Independent Banker - September 2020 - 65

think banks will be forced to increase
the size of their balance sheets to
maintain earnings with lower rates,
which will require good credit
decisions for loans and investments
and require more use of wholesale
funding with strong internal rate of
return management.
∠ Drake: CFOs defi nitely have to
think down the road and around the
corner. You have to be aware of where
money is coming from, where it is
going and the timing of both infl ows
and outfl ows. Economic conditions
are largely unknown, and their impact
on borrowers and banks is yet to be
seen. CFOs need to evaluate not only
their sources of liquidity but also
their cost in light of ever-tightening
margins. CFOs will be challenged
to put returning liquidity to work
in a " lower for longer " interest
rate environment.
Q: Do you feel the budgeting
or planning process has or will
change due to ongoing uncertainty
in the economy, or more generally?
∠ Mills: For sure. We are projecting
asset-quality deterioration, margin
compression, reduced-fee income
and pressure to further reduce
expenses, including personnel and
technology costs.
∠ Zeman: Projecting rates and
deposit levels will be harder than
ever, as we are so unsure of how
COVID-19 will aff ect our businesses
and families. Budgeting will
continue to be very diffi cult for every
department of the bank, as we have
not seen anything like this in the
past. We will increase our reserve for
loan-loss in order to prepare for what
might come.
∠ Nutt: In the past, we typically
stuck to a budget even if situations
changed, and there is some value in
that, but this time the multitude of
factors have driven the board and
" WE'LL NEED TO HAVE HEIGHTENED
AWARENESS OF EXTERNAL OUTSIDE
FACTORS THAT MIGHT REVEAL
NEW TRENDS [AND] CHANGING
RISK FACTORS, AND MAYBE EVEN
[LOOK] FOR OPPORTUNITIES TO
MANAGE LIQUIDITY. "
-DENISE RAUTZHAN, BANK OF BIRD-IN-HAND
management to be more open about
reforecasting and modeling scenarios.
Budgeting for 2021 is likely to be
more diffi cult, so management teams
will need to be more agile and fl exible
around scenario modeling. This is
actually a benefi t, as it keeps the focus
on truly measuring performance in a
benefi cial manner instead of setting
and sticking to a budget from the
prior October.
∠ Drake: I am concerned with 2021
and beyond with the prospects of
lower rates, tightening margins
and unknown economic and credit
conditions. I think a CFO needs
to plan conservatively for reduced
returns and hope that you can
outperform them in time and when
conditions are better known. We are
already working on 2021 forecasts
that incorporate this, but I also think
CFOs need to be carrying that forecast
to the next three or even fi ve years. It
could be an interesting picture if this
is a longer term situation.
Cheryl Winokur Munk is a writer in
New Jersey.
independentbanker.org Q 55
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Independent Banker - September 2020

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