RETAIL BANKING. Decision Making Metrics For Branch Delivery Optimization

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1 RETAIL BANKING Decision Making Metrics For Branch Delivery Optimization Joseph R. Sullivan CEO Market Insights Inc. Chicago, IL August 7, 2018

2 decision making metrics for branch delivery optimization Graduate School of Banking University of Wisconsin - Madison Tuesday, July 31 th, 2018 joe sullivan, ceo market insights agenda 1. trends 2. case study profile 3. researching the markets 4. reviewing the metrics 5. rethinking the branch 2018 Market Insights Market Insights, Inc. 1

3 2018 Market Insights 3 the future is already here - it's just not evenly distributed William Gibson (2003) 2018 Market Insights Market Insights, Inc. 2

4 1trends It is not just technology that is disrupting the industry 2018 Market Insights 5 globalchange.gov 2018 Market Insights Market Insights, Inc. 3

5 in 2018, over 1/3 of the 75 million Millennials are over the age of 30 US Census Bureau / Goldman Sachs by 2030, one in five Americans will be 65 years and older US Census Bureau 2018 Market Insights 7 the evolution of our economy Agrarian Economy Industrial Economy Information Economy Purpose Economy Source: The Purpose Economy by Aaron Hurst 2018 Market Insights Market Insights, Inc. 4

6 2018 Market Insights 9 Chase had 30.1 million mobile active users in 4Q Market Insights Market Insights, Inc. 5

7 Source: emarketer 2018 Market Insights Market Insights Market Insights, Inc. 6

8 2018 Market Insights Market Insights Market Insights, Inc. 7

9 2018 Market Insights 15 we are witnessing the creative destruction of financial services, re-arranging itself around the consumer. who does this in the most relevant, exciting way using data and digital, wins. Arvind Sankaran Senior Advisor, McKinsey & Co. April Market Insights Market Insights, Inc. 8

10 2case study profile relevant data about the market and the consumer 2018 Market Insights 17 introducing: your bank hypothetical case study bank community bank with $150 mil in assets and 3 locations serving greater Wichita, KS two branches in Wichita suburbs and one in the small town of Newton approximately 25 miles to the north viability of retaining the Newton area location refocusing of branch activities (i.e. staffing, continuum of self service full service) 2018 Market Insights Market Insights, Inc. 9

11 2018 Market Insights 19 Market A: 3 mile trade area main retail draw in west Wichita area retail: Target, Best Buy, Lowe s, Walmart, and Dillons restaurants: Chipotle, Panera, and Chick-fil-A Market B: 2 mile trade area neighborhood draw Walmart Neighborhood Market, Walgreens, and Dillons Market C: 5 mile trade area small town market located by Dillons grocery store along I-135 and Highway 50 Walmart on the south side of intersection 2018 Market Insights Market Insights, Inc. 10

12 ask these questions: what kind of market is it? what segments are we trying to attract? do we need as many branches as we have? are our branches focused on the right activities? how do we serve retail and small business customers without the high fixed cost of an extensive branch network? how does the branch align with the call center and digital channels? how should the branch evolve in light of market conditions? 2018 Market Insights 21 3researching relevant data about the market and the consumer 2018 Market Insights Market Insights, Inc. 11

13 2018 Market Insights 23 what to examine Internal spatial mapping of densities and key metrics analysis of transactions Market select a radius/trade area demographics financial/product propensity competition Customers segmentation engagement preferences emotional drivers 2018 Market Insights Market Insights, Inc. 12

14 2018 Market Insights 25 what matters? market A household market B household market C household 2018 Market Insights Market Insights, Inc. 13

15 What story do you need to tell? high medium low transactions what stands out? 30-Day Transactions Branch A Branch B Branch C Total In-Branch 1,133 1, ,236 57% ATM % Mobile % Online % Phone % Total 1,987 2,555 1,136 5, % 2018 Market Insights Market Insights, Inc. 14

16 Market A - Wichita Market B - Wichita Market C - Newton N Maize Rd & W 21st St W 31st St S & Seneca St S High St & SE 14th St Harvey County Sedgwick County N 3 mi 2 mi 5 mi Market Density 2018 Population 61,115 40,912 22,181 34, ,877 Percent Pop. Change % -0.10% 1.30% 1.10% 2.00% 2018 Households 23,029 16,748 8,782 13, ,690 Percent Household Change % 0.40% 1.30% 1.20% 2.00% Net Change in HHs: 2018 to , Total Number of Businesses 2,238 1,062 1,299 1,789 23,369 Market Quality 2018 Avg Household Inccome $93,922 $45,221 $64,267 $68,938 $72,794 Dominant HH Income Group $50-74K (20%) < $15K (20%) $50-74K (20%) $50-74K (20%) $50-74K (19%) Dominant Adult Age Group (14%) (15%) (12%) (13%) (14%) Dominant Education Group Bachelor's Degree (28%) HS Graduate (37%) HS Graduate (31%) HS Graduate (29%) HS Graduate (27%) Owner Occupied Housing (%) 77% 57% 67% 71% 66% Renter Occupied Housing (%) 23% 43% 33% 29% 34% Own Occ HUs Median Value $177,860 $79,240 $123,745 $132,661 $137,987 what matters? density growth quality source: Environics Analytics 2018 Market Insights 29 P$YCLE retail segment distribution not all markets are the same! Market Houseshold P$YCLE Lifestage Distrbution by Market Trade Area Market A Market B Market C Y1: Upwardly Mobile 2, Y2: Metro Mainstream 1,706 1, Y3: Fiscal Fledglings 477 2, Total Younger Years 4,870 3,644 1,306 F1: Flourishing Families 3, F2: Upscale Earners 4, F3: Mass Middle Class 2,623 4,324 1,488 F4: Working-Class USA 1,013 5,921 2,075 Total Family Life 11,075 11,207 4,682 M1: Financial Elite M2: Wealthy Achievers 2, M3: Upscale Empty Nests 1, M4: Midscale Matures 1, ,211 M5: Retirement Blues Total Mature Years 7,086 1,895 2,794 Total Households 23,031 16,746 8,782 source: Environics Analytics 2018 Market Insights Market Insights, Inc. 15

17 P$YCLE retail segment distribution not all customers are the same! Customer Houseshold P$YCLE Lifestage Distrbution by Market Trade Area Market A Market B Market C Y1: Upwardly Mobile Y2: Metro Mainstream Y3: Fiscal Fledglings Total Younger Years F1: Flourishing Families F2: Upscale Earners F3: Mass Middle Class F4: Working-Class USA Total Family Life 2,363 1,899 1,579 M1: Financial Elite M2: Wealthy Achievers M3: Upscale Empty Nests M4: Midscale Matures M5: Retirement Blues Total Mature Years 1, ,058 Total Households 4,332 3,014 2,869 source: Environics Analytics 2018 Market Insights 31 opportunities assessment 2018 Market Insights Market Insights, Inc. 16

18 Agricultural Businesses Agriculture Business Employees Agriculture Sales ($000) Mining Businesses Mining Business Employees Mining Sales ($000) Construction Businesses Construction Business Employees Construction Sales ($000) Manufacturing Businesses Manufacturing Business Employees Manufacturing Sales ($000) Transportation/Logistics Businesses Transportation/Logistics Business Employees Transportation/Logistics Sales ($000) Wholesale Businesses Wholesale Business Employees Wholesale Sales ($000) Retail Businesses Retail Business Employees Retail Sales ($000) Finance/RE/Insurance Businesses Finance/RE/Insurance Business Employees Finance/RE/Insurance Sales ($000) Services Businesses Services Business Employees Service Sales ($000) Misc. Service Businesses Misc. Service Business Employees Misc. Service Sales ($000) Public Administration Businesses Public Administration Business Employees Public Administration Sales ($000) Non-Classifiable Businesses Non-Classifiable Business Employees Non-Classifiable Sales ($000) 2018 Businesses, Employees and Sales by Industry Market A - Wichita Market B - Wichita Market C - Newton N Maize Rd & W 21st St N W 31st St S & Seneca St S High St & SE 14th St 3 mi 2 mi 5 mi $1,338 $0 $2, $37,210 $358 $2, $105,187 $239,068 $65, ,209 1,797 $118,659 $873,104 $332, , $137,109 $160,832 $119, , $231,996 $1,445,145 $401, ,593 2,892 2,770 $873,809 $540,996 $408, , $1,056,494 $137,545 $94, ,562 4,169 4,789 $683,125 $293,217 $315, , $37,091 $29,576 $15, $0 $0 $ $0 $0 $0 source: Environics Analytics what matters? density of your target business customer Top 2 business categories based on number of businesses Business categories ranked 3-5 based on number of businesses 2018 Market Insights 33 Market A - Wichita Market B - Wichita Market C - Newton N Maize Rd & W 21st St N W 31st St S & Seneca St S High St & SE 14th St 3 mi 2 mi 5 mi Avg. Bal./HH Usage Avg. Bal./HH Usage Avg. Bal./HH Usage DEPOSIT PRODUCTS Retail - Non-interest DDA $ 8,212 52% $ 4,306 52% $ 6,016 52% Retail - Interest DDA $ 16,089 48% $ 9,125 36% $ 12,472 43% Retail - Regular Savings $ 43,945 84% $ 20,601 73% $ 31,377 79% Retail - Money Market Savings $ 75,726 29% $ 49,139 17% $ 63,225 23% Retail - IRAs $ 263,496 42% $ 170,956 25% $ 223,715 33% Retail - CD/Time $ 96,186 20% $ 68,542 12% $ 85,581 16% INVESTMENT PRODUCTS Investment - Stock $ 200,194 23% $ 126,834 13% $ 169,548 18% Investment - Mutual Funds $ 149,899 22% $ 100,598 11% $ 128,145 16% Investment - Bonds $ 59,516 7% $ 40,643 4% $ 53,635 5% Investment - Annuity $ 224,198 13% $ 155,212 7% $ 188,531 10% LOAN PRODUCTS Retail - First Mortgage $ 185,591 52% $ 136,749 34% $ 163,393 42% Retail - Installment Loan (1) $ 7,500 15% $ 7,500 15% $ 7,500 15% Retail - Auto Loans $ 15,973 32% $ 13,608 23% $ 14,951 27% Retail - Credit Card $ 7,972 85% $ 4,737 71% $ 5,988 79% Retail - Checking Overdraft $ 9,870 10% $ 5,266 8% $ 7,254 9% Retail - Home Equity $ 19,100 8% $ 16,628 4% $ 18,168 6% (1) Market Insights assumption Source: 2018 Environics Analytics Product Usage Overview 2018 Market Insights Market Insights, Inc. 17

19 2018 Market Insights 35 competition net branch migration households/branch financial propensity relative positioning digital competitors 2018 Market Insights Market Insights, Inc. 18

20 2018 Market Insights 37 Households per Branch Source: SNL Financial <1,000 1,000 1,249 1,250 1,499 1,500 1,749 1,750 2, Market Insights Market Insights, Inc. 19

21 Market A - Wichita Market B - Wichita Market C - Newton N Maize Rd & W 21st St N W 31st St S & Seneca St S High St & SE 14th St 3 mi 2 mi 5 mi 2017 Market Share Leaders Market Share Leader INTRUST Bank INTRUST Bank First Bank of Newton Deposits ($mil) $326.5 $105.6 $161.1 Deposit Market Share (%) 18.7% 37.1% 41.6% 2017 Competition Summary Deposit & Investment Propensity ($mil.) $12,108 $3,262 $3, Deposits ($mil.) $1,751 $285 $ Deposits Held Elsewhere ($mil.) $10,356 $2,978 $2,639 Change in Deposits % -10.8% 3.9% Change in Deposits % 2.1% -0.4% Loan Propensity ($mil.) $2,649 $954 $715 Total Branches Bank Savings Bank/S&L Credit Union Households per Branch 622 1, what matters? propensity source: SNL Financial households/branch 2018 Market Insights 39 Product Propensity ($ mil) Market A Market B Market C DEPOSIT PRODUCTS Retail - Non-interest DDA $ 0.42 $ 0.23 $ 0.31 Retail - Interest DDA $ 0.78 $ 0.33 $ 0.54 Retail - Regular Savings $ 3.67 $ 1.50 $ 2.47 Retail - Money Market Savings $ 2.23 $ 0.85 $ 1.46 Retail - IRAs $ $ 4.28 $ 7.47 Retail - CD/Time $ 1.93 $ 0.83 $ 1.37 TOTAL DEPOSIT PROPENSITY $ $ 8.02 $ INVESTMENT PRODUCTS Investment - Stock $ 4.59 $ 1.66 $ 3.05 Investment - Mutual Funds $ 3.23 $ 1.11 $ 2.04 Investment - Bonds $ 0.42 $ 0.15 $ 0.28 Investment - Annuity $ 2.95 $ 1.12 $ 1.95 TOTAL INVESTMENT PROPENSITY $ $ 4.05 $ 7.32 LOAN PRODUCTS Retail - First Mortgage $ 9.68 $ 4.71 $ 6.80 Retail - Installment Loan (1) $ $ $ 9.88 Retail - Auto Loans $ 0.51 $ 0.31 $ 0.40 Retail - Credit Card $ 0.67 $ 0.34 $ 0.47 Retail - Checking Overdraft $ 0.10 $ 0.04 $ 0.06 Retail - Home Equity $ 0.15 $ 0.07 $ 0.11 TOTAL LOAN PROPENSITY $ $ $ (1) Market Insights Balance and Usage Assumption Source: 2018 Environics Analytics 2018 Market Insights Market Insights, Inc. 20

22 point score Market Competition + Site = Total Point Score Branch Address Radius Point Score Market Score Competition Score Site Score Market A N Maize Rd & W 21st St N 3 mi Market B W 31st St S & Seneca St 2 mi Market C S High St & SE 14th St 5 mi Market Insights 41 Five Year Projected Deposits, Loans, & Investments Branch/Market Address Radius Point Score Deposits Investments Loans Current Projected Current Projected Current Projected Branch A N Maize Rd & W 21st St N 3 mi 305 $67.0 $100.4 $0.0 $52.2 $44.0 $65.9 Branch B W 31st St S & Seneca St 2 mi 288 $41.0 $59.9 $0.0 $28.6 $32.0 $43.4 Branch C S High St & SE 14th St 5 mi 231 $15.0 $25.7 $0.0 $11.7 $9.0 $23.5 Totals $123.0 $185.9 $0.0 $92.4 $85.0 $ Market Insights Market Insights, Inc. 21

23 1) 2) 3) 4) my takeaways 2018 Market Insights 43 4reviewing the metrics of optimization and consolidation 2018 Market Insights Market Insights, Inc. 22

24 2018 Market Insights 45 triggers to keep to close/consolidate to rethink/repurpose branch 2018 Market Insights Market Insights, Inc. 23

25 triggers to keep defined niche high volume branch profit contribution branded billboard 2018 Market Insights 47 triggers to close or consolidate no market growth no branch growth geographic overlap functional overlap deposit mix low HHs/branch 2018 Market Insights Market Insights, Inc. 24

26 triggers to rethink / repurpose strong growth potential retention strategy state of disrepair 2018 Market Insights 49 1) 2) 3) 4) my takeaways 2018 Market Insights Market Insights, Inc. 25

27 5rethinking the once-dominant channel for banking: the branch 2018 Market Insights 51 from this 2018 Market Insights Market Insights, Inc. 26

28 to this 2018 Market Insights Market Insights Market Insights, Inc. 27

29 ease convenience choice value 2018 Market Insights 55 the branch strategy of relying on sheer numbers to win market share is a thing of the past JLL US Banking Outlook (2017) 2018 Market Insights Market Insights, Inc. 28

30 2018 Market Insights 57 Market A - Wichita Market B - Wichita Market C - Newton Evolution Metrics N Maize Rd & W 21st St N W 31st St S & Seneca St S High St & SE 14th St 3 mi 2 mi 5 mi Customer Analysis Retail Segments F2, F1, Y1 F4, F3, Y3 F4, F3, M4 Business Type(s) Finance/RE/Insurance, Construction, Manufacturing Finance/RE/Insurance, Construction, Manufacturing Finance/RE/Insurance, Construction, Transportation/Logistics Activities Analysis Transaction Review Purpose for Visit Equipment Needs Analysis Interactive Teller Machine (ITM) Cash Recycler Traditional ATM Digital Marketing Tools Staffing Needs Analysis Universal Banker Specialized Sales (bus., mtg., inv.) 2018 Market Insights Market Insights, Inc. 29

31 In-Store Self Service Hybrid Full Service Branch Banking Center Banking Center Traditional Branch Specifications Size (sqft.) ,000 2,500 Cash Recyclers X Traditional ATM Video Enabled ATM/Kiosk X X X X Environment (Market Type) Urban (high pedestrian traffic) X X X Suburban/shopping X X X Small Town/Rural X X X Workplace X X Typical Situation Downsizing (sqft.) X X X Consolidating (2 into 1) X X Satellite (feeder) location X X X Branch closure X X Staffing Model Universal Banker X X X Specialized (invsmnt, mortgage, etc.) X X X Phase out tellers X 2018 Market Insights, Inc Market Insights Market Insights Market Insights, Inc. 30

32 2018 Market Insights Market Insights Market Insights, Inc. 31

33 2018 Market Insights 63 my takeaways 1) 2) 3) 4) 2018 Market Insights Market Insights, Inc. 32

34 1) evolving economy 2) data driven decisions 3) alignment with market 4) channel migration 5) action 2018 Market Insights 65 the electric light didn t come from the continuous improvement of candles Oren Harari 2018 Market Insights Market Insights, Inc. 33

35 thank you joe sullivan, ceo 2018 Market Insights, Inc. 34