It’s common knowledge that in order for a bank to improve its profitability, it must increase revenue, decrease expenses, or do both. While the core equation for profitability is simple (Revenue > Expenses = Profit), the complexity of factors that can impact either side of that equation means that accomplishing profit is anything but simple.
Consider this fact: every bank employee and/or activity either generates revenue or expense. This means that there is a Profit Opportunity Within Every Resource (POWER). At first, this thought may be a bit overwhelming as the complexity of bank activities and the profitability equation come into focus. Where does a bank start? What factors merit examination?
This article is first in a series of six designed to help financial institutions address profitability through a POWER approach. It introduces items to consider when seeking ways to increase revenue and operate with less expense. This list is certainly not exhaustive but instead serves as thought-provoking assistance to help banks realize the POWER that exists within their organizations.
Strategies to Increase Revenue
- Offer new products or services
- Collect your existing fees
- Increase existing fee schedule
Sources of Fee Income
Loan Fees
- Loan fees paid at closing
- Late fees
- Annual loan fees
- Per “occurrence” fees
- A & H insurance
- Credit cards
Consumer Deposit Fees
- Free checking vs. other alternatives
- Minimum balance checking
- Banclubs
- ATM fees
- Debit cards
- Relationship pricing
Commercial Deposit Fees
- Account analysis
- Hard charges
- Soft charges
- Understanding float
- Positive and negative available funds
- Net available fund
- Special services
Other Revenue-Generating Activities
- Secondary market activity
- Loan servicing
- Investments & annuities
- Trust services/departments
- Insurance agency
- Credit card portfolios
Strategies to Control Noninterest Expense
- Control salaries and benefit expense
- Improve productivity
- Evaluate tasks being performed
- Is it necessary? Can it be streamlined?
- Evaluate product features contributing to inefficiency
- Leverage electronic banking
- Revisit performance benchmarks semiannually
- Transactions per hour
- Loan portfolio per loan servicer
- Proof area
- Make sure you have the right people for the right duties
- Review compensation and benefit package
- Control occupancy and equipment expense
- Control “other” expense
- Review revenue and expense from club accounts
- Review maintenance and repair
- Review janitorial expense
- Review data processing
- Printed reports and notices
- Purge
- Microfilming
- Review telephone and postage
- Evaluate loan coupon books
- Check stock
- Upcharges
- Free checks
- Deposit tickets
- 50 free???