Doing a return-on-investment analysis.

• Author: Coffey, John J.
• Position: Database Marketing

One of the "details" to which you should pay attention is how the bank makes money--or, more specifically, how it calculates how it makes money. If your finance department has developed a profitability model, it is very likely that it has mapped the bank's general hedger (or G/L) data into its model. Among other things, this report contains a detailed listing of all of the bank's noninterest expenses and all the sources of noninterest income.

Your bank can map its G/L data in a variety of ways to help it more accurately calculate noninterest expenses and noninterest income at the account level. Because this process is subjective, it is as much an art as it is a science.

For instance, you'll find that only a few noninterest expense G/Ls are related to specific products--one example might be if your bank logged a specific expense for the cost of booking a not-sufficient-funds (NSF) fee every time a customer overdrafts his or her checking account, like a commission paid to a third-party vendor. If this were the case, then the expense could be mapped to the same checking products (which gave rise to the NSF income) so that they could absorb a portion of the NSF expenses.

For other noninterest expense G/Ls, you might find that they are more closely related to processes than they are to specific products. For example, the cost of postage could be related to statement rendering, CD renewal notices, loan late payment notifications or even marketing initiatives. As such, these may require you to collect baseline data, to determine "rules" that would assign every account in the bank a portion of these costs. Sometimes these rules are expressed as weight factors or percentages. Both approaches work.

Finally, you will find many noninterest expense G/Ls that are related to the bank's...