Banking New England Issue 2 2020

BANKING ISSUE TWO 2020

NEW ENGLAND T H E R ES O U R C E F O R N E W E N G L A N D ’S F I N A N C I A L L E A D E R S

CREDIT UNIONS & BANKS

When Will A Credit Union Buy a New England Bank?

DIVERSITY

A Loan Officer Serves Two Cultures

THE FARMING CU FIRST MAINE CU IN 23 YEARS HAS ORGANIC ROOTS

>> A PUBLI C ATI O N O F A M E R IC A N B U S IN ES S M ED IA

SAVE THE DATE

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A FAMILY-OWNED AMERICAN COMPANY FOR OVER 55 YEARS. Form MC719 – © 2019 Magner Corporation

LE T T E R F RO M T H E P U B LIS H ER

This ‘Gig Economy’ Means Banking By The Gigabyte

A

s I write this, I’m looking down at a check for $7,990 that just came in the mail. And I’m realizing that the only way this is going into my company business account is if I get in my car and drive to my bank branch.

And then I realize, this is nuts.

Most of our company business is online – we take credit cards for most sales. Every now and then, though, someone has to pay by check. My bank has suggested that they would put a check scanning device in my office. But I’d have to put it somewhere, and I’d have to pay a monthly fee – neither of which I want to do.

I’d scan the check with a mobile app. But VINCE VA LVO my bank – a large international institution with a strong regional presence along the eastern seaboard – has a cap of $5,000 for business checks that can be deposited that way.

So, this check can sit on my desk while my email account keeps pinging with credit card sales. Or I can handle this the old-fashioned way by taking it in hand to the next available teller down the street. Or maybe, I can start looking for a new institution that knows how to do things in the digital age.

BANKING’S NEW DAY There is no shortage of stories about the digital revolution in banking. But what is surprising is how long it’s actually taking. Obviously, where safety and soundness are concerned, we all want there to be ample due diligence and caution. But most banks and credit unions already offer some forms of electronic banking. They’re just not offering enough.

Bank branches remain important, but their functionality and purpose are undergoing metamorphosis. They are way stations on the journey to a transaction, but they needn’t be the terminus. They are the trains for those who don’t want to fly the digital skies.

We are seeing the sparks of a major conflagration that will soon be in full flame: Consumers want a digital experience first, with physical branches as a fallback position, not the reverse. But many banks have yet to embrace that idea. It’s why the companies that have begun as digital lenders are now swallowing up chartered banks, such as the recent Lending Club acquisition of Radius Bank in Boston.

Bankers should be actively looking at all possible strategies to deal with this rapid change. Because consumers and businesses aren’t waiting, and neither are the new digital upstarts. They’ve already cashed that check.

VIN CE N T M. VALVO

Publisher & CEO

STAFF

CEO, PUBLISHER & EDITOR Vincent M. Valvo ASSOCIATE PUBLISHER Beverly Bolnick MANAGING EDITOR Keith Griffin GRAPHIC DESIGN MANAGER Stacy Murray INTERACTIVE DESIGN DIRECTOR Alison Valvo ONLINE CONTENT DIRECTOR Navindra Persaud MARKETING & EVENT ASSOCIATE Melissa Pianin

ADVERTISING COORDINATOR Francine Miller

EDITORIAL

Eric C. Peck

CREATIVE SERVICES Joey Arendt

ENGAGEMENT AND OUTREACH Andrew Berman

CLIENT SUCCESS COORDINATOR Jaclyn Leitermann

Submit your news to

editorial@ambizmedia.com If you would like additional copies of Banking New England Call (860) 719-1991 or email info@ambizmedia.com

www.ambizmedia.com ©2020 American Business Media LLC All rights reserved.

Banking New England magazine is a trademark of American Business Media LLC. 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.

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Issue Two | March 2020 | BANKING NEW ENGLAND 3

PAGE

CO NT E NTS

14

COVER STORY:

MAINE WELCOMES NEW AGRICULTURAL CU

3

Letter from the Publisher

14

26

New Maine credit union has organic focus

News highlights from the weekly Banking New England newsletters

Cover Story

5

>> visit us online bankingnewengland.com

18

Did You See?

Diversity

26

8

20

A glance back at the successful 2020 BankWorld at Mohegan Sun

How one bank fosters inclusivity for workers with disabilities.

When will a credit union buy a bank in New England?

28

Technology

‘Bank in a Box’ is a branch for less cost and time.

Hiring a bi-cultural loan officer

Analysis

Personnel

10

22

Don’t let your cybersecurity guard down – ever

The transformation of digital tech over 5 years

Technology

Technology

12

24

How small biz lending shapes up in 2020

Following the changing careers of your colleagues across the region

On The Move

PAGE

Insight

16

Attend The Great New England Credit Union Show NEW DATE: May 29, 2020

A P U B LI C ATI O N O F A M E R IC A N B U S IN ES S M ED IA 4 BANKING NEW ENGLAND | Issue Two | March 2020

Conferences

Bottom Line

Banks can be hurt by haphazard lending practices

30

Conferences

The New England Financial Marketing Association Spring Conference

TECHNOLOGY

‘Bank-in-a-Box’ Service Speeds Going Digital

BY G EO RG E YAC I K, S PEC I A L TO B A NK I NG NEW E NGL A ND

B

anks are always hungry for more deposits, more loan volume, more customers. Often that search involves expanding into different markets, but the cost of opening a new brick-and-mortar branch can run upwards of $1 million, not including the land and employee salaries, a major investment for a small bank – and with no guarantee it will succeed. Acquiring another bank is an even more expensive option, plus it brings with it an 18-month or more integration project.

So, growing digitally might make a lot of sense. Banks just need to ensure digital solutions are done well across a variety of platforms.

That’s the goal of NYMBUS SmartLaunch. The company’s “bank-in-a-box” Drew Dizon solution enables financial

The company’s “bank-in-a-box” solution enables financial institutions with either federal or state charters to create a turnkey digital bank under their existing charter in as little as 90 days. institutions with either federal or state charters to create a turnkey digital bank under their existing charter in as little as 90 days. The company’s website says this eliminates the need to undergo a conversion or hire additional staff.

NYMBUS provides the required operational and technical resources required, including 24/7 support and targeted digital marketing and website services, “so that financial institutions can quickly generate sustainable new deposits and revenue.”

Not only that, but it promises to do so without the bank putting up any money upfront, says Drew Dizon, NYMBUS’s senior vice president for strategic solutions.

Issue Two | March 2020 | BANKING NEW ENGLAND 5

There are also no setup, integration or implementation fees.

The bank doesn’t pay anything until its digital offspring is ready to go live, when it pays a monthly platform fee – which Dizon says is “significantly less than what they would pay to start a traditional brick-and-mortar branch” – and transaction fees based on the products and services that customers use, such as bill pay, debit card usage and the like.

MULTI-YEAR COMMITMENT

“A true digital experience is designed to reduce friction as much as possible.”

––Rutger van Faassen

Banks make a three- to seven-year commitment to SmartLaunch. The length varies depending on the product set purchased, the number of states a bank wants to enter and/or the desired demographic or affinity they want to target.

Dizon says the platform fee typically is less than an average fully loaded branch depending on location. Typical branches take upwards of three years to break-even with less and less people utilizing the branch network. “Depending again on the target states, demographics or affinity groups, our clients can break even in year one especially with the ability to collect a significant amount of interchange income from digital customers who utilize their debit cards much more frequently instead of using a branch for making transactions,” he says.

“I haven’t seen anyone in the banking business doing what we’re doing,” Dizon says. “We package holistically the entire front-office and back-office operation – including marketing, office operations, infrastructure, fraud management, security, everything you would do to run a digital bank – and launch it faster than anybody else in the market. From soup to nuts, NYMBUS can run the entire digital bank for our clients.”

While other companies can handle the back-office technology part of creating and running a digital bank, what sets NYMBUS apart, Dizon says, is its ability to help bank clients target new customers on the web. Essentially, Dizon says, the bank tells NYMBUS the demographic group it’s trying to attract and NYMBUS does the rest.

“Our secret sauce is the marketing piece,” he says. “We started as a platform for the media industry. The big media companies use our platform for digital marketing. We use that same platform for our banking platform for digital advertising.”

“One of the nice things about our database and our platform coming from the media space is that we have all that data already built into our platform,” Dizon says. “Once we identify the customer or client profile that the bank is looking to attract, our marketing platform can really drill down and find the exact customers they want and advertise on the sites where they go. We are using a variety of tools to market but also to follow those users online.”

TEN BRANCHES ‘BUILT’ NYMBUS’s marketing job doesn’t end once a prospect becomes a customer.

Its platform sends out email notifications to cross-sell customers on other bank products or to get them to utilize services that they haven’t been using.

So far NYMBUS has created 10 digital banks that are up and running, such

6 BANKING NEW ENGLAND | Issue Two | March 2020

A QUALIFYING COMMUNITY BANKING ORGANIZATION WITH A CBLR GREATER THAN 9 PERCENT (MEASURED AT THE TIME OF ELECTION) MAY ELECT TO USE THE CBLR FRAMEWORK AT ANY TIME.

as BankMD, a digital brand for medical professionals started by TransPecos Bank in Texas. Another 10 are in the implementation process, seven of which are expected to go live in the next few

“We wanted to have a brand that is separate from Surety Bank, something that could be at a more national level,” says Ryan James, president and CEO of the fourbranch bank.

“The greatest thing about digital banking is you can finely target advertisements and learn and evolve and if things don’t work in an area you can change on a dime,”

months. In addition, the Miami Beach-based company Rutger van Faassen is doing traditional core technology replacements for banks that are migrating to the NYMBUS platform. It is also working with three de novo banks that are working on getting a banking charter.

“Customer expectation is rapidly moving towards demanding a digital option,” so only a handful of banks can get by long-term without one, says Rutger van Faassen, vice president of consumer lending at Informa Financial Intelligence. But he warns, “like with many things, doing something badly could be more harmful than not doing it at all. So, if not done correctly, a bad digital experience can create increased customer frustration.”

“It is very important for a traditional brick-and-mortar bank to create a true digital experience and not simply a digitized experience,” he advises. “A digitized experience is taking an offline process and creating the online version of it, such as taking a loan application form and putting it online without adjusting it for an online experience. A true digital experience is designed to reduce friction as much as possible.”

he says. “You’re not committed to a physical location. But if something is working you can add more ad dollars to that specific group that you’re targeting. You can brand many different ways. It’s a way to test the waters.”

“What’s great about this is you reduce your advertising costs and you don’t have the hard fixed-asset cost of traditional banking,” he adds.

Getting a new customer in a traditional retail banking environment might cost about $500 once all the costs are considered. “At booyah! we are already seeing that cut in half,” James says.

Surety has plans to open two more digital banks in the Ryan James near future, including one targeting former professional athletes and their fans.

BUILDING WITHOUT A CHARTER The company is also looking to help financial technology companies, retailers and others to launch digital banks. If they don’t have a banking charter of their own, they can partner with one of NYMBUS’s banks.

“There are a lot of well-known brands out there that are looking to leverage that brand by partnering with banks,” Dizon says. “They can target their employees or customers and offer rewards and incentives and the bank can serve as a revenue generator.”

NYMBUS recently helped Surety Bank in Florida launch booyah!, a digital bank that targets young professionals.

CLEAR DEFINITIONS “When creating a digital experience, it is also important to define it differently for each channel, such as desktop, mobile, mobile app, chat and the like,” advises van Faassen. “Each channel has unique characteristics, so replicating a desktop website to a mobile browser does not create the best experience for a mobile customer.

“This also brings up the need for an omni-channel approach, where customers can choose their preferred channel at each step of the process and resume in another channel without having to restart the process. This can be a key point of frustration. If banks create a digital experience that does not allow a customer to move between different channels without losing information, the experience can be worse than being forced to do everything in a branch.”

Issue Two | March 2020 | BANKING NEW ENGLAND 7

PE RSON N E L

KeyBank Fosters An Inclusive Environment For Workers With Disabilities

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BY N A N CY CO H EN, S PEC I A L TO B A NK I NG NEW E NGL A ND

or the third consecutive year, KeyBank has been recognized by the National Organization on Disability (NOD) for its exemplary employment practices for people with disabilities. As one of only four banks nationwide named a 2019 NOD Leading Disability Employer, KeyBank is considered a leader in providing people with disabilities the opportunity to achieve economic mobility and career fulfilment.

“These winning organizations understand that by harnessing the talents of people with disabilities, they reap the benefits of a more diverse and more productive workforce,” said NOD Chairman Tom Ridge, former Pennsylvania governor. “The preeminent challenge before us is to ensure that people with disabilities enjoy full opportunity for employment, enterprise and earnings, and that employers know how to put their talents to work.”

Long seen as more traditional than other business sectors, the banking industry has been slower in its efforts to adopt programs that encourage society’s growing inclusion practices. Under the leadership of Keybank’s CEO Beth E. Mooney, the institution has worked in

8 BANKING NEW ENGLAND | Issue Two | March 2020

transforming that landscape. Her efforts changed the culture and positioned KeyBank to become one of the most diverse and inclusive workforces in America.

Along with the non-financial benefits of hiring people with disabilities, the federal government offers tax credits to help employers capitalize on the value and talent that certain targeted groups bring to their companies.

KeyBank, for example, applies for tax incentives under the Work Opportunity Tax Credit (WOTC) program offered by the IRS for hiring eligible individuals with disabilities.

ALL TYPES OF DISABILITIES Much of the talk about inclusion focuses on the physically disabled, while mental disabilities still hold a stigma.

KeyBank is taking this problem head-on positioning themselves for 2020 to be one of the first regional banks to build momentum in this space.

In 2018 accelerated efforts by KeyBank brought about the appointment of Kim Manigault as chief diversity & inclusion officer. Her philosophy for hiring is: “Be open, be flexible and be inclusive when considering talent.”

Manigault further points out that according to the NOD, 57 million people with disabilities live in America – one in every six. “We must see people for their value, not their disability. It’s a missed opportunity for a potential employer and their clients to withhold opportunities for unique and diverse pools of talent. By hiring a limited group of people, companies are missing out on significant segments of resources,” said Manigault.

Bureau of Labor Statistics show just under 20 percent of Americans with disabilities are in the labor force, compared to 65 percent of the general population. As a result, more than two-thirds of people with disabilities live in poverty—double the national average.

Because of these staggering statistics, KeyBank encourages voluntary selfidentification in the hiring of their workforce.

“Voluntary self-identification creates a platform for people to openly share characteristics and qualities about themselves,” continued Manigault.

“Through this process, we can better facilitate dialogue about diversity goals and provide the proper resources to support and find the right talent pool.” With KeyBank’s hiring rate of persons with disabilities consistently doubling from 2016 to the third quarter of 2018, selfidentification demonstrates a vital method of support for underrepresented groups at the institution.

“We’re working closely with the NOD to broaden industry insights and partnering with community organizations like to help companies employ 10,000 individuals with disabilities by 2025.” – Michael O’Boyle

CORPORATE GOALS Corporate goals for diversity and inclusion are further enhanced through the banks 12 Key Business Impact and Networking Groups (KBINGs) -- African Heritage, Asian, Champions of People with Disabilities, HispanicLatinx, Jewish Cultural, Key for Lifetime Contributors, Key Legal Exchange, Key Military Network, Key Women’s Network, Key Young Professionals, Parents are Key and

Kim Manigault

Michael O’Boyle

PRIDE – providing members with career development and supportive resources to address their individual differences and goals.

The Champions of People with Disabilities (CPD) KBING gives a voice and a platform to employees with disabilities and/or caregivers through ongoing collaboration, industry insight and best practices focusing on reasonable accommodations from recruitment to employment.

Under the leadership of Michael O’Boyle, a senior vice president & procurement category manager, the CPD KBING has grown from 40 members at its inception in 2016 to just under 200 members. By telling the story about his young son, a wheelchair user due to a rare medical condition, employees and caregivers began to come forward to share their own personal journeys and common concerns.

O’Boyle said, “We’re working closely with the NOD to broaden industry insights and partnering with community organizations like The Precisionists to help companies employ 10,000 individuals with disabilities by 2025.”

THE FUTURE Simply launching a diversity and inclusion program is not enough. For KeyBank, the sky is the limit when it comes to their program’s direct impact on hiring and, ultimately, the bank’s productivity. Through employee development and training, grassroots initiatives and conversations to help reduce biases and increase cultural competence and acceptance, KeyBank has positioned itself as a force that ensures that all populations are well represented. “The desire to be diverse and inclusive and lift as you climb to break through ceilings and bring people along, is critical,” said Manigault.

Issue Two | March 2020 | BANKING NEW ENGLAND 9

T E C H N O LO GY

Cybersecurity: The Defense Can Never Rest

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B Y G E O R G E YACIK, S P E C I AL TO B A N K I N G N E W E N GL A N D

hile banks can never let down their guard, it does appear that they’re doing a good job of staying ahead of cybercriminals, according to the Office of the Comptroller

of the Currency.

“Banks generally have appropriate controls for operational stability and protection of bank and customer data,” the agency said in its most recent Semiannual Risk Perspective, published in the fall of 2019. “As a result, cybersecurity-related matters trends have decreased and have remained relatively stable over recent quarters, reflecting increasing maturity of banks’ cybersecurity programs. Trends in this area have improved.”

Nevertheless, it warns, “cybersecurity remains a significant risk area for banks, with opportunities for further improvement.”

THREAT EVOLVING “There is a good level of preparedness, but cyberthreats and cybersecurity are always evolving,” says Kevin Greenfield, the OCC’s deputy comptroller for operational risk. “It’s something that banks, no matter how good or how strong or how focused they are on them, there are risks. It’s very important to make sure that there is

10 BANKING NEW ENGLAND | Issue Two | March 2020

ongoing training for your employees and staff and that you are regularly testing and re-evaluating your security controls. While we see the same fundamental attack methods being used, what they look like and the different ways that the threat actors are approaching them are evolving all the time. So, everyone needs to stay on their toes and be ready to respond if there is an attack.”

As the Capital One hack last July shows, one of the most pernicious and most difficult threats to defend against is when the attack comes from inside the organization, whether it’s from a rogue employee, as in the case of Capital One, or – more often – an unsuspecting employee or vendor whose identity has been compromised.

‘Inadvertent Insider’ John Rogers, director of advisory services at Tyler Cybersecurity in Plano, Texas, calls that an “inadvertent insider,” and that “is the most common threat there is,” he says.

“The inadvertent insider is someone who either through their own actions, such as by clicking on a link or visiting a website they shouldn’t or selecting weak email passwords,” unintentionally allows a cybercriminal access to the bank’s internal databases, Rogers says. “Once they have that identity, they have trust and credibility

by the organization and a variety of attacks can occur.

The criminal is going to leverage that to get things they couldn’t normally get.”

An even bigger challenge is monitoring what a bank’s external vendors are doing. As the OCC and other bank regulators have said, banks are responsible for the actions of their vendors, whether intentional or not.

“We actually dealt with that [recently] with a construction company where one of their subcontractors’ email accounts was compromised,” notes Nathaniel Gravel, vice president of information security and information technology practice at GraVoc Associates in Peabody, Mass. “They sent an address change notification to send payment to a different address, and without thinking the employee from the construction company changed the system without telling anyone. They were sending checks to the fraudulent address for almost three months.”

STORMY CLOUD The evolution to more cloud-based and web-based applications can increase the risk of data theft, Gravel adds.

“A lot of infrastructure is moving out of the bank and into a software-as-a-service application,” he says. “The biggest jump we saw in 2019 is companies getting rid of their old servers and moving to Office 365. In doing so their email is now hosted in Microsoft’s cloud and it’s publicly accessible at that point. The way they need to secure that is a bit different than when it was on their own internal network.”

At the same time, he says, “we see a lot of community banks establishing a brick-and-mortar presence in new communities, and in doing so they are building them with state-of-the-art technology, which usually means they are connected to the internet. Everything from their HVAC systems to their water heaters can all be WiFi-enabled.

The problem is that a lot of times they are not wired with any of the default settings being changed, including the default passwords for administration. So sometimes the way into a bank’s internal network is through those devices.”

What can banks do?

All devices that bank employees use – whether it’s computers, laptops, tablets, whatever – “need to be secured, managed, monitored and properly configured and kept up to date with patches,” OCC’s Greenfield advises. “The malicious actor doesn’t need to break into the core system and go through all those walls of security if they’re able to plant malware on your internal network from one of those devices. You need to look at security from an end-to end-perspective.”

“It’s as much a people issue as it is a technology issue,” says Rogers, who advocates strict controls on what bank employees have – and don’t have – access to.

“The number one control is, ‘Know Thyself,’” he says.

“Know the normal flow of information traffic. Have a very

Kevin Greenfield

John Rogers

Nathaniel Gravel

clear role-access model where you can spot someone trying to access data that they shouldn’t or don’t normally access. Know what you have, where it is, and who has access to it and perform regular reviews and audits of that access. Make sure the access changes as an employee moves from role to role within the organization.

“The more you limit people’s ability to traverse a network and get to different places, the better off you are, because you’re going to be putting up roadblocks that they can’t compromise without effort. People should only have access to what they need and no more.”

Exfiltration Is Key Rogers recommends installing secure email systems with exfiltration controls that monitor data leakage.

“A deep robust email monitoring system is capable of monitoring data leaving the organization and either blocking it or encrypting the data or notifying the sender or someone within the organization that data has left,” he explains.

“Make sure your email system is properly configured and that you have an appropriate level of authentication controls in place to block entry” from an outsider, adds the OCC’s Greenfield.

Gravel notes that the old ways of cybersecurity aren’t keeping up with the times.

“Traditional signature-based antivirus software is not cutting it anymore,” he says. “Studies have shown that over 50 percent of malware is scripted to what the traditional antivirus is looking for, so in effect traditional antivirus is really only blocking less than 50 percent of malware today, so that offers inadequate protection.”

“The alternative,” he advises, “is to layer on what is called Next Generation antivirus to an endpoint detection and response solution, or EDR, that looks for behavioralbased symptoms on a system to prevent some of that malicious activity from going on, the most common of which is ransomware.”

Gravel also says he sees a lot of banks investing in perimeter security to try to keep cybercriminals out, but not spending as heavily in detective and response controls to be able to respond in a timely manner when they do have a compromise. “Because of that imbalance there is an exposure to mitigate the attack or minimize the loss,” he says.

Issue Two | March 2020 | BANKING NEW ENGLAND 11

I NSI GH T

Predictions for Small Business Lending in 2020

BY R OH I T A R OR A, S PEC I A L TO B A NK I NG NEW E NGL A ND

Fintech companies revolutionized the industry with technological innovations that quickened the small business loan application and approval process.

F

or the past decade, Fintech companies have developed and leveraged technology and data analytics to streamline the small business lending process.

Their innovations have expanded access to capital, shortened the decisionmaking process significantly, and reduced risk to the point such that, for many lenders, the default rate is miniscule.

Rohit Arora Banks that have gone digital themselves or partnered with a FinTech firm that enables them to accept online loan applications have sped up the approval timeline by weeks (and sometimes months) and dramatically reduced the stack of paperwork that previously comprised loan applications.

FinTech firms kept cash flowing to small businesses when traditional bank lenders turned off the spigot during the post-Great Recession “cash crunch.�

Banks ceded market share to alternative lenders and never fully regained it.

FinTech companies like mine, Biz2Credit, revolutionized the industry with technological innovations that quickened the small business loan application and approval process. Now banks that have not invested in their own capabilities are partnering with innovators who can enable the banks to accept loan applications via laptop or cell phones. While banks have at times viewed FinTech firms as the competition, but that is not necessarily the case.

12 BANKING NEW ENGLAND | Issue Two | March 2020

Look for the following trends in

2020:

CONVERGENCE Convergence between banks and Fintech will continue in 2020. Banks – particularly small and mid-sized banks -- are realizing that they have to play catch-up. Most big banks ($10 billion+ in assets) have already developed their own capabilities or partnered with a FinTech firm to get the job done. The smaller players might not have the deep pockets that the big banks have in order to invest in technological upgrades, yet they have to keep up in order to survive. Today’s business borrowers – particularly Millennials – are increasingly going digital and they need to be met with an all-digital experience.

LOW INTEREST RATES The Federal Reserve lowed interest rates throughout 2019, and I expect that they will remain low as we head into 2020. This is great news for business owners, whose cost of capital should continue to go down. Many business loans are variable rate loans, which means they can expect lower payments in 2020. Since the overall economy has been good, entrepreneurs seem willing to borrow and invest in the growth of their companies. Lower interest rates help make the decision easier.

SIGNS OF ECONOMIC SOFTENING I expect the economy to soften in 2020, which will put more pressure on VC-backed startups. As a result, profitability of your business will be increasingly important, and small business owners need to be cautious of their expense lines during this time. Even though, the overall economy has been strong, now is a good time for business owners to examine their operations, look for inefficiencies, and trim any fat that they have.

EXPECT COSTS TO RISE In 2020, many states (and possibly the federal government) will pass minimum wage increases that will raise the costs of doing business for many small companies. Business owners will certainly look to reduce staff hours as way to offset increased hourly wages.

Business owners need to turn to new software in 2020 for ‘cash flow management’ - this is the piece that they are currently missing. Small business owners should start

to use more automation technology and even AI-driven tools to help them run their businesses smarter. This tech is becoming more and more affordable - don’t get left behind!

In New York, New Jersey, and New England specifically, the tax burden could increase in 2020 as it has been for the last few years. The real estate market in these regions has been softening and so business owners will need to look to alternative sources of equity (instead of their personal homes) to fund their businesses. As a result, the demand for business lines of credit will increase as a result.

ELECTION YEAR UNCERTAINTY During the contentious political times in which we currently live, there is much uncertainty about the outcome of the Presidential election in 2020. The Democrats continue to push for impeachment and are focused on trying to make sure Donald Trump is a oneterm President. Meanwhile, none of the large Democratic field of candidates has emerged as the clear-cut favorite.

Since the outcome still is unknown, business owners may wait until the outcome of Election Day 2020 before making major decisions.

How should small business owners deal with the stress of increased uncertainty?

One good strategy is to secure the funding you need for your business plan early in the year, well ahead of the election. If things in November turn out surprising, you could have more difficulty getting funding. Hedge against that risk by locking up some working capital ahead of time. Then if the election turns out to be a big nothing (i.e. no negative impact) then you haven’t lost any opportunities.

Bank lenders and business borrowers alike should plan to conduct more transactions online that ever before. The need to embrace digital solutions is increasing all the time, and the strongest firms will strike know while times are still good.

Rohit Arora is CEO and co-founder of Biz2Credit, a pioneer in the FinTech space. Check out his website at www.biz2credit.com for more information.

Issue Two | March 2020 | BANKING NEW ENGLAND 13

COVER STO RY

Maine’s First Credit Union In 23 Years Serves Agricultural Community

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BY DAN CA L A BR E SE, S PEC I A L TO B A NK I NG NEW E NGL A ND

ew credit unions in New England have not been a common occurrence in recent years, but the region got a new addition with the chartering last summer of Maine Harvest Federal Credit Union, whose mission is to serve the state’s agricultural community.

One of only two new credit unions to be federally chartered in the entire nation in 2019 (the other is OtoeMissouria Credit Union in Oklahoma), Maine Harvest is the culmination of six years’ worth of planning and fundraising by the organizers of the Maine Harvest Credit Project.

“There is an awful lot happening in the local food world, such that it is a reasonable sector to lend to,” said Scott Budde, president and CEO of Maine Harvest Federal Credit Union. “I think if you look at the agricultural industry’s model of large farms doing one or two things, that model is under a lot of pressure all over the country, and people are discovering the value of having a small, more sustainable localized system of producing food.”

But smaller farms have historically had obstacles to

14 BANKING NEW ENGLAND | Issue Two | March 2020

accessing credit markets, which is why Budde and cofounder Sam May – formerly a technology analyst for US Bancorp Piper Jaffray and also a one-time dairy farmer – set about the process of raising capital and gaining a charter for MHFCU. Members of Maine Farmland Trust and the Maine Organic Farmers and Gardeners Association will be eligible to join. MHFCU will be housed, at least initially, within the headquarters of Maine Farmland Trust. The credit union opened its doors in December following an October 8 ribbon cutting.

INITIAL CAPITAL RAISE The initial capital raise for MHFCU was $2.4 million – a much lower amount than most banks have to raise, which

Budde said is one of the reasons he and May choose to become a credit union.

“We needed to have at least 10 percent equity to assets, and we knew we were going to lose several hundred thousand dollars over the first few years,” Budde said. “So, we kind of put that together and it ended up at $2.4 million.”

While there is no set amount credit unions have to raise to receive a federal charter, Budde said MHFCU was able to convince the National Credit Union Administration it had raised the necessary capital to be approved for a charter.

“We went back and forth on various issues, but in the end, they bought our logic on why $2.4 million was enough,” Budde said.

“We don’t have to pay dividends on that equity. The equity is a gift.

We also set ourselves up with a cost structure that we think will be more viable than a full-service bank or credit union.”

CULTIVATING RELATIONSHIPS The fundraising effort took about three years, Budde said, during which both he and May were doing other consulting work to pay their bills.

“There was a lot of learning around that,” Budde said. “There’s a lot of money out there that’s available that is given away for all sorts of projects. There’s a lot that’s focused on sustainable agriculture, and there’s a lot that’s focused on Maine.”

They put a lot of effort into cultivating relationships with high net-worth donors.

“As we got going, we got lots of advice about how to approach prospective donors and work with foundations, and we got better at it,” Budde said. “But we’re a pretty focused project, and in the end the vast majority of the funds we got donated to start were from people and institutions with a very strong connection to Maine.”

Once MHFCU is up and running, it expects its biggest loan will likely be a small farm mortgage.

Budde noted that, prior to the 2008 recession, credit unions were popping up much more frequently than they have since.

Commissioner of Agriculture, Amanda Beal, Farmer Jessie Dowling, Fuzzy Udder Creamery, Maine Governor Janet Mills, Sen. Erin Herbig – Waldo County, US Sen. Angus King, US Rep. Chellie Pingree, co-founder Scott Budde, US Sen. Jared Golden.

Sam May, co-founder of the credit union

FIRST IN 5 YEARS IN NE According to the National Credit Union Association, no new credit unions have been chartered in New England in the past five years. Nationally, there was only one new credit union federally chartered in 2018 following four in 2017 – and none in 2016.

That does not include credit unions with state charters. But new credit unions have been a rarity in Maine as well, with none having been chartered since Downeast Credit Union in 1996 according to the Maine Credit Union League.

For Maine farmers, the establishment of MHFCU holds out hope that their need for capital will be better aligned with a financial institution that understands who they are and what they do.

“If you look at what’s happened to a number of banks and credit unions, the community that used to know how small farms and food producers work has been decimated by consolidations,” Budde said. “Many of those community banks who understood how those farms work and would lend to them don’t do that type of lending anymore.”

Issue Two | March 2020 | BANKING NEW ENGLAND 15

Bold Venue. Expanded Attendee

The Great New England Credit Union Show has grown rapidly since its debut a decade ago and has become a must-attend event for anyone who works in the credit union industry. Join us May 29, 2020 At the 2020 GNECUS, you’ll: • LEARN more about trends in cyber security, member engagement, the future of payments and much more in education sessions led by industry experts. Visit greatcushow.com for more information about each session.

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So when you join us for the Great New England Credit Show – or, as we fondly call it, GNECUS – you’ll not only come away with information you can’t find anywhere else, but you’ll have a great time doing it.

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16 BANKING NEW ENGLAND | Issue Two | March 2020

Efforts. A More Compact Conference.

Conference Highlights Include: • Featured Speaker, Seven-time Olympic Medalist, Amanda Beard • Complimentary Breakfast and Lunch and Coffee Breaks • You Choose the Breakout Sessions You Want to Attend • Celebrate the Best of the CU Industry at the Credit Union Heroes Gala *Separately ticketed event • Grand Prize Raffle – and Dozens of Other Giveaways

Seven-time Olympic Medalist

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Issue Two | March 2020 | BANKING NEW ENGLAND 17

DIVE R SI TY

Members Credit Union Will Use Grant For A Bi-Cultural Loan Officer B Y N I CO L E Z AP P O N E, SP E CI AL TO B ANK I NG NEW ENGL AND

Members Credit Union is located in the Cos Cob section of Greenwich. It’s an affluent New York City suburb with a median household income of $94,300. The town has a poverty rate of 5.1%, as of 2017, well below Connecticut’s 9.6% rate.

T

he town also has a sizable Hispanic population at 15.2 percent of its approximately 61,000 citizens.

That’s an underserved population that Members CU is trying to reach.

That process became easier in the fall. Members CU was the recipient of a $120,000 Technical Assistant Grant from the U.S. Department of the Treasury’s Community Development Financial Institutions (CDFI) Fund. With this grant, Members CU is looking to hire a bi-cultural loan officer to increase lending to its underserved minority community.

The CDFI invests and builds the capacity to serve lowincome people and underserved communities lacking adequate access to affordable financial products and services. Award recipients often use the funds to analyze which products and services are appropriate for their target markets, develop lending policies and procedures and build staff lending capacity. The maximum award is $125,000.

18 BANKING NEW ENGLAND | Issue Two | March 2020

COMMUNITY DEVELOPMENT STRATEGY President and CEO Kathy L. Chartier said the grant award is part of a broader community-development strategy aimed at the financial inclusion of lower-income, minority, and immigrant communities in Fairfield County.

It is known that the State of Connecticut has the thirdlargest income gap in the country between the top 1 percent and the other 99 percent, according to a study in 2015, from the Economic Analysis and Research Network, which is a national coalition of state and regional multiissue research, policy, and advocacy organizations.

When it first opened in 1935, it was originally named Greenwich CT Teacher’s Federal Credit Union. During its early years, the credit union was based of volunteers for many years. It wasn’t until 1998 that Chartier was hired as the first full-time employee.

Four years later, in 2002, the credit union’s name was officially changed to Members Credit Union and the direction of the establishment changed due to the hit

Kathy Chartier

of the recession. “Things got really tough and it took a long time to get back on track,” said Chartier. “But we were able to get things going again and we’re really glad to be able to help our community.” The credit union currently has $29.6 million in assets and 3,080 members total.

DEFINING MOMENT The story that truly changed the credit union was about 13 years ago, when Members CU hired a high school student as an intern. “I remember her very well and she was the hardest worker we ever hired,” said Chartier.

It was during this time that the student turned out to be undocumented and the credit union was unable to hire her. It took about

four years to do so and this student ended up becoming a teller and grew to become a loan officer.

“She also became the Hispanic outreach person and has been doing well,” said Chartier.

Jorge Perez, commissioner of the Connecticut Department of Banking, said, “The department is excited that a Connecticut Chartered Community Credit Union has received this grant to help ensure all those in its field of membership have access to financial services. This grant will help Members CU build on their previous work in reaching out to diverse

members of their community.

These efforts include a robust outreach program, a partnership with Trinidad World Organization and Members CU was the first credit union in Connecticut to earn the “Juntos Avanzamos” (Together We Advance) designation from the National Federation of Community Development Credit Unions. Juntos Avanzamos credit unions are part of the Federation’s mission to help those with modest mean avoid predatory lenders and help achieve financial independence.”

communities as this part of the state includes a diverse range of people and communities.

Specifically, Members CU has focused efforts in Stamford, of which 40 percent falls within low and moderate-income census tracts. The Department supports Members CU in their efforts to engage all residents, particularly those in underserved communities.

Perez added, “In 2018, CEO Kathy Chartier was one of five individuals working in the credit union industry nominated for the credit union ‘Hero of the Year’ award conducted by the [National Credit Union Administration]. The nomination was a direct result of Kathy’s commitment to her community and members, as well as the credit union’s effort to engage actively

UNIQUE SKILL SETS With the current search to hire a bi-cultural loan officer, it will take a lot to make a difference. Not only will this person know the community well, they will need to have financial experience as well. “We may even just hire from within, and then just hire another loan officer,” said Chartier.

She mentioned that many people come to the country not knowing English and do not trust the financial bans or credit unions. They often hide their money under mattresses and don’t know how to use credit cards.

“The person we’re looking to hire for this position is somebody who is Hispanic and understands the community, understands the needs of the community, someone who is positive, someone who thinks outside the box, and really understands the ways of credit unions,” said Chartier.

Inside the office, the multi-cultural atmosphere is certainly there for everyone who walks through the door. Currently on staff, there are a wide range of individuals from all over the Hispanic community. There are people from Peru, Guatemala, Columbia, and a few from the United States.

“We are here to serve our community in the best way possible,” said Chartier. “We are here to help people help themselves rather than help make stockholders rich.”

Issue Two | March 2020 | BANKING NEW ENGLAND 19

ANALYSI S

Will Credit Union-Bank Mergers Come To New England?

It’s A Question Of Size And Mission

T

BY GEOR GE YACI K, S PEC I A L TO B A NK I NG NEW E NGL A ND he National Credit Union Association may have made it easier for credit unions to buy banks, but don’t expect the national minitrend

to reshape New England’s financial services market anytime soon.

In January the NCUA’s board proposed a rule that it says “provides greater clarity” on the regulations governing credit union acquisitions of banks. Among other things, the proposed rule “simplifies the basic requirements that apply to combination transactions,” the NCUA said.

“As we continue to see the evolution in the marketplace, one of my priorities as chairman is to be forward-thinking,” NCUA Chairman Rodney E. Hood said. “Credit unions as well as banks have asked for clarity on this process. I am glad the board is considering this rule to add even more transparency to the process.”

All such transactions require the NCUA’s approval, and state-chartered credit unions must also obtain approval from their state regulator.

20 BANKING NEW ENGLAND | Issue Two | March 2020

LEFT OUT OF THE TREND “The number of credit union acquisitions of bank assets and certain liabilities is small relative to any standard,” Hood noted. According to the Independent Community Bankers of America, whose members are the prime takeover targets of credit unions, there were 21 acquisitions of banks by credit unions last year, up from 13 in 2018 but “more than four times as many as occurred just five years ago.”

But New England has largely been left out of the trend.

Right now, that doesn’t appear it will be changing soon, regardless of the NCUA’s best efforts.

“To the extent a credit union is able financially and it makes sense to buy a bank, there’s no reason why that shouldn’t occur, and it will happen in due course,” said Bruce Adams, president and CEO of the Credit Union League of Connecticut. “We’ll see that trend come to New England. But it sounds unlikely.”

One reason, he said, will be finding compatible

partners. Not only does banks’ market share dwarf that of credit unions in the region, but there is a big disparity in size among individual institutions. So, finding a suitable marriage on that score will be challenging.

“To put it in perspective, the credit union industry’s share in Connecticut in terms of assets is about 6 percent,” he said. “A couple of credit unions have more than $2 billion in assets. They could hypothetically buy a $1 billion bank.” After that, though, the number of likely merger candidates drops drastically.

being a not-for-profit financial institution with a volunteer

MARKET SHARE

COMMON BOND

According to the Credit Union National Association, credit unions in Massachusetts and Connecticut – by far the two most populated New England states – had a market share of just 7.6 percent and 6.6 percent, respectively, in terms of deposits in 2019. The other four states had between 15.6 percent (Rhode Island) and 22.5 percent (Vermont), but each of those states have less than 1.4 million people living in them and are among the least populated states in the country.

“You’re not likely to see mergers of greatly unequal size in both Connecticut and New England at large,” Adams said. “That’s one reason why you would see less of that activity up here. It’s hard to find comparable size institutions in the New England area or ideally suited matches between banks and credit unions.”

Jon Skarin, executive vice president for legislative and regulatory policy at the Massachusetts Bankers Association, agrees. “There are not a lot of very large credit unions in New England compared to other states,” he notes, adding that “nationally most of the deals we’ve seen have involved large credit unions, with over $20 billion in assets.”

Another reason weighing against a wave of credit unionbank combinations in New England is the relatively large number of mutual banks, “which in some ways operate closer to a credit union than other banks, although they are tax-paying entities,” Skarin notes. “There are more mutual banks in Massachusetts than anywhere else and quite a few in other New England states.”

OTHER OBSTACLES But relative size and market shares are only one obstacle to credit unions wanting to buy banks.

“There are many things that go into the decision whether to buy another financial institution,” Adams said, “such as compatible technology, comparable underwriting standards and consistent operational philosophies.” Then there’s the culture and mission issue, which may be the biggest consideration of all.

“Credit unions, even the really big sophisticated ones, are all grounded by the cooperative principal and what we call the ‘Credit Union Difference.’ That pretty much comes first in everything we do,” Adams said. “So looking at the prospect of buying a bank through the lens of

board and a specific culture in the way of doing things is a big deal. It’s not as easy as it appears on the surface, just one financial institution buying another one. The human and cultural factors are very important and delicate in considering a transaction of this nature.”

“Remember, customers of a bank are just that, and credit unions are owned by their members,” he said. “So, a credit union has to be careful about purchasing a bank with characteristics that match its philosophy.”

Skarin agrees. “Credit unions historically have a particular mission, a common bond of membership,” he said. “That has widened considerably over the past 20 years or so, but they still theoretically have a mission that they’re supposed to serve. Is buying a bank really the best way to serve that mission and their members?”

Indeed, the NCUA proposal states that the agency has the power to consider a proposed transaction’s effect on the credit union’s members and whether the purchase is in keeping with its mission. “Accordingly, the NCUA reserves the right to object to a transaction, or portions of a transaction, even absent safety and soundness concerns,” the agency said.

Not surprisingly, bank attitudes toward such mergers are fairly frosty, even as that among credit unions may only be lukewarm, at best.

“We definitely have some concerns with this,” Skarin said. “From a state budgetary perspective, you are losing a tax-paying entity to gain a tax-exempt entity. The other issue we have raised with policymakers is that credit unions, because of their tax-exempt status, could have an advantage in the sense that they would be able to offer more for an institution or merger partner going into any potential deal.”

PROBLEM WITH EXPEDITION Skarin also takes issue with the NCUA basically trying to expedite credit union acquisitions of banks. “Frankly, I don’t think this is necessarily a good place for a regulatory agency to be,” he said. “You are expanding their power and their mission without really having that public debate. Ultimately, from our perspective, Congress should probably weigh in on this at some point.”

That just may happen. On Jan. 29 Rebeca Romero Rainey,

president

and

CEO

of

the

Independent

Community Bankers of America, called on the Senate Banking Committee – which regulates the NCUA – to hold hearings on what it called the “surge in tax-exempt credit union purchases of tax-paying community banks.”

Rainey accused credit unions of “weaponizing” their “tax subsidy and lax regulatory environment” to buy community

banks,

which

“warrants

Congressional

scrutiny.”

Issue Two | March 2020 | BANKING NEW ENGLAND 21

TECHNO LOGY

Digital Technology Trends in Banking: 2020-2025

BY N I CK MI L L E R, S PEC I A L TO B A NK I NG NEW E NGL A ND

DIGITAL TECHNOLOGY—hardware and software—are driving three major banking industry trends: digital transformation, brand specialization and partnerships.

Banking executives need to pay close attention to all three if they expect to capitalize on the opportunities these trends will create.

TREND 1: DIGITAL TRANSFORMATION Digital transformation is huge. It includes a long string of related ripple effects including digital marketing, payments and analytics that will change business models and banks’ relationships with their clients. “A lot of companies are looking for ways (to provide financial services and) we’re behind (in developing and launching digital offerings),” said Linda Duncombe, a City National Bank executive vice-president. “We have to think bigger and we have to move faster on bigger thinking.”

For example: Google Duplex has demonstrated the capabilities of AI-driven software to mimic human voice and social interactions while making restaurant reservations. In May 2019, Google announced plans to expand Duplex for automated completion of forms on the Internet. Such technology could automate customer notification should it detect unusual changes in bank accounts or determine a need for financial services updates.

Capgemini, a global technology consultant, reports nearly 25 percent of retail banking customers prefer a voice assistant over personal banking visits—a figure likely to increase in three years. Bank of America’s digital assistant, “Erica,” used by more than seven million customers, handled 50 million interactions in its first year. Additional research finds more mid-sized banks and credit unions are either planning to invest in this chatbot technology or discussing the possibility.

TREND 2: BRAND SPECIALIZATION Brand specialization signifies development of one or more types of expertise or signature specialties to differentiate, attract or retain customers who generate additional

revenue.

The

most

important

question

with this trend is strategic. Given the impact of digital transformation, demographic changes and other factors, what do banks want to be in five years. How will they

22 BANKING NEW ENGLAND | Issue Two | March 2020

stand out and what will constitute their customer base?

Predictable responses focusing on people, service and community dedication no longer cut it, according to Chris Meyers, president and CEO of CVB Financial Corporation.

“I think the retail consumer game is over… unless you’re in a small rural area,” he said.

It’s over for two reasons. First, it’s nearly impossible to compete with national and super-regional bank brands especially in large urban areas. Citizens Financial attracted $3 billion in new deposits by the end of 2018 with the launch earlier that year of its online Citizens Access while figures from Chase show annual deposit growth of 9.4 percent since 2014, more than twice the 4.6 percent average annual rate for the rest of the industry.

These impacts go beyond major markets thanks to multi-million advertising budgets. “Our customers see their TV ads and they all expect that we should be able to open accounts in five minutes,” said a community bank president in Missouri as he explained why his biggest competitor is CapitalOne instead of another local bank.

Second, community bank brands need to stand out if they are to compete successfully with other local banks.

One answer here is to develop one or more niches or specialties. For example, in the Northeast, Rockland Trust, listed by Forbes among the “World’s Best Banks for 2019,” developed a strong condo homeowner association lending program. Sterling National Bank in New York developed specialties in professional practice financing, law firm banking, and non-profit services. Cambridge Savings Bank has a specialized residential home builder program that complements its strengths in commercial real estate and construction lending.

Stearns Bank, a St. Cloud, Minnesota community bank has taken another approach by launching successful national programs, for example, small ticket equipment leasing. According to Kelly Skalicky, CEO, the bank provides small ticket loans, $20,000 up to $48,000, totaling 12,000 to 13,000 per year, electronically all over the country.

TREND 3: PARTNERSHIPS. To remain competitive, traditional banks need to think and act more like the technology companies that have defined customer experience outside of banking. They face three challenges: 1. Cost – the expense of designing and building new products 2. Talent – attracting the design and development talent needed for app building and other digital capabilities 3. Speed – the rapidity with which bank teams internally design and develop products and the speed with which core systems providers implement those products.

Partnerships with fintechs can address all three challenges. Fintechs are tightly focused and significantly faster than banks in innovating new products. Through partnership models, banks can focus on attracting and nurturing a client base and providing products sourced from an ecosystem of partners. Products can be inserted through a platform or withdrawn as needed, providing customers with quicker access to a broader range of products than what the bank could produce on its own.

Globally, more than 5,000 fintech organizations offer a variety of products; e.g. lending, expense management, account opening and dashboards. The selections will depend on the bank’s focus such as its target customers and opportunities to overcome customers’ financial challenges.

Partnership success depends on developing bankers’ skills and having the expertise to source and negotiate partnerships with fintech providers in the following areas: • Aligning strategy. Agree on focus, e.g. customer experience, new capabilities or new customer segments, and leveraging each party’s strengths.

• Finding common ground. Agree and align around best market opportunities, appropriate value propositions, expertise and commitment to regulatory compliance. Just as important--the overall fit of the partnership, especially the bank’s ability to innovate quickly after the partnership begins.

• Monetizing partnership investments. Develop a realistic profit strategy in which clients are attracted to a new offering in sufficient scale and in short-enough time to meet both parties’ expectations.

• Scaling and adjusting the nature of the partnership.

Develop a roadmap that will guide evolution of the partnership as competition, industry conditions, internal bank environments and priorities change.

LOOKING AHEAD Digital transformation will fundamentally change bank economics and revenue models in the next decade. To sustain long-term success, banks will need to develop one or more dominant specialties enabling them to compete within and beyond their traditional footprints.

Partnerships with fintechs will enable banks to provide clients with services and products banks could not otherwise provide in the accelerated digital atmosphere that is today’s banking world.

Nick Miller

Nick Miller trains bankers to attract and expand relationships with businesses for more profitable partnerships. He is president of Clarity Advantage based in Concord, Mass. For additional information and articles, please visit www. clarityadvantage.com

Issue Two | March 2020 | BANKING NEW ENGLAND 23

ON THE MOVE

TRY TO KEEP UP LOCAL PROFESSIONALS MAKING THEIR MARK IN NEW ENGLAND BANKING Cambridge Savings Appoints Catlender As First Chief Customer Officer

Cambridge Savings Bank, one of the oldest and largest community banks in Massachusetts, has hired Katie Catlender, executive vice president, as its first chief customer officer to lead a centralized customer-centric approach across Katie Catlender the organization, reporting directly to Wayne Patenaude, president and CEO. In her new role with CSB, Catlender will drive a bank-wide customer strategy and lead several key teams, that together, will focus on digital capabilities, maximize the bank’s marketing reach, and create a data strategy to fuel insights and drive innovation.

Catlender has over 25 years of experience driving strategy to execution, diversifying business lines, and transforming customer experience, most recently as the executive lead of customer experience, strategy and operations at Blue Cross Blue Shield (BCBS) of Massachusetts. Prior to joining BCBS Massachusetts, Catlender held executive leadership roles as chief commercial officer, chief customer officer and vice president of operations, overseeing sales, product, customer service, operations and customer experience at Allways Health Partners (formerly Neighborhood Health Plan), and led member service, account service, sales operations and a variety of other market-facing leadership positions at Harvard Pilgrim Health Care during its time as the top health plan in the country.

BayCoast Bank Promotes Gagliardi to First VP

BayCoast Bank has announced the promotions of Julie Ramos Gagliardi to First Vice President and Melissa Little, Scott P. Lopes and Elizabeth Voss to Vice President. The bank is based in Somerset, Massachusetts.

As first vice president of corporate giving and community relations, Julie Gagliardi Gagliardi oversees the bank’s corporate giving program and numerous financial literacy and education initiatives while also

24 BANKING NEW ENGLAND | Issue Two | March 2020

representing BayCoast Bank in a variety of civic engagements, community partnerships and public relations activities.

Prior to her promotion, Gagliardi, a graduate of the University of Massachusetts – Dartmouth and Boston College and a resident of Somerset, Massachusetts, held the title of vice president. She is an active volunteer in Somerset, and currently serves as vice-chair of the Somerset Berkley Regional School Committee.

Charter Oak Names New Assistant VP For Business Lending

Charter Oak Federal Credit Union in Watertown, Connecticut, has named Kevin Sullivan Jr. as its new assistant vice presidentbusiness lender to accommodate the credit union’s continuing growth in its business lending operations.

Sullivan has nearly two decades of financial services experience in Connecticut, including in the state’s health care industry and the small-business community. His background also includes expertise in business development, financial analysis, and training and customer service.

Charter Oak’s Business Lending team has grown to include four experienced business lenders in addition to a commercial credit manager and two credit analysts. Charter Oak offers a full complement of business-enhancing products, from business checking to business lending including fixed-term loans, commercial real estate, lines of credit, and SBA loans. In addition, Charter Oak offers a full suite of business eBanking services as well as employer-sponsored Health Savings Accounts.

Ahmed Joins Cornerstone Bank

Cornerstone Bank announced that Al Ahmed has been appointed its new SVP, Retail Banking. The bank is located in Worcester, Massachusetts.

Ahmed joins Cornerstone Bank with over 20 years of experience in senior positions at various Al Ahmed Massachusetts institutions, most recently at Bank of America in Boston overseeing the growth of a key retail market. He studied business administration at the University of Phoenix. He and his

wife, Shima, and their three children live in Wayland and take every opportunity to travel the world and explore new places.

“Al comes to us with a rich background in the banking field and we’re pleased he has decided to bring his skills to Cornerstone,” said Cornerstone Bank president and treasurer Todd M. Tallman. “I’m confident he will make valuable contributions in helping us fulfill our commitment to be the preferred provider of financial services in our communities, based on customer and employee relationships built on trust.”

Three Promoted TO SVP At IC Federal Credit Union

IC Federal Credit Union, based in Fitchburg, Mass., recently promoted three members of its management team to senior vice president.

Tammi DiSalvo was named senior vice president of innovation and development. She has over 34 years’ experience in the banking industry with 17 of those years at IC. She has held previous Tammi DiSalvo positions of underwriter, indirect lending manager, senior manager consumer loans, AVP consumer lending, VP consumer lending & call center, and VP innovation and development. In addition to new product/service development and deployment, DiSalvo oversees the service center and digital banking services.

Carolyn Perla has been promoted to senior vice president for retail banking and marketing. Perla has been with IC for almost 12 years, and held previous positions including RDS trainer/retail ops, senior manager retail ops, and AVP retail. In her current position, she oversees retail, marketing, facilities, and retirement & Carolyn Perla investment program.

Perla received her MBA from Fitchburg State University in 2018, and was the recipient of the FSU Graduate Student Leadership Award.

Holly Sanchez has been appointed senior vice president Human Resources SHRMSCP. Sanchez has 12+ years’ experience in the human resources field, and with almost seven years at IC, held previous positions, including HR specialist, HR manager, AVP human resources, and VP human resources. She has earned her Holly Sanchez SHRM-SCP, SHRM-CP, and a BS in Business Administration and is currently attending Fitchburg State University to complete her MBA in Human Resources.

Geitz Elected Chair of Federal Home Loan Bank Of Boston David W. Glidden, president and CEO of Liberty Bank of Middletown, Connecticut, announced that Martin J. Geitz was elected chairman of the Board of Directors of Federal Home Loan Bank of Boston.

A resident of Glastonbury, Connecticut, Geitz is currently executive regional director of Liberty Bank. He previously Martin J. Geitz served as president and CEO of The Simsbury Bank & Trust Company of Simsbury before it was acquired by Liberty Bank in 2019. A member of FHLBank Boston’s Board of Directors since 2014, Geitz has led the board’s risk committee and served on the governance/government relations and human resources & compensation committees.

Federal Home Loan Bank of Boston is a cooperatively-owned wholesale bank for housing finance in the six New England states. Its mission is to provide highly reliable wholesale funding and liquidity to its member financial institutions.

Hagan Joins Savings Bank Of Danbury Savings Bank of Danbury, a mutual savings bank headquartered in Danbury with 15 locations throughout Connecticut, announced that Robert A. Hagan of New Canaan has joined the bank as vice president of commercial lending.

Hagan brings more than 15 years of experience in banking to his new position. Hagan earned a Bachelor’s degree in Communications and a MBA from the Marketing Business School at Fordham University.

In his new role Hagan will be responsible for building commercial banking visibility within the lower Fairfield County marketplace and into Westchester County. His role will complement the bank’s affiliate Stamford Mortgage and build upon the bank’s overall presence within the territory. Hagan resides Robert A. Hagan in New Canaan, Connecticut, with his wife and three children. He has been a Stamford North Little League Volunteer Coach and a New Canaan Youth Football Volunteer Coach.

Gordon Joins Franklin Board Franklin Savings Bank announced the appointment of Dorcas Gordon, attorney of Newfound Law LLC, to its board of directors. Her nomination was recently confirmed at the bank’s annual meeting of corporators. Charles Chandler was reelected to a one-year term as director while Scott McGuffin, Mary Miller and Stuart Trachy were reelected to three-year terms.

Prior to founding Newfound Law LLC, Gordon began her law career with Wescott, Millham & Dyer, LLP in Laconia, New Hampshire. She is a member of the New Hampshire Bar Association.

Issue Two | March 2020 | BANKING NEW ENGLAND 25

DI D YO U SE E?

Banking New England publishes a weekly digital newsletter that rounds up the latest news and information about, you guessed it, banking in New England. Here are a few stories from recent editions.

If you would like to subscribe to, share your news, or advertise in the Banking New England newsletter, contact us at info@ambizmedia.com.

Boston Fed Names New Members To Advisory Council

The Federal Reserve Bank of Boston announced the appointment of five new members to the Federal Reserve’s First District Community Depository Institutions Advisory Council (CDIAC).

CDIAC members offer the Fed views on the economy, lending conditions, and other issues facing thrift institutions, credit unions, and community banks with different charters and regulators (including state members, state nonmembers, and national banks). The CDIACs were established in each of the 12 Federal Reserve districts by the Federal Reserve Board of Governors in 2010.

The new members include: • Clayton Adams, president and CEO, Mascoma Bank, Lebanon, NH, Burlington, Vt. • Harold M. Horvat, president, CEO, and board chairman, Centreville Bank, West Warwick, R.I. • Frederick Reinhardt, president and CEO, Greenfield Credit Union, Warwick, R.I. • Mathew S. Sosik, president and CEO, Easthampton Savings Bank, Easthampton, Mass.

• Kathryn G. Underwood, president and CEO, Ledyard National Bank, Hanover, N.H.

Program Targets Immigrants As Tellers Immigrant residents in Maine are receiving instruction in possible careers in the financial industry. The program comes courtesy of six banks and credit unions.

The New Maine Teller Training Program began earlier this month with 15 students from nine countries, and runs until April, according to an article in Maine Biz. The 165-hour, six-course curriculum was developed in part by the Maine financial institutions, and their personnel are teaming with Portland Adult Ed instructors to lead classwork. The participating institutions are Bank of America, Bangor Savings Bank, cPort Credit Union, Gorham Savings Bank, Infinity Federal Credit Union and Norway Savings Bank.

The inaugural class members, selected from 30 applicants, originate from countries including China, Iraq and Zambia. All 15 students have financial or customer service experience, and many have undergraduate or even graduate degrees.

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State Street Might Settle With DOJ Paperwork filed with the U.S. Securities and Exchange Commission indicates Boston-based State Street Bank might be ready to settle a civil and criminal investigation with the U.S. Department of Justice. State Street stands accused of intentionally overbilling customers in the amount of hundreds of millions of dollars.

According to the Boston Business Journal, State Street made the disclosure in its annual report to the SEC. The investigation relates to previously disclosed overcharges of clients for its custodial banking services that took place over nearly two decades.

State Street first disclosed the overcharges in 2015 and over the years has faced investigations from numerous government agencies related to the issue. It expects to ultimately pay at least $380 million to customers for the overcharges, though it acknowledged in the filing that it could discover additional billing errors.

In June, the SEC fined State Street $40 million for the overcharges following its own investigation, while the office of Massachusetts Attorney General Maura Healey imposed a $5.5 million penalty.

How Buying Radius Benefits LendingClub At first blush, it doesn’t seem like spending $185 million could generate savings quickly. That appears to be the case, though, with the fintech LendingClub, which announced its intention to purchase Radius Bank in Boston last week.

Pymnts.com reports the deal would give LendingClub a cheaper funding source for its loan business — last year, the company originated more than $12.3 billion worth of loans. LendingClub has estimated that it will save about $25 million a year on fees paid to WebBank, which acts as a “pass-through” entity that enables LendingClub to make those loans.

The low-hanging fruit is for LendingClub to hold 10 percent of originations on its balance sheet, which, in turn, should bring in $40 million of economic profit for every $1 billion of loans held on the balance sheet, the company said.

The key here is that buying Radius Bank brings together two disparate companies with a presence in different markets. Radius Bank is not in the lending market but has $1.4 billion in assets in its own operational book. LendingClub does not (yet) bring its consumers checking and savings account options, but it has near-term plans to offer bank accounts that will help consumers save money.

A GLANCE BACK

2020 BankWorld As BankWorld celebrated its 25th Anniversary in January, it also set a new registration record. AmBiz Media and Connecticut Bankers Association, co-producers of the show, announced that nearly 1,600 attended this year’s event – a record turnout! This expansive one-day conference prodvided essential educational sessions, interactive panels, cuttingedge exhibits, countless networking opportunities, and so much more – all with an eye to giving attendees an edge against the competition. Mark your calendars to attend in January 2021. Visit www.bankconferences.com/bankworld.

BANKING NEW ENGLAND 27

BOT TO M L I N E

Study Shows Banks Can Be Hurt by Haphazard Lending Practices

A

BY F R A N CE SCA ORT EGR EN, S PEC I A L TO B A NK I NG NEW E NGL A ND

mericans are carrying a lot of debt, and the majority of that debt is in their mortgages.

According to the Federal Reserve Bank, U.S. mortgage debt has reached $15 trillion.

But a new study from my company, Clever Real Estate, suggests that the massive mortgage lending market is still burdened by inefficient practices and poor communication. Setting aside the economic effects, this kind of sloppiness can lead to dissatisfied borrowers and drag down the reputations of banks and lenders.

Ironing out these wrinkles is a win-win: banks make more money, and customers are happier. Let’s look at some of the study’s biggest findings and discuss how they can be used to improve the customer experience.

State Interest Rates Seem Arbitrary A lot of consumers think the Federal Reserve sets interest rates, but we know that’s not exactly the case. While the Fed sets the Fed Fund rate, it’s up to lenders to determine their own mortgage rates. But a survey of national rates indicates that lenders might be going too far, giving the impression of arbitrariness or even exploitation.

28 BANKING NEW ENGLAND | Issue Two | March 2020

The average national rate for mortgages in 2018 was 5.04 percent. Some states had rates well below that, as in Hawaii and its 4.24 percent interest rate. But other states had rates that were nearly 150 percent of the average rate, for reasons that remained mysterious even to experts.

Ohio, for example, had one of the highest rates in the nation, at 7.07 percent. But it also had a much higher than average foreclosure rate, according to ATTOM Data Solutions’ 2018 Year-End Foreclosure Market Report, an expense which could account for why lenders felt the need to push up their rates.

On the other hand, look at West Virginia. The Mountain State had the second highest mortgage interest rate in the nation, at 7.39 percent. But the state foreclosure rate was extremely low. So, what’s driving up the rate? The study suggests that, with only 40 loan officers per 100,000 citizens, it’s the lack of competition. With no competitive pressure to drive down rates, the few lenders in West Virginia have felt free to jack up their rates. While this is a simple demonstration of market forces, it’s clear how consumers, especially in states like West Virginia, might feel ill-served.

It’s been well documented, in studies by the Federal Reserve and others, that there’s a correlation between an increase in interest rates and an increase in foreclosures.

When the former goes up, so does the latter. Foreclosures are bad for everyone; lenders lose up to $50,000 on a foreclosure, according to FDIC data, when you take into account the home’s reduced market value and the lost profits from having the loan go to term. Foreclosed properties also hurt surrounding property values, which impacts governments come tax time.

Low, reasonable interest rates not only act as an enticement for potential borrowers, they also create a stable community, which is in everyone’s best interests.

Advertising low rates, especially in markets where there might not be natural downward pressure on them, is a great way to attract business as well as trust.

“It’s in everyone’s best interests to lower our collective risk profile.”

Fees Are a Problem, Too It’s not just interest rates that seem arbitrary.

Mortgage fees, when compared between states, also seem questionable. Fees cover standard services like underwriting, document preparation, and the application process, so you’d think there’d be some consistency across markets. Unfortunately, this isn’t the case.

Nationally, the average borrower paid about $2,000 in mortgage fees. But these fees varied wildly between states. In Pennsylvania and South Carolina, consumers got off easy, with fees under $600. But Hawaiian borrowers were hammered with fees that were 350 percent of the national average. The fact that Hawaii’s rock-bottom interest rate is coincidentally accompanied by some of the nation’s highest fees doesn’t just defy economic logic, it also looks bad to customers.

Lowering fees, especially in markets where they seem arbitrarily high, would grant a huge competitive advantage. It also happens to be a good business practice.

CFPB data showed that borrowers were much more likely to file complaints in states with high mortgage fees; for example, in D.C. and Virginia, which both have much higher-than-average fees, lenders were bombarded with borrower complaints 250 percent more than average.

The data is unambiguous: high fees lead to unsatisfied customers. If you want to attract, and keep, high quality borrowers, limit fees to average levels, or below.

A Return to Common Sense After a decade of sober restraint, it looks like lenders have rediscovered an appetite for risk. And it comes right from the top. The Washington Post reported that the federal government has been encouraging lenders to issue risky loans that borrowers might not be able to repay. One of the ways it’s done that is to increase the acceptable DTI range.

In the past, lenders have preferred borrowers with a debt-to-income (DTI) ratio of 43 percent or less. This is just common sense: if a borrower is using up half or more of their income servicing other debts, letting them take out more debt is a big risk.

But lenders are drifting away from this wisdom. In 2018, more than 15 percent of mortgages were issued to borrowers with DTIs greater than 43 percent, and this year Fannie Mae increased their allowed DTI to 50 percent.

While this is going to keep the economy humming along, it also increases the risk of a 2008-style catastrophe.

Raising the DTI ceiling makes sense in some states.

For example, a lot of these riskier loans are being issued in expensive states like California and Hawaii, where the high cost of living necessitates taking on more debt. But

even taking that into account, a lot of these borrowers are likely getting in over their head.

In pricey California, the new max mortgage amount is $679,650, and the interest rate is 4.79 percent. But to make that monthly payment of around $4,000 without spending more than the recommended 28 percent of their income, this borrower would have to make at least $185,000 a year. Considering the 2017 median household income in the state was only $71,805, this suggests there are a lot of debt-burdened, cash-strapped, house-poor borrowers in the state.

The CFPB complaint data supported this conclusion.

Borrower complaints came in at much higher rates from consumers who were approved for higher loans, and over a third of the complaints were from borrowers struggling to pay their mortgage. This suggests that people are being approved for loans that are out of proportion to their ability to pay, a situation that leads to stress, bad credit, and, often, foreclosure.

Responsible Lending This represents a great opportunity for what you could call “responsible lending.” Borrowers might think they want the largest loan possible, but it’s up to loan officers to explain why that’s a bad idea. With a little sensitivity, this can be done in a way that doesn’t come off as patronizing, and could even cultivate trust.

As a company policy, this has obvious appeal. There are a lot of lenders are willing to let borrowers get themselves into hot water; the ones that help borrowers back away from financial peril and make responsible choices will be in line for a load of goodwill and customer loyalty.

The bottom line is, we’re all in this together. If the housing market goes down, everyone’s going to feel the pain, from buyers to real estate agents. And while foreclosures are an expensive cost for banks and lenders, it’s nothing compared to the public relations hit that follows TV news footage of overextended debtors being kicked out of their homes. Public trust still hasn’t recovered from the last crash, and the next one might already be on the horizon. It’s in everyone’s best interests to lower our collective risk profile.

Dr. Francesca Ortegren is a research associate at Clever Real Estate, a free online service that connects buyers with agents to save money on commissions.

Issue Two | March 2020 | BANKING NEW ENGLAND 29

MAY 7 – 8

CONFERENCE SCHEDULE Thursday, May 7, 2020

Friday, May 8, 2020

1:30 p.m.

Registration Opens

8:00 - 9:00 a.m.

Breakfast

1:45 - 2:45 p.m.

9:00 - 10:00 a.m.

Understanding ADA Compliance & The Importance for Bank Marketers Dean Dorazio & Sean Greene, Wakefly

Leadership, Brand & Your EQ

Michele Lando, Skilset Communications 10:15 - 11:15

3:00 - 4:00 p.m.

Unlocking the Power of Emotion at Work

Michael Kirkpatrick, Mad*Pow

11:15 - 12:15

4:15 - 5:00 p.m.

Bruce Paul, Banking Benchmarks/Rivel Research Group

Designing for Humans: Breakthrough Experiences

Andrea Hoban, Oji Life Lab

Who to Market to? And How?

Mentor Session: Utilizing Community Relations to Build Brand Awareness 5:00 - 6:00 p.m.

Cocktails

12:15 -12:30 Conclusion

6:00 - 7:00 p.m.

Dinner & Welcome 7:00 - 8:00 p.m.

Workshop: Your Brand - Authentically, Wonderfully, You! Michele Lando, Skilset Communications

2020 CONFERENCE SPEAKERS

Dean Dorazio

Sean Greene

Michael Kirkpatrick

Michele Lando

To register, visit www.nefma.org 30 BANKING NEW ENGLAND | Issue Two | March 2020

Andrea Hoban

Bruce Paul

CSI KNOWS EXPERIENCE COUNTS. In its recent core vendor report, Aite Group recognized CSI’s NuPoint® core platform for “providing the best user experience.”* Come meet the core that the industry—and our customers—can’t stop talking about. www.csiweb.com/experience

* Source: Aite Group, “AIM Evaluation: The Leading Providers of U.S. Core Banking Systems”

Issue Two | March 2020 | BANKING NEW ENGLAND 31

INNOVATIVE CONCEPTS

® Experience Experience the the diff diff eren eren ce ce ®

PROVEN RESULTS