1. Projecting Line of Business Results
Year One – Chief Retail Officer Perspective
Mike Allen

2. Chief Executive Officer Chief Financial Officer
Executive Banking School Roadmap
GROWING
Capability
Confidence
Courage
YEAR THREE
Chief Executive Officer
Perspective
YEAR TWO
Chief Financial Officer
Perspective
YEAR ONE
Chief Retail Officer
Perspective

3. Chief Executive Officer Chief Financial Officer
Executive Banking School Roadmap
GROWING
Capability
Confidence
Courage
YEAR THREE
Chief Executive Officer
Perspective
YEAR TWO
Chief Financial Officer
Perspective
YEAR ONE
Chief Retail Officer
Perspective

4. Year One – Chief Retail Officer Perspective Retail Strategy Curriculum
Leadership
Communication
Leading the Retail Line of Business via a Balanced Scorecard
Discovering Customer Segments & Consumer Behaviors
Successfully Communicating & Advertising in Retail Banking
Developing and Pricing Profitable Bank Products
Modernizing & Optimizing Delivery to Meet Customer Requirements
Facing Ethical Dilemmas in Banking
Applying Concepts Learned to Today’s Market
Chief Retail Officer Perspective

5. Year One – Chief Retail Officer Perspective Retail Strategy Curriculum
Leadership
Communication
Leading the Retail Line of Business via a Balanced Scorecard
Discovering Customer Segments & Consumer Behaviors
Successfully Communicating & Advertising in Retail Banking
Developing and Pricing Profitable Bank Products
Modernizing & Optimizing Delivery to Meet Customer Requirements
Facing Ethical Dilemmas in Banking
Applying Concepts Learned to Today’s Market
Chief Retail Officer Perspective

6. This Session’s Critical Topics
Retail Bank MarketSim Process
Projecting Results

8. Retail Bank MarketSim Process

9. Process Flow Analyze Plan Forecast Execute Review MarketSim
Retail Bank MarketSim Process
Process Flow
Analyze
Plan
Forecast
Execute
Review
Retail Bank
MarketSim
Process Flow

10. The Scientific Method as an Ongoing Process
Retail Bank MarketSim Process
The Scientific Method as an Ongoing Process

11. Process Flow Analyze Plan Forecast Execute Review MarketSim
Retail Bank MarketSim Process
Process Flow
Analyze
Plan
Forecast
Execute
Review
Reports
Retail Bank
MarketSim
Process Flow
Worksheets
Decision Inputs 11

12. Analysis – Where we’ve been
Retail Bank MarketSim Process
Analysis – Where we’ve been
Basics of Financial Accounting
How Do Banks Generate Profits?
Key Retail Banking Performance Metrics
Balanced Scorecard
What kind of bank are you creating and how is that reflected in key performance indicators?

13. Retail Bank MarketSim Process
Plan – Where we’ve been
Strategic planning - Telling a story about the future that cause us to do things differently today
SWOT
Situation Analysis
Objectives
Goals
Measures
Financial planning
Balanced Scorecard
Operations planning

14. Forecast – Projecting Results
Retail Bank MarketSim Process
Forecast – Projecting Results
Types of Forecasting:
Stress testing
Sensitivity testing
Scenario testing
Goal seeking

15. Forecast – Projecting Results
Retail Bank MarketSim Process
Forecast – Projecting Results
Assumptions
Revenue
Rates
Fees
Expenses
Fixed
Variable
Customer Behaviors
Purchases
Balances
Transactions

16. Where We are Going – Decisions
Retail Bank MarketSim Process
Where We are Going – Decisions
Analysis, Planning and Forecasting drive decisions
Decisions drive results
Decisions are interrelated and connected
Results are reflected in the reports
Customer satisfaction
Financial
Regulatory

17. Where We are Going – Review
Retail Bank MarketSim Process
Where We are Going – Review
Scientific method – closing the loop
Where the learning takes place
Retail Bank MarketSim reports
CRO
Marketing
Product
Delivery
CFO

18. Projecting Results

19. The Trouble with Forecasting
Projecting Results
The Trouble with Forecasting
“A fund's past performance does not necessarily predict future results” – SEC
Writing it down doesn’t make is so
Gauss v. Mandelbrot or Bells v. Fractals
Gone in a flash
Finding patterns is what we do even when they don’t exist
What you don’t know, you make up
Bad at judging the odds and when we do we’re blindly optimistic

20. Forecast – Projecting Results
Types of Forecasting:
Stress testing
Sensitivity testing
Scenario testing
Goal seeking

21. Stress Testing Stress Testing is:
Projecting results
Stress Testing
Stress Testing is:
Used to gauge how certain variables and assumptions might affect a company, industry or specific portfolio.
Used in financial services on asset and liability portfolios to determine their reactions to different financial situations.
Computer-generated models testing hypothetical scenarios for both general and customized testing methodologies.

22. Projecting Results
Stress Testing
What happens if a new, compelling competitor comes to town and we lose 10% of our customers
How will it impact:
Loan to Deposit Ratio
Provision to Loan Loss
Interest Income
Non Interest Income
Expense
Net Income
What assumptions will we need to make?

23. Sensitivity Analysis Sensitivity Analysis is:
Projecting Results
Sensitivity Analysis
Sensitivity Analysis is:
A technique used to determine how different values of an independent variable impact a particular dependent variable under a given set of assumptions.
Used within specific boundaries that depend on one or more input variables, such as the effect that changes in interest rates have on bond prices.

24. Projecting Results
Sensitivity Analysis
What happens if we change Credit Card underwriting to “Aggressive” or “Conservative”?
Let’s build a spreadsheet to model it.
Assumptions:
100,000 accounts with $1,000 in average balances
$100,000,000 balances earning a margin of 10%
Each account earns $10 in non-interest income
Each account requires $35 in non-interest expense
Calculate Provision from Start Point

25. Projecting Results
Sensitivity Analysis
Example

26. Scenario Analysis Scenario Analysis is:
Projecting Results
Scenario Analysis
Scenario Analysis is:
Commonly used to estimate changes to a portfolio's value in response to an event, and may be used to examine a theoretical worst-case scenario, best- case and most likely-case scenarios.
The process of estimating the expected value of a portfolio after a given period of time, assuming specific changes in the values of the portfolio's securities or key factors take place, such as a change in the interest rate.

27. Projecting Results
Scenario Analysis
Develop a Best Case, Worst Case and Most Likely Case for doubling the bank’s advertising budget.
Treat this as a subjective exercise although you can certainly support your analysis with math.
List major areas that will be impacted.

28. Goal Seeking Goal Seeking Analysis is:
Projecting Results
Goal Seeking
Goal Seeking Analysis is:
The process of finding the correct input when only the output is known.

29. Goal Seeking How do we double the bank’s asset size?
Projecting Results
Goal Seeking
How do we double the bank’s asset size?

30. Goal Seeking Projecting Results
What are the implications of doubling the asset size?

31. Breakout Assignment
Next step is to work through the following assignment in your team rooms until 12:00 pm

32. Forecast Assignment– Advertising and Communications
Breakout Assignment
Forecast Assignment– Advertising and Communications
What do you project the outcome to be if your bank reallocates its entire current Advertising budget into the Segment sections?
Forecast changes in the number of customer by segment and record the change as a percentage. [

33. Forecast Assignment – Products
Breakout Assignment
Forecast Assignment – Products
What might the most likely outcome be if the bank doubles its fee on its Home Equity product?
What is the best the bank could hope for?
What would the worst outcome look like?

34. Forecast Assignment – Delivery
Breakout Assignment
Forecast Assignment – Delivery
How many and what kind of branches are needed in Old Suburbia to support the current amount of transactions?
Using the same model, answer the same question for the Start Up neighborhood.

35. Forecast Assignment – Financial Outcomes
Breakout Assignment
Forecast Assignment – Financial Outcomes
What does your bank need to do to generate $50 million in Net Income after Taxes?
Use math/spreadsheet to support your plan

36. Forecast Assignment – Balanced Scorecard Index
Breakout Assignment
Forecast Assignment – Balanced Scorecard Index
Select 5 items from the Balance Scorecard Index that your bank will need to dominate to demonstrate that success with your strategy
List the primary levers that drive those measures
List actions to impact those measures
Are any in conflict with other?

37. This Session’s Critical Topics
Retail Bank MarketSim Process
Projecting Results

38. This Session’s Critical Topics
“There are two types of forecasters: those who don’t know and those who don’t know they don’t know.” – John Kenneth Galbraith

39. Questions

40. Year One – Chief Retail Officer Perspective Retail Strategy Curriculum
Leadership
Communication
Leading the Retail Line of Business via a Balanced Scorecard
Discovering Customer Segments & Consumer Behaviors
Successfully Communicating & Advertising in Retail Banking
Developing and Pricing Profitable Bank Products
Modernizing & Optimizing Delivery to Meet Customer Requirements
Facing Ethical Dilemmas in Banking
Applying Concepts Learned to Today’s Market
Chief Retail Officer Perspective

41. Chief Executive Officer Chief Financial Officer
Executive Banking School Roadmap
GROWING
Capability
Confidence
Courage
YEAR THREE
Chief Executive Officer
Perspective
YEAR TWO
Chief Financial Officer
Perspective
YEAR ONE
Chief Retail Officer
Perspective