February 11, 2021

Since CECL was issued by FASB, most of the attention has been paid to data needs, modeling and forecasting in adopting CECL. However, for many institutions, the conversion of Purchased Credit Impaired (PCI) to Purchase Credit Deteriorated (PCD) and adjusting Impaired Loans to one of three CECL methods is equally important. The conversion to CECL requires the following significant steps once the historical dataset has been loaded, reconciled and validated.

This year has presented bank management teams with a multitude of issues to juggle, many of which seemingly pull in opposing directions and most of which were not firmly on the radar to start the year. Such is life in 2020. Some banks’ primary concerns stem from the fact that the industry has seen a shift in liquidity. Balance sheets are awash with deposits relative to recent periods, while securities holdings have come down relative to assets. The build-in balance sheet liquidity has come in the form of cash, with an unusually high 7.6% of assets held in cash and equivalents as of June 30.

When Congress pushed through the National Defense Authorization Act for the fiscal year 2021, the banking industry was relieved and hopeful for the potential elimination of excessive regulatory burdens under the Bank Secrecy Act.

The past several months have proven to create a lasting change in our banking ecosystem. This new normal’s immense pressure has forced financial institutions to adapt quickly to changing ecosystems, evolving customer needs and shifting regulatory frameworks. Fortunately, the demand for rapid change also presents an exciting opportunity for bank marketers to leverage digital power to drive their bank growth forward.

Over the last several years, our world has been leaning further into the digital realm, largely thanks to a younger, more tech-dependent generation. To stay competitive, community banks must digitize and develop strategies for digital-first customers.

A relationship-based, community focus in a digital world

What budget is the first to get slashed in an economic downturn? As we all know, it’s marketing. As a former ad agency guy, I have lived through many a downturn. We always knew that we were the first to lose our jobs when times started to get tough. And, when times began to improve, we were always the last to return to work. There’s an old agency metaphor for spending money in a downturn. We said it was “like shooting at ducks that aren’t there.” Well, right now, a lot of banks are looking to save their No. 2 Steel for another day.

The formal study of risk management has been around since World War II and involves learning how to identify, assess and manage financial risks for an organization. It has long been associated with market insurance, protections from accidents and use of derivatives. It evolved into contingency planning, analyzing various risk prevention activities and portfolio management. Operational and liquidity risks emerged as a formalized concept in the 1990s as financial institutions intensified their market risk and credit risk management activities. Risk management has become a corporate affair — it is a major player in an institution’s management and monitoring policy decisions. The concept of risk began to cover pure risk management, technological risk management models and operational risk. And as the identification of new risks emerged, so did an expanded concept of operational risk.

As I write this message, we are coming up on a year since the COVID-19 Pandemic began, bringing with it not only a health crisis but a financial one, too. Looking back over the past 12 months, it is hard to wrap one’s mind around all that our country has endured.

Goodbye to 2020! While there were positive achievements, it brought us plenty of headaches. We only hope that 2021 is a better year.