Flush with cash, banks look to make more loans

By Carey Smith

The impacts of the COVID-19 pandemic have been felt in every aspect of our lives, and the banking world is no exception. As with every person and every business, adaptation has been the key to success in weathering the upset of normality.

As a response to the uncertainty caused by onset of the pandemic, both individuals and businesses became more conservative in their spending. “Then, the Federal Reserve and the federal government put unprecedented levels of money into the economy and took significant action to reduce interest rates. As a result, the banking industry is seeing significant growth in deposits,” explains Jeff Raes, senior vice president at Hickory Point Bank in Springfield.

Infused with liquidity and low interest rates, banks have been striving to find those interested in taking on loans. Howard Martin, chief lending officer at Land of Lincoln Credit Union, states, “The way we fund loans is through our depositors. We essentially became cash-rich from those dollars from our depositors. We have cash to allocate.”

But as Mark Vance, senior vice president of Carrollton Bank cautions, “We also have a responsibility to these depositors, to loan money the right way so we don't lose your money. We can't be haphazard. We have to do it in prudent ways.”

Raes affirms that his bank looks to invest in the communities it serves. “We're always looking for loan opportunities that help our community to be successful, so we can be successful. If the community isn't growing, then there are less opportunities for the bank to grow. We want to be a part of that.”

The combination of liquidity and low interest rates are a big part of what has set the real estate market on fire, both locally and nationally. Martin states, “It's what driving a very aggressive housing market, essentially making it attractive for buyers to purchase and refinance homes.” Due to a premium on inventory and inevitable interest rate increases, Martin does not expect the housing market to remain in its current hot state indefinitely.

Technology-driven banking options such as Quicken Loans or Rocket Mortgage were still viewed as novelties just a few short years ago. But with a younger, tech-savvy generation moving into the home-buying stage of life, these nontraditional online options have grown exponentially and become competitors with established banks.

Vance states it's not necessarily an unfavorable trend. “Sometimes competition is a good thing and pushes people to do things differently and to innovate, including us. We've changed to be more accommodating to online platforms. From that perspective, it's not a bad thing, but an evolving thing.”

While visits to bank lobbies have been decreasing for years, doing all banking online became more commonplace during the pandemic. However, Raes notes, “Buying a home is typically the largest investment that most individuals make. It isn't commonplace. Depositing a check or checking your balance -- everyone does that. But that process of buying a home or getting a mortgage can be daunting.”

What sets community lenders apart from online platforms is relationships, a human point of contact. As Martin states, “Online lenders don't provide the type of services or value-added relationships that a bank or credit union would offer.”

Buying a home is not always a smooth process. Vance said he has worked with several clients who had initially tried digital platforms for loans. “There is no personal relationship there, just a process. They don't take time to understand someone's unique needs.” Vance said that if something goes wrong, a community banker can help get things back on track.

Raes agreed. “When it comes to more complex transactions -- borrowing money for buying a house or expanding a business -- customers ultimately want to work with someone locally who can help them out with consultation and advice. That's why we can better compete with digital offerings. Having that person in the community, in the local banking center to meet with and guide you through the process, you can't get that through a digital app. We get the deals closed. You have somebody locally here that can help walk you through the process. That's what we're all about.”

Carey Smith much appreciates the community banker who calmly and wisely guided her through the process of buying her home.

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