Connecticut Banking 3Q 2012

Third Quarter 2012

PART OF THE SOLUTION

CONNECTICUT BANKS’ FINANCIAL LITERACY PROGRAMS HOW BANKS ARE USING DERIVATIVES TO CREATE VALUE BALANCING COMPLIANCE, SECURITY AND PRODUCTIVITY BANK COMPENSATION PRACTICES

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American Institute of Banking

from the American Bankers Association

Third Quarter 2012

PART OF THE SOLUTION

CONNECTICUT BANKS’ FINANCIAL LITERACY PROGRAMS HOW BANKS ARE USING DERIVATIVES TO CREATE VALUE BALANCING COMPLIANCE, SECURITY AND PRODUCTIVITY BANK COMPENSATION PRACTICES

COVER STORY

Part of the Solution............................................................................ 14 Connecticut Banks’ Financial Literacy Programs

CONNECTICUT BANKERS ASSOCIATION

10 Waterside Dr. Farmington, CT 06032-3083 Telephone: 860-677-5060 • Fax: 860-677-5066 Chairman Martin J. Geitz

Second Vice Chairman Chandler J. Howard

First Vice Chairman John J. Patrick, Jr.

President & CEO Gerald M. Noonan

President & CEO Simsbury Bank

President & CEO Liberty Bank, Middletown

Chairman, President & CEO Farmington Bank

Senior Vice President & Secretary Lindsey R. Pinkham Vice President & Treasurer Thomas S. Mongellow Vice President Colleen E. Clancy Vice President & Director of Education Mary Beth Nelsen

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FEATURES

How Banks are Using Derivatives to Create Value................ 4 The Tax Free Reorganization................................................. 6 Past is Not Prologue for Bank Compensation Practices.... ....8 Strategic Insights Into Compliance Costs............................. 10 Get to Know David Ring Leader of First Niagara’s Foray into Connecticut................ 12 Balancing Compliance, Security and Productivity................ 20

Connecticut Banking is an official publication of the Connecticut Bankers Association and is published quarterly by

The Warren Group Design / Production / Advertising www.thewarrengroup.com custompubs@thewarrengroup.com With the exception of official association announcements, the Connecticut Bankers Association and The Warren Group disclaim responsibility for opinions expressed in Connecticut Banking. This publication is intended and designed to provide accurate and authoritative information, not to provide legal, accounting or other professional advice.

CONNECTICUT BANKING

Editor Colleen E. Clancy

©2012 The Warren Group Inc. All rights reserved. The Warren Group is

a trademark of The Warren Group Inc. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: The Warren Group, 280 Summer Street, Boston, MA 02210. Call 800-356-8805.

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Banks in the News..................................................................... 22 Bankers in the News.................................................................. 28

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Connecticut Banking Magazine • Third Quarter 2012

How Banks in New England are

Using Derivatives to Create Value for Their Customers and Their Banks

By John Baity and Jeff Mazur

W

e are witnessing an increasing number of banks using derivatives throughout the country. In New England, 64 percent of the banks with assets greater than $1 billion are already using or plan to be using them during the next year. An increasing number of smaller banks are also using them.

This trend is attributable to several factors: changes in the capital markets; increased competition for high-grade credits; borrower demand for longer term fixed-rate loans; attractive pricing on swaps relative to FHLB advances; and service providers like PNC offering “turnkey” programs to make this activity easier operationally for banks.

In this article, we would like to give bank directors a basic understanding about how community banks and larger regional banks in New England are prudently using derivatives today to create value for their banks and their customers.

A Bank Board’s Dual Roles: Strategic Advisor and Risk Overseer With regard to any new product, a bank board has two primary roles. One, they oversee and advise on the strategic planning process. Two, they oversee risks and ensure that policies adequately control risks within their bank’s risk-tolerance levels. Therefore, board education on derivatives is essential and, today, increasingly emphasized by regulators.

Directors should know that banking regulators are comfortable with a bank using derivatives for specific purposes, so long as management and the board understand the benefits and risks, and there is an effective risk-management process in place to control the activity.

Derivatives Used By Community Banks The derivative instruments most commonly used by community banks are interest rate derivatives – referred to in the industry to as “plain vanilla” swaps – caps and floors.

An interest rate swap is an exchange of a fixed stream of interest payments for a floating rate stream (or vice versa). The floating rate that is most commonly used and most liquid in the market is Libor. In a swap, a bank can pay-fixed (“pay-fixed” swap) or it can receive-fixed (“receive fixed” swap).

An interest rate cap is an instrument that involves an upfront premium payment by the bank and results in a payment to the bank if rates rise above a predetermined level (called the “strike rate”).

Caps and pay-fixed swaps are used to mitigate rising rate exposure. Many banks have rising rate exposure because their balance sheets are structurally mismatched, with more fixed rate (or slower repricing) assets than longer term (or slower repricing) funding. Today, there is also concern that much of the excess cash in “core” accounts is not core but will flee the bank to higher-yielding alternatives when rates rise. Finally,

4

coupons on loan and investment portfolios are at historically low levels.

Interest rate floors result in a payment to the bank if rates fall below a predetermined “strike rate.” Floors and receive-fixed swaps mitigate exposure to falling rates.

Today, there is vigorous debate in the industry on the trajectory of interest rates over the next several years. One risk scenario that bank asset-liability committees are discussing is the potential for continued low interest rates for many years, exerting downward pressure on many bank’s net interest margins. Another scenario is the potential for interest rates to move sharply higher, basically an abrupt end to the long-term secular bull market for bonds that began in the early 1980s, and, some argue, would be caused by inflationary recoil to the Federal Reserve’s unprecedented quantitative easing measures.

Most Common Community Bank Uses of Derivatives Community bankers are using derivatives today for two primary purposes: a) to support their commercial lending efforts and b) to manage interest rate risk more cost effectively.

Third Quarter 2012 • Connecticut Banking Magazine

Derivatives to Support Commercial Lending A growing number of banks are looking to offer swaps directly to their commercial customers, which is referred to as a “direct swap” structure. This structure has powerful benefits for the bank and their commercial customers.

In the direct swap structure, shown below, the bank markets an interest rate protection product in conjunction with a floating rate loan to its customer. This synthetically creates a fixed rate loan for your customer.

To eliminate the fixed rate risk that results from such structure, the bank concurrently enters into an exactly offsetting swap with a swap dealer.

For this reason, the direct swap is also referred to as a “back-to-back” structure.

It is also called a “loan level” swap.

The bank often has a mark-up on its swap with its customer, known as “swap markup,” which the swap dealer will pay the bank upfront and is treated as fee income.

In the above example, assuming it is a $1 million swap and a $1 million loan, the bank generates just under $20,000 in upfront fee income. On a total spread basis, the bank in the first year would earn about 200 basis points on the swap markup plus 275 basis points on the credit spread, resulting in a total of

around 475 basis points.

On the date shown in the above example, the PNC swap rate was 88 basis points lower than the same-term Federal Home Loan Bank of Boston advance rate. Thus, by using the swap, the bank has significantly more pricing competitiveness, without taking on interest rate risk of a long-term fixed rate asset. In most areas of New England, to compete effectively for high-grade credits requires attractive pricing.

Finally, by offering the swap in conjunction with a floating rate loan to its customer instead of a standard fixed rate loan, the customer “wins” because

INTEREST RATE SWAP VERSUS STANDARD BANK LOAN WITH 5-4-3-2-1 PREPAYMENT PROVISION

Example: 10-Year Final/20-Year Amortization Structure Payment to/(from) customer ($ 000’s) Rates Change (basis points): -100

-50

0

+50

+100

+200

+300

Today

$(50)

$(25)

$0

$0

$0

$0

$0

Year 1

(50)

(25)

0

0

0

0

0

Year 2

(40)

(20)

0

0

0

0

0

Year 3

(30)

(15)

0

0

0

0

0

Year 4

(20)

(10)

0

0

0

0

0

Year 5

(10)

(5)

0

0

0

0

0

Today

$(81)

$(41)

$0

$32

$66

$129

$188

Year 1

(60)

(26)

7

39

69

126

178

Year 2

(38)

(8)

20

47

73

122

168

Year 3

(23)

2

26

49

72

114

155

Year 4

(11)

10

30

49

68

105

139

Year 5

(4)

13

30

45

61

91

120

Standard loan and prepay:

Swap and prepay:

■ = swap prepayment more advantageous to customer

they have a better prepayment profile.

As shown below, the swap is more advantageous for the customer than the standard fixed rate loan with a 5-4-3-2-1 prepayment formula in all of the risingrate scenarios and with rates flat. In the down 50 basis points scenario, the swap, after year 1, results in better prepayment results than the loan with the 5-4-32-1 provision. In the lower-probability down-100 basis points scenario, it is only within the first year that a customer would be better off prepaying a standard bank loan containing the 5-4-3-2-1 formula.

Considering that the rate on the 10-year/20-year amortization swap structure is at 1.54 percent, there is only so much further that it can theoretically fall, with a zero percent floor on interest rates – that limits a customer’s (and their bank’s) potential loss exposure.

Anecdotally, we meet with an increasing number of banks that tell us that more educated borrowers themselves are seeking to find banks that offer loan level swaps because they are aware of their pricing advantage and structuring flexibility. Boards and management are looking for ways to increase loan volumes with higherquality credits.

Credit risk on a direct swap is mitigated via what is called “spreader” language in the loan documents, which “spreads” the collateral and other protections of the loan to the swap in the event of any default by the customer at continued on page 21

5

Connecticut Banking Magazine • Third Quarter 2012

The Tax Free Reorganization

By Dan M. Smolnik

T

wo effects of the recently passed JOBS Act are to make access to capital easier and to render banks (and bank holding companies) more agile players in mergers and acquisitions.

Banks can now pursue acquisition targets with less regard to whether the accretive census of the acquired bank’s shareholders will cause the bank to cross a registration threshold and thereby give pause to plans for the combination.

Given current price to book ratios hovering around 1.05 for community banks, bankers are more alert than ever to opportunities to monetize their market space. A common route to efficient bank combinations is a tax-deferred reorganization, often called an “A” reorganization. This article will go on to review two of the requirements of this approach.

Most important among the IRS requirements for a successful “A” reorganization are the requirements that it include both a continuity of interest and a continuity of business enterprise. Lack of compliance with these two notions risks substantial tax exposure that may not be discovered by the IRS for several years after the closing, long after there is time to correct the problem.

The continuity of shareholder interest requirement in either of the following two situations in an “A” reorganization is satisfied by the shareholders of the acquired corporation maintaining a substantial equity interest in the ongoing enterprise: • Stock of the acquired company is exchanged for common stock of the acquiring company; or • Stock of the acquired company is exchanged by the acquiring company for a direct interest in the acquired company.

Can this very common situation of executives finally cashing out their compensatory positions actually undermine the very merger they have worked so hard to achieve?

Ignoring the conversion of the warrants to stock, consideration here is $6,000 in stock and $6,000 cash, or 50 percent continuity of interest, which is adequate to keep the merger tax free. If we count the Class B shares, then the value of the consideration paid is $20,000 and the value of the stock exchanged by the acquiring bank is just over 33 percent. Hence, if we include the Class B shares in the calculation, the merger is exposed to tax and may lose a substantial amount of its value. IRS holdings have been inconsistent on this issue.

A second test applied by the IRS to tax free reorganizations is the examination for Continuity of Business Enterprise. The acquiring corporation must either continue a line of the acquired bank’s historic business, or use a significant portion of the acquired bank’s historic business assets.

The regulations suggest that the service would require the retention of one-third of the acquired bank’s assets or the merged company should continue a line of the acquired bank’s business. It is sufficient to say that the IRS evaluates all of the facts and circumstances associated with the transaction, and those facts require scrupulous planning and review to assure the reorganization receives tax free treatment.

This article is intended to illustrate general principles of the law and should not be relied upon as legal or tax advice. You should obtain qualified professional advice as to your specific circumstances before taking any action. u

The amount of equity needed to be “substantial” remains not yet resolved by the IRS, but tax lawyers generally understand that shareholders exchanging their stock for as little as 40 percent stock of the acquirer (with the balance of 60 percent being in cash) can be adequate to keep their interest “substantial.”

This requirement creates an interesting problem with regard to the 40 percent continuity of interest test. Frequently, holders of convertible securities of a bank that is about to be acquired will convert their securities into equity positions in the corporation before the ex date so that they can become stock holders in the transaction.

Consider a transaction where the shareholders of the bank to be acquired own a total of 1,000 shares of stock, 600 of them Class A and 400 of them Class B. Executives of this bank hold warrants convertible to the Class B shares. The acquiring bank’s shares have a fair market value of $100 each. The acquirer will exchange 600 shares of its stock plus $10 cash for each Class A share of the acquired bank. As well, the acquiring bank will exchange $200 cash for each Class B share of the other bank.

Dan Smolnik is an attorney in Greenwich, Connecticut, and an associate member of the CBA. His practice focuses on financial institutions and tax law. He can be reached at dsmolnik@smolniklaw.com.

6

Connecticut Banking Magazine • Third Quarter 2012

Past is Not Prologue for Bank Compensation Practices

By Arthur Warren

T

Base Salary and Incentives

he fall out of the Great Recession requires changes in community bank compensation philosophies and plan design. Salary, incentives and benefit program features that were appropriate several years ago may now be unrealizable and at odds with current business objectives to increase profitability, become more efficient and better manage risk.

Salaries should reflect executive responsibilities, contribution and performance. The key role of incentive compensation is to encourage robust executive performance in achieving objectives predetermined by the bank, and to do so without inappropriate business risk. Base salary and incentives should be balanced with all other elements of compensation, such as benefits, supplemental executive retirement plans (SERPs) and perquisites.

Regulators pay attention to incentives outside the 75th percentile of a realistic peer group. They want boards to align incentive pay with the time horizon of risk. Annual incentives should reward annual performance. Long-term incentives should reward performance over multiple years. Make sure incentive pay is not simply delayed executive base salary and is justified by added bank profits.

Executive incentive opportunity is a measure of risk. This risk can be controlled by utilizing multiple performance metrics; asset quality objectives; caps on awards; and different metrics for short and long-term bonus programs.

I expect that annual incentive bonuses will be more variable than in the past and perhaps a smaller part of executives’ total compensation. Long-term incentives (stock, options and phantom equity for mutual banks) may well play a larger role as a tool that both encourages long-term bank franchise value and mitigates risk by focusing on multiple year goals.

We will likely see a new trend take hold, nurtured by institutional investors in publicly traded stock banks, requiring a look-back assessment of executive pay through a compensation scorecard that measures the pay program effect on bank performance and risktaking. Further, as Dodd-Frank executive compensation regulations become finalized, expect more trickle down to the community bank level.

While I am talking about risk assessment, I want to echo a real risk which is being overlooked in smaller banks. Executive turnover in key positions is a risk aggravator. Conversely, a talented management team is a risk moderator. This underscores the importance of a well-thought-out compensation and benefits program to retain and motivate senior executives and high potential talent. A well-designed pay program can attract talent. This is essential if your bank is not able to afford training programs to bring along your management talent.

In the slow growth economy, expect competitor poaching of your lenders or trust officers who can bring a book of business to a new bank. It is good board governance to protect bank assets that walk home at night. Turnover is costly, disrupting and damaging to smaller banks.

Regulation Federal legislation attempting to curb abusive pay practices is phasing in slowly. But federal and state banking regulators are quickly extending new, unwritten risk management standards to community banks. Their focus is moving from reactive to proactive by broadening their look at all types of risk facing banks.

How? Through routine safety and soundness exams. As regulators begin to examine large banks, they also apply the new regulations to community banks. The regulations trickle down to the community bank level.

Regulators will focus on the pay programs of mutual banks.

Smaller stock banks, where public proxy disclosure and shareholder oversight are sufficient controls, receive less scrutiny. Regulators will criticize problematic pay and inadequate benefits governance at the community bank level. The criticism is a message and a warning: Correct your ineffective board governance. Ineffective board governance manifests in many forms, including: • Unrealistic strategic plan • The board fails to understand business plan • The CEO runs the board • The board runs the bank • Weak executive management • Excessive risk taking Arthur Warren

Your strategic plan, business plan and compensation programs must support each other. Board members and compensation committee members must be knowledgeable of and involved in the planning process to comply with new regulatory scrutiny.

One bright shining star I see in the regulatory sky is a willingness on the part of regulators to recognize the uniqueness of each bank in its geographical community. The Guidance on Sound Incentive Compensation Policies promulgated by the regulators is just that: guidance, not strict rules. Each bank is able to develop its own unique business plan, risk profile and compensation governance practices. You determine how to be compliant with the regulations.

Your risk assessment process must address board governance practices, financial controls, policies and compensation plan designs.

Boards must provide leadership to address these issues.

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Third Quarter 2012 • Connecticut Banking Magazine

Benefit Trends

based, discretionary contributions awarded for bank or individual executive performance.

This is a great substitute for long term incentive plans or lack of stock-based awards. Bank accounting liability is controlled as the bank accrues the annual contribution expense, which is not based on projected increase in executive pay.

Let’s take a look at important executive benefit trends.

• Increasing SERP participants, but shifting to defined contribution, which follows the national trend of fewer defined benefit pension plans.

• Eliminating perks which do not have a business purpose.

• Increased use of employment contracts and change-in-control contracts due to impending consolidation in the banking industry.

• Decreased severance, or providing severance with limits, to preserve the bank’s tax deductions.

• Zero tax gross-ups for severance payouts.

Perks In order to avoid negative regulator comment, or negative board, public and shareholder perceptions, perks are being curtailed.

Executives will indeed be receiving less supplemental postretirement life insurance, legal or tax advice for spouses, spousal travel, and tax gross-ups to buy perks.

Taxable auto allowances are replacing bank-owned or leased cars, which simplifies record keeping. Club dues must have a demonstrated business purpose.

Retirement Plans Community banks are at an important crossroad with respect to their pension plans. Many banks fund aggressively, yet under funding continues. Volatility of bank funding for a pension plan has become a significant issue which is complicated by a combination of aging bank demographics, low interest rates, poor asset performance and more aggressive funding required by the Pension Protection Act. Smaller banks are at risk that their pension liabilities are unaffordable and are catching the attention of the regulators as potentially unreasonable compensation.

SERPs continue to be a staple in the banking industry and are persistently wide spread regardless of asset size. In mutual banks, SERPs are an especially important deferred compensation tool to attract and retain Executive talent and are a substitute for lack of long-term incentive stock and option awards. Additionally, many more mutual banks will need SERPs to make-up retirement shortfalls from the inevitable termination of core bank defined benefit pension plans.

However, traditional defined benefit SERPs are being frowned upon by shareholders, boards and some regulators because there is no apparent link to performance, and executive pay inflation is increasing bank SERP costs.

The regulators criticize SERPs when the design allows for unreasonable compensation or risky practices, such as including a SERP benefit based on the highest calendar year base salary, a very rich bonus, or benefit payouts which extend too long in time.

Regulators also scrutinize SERPs when the design permits lack of SERP forfeiture in the event of executive termination for cause; understating bank SERP accrual liabilities; or a present value interest rate discount that is too low when an executive receives a lump sum benefit rather than an annuity.

SERPs work best when they are strategically designed to balancebBank long-term compensation objectives and executive retirement security. There are two noteworthy SERP design trends: Fixed percentage defined benefits without complicated offsets.

An example is 20 percent of final average base salary. This is a simple formula to administer and avoids all the confusing actuarial projections of offsets like pension and 401(k) balance annuitization.

Defined contribution, which does not promise a target benefit.

This follows the banking industry’s elimination of qualified defined benefit pension plans in favor of 401(k) account balance type plans.

Each executive SERP account is administered by the bank’s 401(k) vendor or in-house on a spreadsheet. These SERPs include: modest, annual, fixed contributions, and board-approved, performance-

Contracts There is no rough patch for executive employment contracts and change-in-control agreements, especially in mutual banks. Annual contract renewals (evergreen contracts) are the trend, but daily contract renewals or very long employment terms are discouraged.

Change-in-control severance agreements are proliferating in anticipation of future bank mergers.

All employment contracts should require the executive to sign a general release promising not to sue the bank, not to compete, and not to disparage in exchange for severance payments. The norm has been mutual releases by both parties, but a single release strategy should be discussed, especially in light of evolving Dodd-Frank clawback and whistle-blower rules.

When negotiating new employment contracts, you should consider the employment contract and change-in-control trends: • Bi-furcated severance: Lower severance payment for termination not-for-cause; higher severance for loss of job associated with a merger.

• Single trigger: Severance payment upon a change in control when there is no loss of job is not advisable.

• Double trigger: Severance payment upon a change in control plus a job loss is advisable.

• Tax gross-ups: Both federal and state regulators discourage severance tax gross-ups as unreasonable compensation.

• All new contracts: Change-in-control severance should be limited to $1 less than the IRS 280G excess parachute safe harbor limit. This preserves the bank’s tax deduction and eliminates executive excise tax.

The End: What’s Next?

Executives and boards are struggling with significant strategic business and financial issues that arise from their business models that were built based on their view of the world before the Great Recession. A vastly set of economic, business and regulatory rules exist today demanding new approaches to community bank compensation practices. u Arthur Warren is a compensation and benefits consultant with over 100 community bank clients in 12 states.

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Connecticut Banking Magazine • Third Quarter 2012

Strategic Insights Into I Compliance Costs

n recent years, many community banks have cited rising uncontrollable compliance costs as a reason for selling or merging with another bank. While compliance costs have continually risen over the past 10 years, we sought to establish whether their inexorable rise was really critical to the long term viability of a community bank. To begin to get a sense of the issues magnitude, we sought to obtain direct information from community banks.

Arthur L. Loomis, II The survey was distributed to over 300 community banks, predominately in New York or New England. Among the compliance questions asked were last three year’s cost, expected future trends in costs, where these costs are expected to grow most, how the bank expects to address compliance, whether by building its internal capacity or outsourcing, and what the quality of the compliance service was.

We also inquired as to their data processing and security/fraud cost trends, the quality of the service provided by

By Arthur L. Loomis, II

10

Third Quarter 2012 • Connecticut Banking Magazine

these outsourced entities, as well as the

issues and its related expense, 18 percent of

MEDIAN COMPLIANCE COST Number

2009

2010

2011

BANKS UNER $400 MILLION

10

5.40

5.73

6.62

BANKS $401 TO 750 MILLION

12

5.01

4.62

5.13

BANKS $751 MILLION PLUS

5

1.23

1.15

1.61

TOTALS

27

4.70

4.99

5.32

prioritization of challenges to their bank over the next five years.

The survey’s 27 respondents have total assets between $50 million and $4.5 billion, and reflect data over the past three years, 2009, 2010 and 2011. A complete list of the questions asked is provided in Appendix A. The responding banks had median total assets of $470 million, 102 employees and eight branches at year end 2011. The middle 50 percent of the banks were between $256 million and $67 million in total assets, 60 to 189 employees, and three to 14 branches.

Compliance costs, as a percentage of average assets (in basis points), remained fairly constant between 2009 and 2011, as shown to the right: These results corroborate the belief that compliance costs are not terribly variable.

Rather, they tend to represent a more fixed cost. They also appear to be fairly modest in magnitude, as two to five basis points is far from the 50 to 100 basis points in aftertax ROA most banks generate. That was the “good” news.

The bad news is that the overall data suggests that compliance costs before Dodd-Frank rose alarmingly between 2009 and 2011. For the median respondent with assets of $470 million, its compliance costs rose to $185,000 in 2011 from $131,000 in 2009, nearly a 19 percent annual increase.

For the average respondent which had assets of $625 million, compliance costs rose to $346,000 in 2011 from $288,000 in 2009, or nearly a 10 percent annual increase.

Looking forward, over 70 percent of these community banks anticipate compliance costs will grow $50,000 per year, at least. That means annual increases of perhaps 14 to 25 percent! Just 15 percent felt compliance costs would stabilize in the coming years.

In terms of dealing with compliance

the community banks anticipate help from their state associations or joint ventures, while 26 percent expect to use internal resources. Over 49 percent believe they will use a combination of internal and other external resources (not state associations or joint ventures), whereas only 7 percent expect to only rely upon external service providers.

Somewhat surprising, respondents also felt by an overwhelming majority (74 percent), that compliance costs will grow the most in the compliance function, and not in front line or delivery of products and services. We wonder if this opinion is just the tip of the iceberg, as we are concerned

Arthur L. Loomis is the founder of Northeast Capital & Advisory, a New York-based community bank consultant firm.

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that the front line compliance costs will mushroom in the years ahead.

Another piece of good news was that all the community banks were generally pleased with their external compliance providers, with the largest bank segment ($75 million or more) reported extremely satisfied performance (B+ average), while the $401 to $750 million segment and those smallest banks surveyed were still satisfied (B average).

Based on the survey’s responses, it appears that compliance costs have yet to approach the smothering levels some pundits have led community bankers to believe. However, based upon these same bankers’ expectations of future substantial increase, it may be an early warning of uncontrollable expenses which enables astute bankers to develop strategic plans which affect or mitigate the damage to operating profits. u

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Contact us: 800-347-1414 ext. 335 wcdonahue@mageecompany.com or visit www.magner.com

Connecticut Banking Magazine • Third Quarter 2012

Q&A

Get to Know David Ring

Leader of First Niagara’s Foray into Connecticut

By Colleen Clancy

D

avid Ring serves as First Niagara Financial Group’s New England regional president, leading the company’s New England-based team of bankers across Connecticut, Massachusetts and New York’s Hudson Valley. He also serves as First Niagara’s managing director of enterprise banking, with corporate-wide responsibility for commercial business lending, treasury services and community development. He is a Connecticut native who started his commercial banking career in New Haven nearly 30 years ago with People’s United Bank, where he held a series of relationship management roles. He joined First Niagara from Wells Fargo (Wachovia), where he served for 15 years, most recently as senior vice president responsible for commercial banking across Connecticut and upstate New York.

Ring joined First Niagara in April of 2011.

Q: HAS THE JOB BEEN WHAT YOU EXPECTED IT MIGHT BE WHEN YOU ACCEPTED FIRST NIAGARA’S OFFER? A: My job has exceeded all of my expectations. My role at First Niagara is two-fold. In addition to my role as president of our New England region banking operations, I am responsible for all commercial lending throughout our corporate footprint in New York, Pennsylvania, Connecticut and Massachusetts.

This dual role is a bit of an advantage for me. It allows me to put a franchise-wide spotlight on our region and gives me a bit of extra leverage on behalf of the New England operations. In addition, I can quickly observe and replicate in New England best practices [from] all around the company.

One year later, I am also proud of our performance in fulfilling our CEO John Koemel’s promise that, following the merger with New Alliance, the New England region would become one of First Niagara’s critical banking centers and that lending and philanthropic decisions would be made locally by employees who know and understand the marketplace we serve. Today, the New England region is home to many leaders who have franchise-wide responsibilities, such as our chief risk officer, and heads of employee compensation, community development, CRA compliance, SBA lending and other important corporate roles. Finally, as promised, 95 percent of our lending and philanthropic decisions are made locally. So, my expectations upon taking the job have been surpassed.

12

Third Quarter 2012 • Connecticut Banking Magazine

sophisticated offerings and newly formed market-specialist banking teams. On the other hand, we remain in our focus and in our day-to-day execution as a community bank – and community banking is all about relationships. We expanded our middle-market lending team that is delivering the level of results I mentioned earlier; we added the expertise of Pierson and Smith’s insurance business; and our newly launched small business banking specialist teams are also finding success.

In addition, we have added a commercial business office in Norwalk and several new product lines, including wealth management, specialty lending and private banking. We now offer a wider array of products and services such as foreign exchange, international, loan syndications and hedging through banking offices located in Norwalk, New Haven, Manchester and Hartford. We think that all of these changes make us a better and more robust organization and benefit our customers and the communities where we do business.

Q: HAVE YOU SEEN SIGNIFICANT CHANGE IN THE MARKET SINCE THE ACQUISITION? A: Competition in the market has definitely ramped up. The combination of the higher cost of regulatory compliance with the lower value of deposits due to lower interest rates has caused banks to make asset gathering a priority. This is good news for customers, who benefit when banks are competing hard for their business. It’s also positive for First Niagara because we think our consultative approach to selling our services, our range of product offerings and our resources puts us in a good position to compete for every single lending opportunity. We were delighted have our approach to client service validated by Greenwich Associates with ten “2011 Greenwich Excellence” awards in small-business and middle-market banking. First Niagara was also honored with awards of excellence across multiple categories for its small-business and middle-market banking by Greenwich Associates in 2010.

Q: WHAT ARE FIRST NIAGARA’S PLANS FOR GROWTH IN 2012?

A: We see our bank growing organically for the balance of 2012 by strategically adding people, business lines and branches. Geographically speaking, we are adding new branches in the greater Hartford area (Avon, Rocky Hill and Plainville) and Fairfield County. In Fairfield County we have opened our fourth branch in Stamford and acquired six additional branches (Fairfield, Shelton, Ridgefield, Monroe and Wilton) through our recent acquisition of a portion of HSBC.

Q: HOW WOULD YOU CHARACTERIZE THE CURRENT CREDIT MARKET AND HOW HAS THAT IMPACTED YOUR BUSINESS? A: Industry reports will tell you that overall the credit markets remain flat. But for First Niagara, corporate-wide, we have reported nine straight quarters of double digit loan growth.

In Connecticut, since April 2011, we have extended over $1 billion in loan commitments and the growth has come from across the spectrum; from business banking, commercial lending and consumer lending. We think it comes back to our ability to add value for our customers, the authority to make local decisions and First Niagara’s record of lending in both good economic times as well as in times of economic weakness. People have come to know us as a responsive, reliable lender.

Q: YOU HAVE BEEN VERY ACTIVE IN YOUR PHILANTHROPIC EFFORTS IN THE REGION. WHY IS THAT IMPORTANT TO YOU? A: As I said, community banking is all about relationships and we put a premium on understanding the needs of the community and being responsive to those needs as an engaged and active partner. Over the past 12 months we have made $6.6 million of charitable contributions in Connecticut.

I think you’ll see that wherever it does business, First Niagara believes that a healthy and vibrant community builds a foundation for business success. u

Q: HAS YOUR REGIONAL BANK OPERATION CHANGED ITS MARKET FOCUS, EMPHASIS OR ORGANIZATION IN THE LAST YEAR? A: Yes and no. On the one hand, we have transformed ourselves, in the span of about 14 months, from a thrift institution to a full service commercial bank, with 13

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PART OF THE SOLUTION CONNECTICUT BANKS’ FINANCIAL LITERACY PROGRAMS

By Christina P. O’Neill

I

n a popular culture in which consumers are expected to be masters of their own fate, the need for financial literacy across all age groups and social strata has never been higher.

Connecticut’s banks are willing and able teachers.

Last March, the Connecticut Bankers Association’s Executive Committee got behind a commitment to have all member banks provide financial literacy programs for the communities they serve. Many member banks have already had programs in place for years.

“At the most basic level, banks are a reflection of their local economies,” says CBA Chair Martin Geitz, who is also president and CEO of Simsbury Bank. “The better informed consumers and businesses are about financial matters, the better they will be as consumers. That will contribute overall to a better economy and a better quality of life.” Banks have a vested interest in helping knowledgeable people make the right decisions for their circumstances, he says. continued on page 16

STUDENT LOAN DEBT IN THE U.S. HAS REACHED $1 TRILLION and the

average student debt tops $25,000 for a four-year degree.

Incoming students who need basic advice on how to budget and manage credit cards may lack the knowledge to determine which student loans will be best for their long-term financial future.

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Connecticut Banking Magazine • Third Quarter 2012

ONLY 43 PERCENT of women surveyed

reported having an emergency fund in place to cover unexpected expenses, compared to 63 percent of men.

Only 52 percent of women said they were comfortable with the amount of non-mortgage debt they had, compared to 71 percent of men. But women are seeking financial education and information at about a 2 to 1 ratio compared to men, according to the 2012 Gender Gap in Financial Literacy, authored by financial education company Financial Finesse.

Partnering with Nonprofits

A secondary reason for the CBA’s initiative is to mount a constructive response to the negative press that the banking industry has received during the financial crisis. “We’re concerned that many Americans think we are part of the problem,” Geitz says, noting that both the media and some elected officials paint the industry with an over-broad brush.

Financial literacy programs win banks’ target audiences back one person to several hundred at a time, but with lasting benefits for the community.

Simsbury Bank has its own tailor-made programs, as well as partnerships with non-profit organizations such as Junior Achievement (JA). Geitz recommends the FDIC’s array of tools and PowerPoint presentations, available to banks to tailor to a particular audience. “Financial literacy isn’t just something youth needs. Many adults need it, too,” Geitz says.

First Niagara Bank has a long-standing relationship with JA of Southwest New England and is a repeat sponsor of JA’s Business Hall of Fame fundraising dinners in Hartford and New Haven. Its employees have participated as volunteers for JA’s school-based programs in the past. This year, the bank has chosen JA’s initiative to target middle-school students, because they are just at the beginning of their earnings experiences, and provided JA with a $10,000 grant to produce a one-day middleschool conference for 200 seventh- and eighth-graders from New Haven.

The bank also sponsored and provided 12 volunteer instructors for the JA Economics for Success Middle School Conference last May 23 at Gateway community College’s North Haven campus, and have supported JA’s Western CT chapter’s second annual High School Business Challenge on March 16 at Fairfield University (see photo).

Among First Niagara’s many other initiatives include a partnership with the Connecticut Association for Human Services (CAHS), which offers financial education to low- to moderate-income individuals through the Connecticut Money School. First Niagara is underwriting the cost to create an online financial education curriculum to reach CAHS clients who live outside CAHS’ direct service areas and who cannot get to in-person classes. First Niagara’s Affordable Mortgage Program provides financial and homeowner training to low- and moderate-income applicants, both directly and in partnership with local non-profits.

Additionally, First Niagara provided a three-year, $150,000 grant to support the Spanish American Merchants Association’s Empresario Computer Training Program. The goal of the 10week program is to provide education in management, financial literacy, human resources, technology, and health and safety.

An Idea that Caught Fire “We found a dearth of financial information and financial knowledge in the community in general,” says Rey Giallongo, chairman and CEO of First County Bank in Stamford. Young people in particular are not getting financial education in schools any more, and financial knowledge doesn’t seem to be a commonly-held family asset, he says.

Using curriculum from the FDIC Money Smart program, First County Bank has conducted 25 seminars since October.

It has 217 employees, 28 of them teaching across the bank’s footprint in conjunction with their full-time positions at the bank. “Everyone from tellers, customer service representatives, and back-office, to administration and branch managers – certainly it’s caught fire with our folks,” Giallongo says.

First County makes an effort to match the age group of the instructors as closely as possible with the age group of the class, to foster a peer-to-peer conversation. One of the takeaways, he says, is the ability to encourage young people to go and meet their banker and get comfortable with asking questions, and developing the thinking skills to ask the right questions. He notes that younger students who may have been exposed to financial duress at home are more likely to talk about it. “If you get them when they’re young, you have a better chance of instilling it in them at a time when it’s going to make a difference,” he says.

Feeding the Entrepreneurial Spirit Webster Bank’s Jerry Plush, president and COO, has taken up the nonprofit partnering banner in an exceptional way. Plush is the chair-elect of the board of JA of Southwest New England. The bank’s affiliation with JA is not just about sponsorship dollars.

Instead, it’s summoning all bank staff, from the most senior to 16

Third Quarter 2012 • Connecticut Banking Magazine

A Financial Literacy Survey commissioned this year by the National Foundation for Credit Counseling revealed

80 PERCENT OF CONSUMERS ADMITTED THEY WOULD BENEFIT FROM ANSWERS TO EVERYDAY FINANCIAL QUESTIONS FROM A PROFESSIONAL, an increase of 4 percent from that

the year before.

those just out of school, to participate in the educational process of JA sessions in grades kindergarten through senior year in high school. Webster Bank has nine other senior leaders on various boards of JA. “That tells you about the commitment we are making [to] fuel and feed that entrepreneurial spirit,” Plush says. “We’re passionate to do this with kids at an early age. The kids are dealing with professionals, who have made it through all different levels of school.”

The JA experience, he says, is a lesson plan in how to manage a relationship, start a business, and think outside the box. “You’d be amazed at how many of the kids pick it up so quickly,” he says.

He echoes the words of others: Get ’em while they’re young.

Grade school and middle-school children are easier to engage.

“As they progress up the ladder through school, we’ll have some of them obviously go in different directions,” he says. “Our hope is to adopt a couple of schools and go back and get repeatedly involved.” The plan is to expand the effort from Hartford, Waterbury, New Haven, Manchester and Torrington, where Webster Bank has already had volunteers, to the bank’s entire footprint.

Come Back Next Year Liberty Bank in Middletown got involved with Credit for Life Fair program for high school students five years ago, in partnership with the Middletown school system. In this simulation, students pick a profession, determine what job they like, and on Fair Day visit 12 booths and make critical choices about economic realities such as shelter, food, transportation and electives. The discoveries can be sobering.

“Early on, we had to demonstrate how it was going to be beneficial,” says Calvin Price, Liberty’s vice president of community development. The bank was fortunate to get other institutions to participate – among them Citizens Bank, Seasons Federal Credit Union, the Northern Middlesex YMCA, Sterling Realty and Jackson Chevrolet, among others, making it a community project. “What we were offering them was a value to the community at large, and the school system at large, not just continued on page 18

continued on page 18 17

Connecticut Banking Magazine • Third Quarter 2012

Liberty Bank.”

“The first year, kids didn’t take it that seriously,” says Sue Murphy, executive director of the Liberty Bank Foundation.

“Now it’s a mandatory event for seniors; it’s viewed as a rite of passage – you will learn how to manage your money. It’s only half a day, but it’s a wakeup call.”

The essential message: Financial literacy is not just for those who have money. It’s for low-income people as well. Liberty Bank has replicated the Middletown program in New London, targeting low-income kids who might not otherwise receive the education. Liberty partnered with six other financial institutions,

and they all met monthly to plan the fair. Every institution contributed $1,000, which paid for the exhibit paraphernalia, some food for volunteers and giveaways for the kids. “Everybody took a little piece of it,” Murphy says – some took care of volunteers, some brought other businesses on board, and everyone recruited volunteers.

When students arrive at the fair, each has a summary sheet customized to their job choice. The salary figure has the usual deductions for income tax, Social Security, and deductions for health insurance. Professionals often have deductions for student loans. They’ll find themselves faced with an array of booths and volunteers to help them make decisions about the niceties and necessities of life. For example, a realtor will help them pick an apartment, or a car dealer will assist with transportation choices.

Once they’ve made the rounds, they visit a “Credit Check” booth to find out whether their budgets balance – and get sent back out to make some changes if they find themselves in the red.

Some of the money-saving ideas students come up with show that they need work. One aspiring bank candidate in New London said he would save money by foregoing haircuts.

Not going to happen, he was told. A foursome of students had a grand idea to save on transportation by sharing the use of a car that one of them would own. When they were faced with the impracticality of this idea, “their shoulders fell and they went back to the [transportation] booth,” Murphy says. A nurse candidate planned to forego a car and take a bus. “What happens when you’re on the night shift?” she was asked.

One student this year asked if the numbers offered were real, Murphy recalls. The numbers for salaries came from the state Department of Labor, from 2011; the volunteer helpers were real estate agents, car and cell phone salespeople, each selling what they sell in real life. Faced with the cost of basics, “he got serious really fast. I think he thought he was going to debunk the whole thing,” Murphy says. u

People in the 18 to 24 age bracket spend nearly

30 PERCENT OF THEIR MONTHLY INCOME JUST ON DEBT REPAYMENT – double the percentage spent in 1992, and triple the amount of net income recommended for debt obligation.

Christina O’Neill is custom publications editor The Warren Group, publisher of Connecticut Banking.

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Connecticut Banking Magazine • Third Quarter 2012

Balancing Compliance, Security and Productivity

By Andrew Jaquith

F

or financial institutions, maintaining compliance with ever-growing regulations requires significant energy and resources. In a post Dodd-Frank world, it’s easy to understand why that might be the case. We call the amount of time, labor and expense needed to satisfy information technology securityrelated regulations “the Andrew Jaquith compliance tax.” It’s a tax because it is the price you have to pay for being a regulated institution that handles members’ financial assets. And it is a tax because like many other taxes, the effort related to paying it means that you can’t devote resources to other things. Security – or at least, security that actually works without making your people less productive – is sometimes the casualty.

Let’s look at the trade-offs between security and compliance first. Financial regulations and audit standards were often created with large institutions in mind.

The FFIEC IT Examination Handbook for Information Security, for example, contains nearly 100 pages of guidelines on more than 50 different control areas. These are all worthy topics to assess, but if you are a community bank or credit union serving a small customer base, you will have trouble satisfying all of the audit criteria with an IT staff of just a few people. In smaller institutions, the CFO is sometimes also

the CIO, CISO, CRO and vice president of procurement.

Financial institutions often spend too much time on compliance and not enough on security measures that help reduce risk. The key strategy is to try to do both with better security investments.

The best compliance-related investments are “twofers.” That means that not only do you benefit from being able to satisfy an audit finding, but you receive security benefits as well. Smart security managers love twofers, because it means they can use audit findings to justify funding the security projects they’ve long wanted to pursue but haven’t been able to receive approval for.

Log management, security information management and web security gateways, for example, are great twofers. In the end, it’s all about reaching that critical balance that will allow you to implement compliance requirements while reserving enough time, energy and resources to maintain robust a robust security strategy.

Next, consider security and its relationship to productivity. Usually, these are diametrically opposed. Most organizations think about what needs to be done with respect to security first, and the productivity impact is usually a secondary consideration. That’s not to say they can’t reinforce each other, but in most organizations, little thought is put into how they might. Or to put it in terms that I’ve heard come from the mouths of several 20

business executives: “We call IT security the ‘business prevention department.’”

That being said, a little creative thinking can yield some good ideas about how to improve productivity while keeping employees secure. The key is to put yourself, as a security manager, in the shoes of your employees. You want to try to understand where the most important points of “friction” exist in their day-to-day tasks. Then, see if you can imagine ways to engineer work environments so they make the right choice by default. For those of you who have read about “behavioral economics,” this is about “nudging” employees to do the right thing through incentives and changing default rules. Security becomes a side-effect of their normal tasks.

One example of a smart security strategy that also enhances productivity is getting rid of password expirations. Prevailing security dogma holds that security passwords should be complex and frequently changed.

But requiring your employees to change their passwords every 90 days just annoys them, and they will do highly insecure things to cope as a result. They will scribble passwords on sticky notes, re-use the same password everywhere, or make the absolute smallest changes to their passwords that they can while still complying with policy.

It’s far better to require comparatively longer passwords that never change, such as passphrases or mnemonic passwords.

Although employees will face a slightly longer learning curve initially, once they commit them to memory, they become reflexes. The best part: long passphrases can’t be broken as easily, so you’ve increased security and productivity at the same time.

I hope this gives you some ideas you can put into practice in your own financial institution. To best balance compliance, security and productivity, remember: find yourself some twofers! u Andrew Jaquith is the chief technology officer at Perimeter E-Security, the leading provider of secure cloud services.

Third Quarter 2012 • Connecticut Banking Magazine

Using Derivatives to Create Value continued from page 5

the time there is negative market value on the swap.

In summation, the swap can be viewed as a new product in the bank’s product arsenal, one which will appeal to more savvy customers and expand loan volumes. Financially, this new product can generate handsome fee income to the bank and ought to be underwritten with a minimal amount of credit exposure.

Derivatives to Manage Interest Rate Risk More Cost Effectively Historically, before the onset of the December 2007 global financial crisis, the “Great Recession,” Federal Home Loan Bank longer-term advance rates tracked closely with longer-term swap rates. Since then, long term advance rates have been consistently higher than sameterm swap rates, as depicted in the chart below.

As an illustration of the savings, on June 1, 2012, the five-year PNC swap rate was exactly 50 basis points below the five-year FHLB Boston advance rate, roughly within the range it has been in recent years. Converted into dollars, that 50 basis points of savings is almost $250,000 for every $10 million of swaps. Savings on that same amount for a 10 year would have been $840,000.

In addition, the bank has the ability to prepay the swap prior to stated maturity and retain any positive market value, which would normally occur with rising rates.

Furthermore, many banks today still have excess liquidity positions (meaning too much cash), so they prefer to use a swap so that they can more effectively redeploy their liquidity into loans at a higher return without stressing their Tier 1 regulatory capital ratio through additional borrowings.

Summary We encourage boards to learn more about derivatives and understand how they might be able to improve the bank’s profitability, enhance interest rate risk management and create customer value.

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Connecticut Banking Magazine • Third Quarter 2012

BANKSintheNEWS  Chelsea Groton Bank President and CEO Michael Rauh (pictured) welcomed trustees, corporators and officers of the bank at the 157th annual meeting. He highlighted Chelsea Groton’s contributions to the local community, noting the bank and its employees donated more than $277,000 and volunteered nearly 9,000 hours to non-profit and civic organizations.

New corporators elected at the annual meeting include Lori Danis, Nancy Hillery and William Turner.

 First County Bank 1. The bank sponsored the New Canaan Library’s “Conversations with Business Leaders” program with speaker Jeffrey Immelt, chairman and CEO of General Electric. The program offers information on the business world and the state of the economy, and provides an opportunity to learn from the leadership and business expertise of the speakers. Pictured, from left: Jeffrey Immelt, chairman and CEO, General Electric; Nicholas DuBiago, CPA, managing partner, Van Brunt DuBiago & Co, and board member, First County Bank; and Reyno A. Giallongo, Jr., chairman and CEO, First County Bank.

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Chelsea Groton Foundation has distributed more than $1.4 million to hundreds of organizations in Connecticut and Rhode Island. Continuing its mission to give back to the communities it serves, the Chelsea Groton Foundation recently distributed $57,600 to 32 charitable organizations that serve the communities of Southeastern Connecticut and Southwestern Rhode Island. In 2011, the bank and its employees donated more than $277,000 and nearly 9,000 hours to benefit the communities.  Dime Bank Foundation The bank awarded a $3,670 grant to the Public Library of New London to help implement a the national remedial summer reading program “Own the Night.”

2. The bank is the presenting sponsor of the 35th annual Norwalk Seaport Association’s Oyster Festival. The Oyster Festival is the summer hallmark event in Fairfield. Pictured, from left: Reyno A. Giallongo Jr., chairman and CEO, First County Bank; Irene Dixon, executive director, Norwalk Seaport Association; and Stephanie Frederick, vice president, First County Bank, and board member, Norwalk Seaport Association.

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 Essex Savings Bank The bank announced its community investment program awards winners. Customers of the bank were asked to vote from a list of 94 qualified non-profit organizations that applied. Each year the bank donates 10 percent of its after-tax net income to non-profit organizations within the immediate market. 9,477 votes were cast this year. By yearend, $255,666 will have been allocated to over 200 organizations, bringing the total distribution since the inception of the program in 1996 to over $3.4 million. Pictured, from left: Gregory R. Shook, president andCEO, Essex Savings Bank; Thomas W. Lindner, vice president and community relations officer, and awards winners.

3. The bank is pleased to announce that it is sponsoring the city of Norwalk’s 2012 summer concerts. The theme this year is tribute bands, including Neil Diamond, Elvis Presley, sounds of the 1960s, a salute to the 70s, Woodstock, and The Beatles. From left to right: Michael Mocciae, director of recreation and parks, city of Norwalk; Katherine A. Harris, president and COO, First County Bank; and Richard Moccia, mayor, city of Norwalk.

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Third Quarter 2012 • Connecticut Banking Magazine

 Liberty Bank At the grand opening of its new 44th location in New Britain, the bank announced that it had set aside a pool of $4.4 million to write 15- and 30-year fixed-rate mortgages at a one-half percent rate discount for New Britain home buyers. At the event, the bank also presented a total of $9,500 in grants from the Liberty Bank Foundation to seven New Britain-area nonprofit agencies. Lined up for the ribbon cutting are, from left: Liberty Bank President and CEO Chandler J. Howard; Janessa Leahy and Danielle Viger, Liberty Bank; Rocky, the New Britain Rock Cats mascot; Liberty Bank Branch Manager Marzena Bukowski; and Arelis Kinard, Rosario Pulino, Stasia Krol, and Frank Rave, Liberty Bank.

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4. The bank also announced it is the presenting sponsor of the Sunday Concert Series at Bartlett Arboretum in Stamford. Pictured, from left: Peter Saverine, executive director, Bartlett Arboretum & Gardens; Katherine A. Harris, president and COO, First County Bank; and Chip Brecht, co-president, Bartlett Arboretum & Gardens.

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 Naugatuck Savings Bank 1. A new branch office has opened in Waterbury. Pictured, from left: Lynn Ward, president and CEO, Waterbury Regional Chamber; Dawn Orsini, vice president of retail banking, Naugatuck Savings Bank; Mark Yanarella, CEO, Naugatuck Savings Bank; Mayor Neil O’Leary, city of Waterbury; Terri Carrier, branch manager, Naugatuck Savings Bank; Ron Pugliese, director of economic development, city of Waterbury; and Charles Boulier III, president, Naugatuck Savings Bank.

 Guilford Savings Bank The bank hosted a free paper shredding and computer recycling event.

Individuals from the community brought 28,440 pounds of paper to be shredded, as well as 73 hard drives and thousands of pounds of computer equipment. Pictured, boxes of paper are unloaded into bins for secure shredding.

1

2. The Naugatuck Savings Bank Foundation announced the winners of its Community Awards Program at a special ceremony honoring 35 nonprofit organizations. The bank distributed awards totaling $53,500.

Each Naugatuck Savings Bank customer was able to cast a vote for a local charity of their choice to receive a grant from the foundation. The Naugatuck Savings Bank Foundation, founded in 1998, has given away more than $3.8 million to non-profit organizations to support a broad range of programs and services.

 Jewett City Savings Bank The bank was the underwriter of the restoration of Fanning Park monuments. This year marks the 100th anniversary of the establishment of David Hale Fanning Park, which was dedicated in 1912 to be the location for monuments to honor and respect the town’s war veterans. The first monument, erected in 1913, was the Soldier’s Monument ,honoring those who served in the Civil War. The bank also organized a crew of employees to help beautify the park with plantings around the monuments.

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Connecticut Banking Magazine • Third Quarter 2012

BANKSintheNEWS

continued from page 23

 People’s United Bank Greenwich Associates, a research-based strategy management firm, awarded the bank six national and two regional awards for “Excellence in Small Business Banking.” Of the more than 750 banks evaluated by Greenwich Associates, only 43 received “Excellence in Small Business Banking” awards and People’s United was the only bank headquartered in New England to receive this recognition.

1

 Rockville Bank 1. Employees helped members of the community unload their cars at the Bank’s Shred Day to help the public take steps to protect their identities.

Pictured, from left, are Rockville Bank employees Diana Capece, payroll specialist and HR assistant; Gwen Reale, assistant vice president and financial intelligence unit manager; and Richard Venditto, credit analyst.

2. Employees also participated in the Southbury Memorial Day Parade festivities. Handing out balloons and popcorn are, from left, Cindy Smilowitz, Bobby Morrison, John DiBiaso and Meghan Borzino.

2

1

3. Bank mentors attended the Danbury School and Business Collaborative Scholarship and Awards Breakfast. Front row, from left: Tom Vitale and Ana Perdigoto, who was recognized with an award for 15 years of mentoring. Back row, from left: Maria Bahia, Colleen Johnson, who was recognized for five years of mentoring with a certificate, John Jahne and Bank Liaison Karen Hupchick. Mentors not able to attend the event: Jennifer Clark, Al Pena and Farley Santos.

2. Rockville Bank Foundation and the Manchester Community College Foundation reported historic fundraising at “An Evening of Fine Wines.” More than $258,000 was raised, which will be used to provide scholarships for students pursuing their educational goals. Pictured, from left: Kevin G. Murphy, MCC Regional Advisory Council; Elizabeth Crawford; William H.W. Crawford IV, president and CEO, Rockville Bank; Connecticut Gov. Dannel P. Malloy; Dr. Gena Glickman, president of MCC; Endia DeCordova, acting associate dean of institutional advancement and community engagement and outreach, MCC Foundation; and Ann Murphy.

3

2 4. In conjunction with the Rotary Club of Danbury, the Savings Bank of Danbury awarded a scholarship to Amy Wu-Ea, a senior at Danbury High. Pictured, from left: Kathy Romagnano, executive vice president and COO, Savings Bank of Danbury; Hoy Ea; Amy Wu-Ea, scholarship recipient; Susan Berube, vice president and compliance officer, Savings Bank of Danbury and Lynn Mohlenhoff, assistant vice president and branch manager, Plumtrees branch.

 Salisbury Bank The bank is helping in the fight identity theft while building community goodwill by sponsoring five Community Shred-It Days.

4

 Savings Bank of Danbury 1. Employees participated in the March of Dimes March for Babies. As an annual community activity, the bank saw a 50 percent increase in employee participation this year. A team from Savings Bank of Danbury also participated in the March of Dimes March for Babies held at Quassy Amusement Park.

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Third Quarter 2012 • Connecticut Banking Magazine

5. Raffle winner Susan Anderson won a $50 gift certificate to Escape Salon & Spa. Pictured with Anderson is John Bach, assistant vice president and branch manager, Bethel office.

3. The foundation awarded a $3,000 grant to AmeriCares Free Clinics in Danbury. The grant will be used to support the medical clinic. Pictured are Dina Valenti, Danbury Clinic director and Hal Wibling, president and CEO Savings Bank of Danbury.

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3

ď ľ The Savings Bank of Danbury Foundation awarded a $2,500 grant to Literacy Volunteers of America of Danbury. The grant will be used to fund GED preparation, computer use and teaching skills.

1. Pictured, from left: Beth Ann Fetzer, community development officer and assistant vice president, Savings Bank of Danbury; Tom Pinkham, executive director of Literacy Volunteers and Lynn Pinkham, office manager for Literacy Volunteers.

4. The foundation awarded a $3,500 grant to The Charles Ives Authority for the Performing Arts. The grant will be used to support the new Garden Series Concert initiative. Pictured, from left: Kathy Romagnano, executive vice president and COO, Savings Bank of Danbury; Gary Hawley, chairman of the board, Savings Bank of Danbury; and Phyllis Cortese, executive director, Charles Ives Authority.

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5. The foundation awarded a $3,500 grant to the Danbury Music Centre. The grant will be used to fund the Concert Mentor Chair.

Pictured, from left: Beth Ann Fetzer, community development officer and assistant vice president, Savings Bank of Danbury; Stephen Michael Smith,cConductor, Danbury Community Orchestra; and Nancy Sudik, executive director, Danbury Music Centre.

2. The foundation awarded a $4,000 grant to Junior Achievement of Western Connecticut to support JA classes at Morris Street Elementary School in Danbury. Pictured, from left: Katie Rossi, education manager, Danbury area, and George Herring, vice president, Savings Bank of Danbury and chair of the JA Danbury Community Board.

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Connecticut Banking Magazine • Third Quarter 2012

BANKSintheNEWS

continued from page 25

6. The foundation awarded a $3,000 grant to Western Connecticut Home Care (WCHC). The grant will be used to purchase Lifeline Medical Alert devices. Pictured, from left: Judy Becker, manager of marketing and development, WCHC; Jim Post, assistant vice president and portfolio manager, Savings Bank of Danbury and secretary of the WCHC board of directors; and Ann Faraguna, executive director, WCHC.

9. The foundation awarded a $3,000 grant to the Regional YMCA of Western Connecticut. The grant will be used to support the ESCAPE To The Arts program. Pictured, from left: Gail Null, executive director for the Regional YMCA; Al Pena, mortgage officer, Savings Bank of Danbury and a Regional YMCA board member; and Tara Tomaselli, art director, ESCAPE program.

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10. The foundation awarded a $3,000 grant to CityCenter Danbury. The grant will be used to support the Summertime Festival of the Arts and Taste of Greater Danbury. Pictured, from left: Pat Orsino, assistant vice president and branch manager, Main Street office, and treasurer, CityCenter Board of Commissioners; and Pat Hembrook, managing director, CityCenter.

7. The foundation awarded a $3,000 grant to the Center for Nonprofit Excellence (CNE). The grant will help fund development workshops.

Pictured, from left: Hal Wibling, president and CEO, Savings Bank of Danbury; Elaine Mintz, director, CNE; and Karl Epple, member, Savings Bank of Danbury Foundation Committee.

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 Savings Institute Bank & Trust The Windham Region Chamber of Commerce presented the bank with its Corporate Citizen of the Year Award. Bill Anderson, senior vice president, accepted the award on behalf of the Savings Institute.

8. The foundation awarded a $2,500 grant to Amos House. The grant will be used to support the Transitional Living Program. Pictured, from left: Joe Walkovich, president of the Amos House board of directors, and Gary Hawley, chairman of the Savings Bank of Danbury board of directors.

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 SI Financial Advisors The firm received the University of Connecticut’s Corporate Philanthropy Award. Rheo Brouillard, president and CEO of Savings Institute Bank & Trust, was joined in receiving the award by David Weston, senior vice president and senior trust officer, SI Financial Advisors. The Corporate Philanthropy Award honors the business that demonstrates outstanding financial or resource support to the arts at the university within the past year.

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Third Quarter 2012 • Connecticut Banking Magazine

 Thomaston Savings Bank The bank opened its newest branch with a ribbon-cutting and grand opening ceremony. Pictured, from left: George Seabourne, chairman of the board of directors of Thomaston Savings Bank; James Kaniewski, board member; Charlie Nyberg, architect of the new building; Michael Nicastro, president and CEO, Central Connecticut Chambers of Commerce; Art Ward, mayor, city of Bristol; Stephen L. Lewis, president and CEO, Thomaston Savings Bank; James Murdick, vice president and senior commercial loan officer; Marissa McGee, assistant secretary and branch manager, Bristol branch, Thomaston Savings Bank; Ed D’Amato, contractor of the new branch; Todd Burton, vice president and regional manager, Thomaston Savings Bank; and James R. Nichol, executive vice president and COO of Thomaston Savings Bank.

and retail market manager for Union Savings Bank (far right), joined by arts center participants Clare Pszenitzki, McGovren Moore, Campbell Coughlin and Amy Hughes.

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 Windsor Federal Savings 1. The bank assisted the Marquis of Granby Ancient Fyfe and Drum Corp. with a $2,000 donation to cover the cost of shipping their musical instruments to Switzerland for an upcoming competition, a shipping charge they did not anticipate.

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 Union Savings Bank Employees once again supported the United Way of Western Connecticut by volunteering for their Annual Day of Action event.

Thirty-nine employees were assigned various projects at local community organizations and parks. The day-long projects included painting, gardening, fence repair and general building and yard maintenance.

1. The bank was one of 25 businesses and organizations honored at the annual Connecticut Summer Savers Award ceremony at the state capitol.

The bank received a Bronze Award for its energy-saving practices during the summer of 2011, including the replacement of all lighting with energy-efficient fixtures and the installation of motion detectors for the lights, as well as the installation of programmable thermostats. Pictured, from left: John Lynn, assistant vice president and facilities manager, Union Savings Bank, accepts the bank’s Connecticut Summer Savers Bronze Award from Katie Dykes, deputy commissioner, Department of Energy and Environmental Protection, and Jack Betkoski, vice chairman, Public Utilities Regulatory Authority.

2. The bank also recognized four Windsor High School graduating seniors as student tellers. Each of the tellers worked at the Windsor High Branch of Windsor Federal Savings. The ceremony was held to express the bank’s appreciation for the students’ dedication and strong work ethic during the year as they worked side by side with their Windsor Federal mentors and other Windsor Federal employees. Pictured, from left: Clive McLean, Hayley Malloy, Javim Gordon and Miesha Williams.

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2. The bank showed its support for Village Center for the Arts by presenting the organization with a check for $5,000, supporting the nonprofit fine arts center’s upcoming Paint the People. Pictured, from left: Sharon Kaufman, executive director and art director at Village Center for the Arts (holding the check), and Bonnie Blackman, vice president 27

Connecticut Banking Magazine • Third Quarter 2012

BANKERSintheNEWS Windsor Federal Savings CEO Mark Griffin officially retired in June after a successful 38-year career at the bank.

Bankers’ Bank Northeast grows the finance department with the addition of Sandol (Sandy) Allen.

Mark Griffin

The Bank of Fairfield named Peter Russell chief lending officer, where he will be responsible for all commercial and consumer lending activity at the bank, including maintaining the bank’s high standard for credit quality and growing the bank’s loan portfolio.

Peter Russell

Chelsea Groton Bank appointed Alex Massé, vice president and assistant director of retail banking to the board of the Greater Norwich Area Chamber of Commerce, where he will serve as an ambassador for the chamber and contribute his expertise to advance the work of committees within the organization.

David Stone has joined the commercial lending department as vice president and commercial loan officer, where he will focus his business development efforts across New London County. He was recently appointed to the board of Big Brothers Big Sisters of Southeastern Connecticut, where he will serve as ambassador, as well as advocate on behalf of the David Stone children who benefit from the organization.

George W. Strouse

Farmington Bank appointed Joseph M. Balzo vice president of government banking, focusing on the marketing of the bank’s core cash management products and services to the state and municipal Joseph M. Balzo Maureen Kiniry market segment. Maureen Kiniry was appointed vice president of correspondent lending in the residential area. She will operate from the bank’s corporate headquarters in Farmington.

First County Bank announced David J. Van Buskirk joined the bank as a business development officer.

The bank recognizes its David J. Van Buskirk CSFM graduates latest graduates of the Connecticut School of Finance and Management. From left to right: Erika Galvez from the customer contact center; Goretti Joseph from residential lending; and Alionka Martinez from the Springdale branch.

Guilford Savings Bank recently welcomed Lisa Kaye to the team as information systems officer.

Lisa Kaye

Litchfield Bancorp promoted Tiffany Bierce-Hussey to customer service representative in the bank’s Litchfield office. Margret Warner graduated with honors from the ABA Stonier Graduate School of Tiffany Bierce-Hussey Margret Warner Banking. Pictured with Margret is Tom Villanova, president and CEO of the bank.

George W. Strouse, trustee and retired CFO, donated his collection of antique “auxiliary” coin banks to the company, where he started his banking career in 1967. Strouse donated the coin banks, some of which date back to the early 1900s, “to make a classic piece of Connecticut banking history available to the community.”

Dime Bank appointed John Keating assistant vice president and finance officer. He is responsible for strategic forecasting, generating reports for ALCO committee meetings, bank-wide budget preparation, and financial analysis support.

John Keating

Essex Savings Bank employee Brenda Kim received her consumer lending and general financial services diplomas, along with certificates to introduction to financial services and introduction to financial services operations from the Center for Financial Training.

Naugatuck Savings Bank awarded its quarterly customer service commendation to Engie Hasku, operations representative. The award is given every quarter to the employee who best represents the Engie Hasku David Rotatori bank’s engrained culture of giving customers the service and dedication they deserve. David Rotatori was named chief financial officer. He will continue to serve the bank as senior vice president and chief risk officer. He is a chartered global management accountant and certified public accountant.

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Third Quarter 2012 • Connecticut Banking Magazine

Marylou Cunningham

Nutmeg Financial, MHC promoted Marylou Cunningham to marketing officer. In this role, she is responsible for the daily marketing and advertising functions of Nutmeg Financial, MHC and its wholly owned subsidiaries, Naugatuck Savings Bank and Sutherland Insurance Group.

Cynthia Bradley

Betsy R. Devino

Georgann Farnum

Julie Gregory

Salisbury Bank announced the promotion of seven employees: Cynthia Eileen Lee Michael Jordan Heidi Wilson Bradley, senior vice president of credit administration, responsible for loan servicing, commercial credit, risk management, collections and credit administration. Betsy R. Devino, assistant vice president and branch manager. Georgann Farnum, assistant vice president and branch manager. Julie Gregory, assistant vice president and branch manager.

Eileen Lee, assistant vice president and branch manager. Michael Jordan, assistant vice president, and IT manager, responsible for planning, organizing and directing the IT activities of the bank. Heidi Wilson, branch manager.

People’s United Bank announced Jim Alfieri, senior vice president and chief investment officer; Brian Murphy, senior portfolio manager; and Jim Witterschein, senior portfolio manager; have joined the bank’s investment management team in Connecticut.

Rockville Financial, Inc. leadership formally thanked three individuals for their outstanding service on its board. Thomas S. Mason and Peter F. Olson retired from the board, and Pamela J. Guenard completed her most recent term on the governing body. Pictured (left to right): William (Bill) H. W. Crawford, IV, president and CEO of Rockville Financial, Inc./Rockville Bank; Mason; Guenard; Olson; and Raymond H. Lefurge, Jr., chairman of the board.

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Connecticut Banking Magazine • Third Quarter 2012

BANKERSintheNEWS

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Savings Bank of Danbury announced Nancy Boroughf joined the bank as its newest mortgage consultant, responsible for educating and counseling borrowers as well as originating mortgages and home equity loans in the greater Danbury area.

to-day operations at the store serving customers throughout Fairfield.

Gregory Pastor was named vice president of commercial lending, responsible for managing commercial client relationships, crossselling banking products and developing commercial loans.

Nancy Boroughf

Savings Institute announced the promotion of six of the bank’s officers, as well as numerous employee award recipients at the bank’s “Celebration of Excellence” event. Among those receiving promotions were: Sarah Kanas, vice president; Mark Light, assistant vice president; Jaclyn Petrizzo, vice president; and Valerie Shorts and Mike Urgo, assistant treasurers. Also recognized were Lisa Allegro, who was recently promoted to assistant vice president, and Donna Connolly, who was hired as assistant vice president and assistant controller. One of the evening’s most prestigious awards is the President’s Award, which was awarded to Elaine Ruffo for her dedication to so consistently meeting and exceeding her customers’ expectations. From left to right: Rheo Brouillard, president and CEO; Laurie Gervais, senior vice president of human resources; Elaine Ruffo, customer service representative, Canterbury branch; and William Anderson, senior vice president, retail banking.

Diane Berry

Richard Fink

Frederick F. Judd III

David Zavarelli

Union Savings Bank promoted Diane Berry to vice president and process improvement specialist. She will analyze processes to provide efficiencies and business solutions. Richard Fink was promoted to vice president and small business lender. He will develop and manage small business account relationships. Frederick F. Judd III was promoted to executive vice president of wealth management. In his new role, he oversees the bank’s trust department and brokerage services with Raymond James Financial Services, Inc. David Zavarelli, CFP, was promoted to vice president, financial advisor and sales manager.

Zavarelli, a Raymond James financial advisor at the bank, works with clients to help them define and pursue their financial goals, as well as oversees brokerage service operations and business compliance.

Assistant Branch Manager Stacy Ashby and Assistant Vice President Branch Manager Vida Bundra graduated from the Connecticut School of Finance and Management (CSFM). From left, Fran Dattalo, president and CEO of Union Savings Bank; Stacy Ashby, assistant branch manager; Vida Bundra, assistant vice president and branch manager; and Lynne Beardsley, executive vice president of human resources and retail banking.

Savings Institute Bank & Trust Branch Manager Lisa Sullivan was presented with the “Volunteer of the Year Award” by the Windham Region Chamber of Commerce.

Vantis Life Insurance Company inducted Elaine Ruffo and Dawn Ennis of Savings Institute as members into its President’s Council, the company’s top sales award in the state. Left, Elaine Ruffo, customer service representative; right, Dawn Ennis, assistant manager.

TD Bank named Stephen M. Fuscaldo vice president and senior business development officer in asset-based lending, responsible for originating new business in Connecticut and the Jennifer A. MacKenzie Gregory Pastor metro New York area.

Jennifer A. MacKenzie was named store manager. An assistant vice president, she is responsible for new business development, consumer and business lending, managing personnel and overseeing the day-

Windsor Federal Savings announced Harold Harper is their new Bloomfield branch sales manager. At a meet-and-greet, Harper, along with George Hermann, the new bank president, were introduced to the Bloomfield community.

Harold Harper

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