Banking Software Review

Delinquencies Down, Recoveries Up at Southwest National Bank

Published in Banking Software Review

While the banking industry has adopted computerization for most tasks, the collections function has generally lagged behind. Even large banks with sophisticated investment portfolio and loan management computer systems often rely on such manual methods as using index cards with scrawled notations for tracking delinquent accounts. This is surprising because the foundation for reduced delinquencies and increased recoveries is accurate tracking of problem accounts and productive telephone follow-up - both responsibilities which benefit from automation.

Southwest National Bank of Pennsylvania, a $600 million community bank serving Westmoreland and Allegheny counties and suburban Pittsburgh, put an end to paper pushing when it automated collections on consumer loans a few years ago.

In the bank's pre-automation days, the responsibility for making collection calls first fell to the loan officers. So then the Loan Servicing department was formed. The department operated with a skeleton staff consisting of one manager, one secretary, and three collectors. Still, the collection method was largely manual - index cards were used to track calls and the delinquency list was generated from the bank's mainframe computer.

For Southwest National, the decision to automate the collections process came quickly. Too much time and effort was spent tracking misplaced cards, reconstructing customer records, and identifying losses from unrecoverable accounts. Automation was clearly needed.

Finding the right system, however, took a bit longer. Paul Sharkady, manager of loan services, spent more than three years evaluating collection programs, unable to find one that had the functionality to economically meet the needs of the mid-sized bank.

"Ideally, we would have liked to implement a mainframe program that tied into our loan management system" Sharkady says. "Unfortunately, the cost of mainframe collections solutions - whether a vendor's program or a proprietary system developed by a programming team - was prohibitive".

Sharkady then began to investigate PC-based systems. But here, too, he encountered obstacles. Often, the PC-based programs he examined were either too complicated - expensive software whose features didn't meet his needs - or too simplistic, functioning only as computerized tickler files. He invested four more months in testing PC based programs with the help of a network integrator who would be installing Southwest National Bank's LAN. The integrator led Sharkady to LOANLEDGER and later COLLECTOR from Dynamic Interface Systems Corporation (DISC) of Los Angeles.

Sharkady liked DISC's modular approach to loan management software. COLLECTOR is one of 12 modules available to DISC's LOANLEDGER loan servicing system. Southwest National Bank could purchase just the modules it needed: the main LOANLEDGER program coupled with COLLECTOR.

"One of our goals - in addition to improving collection performance - was to service charge-off loans in-house" says Sharkady. "Since LOANLEDGER is in itself a comprehensive loan servicing system, we transferred these loans from our mainframe to a PC platform. I would estimate that we've saved $28,000 annually by servicing charge-offs within the department rather than using mainframe services".

Sharkady attributes this savings in part to LOANLEDGER's customizable reporting capabilities, which provide audit trails and customer histories, transaction reports and agings.

Numerous management reports are also included with COLLECTOR. In addition to the tickler reports that Sharkady found in other collection programs, COLLECTOR features the following reports: collector activity summary (calls placed, calls not completed, length of call, and result of call); loan activity summary; and daily reports of telephone activity. This data is culled through the system's modem interface.

While this information is essential for Sharkady to measure the efficiency of Southwest National's Loan Servicing Department, the program's COLLECTOR's Inquiry Screen (CIS) is responsible for making the department more productive.

"With just a few keystrokes, we can pull up all the client information we need," says Sharkady.

The CIS displays borrower data, co-borrower data, property information, date/amount of last payment, amount due, financial history, last call information, next-date follow-up, and an itemization of the total amount owed. COLLECTORs can then use the program's auto dial feature to reach customers quickly. When a connection is made, no time is wasted searching for notes from previous contacts or determining the amount currently owed.

The bottom line, according to Sharkady, is that with a minimal technology investment, delinquencies at Southwest National Bank are down and recoveries are up.

"In the past four years we've realized a decrease in installment loan delinquencies of approximately $2.2 million. This represents a 56 percent decrease compared to the bank's manual collections system. During the same time period, installment delinquency ratios have decreased 130 basis points".

Sharkady speculates that the increased performance has allowed his automated department which today totals nine employees to operate as productively as an office with 16 collectors using index cards.