Pub. 5 2016 Issue 1

l e a d i n g a d v o c a t e f o r t h e b a n k i n g i n d u s t r y i n k a n s a s 10 REALLY? YOU WANT TO SELL THE BANK? By Roy Karon, President, BVS Performance Solutions W ITH A NOD TO DICKENS, IT WOULD be appropriate to start by saying: “it is the best of times and the worst of times for Kansas banks.” It is the best of times because the opportunity has never been greater. It is the worst of times because the risks and challenges seem to be enormous. Let’s start with the worst of times story. That’s the story told by all those promoting the idea that the average community bank should just get out of the business. Their list of reasons to sell seems endless: the required investment in technology; the changing business model that is making traditional branches expensive and obsolete; the burden of compliance; the complaint that NIM is too shallow to run a profitable bank; the fear mongering that rising interest rates will destroy what’s left of margins…and the list goes on. Of course, we shouldn’t forget the commissions that are paid for selling banks with assets of less than (put your own number here) in order to “save” the owners’ investment. But for those community bankers who aren’t influenced by scare tactics, it really is the best of times. The opportunity brought on by technology that is now available is opening a whole new and more profitable way to serve customers. Start with staffing, the biggest non-interest expense in most banks. In 1980 the average bank had one employee for each million in assets. If those numbers applied today, a $100 million bank would have 100 employees. But today’s technology has cut that employee number to a target average of six million per employee, or just 17 employees in that $100 million bank. There’s no question that this new payroll number significantly adds to profitability. While the drop in staff numbers is both significant and welcome, the application of cost-reducing technology provides even more significant opportunities for profit and success. For example, the use of tablets and cash recycle machines means no more cash drawers and no more loose cash to balance at the end of a shift or the day. The automation brought on by cash recyclers and tablets also eliminates the need to train tellers how to do teller transactions. Now bankers can take that training time and use it to train their customer facing staff on how to better serve their customers. Perhaps more importantly, technology can reduce costs by reducing or eliminating mistakes. With the exception of the initial input, today’s technology is typically error-free. No more spending time and money chasing staff-induced errors. If automation and error reduction weren’t enough of an inducement to embrace technology, service to customers is. Now, any bank can deliver service 24 hours a day, seven days a week. Technology doesn’t take vacations, come late to work, leave early, have personal troubles, family problems or get sick. Simply said, embracing technology means better customers service with fewer people, and ultimately, fewer problems. In reality, it’s easier to manage a computer problem than a people problem. But the real pay-off that makes this the best of times for community banks is in the branch. No longer does the community bank have to maintain branches just so their customers can complete all their transactions during that nuisance errand to the bank. What that means is when customers do go to the bank, they go for the reason the banker would really like to see them; to get financial advice and acquire the right product or service, provided by a banker, who can be trusted to help them meet their financial goals. Finally, for the bank itself, embracing technology means smaller, more efficient branches that are less expensive and easier to run. Today, running or building a branch only requires furniture, one or more recycle machines, computers or tablets and a secure Internet connection. It doesn’t require a vault, or single use teller stations. Instead, the branch can be built around “customer service pods” where customers can take care of all their banking business with a Universal Associate trained banker who can handle all their financial needs. Bottom line? Those earning commissions from the sale of community banks will need to look for obituaries elsewhere. News of the community bank’s demise is premature. As one community bank president once remarked about a strong cross- town community bank rival who was a fierce competitor, “I just wish he would sell to a big bank so I could have the market to myself.” Community banking is important to Kansas; let’s keep it that way.