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The State of South Jersey Lending

by Stuart Michaelson

Local financial experts weigh in on the current economic climate and offer projections for early 2016.

“A banker,” says Daniel Sulpizio, SVP, director of retail banking and security at ParkeBank, “is someone who gives you an umbrella when it is sunny outside.” Area umbrella-givers interviewed recently on the state of commercial lending and banking in South Jersey paint an often bright—though intermittently cloudy—picture as 2015 hustles toward 2016. They see uncertainty in the possibility that the Federal Reserve will lift interest rates from their near-zero level (between 0.0 and 0.25 percent): There were hints an increase might come by year’s end, but that chance may have taken a hit when a disappointing Labor Department jobs report was issued on Oct. 2.

Sulpizio says Americans have been hearing that the economy is going to turn around for a number of years and expects to see some stimulation in 2016. “Now is the time to have a conversation with your banker about expansion plans,” he advises. Meanwhile, other area bank officials see myriad possibilities and challenges ahead—including the tumultuous ramp-up to the 2016 elections.

Kevin Cummings, president and CEO of Investors Bank, assessed South Jersey’s current commercial banking-and-lending picture—with Camden County showing improvement in its unemployment, at a rate of about 7.5 percent, and the South Jersey Future Employment Index at its highest reading in a decade—as slow and steady. He calls the picture, “much better than in 2009, 2010 and 2011, though not as strong as in, say, the New York area.”

Cummings says South Jersey is more affordable than New York and other areas of New Jersey, with less volatility and a solid market with good, hard-working companies and people and a real sense of pride. “It is easier to partner with customers in the South Jersey market, because of the kinds of people and the way they do business,” he says. “The people are more down-to-Earth in the way they do business.”

Investors in 2013 acquired Roma Financial Corporation and its subsidiary banks, and Gateway Community Financial Corp. the following year. Its commercial portfolio has grown by about 25 percent over the last year, corporate-wide. From the end of June 2014 to end of June 2015, there was an increase from $7.6 billion in commercial loans to over $10 billion. In South Jersey, eight loan officers were added over the past 18 months.

Noting such success stories as Investors’ relationship with Viking Associates for properties including Cherry Hill Towers, Cummings says Investors’ philosophy is to make the community better via the right financial investments. For South Jersey in the first quarter of 2016, Cummings says, “We expect to see a $500 million increase in business loans, and a quarter of a billion [dollar] increase in commercial real estate.”

As for the possibility of a Fed-backed interest rate hike in the near future, Cummings—having just learned of the Oct. 2 Labor Department jobs report—notes that the reporting of Sept. job creation of 142,000 and a 5.1 percent jobless rate (at press time) are “not robust numbers.”

As for speculation that a rate hike could be held off due to those numbers, Cummings says, “we will see what happens” between now and the end of the year and adds that when the Fed last raised rates in 2006, “banks cut back on lending when short-term rates went up.”

Looking ahead to 2016, Cummings says South Jersey needs to do more to attract business from Pennsylvania, and says Pennsylvania is perceived as having a better business environment.

Investing in area businesses
For mid-year earnings, Capital Bank of New Jersey reported a net income of $1,982,000 for the six months ending June 30, 2015, a 20 percent increase over its earnings in the first half of 2014, with total assets at June 30, 2015 at $362 million.

David J. Hanrahan, president and CEO, calls one of his institution’s core strengths lending to small- and medium-sized South Jersey businesses. He says Capital had a terrific year of loan growth in 2015 thus far, notably in terms of business owners buying new vehicles and more equipment and plant expansion. He also believes Capital benefited from the fact that some competitors went through turmoil over bad loans from tough times in 2007 to 2010. “[This] definitely gave our growth a shot in the arm,” and helped attract other banks’ customers.

“There is more optimism in the air now among business owners,” he says. “Contractors who two years ago were crying the blues about no work are now turning work away, they are so busy,” notably among those involved in food processing.

Hanrahan says, “As a [small] community bank, we have an excellent mix, … lending to small and mid-sized businesses and giving them access to [capital] decision-makers: Big banks can’t do this.” He recalls a customer who called him for quick financing for a real estate issue with a tight, two-week window, and says they were able to close his loan in nine days.

The overall commercial banking-and-lending picture in South Jersey, he adds, is that every commercial bank is eager to grow its loan portfolio; this is a great time to be a qualified borrower. “Good businesses,” he says, “will have bankers lined up to loan them money, and borrowers should hitch their carts to banks with good rates that will stick with you during ups and downs.”

Hanrahan acknowledges that South Jersey lags behind North Jersey and attributes this to the state’s tax burden and exodus of some of the population. As for rising interest rates, he says, “It’s long past time for the Feds to begin normalizing rates, but they seem skittish. Now, after that [Oct. 2] report, it would surprise me if there’s going to be a majority in favor of tightening before the end of 2015.”

And should business owners expect rates to go up, that would be a good time to make capital improvements with rates locked in before they rise. Hanrahan doesn’t see any huge correlations between the stock market and lending, and like other interviewees involved in local banks, says they have a great niche. “[We] do a few things and do them really well. Community bankers are really good at providing hometown experience.”

Gerry Banmiller, president and CEO, 1st Colonial Community Bank, reports healthy growth at what he calls his “boutique bank,” with average borrowers borrowing between $1 million and $2 million. “We have more lenders than tellers,” says Banmiller, who adds lending went from $143 million in commercial loans at the end of 2014 to $163 million currently. He also hopes to see more growth in the fourth quarter. Banmiller touts the benefits of a small bank as opposed to a large one, stating that a small one can respond to loan requests without going to 10 different committees or out-of-town approval.

Overall, Banmiller says South Jersey is less cosmopolitan than Philadelphia and that Philly sometimes “sees South Jersey people as rubes coming to work on turnip trucks.” Hence, he adds, his bank must defend its market from Philadelphia banks and be responsive to customers who feel larger banks are less attentive. Pointing to a recent success in helping an area law firm improve finances, Banmiller says some bankers “don’t want to be bothered. I want to be bothered.”

As to the effect of the jobs report on the Fed raising rates, Banmiller says, “Dismal job growth does not mean no job growth. I believe the Fed will raise rates toward the end of the fourth quarter 2015, but very slightly (.25 percent). Political reasons (the 2016 elections) will moderate any push for rates to increase in 2016.”

He looks to 2016 for some loan growth, thinks mortgages will cool off and notes that 1st Colonial has $450 million in assets. “We can adjust quickly in terms of changing rates.” Banmiller doesn’t expect stock-market changes to make a huge difference locally, and sees some bank consolidations next year. “We are convinced that improvements in the economy will continue in South Jersey.”

Changes on a national level
Robert H. King, director of commercial lending for ABCO Federal Credit Union, describes the South Jersey picture as “active, but soft, with some disruption between borrowers and lenders; (but) the dynamics are changing and have changed, and borrowers have been forced to adjust to survive.”

Comparing South Jersey with the rest of the U.S., King sees the throes of an extended economic recession. “The definition of recession may be up for debate, and a technical recession may no longer exist, but its effects linger: An economic recovery and ramp-up has not occurred.” King feels recession really began in 2006, not 2008, and adds this is true nationally.

Assessing ABCO’s year, King notes that credit unions are relatively new to commercial and business lending and are limited to a 12.4 percent limit of total assets for business loans and that the shift is difficult.

“We have done OK,” he says. “We have had the opportunity to talk to people who were secure with their banks who aren’t as secure now.” He also cites an annual growth rate of 15 to 20 percent for a couple of years before some leveling off.

As to interest rates, King says the jobs report alone is most likely not enough to delay an anticipated rise in interest rate targets. “However, the report, when added to other economic-activity indicators, will probably serve to cause the Fed to delay action at this time. A further complicating factor is the pending, and intensifying political campaign season which, from a historical standpoint, causes the Fed to not want to be in the forefront of the news with major policy shifts.”

Discussing the issue prior to that report, King says, “There is a sense that the holding down of interest rates could create inflation, a phenomenon that could be detrimental, especially to those on fixed incomes.” King adds—in his personal opinion, not that of his business—the tax structure should be carefully reviewed with an eye on lowering the corporate tax rate.

“People talk all the time,” he says, “about taxing people, ‘tax the rich,’ is taxing people who are successful in business, and they naturally withdraw and won’t pursue ventures.” A high corporate tax rate, he says, is a de-motivator.

Michael Devlin, president and CEO at Cape Bank, says his bank has seen 12 months of a healthy pipeline for loans, the best in many years, in an extremely competitive market. “People are upgrading their businesses, getting bigger equipment, a healthy sign not seen two years ago.”

Devlin sees fairly modest, steady growth in South Jersey with some help from seafood processing businesses who reaped the rewards of a good Shore season. “Small borrowing was not robust,” Devlin says. “South Jersey doesn’t get much bleed-over from the strong growth in Philadelphia.”

Cape was helped by this year’s merger with Colonial Bank; Devlin expects good financial benefits. Noting that in July, earnings for the quarter were $6.1 million or $0.50 per share, which brings year-to-date earnings [in September] to $7.2 million or $0.60 a share. “[This is] a record quarter and much the result of the recently completed merger with Colonial Bank.”

Devlin also said that Cape is expanding its market west and is getting involved in the metropolitan Philadelphia area as it doesn’t want to be seen as a Shore or seasonal bank. “We now have a 55 percent loan portfolio in Philadelphia and western New Jersey,” he adds.

Looking to 2016, Devlin—speaking before the jobs report was issued—sees a rise in interest rates and adds, “We don’t know what the first quarter will look like.” In general, Devlin says, “As interest rates rise we see a general slowing of a frothy economy; today’s economy is not overheated.”

Salvatore J. Patti, the commercial-banking market leader for the Southern New Jersey and Philadelphia region for PNC Bank, sees slight growth in South Jersey area commercial banking and lending and says PNC is rolling along and sees modest growth in 2016, with an eye on attracting high-tech companies.

Patti, who is based in Cherry Hill, says that in comparing South Jersey’s commercial banking and lending with the national picture, he sees the area as on pace with the rest of the country, with an emphasis on “meds and eds” (mentioning Cooper Hospital) along with some manufacturing decline.

“We look at corporate confidence—how our clients use their working capital to grow businesses. After the [2008] financial crisis, we were around 40 percent in line utilization; line utilization is now up to 60 percent.” During the 2008-era crises, he adds, businesses were hesitant to borrow, but as it ebbed, comfort levels improved.

Now, Patti says, PNC does well in South Jersey, especially in financing equipment, financial services with companies involved in trailer leasing who buy tractor-trailers for hauling food, and for transporting fuel. Patti, who notes that despite PNC’s size—some 2,600 branches—says, “I am a relationship guy. We are a Main Street bank, from a regional standpoint, with local decision-making. Philadelphia-South Jersey is one of PNC’s biggest markets. With our Main-Street regional model, we can turn things around quickly and have a whole infrastructure in place to connect with communities.”

He adds, “Our relationship managers are quarterbacks to profit and we are pretty competitive. Small banks like to say [bigger banks can’t connect locally like they can], but they don’t have the sophistication or the model we have in place.”

As for the possibility of a Fed rate hike, Patti doesn’t think the jobs report will make any real change in terms of the first quarter of 2016 in the area. “We will see something this year or first quarter of next year,” he concludes. “The Fed is taking a lot of things into consideration, and as bankers, we would like to see the rates go up.”

Take Home Tips Before you borrow money, be realistic experts say.

South Jersey businesspeople looking for financial advice need look no further than the empty Citizens Bank Park—once a frequent site of playoff baseball in October—for a cautionary tale.

So says Stanley H. Molotsky, president and CEO, of the SHM Financial Group. “There are risks in business,” says Molotsky. “You can’t constantly hit homers. Sometimes go for bunt singles. Look at Ryan Howard.”

The then-slugging Phillie suffered an Achilles injury in the 2011 playoffs that dampened what looked like a Hall-of-Fame career, and neither he nor his team have ever been the same.

“My philosophy,” says Molotsky, “is that no matter where someone has their money invested or where they are going to put it, they must have some sort of exit strategy, like when you leave a plane or a movie. People must assess: How much risk can I take? Where will my money be when I need it?”

“As for trading stocks back and forth, 99.9 percent of people shouldn’t; for many, it’s better to use safer methods, like certificates of deposit. Don’t gamble more than you can afford to lose. You want to be able to access your money when you need it.” This applies to area business professionals, who must play heads-up ball, for instance, in the case of restaurant owners anticipating the impact of the recent papal visit.

“I ask the client, ‘How much can you risk?’ and then present them a combination of risk and safety. Risk-tolerance changes with health and age and income.”

“There are many advantageous tax programs,” he says. “Put your money into them to help defer or eliminate taxes and plan for retirement.” Here, he mentions 401(k) or IRA or Roth IRA (for which taxes are paid on money going into the account).

Molotsky says, “We see with small businesses an unpreparedness for emergencies. If something happens to key people, what happens to the business? Who pays the bills? You need protection, to be able to plan and put aside dollars for the future.” He also cites the need for a “hit-by-a-bus” plan to protect business, personal income and disability coverage, and make sure personal bills are paid and workers are paid if the owner is out of commission.

Molotsky has clients who own small- and medium-sized businesses sign forms indicating they didn’t want insurance for such emergencies, so he doesn’t, “hear from the workers or their spouses or children that we didn’t mention this,” as businesspeople “need an understanding of the world, more so than people who work for salary, and have more risks than most.” He says they should know whether advisors are paid commissions or on fee-based performance, as well as the names of custodians, and that they interview potential advisors.

Daniel Sulpizio, SVP, director of retail banking and security at ParkeBank, sounds a similar alarm: “A lot of small businesspeople wear so many hats, and everyone is experienced in different areas, and not all small businesspeople know how to use all their [financial] tools.”

He warns that some businesspeople let personal feelings cause them to overvalue things they sell—like real estate—and “forget that banks are in a consultative role and are in the business of risk.

“We look for people to have their business plans in place and to have done their market research, and some people don’t take the time to update their personal financial statements. They should have good rapport with their accountants and be honest with them, with all the regulations on borrowing. Some aren’t prepared for the conversation with their bank or about the competitive challenges they are going to face.”

Published (and copyrighted) in South Jersey Biz, Volume 5, Issue 10 (October, 2015).
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