Many midstate banks prospered in 2016, earnings reports show

Earnings reports for several locally based institutions showed year-over-year growth, despite another year of low interest rates.

“Bank earnings are generally good, and that is because of growth in the balance sheet, not necessarily growth in their net interest margins,” said Jeff Marsico, executive vice president of Bethlehem-based bank consulting firm The Kafafian Group Inc.

Net interest margin measures the spread between the interest banks pay out to depositors and the interest they collect from borrowers.

Fulton Financial, for example, reported net income of $161.6 million in 2016, an 8.1 percent increase from 2015. The company is the parent of Fulton Bank, the midstate’s largest institution in terms of market share of deposits.

That growth included a 4.2 percent increase in net interest income, even as the bank’s net interest margin decreased three basis points to 3.18 percent.

Other midstate bank holding companies followed similar upward trajectories, with many seeing an overall increase in lending. That loan growth, Marsico said, was likely the reason many banks raised their provisions for loan losses.

Mortgage lending was among the categories that experienced an uptick thanks to continued low interest rates, Marsico said. Ephrata National Bank, which increased its mortgage sales by 87.6 percent in 2016, especially profited from that growth thanks to a mortgage division expansion it finalized the previous year.

Of banks that didn’t see increased profits, the main culprit was often one problem loan, Marsico said. That was the case for Chambersburg-based F&M Trust, which saw a 20.7 percent decrease in net income stemming, in part, from a $1.2 million property write-down.

The outlook for next year looks similarly positive for local banks, although experts are warning of a few stray clouds in the mostly sunny forecast.

Most institutions have positioned themselves to profit from expected interest rate increases, Marsico said, and many are looking forward to the possibility of decreased regulations under President Donald Trump. Trump signed an order earlier this month to review the post-recession Dodd-Frank Act, which some community bankers believe stuck them with unnecessary restrictions.

Although Marsico believes banks won’t see a decrease in compliance costs, they can probably at least expect those expenses to not go up.

“If things are rolled back and more of these regulations are able to be complied with via electronic means, that will keep a lid on the escalation of compliance costs,” he said.

Banks will also need to continue keeping an eye on the growing consumer preference for online services going into 2017 and beyond. That means evaluating the value of physical branches, preparing to spend more on their IT departments and watching encroaching fintech companies, who may receive their own charters if the U.S. Office of the Comptroller of the Currency gets its way.