Banking New York Issue 6 2019 by ambizmedia

THE EMPIRE STATE MAGAZINE FOR FINANCIAL EXECUTIVES & PROFESSIONALS â&#x20AC;¢ ISSUE SIX 2019

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CONTENTS

ISSUE SIX

DEC 2019

STAFF

CEO, PUBLISHER & EDITOR Vincent M. Valvo ASSOCIATE PUBLISHER Beverly Bolnick

INTERACTIVE DESIGN DIRECTOR Alison Valvo ONLINE CONTENT DIRECTOR Navindra Persaud OPERATIONS MANAGER Kurt Schenher MARKETING & EVENT ASSOCIATE Melissa Pianin

Submit your news to editorial@ambizmedia.com If you would like additional copies of Banking New York Call (860) 719-1991 or email kschenher@ambizmedia.com

Cover photo: Shutter_M

IBANYS President's Update

IBANYS Readies Action Plan for 2020

IBANYS Public Affairs Update

Time To Wake Up To The Threats Posed By Credit Unions

IBANYS Member Profile www.ambizmedia.com Â© 2019 American Business Media LLC All rights reserved. Banking New York 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:

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COVER STORY: Through A Cystal Ball: What Will Banks Look Like In 2025?

The Community Bank Leverage Ratio Capital Framework

Financial Trends

Regional Banks Should Embrace Libor Alternatives

Bank Teller Will Balance Touch vs. Tech In The Future

Local Professionals Making Their Mark In New York Banking

Personnel

Bottom Line

On The Move

Did You See?

Study Shows Banks Can Highlights from the Be Hurt By Haphazard weekly Banking New York eNewsletter Lending Practices

Insight

Surprising Findings About Customers Tech Use

PAGE

GRAPHIC DESIGN MANAGER Stacy Murray

PAGE

MANAGING EDITOR Keith Griffin

Bank Teller's Role Shifts and Expands Issue Six | 3

IBANYS PRESIDENT’S MESSAGE | By John Witkowski

IBANYS Readies Action Plan For 2020

uring the holidays, I spent some time reviewing my old files. I was amazed to realize that New Year’s Eve 2019 marks the 20th anniversary of the once infamous “Y2K crisis”… and, that we are beginning the 19th year since the tragic September 11 attacks. I was equally shocked to realize it has only been 12 years since smart phones - and 9 years since iPads and tablets - have been around. Imagine a world without them today and consider the impact they have had on our personal and business lives. At the risk of sounding like our grandparents’ generation, time is moving fast and the world around us is changing dramatically. As community bankers, we need to make certain our customers, communities and employees can be confident we are constantly evolving with the times, gearing up for new challenges and are prepared to take full advantage of new opportunities. At

4 | Banking New York | December 2019

IBANYS, we are committed to helping our member banks do just that. Through our programs designed for community bank officers, board members and employees … through our ongoing representation in the halls of Albany and Washington … and by bringing together expert speakers and consultants to ensure our banks have access to the very latest trends, information, developments and strategies. With the New Year upon us, IBANYS has been working hard to develop our action plan for 2020. That includes developing our legislative agenda, formulating our educational calendar, continuing and strengthening our partnerships with our member banks, preferred partners and associate members. We begin the year in solid financial and political condition, with plans to build upon a strong foundation. We thank our outgoing Chairman Tom Amell (Pioneer Bank) for his outstanding leadership, and we look

forward to the guidance of our incoming Chairman Mike Wimer (Cattaraugus County Bank), Vice Chairman Tom Carr (Elmira Savings Bank) and Treasurer Mario Martinez (Catskill Hudson Bank). So, what’s in the cards for 2020? • IBANYS is pleased we will make our way into the downstate New York City/ Long Island/Westchester County region with some consistency in 2020. We will hold meetings and conferences in New York City, as well as in Rochester and Poughkeepsie upstate. We will conduct an effort to add new IBANYS members from among the community banks in the downstate regions. • IBANYS will continue working to increase bank, preferred partner and associate member membership in 2020. • IBANYS will also seek to expand our educational programming to include community banks in some of our neighboring states, including Connecticut, Vermont, Northern New Jersey and New Hampshire in our oneday programs.

IBANYS 2019-2020 BOARD OF DIRECTORS Chairman Michael Wimer Cattaraugus County Bank, Little Valley, NY Vice Chair Thomas Carr Elmira Savings Bank, Elmira, NY Treasurer Mario Martinez Catskill Hudson Bank, Kingston, NY Immediate Past Chairman Thomas Amell Pioneer Bank, Albany, NY ______________________________ R. Michael Briggs USNY Bank, Geneva, NY John Buhrmaster First National Bank of Scotia, Scotia, NY Anthony Delmonte Bank of Akron, Akron, NY Ronald Denniston First National Bank of Dryden, Dryden, NY Director Emeritus Christopher Dowd Ballston Spa National Bank, Ballston Spa, NY John Eagleton Steuben Trust, Hornell, NY

• Our Innovation Committee will review new products and services -- and help explore new ideas, new products and opportunities in the Fintech space – to • help our member banks’ operations, strategic planning and profitability. • Our Government Relations Committee is developing plans for the upcoming 2020 state legislative session in Albany. It will include proactive initiatives to advance the interests of New York community banks – and, we will continue to defend our community banking industry against the efforts by the tax-exempt, CRA-exempt credit unions to expand their powers and authorities – including entering the municipal deposits business – and thus make an already unequal playing field even more lopsided. • IBANYS will continue strengthening our relationships with state policymakers (legislative leaders and NYS DFS leadership). . .and, will encourage our member banks to reach out to their individual state senators and Assembly members. We will again coordinate “action alerts” on legislation of interest, urging bankers to contact their local lawmakers. Plus, we will continue to work with our partners at the Independent

Community Bankers of America (ICBA) on federal issues, and will again meet with members of our New York Congressional Delegation in Washington to advocate for our priorities. • Our CFO Peer Group/Committee will again provide input on topics, issues and speakers for our educational programming, including our one-day meetings and our longer conferences. Together, we will move into 2020 committed to the same mission we have lived since our inception more than 45 years ago: To ensure that New York’s community banks have a place at the table, that their voices and priorities are heard in Albany (and Washington), and to protect and enhance their interests and needs. ■ 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.

Gerald Klein Tompkins Mahopac Bank, Brewster, NY Douglas Manditch Empire National Bank, Islandia, NY Paul Mello Solvay Bank, Solvay, NY Theresa Phalon North Country Savings Bank, Canton, NY Phil Pecora Genesee Regional Bank, Rochester, NY Anders Tomson Chemung Canal Trust Company, Elmira, NY Kathleen Whelehan Upstate National Bank, Rochester, NY Steven Woodard Alden State Bank, Alden, 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

Issue Six | 5

PUBLIC AFFAIRS UPDATE | By Stephen W. Rice

Time To Wake Up

To The Threats Posed By Credit Unions

ur partners at the Independent Community Bankers of America (ICBA) – which represents the nation’s community banks, as IBANYS does in New York – wants policymakers and the public to “Wake Up” to the risky practices, costly tax subsidies, and irresponsibly lax oversight of the nation’s credit unions. IBANYS wholeheartedly supports this campaign, which encourages lawmakers, regulators and the public to “open their eyes” to the growing threats posed by credit unions’ abandonment of their mission, facilitated by their captive federal regulator, the National Credit Union Administration (NCUA). IBANYS agrees that “it is long past time for policymakers to wake up to the new realities of the credit union industry and subject it to the same level of scrutiny for the sake of our nation’s consumers and economic well-being. This is not the time to press snooze.” Tax-exempt credit unions have an unfair advantage and are using it to take out their tax-paying community bank competition. Credit unions are earning millions and paying less in taxes than a family of four. There is a real and direct impact not only on New York community banks, but on the communities and consumers we serve.

Artwork courtesy of the Independent Community Bankers of America

6 | Banking New York | December 2019

In New York State, credit unions: • Used their tax exemption to avoid paying $108,425,965 in federal income taxes in 2018 • Held a total of $83,906,235,219 in tax-free assets. • Used $35,780,569 of their tax subsidy on nonmember expenses • The lost tax revenue from New York credit unions would pay for 785 teachers, 490 police officers, or 573 social workers. Nationwide, credit unions used their tax exemption to avoid paying $2,761,821,857 in federal income taxes in 2018; held a total of $1,470,839,386,892 in tax-free assets; used $911,401,213 of their tax subsidy on nonmember expenses, and the lost tax revenue from USA credit unions would pay for 22,781 teachers, 14,856 police officers, or 16,453 social workers. According to S&P Global Market Intelligence, U.S. credit unions opened 77 branches and closed 55 during the third quarter. As of September 30 -- 21,364 credit union branches were operating in the country, up 88 from a year earlier. Two new credit union branches opened in New York state during the third quarter alone. ICBA distributed to Congress its new “Do They Know

IBANYS BELIEVES IT IS INDEED TIME FOR POLICYMAKERS TO “WAKE UP” AND “OPEN THEIR EYES” ABOUT THE MANY WAYS THAT TAX-EXEMPT CREDIT UNIONS HAVE AN UNFAIR ADVANTAGE, AND ARE USING IT TO TAKE OUT THEIR TAXPAYING COMMUNITY BANK COMPETITION.

They’re Tax Exempt?” white paper on credit union mission creep. Among its findings: Credit unions do not primarily serve individuals of modest means, restrict their activities to the specific communities they are mandated to serve, withheld 21 to 33 cents of every dollar in tax subsidies they receive (In 2018, that amounted to between $500 million and $900 million in taxpayer dollars not directed toward credit union members.) The message is getting out. A recent article in the “Wall Street Journal” analyzed the status of tax-exempt credit unions, citing their increasingly high-risk loans, their role in the taxi medallion scandal, the rise of growth-obsessed credit unions, and the National Credit Union Administration’s “hands-off approach.” IBANYS believes it is indeed time for policymakers to “Wake Up” and “open their eyes” about the many ways that tax-exempt credit unions have an unfair advantage, and are using it to take out their tax-paying community bank competition. IBANYS is also exploring ways to hold

discussions with our state legislators and regulators to discuss these issues. Meanwhile, we are supportive of several specific messages to Congress and the regulators regarding credit unions. We join ICBA in calling on community bankers to tell the National Credit Union Administration to adopt anti-discrimination safeguards that apply to banks. An NCUA proposal would allow federal credit unions to serve core-based statistical areas without serving their urban core, despite a court ruling that this could have a discriminatory effect We also are asking them to urge their local Members of Congress to advance legislation that will help community continue to serve military bases and rural communities on a more level playing field (credit unions currently operate rent free.) Lastly, ICBA (supported by IBANYS) told the National Credit Union Administration that it supports NCUA board member Todd Harper’s proposal to fund the creation of a dedicated consumer compliance exam program for large, complex credit unions. In a comment letter, ICBA said the proposal would help ensure that the NCUA’s consumer protection efforts achieve parity with those of federal banking regulators. ICBA noted while the NCUA says it will use fair lending laws to protect against illegal discrimination as it relaxes field-ofmembership and other regulations, the agency has conducted just 66 fair lending exams and supervisory contacts in 2018. ■ Stephen W. Rice is Director of Government Relations & Communications for the Independent Bankers Association of New York State.

Issue Six | 7

MEMBER PROFILE | By Jeff Cardone, Special to Banking New York

The Community Bank Leverage Ratio Capital Framework – Does It Make Sense For Your Bank?

O Jeff Cardone

8 | Banking New York | December 2019

n Oct. 29, 2019, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (the federal agencies) adopted a final rule that creates a new community bank leverage ratio (CBLR) framework, as required by the 2018 regulatory reform law known as the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to simplify the regulatory capital requirements for eligible community banks and holding companies that elect to opt therein. Under the final rule, a depository institution or holding company that satisfies certain qualifying criteria, including having less than $10 billion in average total consolidated assets and a leverage ratio of greater than 9 percent, would be considered a “qualifying community banking organization” and may elect (but is not required) to use the CBLR framework. If this election is made, the qualifying community banking organization would be considered to have satisfied the federal agencies’ generally applicable risk-weighted and leverage capital requirements under the existing regulatory capital framework (the Basel III capital framework) and be well-capitalized under the federal agencies’

prompt corrective action (PCA) rules. The final rule will be effective as of Jan. 1, 2020 and qualifying community banking organizations can use the CBLR framework in completing their Call Report or Form FR Y-9C, as applicable, for the first quarter of 2020.

SUMMARY OF THE FINAL RULE Who is a Qualifying Community Banking Organization? A qualifying community banking organization is a bank or bank holding company that satisfies the following qualifying criteria: (1) has a CBLR greater than 9 percent; (2) has average total consolidated assets of less than $10 billion; (3) has total off-balance sheet exposures of 25 percent or less of total consolidated assets; (4) has total trading assets and trading liabilities of 5 percent or less of total consolidated assets; and (5) is not an advanced approaches banking organization, as defined by the federal agencies (which is generally defined as a firm with at least $250 billion in total consolidated assets or at least $10 billion in total on-balance sheet foreign exposure, and depository institution subsidiaries of those firms). The federal agencies have the authority to disallow a banking organization to use the CBLR framework based on its risk profile, even if the qualifying criteria above are satisfied. How Does a Qualifying Community Banking Organization Calculate the CBLR? The CBLR is the ratio of the qualifying community banking organization’s existing measure of tier 1 capital (as calculated under the Basel III capital framework) to its average total consolidated assets. The federal agencies noted that using tier 1 capital as the numerator aligns the calculation of the CBLR with the existing leverage ratio under the Basel III capital framework, a calculation methodology that community banks are already familiar. The denominator of the CBLR, average total consolidated assets, would be calculated in accordance with the banking organization’s Call Report or Form Y-9C instructions, as applicable, less the items deducted in the calculation of tier 1 capital. How Would a Qualifying Community Banking Organization Elect to Use the CBLR Framework? A qualifying community banking organization with a CBLR greater than 9 percent (measured at the time of election) may elect to use the CBLR framework at any time. The election would be made by completing the associated line items that are required in the

organization’s Call Report or Form Y-9C, as applicable. A qualifying community banking organization becomes subject to the CBLR framework upon making the election. May a CBLR Banking Organization Opt Out of the CBLR Framework? A CBLR banking organization may opt out of the CBLR framework by completing the associated reporting items that are required in the organization’s Call Report or Form Y-9C, as applicable. A CBLR banking organization can also opt out of the CBLR framework between reporting periods by providing its Basel III capital ratios to its appropriate regulators at the time of opting out. What are the Implications of Electing to Use the CBLR Framework? A qualifying community banking organization that elects to use the CBLR framework will be considered to have met the capital requirements under the Basel III capital framework and to be well-capitalized under the federal agencies’ PCA rules. However, to be considered well capitalized under the CBLR framework, the banking organization must not be subject to any written agreement, order, capital directive or PCA directive to meet and maintain a specific capital level for any capital measure (even if the CBLR is greater than 9 percent), which is consistent with applicable federal agency rules. What Happens if CBLR Banking Organization Fails to Satisfy the Qualifying Criteria? If a CBLR banking organization fails to satisfy one or more of the qualifying criteria after opting into the CBLR framework, including the failure to maintain a CBLR greater than 9 percent (unless utilizing the two-quarter grace period discussed below), the banking organization will no longer be allowed to remain in the CBLR framework and must comply with and report under the Basel III capital framework for the quarter in which the qualifying criteria is no longer satisfied. The final rule would allow a CBLR banking organization to continue to use the CBLR framework and be considered well-capitalized for a grace period of up to two quarters so long as its CBLR ratio is greater than 8 percent. The grace period would begin at the end of the quarter during which the CBLR banking organization fails to satisfy any one of the qualifying criteria. If the CBLR banking organization can return to compliance with all qualifying criteria during the grace period, the CBLR banking organization may remain in the CBLR framework. The two-quarter grace period, however, is not

A QUALIFYING COMMUNITY BANKING ORGANIZATION WITH A CBLR GREATER THAN 9 PERCENT (MEASURED AT THE TIME OF ELECTION) MAY ELECT TO USE THE CBLR FRAMEWORK AT ANY TIME.

Issue Six | 9

available for a CBLR banking organization that fails to satisfy the qualifying criteria due to the consummation of a merger transaction. The final rule does not establish CBLR-specific PCA proxy levels (i.e., adequately capitalized, undercapitalized and significantly undercapitalized thresholds) that would have enabled CBLR banking organizations to remain in the CBLR framework indefinitely, even if they failed to exceed the 9 percent CBLR threshold. Consequently, except during the two-quarter grace period, CBLR banking organizations must always exceed the 9 percent CBLR threshold to remain in the CBLR framework. Planning Considerations The CBLR framework should be beneficial for many community banks and holding companies, as they would be subject to a more simplified capital framework that would require the calculation and reporting of a single leverage ratio (the CBLR) and eliminate the time consuming need to risk-weight assets. While this may be very attractive,

before electing to use the CBLR framework, qualifying community banking organizations should consider their current and anticipated future capital levels in view of the CBLR requirements, whether they want to increase capital with equity instead of debt, their current and planned asset mix and how it impacts their capital ratios, their anticipated growth rate and how close they are to the key asset thresholds (such as the $3 billion threshold for exempting small bank and savings and loan holding companies from the Federal Reserve’s regulatory capital requirements under the Federal Reserve’s Small Bank Holding Company Policy Statement and the $10 billion threshold). Moreover, qualifying community banking organizations must ensure that they can exceed the 9 percent CBLR threshold while executing their strategic plan, otherwise they will have to return to the Basel III capital framework, which may be counterproductive. ■ Jeff Cardone is a partner at Luse Gorman, PC, a Washington, DC-based law firm that specializes in representing community banks and other financial institutions in corporate, regulatory and executive compensation matters.

KeyBank Foundation Provides $25,000 To Help Reduce White Plains Homelessness

he KeyBank Foundation has presented a $25,000 grant to Lifting Up Westchester to support its Pathways to Self-Sufficiency program. Modeled after other successful national programs, Pathways is designed to create permanent solutions to reduce homelessness and recidivism rate at its men’s and women’s shelters in White Plains. Pathways addresses the multiple barriers faced by homeless adults as they attempt to live independently by providing housing retention support, vocational training and employment coaching, and life skills programs. “Our Pathways Program has had tremendous success since its February launch, with over 50 formerly homeless individuals being placed into permanent housing,” said Anahaita Kotval, CEO of Lifting Up Westchester. “KeyBank’s investment in Pathways, specifically the vocational and educational aspect, will have an incredible impact by helping homeless individuals find employment – an essential component of maintaining their housing.” The grant from KeyBank will specifically help fund a vocational and employment coordinator to develop onsite job training and readiness programs, and work with local employers to identify and fill employment opportunities for program participants. The coordinator will also support and track the progress of participants for six to 12 months after they have found employment to ensure job retention.

10 | Banking New York | December 2019

KeyBank Market President David Lewing and Lifting Up Westchester CEO Anahaita Kotval.

“The ability to earn a stable, living wage is the first step to self-sufficiency and the elimination of homelessness,” said KeyBank Market President David Lewing. “Job training and workforce development is a primary focus of Key’s community investment strategy and we are proud to partner with Lifting Up Westchester on their efforts to reduce chronic homelessness by addressing employment needs. ■

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FINANCIAL TRENDS | By Richard L. Sandor, Special to Banking New York

Regional Banks Should Embrace Libor Alternatives

inancial regulators across the globe recognize that Libor has outlived its usefulness as the dominant benchmark in the financial markets. Capital market participants are busy developing alternative benchmarks that will better serve the needs of various participants. The deadline for the sunsetting of Libor in 2021 is causing concern among some market participants, but it need not. It’s been my experience with change and innovation that choice will always benefit markets. While Libor has undergone technical improvements aimed at correcting its past shortcomings, I believe Libor’s apparent loss of pre-eminence presents opportunities. We have multiple rates emerging to better serve specific segments of the market. The replacements are based on actual market activity and are better suited to different sectors of the marketplace. For large financial institutions, there is the Federal Reserve’s SOFR (the Secured Overnight Financing Rate), which is a broad measure of the cost of borrowing cash overnight collateralized by US Treasury securities. The ICE Benchmark Administration, which took over the administration of Libor at the request of the United Kingdom government in 2014, has introduced another benchmark for large institutions that revamps Libor to mitigate credit risk. While these benchmark products work well for large global banks and financial institutions that are active in the repo market, the American Financial Exchange’s AMERIBOR benchmark is designed to fit the specific needs of the smallersized banks by providing a straightforward benchmark that reflects a rate for unsecured overnight lending. The smaller-sized banks play an integral role in the economy. The liquidity they provide in the regional economies help to create jobs, thereby fueling the engine of growth. Therefore, the choice of a rate is important to ensure these organizations continue to maintain the important social and economic role that they perform. Since its launch in 2015 the AMERIBOR benchmark has gained considerable traction. AFX membership and volumes have grown exponentially. Membership now stands at 150

12 | Banking New York | December 2019

institutions, represented by 124 banks plus more than 1,000 downstream banks that participate through its correspondent program – or 20% of the U.S. banking sector. Volumes are averaging close to $2 billion per day. With growing volumes and membership, the rate that is generated from the daily transactions on the Exchange — AMERIBOR — is truly a reflection of the borrowing costs of America’s regional, mid-sized and community banks. For example, banks have started to use AMERIBOR in their commercial loans to build greater/increased acceptance of the rate among its customers. What else can regional bankers and their affiliates do to prepare for the transition? To mitigate the risks of transition, institutions must understand their current risk profiles. How much is tied to Libor and how much expires before and beyond 2021? What alternatives can be considered? From an asset-liability point of view what can be done to prevent imbalances? Regulators will be watching for more disclosure and preparedness on these issues. There are also educational issues – the use of new benchmarks will require educating loan officers, staff and customers. Many people don’t know that their mortgage and credit cards are tied to Libor. Along with recordkeeping, education and transitioning to a new rate or rates, a bank needs to select the right rate. Does it accurately represent the cost of borrowing for an institution? If the chosen rate creates assetliability mismatches, it obviously increases operational and financial risks for the bank. Boards and risk (Alco) committees must be aware and prepared to address these issues. Support for change and choice is coming from regulators. The Federal Financial Institutions Examination Council (FFIEC) is raising awareness and helping to educate financial institutions and examiners about planning and transitioning from Libor as a reference rate. The International Swaps and Derivatives Association (ISDA) is also active in educational efforts related to the transition away from Libor. The transition to new benchmarks, and the creation of new markets that comes with it, will require building institutional infrastructure. That

means that bankers and regulators need to be joined by accountants, lawyers and academics who can help provide the research and the training required to help a new generation of professionals understand the changes and new options. We have every reason to believe that the U.S. financial sector, the most developed, flexible and innovative in the world, will maintain an orderly and smooth transition to new interest rate benchmarks. Industry groups are organizing to educate stakeholders. There are contracts currently being traded on organized exchanges, which will provide greater transparency and price discovery. That will speed up adoption. When it comes to alternative rates, choice is critical. It enables participants to pick the appropriate rate for their circumstances and helps lower systemic risk. In times of crisis, it is better to have a choice of rates than a single benchmark. A rate like SOFR caters to bigger players, while AMERIBOR, an unsecured rate derived from transactions on the AFX, is better suited for regional,

mid-sized and community banks and other financial institutions. I urge regional banks to take the long view and embrace Libor alternatives. I started working on interest rate futures in 1969 and we launched the first futures six years later. It took a decade, and the Volcker tightening in late 1979, for them to take off. Likewise in this scenario, thereâ&#x20AC;&#x2122;s time for banks and everyone involved to prepare and benefit from better choices ahead. â&#x2013; Dr. Richard Sandor is chairman and CEO of the American Financial Exchange (AFX),Â theafex.com, an electronic exchange for direct interbank/financial institution lending and borrowing.

Issue Six | 13

PERSONNEL | By Candace Talmadge, Special to Banking New York

THE EVOLVING TELLER

In The Digital Era, The Bank Teller’s Role Shifts And Expands

ill the bank teller in the digital age ultimately be a sophisticated robot? That’s where the industry is heading, according to a PwC financial services technology trends report. For now, however, the shifting role of the human bank teller embodies the profound changes that digitization is bringing to banks of all sizes. The initial advent of online account access and then mobile banking have upended the teller’s role right along with the entire industry. With smart phones, “the bank is now in the palm of their (customers’) hands,” pointed out Honey Shelton, president of InterAction Training Systems of Humble, Texas. Shelton has been training tellers and other bank employees since 1983. Changes in the teller’s role have happened faster in banks serving large urban markets like New York City than smaller or rural markets, said Jim Burson, managing director of financial services industry consulting and research firm Cornerstone Advisors. But, Shelton added, community banks in smaller rural markets are now scrambling to catch up. Reduced Opportunities Digitization is reducing the opportunities for employment as a teller and prompting banks to close bank branches. The U.S. Bureau of Labor Statistics forecasts a 12 percent drop in the numbers of U.S. teller jobs between 2018 and 2028. And banks were operating 8.6 percent fewer branches at the close of 2018 than at the end of 2013, the FDIC reports. But fewer tellers in fewer branches is by no means the whole story. The role of the teller is evolving. Different institutions use varying titles for the new role, such as universal banker or

Tellers now need a set of skills to enhance the customer experience. Tellers and managers are trained not to sell customers what they don’t need, but instead to look for ways to make the customer experience better. That way of thinking “can be very foreign to a bank.” – Honey Shelton, InterAction Training Systems branch associate. But there is a common thread. Tellers are now doing a lot more for customers than taking in cash deposits and handing out withdrawals. “The complexity of the teller’s job has increased significantly,” said Christopher Maher, chairman/CEO of OceanFirst Bank, which retrained more than 500 frontline employees in about 65 branches. Those who become certified as a universal banker get a pay boost. Training is key, Shelton emphasized. Universal bankers or branch associates may be called on to handle something complicated like opening a partnership account, while managers now chip in to take deposits. Shelton said that since such tasks are not routine, the bank should have detailed instructions readily available to the branch associate or universal banker to consult in such instances. More Certification & Training Shelton also noted that the expanded teller role also involves keeping a close watch for signs of fraud. Then there is assisting customers with technology snafus. OceanFirst also certifies tellers as digital bankers capable of guiding customers through issues with popular thirdparty financial apps like Venmo, Maher said. Tellers now serve customers remotely via video from centralized locations. OceanFirst closed or consolidated roughly 40 branches over the past three years, and

invested some of the savings into training and customer care centers, Maher explained. A lot of banks are moving tellers to centralized offices, Shelton said. Tomkins Mahopac Bank, headquartered in Putnam County, N.Y., began training its tellers to become branch associates three years ago, said Carol Schmitz, senior vice president/community banking manager. Tomkins Mahopac takes advantage of digital tools to like texts and emails to keep customers informed. It uses voice calls from branch associates to talk to them about their financial needs and discuss products that can help them. Most Tomkins Mahopac tellers welcomed the new career opportunities, but a few found it hard to adapt to relationship phone calls, Schmitz added. And the teller’s digital age role is all about relationships. So much so that the physical barrier of the line is going away, Burson said. Instead, tellers are morphing into concierges and greeters who circulate among customers, talking with them, looking for opportunities to nurture relationships and watching for signs of fraud. Patriot Bank N.A., Stamford, Connecticut, began the process of redesigning its nine branches and reshaping teller roles two years ago, according to Fred Staudmyer, the bank’s executive vice president/chief administrative officer. The first step was to introduce interactive teller

The U.S. Bureau of Labor Statistics forecasts a 12 percent drop in the numbers of U.S. teller jobs between 2018 and 2028.

Issue Six | 15

machines (ITMs), which offer live tellers via video at its branches plus at Westfield Trumbull shopping center in Trumbull, Connecticut, and at Housatonic Community College in Bridgeport, Connecticut. These touch screen ITMs enable customers to conduct virtually all the business they could transact at a teller counter inside a branch. The next step was to test cash recyclers in its branches to manage deposits and withdrawals more efficiently. These machines free up teller time for higher value activities like cross sales, opening accounts, and telemarketing. Potential In Visitors Indeed, those fewer and less frequent branch customer visits still hold a lot potential for banks that branch associates or universal bankers are now tasked with

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16 | Banking New York | December 2019

uncovering. The Federal Reserve’s latest triennial Survey of Consumer Finances showed that those who still visit bank branches the most tend to be older, wealthier, and self-employed. “This makes the teller a really valuable employee,” Shelton pointed out. One challenge for the industry in the changing role of the teller is recruiting, Burson said. The skills needed for new teller role are much greater than the traditional entry level position. Banks now must find, attract, and retain the right kind of talent to fill the roles of universal banker or branch associate. Tellers now need “a set of skills to enhance the customer experience,” said Shelton. She trains tellers and managers not to sell customers what they don’t need, but instead to look for ways to make the customer experience better. That way of thinking “can be very foreign to a bank,” she added. In order to be truly successful, branch associates or universal bankers also need a manager to model the behavior the bank wants and to coach them continuously, Shelton said. Patriot Bank retrained and renamed its tellers and head tellers as service associates and senior service associates, Staudmyer added. Patriot Bank senior service associates have been trained to open accounts, send ACHs and wires, and conduct outbound telemarketing. Several of Patriot Bank’s senior service associates have enhanced their careers with training and are now working in its banking center, deposit operations, and SBA loan operations. Taking on new responsibilities creates upward mobility and improved performance, leading to pay increases. ■

BOTTOM LINE | By Francesca Ortegren, Special to Banking New York

Study Shows Banks Can Be Hurt by Haphazard Lending Practices

mericans are carrying a lot of debt, and the majority of that debt is in their mortgages. According to the Federal Reserve Bank, U.S. mortgage debt has reached $15 trillion. But a new study from my company, Clever Real Estate, suggests that the massive mortgage lending market is still burdened by inefficient practices and poor communication. Setting aside the economic effects, this kind of sloppiness can lead to dissatisfied borrowers and drag down the reputations of banks and lenders. Ironing out these wrinkles is a win-win: banks make more money, and customers are happier.

Let’s look at some of the study’s biggest findings and discuss how they can be used to improve the customer experience. State Interest Rates Seem Arbitrary A lot of consumers think the Federal Reserve sets interest rates, but we know that’s not exactly the case. While the Fed sets the Fed Fund rate, it’s up to lenders to determine their own mortgage rates. But a survey of national rates indicates that lenders might be going too far, giving the impression of arbitrariness or even exploitation. The average national rate for mortgages in 2018 was 5.04 percent. Some states had rates well below

Issue Five | 17

that, as in Hawaii and its 4.24 in foreclosures. When the percent interest rate. But other former goes up, so does the states had rates that were nearly latter. Foreclosures are bad According to 150 percent of the average for everyone; lenders lose up rate, for reasons that remained to $50,000 on a foreclosure, the Federal mysterious even to experts. according to FDIC data, when Ohio, for example, had one of you take into account the home’s Reserve, increased the highest rates in the nation, reduced market value and the interest rates at 7.07 percent. But it also had lost profits from having the a much higher than average loan go to term. Foreclosed increases foreclosure rate, according to properties also hurt surrounding foreclosures. ATTOM Data Solutions’ 2018 property values, which impacts Year-End Foreclosure Market governments come tax time. Report, an expense which could Low, reasonable interest rates account for why lenders felt the not only act as an enticement for need to push up their rates. potential borrowers, they also On the other hand, look at West Virginia. The create a stable community, which is in everyone’s Mountain State had the second highest mortgage best interests. Advertising low rates, especially in interest rate in the nation, at 7.39 percent. But the markets where there might not be natural downward state foreclosure rate was extremely low. So, what’s pressure on them, is a great way to attract business driving up the rate? The study suggests that, with as well as trust. only 40 loan officers per 100,000 citizens, it’s the lack of competition. With no competitive pressure Fees Are a Problem, Too to drive down rates, the few lenders in West Virginia It’s not just interest rates that seem arbitrary. have felt free to jack up their rates. While this is a Mortgage fees, when compared between states, also simple demonstration of market forces, it’s clear how seem questionable. Fees cover standard services consumers, especially in states like West Virginia, like underwriting, document preparation, and the might feel ill-served. application process, so you’d think there’d be some It’s been well documented, in studies by the consistency across markets. Unfortunately, this isn’t Federal Reserve and others, that there’s a correlation the case. between an increase in interest rates and an increase Nationally, the average borrower paid about

18 | Banking New York | December 2019

“It’s in everyone’s best interests to lower our collective risk profile.” –Dr. Francesca Ortegren

$2,000 in mortgage fees. But these fees varied wildly between states. In Pennsylvania and South Carolina, consumers got off easy, with fees under $600. But Hawaiian borrowers were hammered with fees that were 350 percent of the national average. The fact that Hawaii’s rock-bottom interest rate is coincidentally accompanied by some of the nation’s highest fees doesn’t just defy economic logic, it also looks bad to customers. Lowering fees, especially in markets where they seem arbitrarily high, would grant a huge competitive advantage. It also happens to be a good business practice. CFPB data showed that borrowers were much more likely to file complaints in states with high mortgage fees; for example, in D.C. and Virginia, which both have much higher-than-average fees, lenders were bombarded with borrower complaints 250 percent more than average. The data is unambiguous: high fees lead to unsatisfied customers. If you want to attract, and keep, high quality borrowers, limit fees to average levels, or below. A Return to Common Sense After a decade of sober restraint, it looks like lenders have rediscovered an appetite for risk. And it comes right from the top. The Washington Post reported that the federal government has been encouraging lenders to issue risky loans that borrowers might not be able to repay. One of the ways it’s done that is to increase the acceptable DTI range. In the past, lenders have preferred borrowers with a debt-to-income (DTI) ratio of 43 percent or less. This is just common sense: if a borrower is using up half or more of their income servicing other debts, letting them take out more debt is a big risk. But lenders are drifting away from this wisdom. In 2018, more than 15 percent of mortgages were issued to borrowers with DTIs greater than 43 percent, and this year Fannie Mae increased their allowed DTI to 50 percent. While this is going to keep the economy humming along, it also increases the risk of a 2008-style catastrophe. Raising the DTI ceiling makes sense in some states. For example, a lot of these riskier loans are being issued in expensive states like California and Hawaii, where the high cost of living necessitates taking on more debt. But even taking that into account, a lot of these borrowers are likely getting in over their head. In pricey California, the new max mortgage amount is $679,650, and the interest rate is 4.79 percent. But to make that monthly payment of around $4,000

without spending more than the recommended 28 percent of their income, this borrower would have to make at least $185,000 a year. Considering the 2017 median household income in the state was only $71,805, this suggests there are a lot of debtburdened, cash-strapped, house-poor borrowers in the state. The CFPB complaint data supported this conclusion. Borrower complaints came in at much higher rates from consumers who were approved for higher loans, and over a third of the complaints were from borrowers struggling to pay their mortgage. This suggests that people are being approved for loans that are out of proportion to their ability to pay, a situation that leads to stress, bad credit, and, often, foreclosure. Responsible Lending This represents a great opportunity for what you could call “responsible lending.” Borrowers might think they want the largest loan possible, but it’s up to loan officers to explain why that’s a bad idea. With a little sensitivity, this can be done in a way that doesn’t come off as patronizing, and could even cultivate trust. As a company policy, this has obvious appeal. There are a lot of lenders are willing to let borrowers get themselves into hot water; the ones that help borrowers back away from financial peril and make responsible choices will be in line for a load of goodwill and customer loyalty. The bottom line is, we’re all in this together. If the housing market goes down, everyone’s going to feel the pain, from buyers to real estate agents. And while foreclosures are an expensive cost for banks and lenders, it’s nothing compared to the public relations hit that follows TV news footage of overextended debtors being kicked out of their homes. Public trust still hasn’t recovered from the last crash, and the next one might already be on the horizon. It’s in everyone’s best interests to lower our collective risk profile. ■

Dr. Francesca Ortegren is a research associate at Clever Real Estate, a free online service that connects buyers with agents to save money on commissions. Issue Six | 19

INSIGHT | By Bruce Paul, Special To Banking New York

How Good Is Your Technology? Your Customers Told Us. The recent Banking Benchmarks collected hundreds of thousands of reviews from consumers and businesses across New York and revealed some interesting and surprising findings about how they use and view banking technology, and how gender, age and income drive that usage.

20 | Banking New York | December 2019

> Does better technology and tools really help

retain customers? Absolutely. The analysis across every single bank in the state shows that consumers and businesses that use and like their bankâ&#x20AC;&#x2122;s technology are 26 percent more likely to remain loyal and to increase their share of wallet with the bank. On the flip side, bad, out-ofdate technology increases the likelihood of a customer leaving by 202 percent! Fortunately, most banks are doing a good job since only 10 percent of customers think the technology at their bank is subpar. (see the case study for two examples) Do you know how your customers rate your technology?

> Do Better Tech And Tools Really Attract New

Customers? This answer is more complicated. Most consumers do say that technology is important in choosing a new bank. That much is clear. But what is less clear, in the minds of those same consumers, is which banks actually have the best technology. The latest Benchmark results show that 71 percent think most banks and credit unions have about the same caliber technology and tools as every other bank. Out of the thousands of institutions we cover, the vast majority were rated average in technology by prospects (their potential customers). We asked prospects how good or bad they thought the technology would be at other places they do not yet bank at, and only 24 banks and credit unions in New York we seen as truly bad.

> Does Bigger Equal Better In Tech?

When consumers are asked to rank banks they have not used, they are slightly more likely to assume that the larger banks have better technology and tools than smaller ones. However, this gap has been narrowing

Better than average 36%

Average 54%

Worse than average 10%

over the past 5-6 years as more and more customers tell us that they assume all institutions have basically the same level of online and mobile services. In fact, when we analyzed the latest Benchmark results for each individual town across New York, we found that in over 80 percent of the towns, there was at least 1 community bank ranked in the top 3 in technology by potential customers. This is bad news for the largest banks because it means that the hundreds of millions of dollars they have spent developing and marketing their technology, has resulted in very little differentiation from the smaller banks. When consumers and businesses are asked to rate their own bank, it is a different story. As you can see from the regional rankings listed here, smaller community banks are rated as high or higher than the largest banks over 55 percent of the time. It also shows that some banks are inconsistent in different areas of their footprint: they are rated highly by customers in one area but lower by customers in another area. This is usually due to inconsistent training (see case study). This serves to remind all banks that while the biggest banks might have an advantage in spending and image, community banks can certainly hold their own.

> The Times Are Changing

New York banks have to ensure that they are ready for the continuing shift away from the branch toward technology. More than two-thirds of NY customers say they will increase their usage of online and mobile banking tools in the coming year. For high income earners (earning over $250,000 per year), that increases to 71 percent, and for Millennials, that goes up to 74 percent.

> Millennials Changing The Landscape, Not

Demolishing It. Many bankers we meet with believe that the younger generation, the Millennials, is causing the branch to go the way of the dinosaur. And many others say that the only reason to keep branches open is to accommodate a handful of elderly customers who just want to come in for a chat. In NY at least, both of these notions appear to be overblown. Across the state, less than half of Baby Boomers say they prefer using a branch or the phone over online and mobile. Among Millennials, about a quarter say they actually prefer the branch or phone versus online and mobile. Keep in mind that this does vary quite a bit from area to area, so it is very important to understand the dynamics in your particular trade area.

> Gender Gap

In a reversal of roles in years past, women in New York are now almost 20 percent more likely than men to prefer online/mobile to branch/phone. Women are also going to increase their use of online and mobile faster, further widening this technological gender gap. This

Issue Six | 21

gender disparity is playing out in some interesting ways, with a few New York banks ranking much higher among women than men. With the financial and tech savvy of women compared to men, this could be a very lucrative approach for the banks with the right image.

> The Threat of Non Banks

Many articles have proclaimed the banking industry as doomed in the face of a fintech revolution, with companies like Apple, Google, Amazon and others supposedly poised to relegate the hapless old bank to the history books alongside the telegraph office and the general store. In New York, non-banking technology has made some inroads, with 33 percent of customers currently using some non-banks to handle their money. While that is not a surprise to many, what might be a surprise is that Millennials are the least likely to use non-banks and Baby Boomers are the most like to do so. The reason lies not in age, but in wealth. New York residents with incomes over $100,000 are much more likely to have diversified their financial partners than their less well-off counterparts. Since we are continuously interviewing so many households and businesses about their banking lives, we often take the opportunity to probe deeper for our subscribers into the issues they care about. A large number of them have been asking about non-banks lately, so we took it upon ourselves to ask if they would ever consider banking with some high profile non-banks that are thinking

Banking Benchmarks® Spcial Analysis

Would You Consider Banking With ... Paypal

Amazon

Google

Apple U.S. Postal Service Walmart

Starbucks

Facebook 0%

20%

22 | Banking New York | December 2019

40%

Technology & Tools Western NY Allegany, Cattaraugus, Chautauqua, Erie, Niagara 1. Bank of America 2. Northwest 3. M&T 4. KeyBank 5. Community Central NY Broome, Cayuga, Chemung, Chenango, Cortland, Delaware, Genesee, Livingston, Madison, Monroe, Onondaga, Ontario, Orleans, Oswego, Schuyler, Seneca, Steuben, Tioga, Tompkins, Wayne, Wyoming, Yates 1. Chase 2. Canandaigua 3. Tompkins Castile 4. Tompkins Trust 5. Lyons Capital NY Albany, Columbia, Greene, Rensselaer, Saratoga, Schenectady, Warren, Washington 1. Greene Cnty 2. Kinderhook 3. Berkshire 4. Capital Bank 5. Ballston Spa

Mohawk Valley-North Country Clinton, Essex, Franklin, Fulton, Hamilton, Herkimer, Jefferson, Lewis, Montgomery, Oneida, Otsego, Schoharie, St. Lawrence 1. Watertown NY 2. Glens Falls 3. Champlain 4. Community 5. M&T Hudson Valley NY Dutchess, Orange, Putnam, Rockland, Sullivan, Ulster, Westchester 1. Chase 2. TD Bank 3. Capital One 4. Citi Bank 5. Jeff Bank NYC NY 5 Boroughs 1. Chase 2. Bank of America 3. Capital One 4. Maspeth 5. Citi Bank Long Island NY Nassau, Suffolk 1. Chase 2. Capital One 3. TD Bank 4. Citi Bank 5. Bank of America

of invading the banking space. The results are below. As you can see, PayPal is in the best position, while Facebook is even less considered than Starbucks. We also saw a big variation by geography · In greater Albany, households and businesses were much less trusting of these companies to handle their banking · In NYC and Long Island, they were much more likely to trust Google and Apple · Across Central and Western NY, people were much more likely than elsewhere to trust the Postal Service to deliver banking (rain or shine!) We also saw some interesting differences by gender · Men are more likely to trust cyberspace-based entities like PayPal, Amazon and especially Facebook with their banking · Women are much more likely to trust entities with a physical presence like the Postal Service, Walmart and even Starbucks Banking Choice Awards > The Banking Choice Awards will be awarded again in 2020 and the rankings for Tools and Technology below are a midyear preview of those results. The ratings and rankings are based upon interviews we conduct with each institutions’ own customers. The rankings are likely to change before the Awards as some institutions roll out new services and as others (regrettably) stumble. Stay tuned (or contact us to get your own results)!

> In Conclusion

Technology and tools really can make a difference in customers’ experience, and usually for the better. It is important to know how your customers rate your technology—is it making their lives better or causing hassle?

CASE STUDY: Two Community Banks recently updated their online banking services within a few months of one another in the middle of last year. Both used the same core provider and upgraded to the same online platform. Before the transition, both of their respective customer bases rated their technology very poorly and at both banks the online and mobile usage was 20-25 percent behind local competitors. The percentage of customers at each bank that did not know how to use the tools was between 45 and 50 percent. A year later, the outcomes have been very different. For Bank A: • A 17 percent increase in the number of their customers using the online tools • Customers now rate the bank’s technology 7 percent above average • Loyalty and cross sell has started to increase • Average cost-to-serve has just started to drop • They got everything they hoped from such a big investment

Just as important is to know how those ratings compare to your local competition, so you know before you fall hopelessly behind. Once you have gotten the objective feedback from customers, then you can plan how to fix it and prevent attrition, or to leverage it to increase loyalty and gain new business. ■ Bruce Paul is the founder of the Pennsylvania, MD, New Jersey Banking Benchmarks, and leads the Banking CXlign team at the Rivel Research Group. For Bank B, the transition has been tough: • Online usage has actually dropped 3 percent among customes • Loyalty has dropped slightly • Complaints have soared • So far, the net result of the transition has been a negative So why such different outcomes despite moving to the exact same tools? Their customers are very clear (we interview thousands of them as part of our Banking Benchmarks): the training they received was vastly different. At Bank A, one year after transition, 9 percent of the customers say the tools are hard to use and 12 percent said they still needed training to use the new tools. At Bank B, it is 59 percent and 62 percent, respectively. Bank B leadership had assumed that the tools would be intuitive enough that their customers would figure them out and did not have a structured training program for their customers—or their staff. During our customer interviews, we hear comments like: “how am I supposed to be able to use the online banking if the staff at the branch don’t know how?” The clear lesson is that the training is at least as important as the tools themselves.

Issue Six | 23

What Will The Branch Look Like In 2025?

CRYSTA A H L

COVER STORY | By Ian Hough, Special to Banking New York

Data Science Will Play A Huge Role Regardless

hat will bank branches look like in the future? This is the burning question on many industry peoplesâ&#x20AC;&#x2122; lips, and for good reason. In preparation to write this article, I did what any bank branch expert would do and Googled it. No, really. But some of what I read sounded more like an episode of The Jetsons than a commonsense description of how current culture and technology might evolve based on our own studies here at Solidus. There were references to flying cars and customizable robots, holograms and advanced biometric security, and who am I to argue with these conjectures? Flying cars aside, most of it sounds pretty much inevitable. But â&#x20AC;Ś Predicting what branches will look like in 2025 really is just a speculative view through a crystal ball, mainly because unforeseen technological innovations and subsequent lifestyle changes may derail current trends. But if one thing is certain, it is that data science will soon play a more central role in the location, design and function of bank branches.

24 | Banking New York | December 2019

Most writers choose to focus on the technology and superb customer service we’ll come to expect by 2025, without explaining how data and artificial intelligence (AI) will be at the root of the culture. Big Data has been a thing for much longer than many people realize. Masses of statistical information about human populations have been collected for hundreds of years, but it is only recently that AI has begun to do magical things with it. Previously undreamed possibilities have opened up for marketers and retailers—and community banks need to be part of this. Currently available (but largely underutilized) data applications for our industry include: market and socioeconomic analyses to determine the most profitable branch locations; strategic (data-driven) designs that drive selection of market-preferred branch delivery channels, and marketing insights compiled from automated and manually-entered customer relationship management (CRM) data that enable superlative and timely customer experiences.

Big Data And The Science Of Where

really are (earnings, magazine subscriptions, favored grocery stores and restaurants, etc.). Knowing who your best customers are, and why your brand resonates so well with them, means being able to design branches whose delivery channels and layouts are tightly coupled to market preferences and therefore more likely to receive higher traffic and usage. This will be the norm within the next five to 10 years, and financial institutions that fail to apply data to their branch designs will appear irrelevant and fall by the wayside.

Dialogue Banking & Data Capture

In these times of decreased branch traffic, every visitor to your branch deserves your full attention, and to be made to feel part of your organization’s mission. Relationship building is the first objective of dialogue banking, but the goal of deeper customer engagement should ultimately be data capture. Some progressive banks today are already experimenting with highly personalized banking experiences, facilitated by Masses of statistical specialized CRM tools. Unfortunately, most banks information about human are not yet following this populations have been practice. This situation will have changed dramatically by collected for hundreds of 2025, as the importance of truly knowing your customer years, but it is only recently assumes a central role in that AI has begun to do banking.

When evaluating potential branch profitability, location is everything. Banks today are adopting the use of location analytics in growing numbers, and by 2025 the practice will be integral to the business of siting and designing new branches, as magical things with it." well as evaluating existing Where Do You ones for consolidation or Find This Data? closing. The harsh reality The type of data being is that stagnant branch discussed above is supplied networks that continue to by companies who specialize perform barely adequately (while competitors relocate in geographic information systems (GIS) software and and evolve around them) will see diminished profits and geodatabase management applications. The data is lower branch traffic, and they might not even exist in only one component of the overall process; analytical 2025. expertise and on-the-ground field work conducted The time to apply Big Data to branch network by site selection professionals is also required when optimization is now if survival is to be assured. Future determining a location for a new branch. Financial branch site selections will be supported by such thorough industry-experienced architects, designers and builders location and socioeconomic analyses that they couldn’t can use the same type of data to create custom branches possibly be sited any better than where they’ll be. And that are optimal for their markets. And finally, financial considering that it takes one to two years from initial institutions themselves can load CRMs with their own planning to the opening of a new branch, 2025 is a lot customer data to provide seamless experiences across closer than it seems. channels that reflect their customers’ most personal preferences. When this data is combined with specialist Market-Driven Branch Design expertise, AI and banking technology, we will have truly Data drives branch site selection and branch strategy, entered a new age in banking. which in turn drives branch design. Socioeconomic analyses can reveal correlations between customer 2025—A New Age in Banking segments and successful branches in geographically By 2025, physical branches will have evolved to different markets. These types of data can uncover become super-efficient and convenient, sited in the detailed information about who your best customers best possible locations to maximize traffic and access.

Issue Six | 25

Branch architecture will be tailored to resonate with specific socioeconomic groups and to reflect the degree of financial and cultural sophistication in each market. The smart technology inside branches will be connected to customer devices, the organization’s CRM, and beyond to other databases. The so-called “Internet of Things” will be married in a very real sense to our most basic technologies, and ultrapersonalized service will be the norm. We’ll be synced up to our financial activities via apps, electronic calendars, and even implanted chips. Advanced beacon technologies will detect our presence in (or close to) branches and send welcome messages, updates, invitations to events, or reminders to pay bills or make deposits. Here We Go… Perhaps now we’re finally ready to start the engine of our decidedly terrestrial car and, with the above in mind, take a trip to our local bank branch in the year 2025. The first thing we notice as we approach the branch will be the visual impact of the exterior branding and signage and possibly even branding elements being projected outward from the branch interior. Our smartphone may buzz as we’re reminded of the appointment we have with a financial consultant within the branch, or perhaps with offers of specific services we are known to seek around this time of year. The general exterior architecture clearly reflects that of nearby housing developments, local geography, or even ethnicity, whose occupants tend to compose a certain socioeconomic group. As we enter the open-plan space, a digital handshake between our phones and every in-branch application ensures that all of the organization’s networks are aware that we are in the “area of play.” A concierge seated at a “perch” by the door acknowledges us by name, and our name then appears on one of several flat screens set in the facing wall. The image on the screen of an enthusiastic banker beckons us forward. The exchange rapidly assumes a “meta” quality as the two of us begin discussing information we are simultaneously

accessing on phone and tablet independent of the audiovisual software that connects us. There are ITMs (the preferred transaction method of our locale) built into a lustrous natural wood wall to the right. Beyond it, past the hydration bar, defined by “living” movable wooden slat walls that contain snaking vines, we see several casually differentiated areas: a consultancy “cove” for semiprivate financial discussions with easy chairs and a coffee table; a more privately walled-off area with higher table and chairs, and, beyond these, two private, glass-fronted offices for completely confidential appointments. The central space is broken up by interactive standalone kiosks and multimedia merchandising elements, each of which loads the most appropriate dialogue topics with which to engage any known visitor within the branch. We expect to be able to interact on a custom personalized level with any piece of technology we choose with minimal security concerns. Our conversation with the image on the flat screen has transferred to SMS media with a third party now included—a consultant in one of the private offices, who is accessing our information via their PC as we walk past the living walls and hydration bar to meet with them face-to-face. We relax as we anticipate this face-to-face meeting; it is more secure, and there’s sometimes a need to connect emotionally over personal finances. In 2025, we still feel a little threatened when we see our most intimate property being displayed or discussed via technology like email, websites, or chat bots. Because despite being immersed in all this amazing technology, we are mortal, and we trust nothing more than another warm body with which we can literally shake hands. ■ Ian Hough is director of marketing for Solidus, a turnkey construction company specializing in branch transformation for the financial industry.

Customers More Satisfied With Banks Than Credit Unions It’s a pyrrhic victory of sorts. Banks have higher customer satisfaction than credit unions but only because of increased dissatisfaction with credit unions. The American Customer Satisfaction Index’s Finance, Insurance, and Healthcare Report 2018-2019 shows nationally customer satisfaction with banks is down 1.2 percent to a score of 80 (on a scale of 0-100). Credit unions, though, saw an even bigger drop in consumer satisfaction. They were down

26 | Banking New York | December 2019

2.5 percent from 81.5 to a score of 79. Among banks, regional and community institutions still lead the pack despite a 1.2 percent drop to 83. However, national banks close the gap, up 1.3 percent to 78, placing them in a tie with super regional banks (down 1.3 percent) for the first time. This year, all four national banks are at or within a point of their recordhigh scores for customer satisfaction. Citibank surges 3 percent to the lead at 81, and Chase is second at 79, inching

back 1 percent from its record high posted a year ago. Bank of America is next, up 1 percent to 77, followed by Wells Fargo, which rises 3 percent to 76. “Customers want mobile options, and big banks have the resources to deliver,” says David VanAmburg, managing director at the index. “As technology improves, so does customer satisfaction. The personalized service that’s the hallmark of smaller banks and credit unions may no longer be as critical to customers, especially a younger demographic.” Among super regional banks, BB&T leads after a 1 percent increase to 80. Last year’s leader, Capital One, dips 2 percent to 79, meeting PNC Bank (up 1 percent) and U.S. Bank (unchanged). Three banks match the category average with scores of 78: Citizens Bank (unchanged), Fifth Third Bank (up 4 percent), and Regions Bank (down 1 percent).

ON THE MOVE

NEW YORK

TRY TO KEEP UP

Moran Appointed CFO, Annette Burns Promoted To Chief Accounting Officer at NBT

LOCAL PROFESSIONALS MAKING THEIR MARK IN NEW YORK BANKING

NBT Bancorp Inc. President and CEO John H. Watt, Jr. announced that John V. Moran has been appointed executive vice president and chief financial officer and Annette L. Burns was promoted to senior vice president and chief accounting officer. Moran will serve on NBT’s executive management team and will be based at the company’s headquarters in Norwich, NY. He brings 17 years of experience in the financial services industry to his new position. Prior to joining NBT, he was senior vice president and director of corporate development & strategy for Old National Bancorp, a $20 billion financial services holding company based in Evansville, Indiana. “John Moran is a critical addition to NBT’s Executive Management Team,” said Watt. “His participation in bank corporate finance and strategy coupled with his extensive experience as an investment analyst gives him a unique perspective that will provide guidance to our team as we engage in ongoing initiatives to grow NBT and enhance shareholder value.” In addition to his role at Old National, Moran brings significant experience in corporate finance and investment research to NBT. He was previously employed by Macquarie Securities from 2010 to 2017 and, prior to that, by Cohen & Company and Ryan Beck & Co. Moran earned his bachelor’s degree and MBA from

Rutgers University and his master’s degree in Real Estate Development from Columbia University. He is also a CFA Charterholder. Moran is succeeding Michael J. Chewens, who is retiring following a 25-year career with the company. Chewens will continue to be employed by NBT through March 31, 2020 and will assist with the transition. Burns is a CPA with nearly 25 years of experience in accounting and finance. She joined NBT in 2013 when the company acquired Alliance Bank and advanced to the position of corporate controller later that year. In 2019, Burns was promoted to senior corporate controller. She earned her bachelor’s degree in Business Administration from St. Bonaventure University.

KeyBank Names Jacques Market Leader, Commercial Banking

KeyBank announced Dan Jacques has been promoted to market sales leader, commercial banking, for the Capital Region. In his role, he will oversee customer service and business development throughout the Capital Region and manage a team dedicated to providing expertise and financial solutions to middle market clients. He is based in KeyBank’s Capital Region headquarters office in downtown Albany.

Jacques has been with KeyBank for more than 20 years, most recently serving as an enterprise banker focused on serving large middle market clients across Eastern New York. He also led KeyBank’s healthcare business efforts in Eastern New York. He began his career with KeyBank with Key Equipment Finance and later spent 11 years with the public sector group, serving large government and nonprofit organizations. “Dan’s diversity of experience, as well as his track record developing and growing strong commercial client relationships and delivering a superior client experience positions him well to lead this team and grow the commercial banking business in this market,” said Ruth Mahoney, president, Capital Region, KeyBank. “He has had a tremendous career with KeyBank, and we look forward to his continued success in this new role.” Jacques earned his bachelor’s degree in economics and management from The State University of New York at Cortland. He is a past board director for Junior Achievement of Northeastern New York and the Boys and Girls Club of Albany, N.Y. He also has served on the Capital Region advisory board for St. Jude Children’s Hospital.

Community Bank Appoints MacPherson As New Independent Director

Community Bank System, Inc. announced that its board of directors has appointed Kerrie D. MacPherson, FCPA, FCA, as a new independent director. MacPherson previously served as a senior partner of Ernst & Young, LLP (“EY”) where she started as an auditor and served in leadership roles

Issue Six | 27

in transaction advisory services in EY’s New York office, working with clients across a broad array of industries over 32 years and developing extensive experience in the financial services sector. MacPherson’s appointment expands the company’s board to 12 directors, 11 of whom are independent. MacPherson was also appointed to the board of directors of Community Bank, N.A., the company’s wholly owned banking subsidiary. She will serve on the board’s audit and compliance committee and the risk committee. MacPherson serves on the board of directors of New York City Harvest, a non-profit focused on feeding the hungry in New York City. She is a graduate of the University of Toronto with a Bachelors of Commerce (Honours) and Master of Business Administration (Rotman School), and currently serves on the Dean’s Advisory Board and Global Advancement Board for the Rotman School.

Sterling Bancorp Launches New Innovation Finance Group

Sterling Bancorp, of which the principal subsidiary is Sterling National Bank, announced it has added veteran

technology bankers John Hoesley and Josh Roberts to lead its newly created Innovation Finance Group. The Innovation Finance Group will focus on providing a full suite of lending and banking products to growing technology companies across all stages of development, including assetbased solutions, recurring revenue-based revolving lines of credit, treasury management, foreign exchange and other solutions. Hoesley comes to Sterling from CIBC Bank USA where he and Roberts established the Innovation Banking group in late 2014. He previously led the Midwest region for Silicon Valley Bank and was a partner at Prism Capital, a middlemarket provider of venture capital and mezzanine debt. Hoesley has an MBA from the J.L. Kellogg Graduate School of Management and a bachelor’s degree in Chemistry from The University of Illinois at Urbana-Champaign. Roberts brings nearly 20 years of banking experience to Sterling. He was a technology banker with Wells Fargo Securities and RBC Capital Markets before he and Hoesley launched CIBC’s Innovation Banking practice. Most recently, Roberts was a senior technology underwriter for SunTrust. He earned a bachelor’s degree in finance from The University of Illinois at Urbana-Champaign and an MBA from The University of Chicago, Booth School of Business. ■

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WHY BANK BRANCHES ARE USEFUL TO MILLENNIALS AND GEN Z Banks rushing to shut down branches to cut costs may want to think twice. While Fintech services have made simple bank transactions easy at the touch of a button, there is still plenty of value in physical bank branches. The number of US bank branches has shrunk by more than 3,000 since 2010, according to Deloitte. Bank of America (BAC) alone has slashed its branch count by more than 1,400. Not only does the shift away from physical branches save banks money, it makes sense given how much younger Americans rely on their smartphones for daily life. Yet new research suggests banks should think twice before they shut down their next bank branch: Many customers, especially younger ones, still regularly rely on physical banks to make deposits, get paper money and even pay bills. Seventy-two percent of GenZ consumers visit a physical bank branch at least monthly, the highest of any age group, according to a study of 1,000 consumers by Adobe Analytics shared exclusively with CNN Business. And 60% of Millennials say the same. Surprisingly, older Americans were less likely to visit physical banks monthly, with GenX (50%), boomers (55%) and traditionalists (58%) saying they did so. "The death of retail branches is greatly exaggerated," Nate Smith, group manager at Adobe Analytics, told CNN Business. "That personal interaction is still very, very important today."

BIG BANKS' SMALL BUSINESS LOAN APPROVALS REACH RECORD IN OCTOBER A recent release of the Biz2Credit Small Business Lending Index revealed that the approval percentage for small business loan applications at big banks reached 28 percent for the first time ever in October 2019. “With yet another interest rate cut by the Federal Reserve, small businesses are benefiting from positive economic conditions that are unrivaled in recent times,” said Biz2Credit CEO Rohit Arora, who oversees the monthly research. “It has been a very good year for small businesses that are looking for capital, and I don’t foresee any changes during the rest of 2019.” Private sector, non-farm employment rose by 128,000 in October, and the unemployment rate was little changed at 3.6 percent, according to the U.S. Bureau of Labor Statistics’ Jobs Report issued Nov. 1. Notable job gains occurred in the food and beverage industry, social assistance, and finance. Many of the jobs are created by small businesses that are borrowing money to fuel their growth. During the recently completed federal fiscal year 2019, SBA loan volume exceeded $28 billion with more than 63,000 approved loans. The approval rate at small banks, which often are SBA-approved lenders, also climbed one-tenth of a percent from September’s figure of 50.3% to 50.4% in October. The government guarantees that SBA loans provided to lenders help mitigate their risk and make it more palatable for SBA

lenders to grant requests from businesses that might not otherwise qualify for funding. SOME SMALL BUSINESSES STILL STRUGGLE TO SECURE TRADITIONAL BANK FINANCING The Federal Reserve Bank of New York published a presentation on small business credit which found that some small businesses struggle to secure traditional bank financing. These small businesses are forced to look to online lenders to secure financing. The small business survey received responses from 50 states. It tracks the fact that as business optimism has continued on its upward trajectory, meanwhile small loans by banks have been flat. Simultaneously, large loans to businesses have grown. This appears to buttress the thesis that banks do not like to issue small business loans as they are too risky and generate insufficient revenue to justify. Meanwhile, if you drill down further into different demographics, non-white Hispanics do the best in getting their funding needs satisfied, while nonHispanic black or African American owned small businesses not so much. Loans and credit cards are the most frequent forms of financing while just 7 percent of firms acquire equity capital. Equity funding tends to be riskier and harder to get. Securities exemptions, such as Reg D, Reg A+ and Reg CF, can be leveraged to raise capital online. But for smaller companies seeking Issue Six | 29

smaller amounts of equity capital, the marketplace struggles to match cash to these businesses. JOVIA FCU PARTNERS WITH NHL'S ISLANDERS A Long Island credit union is now the official partner and the official credit union of the New York Islanders of the National Hockey League. No financial details were released. The Credit Union Times reports Jovia Financial Credit Union, which was known as NEFCU until September, has $3.4 billion in assets and about 197,000 members. The season-long deal includes signage in nearby Nassau Coliseum, as well as sponsorship of special event nights and advertising. Jovia Financial is not the only credit union to sign a sponsorship deal with an NHL team. In November 2018, Edwardsville, Ill.-based Scott Credit Union announced a five-year deal with the St. Louis Blues that would make the name and logo visible to fans through advertising in the team’s home in the 19,000-seat Enterprise Center in downtown St. Louis near the Mississippi River. NEW NY STATE RENT LAW HITS BANK'S BOTTOM LINE The share price for New York Community Bancorp dropped sharply after it reported the impact of a new rent control law in the Empire State. New York Community is one of the largest apartment lenders in the Big Apple. Crain’s New York Business said the bank’s loan book at the end of the third quarter was at $40.69 billion, ever so slightly below the second-quarter figure of $40.73 billion. But that minute change was enough to sound alarm bells on Wall Street and share prices dropped 14 percent after the news announced. “There are concerns about New York Community’s growth,” Wedbush Securities analyst Peter Winter told Crain’s New York. “They’ve got to reassess their outlook.” New York Community has been one of the city’s largest apartment lenders for decades and loans for rent-regulated buildings account for almost half of its portfolio. Historically its sweet spot has been lending to landlords who turn to the bank about every five years for new mortgages to help them pay for maintaining and improving properties or buying new ones. So long as rents rose, landlords could afford to take out bigger loans and New York Community, a disciplined lender, prospered. 30 | Banking New York | December 2019

NY WINS LEGAL BATTLE AGAINST OCC OVER BANK CHARTERS A New York judge ruled that the US Office of Comptroller of the Currency was acting beyond its remit in attempting to offer banking charters to fintech companies. The federal court in Manhattan was responding to a law suit filed by the state's Department of Financial Services (NYDFS) in September, which asserted that allowing Fintechs to apply for special national charters could enable online lenders, cryptocurrency exchanges and alternative payment firms to operate without the need for a banking partner. The idea of special banking charters has long been opposed by both state regulators and the financial services industry. The NYDFS has had a running battle with the OCC over the issue. While federal bodies such as the OCC have sought to create a more streamlined regulatory landscape for financial startups that avoids the state-by-state structure of US financial regulation, the incumbent institutions and state regulators disagree. FLUSHING FINANCIAL CORP. TO ACQUIRE EMPIRE BANCORP Flushing Financial Corporation has entered a merger agreement with Empire Bancorp in which Flushing will acquire Empire for an estimated $111.6 million. Under the terms of the merger agreement, each share of Empire common stock will be exchanged for either 0.6548 shares of Flushing common stock or $14.04 in cash, based upon the election of each Empire shareholder, subject to the election and proration procedures specified in the merger agreement (which provides for an aggregate split of total consideration of 50% Flushing common stock and 50% cash). In connection with the transaction, Empire National Bank will merge with and into Flushing Bank, with Flushing Bank as the surviving entity. The transaction value represents 1.4x Empire’s tangible book value and a 3.6% deposit premium based on June 30, 2019 financial information. On a combined basis, the transaction is expected to be accretive to earnings by 19% in 2021, but will be dilutive to tangible book value by 7.0% at closing with a projected earn-back period of 3.2 years using the cross-over method. Completion of the transaction is subject to customary closing conditions, including receipt of regulatory approvals and the approval of Empire’s shareholders. The combined company at close is expected to have approximately $8.0 billion in assets, $6.3 billion in loans, $5.8 billion in deposits,

and 23 branches in Queens, Brooklyn, Manhattan, and on Long Island. COMMUNITY BANK ACQUIRES STEUBEN TRUST FOR $106.8 MILLION Community Bank System, Inc. announced today it has agreed to acquire Steuben Trust Corporation in a transaction valued at $106.8 million, or $63 per Steuben Trust common share. Community Bank System (CBU) is headquartered in DeWitt, NY, and is the bank holding company of Community Bank, N.A., with total assets of $11.3 billion and 233 branches throughout New York, Pennsylvania, Vermont and Massachusetts. CBU shares are listed on the NYSE with a market capitalization of $3.3 billion. SBHO is the bank holding company for Steuben Trust Company and is headquartered in Hornell, NY. SBHO has 15 full-service branches and approximately $577 million in assets. This acquisition increases CBU’s presence in Western New York and enhances business development activities in Buffalo and Rochester. This is CBU’s fourth whole bank acquisition since 2014, and 11th since 2000. D.A. Davidson & Co. advised Community Bank System in the transaction. This is the 129th M&A advisory transaction for D.A. Davidson’s Financial Institutions Group since 2011 and 11th merger transaction over $100 million in deal value in the trailing two years. D.A. Davidson is the 4th most active M&A advisor to banks nationwide, with 15 transactions announced year-todate for aggregate deal value of over $1.5 billion. BNB BANK IS OFFERING BANKING SERVICES TO AUTHORIZED HEMP FIRMS Bridgehampton-based BNB Bank has begun offering banking services to authorized hemp companies. The bank will be offering these firms a range of business banking products, including commercial checking, online and mobile banking, ACH payment, online wire transfer services, business bill pay and other ancillary deposit products and services. “After careful assessment of the industrial hemp and CBD market, BNB executives and our board of directors determined that these businesses represent significant opportunity,” stated Kevin O’Connor, president and CEO of BNB Bank. “We are confident that our ties to the community, combined with our reputation for superior service, will result in rapid growth generated through this underserved business segment.” ■

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