Bankers spent much of the past year on the economic frontline as financial EMTs, a far cry from the more villainous image the sector emerged with coming out of the last economic crisis, the Great Recession.
Last year, banks quickly became a major conduit for federal support for the economy, especially through the Paycheck Protection Program, which made more than 156,000 loans for $13.55 billion in Wisconsin.
“That preserved a lot of jobs; 318 businesses borrowed from us to keep jobs that they probably wouldn’t have been able to keep,” said Dan Westrope, chairman and chief executive officer of Ixonia Bank.
The scramble to approve PPP loans, remote work and more digital transactions also stand to benefit the industry and its workforce.
Rose Oswald Poels, president and CEO of the Wisconsin Bankers Association, said bank employees stepped up to take on tasks outside their normal responsibilities in an effort to help the PPP process. She said it was an opportunity for both personal and professional development for employees and a chance for bank executives to identify potential future leaders.
“A lot of people have worked really, really hard over the last year, a lot of weekends, a lot of nights really taking care of our customers, so I have a lot of pride as I look back on how we got through it,” said Jay McKenna, president of North Shore Bank.
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Dave Werner, executive vice president and market president for southeast Wisconsin at First Midwest Bank, said many business customers had already embraced digital transactions, but the pandemic accelerated its adoption across customer demographics.
“I don’t believe this change will completely eliminate the need for physical branches for certain, more complex, transactions. However, the reliance on the branch for all banking needs has changed,” Werner said, noting branch design would continue to evolve to meet the new reality.
The number of bank branches and offices in Wisconsin was already declining pre-pandemic. It was down 3.4% year-over-year at 1,855 as of June 30, higher than the average yearly decline in the prior five years. The last time there was a year-over-year increase in total offices was 2008.
Banks also find themselves in a much different environment than the aftermath of the Great Recession. At the end of 2010, nearly 4.3% of loans and leases by FDIC-insured institutions in Wisconsin were not current compared to 0.7% at the end of 2020. Loss allowances totaled 3% of loans at the end of 2010 compared to 1.4% at the end of 2020.
One reason the loans banks have are in a better position now is many actively sought to work with borrowers as the pandemic took hold.
Westrope said some customers could make their whole payments while others could only afford interest or perhaps could not pay anything. He said Ixonia worked individually with people and while it took a lot of resources, the bank also learned a lot about how best to structure those forbearance and deferral agreements.
“When it was widespread, it was just not the fault of the person that owed the money,” he said.
In addition to having fewer loans in troubling condition, banks have also seen a sharp increase in their deposits from around $93 billion at the end of 2019 to nearly $107 billion at the end of 2020. Most of the increase came in the second quarter when the first $1,200 stimulus checks went out and the pandemic pushed people to save. Another round of stimulus hit consumer bank accounts since the end of the year, potentially pushing deposits higher.
“Most banks, like our own, have strong capital bases and substantial liquidity, which we are eager to put to work,” Werner said, noting loan demand was generally weak outside of the PPP and some segments of commercial and residential real estate.
“As the reopening of the economy accelerates, we expect to see, and welcome, an increase in demand for business loans to fund expansion and growth,” he said.
Michael Hetzel, director of lending at the Wisconsin Women’s Business Initiative Corp., said demand for the smaller loans his organization makes is certainly there.
“The biggest challenge I see right now is people are coming out of the woodwork,” he said, noting that because of uncertainty of the pandemic and the very small nature of many of WWBIC’s clients, the organization is approaching most loans as if they were to a startup.
Hetzel said he is cautiously optimistic going forward that WWBIC’s $24 million portfolio of around 1,000 loans has performed well through the pandemic, but that might change as government support fades.
“That’s going to be the litmus test for our portfolio,” he said.
McKenna said he is bullish about the opportunity and feels the economy is poised for strong growth.
“Banking institutions, generally speaking, right now are flush with liquidity and have very strong capital levels and are very eager to lend,” he said.
Banks will need to take a close look to understand if a business was permanently altered by the pandemic, McKenna said, adding there is also the possibility PPP forgiveness could temporarily distort a company’s financials.
“At the end of the day, if a business has a strong case, they should have no problems finding money from banks to grow,” McKenna said.