1. SUPPLIER ANALYSIS: RETAIL BANKING OPERATIONAL EFFICIENCY MANAGEMENT

2. Financial Measurements Working Capital Efficiency –Accounts Receivable Days plus Inventory Days, less Accounts Payable Days –This measurement tells you how efficient you are in converting cash into revenue and then back to cash (The C2C Cycle) Operating Efficiency –The key measurement used by Banks to test efficiency –A measure of cash conversion in banks would be counterintuitive

3. Operating Efficiency - Defined Non-interest expense divided by total revenue less interest expense Non-interest expense divided by net interest before loan losses Non-interest divided by revenue Operating expenses divided by fee income plus tax equivalent net income

4. Operating Efficiency

5. Operating Efficiency Cost Analysis

6. Operating Efficiency Revenue Analysis

7. Banking Operations: Core Competency Strategy Source: Boston Consulting Group: “Banking a la Nike & Dell: Achieving Scale without Acquisition Premiums

8. NON-INTEREST EXPENSE MANAGEMENT Tangible Cost Impact Benefits: Examples –Process Efficiencies= Less Staff / More Growth Focused Staff –Consolidated Purchasing= Enhanced Purchasing Leverage / Lower Prices –Improved Capital Management=Fixed to Variable / Flexibility Increase

9. Efficiency Ratio Levers: Insiders Perspective David Meyer CFO, Investment Wealth Division Mercantile Bankshares Corporation Industry Leadership Perspective Efficiency Levers Investment Decisions Cost Decisions People, People, People Market Approach Strategic Approach to SCM Future Trends in Banking Continued Consolidation? Scale at the expense of Service?

10. SCM SOPHISTICATION COMPARISON Supply Chain Management Relationship Map Cooperation (Fewer Suppliers, Longer-Term Contracts…) Open Market Negotiation (Price-Based Discussions, Adversarial Relationships…) Collaboration (Supply Chain Integration, Joint Planning, Technology Sharing…) Coordination (Information Linkages, EDI Exchanges…) Relationship Complexity Relationship Strategic Importance Low High Financial Instruments Credit Card Partners Payroll Services Corporate Relationships Purchasing Inbound Efficiency Legend IT Process Outsourcing Outbound Corporate Relationships Capital