With Strong 2019, Banks Confident Heading into 2020

YOUNGSTOWN, Ohio – On the heels of a record year in 2018, many banks in the Mahoning Valley say they’re in a similar position as this year comes to a close, bolstered by strong performance in both commercial and residential lending.

“There are always challenges with every business and I think we overcame a lot of them, not just in the day-to-day things but in the ebbs and flows of the macroeconomy and regulatory environment,” says Kevin Helmick, president and CEO of Farmers National Bank. “We’re in a record year and just came off a record quarter financially.”

Among those challenges were the Federal Reserve’s three cuts to benchmark interest rates causing margin compression and clients’ efforts to expand often stymied by being unable to find the needed workforce. Throughout the area, similar themes were touched on by other banking leaders interviewed by The Business Journal.In addition to Helmick, they include Home Savings Bank President and CEO Gary Small, Cortland Bank President and CEO James Gasior, PNC Mahoning Valley Regional President Ted Schmidt, Huntington Bank Canton/Mahoning Valley Regional President Bill Shivers and First National Bank of Pennsylvania Vice President for Community Commercial Banking Frank Krieder.

“With The Fed slowing rate changes, a lot of the conversation is about margin of compression where we’re seeing lower interest rates. It’s right for the consumer because they have more purchasing power,” Cortland Bank’s Gasior says. “For us in the banking industry, it means less interest income and profitability. Some of our challenges in 2020 are offsetting those decreases with other sources of income or reduction in expenses.”

Part of that solution is something that started this year: Cortland Bank’s listing on the Nasdaq. The bank began trading on the stock exchange March 8 and rang the opening bell May 17. At the close of business Nov. 20, Cortland Bank was trading at $21.99. 

“It’s created more visibility to investors. As a public company, we’re always looking at new investment into the bank,” Gasior says. “What moving from the over-the-counter QX market to the Nasdaq does is open us up to additional investors that weren’t available to us. … Although it’s relatively new, we’re continuing to see interest in the bank’s stock.”

Cortland reported net loans totaling $488.8 million in the third quarter.

In a move with similar purpose, Farmer expanded its offerings to include wealth management several years ago. That division now manages $2.2 billion in assets, almost even with the banking division’s $2.4 billion.

“That generates noninterest or nonspread income for us that helps offset some of the interest rate cycles and other issues,” Helmick says.

For most banks, coming off record years in 2018, commercial lending continues to drive business. At FNB, Krieder reports loan production and commercial banking revenue are at record paces through the first three quarters. The bank reported net loans totaling $953 million in its most recent quarterly earnings statement.

“We have been steady across most industries and sectors but three really stand out,” Krieder continues. “We continue to see growth opportunities in the senior care/senior living area given the continued demographics trends. Additionally, our investment real estate sector has seen strong activity due to refinance opportunities in this low-interest environment,” he says. 

“And as our balance sheet has grown significantly over the past few years, it has provided opportunities to be the lead agent in the syndicated-loan space financing large, multimillion-dollar financing packages, joining with several other banks in a single-credit relationship transaction where FNB acts as the lead arranger,” Krieder says.

At Home Savings Bank, Small says that while 2019 is shaping up to be another good year for the bank, next year will bring new business through its merger with First Federal Bank of the Midwest in Defiance, slated to be completed near midyear.

“We’re both going to be stronger on commercial lending. Being twice the size affords us the ability to do business with folks with larger credit needs and we certainly have the capability with the teams doing it. But you always are constrained by the size of your organization; you can’t take outsized business-lending risks,” Small says.

Small expects the combined financial institution to see “tangible results” within 18 months of the union being completed and that the merger brings with it First Federal’s significant agricultural lending portfolio.

In the third quarter, Home Savings reported loans totaling $2.224 billion. And, Small adds, residential lending is on pace for the bank’s best year ever.

“I think you’ll continue to see those of us that are strong in that area to continue that into 2020. It may not be the exact same year as ’19, but it’ll be another great year for mortgages,” Small says.

At PNC, it’s a similar story, Schmidt reports. The Pittsburgh-based bank had consumer lending of $160.2 billion at the close of the third quarter, he says, up 2% from the same period in 2018. Net loans totaled $237.4 billion at the end of the third quarter.

“Mortgage rates dropped throughout the year, which made it a great time to refinance. Even people who recently bought houses have refinanced and have the potential to save thousands,” Schmidt says. 

The decreases in benchmark rates didn’t just impact the residential-lending side of the banking industry. Representatives from all six banks interviewed for this story reported increased activity on the commercial side as well. And growth wasn’t limited to any sector in particular, Huntington’s Shivers observes.

“It may be metal fabrication, metal stamping, the food industry; we’re seeing growth in almost all of the pockets. I wouldn’t say that any one stood out,” he said. “Almost all industries had an opportunity to grow and do well.”

Huntington reported $99.7 billion in net loans for the third quarter. 

At Farmers, Helmick says lending to small businesses remains the largest segment of the organization, noting that its agricultural portfolio is up 14% over last year. Overall, Farmers reported loans totaling $1.769 billion in the third quarter.

“We continue to emphasize small-business lending. Loans between $3 million and $10 million are our bailiwick,” Helmick says. “Our commercial portfolio is up high single digits to double digits on an annualized basis in 2019. It’s not just a focus on the credit and loan aspect, but it’s also helping them preserve capital.”

While this year started with some forecasting an impending recession, bankers say the clouds are still far off on the horizon. PNC economists, Schmidt says, put the chances of a recession happening by the end of 2020 at 35% and the chances of one by the end of 2021 at 50%.

“As of June, it was a 10-year expansion, so we’re in uncharted territory. But I’ll remind you that Australia has been going 27 years and they’re still growing,” Shivers adds. “I’m hoping that we’re not going to talk ourselves into something that’s not out there. Consumer confidence is at an all-time high and consumers drive 75% of our GDP. There’s a lot of strength out there.”

Heading into a presidential-election year, Shivers says, some businesses are hesitant to make decisions on large capital projects, a similar trend seen by Small, although the Home Savings president says there other factors as well, including the trade war and uncertainty over what will happen with The Fed’s benchmark rates.

“It’s been a steady year but perhaps more moderate than past years. It’s  reflective of our commercial clientele. They’re minding their P’s and Q’s,” Small says. “There’s enough noise that people are being moderate on their growth expectations and not betting the farm. That’s good business.”

Pictured: Farmers National Bank President and CEO Kevin Helmick says the Canfield-based bank is in position for a record year.

Copyright 2024 The Business Journal, Youngstown, Ohio.