Credit Union of Texas has grown from $749M to $1.3B in 2 years

1. GIS/BI Use in the Financial Industry:“Leveraging Technology”Prepared forWharton GIS ConferenceAugust 21, 2002By Jerry ThompsonSVP/CIO Credit Union of Texas

2. Credit Union of Texas has grown from $749M to $1.3B in 2 years • Formerly Dallas Teachers Credit Union • Changed to community (geographic) charter in April 2000 • Changed name in April of 2001 • 11 geographic branches • 165,000 members • 125,000 households • Field of membership is about approximately 10% market share by households • Assets growing at 45% per year

3. "It is not necessary to change. Survival is not mandatory."-W. Edward Deming "We live in a moment of history where change is so speeded up that we begin to see the present only when it is already disappearing.“ -R. D. Laing “It’s all about the bucks. The rest is just conversation.” - Gordon Gekko in “Wall Street”

4. TODAY’S FOCUS Market Analysis Target Marketing Strategic Planning Advertising Market Development Siting Brand Profiling Member Profiling Promotion Planning Services Mix Trade Area Definition Space Management Member Acquisition & Retention Disaster Planning KNOW YOUR CUSTOMER “If we are not customer driven, our cars won’t be either” Donald Petersen, Former Chairman, Ford Motor Company

5. TODAY’S CHALLENGESSegmentation & Targeting Issues • Who are my best customers? • How can I effectively reach them? • Where are they located? • How many of them are there? • Where are more prospects that are like my existing customers? • How can I better understand them? • How can I better serve them? • How should I analyze and define my market potential?

6. Targeted Marketing Campaigns Develop a Sales Culture E-Personalization (ECA) Sales Force Automation Employee Incentives Contact Management Marketing Analysis Geographic Analysis Demographic Data Data Mining Profitability Data Mart & Reports Customer Value Focus Groups Profitability Analysis Final Destination : Become the financial services leader in Texas. Re-branding and Market Expansion Strategic Plan

7. Capital InvestmentsData Processing Technology • “Real Time” core system implemented in 1994 • Interactive In house driven Web site in 1995 • “Real Time” Internet Home Banking in 1996 • “Real time” In house ATM network in 1997 • “Real Time” ATM based Bill Payer in 1998 • ESRI/IBM GIS/BI Visual Warehouse in 1999 • Wireless Home Banking & Bill Pay in 2000 • Internet Account Aggregation in 2001

8. Geography Matters… Profiling Target Marketing Service Mix New Branch Siting Competitive Analysis Market Trends Analysis Strategic Planning

9. CREDIT UNION OF TEXAS FIELD OF MEMBERSHIP

10. LOCATING A NEW BRANCH

18. Managing Member Relationships is a critical challenge we all face. Increase Member Satisfaction Stimulate MemberPurchases Reduce Costs Increase MemberLoyalty Retain Valuable Members

19. We begin by analyzing profitability at all levels. Product Profitability – February, 2001

21. The process to market to prospective members begins with visually exploring relevant information.

22. GIS/BI Marketing Projects • Product-oriented marketing • Monthly lease mailings (started targeting 10/2001) • Home equity (6/2002) • Spring and fall auto loan (started targeting 10/2001) • Relationship-oriented marketing (multiple offer) • Single share multiple offer mailings • January 2001 • October 2001 • New member (started 7/2002) • Teller/Member Service Officer contact management (started 2/2002)

23. Fall 2002 auto sale is an example of product-oriented model

24. New-member is an example of multiple-offer model

26. Behavioral vs demographic segments provide profitability clues and opportunities.

27. Where do our most profitable members live and what are their demographic characteristics?

28. Where do prospective members who have the same characteristics as our most profitable members live?

39. Market share as function of drive-time is important metric for analyzing branches For competitive reasons, the least interesting chart is shown here.

40. Since we want checking account deposits, let’s target prospects who live within a seven minute drive from a branch. ~65%

41. Targeting “Single Service” members with customized offers resulted in a 10.4% response rate and added $150K to the bottom line in 2000. • Targeted 44,115 unprofitable members with one low balance account 2 • 3,617 members closed accounts • 2,272 members took new loans or made new deposits • Cost of Campaign • Three-Year NPV of campaign1 • 2000 Profit Impact ($354,955) $ 73,1811 307,2271 380,408 - 45,000 $ 335,4081 $ 150,432 Notes: 1. NPV based on three-year cash flow, 5.9% discount rate 2. One page letter offered three prioritized services as scored by a data mining model. Used 3,350 of the 19,700 possible offer combinations

42. The returns on our GIS/BI investments are real and are enabling us to reach our strategic objectives. (All numbers are $K.) Single Product Campaign (#2) 3003 T o t a l R e t u r n $2,303 $1,450 Total Cost Ross Avenue Branch Redevelopment 350 Lewisville Campaign 400 Asset Allocation Improvements, Reserves, Incentive Pgm 520 (22) $853 Net Return New Branch Break Even Improvement 420 Field of Membership Expansion 335 Single Product Campaign (#1) Note 3: Through 2Q02

43. KEY PERFORMANCE METRICS ARE ON OR AHEAD OF BUDGETS & PROJECTIONS Asset Growth Member Portfolio Return on Assets Net Income

44. Markov chain analysis is useful in single-account analysis • Determined which groups are more likely to go dormant and subsequently be escheated • Estimated length of membership for different groups • Simple forecast of growth, transaction volume • Several policy changes in process

45. BI Strategy Projects • Flight deck system dynamics model • Is growth via branches and checking accounts more efficient than growth via top of market CD rates? • IBM constructed prototype in 2001 via subcontract with Ventana Systems • In process of adding data; number of elements at staging level is greater than existing number • National Credit Union Administration • General ledger • Competitive interest rates • Member lifetime value estimation • Markov chain based • Policy decisions regarding marketing investment

46. CURRENT PROOF OF CONCEPT TECHNOLOGY PROJECT“CEO STRATEGY FLIGHTDECK” Automated Tactical & Strategic Executive Decision Support

47. The design goal of the CEO Strategy Flightdeck project is to allow us to ‘test fly’ & ‘spatially analyze’ multiple tactical & strategic scenarios, so we can avoid mistakes and make critical decisions faster.

48. Flightdeck Features: • Comprehensive:Captures all important business activities and drivers, and their interactions! • Quantitative:Estimates bottom-line effects of strategic actions based on 10 years of historical response and common-sense limits • Causal: Even more important, you get the reasons behind the bottom line • Clear:Simple, familiar model parts, variables named in English, and accessible, fully documented equations. No Black Boxes! • Spatial:Present appropriate predicative data using spatial analysis software tools.

49. Flightdeck Advantages: • Findunintended side effects of strategic actions, in advance • Understandevery business function’s role in strategic execution and performance • Testthe robustness of strategies against a wide variety of economic conditions • Identifylimiting factors and key leverage points during strategy development • Present & Comparerelevant predicative growth & usage patterns with spatial analysissoftwaretools.

50. Our goal is to be able to ‘test fly’ new strategies & models using key business metric levers.