1368718865 2013 Banking Priorities vFinal

7/27/2019 1368718865 2013 Banking Priorities vFinal

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INTRODUCTION

Each year, most businesses establish top priorities

that will help ensure their ongoing success. As key

participants in our countrys economic stability and

critical nancial inrastructure, nancial institutions (FIs)

are no dierent.

Its prudent or each FI to identiy annual priorities that

will secure the success o the lending, depository, and

investment strategies that grow protability, satisy

customers and shareholders, manage operating costs

and risks, and cost-eectively enable compliance.

CSIs Annual Banking Priorities Study1 was

commissioned to give FIs timely industry and economic

insight that can be used by each to successully dene

its annual strategy and accomplish its priorities.

EXECUTIVE REPORT:2013 BANKING PRIORITIES STUDY

1This 2013 annual survey o nancial institutions was conducted with the help o cbanc Network and its members.


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EXECUTIVE SUMMARY

CSIs 2013 Annual Banking Priorities Study, in addition

to data released by the FDIC, oers positive signs o

a steady improvement across many important areas.

The inormation suggests that 2013 is the year that

FIs have a viable opportunity to execute on strategic

plans or getting back to the basics o why most

o them are in businessprotable, risk-based

community lending and investing in prudent assets,

while growing existing customer relationships and

expanding market share to new customers.

It is no surprise, however, to nd that many o the

issues that conronted nancial institutions in 2012

will continue this year, including:

Sustained economic recovery

Countless new regulations being nalized rom the

Dodd-Frank Act

Innovative ways to deliver new products to customers

Secure and cost-eective ways to leverage

technology or operating eciencies

These areas o continued concern have caused

many FIs to indicate that they retained the same

top priorities rom 2012 into 2013compliance andloan growth. While these top two priorities have not

changed, the underlying reasons or these priorities

have changed and are discussed in the 2013 Growth

section under Detailed Review.

The survey responses to this years study, along with

other industry data, also suggest that 2013 is the

year FIs ocus on executing strategies to address

unprecedented compliance pressures. Respondents

also highlighted a continued, gradual recovery

and positive outlook among banks or lending,

protability, investment in technology, and adoption

o such services as cloud computing and mobile

banking. Expectedly, they also are continuing to

report heightened concerns with:

The oreseeable cost o regulatory changes

scheduled in 2013 and beyond

Inormation security threats rom externalinternational and domestic attacks and mobile

devices

Continued pressure on protability rom low

interest rates and tight net-interest margins

E x e c u t i v e R e p o r t

2

E x e c u t i v e R e p o r t : 2 0 1 3 B a n k i n g P r i o r i t i e s S t u d y


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Annual Net Income Is the Highest Since 2006: FDIC Quarterly Banking Prole Data Ofers Signs o Improvement

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported

aggregate net income o $34.7 billion in the ourth quarter o 2012, a 36.9 percent improvement rom the $25.3

billion in prots that the industry reported in the ourth quarter o 2011. This is the 14th consecutive quarter that

earnings have registered a year-over-year increase. Increased noninterest income and lower provisions or loan

losses continued to account or most o the year-over-year improvement in earnings. For the ull year, industry

earnings totaled $141.3 billiona 19.3 percent improvement over 2011 and the second-highest improvement ever

reported by the industry ater the $145.2 billion earned in 2006.

The improving trend that began more than three years ago gained urther ground in the ourth quarter, said

FDIC Chairman Martin J. Gruenberg. Balances o troubled loans declined, earnings rose rom a year ago, and

more institutions o all sizes showed improved perormance.

Sixty percent o all institutions reported improvement in their quarterly net income rom a year ago. Also, the share

o institutions reporting net losses or the quarter ell to 14 percent rom 20.2 percent a year earlier. The average

return on assets (ROA)a basic yardstick o protabilityrose to 0.97 percent rom 0.73 percent a year ago.

Asset quality indicators continued to improve as insured banks and thrits charged o $18.6 billion in

uncollectible loans during the quarter, down 27.4 percent rom a year earlier. The amount o noncurrent loans

and leases (those 90 days or more past due or in nonaccrual status) ell or the 11th consecutive quarter, and the

percentage o loans and leases that were noncurrent declined to the lowest level in our years.

In short, the ollowing can be determined:

Insured institutions o all sizes increased their loan

balances during the quarter, led by commercial and

industrial loans

The fow o money into deposit accounts increased

sharply. This indicates that many institutions tookadvantage o the low-rate environment to improve

core deposits by making the most o the relatively

cheap and stable retail deposit base. These

institutions are now in a better position to oer

loans, once interest rates increase, and to cross

sell products and services

The number o institutions on the FDICs Problem

Bank List declined or a seventh consecutive

quarter

Full-year net income improved or a third

consecutive year


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FI Study o Challenges, Opportunities and Goals

This CSI 2013 Banking Priorities Study provides an executive level view o the challenges, opportunities and

goals acing FIs and the industry in general. C-level proessionals, including executive, operations, compliance,

inormation, and security ocers, as well as other key personnel, were asked or their strategic insight on a

range o industry-relevant questions.

Several o the same questions rom our 2012 survey were repeated this year to help monitor key trends. The

questions that were retained ocused on challenges and opportunities associated with the economys eect

on growth, Dodd-Frank compliance and overall compliance readiness, mobile banking, and IT outsourcing in

the cloud. New questions were added to explore emerging topics that may be o interest to FIs in 2013. These

questions explored such topics as security incidents, merchant capture strategies and outsourcing both IT and

document delivery.

In summarizing the results, the inormation we can surmise includes that:

Compliance and loan growth remain the greatest

challenges

Loan growth displaces customer acquisition as the

greatest area o opportunity in 2013

The economy is increasingly having a positive eect

on protability

More than 60 percent expect lending growth to

improve in 2013

Mobile banking, wire and ACH origination, and

remote deposit capture technologies continue to be

new investment priorities in 2013

Mobile applications, text message alerts and

mobile check capture are popular or 2013

Fity-one percent o FIs plan to increase technology

spending

In regard to compliance challenges that require

solutions, Dodd-Frank regulatory planning and

sel-assessment top the list again in 2013 with 57

percent

Almost all FIs have or are working on a strategy to

prepare or DFA regulatory changes

IT risk assessments should be perormed more

requently

External threats and attacks remain the top

security concern or the second consecutive year

Consistent with last year, more than 65 percent o

FIs will still have less than a ourth o employees

accessing data rom the network rom mobile

devices

Overall, there is a steady rise in FIs outsourcing IT

services to the cloud

Disaster recovery was listed as the biggest benet

to leveraging cloud-based solutions

Concerns regarding cloud solutions diminishedacross the board, indicating that FIs have a better

understanding o IT outsourcing

More awareness o the GLBA security requirements

and inormation security risk with document

processing are still needed

Paper statements and notices are decreasing

Merchant Capture is a high-risk transaction and

must be secure

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DETAILED REVIEWThe ollowing summarizes the detailed responses o each survey question.

2013 GROWTH

What are your greatest challenges heading into 2013?

Compliance and loan growth continue to be the greatest challenges.

While these top two priorities have not changed since 2012, the underlying reasons have. In an eort to help

clariy the reasons, we will review the compliance and loan growth challenges o 2012 in retrospect and then

oer insight on how they may change in 2013.

Compliance in Retrospect

In 2012, key reasons behind the compliance

challenges were the uncertainty o mandates rom

rule changes that were not scheduled to be nalized

until 2013, identiying a prudent plan or proactively

assessing the eect o the compliance changes on

the FI and its customers, and strategies to und these

unprecedented compliance eorts with the necessary

expertise and tools.

Many FIs were taking a wait-and-see position, untilthe new rules were actually published.

In 2013, the primary reasons behind the compliance

challenges changed to ocus on executing regulations

that are on the horizon. Specically, several nal

mortgage reorm rules were published and are

scheduled to take eect in January 2014.

FIs must now act to:

Dene a 2013 compliance strategy as part o an

overall strategic plan

Hire sucient expertise to understand the eect o

the rules on the FI

Sel-assess compliance with the new rules taking

eect in January 2014

Implement changes, as needed

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Greatest Challenges


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2A qualied mortgage cannot have a debt-to-income ratio (DTI) greater than 43 percent, unless it qualies or a GSE or FHA loan DTI. The DTI requirement is in addition to

other documentation and loan-to-value requirements to support a borrowers nancial position and ability to repay the loan. Thereore, even i the borrower meets all

other requirements that satisy his or her ability to repay the loan, the loan would not meet the denition o a qualied mortgage, unless it also meets the DTI bright-line

requirement.

Loan Growth in Retrospect

In 2012, the ollowing key reasons were behind the

loan growth challenge:

Examiner pressure on increasing regulatory capital

levels and avoiding riskier loans Getting rid o toxic assets on the balance sheet

Low interest rates and downward pressure on net-

interest yields

Excessive competition in a limited market o viable

lending prospects

The uncertainty o the elections and their eect on

the industry as a whole

Impending Dodd-Frank Act Mortgage Reorm rules

In 2013, many institutions are looking at loan

growth as a means o getting back to basics withan improving economy and market opportunities to

cross-sell products and services, and putting core

deposits to use. FIs eorts over the last ew years to

clean up the balance sheet have yielded:

Stronger core capital positions that enable FIs to

pursue loan portolio growth

Improved Allowance or Loan and Lease Losses

(ALLL) and lower nonaccrual amounts

Unortunately, FIs will continue to struggle against:

Low interest rates and downward pressure on net-

interest yields

Excessive competition in a limited market o viable

lending prospects

A smaller pipeline o qualied mortgages with

the new qualied mortgage rule that requires a

minimum 43 percent debt-to-income (DTI) ratio.2

Many jumbo loan borrowers and rst-time home

buyers with excessive credit card or student

loan debt are expected to ail these DTI qualied

mortgage requirements


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While the banking industry is not back to pre-2008

levels, such recent data as the FDIC Quarterly

Banking Prole Report suggests that 2013 will

continue to show steady improvement as the banking

industry continues to recover rom the nancialmarket turmoil that started in 2008. The Beige Book,

released on March 6, 2013, by the Federal Reserve,

also reported that economic activity generally

expanded at a modest to moderate pace in all 12

Federal Reserve Districts. FIs should take advantage

o the improving environment to get back to basics

putting core deposits to use or:

Lending under a prudent risk-based lending policy

Diversied lending into residential, commercial and

small-business loans

Investing wisely in low-risk investments, while

maintaining adequate capital

FIs also can implement basic strategies and

automated tools to help improve net-interest margins

and prot. Examples include:

Loan pricing

Funds transer pricing

Analyzing the level and trend o long-term asset

concentrations and non-maturity deposits

Getting back to basics is not always exciting and does

not guarantee the highest rates o return or a quick

short-term prot. Executing a traditional risk-based

lending and investment strategy with prudent loan

and unds pricing tools, however, will support a

sustainable return to long-term protability.

FIs will continue to be smart in their planning

and execution. Most FIs want to explore new and

innovative products and services to establish higher

revenues, maintain existing customers and gain

new customers. Thereore, 2013 also is the year

o execution or mobile banking, remote depositcapture, and compliance program updates and risk

assessments.

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What are your greatest opportunities heading into 2013?

Loan growth moves into the top spot or the greatest opportunity in 2013.

Expectedly, respondents indicated several opportunities o interest or 2013. Twenty-our percent cited loan

growth as their greatest opportunitya 10 percent increase over last year. As one respondent stated:

I it is true that we are sitting at the headwaters o an economic recoveryhowever slow it may

comethen the opportunities are tremendous. As consumers return to the marketplace with a new

appreciation or scal responsibility, banks will be at the oreront. Consumer awareness programs,

convenience-based products and realistic (e.g., short-term and well-qualied) loan products should

be tools or consumerism o the 21st Century.

Until the residential lending market gains additional strength, it is anticipated that the primary ocus or this loan

growth among many FIs will be commercial real estate, small-business and agricultural loans. Commercial real

estate and agricultural loans will provide higher yields than traditional amily residential mortgages, which will

improve the FIs net-interest margin.

The respondents anticipated growth in non-residential loans also is consistent with the ourth quarter o 2012

FDIC data that showed insured institutions o all sizes increased their loan balances during the quarter, led by

commercial and industrial loans.

New technology retains the second slot or supporting customers and enhancing such virtual channels as

online and mobile banking oerings. Additionally, mobile banking moved up to tie in the second slot as a new

opportunity or expansion in the use o existing mobile platorms that have already been launched.

Expanding market share also rose to tie in the second slot, as several respondents were optimistic about

opportunities to put core deposits to good use with anticipated increased lending activities and their ability to

beat out competition that may still struggle with limited capital. Ten percent o respondents continue to see

opportunities or acquiring customers rom big banks.

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Reports rom the 12 Federal Reserve Districts

indicated that economic activity generally expanded

at a modest to moderate pace since the previous

Beige Book. Five districts reported that economic

growth was moderate in January and early February,

and ve districts reported that activity expanded at a

modest pace. The Boston District stated the economy

continued to expand slowly, and the Chicago District

reported that economic activity grew at a slow pace.3

How do you expect the economy to aect your FIs

protability in 2013?

The economy is having an increasingly positive eect on

proftability.

Overall, 32.7 percent o respondents eel the economy

is having an increasingly positive eect on the FIs

protability. Conversely, ewer respondents eel the

economy is having a negative eect or any change

on protability. While these changes are small, they

are trending in a positive direction to suggest the

economy is continuing to stabilize and oer more

opportunity or protability than in the last ew years.

3March 6, 2013 Federal Reserve Beige Book


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FIs also can expect a continued residential lending

struggle in 2013 due to:

Prepayment risk with interest rates at record lows

Tight net-interest margins and interest rate risk

concerns

A large concentration o lenders now marketing to

residential borrowers

A decreased percentage o real estate construction

and development loans

New borrower requirements or a qualied

mortgage under the Consumer Financial Protection

Bureau (CFPB)s qualied mortgage denition4

Added disparate impact violation risks on lenders5

What is your outlook on your FIs lending growth in 2013?

More than 60 percent expect lending growth to improve

in 2013.

Nearly 62 percent o respondents agree lending

growth is in the orecast or 2013. This is the second

year in a row that the majority o respondents indicated

a positive outlook. Another positive sign is that only

6.7 percent o respondents expect lending to decrease.

The year-end 2012 lending data rom the FDIC shows

much o the growth is still originating in seasonally

adjusted credit card balances and commercial,

industrial and business loans. The FDIC reported that

loan balances posted the sixth quarterly increase

in the last seven quarters. Insured institutions o all

sizes increased loan balances during the last quartero 2012. These are positive indicators or growth.

4Based on the CFPBs qualied mortgage denition, lenders should expect a smaller pipeline o qualied mortgages that meet the requirements or a minimum 43 percent

debt-to-income ratio. Many jumbo loan borrowers and rst-time home buyers with excessive credit car d or student loan debt are expected to ail these DTI qualied mortgage

requirements.

5The U.S. Department o Housing and Urban Development (HUD) issued a nal rule on Feb. 8, 2013, stating that a Fair Housing Act violation may be ound when a lending

practice has a disparate impact on dierent demographic groups. Violations may be cited even i a polic y or practice is neutral on its ace. HUD requires institutions to prove

that any challenged practices are justied by a business necessity.


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What are your plans or oering the ollowing value-added services in 2013?

Mobile banking, wire and ACH origination, and remote deposit capture technologies continue to be new investment

priorities in 2013.

With the popularity o smart phones and other mobile devices, FIs are realizing the benets o convenience, cost

savings and revenue opportunities that mobile banking technology provides or customers and the institution.

Resoundingly, 80.3 percent o the respondents reported that they have already implemented wire and ACH

origination. Similarly, 64.9 percent already oer remote deposit capture.

Forty-six percent cite mobile banking with mobile alerts as the top technology investment rom 2012 into 2013.

A signicant percentage o the respondents (78.9 percent) have implemented or are exploring investments in

mobile alerts.

Nearly 67 percent o respondents oer or are considering mobile banking check deposits. This refects a growing

interest among the responding FIs now already oering or planning to oer the service. In addition, 52 percent

have made or are exploring investments in mobile banking rameworks that enable them to successully cross-

sell and up-sell products and services to existing customers.

Person-to-Person (P2P) Payments continues to be an area o investment through 2012 and into 2013. More than

31 percent o the respondents are looking at this technology in 2013. A total o 51.5 percent, ve out o 10 FIs,

already oer or are now considering the value o P2P as a new service or customers. P2P appears to be a slow

but steadily growing service o interest among FIs.

As FIs continue to search or added sources o non-interest, ee-based income, the ollowing services may oer

additional income opportunities:

Wire and ACH origination

Remote Deposit Capture

P2P Payments

Micro-cash management to small- and medium-size businesses

Notication o vendor discounts

Technology Investments (208 responses) Already OferWill or

Considering itor 2013

A PriorityInvestment

NotConsidering

it

Wire and ACH Origination 80.3% 1.9% 82.2% 7.7%

Remote Deposit Capture 64.9% 14.9% 79.8% 20.2%

Mobile Banking with Mobile Alerts 32.7% 46.2% 78.9% 21.2%

Mobile Banking Check Deposit 6.7% 59.6%66.3%

33.7%Mobile Banking with Framework to Cross-selland Up-sell

7.2% 44.7% 51.9% 48.1%

P2P Payments 20.2% 31.3% 51.5% 48.6%

Personal Financial Management 23.1% 28.3% 51.4% 48.6%

Micro-cash Management to Small- andMedium-size Businesses

23.6% 25.6% 49.2% 52.9%

Opt-in or Notication o Vendor Discounts 3.8% 20.3% 24.1% 76.0%


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What are your plans or technology investments in 2013?

More than hal plan to increase technology spending.

Respondents show that plans or technology

investments in 2013 will exceed 2012. Nearly

97 percent cited plans to invest more or the sameamount in technology in 2013. O that, 51 percent

plan to increase technology spending. This is another

positive metric that shows signs o condence

among FI executives in the growing strength o our

economic recovery and the outlook or the nancial

industry. It also refects the awareness among FI

executives o the value that prudent technology

investments can generate as they continue to

compete or new customers, grow income rom

existing customers, manage risk and compliance

costs, and maintain protability.

From the responses to this survey and other industry data recently published6, mobile banking and payments

and cloud technology were identied as the most important IT-related projects or FIs in 2013.

2013 COMPLIANCE

Where will you need compliance services and products to help in 2013?

Dodd-Frank Act (DFA) regulatory planning and sel-assessment are top o the list again in 2013 with 57 percent.

Fity-seven percent o respondents continue to identiy DFA planning as the top compliance priority, exceeding

last years response o 47 percent. Similarly, DFA sel-assessment is again at the top o the list with 45 percent,

which is consistent with last years priorities. Last year, we predicted that as more o the nal DFA rules werepublished, DFA compliance help would continue to be an important area o support or FIs. This trend is likely to

continue as many o the new rules begin to take eect in 2014.

Almost hal o the respondents, 44.2 percent, selected help with the review and updating o their consumer

compliance programs. This makes sense, since several o the DFA rules that have been published by the CFPB

will require a review and update o each FIs consumer compliance program. It also is consistent with the

increased ocus o examiners on consumer compliance programs. Many institutions are reporting that examiners

are perorming more stringent consumer compliancerelated exams, e.g., Fair Lending, CRA, HMDA, Fair Credit

Reporting Act, UDAAP, and website compliance.

These compliance exam priorities may be the catalyst or approximately one-third o the respondents indicating

that they will be looking or help with CRA, Fair Lending and Lending compliance reviews; deposit and operations

compliance reviews; consumer compliance risk assessments; UDAAP risk assessments; BSA/AML reviews and

risk assessments; and administering consumer compliance programs.

Enterprise risk management (ERM) products and services also have jumped to the oreront with 40 percent

identiying ERM as an area where they will need compliance help in 2013.

Approximately one quarter o the respondents will be looking or help with inormation technology and

security risk assessments, Management Quality (the M in CAMELS), website compliance reviews, social media

compliance, stress testing and vendor management programs.

6Crosman, Penny. Community Banks Plan to Increase IT Spending in 13: KPMG. Bank Technology News, Nov. 6, 2012.

http://www.americanbanker.com/issues/177_215/community-banks-plan-to-increase-it-spending-2013-kpmg-survey-1054171-1.html


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Will need compliance products and services to help with: (208 Respondents) Count Percent

Dodd-Frank regulatory planning 119 57.2%

Dodd-Frank sel-assessments to identiy areas o change, as needed 94 45.2%

Review and update consumer compliance program 92 44.2%

Enterprise Risk Management (ERM) 84 40.4%

CRA, Fair Lending and Lending compliance reviews 80 38.5%

Deposit and operations compliance reviews 67 32.2%

Consumer compliance risk assessments 65 31.3%

UDAAP risk assessments 64 30.8%

BSA/AML reviews and risk assessments 62 29.8%

Administering consumer compliance program 60 28.8%

IT and IS risk assessments 55 26.4%

Management Qualityensuring that management consistently and eectively identies,

measures, monitors and controls risks54 26.0%

Website compliance reviews 47 22.6%Social media compliance, e.g., logging and tracking o social media marketing activity

and customer complaints47 22.6%

Stress testing to quantiy the eect o changing economic conditions on asset quality,

earnings and capital46 22.1%

Vendor management IT and security compliance and risk 46 22.1%

Fraud 41 19.7%

Asset qualityassessing the quantity o existing and potential credit risk 38 18.3%

Red fags and identity thet reviews 37 17.8%

Internal control audit 36 17.3%

Earningsevaluating the quality, strength and source o earnings 30 14.4%

Consumer complaint tracking 30 14.4%

Electronic Funds Transer, Regulation E 29 13.9%

Business continuity program 28 13.5%

Sensitivityassessing the ability to identiy, monitor, manage and control market risk 27 13.0%

Capital adequacymaintaining adequate capital 25 12.0%

eBanking Review 24 11.5%

Expedited Funds Transer, Regulation CC 23 11.1%

GEOCODING or HMDA and CRA 23 11.1%

Vendor management consumer compliance and risk 23 11.1%

ATM audit 22 10.6%

Customer due diligence 21 10.1%

OFAC screening 19 9.1%

CIPbad check history 19 9.1%

Wireless penetration testing 19 9.1%

Wire processing 18 8.7%

Liquidityassessing ability to und assets and meet obligations as they become due 13 6.3%

Phishing/pharming audit 13 6.3%

Web application testing 8 3.8%

Other 7 3.4%


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Do you have a strategy established to prepare or the

Dodd-Frank regulatory changes in 2013?

Almost all FIs have or are working on a strategy to

prepare or DFA regulatory changes.

While only 18 percent have actually rolled out a

strategy to start managing the DFAs eect on their

compliance programs, 71.2 percent o respondents

indicated that they are working on a strategy to

prepare or the changes. Since the nal mortgage

reorm and other rules have already been published,

all institutions should immediately begin to assess

and administer policies, procedures, practices,

disclosures, webpages and other compliance

program aspects that may need revision to ensure

compliance with the pending eective dates o the

new rules, e.g., January 2014 is the eective date or

the mortgage reorm rules.

It is easy to understand why many institutions have

not nalized a strategy to manage the eect o the

DFA on their compliance programs. While many

nal rules are published, the industrys reaction has

caused the CFPB to re-open some o the rules or

industry comment.

For example, as we go to press with this study, the

CFPB published the nal mortgage reorm rules

and simultaneously asked or additional industry

comment on a sae harbor provision or the Ability-

to-Repay qualied mortgage requirements. While

most FIs appreciate the intent to dene a sae harbor

that will enable them to make more loans, they will

not be able to nalize their lending program strategy

until the qualied mortgage sae harbor is nal,

which is anticipated in mid-2013. FIs need time to

update their strategic plans or what types, size

and volume o loans they will pursue, e.g., will it be

residential, commercial, auto or other.

While the proposed amendments may help nancial

institutions that are under $2B in assets and issue less

than 500 residential loans per year, they will need time

to plan and adapt. Since the eective date o the rule

is January 2014, this may only leave institutions with a

ew months to react and plan accordingly.


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How many additional compliance sta will you hire in 2013?

Nearly 80 percent o respondents indicated that they do not plan to hire additional compliance sta in 2013.

Many orecasts have suggested that FIs would be orced to hire additional compliance sta to keep pace with the

numerous compliance changes scheduled or 2013. The responses to this question remain consistent with those in

our 2012 annual survey (i.e., 63 percent indicated they had sucient sta with the necessary expertise).

Who is responsible in your organization or compliance readiness?

Approximately 87 percent o respondents cite the compliance ocer as the primary position responsible

or ensuring compliance readiness. A comparison o the 2012 to 2013 responses suggests that compliance

committees, risk ocers and CEOs also are taking on additional compliance-readiness responsibilities. The4 percent reduction in the business unit leaders as a primary point person or compliance suggests that perhaps

compliance is moving to a more centralized unction in some FIs.


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What types o resources are you considering to assist with compliance activities in 2013?

Consistent with the 2012 responses to this question, 89 percent o respondents plan to use existing sta.

How oten do you update your IT risk assessment and control evaluation?

IT risk assessments should be perormed more requently.

IT risk assessments continue to be scheduled as an annual project or approximately 60 percent o the

responding institutions. The FFIEC requires that IT risk assessments be perormed as material changes occur,

new inormation is available, or at least once a year i no new inormation is available or no material changes

occurred. As institutions implement such products and services to customers as mobile banking, social media,

P2P, PFM and other oerings, and update their compliance programs, they should consider the subsequent

eect on and validity o the IT risk assessment.


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2013 SECURITY & MOBILE DEVICES

What is your top inormation security concern or 2013?

Attacks rom external sources continue to be the primary security concern.

Respondents indicated that they had the same inormation security concerns or 2013 as in 2012. The top

concern continues to be rom external threats and attacks. Mobile users and mobile devices are second and

internal attacks are third. Moving to the cloud continues to be ranked as the ourth inormation security concern.

Its no wonder external attacks remain at the oreront. At the beginning o 2013, hacktivists leaked the

condential data o more than 4,600 banking executives rom a Federal Reserve website, and distributed denial

o service (DDoS) attacks on banks remain at the top o the news.

A ew respondents also identied the ollowing inormation security concerns:

P2P

DDoS

Skimmers

Data breach

Speed o change

Remote deposit

IT sta turnover

Social networks

Social engineering

Third-party vendor risk

Phishing and malware

Corporate account takeover

Customer security practices

Adequate security monitoring

Fraud:

-ACH and wire raud

-Mortgage raud

-Credit and debit card raud

-Online raud

-Identity thet


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How many network security incidents has your

institution experienced in the last 12 months?

The majority o respondents answered that there were no

successul security incidents within the last 12 months.

A security incident could be considered anything rom a

successul network attack, a conrmed but prevented

attack, or in some cases, even a lost smartphone. The

average FI may have at least one attack attempted on its

network per month. With 24x7 intrusion protection and

prevention monitoring, chances are these are stopped

beore they become successul.

Its good news that the majority o respondents

experienced no successul network attacks within the

last 12 months. Also, it is important to note that while

25 institutions claimed no knowledge o the numbero security incidences, understanding and monitoring

the risk your institution is up against each month is o

critical importance, rom the CEO to the teller.

What percentage o your sta will access data rom your

network via smartphones or mobile devices in 2013?

The majority o respondents plan to limit mobile access to

less than 25 percent o employees.

The percentage o sta expected to access network

data rom a smartphone or mobile device stayed

roughly the same; however, some institutions

reported a small percentage shit moving rom those

organizations that expect to see 1-50 percent o their

sta using mobile devices to access networks to the

upper tiers, 50-100 percent. It is still surprising that

the majority still lies in the 1-25 percent category,

considering the growing number o smartphones on

the market.

Staf Percent

1 to 24% 66.4%

25 to 49% 9.1%

50 to 74% 3.4%

75-100% 1%

Not Sure 20.2%


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What groups within the institution will use mobile devices or business in 2013?

Data confrms that more and more executives, including board members, are using mobile devices or business.

This year, respondents were asked to report on usage rom board members instead o tellers and indicated

that more than a quarter o the institutions board members are using mobile devices or business. Additionally,

respondents indicated a growth in the number o executives using mobile devices or work, while management

and loan ocers decreased slightly.

Board member usage may be an indication o the popularity o tablet-based board portal solutions or managing

board documents and meetings. The increase in executive usage also is consistent with industry trends, as

executives look to stay connected rom the road, home and while in the oce.

NEW QUESTION: When will you have a mobile device

management solution in place?

Mobile device management solutions help to secure

and monitor mobile devices that access a business

network, with the goal o reducing risk. With so many

employees and board members accessing network

data rom mobile devices, its reassuring to see that

nearly 60 percent already have or will have a plan in

place by the end o 2013.


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20



What is your view o mobile banking security?

Perception regarding the security o mobile banking is

beginning to trend more avorably.

In this years survey, more respondents now believe

that mobile banking is just as secure as Internet

banking, and 7 percent ewer respondents now

eel it is less secure. Perception is reality, and both

FIs and customers are becoming more educated

on technology, so the gap between perception

and acts is closing. With three types o mobile

banking availableSMS, mobile browser, and

appsits important that FIs understand the security

implications o each.

SMS (or text messaging) is very secure in that there

is no identiable customer inormation sharedthrough this iteration o mobile banking. This is the

most basic version, which allows or the exchange o

simple balances and transactions, leaving very little

inormation available to a raudster. However, users

should be aware o attempts to collect such data

as PINs, account numbers or other inormation by

spooed SMS messages.

Browser-based mobile banking is the most

comparable, as ar as security, to Internet Banking. In

reality, it is probably somewhat saer at the moment

because creators o password-cracking viruses

and Trojan horses havent yet ully ocused on the

mobile market. O course, mobile web users are as

susceptible as anyone else to the phishing scams and

spooed websites that try to trick users into disclosing

passwords and other personal data.

Apps developed specically or banks, however,

are proprietary applications and are highly secure

because they can contain unique security algorithms.

And because they dont use web browsers, these

applications are resistant to phishing scams.

As more FIs begin exploring mobile banking options

and rolling out services to customers, the responses

to this question are likely to continue to trend in a

positive direction.


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21



2013 OUTSOURCING & CLOUD

What inormation technology services is your FI currently outsourcing?

From 2012 to 2013, respondents indicated that there is steady growth in the trend o outsourcing IT services,

with increases in complete outsourcing o IT, network and security, inrastructure monitoring and maintenance,

and IT projects and consulting. This trend will likely continue as the complexity o technology or nancial

institutions grows beyond internal resources, cloud solutions are embraced, and bankers look to ocus on their

core competencies.

What are your plans or outsourcing IT services in 2013?

The trend toward moving additional services to outsourced vendors looks like it will continue, with nearly 5 percent

looking to completely outsource IT and 12.5 percent planning to outsource more than they did in 2012. While at the

same levels as 2012, this still represents the steady increase year ater year in the previous chart. Seventy-one

percent will hold ast with the level o outsourcing today, up rom 2012. Surprisingly, slightly more respondents also

indicated that they are going to outsource less than they do today.


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What percentage o your IT assets will be in the cloud in 2013?

Respondents indicated a growing comort level with cloud-based solutions.

While slightly more respondents answered that they would have no assets in the cloud in 2013, the survey also saw

a shit in percentage rom the lower end (1-25 percent) to the higher end (26-100 percent). This may indicate that

those institutions that have developed a comort level with cloud solutions will continue to look or more ways to

reap the benets, while perorming the due diligence cited in 2012s FFIEC Outsourced Cloud Computing Guidance.

NEW QUESTION: What types o solutions do

you use in the cloud today?

O those using cloud solutions today, the

majority are using applications in the

cloud. This makes sense, considering

that cloud-hosted applications or

Sotware-as-a-Service (SaaS)

usually are the easiest transitions

and quickest wins or organizations

looking to transition to the cloud.

Just behind those using applicationsonly, more than 13 percent are using

both applications and inrastructure

in the cloud, with inrastructure-only in

third place.


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NEW QUESTION: What types o solutions are you looking to move to the cloud in the uture?

O those planning to move solutions to the cloud in the uture, the majority plan to move orward with applications

and inrastructure. Thats understandable, since many o the respondents have applications only at this point and

will be looking to expand into inrastructure as well. This is a logical next step in continuing to achieve the benets

o the cloud.

NEW QUESTION: Rank cloud benets in terms o importance to you.

Surprisingly, disaster recovery ranked above capital cost reduction, the latter being the chie value statement

oten associated with cloud services. Also surprising is that the eatures o enhanced support and relocation

o internal IT resources also trumped speed to market and scalability. However, this makes perect sense or

organizations that are looking to achieve enterprise-level support and IT resources by outsourcing some or all o

their IT operations in the cloud.


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What is your greatest concern when it comes to cloud-based services?

Concerns with cloud adoption are coming down across the board. There are signicantly large decreases indicated

in the areas o compliance and loss o control, as well as a signicant decrease in the chie concern, security. The

drop in concern rom 2012 to 2013 may indicate that nancial institutions are beginning to see cloud services as

another orm o outsourcing, with the same vendor management due diligence requirements. This also indicates

that cloud is becoming a more mature oering within the nancial industry.

NEW QUESTION: Are you currently leveraging virtual desktops within your environment?

Virtual desktops are an expected area o growth.

More than 20 percent o nancial institutions are leveraging virtual desktops today. This is a new question on the

survey in 2013, so it will be interesting to see how this trend changes in the coming years, as Gartner predicts the

worldwide hosted virtual desktop market will exceed $65 billion in 2013 7.

7Gartner. Gartner says Worldwide Hosted Vir tual Desktop Market to Surpass $65 Billion in 2013. March 26, 2009. http://www.gartner.com/newsroom/id/920814


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25



2013 DOCUMENT PROCESSING

NEW QUESTION: Are you outsourcing statement printing to a GLBA-

compliant vendor?

More awareness o GLBA requirements and inormation security risk are

still needed.

Almost 45 percent o respondents do not outsource statement printing to

a GLBA-compliant vendor. GLBA requires all FIs and their vendor partners

to saeguard and to hold all non-public customer inormation condential.

This requirement must be enorced throughout the statement composition

and preparation process and validated through a series o quality tests and

periodic audits.

FIs must ensure that their outsourced print provider has a GLBA policy that

is part o a larger inormation security strategy. They should regularly test

this policy through audit review and electronic vulnerability assessments.

These assessments should be conducted by independent third parties to

ensure their validity. It also is a good practice or outsourced print vendors

to be reviewed annually by ederal and state bank examiners, according to

FFIEC guidelines.

NEW QUESTION: Are you transitioning rom paper to electronic statements and notices?

Paper statements and notices are going away.

Eighty-ve percent o respondents have already transitioned or are in the process o transitioning rom paper

to electronic statements and notices. The responses to this question validate a general industry trend that FIs

are gradually selecting electronic statements and notices, since these delivery options allow them to capitalize

on both cost and operational eciencies. This trend is expected to continue as more people acquire electronic

devices that make receiving and viewing this inormation easier.

For those FIs that plan to continue using paper, they can still nd opportunities to reduce costs in this area. The

cost to produce and deliver a paper statement varies widely. Doing the work in-house likely can run as much

as $1.00 to $1.50 per statement when postage is included. However, outsourcing to a GLBA compliant vendor

will likely save $0.30 to $0.80 per statement, but the cost is still a large expense or these accounts. Add to this

expense the delivery challenges that are sure to develop with possible changes to the USPS, and electronic

delivery looks very attractive.

Transitioning to electronic statements and notices provides three key benets:

Transition rom paper to electronicstatement and notices?

Percent

Already transitioned 30.3%

In process already 39.9%

Planning to in 2013 14.9%

Staying with paper 14.9%

It ensures the timely delivery o inormation. It creates the opportunity to deliver content within the

online banking environment.

It saves money. Electronic delivery is generally less

than 35 percent o the print cost when considering the

price o postage.


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NEW QUESTION: Have you implemented a successul and secure merchant capture strategy?

Merchant capture is a high-risk transaction and must be secure.

Approximately two-thirds, 62.1 percent, o respondents indicated that they have implemented or are in the

process o implementing a secure merchant capture solution. Merchant capture has revolutionized payment

processing by enabling nancial institutions to receive image payment transactions directly rom remote

merchant locations. This convenient and cost-eective capture solution yields great benets or all involved

parties. It is imperative, however, that all merchant capture activities are securely protected.

In 2011, the FFIEC issued supplemental guidance related to authentication in an Internet banking environment.

FIs are now required to identiy high-risk transactions and ensure appropriate authentication controls and

security layers are in place. This supplemental guidance rearms the original denition in the 2005 guidance o

what constitutes a high-risk transaction: electronic transactions involving access to customer inormation or

the movement o unds to other parties. Clearly, merchant capture qualies as a high-risk transaction.

Depending on your assessment o risk, merchant capture security will be handled dierently. An understanding

o risks and appropriate controls will aid you in completing this required exercise.


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Summary

FIs are eeling cautiously optimistic about the uture.

The data rom this years annual study, along with

other key data points, indicates that FIs are no longer

waiting passively or conditions to improve. As the

survey respondents revealed, the top opportunities

or the coming year include loan growth, new

technology, mobile banking and expanding market

share. These our initiatives are all interrelated, with

each providing the ability to bolster the other. The

determining actor will be developing a solid roadmap

or the uture, so that they can maximize protability.

As FIs build a long-term strategy, the survey results

reveal that many will capitalize on the identied

opportunities through increased investment

in technology. These investments will likely be

concentrated in the areas o mobile banking, wire

and ACH origination, and remote deposit capture

technologies. Its likely that more investments will

be made in cloud-based solutions, as FIs continue to

recognize the cost eciencies that can be gained by

outsourced technology.

And underlying this outward activity will be a

constant ocus on regulatory compliance and data

security. As the data suggests, FIs eel they are

well-staed or the upcoming compliance changes

emerging rom Dodd-Frank, but they will complement

this readiness by using solutions that simpliy the

overall compliance process. Conversely, with external

attacks being respondents greatest security ear, its

likely that they will increase their ocus on measures

that strengthen rewalls and perimeter security;

however, FIs shouldnt neglect the act that social

engineering also leaves the door open or external

attacks. A well-rounded approach to both compliance

and security will be key to enabling success in 2013

and beyond.

Overall, the data rom the CSI 2013 Annual

Banking Priorities Study hints at renewed signs o

optimism. As new regulations take eect and with

new technologies constantly changing consumer

behaviors, the health o the banking industry will

come down to responsible, protable lending by

orward-thinking banks that are willing to participate

in a dynamic, ever-changing market place.

About CSI

Computer Services, Inc. (CSI) is a customer service

company that delivers innovative technology

solutions to more than 5,000 nancial institutions and

companies nationwide. A total solutions provider, CSIoers core processing, managed services, mobile

and Internet solutions, payments processing, print

and electronic distribution, and regulatory compliance

solutions. With nearly 50 years as an industry leader

in innovation and service, CSI serves its customers as

a trusted technology partner that understands their

needs and delivers solutions that empower them to be

more competitive, compliant and protable.

To learn more about CSI, visit CSIweb.com.


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Authors & Contributors

Paul Reymann

Chie Risk Ofcer, CSI Regulatory Compliance

David Culbertson

President & General Manager, CSI Document Services

Bill Kane

Senior Risk Management Consultant, CSI Regulatory Compliance

Chad Whittenberg

Director o Product Management and R&D, CSI Regulatory Compliance

Sean Martin

HIVE Network & Security Manager, CSI Managed Services

Cli Skrdlant

Senior Product Manager, CSI Managed Services


1368718865 2013 Banking Priorities vFinal

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