MONDAY APRIL 19, 2021 VOL. 186 No. 73 AMERICANBANKER.COM Follow us on Twitter @AmerBanker Why Zions is shunning 5 SOFR, embracing Ameribor Zions Bancorp. CEO Harris Simmons says Global cooling the Secured Overnight Financing Rate is Citigroup's consumer banking revenue has fallen worldwide, more suited for derivative traders than including a 15% year-over-year decline in North America regional banks as a replacement for Libor. His bank this week became the largest to say in the first quarter it would use the alternative developed by the North America Latin America Asia American Financial Exchange. Page 6 See story on page 2 U.S. Bancorp bets on corporate payments rebound $6B 6 The company’s payments services business $5B has struggled during the pandemic, but ex- ecutives are counting on commercial clients’ $4B embrace of real-time payments to help fuel the unit’s growth in 2021. Page 7 $3B Cullen/Frost creates program $2B 7 to reduce overdraft charges The San Antonio company will no longer $1B charge fees on transactions of $100 or less that $0 take checking account balances into negative 1Q20 2Q20 3Q20 4Q20 1Q21 territory, as long as the customer has a $500 monthly direct deposit set up. Page 7 Source: The company What the demise of Barclays’ 8 P2P app means for other banks The shutdown of the U.K. company’s Pingit dailybriefing Truist accelerates branch cuts, app demonstrates why even the most 3 closes in on expense targets tech-savvy banks should collaborate with The Charlotte, N.C., company has shuttered fintechs rather than go it alone.Page 8 ‘No dilly-dallying’: Citi’s Jane 400 branches in the past year and intends to 1 Fraser gets to work on overhaul close nearly 500 more by early 2022. It’s also JPMorgan, Citi pledge trillions After just 45 days on the job, the Citigroup eliminating office space and reducing head- 9 toward climate, sustainability CEO is jettisoning uncompetitive overseas count as it aims to keep quarterly expenses JPMorgan Chase set a goal to finance $2.5 operations, vowing to ramp up wealth man- under $3 billion. Page 3 trillion in initiatives that combat climate agement and touting the long-term impor- change and advance sustainable develop- tance of the company’s Banamex unit. More How Flagstar Bank ment over the next 10 years, while Citigroup moves are on the way, she says. 4 shaved $48 million from said it would back $1 trillion of similar efforts (See chart above.) Page 2 crisis-era DOJ settlement by 2030. Page 9 The Michigan lender agreed in 2012 to pay Bank of America $133 million to resolve civil fraud charges Big-bank CEOs to testify 2 optimistic it can put tied to government-backed mortgages. But 10 before Congress in May deposits to work in 2021 the deal with the Justice Department came Called by House and Senate Democrats, the BofA is awash in liquidity, but an uptick in with a catch that eventually allowed Flagstar hearings with the heads of the nation’s six credit card applications and heightened to pay far less. Page 4 largest banks will take place over two days interest from commercial borrowers have and will likely examine the industry’s re- executives hopeful that loan demand will sponse to the pandemic and efforts to address soon rebound. Page 3 climate change and racial equity. Page 9 MONDAY APRIL 19, 2021 AMERICANBANKER.COM PAGE 2

There might even be room to make an is spending billions of dollars to overhaul GROWTH STRATEGIES acquisition in the U.S., she added. its risk management and internal-controls “For now, partnerships are going to be systems. The Federal Reserve and the Office very important,” Fraser said. “But we’d love of the Comptroller of the Currency issued a ‘No dilly- to do inorganic moves if they make sense for pair of consent orders last fall after finding our shareholders and for us further down the deficiencies in the company’s current dallying’: line.” systems. Details of Fraser’s plans to revamp Citi in The OCC imposed a $400 million civil hopes of improving long-lagging shareholder money penalty. Citi’s Jane returns have been highly anticipated for In addition, the pandemic recession has months. Changes began even before she put pressure on business lines including Fraser gets officially assumed the CEO seat on March global consumer banking. Revenue for that 1, with the January consolidation of two unit tumbled 15% year over year in North wealth management units into a single global America and 14% worldwide due to lower to work on division. They continued this week with card volumes and lower interest rates. the naming of a new global head of private Echoing sentiments from JPMorgan Chase overhaul banking. a day earlier, Citi Chief Financial Officer Mark The divestitures announced Thursday are Mason said there are signs that improvement By Allissa Kline part of a plan to “double down on wealth” is nearing. April 15, 2021 by creating four wealth hubs — in London, “While we are still seeing the impact of Jane Fraser wants to move quickly to Singapore, Hong Kong and the United Arab the pandemic and high payment rates on remake Citigroup, so it makes sense that Emirates — and exit retail businesses in 13 revenues, consumer spending continues to her first earnings call as CEO of the global countries where Citi isn’t large enough to improve and credit remains healthy, pointing financial powerhouse had an air of urgency. effectively compete, Fraser said. However, to a recovery as we move through this year,” “Let’s get cracking,” she told analysts Citi will keep serving customers in those he said. Thursday at the start of a 90-minute first- countries who access Citi’s institutional Before wrapping Thursday’s call, Fraser quarter call that was largely focused on Citi’s clients group for private banking, cash reassured participants that more details are decision to offload consumer operations in management, investment banking and on the way. 13 overseas markets including China, India trading products. “I don’t think it’s going to take us very long and Australia. When asked about the timing The move “should be well received by to come back to everybody with a clearer view of those sales — which were announced two investors” in part because those operations of where we’re going,” she said. “I’m looking hours prior — Fraser said the company has did not contribute to net income last year, forward to doing so and, more than anything, started the process. analyst Brian Kleinhanzl of Keefe, Bruyette & looking forward to getting on with it.” “Look, we’re already getting going,” she Woods said in a research note. said. “There’s no dilly-dallying here.” “Overall, investors will like that Citi is But those hoping to pry details from Fraser simplifying and reducing complexity,” about what, if anything, is next on the $2.3 Kleinhanzl said. trillion-asset company’s chopping block will To be sure, Fraser has her hands full. Citi have to wait. She kept that information to herself, though she offered a few hints about what she’s likely to hang on to. Established 1836 One State Street Plaza, 27th floor, New York, NY 10004 Citi’s retail unit in Mexico is “a scaled Phone 212-803-8200 AmericanBanker.com franchise” where “the returns are good and there’s a lot of upside potential [and] the Editor in Chief Alan Kline 571.403.3846 Copy Editor Neil Cassidy 212.803.8440 investments in digitization have really paid Managing Editor Dean Anason 770.621.9935 off,” Fraser said. Reporters/Producers “There’s a lot to like in the [Banamex] Executive Editor Bonnie McGeer 212.803.8430 Laura Alix 860.836.5431, Kate Berry 562.434.5432 franchise over the longer term,” she said. Washington Bureau Chief Joe Adler 571.403.3832 In the United States, where Citi has a Executive Editor, Technology Miriam Cross 571.403.3834 smaller retail branch footprint than several Penny Crosman 212.803.8673 Jim Dobbs 605.310.7780 peers, Fraser pointed to an “upside potential BankThink Editor Rachel Witkowski 571.403.3857 in wealth,” a substantial cards business and John Heltman 571.403.3847, Allissa Kline 716.243.2679 Community Banking Editor Paul Davis 336.852.9496 “very high-quality clients” inside and outside Hannah Lang 571.403.3855 the branch network who have been “very Contributing Editor Daniel Wolfe 212.803.8397 John Reosti 571.403.3864, Gary Siegel 212.803.1560 digitally engaged.” Digital Managing Editor “We’ve got terrific assets and building Christopher Wood 212.803.8437 Kevin Wack 626.486.2341 blocks,” she said.

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are sitting on piles of deposits that have been polled by FactSet by 20 cents. DEPOSITS increasing at a far faster clip than loans. The company released $2.7 billion of In BofA’s consumer division alone, first- loan-loss reserves in the first quarter, which quarter average deposits increased by 25% padded its results. Bank of from a year earlier to $924 billion. At the The reserve release “helps the bottom same time, average loan balances fell by 8% line, but it’s also a show of confidence in the America to $291 billion, and revenue was down 12% improving environment,” Winick said. to $8.1 billion. Overall, BofA said net interest income optimistic declined by 16% to $10.2 billion, reflecting EARNINGS light loan demand and low interest rates. it can put The margin compressed by 3 basis points during the quarter to 1.68%. Truist But the company expects to make deposits to more loans over the rest of this year, with accelerates executives forecasting that net interest work in 2021 income could be about $1 billion higher in the fourth quarter than the first quarter. branch cuts, By Jim Dobbs Consumers continue to pay down debt, April 15, 2021 Paul Donofrio, the company’s chief financial closes in Bank of America is swimming in a sea officer, said during Thursday’s call. As of deposits, a reflection of pandemic-era government stimulus funding tied to the saving and stunted loan demand. pandemic fades and the economy improves, on expense While the situation is pinching the customers are likely to borrow more and Charlotte, N.C., banking giant’s net interest make purchases that they had delayed over targets margin, executives said there are signs of life the past year. in its sprawling consumer lending business At the same time, commercial loan By Jon Prior as vaccinations mount and economic demand is beginning to increase. April 15, 2021 momentum builds. And there is hope BofA “We’re seeing pipelines build and Truist Financial has been slashing can put more of its excess liquidity to work balances have stabilized for more than a branches, headcount and shuttering office later this year. month,” Donofrio said. “So we’re hopeful for space as it inches closer to the cost savings The consumer business is in “full recovery a turnaround.” goals laid out when the company was mode,” Brian Moynihan, the $3 trillion- Bank of America’s GDP forecast was in created through the merger of BB&T and asset company’s chairman, president line with increasingly optimistic estimates SunTrust Banks. and CEO, said during a Thursday call to by other banks and federal projections, said The Charlotte, N.C., company reported discuss quarterly results. He said credit Jon Winick, CEO of Clark Street Capital. slightly more than $3.6 billion in noninterest card applications — an early indicator of “They aren’t seeing it quite yet, but with expense for the first quarter, down nearly consumer loan growth — rose during the that kind of GDP expansion, they’re going to 6% from the previous quarter but still up first quarter. see loan growth this year,” Winick said. about 5% year over year. Core expenses Total spending by BofA customers in the “You’ll see it with credit cards first — of more than $3 billion, which subtracts first quarter, including with debit cards, that’s the quickest loan you can get — but merger expenses, is still above the target of increased by 13% from a year earlier to then you’ll see it spread to other areas of $2.9 billion per quarter, which executives $172.5 billion. The amount even surpassed consumer as well as commercial,” Winick said Thursday they are still on track to hit by the spending that took place in the first added. “Loan growth, or the lack of it, is focusing on a few key areas. quarter of 2019. clearly a problem now, but a robust economy “We are going to hit our targets for sure,” “This is a key element of the economic will solve that. And there’s no question we Truist Chief Financial Officer Daryl Bible optimism you’re seeing reflected in the have a lot of pent-up demand out there.” said in a call with analysts Thursday. “And market,” Moynihan said. Expectations for rising interest rates, if we exceed those targets, we will continue With the company’s research team alongside economic growth, should boost to make good investments in the company forecasting 7% gross domestic product lending profitably as well, said Wells Fargo to continue to compete and win in the growth this year, Moynihan said he expects analyst Mike Mayo. industry.” consumers will start to borrow more as the “The yield curve has not yet helped but it One of the most aggressive maneuvers economy steadily reopens and vaccinated should” in the future, Mayo said. Truist has made is reducing its branch Americans travel, shop and dine out more BofA’s first quarter earnings of $8.1 billion count. The $518 billion-asset company has freely. were more than double what it reported a eliminated about 400 branches in the last Most banks need to see that shift to relieve year earlier. Earnings per share of 86 cents year and now has 2,556 locations. It plans to pressure on their net interest income. Banks topped the average estimate of analysts trim another 474 branches by the end of next

For up to date and complete coverage go to AmericanBanker.com MONDAY APRIL 19, 2021 AMERICANBANKER.COM PAGE 4 year’s first quarter. And for the DOJ, $70 million is better than “Our clients are very supportive because, LAW AND REGULATION nothing. Given the complicated terms of remember, most of these branches are the original settlement, it’s unclear whether very, very close to each other,” Truist CEO Flagstar could have been forced to pay the and Chairman Kelly King said on the call How Flagstar $117.9 million that was outstanding until the Thursday. “And so, it’s no inconvenience to deal was revised. our clients.” Bank shaved Spokespeople for Flagstar, HUD and the Truist has also cut nearly 6% of its Justice Department declined to comment workforce, or about 3,300 full-time for this article. Some legal observers employees, over the past year. It had 53,207 $48 million characterized the amended settlement as employees as of March 31. an example of diligent follow-up work by Truist also subtracted 3 million square from crisis- prosecutors that yielded a substantial sum of feet of office space in the first quarter, which money, while others saw it as evidence that does not include branches, with a goal of Flagstar’s efforts to minimize its financial getting to a reduction of nearly 5 million era DOJ liability were successful. square feet. The nine-year arc of the Flagstar By integrating software, applications and settlement settlement shows a company using its once- personnel, Truist is aiming to find $425 precarious financial condition to reduce its million in savings from less technology By Kevin Wack legal liability, and then later managing, after spending in 2022 compared to 2019, April 15, 2021 returning to profitability, to further decrease according to its earnings presentation. Collecting penalties from Flagstar its penalty. “We are very focused on meeting our Bancorp, which admitted nine years ago to In 2018, a regulatory agreement that had expense targets ... and we believe we will be making false certifications on government- restricted Flagstar’s ability to pay dividends able to accomplish that,” King said. backed loans that went bad, has proved to be and buy back shares was lifted, noted Brad Analysts at Piper Sandler said in a note to a tricky task for the Department of Justice. Miller, a former Democratic member of clients Thursday that they were “impressed Under a 2012 settlement, the Troy, Mich., Congress who now works in private law with the accomplishments on the expense mortgage lender appeared to be on the hook practice. He contends that there was a side” at Truist. for nearly $133 million. But the agreement disconnect between the bank’s posture Truist reported $1.3 billion in net income with the DOJ included a condition that gave toward the Justice Department and its for the quarter, up more than 35% year over the company a potential way out: Flagstar, dealings with its regulators. year. which had gone nearly four years without “They should not be able to plead Profits were helped by the release of turning a quarterly profit, would not have to poverty to get lighter penalties, while telling $190 million in loan-loss reserves amid pay the vast majority of the penalty until it hit prudential regulators and others that they’re a brighter credit outlook as the economy certain financial benchmarks. OK,” Miller said. “It seems like they ought rebounds from the COVID-19 pandemic. The $31 billion-asset company’s financial to be able to speak out of one side or their Nonperforming assets declined for the first outlook eventually brightened considerably. mouth or the other, but not both.” time in more than a year, shrinking 6% from Still, Flagstar did not pay a penny under the After the 2008 financial crisis, the Justice the previous three months to less than $1.3 civil fraud settlement between 2013 and 2020. Department sued Flagstar and numerous billion. Then earlier this year, the Department of other mortgage lenders over allegedly Loan growth is expected to pick up in the Housing and Urban Development accused false certifications on defaulted loans that second quarter, executives said, as business the company of intentionally operating its had been backed by the Federal Housing and mortgage lending rebounds. business in a way designed to avoid triggering Administration, which is part of HUD. “We believe as we head into the second a nine-figure payment under the DOJ The cases, which inspired a backlash from half, we will have a snap-back economy,” settlement, according to a source close to the lenders and Trump administration officials, King said. situation. Flagstar had expressly pledged as were brought under a Civil War-era law that part of the settlement not to frustrate or delay allows the U.S. government to sue when it its ability to meet the benchmarks. has been defrauded. Last month, the Justice Department and In one example of a Flagstar mortgage Flagstar reached a revised settlement that that was allegedly marred by fraud, the may finally put the case to rest by obligating borrower submitted W-2s that listed the bank to pay $70 million upfront. multiple employee identification numbers, The amended penalty reflects evena though they were purportedly from 36% reduction from the total payment the same employer. The loan soon went into contemplated in the original settlement. On default, and HUD paid an insurance claim of the other hand, $70 million is double the more than $88,000. amount Flagstar had recently declared to be In all, HUD paid out “hundreds of millions the fair value of the lingering legal liability. of dollars” as a result of Flagstar’s false loan

For up to date and complete coverage go to AmericanBanker.com MONDAY APRIL 19, 2021 AMERICANBANKER.COM PAGE 5 certifications, and the agency’s net loss regulatory issue with the old Flagstar,” of the 2012 agreement,” Flagstar stated in a was a “substantial percentage” of that sum, President and CEO Alessandro DiNello said March 30 securities filing. according to the prosecutors. in a press release at the time. In January 2019, “Further, the company is benefiting But the Justice Department faced a Flagstar announced the initiation of both a significantly from a robust mortgage market. problem in recovering such a large sum of quarterly dividend and a $50 million share In light of the long-standing relationship money from Flagstar. Between 2007 and repurchase program. Since then, the fim has and ongoing business activities with HUD, early 2012, the lender had lost nearly $1.4 increased its dividend twice and executed the company decided to settle this legacy billion, and it appeared to be having trouble another $150 million stock buyback. liability.” raising additional capital. Between 2015 and 2020, Flagstar The $35 million charge seems So Justice Department prosecutors in the recorded net income of more than $1.3 manageable, analysts at Piper Sandler wrote Southern District of New York negotiated a billion, including $538 million last year, as in a recent research note, given that Flagstar so-called ability-to-pay settlement — a route the U.S. mortgage market boomed during is expected to generate more than $200 that government lawyers take when they the pandemic. During Flagstar’s quarterly million in mortgage revenue this quarter. have doubts about a company’s capacity to earnings call in January, DiNello described The amended settlement with the Justice pay the full extent of its liability. 2020 as the most successful year in the Department includes one noteworthy Flagstar agreed to pay $15 million company’s history. wrinkle. It characterizes the $70 million upfront, plus $117.8 million in subsequent But even as Flagstar’s financialpayment as “restitution,” a word choice that increments once it hit certain financial performance was improving, the company was missing from the 2012 agreement, and benchmarks. One of the benchmarks was reducing its estimate of what it would which appears to have been added in an involved repaying $266.7 million in funds eventually have to pay under the 2012 effort to ensure that Flagstar’s payment will from the government’s Troubled Asset settlement agreement. Flagstar stated in be tax deductible. Relief Program, a milestone Flagstar would securities filings that the settlement met Under the Tax Cuts and Jobs Act of 2017, eventually hit in 2016. the definition of a financial instrument, and payments to the government in connection But before payments under the settlement treated it as a liability that was subject to with violations of the law are typically not would be triggered, all of the specified fair-value accounting standards. tax deductible, but an exception is carved benchmarks had to be met, including a What that meant was that Flagstar sought out for restitution payments. requirement that the bank report a Tier 1 to estimate how much money it was likely to Lawyers who were not involved in the leverage capital ratio of 11% or higher. As ultimately owe, taking into account factors Flagstar case offered differing opinions on of Dec. 31, 2020, that ratio was at 8.12%, that included estimates of the company’s the merits of the government’s actions. according to Flagstar’s most recent annual equity, earnings and dividends and their “A company does not pay $70 million report, which also said that the company impact on the firm’s capital level. for no reason,” said Sam Buffone, a former would seek in good faith to fulfill the As years passed without Flagstar Justice Department attorney who is now conditions of the settlement. triggering all of the financial benchmarks in private practice and specializes in False DOJ prosecutors said at the time that in the settlement, the company’s estimate Claims Act cases. “Instead, the Southern the settlement represented the maximum of what it would eventually have to pay District of New York may have found amount that Flagstar was able to pay, decreased. Flagstar estimated the fair value some issue which convinced Flagstar to consistent with capital requirements of the settlement as $93 million at the end of pay $70 million despite the fact that the and other bank regulatory standards. 2013, according to a securities filing. By the contingencies in the agreement had not The agreement also required Flagstar to end of 2016, Flagstar assigned it a fair value been met.” commit to certain reforms as a condition of of $60 million. Three years later, that number He complimented the government for its remaining an FHA lender. had fallen to $35 million. work and added, “I am interested to know “With today’s settlement Flagstar has Late last month, when Flagstar what they may have uncovered.” accepted responsibility for its conduct, announced the amended settlement with Miller, the former congressman, was more and committed to reform its business the Justice Department, the company said critical of the Justice Department’s handling practices to ensure compliance with HUD it would record a $35 million charge in the of the case, arguing that the 2012 settlement requirements,” then-U.S. Attorney Preet first quarter, bridging the gap between the agreement created benchmarks that could Bharara said in a February 2012 press fair value that Flagstar had recorded and be gamed by Flagstar. “This is something release. the $70 million that it ultimately was on the Congress should ask about,” he said. Flagstar’s economic fortunes improved in hook to pay. the years after its settlement with the Justice Flagstar also seemed to acknowledge that Department. In 2018, the firm announced HUD was displeased with the fact that the the termination of an 8-year-old agreement $118 million penalty remained unpaid nine that had required the submission of an years later. annual capital plan to its regulators, among “The company believes this settlement other restrictions. reflects a show of good faith towards HUD “This is a major milestone for our and acknowledges that the company is in company, representing the last major a stronger position today than at the time

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Frost Bank, a subsidiary of the $42.4 said. “It can be used in a wide variety of INTEREST RATES billion-asset Cullen/Frost Bankers in San products and by a variety of firms, and there Antonio, and the $8.9 billion-asset Brookline are other regional banks [that] have indicated Bancorp. in Boston have also announced that they are already offering SOFR in their Why Zions they will adopt Ameribor. middle market loans.” “SOFR is a reference rate that really Banking regulators said last year that is shunning reflects, I think in large part, the backgrounds banks are welcome to choose any reference of those who served on the ARRC committee. rate to replace Libor, and emphasized that They come from trading floors [and] trading the use of SOFR is voluntary. SOFR, derivatives,” Simmons said. “But in the real Federal Reserve Chairman Jerome Powell credit market for middle-market smaller has also acknowledged the concerns that embracing loans, the preponderance of those are made small and medium-sized banks have about by regional and community banks, and SOFR SOFR being a one-size-fits-all substitute for does not really reflect accurately the cost of Libor. Ameribor funds of those banks.” “A number of banks have come forward Zions and 10 other regional banks signed and said that they want to work on a separate By Hannah Lang on to a letter in 2019 to the federal banking rate, which would not replace SOFR, but April 15, 2021 regulators arguing that a replacement rate would be credit sensitive, and so they’re doing WASHINGTON — As banks race to for Libor should have a credit-sensitive rate that now and ... we’re working with them to transition away from the London interbank element in order to accommodate midsize support that process,” he told lawmakers last offered rate, the head of Zions Bancorp. says and smaller institutions. year. “We’re open to that, but it doesn’t mean the alternative recommended by a publicly “Our customers are not typically securing that this the transition away from Libor to sanctioned panel of experts isn’t consistent their loans with Treasury securities in the way SOFR will stop. It has to go forward.” with the bank’s commercial lending profile. that those in the repo markets do,” Simmons Zions did not communicate its decision The $81.5 billion-asset bank announced said. to adopt Ameribor to the Fed or the ARRC, Wednesday that it intends to use the Ameribor But the most important factor for Zions in Simmons said. Banking regulators have reference rate in most of its commercial loan selecting Ameribor as its replacement rate made it clear that they aren’t mandating that contracts beginning this summer. is the benchmark’s similarity to Libor, said financial institutions use SOFR, he noted. The decision bucks the recommendation Simmons, who noted that the correlation “I think they recognize the shortcomings of the Alternative Reference Rates Committee between the 30-day Libor rate and the 30-day of SOFR and have made it very clear that — a group of private-market participants Ameribor rate has been “very, very tight.” Ameribor is a very appropriate alternative,” formed under the auspices of the Federal “We think it’s been much less volatile than he said. Reserve Bank of New York. That committee spreads between Libor and SOFR. SOFR Zions’s announcement comes as calls are has promoted the Secured Overnight has shown quite a lot of volatility in recent intensifying for Congress to pass legislation Financing Rate — or SOFR — as a substitute months and years,” said Simmons. “Ameribor to provide automatic fallback language to for Libor, which will sunset in 2023. … really comes closer to what the entire world swap SOFR for Libor for trillions for dollars’ “We simply believe that [Ameribor] is has been using for the last 40 years.” worth of legacy contracts when the latter rate probably the best alternative reference rate Dr. Richard Sandor, the chairman and largely goes away in 2023. in the marketplace at the present time, and CEO of the American Financial Exchange, Earlier this month, New York Gov. Andrew so we wanted to make it known that we’re who pioneered Ameribor, said in a briefing Cuomo signed a similar measure into law that moving forward with what we believe is Thursday that calls Ameribor “the most will use SOFR for New York-based contracts. the best alternative to Libor,” said Harris boring benchmark.” He says it is the least But Chris Giancarlo, former chair of the Simmons, the chairman and CEO of Zions, in volatile of any available reference rate. Commodity Futures Trading Commission, an interview with American Banker. Ameribor “is very easy to implement and claimed in the briefing with Sandor that The Ameribor benchmark is based on fits with our general philosophy of always many Wall Street banks “were behind this open-market transactions on the American promoting simplicity and transparency,” he legislation in New York.” Bills that provide Financial Exchange, and reflects the said. a safe harbor only for contracts that use borrowing costs of a wide range of U.S. banks. But Tom Wipf, the ARRC’s chairman and SOFR are both anti-competitive and “anti- SOFR is based on the Treasury repurchase vice chairman of institutional securities American,” he said. market, where investors give overnight loans at Morgan Stanley, said the committee “The lack of choice is somewhat striking in to banks. “identified SOFR as the most suitable this regulation,” he said. “Why choose a rate The Salt Lake City-based Zions is the largest alternative rate for institutions of all sizes, that reflects Wall Street’s borrowing costs and bank to date to announce that it does not plan whether they are large, medium or small- not Main Street’s borrowing costs?” to adopt the SOFR for its commercial lending sized enterprises.” But Simmons said Zions would be unlikely business. Several regional and community “SOFR is a robust rate that will stand the to abandon Ameribor even if there were a banks have previously argued that SOFR is test of time, based on an active market with safe harbor for SOFR contracts. also ill suited for their business models. a diverse set of borrowers and lenders,” Wipf “Beyond concerns about litigation, it gets

For up to date and complete coverage go to AmericanBanker.com MONDAY APRIL 19, 2021 AMERICANBANKER.COM PAGE 7 into being able to explain to customers that hospitality, are still struggling. loans fell 11% to $21 billion, but other you’ve done something that is appropriate The Minneapolis company said it consumer loans rose 9.5% to $37 million, and that is as closely correlated to the rate expects payment revenues to return to pre- mostly because more consumers took that they’ve all demonstrated that they are pandemic levels by early next year as most out installment loans to buy recreational comfortable with as possible,” he said. adults are vaccinated and return to public vehicles. Simmons added that Zions’ announcement life. Dolan said the company expects loan could influence other banks. They “have been But executives also said they’ve been demand to pick up in the second half of probably waiting and watching to see what working on new use cases for real-time the year, with consumer lending picking others” choose as a replacement rate for corporate payments and they expect up first. On the corporate side, Dolan Libor, he said. demand for these services to pick up. On said that clients across all segments are “I do hope that for some it might suggest the company’s earnings conference call looking to borrow to build up inventories that, to the extent they feel like there’s safety Thursday, Andy Cecere, its chairman, or potentially make acquisitions. in numbers in moving towards something president and CEO, identified payroll “Pipelines are getting stronger, optimism other than SOFR, that they would view this services and accounts payable and is much higher than it was six months or positively,” Simmons said. receivable as areas where the bank expects a year ago,” he said. “Those are the green to collect more fees from clients using real- shoots we’re seeing.” time payments services. FASTER PAYMENTS “It takes corporate America longer to adopt digital capabilities, but at some OVERDRAFTS point in time that’s going to take off,” Chief U.S. Bancorp Financial Officer Terry Dolan said. “COVID has helped to accelerate some of that.” Cullen/Frost bets on The $553 billion-asset U.S. Bancorp reported first-quarter net income of $2.3 creates billion, or nearly 94% higher than a year corporate ago. Earnings per share of $1.45 were 49 cents higher than the mean estimate of program payments analysts surveyed by FactSet Research Systems. Net revenue totaled $5.5 billion. to reduce U.S. Bancorp’s earnings beat was due rebound entirely to a negative provision for credit losses of $827 million, and executives said overdraft By Laura Alix on the conference call that credit quality April 15, 2021 was better than expected. In last year’s first charges U.S. Bancorp’s payment services quarter, when lockdowns first took effect, businesses struggled during the pandemic, the company set aside $993 million for By Jon Prior but executives are counting on continued credit losses. Net charge-offs in the quarter April 15, 2021 increases in consumer spending and totaled $223 million, or 0.31% of total loans, Cullen/Frost Bankers in San Antonio corporate clients’ embrace of real-time compared with $393 million and 0.53% a became the latest banking company to offer payments to fuel a rebound in 2021. year earlier. customers a way to avoid overdraft fees tied The company’s corporate payments and Net interest income declined 5% to $3 to their checking accounts. merchant processing fee income declined billion in part because of lower average The $42.4 billion-asset company in the first quarter from a year earlier, while loan balances and higher pre-payments. said it will not charge overdraft fees on credit and debit card revenues grew, fueled The net interest margin narrowed by 41 transactions of up to $100 that take account by government stimulus and increased basis points to 2.50%. holder balances into negative territory. consumer spending. Higher interchange Total noninterest income fell 5.7% to $2.4 Customers must set up a monthly direct income drove card revenues up 10.5% to billion, in large part because of declines in deposit of $500 to qualify for the offer. $336 million year over year, while income some of U.S. Bancorp’s payment businesses. The move is meant to reduce overdraft from corporate payments fell 13% to $126 Mortgage banking revenue also fell 24% to penalties tied to small-dollar purchases. million and merchant processing fees $299 million, and deposit service charges Many big banks have put in place so-called declined 5.6% to $318 million. dropped 23% to $161 million. de minimis limits on overdraft charges that Though many corporate clients have Expenses increased 2% to $3.4 billion, spare customers the fees if they overdraw seen their own revenues recover, thus mainly because of increased compensation by a small amount, but in the past these translating into more transactions with their and employees benefits costs. limits rarely applied to purchases in excess banks, U.S. Bancorp has seen corporate Average loans narrowed by 1.2% to of $5. payments revenues decline because clients $293.8 billion, primarily driven by a nearly Cullen/Frost has been working on the in certain industries, particularly travel and 4% drop in commercial loans. Credit card overdraft feature “for several months,”

For up to date and complete coverage go to AmericanBanker.com MONDAY APRIL 19, 2021 AMERICANBANKER.COM PAGE 8 said Jimmy Stead, chief consumer banking when it launched its Pingit app in 2012. bank payment systems. officer at Frost Bank. He said the offer “is an But the London bank has decided it can Pingit and bPay (a contactless payments effort to do what’s right for our customers no longer sustain Pingit, which started out brand that was folded into Pingit) pushed and help build long-term relationships as a person-to-person payments service the boundaries of what was imaginable at with them, not as a result of regulations.” and was expanded to support contactless the time. A wristband to make payments at Still, some industry observers believe payments and wearable payments. a music festival was added to bPay in 2014, the Consumer Financial Protection Bureau The U.K. bank plans to pivot from being a year after the bank joked about putting a under the Biden administration will crack a player to being a coach, enabling more payment chip in a dog collar. It really did put down on banks that charge excessive fintechs to take over where it left off. a payment card reader on a donkey saddle overdraft fees. Barclays’ Pingit, which will end service and in a wide range of wearables such as More banks are expected to follow suit. on June 30, was an early example of cutting- jackets and gloves, years before contactless PNC Financial Services Group in edge experimentation with payment and mobile payment technology made a Pittsburgh announced this week that it technology. serious dent elsewhere. would launch an alert system that will According to reports, the bank was having Barclays did not answer questions about notify customers when they are in danger a hard time keeping up with mobile wallets what products it may add or build to replace of overdrawing their account. The system and third-party technology companies that Pingit. In an email, a bank spokesperson gives them clients to cover the negative infiltrated mobile payments in recent years. said there are similar features available in balance or cancel upcoming payments to The lesson learned for other banks: the Barclays app for Pingit customers who avoid penalties. Don’t try to build everything in house. Take also hold a Barclays account, including Regulators last year urged banks to advantage of fintech partners. making payments via a mobile phone, bank waive overdraft fees during the coronavirus What’s changed in the years since is transfers, paying a business or transferring pandemic to give consumers more 2012 is the pace of innovation has gotten money within the U.K. or abroad. flexibility if they ran short of cash as the even faster — due in part to open banking, “It makes me think of the ‘walled garden’ economy shut down. a European initiative requiring banks to approaches taken by financial institutions Cullen/Frost’s overdraft fees fell by 22% share data with fintechs. and telcos in the early days of internet in 2020 from a year earlier to $28.8 million, “There aren’t many things from a decade commerce,” said Ron van Wezel, a senior according to its call reports. ago that have remained the same,” said analyst at Aite Group. (Barclays was also “It’s important to note that we spent a Gareth Lodge, a senior analyst at Celent. a member of the telco-led ISIS mobile lot of time having honest conversations “The industry has, and continues to, evolve wallet, which rebranded as Softcard before with real customers about why overdrafts — and perhaps with a pace that continues shutting down in the 2010s.) occur, and we decided we shouldn’t charge to increase.” Open ecosystems such as marketplaces a fee for simple mistakes,” Stead said. “It’s Banks first viewed PSD2, the European became more appealing to consumers true that this will cost us some revenue, regulation that mandated open banking, and proprietary approaches have faded but what’s really important is that we have as a competitive threat. But they have since in recent years, according to van Wezel. a history of choosing to do what’s right for forged connections with the fast-growing “Open banking will enable banks to work our customers, even when it takes extra market of fintechs. together with fintechs and other financial effort or expense.” “No longer is it just the banks’ domain to institutions to develop new services that create these things,” Lodge said, adding that work for every bank account, without banks have benefited from open banking. having to offer a wallet-type approach such FINTECH “The net result will be better customer as Pingit.” propositions and experiences, and a Banks have collaborated among different way of working for banks. Banks themselves through transfer apps such What the will need to be more agile, and experiment as Zelle, a U.S. P2P network that counters more, but then again, what business today PayPal’s Venmo. Such options make it less demise of doesn’t?” necessary for banks to manage their own Barclays, which has long been an early transfer apps. adopter of fintech, has already taken Instead, financial institutions have Barclays’ P2P advantage of open banking connections. turned to technology companies as Its 2020 collaboration with the e-commerce distribution partners. app means for engine BigCommerce, while not directly Goldman Sachs partnered with Apple related to PingIt, has enhanced support for to produce Apple Card. Citigroup and new authentication techniques and added Stanford Federal Credit Union later entered other banks scale for digital merchant onboarding. a partnership with Google to offer checking Barclays has also partnered with Starling accounts through Google’s mobile wallet. By John Adams Bank, which provides payments-as- The embedded finance trend is giving April 15, 2021 a-service technology, to lighten the rise to similar collaborations, with Walmart, Barclays was well ahead of the curve development load required to upgrade Amazon and Facebook all adding financial

For up to date and complete coverage go to AmericanBanker.com MONDAY APRIL 19, 2021 AMERICANBANKER.COM PAGE 9 services to their core functions. that advance economic inclusion. York-based company’s existing push to For banks, the opportunity in this trend Citigroup said half its pledge will go align with the United Nations’ Sustainable is to see external innovation from nonbanks toward environmental projects, including Development Goals, which are meant as a potential collaboration to reach new renewable energy, water conservation and to help companies measure, reduce and populations where the banks don’t have a sustainable agriculture. Much of the rest communicate their impact on society brand presence, according to Rick Oglesby, is aimed at education, affordable housing, and the environment. The bank’s latest president of AZ Payments Group. gender equality and racial and ethnic goal builds on a previous commitment to “When the banks don’t have consumer diversity. finance $250 billion of sustainable activities mindshare, they can still win the Eliminating emissions has become a by 2025. enablement business for those customers,” major talking point for bank executives On her first day as CEO last month, Jane Oglesby said, while technology companies this year as the finance industry attracted Fraser announced that Citigroup would will always have an advantage when greater scrutiny for funding the world’s achieve net-zero greenhouse-gas emissions it comes to speed-to-market on tech biggest emitters. Goldman Sachs Group, in its financing activities by 2050. The bank products, he said. Citigroup and Bank of America have all set has said it will produce an initial plan for But banks may still have the upper hand net-zero greenhouse-gas emissions targets reaching the goal in the coming year. when it comes to branding and trust. in their financing activities. “As the pandemic has made clear, “Consumer mindshare varies depending “Climate change and inequality are two our economic and physical health, our on context. Banks can definitely win when of the critical issues of our time, and these environment and our social stability are the context is financial,” Oglesby said. new efforts will help create sustainable all inextricably linked,” Ed Skyler, head of economic development that leads to a global public affairs at Citigroup, said in greener planet and critical investments in a blog post. “In this moment as we look ESG underserved communities,” Jamie Dimon, towards emerging and rebuilding from JPMorgan’s chief executive, said in the the Covid-19 pandemic, it’s more crucial statement. than ever that we address these priorities JPMorgan, Still, JPMorgan remains the biggest together.” funder of fossil-fuel companies globally, Citi pledge financing about $189 billion since the 2015 Paris climate agreement, according to data ESG compiled by Bloomberg. Dimon wrote in trillions his annual shareholder letter last week that “the solution is not as simple as walking Big-bank toward away from fossil fuels.” JPMorgan said its commitment will also CEOs to enable it to provide clients in the corporate climate, and investment bank and commercial banking businesses with centralized testify before sustainability access to sustainability-focused financing, research and advisory services. The $1 Congress in By Bloomberg News trillion for green initiatives will include April 15, 2021 renewable energy and clean technologies. JPMorgan Chase set a goal to finance May $2.5 trillion in initiatives that combat Low-carbon transition climate change and advance sustainable “It is important to set expectations By Neil Haggerty development over the next 10 years, while around where we want to see our clients’ April 15, 2021 Citigroup said it would back $1 trillion of emissions head over the next 10 years, but WASHINGTON — The chief executives similar efforts by 2030. it’s also really important that we support of six of the largest U.S. banks will appear Combined with previous announcements them in their low-carbon transition,” before the House and Senate banking by Bank of America, the three largest U.S. Marisa Buchanan, JPMorgan’s global head committees at the end of May, following lenders have all committed to backing of sustainability, said in an interview. “That reports that Democratic leaders were more projects that advance a low-carbon means coming to the table with capital.” looking to examine their response to the economy amid calls by the White House for In 2020, JPMorgan facilitated $220 billion coronavirus pandemic and efforts climate businesses to do more to curb pollution. of financing to drive action on climate change and racial equity. JPMorgan’s commitment includes $1 change and sustainable development, The CEOs of JPMorgan Chase, Bank of trillion for projects that bolster cleaner including more than $55 billion toward America, Citigroup, Wells Fargo, Goldman energy sources, it said Thursday in a green initiatives, according to the Sachs and Morgan Stanley will appear statement. The bank will also support statement. before the Senate Banking Committee on developing countries as well as initiatives Citigroup’s effort is part of the New May 26 and the House Financial Services

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Committee on May 27, according to a joint Citigroup last month to join SVB Leerink, and small business entrepreneurs,” Barr announcement from Sen. Sherrod Brown, the people said, while the the firm named said in a press release. “My proposal D-Ohio, and Rep. Maxine Waters, D-Calif., Blake co-head of investment banking in rolls back government regulations and the respective committee chairs. February. Blake joined from Guggenheim paves the way for investment to flood into Both hearings will be held virtually Partners but ran Citigroup’s health care underserved communities to make sure via Webex. The announcement follows a M&A group earlier in his career. that the economic recovery is not uneven.” Politico report that Brown and Waters were Representatives for Citigroup and SVB The legislation would require federal interested in holding hearings with large- Leerink declined to comment. Jackey didn’t banking regulators to jointly issue new bank CEOs to discuss their work to address respond to a request for comment. rules that would give de novo banks up to the coronavirus pandemic as well as their The moves come amid a steady stream three years to meet their applicable capital environmental, social and corporate of health care and life sciences dealmaking, requirements in order to mitigate the governance efforts. Brown has driven a as companies seek to bulk up on new strains of starting a new bank. sharp focus on ESG and racial equity since treatments and products as the world During the three-year period in which he took the gavel as chairman of the Senate rebounds from the coronavirus pandemic. the de novo banks would be working Banking Committee this year. SVB Leerink tends to advise on small and to meet their capital requirements, the This will be the first time that the big- midsize mergers as well as initial public legislation also ensures that the new banks bank CEOs will appear together before offerings, according to its website. can more easily make changes to their the Senate Banking Committee since Last year, the firm co-advised Dermira business models. It would create a new Democrats took the majority in the on its $1.1 billion sale to Eli Lilly. process for federal banking regulators to chamber. Waters has held several hearings Other recent hires include former HSBC approve or deny proposed changes. with big-bank executives since she took Holdings banker Thad Davis and Robert If a de novo bank submits a request to the gavel at the House Financial Services Minear, a former Guggenheim banker. deviate from a business plan that is already Committee in 2019. approved by a federal banking agency, the regulator must approve or deny the request DE NOVO INSTITUTIONS within 30 days and explain the rationale for RECRUITING the decision. Barr’s bill attempts to ease other House bill regulations on de novo banks that open in SVB Leerink qualifying rural communities. aims to The legislation directs regulators to hires Citi set the community bank leverage ratio, a simplified capital requirement that small encourage banks can use in lieu of more complex health care capital measures, at 8% for de novo banks. more de novo Regulators have the authority to set the banker community bank leverage ratio between 8% and 10%. banks The bill would also prohibit regulators Jackey from setting limits on the concentration of By Neil Haggerty agricultural loans at de novo banks. By Bloomberg News April 15, 2021 The legislation comes amid concerns April 15, 2021 WASHINGTON — Rep. Andy Barr, R-Ky., about the decrease in community banks Investment banker Robert Jackey has has introduced legislation aimed at making across the country over the past decade. A left Citigroup to join SVB Financial Group, it easier for new community banks to recent Federal Reserve study showed that according to people familiar with the open in areas that are underserved by the more than half of all U.S. counties saw a matter, as the parent of Silicon Valley Bank banking system. decline in bank branches between 2012 bulks up its health care advisory unit. The Promoting Access to Capital in and 2017, with 794 rural counties losing Jackey is joining the firm’s SVB Leerink Underbanked Communities Act would a combined 1,553 bank branches, a 14% as a managing director, said the people, encourage the formation of new banks in decline. From 2017 to 2020, the number of who asked to not be identified because locations where bank branches are scarce. bank branches declined 5.1%. Republicans the matter isn’t public. He spent 16 years It would give de novo banks more time have blamed onerous regulations. at Citigroup, most recently as a managing to meet capital requirements and would The bill directs federal banking director in its health care investment ease other regulatory burdens on new regulators to jointly study the decrease banking arm, according to his LinkedIn community financial institutions. in de novo banks and report to Congress profile. “The key to economic growth and within a year about the main causes of He’ll be joining former Citigroup bankers recovery throughout the country is having de novo bank closings and about ways to Toby King and Barry Blake. King left access to capital for individuals, families promote community bank formation in

For up to date and complete coverage go to AmericanBanker.com MONDAY APRIL 19, 2021 AMERICANBANKER.COM PAGE 11 underserved locations. in the release. Both the American Bankers Association HTLF’s tagline — “Strength. Insight. and the Independent Community Bankers Growth.” — represents “what we bring to our of America have endorsed Barr’s proposal. customers and what our unique business “By making it easier for new banks model and geographically diverse footprint to launch in rural areas of the country, brings to our shareholders,” Lee added. this legislation expands banking access Heartland operates a number of banks for individuals and businesses, which that continue to use their own brands. translates into greater economic activity The corporate name change had “tested and growth,” the ABA said in a statement. positively with multiple stakeholders — “The temporary regulatory adjustments employees, customers and investors,” Chief provided in this bill are a reasonable step Marketing Officer Laura Hughes said in the to encourage de novo formation that will release. benefit local economies.” The branding “is featured in our annual Rebeca Romero Rainey, president and report and will be highlighted during our chief executive of the ICBA, said Barr’s company annual meeting in May,” Hughes bill would create more competition in added. q community banking. “The Barr bill would provide crucial © 2021 Arizent and American Banker. regulatory, capital and lending flexibility, All rights reserved. which will facilitate the creation of de novo banks, of which only 54 have been chartered since 2010, compared to over 1,300 between 2000 and the great recession,” Rainey said in a press release. “In a time of growing financial concentration, Rep. Barr’s proposal will spur competition for financial services, expand access to credit and financial services for unbanked and underbanked Americans, and support the credit needs and economic vitality of local communities across America.”

BRANDING Heartland Financial rebrands as HTLF

By Jim Dobbs April 14, 2021 Heartland Financial USA in Dubuque, Iowa, has a new corporate brand. The $18 billion-asset company said in a press release Wednesday that it will now be known as HTLF. The name is consistent with the company’s stock symbol. “HTLF honors the company’s rich history and reflects our continued growth,” Bruce Lee, the company’s president and CEO, said

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