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2010 Branch Network Optimization Presentation

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Overview of an analytical framework to analyze your branch network

Overview of an analytical framework to analyze your branch network

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  • great, but the conclusion in CFS not too detail, in the end the infrastructure and network organization model become important.
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    2010 Branch Network Optimization Presentation 2010 Branch Network Optimization Presentation Presentation Transcript

    • Branch Network Optimization June 21, 2010 10:20 – 11:20 Presented by: Chris Gill Director, Banking & Professional Services Group SNL Financial 1 SNL Plaza Charlottesville, VA 22902 P: 434-951-4428 E: cgill@snl.com Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • SNL Financial – Company Overview • Company founded in 1987 • Headquartered in Charlottesville, VA • More than 1300 employees worldwide • Leading provider of financial data and analytical tools on the financial services industry – Coverage of more than 20,000 commercial banks, thrifts, and credit unions – Sophisticated mapping tools, branch analytics, and merger models • Client base includes 48 of the top 50 banks, as well as more than 650 community banks • Subscription-based product – Enterprise-wide license with unlimited number of users • Company tenets focused on data accuracy, timeliness, comprehensiveness and relevance • Community bank solutions focused on: – Balance Sheet Analysis – Revenue and Expense Analysis – Market Assessment and Branch Footprint Analysis – Merger Analysis – Reporting for Key Stakeholders (e.g., investors, regulators) – Investor Relations 2 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Agenda I. Current Industry Situation II. Analytical Framework – Corporate Strategy – External Market Assessment – Internal Performance Analysis III. Branch Network Planning – Case Study IV. Critical Success Factors 3 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Current Industry Situation 4 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Branch growth in the U.S. has moderated after several years of significant expansion U.S. Commercial Banks and Thrifts U.S. Bank Branches Active Branches Net Change by Year 2004 - 2009 2005 - 2009 120,000 CAGR = 1.9%* 3,000 2,726 2,630 110,000 2,500 99,491 98,960 2,196 100,000 94,905 97,535 1,956 89,983 92,179 2,000 # Branches 90,000 1,500 # Branches 80,000 1,000 70,000 60,000 500 50,000 0 2004 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 (500) (531) (1,000) *Note: U.S. population growth averaged approximately 1% per year during this time period Source: SNL Financial 5 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Growth in retail networks was supported by consumers’ continued demand for branch access, particularly for more complex sales and service interactions Channel Preference for Opening a New Account 100% 82% 80% 60% Importance of Branch Convenience 40% 20% 11% 6% • About two-thirds of banking customers live 0% within two miles of their principal branch Branch Phone Web • Many consumers (43%) and small businesses (30%) pick their bank primarily Channel Preference for Problem Resolution based on branch location 60% • Location is one of the most frequently- 51% cited reasons for sticking with a bank 50% 40% 40% 30% 20% 10% 6% 2% 0% Branch Phone Web IVR Source: Forrester Research, “Consumer Preference for Banking Channels” 6 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Branches account for a significant percentage of a bank’s cost base, in an industry that is expected to yield lower returns over the next several years Operating Cost Breakdown Typical Community Bank Other Overhead 4% ATM, Call 5% Center, Online 6% Marketing 15% Branch Network 50% Operations 20% Source: Peak Performance Consulting Group 7 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • New technologies such as remote deposit capture and ATM check imaging are likely to impact branch transaction volume Community Banks Offering ATM Transactions Remote Deposit Capture Deposits as % Total 100% 45% 97% 40% 90% 40% 80% 35% 70% 30% 60% 62% 25% 20% 50% 50% 20% 40% 15% 30% 32% 10% 10% 20% 21% 5% 10% 8% 10% 4% 0% 0% 3% Industry Average Bank of Wells Fargo*** 2005 2007 2009 America*** Smaller Banks* Larger Banks** All Banks *Banks with <$500MM in assets **Banks with >$500MM in assets ***Represents activity at envelope-less ATMs (CA only for Wells) Source: ICBA Community Bank Payments Survey, BAI Banking Strategies 8 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Given these industry dynamics, it is imperative that banks adopt a structured analytical framework to evaluate their branch network Key Take-aways Key Outcome • Role of the branch and Corporate Strategy other channels in achieving your bank’s objectives • Assessment of market External Market dynamics • Understanding of your Branch Network Assessment bank’s competitive Strategy position • Performance analysis Internal Performance of your branches • Understanding of the Analysis value branches deliver to your business 9 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Analytical Framework – Corporate Strategy 10 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Your bank’s corporate strategy should drive the development and implementation of your branch network strategy Dimensions to Assess Key Questions to Address • What is your vision statement and what implications does it have for your branch network? • What are your strategic objectives: expansion vs. Corporate Strategy maintaining the status quo? • What appetite does your team have for trying new approaches that may differentiate your bank in the market? • Is your institution focused on specific segments of the Target Customer market (e.g., small business, mass market, etc.)? Segments • What implications does this segment focus have for your branch strategy? • Why would a current or prospective client bank with you? Customer Value • How critical is convenient branch access to your value Proposition proposition? • What is your relative competitive position in your existing markets? Competitive • Which institutions are better positioned with respect to Positioning their branch network in your markets? • How does your share of deposits in each market compare to your share of branches? 11 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Channel preferences of specific customer segments need to be addressed in your branch strategy in order to deliver the value these clients expect ILLUSTRATIVE Bank A Bank B Small Business Focus Mass Market Focus Impact on Branch Strategy Impact on Branch Strategy • Branches located in or near • Branches located in or near commercial districts retail districts • Transactional needs can be • Bigger facilities needed to handled in facilities with less accommodate teller services square footage and platform sales • Branch hours need to reflect • Access to specialists in typical operations of business mortgages and investments clients • Staff knowledgeable in handling • Branch staff well-versed in problems commercial/small business • Saturday hours products, including cash • 24 hour drive-up ATM management services • Night depository access or merchant self-service center 12 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Your institution’s relative competitive position should also be considered when developing your branch network plans for each market Case Study: Union First Market Bank ($3.8B assets) Market: Richmond, VA Market: Virginia Beach, VA Total Total Deposit Total Deposit Active Deposits Market Active Total Market Branches 2009 Share 2009 Branches Deposits Share 2009 Institution Company Name 2009 ($000) (%) Institution Company Name 2009 2009 ($000) (%) Bank of America NA 31 7,078,857 27.20 Wells Fargo Bank NA 54 3,911,272 19.63 Wells Fargo Bank NA 65 6,471,185 24.86 SunTrust Bank 43 3,007,816 15.10 SunTrust Bank 47 2,972,759 11.42 TowneBank 19 2,605,250 13.08 Branch Banking & Trust Co. 48 2,467,897 9.48 Branch Banking & Trust Co. 55 2,562,947 12.86 Union First Market Bank 46 1,681,991 6.46 Bank of America NA 46 2,494,579 12.52 Franklin Federal Savings Bank 8 660,243 2.54 Bank of the Commonwealth 19 875,926 4.40 Village Bank 15 484,159 1.86 Bank of Hampton Roads 29 802,925 4.03 First Capital Bank 7 398,463 1.53 Old Point National Bank of Phoebus 23 627,654 3.15 Citizens & Farmers Bank 11 396,802 1.52 Monarch Bank 10 503,968 2.53 Essex Bank 8 387,465 1.49 RBC Bank (USA) 12 403,626 2.03 Other Market Participants 100 3,027,531 11.63 Farmers Bank Windsor VA 5 338,710 1.70 (28) Chesapeake Bank 7 243,182 1.22 Market Total 386 26,027,352 100.00 Heritage Bank 6 230,799 1.16 Fulton Bank NA 5 225,779 1.13 Union First Market Bank 6 152,732 0.77 Other Market Participants (19) 46 936,814 4.70 Market Total 385 19,923,979 100.00 Source: SNL Financial 13 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Your institution’s ability to capture and grow market share is typically a function of your share of branches in the market The S-Curve Effect Typical Branch Share / Market Share Relationship Diminishing returns from adding more branches given existing scale in the market Low branch share typically results in achieving less than fair share of market 14 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Analytical Framework – External Market Assessment 15 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Assessing your markets across multiple dimensions is critical to making the right decisions about managing your network Dimensions to Assess Sample Factors to Analyze • Total population and households • Household growth – historical and projected Market • Population density Demographics • Household income • Customer segment mix; consumer vs. business mix • Current market demand for various financial products Market Demand (e.g., DDA accounts, HELOCs, etc.) • Projected growth in market demand • Commuting patterns • Geographic boundaries (e.g., rivers, highways, etc.) Market • Real estate availability Characteristics • Real estate development (i.e., new shopping centers) • Local / regional economic conditions • Number of competitors • Type of competitors Competitive Intensity • Number of branches in the market • Branch density (households per branch) slide 16 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Projected household growth in your markets needs to be reviewed in the context of how many households are in each trade area ILLUSTRATIVE Projected Household Growth, 2009 – 2014 Southwest Denver, CO Low household growth, but very densely populated High growth, but much lower population density Source: SNL Financial 17 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Evaluating relative population density is important in assessing the potential traffic that could be attracted to your branch ILLUSTRATIVE Population Density – 2009 Northwest Atlanta, GA Potential gaps in Brand Bank’s market coverage Source: SNL Financial 18 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Understanding average income levels is important given the customer segment focus your bank may be pursuing Median Household Income – 2009 Northwest Atlanta, GA Gaps in Brand Bank footprint – relatively lower income areas Source: SNL Financial 19 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • For banks that focus on small business, it is also critical to understand where businesses are concentrated in the market Number of Businesses by Census Tract – 2009 Omaha MSA Source: SNL Financial 20 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Geographic boundaries can have a major impact on your ability to capture new business and retain customers Maple / Telegraph Area Ottumwa, IA Oakland County - Metro Detroit Primary trade area for Maple/Telegraph branch does not Des Moines River acts as Highly-trafficked Telegraph cover area east of Telegraph Rd. Rd acts as major barrier major barrier; customers in South Ottumwa typically do not bank in North Ottumwa, and vice versa Source: SNL Financial 21 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • It is important to assess how many institutions are already in the market, their relative strength, and whether you can effectively compete against them Chelsea, MI Market Saline, MI Market (Southeast Michigan) (Southeast Michigan) Chelsea State Bank – 54% deposit share; locally owned; Total of 7 competitors, four of $221MM assets which have a relatively equal share of the market; primarily non-community banks Source: SNL Financial 22 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Analytical Framework – Internal Performance Analysis 23 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Analysis of your existing network needs to be conducted along several dimensions in order to develop an in-depth understanding of the value of each location Dimensions to Assess Sample Factors to Analyze • Current and historical sales volumes • Sales mix (deposits vs. loans; consumer vs. commercial) Sales Performance • Average balances of new accounts • Customer segment mix; new vs. existing customers • Trade area for sales – where are sales coming from? • Transaction mix (i.e., complex vs. routine transactions, on- us vs. non-on-us) Transaction Volumes • Trade area for transactions – where are transacting clients coming from? • What is value of clients who use the branch? • Required capital improvements • Facility size – appropriateness of branch size given Facility existing traffic and potential for growth Characteristics • Branch appeal – are improvements required to enhance your positioning in the market? • Leased vs. owned • Branch profitability Financial • Direct vs. indirect costs Performance • Profitability trend • Potential impact of re-domiciling accounts on profitability 24 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • It is critical to understand where your existing sales are coming from relative to growth in the market ILLUSTRATIVE Broomfield, CO Trade Area (Metro Denver) Sales trade area for old New branch location branch location located in close proximity to high growth trade area Source: SNL Financial 25 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Determining the trade area for each branch is critical in identifying gaps in the market that your institution is potentially under-penetrating ILLUSTRATIVE West Omaha (NE) Trade Area Branch trade area – transacting clients Bank A branches Relatively high-growth trade area in which the bank has low market penetration Source: SNL Financial 26 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Banks with larger networks and a mix of branches in older and newer communities may want to consider a ‘re-domiciling’ analysis to ensure branch profitability is being accurately measured Objective: Review transaction patterns of existing clients and assign all of a client’s accounts to the branch they use most frequently Potential Impact of Re-domiciling Example Branch A Branch B • Established in 1904 • Established in 2005 • Urban location in downtown business district • Suburban location in high-growth area • Monthly teller transactions: 5,000 • Monthly teller transactions: 15,000 • Reported deposits: $100MM • Reported deposits: $25MM • Profitability: High • Profitability: Marginal • Deposits post-re-domiciling: $60MM • Deposits post re-domiciling: $50MM 27 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Branch Network Plan – Case Study 28 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Case Study – Branch Network Optimization Commercial Federal Bank • $13 billion assets • 190 branches • Major markets: Omaha, Denver, Kansas City, Des Moines • Vision statement: “Bank of Choice in the Communities We Serve” Omaha Market • 25 branches (21 freestanding, 4 in-store) • $901MM deposits • 8% deposit market share • Ranked 4th in the market behind First National Bank of Omaha, U.S. Bank and Wells Fargo 29 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Case Study – Branch Network Optimization Commercial Federal Bank (now part of Bank of the West) Omaha, NE Branch Network as of 2010 Changes post- network optimization Source: SNL Financial 30 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Case Study – Branch Network Optimization Branch Network Plan – Omaha Market New Branches* Rationale •180th/Center • Higher-growth area – little coverage from existing locations • 168th/Harrison • Higher-growth area – little coverage from existing locations • Bellevue • Higher-growth area – little coverage from existing locations • Council Bluffs • Market gap – no branch in the area Consolidations** Rationale •132nd St Hy-Vee • Overlap with existing branch across the street • OakView Hy-Vee • Poorly performing location in a low traffic grocery store • 88th/Center Hy-Vee • Overlap with existing branch located ¼ mile away; also a poorly performing location *Open 1-2 per year over a 3 year period **Close at lease expiration 31 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Case Study – Branch Network Optimization Proposed Consolidation 132nd St. Hy-Vee In-Store Branch Freestanding branch trade area In-store branch 132nd St / trade area Dodge (freestanding) 132nd St Hy-Vee (in-store) 32 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • Critical Success Factors 33 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS
    • A successful branch network optimization strategy requires analytical rigor and strong organizational commitment Critical Success Factors • Senior management commitment to taking action • “No sacred cows” • Openness to new ideas • “On the ground” analysis – Getting input from people in the field – Listening to customer feedback • Access to analytical tools – Geographic information systems – Mapping – Demographic data – Branch financial data • Getting market buy-in to the network plan across lines of business (e.g., Retail, Commercial, etc.) • Building a comprehensive business case methodology quantifying the return on investment of each proposed action • Building a cross-functional team to implement the plan across the bank • Measuring performance and holding people accountable for results 34 Only we specialize in you! www.fmsinc.org | 800-ASK-4FMS