MAINEBANKER COMMUNITY
SERVING ALL MAINE BANKS AND CREDIT UNIONS
GRABBING THE MOBILE BANKING MARKET
MAINE BANKS ARE ALREADY THERE
INSIDE
DEFENDING AGAINST ATM LAWSUITS SUSTAINABLE LENDING RISK MANAGEMENT PROGRAMS
THIRD QUARTER 2011
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A commitment to New England The Federal Home Loan Bank of Boston is a trusted partner committed to the success of your financial institution and the communities you serve. As a reliable provider of liquidity and business solutions to financial institutions across New England, we’re here for the long term—committed to the region’s housing and community development needs. Make the most of your opportunities. Call 1-888-595-8733.
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12 C O V E R
STORY
Once A Luxury, Now A Need Mobile Banking Hits It Big Two Maine banks discuss two sucessful approaches to mobile banking.
MAINEBANKER
CONTENTS
COMMUNITY
FEATURES
MAINE COMMUNITY BANKER MAGAZINE IS PUBLISHED BY
Risky Business in Today’s Regulatory Environment
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Maine Banks Must Lend Their Way To Sustainability
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Defending Against ATM Fee Lawsuits
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Agencies Consider Rules to Regulate Swaps Making Sense of Mobile
280 SUMMER STREET BOSTON, MA 02210 (617) 428-5100
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STAFF
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Chairman CEO and Publisher President Group Publisher & Editor in Chief
Vincent Michael Valvo
FINANCE & ADMINISTRATION Director of Operations/ Controller
D EPARTM ENTS
Timothy M. Warren Timothy M. Warren Jr. David B. Lovins
Jeffrey E. Lewis
EDITORIAL
Custom Publications Editor Associate Editor
4 Editor's Note Enough
ADVERTISING & CIRCULATION
9 Maine Community Charity 18 Maine Housing Report 20 Maine Bankers on the Move
Publishing Division Sales Manager Director of Events Account Managers Advertising/Marketing/ Events Coordinator
Christina P. O’Neill Cassidy Norton Murphy
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DESIGN & PRODUCTION Creative Director Senior Graphic Designer Graphic Designer
John Bottini Scott Ellison Ellie Aliabadi
THIRD QUARTER 2011 | MAINE COMMUNITY BANKER
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EDITOR'S NOTE
ENOUGH
The latest jobs report was worse than abysmal. In August, the nation created zero net new jobs. But the U.S. Department of Labor also said it was revising downward by more than 20,000 its jobs estimates for June and July – 20,000 each month. That’s 40,000 total. Within minutes of the report’s release, the airwaves were infused with vitriol over President Barack Obama’s inability to create jobs in America. It was the latest bit of not just partisanship calumny, but of a nation that seems to need a civics lesson. We don’t seem to understand how our own government works – or maybe we just don’t want to. It’s much easier to see all of the political fireworks in clear relief: Someone’s a hero, someone’s a villain. The role of the president of the United States, however, is not to create jobs. He cannot run around the country dreaming up new manufacturing ideas, nor establishing financial service companies. The argument, of course, is that government policy spurs or deters job creation. But, as has been amply demonstrated in the fight over the national debt limit, the president can only suggest a course of action. The actual policy making winds up in the hands of Congress. And the Congress that we have now is irresponsible. Tea Party sympathies have led our Congressional leadership to embark on policies and positions that are imperiling our nation. The debt ceiling fight led to a downgrade of the nation’s credit rating, an epileptic seizure on Wall Street, and triggered even more fear of sovereign defaults in Europe. As we remain glued to an economy with more than 14 million people unemployed while corporate coffers are bulging with cash, Congressional Republican leaders talk about imposing more taxes – on the poor. Blind to the reality that the U.S. is now a consumer-driven economy, Congress wants to pull back federal and state funding, forcing more government employees off the payroll and into the unemployment office. The August jobs report was illuminating. Plenty of jobs were made – in the private sector. But they were all offset by jobs destroyed in the public sector. No net new jobs were created, not because the president didn’t create them, but because for every job an entrepreneur devised, a lawmaker cut an equivalent one.
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The proper role of government is to do for the people what the people cannot do for themselves – defend the nation, build interstate transportation systems, and to establish protections and safeguards. And while government should play as limited a role as possible in a capitalist economy, that’s not the same as playing no role. Moreover, when an economic emergency is at hand, it is the government’s proper place to do what is in its power to respond to that emergency. That’s why the federal government was right two years ago when it launched its original stimulus bill, pumping billions of dollars into the economy. It was right when it enacted the Homebuyer Tax Credit, which clearly pushed tens of thousands of people into homeownership. Government shouldn’t be doing these kinds of things as a matter of course. But as a matter of economic survival, they were good and necessary. The problem is that they still are. This economic crisis hasn’t passed, and all signals are that it’s likely to get worse. Deficit spending on economic stimulus programs isn’t a sign of fiscal irresponsibility, it’s an investment in our own nation’s economic future. Consumer confidence is in the cellar. Home sales in our region are at a 20-year low. Unemployment remains perilously high. The stock market is bi-polar. And Congress jabbers away at press conferences, wondering what the president is going to do, then saying quite clearly that it won’t follow anything he suggests anyway. We are not just in an economic crisis, but a political one. Whether we like the president’s plans is beside the point; we cannot simply bobble our heads and mindlessly murmur sympathy or consternation at Congressional gridlock. We need to speak up and say, “enough.” We need to move to the middle, where compromise and moderation walk, rather than staying to the extreme, where there is no path to progress. If we don’t, there won’t be any more villains or heroes. There won’t be any more story. n
VINCENT MICHAEL VALVO Group Publisher & Editor-in-Chief
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RISKY BUSINESS IN TODAY’S REGULATORY ENVIRONMENT BY STEPHEN R. KING
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he regulatory environment has never been as intense as it is today, especially for financial institutions. Community financial institutions are feeling as much pressure to comply as their larger counterparts. Dodd-Frank and the sheer number of major regulatory changes (more than 10 each year) are increasing the need to have in place an efficient and nimble risk management programs and a strong risk manager. Today, it is vital for community financial institutions to put place the most effective risk management program possible, and to support their risk officer, in order to attain their business goals, successfully introduce new products, and remain compliant with a growing number of regulations. Risk assessment is a relatively new science that is growing, changing and becoming more important every day. But some institutions are still stuck in older, less efficient models of risk assessment. Some of the pitfalls that exist in poorly executed risk management programs are: • Lack of support for the program and risk officer from the C-suite. • An approach that is too complex and is inconsistent across the institution • A cumbersome program that identifies too many risks and threats.
• A silo approach to risk management that is not integrated throughout the institution. Your risk management program should serve your institution by keeping you in compliance while allowing you to stick to your business goals, and there are four factors that should be part of any plan. Consistency – This is vital to a well-oiled risk management program. To counter confusion and inefficiency, an institution should define an assessment methodology with consistent measures that everyone performs. This methodology should start from the business line and then be applied across the institution for the best performance. From the bottom – The most sensitive receptors for assessing risk at your institution exist at the business line where the products and services are. Building your risk management program from the bottom up – from the business line to the board level – will ensure that all potential threats and risks are considered and covered. It will also provide a consistent set of measures needed for your risk management program. Keep it simple – It’s important that the entire institution operates in line with your risk management program, and clear
STEPHEN R. KING, JD, AMLP, is director of the Regulatory Compliance Service for Wolf & Company. He can be reached at (617) 428-5448 or sking@wolfandco.com.
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communication is key to making this happen. Your risk management program should be explainable to the board down to the most junior associates within your organization so it is embraced and implemented at all levels. Currency – The regulatory and business climate is changing faster than ever before. To ensure that your risk management program is always providing security and maximizing profitability, it is essential that your institution and risk officer are always current on the latest regulations and that the risk assessment is constantly evaluated based on these changes. A good risk officer is one who is proactive in implementation and maintenance of the program so that it never grows out of date, which increases risk and the potential for losses. Equally important to having a solid plan in place, is giving your risk officer more power to effectively and efficiently manage your institution’s program. In the last five years, the risk officer has emerged as a powerful asset in successful financial institutions. And there is good reason for that. The risk officer is there to understand the regulations and their impact on the bottom line and to find solutions that will allow the institution to pursue its business goals while remaining in compliance. A strong risk officer also serves an important role as a liaison. When the board has an idea that makes the business line nervous and vice versa, the risk officer is the one that finds the best solutions. Overall, if allowed to flourish, the risk officer can serve institution in many ways as an analyst, leader, facilitator, communicator and visionary. Although the regulatory environment is the toughest it’s ever been and risks have increased, community institutions should not shy away from setting high goals for providing the best products available for their customers or increasing profitability. With an effective and nimble risk management plan in place and a strong risk officer at the helm, your institution can survive the current regulatory environment and plan for success in the future. n
MAINE COMMUNITY VIEWPOINT
MAINE BANKS MUST LEND THEIR WAY TO SUSTAINABILITY BY CHRISTINA P. O’NEILL
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requently in the national news this year, headlines shout that banks aren’t lending, despite the federal government’s inducements to do so. In August, we read about the federal government’s Small Business Lending Fund and how some banks are using that money to pay down their obligations to TARP instead of lending in their own communities. Such news reports incite public ire against banks, but banks respond that borrowers – particularly qualified borrowers – have been holding back because of the uncertainties of the economy. Maine banks, spared the wild real estate gyrations in some other parts of the country, still face additional lending challenges because of the state’s unique characteristics. Ed Bambauer should know. He’s director in the risk advisory practice of the Boston office of RSM McGladrey, a business consulting firm that provides accounting, audit, tax preparation and planning, and wealth management services. He specializes in banks, and visits and/or consults with between five and seven of them each week across his New England territory. Maine’s economy is affected by the state’s sheer size relative to its smaller neighbor states, which makes delivery of services on a statewide basis more of a challenge. Delivery of health care is one example; financial services are another. Additionally, the agricultural and construction sectors are dependent on seasons and the weather. Two-thirds of Maine’s population lives in the bottom third of the state. Many of the state’s core industries, such as logging, agriculture and tourism, are seasonal,
with the bulk of their revenues occurring in a single quarter. But they need to make continual investment throughout the year, much of it well before the active cycle and therefore their revenue stream, to sustain their businesses. Business lenders in Maine must take into account the peaks and valleys of revenue flow. “With blueberries, you don’t get money up front,” Bambauer notes. For pick-your-own, payment comes in when the product leaves the farm. Commercial blueberry sellers may have to wait 30 to 60 days for payment. Golf courses need money for maintenance and upkeep months before golfers start playing. Membership fees in January and February tide over the staff and pay down cash flow lending. “Most of the [revenue] starts with the greens fees as people start playing the course,” Bambauer says – and the loan must be paid up by October, when the greens fees will stop. Sound lending practices to cyclical businesses require a knowledge of what constitutes good collateral. Logging companies’ valuable, costly equipment and the oil that a heating oil distributor holds in inventory are important collateral assets. Most banks know this. But the ones who really need to learn it are the borrowers. Bambauer says more qualified borrowers might be brought into the fold if they had some basic understanding of how to build a credit case. The Maine market has plenty of collateral against which to lend, Bambauer notes, but not every potential borrower can put together
a good business case. He suggests that bankers partner with entities such as FAME, the state lending agency, to offer basic primers on the types of documents a bank needs; providing an analysis of guarantors and collateral, as well as investors who might step forward to be guarantors. “Bankers need to be more proactive in the way they approach the marketplace,” he says. In addition to developing working relationships with FAME, they need to figure out their local economic development terrain. Additionally, banks should view business schools and graduate schools as additional partnering resources in borrower education, as they can give an impartial third-party view which will lend credibility to the presentation. Sound lending practices to sound borrowers can alleviate the pressure on capital ratios. While today’s guidelines state 10 percent as the minimum capital ratio level, bank examiners want higher numbers. “They’re looking at 12 as the new 10,” Bambauer says. Banks that can’t move the capital-ratio needle are more likely to become merger targets. Bambauer says that when he asks his bank clients about merger prospects these days, about 90 percent of them say they will be the acquirer. “You really have to think about how realistic that is,” he says. While Maine banks have a history of being fiercely independent, they’ll have to work assiduously on both the lending and the succession fronts to maintain that independence. n
CHRISTINA P. O’NEILL is editor of Maine Community Banker.
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DEFENDING AGAINST ATM FEE LAWSUITS BY FRANK SIMON
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he 10-year-old Electronic Fund Transfer Act (EFTA) requires that banks display an on-screen notice and a separate notice in a visible area outside of an automatic teller machine, advising that a fee will be charged for using the ATM. The act also states that no fee will be charged if an electronic or posted notice is not visible, unless the consumer agrees to continue with a transaction. Notice posted on the screen alone is not enough and may expose ATM operators to civil liability for violation of the EFTA. Monetary liability to an ATM operator can be significant. If an operator is found by a court to have failed to comply with the EFTA’s notice requirements, in the case of an individual consumer, the ATM operator may be liable for actual damages sustained, plus a statutory penalty of $100 to $1,000. In the case of a class action lawsuit, the ATM operator may be held liable for payment of the lesser of $500,000 or 1 percent of the ATM operator’s net worth. The EFTA also requires the ATM operator to pay the court costs associated with the lawsuit against it, along with the plaintiff’s “reasonable” attorneys’ fees for the lawsuit as determined by the court. It is the exterior notice that is of interest to class plaintiffs. A cottage industry has sprouted up in many states whereby predatory plaintiffs troll for ATMs that lack the exterior notice posting. Once such an ATM is found, they will perform a transaction, snap a picture, and troll for the next machine. They may also return to a known, violative machine several times to establish the length of time, or window of
non-compliance. After one or more representative plaintiffs are in place, a suit can be filed, normally seeking discovery focusing on identification of additional plaintiffs for their class and the window of noncompliance. Basically, they use the ATM operator’s records against the operator to expand and build their class, and to support or even establish the merits of their case. The ease with which an ATM missing the exterior notice can be discovered, coupled with operator risk management and aversion, appears to be the driving force behind the increasing number of these manufactured cases. Unless a solid defense is available to the ATM operator, risk aversion leads to quick settlements so as to avoid a long, litigious case, potentially resulting in an excessive damages award and payment of the class plaintiffs’ associated litigation costs and attorneys’ fees. Further, smaller operators may simply offer 1 percent of their net worth at the outset of a case representing a nuisance value settlement, regardless of the merit in the underlying claim. Although the EFTA essentially imposes a strict liability standard on ATM operators, there are defenses that may be available under certain circumstances. They include: compliance with the act and regulations and/or good faith effort; and “act of God;” technical malfunction; and vandalism. Standard litigation defenses are also normally raised, including contract, consent, acquiescence, ratification, notice, laches, a one-year statute of limitations, waiver and estoppel. The ultimate success of any one or more of the defenses identified is case
FRANK SIMON is a partner at Simon, Galasso & Frantz, PLC, a multi-state law firm specializing in the representation of financial institutions and corporations.
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and fact specific. Having an EFTA compliance program in place is essential to helping an ATM operator avoid the act’s pitfalls. Regular inspections of ATMs, and keeping a log of those inspections, drastically closes the possible window of non-compliance and, in fact, assists the ATM operator with its compliance/good faith effort defense. Many financial institution branches have compliance programs in place whereby they inspect the machines outside of their branches daily or weekly, and stockpile exterior notice stickers that they can easily apply to a non-compliant machine once discovered. Simply rolling over when presented with a claim is unnecessary where an effective compliance program is in place. As an example, a well-known professional EFTA plaintiff in Michigan was unsuccessful with a claim raised against a small bank client due to an effective compliance program. Once it was confirmed that a compliance or good faith effort defense existed, a check was sent to the representative plaintiff’s attorney for payment of actual damages – four transactions performed at $1.50 per transaction charge, for a total of $6. The plaintiff was also asked to produce proof of the actual “non-compliance,” and window of non-compliance, that would support an award of damages in excess of the $6 check provided. The plaintiff cashed the check and ended her pursuit of that case. EFTA cases are normally lost where a compliance program is not in place, is not regularly followed, or is missing an essential element such as logging the inspections performed. Under those circumstances, the ATM operator may consider looking to its errors and omissions insurance carrier for coverage, especially if a compliance program was in place, but not consistently followed. n
BANK OF MAINE SEEKS NONPROFITS LEADERS FOR Leaders GRANTS & ACKNOWLEDGEMENT,
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MAINE COMMUNITY CHARITY
Luminaries Award
he Bank of Maine is looking for selection committee appointed by The U.S. Senator, and founder of the Trust for five of the state’s best nonprofit Bank of Maine is selecting the five winners. American Health, a successful nonprofit organization leaders – and will The grand prize winner will receive in the healthcare field. Panelist Prescott About thefor Award: acknowledge them with cash awards $10,000 his or her nonprofit and four Stewart, managing director of development totaling $20,000. runner-ups will each receive $2,500 for at Harvard Business School, will share his “Focus on Philanthropy 2011: The Art The Bank theirof organizations. Key traits include a successes and tips. of our state for Maine has served the people and communities of Leadership” was established earlier demonstrated record of success, and the “The Bank of Maine has a long standing 177 years—including the nonprofit organizations that provide vital resources this year to acknowledge the importance ability to think strategically and motivate commitment to philanthropy,” Everets and benefits to those communities. of the nonprofit sector to the state’s others, Everets said. said. “We can’t be all things to all people, socioeconomic fabric, says Bank of The Focus on Philanthropy initiative but [we] try our very best to support Bank ofwith Maine Leaders and Luminaries Award will honor five nonMaine chairman and CEO John Everets. The 2011 will culminate a luncheon and panel the communities we serve.” The bank’s “This is a great opportunity to award discussion to be held on Dec. 1 at the initiatives for nonprofits come from profit directors who have made important contributions to theirhave communities those individuals who help support our through Harraseeket Inn in Freeport. bank staff in the field, in the communities outstanding leadership of their organizations. philosophy, and inspire others through an “Our panelists have a record of success in which they work. Bank of Maine’s branch educational panel discussion with leaders and leadership that I believe will benefit manager in Bath requested that the bank There are several key ways in which a nonprofit director can demonstrate good who have extraordinary experiences and everyone,” Everets said. Angus King brings support a Woolwich-based initiative, the governance of anoforganization. Heand or she must: successes,” he said. the knowledge the nonprofit world Discovery Boatbuilding Program, which The project’s Leaders & Luminaries the state of Maine. Robert Gardiner has run was facing budget cuts. “We were able Award competition is free and open to any ■ a complex nonprofit enterprise in the mission to provide lifelinethe to theorganization program that Clearlylarge define the organization’s anda lead board director of a 501 ©(3) organization state (MPBN). Forrester, president teaches children about communication and based on Robert this definition. based in Maine, who can demonstrate of Newman’s Own Foundation, “leads working together” – a program that was ■ Ensure that the organization has the policies and resources to carry out how inspiration, creativity and ingenuity the most extraordinary foundation in the going to be eliminated, Everts said. its mission. in governance has led to his or her world.” Lowell Weicker, former governor Along with budget cuts, Maine ■ ofProvide active and helpfuland oversightnonprofits of the activities of the organization. organization’s success. An independent Connecticut, U.S. Representative face leadership succession ■ Continually evaluate whether the organization is fulfilling its mission challenges. Focus on Philanthropy 2011 and is intended to capture the attention of the make appropriate adjustments to assure success. next generation of leaders. “What we need ■ Set an example for other board members and mentor newly for nonprofits to be successful is good, appointed members. strong accomplished leaders. We hope this program will highlight and cause others The Bank of Maine seeks to honor nonprofit with directors who lead through leadership skills to bring their talents inspiration, creativity and ingenuity. to the forefront while mentoring others to do the same,” Everets said. n
Leaders & Luminaries A thebankofmaine.com/focus2011
About the Award: THIRD QUARTER 2011 | MAINE COMMUNITY BANKER
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The Bank of Maine has served the people and co
AGENCIES CONSIDER RULES TO REGULATE SWAPS BY JANICE MOORE AND KEVIN HANDLY
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here are big doings in derivatives these days. The federal agencies responsible for regulating the nation’s banks and financial markets are busy working on rules to regulate the swaps market as directed by the DoddFrank Wall Street Reform and Consumer Protection Act (Dodd-Frank). BACKGROUND
Derivatives in the form of credit default swaps and asset-backed securities are thought to have played a major role in causing the financial crisis. Congressional hearings focused public attention on how certain money managers capitalized on AIG’s unrestrained sale of credit default swaps on mortgage-backed securities even as it became increasingly apparent that mortgages backing those securities and their triple-A credit ratings were unsound. When everything unraveled, AIG, Fannie Mae and Freddie Mac were deep under water, and many other financial institutions were left holding toxic assets.
Congress bore a good part of the blame for this: Federal legislation prevented state insurance regulators from regulating credit default swaps. Members of Congress pressured federal mortgage financing agencies to accept greater risk in mortgages they financed. Duly chastened, Congress included in Dodd-Frank an entire title devoted solely to regulating swaps. The tools in Dodd-Frank for regulating swaps include requiring swaps to be traded and cleared through central clearinghouses, and reported to regulators and directing financial regulatory agencies to establish margin and capital requirements for swap transactions. The agencies’ rule proposals define exceptions to the clearing requirement and establish margin and capital requirements for swap dealers and banks. The proposals have attracted a large number of comments, including from community banks and their trade associations. Community banks use swaps in the ordinary course of business. A business loan
JANICE MOORE AND KEVIN HANDLY are partners in the law firm Pierce Atwood LLP, resident in its Washington DC and Boston offices.
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customer asks if there is a way to fix the interest rate on its adjustable rate business loan. A local bank seeks to control refinancing risk in its mortgage loan servicing portfolio. Another wants to reduce interest rate risk in its mortgage portfolio. Customized swaps have addressed these community bank needs. A typical swap is an exchange of one flow of money for another, according to the terms of a swap contract. “Swaps” are “derivative” instruments because their value is derived from the value of something else, in this case, interest rates. To eliminate interest rate risk for its business loan customer, a community bank offers the customer a customized fixed-for-variable interest rate swap, based on the terms of the customer’s business loan. To reduce its own risk, a bank can enter into a “crossstream” or “upstream” swap with another bank or swap dealer. TO CLEAR OR NOT TO CLEAR?
Dodd-Frank requires generally that swap transactions be cleared through a regulated clearinghouse that guarantees the trade to both parties. This reduces credit risk by interposing a creditworthy intermediary between the parties to a swap transaction. The clearinghouse, under rules approved by the regulators, has its own minimum capital requirements, imposes credit limits and margin requirements on swap parties and nets offsetting positions to minimize risk. Exceptions to the clearing requirement apply if a swap counterparty is an “end-user” or if no clearinghouse accepts a swap transaction for clearing. An enduser for this purpose means a company that uses the swap to hedge a risk in its business, but excludes financial institutions. That means a financial institution must generally clear its swap transactions. Dodd-Frank, however, permits banks with less than $10 billion in assets to be considered “end-users” for this purpose. However, even if community banks are end-users and permitted to enter into uncleared, “over the counter” swap transac-
tions, under the proposed rules they may still be required to pay margin to their upstream counterparties. Margin requirements reduce risk in two principal ways. First, margin requirements reduce credit risk by requiring each counterparty to set aside cash or a nearcash asset – “margin” – to secure its swap payment obligation. Second, margin requirements limit the amount of swaps any entity can undertake based on the margin it has available. Capital requirements reduce risk in similar ways. By requiring a swap party to identify and set aside capital for every swap it has on its books, capital requirements limit the total swap obligations anyone can incur and provide a cushion against exposure to the swap obligations of others. Reflecting varying levels of risk, capital requirements distinguish between cleared and uncleared swaps and, for uncleared swaps, between swaps for which margin is collected and those for which margin has not been required. Community bankers argue that margin requirements imposed by DoddFrank should not apply to interest rate swaps between community banks and their loan customers, or to interest rate swaps community banks enter into with larger intermediaries to hedge the banks’ own interest rate risk. They argue that community banks’ interest rate swaps were not instrumental in causing the financial crisis and do not pose significant systemic risk. To impose such requirements on community banks, they argue, will make swaps prohibitively expensive and deprive community banks and their small business customers of a vital tool for managing risk. The agencies acknowledge these arguments but thus far, have not accepted them. They point out that Dodd-Frank did not provide an exemption from margin and capital requirements for community banks or for interest rate swaps and that if margin requirements apply only to cleared swaps, most swap transactions will be conducted over the counter. How these arguments are ultimately resolved may have a significant impact on the ability of community banks to manage their own interest rate risk exposures and also to compete with larger institutions in providing credit to business customers while helping those customers manage their risks. n
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ONCE A LUXURY, NOW A NEED MOBILE BANKING HITS IT BIG BY CHRISTINA P. O’NEILL
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ver the last two years, banks have gone from regarding mobile technology as “nice to have” to “need to have.” The technologies for mobile banking and payments have been with us for a decade, but started catching on with consumers in earnest with the advent of smartphones and the profusion of downloadable, customized applications. But even as this tectonic shift is occurring, the technology that supports both card transactions and mobile payments continues to change. Two Maine-based banks that have implemented mobile banking services discussed their different approaches to the mobile payments universe with Maine Community Banker. Machias Savings Bank, with $920 million in assets and 13 branches in the eastern and northern coastal region, first offered mobile banking to the public in December 2009, with an intensive ad campaign in the Bangor Daily News. Since the launch, the bank adds 20 to 30 new users each month, which is on par with other newer offerings such as online bill pay. Customers’ expectations from their mobile phone provider are changing with the growth of smartphone usage. Christopher Lyford, information security officer and vice president of deposit services at MSB, says he sees growth in customers willing to pay extra for a data plan when it’s time to update their mobile phone contracts. “People are more willing to spend $20 or $30 if they see the value of it,” he says. “Adoption is changing so quickly, that as people are changing their phones, they want the latest and greatest,” says Kathy Ligman, product manager of customer channel management at Fiserv, which
supports MSB’s mobile banking offering. Carrier consolidation, technological change are allowing mobile banking to become an extension of consumer behavior as a part of daily life. MSB teams with Fiserv to offer mobile options such as person-to-person. This payment option doesn’t require a checking account number or routing number to transfer money from one person’s bank account to another electronically. All it requires is an email or cell phone number – customer information that’s out in the public domain anyway – and a WAP browser with communication to the internet and the ability to receive SMS text messages or email. The sender sends a message directing the recipient to a secure site, eliminating the need for the posting of confidential information. The Fiserv product differs from PayPal, which serves as a bank. PayPal takes money out of the sender’s account and holds it in an account, where it stays until the recipient takes it out. But the Fiserv option allows direct transfer from sender to recipient – and the money doesn’t come out of the sender’s account until the recipient claims it. MSB offered the service for the last nine months as a component of its bill pay service, which to date has captured about one fifth of the bank’s online customers, Lyford says. The online customers are using mobile as an extension of their banking services, not as a replacement. He says some customers have adopted mobile banking because of poor broadband coverage in some regions of the state. Seasonal bank customers are particularly happy to have cell availability in places where online cannot currently reach, Lyford says.
CHRISTINA P. O’NEILL is editor of Maine Community Banker.
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MAINE COMMUNITY BANKER | THIRD QUARTER 2011
"Smartphones comprise 38 percent of the U.S. mobile phone market and are expected to become the majority by the end of this year." – Nielsen report
The bank has seen mobile acceptance grow from just over 2 percent in early 2010 to 7.5 percent as of June. It currently doesn’t offer text-based mobile banking, but when it does, Lyford expects further increases.
A MOBILE SNAPSHOT
FIS™ conducted an online survey in February of this year. Its results are below. FIS surveyed a random sampling of 4,000 adults, split evenly by gender, who own mobile phones. Its purpose was to determine the impact of mobile devices on consumer behaviors related to financial transactions such as accessing accounts, paying bills, depositing checks and making purchases. The findings reflect the following trends in mobile banking adoption and satisfaction: • Mobile banking from smartphones nearly doubled in the past year, with 50 percent of all smartphone owners using mobile banking within the last 30 days. CTIA, the wireless industry association, reports there are 78 million smartphone subscribers in the U.S. • Smartphone owners represent 76 percent of all mobile banking users, while standard phones and web-enabled devices made up the 24 percent balance of users. • More than half (56 percent) of mobile banking users are members of the Gen Y demographic. • Downloadable app mobile banking users represented the most satisfied segment of mobile users, with 88 percent satisfied with their primary bank’s mobile banking service, a 9 percent increase from 2010. • Of consumers who had downloaded apps for their smartphones, 37 percent had downloaded banking applications – making banking apps among the most popular types of applications. • The top 10 U.S. banks account for 52 percent of all mobile banking users. • Fifty-seven percent of mobile banking users with smartphones expressed an interest in using remote deposit functionality, but only 7 percent of smartphone users are certain they have access to a remote deposit application for their bank. • Smartphone mobile banking customers were three times more likely to use contactless or near field communication payments than non-mobile banking customers. • For those not using mobile banking, 38 percent preferred to access their accounts online through their computer, 28 percent cited security concerns as their reason for not adopting mobile banking, while 19 percent cited small screen size as a barrier. Source: FIS
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MAINE COMMUNITY BANKER | THIRD QUARTER 2011
KENNEBUNK SAVINGS BANK When Kennebunk Savings Bank rolled out internet banking in the spring of 2001, says President and CEO Brad Paige, it went from a "like to have” to a “need to have” to a “must have” for customers over the last 10 years. “We anticipate mobile banking, rolled out in July, will make the transition to ‘must have’ exponentially quicker than did Internet banking. If you don’t have it, you’re at a competitive disadvantage.” Kennebunk Savings Bank, Maine’s 10th largest bank with $783.2 million in assets and 15 branches, was an early adopter of internet banking, but now, demand in Maine has caught up, Paige says. Kennebunk announced the rollout of its mobile banking offerings in June. It partners with Clairmail, which works with many community banks, to offer three options, including text banking, mobile web and a mobile app for the iPhone, to give customers the choices that work best for their particular requirements and mobile devices. While Paige says the iPhone applications caught his initial interest, text banking is appealing because of its ease of use. Entering a text bank number in an iPhone brings up current balances of all existing accounts in five to seven seconds, he says. The bank competes directly with much larger commercial banks in much of its coverage area. Kennebunk Savings’ customers often live in one market and work in another. Kennebunk promotes its checking account, which carries no ATM fees for out of market transactions, which, among other factors, helps it to stay competitive with banks with a bigger footprint. Mobile banking is another extension of that concept in that it allows customers to bank from anywhere, any time. In early August, Paige says, the bank was already well over a third of the way to the annual goals it set for customer signup for its mobile services. A surprise: while the perception is that young people
ages 20 to 35 are the prime customers for mobile banking (and they are the first adopters), industry data reveals that the age group of 50 to 65 is active as well. Safety and security are the biggest issues, he says. Kennebunk’s in-house IT team partners with Sage Data Security. Sage provides security/consulting services, while Fiserv is Kennebunk’s ‘core system’ vendor providing all banking, accounting and other systems. Clairmail is the mobile banking vendor. Built-in security features include secure login with each mobile banking web browsing session, masked account numbers and data encryption. All wireless transactions are protected by SSL technology and session time out, which helps prevent unauthorized account access. CONCLUSION More adults in the U.S. currently own a cell phone than have access to the Internet or a PC, according to a report issued early this year by Forrester Research. Smartphones comprise 38 percent of the U.S. mobile phone market and are expected to become the majority by the end of this year, according to a Nielsen report. IMS Research predicts that 420 million smartphones will sell this year, taking up 28 percent of the mobile handset market; it also predicts that this figure will rise to half the market, or more than 1 billion, in 2016. As this article was being written, the competition among the major data and phone carrier players was rising to a fever pitch; Google, whose Android operating system is now on half the smartphones in the U.S., had just announced its intent to buy Motorola Mobility Holdings to gain entry into the handset arena. Meanwhile, Apple’s iPhone has become the market favorite and the company has redefined the market. Federal regulators are scrutinizing the Google/Motorola deal. It’s no surprise, then, that banks are taking a wait-and-see attitude about the mobile banking market, but they realize that mobile banking is a necessary component of the total customer banking relationship. In Maine, where mobile banking already has a technical advantage over online banking in areas of the state, the adoption of new technology is keeping pace with the rest of the country. n
FOR MORE INFO: BLOG.MYLOOKOUT.COM/2011/07/TAKE-THE-MONEY-AND-RUN-MOBILE-BANKING-ON-THE-GO/ SOURCE: LOOKOUT MOBILE SECURITY
THIRD QUARTER 2011 | MAINE COMMUNITY BANKER
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MAKING SENSE OF MOBILE BY KEVIN TRAVIS
W
ill the rapid adoption of smartphone technology assure the success of mobile banking? Is mobile banking just an extension of the Internet, or does it offer entirely new venues to interact with banking customers and generate revenues? These are critical questions at a time when many banks are gearing up to enter the mobile space. Amid the buzz about features and functionality, it is important to keep sight of potential revenueenhancing offerings and the customers who might actually use them. Banks face a critical balancing act. On the one hand, if they fail to invest adequately, they risk being left behind as the mobile device joins the Internet as a central conduit for the consumer banking relationship. On the other hand, scarce resources could be wasted on features and functionality that ultimately do not improve customer acquisition, retention or relationship profitability. In the second scenario, mobile would join a long list of “transformative technologies” (automated teller
KEVIN TRAVIS is a partner in the New York office of Novantas LLC, a management consultancy.
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MAINE COMMUNITY BANKER | THIRD QUARTER 2011
machines, interactive voice response, online banking) that, while significantly improving customers’ access and banking experience, produced little discernable uptake in banking revenues. Many banks seem resigned to that fate. While it is too early to declare that mobile will be a definite source of new opportunities for fee income, a recent Novantas consumer survey does provide some positive indications. Within the growing ranks of mobile aficionados, for example, we identified a select group of “ultra-connected” customers who defy the Generation Y stereotype. Having a more affluent profile and spanning the age brackets, the “ultra connected” customers are adept with all forms of consumer communications technology and are far more willing to undertake complex financial services transactions through remote channels. It puts a fresh slant on what an iPad could do, given the right banking apps and set of hands. There is a significant risk of undermining this opportunity by over-focusing on the Gen Y crowd. A marketing and configuration scheme that strictly appeals to the transient tastes of the young could be a turn-off for a
more experienced, mature audience who potentially could make more extensive and financially meaningful use of mobile banking. One example is with financial advice. The Gen Y segment may be quite happy to seek guidance from “the cloud,” based on ratings, user comments and feedback from friends. But in providing and promoting this arrangement, for example through a social network link, the bank could be turning off the ultra-connected, a group that is hungry for more expert advice and that would be much more trusting of a personal advisor at the bank. The upshot is that banks need to do far more homework on customers before rushing to market with mobile applications and innovations, particularly products that are expensive to build and complex to manage. In some cases, there is more ground to be gained with a generic, transaction-based offering that also appeals to people with the greatest potential to use mobile for high-value transactions. Once banks go beyond basic transaction capabilities and start looking at more complex mobile initiatives – such as
partnering with third parties for social media-based offerings – there is a heightened risk of colliding with customer expectations if initiatives are not guided by accurate customer segmentation and targeting. Finding the right customers requires the bank to consider several different factors. Along with analyzing the current composition of the mobile customer base, the bank will want to anticipate future waves of customers drawn from different segments, most notably the broad group of people who currently remain wedded to branch/online banking but who could embrace mobile at some point. Then there are questions of brand positioning, competitive differentiation and a tailored marketing outreach. Such customer-informed navigation will only grow in importance as banks venture further into the new world of mobile banking and payments. Even for the bank that prides itself on innovation, that kind of stand-alone pull is only part of the equation. As more customer transactions flood through electronic channels, banks
increasingly will be collaborating with merchants and other financial services providers, as well as new players, such as social networks and online affinity groups. In turn, success again will be heavily influenced by an ability to configure and position offerings in line with the needs of prime customer segments. To be sure, customer analytics may seem like overkill at a time when mobile banking seems to cost more than it earns for everyone except smartphone manufacturers (and they definitely have their ups and downs as well). Steadily, however, more high-value transactions are migrating online, as underscored by Novantas research showing that nowadays, more than a third of consumers first seek financial advice via remote channels. From this perspective, it is not too early to begin preparing for the day when the volume of high-value remote banking transactions goes from a trickle to a flood. For the many banks just now getting into the game, this calls for building a customer-informed mobile foundation that looks beyond features and functions du jour. n
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THIRD QUARTER 2011 | MAINE COMMUNITY BANKER
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MA INE HOU SIN G R E P O RT
MAINE HOME SALES CONTINUE DECLINE The Maine Real Estate Information System, Inc. (MREIS) reported 268 fewer home sales in June 2011 compared to one year ago – a decrease of 21.39 percent. The statewide median sales price (MSP) dipped 1.37 percent to $172,600 in that same time period. The MSP indicates that half of the homes were sold for more and half sold for less. According to the National Association of Realtors (NAR), existing home sales were down 7.4 percent across the country in June. The national MSP rose 0.6 percent to $184,600. Regionally, sales in the Northeast declined 17 percent while the regional MSP increased 3.1 percent in the past twelve months. Realtor Marc Chadbourne of Century 21 Nason Realty, Inc., in Winslow says, “Even though we are experiencing a down turn in our economy, real estate continues to offer opportunities in all segments of the market. The affordability of Maine real estate is a big advantage to homebuyers; combined with extremely attractive mortgage rates the current market is a win-win for those interested in becoming homeowners and/or real estate investors. As with all things, these advantages won’t last forever, and those willing and able to invest in real estate now could be the big winners.” At right are two charts showing statistics for Maine and its 16 counties. The first chart lists statistics for the month of June only, statewide. The second chart compares the number of existing, single-family homes sold (units) and volume (MSP) during the months of April, May and June of 2010 and 2011. n
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MONTHLY REAL ESTATE STATISTICS June 1-30, 2010 – June 1-30, 2011 County
STATEWIDE
#Units Sold 2010
1253
#Units Sold 2011
985
Percent Change
-21.39%
Sale Price 2010
$175,000
Sale Price 2011
$172,600
Percent Change
-1.37%
ROLLING QUARTER CHART: FROM APRIL 1, 2010 – JUNE 30, 2010 AND APRIL 1, 2011 – JUNE 30, 2011 County
#Units Sold 2010
#Units Sold 2011
Percent Change
Sale Price 2010
Sale Price 2011
Percent Change
STATEWIDE
3337
2527
-24.27%
$170,000
$167,000
-1.76%
Androscoggin
243
176
-27.57%
$139,000
$139,700
0.50%
Aroostook
110
86
-21.82%
$86,500
$82,000
-5.20%
Cumberland
878
691
-21.30%
$231,000
$235,000
1.73%
Franklin
69
54
-21.74%
$125,000
$131,663
5.33%
Hancock
108
100
-7.41%
$176,250
$157,250
-10.78%
Kennebec
345
230
-33.33%
$134,500
$135,000
0.37%
Knox
114
81
-28.95%
$168,250
$169,500
0.74%
Lincoln
82
52
-36.59%
$181,375
$167,000
-7.93%
Oxford
149
106
-28.86%
$127,500
$125,000
-1.96%
Penobscot
373
256
-31.37%
$133,000
$129,450
-2.67%
Piscataquis
34
37
8.82%
$76,250
$59,000
-22.62%
Sagadahoc
111
72
-35.14%
$171,000
$168,500
-1.46%
Somerset
95
76
-20.00%
$85,900
$87,500
1.86%
Waldo
73
60
-17.81%
$150,000
$129,000
-14.00%
Washington
14
12
-14.29%
$93,750
$88,000
-6.13%
York
539
438
-18.74%
$202,000
$200,000
-0.99%
Source: Maine Real Estate Information System, Inc. Note: MREIS, a subsidiary of the Maine Association of REALTORS, is a statewide multiple listing service with over 4,600 licensees inputting active and sold property listing data. Statistics reflect properties reported as sold in the system within the time periods indicated.
MAINE COMMUNITY BANKER | THIRD QUARTER 2011
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MA INE ON T HE M OVE
CHERYL MULLEN
CATHY PLANCHART
MARGIE GRAY
BAR HARBOR BANK & TRUST Cheryl Mullen has been promoted to senior vice president of sales and marketing. She joined the bank in 2002. Since then her duties have expanded to include oversight of all branches, as well as the call center, for growth and business development. She will continue her service-focused leadership of BHBT’s 12 branches and the call center, with added oversight of the marketing department. Mullen is active in the Ellsworth Noontime Rotary and was the first president of this relatively new Rotary Club. Cathy Planchart has been promoted to assistant vice president of corporate communications and community relations. She will continue to manage the bank’s public relations, charitable giving program and event coordination. In addition, she will be designing and implementing the bank’s promotional campaigns as well as overseeing communications with customers, staff and the community. Planchart holds a bachelor’s degree in business management from Barry University and is a graduate of the School of Bank Marketing and Management. Margie Gray has joined the marketing department as assistant vice president of product development and research. She will continue to manage the bank’s public relations, charitable giving program and event coordination. In addition, she will be designing and implementing the bank’s promotional campaigns, as well as overseeing communications with customers, staff and the community. Gray holds a bachelor’s degree in business management from Barry University and is a graduate of the School of Bank Marketing and Management. Sam McGee has been promoted to vice president of business banking. He develops and manages relationships with business owners throughout the state, helping them meet their needs with the appropriate commercial lending and business banking services. He is currently a board member of the Mount Desert Land & Garden Preserve and past president of Friends of Evergreen Cemetery in Portland.
SAM MCGEE
Lisa Parsons is now vice president and regional branch relationship manager in Somesville, Northeast Harbor and Southwest Harbor. She has been with Bar Harbor Bank & Trust for 19 years. She works closely with the employees at these offices to ensure smooth operations, as well as promoting teamwork and staff development.
ARE YOUR EMPLOYEES ON THE MOVE? Email submissions to Cassidy Murphy at cnortonmurphy@thewarrengroup.com. LISA PARSONS
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MAINE COMMUNITY BANKER | THIRD QUARTER 2011
CHAD DESJARDINS
KATAHDIN TRUST COMPANY Chad V. Desjardins has joined the bank as manager and retail services officer at the Bangor branch on Broadway. In his new role, Desjardins will be responsible for retail lending, business development and the day-to-day management of branch activities. A native of Fort Kent, Desjardins is a graduate of the University of Maine at Fort Kent with a bachelor’s degree in business management with a concentration in accounting and financial services. Danelle Weston, regional vice president, who had previously served as manager, relocated to the bank’s new Hampden location at 57 Western Ave., where she is responsible for administrative oversight and retail business development in the greater Bangor area.
SUNNY SOMERS
Sunny G. Somers has joined the bank as manager and retail services officer. She is responsible for retail lending, business development and the daily branch management of Katahdin Trust Company’s newest branch, which opened June 20 in Hampden.
RUSSELL ROBIDOUX
KENNEBUNK SAVINGS BANK Russell P. Robidoux has joined the bank as assistant vice president and commercial underwriter. He will be responsible for analyzing commercial accounts and financial statements. He previously worked at TD Bank in Andover, Mass., where he worked as a senior credit analyst. Prior to that, he worked for a savings bank in Danvers, Mass. He holds a bachelor’s degree in accounting from Bentley College, and an MBA from Salem State University. He is a member of the Risk Management Association and a Junior Achievement volunteer.
JUSTINE WEBBER
MARCIA WELSH
Justine S. Webber has joined the bank as vice president and lending quality control manager. She will be responsible for commercial, residential and consumer loan quality control reviews, analyzing risk, and ensuring compliance with all lending requirements and regulations. Most recently, Webber served in a compliance risk management role at another bank. Previously, her banking experience included positions with responsibilities for mortgage loan product management, consumer loan quality assessment and compliance review, credit administration, and residential mortgage training. She holds a bachelor’s degree from the University of Maine at Orono and is a graduate of the American Bankers Association Graduate School of Compliance Risk Management. Marcia J. Welsh has joined the bank as assistant vice president and residential lending officer and will be working from the new office at 111 Maplewood Ave. in Portsmouth, New Hampshire. Welsh was most recently employed by Cousins Home Lending, Inc. as a senior loan officer and, prior to that, as a senior loan officer for another mortgage company. In addition to residential lending, she has experience working as a real estate agent and a background in accounting. She graduated from Southern New Hampshire University with a bachelor’s degree in business studies with a concentration in finance and accounting.
THIRD QUARTER 2011 | MAINE COMMUNITY BANKER
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MA INE ON T HE M OVE NORWAY SAVINGS BANK Amy Marshall recently accepted the position of assistant vice president and employee development specialist. Marshall has been with Norway Savings Bank for over 12 years. She has been an active member in her community and has worked very closely with the Bethel Chamber of Commerce and Bethel Rotary Club. AMY MARSHALL
GAIL MCBRIDE
LOUIS PAQUET
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Gail McBride has accepted the position of vice president, CRA officer and project management coordinator. In her new role, McBride will be responsible for all Community Reinvestment Act (CRA) activities for the bank. She will also be responsible for implementing project management tools to help ensure consistency in their use and will support the Project Management Committee in their oversight role for all major bank projects. Louis Paquet has been promoted to assistant vice president and retail collections manager. Paquet joined Norway Savings as a collections specialist in April 2010, bringing over 23 years of experience in retail collections and consumer lending to the bank.
KATAHDIN TRUST CO. NAMED A 'TOP 200 BANK' FOR FIFTH YEAR Katahdin Bankshares Corp., parent company of Katahdin Trust Company, has been named a Top 200 Community Bank by U.S. Banker magazine, marking the fifth consecutive year the company has been named to the coveted list. The rating was based on the bank’s three-year average return on equity. The review included all community banks and thrift institutions in the nation with assets less than $2 billion. Jon Prescott, president and CEO of Katahdin Trust Company, said that “being named a Top 200 Bank in the United States for the fifth year running is a clear indication of our commitment to solid principles.” “Obviously, this accolade is important to our shareholders and to each customer who enters our bank,” Prescott said. “And, while the recognition is great, the bottom line is that we’re operating Katahdin Trust Company in a manner conducive to the financial well-being and trust of our shreholders and customers.”
MAINE COMMUNITY BANKER | THIRD QUARTER 2011
SKOWHEGAN SAVINGS COLLECTS SUPPLIES FOR LOCAL STUDENTS Skowhegan Savings collected school supplies from Aug. 1 through Sept. 2 at the bank’s 10 branches to support local students’ academic needs. The annual drive, marking its seventh year, was a part of Skowhegan Savings’ ongoing commitment to support surrounding Maine communities. “The cost of school supplies can add up quickly and as a community bank, we want to help local families and their children to succeed,” said Karen Hart, assistant vice president and marketing officer at Skowhegan Savings. “In these tough economic times, we want to help put a smile on the face of a parent or child that could use a little help.” Based on the number of school supplies donated, Skowhegan Savings allotted donations to area schools. Each school’s principal distributes them to the students. n
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