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The CFO’s role in helping your community bank navigate COVID-19

CFO talking to employees

Even before COVID-19, the role of the community bank CFO was beginning to shift. No longer looked upon as simply an accountant, new technology like mobile banking and performance management solutions was entering the market that broadened the role of the CFO.

Now, as we move forward toward whatever our “new normal” will be, the CFO’s role is expanding into roles beyond finance and accounting. Today’s community bank CFO will need to help navigate a new generation of customers and its staff.

Here are some of the ways:

Strategic advisor. The modern CFO is well-positioned to understand the market opportunity, strategy and business model of the organization. They also provide a unique perspective across all the institution’s business functional groups. Besides the CEO, the CFO is the only person with a clear view of the big picture and limited bias toward any one aspect of the bank’s performance.

Disciplined operator. Today’s CFO provides data, information and insights, and puts them into action. The CFO is responsible for building scalable systems and processes. To excel, the CFO must move beyond the financial report card and embrace broader business insights. To ensure success, the CFO must speak the language of business and understand that the key drivers of business are often significantly more than what shows up on the balance sheet.

Innovative technologist. In today’s banking world, the CFO drives proactive technology solutions in support of the business. An educated consumer of technology, the modern CFO pushes the envelope, demanding creative solutions that empower employees. They know what to ask for and are educated enough to know what is possible.

According to McKinsey, CFOs are being asked to lead new initiatives and functions as their role evolves, including:

  • Risk management
  • Procurement
  • Regulatory compliance
  • Integration
  • M&A
  • Board engagement
  • IT

CFOs also have a role to play in driving a performance culture throughout the organization — both by encouraging performance-driven behaviors and supporting the acquisition and retention of top-performing talent. CFOs increasingly work alongside CHROs to provide transparent and relevant performance reporting and manage to FI goals.

With millennials now representing the largest generational group in the labor force and Gen Z entering the labor market — both having grown up immersed in technology, easy access to data and real-time changes — the appetite for immediate information, measurable progress and quick decision-making in the workplace will only increase. The CFO is now often accountable for merging the needs of new staff with the cultural norms of the bank.

The lessons learned from the Great Recession can help CFOs now

There's no doubt that the COVID-19 pandemic has changed life as we know it in this country and around the world. As we emerge from lockdown and begin re-opening our economy, the full impact on banks’ financial performance remains to be seen.

There are many current similarities to the Great Recession of 2008:

  • Drastic rate cuts by the Federal Reserve Board
  • Lower asset yields
  • Lagging reductions in cost of funds
  • Thinner margins resulting in lower earnings

8 critical actions for evolving CFOs

Today’s economic uncertainty is driving financial hardship for your customers and is likely putting downward pressure on the NIM and earnings at your institution. By combining the lessons learned from 2008 with the new responsibilities of your expanded role, you can help lead the transformation of your financially stressed institution to succeed in the world we’ll find beyond the pandemic. Here are some critical actions for CFOs to take right now:

1. Focus on the numbers

In times of economic crisis, focusing on liquidity, loans, deposits and your loan-to-deposit ratios are critical activities for the CFO. A lack of liquidity, the ability of a bank to meet the demands of its depositors, is a disaster.

You need to be the rock-solid institution in shaky economic times to give your customers the confidence they need to get through tough financial periods. One important way to do that is a daily focus on liquidity. Work with your board to develop a target liquidity range that you’re comfortable with. Shoot for a number that's a bit higher than the minimums of 10%, to give you a cushion. You'll calculate this at the end of the month, but you should be looking at your cash and cash equivalents, total loans, deposits and loans-to-deposits ratios daily.

Once you know your numbers, monitor them as closely as possible every day. Don't worry if ups and downs occur. They will, inevitably. Concentrate on the trends and respond appropriately based on those indicators.

A performance management tool can be your ally in this effort. You can set an alert to notify you if your numbers fall below your target. You'll be informed and poised to take quick action. You need to forecast your sources and uses of cash at least on a monthly basis. If liquidity starts to get tight and funds are more difficult to acquire, you might want to consider going to a weekly forecast. Regulations may require that, based on how long the situation persists. The key here is to avoid any unwelcome surprises.

2. Update your contingency funding plan (CFP)

Your CFP is your liquidity crisis management guide, created for a future funding emergency.  It gives a bank a deep view into the strengths and, perhaps, weaknesses of its liquidity.  But nobody’s crystal ball is accurate enough to have predicted the events of early 2020. Review and revise your CFP as necessary. Work with your board and update those plans. Update your cashflow stress test scenarios to reflect this current environment. Test those contingency funding sources and make sure they’re still there and available. Also, review your collateral. Identify collateral accessible for pledging before it becomes necessary to do so.

group of bankers

3. Become the CCO (chief communications officer)

In times of uncertainty, when you're putting out fires, monitoring the numbers daily, reacting to trends and focusing on your liquidity, it's easy to let communication slide onto the back burner. That's a mistake. Keeping the lines of communication open with your CFP funding sources, your board, regulators and especially your staff is extremely critical now. Nothing breeds discontent, suspicion and rumors faster than a vacuum of information.

Your staff, many of whom have worked at home for the first time during the pandemic, may be wondering about their job security like employees all over this country. Morale can plummet quickly if your people think the bank is in trouble. Make sure everyone all along the chain of command knows their role is vital. This is the time to have all hands on-deck doing everything they can to keep the bank on solid footing.

4. Review your loan portfolio and CD maturity schedule

The maturity schedule of your loan and CD portfolios can help give you an understanding of where you're headed in the future. Start thinking about how you can reprice your loans as they come up for maturity and renewal to increase your net interest margin. If they don’t have rate floors, look for ways to insert those rate floors now.

Also, examine your CD maturity schedule. Do you have good maturity later with relatively equal amounts maturing each month? Or do you have some large buckets all maturing at the same time? Rates are at rock bottom right now but are guaranteed to start rising. The impact to your NIM will depend on the pricing structure of your loan and CD portfolios, the extent to which loan yields are protected by rate floors when you made the loans and how you manage maturing CDs. 

5. Prepare for staff changes

As CFO, you've been dealing with numbers, liquidity, CFPs and every other fire you need to put out daily. You may have furloughed some of your staff, or your people may have been working at home because most branches aren't open beyond drive-through transactions. Your bank's business has still been going on because of their efforts.

However, your staff has been dealing with this pandemic on a personal level as well. Families have been impacted, members of your staff may have contracted the virus, personal finances may be in flux. Your staff may not be ready to return to the bank for some time. Or, they may have been looking for new jobs while they were furloughed and wondering if they'd have jobs to return to. CFOs should prepare for this and make sure the chain of command for critical functions is intact.

6. Mitigate cyber risks

COVID-19 has brought cybersecurity risks and threats to the forefront for banks and consumers alike. Our sudden and dramatic shift to a more virtual business world in response to the pandemic has made the importance of cybersecurity undeniable.

Security is an issue with mobile banking for many consumers, so the ability to place holds on credit and debit cards and mobile wallets is becoming increasingly important. According to Statista, 65% of consumers are afraid to use mobile wallets because of security concerns. Making sure your security is bulletproof is vital. Areas to focus on include identity theft, dark web transactions and increased online transactions. Rich Scott, Sontiq’s Chief Revenue Officer, says that 60% of customers look first to their bank in the event of a fraud incident. That’s because typically businesses often first realize they’ve been breached when they see something wrong in their financial accounts. Fraud restoration, mobile device protection and secure payment processing are must-haves now. It starts with employees; training them in proper procedures is a vital piece of the cybersecurity puzzle.

7. Strategize and drive necessary change

All this focus on your bank's operations can have a silver lining. With your broader perspective as an evolving CFO, you may find improvements and opportunities that you hadn't noticed before. This might mean bolstering your CD maturity ladder, increasing your non-interest-bearing deposits and even creating improved communication and transparency with your staff.

8. Create a plan for the future

According to a timely report by McKinsey, "strong, steady leadership from the finance organization is critical" during the COVID-19 crisis and beyond. For the CFO, creating a plan that anticipates multiple future scenarios is the key to putting his or her bank in a position to thrive post-COVID-19. It will be vital to bolster your team's productivity, focus on rolling forecasts and look at ways technology can help.

Empowering a performance banking mindset will also go a long way toward positioning your bank and your staff for a positive future. Your role as CFO is not just about helping your institution get through uncertain times, it's also about positioning the organization to thrive in the future.

The information provided in this blog does not, and is not intended to, constitute legal or financial advice.

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