Banking / Financial

Community Banks Find Strength in Their Local Roots

By Larry Feld, Contributing Writer On Aug 5, 2024

According to some New Jersey banking leaders, personalized service is one of the important ways that community banks set themselves apart from their large commercial counterparts in the marketplace.

“I’ve been working at a community bank all my life,” explains Tom Kemly, president and CEO of Columbia Bank. “The relationship we create with our clients is unique. We live in the communities we serve. We are part of the community and so are our clients.”

Jane E. Allerman-Rey, president and COO of Spencer Savings Bank, agrees: “I think the biggest difference for consumers and business customers is that community banks are closer to their customers. We don’t have a huge organizational structure between the customer and the decision maker; as a result, our bankers can make more decisions on the spot for our customers.” Operating as a mutual bank (owned by its depositors), the 100-plus-year-old Spencer Savings Bank has more than $4 billion in assets and operates 27 financial centers around the state.

“How many community banks are in the state? It depends on the definition for what you think a bank is,” notes NJ Bankers Association President and CEO Michael P. Affuso. “For example, US Bank does not have a depository office in New Jersey, but it has loans here. Should we count them?” Affuso is not being evasive; he demonstrates the complexity of today’s financial marketplace. The New Jersey Department of Banking and Insurance lists approximately 118 financial institutions doing business in the state, although, not all are community banks.

With 63 members – including the five largest depository banks – Affuso’s association represents the lion’s share of the state’s banking landscape. He notes that, according to a 2024 Department of Labor report, New Jersey’s finance and insurance sector employed 229,000 workers and contributed more than $49 billion to gross state product in 2022 (7.2% of state GDP).

What Do Customers Really Want?

Local decision-making is a sensitive issue for many small businesses. “When I talk to business groups, I explain that the people who will make your loan decisions are sitting in the room. After I say that, I usually get applause,” explains Columbia’s Kemly.

“Quick turnaround on decisions, and customization on customers’ needs are key differentiators,” adds Allerman-Rey, adding that “Spencer has the flexibility to tweak the functionality of a product to suit the needs of the customer. We keep all of our loans, so we can work with the customer to make things work.”

What do savings banks bring to the table for small business owners? Columbia’s Kemly says there are a couple of big items: “Access to management is key. When you are the size that we are, our clients can talk to decision-makers. You don’t have to talk to an 800 number. We are almost $11 billion (in assets), so we can handle all of your business needs. We have a fairly sophisticated set of products, yet we are small enough that we can come visit you,” Kemly says.

“The community banks are the funders of Main Street,” Affuso says. “They can develop specializations and niches. For example, we have a member community bank on Cape May that lends to commercial fishing fleets. They have developed an understanding of how to lend to these businesses.”

Giving Back

Community banks are also prominent financial supporters of local charities working to combat social challenges.

“We have scholarship programs in all our communities,” says Allerman-Rey. “A lot of commercial banks have pulled back their community support and sponsorships,” she adds.

Spencer also teaches financial literacy in local schools and additionally provides local fundraising for area organizations. “For us, it is about involvement; it is not just about writing a check. Many of our employees and managers are active in organizations like ARC, Eva’s Kitchen and Habitat for Humanity,” explains Allerman-Rey.

On a slightly larger scale, Fair Lawn’s Columbia Bank maintains one of the state’s largest private foundations. “Our foundation is in its 20th year,” Kemly notes. “Our primary focus is in affordable housing, including Habitat for Humanity, although we also support health services, the arts, environmental and food pantries. We are making philanthropic donations to the organizations that are meaningful to our local neighborhoods.”

The Reality of Rising Rates

Inflation and increasing interest rates have had an impact on banks. “I think there was some initial shock over the speed and the rapid ascent of rates,” Affuso explains. “That shift was very steep. Both the market and customers are adjusting. If you look at real estate, the inventory is way down, but prices are high and holding,” he says.

“The home mortgage business is essentially dead,” declares Columbia Bank’s Kemly. “We are doing some real estate lending, but it is a fraction of what it was. People are holding on to their 3% loans. Meanwhile, commercial real estate clients are waiting on the sidelines to see if rates move down a bit. However, we are still seeing our businesses remain strong.”

“All banks’ earnings are under pressure in New Jersey. Deposit rates have re-priced faster than our loan rates. This too shall pass when rates go down,” Spencer’s Allerman-Rey adds. “We still see a demand for credit. However, some of our small customers are on the sidelines operating on their current cash flow. Consumers are enjoying the higher savings rates, but there is no refinance activity. There are a lot of folks with 3% interest loans. They are not going anywhere right now,” she adds.

Are NJ’s Banks Safe?

Last year, a few bank failures made big headlines and surprised the public. Reverberations of those concerns still exist, seemingly without evidence.

“I don’t pay attention to the chatter on the internet,” NJ Banker’s Affuso jokes. “I pay attention to the reality on the ground. The reality is that our banks are strong. We are nimble and we are providing for our customers. Our banks are FDIC insured, and our customers are safe,” he notes.

“The banking industry in New Jersey is sound,” adds Columbia Bank’s Kemly. “People need to know that your institutions are doing a great job. I am proud to be a community banker, and to be a banker in New Jersey,” he concludes.

To access more business news, visit NJB News Now.

Community Banks Find Strength in Their Local Roots