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Closing Out 2020

By Rose Oswald Poels

With little more than six weeks left until we change the calendar over to a new year, nearly all of us are looking forward to putting 2020 in the rear-view mirror. With the myriad of challenges we’ve experienced this year, most notably the health pandemic and all its side-effects, it feels like we’ve lived five years in just one. For banks, this year has been unique as well.

Even before the pandemic, banks were experiencing high mortgage loan volumes due to the continued low interest rate environment. The housing market had picked up some steam so in addition to the strong volume of mortgage refinancing business, new home purchase volume also grew. Banks balance sheets have materially grown this year due to a combination of stimulus money remaining on deposit and PPP loan volume, in addition to income from mortgage loans.

The industry successfully managed through this heavy workload while also dealing with the effects of COVID both on their own employees, and on customers. Lobby closures and developing creative ways to continue providing services to customers has become the norm. But uncertainty still remains as it relates to fully understanding the longer-term implications of the pandemic on bank’s customers. While loan portfolios have generally remained healthy for most of this year, as stimulus money begins to run out and another round of PPP likely deferred until the new Administration takes over in early 2021, the next few months will start to tell the story.

Many economists are expecting the 4th quarter to reflect a slowing of economic activity after the rebound we experienced in late spring and summer from the unprecedented lows back in March and April. Since some sectors continue to remain strong, it is not expected that we will see a significant downturn; however, we likely will see slower growth in the weeks and months ahead. Even with the promising announcements of vaccine availability on the horizon, the pandemic continues to rage, overwhelming capacities at many hospitals. This health crisis will certainly continue to cause an economic crisis for many sectors.

The pandemic also slowed bank M&A activity. With all the economic uncertainty created by the health crisis, it is difficult to predict the full impact of the pandemic on bank’s balance sheets making buyers nervous. To date, Wisconsin has only had four announced whole bank acquisitions and 2021 is likely to be another slow year for bank M&A.

To help the membership gain a perspective on what 2021 will bring, I am pleased to announce our Midwest Economic Forecast Forum. Federal Reserve Bank of Chicago President Charles Evans will be speaking followed by Vining Sparks Economist, Craig Dismuke. Don’t miss this VIRTUAL opportunity on Jan. 7, 2021. More information is available here.