Community Bankers’ Bank (CBB) was curious as to how our bankers in the Fifth Federal Reserve District are processing the moving parts and pieces that 2020 has handed us thus far. In late September, using an independent moderator, CBB convened several Zoom focus group calls comprised of banking executives from across the 5th District. We were eager to hear what they have experienced and where they think the industry is going.
CARES ACT/Payroll Protection Program
There was universal agreement within our focus groups that the Payroll Protection Program (PPP) brought new business opportunities to the community banking sector. They offered a much-needed lifeline to small businesses within their communities, despite evolving PPP guidelines and issues with the SBA loan application portal. Bankers who participated in PPP were grateful to fellow employees for the nimbleness they exhibited by pivoting quickly to meet PPP demand.
Bankers are working hard to “onboard” new relationships. Some banks have tied sales goals to retaining new PPP customers. Others send weekly newsletters and various marketing communications to generate interest in a broader array of products and services.
We questioned our focus groups as to guidance on PPP loan forgiveness. Some have elected to utilize technology to assist with forgiveness, but most banks plan to use existing resources. Our bankers are hopeful these loans will be forgiven, but there has been no legislative fix to ensure that. They hope small businesses and community banks are not put through additional stress and aggravation. All focus group participants were eager to get the forgiveness aspect behind them.
Bricks and Mortar Branches vs. Mobile Banking
Early in the pandemic, all focus group participants closed their retail banking offices to foot traffic. There was little complaint from customers, mostly because drive-up or walk-up banking options remained open. Many of our bankers said their customers were comfortable with “by appointment only” hours, and they would probably continue to offer that option on a go-forward basis. Customers welcomed and moved quickly to adopt mobile technology.
Concerns were expressed as to the difficulty of maintaining culture with many staff members working remotely. Employee engagement and productivity on a go-forward basis is yet to be determined. Our focus group participants voiced concern about reducing headcount now because quality staff will be critical when banks return to more normal business operations post-pandemic. Mortgage and commercial bankers are in incredibly high demand.
One of the lasting effects on the banking model after COVID-19 will likely be an increased reliance on technology, especially for internet and mobile banking applications. Technology investments appear especially attractive for payments, lending, and security to ensure consumer data remains safe.
Budgeting and Liquidity
There was quite a bit of discussion on this topic as leadership teams are currently building their 2021 Budgets and Strategic Plans. Higher liquidity levels in 2020 vs. 2019 have created challenges in deploying funds and maximizing returns. Should excess funds be directed toward loans and securities or retained in cash reserves?
The loan portfolio mix was a topic of discussion, especially surrounding hospitality and non-owner-occupied office buildings under particular stress. Most of our focus group participants are not currently applying CECL standards in the determination of reserves. Despite current resiliency in loan portfolios, they are electing to increase reserves, given the number of credit unknowns in 2021 and beyond.
With the FRB signaling rate hikes are unlikely before 2023, questions exist regarding budgeting on both sides of the balance sheet. There was general agreement among our focus group participants that most banks will present three budget scenarios for 2021 — Maximum, Most Likely and Minimum.
While we learned a great deal from our focus group participants, these are the key takeaways:
- Community banks obtained new commercial customers because of PPP loans;
- Bankers are unsure how sticky these new commercial relationships will be and have little confidence in the SBA forgiveness process;
- PPP loans provided an opportunity for community banks to demonstrate their concierge approach to customer service versus the big bank approach;
- Budgeting for 2021 is a challenge. It will be difficult for management to provide reliable numbers and projections to their Boards. Creating multiple budget scenarios seems to be the best approach; and,
- Managing the personnel piece during COVID-19 has been one of the most challenging elements.
The final takeaway is that we must all be adaptable, flexible and willing to embrace change as we move forward into what will certainly be uncharted waters. It is possible that we must be even more proactive and creative in the face of that uncertainty. However, community bankers have demonstrated their resilience and devotion to serving their communities, customers, employees, and shareholders.
Gary Shook, President and CEO, Community Bankers’ Bank