CENTRAL PENN BUSINESS JOURNAL’S Financial2016 report Digging deep How banks are adapting to a slow-growth economy and lower interest rates A SUPPLEMENT TO THE CENTRAL PENN BUSINESS JOURNAL ADD A NO-COST-TO-YOU BENEFIT TO YOUR COMPENSATION PACKAGE Our founders created this not-for-profit credit union so that they, and future members, could have the best life possible. Your employees will save money and time with low-rate loans, free checking, free mobile deposit service*, free financial education, nationally recognized member service and more. Learn more at psecu.com/atwork or contact Mary Oliveira, Senior Business Development Manager at 800.237.7328, extension 2058 or [email protected]. THIS CREDIT UNION IS FEDERALLY INSURED BY THE NATIONAL CREDIT UNION ADMINISTRATION. EQUAL OPPORTUNITY LENDER. * PSECU does not charge a fee for Digital Services. Wireless Internet devices and/or connectivity costs are not provided by PSECU. 8/16 ©PSECU 16-BUSDEV-0923 2 FINANCIAL REPORT 2016 Central Penn Business Journal 1500 Paxton St., Harrisburg, PA 17104 717-236-4300 • www.cpbj.com Financial2016 report Publisher Scott S. Downs NEWS Editor Joel Berg Managing Editor Cathy Hirko Managing Editor, Design Chris Beck Contents Web Editor Nicole Chynoweth Staff reporters Roger DuPuis (Cumberland County, manufacturing, distribution and energy) 4|A NEW NORMAL David O’Connor (York County, nonprofits, education, workforce) Banks emphasize customer service, financial advice in uncertain economy Lenay Ruhl (Lancaster County, health care, agribusiness) Jason Scott (Dauphin County, state government, real estate and construction, media and marketing) 7|THE STUDENT LOAN DILEMMA Photographer Banks focus on education, new programs, to stem tide of education debt Amy Spangler Researcher Alaine Keisling DESIGN Operations Director Chad Pickard 10|CYBER HYGIENE Contributing designers A Q&A with James Deitch, co-founder and CEO of Lancaster-based Zackary Barber banking and financial consulting firm Teraverde Amanda Eisner Mark Lockley AUDIENCE DEVELOPMENT Vice President Zander Gambill Manager 12|APP-EALING OPTION Sherry Andersen FNB one of few to offer mobile banking for business customers Specialist Carlin Luz Coordinator Raquel Campbell ADVERTISING Associate Publisher ShaunJude McCoach Account Executives LISTS Paul Chin Banks .....................................................................................................................................................14 Michele Engle Credit unions .....................................................................................................................................16 Christiana Sternberg Economic development organizations ................................................................................18 Lynn Stickler SBA lenders .......................................................................................................................................19 COVER ILLUSTRATION/THINKSTOCK, CHRIS BECK www.CPBJ.com FINANCIAL REPORT 2016 3 JUNE 2006 AUGUST 2007 5.25 percent 5.25 percent MAY 2005 JANUARY 2008 3 percent 3 percent FALLING FLAT The federal funds rate is the interest rate banks charge each other on overnight loans made between accounts they keep at the Federal Reserve. The interest represents a basic cost of doing business and can influence the rates that banks charge cus- tomers for business and personal loans. The Federal Open Market Committee sets a target for the federal funds rate, not the rate itself. The target peaked most recently in 2006, hitting 5.25 percent. It fell steadily from there, dropping to near zero by the end of 2008, when the financial crash was at its worst. The rate has stayed low ever since. Fed officials have expressed interest in moving it higher, but uncertainty in the global economy has JUNE 2003 stayed their hands. 1 percent This graph shows how rates have moved since June 2003, when the Federal Funds target was 1 percent, set in the wake of the slowdown following DECEMBER 2008 the terrorist attacks of Sept. 11, 2001. 0-0.25 percent GRAPHIC/ CHRIS BECK 2004 2005 2006 2007 2008 2009 SOURCE: FEDERAL RESERVE 4 FINANCIAL REPORT 2016 Central Penn Business Journal A new Banks emphasize customer service, normal financial advice in uncertain economy By Dorine Bethea Contributing writer rrstown Bank has invested mil- UP TO THE CHALLENGE lions of dollars in technology, In the face of all these regulatory and competitive challeng- and plans by mid-October to es, bankers in the midstate have managed to position their introduce a new electronic teller institutions well enough, in many instances, to continue earn- system for customers. ing and growing profits. The coupling of technology Bankers cite their products, customer service, talented and customer service is helping employees, financial advisers and even new opportunities the bank stand out, said Orrstown emerging after bank acquisitions. There have been nine ac- president and CEO Thomas R. Quinn. The bank, he said, aims quisitions affecting Central Pennsylvania over the past three Oto offer existing and potential clients a consultative approach. years. “Customers are looking for a financial services partner, And more are likely. Jeff Marsico, of the Kafafian Group, meaning someone who is going to help them really make sure anticipates there will be 10 percent to 20 percent fewer banks they are making the best decisions or most informed deci- in the next three years. sions they can,” Quinn said. “People gravitate towards folks in The survivors will focus on their technology and their businesses that really are looking out for the customers’ best branch networks. interest. We strive to do that.” “These two things are linked,” Marsico said. The emphasis on customer service and financial advice is Banks need to manage both technology and physical offic- one of the ways that bankers in Central Pennsylvania are ad- es to maintain their competitive edge. justing to today’s improving but uncertain economy. “If you close a branch in a town and you have an archaic They also are coping with an extended period of historical- technology platform, it is tougher to get customers to stick with ly low interest rates, a situation that tends to pinch profit mar- your bank,” Marsico explained. “But if you close a branch in gins for banks, as they have to charge less for loans. a town and have an up-to-date or state-of-the-art technology On top of the financial pressure is a regulatory burden, platform, it is easy to tell your customers ‘you can do this on which has gotten heavier in the wake of the financial crisis your mobile phone,’ ‘you can do this on your laptop. You don’t and recession of 2008. Bankers face the challenge of comply- necessarily have to come into the branch but should you need ing with financial regulations under the Dodd-Frank act. to come into the branch, we have one 10 miles away.’” DECEMBER 2015 DECEMBER 2008 0.25-0.50 percent 0-0.25 percent 2010 2011 2012 2013 2014 2015 www.CPBJ.com FINANCIAL REPORT 2016 5 Community banks — like Orrstown — are keeping up by using third-party vendors to upgrade and, in some cases, install technol- 2017 BOOK OF LISTS ogy. Interest rates are more challenging to negotiate. Access Granted. “The greatest burden on banks,” Marsico said, “is the pressure from customers due to competition to do longer-term lower-yield loans, which will end up causing interest rate risk problems in the future.” Every environment has its challenges, and the challenges are different at every bank. “There’s no doubt that the current interest From architecture to website rate scenario puts pressure on our earnings,” said Phil Wenger, design, local business executives of Fulton Bank, which is headquartered in Pennsylvania and has count on the Book of Lists for subsidiary banks in Maryland, Delaware and Virginia. “It’s a very competitive environment because rates are so low.” ACCESS to their unique business Indeed, profit growth has been slow at Fulton Bank. But when needs. This annual publication the Federal Reserve enacted a 0.25-percent increase in short-term features over 100 categories of rates late last year, earnings rose. This year’s second-quarter earn- business and data on nearly 3,000 ings were 9 to 10 percent higher than last year’s, Wenger said. The bank is “uniquely positioned,” he said, because it offers “a local companies. Our readers level of service that small businesses really like” and “that the larger have come to trust the book as banks tend not to do.” In other words, Fulton Bank can provide the an easy-to-use business resource service of a smaller bank but the products of a larger bank. “Our tool. Your advertising message size puts us in a really good position to compete.” “It’s about the relationships that we can develop, the long-term will be seen by over 43,000 consistency that we provide in our service, the expertise in our peo- business executives who use this ple and the depth of our products and services,” Wenger said. publication to get ACCESS to Low interest rates are nothing new for Bank of Bird-In-Hand, companies like yours every year. based in Leacock Township, Lancaster County. The bank opened in December 2013 — five years after the Great Recession, which led to financial reform and the long-standing, low-interest rate environment it is competing in today. Even this institution — which had no legacy software it needed to upgrade — now has state-of-the-art technology. Beyond technology, Alan Dakey, president and CEO, said the com- munity bank has a positive reputation