How COVID-19 has disrupted retail banking

Retail Banking Interrupted graphic

The pandemic has disrupted the world of retail, and retail banking was no exception. Community banks adapted to COVID-19 restrictions to meet the needs of customers, embracing new and existing branch trends. The result? Some community banks are emerging nimbler or more tech savvy, while others are using this time to make plans for the future.

By Kelly Pike


The Friendship State Bank began 2020 with a clear retail vision. Margins were fat. Loan demand was good. Deposits were steady.

Then came the COVID-19 pandemic and a chain of events that changed everything. Branches shut down, and employees started working from home. Consumer adoption of drive-thrus and digital banking rose dramatically. The Federal Reserve surprised many bankers by dropping rates by 1%, from 1.25% to 0.25%, on a Sunday afternoon.

“It was instant margin compression,” says Christopher Meyer, president and CEO of the $425 million-asset community bank in Friendship, Ind. “We were spoiled with wider margins than we’d ever had.”

There isn’t a community bank that didn’t have its retail plans for 2020 upended. Initiatives were put on hold. Retail employees and customers adapted to new ways of doing business. In many cases, retail staff pivoted to fill newly emerging needs.

This was supposed to be the year that $567 million-asset First Citrus Bank in Tampa, Fla., opened a full-service branch in St. Petersburg. The community bank was getting estimates on an interior build-out and was getting ready to sign a lease when the pandemic hit. The bank decided to pivot and prioritize Paycheck Protection Program (PPP) applications, says Jack Barrett, bank president and CEO.

First Citrus Bank’s retail staff transformed into a team of small business lenders, acting as credit processors, gathering financial packages and putting them in a usable form for underwriters to process.

“The biggest, most impactful change was the high-spirited performance of retail bankers who so willingly put on a different hat—one they’d never worn before, just because it’s what was needed,” Barrett says. “It was beautiful to see the level of collaboration, all in the name of our customers and so they can take care of their families. Retail bankers picked up the ball and got it done for them.”

“[COVID-19] sped up our efforts to stand up new systems and bring a lot of services and efforts online, but on the other hand, it was a challenge implementing new initiatives in this environment.”
—Tom Moran, Community Bank

The same can be said for the commercial lenders and retail bankers at $2 billion-asset 1st Security Bank in Mountlake Terrace, Wash. Home lending makes up at least a third of the community bank’s total employees, and loan officers have been putting in 60- and 70-hour weeks to meet record demand for home loans and refinances, says Kelli Nielsen, executive vice president of retail banking and marketing.

“The bank has record numbers in mortgages and small business loans largely due to the PPP loans,” she says of her team, most of whom are working from home. “We get feedback from customers working with national banks saying that no one calls back and asking us for help.”

While some banks profited off mortgages, The Friendship State Bank found itself unable to replace the 4% and 4.5% mortgages that were disappearing from its books.

A tale of two economies

Branch visits may have been down in 2020, but deposits were way up. The Friendship State Bank in Friendship, Ind., began the year at $400 million in assets and was at $440 million by fall. At any other time, it would be a boon, but with limited loan demand and low bond rates, the bank is “certainly not going out of our way to grow deposits,” says president and CEO Christopher Meyer of the community bank, which now has $425 million in assets. “I personally would like to shrink a bit right now,” he says. “I’d rather be super profitable at $400 million than less profitable at a bigger size.”

While many Americans were padding their savings accounts with stimulus funds, other customers were seeking out loan accommodations.

The Friendship State Bank adjusted $16 million in loans, offering a three-month, interest-only extension. The community bank worked closely with customers to help them understand how the extension worked.

“You need to have a lot of patience in retail banking,” Meyer says. “If you just have CSRs [customer service representatives] mechanically attending to the details, the customer might miss something. We take the time to explain how it works and what we expect from them.”

While many customers were financially strong, 2020 has also been a reminder of how fragile many Americans’ finances are, Meyer says. Any amount of time without a paycheck can be disastrous. “I just hope that bankers who live through this, like they lived through 2008, remember how fragile the system is and how necessary it is to take foot off the greed pedal and keep it on one that benefits [the] community,” he says. “If we treat people around us right, we’ll do just fine.”

“It was like a Hoover vacuum sucking loans off the books,” Meyer says. “Freddie [Mac] and Fannie [Mae’s] rates were so low we couldn’t afford to rebook the loans. It would be unwise to book 30-year mortgages at that rate.”

Putting plans on hold

Community Bank in Joseph, Ore., is in the process of rolling out an online retail deposit platform this year to complement its online retail lending platform, but the onset of COVID-19 delayed implementation by a few months. With both bank and vendor staff working remotely, the bank found it difficult to put that piece of its retail strategy in place.

“COVID has both sped things up and slowed things down from a daily branch operational perspective,” says Tom Moran, president and CEO of the $490 million-asset community bank. “It sped up our efforts to stand up new systems and bring a lot of services and efforts online, but on the other hand, it was a challenge implementing new initiatives in this environment.”

While 2019 and 2020 were set aside for the design and implementation of retail online and remote services, Moran expects Community Bank to have its remote retail deposits side online and operational by year end and then spend 2021 activating them. “We’re still in the build-out phase,” he adds. “2021 is when we’re looking to really utilize it to help us achieve our goals.”

1st Security Bank ended up postponing most of its major retail projects for 2020, including the adoption of DocuSign integration into their core operating system and a more robust customer relationship management system, Nielsen says. The community bank is also hoping to launch online account opening in the first quarter of 2021 and to reevaluate and simplify consumer checking account options. It’s planning to adopt iPad technology allowing bankers to come to customers to capture signatures and IDs.

One Community Bank in Oregon, Wis., streamlined its consumer checking account options, simplifying 12 accounts from two recently merged banks into just three. The $1.3 billion-asset bank also developed a new fee schedule, keeping the lowest fees from each of the banks, says president and CEO Steve Peotter.

“The vast majority of clients want to know they can open an account and get online banking,” he says. “They don’t want to pay for those services they don’t need.”


Why nimble is the new normal

Brentwood Bank in Bethel Park, Pa., updated its strategic plan in late 2019 to include enhancing its technology capabilities with a focus on digital platforms. Unfortunately, COVID-19 hit before the community bank got far into the project, and it doesn’t anticipate dramatic updates until 2021, according to president and CEO Thomas Bailey.

“For a couple of months there, we didn’t do a lot of work toward that strategic plan initiative, because we were all-hands-on-deck between the PPP program and just trying to take care of our customers,” he says. “We were closing loans in parking lots, trying to keep social distance.”

The challenges of the retail environment also inspired ingenious solutions. Bailey credits retail staff at one of his busiest branches for rigging up a doorbell and a drawer slot to create a socially distant walk-up service window, since the bank’s location in a strip mall prevented it from having a drive thru.

“If there’s any major retail initiative, it’s being nimbler and more tech savvy as being key to survival,” says Bailey, who says online and mobile bank activity remain high. “It’s the shift of getting the right people in the right place to service those customers—making more additions to the call center and technology area.”


Meeting clients where they are

First Citrus Bank never closed its branches during the pandemic, but that didn’t stop it from reaching out to customers in new ways. The bank swiftly adopted a secure video conference portal to connect with customers accustomed to face-to-face interactions while continuing with a planned website revamp. It also accelerated remote account opening, something the bank had previously resisted because it was “overly prudential” when it came to Bank Secrecy Act (BSA) risk, Barrett says. Now, customers can open accounts online, and bankers will drive to the customer to copy their driver’s license and complete and file signature cards, if needed.

“We’re going to work with you however you prefer,” says Barrett, adding that teller transactions were still down 15% at the end of August. “If you’re an internet person, guess what? You’ve got it. If you’re a face-to-face [person], we’re going to be face to face with you. We’re going to make you feel special, by meeting you where you are, because you deserve it.”

1st Security Bank has let individual branches decide whether they are comfortable fully opening, modifying hours or opening by appointment only. Regardless, if a customer shows up at the bank door needing to talk to someone, bankers ask them to wait in their cars until any other customers leave. “To be locked out of your bank doesn’t feel very good,” Nielsen says.

The majority of One Community Bank’s lobbies remained closed, except by appointment, in early fall. The community bank closed its lobbies March 15, just two days after finalizing a merger. “That was a very dramatic change for all our retail banking staff,” says Peotter, adding that the bank used to serve coffee and cookies in branch lobbies. “We worked with many clients to download our app. [We] walked them through how to deposit a check and when they can expect to see it.”

“We got a lot of new business, because even if we couldn’t do the loan, we checked in. [They] admired that we prioritized existing customers due to resources and didn’t take everyone off the street.”
—Kelli Nielsen, 1st Security Bank

In addition to video conferencing, One Community Bank widely adopted texting. Clients who texted outside of business hours were delighted to get a quick response, even if it was just an acknowledgement that it was after hours and that the banker would get back to them tomorrow, Peotter says. The bank also further embraced its existing electronic signature and early mortgage disclosure technologies.

At $263 million-asset Bank of Yazoo in Yazoo City, Miss., profitability and the asset mix have remained steady. The local economy generally avoided the highs and lows experienced across the rest of the country—although branch traffic in early fall was still down about 20%. It’s an acceleration of an existing trend, says Van Ray, president and CEO. Past dues are at record lows.

For years, Bank of Yazoo has wanted to implement electronic signatures, but state law requires an in-person signature for any loan needing a notary. The bank had adopted the digital option for unsecured and auto loans and is hopeful that the change in environment will spur the state legislature to act.

Meanwhile, the benefits of community banks’ PPP efforts have resonated beyond small business banking into retail. Of One Community Bank’s PPP loans, 12% went to new clients. Half of those new clients established other banking relationships, primarily deposit accounts. The same is true for Bank of Yazoo, where 30% to 40% of PPP borrowers were new relationships.

1st Security Bank chose to limit its PPP loans to existing business customers but still managed to bring in new business by answering the phones, connecting with potential applicants and following up with them a week or two later.

“We got a lot of new business, because even if we couldn’t do the loan, we checked in,” Nielsen says. “Our existing relationship customers admired that we prioritized existing customers due to resources and didn’t take everyone off the street.”

The future of retail

Observing the technological changes and adoption rates of 2020, Moran believes these shifts in how consumers bank will be permanent for community banks.

“It will be different going forward,” he says. “While we like being high service, banks must be ready to have online, mobile and remote offerings, because that’s going to be a tremendous gauge for success in this industry. … The longer we operate in this environment, the more industry customers will become conditioned to operating outside the traditional branch network.”

President and CEO Thomas Bailey of $751 million-asset Brentwood Bank in Bethel Park, Pa., looks to the influence of large online retailers when it comes to the future of retail banking. “The combination of personable bankers and technology to provide banking the way consumers want, when they want, will be the way going forward,” he says.

Barrett agrees changes like video conferencing are here to stay, though the banker in him worries that the shift to a more remote workforce will significantly devalue the Class A office space segment in loan portfolios industrywide. Yet, he’s still optimistic about the future of retail banking. “Retail banking is coming back, I feel,” he says. “I’m excited about that.”


Kelly Pike is a writer in Virginia.

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