COVID-19’s ripple effect on lending

Water droplet making ripples

The COVID-19 pandemic has reshaped daily life, including how community banks and their business customers interact. It’s precisely because of the crucial role they play in their communities that community banks have stepped up to aid customers, provide financial relief and continue to make loans during this uncertain time. 

By Beth Mattson-Teig


Community bankers are rising to the challenge of providing needed relief to business customers and communities reeling from the economic fallout of the COVID-19 pandemic.

Because of their proximity to customers, deep relationships and prior disaster planning, community banks have been able to act quickly and proactively to get needed information and resources in the hands of customers despite the turmoil. During the coronavirus crisis, bankers say outreach via specialized website pages, social media posts, digital advertising and emails to customers has been vital.

“As the only remaining locally based bank in our area, we approach challenges like this a little differently,” says Michael B. Edwards, CEO of $950 million-asset Marquette Savings Bank in Erie, Pa. “Our business customers depend on us. And we were determined to give them our very best. Our business bankers were scheduling Zoom conferences with the team at 11:30 on a Sunday night and taking calls and processing applications right up to the very hour the PPP [Paycheck Protection Program] money ran out.

“We streamlined processes and reallocated resources to supplement our business banking team,” he adds. “In all, we successfully processed more than 290 PPP applications for businesses in our area.”

Community bankers say they’ve been inundated with inquiries from customers worried about layoffs, furloughs or loss of business income following social distancing guidelines and government stay-at-home orders. The need for financial assistance has continued to grow. As of May 14, a record 36 million people have filed for unemployment assistance since mid-March, according to the U.S. Labor Department. And, in mid-May, economists at Goldman Sachs downgraded their forecast for the unemployment rate, which they predict will peak at 25%, roughly the level seen during the worst period of the Great Depression.

“These are scary and uncertain times, and we want to remind them that no matter what happens, their local community bank will be there.”
—Brad Bolton, Community Spirit Bank

Many community banks took early action by implementing loan deferment programs that offered relief to those affected by the virus, whether due to illness or loss of employment or income. Personal customers could request up to 90-day deferrals on loan payments.

Community banks have also taken the initiative to reach out to customers. For example, $1.3 billion-asset Investors Community Bank in Manitowoc, Wis., communicated with clients offering assistance with payment relief where necessary.

“We were fielding dozens of requests from various industries, primarily hospitality and restaurants,” says Investors Community Bank CEO and cofounder Tim Schneider. “If it was COVID-19-related, we were working to meet those requests wherever possible.”

At the same time, community banks were putting measures in place to ensure the safety of employees and customers. Although banks have been allowed to continue operating as essential businesses amid shelter-in-place orders, many voluntarily implemented their own precautions, such as social distancing, closing or reducing traffic in bank lobbies, and using work-at-home alternatives. Banking services largely shifted to drive-up tellers, online and mobile banking to minimize contact.

“Our biggest push is all things digital,” says Brad Bolton, president, CEO and senior lender of $148 million-asset Community Spirit Bank in Red Bay, Ala. “We are helping customers who may have not been familiar with mobile banking and all the benefits it provides get set up. We also have increased limits at our ATMs and cash in them to make sure they have easy access to their money.”

PPP funds saw huge demand

Beginning in March, community banks prioritized assisting consumer and business customers with their immediate needs to get them through the first two or three months of the pandemic, the time of the most uncertainty.

For small business customers in particular, there was a scramble to apply for forgivable loans available through the PPP. The program was created by the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act and is being administered by the Small Business Administration (SBA).

The first round of PPP funding on April 3 prompted an all-hands-on-deck response. Community bankers had to quickly get up to speed on the program and put processes in place to field applications while dealing with government website glitches. “Our lenders have done a tremendous job of gathering customer information and working with our customers to submit those applications,” says Michael Bilski, CEO of North American Banking Company in Roseville, Minn.

The $700 million-asset community bank is also getting inquiries from business customers who it had been courting over the years. “We have an opportunity now to maybe help them with some of the Payroll Protection loans, because our competitors, for whatever reason, have chosen not to do it,” Bilski says.

North American Banking Company opted to purchase a software program to help facilitate PPP applications. The application period for small businesses officially opened Friday, April 3. By the following Wednesday, the community bank had received 462 loan applications totaling $49 million, of which the SBA approved.

Other banks participating in the program have experienced a similar deluge. As of April 14, Investors Community Bank had 337 SBA PPP loans with a total funding of $57.8 million. Since the program started, the bank has processed 611 applications for $92.6 million.

“We have tried to be as prepared as possible,” Schneider says. The community bank set up automated systems for people to download applications and added software to expedite the process.

Investors Community Bank had teams of credit underwriters and loan operations people working overtime to get systems in place to service applicants quickly, Schneider says. “It has really been like drinking from a firehose for a lot of people at the bank,” he adds.

Some community bankers were frustrated early on with the launch of the SBA program’s system administration. Three days after the launch, many banks were still struggling to gain access due to outdated and hard-to-use systems, which ultimately hurts the small business owner, Bolton says. “There is no more helpless feeling than having everything ready to help your small business customer,” he says, “but you can’t gain access to a system because your password is locked, and you can’t get anyone to help you.”

Community banks generally experienced overwhelming demand. However, the initial appropriated PPP funds were quickly depleted, and the SBA announced April 13 that it would no longer be able to accept new PPP applications based on the initial $349 billion in funding.

Community bankers, who had inundated their representatives with calls and emails, and their small business customers breathed a sigh of relief when another $310 billion was made available in late April. Advocacy by ICBA and its members also secured a set-aside reserve for community banks, meaning at least $60 billion of the second round of funding would be available exclusively to community financial institutions.

On the downside, the application process at the beginning of the second round was again beset by glitches, making for a frustrating experience for community banks and their customers.

Get up-to-the-minute information

ICBA’s COVID-19 resource page offers the latest news, updates from president and CEO Rebeca Romero Rainey and other resources to help your community bank respond to the pandemic.

Low rate environment

The other dynamic that community bank lenders are dealing with are aggressive rate cuts by the Federal Reserve that reduced the federal funds borrowing rate to nearly zero as of early April. That created very low financing rates for both consumer and business borrowers who may be looking to refinance debt and lock in low rates on fixed-rate loans—if they can get approved.

Generally, the early focus has been “battening down the hatches,” Schneider says. That said, Investors Community Bank is helping customers with trying to lock in longer-term, lower-cost funding, if possible. For example, the community bank is a large ag lender to Wisconsin’s dairy industry, which has been a victim of the ripple effects of COVID-19. Lenders have been working to lock in longer-term, lower-cost fixed rates for those ag loans, as well as helping those clients qualify for the PPP.

The residential mortgage market has seen a surge in new business. “Marquette [Savings Bank] has experienced a significant uptick in both new residential mortgages and refinance opportunities due to low interest rates,” Edwards says. “To make it easier for our customers to ask for assistance, the bank has streamlined processes and promoted the availability of an online form to request 90-day mortgage payment deferments,” adds Ed Drexler, senior vice president of residential lending at Marquette Savings Bank.

Looking ahead to long-term solutions

While lenders are helping customers survive the short-term disruption, they also want to help them find solutions beyond the first few months.

In Wuhan, China, the site of the original outbreak, the government officially lifted stay-at-home orders after 76 days. If the U.S. follows a similar path, it’s likely that restrictions on mobility and business traffic will not resume until early June in many areas of the country.

Water droplet making ripples

Beyond the PPP, bankers are helping customers access other financing options and products. For example, the SBA previously offered an Economic Injury Disaster Loan (EIDL) program, which provided long-term, low-interest loans to qualifying businesses. States have also introduced their own targeted relief programs to qualifying businesses and nonprofits.

“Right now, the SBA has some amazing programs set up to help customers long term,” says Aleesha Webb, president and vice chairwoman at $306 million-asset Village Bank in St. Francis, Minn.

“We’re using technology and electronics wherever possible but not forgetting the human touch or human side of it.”
—Aleesha Webb, Village Bank

The SBA 504 loan program is available to borrowers with fixed assets, such as real estate or equipment. The SBA portions of those loans are fixed for 20 to 25 years, and the current rates are historically low, Webb says. SBA 7(a) loans also are available for business owners for accessing capital to fund operations.

“I understand there is this media frenzy around these PPP loans,” she says, “but we have got to be talking to our clients about their options for cash flow and other SBA-backed options that are fantastic today.”

In addition to disruption for customers, the pandemic has forced banks to adapt to their own new normal. “We’re a bank, but we also have a business to run. So, we had to make good decisions for our customers and our employees,” Webb says. “We’re using technology and electronics wherever possible but not forgetting the human touch or human side of it.”

Village Bank has limited lobby hours, with many employees working from home. The bank is now relying on video calls for both internal discussions and customer contact.

A time to shine

Perhaps never before has the importance of relationship banking been more in the spotlight, as people long for stability and for their stories to be heard. Community banks have long prided themselves on relationships where neighbors are helping neighbors, and that is especially true in a time of fear and uncertainty. It ranges from donating to local food shelves to serving as a sounding board for clients who need to vent frustrations or fears.

For example, Community Spirit Bank has produced several videos for its social media channels on topics like how customers can continue to access bank services.

This community service hasn’t gone unnoticed by local and national media. Community banks and ICBA have received positive coverage in some of the most popular media outlets across the country.

“These are scary and uncertain times,” Bolton says, “and we want to remind them that no matter what happens, their local community bank will be there.”

Water droplet making ripples

Community banks put disaster plans to work

The COVID-19 outbreak has pushed many community banks to put their disaster plans to work. Marquette Savings Bank in Erie, Pa., had a pandemic plan in place to help contain risk, which the community bank was able to implement even before the government issued stay-at-home orders.

“We were the first bank in our market to adopt social distancing among our employees and customers by closing our lobbies and serving customers through the drive-thru, ATM, telephone, online and mobile banking,” says CEO Michael B. Edwards.

All 12 of Marquette Savings Bank’s branches closed their lobbies to customers effective March 19, and all support staff worked at home or offsite to help minimize risk for others and customers. “When we did that, we also split our branch staff into A and B teams to ensure business continuity if a member of either team became infected,” Edwards says.

Frost Bank in San Antonio also had a pandemic plan in place and has been able to use its prior experience helping customers through natural disasters, including Hurricane Harvey in 2017. Many of the practices that the $32 billion-asset community bank has been using to respond to the pandemic, such as remote working for staff and helping customers with financial relief programs, are some of the same things it has done in the past, according to Bill Day, senior vice president and corporate communications manager at Frost Bank.

One of the key differences with the pandemic and an extreme weather event is that when a hurricane or tornado hits, it’s over in a fairly short window and recovery begins. With the COVID-19 pandemic, it isn’t clear how long it will last and when the recovery will start, Day says.

A second difference is that disruption or damage to a business due to weather is usually covered by insurance. “That coverage is an open question in this current situation,” Day says. “We don’t know how many of our customers will be covered by insurance. So, they are more dependent on programs that we can offer through the bank.”

Signs of pandemic-related fraud

100 dollar bill with a mask

In times of crisis, there are always opportunists looking to profit off the confusion. Community bankers must be diligent in educating customers about potential fraud. Here are some examples of COVID-related scams:

  • Social media scams fraudulently seeking donations or claiming to provide stimulus funds
  • Sales of counterfeit or fake testing kits, cures, immunity pills and protective equipment
  • Fraudulent offers for free COVID-19 testing in exchange for Medicare beneficiary information
  • Malicious websites and apps that appear to share virus-related information only to gain and lock access to devices until payment is received
  • Phishing scams, including texts and emails claiming to offer access to government assistance or even free gift cards
  • Identity theft from websites offering assistance for those filing for PPP loans or emergency relief
  • Fraudulent charities or individuals seeking donations

Resources for bankers to learn more about current fraud schemes include the Department of Justice and the Federal Trade Commission.


Beth Mattson-Teig is a writer in Minnesota.

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