Affuso and McWeeney discuss New Jersey’s banking climate

Michael Affuso (left), the new president and CEO of NJBankers, with John McWeeney, outgoing president and CEO.

Bank / Financial

John McWeeney and Michael Affuso are banking industry experts who have worked side by side since 2008, tackling every challenge the economy has thrown at them. Their mission at NJBankers has always been to make sure the state‘s banks are always up and running, serving New Jersey residents and businesses.

Today, McWeeney will officially step down as president and CEO of the trade association after a 43-year career in the banking industry. Affuso, who has been in charge of government affairs, will take McWeeney’s place tomorrow.

Interviewed recently at NJBankers Cranford headquarters, the pair answered questions regarding the current economic climate, the impact of interest rate hikes, cannabis banks, fintech competition, and bank consolidation, among others.

Asked about the performance of the economy for the remainder of 2022, McWeeney replied that a strong consumer market, stemming from pent-up demand caused by the COVID-19 pandemic, is currently balancing some of the headwinds the economy is facing. faced, such as rising interest rates, rising gas prices and global political issues. “It’s summer and people have this incredible urge to go out and do things. … However, the more I listen to the experts, the more clearly we are going to see a decline in growth. Whether or not we have an actual recession is up for debate. We can have stagflation where there is high inflation and low growth. The next 12 to 18 months are going to present challenges,” he said.

Adding that the Federal Reserve was too accommodative with its monetary policy and waited too long to raise interest rates, McWeeney said the country’s central bank now faces tough challenges in bringing inflation down.

Affuso said a recession is a matter of when, not if. “Look at the price of gas, with the average person living paycheck to paycheck, there has to be an economic effect because of that. I’m not very optimistic,” he said. he declares.

Mortgage rates are rising, now with an average interest rate of 5% from as low as 2.75% a few months ago, Affuso explained. “The low rate environment should be viewed as an abnormal period. There are going to be shocks, but there will be a transition period where people readjust to a more reasonable rate environment,” Affuso explained.

McWeeney said there will also be stabilization in commercial and industrial loans as the economy cools. It says Amazon is trying to sublet millions of square feet of warehouse space across the country and in New Jersey, as an example of cooling.

In discussing federal regulations that will or could impact the banking industry, McWeeney said he hopes the Banking Security Act, which would allow financial institutions to offer banking services to cannabis businesses operating legally without fear of sanctions, would pass. “Congress has been trying to push this through for two or three years. If it crosses the finish line, it would allow banks to offer services to legal cannabis businesses. Currently, many of these companies deal [solely] in cash, and that’s not a safe or secure business model,” McWeeney said.

“I think a pretty good percentage of our banks would go down this road because it will generate deposit business, fee revenue and also support local communities,” Affuso added. “It will be a great boon for the cannabis industry itself.”

What may or may not be a boon for banks is competition with financial technology (Fintech) companies which in many cases are partnering with smaller banks, the latter competing with larger major banks to provide advanced digital products and services to customers.

“Banks are going to have to partner with [Fintechs]Affuso says. An example provided by Affuso involves a small member bank that partnered with a Fintech so that it could offer credit, almost instantly, to people undergoing renovations. In this example, an entrepreneur and a bank may have an affinity agreement with the fintech that allows for nearly instant underwriting and instant credit availability. “It’s an amazing thing,” says Affuso.

On the other hand, he says there were companies that went straight to fintechs for Paycheck Protection Program loans during the height of the COVID-19 pandemic that “fell into a black hole if they had a problem. …I think people appreciate the speed and efficiency of Fintechs, but Fintechs need the partnership of a banking institution to have that much-needed human touch,” Affuso said.

McWeeney added, “Our banks need to innovate or they won’t survive. While customer service has traditionally been defined as good local decision-making in your branch with people who are courteous, friendly and deal with business in a timely manner, today it is also defined as having the best application.

“So banks need to innovate. If they don’t have the resources to do it themselves, they have to partner with Fintechs to be able to do it. This is how small community banks can compete with big banks,” McWeeney said.

The banking industry is also facing a talent war, both nationally and in the Garden State. Affuso explained that it’s worse in New Jersey because college graduates here with finance degrees can go to New York. “We don’t lose sight that we are next to Wall Street,” Affuso said. “We must ensure that the industry [in New Jersey] attractive to graduates. We try to attract them through internship opportunities and guaranteed slots [positions].”

He said job types are changing and there is a greater need for “technologists” today than for “traditional bankers”.

McWeeney added that a “double-edged sword” exists in that the COVID-19 pandemic has resulted in increased use of technology, which has accelerated the digitization of the banking industry by three to five years. This, in turn, has increased remote work scenarios, causing the pool of potential talent to seek out-of-state jobs. Similarly, he said local banks can now hire talent from other states and regions.

Besides talent, bank consolidation is also something NJBankers is concerned about. “It’s our least favorite subject,” McWeeney said. As of March 31, 2022, 58 banks were headquartered in New Jersey and a total of nearly 100 banks did business in the state. “If you go back to 2020, there were 64 banks headquartered here. Go back five years and it was 85. Go back 10 years and it was 111. This is the trend and it will not change, although it may slow down. McWeeney said. “It’s driven by the banks that need to evolve.” He explained that small banks can scale by looking to external service providers [Fintechs] or to merge with larger institutions.

Looking at the employment chart, the 58 banks headquartered in New Jersey employ some 19,000 people (a decrease of 3,000 over a 10-year period). According to Affuso, when all FDIC-insured and SEC-type institutions are included, that number jumps to 87,000, based on a Rutgers University report.

Even though consolidation has taken place, McWeeney says the industry has grown, with banks reporting stronger balance sheets and higher loan and deposit volumes and more capital. “Our banks are well placed to support whatever is happening in the economy,” he said.

McWeeney’s job was to ensure that the state’s banking industry thrived and survived the various challenges of the past 15 years while leading NJBankers. He has helped the industry weather the Great Recession, Super Hurricane Sandy and most recently the COVID-19 pandemic.

Speaking about the industry and the people he has met, he said, “One thing that hasn’t changed in my 43-year career is that bankers are still great people who try to help others. They are committed to their communities and the level of philanthropy and volunteerism is genuine. This has never been more real than during the pandemic.

Commenting on Affuso taking over as Chairman of NJBankers, McWeeney said, “Mike is a very passionate person who is determined to succeed. He has an incredible work ethic and has built strong relationships with our members and government leaders in Trenton. I can’t think of anyone better prepared to take on this role.

For Affuso, McWeeney was the epitome of calm under pressure. “His calm is contagious and important if you go from fire to fire. If you were to do a masterclass on leadership, it would be on the ability to maintain a level of calm. … And basically I learned everything about banking from John,” Affuso said.

Affuso’s top priority as the new chairman of NJBankers is to stay ahead of the industry consolidation curve. Also, he said, “we need to bring the best technology and innovation to our banks.”

He looks forward to visiting NJBankers members and discussing their efforts. “Banks are in the business of bringing people in and saying, ‘I have an idea. Can you finance it! I find all of this fascinating.

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