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To date, while some federal agencies have made public statements, Congress has not exercised its constitutional power under the commerce clause to regulate cryptocurrencies and blockchain technology to the exclusion of the states. This means that the states remain free to enforce their own legislation. Sixteen states have enacted legislation related to virtual currency or cryptocurrencies and nine states have enacted or adopted laws that reference blockchain technology. 

To help assist lawmakers (and the general public), the State of Wisconsin Legislative Reference Bureau (LRB) created a summary that highlights the responses of major economic players as well as innovative practices on cryptocurrency and blockchain technologies. The report is designed to help gain a broad perspective of the current global regulatory market and the breadth of proposals for further policy and legislative guidance. Cryptocurrency, a subset of digital currency, is held up by some as the "currency of the future," and the technology that allows its existence could revolutionize business and government. 

As cryptocurrency becomes more mainstream, governments around the world have taken the first steps toward regulation; however, advances in technology frequently outpace legislation. The LRB report describes the principal characteristics of cryptocurrencies and the underlying technology that enables its existence-decentralized, distributed ledgers based on blockchains. The report then details recent developments in regulations in the United States by various federal regulatory and enforcement agencies and the most relevant case law. Finally, the report explores developments at the state level and summarizes the global regulatory landscape of international responses to the regulation of cryptocurrency. 

How Blockchains Work: A Sample Case Study

  1. Charlotte and Susie download digital wallets, providing the encryption keys necessary for the transaction. 
  2. Charlotte creates a message requesting a $15 transaction to repay Susie for dinner. The message is encrypted using Susie's public key, ensuring that only Susie can decrypt the message using her private key. The message also includes Charlotte's private key to validate her status as the initiating entity.
  3. The message is broadcast to a peer-to-peer (P2P) network consisting of private computers, or nodes. 
  4. The network validates the transaction and Charlotte's user status, then records and time-stamps it to verify that the cryptocurrency has changed possession. 
  5. The transaction is combined with other transactions to create a new block of data for the ledger.
  6. The new block of data is added to the existing blockchain in a way that is permanent and unalterable.

If you'd like to read the full LRB report please visit www.banconomics.com.

By, Amber Seitz

Preparation is fully underway among Wisconsin's banks for the new CECL standards, which were issued by FASB on June 16, 2016 and fundamentally change how banks estimate losses in their allowance for loan and lease losses (ALLL). Among other considerations, banks must develop or purchase new systems and/or processes to conduct those calculations. One hotly debated question: whether or not banks can utilize a simpler solution than software, namely an Excel spreadsheet.

The answer: banks can use Excel, but that doesn't necessarily mean they should

There are several key considerations for banks when selecting a tool for CECL compliance, including the capabilities of that tool, the bank's complexity, staff expertise, and cost. Prior to any of that, however, bank management must determine which model is the right fit for their institution. "We've seen a number of different allowance calculations," said Mark A. Zeihen, assistant deputy controller with the OCC's Milwaukee/Iron Mt. Field Office. "Banks can use a variety of calculations today and going forward under CECL." While the more complex models aren't inherently bad, it is important to select the right tool for the job. "The selection of the methodology is important," said Ryan Abdoo, CPA, partner at Plante Moran. "That decision will have a long-term impact. With increased complexity comes increased data requirements and, thus, risk of error, so if you're an institution that has historically not complicated things, I would advise not complicating them." 

Tom Danielson, principal – financial institutions at CliftonLarsonAllen, LLP, recommends the "remaining life method"—which was outlined in a regulatory webinar on Feb. 27, 2018—as a good starting point for most community banks. If necessary, they can move to a more complex model in the future. "A key consideration is whether the model is right for your organization," he said. "Does it give you an ALLL computation that is correct, understandable, and easy for you to explain to shareholders, board members, auditors, and examiners?"

Along with selecting the most appropriate model, bank management must evaluate the data capabilities of their chosen solution. "CECL will require banks to maintain, manage, and store larger amounts of data," said Zeihen. "Each tool will vary greatly, so it's important for banks to consider how quickly they can retrieve and tailor reports." A key component of that evaluation is determining whether or not the bank's CECL solution integrates with its core. "Whether they integrate with your core processer is a big piece for making sure you have historic data points," explained Tom Mews, president, First National Community Bank, New Richmond, adding that a vendor who can supply industry data is also important. 

When evaluating different solutions for CECL compliance, bank management must first consider the level of complexity of the model that best fits their bank's needs. "When purchasing or building a model, we believe simple banks do not need complex models," said Danielson. "There are certain pros and cons with each option. Some of the software tools available are more complex than what many community banks need, which could lead to higher costs and some complexities within the model that are not needed by the user," added David Braden, CPA, manager – financial institutions at CliftonLarsonAllen, LLP. "However, the one concern with using an Excel-based model is you might not have enough staff who are comfortable modifying the spreadsheet accurately over time, and maintaining a proper control structure around that process." Bank management should also keep in mind that their institution's complexity may change. Software can be more flexible than a spreadsheet by supplying different methodology options, which could be an important feature for growth-oriented banks, according to Abdoo. "CECL allows for half a dozen different methodologies that range in complexity," he explained. "Due to the fact that the more complex the methodology gets, the more data the software needs, that flexibility allows you to start with a less complex methodology and then transfer to a more complex one as you grow without changing products."

Another important factor to consider is the expertise and time required by bank staff in order to effectively use the chosen tool. "Value the time your people put into managing the components and training backups," Mews advised. "Under the current CECL requirements, to train multiple people under that model is very difficult, with time constraints being the biggest component." That evaluation is likely one of the most difficult bank leadership will face when it comes to CECL implementation. "The difficult decision is the analysis of the skillset of your current employees and an honest assessment about the challenges and skills needed to build, maintain, and validate a CECL model using Excel," said Danielson. "Many banks may conclude that while it's possible, it's not cost-beneficial to do." Staff aren't the only ones responsible for understanding the model; management are required to fully comprehend how the model works. "Management has to be in charge of the internal control structure, and that escalates as the community bank grows in size," Braden explained. "The individuals at the bank need to understand how the inputs go into the structure and interpret what the outputs mean." 

Finally, bank management must weigh the costs of a potential CECL solution against its benefits. The key is to include all of the costs involved. "Don't consider just the initial cost but also the ongoing costs," said Zeihen, using employee training and implementation costs as an example. "Cost definitely plays into every decision a community bank makes," said Mews. "We could train one person internally, but because of the in-depth knowledge it takes, it would be difficult to have any backup." It's critical for bank leadership to consider the long-term costs and benefits of each potential solution rather than selecting the least expensive option in the short-term. "It doesn't make sense to pay for more than you need, but one of the poorest business decisions you can make is to buy the cheapest solution out there and find out later that it is ineffective," said Danielson. Bank management should also factor in the staff time required to utilize a software solution. "Each institution has someone responsible for loan loss allowance calculation," Abdoo pointed out. "Whether you use Excel or not, that person will still be putting in time documenting and entering data. You still will have to put in time and effort to calculations, no matter what the tool."

Ultimately, regulators are more concerned about compliance with the principles of CECL than the specific tools being used. "The bottom line is banks will continue to have flexibility in choosing a solution that meets their needs as long as the CECL principles are followed and objectives are met," said Zeihen. "The OCC isn't expecting or requiring banks to purchase from a third party vendor or purchase a new system. It's possible for banks to use the tools they already have, but some modifications will be required. We expect them to have proper controls over the input, the appropriate calculations, and controls over changes in outputs."

If a bank does decide to pursue using Excel for CECL compliance, be sure to leave plenty of time for testing and adjustments during implementation. "Community banks who want to consider using Excel will need to start very early in building their models so they can develop or hire the skills they need and change course if necessary," said Danielson. "It can be done, but don't make that decision lightly."


Helpful Resources


Plante Moran is a WBA Silver Associate Member. 
CliftonLarsonAllen, LLP is a WBA Bronze Associate Member.

By, Amber Seitz

Q: Are non-profit corporations covered by the customer due diligence requirements for certification of beneficial ownership?

A: Yes. All corporations that file articles of incorporation with the State of Wisconsin are covered by the Customer Due Diligence (CDD) Rule regardless of non-profit status.

The CDD Rule requires covered financial institutions to develop written procedures to identify and verify beneficial owners of legal entity customers upon opening of new account. A legal entity customer is described, in part, as a Corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State. Thus, a non-profit corporation would be a legal entity customer for purposes of the CDD rule.

The key determination is whether the customer is a "legal entity customer." Tax status, such as non-profit status, does not directly affect a customer's legal entity status. Meaning, a non-profit organization such as a church could decide to incorporate, file articles of organization, or otherwise file with the State and be covered by the CDD Rule. Typically, however, a non-profit organization will opt for an unincorporated association status. Unincorporated associations are not legal entity customers and are not covered by the CDD rule. Wisconsin's Uniform Unincorporated Nonprofit Association Act can be found under chapter 184 of the Wisconsin Statutes.

For this reason, non-profits are often exempt from the CDD rule. This is, however, by their decision to organize as an unincorporated association rather than their tax status.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution's attorney for special legal advice or assistance.

By, Scott Birrenkott

Banks should evaluate, update harassment policies and procedures to protect all employees, customers

While the #MeToo movement has thus far led to only "a slight increase" in harassment reports within the financial services industry, according to Jennifer Mirus, co-chairperson of the Labor and Employment Law Group at Boardman & Clark, LLP, it has heightened awareness of harassment in the workplace. "More people are aware of their rights and willing to come forward."

"Eyes are open, people are watching and waiting to see what management will do about bullying and harassing behavior," said Julia Johnson, senior manager at Wipfli LLP. "When management chooses to do nothing, that's when the bank becomes vulnerable to claims of discrimination."

Johnson has observed "an increase in sensitivity to bullying, disrespectful, and/or harassing behaviors." Behavior that "may have been overlooked or brushed aside in the past is being brought into the light of day."

The #MeToo movement is about societal workplace environments and not bringing "forth these issues out of fear of retaliation," Mirus noted. There's been "a long-term tide … that is turning to demonstrate that this behavior will not be tolerated."

While the laws specifically addressing harassment remain generally unchanged, new measures have nevertheless aimed at this unacceptable behavior. The new tax law, for instance, "states that any settlement, payout or lawyer's fees related to sexual harassment or sexual abuse cannot be deducted as a business expense if such payments were subject to a nondisclosure agreement," Mirus said. The law supports the idea, "that these settlements—and the harassers behind them—should no longer be protected by confidentiality."

Mirus added that the new generation of workers is less tolerant of harassing behavior, and this cultural change is being reflected in court decisions. "We are seeing a broadening of the groups of individuals legally protected from harassment, and a more aggressive stance on behaviors that will be deemed illegal harassment." Core protected classes now include disability, race, sexual orientation, gender, age, religious belief, national origin, and ancestry, among others. Still, laws vary by region; the City of Madison lists a total of 26 protected categories, including, for instance, credit history and political beliefs.

A financial institution's harassment policy "needs to prohibit discrimination and should mention the core classes of individuals protected from harassment, including 'any other classification protected by law'," Mirus said. "Policies also need to be clear that harassment is prohibited between employees, between management and employees, and between third parties and employees." If a customer harasses a teller, the bank has a legal obligation to address concerns and follow its policy on this issue.

The "policy should include an adequate recording mechanism," Mirus said. An individual who experiences-or witnesses-harassment should have more than one channel to report their concern. "A policy should not state that the individual experiencing the harassment must first report it to their boss, nor should it require the employee to confront the harasser," she said. Confronting the harasser is "a burden the law does not allow you to place on the person being harassed." A policy can state that if individuals feel comfortable about confronting the harasser, they may do so, but they may also go to HR or another resource.

A policy should prohibit retaliation. "This is where a significant amount of litigation is occurring," according to Mirus. Retaliation might come in the form of a denied promotion, hostile treatment, or something as simple as a lack of response to requests for work-related information. Whatever its form, the policy should provide a path forward to report retaliatory behavior.

Johnson outlined key components of harassment policies in addition to prohibiting retaliation:

  • The financial institution's commitment to provide an environment of respect free from all forms of discrimination and harassment on the basis of a protected class.
  • The definition of harassment and examples of behavior that may constitute harassment, including behaviors that occur on personal social media.
  • An emphasis on the responsibility of all employees to create an atmosphere free from discrimination and harassment.
  • A reporting process for individuals who have experienced or witnessed harassment, providing at least two people of different genders with whom individuals can share their experience.
  • A statement that reported incidents of harassment will be investigated with respect for the sensitivities of the situation, but without guaranteeing that a complaint will remain strictly confidential.

Training managers to address harassment is best done in person, Johnson advised. "Face-to-face training enables the trainer to engage managers in the discussion. Role-playing various scenarios can be a very effective way for people to gain confidence when faced with those uncomfortable conversations with employees." 

Mirus noted that managers have a legal duty to address harassment. "That is often where the ball gets dropped." An employee may mention to a manager that an individual is making comments on the employee's clothes or other inappropriate remarks. "The comment doesn't seem like a big deal and the manager doesn't do anything," she said, "but the manager has a legal obligation to report [the behavior]" and ensure that proper steps are taken to prohibit it. "If the manager knows about the harassing behavior, the bank knows."

Training for managers should emphasize that "they may not engage in harassing behavior and they must be role models," Mirus said. In addition, "there are heightened requirements that they report and follow through on complaints."

If a financial institution is sued, "one of the first questions an investigator will ask is 'what kind of training have you provided?'" Mirus said. "If you cannot provide documentation that you have provided meaningful training, you're really behind the eight ball in defending against harassment claims."

When there is a complaint of harassment, "it's very important that it gets handled appropriately and swiftly," she added. If a manager takes no immediate action, the employee may perceive that the organization will not effectively address the concern. 

"Training demonstrates that the organization is committed to addressing these issues and having a workplace that is comfortable for everyone," Mirus said. It can take place in briefings, monthly meetings, or other ways, but it "must come from the top," she said. "If key players or leadership are [permitted] to engage in inappropriate conduct, there will be no authentic sense among employees that these behaviors will be dealt with appropriately."

Johnson agreed: "If there is a history of tolerance of bad behavior by select individuals because they are one of 'the untouchables,' then that hill is a steep climb. In these cases, formal training can be key to laying the foundation for behavioral expectations moving forward," she said. "It is a significant risk to the bank to let harassing behavior go unchecked. The risks can be significant: reputational risk, reduced morale, reduced productivity, turnover, and of course, litigation."

Most harassment in unintended, Johnson said. "Unintentional harassers believe they are joking around and having fun—when in fact, others aren't enjoying that sense of humor." Sometimes just calling their attention to how their behavior is perceived will cause a behavioral shift. Individuals who are not receptive to changing their behavior pose the greatest risk to the bank. "If an individual continues to engage in unacceptable behaviors and is unwilling to change, termination is often the only solution."

On the plus side, "a financial institution that is living its values and advancing a culture that encourages others … has likely established trust, and the lines of communication are open," Johnson said. "In this situation, there is the opportunity to reaffirm those values and expectations for respectful behavior in the workplace." 

Ann Lueth, senior vice president and human resource director at First Bank Financial Centre, Oconomowoc, can attest to Johnson's words. All new FBFC employees attend an orientation that includes a discussion on harassment. Common sense is emphasized. "If it's not something you would do or say in front of the president and CEO, it's not something you should do with anyone." FBFC also provides online training and a combination of online and in-person leadership training for managers.

President and CEO Mark W. Mohr spends 30 minutes at every new employee orientation, Lueth reported. In 10 years he has never missed a monthly orientation.

"Starting with the modeling of behavior is critical, stemming through the president and CEO," Lueth said. "You get a feeling for what the culture is … Maybe you have an idea, or a suggestion, or a question. There's openness for information or answers." 

Lueth frequently visits branch offices and meets with branch managers. "I work hard to make myself available and approachable," she said. "In all employee trainings, I emphasize we have a zero tolerance for harassment, including harassment from a customer or a vendor."

It's no accident that FBFC has been recognized as a top midsize employer by the Milwaukee Journal Sentinel for eight consecutive years, Lueth said. "Our employees feel the support."

Green is a freelance writer for the Wisconsin Bankers Association.

Boardman & Clark, LLP is a WBA Gold Associate Member.
Wipfli LLP is a WBA Silver Associate Member

 

By, Amber Seitz

Tactical allocation of capital is an integral component of success for every financial institution, so capital planning and strategic planning should be closely tied. Just as bank management and the board must regularly review their institution's strategic plan and make adjustments, an effective capital plan should be reviewed and recalibrated at least annually. That assessment has never been more critical, as the financial services industry approaches what could be a tumultuous period. "The full rollout of the capital conservation buffer under Basel III, CECL, and a potentially completely different economic cycle will be hitting at about the same time, so banks need to be considering and planning for that now," said Nick Hahn, director of risk advisory services at RSM US LLP. "It's a bit of a perfect storm." To adequately prepare, bank management and directors should consider the following five key factors as they look back at 2017 and forward to 2018 during the capital planning process: 

1: Strategy
The bank's strategic plan is the most significant influence on the capital plan, since different strategic goals require different capital strategies. According to Jon Bruss, managing principal and CEO of Fortress Partners Capital Management, there are several situations common to our industry that drive the need for capital: growth in assets exceeding the ability of the bank to retain earnings to support the growth, asset quality problems wiping out a large block of capital, or preparation for an acquisition as a buyer are among them. "There is no one solution that works for all banks in all situations," he said. Banks dealing with rapid growth in assets driven primarily by loan growth can fund a capital shortfall with common equity or with debt issued by a bank's holding company. "Any bank that's in the market for an acquisition and doesn't have a quote symbol for its stock is going to need to make that purchase for cash," Bruss explained. There are several options bank leadership should consider for sourcing those funds. "Cash at the holding company level can be sourced with debt raised via an investment banking firm, lent by a correspondent bank or by an offering in the communities served by the bank, each approach carrying a different cost," Bruss advised. Common equity can be used to raise cash to fund that purchase, "by selling shares to members of the community or via an investment banker-assisted community offering," he continued. "That requires thoughtful planning today, because tomorrow you may be an acquirer." 

2: Unexpected Occurrences
In addition to a yearly review, sudden, unplanned-for incidences should trigger a reassessment of the bank's capital plan. "If there's an unexpected loan charge-off that impacts your capital, for example, review your plan again then," said Lee Christensen, partner, financial institutions practice at Wipfli. "That way you know if you're on track or if you need to change the way you operate in order to get back on track." A cybersecurity breach or unanticipated findings during ALM routines and/or liquidity forecasting should also trigger a review. 

3: Competition
Today's financial services industry is highly competitive, and banks need to win against more than just their peers—credit unions, farm credit lenders, and even financial technology companies are all vying for the same customers. That can lead to dangerous choices. "You can sacrifice on term, price, or structure, and for many institutions pricing has reached the bottom, so now they're making decisions to sacrifice on term or credit risk monitoring controls, which ultimately increases credit risk," Hahn explained. "Financial institutions need to be very aware of the role competition in the market has played and how that could impact credit losses going forward and, ultimately, capital." To address this risk, Hahn recommends bank leadership maintain a thorough understanding of how potential losses could impact the balance sheet. "If we see any upticks in losses, you need to understand what's driving it and know if you need to extrapolate or do broader analysis of the portfolio in general to see if it will spread," he advised. 

4: Legislation and Regulation
Looking forward to 2018 and beyond, there are several legislative and/or regulatory factors to consider when doing capital planning. First is tax reform, which Christensen says will be a big event for banks if it comes to fruition because many banks currently hold a large amount of tax-deferred assets on their books. If Congress follows through on the plan to drop the tax rate from 34 percent to 20 percent, those assets will need to be revalued. "That will be a good thing in the long run, but it may have a negative impact in year one because the offset goes into expense, which ultimately flows into capital," Christensen explained.

Another factor to consider is Basel III's phase-in. In mid-October, the Basel Committee on Banking Supervision announced a plan to break the year-long deadlock that has delayed the capital standards' implementation: setting capital floors at 72.5 percent. The measure has yet to be approved by the central bank governors and supervisors on the Basel Committee's oversight body. 

Finally, the regulatory factor looming largest over the industry: CECL. "In the year of adoption, banks will be allowed to look at their allowance as it's calculated under the old and new methods and the difference will be a one-time charge to equity," said Christensen. "We'd recommend banks preserve capital for that hit, rather than maintaining excessive allowance." However, there is still some uncertainty, as banks seem to be waiting for guidance from regulators on how to build their new models, but the regulators seem to be waiting to offer guidance until they see the models. 

5: Economic Cycle
Banks should review their capital plan more frequently during times of economic turbulence or market instability, and the next period of such agitation is on the horizon. "We're likely closer to the next recession than we are to the last one," Hahn declared. "Many institutions are making the loans that will be their next losses right now." One sector in particular where the coming downturn is apparent is in the highly cyclical agri-business arena; while not yet as severe as some previous dips, ag credits are becoming more stressed. "If and when charge-offs become necessary, the banks need to have the capital available," said Christensen. "We've gone five or six years with very minimal charge-offs. The economy has been on a relatively long upturn during that period, but it doesn't feel like it because we haven't seen the sharp incline that we had in the early 2000s."

Take Action

With these factors in mind, bank management and directors should consider the following action steps (all suggested by one or more of the experts interviewed for this article) to ensure a comprehensive, effective review of their capital plan:

  • Refer back to your original capital plan and your projections. Compare that data with what your current reports tell you.
  • Closely evaluate the 30- and 60-day reports to see if there is potential for those to extend into the 90-day past due report.
  • Adjust your approach to stress testing. Relying on probability of default—looking at what causes borrowers to default—isn't as valuable from a capital planning perspective as using loss-given testing to anticipate the bank's exposure if certain loans go bad. 
  • Understand the capital sources available to your bank in its current state and also in anticipated future states. In other words, verify that your capital plan is realistic. If your institution isn't attractive to capital markets at the time when you need capital the most, know what your alternative source of funding will be. Leveraging your third-party relationships is an important component in maintaining an accurate understanding of today's capital markets.
  • Avoid a siloed approach to reviewing capital. Other risk management exercises and models, including interest rate risk and liquidity, should all impact your capital planning process.
  • Adhere to your loan policies. Amid fierce competition and an economic expansion, it is essential for bank leadership to enforce loyalty to the bank's policies in order to prevent taking on excessive risk.

Capital planning is one of the executive team and board's most important duties, so frequent assessment and adjustment of the plan is not only a good practice from a risk management perspective, but also from a strategic perspective. 

Fortress Partners Capital Management is a WBA Associate Member. 
RSM US LLP is a WBA Gold Associate Member.
Wipfli is a WBA Silver Associate Member. 

By, Amber Seitz

Resurgence of rare charter may reshape the banking industry

The FDIC has two decisions to make that will have a tremendous impact on the financial services industry. On June 6, online personal finance company Social Finance, Inc.* (better known as "SoFi") applied for an industrial loan charter (ILC) for the purposes of offering FDIC-insured NOW deposit accounts and credit card products—this in addition to the student loan refinancing, mortgages, and personal loans the company already offers its customers. The de novo would be chartered in Utah under the name SoFi Bank. On September 7, payments giant Square filed its application** for a Utah-based ILC for the purposes of expanding its lending arm—in addition to payments, Square also offers small business and consumer loans. While (at the time of this writing) the FDIC has yet to take action, approval or denial of these applications will set the stage for the next phase of bank-fintech relations. 

Historical Context 

Now state-chartered companies operating with federal deposit insurance, the ILC business model has been in existence since the early 1900s. Since their inception, non-bank retail companies have used these entities primarily to make consumer finance loans in order to sell their products, explained Attorney James Sheriff, partner at Reinhart Boerner Van Deuren, s.c. For example, BMW, General Motors, and Target all had industrial bank subsidiaries (and some still do). "The charter allows commercial companies to own financial institutions that can take federally insured deposits," explained Attorney Patrick Neuman, partner at Boardman and Clark, LLP. This bucks the long-standing policy in the U.S. to separate commerce and banking, a policy created in 1933 by the Glass-Steagall Act and reinforced by the Bank Holding Company Act of 1956 (BHCA).

Only seven states currently have provisions allowing for ILCs: California, Colorado, Minnesota, Indiana, Hawaii, Nevada, and Utah (where the vast majority of industrial banks are headquartered). Due to their exemption from the BHCA, ILCs are regulated only by their chartering state regulator (the Utah Department of Financial Institutions oversees ILCs with over $143 billion in combined assets) and the FDIC. The Federal Reserve has no authority to regulate the activities of the parent company, which—unlike traditional charters—is not limited to activities that are substantially related to banking.

However attractive this charter may seem, it has not been a popular option in recent years. No ILC applications were filed between 2009 and SoFi's application in June 2017—a timeframe which includes a three-year moratorium imposed by the Dodd-Frank Act (lifted in 2013). The last company to garner attention for its ILC application was Walmart in the mid-2000s. Fearing the retail juggernaut's entry into retail banking, the banking industry successfully lobbied for laws in several states (including Wisconsin) prohibiting ILCs from having a banking facility within 1.5 miles of a retail location owned by the same parent company. At the time, it was considered a great success. However, today's applicants aren't interested in physical retail locations. "Before, the goal was to bring consumers into the store in order to win their banking business," Sheriff explained. "Today, the brick-and-mortar isn't important, but rather wanting to expand financial products and services. It's a different threat."

Comparison of commercial and industrial bank charters

Renewed Appeal

The current financial services landscape is ripe for renewed interest in ILCs. Technological advances have made brick-and-mortar branches unnecessary and nation-wide reach attainable. However, banking's regulatory structure has not kept pace with the change. "Right now, in order to be a financer these companies need to get licensed in all states they do business in," Sheriff explained. One of the biggest attractions of an ILC is the federal pre-emption it offers. "Instead of 50 state regulators examining your consumer finance company, there's one state and the FDIC," he said. 

Another major draw of an ILC is that it allows the parent company to retain the flexibility to experiment that fintech startups are known for. "SoFi is a tech company and doesn't want to be hamstrung by the Bank Holding Company Act," said Neuman. "ILCs are not subject to consolidated supervision at the holding company level. That's a big advantage." 

Operationally, fintech companies like SoFi and Square would receive another important benefit from obtaining an ILC: a stable funding source. "Both companies make loans, and if they get an industrial loan charter they get access to federally insured deposits. Deposits are a significantly less expensive source of funding than investment capital or bonds," Neuman explained. The availability of government-backed deposits as a funding source would alleviate concerns over whether institutional funding is stable enough to weather an economic downturn or significant market fluctuation. 

What Happens If…

FDIC's approval of either pending ILC application would have profound implications for the future of the financial services industry. "If the FDIC decides to approve one of those applications, it could be a game-changer," said Neuman. "If either application is approved, there will be a flood of new applications." If SoFi or Square does receive an ILC, the banking industry will need to prepare for several long-term effects. 

First is a new, aggressive source of competition. "The most often-cited concern with ILCs is that they could lead to a concentration of economic power in banking," said Neuman. With ILC charters, giant technology retail companies like Apple, Amazon, and Google could offer the same products to consumers as banks. "They'd be behemoths to deal with in a consumer or small business banking sector," said Sheriff. In addition, those companies' data collection activities would not be restricted by the BHCA, enabling them to obtain and analyze consumer data that is not available to most banks. "That could seriously undermine a bank's ability to compete," said Neuman. One area where the competition could be especially fierce is in small business lending. "If the ILC option becomes more popular, and if small fintech lenders like Prosper get these charters, it would create a lot more competition for community banks in small business lending," said Sheriff. "It has some real potential detriments for community banks."

Another concern directly relates to SoFi's business model, which is driven by a focus on HENRY customers (High Earner Not Rich Yet). "Much of their business is student loan financing for professionals such as doctors and lawyers. There's concern in the industry that fintech lenders won't adequately serve the working class household or be able to meet CRA requirements," Neuman explained. "This type of business model could lead to a disproportionate allocation of credit." Banks can only speculate how the state regulators and FDIC will address CRA concerns with ILCs. 

Increased popularity of ILCs may also dampen partnerships between banks and fintech companies—partnerships that currently expand product and service offerings for many bank customers. "If FDIC starts approving these charters, there will be fewer partnerships between fintechs and banks," said Sheriff. "The fintech companies will no longer need to partner in order to get data and deposits." This is not conjecture. Former SoFi CEO Michael Cagney told TechCrunch the company plans to offer checking, deposit, and credit card services through a regional banking partner if the ILC application is not approved. 

Finally, ILC opponents see increased risk to the industry as a whole if these charters have a resurgence among technology companies. "What happens if one of these goes through and becomes huge, but then the parent company makes some wild bet and goes under? That could be a huge hit to the FDIC and the banking industry in general," Sheriff said. "Bank regulators aren't familiar with how to evaluate some of those widespread risks. We've separated banking and commerce for 85 years for a reason." The same concern applies to the potential for further increasing the market power of the "Big Five" (Amazon, Apple, Facebook, Google, and Microsoft) by adding banking services to their already diverse lines of business.

What if the FDIC denies the pending applications? Will community banks be able to breathe a sigh of relief and go back to business-as-usual? Probably not. "If these fintech companies don't get approval for an ILC, I believe they'll pursue other avenues, such as an OCC fintech charter," said Neuman. "Banks are going to see fintech as a real competitor in the lending space, and sooner rather than later." Influencer companies in the technology sector have set their sights on banking products, and they won't be easily deterred. "The bottom line is that there is activity in this area right now," said Sheriff. "This isn't hypothetical."


Boardman and Clark, LLP is a WBA Gold Associate Member. 
Reinhart Boerner Van Deuren, s.c. is a WBA Associate Member. 

*View a copy of SoFi's application here. On October 13, SoFi withdrew its application for an ILC charter as it undergoes a leadership transistion, but says "a bank charter remains an attractive option."
**Square's ILC will be named Square Financial Services, Inc., according to a Wall Street Journal report.

By, Amber Seitz

Q: How can I be Certain an Agent has Authority to Act under a Power of Attorney Agreement?

A: WBA continues to field a variety of questions about when and how an agent may act under a Power of Attorney (POA) agreement. This Q&A is dedicated to that question generally.

A POA agreement is a legal document whereby one party (the principal) designates authority to act on their behalf to another party (the agent). Always ensure that any POA agreement bank receives relates to powers over finances. Take a copy of and review any POA agreement related to finances the bank may receive for its customers. Customers may bring in the model agreement provided by Wisconsin in accordance with Chapter 244 or one drafted by an attorney. Both are equally valid methods, but may contain different terms and provisions. Confirm whether the POA agreement is: durable, non-durable, or springing. This refers to when the agent may act: either while the principal is incapacitated, cease while the principal is incapacitated, or after a predetermined event.

All of the agent’s authority to act comes from what is written within the POA agreement. Ideally, the POA agreement is clear and specific. Sometimes, it may not be. For example, the POA agreement may refer to “general powers of finances.” Wisconsin Statute Section 244.41 indicates which authority is covered by a general grant and those powers that require a specific grant. You will want to review that portion of the statute to assist in determining the agent’s authority. In any case, carefully review the document, and consider obtaining an opinion from the bank’s own counsel.

Special rules exist for agency on joint deposit accounts. All parties to the joint account must designate the agent to have authority on the account for the agency to be valid. However, only one party needs to revoke that authority in order for the revocation to be effective. 

Generally, agents may not appoint other agents, and generally may not conduct estate planning activities on behalf of the principle. Look for specific language granting this authority if an agent wishes to act in this way and consider obtaining an opinion from the bank’s own counsel.

A POA agreement for personal finances of an individual doesn’t automatically mean that an agent can act with respect to any fiduciary authority the ward has. For example, while a trustee may have the authority to appoint an agent over a trust, in order for the trustee to appoint an agent over a trust they should do so in their capacity as a trustee rather than as an individual.

As a final reminder, POA agreements for health care do not apply to deposit accounts. They relate to health care decisions rather than finances.

As always, if you have any questions on POA matters or other compliance-related concerns, call the WBA legal hotline at 608-441-1200 or email us at wbalegal@wisbank.com.

Note: The above information is not intended to provide legal advice; rather, it is intended to provide general information about banking issues. Consult your institution's attorney for special legal advice or assistance.

By, Scott Birrenkott

The Shift from Historian to Strategic Partner

Across industries, the function of the Chief Financial Officer is transforming, and the broad, rapid change in the banking industry over the past decade has accelerated that evolution. "The CFO's role a decade ago was more behind-the-scenes," said Ed Sloane, CFO of First Business Bank, Madison, comparing it to today's dynamic, collaborative functions. "The CFO role has evolved over the years, but it's really the result of an evolving industry." The shift in focus from clerical to strategic has not necessarily changed the job descriptions of bank CFOs, but rather the expectations placed on them. "The definition of a CFO hasn't changed much, but the role and expectations have changed," said Nicholas Hahn, director of Financial Institutions Risk Advisory Services at RSM US, LLP.* "Typical CFO duties have transitioned to Controllers to allow CFOs to focus on more strategic initiatives." 

That transition means today's CFOs must keep their eyes on the future as well as the past, with the emphasis on forecasting. "The emphasis of what a CFO is to do has changed, and that's a good thing," said Gary J. Young, president & CEO of Young & Associates, Inc.** He explained that in the past, CFOs were simply very good at telling the CEO and the Board what had happened to the bank (ratios, growth, margins, etc.)—a vast underutilization of the CFO role, which should focus on improving profitability. "The role of the CFO is to lead and direct the organization financially," said Bob Makowski, CFO of Park Bank, Milwaukee. "That's so broad compared to what it used to be. The role used to be looking backward, focused totally on financials." Park Bank president/CEO Dave P. Werner agreed: "The role has changed from being that of a historian to being a forward-looking strategist, looking at the financial impact of the decisions we make operationally."

Prognosticator and Storyteller

No longer confined to number-crunching in a back room, today's bank CFO is a strategic partner to the rest of the management team, acting as both a forward-looking advisor and strategy advocate. As the primary source of financial information for the CEO and board—particularly relating to interest rate risk modeling, capital, and asset/liability management—the CFO is well-positioned to help design and execute the bank's strategic plan. According to Makowski, on a macro level this involves identifying the best balance sheet composition for the bank in terms of liquidity, investments, loans, etc. "Make liquidity and balance sheet composition a top priority," he said. "That's what you can impact every day, also looking at it long-term." Werner described it as being the "balance sheet strategist," that is, answer the question of how to best position the bank to lend to its customers while maximizing profitability, boosting capital, and providing a return to shareholders. Another significant duty of the CFO as the primary financial informer for the CEO and directors is regarding merger activity; regardless of whether the bank is actively seeking a purchase or sale, the board has a fiduciary responsibility to evaluate any opportunities that arise. "The ability of the CFO to understand and communicate critical valuation and accounting issues is very important," Hahn explained. "CFOs must be able to assist directors with that." Despite this emphasis on forecasting and planning, Young cautioned against forgetting to look at the bank's historical financial data as a source of information. "The CFO still needs to be looking back, but the emphasis should be on looking forward," he explained. One example of this is conducting a risk/reward study for every new endeavor the institution considers, Young said, pointing out that regulators now require banks to do such an analysis for significant technological or product offering changes.

CFOs: Expand Your Expertise at the WBA CFO Conference
"There are lots of different hats that CFOs are wearing today that they haven't traditionally worn. Their sphere of influence continues to grow." – Nicholas Hahn, director of Financial Institutions Risk Advisory Services at RSM US, LLP. 

Hahn will be speaking at WBA's upcoming CFO Conference, along with several other expert speakers. Join them and your fellow bank CFOs on November 16 in Madison for a full day of professional development and valuable networking opportunities. Visit www.wisbank.com/CFO for more information and to register.

The other facet of the CFO's role as strategic partner is to be an advocate for the bank's strategy, both internally (to staff) and externally (to shareholders and customers). "A CFO is more of a storyteller now," said Sloane. "We're constantly communicating and furthering the strategy of the organization and making sure employees at all levels understand what that is." This requires CFOs to be dynamic communicators—much like salespeople, which is a vastly different mindset from the past. "When you come into the bank each day, be thinking of what is happening today that will get you where you want to be in a year or two," Young advised. The strategic plan must be the ultimate guide for all day-to-day activities. "Every decision that you make as a CFO needs to support the long-term vision of the company," said Sloane. "You need to truly believe in it and push it out, both externally and internally."

How to Pivot

For bank CFOs still wearing the 'head accountant' hat, there are four key actions to consider that will help you effectively transition into a strategic partner. Fair warning: as the CFOs' role and responsibilities have expanded, most of these steps require CFOs to venture outside of their comfort zones.

1: Minimize the Minutia

"Like with any c-suite position, when a CFO gets caught up in the minutia they're not leading, not managing the bank; they're managing details," said Young. "If you're caught up in the details every day, the CFO becomes a bookkeeper." Not only does this detract from the CFO role, it's also highly inefficient: no company should pay an individual $120,000 per year to spend six or seven hours every day doing $50,000 per year work. Makowski pointed out that sometimes minutia comes disguised as operational requests from other departments, since the CFO and their team are generally viewed as financial problem-solvers. However, CFOs must be careful not to take on work that could be performed in other areas. "You want to be helpful and a team player, but that's not where you maximize value for the organization," he said.

2: Assemble a Top Team

Knowing when to delegate is closely related to avoiding minutia, and it first requires having a capable team to delegate to. "One of the top priorities for a CFO should be to assemble a team with the right mix of expertise to address the wide variety of areas necessary for the institution's success," said Hahn. The breadth and depth of a CFO's oversight has expanded dramatically; CFOs must be able to rely on their team. "CFOs need to be increasingly involved in attracting, growing, and retaining talent," said Hahn. Sloane pointed out that having the right staff can help the CFO avoid distractions. For example, he explained that First Business Bank has a designated Chief Accounting Officer—which is unique in banks of their size—and that allows Sloane to focus on the bigger picture. "Having a top-notch staff is critical to allowing the CFO to be a strategic partner," he said. 

3: Utilize Technology

Long gone are the days of handwritten ledgers, but some institutions still cling to their trusted Excel spreadsheets; upgrading that technology can streamline strategic initiatives. "Having a robust profitability system that can break down the company in a number of meaningful ways is incredibly important for a CFO," said Sloane. "That technology is essential. Having robust systems and infrastructures in place to allow you to dive into the details is really critical." Two of the most significant ways a CFO can impact their institution's profitability is being proactive about liquidity management and effectively modeling interest rate risk, according to Young, and technology facilitates those tasks. "To a CFO, the technology changes that have taken place only make the job easier," said Young. "There's so much information at your fingertips now. The key is to look forward."

4: Build Relationships

Finally, today's CFO must escape the back room and interact with a wide variety of stakeholders: other bank staff, shareholders, regulators, vendors, and peers. "CFOs need to be relationship-builders," said Hahn. "Effectively identify the people you need to bring together and then manage them." He cited CECL as a good example of something that requires the CFO to assemble an internal team; it impacts accounting, risk management, lending, and even IT. Outside of the bank, CFOs have become much more engaged with shareholders. "The CFO plays a huge role in investor relations," Werner explained. "Investors need to have confidence in your CFO." Regulators should share that confidence, too; fostering relationships with regulators is an important piece of the CFO's compliance responsibilities. "You need to develop those relationships and fully understand what the hot topics are so you can be responsive to regulators," said Sloane. When it comes to highly technical areas outside of the CFO's areas of expertise, Hahn recommends developing relationships with vendors who are experts in that area (whether their assistance is contracted or on an ad hoc basis). "Don't hesitate to leverage third parties to help in emerging or technical areas," he advised. "There is a wealth of industry information available to help make those decisions." Finally, today's CFOs need to build and sustain a wide network of peers they can lean on for advice. "Get out of the vacuum of your organization," Werner advised, recommending seminars and conferences as ideal places to both network with peers and stay educated. 

Seitz is WBA operations manager and senior writer. 

*RSM US, LLP is a WBA Bronze Associate Member.
**Young & Associates, Inc. is a WBA Associate Member.

By, Amber Seitz

Barriers to entry, reasons to overcome them, and why it's important for the industry

In 2005, the FDIC reviewed 299 applications to start new banks (237 were approved). From 2009 to 2016, they approved just five. Meanwhile, the U.S. economy in general has recovered from the financial crisis of 2008 and subsequent recession, with employment levels back to their 2005 numbers and housing markets back to booming. So, where have all the de novos gone? "It's a combination of factors," said Attorney James Sheriff, partner at Reinhart Boerner Van Deuren, s.c. "It's not a simple, easy answer." The credit crisis alone did not cause the current dearth in de novos, but its lingering effects have created several barriers to entry that discourage the formation of new banks. "This didn't go from a lot to a few; it went from a whole bunch to nearly none. That's very telling," said Andy Guzikowski, Attorney and Shareholder at von Briesen & Roper, s.c. "It's all related to barriers to entry, both real and perceived."

Barriers to Entry

Compliance | One obvious headwind to starting up a bank is the current regulatory environment, which is far more onerous than it was a decade ago. "Practically speaking, the regulatory environment is much more complex with regard to de novo banks," said Tim Kosiek, CPA, partner at Baker Tilly Virchow Krause, LLP. "There's still overlay from the credit crisis and recession." Unfortunately for de novos—which are almost always small community banks, at least at first—community banks shoulder a disproportionate regulatory load in today's industry, and the costs of that add up quickly. "Community banks in particular need to spend more time and money on compliance than they ever have before," Sheriff explained. There have been recent indications, however, that the federal regulatory agencies are willing to compromise in order to foster new banks. "The regulators are always collaborative, very willing to meet and spend time and provide resources to answer questions," said Pete Wilder, attorney and shareholder at Godfrey & Kahn, S.C. He pointed out that the FDIC has been holding meetings on how to encourage de novo activity and has updated its manuals for applications. 

Capital | Another commonly cited barrier to entry is today's higher capital requirements. "The capital requirements today are significantly greater than they were 20 years ago," said Mark Koehl, partner at Wipfli LLP. "That's certainly a big hurdle." In the de novo heydays of the late 1980s and early 1990s, a group of investors could start a bank for $6M. Today, most estimates hover around $15-$20M. However, that number can vary depending on the new bank's specific circumstances. "There is a lot of misinformation out there related to capital," Wilder explained. "The regulators don't take a one-size-fits-all approach." He says DFI and FDIC both determine capital requirements based on the new bank's intended market, products and services, and growth strategy.

ROI | The general decline in bank profitability since the crisis is another barrier to entry for potential new banks; it means lower returns for investors. "The returns available in the banking business are measurably reduced compared to what they were prior to the credit crisis," said Kosiek. "We're in a measurably different landscape when it comes to economic reward for entering the industry." He also pointed out that the amount of time it takes for a de novo to reach "critical mass" and begin generating returns for its investors is much longer today than it used to be—7-10 years instead of 5-7. The current prolonged low interest rate environment compounds this problem, lengthening the time it takes for a nascent bank to become profitable. "Investors hope a bank will become profitable within two years, and with the interest rate environment we're in it's difficult for investors to see banks making money," Sheriff explained. This less-than-appealing timeline plus the current regulatory environment makes purchasing a bank much more attractive to investors than starting one from scratch. "It's much easier for a group of people who want to start a bank to buy a bank than to form a new one," said Sheriff. "It's faster, and the process of getting approval is far less complicated. You also don't have to go find talent, in many cases."

Talent | The cost of talent is another factor that gives potential de novos pause. "There's still a bit of malaise from the crisis, where the entrepreneurial spirit has been dampened," said Wilder. That lack of leadership combined with the higher prices commanded by experienced compliance and lending professionals makes building a staff difficult. "There's a notably lower supply of high-quality bank talent on the marketplace in comparison to what you had 10-20 years ago," said Kosiek. "There are just fewer people out there who think banking is the right place for their career."

Competition | Finally, the competitive environment in the financial services industry is wider and more complex than it used to be, for a variety of factors. First, small businesses no longer feel underserved when local banks merge with larger institutions, according to Koehl. "Many larger institutions have done a good job serving communities, and fintech companies are also helping to fill in the gaps," he explained. "In addition, millennial business owners don't necessarily want the same level of relationship development." The more relaxed regulatory environment and exciting startup culture makes investing in fintech companies more attractive to most investors than a de novo community bank. "There are other options within the banking industry and within the financial services industry that are more appealing to the investor and a better answer for customers and business owners," said Kosiek.

Impact on the Industry

Wisconsin is fortunate to have a diverse, thriving financial services industry, so the Badger State hasn't been as heavily affected by the national lack of de novo activity as states with fewer banks. However, underserved markets are typically where de novo activity happens, so they are the first to feel the impact when it doesn't. "Most important is the availability of credit to rural areas," Guzikowski explained. "Larger banks can achieve that true community contact, character-based lending if they have the right people, but that's specifically what de novos and community banks are designed to do." In rural states like Wisconsin, merger activity without de novo activity often results in fewer financing options for businesses and consumers outside of metropolitan areas. "If the current trend continues without the ability to encourage de novos in the future, we're at risk of having a good chunk of our state where the local economy suffers because of a lack of community bank presence," said Koehl. 

The lack of new banks also impacts M&A activity. "It deprives the industry of new opportunities for growth," Guzikowski said, explaining that many investors consider growing through acquisition and then selling a bank to be a good exit strategy. The lack of de novos means there are fewer acquisitions to be made, making that strategy more difficult. Instead, many investors see purchasing an existing bank as a better opportunity. "If you're interested in the banking industry from the investor standpoint, dropping your money into a de novo is not as appealing as investing in an existing franchise, enhancing it and getting ready for acquisition by a larger enterprise," said Kosiek. According to Koehl, another major factor is that acquired banks used to have younger management teams who wanted to stay in the industry and did so by starting their own bank. "Today, there's still a lot of M&A, but it's often with banks with older management teams who are looking for an exit strategy," he explained. 

Finally, startups—in any industry—are the most likely source of excitement and innovation. "Traditionally new banks have more innovative ideas," said Sheriff. "They're looking to make a statement." New entrants to the market can prevent other banks from stagnating. "For the industry overall, having a few new banks pop up here and there means there's more room for new ideas, new products, and more creativity and excitement in the industry," said Wilder. 

Looking Forward

While de novos have been rare over the past decade, there are signs the tide is turning. In the final quarter of 2016, the FDIC approved two new bank charters. In April 2016, FDIC Chairman Martin Gruenberg announced the reduction of the period of heightened scrutiny for newly chartered institutions from seven years to three, the same level it was before the financial crisis. Since then, FDIC has published a handbook for prospective de novo applicants and held outreach meetings on the topic. Other federal regulators are taking steps to reduce some of the friction in the de novo process, as well. "The OCC in particular has recognized that new banks are the lifeblood of a robust banking industry," said Guzikowski. Acting Comptroller of the Currency Keith Noreika has gone so far as to suggest the OCC be granted authority to approve de novo applications. Considering these ongoing efforts, Guzikowski suggests the next step is test cases. "With the easing of the interest rate environment, what the regulators need now are more applications so they can start putting some of their initiatives into practice," he explained.

In combination with this (slightly) softening regulatory environment, Wisconsin's robust, steady economy could be fertile ground for new banks. "Our economy tends to be pretty stable compared to the big swings you see on the coasts, so it's a good environment for banking," said Wilder. Since 1990, Wisconsin has had 33 de novos and only three of them failed, while on average the new banks turned a profit within six quarters. The recently announced Foxconn development planned for the southeastern corner of the state also brightens prospects for potential new banks. "If all that comes to fruition, it could be an opportunity," said Koehl. "Community banks, whether they're in existence today or a de novo, they're always driven by how their local economy is doing. So, if you have a vibrant economy in a local market that doesn't have a community bank, that's an opportunity for a de novo."

Baker Tilly Virchow Krause, LLP and Wipfli LLP are WBA Silver Associate Members. 
Godfrey & Kahn, s.c. and von Briesen & Roper, s.c. are WBA Bronze Associate Members.

 

By, Amber Seitz

Three Wisconsin institutions prove you don't need to be big to benefit from technology

The banking industry is undergoing a period of massive change in many areas (technology, compliance, competition, etc.), but one of the most significant has been in progress for over a decade. Over the past ten to fifteen years, banks have been gradually replacing in-person, customer-facing operations with technology—account opening and loan applications, for example. The concept of using technology to augment human relationships is relatively new to banking, but Wisconsin Banker interviewed three Wisconsin banks who have done so successfully, each in a unique way. 

Customer Convenience – Digital Channels
Waterloo-based Farmers & Merchants State Bank has offered online mortgage applications since May 2008 and added a mobile banking app five years ago, and they've seen results. "In the last five years we've gone from $95 million to $153 million in loans serviced for the secondary market, largely due to the online applications," said Executive Vice President & CFO William Hogan, CPA. After an initial lag in adoption rates, Chief Marketing Officer and Bank Manager Kim Abraham says marketing helped the online applications grow in popularity, but customers are also becoming more accustomed to doing things online. "Their comfort level with technology changed," she explained. Hogan notes that the product also markets itself through referrals, since customers who love the convenience of being able to start their application anytime often recommend it to others. 

Internally, the bank decided to implement the online mortgage application product (which includes HELOCs) as a tactic to build their secondary market servicing portfolio. However, it also enhanced the perception of the bank and their products and services in the community. "We recognized that this was a way for us to not only be seen as a small town community bank with big banks products and competitive rates, but also as viable option and player in the surrounding communities and Madison market," said Abraham. 

The bank's mobile app has also been impactful, partly due to steady increase in users of the mobile deposit feature. "We were one of the early adopters of mobile deposit capture," Hogan said (the bank launched the product in June 2013). "There's been a steady adoption of that." One of the reasons usage of the bank's app continues to grow is the periodic additions of new features, such as mobile bill pay. "We're constantly looking at the mobile app and adding to it," Hogan explained. He knew the bank needed to invest in mobile the day he walked around the office and saw everyone with a smartphone. "It's just the way to go," he said. The bank's goal with each of these tools was to make connecting with customers easier. "Customer convenience is one of the primary drivers behind our technology," said Abraham. 

Speedy Service – Compliance Concierge
Mayville Savings Bank was one of the first institutions to use FIPCO's Compliance Concierge loan origination and deposit account opening software suite when it launched in 2012, but they've been using software for lending for many years. "We are trying to follow technology as fast as it's moving," said Loan Processor LaRue Wills, who also sits on the FIPCO Users Committee. "Our small little community bank wants to be able to offer what larger regionals are offering their customers." Being fast adopters of software has increased speed-of-service for the bank's customers and internal efficiencies, as well as allowing the bank to offer mortgage products it previously could not. 

One of Wills' favorite features of Compliance Concierge is an upgrade the bank purchased: a credit reporting interface with Factual Data. "It makes it so nice to be able to take an application, do a credit report and have all the information fill in automatically," she said. The software also allows bank staff to offer faster service. "The time-saving for customers is excellent," Wills said. "Customers can walk into the bank and get taken care of in an hour." Leveraging the software to its full capacity has also helped the bank operate more efficiently, according to Wills. "If a customer wants to get a loan and switch their deposit account to us, it's much easier now for all of that to go into one system," she explained. "Banks that only have the deposit side or only the loan side don't know what they're missing."

The bank's decision to invest in technology like online banking and Compliance Concierge has also enabled it to offer fixed-rate mortgage loans, a product they previously were not able to offer their customers. "We are a small community bank with only one branch, we're as small as they come," said Wills. "Now we're able to offer our customers fixed-rate loans and that's due to the convenience of having Compliance Concierge be able to upload the required information for selling them on the secondary market directly to the bank we use. Before, we couldn't help a customer who would only do a fixed-rate loan. Now we can serve them."

Full-Service Machines – QwikBank ATMs
Two years ago, Superior Savings Bank decided to consolidate some of its branch locations to improve efficiencies—branch transactions had been steadily declining due to the popularity of the bank's electronic services. "Management and the board felt the need to replace two of the bank's high-cost branch offices with a solution that would provide customers with similar convenience," President Dawn Staples explained. Four months after closing a branch in the Walmart Supercenter on the west side of Superior, the bank installed its first QwikBank ATM just across the parking lot. Shortly after that, a second QwikBank ATM was installed on the east side of Superior. "The main goal was to mirror the services provided when the bank had three staffed locations in Superior," Staples said. "In addition to making cost-free ATM access available to its debit card customers, the bank wished to provide the ability for them to deposit cash and checks at locations in addition to the main office in the downtown."

The QwikBank ATMs have several features, including typical ATM functions like cash withdrawal and checking balances, but one of the most popular is a transaction previously only available in the teller line. "Our favorite feature of these full-service ATMs is the customers' ability to deposit cash and checks into their accounts with immediate availability," said Staples. "This essentially enables the bank's customers to cash a check at the ATM." To promote this new way for customers to interact with the bank, the main office tellers have undertaken a continuous customer education process, which Staples says has been successful. "The reaction of the bank's customers has been very positive," she said. "The key is getting the word out about the QwikBank locations and capabilities." 

Ultimately, the QwikBank ATMs are just one more tool in the bank's technology repertoire. "For a small bank, Superior Savings Bank has capably matched its larger competitors in providing electronic banking solutions," said Staples. "In addition to the full-service ATMs, we offer internet banking, bill pay, mobile banking and remote deposit capture." That comprehensive approach to technology has helped the bank set itself apart in the communities it serves. 

FIPCO is a wholly owned WBA subsidiary.

 

By, Amber Seitz