Banking by the Numbers

Or how to measure what happens between the front line and the bottom line

Presented by Gene Fulcher SolutionServices, Inc.

Fact

Most banks do not efficiently track their costs or efficiency except on a “Broad” basis

Ratios & Industry Information hard to come by

Information not specifically geared to the institution (we’re unique because syndrome)

Information, when it is available, is hard to understand

Result

Generally measure against past performanceo Measurements may not be applicable due to

change in technology, environment, customer mix or other factors

o Past performance may not be indicative of capabilities of the bank

o Such measurements only deliver questions… not solutions

Challenge

To find performance indicators that are: Internally generated Easy to track Easy to understand Emphasis on improvement over current

performance (be all that you can be)

Getting Started

Concentrate on controllable costs and activities

Focus on measurable activities that your employees can control

Identify major line items and/or product lines

Create realistic progress goals Deliver the message and spread the

benefit

Tips

Salaries and employment expenses are the single biggest controllable cost to an institution While interest expense may be larger,

rates are determined by the market place

Employees have little control over overhead such as buildings, utilities, etc.

Goal

Reduce cost per transaction or activity Employee cost per teller transaction Servicing cost per Million $ in loans Bookkeeping cost per account Customer service cost for new accounts Etc.

Reward all bank employees for new, more profitable business

Turn Disincentives into Incentives

Current – staff reluctant to do more than their share Pay stays the same Recognition not there for high performers More customers = more work

Reward employees by adding staff and reducing their work load back to “normal” levels Hint - Check your employment cost/assets for

the past 3 years

Determine Base Cost

Base cost is the cost that the bank is willing to pay for each activity In other words, the base cost is the

amount that the bank is currently paying for that function

Use internal data that is readily available

Internal vs. External Data

Easier to get to and understand Available on a “real-time” basis Eliminates the “we’re unique

because” syndrome Immediate goals are clearly defined

and easy to track Employee “buy in” since the data is

under their control

Example #1

Tellers Group measurement Current performance

Quantity measurement - # of teller transactions per day/total teller costs

Quality measurement - accuracy

Example #1 – Calculate Base

12,000 teller transactions per month

Salaries and benefits for tellers of $12,000 Cost per transaction = $12,000/12,000

or $1 per transaction base cost

Example #1 – Improve Base

Reduce cost – i.e. reduce staff, eliminate overtime, utilize part-time

Improve efficiency – i.e. work faster, improve efficiency, utilize technology, streamline

Example #1 - Incentives

Share cost savings with group 1/3,1/3,1/3

Add benefits

Time off, preferred parking

Recognition Awards, dinner with the board, etc.

Example #1 – Sample Results

13,000 teller transactions per $12,000 = $0.92 per transaction

Savings = $.08 X 13,000 or $1,000 less than the cost that the bank would normally incur

Employee incentive using 1/3 method would be $333 resulting in a net savings of $667

Applies to All Departments

New Accounts New vs. cost

Loan operations Cost per loan serviced

Lending Cost per Million $

Less past due Accounting

Cost vs. asset size

Common Goal for Everybody

Every employee at every level has a stake in the performance of the bank More customers = increased volume =

lower cost = greater incentives = $ to the bottom line