The COVID-19 pandemic and several trends it accelerated in the banking and lending world will likely continue to dominate the industry in 2021.
Even as 2020 comes to an end, many of the storylines that dominated the year in banking and lending continue to evolve, likely shaping the industry for months and years to come.
From the pandemic’s effects on business customers and digital acceleration to conversations about racial inequalities in the industry, the year 2020 saw banking and lending confronting possibly long-lasting changes to the industry.
The PPP
With only one week from when the CARES Act created the Paycheck Protection Program to its roll out, lenders confronted multiple challenges throughout the early days of the multi-billion-dollar small business lending program.
When the program went live on April 3, guidelines had just been released the prior evening, with some differing from what the U.S. Small Business Administration and Treasury Department had communicated earlier in the week. Within days, the SBA platform was experiencing significant problems.
In confronting these challenges, bank employees understood how the pandemic had affected their small business customers, said Eugene Shugrue, chief lending officer at Middletown-based Liberty Bank, one of Connecticut’s top PPP lenders.
“Our customers were hurting, and that impacts us,” Shugrue told The Commercial Record in August. “As soon as the program became available, we saw the value it could bring to our customers; we endorsed it as an institution and one-on-one as bankers.”
With some small businesses struggling at the outset to get PPP loans from big banks, the program also provided community with opportunities to expand their small business customer bases.
“That really gave us an unexpected boost in reaching businesses that weren’t currently banking with TSB,” Torrington Savings Bank President and CEO Lesa Vanotti told The Commercial Record in October. “I think it opened doors that may have taken us years to reach and get a foot in, so it was a real opportunity for us.”
When the PPP ended in August, Connecticut lenders had processed almost 65,000 loans for $6.7 billion.
But as COVID-19 continues to surge, the PPP has been revived. Even as lenders continue to work through the loan forgiveness process, the latest COVID relief legislation authorized another round of PPP funding, including second draw loans for the hardest hit small businesses.
Racial Inequalities
For all the help PPP provided to small businesses, it also brought to light the effects of systemic racism on banking and lending. As Black and Latino populations experienced disproportionately high rates of COVID-19 infections and deaths, small business owners of color struggled to access the PPP. Households with limited or no banking relationships also faced both delays in receiving government aid and higher costs to use alternative services to banking.
When George Floyd died in the custody of Minneapolis police, bringing more attention to systemic racism, many in the banking industry stepped forward with support for Black Lives Matter and commitments to address racism and issues of diversity and equity.
Waterbury-based Webster Bank donated $100,000 to address social injustice and racial equity efforts, including $75,000 to the national human rights organization Equal Justice Initiative and $25,000 to Hartford-based RE-Center Race & Equity in Education. Webster said in a statement that it would partner with RE-Center on education, training and community conversations related to racial injustices and anti-racism programs for bankers and the communities it serves.
“Racism, discrimination and intolerance in any form are unacceptable. Webster is dedicated to respecting the dignity of every individual, and we stand in support of those impacted by racial injustice,” John R. Ciulla, Webster’s chairman, president and CEO, said in a statement in June. “Supporting organizations that work to promote change is important for our bankers, our customers and our communities.”
Digital and Branch Strategies
While the goal of the PPP was to help small businesses, the process also had a role in accelerating banks’ digital strategies, as most institutions turned to technology to get through hundreds or even thousands of applications.
The PPP was not alone in accelerating digital strategies. The closed branch lobbies led more customers to adopt online, mobile and other banking options.
Richard Leone, CEO of Southington-based core technology provider COCC, which built a PPP platform for its clients, said some banks in the past had resisted rolling out online banking to older adults, but during the pandemic, they have seen this demographic use online tools more than younger customers.
“This COVID environment has accelerated the adoption of technologies at warp speed,” Leone said in August. “It was incredible how quickly banks were able to adopt these new technologies.”
This accelerated adoption of technology could have other long-lasting effects, including on the role of branches. Berkshire Bank and Webster Bank have already announced plans to reduce their branch footprints
But studies have shown that branches remain important to customers. Throughout the pandemic, banks have continued to open or make plans for new branches, including Torrington Savings Bank, Jewett City Savings Bank, Ion Bank, Windsor Federal Savings and Newtown Savings Bank.
If more branches do close in the coming months and years, banks could find themselves adapting to how they approach and staff their remaining offices.
“If you look at retail customers and small business customers, still a very high proportion of them say having a branch nearby is important to them,” said Jeff Marsico, an executive vice president with Pennsylvania-based consulting firm The Kafafian Group. “But what they want the branch for is problem solving, is advice, is loan opportunities, and what financial institutions have been slow to react to is changing the skill set of the staff within the branch to be responsive to the new demands on branch personnel by branch customers.”
Mortgage Lending
Amid all the changes the industry has seen during the pandemic, the ongoing drop in mortgage rates has provided a bright spot for lenders. While the interest rate environment continues to squeeze bank margins – another issue that will continue to shape the industry in 2021 and beyond – mortgage rates kept the refinance boom going throughout 2020, a trend that looks to continue.
Connecticut had $25.7 billion in residential mortgage activity during the first three quarters of 2020, a 68.7 percent increase over the same time period in 2019, according to data from The Warren Group, publisher of The Commercial Record. Residential refinance activity in Connecticut more than doubled to $16 billion during the first nine months of 2020, and purchase activity increased by 20 percent to $9.6 billion.
Lenders are likely to continue to see homeowners looking to refinance in 2021. Mortgage rates hit record lows throughout 2020, continuing into December. The Federal Housing Finance Agency announced in November that conforming loan limits would increase by almost 7.5 percent in 2021, possibly giving more homeowners opportunities to refinance.
With rates so low, not even the 0.5 percent adverse market refinance fee Fannie Mae and Freddie Mac started assessing on lenders in December should deter consumers from refinancing.
Despite the economic uncertainty brought on by the pandemic, the purchase market has been strong throughout Connecticut. Marc Nathan, a senior mortgage banker with Total Mortgage in West Hartford, said in November that homebuyers have been looking for affordable alternatives to living in New York and Boston as remote working opened up more options for where people live. Families have also sought larger houses for home offices and at-home learning.
“There have been plenty of years where we had a lot of refinances, plenty of years where we had a lot of purchases,” said. “But there’s not too many that I can think of where we’ve had this much volume of purchases and refinances at the same time – it’s just been incredible.”
