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Search Results: Lodestone

2015 ISA ENTRY – Lodestone Banking Consultancy’s Profit Isolator

In terms of revenue, banks are like a sieve, no sooner do they plug a hole that another one opens. It is critical to have data mining tools that can quickly track financial institutions’ key profit drivers on a monthly basis, to find and correct loss of revenue in key general ledger buckets such as overdraft, loan, electronic banking, service charge fee income, trust, etc.

To date, bank management has not had accurate data mining reports generated from queries. Bankers can see on their general ledger how the bank is performing bank-wide, however without these reports they do not know where, why, and how they are losing this revenue.

In recent months, Lodestone Banking has developed the Profit Isolator which are data mining queries that isolate and quantify revenue by specific areas such as branch and region. These queries clearly show bank management the precise location and amount of their revenue by generating reports. These reports pinpoint the specific part in the revenue stream that is responsible for lost revenue and need direct attention in order to plug the hole and capture lost revenue. Profit Isolator automatically produces management reports that provide a detailed step-by-step road map to each profit driver’s performance.

Summary of reasons that the Profit Isolator deserves Innovative Solutions Award:

  1. Identifies lost revenue for the specific profit drivers.
  2. Isolates the specific unit requiring immediate attention.
  3. Calculates and provides comparative Profit/Loss income and ratios.
  4. Provides reports that empower management with solutions to increase their revenue.

Lodestone Banking Consultancy, Inc.

Mergers of Equals and Other Mistakes

By Shahin Clark
Mergers and acquisitions are highly attractive to bank that seek to expand while reducing overall costs. There are considerable opportunities to save through a reduction in workforce, consolidation of operations and eliminating overlapping or unprofitable branch locations. Other significant costs, such as the core system, can often be cut in half. Although mergers and acquisitions present opportunities to ensure the financial health of banks, they should pay attention to several areas that affect costs and revenue, such as grandfathered accounts, mergers of equals, hidden labor costs and a lack of quality control.

During a merger or an acquisition, some financial organizations decide to declare certain account types as grandfathered accounts, either contractually or verbally. These accounts stay intact with no changes during the conversion. Going forward, if accounts are in waived status, or are not subject to certain fees because they were established prior to current practices, these accounts can be carried forward with no changes after the merger. However, depending on the number and size of these accounts, the cost to the bank and the loss of revenue can be extensive. Additionally, the bank often ends up with too many account types, forcing personnel to overextend themselves to service these accounts according to different requirements. Many times, the information pertaining to these grandfathered accounts is not readily available to all bank personnel, especially branch staff, making these accounts even more difficult to manage.

When undertaking a merger or acquisition, the mergers of equals process is complex and presents many opportunities for errors. Keeping two equivalent C-level executives for an extended period of time after a merger slows down the decision-making process and adds significantly to overhead costs. These are the highest-paid positions at the bank; hence maintaining this redundancy negatively affects the bottom line. During the merger process, some tough decisions have to be made affecting personnel and department eliminations. With two CEOs, important decisions are not always made in a timely fashion because the executives may have different perspectives.

Many banks ignore hidden labor costs during mergers. It is very common, especially in smaller community banks, for personnel to perform many tasks outside of deposit or loan operations. Often during a merger, when the most obvious departments are consolidated, only a deep analysis of the tasks performed by bank personnel would reveal other hidden labor costs. The correct process is to identify and consolidate these roles to reduce costs and improve efficiency. For example, four years after a $200 million asset bank was acquired by a $1.1 billion asset bank, management conducted a workflow analysis and discovered that more than $750,000 in unnecessary labor costs was spread throughout various departments of the acquired bank.

Mergers offer a multitude of ways to lose annual revenue, one of which is a lack of quality control during a core conversion. Analysis of a $25 billion asset bank in New York City, showed that numerous accounts were not accurately linked to the bank’s existing pricing structure during an M&A core conversion. This lack of quality control cost the bank more than $1.5 million in recurring annual revenue. An extensive and systematic analysis of all of the bank’s products to see how each was performing ultimately generated $1.5 million of additional revenue.

During the M&A process loan review quality control should be given more attention. To avoid increasing bank’s loan loss reserve and writing off the loans shortly after the acquisition, bankers should spend enough time on reviewing loan quality and accurately assessing loan deterioration. Involving both external companies, as well as personnel from bank’s internal loan review department should become the general best practice.

Many of these mistakes are avoidable with the correct precautions. Any bank executive who has been involved in the M&A process knows that finishing a successful merger and getting back to regular operations is foremost on everyone’s mind. This is understandable, because the process is very time-consuming and requires cohesive interaction among all levels of expertise. In order for banks to experience the greatest success, bankers ought to take the time to analyze each of these facets of the merger and acquisition process.

Shahin Clark is CEO and co-founder of Lodestone Banking, a provider of comprehensive revenue analysis for banks. For more information, visit



2015 “Bankers as Buyers” Report Now Available for Free Download

January 29 – William Mills Agency, provider of financial public relations and marketing services, has released its annual financial services industry research, “Bankers as Buyers.” The twelfth annual report is a collection of research, observations and articles about what technology, solutions and services U.S. bankers will buy in 2015.


The Search for Lost Revenue

A bank’s income from the products and services used by its customers are dependent on its core system. It is where product pricing is established and where automatic calculations are performed. It triggers customers to be charged the associated product pricing. It reports income and expenses. And, finally, institutions depend on it to track the bank’s performance and to provide executive leadership with information to make daily management decisions. So now ask yourself: How thirsty am I?


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