This case study, prepared by Premier Insights, examines the methodologies and outcomes of a market analysis conducted by Premier for a financial institution. To maintain confidentiality, all bank and market names have been fictionalized. The names ONLY have been altered, with all the underlying data, analysis, and strategic approach based on an actual client engagement with Premier Insights.
The analysis aimed to evaluate the potential for bank expansion into several markets with the intention of identifying the optimal growth market(s) based on the bank’s business model.
Introduction
“Liberty Community Bank sought to expand its footprint and required a comprehensive analysis to identify promising markets. Premier Insights was retained to conduct an evaluation of potential markets, considering demographic, economic, and competitive factors.
Methodologies
Premier Insights employed a multifaceted approach, combining:
- Demographic Comparisons: Population size, annual population growth rates, median household income, median age, and household size were compared across markets to understand the potential customer base.
- Economic Trend Analysis: Per capita income, per capita income growth, employment levels, employment growth, and average earnings per job were analyzed to assess the economic health and potential for deposit growth in each market.
- Bank Data Analysis: Total deposit market size, annual deposit growth, the number of banks and branches, and deposit-to-branch/bank ratios were examined to gauge the competitive landscape and market penetration.
- Regression Modeling: A regression model was formulated to estimate the asset acquisition and growth potential in each market, considering market demographics, competition, and growth. The model utilized key variables such as market size, competitor diversity, number of locations, and time in the market to predict total assets, loans, and deposits.
Key Findings
The size of any given market in terms of total deposits was largely a function of area population. On average, in Florida, an increase in population of 1 person added roughly $20,000 to the overall deposit market. Area income also played a role in the total market size. On the average in Florida, an increase of $1 in total area income added $0.95 to total deposits. A one percentage point increase in population growth added on the average 1.83 percentage points to annual deposit growth in Florida. A one percentage point increase in income growth added on the average 1.85 percentage points to annual deposit growth in Florida.
Outcomes
The regression model indicated significant potential in most areas, with the exception of Lackey and Greenleaf counties. Gateway and Metro Counties represented the greatest potential due to their size. Other markets that represented significant opportunity included Horizon, Capital, and Tidewater.
Liberty Community Bank Performance: Liberty Community Bank averaged an annual growth in assets of 9.3% during specific time periods in the markets in which it currently operates. The largest growth during this period was in the Riverbend and Meridian markets with 112% and 110% increases in assets respectively. The weakest growth was in the Sundale and Amand markets with -32% and -5.9% changes in total assets during this time period. The average ROA was .49%, with the highest in any given year reaching 1.89%. These performance numbers and demographics were used to estimate potential in counties evaluated in this report.
Specific County Examples:
- Gateway County: A large deposit market with substantial annual deposit growth. However, market share data revealed a highly competitive environment dominated by several large institutions.
- Seaside County: Demonstrated rapid deposit growth, but had a smaller population base compared to Gateway County.
- Coastal County: Showed high population growth but a higher median age, suggesting a different target demographic.
- Forest County: The model suggested that there may be too much market penetration by other institutions relative to the market size to be "priority markets".
Conclusion
Through Premier analysis, the bank identified suitable markets for targeting future growth opportunities. Quantification provided specific metrics, including pro forma forecasts and revenue projections, which were used to determine the appropriate level of investment in each market, facilitating strategic decision-making.
How Premier Insights Can Help
Premier Insights specializes in providing analytical consulting and technology solutions to financial institutions. As demonstrated in this case study, Premier Insights can assist banks in:
- Identifying Growth Opportunities: By analyzing demographic, economic, and competitive data, Premier Insights can pinpoint markets with the greatest potential for expansion.
- Assessing Risk: Premier Insights can help banks understand the competitive landscape and potential challenges in new markets.
- Developing Data-Driven Strategies: The insights gleaned from our analyses enable banks to make informed decisions about market entry, product development, and resource allocation.
- CRA and Fair Lending Compliance: Premier Insights offers expertise in managing Community Reinvestment Act (CRA) and Fair Lending programs, ensuring compliance with regulatory requirements.
- Customized Solutions: Premier Insights tailors its services to meet the specific needs of each client, providing personalized attention and actionable recommendations.
By leveraging the expertise of Premier Insights, financial institutions can navigate the complex regulatory environment, optimize their lending practices, and achieve sustainable growth. Premier Insights brings the knowledge level, skill set, experience, specialized financial, and technical expertise needed to effectively manage and ultimately mitigate exposure to fair lending risk.