will range from pressure to increase compensation in an industry with already compressed margins to loss of business and disconnect from younger generations. Add to this the fact that women account for an estimated 70 to 85 percent of consumer purchasing decisions, and not focusing on a critical element of the labor force is business suicide.

Address the Needs of the Talent Pool Besides attracting, developing, retaining and promoting women as a large talent group in a way that it is equal to men, another part of the challenge is women who may choose to leave the industry and their jobs to take

16 | Banking New York

care of their children, elderly family members and other familyrelated needs. This often happens because there is no other option for balancing their careers. This talent pool is so large and their needs will be only more urgent in the years to come, which is yet another reason and motivation to accommodate their needs, even if it means changing the way we’ve always done business, changing our corporate cultures and redefining our workflows.

As Millennials and Gen Z are joining the industry in increasing numbers, their expectations for flexible work arrangements, short commutes, dual-income families and balancing personal and professional lives risk driving talent shortages even further.

Organizations that focus on talent pools that the majority pass on will have the early mover advantage in shaping their talent pipeline. If others do not follow, while it will hurt the industry overall, it will be a tremendous benefit to those organizations that can adapt.

Look at the Data Data is hard to argue with, and there is plenty of it.

U.S. Bureau of Labor Statistics data show that, in 2014, women in the broader “finance and insurance” group accounted for 56 percent of employees.

The comparable number for “banking and related activities” was 62 percent, and for “savings institutions, including credit

unions” it was a sizable 72 percent.

Yet data indicates that women are less employed compared to men, tend to be in more administrative positions or in roles with HR and marketing responsibilities than as heads of industry’s business lines.

At the senior executive and board levels, women are a meager minority, often not exceeding the 20 percent threshold.

What can organizations do to truly change the situation?

Educate employees, men and women. During various teambuilding, town hall meetings and diversity-promoting events, ask women if they would be willing to share their stories of how hard it was to climb the ladder, how much longer it took, how they had to overcome stereotypes, the kinds of abuse they faced – from overt to subtle – and how at times it was impossible to maintain a job, let alone a career, while successfully balancing professional and personal responsibilities. Why? Because many men, even those with a sense of compassion and understanding, find it difficult to relate to their female colleagues’ experiences without having lived them. Even those in younger generations find it hard to truly understand the reality faced by their female peers.

Will these be uncomfortable conversations? Absolutely! Will colleagues be inclined to be politically correct and not to be honest? Quite likely! However, if we want to move forward and

overcome challenges that historically prevented women from having successful careers through societal structure and expectations, it is the first and most important step.

In Conclusion To all the men who honestly questioned whether women actually want to be (commercial) bankers, thank you. It is important to understand how people feel before tackling stereotypes and inequity.

When the playing field is truly level – and I believe this day will come in my lifetime – should some women (and men) decide to give greater preference to their families and other personal situations over careers,

at least we will know that we’ve truly created equal opportunities for everyone to thrive, and that they made the career tradeoff by choice – and not because they had no choice. We will know that we’ve encouraged them, provided flexible work and personal life arrangements, and given everyone equal opportunity devoid of archaic, misguided social norms, stereotypes and historical injustice. ■

Neil (Dima) Berdiev is managing partner and founder of DNB Advisory LLC, a Boston-based advisory firm. He may be reached at dnb@dnbAdvisory.com.

It is important to understand how people feel before tackling stereotypes and inequity.

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CYBERSECURITY | By Al Alper

Education Is The Core To Protecting Against Social Media Cyber Criminals

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Al Alper is CEO and founder of Absolute Logic and CyberGuard360. He can be contacted at al.alper@absolutelogic.com.

18 | Banking New York

t’s only natural for the banking industry to want to reach out and connect with their customers. After all, it’s a highly competitive industry and the personal touch of social media creates an intimacy that is very sticky. So, what better platform to achieve this “one with the customer” status than Facebook?

Yet, for all the benefits that social media (Facebook, Twitter and others) may provide to a lending institution to help bolster its standing in the market, or its sense of connection with the community and its customers, it’s important to understand that there really is such a thing as TMI (Too Much Information) when it comes to social media platforms.

Behind every well-intended piece

of information being shared, assume there are hackers waiting to exploit it.

Take the recent case of a bank CEO traveling overseas and largely unreachable by phone for several days. His executive secretary receives an email she believes to be from him (it says it’s from him and sounds authentic) directing her to wire $5 million in deposits to an account for a customer transfer. Believing it to be authentic, she complied.

What actually happened was that the bank was victimized by very clever hackers, who were able to determine the identity of the CEO’s executive secretary through Facebook posts, learn a little about their communication style and his travel habits, and then corresponded in a believable-sounding way.

Here are a few guidelines to follow: Do not post anything about travel habits if the executive is at the Vice-Presidential level or higher, or is someone with the authority to move money or share protected information that can be used for extortion.

Do not post, or allow to be posted, the names of any of the direct reports to anyone who is at the Vice-Presidential level or higher.

Do not post, or allow to be posted, anything of consequence about the bank on any employee’s personal Facebook or other social media pages. Talking about a bank-sponsored “Shred Day” is fine, as is sponsoring the community Little League team.

But nothing that talks about an individual’s responsibilities belongs anywhere out in the public domain.

Had the CEO been reachable by phone or in person, this might not have happened.

But the hackers adjusted their plans around the travel schedule he, and his family were posting about. They knew the schedule, and who his executive assistant was, courtesy of information posted by the bank and their employees on Facebook. The CEO was “spoofed” by hackers, meaning that they were able to assume his identity electronically.

Improbable? Hackers are getting more and more clever. A few years ago, it was arguably easier to spot the hackers because the language just didn’t sound right – broken English, grammatical errors, misuse of verb tenses. But with more sophisticated criminals, social media becomes a big opportunity for them to learn all about an institution and its employees. Hackers troll social media sites and people associated with financial institutions; they learn who the key

people are, who they work with, who they report to, what positions they have – there’s a wealth of personal information available to the criminal.

Hackers who spoof other people will utilize social media as a means to infiltrate a company externally, so that they can gain access to it internally. They will take on the personality of someone in the organization and send out infected links, for example, through Messenger or Facebook ads. An invitation to click on a link looks legitimate but it takes the user to an infected site.

It is incumbent upon financial institutions, for whom compliance is king, to develop and follow a very strong company policy on what, and with whom information can be shared, and this needs to be done in cooperation with Human Resources to fully inform everyone what people can and cannot share online.

Hackers who spoof other people will utilize social media as a means to infiltrate a company externally, so that they can gain access to it internally.

Have and enforce a policy that outlines what can and what cannot be included as public information.

Have ongoing educational programs to help employees identify potential leaks – recognize them, and avoid the temptation to click on a link just because it’s there. If, for example, you are not expecting a shipment from UPS, does it make sense to click on a link that is “from” UPS when it well may not be?

Most hackers understand that the way into an organization is through select individuals, and that social media is the forum which offers the greatest opportunity for gleaning useful facts that will help them gain access to the infrastructure.

People who are educated in what to watch for in social media will be less likely to fall victim.

Education is the key to minimizing and eliminating attacks on a bank’s infrastructure. Knowing “the enemy” is the best way to protect against him or her.

Issue Three | 19

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20 | Banking New York

BUSINESS | By Achim Griesel

Even With Amazon, A Single Product Is Not The Holy Grail

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very week financial service publications print new articles or commission studies connecting Amazon, Uber, or other companies that have forced dramatic changes in other industries, to banking. Here’s a sampling:

• American Banker, in its article from March 5, sees it as a positive for community-based financial institutions that Amazon may look to team up with one of the mega banks.

Achim Griesel

• A Bain study from March 6 states that in five years Amazon could amass 70 million checking customers in the U.S. The same study puts this in context noting this is about the same number of customers that Wells Fargo currently has.

• A variety of other publications talk about what Amazon would do if they entered the banking space and other research and publications add the name Amazon when it comes to some of their research on customer wants and desires.

Issue Three | 21

BUSINESS CONTINUED

Survey results can be questionable. The way questions are worded or the above mentioned inclusion of buzz names like Amazon, will dramatically impact the outcome of a survey.

While surveys may provide some general insights, actual data and consumer behaviors will always trump survey results.

Commissioned studies may be biased based on who commissioned them, but these studies and articles written about the topic ignore a few facts. The Bain study above states Amazon could have up to 70 million checking accounts if they truly were entering the space. It also states by teaming up with one mega bank, likely Chase, the other large banks will be the ones that will feel the impact the most.

On the positive side, the impact on community-based financial institutions may be less, but on the negative side there would be little community financial institutions can do, outside of growing their own franchises.

If and how Amazon would enter the checking account space is unknown, but related to community banking, there are a few things to consider when making the connection with Amazon or Uber.

When Amazon or Uber revolutionized their respective industries, they changed the delivery channel, not the core of the product.

Uber still takes you from place A to place B, and the majority of products Amazon sells are not newly invented. Amazon and Uber both found a better way to deliver to their audience through superior technology.

If Amazon would follow the same model, executing basic banking needs through Alexa sounds like an intriguing approach.

When it comes to the actual core product, one of the recent articles discusses whether customers would be more interested in free checking accounts or a fee-based value added checking product, if Amazon was to offer it.

The article concludes that a slightly larger portion of consumers would prefer a feebased product with additional value-add-ons over a free product.

First, if Amazon was entering the checking account space, they would not do so with a product that traditional financial institutions

22 | Banking New York

have offered for many years. It would make more sense to add value out of their current offerings. Offers like Amazon Merchant Rewards, or Amazon Prime Checking come to mind immediately.

Secondly, this research approach has a disconnect as it ties the world’s largest online retailer to the evaluation of product offerings at community-based financial institutions.

The conclusions drawn by asking an audience the question of what they would do if Amazon was offering certain products are not the same conclusions one would draw when taking the name Amazon out of the equation.

Lastly, survey results can be questionable.

The way questions are worded or the above mentioned inclusion of buzz names like Amazon, will dramatically impact the outcome of a survey. While surveys may provide some general insights, actual data and consumer behaviors will always trump survey results.

For example, fee-based accounts – with or without value-add-ons – will always have higher attrition. This is especially true when a financial institution pushes consumers to certain account types. Data from millions of actual accounts at over 150 community-based financial institutions shows the addition of value added and fee-based products increases fee income in the short-term, but it is not the recipe for long term growth. It is impossible to have a long term, strategic impact if growth is limited but attrition is higher.

All of that said, your product should not be an either/or decision. If a third of your new customers or members want a free product, and another 25% prefer an interest rate, rewards-driven, or value added product, it doesn’t make sense to limit your financial institution’s opportunities by offering only one of these three products. To achieve

strategic growth your organization must develop a customer-centric sales and service culture. If your product does not appeal to two thirds of the consumers in your markets, that’s not possible. Checking accounts that position your financial institution for organic growth have to appeal to a large segment of potential consumers.

Again, looking at actual consumer behavior, it shows implementation of a checking product, no matter if free, valueadded, or rewards-based, does not drive growth. Strategic long-term growth requires good product mix paired with extraordinary execution from your team as well as the ability of marketing to capitalize on brand and product advantages by driving traffic to your online and branch channels. ■

Achim Griesel is president at Haberfeld Holdings, a data-driven consulting firm specializing in core relationships, customer, and profitability growth for community-based financial institutions.

Mr. Griesel can be reached at agriesel@ haberfeld.com or 402-323-3793.

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