Pub. 11 2020 Issue 4

Pub. 11 2020 I Issue 4 Winter 17 West Virginia Banker We inquired whether our focus group institutions limited PPP loans to existing customers or opened the process to all qualified applicants. Responses ranged from 100% existing customers to 80% of applicants being new to the bank. Gary R. Shook currently serves as president and CEO of CBB Financial Corp and Community Bankers’ Bank, which serves the Fifth Federal Reserve District; namely, South Carolina, North Carolina, Virginia, West Virginia, Maryland, and the District of Columbia. He is a trustee and member of the Executive Committee of the Virginia Foundation for Independent Colleges and a director and audit chair of Shrine Mont, The Cathedral Shrine of the Transfiguration and Conference Center. Mr. Shook holds a Bachelor of Arts degree from the University of Virginia.Contact Gary at gshook@cbbonline.com or 804.794.5885. 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. 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 aggressively? This appeared to present the great conundrum. 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. Historically, attracting experienced and qualified talent can present challenges. Our focus group par- ticipants voiced concern about reducing headcount now be- cause 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 vs. 2019 have created challeng- es 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 institu- tions understand these decisions have implications for the net interest margin and income. The loan portfolio mix was a topic of discussion, especially 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 conver- sation topic, with the FRB signaling rate hikes are unlikely be- fore 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 partici- pants, these are the key takeaways: 1. Community banks obtained new commercial customers 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 customer service versus the big bank approach; 4. Budgeting for 2021 is a challenge. It will be difficult for management to provide reliable numbers and projec- tions 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, flexible, and willing to embrace change as we move forward into what will undoubtedly 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 demonstrat- ed their resilience and devotion to serving their communities, customers, employees, and shareholders 