Banking New York 4Q 2016

THE INDUSTRY MAGAZINE FOR FINANCIAL EXECUTIVES & PROFESSIONALS • FOURTH QUARTER 2016 • VOLUME 42

Banks Behind

to Embrace Biometrics

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

Our Difference: Insights from a bank retirement plan specialist.

Your Advantage: A competitive edge and improved bottom line.

At Pentegra Retirement Services, our difference is your advantage.

With more than 70 years of experience built working with banks like yours, Pentegra can help you design a retirement plan and benefits financing solution that helps improve your bottom line while positioning your bank to attract, reward and retain the talent key to your success—to help your bank strengthen its competitive advantage.

Learn more about our unique retirement and executive benefit plan and benefits financing solutions using BOLI. Contact us at 800-872-3473, or visit us at www.pentegra.com

12

the

Eyes

Have It CONTRIBUTING WRITERS Ian Murphy and Steve Viuker

04 PRESIDENT’S MESSAGE

TWG STAFF CEO & PUBLISHER Timothy Warren Jr. PRESIDENT David Lovins ACCOUNTING MANAGER Mark DiSerio

New Ideas, New Opportunities at IBANYS

06 PUBLIC AFFAIRS UPDATE

Fourth Quarter Brings

New Regulations, Familiar Findings

14

10 MONEY MARKET FUNDS

Why the Impact of MMF Reform Is

EDITORIAL EDITORIAL DIRECTOR Cassidy Murphy ASSOCIATE EDITORS Malea Ritz, Joe Kourieh EDITORIAL INTERN Beth Siegert

Likely to Benefit Community Banks

16 BANK PROFILE

Wallkill Valley Federal Savings

CREATIVE/MARKETING DIRECTOR OF MARKETING & CREATIVE SERVICES John Bottini MARKETING COPYWRITER Michael Breed PUBLIC RELATIONS & SOCIAL MEDIA MANAGER Jeff Smith DESIGN PRODUCTION MANAGER Scott Ellison GRAPHIC DESIGNERS Amanda Martocchio & Tom Agostino

and Loan Expands to Help Underserved Communities

18 A FRAUGHT RELATIONSHIP

Banks Struggle With CFPB Requirements

22 INDUSTRY NEWS/

SALES DIRECTOR OF BUSINESS MEDIA George Chateauneuf PUBLISHING GROUP SALES MANAGER Jason Long SENIOR ADVERTISING ACCOUNT MANAGERS Mike Lydon, Claire Merritt ADVERTISING ACCOUNT MANAGER Bob Holzhacker ADVERTISING & SALES COORDINATOR Tori Blanchard ADVERTISING INTERN Mackenzie Elkow

18

SMALL CHANGE

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

Fourth Quarter 2016 | 3

PRESIDENT’S MESSAGE | By John Witkowski

New Ideas, New Opportunities at IBANYS

IBANYS Board of Directors Officers Chairman Doug Manditch Empire National Bank, Islandia

A Bright New Future for New York Community Banks At our recent Annual Convention, it was my pleasure to report that the Independent Bankers Association of New York State is continuing on our path of sound fiscal condition, supported by a strong and growing membership and industry alliances.

O

ne of our top priorities is to seek and develop new programs, products, services and policies to bring value to our member banks, preferred providers and associate members. IBANYS works to provide every tool possible to lighten banker’s loads and help them continue to serve their customers and local communities.

To succeed, we need to remain forward-thinking – open to new ideas, John Witkowski new suggestions on what our members want and need. We continue to identify new programs, products and services to help banks reduce costs and increase efficiencies.

These include such concepts as:

Excelsior Growth Fund (EGF), a nonprofit Community Development Financial Institution formed by New York Business Development Corporation (NYBDC) that provides innovative financial solutions and business advisory services to underserved small businesses in New York through a fast, simple and secure online lending platform. Its core product is the EGF SmartLoan, which features amounts up to $100,000, approvals within one to two days and disbursements within one week.

Importantly, interest rates a fraction of those typically offered by online lenders.

4 | Banking New York

EGF offers banks a unique customer retention solution when a customer either does not qualify for a bank’s loan offerings, or is seeking the fast, transparent process available through online lenders. To facilitate retention, EGF shares performance information on the referred loan portfolio on a quarterly basis and offers the opportunity for the bank to purchase referred loans at par at any time.

The “My Wellness Resource Card” offers a low-cost, nontraditional program to help community banks to save time and money. It helps provide on demand health care from U.S. board-certified doctors who provide diagnosis, treatment options and necessary prescriptions via unlimited telephone medical consultations. The My Wellness program offers discounts and significant savings on a variety of medical and dental products, and is designed to improve productivity, decrease absenteeism and boost morale without straining your bottom line. It’s an exciting new way for community banks to provide health care benefits, reduce cost and retain employees.

We also have a partnership with the Buffalo Bills Alumni Foundation to support their “Cure the Blue” program to raise funds and awareness regarding prostate cancer research. We continued on page 8 

Vice Chairman R. Michael Briggs USNY Bank, Geneva Treasurer/Secretary Thomas Amell Pioneer Bank, Albany Immediate Past Chairman John Buhrmaster First National Bank of Scotia, Scotia Directors 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 Christopher Dowd Ballston Spa National Bank, Ballston Spa 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 Anders Tomson Capital Bank/ a division of Chemung Canal Trust Co., Albany Kathleen Whelehan Upstate National Bank, Rochester Michael Wimer Cattaraugus County Bank, Little Valley IBANYS STAFF John J. Witkowski President and CEO Stephen W. Rice Vice President of Government Relations and Communications William Y. Crowell III Legislative Counsel Linda Gregware Director of Administration and Membership Services

“We can see people’s spending habits change as a result of this program, and we’ve seen the spend at local merchants going up. So we know that this program is changing buyer behavior.”

RON MAGOON, President and COO, Franklin Savings Bank

Drive Revenue

Build Loyalty

Promote Community

Buzz Points ® is a rewards and marketing platform that is proven to have real impact on your bottom line.

A commissioned study conducted by Forrester Consulting on behalf of Buzz Points examined the potential return on investment that community banks may realize by utilizing the Buzz Points program. The study concluded that Buzz Points partners realize 139% ROI over a 3 year period.

Building strong communities, one point at a time™ Building strong communities, one point at a time™ buzzpoints.com | 855-499-2899 (BUZZ) | rewards@buzzpoints.com

PUBLIC AFFAIRS UPDATE | By Stephen W. Rice

Fourth Quarter Brings New Regulations, Familiar Findings

T

his past fall we have seen two new regulations proposed

by Gov. Andrew Cuomo and the New York State Department of Financial Services. One addresses the issue of cybersecurity, while the other is tied to the new state law enacted this past legislative session that addresses so-called “zombie” properties.

The proposed “zombie” (vacant or abandoned) properties regulation would require that banks and mortgage services report vacant and abandoned properties in accordance with the new law, which was signed in June. The law takes effect this Dec. 20, and addresses these properties by expediting foreclosure proStephen W. Rice ceedings, improving the efficiency and integrity of the mandatory settlement conferences, and obligating banks and mortgage servicers to secure, protect and maintain vacant and abandoned properties before and during foreclosure proceedings.

IBANYS worked hard to protect the interests of community banks in the process. We succeeded in inserting “carve outs” that exempt the vast majority of community banks based on a formula of their percentage of one- to four-family mortgage loans compared to the total number of such loans in New York.

The second proposal, dealing with cybersecurity, would be the first of its kind in the country. It would require banks and other financial services institutions regulated by the DFS to: • Establish a cybersecurity program; • Adopt a written cybersecurity policy; • Designate a chief information security officer responsible for implementing, overseeing and enforcing its new program and policy; and • Have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third parties.

It also includes a variety of other requirements to “protect the confidentiality, integrity and availability of information systems.”

IBANYS worked closely with member banks to submit comment letters on these proposed regulations.

Also this fall, the Federal Reserve (Fed) and the Conference of State Banking Supervisors (CSBS) released the results of their annual community banking survey. It found that small business lending grew by more than 7 percent 6 | Banking New York

in 2015, with small business loans representing 17 percent of community banks’ total loan portfolios. The survey also found community banks tend to make higher-dollar loans than their larger competitors – on average, the size of a small business loan made by a community bank was $96,000, while the average loan from a larger institution was $17,000. Approximately 80 percent said a majority of their loans were made to existing customers.

Community banks believe this underscores the value of our business model: building customer relationships. Mortgage lending grew by 6 percent, but many bankers expressed frustrations with the added compliance burden in this area, especially the TILA-RESPA integrated disclosures. Nearly two-thirds agreed that TILA, RESPA and Regulation Z together – including TRID – were the most confusing regulations to follow and account for nearly a quarter of their total compliance costs.

Regulatory burden was named as the top reason community banks choose to exit or curtail certain lines of business, and 5.4 percent of banks that currently offer one- to fourfamily fixed-rate mortgages said they plan to exit that line of business in the future. This emphasizes the need for tiered regulations and regulatory relief for community banks, which obviously do not have the same resources that larger financial institutions have to take on the added regulatory compliance burden. The added expense and person hours required to do so can be disastrous.

The study also found community banks continue to adopt new technologies to keep up with competition and customer demand. Approximately 81 percent said they are now offering mobile banking services, up from 71 percent the previous year. Bankers said remote deposit capture and personal financial management tools were the most likely areas of expansion in the future.

Interestingly, the tone of the findings tend to support an earlier study by the New York State Department of Financial Services (DFS), which found that New York’s community banks community banks “provide most of the loans for New York’s small businesses and farms and are thus essential to job growth and the strength of the state economy … Even though community banks had less than a quarter of all bank assets in New York and are competing against much larger national banks, they generate more than half of all small business loans and almost all the small farm loans in the state.” continued on page 8 

THE SECRET IS OUT!

Today’s banks are searching everywhere for a technology partner that does business the same way they do—a commitment to innovation and a focus on service. Well, look no further than CSI. Our innovative solutions and customer-centric approach are the secret combination you’ve been waiting for.

csiweb.com/Secret

Core Processing • Managed Services • Regulatory Compliance • Digital Banking • Electronic & Print • Payments Processing • Treasury Management

continued from page 6

Community banks held only 22 percent of all assets of FDIC banks in New York, but provided nearly 55 percent of all small business loans and 90 percent of small farm loans.

That DFS report also noted that New York’s community banks grew during the financial crisis by continuing to lend to small businesses and homeowners as larger banks pulled back.

“Community banks represent a strong economic engine that drives growth in New York and their performance is remarkable,” Cuomo said on the occasion of the study’s release. “Small business is the engine of job growth and most small business loans come not from the big national banks, but from community banks.”

Finally, autumn brought the election. As community banks go forward in 2017, there will be a new administration in Washington, new faces and perhaps policies at regulatory agencies, and a new Congress in Washington. There will also be a new Congress, and a new State Legislature in

Albany. Our new State Financial Services Superintendent Maria Vullo will begin her first full year in office. Many changes will take place, but our approach will be tried and true. We will work to inform our public officials of the vital role New York’s community banks play in the local and state economies, and their importance to the social fabric of the communities they serve. As one former state financial regulator observed, “Community banks focus on the unique needs of their communities. They build strong customer relationships which help attract local retail deposits. These banks take deposits from their communities and then typically recycle them back into their communities in the form of loans.”

■ Steve Rice coordinates government relations and communications for the Independent Bankers Association of New York State. He has worked in the New York banking industry and New York state government for more than three decades.

continued from page 4

hope you’ll join us in this long overdue effort and help support this very worthwhile cause.

Some of these programs help us develop recurring non-dues revenue streams for IBANYS. We need to explore new ways to provide tangible value and develop and enhance operating efficiencies for IBANYS, and help banks examine their own as well.

One exciting new way we are doing that is through our newly formed Innovation Committee, which reviews presentations on new products and services to help increase revenue and efficiency, and reduce expenses. It’s another important way IBANYS can provide real value to our membership.

What else is on our agenda?

• We are preparing to roll out a new and improved website, and update the look of our communications.

• We are developing new educational programs to add to our Regional Cyber Security and Regulatory Compliance conferences, Human Resources Conference, Lending Conference, Bank Directors Conference and our CFO Senior Management Conference and Annual Convention. Of course, we continue to offer a wide array of webinars.

• We have been extremely active in Albany and Washington on state and federal legislative and regulatory issues, proposing proactive legislation and playing

8 | Banking New York

strong defense – such as stopping major new proposals to expand credit union powers and authorities. We also continue use our communications efforts to raise the visibility and presence of our banks, industry and association on key trends and issues. With a new administration in Washington, and a new Congress and state Legislature in place, the pace will only quicken in 2017 and beyond.

So yes, 2016 has been a busy year. Throughout it all, our objective remains clear: To make certain IBANYS serves the needs and interests of our current and prospective member banks and partners alike.

There is much more that we need to accomplish together. IBANYS is truly a member-driven organization.

We operate from the grass roots, from the ground up. If we are to succeed, we need the active participation and support of our membership. IBANYS is their association.

That’s what makes IBANYS unique. The work goes on, and we’re in it together.

As we prepare for the new year, filled with new ideas, and optimistic about our the future, let’s keep moving forward together.

■ John Witkowski is president and CEO of the Independent Bankers Association of New York State. He may be reached at johnw@ibanys.net or (518) 436-4646.

THE POWER OF AN ADVANCE

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.

M&T Bank, an FHLBNY member, used an advance to help Emmanuel Missionary Baptist Church acquire a 39,923-square-foot commercial structure that houses a school, offices, church, rectory, and five-car garage. The larger facility allowed the organization to expand its outreach programs, including a food pantry and substance abuse counseling to benefit low-to-moderate income individuals in Rochester, New York.

Contact us to see how the power of an advance can improve your community.

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

MONEY MARKET FUNDS | By Kevin Hamilton

Why the Impact of MMF Reform Is Likely to Benefit Community Banks Now that the SEC’s new rules on money market funds (MMFs) have gone into effect, institutional cash managers are taking a new look at community banks.

Assets in Prime MMFs ($B)

Assets in Prime MMFs ($B)

1,600,000

Assets in Goverenment MMFs ($B)

Assets in Govt. MMFs ($B)

2,500,000

1,400,000

2,000,000

1,200,000 1,000,000

1,500,000

800,000

1,000,000

600,000

500,000

400,000 200,000

0

0

TOTAL PRIME MMFs

INSTITUTIONAL PRIME MMFs

Source: Crane Data’s Money Fund Intelligence

T

he October 2016 launch of the new SEC rules, coming after a two-year implementation period, changes how prime money market funds calculate value. Up until now, these funds have transacted at a stable net asset value (NAV) – meaning that they could be bought and sold at the same price, regardless of the movement in the underlying investments. Additionally, the new rules provide for redemption gates that can be enforced during times of financial stress on the funds, as well as liquidity fees.

Following the SEC’s initial announcement of the rule changes, there was a subdued response from institutional invesKevin Hamilton tors. The two-year timeline that the SEC specified for implementation gave a long runway for investors and fund managers to adapt.

With the changes now in effect, institutional money managers are starting to look at how to adjust their investment strategies with many investors looking for the exits, at least from prime funds. Data from Crane Data’s Money Fund Intelligence shows that, by the end of September (leading up to the rule change), prime funds, which invest in higher yielding securities like commercial paper, had lost more than $900 billion in assets since the beginning of 2015.1 So far, many investors haven’t completely exited the money fund market, but have largely transferred to government funds. Since October 2015, assets in government funds have nearly doubled, from around $1 trillion to nearly $2 trillion.

10 | Banking New York

TOTAL GOVT MMFs

INSTITUTIONAL GOVT MMFs

Source: Crane Data’s Money Fund Intelligence

However, more recently, money has started to move out of money market funds entirely. According to Crane’s, in the first two weeks of September 2016, prime money fund assets fell by nearly $100 billion, with only $52 billion of that moving to government funds.2 So how could this benefit banks?

Institutional investors are shifting their investment strategies.

Institutional investors have an array of options when it comes to managing their cash deposits, and once a strategy is institutionalized, it takes work to go back and evaluate new options. In fact, for many institutional investors, investment practices are written into policies, further increasing the difficulty in reevaluation. This structure often leads investors to live by the idiom, “If it’s not broken, don’t fix it.” However, the SEC rule change has effectively “broken” the investment policies for many institutional investors, triggering a reevaluation of investment practices. This opens a window of opportunity for banks.

Banks are a trusted resource for institutional depositors and have played a growing role in institutional investment strategies since the financial crisis, even before MMF rule changes. According to the AFP’s 2016 Institutional Cash Management survey, institutional money managers allocate 55 percent of short-term portfolios to bank deposits. For context, the same survey from 2007 showed just 27 percent of short-term institutional funds allocated to bank deposits.3 Using Promontory’s Insured Cash Sweep service, or ICS, banks have the ability to offer institutional cash managers the

same kind of safety of principal and liquidity that they previously expected in prime funds, without having to lock up the deposits in collateral or repo sweeps.

Institutional investors will have fewer cash management options.

Not all institutional investors will be impacted by MMF reform. Institutions that historically have had a greater tolerance for risk and variance in their short-term investments won’t see much of a shift in their practices. But many other institutional investors will face the prospect of a diminished range of short-term investment options. Many institutions are governed by rules that require a guarantee of principal on any deposit.

Changes in MMF reform have these risk-averse entities moving deposits out of MMFs or adjusting their investment practices to invest solely in government-backed investments, such as treasuries or agency notes, which has significantly reduced the yield on these instruments.

Again, bank deposits end up looking like an attractive option for many investors. With fewer investment options offering security for cash deposits, banks should be able to draw in safety-conscious institutional depositors, particularly by using ICS. The ICS service provides insurance on largedollar deposits with daily liquidity options.

Yield expectations are likely to adjust downward.

Banks should be aware of the potential impact of MMF reform on customer interest rates. As MMF reform rules go into effect and institutional depositors move their funds to investment options that offer stability, they will expect to pay for this safety.

For banks, this change in expectations could mean that entire customer classes become more profitable. The true safety-conscious customers will be comparing bank rates against government MMFs. At the end of September, the top government money funds were yielding less than 30 bps,4 below what many banks would be willing to offer for these same deposits.

rePRINTS

With the lure of the higher yields paid by MMFs gone or severely reduced, much of this money will migrate back to its traditional home: banks. And by using ICS, banks have the flexibility to negotiate the rate directly with the institutional depositor, balancing bank and depositor priorities.

This could hardly come at a better time for banks, particularly for community banks, which have had a harder time attracting new deposits, according to recent FDIC data that shows most deposit growth centered in larger banking institutions.5 The exact impact that a flood of institutional deposits could have on customer rates is still uncertain, but for reasons stated, it could have a moderating influence on deposit rates.

Given this confluence of factors, as the fallout from money market fund reform settles and the environment for institutional deposits becomes clearer, banks may very well continue to grow as an essential partner to these depositors, and ICS could be an essential tool for banks looking to take advantage of this opportunity. © 2016 Promontory Interfinancial Network LLC. ■ Kevin Hamilton is a regional director at Promontory Interfinancial Network.

Promontory provides unique balance sheet and liquidity management services, including CDARS®, ICS®, IND®, Yankee Sweep®, Bank Assetpoint® and Residential Mortgage NetworkSM for members of its nationwide network of banks. www.promnetwork.com.

Footnotes 1. MONEY FUND INTELLIGENCE XLS – Historical Asset Totals & Crane Indexes, October 2016, Crane Data.

2. MONEY FUND INTELLIGENCE XLS – Historical Asset Totals & Crane Indexes, September 2016, Crane Data.

3. 2016 AFP Liquidity Survey, Report of Survey Results, July 2016, Association for Financial Professionals.

4. MONEY FUND INTELLIGENCE XLS – Historical Asset Totals & Crane Indexes, September 2016, Crane Data.

5. FDIC Summary of Deposits Survey, 2016.

.

Positive coverage helps drive business.

Put your coverage to work with a reprint from BANKING NEW YORK.

To learn more about rePRINTS: bit.ly/BANKINGNY

Fourth Quarter 2016 | 11

the

Eyes

Have It Banks Behind to Embrace Biometrics

BY STEVE VIUKER

M

any years ago, in the days of catchy bank slogans, Chemical Bank’s was, “When Your Needs Are Financial, Your Reaction Is Chemical.” With an “eye” to the future, that slogan is once again relevant.

However, the “chemical” is now biometric technology, referring to the collection and use of biological data and behavioral characteristics. These next-generation identification controls are being used to combat fraud and make transactions more secure.

“I have mixed opinions about biometrics,” said Ben Goodman, founder of 4A Security & Compliance. “First, I find it remarkable that most banks allow consumers access to their accounts with a four-digit PIN that doesn’t expire, 12 | Banking New York

and in most cases hasn’t been changed in years. The hacks of the global SWIFT system show that banks stand to lose far more money in a single attack from vulnerabilities caused by their own poor security practices, than from lots of fraudulent account takeovers.”

Goodman notes that “when your credit card is stolen, you can call the bank and they’ll send you a new one. When your password is compromised, you can change it instantly. When your medical record is stolen, there’s nothing you can do about changing that. Same problem with biometrics in cybersecurity – you can’t just reissue your fingerprints if some bad guy finds a way to steal them.”

The technology is already a hit with certain segments of the population.

Baby Boomers Janice Chartoff and her partner, Steve

Marshall of Herndon, Virginia are both users of the new technology. Chartoff uses the scan technology to access accounts at four banks: Citibank, Barclays, PNC and SunTrust.

“I always use the scans because I’m old and can’t remember passwords,” she explained. (She is 56.) Said the even older Marshall, “It’s much easier than typing on the tiny iPhone keyboard, and I don’t have to change passwords.”

He uses it on his SunTrust account and says he’ll use it every time a website offers the option.

Some of the nation’s largest banks, acknowledging that traditional passwords are either too cumbersome or no longer secure, are increasingly using fingerprints, facial scans and other types of biometrics to safeguard accounts.

According to a recent New York Times article, millions of customers routinely use fingerprints to log into their bank accounts through their mobile phones. This feature is enabling a large percentage of American banking customers to verify their identities with biometrics.

BANK BANKS EMBRACE TECHNOLOGY Other uses of biometrics are also coming online. Citigroup can verify 800,000 of its credit card customers by their voices. USAA, which provides insurance and banking services to members of the military and their families, identifies some of its customers through their facial contours.

The Times reports many models of the iPhone have touch pads that can scan fingerprints. The cameras and microphones on many mobile devices are so powerful that they can record the minute details needed to create a biometric ID. The smartphones also provide an extra layer of security: Many biometric features will only work when used on the specific phone that belongs to the bank account holder.

With some voice authentication systems, banks use certain prompts to prove it is a living customer and not a recording.

Many eye scans require customers to blink or move their

Banking on Biometrics BANK OF AMERICA: FINGERPRINT AND TOUCH ID

Banks are fully capitalizing on Apple’s Touch ID and its Android counterparts. Bank of America’s customers can use the fingerprint scanner on their mobile phones to sign in to the mobile banking app. The new feature makes great use of an emerging technology trend and reduces friction for the customer.

BARCLAYS: HITACHI VEIN ID

Similar to fingerprint technology, Barclays has teamed up with Hitachi to offer “finger vein technology” to its corporate customers. To authorize transactions, business customers place a finger inside a small desktop scanner instead of entering passwords and PINs. The technology is considered highly secure due to the uniqueness of individual vein patterns, which are established in the womb and remain largely unchanged throughout one’s life.

WELLS FARGO: COMMERCIAL ELECTRONIC OFFICE Like Barclays, Wells Fargo has also introduced enhanced security features for its corporate customers. Users of the bank’s Commercial Electronic Office (CEO) mobile banking application – which includes high-level treasurers, CFOs, and accountants – will have the option to choose from two new biometrics authentication methods. The first method involves voice and facial data collection and recognition. The second requires users to capture a photo of the whites of their eyeballs; the unique red vein patterns in the eye are used to identify individuals and grant access into the app.

CITIBANK: VOICE BIOMETRICS AUTHENTICATION The new authentication method uses voice biometrics to automatically identify a customer while he or she explains an issue to a customer service representative over the phone. The new system cuts out the cumbersome process of verifying a customer’s identity through ID numbers and personal details. It takes less than one minute for a customer to set up a voiceprint. Over 250,000 U.S. customers have opted in.

continued on page 14 

Fourth Quarter 2016 | 13

COVER | continued from page 13

eyes to prevent a thief from using a photo to gain access.

Wells Fargo has been working with EyeVerify, a startup in Kansas City, Missouri, to develop its eye scan feature, which is being tested with a small group of corporate customers. The technology creates a map of the veins in the whites of an eye. To log into an account, a customer taps open a Wells Fargo app on a smartphone. When prompted, the customer’s eyes are lined up with a pair of yellow circles on the phone screen. If they match, the customer gains instant access to the account and can start moving money or conducting other transactions. For now, Wells Fargo is offering eye scans only to select corporate customers, for whom the stakes are arguably higher because there is potentially so much money involved.

Bank of America has embraced fingerprints. There are

limits on how far an average retail customer can proceed through the banking process without a password. JPMorgan Chase customers can gain access to their bank accounts with their fingerprints, but have to use a traditional password to transfer money. It takes only about 40 seconds to capture enough information about a customer’s vocal patterns to create a voice imprint that can be used as a form of identification. Once a print is established, it can reduce the time that customers spend identifying themselves to a call center representative.

“The future will likely see a more widespread embrace of biometrics in authentication, for better or worse,” said Goodman. “Personally, I’ll deal with the inconvenience of having a bank card reissued, rather than use my fingerprint to pay for dinner.” 

Fintech Needs Regulation Say the word regulation to someone in financial services and the cringe factor is immediate – it brings to mind reams of rules, including Dodd-Frank. Indeed, Donald Trump has proposed gutting much of the DoddFrank Act, but bringing back Glass-Steagall.

Regulatory oversight of fintech startups is tightening, according to a report from PwC. The report noted that 86 percent of financial services CEOs are worried about the impact of being too heavily regulated. However, Stephen Sheinbaum, founder of Bizfi, is an advocate of regulation.

Sheinbaum said that fintech is a fairly young industry and should have transparency. He also points out the difference between firms that lend to business and those to consumers and how vastly different they are, as are their governing rules and regulations. Sheinbaum also sees potential for more cooperation between banks and fintech firms as banks seek a new lending client base.

But there is regulatory confusion. For customers, a loan is a loan and a payment is a payment. As Slate reported, customers of the peer-to-peer payment company Venmo have found themselves subject to lapses in data security and transparency that a bank regulator would never allow.

The Treasury Department has published research and recommendations regarding marketplace lending.

The Consumer Financial Protection Bureau has discussed business practices with fintech companies, including companies’ origination fees. The Federal Trade Commission is seeking input with consumer advocates and law enforcement to weigh fintech’s implications for consumers. Said SoFi general counsel Rob Lavet, “Regulatory agencies want to ensure that consumers

14 | Banking New York

BY STEVE VIUKER

receive all required disclosures and that the product will not harm consumers.”

Adding to the mix is the fact that investor interest in fintech companies looks to have stagnated. After hitting an all-time high last year, the first quarter of investing in the space shows a 41 percent decline compared to the first quarter of 2015, the PwC report noted.

As fintech companies mature, some have taken to adding ex-regulators in senior roles, CNBC reported.

Former FDIC chair Sheila Bair joined lender Avant’s board of directors. Last year, lender SoFi brought former Securities and Exchange Commission chairman Arthur Levitt on as an advisor. Startups are looking to bolster credibility with Beltway veterans, at a time when regulators are seeking to address a gap in regulation between large, traditional financial institutions and startups.

American Banker magazine reports some banks have created innovation labs to develop new apps and technologies. And it’s not just big banks – Eastern Bank, a nearly 200-year-old, $9.5 billion-asset mutual institution in Boston, has its own lab to incubate promising new solutions and to partner with fintech companies, for example.

Rob Nichols, president and CEO of the American Bankers Association, has said that banks are eager to work with fintech providers. He explains that some banks license person-to-person payment platforms. Other banks refer borrowers to online marketplace lenders, collaborate in originating loans or purchase completed loans.

Nichols concludes that the two industries aren’t interested in mutual destruction but are looking for regulatory certainty. 

Solutions Get Results Teller Tools for Money Handling Automation

Your People are Your Best and Most Under-Utilized Assets The Right Solutions Will Give Your Tellers the Tools They Need to Get Results

Self-Service Coin Centers

Currency Recyclers

Currency Dispensers

Contact a Magee Consultant Today 800-347-1414 ext. 336 · tconklin@mageecompany.com · www.magner.com

© 2016 Magner Corporation of America. All rights reserved.

Currency Counters Coin Counter/Sorters Coin Counter/Packagers

BANK PROFILE | By Ian B. Murphy

Wallkill Valley Federal Savings and Loan Expands to Help Underserved Communities

W

hen a local community bank has got a good thing going, it’s only neighborly to share it with the surrounding communities – especially those that don’t have a bank of their own.

Wallkill Federal Savings and Loan has added three new branches in the past five years in Hudson Valley near to its original branch in Wallkill, raising its assets to $193 million.

The bank spent nearly 100 years focused purely on its namesake town in Orange County. The Wallkill Valley Federal Savings and Loan Association was founded in 1913 with the stated goals of promoting “thrift and homeownership within the local community.”

That’s exactly what it did for 98 years, until 2011, when President and CEO Michael Horodyski assumed his current roles and brought with him an expanded vision of “community.”

At that time many large financial institutions were still reeling, not yet recovered from the Great Recession, and pulling back some of their operations. For Horodyski and Wallkill Valley Federal Savings and Loan, it was an opportunity to bring its brand of community-first banking to smaller, underserved communities in nearby towns.

Wallkill Valley Federal in 2011 opened its second branch in Milton (population 1,403, according to the 2010 census), and the following year the bank acquired the Highland Falls Federal Savings and Loan in Highland (population 5,647).

“It’s important for us to identify areas where our style of banking, the community-first approach, is going to be effective,” Horodyski said.

16 | Banking New York

PARTNERS IN LOCAL REVITALIZATION That same guiding principle led the bank to open a branch in the village of Maybrook (population 2,958) in December 2014, after Chase Bank closed the only bank in town earlier in the year. Together the bank and the town applied to the New York State Department of Financial Services for a Banking Development District grant when the branch opened. The grant was approved in August 2016, and now Wallkill Valley Federal is in a position to help the small community revitalize itself.

“We feel there are certain industries that are important to a village center – a pharmacy, a bank, a coffee shop – things you need to be a vibrant center,” Horodyski said. “Maybrook is an old railroad community where the mayor and the town are working hard to redefine what it is.”

Dennis Lahey, Maybrook’s mayor, said the town used to have a good deal of trade and commerce; it housed a crucial switching terminal for several rail lines that linked up to cross the Poughkeepsie Bridge. The bridge was closed in the mid-1970s, and eventually nearly all of the jobs at the railyard dried up. Since then, the town has struggled, but Lahey said Wallkill Valley Federal’s investment in the town – with the state’s help – is a key piece to recovery.

“We’ve been trying to do revitalization and we’ve been working on infrastructure for the last eight years,” Lahey said. “We’re finally seeing the light at the end of the tunnel. It was a great thing that the bank was able to

come here, because there are a lot of investors interested in coming into the village of Maybrook and building other businesses. This is a really positive step.”

The Banking Development District (BDD) grant provides Wallkill Valley Federal with capital to make sure the new branch can grow in a healthy way while keeping costs low for the bank and its customers and reducing overall risk.

The state comptroller’s office gives $10 million in subsidized public deposits.

According to the Department of Financial Services, the stated goals of the BDD are to:

• Reduce the number of unbanked and underbanked New Yorkers.

• Enhance access to credit for consumers and small businesses.

• Reduce reliance on alternative providers of financial services.

• Promote an asset-building consciousness.

As part of the grant application, Wallkill Valley Federal identified three underserved populations in Maybrook and have created special programs for each. The town has a large Hispanic population, nearly 13 percent, and so the bank has created special outreach programs for that community to give them new banking opportunities.

Maybrook is also building a large senior living community in town; the bank will create special opportunities for

seniors to serve them however and wherever they can. The bank is also creating a financial literacy curriculum for the local high school.

Lahey said the partnership has so far been great for both parties.

“The special thing about Wallkill Valley Federal Savings and Loan is it’s a community bank,” he said. “We’ve referred local businesses to them because they like the hands on, one-on-one approach with them. They’re not a big corporate bank; they’re a bank that lives by working in the community.”

Horodyski said that’s exactly how they like it.

“This is our bread and butter,” he said. “We’re a mutual, we have no stockholders, our stockholders are the communities within which we operate.”

■

Engaged, Proven and Trusted Commercial Portfolio Consultants

LOAN REVIEW PROGRAMS

• Commercial Loan Review • Portfolio Acquisition Review (Due Diligence) • Leveraged Loan Review/Structured Finance Review

LOAN PORTFOLIO STRESS TESTING • Bottom Up Loan Level Approach • Top Down Capital Adequacy Assessment • Stress Test Methodology Validation

LOAN LOSS RESERVE METHODOLOGY • Methodology Validation • Methodology Refinement

CEIS REVIEW CONSULTING • Credit Risk Process Review • Loan Policy Maintenance

CONTACT US NOW TO LEARN MORE!

888-967-7380 // www.CEISReview.com

Fourth Quarter 2016 | 17

A FRAUGHT RELATIONSHIP | By Laura Alix

Banks Struggle With CFPB Requirements

A

s one of the most heavily regulated industries in America, it’s natural that bankers and regulators might not always have the happiest of relationships, but a new Aite Group report aims to shed some light on how banks’ relationship with the new cop on the beat may be a little more fraught than others.

Senior Analyst Shirley Inscoe’s paper, “CFPB: Impact on Financial Institution Fraud Departments,” highlights a few key areas of difference between the CFPB and other banking regulators. Bankers she interviewed for the report told her that CFPB examiners seemed to spend as much time working offsite as they did onsite, that the bureau required much more data than other regulators and that the examination process was generally less transparent and communicative than those of other regulators.

Inscoe wants to be clear that she’s not bashing the CFPB in her report.

“I didn’t want this report to be anti-CFPB,” she said.

“They have a role to play and while there can be philosophical differences, it’s an important role.”

But as a former compliance manager herself, Inscoe thinks that banks, consumers and regulators all benefit when bankers enjoy open and collaborative relationships with their regulators.

“I know personally when I was in that role I had a very close dialogue with the OCC,” she said. “We talked regu18 | Banking New York

larly, and if I had questions, I felt comfortable going to them and talking to them and making sure we were abiding by the spirit of the regulation and not just the letter of the law.”

Chris Cole, executive vice president and senior regulatory counsel at the Independent Community Bankers of America, said that he’s heard similar complaints about the bureau and commented that many community banks intentionally stay below the $10 billion asset threshold so as to avoid direct examination by the CFPB. Of course, while banks under $10 billion aren’t directly regulated by the CFPB, the bureau does write the rules for everybody, and smaller banks do watch what the bureau is doing. Those who work with community banks say it’s not uncommon for banks of all sizes to cultivate happy and healthy relationships with their respective regulators.

“I have several clients who have a collaborative relationship with regulatory agencies and are in touch with them other than those times when they’re being formally examined. They’re being proactive in keeping them informed,” said Kenneth Ehrlich, a partner at Boston-based Nutter McLennan & Fish and co-chair of the firm’s banking and financial services practice.

In Ehrlich’s work with banks under $10 billion in assets, he said that complaints about technical interpretations of various consumer compliance regulations are far more common over the past few years than issues with the CFPB more generally.

A HOLISTIC APPROACH TO COMPLIANCE While Stephen King, a member of Wolf & Co. and director of the firm’s regulatory compliance services, works with banks that are not directly subject to CFPB examinations, he still described some recent trends in the world of bank compliance. In particular, he noted an increasing demand for expertise in specific compliance areas as banks embed compliance staff into each of their business units. continued on page 20 

BUILD RELATIONSHIPS

With or Without Keeping Funds on Balance Sheet

REDUCE COLLATERAL BURDENS and Increase Asset Liquidity

DIVERSIFY FUNDING

in a Flexible, Cost-Effective Way

Smart, Profit-Enhancing Solutions To learn more, contact Kevin Hamilton, Regional Director, at (866) 776-6426, ext. 3329 or khamilton@promnetwork.com.

Limits, terms, and conditions apply. © 2016 Promontory Interfinancial Network, LLC.

A FRAUGHT RELATIONSHIP | continued from page 18

“What that’s translating to is a lot of institutions are beefing up compliance staffing in key compliance areas, like residential lending, BSA, even in commercial lending,” he said. “It’s not a compliance person from the compliance department, but it’s someone whose sole job is to analyze that department’s compliance.”

He also described a shift in the industry toward a “three lines of defense” approach to compliance. It helps to picture this in terms of three concentric circles. The first line of defense is the compliance staff embedded within individual business units, testing processes and procedures within that specific division. The second line of defense, general compliance staff, broaden that focus a little bit and validate and test the work of the first line of defense. The third line of defense, King said, is the audit functionality, which takes a holistic look at both the individual business units and the compliance department.

King also said the industry has undergone a philosophical shift in its approach to compliance, moving from a bottom-up approach to a top-down approach.

“In the past it was all about, ‘What do we need to pass?’” he said. “What banks are doing now with [enterprise risk

management] is analyzing, ‘What are we doing and why are we doing this?’ The exam now is almost catching up with that: you’re doing this to run a more effective and more efficient bank. We want to run a more effective and more efficient exam.”

More broadly, Ehrlich has a suggestion for bankers looking to survive a regulatory exam: “No. 1, run a good bank,” he said. “Run a good ship. Be transparent. Be cooperative, professional and reasonable, and it’s unlikely you’ll have any trouble.”

That doesn’t mean that even the best-behaved banks haven’t occasionally encountered an examiner with an apparent axe to grind, but Ehrlich said this is fortunately rare.

“That’s unfortunate, but it can happen even to the best prepared bank,” he said. “The world’s not a perfect place, so occasionally, you will get some strange treatment from an examination team, but it’s pretty rare.”

■ Laura Alix is the banking and lending reporter for The Warren Group, publisher of Banking New York. She may be reached at lalix@thewarrengroup.com.

2016 ANNUAL

INDEPENDENT BANKERS ASSOCIATION

convention

a thank you to our sponsors Platinum

Gold Atlantic Community Bankers Bank

Federal Home Loan Bank of New York 101 Park Ave., New York, NY 10178 (212) 441-6700 • www.fhlbny.com

1400 Market Street, Camp Hill, PA 17011 (717) 737-9335 • www.acbb.com

ICBA Services Network

1615 L St. NW, Ste. 900, Washington, DC 20036 (800) 422-8439 • www.icba.org

T. Gschwender & Associates, Inc. 311 Montgomery St., Suite 1 Syracuse, NY 13202 (315) 701-1293 www.tgschwender-assoc.com

Turning Stone Resort & Casino

Silver DEI, Inc. KASASA Smith & Wilkinson

Bronze Equias Alliance Sandler O’Neill + Partners Pentegra Retirement Services Strategic Resource Management Roosevelt & Cross Inc.

Additional Sponsors Promontory Interfinancial Network Travelers Wolf & Company

Shazam

6700 Pioneer Pkwy., Johnstown, IA 50131 (309) 678-9021 • www.shazam.net

20 | Banking New York

OCT. 3–5, 2016

MORTGAGE MARKETSHARE REPORTS See How You Compare.

Data Solutions | www.thewarrengroup.com

Monitor, Analyze And Track Lending Activity With Mortgage MarketShare Reports.

The Warren Group gives you the ability to dissect and analyze the mortgage lending market as you define it: by time period, loan type, geography, mortgage type, mortgage amount, and more. Our flexible reports allow you to view market trends, monitor competitors and measure your own performance throughout NY, MA, CT, RI, NH and ME. Tell us your objectives and we’ll supply the comprehensive reports that tell you what you want to know.

The Information You Need And More:

New: Mortgage MarketShare Module

• Measure sales performance against competition and market activity

• Interactive web-based reporting

• Identify high-performing competitors

• On demand results

• Locate and target emerging markets

• Custom regions and sophisticated searching

• Determine sales territories and quotas

• Save select queries

• Benchmark the productivity of originators and offices • Track market share trends and rankings • Demonstrate compliance with the Community Reinvestment Act

Mortgage MarketShare Reports - See How You Compare!

Call 617-896-5348 to speak with one of our data specialists or email dlovins@thewarrengroup.com.

INDUSTRY NEWS / SMALL CHANGE | News Roundup

INDUSTRY NEWS STATE ISSUES CYBER REGULATIONS FOR BANKS, INSURERS New York Gov. Andrew Cuomo in September issued proposed cybersecurity regulations for banks and insurers in the state, the first of their kind in the United States by any state or federal agency, the governor’s office said in a statement.

Cuomo’s planned regulations for institutions overseen by the New York State Department of Financial Services (NYDFS) would require companies to set up cybersecurity programs and appoint a CFO, among other measures, according to the governor’s office.

The planned regulations, in the works since 2014, follow a series of high-profile hackings of U.S. companies and three surveys by the regulator about cybersecurity programs at a total of nearly 200 companies under its watch. One NYDFS report last year revealed that a third of 40 banks in a 2014 survey did not require outside vendors to notify them of data breaches, which could compromise bank data.

The regulations aim to provide institutions with flexibility to adapt to technological innovations while reducing vulnerabilities, NYDFS Superintendent Maria Vullo said in a statement.

Among the planned requirements, board chairmen would have to file annual certifications with NYDFS, stating that – to the best of their knowledge – their companies’ cyber programs comply with the regulation.

Other measures would include appointing overseers for outside vendors and limiting access of customers’ non-public information, such as Social Security numbers, to employees who need those details, according to the proposal. Systems would have to include multiple steps for verifying user identities.

Institutions would also have to regularly test their cybersecurity systems. The chief information security officer would have to present twice-yearly reports about progress and vulnerabilities to the board of directors and make those findings available to NYDFS.

Saratoga National Bank & Trust Co., have expressed interest in acquiring the branches.

The merger adds 300 branches to Key’s network in New York, Pennsylvania, Connecticut and Massachusetts, as well as $29 billion in deposits and total assets of $40 billion. The acquisition makes KeyCorp the 13th largest bank in the country.

KeyCorp has said it is limiting job cuts to 250 employees throughout the state, though it is not clear how many jobs will be lost in Albany. As of July, the two banks employed more than 1,200 people in the Albany area with about 800 at KeyCorp and 400 at First Niagara.

JPMORGAN CHASE & CO. ANNOUNCES PARTNERSHIP WITH FINTECH FIRM New York Cityheadquartered JPMorgan Chase & Co. and InvestCloud, a California-based fintech firm, recently announced a strategic relationship aimed at developing of new digital capabilities for individual investors at both the J.P. Morgan and Chase franchises. JPMorgan Chase also made an equity investment in InvestCloud.

Beginning in 2017, the firm’s wealth management clients at J.P. Morgan and Chase will have access to user-driven online investing through dashboards, additional mobile functionalities and new ways to open accounts.

SMALL CHANGE DIME COMMUNITY BANK ANNOUNCES APPOINTMENT OF NEW CHIEF RETAIL OFFICER Dime Community Bank announced that William E. Brown has joined the bank as executive vice president and chief retail officer. Brown has over 20 years of financial services experience, most recently as head of the retail branch network at HSBC. Prior to that, he worked at Citibank as a managing director in positions of increasing responsibility. Previously, Brown was an officer in the U.S. Navy for nearly eight years.

FIRST NIAGARA TRANSITIONS TO KEYBANK

BNY MELLON APPOINTS ROBINSON TO BOARD

Buffalo, New York-based First Niagara branches recently received new signs, as the bank transitioned its clients into KeyBank clients.

As part of the merger, 30 branches in the Albany area will close; the closures began in early October and will run through 2017.

According to the Albany Business Review, several banks, including Pioneer Bank, Kinderhook Bank and

BNY Mellon announced that its board of directors has elected Elizabeth Robinson, the former global treasurer of The Goldman Sachs Group Inc., as an independent director, effective immediately. With the addition of Robinson, BNY Mellon’s board will have 12 directors, 11 of whom are independent. Robinson will also be included in BNY Mellon’s slate of nominees for election to the board at the 2017 Annual Meeting of Shareholders. Robinson will join BNY Mellon’s finance and risk committees. Robinson is also a trustee of Williams College and MASS MoCA. ■

22 | Banking New York

Eight in ten U.S. households 1 do not have a life insurance agent.

O O N

O O

Vantis Life helps banks fill the role of life insurance agent for core mass-affluent customers. We are the industry leader in: • Providing a selection of simple products for your core customers • Wholesaling and training support • Agent and customer-facing technology To find out more contact John Richter, National Business Development Director, at 860-298-5477, or jrichter@vantislife.com

Recipient of the 2016 BISA Technology Innovation Award 1

www.vantislife.com/ABLE

Source: LIMRA Insurance Barometer Study

©2016 Vantis Life Insurance Company, Windsor, CT. All rights reserved.

Vantis Life and A better life experience are trademarks of Vantis Life Insurance Company.

Our 100 years tneans that wherever you are going, we can guide you there.

At Wolf & Company, we pride ourselves on insightful guidance and responsive service. As a leading regional firm, our dedicated professionals and tenured leaders provide Assurance, Tax, Risk Management and Business Consulting services that help you achieve your goals.

Visit wolfandco.com to find out more

WOLF & COMPANY, P.C.