Plansmith Blog

Sue West

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Welcome Peter How, Planning Advisor!

Posted by Sue West on 1/10/23 10:20 AM

Join us as we welcome our newest Planning Advisor, Peter How! At Plansmith, we’re excited to have such an experienced community banking veteran on staff. Read on to learn about Peter’s career and how his background will add value to our clients’ planning experience.

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Branch Profitability

Posted by Sue West on 9/6/22 9:01 AM

Our recent blog discussed Product Profitability, or the process of analyzing your product line by looking at each asset category and adjusting its yield by adding non-interest income, and subtracting applicable loan losses and overhead. The overhead we associated with the asset was its funding liability cost less applicable service charges. This gave us a more heightened awareness of the true earning potential of each earning asset.

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Stress-Free Budget Building

Posted by Sue West on 8/10/22 10:01 AM

Banking is relentless in its daily demand for your time and attention to detail. We know this firsthand, as most of us are former bankers and have been in your shoes.

Stresses around day-to-day responsibilities will never be eliminated, but those associated with your budgeting can be. This is why we built Compass and why you chose us as your software provider.

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Product Profitability and Funding

Posted by Sue West on 8/2/22 9:27 AM

As increased competition and consolidation challenge the financial industry, your business must continue to adapt using strategies for success, not unlike those of other businesses.

Manufacturing and retail have long used product management techniques to meet competitive pressures for pricing, product planning, and growth strategies. If financial institutions are to survive and prosper in this highly charged competitive environment, management must understand and control all components of profitability. Margin and equity risks have been addressed using regulatory rate shock methodologies, as well as recommended and required stress testing of the loan portfolio, including loan losses. Product profitability combines these concepts with an often-overlooked element of cost – overhead.

Before beginning a budget, finalizing any financial plan, or setting in motion any actions for execution, it is imperative that management knows their cost structure. Armed with this knowledge, the team will be able to identify opportunities, avoid diminishing margins, and provide services in the most efficient way.

With this, then, we advocate using a simple and effective Product Profitability analysis. The necessary detail is easy to obtain and manage within your existing planning processes. To begin, you must assign an overhead cost factor to all interest-bearing product lines. This percentage represents the basis point adjustment deducted from an account’s gross yield. You may use either internal or external data for this measure.

Next, determine if there are there other factors affecting your product line’s interest rate that should be noted. For example, costs associated with Loan Losses or Fees that are associated with this product line, but are recorded separately on your income statement.

The last – but very important – factor remaining is the product line’s repricing frequency. As with all other risk analyses, repricing frequency is key to risk management and match funding analysis. By sorting asset balances by repricing frequency, your baseline is now complete. With these details in hand, you will be ready to build a platform for your analysis. Let’s review.

• Repricing frequency
• Current EOM Balance
• Current Yield (FTE)
• Net Overhead Adjustment
• Losses/Fees

Repeat the same for interest-bearing liabilities.

With this simple-yet-analytically-rich information, you can next build an effective analytical report. Here, there are two methods for presenting the data: Match Funding or Funds Pooling.

The example below illustrates the Match Funding method. This analysis sorts first by repricing frequency of the interest-bearing asset. It then funds the asset with liabilities, also sorted by repricing frequency.

This matching approach groups volumes and rates by the inherent repricing risk embedded in your product line. As part of the liability funding, we’ve also distributed an allocation of Capital, both Risk-Based and Excess Capital, to each asset in the analysis.

A waterfall report is then created, as the liabilities “fill up” the asset category until their volumes are matched, then any remaining balances flow into the next asset category. As the balances are matched, the rates are displayed and adjusted for overhead. Loan yields are further adjusted for Loan Fees, and reduced for anticipated Loan Losses. Liabilities are credited with service charges when applicable and the Net Rate is displayed.

The importance of this approach is to identify each asset’s True Rate and True Cost of funding that activity. This method can bring real insight into the true performance of your product line.

It is not uncommon at this juncture for many to argue with the allocations. If that becomes the case within your financial institution, then we suggest a Funds Pool approach.

Funds Pooling uses the same analytical methodology; however, it consolidates the funding liabilities into a pool. The pool remains consistent for all interest-bearing assets, eliminating arguments about liability allocation.

In either case, the end results are significantly informative to the financial institution, including your management team, Board of Directors, and Examiners. What is the TRUE rate for the asset product category? What is its Return on Equity, and what is its cost per $1 of revenue? These are important insights that should be examined regularly, especially during times of economic shifts such as rising interest rates and inflation.

How to Use This Information: There are three specific uses for product profitability information: to develop product strategies for your marketplace; to improve the pricing of service lines to make them more profitable; and, to ensure profitable increased growth.

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Planning: Many Aspects, One Purpose

Posted by Sue West on 7/12/22 2:41 PM

I’m often asked, “What are the differences between a plan, a budget, forecasting, reforecasting, what-ifs, and stress testing?” Although some of the actions are similar and often intermingled in conversation, it’s their purpose that defines them. If you’re a client, most even involve similar keystrokes using your Plansmith software navigation; yet each plays a unique role within your organization’s total planning process. Let’s discuss.


To start, everyone’s familiar with a budget, but let’s make sure we see it for what it really is. A budget is a prediction or forecast of a financial position at a set time in the future, typically one year. A budget represents a desired financial outcome and requires consent by your board of directors. Most often a Budget is primarily thought of as cost allocations, but when combined with ideas regarding new business, you will often hear it referred to as a Plan. Once approved, the Budget Plan never changes. It is ‘set in stone’ for the duration of your selected time period.

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Adjust to Changing Economic Environments in 6 Steps

Posted by Sue West on 6/7/22 10:41 AM

While the economic environment continues to shift from the effects of COVID-19, financial institutions aren’t out of the woods. As 2022 heats up into the summer months, inflation, rate increases, and an overall sense of uncertainty loom over markets. So, how do you begin to measure the financial impact today’s economy will have on your business? By utilizing a true planning model.

A professional forecasting platform for Budgeting and ALM/IRR adapts to changing conditions. As it is relationship-driven, it can be set to react to environmental changes, including rates. As the rate environment shifts, so should your balance sheet growth and product mix. Planning models help you test the impact of such changes and measure results in minutes, not hours.

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Help! The Rates Ate My Budget

Posted by Sue West on 4/25/22 10:58 AM

Planning in a Rising Rate Environment….didn’t see this coming?

We all knew that rates would be on the rise in 2022; it’s a normal reaction in an inflationary economy. But how many of us were able to predict when, how much, and how often those changes would occur?

Not to worry, one of the greatest advantages of a full simulation model is its ability to adapt! Managing your current plan should be no big deal as your Plansmith system uses dynamic models and a monthly RateForecast download to keep your plan current. This is truly where our products perform because of their ability to provide management with balance sheet, income statement, and yield/cost information that is current and reprojects the anticipated outcome at year end.

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When in Doubt, Peel the Onion

Posted by Sue West on 9/8/21 8:58 AM

Although we develop software to mathematically convert ideas into measurable outcomes, we have always viewed Plansmith as an education company. Not education as in ‘a + b = c,’ but in the way relationships and behaviors drive a financial outcome. This year, we are introducing a new educational solution called Budget Playbook. This online tool connects vision with purpose and execution to help you reach your budget targets. At Plansmith, we use Budget Playbook to dive into the relationship between ideation and plan execution to foster communication and drive better results.

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Looking Forward to 2021: Happy New Year

Posted by Sue West on 12/28/20 10:17 AM

Quick, what pops into your mind when I say, Budget? Oh… I hear a lot of groans, but nothing specific. When I hear Budget, I feel the same way. Now, I know as the president of a planning software company, I shouldn’t have that reaction, but I am human. Even with the best tools, the fact remains that all businesses struggle with the same issue: balance. How do you maintain balance between growth and earnings given the costs associated with obtaining new business?

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3 Activities to Start ASAP This Fall

Posted by Sue West on 9/14/20 1:23 PM

Oh, Autumn. The changing of the leaves, the crispness of the morning air... and the crunching of numbers?

Yep. We're bankers. It's what we do. And fall, it's the perfect time for some of our favorite - and most crucial - banking activities.

Here are the 3 game-changing activities Plansmith recommends starting as early as possible in the fall:

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