CFOs’ budgeting secrets

Illustration by ajijchan/iStock

The pandemic and other financial events continue to send ripple effects across the banking industry. Through it all, chief financial officers continue to act as stabilizing forces for their community banks while remaining open to new opportunities. We sat down with a panel of six CFOs to ask how they’ve adapted to this landscape.

By Cheryl Winokur Munk


Our CEO panelists

Heather Plumski
Chief financial and strategy officer at $2.2 billion-asset Stearns Bank in St. Cloud, Minn.

Greg Niska
Chief financial officer at $210 million-asset Gateway Commercial Bank in Mesa, Ariz.

L. Ashton Adcock
Chairman and CEO of $198.3 million-asset Merchants & Farmers Bank in Dumas, Ark.

Michael Coltharp
CFO of $500 million-asset First Southwest Bank in Durango, Colo.

Lisa B. Hughes
SVP and CFO of $158 million-asset Heritage Bank of St. Tammany in Covington, La.

Christina Cavallin
CFO of $1.1 billion-asset Park State Bank in Duluth, Minn.


Q: How has the pandemic affected your role in your organization? Have you had to take on new responsibilities?

Heather Plumski

Heather Plumski

L. Ashton Adcock

L. Ashton Adcock

Lisa Hughes

Lisa B. Hughes

Christina Cavallin

Christina Cavallin

Mike Coltharp

Michael Coltharp

Gregory Niska

Gregory Niska

Heather Plumski: Part of my role is finding new opportunities and executing on them, so that has not changed. We continue to be opportunistic toward niche lending and finance options, deposit products and partnerships. Our focus remains in building relationships and partnerships with genuine people who are vested in achieving their greatest ambitions.

L. Ashton Adcock: The pandemic affected everyone’s role during the time of branches being locked and staffing being disrupted. I don’t have new responsibilities; I’m just carrying them out differently.

Lisa B. Hughes: Similarly, all of our senior management had to become versed in COVID-19 mitigation and be involved in decisions regarding personnel and office closings, but there has been no long-term change in my role.

Christina Cavallin: The main impact of the pandemic on my role has been where focus is directed. At the onset of the pandemic, focus very quickly shifted to collaborating with other executives on our disaster response, as well as reviewing strategy and analyzing liquidity, capital, sensitivity and other implications and risks as the PPP program was furiously rolling out. Two years later, we are more comfortable than ever with online collaborative technology and largely operating without paper. Focus has shifted to the interest rate environment and attempting to forecast and stress test what may happen with pandemic surge deposits and loan demand in an aggressive rising rate environment.

Q: What was the impact on your organization of some of the recent pandemic-related lending programs, like PPP?

Michael Coltharp: Participating in PPP had a major impact on our bank. We had a substantial increase in loan originations, which expanded our reach, increased our loan portfolio and improved profitability during the pandemic. Our staffing was adequate, but our personnel had to work additional hours to meet the demands of the PPP loan program. We were fortunate to have technology solutions that helped meet the customer demand.

Greg Niska: Gateway Bank, which I joined in September 2021, and my former bank participated in PPP, and in both instances, it had a profound impact. While we were able to meet the demand with the staffing levels we had, it wasn’t without its hurdles; there was a certain amount of flexibility and extended hours required by the team to get it done. Knowing that we were doing our part to help our community get the relief it needed during the pandemic made it rewarding.

Adcock: Taking care of customers was very taxing and challenging during the PPP 1 and 2 time frames. Our staff worked long hours to get applications completed and input.

Cavallin: Same. Our lenders, credit teams and support staff worked around the clock for months to get every qualified customer who was interested in a PPP loan approved and funded, which was especially difficult during the first round when it appeared the availability would dry up and the program kept continually changing. The workload was intense, but our bankers would not have done any less for our customers, which helped keep local businesses afloat and garnered goodwill throughout the communities we serve. We did bring in some outside resources for the initial review of the loan agreement and to assist with the underwriting on some complex loans, particularly on the Main Street loans.

Q: How has employee culture changed for your organization since the pandemic?

Coltharp: The employee culture has been dramatically affected, especially on our customer-facing operations areas. Loan personnel have not been impacted as much as the operations. We have had significant staffing shortages and increased turnover. The result is fewer experienced staff and challenges in avoiding operational interruptions from COVID issues, and also significant life issues impacting our employees.

“Our people have come to expect change, pivot often and truly embrace the changing environment as they support our customers. Therefore, it is our job to listen to their desires, which include flexibility in a remote work option.”
—Heather Plumski, Stearns Bank

Cavallin: At the pandemic onset, we sent as many people home to work as possible, including most of the finance and accounting staff. Two years later, we still have a few employees working remotely, but most have returned to the office. One notable shift we have experienced since the pandemic is the adoption of Microsoft Teams, particularly the use of video conferencing and calling. Our market footprint spans 250 miles, so the widespread adoption of online meetings and one-on-one video calls has provided a great deal of operational efficiency without sacrificing the benefits of face-to-face meetings and discussions.

Plumski: At Stearns Bank, our people have come to expect change, pivot often and truly embrace the changing environment as they support our customers. Therefore, it is our job to listen to their desires, which include flexibility in a remote work option. This flexibility may have its challenges; however, it is important to our team and therefore important to our leadership and future direction.

Q: Many community banks are seeing an uptick in retirements leading to challenges in attracting finance staff. Are you seeing challenges in attracting and maintaining a sufficient finance staff?

Coltharp: Yes, we have had challenges attracting staff at all levels of the bank, including finance.

Hughes: That hasn’t been our experience, but we’re a small bank, so staffing issues haven’t been an issue. To put things in perspective, the only finance staff here is me and a staff accountant.

Niska: We haven’t had the need specifically for finance staff. I would assume, however, that as with any industry and any role, there would be challenges if we were in that position right now.

Adcock: In our case, we have had retirements, but we have been able to hire and promote as needed to adequately staff positions with skilled persons.

Cavallin: We have been fortunate to have a wide range of qualified applicants for each position we have had open in the past year. We have also had the opportunity to fill other open positions within the bank with strong applicants who were originally interested in a finance role or accounting position.

Q: With the recent spike in both short- and long-term interest rates, do you feel that your role in the organization will become more complex?

“With rates having been at all-time lows in recent years, our balance sheet was made to be asset sensitive. Thus, we will benefit from rate increases. Hopefully, rates will not go too high and add to the likelihood of a severe recession.”
—L. Ashton Adcock, Merchants & Farmers Bank

Adcock: ALM (asset liability management) reports are always monitored and provide assistance to a bank managing its balance sheet and interest rate risks. So, I don’t think it will not become more complex, but changes in rates will require more attention to shock analyses. With rates having been at all-time lows in recent years, our balance sheet was made to be asset sensitive. Thus, we will benefit from rate increases. Hopefully, rates will not go too high and add to the likelihood of a severe recession. Most banks should benefit from a 2% to 3% increase in rates followed by some stability.

Coltharp: Effective leadership in banking has always been complex, as the bank operates with conflicting objectives. When there is loan demand, there is often a lack of liquidity. When liquidity exists, there is a lack of loan demand. Rising rates and the opportunity for income occurs when loan demand follows. Loan quality is cyclical and the provision for loan loss lags the cycles. Strong quality leads to lower loss allowances, but often occurs prior to a cycle change and greater losses that would require additional provisions for losses. Likewise, a decrease in loan quality requires additional allowances and precedes an economic rebound. That said, the increase in financial technologies and cryptocurrencies creates both the opportunity for innovation and the threat of causing the services offered by banks to be obsolete. Complexity abounds in all aspects of banking.

Q: How will your organization adapt to a more dynamic interest rate environment?

Niska: A couple things that COVID taught me were to always expect the unexpected and being forced to adapt to a volatile market. While I think that volatility has made interest rate risk inherently more complex, as a community bank, I believe we are structured so that those risks are much more manageable. We will draw upon the experience we gained in just the past couple years and continue to roll with the punches as we adapt to the new rate environment.

Plumski: The changing rate environment was bound to happen as the economy prepares to be able to correct. Discipline with lending rates structures is essential. Loyalty to deposit customers is essential. In our case, Stearns Bank paid interest on deposits over the last two years over 400% the national average paid on deposits. Discipline to capital deployment is essential.

Hughes: We will all have to be more active in finding ways to maintain a decent margin, whether collaborating on new loan products or finding better returns on our liquidity. Most people who were going to refinance their home loan have already done so, and loan sales in the secondary market have slowed substantially. Years ago, we began to diversify our lending and offer different loan products that present less interest rate risk. That trend will continue, along with less emphasis on time deposits as a funding source.

Cavallin: The interest rate environment has certainly become more complex, and local and national bank and fintech competition is heating up. The unknowns surrounding what will happen with pandemic surge deposits further complicates balance sheet management. We will need to ensure that the competitive decisions we make are right for our balance sheet, and not just in response to the competition. Additional monitoring, forecasting and stress testing is needed, and fortunately we adopted a robust IRR (internal rate of return) model in 2021 that will allow us to effectively analyze our risks and opportunities in this complex environment.


CFOs’ take on flexible working

For many community banks, the future of work continues to evolve, with some walking the fine line between employees’ desire for flexibility and the need to serve customers in person.

Some roles generally must be in person due to their customer-facing nature, and several CFOs say that employees understand that. But in many cases, banks are now able to take a more flexible approach thanks to the lessons learned from the pandemic.

For instance, employees of Park State Bank in Duluth, Minn., now have the ability to work from home in the event of a family member’s illness, school closure or COVID exposure, says Christina Cavallin, chief financial officer. This “helps keep departmental continuity when those special cases do arise,” she says.

Still, it’s a balancing act, community bankers say. “I would anticipate that staffing our future growth will see more demand for working remotely based on the shift we’ve seen nationally—specifically in the finance areas,” says Greg Niska, chief financial officer of Gateway Commercial Bank in Mesa, Ariz. “We haven’t come to that bridge yet, but I would be concerned with the potential of a culture shift when that comes.”


Consideration for crypto

Cryptocurrency may be rising in popularity, but many community banks are still in a watch-and-see mode—for now.

“We have not and are not considering offering cryptocurrency to our customers,” says Michael Coltharp, CFO of First Southwest Bank in Durango, Colo. Even so, he says the community bank is attempting to learn more about cryptocurrencies and remains open to the possibility “if such services would provide a benefit without creating significant risk to the bank.”

Other CFOs say their institutions take a similar stance.

“In our case, we haven’t made any official decision on which direction we are aiming to go with cryptocurrency except for keeping an open mind to it,” says Greg Niska, chief financial officer of Gateway Commercial Bank in Mesa, Ariz. “When you shut the door on something immediately because it isn’t conventional or it may not be ‘how it’s done,’ you may be restricting your potential or delaying the inevitable if it does become more mainstream.”


Cheryl Winokur Munk is a writer in New Jersey.