1. Banking by the Numbers Or how to measure what happens between the front line and the bottom line Presented by Gene Fulcher SolutionServices, Inc.

2. 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

3. Result Generally measure against past performance oMeasurements may not be applicable due to change in technology, environment, customer mix or other factors oPast performance may not be indicative of capabilities of the bank oSuch measurements only deliver questions… not solutions

4. 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)

5. 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

6. 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.

7. 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

8. 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

9. 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

10. 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

11. Example #1  Tellers Group measurement Current performance  Quantity measurement - # of teller transactions per day/total teller costs  Quality measurement - accuracy

12. 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

13. 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

14. 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.

15. 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

16. 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

17. 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