Presented on 4/4/18 by Ron Shevlin and Sam Kilmer of Cornerstone Advisors and David Catalano and John Watts of Baker Hill, this presentation looks at trends and issues currently facing the banking industry.

1. What’s Going On in
Banking 2018
April 4, 2018
1:00 pm EST
Ron Shevlin – Cornerstone Advisors
Sam Kilmer – Cornerstone Advisors
David Catalano – Baker Hill
John Watts – Baker Hill

2. • Introductions
• CEO Perspectives and Growth Priorities
• Commercial Banking/Lending
• Future-Ready Findings
• Analytics
• Q&A
Agenda: What’s Going On in Banking 2018
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

3. Introductions
Ron Shevlin
Director of Research
Cornerstone Advisors
Sam Kilmer
Senior Director
Cornerstone Advisors
David Catalano
SVP, Business Development
and Strategic Planning
Baker Hill
John Watts
SVP and General Manager,
Lending Solutions
Baker Hill
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

4. Bank and credit unions CEOs are optimistic about 2018…
Source: Cornerstone Advisors survey of 262 community-based financial institution executives, Q4 2017
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

5. …but fewer bank CEOs are optimistic than last year
Source: Cornerstone Advisors survey of community-based financial institution executives, 2013-2017
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

6. • Banks: Commercial lending
According to the Federal Reserve, the average weekly rate of
commercial loan growth in 2017 was 2.7%, down from 9.3% in 2016,
and double digits in 2015.
• Credit Unions: Strong prospects for economic prosperity
Despite mortgage and auto lending challenges, the Money Anxiety
Index—which measures various economic indicator and factors
associated with consumers’ level of financial worry and stress—is at
its lowest level in 47 years.
Why the changes?
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

7. Banks’ growth priorities
What are your institution’s top growth priorities? (select up to three)
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

8. • Diversify funding sources
Commercial banking imperatives for 2018 and beyond
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

9. Commercial loans and deposits
62%
14%
66%
22%
Commercial Loans
% of Total Loans
Commercial Deposits
% of Total Deposits
2013 2017 2013 2017
Source: Cornerstone Performance Report
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

10. • Diversify funding sources
• Build a relationship management infrastructure
Commercial banking imperatives for 2018 and beyond
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

11. CRM practices are immature
Source: Cornerstone Advisors survey of 262 community-based financial institution executives, Q4 2017
4%
5%
5%
35%
26%
29%
61%
69%
66%
Our CRM resources are guided by pre-defined
prioritization, and executive sponsors own the success
metrics that justify CRM capability investments
Describes us completely Inconsistent across the organization Doesn't describe us at all
To what extent do these statements describe the state of CRM in your bank?
Senior management has established a CRM scorecard
with realistic, specific targets that align with our
strategic goals
We have a documented CRM plan outlining goals and
prioritization that was established by the senior
management team
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

12. • Diversify funding sources
• Build a relationship management infrastructure
• Partner to explore emerging technologies
Commercial banking imperatives for 2018 and beyond
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

13. Emerging technologies not on bank radars
Source: Cornerstone Advisors survey of 262 community-based financial institution executives, Q4 2017
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

14. Baker Hill observations from well-run banks
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer
Policy
Process
Technology

15. Credit Quality
• 4% of CEOs concerned with credit quality
• The Money Index at a 47 year low
• 10 years into an expansion
• Consumer default rates rising
Growth Priorities
• Small business market share only a top 3 initiative for 7% of respondents
• Expand online presence a low priority
Efficiency
• Improve lending policies/processes up to 32%
• Technology might not be the problem, policy and process might mask future gains
Analytics
• Not on the radar
Observations
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

16. 2017 2018
IT 51% 61%
Digital Banking 54% 54%
Fraud/Risk Management 43% 47%
Payments 42% 44%
Commercial Lending NA 38%
Marketing 36% 36%
Treasury/Cash Management NA 34%
Branch Delivery 33% 30%
Contact Center 24% 23%
Analytics 21% 19%
2017 2018
Digital Banking 61% 51%
IT 51% 46%
Marketing 55% 43%
Fraud/Risk Management 37% 41%
Branch Delivery 50% 39%
Payments 42% 38%
Contact Center 39% 29%
Analytics 25% 24%
Commercial Lending NA 17%
Treasury/Cash Management NA 16%
Banks and credit unions not future-ready
Banks Credit unions
Percent of Executives Rating Function as Somewhat or Very Future-Ready
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

17. DATA
USE
PROCESS
RISK COST
REVENUE
CULTURE
TECH
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

18. CORNER OFFICE
CLO: Hunter-Gatherer
CEO: Judge & Jury
CFO: Reality Checker
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

19. Localized
Basic functionalized
Aspiring
Resourced and broad
Analytical Company
Enterprise priority
Analytical Competitor
Enterprise benefits
Source: Modified from Thomas Davenport, Competing On Analytics
DATA USE
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

20. Planned System Replacements
28%
21%
15%
10% 9%
Online
Account
Opening
CRM Online
Banking
Payment
Processing
Core
20%
Mortgage
LOS
Revenue Engineering Underway
Source: What’s Going On 2018, Cornerstone Advisors;
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

21. Q&A
Ron Shevlin
Director of Research
Cornerstone Advisors
Sam Kilmer
Senior Director
Cornerstone Advisors
David Catalano
SVP, Business Development
and Strategic Planning
Baker Hill
John Watts
SVP and General Manager,
Lending Solutions
Baker Hill
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer

22. What’s Going On in
Banking 2018
@bakerhill | @CstoneAdvisors | @gonzobanker | @rshevlin | @samkilmer
Thank you for joining us.