NEW
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NJBankers 113th Annual Conference
Economic Growth Needs Tax Reform | Celebrating Graduates of the NJBankers Leadership Academy
ENDORSED BY THE NEW JERSEY BANKERS ASSOCIATION
Our 100 years tneans that wherever you are going, we can guide you there.
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NJBankers Board of Directors Gerard Banmiller President/CEO 1st Colonial Community Bank Frederick A. Bertoldo * EVP/Regional President, Northern New Jersey Wells Fargo Bank, N.A. Louis Anthony Costantino Jr. Managing Director, Industry Manager JPMorgan Chase Bank, N.A. Detlef H. Felschow President/CEO Roselle Savings Bank John S. Fitzgerald President/CEO Magyar Bank
Dianne M. Grenz Senior Executive Vice President/Chief Consumer Banking Officer Valley National Bank Stanley J. Koreyva Jr. President/COO Amboy Bank Anthony Labozzetta President/CEO Sussex Bank Thomas Lupo President/CEO Regal Bank
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
Wendy C. Mandelbaum Controller ext. 603 wmandelbaum@njbankers.com
Contributing Editor Emily T. DeMasi
Peter Michelotti President/CEO Community Bank of Bergen County
Thomas J. Shara * President/CEO Lakeland Bank
Craig L. Montanaro President/CEO Kearny Bank
Nicholas J. Tedesco Jr. * President/CEO GSL Savings Bank
Michael P. O’Brien Senior Vice President/Market Manager Bank of America, Merrill Lynch
Angela Snyder* Immediate Former Chairwoman Chairwoman/CEO Fulton Bank of New Jersey Gerald L. Reeves Former Chairman President/CEO Sturdy Savings Bank
NJBankers Officers
John E. McWeeney Jr. President and CEO ext. 627 jmcweeney@njbankers.com
Emily T. DeMasi Vice President and Director of Communications ext. 610 edemasi@njbankers.com
Robert Rey President/CEO NVE Bank
Kevin B. Peterson President/CEO Haddon Savings Bank
Christopher D. Maher Chairman/President/CEO OceanFirst Bank
NJBankers Staff
Jenn Zorn Senior Vice President and Director of Education & Business Development ext. 611 jzorn@njbankers.com
Christopher Martin Chairman/President/CEO Provident Bank
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
James S. Vaccaro * Chairman Chairman/President/CEO Manasquan Bank
Thomas J. Kemly * Second Vice Chairman President/CEO Columbia Bank
William D. Moss * First Vice Chairman President/CEO Two River Community Bank
John E. McWeeney Jr. President and CEO New Jersey Bankers Association *Executive Committee
Counsel Michael M. Horn, Esq. McCarter & English, LLP Mary Kay Roberts, Esq. Riker, Danzig, Scherer, Hyland, Perretti LLP
Contact New Jersey Bankers Association www.njbankers.com 411 North Avenue East Cranford, NJ 07016-2436 Phone: 908-272-8500 Fax: 908-272-6626
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Diane Starr Administrative Assistant to Education Department ext. 600 dstarr@njbankers.com
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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.
Summer 2017 New Jersey Banker
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Table of Contents
Cover 16
NJBankers 113th Annual Conference
Departments 5 Chairman’s Platform 8 Politics and Policy Adapting to Change in the Industry Winning a Lifetime Supply of SPAM 6 From the President’s Office 8 New Associate Members Looking Back, Looking Ahead 26 Bank Notes 7 Upcoming Events 27 Bank Shots
Features
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Directors’ Corner Economic Growth Needs Tax Reform
14 Feature The Bank Executive of the Future
10
Behind the Teller Line Two River Community Bank
19 Feature Celebrating Graduates of the NJBankers Leadership Academy
12
Meet Our Select Service Providers Mercadien Financial Institutions Services Group
20 Feature The 800-lb Gorilla in Cybersecurity Risk – Ransomware
12
Meet Our Select Service Providers Many Risks. One Solution: P&G Associates
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Meet Our Select Service Providers Wolf & Company, P.C.
22 Feature Banking Industry Benchmarks Key Performance Indicators Ratio Definitions and Insights
New Jersey Banker
24 Feature Breaking Down ‘Beneficial Ownership’
Summer 2017
Chairman’s Platform
Adapting to Change in the Industry By James S. Vaccaro
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hange seems to be the single most constant in our society and the financial services industry certainly has no immunity from that dynamic. Keeping pace with industry change may present a challenge, but by both driving and embracing it we can set a course for future success in our industry. We, as bankers, must step outside of our comfort zone and begin to understand the prospective tools required to effectively attract, retain and engage a new generation of both customers and bankers. Effective and sustainable change begins with you and me. We recognize the conventional James S. Vaccaro industry pressures we must concern Chairman ourselves with each and every day. Chairman/President/CEO Manasquan Bank We have regulatory and compliance pressures, political stresses, risk management and cybersecurity demands just to name a few. It is widely understood that these forces are imbedded in our chosen industry. While we may be the beneficiaries of some incremental relief in the near term rest assured that our industry will always face new regulatory, economic and market challenges. We must take those challenges and transform them into market opportunities. We have an obligation to reinvent our business model and create an environment that results in an industry that is vibrant, financially successful and market relevant. Without an open view of industry and a mindset of institutional transformation, we are at risk of losing talented, motivated and energetic people; the same talent our organizations require to ensure a successful future. We have chosen and are privileged to be leaders in this industry. We fully understand the strong and entrenched underpinnings that have been the foundation for remarkable sustainability. We must now utilize and leverage that strong and enduring base to our collective advantage by attracting and grooming the talent that will be the next generation of leaders. I suggest that you add this initiative to your strategic plan and then ensure that the tactics are in place to properly execute. It will also help you move forward developing your succession plan. This process is just as important as your business development efforts. Bankers must accept that in order to make the industry attractive to this up and coming demographic, the Millennials, we must present ourselves differently. In order to do this, we need to lead differently. We need to disrupt the status quo. We need to learn about the next generation’s thoughts and behavior
which are very different from past generations. We then need to educate a talented and motivated individual on why to join us and then stay with us. We need to be nimble, innovative and drive independent thought. We need to make a connection now. Former Chairwoman Angela Snyder identified a need and spurred out a thought process about emerging leaders. She led an effort to ensure the future of our banks and our industry by embracing a generation that would rather work in a conference room with peers than sit in a corner office behind a desk. Her vision for educating, mentoring and coaching emerging leaders is why the Association launched the NJBankers Leadership Academy. The Academy provides the tools for the upcoming stars in our respective organizations who will move your bank forward. We, at Manasquan Bank, recognized this opportunity to benefit the bank and enrolled one of our up-and-coming stars who embraced the program’s challenges and is sure to make a long term, positive impact on our enterprise. You need to determine who your rising stars are as well. You will also need to recruit future stars. They will be catalysts for change and will impact the bank favorably. Presently, our industry may not fully recognize the ingredients that are required to attract and retain Millennials. Millennials are just “different.” Many of us are aware that the next generation of leaders wants to do something positive and impactful in their lives. We need to communicate that as bankers, we positively impact people, businesses and communities we serve every day. If we want talent, we need to change the conversation. Boomers, Gen X and Millennials will need to collaborate. We need cross-fertilization of ideas and approaches because doing so will ensure that our banks will thrive. We can no longer reward stagnation but must reward innovation. I was asked recently how we can prepare our organizations for the future. Clearly a new way of thinking must emerge. Surround yourself with fresh ideas, energy and embrace change. Be the leader that is disruptive, inspiring and has an open mind. We need to respect the past and embrace the future. I advise you to take ownership of this transformative process. This will be the path for attracting and retaining a new generation of leaders and ensuring your bank thrives, your customers thrive and the communities you serve thrive. ■ James S. Vaccaro is chairman of the New Jersey Bankers Association and chairman, president and CEO of Manasquan Bank. He can be reached at jvaccaro@manasquanbank.com.
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From the President’s Office
Looking Back, Looking Ahead By John E. McWeeney Jr.
D
uring the summer months, it’s a good time to reflect at NJBankers on what we’ve accomplished over the past fiscal year and what challenges and opportunities lie ahead. Our fiscal year ended on June 30 and the last few months were busy ones, with our 113th Annual Conference in May and a flurry of smaller conferences and committee meetings in June. Our staff will take a collective deep breath in July and August and then resume our John E. McWeeney Jr. busy calendar again President/Chief Executive Officer NJBankers after Labor Day.
LOOKING BACK By all measures the past year has been a successful one under the leadership of our Immediate Past Chairwoman Angela Snyder. Angela’s platform issue under her tenure was to advance NJBanker’s education programs to help develop the next generation of banking leaders in New Jersey. Thanks to Fulton Bank’s financial support, our partnership with some key education professionals and the hard work of NJBankers staff, the NJBankers Leadership Academy was launched. The Leadership Academy includes five modules targeted at supervisors, managers, women bankers, Emerging Leaders and directors. Each module was successfully introduced with the recent graduation of 16 bankers from the Emerging Leaders program representing the culmination of everyone’s efforts. We move forward with great optimism that the Leadership Academy is wellpositioned to fulfill and grow its mission in the future. Another major accomplishment was the Rebranding of NJBankers with a new logo and new tagline, “Making Connections.” The brand is now integrated into everything we do and is resonating well with all of our constituencies. Despite the continued industry consolidation our membership base remains strong and diverse with 96 bank members and over 215 associate members. More im-
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New Jersey Banker
portantly, our members are engaged and active with NJBankers committees and programs. Finally, it was a very strong year for our education programs for both attendance and sponsorships. As a result, NJBankers enjoyed strong financial results. The same is true for Bankers Cooperative Group (BCG) as well. Detailed financial results for both NJBankers and BCG will be shared in our Annual Membership Report which will be distributed in the fall.
LOOKING AHEAD We begin the new fiscal year with strong momentum but are always mindful of new challenges that may lie ahead as the banking industry continues to evolve at rapid fire pace. We’re fortunate to have another great leader, Jim Vaccaro, succeeding Angela Snyder as NJBankers chairman. Each year it seems our new chair brings a level of passion and focus that helps us raise the bar and I’m sure the same will be true under Jim’s leadership and that of his fellow officers, First Vice Chairman Bill Moss and Second Vice Chairman Tom Kemly. Our staff and I look forward to working with our officers, the executive committee and the board of directors in the year ahead. One of the challenges we’re going to face is a new administration and legislature in Trenton that is faced with serious fiscal issues. At the time of this writing, the Democratic candidate, former Ambassador Phil Murphy, is proposing the creation of a “state bank” for New Jersey. While proposed as a way of stimulating economic activity, the Murphy campaign has been short on details on how the bank would operate and we believe it could be potentially devastating to New Jersey’s community banks who rely on government deposits to fund personal and small business loans in their local communities. Another issue of great concern is the fiscal challenges that our state faces. An already looming state deficit, the need to more fully fund the state’s pension obligations and a pent-up demand to increase spending on social programs could result in significant
increases in personal and corporate taxes which could stymie economic activity. Finally, momentum is building in Trenton to legalize the recreational use of marijuana. Regardless of your personal views on legalizing marijuana, it will create significant banking issues as current federal law prohibits banks from doing business with marijuana related entities. Stay tuned on these issues as the election cycle moves towards Election Day in November. We will surely need the engagement of our members as NJBankers intends to tell the banking industry’s story. Another challenge and major change that we’ll face in the year ahead and beyond is the evolution of our leadership team. After a period of prolonged stability, our leadership team will begin to experience some turnover. Jim Meredith, executive vice president and COO retired from NJBankers in July, after 23 years of distinguished service. Jim will surely be missed but we extend our best wishes to him and his wife Elaine for much happiness in their retirement. We’re fortunate to have a strong team at NJBankers as we look to transition for the future. Also, our long-time President and CEO of Banker’s Cooperative Group (BCG), Rich Siderko, has announced that he intends to retire in January, 2020. Thankfully Rich has given us some lead time so that a management succession plan could be developed and will soon be implemented. In the case of both NJBankers and BCG we have strong teams and strong financial positions that are built to last. Our staff and our elected officers serve as stewards to ensure that NJBankers prospers from one generation to the next and is there to meet the needs of our members and our industry. We’re deeply committed to that stewardship as we move through this period of transition and change. Thank you for your continued support and best wishes for an enjoyable summer. ■ John E. McWeeney, Jr., is president and CEO of the New Jersey Bankers Association, and can be reached at jmcweeney@njbankers.com.
Summer 2017
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Regulatory Compliance | Bank Secrecy Act | Internal Audit Enterprise Risk Management | Information Technology
Annual Senior Management Conference
October 4, 2017
Advanced IRA with PMC
NJBankers Office, Cranford October 12, 2017
Annual Human Resources Conference Caesars Resort, Atlantic City October 24, 2017
2017 Annual Delaware Trust Conference
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Enterprise Risk Management Conference The Berkeley Oceanfront Hotel, Asbury Park October 26, 2017
BSA 101: BSA-AML
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October 27, 2017
Advanced BSA: BSA/AML “Hot Topics” Seminar
Addressing Your Bank’s Needs
APA Hotel Woodbridge, Iselin January 19, 2018
Economic Leadership Forum
The Palace at Somerset Park, Somerset May 16-20, 2018
114th Annual Conference
J.W. Marriott at Marco Island, Marco Island, Florida
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Internal Audit Outsourcing Regulatory Compliance Audit & Training Collateral Field Examinations Asset Liability & Liquidity Examinations Information Technology Audits Data Mining & Analysis Penetration & Vulnerability Assessments
• Sarbanes-Oxley & FDICIA Documentation & Testing • Trust Department Examinations • Fraud Examinations • Staff Training • BSA & Anti-Money Laundering Examinations
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Politics and Policy
Winning a Lifetime Supply of SPAM By Michael P. Affuso, Esq.
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n Tuesday, June 6, 2017, New Jersey Democratic voters selected Phil Murphy to run in November 2017 for governor with 48 percent of the vote. Murphy defeated five other Democratic candidates, including Jim Johnson, Assemblyman John Wisniewski (D-Middlesex) and Sen. Ray Lesniak (D-Union). Murphy will face Republican Lt. Gov. Kim Guadagno who defeated Assemblyman Jack Ciattarelli by a 47 to 31 percent margin. Also in November, all 120 seats of the New Jersey Legislature are up for election. While there were several contested legislative primaries in 19 districts, incumbent legislators defeated all of the challengers. While we wish hearty congratulations to the winners, it is questionable whether they will actually feel like winners. First, neither Michael P. Affuso winner won more than 50 percent of the vote Executive Vice President/ Director of Government Relations even though they each had massive organiNJBankers zational advantages. That’s the political question. But the policy question is deeper. Most believe the winners won a first-class cabin on RMS Titanic. They are about to encounter a budget situation that is much like that iceberg. It is deep, it is wide and you can only see a small amount at the surface. If the state were to pay all of its bills, it would have nearly a $3 billion dollar annual shortfall. We do not; we claim the budget is balanced by not paying all of our bills (public employee pension contributions). Both candidates share fervent hope that we can expand our economy for another eight years though we are already in one of the longest (though tepid) expansionary cycles in history and buck the countervailing forces of the Federal Reserve. Both want to remove waste, fraud and abuse. Who doesn’t, but who also doesn’t think that Gov. Christie, with the power of the line item veto and his relish of the Bully Pulpit would not squeeze the government harder if he could? It is not that both growth and prudence wouldn’t be helpful – it would; but it won’t solve the long term structural problem. It won’t even come close. However, let’s be sporting and assume that we can achieve 3 percent revenue
New Associate Members
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growth which would account for $1 billion. Murphy is calling for increased taxes on a small minority to raise a tidy sum. He is advocating for a millionaire’s tax. Who is a millionaire is a question, but let’s set it aside for this discussion. Also, it is likely that the estate tax will come back with a higher threshold. Democrats contend that there are very few payers, but the value to the treasury is large. Finally there is talk of bringing back the one-eighth of a penny reduction on the sales tax. All seem politically feasible and if we are generous, we can say that the tax increases will yield $1 billion. Thus a generous slug of revenue from tax increases and economic growth gets you only two-thirds of the way there under the Murphy plan or even less under the Guadagno plan. Where’s the rest of it? Do we continue to kick the can down the road? Surely there is little or no political appetite to raise taxes more broadly. With every billion foregone from a pension contribution, the cost of that billion rises in the out years. In the business world people look for solutions where 1+1=3 and say it’s a win. In this world it seems like winning the general election will be like winning a lifetime supply of SPAM. Yummy. ■ 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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New Jersey Banker
Summer 2017
Directors’ Corner
Economic Growth Needs Tax Reform By Michele N. Siekerka, Esq.
T
hose who know me know I’m bullish about New Jersey and always begin any discussion about our state’s business climate by accentuating the positive, rather than the challenges. Fortunately, there are a lot of positives that make New Jersey a good place for business. We have just come off a banner year for job creation, with more than 60,000 new jobs added in 2016. The state’s unemployment rate is at a 10-year low. We have a highly skilled workforce that has more scientists and engineers per square mile than any other state. Our strategic location and vast transportation infrastructure of railMichele N. Siekerka, Esq. roads, port facilities and airports provides our businesses with easy access to markets all over the globe. And our 39,000 miles of highways and interstates puts a company’s goods within a day’s drive of 100 million consumers. My optimism about New Jersey is mirrored in the findings of NJBIA’s annual survey of its 20,000 member companies, who told us they anticipate increased sales, hiring and profits during 2017. What gives them pause, they say, are the factors outside their control – possible regulatory and legislative changes on the horizon that could undermine economic growth, hurt their business and ultimately the employees who depend on them for jobs. Cautious optimism, therefore, is the watchword of New Jersey’s business community. Confidence about their own businesses is tempered by their unease about how the state will address its pressing challenges – high taxes, high cost of living, too much debt and an underfunded public employee pension system. And in this election year, some proposals we are hearing from legislative and gubernatorial candidates are leaving the business community uncertain about what changes may be coming in 2018, no matter who wins in November. We have heard proposals for a higher tax on incomes over $1 million, which is another way of saying higher taxes on small businesses, and a call for the creation of a state-run bank focused on investing tax dollars in New Jersey – an idea that has raised questions in the banking community. We have also heard calls for a $15 minimum wage, expansion of paid sick leave, the re-instatement of the recently repealed estate tax and a proposal to increase the state sales tax, to name just a few. Any plan based on taxing our way to prosperity won’t work and here’s why. Raising taxes in a state that already has the worst tax climate for business, including the nation’s highest property taxes and sixth-highest income tax, will cripple economic growth and fuel the exodus of taxpayers leaving New Jersey to live, work and grow their businesses in more affordable, tax-friendlier states. NJBIA’s 2016 outmigration report documented New Jersey’s economy lost $18 billion in net adjusted gross income in a decade
(a number that has since grown to $21 billion over 11 years) because people are leaving this state and taking their wealth with them. However, even more disturbing than this loss of net adjusted gross income (and its impact on jobs, state tax revenue and consumer spending) is our study’s other finding: We are losing our future workforce. New Jersey millennials, residents between the age of 18 and 34 whom we depend on for our future workforce needs, are this state’s No. 1 outmigration group. Our young people are burdened by high student loan debt (averaging $28,000 per graduate in New Jersey) and also stymied by high housing costs driven by the nation’s highest property taxes (averaging $8,549). New Jersey not only has the highest net loss of millennials of any state in the nation, it also has the highest number of millennials still living with their parents – 47 percent. New Jersey’s already high income taxes, property taxes, and business taxes put us at a competitive disadvantage, especially with our border states of Pennsylvania and New York, where income taxes and property taxes are lower. Not surprisingly, the top two destinations of residents moving out of New Jersey are Pennsylvania and New York, which only underscores the need to make our tax and regulatory policies more regionally competitive. NJBIA’s outmigration report set the stage for policy discussions that led to the first steps toward comprehensive tax reform – the recent estate tax repeal and the pension tax reduction that will help stem the outmigration of senior citizens and small businesses. This is a good start that we must build upon with policies that focus on growing our economy to generate revenue, instead of resorting to tax hikes, so that we can make this state more affordable, especially for millennials. Misguided attempts to tax our way out of our problems will only make New Jersey less competitive and less affordable for the residents and businesses that remain here. ■ Michele N. Siekerka, Esq., is a director on the board of directors of Investors Bancorp Inc. and president and CEO of the New Jersey Business and Industry Association, the nation’s largest statewide employer organization representing 20,000 members who provide 1.1 million jobs.
Summer 2017 New Jersey Banker
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Behind the Teller Line
Two River Community Bank YOUR COMMUNITY. YOUR BANK.
S
ince opening its doors in 2000 to serve the Two River region of Monmouth County, Two River Community Bank has expanded to meet the financial needs of businesses and residents throughout Monmouth, Middlesex, Union and Ocean Counties. In addition to its expanded footprint, the Tinton Falls-based commercial bank has continually adapted its products and services to benefit its customers over 17 years of dramatic shifts in the economy, the devastation of Superstorm Sandy and ongoing changes to the regulatory environment. At the conclusion of the first quarter of 2017, Two River Community Bank reported growth to approximately $967 million in assets. “Financial institutions must remain proactive in meeting the needs of customers under constantly evolving market conditions, but having a strong foundation of core principles is equally important,” says William D. Moss, president and Chief Executive Officer of Two River Community Bank and First Vice Chairman of NJBankers. “We remain unwavering in our dedication to two constants that have shaped our growth. First is a commitment to unparalleled customer care. Second is a commitment to the economic and social wellbeing of the communities we serve.” In recognition of the latter commitment, Two River Community Bank was awarded the 2016 NJBankers Community Service Award for bank members in the $500 million to $999 million in deposits category. The award marks the bank’s second Community Service Award over the past three years. In 2016, Two River Community Bank assisted nearly 200 charitable initiatives through monetary or in-kind contributions. The bank supported its communities in many other ways as well, including professional development opportunities for local students and working with civic organizations to promote local business. Highlights include:
TODAY’S INTERNS, TOMORROW’S LEADERS: TWO RIVER COMMUNITY BANK INTERNSHIP PROGRAM Two River Community Bank held its largest-ever Internship and Seasonal Branch Program in 2016, having hosted nineteen local high school and college students during the summer months. In its ninth year, the
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bank’s Internship and Seasonal Branch Program continued to focus on helping students gain hands-on experience and business insight in support of future career decisions. Two River Community Bank welcomes the hard work and fresh perspectives of each student across a number of departments, including credit, loan operations, commercial lending, residential mortgage, accounting, deposit operations, internal audit, marketing, and within branches.
SUPPORTING LOCAL BUSINESS: GREATER WESTFIELD AREA CHAMBER OF COMMERCE GIFT COIN PROGRAM As part of an initiative to incentivize consumers to shop local, Two River Community Bank partners with the Greater Westfield Area Chamber of Commerce on a unique Gift Coin Program. The custom $25 coins can be purchased at any Two River Community Bank branch within the Chamber’s service area and can be used at more than 80 participating businesses and organizations in Westfield, Scotch Plains, Mountainside, Garwood, and Fanwood. The coins do not expire and are as good as cash at participating vendors, who can redeem the coins at a Two River Community Bank branch.
SUPPORTING THE ARTS: COUNT BASIE THEATRE One of Two River Community Bank’s most significant contributions in 2016 was a donation to Count Basie Theatre. The commitment was made in support of the Theatre’s vision for the expansion of the Red Bank-based venue. The funds are being used in part to finance the creation of an outdoor plaza, enhancements to the backstage area, a second performance space, state-of-the-art classrooms and other facility enhancements. Ultimately, the expansion will create an eminent hub for creativity with substantial economic and cultural benefits throughout the region.
THE RALLY CRY: “WE’RE IN THIS TWOGETHER.” Commitment to community is infused in the everyday culture at Two River Community Bank. Employees and customers regularly fill donation bins during food drives and book drives to benefit those in need throughout the year. Employees from all areas of the bank also generously donate their time to volunteer in support of charitable initiatives. Over the past year, volunteer outings have included serving food at Red Bank-based Lunch Break, organizing donations at the FoodBank of Monmouth and
Summer 2017
Ocean Counties (now Fulfill), removing beach debris from the Jersey Shore in partnership with Clean Ocean Action, participating in the NJBankers “Bankers Build” program with Coastal Habitat for Humanity, and more.
“We are grateful for the recognition we have received from the NJBankers Community Service Awards judges, and we are even more grateful for the charitable organizations that help those in need in our communities every
day,” adds Moss. “Many things have changed and will continue to change in our industry, but giving back to our communities will always remain a priority at Two River Community Bank.” ■
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Meet Our Select Service Providers
Mercadien Financial Institutions Services Group ACCELERATING THE SUCCESS OF INTERNAL AUDIT OUTSOURCING SOLUTIONS
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he cost for your financial institution to maintain an effective and efficient in-house internal audit or compliance department can be prohibitive. In order to ensure compliance with the requirements of myriad regulations, as well as to achieve efficiencies, you need to maintain staff that have considerable experience and knowledge about issues in this sector. These include the complex and changing federal and state government regulations, reporting requirements and deadlines, and the policies, procedures and internal controls that should be implemented to protect your institution from numerous operational, financial and other risks. In-house audit or compliance staff also must keep pace with current industry trends and the emphasis of regulations, and work closely with existing vendors and experts, such as in audit, insurance, payroll and legal.
To do so, they must be active in industry trade groups or associations; receive proper, ongoing professional education and training; and have the ability to document and impart needed knowledge to relevant employees, external constituencies and the board of directors. All of this requires significant financial, time and strategic commitments. With more than 20 years of bank industry experience and focus on internal audit and regulatory compliance needs, Mercadien can help you succeed on all of these fronts. Led by Salvatore Zerilli, CPA, CAMS, managing director, our highly-experienced and credentialed team of professionals will partner with your institution, assisting your internal audit efforts at any point and level you desire. We offer fully outsourced, customized internal audit and compliance services, as well as co-sourced programs to help in-
house departments with limited staff, time constraints or intricate needs. You benefit from our proven, topdown, risk-based approach that can help you develop and improve processes and control programs to mitigate risk and other exposures; ensure transparency and accountability; and enable you to meet compliance and other obligations, as well as financial and strategic objectives. With Mercadien, achieve cost-efficient, responsive, high-quality internal audit solutions that are difficult to replicate in-house. Contact Salvatore Zerilli, CPA, CAMS; managing director and chair of Financial Institution Services Group at szerilli@ mercadien.com. ■
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HOW IS P&G DIFFERENT? “P&G is unique in that we are exclusively focused on the banking industry,” explains P&G Founder and Managing Partner Amit Govil. “We bring our years of specialized knowledge and insights to each engagement. Instead of generalists, our auditors are specialists – highly experienced Subject Matter Experts that perform internal audits in their specific field of expertise.” P&G has dedicated audit teams for each area of a financial institution (BSA/
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AML and OFAC, IT and cybersecurity, lending, deposits, regulatory compliance, financial/treasury, branch/retail, etc.). This concentrated expertise and comprehensive, risk-based internal audit processes distinguish P&G from other service providers and enable the firm to deliver real value.
HOW DO YOU ENSURE QUALITY? P&G has an impeccable reputation with regulators and clients. One reason for this is the firm’s Quality Control Group that performs an independent quality control review on every single audit before a report is ever issued to the client. “Quality is evident in everything we do, and our proprietary approach and sophisticated workflow technology ensure a transparent and efficient audit process,” said Philip Gonzalez, Director, P&G Associates.
WHAT OTHER SERVICES ARE OFFERED? In addition to internal audit, P&G provides IT & cybersecurity risk
management (internal and external vulnerability assessments, social engineering and penetration testing), credit risk management, SOX and FDICIA attestation and tax services (tax return preparation and filing, tax accounting and consulting). The firm also offers an array of proprietary software tools, such as P&G Online, IssueTracker, PRISM: The ALLL Calculator and RiskTrak, designed specifically for financial institutions. Joe Romanello, who recently joined P&G Assoc. as managing director, sums it all up, “Our people, the depth and breadth of our services, and our commitment to our clients is the cornerstone of our success and continued growth.” What’s your risk? To learn how P&G Associates can meet your bank’s needs, please email us at WhatsYourRisk@pandgassociates. com or call (732) 651-1700. ■
Summer 2017
Meet Our Select Service Providers
Wolf & Company, P.C.
I
n order to operate more efficiently, organizations have to continually analyze their risks, as well as their internal control processes. Assessing the quality and improving the effectiveness of these procedures helps institutions stay on the path to success. Wolf & Company, P.C. is a professional services firm that combines cutting edge technologies with over 100 years of service from experts in the financial industry. Our organization spans across all Three Lines of Defense, and provides insightful guidance and areas to increase efficiencies.
qualified to assist your institution. Senior staff is actively involved in each engagement from inception to conclusion, helping to identify control weaknesses and create practical solutions regarding: • operational audits (ACH, asset and liability management, trust, lending, branches, and others) • risk assessments • data mining • HR, benefit and payroll audits • Sarbanes-Oxley compliance • internal audit department quality assurance reviews
INTERNAL AUDIT FOR FINANCIAL INSTITUTIONS
WOLFPAC INTEGRATED RISK MANAGEMENT FOR FINANCIAL INSTITUTIONS
We focus on developing long-term relationships with our clients, and approach each engagement expecting to bring value. Our accountants have public and private industry, internal audit and financial services experience, which make them uniquely
Another offering through Wolf & Co. is WolfPAC Integrated Risk Management, a secure, online suite of enterprise risk management tools, plans and services that gives your organization a centralized view of your risk profiles. This view provides
Auditing and Assurance Consulting
you with an understanding of risk related to your people, processes, and technologies, so you can prioritize and budget effectively. We also created strong reporting functionality, so you can stand in front of your board with strategic, actionable and data-driven insights. We focus on all aspects of your risk management program, including: • vendor management • information technology and cybersecurity • business continuity • operational risk • audit plan • regulatory compliance For more information, please contact (617) 439-9700 or email us at sales.wolfpac@ wolfandco.com. ■
We’ve been busy. For 70 years, we’ve helped our clients grow their bottom lines with personal, proactive, evolving leadership in the financial services industry.
ERM Thanks for keeping us busy. Outsourcing Tax Preparation and Planning Technology Services Attack and Penetration
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8/29/2016 5:38:40 PM
Summer 2017 New Jersey Banker
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Feature
The Bank Executive of the Future By Alan J. Kaplan, Founder and CEO, Kaplan Partners
T
oday’s bank leader remains under more pressure than at any time since the financial crisis, which altered the course of the industry for decades to come. Much has and will continue to be written about the tangible banking skills and technical proficiencies which have become necessities for leaders in the industry today; it’s a veritable shopping Alan J. Kaplan list of experience in subjects such as regulatory relations, balance sheet management, capital strategy, commercial credit, investor relations, risk management, technology and strategic planning. All of these are now considered “table stakes” for bank leaders and CEO contenders. Nevertheless, the real challenges may lie in developing the key leadership requirements for institutional success, and in the navigation of the managerial challenges which lie ahead. Here are three intangible but particularly important areas of emphasis in the human capital arena which are critical for the future bank leader’s success: cultural agility, workforce flexibility and talentcentricity.
CULTURAL AGILITY AND ADAPTABILITY Let’s face it: while middle aged white men still dominate the C-Suite in banking, the growth markets – and new and future employees – do not fit this profile. Consider these points: • Women today constitute a majority of bank employees in many institutions, with rising penetration into senior management roles. • Non-white children are now a majority of births in this country. • More new businesses are started by women and minority members of our communities than by white males. What this says about our bank’s future
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opportunities for growth is that bank leaders and line personnel need to develop a true appreciation for the varied needs of different customer constituencies. Products will need to be tailored to better take advantage of specific market opportunities. And employees will likely need additional training to be in a position to service a wider array of customer profiles. Bank leaders, then, need to lead this charge by exemplifying cultural agility; that is, the ability to be comfortable with and make others comfortable with a relationship. It takes training to be able to meet differing customer types at their comfort level, rather than expecting potential clients or prospective employees to relate to us in our old fashioned way. Cultural agility also involves helping workers to understand how people from different backgrounds think and operate, so that a rainbow of worker backgrounds can coexist and work constructively within the bank. After all, your future team members will be just as diverse as your future customers, and those growing customer segments want to work with people who can understand both their personal needs and business concerns. So, the bank leader of tomorrow needs to possess a level of personal adaptability and cultural agility that allows them to role model interactions with a multitude of constituents, both within and outside of the bank.
WORKFORCE FLEXIBILITY The nature of today’s multigenerational workforce is no secret. We see many companies where there are three or even four generations still hanging around the (virtual) water cooler. Understanding the priorities and drivers of each generational sector, and how to mesh them effectively, is critical to enhancing team performance and the bank’s bottom line. As an example of generational differences when it comes to banking, it is reported that only 38 percent of Millennials have used a bank facility beyond a simple ATM transaction.
Here’s a recent statistic from Gallup and highlighted recently by the ABA: of the four current workforce generations, Millennials were notably the least engaged, with only 29 percent feeling connected to their employers. Furthermore, according to research from private equity firm Kleiner Perkins and industry association ICBA, the rising Millennial generation seeks meaningful work, high pay, a sense of accomplishment, training, development and flexibility – in that order. Yet this same generation is known for being empathetic, humanitarian, environmental and generally caring. So, how do banks “connect” with these future leaders to attract them and keep them in the fold? Here’s where I believe banks hold a hidden advantage over many other industries. There is no industry that is more community-minded or supportive of local organizations with time and money than community banks. Yet too often we take this proud and locally-minded behavior for granted, when we should be shouting it from the rooftops, especially when we are recruiting up-and-coming talent or even rookies straight from college. Banks can win the hearts and minds of the next generation of potential leaders by leveraging their “community advantage” to the fullest extent possible when promoting the organization – whether to potential hires or potential customers. We also need to make sure that banks have revisited the “traditional timelines” of career advancement that former bankers like me grew up with. While some veteran bankers may disdain the up-and-comer who expects rewards and recognition much faster than previously provided, we need to accept that times are simply different. Changes in the banking industry – particularly driven by technology – have made the previous rules of engagement as obsolete as the passbook account. I’ve heard veteran bankers lament that “it took me 20 years to make vice president; why does she think it should happen for her in five?” Expectations need to shift a bit on the banker’s side of the equation.
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Today’s recent college graduates – despite their reputation, are typically driven to succeed, speak “cyber,” are anxious to collaborate, and want to work for a company that gives back to the community. As a technology-enabled, team-oriented, community-minded industry, we need to reinforce that “this is not your grandfather’s bank” in our recruiting messages and performance feedback. This creates opportunities for the bank to compete for talent and become known as a destination employer, and for the industry as a whole to be perceived as leading-edge rather than “over the hill.”
TALENT MATTERS
Despite the continued consolidation of the industry, the ranks of folks who can capably lead a bank in today’s climate is simply not keeping pace with the need for replacement of retiring CEOs and C-Level executives. What does all this mean for the future? It means that bank leaders who can attract talent to their organizations will have a
distinct advantage. In the battle for new loans in crowded markets – which many still are – the banks with more and better lenders on the street will win. Remember that stars have the most options as to where they will deploy their talent. “A” players will usually choose an opportunity where they are working with or for a well-known leader, and where they feel they are best set up for success. Top talent wants to work with other top performers, and a bank CEO who can attract top players gains a significant competitive edge. High growth banks such as Signature Bank and Sterling Bank have not only benefitted from an influx of veteran talent, but the attraction of top talent is a core business strategy. Banks that choose to “play it safe” with regards to talent – whether in the executive ranks or in the hiring of revenue generators – do run the risk of being penny-wise and pound-foolish. We are living in an industry time of “go big or go home” when it comes to human capital. The variable on the success of a bank’s strategy is always the execution, and
execution always comes down to people. Don’t skimp on getting as many difference-makers on your team as possible.
SUMMARY The future of the banking industry remains bright, despite the challenges facing bank leaders today. The difference between banks that will be able to grow and remain independent may unexpectedly come down to the soft skills of their leaders—how the bank adapts to changing employee and customer markets, navigates the different workplace expectations of its up-and-comers, and whether the bank approaches the talent market strategically. Failing to shift focus to these factors may come at a very high price. ■ Alan J. Kaplan is founder and CEO of Kaplan Partners, a retained executive search and talent advisory firm based in Philadelphia. Kaplan Partners is the country’s only retained executive search firm member of the ABA and ICBA. Kaplan Partners are also members of NJBankers. He can be reached at alan@KaplanPartners.com or (610) 642-5644.
KNOWLEDGE IS THE BASIS OF SOUND ADVICE. TWENTY EIGHT YEARS OF EXPERIENCE TELLS US SO. As an advisor to financial companies nationwide for more than 28 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.
Summer 2017 New Jersey Banker
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NJBankers Events
NJBankers 113th Annual Conference NJBANKERS 2017 – 2018 OFFICERS & BOARD OF DIRECTORS
This year’s Annual Conference at The Breakers in Palm Beach Florida drew numerous representatives from 52 banks and more than 94 associate members and other business firms. By all accounts, it was another successful conference which combined a top-notch resort, ocean breezes and professional development sessions led by dynamic speakers. ■
Chairman James S. Vaccaro *, Chairman/President/CEO Manasquan Bank First Vice Chairman William D. Moss *, President/CEO Two River Community Bank Second Vice Chairman Thomas J. Kemly *, President/CEO, Columbia Bank Immediate Former Chairwoman Angela Snyder *, Chairwoman/CEO Fulton Bank of New Jersey President/CEO John E. McWeeney Jr., President/CEO, NJBankers Gerard Banmiller President/CEO, 1st Colonial Community Bank Frederick A. Bertoldo * EVP/Regional President, Northern New Jersey, Wells Fargo Bank, N.A. Louis Anthony Costantino Jr. Managing Director, Industry Manager, JPMorgan Chase Bank, N.A. Detlef H. Felschow President/CEO, Roselle Savings Bank John S. Fitzgerald President/CEO, Magyar Bank
Pictured: Immediate Former Chairwoman Angela Snyder, chairwoman/CEO, Fulton Bank of New Jersey administers the oath of office to the 2017 – 2018 NJBankers Officers at the Annual Conference. From l to r: Thomas J. Kemly, Second Vice Chairman, president/CEO, Columbia Bank; William D. Moss, First Vice Chairman, president/CEO, Two River Community Bank; James S. Vaccaro, Chairman, chairman/president/CEO Manasquan Bank.
Dianne M. Grenz Senior Executive Vice President/Chief Consumer Banking Officer,Valley National Bank Stanley J. Koreyva Jr. President/COO, Amboy Bank Anthony Labozzetta President/CEO, Sussex Bank Thomas Lupo President/CEO,Regal Bank Christopher D. Maher Chairman/President/CEO, OceanFirst Bank Christopher Martin Chairman/President/CEO, Provident Bank NJBankers added a new session to the lineup of great speakers – a non-denominational prayer breakfast with former New York Yankees Star and the man considered to be the father of Gamecock baseball Bobby Richardson. Bobby shared stories of his days as a Yankees player and then signed copies of his book, “Impact Player.”
Peter Michelotti President/CEO, Community Bank of Bergen County Craig L. Montanaro President/CEO, Kearny Bank Michael P. O'Brien Senior Vice President/Market Manager, Bank of America, Merrill Lynch Kevin B. Peterson President/CEO, Haddon Savings Bank Robert Rey President/CEO, NVE Bank Thomas J. Shara * President/CEO, Lakeland Bank Nicholas J. Tedesco Jr. * President/CEO, GSL Savings Bank Gerald L. Reeves – Former Chairman President/CEO, Sturdy Savings Bank
Carrie Lohrenz, the first female F-14 Tomcat Fighter Pilot in the U.S. Navy was the keynote and shared her “Lessons in Leadership. ” Carrie signed copies of her book, “Fearless Leadership: High-Performance Lessons from the Flight Deck.” *Executive Committee
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Summer 2017
Forrey-Gallman Awarded to Stew McClure The prestigious Forrey-Gallman Award was bestowed upon Stewart E. McClure Jr. It is awarded to members who have demonstrated long-term outstanding service to the New Jersey banking industry. Stew spent his entire 41-year banking career in the New Jersey marketplace. Before retiring last year, Stew was regional president of Lakeland Bank, after serving as president and CEO of Somerset Hills Bank and Somerset Hills Bancorp. He served as chairman of the New Jersey Bankers Association from 2012 to 2013.
Left to right: Stewart McClure Jr. is presented the award by John McWeeney Jr.
Members Applauded with Community Service Awards for Helping Their Neighbors Members were recognized for their commitment to the communities they serve through the NJBankers Community Service Awards. NJBankers initiated the initiative as a way to recognize the many civic and charitable activities that are conducted by member banks throughout the year. The awards are determined by independent judges. Those recognized at the Annual Conference for their contributions include: • • • • • • •
Under $300M Deposits: Metuchen Savings Bank $300M- $500M Deposits: Century Savings Bank $500M - $999M Deposits: Two River Community Bank $1B - $2B Deposits: Boiling Springs Savings Bank $2B - $5B Deposits: Peapack – Gladstone Bank More than $5 Dollar Deposits: M & T Bank Large National Bank: TD Bank
Pictured accepting the Community Service Award are: Katherine Liseno, president and CEO, Metuchen Savings Bank; David Hemple, president and CEO, Century Savings Bank; William Moss, president and CEO, Two River Community Bank; Robert Stillwell, president and CEO, Boiling Springs Savings Bank; Rosanne Schwab, assistant vice president of public relations and corporate communications manager, Peapack-Gladstone Bank; D. Nicholas Miceli, president and CEO, TD Bank and John McWeeney, NJBankers president and CEO. Not pictured: M&T Bank.
FUN STUFF! SPORTS BAR NIGHT SEES CHANGE IN CHAMPION
FISH ON!
CASINO NIGHT WAS A WINNER
A fishing party boat was launched at the Annual Conference and Ed Dietzler, president of The Bank of Princeton, shares a photo of his catch! Way to go, Ed! No fish stories for you!
The Annual Conference offers professional development opportunities but it also offers opportunities for fun and networking! A signature activity has become our Sports Bar Night. Basketball, shuffleboard, pin ball, football and billiards were just some of the games. Prizes, including game tickets, were drawn and well-received! Last year, our own Cris Goncalves, manager of education, reined in basketball. This year, she was unseated by Joe Coccaro, president and CEO Bogota Savings Bank, 30 to 9 in a rematch. Watch out, Joe… Cris has already started training for next year!
NJBankers wrapped up the Annual Conference with Casino Night. Armed with play money, guests played craps, poker, roulette and more. Tickets were drawn for prizes sponsored by Vining Sparks. Alas, no one broke the bank but fun was had by all. Top winners included: Michael Massood with $20,700; Tom Kemly with $10,000; George Robostello with $7,500; and Dan Snyder with $5,650.
Summer 2017 New Jersey Banker
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NJBankers Events continued from previous page
James M. Meredith Presented with Resolution
Celebrating a Commitment to the Banking Industry
Jim Meredith, NJBankers executive vice president and COO, will retire after 23 years at the association and its predecessor associations. He was presented with a Resolution to recognize his many contributions. John McWeeney presented a plaque during the annual meeting and a short video was developed by NJBankers staff to celebrate (and have fun with) Jim. Jim, you will be missed by all but congratulations on a distinguished career!
There were several members who celebrated significant anniversaries serving the New Jersey banking industry this year.
Left to right: John McWeeney presents the Resolution to Jim Meredith.
Jay Ford, president and CEO of Crest Savings Bank, was recognized at the former chairmen’s dinner for his 50th year serving his customers, neighbors and the banking industry.
Jay Ford receives a plaque from Angela Snyder celebrating 50 years serving the banking industry.
The Market Showplace bustled with conversation and networking. This year, exhibitors and attendees were greeted by some visitors who had the Showplace participants smiling, petting and even creeped out by a giant python! BCG President/CEO Rich Siderko bravely handled the HUGE snake.
During the Second General Session, Frank Colson of Crest Savings Bank and Del LaMarca of Havens Savings Bank celebrated 50 years in the banking industry, and Kevin O’Connell and John Wessling of Haven Savings Bank celebrated their 40th year of service.
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Summer 2017
Feature
Celebrating Graduates of The NJBankers Leadership Academy
Graduates of the NJBankers Leadership Academy and the instructors included: (left to right) Front row: Instructors Dr. Susan Mach and Albert Giobbi; Robin Hulmes, Investors Bank; Rebecca Kugelman, Unity Bank; Kate Perlman, ConnectOne Bank; Suzanne Wegryn, OceanFirst Bank; Instructor Dr. Cynthia Rowan. Second row: Instructor Connie Whitman; Linda Martin, Investors Bank; Matt Kelly, Peapack-Gladstone Bank; Michael Tripicchio, Spencer Savings Bank; Kate Sant’Angelo, Peapack-Gladstone Bank; Corinne Kison, Provident Bank; Karen Garrera, Lakeland Bank; Aisha Hollins, Provident Bank; Tracey Echavarria, Northfield Bank; Ellen Simons, Amboy Bank; Richard Lanza, Manasquan Bank; Tamara Feldman, Amboy Bank; and Keith German, Fulton Bank of New Jersey.
N
JBankers celebrated the graduation of the first class of students who completed The NJBankers Leadership Academy, Emerging Leaders program, with a ceremony at the APA Hotel in Woodbridge, New Jersey. The graduates completed a nine-month blended learning program where they were required to attend full day programs, an online program and were required to practically apply newly acquired skills as part of the next learning session. Students completed a “leadership challenge” project to foster their own development, benefit their financial institution and the banking industry. The Emerging Leaders Program was developed with the financial support of Fulton Bank of New Jersey and is designed to enhance the organizational, performance and leadership skills of highly motivated man-
agers who have the potential to become future leaders in their banks and banking industry. The graduates were joined at the ceremony by their mentors, bank CEOS and officers at their respective financial institutions. In congratulating the graduates, John E. McWeeney Jr., president/ CEO of NJBankers stated, “NJBankers recognized the importance of educating the banking industry’s emerging leaders. The NJBankers Leadership Academy addressed the leadership facets common to great leaders and presented them as a dynamic professional development resource. These graduates are considered the best and brightest and their commitment to excellence is what makes them stronger leaders for their banks and ambassadors for the banking industry.” ■
Thanks to our Annual Conference Sponsors PLATINUM SPONSORS Bankers Cooperative Group BFS Group BITS Cullen & Dykman FHLBNY Fulton Bank of New Jersey Lakeland Bank P&G/GRC/RSK Peapack-Gladstone Bank Strategic Resource Management Wolf & Company
DIAMOND SPONSORS BDO Crowe Horwath EverFi Merchant E-Solutions Mosteller Valley National Bank GOLD SPONSORS RSM S.R. Snodgrass
SILVER SPONSORS Boenning & Scattergood CBA and ICBA Network Services COCC CI-Group Garden State Community Bank Investors Bank The Kafafian Group Keefe Bruyette & Woods Luse Gorman Manasquan Bank MasterCard McCarter & English
SILVER SPONSORS continued NJBankers Business Services Sandler O'Neill+Partners Sturdy Savings Bank Two River Community Bank VISA BRONZE SPONSORS ABA ACBB Arnold & Porter Baker Tilly DA Davidson Helms Briscoe Invictus Consulting
BRONZE SPONSORS continued Kilpatrick Townsend Martino & Thoms PNC Bank Riker Danzig Scherer Hyland & Perretti Stevens & Lee/Griffin Financial TDBank Vantiv Village Office Supply PATRON SPONSORS Bogota Savings Bank Sun National Bank Vining Sparks VSP
Summer 2017 New Jersey Banker
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Feature
The 800 lb-Gorilla in Cybersecurity Risk – Ransomware
T
he concept of ransom is as old as time. As long as people have had things of value, bad guys have figured out how to hold them hostage to extort something in return. With this history in mind, it should come as no surprise that cybercriminals have adapted this age-old strategy for their own purposes. There were Rashaad Bajwa older versions of ransomware, however it didn’t really start spreading like wildfire until September of 2013 with the launch of Cryptolocker. Cryptolocker was the first mainstream ransomware that started the current waves of imitators. Cryptolocker has since been taken down by the FBI and international law enforcement, however not before it hit thousands of businesses and started an entire cottage industry of ransomware variants trying to duplicate its success. In 2016 over $1 billion in ransom was paid in the U.S. Ransomware is so dangerous because of how easily it is spread. Over 59 percent of ransomware is spread via email, either as an infected attachment or a website link that attempts to take advantage of unsuspecting or ignorant user clicking. The remaining infections mostly come from compromised websites that have been taken over and injected with malicious code. All it takes is a user with an out-of-date computer to visit these websites or clicks on a link, and they will automatically set off a series of events that will spread the infection. The recent WannaCry ransomware outbreak was one of the only outliers in that it mostly was not spread by email or bad website links, but could spread without any user interaction at all if they were using an unpatched older operating
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system like Windows XP or Windows 7. The other common thread between most ransomware, which makes it so devastating, is that most of them do not require administrative access on computers for them to execute and spread their damage. System administrators had historically felt safe in knowing that most computer viruses required installation, and hence administrative rights on PCs, to create damage. Ransomware on the other hand never actually “installs” on the computer so never needs admin access. Ransomware doesn’t care about the PC, it cares about the data. From its vantage point the ransomware scans the network and encrypts all the user data it sees. This data is then rendered inaccessible to the user and held hostage in return for a ransom. Ransoms can be as little as $200 or tens of thousands of dollars, however are always demanded in the anonymous cryptocurrency called Bitcoin. Once the requisite number of Bitcoins has been paid, the criminals tell you they will send a decryption key to once again unlock and access your data. Thousands of companies in NJ have been hit by Cryptolocker or other variants of ransomware in the last 2 plus years. These vary from small businesses
to some of the largest companies and institutions in the state. Considering that the vast majority of breaches in New Jersey are still not reported, this number is staggering. Many companies have not kept pace with the bad guys in securing their networks, and unfortunately many have become victims. Recently we had to assist a local New Jersey firm that came to us after struggling for a week on their own to recover from a ransomware attack. They thought they had safeguards in place, however they had been lax in their security posture. They had antivirus on the desktops which they religiously renewed every year. They also had a firewall that was installed by a consultant years earlier and assumed it was protecting them. They had a computer guy that regularly helped them with stuff, and they assumed he would also take care of keeping them secure. They were wrong, ignorance was not bliss. The firewall was providing virtually no protection as it had never been updated or configured to protect against current threats. The antivirus was too little too late after the ransomware started spreading on their network after a user clicked on an infected link in an email. The computer
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guy was getting paid hourly to fix computer/server problems as they came up, they never asked (and he supposedly never offered) any sort of upgrades or management of their cybersecurity. The ransomware spread from the users’ PC to the network and had soon encrypted the entire server network. The firm had setup an online backup the prior year, but soon found out it hadn’t been running in six months. Apparently nobody had been checking the backup, and there was no other backups to speak of. When the firm came to us there was very little we could do. Many flavors of ransomware – like the original Cryptolocker – have been taken down by authorities so we can get the decryption keys and pretty easily recover data. However, this strain of ransomware was new and breaking the encryption without the decryption keys is virtually impossible. The firm had no option but to pay
the ransom of $1,200, restore 6-monthold data from the online backup or risk going out of business. The FBI recommends against paying a ransom since there is no honor among thieves and no guarantee you will get your data, along with the fact that paying victims ensure continued ransomware. Unfortunately, just having a good backup to restore from may not be the end of the story. Banks have strict breach reporting requirements but even other unregulated businesses may not be completely off the hook. According to the New Jersey Identity Theft Protection Act, all data breaches, including some breeds of ransomware where the attacker obtains access to data, may require a breach notice. Breach notices not only increase the monetary cost of a security incident, they can be devastating to a firm’s reputation. The moral of the story is: Be prepared. You and your business clients should not bet
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their livelihood on hoping there is a good backup. Even if you are lucky enough to have a current backup, you may not be spared the embarrassment and cost of a breach notice and other reputational risk. Safeguards are available that can ensure almost zero likelihood of infection at little to no cost and so businesses owe it to their staff, clients and professional reputation to use due diligence in securing themselves. The basics are a good email filter, web content filter, secure firewall and user education. ■ Rashaad Bajwa is president/CEO of Domain Computer Services, one of the largest IT service providers serving the business community in NJ/PA/NYC for the last 20 years. Rashaad is a CISSP (Certified Information Systems Security Professional) and a regular speaker at Cybersecurity events for NJBankers, NJBIA, ISC2, NJALA and many other national and state associations. Rashaad may be contacted at rashaad@go-domain.com.
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Banking Industry Benchmarks Key Performance Indicators Ratio Definitions and Insights
Ratio definitions and insights
Tier 1 capital: Indicates financial strength based on the sum of the bank’s equity capital and disclosed reserves, and sometimes non-redeemable, non-cumulative preferred stock. Tier 1 capital is a bank’s core equity capital and consists of shareholders’ equity and retained earnings. Under Basel III, the minimum is six percent, which is calculated by dividing the bank’s tangible equity by its total tangible assets. Net loans and leases to assets: Indicates cost leadership. If it is too high, the bank’s liquidity may not cover unexpected fund requirements. If it is too low, the bank may be missing out on earnings. The calculation is total loans and lease-financing receivables net of unearned income and the allowances for possible loans and lease financing receivable losses divided by total assets. Loans to deposits: Assesses a bank’s liquidity and its ability to cover withdrawals made by customers. It is calculated by dividing the bank’s total loans by its total deposits. NPAs + 90 days past due / assets: Calculates the sum of non-performing assets and loans 90 days or more delinquent but still accruing interest, as a percent of assets. Return on average equity (ROAE): Refers to the profitability of a company over a financial year. It modifies return on equity (ROE) by changing the denominator, shareholder’s equity, to average shareholder’s equity.
Yield on earning assets: Looks at total interest, dividend and fee income earned on loans and investments as a percentage of average earning assets. It is a solvency measure used by banking regulators.
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Cost of funds: Reveals the interest rate paid by financial institutions for the funds they deploy in their business.
Net interest margin: Subtracts interest expenses from investment returns, then divides by average earning assets. It is one of the profitability indicators specific to a bank’s investing and lending activities over a period of time.
Non-interest income: Shows bank and creditor income derived primarily from fees including deposit and transaction fees, non-sufficient funds (NSF) fees, annual fees, monthly account service charges, inactivity fees, check and deposit slip fees, and so on as a percentage of total income.
Efficiency ratio: Measures a bank’s overhead as a percentage of its revenue on a fully taxed equivalent basis. It is an indication of a bank’s ability to turn resources into revenue. A ratio of 50 percent is usually the optimal ratio. An increase in the efficiency ratio indicates either increasing costs or decreasing revenues.
ALLL to total loans and leases: Divides a bank’s allowance for loan and lease losses (ALLL) by its total loans and leases.
Dividend payout: Identifies the total dividend declared divided by the total net income of a bank. The amount not paid out in dividends to stockholders is held by the financial institution for growth and is called retained earnings.
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Summer 2017 New Jersey Banker
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Feature
Breaking Down ‘Beneficial Ownership’ Q&AS ON THE NEW CUSTOMER DUE DILIGENCE RULE By Terri Luttrell, CAMS-AUDIT
A
re you prepared for the new CDD rule? In May 2016, the Treasury Department issued final rules under the Bank Secrecy Act to clarify and strengthen customer due diligence (CDD) requirements. The new regulation is the most significant change to BSA since the USA PATRIOT Act. To prepare for the new CDD rule, a multitude of changes will be needed to financial institutions’ account opening and Know Your Customer (KYC) procedures. Terri Luttrell With less than a year until the rule’s deadline, many questions remain. Below is a list of frequently asked questions provided by Banker’s Toolbox experts. Q: What is “beneficial ownership”? A: At the time a new account is opened for a legal entity, financial institutions are required to obtain a certification from the individual opening the account on behalf of the legal entity, identifying the beneficial owner(s) of the entity. Q: When will it be in effect? A: The rule will take effect 60 days after its publication in the Federal Register (July 11, 2016). Q: When must we be compliant? A: You have two years (until May 11, 2018) at the very latest to update your policies, procedures and implement your new processes, but do not be surprised if your examiners ask to see your implementation plan. Q: Is the rule retroactive? A: No, you will only need to obtain this information going forward. However, if a legal entity opens a new account, another certification must be obtained. This is true even for legal entities with existing relationships.
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Examiners will also require a risk-based approach to updates if, during normal monitoring, there appear to be changes to the beneficial ownership information. In some cases this may require re-certification, even for existing accounts. Q: How does this apply to loan accounts? A: This rule applies to all accounts including checking, savings, certificates and loans. Q: Are we required to add beneficial owners to our core systems, or are notes sufficient? A: You are required to aggregate for currency transaction report (CTR) purposes and for suspicious activity monitoring. So at a minimum, this information must be in your CTR and AML monitoring systems. Q: What CIP information should I collect for beneficial owners?
A: You will collect the same basic customer identification program (CIP) information that you collect today: name; date of birth for individuals; address; and identification number. Just as you do for signers on the account, you will be required to verify the identity of each listed beneficial owner using risk-based procedures to the extent that is reasonable and practicable. You have the option to accept a copy of the identification for beneficial owners. This is because they will often not be present at account opening. You are not required to retain actual copies, but you do need to document what you collected for five years after the account is closed. When updating your CIP policies and procedures, you may choose to re-write the section of your policies to include beneficial ownership or create a separate sub-section of CIP for beneficial ownership.
Summer 2017
Q: The new rule refers to a two-prong approach to beneficial ownership. What does this mean? A: The new rule takes a two-prong approach (ownership and control) for the identification of beneficial owners. You will have to consider both: Ownership Prong – For the ownership prong, you need to identify any natural persons with a 25 percent or more ownership of the legal entity. You do not need to calculate or determine this; you can rely on the certification provided by the customer. If something alerts you that they are providing untrue information, you should file a SAR. • There is no obligation for the financial institution to determine beneficial ownership or analyze calculations – they may rely on information provided by the individual on the certification form. • There may be no beneficial owner with 25 percent or more. If so, there may be no beneficial owners listed for the ownership prong. • There is no obligation to determine if the entity is structuring to avoid a 25 percent threshold. • Use a trustee as the beneficial owner if a trust owns 25 percent or more of a legal entity. Control Prong – You will also have to collect at least one individual from the control prong. This is to be a natural person within the management structure who has significant responsibility to control, manage or direct the legal entity. Q: To identify beneficial owners for the ownership prong, how far down will we be expected to research to find the natural person? A: If the natural person is not 25 percent or more, you are not required to drill down at all. For example if an individual person owns 75 percent and a company owns 25 percent of an entity, you will only need to list the individual.
Q: How do we have non-governmental organizations (NGOs), charities and religious organizations such as churches complete the certification of beneficial ownership? A: NGOs, charities and religious organizations such as churches are excluded from the ownership prong, so you only need to list one person who has significant control over the entity for the control prong. Q: In our current policies and procedures we collect more than the basic CIP elements for accountholders/signers. Will we be criticized if we do not request this same extra information for beneficial owners? A: No, as long as you collect the basic required information for the beneficial owners. Be clear and detailed in your updated policies and procedures, and remember you can always make a risk based decision to request more information than is listed in your policy. Q: If the individual opening the account does not provide CIP on the beneficial owners, should we refuse to open the account? A: Yes, this is basic CDD information that will be required under the new rule and should be made clear in your updated policies and procedures. Q: Can we accept non-documentary verification for CIP information for beneficial owners like we do for our existing owners/ signers? A: Yes, your CIP verification policy and processes for beneficial owners may be similar to what you currently have in place today for signers/owners. Q: Are we required to conduct OFAC checks on beneficial owners? How about 314(a) scans? A: You are required to conduct OFAC scans on beneficial owners. It is not required to conduct 314(a) scans. That would be optional.
Q: Should I be collecting the same customer due diligence information at account opening for each new account? And what about consumer accounts? A: Regulators say that the level of sophistication of analysis for a CIP program, and the collection of customer due diligence information, may vary by bank. A detailed analysis is important because with any type of product or category of customer, there will be accountholders that pose varying levels of risk. Even though the beneficial ownership rules are specifically written for business entities, an institution may also make a risk based decision that they need to request additional information for consumer accounts as well. Q: What can we do now to begin preparing for the new regulation? A: Start by preparing a checklist and even a taskforce to start understanding the changes that will need to be made within your institution. This includes costs, timelines, and so on. The deadline for complying with the new CDD rule is technically in 2018, but it is likely that regulators will start asking about your banks plans as soon as this year. It is important to begin understanding and preparing for beneficial ownership now. To ensure compliance well before the deadline, staying ahead of the game is key. ■ Terri Luttrell is the senior manager of professional services at Banker’s Toolbox. Banker’s Toolbox provides software and services that help community financial institutions manage their BSA/AML and fraud-related activity. She helps clients in enhancing their suspicious activity monitoring program, improving written procedural practices, and evaluating their institution’s use of their automated systems. She is a member of National ACAMS (Association of Certified Anti-Money Laundering Specialists) and is on the board of the Central Texas ACAMS Chapter. She is CAMS-Audit certified. For more beneficial ownership resources or to learn more about how Banker’s Toolbox can help you prepare for the new CDD rule, visit bankerstoolbox.com/njba or email experts@bankerstoolbox.com.
Summer 2017 New Jersey Banker
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Notes William S. Clement
William P. Breda
James A. McKiernan
Leonard Carlucci
ATLANTIC STEWARDSHIP BANK Atlantic Stewardship Bank announced the promotion of William S. Clement to executive vice president and chief lending officer. Prior to his new role, Clement was serving as senior vice president and chief lending officer at the Midland Park-based office. He has more than 35 years of experience in the banking industry, more specifically in commercial lending.
BOILING SPRINGS SAVINGS BANK Boiling Springs Savings Bank announced William P. Breda and James A. McKiernan were promoted to first vice president. Breda joined Boiling Springs in 2006. He has more than 35 years of experience in the banking industry. His past assignments at Boiling Springs Savings Bank include consumer lending manager and lending operations manager of lending compliance. McKiernan began his career at Boiling Springs in 1997 as a teller-customer service representative, but quickly found his way to the loan department where he has worked as a property inspector and loan originator. McKiernan, who graduated from the University of Notre Dame, holds a Bachelor of Arts degree in psychology. In 2011 he was honored with the distinction of being selected for Next Leaders in Banking.
BOGOTA SAVINGS BANK Bogota Savings Bank announced it has hired Leonard Carlucci as its new senior vice president of commercial lending. Carlucci will be responsible for the growth of the bank’s commercial real estate portfolio. He has more than 30 years of experience in the banking industry.
CAPITAL BANK OF NEW JERSEY Capital Bank of New Jersey announced the promotion of Nia Coombs to vice president. Coombs is a commercial loan officer who has been employed by Capital Bank since 2007. In addition to managing a commercial loan portfolio, she is also the bank’s SBA loan officer. The bank also recognized the retirement of William J. Hallissey from its board of directors.
NJBANKERS Insider NJ recognized NJBankers’ own Michael P. Affuso, executive vice president and director of government relations in its 2017 Insider 100 Policymakers. Mike was honored at No. 47. He represents the public policy interests of members statewide.
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Nia Coombs
Michael P. Affuso
James T. King
Mike provides legal opinions and analysis of proposed and pending legislation that affects the New Jersey banking industry. Mike also manages relationships with both federal and state legislatures for NJBankers. He also serves as an adjunct professor at Monmouth University.
NORTHFIELD BANK Northfield Bank has promoted one of its executives to a senior vice president’s role. Christopher Donohue, who joined the bank in 2012 as vice president of Bank Secrecy Act compliance and added bank security to his responsibilities in 2014, will now be senior vice president, responsible for BSA compliance and bank security.
PEAPACK-GLADSTONE BANK Peapack-Gladstone Bank announced the promotions of Finn M. W. Caspersen Jr. to senior executive vice president, chief strategy officer and general counsel; Diane Makoujy to senior vice president and corporate controller; Glen Corbitt, to senior managing director and senior portfolio manager of private wealth management; Erik Vadeika to senior managing director and senior portfolio manager of private wealth management; David Collum to senior managing director of wealth operations and delivery and private wealth management; MJ Sully to senior managing director and senior fiduciary specialist of private wealth management and Denise Pace-Sanders, senior vice president and brand and marketing director.
RSI BANK James T. King was named COO of RSI Bank by its board of directors. King started with RSI in September of 1983 in the operations department and has since grown to become an integral member of the bank’s leadership. He became treasurer in 1992, and in 1995, he became the bank’s security officer. In 2004, he was named vice president of operations. Since 2010, he has focused on protecting customer information and bank security as both the chief information officer and bank secrecy officer, until this latest promotion. King graduated from Upsala College in East Orange, with a Bachelor of Arts degree in accounting and is also a graduate of the National School of Banking. He has served as treasurer of the Union County Performing Arts Center. ■
Summer 2017
Shots
AMBOY BANK Cheesequake branch manager, Donna Ostrowski, recently congratulated Mary Giessuebel as the grand prize winner of Amboy’s month-long grand opening sweepstakes. Giessuebel won a 55” LG Smart LED television. The sweepstakes celebrated Amboy’s new branch at 95 Matawan Road in Matawan.
As part of its “Banking for a Cause” promotion at the new Packanack branch office, COLUMBIA BANK was able to donate a check in the amount of $2,790 to the Wayne Animal Shelter. The money will be used for operating expenses and for finding new, permanent homes for their homeless animals. Shown at a special check presentation ceremony are (from left) Shelter Manager Sally Herman holding “Rocky;” Mary Ann Orapello, Wayne township’s health officer; Angela Mattina, Columbia Bank’s Packanack branch manager; Christopher Vergano, mayor of Wayne township, and Barbara Schroeder, Columbia Bank’s regional vice president holding “Daisy.”
NVE BANK participated in National Rebuilding Day as part of National Rebuilding Month by sponsoring a Rebuilding Together project in Westwood, New Jersey. Bank employees volunteered to assist in renovations to a single-family home. Renovations included painting, landscaping and general home repairs. In addition to volunteer service, NVE also presented Rebuilding Together Bergen County with a $7,500 donation to assist its mission of rehabilitating and improving low-income homeowners’ homes at no cost. Recipients of services include the elderly, disabled, military veterans and families in need, as well as community centers serving those populations.
UNITY BANK donated $2,500 to the Adult Day Center (ADC) of Somerset County to underwrite the expenses of their Caregiver Support Group, which meets on the second Saturday of every month. The donation will underwrite operational expenses for the support group, which has been part of ADC programming for 18 years. Pictured (from left) are Diann Robinson, ADC executive director; Donna Moehler, ADC member; Stacy Scelfo, ADC social services coordinator; Greg Gibson, ADC member; Wendy Ewen, Unity Bank Somerville branch relationship manager; Joanne Jack, Unity Bank Somerville Branch Personal Banker Somerville; and Michael Novak, Unity Bank senior commercial loan officer.
KEARNY BANK broke ground on an entirely new building that will eventually replace its current North Arlington branch office. The new structure will be built in what is now a parking lot. Upon construction completion, the older building will be razed to make way for parking. According to the current construction schedule, the new North Arlington branch will be completed and ready for business this coming November. Kearny Bank has been conducting business in North Arlington for about 130 years and opened its first boro office in the late 1880s. The groundbreaking – complete with ceremonial shovels, hardhats and the symbolic first turning of soil on the site – was attended by North Arlington Mayor Joseph Bianchi, several boro council members and Kearny Bank executives and staff. From left to right, John Mazur, chairman of the Kearny Bank board; Mayor Joseph Bianchi, North Arlington; Craig Montanaro, president and CEO of Kearny Bank.
Summer 2017 New Jersey Banker
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