New Jersey Banker Fall 2015

NEW

JERSEY

FALL 2 0 1 5

B A N K E R

New Jersey Legislature Aims to Pass Maintenance Requirement

Bills

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NEW

JERSEY B A N K E R

NJBankers Board of Directors John W. Alexander Chairman/Chief Executive Officer Northfield Bank

James P. Genoy, Jr. President/Chief Executive Officer/Treasurer Monroe Savings Bank, SLA

Anthony Labozzetta President/Chief Executive Officer Sussex Bank

Kevin Cummings President/Chief Executive Officer Investors Bank

David J. Hemple President/Chief Executive Officer Century Savings Bank

Stewart E. McClure, Jr. * Regional President Lakeland Bank

Louis Anthony Costantino, Jr. * Managing Director, Industry Manager J.P. Morgan

Thomas J. Holt Senior Vice President Bank of America

D. Nicholas Miceli Market President TD Bank, N.A.

Edward Dietzler President The Bank of Princeton

James A. Hughes President/Chief Executive Officer Unity Bank

Peter Michelotti President/Chief Executive Officer Community Bank of Bergen County.

John S. Fitzgerald * President/Chief Executive Officer Magyar Bank

Henry P. Ingrassia President/Chief Executive Officer Glen Rock Savings Bank

Craig L. Montanaro * President/Chief Executive Officer Kearny Bank

Paul E. Fitzgerald President/Chief Executive Officer First Choice Bank

Thomas J. Kemly President/Chief Executive Officer Columbia Bank

John E. McWeeney, Jr. President and Chief Executive Officer ext. 627 jmcweeney@njbankers.com James M. Meredith Executive Vice President and Chief Operating Officer ext. 614 jmeredith@njbankers.com

Claire Anello Office Manager, Database and Website Manager ext. 631 canello@njbankers.com

Michael P. Affuso, Esq. Executive Vice President and Director of Government Relations ext. 628 maffuso@njbankers.com

Cris Goncalves Manager of Education ext. 630 cgoncalves@njbankers.com

Emily T. DeMasi Vice President and Director of Communications ext. 610 edemasi@njbankers.com Wendy C. Mandelbaum Controller ext. 603 wmandelbaum@njbankers.com

Contributing Editor Emily T. DeMasi

Robert Rey President/Chief Executive Officer NVE Bank Peter G. Schoberl Chairman/President/Chief Executive Officer Community First Bank Kathleen Stone Regional President/NJ Executive Susquehanna Bank

NJBankers Officers

NJBankers Staff

Jenn Zorn Senior Vice President and Director of Education & Business Development ext. 611 jzorn@njbankers.com

Michael Nardo Executive Vice President/NE U.S. Market Executive – Corporate Banking PNC Bank, N.A.

Lauren Barraza Executive Assistant ext. 618 lbarraza@njbankers.com Cynthia M. Zaccaro Administrative Assistant II/ Senior Administrative Assistant ext. 632 czaccaro@njbankers.com Erin Suckiel Assistant to the Director of Communications ext. 629 esuckiel@njbankers.com

Gerald L. Reeves * Chairman President/Chief Executive Officer Sturdy Savings Bank

James S. Vaccaro * Second Vice Chairman President/Chief Executive Officer Manasquan Savings Bank

Angela Snyder * First Vice Chairwoman Chairwoman/CEO Fulton Bank of New Jersey

John E. McWeeney, Jr. President and CEO New Jersey Bankers Association

Counsel Michael M. Horn, Esq. McCarter & English, LLP Mary Kay Roberts, Esq. Riker, Danzig, Scherer, Hyland, Perretti LLP

*Executive Committee

Contact New Jersey Bankers Association www.njbankers.com 411 North Avenue East Cranford, NJ 07016-2436 Phone: 908-272-8500 Fax: 908-272-6626

The Warren Group Design / Production / Advertising custompubs@thewarrengroup.com

Katherine Davey Administrative Assistant/Receptionist ext. 600 kdavey@njbankers.com

www.thewarrengroup.com 280 Summer Street • Boston, MA 02210 617-428-5100

Published continually as a quarterly publication by the New Jersey Bankers Association from 1929 to Winter 1986. Revived as a quarterly publication by NJBankers and The Warren Group in 1998 under the name New Jersey Bank & Thrift and continued as New Jersey Banker in 2002. Combined with The League Leader, published by the New Jersey League of Community Bankers, in December 2008 and continued as New Jersey Banker.

Fall 2015 New Jersey Banker

3

SPECIALIZED EXPERTISE

Table of Contents

Audit & Compliance SEC Rules & Regulations SOX 404 Internal Audit Control

Network Attack & Penetration Information Systems Audit Business Resumption Planning

Cover Strategic & Succession Planning Profit & Process Improvement Enterprise Risk Management

Tax Planning & Advice

20

New Jersey Legislature Aims to Pass Maintenance Requirement Bills

Departments 6 Chairman’s Platform 9 New Associate Members Renewed Optimism 10 Politics & Policy 6 Upcoming Events

Legislature Should Heed Warnings

Tax Preparation & Compliance Tax Accounting

8 From the President’s Office In Search of Value

28 Bank Notes

29 Bank Shots

Features Audit & Co-Sourcing Regulatory Compliance Insurance & Trust

THE SNODGRASS APPROACH: PERSONAL, PROACTIVE and EVOLVING over time. Our team of expert practitioners have been providing business consulting services since 1946.

12 Directors’ Corner “The Times They Are a Changin”

22

Behind the Teller Line All Banking Should Be Private Banking

14

Meet Our Endorsed Service Provider Century-Old Deluxe is Much More Than Just Checks

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Feature Technology Companies Are Encroaching Upon Mobile Banking

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Meet Our Endorsed Service Provider Addressing Enterprise Risk with Captive Management

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Feature Eyeing Up: Three Health Care Reform Issues For Employers

27

Feature NJBankers Foundation Update New Jersey Bankers Charitable Foundation Ready to Expand

16 Feature

Once Again Bankers

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New Jersey Banker

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Feature High Volatility Commercial Real Estate: Its Definition and Impact

Fall 2015

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Chairman’s Platform

Renewed Optimism

By Gerald L. Reeves

I

have been finding a renewed optimism about our state’s economy as I talk to business owners and realtors. Based on these discussions and recent statistical reports, the economic conditions in New Jersey are improving.

Unemployment is down and now at 5.9 percent for the month of July. Compare that with 9.7 percent back in 2009. This increased employment throughout the state will provide improved consumer confidence and more qualified borrowers.

Additionally, housing prices are finally stabilizing and may even begin to escalate as the current inventory of homes begins to decrease. There are fewer non-bank mortgage lenders than in the past. Though home mortgage rates are at historic lows, they are expected to start rising soon.

Gerald L. Reeves Chairman NJBankers President and CEO Sturdy Savings Bank

This blend of optimism and improving economic conditions creates opportunities for bankers to assist their customers and their communities – especially when it comes to residential mortgage lending.

Now is the time for our customers and neighbors to finance a purchase or refinance a current mortgage loan.

As bankers, we need to educate and encourage them to speak to us because we are experienced and experts in the market. I think that

tailoring our communications efforts and marketing messages will be key to revitalize this sector of our business. We should tell our neighbors that we, as bankers, can help them reach that American dream of home ownership. We can educate them on the process for applying for or refinancing their current mortgage. Importantly, we can educate them about the responsibilities that go along with such an important decision.

Many of us offer home buyer programs that help consumers and ultimately benefit our banks. We can enlighten a borrower about credit scores and their effect on interest rates. We can educate first-time borrowers on the process and obligation of repaying a mortgage loan in a timely manner. We need to cultivate a culture where consumers feel confident about talking to their banker. I am encouraged by market improvements and energized knowing that bankers will be the catalyst for supporting our communities through these changes.

I must, however, add that each bank must determine their strategy for handling the interest rate risk of providing fixed rate mortgages.

Our fiduciary responsibilities will govern our exposure. Our education efforts and messages will ultimately govern the quality of borrowers. ■ Gerald L. Reeves is chairman of the New Jersey Bankers Association and president and CEO of Sturdy Savings Bank. He can be reached at greeve@ sturdyonline.com.

Upcoming Events October 15-16, 2015

November 20, 2015

Caesars Resort, Atlantic City

Crowne Plaza Monroe, Monroe Township

October 19, 2015

December 1, 2015

Annual Human Resources Conference

101 Bank Secrecy Act Seminar

Renaissance Woodbridge Hotel, Iselin October 20, 2015

Advanced Bank Secrecy Act Seminar

Renaissance Woodbridge Hotel, Iselin October 21, 2015

Enterprise Risk Management Conference

Crowne Plaza Monroe, Monroe Township November 17, 2015

CFO Conference with FMS

Renaissance Woodbridge Hotel, Iselin

Directors College with FDIC

Future Leaders in Banking Gala in conjunction with BankHorizons Tropicana, Atlantic City December 2, 2015

BankHorizons 2015

Tropicana, Atlantic City January 15, 2016

Economic Leadership Forum

The Palace at Somerset Park, Somerset May 11-15, 2016

112th Annual Conference

The Phoenician, Scottsdale, AZ

6

New Jersey Banker

Fall 2015

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From the President’s Office

In Search of Value

By John E. McWeeney, Jr.

D

uring the summer, our management team met for a strategic planning session. Just like many of our bank members, we took some time away from the office and met at an off-site location in an effort to get the strategic juices flowing. Then we proceeded to fill up pages and pages of flip charts with ideas on a variety of topics including: our government relations efforts in what we anticipate John E. McWeeney, Jr. will be a very difPresident/Chief Executive Officer NJBankers ferent political environment in Trenton in two years; our NJBankers brand, what does it stand for and is it time for a change?;

the rapidly evolving education and professional development needs of our members; the changing customer preferences that our banks face; the explosion of digital media and the impact of a consolidating banking industry on our association and our ability to serve our members. There were many more topics discussed, but these were certainly ones that we viewed as potential game changers as we move forward. While dealing with all of the change in the banking industry can feel daunting at times, we always come back to one basic principle that has driven NJBankers for the past 112 years and still does today, and that is our mission to deliver value for our members. Everything else will fall into place if we can get that right.

In our efforts to recruit new members and sometimes retain existing members we

occasionally get asked the question, so what is the value of an NJBankers membership?

The simplest response is that as a trade association that represents 105 banks and over 230 associate members, NJBankers can accomplish things that individual institutions could not possibly achieve on their own.

The most obvious example of that is in the area of advocacy. Legislators and regulators listen and respond when a trade association that represents the entire New Jersey banking industry speaks with one, strong and united voice. Our success can vary depending on the nature of an issue and which other constituencies are involved but one thing is clear, we’re much stronger as an industry when we stand united as opposed to a number of fragmented voices.

Another key area in which NJBankers strives to add value is in the education and

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Connect with us: bakertilly.com/industries/banking/ Want to receive our banking articles? Go to: bakertilly.com/insights/subscribe Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International. Š 2015 Baker Tilly Virchow Krause, LLP An independent member of Baker Tilly International

8

New Jersey Banker

Fall 2015

professional development of our members.

Once again, as an organization that represents 105 banks with a dedicated staff of professionals, we’re able to provide educational offerings on a wide range of subjects from industry leading experts. Testament to that are some of our recent and upcoming speakers at NJBankers events. We were privileged to have Comptroller of the Currency Tom Curry speak at our recent annual conference. Similarly, we have New York Fed President Bill Dudley and nationally regarded political analyst Charlie Cook scheduled to speak at our Annual Economic Forum in January. A quick visit to our website would reveal the more than 100 conferences, seminars and webinars conducted annually by the association that attract high caliber speakers and thousands of our members to attend.

Of course NJBankers can add value in other meaningful ways as well. Bankers Cooperative Group (BCG), the self-contained brokerage facility for NJBankers members and associate members is the leading provider of employee benefit programs for New Jersey’s banking industry. BCG is able to leverage almost 8,000 industry employees and their dependents to negotiate group employee benefit programs and pricing not generally attainable on an individual employer basis. Further, since 1998, BCG has returned $2 million in patronage dividends to its shareholders.

New Associate Members

For many of our members, the greatest value they derive from NJBankers membership is through participation on NJBankers committees, currently totaling 30 and representing most of the specialized functions within banking such as human resources, compliance and CRA and enterprise risk management, just to name a few. These committees give bankers the opportunity to stay connected with other bankers and associate members on the key issues they deal with every day. We hear from our members that it’s an invaluable service, which is demonstrated by the over 800 bankers and associate members that serve on these committees.

Yet for other members value is derived from our extensive communications and public relations efforts. The publication of a quarterly magazine and a bi-weekly electronic news bulletin as well as periodic alerts to our members keep them wellinformed. Just recently NJBankers began a partnership with the Financial Services Information Sharing Analysis Center (FSISAC) and the New Jersey Cybersecurity and Communications Integration Cell (NJCCIC) to issue weekly cybersecurity alerts to our members. Further, extensive media communications, editorial board meetings and op-ed pieces regularly and consistently tell the banking industry’s story, many times through our banker’s voices.

Lastly, we’re very proud and thankful for our 230 plus associate members, some

of who are endorsed or select service providers of NJBankers. These service providers bring a wealth of expertise and solutions to our bank members and help them serve their clients better and operate their banks efficiently. That provides a very real and tangible value that originates through NJBankers.

So as we move forward we’re committed to the never-ending search of ways that NJBankers can provide value to our members. We’ll use our strategic planning efforts as a compass to point us in the right direction for this search but more importantly we rely on our members to guide us. Our actively engaged membership not only identifies ways that NJBankers can add value, but through its participation in our many programs, helps us to actually execute and make that value real. One final example can illustrate that point and that’s our annual regulatory visit to our nation’s capital this fall. NJBankers will do its part to organize the meeting schedule and get the senior regulatory officials in the room but it’s our bankers who will deliver the message to the regulators on behalf of our entire membership base. That makes for the perfect scenario, a member driven organization creating value.

■ John E. McWeeney, Jr., is president and CEO of the New Jersey Bankers Association, and can be reached at jmcweeney@njbankers.com.

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Fall 2015 New Jersey Banker

9

Politics and Policy

Legislature Should Heed Warnings

By Michael P. Affuso, Esq.

F

ederal agencies purchase over 80 percent of the mortgages sold in the United States. The Federal Housing Finance Agency (FHFA) and its progeny are a behemoth in the mortgage market. Their purchasing of mortgages creates liquidity from which banks may continue to lend and fuel the economy and their girth, and pricing power creates a situation where mortgages are basically national Michael P. Affuso commodities.

Executive Vice President/ Director of Government Relations This debt is then NJBankers purchased by the market usually as fixed income securities often seen in pension funds.

What would happen if the agencies stopped buying mortgages? What if they were only willing to pay based on risk? What if they assessed that risk on a state-by-state basis?

Investors in fixed income securities would be reasonable to only purchase at market price the security in which the recovery of the underlying asset can be readily liquidated should it not perform.

The prudent investor would be sensitive to the underlying risk of asset recovery in the purchase of the security. The prudent investor would also likely be wary of any other encumbrances that may negatively affect the return on the asset.

The FHFA is growing prudent.

The FHFA has begun to systematically defend its position and attack state laws that effect the primacy of lien priority.

Both Florida and California have enacted laws that violate the priority status of a lien. This legislation, called PACE, creates a super-priority lien for certain environmental improvements that a homeowner should undertake. Specifically, these liens are

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Fall 2015

used for home energy efficiency projects (solar panels). The lien is repaid through the estimated savings on the homeowners’ energy bill.

Other states have sought to give superpriority status to home owners associations when a property owner in foreclosure does not pay home owners association dues.

Super-priority is generally allowed for municipal liens and tax liens only. The purported logic of allowing special superpriority in these circumstances is that the PACE liens will benefit the municipality in the form of the energy efficiency, and that the home owners association is acting like a governmental entity and the dues are akin to property taxes.

The FHFA has called into question these super-priority liens. It noted that the lien transfers the risk from the lien holder to the agencies by way of the super-priority status. It is very likely that the FHFA will soon use its market girth to issue an edict against these liens or simply not purchase any mortgage where it could lose first

priority status. Lawsuits have been filed in both Florida and California to address this issue also.

New Jersey has not heeded the warning.

In June the legislature sent a PACE super-priority bill to the governor’s desk. As of today, the Governor has not acted, though NJBankers is actively seeking a veto. There is also a bill moving through the legislature, albeit slowly and circuitously, that will create a super-priority for HOA dues. NJBankers is actively opposing this legislation.

But what if we didn’t oppose these bills and what if they did become law? Would New Jersey be willing to create a situation where the largest player in the mortgage market would decline to purchase any mortgage that had an HOA? Would our state be willing to create a situation where the largest player would also not purchase mortgages from any municipality that had a PACE ordinance?

And this is coming from an FHFA that is friendly to blue states.

We all know that New Jersey is in the unenviable position of having some of the longest foreclosure timelines in the nation. Imagine 2017, with a Republican administration, elected from red states, where it takes less time to foreclose and a Republican appointee as the head of the FHFA. Would it be a stretch to say that the administration might risk weight FHFA purchases based on foreclosure timeframes? Would it not be a politically reasonable position to determine that the states in which a foreclosure takes less time should not receive a financial benefit to states like New Jersey?

Whatever the decision of the election, it is clear by its market domination that the FHFA will be calling the shots and that the legislature had better heed the warnings.

■ Michael Affuso, Esq., is executive vice president and director of government relations for NJBankers. He can be reached at maffuso@njbankers.com.

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Directors’ Corner

“The Times They Are a Changin”

By Mortimer O’Shea

B

ob Dylan’s song “The Times They Are a-Changin” was popular when I was a student at Fordham University in the 1960s. It was true that things were changing during that era – and for the banking industry, change continues to be a reality in 2015.

My first job in banking was as a management trainee for Manufacturers Hanover Trust Company (MHTCo). In those days, the big New York City banks would hire liberal arts graduates because they believed Mortimer O’Shea that a newcomer could learn the business with in-house training and on-the-job experience. New trainees spent time in the “credit investigations” department

learning how to contact other bankers to elicit account and borrowing information on companies which were potential customers of Manny Hanny’s corporate clients. We functioned as an outsourced credit department for West Virginia Pulp and Paper Company and other large MHTCo relationships. Trainees dictated the results of our inquiries over the phone to a typing pool of stenographers who were located on a different floor of our building at 245 Park Avenue. The vice president in charge of our management training class lamented the fact that the young college graduates no longer wore fedoras to complement their white shirt and dark suit uniforms!

After several years in New York City, I was recruited to Fidelity Union Trust Company in Newark, New Jersey – the “Morgan Guaranty” of the New Jersey banks – and I quickly learned that there was a very different commu-

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nity of banks in the Garden State. The New Jersey banks had historically been focused on one city or one county, and in the early 1970s were just beginning to branch out in a meaningful way. The heads of the larger banks were leaders in their communities and were well known throughout the state. Malcom Davis led Fidelity Union Trust Company, while the other big Newark banks were headed by Bob Van Buren (Midlantic) and Bob Ferguson (First National State). Tom Stanton was CEO of First Jersey in Hudson County and Ned Jesser and Cliff Coyman led the management team at United Jersey in Bergen County. The Star Ledger and the American Banker (Paul Nadler) were the primary means of information sharing about banking in New Jersey. It’s truly amazing how much information is now available on the Internet and how quickly news is disseminated.

BIG CHANGES Technology and the expanding role of regulators and regulation are two of the most significant changes in banking over the past 50 years. Many old timers – and not-so-old timers – can remember the voluminous computer printouts that sat on a shelf behind the teller line in our branch offices. If a customer came into the branch to cash a check, the teller had to page through the printouts to determine the balance in the account. What a far cry from today’s reality, where each teller has a computer monitor at his or her station to quickly bring up the account information.

The customer is likely to use an ATM to access cash, but it’s even more likely that retail payments are made with the swipe of a debit card.

When I use cash to pay for gasoline at a service station, I feel like a dinosaur! Technology has changed almost everything about the way we do business. Unfortunately, with new technology comes the danger of cybercrime. Computer criminals constantly attack large retailers and banks in an effort to hack into systems and perpetrate fraud. We pay for the convenience of improved technology with greater attention to security, more money spent on consultants, and, of course, more scrutiny from regulators.

In the past, regulators were primarily concerned about safety and soundness, focusing on a bank’s capital strength and its loan portfolio.

Fall 2015

In recent years, regulators are more focused on compliance with laws and regulations that have become incredibly complex and burdensome.

A compliance examination today gets everyone’s attention, from the board of directors on down. The huge fines that have been imposed on banks for suspected violations of BSA/AML regulations, for example, would have been unthinkable in the bygone era. Every bank has bolstered its compliance staff and pays a lot of attention to the next pronouncements from the regulators. Every bank is now paying a significant amount of money to hire consultants to help deal with the onslaught of new laws and regulations.

Unfortunately, since the financial crisis of several years ago, bankers have been tarred as villains by the media and many politicians. I recall a conversation a few of us community bank CEOs had with a populist regulator-in-waiting about five years ago. When we asked her if it were true if she had castigated the entire banking industry in a television interview, she smiled and let it be known that she was not going to make a distinction between Wall Street and the small community banks which had not caused the financial debacle. To her, all banks were perfect foils for her populist political agenda.

The bankers in New Jersey, of course, continue to be very supportive of their communities and “walk the walk” as leaders on the boards of not-for-profit organizations and as “hands on” volunteers. In this regard, the traditional role of bankers has not changed. And, for businesses seeking financing for expansion or working capital, it’s still important that they have a personal relationship with a professional banker. This relationship style of banking continues to be the model that works for many of us and it makes for interesting and rewarding careers. Certainly, it was a career that gave me a lot of satisfaction.

■ Mortimer O’Shea is a director at Haven Savings Bank. Prior to joining Haven’s Board of Directors, O’Shea served as president and CEO of Hilltop Community Bank, which was acquired by Haven Savings Bank. In his career, O’Shea has held executive leadership positions at Ramapo Financial Corp., Ramapo Bank, The Summit Bancorporation, Somerset Trust Company and The Trust Company of Princeton, as well as management positions at First Fidelity Bancorporation and Irving Trust Corporation. He was also a member of the association’s board.

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Meet Our Endorsed Service Providers

Century-Old Deluxe is Much More Than Just Checks

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Today, thanks to collaboration, innovation and acquisition, Deluxe has

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Deluxe has also acquired expertise as a way to help clients turn relationships to revenue. For instance, the purchase of Destination Rewards, now branded Deluxe Rewards, gives the company a patented system for driving online engagement and profitable behaviors for the world’s most prominent brands in financial services, wireless, membership and more. Deluxe

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14 New Jersey Banker

Fall 2015

Addressing Enterprise Risk with Captive Management

B

ankers know that not all enterprise risk is addressed with their commercial insurance package.

Emerging risks such as cyber security and reputation risk create significant exposures for banks of all sizes. Commercial insurance carriers may be pushing banks to higher deductibles and there remain gaps in coverage and exclusions in commercial insurance policies. This creates unfunded risks, which must be evaluated as a part of any bank’s enterprise risk management process.

A growing number of banks are forming captive insurance companies (captive) to cover these unfunded risks. A captive is a legally licensed, limited purpose, property and casualty insurance company, which can write customized policies for related entities.

A captive structure does not necessarily replace any of a bank’s current commercial policies, but over time it may lead to changes in its commercial program. Instead the captive can augment the commercial policies by covering the bank’s commercial deductible layers, increasing coverage levels on existing policies (excess layers), and identifying other currently unfunded risks to insure where commercial insurance is not available to the bank.

Along with the benefits received from enhancing the bank’s risk management process, Congress approved a small business incentive whereby a company (including banks) can form its own captive insurance company and then make an election under Section 831(b) of the Internal Revenue Code. This allows companies to prefund for potential future risks on a task advantaged basis, providing a mechanism for companies to formalize their current self-insurance program.

NJBankers has endorsed KeyState Captive Management to assist banks with the establishment of a captive insurance subsidiary. KeyState works with the

bank, guiding it through the various steps of implementation. The first step is the preparation of an independent assessment of a bank’s current commercial insurance coverage (performed by risk managers at Crowe Horwath LLP), which provides a detailed peer comparison for each commercial policy (benchmarking coverages, limits and deductibles). The assessment is then used to identify and select the coverages that the bank will place inside its wholly owned small insurance company.

KeyState’s Bank Captive Program has been endorsed by 13 state banking associations or their for profit subsidiaries.

KeyState and the Indiana Bankers Association began introducing this program to banks in 2012, initially targeting banks that are $450 million in assets or larger in Indiana where KeyState has a long history.

By the end of 2014, about 85 percent of Indiana banks in that asset range had implemented the Bank Captive Program.

The benefits of improved risk management and expanded coverage availability may make the formation of a captive insurance company advantageous for your bank. If you have further interest in evaluating the formation of a captive insurance company, please contact Hillary Frei with KeyState at (702) 598-3738.

■

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Fall 2015 New Jersey Banker

15

Feature

A team of five Lusitania Savings Bank employees participated in a sandy-damaged rebuild with Bergen County Habitat for Humanity in Little Ferry.

As part of the NJBankers Build Initiative, Amboy Bank employees helped restore a Lake Como home that was damaged by Hurricane Sandy and is being rebuilt by Coastal Habitat for Humanity. Amboy employees from left to right: Gregory Scharpf, Sylvia Rapoport, Gloria Dumm, Dennis Kane, Stanley Koreyva and Annelie Kulcsar. Amboy employees spent the day at the home installing hard wood flooring.

Boiling Springs Savings Bank employees joined their fellow Board members for an all-day “Bankers Build” at Habitat for Humanity of Bergen County’s Little Ferry and Moonachie job sites. Their tasks included painting and installation of flooring. (Pictured from left to right in the first row are Elyse D. Beidner, senior vice president; Debra Cannariato, vice president; Peggy Letsche, director. Pictured from left to right in the second row are Patrick H. Kinzler, director; Michael Stimson, Habitat’s project manager; Robert E. Stillwell, president and CEO; J. Christopher Ely, vice chairman; Johnathan Shaw, director; Robert Goldstein, director; Peter F. Benedict, director; Kenneth Grimbilas, chairman.

A team of volunteers from Mariner’s Bank spent the day volunteering with Habitat for Humanity of Bergen County (Habitat Bergen) in Little Ferry and Moonachie as part of NJBankers Bankers Build program.

Once Again Bankers Build for Habitat for Humanity

T

hrough the coordinated efforts of Michael Affuso, executive vice president and director of government relations of NJBankers, members have once again volunteered for 22 days to help homeowners impacted by Superstorm Sandy. As part of the NJBankers Bankers Build initiative, volunteers worked with Coastal Habitat for Humanity and Bergen County Habitat for Humanity all through the summer. Providing manpower and financial resources, a team of eight to 10 bankers were at work on a Habitat project. From laying new floors to installing sheet rock, members also worked on brightening walls with a fresh coat of paint.

This was the third consecutive year member banks have volunteered and donated funds to Coastal Habitat and the first year members participated collectively and contributed to Bergen County Habitat.

In addition to their hands-on support, hard-working members generously committed a $100 donation per volunteer in order to purchase building supplies. The Bergen County Habitat Build goal was to reach $15,000 in 15 days, where participating banks donated $1,000 per tireless team to Bergen Habitat.

In addition, NJBankers reached out to members for support of the FoodBank of Monmouth and Ocean Counties’ “Culinary Classic.” Last year NJBankers members raised $10,000 and nearly $75,000 for the FoodBank since 2009. The efficiency of the FoodBank is extraordinary. The $75,000 translates into 225,000 meals since 2009 due to our member’s donations.

■

16 New Jersey Banker

A group of Provident Bank employees volunteered for the Hurricane Sandy rebuild with Coastal Habitat.

Many thanks to members that have participated thus far: Coastal Habitat Amboy Bank Cape Bank First Choice Bank Harmony Bank Magyar Bank Manasquan Bank NJBankers The Provident Bank Bergen Habitat Boiling Springs Savings Bank Community Bank of Bergen County Columbia Bank Investors Bank Lakeland Bank Lusitania Savings Bank Mariner’s Bank NJBankers Pascack Community Bank Spencer Savings Bank Sussex Bank

Fall 2015

A coalition of NJBankers members are continuing to help repair homes damaged by the superstorm with the third Bankers Build, a summer-long program coordinated with Coastal Habitat for Humanity. Harmony Bank employees participated in the build to help families get back into their homes.Â

NJBankers staff joins in the Bankers Build initiative. Left to right, Habitat Coordinator Mike Stimson; Jim Meredith, Erin Suckiel, John McWeeney, Jr. and Lauren Barraza volunteered with the Bergen County Habitat for Humanity. That day all traded in their suits for work boots and tremendous progress was made!

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>

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Call 844-232-2709 or visit NJBAQuote.com today for your free quote and special 5% discount.

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Group discounts apply to policies written in High Point Property and Casualty Insurance Company or Palisades Insurance Company. May not be combined with any other group discounts. Š2015 Plymouth Rock Management Company of New Jersey. All rights reserved. 7994/022015

Fall 2015 New Jersey Banker

17

Feature

High Volatility Commercial Real Estate: Its Definition and Impact

By Matt Weiland

L

ast December, James Nigro, senior vice president and credit risk manager of The Provident Bank, attended what he thought was a fairly routine meeting.

“Someone from our finance department came to me and said, ‘By the way, Jim, in the next quarter, we’re going to start reporting something new on the call report called ‘high volatility commercial real estate,’” Nigro recalled. “When I read the call report definition, my first thought was ‘This is going to change the way we make loans.’”

The new high volatility commercial real estate (HVCRE) classification was passed as part of new Basel III capital rules last fall, but reporting requirements went into effect as of March 31 call reports of this year. The new rules state that acquisition, developmental and construction loans Matt Weiland that meet certain criteria are classified as

18 New Jersey Banker

HVCRE, and carry a 150 percent capital risk weighting.

“What this required was a lot of education for our lenders and underwriters, coaching them about HVCRE, how it can affect their deal structures, how to potentially avoid this type of classification and the ramifications and cost to the bank if they make loans that are classified HVCRE,” Nigro said. “We also created a resource guide that laid out definitions and key terms of the HVCRE rules, new reporting and tracking procedures, steps that had to be taken to implement them and a form that was used to qualify every potential HVCRE credit.”

Education of Provident’s staff took place almost immediately, with the bank’s commercial real estate lenders receiving the most rigorous training.

“The people in that group are the ones who originate the largest volume and dollar exposure of construction loans within the bank,” said Nigro. “Keep in mind, HVCRE doesn’t just apply to construction; it can apply to interim acquisition loans and land deals, but most of the transactions that might trigger an HVCRE classification would originate in our CRE group.”

More intensive training was also provided for the bank’s commercial underwriting staff. Provident’s other groups, such as middle market, business banking and asset-based lending received remote training on the new classifications so that they were aware of the new rules.

Nigro and his team noticed an immediate impact when they began to track the new HVCRE classification, most noticeably in the way regulators chose to calculate the equity requirements of loans.

“The method the regulators chose to assess project equity isn’t consistent with the way that most bankers structure deals,” said Nigro.

“The regulations look at equity as a percentage of the ‘as complete’ appraised value of the project, which a lot of banks don’t use. Typically, we’ll look at LTV and the percentage of the project cost being contributed as upfront capital in the deal. Because of the different factors, some of our deal structures and the ways that we’ve approached underwriting and structuring loans have been tripped up.”

He went on to describe an issue that arose when one of the bank’s borrowers was in the process of acquiring a distressed property to

Fall 2015

be renovated, repositioned and re-leased. The project’s as-complete appraised value was higher than anticipated, which raised some unanticipated issues. “We had 25 percent cash equity and 55 percent LTV, but the loan still triggered the HVCRE classification because the cash equity contribution was shy of the 15 percent of the as-complete value, as that valuation came in so high,” said Nigro. “We had a deal where we had strong cash equity and a low LTV, and under the new rules, it was being classified as high-risk.”

Provident went ahead with this transaction, despite the fact that it triggered the HVCRE classification.

“We felt very confident in the risk of the deal, so we decided that, rather than penalize the borrower with more equity or re-pricing it, we would bite the bullet,” said Nigro. “We didn’t want to risk renegotiating the deal with the borrower because of a regulatory requirement that’s going to require us to hold a little bit of additional capital.”

Provident’s supply of additional capital also played a part in the decision to green light the transaction.

“We have an advantage due to our excess capital,” said Nigro. “It doesn’t really hurt us as much because we don’t have to commit additional capital that costs us incrementally more money. We already have the capital on our books. Other banks that are not as well-capitalized are going to find it very costly to make HVCRE loans.”

One issue that seems to be taking place throughout the banking industry is that some bankers are unaware of either the new rules, or the impact that they have upon their lending practices.

“I was talking to other banks in mid-February about this, reaching out to them to ask them how they looked at certain types of situations,” said Nigro. “It was interesting that a lot of the banks under $10 billion (in assets) hadn’t even heard about it yet. When I shared with them what I had learned, they had the same reaction as me, which was ‘Holy cow, this is a really big deal.’”

Nigro theorizes that the disconnect in attention might be a result of the new regulations being included in capital language.

“I think most people on the lending side weren’t focused on this because it was part of the capital rules,” he said. “You normally don’t think about capital requirements in terms of how you structure your credits.

Another problem that I see is that the definition is very atypical with the way banks lend money. It’s a change of habits, a change in the way you look at transactions and a change in the way you structure your deals.” ■ Matt Weiland is marketing coordinator for Ardmore Banking Advisors, specializing in risk management consulting for community banks. He can be reached at mweiland@ardmoreadvisors.com. James Nigro is senior vice president and credit risk manager for The Provident Bank and can be reached at james.nigro@providentnj.com.

New Jersey

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Fall 2015 New Jersey Banker

19

Feature

New Jersey Legislature Aims to Pass Maintenance Requirement Bills

By Robert Nies and Steven Sheldon

L

Robert Nies

Steven Sheldon

enders foreclosing on vacant or abandoned properties already suspect that a full recovery of outstanding indebtedness, especially when fees and costs are added, is unlikely. These distressed properties typically continue to deteriorate and usually have difficulty reselling. The legal fees and additional costs required to preserve this type of collateral greatly diminish a lender’s chance of being made whole following a foreclosure sale. Under current New Jersey law, lenders who have initiated a foreclosure proceeding on residential property are already subject to certain reporting and maintenance requirements, obligations which arguably create unwarranted costs.

As currently enacted, N.J.S.A. 46:10B-51 places several financial burdens on lenders’ efforts to maximize value from residential real property collateral. Specifically, inter alia,

this statute provides: • Lenders serving a summons and complaint to foreclose a mortgage on residential property in New Jersey must within 10 days notify the municipal clerk of the municipality in which the property is located that an action has been commenced, the street address and lot and block number of the property, and the name and contact information for a representative of the lender who is responsible for receiving complaints of property maintenance and code violations.

• If an owner of residential property vacates or abandons residential property on which a foreclosure proceeding has been initiated, or if the property becomes vacant at any point during the proceeding but prior to title vesting in the lender or any other third party, and the exterior of the property is found to be a nuisance or in violation of applicable state of local codes, the lender shall have 30 days after notice to abate the nuisance or remedy the violation.

• If a lender fails to remedy the violation(s) within the 30-day cure period, municipalities may impose certain fines and penalties, including any fines that could have been levied against the property owner.

N.J.S.A. 46:10B-51 also affords municipalities that expend funds to abate a nuisance or correct a violation on residential real property, after a lender fails to cure, the right to recover expended funds from the subject property or any other asset of the lender.

20 New Jersey Banker

As currently constructed, lenders foreclosing on real property collateral are already burdened with, among other things, the obligation to maintain the exterior of vacant or abandoned residential properties or face certain penalties and fines levied by municipalities. This is particularly troublesome, as lenders are forced to expend additional funds on a presumably underperforming credit – from which a full recovery is unlikely – due to no fault of their own.

Unfortunately, the New Jersey Legislature is now seeking to further burden foreclosing lenders. Earlier this year, legislation was introduced, which, if passed by the New Jersey State Senate and the New Jersey State Assembly, will significantly increase a lender’s maintenance obligations on vacant or abandoned commercial properties, increase the cost and delay of foreclosures and further erode an already tenuous collateral base.

EXPANSION OF OBLIGATIONS TO NON-RESIDENTIAL PROPERTIES On Jan. 15, Bill S2701 was introduced in the New Jersey State Senate and, on Feb. 5, the identical piece of legislation was introduced in the New Jersey State Assembly, as Bill A4172. Both will expand a foreclosing lender’s obligations under N.J.S.A. 46:10B-51. This legislation seeks, inter alia, to expand the scope of the current statute to nonresidential, i.e., commercial properties, as well. Accordingly, lenders foreclosing on a mortgage on either a residential or non-residential property in New Jersey will have to notify the applicable municipality of the name and contact information for a representative of the lender who is responsible for receiving complaints of property maintenance and code violations; and if a residential or non-residential property subject to a foreclosure proceeding is vacated or abandoned, and there is found to be a nuisance or code violation on the property, a lender will be responsible for abating the nuisance or remedying the violation. The full extent of the legislature’s willingness to burden lenders is further evidenced by other provisions of this proposed legislation. For example, 30 days after the enactment of the legislation proposed by Senate Bill S2701 and Assembly Bill A4172, lenders will be required to provide the clerk of the Superior Court, for each municipality in which they have a pending foreclosure proceeding, a list of all pending non-residential property foreclosures.

EXPANSION OF OBLIGATIONS TO INTERIOR OF PROPERTIES If the costs attendant to the expansion of these obligations to non-residential properties were not onerous enough, the New Jersey Legislature is looking to go even further: On Jan. 15, Bill S2702 was introduced in the New Jersey State Senate and, on Feb. 5, the identical piece of legislation was introduced in the New Jersey State As-

Fall 2015

sembly, as Bill A4173. Senate Bill S2702 and Assembly Bill A4713 seek to remove from the current statute, N.J.S.A. 46:10B-51, the lender’s obligation to maintain the exterior of these distressed properties and, instead, require lenders to maintain both the exterior and interior of vacant or abandoned properties.

IMPACT ON LENDERS Lenders, particularly those in the distressed lending arena, should be aware of and educated about the expanded notice and maintenance requirements pending before the New Jersey Legislature. While distressed lenders may want to lobby the legislature to protect their interests, unfortunately litigation to challenge the statutes as an alternative is unlikely to prove helpful: there is a dearth of precedent concerning the interpretation of N.J.S.A. 46:10B-51 as currently enacted. For example, there appear to be no reported decisions concerning whether a lender may add the costs of abating nuisances or remedying code violations to its outstanding debt. Nor is it clear that these statutory obligations may be addressed by artfully drafted loan documents to shift the costs of these obligations. It is also unclear whether these lender obligations continue if a foreclosure proceeding is commenced but dismissed, as both the current and proposed statute are silent in this respect. Presumably, an argu-

ment can be made that since the plain language of the statute does not provide for the termination of these obligations until title has passed, lenders could remain liable even if they abandon their collateral or dismiss the foreclosure.

What is clear, unfortunately, is that lenders faced with collateral diminishing in value (i.e. a vacant or abandoned piece of real property) will be forced to increase their financial exposure. Most notably, lenders will not only be faced with the increased costs of maintaining the interiors of vacant or abandoned residential and commercial buildings for routine maintenance, but also for latent defects such as animal infestations, mold and fire hazards. Even before lenders incur these potential remediation costs, they will incur expenses to monitor the interior and exterior of residential and non-residential vacant properties in foreclosure. It will behoove distressed lenders to preemptively expend funds to develop a system to address any potential violations – an unenvious task for a creditor already burdened with mitigating its damages.

■ Robert Nies is a member of the Chiesa Shahinian & Giantomasi Bankrupcy and Creditors’ Rights Group and has served the business community for more than 25 years. Steven Sheldon is counsel in the same group. He represents corporate clients, banks and commercial lenders.

Fall 2015 New Jersey Banker

21

Behind the Teller Line

All Banking Should Be Private Banking

E

stablished in 1921 by business leaders in Peapack-Gladstone who believed a local bank would succeed if it invested in the community and operated with the highest standards of ethics, fairness and privacy, Peapack-Gladstone Bank (PGB) has created a brand like no other, making personal service and advice-driven solutions its cornerstone.

Doug Kennedy Over the past 94 years, the bank has served some of the wealthiest communities in New Jersey as a trusted community bank. Today, it has evolved into a boutique bank that offers convenience, advice and service not found at big-name investment banks.

“We’re not here just to react to clients’ requests,” said Doug Kennedy, president and CEO. “We are here to proactively help manage their

wealth and their business and create custom solutions for their needs.”

In 2014, PGB made considerable progress positioning itself for sustained growth and profitability. Its strategic plan was designed to address several industry trends, including: • The current low interest rate environment and flat yield curve’s adverse impact on earnings.

• The reality that costs associated with the regulatory environment will not abate and may increase over time.

• The increasing trend to bank electronically over traditional branch banking.

To address these challenges, PGB developed a comprehensive strategic plan, capitalizing on strengths and leveraging core competencies in wealth management, lending and banking, along with enhancing technologies, to support its geographic and product expansion. Combining this with a culture of providing an exceptional client experience has resulted in the bank rapidly becoming a full-service commercial bank that provides innovative private banking solutions, designed to help businesses, nonprofits and consumers establish, maintain and expand their legacy.

KNOWLEDGE IS THE BASIS OF SOUND ADVICE. TWENTY FIVE YEARS OF EXPERIENCE TELLS US SO. As an advisor to financial companies nationwide for more than 25 years, Sandler O’Neill’s knowledge and insight have served clients well in bull and bear markets alike. The depth of experience gives our firm a unique perspective on how financial companies can best position themselves in the current environment.

Sound, straight-from-the-shoulder advice – it’s what we do best.

To learn more, please contact John Beckelman, Principal, at 212.466.7832, or visit www.sandleroneill.com.

Sandler O’Neill + Partners, L.P.

22 New Jersey Banker

Fall 2015

PGB lives by five core principles: professionalism; clients first; compete to win; fully invested in our communities; and we are one team.

PGB is building products and hiring entrepreneurial and clientminded people with exceptional “big bank” experience in origination, enterprise risk management and compliance, leveraging technologies like mobile banking, and remote and mobile deposit, to improve service and reduce costs. The bank is adapting to its clients’ evolving needs. Its branches are transforming from places to transact business to locations where people go to seek advice and find solutions.

“We have a clear vision for building our wealth management business on a foundation of proactive and expert advice, not products. We listen to our clients and help them devise and implement an overall financial plan to help them achieve their goals,” said John Babcock, president of private wealth management at the bank. “We have, and continue to attract, top level talent as these wealth professionals are attracted to our unbiased, advice-led and client-centric business model. Many of our team came from institutions where they were forced to sell and produce which was not always consistent with the goals or best interests of their clients.”

While historically focusing on businesses with revenues of $10 million to $100 million, along with $2 million to $20 million high-networth individuals, the recent acquisition of Morristown-based Wealth Management Consultants has given the PGB family the expertise to

serve the ultra-high-net-worth. The bank’s simplified approach to banking, however – providing a personal, private banker to serve as a single point of contact – is something everyone can benefit from at any point during their financial life cycle, regardless of income or assets.

“At some financial institutions, you’d have to go to five or six different departments to have all of your needs taken care of,” said Eric H. Waser, executive vice president and head of commercial banking.

“Here, you’ll speak with one person who will gather the right team internally to take care of everything you need, providing advice and solutions that are specific to you. Successful business owners and entrepreneurs get the service and respect they are entitled to.”

With private banking locations in place in Bedminster, Morristown, Princeton and Teaneck, in just under three years the bank has grown from slightly over $1.5 billion in assets to roughly $3.12 billion, adding more than 60 new professionals to its team in wealth management and commercial banking, hired from many of the top institutions in the industry. Focusing on the underserved segment of other institutions, along with organic growth and selective mergers and acquisitions in both bank and non-bank categories, Peapack-Gladstone Bank anticipates gaining sufficient scale to deliver top-tier financial performance.

“In the end, it is about providing proactive advice through intelligent and experienced people, unbiased products and superior, bestin-class execution,” said Kennedy.

■

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Fall 2015 New Jersey Banker

23

Feature

Technology Companies Are Encroaching Upon Mobile Banking HOW CAN YOU FIGHT BACK?

By Ryan Whalen and Nicole Rovi

T Nicole Rovi

Ryan Whalen

24 New Jersey Banker

he growing customer utilization of mobile technology has driven systems investments in mobile banking for banks across the country over the last decade.

Spending on IT at banks has increased by over 49 percent over the last five years. These investments have generally been defensive in nature. While some early adopters realized a small increase in customers, community bank utilization typically protected them from losing deposit share to the massive online systems of the big banks. Whether or not to

play in mobile banking is now old news, it is almost a necessary product offering of any bank. Designing the perfect mobile banking application is the next market disruptor threatening community banks.

Ranging from mobile payments and money transfer applications, technology companies are encroaching on mobile banking and offer more complex services such as small business lending and personal financial management. (See sidebar for some of the most popular competitors.) These applications

Fall 2015

utilize detailed and clear images and provide the customer with budgeting tools and tips, as well as insight into his or her spending patterns and spending history. Applications developed by technology companies are capturing community banks’ customers because they provide a more interactive and user-friendly experience.

The introduction of Apple Pay, a mobile payment platform which links a consumer’s credit/debit cards to his/her mobile devices, and Mint, a web-based personal financial management tool, have sent shockwaves throughout the banking industry. With the development of more complex banking functions on mobile applications and online, technology companies have become increasingly more prevalent throughout the banking industry. Community banks must evaluate their position in the mobile banking space and determine how they can compete with established technology companies that have greater resources, reach and expertise on the mobile platform than most community banks. Like the initial adoption of mobile banking itself, it is imperative that community banks provide their customers with these services before their customers find alternatives.

Most mobile banking applications created by community banks have been designed with simple functions in mind, such as monitoring accounts and bill pay.

Consumers are becoming more interested in money management tools on mobile devices, a feature readily available on applications created by technology companies. For example, Mint provides the customer with a simple, interactive process that allows the customer to budget, track spending patterns, view his or her credit score, and other more complex features.1 In a recent study conducted by the Aite Group, 86 percent of banks surveyed had the ability to complete bill pay from their mobile platform while only 49 percent had the tools to help customers with budgeting and 48 percent had the ability to categorize expenses2. This is a missed opportunity for community banks as consumers who value budgeting tools might download one of the many applications that have this desired capability as opposed to the app of the community bank that they bank with. A 2013 “Cisco Customer Experience Report” that focused on retail banking showed that customers in the United States

are willing to provide more of their private information in exchange for customized banking services.3 In this case, the bank will miss out on valuable information about their customers’ spending habits and the opportunity to further their relationship with the customer.

Mobile money transfer applications have become popular as they are viewed as a way to connect individuals who bank with different companies for the purposes of mobile payments. Applications, such as Venmo, that use social networks to connect individuals, have become increasingly popular among the younger generations as a more convenient and reliable way to repay others. While many money transfer applications do not allow users to transfer money between their own personal accounts (a function most mobile banking applications provide), it fills a need that mobile banking applications cannot; peer-to-peer transfers, regardless of one’s bank affiliation. Mobile money transfer apps have become a threat to traditional banks as they provide convenient banking services to a larger network of people.

Community banks can compete with technology companies by implementing new technology and mobile app add-ons. Relative to banking, there is a distinct difference in generational values. Generation Y (born in the 1980s and 1990s) and Millennials (born between 1990s and early 2000s) value convenience and speed over relationships, while older generations often appreciate the personal touch that is associated with community banks. Banks can make their mobile applications more inclusive to all demographics by utilizing add-ons that incorporate videoconferencing into the bank’s existing mobile app. These addons, such as Linqto’s Personal Banker app, give the customer the option to consult a bank employee face-to-face over videoconferencing done within the app, rather than using the traditional help window4.

Innovative products like this can help bankers bridge the gap between impersonal and relationship banking; ultimately leaving the choice to the consumer.

If consumers are unable to find what they need from their bank’s mobile application, it is exceedingly simple to find alternative solutions. Banks need to determine the most pertinent needs of their customers and

Mobile Banking Popular Competitors Digital Banks American Net Bank, Evantage Bank, EverBank, GObank, iGObanking.com, Movenbank, Simple Digital Lending Gofundme, inVenture, Kabbage, Kickstarter, LendingClub, Prosper, Upstart Digital Payments Apple Pay, Clearxchange, Google Wallet, Loop Mobile, PayPal, Square, Venmo implement them into their mobile applications so that they can capture valuable information and strengthen customer loyalty, both which will build value for the institution.

■ Ryan Whalen is a senior financial analyst and Nicole Rovi is a financial analyst in FinPro’s consulting division; both work on direct client engagements in strategic planning and are subject matter experts on technology applications in banking. For more information about Whalen and Rovi or FinPro’s value building and strategic planning services, contact Stephen Brown Klinger at sbrownklinger@finpro.us or 908-604-9336.

FOOTNOTES

1. Mint.com. https://www.mint.com/ how-it-works/anywhere/iphone/ 2. Aite Group as quoted in “ActivityBased Marketing: The Future of Mobile Marketing in Banking,” in Jim Marous’ “Mobile Banking Not Keeping Pace with Digital Growth,” www.thefinancialbrand.com, August 25, 2014.

3. Cisco. “Consumers Want a More Seamless and Personalized Customer Experience From Their Bank,”.http:// newsroom.cisco.com/release/1174098 4. PR Newswire, “Linqto Launches Faceto-Face Mobile Banking” Utilizer Inc., www.sys-con.com/node/3197014, September 24, 2014.

Fall 2015 New Jersey Banker

25

Feature

Eyeing Up THREE HEALTHCARE REFORM ISSUES FOR EMPLOYERS

By Richard Siderko

W

ith the recent Supreme Court ruling that subsidies are legal on the federal exchange upholding the major driver of healthcare reform that will keep subsidies flowing for millions of Americans, the Affordable Care Act (ACA) is here to stay, and there are three major challenges ahead for employers.

First, there is the Cadillac tax. Under this provision, a 40 percent excise tax will be imposed in 2018 on group health plans exceeding $10,200 for single coverage and $27,500 for family coverage. The results of the BCG healthcare survey performed this spring painted a picture of continued procrastination amongst NJBankers membership on preparing for it: 79 percent of respondents indicated they were going to wait to see if the tax survives. Maybe they will be right in stalling as business groups including the American Benefits Council, the National Association of Manufacturers, the National Group on Richard Siderko Health and the U.S. Chamber of Commerce have called on federal lawmakers with their concerns that the tax will unfairly cross all types of employers, plans and workers. A little more encouraging, though, is that 60 percent of survey respondents at least projected what their Cadillac tax liability may be. The combination of above-average benefit offerings and market conditions indicate annual tax liabilities well into six-figure territory. It will be easier to start taking baby steps in 2016, slowly adjusting benefit offerings rather than taking giant steps in 2017 or later.

Secondly, and even more immediate, is that effective for 2015, the ACA imposes new filing requirements on employers. Informational form filings must be made in 2016 by Feb. 28, or March 31 if filing electronically. Failure to provide such could result in a penalty of $200 per participant. Insurance carriers for fully insured employer sponsored group health plans and employers with self-funded programs are each responsible for filing Form 1095-B (Health Coverage) and 1094-B (Transmittal of Health Coverage Information Return). The IRS will use the information provided by Form 1095-B to verify which individuals have coverage through an employer and are therefore not subject to the individual mandate penalty tax.

Organizations categorized as applicable large employers (50 or more full-time employees inclusive of full-time equivalent part-time employees) are responsible for filing Forms 1095-C (Employer Provided Health Insurance Offer and Coverage) and 1094-C (Transmittal of Employer Provided Health Insurance Offer and Coverage). In 2015, most employers with 100 or more (50 or more beginning in 2016) full-time employees must provide affordable coverage that provides at least a minimum level of benefits to 70 percent (95 percent beginning in 2016) of their full-time employees or be subject to penalty taxes for employees who receive subsidized coverage on a public insurance marketplace. The IRS will use the information reported on Form 1095-C to determine whether

26 New Jersey Banker

a penalty tax is to be assessed. Form 1095-C will also be used to determine whether an employee is eligible for premium tax credits if the employee purchases coverage on the public insurance marketplace.

Employers will need to collect and track a significant amount of information about their plan, coverage and demographic information on their full-time employees. Not only will it be needed to make the filings but will also be necessary to appeal any penalty assessments and respond to employees applying for premium tax credits in the federal marketplace. Doing all of this may require significant programming changes whether done in house or coordinated with an outside vendor such as a payroll provider.

The third and final challenge will be to review existing compliance with summary plan description (SPD) and plan document distribution.

The Department of Labor (DOL) is aiming to audit all U.S. businesses with one or more employees within the next five years. If your health and welfare benefit plans were to be audited, could you demonstrate compliance with the recordkeeping and delivery requirements of the federal Employee Retirement Income Security Act (ERISA)? ERISA requires employers to comply with two important requirements or risk potential penalties and possible audits: 1) Maintain and distribute SPDs to plan participants which accurately reflect the contents of their welfare benefit plans and which include specific information as required under federal law.

2) Administer their welfare benefit plans in accordance with a written plan document that must be made available to plan participants and beneficiaries upon request.

Many employers have the misconception that insurance contracts, certificates of insurance and benefit summaries fulfill the ERISA requirements for an SPD and plan document – but they don’t include the required or recommended provisions that protect the employer.

With the introduction of the ACA, ERISA SPD compliance is receiving renewed attention and enforcement. Employers may be liable for serious penalties if they don’t provide an SPD or have a current plan document. Failure to provide an SPD or plan document within 30 days of receiving a request from a plan participant or beneficiary can result in a penalty of up to $110/day per participant or beneficiary for each violation. Lack of an SPD could trigger a plan audit by the DOL. The DOL has increased its audit staff, and companies small and large are being audited.

Compliance with ERISA SPD and plan document requirement is not optional; it is the law, and it is solely the employer’s responsibility. Employers should review their current practices before they get the knock on the door.

■ Richard Siderko is president and CEO of Bankers Cooperative Group Inc., an affiliated company and the self-contained brokerage facility of the New Jersey Bankers Association. He can be reached at rsiderko@bankerscoopgroup.com.

Fall 2015

NJBankers Education Foundation Update

NJBankers Charitable Foundation to Expand

By James M. Meredith

E

arlier this year, the New Jersey Bankers Association Board of Directors and the New Jersey Bankers Education Foundation Trustees agreed to expand the purpose of the foundation and rename it the New Jersey Bankers Charitable Foundation.

The foundation had been founded in 2005 with the purpose of providing educational assistance to dependents of service members who had given their lives in the post 9/11 conflicts in Afghanistan and Iraq as a way to recognize the sacrifices they made. Since then, the foundation has provided scholarship assistance to two spouses of service members and provided financial support to Freedom Alliance, Rutgers University Office of Veteran Affairs, Operation First James Meredith Response and Rider University’s Veteran Entrepreneurship Program. Up to that point, the foundation had been totally funded by the membership in the amount of $377,000, with $117,000 being disbursed.

The Trustees sought to provide assistance for additional charitable causes that provide services to state residents in need. In light of the strong financial standings of both the New Jersey Bankers Association and its subsidiary, the NJBA Service Corporation, those boards voted unanimously to contribute a combined $207,000 to the foundation, which in addition to interest earned over the years, brought the total fund balance to $500,409. The name of the foundation was thus changed to reflect this expanded purpose. It should be noted, however, that funds in the account prior to the most recent contribution will be segregated and continue to be used for the benefit of veterans and their dependents. The latest contributed funds will be designated for the expanded purposes as determined by the Trustees.

The Trustees will meet in the fall to develop new policies and procedures for the processing of applications for the expanded purpose. â– James Meredith is executive vice president and the chief operating officer of NJBankers. For further information, contact him at (908) 272-8500, ext. 614, or jmeredith@njbankers.com.

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Fall 2015 New Jersey Banker

27

Bank Notes

Howard N. Hall

Joanne O’Donnell

Rosemary Fellner

CENTURY SAVINGS BANK Century Savings Bank announced the addition of Debra L. Arno to the bank’s lending team. As a mortgage loan officer, Arno will be responsible for residential and installment loan origination throughout Southern New Jersey.

Arno will be based out of the bank’s corporate headquarters.

FIRST CHOICE BANK First Choice Bank announced that Howard N. Hall has been appointed to serve as executive vice president and chief financial officer and Joanne O’Donnell has been appointed executive vice president and chief credit officer for First Choice Bank. Hall previously worked for Team Capital Bank as the executive vice president and chief financial officer. He earned his Master of Business Administration from Rider College and a Bachelor of Arts from Franklin and Marshall College. He graduated from the Stonier Graduate School of Banking. O’Donnell previously worked at Team Capital Bank as chief risk officer/chief credit administrator officer. She earned her Bachelor of Science from Rider University. She graduated from the NY Institute of Credit Risk Program.

UNITY BANK Unity Bank Marketing Director and Vice President Rosemary Fellner has been appointed a board member of the Hunterdon County Chamber of Commerce Foundation. The group promotes, supports and funds initiatives that enhance opportunities for leadership, education, economic and workforce development.

Fellner has 30 years marketing services experience and has been leading Unity Bank’s marketing program since she joined the bank in 2007. Fellner’s responsibilities with Unity include coordinating partnerships with many community-based nonprofit organizations. She is a board member of the New Jersey Bank Marketing Association and a member of the PR & Marketing Committee of NJBankers. She is a summa

28 New Jersey Banker

Richard W. Culp

Howard R. Yeaton Jr.

Eileen C. Wolfe

cum laude graduate of Temple University with a bachelor’s degree in journalism advertising.

ATLANTIC STEWARDSHIP BANK Robert J. Turner, corporate secretary of the Stewardship Financial Corporation (SSFN), and its subsidiary Atlantic Stewardship Bank, both of Midland Park, announced the election of Richard W. Culp as chairman and Howard R. Yeaton Jr., CPA, as vice chairman of the board of directors for the corporation and the bank.

Culp is an educational management consultant. In this position, Culp has 35 years of progressive business experience. He is a graduate of Bluffton College in Bluffton, Ohio. Chairman Culp has served as a director of the corporation and the bank since 2010. He currently serves as chairman of the Investment Committee as well as on the Compensation and Risk Committees.

Yeaton is managing principal for Financial Consulting Strategies. He holds an MBA from the University of Connecticut and a bachelor’s degree in accounting from Florida State University. He is a member of the Financial Executives Institute and the American Institute of CPAs. Yeaton currently serves as chairman of the Audit, Risk and Investor Relations Committees, as well as on the Investment Committee.

HOPEWELL VALLEY COMMUNITY BANK Hopewell Valley Community Bank announced that Eileen C. Wolfe has joined the organization as vice president and commercial loan officer in its Flemington office. With her 40 years of banking experience, she brings a wealth of experience and market knowledge to enhance HVCBank’s small business lending efforts in each of these markets.

COLUMBIA BANK Columbia Bank announced that Harshana (Harry) Senanayake has been appointed senior vice president and chief technology officer.

Senanayake earned an undergraduate degree in engineering from the City University of New

Harshana Senanayake

William F. Johnson

Tanuja M. Williams

York, along with several professional certifications, including Microsoft Certified System Engineer (MCSE), Certified in Risk and Information Security Controls (CRISC) and Certified Information Security Manager (CISM).

REGAL BANK Regal Bank announced the appointment of William F. Johnson to the position of assistant vice president and business development officer.

In his new role, Johnson will be responsible for developing strategies to generate new business, while simultaneously providing superior service to the bank’s existing customers.

Johnson has 20 years of experience in the banking industry. He is a graduate of West Chester University and a current member of the West Orange Rotary, Essex Lodge of Free and Accepted Masons and the West Orange Scholarship Committee.

TD BANK TD Bank promoted Tanuja M. Williams to IT audit director based in Mt. Laurel. She will oversee the IT Audit Group and be responsible for planning and executing audits of infrastructure and applications supporting TD Bank’s operational and financial processes.

Williams has more than 16 years of consulting experience with five years specific to banking. She is a member of the Information Systems Audit and Control Association (ISACA) and the Institute of Internal Auditors (IIA). Williams is a 1997 graduate of Temple University in Philadelphia.

NVE BANK NVE Bank announced the appointment of Denice Aloi-McConnell to senior vice president/chief commercial credit officer. Aloi-McConnell has over 25 years of extensive experience in the banking industry. She is an associate member of the Risk Management Association and is a member of the Global Association of Risk Professionals.

■

Fall 2015

Bank Shots

All offices of The First National Bank of Elmer participated in “National Wear Red Day.” Employees made a donation and dressed in red for the day in support of conquering heart disease.

In the “Join Forces” campaign, Unity Bank donated more than $18,000 to 19 nonprofit organizations, including grand prize winners Who is My Neighbor of Highland Park, Hunterdon Art Museum of Clinton, Rogers’ Rescues of Whitehouse and Safe Harbor of Easton, Pennsylvania.

continued on next page

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Fall 2015 New Jersey Banker

29

Bank Shots

continued from previous page

Clifton Savings Bank (CSBK) announced plans to open a full-service banking center on the first floor of Park + Garden, a 12-story residential and commercial development by Bijou Properties, located at 1450 Garden St., Hoboken. The bank also recently donated $10,000 to the Elysian Charter School.

The employees of Oritani Bank donated more than 400 teddy bears to the children at Youth Consultation Service (YCS), located in Newark. YCS partners with at-risk and special needs children, youth and young adults to build happier, healthier, more hopeful lives within families and communities.

Atlantic Stewardship Bank hosted a Back-to-School Food Collection at all 12 of its branch locations to ensure children are receiving nutritious meals as they began to embark on the new school year.

NVE Bank awarded 10 area high school seniors with $1,000 scholarships at a reception hosted by the bank at its Englewood headquarters. The scholarships are part of a program that has been offered by the bank for the past eight years, and also extends to area middle schools, where eight graduating eighth graders were selected to receive a $500 Savings Product Scholarship. Since the inception of the program, NVE Bank has awarded over $100,000 to deserving students in Bergen County.

A volunteer crew of Columbia Bank employees recently teamed up with the Laurelwood Arboretum in Wayne, a 30-acre public park featuring nature trails, gardens, plants and trees. The Team Columbia volunteers helped to remove weeds from several gardens and planted assorted wild flowers and plants. Shown at the Laurelwood Arboretum are the Columbia Bank volunteers who took part in this community event.

30 New Jersey Banker

Highlands State Bank participated in Habitat for Humanity’s 2015 Corporate Challenge as a roof raiser sponsor. Steven C. Ackmann, president and CEO of Highlands State Bank, presented Barbara Dunn, Paterson Habitat for Humanity’s executive director, with a donation of $2,500, and a group of Highlands State bankers helped at several of Paterson Habitat for Humanity’s worksites.

Abraham Clark High School and Roselle Savings Bank selected graduating senior Mireya Lopez as the recipient of the 2015 Roselle Savings Bank Outstanding Business Student Award. Carl Zeitlinger, Roselle Savings Bank vice president, presented Mireya with her award at the 2015 Abraham Clark High School Awards Night. Candidates for the award were evaluated on a variety of criteria, including academic achievement, exemplary participation in extracurricular activities and a high level of personal integrity and commitment. Pictured at the Abraham Clark High School Scholarship Night awards celebration are, from left: Jordan Siegel, counselor, Abraham Clark High School; Carl Zeitlinger, vice president, Roselle Savings Bank; Dr. Kevin R. West, superintendent, Roselle School district; Mireya Lopez; Dr. Dana E. Walker, assistant superintendent, Roselle School district; and Rashon L. Mickens, prinicipal, Abraham Clark High School.

Fall 2015

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