Coronavirus surge in Upper Midwest has bankers on edge

The Upper Midwest has emerged as a hotspot for coronavirus cases and bankers in the region are struggling to get a handle on how the surge could affect local economies and their banks’ operations.

At the start of November, North Dakota and South Dakota each reported more cases of the virus relative to their total populations than any other state. Johns Hopkins University, which has tracked the spread of the virus across the country, said North Dakota had 6,038 cases per 100,000 residents, leading the nation, while South Dakota reported 5,552 as of Nov. 3.

The Dakotas are sparsely populated relative to much of the country, and the World Health Organization says the virus has generally taken longer to reach rural regions. Residents hunkered down early. But a pent-up desire to socialize that was borne out in crowded bars and large family gatherings this fall resulted in what public health officials warned was inevitable: surges in cases and illnesses. Nearby states such as Nebraska, Iowa, Wisconsin and parts of Minnesota have endured recent spikes as well.

“It’s a huge flare-up right now,” David Kusler, the president and CEO of at the $54 million-asset Bank of Hazleton in North Dakota, said. “It’s not unheard of to have a wedding with 500 people invited and everyone shows up. It doesn’t take a rocket scientist to figure this out: Some of the spike is our own doing.”

Kusler said he worries that virus outbreaks could weaken economic activity and lead to job losses across the region. He is concerned that loan demand will soften and borrowers could struggle to keep up with loan payments.

“It’s going to impact the economy, definitely,” he said. “We’re going to have to be more stringent on underwriting. So it will have an effect” on lending.

Staffing is a worry, too.

Todd Nagel, the president and CEO of the $1.7 billion-asset Incredible Bank in Wausau, Wis., said his bank was well prepared for a jump in cases, but with disease spreading across his footprint, illness levels among employees are mounting.

“It’s definitely spiked here, no question,” he said in an interview. “We want to keep drive-throughs open, customer service always available — but people are getting sick, and it’s become our greatest challenge.”

Rick Clayburgh, the president and CEO of the North Dakota Bankers Association, said the state’s banks had been bracing for the likelihood of the virus arriving in force at some point in 2020. They had been making arrangements for back-office staff to work remotely, ramping up more staff at drive-through-only branches, or onboarding more clients to online platforms to minimize in-person interactions.

The challenge now, however, is that winter is knocking at the door. In the heart of winter, socializing moves almost entirely inside, where the virus is known to spread more easily and rapidly. Where there are rising case levels in winter, economic malaise could follow, said Raymond James Chief Economic Scott Brown.

“Many furloughed workers have been re-employed, some new jobs have been created — grocery stores, deliveries — but many temporary layoffs are becoming permanent, and some firms are trimming workforces in response to reduced earnings,” he said.

“With a record number of new cases in many states in recent weeks,” Brown added, containing the virus could prove especially difficult. “We can’t even get people to properly wear masks, which is by far the most effective means of containing the virus. As a consequence, the pandemic is expected to last a lot longer.”

Ernie Goss, a Creighton University economist who surveys bankers throughout the Midwest each month, said his October reading showed that a majority of bank CEOs were optimistic about operating conditions in their footprints. Still, 35.5% of bank CEOs reported to Goss that local economies were contracting.

And the pandemic is top of mind. A vaccine is widely expected to be available next year, but whether people will opt to get it is an open question. “Our worst problem right now is that so much anti-COVID-19 vaccine information has been spread for political reasons that about half the people I talk to say they won't take the vaccine when it is available,” said Lonnie Clark, president of the $49 million-asset State Bank of Chandler in Minnesota.

Incredible Bank’s Nagel said that, heading into November, economic data in Wisconsin was encouraging. While certain sectors struggle — notably, dine-in restaurants and hotels dependent on business travelers — employment was returning to normal and economic growth was solid. The bank’s credit quality has been stellar and loan demand has picked up.

But he acknowledged that the surge in new cases is tempering some of that enthusiasm.

“When I look at just the economic data, I’m more bullish today than I was in July,” Nagel said. “But is it real? Can it hold? I don’t know.”