Mark Meloy:
Hello, I'm Mark Meloy, CEO of First Business Bank. I'd like to welcome you to another episode of the First Business Bank podcast. Today, we're covering First Business Bank's 2021 Economic Survey with special focus on the Kansas City metro area. The Economic Survey has been underwritten by First Business Bank for more than 15 years.

Mark Meloy:
The results are particularly relevant this year for the obvious implications of the COVID-19 virus, but also, as the survey does each year, it helps answer the question our bankers get most often from our clients, what are other business leaders saying?

Mark Meloy:
Our conversation today includes business leaders from the area who will offer their thoughtful reaction to the survey. I'm going to ask each participant to introduce themselves, then I'll briefly describe the format for our discussion today.

Mark Meloy:
Michael, start with you.

Michael Sullivan:
Thanks, Mark. My name's Michael Sullivan. I'm a managing director of Berkadia Real Estate Services here in Kansas City.

Mark Meloy:
Thanks. Nancy?

Nancy Johnshoy:
My name is Nancy Johnshoy, and I am portfolio manager and market strategist for the First Business Wealth Management Group.

Mark Meloy:
Thanks. Rob?

Rob Barker:
Thanks, Mark. I'm Rob Barker. I'm the president of the Kansas City Region of First Business Bank.

Mark Meloy:
Great. Welcome to all of you. So, Nancy is going to get us started by providing her summary comments about the combined survey results from across all of our banking regions, and then she'll touch on the Kansas City area specifically, and after that, we'll roll into a conversation with reactions from all of our guests.

Mark Meloy:
So, Nancy, in terms of the overall results across our footprint, what was the general tone of results in 2020?

Nancy Johnshoy:
Well, Mark, overall results were obviously impacted, uh, strongly by the pandemic, and in, in terms of, uh, all of our markets, they were pretty mixed, uh, but in general, 43% did worse than they projected going into the year, 21% did about the same, and 36% did better than they projected.

Mark Meloy:
Specifically in the greater Kansas City region, what were the outcomes for 2020- 2020?

Nancy Johnshoy:
Well, again, uh, despite significant challenges in, in 2020, 38% of our Kansas City respondents actually saw increases in sales, and 44% increased profitability. Um, 44% saw reduced sales, and 31% declining profits, so pretty mixed results.

Nancy Johnshoy:
In terms of employment levels, uh, 44% kept their head count the same, and 52% reported that they increased wages in 2020, but the surprisingly strong bottom line is that 47%, almost half, exceeded their overall business performance expectations in 2020. That was actually an increase over the 30% that we saw last year, and 29% did worse than anticipated, and that was down slightly from 30% last year.

Mark Meloy:
So, we had, we had outperformers, and we had underperformers, um, when we compare to, to last year, but what, what any key takeaways from that survey data?

Nancy Johnshoy:
Sure, a few. Um, one is that the companies that outperformed in 2020, uh, expanded their product offerings and invested in new talent. Not unexpectedly, uh, those that, uh, performed more poorly than anticipated, the pandemic was the primary disruptor in 2020. Eighty-six percent of those that underperformed cited that as the primary cause.

Nancy Johnshoy:
Companies had to deal with a lot, uh, during, during 2020, um, and the pandemic. Uh, workplace modifications for social distancing, employees working remotely, employee absences, and even some temporary shutdowns. So, all things considered, um, companies in Kansas City appear very resilient.

Mark Meloy:
Mm-hmm (affirmative). Mm-hmm (affirmative). So, the neat about this survey is it's really two in one. We, we ask, uh, survey respondents to talk about the past year in terms of how they performed, but we also ask them to look forward. So, shifting to the projections for 2021, what was the tone of the outlook for the upcoming year?

Nancy Johnshoy:
Uh, and, and first, I'll just kind of set the tone for what the environment was like during the time that these surveys were completed. So, it was mid-September to around late October when, uh, surveys were filled out, and during that time, uh, COVID-19 infections were definitely trending higher. Uh, the election was in full swing, and we had no news yet on a possible, uh, vaccine.

Nancy Johnshoy:
So, I, I think, Mark, it's important to put these results in the context of the environment during the time that these surveys were completed. So, most of the survey respondents, uh, completed them from mid-September to the end of October, so during that time, COVID-19 infections were definitely trending higher, the election was in full swing, and we have no news yet of a possible vaccine.

Nancy Johnshoy:
So, despite all of that, survey results definitely reflect a significant amount of optimism. Now, in terms of the pandemic, 35% expect the pandemic disruption to end in 2020, 48% expect that it will end by the end of 2021.

Nancy Johnshoy:
So, the results are very strongly optimistic, with 84% expecting better overall business performance in the upcoming year and only 2% expect to do worse. So, all things considered, the outlook for 2021-

Nancy Johnshoy:
... expect to do worse. So all things considered, the outlook for 2021 and the Kansas City market is very strong.

Mark Meloy:
So, Nancy, you, uh, gave some great context of the timing of the survey and economic data and information is very fluid as we continue to feel the effects of the pandemic and news more recently of progress, it seems. Um, what do we see right now that, uh, that might impact business in our area as we look into 2021?

Nancy Johnshoy:
Sure. And the US economy does continue to rebound, although as we move forward the pace of recovery, uh, will definitely slow somewhat. We're continuing to see strong results in many of the areas of the economy, including manufacturing, housing, consumer spending and employment. Unemployment nationally has improved to down 6.9% from a peak in April of 14.7%. And although state specific data does lag a bit, the September data indicates that the Kansas City area actually has an unemployment rate significantly lower than the national average at 4.9%.

Mark Meloy:
Good. Thanks. So now I'm gonna turn to, uh, our other guests. And, Michael, I'll start with you. What-what are your reactions to the survey results?

Michael Sullivan:
I think overall it was, it was exciting to see. I mean, uh, you know, in a year where clearly we've faced significant obstacles, uh, in multiple parts. Obviously with the election, uh, and- and COVID-19, but just in general, just a significant upheaval in what the normal day-to-day operation for most people was. We saw good results. I mean, we certainly had the laggers, um, and- and rightfully so, with- with all these disruptions, but you love to see the act that in- in the face of all of these changes you had a significant portion of the business world and the economy that found ways to succeed.

Michael Sullivan:
Uh, you know, I think for a lot of business owners this was a great opportunity to hit pause, uh, in the late spring and early summer, reevaluate what everybody was doing on a day-to-day basis and- and really dissecting the business from the bottom to the top. And saying, hey, what works, what doesn't work and what can we do to come out of this, uh, a much stronger operation? And- and so whether it was kind of trimming the, uh, employment-base or retooling the toolbox a little bit, uh, expanding the client-base. All of those things, I think, for- for the groups that wanted to take a very aggressive approach into a response, uh, it was a great opportunity to get better. And- and I think ultimately, for a lot of folks, that that's exactly what they saw.

Michael Sullivan:
Uh, you know, to go through what we went through and to come out better than you probably expected, uh, when- when they took this survey last year, uh, or as- as they were preparing for the year in- in late December, early January. Uh, it's a testament to the, to the hard work, flexibility, um, and nimbleness of- of a lot of the organizations in Kansas City, uh, and the, and the- the country as a whole.

Mark Meloy:
Great. Ron, thoughts?

Rob Barker:
I'd say, uh, similar to both what Nancy and Michael have said already. I think the interesting thing is, Kansas City typically, uh, doesn't see the dramatic ups or downs during economic cycles. And I think that's again what we see in some of the information here where we haven't seen, uh, the results go as negative as what maybe we have thought or as, uh, you know, strong in some of the- the ways that we wouldn't like to see. Uh, but I think overall, uh, Kansas City continues to, uh, be in that middle ground and perform, uh, in a steady fashion. And I think the numbers reflect that with people still being optimistic, even with, uh, significant, uh, changes that have occurred in their business during 2020.

Mark Meloy:
Yeah, thanks. Nancy, any, uh, any additional thoughts from Michael and Rob's comments?

Nancy Johnshoy:
No, I- I- I think what stands out to me though, Mark, is- is the great optimism of the Kansas City market, e- especially as compared to the surveys in our other footprints. Um, very surprising and, uh, much more aggressive. Um, a- and to, uh, the- the virus, expecting a much higher percentage, expecting it to be, um, uh, completed by 2020 or not an issue by 2020, and a very optimistic outlook for next year.

Mark Meloy:
Yeah, a word that I've used a lot, um, not just, uh, through the course conversations like this, but even as I talk with business people the last several months is, resiliency. And I think that's- that's a word that, um, really applies to, you know, the entrepreneur anyway, but certainly has been profound, I think, in times like this. Michael, you said that just, uh, think of all the different ways that business people have been tested, um, in- in the last several months. And- and it's, you know, to- to be on, um, the pathway that we are with even the, uh, financial markets performance, but really the what to me is the real tell-taler is the financial results that we see from our clients. Um, as financial statements come in and things like that, it's- it's pretty compelling. Now, don't get me wrong there, it's a little still, uh, um, a barbell economy. There's- there's the obvious sufferers in the economy as it's operating today, but there is, there's great success going on too.

Mark Meloy:
Along those lines, uh, what trends are you noticing, um, in industries. Uh, your industry in particular, but, Michael, I know in our business and in the banking business as well, you talk to a lot of other business people. Uh, thoughts and comments about what you're seeing happening, um, in industries out there, specific types.

Michael Sullivan:
Uh, I- I, again, I think it goes back to the optimism. I- I think for a lot of folks, um, they're viewing this as a little bit of a- a- a 2020 blip. Um, but, you know, across all the industries that I'm involved with on a day-to-day basis, again, a lot of optimism moving into 2021. I think, um, a lot of us needed this. Uh, you know, not necessarily a global pandemic, and obviously the- the health concerns are- are paramount. But from a business standpoint, a lot of us needed the opportunity to step back and- and figure out exactly what we wanted to do and who we wanted to be moving forward.

Michael Sullivan:
And, um, you know, at least in my businesses, uh, across the- the real estate, uh, retail worlds, uh, the construction and service industries that we're, that we're involved with personally, um, you know, it's- it's- it's really (laughs) been good for us. And again, it's, uh, it's- it's unfortunate that it took a global pandemic, um, to do this, but uh, you know, I think a lot of the folks that I talk to on a day-to-day basis share a lot of those thoughts and, um, I think the- the- the survey results, at least in Kansas City and- and some of the other ones that I've seen, share, uh, and echo that same idea, that 2021 should be much stronger, um, and that we're going into it, uh, in a much more streamline fashion with- with a lot of success on the horizon here.

Mark Meloy:
Thanks. Rob, any trends that you're noticing?

Rob Barker:
Uh, remarkably, we are seeing, um, almost every industry have a very positive outlook for 2021. Even with all of the, uh, noise that has been created with the political environment, uh, leading up to the election, uh, people still seemed very optimistic. Even with that unknown that was out there of how they felt about 2021. And the biggest concern that they seem to have is just finding quality employees. That continues to be an area of concern that out of everything that we hear, that is the biggest concern that we have for 2021.

Mark Meloy:
You- you- you know in the, uh, in the survey results and in Kansas City, as in other, uh, footprints of First Business Bank, um, talked about kind of the work from home, uh, challenges, the nature of that. Um, but- but then also it kind of, and Michael you mentioned it a little bit, kind of the safety concerns. How- how are, how do those things kind of manifest themselves in conversations you've had with business people and tenants?

Michael Sullivan:
Yeah. I mean, I think , I think whether it's- it's work from home or- or kind of a complete termination of business travel for a significant period of time, I- I think, again, we've all found new ways to stay connected. And, I mean, this is a perfect example, right? I mean, this- this would have been a very foreign theory for all of here in- in February. I mean, if we tried to produce this, uh, it- it would have been very complicated and- and- and arduous. But now, you now, the- the idea of jumping on a Zoom call and- and the personal nature of all of these interactions, um, have supplanted the need to get in a car, get on a plane, um, however we were traveling or getting to meetings, um, and this feels great now, right. And so I think for us, uh, and a lot of folks, the efficiency that you see in a day-to-day, um, as you work through, how many times now can I have a meeting with people across the country, get this personal touch, uh, and not have to travel?

Michael Sullivan:
Uh, you know, where I was traveling for one or two meetings a day, uh, over two to three days a week. I haven't traveled since March and I can have, uh, eight or nine of these calls, uh, get the same, I think, desired effect. There's no longer the stigma that staying away from your clients on a personal level, um, is somewhat insulting, uh, or- or you're diminishing your relationship. Now this is, this is fully, uh, accepted and-

Michael Sullivan:
... [inaudible 00:20:00] your relationship now. This is, this is fully, uh, accepted, and I think it's gonna be something that at least personally we hope, uh, this is one of those long- longterm effects of, of the, uh, the pandemic and the changes is that we can continue to employ these technologies. Uh, and whether it be personally in the office. Uh, you know, people get to work in a, in whatever environment they feel most comfortable in, um, and we can still maintain these personal touches, um, that are obviously necessary from, from just the human side of things.

Mark Meloy:
Mm-hmm (affirmative). Thoughts in your regard, Rob?

Rob Barker:
We have certainly seen, uh, internally our efficiency grow, uh, with, uh, simil- similar, uh, comments to what Michael just made in that with the geography of Kansas City, we often spend, uh, an hour of our time getting to and from a meeting. And with the availability of video conference, uh, that certainly has improved our efficiency even locally in those meetings. I think, uh, one of the things that we are looking at is just the impact of, uh, the stay-at-home on, uh, the need for office space and what impact that will have, uh, as it relates to real estate and, and the office, uh, space in Kansas City.

Mark Meloy:
Michael, is there any results or anything in the data that surprised you?

Michael Sullivan:
Uh, I think the overall success of, of a lot of the people that, that conducted the survey. I mean, obviously the, the media has painted a picture of, of kind of doom and gloom across, uh, multiple industries and, and multiple regions. And I think it was, it was great to see the fact that businesses were successful through all of this, and you didn't see drastic decreases in, in workforce. You didn't see drastic decreases in overall revenues. Um, and you know, although we, we have actually been, uh, for my personal businesses, we've been up year-over-year, I think we took a very aggressive approach into the pandemic, and, and really tried to be, um, aggressive with how we, how we handled it, and, and tried to continue to maintain a business flow.

Michael Sullivan:
And I didn't know how, uh, widespread that was. And, and clearly, uh, you know, the business owners in Kansas City took a very similar approach, uh, and, and have been rewarded, uh, for, for the large part, with, with continued success, you know, despite everything we, we dealt with.

Mark Meloy:
Yeah, great comments. Rob, thoughts in that regard?

Rob Barker:
I think the employment was the piece that surprised me the most. With all of the programs nationally that were rolled out to help with employment during the pandemic, seeing just how strong how many employers maintained their workforce during 2020 was the most surprising part to me.

Mark Meloy:
Mm-hmm (affirmative). Was there anything in the results that you expected, uh, to be there that wasn't? Michael?

Michael Sullivan:
Um, I, I don't think anything overwhelming. Um, you know, I thought the, the reasons for, uh, anybody who had issues, I think the reasons for the downturns and, and lay-offs and stuff that, that they gave were, were pretty much inline. Um, I, I candidly thought there would be more blame put on the government, uh, specifically, uh, or the media. Um, so I thought that was interesting that, and I don't know if that just wasn't a response that was, that was provided, or if those were kind of a fill-in-the-blank nature. Um, but I, I figured there would be a larger contingent, at least in the Midwest, that, that really looked at the media, uh, and the overall coverage of the pandemic, uh, and the results there that, that were, uh, something that they blamed. But no, I, I think overall, um, again, you know, going back to the surprises of, of the consistency and success, but outside of that, I, I thought it was, uh, kind of inline with what I thought.

Mark Meloy:
Rob? How, how are you?

Rob Barker:
Uh, nothing of great surprise, uh, that I, that I didn't expect that we haven't already mentioned. Uh, the, the overall positive nature of it, I think, is, is what surprised me the most, just, uh, that being so positive as we looked at 2020. Uh, and then again, uh, 2021, the optimism, uh, with, uh, vaccines and so forth being projected to occur, uh, even before the end of the year. That optimism was what surprised me the most, and, and I thought it would be the other way.

Mark Meloy:
Mm-hmm (affirmative). Well, thanks. And I'd like to thank our guests for taking the time to share their thoughts and experiences with our audience today. And to all of you, our audience, thanks for listening to our conversation. I want to remind you that the full 2021 survey can be found at our website. We hope you find, found it helpful and applicable to your company, as well as your planning for 2021. Let us know if there are topics that, or information you'd like us, you'd like to learn more about, and join us next time on the First Business Bank podcast.


Mark Meloy:
So, Michael made a great point about potentiality for a reduced travel. And so there's implications there because that's the part of the ... What I call the barbell economy that one of the areas that's certainly been impacted is travel. Hotel, motel, um, the airlines nationally. Nancy, what's your action to that?

Nancy Johnshoy:
Yeah, that's a great point, Mark, because we talked a lot about optimism in the market and optimism in, in the Kansas City area. But, I think we need to recognize too that there's a, a lasting impact on some of the industries like travel, leisure, entertainment. They don't take a, a long time to recover. Business travel, as you mentioned Michael, with Zoom and our new comfort level with that, we may never travel to the extent that we have in the past in the business world. So, that impacts hotels, it impacts airlines.

Nancy Johnshoy:
So, I think that you will probably see an additional, uh, aide package, additional COVID package of some sort targeted to those industries that are not able to capitalize on restructuring during the pandemic and as we've seen a lot of companies, uh, pivoting and really figuring out how to make the pandemic a profitable environment for them. We'll still need to help those, uh, businesses and those industries that will continue to lag.

Mark Meloy:
A great comment, Nancy.

Rob Barker:
Nice. Good addition.

Nancy Johnshoy:
Okay.

Mark Meloy:
Yep.

Michael Sullivan:
Perfect, yeah.

Nancy Johnshoy:
Well, we should maybe ... Yeah, I just thought maybe we should balance a little bit of, you know, yeah, things look great but there are still going to be challenges.

Mark Meloy:
But, the [crosstalk 00:32:26] was-

Rob Barker:
[crosstalk 00:32:27] on their Nancy, good job. (laughs)

Nancy Johnshoy:
(laughs) Yeah. Well, a little, little cloud storm, yeah.

Mark Meloy:
But I would say that, that was, that was the tone of the Kansas City responses. It was ... I mean, It was, it was very optimistic in every one. But it was ... I mean the, the differences from year to year were much, much higher in Kansas City. Which is ... Rob, I think your point about, um, sort of having a history of, you know, not being the lowest low, and not being the highest high was a, was a good one.

Michael Sullivan:
Yeah. It would be really interesting to do this again today, because I think the ... I think you'd see some drastically different responses.

Mark Meloy:
To do the survey-

Michael Sullivan:
You know, you'd ... Yeah, I mean you'd, you'd ha- you would certainly have an increased level of optimism from a lot of folks with the vaccines, but I think, you know, that cases have spiked and you're starting to see additional shutdowns and, I mean, if you have a bunch of restaurant owners and entertainment owners, my guess is they, they've, they've fallen deeper into a, uh, a dark place than, than gotten more optimistic. So, hopefully short term versus long.

Nancy Johnshoy:
Yeah, I, I, I don't, I don't know. I mean, I think about the time when this was ... When, when this was, uh, filled out and we were seeing definite increases in COVID cases around, around the country. And no vaccine. So, I mean, I think, I think the vaccine, uh, would be a game changer for a lot of people. [crosstalk 00:33:52].

Rob Barker:
Well, and parts of-

Nancy Johnshoy:
Hard to believe it'd be more.

Rob Barker:
[crosstalk 00:33:56] Nancy is just you have, you have some election results. You maybe don't know what the Senate is going to do, but you, you have some election results that we think are in place. And you had people talking prior to the election of, "Oh, the market correction could be significant if you ha- uh, you see a Biden presidency," and, and we've seen huge gains in the market, uh, since the election, so-

Nancy Johnshoy:
I think the Republican Senate has ... (laughs) Go ahead.

Michael Sullivan:
Yeah, but it's interesting the real estate ... I was going to say the real estate market's been turned upside down a little bit. There are a lot of people who are going to the sidelines. So ... Because of the Biden election. So, I ... You know, it'll be interesting to see long term. I, I think ultimately the fundamentals of the business are going to drive it back into it, but, um, we've had a lot of clients who, who've started to back out of deals because of, you know, just the overall implications and, and wanting to have cash in the bank versus real estate owned.

Nancy Johnshoy:
Hm.

Michael Sullivan:
So, we'll see. That's a ... That's obviously a 20 ... what is it, 20 and eight day window here, 27 day window. So, uh, we'll see what it is long term. I, I'm so very, very optimistic about the real estate market on the commercial side. But, um, you know, we'll, we'll see. It has been ... It's been an interesting affect.

Nancy Johnshoy:
I think you would have seen a stock market reaction, uh, if the Senate were definitely, uh, Democratic, because the feeling that there might be a capital gains tax, uh, increase and that that's kind of low hanging fruit in terms of, of a revenue opportunity. So that will be much tougher to get something like that through now and, and hence I think the market is not, um, seeing the kind of, of, uh, um, you know, capital gains harvesting that you might have otherwise.

Michael Sullivan:
No doubt.