Bobby Hoxworth

Bobby Hoxworth
TBA Chairman

Banking in the age of a confluence of events

Lighthouse beacon of light2020 certainly is not proceeding the way any of us expected or imagined it and certainly doesn’t appear to be shaping up as a banner year. While the U.S. economy began the year with positive statistics to include low unemployment, steady job growth, a thriving stock market and strong housing market — it didn’t take long before it all took a sharp U-turn.

As I write this column, this nation and much of the world is under quarantine as a result of the Coronavirus pandemic and resulting actions taken to thwart the spread of it while the U.S. oil industry has simultaneously been upended by an all-out production war between Saudi Arabia and Russia coupled with lower demand resulting from pandemic travel restrictions. Virtually everyone in the United States has been affected in one way or another as businesses are shuttered and life as we largely know it has been dramatically altered.

The pandemic is affecting our customers and staffs in ways we never would have imagined. The banking industry has taken drastic measures, such as teleworking for employees, restricting lobby access at branches and finding ways to minimize human contact as much as possible. All of these measures are designed to keep our customers and staffs safe while continuing to provide the banking services that are essential to our communities and our country.

During times of uncertainty, our customers and communities are looking for strength and stability and they will find it in their community bank that is standing ready to serve and help. We as community banks can and must stand as strength, stability and a beacon of light to our communities in otherwise dark times.

Businesses, borrowers and unemployed workers, particularly from the most affected industries — travel, hospitality, restaurants, etc. — will soon likely begin to default on loans in the absence of assistance from their banks — we stand on the front line combating the turmoil head-on. Banks have already responded with special loan programs, increased credit lines, waivers of fees and other emergency measures.

While banks are generally well capitalized and healthy, we are clearly being challenged not only by the effects of the Coronavirus and oil production disruption, but by government quarantine measures and the resulting economic devastation. Recently, the Federal Reserve cut its key interest rate for the second time within a month to near zero and has implemented a laundry list of additional measures, many of which we’ve not seen since the 2008 financial crisis. While the Fed’s actions are an attempt to stabilize capital markets and stimulate the economy, we as bankers know that these cuts will have a negative impact on profitability at a time when our banks are faced with looming problems resulting from the confluence of events aforementioned.

The collapse in oil prices is putting added pressure on our loan portfolios that may extend well beyond the impact of the Coronavirus, particularly for those banks that have higher exposures to the energy sector. Even though many banks in energy production areas of the state have learned valuable lessons from previous collapses and have diversified their portfolios, they still face ramifications not the least of which is from customers employed in the energy sector who have been or will be laid off and can’t pay back their loans.

In a meeting with President Trump last month, a dozen executives from the largest U.S. banks stressed that the banking industry is well capitalized and pointed out that the current crisis is different from the financial crisis of 2008, which was associated with mortgage lending. They told the president that banks today generally have good credit quality and capital levels. While all of that is true, we as banks and bankers face daunting challenges in the days ahead.

We know that strong banks make for stronger communities. Accordingly, as we navigate these times of distress, our banks will be working with both businesses and consumers to help rebuild their financial lives and our economy. I am certain that our brightest days as an industry and as a country are ahead of us!