Banking Outlook | Improving Economy Bodes Well for Banking

By LaneReport.com Staff

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Kentucky banks expect distinct improvement in 2017. Business confidence is improving, enough that many are at last making investments to meet the growing demand they expect – after having stood still for five to 10 years. And there’s good news from Washington, where the Federal Reserve has suggested three baseline interest-rate increases this year that would give community bankers some “spread” with which to make better profits on their loans. Also, Congress and the new presidential administration strongly support reforms in banking regulations that have steeply raised compliance costs for banks and made it difficult to qualify borrowers. Housing demand is expected to drive more construction and increased mortgage lending.

“The national and Kentucky economy improved in 2016, and should be stronger in 2017. However, Kentucky’s improvement was regionalized: weak conditions continue in east and northeast Kentucky due to loss of jobs and employment opportunities. Workforce retraining is underway, but opportunities must occur for significant change in economic conditions. For our nation and state, 2017 is expected to be a year of change. Significant change is proposed in tax structure, healthcare, trade and the regulatory environment.  The extent and impact remains unknown, but there is optimism in the business community. Improvements in unemployment and business activity have brought banks more loan demand and fewer problem loans. However, pressure on our net interest margin will continue as long as the Fed continues to hold interest rates low.” — Jean R. Hale Chairman, President and CEO, Community Trust Bancorp Inc.

“Rising rates signal that our economy is heading in a positive direction in 2017 and this is great news for businesses and consumers. Growing confidence could encourage projects and expansion which is good for everyone. Technology plays a large role in how customers are interacting with money. It’s an exciting period in payments history and U.S. Bank is a leader in the field with P2P (person to person) payments. We will continue to see new technologies come into play in 2017 and we are committed to growing our relationships with Fintech companies.” — William “Bill” J. Jones Division Manager, U.S. Bank

“Business optimism has risen significantly in the past few months. For the first time since the recession, the majority of businesses are planning to expand their workforces and make new capital investments. However, what we hear from our clients is that as businesses look to invest and expand, most are having trouble finding skilled workers. So, for the past few years JPMorgan Chase has given nearly $3 million to support the workforce development efforts of the state, the Kentucky Chamber and education leaders throughout Kentucky. Helping people develop their skill set to meet the demands of the workplace results in greater success for individuals, our businesses and our communities.” — Paul Costel Region Manager, JPMorgan Chase

“We see positive indicators for the U.S. economy in 2017, including projected tax reform, infrastructure investment, higher GDP growth, stronger consumer confidence and a strengthening labor market. Our clients are making equipment and personnel investments after being on the sidelines for five to 10 years. While Kentucky will lag the robust growth of major U.S. markets, we expect commonwealth companies to push toward solid growth, especially in the manufacturing, construction, healthcare and automotive sectors. Businesses are expanding and advance technologies are being developed here, bringing prominence to the commonwealth. Interest-rate hikes and possible Dodd-Frank regulations relief will likely bolster financial services performance, specifically banking. Banks will make more technology investments to enhance customer experience, are eager to lend to creditworthy borrowers and ready to help drive economic success.” — Thomas F. Eller Jr. Regional President, BB&T

“The economic outlook for Kentucky continues to show signs of improvement. We’ve seen steady growth across numerous segments, including commercial real estate, small business, consumer and residential lending. It’s widely expected the Federal Reserve will continue its path of increasing rates in 2017. As rates continue to rise, the opportunity for residential refinances will decline, but we anticipate demand for new homes to increase, leading us into a strong purchase market. We are optimistic that with new government leadership, regulations currently hindering the banking industry’s growth will ease, creating an environment for banks to invest more in their products and services, thus providing more options for businesses and consumers. Overall, we are excited for what 2017 holds for Forcht Bank and the commonwealth.” — Tucker Ballinger President/CEO, Forcht Bank

“Kentucky’s economy will continue its slow-growth recovery in 2017. Modest growth will be likely, mostly in the “Golden Triangle” of Central and Northern Kentucky and Louisville. I believe employment will improve, but we are not creating enough middle-income jobs to improve household income for the majority of our citizens. Consumer spending has improved some but has been inconsistent. We are seeing modest housing growth, mostly from sales of existing homes, due to a lack of available land. Apartment construction has been very strong as younger consumers are choosing that option instead. The soft economy is making our banking environment extremely competitive as community banks seek to address consumer and business opportunities.” — Luther Deaton Jr. Chairman, President and CEO, Central Bancshares Inc.

“Lexington’s economy is on sound footing for 2017 with strong local consumer spending and stability in employment. Education and healthcare continue to be reliable growth drivers making the biggest contribution to employment growth in 2016. The University of Kentucky will contribute to the region’s stability and will support economic growth by supplying educated workers. About 36 percent of the area’s adults hold at least a four-year degree compared to 31 percent nationally. Higher educational attainment increases Lexington’s chances of attracting diverse, high-wage employment.” — John Gohmann Regional President Lexington Market, PNC Bank

“As we move into the eighth year following the financial crisis, community banking is going strong. Even in the midst of heavy regulation, mortgage lending has expanded over the past 12 months. By increasing our tolerance for regulatory costs and embracing technologies that serve the needs of our clients, Traditional Bank has been able to grow our market share relative to commercial banking, providing relationship-based solutions that serve the unique needs of businesses in the Bluegrass. Kentucky’s community banks have adapted well to the current financial climate, setting the stage for healthy growth on the lending front and allowing us to continue to serve the developmental needs of our local communities – which is always a top priority for our bank.” — Bill Alverson Chief Executive Officer, Traditional Bank

“City National Bank had an excellent 2016. A $4 billion publicly traded company with 85 offices in Kentucky, West Virginia, Virginia and Ohio, City celebrated its first year in Central Kentucky and saw growth in commercial and retail lending. City has a very positive outlook for 2017 and expects strong loan growth across the board in Central Kentucky’s diversified and growing economy. Lexington’s hot housing market is the best we’ve seen in years, and our mortgage portfolio puts us in a great position to serve greater Lexington. We have had great success with our Champion Mortgage that has no down payment, no private mortgage insurance, low closing costs and low interest rate options. 2017 should be a great year for the Bluegrass.” — Bill Craycraft Market President, City National Bank

“The 2016 economy ended well, and PNC expects Louisville to settle into its long-term growth rate in 2017. With a tight labor market and favorable mix of jobs being created, we expect wage growth to increase. E-commerce is playing an increasingly important role in retail, which is a boon for local transportation firms. Our economy’s success in the years to come will be credited to its diverse industrial base of a wide array of large, successful employers from auto manufacturing to education and professional services.” — Chuck Denny Regional President Greater Louisville and Tennessee, PNC Bank

“The U.S. economy is on firmer footing than in prior years. The same can be said of local economies in the markets Kentucky Bank serves. Central Kentucky continues to be stable with GDP growth of around 2 percent in 2016, perhaps increasing to 2.5 percent in 2017. Unemployment continues to hover around 4.8 percent, and we expect it to remain close to that throughout the year. The Federal Reserve may increase short-term rates two or three more times in 2017. Depending on how often those take place, we are likely to see an increase in interest rates both for commercial and consumer purposes. Kentucky Bank is fortunate to be in 10 stable or growing markets, which have allowed us to grow as we provide needed financial services.” — Louis Prichard President/CEO, Kentucky Bank

“The sustained growth of Central Kentucky’s diversified service economy was a strong factor in influencing Old National Bank to expand our successful Louisville and Western Kentucky franchises. We believe healthcare and education will continue to provide a stabilizing effect on the region’s economy. The recent expansion at Toyota with the Lexus production line, in addition to our continued conversations with business leaders, show real optimism and signs we believe make Central Kentucky a solid marketplace for the foreseeable future.” — Scott Cvengros Central Kentucky Market President, Old National Bank

“The economy in early 2016 suffered from weak investment in the oil sector, a contraction in manufacturing and the aftermath of rapid rise of the dollar; all those weights by the second half, lifted creating momentum for 2017 throughout Kentucky and the nation. The election results built on that momentum with the prospect of pro-growth fiscal and regulatory policies. Most of the potential policies will accelerate growth from a three- to five-year perspective. Even without legislative change, many regulatory burdens on growth can be eased in the energy and financial sectors. Pro-growth initiatives such as tax reform, repatriation of overseas profits, and infrastructure spending will likely improve business confidence, historically a leading indicator of capital investment, which drives productivity.” — Mike Ash Kentucky Regional President, Fifth Third Bank 

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