Financial Projections

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Overview

Financial projections are critical during the bank charter application process. These projections will help to determine how the bank will experience growth during the early years. When filing applications with the Federal Reserve, visit the Federal Reserve's Application Filing Information website. This site contains general information about the types of filings required by the Federal Reserve and how applications are processed.

Requirements

In the applications process, the applicant bank will be required to submit financial projections for either three or five years. All growth targets must be supported by the capital the group intends to raise. The higher the growth targets, the more capital that will be needed. The projections must be realistic and represent the results of reasonable plans. Keep in mind that these are projections that the bank will be expected to meet. So, the details and supporting schedules must be well thought out and must support the projected results.

The growth projections must be consistent with and reflective of the bank's mission and not just based on prior operations. All applicants should be prepared to submit the following:

Organizational expenses
Operating expenses
Occupancy expenses
Cost of furniture, fixtures, and equipment (including depreciation method and amortization schedule)
Lease details
Salaries by individual position
Cost of temporary facilities

Several minority bank officials have confirmed that many of these expenses are often higher than originally projected, depending on the needs of the community to be served. For example, if there are multiple languages spoken in the community, staff may need to be trained, or an institution may need to require bilingual capability in its job applications, resulting in higher staff expenses. In some situations, staff may need to spend more time with customers to ensure that they understand the products and services. These activities are important to maintaining a strong, positive relationship with a community, and they may help a bank grow. The additional expense, however, should be factored into financial projections.

At a minimum, a balance sheet, an income statement, and a capital statement will be required to be submitted with all financial projections.

For details concerning the state charter application requirements, visit the Conference of State Bank Supervisors' website to reach any of the state banking commissioners in the country.