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What bank earnings say about Springfield area economy

A round up of first quarter bank earnings shows the local economy is doing better.

The past week concluded first quarter earnings season for the Springfield area’s biggest banks operating here and headquartered in Ohio.

Bank performance is closely tied to economic conditions, as consumers and businesses tend to borrow, invest and spend more money when they feel more confident about their prospects.

The Springfield News-Sun asked bank executives to analyze key earnings figures, and their implications for the state of the local economy.

1. Consumer confidence improving

Cincinnati-based Fifth Third Bancorp reported first quarter 2013 results on April 18. The total average balance of loans and leases outstanding on Fifth Third’s books as of March 31, the end of the quarter, stood at $85.9 billion. That loan balance, including business loans and consumer loans such as mortgages, autos and credit cards, grew 5 percent year-over-year from March 31, 2012.

The Miami Valley fell in line with the whole company’s loan growth, said Steve Petitjean, Fifth Third Dayton city executive. Petitjean also oversees the Springfield market. Fifth Third has a 12-state footprint and numbers are not broken down separately by market.

On the consumer side, more people are making major purchases, Petitjean said. In terms of just home loans, the business 18 months ago was mostly refinances to a lower interest rate. It has been transitioning to a bigger share of new home purchases, he said.

“As the market stabilized and consumers gain confidence, they’re more likely to invest in their property, which is a good thing for the economy,” he said.

On the business side, a lot of companies are well positioned to expand, but aren’t ready yet to take the leap on a large investment, he said.

“It’s just a matter of the customers having confidence in where the market is going on the business side,” he said.

2. Delinquencies are down

Banks including Fifth Third and Park National Corp. are seeing their quarterly loan loss provisions decline.

Fifth Third’s provision expense in the first quarter was $62 million, compared to $76 million in the prior fourth quarter, and a provision of $91 million a year ago. Net charge-offs, bad loans written off as uncollectible, dropped last quarter to $133 million, the lowest level since the second quarter of 2007.

The loan loss provision is money taken from revenues during the quarter that get added to a fund to cover potential loan losses — both known and potential losses. It is not the same amount as actual bad loans.

At Park National, the parent company of Springfield’s Security National Bank, the first quarter loan loss provision declined to $329,000 from $5.2 million the quarter before and $8.3 million the same quarter of 2012. Last year’s amount was impacted by the sale of Vision Bank.

Security is the bank market leader in Clark County.

“As credit trends have improved as a result of the improving economy … there have been fewer loan losses realized at the bank,” said Matt Miller, chief accounting officer of Park. “That’s another great indication the economy is getting better.”

3. Housing market activity strong

When Park reported earnings April 19, they contained about a 46 percent rise in other service income to $3.99 million, mostly driven by fee revenues related to mortgage originations.

Total originations over the past three quarters have been at a high-water mark for the Newark-based bank, said Matt Miller, chief accounting officer of Park. The bank has done more originations, including refinances and purchases, during the past nine months than it has at any time since the recession took place, Miller said.

“For individuals and borrowers out there, they feel better about getting back into the market today and getting back into homeownership,” he said.

Park is the parent company of these area banking divisions: Springfield’s Security National Bank, Piqua’s Unity National Bank and Greenville’s Second National Bank. The company’s footprint consists of a large swath of Ohio.

Park National Bank President David Trautman explained the activity in a statement with quarterly results saying, “This extraordinary interest rate environment for home loans continues to fuel conversations and closings.”

Interest rates remain at historical lows. The low rates have good and bad effects.

Banks’ main income source is the difference in interest collected on loans and earned on investments, and the interest paid on deposits and liabilities. Record low interest rates pressure the interest margin.

“From a revenue growth standpoint, I think in some aspects, the interest rate environment today makes it hard for banks because our interest rates are getting squeezed,” Miller said. At the same time, “it’s a wonderful time to borrow money.”

4. Deposits are growing

Columbus-based Huntington Bancshares Inc. said in its earnings release April 17 that core deposits grew year-over-year 5 percent to $43.6 billion last quarter.

Core deposits are comprised of interest-bearing and non-interest-bearing demand deposits (such as checking accounts), money market deposits, savings, consumer certificates of deposit both over and under $250,000, and non-consumer certificates of deposit less than $250,000, according to Huntington.

But Huntington’s core deposit growth comes more from winning deposit business through its “fair play” checking and savings account products than it does from some underlying economic condition, company officials said. The bank introduced in 2010 accounts that give customers a 24-hour grace period before charging fees on overdrawn accounts, for example.

Across Huntington’s six-state footprint, 36,274 new checking households were added in the first quarter 2013, an annualized growth rate of 11.8 percent.

Of total deposit growth since the first quarter last year, Huntington said its regional and commercial banking segment accounted for nearly 40 percent of the deposit growth.

New data released last year by the Federal Deposit Insurance Corp. showed total bank deposits in Clark County grew from June 30, 2011 to June 2012.

Bank officials said then that the higher deposits are a sign of a sluggish economy, because it indicated a willingness to save more money than to spend it.

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