NEW
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WIN T ER 2 0 1 5
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Philadelphia Fed Chief Looks Back on His Term President Plosser to Retire | Cybersecurity Update | New Leaders in Banking 2014 ENDORSED BY THE NEW JERSEY BANKERS ASSOCIATION
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NEW
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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.
Winter 2015 New Jersey Banker
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Table of Contents
NEW
JERSEY B A N K E R
Departments
6 Chairman’s Platform Looking Forward to a Very Good Year 8 From the President’s Office Raising the Bar Again 9 10 40
Upcoming Events Politics & Policy Can’t Win for Losing New Associate Members
44 Bank Notes 46 Bank Shots
Page 20 Lifting the Veil on the Fed
Features
9
Warren Hill Award Porter Receives Warren Hill Award for Nearly Three Decades of Service
12
Directors’ Corner Leverage Board Diversity for Competitive Advantage
14
Behind the Teller Line Roselle Savings Bank Celebrates 125 Years of Service
4
New Jersey Banker
16
Feature The New Jersey Economy
24
BankHorizons 2014
26 34
New Leaders Feature Protecting Your Reputation, Brand, or Business Against Online Attacks
35
Feature Cyber Security is the Issue Affecting Everyone
37
Feature Reputation is the New Corporate Capital
41
Meet Our Endorsed Service Provider Managing Digital Signage with Zero-In
42
Feature Avoid Regulatory Criticism: ALM Assumptions Made Simple
Winter 2015
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Chairman’s Platform
Looking Forward to a Very Good Year By Gerald L. Reeves
W
elcome to the winter edition of New Jersey Banker. It’s hard to believe that 2015 is upon us. We’ve certainly experienced a year of changes and challenges – with more to come!
areas of the state continuing to see high unemployment rates. New Jersey’s banks are flush with deposits and liquidity levels are high. Loan demand is strong in certain sectors, but varies upon where you live or work in the state.
and families alike that have been severely affected by Superstorm Sandy have yet to reoccupy and rebuild due to financial challenges. Along with these challenges come banking opportunities.
“Tomorrow is the first blank page of a 365-page book. Write a good one.” Brad Paisley The New Jersey economic recovery will continue into 2015. New Jersey unemployment is improving, but there is more to do, with some
Gerald L. Reeves Chairman NJBankers President and CEO Sturdy Savings Bank
There are several factors which contribute to this uneven loan demand. For one, single-family home construction is still soft in New Jersey. In addition, there’s a clear trend of population movement to urban areas with multi-family rentals. We are also seeing businesses leave New Jersey due to our high taxes. Finally, businesses
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For example, 2015 will be a good year to fund multi-family projects. It will also be a good time to help small business owners with funding to upgrade and modernize facilities, and to support professional development and education for small business owners. If we are to succeed, we’ll also need to find and work on new channels for providing capital to start-up businesses. I also foresee forming partnerships with colleges and universities in New Jersey to help tailor pathways that will provide better trained employees and will help students understand business opportunities. Helping our state’s youth participate in these endeavors will go a long way to provide a better understanding of running and funding a business. Banks have long created financial literacy programs to better educate our youth. In the coming year, one of the most important financial lessons we can share is through first-time homebuyers programs. A better educated borrower will be good for the home buyer; for bankers; and a road leading to a healthier New Jersey economy. So I leave you with my wishes for a happy and prosperous New Year! And to quote Brad Paisley, “Tomorrow is the first blank page of a 365-page book. Write a good one.” ■
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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.
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From the President’s Office
Raising the Bar Again By John E. McWeeney, Jr.
A
fter joining NJBankers in the spring of 2007 following a 28year career in banking, I wrote a “From the President’s Office” column for the Winter 2008 edition of New Jersey Banker magazine entitled “Raising the Bar in 2008.” In the column, I wrote about all the things that the then-Legacy New Jersey Bankers Association had to do to truly become a John E. McWeeney, Jr. member-driven, President/Chief Executive Officer NJBankers value-added organization. I wrote about things such as introducing new education programs, improving the impact of our government relations efforts, strengthening communications and growing our membership base. I also made a plea to both our bank and associate members to get engaged, be-
In fact, we just completed perhaps the most successful year in NJBankers’ 111-year history with record levels of membership engagement and financial results. So where do we go from here? Well, it’s time to raise the bar again! Despite our recent success, our world and the banking industry are changing at lightning speed. These changes bring both challenges and opportunities to our members, and to NJBankers. Our choices are pretty clear; either embrace the change and move forward full speed ahead, or resist the change and become irrelevant. Not wanting NJBankers’ great legacy to falter on our watch, we vote for embracing the change and moving NJBankers forward. Over the summer, our management team conducted an off-sight, strategic planning session to identify areas where NJBankers needs to improve to better serve our members. I also conducted one-on-one meetings with every member of our
Our ability to raise the bar yet again will also require something else and that’s member engagement. cause it was their association and we needed their support to achieve our full potential. As I look back seven years later, together, we’ve accomplished all that we set out to do and then some. We’ve launched and maintained an exciting curriculum of education programs, taken our government relations efforts in both Trenton and Washington, DC to new levels, significantly strengthened our communications program and even grown our membership base.
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New Jersey Banker
staff to seek their input on how we can improve our efficiency and invest in their career at NJBankers. We shared our ideas with our officers and directors, and based upon our initial conversations, we’ve identified a number of initiatives: • Focus on building our political strength through greater banker engagement and a stronger political action committee. • Broaden charitable and community service initiatives in support of our
government relations efforts. • Develop more targeted and more comprehensive education programs for two key constituencies – emerging leaders and bank directors. • Offer more education surrounding two of the industry’s hottest issues, the new payments systems and cybersecurity. Also, develop an inhouse capability to assist members when a cybersecurity event occurs. • Assume a more proactive role in utilizing social media. • Explore enhanced technology capabilities in webcasting and video conferencing to make our education offerings more accessible. • Retool key communications vehicles like the weekly Bulletin. • Invest in staff through training and development. • Increase bank membership. • Improve associate member retention. • Build partnerships with neighboring state bankers associations to effectively serve a consolidating industry. Our efforts are underway at various stages with all of these initiatives. It will take time to implement them and of course, as we do so, we’ll continue doing all of the other things we do today to serve our members. Our ability to raise the bar yet again will also require something else and that’s member engagement. This is your association and working together we can raise the bar again and position NJBankers well for the future. In closing, on behalf of our officers, directors and staff, let me offer our best wishes for a prosperous New Year. Thank you for all of your support. It’s a pleasure and an honor to serve you. ■ John E. McWeeney, Jr., is president and CEO of the New Jersey Bankers Association, and can be reached at jmcweeney@ njbankers.com.
Winter 2015
Warren Hill Award
Porter Receives Warren Hill Award for Nearly Three Decades of Service
S
usan M. Porter was presented the Warren Hill Award at the 92nd Annual Senior Management Conference during the General Session. The Warren Hill Award was established in 1998 in honor of Warren Hill, the New Jersey League’s president from 1966 through 1975. The award is presented to a current or former committee member (bank member or associate member) who has demonstrated an overall commitment to meeting the mission of the committee, including providing assistance to NJBankers legislative and regulatory efforts and in developing educational content (seminars, articles, etc.) for the
membership. Other criteria considered are the member’s effectiveness in recruiting new members to the committee and his/her role in assisting staff in new member or associate member recruitment efforts. Committee members are encouraged to nominate colleagues for the award. Susan Mary Porter joined First Hope Bank in August 1985 to assist the president with his correspondence and administrative duties. Shortly thereafter she assumed responsibilities as secretary to the board of directors and shareholder relations. As First Hope developed more extensive programs for bank-wide training, as
well as its testing and interviewing processes for new associates, these were added to her existing responsibilities. In 1994, she was promoted to senior vice president and chief administrative officer for the bank, in addition to her existing responsibilities as corporate secretary for both First Hope Bank and First Hope Bancorp. Porter’s outstanding interpersonal skills and leadership capabilities prompted her assuming in 2002 through 2008 supervisory duties for information technology, data processing, and deposit operations. An active participant in state banking associations, in 1987 she became a member of the legacy NJBankers’ Human Resources Committee. She would hold various positions of responsibility, including chair of its annual Conference in Atlantic City. Since 2006, she has chaired the NJBankers HR Committee. Porter achieved certification in human resources management from the ABA National and Graduate Schools of Human Resources Management, as well as becoming a senior professional in human resources through the National Society of Human Resources Management. She retired from First Hope Bank after 29 years of devoted service to New Jersey banking. ■
Upcoming Events March 13, 2015
Directors & Managing Officers Conference Renaissance Woodbridge Hotel, Iselin March 23, 2015
ABA Government Relations Summit
Omni Shoreham, Washington, DC March 25, 2015
Compliance University Crowne Plaza Monroe, Monroe Township
April 20, 2015
Accounting and Tax Seminar with FMS-NY/NJ Stony Hill Inn, Hackensack April 22, 2015
Women in Banking Conference
The Palace at Somerset Park, Somerset April 27, 2015
Charity Golf Outing
May 27, 2015
111th Annual Conference
Omni Nashville Hotel, Nashville, TN September 9, 2015
Annual Senior Management Conference
Ocean Place Resort & Spa, Long Branch May 11 – May 15, 2016
112th Annual Conference
The Phoenician, Scottsdale, AZ
Mercer Oaks Golf Course, West Windsor
Winter 2015 New Jersey Banker
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Politics and Policy
Can’t Win for Losing By Michael P. Affuso, Esq.
O
n Tuesday, Nov. 4, 2014, Americans voted. Some chose the best candidates; some chose the best campaign. In a campaign, a candidate may say something positive, say something negative or not say anything at all. Nationally, the Republicans chose the second; Democrats chose the last. Democrats lost. Any message beats no message and with that, Michael P. Affuso Democrats are conExecutive Vice President/ Director of Government Relations signed to the miNJBankers nority status they last held to a degree that they suffered when booze was illegal. Furthermore, President Obama has the unenviable political record for most net seats lost by a president since Eisenhower. The real question is, “What does it all mean?” The American electorate is very closely divided; note the thin majority in the Senate, the wide majority in the House and the decent re-election majority of the president in 2012. It is now up to both parties to either govern or punt. If they choose to punt until 2016, and a Democrat (read Hillary Clinton) is elected, we may see continued gridlock for the foreseeable future, since even a Clinton landslide will not have enough coattails to pull in a Democratic House. On the other hand, a Republican could win (Jeb Bush, Chris Christie or John Kasich), but not run strongly enough in states with Republican senators who won in the 2010 shift; then the Senate shifts back to the Democrats. In short, these folks better figure out a way to work together, because there will be no clear liberal or conservative majority to muscle through legislation until at least 2022.
STATEWIDE RESULTS New Jersey voters went to the polls for federal seats, county and local races and two ballot questions.
10 New Jersey Banker
The voters selected, by a 56 percent to 42 percent margin, incumbent U.S. Senator Democrat and former Newark Mayor Cory Booker over Republican challenger Jeff Bell, who failed to garner significant name recognition in the race. At the Federal level, nine incumbent Congressmen defeated their respective challengers. Democrats and Republicans will again be equally split in the State’s Congressional delegation. Some of the key Congressional races included: First Congressional District (parts of Burlington, Camden and Gloucester counties): State Senator Democrat Donald Norcross defeated Republican and former NFL player Gary Cobb for the seat previously held by Rob Andrews, by a 57 percent to 40 percent vote. Second Congressional District (parts of Atlantic, Cape May, Cumberland, Salem, Burlington, Camden and Gloucester counties): incumbent Republican Congressman Frank LoBiondo defeated Democrat Bill Hughes Jr., an attorney and son of former Congressman Bill Hughes, by a 62 percent to 37 percent margin. LoBiondo sits on the House Armed Services Committee, House Transportation & Infrastructure Committee and House Permanent Select Committee on Intelligence. Third Congressional District (parts of Burlington and Ocean counties): Republican Tom MacArthur defeated Democrat Aimee Belgard for a seat being vacated by retiring two-term Congressman Jon Runyan, by a vote of 55 percent to 44 percent. MacArthur is the former mayor of Randolph (Morris County) and only recently moved to this district. Fifth Congressional District (parts of Bergen, Passaic, Sussex and all of Warren counties): Republican six-term incumbent Scott Garrett defeated Democratic challenger Roy Cho from Bergen County, by 56 percent to 43 percent. Garrett sits on the House Financial Services Committee and the House Budget Committee. Twelfth Congressional District (parts of Mercer, Middlesex, Somerset and Union
counties): Democratic Assemblywoman Bonnie Watson Coleman defeated the Republican challenger Alieta Eck, by a vote of 61 percent to 39 percent to serve in the seat being vacated by Democrat Rush Holt. Watson Coleman will be the first African-American congresswoman in New Jersey history. Other Congressional races included: Fourth Congressional District (parts of Mercer, Monmouth and Ocean counties): 16-term incumbent Chris Smith defeated Ruben Scolavino, a Democrat. Smith secured 69 percent of the vote to 30 percent for Scolavino. Smith serves as the chairman of the House Committee on Veterans’ Affairs. Sixth Congressional District (parts of Middlesex and Monmouth counties): 12term Democratic incumbent Frank Pallone Jr. defeated his Republican challenger Anthony Wilkinson, who received 37 percent of the vote to Pallone’s 62 percent. Pallone currently serves on the House Energy and Commerce Committee and the Subcommittee on Health. Seventh Congressional District (parts of Essex, Hunterdon, Morris, Somerset, Warren and Union counties): Republican two-term Congressman Leonard Lance defeated Democrat Janice Kovach by a 59 percent to 39 percent margin. Lance sits on the House Energy and Commerce Committee, including the Subcommittees on Health and Commerce, Trade and Consumer Protection. Eighth Congressional District (parts of Bergen, Essex, Hudson and Union counties): four-term incumbent Democrat and former Assembly Speaker Albio Sires defeated Republican Judge Anthony Tiscornia by a vote of 77 percent to 19 percent. Sires is a member of the Committees on Foreign Affairs and Transportation and Infrastructure. Ninth Congressional District (parts of Bergen, Hudson and Passaic counties): eight-term incumbent Bill Pascrell Jr., Democrat and former mayor of Paterson and five-term state assemblyman, defeated, by a vote of 68 percent to 30 percent, Republican Dierdre Paul. Pascrell currently serves
Winter 2015
Powerful IT platform to enable your strategic business goals on the Committee on Ways and Means, Subcommittee on Health and Committee on the Budget. Tenth Congressional District (parts of Essex, Hudson and Union counties): Democratic incumbent Donald Payne Jr., defeated Republican Yolanda Dentley by an 85 percent to 13 percent margin. Payne sits on the Homeland Security Committee, including the Subcommittees on Emergency Preparedness, Response, and Communications and Oversight and Management Efficiency. Eleventh Congressional District (Morris and parts of Essex, Passaic and Sussex counties): nine-term incumbent Rodney Frelinghuysen defeated the Democratic challenger Mark Dunec by a vote of 63 percent to 37 percent. Frelinghuysen is a member of the House Natural Resources Committee and House Appropriations Committee. State voters also approved two ballot initiatives. Voters approved (62 percent) a ballot question that allows defendants charged with serious crimes to be jailed pending trial with no option for bail. Voters approved a ballot question (65 percent) that would constitutionally dedicate money from a business tax to open space preservation. In an important bellwether local race, Bergen County Executive Republican Kathleen Donovan was defeated by Democratic challenger James Tedesco, Bergen County freeholder and former mayor of Paramus. There were also two Bergen County Freeholder seats up for election. Democratic incumbents David Ganz and Joan Voss retained their seats against Republicans Bernadette Walsh and Robert Avery. Democrats will continue to hold their 5-2 control on the Freeholder Board. This is very important, since Bergen County is the most vote-rich county in the state. The results may be a harbinger of things to come in a post-Chris Christie New Jersey. ■ 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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11
Directors’ Corner
Leverage Board Diversity for Competitive Advantage By David Olivencia
T
echnology advances, demographic changes and globalization are impacting and disrupting industries at a breathtaking pace. Technology changes, for example, have enabled companies like Amazon, Apple, Facebook, Google, Netflix, Uber and others to disrupt industries and leave their competitors continuously scrambling to catch up. Demographic David Olivencia change is happen-
ing rapidly in the United States. One major shift is the U.S. Hispanic population almost tripling to about 127 million by 2050, helping to create a majority minority near the year 2043. These changes are creating a fertile environment for new ways to drive competitive advantage. Corporate directors have the leadership responsibility to govern, set the tone, and ensure a solid strategy to navigate these changing dynamics. One of the key enablers to successfully navigate these dynamics and drive competitive advantage is to ensure that your board has the broad perspective, adaptability and strong leadership
that is enabled by having a diverse board of directors. Diverse boards make stronger boards, enable better decisions and help companies better understand customers, employees, suppliers and stakeholders that are all becoming more diverse, technically sophisticated and more global every day. Diverse boards listen with a different ear, contribute based on different life experiences and challenge and govern in ways that enable better performance. But, please don’t take my subjective word on the case for board diversity. There are a multitude of studies with empirical
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Winter 2015
data on how diverse boards outperform non-diverse boards. As an example, McKinsey Quarterly’s “Is There a Payoff from Top-Team Diversity” article from 2012 shows how, in one sample study, ROEs were 53 percent higher and EBIT margins were 14 percent higher, on average, for diverse boards. With all of the data on why diversity makes sense for boards, one would have expected to see a dramatic increase in the numbers of diverse board members over the past several years. Surprisingly, this has not been the case. Over the last several years there has been minimal improvement in board diversification. Presently, from a gender and ethnic perspective, women and minorities make up about 30 percent of all Fortune 500 board seats, with women only making up about 18 percent of Fortune 500 board seats. This creates a tremendous opportunity for boards to gain an advantage by leveraging board diversity. So how does your board move the needle to gain this advantage? Discuss/define what diversity means and where diversity can be strategic. Diversity is defined differently by different organizations and although the SEC passed a rule requiring public companies to disclose how they incorporate diversity into board selection, not all boards are fully complying. Use this as an opportunity to be strategic. Don’t brush off the importance and value of gender and ethnic diversity. Many times boards look at diversity of thought, geographic, and functional expertise, looking then to their immediate networks to fill these vacancies. These are important but should not be looked at in isolation because one can get this diversity as well as gender and ethnic diversity. Don’t buy the excuse that the diverse talent does not exist or is too hard to find! Catalyst, Executive Leadership Council, Hispanic Association of Corporate Responsibility, IT Senior Management Forum, Hispanic IT Executive Council, Leadership Education for Asian Pacifics Inc. and National Association of Corporate Directors represent just a few organizations that are loaded with very talented board members from diverse backgrounds. These diverse members are adding significant value to
boards and organizations. As an example, the Hispanic IT Executive Council, which I co-founded and serve on the board of, has board members who are CxOs from many Fortune 500 corporations. Implement the Rooney Rule in your board and senior executive hiring. In 2003, John Rooney, owner of the Pittsburg Steelers and chairman of the NFL’s Diversity Committee, helped create this rule to ensure that minority coaches, especially African-Americans, were considered for high-level coaching positions. The rule requires that any time a high-level coaching position comes available, at least one minority candidate is interviewed for that position (no quotas on hiring have been instituted). From a results perspective, there are now 23 coaches or GMs in the NFL. From a winning perspective, seven of the last eight Super Bowls have featured at least one team with a minority head coach or GM. Diversify your own personal networks. Challenge yourself to broaden and
diversify the networks you belong to and the relationships you have. You can be in a position to recommend diverse leaders that you have built relationships with. As it relates to diversifying boards, Marty Coyne, president and CEO of NACD-NJ Chapter and board member at Akamai, says, “Given the abundance of diverse board candidates, there is no excuse for any board not to be diverse.” These are just a few perspectives in these dynamic times to help strengthen your boards and ensure competitive advantage is gained by leveraging diversity. ■ David Olivencia is a senior vice president at global IT solutions provider Softtek. He serves on the board of the National Association of Corporate Directors, New Jersey Chapter, and serves on the board of the Congressional Hispanic Leadership Institute in Washington, D.C. He can be reached at david.olivencia@ softtek.com or www.linkedin.com/in/ davidolivencia.
Winter 2015 New Jersey Banker
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Behind the Teller Line
Roselle Savings Bank Celebrates 125 Years of Service
T Roselle’s Mayor Jamel C. Holley (right) presents a 125th anniversary plaque to bank Board Chairman William Fredericks, CPA, and President/CEO Jill Schafhauser.
Representatives from Roselle Savings Bank’s board of directors attend the bank’s 125th anniversary kick-off celebration at its Roselle headquarters.
14 New Jersey Banker
hroughout 2014, Roselle Savings Bank celebrated its 125th anniversary in business, a century and a quarter after being founded as the Roselle Building and Loan Association with the mission to help members build a community. That commitment to mission and customer has remained the foundation of the bank and the basic premise that has guided the operations of Roselle Savings Bank and its predecessors, the Roselle Savings and Loan Association and the Roselle Building and Loan Association, since 1889. In addition to its Roselle headquarters, the bank today has added locations in Cranford, High Bridge and Bernardsville, with total assets exceeding $400 million. “I think we’ve remained the same when it comes to our customers,” said Jill Schafhauser, bank president and CEO. “We’ve never been a bank about ourselves. It’s always been about our customers. We’ve always wanted to stay true to our roots.” Intertwined among those roots is an ongoing dedication to the communities that are served by the bank. To demonstrate its gratitude to the bank’s customers and communities, a series of “Thank You” events were held during the month of June. Hundreds of loyal customers and friends came by to visit, enjoy free refreshments, win prizes and to meet local mayors and
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bank staff members. To the delight of attendees, each celebration featured a drawing for a large, flat-panel TV along with handsome gift baskets stocked with goodies and gift certificates from local restaurants. According to William Fredericks, CPA, chairman of the board, “Roselle Savings Bank owes its success and longevity as much to sound management principles over 125 years as to its commitment to customer service. We have learned that our conservative approach to banking has served us well, and will continue to serve us well in the future.” ■
To symbolize the bank’s long-standing focus on time-honored, exceptional service, each branch celebration featured free ice cream served by a retro truck and driver.
We’ve never been a bank about ourselves. It’s always been about our customers.” — Jill Schafhauser, president and CEO
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Winter 2015 New Jersey Banker
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Feature
The New Jersey Economy A REGIONAL PERSPECTIVE ON THE GREAT RECESSION AND RECOVERY By Ardy L. Wurtzel
T
he financial crisis and the Great Recession of 2007–2008 was a result of the national housing market collapse. The economic recovery since the Great Recession has been relatively modest and slow, and it has varied in its strength and pace across the states. The recovery in New Jersey has been weaker than the national recovery in three ways: per capita Ardy L. Wurtzel economic growth, the labor market, and the housing market. All three relate to two distinct and structural characteristics of New Jersey’s economy: relatively high levels of net migration outflows and out-of-state worker commuter flows. These flows affect resident population estimates, employment data and other measures regarding the size, capacity and relative performance of New Jersey’s economy. This article examines the performance of New Jersey’s economy compared with the nation’s during the Great Recession and recovery in two sections. Section 1 analyzes New Jersey’s relatively low economic growth and poor labor market performance, which relate to increases in the amount and proportion of out-of-state work commuters who comprise the state’s residential population. Section 2 examines New Jersey’s relatively weak housing market performance, relating poor housing conditions to observed increases in net migration outflows among lower-income New Jersey residents.
SECTION 1: ECONOMIC GROWTH AND LABOR MARKET Real gross domestic product (GDP) per capita is a common measure of an economy’s standard of living. The Great
16 New Jersey Banker
Recession’s negative impact on New Jersey’s per capita GDP was greater than its impact on the nation, and accordingly the recovery has been weaker. From 2007 to 2009, the annual U.S. real GDP per capita declined 4.8 percent, while New Jersey’s declined further by 5.1 percent. During the recovery from 2009 to 2013, the nation’s real GDP per capita had a stronger rebound than the state’s. On net, the nation is approximately 1 percent above its prerecession level, whereas New Jersey’s real GDP per capita remains below its prerecession level by 2.8 percent.1 It is important to note, however, that New Jersey’s level of real GDP per capita of $57,203 in 2013 is higher than the nation’s real GDP per capita of $49,696. The labor market recovery in New Jersey has been weaker than the nation’s in terms of the unemployment rate and job growth. As of September 2014, both unemployment rates remain above prerecession rates, while proportionally national job growth has far exceeded New Jersey’s job growth during the recovery. Following the recession, the nation’s unemployment rate peaked at 10 percent in October 2009, while New Jersey’s reached a high of 9.7 percent. During the recovery, the U.S. unemployment rate declined 4.1 points to 5.9 percent in September 2014; New Jersey decreased 3.1 points to 6.5 percent.2 Between January 2008 and February 2010, New Jersey’s nonfarm payrolls declined by 6.2 percent (totaling 254,600 jobs), which is essentially the same as the national decline of 6.3 percent (8.7 million jobs). Since February 2010, New Jersey recovered a mere 45.6 percent (116,200 jobs) of those losses, which is below the 112.3 percent recovered nationally (9.8 million). As of September 2014, the nation’s nonfarm payrolls surpassed their prerecession level by 0.8 percent, whereas New Jersey’s nonfarm
payrolls remain 3.4 percent below their prerecession level.
JOB SECTOR GAINS/LOSSES New Jersey’s job market performance has varied by sector. As of September 2014, eight of the state’s 10 sectors remain below their prerecession levels, while the remaining two sectors have surpassed their prerecession job levels. The two best-performing sectors are health and education, followed by business and professional, as shown in Table 1. TABLE 1: NEW JERSEY’S BEST PERFORMING SECTORS January 2008 to September 2014 EMPLOYMENT INDUSTRY SECTOR
NET JOB GAIN
Health and Education
+ 9.7% (+ 56,600)
Business and Professional
+ 3.3% (+ 20,300)
The health and education sector experienced the largest percent increase in jobs and makes up the second largest share (16.3 percent) of New Jersey’s entire labor market. New Jersey’s second best-performing sector is business and professional services, which increased 3.3 percent (20,300 jobs) throughout the recession and recovery. As with the health and education sector, it has a 16.3 percent share of the job market. As of September 2014, these two sectors in Table 1 constitute 32.6 percent of all New Jersey jobs, adding a total of 76,900 jobs between January 2008 and September 2014. The Great Recession began with a housing market collapse that resulted from overbuilding and overvalued home prices. Construction employment was directly affected by this collapse. From January 2008 to February 2010, the largest job decrease in percentage terms for the U.S. and New Jersey occurred in the combined mining and construction sector, where the U.S. experienced a 24.8 percent decrease (2.04 million jobs lost), while New Jersey had a decrease of 24.9
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percent (43,000 jobs lost).3 The state has very few mining jobs, so the collapse and recovery figures are nearly entirely attributable to construction. New Jersey’s overall worst performing sectors are shown in Table 2. TABLE 2: NEW JERSEY’S WORST PERFORMING SECTORS January 2008 to September 2014 EMPLOYMENT INDUSTRY SECTOR
NET JOB LOSSES
Mining and Construction
-24.9% (-43,000)
Information Services
-23.1% (-21,800)
Manufacturing
-20.0% (-61,100)
Financial Services
-8.7% (-23,900)
Government
-5.4% (-35,400)
Other Services
-2.9% (-4,700)
Transportation/Trade/Utilities
-2.8% (-24,200)
Leisure and Hospitality
-0.4% (-1,200)
The mining and construction sector experienced the largest percentage decline, but it accounts for the second smallest share (3.3 percent) of total jobs. The second largest percentage decline was in New Jersey’s information services sector, with a net job loss of 23.1 percent. As with the nation, New Jersey’s information services sector has been in a structural decline since 2001, reflecting job cuts in the publishing industries subsector, which includes printed media, as well as job losses in the telecommunications industry.4 This structural decline indicates that the job losses in the information services sector are not fully attributed to the recession. Based on the total number of jobs lost, the manufacturing sector was hit hardest: 61,100 jobs were lost (20 percent). Collectively, the eight sectors listed in Table 2 account for 215,300 net jobs lost and represent 67.4 percent of all New Jersey jobs.
CAUSES OF NEW JERSEY’S WEAK LABOR MARKET PERFORMANCE New Jersey’s changing demographics have contributed to its relatively low
economic growth, elevated unemployment rate, and low job growth. The state’s workforce demographics and resident population are affected by a relatively high (and increasing) proportion of out-of-state commuter worker5 flows. The high number of out-of-state workers causes higher estimates for New Jersey’s resident population versus its daytime population.6 According to 2000 Census Bureau data, 216,693 New Jersey residents commute to out-of-state jobs, resulting in a lower daytime population estimate (8,197,657) than their residential estimate (8,414,350).7 By 2010, New Jersey’s number of out-of-state workers increased by 10.1 percent to 238,670 commuters.8
Secondly, the increased number of New Jersey residents working in other states affects the composition of the state’s labor market supply. Specifically, the increase in the number of out-ofstate commuters indicates that the supply of available workers in New Jersey is lower than what the Bureau of Labor Statistics (BLS) data indicate are the official measures of New Jersey’s labor force population. The BLS’s Survey of Household Employment asks individual residents directly if they are employed or unemployed. Those who indicate they are employed plus those who indicate they are unemployed equal New Jersey’s continued on next page
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Feature continued from page 17
total labor force population. When people employed outside of New Jersey respond to the household employment survey as employed, they are being counted as part of New Jersey’s labor force population. Consequently, New Jersey’s labor force is overstated with the inclusion of out-ofstate workers for in-state labor supply estimates. This overstatement of New Jersey’s available labor supply results in: • An unemployment rate that is disconnected from job growth in the state because of the influence of job growth in neighboring states: The overestimated labor force population makes the proportion of those unemployed in New Jersey look smaller than the actual proportion of unemployed workers for the state. • A low rate of in-state job creation, further exacerbating the state’s anemic job growth experienced over the Great Recession’s recovery: New Jersey’s exported labor supply results in the increased proportion of higherincome, highly educated workers who comprise the state’s labor force; this labor force has shrunk by 1.1 percent over the course of the recovery.9 New Jersey’s lower in-state labor supply available for hire causes less demand from New Jersey employers to hire for in-state jobs yielding an inadequate rate of job creation for the state.10 Those who work and reside in New Jersey are exposed to a relatively high cost of living, resulting primarily from New Jersey’s higher priced homes and higher property tax rates. With the higher cost of living for New Jersey resident workers, employers end up paying these workers higher wages; in turn, the higher wages reduce employment levels. Moreover, the relatively higher cost of doing business in New Jersey12 discourages in-state business activity, which ultimately results in frustratingly slow New Jersey employment growth. This chain reaction is observed in New Jersey’s slow job growth and elevated yet decreasing unemployment rate that persisted throughout this recovery.
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SECTION 2: HOUSING MARKET Compared with the nation, New Jersey’s housing market experienced a larger downturn over the recession and has been slower to recover. According to the Federal Housing Finance Agency’s (FHFA) Home Price Purchase-Only Index,13 between the housing price peak in 1Q2007 and the trough in 2Q2011, national home prices declined 20.6 percent. Since then, they have regained some of their losses yet remain 7.2 percent below their prerecession peak. New Jersey’s home prices declined similarly, by 20.6 percent from its peak in 2Q2006 to its trough in 1Q2012, but have experienced a minimal rebound over the recovery and remain 16.3 percent below the peak.14 Construction of new homes in New Jersey experienced a larger percent decline during the economic downturn when compared with the nation. Yet, New Jersey experienced a much larger percent increase in housing starts through the recovery. However, if the pace of new home starts is modified to account for the growth in their respective residential populations, we can ascertain whether housing starts in the U.S. and New Jersey are outpacing or falling behind the growth in their residential populations. Our modified housing supply measure, new home starts/new resident, shows an equivalent pace of 0.4 new homes/new resident, for both geographies from 1990 to 2001. During the housing market bubble and its collapse from 2002 to 2006, both areas’ averages accelerated; New Jersey’s pace of 1.4 new starts/new resident was double the national pace of 0.7 new homes/new resident. Over the course of the recovery from 2007 to 2013, both areas’ averages decelerated; New Jersey’s pace of 0.6 new starts/new person was again double the national pace of 0.3 new starts/new resident. Table 3 summarizes the cycle or average annual new home starts/new resident.15
CONTRIBUTING FACTORS TO NEW JERSEY’S WEAK HOUSING MARKET PERFORMANCE The weak performance of New Jersey’s housing market can be directly related
TABLE 3: AVERAGE ANNUAL NEW HOUSING STARTS/NEW RESIDENT: U.S. & NJ (1990–2013) U.S.
NJ
1990–2001 Average Annual Rate of New Home Starts per New Resident
0.4
0.4
2002-2006 Average Annual Rate of New Home Starts per New Resident
0.7
1.4
2007-2013 Average Annual Rate of New Home Starts per New Resident
0.3
0.6
to its underlying housing market structure that is characterized by higher-priced homes along with overbuilding. These housing market structural deficiencies are major impediments to a stronger housing market recovery for New Jersey. The average pace of new home starts per new resident helps to explain why national home prices remain less depressed than New Jersey’s home prices compared with their prerecession levels. The U.S. had less of a housing market buildup leading to the housing bubble and collapse compared with New Jersey, resulting in less excess housing inventory. In New Jersey, a higher level of excess housing inventory results in downward pressure on New Jersey home prices during the recovery. Another characteristic contributing to New Jersey’s weak housing market performances is the relatively high levels of New Jersey’s net domestic migration outflows,16 which have consequently altered the state’s resident population estimates and housing supply composition. New Jersey’s accelerated migration patterns have resulted in an increased proportion of high-income residents for the state in which high-income residents tend to be more highly educated and, as a result, they are more adequately equipped to manage the higher living costs of residing in New Jersey. Therefore, New Jersey’s increase in net migrant outflows resulted in relatively more housing market buildup in proportion to their resident population growth and higher-priced New Jersey homes comprising the state’s housing market supply.17
CONCLUSION Navigating the future of the current economic recovery is tricky, as uncertainty in the recovery’s strength and pace
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affects the economic decisions made today. Compared with the nation’s recovery, New Jersey’s recovery has shown a weaker performance in its labor market conditions with a higher unemployment rate and slower job growth; these weaknesses are related to New Jersey’s increase in its out-of-state work commuter flows. Additionally, New Jersey’s housing market performance lags the nation’s, as New
Jersey’s excessive housing buildup has left it unable to match the price growth advances seen at the national level throughout the recovery; this trend relates to the impact from New Jersey’s increase in net migration outflows of its residential population. Overall, New Jersey’s economic performance through the Great Recession and subsequent recovery underperforms when compared with the nation when as-
sessing employment and housing market conditions. ■ Ardy L. Wurtzel is a research associate in the Corporate Affairs Department with the Federal Reserve Bank of Philadelphia. She delivers economic outlook presentations to the District Bank’s business and banking community, manages economic data sets and conducts research on current economic trends.
Footnotes 1. The 2013 year-end data are from the U.S. Bureau of Economic Analysis (BEA) and the U.S. Census Bureau; all calculations were completed by the author. 2. All unemployment and job sector data are from the U.S. Bureau of Labor Statistics (BLS), Regional and State Employment and Unemployment, September 2014. Calculations were completed by the author.
9. The U.S. Bureau of Labor Statistics (BLS), State Employment Report, September 2014. 10. Wu, Sen-Yuan. “Commuter-Adjusted Daytime Population Estimates for NJ,” New Jersey’s Department of Workforce Development, The Office of Research & Information, NJ Labor Market Views, No. 28, June 17, 2014.
3. The BLS reports mining and construction as a combined sector for New Jersey.
11. Furey, Eric, David Burge, Amy Babcock, Andy Kapyrin, Christopher Cordaro, Holly
4. The NAICS Information Sector includes these subsectors: Publishing industries
Goodman, Samantha Meskin, Evan Brewer and Tony Buxton, “Exodus on the
(newspaper, periodical, book, directory and software publishers); motion picture and
Parkway: Are Taxes Driving Wealthy Residents Out of New Jersey? The Impact That
sound recording industries (video and sound recording industries); broadcasting,
Incentives and Taxes Have on Choice of Domicile,” The Regent Atlantic, January
excluding Internet (radio and television broadcasting, cable, and other subscription
2014, p. 20.
programming); telecommunications (wired telecommunication carriers,
12. Furey et al.
wireless telecommunication carriers, satellite telecommunications, and other
13. FHFA’s HPI is a broad measure of the movement of single-family house prices. The
telecommunications); data processing, hosting and related services; and other
HPI is a weighted, repeat-sales index, meaning that it measures average price
information services (news syndicates, libraries and archives, Internet publishing
changes in repeat sales or refinancings on the same properties. This information
and broadcasting and web search portal services). See http://www.census.gov/
is obtained by reviewing repeat mortgage transactions on single-family properties
cgi-bin/sssd/naics/naicsrch?chart_code=51&search=2012.
with mortgages that have been purchased or securitized by Fannie Mae or Freddie
5. “Out-of-state workers” refers to workers who live in one state (such as N.J.) but are employed outside the state. 6. The resident population includes all persons who are “usually resident” in a specified geographic area. The U.S. resident population includes all persons who usually reside in the 50 states and D.C., but it excludes residents of the commonwealth of Puerto Rico and the Islands. In addition, the U.S. resident population excludes U.S. Armed Forces overseas and civilian U.S. citizens whose usual place of residence is outside the United States. Daytime population
Mac since January 1975; http://www.fhfa.gov/Default.aspx?Page=81. 14. FHFA House Price Purchase-Only Index, seasonally adjusted and indexed Q1 1991 = 100, Q2 2014 data, where the index includes only purchase price data; it does not include refinancings. All calculations were completed by the author. 15. The U.S. Census Bureau and Bank of Tokyo-Mitsubishi UFJ (seasonally adjusted annual rates); annual data 1990–2013 housing starts; all calculations were completed by the author. 16. Net domestic migration outflows – the amount of migration inflows (people coming
estimates exclude out-of-state commuter workers from population estimates;
to the state to live) minus migration outflows (people leaving the state to live)
daytime estimates are essential for evaluating business development, gauging the
between states. Net domestic migration outflows exist when this is a negative (-)
transportation and infrastructure needs of the economy, and planning emergency
number; net migration inflows exist when this is a positive (+) number. Unless
evacuations.
noted otherwise, “migration” means domestic migration (migration between U.S.
7. U.S. Census Bureau’s 2000 Census, Table 2: Estimated Daytime Population and Employment-Residence Ratios, data accessed in October 2014. http://www.census. gov/population/metro/data/other.html 8. U.S. Census Bureau’s 2000 Census, Table 2: Estimated Daytime Population and Employment-Residence Ratios, data accessed in October 2014. http://www.census.
states only). 17. Young, Cristobal, Charles Varner and Douglas S. Massey, “Trends in New Jersey Migration: Housing, Employment, and Taxation,” Princeton University’s Woodrow Wilson School of Public and International Affairs, Policy Research Institute for the Region, September 2008.
gov/population/metro/data/other.html
Winter 2015 New Jersey Banker
19
COVER
Lifting the Veil on the Fed Philadelphia Fed Chief Looks Back on His Term of Office
President Charles I. Plosser spoke to attendees at the NJBankers 2011 Annual Conference. Photo courtesy of Don Christensen, CTC Communications
C
harles I. Plosser, president and CEO of the Federal Reserve Bank of Philadelphia since Aug. 1, 2006, is set to retire effective March 1, 2015. He came to the post just before the onset of the greatest banking crisis since the 1930s. New Jersey Banker interviewed President Plosser when he arrived at the Fed and now as he prepares to retire.
From left: Anthony M. Santomero , former president of the Federal Reserve Bank of Philadelphia (2000-2006); current President Charles I. Plosser; and Ed Boehne, the bank’s longest-serving president (1981-2000), at the bank’s Centennial Open House. Photo by Melissa Kinney
20 New Jersey Banker
How has the Fed changed in the eight years that you’ve been there? The Federal Reserve’s journey toward greater transparency has come a long way over the past two decades. Some of your readers can probably recall when it was taken for granted that the central bank was supposed to be “secretive and mysterious.” The less said about monetary policy, the better. In fact, until 1994, the Federal Open Market Committee (FOMC) did not even announce a policy change after its meetings. The markets were left to infer a policy action from the Fed’s behavior in the market. Since then, the FOMC has issued policy statements at the conclusion of each meeting, which include
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a vote tally, along with the views of dissenters. The FOMC now expedites the release of the minutes, publishing them three weeks after each meeting. Since I’ve joined the Fed, I’ve seen several key changes firsthand that have continued this trend toward transparency. Can you talk about specific changes? In 2007, the Fed started to produce quarterly economic projections of FOMC participants. In 2009, the Fed expanded the projections to include participants’ assessments of the long-run tendencies of key economic variables. Then in 2011, Chairman Bernanke started to hold quarterly press conferences coinciding with the release of the economic projections, a tradition that Chair Yellen has continued. In 2012, the FOMC also issued a statement clarifying our longer-run goals and strategy, including an explicit 2 percent target for inflation. And the economic projections now include information about the policy path assumptions of participants. How did the financial crisis change the Fed? The financial crisis also led to many changes in the Fed and the financial landscape, most notably the creation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, one of the most substantial reforms of the financial regulatory landscape since the 1930s. The act expanded the Fed’s supervisory responsibilities and encouraged a more macroprudential approach, in which regulators assess not only the risks to individual firms but risks to the entire financial system. The Fed continues to share responsibility for regulating institutions with the OCC, the FDIC and state regulators. It also retains its responsibility for bank holding companies and is given expanded responsibilities for thrift holding companies. Our efforts to improve communication also took on heightened importance as the FOMC responded to the financial crisis and recession. Since December 2008, the federal funds rate target has been near zero. Since the nominal federal funds rate cannot go below zero, we had to develop alternative policy tools in an effort to provide further accommodation to support the recovery. These included a large-scale asset purchase program and forward guidance or communications about the future path of policy. We have had to figure out how and what to communicate about these new tools. What do you consider to be your greatest accomplishment during your term as the Philadelphia Fed President? I’m proud to have served with our Bank employees whose work during the financial crisis and in its aftermath helped restore public confidence in our financial system. In 2009, our Bank played an integral role in conducting a comprehensive banking stress test. These tests assessed the strength of the country’s largest banking organizations. And they built confidence in the banking system by informing the public and the markets about how well these financial institutions were prepared to cope with a challenging economic downturn. Our Bank has had a leadership role in developing and launching a centralized database for the Federal Reserve System of consumer credit and related securities. We call the database RADAR, for Risk Assessment, Data Analysis, and Research, and it is used in the supervision and regulation function to improve the Fed’s ability to
monitor and supervise risk-taking. It also helps research economists and community development staffs understand economic and financial behavior. I also want to praise the ongoing work of our Community Development and Education Studies Department that conducts research and convenes a number of outreach programs in our District. Last year, the staff organized our sixth biannual Reinventing Older Communities conference, highlighting the critical role that education and workforce development play in reinventing older communities. What do you consider to be some of your accomplishments as a FOMC member? Improving the FOMC’s communications to the public has been one of my top priorities. I’ll say the FOMC has come a long way but has plenty of opportunities for improvement. In 2011, I served on the FOMC’s subcommittee on communications with Vice Chair Yellen, Governor Raskin, and President Evans. Our work led to the communications changes in January 2012, including expanded quarterly Summary of Economic Projections with more information about the underlying assumptions of FOMC participants, and a yearly statement of long-run principles, including an explicit inflation target of 2 percent. We may not have perfected our art of communications, but we certainly are aware of its importance. What do you want to be remembered for as a policymaker? I think that it is important that each policymaker do his or her best to contribute to the credibility and integrity of the Fed as an institution. Over the years, I have given many speeches on the principles that guide my thinking for creating a central bank that would help strengthen and preserve it for its next 100 years. I strongly believe that monetary policy can be most effective if the Fed takes this approach and: • Commits to a set of clearly articulated objectives that can be feasibly achieved by monetary policy; • Conducts monetary policy in a systematic or rule-like manner; • Communicates its policies and actions to the public in a clear and transparent way; and • Protects its independence by maintaining a clear separation between monetary policy and fiscal policy. I have sought to keep these principles front and center in the belief that the institution will be stronger, more effective, and retain the public confidence in so doing. What has it been like to work under Chairman Bernanke and now Janet Yellen? Chairman Bernanke worked tirelessly to promote the stature and integrity of the Fed as an institution. He encouraged the exchange of ideas among FOMC participants, which has helped the Fed move toward greater transparency. He secured the adoption of an inflation target and helped the Fed improve its communications. Ben Bernanke continued on next page
Winter 2015 New Jersey Banker
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COVER continued from page 21 is an extraordinary economist who will be remembered for his leadership during unprecedented economic times, from the financial crisis to the most severe recession since the Great Depression. Chair Yellen is a strong and dedicated leader whose challenge is to chart the FOMC’s monetary policy course toward normalization. I’m honored to have had the opportunity to work with her as a colleague when she was president of the San Francisco Fed; as Vice Chair when we worked together on the communications subcommittee; and now as she leads the Fed as its Chair. We share the same commitment to helping the Fed continue to improve communications and increase transparency. What will you do next? I will have time to carefully consider options after I retire on March 1, 2015. I announced my plans to retire to give the Philadelphia Fed time to find a successor. I’ll still be very active until I retire. I am completing the current voting year on the FOMC, and I am wrapping up my two-year term as chair of the Conference of Presidents. The next few months are going to be busy, and I will have time to consider what comes next after March 1. Are there any times that you can look back on now, with the benefit of hindsight, and say that you were wrong? I think many of us readily admit that we missed the “perfect storm” that led to the financial crisis. It is incredibly difficult to identify the sorts of imbalances that can build up and anticipate their consequences. We began to see the problems in the subprime mortgage market spilling over and impairing other markets in 2007. Things took a turn for the worse toward the end of 2007, moving into the asset-backed commercial paper market and then other term funding markets. We learned that while securitization could help diversify risks, these risks were not as well dispersed as we first thought. As what were once off-balance-sheet assets came back onto banks’ balance sheets, liquidity problems began to morph into solvency problems. The fear that the financial system could collapse was beginning to subside in mid-2009, and the worse was over by early 2010. The fear of a meltdown was over. At the height of the crisis, the Fed took a number of steps to keep the markets functioning. We did a lot of innovative things that the Fed had never done before, and history will decide which ones worked well and which ones did not.
THE STATE OF THE BANKING INDUSTRY NOW What is your assessment of the general health of the banking industry today? The overall condition of community banks has improved significantly in the wake of the financial crisis. We at the Fed have an ongoing commitment to understand the challenges that community bankers face. The health of community banks is important because they are an important promoter of growth in their communities and for small- or medium-size businesses. It is these small firms that are so important to our growth and our prosperity. So, we look to our community banks to support the responsible financial needs of businesses in order to foster growth. During my tenure here, the insight and information that bankers have shared with us helps paint a comprehensive picture of both our
22 New Jersey Banker
region’s economy and banking conditions. It all helps me as a policymaker to bring Main Street perspectives to the national policy table each time the FOMC meets to make its monetary policy decisions. New Jersey Banker has heard you speak several times about the history of the Federal Reserve and its unique role. Can you elaborate? This past year marked the centennial anniversary of the Federal Reserve System, and there is no better place in America to reflect on that history than here in Philadelphia. Just a few blocks from where the Philadelphia Fed stands on Independence Mall, you will find vestiges of two earlier attempts to create a central bank for the United States, dating back to the time Philadelphia was the nation’s major financial and political center. The first institution was the brainchild of our first Treasury secretary, Alexander Hamilton. His efforts led to the creation of the first Bank of the United States, which was awarded a 20-year charter by Congress in 1791. Although the first bank’s charter was not renewed, the War of 1812 and the ensuing inflation and economic turmoil convinced Congress to establish the second Bank of the United States, which operated from 1816 to 1836. However, it too did not win a renewed charter, with President Andrew Jackson leading the opponents in a heated political debate. The American people have always had a healthy skepticism of centralized authority. The failure of the first and second banks to a significant degree reflected the American people’s suspicion of bankers and of centralization of power among banks and Washington. It took nearly 80 years before Congress tried again to establish a central bank. What was the response from bankers? The Federal Reserve Act, which was passed on Dec. 23, 1913, authorized the Reserve Bank Organization Committee to divide the country into no fewer than eight and no more than 12 Federal Reserve Districts. Almost immediately, the committee started receiving letters and telegrams from local business owners, bankers, farmers, and community leaders who were all making a case for where they wanted a Reserve Bank to be located. There are probably some of your readers who can trace their corporate histories to firms that petitioned for the formation of a Federal Reserve Bank in Philadelphia 100 years ago. Was this the modern central bank we have today? Yes and no. For example, when the Fed was founded, we were
Winter 2015
operating under a classical gold standard that establishes the price level. The Fed was created to provide an “elastic currency” to smooth the economy’s demand for circulating money. We are no longer operating under a gold standard so price stability has become a major focus of almost all major central banks. The Fed was also a new central bank whose governance structure was designed to decentralize authority and promote public confidence – a decentralized central bank. But even this structure, which has now lasted a century, has evolved, and the balance of power has shifted over time in response to economic events and legislation. But the structure continues to help preserve the Federal Reserve’s independence and allows for the diverse views (not just those of Washington or Wall Street) to be discussed at the FOMC meetings. What do you feel about the current strength of the U.S. economy? I remain positive about the economic outlook. My expectation is that growth will reach an average of about 3 percent in 2015, before settling back down to long-term growth levels of about 2.4 percent. My hope is that we are spared another harsh winter like the one we experienced in the first quarter of 2014 that slowed growth. How would you describe the jobs picture? The unemployment rate continues to improve more quickly than many had expected. Now, this is not to claim that all is rosy in the labor markets. Many Americans are still frustrated and disappointed in
their jobs and job prospects. For example, a large contingent of those working part time for economic reasons would like to be working full time. But significant progress has been made and continued growth will result in continued improvement in the job market. What about inflation? Inflation appears to be drifting up toward our 2 percent goal. The FOMC stated that it expects the inflation rate to gradually rise to the 2 percent target, and I agree with its assessment. Where do you think interest rates should be going and are going, taking into consideration that you’ve been a recent dissenter on Fed policy, voicing the feeling that rates should be raised? Interest rates have been at historic lows for quite some time now. As the economy improves, it will be necessary and appropriate for rates to begin to rise. The timing and pace of such an increase should depend on economic data. Can you give an example when your economic forecast was right on, but not the consensus view? I have been projecting that the unemployment rate would improve faster than many of my colleagues. And the labor market continues to improve. As a consequence, monetary policy will need to adjust. If policy fails to keep pace with an improving economy, it will be a recipe for more trouble in the years ahead. ■
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Winter 2015 New Jersey Banker
23
2014 TROPICANA CASINO & RESORTAND | ATLANTIC CITY,FOR NEW JERSEY | DEC. 3, 2014 A WEALTH OF INFORMATION SUPPORT COMMUNITY BANKERS BankHorizons, produced in a successful partnership between NJBankers and The Warren Group, publisher of New Jersey Banker, had another successful year in 2014. Held this year in December, the one-day event featured a lineup of sessions featuring experts in their fields, all with information key to the future of community banking. Prior to BankHorizons, Robert Kafafian, president and CEO of The Kafafian Group, presented a “Financial Industry Overview.” Kafafian offered insights gained in his 30 years experience of providing consulting services to more than 300 banking institutions nationwide. His presentation was wellreceived. Enlightening breakout sessions addressed cyber security, portfolio stress testing, the difference between being “secure” and being “compliant,” and increasing core customer profitability. The event kicked off the night before with one of the show’s highlights, the New Leaders in Banking Awards. Photos of the award ceremony and the winners’ stories can be found on page 26.
Ethan Smith, partner, Starfield & Smith, P.C. joined Toni Corsini of the SBA to discuss current trends in SBA lending.
24 New Jersey Banker
Toni Corsini, senior trade finance specialist & NY/NJ regional manager, SBA Office of International Trade, presented SBA lending updates to session attendees.
Podcasts during BankHorizons kept attendees up-to-date on solutions provided by exhibitors.
Thanks to New Jersey’s community bankers and service providers, BankHorizons was an educational and interesting tradeshow again this year, and next year will be no different. NJBankers and The Warren Group look forward to seeing everyone again in 2015!
Lt. Col. James Emerson, USMC (Ret.), chief operating officer/managing director, iThreat Cyber Group, explored current trends related to criminal cyber threats, key vulnerabilities being exploited and mitigation challenges for security staff and banking management.
Elizabeth Williams, managing director of special projects, CEIS Review, Inc., presented the types of stress testing, regulatory expectations for stress testing and emerging best practices to attendees.
Winter 2015
BankHorizons drew more than 360 attendees who networked with service providers in the exhibit hall.
Robert Kafafian, president & CEO of The Kafafian Group, presented a “Financial Industry Overview.
THANK YOU TO OUR BANKHORIZONS SPONSORS! P LAT INUM
GOLD
S ILVE R
BRON ZE
Recognizing an Honor Well Deserved. Keith German
Fulton Bank of New Jersey CRA Officer Keith began his banking career as a Management Trainee in 2004. Shortly after, he was promoted to Assistant Branch Manager of our Washington Township office. In 2006, Keith was promoted again to Branch Manager of the bank’s Elmer office and eventually was named manager of our Cherry Hill office. He was then asked to take on an additional role of CRA Officer of The Bank (predecessor bank of Fulton Bank of New Jersey). Keith then assumed the role of Merchant Card Service & Sales Officer covering the Southern New Jersey & Bucks County, PA area. While in this role he was promoted to manager for the Southern & Central NJ area. Keith was also named the Top Merchant Services Rep in 2013 for his outstanding achievement in Merchant Sales. This past summer, Keith was asked by Senior Management to take on the broader role as the CRA Officer for the bank statewide, which he accepted. We are very proud to say the Keith has “grown up” with our institution, we are honored that he is part of our Fulton Bank of New Jersey family, and we believe he exemplifies all the necessary qualities to be named as a New Leader in Banking.
1.855.900.FBNJ
I
fultonbanknj.com
Member FDIC. Member of the Fulton Financial Family.
Winter 2015 New Jersey Banker
25
Congratulations to the New Leaders class of 2014!
Ami L. Pejovic
Age: 28 Title: Marketing Manager Bank: Northfield Bank Bank location: Woodbridge Town of residence: Metuchen How did you come to community banking, and why do you stay? I started in community banking early in my career. A marketing position in community banking intrigued me because it allowed me the opportunity to work within a small department and gain experience in different marketing disciplines. The banking industry has experienced many changes over the past several years, which makes marketing and developing a brand challenging, yet rewarding.
Brad Boye
Age: 38 Title: Assistant Vice President, Branch Manager Bank: Capital Bank of New Jersey Bank location: Woodbury Heights Town of residence: Williamstown How did you come to community banking, and why do you stay? I came to community banking as a teller while in college. After enjoying the time that I spent as a banker for several years, I left to help manage a family-owned jewelry store. After nine years, I rejoined the banking industry with Capital Bank of New Jersey. Opening the Woodbury Heights branch in Gloucester County from the ground up has given me the opportunity to work closely with my customers and the community. These great experiences are what keep me in community banking.
Christopher Burke
Age: 27 Title: Credit Analyst, Assistant Vice President Bank: Unity Bank Bank location: Clinton Town of residence: Flemington How did you come to community banking, and why do you stay? Prior to Unity Bank, I was positioned in a centralized credit processing center and was responsible for underwriting loans all across the Eastern United States. I never got the opportunity to meet any of the borrowers or perform any site visits. I knew I was ready for a change and found Unity Bank – I stay because I appreciate getting to know our customers and can understand their financial needs based upon trends in the local market.
26 New Jersey Banker
What do you consider your biggest success? I started in banking at a young age with limited knowledge of the banking industry. I quickly learned about banking and worked to earn respect from my colleagues, management and vendors. How do you see technology changing the banking industry over the next 10 years? Today, people quickly pull out their smart devices to make deposits and check balances. Over the next 10 years I believe there will be a progression where customers will no longer choose a bank based on location or branch hours, but more on being able to build a relationship with a financial partner they can trust. If you weren’t a community banker, what would you be doing? As a child I remember pretending to work at an ice cream shop, and I even tried to get a job at a local ice cream parlor as a teenager. If I wasn’t a community banker, I would own an ice cream parlor. What do you consider your biggest success? My biggest success is always challenging my next goal before it even happens. Setting high expectations and having the support of my family help me to challenge myself and achieve my goals. How do you see technology changing the banking industry over the next 10 years? I see evolving and changing technology making a big impact on banking. In order to continue to be successful, a financial institution must keep up with current technology that is offered to its customer base. Security is going to be the biggest hurdle for the banking industry to overcome, but no matter what technology evolves, nothing can compete with great customer service. If you weren’t a community banker, what would you be doing? If I was not involved in being a community banker, I would be a small business owner.
What do you consider your biggest success? My biggest success is being able to live in the community where I work and see tangible evidence of the loans that we have approved – from development of commercial real estate to start-up businesses. How do you see technology changing the banking industry over the next 10 years? Advancements in technology and innovation will streamline operations, which should ultimately reduce overhead and allow banks to provide a more positive customer experience; however, given the trend of digital transactions and electronic data, banks will continually need to be cognizant of cyber-terrorism and the possibility of data breaches. If you weren’t a community banker, what would you be doing? One of my first jobs when I was younger was a barista at Starbucks. If I wasn’t a community banker, I could see myself opening a coffee shop in my community. continued on next page
Winter 2015
Congratulations
RICH LANZA 2014 New Leader In Banking Manasquan Savings Bank is extraordinarily proud to have one of its valued employees receive this prestigious honor.
Manasquan Savings Bank 速 Since 1874
Wall Township, Landmark Place at Rt. 34 732-292-8400 Wall Township, Meetinghouse Road at Rt. 35 732-223-4150 Spring Lake Heights 732-974-4050 Ramtown (Howell) 732-206-0527 Point Pleasant 732-295-0004 Manasquan 732-223-2882 Brick 732-840-2336 MEMBER FDIC
Bay Head 732-899-2086
manasquanbank.com
EQUAL HOUSING
LENDER
continued from page 26
David R. Monegro
Title: Senior Vice President, Senior Compliance and BSA Officer Bank: City National Bank of NJ Bank location: Newark Town of residence: Bergenfield
create financial products and services that serve under-banked and underserved communities. It has been very rewarding to see how the needs of low income communities and industries can be served in a safe and compliant manner for both the consumers and the financial institution.
How did you come to community banking, and why do you stay? I began my career as a teller and quickly rose through the ranks. I have stayed in community banking because it has allowed me to use my knowledge in banking, risks and controls to help make a positive impact in low income communities.
How do you see technology changing the banking industry over the next 10 years? As consumer demand for more technology-based services rises, banks are being forced to become more innovative in order to remain competitive. The competition for banks will also continue to increase as technology has allowed non-bank entities to offer financial products as well. Over the next 10 years, banks will need to keep up with the technology innovations while ensuring that the control environment remains strong enough to mitigate increasing risks.
What do you consider your biggest success? My biggest career success has been being able to use my knowledge and expertise in compliance and BSA to help
If you weren’t a community banker, what would you be doing? I would probably be in law enforcement.
Heather Gaule
Age: 28 Title: Assistant Vice President, Marketing Officer Bank: First Hope Bank Bank location: Hope Town of residence: Vernon How did you come to community banking, and why do you stay? I started at First Hope Bank as a summer teller while I was in college and returned to the bank after graduation. Community banks play a vital role in the overall success of our communities. Whether it is lending money to small businesses, providing financial literacy lessons to children or sponsoring a local playground build, community bankers make a positive impact on our communities.
What do you consider your biggest success? Finding a job that makes me happy at a bank that I really care about is my greatest professional success to date. How do you see technology changing the banking industry over the next 10 years? Changes in technology are exciting for the banking industry! While I don’t see traditional brick and mortar branches completely going away in the near future, I do see the design of branches and the roles of branch personnel changing dramatically. If you weren’t a community banker, what would you be doing? I love fashion and I love shopping. If I wasn’t in banking, I could see myself really enjoying a job as an interior designer or as a buyer for a large department store.
Hats Off To Your Accomplishments At Cape Bank, we’d like to congratulate Vice President and Commercial Relationship Officer, Hugh Arbuthnot, on being named a New Leader in Banking. For over 90 years, Cape Bank has been successfully providing banking and lending solutions to the community, in part because of its emphasis on building customer relationships, exemplified by employees like Hugh.
COMMERCIAL LENDING
Contact Hugh at 856.273.6968 or harbuthnot@capebanknj.com
Hugh Arbuthnot Vice President
800.858.BANK | capebanknj.com
Commercial Relationship Officer
28 New Jersey Banker
Winter 2015
Hugh Arbuthnot
Age: 32 Title: Vice President, Commercial Relationship Officer Bank: Cape Bank Bank location: Mt. Laurel Town of residence: Marlton How did you come to community banking, and why do you stay? After graduating from Rutgers University, I met an individual from Susquehanna Bank at a job fair inquiring about a credit analysis position. I took the credit analyst job, and after two years I moved into a lending position. I stay because working in lending lets you meet many different types of business owners and gives you the opportunity to help them grow their businesses. Community banking gives you the ability to have much more control and interaction with your clients.
Jason C. Fischer
Age: 31 Title: Assistant Vice President, Commercial Loan Officer Bank: Valley National Bank Bank location: Totowa Town of residence: Basking Ridge
What do you consider your biggest success? The biggest success I have had in my career is growing the lending portfolio in Mt. Laurel, N.J., an entirely new region for Cape Bank. How do you see technology changing the banking industry over the next 10 years? Over the next 10 years I foresee dramatic changes in the banking industry because of technology. The use of branches, I believe, will continue to decrease with the increased use of full-service ATMs, smartphones and tablets allowing for transactions to be processed without using physical branches. Many businesses are using check scanners, rather than having individuals take checks to branches. The rapid changes in technology will transform the look of branches and the way banking is conducted. If you weren’t a community banker, what would you be doing? I could see myself working at an investment firm. What do you consider your biggest success? Earlier this year, I closed an $11 million commercial mortgage for a church in Somerset County. There are many reasons why I consider that loan one of my biggest successes, but the most important is that I was able to save the borrower over $150,000 per year by reducing their interest rate. Those savings are now being redeployed to help fund the substantial nonprofit work the church performs within its community.
How do you see technology changing the banking industry over the next 10 years? Technology is literally changing the face of the industry and it is critical that How did you come to community banking, and why do you stay? I was a summer intern community banks keep up. While brick-and-mortar branches will always be in undergrad in the risk management department of a credit union that eventually necessary, I believe many banks will reduce the size of their footprint and reled to a full-time position as a BSA/AML compliance officer. While I enjoyed invest that capital into new products and state-of-the-art technology. compliance, what I was really passionate about was working with customers, which is why I made the transition to commercial lending. I plan to stay in If you weren’t a community banker, what would you be doing? Playing golf and commercial because it is extremely rewarding work directly with 11967 - NJbanking, Bankers Magazine Ad_GCCC VoicetoAd 12/16/14 8:17 AM Page 1 cleaning up after my daughter! small business owners every day and to play an important role in their success. continued on next page
Congratulations Brad! Congratulations Brad Boye for being recognized as one of The New Jersey Banker’s Association’s New Leaders in Banking for 2014. We are proud to have you representing Capital Bank of New Jersey.
Brad Boye, Assistant Vice President Branch Manager, Woodbury Heights
Our Focus Is You. Member FDIC
PREMIER LENDER
CapitalBankNJ.com
Capital Bank is Rated Five Star by Bauer Financial
APPROVED LENDER
Winter 2015 New Jersey Banker
29
continued from page 29
Jon R. Ansari
Age: 40 Title: Executive Vice President, Chief Financial Officer Bank: Magyar Bank Bank location: New Brunswick Town of residence: Pennington How did you come to community banking, and why do you stay? After my father’s company was sold, I applied to numerous accounting-related job listings. One was for a consulting firm that specialized in compliance reviews and safety and soundness audits for financial institutions. It happened to be close to my home, so I gave it a try. The work and people were great, but the traveling was taking a toll, so when an accounting position at one of the banks I visited was offered to me, I accepted. Fifteen years later, I have no regrets. I stay because I work
Justyna Davis
Age: 39 Title: Senior Loan Closer Bank: Millington Savings Bank Bank location: Millington Town of residence: Washington How did you come to community banking, and why do you stay? I’ve always felt more comfortable in a smaller work environment. When I decided to return to work after having my son, I was lucky to receive an offer from Millington Savings Bank to fulfill a position of a loan closer. Community banking is all about creating a personal banking relationship with a customer; it makes my day when customers express their appreciation.
with great people and I get to experience the impact we have on our customers, which is deeply fulfilling. What do you consider your biggest success? My wife and three sons. How do you see technology changing the banking industry over the next 10 years? I believe the biggest change will be in the continued evolution of payments. The use of personal devices will make up an increasingly larger percentage of payments, which will change the way in which payments are handled, the availability of funds and the nature of deposits held by financial institutions. If you weren’t a community banker, what would you be doing? Sailing the Caribbean searching for sunken treasure and possibly offering financial planning services on the side, depending on how the treasure hunting was going!
What do you consider your biggest success? Being able to find a balance between being a mom and full-time employee. I could never imagine myself being a full-time mom. There is some pride that comes in place when my 4-year-old points at the bank and tells his friends, “My mom works at the big bank.” How do you see technology changing the banking industry over the next 10 years? All lending institutions have to be prepared for a new generation of customers who are more used to dealing with a computer than with a live person. They will be looking for a less impersonal and faster way of taking care of their financial needs. I also think that the technology will also push banks towards consolidation. If you weren’t a community banker, what would you be doing? Although I tried to escape the idea for many years, it seems like I would feel fulfilled as an attorney. Definitely not a criminal attorney, but a regulatory one.
Congratulations to all of the 2014 New Leaders in Banking. The First Hope Family is especially proud of
Heather Gaule
,
for this outstanding achievement.
Heather Gaule, Assistant Vice President, Marketing Officer
Turning Hope Into Reality FirstHope.com | 908.459.4121 | 973.729.8333 30 New Jersey Banker
Winter 2015
Keith German
Age: 34 Title: Community Reinvestment Officer Bank: Fulton Bank of New Jersey Bank location: Mt. Laurel Town of residence: Mantua How did you come to community banking, and why do you stay? I began with Fulton Bank of New Jersey 10 years ago as a management trainee. As a recent college grad looking to grow within an organization, I saw how Fulton Bank of New Jersey (known as The Bank at that time) fostered relationships with its community and employees. As CRA officer, I am able to see the direct effects of both employee volunteerism and contributions made in the markets we serve. I am loving what I do and feel that I am making a meaningful impact.
Patrick W. Keating
Age: 34 Title: Information Systems Manager Bank: Capital Bank of New Jersey Bank location: Vineland Town of residence: Cherry Hill
How did you come to community banking, and why do you stay? I started my banking career as a part-time teller right out of high school. I believed working in banking was a prestigious job to have. While going to school full-time, Sterling Bank offered me a part-time computer operation position. Starting in retail and then moving to IT, I gained a true understanding of how all areas of banking work together to help people save money, buy their “dream house,” or just gain a basic understanding of finance.
What do you consider your biggest success? I was able to have success growing branches and developing teams. I felt a tremendous sense of accomplishment knowing that my teams sought my assistance and valued my leadership. How do you see technology changing the banking industry over the next 10 years? Tablets, phones and the web make banking products and services seamless for the customer. There are more ways to be in front of your customers than ever before. How banks choose to be visible through technology will decide how they grow. If you weren’t a community banker, what would you be doing? Out of school, all of my peers joined huge financial and accounting firms. I would most likely have done the same, but don’t know that I would’ve enjoyed it. Alternatively, if money and location weren’t factors, I would play tennis on a resort as the resident pro. What do you consider your biggest success? I have had many successes within my career, including one core conversion and two mergers. To date, my biggest success was starting the IT department for Capital Bank of New Jersey. How do you see technology changing the banking industry over the next 10 years? Technology has contributed to the biggest changes the banking industry has ever experienced. The most difficult part of these changes is the need for security. This is a very exciting time for our industry, but we should be vigilant at the same time. If you weren’t a community banker, what would you be doing? If I wasn’t a community banker, I would be involved with music in one way or another. I would love the opportunity to run my own studio, perform or own a vinyl record coffee shop where people can come to perform. While I love technology and banking, music has always been a passion in my life. continued on next page
On behalf of the Directors, Officers, and Staff at City National Bank of New Jersey, Congratulations is extended to David Monegro, Senior Vice President/ Senior Compliance Officer, and his fellow recipients for their outstanding recognition as a New Leader in Banking. David R. Monegro Senior Vice President, Senior Compliance and BSA Officer City National Bank of NJ
At City National Bank, We don’t just pledge our commitment to improving our community; we make it our number one priority. Because we walk the walk, City National Bank has been designated a Community Development Financial Institution (CDFI) since 1996, our objective is to serve and strengthen economically disadvantaged markets.
Winter 2015 New Jersey Banker
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continued from page 31
Richard Lanza
Age: 34 Title: Vice President, Information Technology Officer Bank: Manasquan Savings Bank Bank location: Wall Town of residence: Howell How did you come to community banking, and why do you stay? I started my technology career in a community bank right out of college. At that time, I did not completely understand what community banking really meant. Since then, I’ve realized community banking is based on building personal relationships and understanding the local needs of families and businesses. It also provides a great deal of professional growth.
Rizwan Majeed
Age: 32 Title: Vice President, Treasurer Bank: Clifton Savings Bank Bank location: Clifton Town of residence: Cranbury How did you come to community banking, and why do you stay? I started off as a parttime teller during my college years. What keeps me in community banking is the constant learning experience and upward mobility – with smaller institutions, you need to “wear more hats,” exposing you to many different aspects of the banking industry. I also love the fact that I have the backing and support of the Clifton Savings Bank family.
What do you consider your biggest success? My biggest success is my family. My wife and I have a 14-month-old daughter and a 3-year-old puppy. Being able to dedicate myself 100 percent in both my personal and professional life is rewarding. Professionally speaking, being able to come to Manasquan Savings Bank and in my first 18 months make an impact on so many aspects of the bank. How do you see technology changing the banking industry over the next 10 years? Technology is already changing the banking industry and will continue to evolve. Security will be the main focus when providing customers with the latest technologies [as well as] being able to protect customers while making the experience, whether in person or remote, enjoyable and convenient. If you weren’t a community banker, what would you be doing? I would most likely still be in the technology field, maybe sports-related. What do you consider your biggest success? I was able to work full time, complete my MBA and have a family all at the same time. It was a very difficult task to balance work, school and my responsibilities at home. I have to give credit to my family and my former employers for supporting me through this difficult stretch of my life. Without that support, I would not be where I am today. How do you see technology changing the banking industry over the next 10 years? Banks with a technological advantage will be the ones to succeed. Keeping up with the advances in technology can be a challenging task, especially for community banks which cannot afford to keep up with the technology of the larger banks. If you weren’t a community banker, what would you be doing? I would probably be somewhere in the finance industry, since I graduated with a bachelor’s degree in economics.
WE CONGRATULATE
AMI PEJOVIC 2014 NEW LEADER IN BANKING
The entire Northfield Bank team salutes Ami Pejovic, Marketing Manager, on being named a 2014 New Leader in Banking by the New Jersey Bankers Association.
eNorthfield.com | (732) 499-7200
Member FDIC
32 New Jersey Banker
Winter 2015
Congratulations to all the rising stars recognized as NJ Bankers New Leaders in Banking 2014 Special congratulations to Rizwan Majeed Vice President/Treasurer Clifton Savings Bank on being selected as one of this year’s recipients. We are all very proud of your accomplishment! Clifton Savings Bank 1433 Van Houten Avenue, Clifton, NJ 07015 973-473-2200 CliftonSavings.com
Feature
Protecting Your Reputation, Brand, or Business Against Online Attacks ISSUE BACKGROUND
E
very minute of every day some company, bank, institution or individual is cyber attacked or digitally assassinated. What can be done to the world’s most powerful governments can certainly be done to you, your family, your company or your organization. If you are a CEO, board director, celebrity or high profile individual… small business owner, business leader, bank leader, manager or entrepreneur, physician, lawyer, journalist or politician, academic, parent or child. All of us are at risk of digital attacks. The reason? Technology amplifies human malice on the Internet. Businesses
large and small are reeling from digital attacks by Internet trolls and activists. These Digital Assassins inflict instant havoc, causing substantial financial damage to infrastructure, employee morale, credibility, brands or reputations, loss of sales and stock value. Hackers, both foreign and domestic, attempt on a daily basis to infiltrate company databases, networks and security systems to steal data and information, humiliate executives or simply prove a company is flawed. This real threat cannot be underestimated or overlooked. The cost to American companies is now in the billions of dollars annually. And, today’s epidemic of cyber and reputational attacks is at the
threshold of becoming a pandemic. Thus, it has become a top focus for the Federal Bureau of Investigation. The features on pages 35 and 37 focus on best practices to take control of your company’s reputation and the technological mechanisms of cybersecurity, in the ever evolving and treacherous digital landscape. The articles provide a basic road map that makes it easy to understand what is happening – why it is happening – and what you can do about it. They highlight how these assassins work… and what you can do to minimize, neutralize, and even defeat them to protect you, your family and your business from this digital skullduggery. ■
TODAY WE RISE TO THE OCCASION. It’s high time you overcome your IT burdens. Leveraging a team of cloud experts lets you launch new services faster, strengthen security and turn your focus back to your customers. As the financial industry’s largest, most trusted managed services provider, CSI empowers you to take a new, more powerful stance on IT—and banking. We’ll stand with you, while you stand out.
csiweb.com/riseup CORE BANK PROCESSING • MANAGED SERVICES • MOBILE & INTERNET SOLUTIONS PAYMENTS PROCESSING • ELECTRONIC & PRINT DISTRIBUTION • REGULATORY COMPLIANCE
34 New Jersey Banker
Winter 2015
Feature
Cyber Security is the Issue Affecting Everyone By Bray Barnes
E
very day computer hackers bring a fresh outrage in our cyber world – from celebrities embarrassed to more large financial institutions compromised, more retail establishments losing confidential credit information, and more businesses and governments losing billions of dollars in intellectual property. Five years ago, the theft of information was a common crime. Two years ago, it reached epiBray Barnes demic proportions. Today, it is the plague; with more people and organizations infected than not, many of whom do not realize it, or deny that it can happen to them. This is happening partly because people and institutions have been slow to take cyber threats with appropriate seriousness. Hollywood movie stars, like the millions of Americans who watch them, are not replacing easily guessed passwords (the names of boyfriends, fashion magazines or purse dogs) with hard-to-break passcodes, while American retail, business and banking are just now moving to adopt more robust security measures, like two-factor credit-card authorization. Another factor driving this crisis is the increasing sophistication of the criminal gangs behind hacking. Some are benefiting from state sponsorship – whether apparent Russian retaliation against Western sanctions in a recent attack on U.S. banks, or Chinese sponsorship of a unit of the People’s Liberation Army that seems bent on intellectual property theft. High levels of skills are, however, bending downwards toward non-state actors, with terrorist organizations financing themselves with the fruits of cybercrime. Al Qaeda and ISIS have shown great ability to use social media to attract recruits, many of whom
will undoubtedly be digital natives who will enable them to disrupt the information networks of targeted institutions. In July, the U.S. Department of Homeland Security reported that “hacker teams” based in the Middle East and Africa are now brazen enough to use social media to announce in advance, that they will soon be launching another wave of cyber-attacks against U.S. businesses, including banks. Much of the damage is never reported, but a rough measure can be found in Verizon’s “2014 Data Breach Investigations Report,” which identifies industries that have had attacks. Affected industries include: banking, transportation, financial services, healthcare and hospitality, professional and educational institutions. Large and local businesses have been the subject of these attacks, with vendors that have lesser levels of security – ranging from PR consultants to HVAC providers – inadvertently provided entry points into their clients’ systems. Michael Sentonas, McAfee CTO, says that malicious cyber activity falls into six distinct categories: account costs, innovation costs, operational costs, opportunity costs, IT costs, and reputation costs. His company estimated that the economic losses due to cybercrime range into the billions. Government has been slow to take the lead in organizing a response, but a response is forming. When the U.S. Department of Homeland Security (DHS) was established in 2003, with the memory of September 11th still fresh, the Department’s focus was border, maritime and transportation security and protection. In 2008, DHS began to establish a cyber-unit, one that has grown significantly over the past six years. In the 2010 DHS Quadrennial Report to Congress, then-Secretary Janet Napolitano stated that securing the homeland must be an enterprise-wide national interest shared by governmental, nongovernmental and private-sector entities and that “safeguarding
and securing cyberspace” is one of the fivekey missions of the Department. This mission’s critical focus continued into the 2014 DHS Quadrennial Report, a public blueprint of its plans and priorities, in which Secretary Jeh Johnson makes it clear that DHS, must work with both public and private sector partners to combat cybercrime. It is not enough, of course, for government to wake up to the extent of the threat. It is also necessary for corporations to step forward and assume a greater leadership role as partners with government, in collaboration with each other, and with suppliers and vendors. To approach this problem, business must understand how cyber-attacks occur. From an overall strategic level, these attacks come in two forms – unstructured and structured. Unstructured attacks are targets of opportunity by assassins who have little organization or funding. Their goal is too simple – to gain control of a machine. They do this with malware – worms and viruses that quietly infect computers, Trojan Horses with hidden payloads, and keystroke loggers that follow the user’s every move (including the installation of new passcodes). Smaller companies are now targets of choice for unstructured attacks, since their firewalls are much easier to breach. Structured attacks are more sophisticated and well-funded attacks against a specific person, organization, company or government agency. Phishing, botnets (coopting a computer into an unseen and coordinated attack with other computers), and denial of service (a favorite of activists) are all types of structured attacks. Many of these attacks recently in the news have been launched against JP Morgan Chase, Bank of America and the Nuclear Regulatory Commission. There are many ways a hacker can worm into a business. The easiest path is to use continued on next page
Winter 2015 New Jersey Banker
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Feature continued from page 35 open source information, information readily available to the public, to gather information on an individual, company or agency. Often, a good knowledge of a company and a target is enough to spoof someone with a phishing operation, tricking them into opening an attachment that is a payload for viruses. Highly structured attacks are employed by ideological organizations, terrorist groups and state sponsored organizations.
Five members of this unit have been indicted by the U.S. Justice Department, though this is seen in China as an ineffectual gesture. Indeed, this unit, and many like it, remains active despite its exposure. In June 2014, a report published by Crowd Strike, a global provider of security technology, about a new APT referred to as “Putter Panda” focused its attacks on such industries as defense, technology, commu-
Over the past twenty years, the democratization of technology has made it easy for even non-technical people to become hackers, while the level of sophistication of their attacks has dramatically increased. They are well organized, well-funded, coordinated and look to achieve a large-scale effect. The level of frequency, the complexity of their network, and the damage that can be done was exposed in the 2013 report from the security firm Mandiant, which received worldwide notoriety after extensive investigation found that one Advanced Persistent Threat (APT) in China had stolen thousands of pieces of files from more than 141 companies in more than 20 industries. In this instance, APT was traced back to a location controlled by the Chinese People’s Liberation Army General Staff Department. Most organizations that were attacked were located in the United States and were affected for an average of 356 days before the penetration was detected. Victims range from local companies to Westinghouse and U.S. Steel. Due to global public scrutiny, this unit reduced its activities; however, it continues to hack U.S. company computers and government agencies thousands of times daily through phishing expeditions.
36 New Jersey Banker
nications and satellite companies. According to the 2013 Verizon Report, 19 percent or one-fifth of the IP breaches are state affiliated actors tied to China. So what can be done to protect your company? • First, businesses must recognize that while there is no perfect protection, a deep level of protection – like a bulletproof vest – is not a luxury. It is the key to survival. The fact that perfect protection doesn’t exist is no reason to go unprotected into a war zone. • Second, cyber-attacks are not an IT issue or just an issue for Security, Legal or HR. It is a threat to the entire enterprise that must be addressed with a comprehensive risk-management approach that includes the educated response of everyone, from C-suite executives to line employees. • Third, all managements today need a Cyber Incident Plan and should conduct awareness training for all employees. Remember, this is a companywide problem. Businesses must train and test their people, to, among other things, make sure
they are ever-alert to phishing artists who are becoming ever-more sophisticated. • Fourth, every time a corporation brings in an outside source, the system of that new vendor or supplier taps into the corporate bloodstream. Such outside sources as clouds, personal devices used by employees, smart phones, and accessibility from third party vendors are all possible points of entry for hackers. Every company needs to assess its risk, determine its tolerance level, set security procedures and educate and train employees. • Fifth, management and boards, while watching from the commanding heights of strategic risk management, should know enough to get into the weeds. Questions to ask include: -- Are programs, web browsers and software updated? -- Are employees opening emails from unknown sources? -- Are security tools being used? -- Have employees been trained on cyber and security procedures? -- Is personal media being used on work computers? These are common-sense steps that every corporation should have already adopted. So where are we today? In an August, 2014 article published by McAfee CTO, Michael Sentonas, he states: “The past 12 months has seen a continued increase in the number and complexity of advanced malware threats … (and) no company is immune…” The results are the stuff of daily headlines. Over the past twenty years, the democratization of technology has made it easy for even non-technical people to become hackers, while the level of sophistication of their attacks has dramatically increased. Regardless the type of attack, the reason or the identity of the actor, to do nothing will ultimately result in a price that no one wants to pay. ■ Bray Barnes, founder and principal of Security Evaluation & Solutions Group, designs and delivers unique homeland security analysis, training and education programs focusing on intelligence analysis, cyber and medical intelligence. He can be reached at 848-480-2676. For additional information, please visit: www.sesgroupllc.net.
Winter 2015
Feature
Reputation is the New Corporate Capital By Richard Torrenzano and Mark Davis
“I
t takes a lifetime to build a good reputation, but you can lose it in a minute,” Will Rogers said. Today, it’s a nanosecond, even for the most admired companies. After last year’s cyber-attack on Target compromised the personal information of up to 110 million customers, its stock valuation dropped sharply, its customers alienated, its Richard Torrenzano CEO was pushed out of his job, its board was forced to win re-election in the face of a very public ouster proposal, and its legal team now faces the sure prospect of many classaction lawsuits in Mark Davis the years ahead. Not only have many storied brands come under attack, even security firms that help protect them have proven vulnerable. One wellknown private intelligence firm had its emails and proprietary information stolen and revealed, the equivalent of a SWAT team getting hogged-tied at a bank robbery while the crooks commandeer their police cars for a getaway. We have seen the world’s most powerful government humbled by a stunningly mediocre, low-level consultant named Edward Snowden. Little wonder that a sign of our times is the U.S. government investment in a monstrous National Security Agency construction project in Utah – the size of 17 football fields. In short, cyber war is serious enough to now merit its own Pentagon. As a result of these very public developments, a movement is gaining steam to elevate risk management out of audit committees, to include IT risks at the same level as other
Cyber war is serious enough to now merit its own Pentagon. enterprise risks, and to recruit directors who have expertise in cybersecurity issues and IT. No one can fail to appreciate those businesses’ prime assets – its trade and industrial secrets, as well as the customers’ trust – can be instantly wrecked by a single data breach. The learning curve on digital issues has proven steep, but directors and management are beginning to understand and respond to the critical need to protect data. In the social media fishbowl, digital reputation, no less than proprietary secrets, is a form of equity. Corporate leaders must know
how to raise this new form of equity, leverage it and protect it. So the next set of lessons directors will absorb from the digital arena is that social media attacks on reputation amount to “digital assassination” – often enabled by stolen data – that can also destroy brand and equity value, disrupt clients and customers, and injure employee morale. In 2011, we predicted that attacks on data would enable reputational assassinations of brands and products. continued on next page
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Feature continued from page 37 Today’s epidemic of cyber-enabled reputational attacks is at the threshold of becoming a pandemic. An example from government and international politics provides a glimpse of what is forthcoming to business. That is the deep harm Snowden’s cyber theft did to brand USA globally, prompting German Chancellor
Some of these assassins will be disgruntled employees, looking to get even. Some assassins will be competitors or trial lawyers looking for an edge. Attacks will be secretly sponsored or inspired by competitors, as we saw when Facebook hired an Internet-savvy PR firm to undermine Google. We expect to see more of these stealth attacks particularly
When an issue or image goes viral and endangers corporate reputation or brand, a company has at best eight hours to issue an initial response. Angela Merkel to publicly compare the U.S. National Security Agency to the East German Stasi. In the private-sector, cyber-attacks will reveal sensitive corporate information and emails that, taken out of context, will be distorted to make a company’s internal dialogue appear embarrassing or worse. Hacking is no longer the sole province of state-sponsored entities and well-heeled criminal organizations. Awareness of how to elicit data with social engineering techniques is widespread, along with the tools for penetration that are easily available, inexpensive and user-friendly for non-technical people. This democratization of hacking will strengthen and proliferate reputational attacks. Even defamatory assertions without any factual basis will be marketed to millions before the keystrokes can be typed to refute them, dramatically compromising government relations and product polling, brand and sales, operations and equity value. This inflection point for business will be reached in the next 12 to 18 months, and presents a set of challenges that every business leader must understand. Digital assassinations in the form of social media attacks on reputation will come from many sources.
38 New Jersey Banker
from foreign corporations. A few will be defamation poachers out for blackmail, or short sellers looking to disrupt share value. We have seen labor unions begin to use the tactic to change corporate governance structures, or to apply pressure during contract negotiations. Some digital assassins will be environmental extremists. And, much in the news, some are simply anti-corporate activists of the Occupy-whatever variety, like the Joker in the movie The Dark Knight, who “just want to see the world burn.” Many managements and directors are simply not prepared for the laser-like speed and magnitude with which these attacks will inflict damage. When an issue or image goes viral and endangers corporate reputation or brand, a company has at best eight hours to issue an initial response. One cannot – and should not – respond to many social media comments. But a company that cannot get its top team together to craft a response to a potentially lethal attack will fail dramatically in the public arena. In addition, many corporate leaders are unaware of the legality with which activists can appropriate their brands and logos, as long as the users claim to be acting with
satirical or newsworthy intent. Courts have even upheld that the word “sucks” can be added to a company’s name to make a URL, as well as the use of actual brand identity to issue false but satirical news releases. Some of these attacks are indeed funny, witness the Twitter-feed send up of BP by @ BPGlobalPR, which ran inane tweets during the Deep Horizon disaster, or the ongoing satire of Goldman Sachs and its CEO, Lloyd Blankfein, on @GSElevator. Directors and managements cannot lose perspective and overreact by mistaking the irritating for the deadly. Some sites must be taken with good humor. But some attacks are more serious, with the cruelest cuts often coming from within the organization. A “whistleblowers bar” website now solicits informers as clients who can rake in tens of millions of dollars by building cases against their employers while on the job – and then use social media attacks to soften them up before trial. Domino’s Pizza showed how a large company can be brought to its knees when some of its young employees posted disgusting food pranks on YouTube. And social media is a prime venue for stealth campaigns from competitors. Such attacks strike at the heart of the enterprise. They require responses within a new time frame that are urgent, serious and capable. Directors should ask management: If we had to, could we respond quickly and effectively within an “8-hour digital day”? Many corporate organizations, cultures and advisors are simply not ready to operate at the speed of social media. And many companies will be burned – perhaps several times – before they understand the new timing of an “8-hour digital day”. There is also a generational aspect to this need for urgency. Directors bring maturity and wisdom that keep management focused on the long view. Yet even those who have kept up with new technology platforms are not prepared for the speed at which reputational attacks will do damage. Many do not yet appreciate how this technology amplifies malice, making slurs and untruths about a company instantly accessible, global, searchable and eternal.
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Just as elders often preach that youth should approach technology with greater wisdom, so, too, does age need to approach technology with greater knowledge and skill. Here are ten questions we posted to directors and advisors at several NACD local meetings during the past months: 1) Has the company – at its highest levels – evaluated the financial risk of digital attacks on reputation or brands? 2) Has the board integrated risk to brands and reputation into its overall enterprise risk management process? 3) Does the company have an integrated digital strategy that recognizes the needs of all stakeholders? Does it include a corporate crisis plan with a digital emphasis? Does it also include an effective and “current” (within the last few months) social media policy for employees? 4) Who in the C-suite owns this strategy? 5) Is the digital strategy a marketing or customer service tool, or is it being fully
6)
7)
8)
9) 10)
implemented as a broader, strategic plan for the advancement and protection of corporate brand and reputation? Has management created a Digital War Room, assembling a high-level crisis team that includes legal, HR, communications and other top personnel under the charge of an individual C-suite officer? Has this Digital War Room Team performed crisis rehearsals to build muscle memory, while building a decision tree of possible actions – and no less important, inactions? Does it have ready access to competent, outside counsel to prepare the company in advance and guide it through a digital crisis? Have you explored adding reputation insurance to your commercial coverage? Considering the extreme costs of a disloyal insider – à la Snowden – have you recently evaluated your process of vetting potential employees?
A good reputation today, even more than in Will Roger’s time, upholds a currency of trust that is essential to be successful in business. Directors and managements that lack substantive answers to these questions will have unnecessary and profound levels of risk in the years ahead. ■ Richard Torrenzano, CEO, The Torrenzano Group, is a leading thinker and expert on crisis, reputation, brands and social media. He co-authored Digital Assassination: Protecting Your Reputation, Brand or Business Against Online Attacks. He can be reached at 212-681-1700. For additional information, please visit www.torrenzano.com. Mark Davis is a former White House speechwriter who has consulted with the Defense Advanced Research Projects Agency (DARPA), as well as with some of the nation’s leading telecommunications, information technology and defense-aerospace companies. He is a frequent lecturer, writer and blogger on politics, technology and the future.
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Winter 2015 New Jersey Banker
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Winter 2015
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Managing Digital Signage with Zero-In Digital signage and audio messaging/ music are communication channels that many financial marketing departments have used for quite some time. New cloud-based technologies, however, make it easier and less expensive to centrally manage all digital content. Digital signage refers to video displays that can be placed behind teller lines and in lobbies with “Ad-Free TV,” vertically for rates, by drive-up aisles or even as small interactive tablets on check-writing stations, teller line counters or CSR desks. Audio messaging and music takes advantage of short captive hold times when your customers are waiting to be transferred on the phone, or allows you to create your own “private radio” station inbranch without any outside competitive ads from other financial service providers.
There is no shortage of messaging to be delivered to customers inside the branch. Rates are always changing, promotions are constantly being refreshed and there is an endless schedule of bank-sponsored branch and community events. With a well-designed digital environment, your marketing team can quickly create, upload and schedule these messages to various end points in the branch. Marketing teams can ensure that all messaging has been approved by authorized personnel at the corporate level. Since digital content can be scheduled online centrally with campaign start and end dates, you save money on the shipping of physical marketing materials to each office, and save time by not having to verify that content is posted and removed timely.
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Winter 2015 New Jersey Banker
41
Feature
Avoid Regulatory Criticism: ALM Assumptions Made Simple By Stephen Brown Klinger
T
ime out of the office is great. Last weekend I was driving my family to the circus when it started raining. Accordingly, I slowed to five miles under the speed limit. I have never caused an accident and proudly attribute my success to being a conservative driver, but my cautious nature drives my spouse nuts. Subsequently, the remainder of the trip consisted of her pleading, egging, mocking and threatening me in attempts to get me to speed up with the Stephen Brown Klinger rest of traffic. The drive made me reflect on the process which many community banks develop their asset liability management (ALM) modeling assumptions. (Banks should use one set of modeling inputs and cash flows across all functions (planning, enterprise risk management, etc.), but for this article I reference ALM modeling as it is the most relevant to regulatory pressures.) In parallel, there are four measures that must be taken into consideration: the bank’s historic experience (speed limits), current customer loyalty (the speedometer), economic projections (the weather), and industry benchmark data (traffic speed). But there is a major difference between driving and proper ALM modeling – I have enough experience in driving over the decades to drive by feel: I generally do not look at the speedometer, can judge the speed limit by the type of road, and know how to adjust for hazardous conditions. There is also the absolute to always go faster than the rest of the traffic (when riding with my spouse anyway). On the other hand, channeling a Jedi experience falls short when preparing modeling assumptions. Before discussing best practices I would like to quickly mention why it is important
42 New Jersey Banker
to develop accurate modeling assumptions. It starts with the fact that the banking industry is currently flush with funding. The FDIC’s Statistics on Depository Institutions Report shows that between 2007 and 2012 total domestic deposits grew from $6.9 trillion to $9.4 trillion, of which $2.1 trillion was in money market deposit accounts! With this “bubble” comes additional liquidity and interest rate risk for the industry when rates begin to rise. According to FinPro research, total interest expense tripled during the last rate rise (2004 to 2007). It is vital for planning purposes that a Bank makes strategic decisions about how it will handle interest rate risk and liquidity when rates rise, incorporate those plans into its modeling assumptions, stress test the results in different economic scenarios, and then reassess its plan. In addition to internal reasons, it is not a surprise that regulators are scrutinizing the process for developing modeling assumptions with increasing frequency. The FDIC’s FIL-46-2013 “Managing Sensitivity to Market Risk in a Challenging Interest Rate Environment” and the OCC’s “Fall 2013 Semian-
nual Risk Perspective” provide key pieces of insight as to regulators’ concerns in the face of rising rates: • Declines in net interest income • Deposit run-off • Constrained loan growth • Extension risk of MBS portfolios • Reliance on long-duration fixed-income securities for liquidity • Net unrealized losses on securities As noted earlier, there are four elements necessary to develop proper ALM assumptions: historic experience, customer loyalty, economic projections, and industry benchmark data
HISTORIC EXPERIENCE (SPEED LIMITS) It is often said that understanding history is the best way to predict the future, and bank regulators wholeheartedly agree. For establishing decay rate assumptions this means analyzing three to five years of account level experience and then aggregating the flow of funds to the product level at which you model. A beta value study is a little trickier. It involves basic statistics and
Winter 2015
necessitates product pricing data back to 2006 in order to capture the last rate move (2000 to capture the last three). These two analyses are the first building blocks in developing assumptions designed to project the future. However, the connection must be drawn between the bank’s experience and the bank’s current customer base based on customer loyalty factors.
CUSTOMER LOYALTY (SPEEDOMETER) The difference between “core deposits” and customer loyalty is one of the common ALCO misunderstandings. The following conversation demonstrates this point best: Bank: “We do not have hot money deposits. The majority of our deposits are core, our customers are extremely loyal and will not move in rising rates.” The Regulator: “But your products are paying 45 bps over the competition?” Bank: “Well, our loyal customers are very price-sophisticated.” Yes. No. Maybe? Regulators define a core deposit as deposits under $250,000, but in the real world this in only one component of customer behavior. In the example above it is impossible to describe the customers’ price elasticity without further analysis. The only thing the bank has demonstrated is that its customers are acquaintances who are sophisticated enough to shop for the best rate in town, not a good situation. In order to develop a proper beta value strategy for rising rates the bank must stratify its deposit accounts based on six loyalty factors: customer relationship, price, geography, tenure, frequency of use and size. Scoring these loyalty factors will generate a propensity to renew score which indicates the true loyalty of each account. The key is that this is based on current customer data. When overlaid with the bank’s historic information, this positions banks with best knowledge to develop funding strategies that build value. Some industry leaders and academics still say, “core depos-
its drive franchise value.” Do not fall into the “core deposit” trap; customer loyalty builds franchise value.
ECONOMIC PROJECTIONS (WEATHER) Stress testing is an important and evolving component of asset liability management. While still mandated by some regulatory agencies, instantaneous parallel rate shocks on static balance sheets will soon become a thing of the past. Why? Rates have never risen by more than 200 bps in a parallel manner across the entire yield curve, especially overnight. Nor will they ever in the future. Additionally, not matching future changes to the balance sheet with the bank’s strategic plan (dynamic modeling) creates a larger separation between the most likely actual depiction of the bank’s future interest rate risk and what is captured in ALM modeling. What this means is that banks must match their strategic planning balance sheet with their ALM model and overlay different practical projections of economic scenarios (adjusting for interest rates, new business projections, and subsequent effects on ALM assumptions) as stress tests to the base case. Only then will management, the board, and regulators get a depiction of the bank’s interest rate risk that is actually useful for planning purposes.
INDUSTRY BENCHMARK DATA (TRAFFIC SPEED) The concept of benchmarking a bank’s assumptions and results to industry benchmarks is a straightforward concept. However, of the four steps it is the most commonly overlooked. While assumptions must be bank-specific, based on historic studies and future projections, the ability to benchmark against industry values is a powerful tool to ensure the reasonableness of nonmaturity deposit decay rates, price sensitivity (beta values), and loan prepayment speeds.
Different risk thresholds or assumptions may be more appropriate given the institution’s strategic plan, but in those circumstances it makes it even more important to see the forest from the trees in order to prepare a justification for the difference. Additionally, market intelligence on product benchmarks is extremely valuable in supporting ALM assumptions at new institutions or new products where historic information is unavailable. The increased regulatory focus on banks’ interest rate risk has fueled an increase in matters requiring board attention (MRBA) regarding ALM assumptions. In fact, the FDIC’s Supervisory Insights publication of Summer 2014 notes it as the fastest growing area for MRBAs among banks rated “1” and “2.” Common language includes: • “Develop and document non-maturity deposit assumptions based on a historical analysis of the bank’s customer base and create reports quantifying rollover risk.” • “Document support for key bank specific assumptions utilized in quarterly IRR modeling.” • “Enhance the ALM policy to better define required modeling scenarios and their associated risk limits.” • “Reasonable EVE sensitivity … Risk limits must be adequately supported.” A simple way to avoid these criticisms is to make sure your institution has properly addressed each of the four areas: historic experience, customer loyalty, economic projections, and industry benchmark data. ■ Stephen Brown Klinger is director of industry research at FinPro, Inc., which provides advisory services in strategic planning and risk management to community banks. For more information about FinPro’s ALM modeling, deposit loyalty studies, economic webinars, or ALM Market Intelligence Report, which contains ALM Industry Benchmark Data, contact Klinger at (908) 604-9336 or sbrownklinger@finpro.us.
Winter 2015 New Jersey Banker
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Bank Notes
Peter Bertram
Lauren S. Bell
George E. Irwin
ATLANTIC STEWARDSHIP BANK
CENTURY SAVINGS BANK
Peter Ameen has been appointed to executive vice president, chief operating officer of Atlantic Stewardship Bank. Ameen will serve at the bank’s headquarters. He has in excess of 25 years progressive experience in commercial banking. As COO, he will be responsible for the leadership and management of the branch administration, operations/ electronic services, information technology and consumer lending departments. Ameen received his bachelor’s degree in business administration from Ohio University.
Peter Bertram has been appointed to Century Savings Bank’s board of directors. Bertram joined the bank in May 2007 as vice president of commercial lending and, after demonstrating his diligence to the organization, was promoted to senior vice president in February 2013. He now broadens Century Savings Bank’s board, well-versed in Century’s operational strategy and equipped with extensive industry knowledge and significant lending expertise. Bertram received
Ann Noble
Andrew Gellert
his bachelor’s degree in economics from Washington College.
COLONIAL AMERICAN BANK Lauren S. Bell has been named senior vice president and chief financial officer of Colonial American Bank. As the bank’s chief financial officer, Bell plans, implements and manages all financial-related activities. She is directly responsible for accounting, finance, strategic planning and financial-report preparation, as well as summaries and forecasts for future business growth. Bell oversees the
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44 New Jersey Banker
Winter 2015
accounting team and manages the day-today functions of the accounting, finance and human resource departments. She received her bachelor’s degree in accounting from Monmouth University.
the positions of vice chairman of the boards of directors of both the company and the bank. Steven C. Ackmann was elected as chief executive officer and president of both the company and the bank effective at the same date.
HIGHLANDS STATE BANK
MANASQUAN SAVINGS BANK
The boards of directors of Highlands Bancorp, Inc. and its subsidiary Highlands State Bank announced the retirement of President and CEO George E. Irwin. Simultaneously Irwin was elected by the boards of directors as chairman of Highlands Bancorp, Inc. and of Highlands State Bank. In his new role, he will continue to provide his counsel on governance and strategic issues for the company and the bank. Irwin was the founding CEO of Highlands State Bank and later the Highlands Bancorp. He guided the bank from its formation in 2004 to its opening in October 2005. Under his leadership the bank has grown to over $250 million in assets. His retirement brings to a close a career in banking that began as a teller in 1962. Bruce D. Zaretsky will assume
Ann Noble has been appointed to the Manasquan Savings Bank board of directors. She is the president and CEO of Qual-Lynx and vice president of workers’ compensation for QualCare, Inc. As president and CEO of Qual-Lynx, she oversees a regional claimsservices organization which has been providing property and casualty claims administration for more than 50 years. She is also vice president of workers’ compensation for QualCare, Inc., overseeing operations and business development related to managed-care services for large self-insured employers, insurance carriers and pooled association risks. Noble graduated from Seton Hall University with a bachelor’s degree in accounting, and obtained her license as a Certified Public Accountant.
REGAL BANK Regal Bank announced the appointment of Andrew Gellert to its board of directors. Gellert is president of Gellert Global Group headquartered in Elizabeth. A graduate of Cornell University, Gellert is an active member of the Cornell Institute of Food Science Advisory Council. He is the president of the board of directors of the Association of Food Industries Inc., and is a member of the Young Presidents Organization New York Metro Chapter.
VALLEY NATIONAL BANK Christopher Kavanagh has been named first vice president, director of trust services. Kavanagh brings over 20 years of experience in providing wealth management solutions and fiduciary administration for high net worth individuals and organizations. His responsibilities include the coordination and delivery of administration, operational and investment services for Valley’s Trust Department, including managing and developing relationships with clients amd managing compliance, regulations and training for his department. ■
Winter 2015 New Jersey Banker
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Bank Shots
Team Amboy Bank raised $1,845 in donations from friends, family and fellow employees to help make Making Strides Against Breast Cancer event for the American Cancer Society a huge success. Over 20,000 walkers participated in the event and raised more than $1.12 million.
Atlantic Stewardship Bank hosted a collection in support of Operation Jersey Cares Support Our Troops. In addition to collecting donations of goods requested by servicemen and women, the bank received donations totaling more than $1,000. Atlantic Stewardship Bank also made a monetary donation of $750. The funds collected will be used to defray the cost of shipping the boxes to men and women serving overseas.
Mariner’s Bank proudly returned as the main sponsor of the annual Dumont Day festivities and concert held at Memorial Park. The full day event featured a range of activities for the entire family, from free food, face painting, cotton candy and kid’s rides, to great giveaways and raffle prizes for adults. Pictured is the Dumont branch staff, with John Perkins, Borough of Dumont administrator.
Bogota Savings Bank employees and family members participated in the Cancer Walk at Overpeck Park in Bergen County.
Peapack-Gladstone Bank supported the Visiting Nurse Association of Somerset Hills Fall Rummage Sale. This biannual event is a major fundraiser for the VNA and supports many of its programs from home health, to hospice care, to wellness services for local individuals and families in need. Pictured, PeapackGladstone Bank employees assist the VNA of Somerset Hills in preparation for the sale. From left: Rosanne Schwab, Susan Smith, Kathy Beisley, Ilene Gerber, Heather Hendry (rear) Abbie Zola, Washington; Cathy Ignall, Kendall Park; Diane Makoujy, Denise Pace-Sanders and David Nunez.
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Spencer Savings Bank partnered with Habitat for Humanity of Bergen County for the first time for a build day in Little Ferry. The day’s events, part of Habitat for Humanity’s Sandy Restoration Program, included reframing a basement damaged during the 2012 storm. Spencer sent a team of branch and corporate staff to lend their assistance and also made a $1,500 donation.
Winter 2015
THE POWER OF AN ADVANCE
One advance can help fund hundreds of neighborhood needs. FHLBNY advances are a reliable liquidity source for our member lenders to finance home mortgage, small business, and economic development activities. Magyar Bank and Metuchen Savings Bank used FHLBNY advances to partake in a loan consortium project from TICIC, Inc., a wholly owned subsidiary of the New Jersey Bankers Association. Funds were used to convert a brownfield site into Berry Street Commons, a multifamily rental apartment complex in Franklin Township, New Jersey. The four-story, 94-unit housing project revitalized the neighborhood and increased the availability of high-quality affordable housing in Somerset County. Contact us to see how the power of an advance can improve your community. 101 Park Avenue, New York, NY 10178 | (212) 441- 6700 | www.fhlbny.com Note: The Federal Home Loan Bank of New York uses the word “advances� to refer to the loans it provides to our member lenders.
SCoTT BARAnoWSki, CiA DiReCToR – inTeRnAl AuDiT SeRViCeS
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