12
Wisconsin Community Banker
March/April 2014
Grow Profits with Non-Interest
Income
Mary Lou Santovec
T
he competitive landscape for
community banks continues
to be challenging, and bankers find
they have to be
more nimble and
entrepreneurial than
they historically have
been.
Characteristics
such as “innova-
tion, creativity, and
outside-the-box thinking” will play a
role in competitive differentiation and
in how banks generate non-interest
income and other revenue streams.
“The non-quantitative factors will
play a larger role in bottom line profit-
ability,” said David Saber, a presenter
at CBW’s BOLT Leadership Summit in
December. “Strategy execution will be
critical. While we focus on the num-
bers as bankers, they are ultimately
not the plan. How well you execute
strategy will ultimately drive bottom
line profitability.”
Saber, who formerly worked at the
Federal Reserve Bank of New York,
leads Wipfli’s Financial Institutions
Strategic Advisory practice and is on
the practice’s senior management team.
“Profitability,” he said in a follow-
up communication, “is becoming more
difficult and banks have to realize that
there is a limit to expense reduction
and recapturing highly funded loan-
loss provisions … profitability must
come not only from expense control
but from the ability to grow revenue!”
Historically, a significant percent-
age of a bank’s profitability came from
interest income. But with the fruits of
the Great Recession being cheap loans
and lack of demand, banks no longer
can rely on margin.
In these unprecedented times, the
core business model must be examined
to decide what strategies will maximize
shareholder value and ensure ROI.
What has historically succeeded will not
be the recipe for success in the future.
“Non-interest income is becoming
an increasingly important part of over-
all profitability.” Some banks—gener-
ally the larger ones—are generating
healthy amounts of income through
fees and other lines of business.
But community banks are relation-
ship-based. It’s hard for community
bankers to look at their customer across
the table and tell them that the bank is
going to charge for overdraft protection
or for a checking account. How can we
ask our customers to pay for something
they were once getting for free?
Saber shed some light on human
behavior pointing to those who go
to Starbucks every day and purchase
a $5 coffee drink when their offices
provide free coffee. “They are willing
to pay for that [perceived] value … but
are unwilling to pay for a value-added
service from their bank?”
The price for everything is going
up. Banks are seeing rising costs for
technology, staffing, vendors, and
compliance. Mobile banking and core
processing platforms are big-dollar
purchases that most banks will have to
make to remain competitive. How will
your bank recoup those costs?
Banks are pretty good at saving
money. When faced with a drop in rev-
enue, the first response always seems
to be to cut costs. Cutting expenses is
far easier than growing revenue. But
what happens when there’s nothing left
to cut?
“As many businesses, banking is
likely roughly 70/30 or 80/20, with 20
or 30 percent of the customers produc-
ing 70 to 80 percent of the revenue.
Banks have a lot of accounts that are
actually unprofitable.”
Some banks are really good niche
players while others have more diver-
sity in what they offer. “I do think
it’s time for some institutions to get
more focused on their most profitable
customers while balancing the entire
customer base. It’s getting increasingly
difficult to be all things to all people.”
Contact David Saber at 952-548-3364
or
.
BOLT Participants
Brainstorm
Saber led an exercise in which BOLT
participants suggested ways to improve
a bank’s bottom line. Among them:
4
Charge for new and upcoming
technology.
4
Automate some practices by
installing lobby kiosks.
4
Get the right people in place and
get training for your board.
4
Combine a new branch with
a coffee shop, a travel agency, estate
planning.
4
Offering a one-stop shop for trust
services, wealth management, and
tax preparation. Train staff to become
trusted advisors.
4
Develop expertise in a specific
area.
4
Train staff to be quick, accurate,
and consistent.
4
Offer treasury management
services.
4
Maintain CAMEL ratings and
stay true to your culture.
4
Develop an online chat room
where people can ask questions to
reduce traffic to brick-and-mortar sites.
4
Add merchant card services.
4
Employ internal software to help
employees develop leadership skills.
4
Provide cash management ser-
vices for small businesses.
4
Offer investment/401(k) products.
4
Sell the services you do as a bank
in an “IT branch.”
4
Hire for attitude, teach for knowl-
edge, and profits will come.
4
Improve efficiencies, streamline
processes.
4
“Convert customer ignorance into
loyalty.” Teach them what they want.
Expand the definition of relationship
building.
4
Have bankers go out to homes to
do mortgages and to businesses to sell
business services. Bring the branch to
the customer.
4
Transform branches into some-
thing that the community needs like
meeting rooms with technology.
4
Sell credit collection, marketing,
and title company services.
4
Say “no” to opportunities that
aren’t sustainable.
David Saber
