The changing nature of the branch channel and its transformation. Presentation at American Banker/Source Media Retail Banking 2014 conference.

1. Peak Performance Consulting Group
www.ppcgroup.com
March 13, 2014
Transforming Branches – and the
branch network

2. 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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3. Our panelists…
Andy Harmening
SEVP, Regional Banking Group Head
Mark Iniguez
SVP, Director of Retail Network Strategy
Brent Tischler
SVP, Director of Channel Optimization
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4. “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

5. The changing dynamic of how people bank means
the 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

6. 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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7. 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 500-1,000
sq. 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 Universal
Associates
• 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

8. 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%

9. 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

10. Temporary branches: go where the customers are
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PNC “Pop Up” Branch Frost Bank mobile branch

11. 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

12. 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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13. 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 requirements
Managing 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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14. Thank you ….
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Peak Performance Consulting Group
David Kerstein, President
512-607-6332
dkerstein@ppcgroup.com
www.ppcgroup.com