In today’s volatile economic climate and regulatory environment, evaluation of profitability drivers has become more complex since all growth does not create sustainable value. In fact, some industry estimates suggest that more than 40 percent of a bank’s customers may in fact be unprofitable, so banks must analyze and measure which segments are hindering their profitability and take meaningful, corrective action.
As one of the largest privately held community banks in Indiana, with assets of $1.6 billion, STAR Financial Bank has a strong need for a robust, measurable profitability framework that creates a clear picture of how its customers, products and channels impact profitability. While STAR Financial Bank’s finance team leveraged a third-party planning and reporting software for many years, the bank had minimal visibility into what segments were truly creating or undermining value.
The bank, based in Fort Wayne, understood the importance of identifying the specific components of its business that had the largest impact on its profitability. This lack of profitability reporting as well as a looming contract renewal with its current planning and reporting software provider kicked off the bank’s search for a new technology that better suited its needs.
Tailored Platform, Financial Expertise
After reviewing several technology providers, STAR Financial Bank determined that Axiom EPM’s performance management solutions were tailored specifically for today’s financial institutions and could easily scale to fit the varying needs of the bank and its wide range of customers.
“Axiom EPM has such a high level of financial expertise that we feel very comfortable with this partnership,” said Mark Hutchinson, assistant vice president, cost accounting manager for STAR Financial Bank. “We are able to comfortably ‘talk shop’ about things like funds transfer pricing that we weren’t comfortable talking about with other vendors we were considering.”
The profitability solution offers the market-based functionality that the bank demands, providing STAR Financial Bank with trusted, actionable information needed to drive down costs and invest in segments that have higher returns. Additionally, greater insight into the bank’s profitability drivers helps the front-line staff at the bank’s branches assess the effect on profitability of potential offerings at the customer level.
Not only was the profitability solution developed with banks in mind, but the comprehensive platform also pulls all of the pieces together in one, unified platform, eliminating the need for STAR Financial Bank to integrate a patchwork of applications.
Simple, Familiar Interface
The platform is built on the Microsoft Excel interface, allowing the bank’s team to manage data in a familiar format while leveraging Excel’s modeling flexibility. The familiarity of Excel eliminates the learning curve of a new system and results in a more positive adoption among the bank’s users. The system is also easy for the bank’s executive team members, who may need to quickly pull information at any moment.
“Our executive team is able to retrieve financial and operational results quickly and easily, increasing their financial acumen and resulting in better decision-making,” said Karen Gregerson, senior vice president and chief financial officer of STAR Financial bank.
While Excel is a great baseline tool, it does have its deficiencies. However, Axiom EPM’s profitability platform expands on the finance-friendly nature of Excel while eliminating the error-prone functionalities of stand-alone spreadsheets to satisfy both the bank and its IT department’s needs. STAR Financial Bank’s finance department completely owns the system and can edit or create components without consulting IT.
“They feel comfortable with it, which is extremely important because this is truly going to be the one source of truth for all decision-making,” said Hutchinson.
STAR Financial Bank began to evaluate the company’s platform a year before its contract ended with its previous planning and reporting software provider, and Axiom EPM fielded support questions throughout the year. The bank’s upper management was so impressed with its capabilities, personnel and support that they pressured finance to implement the solution a year earlier than anticipated, giving the vendor a tight three-month implementation timeline.
“Axiom EPM’s deep industry experience and knowledge gave us the confidence we needed to pursue such an aggressive timeline,” said Gregerson.
A dedicated team of implementation consultants was appointed to the project and was committed to providing a high level of support throughout the entire process. Within three months, STAR Financial Bank’s new profitability software was up and running.
Result: Granular Insight Into Profitability
STAR Financial Bank now has complete visibility into which customers, products, channels and services drive the most significant value, providing the whole organization a greater transparency and understanding of profitability. Axiom EPM’s comprehensive platform provides the bank with a wide spectrum of analytical profitability reporting and analysis including data segmentation, ranking and slicing and dicing.
Because the bank no longer has to worry about completing the labor-intensive tasks of manual data compilation and reporting, its finance department has saved a significant amount of time and resources that can be used elsewhere, such as advising management on key business decisions. Upper management now has the capacity to take on a more advisory role in the bank and determine ways to better serve the bank’s customers, which has always been a core focus.
Prior to implementing a profitability solution, it would take several weeks for the bank to determine its regional top 25 customer list because it was a mostly manual process. Now, the bank can produce this list within just a few minutes. Additionally, the solution enabled it to reduce its report volume by a ratio of four to one, eliminating duplicative reporting.
“Axiom EPM’s reporting has allowed the business as a whole to have a greater transparency and understanding of profitability,” said Hutchinson. “We can get to the lowest levels of instrument data and then roll that up into various segments. Profitability reporting has definitely been our major value-add with Axiom EPM. It’s also changed my role for the better. I’m spending more time advising management instead of compiling data.”
Ken Levey is the vice president of financial institutions for Axiom EPM. For more information, visit www.AxiomEPM.com.
Copyright February 2014. BankNews Media.