The big banks that have invaded New Jersey get most of the attention, but investors are starting to take notice of some smaller, locally headquartered competitors, too.

Shares of Commerce Bancorp of Cherry Hill are up 42%, to $42.1875, since the beginning of the year, and Hudson United Bancorp of Mahwah is up 7.3%, to $31.75.

Valley National Corp., of Wayne, has slipped 2%, to $28.8125. But it is also among the banks mentioned by analyst David Trone of Credit Suisse First Boston, who says the smaller companies are gaining market share at the expense of the new, larger competitors.

The smaller institutions "are exploiting the fallout from the big banks," he said, adding that the money being gathered goes beyond what usually occurs when an out-of-state banking company enters an area.

The community banks "are going out of their way, urging customers to visit their branches and open accounts that carry no fees," he said. Mr. Trone who recently started coverage of the companies with hold ratings, said he sees long-term potential.

A representative of First Union Corp., which is the biggest of the out- of-state competitors in New Jersey, took issue with the notion that the smaller banks are taking away business, saying any decrease in deposit dollars is made up for in sales of investment products.

But, like Mr. Trone, who based his conclusions on conversations with management of the smaller banks, the First Union spokeswoman did not cite deposit share data.

The First Union spokeswoman said the banking company's branches in New Jersey are doing well and are not seeing significant falloff in deposits. She said customers in that area show a lot of interest in an account that provides deposit and brokerage services.

Among the smaller banks, Commerce Bancorp emulates retailers by using aggressive brand promotion.

Hudson United seeks to be the alternative to big banks by offering strong personal service and convenience. Expanding its reach downstate, the company on Tuesday announced the acquisition of JeffBanks and Southern Jersey Bancorp (see story on page one).

Valley National positions itself as the consumer-friendly alternative to "the big, out-of-state banks that charge fees and bother consumers with sales pressure," Mr. Trone said.

But he said the smaller banks still face challenges.

"You can count on the missteps of others for only so long," Mr. Trone said. He expects the big banks to eventually stem customer attrition by reducing their fees and becoming more community-oriented.

Trading was light Tuesday, as many investors preferred to wait on the sidelines until the Federal Reserve makes a decision about interest rates today.

The Standard & Poor's bank index was up 1.21% and the Dow Jones industrial average, 1.50%. The Nasdaq bank index added 0.91% and the S&P 500, 1.51%.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.