Accurate forecasts and transparency are keys to achieving bank financial goals

With 2017 just around the corner, many banks are deep into their annual budgeting process. However, projecting loan growth and interest rates is not as simple as it used to be, operational costs continue to rise, and interest margins continue to shrink… along with the budget's margin for error. "The cost of operations has continued to increase, and margins are shrinking. The challenge is how to manage and balance those out," said Scot Thompson, president/CEO of Denmark State Bank. Thompson participated in a recent national event hosted by the Conference of State Bank Supervisors and the Federal Reserve, and he says the message on interest rates was clear. "They said this is the new normal," he said. "The question is: what are we going to do today to make sure we can survive tomorrow?"

Despite the variables that will change the budgeting process from bank to bank, the key to generating a successful, actionable budget is combining accurate forecasting and transparency. 


The exact process for forecasting and establishing budget goals often varies by bank asset size. Larger banks ($5-$10B) tend to have a planning and budgeting committee led by the CFO and consisting of the major department heads. At smaller institutions, the CEO or president will be much more involved in the budgeting process. "The key, no matter what your size, is to involve the people in the major categories you're looking at, both income and expense," said Kevin Schalk, partner – Financial Services Practice at Baker Tilly. "These budgets become the goals for those departments, so it's imperative to involve the heads of those departments so you have buy-in on their goals." 

After establishing the budget-creation team, the next step is for management to determine which process works best for their institution. According to Marc Gall, vice president at BOK Financial Institution Advisors, there are two general methods used to generate a bank budget. "One takes the approach of using the strategic plan as a starting point to build the budget and the other is to start fresh with each budget," he said. "So, you can either start with broad numbers and work through it top-down, or you can start with all the pieces and figure out how to put them together." The primary risk with the top-down approach is the potential difficulty in getting buy-in from the staff responsible for achieving the goals set down in the budget if they were not involved in creating those goals. 

Another important step in accurate forecasting is to incorporate trend analysis in order to ensure accurate, achievable budget goals. "There are many times the bank will start with identifying the desire to grow the bank by X percent, but those goals might be too aggressive relative to what they've been able to accomplish historically," Gall explained. He recommends spending more time on the areas where, historically, the bank has the largest variance from previous projections, including interest rates. In addition to creating achievable goals, accurate forecasting also helps with risk management. "The ability to forecast is a guide to mitigate any significant unforeseen issues," Schalk explained. 


The second key to building a successful budget is executing it throughout the year, a task which requires buy-in from everyone in the bank. "Everyone needs to have an awareness of looking for efficiencies and looking out for the best interests of the bank," Thompson explained. Frequent, transparent communication of the goals laid out in the budget is the best way to encourage that united effort. "You have to communicate those goals and get buy-in from everyone who is affected," said Schalk. "You need to be transparent and give updates on a quarterly or even monthly basis." That transparency also extends to how compensation and bonuses are tied to achieving budgetary goals. For instance, Gall noted that sometimes a bank may have two mutually exclusive goals – such as ROA and asset growth – so identifying the priority of each goal is critical. "Make sure the compensation structure and bonus goals are truly tied to the results the bank wants to get," he cautioned.

Transparency with staff at every level of the institution is also important, particularly when it comes to the importance of reducing non-interest expenses. "Invite the line staff to come up with ways to do something more efficiently and reduce cost," Gall advised. "Those small changes can have a large impact when taken in aggregate." As with transparency around compensation, all staff need to understand the specific goals of the institution to avoid concentrating on competing initiatives. For example, Schalk cautions against letting intense focus on income generation or expense reduction misdirect the bank. "You don't want to encourage a mix of products that is not in line with what the bank wants on the balance sheet," he said. "On the expense side, reduce repetitive processes versus reducing a person so you don't lose expertise." 

Once management has crafted a well-forecasted budget and communicated its goals throughout the institution, the final key to achieving those goals is frequent recalibration. "Variance to budget reporting is important," said Gall. "Look at those lines early in the year, because if you end up being way off budget early, it'll only get worse as time goes on without it being addressed." Thompson says that's why they reforecast every month. "There are variables that come up that will positively or negatively impact your year-end," he explained. "That's why we look at it on a monthly basis, so we can see where we're heading and take corrective actions throughout the year to have a better result." No matter how carefully planned and well-articulated, the bank's budget should never be so rigid it doesn't allow for adjustments. "In the past, budgets were more of a guide than set in stone, and that's even truer today with all the uncertainty," Schalk explained. 

Ultimately, the budget is a tool for management to use in achieving the bank's longer-term strategic goals. "The budget is a one-year focus that is a component of the strategic plan, which is usually a multi-year vision," said Gall. "However, just like strategic planning, it is important to be flexible. There may be many paths to achieve a single goal." Thompson urged bankers to keep in mind the goal of a budget: to make the organization stronger and better, even if that means making substantive changes. "Bankers like myself really need to look at why we would wait for another bank to buy us to do something that makes long-term sense for the bank," he said. "Is it something we could be doing ourselves right now?

A Bigger Piece of the Pie: Budgeting for Technology Expenses


One of the biggest challenges banks face during the budgeting process is projecting technology costs. Current estimates from industry experts project 10 to 20 percent increases over what banks are currently spending, but there are a host of variables that can significantly impact that number. "It's a challenge to figure out what you're spending on all aspects of technology," said Gall, citing examples such as core conversions and adding new systems. "You need to make some very broad estimates if you're embarking on something new," he said. 

Part of the challenge with projecting technology costs is the variance between what customers see and what the bank needs to invest in on the back-end. Schalk explained that technology is divided into two components: customer-facing and behind-the-scenes. "The larger spend I see is the non-customer-facing pieces like cybersecurity and risk management," he said. "Some smaller institutions may be able to avoid the higher-end customer-facing pieces, but absolutely need the risk and cybersecurity platforms."

One way to bring costs down is to determine the right timing for your institution – not every bank needs to buy technology as soon as it is released into the market. "Technology is needed, but you have to balance it out," said Thompson, pointing out that new technology becomes less expensive as it works its way through the market. "The timing of when it's right for you as a bank will be different."

By, Amber Seitz

Hint: It's not all about technology

Sometimes change is driven by a fundamental shift in the industry (think ATMs, internet banking, or today's pairing of cloud storage and mobile devices). Other times it is born from necessity, as banks fight to stay profitable in a persistent low-rate, high-regulation environment. The one certainty is change itself. The challenge for banks is to transform in a way that fits their identity rather than jump to extremes – so pump the brakes on buying that fintech startup. The best way to innovate without losing your identity is to foster a culture of innovation grounded in the bank's strategic goals, both with regard to internal processes and customer-facing technology.

Hone Internal Processes

Innovation, to have the greatest positive impact, must permeate the institution. That requires support from the top: the board of directors and CEO. "It starts with the CEO and the board including innovation discussions in their strategic planning," said David Peterson, CSO and Founder of i7Strategies. "Then, they can form a cross-functional group in the bank to work on specific innovative ideas." That cross-functional group should involve representatives from all areas of the bank. "Innovation, like serving customers, is really the job of all areas of the bank," explained Bob Giltner, Chairman, RCGILTNER Services, Inc. "Some banks establish committees or define a specific person to spearhead the effort as a way to build buy-in for the organization across functions." It's also a good strategy to look outside the bank for ideas. Jack Vonder Heide, president of Technology Briefing Centers, Inc. recommends designating a high-level bank employee as the primary researcher, and when they find an article about a bank in another state doing something innovative, to call that bank up. "They're happy to share that information as long as you're not a direct competitor," he pointed out. 

Whether an individual or a team is in charge of innovation at the institution, the first step is evaluating and updating the bank's processes. "Innovation should be directed to both customer-facing and internal operations," Peterson explained. This kind of procedural innovation involves identifying processes and procedures that occur simply because they've always occurred and streamlining them as much as possible. Giltner recommends constructing a process map for each of the bank's service processes for products and deliver channels. That typically involves placing the delivery of the product on one end of a whiteboard and the need for the product on the other end, and then filling in all of the execution steps in the middle. For example, on one side you have a customer using their checking account, and on the other a customer requesting information about the types of checking accounts the bank offers. "Innovation looks at the entire process and asks where improvements can happen," Giltner said. "Look for areas of greatest friction." Procedural innovation should be an enterprise-wide effort, too. "Banks should start encouraging innovation internally," Peterson advised. "Ask your employees to be innovative, no matter what their role is."

"Innovation does not have to use new technology," Giltner said. "Innovation can be accomplished simply by defining new processes or organizational structure." For example, before the mid-1980s, the idea of "giving away" checking accounts was anathema in banking. Later, free checking became one of the most popular methods banks use to begin relationships with new customers. "That was a huge delivery and customer service innovation that was not technologically driven at all," Giltner explained.

Team Up for Technology

When it comes to the more visible side of innovation (technology), banks have more of an upper hand in the market than many think. "If you step back for a minute and look at the data banks have, they know where and when people spend their money," said David Furnace, CEO of Haberfeld Associates. "That's an incredibly valuable data asset." That data, combined with the pre-established trusted relationship with customers, means banks are in a good position to partner with technology vendors. "The key thing banks need to see is that they have competitive advantages in fintech with a lower cost of funds and established customer relationships in comparison to non-banks," said Giltner. In other words, banks have already developed the client networks and compliance processes that lie beneath the technology and allow the industry to function.

On the other hand, fintech companies and technology vendors have the expertise and products to unlock bank data and leverage it to deepen customer relationships. "This will be an area where banks can partner with technology vendors in the future in order to leverage all of that data and make it actionable," said Furnace. If management determines that adding or updating technology to the bank's offerings is the right strategic direction to move in, partnering is a viable option. "What fintechs do is create 'shiny objects' for consumers, but because they themselves are not banks, they still have to work with banks in order to facilitate transactions," Peterson explained. "So banks can effectively compete by educating their customers on the types of services they offer, and then partnering to offer customers those shiny bits while still keeping their accounts with the bank." 

There are a wide range of benefits for banks that choose to partner with fintech companies rather than go it alone. "The rewards for community banks to focus on this and partner are very substantial," Vonder Heide explained. "You're making it possible for very small or new businesses to do business with your bank in a profitable way." Furnace says lending is also an area of opportunity for these partnerships. "Scale is difficult to achieve for some community banks, and deploying technology can allow for that scale." 

Of course, banks must weigh the risks with the rewards of all potential partnerships, particularly regulatory risk. "You have to put it together in a way that passes regulatory muster," Vonder Heide cautioned. "You also need to have a process for vetting your partners, especially considering most of them are very new." For most Wisconsin banks, however, the benefits of establishing a partnership with a fintech company outweigh the risks because of the sheer volume of resources required to initiate technological innovation solo. "Many community banks don't have the resources to go out and invent new technologies," said Furnace. "What they have is a trusted relationship with their customers." 

Take a Focused Approach

Those established customer relationships are the bedrock of community banking, and true innovation requires an approach focused on that identity. The first step in determining your bank's unique innovation ID is to define your appetite for change. "The first thing that the board of directors needs to do is decide what kind of a bank they want to be in terms of innovation," Vonder Heide advised. That means identifying where on the spectrum of innovation and implementation the bank should be. Do you want to be the first institution in town with every new product or feature? Do you want to be a fast follower, learning from other institutions' mistakes? Or do you want to hold off on change until your customers demand it? "Once you decide what type of bank you want to be, that will drive everything else," said Vonder Heide.

Next, management must determine which potential innovations to implement, because in today's banking environment no one has a lot of room to experiment. "It's tough for community banks in a time of zero interest rates, always increasing regulatory pressure and expenses," said Furnace. "It's important to choose wisely, but there are absolutely innovations that can make community banks more profitable." Winnowing down the list of possibilities should revolve around the bank's stakeholders. "Innovation should be focused on where it can make the biggest impact on the bank's stakeholders: customers, employees and shareholders," Giltner said. "Ideas should be prioritized based on the ratings of value for these stakeholders." 

To maximize value for shareholders, return on the investment must be part of the decision-making process when selecting ideas to implement. "It's trite but it's true: it has to be ROI," said Furnace. "The world of innovation is so broad, at the end of the day it has to contribute to your bottom line." To incorporate the customer perspective, Vonder Heide recommends forming an advisory group consisting of customers to help vet new ideas. "A lot of community banks make the mistake of introducing technology initiatives based on what they hear or observe from other banks," he said. "Your customer base is where you should go for technology initiatives."

Finally, don't assume cost when you're narrowing down your list of ideas to implement. Many impactful changes are also cost-effective. "The biggest fallacy right now is that innovation is a high-cost effort," said Peterson. "Particularly with branch transformation, innovation doesn't have to be expensive." It can be as simple as redecorating a branch office or removing a duplicative step from a back-office process. The most critical component of identity-centric innovation is to remember you probably won't get it 100 percent right on the first try. "You can't just decide you're going to innovate and suddenly be good at it," said Peterson. "In order to have perfected innovation in the coming years, you need to start now."

By, Amber Seitz

'Tis the season for holiday shopping. Black Friday is just around the corner, not to mention the gifts, family meals and decorations all put a strain on your wallet. Creating a holiday budget and sticking to it can help keep you on track. Here are some budgeting tips for the busiest shopping season of the year.

Make a List and Check it Twice
Creating an effective holiday budget means including everything you plan to spend. Budget for decorating, new outfits you plan to buy, food estimates, and travel costs alongside the gifts on your expense list. Be sure to include any money you plan to receive, too. Does grandma give you $50 every year like clockwork? Include that in your calculations. Will you be buying a joint gift and then receiving cash from the others going in on it? Include that, too. The best budgets encompass all of the spending and saving you do throughout the holidays, not just how much you spend on gifts. If you're not sure where to start, look up what you spent last year as a good jumping-off point.

Keep Track
The most important key to remember with your budget is to not forget about it after you create it. Keep track of all the purchases you make, especially ones made with cash, and adjust your budget if need be. It is a good idea to hold a weekly "reckoning" meeting, especially if you're not the only one making the purchases for the year. Sit down and check your real spending against your planned spending (the budget). If you've gone over in one area, these meetings give you the chance to adjust by lowering the amount set aside for another area to make up the difference. That way you'll keep your overall spending on track.

Save your Budget
After the holidays, don't throw away this year's holiday budget. Save it and use it as a model for next year's shopping. Make notes of where you deviated from the original budget, so that next year's is more accurate. You can also use the gift lists from year to year. If you know well in advance what items you want to buy, you can shop for them during the season when they're cheapest, rather than during the holidays.

Setting and sticking with a holiday budget will help you enter the New Year without any added financial stress, making the holidays that much more enjoyable

By, Amber Seitz

The November 2016 edition of the WBA Compliance Journal has been published.

Read Special Focus for an article on preparing for large-scale changes to HMDA. Next, turn to Regulatory Spotlight for CFPB's final rule amending their mortgage servicing rules. Finally, turn to Compliance Notes for DFI's recently announced interest rate requirements for escrow accounts through Dec. 31, 2017.

Click here to download the full issue.

By, Amber Seitz

The number of consumers and companies affected by cybercrimes continues to increase every year. It is estimated that cybersecurity incidents increased by 38 percent from 2014 to 2015, and the average cost per person incurred per stolen record was $154. As a result of 781 publicly acknowledged data breaches over 169 million personal records were exposed.

The threat to your personal information continues to grow. October is Cybersecurity Awareness Month and is the perfect time to learn how to better protect yourself. The number one protection against cybercrime is an informed consumer.

#1: Use More Than One Password 
Many people use the same password for multiple accounts, which means that if your credentials are stolen for one account all your accounts are in jeopardy. Do you really want to give criminals access to your bank account because you used the same credentials for your free online music account?

#2: Use Stronger Passwords 
No matter how secure a financial institution or shopping website may be, if your password is easy to guess you are still at risk of fraud. Do not use your name, birthday or pet's name, as this information is readily available to many people, especially if you post it on social media. The best passwords are often derived from an entire phrase, rather than a single word, and incorporate letters, numbers and special characters. For example, the song lyric "Don't worry; be happy" can be transformed into this password: d0ntwry_Bhpy.

#3: Beware of phishing scams 
The dangerous thing about phishing scams is they don't rely on weak website or network security. Instead, they attempt to crack the human firewall: you. Phishing scams attempt to obtain personal information or plant a virus or malware on your device by sending a fake email requesting that information, or instructing the recipient to click a link in order to reset their account. 

Never give out your personal information over the Internet, phone, or via text message unless you know exactly who you are dealing with. If you receive a suspicious email from a business or charity and you're not sure if it's legitimate, close the email, open a new browser, visit their official website and contact them through their customer service. There is often an increase in phishing scam attempts after heavily publicized security breaches (pretending to offer account security) or natural disasters (fake charities), so be especially on guard in those situations. 

#4: Avoid using public Wi-Fi to Buy 
If you frequently shop online, keep in mind that any purchases made via the web require transmitting your credit card and/or bank account information over the Internet. Using a public Wi-Fi connection to do so puts that sensitive information at risk. Hackers can tap into unsecured Wi-Fi connections at hotspots like coffee shops and airport terminals to capture that information. If you're using a wireless connection to shop, be sure that it requires a password or WEP key. Websites that have additional security protections have https:// instead of http:// on all pages of the site.

#5: Monitor Your Credit Report 
Your credit score affects many aspects of your life, including interest rates on large purchases, obtaining loans, and even renting an apartment. Make sure you check your credit report three times per year (one for each of the three major credit reporting agencies: Experian, TransUnion and Equifax). You can do so for free by visiting Watch for unauthorized accounts, loans or purchases because they will damage your credit and signal that your identity may have been stolen. If you find inaccuracies in your report, you can dispute those errors online, by mail or over the phone by contacting the credit bureau where you found the inaccurate report (contact information will be on the report itself).

#6: Be careful what you throw away 
Dumpster diving doesn't just apply to paper statements and discarded credit cards anymore. Before you recycle or donate old cellphones or computers, be sure to remove any personal and financial information. For computers, the best way to do this is to use a wipe utility program to overwrite the entire hard drive. For mobile devices, check the owner's manual, service provider website, or device manufacturer's website for information on how to permanently delete information. In addition, remove the SIM card from the device. 

#7: Take Action 
If you hear about a data breach or other fraud that might possibly affect your account, be proactive and change any related passwords. This is especially critical if you use the same password on multiple accounts (which you should avoid doing anyway). If you notice suspicious charges on your credit card or transfers from your banking account, contact your bank right away to notify them of the issue. They may put a freeze on the account to prevent further fraud, but this will keep the criminals from emptying your account.

By, Amber Seitz

Major economic and political changes often disrupt the stock market, causing dramatic swings in either direction. For many investors, volatility is today's "new normal." For those with retirement savings in the market, the constant stream of news about ups and downs can be worrying (or downright terrifying). If you're anxious about your investments, here's some advice on what to do when the markets dive and peak. 

When the market is down:
For many consumers on the cusp of retirement, the sight of down arrows on the nightly news is the stuff nightmares are made of. First of all, don't panic. Dips in the market don't have to mean the end of the world (or working longer) and pulling your money when the market is down is generally a bad idea. Second, evaluate your portfolio, especially if you haven't touched it since you set it up. As you age, it's important to adjust the amount of risk you're taking with your investments. A properly adjusted portfolio will allow consumers nearing retirement to weather the storms of a volatile market. Finally, consider diversifying your portfolio, which is more complicated than just divvying it up between stocks and bonds. Your investments should expose you to a blend of equity styles, geographic regions, and asset classes. A financial advisor can help you develop a plan that fits your needs, preferences, and risk tolerance. 

When the market is up:
While it can be exhilarating to see the value of your investments shoot up, don't get tempted to dump more into that particular stock. Often, a stock's meteoric rise is just the ride up in the elevator before it heads back to the basement again. The best way to keep yourself from taking on too much risk is to stick to your strategy, no matter how much a particular stock is performing. However, if you have a need to pull money out of the stock market (for example, using money from an investment account to finance a large purchase) the best time to do so is when the markets are up. 

Get Expert Advice
Investing is a complex financial topic that requires years of study to fully comprehend. The average consumer doesn't have the expertise or the time to fully explore and understand all the possible options. The best plan is to find an expert adviser who can help you set long-term investment goals that match your personality and needs, and devise a strategy to help you achieve those goals. If your local bank doesn't handle your retirement and/or investment accounts, they will be able to recommend a good advisor for you to talk to for guidance.

By, Amber Seitz

“Virtually every category of lending by Wisconsin’s banks saw growth during the first quarter of 2016 according to the latest FDIC quarterly numbers. Overall, lending grew to over $74 billion, a 6.5% increase, when compared to the same timeframe in 2015. This is an optimistic start to the year as banks continue their integral role in driving economic growth and help Wisconsin’s businesses grow and families prosper.

Commercial lending grew 5.1% to $13.5 billion, an influx of $700 million from Wisconsin banks to help businesses grow. And, residential lending grew as indicated by a 3.4% increase in loans from $22 billion to $22.7 billion. Noncurrent loans and leases shrank 4.8% million highlighting Wisconsin consumers are better able to meet their financial obligations.

The latest numbers simply highlight the fact that the diversity of Wisconsin’s strong banking industry directly benefits Wisconsin consumers. For over 150 years, Wisconsin banks have been safely helping businesses grow and families prosper, creating thriving communities. Our institutions are healthy, well-capitalized and ready to help keep our economy growing.

FDIC Reported WI Numbers*

  3/31/16  3/31/15 Change
Total Loans & Leases $74,932,900 $70,373,537 + 6.5%
Total Deposits  $84,877,274 $82,083,173 + 3.4%
Commercial & Industrial Loans $13,541,622 $12,878,915 + 5.1%
Residential Loans $22,793,214 $22,048,788 + 3.4%
Total Assets  $107,298,823  $102,912,192 + 4.3%
Noncurrent Loans & Leases $925,338 $972,151 – 4.8%

  * $ in 000’s

By, Admin

A bank executive from South Dakota has been hired as the new president and chief executive of Citizens Community Bancorp Inc., the Eau Claire-area parent company of Citizens Community Federal Bank. Stephen Bianchi, who has been president and CEO of the $1.1 billion-asset HF Financial Corp. and Home Federal Bank, both in Sioux Falls, S.D., will replace Edward Shaefer. Schaefer recently resigned to become president and CEO of Waukesha-based First Federal Bank of Wisconsin. Bianchi is a 30-year banking veteran and has served in several senior management positions at Wells Fargo Bank and with Associated Bank, Citizens Community said Friday

By, Admin

(Madison) The augmented reality game "Pokémon Go" is everywhere, but gamers need to exercise situational awareness when playing. As of July 11, the game for mobile phones has been downloaded 7.5 million times in the U.S. and generated $1.6M in daily revenue for its developer, Niantic… and the game has only been available since July 7.

The goal of the game is to collect (or "capture") digital creatures called Pokémon by traveling to real-world locations. Some of those locations, including banks, require consumers to use some extra caution while playing. For example, a player who walks into a bank branch and chases a Pokémon into the vault or behind the teller counter may unwittingly trigger the bank's robbery response procedure.

"Banks take the safety and security of their customers and employees very seriously," explained Rose Oswald Poels, president/CEO of the Wisconsin Bankers Association. "Be respectful of your local institutions' policies while you enjoy playing the game."

Tips for Consumers

If you find Pokémon at a local financial institution, follow these common-sense tips to ensure a safe hunt:

  • Ask first – Speak to a manager at the institution and ask for permission to play the game in the lobby of the building.
  • Put your phone away – Don't pull out your phone to play inside the bank building until you have permission. As you might image, taking video or photos of the building's layout is considered suspicious activity in a bank.
  • Take "No" for an answer – If the answer is "no" respect the institution's wishes and find your Pokémon elsewhere, knowing that your continued play in the building could jeopardize the security of other customers.

By, Admin

Madison – The Wisconsin Bankers Association (WBA) applauds Governor Scott Walker’s decision to allocate $4.5 million to Milwaukee for the purpose of training workers, helping businesses and moving neighborhoods forward by addressing foreclosed homes.

“Gov. Walker is creating opportunities for businesses and families in Milwaukee’s neighborhoods which is something we can all support and should be recognized,” said Michael Semmann, WBA Executive Vice President and Chief Operations Officer. “Wisconsin’s banks have this in common with the Governor as our industry strives to meet the same goal for families across the state.”

The banking industry has worked with Governor Walker as well as Milwaukee Mayor Tom Barrett on improving economic conditions in Milwaukee and throughout the state. The WBA looks forward to continuing to work with both toward the critical goal of creating opportunities for businesses and families.

By, Admin