Magazine article American Banker

Ironbound Businesses Bolster Bank's Profits; Defying Urban Blight, One Bank Prospers in Newark

Magazine article American Banker

Ironbound Businesses Bolster Bank's Profits; Defying Urban Blight, One Bank Prospers in Newark

Article excerpt

Ironbound Businesses Bolster Bank's Profits

A LITTLE-KNOWN BANK in Newark, N.J., has concocted a moneymaking mixture in the crucible of urban decay. While businesses and the middle class fled Newark in the years after the devastating riots of 1967, Broad National Bank held the fort in its small, plain headquarters across the street from City Hall.

And Broad National did not merely endure -- it grew.

In 1970, the bank had $25 million in assets and two offices. Now, the bank has assets of $250 million and is building its eight and ninth branches -- all within 10 miles of the main office.

But Broad National has not veered from its conservative philosophy, even during its 20%-a-year growth over the last few years.

It makes relatively few loans -- less than one-half its assets are loans.

"While there is good growth, this is not Silicon Valley," explained Richrd P. Garber, the 42-year-old president of Broad National.

And when the bank books a loan, it is a careful lender. So loan losses are low.

The bank has prospered by focusing on small companies, catering to an enclave of working-class Portuguese in downtown Newark, and expanding into the affluent suburbs around Newark.

And now, there is talk of a renewal in Newark.

Last year, Broad National earned $2.7 million, up 24% from $2.u million in 1984.

Broad National's business customers are a diverse lot--light manufacturing firms, builders, law firms, the New Jersey Symphony Orchestra. The bank has developed a reputation as a small-business specialist, serving companies with annual sales of $500,000 to $10 million.

"They really have done a nice job on working with small businesses in the industrial area, particularly, the Ironbound section of Newark," observed Peter F. Sammon, senior vice president at the Howard Savings Bank, a competing institution. "They've kind of carved out a niche for themselves."

The Ironbound district, so called because it is bordered on all sides by railroad tracks, is a bustling Portugeuse and Hispanic neighborhood in a city scarred by block after block of slums.

The streets are lined with neat row houses, the girders of railroad bridges looming over them like sentries from a bygone era. Residents chattering in Portuguese gather on street corners while the Radio Club Portugal's loudspeaker offers music to passersby.

The People-to-People Approach

For Broad National, the Ironbound area is an important market--both for consumer banking and for the light manufacturing operations that dot the neighborhood.

In the bank's two Ironbound branches, employees speak both English and Portuguese, Mr. Garber said. "I think the people-to-people aspect is very important."

Consumers account for about three-fourths of Broad National's deposit growth of 80% over the last three years, Mr. Garber said.

He thinks Broad National has gained customers at the expense of the larger commercial banks, which he attributes to Broad's more personalized service.

The bank has no automated teller machines. "We look at ATMs about once a year and consider them, and our studies never have found them to be cost-effective," said Mr. Garber, tapping a cigarette into an ashtray on his desk.

Attentive service is also the key to the bank's success with small companies, he said.

Broad National faces stiff competition in this area.

In recent years, large commercial banks have aggressively pursued smaller businesses, known as the middle market in big-bank lingo. This market -- which is defined differently by each bank, depending on the bank's size -- can include firms with annual sales of $ 100 million or more.

Several larger New Jersey banks -- First Fidelity Bank, Midlantic National Bank, United Jersey Bank, and First Jersey National Bank -- are active in the middle market. …

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