In February, Poulsbo-based Liberty Bank opened its first Eastside office in downtown Bellevue to serve King County — just before the coronavirus pandemic gripped the United States.
While it would appear bad timing for the business bank to introduce itself to the market, the timing actually sped up the introduction, said Alan Fulp, Alan Fulp, president and chief lending officer, who also oversees the bank’s Bellevue office. The reason: Liberty Bank met many new customers through the Paycheck Protection Program (PPP) loans it offered businesses.
“I think that we ended up doing a lot more loan volume than we anticipated by virtue of that program,” Fulp said. “Because so many business owners were struggling with getting the loans out in the market from other banks, they were led to us, so we had exposure to businesses that normally we would not have.”
Liberty processed about 300 PPP loans, totaling roughly $50 million bankwide. About 30 percent of those loans were in Bellevue.
“It’s really given us a sense of purpose,” Fulp said. “The extent of our reach out into the community has been much greater because of COVID, and we’ve made a bigger impact.”
But the bank, like others, remains concerned about pandemic-induced impacts on the economy moving forward as the crisis lingers, some five months long at the time Fulp and other bankers were interviewed for this story. Six months marks the expiration of many loan-deferral periods for hard-hit customers in banks everywhere, meaning lenders could have to look again at ways to help customers weather the storm.
It’s among the pivots banks have had to make or trends they’ve had to navigate during the COVID-19 pandemic to meet customers’ personal and business needs, including working remotely on bank business formerly conducted in person; accelerating digital banking transitions already well underway; modifying branch operations for customer and staff safety; and, for banks doing home mortgages, dealing simultaneously with heavy refinancing volume during record low interest rates.
But remote doesn’t mean removed as banks stress the importance of customers asking for help if they’re struggling so banks can explore options to help.
Banking regulators have encouraged banks to work with their customers during these times, said Brent Beardall, president and CEO of Seattle-based Washington Federal Bank (WaFd Bank), which has 200-plus branches in eight states, including 37 in King and Snohomish counties. During the Great Recession, when a bank worked with a client with a troubled loan, the loan was accounted for as a troubled debt restructuring, or TDR.
“It was basically the scarlet letter of banking,” indicating a problem asset, Beardall said, adding that investors sometimes viewed TDRs as banks kicking the can down the road and not addressing the problem, and penalizing banks for having a lot of TDRs.
This time, regulators were proactive and tweaked an accounting rule, encouraging banks to work with those borrowers and provide accommodations without automatically classifying them as TDRs.
“The regulators got it right,” Beardall said.
“Essentially, if the highway has a 55-mile-an-hour speed limit, they took away the 55-mile-an-hour speed limit; they said go as fast as you can to help your clients,” which banks welcomed, he said.
Times for banks are much different now than during the Great Recession, said Matt Hill, Seattle market president for KeyBank and commercial banking sales leader for Washington. Then, people were worried about the financial strength of the banking industry, and there was intense focus on banks’ capital and liquidity.
Today, banks are better capitalized, and people feel confident about the industry’s ability to weather the pandemic. Banks are vital to the economy’s overall health, Hill said, and “We want to be there to just support our clients and their needs as they need the cash to manage through a challenging period.”
In its second quarter earnings release, Cleveland-based KeyBank — which operates in 15 states with more than 1,000 branches, including 75 in King and Snohomish counties — said it has supported clients by offering payment deferrals, hardship support, borrower assistance programs, and forbearance options as a bridge for individuals and businesses. It also processed more than 40,000 PPP loans worth more than $8 billion nationwide.
Puget Sound, a major market for the bank, had a very successful PPP run locally, Hill said.
“It was an all-hands effort, as it was at many financial institutions, to support companies in our community — with (KeyBank employees) working seven days a week for five weeks in a row to be able to get the PPP loans done,” he said.
In its earnings report for the quarter ending June 30, WaFd reported 6,500 PPP loans exceeding $780 million bankwide. That included funding 1,950 in the Seattle/Puget Sound region for $381 million, or an average loan size of $195,000. Nearly half the bank’s total PPP loans were with new clients, said Brad Goode, senior vice president-marketing communication director.
“It’s really provided a generational opportunity for us as bankers to bring in more business banking in the fold,” Goode said, noting WaFd was a traditional bank doing home mortgages (which it still does) until becoming a commercial bank about 15 years ago. Pivoting to underwrite the PPP loans, “It’s a huge opportunity for us to grow down the road and continue to develop more business relationships, because we were there for them when they really needed us.”
Even before Congress approved the PPP assistance, WaFd pivoted to get ahead of the pandemic by offering small businesses $200,000 lines of credit with no interest for 90 days, Beardall said.
Banks, like other businesses, have had to adjust how they do business, but video conferencing has helped fill gaps once filled in person.
“Nothing is ever going to replace the ability to go out to a business and see it in person, kick the tires,” Liberty’s Fulp said.
“We like to visit business owners at their place of business, we like to see where they are doing their business, we like to see the operation, and that process has been hampered by COVID, for sure,” Fulp said.
But as the state gradually has opened, visits can occur with masks and social distancing, he said.
KeyBank’s Hill has been pleasantly surprised at how well business has been conducted remotely since the pandemic began.
“We’ve seen a lot of success being able to conduct business successfully and even building new relationships with people we’ve literally never met face to face, and onboarded new relationships,” he said. “So I think one of the big takeaways from this and the silver lining on COVID will be the fact that most people want to go back to the office and have that collaborative environment, but I don’t know if we’ll see a true kind of five-days-a-week, everyone grinding in and out of downtown Bellevue, Seattle, Redmond, Everett, post-COVID.”
Hill expects businesses, seeing that work still gets done remotely, will allow more work-from-home flexibility. But that also presents a big question for commercial real estate if the same number of people aren’t visiting the office daily.
Fulp and WaFd’s Beardall also wonder about the effect on commercial real estate.
Maybe companies will realize they don’t need as much space as they thought, or maybe the tech sector, which often favors open floor plans, will acquire more space to improve social distancing, Fulp said.
“It’s just so interesting. I mean, six months ago, the retail sector was performing at a higher level than it’s ever performed before — the commercial real estate market was absolutely as tight as it could be with very little, if any, space available,” particularly in downtown Bellevue and Seattle, Fulp said. “And now all of a sudden, a lot of that is thrown up into question and a lot of moving parts. So it will be interesting to see where we land on this.”
Beardall, in an online midyear economic forecast in late July with the Bellevue Chamber, cited the effect on commercial real estate among his concerns as more people work from home and for which office construction has been important to the local economy.
The pandemic accelerated not only online working, but online banking, Beardall said.
“For years, we have witnessed a shift in consumer sentiment from in-person banking to electronic and self-service banking,” he said in the bank’s earnings report. “COVID-19 and its related restrictions have accelerated that trend. In June of 2020, over 99 percent of the banking transactions we processed occurred via digital versus face-to-face platforms (digital includes ATMs and call centers).”
That’s up from about 90 percent prepandemic, he said in an interview.
“What will happen to branch lobby traffic when the pandemic is over remains to be seen, but we see untapped capacity in our bankers to win market share,” Beardall said in the earnings report. “Bank branches have quickly become less about serving existing clients’ routine transactions and more of a showroom for discussing needs, solving issues, demonstrating technology, and acquiring new relationships.”
KeyBank’s Hill saw a significant decline in traffic to the bank’s 140 Washington branches during the stay-at-home order. But now, while traffic is down year over year, “We still are seeing a fair amount of people making appointments and coming into the branches to open accounts or apply for home equity loans or apply for mortgages. Our mortgage business, especially on the refinance side, is incredibly strong right now,” he said in early August.
Digital banking, which has grown exponentially in recent years, has increased during COVID, he said.
“That said, we definitely see more of a certain demographic that is much more comfortable still going into the branches or doing the drive-throughs,” Hill said. “We’re doing everything we can to make sure that we’re opening an environment that is safe for our clients and for our employees,” from wearing masks to employing
Beyond retail branches, Hill said commercial and business banking clients in the region seemed to have performed through midyear better than he might have imagined a few months earlier, had he known the extent of the economic slowdown. PPP has been critical to that, helping with liquidity, but as those funds are exhausted, continued support from the federal government and banks will be needed to help companies through the remainder of the year and beyond, he said.
“There’s still a long ways to go; there’s no question about it,” Hill said. “And the longer that we are not fully kind of back to business as usual during COVID, the more challenges that companies are going to face and consumers are going to face. “
While banks closely monitor their customers’ financial situation, there’s one shot in the arm they and everyone else could use.
“Really, really hoping for that vaccine to come along,” Liberty Bank’s Fulp said.