F&M Trust looks toward the future after losses
A bad loan and a class-action lawsuit cost F&M Trust Co. bank millions of dollars in 2017 and 2018.
But as the new year unfolds, leaders of the Chambersburg-based bank believe it is poised for growth, particularly in the Harrisburg area.
“We are already conducting a significant amount of business in the region and we have an established presence,” said Timothy Henry, F&M Trust’s president and CEO. “We also recognize that the greater Harrisburg/capital region provides a lot of opportunities and we believe our community banking model matches up well with the market.”
Founded in 1906, F&M Trust has $1.2 billion in assets and 22 branches in Cumberland, Franklin, Fulton and Huntingdon counties. It is the chief banking subsidiary of Franklin Financial Services Corp.
The bank took a hit in 2018 from a class-action lawsuit filed against Community Trust Co., a Camp Hill company F&M acquired in 2008. In the suit, several doctor’s office claimed that Community Trust and other entities mishandled employee benefit plans.
F&M paid $10 million to settle the lawsuit, a sum it charged against fourth-quarter earnings in 2017. It then became embroiled in the second quarter of 2018 due to an alleged fraud committed by one of its borrowers, Worley & Obetz Inc., a Lancaster County energy company that ended up filing for bankruptcy.
The bank reported a net loss of $5.2 million in the second quarter of 2018, down from a profit of $3.3 million during the same period in 2017.
For 2018 as a whole, the bank posted net income of $6.1 million, up from $2.2 million in 2017. In 2016, its net income was nearly $8.1 million.
Henry said the class-action lawsuit was settled to avoid a multi-year expense that would have had a more damaging impact on the bank.
In addition, Henry said, the bank has reviewed what happened up to the time the alleged fraud at Worley & Obetz was discovered.
“There were some lessons learned, made easier to recognize after the issue came to light,” he said.
And, he said, the bank had enough capital to absorb the losses from both incidents and bounce back.
“We believe they are isolated incidents and not indicative of systemic issues within the bank,” he said. “We have put these events behind us.”
Despite the losses, F&M Trust has continued to grow across multiple income streams, including commercial lending, retail and residential mortgages, as well as investment and trust services. Its net loans, for example, rose to nearly $961 million at the end of 2018, up from $932 million at the end of 2017.
“Each of these areas has seen growth and we are poised to build on each one of these areas in 2019,” Henry said.
One way the bank plans to expand is by growing its presence in the Harrisburg region. It has eight branches in Cumberland County, but none in Dauphin.
“The greater Harrisburg/capital region, on both sides of the river, is important to us,” Henry said.
Henry would not elaborate on plans for expansion, but said the bank is placing a greater emphasis on marketing and branding in the Harrisburg area.
The bank also is focusing on people and technology to spur growth, Henry said. One of its biggest challenges is finding the right people.
“Finding the right people who have both the IT knowledge and the ability to effectively interact with non-IT team members can be a challenge,” he said.
But even as banking moves increasingly online, Henry believes there is still a role for branches, if they evolve.
As such, several F&M Trust branches have been renovated and their counters have been replaced with “pods”: circular units that allow customers to stand side by side with financial representatives, instead of facing each other in the traditional manner, to review accounts on computer screens.
The change makes branches more customer-centric and enhances communication, said Henry, who refers to the process as becoming “podified.” So far, the bank has “podified” offices in Boiling Springs, Waynesboro, Greencastle and Chambersburg.
The move reflects an industry trend in which the role of bank teller has evolved into a universal banker, an employee who is trained to provide specialized services to each customer who walks through the door, said Matthew Schultheis, an analyst at Boenning & Scattergood, a West Conshocken-based investment banking firm.
Although the “pod” concept has become fairly well-established in the banking world, the transition can still be difficult and time-consuming, according to Schultheis. Banks must train traditional bank tellers to become universal bankers, and those who struggle with the transition often must be moved to different roles, he said.
F&M Trust is also trying to modernize by launching a more secure website, fmtrust.bank. F&M Trust believes it is the first bank in Central Pennsylvania to use the .bank domain. Henry explained that applications for the domain undergo a rigorous verification process, but that it ultimately provides extra security against imposter sites.
Henry also noted the new domain helps F&M Trust with a longstanding branding issue, as many people don’t realize it’s a bank.
“The new domain name will help support our message that F&M Trust is a full-fledged bank,” Henry said.