Banking Outlook: Metro Areas Faring Best in 2016

By The Lane Report Staff

Kentucky bankers have mixed views of this year’s economic prospects, due to different experiences expected regionally. Overall, continued modest growth is expected for the state, but this is driven by strong labor statistics in urban/metro areas as manufacturing, especially of light vehicles, thrives while an ongoing loss of energy-sector jobs means continued deterioration in Eastern Kentucky.

Luther Deaton Jr., Chairman, President/CEO, Central Bancshares Inc.: 

“Kentucky’s economy will continue its slow recovery in 2016. Modest growth is most likely to occur in the central and northern regions of the commonwealth. Employment will improve slowly, and unemployment will likely remain at its current level. Consumer spending has not rebounded and isn’t likely to increase unless the economic climate improves. We are seeing modest housing growth, mostly from sales of existing homes. Apartment construction has been very strong as younger consumers continue to delay home ownership. The soft economy is making our banking environment extremely competitive as community banks seek to promote consumer and business opportunities.”

Dorsey Hall, President/CEO, South Central Bank: 

“The Federal Reserve Board raised its Fed Fund target a quarter point late in 2015 based on indications of economic stability and improvement. Equity markets, in conjunction with low oil prices, responded somewhat erratically. This will stabilize. In recent years, there has been a structural problem versus a monetary/fiscal policy issue. Baby Boomers started retiring, stopped buying and decreased participation in the labor pool. Subsequent generations have, as of yet, been insufficient contributors to fill the void. However, the Millennials are now some 11 million persons stronger and maturing as consumers; demand should pick up, and the economy will strengthen.”

Mike Ash, Kentucky Regional President, Fifth Third Bank: 

“Contrary to the prediction of many “doom-and-gloomers,” we don’t see the usual red flags – high interest rates, inflation and energy prices – that would suggest a recession is on the horizon. Fifth Third Bank’s investment management team expects modest growth in the United States, between 2 and 3 percent, for the intermediate term. Granted, concerns over the energy sector and the slowdown in China are warranted. However, we feel a strong labor market and low gas prices have rejuvenated the U.S. consumer. These tailwinds, against the backdrop of accommodative monetary and fiscal policy, will be the engine of growth for the domestic economy.”

William “Bill” Craycraft, Market President, City National Bank: 

“The economic outlook for the Central Kentucky area is strong. That’s why City National Bank entered the market last fall. The diversity of the Lexington regional economy and the growth the market is experiencing is stronger than many areas of the nation. This allowed us to grow commercial loans in the market 15 percent over the past six months. Our bullishness over Central Kentucky includes the housing market. Home purchases are anticipated to increase by 13 percent this year due in large measure to Millennials, who are reentering the market and comprise over one-third of home buyers.”

William “Bill” J. Jones, Division Manager Community Banking, U.S. Bank: 

“The optimism created by a 25-basis-point Fed rate hike in December was quickly replaced with market uncertainty and turmoil, due to declining energy prices, economic slowdown in China and other macro-economic factors. Because of these factors, the role of the bank for retail, small business, merchant and institutional customers in Kentucky remains more important than ever. We believe individuals, families and businesses in Kentucky will find opportunities for growth in 2016. U.S. Bank is focused on helping customers convert back-of-the-envelope drawings into new businesses; directing commerce efficiently, conveniently and securely; aiding large commercial enterprises in managing daily activities and expanding when opportunities occur.”

Steve Trager, Chairman & CEO, Republic Bank: 

“We consider ourselves cautiously optimistic as we begin 2016. From a banking perspective, loan demand has been solid if not robust, with rates remaining at historically low levels in spite of the Federal Reserve’s contrary efforts. With the lack of construction over the last several years, there seems to be a lot of pent up demand in multiple categories, including single-family owner occupied, multifamily apartments and hotels. We have access to more customers in more places through alternative delivery channels, including mobile/digital. This creates a lot of opportunities for financial institutions and customers alike. We look forward to pursuing these opportunities.”

Tucker Ballinger, President/CEO, Forcht Bank: 

“Kentucky’s economy continues to show signs of improvement but is still not back to pre-recession levels. The metro markets are experiencing a higher concentration of growth and economic recovery, which Forcht Bank has seen through increased lending requests out of Lexington, Louisville and Northern Kentucky. However, many of the rural markets continue to be challenged with moderate unemployment rates and a general lack of economic development. The global economy has everyone taking a deep breath, but we remain positive on the outlook for Kentucky as we move into the rest of this year.”

Bill Alverson, CEO, Traditional Bank: 

“Uncertainty is the buzzword. Negative interest rates in Europe, weaker output in China, falling commodity prices, and a strengthening dollar conspire to increase economic volatility. Though the domestic economic expansion is growing old, continued improvement in unemployment, housing, wages and consumer spending contribute to an upbeat outlook. The U.S. is one of the few, if not only, safe harbors. Central Kentucky will benefit from continued low interest rates; low commodity prices will fuel the housing market and consumer spending. This bullish outlook is tempered by recent stock market volatility, and lower consumer sentiment would negatively impact spending. Anecdotal evidence from our business community is upbeat for 2016; activity remains much improved over 2015.”

Louis Pritchard, President, Kentucky Bank: 

“As we enter 2016, the global and national economies are facing a great deal of uncertainty. The early decline in the respective equity markets reflects that uncertainty. Economic forecasts for the U.S. economy are predicting a GDP growth of 2 percent or less. The unemployment rate in Kentucky is likely to remain at around 5 percent, and in the markets in which we operate we are anticipating a year much like 2015. Rates will likely remain relatively low and a flat yield curve will continue. Lending will be on a slight uptick but it will be erratic in terms of demand.  Businesses and individual borrowers continue to be cautious. While the coal industry will continue to suffer, healthcare-related businesses and automobile manufacturing in our markets should show growth in 2016.”

Charles P. Denny, Greater Louisville and Tennessee Regional President, PNC Bank: 

“Louisville’s economy will grow more quickly than the nation’s in 2016. The U.S. economy’s continued moderate growth will support our area’s core economic drivers, as many of them respond strongly to national trends. Growth will include manufacturing, transportation, education, healthcare, finance and professional services. Housing recoveries, stronger consumer finances and rising auto sales will underpin solid performances for manufacturers at Appliance Park and for auto producers, parts suppliers, transportation and distribution firms. The drop in gasoline prices will boost consumers’ disposable income and reduce expenses for manufacturers.”

Lloyd C. Hillard Jr., President/CEO, Farmers Capital Bank Corp.: 

“The economic and business environment outlook for 2016 is positive, although individual indicators are mixed and some uncertainty remains. Real GDP growth for Kentucky is forecasted around 1.5 percent, which is below the U.S. projection of 2 percent. Kentucky’s unemployment rate has declined to 5 percent and is around 4 percent in Central Kentucky. Inflation is ticking up, but we do not expect any further interest rate hikes until the second half of 2016. The Central Kentucky market is improving, led by Lexington and Louisville. We are seeing better loan opportunities in commercial real estate and residential mortgages. The wild card is the success or failure of the proposed budget by Gov. Matt Bevin.”

Frank B. Wilson, President/CEO, Wilson & Muir Bank & Trust Co.: 

“Bardstown-based Wilson & Muir Bank & Trust Co., has locations across Central Kentucky. The economies in each of our markets are very strong and the near future looks solid, driven by the success of the bourbon and automotive industries, two of the largest employers. As the Bourbon Capital of the World, Bardstown is the trailhead to the Bourbon Trail, and bourbon tourism’s incredible success has made a huge economic impact on contractors and service providers. A strong regional economy has Bardstown’s historic downtown enjoying a very vibrant retail economy that has few rivals across the state.”

Jean Hale, Chairman, President/CEO, Community Trust Bancorp: 

“The economic indicators for Kentucky overall have improved significantly, however, certain state regions are not experiencing this. The eastern and northeastern regions, continue to experience significant loss of jobs in energy and related fields such as steel production and railroads as well as suppliers. During 2016, we expect conditions for most of the state will remain basically the same as 2015 except for the eastern and northeastern regions, which are subject to continued deterioration. Improvements in unemployment and business have been positive for banking; we have seen increases in loan demand and reductions in problem loans. However, we will continue to experience pressure on our net interest margin as long as the Fed continues to hold interest rates low.”

John Gohmann, Lexington and Central Ky. Regional President, PNC Bank: 

“Lexington’s economy is on track for moderate economic growth in 2016 thanks to a diverse manufacturing base and the anchor provided by healthcare and the University of Kentucky. As the national labor market approaches full employment and income growth continues to pick up, 2016 will likely be an even better year for auto sales. Although the overall outlook is sanguine, cuts to state spending and potential changes to Kentucky’s Medicaid program are downside risks to the outlook.” ν