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2017-08-25 / Front Page

A steady pace

Pennsylvania community and regional banks aim to keep growing while not getting too far ahead of the curve
BY R. BROCK PRONKO
Regional Business Analyst


Cimino Cimino Rising rates from the Federal Reserve, uncertainty over the rollback of Dodd- Frank, competition from “online only” banks, brokers and mortgage lenders, and attracting enough deposits to cover growing loan demand are a few of the issues community and regional banks have been dealing with this year.

In response to the financial crisis of 2008, the Fed cut its short-term interest rate to a record low range of zero to 0.25 percent and kept rates near zero until December 2015.

In March 2017, the Fed increased the benchmark rates by 25 basis points, which means that interest rates were increased by 0.25 percentage points. Banks wasted no time in raising rates on credit cards, lines of credit and other loans, but when it came to increasing rates on saving accounts, most banks kept their rates the same. The best return interest rates are now offered by online banks.

CNB Bank, headquartered in Clearfield, has not raised its deposit rates this year.


Hayes Hayes “While the Fed affects short-term rates for borrowing purposes, the market establishes acceptable rates for longer term borrowings and deposits,” said Joseph B. Bower, Jr., president and CEO of CNB Financial Corporation/ CNB Bank.

“At this time, there has not been the market pressures providing for alternative safe investments that would give the depositor more return, for example U.S. Treasury Bond returns.

“The competitive landscape is generally different for smaller community banks and credit unions.

“The ability to fund each bank or credit union is significantly different based on geography, favorable taxation, alternative sources etc., it’s not as simple as saying that savings is a commodity.”

CNB’s savings accounts and other customer investment products totals have fully recovered and then some. On December 31, 2007, CNB’s total deposits (checking, savings, money market and CDs) were $659 million and as of December 31, 2016, its deposits totaled $2 billion, an increase of over 300 percent.


Bower Bower Some smaller banks and credit unions are offering competitive rates on savings, CDs and other investment products. This includes Kish Bank, headquartered in Belleville.

“When we came off a seven year stretch of rates close to zero, that first quarter percent in 2015 didn’t do much but restore a margin that had disappeared, but as the Fed demonstrated its continued commitment to higher short-term and intermediate-term interest rates, Kish began raising its savings rates across the board including our money market accounts, and we’ve recently introduced new savings products that pay even higher rates,” said Bill Hayes, president and CEO of Kish Bank.

“But we don’t want to get too far ahead of the curve, because we don’t know the details behind the Fed’s sustained commitment to a certain economic strategy.

“There needs to be economic expansion such that they are not only looking at full employment but asking if people are finding the kinds of family sustaining jobs they are looking for, and will rising employment create pressure on things such as salary expenses and benefits that they need to be watching carefully as the economy starts to pick up speed.”

This year, Kish’s lending has grown by 14 percent, a sign of returning consumer and business confidence.

“Loan demand has not only accelerated but is almost at a record level with commercial loans and residential borrowing,” said Hayes.

“There’s a strong appetite on the part of borrowers, and assuming that’s going to stay, the pressure to find and attract depositors will only increase, which is where having competitive interest rates comes into play.

“A year ago, we had more deposits than we needed to balance our books, but this year we’ve seen a significant loan growth of 14 percent whereas deposit growth has been only 10 percent, and we’ve had to work very hard to attract those deposits.”

The biggest unknown for banks going into next year what the impact of the Congress’s effort to “repeal and replace” the Dodd-Frank Act will be when it returns to revise the stalled Financial CHOICE Act.

Which reforms would banks like to keep and which would they like to discard or change?

“As a community-based bank that was strong throughout the financial crisis, I believe the most important part of the Financial CHOICE Act is rolling back the Dodd-Frank mortgage regulations that put a lot of undue stress on the mortgage process,” said Bower.

“These mortgage regulations closed the doors of many smaller mortgage lenders, shrunk the available products for those who did stay open, and overall made it more difficult for a large segment of consumers in the U.S. to obtain a home loan, but they did not have the intended impact on mega banks, which have grown larger than ever since the implementation of Dodd Frank – proof that Dodd-Frank was not as anti-Wall Street as portrayed.”

Financial Services Roundtable (FSR), headquartered in Washington, is the leading advocacy organization for America’s financial services industry. FSR has been carefully considering the future of financial reforms.

“The current regulatory regime system imposes an overly burdensome, one-size fits all approach that hinders economic opportunity and should be calibrated to match risks,” said Anthony Cimino, FSR’s head of government affairs.

“The existing regulatory framework makes it more difficult to serve the small- and medium-sized businesses that drive America’s growth as well as the low and moderate and consumer.

“We are working with Congress, as well as the administration and regulators to better tailor the regulatory framework, which includes identifying the universe of financial institutions that should be subject to enhance standards by removing arbitrary threshold and reforming the FSOC designation process.

“We seek to effectively calibrate those regulations with increased transparency, input and appropriate frequency, and we also support reforms to make agencies such as the CFPB more transparent and accountable because we believe that will ultimately better serve the consumer.

“Achieving this more tailored regulatory regime will maintain safety and soundness of the system while driving economic opportunity for businesses, small and large, and individuals and families across the country.” .

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