S p rin g 2 0 1 1
B A N K E R
Weak Economy D&O Insurance / Annual Conference / DIY Disaster Recovery E n d o r s e d b y t h e Ne w J e r s e y B a n k e r s A s s o c i a t i o n
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New Jersey Bankers Association www.njbankers.com 411 North Avenue East Cranford, NJ 07016-2436 Phone: 908-272-8500 Fax: 908-272-6626
Jersey B A N K E R
NJBankers Board of Directors Robert C. Ahrens Immediate Former Chairman President/Chief Executive Officer GCF Bank William E. Arnold President/Chief Executive Officer Saddle River Valley Bank Norman E. Beatty Chairman/President/ Chief Executive Officer First Hope Bank
Steven E. Brady President/Chief Executive Officer Ocean City Home Bank
Joseph F. Dempsey, Jr. President – NJ Middle Market Banking JPMorgan Chase Bank, N.A.
Peter M. Brown President/Chief Executive Officer Manasquan Savings Bank
Peter A. Dontas Market Executive Bank of America
Walter Celuch President/Chief Executive Officer Clifton Savings Bank
David J. Hemple President/Chief Executive Officer Century Savings Bank
Joseph Coccaro President/Chief Executive Officer Bogota Savings Bank
Stanley J. Koreyva, Jr. Chief Operating Officer/ Executive Vice President Amboy Bank
The Warren Group Staff Timothy M. Warren Chairman
Timothy M. Warren Jr. CEO & Publisher
David B. Lovins President
Vincent Michael Valvo Group Publisher & Editor in Chief
Jeffrey E. Lewis Controller & Director of Operations
George Chateauneuf Publishing Division Sales Manager
Sarah Cunningham Director of Events
Cara Inocencio Advertising Account Manager
Richard Ofsthun Advertising Account Manager
Emily Torres Advertising, Marketing & Events Coordinator
John Bottini Creative Director Christina P. O’Neill Custom Publications Editor
Scott Ellison Senior Graphic Designer Ellie Aliabadi Graphic Designer
Cassidy Norton Murphy Associate Editor
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.
Margaret Lanning Senior Vice President, Senior Regional Credit Officer-Northeast Region Wells Fargo Bank, NA
Robert H. King Third Vice Chairman Senior Vice President Roma Bank John E. McWeeney, Jr. President and CEO New Jersey Bankers Association
Robert E. Stillwell President/Chief Executive Officer Boiling Springs Savings Bank
Stewart E. McClure, Jr. President/Chief Executive Officer Somerset Hills Bank
John H. Wessling, III President/Chief Executive Officer Haven Savings Bank
Donald Mindiak President/Chief Executive Officer BCB Community Bank
Gerald H. Lipkin Chairman Chairman/President/Chief Executive Officer Valley National Bank
Kevin Cummings Second Vice Chairman President/Chief Executive Officer Investors Savings Bank
Mortimer J. O’Shea President/Chief Executive Officer Hilltop Community Bank
Christopher Martin President/Chief Executive Officer The Provident Bank
Frank A. Kissel First Vice Chairman Chairman/Chief Executive Officer Peapack-Gladstone Bank
William D. Moss President/Chief Executive Officer Two River Community Bank
NJBankers Staff John E. McWeeney, Jr. President and CEO ext. 627 firstname.lastname@example.org James M. Meredith Executive Vice President and Chief Operating Officer ext. 614 email@example.com
Claire Anello Office Manager, Database and Website Manager ext. 631 firstname.lastname@example.org
Michael P. Affuso, Esq. Senior Vice President and Director of Government Relations ext. 628 email@example.com
Candida Johnson Assistant Vice President/ Assistant to the COO and the Director of Business Development ext. 615 firstname.lastname@example.org
Richard P. Neale Senior Vice President and Director of Business Development ext. 630 email@example.com Emily T. DeMasi Vice President and Director of Communications ext. 610 firstname.lastname@example.org Wendy C. Mandelbaum Controller ext. 603 email@example.com Jenn Zorn Vice President and Director of Education ext. 611 firstname.lastname@example.org
Paula H. Cassidy Assistant to the Director of Communications ext. 604 email@example.com Catherine Gleicher Assistant to the President and the Director of Government Relations ext. 600 firstname.lastname@example.org Cynthia M. Zaccaro Assistant to the Director of Education ext. 632 email@example.com
Counsel Michael M. Horn, Esq., McCarter & English, LLP Mary Kay Roberts, Esq., Riker, Danzig, Scherer, Hyland, Perretti LLP
Contributing Editor Emily T. DeMasi
New Jersey Banker
Table of Contents
Jersey B A N K E R
Chairmanâ€™s Platform After the Winter Must Come the Spring
From the President's Office NJBankers Looks to the Future
Politics & Policy JEBPAC Breaks Fundraising Records, But More Support is Needed
21 Upcoming Events 35 Bank Notes 37 Bank Shots
Running a Good Bank in a Weak Economy
Directors' Corner Succession: The Biggest Risk Factor
News FMS NY-NJ Chapter and NJBankers Host Joint Seminar
News Annual Conference Sets Sights for Florida
Insurance Dodd-Frankâ€™s Effect on D&O Insurance
Meet Our Endorsed Service Providers Join NationalCard for the Future in Debit Card Management
Feature Mortgage Servicing Action Plan for 2011
Protect Seniors and Gain CRA Credit through the Senior Housing Crime Prevention Foundation
New Jersey Banker
Behind the Teller Line Kearny Federal Savings/ Central Jersey Bank Affiliation Makes a Perfect Match
Feature Hold onto Your Notes!
Feature Do-It-Yourself Disaster Recovery
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. Investors Savings Bank and The Provident Bank used FHLBNY advances to help provide permanent financing to New Community Corporation (NCC) for its Workforce Development Center, from which NCC offers employment programs, training courses, financial aid, and job placement assistance to New Jersey’s underprivileged residents. The advances helped stabilize the economic future of the Center so NCC can continue to improve the quality of life of inner-city residents. Contact us to see how the power of an advance can impact your community. 101 Park Avenue, New York, NY 10178 | (212) 441- 6700 | www.fhlbny.com Note: The Federal Home Loan Bank of New York uses the word “advances” to refer to the loans it provides to our member lenders.
After the Winter Must Come the Spring By Gerald H. Lipkin
elcome to the spring issue of New Jersey Banker. Spring… a season that for so long seemed to never appear! We have certainly had a very long winter. In February, the FDIC issued a “Financial Institution Letter” to provide regulatory relief to financial institutions and facilitate recovery in Gerald H. Lipkin areas of New Jersey Chairman affected by the severe NJBankers Chairman/President/CEO winter storm on Dec. Valley National Bank 26 and 27, 2010. A (973) 305-4001 federal disaster was declared on Feb. 4, 2011, for selected areas in New Jersey. The FDIC encouraged banks to work with borrowers who might have been experiencing difficulties beyond their control because of the storm. But isn’t that what New Jersey’s banks do? As members of the communities we serve, we know our customers and know when they need our help. New Jersey’s banks did not need for a disaster to be declared. We prudently work with our borrowers as they weather the storms – snow storms, business-related storms, fiscal storms and economic storms. Responsibility is something that we, as bankers, take very seriously. From lending to compliance to community service, it’s all about continuing good underwriting practices, managing risk and building customer relationships. Our cover feature provides insight from a number of members and associate members on running a bank in a weak economy. I found their comments interesting and uplifting. Also in this issue, our Director’s Corner features succession planning and its importance for managing a bank, not just in tough economic times, but for moving
New Jersey Banker
forward. Having a succession planning process in place is crucial to leadership continuity and having the right plan is what it takes to mitigate the serious risk of compromising the strength of that leadership.
Fairmount Turnberry Resort in Florida. The NJBankers Conference Committee has developed a timely and informative educational program for C-level executives, senior executives and directors.
If we did not sometimes taste of adversity, prosperity would not be so welcome.
As I write this, NJBankers will be heading to Washington, DC, for the annual Government Relations Summit. I hope you were able to support the effort, but even if you could not, your voice can still be heard through the Association’s efforts and by responding to requests for contacting leadership in Washington and Trenton. Your Association makes this easy for you. When NJBankers calls on its members to reach out to their elected representatives to support or oppose a bill or regulatory action, e-mails are distributed detailing the Association’s position on the issue and providing a convenient electronic message that can be customized and forwarded. Constituent communications are typically the most successful for advancing a legislative agenda. Please respond to these action alerts. Our collective voices are a powerful call for attention from legislators. I would also like to mention JEBPAC, because it helps us to be involved in the legislative process and have our voice heard. I give to JEBPAC because it is a primary vehicle for being involved in the political process in the state of New Jersey. To me, the investment just makes sense because it is an investment in our own careers and without the investment; banking is not going to be all it can be. I would also like to remind NJBankers members about the Association’s Annual Conference, from May 11 to 15 at The
The conference theme is “Opportunities in the New Decade” and experts are lined up to help you get to those opportunities so you can make your financial institution even more successful in the next decade. Our Friday keynote speaker, William Isaac, is the former FDIC chairman and author of Senseless Panic: How Washington Failed America. He will share his insight on how the past may guide the future and also sign copies of his book. Our Saturday keynote speaker is the EmmyAward winning sportscaster and New York Times best-selling author Len Berman. A program not to be missed! At the conference, I will be passing the chairman’s gavel to my colleague, Frank Kissel, chairman and CEO of PeapackGladstone Bank. It has been my honor and pleasure to have served you, the members of NJBankers, and I wish Frank all the best in his new leadership role. In conclusion, I leave you with this: if we had no winter, the spring would not be so pleasant; if we did not sometimes taste of adversity, prosperity would not be so welcome. I wish you all prosperity with the coming of the new season! n Gerald H. Lipkin is chairman of the New Jersey Bankers Association and chairman, president and CEO of Valley National Bank in Wayne. He can be reached at 973-305-4001.
Did the ﬁnancial crisis really have to be this bad? Banking expert Bill Isaac details how desperate government decisions and forgotten ﬁnancial lessons led to a Senseless Panic.
“If Washington politicians ignore Isaac’s insights, we will pay a fearful price.” —STEVE FORBES, CEO, FORBES, INC.
“Bill Isaac has dedicated his life to the public policy arena. He thinks straight, and he talks straight.” —LAWRENCE KUDLOW, HOST OF CNBC’S THE KUDLOW REPORT
“Learn from past crises and prevent the next collapse, says this experienced and outspoken former bank regulator.” —RALPH NADER, LAWYER, AUTHOR, AND POLITICAL ACTIVIST
Available wherever books and e-books are sold.
Don’t miss Bill Isaac’s Keynote presentation and book signing at the NJBankers Annual Conference on Friday, May 13, 2011.
From the President’s Office
NJBankers Looks to the Future By John E. McWeeney, Jr.
T John E. McWeeney, Jr. President/CEO NJBankers firstname.lastname@example.org
he theme of our 107th Annual Conference this May is “Opportunities in the New Decade.” Like our members, NJBankers is trying to navigate its way through the current economic, legislative and regulatory challenges that our industry faces while at the same time planning for the future. In this edition of New Jersey Banker, I’d like to share with you some of things your trade association is doing in order to serve you better. As we look to the future, we see a changing landscape for the banking industry. Whether it is industry consolidation, leadership changes, regulatory reform, technology advances, demographic changes
or a host of other factors, it’s apparent that the banking industry is going to experience significant change in the next decade. In order for NJBankers to meet the needs of our members, we need to change too. As such, the Executive Committee of the board has directed management to develop a new strategic plan. We’re pleased to be working with one of our associate members, The Kafafian Group, on this exciting project. Bob Kafafian and his team will be meeting with management, directors, bank members and associate members to solicit their thoughts and ideas on the direction for NJBankers. The process will include TICIC and Bankers Cooperative Group, two critical parts of our organization. We anticipate presenting the
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New Jersey Banker
strategic plan to the board of directors for approval in May. While we look to the future, we also need to focus on the present. Our cover story for this edition, “Running a Good Bank in a Weak Economy” certainly applies to trade associations as well. Our staff is working harder than ever to serve our members on a number of different fronts. Here are just a few brief updates: • Activity continues strong on the government relations front with participation in the ABA Government Relations Summit in March and an NJBankers meeting with the regulatory agencies in Washington planned for October. Also, in June we’ll hold our fourth Annual Bankers Legislative Day in Trenton. • JEBPAC recently launched its 2011 campaign, which will be particularly important this year as the entire legislature in Trenton is up for election. • In February, the Committee on Examination and Supervision met with all the regulators and, for the first time, opened up the meeting via conference call to all bank members. • BCG recently completed a successful transition from UnitedHealthcare to Aetna as our healthcare provider. This change will save our participating banks and associate members significant money over the next two years. • To initiate its strategic planning process, TICIC recently sent a survey to all member banks. • NJBankers media outreach hit the ground running in 2011 with articles in The Star Ledger, Asbury Park Press, Courier News, NJBIZ and Commerce magazine. We also completed a summary of our member bank community service programs and distributed it to the entire NJ Congressional delegation and every member of the state Legislature. • New programs were offered or are scheduled for: Women in Banking, Director’s College, GUDPA rules and a CLE program for attorneys. • NJBankers offices in Cranford have been redesigned to increase operating
efficiencies. Like many of our members, we’re also “going green” as we cut down on the use of paper and manage our energy use.
We want to hear from you on what we can do to better serve you in the next decade. Our dedicated team of professionals is passionate about serving our members. We’re proud of our heritage, but we’re even more excited about our future! n
These are just a few of things going on at your Association. In the months ahead, each of our bank members can expect a personal John E. McWeeney, Jr., is president and CEO of 9813byTKB NJB Half 1.2-2P_TKB NJB 1.2-2P 7:45 PM Page 1 visit a member ofPage our management team.Half Page the New Jersey3/2/10 Bankers Association.
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New Jersey Banker
Politics & Policy
JEBPAC Breaks Fundraising Records, But More Support is Needed By Michael P. Affuso, Esq.
he past three elections have been watersheds in both New Jersey and the nation. The elections demonstrated major shifts both left and right in our state and country. There is one constant in each of these three elections – the need to deliver a message in order to be a viable candidate. Messages cost money. For example, a single mailing to one party in a legislative district Michael P. Affuso Senior Vice President/ costs nearly $40,000. Director of Government Relations NJBankers Most campaign email@example.com experts will say that in order to gain a reasonable amount of name recognition, five to seven mailings are necessary; between $200,000 and $300,000 total. A reasonable cable TV buy costs nearly $400,000, and a reasonable radio buy costs nearly $200,000. As a result, in order to run a credible campaign in a competitive district, a candidate for the state legislature must spend at least $800,000 on media alone. A Congressional primary that I was involved in cost $1.75 million for the victor and $800,000 for the vanquished. In 2003, $4 million was spent to win a state Senate seat. Even a candidate who is in a “safe district” would be wise to spend at least $200,000 to build name recognition and ward off any potential future challengers. This means that candidates have an insatiable need to raise money. Political action committees (PACs) reported spending a record $35.3 million in 2009, according to a new analysis by the New Jersey Election Law Enforcement Commission (ELEC). The
10 New Jersey Banker
38-percent increase from the previous cycle, which amounts to $9.8 million, came during a year in which campaigns took place for the governor’s seat and all 80 General Assembly seats. In 2011, the entire state legislature (120 seats) will stand for election. Candidates rely more heavily on PACs in part because pay-to-play laws have sharply reduced the amount of donations from public contractors since 2005. According to ELEC, “Among all special interest PACs last year, labor union PACs were the heaviest spenders. Their outlay totaled $24 million – more than the other seven types of PACs combined. Twenty of the top 25 PAC spenders were established by labor unions.” The other five were: Realtors, with $455,000; Business and Industry Association, $270,000; Auto Dealers, $220,000; Dentists, $192,000; and Funeral Directors, $174,000. As a result, in the top 25, labor outlays exceed general business outlays 20-1. That’s assuming all business interests are parallel, which they are not. Conspicuously absent was NJBankers’ PAC, JEBPAC. JEBPAC raised $122,000, $136,000, and $138,000 in 2008, 2009, and 2010, respectively. Each year was a new record in contributions for the PAC. In that time, JEBPAC contributed over $175,000 to ABA’s Bank Pac for national candidates – also hitting our ABA goals for the first time.
What's a Candidate to Do? Willie Sutton famously said that he robbed banks because that’s where the money is. Is it any wonder candidates will align themselves with labor over business? To put it another way, if the $35 million spent in 2009 were equally divided over the
entire 120 seat legislature, it would result in approximately $300,000 per seat. If the $24 million in labor contributions were spread at the same rate, it would fund 80 of the 120 seats. This would leave the remaining 40 to be funded by other groups, business being only one of the many. This “other” group also includes both sides of the abortion, school choice, environment and tort reform debates. When it comes to sending a message, the voice of labor has done so, due to its ability to contribute – it’s like attending a meeting of 10 in which nine have laryngitis and the other has a megaphone. Another interesting difference in political fundraising between labor unions and regulated industries, such as banks and insurance companies, is that regulated industries have very strict solicitation rules. As such, banks and insurance companies may only solicit from what is deemed a “solicitable class.” In the case of banks and insurance, the solicitable class is generally executives and board members. On the other hand, the solicitable class for labor unions is their entire membership. Therefore, while labor can solicit contributions writ large and collect them via payroll deduction, regulated industries cannot. While acknowledging the very uneven playing field, it is clear that business-oriented PACs must vastly improve their collections in order to compete. This is not meant as a solicitation, but merely information for readers to understand the political giving climate in New Jersey. n Michael Affuso, Esq., is senior vice president and director of government relations for NJBankers. He can be reached via e-mail at maffuso@ njbankers.com.
NJBankers would like to thank its members for participating in the 2010 JEBPAC Campaign. Below is a list of members who contributed in 2010. Amboy Bank PAC
Fulton Financial PAC
Millington Savings Bank
Spencer Savings Bank, SLA
Atlantic Stewardship Bank
New Jersey Bankers Association
Sturdy Savings Bank
BCB Community Bank
Newfield National Bank
Sun National Bank PAC
Bogota Savings Bank
GSL Savings Bank
NJM Bank FSB
Susquehanna Bancshares, Inc., PAC
Boiling Springs Savings Bank
Haven Savings Bank
Capital One Bank PAC
Highlands Community Bank
Team Capital Bank
Hilltop Community Bank
Ocean City Home Bank
Two River Community Bank
Century Savings Bank
Hopewell Valley Community Bank
OceanFirst Bank PAC
Union Center National Bank
Indus American Bank
Union County Savings Bank
Crest Savings Bank
Investors Savings Bank
The Provident Bank PAC (PROVPAC) Unity Bank
1st Bank of Sea Isle City
JPMorgan Chase PAC
United Roosevelt Savings Bank
1st Colonial National Bank
Kearny Federal Savings Bank
Valley National Bank
First Choice Bank
Roselle Savings Bank
Wawel Savings Bank
First Hope Bank
Lusitania Savings Bank, fsb
The First National Bank of Elmer
Rumson-Fair Haven Bank & Trust Co.
Manasquan Savings Bank
Saddle River Valley Bank
Freehold Savings Bank
Metuchen Savings Bank
Somerset Hills Bank
***JEBPAC will screen contributions and will return any contributions made in response to this article that come from individuals who are not part of the solicitable class.
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New Jersey Banker
Succession: The Biggest Risk Factor By Hal Shear
s New Jersey banks emerge from two years of financial turmoil, bank directors recognize that leadership is, as usual, the most important goingforward decision they face. This is particularly true for state-headquartered banks deriving 100 percent of their business from statecentered activities. In many cases, Hal Shear these are banks with less than $1 billion in assets, requiring them to nimbly execute in markets where they are often outspent for customer acquisition. Superior leadership – both now and into the future – will determine not only how well New Jersey banks perform, but whether or not they even survive. Bank regulators give high priority to CEO leadership in their examinations. That makes choosing the right CEO a bank board’s most significant responsibility. Having a succession-planning process in place is crucial to leadership continuity; having the right succession plan is what it takes to mitigate the serious risk of compromising the strength of that leadership. Yet the number of smaller companies that have developed any sort of formal succession process reflects a slow response among many boards to address that risk. The problem has lingered for years and notably in financial institutions. In 2009, a National Association of Corporate Directors (NACD) Public Company Survey found that 44 percent of the companies polled had no succession-planning process in place. Most in that group were smaller public companies, many of which were in the financial services industry. According to NACD’s just-released 2010 Private Company Survey, which included a considerable number of financial services
12 New Jersey Banker
firms, only 50 percent of responding companies had emergency plans in place for replacing their CEOs, and only 43 percent had long-term (three years or more) succession plans. Furthermore, an independent survey of publicly-traded members of the New Jersey Bankers Association (representing approximately 50 percent of in-state banks) reveals that many are already – or soon will be – facing succession issues: more than one third have CEOs who are over 60 and/or have served as CEO for more than 10 years. While surveys help to quantify the percentage of companies with succession plans, they do not reflect the effectiveness of those plans. Bank boards often approach succession planning by focusing on the creation of an elegantly worded document, rather than a process. By taking the document-driven approach, what they often produce are generic, one-size-fitsall plans that may or may not identify the right CEO for their company’s needs. A process-development approach, on the other hand, factors in the distinct external forces confronting each bank – including geographic markets and local economic pressures – as well as its internal talent pool and its own strategic response to those dynamics, which are unique and need to be a part of the overall succession plan.
The Process First, board and management must devise and agree on a winning business strategy – usually three to five years out – with clearly defined operational and financial metrics as well as goals for regulatory compliance, employee morale, ethics, diversity and turnover, customer satisfaction, corporate social responsibility, business development, tone at the top, executive talent development and longterm value creation. These metrics, designed in terms of measurability, attainability, relevance, and time-frame of
all agreed-upon strategic goals, are essential to another critical part of the process: assessing the CEO’s progress and success each year in achieving those goals. Usually, the governance or compensation committee oversees the creation and implementation of this annual performance evaluation, which should address not only the recent year’s outcomes but also how they relate to the bank’s evolving strategy. Once the overall business strategy and performance metrics are defined, the next step involves constructing a plan, from which the succession process will emerge. This step requires a leader, typically the CEO. The board contributes by helping to flesh out what questions need to be asked and what factors considered in arriving at an effectual plan design. For example, are the CEO’s personal style and business methods a match for the bank’s chosen strategy? What is the size and composition of the existing leadership talent pool? Is the bank meeting the board’s performance expectations? How dramatically are internal operations and/or the external environment likely to affect overall performance during the strategic planning cycle? What is the hit-by-a-bus emergency CEO replacement plan? Does the tone at the top or the bank’s risk culture exceed industry norms? What is the regulatory perspective? As the planning process unfolds, the board will eventually face the insider-vs.outsider and horse-race questions. Many directors – supported by recent academic research – favor insider candidates for CEO succession, although particularly for banks, there is no clear-cut answer to the question of which is preferable. An insider may do better when the bank is strategically strong and an outsider when it is weak. Each board will first need to decide if the bank’s talent pool has sufficient depth and potential to mature during the development time available. Depending upon their findings – and given the fast changing dynamics of
the financial services market – the board may then have to consider both options to find the best match for their established strategy. As for the horse-race option, few banks will have deep enough talent pools to consider that alternative. When it comes to defining criteria for the selection process in a succession plan, specific individual competencies and traits, or “fit” – rather than boilerplate general qualifications – is what is needed to facilitate objective decision-making. In addition to business/industry expertise, examples of specifics to be considered for all candidates should include decisionmaking, leadership characteristics,
behavioral, ethical and emotional aptitude, and leadership style. On the other side of the equation, those charged with selecting the CEO need to be able to make the best candidate match with the company’s three-to-five-year strategy and to steer clear of subjectivity and shortterm expediency when making their choice. This is best achieved by incorporating a defined decision framework into the succession process and putting directors, not recruiters, in charge of implementing that process. Finally, a proper succession process should include a transition plan for assimilating the new CEO into the
organization and a continuous development program for the executive talent pool. After their company’s succession plan is in place, the board then needs to revisit, refine and refocus the process on a regular basis. The first order of business for every board, though, is to make sure it has a hit-bythe-bus plan in place before its next board meeting adjourns. ■ Hal Shear is managing director of Board Assets, Inc., an advisory firm that provides governance services to directors and boards throughout the U.S., Europe, the Middle East and Latin America. He may be reached at 410-972-9076 or via e-mail at firstname.lastname@example.org.
OUR eneRgy fUtURe IS COMIng tOgetheR. We all want the same thing: affordable, reliable, clean, and secure sources of energy. The good news is that we know how to get there, and we’re already on the way. Energy markets are increasingly competitive. New Smart Grid technologies are making energy use more efficient. Investments in nuclear, solar, wind, and natural gas will more cleanly provide electricity for homes and businesses today, and for the cars and trucks of tomorrow. At Constellation Energy, NJBankers Endorsed Electricity Supplier, we understand the challenges and we’re delivering the innovative energy solutions that are helping our customers succeed and our communities prosper. newenergy.com/NJBA
© 2011. Constellation Energy Group, Inc. The materials provided and any offerings described herein are those of Constellation NewEnergy, Inc., a subsidiary of Constellation Energy Group, Inc. Brand names and product names are trademarks or service marks of their respective holders. All rights reserved. Errors and omissions excepted. Environmental information about Constellation Energy’s competitive energy supply services along with other information about our business is available at: www.newenergy.com and our toll-free number: 866.237.POWER.
New Jersey Banker
Annual Conference Sets Sights for Florida
he New Jersey Bankers Association 107th Annual Conference will be held May 11-15 at The Fairmont Turnberry Isle Resort in Aventura, Florida. The conference theme of “Opportunities in the New Decade” could not be more appropriate this year. As we move forward with new federal laws and regulations in finance and healthcare reform, there has been a backlash of: How could this happen? What are we going to do now? Victor Frankel once said, “when we are no longer able to change a situation, we are challenged to change ourselves.” This is a challenge that we know the members of our Association are addressing as we look to support you through our timely and educational forum. The conference offers opportunities for everyone. This year, a full trade show will be open upon arrival on Wednesday afternoon and will host our networking reception for the evening, a perfect opportunity to visit with your existing service providers as well as research and speak with potential new contacts who can help propel your financial institution into the next decade. On the education side, attendees will also notice a change. The conference now offers a full educational session on Friday and will include concurrent breakout sessions while still affording attendees the opportunity to enjoy our beautiful host hotel and surrounding areas, including many tours and recreational activities. Highlights of the conference program include: • Washington Update with Stephen Wilson, American Bankers Association; • A Regulatory Update with Charles Plosser, Federal Reserve Bank of Philadelphia; • Alfred A. DelliBovi, Federal Home Loan Bank of New York, will share his vision for the industry; • Chris Low, FTN Financial, will once again provide an extensive Economic Update;
14 New Jersey Banker
• New Market Opportunities will be presented by Joseph Sullivan of MarketInsights; • A panel discussion on implementation of the Dodd–Frank Wall Street Reform and Consumer Protection Act includes our moderator, Raymond G. Hallock, Columbia Bank; and panelists Robert Azarow, Arnold & Porter, LLP; Eric Luse, Luse Gorman et al.; Deynette DePierro, American Bankers Association; John Hawke, Jr., Arnold & Porter, LLP; and Steve Verdier, Independent Community Bankers of America; • The presentation of Senseless Panic: How Washington Failed America with William Isaac, former Federal Deposit Insurance Corporation chairman, who will also sign copies of his book; • A Regulatory Reform Panel with representatives from several regulatory agencies; • Things that Confound Me and the Future of Banking by Robert E. Kafafian, The Kafafian Group, Inc.; • Our Keynote Speaker, Len Berman, will present “Spanning the World;” • Managers and Directors Concurrent Sessions include: • Updates on mergers and acquisitions with Ben Plotkin, Stifel, Nicolaus and Co.; Patricia McJoynt, Keefe Bruyette & Woods, Inc.; and Michael Mayes, Raymond James; • Trends in U.S. Banking Technology will
be presented by David C. Ladic, Fidelity Information Services (FIS); and • Healthcare Reform will be discussed by Aetna, Inc. representatives. Conference/Hotel Registration – Full conference planning packets can be found on the NJBankers website at www.njbankers. com. Remember, May is peak travel time in Florida; all attendees should make their reservations with the hotel and airlines as soon as possible. NJBankers has negotiated guest room rates at the hotel as follows: $219 per day, single or double occupancy for a Fairmont room; a limited number of deluxe golf view rooms are available at $259 per day; and apartment suites are available for $699 per day. Attendees traveling to Miami International Airport (MIA) and Fort Lauderdale International Airport (FLL) on Continental Airlines may receive additional discounts by calling your travel professional or Continental MeetingWorks at 1-800468-7022 for reservations ($25 fee applies – to avoid any service fees, book online at www.continental.com and get an additional 3 percent discount). Refer to Offer Code ZJWQ330614. Valid Travel Dates are May 7-19, 2011. Sponsorships and Exhibit Booths – Showcase your company and services at the NJBankers Annual Conference full trade show which includes 40 service providers. In today’s economy, an investment in
sponsorships as well as exhibiting offers your firm the opportunity to be in front of over 50* financial institutions. Changing technology and changing rules mean that today, more than ever, financial institutions need your support and products to help ensure their viability. At the writing of this article, only one exhibit booth remains available! Sponsorships give your company maximum exposure and recognition to conference attendees and provide another exceptional opportunity to forge new relationships. Enhance your image by being one of the sponsors at NJBankers’ Fairmont Turnberry Annual Conference. Lock in your sponsorships early so that you will benefit from months of pre-conference publicity!
Various sponsorship tiers exist to not only fit your budget but fit your firm’s marketing goals. Full details on sponsorship and exhibit opportunities can be found online at www. njbankers.com or by contacting Rick Neale at 908-272-8500, ext. 630 or e-mail rneale@ njbankers.com. NJBankers wants to thank our Platinum Sponsor, Aetna, and our Diamond Sponsors, the Federal Home Loan Bank of New York and Valley National Bank, for their support! For additional conference information, contact Jenn Zorn, 908-272-8500, ext. 611 or email@example.com. *Figure based on 2010 Annual Conference financial institution count. ■
Aetna is a leading diversified health care benefits company serving approximately 35 million people worldwide through a broad range of health insurance products and related services, www.aetna.com.
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New Jersey Banker
Weak Economy By Christina P. O’Neill
he post-Dodd-Frank landscape isn’t easy terrain. The increased cost of compliance and the curbs on fee income will impact all banks. We spoke with bank industry experts and with leaders of banks, both above and below the $1 billion benchmark. Their management styles stick to these basics: Watch expenses. Stick to good underwriting practices. Instead of marketing on price, build customer relationships to increase core deposits. Banks should take the lead in compliance issues – they should not let examiners run the show. Regulators should focus less on a one-size-fits-all mandate of asset allocation, and instead recognize how particular banks achieve real, sustainable growth. Finally, banks with assets of under $1 billion won’t necessarily have to merge to survive. All these and more observations come from those within the banking industry and those who serve it.
Boiling Springs Savings Bank
The biggest non-secrets of financial stability New Jersey is one of the most diverse banking markets in the country. From affluent Bergen County to pockets of stable agricultural regions, to the established and emerging banks in urban areas, New Jersey is all over the economic map.
Boiling Springs Savings Bank Boiling Springs Savings Bank, a $1.3 billion mutual savings bank with 17 branches in Bergen, Essex, Morris and Passaic Counties, has established not only a footprint but a community-support brand by targeting the non-profit sector and customers who support particular organizations, through its Community Alliance Program (CAP) that allows local accounts to benefit local organizations. The bank makes a quarterly donation to member non-profits based on the average daily balances of a minimum number of 20 of the organization’s supporters’ designated accounts at the bank. Those members may designate as many accounts as they wish to be counted toward the organization’s quarterly calculation. There’s no effect on the supporter’s account earnings, the process is confidential and all donation dollars come directly from the bank. It works: At one branch, a single customer brought in four nonprofits, and with them, 200 new accounts. CAP won
national recognition from the American Bankers Association last year. The program has brought in more than $45 million in new money over the last three years and now has 212 organizations signed up – 84 of them in the last year alone. “By building relationships and getting the staff involved, we reach out to the community,” says President and CEO Robert Stillwell. “They become spokespeople for us.” The process spills over into the business community. Internally, says Stillwell, “We’ve always approached our business with the belief that capital is king; we try to manage the spread. Those are pretty basic.” Boiling Springs’ lending is primarily for residential real estate, with some multifamily and mixed-use, but not business lending or credit cards, auto or boat loans – unless a borrower intends to use an equity line to secure a car or boat.
Magyar Bank “I don’t think anyone’s fully insulated from a tough economy,” says John Fitzgerald, president and CEO of Magyar Bank, with $528 million in assets and six branches in
New Brunswick, North Brunswick, South Brunswick, Branchburg and Bridgewater in central New Jersey. Despite a decline in the housing market in its marketing area of between 10 and 30 percent, dependent on location, residential lending continues to be one of Magyar’s bread-and-butter sectors. “The key is to hold true to your underwriting principles, which we did during boom times. We weren’t involved in optional ARMs, and we lost market share then.” Now that lending standards have tightened, the playing field is leveling, he indicates. Magyar keeps some fixed-rate loans in its portfolio, managing the risk with its commercial loan portfolio, which constitutes 37 percent of its balance sheet, almost entirely in adjustable rate or shortterm loans, Fitzgerald says. Magyar is also an active seller to Freddie Mac, selling at a premium and retaining the servicing on the loans. About three years ago, Magyar made the decision to exit the construction lending sector and has since shrunk its construction loan balance sheet by 60 percent.
The Provident Bank The Provident Bank, a $6.9 billion bank with 81 branches, takes a proactive stance on risk management and a “green principle” approach to helping its customers build equity. Christopher Martin, president and CEO, says the bank’s portfolio is structured to move with the market. Its commercial lending products are adjustable to the prime rate or to LIBOR. Fixed-rate products tend to be of shorter duration. The economic crisis is causing consumers to take to heart financial lessons that are difficult to learn, Martin
You have to watch expenses, but you have to spend money to make money.
– Gerard Banmiller, 1st Colonial National Bank
New Jersey Banker
says. “This will stick in people’s minds for a generation. Everyone has to learn to be more fiscally responsible. Consumers should save more before they consume more.” Provident does not make commercial loans at 100 percent loan to value. “We still want people to have skin in the game. We want to make sure the person can support [the debt obligation] with cash flow from operations, and guarantee a portion of the debt, so if things go bad, they show up at the table,” he says. He takes a pragmatic view of today’s CD rates and indicates that smart consumers should think like the bank does when structuring their long-term deposits. Holders of long-term CDs in a rising interest-rate environment can always close them out to take advantage of better rates in the future, he advises. The penalties of six months’ interest will represent a relatively low exit fee. “Nobody likes a penalty,” he says, “but it’s not a stigma to break a contract.”
1st colonial National Bank 1st Colonial National Bank, at $275 million in assets, pursues a special niche: government deposits. Over the last two years, it has targeted local municipalities, boards of education and county government. Gerard Banmiller, president and CEO, says banks larger than his may pay consumer rates on these large depositors. 1st Colonial pays them an extra 75 basis points on their rate and
percent for deposits.” Okay, what about consumers? “We have not turned our back on the consumer. We still pay a little bit more than the average bear, but that won’t maintain viability in a down economy.” The bank’s active role in the communities it serves is low-key compared to larger competitors, but pervasive. “Our bank’s name is not on stadiums – it’s on the back of your kid’s Little League uniform,” he says. Unprecedented economic hard times have created another opportunity for 1st Colonial. About a year ago, the bank bought out a mortgage company, hired all its staff, and created a new division, 1st Colonial Residential Lending. The division has since brought a quarter-million, net-net, to the bank’s bottom line. “You have to watch expenses, but you have to spend money to make money,” Banmiller says. “My market budget is a quarter-million a year. People say ‘you’ve got to cut that,’ but you’ve got to spend money to attract people to your bank.” “You don’t have to be a $1 billion bank or even a half-billion bank [to survive],” Banmiller says. “If you’re smart, you can make money on a quarter-billion bank and I can prove it.”
The $1 billion scare Apparently, so can many others. Donald Musso, CEO of financial institution consultant FinPro, works with bank clients
percent are under $1 billion, and most of them are making money, he says. Even in an economy in which spreads are declining and costs are rising, “will Dodd-Frank take all of these guys negative? Not even close.” He thinks the $1 billion prognosticators “are playing off the fatigue factor of these small community banks. Because of fear of Dodd-Frank, people are tired of dealing with the regulatory burden. That gives people a convenient excuse” to make the decision to merge or sell. The hallmarks of well-run banks are: good expense management, spreads in the 3 percent range or higher, and higher than average fee income. A $250 million to $1 billion bank should have an expense ratio at or below 2.75 percent, he says. Also, smaller well-run banks price competitively with their larger counterparts and their cost of funds is competitive right now. If the spread declines, they can grow their way into additional income by utilizing capital on new branches or loan origination capability, as 1st Colonial has done, so that they make money even if their spread goes down. Musso advises clients to retain frontline staff, as well as compliance and safety and soundness staff, but to go easy on the executive headcount. “There’s one management layer too many in most banks,” he says. “You should have three or four senior officers in a $300 million shop – no more.”
Where to spend capital
Anyone running a balance sheet doesn’t need the government to tell them how to do it. – Alfred DelliBovi, President, FHLB-New York
arbitrages the funds out. The government customers are far less expensive to maintain than the number of consumer accounts it would take to match the government customers’ deposit levels. “The good news is, I’m competing with very large banks that are not hungry for deposits,” he says. “You’re not hungry when you are paying 0.1 to 0.5
18 New Jersey Banker
all over the country. He dismisses the $1 billion benchmark. “The investment banking community has been very hungry for the last couple of years because there are not a lot of deals,” he says, and that $1 billion only represents the size of the institution for which they can make money on a deal. Of his approximately 400 clients, at least 75
Successful small banks don’t try to compete on price, says Robert Kafafian, president and CEO of The Kafafian Group, Inc. in Parsippany. “They need to have relationships with their community and their customers so that price isn’t the differentiator.” Where bank size does matter is in feebased lines of business, which require critical mass sufficient to absorb the cost of operation. “Many community banks go to third-party providers and won’t make lots of money, but they will limit the downside,” he says. “There’s no panacea in fee-based continued on page 33
New Members as of February 2011 New Bank Members
New Associate Members
Brown Brothers Harriman & Co.
Mortgage Bankers Association of New Jersey
140 Broadway New York, NY 10005 Phone: 212-493-7908 Contact: Alex Mitchell E-Mail: firstname.lastname@example.org
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3 Hutton Center Drive, Suite 700 Santa Ana, CA 92707 Phone: 714-427-1000 Contact: Amrha Wimer E-Mail: firstname.lastname@example.org
385 Morris Avenue Springfield, NJ 07081 Phone: 973-379-7447 Contact: E. Robert Levy E-Mail: email@example.com
P.O. Box 7838 Edison, NJ 08818 Phone: 732-855-2501 Contact: Marjorie Munoz Solowey E-Mail: Marjorie.firstname.lastname@example.org
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Capital Bank of New Jersey 175 South Main Road Vineland, NJ 08360 Phone: 856-690-1234 Contact: David J. Hanrahan, Sr. E-Mail: firstname.lastname@example.org
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New Jersey Banker
Dodd-Frank’s Effect on D&O Insurance By Mike Read
ince the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act earlier this year, much has been written about the possible effects the new legislation will have on banks, both large and small. As banking, legal and regulatory experts continue to debate the act and its potential ramifications, one thing is clear: more rules and regulations are on the way. Anytime new laws are created, particularly those of the size and scope in Dodd-Frank, it is important to review your directors’ and officers’ liability insurance contract for potential coverage shortcomings and exclusionary language. D&O insurance is designed to protect against claims involving actual or alleged omissions, errors, misstatements and misleading statements. The potential to unintentionally violate one of the numerous significant new regulations or laws resulting from Dodd-Frank is very real. For example, the creation of the Consumer Financial Protection Bureau and the new laws intended to ensure fair and equitable access to credit create many potential lender liability coverage implications.
Most Entity Claims Due to General Errors and Omissions During Lending Process A study of our claims data reveals that general errors and omissions during the lending process are the largest source of paid entity claims, and many of these allege violations of lending laws such as TILA or other federal or state regulations. We can expect to see violation of law allegations increase if the predictions of 5,000 new pages of banking regulations from DoddFrank hold true. The coverage implications are enormous as some policies specifically
20 New Jersey Banker
exclude violations of lending laws. This not only precludes coverage for any judgment or settlement, it also means defense costs are not covered. While intentional violations of law are never covered, look for policies that expressly agree to pay defense costs for these matters.
Regulator Exclusion Coverage Issues Another potential coverage issue to consider is the regulatory exclusion. Some D&O policies commonly purchased by community banks do not provide coverage for claims brought by regulatory or supervisory bodies, most often through a specific exclusion or the definition of loss. This is already a significant coverage restriction; if we see more regulatory actions as a result of Dodd-Frank, the exclusion will become even more punitive. If your bank is in good financial condition and operating without an order, do not accept a regulatory exclusion. Contrary to what you may have heard, strongperforming community banks can still find policies that do not contain this exclusion. There is no better time than today to review your D&O contract. New rules and regulations created by Dodd-Frank are on the way, and you don’t want to find yourself in a difficult position because of inadequate insurance coverage. For questions regarding directors’ and officers’ coverage, please contact your agent or visit www.abais.com. ■ Mike Read is the marketing and sales manager at ABA Insurance Services Inc., which provides D&O, bond and related coverages to financial institutions in all 50 states from an A+ rated insurance carrier. To learn more about this NJBankers-endorsed program, please contact him at 1-800-274-5222 or email@example.com.
Additional Dodd-Frank Act resources available to you To help you understand more about the Dodd-Frank Act and its potential effects, the American Bankers Association has created the ABA Dodd-Frank Tracker at regreformtracker.aba.com. This resource provides current information on the implementation of the Dodd-Frank Act and contains posts made to the site regarding DoddFrank. This is available to everyone – you do not need to be a member of the ABA to access the information. The blog is organized for easy finding and tracking of information that you’re interested in. The bankingrelated areas of Dodd-Frank are organized into categories such as the Volcker Rule, Prudential Supervision, Systemic Risk, Deposit Insurance, Interchange Fees, Preemption, Trust and Securities, and more. Features include news stories on Dodd-Frank Act proposals; comment letters and rules; a calendar of comment letter deadlines; and links to ABA resources. Special sections focus on key issues, such as interchange, deposit insurance and the Consumer Financial Protection Bureau. Visitors can sign up to receive updates via e-mail or RSS as new content is posted. In addition to following the blog updates, ABA members may also subscribe to receive updates to all information provided in the ABA Dodd-Frank Tracker.
Upcoming Events April 5
Government Relations Summit – New for 2011
The Palace at Somerset Park, Somerset
April 8 (Two sessions, morning and afternoon)
October 20 – October 21
Half Day Security Seminar with Barry Thompson
Visit our website regularly at www.njbankers.com for the most current list of upcoming events, conferences, seminars and web seminars. Register online for all NJBankers events.
October 5 – 6
Women in Banking Conference
Annual Human Resources Conference Caesar’s Resort, Atlantic City
Crowne Plaza Monroe, Monroe Twp. April 14
Annamae Baerenbach Annual Lending Conference Renaissance Woodbridge Hotel, Iselin April 22
Half Day Accounting & Tax Seminar with FMS NY/NJ Chapter
Navigating a complex regulatory environment?
Stony Hill Inn, Hackensack May 11 – May 15
107th Annual Conference The Fairmont Turnberry Resort, Aventura, Florida May 31 – June 2
Compliance University Crowne Plaza Monroe, Monroe Twp. June 9
Annual Marketing Conference Forsgate Country Club, Monroe Township June 13
Fourth Annual Charity Golf Outing to Benefit Financial Literacy Mercer Oaks Golf Course, West Windsor June 15 (half day – morning)
Unclaimed Property Seminar
Crowne Plaza Monroe, Monroe Twp. June 15 (half day – afternoon)
Decedents’ Accounts Seminar
Crowne Plaza Monroe, Monroe Twp. June 20
Fourth Annual Bankers Legislative Day in Trenton Trenton Marriott, Trenton
FOS is a leading provider of internal audit and compliance services to more than 70 financial institutions located in Pennsylvania, New Jersey, Maryland, and New York. Our professionals are dedicated solely to providing internal audit and compliance services to financial institutions. We offer a wide range of services including: • •
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Annual Senior Management Conference Borgata Hotel Casino & Spa, Atlantic City
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New Jersey Banker
Mortgage Servicing Action Plan for 2011 By Gene Collett
he December 2010 issuance of a new home affordability handbook makes 2011 an excellent time to assess loan servicing operations. Here, we will review loan servicing background; new requirements; issues relevant to existing requirements; and recommended actions.
Background The mortgage loan environment is full of change, complexity, and oversight. Recent changes include: implementation of home affordability programs; new FCRA requirements; tenant foreclosure protections at the federal and state levels; and the TILA notice of loan transfer. Such changes strain operations due to unprecedented loan default levels – processes were previously designed to support volumes at a fraction of current levels. Many more paying customers are calling with inquiries and complaints, adding to complexities and burdens on staff. Stressed processes and record volumes compel coordination between compliance officers and operations.
New Requirements Mandated requirements worthy of focus include: providing notices to tenants in foreclosed properties; responding directly to customers’ credit disputes; and responding to credit bureau address discrepancy notices. The Protecting Tenants at Foreclosure Act imposes requirements to provide tenants with a 90-day notice prior to eviction and allow them to reside in the home until the end of a valid lease. Bankers should consider whether they offer incentives to tenants who are willing to accelerate their movement from a foreclosed property, whether their REO management processes,
22 New Jersey Banker
and agreements with eviction attorneys address these requirements, and if they have discussed this act with REO managers. Changes to the FCRA effective July 1, 2010, require furnishers of information to respond to consumers’ direct disputes. Previously, consumers could be directed to credit bureaus to dispute information. While you can require precise information, you must complete an investigation. More complex, direct disputes of mortgage loan information are subject to FCRA timing requirements, and not the less stringent deadlines of RESPA. Generally, a furnisher must complete an investigation before the end of the 30-day period from the date it receives the consumer’s dispute. Questions to consider: What are your processes for responding to credit disputes? Is management aware of this complexity? Have you clarified differences between direct and indirect disputes with relevant managers? Let’s address discrepancies. What do address discrepancies on credit reports have to do with loan servicing? Quite a bit, if you use credit reports at any point during a loan modification. While many modifications are based on DTI ratios and appraisals, more institutions are using credit reports for “mods.” Does your institution use credit reports for mods? If so, you must respond to address discrepancy notifications. Are your modification analysts/lenders aware of this requirement? Do you have a process for routing new address information internally? Does management understand this new source of volume?
Old Requirements Some servicing requirements have become more complex, including flood insurancerelated escrow accounting; credit bureau reporting; and responding to customer complaints. Consider whether you service any Higher Priced Mortgage Plans, or HPMLs. If so, you
are responsible for new escrow requirements. The connection to flood insurance is that HPMLs require escrow accounts, and any escrow accounts for HPML properties within flood zones require escrowing for flood insurance premiums. Does your final loan documentation checklist include a review for flood insurance escrow? Do your HPMLs in flood zones all have flood insurance premiums being escrowed? Next, let’s look into credit bureau reporting. This unique process requires close coordination among compliance, loan servicing and information technology. If your credit dispute volume has increased significantly, flawed processes – glitches or inefficiencies that may have caused a handful of errors in the past – could cause dozens or even hundreds more problems today. A continued focus of Regulators on Fair Credit Reporting Act (FCRA) issues in 2011 is highly probable, given that requirements continue to be issued; for example, riskbased pricing requirements became effective Jan. 1, 2011. Disputes received direct-fromconsumer are an added complexity. Do you have documented processes for both indirect (i.e., from credit bureaus) and direct-from-consumer credit disputes? Is all updated data sent to credit bureaus also updated in your customer files? Does the update to your systems occur on a real-time basis? Do you have a process flowchart for all information flow to and from credit bureaus? Servicing departments are being swamped by customer complaints: Are the inquiries more demanding? In some cases, are customer letters worded vaguely, causing confusion for your correspondence specialists? Consumers may not ask precise questions or identify specific issues for an institution to address. Are your correspondence teams trained to identify one issue and quickly craft a response? If so, secondary issues within correspondence may go unaddressed. Start at the beginning, reviewing customer correspondence training
materials to ensure that specialists are trained to identify all issues within a letter. Consider holding work sessions with correspondence managers and specialists, to discuss vaguelyworded mail/email and effective response strategies. Training material revisions will help correspondence team managers and specialists.
Action Plan We strongly suggest a proactive loan servicing checkup for new and existing compliance requirements, including: Reviewing your provisions for REO property tenant protections. Discuss eviction attorney management with REO management and legal and review templates for tenant notifications and correspondence. They should address: the 90-day PTFA notification requirement; tenant leases; and relevant state requirements. Ensure that property management systems and practices have provisions for tracking dates, such as the dates that documents were provided to tenants, update documentation and train staff. Evaluating processes for responding to
and resolving direct consumer credit disputes. Ensure that you: investigate in a timely manner; respond to the customer on time; provide stipulations and requirements to consumers (e.g., mailing location) as applicable; update information at credit bureau(s); track and report volumes and status; create and/or update documentation; and train staff. Evaluating applicability of address discrepancy notification requirements. Determine if you use credit reports in any phase of loan servicing and assess the processes you have in place for responding to notifications. Implement management reporting, create and/or update documentation, and train staff. Reviewing processes related to indirect (i.e., from credit bureaus), and direct-fromconsumer credit disputes, such as: updating information at the bureaus; updating information in your accounts; creating data files from account information that is sent monthly to the bureaus; create and/or update documentation; and train staff. Evaluating HPML loans in your portfolio. Confirm that each has an escrow account
established. Ensure that each contains a flood zone determination, documented on an SFHDF. For HPMLs on properties within flood zones, check whether escrowing includes flood insurance provisions. Update escrow accounts as required. Evaluating customer correspondence documentation and representative sample responses. Ensure that letters containing multiple requests are addressed in training and procedures; assess actual responses to multi-request letters, to ensure that all issues are being addressed by responders; create and/or update documentation; and train staff. The examiners know this is a period of unprecedented challenge for loan servicers, but are unlikely to cut any slack. The action steps above should prove helpful in cutting through regulatory complexity and customer servicing issues. â– Gene Collett, CRCM, is an assistant director for ICS Compliance. He brings more than 20 years of compliance, operational and customer service experience in lending, correspondence and consumer operations to ICS Compliance clients.
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New Jersey Banker
FMS NY-NJ Chapter and NJBankers Host Joint Seminar
he New York-New Jersey chapter of the Financial Managers Society and the New Jersey Bankers Association recently co-sponsored a half-day accounting seminar. The program was highlighted by a pair of key investment and regulatory sessions, each presented by a panel of experts. The panel discussions were augmented by timely presentations on important accounting and tax issues having particular interest to the financial manager. â€œInvesting in a Low Rate Environmentâ€? was presented by a panel of experts from Oppenheimer & Co., including Managing Director Michael Murphy, who served as the moderator of the panel. Neil Snoep, director of Bank Strategies, noted that near zero short-term rates, increased cash, industry consolidation and a plunging return on equity Norman Gertner, expert economist from the FDIC, presented an energetic economic outlook.
Attendees listen intently to the speakers at the seminar. Photos courtesy of David Lauwe, Meta4Communications.
24 New Jersey Banker
have created an unprecedented operating environment. He discussed the steps banks are taking to improve earnings despite the lack of the traditional spread. He emphasized the two options to grow ROE by growing return on assets and increasing leverage. Sheila McKinney, operational risk manager at the Federal Reserve Bank, discussed regulatory implications facing member banks, and Randy Black, deputy director from the OCC, presented guidance on OCC reporting and the possible implications the pending merger with the OTS may have on banks. 100 Christa Bierma, a manager with Ernst & 95 Young, presented a comprehensive update on the recently enacted health care reform 75 legislation. She highlighted the significant accounting and tax issues the legislation presents for the financial manager and noted 25 the major employer provisions, effective now, including preserving existing coverage 5 and providing coverage for children through age 26. A comprehensive timeline for 0the provisions of the legislation that are likely to affect businesses primarily between now and 2014 was also presented. Thomas Lally, partner with KPMG, presented “Hot Topics in Accounting,” consisting of a series of contemporary issues of particular interest to the financial manager. He touched on a number of key issues, including the allowance for credit losses, HUD audit requirements and a tax update. “Hot Topics in Regulatory Examinations,” a regulatory panel discussion, followed. The panel featured key regulatory experts who each gave an informative presentation on contemporary topics. Steven Klein of Northfield Bank served as the moderator.100 Robert DeTullio, regional accountant 95 from the OTS, presented an informative program regarding OTTI issues. Elizabeth 75 Baroh from the NJ Department of Banking presented an informative program regarding the Government Unit Deposit Protection 25 Act. Norman Gertner of the FDIC gave an 5 insightful and energetic outlook regarding the economic conditions that banks 0can expect to experience during 2011 and beyond. He believes that the recession is over; however, the recovery is slow. Employment
losses are lessening and housing prices have stabilized, but there is “fear and loathing” in the market. The stock market has rebounded, but confidence is weak. Commercial real estate activity is lagging and the shape of the recovery remains uncertain. He believes that profile: Generic CMYK printer profile a modest theColor equity markets will experience Composite Default screen recovery over the next year. He stated that
job losses have been more persistent and greater than previous U.S. recessions, but the job market is beginning to stabilize. He also emphasized that New Jersey has suffered a severe recession, but this too appears to be easing. However, the housing industry and the job market may take longer to recover than originally thought. ■
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New Jersey Banker
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26 New Jersey Banker
Protect Seniors and Gain CRA Credit through the Senior Housing Crime Prevention Foundation
he Senior Housing Crime Prevention Foundation is a national non-profit that administers the nationally acclaimed crime prevention program, Senior Crimestoppers, in senior housing facilities and veterans’ nursing homes across America.
for federal assistance. As a result, a senior housing facility does not have to be located in a low and moderate-income tract for the bank’s loan or investment to qualify for CRA credit. For the past 10 years, participating banks have received CRA credit from all four
federal regulatory agencies for their loans and investments in the foundation. ■ For more information, please contact Terry Rooker at 877-232-0859 or Terrry.Rooker@ SHCPFoundation.org, or visit SHCPFoundation.org.
What is the foundation, and what is its connection to the banking industry? The foundation serves as a conduit for banks to make CRA-qualified loans and investments to support the Senior Crimestoppers program in their CRA assessment area. The foundation has grown to more than 300 bank partners supporting roughly 4,000 senior care facilities in 45 states. The foundation is endorsed by the ABA, ICBA, and state bankers associations in 41 states, including the New Jersey Bankers Association. How does a bank get involved? A bank sponsors a nursing home or a veterans’ home by making a loan or an investment in the foundation. The bank has the flexibility to choose whether to structure its commitment as a loan or investment, depending on the bank’s need or preference for CRA credit. The loan or investment is fully collateralized by an investment grade bond of the bank’s choosing. The yield on the loan or investment is tied to the collateral bond coupon rate, the term of the commitment is seven years, and repayment is guaranteed. Once the bank’s financial commitment is in place, we collaborate with the bank to identify nursing homes or veterans’ homes for the bank to sponsor. From there, we do all of the work, in terms of implementing the Senior Crimestoppers program, training the staff and coordinating a public event where we announce to the community what the bank has done for the elderly in the community. How does a loan to the foundation, or an investment in the foundation, qualify for CRA credit? Residents of Medicaid-qualified skilled nursing facilities, veterans’ homes and HUD subsidized elderly apartment communities are low and moderate-income individuals. They are required to meet an income test to qualify
New Jersey Banker
Behind the Teller Line
Kearny Federal Savings/Central Jersey Bank Affiliation Makes a Perfect Match
The Kearny Federal Savings Corporate Headquarters on Passaic Avenue in Fairfield was constructed in 2004, providing 53,000 square feet for the bank’s executive and administrative business operations.
The regional headquarters of Kearny Federal Savings’ Central Jersey Bank Division on Highway 35 in Ocean Township was occupied in July 2008.
single word describes the reason for our association: synergy. We immediately recognized that our two organizations could achieve more together than either could attain alone. Not just in sheer size or economies of scale, but in service and value for our customers. Our areas of expertise blend together perfectly. We couldn’t find a better partner.” – Craig L. Montanaro President and Chief Operating Officer, Kearny Federal Savings Kearny Federal Savings was established in 1884 with a mission to serve the needs of its local community, primarily through secure savings and residential lending. Over the years, particularly during the last decade, new services and locations have been added, but the primary focus has remained on home financing. Central Jersey Bank took a different tack. A relative newcomer to the New Jersey banking scene, Central Jersey recognized the need for a responsive local bank that would
28 New Jersey Banker
cater to area businesses and professionals. Management developed an array of products that filled needs from commercial and construction loans to merchant services and deposit products. The bank also created a full-service small business department with preferred lender status from the U.S. Small Business Administration. While Kearny Federal offered commercial services, and Central Jersey provided retail banking, the banks’ recent merger has provided a complementing unity
that enhances and supports each bank’s specialties. Now, their affiliation means world-class, innovative banking for all customers regardless of their needs. An additional complementing factor of the merger was that the Kearny Federal branch network of 27 locations extended from northern Bergen County through Ocean County with one major strategic gap: Monmouth County. The Central Jersey branch network filled that void perfectly with 12 of its 13 offices strategically positioned throughout that county. “We had been actively searching for an institution to fill the gap in our geographical footprint and strategically Central Jersey fit perfectly,” Montanaro says. “Not one of our locations overlaps. We’ve built one of the strongest footprints of any native New Jersey financial institution, covering nearly every important population center throughout the eastern half of the state. Our network assures convenient customer access and is also a major component in our strategy for the future.” The affiliation with Central Jersey Bank is just one of the recent important developments at Kearny Federal Savings.
Based on a succession plan implemented last year, CEO John N. Hopkins will retire on April 1 and turn over his responsibilities to Montanaro. Hopkins joined Kearny Federal Savings in 1975. He worked his way up through the ranks until he was named president in 2002. His tenure coincided with one of the most tumultuous eras in banking history. “It was a wild ride, but we prospered through extraordinary times by focusing on our mission, maintaining a steady grip on fundamentals, and adhering to prudent management policies,” Hopkins comments. “Today we are in excellent condition with a solid balance sheet and strong capital ratios. The marriage with Central Jersey Bank can only improve our already strong position. And I am confident the new leadership team is more than up to the challenges that lay ahead.” Prior to this most recent acquisition, Kearny Federal Savings experienced its most significant growth from 1999 on with the completion of three whole bank acquisitions,
the assumption of deposits of a branch office of another financial institution, and the opening of full service brick and mortar retail branch locations. These transactions tripled total assets, which grew from $793 million to $2.4 billion. With factoring in Central Jersey Bank’s assets, the combined total assets of the newly formed financial institution hover around the $3 billion mark. “This added strength will empower us to move ahead even more rapidly. We intend to fully utilize the talents of both organizations to foster stronger customer relationships at every level. We are implementing innovative programs designed to employ emerging technologies to increase efficiency and utilize the latest marketing concepts to mold and introduce cutting edge financial products. Always the goal will be to create greater value for our customers and shareholders,” Montanaro concluded. Kearny Federal Savings Bank, and its division, Central Jersey Bank, are both part of Kearny Financial Corp., a public company traded on NASDAQ (KRNY). ■
Pictured are Craig L. Montanaro, president and COO (right), and William C. Ledgerwood, executive vice president and CFO (left), at the Fairfield Corporate Headquarters of Kearny Federal Savings Bank.
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New Jersey Banker
Hold onto Your Notes! By Michael R. O’Donnell, Esq. and Jorge A. Sanchez, Esq.
n the context of mortgage loans, the principal protection available to a lending institution to ensure that its investment is protected is the ability to foreclose on its security interest. The current foreclosure crisis has spawned a plethora of challenges to banks’ ability to foreclose on their mortgages, including purely technical challenges Michael R. O'Donnell not even remotely contesting whether the borrower owes the debt. In that vein, New Jersey’s federal and state courts have rendered several recent decisions making it clear that a lender seeking Jorge A. Sanchez to foreclose on a property must show that it is in possession of the promissory note at the time the foreclosure complaint is filed. If this is not done, the lender can pay a heavy price, ranging from dismissal of his suit, loss of status as a holder in due course, and even the loss of the ability to enforce the note and mortgage. This article addresses those cases against New Jersey’s statutory scheme for negotiable instruments.
New Jersey’s Statutory Scheme for Notes and Mortgages A bank debt is evidenced by a note, which can be either nonnegotiable or negotiable. Transfers of negotiable notes, or “negotiation,” must comply with the provisions of the Uniform Commercial Code (UCC) as codified in New Jersey in N.J.S.A. 12A:3-101 et. seq. Nonnegotiable notes are transferred outside of the strictures of the UCC by way of an assignment. The case law at issue relates only to negotiable notes. It is axiomatic that a bank must own or control the underlying debt to be entitled to
30 New Jersey Banker
foreclose on a mortgage. Without proof of such ownership or control, a bank does not have standing to foreclose on the property, and their complaint will be dismissed. Under N.J.S.A. 12A:3-301, the ability to enforce a negotiable instrument depends on one’s status and how that status was acquired. Those entitled to enforce negotiable instruments are either the holder of the instrument, “a non-holder in possession of the instrument who has the rights of the holder, or a person not in possession of the instrument who is entitled to enforce the instrument” (N.J.S.A. 12A:3-301). The first class of persons entitled to enforce a note are holders. When a bank makes a loan to a borrower and retains the note, its possession of the note alone makes it the holder. However, when that bank transfers its note, the “ownership or possession” of the note does not, in and of itself, entitle the transferee to the status of a holder. To be classified as a “holder,” the note must be properly negotiated to the transferee (N.J.S.A. 12A:3-201(a)). When a bank transfers or sells a loan, the proper negotiation of its note requires both a “transfer of possession of the instrument, and its endorsement by the” initial bank (N.J.S.A. 12A:3-201(b)). However, notes that are endorsed in blank become payable to the institution with possession of the notes (N.J.S.A. 12A:109(c); N.J.S.A. 12A:205(b)). Upon negotiation of the note, the transferee bank becomes a “holder in due course,” so long as that bank has no knowledge of any infirmities with the note, takes it in good faith through the observance of reasonable commercial standards, and pays value for the note (see N.J.S.A. 12A:3-302). A holder in due course is immune from many of the defenses that a party to the instrument may assert, except for the defenses of incapacity, duress, illegality of the transaction, fraud in the inducement, or “discharge of the obligor in insolvency proceedings” (N.J.S.A. 12A:3-305). The second class of persons entitled to enforce a note are non-holders in possession
who have the rights of a holder. Non-holders in possession are transferees of a note that has not been endorsed (N.J.S.A. 12A:3-203). N.J.S.A. 12A:3-203 grants these transferees the right to enforce an instrument even without negotiation. A transfer occurs when the note is “delivered for the purpose of giving the” recipient the right to enforce it by the physical transfer of possession. A nonholder in possession may also be entitled to assert the rights of a holder in due course if the instrument was transferred to it by a holder in due course (i.e., a transferee with a properly-endorsed note) and the transferee did not “engage in fraud or illegality affecting the instrument.” The third class of persons entitled to enforce a note are those that are not in possession who are nonetheless entitled to enforce it because they were in possession of the note “and entitled to enforce it when the loss of possession occurred” (N.J.S.A. 12A:3301; N.J.S.A. 12A:3-309). Recent case law discussed herein seeks to expand this group to transferees who purchase a lost note in good faith even though the transferee never possessed same. The proper transfer or negotiation of notes and the status created in the transferee is crucial in determining whether that transferee may foreclose on the property securing its note. Lenders and their transferees must be mindful of the statutory provisions delineating the narrow category of persons entitled to enforce a note and ensure that proper procedures are used when transferring them.
Possession of the Note: A Critical Element to Foreclosure Recent case law has established that the inability of a lender in foreclosure to prove their possession of the note will, in many cases, result in their complaint being dismissed, at a minimum. Moreover, the bank must establish its possession of the note as of the time the foreclosure complaint is filed by competent proofs. The latter requirement was enunciated
in Bank of New York v. Raftogianis, No. A-1384-09T1, 2010 N.J. Super. LEXIS 221 (Ch. Div. June 29, 2010). In that case, the defendants’ note and mortgage were pooled and securitized and transferred to the foreclosing bank. The borrower defaulted on the note and the bank filed a foreclosure suit. The borrower, however, challenged the bank’s standing to bring the suit. The court agreed and held that the bank failed to show that it possessed the note at the time the complaint was filed and dismissed the complaint without prejudice. In doing so, the court held that, while the bank was able to produce an endorsed copy of the note at oral argument, “no competent proofs were offered as to when the note was endorsed,” when it was delivered, and what had been done with the note. In Wells Fargo Bank, N.A. v. Ford, No. A-3627-06T1, 2011 N.J. Super. LEXIS 13 (App. Div. Jan. 28, 2011), the Appellate Division addressed the quantum of proof that was sufficient to demonstrate that a bank was entitled to enforce the note in foreclosure. In that case, the defendant’s mortgage and note were assigned to the foreclosing bank via a document that stated that “it was an assignment of ‘the described mortgage, together with the certain note.’” The defendant defaulted on the note and the bank filed a foreclosure action. At trial, the defendant argued that the mortgage and note were invalid because the original lender engaged in predatory lending and fraud. Nevertheless, the trial court granted summary judgment to the foreclosing bank, holding that it was immune from such defenses as a holder in due course. However, on appeal the Appellate Division held that the bank failed to establish its standing to even pursue the foreclosure action and remanded the case to the trial court for further discovery. The court first noted that the bank admittedly could not qualify as a “holder,” as there was no evidence of the note’s endorsement by the original lender. The court then analyzed whether the bank could enforce the note as a non-holder in possession. To support this status, the
bank relied on the assignment from the original lender and a certification stating that it was the holder and owner of the note and mortgage. Copies of the note and mortgage
were also attached to the certification. The court, however, found that if these documents continued on page 32
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New Jersey Banker
Hold onto Your Notes! continued from page 31 were properly authenticated, they could be sufficient to establish the bank’s status as a non-holder in possession, giving it the right to enforce the note. But they were not. Specifically, the certification did not allege that it was based on personal knowledge nor did it indicate the source of the “alleged knowledge that the attached mortgage and note [were] ‘true copies.’” Further, the assignment of the mortgage, which also must be produced to maintain a foreclosure action, was not authenticated. In guiding further proceedings in the trial court, the court commented that the bank could properly establish its standing to pursue the foreclosure action as a holder if the original lender endorses the note. Nevertheless, a subsequent endorsement would not entitle the bank to the status of a holder in due course because it was now aware of the defenses. Thus, the date of an endorsement is critical because, among other things, the status of a holder in due course can only be achieved if the holder acquired the note without notice of the defenses (N.J.S.A. 12A:3-302). In In re Kemp, No. 08-18700-JHW, 2010 Bankr. LEXIS 4085 (Bankr. D.N.J. Nov. 16, 2010), the court had occasion to analyze the ability of a creditor to enforce a note in bankruptcy. In that case, the debtor’s mortgage and note were pooled with others and sold as a package to the foreclosing bank. However, the original lender never transferred possession of the note to the foreclosing bank. The original lender, as the servicer for the foreclosing bank, filed a proof of claim for the notes and mortgages. The debtor argued that the bank could not enforce the debt. The court agreed and held that the claim could not be enforced, because the bank did not have possession of the note, and the original lender, as its agent, had no greater right than its principal. The court also rejected an argument that an assignment of mortgage, which purportedly assigned both the mortgage and note to the bank, was sufficient to transfer the note. In so doing, the court noted that, “although the document may be effective to give the [assignee] a claim to ownership of the instrument, [the assignee] is not a person entitled to enforce the instrument until [it] obtains possession of [it].”
32 New Jersey Banker
Finally, the bank attempted to introduce a certification stating that the original note was lost. The court, however, disregarded the certification because it conflicted with other evidence presented. The court ultimately concluded that the foreclosing bank could not enforce the note under N.J.S.A. 12A:3309 because it never possessed it. Thus, the court held that the bank could not enforce the note at all.
All is not Lost The literal reading of N.J.S.A. 12A:3309 in the Kemp judgment, coupled with the presumption that the UCC preempts common law remedies, leads to the conclusion that no one other than the person who originally lost the note may enforce it. Courts in other jurisdictions have recognized that, while such a conclusion leads to an illogical and inequitable result, they are nonetheless bound by the language of the provision requiring possession of the note at the time it was lost. (See Dennis Joslin Co., LLC v. Robinson Broadcasting Corp., 977 F.Supp. 491, 495 (D.D.C. 1997). To address this seemingly unjust result, the UCC has since been amended to “eliminate the requirement of possession” and to specifically include a transferee of a lost instrument who has “acquired ownership of the instrument from a person entitled to enforce the instrument when loss of possession occurred.” However, New Jersey has not adopted this amendment, leaving this sore open. In Bank of America, N.A. v. Alvarado, No. BER-F-47941-08, 2011 N.J. Super. Unpub. LEXIS 107 (Ch. Div. Jan. 7, 2011), the Chancery Division recently revisited this issue. It held that the UCC did not preempt all common law remedies. Specifically, the court found that the doctrines of unjust enrichment and equitable assignment permit a transferee of a lost note to enforce it under certain circumstances, even if they never possessed it. There, the defendant’s note was lost by the original lender, who subsequently executed an affidavit certifying to this. The defendant’s loan was pooled and securitized with others and sold to the foreclosing lender. After the defendant defaulted on the loan, the foreclosing lender filed a foreclosure suit. The defendant challenged the lender’s standing to enforce the note. She argued that the lender could not be considered a “person … ‘in possession and entitled to enforce [the note] when the loss of
possession occurred’” because it was never in possession of the note. Nevertheless, the court held that the lender was entitled to enforce the note. The court noted that the UCC has “eliminate[d] the requirement of possession” for transferees of lost notes, but New Jersey has not adopted this amendment. The court noted that the defendant’s argument would result in a ruling that “no entity now exists that can enforce defendant’s” obligation, “thereby leading to a windfall to defendant.” The court explained that the defendant has admittedly defaulted on the note and that to prevent the enforcement of the obligation would unjustly enrich the defendant. Further, pursuant to N.J.S.A. 12A:3-309(b), a defendant must be protected against any “loss that might occur if another person should seek … to enforce the note.” In this particular case, however, the passage of more than four years since the note was lost, the fact “that it was lost almost immediately after execution,” and the absence of any other entity making a demand for payment, made it unlikely that the defendant would be faced with such an issue. Finally, the court also held that the common law doctrine of assignment could permit the assignment of the right to enforce a lost note “when the equities of a circumstance so compel.”
Conclusion These decisions make clear that banks and other lending institutions seeking to foreclose on a property must present proof that they are in possession of the note at the time the complaint is filed. Thus, great care must be exercised in transferring notes, as an improper transfer will result in the transferee being unable to enforce the note in foreclosure. These decisions will inevitably make it more difficult for lending institutions and their transferees to foreclose on their mortgages, leaving some unable to recoup their losses after a borrower defaults. ■ Michael R. O’Donnell, Esq., is a partner in Riker Danzig Scherer Hyland & Perretti LLP’s Commercial Litigation and Financial Services Groups, based in the firm’s Morristown office. He can be reached at 973-451-8476 or modonnell@ riker.com. Jorge A. Sanchez, Esq., is an associate in Riker Danzig’s Commercial Litigation Group, also based in Morristown, and can be reached at 973-451-8416 or firstname.lastname@example.org.
Running a Good Bank in a Weak Economy continued from page 18 lines of business for community banks. … It’s not a big driver of profitability.” But in addition to examining costs, banks should think about where to spend their capital to get the greatest return on investment. The best candidates are feebased lines of business that match what the customer base wants and needs. However, smaller banks earn on average 80 percent on the spread and 20 percent from fee income, while larger banks earn the same percentage or more in fees than on the spread. It’s because they can earn those fees on volume on lower spreads.
Mandates don’t make good management Alfred DelliBovi is president of the Federal Home Loan Bank of New York, which has 127 member institutions in New Jersey. Those institutions currently hold $33 billion in advances from the FHLBB, down from a peak of $36.2 billion at the
height of the credit crisis. “Our members are seeing deposits flow in; they can take down their advances. That’s a good strategy New Jersey bankers have used over the years,” he says. “Anyone running a balance sheet doesn’t need the government to tell them how to do it,” DelliBovi says. “You have to be able to choose the assets that meet your needs.” In terms of limiting advances, the FHLB takes the position that the limit should be based on safety and soundness concerns, not an arbitrary decision that a specific percentage of a bank’s assets should either originate or be invested in a specific source. “Fannie and Freddie got into trouble because they were mandated to make loans where they shouldn’t [have],” he points out. Peter Ostrowski is president of bank and thrift advisory firm Ostrowski & Company Inc., which creates custom-designed peer groups for banks to judge their expenses relative to others. It also helps clients evaluate asset quality and, in this economy, delinquency trends, to determine if the client’s underwriting is sufficiently sound.
Susan Monti, a managing director at Ostrowski & Company, warns against bottom-fishing when there’s not a lot of loan demand. Banks shouldn’t downgrade their underwriting standards just to grow their investment portfolios, she warns. “Banks have to go through a self exam. Regulators should be the checkpoint, but bank management should be ahead of the curve. … [They] can’t have examiners help them run the show.” Banks get into trouble when they fail to rectify problems pointed out by regulators by the time of a follow-up exam. “The issue regulators should be looking at now is how real banks grow,” says Ostrowski, “To get core deposits, banks are now competing with money market funds, so it will be difficult.” However, “Good banks never overreached in a strong economy, and in a weak economy, they recognize where they are.” ■ Christina P. O’Neill is custom publications editor for The Warren Group, publisher of New Jersey Banker.
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New Jersey Banker
Do-It-Yourself Disaster Recovery The Perceived Advantages (and Realities) of Taking Disaster Recovery into Your Own Hands By Eric Flick
ome banks attempt to provide their own business continuity and disaster recovery by purchasing redundant hardware and installing it in a branch or remote location other than where the bank’s main system is housed. This do-it-yourself (DIY) disaster recovery methodology has some perceived advantages and realities that bankers should consider before taking disaster recovery into their own hands or contracting with a professional disaster recovery service provider.
Perceived Advantage: Cost Containment The single biggest advantage of an in-house or internal recovery solution is the perceived lower cost, which appears to be a fixed cost spread over multiple years versus annual fees and ongoing testing expenses. Reality: Despite the perceived up-front savings, significant investments must be made in hardware, software, item processing equipment, networking and communications. And banks must ensure they can access internal recovery centers, branches, third-party systems, ATM switches, etc. Main and backup systems require duplicate operating systems, application software, and testing utilities, which means duplicate license fees. Hardware and software must always be upgraded to compatible levels, so every main system upgrade must be duplicated on the backup system. And monthly and/or annual maintenance fees must be paid on both the main and backup equipment. To accurately analyze in-house disaster recovery, compile an itemized list of equipment, software, communications gear and peripheral devices and consider the purchase price, maintenance costs and required personnel. Also list the main system upgrades purchased in the last three to five years and double those costs to determine what you can expect to pay in the next three to five years. This exercise will help you compare the total cost of an in-house recovery center to the cost of a professional recovery provider.
Perceived Advantage: A More Convenient Location A common perception is that DIY disaster recovery is more convenient because the back-up system is typically nearby and requires minimal travel time and expense. Reality: If a major disaster like Hurricane Katrina were to strike your geographic area, there is a strong possibility that your internal back-up solution would also be affected. In fact, as a result of this historic hurricane, the FFIEC revised its guidance regarding the distance between primary data centers and backup facilities. Professional disaster recovery services do not rely on a single-thread recovery solution. They ensure compliance with this guidance through multiple regional recovery sites that are prepared with the necessary equipment, resources, technical support and qualified personnel that know your business, hardware and software.
34 New Jersey Banker
Perceived Advantage: Overall Control A common perception is that having your own recovery equipment means your bank is self-sufficient and can test your recovery plan based on your staff ’s schedule. Reality: Disasters can significantly impact your bank’s employees, their families, their homes and their communities. These personal burdens typically and understandably take precedence over work responsibilities, and effectively responding to disasters without appropriate staffing is virtually impossible. Professional disaster recovery services ensure access to a qualified support staff that is not personally affected by disasters and can exclusively focus on restoring your bank’s operations. DIY disaster recovery also means your staff is responsible for the highly technical tasks of reconfiguring your bank’s networks to communicate with the internal recovery system, switching over your ATM operations, and maintaining the primary banking applications your customers depend on. Professional disaster recovery services also ensure that enterprisewide business continuity and recovery plans are fully and systematically tested based on industry best practices. All too often, banks only test the core system and neglect mission-critical ancillary applications like item processing, teller solutions, and ATMs.
Weigh the Risk When considering operational alternatives, there are often perceived and actual realities that should be carefully and objectively evaluated. DIY disaster recovery versus a professional disaster recovery service has strong proponents on both sides of the argument, but there are several undeniable realities today. Regulatory oversight is expected to continually increase, and in the post-Katrina environment, bank officers and directors can be held legally liable if their bank does not properly respond to a disaster. Re-establishing customer, market and stockholder confidence if your bank fails to appropriately respond to a business interruption or catastrophic disaster is a long and expensive process at best – if it’s even possible. As you consider your bank’s disaster recovery solution, ask yourself three simple questions. What are the biggest benefits and the biggest deficiencies of our current disaster recovery solution? How high is the probability that our current disaster recovery solution or specific components could actually fail if an unexpected disaster strikes? Can I prove to my bank’s officers, directors and the regulators that we’re ready to respond? Based on your honest answers to these elementary questions, you might discover it’s in your bank’s best interest to take another look at your disaster preparedness and recovery plans. ■ Eric Flick is director of disaster recovery for Jack Henry & Associates, Inc. He can be reached at 800-299-4411 or email@example.com.
Robert S. Monteith
John F. Kuntz
Mitchell L. Crandell
Borden Perlman/FIRST CHOICE BANK When the Mercer Regional Chamber of Commerce holds its Annual Hall of Fame Awards Dinner at the Hyatt RegencyPrinceton on April 27, Jeffrey Perlman will be honored as Citizen of the Year. He will be joined on the dais by representatives of First Choice Bank, recipient of the Distinguished Corporation of the Year award. Perlman is a principal of Borden Perlman, headquartered in Lawrenceville. A recognized expert in personal, commercial and sports accident insurance, the firm is licensed in all 48 continental states and manages risk on a global scale, with clients as far away as London and Hong Kong. With a strong history in the Trenton area, Borden Perlman was recently recognized by the Mercer County Board of Chosen Freeholders in celebration of its 95th anniversary. A graduate of Princeton Day School and Bucknell University, Perlman received his graduate degree in insurance and risk management from St. John’s University. He received his chartered property and casualty underwriter (CPCU) degree in 1993. FEDERAL RESERVE BANK OF PHILADELPHIA R. Scott Smith, Jr., chairman and CEO of Fulton Financial Corporation, has been elected to the Federal Reserve board of directors. The nine-member board is chosen in a nonpolitical process, generally with three directors selected each year. The Federal Reserve Bank of Philadelphia’s board represents the Third District, which includes eastern Pennsylvania, southern New Jersey and Delaware. Smith will serve a three-year term as a Class A director. For the past three years, he has been the Third
District representative to the Federal Advisory Council, which meets quarterly with the board of governors in Washington, DC on regulatory matters. Smith was appointed chairman and CEO of Fulton Financial Corporation in January 2006. In 2001, he was named president and COO, and a director of Fulton Financial Corporation. Smith also served as executive vice president of Fulton Financial Corporation. Before assuming the positions of chairman, president and CEO of Fulton Bank in 1998, Smith held several other management positions at the bank. He joined Fulton Bank as director of personnel in 1978. He earned an MBA from Widener University and also has bachelor of arts and bachelor of science degrees from Pennsylvania State University. HIGHLANDS STATE BANK Highlands State Bank has appointed Eileen D. Piersa to senior vice president and CFO, Josephine Bartman to senior vice president and commercial loan officer, and Carol J. Hults to vice president and corporate secretary. In addition, Monica A. McGee has been appointed assistant vice president and commercial loan officer. INVESTORS SAVINGS BANK Ann M. LaCarrubba has been appointed vice president and legal counsel. LaCarrubba will manage legal matters in a variety of areas. Based at the bank’s corporate headquarters in Short Hills, she will work directly with the bank’s COO, Dominick A. Cama. LaCarrubba earned her undergraduate degree from Stockton State College and received her juris doctorate from Seton Hall School of Law.
NVE BANK Robert S. Monteith, president and CEO of NVE Bank, announced that he will retire effective Jan. 1, 2012, after 25 years of service with NVE Bank. Robert Rey, executive vice presiMichael A. Raimonde dent and CFO, was appointed president, effective Jan. 1, 2011. Monteith will remain as CEO during the 2011 year and thereafter will continue to serve as a member of the board of directors. Monteith joined NVE Bank in 1985 and was named president and CEO in 1993. Monteith, who received a bachelor’s degree from LeMoyne College in Syracuse and an MBA from Rutgers University, spent 15 years with United Jersey Bank before joining NVE. He served on the board of governors of the legacy NJ League of Community Bankers from 1995 to 2008 and as a member of the executive committee from 1997-1998 and again from 2003 to 2008. Monteith also served as chairman of the Association in 2007. Additionally, Monteith is a current member and former director of the Englewood Rotary Club. He also is a former member of the board of directors of the Urban League of Bergen County. Robert Rey has been involved in the banking industry for over 25 years, the last 13 years at NVE Bank. During his tenure, he has held increasing levels of responsibility and currently holds the positions of CFO and COO. Additionally, he serves on the board of directors for NVE. Prior to joining NVE Bank, Rey was a senior vice president and CFO of Mellon Bank, FSB. He also worked in bank regulation and supervision with the FHLBNY and a department of the United States Treasury. Rey is a past president and current member of the Financial Managers Society’s NY/NJ Chapter and is actively involved in other civic activities. He has a bachelor’s degree from Rutgers College, and received his MBA from Rutgers University. He has successfully completed the SEC Series 7 and 63 licensing requirements and finished all course work requirements for SRA designation by the Society of Real Estate Appraisal Institute. Rey also fulfilled many management leadership courses, most recently a “High Potential Leaders Program” at the University of Pennsylvania’s Wharton School of Business.
New Jersey Banker
Bank Notes PEAPACK-GLADSTONE BANK Karen Chiarello of Blairstown has been promoted to senior vice president. Serving the financial services and public accounting industries for 24 years, Chiarello has been with the bank since 1998. She is a New Jersey-licensed CPA, a NJCPA member and an AICPA member. Chiarello holds a bachelor’s degree and an MBA from Montclair State University. Mary Russell has also been promoted to senior vice president. Russell has been in the banking industry for 21 years and with Peapack-Gladstone Bank since 1998. She holds a bachelor’s degree from West Chester University in Pennsylvania and is a New Jersey-licensed CPA. She is a NJCPA member, as well as a member of the Financial Managers Society, NY/NJ Chapter. She is also the leader of two Girl Scout troops in the Washington Township Service Unit of the Girl Scouts of Northern New Jersey. The PROVIDENT BANK John F. Kuntz was named chief administrative officer. Kuntz also serves as executive vice president and general counsel, responsible for managing the bank’s legal/investor relations, human resources, compliance and operations/information technology divisions. Kuntz, who has more than 25 years of banking experience, joined Provident in 2001. He was promoted to executive vice president and general counsel in 2005. Previously, he was vice president and assistant general counsel at Mellon Investor Services, LLC, and a partner at the law firm of Bourne Noll and Kenyon. Kuntz earned his juris doctorate at New York Law School, completed his undergraduate degree at Fairfield University, and also attended the National School of Finance and Management. Michael A. Raimonde has been promoted to executive vice president and director of retail banking. He is responsible for the overall supervision of Provident’s 80-plus branch network and sales management. Raimonde has more than 30 years of experience in the banking industry. He joined Provident in 2007 as senior vice president and director of retail banking. Previously, he was executive vice president of the community banking division and market president of the New York retail system of Sovereign Bank. Raimonde received a bachelor’s degree from St. Peter’s College.
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ROMA BANK After 32 years with Roma Bank, Marge Norton retired from her position as senior vice president of administration. Norton began her career at Roma Bank as an executive secretary and held various positions, including corporate secretary. During her career, she received many honors, including Hamilton YMCA’s Person of the Year, the TWIN award from the YWCA of Trenton, Rotary International’s Jean Harris award and the Humanitarian Award from the Italian-American Hall of Fame. TD BANK Joti Sidhu-Thind has been named vice president and portfolio manager in commercial real estate. Sidhu-Thind has seven years of experience in real estate, including more than three years in commercial real estate banking. She received an MBA from the Schulich School of Business in Toronto. Gada Elkenani has been promoted to business development officer in the commercial department in Bridgewater. She joined TD Bank in 2004 and has more than 20 years of banking experience. She serves as vice president of the board of trustees, and on the executive committee of the Greater Trenton Symphony Orchestra. She is a graduate of SUNY Albany. Randall S. Wernes has been named a vice president of middle market lending. He is responsible for providing portfolio management focusing on retaining and growing existing and new middle market clients throughout central New Jersey. He has 20 years of experience in banking, finance and lending and received an MBA in finance from the Rutgers University Graduate School of Management and an undergraduate degree from Roanoke College. Lawrence E. Kovacs has been named a portfolio officer in TD Equipment Finance in Cherry Hill. He is responsible for portfolio management and new deal underwriting for equipment finance transactions. He received an MBA in finance and a bachelor’s degree in business administration from St. John’s University. Dan M. McGarry has also been named a portfolio officer in TD Equipment Finance. McGarry received an MBA from the Duke University Fuqua School of Business and an undergraduate degree in finance/international business from Penn State University. William M. Pifani, CPA, has been promoted to director of underwriting and port-
folio management at TD Equipment Finance. He will lead the underwriting and portfolio management functions of the equipment finance arm of TD Bank. Pifani is a graduate of Philadelphia University. VALLEY NATIONAL BANK Mitchell L. Crandell has been appointed first senior vice president and chief accounting officer. Crandell joined Valley National Bank in 2005 as assistant controller and was promoted to controller in 2006 and senior vice president in 2008. He oversees the accounting operations, accounting policy, and also the internal and regulatory reporting for Valley National Bancorp and its subsidiaries, including its principal subsidiary, Valley National Bank. Crandell began his career as a member of the financial services practice at KPMG LLP, and has over 18 years of experience in the financial services industry. He has held various positions, including the head of financial reporting and controller at a multi-billion dollar national bank holding company located in Chicago. He received his bachelor’s degree in accountancy from Michigan State University. He is a CPA and is also a member of the American Institute of Certified Public Accountants. Charles Huha has been appointed first vice president and facilities services director. Huha joined Valley National Bank in 2006. As facilities services director, he oversees many important service functions for Valley’s property network located throughout New York and New Jersey. Huha brings over 46 years of banking experience to his position. He received a bachelor’s degree in business administration and an MBA from Fairleigh Dickinson University. He currently volunteers time on the Pompton Lakes Community Emergency Response Team. He is a Marine Corps veteran and is a member of the Marine Corps League, Lakeland Detachment, 744. Robert Peterson has been appointed to senior vice president and senior credit officer. As an officer for the credit risk management department, Peterson reviews and approves commercial loans and mortgages in support of the commercial mortgage and healthcare lending business units. In addition to these responsibilities, Peterson is also a Regulation O loan officer. He received his bachelor’s degree in economics from Alfred University and a master’s degree in business administration from Rutgers University. ■
THE PROVIDENT BANK – Habitat for Humanity of Hudson County recently dedicated its first home on Ocean Avenue in Jersey City. Standing in front of the newly-constructed home are, from left, front row: Robert Capozzoli, internet/intranet manager at The Provident Bank; John Kuntz, general counsel; Michael Raimonde, senior vice president of retail banking; Dariell Leak, foundation assistant at The Provident Bank Foundation. Back row, from left: James Cryan, senior mortgage representative; Janice Johnson, treasury coordinator; and Anthony Gobrial, marketing coordinator. Provident was the largest supporter of Habitat and the Ocean Avenue build.
WACHOVIA banking locations across New Jersey became Wells Fargo stores in February. More than 1.47 million New Jersey customers can now access 313 Wells Fargo stores and 476 ATMs across the state. The Wachovia brand also became Wells Fargo in Delaware, with New York and Connecticut to follow in March and Pennsylvania in April. Wachovia will transition to Wells Fargo in other eastern states throughout 2011. Pictured, Michelle Lee, northeast region president, unveils the Wells Fargo sign at the bank’s regional headquarters in Summit as Northeast Business Banking Manager John Cole (left) and Northern New Jersey Regional President Lucia DiNapoli Gibbons look on.
COLUMBIA BANK – Employees of Columbia Bank collected 408 shopping bags filled with non-perishable food, health and beauty aids, and paper goods, along with 95 individual bulk items and more than 366 pounds of bulk pack items, and shared them with The Center for Food Action, the Saint James Food Pantry, the Barn for the Poorest of the Poor and the South Jersey Food Bank. Shown are Columbia Bank volunteers who helped with the collection and distribution of the donated items. From left: Francisco Advento, Sean Bradley, Cathe Nicholson, Linda Jewett, Pat Weinpahl, Jim DiCerbo, Bill Brex, Jean Ducoat, Deena Saraiya, Thomas Kemly, Maria Vazquez, Maria Rendine, Debbie Scelzo, Diane Weiss, President and CEO Raymond Hallock and Margie Hochkoeppel.
serving New Jersey financial institutions Stifel, Nicolaus & Company, Incorporated has been serving banks and thrifts for over 40 years. Since 2000: • Managed or Co-Managed 482 Public and Private Offerings, raising $58.6 billion in capital • Managed 49 Mutual-to-Stock Conversion Offerings, raising $13.7 billion in capital • Advised in 218 Financial Advisory Transactions, totaling $14.7 billion • Of these transactions, approximately 30% were for Mid-Atlantic-based companies Over 220 Financial Service Companies under research coverage, 67 of which reside in the Mid-Atlantic Region Large retail and institutional sales distribution channel
We have defined the Mid-Atlantic region to include: Delaware, Maryland, New Jersey, New York, and Pennsylvania. The information presented includes transactions effected and matters conducted by Stifel Nicolaus Investment Banking, the Capital Markets Division of Legg Mason Wood Walker, Inc. (acquired on December 1, 2005), Ryan Beck & Co., Inc. (acquired on February 28, 2007), Thomas Weisel Partners LLC (acquired on July 1, 2010), and their respective affiliates. Stifel, Nicolaus & Company, Incorporated and Thomas Weisel Partners LLC are affiliated broker-dealer subsidiaries of Stifel Financial Corp. which are collectively referred to herein under the marketing name Stifel Nicolaus Weisel.
Senior Executive Involvement For more information, contact: Rick E. Maples, Head of Investment Banking (314) 342-2038 • firstname.lastname@example.org
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New Jersey Banker
ROMASIA BANK celebrated the “Year of the Rabbit” by sponsoring a recent performance of the Greater Princeton Youth Orchestra entitled “East Meets West” at Princeton University’s Richardson Auditorium. Pictured, RomAsia’s President and CEO Dominick Mazzagetti shares a laugh with Madhu Bhandari, Julie Zuo, Tina Jin and Lili Greene at a reception prior to the performance. In addition to welcoming the bank’s officers, directors, staff and supporters to Maclean House, the bank also made more than 200 free concert tickets available to its customers.
NJBankers participated in the Department of Banking and Insurance Commissioner’s Symposium in December. Pictured, from left: Ken Kobyowski, chief of staff, DOBI; Nancy Graves, assistant director, Office of Despositories, DOBI; Commissioner Thomas B. Considine, DOBI; Gov. Chris Christie; John E. McWeeney, Jr., president and CEO, NJBankers; James R. Silkensen, retired co-president and co-CEO, NJBankers; and Garrett Komjathy, director of banking, DOBI.
OCEANFIRST BANK's President and COO Vito R. Nardelli accepts a Community Service Award, recognizing outstanding community involvement, from John E. McWeeney, Jr., president and CEO, NJBankers (left) and James R. Silkensen, retired co-president and co-CEO, NJBankers.
Lakeland Bank – In its ongoing dedication to those it serves, Lakeland Bank has shown itself to be an inspiration for the local community, and was selected as the recipient of West Caldwell’s 2010 Beautification Award. Pictured, from left: Mark Cohen, chairman, Environmental Commission, West Caldwell; Joseph Cecere, council president, West Caldwell; Carianne Reeber, branch manager, Lakeland Bank’s West Caldwell office; Joseph Tempesta, Jr., mayor, West Caldwell; and John Kupcho, vice chairman, Environmental Commission, West Caldwell.
PEAPACK-GLADSTONE BANK employees recently teamed up with the American Heart Association for its National Wear Red Day campaign to promote awareness of the risk of cardiovascular disease and stroke in women, by wearing red and collecting $5 per person for the cause. Peapack-Gladstone Bank and PGB Trust & Investments employees donated a total of $425 to the American Heart Association and, with a matching corporate donation, the bank proudly forwarded a grand total of $850 to the organization.
TICIC – Gordon M. Ur, president of TICIC (far right), is joined by Woolwich Township officials and members of Community Investment Strategies, Inc. at the ribbon-cutting ceremony for the Oaks at Weatherby. The project created 86 units, ranging in size from 850 to 1,410 square feet, for affordable housing.
GCF Bank – The Washington Township Chamber of Commerce announced the selection of Robert C. Ahrens, president and CEO of GCF Bank, as the 2011 recipient of its Rick Zammer Business Hall of Fame Award. This award is the highest award presented by the chamber in recognition of a member’s loyalty, support and contribution to the community and to the chamber. Pictured, from left: Sen. Fred H. Madden, Jr., Robert C. Ahrens, and Assemblyman Paul D. Moriarity.
38 New Jersey Banker
NEWFIELD NATIONAL BANK presented a $15,000 donation to Gloucester County Habitat for Humanity (GCHFH) to support the ongoing building of Habitat housing in the area. Pictured, from left: Mark Mastro, vice president of compliance, Newfield National Bank; John Borelli, Jr., president, Newfield National Bank; Anthony Isabella, board treasurer, Habitat for HumanityGloucester County; and Joseph Biegalski, Jr., executive vice president of lending, Newfield National Bank.
THE MAGYARBANK CHARITABLE FOUNDATION recently granted $1,000 to the non-profit Alternatives to support the expansion of their transition services, which provides career services to individuals with special needs, and currently offers oneon-one time between a career facilitator and a student. The organization is headquartered in Raritan and serves families in Middlesex, Somerset, Hunterdon, Warren and Monmouth counties. Pictured, from left: John S. Fitzgerald, president and CEO, Magyar Bank; Glori Bine-Callagy, director of Bridges to Development, Alternatives; Nancy Good, president, Alternatives; Carmen Oshiro, vice president and branch manager, Magyar Bank’s Bridgewater office; Anita Feiner, director of development and communications, Alternatives; and Jay E. Castillo, president of the MagyarBank Charitable Foundation.
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Published on Apr 8, 2011
As the official magazine of the New Jersey Bankers Association, this magazine focuses on the breaking stories and the upcoming developments...