New Jersey Bankers Association and the Edward J. Bloustein School of Planning and Public Policy, Rutgers University Release Results of Sixth Annual Economic Survey
On Feb 5, 2016
The New Jersey Bankers Association, in conjunction with the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, has released the results of the sixth annual NJBankers Economic Survey of Bank CEOs. The survey inquired about national and state current economic assessments, as well as six-month projections; expectations about long-term and short-term interest rates; commercial real estate and business loan demand; and residential loan demand. The survey also explores changing demographics. For example, a large portion of respondents indicated that there is a trend of out‐migration of Baby Boomers from New Jersey to other states.
The survey was conducted under the direction of James W. Hughes, Ph.D., Distinguished Professor and Dean, Edward J. Bloustein School of Planning and Public Policy, Rutgers University; Marc D. Weiner, J.D., Ph.D., Bloustein School and Data Analyst Paul Siracusa, M.P.P., Research Associate Alan M. Voorhees Transportation Center Associate.
The survey sampled all 101 member institutions of the New Jersey Bankers Association. Of the 101 banks in the panel, 82 completed the survey questionnaire for an overall response rate of 81.2 percent.
Highlights of the survey include:
For the history of this survey, no respondent has ever selected “excellent” in rating the current health of either the United States or New Jersey economies. Still, responses from 2012 to 2015 generally indicate the perception of an improving national economy, with eight-out-of-ten of the most recent survey respondents believing that the improving national economy will “remain unchanged” over the next six months.
However, compared to the prior year’s survey outcomes, six-month expectations for New Jersey’s economy weakened and so recent optimism at the national level does not necessarily translate to the state level. Again, eight-out-of-ten of the most recent survey respondents believe the state economy will, over the next six months, “remain unchanged” in that weakened condition.
A slight majority of survey respondents expect long-term interest rates to “remain unchanged,” with over four-out-of-ten respondents anticipating an increase. For short-term interest rates, there is a pronounced growing expectation of increase over the next six-months.
Over half of respondents still rate current demand for business loans as only “fair,” a measure that has been generally stable since 2010. Nonetheless, those indicating current business loan demand as “good” has grown steadily each year since 2012 to slightly over one-out-of-three, suggesting a cautious optimism.
This survey year continued to show general improvement in demand for in-market commercial real estate loans, with the same pattern holding for in-market residential loans. For residential loans, this was the first year that the “good” rating exceeded the “fair” rating (by a full 8 percentage points).
Overall, from 2012 to 2015, current demand for in-market residential refinances appears to have weakened. Still, there may be cause for cautious optimism as the share of respondents indicating that demand for in-market residential refinances was “good” doubled from 2014 to 13.5 percent in 2015, while the “fair” rating flattened out.
Expectations for in-market home values was first asked in 2013; since then the majority of respondents continue to expect no change over a six-month projection. From 2014 to 2015, however, there was a bit more optimism with the proportion anticipating an increase growing to approximately one-out-of-three respondents.
A majority of respondents indicated that they were as confident in multi-family rental housing lending in 2015 as they were in 2014.
In 2014 and 2015, a majority of respondents reported that the number of residential and commercial customer foreclosures “remained unchanged.” That majority, however, increased by about 10 percentage points for each category to just under 68 percent for residential, and just over 71 percent for commercial, customers.
Stability marked the ratings for both the commercial and residential foreclosure processes, with strong majorities indicating those processes remained “unchanged.” However, rating of both processes showed slight increases in the proportion of respondents indicating improvement.
For the most recent survey year, a non-zero but trivial percent of respondents reported the abandonment of residential properties by consumers has been a “serious problem,” compared to 5 percent a year earlier. This year saw a slight increase in the percentage of respondents indicating that the abandonment of residential proprieties by consumers was “not a problem at all” with those characterizing it as “moderate” or “minor” problem remaining stable. It seems, then, that the abandonment of properties is a slowly abating problem.
Asked for the first time during this most recent survey cycle, over seven-out-of-ten respondents indicated that they had incurred maintenance or repair costs over the past six months for proprieties that their bank had taken title of in the foreclosure process. Nearly four-out-of-ten indicated incurring such costs on properties to which their bank had not yet taken title in foreclosure. The two frequently mentioned costs of foreclosed or abandoned and in-foreclosure properties were general maintenance and landscaping.
The “Common Obstacles to Lending” set of questions was first asked in 2013 at which time the leading concerns for consumer lending were the regulatory environment, followed closely by lack of demand. Despite some changes in the distribution during the 2014 survey cycle, this field period showed, again, the key obstacles to consumer lending to be regulatory concerns and lack of demand, indicating stability in those concerns.
In 2013, the most significant obstacle to business lending, however, was lack of demand, followed by a lack of qualified borrowers. As with consumer lending, despite some distributional changes in the intervening year, this survey cycle saw lack of demand and a lack of qualified buyers as the key obstacles to business lending, also indicating stability in barriers and constraints.
The vast majority of respondents (over 8o percent) confirmed that their institution was now fully staffed for on-going compliance with Dodd-Frank’s requirements. The three most frequently reported expenditures vis-à-vis Dodd-Frank were for compliance, consultants, and training; the data also show significant hiring related to both legal and regulatory compliance, as well as document and process security.
Ask for the first time this year, the most reported type of cyber protection was an IT employee who focused specifically on cybersecurity (72 percent), followed by a contract with a 3rd party vendor that focuses on cybersecurity (67 percent). Beyond dedicating an IT employee, approximately 25 percent of respondent institutions have, separate from IT per se, a full-time person dedicated cybersecurity and another approximately 13 percent have a part-time person so dedicated.
Over the next 12 months, 55 percent of respondents indicated it was very or somewhat unlikely their bank would acquire another institution, while 71 percent noted that it was very or somewhat unlikely another institution would acquire them. By contrast, nearly 24 percent indicated that over the next 12 months it was very or somewhat likely their bank would acquire another, with slightly over 15 percent indicating it was very or somewhat likely they would be acquired. Compared to the prior survey period, these results show a 9 percentage point increase in the net likelihood expectation of being acquired, and an approximately 1.5 percentage point increase in the net likelihood of acquisition.
Respondents report that factors driving the consolidation of banks in New Jersey were, at over nine-out-of-ten respondents, rising regulatory compliance costs, at about six-out-of-ten respondents, satisfactory shareholder returns, and a lack of management succession at about five-out-of-ten.
A majority of respondents did not foresee a need for their bank to adapt business practices in order to accommodate the needs of the Baby Boom generation. Similarly, seven-out-of-ten did not report noticing a trend in the transfer of wealth from older generations to younger ones. Among those who did notice just a trend, about six-out-of-ten reported it had no effect on their deposit base or their bank’s operations.
A large portion — almost eight-out-of-ten respondents — observed a trend of out-migration of Baby Boomers from New Jersey to other states. Among those, over six-out-of-ten noted that trend had decreased their deposit base, but eight-out-of-ten reported no other impact on their bank’s operations.
Most respondents believe that Gen-X, i.e., those now 39 to 50 years old, are sufficiently experienced to assume strategic leadership and upper management positions in the banking industry. Indeed, over three quarters of the sample reported having a specific succession plan for leadership transition.
In terms of recruiting for entry-level positions, the approaches cited at greater than 50 percent frequency were, in order, employee referrals, informal networking, and internal transfers. The next most popular approaches were, again, in order, local popular press advertising, social networks, recruiting firms, intern-to-hire, and corporate career site.
Recruiting for upper-level leadership and senior management positions was similar, except that the most frequent response was the use of recruiting firms. Then, as with entry-level positions, employee referrals, informal networking, and internal transfers were the next most cited. At the more senior level, the other recruiting options were substantially less frequently deployed.
The vast majority of respondents reported that over the last two years their bank has not experienced a director resignation due to concerns about potential directors’ liability exposure. Similarly, over the last two years, the vast majority indicated their bank had not experienced difficulty in securing qualified candidates for a vacant director’s seat due to concerns about potential liability exposure.
Dr. James W. Hughes, Distinguished Professor and Dean, Edward J. Bloustein School of Planning and Public Policy stated, “This year’s NJBankers survey reveals optimism about the continuation of the economic expansion, and economic conditions, in the United States and New Jersey. Many of the individual metrics of the survey indicate that improvements in the state’s banking industry took place in 2015, and that they will continue into 2016.”
According to Dr. Marc D. Weiner, Associate Research Professor, Edward J. Bloustein School of Planning and Public Policy, “The survey was conducted under best practices of methodologically rigorous survey research. Thanks to the strong cooperation of the New Jersey Bankers Association’s membership, we achieved just over an 80 percent response rate and now have six years of data points on many vital economic indicators, on which Dean Hughes has conducted an in-depth analysis.”
John E. McWeeney, Jr., president/CEO of NJBankers added, “We conduct this annual survey of our member bank CEO’s because we feel that they, better than most, really have their hands on the pulse of New Jersey’s economy. This year’s survey reflects their general view that things have continued to steadily improve as well as a sense of optimism for the future.”