[80 NJSuper Page 341] Plaintiff The Hudson County National Bank, a national bank doing business in New Jersey, instituted this action against defendant The Provident Institution for Savings in Jersey City, a mutual savings bank, seeking to permanently enjoin and restrain Provident from offering or maintaining demand accounts subject to withdrawal by check by its depositors. In addition, plaintiff also sought an adjudication declaring the practice of maintaining demand accounts, engaged in by certain mutual savings banks, to be ultra vires
for all savings banks under the Banking Act of 1948, N.J.S.A. 17:9A-1 et seq.
Shortly after this action was commenced, defendant Provident was joined by The Howard Savings Institution and the Plainfield Savings Bank (defendants-intervenors), both mutual savings banks. The three "defendants" contended that the practice of the state mutual savings banks in maintaining demand accounts subject to withdrawal by check was and is "necessary and convenient" to the carrying out of the business of savings banks, and that the maintenance of demand accounts was a "usual custom" of savings banks. Defendants then pointed to the following sections of the Banking Act, arguing that the conclusion was inescapable that the defendants' practice of maintaining demand accounts was legislatively condoned:
"Every bank and savings bank shall, subject to the provisions of this act, have the following powers, whether or not such powers are specifically set forth in its certificate of incorporation:
(12) to exercise all incidental powers, not specifically enumerated in this act, which shall be necessary or convenient to carry on the business of the bank or savings bank. * * *" (Emphasis added) N.J.S.A. 17:9A-24 (12)
"In addition to the powers specified in [17:9A-24], every savings bank shall, subject to the provisions of this act, have the following powers, whether or not such powers are specifically set forth in its certificate of incorporation:
(1) to receive money on deposit, to be repaid, upon such terms, not inconsistent with this act, as may be agreed upon between the depositor and the savings bank, according to the usual custom of savings banks." (Emphasis added) N.J.S.A. 17:9A-26(1).
Plaintiff, together with the New Jersey Bankers Association which filed a brief as amicus curiae , contended, inter alia , that the "necessary or convenient" clause of N.J.S.A. 17:9A-24(12) refers to incidental powers which do not include the maintenance of checking accounts and, therefore, the mere necessity or convenience for demand accounts cannot provide the justification for the savings banks' maintaining them. Additionally, plaintiff maintained that the practice of
the defendant and other savings banks in offering demand accounts to their customers was not a "usual custom" of savings banks, and that in any case a comprehensive study of the Banking Act discloses a manifest legislative intent to prohibit savings banks from providing demand deposits subject to withdrawal by check.
From an historical standpoint, defendant Provident, which received its charter in 1839 and commenced business in 1843, is the oldest mutual savings bank still in existence in this State. Only the Newark Savings Fund Association, which was incorporated in 1828 and which is no longer in business, is older than Provident in terms of initial legislative creation.
Two thirds of all mutual savings banks in the county and in the State of New Jersey were chartered between 1850 and 1880. The last charter to be issued in this State was to the Germania Association of Elizabeth in 1900 which, on July 31, 1947, converted from a savings association to a savings bank, taking the name of Elizabeth Savings Bank, which it bears today.
All of the parties agree that mutual savings banks, which are managed by a board of trustees and owned by their depositors, were originally designed to serve as a depository for the earnings and savings of the working people and to encourage thrift and conservation among the members of that class. As our highest court noted as recently as 1960 in the case of Application of Howard Savings Institution of Newark , 32 N.J. 29 (1960):
"A mutual savings bank is a different type of financial institution from a commercial bank. Its purpose has frequently been stated as encouragement of thrift by mutuality of ownership. It has no stockholders. The profits from its operations not retained for surplus are divided among its depositors in the form of percentage dividends periodically declared, popularly referred to as 'interest.'" (32 N.J. , at p. 39)
See also Commercial Trust Co. of N.J. v. Hudson Bd. of Taxation , 86 N.J.L. 424 (Sup. Ct. 1914), ("Savings banks are quite different from ordinary banks of discount and deposit,
and trust companies. They are engaged in a different business, not primarily for the making of money, but rather for the purpose of enabling people of small means to combine their small wages and by careful investments in restricted securities earn a moderate rate of interest. * * *"); and Mercantile National Bank of New York v. Mayor, etc., of the City of New York , 121 U.S. 138, 7 S. Ct. 826, 30 L. Ed. 895 (1887), ("No one can suppose for a moment that savings banks come into any possible competition with the national banks of the United States. They are, what their name indicates, banks of deposit for the accumulation of small savings belonging to the industrious and thrifty.").
Despite the relatively narrow nature of early mutual savings banks, the passage of the years has tended to change and broaden the banking services offered by these banks to their depositors. Indeed, the testimony of the various banking experts during the trial of this matter very clearly established that at the time of the Banking Act revision in 1948, six of this State's 24 mutual savings banks (Bloomfield Savings, Howard Savings, Hudson Savings, Montclair Savings, Plainfield Savings and United States Savings) maintained demand deposits of different types for their depositors in the following amounts:
Name Number of Branches Amount (in thousands)
Bloomfield Savings 1 $2,676
Hudson City Savings 2 2,127
Plainfield Savings -- 217
United States Savings -- 112
Totals 6 main offices 5 branches $6,369
By 1960 the number of mutual savings banks with demand deposit liabilities increased to ten, as reflected in the following schedule:
Name Number of Branches Amount (in thousands)
Bloomfield Savings 2 $5,381
Hudson City Savings 3 6,083