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• W299549504 abstract "Many current articles in the banking trade press talk about the performance (or lack of it!) at branch offices, including the building of the ever-elusive sales culture and performance measurements in various departments, specifically branches. While there certainly are an abundance of interesting new approaches, and quite useful suggestions, perhaps another look at existing measurements and more insight into what we already know regarding our own performance standards may be just as helpful. With the recent explosion of new branch offices, particularly in community and regional banking, forward planning and anticipating results of market expansion in vital areas is often an onerous task. Identifying and effectively using existing performance data can ease the challenge. When we consider the wealth of history every bank has on its existing branches and lending functions, projecting what may come from expansion moves becomes a little clearer. Building on strength, not weakness Too often bankers ignore the basics within their own organizations, and attempt to get a competitive jump by promoting products that, when viewing their own internal cost statistics, make very little financial sense. As an example, I recently saw a local community bank's advertisement offering a very attractive 4% rate the life of the home equity product. This was intended as an outlet for new funds generated through branch expansion. Even a brief look at internal cost factors would have shown that the cost to generate $1 dollar of deposits (fully impacted) currently averages about 3.5% in community banks. The administrative costs (including overhead) of making the loan adds another 1.5%, on average, resulting in a loss of 1% on every dollar invested in the new product! It would take very rapid, near-term changes in prime to avoid significant operating losses in this venture. Yet the product remains on the market--and is probably generating a great public response. This isn't the only potential trap banks can fall into in this area. Too often the new branch outlets are opened with an attractive CD product to fund the loan promotion, generating even higher funds cost than the bank usually averages. Unfortunately, this seems to be the traditional, standard approach by community banks in making their mark in a new market. Thus, added to the initial, possibly significant losses in the loan department, the branch office will take years--if ever--to grow out of the high cost of its initial deposit base. Its break-even time frame can easily be twice that of the branch network average. I've seen it many times. On the other hand, opening new offices with perhaps free checking or some other relatively low-cost product, as most major banks do, avoids such pitfalls. Stopping the blunder at square one Using existing data within the bank's structure can certainly avoid such obvious blunders. Knowing what it costs to generate deposits; to book and administer a loan; and what can be expected from a new office, are all factors that are available within the bank's history of performance. What better source of projections and expectations could your bank have than its own past experience? An effective departmental/branch profitability system, based completely on internal data, will provide all that is needed to review and compare performance on a departmental basis. Today's banking environment makes such a system nearly vital to existence. In every bank, branch offices exhibit numerous differences, largely due to location (for example, suburban vs. downtown), which have significant effects on various areas of performance. We cannot anticipate the same operating results from a strong-deposit-mix, low-interest-cost urban branch than we can at an inverse-deposit-mix, high-interest-cost suburban location. In the former, we can anticipate higher direct operating costs due to more transaction-type accounts--a busier lobby (more staffing)--and lower interest costs with a transaction-oriented deposit mix. …" @default.
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• W299549504 date "2004-05-01" @default.
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• W299549504 title "Don't Put Holes in Your Own Boat: Bankers Who Ignore Their Real Cost of Funds Could Innovate Themselves into Drydock" @default.
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