Getting Big Results from Small Data Analytics Claude A. Hanley, Partner 2017 AMIfs Annual Conference Financial Performance & Risk Management April 26-28, 2017
CAPITAL PERFORMANCE GROUP, LLC Management Consulting Focus on Strategy Financial Services Specialization Experienced Bankers Analytical and Practical For 20 years, CPG has worked with the ABA Banking Journal and American Banker to evaluate the nation s top performing banks. 1
NO SHORTAGE OF DATA IN BANKING 2
Data is one thing. Actionable data is THE thing. 3
STRATEGIC FOCUS AREAS 1. Building stronger brand positions and value propositions for targeted segments. 2. Focusing on higher margin business lines and higher growth markets. 3. Deepening customer relationships. 4. Continuing transformation of the distribution system. 5. Developing a high performance culture. 6. Continuing to improve operational efficiencies. 7. Building fee-based businesses and income streams. 4
EXAMPLES OF ANALYTICS IN STRATEGIC FOCUS AREAS Higher growth markets, and deeper customer relationships Customer and Market Analytics Transformation of the Distribution System Branch Network Rationalization Sales Force Productivity Analytics Improve Operational Efficiency Credit Process Analytics Technology Payback 5
Customer and Market Analytics 6
CUSTOMER ANALYTICS Perform cross-sell analysis for consumer and business customers to quantify opportunities within the customer base Total Consumer Customers 32,500 Total Consumer Customers 23,800 Percent Using Consumer Checking 73.2% Products per Consumer Checking Customers 1.6 Single-Product Customer Checking Customers 12,100 Percent of Consumer Checking Customers 50.8% The bank has a total of 23,800 consumer checking customers. Of these customers, 50 percent are single service customers representing a priority. 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Deposit Product Use: Businesses Checking Savings MMDA CDs Sweep The percentage of business households using deposit products at the bank is low especially among Small Business households. Small Business Commercial 7
CUSTOMER ANALYTICS Deposit Stratification Consumer Checking Deposit Stratification Accounts Balances Balance Tier (#) % of Total Cumulative % Balances ($000) % of Total Cumulative % Average Balance ($) $0.01 to $499 2,900 51.1% 51.1% 387 2.5% 2.5% 134 $500 to $1,499 1,210 21.3% 72.4% 1,099 7.2% 9.7% 908 $1,500 to $2,499 485 8.5% 80.9% 940 6.2% 15.9% 1,939 $2,500 to $4,999 509 9.0% 89.9% 1,785 11.7% 27.6% 3,508 $5,000 to $9,999 275 4.8% 94.7% 1,928 12.6% 40.3% 7,012 $10,000 to $24,999 200 3.5% 98.2% 2,957 19.4% 59.7% 14,785 $25,000 to $49,999 65 1.1% 99.4% 2,281 15.0% 74.6% 35,097 $50,000 to $99,999 24 0.4% 99.8% 1,985 13.0% 87.6% 82,717 > $100,000 12 0.2% 100.0% 1,884 12.4% 100.0% 156,963 Total 5,680 100.0% 100.0% 15,247 100.0% 100.0% 2,684 Stratify deposit accounts by balance to identify opportunities to reprice 8
CUSTOMER ANALYTICS Mobile Banking and Online banking usage How does our percentage of active users compare to industry standards? Industry M etric Bank M edian Perc entile XY Z 75th Enrolled online banking users as a % of retail checking accounts 50.0% 46.0% 62.0% Active online banking users as a % of total enrolled 75.0% 85.0% 98.0% Enrolled bill pay users as a % of retail checking accounts 12.0% 16.0% 24.0% Active bill pay users as a % of total enrolled 55.0% 75.0% 97.0% Enrolled mobile banking users as a % of retail checking accounts 12.6% 8.0% 16.0% Active mobile users as a % of total enrolled 55.0% 70.0% 99.0% 9
CUSTOMER ANALYTICS Share of Wallet Emerging Affluent Segment CREDIT CARD TOTAL SEGMENT @ BANK 59,614 # With Product 54,766 # With Product at BANK 24,398 Product Hhld Share 45% $ Total Per Hhld $7,220 $ Total at BANK $1,838 BANK $ Share 25% Calculate share of market households with the product and the product balance. 10
MARKET ANALYTICS Concentration, competitors, customer segments Market 1 Market 2 Market 3 STRATEGIC CONSIDERATIONS Total Households 1,109,044 327,309 345,439 Projected Growth, 2009 to 2014 1.1% 0.6% 1.7% Mass Affluent Households 389,355 102,931 104,064 % of Total Households 35.1% 31.4% 30.1% Number of Small Businesses 138,531 48,082 40,929 Concentration of Target Industries 52.0% 50.6% 48.9% Key Large Bank Competitor Presence Share of Total Market Branches 46.3% 18.2% 28.5% Share of Total Market Deposits 55.9% 18.8% 49.2% Key Community Bank Competitor Presence Share of Total Market Branches 13.4% 12.8% 11.0% Share of Total Market Deposits 9.6% 11.1% 11.0% Market 1 stands out: 3x larger Greater concentrations of Mass Affluent HH and Target Industry establishments Dominated by targeted competitors 11
MARKET ANALYTICS HOT SPOT Use analytics to: Prioritize branch network rationalization/transformation activities Identify concentrations of target customers to inform expansion/resource allocation Data is available at various levels (e.g., block group, census track, county) Opportunity can be defined by: Households Product usage Balances Growth Segment size 12
MARKET & CUSTOMER ANALYTICS Index bank customers households to the market households to identify areas of under penetration Consumer Number of Customer HHs % of Total Customer HHs Total Market HH % of Total Market HH Index to Market 1 Total Consumer Households 5,418 100.0% 11,308 100.0% 100 Deposit Accounts Checking Accounts 4,605 85.0% 10,636 94.1% 90 Money Market Accounts 883 16.3% 2,828 25.0% 65 Savings Accounts 3,684 68.0% 8,721 77.1% 88 IRA Accounts 1,734 32.0% 2,409 21.3% 150 Certificate of Deposit Accounts 1,192 22.0% 2,035 18.0% 122 Credit Accounts Mortgage Loans 1,008 18.6% 4,627 40.9% 45 Credit Cards 3,901 72.0% 8,738 77.3% 93 Personal Line of Credit 1,029 19.0% 2,046 18.1% 105 HELOC 390 7.2% 2,318 20.5% 35 Other Products Safe Deposit Box 975 18.0% 1,821 16.1% 112 Debit Cards 2,965 54.7% 10,075 89.1% 61 13
Distribution Analytics 14
NETWORK OPTIMIZATION: EVALUATING MARKET OPPORTUNITY Category Consumer Attractiveness Business Attractiveness Total consumer households Workplace population Weighted Variables Projected 5-year HH growth Current median HH income % of Mass Affluent HH Total core deposit market balances Total market loan balances Total investment & insurance balances Households per branch Total businesses < $5MM Total businesses > $5MM Businesses per branch Market Opportunity Score 15
NETWORK OPTIMIZATION: EVALUATING BRANCH PERFORMANCE Category Service Sales Financials Growth Productivity Weighted Variables Net advocacy rating Overall satisfaction score Cons. & bus. DDA attrition DDA cross-sell ratio Loan cross-sell ratio Mortgage referrals per FTE Non-mort referrals per FTE Services per household Core deposit mix Cost of funds Fee income per FTE Expense per FTE Pretax income per FTE Average deposit balance Total household growth Deposit growth ($) Deposit growth (%) Loan incentive volume Change in total bus. cust. Change in total cons. cust. Deposit sales per FTE Loan sales per FTE Teller transactions per FTE ATM transactions per FTE Branch Performance versus Goal Score 16
MARKET OPPORTUNITY NETWORK OPTIMIZATION: EVALUATING BRANCH PERFORMANCE A Strategic Resource Allocation Model can help Determine Focal Points for Branch-Specific Strategies Drive Better Results branches Invest & Protect branches Are branches in high potential markets, but with low branch performance ratings Drive Better Results Invest & Protect Are strong performing branches in high potential markets that exhibit best practices Target Efficiencies branches Are located in low potential markets and have low branch performance ratings Target Efficiencies BRANCH PERFORMANCE Maintain & Retain Maintain & Retain branches Are branches that perform well despite being in a low potential market so customer retention is key 17
Operational Efficiency Analytics 18
SALES FORCE PRODUCTIVITY Compare production to industry or internal standards Calculate the lift in production assuming the bottom quartile of producers reached the median production Alternatively, calculate cost savings from right-sizing Number of Relationships Portfolio Outstandings (in $mill) Annual Production (in $mill) Type of Lending C&I Small Business <$250K* 200-225 30.0-35.0 10.0 Small Business >$250K < $2.5M 100-125 75.0-100.0 15.0 Middle Market>$2.5M 50 150.0 30.0 CRE 75-100 100.0 25.0 19
CREDIT PROCESS ANALYTICS Stratification of the loan portfolio will help to frame opportunities to institute differentiated credit process by loan exposure. # of Relatio nships Credit Exposure ($MMs) Relationship Tier ($000s) % of Total Cumulative % of Total % of Total Cumulative % of Total <$100 3,000 60.0 60.0 75.0 4.2 4.2 $100-$250 800 16.0 76.0 120.0 6.7 10.8 $250-$1,000 600 12.0 88.0 285.0 15.8 26.7 $1,000-$2,500 400 8.0 96.0 560.0 31.1 57.8 >$2,500 200 4.0 100.0 760.0 42.2 100.0 Total 5,000 100.0 100.0 1,800.0 100.0 100.0 76 percent of relationships are less than $250 in total credit exposure. 20
CREDIT PROCESS ANALYTICS Scorecard Volume, Turn time, and Productivity Performance Metric Number of New Loan Applications (#) Number of New Loans Closed (#) Average Turnaround Time (from application to loan approval) (days) Industry Standard Bank XYZ 5 7 Average Turnaround Time (for loan closing post-approval) (days) 5 8 Average Portfolio balances per Commercial Loan Officer ($000) 30,000 15,000 Average Customer Relationships per Commercial Loan Officer (#) Commercial Doc Packages per Commercial Doc Prep FTE/mo. (#) New Commercial Loans Boarded Monthly per Commercial Boarding FTE (#) 70 35 34.00 13.00 75.00 139.00 21
TECHNOLOGY PAYBACK Business Case & Financial Lookback. Video Tellers Annual Equipment Expense for 11 Video Teller Machines Net Reduction of FTE Estimated Salary Reduction $457,000 15.5 ($744,000) 22
KEY TAKEAWAYS 1. Most effective analytics follow the KISS principle 2. To be effective, analytics generate insights to inform decisions, enable fast action 3. Finance can either take the lead or partner with departments to perform the analytics 4. There is no excuse for not running the numbers 23
STRATEGY, DELIVERY, MARKETING AND RISK MANAGEMENT www.capitalperform.com 202-337-7870