Maximizing Non-Interest Income

March 20, 2012

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Introduction of CAST

Non-Interest Income Industry Overview

Areas of potential opportunity to increase fee revenue

Closing Statements

Question and Answer

Introduction of CAST

Non-Interest Income Industry Overview

Areas of potential opportunity to increase fee revenue

Closing Statements

Question and Answer

AGENDAAGENDA

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REPRESENTATIVE CLIENTS AND PROJECTSREPRESENTATIVE CLIENTS AND PROJECTS

Operations Strategy

Distribution Channel Strategy

Shared Service Design and Implementation

Service Delivery Strategy

Competitive Analysis

Corporate Strategy Formulation and Implementation

Operations Strategy

Distribution Channel Strategy

Shared Service Design and Implementation

Service Delivery Strategy

Competitive Analysis

Corporate Strategy Formulation and Implementation

Staff Modeling, Process Improvement and Reengineering

Organizational & Process Design

Metrics Development and Performance Measurement

Service Quality Enhancement & Customer Service Reengineering

Fee Income Realization and Cash Management Practices

Channel Utilization & Optimization

Staff Modeling, Process Improvement and Reengineering

Organizational & Process Design

Metrics Development and Performance Measurement

Service Quality Enhancement & Customer Service Reengineering

Fee Income Realization and Cash Management Practices

Channel Utilization & Optimization

Technology Utilization and Effectiveness

Current Delivery System Capability and Needs Analysis

Evaluation and Systems Selection

Distribution Systems Study

Requirements Definition

Proof of Concept and Pilot Testing

Technology Utilization and Effectiveness

Current Delivery System Capability and Needs Analysis

Evaluation and Systems Selection

Distribution Systems Study

Requirements Definition

Proof of Concept and Pilot Testing

STRATEGIC MANAGEMENTSTRATEGIC MANAGEMENTSTRATEGIC MANAGEMENTSTRATEGIC MANAGEMENT ORGANIZATIONAL EFFECTIVENESSORGANIZATIONAL EFFECTIVENESSORGANIZATIONAL EFFECTIVENESSORGANIZATIONAL EFFECTIVENESS IT EFFECTIVENESSIT EFFECTIVENESSIT EFFECTIVENESSIT EFFECTIVENESS

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Recent regulations have greatly influenced banks’ noninterest income in a negative manner

1 Data Source: SNL Financial, “Banking: Industry Trends and Statistics,” 12/31/2011

Over time, non-interest income has become a increasingly large component of operating revenue Recent regulations have dramatically shifted the sources of Bank non-interest income. Some examples include:

Durbin Amendment: Caps the fees that banks can charge merchants on debit card transactions to 21 cents Regulation E Section 205: Requires banks and credit unions to have a customer’s permission to use the bank’s

non-sufficient fund automatic transfer services. This changed the NSF services from opt-out to opt-in CARD Act: Limits how credit card companies can charge customers

The resulting impact has been that Banks need to re-examine their sources of non-interest income and develop new ways to obtain lost income due to regulations

Over time, non-interest income has become a increasingly large component of operating revenue Recent regulations have dramatically shifted the sources of Bank non-interest income. Some examples include:

Durbin Amendment: Caps the fees that banks can charge merchants on debit card transactions to 21 cents Regulation E Section 205: Requires banks and credit unions to have a customer’s permission to use the bank’s

non-sufficient fund automatic transfer services. This changed the NSF services from opt-out to opt-in CARD Act: Limits how credit card companies can charge customers

The resulting impact has been that Banks need to re-examine their sources of non-interest income and develop new ways to obtain lost income due to regulations

INDUSTRY REGULATIONSINDUSTRY REGULATIONS

NON-INTEREST INCOME AS A PERCENTAGE OF OPERATING REVENUENON-INTEREST INCOME AS A PERCENTAGE OF OPERATING REVENUE

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Conceptually there are four ways to increase non-interest income . . .

Maximize the value of the existing customer base and pricing structure

Ensure that 100% of the revenue that can be collected is actually collected

Maximize the value of the existing customer base and pricing structure

Ensure that 100% of the revenue that can be collected is actually collected

REVENUE REVENUE EFFICIENCYEFFICIENCYREVENUE REVENUE

EFFICIENCYEFFICIENCY

Mitigate revenue loss resulting from inadequate controls, policies and procedures

Eliminate points of controllable or unintentional revenue loss

Mitigate revenue loss resulting from inadequate controls, policies and procedures

Eliminate points of controllable or unintentional revenue loss

REVENUE/COST REVENUE/COST RECOVERYRECOVERY

REVENUE/COST REVENUE/COST RECOVERYRECOVERY

Strategically restructure the product portfolio and pricing relative to target market needs

Adopt a new revenue / business model to address regulatory changes

Strategically restructure the product portfolio and pricing relative to target market needs

Adopt a new revenue / business model to address regulatory changes

REVENUE REVENUE RESTRUCTURINGRESTRUCTURING

REVENUE REVENUE RESTRUCTURINGRESTRUCTURING

Expand by entering new markets or through the introduction of new specific products targeted at specific market segments

Cross Sell to existing products to existing customers

Expand by entering new markets or through the introduction of new specific products targeted at specific market segments

Cross Sell to existing products to existing customers

REVENUE REVENUE EXPANSIONEXPANSIONREVENUE REVENUE

EXPANSIONEXPANSION

OPTIONS TO INCREASE REVENUE

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Senior Senior Management Management Support and Support and LeadershipLeadership

Senior Senior Management Management Support and Support and LeadershipLeadership

Effective Effective CommunicatioCommunication (Customer n (Customer and internal)and internal)

Effective Effective CommunicatioCommunication (Customer n (Customer and internal)and internal)

Commitment to Commitment to Pricing Pricing

StrategyStrategy

Commitment to Commitment to Pricing Pricing

StrategyStrategy

Link Link Performance to Performance to

Rewards Rewards SystemSystem

Link Link Performance to Performance to

Rewards Rewards SystemSystem

Realistic goal Realistic goal Setting and RM Setting and RM

Buy-inBuy-in

Realistic goal Realistic goal Setting and RM Setting and RM

Buy-inBuy-in

Access to IT Access to IT Resources – Resources –

Availability of Availability of DataData

Access to IT Access to IT Resources – Resources –

Availability of Availability of DataData

SUCCESSFUSUCCESSFUL PRICE L PRICE REVIEWREVIEW

SUCCESSFUSUCCESSFUL PRICE L PRICE REVIEWREVIEW

In our experience, success in maximizing non-interest income is dependent upon on six key factors . . . . most important of which is Leadership / Management Resolve . . .

KEY FACTORSKEY FACTORS

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The nature of revenue enhancement initiatives can be strategic or tactical and can be pursued independently or simultaneously . . .

SOURCES OF POTENTIAL REVENUE OPPORTUNITYSOURCES OF POTENTIAL REVENUE OPPORTUNITY

ReducedFee Leakage

Retooling of Products/Service Pricing Structuring

Expansion into new Markets or Products

Intentional WaiversWaived

Fees UnintentionalWaivers

Population Control Weaknesses

Unpriced ServicesOptimized Product Pricing & Processing

Product Processing and/or Structure

MAXIMIZE REVENUE MAXIMIZE REVENUE FROM CURRENT FROM CURRENT

PRODUCTS PRODUCTS &&

CUSTOMERSCUSTOMERS

STRATEGIC STRATEGIC RESTRUCTURE OF RESTRUCTURE OF RETAIL PRODUCT RETAIL PRODUCT

PORTFOLIO

ALTERNATIVE ALTERNATIVE FINANCIAL SERVICESFINANCIAL SERVICES(E.G. Under/ Under Banked , (E.G. Under/ Under Banked , Wells Fargo Direct Deposit Wells Fargo Direct Deposit Advance type product, etc.)Advance type product, etc.)

LostFees

Uncharged Fees

Reduced Principal & Fee Losses

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Deepening Relationships

There are a host of ways to increase non-interest income . . .

Treasury Services have become the glue that supports customer relationships in many segements/markets

Continued sales efforts often focus on “sales through service”

Incentives are not always aligned to overall bank strategies

Treasury Services have become the glue that supports customer relationships in many segements/markets

Continued sales efforts often focus on “sales through service”

Incentives are not always aligned to overall bank strategies

CROSS SELL CROSS SELL PRODUCTS & PRODUCTS &

SERVICESSERVICES

AREAS OF OPPORTUNITYAREAS OF OPPORTUNITY

Fee waivers, intentional and unintentional, or zero priced products can be costly

Inadequate controls and collection methods often result in uncollected fees

Client profitability is not always examined when making waiver decisions

Fee waivers, intentional and unintentional, or zero priced products can be costly

Inadequate controls and collection methods often result in uncollected fees

Client profitability is not always examined when making waiver decisions

REDUCE WAIVES REDUCE WAIVES AND FEE LEAKAGEAND FEE LEAKAGE

Bankers often misjudge “market pricing” and under

Opportunities to recover costs associated with special services can be signficant

Effective communication of price changes ensures field level buy-in and appropriate customer messaging

Bankers often misjudge “market pricing” and under

Opportunities to recover costs associated with special services can be signficant

Effective communication of price changes ensures field level buy-in and appropriate customer messaging

PRODUCT / PRODUCT / CUSTOMER PRICINGCUSTOMER PRICING

Charging / Capturing Fees

Some bankers approached fee revenue via individual projects vs as an ongoing process requiring continued attention Transactional data can be mined to identify product needs to demonstrate value and deepen relationships Competitive intelligence gleaned from won/loss analysis, customer and competitor interactions can provide rich

insights

Some bankers approached fee revenue via individual projects vs as an ongoing process requiring continued attention Transactional data can be mined to identify product needs to demonstrate value and deepen relationships Competitive intelligence gleaned from won/loss analysis, customer and competitor interactions can provide rich

insights

DEVELOP AN ANALYTICS FUNCTION

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George BrauneggExecutive Vice President and Founding Principalgbraunegg@castconsultants.com(213) 614-8066 x134

700 S. Flower St. Ste. 1900Los Angeles, CA 90017Phone (213) 614-8066www.castconsultants.com

http://www.linkedin.com/company/cast-management-consultants

Steve McCollumChief Executive Officersmccollum@castconsultants.com(213) 614-8066 x 130

KEY CONTACTS

Experience, Value, Commitment Since 1986, CAST has established a proven track record of successfully working with the largest and best managed banks and insurance companies in North America that enthusiastically endorse our firm.

Our exclusive focus on financial services has resulted in a team of seasoned professionals possessing technical and consulting skills specifically honed to address the industry’s unique requirements.

CAST’s core competency is effecting positive change in large complex organizations. As a consequence, our clients know they can count on CAST as partner that can get the job done . . . a true partner who conscientiously recommends optimum solutions and has the skills to ensure that those solutions are implemented as quickly and efficiently as possible.