Banking New York 2Q 2016 by The Warren Group

THE INDUSTRY MAGAZINE FOR FINANCIAL EXECUTIVES & PROFESSIONALS • SECOND QUARTER 2016 • VOLUME 40

WILL DONALD ‘TRUMP’

THE BANKS OR WILL THEY GET ‘BERNED’?

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BANKING NEW YORK Volume 40 | Second Quarter 2016

WILL DONALD

‘TRUMP’

THE BANKS

OR WILL THEY GET

‘BERNED’? 04 PRESIDENT’S MESSAGE

On Membership, Education, Programs and Advocacy, IBANYS Works for New York Community Banks

06 PUBLIC AFFAIRS UPDATE Carrying the New York Community

Banking Flag in Washington Community Banks

08 EXPANDING HORIZONS A Smarter Loan Option for

Today’s Business Borrower

CONTRIBUTING WRITERS Linda Goodspeed and Steve Viuker TWG STAFF CEO & PUBLISHER Timothy Warren Jr. PRESIDENT David Lovins ACCOUNTING MANAGER Mark DiSerio SALES DIRECTOR OF BUSINESS MEDIA George Chateauneuf ADVERTISING ACCOUNT MANAGERS Bob Holzhacker, Mike Lydon, Claire Merritt

12 BANK PROFILE Steady Leadership at

Canandaigua National Bank

14 COVER

Will Donald ‘Trump’ the Banks or Will They Get ‘Berned’?

18 INDUSTRY NEWS 20 ADAPT OR DIE

The Golden Age of Banking Is Here

22 SMALL CHANGE

EDITORIAL EDITORIAL DIRECTOR Cassidy Murphy ASSOCIATE EDITORS Malea Ritz, Joe Kourieh CREATIVE/MARKETING DIRECTOR OF MARKETING & CREATIVE SERVICES John Bottini MARKETING COPYWRITER Michael Breed PUBLIC RELATIONS & SOCIAL MEDIA MANAGER Jeff Smith DESIGN PRODUCTION MANAGER Scott Ellison GRAPHIC DESIGNERS Amanda Martocchio, Tom Agostino & Tyler Grazio ©2016 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

PRESIDENT’S MESSAGE | By John Witkowski

On Membership, Education, Programs and Advocacy, IBANYS Works for New York Community Banks

John Witkowski

We have had a very productive year at IBANYS to date. We are pleased we have welcomed six new bank members over the past several months: Country Bank, Genesee Regional Bank, Saratoga National Bank & Trust, Empire State Bank, Salisbury Bank and Trustco Bank.

he Independent Bankers Association of New York State (IBANYS) has represented the interests of independent community banks throughout New York since 1974. Community banks share a commitment to meeting the financial needs of their respective local communities, and IBANYS is pleased to be their voice in Albany, New York, Washington, D.C. and around the state. One of the most important functions IBANYS provides to our members is professional education. Through our conferences, seminars, webinars and publications, we keep New York community banks informed and up-to-date on the latest important trends, developments and activities impacting their business. We offer New York community banks the very latest information and tools for profitability and success. During the first half of 2016, IBANYS has held Regional Compliance Conferences and Regional Bank Directors Conferences, the CFO and Senior Management Conference, and the annual Lending Conference. In October, we will hold our Annual Convention and Regional Security Conferences. Significantly, we provide CPE credits to participants. Our preferred provider partners and associate members enjoy unique opportunities for networking, sponsorship and exhibiting opportunities. 4 | Banking New York

We also offer a full menu of webinars designed specifically to meet the needs of community banks (available on our website, www.ibanys.net), and also offer select webinars offered by outside experts. We thank the efforts of our member banks, who work closely with staff to develop program content that is timely and relevant to their institutions and our industry. All of IBANYS’ 2016 educational programs, events and webinars may be viewed online at www.ibanys.net under the “education/upcoming meetings” tab. You can both look ahead at our future meetings, and access the presentations from our past meetings. Take a moment to explore – then join us for our next round of programs! IBANYS has also introduced exciting new initiatives to benefit member banks during this past year. • IBANYS and the New York Business Development Corp. (NYBDC) recently announced a new partnership with Excelsior Growth Fund (EGF), a nonprofit Community Development Financial Institution formed by NYBDC. EGF has been endorsed by IBANYS as the exclusive online lending partner for association members. (See the article by Patrick MacKrell and Robert Fisher, continued on page 11 

IBANYS Board of Directors Officers Chairman John Buhrmaster First National Bank of Scotia, Scotia Vice Chairman Doug Manditch Empire National Bank, Islandia Treasurer/Secretary R. Michael Briggs USNY Bank, Geneva Immediate Past Chairman Christopher Dowd Ballston Spa National Bank, Ballston Spa Directors Thomas Amell Pioneer Bank, Troy Ronald Bentley Chemung Canal Trust Company, Elmira Thomas Carr Elmira Savings Bank, Elmira Brenda Copeland Steuben Trust, Hornell Randy Crapser Bank of Richmondville, Cobleskill Ronald Denniston First National Bank of Dryden, Dryden Robert Fisher Tioga State Bank, Spencer E. Peter Forrestel II Bank of Akron, Akron Stephen Gobel First National Bank of Groton, Groton Gerald Klein Tompkins Mahopac Bank, Brewster Richard Koelbl Alden State Bank, Alden Paul Mello Solvay Bank, Solvay G. William Ryan Cayuga Lake National Bank, Union Springs Kathleen Whelehan Upstate National Bank, Rochester Michael Wimer Cattaraugus County Bank, Little Valley IBANYS STAFF John J. Witkowski President and CEO Stephen W. Rice Vice President of Government Relations and Communications William Y. Crowell, III Legislative Counsel Linda Gregware Director of Administration and Membership Services

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PUBLIC AFFAIRS UPDATE | By Stephen W. Rice

Carrying the New York Community Banking Flag in Washington In late April, community bankers from throughout New York brought our message and our federal issues agenda to our nation’s capital for meetings with Sen. Chuck Schumer, members of our New York Congressional Delegation (including senior members of the House Financial Services Committee) and aides to Sen. Kirsten Gillibrand.

e also heard from FDIC Chairman Martin Gruenberg, Comptroller of the Currency Thomas Curry Consumer Financial Protection Bureau Director Richard Cordray and senior representatives from the Federal Reserve. Our purpose: To urge support for reasonable regulatory relief for community banks, including tiered regulation proportionate to our smaller size, lower risk profile and traditional business model. Nationwide, community banks endured a record-setting cost burden of $981 million to manage regulatory burden and changes, with the average cost per community bank of $154,000 and 2,265 employee hours. In 2015 alone, there were 329 new regulatory changes, and 9,789 new pages to Stephen W. Rice read. Large banks have the resources to more easily absorb this burden. Community banks need regulatory relief to support the credit needs of their customers, serve their communities and contribute to their local economies. It is increasingly difficult to do so when we must spend time, effort and dollars complying with added regulatory burden. We also discussed data security and fraud, data breaches and our belief that data protection must be a shared responsibility, that all participants (including the retailers whose systems are breached), and that retailers should be held to the same rigorous data security as banks. 6 | Banking New York

We also reiterated our position regarding credit unions. Congress established the industry in the 1930s to provide small-dollar loans to persons of modest means – those with a “common bond” – and granted them a tax exemption to do so. Today, many of the larger credit unions have long since outgrown that original mandate and mission, and operate essentially like banks. More than 200 credit unions have over $1 billion in assets – including in New York, where they compete directly with much smaller community banks. They continue to seek expanded powers and authorities, yet they continue to enjoy their tax exemption and are not subject to any CRA oversight or requirements. We also talked about mortgage lending reform, improving the structure, accountability and governance of the CFPB, the Financial Accounting Standards Board’s Current Expected Credit Loss Model, the tax-advantaged Farm Credit System, improving the ability of community banks to raise capital and a number of other important priorities for the industry. In Washington, as in Albany, it is important for our public officials to hear from those directly impacted by their actions and initiatives. IBANYS looks forward to representing the interests of New York’s community bankers in both capitals. ■ Steve Rice coordinates government relations and communications for the Independent Bankers Association of New York State. He has worked in the New York banking industry and New York state government for more than three decades.

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EXPANDING HORIZONS | By Robert Fisher and Patrick MacKrell

A Smarter Loan Option for Today’s Business Borrower

Bob Fisher

Today’s small business owner has unprecedented access to fast and easy capital through a new source of financing – online lenders with low barriers to approvals but high APRs and short repayment terms that do not set businesses up for success. How can banks ensure that customers have a reliable place to turn when seeking a loan online? Excelsior Growth Fund and Tioga State Bank answer that question through an innovative online loan product and partnership.

ust a few short years ago, business owners had limited options when looking for financing to start or grow – friends and family, conventional or SBA loans with banks, loans from alternate lenders or community loan funds and/or home equity loans were the go-to sources for small business capital. However, toPat MacKrell day’s lending landscape is a whole new world, and with that new world comes a host of risks for both borrowers and banks. Business owners, ranging from small flower shops to large manufacturing operations, now have access to an array of financing options available through online – also called marketplace – lenders. Many such companies emerged after the 2008 recession as technology-driven providers of alternative

About the EGF SmartLoanTM • Loan amounts up to $100,000 • Variable interest rate of 13 percent • Instant prequalification, approvals in two days, loans funded in five days • To qualify, businesses must be cash-flow positive, have two or more employees and more than $120,000 in annual revenue. The average borrower’s credit score is 640. • Business advisory services are provided to help businesses level up and become bankable. • The referring bank has the option to buy back the loan at par at any time.

Learn more at www.excelsiorgrowthfund.org. 8 | Banking New York

financing for those who no longer qualified with their banks. Once fringe lenders, these companies are now the business equivalent of household names. On the surface, these lenders are attractive sources of financing. Their online applications can be completed in minutes and loans are often disbursed on the same day. Moreover, loosened requirements make it easy to qualify when bank financing is not an option. Yet the reward of fast, streamlined financing is not without perils: hidden fees, true APRs that top 40 percent, rapid amortization and weekly or daily payments can end up blindsiding unknowing businesses. At the New York Business Development Corp. (NYBDC), we were seeing a growing number of businesses crushed under the weight of debt incurred from online sources. We felt a responsibility to ensure that both businesses and our bank partners have a product to turn to when conventional financing isn’t an option, or when a business seeks the ease and speed of an online process. That’s why in August 2015, we launched the SmartLoan™ through Excelsior Growth Fund (EGF), NYBDC’s Community Development Financial Institution (CDFI) affiliate. The SmartLoan blends the speed and ease of an online loan with the trust and responsibility businesses can expect from a CDFI. Businesses are no longer forced to choose between speed and affordable payments. With the SmartLoan, qualified businesses can be approved for up to $100,000 in financing at an interest rate a fraction of what most online lenders charge in just two days, and have cash in-hand in just five business days. For small businesses, this product means that they’ll find a lender that truly has their best interest at heart when they seek an online loan process. And for banks, the SmartLoan provides an online alternative from a trusted source that can meet a customer’s need for fast capital or take a second look when he or she does not qualify for a bank’s product. When we at Tioga State Bank heard about the SmartLoan, we knew we had found the right product to fill a gap we were continued on page 10 

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seeing with our customer base. We had been hearing from customers that they had gone online to borrow for accessibility and speed, but quickly felt the pressure from the repayment terms of the loans. In fact, for more than one customer, the amount of the daily debits the online lenders had set-up drained their account to the point where they could no longer make payments to Tioga State Bank. Tioga State Bank and EGF have now partnered to provide access to the SmartLoan to relieve customers like these from the onerous payment terms of their online debt through a refinance or, importantly, to help those customers to avoid obtaining poorly structured online debt in the first place. Partnering with EGF was a streamlined process; it felt like we flipped a switch and had immediately added an online option to our product offerings. Importantly, we know that when we refer a customer to EGF he or she will be treated with the same level of customer service and attention that they receive at Tioga State Bank. We appreciate that the service at EGF goes beyond the provision of a loan – EGF business counselors work one-on-one with borrowers to support them in leveling-up and becoming bankable. As the partnership grows, we expect SmartLoan™

10 | Banking New York

borrowers to return to Tioga State Bank for conventional loans; this means that our relationship with the customer will continue to grow over time. Online marketplace lending was a $7 billion business in 2015 alone. Tens of thousands of small business owners that felt they had nowhere else to turn, or who were wooed by easy access to capital, are now at great financial risk because of their online debt. Educating business owners on the risks of taking on high interest rate debt with quick repayment terms is no longer enough; we believe it is our responsibility to ensure that businesses can access trusted, responsible online lenders. We’re not looking to become the next billion dollar marketplace lender. Both EGF and Tioga State Bank are just doing what we’ve always done – looking for responsible alternatives that can help our customers meet their financial goals. With the SmartLoan, we have found a product that does exactly that. ■ Robert Fisher is the president and CEO of Tioga State Bank and serves as Policy Development Committee chairman for the 2016-2017 Independent Community Bankers of America board of directors. Patrick MacKrell is the president and CEO of New York Business Development Corp., The 504 Company and The Excelsior Growth Fund.

continued from page 4

president and CEO of Tioga State Bank, in this issue of Banking New York.) • EGF provides innovative financial solutions and business advisory services to underserved small businesses in New York state through a fast, simple and secure online lending platform. Its core product is the EGF SmartLoan, which features amounts up to $100,000, approvals within one to two days and disbursements within one week. Importantly, interest rates are a fraction of those typically offered by online lenders. EGF offers banks a unique customer retention solution when a customer either does not qualify for a bank’s loan offerings, or is seeking the fast, transparent process available through online lenders. To facilitate retention, EGF shares performance information on the referred loan portfolio on a quarterly basis and offers the opportunity for the bank to purchase referred loans at par at any time. Additional details on the EGF SmartLoan, including eligibility criteria, are available at: http://excelsiorgrowthfund.org/egf_smartloan/. For more information or to make a referral, please contact Bryan Doxford, chief lending officer at Excelsior Growth Fund: bryan.doxford@ excelsiorgrowthfund.org or (212) 430-4512. • The “My Wellness Resource Card” offers a low-cost, nontraditional program to help community banks to save time and money. It helps provide on demand health care from U.S. board-certified doctors who provide diagnosis, treatment options and necessary prescriptions via unlimited telephone medical consultations. The My Wellness program offers discounts and significant savings on a variety

of medical and dental products, and is designed to improve productivity, decrease absenteeism and boost morale without straining your bottom line. It’s an exciting new way for community banks to provide health care benefits, reduce cost and retain employees. For more information, contact Alan Justin, Managing Partner at (716) 907-5500. • IBANYS has also joined the “Cure the Blue” effort to raise funds and awareness regarding prostate cancer in New York State. We are partnering with the Buffalo Bills Alumni Foundation, and hope to see a number of IBANYS members participate. Please join us in supporting this worthwhile cause. Visit www.curetheblue.com to get involved! At IBANYS, we are most fortunate to have the participation and support of a number of firms that bring their expertise, products and services to the table to benefit our member banks. We truly appreciate the ongoing support of all our sponsors, endorsed providers and affiliates and their continued support throughout the year! Please visit our website (www.ibanys.net) and click on the “Members” tab to see the complete list, and learn more about the value these outstanding companies can bring to community banks. At IBANYS, we look forward to the second half of 2016, as we look to build on a productive first two quarters of the year on behalf of our membership. ■ John Witkowski is president and CEO of the Independent Bankers Association of New York State. He may be reached at johnw@ibanys.net or (518) 436-4646.

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BANK PROFILE | By Linda Goodspeed

Steady Leadership at Canandaigua National Bank

Caption

12 | Banking New York

anandaigua is an old Native American word meaning “chosen spot.” In 1887, Frank H. Hamlin and other local businessmen chose Canandaigua to start a community bank. Today, that bank, Canandaigua National Bank and Trust, has grown to nearly $2.2 billion in assets and 23 branches, and the CanandaiFrank H. Hamlin gua area where the bank operates remains among the chosen. “This area is thriving,” said President and CEO Frank H. Hamlin III, great, great grandson of the founder and the fifth generation of Hamlins to run the bank. Canandaigua is in the heart of the beautiful Finger Lakes region of upstate New York, about 30 minutes from Rochester, an educational hub with a regional population of well over 1 million. Despite the loss of Kodak, and the downsizing of Bausch & Lomb and Xerox, intellectual capital remained. Vice President Joseph Biden has called Rochester the “Photonics Capital” of the world. (“Photonics” is the study of light and its applications.) More recently, the area was awarded a halfbillion-dollar economic development grant for infrastructure and other projects over the next five years. “That is a huge boon for us,” Hamlin said. “We have the education, human capital, intellectual capital and the money capital. We are completely and perfectly positioned with respect to growth.” He also noted that upstate New York has not experienced the wide swings of boom and bust of some other regions of the country. “It’s a stable environment in which to live and work and operate,” he said. And Canandaigua National Bank (CNB) is nothing if not stable. In nearly 130 years of operation, the bank has had just five presidents – all with the last name of Hamlin. Despite strong competition, CNB’s loan portfolio grew nearly 7 percent in 2015, exceeding the bank’s own projections by $30 million. The nearly $1.8 billion portfolio is split evenly between commercial and consumer loans. Consumer loans are mostly residential mortgages, home equity loans and indirect loans, including auto loans. On the commercial side, the bank is very active in supporting small and midsize businesses. “Small business owners are the backbone of our region and our portfolio,” said Karen C. Serinis, executive vice president of retail banking and consumer lending. “We support them with education, advice and banking. The mission of our organization is very basic: Make this area the best area in which to live. We take that very seriously.”

To that end, CNB also reinvests its $1.8 billion in deposits locally. “We decided very purposely to take all deposits and reinvest them right here,” Hamlin said. “That is a substantial difference between us and what other banks and credit unions do. Others take community money and send it outside the community. It’s an important distinction for us.” Another distinction is CNB’s diversified revenue stream. More than one third (35 percent) of the bank’s revenues come from noninterest sources, including deposit servicing fees, asset management fees, investment advisory services, and proceeds from the sale of mortgages to the secondary market, as well as loan servicing fees. This is in stark contrast to CNB’s peers, which on average earn only around 15 percent of their income from noninterest sources. It is a long-term strategy that has positioned CNB well, particularly given the low interest rate environment of the last decade. “It’s been a conscious strategy in that a lot of that income comes from our trust and investment function, which was started back in 1919,” Hamlin said. “The benefit for us is that we are completely insulated from economic factors, rapid changes in interest rates, stock market vacillations. It doesn’t boom or bust. Steady Eddie. A consistent way we can ensure we can keep the lights on.”

Serinis said the strategy also underscores CNB’s “full service” bank declaration, which includes two wealth management companies, including one in Florida, and a mortgage subsidiary. Hamlin and Serinis said the future holds more of the same for CNB: Staying nimble, responding to changes in the local and national economy, and “keeping an eye on the ball.” Regulatory compliance and cybersecurity are other top priorities and challenges. Despite the bank’s strong balance sheet, Hamlin said CNB is not an acquisition target. “Nobody can afford to buy us,” he said. “In order to buy us out, somebody would have to pay a huge premium to justify continued returns to our shareholders.” A criminal defense lawyer before joining the family business in 2004, Hamlin said community banking is a “people” business. “The community banking model is one of the most rewarding and energizing fields to be involved in in terms of the positive effects and large scale benefits it has on a region,” he said. As for a potential sixth generation of Hamlin leadership, the current fifth generation president said he will “never ever put any kind of expectations on what they do with their lives – just like my father.” And that rule applies to his daughter, age 12, as well. ■

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WILL DONALD

‘TRUMP’

THE BANKS

OR WILL THEY GET

‘BERNED’?

By Steve Viuker

David Wessel

Aaron Klein

The race for the White House that has captivated some and disgusted others now appears to be narrowing down to Hillary Clinton versus Donald Trump. Clinton seems to be a lock for the Democrat party nomination and Trump will be trying to “Cruz” to his nomination with the GOP un-faithful. With wins in the New York primary and the recent concession from Ted Cruz, it appears more likely it will be the two brash New Yorkers – Hillary and Donald – battling to see who ends up with the Trump card. But wait! “Bernie Sanders is not going away,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at Brookings and former reporter at The Wall Street Journal. “If he isn’t president, he will still be in the Senate. It is not so much what he is saying, but why it is striking a chord. We are seeing the continuing impact of the financial crisis. Many Americans believe Wall

Street got bailed out and Main Street didn’t.” “Yes. The scars of the 2008 crisis have not healed,” said Aaron Klein, director of the Financial Regulatory Reform Initiative at the Bipartisan Policy Center. “‘Income’ and ‘inequality’ are words used frequently, and whether people have had a fair chance to get ahead. Even one of the Koch brothers had an op-ed agreeing with Sanders that the system is rigged [against] the average person.” Explained Justin Schardin, associate director of the Bipartisan Policy Center, “Clinton’s plans call for continuity with the current administration. Her plan is to continue what has been implanted in Dodd-Frank. Trump has echoed the populist, antiWall Street sentiment. He believes that regulators are running the banks. Trump also has more experience with the financial industry than the other candidates. He comes at this from the view of a large borrower.” continued on page 15 

Second Quarter 2016 | 15

Matthew Dean Photography

COVER | continued from page 15

Nomi Prins

Brenda Wenning

What would a President Donald Trump do to Wall Street and to banks? According to Brian Caplen, editor of the London-based The Banker, the United States would become more isolationist. In a column for The Banker, Caplen said bankers might be excited because Trump has talked about his concerns over the Dodd-Frank Act. “The risk for the banks is that as Mr. Trump’s policies started to fail, the banks could become the scapegoat,” explained Caplen. “Attacking banks is an easy win for politicians of all suits and Trump has shown his skill in turning on critics and heaping abuse on his opponents. Blaming the banks for a failing economy is an approach as old as capitalism and too tempting to turn down.” Recently, Politico Chief Economic Correspondent Ben White interviewed Mohamed A. El-Erian, chief economic advisor, Allianz, and chair of President

Barack Obama’s Global Development Council, at Nasdaq’s MarketSite in Times Square. When asked about the comments from Trump, El-Erian said, “When you hit a period of low growth, the easiest target is foreigners. But I don’t see a major move towards protectionism. We will see a greater emphasis not on free trade, but on fair trade. This is a term that we will hear no matter who wins the election.” El-Erian talked about the anti-EU sentiment in Great Britain and compared it to the United States. “Even if an anti-establishment movement doesn’t gain power, it can influence how a country is governed. We are seeing it in the United States and have been since the Tea Party. It is the result of growth that has lagged and income inequality that is getting worse.” But does it really matter who comes out on top? “Banks don’t care which candidate wins,” said

In Their Own Words

Hillary Clinton said that she would permit large banks to fail if there were another financial crisis. “Under DoddFrank, that is what will happen because we now have stress tests and I’m going to impose a risk fee on the big bank if they engage in risky behavior. Then under my plan and others that have been proposed, they may have to be broken up,” she said in an interview on CBS’s The Late Show on Oct. 27.

16 | Banking New York

Bernie Sanders pledged to dismantle the nation’s largest financial institutions in his first year in office. His proposal also included: enforcing stricter regulations on banks; capping “automated teller machine fees at $2 a transaction;” limiting credit card interest rates; allowing post offices to “engage in basic banking services; and overhauling “the Federal Reserve by eliminating the central bank’s ‘internal conflicts of interest’

Donald Trump said in April 2009 that he partially supported how the Obama administration was handling financial institutions in jeopardy. “I’m not saying I agree with everything [Obama’s] doing. I do agree with what they’re doing with the banks. Whether they fund them or nationalize them, it doesn’t matter, but you have to keep the banks going.”

John Nance Garner Long before Ted Cruz, Texas had John Nance Garner, vice president under Franklin D. Roosevelt. FDR frequently phoned Garner to solicit his opinions about proposals for legislation and organizing the new government. Although Garner offered relatively few legislative proposals, he did advocate government guarantees of banking deposits, an idea he promoted in Congress despite the objections of the president-elect. Eventually, the groundswell of congressional support for the plan won Roosevelt over, and he endorsed the Vandenberg Amendment to the Glass-Steagall Banking Act, creating the Federal Deposit Insurance Corp.

u John Nance Garner, then the Democratic nominee for vice president, and Franklin D. Roosevelt, then the Democratic nominee for president, at the back of Roosevelt’s private train at a campaign stop in Topeka, Kansas, on Sept. 14, 1932. Photo courtesy of the Associated Press

Nomi Prims, author of All the Presidents’ Bankers. “Trump, though he downplays ties, would not have become Trump without banking relationships at elite levels on the financing side for his deals. And Hillary Clinton has never actually championed legislation that would fundamentally alter the structure of Wall Street, or how it imposes risk on the general economy.” And there are those who have trouble with both Sanders and Clinton. Said Brenda Wenning of Wenning Investments: “The economic issues the two Democrats take on amount to a choice between socialism and near socialism. Ms. Clinton has promised to create ‘the economy of tomorrow,’ which is a pretty scary place. Bernie Sanders at least seems honest about his beliefs.”

“Being a socialist is cool if you’re a college student or professor. It’s not cool if you’re in charge of the world’s largest economy. Sanders’ plan would create a huge disincentive for creating wealth and would not create anywhere near enough revenue to pay for his social programs,” she said. Concluded Caplen: If, as expected, the next U.S. presidential election is a contest between Trump and Clinton, “the smart thing for the banks to do will be to drop their usual Republican allegiance and support the Democrats. Clinton has promised more regulation of banking and markets, but after six or seven long years of regulation, this is just business as usual. At least she would have a credible economic policy and would keep the U.S. open for business.” ■

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Second Quarter 2016 | 17

INDUSTRY NEWS

CITIZENS SURVEY: MID-MARKET COMPANIES HUNGRY FOR M&AS IN ’16

Middle-market companies are on the lookout for “transformative deals” this year, and that means their bankers have an opportunity to open up a dialogue with their midmarket clients, according to a recent survey by Citizens Commercial Banking. “I think it falls in line with what we expected,” said Jerry Sargent, Citizens’ head of middle-market banking. “The big takeaway for us is, we’ve been watching this build for a couple of years. We went through this financial crisis, and companies really focused inwardly. They streamlined their operations, they invested in technology, their own capacity, and they slowly regained their former stature.” Many companies are in the market for mergers and acquisitions as a means to deploy their excess cash more effectively. Among the nearly 600 firms Citizens surveyed for its Middle Market M&A Outlook 2016, 32 percent are currently involved in an acquisition and another 31 percent are open to considering one. Moreover, 54 percent of upper middlemarket potential buyers told Citizens they are more confident today than they have been in the past that growth via outside investment is an appropriate strategy. “Inherited liability” and “overpaying for an acquisition” topped would-be buyers’ concerns in the survey, Citizens said. Smaller middle-market firms worried about losing key employees during an acquisition, and larger firms worried that market fluctuations could impact deal values. Meanwhile, the greatest fear among middle-market sellers was being underpaid for their firms. A large majority, 83 percent, of upper middle-market potential sellers said they had been either extremely (25 percent) or moderately (58 percent) affected by volatility in the global economy, and 41 percent said they feared a significant financial crisis in the next three years. Among potential upper middle-market sellers, 56 percent said they believe asset valuations will stay the same (42 percent) or decrease (14 percent) over the next year. This all means commercial bankers should be prepared to discuss a range of M&A services with their middle-market clients, from due diligence to financing, Citizens said. “What we really need to be active with is working with our clients to make sure we’re talking to them about M&A ideas, who are the big competitors, who should you be thinking about, what does it look like if we help you model that out financially,” Sargent said. “I think it’s a road map for us to improve the dialogue we have with our own clients.” 18 | Banking New York

WELLS FARGO PROFIT SLIPS AMID CONCERNS ABOUT ENERGY LOANS

Wells Fargo & Co. reported a slight dip in quarterly profits as it set aside more money to cover bad loans to oil and gas companies. Wells Fargo – whose latest balance sheet showed it had replaced Citigroup Inc. as the third-largest U.S. bank – managed to increase revenue from mortgage banking for the first time in three quarters in the three months ended Dec. 31. But its exposure to energy loans meant provisions for credit losses jumped by about $346 million from a year earlier to $831 million. Of the increase, about $159 million was mainly for oil and gas loans. In the fourth quarter alone, the bank’s wholesale division set aside $90 million more for bad loans than in the third quarter, primarily for loans to energy companies.

FHLBNY AWARDS $27.1M FOR 35 AFFORDABLE HOUSING INITIATIVES The Federal Home Loan Bank of New York announced in December that it awarded $27.1 million in subsidies to fund 35 affordable housing initiatives throughout New Jersey, New York, Connecticut, Maryland and Pennsylvania. Funded through the bank’s Affordable Housing Program (AHP), the awards will result in the creation or rehabilitation of 2,576 affordable housing units, including more than 1,900 units dedicated to very low-income housing and more than 2,300 units of affordable rental housing. The awards will not only help provide housing, but also drive community development: it is anticipated that more than $425 million will be leveraged in housing investment from the development of these initiatives. The following New York communities received funds from the FHLBNY: Brighton, Buffalo, Dryden, Geneva, Lackawanna, Mamaroneck, Middle Island, New York City, Niagara Falls, Nyack, Oswego, Rochester, Skaneateles, St. Albans, Syracuse, Tonawanda and West Seneca, and several sites in Dutchess, Ontario, Seneca, Wayne and Yates counties. ■

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ADAPT OR DIE | By Tom Long

The Golden Age of Banking Is Here Are You Ready to Compete? country. Few remain with us today. The generation that followed were named the Silent Generation, simply because they had no war stories to tell. Post-war prosperity ushered in the Baby Boomers, which was followed by Gen X and the Millennials. As children, Gen Z is currently shaping itself. As community bankers, we, as an industry, are in the business of selling finished goods – loans – and sourcing raw material – deposits. To date our primary loan target audience has been Gen X and corresponding deposit audience has been the Silent Generation. What do these two segment have in common? They are both the two smallest generations of the last century, which has compromised every community bank’s ability to grow. The generational shift, now underway, is ushering in a golden age of banking and the accompanying explosive growth in demand for both loans and deposits. To succeed, Millennials and Baby Boomers must fast become the focus of every community bank’s loan and deposit generation strategy. More importantly, this shift in focus will benefit each community bank with a rise in both loan and deposit demand over each year for the next 20 years. The need for additional revenue is clear. The opportunity to capture it is sustainable. The second macroeconomic factor shaping demand is characterized by a behavioral shift. This behavioral shift is perhaps best captured by life expectancy in the United States, which has expanded by nearly a decade in the last 55 years. Consumers simply have more time, and they have used this time to defer marriage by six years over the last half century. This of course has a trickle-down effect – deferring marriage also means deferring homeownership. The average first-time homebuyer is now 33 years old. Since the oldest Millennial is now 31 years of age, every community bank generally has 18 months to ready themselves for the pending and sustained tsunami of Millennial demand. Is your financial institution ready? ■

U.S. Live Births 1909-2014 Source: U.S. Department of Health and Human Services, Center for Centers for Disease Control and Prevention

he need for growth is real. Thin margins have become the new normal. The revenue impact of this margin collapse requires additional volume. Furthermore, community banks are faced with increasing costs of doing business. Contributing factors include escalating compliance costs, required investments in technology and year over year increases in salary and benefits expense. By necessity, a sustainable business model is one that is focused on revenue growth. This certainly does not describe a golden age. So, let’s examine the macroeconomic factors that will drive revenue growth on a sustained basis for every community bank. For over 23 years The Long Group has been capturing the pulse of financial purchase behavior among both consumers and business. Today, the collective voice contained in the database is hundreds and hundreds of thousand strong, offering unparalleled predictive value. Here is what we see and how each community bank will benefit from the evolving macroeconomic environment. With an acute need to grow revenue to offset the impact of margin compression as well as the requirement to pay for an increasing expense burden, two sweeping changes will favorably impact demand to the benefit every community bank. The first shift is demographic. The population of the United States is shaped by generations, with a new generation born once every 20 years. Generations are tracked through time by trending births. The exhibit is utilized to illustrate more than a century of generations within the United States. As an orientation, Tom Brokaw famously introduced America to the term the Greatest Generation. This generation won World War II and built this great 20 | Banking New York

Tom Long is principal of The Long Group LLC. The Long Group offers a suite of trademarked solutions for financial institutions to improve performance by driving revenue and controlling cost. Tom can be reached at 603-424-5664 or tomlong@longgrouponline.com.

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SMALL CHANGE | News Roundup

NYCB, BABYLON LAUNCH WYANDANCH’S FIRST STANDALONE BANK IN OVER 20 YEARS

He was New York State Assembly Majority Leader from 2001 to 2006. Prior to his election to the Assembly, Tokasz was deputy county clerk of the Erie County Auto Bureau from 1977 to 1986. He was a city of Buffalo elementary school teacher from 1968 to 1977 and joins M&T from Patricia Lynch Assoc. Tokasz has been involved in many civic organizations, including the Buffalo Philharmonic Stabilization Committee, Buffalo State College Council, Fireman’s Association of New York State and National Conference of State Legislatures.

FORMER FIRST NIAGARA BANKERS TO LEAD ABL AT BLUE HILLS BANK New York Community Bank (NYCB) and the town of Babylon recently opened a new branch of the bank’s Roslyn Savings Bank division in Wyandanch, marking the first standalone banking location to serve the community in over 20 years. The new Roslyn Savings Bank branch features starter savings accounts that require one dollar to open and checking accounts with no minimum balances. NYCB will also provide financial education programs, small business training and workshop programs for residents and businesses within Wyandanch. The new bank is located in the new Wyandanch Village, a mixed-use development by the Albanese Organization Inc. that includes apartments and retail space north of the railroad station. NYCB was the first business to join the project and signed a 10-year lease in December 2014.

M&T BANK HIRES FORMER NYS ASSEMBLYMAN PAUL A. TOKASZ M&T Bank Corp. recently announced that former New York State Assemblyman Paul A. Tokasz has been named administrative vice president of government relations. Paul A. Tokasz As the 143rd Assembly District member from 1988 until 2006, Tokasz represented residents of the towns and villages of Cheektowaga, Lancaster, Depew and Sloan.

Blue Hills Bank is beefing up its commercial lending efforts, recently announcing that it had hired two former First Niagara bankers to head up its new asset-based lending division. Keith Broyles and Yvonne Kizner were formerly senior vice president and first vice president, respectively, at First Niagara Commercial Finance. “The addition of an experienced ABL team to Blue Hills Bank is complementary to our existing commercial banking structure and market,” Thomas E. O’Leary, executive vice president of commercial banking, said in a statement. “It will allow us to provide products and services to a segment of the market which is attractive to us. Keith and Yvonne are experienced and accomplished ABL bankers who will bring us immediate credibility in this competitive marketplace.” Broyles has more than 25 years of experience in asset-based lending, most recently leading an ABL team at First Niagara that specialized in loans between $3 million and $25 million. He has also worked at Sovereign/Santander, TD Bank, Siemens Financial Services and CIT Group. Kizner worked with Broyles at First Niagara and worked as director of collateral control and compliance. She has specialized knowledge of liquidation values and asset valuation. Before that, she was president of HCP Asset Advisors LLC and launched the appraisal division for Hudson Capital Partners. ■

SEND US YOUR NEWS! SUBMIT NEWS FROM YOUR BANK TO CASSIDY MURPHY, EDITORIAL DIRECTOR, AT CMURPHY@THEWARRENGROUP.COM

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