Pub. 7 2012-2013 Issue 2

www.nebankers.org 18 Extraordinary Service for Extraordinary Members. D URING THE LAST 10 YEARS, AS MANY CONSUMERS MIGRATED TO VIRTUAL CHAN- nels and customer visits to retail bank branches dropped by 20 percent, banks cut costs by closing hundreds of locations across the country. It’s no secret that brick-and-mortar continues to be the most expensive dis- tribution channel and, more than ever, it is imperative that banks get themaximum return on the investment. To become more productive and profitable, banks must evolve strategies and practices to cultivate the growth and revenue potential of individual branches. Here are eight steps bank executives can take to help each branch focus on the right ways to generate income and maximize overall franchise profitability. Focus on balancing profit, growth, and risk. The best performing banks balance the three principal drivers of franchise value—profit, growth, and risk—to maximize performance and build a sustainable earnings stream. By focusing on these fundamentals, a bank can align its branches’ priorities and day-to-day activities with the overall objectives of the franchise to improve performance. To best understand how the franchise and each branch is performing requires benchmarking against peer institutions. Through comparison against peer institutions, a bank can uncover the primary issues it must address to improve performance, including cost of funds, overhead efficiency, pricing, net- interest margins, and excess capacity. Assess the strategic fit and unique role for each branch in the network. At many community banks, the chief financial officer (CFO) sets the budget and spreads it across the branches, with each location asked to meet the same percent- age growth target. However, this approach typically results in setting goals that some branches cannot achieve and goals that may not be aggressive enough for other branches. The more effective way is to establish unique customer acquisi- tion, retention, and cross-selling goals based on current realities in each branch’s service area. Analyze the current customer base for each branch. Banks that increase wallet share among customers can also improve reten- tion rates. On average, a customer with just one product will stay with the institution for about 18 months. When a customer adds just one more product, it extends that relationship (and income to the bank) to four years. At the three-product threshold, that relationship stretches to just short of seven years. Yet, during a recent survey, 73 per- cent of community bankers said their business development plans didn’t ad- equately recognize differences in wallet share among current customers. This finding demonstrates that bankers need analytical tools to help them pinpoint the most profitable customer segments for each branch. Identify your best new prospect opportunities. More than two out of three commu- nity bankers surveyed acknowledged that they rely mostly on current rela- tionships and branch location, rather than proactive outreach programs, for business development. However, to attract new customers, banks should take a more data-driven, proactive approach. To begin the process, bank executives must ask themselves two questions: Which types of custom- ers currently gravitate to our bank? Which specific segments should our bank target and pursue as prospects? It is only by understanding the dy- namics of the market that community bankers can pinpoint, pursue, and profit from business and consumer prospecting opportunities. Eight Steps to Improve Branch Profitability Andy Grinstead , Senior Vice President of Bank Intelligence Solutions, Fiserv Only 27 percent of surveyed bankers indicated that their business plans take current wallet share into account.