Despite a challenging landscape of increasing federal regulation and shifting customer habits, banks in the region are performing better, and a Rutgers survey finds demand for business loans is generally improving.
Some community-based banks in South Jersey increased their commercial, construction and other lending in 2013.
At Cape Bank, total net loans increased to $780 million as of Dec. 31, about $66 million more than a year earlier, the bank reported to the U.S. Securities and Exchange Commission. Commercial loans drove nearly two-thirds of that increase.
“We see the demand is pretty good,” said Michael Devlin, president and CEO of Cape Bank, based in Cape May Court House. “For a while … there was activity, but a lot were people refinancing loans of home mortgages and business because rates were lower.”
Now, more loans involve people adding to their businesses, and hotels and motels funding refurbishing projects. Pending loans also are higher.
“Those are good signs people are comfortable enough to go into a new venture, take on some debt,” he said.
Commercial loans have been a growth area for Cape Bank. Devlin said the bank’s knowledge of local markets and businesses give it an advantage over big banks.
Cape Bank made a significant decision last year to quit offering residential mortgages, although it is still involved with home-equity loans and lines of credit.
“Generally in the country, this is becoming more and more an operation of scale, and you have to be really big to make it work well,” he said. “We thought rather than scaling back, we couldn’t see it return to something in the future that would make it a viable business for us.”
Steven Brady, president and CEO of Ocean City Home Bank, said 2013 was a pretty good year for lending, particularly construction lending for rebuilding properties after Hurricane Sandy damage.
“I believe we’ll see a solid year in lending in our area,” he said.
Ocean City Home Bank’s net loans reached about $745 million on Dec. 31, about a 6 percent increase from the year before, the bank reported to the SEC.
And the economy seems to be improving, Brady said.
“With the secondary vacation and summer season in Ocean City and Cape May, that seems to be holding its own and strong. I think overall we’re moving in the right direction,” Brady said.
Rutgers University’s Bloustein School of Planning and Public Policy conducted a poll of 75 banks in the fall for the New Jersey Bankers Association and released it in January.
Nearly 26 percent of bankers surveyed rated business loan demand as excellent or good, more than double the 12 percent from 2011, the survey said. About 10 percent rated it as poor, compared with about 29 percent in 2011.
Generally, those surveyed had a favorable assessment of residential loan demand in the next six months, even as residential refinancing slowed from an earlier push driven by historically low interest rates. Eight percent rated residential loan demand as poor, compared with 25 percent in 2011.
The Rutgers poll said the leading concern for consumer lending was the regulatory environment and a lack of demand.
Smaller banks face challenges from federal Dodd-Frank Wall Street reform and the Consumer Protection Act.
“When they passed Dodd-Frank, it became a one-size-fits-all. Most of us had to hire additional staff to keep up with it,” Brady said.
“I think it’s a trend throughout the country — legislatively they made it too big, and unfortunately the smaller guys get sucked into the net. And the smaller guys didn’t cause the issues,” he said.
Those costs were one of the reasons the 1st Bank of Sea Isle City changed last year from a federally chartered bank to a state one.
Sea Isle bank CEO Larry Schmidt said the change saves about $50,000 a year stemming from federal reform that has increased banks' compliance costs. Crest Savings Bank converted to a state-regulated institution in 2011.
Schmidt said he is cautious on the economy this year, expecting a similar year to 2013, as he has seen little interest so far in residential mortgages.
“We’re not even getting the inquiries right now. People aren’t even calling to question rates,” he said.
Schmidt said the bank is planning upgrades to its online experience for customers.
More transactions — from debit card withdrawals, bill paying and directly deposited paychecks — are taking place electronically, which means less foot traffic at branches.
“That’s a challenge for a community bank that emphasizes customer service,” Schmidt said. Brady said about 90 percent of Ocean City Home Bank’s transactions are done electronically now.
“Even though it’s electronic, people still want to be able to talk to somebody,” Brady said. “That’s where local banks and smaller banks don’t have a 1-800 number to talk to somebody. You make sure you still have that personal service.”
Meanwhile, 2013 was a year of low interest rates, driven by a U.S. government bond-buying stimulus program to make borrowing less expensive and spur the economy.
The Federal Reserve has started scaling back that program, but average interest rates on 30-year fixed rate mortgages are low historically — about 4.3 percent in the first week of February, according to Freddie Mac.
Low rates make borrowing cheaper, but they make it harder to accumulate money in investments such as certificates of deposit.
Ocean City Home Bank is focusing on its core deposits — checking and savings accounts — that represent about 75 percent of deposits now, Brady said.
Core deposits increased by $6 million, or nearly 1 percent, to about $590 million in 2013, the bank reported to the SEC. The value of its certificates of deposit dropped nearly 13 percent, to about $190 million as of Dec. 31, compared with one year ago.
Contact Brian Ianieri: