The Impact of the Coronavirus on Community Financial Institutions – Where We Are, What We’ve Learned and Where We Go from Here


After more than a decade of economic expansion, the U.S. economy plunged into a recession triggered by the coronavirus pandemic. Nearly every industry has been forced to confront the ways the pandemic has altered operations and the banking industry is no exception. In times of economic crisis, financial institutions become especially important to the customers and members they serve. Banks and credit unions across the country are juggling navigating the Paycheck Protection Program (PPP), working with customers and members to modify loans, maintaining and adjusting allowance for credit losses, and strategizing ways to remain profitable during these uncertain times. Financial institutions face a substantial amount of competing, important priorities with relatively little warning.

Throughout the month of May, Abrigo polled more than 100 C-suite employees at community financial institutions across the country to gauge sentiment regarding the current state of the financial services industry. The survey aims to discern the top obstacles, strategies and pressures the industry is currently grappling with. Using the results of this survey, financial institutions can learn from one another to tackle common challenges and manage customer expectations during this time.

C-level executives participating in the Abrigo survey were asked questions related to the current state of the banking industry, including working from home, economic outlook, M&A activity, Paycheck Protection Program lending, and other top-of-mind issues. In general, community financial institutions remain positive about the current business health of their banks and credit unions, according to Abrigo’s informal survey. Nearly 63% of respondents said the current business health of their financial institution was good, while another 16% considered theirs to be excellent. Only 20% of those surveyed said the current business health of the financial institution was fair and less than 1% labeled it as poor.

Like other businesses across the country, financial institutions have had to contend with a key change triggered by the coronavirus: The ability to serve customers remotely. Stay-at-home orders and other precautions halted most in-person interactions. This created a challenge for both staff and customers/members of traditional financial institutions that heavily rely on in-person banking within their branches. Financial institutions took a variety of approaches to staffing their branches and offices. While more than 40% of financial institutions responded that all of their departments continued going into the office or branch on a regular basis, nearly a fifth (17.5%) of financial institutions had all of their departments working remotely. Other institutions balanced the number of personnel going into the office or branches by implementing a range of methods to promote social distancing, including staggered schedules and alternating weeks, leveraging drive-throughs by appointment, or splitting up departments based on the ability to work remotely.

Lending departments were named most frequently among those still going into the office or branch regularly. According to the survey, more than a quarter of lending departments are working in the office on a regular basis. A big driver for this was likely the Paycheck Protection Program (PPP), which drove many reports of lending staff and bank and credit union executives working long hours in their offices in order to process the more than 4.7 million loans worth $516.5 billion that have been approved for small businesses through June 24.

The Paycheck Protection Program

The Small Business Administration (SBA) reported 1,708 SBA 7(a) lenders during FY 2019, just 16.2% of 10,522 financial institutions, according to data from the FDIC and CUNA. When the PPP launched in early April, it did so through an expansion of the SBA 7(a) program, meaning PPP lenders had to be SBA-certified. With so few financial institutions participating in the 7(a) program, many financial institutions had to scramble to become SBA 7(a) certified. Despite the many nuances and obstacles PPP lenders faced, community financial institutions, in particular, understood the urgency to help their local businesses in need. Of those surveyed by Abrigo, 86.7% of financial institutions participated in one or both rounds of the PPP.

The PPP has been an extremely fluid, complex process. Guidance for the program has been released in fits and starts and has changed many times since the program launched on April 3, and the Treasury and SBA continue to issue new interim final rules and procedures to address the changes. Between managing PPP applications, understanding new rules and guidance, and fielding questions from borrowers, among other day-to-day responsibilities, lenders have dealt with a substantial amount of work related to the PPP.

The PPP will certainly have lasting impacts on the banking industry. It has been pivotal for community financial institutions to attract new small business customers or members representing growth opportunities. While PPP lending opportunities are finite, participating lenders should be thinking about how to engage these small business customers to deepen and strengthen these relationships so that they lead to cross-sell and up-sell opportunities.

Furthermore, financial institutions that have adopted digital capabilities to scale PPP loans have established a distinct competitive advantage—especially if they build on their new strengths. Innovative institutions leveraged online loan applications, online document storage and e-sign capabilities to keep the process moving efficiently while maintaining critical social distancing measures. Those that embraced and invested in technology to automate and create efficiencies within the PPP lending process helped small business borrowers access much-needed funds faster. Other banks relying on traditional processes became the subject of frustration when failing to deliver quickly.

“Once the PPP is over, there will be two populations among SMB lenders,” Aite analyst David O’Connell, author of “The PPP Paradigm: How Vendors Help Lenders,” told Abrigo in an interview. “Those that treat the things they did during PPP as a one-time event and as a handful of improvisation activities to help them survive the storm, and the other cohort, which will outperform. Those will be the companies that look to everything that they turned to and obtained, and they’ll look to their experiences during PPP and will seek to embrace, internalize and propagate them as competitive competencies.”

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