NJ Banks Prepare for Challenges

In March, the sudden failure of Silicon Valley Bank had consumers wondering if a cascade effect was going to ripple through the banking system. Inflation, a hybrid workforce, and the Federal Reserve’s rapidly rising interest rates have been causing banks to adjust to a new normal. With so much turmoil, are New Jersey’s financial institutions prepared for uncertain markets and shifting risks?

Leaders from several New Jersey banks share their strategies for protecting customer deposits. Participants include: Thomas Iadanza, president of Valley National Bank; Thomas J. Kemly, president and CEO of Columbia Bank; Patrick L. Ryan, president and CEO of First Bank; and Donald Mindiak, president and CEO of First Commerce Bank.

What steps have you taken to better manage your liquidity risks in the last few months?

Valley Bank: We’ve always been diligent about liquidity. We’ve availed ourselves of Federal ICS Insurance products to allow us to retain deposits for our larger customers. More importantly, our average deposit is $60,000 or less, so 75% of our deposits are insured.

Columbia Bank: We increased the amount of our liquid assets and deployed collateral from the Federal Reserve and the Federal Home Loan Bank. As a result, we have an abundant amount of availability to get cash if we need fast liquidity.

First Commerce: Our board requires several liquidity measurements, including primary liquidity, cash liquidity, and secondary liquidity, that we must report on a regular basis.

First Bank: We’ve done a good job of testing and diversifying our liquidity sources. At the end of the day, we want a balance between deposits and good-quality loans.

How does your bank assess and manage risks, particularly in the face of economic downturns or market fluctuations?

Columbia Bank: We maintain a very robust stress testing process on our balance sheet for credit, liquidity, and interest rate scenarios. We are risk-averse in how we manage credit, interest rates, and liquidity.

Valley Bank: From a credit risk standpoint, we have continuous reviews of our portfolios. We do constant reviews and stress tests. From an enterprise risk perspective, we evaluate liquidity and access to liquidity on a regular basis. Our investment portfolio is evaluated in a similar fashion to our credit portfolio.

First Commerce: Everything goes through a documented and rigid procedure. Our Chief Risk Officer created a comprehensive enterprise risk management program and reports to the board’s Risk & Compliance Committee every month.

Have you seen any changes in customer behavior post-COVID?

Columbia Bank: A lot of people during COVID became familiar with online banking and became proficient. Yet, customers still want to speak to us on the phone and talk in person.

First Bank: People were using the branches less, and those who were reluctant to use technology have made the switch. Fewer branch visits is the general trend.

Valley Bank: I would say that COVID created different opportunities. Actually, customer behavior shifted as a result of interest rates. Rising rates forced customers to reevaluate projects.

First Commerce: Changes are due more to the environment and inflation.

What steps, if any, did you take to reassure your customers that NJ banks remain strong?

Columbia Bank: Social media was the biggest challenge. It seemed to us like there was a lot of misinformation. We created 30-second educational pieces. We discussed bank financial statistics, including liquidity ratios, insured deposits, and asset quality ratios on all the various social media platforms.

Valley Bank: You have to be visible at all times, but most certainly during troubling times. We talk to customers frequently and consistently.

First Commerce: When the crisis of confidence occurred in March, one of the first things we did was put a message out on our website and on social media just to let customers know that the bank is sound, strong, and well-capitalized.

Have you seen an increase in businesses that are struggling to get loans?

Valley Bank: Banks have tightened standards in general. Higher rates are making people rethink what they want to do. Good relationships always find a way to get financing.

Columbia Bank: We are not seeing any disruption in the financial health of our clients. We are also not seeing a lot of pressure on the ability to pay. We watch for it.

First Commerce: Not necessarily struggling to get loans, but customers might be delaying projects. The higher interest rate environment is causing developers to pause.

First Bank: I don’t think there have been signs of deterioration in the credit quality of people looking to borrow money. Our challenge is that money is moving into money markets and bond funds, so there is less in deposit accounts.

What advice would you give to your customers about managing their money in our current environment?

Columbia Bank: I think it is important that they talk to their local bank about what options they have available if they are trying to figure out what to do next in the current environment.

First Commerce: I recommend that customers employ a process of laddering term deposits of varying maturities to maximize returns.

Valley Bank: Our customers are mostly privately held business owners, entrepreneurs, and wealthy people in their own right. They don’t need much advice from us on how to manage their money; they are pretty astute.

First Bank: We’ve always advised businesses that a reasonable amount of debt is good in order to help them grow their business, as long as it is managed.

What steps are you taking to help businesses in your community?

Columbia Bank: We are reaching out to clients and coming up with unique ways to support them with their financing needs. We are (focused on) providing products that ensure the safety of their funds; that their liquidity needs are met, and providing financing to help expand their businesses and economically succeed.

Valley Bank: Coming out of the PPP program, it was clear that local, small businesses had no access to any of these programs. They didn’t know how to begin. We created The Community Lending Program to help educate small and minority-owned businesses and get them access to capital.

First Commerce: We are helping high-net-worth customers understand how FDIC deposit insurance can work for them.

First Bank: Our charitable foundation fund provides resources to invest and contribute to local nonprofits. For businesses, we rolled out a streamlined small business loan for consolidating debt into a business line of credit.

How does the bank plan to adapt to potential economic challenges or changes in the financial industry?

Columbia Bank: We are constantly reassessing to determine if we have taken on too much exposure in any one area. We feel we know our borrowers. We know their businesses. We understand the risks they are taking.

Valley Bank: We have a very diversified loan portfolio that lets us endure these challenging economic times. If you didn’t plan for it, you would be in trouble now.

First Commerce: We are very well capitalized. As of June 30, we had the 15th-highest equity-to-assets ratio in the state, and the 4th-highest reserve for troubled loans in the state.

First Bank: We need to make sure that we have a good, diverse base of stable, quality funding in terms of deposits and equity. Regardless of the economy, it’s our job to continue to make quality loans.