Connecticut Banking 3Q 2018

Third Quarter 2018

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Third Quarter 2018 • Connecticut Banking Magazine

CONNECTICUT BANKERS ASSOCIATION

10 Waterside Dr. Farmington, CT 06032-3083 Telephone: 860-677-5060 • Fax: 860-677-5066

Chairman

Michael J. Casparino President-Northern Connecticut People’s United Bank First Vice Chairman

Stephen L. Lewis

President and CEO Thomaston Savings Bank Second Vice Chairman

COVER STORY

Large Banks Competing in SMB Market New Tech Has Made Market Easier to Attack.................... 12

Cynthia C. Merkle President and CEO Union Savings Bank

FEATURES

President & CEO

Lindsey R. Pinkham

Digital Channel Fraud Mitigation............................................. 4

Executive Vice President & Treasurer

Thomas S. Mongellow

First Senior Vice President & Secretary Colleen E. Clancy

FinCEN Announces Update to the Suspicious Activity Report (SAR).......................................... 6 Person-to-Person Payments.................................................. 8 Scoping the Market and Comparing the Vendors................. 10 Increasing Fee Income Without Raising Fees....................... 14

Connecticut Banking is an official publication of the Connecticut Bankers Association and is published quarterly by

The Warren Group

2 Corporation Way, Suite 250 Peabody, Massachusetts 01960 www.thewarrengroup.com Design / Production / Advertising custompubs@thewarrengroup.com With the exception of official association announcements, the Connecticut Bankers Association and The Warren Group disclaim responsibility for opinions expressed in Connecticut Banking. This publication is intended and designed to provide accurate and authoritative information, not to provide legal, accounting or other professional advice.

CONNECTICUT BANKING Editor

Karen Horanzy

©2018 The Warren Group Inc. All rights reserved. The Warren

Group is a trademark of The Warren Group Inc. 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: The Warren Group, The Warren Group 2 Corporation Way, Suite 250, Peabody, Massachusetts 01960. Call 800-356-8805.

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Upcoming CBA Calendar 2018/2019.............................. 7 Bankers in the News..................................................... 16 Banks in the News........................................................ 18 3

Connecticut Banking Magazine • Third Quarter 2018

Digital Channel Fraud Mitigation: Evolving to Mobile-First Methods for Identifying and Preventing Cybercrime

By Shirley Inscoe

D

igital channels are very attractive to financial institutions (FIs) because the online and mobile channels enable FIs to offer products and services much more cheaply than in a branch or contact center environment. Digital channels also enable consumers and businesses to bank with them regardless of geographic location. Unfortunately, it is increasingly difficult to determine the identity of the party on the other side of the computer or smart device due to all the data breaches, phishing attacks and social engineering tactics, as well as the growing malware threat.

The Aite Group conducted a study to track the current trends in online and mobile banking fraud. They used telephone interviews with 28 fraud and digital channel executives from North American FIs with at least $25 billion in assets.

Fraud losses are rising among many large North American FIs. The top

concern for these companies are identity crimes, such as account takeover (ATO) and application fraud. FIs are focused on improving the customer experience and removing friction from many current processes. Leading FIs are offering many more products and services via the mobile channel.

Technology spending will increase at many FIs as they upgrade current solutions or invest in new ones to combat fraud in digital channels. FIs will focus on using more transparent technologies to determine that the person is who he or she claims to be.

Business cases for fraud technologies are more likely to gain approval if they reduce customer friction; solutions that introduce more friction are less likely to gain approval. As higherrisk activities are offered via mobile and as transaction volume grows, fraud rings will focus more on this channel. Some leading FIs are bringing 4

new functionality to the mobile channel first due to the upsurge in mobile banking activity.

The current threat environment is rife with fraud attempts in digital channels. Identity crimes are especially prolific, and ATO and application fraud are the two most common attack types currently experienced in the market. Executives also bemoan how often their customers fall for a wide variety of scams, providing their credentials to fraudsters or clicking on a link that enables fraudsters to install malware that later harvests their credentials.

Aite Group recommends that FIs continue to evaluate their authentication processes enterprise-wide to detect gaps. Also, FIs need to consider new authentication methods that offer improved results with less negative impacts (friction) for customers. By evaluating authentication methods that do not rely on data that is readily available to fraudsters, FIs can ensure at least one layer of your security.

One solution for FIs is to evaluate products for the level of customer friction introduced and reduce friction wherever possible. Where possible, FIs can then ensure products meet the current needs in the market (e.g., if you offer identity products, ensure they have elements that make it difficult for fraudsters to circumvent them). FIs also need to understand the types of fraud challenges they are facing and ensure that their salespeople can speak the language of the executives they are selling to, which will prevent further fraud schemes. u Shirley Inscoe is a senior analyst with Aite Group, covering fraud, data security and consumer compliance issues.

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Connecticut Banking Magazine • Third Quarter 2018

FinCEN Announces Update to the Suspicious Activity Report (SAR)

By Chance Williams, CRCM, Compliance Specialist

I

n late January of 2018, FinCEN announced the update to the Suspicious Activity Report (SAR) that will be available on June 22, 2018. The updated SAR form has been revised and includes half a dozen changes.

These changes include: a new field that will alert FinCEN to the SAR being filed in response to specific geoChance Williams graphic targeting orders (GTO), advisories, or other activity, a new field for type of suspicious activity “Cyber Event”, a new field in the “Cyber Event” indicator field that allows the filer to report various events such as Command and control IP addresses, Ports, suspicious files names, and more. In conjunction with the new field, there were updates to existing fields such as: subtype selections associated with various suspicious activity types, revisions to date and time stamp fields relating to activities being conducted on a schedule or ran-

dom in nature, selections associated with suspicious activity product types, and subtypes associated with Securities and Futures. In addition to the above noted revisions, batch filers will be required to submit SAR information in a XML file format rather than in fixed-length file delimitation, such as the current ASCII. First, let’s discuss the new field, located in Filing Institution note to FinCEN, which will alert FinCEN to the SAR being filed in response to specific GTO, advisories, or other activity. FinCEN announced in 2016 they were concerned that all-cash purchases may be conducted by individuals attempting to hide assets and their identity, by making those purchases through shell companies. To better understand the role GTOs play, FinCEN began doing the needed research.

FinCEN Acting Director Jamal El-Hindi stated: “The information we have obtained from our initial GTOs suggests that we are on the right track,” “By expanding the GTOs to other major cities, we will learn even more about the money 6

laundering risks in the national real estate markets, helping us determine our future regulatory course.” This new field will further assist FinCEN in protecting against the abuses of illicit actors on a larger scale.

The second new field to discuss is located in Part II. This new field is designed to capture “Cyber events” as they pertain to suspicious activity. FinCEN has defined these types of events as: Cyber-Event: An attempt to compromise or gain unauthorized electronic access to electronic systems, services, resources, or information, Cyber-Enabled Crime: Illegal activities (e.g., fraud, money laundering, identity theft) carried out or facilitated by electronic systems and devices, such as networks and computers, Cyber-Related Information: Information that describes technical details of electronic activity and behavior, such as IP addresses, timestamps, and Indicators of Compromise (IOCs). Cyber-related information also includes, but is not limited to, data regarding the digital footprint

Third Quarter 2018 • Connecticut Banking Magazine

of individuals and their behavior. Many times a cyber-event that targets a financial institution constitutes some type of illicit activity and can serve as a conduit to commit numerous types of wide-ranging crimes. This has resulted in the additional subtype selections being added to Part II. The new subtypes are: new or modified options for Structuring, Fraud, Gaming, Money Laundering, Identification/Documentation, activities around Securities, Futures, Options, and Mortgage Fraud. Due to these events becoming more prevalent, FinCEN has issued situations in which a SAR filing is required.

Third, in Part II the new field, for “Cyber-Event” indicator field that allows the filer to report various events such as Command and control IP addresses, Ports, suspicious files names, and more, was added. This addition was due to the continued and increasing use of electronic systems and resources that are often utilized to perpetrate illicit activities. This increased use of electronic means requires institutions to capture information associated with Cyber-related activities. It is becoming ever more important for BSA and IT departments to work closely together to implement

tracking and reporting of potential cyberrelated incidents to ensure the institution is aware of all possible suspicious activities occurring. The cooperation between BSA and IT can help to better understand the possible cyber-related occurrences and know if there is a pattern or practice being utilized when illicit actors are perpetrating these activities.

Next, let’s discuss the revisions made to the SAR form that are not due to additional fields. The first revision is located in Part II and allows for subtype selections associated with various suspicious activity types to be made. Selecting these will help the institution better capture the true activity being conducted. FinCEN can also better determine any course of action in regard to the suspicious activity. Looking next at the revised date and time stamp fields, located in Part II, help determine if the activities are being conducted on a schedule or are random in nature. Information of this nature can assist in being prepared for future activities. The third revision, located in Part II, expands on the suspicious activity relating to specific product types. The information gathered here helps both the institution and FinCEN determine if

specific products are being exploited, and are resulting in illicit activities being perpetrated. The fourth revision, located in Part III/IV, deals with Securities and Futures. This revision was made to ensure that the institutions are capturing information in relation to where the activity occurred and filing instructions in case of illicit activity.

The final addition to the above noted additions and revisions are directed at batch filers. Batch filers will be required to submit SAR information in a XML file format rather than in fixed-length, file delimitation such as the current ASCII. The BSA E-filing system will continue to accept ASCII batch submissions until January 1, 2019 in order to give batch filers a six-month go-live date window from June 2018 until January 2019. This window allows financial institutions the opportunity to ensure they are ready to file batches using the new required XML file format prior to the required date. u Chance Williams has worked in the banking industry for 20 years as a BSA and Compliance Officer. He is a Regulatory Compliance Specialist with Compliance Alliance.

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MAY 2019

3 Women in Banking 9 CSFM 14 Director & Senior Officer Symposium 21 CSFM

JANUARY 2019

8 CSFM 17 New Leaders Dinner 18 BankWorld

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Connecticut Banking Magazine • Third Quarter 2018

Person-to-Person Payments:

How Americans Pass the Buck

By Talie Baker

U

.S. households made more than $1 trillion worth of person to person (P2P) payments in 2017. Over half of all U.S. consumers in 2017 made a P2P payment. These payments are increasingly becoming digitized with the advent of new and seamless technologies that make cash and check payments seem outdated. The Aite Group conducted a study of almost 2,000 U.S. customers who paid someone or transferred money in any way to look at the trends in P2P payments.

This report, part one of a two-part series examining the domestic and crossborder person-to-person payments landscape in the U.S., estimates the total size of the P2P payments market, evaluates the difference in U.S. consumer payment

behaviors between 2014 and 2017 and provides a detailed analysis of the U.S. domestic P2P payments environment.

The last decade has seen tremendous growth in the availability of digital payment methods for the average Joe. Tech are posing a huge threat to traditional payments providers by entering the payments space with fast, easy and convenient digital payment methods for consumers. In response to this threat, traditional financial institutions and payment networks are competing by offering new instant payment services in hopes of maintaining control of the payment network.

Aite Group conducted a quantitative study of 1,974 U.S. consumers 18 years of age and older who paid someone, gave 8

money to someone or transferred money to another individual (not a business, school or organization) for various situations over the 12-month period from October 2016 to September 2017. The survey was conducted online among U.S. consumers who participated in a research panel.

Cash and checks still represent the most common and ubiquitous P2P payment methods. In addition to being ubiquitous, cash and checks are perceived to be free ways to exchange funds for both the sender and the receiver, promoting their persistence in the market.

The widespread use of smartphones in the U.S. has attracted new market entrants to the payments industry. Today, many

Third Quarter 2018 • Connecticut Banking Magazine

mobile P2P payment methods are available to consumers from FIs and alternative providers alike. The market is still testing the various mobile P2P payment models available, and it is anyone’s guess which service will succeed in replacing cash and checks as the preferred P2P payment methods.

The market is also focused on providing a ubiquitous, digital, frictionless P2P payments experience for U.S. consumers, and to that end, competition in the space is at an all-time high. While traditional FIs still dominate the lion’s share of the market, alternative P2P service providers are beginning to establish a solid footprint.

Domestic P2P payments in 2017 accounted for 97 percent of the transaction volume and 89 percent of the dollar value

with cross-border P2P payments accounting for the balance.

CONSUMERS GO MOBILE Consumers are finally taking notice of mobile P2P payments capabilities – and it’s about time. Mobile P2P payment services have been available in the marketplace for about a decade, and until now adoption has been tenuous at best. Mobile P2P payments services are poised to explode as consumers become accustomed to the convenience and ease of making payments via their mobile devices.

The top three payment methods used for domestic and cross-border P2P payments in 2014 and 2017 were cash, PayPal and check.

9

Among U.S. consumers who made a P2P payment in 2017, 49 percent of U.S. consumers used cash, 47 percent of U.S. consumers used PayPal and 40 percent of U.S. consumers used checks. By comparison, among U.S. consumers who made a P2P payment in 2014, 79 percent of U.S. consumers used cash, 48 percent of U.S. consumers used PayPal and 61 percent of U.S. consumers used checks.

With fewer consumers using cash and checks for P2P payments in 2017, usage of other P2P payment methods has increased. Among U.S. consumers who made a P2P payment in 2017, 26 percent of U.S. consumers used mobile banking and 15 percent of U.S. consumers used an alternative P2P payment service.

PayPal accessed via a smartphone/ tablet and mobile banking are the most frequently used domestic mobile P2P payment methods. Among U.S. consumers who made a domestic mobile P2P payment in 2017, 56 percent of U.S. consumers used PayPal accessed via a smartphone/tablet and 55 percent of U.S. consumers used mobile banking. That same year, Venmo was the third-most used mobile P2P payment method, used by 15 percent of U.S. consumers.

Even though consumers are taking notice of mobile P2P payments, room for tremendous growth remains. With more than 75 percent of the transaction volume and more than 80 percent of the spending volume for P2P payments being addressed through legacy and electronic P2P payment methods, the market still has work to do in educating consumers on mobile P2P payment methods.

As younger Millennials move into their fullest consumer potential, alternative P2P payments services may finally succeed in disintermediating the current P2P payments status quo if they are able to establish trust like that of the FIs and the PayPal brand, along with maintaining a compelling offering that makes payments feel effortless. u Talie Banker is a senior analyst with Aite Group’s retail banking and payments practice, focusing on person-to-person and crossborder payments. To learn more about Aite Group’s research coverage of retail and wholesale banking and payments, please contact Aite Group at info@aitegroup.com.

Connecticut Banking Magazine • Third Quarter 2018

Scoping the Market and Comparing the Vendors Technology Is Evolving to Address Commercial Loan Origination Needs

By David O’Connell

W

ith the demand for credit by C&I entities having increased in the years following the GFC, lenders need to reduce the lengths of time required to field lending opportunities, underwrite them and document them.

Although an enabler of customer responsiveness, speed is also an enabler of scale.

After all, the faster underwriters and relationship managers can process deals, the more deals they can process in a given period. Such an increase in throughput means lenders can grow portfolios without increasing headcount, a benefit of automation typically sought by senior management and referred to as scale.

Used to the simplicity and speed of services such as Uber, Pandora and Amazon.com, principals and decision-makers of banks’ commercial borrowers are seeking similar levels of convenience when conducting borrowing transactions.

Banks’ participants in the lending process have also come to demand more convenient and digitized processes for tasks they complete across the loan life cycle. An alphabet soup of regulatory regimes requires banks to document and justify, with a high level

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Third Quarter 2018 • Connecticut Banking Magazine

of granularity, all of their risks and decisions.

Aite Group explored some of the key trends within the global market for commercial loan origination systems and discusses the ways in which technology is evolving to address new market needs. By leveraging the AIM, a proprietary Aite Group vendor assessment framework, this Impact Report evaluates the overall competitive position of each of the leading vendors in the commercial loan origination space. Four areas in which vendors can excel – vendor stability, client strength, product features and client services – are the focus of this evaluation.

It also compares and contrasts the offerings and strategies of the leading global vendors of these systems and highlights their

report to find for their shortlist the vendors that are most stable and have the strongest product offering for lenders with similar profiles.

Lenders who have passed on CLO automation in the past should reconsider their decisions. Vendors’ improvements to the usability of their capabilities, their simplifications to the buying process, and the entrance of nCino as a catalyst for market change mean the landscape has changed dramatically in a way that is favorable for lender. Only 11 vendors are profiled, 10 if Finastra is counted as one vendor.

In the marketing of their CLO systems, vendors face a highly competitive environment in which 12 vendors with relatively

“In the marketing of their CLO systems, vendors face a highly competitive environment in which 12 vendors with relatively competitive offerings vie for a large market comprising lenders seeking to use automation as a path to scale, competitiveness, a better customer experience, and cost reduction.” primary strengths and challenges. Finally, to help financial institutions make more informed decisions as they select new technology partners, the report awards vendors for their strengths in critical areas.

Automation, an opportunity long overlooked by too many lending institutions, is now more heavily embraced as a way to achieve scale. Digitization is also a trend. Due to regulations that came into play after the global financial crisis, data sets must be readily available and analytics-ready, a compelling promoter of adoption of the commercial loan origination systems that can bring productivity to lenders and a digitized experience for customers. In sum, commercial and industrial lending is no longer the automation backwater that it has long been.

Banks active in the commercial lending space are in a position to achieve scale, competitiveness and cost reduction due to the presence of 12 relatively competitive vendors of commercial loan origination systems. Among the best- in-class vendors are nCino, Finastra – through its offerings acquired from Misys and D+H – and Sageworks.

Amplifying the opportunistic state of the CLO market for lenders is the rapid growth of nCino, which has used its userfriendly Salesforce.com-based platform, aggressive pace of new capability introduction, and aggressive pricing to win deals and deliver a more attractive value proposition than has traditionally been available in this market.

Despite the presence of competitive vendors in this industry, lenders seeking to improve their C&I lending operations with automation should closely examine the vendors profiled in this

competitive offerings vie for a large market comprising lenders seeking to use automation as a path to scale, competitiveness, a better customer experience, and cost reduction.

Among the factors intensifying competition for vendors in the CLO space are vendors’ revamping of their user interfaces, their efforts to simplify the buying experience and consolidation, which has caused former rivals D+H and Misys, both of which possess best-in-class systems, to reside as siblings and affiliates within the newly formed fintech firm Finastra.

Vendors benefiting from incumbency at banks active in the commercial lending space have been put on notice that there is a new sheriff in town. In just a few short years, nCino, by underpromising, over-delivering, and pricing aggressively, has won CLO deals at lenders large and small, many of which had longstanding incumbents that were displaced.

Vendors now benefit from a preponderance of adoption promoters over adoption inhibitors. Among the most compelling adoption promoters, and also dominant as industry trends, are the desire to use scale to increase competitiveness, the need to use scale to reduce costs, the pursuit of a digital customer experience and the need to generate back-end data sets for regulatory purposes. u David O’Connell is a senior analyst with Aite Group’s wholesale banking team, where he primarily focuses on lending. To learn more about Aite Group’s research coverage of retail and wholesale banking and payments, please contact Aite Group at info@aitegroup.com.

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Connecticut Banking Magazine • Third Quarter 2018

Large Banks Competing in SMB Market New Tech Has Made Market Easier to Attack

By Bram Berkowitz

C

ommunity banks and credit unions have always taken pride in their relationships with local businesses, which is why they have had so much success in the small to medium business loan market. But they better keep an eye on their rear-view mirror because larger banks are starting to encroach.

While large banks ($10 billion assets or more) are still approving fewer small business loan applications than credit unions and smaller banks, they approved nearly three out of every 10 small business loan applications in May, according to the Biz2Credit Small Business Lending Index.

That represents a post-recession high point for large banks and the trend is expected to continue, say experts.

“The biggest driver of small banks’ growth is that the bigger banks have been distracted and focused on different things.

They have been required to hold more capital and been subject to more stringent stress testing,” said Jared Shaw, managing director and senior analyst at Wells Fargo Securities. “Big banks

are now in a strong position and less likely to let customers leave. Those most dissatisfied with bigger banks have already left. All of this is going to make growth harder for smaller banks.”

Large banks have in recent years begun to show increasing interest in business sectors in which smaller financial institutions usually thrive.

For instance, Santander in late 2016 hired Seth Goodall, former regional administrator for U.S. Small Business Administration New England, to lead the bank’s SBA division as it looks to bulk up SBA lending.

Goodall previously said he expects Santander to grow its loan book in the $100,000 to $5 million range.

Wells Fargo and JPMorgan in June announced they would offer mobile accounts with no overdraft fees – a revenue source for the industry that brings in $15 billion annually – stealing an offering that credit unions regularly boast.

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Third Quarter 2018 • Connecticut Banking Magazine

On the deposit side, according to Fielding, most banks did not try and compete on price when rates were low and there was ample deposit liquidity. But as interest rates rose, it has become clear the war for deposits that was evident in the years leading up to the financial crisis has returned, he said.

“Banks are now experiencing customer and deposit attrition in both consumer and small business segments,” said Fielding. “If any banks have ignored small businesses, they are certainly paying attention now because you can’t afford to ignore this critical segment.”

“Bigger banks can afford to invest more in these capabilities, and therefore will create a tug of war over who will win the small and medium business customer.”

The emergence of alternative lenders such as LendingClub has made the SMB market hard to ignore.

More than 20 percent of SMBs surveyed in 2016 said they would probably consider seeking credit in the next three years from an alternative lender, according to a report from Aite that fielded responses from over 500 SMBs that had applied for a loan in the past two years. Thirty-eight percent of respondents said they might consider it.

“Alternative lenders showed up with more marketing savvy and a better digital service,” said O’Connell. “They brought in lots of customization, digitalization and big data to the SMB market, so they could serve up a digitalized experience and do decision-making at scale.”

These concepts and the success alternative lenders had at gaining market share made larger banks take a hard look at the SMB market.

Large banks can provide the digital experience and even offer SMBs more of a human interaction than alternative lenders, which O’Connell said is something that this segment seeks out.

Fielding and O’Connell agree that smaller financial institutions still hold more knowledge of customers and more relationships in the SMB market than larger banks. Nevertheless, as more SMBs demand digital experiences, larger banks will be able to further even the playing field.

“The lure of local convenience for small businesses is diminishing as they become more cashless and seek the same digital ease that consumers value,” said Fielding. “Bigger banks can afford to invest more in these capabilities, and therefore will create a tug of war over who will win the small and medium business customer.” u

Overcoming Ambivalence While it is true that small banks have always thrived in the SMB market, it is also true that large banks have largely ignored this market, said David O’Connell, a senior analyst on Aite Group’s wholesale banking team.

“It’s not that they walked away from the [SMB] market after the financial crisis in 2008. They have always been ambivalent in the market. Bankers are good at underwriting big loans to big companies,” he said. “It’s easier to make money lending at scale in the large loan market than the small loan market.”

The reason for this, said O’Connell, is because the underwriting process is essentially the same for small and large business loans. Banks need to do the same due diligence for both, which includes determining a company’s cash flow, liquidity and collateral, among other factors, he said.

But the rising rate environment has changed the way big banks value small businesses, said Joe Fielding, a partner in the financial services division of Bain & Co. 13

Connecticut Banking Magazine • Third Quarter 2018

Increasing Fee Income Without Raising Fees

By Sean Payant, Chief Consulting Officer, Haberfeld

O

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 pilot-test 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 $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.

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Third Quarter 2018 • Connecticut Banking Magazine

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.

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. u

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.

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

Sean C. Payant, Ph.D., is Chief Consulting Officer at Haberfeld Holdings, a data-driven consulting firm specializing in core relationships and profitability growth for community-based financial institutions.

Sean can be reached at 402.323-3614 or Sean@haberfeld.com.

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Connecticut Banking Magazine • Third Quarter 2018

Joe Gianni

Sandra SousaMartins

Laura Silver

Alan Zvonkovic

James Cormier

Genie Tricario

Tim Jones

Stephen LaFlamme

Chandler Howard

Lisa Opuszynski

Matthew Gudauskas

Pamela Ellsworth

Ashley Crete

Marzena Bukowski

Carla Abate

Katherine Ludwig

Deborah Leclerc

Rachel Schneidt

Stephen Rednak

Hemalatha Prakash

Erik Secola

Bank of America Joe Gianni was named Hartford market president.

Chelsea Groton Bank Chelsea Groton bankers were recognized by the Center for Financial Training.

Fairfield County Bank Sandra Sousa-Martins was promoted to vice president of retail banking audit, compliance and training.

Laura Silver was promoted to assistant vice president, marketing.

Alan Zvonkovic was promoted to assistant vice president, call center.

Essex Savings Bank Rebekah Barrett, Rachel Bolles, Hilary Mondelci and Elizabeth Kuhns were recognized at CFT's 71st annual graduation and awards ceremony.

First National Bank of Suffield James Cormier was named senior vice president of commercial banking.

Ion Bank Genie Tricario was awarded a quarterly customer service commendation.

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Third Quarter 2018 • Connecticut Banking Magazine

Laura Krauss

Thonda McEwenThompson

Kelly Jack

Richard Wolf

Nadine Paine

Karin O'Brien

Nick Bryan

Vincent DiGilio

Mary Jascha

Mary Conti

Peter Scotch

Kathy Luria

Aaron Bohigian

Sean Millane

Michael Supple

promoted as a junior Infinex Financial Advisor. Karin O'Brien was promoted to vice president, BSA officer. Nick Bryan was promoted to assistant vice president, senior accountant. Vincent DiGilio joined as vice president, commercial loan officer. Mary Jascha was promoted to first vice president, senior commercial lending officer.

Jewett City Savings Bank Tim Jones was promoted to branch manager. Stephen LaFlamme joined as vice president and commercial loan officer.

Liberty Bank Chandler Howard was a guest speaker ath the Middlesex YMCA Breakfast "For a Better Us". Lisa Opuszynski was promoted to branch manager. Matthew Gudauskas was hired as officer, branch manager. Pamela Ellsworth was promoted to assistant vice president, branch manager. Ashley Crete was promoted to officer, branch manager. Marzena Bukowski was promoted to assistant vice president, branch manager. Carla Abate was promoted to assistant vice president, health savings product manager. Katherine Ludwig was promoted to officer, branch manager. Deborah Leclerc was promoted to assistant vice president, branch manager. Rachel Schneidt was promoted to vice president, branch manager. Stephen Rednak was promoted to vice president, branch manager. Hemalatha Prakash was promoted to assistant vice president, branch manager.

Savings Institute Bank & Trust Mary Conti was promoted to customer service center manager.

Union Savings Bank Peter Scotch joined as director of the innovation center. Wanda McGarry, Zachara Rapp, Thomas Oneglia and Martin Handshy were elected as new corporators. Bobby Jo Klug, Michele Bonvicini and Dina Pereira were congratulated by the Susan B. Anthony Project on their awards at the 10th Annual Sexual Violence Awareness Month Vigil.

Webster Bank, N.A. Kathy Luria was appointed as chair of the Connecticut Council for Philanthropy board. Aaron Bohigian was named a 2018 Financial Services Champion by the Connecticut Small Business Association.

Newtown Savings Bank Erik Secola, Laura Krauss, and Thonda McEwen-Thompson were all promoted to assistant treasurer. Kelly Jack was promoted to assistant vice president, credit operations supervisor. Richard Wolf joined as assistant treasurer and is an Infinex Investments Financial Advisor. Nadine Paine was

Westfield Bank Sean Millane was appointed retail banking officer and branch manager. Michael Supple joined as mortgage loan officer. u 17

Connecticut Banking Magazine • Third Quarter 2018

BANK OF AMERICA

BANKWELL

Bank of America executives shared career advice and insights on banking with students from Capital Prepatory Magnet School and the Journalism & Media Academy Magnet School.

Bankwell re-launched its Bankwell Pet Adoption Project.

Bankwell was named top provider of customer service at the Banking Choice Awards.

Bank of America employees volunteered to help with beautification and cleanup projects at Camp Courant for the 2018 summer season.

CHELSEA GROTON BANK Chelsea Groton Bank employees volunteered a total of 6,883 hours of their time and donated over $50,000 to employee-led fundraisers for local organizations.

Chelsea Groton Bank and Chelsea Groton Foundation gave over $800,000 in charitable contributions.

Chelsea Groton Bank received a 5-Star rating from BauerFinancial.

ESSEX SAVINGS BANK Essex Savings Bank held their 5th Annual Shred Day Event and Food Drive bringing in over 40 bags of food for the Chester Food Pantry.

Bank of America employees volunteered to teach financial education with Junior Achievement of Southwest New England at the Wish Elementary School in Hartford.

Essex Savings Bank was awarded first place in the Community Contribution for Middlesex/Hartford counties at the Banking Choice Awards.

BANKWELL

Essex Savings Bank and Essex Financial Services sponsored Lyme Land Trust's Tour De Lyme at the Platinum Level while several employees biked the 59 mile event.

Essex Savings Bank employees volunteered at the Community Music School's fundraising gala.

Bankwell opened three new branches in Fairfield County.

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Third Quarter 2018 • Connecticut Banking Magazine

FARMINGTON BANK

JEWETT CITY SAVINGS BANK

Farmington Bank's two branches were recognized as businesses of the year at Plainville's Chamber of Commerce's awards dinner and annual meeting.

Jewett City Savings Bank received the Lender of the Quarter Award from the US Small Business Administration, Connecticut District.

LIBERTY BANK

Farmington Bank was selected as the Best Community Bank by the readers of Hartford Magazine.

Liberty Bank was given four awards and was recognized by the Middlesex United Way.

Farmington Bank sponsored the Farmington Economic Development Breakfast.

Farmington Bank offered a baseball signing for the public with former Major League Baseball pitcher Tim Wakefield at their new Manchester branch.

Liberty Bank sponsored a Save-A-Suit drive for veterans transitioning back to civilian life.

Liberty Bank raised over $1,400 for the Connecticut Chapter of the Cystic Fibrosis Foundation.

ION BANK

Ion Bank Foundation announced the winners of its 9th Annual Community Awards Program awarding grants totaling $68,700 to 167 local non-profit organizations.

Liberty Bank participated in the Statewide Food Drive to benefit Shoreline Soup Kitchens collecting 1,000 pounds of food and $200.

Ion Bank Foundation awarded a $4,000 grant to Naugatuck Campership Fund

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Connecticut Banking Magazine • Third Quarter 2018

LIBERTY BANK

LIBERTY BANK

Liberty Bank was a Marquee sponsor for TEAM Inc.'s Annual Men Who Cook.

Liberty Bank raised $1,666 for Guiding Eyes for the Blind.

LITCHFIELD BANCORP Liberty Bank sponsored the Hire Our Heros Job Fair.

Litchfield Bancorp sponsored their second local Cash Mob event at Salisbury Garden Center.

NEWTOWN SAVINGS BANK

Liberty Bank was the lead sponsor of the Middlesex Chamber's annual breakfast.

The Newtown Savings Bank Foundation awarded $1,000 each to four nonprofits at a donor reception held at the bank's Shelton branch.

Liberty Bank volunteered at Amazing Grace Food Pantry at St. Vincent de Paul Middletown.

PEOPLE'S UNITED BANK People's United Bank announced a community rappelling challenge to raise funds for and awareness of Wakeman Boys & Girls Club.

SALISBURY BANK & TRUST COMPANY Salisbury Bank offered numerous Free Shred Days to the community along with a food drive to support local food pantries.

Salisbury Bank provided its 2018 Annual Time to Shine Scholarship Program with multiple $2,500 awards for students with financial need and who are making a difference in their community.

Salisbury Bank partnered with SCORE for a free seminar to discuss simple steps for growing your business.

Liberty Bank received awards for corporate support, two grants, hosting a food drive and employee volunteerism at the United Way of Southeastern Connecticut Campaign Awards.

Salisbury Bank offered a free seminar on the basics of medicare.

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Third Quarter 2018 • Connecticut Banking Magazine

SIMSBURY BANK

START COMMUNITY BANK

Simsbury Bank fielded a team in the Granby Education Foundation's 15th annual Gran-Bee event along with being a $1,000 swarm sponsor.

Start Community Bank employees collected items to “Fill the Diaper Bag” for the United Way.

Start Community Bank was a sponsor and attended the 13th Annual Mary Wade Dinner.

Start Community Bank was a sponsor and attended Solar Youth’s 2018 Solar Jam.

Start Community Bank participated in the Goodwill of Southern New England 34th Annual Golf Classic.

Start Community Bank was a sponsor of the New Haven Ecology Project Rock to Rock 10th Anniversary Earth Day Ride.

Start Community Bank was a sponsor and attended Marrakech's 28th Annual Founder's Dinner.

Start Community Bank was a sponsor of CAHS Building Inclusive Pathways to Prosperity Event.

Simsbury Bank was a $2,500 sponsor of Malta House of Care Foundation's "Celebrating Wonder Women 2018".

Start Community Bank participated in the Goodwill of Southern New England 34th Annual Golf Classic.

THOMASTON SAVINGS BANK Simsbury Bank offered a free community shred day.

Thomaston Savings Bank participated in the 2018 United Way Day of Caring.

Simsbury Bank was the Presenting Sponsor of Hill-Stead Museum's 2018 May Market with a $10,000 sponsorship donation.

Thomaston Savings Bank awarded a grant to the First Congregational Church of Plymouth to help fund repairs to the steeple.

Simsbury Bank was a presenting sponsor of the Connecticut Golf Show and announced the Bank's booth raffle.

Simsbury Bank was a $2,500 sponsor of the Jewish Family Services and Tara's Closet event to help end the stigma of mental illness.

Thomaston Savings Bank Foundation awarded a grant to the town of Bethlehem for their Christmas Town Festival.

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Connecticut Banking Magazine • Third Quarter 2018

THOMASTON SAVINGS BANK

UNION SAVINGS BANK

Thomaston Savings Bank opened their 13th branch with a ribbon cutting ceremony.

Union Savings Bank kicked off spring volunteering for the annual Faxon Law Greater Danbury Road Races.

Thomaston Savings Bank Foundation awarded a grant to the Thomaston Little League.

UNION SAVINGS BANK

Union Savings Bank team members dedicated countless hours with Danbury VITA providing tax preparing assistance to low-to-moderate income families at no cost.

Union Savings Bank delivered the latest Teacher's Closet supplies to Morris Street School in Danbury.

Union Savings Bank supported CT Mission of Mercy providing dental care to the uninsured with a free clinic at Torrington High School.

Union Savings Bank Foundation joined Danbury High School Students for a presentation from Wayne Winsely of Brave Enough to Fail.

Union Savings Bank newest employees worked on a creative project with Village Center for the Arts in New Milford.

Union Savings Bank employees wore denim in support of national Denim Day and brought awareness to The Women's Center of Greater Danbury, Jane Doe No More and the Susan B. Anthony Project.

Union Savings Bank joined with Junior Achievement of Western Connecticut to play games and give advice for setting savings goals with Rogers Park Middle School students and families.

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Third Quarter 2018 • Connecticut Banking Magazine

UNION SAVINGS BANK

Union Savings Bank's Southbury Solutions Team sorted and priced books in preparation for Southbury Public Library's Annual Basement Sale.

Union Savings Bank supported The Ellis Island Essay Contest as part of the Ridgefield Playhouse Arts in Education Program.

UNITED BANK

United Bank presented a $2,500 check to the Bristol Boys and Girls Club.

United Bank’s Westport Team at the Greater Norwalk Chamber of Commerce’s Annual Meeting.

UNITED BANK

United Bank Foundation awarded its 2018 Academic Scholarship winners.

United Bank sponsored Asnuntuck's Community College Murder Mystery Dinner.

United Bank volunteers supported the Hartford Marathon’s FitKids in School spring event.

WEBSTER BANK

For another consecutive year, United Bank participated in the MARC, Inc. Rock’n Bowl-a-Thon.

Webster Bank volunteers taught Junior Achievement's curriculum focused on building financial awareness and understanding for elementary school children.

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