Interview: Ted Whitehurst, CEO

Financial regulations require banks to hold 4.5% of common equity in capital and 6% of Tier 1 capital, which can’t be used for lending

More than a year later, the Fed shows no sign of raising interest rates. Although the U.S. economy appears to be in recovery mode, underpinned by federal aid resources and as vaccination rollouts advance across the country, millions of people remain out of work, with unemployment nationally hovering around 6%.

For North Carolina banks, low interest rates remain the top concern. In the last five years, financial regulation has disproportionately impacted regional banks by inhibiting their lending ability in the community or increasing lending costs in the region, in addition to harsh financial penalties for those who are noncompliant. The regulations also require banks to hold 4.5% of common equity in capital and 6% of Tier I capital, which cannot be used for lending.

Increasing capital costs, sustained low interest rates, decreasing returns on equity and decreased proprietary trading are all shrinking the Net Interest Margin (NIM) for banks and financial institutions. The good news for Raleigh-Durham is that its booming real estate market and investment injections are providing solid loan demand, helping offset the negative impact of low interest rates.

As if low interest rates were not challenging enough, the forced push toward the digital world poses a twopronged challenge for financial institutions: bolstering their respective digital platforms to accommodate the sudden spike in demand for digital services while amping up security systems to prevent both fraud attempts and cyberattacks.

Regulations COVID-19 advanced digitized banking services across the globe to cater to users demanding the availability of in-person branch services in the virtual space. The sudden surge in technological innovation, combined ( ) Ted Whitehurst

CEO Providence Bank

How has the investment in technology changed for banks due to the pandemic?

Providence Bank was fortunate in that we already offered online and mobile banking for personal customers and online banking and remote deposit capture for commercial customers. We had strong customer penetration of these services but it ramped up even further in March 2020. While we hope the worst is behind us regarding the pandemic, it caused us to move forward more quickly with additional digital services and to review or upgrade current offerings to assure they are as robust as our customers need. We are a community bank, though, and our customers still wanted, and needed, to see us and speak with us. Many customers continued to use traditional means of banking – the drive-through, the night deposit, ATMs, and even in-person appointments, though masked and socially distanced.

What is your evaluation of the housing market?

It seems everyone is speculating about whether or not we’re in a bubble. In the current environment, there are several factors that are different from what we experienced in the past. Today’s rapid increase in prices is more of a supply issue than a true housing bubble and I believe the supply issue will resolve itself when everything is reopened and back to full production. In some places, there is only a one-month supply of housing. The other difference, when you compare today to the Great Recession that started in late 2007, is that banks have more capital and liquidity, as do customers. In the Triangle market, continuing announcements of new companies establishing a footprint is bolstering the pipeline, with Apple and Amazon as just two examples. It’s hard for me to see the area slowing down anytime soon considering all of that. Interest rates are somewhat of an unknown. We are all starting to feel an increase in prices, although the Fed has been adamant that this is transitory. I think there will be some upward momentum in interest rates but I don’t think that is a bad thing because it will be gradual.