‘Cautious Optimism’ Pervades Lending Trends

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In the aftermath of last year’s economic turmoil caused by the COVID-19 pandemic, bankers say businesses are on their way to getting back to some semblance of normal.

Locally, banks are working with their customers to follow up on forgivable federal loans and to help them find lower interest rates, Central Kentucky bankers said.

Last year, the bulk of lending activity involved bankers helping customers apply for federal Paycheck Protection Program (PPP) loans — Small Business Administration (SBA)-backed loans that were forgivable provided they were used to keep employees on the payroll. Loans could be used to fund payroll costs, to pay for mortgage interest, rent, utilities, worker protections like personal protective equipment, uninsured property damage costs caused by looting or vandalism, and certain supplier costs and expenses for operations.

Lenders qualified for full loan forgiveness if they maintained employee and compensation levels, if their loan proceeds were spent on eligible expenses and if at least 60 percent of the loan was spent on payroll costs, according to the SBA.

While 2020 saw bankers assisting their customers to get PPP loans, now bankers are working with customers to get those same loans forgiven.

“The second round of SBA PPP loans was very active, primarily in the first quarter of 2021 when we deployed about half of the volume and 40 percent of the dollars into the community,” said Todd Ziegler, Central Kentucky market president with Republic Bank. “We continue to work with businesses through the forgiveness process for both rounds of PPP loans. Now well into the forgiveness phase, we have not experienced any significant issues for loan forgiveness.”

Lending activity increases in several sectors

Lending activity has picked up, Ziegler said, with mortgage activity continuing to be in high demand, and commercial lending finding its niche in the post-pandemic economy.

“Banking volume in 2021 has largely returned to normal projects,” Ziegler said. “Commercial real estate and equipment financing are the most active segments.”

But the real outcome and impact of the pandemic is still to be seen, he said. Businesses are continuing to find their way when it comes to balancing work-from-home employment and changes to office space.

Jeff Koonce, market president with Wes- Banco, said the future of the office space is still shaking out.

“While there is a cautious optimism among businesses, there also remains some trepidation for companies to invest or borrow to support future growth, as they work through labor and supply chain constraints, as well as get a feel for how the resurgence of the pandemic might play out in the economy,” Koonce said. “We have seen a great number of businesses adopt some type of work from home strategy for their employees during the pandemic; and the next few years will determine their ongoing future o.ce space needs. For example, will businesses need less space because of work-from-home arrangements, or will they need the same amount or more space to enable socially distant office environments?”

For some businesses, said Matt White, market president for Fayette County at Peoples Exchange Bank, lending right now is all about the interest rate.

“Right now we are seeing folks chasing yields,” White said.

That translates, he said, to lots of investment in rental properties —from traditional rentals to Airbnbs.

“Folks are willing to pay more as rates remain low, and most investors see rents doing nothing but increasing. [There’s] very little building as costs are up, and it’s hard to get supplies,” he said.

That same attitude is seen on the individual side, he said. While last year was the year for home renovations, now, as the costs of supplies have increased, renovations have slowed down. The current trend, he said, is for individuals and investors to buy property to use as short-term rentals.

However, there is some borrowing hesitancy in businesses, he said, as lingering changes caused by COVID — like continued illnesses, supply chain issues and a lack of employees — continue to plague business owners.

Digital-first communications are here to stay

Also changed because of COVID, bankers said, is the lending process itself. Restrictions during COVID forced banks to operate digitally. That trend continues.

“Not just lending but the entire suite of products and services of the financial services industry has changed due to the adoption and use of digital banking by customers across all age groups,” Koonce said. “Accessibility today combines the traditional retail financial center network and enhanced technology options, which allow customers to engage the bank on multiple platforms at times that best meet their schedules.”

The lingering effects of pandemic lockdowns, bankers said, created a fundamental change in person-to-person banking.

“Everything is email and DocuSign,” White said. “No one wants to meet in person or even talk on the phone, almost everything is email.”

And the change to digital means a change in customer expectations, he said.

“We see folks chasing speed and service like never before,” White said. “Borrowers want to email or text, and [they] want an immediate response.”

Technological changes have impacted retail banking, too. Ziegler said Republic Bank’s Interactive Teller Machines (ITMs) allow retail banking customers to interact with bankers virtually in real time for assistance with transactions. The machines also function as 24-hour ATMs.

“Retail banking changed with the use of technology accelerating during the pandemic, and we see this continuing,” Ziegler said. “We now have ITMs installed at every banking center providing greater access to live bankers for our clients. In fact, for typical transactions, these ITMs increase availability to live bankers by our customers 50 percent more than just traditional lobby hours.These ITMs are now the primary and preferred way to transact daily needs.”

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