tag:blogger.com,1999:blog-235433516644980443.post4018782126905569064..comments2024-03-27T05:08:10.195-04:00Comments on Jeff For Banks: How About Profits in the Branch of the Future?Jeff Marsicohttp://www.blogger.com/profile/12153599647481141591noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-235433516644980443.post-1468140206658508182015-12-03T09:55:18.133-05:002015-12-03T09:55:18.133-05:00Mike,
I agree that the branch manager should be a...Mike,<br /><br />I agree that the branch manager should be accountable for the controllable expenses and that the allocation from IT is largely beyond their control. But in my travels I see inefficient branch direct expenditures for snow removal, cleaning service, maintenance upgrades which hit occupancy expense, etc. Pushing responsibility for direct branch expenditures to the lowest supervisory level would encourage more efficient allocation of operating expenses, in my opinion. But in terms of using net revenue, and net revenue growth, and branch ranking for knowing where each branch stands, we are in 100% agreement.<br /><br />I think banks should allocate support expenses for the full-picture branch p&l. It should be in a separate p&l line. But the relative reduction (as a % of branch deposits) of support function expenses is a critical measurement to achieving economies of scale in banking at the lowest organizational level.<br /><br />How often do I see banks grow, either organically or through acquisition, yet the relative cost of support functions grows, and therefore the efficiency ratio and expense ratio does not decline... often.<br /><br />Thank you for the comment!<br /><br />~ JeffJeff Marsicohttps://www.blogger.com/profile/12153599647481141591noreply@blogger.comtag:blogger.com,1999:blog-235433516644980443.post-71270232504590129432015-12-02T14:01:37.376-05:002015-12-02T14:01:37.376-05:00Jeff -- Good post. Agreed. Let me add a few more...Jeff -- Good post. Agreed. Let me add a few more aspects of branch profitability. Let's start with the cost side. I would discourage expense allocations altogether. The branches can't do anything about them, and if the branch goes away, you are just allocating the same fixed/overhead costs over a fewer number of branches.<br /><br />Focus on net revenue AND net revenue growth (spread X balance by product and non-interest income) and direct compensation expense. In fact, do a compensation efficiency ratio for each branch. The branch manager can’t do anything about the lease or depreciation schedule they are stuck with (or the cost of removing snow in the northeast in the winter). What they can do is deploy their personnel resources in the most effective and efficient manner to maintain and grow net revenue. That’s where the rubber hits the road in day to day operations.<br /><br />Look at branch profitability using two views. The first is profitability dollars (ranked high to low). The number one performer is the number one performer. It is like a high yield bond. Keep on clipping coupons. However … the last place performer might be the number one performer, here is why…<br /><br />Also look at growth in branch profitability. A branch going from -$150,000 to -$25,000 in “branch profit” just improved overall bank earnings by $125k. At a 12x market multiplier, that’s a $1.5m improvement in valuation. All of the sudden, this branch does not look so bad.<br /><br />I like your cluster view as well. It really helps to offset those situations where the account was opened up “here” but is being serviced “there” and both locations are in the same proximity to each other. At the end of the day, compensation resource should be exploiting a geographic area or market segment. The fundamental question is how well that is being done. Period.Anonymoushttps://www.blogger.com/profile/07875534656340044646noreply@blogger.com