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Berkshire Hills Bancorp Case StudyOperational Challenges Integrating Risk andFinance FunctionsJosephine IannelliEVP and Chief Financial OfficerPatricia NeboskyFirst VP Credit Risk Administration and Policy
PurposeThe presentation will focus on how the bank has assessed the opportunities to integrateFinance and Risk as the bank continues to grow it’s loan portfolio.Table of Contents About Berkshire Hills Bancorp Current State Operational Process Opportunities to Integrate Finance and Risk Future State Operational Process Where Next?2
About Berkshire Hills BancorpBerkshire Hills Bancorp is the parent of Berkshire Bank - America's Most Exciting Bank .Established in 1846, Berkshire Bank is one of Massachusetts' oldest and largestindependent banks and the largest banking institution based in Western Massachusetts.The Company has approximately 7.3billion in assets and 96 full service branch offices inMassachusetts, New York, Connecticut, and Vermont providing personal and businessbanking, insurance, and wealth management services. Revenue: 255 million (Q1 annualized) 5.2 billion in loans and 5.2 billion in deposits Wealth assets under management: 1.4 billion Recently acquired Springfield, MA based Hampden Bancorp with 700 million inassets (included with numbers above) Former Chairman of TD Banknorth, Bill Ryan, named Chairman of our Board ofDirectors3
About Berkshire Hills BancorpOverview of Finance Headcount :33 Major Functional Areas within: Accounting, Treasury, Tax, M&A, Strategic Modeling,Financial Planning & Analysis Main Focus Areas / Top Operational Initiatives: Data Analytics, Stress Testing, IRRSensitivity, Margin Analytics, Tax Strategies, :LOB/Product Profitability, AutomationOverview of Risk and Strategic Services (28 - Strategic Services, Credit, Loan Servicing) Headcount : 28 (Strategic Services, Credit, Loan Servicing) Major Functional Areas within: Strategic Services, Enterprise Risk Management, IT,Compliance, Special Assets, Legal, Credit Main Focus Areas / Top Operational Initiatives: Data Automation, FairLending/Compliance, Enterprise Risk System, Cybersecurity, Project Management4
Current End-to-End Loan Accounting, Reserving, and Credit ReviewOperational ProcessFinance Loan Process3Data ExtractionLoanOriginationSystems12OutputsAcquired Accounting, JEs, and ControlsValidate Data ExtractSOP 03-3 ManualAdjustmentsBudget to ActualAnalysisApply Data UpdatesReconciliation betweenGL and Core BankingAccountingForecastingAugment DataManual Entries for WIPRegulatory FilingsFilter DataFinancial GAAPDisclosuresEarnings ReleaseGeneralLedgerDisclosuresRisk and Strategic Services Loan ProcessData Extraction21Credit Cost Forecast, Reserving, & AQRValidate Data ExtractSFAS 5 SpreadsheetRisk Rating ChangesApply Data UpdatesNACO FormStress TestingAugment DataTDR / Loan Mod FormAsset Quality Review4Filter Data114 Reserve FormCredit Review functions4 performed in Excel andnot integrated withCore Banking / Finance5 SFAS 5 Allowanceperformed in ExcelOutputs5Lease SystemSignificant datamanipulation and2transformations usingExcel / Access DBs3 Manual Assignment ofSFAS 91 Deferred CostsMeetings, Email and Excel File Transfers Between Groups 6Core BankingSystemMultiple copies of the1 Core Banking SystemDataGeneral Loan Review7Lack of integration6 between Risk andFinanceManagement Reporting7and Analysis primarilyRiskPresentationsperformed in Excel andcopied into PowerPointReconciliation to GLDisclosures5
Opportunities to Integrate Loan Accounting, Reserving and CreditReview Processes between Finance and RiskThe key drivers for change and technology investment were the following: Automate the end-to-end process for acquisition accounting. Move all premium/discount loan accounting from core to a higher end ledger Improve risk analytics for loan loss allowance and credit risk management. Reduce the end-to-end manual processes including the manipulation of data inmultiple end-user spreadsheets and databases. Improve on the bank’s capabilities to scale the Finance and Risk functions as the Bankcontinues to grow both organically and through acquisitions. Improve pricing and profitability as the bank grows in assets Facilitate line of business and product expansion Improve the bank’s ability to integrate and align the Finance and Risk functions.6
Future State End-to-End Loan Accounting, Reserving, and CreditReview Operational ProcessIntegrated Finance, Risk and Strategic Services Loan ProcessNo more copyingof data – sCore BankingSystemLease SystemDisclosuresGeneralLedgerOne place tocleanse, enrich,and normalizedataIntegrated CreditRisk ProcessfunctionsCommon platformto create reportsand analyzeresults for bothRisk and Finance7
Where to Next? Go-Live in July with whole loan portfolio in Evolv, SFAS 5 Reserving, Credit ReviewAQR integrated workflow, and automated management reporting Continue to analyze profitability of the loan products offered by the bank Enhance management and board reporting Enhance the bank’s ability to perform functions such as stress testing and accountingforecasting as the Bank grows towards the 10 billion in assets. Be prepared for future changes to either GAAP or Regulatory requirements such asCECL.8
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Berkshire Hills Bancorp is the parent of Berkshire Bank - America's Most Exciting Bank . Established in 1846, Berkshire Bank is one of Massachusetts' oldest and largest independent banks and the largest banking institution based in Western Massachusetts. The Company has approximately 7.3billion in assets and 96 full service branch offices in
