October 18, 2019

ZM Financial Systems, headquartered in Cary N.C. is an ALM/ALCO software developer and supplier to the banking and credit union industry. They have been practitioners in the financial industry for more than 15 years and are subject matter experts of the highest order. ZMFS hosted its annual client education conference in Durham N.C., September 16-18, 2019. This event is reserved and restricted to ZMFS’ clients and intimate partner firms.


Comparing the opening remarks of this year’s conference to the one held last year in Las Vegas, a saying a good friend of mine often uses came to mind: “My o my how things have changed.” The conference opened with a summary of the current economic condition’s financial institutions face at present. First, let’s review what was said a year ago in October 2018. Steadily rising interest rates, large deficits and stimulus in a booming economy, steepening of the curve, European bank reduction of bond purchases coupled with the prospect of rate hikes, trade policy and geopolitical uncertainty. Market conditions for banks require continuous preparation and change. Now, let’s look at was said a few weeks ago in September 2019. Negative rates, inverted yield curve, demise of Libor and transition to SOFR, deficits and stimulus continue, trade policy and geopolitical uncertainty continue, additional stimulus through more rate cutting in U.S., Europe and the resumption of European purchases of debt are possible. This paragraph tells us that we better be on our toes and have our eyes and ears wide open. There has been an 80 bp shift from +40 to -40 in the past four months, a major election year is now in full swing and its anyone’s guess what tomorrow will bring. In 2018, compliance and accountability were themes of the conference. Banks’ and credit unions’ abilities to explain and elaborate on what, when, where, how and why was central to the discussions. I wrote last year that the complexity of numerous systems coupled with the quantity and quality of data arguably leads to a high probability that what is being reported is subpar. My contact with banks from coast to coast over the past year validate this statement. The 2018 conference concentrated on documentation (proof) and logs of documentation (what, when, where, how, why). It focused on development and enhancement of banks formalized processes to evaluate and monetize the hard work that practitioners and the bank are doing.

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This recap leads us to September 2019. This year’s event theme was leveraging your data. Pulling behavior out of your data. Doing data analysis and finding correlations. Data is the foundation to build calculations, models and accounting. They must be strung together. The results of doing this are the ability to make real time decisions which is essential with the mindboggling pace of change and uncertainty and to move away from error prone manual processes.


ZM Financial Solutions is an extraordinary financial software company with expertise in asset liability management and its associated disciplines. The event showcased and discussed the delivery of numerous enhancements and new applications that were discussed the year before. ZMFS listens to and hears their clients, staying on top of their clients’ requirements and invest heavily and continually in their platform. ZMFS offers online options for their platform, scales continually and delivers to clients the tools that are needed to adapt to new circumstances and strategic imperatives. Let’s talk about ZMdesk, the company’s flagship solution, its enhancements and how they tie into the theme of the conference.

  • CECL is now available as a shrink-wrapped product in ZMdesk as well as a web-based online solution (OnlineCECL). It includes audits of methods, behavioral models and correlations. CECL models and models in general do not remain stable over time. They require constant diligence of data and process.
  • SOFR and Libor are running parallel in ZMdesk. The platform is advanced and is assisting its bank clients with the nuances necessary for them to make this significant benchmark transition.
  • I.T. ZM Hosted Environment (SAAS) Solution: ZMFS offers an online version of ZMdesk, used by a portion of the firm’s bank and credit union clients. eliminates timely and costly system version upgrades and automatically releases enhancements and new applications seamlessly without interruption.
  • Reporting. ZMFS is moving away from Tableau in favor of Microsoft Power Pivot. Power Pivot is much more versatile and flexible.
  • New Data Services Department. According to ZMFS, data loading is not supposed to be a burden. Data loading and reconciliation is a continuous activity. ZM now archives historical data (ten years or more, necessary for CECL). Data portal, audit trail and attribution reports are features.


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The conference event featured several guest speakers and panels who enlightened attendees on critical industry problems and how to solve them. April Dusthimer, VP, Treasurer at Park National Bank in Ohio discussed best practices for banks and credit unions to Partner with their Examiners. Today there are many regulations and numerous state and federal regulatory agencies. What’s changed memo. During the first week of an examination, examiners are asking for a what’s changed memo. Concentrate on what has changed. Control and manage the relationship. Transaction Memo: Provide full trade cycle information. Summary of Compliance Limits: Include policy limits, history and KRI’s. The KRI’s discussed with examiners are what should be discussed at ALCO meetings. What, when, where, how and why. These are the questions banks must ask themselves. Answers to these questions are what examiners are looking for. Ask examiners for input. Call your regulators once per quarter, involve them, discuss what you are doing or considering doing, solicit their feedback. Cliff Notes: Summarize business unit activities. Ask questions of examiners prior to meetings. Schedule the exit meeting in advance. Hot topics, explain them: liquidity stress tests, how you are growing loans and deposits? Deposit concentration risk, are you over or under regulatory limits? Discuss deposit rates, model assumptions, new derivatives rules. Directing the examiners. Your mindset is key. Look at yourself, be the teacher, the educator of the regulators. The most important aspects of partnering. Understand what you did and why. Back up what you say with actions. Limit the number of documents you provide to them (long reports that they must sift through do not help you and irritate them). Capture deteriorating credit. Every risk leads to liquidity

ZM Data Enhancements

ZM concentrates on tools and methods to enable bank clients to maximize benefits of their data. Here are a list of data topics discussed and disseminated.

  • Security master data comes from market data leaders, Bloomberg, Reuters.
  • ZM’s Data Tool Premium (Power Pivot) has no Microsoft version dependencies.
  • Mapping groups, one import rather than multiple tables.
  • Composite builder improvements including large data loads at high speeds.
  • Beta enhancements, ALM, Institution, Grid view. Bulk data deletions, database cleaning, operations results, historical cash flows (CECL Steppingstone).
  • CECL: Data is the number one priority necessary to perform CECL. ZM facilitates, segmentation by loan type. Tackles loan type by loan type, short date and end date. No stochastics and qualitative factors (Q factors). CECL is not as intense as Asset Liability because you do not have all the shocks. CECL facilitates through necessity cooperation between credit and accounting groups within the bank.

ZM Support Desk ZMFS’ support desk continually fields requests for enhancements and issues that arise. The result: continuous scaling and improvement to the core platform and the creation of new analytics. The following were discussed at the conference.

  • Bond Swap 2.0, a strategy sandbox.
  • New Budgeting software.
  • Reporting, ZM Power Reporting (Tableau going away, not flexible enough for the analytical needs of ZM’s clients). ZM Power Pivot, allows clients to do their own analytics.
  • Data: Economic and Regulatory Headwinds Create the Need for More Analysis.

• CECL, forced data collection. An overarching question for banks and credit unions is how they leverage the data strategically to help the institution. In the case of CECL, banks need data, they need historical data, they need help in making better decisions. For ALM, data is needed and used for budgeting, liquidity, deposit studies, pre-payment studies and loan portfolio behaviors. Banks seek long, sticky deposits. This requires behavioral analysis of deposits and portfolios. It is recommended that data repository be created to initiate these activities and studies.

Data management and producing quality data is a compounded problem. Different sources, different systems producing content that looks similar but is different. Multi-stage processing of data does not take place at the same time and in different formats. Data ages and changes year over year. There are internal, I.T. format changes. Bottom line and a systemic headache, data must be identified correctly before it is processed. Data preparation and data quality analysis are done outside of ZM processes. Financial institutions need to ask themselves, what is necessary and what is nice to have. They must ask, what is the analysis and what data is required to do the analysis.


This colorful panel spoke from the heart on the following topics. Grading the industry on ALM, Dodd-Frank impacts on bank clients, Liquidity, are banks monitoring it correctly? Where is the next gotcha? So, what did this group highlight that readers of this piece may take notice of? Cost of funds, making sure the bank is steady regardless of the rate and curve environment. Disconnects between modeling and reality. Banks are experiencing record earnings. Return on Assets vs. Return on Equity. Alignment of compensation incentives with long term institutional value focus. Hedge account rule changes that put economics and deposits in the same rule. Interest Rate Risk, being as thoughtful a possible because equity researchers, boards and regulators must be told that the bank will be ok in various shock scenarios. From an institutional perspective the panelists urged hedging a banks book. In a swinging rate environment, there are lots of opportunities to hedge the balance sheet. The market changes all the time, you must be ready to quickly take advantage of rare opportunities when swings are overdone. Run the institution to make good loans, raise low cost deposits (as much as possible). Serve the community. All institutions are focused on the next transaction that will make Net Interest Income go up. To do this they recommend banks get the bad stuff out of their portfolios, stating it is easier and more effective than adding new stuff to dilute the bad. Pull out all NIM that equals zero. The problem is that no one wants to do this. Don’t let rates drive earnings. Make earnings from making good loans and deposits. Do things because they are the right thing to do.


This final section centers on observations, comments and best practices discussed during the various presentations and round tables that took place at the conference. Overall ALCO meetings are too convoluted and fail to achieve what they are meant to achieve. Too much discussion about economic conditions and rates and too many meetings that exist as check the box function of producing minutes. These are reactive, rubber stamp meetings that are of no value. Confusion stems from too many people and too many topics. Positively, best practices and quality suggestions were brought forth. These included: Substitute all the noise with a concentration on strategy. The three-to-five most influential and important people/constituents should meet in advance and outline the specifics to be unveiled at the meeting. In ALCO meetings, tight agendas. View/discuss policy limits, review assumptions. Review these before the actual meeting. Strategic and decision making focus of every meeting agenda. There is no time for debates during ALCO meetings. Prep for the meetings must be done in advance, when this happens rubber stamping is done for the right reasons.


Watchtower platform Is the Normalizer and Aggregator. Resultant data from ZMFS’ analytical systems fuel the Watchtower scoring and reporting for ALM. At present, executive and board reporting is a manual process put together through a combination of complex systems and data. Information is hard to read and understand. SRA has solved these problems. ZMFS’ staff is comprised of industry leading ALM specialists and practitioners. SRA’s staff is comprised of bankers and former regulatory examiners. Working together, our goal is to be the best, deliverers of expertise and core platforms in our respective roles. We want to make financial institutions, their employee practitioners and their executives and boards lives easier and less expensive coupled with steep increases in workflow production. Makes sense if these financial institutions want to thrive, achieve stable earning

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RMA RIsk Maturity Framework

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