Realizing Operating Efficiencies Through a Platform-Based Approach: A Case Study

Henry Marquiss

SVP, Specialty Loan Accounting, PNC

Umar Syyid

CTO, Primatics Financial

Agenda

•  Background

•  Future Targets

•  Achieving Operating Efficiencies through Consolidation

•  Leveraging a “Domain Aware” Platform

•  Challenges & Risk

•  Fit with Existing Architecture

•  Results

2

Background: PNC’s Rapid Growth

PNC has grown rapidly in the past 7 years through a series of acquisitions and organic growth during a tumultuous credit, regulatory and business cycle. This led to:

•  Tactical investment in parallel on both automated and human based processes to solve for business changes across the back office in both the finance and risk areas

•  Multiple complex systems and businesses processes rapidly setup that now require careful thought to scale and manage

6/30/15

3

Announced National City

Bank Acquisition

Announces RBC US

Acquisition

Loss Mitigation

Efforts Peaked

Credit Cycle Bottoms 2008 2011 2012

Regulatory Changes for Non Performing

Assets

Initial Dodd Frank Reforms Enacted

Accounting Guidance for Restructured Assets

Bank hits $300Bn in assets

Establishing Targets and Strategy

6/30/15

4

Simplify operating architecture, remove redundancies and reconciliations

Save money, primarily focus on reducing current operating expense

Improve future ability to handle business and regulatory change

Fit within enterprise data and systems architecture (finance architecture, data architecture and IT roadmap)

Strategy formulation

Joint discovery effort (Primatics/PNC) to first fully understand current landscape and then recommend a solution to meet PNC’s goals. Started project in Q3 2013. Formulated recommendation mid Q4.

Solution: Consolidate with a Single Platform

Analysis of Legacy Paradigm The Platform Paradigm

SILOED PROCESSES

COMPLEX RECONCILIATION

DIFFICULT REPORTING

DISTRIBUTED SUPPORT & MAINTENANCE

RE Credit Models

Non-accru

al

SOP 03-3

NPL

FAS 91 Specific

ALLL

What if?

FAS 114

TDR

Scenarios

INCREASED EFFICIENCIES

ONE SUBLEDGER WITH MULTIPLE PERSPECTIVES

GREATER CONTROLS, LESS RISK

SINGLE PROCESSING

SPACE

6/30/15

RIS

K

PR

OC

ES

SE

S

Siloed Processes, Complex to Support and Adapt to Change

•  Confluence of change; credit, risk and finance coming together to build solutions

•  Complex data integration processes between siloes particularly as they cross natural domain boundaries

•  Large and continuing human capital investment with focus on running the process in a controlled way

•  Multiple hand-offs between processes, data copying and point-to-point reconciliations

Single Platform Solution

•  One platform for loan finance functions, reducing operating costs and providing consistency across the institution

•  Ability to extract and enrich data from internal and other third-party systems

•  Greatly reduced reconciliations and automated, flexible workflows

•  Expected operating efficiencies of ~ 30% annually

RISK PROCESSES

.

5

Leveraging a “Domain Aware” Platform

•  Still just a platform…but pre-packaged services are specific to the problems associated with the operating domain (bank finance concerns in this case)

•  Domain Aware Services: Finance & risk relevant services on top of which a set of solutions are provided

6/30/15

6

Ente

rpris

e Se

rvic

e B

us (E

SB)

Sup

porte

d P

roto

cols

(RE

ST,

SO

AP,

JC

A, J

MS

)

Loan Accounting & Forecasting

Credit and Reserving

Model Execution

Smart Data (Sourcing and

Analytics)

Security Cloud (Utility) Computing Software-Defined Storage

Persistence Integration Services

Distributed Computing

Identity Management Multi-Tenancy

Business Workflow Layer

Solutions

“Domain Aware”

Business Services

Platform Services

Infrastructure Services

SDK

Ext

ensi

bilit

y Fe

atur

es

Lifecycle Event Processing

Calculations Accounting Rules

Calculations Risk Rules Journalization Reporting

Common Technology

Services

Building Functions on Top

6/30/15 7

Loan Accounting

Credit Disclosures

PNC Risk Analytics

Production Data Flows

PNC Business Process Integration

Data & Orchestration

Extension

..category  leaders  combine  deep  domain  knowledge  in  various  risk  topics  with  deep  technology  assets  and  capabili8es.  They  can  demonstrate  this  by  addressing  the  needs  of  very  large  clients  with  complex  risk  management  and  technology  requirements,  as  well  as  addressing  the  needs  of  smaller  clients  with  standardized  requirements…  

Extension

Less is More

Build bank specific solutions by focused development of

orchestration and extensions that augment and leverage existing business services available on the solution.

A Closer Look: Complex Problems Solved with Business Services

6/30/15 8

ID ENGINE

EVENT SVCS

LOAN MASTER

TDR

SUB LEDGER

JOURNAL ENG

114 ACTG

PCI ACTG AMORT MODEL

EXEC EXPECTED

CFLW FAIR

VALUE CFLW SVCS

NON PERFORMING EVENT OP & ACTG TRANSACTION FLOW RISK ANALYTICS

RIS

K

OP

AC

TG

CR

ED

IT

Credit Accounting Solution

EVOLV

Deeper Look: Solution Architecture Information flows required to perform credit accounting functions include flow from operational, risk and credit systems.

1.  Leverage loan credit identification services (non-accrual, credit restructurings, TDR etc.), convert to accounting events and record for disclosures

2.  Capture operational accounting transactions and then leverage various credit accounting services to calculate accounting adjustments and accretion within sub-ledger

3.  Connect with risk analytics functions to convert risk outputs to expected cash flows, fair values and other modeled outputs to compute allowance adjustments

Challenges with Platform Approach

9

Data normalization is complicated. The same data elements mean different things to different stakeholders, requiring a “multi-verse” perspective to be effective

Integration with source systems with “closed” architectures generally requires a focus on simplification to ensure interfaces don’t break

Determining what are truly reusable building blocks across a domain without over- complicating architecture by adding services that are never reused

Building a team, knowledge base and support structure internally to support agile delivery

Establishing a production paradigm that includes multiple parties, including multiple business and technology groups on the same platform

Fit with Bank Architecture - Intermediate State

10

Other Finance Systems

Pluggable Adapter Architecture

Commercial

Retail

Mortgage

Other Data

Enterprise ODS Enterprise Warehouse Enterprise Information Architecture

Other Applications

Feeds to Enterprise

Bank Operating Platforms

Finance User

Fit with Bank Architecture - Future State

11

Other Finance Systems

Feeds to Enterprise

Enterprise Data

Pluggable Adapter Architecture

Commercial

Retail

Mortgage

Other Data

Enterprise ODS Enterprise Warehouse Enterprise Information Architecture

Bank Operating Platforms

Other Applications

Finance User

Result of Improvements

12

Summarized Results

Primatics’ EVOLV® Solution •  Creates substantial ROI, cutting annual operating costs by 30% •  Positions PNC to quickly adapt to changing strategies and to scale operations expediently and

efficiently •  Enables better decision-making through more advanced analytics and elimination of time-

consuming “processing” steps •  Enables more automated and defensible compliance of critical current and potential future

regulations •  Through the integration of data, applications, and analytics, greatly consolidates and/or eliminates

needs for point solutions, hand-offs, reconciliations, manual steps, etc.

TDR

2013 FUNCTIONALITY

BEFORE AFTER Acquired

Loans (PCI & Non-

Impaired)

NaCo (Core Only)

NaCo (Core and

RTA) Acquired

Loans (PCI & Non-

Impaired)

Enhanced Reporting

Automated Disclosures

FAS 91

2015 FUNCTIONALITY

70%

94 % of PNC loans on the platform

Loans in

Evolv