When Summit Bank bought United Jersey Bank, everyone at UJB’s prestigious headquarters at the Carnegie Center feared for their jobs. When Fleet Bank bought Summit, all the Summit employees at the Carnegie Center feared for their jobs. That headquarters building stands almost empty now, and with Bank of America offering to buy Fleet, every Fleet employee who isn’t working at a branch has reason to fear for their job.

The one good way to get security in the banking industry, it would seem, is to work for one that is closely held, like Grand Bank on Route 1 South in Monmouth Junction. Richard P. Rosa helped Tom Gray and Mark Wolters to structure Grand Bank in an unusual way, with a small number of loyal, satisfied shareholders who aren’t pushing for the bank to be sold. Not only can Rosa, the chief financial officer, expect to have his job for life, but his bank is also providing employment for his two sons: Richard C. Rosa, 26, is the manager at one of the two branches (Monmouth Junction on Route 1 North) and Michael, 24, is a teller at the bank.

Gray and Rosa have been doing banks together since 1995, seven years after Gray and Mark Wolters founded Carnegie Bank at the corner of Alexander Road and Route 1. (Wolters is now president and CEO of Grand Bank.) In a dizzying succession of deals, they sold Carnegie Bank and started another bank in Florida. Their third bank, a private firm, was chartered in 2000 as Grand Bank but renamed when it was bought by Met Life. Then in 2002,they opened another bank, this one also called Grand Bank, in Hamilton. Met Life closed its Monmouth Junction office last May, and so Grand Bank carried out its plan to repurchase the real estate and move back into that office.

Richard C., the son, is a graduate of the County College of Morris. He joined the bank in 2000 and is finishing his finance degree at Rider University.

Richard P., the father, majored in economics at Rutgers, graduating in 1974, and then earned a Rutgers MBA in accounting. He started out as an auditor at Midlantic (which is now PNC) and then spent three years with Franklin State Bank before it merged with United Jersey. Working in Randolph for United Jersey, he was treasurer of UJB Northwest. Just before UJB merged with Summit, he moved to Lakeland Savings Bank to be chief financial officer. The senior lender in his office moved with him to be CEO. The pair of them sold Lakeland to Valley National, and then Rosa applied for a job at Carnegie Bank.

"It was the best move I ever made," says Rosa. "Tom is a broad strategic thinker who is also very good with analyzing details, and I’m more of an analytical financial type guy. We have a great team. I think that Tom and Mark Wolters are two of the best commercial lenders in the country, and we have a very entrepreneurial group."

"To service your market and make good loans you have to have the judgment to know who is going to be successful. Tom and Mark have been in the community — Tom had operated in Princeton since 1988, and Mark had lived in Hamilton for years." He points out that a Hamilton native, Stella Bailey, manages the Grand Bank branch there.

Grand Bank had no trouble getting investors who wanted to buy into an unusual S corporation structure (more about that later). That’s because, by investing in Tom Gray’s several enterprises, they had already made a lot of money, and they trusted his timing.

Timing is Gray’s metier. He started Carnegie Bank with $6 million from 600 shareholders and started trading on Nasdaq after a couple of years. He sold it 10 years later for $106 million to Sovereign Bank.

"Then," says Rosa, "we purchased a fixer-upper bank, Admiralty Bank in Florida. From the success we had at Carnegie Bank, we had a following, a lot of happy shareholders." Admiralty Bank was in a high growth area in Palm Beach, and a side benefit of this purchase was that it enabled Gray to spend time at his penthouse condo on the outskirts, Singer Island.

Did the stockholders get a promise that though there were no cash dividends, eventually they could cash out? "It was always public knowledge that the purpose was to build the bank up and then sell it," says Rosa.

Carnegie Bank was touted as a community-based bank friendly to small business, but as Rosa says, that was not so unusual. "The real innovation was when he came up with the idea for Grand Bank, the first `from scratch’ sub chapter S bank."

It resulted from a 1997 law that allowed banks to organize as a subchapter S rather than as a C corporation. Gray’s version of the subchapter S structure helped shareholders by cutting taxes.

In a C corporation, the bank itself pays taxes, and if dividends are issued, the shareholders pay taxes on the dividends. This can be considered double taxation.

With a subchapter S organization, the bank itself doesn’t pay taxes; only the individual shareholders pay taxes on what the bank earns. This means that the shareholders might have to pay taxes without getting any dividends.

"A lot of subchapter S banks," says Rosa, "take the traditional route of paying half of what they are earning, so the shareholders can pay their taxes and keep a little extra, with the rest helping to grow the bank. Tom came up with the idea to bring in enough initial capital to bring it to an ideal size for profitability, not retain any of the capital, and pay out 100 percent to shareholders, so it would be a real cash flow situation to shareholders. They get a nice return on investment, quarter after quarter after quarter."

The first Grand Bank Inc. was founded in February, 1999 as a subchapter S. Two years later, after the Gramm Leach Bliley law was passed allowing insurance companies to get into banking, Grand Bank 1 was bought by Met Life.

In prospecting for its purchase Met Life chose Grand Bank as one of only two banks in the New York metropolitan area with a national charter (as opposed to a state charter). "Tom has always thought it was the best charter to have. He likes the OCC office of currency and thinks they are sharp regulators," says Rosa. With the sale to a public company, the first Grand Bank automatically became a C Corp.

That didn’t leave Grand Bank’s shareholders back in the cold. Their investment rolled over into Grand Bank II. Now it is too late to buy into Grand Bank II, which has 64 shareholders. "You can’t have more than 75 shareholders in a subchapter S," says Rosa.

Some small midwestern family banks, organized with subchapter S charters, have just one or two owners. In addition to Grand Bank, which was founded after the 1997 law went into effect, only one other New Jersey bank, Amboy National, has reorganized itself as a subchapter S. Amboy had $1.54 billion in assets when it did the conversion on January 1, 1998. It had a lot of shareholders, says Rosa, so they offered a sell out price on their stock and bought back enough shares to make the change.

Other new banks, such as four-year-old Hopewell Valley Community Bank, remain as C corporations. "It depends on your game plan," says Rosa. "If you plan to build it up and sell it, it is better as a C corp, because you retain your earnings and your capital increases. And you can keep supporting growth." Banks can either pay traditional dividends or keep everyone happy on the theory that the value of the organization is increasing though they are not getting the cash dividends. "The hope is that you make a killing when you sell it. If your plan is to create a dividend stream to your shareholders, you are much better off as a sub S."

"A C Corp," says Rosa, "would have a lower tax rate than a group of wealthy investors. It all depends on what your goal is."

Each of the 162 shares of Grand Bank had been purchased for $104,000 in a private placement in January, 2002. Some investors bought more than one share. "We set that number," says Rosa. The stock is not publicly traded. "To trade publicly, the bank would have to be willing to issue more shares. We are not issuing any more and none of the 64 investors is willing to sell," says Rosa.

The bank’s doors opened March 4, 2002, and a total of 35 people work at the two locations. "As we started to grow to the size we wanted, we issued additional private placement," says Rosa. Notices were sent for legal reasons, not to attract investors. "We

were way oversubscribed. We had more people wanting to buy than we had shares." It pays to be choosy, he says. "You choose people you like to do business with because they are your business partners. And you choose people who can bring business to the bank, who can be active partners. At a minimum, the investors have an account with us. We do not want passive investors."

— Barbara Fox

Grand Bank, 4287 Route 1 South, Monmouth Junction 08852. Richard C. Rosa, branch manager. 609-514-3900; fax, 609-514-4750.

More Community Banks: Hopewell

Hopewell Valley Community Bank, a full service commercial bank, was chartered during the summer of 1998. Like Grand Bank, it has fostered shareholder loyalty, but unlike Grand Bank, it chose to organize as a C Corporation, not an S Corporation,

"In order to be successful as a community bank, we wanted the involvement of the community, and now we have 400 shareholders — who are our customers and our advocates," says James Hyman, president and CEO.

The bank is about to begin renovation on a new branch location at Routes 518 and 31. It recently oversubscribed its third capital offering that raised nearly $4.8 million, mostly from existing shareholders.

"The board joins me in saying how proud we are in the overwhelming display of confidence shown by our shareholders’ support of this offering as well as their purchase of shares through previously issued warrants," said Patrick L. Ryan, board chair.

Ryan (a different person from the CEO at Yardville National) gathered eight other people plus professional banker Hyman to raise more than $5 million in a community offering of common stock in fall, 1998. Through an extension of the initial offering the capital was increased to about $7.8 million in January, 1999. In February, 1999, the bank opened its current branch in the Pennytown Shopping Village at 145 Route 31, Suite 10, in Hopewell. In 1999 the headquarters office opened at 4 Route 31 South, Pennington. The first office outside Hopewell Valley, at 3800 Quakerbridge Road in Hamilton, was opened on November 26, 2001.

In 2004 the Pennytown branch will move to the location now under renovation, at a former Wawa store on Route 31. "The new location will give us added visibility," says Hyman.

"No line of financial services is beyond our charter as long as we are serving the financial needs of the businesses and retail community in our area," says a bank press release. For the third quarter report, Ryan and Hyman announced sharply increased earnings and asset growth for the bank along with the completion of a successful capital offering. Assets increased 42 percent over the previous year to $128.7 million, while net income rose 99 percent, and loans rose 38 percent. Deposits were $114.9 million compared to $80.6 million for the third quarter in 2002. Though the bank is a C Corporation, its shares are limited. They are not traded on an exchange but are traded by appointment. "Potential buyers put their names on our list, and if someone wants to sell, we try to match up the buyer and the seller," says Hyman.

Hopewell Valley Community Bank (HWDY), 4 Route 31, Box 999, Pennington 08534. James Hyman, CEO. 609-466-2900; fax, 609-730-9144. Home page: www.hvcbonline.com

Hopewell Valley Community Bank, 145 Route 31, Suite 10, Box 999, Pennington 08534. 609-466-7399; fax, 609-466-7370.

Hopewell Valley Community Bank, 3800 Quakerbridge Road, Hamilton 08619. 609-586-0600; fax, 609-586-0837.

1st Constitution

Founded in 1989, 1st Constitution Bancorp has two locations in Cranbury plus branches in Hamilton, Montgomery, Plainsboro, Princeton, and Perth Amboy. It has been trading on NASDAQ for two years.

The third quarter report shows total assets are $276.4 million, up from $259.4 million for the same period last year. Net income was $852,833, a 23.6 increase over the same quarter last year. For the nine month period, net income was $2.35 million, up 23.2 percent. Net interest income increased 8.69 for the year to date. Non-interest income increased by 79.3 percent, or by $1 million compared to last year. There was an 10.8 increase in loans and a 8.46 percent growth in demand deposits.

1st Constitution Bank (FCCY), 2650 Route 130 North, Constitution Center, Box 634, Cranbury 08512-0634. Robert F. Mangano, CEO. 609-655-4500; fax, 609-655-5653. E-mail: main@1stconstitution.com Www.1stconstitution.com

1st Constitution Bank, 947 State Road, Princeton 08540. 609-683-9090; fax, 609-683-5313.

1st Constitution Bank, 74 North Main Street, Cranbury 08512. 609-395-0605; fax, 609-860-0128. E-mail: village@1stconstitution.com

1st Constitution Bank, 3659 Nottingham Way, Hamilton 08690. John Celmer, branch manager. 609-631-0400; fax, 609-631-9003. E-mail: hamilton@1stconstitution.com

1st Constitution Bank, 10 Schalks Crossing Road, Plainsboro Plaza, Plainsboro 08536. 609-750-0200; fax, 609-750-0188. E-mail: plainsboro@1stconstitution.com

First Washington

First Washington State Bank opened a branch inside the ShopRite at Hamilton Marketplace in October, and it plans additional supermarket offices at Parkway Plaza Ewing and at the Mercer Mall in Lawrence, for a total of 16 branches in Mercer, Monmouth, and Ocean counties. Last June the common stock began trading on the Nasdaq SmallCap market.

Founded in 1989, the bank has more than $424 million in assets and 125 employees in central New Jersey. It is a joint venture partner in a Lakewood-based title company, Windsor Title Agency LP.

The bank’s third quarter report showed that net income was $3.74 million, an increase of 20.9 percent. Total assets increased to $424.3 million, a 17.6 percent increase. Total loans increased $21.3 million, or 11.6 percent, and total deposits increased $52.7 million, or 17 percent.

First Washington State Bank (FWFC), Route 130 and Main Street, Windsor 08561-0500. C. Herbert Schneider, CEO. 609-426-1000; fax, 609-426-9624. Www.fwsb.com

First Washington, 20 North Main Street, Allentown 08501. 609-259-9600.

First Washington State Bank, 304 Princeton-Hightstown Road, East Windsor 08520. 609-426-9600.

First Washington State Bank, 2460 Whitehorse-Hamilton Square Road, Hamilton 08619. 609-584-5840.

First Washington State Bank, 774 Alexander Road, Princeton 08540. 609-951-0555.

Yardville National

Yardville National Bancorp (YANB), 4556 South Broad Street, Box 8487, Trenton 08650-8487. Patrick M. Ryan, CEO. 609-581-2809; fax, 609-584-5984. Home page: www.yanb.com

Yardville National Bancorp has bought the Lawrenceville branch of First Savings Bank (see article on page 7). This office is the 21st branch. Others are in Hamilton, Mercerville, Ewing, East Windsor, Bordentown, Pennington, Trenton, and West Trenton.

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