“Wisconsin banks continue to prove how far we have come in the last few years according to the latest FDIC quarterly numbers. Despite a modest decrease in commercial loans, overall lending grew to over $75 billion, a 5% increase when compared to the same timeframe in 2015.

The banking industry also hit a benchmark this quarter with the Deposit Insurance Fund’s Reserve Ration surpassing 1.15%. The reserve is currently at 1.17%. This is the reservoir, fully funded by the financial industry, which protects taxpayers from the financial fallout of a failed bank.

Wisconsin banks continue to move forward despite a wide variety of obstacles challenging the industry including:

  • A prolonged low interest rate environment
  • Compliance and technology costs escalating every year
  • The number of bank mergers in Wisconsin continuing to increase. Seventeen mergers were announced in 2016 compared to 12 in 2015 (which was also considered a large number in recent years).

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*

  6/30/16 6/30/15 Change
Total Loans & Leases $75,699,289 $72,080,859 + 5.0
Total Deposits $83,075,678 $81,656,290 + 1.7
Commercial & Industrial Loans $12,760,719 $13,124,769 – 2.7
Residential Loans $22,428,393 $22,341,555 + 0.3
Total Assets $107,235,162 $103,726,582 + 3.3
Noncurrent Loans & Leases $881,991 $898,814 – 1.8

*$ in 000's

By, Admin

FRB has issued proposed rule to: revise the capital plan and stress test rules for bank holding companies with $50 billion or more in total consolidated assets and U.S. intermediate holding companies of foreign banks. Under the proposal, large and noncomplex firms would no longer be subject to the provisions of FRB’s capital plan rule whereby FRB may object to a capital plan on the basis of qualitative deficiencies in the firm’s capital planning process. In connection with this modification, large and noncomplex firms would no longer be subject to the qualitative assessment in Comprehensive Capital Analysis and Review (CCAR), but would remain subject to a quantitative assessment in CCAR.

The qualitative assessment of the capital plans of large and noncomplex firms instead would be conducted outside of CCAR through the supervisory review process. For purposes of the proposal, a bank holding company or U.S. intermediate holding company with total consolidated assets of $50 billion or greater but less than $250 billion, on balance sheet foreign exposure of less than $10 billion, and nonbank assets of less than $75 billion would be considered a large and noncomplex firm. The proposal would also modify reporting requirements for large and noncomplex firms to reduce burdens by raising materiality thresholds, reducing the scope of the data collection on these firms’ stress test results, and reducing supporting documentation requirements. For all bank holding companies subject to the capital plan rule, the proposal would simplify the initial applicability provisions for the capital plan and stress test rules, reduce the amount of additional capital distributions that a bank holding company may make during a capital plan cycle without seeking FRB’s prior approval, and extend the range of potential as-of dates for the trading and counterparty scenario component used in the stress test rules.

The proposal would also amend the Parent Company Only Financial Statements for Large Holding Companies to include new line item 17 of PC–B Memoranda (Total nonbank assets of a holding company that is subject to the Federal Reserve Board’s capital plan rule) for purposes of identifying the large and noncomplex firms. All other bank holding companies subject to the capital plan rule that are not large and noncomplex firms would remain subject to objection to their capital plan based on qualitative deficiencies under the rule. The proposal would not apply to bank holding companies with total consolidated assets of less than $50 billion or to any state member bank or savings and loan holding company. Comments are due 11/25/2016. The proposed rule may be viewed here. Federal Register, Vol. 81, No. 190, 09/30/2016, 67239-67260. 

 

By, Eric Skrum

The Board of Governors of the Federal Reserve System (FRB) is adopting a final policy statement (Policy Statement) describing the framework that FRB will follow under its Regulation Q in setting the amount of the U.S. countercyclical capital buffer for advanced approaches bank holding companies, savings and loan holding companies, and state member banks. The Policy Statement is effective 10/14/2016. The policy statement may be viewed at: https://www.gpo.gov/fdsys/pkg/FR-2016-09-16/pdf/2016-21970.pdf. Federal Register, Vol. 81, No. 180, 09/15/2016, 63682-63688.

 

By, Eric Skrum

CFPB’s Office of Financial Education is exploring how to produce a list of companies offering existing customers free access to a credit score. The CFPB could leverage this list to bring consumer attention to the topic, and to develop content to educate, inform and empower consumers on the use and availability of credit scores and credit reports. The CFPB requests comment on this notice to assist with launching its public list.  Comments are due 11/04/2016.  The request may be viewed here. Federal Register, Vol. 81, No. 193, 10/05/2016, 69046-69047.

 

By, Eric Skrum

CFPB has issued a notice pursuant to the Equal Credit Opportunity Act concerning the new Uniform Residential Loan Application and the collection of expanded Home Mortgage Disclosure Act information about ethnicity and race in 2017. The notice may be viewed here. Federal Register, Vol. 81, No. 189, 09/29/2016, 66930-66949. 

 

By, Eric Skrum

CFPB has published a notice announcing the availability of a revised methodology statement, entitled the Methodology for Determining Average Prime Offer Rates. The methodology statement describes the methodology used to calculate average prime offer rates (APORs) for purposes of Regulation C and Regulation Z. The Bureau removed from the methodology statement the references to the sources of survey data used to calculate APORs. The notice may be viewed here. Federal Register, Vol. 81, No. 181, 09/19/2016, 64142.

 

By, Eric Skrum

The Consumer Financial Protection Bureau (CFPB) has issued a final rule modifying general Regulation E requirements to create tailored provisions governing disclosures, limited liability and error resolution, and periodic statements, and adds new requirements regarding the posting of account agreements. Additionally, the final rule regulates overdraft credit features that may be offered in conjunction with prepaid accounts. Subject to certain exceptions, such credit features will be covered under Regulation Z where the credit feature is offered by the prepaid account issuer, its affiliate, or its business partner and credit can be accessed in the course of a transaction conducted with a prepaid card.   This rule is effective 10/01/2017. The requirement to submit prepaid account agreements to the Bureau is delayed until 10/01/2018. The final rule may be viewed here.

 

By, Eric Skrum

Notice 2016-14

Communication is vital in any relationship, including an institution’s relationship with its customer. Modern technology provides institutions with useful tools to facilitate these communications, including, for example, text messaging, email, social media, and autodialed calls. While it is important for institutions to capitalize on the multiple channels available to communicate with existing and potential customers, it’s equally as important to understand the regulatory framework under which these communications are governed.  

Enter the Telephone Consumer Protection Act (TCPA). The TCPA, which became law in 1991, was originally established to address unsolicited calls to landlines and then-modern cell phones. Twenty five years after its inception, the TCPA – prescribed primarily in implementing regulations, guidance and orders issued by the Federal Communications Commission – has taken on a new life in an attempt to govern current technology. Recent changes to TCPA law (issued in 2013 and 2015) have generated renewed attention and growing concern surrounding effective but compliant communications with customers. Rightfully so, as penalties for non-compliance – ranging from $500 to $1,500 per violation (per call) – can truly break the bank. Given the repercussions of non-compliance, it is critical for all bankers to understand the TCPA and how the law interacts with the institution’s business practices. At that point, the institution will be in a position to determine whether to communicate with customers using channels that avoid the TCPA or to submit to TCPA compliance. 

If your institution uses or is considering using one of the following mechanisms to communicate with customers, these communications will be governed by the Telephone Consumer Protection Act (TCPA):

  • Text messages
  • Calls to landlines or cell phones using an autodialer
  • Calls to landlines or cell phones using a pre-recorded or artificial voice

Prior to communicating with consumers using one of these channels, the institution must obtain the consumer’s consent. Dependent upon the nature of the communication, one of two types of consent is required – (1) prior express consent or (2) prior express written consent.  If the contact does not include a telemarketing/advertising message, an institution must obtain prior express consent from the consumer. Contacts of this nature would include, for example, debt collection, checking account notifications (e.g. insufficient funds alerts), or informational contacts with potential customers. In contrast, if the contact includes telemarketing or advertising content, a consumer’s prior express written consent will be required.

Obtaining a consumer’s prior express (non-written) consent is a relatively simple process. Interpretative Orders issued by the FCC have stated that obtaining a cell phone number from a consumer is sufficient to provide such consent. Thus, assuming the institution has obtained a cell phone number from a customer in the course of the banking relationship (e.g. in the Account Signature Card), the institution has the ability to contact that customer for non-telemarketing/advertising purposes using the above-described mechanisms. No additional disclosures are required to be provided by the institution and, furthermore, no contractual agreement between the institution and consumer is required by law. Put simply, documents should not need to be modified. 

In contrast, if an institution wishes to contact a consumer using an above-listed mechanism for telemarketing/advertising purposes, prior express written consent must be obtained. This level of consent requires all of the following:

  • Written agreement
  • Signature of person called 
  • The following “clear and conspicuous” disclosure:
    • “By executing this agreement, such person authorizes the seller to deliver or cause to be delivered to the signatory telemarketing calls using an automatic telephone dialing system or an artificial or pre-recorded voice; and
    • The person is not required to sign the agreement (directly or indirectly), or agree to enter into such an agreement as a condition of purchasing any property, goods, or services.”
  • Telephone number authorized to receive such messages

The TCPA does not prescribe how to capture a consumer’s written consent. As a best practice, however, an institution should consider using a standalone agreement to obtain this consent in light of both legal and practical considerations. To that end, it is prudent for an institution to work with legal counsel to tailor the consent agreement to the institution’s particular circumstances and to, furthermore, delineate proper use.

In addition to obtaining consent, there are a number of additional considerations for an institution when determining whether and how to communicate with consumers under TCPA, regardless of the nature of the contact. First, consumers have the opportunity to opt-out of receiving any communications at “any time” using “any reasonable means”. This requires the institution to have systems in place to quickly manage a customer’s opt-out request regardless of how and to whom the opt-out request originated. In turn, these systems must be capable of tracking which institution customers have consented and the type of consent (written or non-written) given, as applicable. Practically speaking, an institution will not have 100% consent from all customers and systems must be capable of managing to that reality. Furthermore, these systems must “talk” to those who are responsible for originating calls; otherwise, violating TCPA and incurring a steep fine is just a matter of time. 

Finally, there are several notable exemptions from TCPA. Relevant to bankers, contacts that alert customers to a data security breach or identity theft or notifications of suspected or actual fraudulent activity on a customer’s account are exempt. Additionally, contacts related to a customer’s money transfer are also exempt. In order to take advantage of these exemptions, however, an institution must adhere to certain requirements including, for example, a limitation on the number of customer contacts, content requirements, and formatting requirements for text messages. In the non-telemarketing context, complying with exemption requirements may, in fact, be more onerous than obtaining a phone number to meet prior express consent requirements under TCPA.

As your institution continues to innovate by identifying creative ways to connect with new or existing customers, it’s critical to consider the TCPA. Understanding the law, along with the practical impacts, should help guide business decisions and will certainly facilitate compliance. 

*This article does not address other laws that may apply to an institution’s communications with customers such as “do not call” registry requirements and the Fair Debt Collection Practices Act, as applicable.

WBA wishes to thank Atty. Lauren C. Capitini, Boardman & Clark, llp. for this article. 

By, Eric Skrum

Digging for Gold: Data Mining for Marketing Success
Banks of all sizes should apply data analytics to maximize their marketing strategy

There’s no shortage of tools for bank marketers to deploy in their efforts to attract and retain customers. Social media, digital advertising, traditional print and media marketing, and good old-fashioned cold-calling all have their place. However, tools are ineffective without a strategy. You can have all the hammers, nails and wood you need to build a house, but if the architect didn’t design a floorplan, it’ll never come together. For bank marketers, data analytics is a critical component in creating a strategic marketing plan, though many banks aren’t fully leveraging the data available to them.

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“Data analytics is critical to building a successful marketing strategy. You just have to do it,” said John Verre, president and CEO, Leap Strategic Marketing. Leveraging data starts with two primary processes: discovery and distillation of the data.

Discovery

The discovery process involves collecting traditional consumer and business data, including number of accounts, balances, and attrition rates, as well as breaking down that data by branch and market segment. According to Verre, those metrics provide a holistic view of the institution and help delineate between trends at the specific bank and national trends. “That discovery is absolutely key to developing a sound business and consumer marketing plan,” he explained. “Data analysis leads to all of the strategies and tactics that drive the direction of the plan. The more data you use, the better the plan can become.”

It’s also important for banks to collect data about individual customers on a regular basis. While it may sound like an enormous task, it’s actually part of what most community banks do every day. “First and foremost, in order to enter data into the CRM, you have to get to know the customer anyway,” said Jeff McCarthy, vice president – marketing director, First Bank Financial Centre, Oconomowoc. “When a new customer comes in, you have to take the time with them on the front end. Learn everything from if they own a home and are married to how they take their coffee and if they took one of the free cookies when they came in.” Rolling this practice into a data collection strategy simply means recording all of this information in a centralized location where it can be updated and analyzed as needed. This practice can help cement customer relationships by ensuring that all bank staff have current information about each customer. “When you onboard a customer properly by asking the right questions, you become more customer-centric,” said Verre. “If banks work this well, the customer feels like you really know them.”

Tom Hershberger, president, Cross Financial Group, explained that data collected during this phase can also help the bank identify potential new customers. “In the absence of an intentional pursuit of customer segments outside an organization’s average customer profile, tomorrow’s new customer will be a clone of the customers served today,” he said. “An in-depth analysis of current customer relationships—including account balances, product possession, service usage and preferred delivery channels—will set the stage to determine what will be attractive for the next new customer.”

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Distillation The second phase in using data analytics to create a successful marketing strategy is the “analytics” part of “data analytics:” distilling all of the data collected to allow for a focused analysis. “Because data can become a big landscape very quickly, it is essential that organizations direct their data assessments to the critical priorities emphasized in strategic and corporate planning,” said Hershberger. “The key is not collecting all of the data possible, but rather collecting and examining data that will improve marketing activities directly connected to desired outcomes.”

Want to increase cross-selling? Collect data on which products and services customers currently utilize and compare that with what would be appropriate for their needs. Want to acquire new customers? Collect data that will help you build a profile for your best current customers, which will tell you the type of potential customer to seek out. “There are so many things you can do every day, so you need to isolate the opportunities that make the most sense,” Verre advised.

An essential step to planning future campaigns, bank marketers can distill data to assess past efforts. “As data analytics begin to improve marketing activities, it will be important to learn what worked and what was simply a distraction,” Hershberger explained. This analysis doesn’t have to be limited to specific marketing campaigns, either. A focused approach to data analytics can also help the bank identify how best to serve current and future customers. “It’s not just about customer acquisition,” said McCarthy. “It’s about acquiring the right customers and servicing them the right way for the life of their relationship with us.”

The same theory applies to both retail and commercial customers. “Marketing efforts with retail households can be enhanced dramatically with effective data management,” said Hershberger. McCarthy pointed out that good customer data is essential for both customer service and cross-selling. “Getting to know your customers is not only good business from a customer service perspective, but from a cross-selling perspective as well,” he explained. For business customers, Hershberger said data can help expand the client’s relationship with the bank beyond lending services.

Tools

So, where should a bank start after deciding to integrate data analytics into its marketing strategy? Fortunately, banks don’t have to go far to find a data processing vendor. The most common core software providers in the financial services industry (such as FIS, Fiserv and Jack Henry) also offer data analytics and customer relationship management solutions. “I honestly believe the data processing vendor you already have is the easiest solution,” said Verre. “They can also help you sort through and find the data that’s most important.”

Some spreadsheet and database manipulation can also be a good starting point. “Most community banks have access to mainframe report writing software, or at minimum, the ability to select customer data and export it to a separate file,” Hershberger said. “Simple merge/purge activities can create a clean, non-duplicated customer list with as many products as possible connected to one family or business unit.”

In addition, there’s a wide variety of cloud-based software solutions for specific data needs, most of which all users to plug in raw data from their own systems. For example, there are several cloud applications that focus specifically on analyzing data for email marketing, and others that specialize in optimizing data for sales and cross-selling processes. Analyzing one specific piece of the bank’s marketing is one way to generate very specific returns. For example, McCarthy explained that they recently started emailing the bank’s newsletter to customers so they can monitor which articles generate the most views and click-throughs. That data will empower the bank to provide more targeted content as well as open up cross-selling opportunities. “We’re still building the data right now, but it’s a way for us to get smarter with the information we’re providing,” he said.

Technology is essential for data analytics, but the most important resource for banks to rely on when processing and analyzing data is their people. “Data is only data,” Hershberger said. “We need the human component to determine what questions to ask for the data analysis and then combine that knowledge with product and service invitations that have the greatest potential for success.” The human element is also a critical component of collecting data. “The data can tell you a customer is getting older and getting ready to retire, but conversations will tell you the meaning behind it,” McCarthy explained. “As data and technology evolve, people still want to have face-to-face interaction when complex financial issues arise.”

Ultimately, the challenge for banks is to begin using the data they have available to them. Data analytics is not an easy undertaking, requiring both time and technological investments from the institution. “It’s a commitment to actually do it,” said Verre, insisting that it’s worth the effort. “If you have the data, the insights can happen.” And those insights could be the competitive advantage that sets your bank apart.

By, Amber Seitz

Building A Strong Foundation
Seven steps to integrate capital planning throughout the strategic planning process

If strategic planning lays the foundation for a financial institution’s success, then capital planning is the mortar that holds it all together. Branch and portfolio acquisitions, organic growth into new areas, and significant investments in technology are all common strategic goals that heavily impact capital. “Strategically, you need to position your balance sheet to be ready for all of these things,” said John Behringer, CPA, partner at RSM US, LLP, a WBA Gold Associate Member. To do so, everyone involved in creating or refreshing the bank’s strategic plan must keep capital top-of-mind throughout the process. “Capital should always be an overarching—if not the overarching—consideration in the strategic planning process,” said Jon Bruss, managing principal and CEO, Fortress Partners Capital Management. Though the process will vary from bank to bank, generally, there are seven key steps to achieving synergy between the bank’s capital plan and strategic plan.

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1» Identify a Capital Champion

During the bank’s strategic planning process, someone must be responsible for ensuring that capital is considered every step of the way. While the board of directors should be heavily involved, Kirk Hovde, CPA, vice president at Hovde Group, recommends starting the process with bank management. “Usually it’s easiest to start with the management team, because they’re more involved in the day-to-day operations of the bank,” he said. Though in some instances the CFO (or even CIO) may take the lead, typically integrating capital into the strategic planning process falls to the bank CEO. “The CEO must set the standards and tone for the strategic planning process,” said Bruss. “He’s ultimately responsible to the board of directors, who are in turn responsible to shareholders for the stewardship of the capital account of the bank.”

2» Weigh Shareholder Expectations

Any capital planning must include consideration of the bank’s shareholder base and their expectations with regard to ROI and share value. Strategies that will require additional or higher levels of capital need to be weighed against the possibility of diluting shareholder value. “It’s important to consider your shareholders’ appetite,” said Hovde. “You don’t want your strategic plan to pigeon-hole you into needing capital at a less-than-attractive price, because that dilutes your shareholder value.” These expectations will vary depending on the bank’s shareholder base, as well. For example, a bank with shareholders who are interested in near-term liquidity should not raise common equity as a first choice because that could dilute share value, but a closely held family bank may not have those same short-term concerns.

3» Select a Starting Point

Capital both impacts and is impacted by the bank’s other strategic goals. Therefore, management and the board must begin the planning process by selecting their starting point: capital goals or other strategic goals. “In my experience, it’s best for the board of directors and management to sit down and identify what sources of capital are readily available to them and at what cost,” said Hovde. “Your access to capital is one of the most important parts of strategic planning.” However, the capital-first strategy isn’t a one-size-fits-all solution. Behringer says that strategic planning can begin with identifying two or three primary goals for the institution, provided the board and management team recognize how capital fits into those goals. “Look at the pro forma balance sheet and come up a couple of options based on what is achievable given the restraints you have,” he recommends. Capital is a common restraint, but available resources, time and competing strategic objectives are others.

4» Assess the Budget

“The first thing any management team should look at is budgeting,” Hovde advised, cautioning bankers to be aware of its limitations, as well. “It’s a great tool, but as you get further into the future it becomes less accurate.” With that in mind, an analysis of the institution’s budget provides an excellent short-term scope of the bank’s capital needs. For example, imminent infrastructure needs or anticipated investments in technology both indicate short-term future capital needs that should be accounted for in the planning process.

5» Forecast Multiple Scenarios

To augment budgeting’s limitations, management should leverage forecasting tools that will help determine the future sources of funding needed to sustain growth. “There has to be a process of creating or forecasting the balance sheet and profit and loss statement,” said Bruss. He recommends the CFO prepare a balance sheet analysis for best-case, worst-case, and base-case scenarios for each of the strategies in order to determine what the impact on capital will be. That exercise, combined with an analysis of the balance sheet and profit and loss statement will be the best way to understand what the capital changes will be. “Having a reliable forecasting process is critical,” Behringer said, noting that the asset/liability model and economic value of equity are also important. “It helps you be ready for opportunities when you know what your options are.”

6» Measure Against Benchmarks

Regulatory requirements are the most obvious (and significant) benchmarks for banks to measure their capital plan against, as they can impact the bank’s potential for growth. “Banks should always be cognizant of where their regulatory capital levels are and how their growth will affect those,” said Hovde. “We’ve seen lots of organizations who had to slow down growth because of regulatory pressure.” However, shareholder expectations are also a key benchmark to use in order to ensure the strategic plan is leveraging the bank’s capital effectively. “Look at the common GAAP measurements that will be considered by people who want to own shares of the bank,” Bruss advised. Behringer recommended comparing the bank’s ROE to peer averages to manage what shareholder expectations and assess tolerance for deviations.

7» Consider Multiple Sources of Capital

If the board determines raising capital is the best way to achieve the bank’s strategic goals and increase shareholder value, keep in mind solutions other than raising common equity. “There is a veritable plethora of strategies to deal specifically with capital before you get to the point of needing to get an investment banker to assist in raising capital,” said Bruss. “You may need a third party to objectively look at everything the bank is doing and advise the bank on what balance sheet maneuvers can be taken without the need to go into the market to raise more capital.”

One of these options Behringer recommends is for banks to regularly evaluate if they are effectively allocating their existing capital. This requires the bank to examine if it is investing in assets for which the return is not adequately compensating them for the corresponding regulatory capital requirement. An example of this involves lines of credit extended to C&I borrowers. BASEL III requires banks to assign a 20 percent risk weighting to unfunded commitments with an original maturity date of one year or less that is not unconditionally cancellable by the bank. For unused lines of credit banks should regularly evaluate to determine if these amounts are required by the borrower and to the extent they are not at the next renewal date the notional amount of the line should be adjusted or an unused line fee charged to compensate the bank for the “use” of their capital by the borrower.

If none of those options are viable and additional capital is required, Hovde recommends initiating conversation with an investment bank to explore a variety of options. “If a bank has readily available capital around the board table, that’s a great source to turn to first,” he said. “If that’s not readily available, an investment banker can help you gain access to a broader market, and therefore better pricing.”

A general guide to follow, the steps outlined in this article will not be a fit for every institution. The capital and strategic planning process should be tailored to each individual institution and its needs, as well as the unique makeup of its directors and management team. More importantly, the most successful strategy is one that allows for adaptation, especially in today’s capricious economic and regulatory landscape. “The key is to remember this is all planning,” Behringer advised. “It will provide a framework and roadmap, but it shouldn’t necessarily dictate your actions.”

By, Amber Seitz