Banking New York 3Q 2016 by The Warren Group

THE INDUSTRY MAGAZINE FOR FINANCIAL EXECUTIVES & PROFESSIONALS • THIRD QUARTER 2016 • VOLUME 41

The Glass is

Half Empty Repeal of Dodd-Frank, Reinstatement of Glass-Steagall a Risky Prospect

Produced in partnership with the Independent Bankers Association of New York State

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The Glass is

Half Empty Repeal of Dodd-Frank, Reinstatement of Glass-Steagall a Risky Prospect

04 PRESIDENT’S MESSAGE

Preserving a Distinctive Tradition

06 PUBLIC AFFAIRS UPDATE The 2016 State Legislative

Session Is Over

10 VALUABLE ASSETS The BOLI Boon

for Community Banks

CONTRIBUTING WRITERS Linda Goodspeed and Steve Viuker TWG STAFF CEO & PUBLISHER Timothy Warren Jr. PRESIDENT David Lovins ACCOUNTING MANAGER Mark DiSerio

12 BANK PROFILE Kinderhook Bank Achieves

18 IS IT HARASSMENT?

14 AFTER THE MERGER

22 INDUSTRY NEWS/

Record Growth in Capital Region

M&As Allow Opportunity to Create Strong Team Unity

16 COVERING THE BASES

Affirmative Action Compliance Doesn’t Have to Be Difficult

Dealing With Harassment in the Workplace

SMALL CHANGE

SALES DIRECTOR OF BUSINESS MEDIA George Chateauneuf PUBLISHING GROUP SALES MANAGER Jason Long SENIOR ADVERTISING ACCOUNT MANAGERS Mike Lydon, Claire Merritt ADVERTISING ACCOUNT MANAGER Bob Holzhacker 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

Preserving a Distinctive Tradition

John Witkowski

Community banking is a uniquely American system. While many other advanced nations have long operated highly centralized banking systems – some for centuries – in the United States, ours was founded on decentralization and localization. Appropriately, this distinctive U.S. tradition is carried on by institutions that are themselves exceptional. I refer to community banks.

hroughout New York State and the nation, each community bank is as unique as the community it serves. Each has its own story and history to tell, with its own distinctive chapters. Together, our stories tell an epic tale of our industry, our state and our nation … and in the face of growing pressures from Wall Street, ours is a story we must continue to tell. Members of the Independent Bankers Association of New York State (IBANYS) are not merely bankers – we are much more than that. We are independent community bankers. IBANYS was formed in 1974 to give voice and representation to this constituency, and have done so with pride for the past 42 years, and many of our member institutions have been serving their local customers and communities for well over a century. By taking in local deposits and putting them to productive use via loans to local small businesses, farmers and home buyers, community banks establish mutually beneficial relationships and sustainable economic ecosystems. “Community banks provide most of the loans for New York’s small businesses and farms and are thus essential to job growth and the strength of the state economy,’ according to a 2013 New York State Department of Financial Services study. “Even though community banks have less than a quarter of all bank assets in New York and are competing against much larger national banks, they generate more than half of all small business loans and almost all the small farm loans in the state.” 4 | Banking New York

It further noted that New York’s community banks grew during the financial crisis by continuing to lend to small businesses and homeowners as larger banks pulled back. In announcing the results of the study, Gov. Andrew Cuomo noted: “Community banks represent a strong economic engine that drives growth in New York and their performance is remarkable. Small business is the engine of job growth and most small business loans come not from the big national banks, but from community banks.” Unlike some megabanks that pose existential risks to the financial system, community banking is built on one-onone relationships with local customers. New York community bankers know our customers and their needs, and are personally accountable to them. As locally based, locally involved institutions, community banks are by definition “honest dealers” – our livelihoods depend on it. We measure returns by more than dollars and cents. Our “return on investment” also includes meeting customers’ everyday needs and enhancing their quality of life, so they can be valuable and productive members of our local community. Because we are in the business of promoting and developing local economic growth, community bankers account for those priorities in virtually all of our business decisions. The community banking system goes to the heart of what we believe, as a state, a nation and an industry: that we are stronger continued on page 8 

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

The 2016 State Legislative Session Is Over Here’s How It Impacted New York Community Banks • Expedites the foreclosure process for vacant and abandoned properties. • Imposes additional notice requirements. • Creates a statewide electronic registry of such properties. In addition, there is also a new program creating a Sonyma subsidiary to administer $100 million in funds to help homebuyers purchase and renovate “zombie” properties and assist existing low- and middle-income homeowners with major repairs and renovations.

he 2016 New York State legislative session concluded in the early hours of Saturday morning, June 18, with IBANYS on hand to the end. Among the major activities of the session: FORECLOSURE AGREEMENT

In the closing moments of session, the Legislature approved a three-way agreement addressing foreclosure, abandoned/vacant property and maintenance issues as part of a “budget cleanup” bill. IBANYS worked hard to protect the interests of community banks in the process, and succeeded in inserting “carve out” exemptions that exempt the vast majority of community banks based on a formula of their percentage of one-to-four family mortgage loans, compared to the total number of such loans in New York State. The three-way agreement is the end result of the original legislation advanced by New York State Attorney General Eric Schneiderman and sponsored by Sen. Jeffrey Klein and Assemblyman Robert Rodriguez, which would have mandated banks to maintain vacant and/or abandoned properties throughout the foreclosure process. (Several other bills were also inStephen W. Rice troduced on these issues.) After weeks of negotiations, the governor entered the discussions. The final agreement, approved in the closing moments of session early Saturday morning: • Requires federally chartered banks, savings banks, savings and loan associations, or credit unions that originate, own, service or maintain loans to secure and maintain one to four residential real properties deemed to be vacant and abandoned. • Mandates good faith negotiations during mandatory settlement conferences during foreclosure proceedings. 6 | Banking New York

IBANYS successfully advocated for exemptions for community banks, and the final agreement provides a carve out that will apparently benefit and exempt the vast majority of IBANYS members and New York community banks. • Banks that originate, hold and service less than threetenths of a percent of all the one- to four-family mortgage loans made in New York State will be exempt from all provisions. The total number of such loans in New York State used to calculate the carve-out is 200,621. Thus, if a bank holds less than (approximately) 600 total one- to four-family mortgage loans in New York State, it is likely exempt from this legislation. • Banks whose number of one- to four-family mortgage loans is between three-tenths and five-tenths of a percent will only be responsible for maintenance on a prospective basis (not retroactive basis). The list of banks and their total loans provided by the state Department of Financial Services for the purpose of these calculations was created in 2014, so it remains possible that an updated list could change the numbers slightly, though it does not appear likely the change would be dramatic. The governor and legislative leaders were determined to produce legislation that addressed these issues. IBANYS worked hard to protect and exempt the greatest number of community banks possible from the reach of this legislation. There is some speculation that some financial institutions could possibly decide to challenge the new law through litigation. In other significant actions during the 2016 legislative session: Credit Union Changes

IBANYS successfully opposed and helped stop legislation that would have expanded powers and authorities for credit unions were stopped. S.3616, Funke/A.774, Rodricontinued on page 8 

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continued from page 6

guez would have allowed credit unions to receive certain public deposits. This is the second consecutive year we were able to defeat this effort. We also stopped A.3521B, Robinson/S.5521A, Montgomery, which would have permitted credit unions to receive taxpayer dollars by allowing them to participate in the State Banking Development Districts program. These bills would have made an already uneven competitive playing field even more so in favor of tax-exempt federal and state credit unions, which pay no federal, state or local income taxes, no sales taxes and no MTA surcharge. Casher Loans

The so-called “Community Financial Services Access and Modernization Act” would have allowed over 500 licensed check cashing centers to obtain state licenses to issue business and commercial loans. Supporters claimed it would fill a credit void in many minority and low-income areas underserved by traditional lending institutions. Opponents caution it could lead to predatory lending, and potentially open the door to “payday loans” which are currently illegal in the state. This legislation, along with predatory auto loan legislation that was stopped, will likely resurface in future sessions. New DFS Superintendent Maria Vullo has signaled she wants to review both issues. Proposals Pass Senate

Three IBANYS initiatives recommended by the Government Relations Committee were passed by the Senate, but not by the Assembly. They would: • Exempt community banks with assets under $1 billion from State DFS CRA exams if they have received a satisfactory or better rating in their most recent federal CRA exam. • Extend the community bank examination cycle from the current 12 to 18 months,

• Establish community bank service corporations. The proposal would allow state chartered community banks to invest in and use the organizations to gain economies of scale, and reduce compliance costs. IBANYS will continue to pursue these initiatives in future sessions. Definition Approved

S.7183, Savino/A.9746, Richardson defines consummation of a mortgage loan, clarifying state law regarding the TILA-RESPA Integrated Disclosure Rule (TRID) which took effect last October. The legislation, developed with significant input from IBANYS, passed both the Senate and Assembly. It amends Section 2 of the New York State Banking Law as it related to defining consummation of a mortgage loan. It clarifies that consummation occurs when the mortgage applicant executes the promissory note and mortgage. The state Senate confirmed Maria Vullo as superintendent of the state Department of Financial Services. At her Senate Banks Committee confirmation hearing, Vullo described herself as “pro-business and pro-consumer” and does not believe the two terms are mutually exclusive. Vullo said she wants the New York financial industry to grow, but also serve lower-income residents whose financial needs are not being met. “I think you might see creative, innovate initiatives to try to address those concerns,” she said. Thanks to all the IBANYS members who supported and participated in our government relations efforts this year, both in Albany and at the federal level as well. As always, we will keep the membership and industry fully informed on all further activities and developments. ■ 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.

continued from page 4

from the bottom up than from the top down, and more powerful collectively when we are empowered individually. This is our heritage as community bankers. It’s why IBANYS continues to support our members and industry: the independent, local community bankers in small villages, rural communities and big-city neighborhoods all across New York State, from Long Island to the Canadian border, from the Adirondacks to Lake Erie. 8 | Banking New York

These are the reasons why community banks are so important to the fabric of New York State, to the U.S. banking system and to our local, state and national economies. These are the reasons that IBANYS, and the Independent Community Bankers of America, advocate for state and federal legislative and regulatory policies that distinguish local institutions from the large,

complex financial firms that have grown increasingly powerful. And they are the reasons we must all keep fighting to preserve our independent voice in Albany and Washington, D.C. ■ 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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VALUABLE ASSETS | By Fabrizio D’Uva

The BOLI Boon for Community Banks Bank-owned life insurance (BOLI) can be a valuable asset for banks of all sizes, including community banks. Offered by most of the highly rated insurance carriers, BOLI is a single premium insurance policy in which the bank is the beneficiary and owner. While banks often utilize BOLI as a tax shelter, given BOLI’s status by the Internal Revenue Service (IRS) as a taxfree asset, it is also utilized to help offset the everincreasing costs of employee benefit programs.

ccording to a recent report* released in June 2016, evidence of BOLI’s growth as an alternative asset strategy for financial institutions can be found in the following statistics: BOLI assets reached $157.6 billion as of March 31, 2016, reflecting a 4.4 percent increase from $151 billion at the end of the first quarter of 2015. And of the 6,122 banks in the survey, 60.9 percent reported holding BOLI assets in the first quarter of 2016, a two percent rise from the year-ago quarter. The key factor to consider here is the policy’s return on investment. If a BOLI policy can be expected to appreciate in value at around 3 to 3.5 percent, remember that since that growth is tax-free, the actual returns on a tax equivalent basis are greater – more like 5 to 6 percent. Compare that with current returns on taxable fixed income investments. Senior executives should consider BOLI as a means of driving more net income to the bank’s bottom line … especially in this current era of low interest rates. The additional earnings can be used to increase profitability; pay for the cost of providing certain benefits, including propping up the benefits structure of a 401k or pension plan; and/or finance new benefits programs. BOLI can also be purchased for executives and officers as a way of offsetting financial losses incurred upon a given executive’s death. While some may find this practice objectionable – “I don’t want to put a price tag on my employees” is a concern I frequently hear – bear in mind that BOLI is, first and foremost, a life insurance policy. As such, it must include a death benefit … which the bank has the option of donating to a charity, perhaps in the decedent’s name. There are also ways of paying part or all of the benefit to the decedent’s beneficiaries and these design options include providing supplemental life insurance or replacing group term insurance thus delivering the insurance more efficiently via BOLI. 10 | Banking New York

Of course, the bank should provide full disclosure to any employee it wishes to purchase BOLI upon; after all, the employee may be required to undergo a medical check-up before the insurance is issued. In addition, an employee has the right to decline the bank’s offer but, as explained above, if the policy’s financial benefits are fully explained to a longvested employee, chances are good that he or she will ultimately agree. It should be noted that the bank retains the policy on the employee’s life even if that employee retires. Most BOLI providers track plan participants on a quarterly basis via their Social Security numbers, and can therefore learn of the retired employee’s death within a reasonable time frame. Another matter to consider is the upfront cost of purchasing BOLI. Additionally, as a long-term investment, BOLI may be viewed as “illiquid” in the short term. The policy can be surrendered at any time, but doing so will almost always involve significant tax consequences to the bank. However, the overall tax benefits – namely, that the growth of the cash surrender value is tax-deferred and the death benefits received are tax-free – can go a long way toward overcoming those concerns. Other potential benefits of BOLI can easily be explained by a reputable financial services provider. If you have not already done so, I encourage you to begin exploring BOLI as soon as you can. ■ Fabrizio D’Uva is a regional director, BOLI and non-qualified benefits plans for Pentegra’s supplemental benefits and bank owned life insurance (BOLI) business. *Source: Michael White BOLI Holdings Report

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BANK PROFILE | By Linda Goodspeed

Kinderhook Bank Achieves Record Growth in Capital Region

ationally, small business lending is down almost 25 percent since the Great Recession, but don’t tell Kinderhook Bank that. The small upstate New York bank has been growing its commercial loan portfolio at a double-digit annual clip for the last several years, including during the Jeff Stone Great Recession. “The great thing about the Capital Region is that the economy hasn’t seen big ebbs and flows like a lot of the national economy. It’s a stable economy,” said Lee R. Carman, senior vice president of commercial lending. State government, nanotech, health care, higher education – it all adds up to a stable, growing economy that in turn Lee Carman feeds residential growth. The town of Kinderhook (population: 8,500), located 25 minutes southeast of Albany, is well-positioned to take advantage, and the town’s namesake bank is too. Kinderhook Bank, the only bank headquartered in Columbia County, first opened for business in October 1853. In the 163 years since, it has grown from $125,000 in assets and 10 original investors to $433 million in assets and eight locations in Albany, Chatham, Delmar, East Greenbush, Greenport, Kinderhook, Latham and Valatie. The region is a highly competitive banking environment. But with its top-rated service and an opportunistic eye, Kinderhook has thrived. In the first three months of 2016 Kinderhook reported record quarterly earnings and its highest-ever quarter-end balances in assets, net loans and deposits. “Phenomenal” loan growth has helped fuel the bank’s rise. Net loans were up 15 percent in the quarter, and 17 percent for all of fiscal year 2015. “Our commercial lending has been growing 12 to 17 percent the last five to six years,” Carman said. “We’ve made a name for ourselves in the market. We’re competitive on every deal. We’re small but nimble. We’re also aggressive, going out and being a community bank with good service. We take the time to understand our customers and their businesses and what they need without increasing our risk.” The bank’s commercial loan portfolio of about $325 million is powered largely with commercial real estate loans, but also includes a full range of other small business lending products. Loan size ranges from about $50,000 to $5 million. 12 | Banking New York

MORE GROWTH PLANNED Kinderhook’s current growth started in 2007, just when the national economy began to nosedive, when it opened its first branch outside of Columbia County in East Greenbush. As other banks pulled back on lending, Kinderhook stepped in to fill the vacuum. In 2010, it opened a branch in Delmar, its first foray into Albany County. In 2013, as part of a succession plan to replace longtime President and CEO Robert A. Sherwood, Kinderhook named John A. Balli its CEO. (Balli was named president in December 2015.) One of Balli’s first moves was to recruit Jeff Stone, former Albany market president for Key Bank, with a mandate to grow Kinderhook’s Albany presence. The bank opened a branch in downtown Albany in 2014, and another one in Latham in April 2015. “It’s all about relationships,” said Stone, senior vice president of retail and business development. “Hiring the right people, developing the right relationships. We’ve got a niche and can deliver in ways bigger banks can’t. We have a little more flexibility because of our size. We can get it done.” Stone said the bank is continuing its expansion plans, focusing on increasing its branch network, growing deposits and C&I lending, as well as its retail portfolio. “We’re developing new small business products,” he said. “We want to be the go-to bank for small businesses. It’s

an area of growth, along with residential mortgages and the home equity side.” Stone said Kinderhook is also positioning itself to take advantage of the upcoming market disruption in the Capital Region when Key Bank completes its acquisition of First Niagara. “They are going to close 30 branches in October, and more in 2017,” he noted. “We’re interested in finding a couple of those branch locations to complement our strategy of growth. We want to be aggressive in acquiring those customers. It’s a focus of attention for us as we go through the balance of 2016.” Another focus is community involvement. “We have very traditional values and a longtime legacy of giving back to the community,” Stone said. “We’re very involved in the community. We support local organizations, both financially and with volunteers. It’s part of our history, and as we go forward, will probably expand.” Technology is another expanding focus. The bank has fullfunction ATMs that take deposits and dispense cash in multiple denominations. It uses the universal branch model with all people doing all things, and has a strong mobile platform that will roll out a remote capture function later this year. “We’re traditional in some ways and cutting edge in others,” Stone said. “It’s very exciting to be part of a small bank in growth mode.” ■

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Third Quarter 2016 | 13

AFTER THE MERGER | By Nettie Nitzberg

M&As Allow Opportunity to Create Strong Team Unity

oming off a record year for mergers and acquisitions, an overwhelming majority of executives at U.S. corporations and private equity firms forecast that deal activity will stay strong or even ramp up this year. And this is certainly true with banks of all sizes, as well as other financial institutions. To ensure the success of these new organizations, the team members of both companies need to work well together. The only way team members will be enthusiastic about collaborating is to openly talk through their cultural differences, as well as their respective organizations’ values and beliefs. This will not be an easy conversation, nor a short one, given the number of differences standing in the way.

HOW CAN ORGANIZATIONS BEST HANDLE THESE ISSUES? Let’s start with the rumor mill. The prospect of a merger or acquisition automatically stirs fears among employees on both sides of the consolidation. Both companies need to think about messages that address and allay those fears, while acting in a manner that is as proactive and transparent as possible. Some strategies to achieve this while communicating with employees include holding town hall meetings, video conferences or HR roundtables to address questions. Additionally, distributing communications that keep employees up to date regarding what is transpiring and dates that things are happening will go a long way toward alleviating some of the fears and anxieties of not knowing while the merger or acquisition is taking place. Once the transaction is a done deal, other concerns and issues might come to light. The Harvard Business Review article, “Three Answers Every 14 | Banking New York

Employee Needs,” provides some advice from Betty Jane Hess, the former head of Arrow’s acquisition integration team. “When we make an acquisition,” she said, “every employee has just three questions: 1) Do I have a job? 2) Who do I report to? and 3) How will I get paid? Until they get answers, nothing else matters.”

CHARTERS FOR NEWLY FORMED TEAMS In light of this advice, it is imperative that communication and messaging not stop once the transaction is complete. In fact, it should now be even greater and more focused. Company leaders and managers, as well as HR representatives, need to make the time to talk with the individual employees the merger/acquisition has affected the most. Again, they should focus on being consistent, being proactive and being transparent. One of the biggest challenges in a merger or acquisition is for managers and team members of teams that have been pulled apart, reassigned, merged or disbanded. In situations like this, it is inevitable that the “new” team is really coming together as a group of individuals – not a team. People are often fearful, angry, frustrated and confused. The manager or leader must embrace the task put in front of them: to bring these individuals together and form a team. It’s not unusual in this situation that conversations that were at first respectful quickly devolve into uncomfortable exchanges that reflect mounting frustrations and distrust. Cultures are colliding and people are confused – trust is not the foundation of the team. At this point, the manager of the team may want to create a team charter to help guide the transition. A team charter acts as roadmap by which team members can see where

they’re headed and how they want to get there by defining the purpose of the team, how it will work and the expected outcomes. It can be a great way to integrate two separate teams or a group of individuals into one cohesive unit, all focused in the same direction. The process for creating the charter will help to answer questions that result from a merger/acquisition and will begin to build trust among the team members, ultimately alleviating many of the questions and concerns that arise when two organizations merge. The precise format of team charters varies from situation to situation and from team to team. And while the actual charter can take on many forms, much of the value of the charter comes from thinking through, discussing and agreeing on the various elements, as a team. When developing the charter, the team leader should help the team focus on moving in the same direction. He or she should plan time over several days to discuss and work on the components. The team leader should help the group understand what’s really behind their differences and use the charter to pave the way for the team to create its own path and direction that blends the best of both cultures and organizations, and brings a group of individuals together as a team. The environments of organizations after a merger or acquisition can be rather unsettling. But through clear communication and straightforward effort to help employees understand what’s going on and how they can work with one another, the newly formed organization can be positioned to be much more than the sum of its parts. ■ Nettie Nitzberg is founder and principal of Boston-based West5 Consulting (west5consulting.com), which focuses on solving people problems that impact business success. She can be reached at nettie@west5consulting.com.

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COVERING THE BASES | By Sarah Babineau

Affirmative Action Compliance Doesn’t Have to Be Difficult

ew industries are subject to more regulatory oversight than financial services. And there is very little difference between large, global, commercial financial institutions and small, community-oriented banks with small HR departments, limited resources and budgets – at least in terms of affirmative action compliance. But small community banks need not use expensive applicant tracking or human resource management software to ensure compliance. Often, the same levels of data collection and reporting can be achieved using your payroll system and a combination of Excel spreadsheets or Access databases. Here are three things to look out for: Sarah Babineau

1. MAKE SURE YOUR CONSULTANT KNOWS WHAT THEY ARE DOING. Few things will throw your efforts off faster than hiring a subject matter expert who doesn’t have the most up-to-date information about requirements, analytics or audit strategies. The world of affirmative action is changing at a dizzying pace 16 | Banking New York

and what was true even six months ago, may now no longer apply. So what can you do? Read through a recent Affirmative Action Plan (AAP). • Do you understand everything? • Has your consultant explained any confusing sections? • Are there references to reports or activities you don’t have? • Are there references to time frames that are inaccurate? If you see a statement along the lines of “we run quarterly reports on performance and train all managers annually,” and you know you are not actually doing that, beware. While some standard language referring to typical annual obligations are okay, pages of boilerplate language like this are not your friend. When your CEO signs that she has read the AAP and assigned responsibility for the AAP to the vice president of HR, the Office of Federal Contractor Compliance Programs (OFCCP) expects that all signatories understand the obligations and activities reported.

Bottom line: if you’re not doing the activity, or not doing it on the schedule implied in the AAP, remove or change the language. When hiring someone, ask what sources they use to keep current on developments. • Are they involved in an industry liaison group? • Do they receive email updates or attend free webinars from OFCCP or law firms? • Do they have connections with other AAP professionals? • Do they keep you apprised of changes? The world of affirmative action is vast and OFCCP in each region operates somewhat independently. Knowing the regulations is a good start, but having connections that keep you up to date with audit trends will help identify any new areas that need attention. In general, the fewer surprises, the better. Make sure your consultant has multiple, reliable sources of information so they can give you as many options for compliance as possible.

2. MAKE SURE YOU KNOW WHICH DATA TO COLLECT Writing a compliant AAP starts 12 months or more before the plan date. Much of compliance is knowing what data to collect over the year and making sure it is complete and accurate. Once the plan year has passed, it is too late to go back and review disposition codes for applicants that were not hired, reasons why employees terminated, or reasons for changes in title or compensation. This information is critical if red flags show in any of the analytics. Once problem areas are identified, the raw data should be reviewed for nondiscriminatory reasons that could have triggered the red flags. See Examples below:

Situation

This data is especially important if an audit turns into an onsite review, which OFCCP now requires in 25 percent of all audits. Having the original documentation available to refresh everyone’s memory takes a lot of stress out of the prospect of having to explain decisions to a compliance officer.

3. MAKE SURE YOUR SYSTEMS ARE EASY TO USE AND CAPTURE EVERYTHING YOU NEED Applicant tracking and human resource management systems are great, but they can be expensive, hard to implement and challenging to use. If most of the information you need is already in your payroll system, it may not be worth the investment. Carefully designed spreadsheets and databases can accurately capture the supplementary data you need. Fields can be structured so that job titles, names and other important information is captured in the same format every time. Fields that are required to contain data can be flagged so they can’t be skipped. This makes it easy for even the newest HR assistant to easily and accurately track data. Without audit experience, it’s hard to know exactly which data becomes the building blocks of a compliant AAP. Having easy to use structures in place before your plan needs updating (or before OFCCP comes knocking) takes the stress and uncertainty out of the entire process. Your consultant should feel like an expert resource to whom you can turn to make informed decisions about AAP compliance. ■ Sarah Babineau, MHR, PHR, SHRM-CP, is the managing partner of Compass Metrics LLC, a woman-owned, disability-owned consultancy. She is a subject matter expert in affirmative action and diversity and inclusion for community-oriented banks. For a free review of your bank’s AAP, please email sarah.babineau@ compassmetrics.com.

Analysis

There were two applicants for a position with a placement goal from the prior year. The one who was believed to be most qualified got the job, even though the hire didn’t help make progress toward the goal.

It’s not enough to say that the hire was more qualified than the applicant who was not hired, especially if the applicant who was not selected would have helped make progress toward your goal. Preparing to explain the details of the decision and ensuring the same processes apply to all applicants will help uncover any problematic thinking among those responsible for hiring.

Your impact ratio analysis demonstrates potential adverse impact in terminations.

Adding a bullet to the Identification of Problems areas with the results of a deeper analysis shows diligence. Being able to say, “Of those terminations causing the indicator, x were voluntary terminations for reasons beyond the bank’s control, such as relocation,” can defuse the tension that comes with addressing an indicator.

Third Quarter 2016 | 17

IS IT HARASSMENT? | By Helene Horn Figman

Dealing With Harassment in the Workplace Employers Must Be Staunch in Defense Against Unwelcome Behavior

orkplace harassment is unfortunately a prevalent problem, and the financial industry is no exception. Statistics from the Equal Employment Opportunity Commission (2015) show workplace harassment is alleged in approximately 30 percent of all charges filed with the agency. Harassment has a serious impact on both employees and employers. Employees sufferHelene Horn Figman ing from harassment may become physically ill or feel pushed out of the workplace. Effects of harassment include lowered morale and productivity, unfavorable employee relations and high employee turnover. For many, the term “harassment” is associated with sexual conduct. Sexual harassment may take the form of unwelcome sexual advances, requests for sexual favors and other verbal or physical harassment of a sexual 18 | Banking New York

nature, but harassment is not limited to sexual conduct. It also encompasses unwelcome conduct based on “protected categories.” On a federal level, such categories include, but are not limited to: race, color, religion, national origin, gender, age, disability and genetic information. Certain states additionally prohibit discrimination and harassment due to sexual orientation, gender identity and military status. Taking preventative measures to avoid harassment from occurring is far more desirable than having to fix the problem after the fact. Employers must encourage employees, through policies and training, to report harassment and discrimination. Policies should be clear as to whom an employee can go to when reporting harassment. An alternate person should also be listed, to ensure the employee is comfortable approaching someone. Sometimes an employee will tell his or her supervisor or human resources about harassment and then ask that no action be taken. The ca-

veat is, “I just wanted to let you know; please do not do anything.” An employer must inform the employee that such secrecy is not possible. While the employee should be told that the matter will be investigated in a professional manner and as confidentially as possible, the company cannot promise complete confidentiality. Despite the employee’s protestations, the employer’s failure to act would be tantamount to ignoring or condoning harassment. Further, this employee might just be one of many who are subject to harassment. Recognizing harassment is no easy task. Why? Because employees often look at whether they “intended” to offend, discriminate or harass their coworkers. Have we treated our coworker the way we would want to be treated? Good intentions or making assumptions as to how others want to be treated, however, is not the standard under legal analysis. Instead, we must look at the recipients. Have we treated people the way they wish to be treated? Consider these types of statements: • “I really like your perfume.” • “Gee, your hair smells great.” • “You look hot today.” • “You know what people say about ‘those’ types of shoes …” Whether these statements constitute harassment will depend upon many factors including, but not limited to, the context, the tone, whether the statements were isolated or pervasive, and the reaction of the recipient. On its own, a compliment about one’s perfume may not rise to the level of harassment, but there could be instances where, as one of many comments in total, it creates a hostile environment. The other three statements could definitely be problem-

atic. Employees that share too much information about personal sexual conduct can also create a potential sense of harassment. Social media has made the antiharassment arena more complex for employers to navigate. An increase in messages posted to social media has resulted in an increase in complaints by employees. Addressing employee use of social media is challenging and involves a delicate balance of prohibiting discriminating, threatening and vulgar comments while not interfering with the employee’s protected rights under the National Labor Relations Act. Implementing a policy regarding social media is critical to address this new area of risk. Policies against sexual harassment are important in making your employees aware of the parameters of their conduct and comments at

the workplace. Publication and annual presentation of the policies is advisable and even required in some states. While it is not mandatory, state and federal agencies encourage employers to conduct education and training programs on sexual harassment for all employees on a regular basis. Employers are further advised to conduct additional training for supervisory and managerial employees, which should address their specific responsibilities as well as steps that management employees should take to ensure immediate and appropriate action in addressing harassment complaints. This is significant because employers are liable for the conduct of those persons that they place in supervisory positions. In order to avoid or diminish liability, appropriate detailed training

should be conducted to show that the employer took reasonable care to prevent sexual harassment and discrimination in the workplace. Insufficient or poor training with improper or inappropriate information will not support an employer’s good faith efforts to prevent harassment or offer a reasonable defense. Understanding harassment, issuing clear policies and conducting training are important risk management tools for all employers in banking and financial institutions. ■ A member of the Massachusetts Bar for over 30 years, Helene Horn Figman is an employment law attorney who represents businesses in all types of employment law compliance and discrimination/harassment matters. She may be reached at hfigman@ figmanlaw.com.

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Third Quarter 2016 | 19

The Glass is

Half Empty Repeal of Dodd-Frank, Reinstatement of Glass-Steagall a Risky Prospect By Steve Viuker

s the race for the presidency rages on, much has been said about the Dodd-Frank Act and its predecessors, particularly the Glass-Steagall Act. But as is often the case in American politics, no consensus has been reached, and there are strong feelings on all sides of the issue. “Glass-Steagall is dumb politics and dumb economics … returning to Glass-Steagall would be destructive and unworkable,” said Tony Fratto, managing partner in Washington at Hamilton Place Strategies, a lobbying firm that represents large banks. 20 | Banking New York

In a recent column for CNBC, Fratto said “reverting to Glass-Steagall restrictions would have done nothing to prevent the 2008 financial crisis, and, in fact, easily could have worsened it. It’s not just dumb economic policy, it’s also really dumb politics.” The Gramm-Leach-Bliley Act in 1999 undid much of Glass-Steagall, liberating banks like Citigroup and others to form what they called “financial supermarkets,” all-inone financial services shops. Fratto said that instability in the financial system didn’t originate at universal banks, but rather originated from institutions like Countrywide, Washington Mutual and IndyMac Bank, which didn’t do invest-

ment banking or trading. He said diversification actually enabled the largest banks to survive better, and take steps that helped to stabilize the rest of the financial system. Hillary Clinton, whose husband signed the GrammLeach Act into law in 1999, has come out strongly against Glass-Steagall. House Speaker Paul Ryan’s economic-reform plan declined to include Glass-Steagall. And only three Republican members of Congress have signed onto either version of Sen. Elizabeth Warren’s proposed legislation. “The movement to bring back Glass Steagall is as much political as legal,” said Walter Van Dorn, partner with BakerHostetler, with a focus on corporate securities law. Van Dorn, who spent seven years at the Security and Exchange Commission in the 1990s, told Banking New York that Trump is more in step with Elizabeth Warren and Bernie Sanders than he is with the Republican party. “But even if Trump is elected, it is hard to believe the GOP leadership in Congress would would support Glass-Steagall legislation,” he added. Van Dorn pointed out the same paragraph in the GOP platform calling for reinstating Glass-Steagall as a call for dismantling Dodd-Frank. Simultaneously advancing Glass-Steagall and relaxing Dodd-Frank is strategically odd, he said. When the investment banks went under during the 2008 crisis, many were acquired by the more traditional banks. Bank of America acquired Merrill Lynch; Wells Fargo acquired Wachovia; JPMorgan Chase gobbled up Bear Steans and Barclays did the same with Lehman. The return of Glass-Steagall would force the breakup of these acquisitions. Urging support of Glass-Steagall is David Stockman, former director of the Office of Management and Budget in the Reagan administration. “By embracing Super Glass-Steagall, Donald Trump could instantly leap to the left of Hillary on the cutting issue of Wall Street and the one percenters,”

he wrote on his website. “Super Glass-Steagall would consign today’s handful of giant financial services conglomerates to the arena of pure free enterprise, where they would live or die at the hands of competition and their value to customers.” On the Financial Services Roundtable website, Robert Hatch, director and counsel of regulatory affairs, said “policymakers would do well to remember that President Obama noted, “‘Glass-Steagall is not well-tailored to the issues of the current day.’” Hatch said any changes to financial regulations need to acknowledge the thousands of pages of reforms that were ushered in by Dodd-Frank Act. There is an argument that it would put the United States banking industry at a competitive disadvantage relative to international peers, some of which face fewer restrictions. But if the goal is to jumpstart the United States economy, reinstating Glass-Steagall will most likely hinder, not help. “While lawmakers remain unlikely to re-enact the GlassSteagall Act, we believe the big-bank bashing from both parties will eventually lead to targeted policies aimed at lessening the relative regulatory burden for regional and community banks,” Isaac Boltansky, an analyst at Compass Point Research & Trading, wrote in a note to investors. In addition, “Trump’s actions will likely force Clinton to compensate by reiterating and expanding her calls for increased scrutiny of the shadow banking system, which could pose additional headline risk for asset managers, global insurers and nonbank lenders.” Summed up Russ Grote, managing director of Hamilton Place Strategies, “Dodd-Frank made things safer. The quality of capital is better, liquidity is up as is transparency and stress testing every year is helpful. We have seen significant improvements in safety and soundness. Repealing Dodd and replacing it with Glass-Steagall is a lot to undo.” ■

HOW GLASS-STEAGALL CAME TO BE The emergency legislation that was passed within days of President Franklin Roosevelt taking office in March 1933 was just the start of the process to restore confidence in the banking system. Congress saw the need for substantial reform of the banking system, which eventually came in the Banking Act of 1933, or the Glass-Steagall Act. The measure was sponsored by Sen. Carter Glass (D-VA) and Rep. Henry Steagall (D-AL). Glass, a former Treasury secretary, was the primary force behind the act. Steagall, then chairman of the House Banking and Currency Committee, agreed to support the act with Glass after an amendment was added to permit bank deposit insurance. Glass was the driving force behind this provision. Essentially commercial banks, which took in deposits and made loans, were no longer allowed to underwrite or deal in securities, while investment banks, which underwrote and dealt in securities, were no longer allowed to have close connections to commercial banks, such as overlapping directorships or common ownership. Following the passage of the act, institutions were given a year to decide whether they would specialize in commercial or investment banking. www.federalreservehistory.org.

Third Quarter 2016 | 21

INDUSTRY NEWS / SMALL CHANGE | News Roundup

Starting at the end of this year, 70 First Niagara and 36 KeyBank branches will close. The banks will sell 18 branches in the Buffalo area to Northwest Bancshares Inc., which will help alleviate anti-competitive concerns in the region. Bank employees displaced in the merger have been offered positions with the new KeyBank, with the bank reaching pre-merger employment levels by 2021.

SMALL CHANGE NYCB, ASTORIA SHAREHOLDERS GREENLIGHT MERGER

INDUSTRY NEWS WALLETHUB, CARDHUB RELEASE PERSONAL FINANCE STUDIES Personal finance sites WalletHub and CardHub recently released a pair of studies aiming to help consumers figure out where to best park their cash. Notably, WalletHub’s 2016 Banking Landscape Report found that personal, online-only savings accounts offered the highest interest rates for consumers, yielding 0.64 percent. Moreover, WalletHub said that checking branch accounts generally yielded about 151 percent higher interest rates than savings accounts. Meanwhile, CardHub’s recent Credit Card Landscape Report found that relative to last quarter, interest rates are rising in the above-averagecredit segments of the market, while rates were trending downward at the other end of the credit worthiness spectrum. CardHub also found that on average, credit card interest rates increased 24 basis points since year-end 2015, matching the Fed’s rate hike last year.

KEYCORP TO MERGE WITH FIRST NIAGARA The Federal Reserve recently approved KeyCorp’s pending acquisition of First Niagara Financial Group Inc. The Cleveland, Ohio-based KeyCorp will buy First Niagara in a cash-and-stock transaction worth approximately $4.1 billion, and computersystem conversions and customer changeover will occur sometime in the fourth quarter, pending final approval by the Office of the Comptroller of the Currency. 22 | Banking New York

Astoria Bank will merge into New York Community Bank, with its former branches continuing to operate under NYCB’s Astoria Bank Division. The deal will help NYCB build its earnings, capital and shareholder returns. Both banks held special meetings to confirm the transition, with 97 percent of the votes cast in favor of the merger. NYCB expects to cross the $50 billion asset threshold soon and the combined company will have 241 branches in all five boroughs of metropolitan New York, as well as Long Island and Westchester County. NYCB also operates 115 branches in Ohio, Arizona, Florida and New Jersey. After the merger, the bank will have more than 350 branches total. NYCB CEO Joseph Ficalora will continue to serve as president and CEO, while Astoria CEO and President Monte Redman and Chairman Ralph Palleschi will join NYCB’s board. NYCB was advised in the merger by Goldman Sachs and Credit Suisse, while legal counsel was provided by Sullivan & Cromwell LLP.

AMALGAMATED BANK NAMES NEW COO, CMO New-York based Amalgamated Bank recently announced that Martin Murrell and Peter Neiman will become the company’s COO and chief marketing officer respectively. Murrell joined the bank in April and brings 15 years of experience in the implementation and management of consumer digital financial services. Prior to joining Amalgamated, Murrell worked with American Express for six years, heading their “personal savings” division and leading the strategic planning group’s international office in London. Neiman has been with the bank for the past two months and brings more than a decade of experience with him. Previously, he worked as vice president of brand and advertising at Unum Group and before that, had been a senior executive at Grey Advertising. ■

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