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2019 Looks Like a Good Year for Banking

Diversified economies and confident consumers will keep state’s urban centers growing faster than the U.S. economy

By Lane Report staff

Kentucky bankers had a successful, profitable 2018 – for some, record profits – and foresee more of the same in 2019. The major urban centers have the strongest economies, and their growth could be better than the nation as a whole, where forecasts currently call for another 2.5 percent expansion in GDP. Business clients are optimistic and investing in buildings, land, equipment and personnel because consumer confidence is good enough that households and businesses are willing to increase their debt and continue to spend – except in areas where painful job losses in energy and related sectors are causing some residents to move … to the urban centers. Health care, education, manufacturing, technology and basic entrepreneurism are all considered reliable growth drivers. Bankers like the Federal Reserve’s signals that interest rate increases will be small and infrequent. Potential headwinds would come from outside the state if tariff battles escalate or a global slowdown cuts demand for exports.

“Greater Louisville continues to benefit from a strong and growing economy. We expect that trend to carry over through 2019, mainly because of our large, diverse, innovative industrial base and the positive impact of a major research university in the University of Louisville. We continue to monitor tariffs, sector job cuts and interest rates, especially pertaining to exports and auto manufacturing. The regional economy is strong and there’s no indication these industries will hit anything other than speed bumps, if that. Local consumer spending is strong, driving solid gains in retail, leisure and hospitality employment. Health care, education, manufacturing and technology also continue to be reliable growth drivers. Our diversity and strength, including a major research university, drives our ability to move forward during economic turbulence. The impact of Greater Louisville’s growing entrepreneur and start-up economy and the focus on developing the infrastructure and ecosystems will continue to sustain innovation and growth.” — Chuck Denny, Regional President, PNC Bank, Louisville

“Generally in 2019, we see the national economy continuing to grow, but at a slower pace than recent years because of global growth slowing and uncertainty over U.S.-China trade negotiations. Federal monetary policy also will influence growth. Kentucky should see economic expansion in areas like construction and development, especially in urban areas, the bourbon tourism sector, infrastructure and innovation. The state’s agribusiness sector could rebound after a tough 2018, but much is dependent on U.S.-China relations. Our commercial bank customers are telling us that the economy is still relatively strong and they remain optimistic. As a bank, we will continue to focus on digital products and working to meet our customers where they are, whether online, in a branch or out in the community.” William J. “Bill” Jones, Kentucky Market President, U.S. Bank 

“The U.S. economy demonstrated solid 3.3 percent GDP growth in 2018, with unemployment close to 3.7 percent. Inflation is remaining at a safe 2 percent. Economists project about 2.5 percent GDP growth for 2019. The same can be said of economies in the markets Kentucky Bank serves. Central Kentucky continues to be stable, with GDP growth around 2.3 percent in 2018 and similar expectations in 2019. We expect Kentucky unemployment just above 4.5 percent to remain close to that level throughout 2019, with Central Kentucky and Fayette County rates close to 3.6 percent. The Federal Reserve seems to have committed to fewer increases in interest rates. This should calm the markets after a bumpy last two months of 2018. Barring repercussions of the tariff disputes and the slowing of the global economy, we should have a solid year economically, both nationally and locally. Kentucky Bank is fortunate to be in 10 stable or growing markets, which allows us to grow while providing needed financial services for our clients and customers.” — Louis Prichard, President/CEO, Kentucky Bank

“Old National Bank remains optimistic about the Central Kentucky economy. We are proud to support projects such as City Center, renovation of the courthouse and affordable housing on North Limestone. The renovation of Rupp Arena and Lexington Convention Center along with the new hotels at City Center all point to continued growth in tourism for downtown Lexington. However, Federal Reserve tightening and a flattening yield curve often lead to slowing in our nation’s economy. The good news is that so far the Federal Reserve’s tightening policy has kept inflation at a manageable rate, allowing long-term interest rates to remain low, which helps consumers on mortgages and auto loans. Unemployment remains very low, but disposable income is under significant pressure because wage gains are minimal while sales taxes, local taxes, surcharges, education costs and health-care costs continue to rise. Lower energy prices help to balance the rise in other consumer cost categories but that is often short term.  Nonetheless, Old National’s outlook for Central Kentucky is optimistic as our workforce is more highly educated, more productive and more affluent than many areas in the country.” — Scott Cvengros, Central Kentucky Market President, Old National Bank

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“At BB&T, we believe the U.S. economy’s underlying fundamentals support continued growth in 2019, albeit slower than last year given domestic political unrest, market volatility and increasing international tension. We see continued optimism from our clients, who are making investments in building, acquiring land, equipment and personnel. As a result, we expect local companies to push for modest growth this year, especially in the manufacturing, construction, health care, automotive and technology sectors. On the consumer side, we see continued confidence as a result of a strengthening labor market, wage growth and lower income tax burdens, against a backdrop of muted inflation. In 2019, BB&T will continue to make significant technology investments aimed at enhancing the customer experience and reducing cyberrisk. We stand ready to provide capital to creditworthy borrowers to foster business growth and to provide advice to help our clients achieve economic success and financial security. ” — Thomas F. Eller Jr., Regional President, BB&T

“The economy entered 2019 with some uncertainty due to continued government division in Washington, including a recent shutdown. During 2018, improvement was evidenced by the Federal Reserve increasing interest rates and beginning to unwind its balance sheet as the country continued experiencing decreased unemployment rates, increased business activity and consumer spending, and willingness to add debt. Inflation is at the expected manageable. Conditions in most Kentucky regions continue to be positive with low unemployment and increased business and consumer activity, resulting in pressure on wages as well as a strong competitive environment for loans and deposits. Eastern and northeastern Kentucky continue to struggle with outmigration from the impact less employment related to the energy industry. Community Trust Bancorp again met the challenges of operating in varying conditions in Kentucky, West Virginia and Tennessee and achieved record earnings in 2018. With our financial strength, the economic diversity of the geographic regions allows opportunity for the continued growth of Community Trust, although not always in each region.” — Jean R. Hale, Chairman, President/CEO, Community Trust Bancorp Inc.

“The U.S. economy will grow more slowly than last year, but still deliver above-trend growth. Kentucky business leaders remain positive about an economic expansion, yet some are anticipating slower growth rates. The National Federation of Independent Business reports 23 percent of small-business owners say the availability of qualified labor is their top business problem, compared to 15 percent citing taxes (up two points), 12 percent citing regulations and red tape, and 2 percent citing financing (down one point). Kentucky offers companies a low-cost environment with a skilled labor force and model transportation network to distribute products by air, rail, road and water. Companies considering a new headquarters or expansion location should consider business-friendly Kentucky. With the growth and return of manufacturing a U.S. economic trend, we are poised to be the hub for manufacturing and engineering excellence and benefit from this trend.” — Mike Ash, Kentucky Regional President, Fifth Third Bank

“Looking forward from early 2019, we expect Kentucky to grow faster than the national economy, based on above-average growth in Northern Kentucky, Louisville and Lexington. It’s normal for those markets to outperform the nation as a whole. It appears that recent volatility in the stock market may promote uncertainty that will slow 2019 performance across the country. Indications call for the Federal Reserve to keep interest rates near current levels, with only a slight expectation for an increase later in the year. Consumer spending has led the recovery and is providing growth in small business, especially in the service sector. Consumer confidence may produce renewed interest in housing, but inventories of available homes are still below the demand in most markets. ” — Luther Deaton Jr., Chairman, President/CEO, Central Bancshares Inc.

“Expect another solid growth year in Kentucky as business expansion and consumer spending continues to steadily increase. The Louisville, Lexington and Northern Kentucky markets continue to lead the growth opportunities. The tight labor market is the most commonly discussed issue among business owners and will continue to present challenges. The Federal Reserve communicates it is well positioned regarding rate increases, but added that the economy can change quickly, leaving room for them to make adjustments. This communication signaling a slowdown on the pace of increasing rates was very well received by business owners. The banking industry is performing extremely well, and most community banks are achieving record income. I anticipate we will see more industry consolidations as banks look to take advantage of economies of scale. The banking industry will continue allocating a significant amount of money to improve mobile technology as consumers and businesses want the convenience of utilizing their phones to conduct business.” — Tucker Ballinger, President/CEO, Forcht Bank