New Jersey's community banks continued underperforming in the second quarter and the state's two largest community banks are purposefully trying to throttle growth to stay below a regulatory threshold.
The median return on average equity for New Jersey's banks and thrifts with less than $10 billion in assets was 5.62% in the second quarter, down 46 basis points year over year and well below the median 7.60% ROAE for mid-Atlantic community banks and 9.59% for all U.S. community banks. Likewise, New Jersey community banks had a median net interest margin of 3.29%, lower than the mid-Atlantic's 3.47% NIM and 3.83% for the U.S. as a whole.
The state's 0.74% median nonperforming asset ratio was 8 basis points higher than the mid-Atlantic median and 12 basis points higher than the national median.
On a positive note, loans grew by a median 5.4% year over year in New Jersey, compared to 5.0% nationwide.

Iselin-based Provident Bank, New Jersey's largest community bank by assets, edged closer to $10 billion in assets in the second quarter, but the company does not anticipate breaching the threshold in 2019. Once a bank surpasses $10 billion in assets at year-end, it becomes subject to the Dodd-Frank Act's Durbin Amendment, which limits the amount of debit card interchange revenue the company can earn with each transaction.
During Provident Financial Services Inc.'s second-quarter earnings call, Chairman and CEO Christopher Martin said the bank had roughly $2.8 million to $2.9 million in Durbin exposure and would sell securities to keep below $10 billion in assets if it had to at the end of 2019.
Toms River-based OceanFirst Financial Corp., holding company of OceanFirst Bank NA, the state's No. 2 community bank by assets, announced two M&A transactions on Aug. 9, but it, too, will make efforts to stay just below $10 billion in assets.
In a deal call following the announcements, Chairman and CEO Christopher Maher said that even after the company's acquisitions of Tinton Falls, N.J.-based Two River Bancorp and New York-based Country Bank Holding Co. Inc. close in early 2020 and push OceanFirst's assets above $9.9 billion, the company still intends to stay below $10 billion in assets until 2021 and may run off higher-cost certificates of deposits or brokered CDs to stay below the threshold.
After the acquisitions close, OceanFirst estimates that it will take a $3.5 million hit post-tax once it becomes subject to the Durbin Amendment.

On Aug. 16, Englewood Cliffs-based ConnectOne Bancorp Inc., holding company for ConnectOne Bank, New Jersey's 6th-largest community bank by assets, announced that it would buy Fort Lee-based Bancorp of New Jersey Inc. marking New Jersey's sixth deal of 2019, compared to just four in all of 2018. Once the deal closes, ConnectOne Bank will have more than $7 billion in assets, which would make it the state's third-largest community bank using June 30 data.

New Jersey, like most of the rest of the U.S., is seeing more branch closures than openings as banking increasingly goes digital. During the second quarter, banks closed 23 branches in the state while only opening nine. During the 12 months through June 30, New Jersey saw 107 branch closures and 32 openings.

Click here for an Excel spreadsheet containing results for all New Jersey community banks in the second quarter.
