1. PRESENTED TO: crnrstone.comgonzobanker.com480.423.2030 PRESENTED BY: October 20, 2015 Technology Challenges and Opportunities for FIs Brad Smith, Managing Director, bsmith@crnrstone.combsmith@crnrstone.com IBA Technology 2015 Conference, Des Moines, IA

2. 1 Justifying Technology Investments ●Industry and Technology Trends ●Aligning Execution and Strategy Through Tech ●Tech Justification & Payoff ●Tech Governance ●Tech Planning Overview

3. 2 Industry Trends

4. 3 External Environment Strategic Forces - Economic

5. 4 External Environment Cornerstone Economic Scorecard Assessme nt Trend Line GDP (Economic Growth) Unemployment  Inflation/ Deflation Interest Rates (Borrower/Saver) Housing CRE Capital Spending Industrial Capacity Utilization U.S. Budget Deficit  U.S. Debt U.S. Stock Market Consumer Confidence Consumer Debt/Income Personal Income/Wages Key   Improving  Neutral   Worsening Seven years after the recession, the economy is still tepid and slow growing

6. 5 External Environment Economic Forecast Source: WSJ Aug 2015 Consensus Forecast Key Points The economy is forecasted to continue improving at a slow-to-moderate pace into 2016 According to economists, the Fed is expected to raise rates by December 2015 Unemployment is expected to decline to under 5% by June 2016

7. 6 External Environment Margin Compression

8. 7 External Environment Strategic Forces - Competitive

9. 8 External Environment Digital Disruption

10. 9 External Environment Business Model Under Attack Gather DepositsLending (Expensive) Branch Network and Overhead (NIE) Noninterest Income Deposits fund loans Returns for Shareholders Earn spread between loans and deposits Leverage deposit accounts for cross selling opportunities to generate fee income. Use noninterest income to diversify revenue and offset overhead costs. Funds to Reinvest in the Business

11. 10 External Environment Deposit Disruptors Deposits Loans Payments Currency Wealth Checking Alternatives Online Banks

12. 11 External Environment Online Banks Deposits Loans Payments Currency Wealth

13. 12 Checking Alternatives Deposits Loans Payments Currency Wealth Real-Time PFM Safe-to-Spend Debit Card Solutions P2P & Bill Pay

14. 13 External Environment Walmart Continues to Pursue Banking In Several Ways Deposits Loans Payments Currency Wealth

15. 14 External Environment Online Banks Deposit Growth Deposits Loans Payments Currency Wealth

16. 15 External Environment A Startup Originating Billions in Business and Consumer Loans A Startup Originating Billions in Business and Consumer Loans Source: Lendingclub.com

17. 16 External Environment The Future Of Lending Is About Execution Financial institutions must digitize the loan origination process while taking advantage of imaging, eSignature, decision support and web services work flow technologies. Most institutions are already too far behind. Deposits Loans Payments Currency Wealth

18. 17 External Environment SoFi Student Lending Referral Based Growth Flexible Products & Programs $4B+ Funded Deposits Loans Payments Currency Wealth

19. 18 External Environment CrowdSource Funding Source: Realtymogul.com; Kickstarter.com; crowdstreet.com Deposits Loans Payments Currency Wealth

20. 19 External Environment How Will Consumer Behavior Impact Your Marketing Strategy? Source: Trulia.com Deposits Loans Payments Currency Wealth When people change the way they shop for homes, it is likely to impact the way they shop for mortgages as well.

21. 20 External Environment Payments by the Numbers 20132018 Expected Share Change Volume ($B) Share Volume ($B) Share Paper $ 2,699 30.18% $ 1,653 14.49%-15.69% Cash $ 1,557 17.41% $ 1,030 9.03%-8.38% Checks $ 1,053 11.77% $ 566 4.96%-6.81% Cards $ 4,897 54.75% $ 7,580 66.48%11.73% Credit Cards $ 2,491 27.85% $ 4,113 36.07%8.22% Debit Cards $ 2,111 23.60% $ 3,142 27.55%3.95% Prepaid Cards $ 220 2.46% $ 263 2.30%-0.16% Electronic $ 1,349 15.08% $ 2,170 19.03%3.95% Recurring ACH $ 795 8.89% $ 1,486 13.03%4.14% Bill Pay $ 553 6.19% $ 683 5.99%-0.20% Total $ 8,945 $ 8,945100.00% $ 11,402 $ 11,402100.00%0.00% Source: Nielsen

22. 21 “…When you add your card, a unique Device Account Number is assigned, encrypted, and securely stored in the Secure Element, a dedicated chip in iPhone, iPad, and Apple Watch. These numbers are never stored on Apple servers. And when you make a purchase, the Device Account Number, along with a transaction-specific dynamic security code, is used to process your payment. So your actual credit or debit card numbers are never shared by Apple with merchants or transmitted with payment.” Source: Apple.com Apple Pay Near Field Communication Tokenization Over 500 FIs & 2200 Retailers Less Data to Merchants Deposits Loans Payments Currency Wealth

23. 22 External Environment MCX MCX recently announced CurrentC as its mobile wallet solution o Will be accepted in 110,000+ merchant locations o Will offer merchant loyalty programs and instant coupons (on the phone and at point-of-sale) Will transact through cloud-based QR code (may consider NFC or a low energy Bluetooth, like a beacon) o Merchants do not need to upgrade existing terminals for QR Code, only install relatively inexpensive software CurrentC expected to process via ACH; bypassing Visa, MC and AMEX Deposits Loans Payments Currency Wealth

24. 23 External Environment MCX Vs. Apple Pay VS. CVS and Rite Aid (part of MCX) turned off NFC readers in October, disabling Apple Pay and consequently Google Wallet and other mobile wallets Rumor is MCX wants a monogamous relationship with retailers and bypass credit card companies (could eliminate $20 Billion in credit card fees) MCX has come out and stated merchants can choose which technology to adopt MCX states there have been recent talks with credit card companies to allow cards in CurrentC Conflicting technologies ultimately disadvantage the consumer by creating customer confusion and consequently slowing the adoption of mobile wallets 1.Place mobile device near NFC reader 2.TouchID to validate purchase 1.Unlock phone 2.Launch CurrentC app 3.Generate QR code 4.Place in front of scanner 5.Enter pin code to complete Former Walmart CEO Lee Scott: “I don't know that MCX will succeed, and I don't care. As long as Visa suffers.”

25. 24 External Environment PayPal Beacon Source: Paypal.com Low Energy Bluetooth Hands Free No Lines Deposits Loans Payments Currency Wealth

26. 25 Mobile Wallets have been slow to gain traction o Consumers site convenience of cash/cards, security and lack of benefit Can Mobile Wallet developers convince consumers that pulling their phone out of their pocket is safer and more convenient than cash/card? External Environment What are the main reasons you have decided not to use mobile payments? Source: Consumer and Mobile Financial Services 2015 Deposits Loans Payments Currency Wealth

27. 26 For retailers, the cost of hardware they’ve needed to install has been the biggest challenge With the liability shift in October 2015, this changes Manufacturers typically include NFC technology in EMV terminals But.... o Not all retailers will turn on the NFC capability (i.e. Walmart – though Walmart has the technology in their stores, they only want it to work with MCX/CurrentC) o Retailers will need to include the cost of contactless software in their business plan if they turn on NFC External Environment Will EMV Change This? VS. Deposits Loans Payments Currency Wealth

28. 27 External Environment Virtual Currency Deposits Loans Payments Currency Wealth “Blockchain Technology: The Ultimate Disruption in the Financial System” -

29. 28 ●Amazon provides access to the order details for EVERY transaction you’ve ever done with Amazon. ●Amazon now provides order summary reports. ●Amazon lets you manage the list of addressees to whom you send stuff AND associate different payment mechanisms for each. ●Best of all, Amazon tells you WHY they recommended something to you and lets you tune the assumptions on which it bases its recommendations. “And the reason I’m so obsessed with these drivers of the customer experience is that I believe that the success we have had over the past 12 years has been driven exclusively by that customer experience. We are not great advertisers. So we start with customers, figure out what they want, and figure out how to get it to them.” EVERY bank needs to upgrade their focus on customer experience

30. 29 The Concept of ‘Integrated’ Takes on New Meaning User Experience Component Integrated in 2011 Integrated in 2015 Channels Branch Call center Internet banking ATM, Kiosk Add Mobile Social media Mobile payments Integrated Service Experience Common account information across self- service channels Common names, nicknames Real-time channel movement as needed User initiated or system initiated (alert) Common user personalization of tools across channels Integrated Buying Experience On-line form would be handled by central group Some status information User and system initiated new account offers Seamless movement between channels Proactive status notification Employee Support Specific groups supported specific channels Every user-facing employee supports every channel Integrated Delivery Channel Planning

31. 30 Moving From Mobile Banking Transactions to Mobile Engagement Source: Mashable, Harris Interactive poll of 2210 adults Think & Experiment: How can we use mobile’s powerful draw to better engage our customers, teams, communities, and even branch investments ?

32. 31 External Environment How Fast Will Our Retail Delivery Systems Shift? Data as of Sept. 29 th, 2014. Based on FDIC Summary Deposits data as of June 30 of each year. Excludes U.S. Branches of foreign banks and OTS trust institutions that were not required to file the branch office survey. Excludes credit unions. Source: SNL Financial and FDIC Summary of Deposits filing.

33. 32 External Environment Leaders Must Oversee a Great Transition in the Next 10 Years Reduce Avg. Branch Square Footage Avg. Branch Square Footage Branch Teller Staff Branch Teller Staff Inbound Call Center Staff Inbound Call Center Staff ATM $ Investment ATM $ Investment Legacy Payment/Delivery Technology Contract Pricing Legacy Payment/Delivery Technology Contract Pricing Redirect Mobile/Web Banking Technology Universal Branch Staff Branch Efficiency Technology Outbound Calling Unified Voice, Chat, Video Call Center E Marketing Talent/Strategies E Payment Experimentation

34. 33 External Environment Branch of the Future? Built For Speed and Efficiency Source: BAI.org ●Personal Bankers will focus on deepening relationships of high-value clients. ●ATM Area can be walled off after hours for 24 hour service ●Teller stations are located in the back behind a glass wall to indirectly discourage customers from using staff to perform teller services. ●The focus on self-service will drive down cost but can could potentially hurt sales opportunities in the future due to less interaction / engagement. ●Branches of the future will be focused on speed and self-service (operating efficiency). ●Smart Ipad like ATMs that have capabilities such as: –Deliver any desired increment of bills –Bill Payment –Pre-paid Card Loading –Enhanced Bulk Deposits

35. 34 External Environment Branch of the Future? ●Employs universal associates rather than traditional tellers. ●Environment strongly encourages active engagement with staff. ●Café type setting that offers coffee and wine glasses (but you have to bring your own wine). Built For Engagement Source: BAI.org ●The focus on engagement helps develop deep profitable relationships and encourages needs based selling but also has a higher cost structure.

36. 35 External Environment Branch of the Future? Traditional BranchNew Branch Source: WSJ, The Financial Brand ●“Typical branches are larger than 4,000 square feet and cost roughly $3 million to build, depending on the size and other features. Older branches can be as large as 10,000 square feet.” ●“Minibranches take up 2,000 square feet or less. Bank executives estimate the operating costs of the branches can be 40% to 50% below traditional branches.” Built For Convenience ●Wells Fargo’s “Neighborhood Bank Format” is one third the size of traditional branch. ●Contains small private areas where customers and bankers can have private financial conversations. ●Smart ATMs with predictive analytics based on customers previous transactions and preferences.

37. 36 Strategic Forces - Technology External Environment

38. 37 Technology Spending Shifting to Strategic and Delivery Spending Category Strategic Impact IndustrySpending Vendor Opportunities Data ComLow.0279% Pricing commoditized InfrastructureLow.0486% Pricing commoditized though IaaS pricing is clouding CoreMedium.0525% Pricing commoditized – opportunity to reduce costs at renewals Negotiate emerging services (very carefully) Watch COLA’s StrategicHigh.0475% Pricing all over the board BSA, ERM, CRM, ECM, LOS….acronyms! The “solution behind the solution” in many cases Electronic Delivery High.0280% Mobile, P2P & A2A – start-up pricing in place Watch terms – only go long if sufficient reward SLA’s can be crucial as emerging services increasingly SaaS or BPO Debit, internet banking / bill pay – pricing commoditizing & very fluid. Big opportunity at renewals & with payments exclusives. Sources: The Cornerstone Report (note Spending as % of Assets); Experiences from the Cornerstone Contract Vault

39. 38 Top Bank and Credit Union Executive Technology Issues External Environment

40. 39 It’s Less About Core Replacement Than The Entire Technology Environment External Environment

41. 40 Digital Portfolios Are Growing With Opportunity and Headaches External Environment

42. 41 The Typical Application Portfolio Priorities for CIOs External Environment

43. 42 Brad Smith’s Buzzkill Chart Mobile Replace ments Mobile Payments Consumer RDC Wearables Fraud Prevention Tools Business LOS PFM Big Data/BI Internet Cash Mgmt Replacement Cloud Internet Banking Replacement Process Improvements Technology Contract Renegotiations Website. Makeovers Commercial RDC Consumer LOS API/Middle- ware Core Evaluation Bitcoin/ Blockchain Mortgage LOS ERM Teller/New Account Platform Online Account Opening eSignature ECM/EWF eMarketing & CRM Call Center Systems SAN VDI/Server Consolidation Hype Quadrant EMV External Environment

44. 43 Other Tech Trends ●March to the Cloud –Do you even know what your users are doing on your network –Software as a Service (SaaS) –Infrastructure as a Service (IaaS) ●More applications, more vendors, more outsourcing ●Technology organization challenges. Who owns? –Business Analysts –BCP planning and testing –Vendor management (VMO) –Project management (PMO) –Data warehouse –Marketing analytics –Payments ●Technology staffing challenges –The new CIO –Cyber/Info Security skill sets –More outsourcing is not eliminating IT FTE’s, it’s just making them more specialized and harder to find (eg, WebLogic/WebSphere integrators, cloud brokers/security)

45. 44 External Environment Strategic Forces - Demographic

46. 45 In the next 5 years, there will be 8 million new millennial households. Projected to spend $1.6 trillion on new homes Projected to drop $600 billion on rent 80% plan to improve their living situations 80% already own or plan to own someday 75% believe ownership is an important long- term goal 73% believe homeownership is an excellent investment 16% don’t plan to buy a home External Environment Millennial Dreams for the Future… Source: Nielsen

47. 46 External Environment Strategic Forces - Regulatory

48. 47 External Environment Key Regulatory Agenda Items for Banks Risk-based capital standards and CFPB inspired consumer regulations are the two biggest regulatory issues for banks. Risk-Based Capital Risk-Based Capital Cyber Security Cyber Security Mortgage Regulations (QM) Mortgage Regulations (QM) CFPB CFPB Definition of ERM Definition of ERM

49. 48 ●Cybersecurity –Self-assessment tool. They’re proud of it so you better use it. Decision points: ●Where are you vs What do you report ●What do you do with results vs What do you commit to ●Map to other standards (eg, NIST)? –Third Party Testing and your response –More frequent vulnerability testing and reporting to Board ●Appendix J ●BCP ●Incident Response ●Vendor Management 2016 IT Exam Focus Areas

50. 49 IMPACT Economic Economic – The low interest rate environment will continue to have a strain on net interest margin. Banks must focus on controlling expenses and improving viable sources of noninterest income to offset margin compression. Becoming more sophisticated with the risks/return of lending segments is also critical. Competitive Competitive – We must keep an eye on industry disruptors and continuously evaluate our business model to maximize our customer value proposition. We should steal market share, but we need to be analytic and smart enough in our approaches to make it profitable. Technology Technology- We must leverage technology to drive efficiency and offer a consistent/continuous customer experience across all channels. Also, we must prepare ourselves for an industry shift including the transformation of branches and migration to remote channels. Demographic Demographic- We must systematically collect relevant data and insights regarding Gen Y/Z financial needs/preferences and track the wealth transfer from Baby Boomer to younger generations. Regulatory Regulatory- We must find ways to be efficient and effective with compliance while integrating ERM into our way of doing business. External Environment Impact of The 5 Forces

51. 50 ALIGNING EXECUTION TO STRATEGY THROUGH TECH

52. 51 Strategic Execution Approach and Framework ●STRATEGIC EXECUTION MODEL STRATEGY ALIGNMENT Long-Term Vision Business Model BrandBrand Objectives & Priorities Priorities EXECUTION Performance Reporting Resource Management Change/Project Management Asset/Liability Management Enterprise Risk Management Products & Delivery Channels People Organizational Structure Talent Management Compensation/Incentives People Organizational Structure Talent Management Compensation/Incentives Process Benchmarking Best Practices Innovation Process Design Process Benchmarking Best Practices Innovation Process Design Technology Infrastructure Applications Vendor Management Service Delivery Technology Infrastructure Applications Vendor Management Service Delivery Aligning Execution to Strategy Through Tech

53. 52 Reality: Business Strategy Drives Technology ●Investment in lending systems to support strong niches and lines of business ●Access of customers to multiple channels to increase convenience, loyalty ●Deployment of profitability systems to support relationship analysis, pricing ●Investments in CRM to support customer service goals ●We want to differentiate, not just be “fast follower”

54. 53 Reality: Customer Experience and Process Improvement Drives Technology 4 Performance stats that will blow your mind ●75% of time spent with new customers involves computer input versus building relationships through a conversation. ●More than 50% of banks still originate commercial loans manually. ●60% of financial institutions still use a paper- based new accounts process. ●Over 70% of statements are still being mailed. http://www.gonzobanker.com/2015/08/top-4-performance-stats/

55. 54 …But Technology Often Drives Strategy ●“We need better mobile apps to stay in the game.” ●“The regulators hammered us on compliance systems.” ●“The competition is killing us with online origination.” ●“Losses are piling up so we need better fraud detection.” ●“If we want commercial checking, we need better account analysis and cash management tools.”

56. 55 JUSTIFICATION AND PAYOFF

57. 56 Managing the Justification Quadrants Requirement (Reg, Strategic ) Measurable Payoff (ROI, metrics) Required Optional High Low “Leaps of Faith” Treat as R&D Allocate some portion of the budget Start slowly and accept failure Hope for but don’t expect payoff “The Plumbing” Manage costs vs. peer/industry benchmarks Manage standards Manage centrally Plan refreshes/upgrades Bundle if it makes sense “Instant Winners” Fast track Manage to payoff LOB accountability Accept best of breed “Proceed with a case” Manage payoff Measure business improvements Use peer numbers High LOB accountability Accept best of suite Justification & Payoff

58. 57 How Technology Investments Can Differ -- SAMPLE (Be Your Own Judge) Requirement (Reg, Strategic ) Measurable Payoff (ROI, metrics) Required Optional High Low Most core systems processing Most infrastructure ATMs Hot site Instant Issue Debit esignatureInternet banking Mobile payments Branch automation Loan automation Online origination CRM Data warehouse ECM Cash management Fraud Detection Mobile Banking P2P PFM Profitability MCIF Prepaid Debit Pure R&D Justification & Payoff Cloud Middleware SEO ITM

59. 58 Justification & Payoff ●ROI accountability on the line of business, not I.T. ●Manage “hard” payoff vs. “soft” payoff ●Hard payoff comes in two ways –Lower salaries and benefits (higher volumes/same people) or FTE reduction –Reduced cost of existing hardware, software, third parties ●Soft payoff is harder to measure, but can be valid –Relationship/account growth (maybe new revenue) –“Sticky” service (maybe retained revenue) –Faster delivery (maybe new revenue) Justification & Payoff

60. 59 Examples of Hard and Soft Payoff Business Group Hard ROI Soft ROI Retail/Branches Transactions per teller New accts opened per platform FTE Calls per call center agent/day Relationships per customer/ household Checking accounts per branch Commercial Portfolio size/relationships per lender Assistants/support staff per lender Decision time Renewal time Electronic Delivery Debit/ATM revenue Cost per Internet banking user/month Cost per bill Cost per ATM/debit transaction (authorize and network) Cost/revenue per business cash management user Cross-sells to customers Customer access/convenience Customer retention Operations Deposit accounts supported per deposit ops FTE Loans supported per loan ops FTE Accounts per BSA/AML FTE Internal service levels Audit scores Admin Employees supported per HR FTE Assets per finance FTE Internal service levels Better information Justification & Payoff

61. 60 Potential Weak Spots in JustificationsAreas Questions to Ask Justification Were projects approved with sketchy justification? New I.T. purchases required to meet a standard architecture? Functionality Buying software modules based on requirements? How much customization was purchased and what was the justification? Capacity What projections were used to determine licensing levels purchased (users, seats, assets, volumes, etc.)? What projections were used to determine physical capacity purchased (storage, speed, bandwidth, etc.)? Contract Did the business impact analysis determine vendor service level requirements? How were prices negotiated? Operations Do you know where your hardware, software, network and information assets are? Are purchased systems being utilized; if not, can you get rid of them? Are you looking for waste in contracts? Justification & Payoff

62. 61 GOVERNANCE

63. 62 Governance Governance Critical in Justifications ●I.T. governance is key in value realization –Vendor management programs should include cost, benefit AND risk –Business case justification, use IT Steering Committee to vet and prioritize –Disciplined evaluation process –Always get competitive bids and always negotiate –Training, training, training – plan on it –Annual IT performance review and usability study –Review your bills –Assign application owners ●Formal I.T. plans are in place, but many are tech heavy and light on strategy/payoff ●I.T. steering committees are in operation –Most have a good meeting/minutes discipline but most do not say “NO” enough –Most don’t look back to see if ROI exists –Many turn out to be information updates –Tracking reports of projects in place, but accuracy and timeliness are still challenges

64. 63 Governance There is Real Opportunity in Contracts ●Renegotiate, renew, replace and/or retire contracts –Do not let a contract auto-renew unless you want to give a free gift to your vendor –Negotiate price –Negotiate terms and conditions - warranties, indemnification, regulatory guarantees, termination penalties, deconversion costs –Negotiate SLAs and other performance guarantees ●Gather contract inventory ●Determine what contracts are up for renewal in next 36 months ●Develop decision/negotiation timeline ●Watch terms – shorter terms are usually your friend ●Dispose of unwanted systems/modules ●Avoid inactive/closed account fees where possible ●Watch out for COLA and price increases

65. 64 Taking Advantage of Price Commoditization – Plan the Spending Redirect LowHigh Mobile Internet Banking Core Systems Telco Degree of Price Commoditization Realization of Price Opportunity Online Deposit Apps Bill Payment Online Mortgage Apps Item Processing Debit Processing Infrastructure Risk Management P2P ATMs, Processing

66. 65 TECHNOLOGY PLANNING

67. The Big 5 Strategy Questions QuestionsGazelle’s Model 1.What’s your purpose?Core values and purpose 2.What makes you truly unique?Brand promise (aka USP or competitive advantage) 3.Where do we want to be in 1, 3 and 10 years?Targets, goals and BHAG 4.What needs to happen to get you there?Actions (aka strategies) 5.Who’s responsible for what and by when?Schedule

68. Bank CEO’s Strategic Priorities for 2015 CIO/CFO/COO Technology Priorities for 2015 1.Grow commercial loans 2.Become more efficient through workflow and/or technology 3.Use technology for competitive differentiation and improved customer experience 1.Improve use of consumer Internet banking systems 2.Improve use of ACH origination 3.Improve Internet RDC Industry Disconnect? Is technology aligned with strategy?

69. Bank Strategy/Technology Cheat Sheet Bank StrategyPotential Technology Connection Grow commercial loansCommercial loan origination system (LOS), loan pricing system, CRM, core upgrade Grow cash management/business deposits Core upgrade (for account analysis, sweeps, ZBAs), automated wires, IB/mobile commercial remote deposit capture, commercial Internet banking, positive pay, innovative small business products like picture pay or reverse positive pay, mobile CRM/account opening Grow consumer businessMobile products, Loyalty/Rewards programs, Call Center Improve efficienciesEnterprise content management (ECM), other workflow, automated decisioning, middleware Improve risk management/complianceEnterprise risk management (ERM), stress testing tools, LOS Acquire another bankUpgrade core, upgrade infrastructure, decision on payments and LOB apps Improve salesCRM, sales incentives, appointment setting, online account opening, website upgrades incl SEO, blogs and product recommender

70. Typical Technology Planning and Budgeting Issues We See Lack of alignment with bank strategic plan (assuming there is one!) Plan without a budget Budget without a plan Plan that’s never approved Budget that’s never approved Plan is really just a wish list Plan is just a list of projects Plan is just a list of IT audit findings Budget is for infrastructure only CFO dictates budget to IT executive CIO dictates budget to CFO, little business line involvement Plan and forget

71. Correlation with Bank Strategic Plan Bank Strategic Plan Technology Plan and Budget Commercial Plan and Budget Marketing Plan and Budget Retail Plan and Budget Bank Strategic Plan and Budget

72. Planning and Budgeting Process Bank Strategic Plan IT Department Plans Strategic Technology Plan Technology Budget Business Line Plans IT Steering Committee Bank’s Budget Process Project plans Upgrade plans Rotation schedule Wish lists Staff changes and comp Target metrics Audit and exam findings

73. Get into the Planning Rhythm Bank-wide planning –Planning session to answer the 5 Big Questions –Document the bank-wide plan (ideally on one page) Departmental planning sessions –Planning sessions to identify departmental Top 5 priorities –Document the departmental/LOB plans (ideally on one page) –Build departmental budgets –IT builds its plan/budget and then incorporates departmental IT needs Get executive approval on departmental plans and initial budgets Build the bank-wide budget Present bank-wide plan and budget to Board for approval Review all plans monthly Update all plans quarterly

74. Technology Planning - Short Version Technology Planning - Short Version 3Year1 Year90 Days (Q1) Top 3-5 Priorities to support bank’s 2018 plan Top 3-5 Initiatives to support bank’s 2016 plan Name by each 2-3 milestone dates Top 3-5 Initiatives to support bank plan Name by each Expected IT spending One other metric Key questions to answer: What are the top 3-5 IT actions to support the bank’s goals? What do you expect IT spending to be over the next 3 years? What key performance metrics do you want to track and what are your targets?

75. IT Metrics Types –Spending ●IT Expense as % of Assets, IT Spending per FTE, IT Spending as % of NIE, Budget Variance, etc –Delivery ●% of SLAs met, Uptime/Availability, Turnaround time, response time, etc. –Satisfaction ●Employee satisfaction with IT support, Internet banking/Mobile/ATM customer satisfaction, etc –Risk/Compliance ●IT Audit Findings, IT Audit Repeat Findings, BCP Recovery, Vendor Management, etc Compare to peer if possible…it’s still important to compare to yourself Pick two to include in your plan and to report to management monthly –Spending (must include) –One other counter balancing metric (we suggest a performance KPI like satisfaction or % of SLA met)

76. Forecasting Your 1-3 Year IT Spending Top down approach –Determine current IT Expense as % of Assets –Multiply by projected 2016, 2017, 201 assets Bottoms up approach –Baseline 2015 budget/actual –Plus CPI adjustments and contingency –Plus New infrastructure upgrades –Plus New strategic initiatives

77. Your IT Budget Non-discretionary ‒Existing contracts ‒Sunk costs ‒Audit or exam promises Degree of Flexibility Semi-discretionary – Personnel costs – Maintenance – Upgrades and replacements – Some compliance related expenses Discretionary – New strategic investments Showing budget broken into these categories is a simple way to show what % of budget is discretionary

78. Takeaways Bank products, channels and customer experience are now largely driven by technology. Internet banking and mobile is the new core. The CIO opportunity - IT as pragmatic business advisor not just the grump that say no or the dreamer that just wants new toys Improve IT governance to focus on value creation and GRC Start with your bank’s strategic plan Big questions to answer in your strategic technology plan What are the top 3-5 IT actions to support the bank’s goals? What key performance metrics do you want to track and what are your targets? What do you expect IT spending to be over each of the next 3 years? Involve IT Steering Committee Review progress monthly and update quarterly Celebrate accomplishments

79. 78 www.gonzobanker.com American Banker calls GonzoBanker a “hip and flip” email newsletter. Don’t miss out – sign up for your FREE subscription today at www.gonzobanker.com A collection of observations, ruminations, predictions and random thoughts on financial services from the team at Cornerstone Advisors GonzoBanker™ is a publication of Cornerstone Advisors, a Scottsdale, Arizona-based consulting firm specializing in best practices strategy, technology and process improvement for banks and credit unions. Visit our Web site at www.crnrstone.com GonzoBanker™ is a publication of Cornerstone Advisors, a Scottsdale, Arizona-based consulting firm specializing in best practices strategy, technology and process improvement for banks and credit unions. Visit our Web site at www.crnrstone.com

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