The Tax Cuts and Jobs Act of 2017, which included a lower corporate tax rate, has put more money in the coffers of the financial sector.
And for some financial institutions, more cash on hand seems to be translating into more investment, hiring and expansion in the Lehigh Valley.
“Banks benefitted in terms of the tax reduction, creating a lot of opportunity to use that surplus,” said David M. Lobach Jr., president, CEO and chairman of Embassy Bank for the Lehigh Valley in Hanover Township, Northampton County.
The bank’s parent, Embassy Bancorp Inc., paid income taxes of $1.1 million for the first six months of 2018, down from $1.6 million for the same period in 2017, according to filings with the U.S. Securities and Exchange Commission.
Its net income rose to nearly $4.9 million for the first half of 2018, up from just under $4 million for the first half of 2017, SEC filings show.
Lobach said Embassy has used its surplus to make more business loans, hire more staff and add offices.
“We’re building a Macungie location and looking for other sites in the Lehigh Valley. We have more people, and we do more business with more people,” Lobach said.
He noted the tax reduction has helped reduce unemployment and further Embassy’s mission to provide competitive wages to employees, too.
“When there is more money in the community, there is more economic growth,” Lobach said.
Barry Pelagatti, a partner and leader of RKL LLP’s financial services group in Exton said surplus doesn’t seem to be funding executive raises or big bonuses.
“I think there’s been a general consensus, that even though we can do it, we shouldn’t do it,” Pelagatti said.
While some banks may be opening branches, others are looking at enhancing apps, websites and other technology to reach and protect customers.
Pelagatti said banks are creating an “enhanced experience” with improved platforms to make banking and financial management easier for customers.
Banks also are focused on hiring and employee retention, Pelagatti said.
He noted with unemployment at record lows, competition for highly skilled professionals in auditing, cyber and data security services has been tighter, driving up salaries.
Accounting for change
And while some are using surplus funds to support internal resources, others may be holding additional reserves ahead of a change in how banks must account for expected losses on their balance sheets.
Pelagatti said those upcoming changes in bank accounting and reporting regulations had some bankers holding back against potential revenue hits down the road.
The change, known as the Current Expected Credit Loss impairment standard, or CECL, is set to begin in 2020. It will replace the current Financial Accounting Standards Board accounting procedures and alter how banks forecast and account for credit losses. Banks typically hold money in reserve to cover anticipated losses.
The switch will affect accounting practices. But, said Roger Deacon, CFO of Univest Financial Corp. in Souderton, Montgomery County, the new standards “won’t change how we do business.”
Deacon said priorities at Univest include giving back to the community through charitable donations and employee retention and incentives.
“We are a growing company and we’re clearly cognizant of investing in our employees. I think that’s good business,” Deacon said.
He said Univest increased its charitable giving in 2018, thanks, in part, to the surplus from the federal tax law change.
“We’ve increased our philanthropy about 10 percent,” Deacon said.
He said donations of $1.9 million had been made throughout the community.
Deacon noted additional investments in digital technology, “the hot button in banking” included digital wallets and improvements to the customer experience as well as day-to-day business operations.
Deacon said some of the tax cut surplus was supporting digital security.
Univest paid income taxes of $10.1 million for 2018, down from $17.7 million in 2017, according to SEC filings. Its net income last year was $50.5 million, up from $44.1 million in 2017.
“We spend a lot of money on security. It’s not an initiative, its knowing we have to keep our systems secure,” Deacon said.