Across the nation, more than 5,000 commercial banks and savings institutions covered by the Federal Deposit Insurance Corporation reported that their third-quarter profits rose from the first and second quarters of this pandemic-stricken year. The institutions also increased their liquidity, and strengthened capital levels, which means “the banking industry remains well positioned to accommodate loan demand and support the economy,” according to a Dec. 1 FDIC report. That was the good news.
The not-so-good national news was that total loans and leases declined by $84.5 billion from the previous quarter, led by a falloff in commercial and industrial lending. Some New Jersey banks, however, bucked the trend and increased their C&I lending activity. NJBIZ spoke with a few to find out what they’re doing right.
“One big reason is our continued relationship with customers,” said Walter Sierotko, Provident Bank’s executive vice president and chief commercial lending officer. “It’s been a challenging year, but we saw opportunity as some banks stepped back.”
During the third quarter, Provident Bank’s organically driven net loans increased by about $300 million, exclusive of an additional boost delivered by its merger with SB One Bancorp, which closed at the end of July. “We saw traditional growth during the first quarter,” Sierotko noted. “The second quarter is normally a strong one, but this time it was slower because of the pandemic. But the third quarter jumped as customers who had deferred their loan activity started to return to the market.”
Part of the pickup was from federally sponsored, low-interest Paycheck Protection Program loans — some of which may be converted to grants — but Sierotko said the bank was also well-positioned to handle the market turmoil that accompanied the COVID-19 disruption.
“The social distancing and other restrictions were necessary but they did make it tougher to operate,” he said. “Fortunately, however, Chief Information Officer John Kamin had previously made a priority of equipping all lending professionals with secured laptop computers. We completed the rollout in January 2020, which placed us in a good position to continue to connect with customers when the pandemic hit in March. By remaining active throughout the crisis, we saw ‘opportunity in adversity’ and were able to expand our lending relationships even as some banks pulled back.”
That commitment was obvious during the Dec. 17 “monster snowstorm,” he added. “Using Zoom, I worked with our chief credit officer and others on five commercial loan opportunities that day,” Sierotko said. “I’m a face-to-face person, but sometimes videoconferencing and other remote connectivity can be more efficient than coming into the office.”
Manasquan Bank also bucked the trend of falling loan activity, increasing its overall loan portfolio by about $33 million in the third quarter, according to Manasquan Chairman, President and CEO Jim Vaccaro. Commercial real estate loans account for about 43% of Manasquan Bank’s nearly $2 billion loan portfolio, while business lending makes up about another 22%.
REAL ESTATE ACTIVITY
“A few years ago we saw small-business borrowers moving more of their activity to community banks, where they could get personalized attention,” Vaccaro said. “So we’ve been able to capture more market share.”
Other factors also contribute to the growth. “As COVID-19 fears prompt more people to relocate out of the New York City area into the suburbs, there’s been a feeding frenzy for residential real estate, particularly in our Monmouth-Ocean-Middlesex sweet spot,” he said. “Some robust M&A business activity has also generated more loans, and branch closures by other banks have also helped drive more people to us.”
Manasquan Bank is a mutual, or depositor-owned financial institution, “so we don’t have the same sort of quarterly earnings pressure that publicly held banks have,” Vaccaro added. “That gives us the ability to act in a strategic fashion.”
That approach was on display at the end of the first quarter 2020, as COVID-19 began to sweep across New Jersey. “A Jersey Shore company in the hospitality industry had an outstanding loan with us, and when businesses got squeezed we offered this borrower a three-month deferral on principal and interest payments,” he recalled. “At the close of the three months we extended principal payment deferrals in three-month increments.
Additionally, our lending team revisited the borrower’s business model and was comfortable enough to extend a $150,000 line of credit — which was recently increased. The key is to keep in close contact with customers, through rough times and good times.”
Through the third quarter of 2020, many community banks reported “relatively strong” loan growth, but that was driven “primarily by lending activity in the first half” the year, according to a December FDIC announcement. In contrast, Lakeland Bank has consistently expanded its portfolio.
Despite the uncertainty of the pandemic, Lakeland’s parent company Lakeland Bancorp reported $86 million of loan growth in the third quarter of 2020, with year-to-date growth of 7.4% excluding Payment Protection Plan loans. “As part of Lakeland’s response to COVID-19, we initiated remote working plans and encouraged the use of our mobile and online banking alternatives,” President and CEO Thomas Shara said in October. “To assist COVID-19 impacted borrowers, we offered temporary payment deferrals on commercial, mortgage and consumer loans.
Lakeland employees establish relationships with business owners, real estate owners and developers and others, added the bank’s Chief Lending Officer John F. Rath. “We respond to opportunities as they’re presented. In addition to face-to face meetings when safe and appropriate, we do a significant amount of connecting with Zoom, Webex and other videoconferencing. We’re also leveraging our efforts through people who are centers of influence. We’ve altered the mix of how we connect, but we are continuing to reach out to new customers and staying connected with existing ones.”
That kind of commitment was put to the test in 2020, when a New York-based company in an entertainment-related industry — a 30-year Lakeland client — was “dramatically impacted” by the pandemic, according to Rath. “We modified and extended their loan agreement,” he noted. “Typically, when loans are modified, they’re classed as a TDR (troubled debt restructures), which are unfavorably reviewed by regulators. But the federal CARES Act (Coronavirus Aid, Relief, and Economic Security Act) offered some temporary regulatory relief.”
Rath, a self-described optimist, thinks there may be “somewhat of a return to normal activity,” after COVID-19 vaccines take hold, but “I don’t think we’ll really start to gain traction until the second half of 2021.”
In the meantime, low interest rates and the enhanced appeal of the suburbs have “helped keep up demand for our residential real estate loans, while multifamily and industrial also remain strong,” he noted. “Office and retail have been challenged, and both will probably continue to be going forward. We don’t have much exposure to those segments, though — and office, at least, may benefit from a halo effect as more companies exit New York.”
Innovative financial institutions have been able to cope, and even advance, through the pandemic. But even banking veterans like Rath have been unsettled by it. “I’ve been in banking for about 40 years, and this situation is even more challenging than the Great Recession,” he said. “I haven’t seen anything else in that time that compares to it.”
“The key is to keep in close contact with customers, through rough times and good times.”
– Jim Vaccaro, Manasquan Bank chairman, president and CEO