Pub. 4 2022 Issue 7

HOW TO ASSESS TRUE BRANCH PROFITABILITY MID-MARKET BANKING – By Katie Horvath, Chief Marketing Officer – Aunalytics, Inc. Aunalytics is an Associate Member of PACB. Traditionally in the banking industry, the branch where a customer opens an account receives credit for that customer’s business. But what about scenarios where a customer opens an account, say near where she works, but primarily does transactional banking at a branch near where she lives? What if she changes employment and now banks at a different branch near her new job location? For longstanding customers, should business from a single human end up divided across multiple branches where accounts were opened? Should all business from the human be credited to the branch where the first account was opened? What about crediting each branch for the transactional work associated with that location? What about scenarios where two branches are used primarily by the customer – one for personal banking and a different branch for business? Should ownership of the customer remain with the first banker establishing the relationship or switch between bankers depending upon branch usage? What happens when a customer opens further accounts online? Does the online and mobile business get accounted for as a virtual branch? How does it factor into determining branch profitability where the online business may be attributed to personal relationships established at a branch location? Branch profitability calculations can get mathematically complicated rather quickly. Because single branch balance sheets are often deposit heavy or loan heavy, they are unbalanced. Some branch calculations include a correction by FTPing the branch balance sheet to determine earnings credit on deposits and funding charges on loans to allocate net interest income. Some include indirect expenses and overhead allocation on branch-specific GL expense calculations on an asset risk-weighted basis in an attempt to be more accurate. This works for brick and mortar but misses the mark on channel, product and customer considerations that should be part of the analyses. When trying to assess branch profitability to analyze locations where new branches should be opened or branches that should be closed, the transaction type and volume at that location should be considered. But due to the traditional industry norm of viewing business from a customer as if it all came from the branch where the account was opened, operational systems typically lack the ability to easily include transactional data in branch profitability analysis. The set-up is flawed unless the customer does all 14 | HOMETOWN BANKER | HOMETOWNBANKER.ORG