PA Bankers Association » Quarter 3, 2020 47
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
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.
3. Review your loan portfolio and CD
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. Strategize and drive necessary
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.
ABOUT THE AUTHOR:
BARRY ADCOCK draws upon a deep understanding of financial institutions’ operations gained through
almost 25 years’ experience in controller and CFO roles at THE BANKER’S BANK, GEORGIAN BANK
and NORTHSIDE BANK. He holds a bachelor’s degree in business administration and accounting from
Kennesaw State University and earned his CPA license from the State of Georgia in 1998.