New Jersey Spring 2015

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S P RIN G 2 0 1 5

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Credit Risk Rating System

A DYNAMIC MANAGEMENT TOOL

NJBankers Education Foundation Supports Veterans | Building a 21st Century Brand | 2015 Economic Survey Released ENDORSED BY THE NEW JERSEY BANKERS ASSOCIATION

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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

Christopher Martin Chairman/President/Chief Executive Officer The Provident Bank

Norman E. Beatty Chairman/President/Chief Executive Officer First Hope Bank

Thomas J. Holt * Senior Vice President Bank of America

Kevin Cummings President/Chief Executive Officer Investors Bank

James A. Hughes President/Chief Executive Officer Unity Bank

Stewart E. McClure, Jr. * Regional President Lakeland Bank Immediate Former Chairman

John S. Fitzgerald President/Chief Executive Officer Magyar Bank

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

Paul E. Fitzgerald * Vice Chairman First 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

Wendy C. Mandelbaum Controller ext. 603 wmandelbaum@njbankers.com Jenn Zorn Vice President and Director of Education and Business Development ext. 611 jzorn@njbankers.com

Contributing Editor Emily T. DeMasi

Robert Rey President/Chief Executive Officer NVE Bank

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

Michael Schutzer President/Chief Executive Officer Harmony Bank

Craig L. Montanaro President/Chief Executive Officer Kearny Federal Savings Bank

Robert E. Stillwell * President/Chief Executive Officer Boiling Springs Savings Bank

William D. Moss President/Chief Executive Officer Two River Community Bank

Kathleen Stone Regional President/NJ Executive Susquehanna Bank

NJBankers Officers

NJBankers Staff

Emily T. DeMasi Vice President and Director of Communications ext. 610 edemasi@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 Erin Suckiel Assistant to the Director of Communications ext. 629 esuckiel@njbankers.com Cynthia M. Zaccaro Assistant to the Director of Education and Business Development ext. 632 czaccaro@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 Chairman Chief Executive Officer/Vice Chairman 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.

Spring 2015 New Jersey Banker

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Table of Contents

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Departments

6 Chairman’s Platform Well Howdy, Readers!

8 From the President’s Office Time to Engage 9 Upcoming Events

10 Politics & Policy

Comparative Politics 11 New Associate Members

30 Bank Notes

32 Bank Shots

Page 18 Credit Risk Rating System Features

12

Directors’ Corner Is Your Board Really Crisis-Ready?

16

Feature Five Tips to Build a 21st-Century Brand

14

Meet Our Endorsed Service Provider Why You Should Care about Your Consumers’ Financial Literacy

22

Feature For Mutuals, Help is on the Way

15

Meet Our Endorsed Service Provider Smart, Simple and Systematic Solution for Enterprise Risk Management

24

Feature New Jersey Bankers Education Foundation Provides Support to Veteran Causes

4

New Jersey Banker

25

Feature New Jersey Bankers Association Releases 2015 Economic Survey

26

Feature SCORE Offers Complimentary Business Review to NJBankers Member Clients

28

Feature Succession Planning: Is Your Organization Prepared?

Spring 2015

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Chairman’s Platform

Well Howdy, Readers!

By Gerald L. Reeves

I

t’s that time when NJBankers is in the thick of preparing for the 2015 Annual Conference. This year, we will be in Nashville for a conference that is sure to be educational, enlightening and fun. Our host hotel, the Omni Nashville Hotel, is a brand-new facility in the heart of downtown Nashville.

Across from the Music City Center, the Omni is a one-of-a-kind experience, fully inGerald L. Reeves Chairman tegrated with an NJBankers expansion of the President and CEO Sturdy Savings Bank Country Music Hall of Fame and

Museum on three levels. It has been created to be an authentic expression of the city’s vibrant music culture. You’ll get your nights started on a good note at the amazing venues and honky-tonks throughout Music City that offer both food and live music.

When you attend the NJBankers Annual Conference, you hear from top industry experts and innovators. Timely topics include M&A; mutual bank issues; cybersecurity; bank taxation; risk assessments; risk profiling and risk management; preparing the bank’s portfolio for different yield curves; and many more subjects. In addition, NJBankers is excited to have Thomas J. Curry, comptroller of the currency, OCC, join us for a presentation. This year, our Keynote Speaker is Jim Abbott,

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New Jersey Banker

former professional baseball player, who will present “Adapt: Overcoming Adversity.” Jim was born with no right hand but went on to throw a no-hitter and become one of the notable players in baseball. He will also sign copies of his book, Imperfect.

This year’s conference not only brings informative sessions to attendees but will also feature a top-notch exhibit hall with high-caliber service providers.

These firms provide an excellent range of services, and by visiting with them and talking with associate members throughout the conference, you will forge a partnership which can take advantage of their innovative services.

These providers can help with services from A to Z. In fact, my bank has contracted with a number of these service providers over this past year with great success. These beneficial relationships start with a stop at a booth or a conversation at a break.

You may be pleasantly surprised how these companies can become “solution providers.” I would also like to thank all our sponsors who help to make our annual conferences so successful each year. Your support is appreciated!

NJBankers staff are always available to answer questions about the conference. Don’t forget to look for updates in the association’s Bulletin or visit www.njbankers.com for more updates and information on activities and tours.

The Annual Conference is a time to come together with your colleagues from the banking industry, specifically in our great Garden State. Make plans to join us. And as they say, “see y’all in Music City!”

■ 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.

Spring 2015

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From the President’s Office

Time to Engage

By John E. McWeeney, Jr.

A

s we head into spring and some much hoped for warmer weather, things are starting to heat up at NJBankers.

While it’s been some time since the DoddFrank Act passed and things have been relatively quiet on the New Jersey legislative front, now is no time to sit back. In fact, with a new Congress and upcoming presidential and gubernatorial elections in 2016, now is the time to step up our advocacy efforts.

John E. McWeeney, Jr. The next few years President/Chief Executive Officer NJBankers are critical to pursuing and enacting an agenda that will spur economic growth, led by a strong and vibrant banking industry.

Of course, to achieve these goals, we need some regulatory and legislative reform, most notably Dodd-Frank reform at the national level and a host of changes in the Garden State, including tax reform, rebuilding the Transportation Trust Fund, addressing pension and health care benefits, building a workable budget and resolving the state’s huge backload of foreclosures. A long list indeed.

NJBanker’s 2015 got off to a fast and strong start with our Fourth Annual Economic Forum on Jan. 16 and the coincident release of our Fifth Annual Economic Survey.

The forum enjoyed a big turnout with more than 500 attendees and a terrific program. Attendees left the forum with a much better understanding of the important issues we face.

During the forum, Dean James Hughes of the Bloustein School of Planning and Public Policy at Rutgers University released the results of the NJBankers 2015 Economic Survey. We had 84 bank CEOs complete the survey – for a 77 percent participation rate – and Hughes and his team at the Bloustein School produced a very professional and enlightening survey. The key takeaway was that our bankers feel that things have steadily improved over the past five years and their optimism is growing, although cautiously so, due to some remaining headwinds.

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Both the forum and the annual economic survey are relatively new NJBankers initiatives designed to raise the profile of New Jersey’s banks and the important role they play in the Garden State’s economy. Based on the attendance and media coverage we received, we think we’re making progress towards those goals.

Next up for NJBankers on Feb. 5 was Bankers State Leadership Day. Mike Affuso did a terrific job in organizing the program and we had over 80 bankers in attendance, many of who were CEOs. Speakers included Senate President Stephen Sweeney, Assembly Speaker Vincent Prieto, Department of Banking Director Patrick Mullen, Assemblymen Jack Ciattarrelli and Jay Webber and NJBIA president and CEO Michele Sikerka.

The speakers covered all the key issues facing New Jersey today with significant discussion about the budget, tax policy, the Transportation Trust Fund and New Jersey’s economy.

We believe it’s critically important that bankers show up in Trenton for face-to-face discussions with our leaders who are shaping the state’s fiscal course.

To close out February, Mike Affuso and I represented NJBankers at the New Jersey Chamber of Commerce’s Annual Walk to Washington, where we networked with hundreds of the state’s business leaders, as well as members of the state legislature and Congressional delegation.

The ABA held its annual Government Relations Summit on March 23–25, preceded by the Mutual Community Bankers Conference on March 22–23. There was a good turnout of New Jersey bankers as we gathered more than 1,000 bankers from across the country to visit the Hill. Our meetings with New Jersey’s Congressional delegation were very timely given the narrow window to introduce banking reforms. There’s no doubt that these meetings will directly impact our ability to advance legislation to assist our mutual members and modify the most damaging aspects of Dodd-Frank to community banks.

Still on the schedule for the remainder of 2015 are some additional important government relations events. In April, the ICBA will

hold its 2015 Washington Policy Summit on April 28–30. This will give bankers yet another opportunity to engage our Congressional leaders.

On Sept. 29–30, NJBankers will conduct its annual regulatory trip to Washington, when we will meet with senior representatives of all of the regulatory agencies.

Equally as important as our efforts to meet with our elected leaders is our ability to support candidates that are supportive of the banking industry. To do this, we need money.

More specifically we need your support of JebPac, the political action committee which supports our industry in New Jersey.

Whether we like it or not, this is the political system that we operate in and other industries and political players are actively engaged in raising monies to have their voices heard. If we choose not to participate, we risk suffering the consequences, i.e. legislation like Dodd-Frank. Unfortunately, in the past year JebPac efforts have taken a step backward. In 2014, $123,600 was raised, which represented an 18 percent decline from the prior year. Even more troubling is the fact that only 44 of our 105 NJBankers banks contributed, representing only a 42 percent participation rate. Further, some banks that had a long history of giving no longer exist because of industry consolidation.

As we move forward, it’s incumbent upon the banks that survive and prosper to actively engage in the political process. We need bankers and directors to support the advocacy efforts of NJBankers by attending events and by writing checks to support JebPac. We all share in this responsibility to protect and strengthen our industry so that banks and bankers can continue to perform the critical roles of financial intermediary and financial services provider to our customers and communities. If we fail to do so, we’ll be regulated out of business and others will happily step in to fill the void. Please don’t let that happen.

Get engaged now!

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

Spring 2015

Upcoming Events April 15, 2015

May 27 – 31, 2015

Crowne Plaza Monroe, Monroe Township

Omni Nashville Hotel, Nashville

April 17, 2015

June 9, 2015

Crowne Plaza Edison, Edison

Brookdale Community College, Lincroft

April 20, 2015

June 11, 2015

Employment Law Update

111th Annual Conference

G.R.O.W.T.H. Seminar

Internet Profiling and Intelligence Gathering

Accounting Seminar with FMS-NY/NJ

27th Annual Annamae Baerenbach Memorial Lending Conference

Stony Hill Inn, Hackensack

Crowne Plaza Monroe, Monroe Township

April 22, 2015

5th Annual Women in Banking Conference

September 9 – 11, 2015

Annual Senior Management Conference

The Palace at Somerset Park, Somerset

Ocean Place Hotel, Long Branch

April 27, 2015

8th Annual Golf Outing to Benefit Community Food Bank of New Jersey

September 29 – 30, 2015

Mercer Oaks Golf Course, West Windsor

Mayflower Hotel, Washington, D.C.

April 29, 2015

May 11 – 15, 2016

Crowne Plaza Monroe, Monroe Township

The Phoenician, Scottsdale, AZ

Washington, D.C. Regulatory Visit

Operations & Technology Seminar

112th Annual Conference

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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. © 2015 Baker Tilly Virchow Krause, LLP An independent member of Baker Tilly International

Spring 2015 New Jersey Banker

9

Politics and Policy

Comparative Politics

By Michael P. Affuso, Esq.

N

ew Jersey is often considered an outlier when it comes to public policy.

Many times, I am questioned why New Jersey is different from other states; this difference manifests itself in stark relief to bankers who attend national banking conferences or take part in other national banking efforts. Often we hear a person from a deep red state lamenting the federal government and lauding their local state government.

Michael P. Affuso Why do we hear that Executive Vice President/ Director of Government Relations so much?

NJBankers The answer lies in three parts: Political control of the state, the legislative calendar and fundraising laws.

There are 31 Republican-controlled state legislatures; there are 11 Democrat-controlled state legislatures. New Jersey is one of the 11.

Put another way, Democrats control 22 percent of state legislatures. We are in that 22 percent.

In those same 31 states with Republican legislatures, 24 have Republican governors.

Thus in 48 percent of the nation, the party of Lincoln has complete control. In addition there are eight more states with a split legislature and either a Democrat or Republican governor. On the Democratic side, the party of Jefferson controls only 11 legislatures and only seven of those 11 governorships. Thus Democrats have complete control of a paltry 14 percent of states.

New Jersey is unique; we have a Republican governor and a large Democratic majority in the legislature. We are only one of four

states that are similarly situated. While the governor’s office is deemed one of the most powerful governorships in the nation and the current occupant’s exertion of that power is well known, bills originate in the legislature.

The governor cannot introduce legislation and cannot call legislation for a vote. The power to legislate rests in the hands of the speaker of the General Assembly and the Senate president. In New Jersey, Democrats control the agenda; without Democrats, not one of the governor’s landmark pieces of legislation would have seen the light of day. There are only 10 other states in the union that have similar political characteristics as New Jersey.

We are also unique in another way. While New Jersey is a “part-time” legislature, it meets 80 percent of the year. So while part time in theory, in practice, it spends 80 percent of the year doing its job, legislating.

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Many states have truly part-time legislatures. According to the National Association of State Legislatures, only 10 legislatures convene more often than New Jersey. Other states such as Maryland, which may be considered a peer, have a legislature that generally convenes for only two very active months, while Texas convenes every other year.

So where are we thus far, the legislature is more liberal than most and meets more often than most.

Finally, there is the playing field for political activity and fundraising. Under New Jersey law, banks and other regulated entities may not use their property or funds for ANY political purpose. In New Jersey, a real estate firm, a construction firm, a pharmaceutical firm, a labor union or most any other business can write a political check from the business entity – A BANK CANNOT. Bankers may only write checks to a political campaign. In New Jersey, there are also limits that an individual or business can contribute to a campaign. Other states are very different. In

many states there are unlimited contributions allowed. Furthermore, the bank, as a corporate entity, can write a check and if the bank wishes to raise money on site, they may. Is it any wonder that we are laggards in political fundraising as bankers from New Jersey?

Take solace, we still live in the greatest

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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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Spring 2015 New Jersey Banker

11

Directors’ Corner

Is Your Board Really Crisis-Ready?

By Tony Buonaguro

O

ne fine spring day, you, the CEO of a small to midsize bank, are sitting in your office pondering how well your bank did the last quarter when without warning your controller bursts in to announce that his staff has just discovered that funds equal to half the bank’s capital are mysteriously missing and the bank examiners are on their way!

You immediately Tony Buonaguro start thinking about whom to bring into the information loop right away. Your lawyers and your board would be at the top of the list, of course.

But you wonder whether any of your directors really have the skills you suspect you will need to weather this totally unexpected storm.

We all like to plan to position our companies for success. Let’s face it. Success is fun! Contemplating failure is unpleasant.

After all, we are conditioned to believe that failure is not an option. And so we go about the critical job of structuring a board of directors with achieving success singularly in mind. We are careful to recruit board members with industry and senior business experience firmly in mind, and know that diversity among board members to reflect our customer base is also extremely important.

Let me suggest that this kind of focus on success may be too narrow for composing a board optimally effective for “all seasons.”

It fails to take into account one simple fact: Crises tend to erupt when you least expect them. Once you know a crisis is at hand, it is almost always too late to bring onto the board someone with “crisis qualifications” who could really help the bank weather the storm or perhaps even step into your shoes and take over on your behalf should you feel under-qualified or unwilling to take on the leadership burden of being captain of a ship that might sink through no fault of yours.

12 New Jersey Banker

Having myself successfully weathered two near-death experiences as a director, I have found that the best directors in a crisis are those who have certain intangible qualifications that don’t show up on a resume and that are rarely, if ever, vetted by a nominating committee or recruiting firm beforehand. Let me list a few: Is the new board member a creative, strategic thinker in everything he or she does? Is the person capable of taking stupidity into account and strategizing for the irrational response? Does the person have the ability to see connections between things that others do not, i.e., can he or she “connect the dots?” Can the person make good decisions based on what is always imperfect information? Can the person distinguish between those risks that are real and must be considered from those that are theoretical only and need not take up everyone’s time? Are the person’s gut instincts unfailingly sound, because in a crisis there is a premium on shortening reaction time? Is the person “cool under fire,” with the ability to ask probing yet non-confrontational questions, and with a certain “affability quotient” that may be important as the bank deals in difficult circumstances with regulators, investors and the public and the members of the board deal with one another in what can easily deteriorate into a rancorous finger pointing exercise? Can the person step in and run an area on an emergency basis in which the bank may have very limited “good times” capability – public relations for example?

A prospective board member with perfect crisis qualifications may well have a business background that has nothing to do with banking. On the other hand, a professional workout or turnaround manager undoubtedly would have them, but bringing such a person on the board while times are good may send exactly the wrong message to regulators and the marketplace and therefore become a self-fulfilling prophecy.

Over the years, I have come to know many attorneys and accountants with out-

standing crisis qualifications, but not everyone with such a professional designation would be a suitable fit. For example, an attorney who is a legal scholar, a courtroom Clarence Darrow or a crackerjack administrator would likely not be so good in a crisis as a strategic business attorney who appreciates that litigation is only one possible tactic in a whole panoply of possible crisis responses.

So if a resume doesn’t necessarily reveal what a person’s crisis qualifications are, how can they be identified? Obviously, an in-depth personal interview by members of the nominating committee is a must, even if a recruiting firm has given assurances that it has already covered this base. In-depth checking with personal references given by the candidate would also be important. Perhaps most important, however, would be checking with business contacts of the candidate whom the candidate does not give as a personal reference. These sources are more likely to present an undistorted picture of who the candidate really is. Yes, all of this will take time, but it will be time that is very well spent.

Let’s go back to that spring morning we started with. If you have taken my suggestion and the nominating committee has already brought onto the board at least one director with the right crisis qualifications, you would naturally make that person your first call, as the board member most likely to be the best choice to become your lead board member who will get everyone through the bank’s “near death” experience successfully. ■ Tony is CEO and president of A.R.Buonaguro & Associates, an international legal and business strategy advisor to organizations in transition. He currently serves as president and board member of the National Association of Corporate Directors (NJ Chapter) and is a former board member of Executive Life Insurance Company of California and KTI Energy, Inc. He can be reached at arb@ buonassociates.com.

Spring 2015

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Spring 2015

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15

Feature

Five Tips to Build a 21st-Century Brand

By Owen Shapiro

F

or the past 70 years, business branding has been largely guided by principles developed in the 1950s and 1960s, when there were only three television networks, messaging through advertising was easy to control, and information flowed from a few “trusted” news sources to millions of people.

This one-tomany model of information flow has been upended since the advent of the Internet and social media. Now, inforOwen Shapiro mation flows in millions of different directions at once – to, from and by people all over the globe – in an all-toall free-for-all for eyeballs and market share.

Some of the well-established rules of branding still apply in this new, hyper-connected environment. But that doesn’t change the fact that building and differentiating a brand is harder than ever and will only prove even tougher in the near future.

In the coming years, the technological connectedness of everyone on Earth will reach a level never before experienced by humanity.

The old rules don’t apply in this world. New rules must be developed.

Here are a few to start with:

BE WORTHY OF YOUR CUSTOMER’S TRUST At its core, effective branding is about a consistent connection between a company, its products and its promise to customers. No matter what physical product or service you sell, your true product is trust. On the Internet, trust in a brand can be destroyed in an

instant, so safeguarding it is of paramount importance. The good news for serious brands is that, because the Internet is so full of scams, half-truths and outright lies, people will continue to look to brands as a trusted resource.

Earn their trust – then work every day, as hard as you can, to keep it.

DON’T JUST AVOID EVIL – DO GOOD Google’s infamous tag line, “Don’t be evil” is not the same thing as “Do be good” – and the latter is a much better motto to live by.

Young people, particularly Millennials and the generation after them, Digital Natives, like their consumption to reflect their values.

More often than not, they make buying decisions based on what certain brands stand for, whether it’s environmental friendliness (Prius), fair-wage pay (Costco), LGBT equality (Kellogg), sustainable energy (3M) or

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16 New Jersey Banker

Spring 2015

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whatever. Spin will only get you so far, though – at some point it has to be backed up by honest, well-intentioned action. The world is full of cheaters and liars. Don’t be one of them.

FEWER MEMES, MORE ME Because messaging can no longer be controlled by the messenger, brands have had to figure out how to get customers themselves to spread the word. One of the most effective ways to do this is through a “meme” that grabs people’s imagination – such as the Ice Bucket Challenge – and goes viral. Modern marketers spend a great deal of time trying to figure out how to create successful memes. Some work, but most don’t, because the nature of memes is that they are spontaneous and unpredictable.

So-called meme-marketing is still in its infancy, but it is already giving way to a more me-oriented form of messaging: The sort of super-targeted, hyper-personalized messaging that is becoming possible with the convergence of Big Data, artificial intelligence and ubiquitous mobile and personal devices of all kinds. There will always be a place on the Internet for absurd humor, but Big Data allows companies to understand and connect with each individual customer in ever more intimate ways. In turn, each of those customers has unprecedented control over the messages they receive. Memes may work for a long time to come, but more “me” is what people really want. Learn how to give it to them.

COMFORT THE AFFLICTED The speed of technological and cultural change people are experiencing today isn’t just mind-boggling – it’s disorienting and, for some people, quite scary. The world they used to know is disappearing, and the world that is replacing it isn’t always reassuring. Time-

tested brands can often serve as psychological anchors in turbulent times. People are creatures of habit, and they seek out comfort, particularly when they are uncomfortable. Brands that can provide that comfort (Campbell’s, L.L. Bean), or serve as signposts to a better future (Charles Schwab, Apple) will continue to attract loyal customers even as the retail marketplace continues to fragment and choices multiply. Sometimes, the tried and true is the only thing people will try.

SHARE, DON’T SELL All social media platforms in existence today rely upon one basic principle: People like to share. Brands, too, can benefit from sharing, but many are still too focused on selling. Sharing, for brands, means connecting customers with information, ideas and resources that can help customers improve their lives. The “selling” is done by associating the brand with related networks of information that may or may not have much to do with the brand’s products. The term for this approach is “curated content,” but it’s really about offering help to people in ways that don’t feel like a direct sales pitch – because they aren’t. They’re just useful pieces of information that you gave them, with no strings attached – and for that, they will remember you, all the way into 2016.

■ Owen Shapiro is the author of Brand Shift: The Future of Brands and Marketing. Shapiro is a market researcher, strategist and speaker and spent more than 30 years in customer insights and market strategy. He has a career-long interest in helping launch innovative startup companies, several of which have become well-known brands, including Staples, PetSmart, Sports Authority, Ulta and Five Below. For more information, please visit www.brandshiftbook.com.

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Spring 2015 New Jersey Banker

17

COVER

Credit Risk Rating System

A Dynamic Management Tool

By Joseph J. Hill What is a credit risk rating system?

A credit risk rating system provides the means by which a financial institution can grade each transaction in the commercial loan portfolio by the level of risk it contains. While this paper primarily focuses on credit risk arising out of loan transactions, banks may also incur contingent and direct credit risk by issuing L/Cs, and by entering into derivative and/or Joseph Hill foreign exchange transactions, and cash management services. Such risks should not be overlooked when implementing a credit risk rating system.

What are the regulatory requirements?

For banks not in the “large bank” category, regulators do not impose specific requirements for rating commercial credit transactions. The regulators do require that banks assign categories of special mention, substandard, doubtful and loss to transactions where appropriate (see

on page 21). It is the universal practice of banks to incorporate these categories and definitions into a credit risk rating system. In doing so, banks usually also incorporate the regulatory definitions for these categories. There is no obligation to use those definitions but if a bank opts to use different criteria, then it must indicate what the regulatory equivalent is to each of these criticized grades.

Why do we need a credit risk rating system?

The bank’s credit policy, as approved by the board of directors, provides direction as to the bank’s appetite for credit risk. The bank needs management tools that will permit it to ensure that it is in compliance with bank policy. The credit risk rating system provides a means of both documenting the bank’s policy and measuring and monitoring compliance with that policy on an ongoing basis.

Most banks also use the data held in the credit risk rating system as a core input for calculating the loan loss reserves.

There is no standard risk rating model.

Each bank should use a system designed to meet its needs. It is in recognition of this that the regulators are not more specific in their requirements. The most im-

portant consideration is the level of detail which is outlined in the model. The model should have a sufficient number of grades to provide useful information while not being so detailed that it becomes administratively burdensome.

The number of grade levels will primarily depend on the breadth of the spectrum of risk embedded in the portfolio, and where within that range it lies both in dollar terms and in terms of number of transactions and/or clients.

Many banks adopt a 9-grade scale.

The top two grades are usually reserved for cash collateralized transactions and claims on the Federal Government, and transactions secured by marketable financial instruments, Federally guaranteed portions of SBA loans, and loans to investment grade entities etc, respectively.

Grades 3-5 will usually house the bulk of the bank’s portfolio, split into low, medium and high risk transactions. Finally, in grades 6-9 the bank will incorporate the 4 criticized categories as defined by the regulators.

A bank may employ a Watch List regime as the means of enhanced monitorcontinued on next page

Spring 2015 New Jersey Banker

19

COVER continued from page 19 ing of transactions. The Watch category is sometimes included as a separate grade in the system. Some banks append a “W” or other modifier to an existing grade. As a further refinement a bank may split the rating on loans where part is secured or guaranteed and part is not, for example, where loans are partially cash collateralized or partially guaranteed (as in SBA loans). Some banks distinguish between the borrower risk and transaction risk by rating them separately. In assigning credit ratings, banks should take into account business groups, affiliates and guarantors.

Especially where two borrowers depend on the same source of cash flow for debt service, it makes sense for those borrowers to share the same rating unless there are cogent reasons for rating them differently.

Loan grades should be clearly spelled out in the bank’s manuals. Where possible, specific objective criteria, such as ratios, collateral, etcetera should be in-

corporated. Banks may usually adopt separate definitions for different types of businesses at each grade. Some banks use a matrix approach, where the different risk criteria (DSCR, LTV, quality of management, etc.) are separately scored. The rating is obtained as an average of those scores, weighted according to the importance the bank assigns to each of the criteria. Such banks adopt several matrices to cover different kinds of loan product.

These systems help bring consistency to the rating system’s application. It is, however, recommended that banks make it possible to override such systems should the need arise, since no system can cater to all possible combinations of circumstances.

USES OF THE CREDIT RISK RATING SYSTEM The system’s primary use is to measure and manage the risk contained in individual credit transactions. When all transac-

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tions have been rated, the bank can then consolidate the ratings and obtain a risk profile of the portfolio as a whole. Updating the profile periodically, the bank can analyze change in each risk category over time, and, through this migration analysis, identify the trend in risk in different parts of the portfolio. Using the system together with loan types, industry, geographical data and other information, management may be able to isolate trends affecting more specific areas of the portfolio.

While trends may reflect changes in the economic environment, they can also vary with changes in bank lending strategy. Changes can also occur for less obvious reasons, such as the not necessarily intentional tendency towards higher risk when lenders chase yield in an overly liquid market. Analysis of changes in the portfolio risk profile helps management to identify and understand these trends.

Rating systems can also be used in a proactive fashion to project the effect on the bank’s portfolio risk profile of purchasing a portfolio of loans or incorporating a large new lending relationship.

System data has other uses outside portfolio risk management. Banks use credit risk rating system data to calculate reserves. While a detailed discussion of FAS5 is outside the scope of this paper, it will be evident that the bank’s ability to segment its portfolio according to risk plays an important part in making reserve calculations. The bank can also use the rating system as an input in the process of pricing transactions. The bank can calculate the weighted average pricing for each grade, and can then use that as a reference point for pricing future transactions that fall into that risk grade. Such analysis can, of course, incorporate other portfolio data (loan types etc). The bank can thus make sure that pricing is consistent and that the bank is receiving an adequate return on the risk being incurred. Yet more uses can be found for the system and its data, depending on the needs of the bank concerned, such as helping to determine at what level in the bank transactions may be approved, and determining loan conditions, such as amount, repayment

Spring 2015

terms, frequency and quality of required financial information, frequency of review and covenant requirements.

PROCEDURES While each bank has its own process for assigning credit ratings, it is common for ratings to be assigned before or during the decision making process as to whether to lend. If the bank does otherwise, much of the utility of the system will be lost. In some banks, the credit department rates the loans to ensure independence of the processes. While the purpose is a valid one, it lessens the sense of ownership that the account executive has for the loan and relationship. It is perhaps preferable to have both credit department and account executive assign ratings to the loan, with the final decision on the rating being left to the approving authority.

For the system to retain its value as a management tool, credit ratings must be reassessed from time to time and, where necessary, updated. Most banks reassess ratings at least once a year. The process will normally include a re-examination of all of the criteria the bank used in the original assignment of the ratings. Some banks subject those transactions with higher risk volatility to more frequent reassessment. Normally, an upgrade in rating will require an approval at a level at least equal to that at which the rating was originally assigned. Decisions to downgrade transactions within the Pass segment of the portfolio are sometimes permitted at a lower level of seniority. On occasion it may be appropriate to make a change to a rating at a time other than when the periodic reassessment is due. In such cases it is recommended that care be taken to document on the credit file both the decision and the reasons for taking it.

LOAN REVIEW It is essential that ratings under the credit risk rating system be assigned consistently and in a timely fashion. To the extent that they are not, the utility of the system can be greatly diminished. A primary purpose of loan review is to ensure that the bank is properly measuring,

managing and reporting the risk embedded in the loan portfolio. An objective of the loan review function is to validate the ratings assigned. Loan review must determine whether transactions are being rated in accordance with bank policy and procedures.

The party performing the loan review must enjoy a high level of credibility based on technical know-how and experience. While it is beyond the scope of this paper to present the arguments in favor of independent loan review, the advantages of engaging, experienced and skilled personnel will be self evident: it means access to a team fully versed in best practices and with knowledge of the expectations of regulators based on observation at a large number of small and mid-sized financial institutions.

SOME PITFALLS If a credit risk rating system is properly designed and implemented, the bank will reach a point where considerable reliance is placed on the system in making credit, portfolio management and related business decisions. There is a natural tendency among lenders to lean to the upside in assigning ratings, while the credit department may lean in the other direction. Both tendencies should be strongly resisted, since they can distort the basic data on which the bank depends in making such decisions. On the one hand, it may lead to insufficient return for the risk. On the other, an overly conservative rating may lead to the bank losing business by pricing itself out of the market. Grading inaccuracies may also occur where provisional grades are assigned, as in the case of newly acquired loan portfolios. Assigning a provisional grade may be unavoidable. In such cases it is strongly recommended that the bank prioritize rating transactions in accordance with the bank’s system in order to restore the system’s integrity.

If a bank’s system has an appropriate number of grade levels, the problem can arise where, in practice, 70 to 80 percent of the bank’s business gets assigned to a single grade. This kind of concentration

reduces the usefulness of the system since analysis of migration no longer yields usable information. Assuming there is some level of diversification in the portfolio, when this happens, it is time to review and adjust the grade definitions. Merely having the requisite number of grades at the bank’s disposal is not sufficient if the grading system does not give rise to some segmentation of the portfolio.

CONCLUSION Today’s regulator is concerned about banks’ ability to manage the risks that are inherent in the banking business. Credit risk is one of those risks. The most widely used tool to manage it is the credit risk rating system. While regulators leave banks considerable latitude to determine their own type of credit risk management system, the bank that does not make effective use of one (for example, a bank which employs a single pass grade) will find it difficult to persuade its regulator as to the adequacy of its analysis. On the positive side, adoption of an effective credit risk rating system opens up significant opportunities to improve credit, portfolio management, and related decision-making with consequent improvements in safety, soundness, and profitability.

■ Joseph J. Hill is founder and chairman/ president and CEO of CEIS Review Inc. He can be reached at jjhill@ceisreview.com or (212) 967-7380. For additional information about CEIS Review, visit www.ceisreview.com.

ADDITIONAL RESOURCES Federal Reserve Commercial Bank Examination Manual Available at www.federalreserve.gov/ boarddocs/supmanual/cbem/cbem.pdf OCC “Rating Credit Risk” is a separate OCC Controller’s Handbook section. The latest version was issued in April 2001 and is available at www.occ.gov/publications/ publications-by-type/comptrollers-handbook/rcr.pdf.

Spring 2015 New Jersey Banker

21

Feature

For Mutuals, Help is on the Way

By Michael P. Affuso, Esq. any mutual holding company that would otherwise qualify as a small bank holding company, if it were one.

W

ith regulatory burdens, long foreclosure processes and an unfriendly media, banks face challenges. Mutual banks face additional challenges.

NJBankers and a group of other state banking associations are poised for action. In concert, we are looking at many legislative and regulatory options.

In order to creMichael P. Affuso ate similar charter Executive Vice President/ Director of Government Relations choice options as NJBankers stock institutions we are proposing a national mutual charter.

Some provisions could: • Authorize the comptroller of the currency to charter mutual national banks either de novo or through conversion of an insured depository institution or insured credit union, in order to establish mutual institutions operating in non-stock form for the deposit of funds, the extension of credit, and other services.

• Prescribe procedures for voluntary conversion of a mutual depository to a mutual national bank, a mutual national bank to a stock national bank, or a mutual national bank to a state national bank operating in stock form.

• Prescribe procedures for a mutual national bank to reorganize as a federal mutual bank holding company, and a mutual bank holding company organized under state law to convert to a federal mutual

22 New Jersey Banker

bank holding company.

• Subject a federal mutual bank holding company to Federal Reserve Board regulation and supervision.

• Prescribe procedures for a federal mutual bank holding company governing capital improvement, and insolvency and liquidation.

• Permit a mutual holding company, including any form of mutual depository holding company under state law, to convert to federal mutual bank holding company status.

To allow mutual banks to raise capital on a more level playing field with stock banks, the group is considering capital changes.

These provisions could: • Authorize a mutual depository to issue mutual capital certificates that qualify as common equity Tier 1 capital for purposes of capital requirements mandated by federal law or regulation.

• Define “mutual capital certificate” as a financial instrument issued by a mutual depository that entitles the holder to a payment of fixed, variable, or participating dividends but no voting or member rights, nor is it redeemable until five years after issuance.

• Permit a mutual national bank to retain capital at the holding company level in order to comply with the capital requirements of the board of governors of the Federal Reserve system.

• Require the board of governors of the Federal Reserve to apply its small bank holding company policy statement to

In order to protect the community focus of mutual boards of the proposal would provide takeover protections and injunctive relief, such as: • Prohibiting any company or subsidiary, or any director, officer, employee, or person with voting power or holding proxies representing more than 25 percent of the voting shares of such company or subsidiary, from holding, soliciting, or exercising any proxies in respect of a mutual savings association with the intention to control the association.

• Allowing an aggrieved association to bring a civil action to prevent such takeover attempts.

Other provisions the group is seeking will: • Prescribe conditions under which a mutual holding company or its stock subsidiary may contribute stock to a charitable foundation either the company or the stock subsidiary establishes.

• Prescribe conditions under which a mutual holding company or its stock subsidiary may waive the right to receive any dividend declared by one of its subsidiaries.

• Grant a tax liable depositor in a savings, demand or other authorized depository account in a depository institution subsidiary the same rights regarding the federal mutual bank holding company as that depositor would have had if the depository institution subsidiary had been a mutual national bank.

While many of these provisions will pose a legislative, regulatory and political challenge to enact, NJBankers is prepared to use as much political capital as necessary to improve the possibilities.

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

Spring 2015

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Feature

New Jersey Bankers Education Foundation Provides Support to Veteran Causes

Since 2010, the foundation has contributed over $37,000 to the Rutgers Office of Veterans Affairs to assist veteran students facing temporary financial difficulties (auto repairs, reduction in employment hours, etc.) impacting their ability to continue with their education. Pictured are foundation trustees and Steven Abel, director, and Robert Bright, assistant director, Office of Veteran Services, Rutgers University.

I Through an initial grant by Grand Bank to Rider University, a seven-week, boot-camp style entrepreneurship program for active service members and veterans was successfully kicked off in the summer of 2014. The bank has made another contribution for the summer of 2015 program and the foundation has contributed to this initiative. Pictured are foundation trustees and Dr. Ronald Cook, professor, Department of Management, Rider University.

Support of Operation First Response was suggested to the foundation by Ocean City Home Bank; the organization provides services to active duty and disabled veterans, service members and their families. Foundation funds will be dedicated to provide academic and personal coaching tutoring services for the service members and their dependents with a New Jersey connection. Pictured are foundation trustees and Nick Constantino, a senior adviser of the organization.

24 New Jersey Banker

n January, the New Jersey Bankers Education Foundation Trustees presented checks to three New Jersey universities that support active and veteran service members and an organization that supports wounded/disabled veterans and their families with their personal and financial needs.

The foundation is managed by Chairman Robert E. Stillwell (Boiling Springs Savings Bank); and trustees Samuel J. Damiano (former N.J. League president), Paul E. Fitzgerald (First Bank), Thomas J. Holt (Bank of America), Stewart E. McClure Jr. ( Lakeland Bank), John E. McWeeney Jr. (NJBankers), James M. Meredith (NJBankers), Gerald L. Reeves (Sturdy Savings Bank), James R. Silkensen (former N.J. League president and former NJBankers president and CEO), Angela Snyder (Fulton Bank of New Jersey) and James S. Vaccaro (Manasquan Savings Bank).

The New Jersey Bankers Education Foundation has been able to distribute over $116,000 in support of veteran and dependent education programs since its inception because of the generosity of NJBankers members. If you are interested in providing support, checks can be made payable to the New Jersey Bankers Education Foundation and mailed to the NJBankers office at 411 North Avenue East, Cranford, NJ 07016. The foundation is a 501(c)(3) organization and contributions are tax deductible.

Please contact Jim Meredith at (908) 272-8500, ext. 614, or jmeredith@njbankers.com for more information. â–

Spring 2015

Feature

New Jersey Bankers Association Releases 2015 Economic Survey

T

he New Jersey Bankers Association, in conjunction with the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, released the results of the fifth annual NJBankers Economic Survey of Bank CEOs. The survey inquired about national and state current economic assessments, as well as six-month projections; expectations about long-term and short-term interest rates; commercial real estate and business loan demand; and residential loan demand. The survey also explored changing demographics with a focus on the Millennial generation.

The survey was conducted by the Bloustein Center for Survey Research (BCSR) under the direction of James W. Hughes, Ph.D., distinguished professor and dean, Edward J. Bloustein School of Planning and Public Policy, Rutgers University; Marc D. Weiner, J.D., Ph.D., associate research professor and associate director, BCSR; and Orin Puniello, M.P.P., assistant director, research, BCSR. The survey sampled all 108 member institutions of the New Jersey Bankers Association. Of the 108 banks in the panel, 84 completed the survey questionnaire for an overall response rate of 77.8 percent.

Highlights of the survey include: • The 2015 survey respondents recognized sustained improvements in the health of the nation’s economy, with the overwhelming consensus that it was “fair to good.” In New Jersey, the survey responses were more muted. While the overall ratings generally improved over the past two surveys, the more positive rating (“good”) lagged significantly behind that of the nation.

• The basic expectation for the next six months is for long-term interest rates to “remain the same.” While the basic expectation for short-term interest rates is also to “remain the same,” an increasing number of respondents – compared to past surveys – expect them to “go up.”

• Business loan demand, in general, is continuing to improve.

While a majority of those surveyed still rated demand only as “fair,” it was barely a majority. The “good” and “excellent” ratings continued to grow. Ratings for business loan demand for the next six months also improved in general, but a strong majority of respondents still expect demand to “remain unchanged.”

• A somewhat more negative assessment of residential loan demand emerged compared to last year’s survey, although the majority of respondents still rated it “fair” and “good.” The expectation that improvement in demand would occur in the next six months diminished; the overwhelming expectation was that it would “remain unchanged.”

• Assessments of current commercial real estate loan demand also showed improvement; for the first time, the highest pro-

portion of responses fell in the “good” category. From, this higher level, the prevailing expectation for commercial real estate loan demand six months from now is to “remain the same.”

• Multi-family rental housing was rated last year as the strongest commercial real estate submarket. A significant share, but not yet a majority, of respondents “strongly agreed” or “somewhat agreed” this year that the current multi-family rental commercial real estate market is now a bubble.

• The sharply growing concern for consumer lending was interest rate risk; lack of demand is the second concern, while regulatory concerns diminished significantly. Lack of qualified borrowers supplanted lack of demand as the most significant obstacle to business lending.

• The Millennial generation is high on bankers’ radar screens.

Virtually all respondents foresee a need to change business practices because of this generation’s needs.

“The 2015 survey was taken during the fifth year of national economic expansion, when very high levels of employment growth had been in place for four years,” survey director Hughes said.

“There was a distinct sense by the survey respondents that the national economy had firmly settled into a new post-recession normal: a sustainable positive trajectory. However, consistent with soft state employment metrics, they felt that full-economic lift-off had not yet taken place in New Jersey. Nonetheless, cautious optimism prevailed.”

According to Weiner, the study was “comported with all best practices of methodologically rigorous survey research.” “It achieved just under a 78 percent response rate, with responses geographically well distributed across the state. In addition, 71 percent of responding institutions also participated last year, helping to build a stable time-series data set on these important banking and financial metrics. As a result, the survey validly and reliably captured a continuing representative snapshot in an on-going analysis of the attitudes, interests and assessments of NJBankers’ membership.”

“The 2015 survey responses reflect that demand continues to improve for lending to businesses and for commercial real estate but demand for consumer, residential and multifamily lending continues to reflect caution on the part of borrowers,” said John E. McWeeney Jr., president/CEO of NJBankers.

From the survey results, clearly, New Jersey bankers are eager to lend to the members of the communities they serve.

■ For copies of the survey, contact Emily DeMasi, vice president and director of communications, NJBankers, at edemasi@njbankers.com.

Spring 2015 New Jersey Banker

25

Feature

SCORE Offers Complimentary Business Review to NJBankers Member Clients

S

CORE, the preeminent business source for small business, is proud to offer member clients of NJBankers a complimentary assessment of their business in order to provide the business owner with an independent, objective evaluation. This can help your clients to better succeed in a challenging New Jersey business market.

“SCORE NJ is pleased to align with NJBankers to provide members’ small business clients a complimentary assessment of their business by a team of our highly skilled business professionals, who come from all industries and technical backgrounds,” said Patrick Cozza, a business counselor at the Morris SCORE Chapter, one of seven chapters in New Jersey. “SCORE’s job is to add value to the small business by counseling them on improving their value proposition to their customers, through fundamental business management, thereby making

26 New Jersey Banker

their business more successful. SCORE counselors meet with the business owner at their place of choosing and first spend a great deal of time listening to them to better understand their business challenges. Counselors are then in a position to provide the business owner with all types of helpful tools from our website and certainly our years of business acumen forged through our individual success. The relationship with the business owner can last as long as they’d like.”

SCORE is a nonprofit association formed in 1964 as a resource partner of the Small Business Administration whose mission is to help aspiring and existing businesses to succeed. There are over 13,000 volunteers nationwide experienced in all business types ready and willing to offer mentoring to small businesses. With SCORE, a small business can get advice on business questions, stay abreast of business trends, learn new

strategies from small business experts, leverage online expertise and tools to help the business showcase its expertise and share its success with others.

Here is just one example of how SCORE is helping New Jersey small business owners today, as represented by a client through the Morris Chapter: A successful New Jersey specialty bakery was looking for direction on distribution expansion, cost management and ultimately, improved profitability.

They met with a team of SCORE counselors who partnered with the owners over many months to refine the business plan by developing a successful store front retail expansion strategy with new locations and a greater e-commerce presence, thereby increasing revenues.

SCORE also advised consolidating the main store as a manufacturing hub and as a result helped to reduce duplicating costs in the business, ultimately result-

Spring 2015

ing in increased profits. The business has now doubled its retail points, better focused its business on the most profitable product items and is now better positioned for the future. SCORE continues to act as an advisor to this business.

SCORE provides individual client

mentoring on a continuous basis from its expert mentors. Information and educational seminars and workshops, roundtables and business advisory meetings are available to small business owners, whether they are just starting out, or have an already successful busi-

ness looking to improve business success. SCORE is with the small business owner every step of the way, leading to a successful, sustainable business. To arrange a complimentary business review for your clients, please contact SCORE at www.northwestnj.score.org.

■

MEET PATRICK COZZA, NJ SCORE ADVISOR

Patrick Cozza

Patrick Cozza is currently a business counselor for SCORE. He previously served senior executive roles in the banking and financial services industry, most recently as CEO and North America head of insurance and senior executive vice president of wealth management for HSBC, where he spent 28 years, the last 14 of which leading financial services businesses.

He is currently on the board of directors for both nonprofit and private companies, and is a senior advisor to two consulting firms, Westmont and Guidepoint Global. He is on the board of advisors at the Silberman School of Business at Fairleigh Dickenson University, where he is also an adjunct professor. He is also affiliated with the Stillman School of Business at Seton Hall University. He received his bachelor’s degree from Seton Hall University and MBA from Fairleigh Dickenson University.

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Spring 2015 New Jersey Banker

27

Feature

Succession Planning: Is Your Organization Prepared?

By Dana Muth

L

et’s face it; we all want good exams.

Seasoned bankers know that there are hot buttons each year. In our travels, we sometimes see the same finding from bank to bank depending on the year.

Whether it’s the Bank Secrecy Act, GLBA or asset-liability management, bankers do their best to anticipate what’s coming down the road.

This year is no Dana Muth different, and one of the hot buttons is something we all think about but hesitate to formalize: succession planning. This is a common finding in state exams this year: “Management has not developed a formal succession plan to address the key management positions in the event of a sudden vacancy. It is acknowledged that the Strategic

28 New Jersey Banker

Plan does highlight succession planning as one of the goals; however, management has not yet begun to formalize a plan. The succession plan should address each position and the necessary steps and requirements to fill those position duties on a short and long-term basis.”

Now, I know what you’re thinking. Why is there a need to formalize a succession plan?

We all know who is next in line, right?

Too often we only think of succession planning in terms of who will take over for the CEO. But as we all know, many key positions could leave the bank vulnerable if someone were to move along. IT professionals are a classic example because they often have marketable skills that are sought outside of banking. What do you do if your top IT person resigns? Do you react, or are you prepared? What happens if the entire IT staff goes? It’s happened.

So instead of putting it off, let’s look at succession planning as an opportunity to build a stronger financial institution. A for-

malized succession plan will help ascertain performance and technical skills, as well as leadership potential. What is leadership potential? It’s a mixture of technical skills and cognitive abilities, coupled with emotional intelligence, or the “it factor” as some like to call it. Some have “it” and others don’t.

Traditionally, bankers who move up the food chain and emerge to executive leadership roles have the technical skills and ability to meet performance objectives. Just look around your organization. Many of the executive leaders were previously great producers, right? Many probably came from the commercial line of business and know credit better than anyone around. They manage risk, credit quality and net interest margins better than anyone. Do those technical skills equate to the leadership competence needed to navigate, lead and execute the bank’s strategy in today’s complex environment? Not necessarily. Imagine, however, if those technical skills and performance abilities were coupled with

Spring 2015

leadership competence and a high degree of emotional intelligence.

If you really want to execute the strategic plan that you’re already heavily invested in, you’ll need a formalized, well-constructed succession plan to help you identify those qualities in your next generation of leadership.

Moreover, a detailed plan will help you objectively recognize successors and their readiness to take on the identified role. It will help you objectively look inside as well as outside the organization. And it will address competency gaps through development plans so that your leaders are ready when you need them to be.

An effective, formalized succession planning process will conquer this very issue by creating a solid development plan for your identified high-potential successors. Moreover, a formalized process can help you identify the dead weight.

It’s often surprising to me how many disaster recovery issues are uncovered the first time a bank performs tabletop testing. What might appear to be a perfunctory exercise can instead become an eye-opening, helpful experience when deftly facilitated. This exercise is not unlike good succession planning. The results can sometimes be startling, and can even help retain the good people you want to keep.

When engaging in succession planning, you should involve managers in all parts of the organization so they can continually identify gaps in talent and focus on developing the talent into high performers. This will ensure that people with the best skills are moving into the right jobs at the necessary times.

It’s often difficult for managers to see themselves the way their subordinates see them. Are managers sending the message to the high-performing subordinates that they are regarded in the organization? A formalized succession plan helps managers communicate that message.

Good succession planning is not a onetime shot; it’s an ongoing process that should be revisited from time to time. The best time to start is before the examiners make your bank’s next finding.

■ Dana R. Muth, MSODA, is a senior executive consultant with S.R. Snodgrass. She can be reached at dmuth@srsnodgrass.com or (724) 934-0344 ext. 166.

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Spring 2015 New Jersey Banker

29

Bank Notes

Karen Uhland

E. Thomas Allen Jr.

Dennis E. Gibney

Lois A. Seitz

CENTURY SAVINGS BANK

FEDERAL RESERVE BANK OF PHILADELPHIA

Karen Uhland joined Century Savings Bank as vice president and director of operations. Uhland joins Century as a 37-year veteran of the banking industry and will be based at the bank’s Upper Deerfield office. As the new director of operations, she is responsible for the day-to-day oversight of operational activities within the bank including electronic banking and deposit services. Uhland will manage the development and implementation of the bank’s procedural policies and technological competitiveness, and will partner with the other departments in achieving strategic goals and initiatives. She has been actively involved in numerous community-based organizations.

The board of directors of the Federal Reserve Bank of Philadelphia announced that Patrick T. Harker, currently president of the University of Delaware and a member of the Philadelphia Fed’s board of directors, has been named the 11th president and chief executive officer of the Philadelphia Fed, effective July 1, 2015. The appointment was jointly approved by eligible directors of the Philadelphia Fed’s board of directors and the Board of Governors of the Federal Reserve System in Washington, D.C. As president of the Philadelphia Fed, Harker will participate on the Federal Open Market Committee in the formulation of U.S. monetary policy and will oversee the 900 employees at the Philadelphia Fed. Harker, who has served as a Class B director of the Philadelphia Fed for the past three years, will succeed Charles I. Plosser, who retired effective March 1, 2015. In addition to serving as president of the University of Delaware, Harker is also a professor of business administration in the university’s Alfred Lerner College of Business and Economics and a professor of civil and environmental engineering in the university’s College of Engineering. Harker has a Ph.D. in civil and urban engineering, a master’s degree in economics, and an M.S.E. and B.S.E. in civil engineering from the University of Pennsylvania.

COLUMBIA BANK E. Thomas Allen Jr. has been appointed senior executive vice president and chief operating officer at Columbia Bank. Allen replaces Alex Grinewicz, who retired in early 2015 following a 41-year banking career. He joined Columbia Bank in 1994 as a financial planning and analysis manager and later served as treasurer; as vice president and treasurer, and as senior vice president and treasurer. He was appointed executive vice president and chief financial officer in 2002. Allen earned an undergraduate degree in finance and banking from the University of Missouri and an M.B.A. in financial management from Pace University. Dennis E. Gibney has been appointed executive vice president and chief financial officer. In his new position, Gibney manages the bank’s accounting and treasury departments. Gibney graduated magna cum laude from Babson College with a triple major in finance, investments and economics. He earned his Chartered Financial Analyst (CFA) designation in 2003.

30 New Jersey Banker

FRANKLIN BANK Lois A. Seitz has been appointed vice president and chief credit administrator. Seitz’s main responsibilities will be to manage the lending operations of the business banking department. Seitz brings over 13 years of experience in the banking industry, where she has held the titles of commercial lending officer and chief credit officer in the South Jersey market area. She earned a degree in business administration from Salem Community College, graduating with honors. Richard (Rick)

Richard W. Dapp

John J. Bailey

W. Dapp has been named vice president and chief commercial lending officer. He will develop commercial business for the bank and oversee the operations of the business banking department. Dapp brings over 25 years of experience as a commercial lender in the South Jersey market area. He earned his M.B.A. in finance management from Rowan University.

INVESTORS BANK Sean Burke has joined Investors Bank as CFO. Burke has 15 years of experience in investment banking, most recently working as managing director and head of U.S. depository institutions for RBC Capital Markets. In addition, Tom Splaine has been named senior vice president of financial planning and analysis and investor relations.

MANASQUAN SAVINGS BANK Manasquan Savings Bank announced that Bruce M. Oswald has joined the bank as senior vice president and chief retail officer. With over 35 years of experience in the financial sector, Oswald brings an established record of successes to Manasquan Savings Bank. In this newly created role, Oswald will help lead Manasquan Savings Bank’s transition into the future.

MILLINGTON SAVINGS BANK Millington Savings Bank announced the appointment of John J. Bailey as senior vice president and chief lending officer. Prior to joining the bank, Bailey served as a senior vice president of credit administration.

NORTHFIELD BANK Northfield Bank promoted Judy Calabrese to senior vice president and director of human resources. Calabrese joined Northfield Bank in April 2011 as assistant director of human resources and was promoted to vice president in 2012.

Spring 2015

Judy Calabrese

Detlef Felschow

NVE BANK

Janet Decker

Joseph Lomoriello

Vasili Ziangos

Vasili Ziangos has been appointed to residential loan officer at NVE Bank. Ziangos has over 10 years of residential lending experience, most recently serving as a mortgage consultant and sales manager at Mortgage World Bankers in Astoria, N.Y. He received his bachelor’s degree in business administration from Northeastern University.

commercial real estate and commercial and industrial lending as well as business development. Joseph Lomoriello has been promoted to first vice president and commercial lending officer. Lomoriello has a skilled background in the finance industry which includes commercial lending, relationship management, credit expertise and business development.

ROSELLE SAVINGS BANK

UNITY BANK

Roselle Savings Bank announced the appointment of Detlef Felschow as executive vice president and chief operating officer.

Prior to joining the Bank, Felschow served as senior vice president and chief operating officer of Hilltop Community Bank. He had previously served as senior vice president, retail banking at The Ramapo Bank from 1994 to 1999.

Stan W. Hall has been named vice president and commercial loan officer at Unity Bank. He has more than 30 years of local

Stan W. Hall

Larisa Perry

commercial lending and business development experience. Hall is a graduate of Villanova University.

WELLS FARGO Wells Fargo & Company has named Larisa Perry the lead region president for the Northeast, which serves customers in New York, New Jersey and Connecticut and provides financial solutions to individuals and small businesses. A community leader throughout her career, Perry will be joining the board of directors of Junior Achievement of New Jersey. ■

RSI BANK RSI Bank announced the addition of Gordon M. Ur, CPA, to its commercial lending team. Ur will serve in the capacity of senior vice president of commercial lending.

He brings extensive industry experience, as well as a strong familiarity with the local markets. As head of the commercial lending department, Ur will be the senior contact for local business that are looking for commercial lending services.

SUSSEX BANK Janet Decker has been promoted from vice president to first vice president of the commercial lending department. Prior to joining Sussex Bank, Decker was a vice president and commercial lender with Atlantic Stewardship Bank for four years and assistant vice president and commercial lender with Commerce Bank for 13 years.

She has vast knowledge in the finance industry, including lending expertise in both

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Spring 2015 New Jersey Banker

31

Bank Shots

Vineland Housing Authority, Vineland Housing Development Corp. (a subsidiary of VHA) and Capital Bank of New Jersey held a joint groundbreaking at the site of the new Melrose Court affordable housing development. Pictured, from left: Dave Hanrahan, Harry Hearing, Dominic Romano, Denise Zemanik, Mario Ruiz-Mesa, Robert D’Orazio, Jacqueline Jones, Carmen Nydia-Diaz, Brian Asselta, Elizabeth Gordon, Chris Chapman and Steve Modzelewski.

Unity Bank has partnered with Super Aging NJ to provide seniors in Hunterdon, Somerset and Warren counties with a wealth of information for successful aging through a new hyper-local website and its radio show, Super Aging Today. The website and radio show, which cater to the interests of the 50-plus population, are available at SuperAgingNJ.com.

32 New Jersey Banker

Spencer Savings Bank continued its annual toy drive to benefit several local nonprofit organizations. Spencer Savings Bank had been collecting toys at each of its 19 branches as well as its headquarters. The toys were donated to Eva’s Village (Paterson), the New Jersey Community Development Corporation (Paterson), and the Children’s Specialized Hospital (Mountainside).

Century Savings Bank donated items to the Bridgeton Code Blue program. Members of the Century Savings Bank staff donated an array of personal care items, such as socks, gloves and hats, in an effort to provide basic necessities for the area’s “un-housed” population. The Code Blue program is a partnership involving the city of Bridgeton, community volunteers and several area churches to provide temporary shelter in designated “warming centers” when temperatures outside drop. The items were accepted by Dr. Rob Weinstein, pastor of the Bethany Grace Church and co-founder of the Bridgeton Code Blue Program. Bethany also serves as one of the warming centers. In addition to employee contributions, the bank donated self-activating heater meals, toiletry kits and travel backpacks, which will be distributed via the center.

Spring 2015

NVE Bank raised over $4,000 to assist Englewood Hospital and Medical Center’s fight against breast cancer. The Englewood based community mutual bank served as a sponsor for the hospital’s 16th Annual “Walk for Awareness.”

Atlantic Stewardship Bank President and CEO Paul Van Ostenbridge congratulates Diane Ingrassia, who retired after 13 years of service to the bank. During her tenure at the bank, Ingrassia served as branch manager of the Ridgewood and Hawthorne offices, regional branch manager, and most recently as vice president. Spending her entire career in the banking industry, Ingrassia acquired more than 40 years of banking experience.

Magyar Bank partnered with Rutgers and the Franklin Township Food Bank. Cheerleaders from Rutgers, the Scarlet Knight Mascot and Frank Hasner, executive director of the food bank, came to Magyar Bank’s North Brunswick branch to promote the food drive. In total the branches collect 400 pounds of food. Pictured, from left: Magyar Bank employees John Reissner, vice president and marketing director; John Fitzgerald, president and CEO; Jay Castillo, senior vice president and chief retail officer; Victoria Gorman, vice president and branch manager; and Ken Bland, community relations specialist. From the Franklin Township Food Bank, Frank Hasner, executive director, and Nancy LaCorte, donor development and special events coordinator.

In the true spirit of supporting the local community, Roselle Savings Bank made a financial donation to the Occupational Center of Union County (OCUC). The OCUC helps individuals with disabilities develop life and work skills to become productive members of society. Pictured: Michele Ford (left), president and CEO, Occupational Center of Union County, receives the donation from Jill Schafhauser, president and CEO, Roselle Savings Bank.

The Provident Bank Foundation, which supports organizations that are dedicated to improving the lives of residents in the communities served by The Provident Bank, provided a $16,000 grant to Sacred Heart Foundation. Pictured from left: June Webre, vice president, Provident Bank; John Nespoli, president and chief executive officer, Sacred Heart Hospital; Jane Kurek, executive director, The Provident Bank Foundation; and Angela Long, vice president, nursing, surgical and emergency services, Sacred Heart Hospital

Spring 2015 New Jersey Banker

33

Bank Shots

Columbia Bank has donated a new electronic message sign to the Lyncrest Elementary School, part of the bank’s ongoing community support efforts. The new digital sign will be used to announce important messages, school activities and special events. Shown in front of the new message board are Thomas Kemly (right), president and CEO, Columbia Bank, and Maria Corso, principal, Lyncrest School. Also pictured, members of the school’s student government.

The Livingston Area Chamber of Commerce held its annual Breakfast with the Mayor. In his address to attendees, Livingston Mayor Michael Silverman repeatedly acknowledged the role Regal Bank plays in partnering with local business owners. Through local lending and investing, Regal Bank supports Livingston businesses that provide essential services and create much-needed jobs.

Pictured, from left: Christina Slater, vice president and regional manager, Regal Bank; Daniel Tower, executive vice president and CFO, Regal Bank; Livingston Mayor Michael Silverman; Monte Ehrenkranz, vice president of business development, Regal Bank, and president of the Livingston Area Chamber of Commerce; and Susan Specchio, assistant vice president and branch manager, Regal Bank.

Manasquan Savings Bank brought community businesses and organizations together for its first quarterly meeting of 2015. The breakfast event was a chance for community members to learn more about the bank’s philosophy for the future and to interact with James S. Vaccaro, president and CEO. From left: William Salcedo, Big Brothers Big Sisters; Marybeth Bull, Big Brothers Big Sisters; Catherine Franzoni, CFO, Manasquan Savings Bank; and Vaccaro.

34 New Jersey Banker

The OritaniBank Charitable Foundation recently granted $50,000 to the Adopt-a-Soldier Platoon (AaSP) Inc., a grassroots nonprofit organization located in Fair Lawn, whose mission is to improve the morale of our troops and their families. AaSP has impacted tens of thousands of American Warriors through an all-volunteer “federation” of core supporters. Pictured, Alan Krutchkoff, president of AaSP, accepts a contribution to the Adopt-a-Soldier Platoon from Kevin Lynch, president of OritaniBank Charitable Foundation.

Spring 2015

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