Five Steps to Improving Branch Profitability

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Five Steps to Improving Branch Profitability Getting Focused on the Right Things
By Andy Grinstead, Bank Intelligence Solutions from Fiserv In recent years, the branch seemed headed for a smaller role in the retail distribution channel. Consumers were adopting online and mobile banking channels in larger numbers. At the same time, tough economic times led banks to close branches to cut costs. Despite these trends, the retail branch remains the leading source of new product sales and account relationships for the majority of community banks. However, it is also by far the most expensive channel. According to Fiserv data, the cost of branches and related staff makes up 64 percent of all non-interest expense for the average bank. Thus, its critically important that banks evaluate their retail distribution networks to balance opportunity with costs. By determining the role, footprint, strategic position and business focus of each location, institutions can boost profitability while managing both growth and risk. Here are five proven steps that banks can take to improve branch profitability. Only 27 percent of surveyed bankers indicated that their business plans take current wallet share into account.

1. Evaluate branch performance.

To maximize performance and build a sustainable earnings stream, the bestperforming banks balance the three principal drivers of franchise value profit, growth and risk. By comparing profit, growth and risk data for the bank against its peer institutions, a banks management team can establish goals for enhancing performance. Then, the financial institution can look at its individual branches to determine how to best align the day-to-day activities within each branch with the overall objectives of the franchise.

2. Assess the market and determine the role for each branch.
At most community banks, the chief financial officer (CFO) sets the budget and spreads it across the branches, with each location asked to meet the same percentage growth target. This approach typically results in setting goals that some branches may not be able to achieve, while other locations may have targets that are not aggressive enough. A more equitable and effective way to maximize the contribution of each branch is to establish unique customer acquisition, retention and cross-selling goals based on current market realities in each service area. Banks that tap into opportunities within their current customer bases are more likely to grow revenue organically, increase wallet share and improve retention rates. Yet, 73 percent of community bankers surveyed said their business development plans did not sufficiently recognize differences in wallet share among current customers. What this means is that bankers need better analytical tools and methods to help them understand the growth potential within their current customer base. Banks also need to employ a fact-based approach in identifying its best new prospect opportunities. What business and consumer segments should each branch pursue? Having the data to answer this critical question enables banks to

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Five Steps to Improving Branch Profitability

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successfully compete for new business by knowing who to target and offering unique products to serve those segments.

3. Analyze the competition for each branch.

Using analytical tools, bankers can identify which competitors have grabbed market share and grown deposits and which ones are falling behind. Understanding the strengths and weaknesses of the competition helps each branch develop effective business development plans and turn competitive intelligence into true business advantages.

4. Set specific goals by branch for business and consumer markets.

Many banks set goals for every metric they have. Its best to identify a handful of the most important goals for each branch. When branch managers can focus their staffs on a few clear and specific objectives, they can align day-to-day activities and compensation plans to meet them. After completing the previous three steps, banks will be armed with the information needed to establish branch-specific goals and each branch can execute more targeted campaigns to drive customer origination, retention and expansion.

5. Define the bank model of the future.

Whats next? Thats the question when it comes to looking for ways to expand the number of products and develop loyal customers in a dynamic banking environment. As consumer behavior changes and basic financial transactions migrate away from the branch to the online and mobile channels, the branch needs to transform. Instead of a being a transaction-based storefront, the branch must evolve into a destination where consultative sales associates work to discover, anticipate and fulfill customer needs. Adjusting Focus is an Ongoing Process Branch strategy should be a constantly evolving process. This five-step approach can help community banks focus branch efforts on proactive outreach that will move prospects effectively through the sales cycle and deepen relationships with current customers. As a result, branches will be better positioned to achieve unique sales goals while maximizing their contribution to the overall profitability of the franchise.

http://www.wib.org/publications__resources/cfo__finance_digest/2010-12/aug12/grinstead.... 04/06/14