May 27--North Jersey bankers are betting the local economy remains rocky in the months ahead. Most local lenders added to loan-loss reserves in the first three months of 2009, expecting that higher unemployment will lead to more defaults by owners of homes and businesses.

Valley National Bancorp, the largest commercial bank in North Jersey, increased its allowance for credit losses by 4 percent to $98.5 million, as the loan portfolio shrank 3 percent to $9.84 billion.

Multifamily housing specialist Oritani Financial Corp.'s allowance rose more than 12 percent to $21.3 million as of March 31 from the end of 2008, while the size of the loan portfolio increased 2.5 percent to $1.23 billion. The swelled reserves "reflect the risks of doing business in today's economy," Chief Executive Officer Kevin Lynch said in a statement.

Loans grew by 2.3 percent at Paramus-based Hudson City Bancorp Inc. and the reserve allowance climbed more than 30 percent to $65.1 million, "in response to the worsening economic conditions, particularly rising unemployment," said the company's chief executive officer, Ronald Hermance.

Unemployment, which climbed in April to 8.9 percent nationwide, rose in New Jersey to 8.4 percent from 8.3 percent in March as 14,000 more jobs were lost.

"In all the banks we cover we're seeing higher provisioning," analyst Rick Weiss of Janney Montgomery Scott LLC said Tuesday in an interview. "Reserves will trend higher for the next year, probably," he said.

The main problem sectors differ by bank. Losses on car loans have been troublesome for Wayne-based Valley National. At Oritani, commercial real-estate loan defaults have been a concern for the Washington Township-based lender. For Hudson City, it's jumbo mortgages. Equipment lease financing has been the loss leader for Oak Ridge-based Lakeland Bancorp, which also boosted its reserves.

"As non-performing and past-due loans have gone up, banks are being more conservative, and rightly so," said Ted Kovaleff, analyst with Broad Street Securities in Plantation, Fla.

He and Weiss agree that U.S. banks in general did not sock away enough money when times were good. That was partly because securities regulators dissuaded publicly traded firms from reserve building after some companies misled investors by using reserves to smooth earnings volatility, the analysts said.

At least one bright spot emerged from local banks' first-quarter earnings reports: increased residential mortgage refinancing, driven by low rates.

Refinancings could help in lifting the local economy from its doldrums, said Gerald Lipkin, Valley National's chief executive officer.

"When people refinance, they have lower monthly payments and more disposable income, so they can go out to dinner and spend more," he said.

E-mail: newman@northjersey.com

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