Peak Performance Consulting Groupwww.ppcgroup.com

March 13, 2014

Transforming Branches – and the branch network

Retail banking is facing a difficult challenge…

Consumers and businesses are changing the way they interact with financial institutions, shifting to non-branch channels

But customers still value branch convenience― It is the most important factor in bank selection― Branches are still the primary channel for customer acquisition and consultative sales for both

consumers and small business

Significant opportunity to improve branch efficiency/reduce cost… ― Redefine the model: the right branch configuration to efficiently meet customer needs― Enable more efficient service through improved technology― Shift branch staffing toward more flexible, “Universal Banker” model

…and grow revenue by refocusing away from declining transactions and toward sales growth

But banks must evolve their retail distribution strategies― What kind of branches - and what kind of branch network – do we need for the future?― Video banking, pop-up branches and other new formats: What is the “branch of the future?”― Combining traditional, digital, and self-service – making it work on the front lines?― Is the Universal Associate the answer to staffing retail branches?

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Our panelists…

Andy HarmeningSEVP, Regional Banking Group Head

Mark IniguezSVP, Director of Retail Network Strategy

Brent TischlerSVP, Director of Channel Optimization

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“New Normal” requires change in strategy

Primary role of the retail branch: drive customer acquisition and support consultative sales― Drive new customer acquisition and provide sales and for existing customers― Support business customers, who are more dependent on branch services― Build and reinforce bank’s brand

Customers still value branch presence: ― 64% identify branch convenience as primary reason for choosing their bank― 61% still visit a bank branch at least once per quarter

Channel preferences are changing― Transactions conducted in bank branches are declining 5-6% per year due to direct deposit, debit,

electronic bill pay and other check displacement― Transaction behavior and routine servicing shifting to other channels

Shrinking branch traffic leaves fewer sales opportunities― New accounts opened per branch FTE declined 23% since 1997

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20%

46%

34%

0%5%

10%15%20%25%30%35%40%45%50%

Branch dominant Multi Channel Web/phone dominant

Actual Channel Usage: Shifting Away from Branch

0%5%

10%15%20%25%30%35%40%45%

Age 18-34 Age 35-54 Age 55+

Branch Preference Declining Among All Age Groups(% listing branch as preferred banking method)

2008 2010 2012

Source: ABA Source: PNC Investor Presentation

The changing dynamic of how people bank meansthe design of retail branches must evolve

Redefine branch operating model

Enhance multi-channel experience

Migrate customers to self service and digital channels

Reshape physical distribution model

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Physical: bank at the branch

Automated: ATMs/self service grows

Virtual: on-line, mobile

Personal: omni-channel

Managing branch transformation

Branches will be designed differently. They’ll be smaller, and fit into typical retail footprints. There will be fewer free standing branches (less need for large branches with drive-ups).

Branches will be staffed differently. There will be greater utilization of universal staff who can handle sales, service and transactions — we won’t need as many tellers.

Branches need different marketing support. Smaller, lower traffic branches will be more like sales centers, and this means greater micro-market promotion and calling efforts to improve trade area sales penetration.

Successful financial institutions will have more robust front-line relationship management technology to enable staff to deliver better customer service, stronger profitable cross-sell, and achieve greater share of wallet.

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Four new branch models emerging

Programs actively underway at most major banks Early adopters are moving from pilot to rollout, with at least one “top 10” institution

planning to convert 15% of total branch network into Universal Banker model in 2014 Driving down costs: 50-60% lower expense, 6+ months faster break even than traditional

model

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Archetype Typical Size

Technology Staffing Utilization

Self Service 500-1,000sq. ft.

• Full self service• Advanced function ATM • Video teller

• Full self service• Not staffed, but may

have video teller link for live support

• Urban core

Express 1,000-2,000 sq. ft.

• Full self service or assisted self service

• Concierge (1-2 FTE)• No dedicated teller

• Urban core• Rural replacement as substitute for

closing branch

Neighborhood 2,000-3,000 sq. ft.

• Assisted self service or cash recycler pods

• Video conferencing access to business line partners (business banking, mortgage, investments, etc.)

• 3-4 UniversalAssociates

• No dedicated tellers

• Urban core• Suburban strip center and

neighborhood “life style” centers• Rural replacement as substitute for

closing branch

Traditional 4,000+ sq. ft.

• Cash recyclers to supplement or replace traditional teller lines

• Assisted self service in high volume locations

• 6-8 FTE• UA as component part

of total branch staffing

• Hub branch• Center of expertise, staffed with

business line partners

Migrating transactions away from the teller line

JP Morgan Chase Deposits decreased 11% CAGR through

targeted efforts to increase self service usage

Branch staff decreased 20% (same store) Reinvested savings in new locations,

improved sales process to fuel growth

Large Regional Bank (>1,000 branches): Pilot to improve self service acceptance

resulted in 50% increase in deposits through ATMs in test market

Opportunity: 70% of all teller transactions could have been done through self service

Potentially shift 1/3 of branches to self-service format

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Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

% Consumer Deposit Transactions through Tellers: Chase Bank

CAGR (11%)

90%

51%

Micro and mini branches provide very low cost, fill-in opportunities

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1,250 sq. ft. Wells Fargo branch in Washington DC has enhanced self service, walls that seal off consultation rooms for 24 hr. access

Fifth Third 2,000 sq. ft. teller-less branch in downtown Cincinnati

BofA branches with Video Teller Assist in Atlanta, Boston, Charlotte, Dallas, Houston, New York

Temporary branches: go where the customers are

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PNC “Pop Up” Branch Frost Bank mobile branch

Create attraction: re-establish branch as a destination, not an infrequent errand

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Branches don’t create their own gravity – they need intrusive programs to drive traffic, providing opportunities for conversion Fewer customers visiting branches = fewer natural sales opportunities Smaller branches lose “billboard” impact PNC: Utilizing mobile stores, street teams and educational events to drive branch

traffic and acquire accounts at lower cost Umpqua Bank: hyper-local, branch based and community events drive traffic, create

engagement and sales conversion

Re-thinking staff efficiency and service delivery

Issue is not whether teller staffing can be reduced or eliminated, it is how to manage transformation― Decreased need for specialized teller role― Changes in branch mix requires staffing flexibility, not role rigidity— Establishing the optimal configuration based on trade area potential and transaction

activity— Defining the baseline for technology: how much (or how little) is needed to eliminate

barriers to change and prevent reversion to traditional roles

Sales improve, when combined with the right marketing paradigm and disciplined sales/service process

Universal Associate model is not just a training program but a major shift in focus, staff roles, and customer experience— Branch design and technology— Marketing— Measurements, rewards and recognition

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Moving forward…

Managing the network mix What technology do we need? How do we manage the overall mix of branch types (large, small, mini, etc.) Balancing lease vs. own, CRA and other requirementsManaging the customer transition Many customer use branches because they like personal interaction, or at least

the opportunity to interact Too much change can be disruptive: Banks have tried new designs before, and

results have often been disappointing— WAMU’s converted over 1,000 branches to its’ patented Occasio design, but many

customers found it too “different” and confusing

Managing the staff transition New roles require new skills and new career paths Not everyone will be happy: “Bank of America Tellers Picket ATM Machines”

(ABC News, November 23, 2013)

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Thank you ….

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Peak Performance Consulting GroupDavid Kerstein, President512-607-6332dkerstein@ppcgroup.comwww.ppcgroup.com