by Sean Ruppert, Staff Writer
Despite the turmoil in the nation’s credit system, local community banks have remained largely unaffected by the crisis.
Community institutions such as Middlesex County-headquartered 1st Constitution, Amboy and Magyar banks have avoided the trouble now befalling larger banks through prudent and responsible lending practices, according to Rutgers University economics professor Joseph Seneca.
”There is a sharp distinction between the condition of local banks and the major financial institutions right now,” Dr. Seneca said. “Commercial banks have been infected by bad mortgage assets. Typically, the community banks in New Jersey and elsewhere have not engaged in subprime lending, so capital positions are secure and they have money to lend.”
The crisis shot into national headlines several weeks ago when Lehman Brothers, a financial services firm and investment bank, declared bankruptcy on Sept. 15. Since then several other large lenders have collapsed or been bought out by other companies, and the U.S. Congress has passed a $700 billion-plus bailout bill to try and correct the banking system. The crisis has been blamed on the practice of subprime lending, which is the granting of mortgages to people who could be considered financially under qualified, as well as the dividing of mortgages to be sold in securities.
Dr. Seneca said that, while companies have collapsed from subprime lending and buying and selling mortgage securities, the more conservative approach taken by local banks are “well positioned in a pretty powerful economic storm.”
”They have been doing pretty prudent lending, and as a result they don’t have the exposure to the toxic mortgage securities that are now collapsing,” Dr. Seneca said. “They might be even more cautious going forward because of all the uncertainty, but they are still in a position to lend money. Prudence is its own reward in time.”
Dennis Kane, marketing director for Amboy Bank, headquartered in Old Bridge, said the credit crunch has had no effect on his company. Amboy has a branch in Monroe, and is set to open a new branch in South Brunswick by the end of the year.
”We’re a community bank. Our lending is focused on the consumer side in traditional mortgages, and reverse mortgages. We continue to lend as always,” Mr. Kane said. “We’ve been lending for 120 years, and we have been conservative. People had to qualify for our loans and we still have that same lending philosophy. You will find that the national issues do not impact most community banks. We are traditional lenders, not mortgage brokerage houses.”
John Reissner, vice-president and marketing director for Magyar Bank, headquartered in New Brunswick and with a branch in South Brunswick, said his company has seen an increase in mortgage applications since the credit crisis began.
”I think for the most part, community banks are much better off,” Mr. Reissner said. “We are still lending.”
Andrea Pagiazitis, vice president of retail banking at 1st Constitution, headquartered in Cranbury and with a branch in Jamesburg, said her company was able to stay secure by not engaging in risky practices.
”We were not involved in subprime lending at all,” Ms. Pagiazitis said. “That has allowed us to stay out of the trouble the larger banks have gotten themselves into.”

