Banking New York Winter 2011

THE INDUSTRY MAGAZINE FOR FINANCIAL EXECUTIVES & PROFESSIONALS • WINTER 2011 • VOLUME 20

INSIDE

ATTORNEY GENERAL FIGHTS FOR FORECLOSED RESIDENTS LIQUIDATION DILIGENCE IS CRUCIAL IN A DOWN ECONOMY PROTECTING YOUR INTERNET BANKING SITE

CRISIS & OPPORTUNITY Stakeholders Have Two New York Banks Back in the Ring Michael Carrazza Chairman of Patriot National Bank

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BANKING NEW YORK Volume 20 | WINTER 2011

HE’ll DO IT HIS WAY

AG Determined to Get Best Deal for Residents Affected by Foreclosure Scandal PAGE 16

PAGE 08

PAGE 10

PAGE 14

4 GUARDING THE GATE

Locking the Back Door

22 BANK PROFILE

Signature Bank:

6 FEATURE

Liquidation Diligence and the

24 TECHNOLOGY

Importance of Acting Quickly

8 FEATURE

Rx for Success: Customer Service Brand Check-up

10 TECHNOLOGY

Protecting Your

Internet Banking Site

PAGE 22

Relationships Matter

Benefits of Server Virtualization

26 FEATURE

Optimizing the Efficiency Ratio 28 SMALL CHANGE

©2011 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, 280 Summer Street, Boston, MA 02210 www.thewarrengroup.com

CONTRIBUTING WRITERS THIS ISSUE Linda Goodspeed, Scott Van Voorhis COVER PHOTO by Andrew Einhorn TWG STAFF Vincent Michael Valvo Timothy M. Warren Timothy M. Warren Jr. PRESIDENT David B. Lovins CONTROLLER DIR. OF OPERATIONS Jeffrey E. Lewis GROUP PUBLISHER & EDITOR IN CHIEF CHAIRMAN

CEO & PUBLISHER

12 BANK RESCUE

Patriot National Bank

SALES Sarah Warren George Chateauneuf Emily Torres ADVERTISING ACCOUNT MANAGER Cara Inocencio ADVERTISING ACCOUNT MANAGER Richard Ofsthun

Survives Downturn, Reports Small But Significant Profit

DIRECTOR OF EVENTS

14

Look for the Union Label: Amalgamated Bank

EDITORIAL

PUBLISHING GROUP SALES MANAGER

ADVERTISING, MARKETING & EVENTS COORDINATOR

Christina P. O’Neill Cassidy Norton Murphy

CUSTOM PUBLICATIONS EDITOR ASSOCIATE EDITOR

ART CREATIVE DIRECTOR John

Bottini Scott Ellison GRAPHIC DESIGNER Ellie Aliabadi SENIOR GRAPHIC DESIGNER

Guarding the Gate | By Kevin Hamel

Locking the Back Door

Y

ou know things are bad when the Simpsons cartoon series can instruct us on security.

But here we are, considering the example of Montgomery Burns, the Simpson’s maniacal owner of a nuclear power plant, as he runs a gauntlet of body scans and password challenges required to enter his palatial office. Once inside, Burns notices a rickety screen door open to an unprotected field behind the plant.

I mention this in the context of a recent hacker headline – “Google Mail Hack is Blamed on China” (Wall Street Journal, June 2, 2011). After reading through the ominous description of a brewing international incident, I saw that the victims had merely been tricked into sharing their Gmail passwords through a phishing attack.

The irony really struck a nerve. Security mongers have built careers out of characterizing cyber criminals as super-smart monsters intent on one thing – gaining access to your online credentials to steal everything precious in your life.

But in reality, the criminals are merely exploiting our own inattentiveness.

How many times has your bank said it will never ask for your user name, password, social security number, date of birth or other personal information in an email? How many times have you supplied that information anyway?

In a mock phishing experiment, the New York Office of Cyber Security & Critical Infrastructure Coordination sent fake phishing emails to nearly 10,000 state employees with the goal of tricking them into surrendering their passwords. More than 75 percent of the recipients opened the email, 17 percent followed the link, and 15 percent attempted to enter their passwords.

How can any anti-phishing software and detection service compete with a user’s willingness to open bogus emails, follow bogus links, and enter our online credentials? It is the literal equivalent of Montgomery Burns’ rickety screen door behind his super-secure nuclear power plant.

Given our tendency to overlook the most basic red flags, how can a bank or credit union help protect consumers from cybercrime?

One answer may be training. Just as banks and IT companies regularly engage in security training for employees, you might consider training your customers as well. Clever online games have been designed to educate consumers about links to fake websites and other security risks. Training products, such as Wombat Security (www. wombatsecurity.com) have been shown to reduce the likelihood of users falling for a phishing attack by approximately 50 percent.

Rather than jump on the security training bandwagon as today’s cure-all, banks and credit unions should think of Wombat Security and other training providers, such as Terranova (www. terranova.com) as ways to freshen their approach to security awareness in order to keep customers engaged. After all, the public tires easily, and eventually, even the most creative solutions will become wallpaper – increasingly easy to ignore.

You might consider including information from OUCH!, the monthly SANS Institute newsletter (www.securingthehuman.org), to help your customers through practical issues, such as securing passwords, staying secure while traveling and using your smartphone securely.

You might also consider holding a security contest and awarding the winner an eye-popping prize – something to grab everyone’s attention.

The point is to make security a central focus of your institution’s service delivery. Frankly, it has to be. The prevalence of portable devices and the spread of social media have created more systems and platforms to secure than ever before. The days of securing a customer’s technology with simple antivirus software are long gone.

If you succeed in enlisting your customers in your security efforts, your bank or credit union will become more of a beacon of safety and soundness for your customers’ assets. That’s a great position to be in, because you will hold their trust for generations.

Unfortunately, the alternative is an unsustainable, Simpsons-style irony – the hypersecure front entrance sabotaged by a rickety back door to unprotected cyberspace.

Kevin Hamel manages Security for Avon, Conn.-based COCC, Inc. (www.cocc.com), a 44-year oldfirm specializing in outsourced information technology and support.

4 | Banking New York

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12/7/11 1:27 PM

Feature | By Steve Jones

Liquidation Diligence and the Importance of Acting Quickly

W

hen the economy is down, bankruptcies are up. Consequently, as protection against the impending costs associated with this increased risk, lenders should be focusing their attention not only on the quality of collateral, but also on just how liquid the collateral offered by their debtors really is. With stagnant business growth, certain assets may be harder to sell, and what once took days to trade may now take weeks, incurring unexpected and sometimes devastating expenses along the way.

As financial institutions evaluate collateral, one simple, important, yet often over-looked fact to keep in mind is how long it will take to liquidate.

Real estate – If the building and grounds have not been appraised within the last 12- to 18-month period, the value attributed to it is most likely incorrect. In addition to the potential of an overvalued asset, possible roadblocks associated with real estate liquidation exist, especially in today’s market, where we are seeing property remaining on the market longer and longer. During this time, the lender incurs costs from numerous sources, such as real estate taxes, insurance and utilities costs as well as regular upkeep and maintenance – not to mention broker fees. These expenses can quickly erode any expected earnings from the sale.

Accounts receivable – What could be simpler? Someone owes the business money; all the lender has to do is collect it, right? In reality, accomplishing this takes time, and while these accounts remain open there are employees to compensate, computer systems to maintain and records to keep, all of which reduce the cash received on the accounts receivable collateral.

Company vehicles – Cars, trucks and vans lose value fairly quickly. Depreciation is a major concern with this type of asset, as sales prices can plummet even during the liquidation period.

Consider whether the values attributed are up to date and how long it may take to move these assets should liquidation occur. In addition to additional depreciation on these vehicles during the liquidation process, there are other costs, such

as insurance costs to consider. Be cognizant of the location of these vehicles as the more dispersed the company’s fleet is, the more it will cost to ship the vehicles to a centralized location for auction.

Machines and equipment – Although companies may have relatively new pieces of machinery on their books with reasonable net book values, the costs associated with dismantling and relocating this equipment must also be considered. Another consideration sometimes overlooked is the fact that machinery is often specialized and may have been customized for the company’s unique needs. This factor may significantly reduce the target market and ultimately the liquidation value of the equipment.

Inventory – The key thing to consider here is simple: How quickly can the inventory be sold? Of course the primary sources are the company’s current customers; unfortunately most of the time these customers will only be able to purchase or acquire a portion of the product on hand. The total current supply in these cases exceeds the customers’ immediate demand, which makes selling inventory a time-consuming process. Employees must be retained and paid, which calls for all applicable employer taxes, health care costs, etc. There are additional costs associated with storing and transporting the inventory. Also remember that the longer these items sit on the shelf, the higher the risk of their obsolescence.

THE TIP OF THE ICEBERG This is not meant to be an all inclusive list of assets and their associated risks during liquidation. This should, however, serve as a reminder to lenders that there are very real costs connected with the length of time it takes to liquidate collateral. Lenders vigilantly focus on the quality of the collateral, appraisals, obtaining third-party support and accounting documentation to verify a company’s asset value; many times, however,

Steve Jones is a senior audit manager at Moody, Famiglietti & Andronico, LLP. 6 | Banking New York

continued on page 13 

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Feature | By David Ender

Rx for Success

Customer Service Brand Check-Up

A

s the president and owner of a mysteryshopping service firm that serves the needs of financial institutions, I am always struck by the absence of top-notch quality customer service. At a time when the level of business competition has significantly increased, is it any wonder that customer loyalty is fast becoming an endangered species? Overall, customer service is lackluster and nondescript at best.

Given this epidemic of poor or non-existent customer service, successful business organizations are checking up on their most valuable and important marketing tools –their employees. These

8 | Banking New York

organizations know all too well that each member of their customer service team is a critical link and personifies, pleasant or unfriendly, the professional service brand image in the eyes of their customers.

Recognizing this vital fact, these companies invest marketing research dollars in a quality service engagement to learn of their customer’s expectations. The conclusions drawn from such customer surveys and focus groups often mirror the ABCs of very basic customer service expectancies. All customers want to feel valued and appreciated by the business organizations to which they have given their trust and their dollars. Customers evaluate service experiences with representatives in two ways – verbal communication and non-verbal communication.

Who among us has not experienced the total lack of interest and interpersonal skills demonstrated by the majority of supermarket personnel who process

our grocery needs? Generally speaking, these supermarket employees are uninspired, unmotivated and disconnected from the needs of the people who make their employment possible. Unlike 40 years ago when quality customer service went hand-inhand with competitive prices, today’s service experience is often severely lacking in warmth, friendliness and the overall mannerism of helpfulness so critical to customer attraction and retention.

As the owner of a mystery-shopping company, I tell my clients that their service teams, when interacting with the customers, represent the bank’s image in their business brand. Rather than assuming that these representatives take personal ownership of personifying an exceptional level of quality customer service, these organizations conduct regular, timely customer service quality check-ups that take continued on page 20 

David Ender is owner of Sellright & Customer Insights. His area of expertise is in banker sales training. He can be reached at prosalestrng@aol.com.

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WINTER 2011 | 9

TECHNOLOGY | By Pete Hopkins

Strategies for Protecting Your Internet Banking Site

A

s more and more people go online to do their banking, more and more criminals see opportunities for theft in the form of unwary newcomers to online banking and increasingly sophisticated malicious software.

Online theft is often carried out by large, wellorganized criminal gangs, not lone hackers. The stakes are large and the threat is real.

Due to the variety of methods employed by criminals, there is no single solution for keeping them at bay. It’s best to use a wide spectrum approach, with multiple layers of security. Here are the top 10 best ways to safeguard your website.

Anti-virus measures and up-to-date software.

Both end users and financial institutions should be using reliable software that protects against malware. This software should be continually

updated to protect against the latest threats.

Computers should also be updated with the security patches issued from the maker of your operating system and from the companies that make your office and financial software.

Customer and staff education. On a regular basis, include fraud education in your communications with account holders. Use a variety of media including web announcements, statement stuffers, emails, blogs, and social site announcements. Also, ensure employees are trained and tested in your security procedures.

Password security. Superior password protection requires three parts: Expiration. The more frequently a user must change passwords, the less likely it is that a criminal can acquire them. Experiment with the appropriate balance between security and convenience for your customers.

Reuse. A good system will be able to specify when a previously used password is acceptable for use again. Usually this interval is measured by the number of times a person has changed passwords.

Length and strength. Your system should enable you to require a minimum number of characters and an alpha and numeric mix.

Multi-factor authentication. Multi-factor authentication (MFA) authenticates identity by using one factor a user knows, such as password log-on ID or challenge question, and another factor the user possesses, such as a token. A good MFA system will provide multiple levels of protection, connectivity protection, and risk score assignment to control access.

Risk rules. The above-mentioned risk score assignment is especially advantageous if it has modifiable rules and limits for scoring.

That gives system administrators flexibility in deciding how stringent the rules are for login and online activities. For example, for firsttime users of your site, you can require that the

Pete Hopkins is the general manager of Internet Solutions for Jack Henry & Associates, Inc. He can be reached at phopkins@jackhenry.com.

10 | Banking 10 New | Banking York New York

person create challenge questions.

For users previously registered, you can set a relatively high risk score for log-in before the system will ask the challenge questions. For general payment activities, you can create a lower threshold before challenge questions are initiated.

Security tokens. This is a very secure option that significantly reduces risk. It usually comes in the form of a smart card, a small chip, or device on a key ring. Tokens in the form of cell phone software are likely to become more common in the future. A good token uses a onetime password. Each time you use it, or at set intervals, a new password is generated.

Restrictions on IP address and time.

Some security software programs will enable you to establish a list of valid IP (Internet Protocol) addresses. An IP address is a unique numerical label assigned to each device that connects to a computer network. The system will check a whitelist of allowed IP addresses, and anyone attempting to log in from a different address will not be authorized. A time restriction will assign specific days and time periods to users and only enable access during those times.

Hold restrictions on new users.

If a criminal manages to gain access to the credentials of a cash management administrator on your network, you could be in trouble.

The fraudster can create a new, authorized cash management user and start originating transactions as that person. Avoid this scenario by using your fraud management tools to automatically put new users on hold.

Set up a rule that the new user is not given authority until an employee at a specified management level approves.

Core processor settings for cash management. Your core system may enable security settings that keep a

lid on dangerous activities. Examples are bank override settings that allow customization of certain settings to conform with the institution’s risk model; emails and notifications that alert administrators to specified account activities; company-level ACH parameters, setting validations for batch initiation, company-level and batch-level validation, and calendar validation; dual control settings that help ensure that a single user does not have the ability to create and initiate a batch; and manual batch notification settings that require customer notification through a separate notice – such as email, phone, SMS text message, or fax – to prevent batch initiation that is not authorized by the customer.

Standalone computer for cash management. Industry security experts

recommend the use of a standalone computer to perform high-level cash management activities. Make certain that the computer is secure and not used for web surfing or email.

THE VALUE OF ACCOUNTHOLDER TRUST Most of these strategies for website security are simple to implement and are common sense precautions. Others may require a technology or software upgrade. Your return on investment in this area is usually obvious regarding the time, trouble, and cost of fraud.

When you take steps to prevent fraud, you’re also preserving customer trust. The value of customer confidence can be hard to quantify, but you know you’ve got to have it to attract and retain customers and realize your business and growth goals.

■

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WINTER 2011 | 11

COVER STORY | By Scott Van Voorhis

Patriot National Bank Survives Downturn, Reports Small But Significant Profit

Michael Carrazza (facing camera) with Patriot Bank staff (left to right): Mark Foley, Chris Maher, and Nicole Harkland.

Photo credit: Andrew Einhorn

P

atriot National Bank was as troubled a bank as they come, weighed down under a mountain of suspect real estate loans. But where others may have seen just another bank ready to fold amid the epic downturn in home prices and sales, private equity investor Michael Carrazza saw an opportunity.

After all, despite its many problems, the bank also has some things going for it, not the least being location.

Based in Stamford, Conn., Patriot is in the middle of one of the world’s most affluent suburban clusters.

Twelve months and a $50 million investment

by Carrazza, and the rest is history, with the bank turning its first profit after several quarters of red ink and Carrazza and bank executives now looking optimistically at the future.

“My view is that the turnaround is complete,” said Carrazza said. “Phase two is the growth phase.

Now it’s all about growth.”

Getting there has not been easy. Founder and chief executive of New York-based Solaia Capital, Carrazza thought he had a deal to buy a controlling share back in the fall of 2009, only to have Patriot back off the deal in favor of a higher offer. Carrazza and his team managed to fend off their rivals, but it was not until a year later that they took control of Patriot.

12 | Banking New York

With ownership of the bank settled, then came the turnaround.

Patriot’s problems were no secret, with the bank having ridden the once-hot residential market when prices were soaring. But when the real estate bubble burst in New York’s wealthy suburbs like Stamford, the bank found itself with a whole bunch of loans to single-family home builders who were struggling to get the prices they had banked on.

When Carrazza and his team took control of the bank on Oct. 15, 2010, the magnitude of the challenge ahead became even clearer. The number of nonperforming loans had hit “outrageous levels,” Carrazza said, noting they had risen well above 20 percent before peaking last year. Moreover, the bank was bleeding money, having failed to turn a profit for several quarters.

“I think this transaction had to happen,” Carrazza said. “I don’t think the bank would have survived.”

In a matter of ten months, Carrazza and his new team of managers and directors have overseen a series of sweeping changes at Patriot. There is a whole new board of directors, while the bank, under new management, has slashed its operational costs.

The bank shut four branches, bring the total down

smaller piece of the pie,” Carrazza said.

Still, competition for commercial loans, especially if they involve real estate, is fierce, with major lenders also forced to look hard for good loans in a sluggish economy, according to Maher. Patriot has managed to hold its own by going after niche areas, such as full-fledged commercial lending without a real estate element, which other banks don’t have the time or staff to pursue. For example, the bank is lending to a regional trucking company, an operator of car washes and couple of local restaurateurs with long track records, Maher said.

As Patriot’s balance sheet continues to heal, the bank might even take a look at acquiring other local lenders, Carrazza said.

“There is no sale of the bank on the drawing board right now and strategic acquisitions are part of the longer-term plan.” ■

to 15 – 12 in Connecticut and three in New York City. That is expected to save $1.7 million annually, according to a statement filed by the bank with the Securities and Exchange Commission.

Patriot also cut 20 jobs, for savings of another $1.3 million, according to the SEC filing.

Meanwhile, the bank shrunk its overall balance sheet, once well over $900 million, down to $671 million as of last May, and took steps to reign in troubled loans. The number of nonperforming assets dropped to $22 million by the end of the third quarter, down from $106 million at the end of 2010.

Validation has not been long in coming, with the bank reporting a small but very significant profit of $250,000 at the end of the third quarter on Sept. 30.

That was Patriot’s first profit in roughly three years.

“Going into the last crisis, the bank had grown very rapidly,” noted Christopher Maher, Patriot’s chief executive and a veteran banker who was brought in to oversee the day-to-day operations. “We tried to right-size the bank’s infrastructure.”

Looking ahead, both Carrazza and Maher see big things for the newly revamped Patriot Bank. For starters, the bank’s footprint, which extends from wealthy Fairfield County down into New York itself, couldn’t be better, Maher said.

“In other geographies, we might not have been quite as interested,” he said, adding the “spread of customers in both New York and Connecticut” was an attraction. “It is a very affluent and stable market.”

And both executives see great potential for ramping up the bank’s small business lending. While lending on residential developments is still important, Patriot is now hoping to expand its portfolio of commercial loans at an even faster pace.

“We are going to increase commercial and industrial lending at a much higher rate so residential becomes a much

DILIGENCE 

continued from page 6

little to no consideration is given to how long it will actually take to liquidate a company – and how costly a prolonged liquidation process can become.

Even with the most attentive and meticulous screening of loan applications in place, the risk of debtors going into default and, ultimately, bankruptcy is very high today. Carefully examining collateral values with an eye toward the often unexpected expenses that may occur during liquidation can make a big difference to the security of your funds. If you do not have capabilities in-house to conduct investigations of this depth, or if you feel your organization could benefit from an informed second opinion, consider reaching out to a knowledgeable auditing specialist with experience in this area.

■

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WINTER 2011 | 13

COVER STORY | By Scott Van Voorhis

Look for the Union Label

Amalgamated Bank and its $100 Million in Mixed Blessings

I

t would seem like a propitious time for the nation’s only union-owned bank to make a comeback, with the Occupy Wall Street protests having revived age-old concerns about the costs of unfettered capitalism.

But despite some favorable political headwinds and a badly needed injection of capital, New York Amalgamated Bank faces some serious challenges ahead.

The bank appears sufficiently recapitalized after investors – a group that includes a fund launched by former Lakers great Magic Johnson – pumped in $100 million. But the bank is also faced with having to overhaul several key aspects of its internal operations under a wide ranging consent order issued by the Federal Deposit Insurance Corp. And even after those requirements are met, Amalgamated must find a way to make money in a sluggish lending market that has even the best-run banks struggling to places to invest their deposits, noted Ron Shevlin, senior analyst at Aite Group, a Boston-based financial industry consultant.

“If you are in trouble right now with the

14 | Banking New York

FDIC from a financial structure perspective, your prospects of getting out of it aren’t really rosy or optimistic,” he said.

It’s not all bad news for Amalgamated, which has received a series of timely boosts over the past couple months. Founded in 1923 and owned substantially by the garment workers union, the bank lost more than $100 million over the past several years on real estate loans gone bad, some made in once-booming Sun Belt markets like Las Vegas. A profit of $9 million in 2009 turned to a $1.2 million loss in 2010.

Faced with orders by state and federal regulators to boost its capital levels, Amalgamated responded with a triple, if not a home run.

In late September the bank announced a deal with Wilbur Ross’ WL Ross & Co. and Ron Burkle’s Yucaipa Cos., each of which agreed to invest $50 million into Amalgamated. Burkle’s team of investors, in turn, includes Magic Johnson Enterprises.

“The investments … will enable the bank to comfortably exceed the increased required capital levels,” said Edward Grebow, Amalgamated’s chief executive, in a press statement.

Workers United, the garment workers’ union, kept control of the bank through the deal, though it ceded 40 percent to Amalgamated’s new investors.

Along with providing retail banking services, the $4.5 billion bank is the leading manager of union pension funds.

Burkle is known as a union-friendly investor, while Johnson’s firm touts its socially responsible investments.

“Amalgamated’s long history of union ownership places it in a unique position to serve the financial needs of America’s labor organizations, the pension fund community, and working people throughout our nation,” Burkle said at the time.

Not exactly a household name, Amalgamated also picked up some free advertising with the emergency of the Occupy Wall Street movement.

Looking for an acceptable place to stash their donations, OWS opened an account at Amalgamated.

But behind the scenes, the bank is faced with a significant internal overhaul after a sweeping “consent order” issued by the FDIC on Aug. 31.

One of the more serious problems identified by regulators were assets still on the bank’s books after they had been categorized as a loss. The FDIC, in its edict released on the last day of August, was unequivocal in what it wants from Amalgamated: “The bank will, if it has not done already, eliminate from its books, by charge-off or collection, all assets or portions of assets classified as ‘loss’ in the report of examination dated June 14, 2010 (as of Dec. 31, 2009),” the FDIC stated.

The bank is also under regulatory pressure to revamp other areas of its operations, from management and IT to delinquent loans and audits.

The FDIC’s consent order, issued in conjunction with state banking regulators, requires Amalgamated to: Retain a third party consultant to assess

the bank’s board and the bank’s management needs. The consultant, in turn, is to both assess the capabilities of the bank’s board members and executives, evaluated compensation and recommend any new positions or committees that might be needed.

Ramp up oversight by the board so that it assumes “full responsibility for the approval of sound policies and objectives.” The board is required to hold at least monthly meetings and to an array of specific items, including reports of income and expense, delinquent loan activity, liquidity levels, audit reports and information technology, among several highlighted areas.

Reduce exposure to delinquent loans, with an “action plan to review, analyze and document the current financial condition of each delinquent or adversely classified borrower … and any possible actions to improve the bank’s collateral position.”

Launch a loan review program that will continued on page 21 

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WINTER 2011 | 15

HE’ll DO IT HIS WAY AG Determined to Get Best Deal for Residents Affected

by Foreclosure Scandal

By Scott Van Voorhis

W

all Street and New York’s biggest banks may be eager to call it a day on the sorry foreclosure mess and its many scandalous subplots, even at the expense of writing a very big check. But alas, New York Attorney General Eric Schneiderman, is having none of it. Just a year into the job, Schneiderman has succeeded in helping shift the debate, both in New York and nationally, away from efforts to close the book on the foreclosure mess and onto a new and seemingly growing round of investigations aimed at getting at the root causes – and supposed villains – behind the ongoing catastrophe.

The latest in a long line of activist attorney generals in New York, Schneiderman has pulled the Empire State out of a proposed multibillion foreclosure settlement with the banking industry and ramped up his own probes of the industry.

That could keep New York banks on the hot seat for months, if not years, while potentially dragging out a resolution to a foreclosure crisis that has had a major impact on hopes for an eventual recovery of the housing market, according to some industry experts.

“Any time you have major states like New York opting out of a settlement it obviously creates a lot of difficulties for the banking industry,” Ed Mermelstein, a New York real estate lawyer who closely tracks the foreclosure issue. “Between Occupy Wall Street and occupy every other square in every other city, it in some degree goes back to the banking industry. They definitely want to move on and put this matter behind them.”

Schneiderman’s biggest splash to date came just a few months ago when he broke off from talks between state attorneys general across the country on a potential $25 billion mortgage fraud settlement involving Citibank, JPMorgan Chase, Ally Financial and Bank of America.

The deal includes $17 billion in principal reductions and mortgage modifications, with another $5 billion to be doled out to victims of mortgage abuses and $3 billion towards refinancing troubled loans. continued on page 18 

FORECLOSURE FALLOUT 

continued from page 17

Schneiderman and Delaware Attorney General Beau Biden contend the talks were too narrow, letting banks shut the door on a range of issues and alleged abuses. Both announced they would be forging ahead with their own investigations.

Schnederman’s decision to pull out did not come overnight, but rather was the end result of months of building tensions with Iowa Attorney General Tom Miller, who has taken the lead in hammering out a national settlement.

Miller issued a scathing statement accusing Schneiderman of working “to undermine the very same multistate group with which [he] had been working very closely over the previous nine months.”

The New York AG fired back, arguing Miller and other state AGs were being too hasty in their pursuit of a settlement, potentially letting the nation’s biggest financial institutions walk away without fully facing the consequences of their actions.

“Ongoing investigations by attorneys general cannot be shut down by efforts to settle quickly and those responsible must be held accountable,” Schneiderman’s office said in a statement at the time that was reported by Bloomberg. “While it is [Miller’s] prerogative to remove us from the executive committee, we will continue to be an active voice on these issues as a part of the 50-state coalition and in other forums.”

A sticking point for Schneiderman, according to comments made at the time by Biden, was the sweep of liability protections sought by the banks in exchange for agreeing to shell out billions in settlement cash. That could have hampered investigations into issues far beyond the robo-signing issue dealing with both the writing of troubled mortgages that later when into foreclosure, as well as their packaging and sale on Wall Street, Biden explained.

Since breaking free from the national settlement 18 | Banking New York

talks, the New York’s chief law enforcement officer has intensified what appears to be broad ranging probe into various facets of the foreclosure scandal.

Though Schneiderman’s office says it won’t publicly discuss active investigations, the AG has revealed some of his cards over the past few months, with hints at probes into everything from how shady subprime loans were packaged and sold to investors on Wall Street to the handling of foreclosure cases by a controversial law firm.

Schneiderman recently won a green light in federal court to intervene in a $8.5 billion settlement proposed by Bank of America to make up for losses by investors on hundreds of mortgage-backed securities picked by Bank of New York Mellon.

Successfully stepping into the middle, he argued the settlement amount is too low, representing only a small part of the losses piled up by investors in what later turned out to be toxic assets as defaults and foreclosures began piling up.

Schneiderman was already investigating the role played by Bank of New York Melon and Deutsche Bank as trustees acting on behalf of investors who bought mortgage-backed securities.

Meanwhile, Schneiderman is also apparently targeting a New York law firm that, at its height, handled 40 percent of the foreclosure filings in the Empire State.

Already under scrutiny for allegedly improper foreclosure practices, Steven J. Baum P.C. recently announced it would be shutting its doors amid furor over photos of a tasteless Halloween party thrown by the firm. The New York Times recently published photos that showed members of the firm dressing up as homeless people against a mock backdrop of foreclosed homes.

“I think there will be quite a few investigations before this is over,” Schneiderman said on an appearance on the “Rachel Maddow Show” on MSNBC.

The attorney general’s widening probe also threatens to further drag out a resolution to the longrunning foreclosure mess, some industry experts say.

By forging a national settlement to settle allegation of shoddy foreclosure practices, banks have been hoping to get back on track with the tough business of working through the glut of troubled properties on their books, notes Mermelstein. Already it can take, on average, more than two and half years for banks in New York to complete a foreclosure.

“I do think all these efforts to slow down foreclosures, torment the banks and torment the lawyers who do foreclosures … ensures that the residential real estate market will take much longer to recover, notes Joshua Stein, chair of the education committee for the New York Mortgage Bankers Association.

While there were certainly case of shoddy paperwork and “gotcha loans,” at the end of the day there are simply too many people in homes that they will eventually have to move out of, Stein said. There are still “a lot of people living in houses they can’t afford and don’t really own,” he said.

Still, while executives at New York’s biggest banks may wince at the mention of Schneiderman’s name, there is a certain logic to the actions of the New York’s latest activist attorney general.

And Schneiderman is simply following a playbook well established before he got to office by a pair of aggressive state AGs who later became governor of the Empire State – most recently Andrew Cuomo, but also Eliot Spitzer, according to Mermelstein.

The New York AG’s office provides a grand platform that ambitious politicians find hard to resist.

“It gives you a platform not just in New York, but nationally,” Mermelstein notes.

As the third largest state in the U.S., New York may very well have the heft needed to strike a better deal for itself, notes.

Mermelstein sees the top financial institutions ready to meet Schneiderman’s price, if and when he sets one.

“Most likely he will get a better deal for New York,” he said.

■

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the form of professional mystery shops.

The shops are designed to evaluate incumbent customer service and selling skills based upon an existent and established set of customer service standards that are emblematic of an organization’s service brand. Once initial mystery shops have been completed for a bank, a baseline of service performance can be created to serve as a diagnostic tool to identify what is working well and what service skills need improvement.

As a training and development tool, institutions utilizing these shopping services can strengthen their service brand in the eyes of those they serve. In doing so, these organizations are better equipped to deliver a level of customer service that is in step with customer expectations.

When selecting mystery shopping services, financial institutions should always seek out firms that are familiar and qualified in the degree of knowledge necessary to evaluate both customer expectations and employee performance standards. The shops should seek to capture moments of professional reallife employee behavior in both verbal and non-verbal forms of communication in order to assess the overall quality of a one-to-one customer service experience.

In working with my clients, I recommend that a series of mystery shops be conducted three to four times annually for an accurate assessment of staff service performance, ensuring that a high level of customer service is consistently delivered and felt by customers.

Institutions that regularly include mystery shopping services as part of a total marketing plan soon discover that they have greater control of how their service brand is delivered by their service teams.

By following this easy business prescription for success, these banks enhance their competitive ability to attract, retain and grow their customer base. So, if your institution is overdue for a service check-up, perhaps now is the time to consider this straightforward and trouble-free Rx for continued success. ■

AMALGAMATED 

continued from page 15

“provide for a periodic review of the bank’s loan portfolio and the identification and categorization of problem credits.”

Develop a “comprehensive policy and methodology for determining the bank’s allowance for loan and lease losses.”

Formulate a written annual profit and budget plan, and craft a longrange strategic plan for the next three years.

Put into place an IT security plan that assesses potential threats to different business units and departments.

Maintain an internal audit program that meets federal regulations, including a restructuring of the bank’s audit committee.

Halt all dividend payments unless authorized by the FDIC’s regional director.

Establish a compliance committee to ensure the bank meets the requirements laid out by the FDIC in its consent order.

larger banks. While Amalgamated has gotten a boost of sorts for becoming the bank of the Occupy Wall Street movement, it is unlikely to make serious market headway unless it couples this publicity boon with action. That means taking a hard look at its fees, which are similar in some areas to those charged by the big banks that the Occupy Wall Street activists are declaiming, said Aite Group’s

Shevlin. And even if Amalgamated can bring more customers and deposits in, it still faces the challenge, like every other bank, of finding profitable areas to loan the money out in, he noted.

“Commercial bankers, the smart ones, know that this is a mixed blessing,” Shevlin said. “Depositors are walking through the door, but they don’t have productive uses for those deposits.” ■

Do your statements look like this?

Amalgamated must also figure out a way to start making money again in a changing financial landscape, industry observers say.

After getting into trouble with real estate lending gone bad in markets like Las Vegas and Southern California, Grebow told Crain’s New York Business that Amalgamated will be returning “to its roots as a primarily New York-area lender.”

And this, in turn, may be a blessing in disguise, with both commercial and residential real estate holding up much better in the New York metro market than in many other parts of the country.

“New York is probably one of the more stable markets in the world,” Ed Mermelstein, a real estate attorney and co-founder of international real estate law firm Rheem Bell & Mermelstein in New York. “It has fared the best during the downturn and the risk and reward scenarios are different.”

As Amalgamated begins to sniff out opportunities in its own backyard, it is likely to face fierce competition from

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Bank Profile | By Linda Goodspeed

Signature Bank Relationships Matter

Signature Bank’s Garden City, Long Island private client banking suite.

Photo credit: Courtesy of Signature Bank

B

y almost any indicator Signature Bank is doing things differently from most other commercial banks. For one, it doesn’t even like calling itself a bank.

“We’re a professional services firm that does banking,” said Joseph J. DePaolo, president and CEO. Its 25 locations are not branches, but private banking offices. Most are on upper floors, not street level. Its bankers are “group directors.” Customers are clients. And it does no advertising.

“If you ask, no one ever changes a bank because of an ad,” DePaolo said. “We believe it’s the relationship people have with the banker that causes them to change, not the institution.”

And that relationship is the crux of Signature’s

22 | Banking New York

remarkable 10-year success that has taken it from an initial $43 million investment to $13.9 billion in assets, ranking it among the top 1 percent of all commercial banks in the U.S., according to the FDIC. “Everyone talks about relationship banking,” DePaolo said. “What sets us apart is that we actually do it, not talk about it.”

“If there’s anything banks may have learned from the credit crisis it’s that relationship banking matters instead of just transaction volume,” said Matthew Clark, senior vice president at Keefe, Bruyette & Woods, Inc., a New York investment bank specializing in the financial services industry.

“But relationship-type lending is easier said than done. Signature stands out as one who has cracked

the code.”

Signature “cracked the code” by focusing on deposits, service and cherry-picking banking teams with already established relationships in the community from other banks.

“Getting that deposit relationship is key,” Clark continued. DePaolo “uses his balance sheet to win deposits. Over time, deposits can fund good loan growth.”

When DePaolo founded Signature in 2001 after 12 years as a managing director of Republic National Bank of NY, there were 8,000 banks larger than Signature, based on deposits. Today, Signature’s $11.19 billion in deposits ranks it among the top 80 in the country.

“We built the bank for depositors, then lend to clients,” DePaolo said. “We think deposit first, not loan first. We live by that.”

He said a “deposit first” strategy means keeping higher than required capital ratios, something Signature has done from the beginning.

In addition to deposit security, Signature also offers a wide range of products and services, including investment, brokerage, wealth management and insurance products and services through its subsidiary, Signature Securities Group Corporation, a licensed broker dealer and investment adviser.

The bank targets privately owned businesses, their owners and senior management in the New York metropolitan area, a market DePaolo believed was underserved by the mega banks. Signature goes after this market by going after experienced teams of bankers who serve them. It has grown from 12 teams to 78. Through these teams Signature offers clients a single point of contact for all their financial needs.

“We can’t compete with brand,” DePaolo said.

“But we believe personal relationships trump brand.”

He says personal relationships also trump economic conditions. When DePaolo founded Signature 10 years ago, the economy was considerably different.

“I always felt that no matter what the economy was, there were bankers who had relationships with clients,” he said. “If we could find the right bankers

President and CEO Joseph DiPaolo Photo credit: Courtesy of Signature Bank

and the right teams with deep personal relationships with clients and who know how to develop business, regardless of the current economic climate, we could excel.”

And it has. In October 2011, Crain’s New York Business ranked Signature the seventh fastestgrowing public company (out of 100) in New York.

Signature, which has been on the list for the last five years, was the only bank in the top 25. In September, Fortune ranked Signature the 69th fastest-growing company in the U.S. Layoffs, consolidations and turmoil elsewhere in the banking sector have actually created opportunities for Signature, both in terms of lending continued on page 30  WINTER 2011 | 23

TECHNOLOGY | By Chris Sutherland

Benefits of Server Virtualization There’s Never Been a Better Time

V

irtualization is a proven software technology that is rapidly transforming the IT landscape and fundamentally changing the way that people compute. Virtualization allows you to enhance the way your IT environment operates. It simplifies the physical infrastructure, providing centralized management and better flexibility for resource sharing. From data centers to desktops, virtualization lets banks pool and share IT resources centrally and standardize computer deployment and resources so data is more secure.

For years, bankers have been watching and waiting for the definitive direction of virtualization.

Although the technology isn’t new, there has been a delay in adoption for reasons ranging from an overall lack of knowledge about the benefits, to banks fearing a shift in their day-to-day operations.

Today, virtualization technology is maturing and the tangible benefits are being realized – and the timing couldn’t be better. In the recent uncertain economic environment, the industrywide virtualization initiative is generating immediate and ongoing operating efficiencies and cost savings for many banks nationwide. And more and more banks are progressively plugging in.

Below are the top five reasons banks are implementing server virtualization.

Get more out of resources. With virtualization, banks can pool common infrastructure resources and break the legacy “one application to one server” model with server consolidation.

Virtualization can dramatically reduce the number of physical servers and dynamically redistribute excess computing power to where it is needed most. As the processing power of today’s servers continues to increase, it is now easier than ever for one more powerful server to replace multiple smaller servers.

Reducing the number of physical servers also reduces ongoing energy requirements, making it a more environmentally friendly way of doing business. This option is attractive to banks that are

adopting “green” business practices.

Reduce data center costs. Cost reduction is one of the primary reasons banks are increasingly taking advantage of virtualization. Virtualization requires fewer servers and related IT hardware and can reduce real estate, power, and cooling requirements. It also provides more efficient management tools, which can enable banks to improve their server‐to‐admin ratio and even reduce personnel requirements. And looking at the big picture, virtualization dramatically reduces the hassle and costs associated with ongoing hardware maintenance.

Enhance availability and security.

Virtualization increases availability of hardware and applications, improving business continuity and disaster recovery. It enables banks to securely backup and migrate entire virtual environments with practically no interruption in their day-today operations. With virtualization, banks can eliminate planned downtime and recover quickly from unplanned business interruptions.

Gain operational flexibility. Virtualization enables banks to respond to market changes with dynamic resource management, faster server provisioning and improved desktop application deployment. Banks need to be able to change software and add new products in a reasonable time frame. With a virtual server infrastructure, they can do this without having to find new hardware, order it, and wait on having it shipped to the bank. If you have the growth room in your setup you can configure and test without having to wait for equipment.

Improved desktop management and security.

Virtualization provides environments that users can access locally or remotely, with or without a network connection on almost any standard desktop, laptop, tablet PC, or device. With desktop virtualization, banks can secure and manage continued on page 30 

Chris Sutherland is a network engineer, advanced, at Matrix Network Services offered by Gladiator Technology, a solution provided by the ProfitStars® division of Jack Henry & Associates, Inc. (JHA).

He can be reached at csutherland@jackhenry.com.

24 | Banking New York

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FEATURE | By Kevin Tweddle

Optimizing the Efficiency Ratio Factors You Can Control to Increase Profitability

H

igh-performing community banks know that the key to growing profitably and building franchise value is to control what they can and strategically manage against market factors they cannot. Banks have recently had a laser focus on the efficiency ratio as they strive to offset the additional expense of loan loss provisions to cover asset quality issues.

The efficiency ratio is comprised of noninterest expense, noninterest income and net interest margin. However, we’re going to focus on expense management and fee income, because community banks have the greatest control over these variables. The management of these two elements is critical to maintaining or optimizing overall earnings performance.

To start our assessment of noninterest expense, we will focus on three of the following categories – personnel, occupancy and other noninterest expenses.

Personnel expenses – The average personnel expense runs about 54 percent of non-interest expense for banks and thrifts in the United States. Personnel decisions are amongst the most difficult to make and many banks put off these decisions even though they can have the greatest impact on the bottom line. Take a close look at hiring and salary increases (freezes may be necessary for cutting costs and even saving jobs) and items such as 401(k) discretionary/matching, health benefits and training/recruiting and flex hours. Adjustments in these areas can enable your bank to better weather the economic storm and immediately improve its efficiency.

High-performing banks also pay close attention to how they staff their branches in both thriving and turbulent markets. This is something that often goes unnoticed. When is the last time you took a hard look at your bank’s staffing per branch? High performers typically hire fewer employees who take on multiple responsibilities and compensate them well. This is particularly the case with branch staffing. High performers also do an excellent job of setting forth achievable incentives that are aligned with shareholder objectives, especially those actions that generate revenue to drive better individual and overall bank 26 | Banking New York

performance.

Occupancy expenses – If you ask a high-performing community bank whether its branches are profitable, the answer will likely be “yes.”

However, many average performing banks can’t answer this question. Branch profitability plays a huge role in overall franchise performance, yet banks don’t often focus on this factor. Occupancy expenses represent about 14 percent of noninterest expense, so evaluate them as with personnel expenses on an annual basis – small adjustments here can make a big impact. One simple metric to analyze is revenues generated per branch office.

U.S. average is about $2.1 million, but success will be determined based upon your specific operating strategy. We often notice banks that have not generated enough revenue to support even the fixed costs of a branch. With continued pressure on deposit services charge fee income, it will become increasingly difficult to justify underperforming branches.

For new locations, consider the average square feet per branch (ask yourself, how much do you really need?); for existing leased locations, can and should you renegotiate leases (after all, it is a buyer’s market right now); and if sale/leaseback is an option that could provide your bank with short-term benefits. Also examine where technology could reduce occupancy costs. For example, Voice over Internet Protocol technology or remote branch capture could potentially save thousands of dollars in communications costs.

Other non-interest expenses – There are a number of other expenses impacting your community bank’s efficiency ratio, such as vendor costs, that you can also control. It’s vital to review every vendor contract carefully and categorize each by need. Can you rationalize each on an annual basis? Consider economies of scale and vendor consolidation.

FDIC premiums, an expense you can’t control, are likely to go up. Develop a strategy to make up those costs through fee adjustments or by lowering your bank’s cost of funds. Another way to keep expenses in check is to employ technologies to lower payment costs. Lastly, take full advantage of your association memberships and their

benefits; you may be able to leverage association programs that reduce the costs of things like supplies, subscriptions and insurance.

know the competition and their small business offerings so that your bank can clearly differentiate itself.

Wealth management. This is an area that takes more time to build into an efficient operation. It’s important to consider whether there is sufficient demand for wealth management products (primarily comprised of trust, brokerage and insurance) in your bank’s particular market to make this effort worthwhile. Transaction activity volume must be solid and customers’ current price sensitivities must be considered. Establishing clear benchmarks, understanding the demographics of your market and price analysis through peer analysis are factors critical to the success of a wealth management program.

INCREASE NONINTEREST INCOME When community banks think of efficiency, expenses are top of mind, but most banks have already cut expenses significantly; they have no more to gain right now and expense reduction is not sustainable for the long term. The other important side of the equation is fee income. Often overlooked, fee income offers banks of all sizes the greatest opportunity to improve efficiency, but the current climate necessitates that you think of new and creative ways to generate it.

Following are things that the high performing banks are doing: Deposit service charge fees. Now that many banks have completed the Reg E opt-in process, they will find that that even in the most optimistic cases they will have lost about 20 percent of their overdraft/NSF fee income. It is critical that the bank comes up with alternatives to make up this deficiency. We recommend a full review of all customer charges and focusing in on those that incent the proper behavior from your customer and don’t penalize your better customers. Examples include charging higher foreign ATM fees, charging for incoming wires, raising limits on reward programs (i.e. debit card usage) and annual card fees.

Remote capture/cash management.

For commercial-oriented institutions in metro areas, remote deposit capture is a “must-have” product offering. It creates cost savings in reduced courier expenses and is a great way to bring in non-interest bearing demand deposit accounts. High performers grow small business/commercial deposits by packaging commercial and retail accounts, and by tying loans and other products to deposits (and vice versa), to offer preferential rates. It’s critical to

Every community bank’s efficiency ratio can be optimized by gaining greater control of expenses and by taking steps to increase or add revenue streams.

However, no all-encompassing target ratio applies to all banks. Each bank’s efficiency ratio reflects the specific kind of business it’s in, so the strength of your bank’s ratio will be dependent upon its specific operating strategy.

So who is the best of the best in Virginia? For banks and thrifts less than $20 billion in asset size, The National Bank of Blacksburg has consistently been among the lowest efficiency ratios in the state for years. Year-to-date in 2010, their efficiency ratio was 42 percent, just edging out Burke and Herbert Bank and Trust Company at 44 percent.

■

Kevin Tweddle is executive vice president of sales and operations for Bank Intelligence Solutions from Fiserv. Reach him at kevin.tweddle@fiserv.com.

WINTER 2011 | 27

Small Change

DAVID D’AMICO JOINS TD BANK TD Bank has named David C. D’Amico the store manager in the store located at 260 Park Ave. South in New York City. He is responsible for new business development, consumer and business lending, and managing personnel and day-to-day operations at the store serving customers throughout the Manhattan area.

D’Amico has six years of banking experience. Prior to joining TD Bank, he served as a branch manager at Chase Bank in Manhattan. A resident of West New York, New Jersey, D’Amico is a 2004 graduate of East Stroudsburg University in East Stroudsburg, Penn.

HEAD OF CREDIT UNION ASSOCIATION OF NY NAMED CHAIRMAN OF NATIONAL LEAGUE William J. Mellin, president and CEO of the Credit Union Association of New York, was elected chairman of the American Association of Credit Union Leagues (AACUL) at the organization’s meeting in November. He succeeds Brett Thompson from the Wisconsin Credit Union League.

Mellin has served on the AACUL board since 2004, most recently as first vice chairman. He has also served as chair of CULAC, the Credit Union National Association’s political action committee.

As AACUL chair, Mellin will also be an ex-officio member of the CUNA Executive Board. He will serve a two-year term.

“The AACUL board has been at the forefront of key industry issues and, with the support of leagues, has been integral in developing new initiatives to help the credit union system grow and thrive,” said Mellin. “I look forward to working with my colleagues on the AACUL Executive Board to build on these accomplishments.”

Mellin also serves as vice chair of CUNA Strategic Services, Inc., and is a board member of Credit Union House, Credit Union Service Corporation and the League InfoSight Corporation.

The American Association of Credit Union Leagues (AACUL) was founded in 1942 and is comprised of state credit union associations representing all 50 states and the District of Columbia. AACUL’s mission is based on the premise that the vitality of the credit union community is enhanced by a strong three-tiered system that has advocacy as its primary focus.

28 | Banking New York

ICBA TESTIFIES TO CONGRESS ON CREDIT UNION LENDING Sal Marranca, president and CEO of Cattaraugus County Bank in Little Valley, testified before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit in his role as Independent Community Bankers of America (ICBA) chairman.

He urged Congress not to expand credit union business lending powers unless it is also prepared to tax credit unions and require compliance with the Community Reinvestment Act. He also said that repealing the credit union tax exemption stands on its own merits as a deficit-reduction measure.

“The current tax exemption that credit unions enjoy is directly linked to their original mission of serving individuals of modest means,” Marranca said.

“However, after decades of ‘mission creep,’ which has resulted in multi-billion-dollar credit unions, that tax exemption can no longer be justified.”

Marranca went on to say that ICBA opposes the Small Business Lending Enhancement Act, H.R. 1418, which would allow the National Credit Union Administration (NCUA) to approve member business loans up to 27.5 percent of a credit union’s assets – more than double the current cap of 12.25 percent. “Credit unions have portrayed H.R. 1418 as an effort to make more credit available for small businesses,” Marranca said. “However, only a small number of credit unions are at or near the current member business lending cap – just over 2 percent of the approximately 7,300 credit unions, according to the NCUA.”

FIRST NIAGARA DONATES $100K TO AREA CHARITIES First Niagara announced in October that it has given grants totaling $100,000 to nine Central New York charities, as part of its Mentoring Matters program that provides financial and volunteer support for youth mentoring efforts throughout the Northeast. First Niagara has provided more than $3.25 million to support mentoring initiatives in four states. “Mentoring is a strong factor that so often leads to positive changes in the professional, academic, social, emotional and cognitive growth of young adults,” said David Kavney, Central New York market executive for First Niagara.

THE GRANT RECIPIENTS ARE: Champions for Life Sports Center, Auburn, $15,000 Access to Independence of Cortland County Inc., $15,000 Upstate Cerebral Palsy, Utica, $15,000 P.E.A.C.E. Inc, Syracuse, $7,500 H.O.M.E. Inc, Syracuse, $10,000 Father Champlain’s Guardian Angel Society, Syracuse, $7,500 On Point for College, Syracuse, $10,000 Catholic Charities of the Syracuse Diocese, $12,500 Interfaith Works of Central New York, Syracuse, $7,500

KEY BANK OPENS 8TH BRANCH, PLANS 9TH

Set to Become Third Largest Bank in NY In November, Key Bank opened its eighth branch in Western New York, and plans are underway for a ninth to open in late spring.

Currently the fourth largest bank in the area, with just under 9 percent of the market share, it is expected to rise to the third largest after First Niagara completes its acquisition of HSBC, taking a competitor out of the equation.

In two years, the bank has opened branches in West Seneca, Amherst, Orchard Park, Grand Island, Tonawanda and most recently on Pine Avenue in Niagara Falls, and has been updated about 25 others. It has also added drive-up ATMs and stand-alone ATMs in other locations.

The bank is actively expanding business lending, as loan demand is picking up. In the past year, loans have more than doubled in Western New York as the area recovers from the recession and the bank regains its footing.

SEND US YOUR NEWS! SUBMIT NEWS FROM YOUR BANK OR CREDIT UNION TO ASSOCIATE EDITOR CASSIDY MURPHY AT CNORTONMURPHY@ THEWARRENGROUP.COM

WINTER 2011 | 29

SIGNATURE BANK  and acquiring new talent. For example, in April 2011, the ABA Banking Journal ranked Signature number 10 among public banks for loan growth in 2010. The journal noted that the bank’s 20 percent loan growth that year was largely fueled by commercial real estate and multi-family housing, two sectors other banks have shied away from during the recent downturn.

“Current cash flow in these sectors is key for us,” DePaolo said. “We lend based on current cash flow. We don’t give credit for what could happen. We also hired expertise in those areas. We look for bankers with experience and deep personal relationships with clients. We lift out those teams. It’s better than buying a bank.”

Peyton Green, a senior banking analyst at Sterne, Agee & Leach, Inc. in Nashville, Tenn., said Signature is doing more than simply buying market share when it acquires new banking teams.

“They’ve been very active in pulling in new teams the last couple of years. But their existing teams are also continuing to grow.

Teams often hit maturity after five to six years. But their teams are not hitting the wall. The bank is continuing to have strong growth from both their new and existing teams. That indicates to us that the credibility of the company is continuing to gain momentum.”

As of Sept. 30, 2011, signature had $6.44 billion in loans, $1.37 billion in equity capital, and $1.70 billion in other assets under management.

DePaolo said Signature’s success has made it a target for acquisition ever since the bank went public in March 2004. He said the best way to fend off suitors is to keep growing and shareholders happy.

“We see such vast opportunities to grow on our own. We don’t want 30 | Banking New York

continued from page 23 to mess that up by being acquired. I don’t think about how we can grow.

I think about people we can hire.”

“The opportunity they have is that they are a relatively small player in a very big pot with not many good players,” Green said.

“They have the opportunity to take their market share significantly higher.”

For all its rapid growth, Signature still has only about 1 percent of the New York market share.

“If we could increase that just to 2 percent, we’d be able to almost double our size,” DePaolo said.

He has no plans to diversify the bank geographically, pointing out that the new York metropolitan area is the largest area for deposits in the nation and home to the greatest number of privately owned businesses.

“New York has been resilient this entire time because Europeans and Asians like to come here and do business here. It’s still the financial capital of the world. There are vast opportunities here without having to expand geographically,” he said.

If the bank does expand, he said it would be in concentric circles – New Jersey or Connecticut, for example.

Although he likes his own bank’s prospects, he said the economic future for the rest of the country is uncertain.

“When I look out the window, I see clouds. I don’t see a sunny day. I’m concerned. I don’t see the economy turning around or interest rates changing anytime soon.”

But despite the uncertainties, DePaolo also sees plenty of opportunity out his window.

“Banking isn’t going to go away,” he said. “For all the technology advances, we think clients want face-to-face meetings.

That’s not going to stop. I’m very excited about our prospects.

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VIRTUALIZATION  continued from page 24

desktops from one centralized location.

Using simple management tools, all desktops can be configured the same and the data is stored at a data center to help ensure that security and backup policy requirements are upheld.

GETTING STARTED WITH VIRTUALIZATION Banks that are interested in getting started with virtualization should begin the process with discovery and planning. It’s important to analyze the current operating environment and use that information to decide how and where virtualization should be utilized.

Discovery – First, take inventory of your entire environment, including servers, workstations, and switches.

Monitor the performance of your environment, which includes building a history of performance for servers, diagramming what each workstation needs physically, and tracking performance of bandwidth locally on wide area networks.

Planning – Review your discovery documentation, and determine what elements of your environment are good candidates for virtualization.

Determine your future needs in areas such as management, disaster recovery, and cost savings. And make sure you’re working with a trusted and proven vendor that is experienced with evaluating and implementing virtualized environments. Look for a vendor that offers custom network solutions and consultation that support virtualization, server consolidation, storage, communications, conversions, and migrations.

Server virtualization can generate significant cost and time saving benefits to banks. If you haven’t researched how this operational enhancement can help your bank save money, improve disaster recovery, and simplify dayto-day processes, there’s never been a better time than right now. Around the world, companies of all sizes are benefiting from virtualization – don’t be left behind!

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