Is your financial institution looking to expand? Identifying the right markets is crucial for success. This example guide, based on a real-world case study prepared by Premier Insights, provides a step-by-step approach to market analysis, empowering you to make informed decisions about your bank’s future and capitalize on growth opportunities.
Step 1: Define Your Goals
Before diving into data, clarify your objectives. Are you seeking rapid deposit growth, a specific demographic, or a less competitive environment? Clearly defined goals will guide your analysis and ensure you focus on the most relevant factors.
Step 2: Gather Demographic Data
Demographics paint a picture of your potential customer base. Consider these factors:
- Population Size: Larger populations generally indicate larger deposit markets.
- Population Growth: Growing areas suggest increasing demand for financial services. For example, in our case study, a one percentage point increase in population growth adds on the average 1.83 percentage points to annual deposit growth in Florida.
- Median Household Income: Higher incomes often correlate with greater deposit potential.
- Median Age: This helps you understand the age distribution of the population, and whether it is trending older or younger.
- Households with Children: The percentage of households with children can tell you about family composition.
Step 3: Analyze Economic Trends
Economic indicators reveal the financial health of a market. Key metrics include:
- Per Capita Income: A general measure of individual wealth.
- Per Capita Income Growth: Indicates whether the economic well-being of residents is improving. Again, in our example, one percentage point increase in income growth adds on the average 1.83 percentage points to annual deposit growth in Florida.
- Employment Levels & Growth: Strong employment suggests a stable economy.
- Average Earnings Per Job: Reflects the income potential of the workforce.
Step 4: Assess the Competitive Landscape
Understanding your competition is essential. Examine:
- Total Deposit Market Size: Indicates the overall demand for banking services.
- Annual Deposit Growth: Shows how quickly the market is expanding.
- Number of Banks and Branches: A high concentration of institutions can signal intense competition.
- Market Share: Conversely, having one or two dominate players in a market may signify a difficult market to penetrate and create new business, especially if your bank is completely new to the area.
- Deposit-to-Branch/Bank Ratios: These ratios reveal the average deposit size per branch or bank, indicating market saturation.
Step 5: Employ Regression Modeling
Regression models can help you forecast market potential by analyzing relationships between key variables. Factors to include:
- Market Size: Total deposits in the county.
- Competitor Diversity: Population divided by the number of banks.
- Number of Locations: Number of bank branches.
- Time in the Market: The amount of time, in years, that a bank has been operating in the market.
Remember: These models provide estimates based on historical data and limited information, so consider them as general guidelines.
Step 6: Weigh Qualitative Factors
While data is crucial, don’t overlook qualitative aspects:
- Community Needs: Are there underserved populations or unmet financial needs in the market?
- Local Economy: Are there specific industries or employers driving economic growth?
- Regulatory Environment: Are there any local regulations that could impact your operations?
Step 7: Make Informed Decisions
Combine your data-driven insights with qualitative factors to choose the markets that best align with your bank’s goals and capabilities.
Case Study Example
A Premier bank client seeking to expand engaged Premier Insights to identify promising markets. There were a number of possible targets identified, but the list was reduced to include only optimal markets conducive to the bank’s business model by employing a multi-dimensional approach and modeling. Some examples of excluded markets were as follows:
- Market A: A large deposit market with substantial annual deposit growth, but a highly competitive environment.
- Market B: Demonstrated rapid deposit growth, but had a smaller population base.
- Market C: Showed high population growth but a higher median age.
- Market D: Too much market penetration by other institutions relative to the market size to be a “priority market”.
How Premier Insights Can Help
Premier Insights specializes in providing analytical consulting and technology solutions to financial institutions. As demonstrated in this guide, Premier Insights can assist banks in:
- Identifying Growth Opportunities: Analyzing data to pinpoint markets with the greatest potential.
- Assessing Risk: Understanding the competitive landscape and potential challenges.
- Developing Data-Driven Strategies: Enabling informed decisions about market entry and product development.
- Quantifying Opportunities: Using modeling techniques and quantitative analyses, potential markets can be evaluated rated and scaled by preparing pro forma forecasts.
- CRA and Fair Lending Compliance: Ensuring compliance with regulatory requirements.
- Customized Solutions: Tailoring services to meet your specific needs.
By leveraging the expertise of Premier Insights, financial institutions can navigate the complex regulatory environment, optimize their lending practices, and achieve sustainable growth. Schedule a call today to discuss your analysis, risk management, and loan origination needs.
