INSIGHTS ON RISING RATES

banking intro

Interviews by Lynn Adams Smith

The Federal Reserve has raised interest rates for the first time in nearly a decade and has pledged to gradually increase rates in the future. We invited a group of senior banking executives to answer the same six questions concerning how rate hikes will impact consumers, savers, corporations, and local economic growth.

Bowden photoLINDA BOWDEN 

NEW JERSEY REGIONAL PRESIDENT PNC BANK

Linda Bowden is the New Jersey regional president of PNC Bank. Bowden is responsible for providing executive leadership and supporting client relationship and business development initiatives across the firm’s lines of business in the region, including corporate and institutional banking, commercial banking, and wealth management, as well as supporting the firm’s community-based activities. Bowden adds extensive industry experience to PNC that spans every aspect of wealth management, having served as portfolio manager, trust and investment officer and as a manager overseeing private banking officers. Bowden has been named among the “25 Women to Watch” by U.S. Banker magazine and was recognized as one of the “Best 50 Women in Business” and “Power 100” by New Jersey business news publication, NJBiz. Prior to joining PNC in 2009, she was the managing director of Wachovia Wealth Management. Bowden began her career as a teacher for seven years in Wyckoff, N.J. and authored two children’s math books. Bowden is active in a range of community programs. She serves on the board of the Drumthwacket Foundation, as well as the executive committees of the Adler Aphasia Center in Maywood, N.J., the New Jersey State Chamber of Commerce, the New Jersey Symphony Orchestra and Choose New Jersey. In addition, Bowden is a member of the board of the board of trustees of the New Jersey Performing Arts Center, and the William Paterson University Foundation She is also a Fairleigh Dickinson University PINNACLE recipient, the highest honor awarded to alumni. Bowden earned an M.S.W. from Columbia University, an M.A in institutional counseling from William Paterson University, an M.B.A. with a concentration in finance from Fairleigh Dickinson University and a B.A in education from Rowan University. Additionally, Bowden completed the National Trust School at Northwestern University, earned her Certified Trust Financial Advisor designation and has completed numerous sales management and leadership programs.

Do you believe the U.S. economy is strong enough to handle interest rate hikes and will rates ever return to pre-crisis levels? 

Yes, we do believe that the U.S. economy is strong enough to weather interest rate hikes. PNC’s economists point to several positive factors, including an unemployment rate that is holding steady around five percent and the best two years for job growth since 1999. Global concerns are outweighing domestic developments and that trend will likely continue throughout the year. However, given the strong US economic fundamentals, right now PNC economists foresee another rate increase as a probability when the Fed meets again in March. Keeping this in mind, our economists continue to call for moderate growth this year and it could be some time before rates approach the levels of 2007-2008.

Explain how the ongoing rise in interest rates will affect the following: Your banking business 

The economy and low rate environment is challenging every industry to examine their business model to ensure long-term stability, including financial services companies. Now, more than ever, the key to success is ensuring you have a diversified business model with a balance of interest and fee-based revenue. That approach was a critical area of focus for PNC in New Jersey and across all of the markets we serve early on. Additionally, even before the effects of the economic downturn became apparent, PNC maintained a moderate risk profile and avoided the pitfalls that challenged others, like subprime lending. The result is that PNC is well positioned to continue to succeed and grow in New Jersey. We will remain focused on working with our customers to find new opportunities to work—and grow— together.

Consumers, wanting to spend 

While the interest rate environment is trending up slightly, it’s important to recognize that, overall, rates are at or near historically low levels. Coupled with this, commodity prices, and most notably the price of oil and gasoline, are hovering near 2003 prices. That is putting more money in the pockets of consumers. In fact, Fed reports indicate that consumer spending increased in most regions in late 2015. It’s difficult to forecast sentiment and willingness to spend but right now we’re seeing signs that consumers are willing to spend. As difficult as the market volatility is, with the dramatic decline in gas prices consumers are spending more of their discretionary income. The fact remains, though, that we are in a period of moderate growth and this is simply the “new normal” environment where we find ourselves.

Savers, including those on fixed incomes 

Savers, and those on a fixed income, are struggling to find value in the current low rate environment. However, the approach they are taking is centered on preserving assets, particularly for retirees. This is the time, however, to meet with your financial services provider to review retirement and investment goals. It can be tempting in times of economic uncertainty to become distracted and stray from a well-defined financial plan. Working with a financial planner to design a plan that makes sense for an individual’s specific needs and objectives simply makes good sense for everyone. That’s particularly true for those who are retired or considering retirement.

Corporate borrowers, both big and small businesses 

In the current environment, businesses of all shapes and sizes, from corporate to commercial to small business owners, have a sense of cautious optimism. The rate environment still remains favorable for those who are looking for lending solutions and investing capital in their businesses. This is a terrific time to seek out lending solutions that support capital investments in equipment and technology to strengthen and improve the ability to service customers.

Economic growth locally, as related to unemployment, home sales, construction, car sales or any other aspect you would like to suggest 

Even with the increase in rates, consumers will find that the environment is relatively favorable both locally in Princeton and across the state. In addition, employment opportunities are also more available given the broad base of industries that call New Jersey home, as well as the proximity and ability to service two major markets, Philadelphia and New York. Signs of optimism for long-term growth continue to surface as New Jersey and the national economy remain on a steady, measured road to economic growth throughout the year.

Hyman photoJAMES HYMAN 

REGIONAL PRESIDENT HOPEWELL VALLEY COMMUNITY BANK

James Hyman is the regional president of Hopewell Valley Community Band, a division of Northfield since the recent merger of the two banks. He was previously president and chief executive officer of Hopewell Valley Community Bank in Pennington since its inception in 1998. He is past chairman of the New Jersey Bankers Association, New Jersey Bankers Service Corporation, as well as Atlantic Community Bankers Bank and past president of the Community Bankers Association of New Jersey. Mr. Hyman’s community service includes serving as a trustee of the Hunterdon Healthcare System, former chairman of Hunterdon Regional Community Health and of Hunterdon Hospice. He is currently a trustee of The Pennington School and is a board member of the Princeton Regional Chamber of Commerce. He is past president of the Hunterdon Economic Partnership, past chairman of the Hunterdon County Chamber of Commerce, and is a past member of New Jersey Governor Christie’s Bankers’ Advisory Board. He was awarded the Distinguished Alumnus Award from Rutgers University College, Newark, in 2004, and the 2011 Forrey-Gallman Outstanding Service Award from New Jersey Bankers Association. Mr. Hyman received his B.A. from Rutgers University in Political Science.

Do you believe the U.S. economy is strong enough to handle interest rate hikes and will rates ever return to pre-crisis levels?

Yesterday’s reaction to the Fed’s continuing stance about increasing rates in 2016 was a real sell off in the market so it would seem the nervousness of the market predicts the economy might be weakened if the Fed does increase them. However, and I caution that mine is a Main Street view vs. a Wall Street one, I believe there should be some room for increases without a negative impact given how historically low rates are. Having said that, I think it will be some time before we see rates rise to levels that preceded pre-crisis levels unless the  U.S. and global economies substantially improve.

Explain how the ongoing rise in interest rates will affect the following: Your banking business

Generally speaking the industry does better during periods of rising interest rates if banks are able to increase loan rates more quickly than deposit rates.  The reverse is true for those banks with long term fixed rate loans on their books. In these cases, rising rates on their deposits will shrink the profitability of the bank.

Consumers, wanting to spend

While rising rates will increase the cost of credit to consumers, and businesses for that matter, a rising rate trend frequently prompts action to make larger dollar purchases where credit is required, e.g. home, car, home improvements, to lock in a loan rate before they rise further.

Savers, including those on fixed incomes

Savers will finally see opportunities to obtain a better low risk return of their funds. Truth is, this group has been forgotten during this entire 0% rate period managed  by the Federal Reserve. Fixed income households reliant on interest from their savings have suffered the most and while nothing indicates rates will rise quickly, any increase will be welcome.

Corporate borrowers, both big and small businesses

No company, large or small, benefits from paying more to meet its borrowing needs. And, without an ability to pass such costs on when it sells its products or services, profits can shrink. When they can pass on those costs, buyers/consumers pay more.

Economic growth locally, as related to unemployment, home sales, construction, car sales or any other aspect you would like to suggest

When interest rates rise they do so for all concerned whether nationally or locally. Residential construction has reemerged in areas of New Jersey during the past few years compared to its complete stall in the earlier years, i.e. 2007 to 2012, of the recession.  The health of that industry is based on demands of the consumer.  A slip up in rates can see consumers act more quickly, therefore, while the builder may pay higher interest for loans,  today’s environment allows them to pass along the costs.  At the same time, home buyers are quicker to move before house prices and mortgage rates go up further.

martin tuchman photoMARTIN TUCHMAN

CHAIRMAN OF THE BOARD FIRST CHOICE BANK

Martin Tuchman is chairman and chief executive officer of The Tuchman Group, which oversees assets of $1.4 billion with investments in real estate, international shipping, domestic transportation and commercial banking. The Princeton International Property Real Estate arm manages the 100 units it currently owns, as well as providing management services to outside owners using its state of the art dashboard operating system. Additionally the full time staff oversee and perform the majority of repairs and refurbishing of the residential apartments, retail and commercial properties. The investing arm purchases, manages and retains $650 million of Municipal and Government Agency Bonds as well as originating and acquiring Whole Loans amounting to an additional $600mil. An amount in excess of $1bil in residential mortgages is originated and sold off to Fannie Mae annually. He is currently chairman of the board of First Choice Bank, one of the portfolio companies. The International Shipping business consists of $200 million of intermodal containers, chassis, and generator sets used in maintaining the charge in refrigerated containers. While the company is privately held, there exists a group of minority investors that participate in each of the above deals and transactions. The Group has over 500 people in its operating businesses and has generated over $80mil in taxes paid on its profits and incomes of its employees, over the past 5 years. Earlier, at the Railway Express Agency, together with a group of shipping engineers at the American National Standards Institute, Tuchman created the current standard for Intermodal containers and chassis, still in use today. Subsequently, he co-founded Interpool, one of the nation’s leading container leasing companies and later formed Trac Lease, the largest chassis leasing company in the US. With his partner, he sold Interpool for $1 billion, in July of 2007. Active in Parkinson’s Disease philanthropy, Mr. Tuchman is on the board of the Parkinson’s Disease Foundation of Columbia Presbyterian Hospital and chairman of The Tuchman Foundation, working closely with Parkinson’s organizations to secure NIH research grant approval. The Tuchman Foundation and its affiliates have thus far funded $15mil of research into finding a cure for Parkinson’s disease. He is also on the boards of the American Cancer Society of Mercer County and the Trenton Area Soup Kitchen. In banking, he served on the board Yardville National Bank’s board of directors and is presently chairman of First Choice Bank in Lawrenceville, New Jersey. Among his numerous honors, Mr. Tuchman was named Entrepreneur of the Year by Ernst & Young and he and Interpool earned Grand Prize in Cisco’s Growing with Technology Award. Mr. Tuchman received the Hero medal at The Smithsonian Institute and Interpool’s material is now part of the Smithsonian’s National Museum of American History. In June 2011, Beta Gamma Sigma, the International Honor Society, serving business programs accredited by the Association to Advance Collegiate Schools of Business, awarded Martin Tuchman its coveted 2011 Business Achievement Award.  According to the honor society, the award is given annually to recognize “significant achievements over a career or by a singular achievement that has advanced the field of business and contributed to community and to humankind.”  He was nominated for the award by Seton Hall University’s Stillman School of Business. NJIT’s School of Management (SOM), which shapes students to become technology leaders, managers and powerbrokers, will be named March 3, 2016 in honor of distinguished alumnus Martin Tuchman. This is the first time in the school’s 27-year history that it will carry a formal name: The Martin Tuchman School of Management.

Mr. Tuchman earned his B.S. in Mechanical Engineering from New Jersey Institute of Technology and his M.B.A. from Seton Hall University. Recipient of NJIT’s Alumni of the Year Award, he has been a member of the school’s board of trustees and is currently on its board of overseers.

Do you believe the U.S. economy is strong enough to handle interest rate hikes and will rates ever return to pre-crisis levels?

The Fed is charged with keeping inflation in check as well as anticipating financial bubbles. During the early part of the financial restructuring, our investment group felt that there were insufficient employment numbers to create an inflationary environment, and we organized ourselves accordingly, having over $500 million in agency and municipal securities. As we move forward, we recognize the psychological pressure to raise rates, however, we also view the price of oil as a brake on inflation. At its current price range, we do not see any alarming rise in inflation, and therefore a slow increase in interest rates should follow. We do not see a rise in rates to the pre-crisis level.

Explain how the ongoing rise in interest rates will affect the following: Your banking business

Our bank is charged with serving the community, and we have to do so in a safe and sound manner. With over $1 billion in assets we have over $500 million in mostly investment grade securities and $500 million in commercial and residential loans. The investment securities produce sufficient cash flow, so combined with the loans being paid down; we can sustain our loan origination without raising additional capital. Our objective is to make safe and sound loans to the local community, pay a fair price for our deposits and return to shareholders a fair dividend from the earnings we produce. Being a good corporate citizen, we have paid over $25 million in taxes. Additionally, we have originated over $1 billion in residential mortgages in our local tri-state footprint. These are not necessarily a measurement used by the financial sector, but it gives us a sense of satisfaction knowing what we have accomplished. We currently have over 500 full time employees on our staff, and interestingly enough they also pay state and local taxes. This is contributing to the economy in a very positive way. If current rates rise, two things will occur. First, any loans we have on our books that are “floating rate” will immediately price upward. This covers about 30% of our portfolio. So, an immediate positive impact, on the revenue side. On the cost side, i.e. what we pay for deposits, places us in the 97th percentile in terms of cost for deposits so it is highly unlikely that our bank will have to raise deposit rates to retain our deposit base. Therefore, on a going forward basis the rates that our customers pay will tend to rise, while our interest costs will remain the same. So rising interest rates will have no negative effect on our bank’s business.

Consumers, wanting to spend

There are several factors that influence consumers’ willingness to spend. Having more surplus funds is one element, as a result of lower fuel prices. A perception that the economy is strong is another factor influencing consumer spending. Yet another factor is for the consumer to be convinced that they need a product, such as another TV, automobile, etc. It is reasonable to assume a continuation of auto spending coupled with a steady purchase of new homes is in the immediate horizon. We have to keep in mind that interest rates are still at a relatively low point and will continue to be so. Rates will only be subject to hikes twice this year, in our opinion, allowing for more home purchases.

Savers, including those on fixed incomes

As I do not see any substantial rate hikes, and moderate inflation, individuals should focus more on liquidity, such as medium term bonds, while avoiding commodities and emerging market debt and equities. For those on fixed income, it will be more of the same, with no real help from money market accounts. Individuals should be prepared to receive very little from their fixed income portfolio.

Corporate borrowers, both big and small businesses

The large corporate borrowers will continue to borrow up to the maximum as they are looking for the leverage that increases the return on equity. Bankers will accommodate good credit backed by good collateral. Non investment grade debt will begin to be a challenge for corporations. Good businesses with rational debt profiles and an ability to properly service this debt will be the key to obtaining loans from the banking community.

Economic growth locally, as related to unemployment, home sales, construction, car sales or any other aspect you would like to suggest

The economy will continue to move along at a 2% growth rate according to many economists. The main impetus to growth, good paying jobs, will continue to be missing from the equation. One thing that will kick start the economy is the rebuilding of our infrastructure. This includes bridges, roads, municipal buildings and schools. The expenditures for all of these projects are local origin. The construction of a road cannot be outsourced. The funds available for these projects are already available in the form of offshore profits held by major US corporations. By assessing a reduced federal tax rate of 5% versus the higher 35% rate, we can bring a substantial amount of money back into United States. The condition upon which the U.S. government would forgo the higher tax rate would be to require the companies to take the same amount of capital as the amount they saved in taxes and invest it in any pre-approved project that would help rebuild the U.S. infrastructure. Simply put, the requirement would be for the repatriating corporations to retain 70% of the cash to use in any way they see fit, while 25% would be used to purchase municipal bonds from the participating states. As stated earlier, 5% would be paid to the Federal Government. It is amazing what can be accomplished by creating jobs in the country and how it manifests itself into generating taxes for the local communities as well as the federal government. A perfect example of this is our own little company, First Choice Bank. When I joined the bank we had less than 25 employees and less than $30 million in assets. Today we have over 500 employees, $1 billion in assets and generated profits of over $25 million. Our federal and state taxes generated over $20 million and when adding employee payroll taxes, this number exceeds over $80 million. All in time span of 7 years. We see a slow and flat economic growth absent of any aggressive repatriation efforts.

StephenDistler2STEPHEN DISTLER

VICE CHAIRMAN BANK OF PRINCETON

Stephen Distler has spent 35 years in the financial services industry, mostly as managing director and treasurer at Warburg Pincus, LLC, one of the world’s pre-eminent private equity investment firms. In addition to his financial oversight responsibilities, he spearheaded the firm’s efforts to invest in for-profit education companies. In 2007, Mr. Distler co-founded The Bank of Princeton and currently serves as its vice-chairman. As a member of the bank’s loan and asset/liability committees, he has been very active in overseeing the bank’s growth to over $1 billion in assets over eight years. A keen interest in education has led to his private investments and philanthropic endeavors. Over the years, significant gifts were made to the Princeton Public School system, Tufts University (where he attended and then joined the Board of Overseers) and Washington University in St.Louis (where he joined the Board of Trustees). He is also actively involved in two private education companies, Apex Learning, Inc., in Seattle, and Teachers Support Network, in Princeton. In his nine years serving on the Board of Trustees of The University Medical Center at Princeton, he was the first leader of the fund-raising effort that assisted in funding a $600 million new hospital in Plainsboro. He also chaired the board’s committee overseeing the complex building process. Mr. Distler is the principal owner of elements and Mistral, two highly acclaimed restaurants in Princeton.

Do you believe the U.S. economy is strong enough to handle interest rate hikes and will rates ever return to pre-crisis levels?

Absolutely. While it has not been a particularly robust economy, it can certainly sustain gradual rate hikes. Remember that the near zero rates for such an extended period of time is unprecedented. The economy has long flourished in a much higher rate environment and given time to adjust, will do so again.

Explain how the ongoing rise in interest rates will affect the following: Your banking business

The banking business, locally, should not be meaningfully affected. While rates may be rising at the short end of the spectrum, the slow growth and low inflation have kept long rates unaffected. In the near term, this flattening of the yield curve will compress bank margins and challenge profitability. When long rates eventually start to rise, which we don’t foresee for some time, then yields on our loan portfolio will rise as well, which will usher in a period of rising bank profits.

Consumers, wanting to spend

Modest rate increases shouldn’t really affect consumer behavior. Psychologically, they may perceive a fear of rising rates and as a result, home buyers may opt more for fixed rate mortgages as opposed to adjustable ones.

Savers, including those on fixed incomes

The fixed income saver has been decimated over the past decade. Any rate increase, short or long term, can only help their circumstance.

Corporate borrowers, both big and small businesses

Money has been available to corporate borrowers for some time now and should continue to be. As with consumers, they may opt for more fixed rate loans, as opposed to adjustables, so they can minimize their risk of higher payments down the road.

Economic growth locally, as related to unemployment, home sales, construction, car sales or any other aspect you would like to suggest

There is a case to be made that this economic cycle may be reaching its peak. Home prices have risen significantly, car sales are at all-time highs, and unemployment may be nearing a bottom. Nevertheless, the economy is vast and robust and lower oil prices continue to add stimulus. Modest and gradual rate increases should not have any dramatic effect on the larger economic processes.

Screen Shot 2016-03-14 at 3.07.31 PMKEVIN TYLUS

PRESIDENT & CEO ROYAL BANK AMERICA

Princeton native Kevin Tylus is president and CEO and a board member of Royal Bank America (NASDAQ: RBPAA). Headquartered in Bala Cynwyd, PA with 15 offices in New Jersey and Eastern Pennsylvania, the 53-year- old, publicly-traded community bank is a lender vital to commercial projects that help redevelop and repurpose businesses and neighborhoods, while also servicing small businesses, families and individual consumers. A two-year-old loan production office at 20 Nassau Street in Princeton accounts for nearly twenty percent of the bank’s business. Its independent governance structure was recognized by the National Association of Corporate Directors and its commitment to the greater community includes educational support for young students of lesser means and aspiring young entrepreneurs. Prior to Royal Bank, Mr. Tylus served as a regional President for PNC following its acquisition of Yardville National Bank. He had been an independent director of YNB and then president. His career has included executive positions with Prudential and Cigna and as a management consulting partner with Deloitte and its predecessor Touche Ross. Active with many business and community organizations, Mr. Tylus served as co-chair of Governor Christie’s September 11, 2001 tenth anniversary committee, is a past chairman of the board for The Hun School of Princeton, where he was named a distinguished alumnus, and is the immediate past president of The Nassau Club of Princeton. Mr. Tylus is a trustee of Gettysburg College, where he earned a Bachelor’s Degree in Business Administration. He received an M.B.A. in Finance from LaSalle College and has been a lecturer at the Wharton School and the Princeton University undergraduate economics program. He and his wife of 37 years have four grown children, each a graduate of Hun, and five grandchildren.

Do you believe the U.S. economy is strong enough to handle interest rate hikes and will rates ever return to pre-crisis levels?

he Federal Reserve Bank’s first interest rate increase of one quarter of one percent (or “25 basis points”) in late 2015 was long anticipated. That increase has had little to no effect on the overall economy. The slow growing economy, however, is presenting challenges to smaller businesses, such as local retailers, an important staple in Princeton. Four key economic drivers should limit how often and by how much the Fed raises rates. General economic growth is a mere 2%, which is modest growth at best. Inflation remains in check, though some components that affect consumers have risen. Near-historic declines in crude oil and gasoline and global economic pressures have caused a US stock market correction and further downward pressure on US and global markets. While low gas prices, like low interest rates,  are good for the consumer, nearly 300,000 jobs have been lost due to lower revenues at companies that produce and supply gas products.The balance of these items should drive the Fed to raise rates slowly and by modest amounts. There seems to be general support for a couple or few rate increases in the near to mid term. The upcoming national election will most likely affect when these increases actually come.

An extreme out-of-balance of the components above could lead to substantial increases, especially if inflation made an about face. It seems unlikely we would see any time soon savings rates or loan rates in the double digits, let alone 20%+ rates experienced in the early 1980s. The preference is for a sustainable economy, one that is less “booming,” with modest interest rate increases, which I feel the economy can adjust to and handle.

Explain how the ongoing rise in interest rates will affect the following: Your banking business

Royal Bank America’s business is determined by the success of the consumer, small businesses, commercial operating companies, and the demand for residential and commercial development. Our loan portfolio is positioned to be relatively neutral to rising or decreasing rates. The 25 basis point rise in late 2015 contributed a modest 3% to 4% in our annualized net earnings. Though a modest amount, those funds provided capital to expand technology offerings our customers use to run their businesses more efficiently, such as cash management, remote deposit and web-based conveniences. The earnings supported customers and community reinvestment. Two more 25 basis point rises would have a similar effect on earnings and could also be beneficial for our customers and community initiatives. The cause and effect of short term and long term rates led to no immediate interest rate changes, either for savings or loans, from this first 25 basis point rise. We carefully monitor our rates to determine if we need to increase the rates we charge in comparison to the rates charged to us for short term funding.

Consumers, wanting to spend

A rise in short term rates could lower demand for consumer, residential and home equity loans. That did not occur with the first 25 basis point rise. Consumers are benefitting from low crude oil and in turn low gas prices. These are good for the consumer as it makes more personal income available for other purchases. But spending is uneven, with auto purchases (often in the form of leases) and restaurant spending up and real estate lagging. In a period of slow to moderate economic growth as we are now experiencing, it is difficult for businesses to raise prices, which helps the consumer. More important than interest rates changes will be higher paying jobs, promotion opportunities, and increases in personal income. Slowly increasing rates and the status quo on jobs and personal incomes means more of the 2% economic growth experienced now—and in-check inflation—which means similar spending patterns by consumers.

Savers, including those on fixed incomes

Savers will continue to be challenged to find higher returns. Modest interest rate increases, global economics and politics pressuring the US and international stock markets and blasé investment returns will limit savers’ ability to generate larger returns. This should continue during 2016, which will hold down savings returns and disposable income.

Corporate borrowers, both big and small businesses

The sustained low borrowing rates have produced lower-cost capital for many larger companies to reinvest in their companies through mergers, acquisitions, product development, more technology and stock buy-backs. These items and cost controls have produced higher productivity. Modest rate increases should result in more of the same and be absorbable by large companies. In a modestly growing economy, small businesses have less ability to raise prices and less operating leverage than larger companies. An interest rate increase of “only” 25 basis points comes right off the bottom line and would equate to an additional cost that smaller businesses may not recoup. Lines of credit (short term loans tied to the Fed’s “prime rate” for example) help small businesses with seasonal cash needs—should banks increase their rates to keep up with the prime rate and charge businesses higher rates, then small businesses would feel a negative impact. Small businesses already have great pressure to cut and manage their costs.

Economic growth locally, as related to unemployment, home sales, construction, car sales or any other aspect you would like to suggest

Princeton has an ecosystem more diverse than many other towns. Ready access to New York and Philadelphia, a mix of in-town, suburban and rural residential options, renowned higher education and school systems, world class corporations, treasured local businesses, historical significance and even an expanding local airport give Princeton and the greater Mercer County area more capabilities to withstand economic cycles. And much of the same holds true for the greater central and northern New Jersey counties. A modest rise in interest rates adds a modest increase in cost and in overall effect on the area. While there are many challenges—and we have seen the area severely impacted by declines in the economy and real estate and lower employment from large corporate activity—the area is experiencing some “green shoots.” The diversification of the area also helps a rebound. Hardly resembling the pre-recession boom (which is a good thing), employment and incomes have stabilized and increased in some sectors. Residential rental availability is attracting new residents and is appealing to “downsizers,” higher end housing re-sales are showing stronger activity and at least there is some new home construction albeit not the large tract developments of the early 2000s. Auto dealers seem happy, restauranteurs say business is “better,” yet challenges persist for office occupancy and for smaller businesses such as retailers, which has an effect on the health of commercial real estate. The pre-recession “booming” economy comes with great risks; a modestly growing one may seem less attractive but also is less disruptive and more sustainable. And a modest economic cycle means moderately increasing interest rates over a prolonged time which should be a better option for our area.

Pat Ryan  2PATRICK L. RYAN

PRESIDENT & CEO FIRST BANK

As president and chief executive officer and member of the board of directors of First Bank, Patrick L. Ryan is responsible for the strategic direction and overall performance of the company. His direct reports include the Chief Financial Officer (CFO), Chief Lending Officer (CLO), Chief Operating Officer (COO), Chief Information and Technology Officer (CIO/CTO), and Department managers for Human Resources, Compliance, BSA, and Retail Branch Administration. Mr. Ryan works closely with these department managers to ensure that all profitability and safety and soundness goals are being met. As part of managing these departments, Mr. Ryan sets goals, monitors progress, and performs annual reviews for all department managers listed above. Furthermore, he serves as a member of the Operations/Product Committee, the Pricing Committee, the Management Loan Committee, the Internal Compliance Committee, the Asset Quality Review Committee, and the Lending Sales Committee. Mr. Ryan serves as a voting member of several Board Committees: the Compliance Committee, the Asset/Liability Committee, the Board Loan Committee, and the Information Technology Committee. Mr. Ryan is usually an invited guest to the other Board Committees: Compensation and Personnel Committee, the Nominating and Governance Committee, and the Audit/Risk Management Committee.

Mr. Ryan has been with First Bank since the recapitalization. Together with The Lead Independent Director and Vice Chairman, Mr. Leslie Goodman, he formed the investment group that helped to found the initial bank in organization that ultimately conducted the $20 million recapitalization of First Bank in November 2008. As president and CEO, Mr. Ryan led a successful $23 million initial public offering for First Bank and the stock is now traded on the NASDAQ Global Market under the ticker symbol FRBA. In April 2015, he finalized a $22 million subordinated debt offering that significantly enhanced the bank’s capital position. Prior to First Bank, Mr. Ryan worked as an investment banker, a management consultant and a community banker. Mr. Ryan began his professional career in 1997 as an investment banker at Goldman Sachs working in the Financial Institutions Group in New York, NY and working in the Advisory Group in London, England. At Goldman Sachs, Mr. Ryan worked on various bank M&A transactions including the merger of Nations Bank and Bank of America in 1999. After leaving Goldman in 2000, Mr. Ryan spent a year working in corporate development for an internet company called Medsite, performing a combination of acquisition and joint venture analyses, in addition to cost-cutting and restructuring assignments. After earning his M.B.A., Mr. Ryan was hired as a consultant for the management consulting firm Bain and Company in Boston. At Bain, Mr. Ryan worked on Private Equity Consulting projects as well as general growth strategy and cost control assignments. Mr. Ryan left Bain Consulting in early 2006 to join central-NJ-based Yardville National Bank (YNB). At YNB, Mr. Ryan ran the Strategic Planning and Corporate Development group and managed the bank’s new-markets expansion efforts as the emerging markets Manager. Within Strategic Planning and Corporate Development, Mr. Ryan managed the branch expansion evaluation committee to help source, analyze, and execute the bank’s branch growth initiative. The department also performed various analytical projects to help the Board assess the profitability and return on investment for various initiatives. As the Emerging Markets Manager, Mr. Ryan led the expansion effort into Middlesex County, NJ working to source new employees and build a regional headquarters in Piscataway, NJ. YNB experienced solid growth and profitability in this new market under Mr. Ryan’s leadership. Mr. Ryan graduated Summa Cum Laude from Hamilton College in Clinton, NY. Mr. Ryan graduated in 1997 with a Bachelor of Arts degree in Government, a minor in Economics, the Government Department prize, and membership in Phi Beta Kappa. He received a Masters of Business Administration from Dartmouth University’s Tuck School of Business from 2001 to 2003, graduating as a Tuck Scholar (top 20% of the class) and “with Distinction” (top 10% of the class). Mr. Ryan has attended numerous professional development training courses including the ABA’s Graduate Commercial Lending School and the RMA’s Risk Management School. Mr. Ryan is involved with several non-profit organizations including the Hamilton Partnership, the Mercer County 200 Club, the Friendly Sons and Daughters of St. Patrick, the Community Bankers Association, the NJ Bankers Association, the Ancient Order of Hibernians and serves on the Board of Trustees for the Trenton Area YMCA. Mr. Ryan volunteers as a member the Hun School Investment Committee. He also gives back to the community through his participation in various community services events as a member of the Young President’s Organization (YPO). Mr. Ryan previously served on the Board of Trustees for the State Theatre in New Brunswick, NJ, on the Board of Directors at the Middlesex County Chamber of Commerce, with the Robert Wood Johnson Hamilton Foundation (Young Professionals, Strategic Planning Committee), and as a Board member for the Middlesex County Workforce Investment Board. Mr. Ryan coaches his kids’ little league baseball (HVBSA) and ice hockey (Nassau) teams. Mr. Ryan serves at the co-treasurer of the Nassau Hockey program. Professional Awards/Recognitions: New Jersey Bankers Association—New Leaders in Banking (2011) NJ Biz—40 Under 40 Recipient (2014) Robert Wood Johnson University Hospital—Young Professional of the Year (2015). Hamilton St. Patrick’s Day Parade Grand Marshall (pending—March 2016). Mr. Ryan lives in Pennington and is married to Ashley W. Ryan. They are the proud parents of three children: ten-year-old, fraternal twins Liam Patrick Ryan and Lily Eleanor Ryan, and 2 year old Quinn Joseph Francis Ryan. Mr. Ryan’s interests include hiking with his family, ice hockey, golf, kayaking, American history, and political philosophy.

Do you believe the U.S. economy is strong enough to handle interest rate hikes and will rates ever return to pre-crisis levels?

The U.S. economy is doing pretty well.  Unfortunately, the rest of the world continues to struggle—with problems in China now being added to weakness in Europe. Geopolitical unrest (largely driven by ISIS) will only exacerbate the problems and cause investors to be cautious. I expect that international concerns will force the Fed to delay additional interest rate increases to wait and see how the slowdown internationally will impact things here in the U.S. Specifically, I would be surprised if there were more than one additional rate hike in 2016.

Explain how the ongoing rise in interest rates will affect the following: Your banking business

If rates do rise, I would expect that would have a minor benefit to the banking business.  Of course, the Fed only directly controls short-term interest rates. If long rates don’t move, that means the market is telling the Fed to stop. Furthermore, if long rates stay low, increases in short-term rates could actually hurt the banking business because most banks have short-term liabilities and longer term assets. In that scenario, bank margins could get squeezed even further.

Consumers, wanting to spend

What will happen with the consumer in 2016 is a true mystery. So far, significant reductions in commodities (primarily gas) has not prompted a significant increase in consumer spending (as would be expected). This “cautious” consumer is also surprising given low interest rates, lower unemployment and high consumer confidence.  Normally, rising rates would slow consumer spending because borrowing costs go up. But, in an ironic twist, rising rates might lead to improving consumer confidence and higher spending.  The significant drop in the stock market so far in 2016 should be a deterrent to higher spending.

Savers, including those on fixed incomes

Higher rates help savers, if they have assets in fixed-income type investments (usually older savers). Younger savers with more of their wealth allocated to the stock market have obviously been hurt by the recent correction.

Corporate borrowers, both big and small businesses

Corporate borrowing has been very strong—thanks to an improving economy in the U.S. and ultra-low borrowing rates. An increase in rates would likely lead to a reduction in borrowing.

Economic growth locally, as related to unemployment, home sales, construction, car sales or any other aspect you would like to suggest

The NJ economy has lagged the rest of the U.S., with a slower recovery than average for the country. I’m not sure that rising rates would change that story significantly. New Jersey continues to be viewed as a very expensive place to do business, making other parts of the country more attractive for expansion.

Miller Steve photoSTEVE R. MILLER 

PRESIDENT AND COO FULTON BANK OF NEW JERSEY

Stephen R. Miller currently serves as president and chief operating officer (and director) of Fulton Bank of New Jersey (FBNJ—a $3.7 billion, 65 branch commercial bank that currently has offices in 15 New Jersey counties), having been appointed to that position in October 2011. Fulton Bank of New Jersey is a wholly owned subsidiary of Fulton Financial Corporation. Prior to that Steve served as chairman, president, and CEO of Skylands Community Bank, a separate affiliate of Fulton Financial Corporation, which merged with the bank in 2011 when Steve moved into his current position. Steve has served in many other capacities since 1993 when he joined The Bank of Gloucester County, one of the five community banks that were merged into and became part of the current Fulton Bank of New Jersey. These positions include Lending, Branch Administration, and various other Executive Offices. Prior to his current employment Steve had stints at several other New Jersey banks in a career that goes back over 42 years. Steve has always been a strong advocate for community banking and during his career has participated in many community activities and events on behalf of the banks he has worked for, believing it is truly important for financial institutions (which derive their prosperity from the community) to give back in great measure. The most rewarding part of Steve’s time in banking, both in the past and continuing today, has been watching his teammates and peers achieve wonderful careers and livelihoods through the opportunities afforded them at each of the banks where he has worked.

Do you believe the U.S. economy is strong enough to handle interest rate hikes and will rates ever return to pre-crisis levels?

According to economists, the United States has been “recovering” from the 2008 recession since mid-2009, a period of over six years. To many (particularly in New Jersey), it doesn’t seem like a recovery since the pace has been slow, where economic indicators have lagged compared to other parts of the nation. In an attempt to continue moving the recovery forward the Federal Reserve has elected to keep interest rates flat for one of the longest periods in recent history; this has definitely had a positive impact on our customers’ ability to borrow, their cash flows, and overall real estate values. As the Fed now begins allowing rates to move more in concert with market conditions,  all financial institutions are placed in the position of being more vigilant in how these rates will affect their customers, particularly investment real estate borrowers, as well as their own balance sheets.

Explain how the ongoing rise in interest rates will affect the following: Your banking business

With regards to Fulton Bank of New Jersey, we have carefully managed the interest rate sensitivity of our balance sheet and expectations are that increasing interest rates will create better performance results for our organization. It is no secret that financial institutions have seen an erosion of their net interest margins for quite some time; to enjoy a little relief from such compression would be most welcome.

Consumers, wanting to spend

Consumers, who from a borrowing perspective, have enjoyed these low rates for so long, will be negatively affected when rates go up; however, in the context of a historical comparison, they are still at such low levels we don’t believe it will have a serious impact on their desire to borrow and spend money.

Savers, including those on fixed incomes

On the other side of consumer’s balance sheet those monies invested in savings, money markets, and certificate of deposits will begin to see rates climb back to the levels that provide a more meaningful return, helpful for those who have in past years counted interest earned as a large part of their income.

Corporate borrowers, both big and small businesses

Based on the bank’s internal reviews and stress testing of our corporate relationships, we believe that smaller increases in rates (25, 50, or 100 bps) will not create material stresses on their financial condition.  It is no secret in the industry, that as a result of the 2008 crisis, we have put much more emphasis on cash flow and interest rate sensitivity in most everything that we do (including credit underwriting); we believe this will help produce better results in the event of increasing rates.

Economic growth locally, as related to unemployment, home sales, construction, car sales or any other aspect you would like to suggest

Finally, if interest rates go up there is a very challenging issue looming  ahead—the increased cost of financing public sector debt, not only nationally, but also state and locally. Low interest rates over the past six or seven years have afforded the government an opportunity to borrow money at the lowest rates they have seen in decades; in the short term this has benefited all of America by keeping taxing requirements at sustainable levels.  However, if these interest rates escalate to what would be considered “market” in past periods, the cost would be tremendous and create enormous challenges to meet necessary requirements of funding government expenditures. Government already runs at large deficits and to a great extent has covered past expenses via debt; increasing the cost of financing the same would have a very negative impact on the private sector (the consumer and corporate tax paying public) which would be called upon to support the additional debt costs.