What’s Your Branch Totem Pole? Ranking Branch Performance

By Chris Bledsoe, Banker’s Dashboard

A bank is the sum of its parts. That’s why it is imperative for today’s directors and management teams to know what’s happening at the branch level at all times. To lead with best-in-class effectiveness, they must be able to track and weigh important financial indicators (such as cost of funds and loan growth) and rank branches accordingly. With intelligence that pinpoints which branches are high-performers and which are not, CEOs and directors can focus on what the high performers are doing well and institute those practices at the other branches.

What can you do as a director? In this economic environment, every penny adds up. Directors should guide their bank management teams to “think more like a retail operation” and begin ranking branch performance based on the following guidelines.

Customize to Bank Strategy
The ranking criteria used for your branches should be unique to overall bank goals. Incorporate financial indicators and weightings that will help measure and monitor performance in the areas that are key to your bank’s strategy. Directors should ensure that management is obtaining information to support critical questions such as, “Which branch has the cheapest deposits, and what locations have the highest yielding loan portfolio?”

Include the Right Ranking Components
Your bank’s branch performance ranking should include key financial metrics from the following areas to help management better understand which branches are contributing to desired results, and which need additional coaching to meet performance objectives. Several examples of key metrics within each area are provided.

Balance Sheet – may include loan growth with comparisons to budget; deposit mix; and, non-interest bearing checking accounts.

Income Statement – noninterest expense with comparisons to budget, and NSF dollars waived as a percentage of gross NSFs are two examples. By focusing on the percentage of NSFs waived, management can more easily compare between branches and guide them to achieve improvements.

Margin Components – examples include loan portfolio yields and cost of funds. These types of comparisons are not typically performed at the branch level, and could contribute significant insight regarding ways to improve overall bank results.

Automate the Number Crunching
Ranking accurate and timely data provides banks with a consistent way to measure branch performance. Yet, many banks don’t take the time to compare and manage individual branches in this detail. For some banks, it’s just too difficult – the data is hard to accumulate and the process is manual and very cumbersome. For others, the measurement methodology they have created is unmanageable and tough to maintain. The larger a bank grows, the more laborious the effort required. Technologies are now available to eliminate the burden of these manual processes so that a branch ranking can quickly and easily be performed on a monthly, quarterly and annual basis. This type of information should become a standard item in a bank’s financial and board reporting package.

Promote Accountability
In order to truly understand your bank’s performance, you must have detailed intelligence of individual branches and how they compare. A regular and consistent ranking of branch performance will help to identify which branches are helping and hurting the bank, and in what particular areas. This eliminates subjectivity by making branches’ scores (the hard numbers) clearly visible. As a result, best practices are revealed and applied throughout the entire bank network. This instant feedback highlights high performers while also allowing bankers to clearly see who needs coaching. Branch management can then be held accountable and incented to improve their ranking, focusing everyone on bank performance.

It’s more important than ever for directors and senior bank leaders to have full visibility and knowledge of their branch network – to uncover opportunities that will strengthen the bank. A branch performance ranking provides this kind of insight in a format that is easy to understand and interpret.

How does your branch totem pole stack up?

<back to October 2009 Directors Digest>