Some bank and credit union executives here say that while they’re wary of the effects of the COVID-19 variants and of the threat of inflation, 2021 has so far been a year of growth in most product areas.

Jack Heath, president and chief operating officer at Spokane-based Washington Trust Bank, says mortgage loan demand has increased steadily this year. 

“Our mortgage operation has had record months every month in ‘21,” Heath says. “The amount of activity has shifted from refinances, which was high in early ‘19 and ‘20, to primarily purchases now.”

Heath says the 10-year Treasury rate, to which mortgage rates are connected, has continued at all-time lows of around 1%. 

“We had expected that to climb closer to 2% by this point,” Heath says.

At Spokane-based Canopy Credit Union, President and CEO Charlotte Nemec says the credit union increased its mortgage lending last year by 104% over 2019.  

“We’ve leveled off a little bit in 2021, partly because real estate refinancing is slowing down a little bit,” Nemec says. 

Jamie Hudson, senior vice president and commercial banking market director for Eastern Washington and Idaho at Portland-based Umpqua Bank, says commercial lending is up so far this year.

“We’ve had record volumes in lending throughout our footprint and in Spokane,” Hudson says.

Peter Connor, executive vice president and CFO at Walla Walla-based Banner Bank, says commercial lending at Banner declined last year, but has begun to recover. 

“We saw a pullback in loan demand last year. Clients weren’t investing. They weren’t buying commercial real estate, and their inventories were falling,” Connor says. “This last quarter, we saw the first real significant loan growth since the pandemic began. That’s a signal that the economy is rebounding. Our clients have more confidence, and they’ve begun to borrow more from us in the second quarter.”

Banks are also working through the process of seeking forgiveness for Paycheck Protection Program loans issued by the U.S. Small Business Administration. Connor says the program introduced new clients to Banner Bank. 

“About 10% of our PPP loans were to clients who were new to Banner,” Connor says. “We’ve created a new relationship out of serving them through the PPP program, and we hope to make them long-term clients of the bank through the great experience they had.” 

Connor says the program also has benefitted Banner in an unexpected way—by boosting deposits. 

“The vast majority of the proceeds of those loans stayed with us in the bank,” Connor says. “At the beginning of the program last year, we believed that once they got their loan forgiven, they would spend the cash. What’s happened is, they’ve left their cash in the bank. They haven’t spent the funds just yet.”

Whether and for how long those funds will remain with the bank is unpredictable, he says. 

“We’re up $3 billion in deposits from the beginning of last year. Is it going to stay in the banking system, or is it going to go back into the economy and get spent at some point?” Connor says. “That’s an unprecedented amount of deposit build. Historically, banks were always looking to grow core deposits because they were so valuable and hard to get, and now the inverse is happening.”

Connor says Banner Bank expects deposits could decline in the latter half of 2021 as people spend more money. 

“Clients will begin to spend some of their money, and we’ll see it move out of the bank, but that’s a good sign,” he says. “It means they’re spending; they’re buying, they’re investing in their businesses.”

The Federal Reserve decided earlier this month to keep its benchmark interest rate between zero and 0.25% and expressed optimism in a strengthening economy. 

“(The Fed) is projecting they’re going to continue to hold rates down at least through the end of the year,” Heath says. 

However, some bankers, including Banner’s Connor, feel inflation is a more pressing concern than the Federal Reserve’s leadership has expressed. 

“We are expecting that there’ll be some inflation coming,” Connor says. “We think we’ll see some inflation emerge in the second half. It may be transitory, so it may not be around forever.”

Heath says Washington Trust is also keeping a close eye on the stock market, which has been trending bullish. 

“The good news is, a lot of people have created a tremendous amount of liquidity and made a lot of money in the markets, in their retirement accounts and investment accounts,” Heath says. “For the long term, that’s a good thing. But there’s got to be some moderation coming at some point in time in that market.”

While many financial institutions have begun to bring employees back to the office after more than a year of working remotely, some bankers say they’re worried about the potential effects of COVID-19 variants on their workforce. 

“What we’re holding our breath about is what it’s going to look like here in the next three to five months,” Nemec says. “Is COVID going to start to release its grip, or are we going to go back through another situation where we’re seeing more issues with that?”

Heath says Washington Trust started bringing its employees back to their offices in early July, but it’s unclear whether they’re back permanently. 

“It’s been amazing to get people back on campus and start that process of working in the office again, and now here comes the COVID variant,” Heath says. “We’re waiting with bated breath to see what the impact will be, both for having our employees on-site as well as how it effects our business clients that have to close.” 

He adds, “I’m amazed that vaccination rates continue to lag across our footprint. With the variant, that’s going to be a problem for us.”

Nemec says that she’s worried about her staff’s morale, should COVID-related mandates such as wearing face coverings return.

“We’re seeing a lot of our communities that just feel angry, and they’re taking it out on frontline staff,” Nemec says. “We’ve actually had a couple of staff members leave, and say, ‘I just can’t take the abuse that I get every day.’ That’s what I worry most about — that my staff’s mental health will be at risk.”