“Earnings solve all problems.”
Gerald F. Fitzgerald
Chairman, Suburban Bank Group
How It All Started
Gerald Fitzgerald was a bank executive who believed in planning, not just budgeting. He understood the value of setting goals and appreciated the need to adapt to changing conditions to achieve those goals. He wanted the Presidents of his five community banks to move past budgeting and engage in active planning.
However, at the time the only process available to bankers was manual budgeting that projected income and expenses to year-end. This time-consuming and tedious procedure only inhibited decision-making. In 1972, Gerald Fitzgerald commissioned our founder and CEO, Craig Hartman, to develop an interactive, computer-based profit planning system for his banks – a live plan that would encourage discussion and interaction.
This new simulation model needed to be easy to run and provide answers quickly so the CEOs could receive immediate feedback. It was crucial that the system reflected reality, i.e., maturities must roll off at old rates and new balances added using current rates; new balance rates needed to link and adjust to key drivers. While the bank’s goals were constant, the model provided flexibility to adjust plans to reach those goals as conditions changed. Non-interest categories had to be included to link to the bottom line. Clear and concise reporting was essential, so we developed ‘On-Demand’ graphs to expose trends and relationships more clearly.
Continuous re-forecasting was especially critical during the 1970s and 1980s because the economic conditions were extremely volatile. Oil shocks, deregulation and wild interest rate fluctuations defined the banking environment. Through all this turmoil, the Suburban Bancorp banks were consistently among the top performers in the Chicago metropolitan area.
In response to these conditions, regulators required the use of new rate sensitivity gap to measure rate risk. While other bankers fiddled with static gap analysis, the Suburban Bancorp banks used the model to look ahead, not behind. They were projecting balance sheet activity, testing pricing models, and projecting margin behavior to control risks. Each President spent time with their management team every month to review future trends and determine action adjustments to reach goals. Projected year-end results became the monthly “variance” report to the board. The process was now simple, efficient and effective.
The Model Today
The basic premise of an interactive simulation model with immediate feedback and On-Demand charting is still at the heart of the system today. With growing regulatory demands of more complicated risk measurement techniques, our Financial Compass model has expanded to meet these requirements. The system now includes extended period rate shocks, non-parallel yield curves, market value analysis, liquidity and contingency funding analysis.
Another feature that sets Financial Compass apart from other systems is Single Entry Assumptions, which not only adds efficiency but ensures accuracy. This feature tightly integrates the planning function with risk analysis. As the user makes assumptions in financial projections, the model uses those assumptions to analyze risks. For example, when an account is added or deleted in the chart-of-accounts, Financial Compass automatically includes the change in all assumptions, reports and analyses throughout the system.
Here are a few additional features of Financial Compass that make it unique:
- Detailed Extract, Transform and Load function pulls data from your accounting system, transforms it into cash flows at the instrument level, and then loads these cash flows into the model each time the user updates the system
- Single screen input – all pertinent account information is contained on one screen so there is no jumping back and forth to make changes. All the information you need is displayed on one screen, including On-Demand charts and graphs, to immediately see the impact of changing assumptions
- All reports have On-Demand charting to aid analysis and reveal trends
- Special book format reports add convenience and clarity. The entire Risk Analysis report can be produced in just minutes and includes charts, narratives and assumption review
- Financial Compass includes an Executive Dashboard that makes board meetings more meaningful. This unique web-based system is available anytime, anywhere for viewing. A complete financial history, current position and forecast are available, with drilldown features that give greater meaning to the numbers
Contact us at 1-800-323-3281 for a personal preview of this powerful system. You’ll see how a real model can contribute to your bank’s performance.