Pub. 1 2021 Issue 1

February 2021 | 19 A Changed Landscape While banks of all sizes faced myriad challenges from the pan- demic and its economic consequences, community banks played a large role in one of the major strategies to mitigate the damage: the Paycheck Protection Program (PPP). The PPP — established under the Coronavirus Aid, Relief and Economic Security Act — was administered by the Small Business Administration (SBA) and guaranteed the extension of potentially forgivable loans to allow participating employers to keep workers on their payrolls. PPP loans were made by qualified lenders to small businesses with fewer than 500 employees. PPP loans made by community banks accounted for nearly 40% of the total extended under the program. But it wasn’t easy. Bank- ers surveyed numerous detailed challenges, including chang- ing rules and procedures for loan processing, glitches with the SBA website and issues related to the “first-come, first-served” approach to approving customer requests. Community banks incurred numerous costs from program participation, such as inefficiencies because of the small size of many loans and some reputational damage from disgruntled customers who held banks responsible for any glitches. Nevertheless, a number of surveyed bankers said the struggles were worth it. As one banker put it, “Despite a rollout that was disjointed and frustrating, we were able to support our small business customers.” Beyond the PPP Community bankers took other steps to help their customers. More than a third of those surveyed reported they reduced or eliminated late-payment penalties on credit cards or loan payments. A similar percentage reduced or eliminated fees on deposit accounts. Many banks took less traditional steps to help out their customers and communities, such as boosting their Wi-Fi hot spots so students without adequate internet access could do homework from the bank parking lot. While community banks helped businesses in their communities stay on their feet, they also needed to protect their own financial interests. Many community banks increased their loan loss reserves, with three-quarters of surveyed bankers citing economic conditions and credit repayment issues as primarymotivators. Almost a quarter of surveyed bankers report at least a temporary closure of a branch. Nearly three-quarters of community banks implemented a work- from-home policy in response to COVID-19, and almost 95% reported no layoffs. Some bankers noted that these transitions were easier than expected, partially because they hadmade prior investments in tech- nologies that facilitated the changes. Looking Ahead The near-term outlook for community banks is highly dependent on the speed of economic recovery, which is tied to suppression of the pandemic through public health measures and medical interven- tions like vaccines. While many institutions will no doubt suffer losses, some bankers are choosing to accentuate the positive, like the advantages that come with relationship-based banking. One surveyed banker summed it up like this: Loans during the pandemic “were never transactional matters. We were presented with several opportunities by bank customers who simply couldn’t get a loan from their large corporate-style banks. Their loss is our gain.” ■ Carl White, Senior Vice President Carl White has 32 years of experience in the Supervision Division of the Federal Reserve Bank of St. Louis. He is currently senior vice president of the Supervision, Credit, Community Development and Learning Innovation Division. He has served in various other roles within Safety and Soundness, beginning his career as an examiner. Mr. White has served as lead instructor and course developer on numer - ous Fed System training courses, including an international assignment in Brazil. In addition, he served as the central point of contact for the District’s largest state member bank before and during the financial crisis. He and his team were nominated for the District’s President’s Award for Innovation as a result of efforts to implement and enhance off-site loan review and examination processes. Mr. White holds a bachelor’s degree with a major in finance from St. Louis University. Nearly three-quarters of community banks implemented a work- from-home policy in response to COVID-19, and almost 95% report - ed no layoffs. Some bankers noted that these transitions were easier than expected, partially because they had made prior investments in technologies that facilitated the changes.