New Jersey Banker Fall 2013 by The Warren Group

NEW

JERSEY

FALL 2 0 1 3

B A N K E R

HARD-HIT COMMUNITIES

Benefit When Bankers Build

Rebuilding Trust | Buy, Sell, or Consolidate? | Audubon Savings Bank ENDORSED BY THE NEW JERSEY BANKERS ASSOCIATION

NEW

JERSEY B A N K E R

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

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

Frank A. Kissel Chairman Peapack-Gladstone Bank

Mortimer J. O’Shea President/Chief Executive Officer Hilltop Community Bank

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

Thomas J. Holt Senior Vice President Bank of America

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

Robert Rey President/Chief Executive Officer NVE Bank

Kevin Cummings* President/Chief Executive Officer Investors Bank Immediate Former Chairman

James A. Hughes * President/Chief Executive Officer Unity Bank

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

Michael Schutzer President/Chief Executive Officer Harmony Bank

Thomas J. Kemly * President/Chief Executive Officer Columbia Bank

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

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

Peter Kenny President/Chief Executive Officer Heritage Community Bank

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

Paul E. Fitzgerald Vice Chairman First Bank Thomas X. Geisel President/Chief Executive Officer Sun National Bank

NJBankers Officers

NJBankers Staff 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 Michael P. Affuso, Esq. Executive Vice President and Director of Government Relations ext. 628 maffuso@njbankers.com Emily T. DeMasi Vice President and Director of Communications ext. 610 edemasi@njbankers.com Wendy C. Mandelbaum Controller ext. 603 wmandelbaum@njbankers.com Jenn Zorn Vice President and Director of Education and Business Development ext. 611 jzorn@njbankers.com

Cris Goncalves Manager of Education ext. 630 cgoncalves@njbankers.com Lauren Barraza Executive Assistant ext. 618 lbarraza@njbankers.com Allison Montellione Assistant to the Director of Communications ext. 629 amontellione@njbankers.com Cynthia M. Zaccaro Assistant to the Director of Education and Business Development ext. 632 czaccaro@njbankers.com Erin Suckiel Administrative Assistant/ Receptionist ext. 600 esuckiel@njbankers.com

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

Angela Snyder* Second Vice Chairman Chief Executive Officer/Vice Chairman Fulton Bank of New Jersey

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

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

Emily T. DeMasi

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

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

Contributing Editor

*Executive Committee

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

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

Fall 2013 New Jersey Banker

Table of Contents

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JERSEY B A N K E R

Departments

6 Chairmanâ&#x20AC;&#x2122;s Platform Half Full or Half Empty? 10 From the President's Office New Jersey Banks: Strong and Diverse 12 Politics & Policy Jersey Strong 17 New Member & New Associate Members 29 Upcoming Events 34 Bank Notes 36 Bank Shots

20 Cover Story: Hard-Hit Communities Benefit When Bankers Build

Features

Directors' Corner Rebuilding Trust Relationship Banking in the Social Age

Feature Banks Not Liable Burden to Detect Fraud Lies with Customer

Behind the Teller Line Audubon Savings Bank An Exceptional Banking Experience

Feature Buy, Sell or Consolidate How to Choose the Right Path to Branch Prosperity

Meet Our Endorsed Service Provider Promontory Interfinancial Network

Feature Revised Uniform Limited Liability Company Act Brings Many Changes

New Jersey Banker

Fall 2013

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 â&#x20AC;&#x153;advancesâ&#x20AC;? to refer to the loans it provides to our member lenders.

Chairman’s Platform

Half Full or Half Empty? By Stewart E. McClure, Jr. Greetings to you all! I hope everyone has had a great summer with family and friends at the shore or some other great location. During the summer, I had a chance to enjoy a long weekend in Maine which, in addition to great sunsets, allowed me to catch up on my reading. While my Stewart E. McClure Jr. Chairman summer reading NJBankers tends to favor a Regional President Lakeland Bank good mystery, the banker in me can’t help but read the latest economic news in the business section of the paper and in other business periodicals. Recently, including that weekend, I’ve found that reading more than a little confusing. One article says “the economy is improving” and another says “it’s not improving fast enough.” One article discusses imminent tapering coupled with rising rates, while another sees tapering and rising rates still off in the distance. And unemployment seems impossible to evaluate when you need to adjust for part-timers, the unemployed, and those who have stopped looking for a job. After all these years in banking it seems to me that it should be easier for all these smart people to reach consensus on these issues. Well, I’ve taken matters into my own hands and visited some of the people who are closest to what is really going on in the economy – New Jersey bankers! Since becoming chairman I’ve had the pleasure of visiting bankers accompanied by either John McWeeney, Jim Meredith or Mike Affuso. We’ve been to commercial banks, savings banks, public companies and mutuals. After many great conversations, I’m pleased to report that the glass is

definitely half full! All of our bankers were in good spirits and reporting an increase in loan demand – not robust – but an increase. Everyone is experiencing a reduction in their nonperformers, and most have an improving bottom line and report good support from their boards and shareholders. Anecdotally, there are reports of customers beginning to talk about a pickup in their business and the thought (missing for the last five years) that they may need financing for that growth and expansion, possibly as early as next year. So, my old fashioned banker’s survey is telling me that “the glass is half full” and New Jersey banks and bankers are actively helping homeowners and small to mid-size businesses grow the New Jersey economy – and it was a lot easier to understand than the articles I read this weekend! While helpful with my economic analysis, the primary reason for our visits with our membership is to make sure everyone realizes how much NJBankers values their support, and to see what we might be able to do to further the valuation proposition of membership in NJBankers. During the last year, under John’s leadership, and with the support of his management team, the board and Chairman Kevin Cummings, tremendous progress was made to ensure the longterm strength of our organization. Steps were taken to control the longterm costs of health insurance and pension obligations, as well as the closing of TICIC. What’s left to focus on now is making sure we’re delivering programs and information that is valuable to our members. Through our visits, we have the opportunity to hear what issues everyone is dealing with, what they need help with and what information and training is most valuable to their banks and employees

future success. It also gives us a chance to thank those that are very involved and participate in many committees, and to encourage those that are less involved to jump in – the water’s fine. By the time you read this we will have played the golf outing at Fiddlers Elbow, and I can tell you it was a great success, as we had record participation of 216 golfers. Following shortly after, and closing out the summer months, is our Senior Management Conference at Revel in Atlantic City. But it is the Economic Forum in January that I want to plug at this time. It has grown in popularity in the last few continued on page 8

New Jersey Banker

Fall 2013

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West Sally J. Hazen, SVP Adnan Mneimne, VP Scott Strebe, VP Denise Wiest, VP

Central Kaushik Patel, VP Robert Wettergren, VP

East Michael Fallon, VP Philip Toscano, VP

Chairman’s Platform Half Full or Half Empty? continued from page 6

One article says “the economy is improving” and another says “it’s not improving fast enough.” I’ve taken matters into my own hands and visited some of the people who are closest to what is really going on in the economy – New Jersey bankers! years into one of the leading economic events in the state. We had 550 people attend in 2013 and expect more in 2014. Of particular interest to me is an individual on the program who leads an organization very close to me. Over the last few decades I have had the privilege to serve on the board, and had the honor to chair, Special Olympics New Jersey (SONJ). ERM Half Page-7.25x4.75-OR.pdf 2

New Jersey Banker

SONJ President Marc Edenzon will be speaking, and he has a great story. Many of you may not be aware that SONJ bid for and won the right to host the 2014 Special Olympics USA games, which will be held June 14 – 21, 2014. At these games, which will be played in varying venues in New Jersey, SONJ will host teams from all 50 states and the District of Columbia, with 3,500 athletes competing in 16 sporting events. SONJ serves over

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23,000 total athletes from all over the State of New Jersey and will send the largest delegation with over 280 athletes. There will be coverage by national media, and the expected economic impact to New Jersey is estimated to be over $60 million. NJBankers will be a sponsor of Team New Jersey and I think you will find Marc’s presentation quite interesting and exciting, so please join us and invite a co-worker or customer. I hope to have the opportunity to personally visit with most of you before my term is finished, and we look forward to your input. ■ Stewart E. McClure Jr. is chairman of the New Jersey Bankers Association and regional president of Lakeland Bank. He can be reached at smcclure@lakelandbank.com.

Fall 2013

From the President’s Office

New Jersey Banks: Strong and Diverse By John E. McWeeney, Jr.

t’s hard to believe that the summer is behind us and we’re heading into the final months of 2013. I hope that everyone’s summer was restful and enjoyable. We seem to be in a better place than we were a year ago with a stable but slowly improving economy, a slightly better interest rate environment and our recovery from Superstorm Sandy well under way. That John E. McWeeney, Jr. said, it’s still a chalPresident/Chief Executive Officer NJBankers lenging economic environment for banks to operate in, one made more difficult by the continued burden of regulatory compliance and new requirements for higher capital levels. For the most part, New Jersey banks have remained strong with total equity capital for the 110 New Jersey headquartered institutions of $15.8 billion at March 31, 2013. New Jersey banks also remain very liquid and held in excess of $105 billion in deposits at the end of the first quarter. These high levels of capital and liquidity, along with reduced levels of non-current loans and OREO put New Jersey’s banks in a strong position to lend and support the state’s economic resurgence. Some good old fashioned loan growth would certainly be a welcome development. At odds with the appetite and ability of banks to lend are higher capital requirements under BASEL III, new and increased compliance requirements under the Qualified Mortgage (QM) test and the general avalanche of rules and regulations promulgating from Dodd Frank. The weight of all of these could potentially inhibit lending and stifle economic growth. Meaningful progress has been made with regulators on these issues but more needs to be done to

10 New Jersey Banker

minimize the potential negative impact they could have. The strength of New Jersey’s banking system, similar to that at the national level, is its diversity. Based upon the FDIC’s most recent Deposit Market Share Report for New Jersey dated June 30, 2012, the state had 161 FDIC insured deposit taking institutions

free enterprise system is at work. Buyers and sellers come together in an effort to best serve their stakeholders; their owners, their customers, their communities and their employees. One plus one can equal three when the combination is right. Many are concerned, however, that the next wave of consolidation might be partially driven

The strength of New Jersey’s banking system, similar to that at the national level, is its diversity. holding over $268 billion in deposits. Of those institutions, 110 are headquartered in NJ and the rest are headquartered out of state. They range from large national banks with vast branch networks to smaller community banks with just a handful of branches. They include stockholder owned institutions, mutual institutions and Subchapter S institutions. They have business models that focus almost exclusively on residential lending, some that just do commercial lending and many that are full service. These institutions offer New Jersey’s consumers and businesses lots of choices of how and where to do their banking. Beyond the economic activity they stimulate by making loans, New Jersey banks also provide vast levels of resources to their local communities through their charitable giving and volunteer activities. Our nation’s banks have been consolidating over the past few decades. In 1990, there were 15,158 FDIC institutions in the United States, and in March 2013, that number had dwindled to 7,019. Similarly, in 2000, New Jersey had 152 NJ-headquartered institutions and today that number is 110. That number will shrink even further given some recently announced deals that are in process. One can argue whether consolidation is good or bad. When consolidation happens through natural market conditions America’s

at least by the growing regulatory and compliance burden being placed on smaller community banks. Faced with the prospect of both slow revenue growth and rising compliance costs, some institutions may be forced to make decisions they otherwise may not have made. In order to preserve America’s unique banking system, it’s critical that legislators and regulators heed the cry of the banking industry and others and begin to lighten the regulatory load on banks, especially community banks. The rhetoric coming out of Washington, DC, as well as some of the recent rules, has begun to reflect the need to protect the nation’s community banks. The national trades, the state associations and, most importantly, bankers themselves, need to stay on message and keep pressing this point. The strength of our banking system – and our economy, for that matter – is our diversity, and community banks are a critical part of the system. Our shareholders, customers, communities and employees deserve nothing less than a vibrant community banking system with a right-sized regulatory model. ■ John E. McWeeney, Jr., is president and CEO of the New Jersey Bankers Association, and can be reached at jmcweeney@njbankers.com.

Fall 2013

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Politics & Policy

Jersey Strong BANKERS JOIN THE REBUILDING EFFORT By Michael P. Affuso, Esq.

resident Barack Obama was cruising to victory; Republicans were holding the House; baseball was over; the Jets and Giants were mediocre, there were 60 shopping days till Christmas; another mundane autumn … then came Sandy. We can remember well the gas lines, the Michael P. Affuso power outages Executive Vice President/ and then what Director of Government Relations NJBankers we saw when the power came back on. We can remember the early pledges of unity and support, the acts of defiance and grace. We are Americans; this is what we do. But we also have a short memory. We move on. We go back to our lives. We forget about those who have no life to go back to. But this was different. For many it was not so much that their homes were destroyed, but the loss of a sublime memory of the past. Knowledge that “down the shore” would never be the same, memories erased in one dark night. Girded with duty that something must be done, many did much. New Jersey’s bankers did their share. Though the efforts of bankers dealing with issues in their white-collar role are well documented; their blue-collar role is not. In late winter, NJBankers entered into a strategic partnership with Coastal Habitat for Humanity. Beginning on June 11 and running throughout the summer, NJBankers and our bank members partnered with Coastal Habitat for Humanity for a 30-day summer build program. The projects are part of a fiveyear program in some of the areas of New Jersey ravaged by Superstorm Sandy. NJBankers and our members provided manpower and financial resources. Every

12 New Jersey Banker

Tuesday and Thursday last summer, a team of eight to 10 bankers worked on a Habitat project. In addition, each institution pledged $100 to Coastal Habitat for each banker working on each day. In total, bankers worked more than 30 days providing over 2,000 volunteer hours and thousands of dollars in donations. The support from NJBankers members was extraordinary. Within hours after an email from NJBankers President and CEO John E. McWeeney, Jr., half of the calendar was committed to institutions. With a little more cajoling, our commitment was attained. As the project continued, bankers sought even more volunteer days. Everyone’s expectations were far exceeded. In addition to providing community service, many bankers were excited about using the opportunity for team building. The projects also fulfilled more than volunteering and team building; they also allowed employees of smaller institutions which could not provide a full team to be paired with other similarly situated institutions to form amalgamated teams. These teams allowed bankers the opportunity not only to work with co-

workers, but also meet other bankers from smaller institutions. NJBankers was also pleased to provide a team. Our team, consisting of Claire Anello, Lauren Barraza, John McWeeney, Jim Meredith, Rich Siderko, Erin Suckiel and I, worked on a house ravaged by flooding. The home in Manasquan was within 10 feet of a tidal creek and was flooded with four inches of water in the first floor and a fully flooded basement. Amazingly, the homeowner remained in the house during the ordeal. Our task was to lay a floor and waterproof the basement. We were proud to take part in the industry-wide effort, and felt good about our participation. A good day was had by all. While the rebuilding continues, affected New Jerseyians should rest assured that our industry stands ready individually and collectively to lend money and lend a hand to ensure that we restore the Shore. ■ Michael Affuso, Esq., is executive vice president and director of government relations for NJBankers. He can be reached at maffuso@njbankers.com.

Fall 2013

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Directors’ Corner

Rebuilding Trust RELATIONSHIP BANKING IN THE SOCIAL AGE By Sally Ourieff

nless you’re wearing blinders, you know that the banking industry has been facing a crisis when it comes to customer trust. Edelman’s 2013 “Trust Barometer” showed that banking and financial services were the least trusted industries in the world. In Edelman’s research, 60 percent Sally Ourieff of informed respondents perceived bank’s bad behavior as due to a culture preoccupied with bonuses and compensation, corporate corruption, and conflicts of interest. Only 6 percent of those surveyed felt the scandals and subsequent trust deficit was due to the economy. Edelman found almost half of those aware of the banking scandals in the U.S. trust banks less this year than last. Community banks fare better. A 2010 Gallup study showed that community banks received higher trust scores than larger institutions. However, it also showed that the majority of banking customers are not committed to their primary bank, regardless of its size. Three of five consumers and four of five smallbusiness customers were at risk of leaving. Customers who were considered lowtrust and not emotionally connected to their bank, left for better products, fees, and pricing. Those considered high-trust left because they were disappointed by something more personal, such as poor service, inconsistent or unfair policies, or decisions that went against their political beliefs. Can the banking industry rebuild trust and turn itself around? Who will lead the way? I believe that community banks are primed to become a model for change.

14 New Jersey Banker

In fact, in an age defined by social and mobile technology, community banks have a clear advantage when it comes to restoring trust. Why? Because they already distinguish themselves by focusing on “relationship banking.” Their advantage is their ability to prioritize their connections

assumptions, attitudes, and behaviors of boards and executives.

RETHINK RELATIONSHIPS AS OPERATIONAL CURRENCY If you want to regain trust, your board and top executives must begin by trusting

This is not just an advantage; it is the key to success. Relationships have become the very currency of business. A bank’s “relationship touch” is now a factor of how big its own network is and how well it facilitates the interaction and sharing of those within it. to and relationships with individual customers, small business clients, and local communities. This is not just an advantage; it is the key to success. Relationships have become the very currency of business. Technology has connected people in continually expanding networks through social media such as Facebook, Pinterest, Instagram, Vine and Twitter. A bank’s “relationship touch” is now a factor of how big its own network is and how well it facilitates the interaction and sharing of those within it. In the process of embracing and partnering with these expanding networks, community banks have the opportunity to rebuild lost trust. Relationships have always driven community banking, but there are new and greater possibilities waiting for those that dare to break the mold of how to engage. Let me clarify what “relationship banking” means in a socially connected world. For all businesses, the collected voice and actions of an empowered public pose both huge opportunity and potential risks. To manage this, relationship banking today means an elemental shift in the

your employees and customers. You must believe, fundamentally, that if you operate in a manner that builds trust, you will be rewarded by customer loyalty, advocacy, and growth. Business today is built on collaboration and trust thrives on listening, giving, openness, honesty, and a feeling of partnership. Begin by considering the following: Communicate your needs and goals clearly and repeatedly to employees, customers, and everyone else you do business with. According to Edelman, people need to hear information at least four times before they incorporate it into their thoughts and actions. Eliminate rules that restrict employee decision-making and limit interactions. Empower every employee regardless of title or job description. But be sure to build understanding of risks and accountability into the decision-making process. Find new ways to measure productivity. Productivity should not be measured by the number of customer calls taken per hour or the amount of loans approved in a week. It should be measured by the quality of the

Fall 2013

relationships being built and the speed and success of meeting customer needs. Be transparent. If you obfuscate fees, policies, and ways of generating revenue, ask yourselves if you are doing the right thing. Your customers are. If you want to build trust, customers come before profits.

RETHINK RELATIONSHIPS AS INNOVATION CURRENCY While being “an innovator of new products, services and ideas” is ranked number 14 in the Edelman list of trust attributes, it is far more significant when it comes to surviving the speed and emerging disruption that characterize today’s business environment. At Fortune magazine’s recent Global Forum, leaders from 32 countries agreed: “Technology is making everything move faster.” And that is not going to change. When business happens quickly, adaptability is the only way to survive,

meet the demands of your customers, and maintain trust. To do this, you need everyone in your network available to innovate. To get started: See the reality. Your businessdevelopment team isn’t able to keep up with the market. In an era defined by digital technology, banks need to capture slices of genius wherever they are. This is more than just putting out a suggestion box. It requires inviting every employee, customer, partner, and vendor to be co-creators in products and services. They have the ideas if you listen for them. Use “teaming.” Instead of fixed teams within departments, let any employee anywhere in the organization join in the project at hand. The benefit: self-organizing teams bring the best people to the table and they also self-manage themselves. Teaming is fluid and creates highly motivated and focused groups to drive innovation and

transformation. Welcome every idea. Create a culture that respects all ideas. You don’t know who will have the next best idea – it could be a new, young hire, the janitor, your executive assistant, or your head of marketing. Encourage productive conflict as it leads to new ideas and opportunities. Leaders must embrace the chaos that sometimes ensues and provide the high-altitude perspective to maintain clarity and focus.

RETHINK RELATIONSHIPS AS GROWTH CURRENCY Brentwood Associates is a consumerinvestment firm founded in 1984. Beginning in the 1990s, just as social technology began to develop, its primary criterion for investment became a company’s degree of customer loyalty. continued on page 16

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Fall 2013 New Jersey Banker

Directors’ Corner Rebuilding Trust continued from page 15

According to co-founder Bill Barnum, this is the single largest factor that drives market share. Today, the firm has more than $650 million under management and, in its fourth fund, companies that were held for longer than a year grew an average of 127 percent. In making investment decisions, managers look at metrics such as the Net Promoter Score developed by Satmetrix. Based on a scale of negative 100 to positive 100, this score determines whether customers are more likely to advocate and promote or criticize a brand. Anything above 50 reflects a company with strong customer loyalty. Brentwood’s companies routinely have scores in the 80s to 90s. They invest in companies that generate customer love. Community banks make 60 percent of small business loans. Small businesses employ half of American workers. This means community banks have the

opportunity to drive half the American economy by helping to develop small business. This enormous opportunity requires banks to break out of routine practices. Leaders can begin to: Think like investors. That means loan approval should be determined not just by credit ratings, but by bank committees evaluating small business potential much the same way an investor would. Start-ups and growing companies need their bank to develop long-term relationships centered on supporting long-term value and success. Engage. Board directors and executives need to spend less time in the executive suite and more time engaged with their employee, customer, and vendor networks. Leaders who walk the halls and talk to employees at every level, and who meet with customers and vendors, are much more likely to discover opportunities and risks. Disrupt yourselves. Brand loyalty

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stems from brand love, and love is all about passion. Your employees help reinforce or chip away at your customer’s passion every day. Has your board visited any of the most loved companies in America? Where is the Southwest Airlines of community banks? Help customers become brand advocates. Today, thanks to social and mobile technology, customers can be part of your marketing team. Customers, and their friends and family, naturally expand your network and their advocacy can decrease your marketing budget. This approach works best if you give advocates recognition and interact with them as valuable partners. Your network holds the opportunities to expand banking relationships and regain organizational trust. The key lies in understanding and prioritizing the kinds of relationships made possible by today’s technologies. Hamdi Ulukaya, CEO of Ciobani and the 2012 Ernst and Young Entrepreneur of the Year, recently spoke at an entrepreneur’s dinner. Entirely funded by its community bank in upstate New York, Ulukaya created a $1-billion company in just five years. There was a twinkle in his eye as he told his story in front of some of the country’s most successful venture capitalists. He never took a dime of venture money. His bank built a relationship with him based on mutual trust and a long-term vision bolstered by his own hard work and perseverance. Community banks already have the relationship credentials they need to flourish in today’s hyper-connected, fastpaced environment. By expanding the definition of who is valuable and how they can contribute, community banks can build flexible, open, thriving networks that contribute to their success. By trusting and doing what it takes to rebuild trust, community banks can be the change agents that turn around the banking industry. ■ Dr. Sally Ourieff, CEO of Translational Consulting, is an experienced consultant and coach who advises executives on ways to lead today's highly connected, empowered employees and customer networks.

Fall 2013

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Fall 2013 New Jersey Banker

Behind the Teller Line

Audubon Savings Bank NJBANKERS WELCOMES ITS NEWEST MEMBER

n Exceptional Banking Experience” is the commitment made to every person who walks through the doors at Audubon Savings Bank (ASB). Founded in 1904, ASB has been a trusted and stable provider of personalized financial solutions to the business and retail market within the South Jersey area. Headquartered in Audubon, New Jersey, the bank has three neighborhood branches in Audubon, Mount Laurel and Pine Hill. Operating as a state-chartered mutual savings bank with $191 million in assets, ASB is a full-service community bank primarily serving Camden, Burlington and Gloucester counties. It offers a wide array of commercial and residential lending, along with comprehensive consumer and business deposit products and services. In 2012 the board of directors decided the bank needed to enhance the executive leadership to meet the many challenges and capitalize on the opportunities of a rapidly evolving financial services industry. As a result, it recruited Kyle R. McGonigle for the position of president and CEO, and since his hiring, he has been building a highly experienced and motivated executive management team. This management team boasts over 150 years of combined experience and is positioning the bank for “best in class” status. “The executive management team, coupled with our dedicated and professional staff brings the ideal mix of experience, skill, vision and leadership that we need to solidify the bank’s status as one of the premier community banking institutions in southern New Jersey,” said McGonigle. ASB’s business strategy is to operate as a well-capitalized and profitable community bank dedicated to serving the needs of consumer and business customers and emphasizing personalized and efficient customer service. Highlights of this strategy include: • Remaining a community-oriented financial institution with a continued

18 New Jersey Banker

emphasis on retail and small business customers in our market area. • Increasing lending while maintaining conservative loan underwriting standards. In particular, the bank intends to continue expanding its originations of commercial real estate loans and commercial business loans in its primary market area. • Continuing to attract and retain customers, particularly commercial customers, through our increased or enhanced product offerings. • Continuing to attract and retain quality staff, thereby enabling the delivery of high quality products and services within the bank’s market area. Through the use of advanced technology, ASB offers customers a userfriendly website, online banking, bill pay, e-statements, smartphone mobile banking, and a safe and secure online residential mortgage application system. As an example, customers can apply for a residential mortgage in as little as 15 minutes from the comfort of their home or office. Upon completing the Q&A style application, they will immediately receive their initial electronic disclosures and a conditional loan approval or denial. Within 24 hours, a residential mortgage loan officer will call the borrower directly and guide them through the entire process. In addition, ASB commits that the processing, underwriting and closing

schedule for a residential mortgage will be 30 days or less, assuming all required documents have been signed and/or provided by the customer. The foundation of a community bank is the branch network and the products and customer service that is offered. With a full range of deposit products and convenient hours, ASB has focused on recruiting energetic and results-driven branch staff. Recently the bank introduced the ASB Change Exchange (“Cha-Ching”) coin counting machines in all three branch locations. The ASB Change Exchange is free to all visitors of ASB branches. “Our retail efforts continue to ensure that we provide our customers with an exceptional banking experience. To this end we strive for excellence of service for customers from our team of retail bankers,” said Jackie Russell, vice president and retail market manager. The bank has also built premier commercial lending and residential lending departments. Under the leadership of Robert Bender, senior vice president and chief lending officer, the two departments are operated by staff with approximately 146 years of combined experience. For fiscal year 2013, the bank originated an all-time record of new loans while continuing to protect its conservative and thoughtful credit standards. These credit standards are further represented by the bank’s asset quality ratios. ASB’s residential lending team offers conventional, jumbo, FHA, VA, home equity lines of credit, fixed rate home equity loans and first-time homebuyer residential financing options. Commercial loan products include owner-occupied or investment commercial mortgages, revolving lines of credit, term loans and letters of credit. Some of the more recent commercial loans include a $300,000 commercial mortgage for an owneroccupied mixed-use property; a $2.2 loan for a class A medical office building; and a $820 mortgage and $400,000 revolving line of credit for a commercial printing facility. Working within and giving back to the

Fall 2013

communities served by the bank is also a high priority of ASB management and staff. The bank is very proud that many of its team members serve on community boards, work with veterans associations, coach young athletic teams, and are active in schools, religious organizations, and charitable organizations. Each year ASB sponsors a leadership scholarship for a graduating senior from the Audubon, Pine Hill and Mt. Laurel school district. “We are pleased to have the opportunity to work with many of the great New Jersey bankers in loan participations, loan purchases and idea sharing,” McGonigle said. “The banking industry continues to be under pressure and it’s important that New Jersey bankers work together to protect and ensure consumers receive the best financial products, services and advice we can offer. While the past few years have been economically challenging for our great country, this is also an exciting time to be in the banking industry, and ASB is positioned and ready for the opportunity.” ■

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Fall 2013 New Jersey Banker

Photo courtesy of Don Christensen, Christensen-Tamburri Communications

HARD-HIT COMMUNITIES

Benefit When Bankers Build

ince Superstorm Sandy wreaked havoc on the Jersey Shore last October, banks did their part by providing loans to residents and business owners who fell victim to the storm. But to members of the New Jersey Bankers Association, providing loans just wasn’t enough. And so the NJBankers “Bankers Build” Initiative was born! NJBankers and our members proudly partnered with Coastal Habitat for Humanity for a 30-day summer build program. Providing manpower and financial resources

every Tuesday and Thursday throughout the summer, a team of eight to 10 bankers were at work on a Habitat project. From brightening walls with a fresh coat of paint to laying new floors, NJBankers and our members were there to “restore the shore.” In addition to the time our members selflessly donated to the project, each institution pledged $100 to Coastal Habitat for each banker working on each day. In total, bankers worked for 25 days providing nearly 2,000 volunteer hours and thousands of dollars in donations. ■

Employees from Harmony Bank gather for a group photo during their August build.

Many thanks to members that participated: Amboy Bank

First Choice Bank

Mariner’s Bank

Atlantic Stewardship Bank

Fulton Bank of New Jersey

Millington Savings Bank

BCB Community Bank

Harmony Bank

New Jersey Community Bank

Central Jersey Bank, A Division of Kearny Federal Savings Bank

Heritage Community Bank

Northfield Bank

Hilltop Community Bank

OceanFirst Bank

Investors Bank

The Provident Bank

Lakeland Bank

Two River Community Bank

Magyar Bank

Union Center National Bank

Clifton Savings Bank Columbia Bank First Bank

20 New Jersey Banker

Manasquan Savings Bank Fall 2013

Photos from the following members were not available at press time: Investors Bank; Hilltop Community Bank; Millington Savings Bank; and The Provident Bank. Photos from the following members were not available as their builds were not completed at press time: Atlantic Stewardship Bank; Clifton Savings Bank; Fulton Bank of New Jersey; Lakeland Bank, Mariner’s Bank; and Two River Community Bank.

BCB Community Bank joined forces with Coastal Habitat for Humanity to help “restore the shore” as part of “Bankers Build.”

Amboy Bank employees lent a hand to Coastal Habitat for Humanity as part of the “Bankers Build” initiative.

Columbia Bank employees took a break from banking to help out storm victims at the Jersey Shore.

Employees from First Bank volunteered their time to Habitat for Humanity, rebuilding a home in Manasquan that was damaged by Superstorm Sandy. Bank volunteers are seen with the homeowner, Vince Darago.

Union Center National Bank employees gave this Coastal Habitat house a brand new look. Employees from New Jersey Community Bank gather for a group photo during their August build.

continued on page 22

Fall 2013 New Jersey Banker

Bankers Build

continued from page 21

Magyar Bank employees rolled up their sleeves while volunteering their time to the NJBankers “Bankers Build” Initiative.

Employees of Kearny Federal’s Central Jersey Bank Division exchanged their usual business attire for an outfit more suitable for a construction site. In addition to the volunteers’ physical labor, the bank also donated $1,000 toward the restoration project.

Employees of Central Jersey Bank, a Division of Kearny Federal Savings Bank, cleaning up a damaged property at the Jersey Shore.

Heritage Community Bank got their hands dirty for Coastal Habitat for Humanity as part of “Bankers Build.”

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Fall 2013

First Choice Bank employees prepare to begin work on a Coastal Habitat house.

Magyar Bank employees gave the Habitat house a fresh coat of paint.

Manasquan Savings Bank kicked off the “Bankers Build” Initiative rebuilding a home in Manasquan in early June. James Vaccaro, president and CEO, Manasquan Savings Bank, joins with a Coastal Habitat contractor during the build; he and his team installed a subfloor.

continued on page 24

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Plymouth Rock Assurance is a marketing name used by a group of separate companies that write and manage property and casualty insurance in multiple states. Insurance in New Jersey is offered by Plymouth Rock Management Company of New Jersey on behalf of High Point Property and Casualty Insurance Company and its affiliates. Each company is financially responsible only for its own insurance products. Actual coverage is subject to the language of the policies as issued by each company. Certain restrictions, requirements and limitations apply to our free programs, policy features and discount offerings. For a full description of our customer benefits, please visit PlymouthRockNJ.com. Group discounts apply to policies written in High Point Property and Casualty Insurance Company. If the discount is not currently applied, it may be added upon request. May not be combined with any other group discounts. Offer available to New Jersey residents only. ©2013 Plymouth Rock Management Company of New Jersey. All rights reserved. 6954/052013

Fall 2013 New Jersey Banker

Bankers Build

continued from page 23

After the opening ceremony kicking off the NJBankers “Bankers Build” Initiative, NJBankers President/CEO John E. McWeeney, Jr. presented a $25,000 ceremonial check to Coastal Habitat, representing donations from participating members, who provided $100 for each bank volunteer. From left: Charlie Mannino, president, Coastal Habitat for Humanity; James S. Vaccaro, president and CEO, Manasquan Savings Bank; McWeeney; Michael P. Affuso, executive vice president and director of government relations, NJBankers; and Maureen Mulligan, executive director, Coastal Habitat.

OceanFirst Bank employees after a long day of volunteering for Bankers Build.

24 New Jersey Banker

OceanFirst Bank employees put on a fresh coat of paint.

Northfield Bank employees were happy to swap their collared shirts and loafers for T-shirts and steel-toed boots when they volunteered for the NJBankers “Bankers Build” in July.

Fall 2013

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Fall 2013 New Jersey Banker

Feature

Banks Not Liable

BURDEN TO DETECT FRAUD LIES WITH CUSTOMER By Anthony J. Sylvester and Anthony C. Valenziano

n Teichman v. Teichman, et al., Docket No. MID-L-4876-11, the Chancery Court for the Superior Court of New Jersey, Middlesex County Vicinage, analyzed the reach of both the “same wrongdoer” exception in Section 4-406 of the Uniform Commercial Code (UCC) (N.J.S.A. 12A:4-406) and New Jersey’s Revised Durable Power of Attorney Act (N.J.S.A. 46:2B-14). In Teichman, the plaintiff, an elderly widow, brought suit against several banks and car Anthony J. Sylvester dealerships, alleging that they negligently permitted her son to conduct financial transactions pursuant to a power of attorney allegedly requiring the consent of two of her three sons. Anthony C. Valenziano On Jan. 8, 2009, the plaintiff executed a power of attorney, which provided, among other things, that any one of the plaintiff ’s three sons could “make withdrawals from any checking, savings, transaction or other deposit account in [her] name … and to do all acts regarding any checking account, savings account, savings certificate, certificate of deposit or similar instrument.” The plaintiff subsequently executed a second power of attorney, dated April 22, 2009, which did not expressly revoke the Jan. 8 power of attorney. Unlike the Jan. 8 power of attorney, the April 22 power of attorney required two of three of the plaintiff ’s sons’ consent to any banking transaction. Over the course of two years, the plaintiff ’s son repeatedly made withdrawals and endorsed checks,

26 New Jersey Banker

purportedly under the authority of the April 22 power of attorney, without the consent or knowledge of either of his brothers. According to her complaint and deposition testimony, it took more than two years for the plaintiff to uncover the improper transactions because her son intercepted the mail, preventing her from reviewing her monthly statements. The plaintiff claimed that the son stole over

when the first forgery is accomplished.” In doing so, the court cited the official comment to the UCC regarding the “same wrongdoer” provision, which states in part that “one of the best ways to keep down losses in [the same wrongdoer] situation is for the customer to promptly examine the statement and notify the bank of an unauthorized signature or alteration so that the bank will be alerted to stop paying further items.” Using this analysis, the court

An elderly widow brought suit against several banks and car dealerships, alleging that they negligently permitted her son to conduct financial transactions pursuant to a power of attorney allegedly requiring the consent of two of her three sons. $500,000 from her through the use of the April 22 power of attorney. On the banks’ respective motions for summary judgment, the court dismissed the plaintiff ’s claims in their entirety. In terms of the plaintiff ’s obligations to monitor her accounts under Section 4-406 of the UCC, the court noted that, like other jurisdictions, New Jersey law provides that “once account statements are mailed to the account holder’s proper address, the risk of nonreceipt falls on the account holder and interception of the statements by a wrongdoer does not relieve the account holder of the duty to examine the statements and report unauthorized items to the bank.” Thus, the court held that the plaintiff could not avoid the one-year limitation in Section 4-406(f) by claiming that she was unable to review her monthly statements. Further, the court held that, when dealing with the “same wrongdoer” provision of the UCC, the one-year statute of repose contained in Section 4-406 “starts ticking

found that the plaintiff ’s claims as to checks improperly drawn on her account after April 2011 -– the date of the statement plus one year – were time-barred. The holding in Teichman further confirms that under the UCC, a bank customer stands in the best position to monitor improper withdrawals and charges on his or her account, irrespective of the plaintiff ’s particular circumstances. The court’s analysis tracks the law in several other jurisdictions, which have similarly held that a bank need only place the customer’s statements in the mail or make them available in order to dispense with its obligations under the UCC and shift the responsibility of detecting potentially fraudulent activity to the customer. See, e.g., Stowell v. Cloquet Co-op Credit Union, 557 N.W.2d 567 (Minn. 1997); Peters v. Riggs National Bank, 942 A.2d 1163 (D.C. Ct. App. 2008); Borowski v. Firstar Bank Milwaukee, N.A., 579 N.W.2d 247 (Wis. Ct. App. 1998); PTA, Pub. Sch. 72 v. Mfrs. Hanover Trust Co., 524 N.Y.S.2d 336, 340

Fall 2013

(N.Y. City Civ. Ct. 1988). The Teichman court’s holding that the one-year statute of limitations runs from the first withdrawal by a “same wrongdoer” is also in keeping with the above rationale. Had the plaintiff taken the necessary steps to review her statements promptly, the son’s continued theft could have been thwarted before the plaintiff suffered significant losses. The Teichman court ultimately shifts the brunt of this loss to the customer who, again, was in the best position to quickly and easily detect suspicious banking activity. In a matter of first impression, the court also analyzed New Jersey’s Revised Durable Power of Attorney Act and found that the defendant banks could not be held liable for any improper withdrawals premised on allegations that they were

Had the plaintiff taken the necessary steps to review her statements promptly, the son’s continued theft could have been thwarted before the plaintiff suffered significant losses. negligent in failing to follow the two signature provision of the second power of attorney. The court noted that the plaintiff ’s complaint sounded exclusively in negligence, and, as a result, could not survive in light of the Revised Durable Power of Attorney Act’s expansive language barring claims against a bank “acting in reliance on a power of attorney … unless the act or omission constitutes a crime, actual fraud, actual malice or willful misconduct.” The court’s analysis of the Revised Durable Power of Attorney Act provides

financial institutions additional protection from claims of negligence in performing banking transactions involving powers of attorney. Under the Teichman analysis, financial institutions are not tasked with properly interpreting the requirements of a power of attorney so long as they act in good faith in performing banking transactions for a customer. ■

Anthony J. Sylvester is partner and Anthony C. Valenziano is an associate with Riker, Danzig, Scherer, Hyland & Perretti LLP.

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Fall 2013 New Jersey Banker

Feature

Buy, Sell or Consolidate? HOW TO CHOOSE THE RIGHT PATH TO BRANCH PROSPERITY By Andrew Grinstead

ranch growth used to be a fairly simple concept. If a financial institution wanted to grow its presence in a particular market, more branches were built. Today, growth strategies are more complicated. The economic landscape looks vastly different than it did a decade ago, and very few institutions are in a position to build new branches. Fortunately, value growth via the branch is far from dead. It simply requires a different perspective. The challenge for bank leaders is to determine the best strategy to drive their branches forward into a new era of banking – whether it’s increasing market presence through acquisition, consolidating branches for efficiency or selling facilities to offset weak performance.

EXPANDING BRANCH PRESENCE THROUGH ACQUISITION

It’s a buyer’s market, given the number of bank failures in the last 24 months. But, while institutions purchasing a branch have a tremendous market advantage, it doesn’t mean it’s the best decision. Here’s why: Many executives make the mistake of focusing the bulk of their due diligence analysis on fiscal health. Bank leaders must first ask themselves whether or not a branch purchase is, in fact, the right path to growth. Perhaps instead, financial institutions might be better served by optimizing their existing branch networks. By analyzing key metrics such as core deposits, revenue and accounts per office, executives may find they can increase revenues and market presence from within. Justifying branch acquisitions often involves more than just citing the need for financial gain. The business case for adding branches might be to attract new types of customers; in others, it could be to sell new offerings or establish a new business hub in a region. Alongside these incentives, institutions must evaluate what types of customers they serve well today and determine if the target branch is complimentary to those strengths. This forward-thinking analysis will expose incompatibilities, and improve the chances of a branch acquisition being profitable.

28 New Jersey Banker

CONSOLIDATING BRANCHES FOR INCREASED EFFICIENCY

The stigma attached to branch consolidation no longer applies in today’s banking environment. If timed correctly, consolidation can be a strategic, positive move towards growth. The key is knowing when to take action, and that requires keeping a constant watch on market position and market growth potential. Having upto-date insight into which branches are operating at under-capacity levels and which markets and sectors are becoming oversaturated by competition, allows banks to easily identify consolidation targets before profit losses pile up. Once target branches have been identified, bank leaders need a strategic plan to minimize customer attrition. That takes knowing the most profitable customers and assigning the most knowledgeable associates to the task of migrating customers to other branches. Proactively working to retain VIP customers and making sure that skilled associates are in place to serve the consolidated customer base will go a long way in minimizing runoff.

SELLING BRANCHES TO OFFSET WEAK PERFORMANCE

Branch selling has become a tactical necessity for many institutions. But, like branch consolidation, it’s often a pit stop on the way to growth. With that in mind, the sale of branches that are underperforming should be handled just as strategically as a branch purchase. The ability to make branches more attractive for acquisition can be the difference between trimming the fat and holding onto dead weight. One of the first steps in a successful branch sale is determining urgency based on the selling institution’s needs. A bank that needs to quickly improve capital ratios

may have a shorter timeframe for success than a bank that’s simply trying to improve profitability. Regardless, banks must be prepared to mitigate the risk of losing high value customers to the acquiring institution. Many of these customers may be hesitant to leave a convenient branch location, thereby making them attractive targets for attrition. For that reason, bank or branch executives should identify select customers they want to transfer to other branches, and have a plan for motivating those customers to do so. The role that volume and real estate will play in a bank’s selling strategy should be carefully weighed. If a bank is trying to sell a group of several branches, it may make sense to package loans, deposits, and brick and mortar locations for one or two large buyers. If it’s just one or a few branches, banks should consider selling loans, deposits and facilities separately. And, given today’s commercial real estate climate, bank executives need to anticipate a scenario where they are not able to easily offload their physical location to another bank. In those scenarios, facilities may be more easily marketed to another type of buyer, for purchase or lease.

NEW ERA, NEW INSIGHT

The success of branch banking can no longer be defined by the number of new locations. Today’s economic realities demand banks grow through branch optimization, acquisition, rationalization and strategic closures. Those banks that make calculated decisions rooted in objective insight will be able to identify growth opportunities with speed and accuracy. ■ Andrew Grinstead is senior vice president and senior bank strategist of bank intelligence solutions at Fiserv. Contact him at Fiserv at 800846-6681 or andrew.grinstead@fiserv.com.

Fall 2013

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Fall 2013 New Jersey Banker

Feature

Revised Uniform Limited Liability Company Act Brings Many Changes By Barbara R. Lapham

espite sweeping changes to the law governing limited liability companies (LLCs), the New Jersey Revised Uniform Limited Liability Company Act (NJRULLCA), adopted on Sept. 12, 2012, has received little attention except among attorneys and accountants. In my practice, I have found that banks, lending institutions and title companies have limited knowledge of the new act. This article will introduce the new act in general and highlight some issues Barbara R. Lapham that may be more relevant to banking and lending transactions with LLCs. NJRULLCA completely replaces the prior Limited Liability Company Act and many of its provisions are substantially different. NJRULLCA is based on a uniform act drafted by the National Conference of Commissioners on Uniform State Laws with a few minor changes particular to New Jersey. NJRULLCA has two “effective” dates. It applies to all new LLCs formed on or after March 18, 2013, and to all LLCs as of March 1, 2014. NJRULLCA retains the familiar terms of certificate of formation, operating agreement, member and manager. It is, however, in the use and effect of these terms that NJRULLCA diverges from the LLC Act. A comparison of some of the differences between old and new Acts should help demonstrate some of the issues that may affect banking and lending transactions with LLCs under the new act. Operating agreements continue to be the operative document for LLCs. The LLC Act provided that an LLC was not required to have an operating agreement. If the company had no operating agreement the default provisions of the LLC Act applied. An operating agreement was required to be in writing. A relatively simple, bright-line rule. NJRULLCA provides that a company is not required to have an operating agreement.

30 New Jersey Banker

However, the bright line rule has been replaced with a fluid concept of an operating agreement. An operating agreement is not required to be in writing. An operating agreement can now be an “agreement” that could be written, oral, contained in a record (e.g. tax returns), implied or any combination thereof. If an issue is not covered in an agreement, the default provisions of the act will apply. Accordingly, whereas before if there was no written agreement the act applied, there now may be situations where part of the act applies and the rest of the company’s operation is based on course of dealings, oral agreements and the like. Proving oral or implied agreements can be problematic among not only the members themselves, but also with third parties looking to do transactions with the LLC. For that reason I have recommended to my clients that a written operating agreement is necessary. One of the biggest issues that a bank faces with respect to transactions with LLCs is confirming who has the authority to bind the company. Under the LLC Act, the company may be member managed or managed by a manager who can be a member or a nonmember. The act further provides that each member is an agent of the LLC. An LLC under the NJRULLCA may similarly be member managed or managed by a manager. However, under the NJRULLCA, a member is not an agent of the LLC solely by reason of being a member. Determination of whether or not the member is an agent for the purposes of binding the company is determined by other applicable law. With existing companies under the LLC Act, you frequently see members and managers named in the certificate of formation. Many small companies use the certificate of formation in place of an operating agreement with amendments being filed if members or managers change within the company. NJRULLCA, however, specifically provides that a certificate of formation is not a statement of authority. This means that the listing of members or managers in a certificate of formation is not evidence of

their authority to bind the company. NJRULLCA now includes a new document called a statement of authority. The statement of authority is filed with the New Jersey Division of Revenue similar to filing of the certificate of formation. The purpose of the document is to identify the position(s) in the company with authority to bind the company and to identify the person(s) holding the position(s). The extent of authority can be defined, including limitations on authority. The statement of authority may also address real estate transactions specifically from other transactions. A certified copy of the filed statement of authority can be obtained from the New Jersey Division of Revenue and filed in the county clerk’s office, along with real estate documents. continued on page 32

Fall 2013

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