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Account Analysis and Billing A Perfect Storm is Raging

Windy City May, 2012. Account Analysis and Billing A Perfect Storm is Raging. TODAY’S PRESENTER STEVE WEILAND. Founder & VP Strategic Development The Weiland Financial Group A Division of Open Solutions Inc Principal contributor ANSI X12 822 TWIST BSB Principal author

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Account Analysis and Billing A Perfect Storm is Raging

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  1. Windy City May, 2012 Account Analysis and Billing A Perfect Storm is Raging

  2. TODAY’S PRESENTERSTEVE WEILAND Founder & VP Strategic Development The Weiland Financial Group A Division ofOpen Solutions Inc Principal contributor ANSI X12 822 TWIST BSB Principal author AFP Guide to Account Analysis: Statement Standards and Transaction Set 822 Implementation Guide ISO BSB Message Users Guide (MUG) Contact Information Stephen.Weiland@OpenSolutons.com +1 847-810-6120

  3. BANK FEE ANALYSIS AND BILLINGA PERFECT STORM IS RAGING First Things First Change: Balance Considerations Change: Service Considerations Growing: Electronic Statement Usage Q&A

  4. BANK FEE ANALYSIS AND BILLINGA PERFECT STORM IS RAGING First Things First Account Analysis – Why examine it, who cares? Account Analysis – What is it? Elements of Account Analysis The Change Drivers Change: Balance Considerations Change: Service Considerations Growing: Electronic Statement Usage Q&A

  5. WHY EXAMINE IT, WHO CARES?REASONS TO EXAMINE BANK CHARGES & BALANCES Cost Control Control bank fees, optimize balances Eliminate pricing errors, bad volumes, closed accounts, redundant services Allocate costs to departments Investments Maximize return on investable balances Track balances, offset fees, & invest the rest or fund other activities Compliance Bank fees and balances merit oversight and transparency SOX argues for bank fee and balance control and reporting Metrics Bank analysis statements provide tremendous insight into your treasury operation What divisions/departments are using what services and at what cost? Is our service usage (volume) increasing or decreasing? Why? What should we budget for the coming year?

  6. A bill for services rendered A marvelous record of balances and services A weighing process For some…a flat out mystery ACCOUNT ANALYSIS – WHAT IS IT?A WAY TO SAVE MONEY & SO MUCH MORE

  7. ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS - Traditionally Services Balances

  8. Services $7,000 ACCOUNT ANALYSIS – WHAT IS IT?A WEIGHING PROCESS -> Profit To The Bank Balances $10,000 EC

  9. Services $10,000 ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> You pay $3,000 Balances $7,000 EC

  10. ACCOUNT ANALYSIS – WHAT IS IT? A WEIGHING PROCESS -> Break Even Services $7,000 Balances $7,000 EC

  11. ELEMENTS OF ACCOUNT ANALYSISCALCULATE THE BALANCE ON WHICH THE EC IS BASED Balances Average Daily Ledger Balance $250,000 Less Float 50,000 Average Daily Collected Balance 200,000 Less Reserve Requirement (10%) 20,000 Balance to Support Services 180,000 ???? ???? ????

  12. ELEMENTS OF ACCOUNT ANALYSISLIST AND TOTAL ALL PERIOD SERVICE CHARGES Services SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 8,000 6.00% 40.77H FDIC Premium/Thou 250 .06 15,00H Monthly Maintenance 1 30.00 30.00 40,000 Deposit Items 1,000 .10 100.00 133,333 ----- ------ Total Charges Before Credit 185.77 173,333 Compensable Subtotal 130.00 173,333 Hard Charge Subtotal (H) 55.77 ???? ????

  13. ELEMENTS OF ACCOUNT ANALYSISESTABLISH THE COMPENSATION POSITION ACCOUNT POSITION....... ..FEES BALANCES Earnings at 1.0% 150.00 180,000 Less Compensable Charges 130.00173,333 Earnings Excess 20.00 6,667 Hard Charges (H) 55.77 Total Due 55.77 ????

  14. THE CHANGE DRIVERSREGULATION, GLOBALIZATION, TECHNOLOGY • Reg Q – Glass Steagall Act, 1933 • Reg CC – Expedited Funds Availability Act, 1987 • 822 – The US Electronic Analysis Statement, 1991 • Check 21 Act, 2004 • Electronic Services – New, imaging vs paper • BSB - The Global Electronic Billing Statement, Oct 2006 • FSRR - Financial Services Regulatory Relief Act, Oct 2008 • TAG – Transaction Account Guarantee, part of TLGP, Nov 2008 & Aug 2009 • Dodd-Frank Wall Street Reform and Consumer Protection Act, July 2010 • SWIFT – Corporate Involvement, Now • ISO20022 - BSB Electronic Statement, Now

  15. BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING First Things First Change: Balance Considerations Some examples Interest on reserves Overdraft charge base balances Dodd-Frank & hard interest Tiered earnings credit rates Change: Service Considerations Growing: Electronic Statement Usage Q&A

  16. BALANCE CONSIDERATIONSSOME EXAMPLES We’ll start with the classic analysis statement balance presentation and earnings credit calculation Net Collected Net Collected Reduce Float Net Collected Reduce Float No Reserves Pos Collected Reduce Float No Reserves Positive Average Ledger Balance $250,000 Less Float/Holds 50,000 Average Collected Balance 200,000 Less Reserves (10%) 20,000 Balance to Support Services 180,000 Earned Credit at 1.0% 150 $250,000 20,000 230,000 23,000 207,000 173 $250,000 20,000 240,000 0 240,000 200 $250,000 20,000 230,000 0 230,000 192 Bank Customer A net increase in Earned Credit of $50, or 33%

  17. BALANCE CONSIDERATIONSINTEREST ON RESERVES, THE FSRR ACT OF 2006 Effective date moved from Oct 1, 2011, to Oct 1, 2008 Authorizes interest payments on funds maintained at the Fed On Required Reserves: average targeted Fed funds rate less 10 points On Excess Reserves: lowest targeted Fed funds rate less 75 points On Clearing Balances: implicit earnings credit against Fed services Banks not required to pass along interest to their customers How (and will) corporate checking accounts benefit?

  18. Average Daily Ledger Balance $250,000 Less Float 50,000 Average Daily Collected Balance 200,000 Less Reserve Requirement (10%) 20,000 Balance to Support Services 180,000 NIF Earnings at 1.0% = 150.00 180,000 BALANCE CONSIDERATIONSINTEREST ON RESERVES: BANK RESPONSES Classic Approach Reserve reduction with ECR of 1.0% New Approaches Average Daily Ledger Balance $250,000 Less Float 50,000 Average Daily Collected Balance 200,000 NIF Earnings at 1.0% = 166.67 200,000 Eliminate reserves with same rate of 1.0% Good for Customer Eliminate reserves with reduced rate of 0.9% NIF Earnings at 0.9% = 150.00 200,000 Good for Bank Average Daily Ledger Balance $250,000 Less Float 50,000 Average Daily Collected Balance 200,000 Less Reserve Requirement (10%) 20,000 Balance to Support Services 180,000 NIF Earnings at 1.0% = 150.00 180,000 Reserves Earnings at 1.9% = 31.67 20,000 181.67 Reserve reduction with ECR of 1.0% and earnings on reserves at 10 points less than the Fed Funds rate of 2.0% Very good for Customer

  19. BALANCE CONSIDERATIONSOVERDRAFT CHARGE BASE BALANCES Example Assumptions: 30 day month Ending OD balance on day one: ($300,000) Ending balance on each of the other 29 days: $248,275.86 Aggregate Balance Results: Positive: 29 * 248,275.86 = 7,200,000 Negative: 1 * (300,000) = (300,000) Net: = 6,900,000 Average Balance Results: Positive: 7,200,000 / 30 = 240,000 Negative: (300,000) / 30 = (10,000) Net: 6,900,000 / 30 = 230,000 Charge, good for bank No charge, good for customer

  20. BALANCE CONSIDERATIONSDODD-FRANK & HARD INTEREST: July 2011,Bank Responses Option 1:No change. “Soft” earnings credit only Earnings credit rates usually lower than hard interest rates Reserve requirement might reduce effective rate Soft credit not taxable Charges offset by soft credit cannot be expensed Option 2:“Hard” interest only, pay with dollars Hard interest rates usually higher than earnings credits rates Customers pay tax on hard interest Charges can be expensed Option 3:Hybrid combination of “Soft” credit and “Hard” interest Soft credits offset fees, hard interest earned on excess balances Earnings credit not taxable while hard interest is Reserve requirement rate may be a factor Charges offset by soft credit cannot be expensed

  21. BALANCE CONSIDERATIONSTIERED EARNINGS CREDIT RATES ACCOUNT POSITION....... ..FEES .BALANCES Earnings at 1.5% 225.00 180,000 Less Compensable Charges 173.77154,461 Earnings Excess 51.23 32,739 Customer now owes nothing and has an earnings excess of $51.23 • Tiering to reward high balances: • Balances < $100,00 earn at 1.0% • Balances >= $100,000 earn at 1.5% Good for Customer But can you turn earnings credit rate tiering to the Bank’s advantage?

  22. BALANCE CONSIDERATIONSTIERED EARNINGS CREDIT RATES ACCOUNT POSITION....... ..FEES .BALANCES Earnings at 0.75% 112.50 180,000 Less Compensable Charges 173.77278,032 Compensable charges due (61.27) (98,032) Same customer now owes $61.27 • Tiering to generate higher fees: • Balances < $200,00 earn at 0.75% • Balances >= $200,000 earn at 1.0% Very good for Bank We are now reserving our standard earnings credit rate, 1.0%, only for our high balance customers. Lower balance customers will receive a lower rate and generate higher fees.

  23. BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING First Things First Change: Balance Considerations Change: Service Considerations DODD-FRANK & FDIC fees Hard Charged vs Balance Compensable Bargaining: volume discounts Growing: Electronic Statement Usage Q&A

  24. SERVICE CONSIDERATIONSDODD-FRANK & FDIC FEES Prelude: Transaction Account Guarantee Program (TAGP) Guarantees non-interest bearing deposit accounts over $250,000 without limit Bank’s TAG fee based on risk category and non-interest balances exceeding $250,000 Termination Date: December 31, 2010 (third extension) Dec 2009 one-time payment of 13 quarters’ fees & FDIC credit swaps Dodd-Frank Wall Street Reform & Consumer Protection Act Singed into law July 21, 2010 (Public Law 111-203) Unlimited coverage for non-interest accounts extended to December 31, 2012 Unlike TAGP, participation is mandatory for all banks Unlike TAGP, prohibits FDIC charging a separate premium for this increased coverage Unlike TAGP, does not cover NOW accounts Reserve ratio increased from 1.15 1.5% cap lifted, goal is 2.0% 9/30/20 target – DIF is $20 Billion in the red as of June 2010 Offset required for institutions with total consolidated assets of less than $10 billion Changes assessment base calculation from deposits to assets Insurance coverage permanently raised from $100,000 to $250,000 for all accounts

  25. SERVICE CONSIDERATIONSDODD-FRANK & FDIC FEES • Experience shows a major increase in FDIC fees • The FDIC is silent on how or if their fees are to be passed on to bank customers – are you paying a premium or receiving a discount? • Impossible to tell if you are being penalized for your bank’s risky behavior • Impossible to determine if you are paying your “fair share” • Dodd-Frank makes assessing the price of extended coverage impossible

  26. SERVICE CONSIDERATIONSHARD CHARGED VS BALANCE COMPENSABLE SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 10,000 6.00% 50.00H FDIC Premium/Thou 250 .06 15,00H Monthly Maintenance 1 30.00 30.00 40,000 Deposit Items 1,000 .10 100.00 133,333 ------ ------- Earnings at 1% 150.00 Less Compensable Charges 130.00 173,333 ------ Excess Earnings 20.00 Plus Hard Charge Subtotal (H) 65.00 Total Due 65.00 Two services are Hard Charged. No balance offset. What you see is what you pay

  27. SERVICE CONSIDERATIONSHARD CHARGED VS BALANCE COMPENSABLE SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE CHARGE BALANCE Collected Balance OD 10,000 6.00% 50.00H 50.0060,000 FDIC Premium/Thou 250 .06 15,00H15.00 18,000 Monthly Maintenance 1 30.00 30.00 36,000 30.00 36,000 Deposit Items 1,000 .10 100.00 120,000 100.00 120,000 ------ ------- ------ ------- Earnings at 1% 150.00 150.00 Less Compensable Charges 130.00 156,000 195.00 180,000 ------ ------ Deficit Earnings 20.00 45.00 Plus Hard Charge Subtotal (H) 65.00 .00 Total Due 65.00 45.00 Change the two services to compensable and the charge can be offset by balances. You saved $20.00

  28. SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 10,000 6.00% 50.00 60,000 FDIC Premium/Thou 250 .06 15,00 18,000 Monthly Maintenance 1 30.00 30.00 36,000 Deposit Items 1,000 .10 100.00 120,000 ------ ------ Total Charges Before Credit 195.00 240,000 SERVICE CONSIDERATIONSBARGAINING: VOLUME DISCOUNTS No volume discount on high volume services

  29. SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 10,000 6.00% 50.00 60,000 FDIC Premium/Thou 250 .06 15,00 18,000 Monthly Maintenance 1 30.00 30.00 36,000 Deposit Items 400 .10 40.00 48,000 300 .08 24.00 28,800 300 .06 18.00 21,600 ------ ------ Total Charges Before Credit 177.00 212,400 SERVICE CONSIDERATIONSBARGAINING: VOLUME DISCOUNTS Tiered pricing discount on high volume service You saved $18.00

  30. Time Out ! Analysis Information Overload? What Shall We Talk About? Cloning? Politics? Ethics, Morality, Religion, Dying? Sex

  31. BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING First Things First Change: Balance Considerations Change: Service Considerations Growing: Electronic Statement Usage What are the Electronic Statements? What’s the purpose? AFP Code use and globalization Q&A

  32. ELECTRONIC STATEMENT USAGEWHAT ARE THE ELECTRONIC STATEMENTS?

  33. Gain faster delivery, accelerate payment Eliminate the paper, reduce statement charge Satisfy SOX and EU directives by examining all prices & charges Check all bank calculations (find errors) Check expected balances, volumes, prices Allocate bank charges automatically Perform modeling and “what if” scenarios Compare divisions, departments, regions, etc... Export data to existing systems ( GL, Budgeting, Payables ) Perform bank-to-bank comparisons Examine each and every line item charge and tax Analyze global fees in one common currency Archive statements electronically ELECTRONIC STATEMENT USAGEWHAT’S THE PURPOSE? TO AUTOMATE REVIEW

  34. ELECTRONIC STATEMENT USAGEWHAT’S THE PURPOSE? EXAMINE EVERY SERVICE LINE One service line item buried within thousandsof lines across hundreds of statements. - What can this line tell the bank and the customer? - What questions can be asked about this service? AFP DESCRIPTION PRICE VOLUME CHARGE TAX ------ ----------------- ----- ------ -------- ------ 050100 Lockbox Processing .1200 12,000 1,440.00 144.00 The account doesn’t use this service! Is that the special price we negotiated? Is the customer aware there’s been a price change? I think that volume is unreasonably high. Is this the exact volume we expected? Is this close to the average charge over the last six months? Is there supposed to be a tax on this service? How does this price compare to other banks and to customer peer averages?

  35. ELECTRONIC STATEMENT USAGE AFP GLOBAL SERVICE CODES ARE HERE NOW AFP provides a mapping that links the Global to the Domestic codes for corporations who may use both.

  36. ELECTRONIC STATEMENT USAGE GLOBALIZATION UNDER ISO20022 TWIST and SWIFT now maintain the BSB standard jointly under the ISO 20022 umbrella. They are working together to provide: • Ongoing standards maintenance under the ISO20022 umbrella • Strong impetus for more global banks to produce the BSB • Complementary BSB and eBAM standards to provide one comprehensive set of bank-customer administrative standards • Possible extension of the BSB standard to enable electronic invoicing

  37. BANK FEE ANALYSIS AND BILLINGEVERYTHING IS CHANGING First Things First Change: Balance Considerations Change: Service Considerations Growing: Electronic Statement Usage Q&A

  38. WE’VE REACHED THE FINISH LINE!ANY QUESTIONS? Please give us your card if you want more information or a follow up call.

  39. NYCE May, 2012 Account Analysis and Billing A Perfect Storm is Raging

  40. WHY EXAMINE IT, WHO CARES?REASONS TO EXAMINE BANK CHARGES & BALANCES Metrics and Cost Control Analyze monthly bank analysis statement for: High dollar and high volume services Isolate pricing errors or changes Identify unnecessary services Establish a relationship with Business Units and identify those using high volume services Important for BU’s to understand that you are there to help Propose alternatives or process changes if possible

  41. BALANCE CONSIDERATIONSDODD-FRANK & HARD INTEREST: Broadridge’s Experience Option 1:No change. “Soft” earnings credit only Broadridge has negotiated higher earnings credit rates and has opted out of the hard interest on MOST banking relationships Option 2:“Hard” interest only, pay with dollars Currently hard interest rates only slightly higher than ECR - not reflective of average balances Accounts receiving interest are due to Broadridge Fiduciary responsibilities Banks “pushing back” on large balances Option 3:Hybrid combination of “Soft” credit and “Hard” interest Not a valuable option for Broadridge in current environment Future state could be to tier balances

  42. SERVICES RENDERED.... VOLUME PRICE CHARGE BALANCE Collected Balance OD 10,000 6.00% 50.00 60,000 FDIC Premium/Thou 250 .06 15,00 18,000 Monthly Maintenance 1 30.00 30.00 36,000 Deposit Items 400 .10 40.00 48,000 300 .08 24.00 28,800 300 .06 18.00 21,600 ------ ------ Total Charges Before Credit 177.00 212,400 SERVICE CONSIDERATIONSBARGAINING: VOLUME DISCOUNTS Tiered pricing discount on high volume service You saved $18.00 • Do a bank to bank price comparison or send out an RFI • Don’t be afraid to tell a bank that a service is too expensive • Ask your departments or business units for feedback on the banks. ….Create a scorecard for them

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