KQ Article

Details matter less when times are good. Now, details can equate to survival. For most financial institutions, profitability is currently being squeezed, and they are finding themselves in the position where they need to uncover basis points wherever they can — on the revenue side, the cost side, or both.

Regardless of economic climate, community banks should consistently step back and perform a detailed branch analysis, in order to truly know what’s going on inside the organization. Each financial institution is the sum of its parts, after all. If you don’t have a true understanding of how individual branches are performing and why, you may be missing easy opportunities for improving bottom-line performance.

Many high-performing financial institutions are approaching their businesses more like a retail operation. For example, McDonald’s knows at all times exactly how each restaurant’s performance is affecting its bottom line. How do you measure up in this regard? Do you regularly conduct an internal peer comparison to determine which branches are contributing and in what areas and which ones may need further coaching?

Thanks to much-needed advances in automation, it is now easy to acquire such insight, by simplifying the number crunching and providing on-demand access to the data required to fuel strategic thinking and find basis point opportunities.

Getting started is as easy as identifying and weighing the financial indicators at each branch, and ranking performance accordingly. Here are five guidelines for designing your branch analysis program.

1. Customize to  your strategy.
The key is to measure and monitor the same set of key criteria (such  as cost of funds and core deposit  growth) that you use for evaluating and driving your overall strategy. You need to have definitive, quantitative answers to critical questions such as, “Which branch has the cheapest deposits?” and “What locations have the highest- yielding loan portfolios?”

2. Include the proper ranking components.
Your branch performance comparison should include key financial metrics from the following areas, as a means of helping your management team better understand which branches are contributing to desired results and which need additional coaching to meet performance objectives:

• Balance sheet. This may include loan growth with comparisons to budget, deposit mix, and non-interest- bearing checking accounts.
• Income statement. Some examples are loan fees, non-interest expense with comparisons to budget and non-sufficient funds (NSF) dollars waived as a percentage of gross NSFs. By focusing on the percentage of NSFs waived, management can more easily compare branches and guide them to achieve improvements.
• Margin components. These include loan portfolio yields, cost of funds and deposit yields. Such types of comparisons are not typically performed at the branch level and could contribute significant insight regarding ways to improve overall results.

3. Support analysis with technology.
For some financial institutions, comparing and managing individual branches at a detailed level is just too difficult. Data accumulation is manual and cumbersome. For others, the measurement methodology they have created is unmanageable and tough to maintain.

Automation eliminates the burden of these manual processes, so that a branch comparison can quickly and easily be performed on a monthly, quarterly and annual basis. It also provides access to in-depth intelligence of branches not achievable before. This insight allows you to easily identify the branches that are helping and hurting your bank andin what particular areas, and can create key performance objectives for each location.

4. Promote accountability and establish incentives.
Regular and consistent branch comparisons eliminate subjectivity by making branches’ scores (the hard numbers) clearly visible. Best practices are revealed and can be applied throughout the entire branch network. This instant feedback highlights high performers, while also revealing who needs coaching.

Branch managers can then be held accountable and given incentives to improve their ranking. It is critically important to get the right people in the right positions for high performance, and to continue to reward key employees who drive sales and build customer relationships that generate positive and sustained results.

5. Keep it simple.
You must gain full visibility and knowledge of the data needed to manage your branch network as efficiently as possible. An internal branch comparison provides the kind of insight you need — in a format that is easy to understand and interpret — to identify what each branch help you zero-in on growth opportunities.

It is highly likely there are hidden basis points to find within your bank. You can identify yours through a branch-to-branch peer analysis, by applying the same criteria you are already using to measure overall performance. Doing so might be the key to turning every branch into a high-performing one.

_{© 2010 Chris Bledsoe}

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