Banking New York 1Q 2016

Page 1


The Year of

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

BANKING NEW YORK Volume 39 | First Quarter 2016

14 The Year of


Community Banks Building on a Strong 2015

06 PUBLIC AFFAIRS UPDATE New Session in Albany,

New Challenges for Community Banks

08 FREED FROM FEES Getting Squeezed by Your

Debit Network? Explore New Solutions to Help Ease Your Bottom Line







Supreme Court Decision Strengthens Investigations for Discrimination



22 FINE WHINE Lessons Learned from the




©2016 The Warren Group Inc. All rights reserved. The Warren Group is a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: The Warren Group, 280 Summer Street, Boston, MA 02210

The Year of Going Granular

Another Way to Save

CFPB’s Complaint Database


Community Banks Building on a Strong 2015 I’m pleased to report our industry saw a strong finish to 2015,with positive results in both Washington, D.C. and Albany. Moreover, we’ve begun 2016 with a proactive agenda to preserve, protect and advance the interests of New York’s local community banks. John Witkowski


he highway bill included key reg relief for community banks, including: • Exempting institutions under $10 billion in assets from cuts to Federal Reserve stock dividends. According to estimates, the exemption will save approximately $60,000 annually, while a $500 million and $1 billion bank would save roughly $300,000 and $600,000 per year, respectively. • Advancing several provisions from ICBA’s “Plan for Prosperity” regulatory relief agenda, strongly supported by IBANYS. The new law provides that on the 10-year Treasury rate with a maximum of 6 percent. • Eliminating redundant privacy notice requirements.

• Dropping language that would have extended higher Fannie Mae and Freddie Mac guarantee fees. Federal Budget Agreement: Tax Extenders, Cybersecurity Assistance

The agreement included the ICBAadvocated Cybersecurity Information Sharing Act, which encourages the public and private sectors to share critical cyberthreat information. In addition, it: • Required regulators to study and report to Congress the effect of the Basel III capital requirements on mortgage-servicing assets. • Included a $3 billion increase in funds for the Small Business Administration’s 7(a) guaranteed loan program.

• Expanding the 18-month exam cycle.

• Reauthorized the SBA’s expired 504 refinance program.

• Easing CFPB restrictions on rural mortgage lenders.

• Continued fee waivers for loans to veterans.

• Expanding TruPS CDO relief for small bank holding companies, and allowing thrift holding companies to take advantage of new SEC registration thresholds.

• Included a permanent five year S-corp recognition period for built-in gains.

• Restoring funds cut from the crop insurance program that would have significantly curtailed the privatesector delivery of federal crop insurance,. 4 | Banking New York

• Permanently extended the S-corp stock basis adjustment for charitable contributions of property. • Made permanent a $500,000 Section 179 expensing limit. continued on page 11 

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


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New Session in Albany, New Challenges for Community Banks The 2016 state legislative session has begun, as Gov. Andrew Cuomo has delivered his combined 2016 State of the State message and 2016-17 state budget presentation to members of the Legislature, statewide elected officials, cabinet agency heads and public and private sector leaders.


e declared the state to be ”stronger than at any point in recent history.” He called his $145 billion state spending plan “an ambitious agenda” and promised it will be under the state’s flexible 2 percent cap. The budget includes five different tax cuts, which would cost $444 million and later escalate to $594 million by the 2017-18 fiscal year. It would divide up over $2 billion in settlement relief funds to a variety of areas, provide $640 million for affordable housing and to combat homelessness and $225 million for economic development. It would divide up over $2 billion in settlement relief funds to a variety of areas, provide $640 million for affordStephen W. Rice able housing and to combat homelessness and $225 million for economic development. The governor also proposed an ethics reform package that includes closure of the LLC loophole and caps outside income for legislators. The governor again strongly called for a $15 minimum wage for all state workers, noting: “We can show this nation what real economic justice means.” Among the governor’s other proposals: • Establishing a five-year plan to spend $20 billion on affordable and supportive housing, plus other services to benefit the homeless. • Supporting the Dream Act, which would allow undocumented immigrants to apply for state financial aid. • Enacting 12 weeks of paid leave for workers with a new child or sick relative. • Reviving proposed public financing of political campaigns, which Senate Republicans have said they will not pass. Senate Majority Leader John Flanagan (R-LI) gave the official Republican response to the governor’s State of the State and budget presentation, saying the Senate’s top priority would be “Jobs, jobs, jobs.” He also called for making permanent a 2 percent cap on state spending increases in the budget, noting: “It’s so important the Senate has already acted this year to establish a spending cap in law. By doing so, we can shore up the state’s finances for the long haul and protect the families of tomorrow by the over 6 | Banking New York

spending of the past.” Senate Republicans indicated they don’t see how the governor plans to fund his proposals in the context of the budget he proposed. The governor also has selected a new superintendent of financial services, pending Senate confirmation. Maria Vullo was a partner at the law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP, and previously oversaw the Economic Justice Division in the Office of the New York State Attorney General. IBANYS will once again have a busy session: • We’ll be defending against renewed efforts by credit unions to expand their fields of membership, powers and authorities. • We’ll continue to aggressively seek regulatory relief for New York’s community banks, which have been dramatically impacted by compliance burdens, often at the expense of pursuing their lending and development opportunities. • We’ll seek to expand the examination cycle from 12 to 18 months for high-rated community banks, as well as the elimination of duplicative state CRA exams for community banks that have received positive ratings from their primary federal regulators. • We’ll also be pushing for the creation of community bank service corporations to provide cost efficiencies and enhanced products and services. • As always, we’ll monitor the activities and initiatives on the regulatory and legislative fronts to protect the interests of community banks, and the customers and communities we serve. • And, working closely with the Independent Community Bankers of America, we’ll provide the input and support necessary to work with our New York congressional delegation and with the regulatory agencies. All in all, a challenging and exciting year awaits. We look forward to continuing to work hard on behalf of New York community bankers. ■ Steve Rice coordinates government relations and communications for the Independent Bankers Association of New York State. He has worked in the New York banking industry and New York state government for more than three decades.


One advance can help fund hundreds of neighborhood needs. FHLBNY advances are a reliable liquidity source for our member lenders to finance home mortgage, small business, and economic development activities. Tioga State Bank, an FHLBNY member, used an advance to help provide financing to Bates Troy Inc., a local family-owned and operated community business offering cleaning and clothing restoration services for healthcare facilities. The project allowed this Binghamton, New York-based “green dry cleaner” to expand their facilities and equipment and offer several new production job opportunities. Contact us to see how the power of an advance can improve your community.

101 Park Avenue, New York, NY 10178 | (212) 441- 6700 | Note: The Federal Home Loan Bank of New York uses the word “advances” to refer to the loans it provides to our member lenders.

FREED FROM FEES | By Kurt Silvers

Getting Squeezed by Your Debit Network? Explore New Solutions to Help Ease Your Bottom Line at all of their U.S. retailer locations. This can help financial institutions lower their quarterly network assessment. Sounds great, but how does a financial institution convince retailers to consider another option? Well, STAR has a solution to that conundrum, too. Find a Network Partner Offering a True Enterprise Solution

For decades, retailers and businesses have had two main options – Visa and MasterCard – for routing signature debit transactions. While the U.S. is transitioning to a chip and signature standard, it remains the last major market with sizable remnants of the standalone signature system.


n fact, standalone signature debit transactions processed by these two networks resulted in significant fees in 2015, with the cost for financial institutions potentially ranging from thousands to millions, depending on the size of the institution. These numbers are particularly significant for community banks, which often don’t enjoy the more spacious margins of national brands – these numbers have the ability to seriously cramp the bottom line. So what can community banks do to help minimize the fees from their network partners and keep their revenue streams flowing? Here are some suggestions to keep in mind. Seek Alternative Network Options

It’s old news that the 2010 Durbin Amendment enabled merchants to take control of routing decisions, taking that power from issuers. Now, there’s an additional option for routing signature debit transactions: the STAR Network. Ultimately, the competitive offering allows merchants to have another option for routing signature debit transactions 8 | Banking New York

STAR Network works with both issuers and merchants and seeks to negotiate the best rates for all participants. Issuers can be confident their interchange is protected, while merchants see competitive rates on their total cost of a transaction. This creates a win-win situation for financial institutions looking to navigate away from the higher fees usually associated with other routing options, while enabling merchants to control costs on their end. And since STAR is constantly expanding its merchant base, financial institutions can benefit from a continually expanding network as well. Make Your Second Network Work For your Bottom Line

In addition to impacting routing decisions, the Durbin amendment also requires issuers to add a second network brand on all debit cards. You may have found yourself simply adding a small regional network, perhaps owned by your core, but you have not seen a material difference in the amount of your Visa or MasterCard invoices. It’s time to take a closer look at this. According to statistics from the Federal Reserve Bank of Kansas, signature debit transactions accounted for over 60 percent of total debit transactions. Today, all of them are automatically directed to your global brand. STAR provides a third alternative and can help reduce the quarterly fees you pay. In short, the regulatory environment makes it very difficult to manage shrinking margins. It’s time to get creative by exploring new options that offer both innovation and a path to expense reduction. It’s time to partner with a grand collaborator; a partner to both merchants and issuers because everyone wins with the perfect balance. It’s time to explore the STAR Network. ■ Kurt Silvers represents First Data’s STAR Network and works exclusively with community financial institutions throughout the country to grow net income, expand market share and build franchise value. He has spent nearly 20 years in the financial services industry as a trusted solutions partner.

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BANK PROFILE | By Linda Goodspeed

O Pioneers! Upstate Bank Brings the New to the Old with Branch Redesign


cross the industry, banks are seeing branch traffic slowing – by some estimates, as much as 40 percent in certain places – leading many institutions to rethink their brickand-mortar strategy in favor of a more digitized delivery system. But rather than shrink its physical footprint, Pioneer Bank in Troy, is, well … pioneering … a new model. “We want to be Thomas L. Amell President and CEO thought of as pioneers, not in the Davy Crockett sense, but in the trailblazer sense,” said Thomas L. Amell, president and CEO. And trailblazers they are. Pioneer Bank is in the midst of revamping its entire branch network, all 18 locations, into one-stop centers where customers can not only do their banking, but process photos, ship packages, shop for locally made gifts and other merchandise, have a cup of coffee and enjoy free Wi-Fi. The new branch design also has meeting rooms that local nonprofits can use. In the Pioneer model, bank branches have become community centers. “We want to give people a reason to put their car in park and come inside,” Amell said. So far, the model seems to be working. At its four remodeled branch locations, traffic is up. “Granted, it’s slight,” Amell said. “But the downward trend has flattened.” Founded in 1889, Pioneer, an independent mutual bank, today has total assets of about $780 million, and 18 branches located in and around the Capital Region. It is the only mutual bank left in the area. The Albany region is a highly competitive banking 10 | Banking New York

environment with a strong, diversified economy and good-paying jobs, thanks to a growing nanotechnology industry, state government, higher education and health care. “We are fortunate that we were a bit isolated from the last downturn,” Amell said. Amell arrived at Pioneer in 2012, and has been on a nonstop mission to revamp and grow the bank ever since. The bank rebranded itself, dropping its former tagline, “Where Banking is Personal.” The bank no longer has a slogan, but rather a promise that underscores all of its marketing: it provides “banking for dreamers, doers, movers and shakers” for the customers it calls “New Pioneers.” Next came the new branch concept. Pioneer opened its first new revamped branch in April 2013 in Clifton Park. “When some of our customers first came in they almost did a double-take, it was so different,” said Jesse Tomczak, chief customer experience officer. Instead of traditional teller lines, Pioneer is instituting pods at many of its locations and adopting a universal customer service model where employees are trained to provide any service a customer requests, from taking a deposit, to shipping a package, to opening a home equity line of credit. Even its ATMs are more personalized; branches

Pioneer Bank’s Clifton Park East branch – and several others – feature a local shopping area, print shop and more. Photos courtesy of Pioneer Bank

now feature interactive teller machines that allow customers to interact face-toface with a call center (“customer experience center”) employee. Branches also include “The Shops of Pioneer,” where customers can purchase stationery, mugs, candles, seasonal items and an array of other gifts and merchandise, with proceeds donated to local charities and nonprofits. So far, Pioneer has revamped four of its branch locations, with another three planned for later in 2016, as well as a

continued from page 4

FASB agreed to delay consideration of its CECL proposal until sometime during 2016 instead of the original date of Dec. 2, 2015. (Note: A delegation of community bankers met with FASB to address our concerns going forward.)

brand new, 60,000-square-foot headquarters. The new headquarters, located on one of the most visible corners in the region (Wolf Road and Albany Shaker Road in Colonie) should be ready for occupancy in July. “We are absolutely committed to bricks and mortar,” Tomczak said. “We are a mutual bank and have been part of the community since 1889. We have a responsibility to be there for our customers in the communities where they live and work.” Amell said the new branch concept is a risk, but doing nothing and simply accepting lower traffic patterns was more of a risk. For the transactional relationship – cashing a check, making a deposit, checking balances – he said the digital model works. But when it comes to financial advice, discussing a child’s college future, buying a home, Amell says customers want a face-toface relationship. Amell said all 18 branches should be upgraded within the next three years. The bank is also growing its wealth management division, exploring the insurance market and hopes to top the $1 billion mark within that same time line. Pioneer is already the fifth largest commercial lender in the area, and its loan portfolio reflects that, with a 70-30 commercial/residential balance – a mix Amell likes. The bank is also one of the most stable, earning a five-star rating from Bauer Financial Inc. each quarter for more than 25 years, an accomplishment that fewer than 5 percent of banks in the country can claim. In addition to its branches, Pioneer is also investing in its 240 employees. During the downturn, Amell said many industries, not just banking, cut back on employee training. Pioneer is reversing that trend with its “Imagine U” (for University), a robust curriculum for employees at all levels. “We want to attract and retain the very best people,” he said, “and training is essential to that.” ■

IBANYS Testimony on Small Business Access to Credit

The hearing’s focus was to explore the needs of small businesses to access credit, and to review state policies and programs designed to assist in the financial marketplace. The new year has opened with new challenges on familiar issues. In Albany, the credit unions are again seeking expanded fields of membership, powers and authorities. In Washington, the NCUA proposed changes to credit union field-of-membership rules that would nearly eliminate the commonbond requirement. Among other changes, community-chartered credit

unions would be able to claim that a congressional district is a “well-defined local community,” which would allow community credit unions in seven states to serve their entire state. This NCUA proposal would make credit unions less restricted by geography, further expanding their footprint while maintaining their exemption from taxation and federal financial regulations facing taxpaying community banks. IBANYS is opposed to this measure and has encouraged our member banks to voice their opposition. There is still a great deal of work to do in 2016. Together, we will continue building on the strong foundation we have established for members and our industry. ■ John Witkowski is president and CEO of the Independent Bankers Association of New York State. He may be reached at or (518) 436-4646.


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Among potential upper middle-market sellers, 56 percent said they believe asset valuations will stay the same (42 percent) or decrease (14 percent) over the next year. This all means commercial bankers should be prepared to discuss a range of M&A services with their middle-market clients, from due diligence to financing, Citizens said. “What we really need to be active with is working with our clients to make sure we’re talking to them about M&A ideas, who are the big competitors, who should you be thinking about, what does it look like if we help you model that out financially,” Sargent said. “I think it’s a road map for us to improve the dialogue we have with our own clients.”


CITIZENS SURVEY: MID-MARKET COMPANIES HUNGRY FOR M&AS IN ’16 Middle-market companies are on the lookout for “transformative deals” this year, and that means their bankers have an opportunity to open up a dialogue with their mid-market clients, according to a recent survey by Citizens Commercial Banking. “I think it falls in line with what we expected,” said Jerry Sargent, Citizens’ head of middle-market banking. “The big takeaway for us is, we’ve been watching this build for a couple of years. We went through this financial crisis, and companies really focused inwardly. They streamlined their operations, they invested in technology, their own capacity, and they slowly regained their former stature.” Many companies are in the market for mergers and acquisitions as a means to deploy their excess cash more effectively. Among the nearly 600 firms Citizens surveyed for its Middle Market M&A Outlook 2016, 32 percent are currently involved in an acquisition and another 31 percent are open to considering one. Moreover, 54 percent of upper middlemarket potential buyers told Citizens they are more confident today than they have been in the past that growth via outside investment is an appropriate strategy. “Inherited liability” and “overpaying for an acquisition” topped would-be buyers’ concerns in the survey, Citizens said. Smaller middle-market firms worried about losing key employees during an acquisition, and larger firms worried that market fluctuations could impact deal values. Meanwhile, the greatest fear among middle-market sellers was being underpaid for their firms. A large majority, 83 percent, of upper middle-market potential sellers said they had been either extremely (25 percent) or moderately (58 percent) affected by volatility in the global economy, and 41 percent said they feared a significant financial crisis in the next three years. 12 | Banking New York

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

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


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COVER | By Christina P. O’Neill

The Year of

Going Granular Data analytics, also known as ‘big data, was once accessible to only the largest banking institutions. But 2016 may be the tipping point in which lower costs and increased accessibility of data analytics will be increasingly adopted by small and midsized banks with assets in the hundreds of millions. These community institutions have had to spend heavily






Last September, Boston-based Aite Group published two


reports regarding payment analytics. A Sept. 16 report, “Be-

but now, their budgets are freeing up to invest in

yond ROI: Better Metrics for Evaluating Commercial Banking

other things, industry observers said. The critical role of

Technologies,” asserted that while 30 percent of decision-

big data is to link banks’ internal data, such as customer

makers relied on ROI, which most effectively measures cash

accounts, credit scoring, payment history and assets, to ex-

flows with significant upfront investment, traditional finan-

ternal data, such as interest rates, macroeconomics and cus-

cial metrics may not be the best yardstick to measure results

tomer preferences.

versus ongoing costs. Instead, Aite Group recommended us-

Community banks are cautious on this score. They’re not only budget-conscious but also extremely protective of cus-

ing annual deployment net earnings and annual deployment net earnings margin.

tomer data, and often are reluctant to share it with third par-

A Sept. 23 Aite Group report, “Payments Analytics: Gain-

ties. However, the increasing improvement in ease of use of to-

ing Insights and Creating Competitive Advantages,” recom-

day’s data analytics holds promise to lighten the workload and

mends combining payment data with externally-obtained in-

increase the effectiveness of their compliance departments,

formation to generate value-added services and meaningful

which may have only one or two staffers whose knowledge of

competitive advantage.

software as a service is usually not in the specialized range.

A version of this practice had been utilized by researchers

A 2014 report from Everest Group Research, “Analytics

who used it to determine quality of life in Spain’s provinces

in Banking,” predicted that adoption of third-party analytics

using bank card data anonymized and provided by one of the

business services by banks would quadruple by 2020.

country’s largest banks (see sidebar).

14 | Banking New York

Third-party core systems providers such as Fiserv,

A Democratization of Analytics Big data can help banks improve their compliance with

Fico and Jack Henry can help banks work with savings

anti-money laundering and know-your-customer require-

account and mobile-banking information; smaller insti-

ments, fraud protection, FATCA, FCPA and FINRA rules. It

tutions are more likely to partner with them now than

can also enable banks to price their products effectively and

was done even five years ago, O’Brien said – despite the

to move away from mass marketing strategies that yield lim-

ongoing cautiousness about privacy protection.

ited response rates, to smaller campaigns to fewer but more

Adoption of big data use by community banks is still more evolutionary than revolutionary, indicated L. Cary

receptive customers. Data analytics can also improve due diligence by pre-

Whaley, vice president, payments and technology poli-

senting a better picture of performance and risk metrics, es-

cy at the Independent Community Bankers Association.

sential components of M&A decisions.

Generally, because of their tight margins, community

“I see a movement toward analytics used by business-

banks won’t take the lead in these methods.

es. In the past, you’d have to be a quant expert,” said Ed

“They see certain trends in the industry and [some]

O’Brien, director of the banking channels practice at the

move fast to get there,” he said. “Half are fast followers,

research firm Mercator Advisory Group. Today’s big data

and half are wait and see. What we’re seeing in adop-

is more accessible. Business users with some analytic back-

tion right now, fast followers are looking at ways to use

ground can now use many powerful tools to create a “what

more analytics; the rest are waiting and seeing.”

if” scenario without taking months to write code, he said. continued on page 16 

“It’s a democratization of analytics.”

First Quarter 2016 | 15

COVER | continued from page 15

The ease-of-use attraction of cloud- and software-based

more effectively determine who was a good credit risk. A

analytics is offset by banks’ caution about putting any vital

third bank drew from social media to determine which prod-

data in a cloud environment. Those community banks that

ucts its customers would be most likely to buy.

do use data are sharing product lines within their own insti-

Mercator’s O’Brien cited the use of customer checking

tutions; very few are sharing it with a third-party provider,

account, automatic deposit and ACH information to map

Whaley said. A small group shares data with affiliates in the

whether a customer has a new job or might be eligible for

realm of fraud prevention.

a higher-return money market fund. Customers might have had trusted advisors in previous generations, but now Mil-

Data Analytics in the Field

lennials, in particular, are increasingly left to their own de-

In a 2013 report, “How Advanced Analytics Are Redefin-

vices. This gives community banks the opportunity to follow

ing Banking,” McKinsey director Toos Daruvala cited a large

the growth in their lives, and grow along with them.O’Brien

bank that brought in third-party data from external sources,

said that while customers are interested in receiving good

increasing its predictive accuracy from the 40 percent to 45

offers and discounts on rates and loans, and better returns

percent range to the 70 percent range. Another bank pur-

on savings accounts, they want to know that their informa-

chased payment data from a local telephone company to

tion is not shared with outside parties.

Careful Hunters on Bank Activities’ Digital Trail A series of research papers lead-authored by Stanislav Sobolevsky, through the auspices of SENSEable City Lab at MIT, has provided the basis for researchers to measure significant properties of Spain’s cities. Banco Bilbao Vizcaya Argentaria (BBVA), one of Spain’s largest banks, provided anonymized data – scrubbed of all personal identification markers – to SENSEable City Lab led by Prof. Carlo Ratti. Researchers sought to chart individuals’ economic behavior, measure the vitality of cities and economic context of the local neighborhoods, and fine-tune estimations of credit risk. Drawing on a large data set, they developed the capacity to narrow the findings down to individual small businesses – without compromising security conditions for the bank and its shareholders, or disclosing trade secrets. The researchers considered various aggregated characteristics of people’s economic behavior in an urban context, such as overall spending activity, its categorical diversity, customer mobility and many others. Analysis of those quantities allowed multiple applications including a novel scale-independent classification of Spanish cities by their economic context, predicting economic performance of the urban areas as well as characterizing and explaining their attractiveness for the domestic and foreign tourists. Research enforced, for example, the long-standing correlation between the presence of Spain’s high-speed train network and economic vitality. Conversely, research showed a high level of unemployment in the highest-performing cities (which were often those with a robust tourism economy), leading researchers to note that high- or over-performance of these cities may be accompanied by social problems. Sobolevsky, associate professor of practice at the Center for Urban Science and Progress at New York University and research affiliate at the MIT SENSEable City Lab, noted that “in the era of data-driven solutions, banking data becomes an invaluable asset. Not only can it help banking business become smarter through internal application such as improved credit risk scoring, but can also help broadening its business being leveraged for external applications targeted at various urban and business stakeholders – planners, investors, touristic or entertainment industry and many others. And it also creates unprecedented research opportunity in understanding people behavior through its digital footprints – the research our group is pursuing at NYU and MIT.”

16 | Banking New York

Banks want to reach out to those whom they believe might be inclined to engage with them. “There’s noth-

they might have gone overseas may be significant, but only if it corresponds to a fraud trend.”

ing worse than being approached when you don’t want

He cited the current priorities for community banks,

to [be],” he said. “Hopefully, they only get reached out

including cybersecurity, data security and regulatory

to when they want to and results are relevant to them.”

compliance. Then there’s cost containment, imple-

Banks can profile neighborhoods in terms of average

menting mobile technology and preventing fraud. The

income or investable assets, sending emails to residents

third tier is enterprise risk management and customer

in ZIP code-plus-four digits, targeting decisively without


crossing over privacy lines, O’Brien said.

While he predicts that data analytics will become

ICBA’s Whaley says the privacy issue is foremost for

more of a way of doing business, “community banks are

community banks. They take information in an aggregate

incredibly protective of their customers’ data. Having

form and use it to develop patterns and shapes, such as in

third parties misuse it or have it vulnerable, is a serious

the case of fraud analytics.

concern of community banks. … What you don’t see is

“You’re really not interested in the fact that a customer goes to [a particular] country,” he said. “The fact that

combining internal data with external data, but I do think it’s something that could happen.”

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First Quarter 2016 | 17

CHASING PAPER | By Ray Belanger

Another Way to Save Managed Print Service Programs Increase Efficiencies, Reduce Costs


his is not your grandfather’s bank.” At the risk of over-using the catch phrase, it is an accurate description of recent changes within the banking industry. With the advent of online transactions and associated technology that allows for availability of round-the-clock communication, both internally and externally, gone are the so-called “bankers hours.” While customer service remains at the core of contemporary banking, the need to increase efficiencies while keeping costs in line is another con18 | Banking New York

stant; one often overlooked method to achieve these goals is document generation. Although print management may not seem like an area where significant cost cutting measures can be made, the officer who doesn’t factor it into the discussion is overlooking a sizeable potential for savings. In fact, a print management program can save a banking institution in excess of 15 percent in operational costs. Not so far back in the day, copiers, printers and fax machines were the

pinnacle of document generation, but that process has been refined through the innovation of managed print services (MPS); in fact MPS has transformed the document generation industry, with an increasing number of companies that sell copiers now taking an updated view of their industry and how it best serves their customers. With banks/financial institutions spending up to 3percent of annual revenue on document output and IT departments allocating 15 percent of their time to printing and related actions, the need to track equipment usage, reduce costs and increase efficiencies is a must. Enter managed print services. Essentially, MPS looks at per-page cost as the bottom line, as opposed to the final price point of office equipment. MPS is a consideration of all costs associated with leasing/owning/ using printing and imaging equipment, including maintenance and ongoing support – an element that is of significant importance for banks with multiple locations or satellite offices. Print management software tracks the number of prints each piece of equipment generates and then produces reports that facilitate efficiency management. MPS can be introduced in phases and is set in motion with an initial in-depth evaluation of the existing printer fleet, current costs, operational logjams and the amount of time an IT department spends troubleshooting. Following analysis, a “discovery meeting” is arranged with key stakeholders to review a report that summarizes and documents all data and operational costs of the existing equipment fleet. This helps facilities take an objective look at all phases of document generation.

Streamlining printing and the flow of communication is typically the priority for banking institutions. MPS consolidates the number of devices used, reducing the cost of equipment, supplies, maintenance and required internal IT support. The environmental aspect of managed print services cannot be overlooked, for it is an effective mechanism to reduce waste, recycle paper, ink and other resources. It is a “green” document solutions approach that is not only cost effective, but can also lower the carbon footprint of a banking institution. Moreover, an MPS system acts as an in-place tracking software program, enabling the provider to monitor clients’ systems remotely and alerting them to potential issues that could otherwise cause work stoppage. Yet another critical component to MPS is security. Those in the bank-

ing or any regulated industry are well aware of the imperative to ensure that information is secure and compliant. A managed print service program provides the mandatory security that is essential to the banking industry: it can trace a document back to the device it was printed from. Employing the use of an acrossthe-board print management system is less stressful for staff, particularly those whose work takes them to different branches. The frustration of dealing with equipment that may vary from office to office is eliminated making it easier for people to do their jobs. MPS is also a boon for marketing departments, allowing for the ability to output color collateral materials internally. There is also a growing trend toward full document imaging. This move toward a paperless office is tak-

ing momentum, but the technology is still evolving; therefore facilities that go this route must be open to eventual changes. Ultimately a managed print service program can: identify current and anticipated printing requirements; provide consolidation/standardization opportunities; initiate significant reduction in costs; increase security; reduce or eliminate internal IT printer support; create visibility to all related expenses and usage. It is a necessary step toward reducing expenses and perhaps more importantly in safeguarding the sensitive information inherent to the banking industry. ■ Ray Belanger is CEO of Bay Copy, a Rockland, Massachusetts firm specializing in managed print services for businesses. He can be reached at

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First Quarter 2016 | 19

DISPARATE IMPACTS | By Dennis C. Vacco, Brian J. Bocketti, Jillian E. Deck and Stacey L. Moar

Supreme Court Decision Strengthens Investigations for Discrimination


or two years, New York Attorney General Eric Schneiderman’s Civil Rights Bureau has been targeting banks and other residential mortgage lenders for violations of the Federal Fair Housing Act (FHA) and New York Human Rights Law. The AG recently entered into settlement agreements with two Upstate New York banks for such violations. On June 25, 2015, the U.S. Supreme Court issued a decision which has far reaching implications regarding AG investigations of residential lending institutions. In the case of Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., the Texas Department of Housing and Community Affairs asked the Supreme Court to decide whether the statutory language of the FHA permits plaintiffs to sue under a disparate impact theory 20 | Banking New York

of liability. The Supreme Court had twice previously been presented and agreed to decide that issue, but the cases settled prior to oral argument. As a bit of background, the FHA is a federal law which prohibits discrimination against certain individuals seeking to rent, buy, or secure financing for any housing. The FHA specifically prohibits discrimination because of race, color, national origin, religion, sex, disability and the presence of children. New York State Executive Law § 296-(a) prohibits the same conduct. The standard for determining whether a company or individual has discriminated against an individual in violation of either statute is governed by case law interpreting the FHA. The issue the Supreme Court was asked to decide in the Inclusive Communities case was whether a plaintiff

can sue for unintended discriminatory effects. A “disparate impact” theory of liability permits a plaintiff to prove discrimination and seek certain damages where a neutral rule, policy or practice has a greater impact on a protected class of individuals – for example, African Americans. This is distinct from intentional discrimination because liability under a disparate impact theory can be found regardless of the intent of the party/ business/individual when promulgating the rule, policy or practice complained about. Disparate impact cases involve policies that facially appear to treat everyone equally, yet when applied, have an uneven and harsher impact on a protected class or classes of people. For example, a company adopts a rule that its HR department will not interview individuals who have a six-month work gap on their résumé. While the rule is facially neutral and treats all individuals the same, it may be illegal if it has a disparate impact on women, minorities or older workers who have been out of the workforce for longer periods of time due to varying reasons. In its decision, a divided Supreme Court ruled that individuals complaining of discrimination under the FHA could proceed under a disparate impact theory. The two sections of the Fair Housing Act that the court relied upon in making its determination are sections 42 U.S.C. §3604(a) and 42 U. S. C. §3605(a). They read as follows: It shall be unlawful “to refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” 42 U.S.C. §3604(a).

“It shall be unlawful for any person or other entity whose business includes engaging in real estate- related transactions to discriminate against any per- son in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” §3605(a). The court found that the words “or otherwise make unavailable” in the above statutory sections allow disparate impact theory of liability in FHA cases because those words address the consequences of a decision rather than simply the intent of the decision maker. The language used in the FHA is not the same as in other statutes (primary employment related) that permit disparate impact theories. In employment discrimination laws (e.g., Title VII) the language used is “have an adverse impact” or “have an adverse effect.” This Supreme Court decision is significant for the banking industry because neutral lending rules or policies that may have a disparate impact on a protected class could subject a bank to liability under the FHA. For example, minimum mortgage amounts, trade area delineations, and decisions on inclusion or exclusion of census tracts from

Community Reinvestment Act assessment areas could become the subject of litigation by advocacy groups, individuals or state regulators – including the Office of the New York State Attorney General. Federally, the Department of Justice’s Civil Rights Division also prosecutes violations of the FHA. While the court’s finding regarding disparate impact theories is encouraging for many plaintiffs and civil rights groups, the court did place significant limitations on its applicability, including a robust causality requirement that must be well pleaded from the initial filing of the complaint. A plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact. This means that the rule or policy complained of must cause the uneven and harsher impact on the protected individual or class of individuals complaining about the rule. ■ Dennis C. Vacco, Brian J. Bocketti and Jillian E. Deck are partners and Stacey L. Moar is associate attorney with Lippes Mathias Wexler Friedman LLP, with offices in Buffalo and Albany.

First Quarter 2016 | 21

FINE WHINE | By Achim Griesel

Lessons Learned from the CFPB’s Complaint Database


ecently the Pew Charitable Trust published an article about consumers, big banks and overdrafts on the American Banker website. Over the years, the Pew Charitable Trust has devoted a considerable amount of time to analyzing checking accounts. Some of the recommendations from their studies, like its proposed disclosure, seem valid. Others, like the analysis of the overdraft service, are less so. Reading the article inspired Haberfeld Associates to think of ways to determine the need for more regulations on overdrafts, other than the consumer advocates on the one side and some industry based organization on the other side. Would the CFPB’s complaint database allow us some unique insights? Before analyzing the CFPB’s complaint database, we asked if this is true representation of the consumer sentiment when it comes to overdraft services. Asking for a “complaint” – a negative – will only result in negative feedback. If there are, as the database shows, 8,094 instances of people complaining about issues caused by “funds in my account being low,” how many positive comments would the CFPB have received if it had asked for only compliments for the last four years? The Pew article states that the examination of the CFPB’s consumer complaint database validates a need to reform overdraft policies and fees. The article specifically states that one in four “bank account or service” complaints is related to overdrafts. Yet when we downloaded data from the CFPB database, we found a few interesting facts (see sidebar, top right). In my estimation there are about 1.3 billion overdraft occurrences a year, so somewhere around 5 billion occurrences in the lifetime of the complaint database. With that in mind, 8,094 complaints tagged as “Problems caused by my funds being low” represents a complaint ratio of 0.00015 percent. Seen this way, the statistics do not seem to validate Pew’s conclusion that more overdraft regulation is needed. That said, let’s explore some issues specifically mentioned in regard to overdrafts in the article. The article surmises that “the burden is not evenly distributed by age, income and race.” My company has analyzed millions of actual checking accounts at community banks over the last decade. That research shows that in most cases people make an informed and even rational decision regarding the use and expense of the overdraft option. It may not seem rational to the majority of customers, who have no overdrafts in a typical year, but it is rational and there is considerable evidence to support that claim. 22 | Banking New York

HERE ARE A FEW FACTS WE FOUND IN THE CFPB COMPLAINT DATABASE: • 489,000 total complaints. • 8% of the complaints are about checking accounts. • Mortgages (35%), debt collection (18%), credit reporting (16%) and credit cards (12%) collectively show 10 times more complaints than checking accounts.

If it supposedly is true that the overdraft services are more frequently used by certain age or race groups, what would the result be if financial institutions did not offer that service and declined transactions that would cause an overdraft? Would the headline say, “Younger customers as well as certain race segments experience more transaction declines”? We have analyzed “high users” of overdraft services, those overdrawing an average of more than twice per months. This “high user” of overdraft services on average deposits nearly 30 percent more dollars than the average customer into their checking account each month. The remaining 28 percent of all customers that utilize the service utilize it at a lower level. This coincided with their deposit behavior as well. The deposit amounts in their accounts are lower and therefore they decide to utilize the service less frequently. There are two conclusions from the Pew Charitable Trust article with which I agree. Clear disclosure (similar to the sample referred to at the beginning of this article) is helpful and should always be encouraged, maybe even standardized. Providing other short-term liquidity solutions as options is another recommendation I could not agree with more. Offering choices and clear disclosure should lead to consumers being able to choose the best option for their individual needs. Regulated pricing, on the other hand, will never get us to the best solution for the customer. ■ Achim Griesel is chief operating officer at Haberfeld Associates. Haberfeld provides consulting, marketing and training services for community FIs and gains its unique data and benchmarks through analyses of millions of consumer banking records at community banks across the country.

SMALL CHANGE | News Roundup

TWO CCB BRANCHES CELEBRATE MILESTONE ANNIVERSARIES Cattaraugus County Bank opened its first branch in Franklinville in 1980 and celebrated its 35th anniversary in November of last year with a strong 1980s theme. Featuring music, fashion and trivia from that decade, the branch kicked off a retro week of reminiscence on Nov. 16, culminating in a grand prize drawing for a $350 gift card. “We had a great time planning the week using this theme,” CCB’s Franklinville Branch Manager Denise Brennan said in a statement. “Franklinville is the home of CCB’s very first branch office. We believe our unique brand of community banking is a good fit for the Franklinville area. I kid you not, it was excellent.” Just a few months later, CCB’s Springville branch celebrated its 20th anniversary in February. In addition to daily giveaways of $20 bills, coffee mugs filled with candy and hot cocoa packets to keep customers warm, customers entered to win a “How Sweet It Is” grand prize, consisting of roses, a box of candy, a bottle of champagne, two champagne flutes and dinner for two. “We had so much fun planning this special week for our customers,” CCB’s Springville Manager Jill Fedor said in a statement. “It’s hard for us to believe we’ve been part of the CCB family for 20 years already.”

FIRST NIAGARA MORTGAGE TEAM TOPS $1B IN MORTGAGE ORIGINATIONS First Niagara Financial Group’s mortgage team funded more than $1 billion in mortgage originations through the third quarter of 2015. This is the fourth year in a row the company has crossed the billion-dollar threshold and the second time it has gone over $1 billion in originations by early September.

BERKSHIRE BANK TOP SBA LENDER IN CENTRAL NY The Small Business Administration recognized Berkshire Bank as the top SBA lender for fiscal year 2015 in the Central New York District within the large community lender group. Berkshire totaled 81 loans for small businesses in the Central New York Region, totaling $3.171 million.

Berkshire Bank was responsible for 187 7(a) approvals totaling more than $9 million at the district level. Berkshire Bank was also recognized as a top SBA lender in the Capital Region of New York, Western Massachusetts and Vermont. “With 7(a) loan program fee reductions in effect, our loan approvals have broken the $200 million mark for the first time and Berkshire Bank was a significant contributor to this year’s record,” SBA Syracuse District Director Bernard J. Paprocki said in a statement. The Capital Region’s small business owners received 870 SBA loans totaling more than $207 million in fiscal year 2015.

FIRST NIAGARA’S MORTGAGE OPERATIONS TO REMAIN IN BUFFALO KeyBank announced in December that it plans to keep mortgage operations in Buffalo and that it will leverage and expand First Niagara Bank’s mortgage capabilities upon completion of First Niagara’s merger into Key. The bank reported that although it is too soon to know exactly how many jobs the Buffalo-based mortgage operations will entail, it is anticipated that initially approximately 300 employees will be needed to ensure all functions are covered. KeyCorp and First Niagara Financial Group announced in October an agreement for Key to purchase the Buffalo-headquartered bank. Key had recently announced a plan to bring its currently outsourced mortgage fulfillment operations into the organization; the scope of the project will now leverage First Niagara’s servicing platform systems and expertise after the merger occurs. KeyBank plans to build underwriting, fulfillment and portfolio management platforms to support mortgage loan origination. Additionally, in connection with the merger, KeyBank will bring residential loan servicing in-house through First Niagara’s existing residential loan servicing unit. Key plans to utilize First Niagara Bank’s New Haven, Connecticut-based mortgage fulfillment group as well. KeyBank’s target date for a pilot on new platforms is June 2016, with a full launch sometime in the fourth quarter 2016. ■


First Quarter 2016 | 23

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