Interview with James Hughes
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio video between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and James Hughes, President and CEO of Unity Bank.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
Current State of Commercial Banking
Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I have the pleasure of sitting here today with James Hughes, CEO & President of New Jersey based Unity Bank. Jim has agreed to talk to us about Unity Bank and issues affecting the banking industry. Jim, it’s nice to have you here on CFO Studio.
Hughes: Good morning, Andy.
Zezas: Thanks for being here.
Hughes: Thank you for inviting me.
Zezas: Jim, I’ve learned a lot about your bank over the years. I’ve had the pleasure of knowing you. Our audience is interested in knowing about the banking industry, but before we talk about that, let’s talk about your company. Tell us about Unity Bank. What do you do? Who do you serve? What’s the heart of the bank like?
Hughes: Unity Bank, we’re an $800 million New Jersey based financial institution. We have sixteen branches. We describe ourselves as being on the route 78 corridor, fourteen in New Jersey. We’re as far east as Union County; from Union County, Middlesex County, Somerset County, Hunterdon County, out to Warren County. And, we have two branches that we opened up a couple years ago in North Hampton County, which is in the Lehigh Valley area. We have about 170 employees. We are the fifth largest commercial bank in the state of New Jersey. Hunterdon County is one of the most affluent counties, not only in the state, but in the country. We’re very proud to be there. We have all the products and services that the larger banks have. On the lending side, we do residential lending, we do consumer lending, home equity loans. On the business side, we do SBA lending, 504 lending, commercial mortgages, and commercial lines of credit. We have typical banking platforms, in addition to our sixteen branches. We have seventeen ATM machines. We have online banking. We have remote deposit capture. The typical banking products: checking, savings, lines of credit. So, if you need banking services, we have it.
Zezas: And it sounds like, there’s nothing sleepy about the bank. I’ve heard a lot of technology, whether it’s consumer directed or business directed, you guys have it.
Hughes: Listen, we have to stay competitive with the larger banks. The demographics of today’s society expect technology. We’re already working on mobile banking. So, we’re trying to make sure that we stay ahead of the curve. For community banks, we’re very progressive with our technology platform.
Zezas: You didn’t say fifth largest community bank. You said fifth largest commercial bank.
Hughes: Commercial bank in the state.
Zezas: That’s tremendous!
Hughes: It is tremendous, but a lot of that has to do with the consolidation in the industry. But, we’re still around and we intend to be around for many years to come.
Zezas: Now, you mentioned how the bank competes with larger banks. Tell me how community banks compete with larger banks because as a consumer, I’m not sure if I know the difference.
Hughes: I agree with you. I’m very cynical about the industry as a whole relative to the retail consumer. Very rarely, other than the fact that I work in a bank, would I actually go to a bank. You have direct deposit, ATM machines, online banking and that’s really the reality of it, that the retail side, banking has become more of a commodity. It’s almost like a utility. Small community banks are only around for one purpose, and that’s really to service the small to medium-sized businesses in the communities that they’re housed. Most small business owners, they run their business to show little or no taxable income, and the problem is when those business owners need to get financing, where do they go? The larger banks are making these credit decisions on credit scores, debt to income ratios. It’s the community banker that resides in that community that knows that small business is the best source to make those credit decisions and that’s really why community banks are critical to the future success of small business in the country. There are 8,000 community banks in the country. Yet, we only represent 23% of the financial assets.
Zezas: That sounds like it’s critical to the banking system, if there are that many community banks.
Hughes: Absolutely. Even though we’re 23% of the financial assets, community banks will make roughly 53% of all small business loans.
Zezas: Wow, that’s tremendous! So, it’s obvious, community banks are here to stay.
Hughes: They are.
Zezas: And certainly, Unity Bank is as well. There’s been recent legislation that passed that some people thought of as great and some people are concerned about. The recent Dodd Frank bill, how has that affecting or how might it affect community banking in general?
Hughes: Well, obviously, the industry was long overdue for some regulation. There are many aspects to the bill that obviously, it’s an additional regulatory burden, and banks have been burdened with volumes and volumes of regulation. I mean, we as a small community bank, we have four full-time BSA officers and one full-time compliance officer, in addition to all the other regulators. But, overall, I think the industry will be better off for the regulation. The ICBA has done an excellent job lobbying for the small community banks and as a result, there are many positive benefits in the bill. First and foremost, the reduction of FDIC insurance premiums for those banks that are less than $10 billion in assets. The industry, now, is paying based upon an asset assessed base rather than a deposit. So, the larger banks are now paying a larger share per, out of the industry. It’s total assets minus tangible equity where before, it was total deposits. So, we’re going to see an earnings increment to the smaller community banks.
Zezas: On the community side.
Hughes: In addition to that, there have been many improvements with small business financing, the small business: the $30 billion economic assistance to help small community banks further the lending efforts, the increase in the SBA 7A size from $2 million to $5 million, the improvements in the 504 lending. So, these are all things that are going to help jump-start lending back into the communities.
Zezas: So, I heard jump-start lending back into the community, making community banks more competitive more profitable, stronger competitors.
Zezas: Let’s talk briefly about the economy. The recovery seems to be getting some traction, seems to be getting somewhat on a steady pace. How has it affected banking- how has the recession affected banking, and what do you see for the future, banking in general?
Hughes: Well, first and foremost, obviously this recession has been the most significant recession in my lifetime. It gets back to capital is king and it’s still is king. If you have capital, you’re making all the rules. And, it certainly been a wake-up call for the industry, certainly a wake-up call for the regulators. There’s anticipation that the regulatory guidelines for capital are going to increase, but to the extent that you’re well capitalized and banks are still lending. Unity Bank is a well-capitalized institution. The problem with the recession is that there’s very little demand. I think the industry, as a whole, is demonstrating that they’re spending the same level on advertising dollars. They’re trying to promote lending. They’re trying to do the right thing with lending to the communities, but the reality of it is, the recession is so significant that there’s fewer transactions taking place. So, I think for the first nine months of this year, total loan growth for community banks is less than 1%. And, I know from talking to my peers, it’s not from their lack of trying to lend, there’s just fewer transactions that are out there. And those that are asking for lending are generally those that get back into credit quality, doing prudent lending. Getting back into the recession, I think it’s demonstrated that you have to get back to the basics of, you know, credit, character, cash flow, and collateral. And, I think too many times people forgot about cash flow.
Zezas: Or character. Credit, character, cash flow…
Zezas: Collateral, I got it. And, we’re about out of time. I actually have one question. Is Unity Bank lending?
Hughes: We certainly are. We have plenty of money to lend. We spend a significant amount, again, back in advertising. We just came off a promotion of 4.99% for a five year-fixed, no points, no fees. So, we are lending again. It’s not just Unity Bank, community banks are in the lending business.
Zezas: I’m going to talk to you about borrowing some money real soon. Jim, I want to thank you for appearing here on CFO Studio.
Hughes: Thank you for having me.
Zezas: This is Andrew Zezas with James Hughes, saying thank you for watching CFO Studio. We’ll see you again.
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