From L to R: Lenny Clouse – President, Clouse Construction Corporation; John Haywood – President, Findlay-Hancock County Alliance; Don Dreisbach – Chairman, First National Bank Board; Chuck Niswander – Chairman, Pandora Bancshares; Robert Sprague – State of Ohio Representative; Todd Mason – President/CEO, First National Bank; Pete Sehnert – Mayor, City of Findlay
The Bank broke ground yesterday for the new “Findlay West” branch. The branch will open early next year and is located across the road from Wal Mart on Trenton Avenue west of I75. The exciting times continue at First National Bank.
…don’t build a new branch, just pay me a higher interest rate!!”
I’ve heard this statement a few times since First National Bank announced it will be building a new branch on Trenton Avenue in Findlay. On the surface, it’s a fair question and there is logic behind the question that might go something like this: “It takes a lot of money to expand and build a new building. First National Bank is building a new building so they must have a lot of money. Wait a minute, if they have all that money, why don’t they just raise my rates so I can actually make something on my deposits? Typical bankers!”
This is a logical question, but it is missing a key ingredient that explains why we’re building and not paying higher interest rates: supply and demand. The interest we pay on CD’s and deposits has a direct correlation to supply and demand. If we have a large demand for loans—in other words people and small businesses are growing and need financing—we also need to have deposits so that we have funds to loan. When we need deposits, we pay higher rates to attract those dollars. At the moment, the Bank (and the rest of the banking industry) does not have a large demand for loans in large part due to the stagnant economy.
We also have a huge supply of deposits right now, in large part because people are saving more, spending less, putting their money somewhere safe, and reducing debt. When we have excess deposits and loan demand is low we can only invest our cash safely at a rate of around .15%. If we’re only earning .15%, our margin is negligible and doesn’t provide much of an incentive to invest in securities or pay a premium on deposits. We would just be losing money on those higher paying deposits: not a good way to run any business. So the short answer to the statement above is that the rates we pay are a reflection of supply and demand and are also reflective of the return we can currently get on our own investments.
Another point to consider is that the new branch is an investment and a use for the Bank’s cash. Instead of taking profits to build a branch, we are taking excess cash and investing in buildings instead of loans. Since the overnight fed funds investments only earn us .15%, and we have plenty of excess cash, we can take some of our dollars and put them into buildings at a relatively low cost considering the alternative is to take those dollars right now and make .15%. It is a very inexpensive way to grow moderately over the next few years and hopefully generate nice income for our shareholders. We do anticipate the branch will create additional demand for loans and will eventually put an upward pressure on deposit rates. So, according to our logic, building a branch should actually cause deposit rates to go up, albeit over a period of time.
Finally, consider our regulatory burden. At this point we have no idea how much the Dodd-Frank bill is going to cost us but we do know it will be expensive. These regulatory costs—and other fixed costs—can be spread over a larger base (with the new branch) and increase our operational efficiency. Being more efficient is another way for us to save money, allowing us to pass savings on to our customers. If we do not become more operationally efficient, it will put additional downward pressure on rates because it will be more expensive for us to operate.
So the 30 second summary of all this is as follows: “Our new branch is an investment in the future. We currently have the excess cash to invest in our future through construction and hopefully spread our fixed costs over a larger base. This should allow us to be more competitive in the future as the economy improves. This will ultimately provide our customer with a better return. The hope is also to better serve our current customer base with the new location and better serve Findlay and the surrounding area with two branches instead of one.”
Given that First National Bank celebrated its 90th Anniversary last year and the Bank’s Bluffton Branch celebrates its 20th Anniversary in August of this year, I thought it would be appropriate to take a look back in time. How did First National get started, and what principles can the Bank point to for its direction and philosophy?
Without getting bogged down with too many details, here are the basics. The idea for a Pandora bank apparently came from two local businessmen, J.A. Huffman and C. Henry Smith. The Bank officially opened its doors on June 19, 1919, in Pandora, OH. The bank had 30 original shareholders and 7 board members. In 1922, the Bank merged with the Farmers Bank Company, also a Pandora institution. 35 years later, Huffman published a booklet celebrating the history of the bank to date. The booklet, “The Story of a Better Bank,” identified Huffman and Smith’s secrets to successful banking. Their three main tenets are as follows:
- A good bank must be owned and operated largely by the people of the community, themselves.
- A good and successful bank can be organized only where there are strong and constant economic resources.
- That the success of a rural bank can only be assured by community loyalty, sustained by a high-grade citizenship, supported by morals and religion.
According to Huffman, the Pandora community satisfied each of these ideas and First National was able to establish itself as a viable community bank. And now, the communities of Findlay and Bluffton also fit the model established by the Pandora community. The Bank is still locally owned by shareholders and all of the Bank’s employees live in the local area. In spite of numerous economic challenges over the years, this corner of northwest Ohio has managed to remain relatively strong and there are constant economic resources—farming, manufacturing, higher education, to name a few—to support the Bank and the community. And finally, the communities of Pandora, Findlay, and Bluffton have been loyal to First National Bank and have supported its growth. Employees and clients alike have sustained the Bank by prescribing to Huffman’s “high-grade citizenship.” This may sound a little old-fashioned, but being old-fashioned may not be all bad.
Published in 1954