Pub. 9 2020 Issue 4

13 W i n t e r | 2020 F E A T U R E Bricks and Mortar Branches Versus Mobile Banking Most of the bankers said that considering the changes in delivery brought about by COVID-19, they would need to take advantage of growth opportunities. These may exist in branch structure and delivery. Early in the pandemic, all focus group participants closed their retail banking offices to foot traffic. Our bankers indicat - ed that there had been little complaint in many cases, 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. This begs the question as to changes in branch staffing going forward. Are there changes that need to be made? Do we need to outsource processes and procedures more ag- gressively? This appeared to present the great conundrum. Concerns were expressed as to the difficulty of maintaining culture with many staff members working remotely. Em- ployee engagement and productivity on a go-forward basis is yet to be determined. Historically, attracting experienced and qualified talent can present challenges. 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. Focus group participants noted that 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. Tech- nology investments appear especially attractive for payments, lending, and security to ensure consumer data remains safe. Budgeting and Liquidity As you would expect, there was quite a bit of discussion on this topic within our focus group as leadership teams are currently building their 2021 Budgets and Strategic Plans. Higher liquidity levels in 2020 versus 2019 have created challenges in deploying those new funds and maximizing returns. Should excess funds be directed toward loans and securities or retained in cash reserves? Our bankers and board members at their respective institutions understand these decisions have implications for the net interest margin and income. The loan portfolio mix was a topic of discussion, espe - cially surrounding hospitality and non-owner-occupied office buildings. Those segments are under particular stress at present. Further discussion centered around loss reserves. Most of our focus group participants are not currently ap- plying CECL standards in the determination of reserves. For now, our bankers’ “gut” instincts were to increase reserves, even given the current resiliency in loan portfolios. This was deemed prudent, given the number of credit unknowns in 2021 and beyond. How long current rates remain in place was another con- versation topic, with the FRB signaling rate hikes are unlikely before 2023. Questions also exist as to budgeting on both sides of the balance sheet. While there was no agreement on every topic, there was agreement among our focus group partici- pants 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 par- ticipants, these are the key takeaways: 1. Community banks obtained new commercial custom- ers because of PPP loans; 2. Bankers are unsure how sticky these new commercial relationships will be and have little confidence in the SBA forgiveness process; 3. PPP loans provided an opportunity for community banks to demonstrate their concierge approach to cus- tomer service versus the big bank approach; 4. 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, 5. 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, flex - ible and willing to embrace change as we move forward into what will certainly be uncharted waters. We must be even more proactive and creative in the face of that uncertainty. However, community bankers have demonstrated their resil- ience and devotion to serving their communities, customers, employees and shareholders. Early in the pandemic, all focus group participants closed their retail banking offices to foot traffic. Our bankers indicated that there had been little complaint in many cases, 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.