Financial Profiles

It’s likely that investors and analysts will be looking for information from banks regarding the number of loans they have submitted for forgiveness, an estimate of how much of their PPP loans they expect to qualify for forgiveness, and guidance on the timing of fee recognition. With a cloudy economic outlook and the uncertainty of the pandemic, banks’ risk appetites are curbed and demand for non-PPP loans has declined as businesses pause investment plans, cut costs and lower debt burdens. Investors will be looking for updates on the trends in the level of deferrals, the amount of second deferrals granted, and how banks are managing the risk related to industries that are expected to have a longer recovery period, such as the hotel/motel industry. A recent Piper Sandler analysis of 21 banks that have resumed or authorized new buyback programs since June 30, 2020 revealed median outperformance of the NASDAQ Bank index of 2% on the day after announcement and median outperformance of 10% to date since announcement, suggesting that the market has reacted favorably to those banks that have announced reinstatements, extensions, or new repurchase authorizations over the stated timeframe.

All of this has created new challenges for investor communications starting with the need to craft communications that provide both transparency and maintain credibility in the face of a fluid and ongoing crisis. The SEC previously stressed that in the current environment, forward-looking information can be more valuable than historical information and that "these disclosures should enable an investor to understand how management and the Board of Directors are analyzing the current and expected impact of COVID-19 on the company's operations and financial condition, including liquidity and capital resources." * Maintain strong relationships and open lines of communication with current investors and analysts and continue to build a pipeline of potential new investors. According to a recent Harvard Law School Forum on Corporate Governance article, we should anticipate widespread disclosure on diversity and inclusion metrics in ESG frameworks as well as the addition of Human Capital Management reports to the arsenal of ESG communications materials.

The SEC previously stressed that in the current environment, forward-looking information can be more valuable than historical information and that ‘these disclosures should enable an investor to understand how management and the board of directors are analyzing the current and expected impact of Covid-19 on the company’s operations and financial condition, including liquidity and capital resources. From an investor’s perspective, information reduces risk, so it’s no surprise that investors are urging the SEC to set standards for disclosure that are meaningful both during the pandemic and post-Covid-19. Virtual non-deal roadshows and conferences are convenient ways to conduct investor meetings, and companies should leverage these opportunities to build relationships with new investors now * If your company is vulnerable to an activist attack, consider engaging a surveillance firm to better understand who currently holds your stock, evaluate defense measures and draft a communications defense plan. * Continue to monitor Covid-19, sector and peer group developments to stay abreast of relevant information you’ll need to communicate effectively * Carefully craft messages that are transparent, credible and accessible to investors and that consider the fluid nature and many unknowns of the pandemic

But loan deferrals and government rescue plans may have blunted the full impact of the recession, and many analysts are sharpening their focus on possible new threats to credit quality and looking for guidance on the expectations for continued reserve building throughout the year. But analysts say the growth was driven by PPP loans, and many are starting to question where - or if - banks can generate loan growth in the second half of the year, particularly if the pandemic persists and creditworthy borrowers dwindle in number. Fed H.8 data also show robust deposit growth throughout the second quarter, with banks benefiting from inflows of PPP funds, while other customers pulled money out of a volatile stock market and put it in bank accounts viewed as safe havens. In earnings previews, analysts have projected that second-quarter fee income declined slightly and that noninterest income for all of 2020 should increase in the low single-digits - driven by mortgage refinancing - but that is based in part on an economic recovery in the second half of the year.