Monthly Archives: March 2012

The branch is not dead

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We have been hearing forever that the bank branch is dead, that electronic banking will completely replace the brick and mortar office for banking.

But it just isn’t so.

There are 120,000 bank branches in the country today; 20,000 of those were built in the last decade, so it is hard to make the case that branches are going away.

But perhaps you can make the case that they are changing. Branches are getting smaller, the need for drive-up facilities seems to be declining, and banks are increasingly using their branch as a means of promoting their brand.

Research shows people still love to come to a branch to make a deposit. They are reassured by their ability to deliver checks or cash to an actual person at a branch. There is a sense of comfort in handing that over to a teller, as opposed to leaving it somewhere unattended. Remote deposit capture is catching on, but many people still have a psychological need to visit with a person when they are transporting money from their hands to the bank’s hands.

Research also shows that a branch is the preferred place for people to go when they have a problem to resolve with their bank. Phone service can be frustrating, and trying to resolve a problem via computer can be even more frustrating. A skilled personal banker, who knows how to listen with empathy, brings a lot of comfort to a customer shaken by a perceived error or other problem.

But Kevin Blair, president of a company called NewGround, recently urged bankers at an industry meeting to think hard about the role of their branches. He said customers are evolving and branches will need to evolve with them if they intend to remain relevant. He encouraged bankers to take a close look at the technology that is available to them to help deliver financial services. He said this kind of technology will become even more important to designing successful branches.

Watch for the April 15 edition of NorthWestern Financial Review magazine, where we will feature bank architecture. Several experts will share their thoughts about what makes for a successful bank building.

Good management key to boosting workplace attitude

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You can make the argument that the workplace is dysfunctional. These statistics make the case:

  • Only 14 percent of employees are satisfied with their job.
  • 65 percent of employees are unhappy, mostly regarding compensation.
  • A majority of employees work at only 55 percent of their capacity.
  • 25 percent of employees admit they are doing just enough at work to collect a paycheck.
  • 61 percent of employees believe poor performance should be tolerated
  • 89 percent of employees say they struggle with work/life balance.
  • The average employee spends three hours per week dealing with conflict.

These are serious problems in the workplace, said Rick Wimmers, a consultant who spoke at one of the concurrent sessions at the ICBA convention in Nashville. Wimmers noted that a bad attitude from even a single employee can hold back team effort by as must as 40 percent.

Wimmers urged bank presidents to do their best to train good middle managers. If middle management does a good job, many of the problems listed above can be reduced or mitigated. One of the biggest problems, Wimmers said, is that most middle managers don’t get sufficient training. Oftentimes, a front-line employee is promoted to a management position without any training at all. “Twenty-six percent of new managers say they aren’t ready to be managers,” Wimmers reported.

Wimmers said this is tragic because managers must approach their work differently than front-line employees. Most new middle managers have no idea how to reprimand employees who recently were peers.

Wimmers urged bank presidents and senior managers to support their middle managers, provide them training and give them a clear job description. He urged senior managers to meet frequently with their middle managers, and to conduct performance reviews at least twice a year. He said it is good to have reviews apart from conversations about compensation.

Stearns Bank picks up failed Georgia bank

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Stearns Bank, N.A., of St. Cloud, Minn., is purchasing the Covenant Bank & Trust of Rock Springs Ga., which was closed by state authorities yesterday. It is the seventh failed bank acquisition for Stearns Bank, going back to autumn of 2008.

Covenant Bank & Trust has $95.7 million in assets, and Stearns Bank is acquiring essentially all of them, with an FDIC loss-share agreement on $71.6 million.

The FDIC said the hit to the Deposit Insurance Fund is likely to be $31.5 million. This was the 14th bank failure this year.

Here is the FDIC press release, and here is how the St. Cloud Times newspaper covered it.

At year-end 2011, Stearns Bank had $1.174 billion in assets. Following is a list of the seven failed banks it has acquired through the FDIC since October 2008:

  • Alpha Bank & Trust, Alpharetta, Ga., $38.9 million in assets acquired, Oct. 24, 2008
  • Horizon Bank, Pine City, Minn., $84.4 million in assets acquired, June 26, 2009
  • Community National Bank of Sarasota County, Venice Fla., $94 million in assets acquired, August 7, 2009
  • First State Bank, Sarasota, Fla., $451 million in assets acquired, August 7, 2009
  • ebank, Atlanta, Ga., $143 million in assets acquired, August 21, 2009
  • Copper Star Bank, Scottsdale, Ariz., $204 million in assets acquired, November 12, 2010
  • Covenant Bank & Trust, $95.7 million in assets acquired, March 23, 2012

Consultant: Focus on the customer

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More from David Kemp, president of Bankers Management Inc., who led one of the breakout sessions at the ICBA convention earlier this month.

He noted that in 2004, a good bank was selling for 2.2 to 2.5 times book value. Today, a good bank sells for 1.03 to 1.3 times book value he said. If the bank has any problems, it can expect 0.8 times book value or less.

Kemp noted that net interest margin is at a 20-year low and that loan demand in most places is non-existent. Bank presidents have to find productive ways to engage their loan officers, he said.

Many banks have good products but fail to promote them. He cited one bank that has only four customers using its remote deposit capture product. He urged bankers to get out and sell their products.

Customer demand is currently high for pre-paid Visa and MasterCards. “Retailers have figured this out,” he said. “What do you see being sold at the checkout? Prepaid cards.” He said the cards are profitable because so many people who buy them fail to exhaust the card’s value.

Ultimately, Kemp urged bankers to focus on their customers. He said the emphasis on regulatory compliance in the current environment is causing some banks to take their eyes off the ball and focus too much regulatory issues.

BancVue’s Kasasa makes a splash at ICBA meeting

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BancVue is an Austin, Texas company that has an interesting campaign going to market its Kasasa brand of bank accounts. This is a company full of high-energy people who claim to be on a mission to change the world. The Kasasa brand is going to help community banks beat the mega banks, they say.

The company had a notable presence at the ICBA convention in Nashville last week, hosting a luncheon after the closing general session. They also treated bankers to dinner out the night before. You couldn’t miss the Kasasa employees — they were the ones wearing the red capes. A few were dressed up as gladiators.

Their premise is that people like the service they get at community banks but often turn to larger banks because they don’t believe smaller banks have the technical sophistication to offer the products they want. So BancVue has come up with a series of bank account products comparable to any the biggest banks offer. There’s a cash account where customers earn a high interest rate if they meet certain monthly usage requirements, there’s a savers account which puts a little money in a savings account every time the account holder uses a debit card, there’s an account where the customers gets points toward iTunes downloads every time they use the account, and so on.

Kasasa is marketing the accounts; the idea is that people will go to banks that offer the Kasasa accounts. Marketing the brand instead of the bank is the same strategy that small independent retailers use to compete against the big national chain retailers. For example, a runner might check out a local store if they know it offers Nike shoes. Without the draw of a recognizable brand shoe, the shopper is unlikely to ever set foot in the small store. Kasasa is betting it works the same way with financial products.

Kasasa wants banks to offer its products, and then to commit a portion of their marketing budget toward advertising the Kasasa brand. With multiple banks advertising the brand, they can build brand awareness equal to any of the big national brands. No bank by itself could build that kind of awareness advertising their bank name. BancVue claims to have poured $1.5 million into researching this concept. “Kasasa” is a made-up word, but the research shows it is a memorable name that people like.

Company officials told the 100-plus bankers sitting in on the Nashville lunch that the collective branches of the current Kasasa banks constitute the 18th-largest branch network in the country and they collectively have 200,000 account holders. All told, those banks are spending $11 million advertising the Kasasa brand. Kasasa has been around for about three years and 130 banks currently are offering it. It took two and a half years to get the first 60 customers; 70 more have come on in the last eight months.

For BancVue, creating a national brand is an interesting way to promulgate your bank accounts. Their message to the banks isn’t so much about the features of their particular accounts as it is about savings the world. And watching them at the lunch last week, I have to say they make a compelling case. I am going to be watching this unfold over the coming months and years.

Can you commiserate with the deposit-heavy banks in North Dakota?

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Greg Schwab, CFO at Northland Financial of Steele, N.D., had some interesting things to say about having ample deposits. Due to the recent energy boom in North Dakota many bankers have had to aggressively manage their deposit liabilities. Northland is not seeing the influx that some banks have but it does have two branches in Bismarck that are affected.

Fortunately, he said, Northland Financial is not alone. “We are all in it together and don’t compete with each other, which gives some easing [on the deposit rates],” Schwab said.

“We do see the ripple effect of what is happening, in terms of the influx of wealth. Everybody is after good loans; it is very hard to make money on the margin side. You have to be very conscious of the rate you are paying for those deposits,” he said. The banks that have no need for more deposits may have to offer lower than market rates. “If you don’t need the money you shouldn’t have a super good rate out there,” Schwab said. An approach can be to try to sell trust services to your customers but for most people it is all about saving. CD’s are still the lynch pin, he said.

Schwab said educating the customer is important. “You can commiserate with them a little bit too,” he said. Bankers can share the risks and rewards available to their customers. “As people learn the tradeoff between risk and reward we are able to explain [the difference between the stock market and a savings account]. Though there are higher yields out there, you have the risk. The customers can usually see that,” he said.

Schwab believes a solution comes in cross selling products rather than giving key customers special terms. Bankers may have the temptation to try to cover their cost by negotiating account structures with the customer. Examples of this would be offering a higher rate in exchange for the customer depositing their paycheck through direct deposit or for receiving electronic rather than paper statements.

“You don’t want to deal with it in the negotiations as much as you do with product line ups,” he said. The risk is that, if a banker offers one customer better terms than another, it can get messy if the other customer finds out. “You have a menu of products that meet people’s needs. When the customer approaches you about their savings account, you can say, ‘we can get you this rate for three years but if you add [another product] we can bump that rate,’” he said.

Speaker encourages bankers to make the most of their board

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David Kemp, president of Bankers Management, Inc., had some interesting observations about the banking industry, which he shared last week at the ICBA convention in Nashville.

He noted the importance of the board of directors setting the direction for the bank. The board is not supposed to get involved in the day-to-day operation of the bank, but it is suppose to set clear direction for the bank president and other managers. He said the directors should identify two or three objectives they want the bank to meet.

“Have each individual director write those objectives down because sometimes the directors aren’t all on the same page,” he said. A good board will identify individual goals from each director and then condense them into two or three collective goals for the bank.

Furthermore, he stressed the importance of keeping the goals realistic. He explained where sometimes a board says is wants significant assets growth and substantial earnings improvement. He said these goals often are at odds with one another, at least in the short term.

Kemp said a good board holds it management accountable, and has a plan for removing a weak president. He said the board also needs a plan for removing weak board members. One challenge for bank presidents in the current environment is finding appropriate work for the bank’s loan officers. “If loan demand is way down, what are your loan officers doing all day?” he asked.

Columnist shares analysis with ICBA bankers

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Columnist George F. Will spoke to bankers at the ICBA convention earlier this week in Nashville. In a wide-ranging one-hour presentation, Will made many political and economic points, including:

  • Regarding the upcoming presidential election, he noted that President Obama won in 2008 with only 53 percent of the vote, just enough to beat a weak Republican candidate with an implausible vice president in the midst of the financial meltdown.
  • If President Obama this November wins the same states presidential candidate John Kerry won in 2004, plus Florida, he will achieve 270 electoral votes and win the election.
  • President Obama currently has a 42 percent job approval rating. No presidential incumbent has won who has had an approval rating lower than 48 percent.
  • Regarding the economy, he said one in seven people in the U.S. labor force currently works for the government; that’s twice as many people who work in manufacturing.
  • Will noted that 10,000 Americans per day are retiring; this trend is expected to continue through 2030.
  • Will said he liked John McCain’s approach to health care, which was that health benefits to employees should be taxed like other compensation but that people should be given tax credits for purchasing health insurance/medical services through private markets. He also said health insurance markets should be national rather than limited by state boundaries.
  • Will noted that about 50 percent of Americans pay no income tax and that another 10 percent only pay 5 percent of their income or less in income taxes. He called it a “moral hazard” that a majority of people have no stake in the size of government because they are not paying for it.
  • Will acknowledged significant income disparities in the United States but said access to wealth today is greater than it ever has been. He said 200 years ago, land was the source of wealth. One hundred years ago, industrial assets such as factories and railroads created wealth. Today, we live in a knowledge economy where people can make big money with ideas and by using their brains. “The market is telling young people to stay in school,” he said.