While moratoriums on utility cutoffs and foreclosures and other economic assistance have helped keep consumer bankruptcy filings low during the pandemic, a wave of bankruptcies is coming, lawyers say. 

Data from federal bankruptcy courts shows that in Wisconsin, consumer bankruptcy filings through August were 28% below the same time in 2019.  

But that is the calm before the storm – a calm stemming from state and federal initiatives meant to keep people solvent and in their homes while COVID-19 is spreading. For instance, the state’s Public Service Commission this month extended a moratorium on electric and gas disconnections until Nov. 1, when the state’s seasonal prohibition on utility cutoffs kicks in, essentially extending the pause in payments until April 15. 

After that, bankruptcy attorneys say, be prepared for a big jump in bankruptcy filings. 

“As of this month, there’s 56,000 people in the state that are behind on their utility bills,” said James Miller, of the firm Miller & Miller in Milwaukee. “Come April 15 of 2021 there is going to be a landslide of bankruptcy filings, unless We Energies comes up with something and starts forgiving balances.” 

Miller said consumers destined for financial trouble are holding off declaring themselves insolvent as long as they can. Moratoriums that have stalled regular major household expenses, along with aid such as stimulus checks from the federal government and an extra $600 in unemployment income, have kept consumers’ heads above water, if only temporarily. 

Claire Ann Richman, an attorney with Steinhilber Swanson LLP in Madison, said that right now, many consumers don’t feel pressure to file for bankruptcy protection from creditors. In addition, she said, the court system can’t function at its normal pace while social distancing is in effect. 

“All of the reasons that force somebody to file bankruptcy are being slow-played,” she said. 

She predicted that as early as six months from now or perhaps the middle of 2021, a big increase in bankruptcy filings will begin in the state as assistance wanes and permanent business closures from the pandemic will leave fewer jobs. 

Some pandemic-inducted bankruptcies already are happening, especially among business operators, she said. 

“We have a dry cleaner, restaurant owners, agricultural suppliers who distribute fertilizer and ag products and they couldn’t go out and do their sales this spring, and karate schools – things like that,” Richman said. “Those people are shutting down.” 

Attorneys said even though bankruptcy filings are markedly down from last year at this point, lawyers are busy as they work with clients and advise them to hold off filing as long as they can in the hope that the economy and their personal situations improve. 

Through August, there were 8,272 consumer bankruptcy filings – Chapter 7 and Chapter 13 – in Wisconsin, or 28% fewer than through August of 2019, according to American Bankruptcy Institute data. Nationally, consumer filings were down 27%. 

Bankruptcy Court records show that in Wisconsin through August, there were 13 Chapter 11 business reorganization filings in the Eastern District of the state, compared with 14 at the same time a year ago. In the Western District, Chapter 11 filings through August were at 13, the same number filed in all of 2019 in the district. 

In an August report, the head of the American Bankruptcy Institute said a number of key factors continued to keep bankruptcy filings from overwhelming the court system in the U.S. 

“The CARES Act helped businesses and consumers initially weather the economic shock of the pandemic,” said ABI Executive Director Amy Quakenboss

She noted that collection, eviction, and foreclosure activity was largely suspended, and quarantining measures presented challenges for struggling debtors to meet with attorneys. 

“However, with the expiration of government stabilization programs, elevated unemployment levels, and growing economic uncertainty, we anticipate a dramatic climb in filings later this year,” said Quackenboss, who also holds a law degree. 

Miller said an increase in bankruptcy filings in Wisconsin is an inevitable result of the pandemic’s blow to business and jobs. 

“I think we’re really going to see the spike in filings in 2021,” he said. 

Paul Gores is a journalist who covered business news for the Milwaukee Journal Sentinel for 20 years. Have a story idea? Contact him at paul.gores57@gmail.com 

By, Ally Bates

This is the Special Focus section of the September 2020 edition of Compliance Journal, click here to view the entire edition.

The Bureau of Consumer Financial Protection (CFPB) has proposed the creation of a new category of qualified mortgages (QM) named Seasoned QM.  

As a general matter, the Ability-to-Repay/Qualified Mortgage Rule (ATR Rule) requires a creditor to make a reasonable, good faith determination of a consumer’s ability to repay a residential mortgage loan according to its terms. Loans that meet the ATR Rule requirements for QMs obtain certain protections from liability. CFPB stated it created the Seasoned QM category to complement existing QM definitions and to help ensure access to responsible, affordable mortgage credit—especially given the upcoming sunset of the temporary GSE QM category. CFPB also stated it seeks to encourage safe and responsible innovation in the mortgage origination market, including for certain loans that are not QMs or are only rebuttable presumption QMs under existing QM categories. 

Under the proposed rule, a covered transaction would receive a safe harbor from ATR liability at the end of a 36-month seasoning period as a Seasoned QM if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements. The following is an overview of the restrictions and requirements of the proposed Seasoned QM. 

Product Restrictions and Underwriting Requirements 

A covered transaction must meet the following product restrictions to be eligible to become a Seasoned QM: 

  1. The loan is secured by a first lien; 
  2. The loan has a fixed rate, with fully amortizing payments, and no balloon payment; 
  3. The loan term does not exceed 30 years; and 
  4. The total points and fees do not exceed 3 percent of the loan amount.  

For a loan to be eligible to become a Seasoned QM, the proposal requires that the bank consider the consumer’s debt-to-income (DTI) ratio or residual income and verify the consumer’s debt obligations and income. Similar to the existing Small Creditor QM category, the proposal does not specify a DTI limit. Additionally, the bank is not required to use Appendix Q to Regulation Z in calculating and verifying debt and income. The proposed commentary provides that a loan that complies with the consider and verify requirements of any other QM definition is deemed to comply with the consider and verify requirements of the Seasoned QM.  

Portfolio Requirement 

The proposed rule also sets forth a portfolio requirement for the new category. To be a Seasoned QM, the covered transaction cannot be subject, at consummation, to a commitment to be acquired by another person; and, legal title to the covered transaction cannot be sold, assigned, or otherwise transferred to another person before the end of the seasoning period. The proposal provides for two exemptions from this portfolio requirement in that the covered transaction may be sold, assigned, or otherwise transferred to another person pursuant to a capital restoration plan or prompt correction action, other action or instruction from a person acting as conservator, receiver, or bankruptcy trustee, or an order of the bank’s state or federal regulator. The covered transaction may also be sold, assigned, or otherwise transferred pursuant to a merger or acquisition of the bank with another person. 

The exemptions to the portfolio requirement apply not only to an initial sale, assignment, or other transfer by the originating creditor, but to subsequent sales, assignments, and other transfers as well. For example, assume Bank A originates a covered transaction that is not a QM at origination. Six months after consummation, the covered transaction is transferred to Bank B pursuant to merger of the two banks. The transfer does not violate the portfolio requirements of the proposed rule because the transfer is as a result of a merger. If Bank B sells the covered transaction before the end of the seasoning period, the covered transaction is not eligible to season into a QM under the Seasoned QM rules unless the sale falls within one of the two listed exemptions.  

As outlined, a covered transaction sold pursuant to a capital restoration plan under a prompt corrective action before the end of the seasoning period does not violate the proposed rule’s portfolio requirements. However, if the bank simply chose to sell the same covered transaction as one way to comply with general regulatory capital requirements in the absence of supervisory action or agreement, then the covered transaction cannot become a QM as a Seasoned QM, though it could qualify under another definition of QM.  

Seasoning Period 

The “seasoning period” means a period of 36 months beginning on the date on which the first periodic payment is due after consummation of the covered transaction, except that if there is a delinquency of 30-days or more at the end of the 36th month of the seasoning period, the seasoning period does not end until there is no delinquency. The seasoning period also does not include any period during which the consumer is in a temporary payment accommodation extended in connection with a disaster or pandemic-related national emergency, provided that during or at the end of the temporary payment accommodation there is a qualifying change or the customer cures the loan’s delinquency under its original terms.  

If during or at the end of the temporary payment accommodation in connection with a disaster or pandemic-related national emergency there is a qualifying change or the consumer cures the loan’s delinquency under its original terms, the seasoning period consists of the period from the date on which the first periodic payment was due after consummation of the covered transaction to the beginning of the temporary payment accommodation and an additional period immediately after the temporary payment accommodation ends, which together must equal at least 36 months.  

The proposed rule defines a “qualifying change” to mean an agreement that: (a) is entered into during or after a temporary payment accommodation in connection with a disaster or pandemic-related national emergency and must end any pre-existing delinquency on the loan obligation when the agreement takes effect; (b) the amount of interest charged over the full term of the loan does not increase as a result of the agreement; (c) there is no fee charged in connection with the agreement; and (d) all existing late fees, penalties, stop payment fees, or similar charges are promptly waived upon the consumer’s acceptance of the agreement.  

A “temporary payment accommodation in connection with a disaster or pandemic-related national emergency” is defined to mean temporary payment relief granted to a consumer due to financial hardship caused directly or indirectly by a presidentially declared emergency or major disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act or a presidentially declared pandemic-related national emergency under the National Emergencies Act. Examples of temporary payment accommodations in connection with a disaster or pandemic-related national emergency include, but are not limited to, a trial loan modification plan, a temporary payment forbearance program, or a temporary repayment plan.  

Consumer Payment Performance Requirements 

The proposed rule also requires certain payment performances by the consumer. To be a Seasoned QM, the covered transaction must have no more than two delinquencies of 30 or more days and no delinquencies of 60 or more days at the end of the seasoning period. “Delinquency” is defined in the proposed rule to mean the failure to make a periodic payment (in one full payment or in two or more partial payments) sufficient to cover principal, interest, and, if applicable, escrow by the date the periodic payment is due under the terms of the legal obligation. Other amounts, such as any late fees, are not considered for this purpose. The “due date” is the date the payment is due under the terms of the legal obligation, without regard to whether the consumer is afforded a period after the due date to pay before being accessed a late fee.  

Further, a periodic payment is 30 days delinquent when it is not paid before the due date of the following scheduled periodic payment. A periodic payment is 60 days delinquent if the consumer is more than 30 days delinquent on the first of two sequential scheduled periodic payments and does not make both sequential scheduled payments before the due date of the next scheduled periodic payment after the two sequential scheduled periodic payments. For example, assume a loan is consummated on October 15, 2022, that the consumer’s periodic payment is due on the 1st of each month, and that the consumer timely made the first periodic payment due on December 1, 2022. For purposes of determining delinquency under the proposed rule, the consumer is 30 days delinquent if the consumer fails to make a payment (sufficient to cover the scheduled January 1, 2023 periodic payment of principal, interest, and, if applicable, escrow) before February 1, 2023. The consumer is 60 days delinquent if the consumer then fails to make two payments (sufficient to cover the scheduled January 1, 2023 and February 1, 2023 periodic payments of principal, interest, and, if applicable, escrow) before March 1, 2023.  

For any given billing cycle for which a consumer’s payment is less than the periodic payment due, a consumer is not delinquent as defined in the proposed rule if: (a) the servicer chooses not to treat the payment as delinquent for purposes of RESPA, Regulation X, if applicable; (b) the payment is deficient by $50 or less; and (c) there are not more than three such deficient payments treated as not delinquent during the seasoning period.  

Conclusion  

CFPB has proposed the creation of a Seasoned QM category as means to complement existing QM definitions and to help ensure access to responsible, affordable mortgage credit. A covered transaction would receive a safe harbor from ATR liability at the end of a 36-month seasoning period as a Seasoned QM if it satisfies certain product restrictions, points-and-fees limits, and underwriting requirements as outlined above.  

CFPB has proposed that a final rule relating to the proposal would take effect on the same date as a final rule to amend the General QM definition. Comments regarding the proposed Seasoned QM category were initially due September 28, 2020; however, CFPB has
since extended the comment period until October 1, 2020. WBA plans to file comments in general support of the proposal while offering several recommendations of change for CFPB to consider. Click here to view the proposal.

By, Ally Bates

As Wisconsin bankers prepare their 2021 budgets amid a pandemic, the biggest question marks – aside from the persistence of the novel coronavirus itself – are how they’ll handle shrinking net interest margins and how much to add to loan-loss reserves.

And if they had their wish, many bankers would gladly welcome a sustained hot mortgage market and another dose of economic stimulus to help them and their customers through the new year.

With the coronavirus and its effects on business and consumers still hampering the state’s economy, bankers are adjusting budgeting and strategic planning this fall.

The weak interest rate environment is a top concern.

“The interest margin has been shrinking because of the low interest rates and the excess liquidity banks are sitting on,” said Paul Kohler, president and chief executive officer of Eau Claire’s Charter Bank.

With overnight funds paying only five basis points, margins are compressed and will hurt earnings, said Kohler, who is chair of the Wisconsin Bankers Association.

The latest quarterly report from the Federal Deposit Insurance Corp. shows the overall net interest margin for banks headquartered in Wisconsin was 3.31% in the first half of 2020, down from 3.49% at the same time in 2019. Nationally, the first half net interest margin for banks was 2.97%, tumbling from 3.40% during the same span in 2019.

Bankers are being told Interest rates are likely to stay low for a few years, said Paul Northway, president and CEO of American National Bank Fox Cities in Appleton.

“Typically when we start hearing things like that we start worrying about margin compression,“ said Northway, a member of the WBA board. “And so banks are going to certainly budget based on a near-zero interest rate environment and lower margins.”

As the pandemic lingers, more loans are expected to become delinquent, meaning banks will have to add to loan-loss reserves.

Noncurrent loans and leases at Wisconsin-based banks totaled $754.9 million in the first half of 2020, up about 13% from $668.2 million in the first six months of 2019, according to the FDIC.

“The other thing that is a big concern is what will loan losses look like in the future,” said Kohler.

FDIC data shows banks are starting to boost reserves, but some bankers say their portfolios have been holding up reasonably well, thanks in no small measure to economic stimulus like the Paycheck Protection Program and the fact that the mortgage business has been robust in many communities.

While interest income at Wisconsin banks was down about 6% through June compared with the first half of 2019, non-interest income was up 34%.

“I think our biggest unknown relative to the budget next year is going to be will we have fee income to offset lower margins – and a lot of it is going to have to do with the mortgage market – and will the pandemic and the economy have a significant impact on asset quality,” Northway said.

Brennen Clark, senior vice president of bank operations for Peoples State Bank in Prairie du Chien, said nothing is finalized yet for the 2021 budget.

“We’re in concurrence that the biggest factors for ‘20 and ‘21 will be net interest margin and continued rate pressure, and probably the provision for loan loss expense, which is largely still uncertain at this point as to what impact that will have on our bank,” Clark said.

Ken Thompson, WBA chair-elect and the president and CEO of Capitol Bank in Madison, said the uncertainty around the pandemic has delayed the bank’s strategic planning and budgeting process by a month in order to simply give bank executives more time to collect information.

“If they roll out a vaccine in November, that might set our economy on a different path,” Thompson said. “You just don’t know. So everything is being pushed back at least 30 days. We want to gather as much information as possible this year – even more so than most – so we’re making good decisions.”

Another budget consideration in 2021 for some banks could be spending for technology. At a time when people are being told to stay home as much as possible to avoid coming in contact with the coronavirus, it’s important for banks to offer mobile technology. While most have added consumer technology to their offerings by now, those that haven’t – or provide less than customers want – might have to budget for it in 2021.

“Do your clients have the ability to do things mobile? If not, you may have some costs related to that,” said Northway. “All of those things add up.”

Bankers say a variety of wild cards, ranging from the production of a safe vaccine to the outcome of the presidential election, could affect the 2021 economy.

The latest report from the Federal Reserve Bank of Philadelphia’s survey of 35 economic forecasters, issued in mid-August, shows the group predicted the economy will expand at an annual rate of 19.1% in the current quarter, which was more optimistic than the 10.6% pace predicted for the third quarter in their previous survey. On an annual-average over annual-average basis, the Philly Fed’s forecasters expect real GDP to decrease 5.2% this year but recover and grow at an annual rate of between 2.2% and 3.5% over each of the following three years.

Some bankers said the federal government’s economic stimulus has worked, and they be happy to see another round to boost businesses and consumers.

“We do a lot of agricultural loans and there’s been quite a bit of stimulus pumped into the ag end, whether it’s dairy or cattle or crops,” said Mark Forsythe, president of Peoples State Bank in Prairie du Chien. “That’s probably helped a lot as far as income from the agricultural end. This year there’s a lot of lower prices as far as commodities, grain.”

Christopher Del Moral-Niles, executive vice president and chief financial officer of Associated Banc-Corp, said of the potential for more stimulus: “We’ll take whatever they put on the table. It makes our customers likely better positioned to withstand the current storm, which will make it easier for us to work with them to find the right answers for them.”

Paul Gores is a journalist who covered business news for the Milwaukee Journal Sentinel for 20 years. Have a story idea? Contact him at paul.gores57@gmail.com 

By, Ally Bates

The on-going COVID-19 emergency continues to change the way Americans live and work, while altering how people navigate the health system. Given more than half of Americans have health care benefits through their place of work,1 employers are uniquely positioned to help employees maintain or improve their well-being during these difficult times.

Enter telehealth, an increasingly popular option for medical advice amid the COVID-19 situation. Previously overlooked by some employees, local physicians and national telehealth providers are seeing a significant surge in appointments as more people use digital devices to access care and medical advice virtually, including with behavioral health specialists and physical, occupational and speech therapists. The motivation: Improving access to more affordable, convenient routine and preventive care, while reducing potential exposure risks to COVID-19 associated with in-person trips to health care facilities.

As employees enter the fall’s annual open enrollment season to select health benefits for next year, more than half of companies report that virtual solutions rank as a top health priority.2 Among consumers, a recent UnitedHealthcare survey found that 91% of respondents are interested in using telehealth resources in the future.3

Here are strategies employers may consider to help maximize the value of this technology: 

Start or Expand Access: Most large employers offer at least some type of telehealth benefit to their employees,4 so improving employee awareness and use of this technology should be a priority. Corporate executives and human resources leaders at companies of all sizes should continue to evaluate what telehealth options may be currently available to employees through their health plan, local care providers or other telehealth service providers. To help make these resources more convenient, some options give employees 24/7 access to virtual visits that – while unable to diagnose or treat COVID-19 – can provide medical advice related to this condition (including guidance for in-person testing and treatment, if needed) and other health issues such as allergies, rashes or flu. Currently, some health plans are waiving member cost-sharing for telehealth visits, including those related to COVID-19.  

Consistently Communicate: Employers may consider creating consistent – and customized – communication strategies to help encourage the adoption of telehealth resources, especially in connection to COVID-19 and the management of certain chronic conditions. To help encourage people to start and continue using telehealth resources, some employers send out welcome kits, monthly email reminders and direct-mail materials that highlight the potential convenience, flexibility (24/7 or scheduled appointments) and affordability of this technology. Tailored communication strategies – informed by deidentified claims data – may help more employees access relevant resources.  

Offer Incentives: In general, people may be motivated by a combination of intrinsic factors, such as wanting to help maintain or improve personal health and avoid disease, and extrinsic ones, such as financial rewards. To help encourage the latter, employers may consider offering employees financial incentives for using telehealth resources.* For instance, across a group of small, mid-sized and large employers, employees had the opportunity to receive a $5 pre-paid gift card for completing a virtual visit registration, helping generate a 40% increase in sign-ups compared to a control group.5

Add Virtual Wellness Programs: Besides telehealth, employers may consider adding or expanding virtual wellness programs, including ones that are designed to help employees prevent or better manage certain chronic conditions (such as diabetes or obesity) that may be risk factors for complications related to COVID-19.6 For instance, employers may be able to provide virtual programs that give employees personalized, interactive online weight loss and exercise support, which may help motivate people to get active. With some people skipping gyms and other public exercise facilities, at-home support programs and digital fitness resources may be increasingly valuable. Plus, employers may consider telephonic programs that connect people with licensed counselors to help address various issues, including family and marriage difficulties, alcohol or substance misuse, and depression or stress.  

Driving more consistent use of virtual resources may encourage healthier and more productive employees, including helping address the recent decline in preventive services and support people with the management of certain chronic conditions – all with relatively minimal missed time from work. At the same time, telehealth may contribute to curbing health care costs by helping people avoid potentially riskier in-person health care settings amid the COVID-19 emergency and in the future. 

For more information on the WBA Association Health Plan go to www.uhc.com/WBA or contact Brian Siegenthaler at 608-441-1211 or bsiegenthaler@wisbank.com.

  1. United States Census Bureau, 2019, https://www.census.gov/library/publications/2019/demo/p60-267.html
  2. National Business Group on Health, 2019, https://www.businessgrouphealth.org/pub/?id=6B0FADBD-0570-B014-6775-E3C8413D3233 
  3. UnitedHealthcare Consumer Sentiment Survey of more than 1,000 American adults, 2020
  4. Mercer, 2019, https://www.mercer.com/newsroom/mercer-survey-finds-us-employers-shifting-to-innovative-strategies-to-make-healthcare-more-affordable-for-more-employees.html 
  5. UnitedHealthcare internal analysis of more than 90,000 small employers spanning small businesses, key accounts, national accounts and public sector employers, 2020  
  6. Centers for Disease control and Prevention, 2020, https://www.cdc.gov/coronavirus/2019-ncov/need-extra-precautions/people-at-higher-risk.html

*Financial incentives may be less or unavailable due to limits under applicable laws.

By, Ally Bates

In a letter filed with CFPB, WBA stated general support to implement EGRRCPA section 108 to exempt from Regulation Z’s HPML escrow rules any loan made by a financial institution that is secured by a first lien on the principal dwelling of a consumer if the institution: (1) has assets of $10 billion or less; (2) together with its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and (3) meets certain existing HPML escrow exemptions criteria. The new exemption is in addition to existing HPML escrow exemptions. 

To help alleviate the potential that an institution inadvertently makes itself ineligible for the new exemption, the proposal would also modify a May 1, 2016 date within the current HPML escrow exemption requirements to a new end date that will be approximately 90 days after the effective date of the forthcoming final rule.  

While WBA stated general support, WBA recommended the 90-day prerequisite be extended to no less than 120 days as additional time is needed for financial institutions to identify and adapt to the changes made by the proposed rule. The letter may be viewed below: 

  

By, Ally Bates

When the coronavirus pandemic took center stage this spring, many banks looked at their loan portfolios and wondered what impact such an unprecedented and unpredictable event was likely to have.

Among banks poring over its loans was Johnson Bank. Leaders at the Racine-based bank tried to gauge how much they might have to add to loan-loss provisions to absorb credits that could go sour as businesses shut down and people lost their jobs.

“By mid-April we had done a really deep, deep dive on our borrowers,” said Jim Popp, chief executive officer of Johnson Financial Group. “I think we looked at every borrower with more than $1 million in exposure with us. We looked at all the metrics, we looked at all the industries, we spent a lot of time with our customers asking a bunch of predetermined questions on a number of different fronts, to really evaluate our provision.”

What the bank found was a huge amount of uncertainty about the business impact and possible effect on loans from the virus’ powerful gut punch to the economy. The near-term future seemed ominous.

By summer, however, the quality of Johnson Bank’s loan portfolio hadn’t seen enough trouble to warrant an addition to reserves, which Popp said already were on the high side compared with some banks. The wave of federal stimulus to keep the economy going – the Paycheck Protection Program, extra money for the unemployed and other measures – along with mortgage fees from a hot housing market, helped supply income.

Now, however, as banks head toward the fourth quarter with the novel coronavirus still spreading and many businesses far from their pre-pandemic operating levels, Wisconsin lenders are likely to start beefing up reserves for loan defaults, Popp and other bankers said.

“There was a huge amount stimulus that was pumped into the economy, and that seems to have kept this not as bad as we all kind of feared,” Popp said. “Do I think it’s going to get worse? Yeah, probably.”

Figures from the Federal Deposit Insurance Corp. show banks based in Wisconsin already have been adding bigger amounts to loan-loss provisions. In the first half of this year, $245.1 million had been added to provisions for credit losses, up from $82.6 million in the first half of 2019.

Roughly a third of the total amount added to loan-loss reserves among state-based banks this year is from Associated Bank, which is allocating more under the new Current Expected Credit Losses (CECL) accounting methodology being used by big banks. FDIC data indicates almost $164 million was added to reserves in the second quarter alone, with $52.5 million of that coming from Associated, which is by far the largest bank headquartered in Wisconsin.

In its quarterly report, the FDIC noted that a combination of weak economic activity and recent implementation by many banks to the CECL accounting method caused a big jump in provisions for loan-loss reserves in the second quarter in the U.S. Provisions for credit losses in the quarter nationwide increased to $61.9 billion from $12.8 billion in the second quarter of 2019. Almost two out of every three banks in the country reported yearly increases in provision for credit losses, the FDIC reported.

“Most bankers are looking at higher provision levels this year and next year,” said Ken Thompson, WBA chair-elect and president and CEO of Capitol Bank in Madison. “We are seeing past due levels increase within the industry. We haven’t seen much of a change at our bank yet – but it’s a big ‘yet.’ I would say we do anticipate more loan losses for sure.”

While Wisconsin banks generally entered the downturn well capitalized, they had varying degrees of funds in loan-loss reserves, depending on how they had been feeling about their portfolios and the economic outlook.

“Those who were at the lower end probably started providing, started adding to provision, a little sooner,” Popp said.

Christopher J. Del Moral-Niles, executive vice president and chief financial officer for Green Bay-based Associated Banc-Corp, also said the enormous federal stimulus put into the U.S. economy has helped bank customers stay current on their loan payments.

“As bankers we believe the stimulus – whether it was to the businesses through PPP or to consumers in the form of direct payments of $1,200 or to those that perhaps were furloughed during this process and got the extra $600 – all of that clearly helped,” Del Moral-Niles said. “It helped our customers and therefore indirectly helped the banking industry, their lenders.”

Some industries – and loan customers – have taken a beating in the pandemic-driven downturn. Their misfortunes can have a ripple effect on suppliers and others related to those businesses. Companies in the travel, hospitality, restaurant, and entertainment sectors are feeling the pain more than many others.

“It’s areas where you’ve got large groups of people gathering, especially indoor gathering,” said Patrick E. Ahern, executive vice president and chief credit officer for Associated Banc-Corp. “Hotels are going to be an area that’s going to take a while. Other areas you think about would be the traditional large enclosed shopping mall. “

Ahern said retail is starting to recover, but the retailers faring best “are going to be the ones where you walk from your car straight in and you walk out.”

“Hospitality and anything airline related or travel related obviously is a challenge. Oil and gas related. And anything that is downstream from oil and gas related,” said Johnson Financial’s Popp.

There are too many unknowns at this point to say how long the downturn will drag on, but bankers expect to be adding to loan-loss provisions. If there’s good news, it’s that banks entered this recession better prepared than last time, Popp said.

“I think we all went into this in pretty good shape,” Popp said. “This isn’t a banking crisis. The last crisis was a banking crisis, and was a finance crisis. This one is a different crisis, and I think actually the banks are going to hold up – knock on wood – reasonably well through this because we’ve done the right things over the last 10 years to put ourselves in the spot to be there when we need to be during the next crisis. And this is it.”

Paul Gores is a journalist who covered business news for the Milwaukee Journal Sentinel for 20 years. Have a story idea? Contact him at paul.gores57@gmail.com 

By, Ally Bates

The Wisconsin Legislative Fiscal Bureau (LFB) on Wednesday (Sept. 9) released the line-by-line summary of how the state has allocated the $2 billion in coronavirus relief from the federal government. The CARES Act, signed into law on March 27, laid out certain guidelines for the use of money received from the Coronavirus Relief Fund (CRF), and the U.S. Treasury later issued additional guidance to states.  

Following those guidelines, the State of Wisconsin distributed all $2 billion across three broad categories through a series of aid initiatives: economic support, healthcare and related costs, and local government and education support. Highlights of the programs of interest to the banking industry are below.  

Economic Support 

Wisconsin allocated $25 million for a rental assistance program through which residents with a household income at or below 80% of their county’s median income to apply for direct financial assistance with rent or security deposit payments. Eligible residents may receive up to $3,000 in total, paid directly to landlords on their behalf. To administer the program, the state partnered with 16 local organizations across the state.  

The state supported the vital agricultural sector with a total of $65 million through the Wisconsin Farm Support Program ($50 million) and the Food Security Initiative ($15 million), administered by the Department of Agriculture, Trade and Consumer Protection (DATCP). The Wisconsin Farm Support Program provided direct payments to farmers in two phases. Phase one disbursed a total of $41.6 million in payments of $3,500 each to 11,900 eligible farmers (defined as having a 2019 gross income of $35,000 to $5,000,000). With $8.4 million remaining at the conclusion of phase one, the Department of Revenue is currently administering a second phase with remaining funding for farmers with 2019 gross incomes of $10,000 or more who have not previously received a payment. Phase two payments are expected to be made by Sept. 18. 

Finally, the Wisconsin Economic Development Corporation (WEDC) used CRF funds to create the We’re All In Small Business Grant program, which provided $2,500 grants to up to 30,000 Wisconsin small businesses for a total of $75 million. The program stipulates grants may be used for any operating costs and for health and safety improvements. As of Sept. 4, 2020, preliminary records indicate that approximately $56.4 million has been distributed to 22,564 businesses in Wisconsin. 

Healthcare and Related Costs 

The state allocated $110 million for providing financial assistance to health providers, including emergency medical services, home and community-based services, and long-term health providers, such as nursing facilities and assisted living facilities. The funds distributed under this initiative are intended to help health providers cover expenses directly related to their COVID-19 responses, in addition to additional expenses such as overtime pay, changes to sanitation procedures, and disruption to standard care delivery. The program, administered by the Department of Health Services (DHS), closed its first round of applications on June 30. On Sept. 3, 2020, DHS announced that it will be opening a second round of applications, so as to provide providers with greater needs additional support from remaining funds. 

Wisconsin also directed $260 million to testing programs. Of that, $202 million will be used to provide testing kits to healthcare facilities.  

Local Government and Education Support 

The state allocated $32.3 million to support the UW system in covering costs of COVID-19 testing, with $8.3 million of that going to UW-Madison. Altogether, the system is purchasing 410,000 tests.  

Finally, Wisconsin divvied up $190 million in grants to reimburse each county, town, village, and city government in the state for unbudgeted expenditures related to COVID-19 incurred between March 1 and Nov. 6, 2020. The funds will be allocated according to each entity’s share of the state’s population, with a minimum allocation of $5,000. If a government does not use the full amount of its allocation before Nov. 7, 2020, the remaining balance will be returned to state to be used as needed for COVID-19 related local expenditures before the federal deadline of Dec. 31, 2020. 

Not included in that $190 million is grants to tribal governments. The state set aside an additional $10 million to provide grants to Wisconsin's tribal governments subject to the same usage guidelines as the grants provided to county and municipal governments. In addition, Wisconsin’s federally recognized tribal governments were eligible to receive direct payments from the CRF under the federal CARES Act. 

Read the full report here.

By, Ally Bates

Consumer adoption of digital payment methods has grown steadily for decades, and social distancing requirements amid the COVID-19 pandemic kicked that transformation into high gear. Community banks can position themselves for success by keeping abreast of developments in faster payments and strategically implementing solutions to continue delivering the exceptional customer experience for which they are known. 

Annual digital payments transactions are projected to top $1.5 trillion from nearly 280 million users by 2024. With the increase in volume and users has come elevated consumer expectations. “Consumers are operating in a faster payments world,” said Tina Giorgio, AAP, president and CEO of ICBA Bancard. Today’s consumers experience instant gratification in so many of their consumer-business interactions, it has become a standard which applies even to industries like finance. Consumers and business clients alike now expect to be able to pay friends or suppliers, settle bills, and transfer money whenever and wherever they choose.  

Giorgio will be presenting at the upcoming WBA Management Conference. Join us Sept. 15 for her session on the why, when, and how of a community bank’s digital payments strategy. Click here to register your entire team for one low price!

Since its inception, the applications for faster/real-time payments have continued to expand. “The use cases around faster payments are changing faster than the technology,” said Giorgio. A 2015 Deloitte study outlined five main categories: business to business, business to consumer, consumer to business, domestic peer to peer (P2P), and cross-border peer to peer. Of these five, the fastest growing (in the U.S.) is domestic P2P, with over 20 different application vendors in the market.  

One of those vendors, PayPal, reported a 29% jump in year-over-year volume in Q2 2020 and added 21.3 million net new active accounts (the strongest quarter for that measure in PayPal’s history). Of course, some of this growth can be attributed to COVID-19. “P2P is growing exponentially, even more so since the pandemic began,” Giorgio explained.  

In addition to P2P, banks should also consider applicable use cases in B2B, including a simplified vendor/supplier payment system, which currently involves purchase orders, invoices, checks, ACH, and other individual payment transactions.  

As faster payments technology develops, community banks have two primary roles to play, according to Giorgio. First, and most important, is staying informed and delivering value from new developments to customers. Second is participating in industry groups—such as the U.S. Faster Payments Council and the Federal Reserve’s Payments Improvement Community—to provide perspective and representation on issues affecting the industry and community banks, specifically.  

Implementing Faster Payments: Why, and How? 

Customer retention and enhanced customer experience are the two primary benefits for banks that implement faster payments solutions, according to Giorgio. “Having that available when it’s needed is a huge advantage,” she said. For example, to a small business that needs to deliver payroll but is experiencing cash-flow issues due to COVID-19, the ability to send funds instantly rather than days in advance is a liquidity live-saver. 

FedNow Service webinar scheduled 
FRB Services has scheduled a one-hour informational webinar on its FedNow instant payment service for Wednesday, Sept. 9, at 1:00 p.m. CT. Interested parties must register and submit any questions in advance. 

Despite growing competition from non-traditional lenders, consumers still look to their trusted financial services provider for payments services.  “If the bank offers a digital wallet or P2P solution, their customers will use the bank’s product rather than a fintech’s. “That’s the power of a pre-existing relationship,” Giorgio said. Those comments are supported by research from Ernst & Young which noted roughly 60% of consumers would turn to their existing bank first when considering a new financial services product.  

When it comes to implementing faster payments products and services, community banks must clear three hurdles:  

1: Define the strategy: Pursuing every faster payments product on the market isn’t feasible, so defining a strategic direction is essential to getting it right. “There’s so much out there, you have to figure out what your customers’ priorities are so you’re spending time and money on the right solutions,” said Giorgio. If your bank is just getting started in faster payments and you’re looking for the most critical first step, Giorgio recommends establishing the ability to accept faster payments. “Even if you’re not ready to start originating faster payments, you should determine what you need to do to be able to receive those transactions. Not having the ability to receive payments puts your customer relationships at risk.” 

2: Integrating tools: Banks rely on a core service provider, along with a collection of platforms and tools to deliver services and information to customers, so it’s critical to ensure any new faster payments technology integrates with essential legacy systems. “Interoperability is a challenge,” said Giorgio.  

3: Affordable Access: Finding a solution that is both functional and affordable for the institution and its customers can also be challenging. Fortunately, more banks have a wider array of technology partners to choose from as more legacy core systems shift toward interoperability as the default. “Many of the cores are now starting to open up their systems and allow integration through application interfaces [APIs], which allows banks to select any provider of a solution and integrate it into the core,” said Giorgio. This gives banks greater ability to find a partner that meets both quality and pricing requirements.  

With the faster payments landscape continuing to evolve, now is the time for community banks to leverage their relationships with technology partners and their own deep understanding of their customers to bring the high-tech, high-touch banking experience that will continue to differentiate them in the years ahead and deliver the services that their customers rely on.  

Seitz is WBA operations manager and senior writer.  

ICBA is a WBA Gold Associate Member.

By, Amber Seitz

In a comment letter filed Monday, WBA stated support for FRB’s latest interim final rule which extends an exception for PPP loans from the requirements of the Federal Reserve Act and the corresponding provisions of Regulation O. WBA first filed support of an initial exception back in April when FRB moved to except PPP loans made on or before June 30, 2020, the initial sunset date of the loan program under the CARES Act. As the Prioritized Paycheck Protection Program Act extended SBA’s loan program to August 8, 2020, FRB extended its initial Regulation O exception for PPP loans to the loan program’s new sunset date of August 8, 2020.  

WBA stated support for FRB’s actions as it would provide clarity that PPP loans made by a bank to insider-owned businesses between July 1, 2020 and August 8, 2020, are also excepted from the requirements mentioned above. Without an extension of the exception, WBA stated concern that some auditors and examiners would treat such loans differently than PPP loans made on or before June 30, 2020. 

The removal of Regulation O obstacles through the exception has helped allow Wisconsin’s banks to more efficiently address the needs of their insider-owned small businesses. The exception has also helped ensure eligible businesses have timely access to liquidity to help overcome economic hurdles resulting from the effects of COVID-19 and the mitigating efforts in effect throughout Wisconsin.

The letter may be viewed by clicking here.

By, Ally Bates