Business Plan Guidelines

Business Plan Guidelines
Preparation and Use
The business plan should be an integral part of the management and oversight of a financial institution
(institution). It should establish the institution’s goals and objectives. It is a written summary of how
the business will organize its resources to meet its goals and how the institution will measure progress.
The business plan should be a comprehensive plan, which is the result of in-depth planning by the
institution’s organizers and management. It should realistically forecast market demand, customer
base, competition, and economic conditions. The plan must reflect sound banking principles and
demonstrate realistic assessment of risk in light of economic and competitive conditions in the market
to be served. An institution with a special purpose or focus (for example, credit card, trust only, cash
management, or bankers’ bank) should address this special or unique feature in detail in the
appropriate sections of the plan.
The business plan should cover three years and provide detailed explanations of actions that are
proposed to accomplish the primary functions of the institution. The description should provide
enough detail to demonstrate that the institution has a reasonable chance for success, will operate in a
safe and sound manner, and will have adequate capital to support the risk profile.
For any institution with an Internet or alternative electronic delivery channel, the plan should contain a
clear and detailed definition of the market the institution plans to serve and the products and services it
will provide through electronic channels. Because the Internet has a potential global market and can
reach anyone with Internet access, the selected information on market area and products and services is
essential. The marketing plan should explain how the institution would achieve brand recognition.

Confidentiality
Any Applicant desiring confidential treatment of specific portions of the plan and projections
must submit the request in writing. The request must discuss the justification for the requested
treatment. The Applicant’s reasons for requesting confidentiality should specifically
demonstrate the harm (for example, loss of its competitive position, invasion of privacy) that
would result from public release of information (5 U.S.C. 552 or relevant state law).
Information for which confidential treatment is requested should be: (1) specifically identified
in the public portion of the application (by reference to the confidential section); (2) separately
bound; and (3) labeled "Confidential." The Applicant should follow the same procedure when
requesting confidential treatment for the subsequent filing of supplemental information to the
plan.
The Applicant should contact the appropriate regulatory agency for specific instructions regarding
requests for confidential treatment. The appropriate regulatory agency will determine whether the
information will be treated as confidential and will advise the Applicant of any decision to publicly
release information labeled as "Confidential."

BUSINESS PLAN
I.

Table of Contents

II.

Executive Summary
Describe the highlights of the plan.

III.

IV.

Description of Business
A.

Describe the institution’s business and any special market niche, including the products,
market, services, and nontraditional activities.

B.

If in a holding company structure, discuss the operations of the organization, including
a brief detail of the organizational structure and interaction between the institution and
its affiliates.

C.

Describe the extent, if any, that there are or will be transactions with affiliated entities
or persons. Include terms.

D.

Discuss the legal form and stock ownership of the institution and any investment in
subsidiaries or service corporations.

E.

For an operating company, describe the present financial condition and current
resources, such as office network, staff, and customer base. Specifically discuss the
strengths and weaknesses.

F.

Describe the proposed location, office quarters, and any branch structure.

G.

Discuss any growth or expansion plans, including additional branches, other offices,
mergers, or acquisitions.

Marketing Plan
A marketing plan should provide in detail factual support that the institution has reasonable
prospects to achieve the revenue projections, customer volume, and key marketing and income
targets. The analysis should be based on the most current data available, and the sources of
information should be referenced. This section should contain an in-depth discussion of the
major planning assumptions for the market analysis, economic, and competitive components
used to develop the plans, objectives, and the basis for the assumptions.
A.

Product Strategy
1)

List and describe the general terms of the planned products and services,
including activities of any subsidiaries. Discuss any plans to engage in any
subprime or speculative lending, including plans to originate loans with high
loan-to-value ratios.

2)

Discuss how the institution will offer products and services over the three years,
indicating any variation in the different market areas or distribution channels,

and include the time frame for the introduction and the anticipated cost
associated with each.

B.

C.

1

3)

Describe the institution’s plans to engage in any secondary market/mortgage
banking activity, including loan participations. Discuss plans to use forward
take-out commitments or engage in loan securitization. Describe any plans to
engage in hedging activity to mitigate the risks of this activity. Also, discuss
plans to retain recourse and servicing.

4)

Describe the primary sources of loans and deposits and the major methods to
solicit them. If using brokers or agents, provide full details of the nature and
extent of all such activities, including sources, amounts, fees, and any intended
tie-in of compensatory arrangements with the broker or agent.

5)

Describe any arrangements with e-commerce businesses (for example, links to
another’s Web site to shop, order, or purchase goods and/or services online).

Market Analysis
1)

Describe the intended target market and the geographical market area(s).

2)

Describe the demographics of the target market population (for example, age,
education, and occupation).

3)

For a federal savings association filing, discuss in detail any current and/or
proposed actions to accomplish the institution’s commitment to promote home
financing.

Economic Component1
1)

Describe the economic forecast for the three years of the plan. The plan should
cover the most likely scenario and discuss possible economic downturns.

2)

Indicate any national, regional, or local economic factors that may affect the
operations of the institution. Include an analysis of any anticipated changes in
the market, the factors influencing those changes, and the effect they will have
on the institution.

3)

Describe the current economic characteristics of the proposed market(s), for
example, size, income, and industry and housing patterns.

4)

Based on the economic characteristics described previously, discuss the
economic factors that influence the products and services to be offered. A more
in-depth discussion is warranted when different types of services are identified
for different market areas in the Description of Business section.

If obtained, discuss any independent economic survey or market feasibility study.

D.

V.

VI.

VII.

Competitive Analysis
1)

Compare and contrast the institution’s product strategy with its principal
competitors in the target market(s). Include expected results in terms of relative
strength, market share, and pricing.

2)

Discuss the overall marketing/advertising strategy, including approaches to
reach target market through the marketing of brand, products, and services.
Outline the specific medium that will be used, including timing and level of
advertising efforts.

3)

Discuss potential competition in the target market(s).

Management Plan — Directors and Officers
A.

Provide the number of organizers and/or directors. Provide a list of board committees
and a brief explanation of the responsibilities of each committee.

B.

Describe the organizational structure and provide an organizational chart, indicating the
number of officers and employees. Describe the duties and responsibilities of the senior
executive officers. Describe any management committees that are or will be
established.

C.

Discuss the institution’s plans to address management succession, including any
management training program or other available resources.

Records, Systems, and Controls
A.

Describe the institution’s current and/or proposed accounting and internal control
systems, indicating any use of electronic processing systems.

B.

Describe management’s proposed internal audit function. The description should set
forth the independence of the department and the scope and frequency of audits.
Discuss the experience and education of the audit staff. If external auditors will be used
for internal audits, provide similar information for the external auditors.

C.

Describe the compliance management programs, addressing independence, scope,
frequency, and staff qualifications. Discuss how the institution will respond to
consumer complaints.

D.

State plans for an annual audit by independent public accountants.

E.

Discuss the functions that will be outsourced and what the institution will do in-house.

Financial Management Plan
A.

Capital and Earnings
1)

Discuss the capital goals and the means to achieve them.

B.

C.

2)

Discuss the earnings goals in terms of return on assets, net interest margin, or
other profitability measurements, and summarize the strategies to achieve those
goals.

3)

Discuss the plan for raising capital and for financing growth, with particular
emphasis on conformance with regulatory capital requirements.

4)

Discuss the adequacy of the proposed capital structure relative to internal and
external risks, planned operational and financial assumptions, including
technology, branching, and projected organization and operating expenses.
Present a thorough justification to support the proposed capital, including any
off-balance-sheet activities contemplated.

5)

Describe the debt service requirements for any debt that will be issued at the
holding company level to capitalize the institution.

6)

Discuss the use of options, warrants, and/or other benefits associated with the
institution’s capital.

7)

Summarize the dividend policy.

Liquidity and Funds Management
1)

Discuss how the institution will identify and measure liquidity risk.

2)

Discuss the institution’s plan to monitor and control its liquidity risk, including
funding sources (deposits, borrowings, securitizations). Include holding
company support, if any.

3)

Describe any plans to borrow funds from any financial institutions or other
sources, including the amount, composition, interest rate, maturity, purpose, and
collateral.

4)

Discuss the type of investment securities the institution plans to purchase.

Sensitivity to Market Risk
1)

Discuss the institution’s objectives, strategies, and risk tolerance for interest rate
risk.

2)

Discuss how the institution will identify and measure interest rate risk.

3)

Discuss the institution’s asset and liability portfolio in terms of sensitivity to
interest rate changes and the impact of earnings and capital and net portfolio
value. Discuss the risk limits to control interest rate risk.

4)

Describe any plans to use hedging activities (for example, futures, options,
interest rate swaps, or other derivative instruments).

D.

Credit Risk
1)

Discuss how the institution will identify and measure credit risk.

2)

Describe the loan review program, addressing independence, scope, frequency,
and staff qualifications.

3)

Describe the methodology used to determine the allowance for loan and lease
losses.

VIII. Monitoring and Revising the Plan

IX.

A.

Describe how the board of directors will monitor adherence to the business plan.

B.

Describe how the board of directors will adjust and amend the plan to accommodate
significant or material economic changes.

Alternative Business Strategy (Optional unless your regulator requires)
An alternative business strategy details how an institution will operate under scenarios in which
market conditions differ significantly from those projected in this business plan. This
alternative business strategy should be realistic about the business risks and incorporate sound
management of such risks. This alternative strategy should consider potential adverse scenarios
relating to the asset or liability mixes, interest rates, operating expenses, marketing costs, and
growth rates. This discussion should include realistic plans for how the bank would access
additional capital, if needed, in the future and, if applicable, contingency funding plans that
address strategies for managing potential liquidity fluctuations. This plan also should discuss
any financial safeguards to offset unexpected costs and remain well capitalized.
Periodically, the institution should update this section, especially as the institution becomes
more complex and as industry conditions change.

X.

Financial Projections
A.

Provide financial information for opening day pro forma and quarterly projections for
the three years of operations. Also provide annual totals for the Income Statement. The
line items in the financial statements should be consistent with the Consolidated Reports
of Condition and Income3 so that projected items may be compared conveniently with
actual performance. The following reports should be used:
Projected Balance Sheet (Schedule RC or SC)
Projected Income Statement (Schedule RI or SO)
Regulatory Capital Schedule (Schedule RI-A or CCR)

3

See FDIC’s Web site, http://www.fdic.gov/regulations/resources/call/crinst/callinst.html

The financial statements should be presented in two ways: (1) showing the dollar
amounts, and (2) as a percentage of total assets.
1)

Describe in detail all of the assumptions used to prepare the projected
statements, including the assumed interest rate scenario for each interest earning
asset and interest costing liability over the term of the business plan. Also
present a thorough justification to support proposed capital, including any
branch expansion and off-balance-sheet activities contemplated.

2)

Provide the basis for the assumptions used for noninterest income and
noninterest expense. Indicate the amount of lease expense, capital
improvements, and furniture, fixtures, and equipment, including systems and
equipment upgrades.

3)

Describe the assumptions for the start-up costs, volumes, expected returns, and
expected time frame to introduce each new product and service.

B.

Discuss how the institution used marketing studies or surveys to support the
institution’s projected growth.

C.

Discuss the level of marketing expenses necessary to achieve the projected market share
for both loan and deposit products. Assumptions should be consistent with those
experienced by other institutions in the target market. Explain any significant variances
between the assumptions in the target market.

D.

Provide a sensitivity analysis of the financial projections. A sensitivity analysis
provides a realistic stress test of the major underlying assumptions used in the business
plan and the resultant financial projections. For example, adjust the financials to reflect
the effects of adverse changes in the interest rate environment, changes in the
asset/liability mix, higher than expected operating expenses, marketing costs, and/or
growth rates.