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With all of the uncertainty in the markets, high inflation and gas prices, rising interest rates, Cascade Business News reached out to some of our local banking professionals to get their perspective on the coming months and year.
We thanks them for sharing and hope that you, the reader, will find some insights to help your business grow and thrive in this unique time.
Gary O’Connell, Market President, Central Oregon Region, Summit Bank, sbko.bank
Coming out of the mask mandates, are your clients feeling a surge in business overall?
While we have many business banking clients experiencing a surge, we are not able to attribute this to mask mandates in a measurable way, nor can we attribute causation of any surges to the relinquishing of the mandates. Only time will tell, but overall business sentiments are positive and cautiously optimistic after emerging from the mandates with the general perception that we have made a move closer to what we think is normal.
Will interest rate hikes affect borrowing? Are certain industries affected more than others?
Interest rate hikes are expected to impact demand for borrowing but, again, not enough time has elapsed for us to measure and come to that conclusion. Anecdotally, the answer is beginning to look like ‘yes’ and the more leveraged businesses will feel an even greater impact. However, any drop off in borrowing demand so far is masked by an equally offsetting increase in demand from borrowers induced to borrow now for initiatives that had been contemplated for later in the year. They want to lock in to rates now rather than wait. Further, Summit Bank is in a market share acquisition phase so our growth doesn’t rely entirely on new borrowing by businesses. That said, we have interest rate conversations with borrowers every day. This topic will be a standing agenda item in the public business environment throughout the year. The futures markets recently indicated that that Fed Funds rate could reach 2.50 percent to 2.75 percent by this November, meaning the Prime Lending Rate (the rate at which banks lend to their strongest corporate clients) could rise to 5.50 percent to 5.75 percent. The Prime Lending Rate today is 3.50 percent. If this condition materializes, it could present quite a shock to the borrowing environment. The Prime Lending Rate is a short term rate. Long terms rates such as the five- and ten-year Treasury already have future market expectations built in to them, and we do not see the same potential steep rise further in long term rates this year as we do with short term rates.
Do you see the U.S. going into recession this year?
We are not prepared to predict that we are going in to a recession. We are prepared to say that we will have a correction this year, and many think this is healthy. There are mixed signals. Consumer demand is holding steady (for now), but we will continue to watch that metric. There are other indicators we are monitoring closely: interest rate movements, the labor markets, mortgage loan production, supply chain issues, industry consolidation, corporate bankruptcies and of course listening to our clients in our portfolio as they are the eyes and ears on the ground in our business communities. Just in the last few days (as of April 25), we have heard an emerging concern about trucking, with two reports now of trucking demand hitting the skids in Q1. Whether that can be attributed to the availability of alternate freight solutions such as rail or air or as a seasonal trend for Q1 or if that is a sign of waning demand remains to be seen.
What are the biggest challenges facing the banking community? What is changing in the industry?
The biggest challenges in the banking community, in our view, is maintaining the psychological confidence of the business community. Banks are steadfast in trying to ensure their continued financial stability and soundness in changing times. At Summit Bank, we maintain public confidence by making good financial decisions, being transparent and remaining close to our clients as both predictable and unforeseen events take shape in our economy. Our goal is to be frank and honest with our clients but never to surprise them. However, we do have a concern at the bank industry level about some financial institutions making rash decisions by cutting expenses, changing policies and cutting lines of businesses. We are starting to see that already which can have a very adverse impact on their business clients. As far as what is changing in the industry, I am sure the most common answer from the contributors to this to this CBN issue will be FinTech (Financial Technology) developments. Summit Bank has made major FinTech upgrades and improvements in the last few years based on changing consumption habits and changing business processes of our business client base. We view these initiatives not just as expenses but also as investments. We must keep a clear pulse on our client base and adapt with them to remain relevant in to the future. To do so, our philosophy as far as technology is to make investments that support transaction efficiency but never to use technology to replace face to face interaction for management of relationships. We don’t invest in call centers or loan underwriting centers behind the scenes. We manage relationships and make decisions as close to the client as possible, aided by technology to augment the execution of routine client transactions.
What are your goals for 2022?
Our goals for 2022 are centered on growth. We want to grow our impact in the Pacific Northwest and support even more businesses as their primary business financial partner. To do so, we will continue growing our capital base, our client acquisition activities, our talent level and our training and development budgets, all while preserving our culture and feel as a local, accessible, community business bank that is responsible financially, socially and environmentally. Recently, Summit Bank was voted as Oregon’s Top 100 workplaces and Top 100 Green Companies and we are committed to maintaining that environment even as markets change. It sounds simple, but we are working hard every day on these deliverables.
Additional comments?
We encourage readers of Cascade Business News to come and meet with us to discuss their plans, concerns and strategy. In uncertain times there is even greater value to having a business banking partner that is local, accessible, responsive and most importantly won’t surprise you should there be an adverse impact to your business or a change in market conditions. If you are a business owner or decision maker and you haven’t heard from your business banker in the last quarter, if you are uncertain about where your firm stands with your bank, or if you are not sure what your bank will do as the economy changes, please come and talk to a banker at Summit Bank. Here is a link to our outstanding team in Central Oregon: sbko.bank/about/our-team.
Wendy McGrane, Vice President | Community RM Team Manager, US Bank, usbank.com
Coming out of the mask mandates, are your clients feeling a surge in business overall?
Many of our clients innovated during the pandemic to meet the changing needs of their customers, and have not experienced significant increases in business specifically related to mandates being lifted. Businesses involved in hospitality, event planning, travel and other services where in-person interactions are critical have indicated that they have noticed a surge in business upon the lifting of mandates.
Will interest rate hikes affect borrowing? Are certain industries affected more than others?
Low interest rates coupled with homes becoming home offices for many consumers spurred a rise in the housing market during the pandemic. Additionally, government stimulus programs helped Americans build savings to exceed pre-pandemic levels. Consumer debts were at record lows pre-pandemic and are even less today.
As the cost of borrowing increases, demand for borrowing may decrease. Since the Federal Reserve decided to accelerate its monetary policy normalization process in response to the surge in inflation in early December, the 30-year fixed mortgage rate has increased by almost two full percentage points. This sharp increase has likely spurred homebuyers to hold off on making purchases, and likely higher monthly mortgage payments make it more difficult to qualify for financing.
Increased interest rates will likely impact business capital investments, and capital-intensive businesses may be more affected than others.
Do you see the U.S. going into recession this year?
We are seeing continued demand for goods and an increased demand for services as restrictions have been lifted. Spending on services is about four percent below pre-pandemic. Spending on goods is about eight percent above pre-pandemic. We expect spending to increase on services this year, with a possible decrease in spending on goods. We have seen an unprecedented period of job growth post-pandemic, and unemployment is now nearing pre-pandemic levels.
Businesses are experiencing shortages of both workers and materials, as well as disruptions due to low inventory. This is constraining sales, hiring and overall growth, while keeping upward pressure on costs. Corporate profit margins are the highest they have been in 70 years, a sign that companies are able to pass along rising costs to their customers. Businesses have capacity to absorb wage pressure, which may result in an increase in wages to support consumer spending. Rising costs are causing a dramatic effect on consumer confidence.
Recession is unlikely, but possible if unemployment rises quickly. For more information, U.S. Bank offers weekly economic insights at the following link: pages.usbank.com/weeklyeconhighlights.
What are the biggest challenges facing the banking community? What is changing in the industry?
Client needs and expectations continue to evolve, and banks need to evolve with them. Customers are no longer comparing us to other banks and financial service providers, and instead they are comparing us with companies that provide the best client experiences. We need to meet our clients where they are, and deliver solutions to make their lives easier.
Branch transactions are decreasing as clients are embracing digital tools to conduct banking. Our bankers are conducting fewer transactions, and having more consultative conversations with clients. We are investing in ways to make banking easier and more convenient. We are developing our employees to conduct more holistic conversations with clients to better understand their businesses, and to make recommendations best suited to support the current and future needs of our clients.
What are your goals for 2022?
We seek to simplify the lives of our clients as we help them to achieve their financial goals.
Additional comments?
We have a talented team of community-minded bankers throughout Central Oregon, and we welcome the opportunity to support the changing needs of businesses and nonprofits here in the region. If you are a business owner and would like to be introduced to a banker that will be focused on supporting you to meet your goals, while simplifying your life, please contact me directly at wendy.mcgrane@usbank.com.
Stephen Wymer, Central Oregon Area Manager, OnPoint Community Credit Union, onpointcu.com
Coming out of the mask mandates, are your clients feeling a surge in business overall?
We have heard from our business members that they are cautiously optimistic about getting back to business as usual. Central Oregon experienced a flood of new residents during the pandemic so businesses have generally stayed busy, but struggle to compete for employees. Large, global companies are now paying employees almost $25 per hour, making it difficult for smaller, homegrown businesses to keep up with the competition.
Will interest rate hikes affect borrowing? Are certain industries affected more than others?
Yes, the increase in interest rates is going to affect borrowing. First and foremost, they will impact home and commercial mortgages as rates have increased rapidly in recent weeks.
Over the long run, industries that invest in large assets will also begin to feel the pain. For example, when a manufacturer needs to purchase equipment — if they can get the equipment due to supply chain woes — they usually need a loan, and rates are increasing as we speak.
Do you see the U.S. going into recession this year?
While I don’t have a crystal ball, it is clear there are a lot of economic pressures at play, from historic inflation and increasing interest rates to supply chain issues that could take us down that path.
What are the biggest challenges facing the banking/credit union community?
Nearly every sector is struggling to find and retain quality employees, and I see that as our biggest hurdle. A challenge more specific to financial services is adapting to new technologies and alternative service delivery channels, which are both changing at a rapid pace. Our increased reliance on technology has also increased rates of fraud in our community. OnPoint has invested heavily in fraud prevention to protect our members and the community through this time of increased cybercrimes.
What is changing in the industry?
Digital transformation is causing a considerable shift in how people bank and not entirely for the better. In 2021, banks closed 3,324 branches, a new industry record, according to National Public Radio (NPR). Many of these closures occurred primarily in low- and moderate-income areas, leaving many communities under- or unbanked. While many financial institutions are closing local branches, OnPoint opened 20 new branches last year, which is more than any other financial institution opened in the United States.
Our growth has meant greater access and convenience for our members, as we continue to hear they value the in-person experience at our branches. Our expansion has also enabled us to invest more in the local communities we serve, resulting in 157 new jobs and more than $2.2 million in donations to 304 area nonprofits, a new charitable giving record for OnPoint.
What are your goals for 2022?
Last year was a big year for us as far as growth and giving, and we’re continuing to build on that foundation in 2022. We look forward to expanding our reach within the communities we serve as we approach key milestones, such as 500,000 members and $10 billion in assets.
We also hope 2022 will be a year of collaboration, where business leaders, elected officials and corporations come together to solve the issues our communities are facing like affordable housing, equity and climate change.
Additional comments?
My message to the Central Oregon business community is to get back to the basics of taking care of your customers and your employees, and they will stick with you. Also, know that you don’t have to navigate these challenging economic times alone. Reach out to your financial institution to find out what resources they offer and leverage as many of them as possible. At OnPoint, we work closely with our small business community to support them in starting, managing and growing their businesses. This includes working one on one to set goals, create roadmaps and determine the perfect financing solution for their unique needs. If you’re interested in learning more, we encourage you to contact one of our three branches in Central Oregon to discuss how we can help you and your business achieve your goals.
Cheryl Cauthon, Manager — Old Mill & West Bend Branches, SELCO Community Credit Union, selco.org
Coming out of the mask mandates, are your clients feeling a surge in business overall?
With the mask mandates lifted, I think for the first time in more than two years there is a feeling of optimism that we’ve all been deprived of for some time. We’re certainly seeing surges in business among members, particularly in the restaurant and retail industries, as those were two of the hardest-hit sectors of our economy.
Will interest rate hikes affect borrowing? Are certain industries affected more than others?
With interest rates at all-time lows through the pandemic, there will no doubt be some sticker shock as rates creep higher. But we’re fortunate that as a credit union, our ability to offer lower fees and lower rates will likely be an attractive alternative for consumers looking to borrow money. And while the housing market remains strong in Central Oregon, a rate increase of even 0.5% on a median home has the potential to make some buyers look for other options. On the commercial side, we continue to see strong interest in lending, particularly in Central Oregon. That being said, when interest rates and cap rates rise some projects become less feasible or desirable without major changes, which don’t always pencil out for the owner or investor.
Do you see the U.S. going into recession this year?
That obviously remains to be seen, and there are a number of factors at play both domestically and globally that we won’t know answers to for some time. That said, with inflation at or near an all-time high, there is likely going to be some level of economic slowdown in 2022. But there are also strong indicators of economic growth, such as we’re seeing in the housing market and automobiles, particularly electric vehicles.
What are the biggest challenges facing the banking/credit union community? What is changing in the industry?
One of the biggest challenges in the industry remains unchanged, and that’s the challenge of keeping pace with habits and preferences that are evolving more rapidly than ever, while still maintaining the principles of community banking as many of us know and love it. How do we continue to build and maintain strong personal relationships with our members at a time when technology has proliferated in the industry, and many financial institutions (and consumers) are moving toward digital-only products and services. At SELCO, we’re embracing this opportunity by ensuring members can choose what’s best for them – and realizing that what is most convenient one day may not be preferred another. It’s part of our effort to meet members where they are, and to engage with them whenever, and however they choose. We are preparing to open our fifth Central Oregon branch on May 9 in North Redmond, which will allow us to meet the needs of a growing market and to provide personal services to the growing Redmond market, as well as Crook and Jefferson County residents.
What are your goals for 2022?
As a member-owned, community credit union, our goals might be a little different than other institutions. Obviously, we need to continue operating a successful and growing business, but more importantly, we want to continue making meaningful contributions to the communities we serve, including right here in Central Oregon. Whether through awarding college scholarships to local seniors, sponsoring and volunteering with area nonprofits, supporting the local 4-H club, or making financial education more interesting (and maybe even fun) for students and young adults. The latter of those topics, financial literacy and education, is a core area of emphasis for SELCO as we strive to further empower our members and community to reach their financial goals with confidence.
Kevin Cole, President, Mid Oregon Credit Union, midoregon.com
Coming out of the mask mandates, are your clients feeling a surge in business overall?
Most of the businesses we serve rebounded from COVID-19 pretty quickly. While it may be early to see any shift from the removal of mask mandates in their numbers, we have not heard any anecdotal evidence that businesses have seen a surge in business since the mandate was lifted. A lot of businesses in Central Oregon have been running at or above capacity for a while now due to lack of workforce. If there was a surge of business they may not have been able to accept it. We monitor our members’ debit card activity as an indicator of business activity in Central Oregon. We saw a slight slowdown in activity in the first quarter of 2022.
Will interest rate hikes affect borrowing? Are certain industries affected more than others?
Rising interest rates will reduce loan demand at some point. We are beginning to see the higher rates reduce refinancing activity. Demand for loans to purchase homes and business property remains fairly strong for Mid Oregon. Residential real estate lending is most impacted by rising rates. With mortgage rates rising to over five percent in such a short period of time, we expect to see more balance in the housing market later this year.
Do you see the U.S. going into recession this year?
We are operating with a soft-landing assumption for national economic growth later this year and into early 2023. It may feel like a recession for some businesses after the robust post-COVID growth. I believe Central Oregon has some additional factors supporting economic activity here. Specifically, the migration into the area of remote workers and retirees should continue to drive demand. There is also such a shortage of housing and construction labor in Central Oregon that a slowdown may not feel like a slowdown for some time as the backlog is cleared.
What are the biggest challenges facing the banking/credit union community? What is changing in the industry?
Hiring, developing and retaining our employees is the biggest challenge we face. We have been fortunate at Mid Oregon. We have not had to close branches due to lack of staff, even during COVID with a few exceptions. We have noticed some of our competitors are still operating with reduced hours or experiencing branch closures due to staffing shortages. The industry is also sensitive to fluctuations in interest rates. Rapid interest rate shifts like we have seen recently and expect to see rest of the year are challenging for our business. One of the big changes in the industry is doing things remotely. Some of our jobs can be done remotely, but many of them cannot. During COVID our members adopted remote service channels at much higher rates than we saw prior to COVID. Now we are seeing them return to more in-person transactions. Figuring out where that mix is going to settle so we can have the right mix of staff in the right place at the right time is a real challenge for us.
What are your goals for 2022?
Providing excellent service to our members is our priority. Our other goals include growing our loan portfolio, improving ease of use for members and staff and finding additional locations to support future growth.
Additional comments?
Mid Oregon Credit Union is a low-income credit union and Community Development Financial Institution. We expect to receive an $8.25M investment through the Treasury Emergency Capital Investment Program in June. These funds will support the lending we do to low-and-moderate income borrowers in Central Oregon. We plan to use this funding to expand our Workforce Housing Loan Program and to expand lending programs for manufactured homes and ADUs.
