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
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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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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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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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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
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