It's hard to think of an industry where precise record-keeping is more important than it is in banking. Without computerized records, today's megabanks couldn't function.
When City National Bank of West Virginia in Charleston, W.Va., doubled its already rapidly growing business as a result of a merger with Horizons Bancorp, it was forced to acknowledge the shortcomings of its commercial loan management processes. Loan documentation was falling through the cracks, profitability of customers wasn't being tracked, loans weren't filed and updated efficiently and the financial statement analysis procedure wasn't comprehensive enough. As a result, the bank was putting itself and its customers at risk.
Over six years, beginning in 1992, the West Virginia bank ballooned from $300 million in assets to $1.5 billion. In 1999, after merging with Horizons Bancorp, the bank nearly doubled to $2.5 billion in assets, but it didn't have the processes in place to handle that kind of growth.
Sloppy Filing Threatens Business
"We were not as efficient as we should have been," admits Jack Cavender, executive vice president of the Charleston, W.Va.-based bank. "We were making money, but we needed to do something to make sure we remained profitable."
"They based a lot of business on personal relationships, and they weren't doing enough due diligence," says Joe Kuntz, relationship manager at Baker Hill, a CRM solution provider for financial institutions, based in Carmel, Ind. "They could handle it when they were smaller, but it became a problem when they expanded."
For example, when the bank gives a customer a loan, it is expected to gather and manage a series of trailing documents that come in over the course of the loan's life, such as insurance policies, quarterly financial statements and titles. These documents help the bank judge customers' financial viability and secure their ownership of the loan. Because the bank didn't have a comprehensive system, no one kept up on these trailing documents. Some got misfiled, or not collected at all.
"It was really inefficient," says Cavender. "The old system didn't effectively track documents. We could be missing documents and not know it, or have documents and not realize it." It also put the bank at risk. "If a loan isn't perfected, or isn't fully documented, it becomes difficult to claim when a borrower doesn't pay," he adds. "A better tracking system will allow us to make unperfected loans perfect."
"These kinds of problems aren't uncommon in banks," says Kuntz, "but in this case it was becoming extreme." The bank's ability to judge profitability of customers was also in question as a result of its inadequate processes. It was losing money and missing opportunities to sell more products to more clients due to cumbersome approval processes and the inability to judge the true worth of a customer.
"Profitability is a big deal in commercial loans," says Cavender, and more than $1 billion of the bank's assets are commercial loans. Based on the number of loans customers have, their financial viability and their credit history, the bank can cross-sell products to them and offer them higher or lower rates. Without that information, however, the bank could be overcharging some customers, risking losing them to the competition, and undercharging others, losing potential profits in the process. "With the old system, we would just shoot from the hip," he says, "because we couldn't adequately judge profitability."
"They were using small bank policies to run a big bank," says Kuntz. "There was a lot of good ol' boy lending going on there. The credit and collateral sides were in disarray, and there was no consistency. It was too relaxed."
And, because the merger combined similarly sized organizations, Kuntz believes neither had a strong enough credit culture to dominate the other. "There was no one at the top saying, 'These are the procedures we need to follow.'"
Data in Jeopardy
On top of trying to make inefficient management procedures accommodate $2.5 billion in assets, the merger forced the bank to blend two information systems while trying to maintain control over all of its customer data. Because the two systems were based on different sets of parameters, it was difficult to combine them.
"When one system takes over another, you lose things," says Cavender. "We were lacking a CRM tool to pull it all together."
Blending the systems caused further complications with loan tracking, collateral evaluation, policy exception and financial statement and tracking. As a result of all of this, the bank fell under heavy scrutiny from the Office of the Comptroller of the Currency. "The examiners hammered them pretty severely last year," says Kuntz. "The bank couldn't handle that kind of publicity and maintain all of its relationships." It became clear to the bank that in order to remain profitable and stable, it needed to clean up its act and take control of its client management systems.
"They understood that they were a relationship bank, but to survive they needed to do a better job of selling and managing their services," says Kuntz. To do this, City National Bank needed to implement robust CRM software.
Merging Disparate Systems
The bank considered building its own proprietary CRM tool, but felt the risk and time involved weren't worth the effort. So it turned to Baker Hill and its OnePoint CRM solution, a 32-bit consolidated database design with four integrated modules for customer relationship management.
When fully implemented, OnePoint's four modules will integrate sales automation, credit analysis, pricing and profitability of customers, and portfolio management so that all areas of the business banking are operating out of one customer database. The bank paid roughly $400,000 for the OnePoint system and its implementation.
"The four modules took care of exactly what we needed," says Cavender. "They overcame the faults in our own system."
In the spring of 2000, the bank began the software transition by implementing the analytical module, which is a spreadsheet tool that gathers data on every customer, including data on tax returns, financial statements and cash flow. The tool lets lenders see immediately how well a customer is doing financially and view the total loan relationship through one database.
"It gives a view of the financial position of the client," says Jim Hill, vice president of Baker Hill. Before using the OnePoint tool, if lenders at the bank wanted to see the creditworthiness and history of clients, they would have to look up every single credit and loan interaction in a number of separate databases.
"It's going to save a lot of time and, as a result, a lot of money due to time lost to information-gathering," says Tim Whittaker, a credit officer at the bank. "With the old system, it might take 10 minutes to gather data on a client's five accounts. With the OnePoint system I can do it in seconds."
After the analytical model is in place, the bank and Baker Hill will work together to implement the other three modules of the tool. The next major piece of the implementation will bolster the sales culture of the bank with a sales management and business development module. This set of tools will help the bank track all of its efforts to sell products to clients, including where loan officers are in the sales process, who's doing the selling and what the overall sales pipeline looks like for the bank and its subsidiaries. "It will organize the selling efforts of the bank, allowing it to make more loans and sell more services," says Hill.
The last two modules will be implemented in 2001. The risk management tool will allow the bank to track loans once they are made and make sure trailing documents are in place and updated by doing things like sending ticklers to loan officers reminding them to collect loan documents as they come due. This guarantees the loan is perfected and allows the bank to react more aggressively to tardy clients. Finally, the profitability tool will help lenders analyze and oversee the profitability of customers and potential customers and adjust rates accordingly.
More Loans, More Profits
While the profitability of implementing the OnePoint tool at the West Virginia bank has not yet been calculated, Hill estimates the greatest profit will come to the bank through the growth of its loan portfolio without having to add extra staff. The efficiencies of implementing a single database system means the bank's loan officers will require less time and less support to manage a greater number of loans adequately.
Hill points to two large banks that have already implemented the OnePoint system as examples. In one case, a $3 billion bank replaced 12 disparate databases with the OnePoint tool, and it grew 32 percent in 18 months without adding staff. The other, a $12 billion bank, grew 21 percent in two years with the same staff.
"Once it's implemented, the OnePoint system will allow us to pull in more loans, increase our profitability and ignore, or work harder on, less profitable customers," says Whittaker. However, because there is so much data to transfer from the individual databases into a single source, the implementation will take more than a year to complete, he estimates. "Transferring all of our customer data to a new system is a very labor-intensive process."
To speed it along, the bank, in conjunction with consulting support from Baker Hill, has hired a team of temps to go through every loan file, figure out what is missing, update the data then input it into the new system.
Linking Front and Back Offices
When it is fully in place and active, all of the business the bank does--in its central location in Charleston and in all of its subsidiary offices--will run from a single database. Not only will the system link satellite offices to the central database, it will create avenues through which front and back office bank employees can finally communicate, according to Hill.
In the old system, the bank was working from roughly 10 separate databases, estimates Kuntz. Each of these had some unique data and a lot of duplicated data. In some cases, employees were expected to enter the same information into several databases to complete a transaction and then manage the information across isolated databases by mining and updating each one individually. Branch offices couldn't access loan information in the central bank and vice versa, so it was never clear what the true profitability of a customer was. Putting the business on a single integrated system will make it much more efficient.
"We were doing things on a patchwork basis," says Cavender. "Now it will all be under one umbrella." Along with the tool, Baker Hill offers consulting services to help banks adjust their approach to banking strategies. They have a staff of former bankers who help analyze bank processes and create more efficient systems.
"It doesn't do any good to automate the technology without making the processes better," says Hill. Integrating the front and back offices is a crucial element of building efficiency and profitability into the West Virginia bank's business model, says Hill. When loan officers are linked to the back office, they will have access to the most recently updated customer data and profitability projections, and they will be better able to answer client questions on the spot, which allows them to make faster decisions and get money to clients more quickly.
"The ability to respond quickly to client requests is a major competitive advantage for banks," says Hill. "A loan process that once took a week will be completed in a few days or less, which adds value for customers." For back office employees, the value of connecting with loan officers and other front office employees is they get loan data more quickly, which allows them to analyze creditworthiness of clients better. It also lets them proactively remind loan officers to update loan files when documents come due.
"Typically, it's not a priority for front office employees to update loan files," says Hill. "The automatic reminders will keep data from falling through the cracks."