Keep Calm and Bank On ®
Because of our concern for community bankers as the COVID-19 pandemic continues, Dickinson Law recently conducted a survey to learn what issues Iowa bankers are personally facing as a result of these challenging times.
The results confirm several emerging trends that Iowa bankers are experiencing, including common employee and staffing concerns, the trend towards more online transactions, and a range of collective challenges that bankers have predicted in the next year as the pandemic diminishes.
Thank you to our survey participants, your valuable feedback will help us focus our efforts as we serve all of banking clients moving forward.
The Results
Major Concerns
Bankers’ major concerns they are facing today include staffing (38.10%), business loan defaults (23.81%), personal and mortgage loan defaults (14.29%), combinations of these areas (9.52%), and specific items (14.28%) including: lower loan demand/lower consumer confidence, farm commodity prices, and the desire to get back to a semi-normal business and personal lifestyle.
Top Trends
Topping the trends they are encountering, bankers reported a natural shift due to social distancing from lobby traffic and drop-ins to more customer appointments, a rise in mobile/electronic account access and online transactions, as well as an increase in drive-through services (52.94%).
Following closely behind the online/drive-through shift, a number of bankers reported they have too much cash on hand thanks to depositors building cash reserves that can be attributed to stimulus and PPP related deposits, as well as flat/slowed business lending other than PPP loans, and limited/lower overall loan traffic and volume (47.05%).
One banker reporting this cash trend commented that the current challenge is to figure out how to “utilize depositor resources to benefit clients, the community and bank shareholders.” Another reported that the challenge of the influx of stimulus and PPP related deposits is “forecasting if those deposits are temporary or more permanent.” A third stated that their bank is currently experiencing a trend in home lending in the areas of both purchase and refinancing, for large volumes (1-4 homes) to take advantage of extreme low rates.
Bankers are also reporting that even with the shift to more digital and drive-through services, transaction volume is steady or increasing at their institutions. One banker reported that electronic access usage has increased 35% for deposit transactions since February. Another reports that “internet banking activity has increased tenfold,” and a final banker commented that while he/she is seeing more online, there is “no slowdown in banking activity.”
Common Challenges
Among the biggest common challenges that bankers reported, several responded that maintaining and managing a sufficient and healthy staff to service customers – and adequately operate their financial institutions – was top of mind (38.88%). One banker in this group was especially concerned with how staffing would be impacted by the upcoming school year. Another reported that aging staff and shareholders further added to this challenge.
In addition, strategic planning for the future and maintaining/rebuilding bank “culture” was on the minds of bankers, which includes identifying and having the right strategic personnel on board with the skills, vision and creativity for this important task (16.6%).
Other common challenges included managing interest margin compression (11.76%), as well as a number of issues (32.76%) including: how to evaluate credit risk in a pandemic, what PPP loan forgiveness will look like, and the possibility of having to close again during a subsequent surge in the pandemic.
One banker commented that “uncertainty” during the pandemic is his/her biggest challenge currently; “Not that uncertainty is unique to banking, but the level and so many areas out of control across the board for the customer and the bank is unprecedented.”
Policies & Procedures
A majority of survey respondents (80%) took the opportunity to review policies and procedures during the pandemic, including remote working (40%), human resources (35%), operational (30%), financial (10%), and administrative (10%).
Of the remaining 20% who reported they did not review any policies, one banker commented, “No extra time – staffing was maxed out to serve customers, PPP loans and operating the bank.”
Another banker reported their bank reviews all policies annually, but will be making adjustments to some aspects of its disaster recovery/business continuity plan due to the pandemic.
Loan Default Measures
To get ahead of the potential increase in loan defaults, a number of bankers (80%) reported they are restructuring or entering into forbearance agreements including offering periods of reduced payments (40%), lengthened maturities (15%), reduction of interest rates (15%), filling in gaps in existing loan & security agreements (10%), and other measures (10%), including payment deferrals, and working with borrowers individually to adjust to their needs.
One fortunate banker reported that so far he/she has not encountered issues with loan repayment or past due loans.
Capital Planning/Management Issues
A large majority of bankers who responded (90.48%) reported they do not foresee any capital planning or management actions in the near future involving raising capital, subordinated debt, or shareholder issues.
Of those who are looking to take action (9.52%), one banker commented that they need to “address aging shareholders.” Another reported that he/she has already taken action to add subordinated debt.
Venture Capital Funds
With the recent rollback of the Volcker Rule that will allow newly permitted fund activities such as investing in venture capital funds, all of the survey responders (100%) reported that they aren’t considering taking advantage of the rollback, however the majority of those responders (61.90%) said they may consider it at some point in the future.
The remainder (38.10%) of bankers who participated stated that although they have no plans to take advantage of the rollback now or in the future, they would consider funding or investing in new ventures.
M & A
When it comes to acquiring a bank or bank branches, most bankers who responded to the survey are not looking to grow their organizations by acquisition (57.14%) at this time. Yet, some reported they are looking to grow by acquiring a bank (23.81%), and others responded they are seeking to grow by acquiring both a bank and a branch (19.05%).
Have a legal question?
The Banking & Financial Services Law attorneys at Dickinson, Mackaman, Tyler & Hagen, P.C. counsel more than 90 financial institutions doing business in Iowa. Among Iowa-based law firms, we have one of the largest teams of attorneys providing legal services to the state’s and region’s community banks, offering banking law assistance with everything from banking mergers to creditor’s rights. Visit us at www.dickinsonlaw.com.
Lunch & Learn: What’s next for Banking M & A
Mark your calendar today to join Community Bankers of Iowa (CBI) and Dickinson Law on November 4th from 12:00 – 1:00 p.m. for partner webinar featuring guest speaker Steve Nelson, Managing Director and Co-Head of D. A. Davidson & Co.’s Midwestern bank practice. We’ll examine M & A and the role it can play in your strategic planning moving forward in this new environment.
Look for registration information from us later this summer!